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Acquisitions and Dispositions | 12 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Acquisitions and Dispositions | Acquisitions and Dispositions Clean Earth On June 28, 2019, the Company acquired 100% of the outstanding stock of Clean Earth, one of the largest U.S. providers of specialty waste processing and beneficial reuse solutions for hazardous wastes, contaminated materials and dredged volumes, for an enterprise valuation of approximately $625 million on a cash free, debt free basis, subject to normal working capital adjustments. The Company transferred approximately $628 million of cash consideration and agreed to reimburse the sellers for any usage of assumed net operating losses in a post-closing period for up to five years, the present value of which is estimated at approximately $8 million. Clean Earth provides solutions that analyze, treat, document and recycle waste streams generated by multiple end-markets such as infrastructure, chemicals, aerospace and defense, non-public/private development, medical, industrial and dredging. Clean Earth treatment processes include thermal desorption, dredged material stabilization, bioremediation, physical treatment/screen and chemical fixation. Clean Earth operates 27 permitted facilities in the U.S. and maintains a portfolio of more than 200 permits with a 100% permit renewal success rate to date. In addition, Clean Earth owns 9 Resource Conservation and Recovery Act (RCRA) Part B Permits which include 6 Treatment, Storage and Disposal Facility (TSDF) permits that enable the Company to process complex and highly recurring hazardous waste streams. The fair value recorded for the assets acquired and liabilities assumed for Clean Earth is as follows:
|  | Preliminary Valuation
(In millions) |  | June 28, 2019 |  | Measurement Period Adjustments (a) |  | December 31 2019
Cash and cash equivalents (b) |  | $ | 42.8 |  |  | $ | (39.2 | ) |  | $ | 3.6 |
Trade accounts receivable, net |  | 63.7 |  |  | (1.2 | ) |  | 62.5 |
Other receivables |  | 0.8 |  |  | 1.3 |  |  | 2.1 |
Other current assets |  | 8.7 |  |  | (1.4 | ) |  | 7.3 |
Property, plant and equipment |  | 75.6 |  |  | 1.7 |  |  | 77.3 |
Right-of-use assets |  | 14.4 |  |  | 11.4 |  |  | 25.8 |
Goodwill |  | 313.8 |  |  | 16.4 |  |  | 330.2 |
Intangible assets |  | 261.1 |  |  | (18.9 | ) |  | 242.2 |
Other assets |  | 4.0 |  |  | (3.0 | ) |  | 1.0 |
Accounts payable |  | (23.0 | ) |  | (0.1 | ) |  | (23.1 | )
Acquisition consideration payable (b) |  | (39.2 | ) |  | 39.2 |  |  | — |
Other current liabilities |  | (18.0 | ) |  | (1.3 | ) |  | (19.3 | )
Net deferred taxes liabilities |  | (51.2 | ) |  | 5.4 |  |  | (45.8 | )
Operating lease liabilities |  | (11.1 | ) |  | (8.4 | ) |  | (19.5 | )
Other liabilities |  | (6.5 | ) |  | (2.1 | ) |  | (8.6 | )
Total identifiable net assets of Clean Earth |  | $ | 635.9 |  |  | $ | (0.2 | ) |  | $ | 635.7 |
(a) | The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
(b) | Acquisition consideration payable represents a portion of the cash consideration not paid out until July 2019.
The goodwill is attributable to strategic benefits, including enhanced operational and financial scale, as well as product and market diversification that the Company expects to realize. The Company expects $16.3 million of goodwill to be deductible for income tax purposes through 2033. The following table details the preliminary valuation of identifiable intangible assets and amortization periods for Clean Earth:
|  |  |  | Preliminary Valuation
(Dollars in millions) |  | Weighted-Average Amortization Period |  | Preliminary Valuation June 28, 2019 |  | Measurement Period Adjustments (c) |  | December 31 2019
Permits |  | 18 years |  | $ | 176.1 |  |  | $ | (6.0 | ) |  | $ | 170.1 |
Customer relationships and backlog |  | 7.5 years |  | 33.4 |  |  | (12.9 | ) |  | 20.5 |
Air rights |  | Usage based (d) |  | 25.6 |  |  | — |  |  | 25.6 |
Trade names |  | 11.5 years |  | 26.0 |  |  | — |  |  | 26.0 |
Total identifiable intangible assets of Clean Earth |  |  |  | $ | 261.1 |  |  | $ | (18.9 | ) |  | $ | 242.2 |
(c) | The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
(d) | The Company estimates that based on current usage that the expected useful life would be 26.5 years.
The Company valued the identifiable intangible assets using an income-based approach that utilized either the multi-period excess earnings method or the relief from royalty method. The purchase price allocation for Clean Earth is not final, primarily due to certain tax related matters, and the fair value of intangible assets and goodwill may vary from those reflected in the Company's consolidated financial statements at December 31, 2019. The year ended December 31, 2019 include Clean Earth direct acquisition costs of $15.2 million which are included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Operations. In addition to the acquisition costs reflected in the Company’s Consolidated Statements of Operations, the debt issuance costs associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, as Long-term debt on the Company’s Consolidated Balance Sheets. See Note 7, Debt and Credit Agreements, for additional information. Included in the liabilities acquired was a contingent consideration liability resulting from a prior Clean Earth acquisition. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized on the Consolidated Statements of Operations during the period in which the change occurs. The following table reflects the changes in the fair value of contingent consideration which occurred since acquisition:
(In thousands) |  | 2019
Balance at June 28, 2019 |  | $ | 3,100 |
Payment |  | (525 | )
Fair value adjustment |  | 825 |
Balance at end of year |  | $ | 3,400 |
The pro forma information below gives effect to the Clean Earth acquisition as if it had been completed on January 1, 2018. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisition been completed on the above date, nor is it necessarily indicative of future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition and does not reflect the additional revenue opportunities following the acquisition. The pro forma information below includes adjustments to reflect additional depreciation and amortization expense based on the estimated fair value and useful lives of intangible assets and fixed assets acquired; includes additional interest expense of approximately $18 million for the year ended December 31, 2019 and approximately $36 million for the year ended December 31, 2018 on the acquisition related borrowings used to finance the Clean Earth acquisition and excludes certain directly attributable transaction costs and historic Clean Earth interest expense. The values assigned to the assets acquired and liabilities assumed are based on preliminary valuations and are subject to change as the Company obtains additional information during the measurement period.
|  | Year Ended December 31
(In millions) |  | 2019 |  | 2018
Pro forma revenues |  | $ | 1,635.9 |  |  | $ | 1,614.6 |
Pro forma net income (including discontinued operations) (e) |  | 517.6 |  |  | 116.1 |
(e) | Pro forma net income for 2019 includes a $453.6 million after-tax gain on the sale of AXC and PK.
Altek In May 2018, the Company acquired Altek Europe Holdings Limited and its affiliated entities (collectively, "Altek"), a U.K.-based manufacturer of market-leading products that enable aluminum producers and recyclers to manage and efficiently extract value from critical byproduct streams, reduce byproduct generation and improve operating productivity. The Company acquired Altek, on a debt and cash free basis, for a purchase price of £45 million (approximately $60 million) in cash, with the potential for up to £25 million (approximately $33 million) in additional contingent consideration through 2021 subject to the future financial performance of Altek. The cash consideration transferred included payments of $57.4 million, inclusive of normal working capital adjustments. In addition, the Company recognized contingent consideration with an initial fair value of $12.1 million as of the acquisition date. Altek's revenues and operating results have been included in the results of the Harsco Environmental Segment. Inclusion of pro forma financial information for this transaction is not necessary as the acquisition is immaterial to the Company's results of operations. The fair value recorded for the assets acquired and liabilities assumed for Altek is as follows:
|  | Final Valuation
(In millions) |  | June 30 2018 |  | Measurement Period Adjustments (f) |  | March 31 2019
Cash and cash equivalents |  | $ | 1.7 |  |  | $ | — |  |  | $ | 1.7 |
Net working capital |  | (1.5 | ) |  | 0.2 |  |  | (1.3 | )
Property, plant and equipment |  | 3.3 |  |  | — |  |  | 3.3 |
Intangible assets |  | 52.5 |  |  | 0.2 |  |  | 52.7 |
Goodwill |  | 20.9 |  |  | 1.6 |  |  | 22.5 |
Net deferred tax liabilities |  | (8.5 | ) |  | — |  |  | (8.5 | )
Other liabilities |  | (0.3 | ) |  | — |  |  | (0.3 | )
Total identifiable net assets of Altek |  | $ | 68.1 |  |  | $ | 2.0 |  |  | $ | 70.1 |
(f) | The measurement period adjustments did not have a material impact on the Company's previously reported operating results.
The initial fair value of contingent consideration was estimated using a probability simulation model which uses assumptions and estimates to forecast a range of outcomes for the contingent consideration. Key inputs to the model include projected earnings before interest, tax, depreciation and amortization; the discount rate; the projection risk neutralization rate; and volatility, which are Level 3 data. The Company will continue to assess these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized on the Consolidated Statements of Operations during the period in which the change occurs. The following table reflects the changes in the fair value of contingent consideration:
(In thousands) |  | 2019 |  | 2018
Balance at beginning of year |  | $ | 8,420 |  |  | $ | — |
Recognition of contingent consideration |  | — |  |  | 10,097 |
Measurement period adjustment (g) |  | — |  |  | 1,958 |
Fair value adjustment (h) |  | (8,506 | ) |  | (2,939 | )
Foreign currency translation |  | 86 |  |  | (696 | )
Balance at end of year |  | $ | — |  |  | $ | 8,420 |
(g) | Measurement period adjustment was recorded to goodwill on the Consolidated Balance Sheet.
(h) | The fair value adjustment resulted from the decreased probability of Altek achieving cumulative financial and non-financial performance goals within the required time frame. This amount is recorded in Other expenses, net on the Consolidated Statements of Operations.
Harsco Industrial Segment In May 2019, the Company announced the intent to divest the businesses that comprised the Harsco Industrial Segment; Harsco Industrial Air-X-Changers ("AXC"), Harsco Industrial IKG ("IKG") and Harsco Industrial Patterson-Kelley ("PK"). These disposals represent a strategic shift and accelerate the transformation of the Company's portfolio of businesses into a leading provider of environmental solutions and services. In July 2019, the Company sold AXC for $600 million in cash and recognized a gain on sale of $527.9 million pre-tax (or approximately $421 million after-tax). In November 2019, the Company sold PK for approximately $60 million in cash and recognized a gain on sale of $41.2 million pre-tax (or approximately $33 million after-tax). These gains have been recorded in the Consolidated Statements of Operations as discontinued operations for the year ended December 31, 2019. In January 2020, the Company sold IKG for $85 million in cash and notes, subject to post-closing adjustments. The former Harsco Industrial Segment's balance sheet positions as of December 31, 2019 and December 31, 2018 are presented as Assets held-for-sale and Liabilities of assets held-for-sale in the Company’s Consolidated Balance Sheets and are summarized as follows:
(in thousands) |  | December 31, 2019(i) |  | December 31 2018
Trade accounts receivable, net |  | $ | 10,982 |  |  | $ | 44,786 |
Other receivables |  | 78 |  |  | 412 |
Inventories |  | 9,838 |  |  | 16,926 |
Current portion of contract assets |  | — |  |  | 12,124 |
Other current assets |  | 655 |  |  | 984 |
Property, plant and equipment, net |  | 20,703 |  |  | 37,107 |
Right-of-use assets, net |  | 11,230 |  |  | — |
Goodwill |  | — |  |  | 6,839 |
Intangible assets, net |  | — |  |  | 10,618 |
Deferred income tax assets |  | — |  |  | 563 |
Other assets |  | 96 |  |  | 204 |
Total assets |  | $ | 53,582 |  |  | $ | 130,563 |
Accounts payable |  | $ | 5,060 |  |  | $ | 24,426 |
Accrued compensation |  | 2,324 |  |  | 7,385 |
Current portion of advances on contracts |  | 1,168 |  |  | 1,910 |
Current portion of operating lease liabilities |  | 1,575 |  |  | — |
Other current liabilities |  | 1,218 |  |  | 5,689 |
Operating lease liabilities |  | 9,837 |  |  | — |
Other liabilities |  | 2,314 |  |  | 555 |
Total liabilities |  | $ | 23,496 |  |  | $ | 39,965 |
(i) | The decrease from December 31, 2018 is primarily related to the sale of AXC and PK.
The Harsco Industrial Segment has historically been a separate reportable segment with primary operations in North America and Latin America. In accordance with U.S. GAAP, the results of the former Harsco Industrial Segment are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the years ended December 31, 2019, 2018, and 2017. Certain key selected financial information included in net income from discontinued operations for the former Harsco Industrial Segment is as follows:
|  | Years ended December 31
(In millions) |  | 2019 |  | 2018 |  | 2017
Amounts directly attributable to the former Harsco Industrial Segment: |  |
Total revenues |  | $ | 306,972 |  |  | $ | 374,707 |  |  | $ | 299,592 |
Cost of products sold |  | 224,811 |  |  | 276,198 |  |  | 225,163 |
Gain on sale from discontinued businesses |  | 569,135 |  |  | — |  |  | — |
Income from discontinued business |  | 27,823 |  |  | 43,593 |  |  | 20,049 |
Additional amounts allocated to the former Harsco Industrial Segment: |  |
Selling, general and administrative expenses (j) |  | $ | 8,429 |  |  | $ | — |  |  | $ | — |
Interest expense (k) |  | 11,237 |  |  | 16,613 |  |  | 20,689 |
Loss on early extinguishment of debt (l) |  | 5,314 |  |  | — |  |  | — |
(j) The Company has allocated directly attributable transaction costs to discontinued operations. (k) The Company has allocated interest expense, including a portion of the amount reclassified into income for the Company's interest rate swaps, amortization of deferred financing costs, and $2.7 million related to interest rate swap terminations which occurred during the year ended December 31, 2019, all of which were directly attributed with the mandatory repayment of the Company's Term Loan Facility, resulting from the AXC disposal, as part of discontinued operations.
(l) | The Company has allocated the $5.3 million write-off of deferred financing costs to discontinued operations as it is directly attributed to the mandatory repayment of the Term Loan Facility that resulted from the AXC disposal.
The Company has retained corporate overhead expenses previously allocated to the Harsco Industrial Segment of $4.0 million, $5.6 million and $5.6 million in 2019, 2018, and 2017, respectively, as part of Selling, general and administrative expenses on the Consolidated Statements of Operations. The following is selected financial information included on the Consolidated Statements of Cash Flows attributable to the former Harsco Industrial Segment:
|  | Years Ended December 31
(In millions) |  | 2019 |  | 2018 |  | 2017
Non-cash operating items |  |  |  |  |  |
Depreciation and amortization |  | $ | 3,301 |  |  | $ | 7,729 |  |  | $ | 7,360 |
Cash flows from investing activities |  |  |  |  |  |
Purchases of property, plant and equipment |  | 8,372 |  |  | 7,561 |  |  | 6,895 |

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