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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
(Mark One) |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38221
Ecovyst Inc.
| | | | | | | | | | | | | | |
Delaware | | | 81-3406833 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
|
300 Lindenwood Drive | | | |
Malvern, Pennsylvania | | | 19355 |
(Address of principal executive offices) | | | (Zip Code) |
| | | | |
(484) | 617-1200 |
(Registrant’s telephone number, including area code) |
| | | |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading symbol | | Name of each exchange on which registered |
Common stock, par value $0.01 per share | | ECVT | | New York Stock Exchange |
| | | | | | | | | | | | | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ |
The number of shares of common stock outstanding as of October 31, 2022 was 130,253,152. |
| | | | |
Ecovyst Inc.
INDEX—FORM 10-Q
September 30, 2022
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ECOVYST INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Sales | $ | 232,533 | | | $ | 167,428 | | | $ | 637,419 | | | $ | 441,004 | |
Cost of goods sold | 164,864 | | | 113,784 | | | 462,156 | | | 318,768 | |
Gross profit | 67,669 | | | 53,644 | | | 175,263 | | | 122,236 | |
Selling, general and administrative expenses | 21,460 | | | 24,836 | | | 67,779 | | | 68,822 | |
Other operating expense, net | 7,673 | | | 6,314 | | | 25,101 | | | 16,786 | |
Operating income | 38,536 | | | 22,494 | | | 82,383 | | | 36,628 | |
Equity in net (income) from affiliated companies | (3,169) | | | (8,758) | | | (17,422) | | | (20,723) | |
Interest expense, net | 9,542 | | | 9,005 | | | 26,880 | | | 28,202 | |
Debt extinguishment costs | — | | | 15,185 | | | — | | | 26,902 | |
Other expense (income), net | 1,872 | | | (218) | | | 2,497 | | | 3,081 | |
Income (loss) from continuing operations before income taxes and noncontrolling interest | 30,291 | | | 7,280 | | | 70,428 | | | (834) | |
Provision for income taxes | 8,966 | | | 2,591 | | | 21,983 | | | 5,095 | |
Net income (loss) from continuing operations | 21,325 | | | 4,689 | | | 48,445 | | | (5,929) | |
Net loss from discontinued operations, net of tax | — | | | (75,872) | | | — | | | (159,122) | |
Net income (loss) | 21,325 | | | (71,183) | | | 48,445 | | | (165,051) | |
| | | | | | | |
Less: Net income attributable to the noncontrolling interest—discontinued operations | — | | | 76 | | | — | | | 333 | |
Net income (loss) attributable to Ecovyst Inc. | $ | 21,325 | | | $ | (71,259) | | | $ | 48,445 | | | $ | (165,384) | |
| | | | | | | |
Income (loss) from continuing operations attributable to Ecovyst Inc. | $ | 21,325 | | | $ | 4,689 | | | $ | 48,445 | | | $ | (5,929) | |
Loss from discontinued operations attributable to Ecovyst Inc. | — | | | (75,948) | | | — | | | (159,455) | |
Net income (loss) attributable to Ecovyst Inc. | $ | 21,325 | | | $ | (71,259) | | | $ | 48,445 | | | $ | (165,384) | |
| | | | | | | |
Net income (loss) per share: | | | | | | | |
Basic income (loss) per share—continuing operations | $ | 0.16 | | | $ | 0.03 | | | $ | 0.36 | | | $ | (0.04) | |
Diluted income (loss) per share—continuing operations | $ | 0.16 | | | $ | 0.03 | | | $ | 0.35 | | | $ | (0.04) | |
Basic loss per share—discontinued operations | $ | — | | | $ | (0.56) | | | $ | — | | | $ | (1.17) | |
Diluted loss per share—discontinued operations | $ | — | | | $ | (0.55) | | | $ | — | | | $ | (1.17) | |
Basic income (loss) per share | $ | 0.16 | | | $ | (0.52) | | | $ | 0.36 | | | $ | (1.22) | |
Diluted income (loss) per share | $ | 0.16 | | | $ | (0.52) | | | $ | 0.35 | | | $ | (1.22) | |
| | | | | | | |
Weighted average shares outstanding: | | | | | | | |
Basic | 132,622,105 | | | 136,129,591 | | | 136,115,598 | | | 136,111,555 | |
Diluted | 134,096,839 | | | 137,354,427 | | | 137,666,215 | | | 136,111,555 | |
See accompanying notes to condensed consolidated financial statements.
ECOVYST INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | $ | 21,325 | | | $ | (71,183) | | | $ | 48,445 | | | $ | (165,051) | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Pension and postretirement benefits | (962) | | | 4,833 | | | (1,040) | | | 4,748 | |
Net gain from hedging activities | 9,141 | | | 460 | | | 27,620 | | | 1,638 | |
Foreign currency translation | (7,207) | | | (7,884) | | | (17,506) | | | 418 | |
Total other comprehensive income (loss) | 972 | | | (2,591) | | | 9,074 | | | 6,804 | |
Comprehensive income (loss) | 22,297 | | | (73,774) | | | 57,519 | | | (158,247) | |
Less: Comprehensive income attributable to noncontrolling interests | — | | | 740 | | | — | | | 1,056 | |
Comprehensive income (loss) attributable to Ecovyst Inc. | $ | 22,297 | | | $ | (74,514) | | | $ | 57,519 | | | $ | (159,303) | |
| | | | | | | |
See accompanying notes to condensed consolidated financial statements.
ECOVYST INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
ASSETS | | | |
Cash and cash equivalents | $ | 121,446 | | | $ | 140,889 | |
Accounts receivable, net | 106,969 | | | 80,802 | |
Inventories, net | 49,729 | | | 53,813 | |
Prepaid and other current assets | 46,070 | | | 16,165 | |
| | | |
Total current assets | 324,214 | | | 291,669 | |
Investments in affiliated companies | 426,663 | | | 446,074 | |
Property, plant and equipment, net | 581,425 | | | 596,231 | |
Goodwill | 401,152 | | | 406,139 | |
Other intangible assets, net | 132,347 | | | 145,617 | |
Right-of-use lease assets | 29,712 | | | 30,115 | |
Other long-term assets | 36,282 | | | 15,374 | |
| | | |
Total assets | $ | 1,931,795 | | | $ | 1,931,219 | |
LIABILITIES | | | |
Current maturities of long-term debt | $ | 9,000 | | | $ | 9,000 | |
Accounts payable | 52,026 | | | 51,860 | |
Operating lease liabilities—current | 8,576 | | | 8,306 | |
Accrued liabilities | 65,071 | | | 75,915 | |
| | | |
Total current liabilities | 134,673 | | | 145,081 | |
Long-term debt, excluding current portion | 867,604 | | | 872,839 | |
Deferred income taxes | 148,022 | | | 126,749 | |
Operating lease liabilities—noncurrent | 21,024 | | | 21,719 | |
Other long-term liabilities | 20,947 | | | 24,094 | |
| | | |
Total liabilities | 1,192,270 | | | 1,190,482 | |
Commitments and contingencies (Note 17) | | | |
EQUITY | | | |
Common stock ($0.01 par); authorized shares 450,000,000; issued shares 139,485,868 and 137,820,971 on September 30, 2022 and December 31, 2021, respectively; outstanding shares 130,100,834 and 136,938,758 on September 30, 2022 and December 31, 2021, respectively | 1,395 | | | 1,378 | |
Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on September 30, 2022 and December 31, 2021 | — | | | — | |
Additional paid-in capital | 1,088,704 | | | 1,073,409 | |
Accumulated deficit | (267,262) | | | (315,707) | |
Treasury stock, at cost; shares 9,385,034 and 882,213 on September 30, 2022 and December 31, 2021, respectively | (86,594) | | | (12,551) | |
Accumulated other comprehensive income (loss) | 3,282 | | | (5,792) | |
| | | |
| | | |
Total equity | 739,525 | | | 740,737 | |
Total liabilities and equity | $ | 1,931,795 | | | $ | 1,931,219 | |
| | | |
See accompanying notes to condensed consolidated financial statements.
ECOVYST INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common stock | | Additional paid-in capital | | (Accumulated deficit) | | | | Treasury stock, at cost | | Accumulated other comprehensive income (loss) | | Non- controlling interest | | Total |
Balance, December 31, 2021 | | | $ | 1,378 | | | $ | 1,073,409 | | | $ | (315,707) | | | | | $ | (12,551) | | | $ | (5,792) | | | $ | — | | | $ | 740,737 | |
Net income | | | — | | | — | | | 7,875 | | | | | — | | | — | | | — | | | 7,875 | |
Other comprehensive income | | | — | | | — | | | — | | | | | — | | | 11,378 | | | — | | | 11,378 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Tax withholdings on equity award vesting | | | — | | | — | | | — | | | | | (332) | | | — | | | — | | | (332) | |
Stock compensation expense | | | — | | | 5,946 | | | — | | | | | — | | | — | | | — | | | 5,946 | |
Shares issued under equity incentive plan, net of forfeitures | | | 18 | | | 9 | | | — | | | | | — | | | — | | | — | | | 27 | |
Balance, March 31, 2022 | | | $ | 1,396 | | | $ | 1,079,364 | | | $ | (307,832) | | | | | $ | (12,883) | | | $ | 5,586 | | | $ | — | | | $ | 765,631 | |
Net income | | | — | | | — | | | 19,245 | | | | | — | | | — | | | — | | | 19,245 | |
Other comprehensive loss | | | — | | | — | | | — | | | | | — | | | (3,276) | | | — | | | (3,276) | |
Repurchases of common shares | | | — | | | — | | | — | | | | | (8,842) | | | — | | | — | | | (8,842) | |
| | | | | | | | | | | | | | | | | |
Stock compensation expense | | | — | | | 5,409 | | | — | | | | | — | | | — | | | — | | | 5,409 | |
Shares issued under equity incentive plan, net of forfeitures | | | — | | | 17 | | | — | | | | | — | | | — | | | — | | | 17 | |
Balance, June 30, 2022 | | | $ | 1,396 | | | $ | 1,084,790 | | | $ | (288,587) | | | | | $ | (21,725) | | | $ | 2,310 | | | $ | — | | | $ | 778,184 | |
Net income | | | — | | | — | | | 21,325 | | | | | — | | | — | | | — | | | 21,325 | |
Other comprehensive income | | | — | | | — | | | — | | | | | — | | | 972 | | | — | | | 972 | |
Repurchases of common shares | | | — | | | — | | | — | | | | | (64,869) | | | — | | | — | | | (64,869) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Stock compensation expense | | | — | | | 3,872 | | | — | | | | | — | | | — | | | — | | | 3,872 | |
Shares issued under equity incentive plan, net of forfeitures | | | (1) | | | 42 | | | — | | | | | — | | | — | | | — | | | 41 | |
Balance, September 30, 2022 | | | $ | 1,395 | | | $ | 1,088,704 | | | $ | (267,262) | | | | | $ | (86,594) | | | $ | 3,282 | | | $ | — | | | $ | 739,525 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Common stock | | Additional paid-in capital | | (Accumulated deficit) | | | | Treasury stock, at cost | | Accumulated other comprehensive loss | | Non- controlling interest | | Total |
Balance, December 31, 2020 | | | $ | 1,371 | | | $ | 1,477,859 | | | $ | (175,758) | | | | | $ | (11,081) | | | $ | (15,265) | | | $ | 53 | | | $ | 1,277,179 | |
Net (loss) income | | | — | | | — | | | (92,635) | | | | | — | | | — | | | 117 | | | (92,518) | |
Other comprehensive loss | | | — | | | — | | | — | | | | | — | | | (2,745) | | | (394) | | | (3,139) | |
| | | | | | | | | | | | | | | | | |
Tax withholdings on equity award vesting | | | — | | | — | | | — | | | | | (1,470) | | | — | | | — | | | (1,470) | |
Distributions to noncontrolling interests | | | — | | | — | | | — | | | | | — | | | — | | | (516) | | | (516) | |
Stock compensation expense | | | — | | | 6,877 | | | — | | | | | — | | | — | | | — | | | 6,877 | |
Shares issued under equity incentive plan, net of forfeitures | | | 7 | | | 63 | | | — | | | | | — | | | — | | | — | | | 70 | |
Balance, March 31, 2021 | | | $ | 1,378 | | | $ | 1,484,799 | | | $ | (268,393) | | | | | $ | (12,551) | | | $ | (18,010) | | | $ | (740) | | | $ | 1,186,483 | |
Net (loss) income | | | — | | | — | | | (1,490) | | | | | — | | | — | | | 140 | | | (1,350) | |
Other comprehensive income | | | — | | | — | | | — | | | | | — | | | 12,081 | | | 453 | | | 12,534 | |
Distributions to noncontrolling interests | | | — | | | — | | | — | | | | | — | | | — | | | (593) | | | (593) | |
Stock compensation expense | | | — | | | 7,499 | | | — | | | | | — | | | — | | | — | | | 7,499 | |
Shares issued under equity incentive plan, net of forfeitures | | | — | | | 36 | | | — | | | | | — | | | — | | | — | | | 36 | |
Balance, June 30, 2021 | | | $ | 1,378 | | | $ | 1,492,334 | | | $ | (269,883) | | | | | $ | (12,551) | | | $ | (5,929) | | | $ | (740) | | | $ | 1,204,609 | |
Net (loss) income | | | — | | | — | | | (71,259) | | | | | — | | | — | | | 76 | | | (71,183) | |
Other comprehensive income (loss) | | | — | | | — | | | — | | | | | — | | | (3,255) | | | 664 | | | (2,591) | |
Dividends paid on common stock ($3.20 per share) | | | — | | | (435,593) | | | — | | | | | — | | | — | | | — | | | (435,593) | |
| | | | | | | | | | | | | | | | | |
Stock compensation expense | | | — | | | 11,961 | | | — | | | | | — | | | — | | | — | | | 11,961 | |
Shares issued under equity incentive plan, net of forfeitures | | | — | | | 113 | | | — | | | | | — | | | — | | | — | | | 113 | |
Balance, September 30, 2021 | | | $ | 1,378 | | | $ | 1,068,815 | | | $ | (341,142) | | | | | $ | (12,551) | | | $ | (9,184) | | | $ | — | | | $ | 707,316 | |
| | | | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
ECOVYST INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | | | | | | | | | | | | |
| | Nine months ended September 30, |
| | 2022 | | 2021 |
Cash flows from operating activities: | | | | |
Net income (loss) | | $ | 48,445 | | | $ | (165,051) | |
Net loss from discontinued operations | | — | | | 159,122 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation | | 48,256 | | | 49,902 | |
Amortization | | 10,547 | | | 10,182 | |
| | | | |
Amortization of deferred financing costs and original issue discount | | 1,515 | | | 1,409 | |
| | | | |
Debt extinguishment costs | | — | | | 12,818 | |
| | | | |
Foreign currency exchange loss | | 2,179 | | | 4,803 | |
Pension and postretirement healthcare benefit | | (814) | | | (1,811) | |
| | | | |
Deferred income tax provision | | 12,454 | | | 4,256 | |
Net loss on asset disposals | | 1,174 | | | 4,535 | |
| | | | |
Stock compensation | | 17,419 | | | 22,837 | |
Equity in net income from affiliated companies | | (17,422) | | | (20,723) | |
Dividends received from affiliated companies | | 30,000 | | | 20,000 | |
| | | | |
Other, net | | (1,789) | | | 8,515 | |
Working capital changes that provided (used) cash, excluding the effect of acquisitions and dispositions: | | | | |
Receivables | | (28,443) | | | (33,830) | |
Inventories | | 3,206 | | | 6,120 | |
Prepaids and other current assets | | (5,223) | | | (8,405) | |
Accounts payable | | 1,954 | | | 10,096 | |
Accrued liabilities | | (14,133) | | | 7,511 | |
| | | | |
Net cash provided by operating activities, continuing operations | | 109,325 | | | 92,286 | |
Net cash used by operating activities, discontinued operations | | — | | | (7,420) | |
Net cash provided by operating activities | | 109,325 | | | 84,866 | |
| | | | |
Cash flows from investing activities: | | | | |
Purchases of property, plant and equipment | | (39,474) | | | (44,648) | |
| | | | |
Proceeds from business divestiture, net of cash | | — | | | 980,350 | |
Payments for business divestiture, net of cash | | (3,744) | | | — | |
Business combinations, net of cash acquired | | (488) | | | (42,782) | |
| | | | |
| | | | |
| | | | |
| | | | |
Other, net | | 81 | | | (8) | |
Net cash (used in) provided by investing activities, continuing operations | | (43,625) | | | 892,912 | |
Net cash used in investing activities, discontinued operations | | — | | | (40,943) | |
Net cash (used in) provided by investing activities | | (43,625) | | | 851,969 | |
| | | | |
Cash flows from financing activities: | | | | |
| | | | |
| | | | |
| | | | |
Issuance of long-term debt, net of discount | | — | | | 897,750 | |
| | | | |
Debt issuance costs | | — | | | (1,293) | |
Repayments of long-term debt | | (6,750) | | | (1,428,613) | |
Debt prepayment fees | | — | | | (8,481) | |
Proceeds from failed sale-leaseback | | — | | | 14,590 | |
Dividends paid to stockholders | | — | | | (435,593) | |
Repurchases of common shares | | (73,711) | | | — | |
Tax withholdings on equity award vesting | | (332) | | | (1,470) | |
| | | | |
Proceeds from stock options exercised | | 84 | | | 223 | |
Repayment of financing obligations | | (1,849) | | | (486) | |
Other, net | | — | | | (104) | |
Net cash used in financing activities, continuing operations | | (82,558) | | | (963,477) | |
Net cash used in financing activities, discontinued operations | | — | | | (1,144) | |
Net cash used in financing activities | | (82,558) | | | (964,621) | |
| | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (2,585) | | | (4,681) | |
Net change in cash and cash equivalents | | (19,443) | | | (32,467) | |
Cash and cash equivalents at beginning of period | | 140,889 | | | 137,219 | |
Cash and cash equivalents at end of period | | $ | 121,446 | | | $ | 104,752 | |
| | | | |
| | | | |
For supplemental cash flow disclosures, see Note 21.
See accompanying notes to condensed consolidated financial statements.
ECOVYST INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(unaudited)
1. Background and Basis of Presentation:
Description of Business
Ecovyst Inc. and subsidiaries (the “Company” or “Ecovyst”) is a leading integrated and innovative global provider of specialty catalysts and services. The Company supports customers globally through its strategically located network of manufacturing facilities. The Company believes that its products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.
On December 14, 2020, the Company completed the sale of its Performance Materials business, and on August 1, 2021, the Company completed the sale of its Performance Chemicals business. The financial results of these businesses are presented as discontinued operations in the condensed consolidated financial statements for the 2021 period presented. See Note 3 to these condensed consolidated financial statements for more information on these transactions.
The Company has two uniquely positioned specialty businesses: Ecoservices provides sulfuric acid recycling to the North American refining industry for the production of alkylate and provides on-purpose virgin sulfuric acid for water treatment, mining and industrial applications; and Catalyst Technologies provides finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics and, through the Zeolyst Joint Venture, supplies zeolites used for catalysts that help produce renewable fuels, remove nitrogen oxides from diesel engine emissions as well as sulfur from fuels during the refining process.
The Company’s regeneration services product group, which is a part of the Company’s Ecoservices segment, typically experiences seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months. These demand fluctuations result in higher sales and working capital requirements in the second and third quarters.
The notes to the condensed consolidated financial statements, unless otherwise indicated, are on a continuing operations basis.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations for interim reporting. In the opinion of management, all adjustments of a normal and recurring nature necessary to state fairly the financial position and results of operations have been included. The results of operations are not necessarily indicative of the expected results for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Reclassification and Correction of an Error
During the preparation of the condensed consolidated financial statements for the period ended September 30, 2022, the Company identified a presentation error in the condensed consolidated statements of comprehensive income for the 2021 comparable periods presented. The presentation of comprehensive income (loss) inadvertently omitted the release of accumulated other comprehensive income (loss) related to foreign currency translation and deferred pension and postretirement benefit plan losses in conjunction with the sale of the Company’s Performance Chemicals business. There was no impact on the condensed consolidated statements of income, condensed consolidated balance sheets and condensed consolidated statements of cash flows. The presentation of other comprehensive income (loss) for the three and nine months ended September 30, 2021, was corrected for the additional comprehensive loss of $7,093, of which $943 of comprehensive income was attributed to noncontrolling interest. Additionally, Note 6 was corrected for this presentation error. The Company assessed the materiality of the error and concluded it was not material to the Company’s previously issued financial statements, including the consolidated financial statements for the year ended December 31, 2021.
The previously disclosed disposal of business presented in accumulated other comprehensive income (loss) has been reclassified to other comprehensive income (loss) in the condensed consolidated statement of stockholders’ equity.
ECOVYST INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(unaudited)
2. New Accounting Standards:
Recently Adopted Accounting Standards
In November 2021, the FASB issued guidance that requires entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. Previously, there was no guidance under GAAP on recognizing or measuring government grants to business entities. The new guidance does not provide any additional guidance on this topic; rather, it only provides guidance on required disclosures for business entities that receive government assistance and apply another grant or contribution accounting framework by analogy. The new guidance is effective for fiscal years beginning after December 15, 2021 with the new disclosures required on an annual basis, and can be applied either prospectively or retrospectively. The Company adopted the new guidance on January 1, 2022 and will include the disclosures as required in its annual reporting with respect to any government assistance or grants subject to the scope of the guidance to the extent material.
Accounting Standards Not Yet Adopted
In October 2021, the FASB issued guidance that requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with revenue recognition guidance. Under current GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The new guidance creates an exception to the general recognition and measurement principles related to business combinations, and is expected to result in the acquirer recognizing contract assets and liabilities at the same amounts recorded by the acquiree. The new guidance is effective for business combinations occurring during fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the new guidance, which would only be applied prospectively to business combinations upon the adoption of the guidance.
In March 2020 and January 2021, the FASB issued guidance to address certain accounting consequences from the anticipated transition from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The new guidance contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and may be elected over time as reference rate reform activities occur. During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index of the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. During the year ended December 31, 2021, the FASB extended the guidance adoption date to June 30, 2023. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
3. Divestitures:
Performance Materials Divestiture
Upon the close of the Performance Materials divestiture transaction on December 14, 2020, the Company entered into a Transition Services Agreement with the buyer pursuant to which the buyer received certain services to provide for the orderly transition of various functions and processes after the closing of the transaction. The services under the Transition Services Agreement included information technology, accounting, tax, financial services, human resources, facilities, and other administrative support services. These services were provided for a period of nine months, with three 30-day extensions available. The Company billed $253 and $3,314 under the Transition Services Agreement to the buyer during the three and nine months ended September 30, 2021, respectively. Those billings were included in selling, general and administrative expenses on the condensed consolidated financial statements for the nine months ended September 30, 2021.
During the three months ended September 30, 2021, the Company incurred transaction costs of $264 and stock-based compensation expense of $1,194, and an associated tax benefit of $339 related to the Performance Materials divestiture, which was included in loss from discontinued operations, net of tax. During the nine months ended September 30, 2021, the Company incurred transaction costs of $1,794 and stock-based compensation expense of $2,477, and an associated tax benefit of $1,045 related to the Performance Materials divestiture, which was included in loss from discontinued operations, net of tax.
ECOVYST INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(unaudited)
Performance Chemicals Divestiture
On February 28, 2021, the Company entered into a definitive agreement to sell its Performance Chemicals business to Sparta Aggregator L.P. (the “Buyer”), a partnership established by Koch Minerals & Trading, LLC and Cerberus Capital Management, L.P., for $1,100,000, subject to certain adjustments including indebtedness, cash, working capital and transaction expenses. The Company completed the sale of the Performance Chemicals business on August 1, 2021.
Prior to the close of the transaction, the disposal group was tested for recoverability at each of the balance sheet dates subsequent to meeting the discontinued operations criteria, and the Company recognized an estimated disposal loss of $13,990 and $109,584 during the three and six months ended June 30, 2021, respectively, which was included in net loss from discontinued operations, net of tax on the condensed consolidated statement of income.
For the nine months ended September 30, 2021, the loss on the sale of the Performance Chemicals business was $157,539, which was included in net (loss) income from discontinued operations, net of tax in the Company’s condensed consolidated statements. The following is a reconciliation of the loss recorded on the sale:
| | | | | | | | |
Net proceeds received from the sale of the Performance Chemicals business | | $ | 980,350 | |
Transaction costs | | (35,402) | |
Net assets derecognized | | (1,102,487) | |
Loss on sale of the Performance Chemicals business | | $ | (157,539) | |
During the year ended December 31, 2021, the net cash proceeds to the Company from the sale were $978,449 after certain customary adjustments for indebtedness, working capital and cash at the closing of the transaction. The final pre-tax loss on the sale was $150,230, which was included in net (loss) income from discontinued operations, net of tax in the Company’s consolidated statements of income for the year ended December 31, 2021. In March 2022, the Company made a payment to the buyer for $3,744, representing the final adjustments to the sale price. The Company classified the payment within net cash used in investing activities – continuing operations in the condensed consolidated statements of cash flows.
In connection with the sale of the Performance Chemicals business and the related loss, as noted above, the Company has recognized a tax benefit of $33,052 within net loss from discontinued operations, net of tax on the condensed consolidated statement of income.
ECOVYST INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(unaudited)
The following table summarizes the results of discontinued operations related to the Performance Chemicals business for the three and nine months ended September 30, 2021:
| | | | | | | | | | | | | | |
| | Three months ended September 30, 2021 | | Nine months ended September 30, 2021 |
| | | | |
Sales | | $ | 54,973 | | | $ | 389,870 | |
Cost of goods sold | | 39,582 | | | 284,220 | |
Selling, general and administrative expenses | | 6,552 | | | 29,758 | |
Goodwill impairment charge | | — | | | 75,080 | |
Other operating (income) expense, net | | (18,993) | | | 10,337 | |
Loss on sale of the Performance Chemicals business | | 123,035 | | | 157,539 | |
Operating loss | | (95,203) | | | (167,064) | |
Equity in net (income) from affiliated companies | | (25) | | | (111) | |
Interest expense, net (1) | | 1,916 | | | 10,730 | |
Other expense (income), net | | 153 | | | (6,210) | |
Loss from discontinued operations before income tax | | (97,247) | | | (171,473) | |
Benefit for income taxes | | (22,494) | | | (15,576) | |
Loss from discontinued operations, net of tax | | $ | (74,753) | | | $ | (155,897) | |
(1)Upon the close of the transaction, the Company used a portion of the net proceeds to repay a portion of its outstanding debt amounting to $526,363. Prior to the Company’s debt refinancing in June 2021, the Company’s outstanding term loan facilities had mandatory repayment provisions. As a result, interest expense has been allocated to discontinued operations on the basis of the Company’s total repayment of $526,363.
Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $76 and $333 for the three and nine months ended September 30, 2021, respectively. Net loss attributable to Ecovyst Inc., related to the Performance Chemicals business, net of tax was $(74,829) and $(156,230) for the three and nine months ended September 30, 2021, respectively.
4. Revenue from Contracts with Customers:
Disaggregated Revenue
The Company’s primary means of disaggregating revenues is by reportable segments, which can be found in Note 18 to these condensed consolidated financial statements.
The Company’s portfolio of products is integrated into a variety of end uses, which are described in the table below.
| | | | | |
Key End Uses | Key Products |
Industrial & process chemicals | • Sulfur derivatives for industrial production |
| • Treatment services |
Fuels & emission control | • Refining hydrocracking catalysts |
| • Emission control catalysts |
| • Regeneration services for alkylate production |
Packaging & engineered plastics | • Catalysts for high-density polyethylene and chemicals syntheses |
| • Antiblocks for film packaging |
| • Sulfur derivatives for nylon production |
Natural resources | • Sulfur derivatives for mining |
| |
ECOVYST INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(unaudited)
The following tables disaggregate the Company’s sales, by segment and end use, for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 |
| Ecoservices | | Catalyst Technologies(2) | | | | | | Total |
Industrial & process chemicals | $ | 41,252 | | | $ | — | | | | | | | $ | 41,252 | |
Fuels & emission control(1) | 88,532 | | | — | | | | | | | 88,532 | |
Packaging & engineered plastics | 29,707 | | | 36,859 | | | | | | | 66,566 | |
Natural resources | 36,183 | | | — | | | | | | | 36,183 | |
Total segment sales | $ | 195,674 | | | $ | 36,859 | | | | | | | $ | 232,533 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Three months ended September 30, 2021 |
| Ecoservices | | Catalyst Technologies(2) | | | | | | Total |
Industrial & process chemicals | $ | 23,297 | | | $ | 5 | | | | | | | $ | 23,302 | |
Fuels & emission control(1) | 67,644 | | | — | | | | | | | 67,644 | |
Packaging & engineered plastics | 23,315 | | | 29,873 | | | | | | | 53,188 | |
Natural resources | 23,294 | | | — | | | | | | | 23,294 | |
Total segment sales | $ | 137,550 | | | $ | 29,878 | | | | | | | $ | 167,428 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2022 |
| | Ecoservices | | Catalyst Technologies(2) | | | | | | Total |
Industrial & process chemicals | | $ | 116,257 | | | $ | — | | | | | | | $ |