| Reportable Segments |
12. Reportable Segments:
The Company has organized its business around two operating segments based on the review of discrete financial results for each of the operating segments by the Company’s chief operating decision maker (the Company’s President and Chief Executive Officer), or CODM, for performance assessment and resource allocation purposes. Each of the Company’s operating segments represents a reportable segment under GAAP. The Company’s reportable segments are organized based on the nature and economic characteristics of the Company’s products. The Company’s two reportable segments are Performance Materials and Chemicals (“PM&C”) and Environmental Catalysts and Services (“EC&S”).
The PM&C segment is a silicates and specialty materials producer with leading supply positions for the majority of its products sold in North America, Europe, South America, Australia and Asia (excluding China) serving end uses such as personal and industrial cleaning products, fuel efficient tires (or green tires), surface coatings, and food and beverage. The two product groups included in the PM&C segment are performance materials and performance chemicals. The EC&S segment is a leading global innovator and producer of catalysts for the refinery, emission control, and petrochemical industries and is also a leading provider of catalyst recycling services to the North American refining industry. The three product groups included in the EC&S segment are silica catalysts, zeolyst catalysts, and refining services. The EC&S segment includes equity in net income from Zeolyst International and Zeolyst C.V. (collectively, the “Zeolyst Joint Venture”), each of which are 50/50 joint ventures with CRI Zeolites, Inc. (a wholly-owned subsidiary of Royal Dutch Shell). The Zeolyst Joint Venture is accounted for using the equity method in the Company’s consolidated financial statements (see Note 10 to these consolidated financial statements for further information). Company management evaluates the EC&S segment’s performance, including the Zeolyst Joint Venture, on a proportionate consolidation basis. Accordingly, the revenues and expenses used to compute the EC&S segment’s adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) include the Zeolyst Joint Venture’s results of operations on a proportionate basis based on the Company’s 50% ownership level. Since the Company uses the equity method of accounting for the Zeolyst Joint Venture, these items are eliminated when reconciling to the Company’s consolidated results of operations.
The Company’s management evaluates the operating results of each reportable segment based upon Adjusted EBITDA. Adjusted EBITDA consists of EBITDA, which is a measure defined as net income before depreciation and amortization, interest expense and income taxes (each of which is included in the Company’s consolidated statements of operations), and adjusted for certain items as discussed below.
Summarized financial information for the Company’s reportable segments and product groups is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31, |
|
|
2017 |
|
2016 |
|
2015 |
Net sales: |
|
|
|
|
|
|
Performance Chemicals |
|
$ |
687,645 |
|
|
$ |
437,523 |
|
|
$ |
— |
|
Performance Materials |
|
324,225 |
|
|
206,522 |
|
|
— |
|
Eliminations |
|
(10,021 |
) |
|
(5,094 |
) |
|
— |
|
Performance Materials & Chemicals |
|
1,001,849 |
|
|
638,951 |
|
|
— |
|
|
|
|
|
|
|
|
Silica Catalysts |
|
75,333 |
|
|
53,029 |
|
|
— |
|
Refining Services |
|
398,342 |
|
|
373,718 |
|
|
388,875 |
|
Environmental Catalysts & Services(1)
|
|
473,675 |
|
|
426,747 |
|
|
388,875 |
|
|
|
|
|
|
|
|
Inter-segment sales eliminations(2)
|
|
(3,423 |
) |
|
(1,521 |
) |
|
— |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,472,101 |
|
|
$ |
1,064,177 |
|
|
$ |
388,875 |
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA:(3)
|
|
|
|
|
|
|
Performance Materials & Chemicals |
|
$ |
240,128 |
|
|
$ |
158,679 |
|
|
$ |
— |
|
Environmental Catalysts & Services(4)
|
|
243,587 |
|
|
196,825 |
|
|
117,704 |
|
Total Segment Adjusted EBITDA(5)
|
|
$ |
483,715 |
|
|
$ |
355,504 |
|
|
$ |
117,704 |
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes the Company’s proportionate share of sales from the Zeolyst International and Zeolyst C.V. joint ventures (collectively, the “Zeolyst Joint Venture”) accounted for using the equity method (see Note 10 to these consolidated consolidated financial statements for further information). The proportionate share of sales is $143,774 and $94,516 for the years ended December 31, 2017 and 2016, respectively.
|
|
|
(2)
|
The Company eliminates intersegment sales when reconciling to the Company’s consolidated statements of operations. |
|
|
(3)
|
The Company defines Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Management evaluates the performance of its segments and allocates resources based on several factors, of which the primary measure is Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative to net income as an indicator of the Company’s operating performance. Adjusted EBITDA as defined by the Company may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies. |
|
|
(4)
|
The Adjusted EBITDA from the Zeolyst Joint Venture included in the Environmental Catalysts and Services segment is $58,156 for the year ended December 31, 2017, which includes $46,985 of equity in net income plus $8,600 of amortization of investment in affiliate step-up plus $11,070 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Environmental Catalysts and Services segment is $40,687 for the year ended December 31, 2016, which includes $33,716 of equity in net income plus $36,296 of amortization of investment in affiliate step-up plus $6,920 of joint venture depreciation, amortization and interest.
|
|
|
(5)
|
Total Segment Adjusted EBITDA differs from the Company’s consolidated Adjusted EBITDA due to unallocated corporate expenses. |
A reconciliation from net income (loss) to Segment Adjusted EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31, |
|
|
2017 |
|
2016 |
|
2015 |
Reconciliation of net income (loss) attributable to PQ Group Holdings Inc. to Segment Adjusted EBITDA |
|
|
|
|
|
|
Net income (loss) attributable to PQ Group Holdings Inc. |
|
$ |
57,603 |
|
|
$ |
(79,746 |
) |
|
$ |
11,427 |
|
Provision for (benefit from) income taxes |
|
(119,197 |
) |
|
10,041 |
|
|
— |
|
Interest expense, net |
|
179,044 |
|
|
140,315 |
|
|
44,348 |
|
Depreciation and amortization |
|
177,140 |
|
|
128,288 |
|
|
38,999 |
|
Segment EBITDA |
|
294,590 |
|
|
198,898 |
|
|
94,774 |
|
Unallocated corporate expenses |
|
30,422 |
|
|
23,971 |
|
|
— |
|
Joint venture depreciation, amortization and interest |
|
11,070 |
|
|
6,920 |
|
|
— |
|
Amortization of investment in affiliate step-up |
|
8,600 |
|
|
36,296 |
|
|
— |
|
Amortization of inventory step-up |
|
871 |
|
|
29,086 |
|
|
— |
|
Impairment of fixed assets, intangibles and goodwill |
|
— |
|
|
6,873 |
|
|
— |
|
Debt extinguishment costs |
|
61,886 |
|
|
13,782 |
|
|
— |
|
Losses on disposal of fixed assets |
|
5,793 |
|
|
4,216 |
|
|
3,911 |
|
Foreign currency exchange losses |
|
25,786 |
|
|
(3,558 |
) |
|
— |
|
Non-cash revaluation of inventory, including LIFO |
|
3,708 |
|
|
1,310 |
|
|
— |
|
Management advisory fees |
|
3,777 |
|
|
3,583 |
|
|
590 |
|
Transaction and other related costs |
|
7,425 |
|
|
4,664 |
|
|
4,241 |
|
Equity-based and other non-cash compensation |
|
8,799 |
|
|
7,042 |
|
|
2,256 |
|
Restructuring, integration and business optimization expenses |
|
13,174 |
|
|
16,258 |
|
|
4,147 |
|
Defined benefit pension plan cost |
|
2,940 |
|
|
1,375 |
|
|
2,903 |
|
Other(1)
|
|
4,874 |
|
|
4,788 |
|
|
4,882 |
|
Segment Adjusted EBITDA
|
|
$ |
483,715 |
|
|
$ |
355,504 |
|
|
$ |
117,704 |
|
|
|
|
|
|
|
|
|
|
(1) |
Other includes certain legal and environmental costs and other charges such as capital taxes, asset retirement obligation accretion and other expenses. |
The Company’s consolidated results include equity in net income from affiliated companies of $38,772 for the year ended December 31, 2017 and equity in net loss from affiliated companies of $2,612 for the year ended December 31, 2016. This is primarily comprised of equity in net income of $46,985 and $33,716 in the EC&S segment from the Zeolyst Joint Venture for the years ended December 31, 2017 and 2016, respectively. The remaining equity in net income (loss) for the Company is included in the PM&C segment, which is attributed to smaller investments and was not material. The Company’s equity in net income from affiliates was more than offset by $36,296 of amortization expense related to purchase accounting fair value adjustments associated with the Zeolyst Joint Venture for the year ended December 31, 2016 as a result of the Business Combination valuation.
Capital expenditures for the Company’s reportable segments are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31, |
|
|
2017 |
|
2016 |
|
2015 |
Capital expenditures: |
|
|
|
|
|
|
Performance Materials & Chemicals |
|
$ |
87,938 |
|
|
$ |
74,392 |
|
|
$ |
— |
|
Environmental Catalysts & Services(1)
|
|
66,511 |
|
|
74,921 |
|
|
41,854 |
|
Eliminations(1)
|
|
(13,366 |
) |
|
(19,001 |
) |
|
— |
|
Total |
|
$ |
141,083 |
|
|
$ |
130,312 |
|
|
$ |
41,854 |
|
Change in non-cash capital expenditures in accounts payable |
|
(601 |
) |
|
(8,891 |
) |
|
(860 |
) |
Capital expenditures per the consolidated statement of cash flows |
|
$ |
140,482 |
|
|
$ |
121,421 |
|
|
$ |
40,994 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes the Company’s proportionate share of capital expenditures from the Zeolyst Joint Venture. The proportionate share of capital expenditures included in the EC&S segment is $13,366 and $19,001 for the Zeolyst Joint Venture for the years ended December 31, 2017 and 2016, respectively. These capital expenditures are in turn removed in the “Eliminations” line item to reconcile to the Company’s consolidated capital expenditures.
|
Total assets by segment are not disclosed by the Company because the information is not prepared or used by the CODM to assess performance and to allocate resources.
Net sales and long-lived assets by geographic area are presented in the following tables. Net sales are attributed to countries based upon location of products shipped.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31, |
|
|
2017 |
|
2016 |
|
2015 |
Net sales(1):
|
|
|
|
|
|
|
United States |
|
$ |
874,764 |
|
|
$ |
705,348 |
|
|
$ |
388,875 |
|
Netherlands |
|
118,567 |
|
|
79,821 |
|
|
— |
|
United Kingdom |
|
116,410 |
|
|
67,494 |
|
|
— |
|
Other foreign countries |
|
362,360 |
|
|
211,514 |
|
|
— |
|
Total |
|
$ |
1,472,101 |
|
|
$ |
1,064,177 |
|
|
$ |
388,875 |
|
|
|
|
|
|
|
|
|
|
(1) |
Except for the United States, no sales in an individual country exceeded 10% of the Company’s total net sales. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31, |
|
|
2017 |
|
2016 |
|
2015 |
Long-lived assets(1):
|
|
|
|
|
|
|
United States |
|
$ |
2,919,458 |
|
|
$ |
2,870,958 |
|
|
$ |
936,111 |
|
Netherlands |
|
289,459 |
|
|
288,239 |
|
|
— |
|
United Kingdom |
|
229,595 |
|
|
228,924 |
|
|
— |
|
Other foreign countries |
|
425,675 |
|
|
378,872 |
|
|
— |
|
Total |
|
$ |
3,864,187 |
|
|
$ |
3,766,993 |
|
|
$ |
936,111 |
|
|
|
|
|
|
|
|
|
|
(1) |
Long-lived assets exclude intercompany notes receivable and deferred tax assets. |
|