Ecovyst, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Divestitures

Divestitures

9 Months Ended

Sep. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

Segment divestitures

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.

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.

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.