| Reportable Segments |
13. 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 Environmental Catalysts and Services (“EC&S”) and Performance Materials and Chemicals (“PM&C”).
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, |
|
|
2018 |
|
2017 |
|
2016 |
Sales: |
|
|
|
|
|
|
Silica Catalysts |
|
$ |
72,099 |
|
|
$ |
75,333 |
|
|
$ |
53,029 |
|
Refining Services |
|
455,562 |
|
|
398,342 |
|
|
373,718 |
|
Environmental Catalysts & Services(1)
|
|
527,661 |
|
|
473,675 |
|
|
426,747 |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
$ |
717,335 |
|
|
$ |
687,645 |
|
|
$ |
437,523 |
|
Performance Materials |
|
378,279 |
|
|
324,225 |
|
|
206,522 |
|
Eliminations |
|
(11,798 |
) |
|
(10,021 |
) |
|
(5,094 |
) |
Performance Materials & Chemicals |
|
1,083,816 |
|
|
1,001,849 |
|
|
638,951 |
|
|
|
|
|
|
|
|
Inter-segment sales eliminations(2)
|
|
(3,323 |
) |
|
(3,423 |
) |
|
(1,521 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
1,608,154 |
|
|
$ |
1,472,101 |
|
|
$ |
1,064,177 |
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA:(3)
|
|
|
|
|
|
|
Environmental Catalysts & Services(4)
|
|
$ |
257,566 |
|
|
$ |
243,587 |
|
|
$ |
196,825 |
|
Performance Materials & Chemicals |
|
243,357 |
|
|
240,128 |
|
|
158,679 |
|
Total Segment Adjusted EBITDA(5)
|
|
$ |
500,923 |
|
|
$ |
483,715 |
|
|
$ |
355,504 |
|
|
|
|
|
|
|
|
|
|
(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 11 to these consolidated consolidated financial statements for further information). The proportionate share of sales is $156,687, $143,774 and $94,516 for the years ended December 31, 2018, 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 $56,663 for the year ended December 31, 2018, which includes $42,854 of equity in net income plus $6,634 of amortization of investment in affiliate step-up plus $12,592 of joint venture depreciation, amortization and interest.
|
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 $46,252 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 $39,903 for the year ended December 31, 2016, which includes $3,313 of equity in net loss 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 of net income (loss) attributable to PQ Group Holdings to Segment Adjusted EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31, |
|
|
2018 |
|
2017 |
|
2016 |
Reconciliation of net income attributable to PQ Group Holdings Inc. to Segment Adjusted EBITDA |
|
|
|
|
|
|
Net income (loss) attributable to PQ Group Holdings Inc. |
|
$ |
58,300 |
|
|
$ |
57,603 |
|
|
$ |
(79,746 |
) |
Provision for (benefit from) income taxes |
|
28,995 |
|
|
(119,197 |
) |
|
10,041 |
|
Interest expense, net |
|
113,723 |
|
|
179,044 |
|
|
140,315 |
|
Depreciation and amortization |
|
185,234 |
|
|
177,140 |
|
|
128,288 |
|
Segment EBITDA |
|
386,252 |
|
|
294,590 |
|
|
198,898 |
|
Unallocated corporate expenses |
|
36,970 |
|
|
30,422 |
|
|
23,971 |
|
Joint venture depreciation, amortization and interest |
|
12,592 |
|
|
11,070 |
|
|
6,920 |
|
Amortization of investment in affiliate step-up |
|
6,634 |
|
|
8,600 |
|
|
36,296 |
|
Amortization of inventory step-up |
|
1,603 |
|
|
871 |
|
|
29,086 |
|
Impairment of fixed assets, intangibles and goodwill |
|
— |
|
|
— |
|
|
6,873 |
|
Debt extinguishment costs |
|
7,751 |
|
|
61,886 |
|
|
13,782 |
|
Net loss on asset disposals |
|
6,574 |
|
|
5,793 |
|
|
4,216 |
|
Foreign currency exchange loss (gain) |
|
13,810 |
|
|
25,786 |
|
|
(3,558 |
) |
LIFO expense |
|
8,366 |
|
|
3,708 |
|
|
1,310 |
|
Management advisory fees |
|
— |
|
|
3,777 |
|
|
3,583 |
|
Transaction and other related costs |
|
893 |
|
|
7,425 |
|
|
4,664 |
|
Equity-based compensation |
|
19,464 |
|
|
8,799 |
|
|
7,042 |
|
Restructuring, integration and business optimization expenses |
|
14,019 |
|
|
13,174 |
|
|
16,258 |
|
Defined benefit pension plan cost |
|
(796 |
) |
|
2,940 |
|
|
1,375 |
|
Gain on contract termination(1)
|
|
(20,612 |
) |
|
— |
|
|
— |
|
Other |
|
7,403 |
|
|
4,874 |
|
|
4,788 |
|
Segment Adjusted EBITDA |
|
$ |
500,923 |
|
|
$ |
483,715 |
|
|
$ |
355,504 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes the non-cash write-off of a long-term supply contract obligation (see Note 25), which was recorded as a reduction in other operating expense, net in the consolidated statement of operations for the year ended December 31, 2018.
|
The Company’s consolidated results include equity in net income from affiliated companies of $37,611 and $38,772 for the years ended December 31, 2018 and 2017, respectively, 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 $42,854, $46,252 and $3,313 in the EC&S segment from the Zeolyst Joint Venture for the years ended December 31, 2018, 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, |
|
|
2018 |
|
2017 |
|
2016 |
Capital expenditures: |
|
|
|
|
|
|
Environmental Catalysts & Services(1)
|
|
$ |
55,007 |
|
|
$ |
53,145 |
|
|
$ |
57,803 |
|
Performance Materials & Chemicals |
|
75,476 |
|
|
84,783 |
|
|
71,293 |
|
Corporate(2)
|
|
1,205 |
|
|
2,554 |
|
|
(7,675 |
) |
Capital expenditures per the consolidated statements of cash flows |
|
$ |
131,688 |
|
|
$ |
140,482 |
|
|
$ |
121,421 |
|
|
|
|
|
|
|
|
|
|
(1) |
Excludes the Company’s proportionate share of capital expenditures from the Zeolyst Joint Venture. |
|
|
(2) |
Includes corporate capital expenditures, the cash impact from changes in capital expenditures in accounts payable and capitalized interest. |
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.
Sales and long-lived assets by geographic area are presented in the following tables. Sales are attributed to countries based upon location of products shipped.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31, |
|
|
2018 |
|
2017 |
|
2016 |
Sales(1):
|
|
|
|
|
|
|
United States |
|
$ |
963,722 |
|
|
$ |
874,764 |
|
|
$ |
705,348 |
|
Netherlands |
|
127,803 |
|
|
118,567 |
|
|
79,821 |
|
United Kingdom |
|
119,586 |
|
|
116,410 |
|
|
67,494 |
|
Other foreign countries |
|
397,043 |
|
|
362,360 |
|
|
211,514 |
|
Total |
|
$ |
1,608,154 |
|
|
$ |
1,472,101 |
|
|
$ |
1,064,177 |
|
|
|
|
|
|
|
|
|
|
(1) |
Except for the United States, no sales in an individual country exceeded 10% of the Company’s total sales. |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2018 |
|
2017 |
Long-lived assets(1):
|
|
|
|
|
United States |
|
$ |
865,799 |
|
|
$ |
891,861 |
|
Netherlands |
|
52,461 |
|
|
52,882 |
|
United Kingdom |
|
90,095 |
|
|
90,536 |
|
Other foreign countries |
|
200,624 |
|
|
195,105 |
|
Total |
|
$ |
1,208,979 |
|
|
$ |
1,230,384 |
|
|
|
|
|
|
|
|
(1) |
Long-lived assets include property, plant and equipment, net. |
|