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

Quarterly report pursuant to Section 13 or 15(d)

Divestitures

Divestitures

3 Months Ended

Mar. 31, 2021

Discontinued Operations and Disposal Groups [Abstract]

Segment divestitures

3. Divestitures:

Performance Materials Divestiture

On December 14, 2020, the Company completed the sale of its Performance Materials business. In the fourth quarter of 2020, the Performance Materials business met the criteria set forth in Accounting Standards Codification 205-20, Presentation of Financial Statements - Discontinued Operations (“ASC 205-20”), as the sale represented a strategic shift that had a major effect on the Company’s operations and financial results. As a result, the Company’s condensed consolidated financial statements for the three months ended March 31, 2020 reflect the Performance Materials business as a discontinued operation. The divested business historically represented a reportable segment of the Company, including certain Australian operations that were historically reported in the Performance Chemicals reportable segment.

The following table summarizes the results of discontinued operations related to the Performance Materials divestiture:


	Three months ended March 31,
	2020
Sales	$	67,891
Cost of goods sold	51,587
Selling, general and administrative expenses	9,285
Other operating expense, net	12,874
Operating loss	(5,855)

Interest expense, net (1)	5,132
Other income, net	(912)

Loss from discontinued operations before income tax	(10,075)
Benefit for income taxes	(4,285)
Loss from discontinued operations, net of tax	$	(5,790)

(1)The closing of the transaction triggered the Company’s obligation to provide partial repayment under its Amended and Restated Term Loan Credit Agreement, dated May 4, 2016 and its New Term Loan Credit Agreement, dated as of July 22, 2020. As such, interest expense has been allocated to discontinued operations on the basis of the Company’s mandatory repayment of $275,787 of the Senior Secured Term Loan Facility due February 2027 and its mandatory repayment of $188,722 of the New Senior Secured Term Loan Facility due February 2027.

During the three months ended March 31, 2021, the Company incurred transaction costs of $1,446 and stock-based compensation expense of $653, and an associated tax benefit of $514 related to the Performance Materials divestiture which is included in loss from discontinued operations, net of tax.

Net income attributable to the noncontrolling interest related to the Performance Materials business, net of tax was $51 for the three months ended March 31, 2020. Net loss attributable to PQ Group Holdings Inc., related to the Performance Materials business, net of tax was $5,841 for the three months ended March 31, 2020.

Upon the close of the transaction, the Company entered into a Transition Services Agreement with the buyer pursuant to which the buyer is receiving 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 include information technology, accounting, tax, financial services, human resources, facilities, and other administrative support services. These services are provided for a period of nine months, with three 30-day extensions available. The Company billed $1,571 under the Transition Services Agreement to the buyer during the three months ended March 31, 2021. Those billings are included in selling, general and administrative expenses on the condensed consolidated financial statements for the three months ended March 31, 2021.

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., a partnership established by Koch Minerals & Trading, LLC and Cerberus Capital Management, L.P. for a purchase price of $1,100,000 which is subject to certain adjustments including indebtedness, cash, working capital and transaction expenses. The transaction is expected to close by the end of 2021, subject to regulatory approvals and customary closing conditions.

In the first quarter of 2021, the Performance Chemicals business met the criteria set forth in ASC 205-20, as the sale represents a strategic shift that will have a major effect on the Company’s operations and financial results. As a result, the Company’s condensed consolidated financial statements for all periods presented reflect the Performance Chemicals business as a discontinued operation. The Performance Chemicals business historically represented a reportable segment of the Company.

The disposal group was tested for recoverability as of the balance sheet date, and the Company recognized an expected disposal loss of approximately $95,594 during the three months ended March 31, 2021. The expected disposal loss is included in net loss from discontinued operations, net of tax on the condensed consolidated statement of income. In the condensed consolidated balance sheet as of March 31, 2021, the Company recorded the disposal loss to goodwill and a valuation allowance of approximately $75,084 and $20,514, respectively, included in long-term assets held for sale. Completion of the sale may be for amounts that could vary from the current fair value estimate. The Company’s estimate of fair value will be evaluated and recognized each reporting period until the divestiture is complete.

The following table summarizes the results of discontinued operations related to Performance Chemicals for the periods presented:


	Three months ended March 31,
	2021		2020
Sales	$	164,523	$	171,184
Cost of goods sold	125,853		136,593
Selling, general and administrative expenses	11,716		11,733
Other operating expense, net	17,480		5,617
Impairment of assets held for sale	95,594		—
Operating (loss) income	(86,120)		17,241
Equity in net income from affiliated companies	(38)		(55)
Interest expense, net (1)	3,215		4,026
Other income, net	(5,523)		(3,753)
(Loss) income from discontinued operations before income tax	(83,774)		17,023
Provision for income taxes	4,411		7,377
(Loss) income from discontinued operations, net of tax	$	(88,185)	$	9,646

(1)Upon the close of the transaction and finalization of net cash proceeds, the Company is required to use a portion of the proceeds to repay outstanding debt and is expected to restructure its debt, which is estimated to result in a debt reduction of $450,000 to $550,000. Certain debt requirements will be triggered that will result in the Company’s obligation to provide partial repayment under its Amended and Restated Term Loan Credit Agreement, dated May 4, 2016 and its New Term Loan Credit Agreement, dated as of July 22, 2020. As such, interest expense has been allocated to discontinued operations on the basis of the Company’s estimated mandatory repayment of $296,859 of the Senior Secured Term Loan Facility due February 2027 and its estimated mandatory repayment of $203,141 of the New Senior Secured Term Loan Facility due February 2027.

Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $117 and $234 for the three months ended March 31, 2021 and 2020, respectively. Net (loss) income attributable to PQ Group Holdings Inc., related to the Performance Chemicals business, net of tax was $(88,302) and $9,412 for the three months ended March 31, 2021 and 2020, respectively.

The following table summarizes the assets and liabilities of discontinued operations related to the Performance Chemicals divestiture as of March 31, 2021 and December 31, 2020.


	March 31, 2021		December 31, 2020
ASSETS
Cash and cash equivalents	$	16,579	$	21,520
Accounts receivables, net	91,265		86,961
Inventories, net	68,907		74,647
Prepaid and other current assets	14,629		20,879
Current assets held for sale	$	191,380	$	204,007

Investments in affiliated companies	$	362	$	324
Property, plant and equipment, net	382,699		391,524
Goodwill	248,736		326,173
Other intangible assets, net	381,001		388,857
Right-of-use lease assets	19,610		19,296
Other long-term assets	23,524		23,269
Valuation allowance	(20,514)		—
Long-term assets held for sale	$	1,035,418	$	1,149,443

LIABILITIES
Accounts payable	$	63,918	$	74,754
Operating lease liabilities—current	8,105		8,479
Accrued liabilities	24,064		28,336
Current liabilities held for sale	$	96,087	$	111,569

Deferred income taxes	$	53,572	$	50,232
Operating lease liabilities—noncurrent	10,256		10,047
Other long-term liabilities	59,217		95,271
Long-term liabilities held for sale	$	123,045	$	155,550