Ecovyst, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Investments in Affiliated Companies

Investments in Affiliated Companies

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

11. Investments in Affiliated Companies:

The Company accounts for investments in affiliated companies under the equity method. Affiliated companies accounted for on the equity method as of December 31, 2019 are as follows:



Company	Country	Percent Ownership
PQ Silicates Ltd.	Taiwan	50%
Zeolyst International	USA	50%
Zeolyst C.V.	Netherlands	50%
Quaker Holdings	South Africa	49%
Asociacion para el Estudio de las Tecnologias de Equipamiento de Carreteras, S.A. (“Aetec”)	Spain	20%

Following is summarized information of the combined investments⁽¹⁾:



	December 31,
	2019		2018
Current assets	$	249,640	$	215,416
Noncurrent assets	256,382		248,288
Current liabilities	52,811		40,536
Noncurrent liabilities	5,972		56



	Years ended December 31,
	2019		2018		2017
Sales	$	381,115	$	352,599	$	317,197
Gross profit	145,157		126,945		132,812
Operating income	106,277		88,508		91,224
Net income	107,192		88,622		94,740


⁽¹⁾	Summarized information of the combined investments is presented at 100%; the Company’s share of the net assets and net income of affiliates is calculated based on the percent ownership specified in the table above.

The Company’s investments in affiliated companies balance as of December 31, 2019 and 2018 includes net purchase accounting fair value adjustments of $250,532 and $258,066, respectively, related a prior business combination, consisting primarily of goodwill and intangible assets such as customer relationships, technical know-how and trade names. Consolidated equity in net income from affiliates is net of $7,534, $6,634 and $8,599 of amortization expense related to purchase accounting fair value adjustments for the years ended December 31, 2019, 2018 and 2017, respectively.

The following table summarizes the activity related to the Company’s investments in affiliated companies balance on the consolidated balance sheets:



	Years ended December 31,
	2019			2018
Balance at beginning of period	$	468,211		$	469,276
Investments in affiliated companies	—			5,000
Equity in net income of affiliated companies	53,568			44,245
Charges related to purchase accounting fair value adjustments	(7,534		)	(6,634		)
Dividends received	(40,123		)	(40,195		)
Return of investment⁽¹⁾	—			(695		)
Foreign currency translation adjustments	(1,193		)	(2,786		)
Balance at end of period	$	472,929		$	468,211


⁽¹⁾	Amount is included within cash flows from investing activities in the Company’s consolidated statement of cash flows.

The Company had net receivables due from affiliates of $3,593 and $4,775 as of December 31, 2019 and 2018, respectively, which are included in prepaid and other current assets. Net receivables due from affiliates are generally non-trade receivables. Sales to affiliates were $4,181, $2,823 and $2,853 for the years ended December 31, 2019, 2018 and 2017, respectively. The Company purchased goods of $803, $645 and $2,475 from affiliates, which is included in cost of goods sold, during the years ended December 31, 2019, 2018 and 2017, respectively.

On December 18, 2013, PQ Holdings and its joint venture, Zeolyst International, entered into a ten year real estate tax abatement agreement with the Unified Government of Wyandotte County, Kansas. The agreement utilizes an Industrial Revenue Bond (“IRB”) financing structure to achieve a 75% real estate tax abatement on the value of the improvements that were constructed during the expansion of PQ Holdings and Zeolyst International’s facilities at the jointly-operated Kansas City, Kansas plant. A similar tax abatement agreement has been executed on an annual basis since December 18, 2013 with respect to additional plant expansions during those years.

During the year ended December 31, 2019, the original IRB financing structure from December 2013 was exhausted. In order to fund future plant expansions, the Company entered into an additional IRB financing structure with similar terms and conditions, which also provides for 75% real estate tax abatements on the value of future improvements. The financing obligations and the industrial bonds receivable have been presented net, as the financing obligations and the industrial bonds meet the criteria for right of setoff conditions under GAAP.