Annual report pursuant to Section 13 and 15(d)

Reportable Segments

v3.20.4
Reportable Segments
 12 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
Reportable Segments
14. Reportable Segments:
The Company has organized its business around three 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 Chairman of the Board, 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 three reportable segments are as follows: (1) Refining Services provides sulfuric acid recycling to the North American refining industry; (2) Catalysts serves the packaging and engineered plastics and the global refining, petrochemical and emissions control industries; and (3) Performance Chemicals supplies diverse product end uses, including personal and industrial cleaning products, fuel-efficient tires, surface coatings, and food and beverage products.
The Catalysts 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 11 to these consolidated financial statements for further information). Company management evaluates the Catalysts segment’s performance, including the Zeolyst Joint Venture, on a proportionate consolidation basis. Accordingly, the revenues and expenses used to compute the Catalysts 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 interest, income taxes, depreciation and amortization (each of which is included in the Company’s consolidated statements of income), and adjusted for certain items as discussed below.
Summarized financial information for the Company’s reportable segments is shown in the following table:
Years ended
December 31,
2020 2019 2018
Sales:
Refining Services $ 401,913  $ 447,081  $ 455,562 
Catalysts(1)
94,007  85,667  72,099 
Performance Chemicals 614,704  670,563  704,502 
Eliminations(2)
(3,261) (3,397) (3,237)
Total $ 1,107,363  $ 1,199,914  $ 1,228,926 
Segment Adjusted EBITDA:(3)
Refining Services $ 157,198  $ 175,640  $ 176,499 
Catalysts(4)
74,504  107,808  81,067 
Performance Chemicals 142,372  151,547  168,196 
Total Segment Adjusted EBITDA(5)
$ 374,074  $ 434,995  $ 425,762 

(1)Excludes the Company’s proportionate share of sales from the Zeolyst Joint Venture accounted for using the equity method. The proportionate share of sales is $128,623, $170,338 and $156,687 for the years ended December 31, 2020, 2019 and 2018, respectively.
(2)The Company eliminates intersegment sales when reconciling to the Company’s consolidated statements of income.
(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 Catalysts segment is $42,515 for the year ended December 31, 2020, which includes $21,157 of equity in net income plus $6,634 of amortization of investment in affiliate step-up plus $14,724 of joint venture depreciation, amortization and interest.
The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalysts segment is $68,138 for the year ended December 31, 2019, which includes $45,899 of equity in net income plus $7,534 of amortization of investment in affiliate step-up plus $14,705 of joint venture depreciation, amortization and interest.
The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalysts segment is $56,663 for the year ended December 31, 2018, which includes $37,437 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.
(5)     Total Segment Adjusted EBITDA differs from the Company’s consolidated Adjusted EBITDA due to unallocated corporate expenses.
A reconciliation of net income attributable to PQ Group Holdings to Segment Adjusted EBITDA is as follows:
Years ended
December 31,
2020 2019 2018
Reconciliation of net (loss) income attributable to PQ Group Holdings Inc. to Segment Adjusted EBITDA
Net (loss) income from continuing operations $ (176,265) $ 65,136  $ 49,271 
(Benefit) provision for income taxes (48,122) 39,677  33,641 
Interest expense, net 66,979  87,072  90,758 
Depreciation and amortization 151,840  151,797  153,931 
Segment EBITDA (5,568) 343,682  327,601 
Joint venture depreciation, amortization and interest 14,724  14,705  12,592 
Amortization of investment in affiliate step-up 6,634  7,534  6,634 
Goodwill impairment charge 260,000  —  — 
Debt extinguishment costs 25,028  3,400  7,751 
Net (gain) loss on asset disposals (134) (13,207) 4,190 
Foreign currency exchange (gain) loss (4,172) 2,410  12,543 
LIFO (benefit) expense (5,229) 9,700  3,039 
Transaction and other related costs 8,618  415  490 
Equity-based compensation 21,527  16,212  18,419 
Restructuring, integration and business optimization expenses 15,596  3,554  8,707 
Defined benefit pension plan cost 12  2,960  411 
Gain on contract termination(1)
—  —  (20,612)
Other 959  2,597  6,155 
Adjusted EBITDA 337,995  393,962  387,920 
Unallocated corporate expenses 36,079  41,033  37,842 
Segment Adjusted EBITDA $ 374,074  $ 434,995  $ 425,762 

(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 income for the year ended December 31, 2018.
The Company’s consolidated results include equity in net income from affiliated companies of $21,237, $46,022 and $37,569 for the years ended December 31, 2020, 2019, and 2018, respectively. This is primarily comprised of equity in net income of $21,157, $45,899 and $37,437 in the Catalysts segment from the Zeolyst Joint Venture for the years ended December 31, 2020, 2019 and 2018, respectively. The remaining equity in net income for the Company is included in the Performance Chemicals segment, which was attributed to smaller investments and was not material. The Company’s equity in net income from affiliated companies in the consolidated results includes amortization expense related to purchase accounting fair value adjustments associated with the Zeolyst Joint Venture as a result of a prior business combination.
Capital expenditures for the Company’s reportable segments are shown in the following table:
  Years ended
December 31,
  2020 2019 2018
Capital expenditures:    
Refining Services $ 31,799  $ 42,310  $ 46,617 
Catalysts(1)
11,177  8,984  8,390 
Performance Chemicals 40,864  53,910  56,759 
Corporate(2)
13,295  5,898  29 
Capital expenditures per the consolidated statements of cash flows $ 97,135  $ 111,102  $ 111,795 

(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,
2020 2019 2018
Sales(1):
   
United States $ 655,015  $ 735,752  $ 740,190 
Netherlands 108,338  117,211  127,803 
United Kingdom 107,539  99,048  101,277 
Other foreign countries 236,471  247,903  259,656 
Total $ 1,107,363  $ 1,199,914  $ 1,228,926 

(1)    Except for the United States, no sales in an individual country exceeded 10% of the Company’s total sales.
December 31,
2020 2019
Long-lived assets(1):
   
United States $ 749,635  $ 784,699 
Netherlands 53,006  49,559 
United Kingdom 100,392  92,229 
Other foreign countries 128,441  133,086 
Total $ 1,031,474  $ 1,059,573 

(1)    Long-lived assets includes property, plant and equipment, net and right-of-use lease assets.