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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-17 · 327 added, 430 removed, 511 unchanged (60% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We are a global provider of specialty catalysts, chemicals and services with leading supply positions across our portfolio.

We compete in the global specialty chemicals and materials industry where we seek to focus on attractive, high-growth applications.

Our products and services provide critical performance to our customers’ products and we are able to offer many of our customers regionally sourced materials to reduce costs and improve delivery logistics.

We provide our customers with a combination of product technology and applications knowledge, global supply chain capabilities, and local production and logistical support.

We conduct operations through three reporting segments:

(1) Refining Services, (2) Catalysts (including our 50% interest in the Zeolyst Joint Venture) and (3) Performance Chemicals.

Refining Services:

We are a leading integrated and innovative global provider of specialty catalysts and services.

We believe that our products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.

We conduct operations through two repor ting segments:

(1) Ecoservices and (2) Catalyst Technologies (including our 50% interest in the Zeolyst Joint Venture).

We are the leading provider of sulfuric acid recycling services to North American refineries for the production of alkylate, an essential gasoline component for lowering vapor pressure and increasing octane to meet stringent gasoline specifications and fuel efficiency standards.

We are also a leading North American producer of on-purpose virgin sulfuric acid for water treatment, mining, and industrial applications.

Catalyst Technologies:

We are a global supplier of finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics used in packaging films, bottles, containers, and other molded applications.

We are also a leading global supplier of zeolites used for catalysts that remove nitrogen oxides from diesel engine emissions as well as sulfur from fuels during the refining process.

Performance Chemicals:

We are a leading global supplier of silicate and derivative products which serve as an environmentally friendly substitute for materials used in a variety of applications.

These include end uses such as matting agents in surface coatings, clarifying agents for edible oils and beverages, additives for paints and coatings, and in cosmetics to improve feel attributes.

In 2020, we served over 2,000 customers globally across many end uses and, as of December 31, 2020, operated out of 40 manufacturing facilities, which are strategically located across five continents.

This segment includes our 50% interest in the Zeolyst Joint Venture, where we are a leading global supplier of zeolites used for catalysts that remove nitrogen oxides from diesel engine emissions as well as sulf ur from fuels during the refining process.

In 2021, we served global customers across many end uses and, as of December 31, 2021, operated out of 10 strategically located manufacturing facilities.

Recent Developments

On December 14, 2020, we completed the sale of our Performance Materials business to Potters Buyer, LLC (the “Purchaser”), an affiliate of The Jordan Company, L.P., for a purchase price of $650 million, which was subject to certain adjustments for indebtedness, working capital and cash at the closing of the transaction.

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Refer to Note 4 to our Consolidated Financial Statements for additional information.

Recent Developments

On Marc h 1, 2021, we announced that we entered into a definitive agreement to sell our Performance Chemicals business for a purchase price of $1.1 billion.

We expect to use after-tax cash proceeds from the sale to reduce debt and return capital to our shareholders, subject to board approval and declaration.

The transaction is expected to close by the end of 2021, subject to regulatory approvals and customary closing conditions.

Beginning in the first quarter of 2021, we expect to present the financial results of the Performance Chemicals business as discontinued operations.

Effective on August 1, 2021, we completed the sale of our Performance Chemicals business for $1.1 billion, subject to certain adjustments set forth in the agreement.

We used a portion of the net cash proceeds to repay the entire Senior Secured Term Loan Facility due February 2027 of $231.4 million and the 5.750% Senior Notes due 2025 (the “Senior Notes”) of $295.0 million.

The Senior Notes were redeemed at a redemption price equal to the sum of 102.88% of the principal amount of the Senior Notes plus accrued and unpaid interest to, but excluding, August 2, 2021.

Additionally, our Board of Directors (the “Board”) declared a special cash dividend of $3.20 per share, paid on August 23, 2021 to shareholders of record as of the close of business on August 12, 2021.

The results of operations, financial condition, and cash flows for the Performance Chemicals business are presented herein as discontinued operations.

Refer to Note 4 to our Consolidated Financial Statements for additional information.

In connection with the closing of the sale of the Performance Chemicals business, we changed our name from “PQ Group Holdings Inc.” to “Ecovyst Inc.”, changed the ticker symbol of our common stock listed on the New York Stock Exchange from “PQG” to “ECVT” and rebranded our former segments from “Refining Services” to “Ecoservices” and “Catalysts” to “Catalyst Technologies.” Financial information presented herein related to the Ecoservices and Catalyst Technologies segments remains unchanged from our previously issued financial statements filed on Form 10-K for the years ended December 31, 2020, 2019 and 2018, respectively.

Impact of COVID-19 on our Business and Results

In March 2020, the outbreak of COVID-19 was declared a national emergency by the United States.

COVID-19 continues to spread throughout the world and has adversely impacted economic activity and contributed to volatility in financial markets.

The spread of COVID-19 and variants of the virus in the United States and other parts of the world has adversely impacted economic activity and contributed to volatility in financial markets.

In response to the COVID-19 pandemic, the federal government, various states, local and foreign governments have issued decrees and orders that have disrupted many businesses and implemented social distancing, travel and other restrictions.

In response to these restrictions, we have taken a variety of actions, including an international travel ban, distribution of personal protective equipment to employees, and work-at-home requirements for many of our employees who are not an integral part of our manufacturing operations.

We have also implemented and refined our existing business continuity plans in an effort to minimize disruptions to our operations.

These measures remain in place as of December 31, 2020.

Recent and Near Term Trends on Business Segment End Uses

The COVID-19 pandemic led to unprecedented disruptions within the macro economy, with lower sales volume demand during 2020, including the fourth quarter.

The timing and magnitude of the impact to sales volume demand varied across our portfolio of businesses due to the many end uses.

Most of PQ’s end use customers experienced improved demand during the fourth quarter, largely driven by a recovery of consumer products ranging from packaged products to automotive sales.

The construction and mining segments also demonstrated improving demand.

The company continues to match costs and production with the pattern and pace of demand recovery, which remains variable across end use subsectors.

In response to these restrictions, we took a variety of actions at the onset of the pandemic, including an international travel ban, distribution of personal protective equipment to employees, and work-at-home requirements for many of our employees who were not an integral part of our manufacturing operations.

We also implemented and refined our business continuity plans in an effort to minimize operational disruptions.

These measures were in place as of December 31, 2021.

During the year ended December 31, 2020, we took actions to mitigate the slowdown in our business as a result of the effects of COVID-19, including adjusting our production levels to meet anticipated customer demand, reducing discretionary spending, furloughs, delaying headcount additions and deferring capital maintenance expenditures.

Key end use trends in our business segments during the year and expectations are described below:

• Refining Services:

This business segment was impacted the quickest by COVID-19, but began to see a significant rebound in demand through the fourth quarter of 2020.

Stay-at-home mandates during the first and second quarters led to rapid and significant reductions in gasoline demand in the U.S.

As stay-at-home restrictions were lifted near the end of the second quarter, gasoline consumption recovered to approximately 90% of 2019 levels during the third and fourth quarters.

Apart from weather events, we expect refinery utilization to continue to improve through 2021.

Once demand is restored to 2019 levels, PQ believes alkylate production will continue to grow, driven by higher octane fuel blending.

Virgin sulfuric acid demand from industrial and mining customers began to rebound during the third quarter and reached 2019 demand levels by year end.

We expect demand for virgin sulfuric acid to grow in 2021.

We experienced strong demand for hydrocracking catalysts, which we sold through our Zeolyst Joint Venture during the first half of the year.

During the second half of 2020, some customers deferred catalyst bed change-outs due to lower refinery utilization rates.

We expect a rebound in the second half of 2021 with demand for hydrocracking catalysts improving as the year progresses.

Demand for our emission control catalysts used in heavy-duty diesel vehicles decreased during the second and third quarters as our customers temporarily curtailed their production to align with lower demand.

Demand for emission control catalysts began to improve near year end and the improvement is continuing into 2021.

Polyethene catalyst demand remains strong due to increased consumer consumption of films and packaging.

Demand for catalysts used to make polyethylene improved in 2020 and we expect it to continue to improve in 2021.

Overall, we expect the strong polyolefin catalyst demand and recovering emission catalyst demand to be more than offset by lower refinery catalyst demand during the first half of 2021.

During the second half of the year we also expect to see improvement in refinery catalyst demand.

• Performance Chemicals:

We experienced lower demand for sodium silicate used in industrial applications and chemical manufacturing beginning in the second quarter of 2020.

By year end, we experienced recovery of demand across multiple end uses including automotive, coatings and fuel efficient tires.

Consumption for our products sold to the personal care and consumer cleaning experienced steady demand during the pandemic.

During the year ended December 31, 2021, as the economy began to recover from the global pandemic, the demand for most of our products and services increased.

With the increased demand for our products, our businesses began to produce and sell our products to our customers consistent with pre-pandemic levels.

Operations and Supply

Throughout the COVID-19 pandemic, our manufacturing facilities have continued to operate and have been providing critical materials necessary to aid in combating the COVID-19 pandemic and products we manufacture for other essential businesses.

Our manufacturing plants require a limited number of on-site employees in order to continue to operate effectively.

We have not experienced any material production issues to date, but have had limited and temporary shutdowns or slowdowns in some of our facilities.

We have not experienced any material production issues, but have had limited and temporary shutdowns or slowdowns in some of our facilities.

We have also seen limited disruptions in the availability of certain of our raw materials and other supplies, which to date have not had a material impact on production.

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The provisions of the CARES Act provide substantial stimulus and financial assistance measures intended to mitigate the impact of the COVID-19 pandemic, including certain tax relief provisions.

As permitted within the CARES Act, we began deferring payment of the employer portion of social security taxes in the second quarter and continued to defer through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

As permitted within the CARES Act, we began deferring payment of the employer portion of social security taxes in the second qua rter and continued to defer through the end of 2020, with 50% of the deferred amount paid during the year December 31, 2021 and the remaining 50% deferred will be paid during December 31, 2022.

This deferral provided approximately $2.0 million in additional liquidity in 2020.

The impact of the COVID-19 outbreak and associated containment and remediation efforts is rapidly evolving.

We expect the duration and magnitude of the virus’s impact on the levels of economic activity in the United States and globally to affect the magnitude of its impact on our results of operations, which could be material.

Basis of Presentation

Our zeolite catalysts product group operates through the Zeolyst Joint Venture, which we account for as an equity method investment in accordance with GAAP.

Our zeolite catalysts product group operates through the Zeolyst Joint Venture, which we account for as an equity method investment in accordance with accounting principles generally accepted in the United States (“GAAP”).

We do not record sales by the Zeolyst Joint Venture as revenue and such sales are not consolidated within our results of operations.

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Adjusted EBITDA consists of EBITDA adjusted for (i) non-operating income or expense, (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) and EBITDA that we do not consider indicative of our ongoing operating performance, and (iii) depreciation, amortization and interest of our 50% share of the Zeolyst Joint Venture.

Adjusted net income consists of net income (loss) attributable to PQ Group Holdings adjusted for (i) non-operating income or expense and (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance.

Adjusted net income consists of net income (loss) attributable to Ecovyst Inc.

adjusted for (i) non-operating income or expense and (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance.

We believe that these non-GAAP financial measures provide investors with useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business.

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Our presentation of adjusted EBITDA and adjusted net income should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

Reconciliations of adjusted EBITDA and adjusted net income to GAAP net income (loss) are included in the results of operations discussion that follows for each of the respective periods.

Reconciliations of

adjusted EBITDA and adjusted net income to GAAP net income (loss) are included in the results of operations discussion that follows for each of the respective periods.

Key Factors and Trends Affecting Operating Results and Financial Condition

Our Refining Services and Catalysts segments' sales have grown primarily due to expansion into new end applications, including emission control catalysts, polymer catalysts, and refining catalysts, as well as continued supply share gains.

Sales in our Refining Services and Catalysts segments are made on both a purchase order basis and pursuant to long-term contracts.

Historically, our Performance Chemicals segment has experienced relatively stable demand throughout economic cycles, due to the diverse consumer and industrial end uses that our products serve.

Expansions into new applications, including personal care and consumer cleaning, as well as share gains in existing end uses, have added to our sales growth.

Product sales from our Performance Chemicals segment are made on both a purchase order basis and pursuant to long-term contracts.

Our Ecoservices and Catalyst Technologies segments' sales have grown primarily due to expansion into new end applications, including emission control catalysts, polymer catalysts, and refining catalysts, as well as continued supply share gains.

Sales in our Ecoservices and Catalyst Technologies segments are made on both a purchase order basis and pursuant to long-term contracts.

Overall economic demand has significantly rebounded since the 2020 lows that resulted from the impact of COVID-19.

Refineries have seen demand return with increasing miles driven, recovery from winter storm Uri and a general increase in economic activity.

Polyethylene demand remains strong driven by the growing consumer demand for films and packaging.

Higher refinery utilization rates are increasing catalyst demand for both traditional and renewable fuels on the continued recovery in vehicle miles driven.

Sales in our Ecoservices and Catalyst Technologies segments are made on both a purchase order basis and pursuant to long-term contracts.

Cost of Goods Sold

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Fixed manufacturing expenses include all plant employment costs, manufacturing overhead and periodic maintenance costs.

The primary raw materials for our Refining Services segment include spent sulfuric acid, sulfur, sodium silicates, acids, bases, and certain metals.

The primary raw materials used in the manufacture of products in our Performance Chemicals an d Catalysts segments include soda ash, industrial sand, aluminum trihydrate and sodium hydroxide (also known as "caustic soda").

Most of our Refining Services contracts feature take-or-pay volume protection and/or quarterly price adjustments for commodity inputs, labor, the Chemical Engineering Index (U.S.

The primary raw materials for our Ecoservices segment include spent sulfuric acid, sulfur, acids, bases (including sodium hydroxide, or “caustic soda”), and certain metals.

Spent sulfuric acid for our Ecoservices segment is supplied by customers for a nominal charge as part of their contracts.

The primary raw materials used in the manufacture of products in our Catalyst Technologies segment include sodium silicate and cesium hydroxide.

Most of our Ecoservices contracts feature take-or-pay volume protection and/or quarterly price adjustments for commodity inputs, labor, the Chemical Engineering Index (U.S.

chemical plant construction cost index) and natural gas.

Spent acid for our Refining Services segment is supplied by customers for a nominal charge as part of their contracts.

Over 80% of our Refining Services segment sales for the year ended December 31, 2020 were under contracts featuring quarterly price adjustments.

Over 80% of our Ecoservices segment sales for the year ended December 31, 2021 were under contracts featuring quarterly price adjustments.

The price adjustments generally reflect actual costs for producing acid and tend to protect us from volatility in labor, fixed costs and raw material pricing.

For the year ended December 31, 2020, approximately 50% of our North American silicate sales, which is a significant portion of our Performance Chemicals segment sales, were derived from contracts that included raw material pass-through clauses.

Under these contracts, there generally is a time lag of three to nine months for price changes to pass through, depending on the magnitude of the change in cost and other market dynamics.

Freight expenses are generally passed through directly to customers.

While natural gas is not a direct feedstock for any product, all businesses use natural gas powered furnaces to heat raw materials and create the chemical reactions necessary to produce end-products.

We maintain multiple suppliers wherever possible, hedge exposure to fluctuations in prices for natural gas purchases in the United States, make forward purchases of natural gas in the United States, Canada, and Europe to mitigate our exposure to price volatility, and structure our customer contracts when possible to allow for the pass-through of raw material and natural gas costs.

The take-or-pay volume protection allows us to cover fixed costs through intermittent, temporary production issues at customer refineries.

While natural gas is not a direct feedstock for any product, natural gas powered machinery and equipment are used to heat raw materials and create the chemical reactions necessary to produce end-products.

We maintain multiple suppliers wherever possible and structure our customer contracts when possible to allow for the pass-through of raw material and natural gas costs.

Joint Ventures

We account for our investments in our equity joint ventures under the equity method.

Our largest joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts for use in the emission control industry, the petrochemical industry and other areas of the broader chemicals industry.

Our joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts for use in the packaging and engineered plastics, emission control, refining and petrochemical industries and other areas of the broader chemicals industry.

Demand for the Zeolyst Joint Venture products fluctuates based upon the timing of our customer’s fixed bed catalyst replacements.

We share proportionally in the management of our joint ventures with the other parties to each such joint venture.

Our Refining Services segment typically experiences seasonal fluctuations as a result of higher demand for gasoline products in the summer and lower demand in the winter months.

Our regeneration services product group, which is a part of our Ecoservices segment, typically experiences seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months.

These demand fluctuations results in higher sales and working capital requirements in the second and third quarter.

Foreign Currency

As a global business, we are subject to the impact of gains and losses on currency translations, which occur when the financial statements of foreign operations are translated into U.S.

We operate a geographically diverse business with approximately 40% of our sales for the years ended December 31, 2020 and 2019 in currencies other than the U.S.

As a global business, we are subject to the impact of gains and losses on currency translations, which occur when the financial stat ements of foreign operations are translated into U.S.

Approximately 6% of our sales for the years ended December 31, 2021 and 2020 in currencies other than the U.S.

Because our consolidated financial results are reported in U.S.

dollars, sales or earnings generated in currencies other than the U.S.

dollars, sales or earnings generated in currencies other tha n the U.S.

dollar can result in a significant increase or decrease in the amount of those sales and earnings when translated to U.S.

The foreign currencies to which we have the most significant exchange rate exposure include the Euro, British pound, Canadian dollar, Brazilian real and the Mexican peso.

The foreign currency to which we have the most significant exchange rate exposure is the British Pound.

Results of Operations

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The following is a summary of our financial performance for the year ended December 31, 2021 compared with the year ended December 31, 2020.

• Sales decreased $92.5 million to $1,107.4 million.

The decrease in sales was primarily due to lower sales volumes, the unfavorable effects of foreign currency translation, and pass-through of lower sulfur pricing.

• Gross profit decreased $25.0 million to $273.4 million.

The decrease in gross profit was primarily due to lower sales volumes and the unfavorable effects of foreign currency translation, partly offset by favorable fixed manufacturing costs.

Operating (Loss) Income

• Operating (loss) income decreased $310.4 million to $162.9 million.

The decrease in operating (loss) income was primarily due to a goodwill impairment charge of $260.0 million related to our Performance Chemicals segment, a decrease in gross profit and an increase in transaction-related charges for the year ended December 31, 2020.

Sales increased $115.3 million to $611.2 million.

The increase in sales was primarily due to higher sales volumes and pass-through of higher sulfur pricing.

The higher volumes were a result of strong demand for polyethylene catalyst and higher regeneration services.

The global macroeconomic recovery supported demand across both businesses.

Gross profit increased $25.8 million to $176.7 million.

The increase in gross profit was primarily due to higher sales volumes across the portfolio and favorable product mix.

These factors more than offset headwinds from higher variable costs and elevated fixed costs driven by Winter Storm Uri in early 2021.

Inflationary factors increased through the year, namely from higher sulfur and energy costs, but customer contractual pass through mechanisms preserved earnings in Ecoservices, while targeted price increases addressed cost pressures in Catalyst Technologies.

Operating Income

Operating income increased $3.0 million to $54.6 million.

The increase in operating income was primarily due to an increase in gross profit for the year ended December 31, 2021.

Equity in Net Income from Affiliated Companies

Equity in net income of affiliated companies for the year ended December 31, 2021 was $27.7 million, compared with net income of $21.0 million for the year ended December 31, 2020.

The decrease was due to lower earnings of $24.6 million generated by the Zeolyst Joint Venture during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The increase was due to higher earnings of $6.4 million generated by the Zeolyst Joint Venture during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The following is our consolidated statement of income and a summary of financial results for the years ended December 31, 2021 and 2020.

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Selling, general and administrative expenses 97.8 81.5 16.3 20.0 %

Goodwill impairment charge 260.0 — 260.0 — %

Other operating expense, net 24.3 17.8 6.5 36.5 %

Operating (loss) income (162.9) 147.5 (310.4) (210.4) %

Operating income 54.6 51.6 3.0 5.8 %

Operating income margin 8.9 % 10.4 %

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Other (income) expense, net 4.5 (5.0) 9.5 (190.0) %

Loss (income) from continuing operations before income taxes and noncontrolling interest (227.6) 105.4 (333.0) (315.9) %

(Benefit) provision for income taxes (48.1) 39.7 (87.8) (221.2) %

Income from continuing operations before income taxes and noncontrolling interest 13.9 2.2 11.7 531.8 %

Provision (benefit) for income taxes 12.1 (52.1) 64.2 (123.2) %

Effective tax rate 87.1 % (2,350.6) %

Net (loss) income from continuing operations (179.5) 65.7 (245.2) (373.2) %

Net (loss) income from discontinued operations, net of tax (102.2) 14.6 (116.8) (800.0) %

Net (loss) income (281.7) 80.3 (362.0) (450.8) %

Net (loss) income attributable to the noncontrolling interest - continuing operations (3.2) 0.6 (3.8) (633.3) %

Net income from continuing operations 1.8 54.3 (52.5) (96.7) %

Net loss from discontinued operations, net of tax (141.4) (336.0) 194.6 (57.9) %

Net loss (139.6) (281.7) 142.1 (50.4) %

Net income (loss) attributable to the noncontrolling interest - discontinued operations $ 0.3 $ (2.9) $ 3.2 (110.3) %

Net (loss) income attributable to PQ Group Holdings Inc.

Net loss attributable to Ecovyst Inc.

$ (139.9) $ (278.8) $ 138.9 (49.8) %

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(in millions, except percentages)

Refining Services

$ 401.9 $ 447.1 $ (45.2) (10.1) %

94.0 85.7 8.3 9.7 %

Performance Chemicals

614.7 670.5 (55.8) (8.3) %

(3.2) (3.4) 0.2

Ecoservices $ 500.5 $ 401.9 $ 98.6 24.5 %

Catalyst Technologies 110.7 94.0 16.7 17.8 %

Total sales $ 611.2 $ 495.9 $ 115.3 23.3 %

Refining Services :

Sales in Refining Services for the year ended December 31, 2020 were $401.9 million, a decrease of $45.2 million, or 10.1%, compared to sales of $447.1 million for the year ended December 31, 2019.

The decrease in sales was primarily due to lower sales volumes of $26.7 million and lower average selling price from pass-through costs of $18.5 million.

The decrease in volumes was due to lower regeneration services demand from refinery utilization rates driven by COVID-19.

The unfavorable pricing was driven by pass-through of lower sulfur costs.

Sales in Catalysts for the year ended December 31, 2020 were $94.0 million, an increase of $8.3 million, or 9.7%, compared to sales of $85.7 million for the year ended December 31, 2019.

The increase in sales was primarily due to higher sales volumes of $10.6 million, partly offset by lower average selling price from product mix of $1.2 million and the unfavorable effects of foreign currency translation of $1.1 million.

The increase in sales was due to higher customer demand within our polyolefin catalysts product line.

Performance Chemicals :

Sales in Performance Chemicals for the year ended December 31, 2020 were $614.7 million, a decrease of $55.8 million, or 8.3%, compared to sales of $670.5 million for the year ended December 31, 2019.

The decrease in sales was primarily due to lower sales volumes driven by COVID19 of $48.6 million and the unfavorable effects of foreign currency translation of $15.0 million, which was partially offset by higher average selling price and favorable mix of $7.8 million.

The decrease in sales was a result of lower volumes sold for consumer products and industrial and process chemicals applications and the unfavorable effects of foreign currency translation driven by the stronger U.S.

Gross profit for the year ended December 31, 2020 was $273.4 million, a decrease of $25.0 million, or 8.4%, compared with $298.4 million for the year ended December 31, 2019.

The decrease in gross profit was due to lower volumes of $37.7 million, unfavorable average selling price of $11.9 million, and the unfavorable effects of foreign currency translation of $4.2 million, partly offset by favorable manufacturing costs of $30.9 million.

The decrease in volumes was due to a decline in sulfuric acid sales and lower sales for consumer and industrial products applications.

Unfavorable customer pricing was primarily a result of pass-through of lower sulfur costs.

The unfavorable effects of foreign currency were driven by the stronger U.S.

The favorable change in manufacturing costs were driven by lower labor costs and the timing of plant maintenance projects.

Ecoservices :

Sales in Ecoservices for the year ended December 31, 2021 were $500.5 million, an increase of $98.6 million, or 24.5%, compared to sales of $401.9 million for the year ended December 31, 2020.

The increase in sales was primarily due to higher sales volumes of $29.2 million and higher average selling price of $69.4 million, including pass-through of higher sulfur costs of $49.0 million.

The increase in volumes was due to a higher demand for regeneration services on the recovery from the global pandemic and improved virgin sulfuric acid used in mining and industrial uses , as well as sales related to the Chem32 acquisition .

The favorable pricing was primarily driven by pass-through of higher sulfur costs and higher labor labor and energy indexed costs.

Catalyst Technologies :

Sales in Catalyst Technologies for the year ended December 31, 2021 were $110.7 million, an increase of $16.7 million, or 17.8%, compared to sales of $94.0 million for the year ended December 31, 2020.

The increase in sales was primarily due to higher sales volumes of $14.0 million, higher average selling price from product mix of $1.1 million and the favorable effects of foreign currency translation of $1.6 million.

The increase in volumes was due to the continued strong customer demand for polyethylene catalysts.

Gross profit for the year ended December 31, 2021 was $176.7 million, an increase of $25.8 million, or 17.1%, compared with $150.9 million for the year ended December 31, 2020.

The increase in gross profit was due to favorable average selling price of $70.5 million and higher volumes of $22.1 million which was offset by unfavorable manufacturing costs of $75.5 million includes $49.0 million of higher sulfur costs.

Favorable customer pricing was primarily a result of higher average selling prices from pass-through costs and product mix.

The increase in volumes was due to an increase in regeneration services, virgin sulfuric acid sales and increased demand for polyethylene catalysts.

The unfavorable change in manufacturing costs were driven by the timing of plant maintenance projects and higher fixed costs from the freezing weather in the Gulf of Mexico .

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2020 were $125.3 million, a decrease of $4.2 million, or 3.2%, compared with $129.5 million for the year ended December 31, 2019.

The decrease in selling, general and administrative expenses was due to lower discretionary spending and lower research and development expenditures partially offset by an increase in stock compensation expense.

Goodwill Impairment Charge

We assess goodwill for impairment annually, or more frequently, if events or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

We perform our annual impairment test of goodwill as of October 1 of each year.

As a result of our annual test, we determined that the fair value of our Performance Chemicals reporting unit was lower than its carrying value.

This resulted in a $260.0 million charge for the year ended December 31, 2020.

Selling, general and administrative expenses for the year ended December 31, 2021 were $97.8 million, an increase of $16.3 million compared with $81.5 million for the year ended December 31, 2020.

The increase in selling, general and administrative expenses was due to an increase in stock compensation and compensation related expenses, partially offset by lower discretionary spending.

Other Operating Expense, Net

Other operating expense, net for the year ended December 31, 2021 was $24.3 million, an increase of $6.5 million, or 36.5%, compared with $17.8 million for the year ended December 31, 2020.

The increase in other operating expense, net was primarily due to current year restructuring costs incurred on asset disposals and business divestiture costs associated with our pending sale of our Performance Chemicals business.

During the year ended December 31, 2019, we realized a gain of $11.0 million on the disposition of assets related to a non-core product line as well a gain of $7.1 million on the sale of property.

The increase in o ther operating expense, net was primarily due to an increase in amortization expense from the Chem32 acquisition.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies for the year ended December 31, 2020 was $21.2 million, a decrease of $24.8 million, compared with income of $46.0 million for the year ended December 31, 2019.

The decrease was primarily due to $26.7 million of earnings generated by the Zeolyst Joint Venture during the year ended December 31, 2020 as compared to $52.2 million for the year ended December 31, 2019, which was a result of the timing of hydrocracking catalyst change-outs and lower demand for custom catalysts and emission control catalysts in heavy duty diesel production driven by the COVID-19 pandemic.

Equity in net income of affiliated companies for the year ended December 31, 2021 was $27.7 million, an increase of $6.7 million, compared with income of $21.0 million for the year ended December 31, 2020.

The increase was primarily due to $33.0 million of earnings generated by the Zeolyst Joint Venture during the year ended December 31, 2021 as compared to $26.7 million for the year ended December 31, 2020, which was a result of higher demand for catalyst used in renewable fuels and emission control catalysts, partially offset by lower specialty and hydrocracking catalyst on timing of customer fixed bed change-outs.

Interest Expense, Net

Interest expense, net for the year ended December 31, 2021 was $37.0 million, a decrease of $13.4 million, as compared with $50.4 million for the year ended December 31, 2020.

The decrease in interest expense was due to lower interest rates on our variable rate debt along with lower average debt balances and a favorable increase in variable versus fixed rate debt.

The decrease in interest expense was due to lower interest rates on our variable rate debt along with lower average debt balances.

Debt Extinguishment Costs

Debt extinguishment costs for the years ended December 31, 2021 and 2020 were $26.9 million and $25.0 million, respectively.

On December 14, 2020, we completed the sale of our Performance Materials business which triggered an obligation to provide partial payment under our existing senior secured term loan facility and our new senior secured term loan facility.

Effective on August 1, 2021, we completed the sale of our Performance Chemicals business which triggered an obligation to provide partial payment under our existing senior secured term loan facility and pay in full our 5.75% senior notes.

As a result of the required payments, previous unamortized deferred financing costs of $3.1 million and original issue discount of $3.6 million were written off as debt extinguishment costs.

On December 14, 2020, we completed the sale of our Performance Materials business which triggered an obligation to provide partial payment under our existing senior secured term loan facilities.

As a result of the required payments, previous unamortized deferred financing costs of $2.7 million and original issue discount of $5.8 million were written off as debt extinguishment costs.

On July 22, 2020, we entered into an agreement for a new senior secured term loan facility in an aggregate principal amount of $650.0 million, which was used to repay the remaining outstanding balance of $625.0 million on the 6.75% Senior Secured Notes due 2022.

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In addition, previously unamortized deferred financing costs of $0.1 million and original issue discount of $0.2 million associated with the existing senior secured term loan facility were written off as debt extinguishment costs.

During the year ended December 31, 2019, we prepaid $210.0 million of outstanding principal balance on the Term Loan Facility (as defined below).

In connection with this prepayment, we wrote off $1.0 million of previously unamortized deferred financing costs and original issue discount of $2.4 million as debt extinguishment costs.

During the year ended December 31, 2020 , we prepaid $466.1 million of outstanding principal balance on the 2018 Term Loan Facility and a redemption premium of $10.6 million on the 6.75% Senior Secured Notes.

In connection with the 2018 Term Loan Facility prepayment, we wrote off $0.2 million of previously unamortized deferred financing costs and original issue discount of $12.8 million as debt extinguishment costs.

In connection with the 6.75% Senior Secured Notes, we wrote off $2 million of previously unamortized deferred financing costs and original issue discount of $1 million as debt extinguishment costs.

Other (Income) Expense, Net

Other (income) expense, net was income of $6.1 million for the year ended December 31, 2020, a favorable change of $3.7 million, compared with income of $2.4 million for the year ended December 31, 2019.

The change primarily related to $4.2 million of foreign currency gains on the non-permanent intercompany debt denominated in local currency and translated to U.S.

dollars and transactional currency translation in the current year period as compared to foreign currency losses of $2.4 million in the prior year period.

(Benefit) Provision for Income Taxes

The (benefit) provision for income taxes for the year ended December 31, 2020 was a $48.1 million benefit compared to a $39.7 million provision for the year ended December 31, 2019.

Other (income) expense, net was expense of $4.5 million for the year ended December 31, 2021, an unfavorable change of $9.5 million, compared with income of $5.0 million for the year ended December 31, 2020.

The change primarily related to $4.7 million of foreign currency losses on the non-permanent intercompany debt denominated in local currency and translated to U.S.

dollars and transactional currency translation in the current year period as compared to foreign currency gain of $5.3 million in the prior year period.

Provision (Benefit) for Income Taxes

The (benefit) provision for income taxes for the year ended December 31, 2021 was a $12.1 million provision compared to a $52.1 million benefit for the year ended December 31, 2020.

The effective income tax rate for the year ended December 31, 2021 was 87.1% compared to (2,350.6)% for the year ended December 31, 2020.

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federal statutory income tax rate and our effective income tax rate for the year ended December 31, 2021 was mainly due to the impact of the Global Intangible Low Taxed Income (“GILTI”) provisions of U.S.

tax reform, foreign tax credit benefit and goodwill impairment.

tax reform and the impact of intra-period allocation as a result of the Performance Chemicals business being classified as held for sale.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for the year ended December 31, 2019 was mainly due to the impact of the GILTI provisions of U.S.

tax reform, the effect of permanent differences related to foreign currency exchange gain or loss, differing tax rates in foreign jurisdictions as compared to the U.S.

statutory tax rate, tax rate changes and state taxes.

Net (Loss) Income Attributable to PQ Group Holdings

For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net loss attributable to PQ Group Holdings was $278.8 million for the year ended December 31, 2020 as compared to net income of $79.5 million for the year ended December 31, 2019.

federal statutory income tax rate and our effective income tax rate for the year ended December 31, 2020 was mainly due to GILTI, foreign tax credit benefit and the impact of intra-period allocation as a result of the Performance Chemicals and Performance Materials businesses being classified as held for sale.

Net Loss Attributable to Ecovyst Inc.

For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net loss attributable to Ecovyst Inc.

was $139.9 million for the year ended December 31, 2021 as compared to net income of $278.8 million for the year ended December 31, 2020.

Adjusted EBITDA

Summarized Segment Adjusted EBITDA information is shown below in the following table:

Summarized Adjusted EBITDA information is shown below in the following table:

December 31, Change

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(in millions, except percentages)

Segment Adjusted EBITDA (1) :

Refining Services

$ 157.2 $ 175.6 $ (18.4) (10.5) %

Catalysts (2)

74.5 107.8 (33.3) (30.9) %

Performance Chemicals

142.4 151.5 (9.1) (6.0) %

Total Segment Adjusted EBITDA (3)

Adjusted EBITDA (1) :

Ecoservices $ 177.7 $ 157.2 $ 20.5 13.0 %

Catalyst Technologies (2)

88.0 74.5 13.5 18.1 %

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(38.1) (39.1) 1.0 (2.6) %

Adjusted EBITDA $ 338.0 $ 393.9 $ (55.9) (14.2) %

(1) We define Segment Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Segment Adjusted EBITDA.

Segment Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity.

Segment Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalysts segment is $42.5 million for the year ended December 31, 2020, which includes $21.2 million of equity in net income, excluding $6.6 million of amortization of investment in affiliate step-up, plus $14.7 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalysts segment is $68.1 million for the year ended December 31, 2019, which includes $45.9 million of equity in net income, excluding $7.5

million of amortization of investment in affiliate step-up, plus $14.7 million of joint venture depreciation, amortization and interest.

(3) Our total Segment Adjusted EBITDA differs from our total consolidated Adjusted EBITDA due to unallocated corporate expenses.

Refining Services:

Adjusted EBITDA for the year ended December 31, 2020 was $157.2 million, a decrease of $18.4 million, or 10.5%, compared with $175.6 million for the year ended December 31, 2019.

Refining Services adjusted EBITDA decreased due to lower regeneration services demand as a result of reduced refinery utilization rates, partially offset by fixed and SG&A related cost savings.

Adjusted EBITDA for the year ended December 31, 2020 was $74.5 million, a decrease of $33.3 million, or 30.9%, compared with $107.8 million for the year ended December 31, 2019.

Adjusted EBITDA decreased due to lower volumes in the Zeolyst joint venture and unfavorable inventory absorption due to lower production and inventory depletion to align with expected lower demand.

Performance Chemicals:

Adjusted EBITDA for the year ended December 31, 2020 was $142.4 million, a decrease of $9.1 million, or 6.0%, compared with $151.5 million for the year ended December 31, 2019.

The decrease in Adjusted EBITDA was due to lower volumes of product sold for industrial and consumer product applications and the strengthening of the U.S.

dollar, which was partially offset by fixed and selling, general and administrative related cost savings.

A reconciliation of net (loss) income attributable to PQ Group Holdings to Segment Adjusted EBITDA is as follows:

Total $ 227.6 $ 192.6 $ 35.0 18.2 %

(1) We define Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Adjusted EBITDA.

Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity.

Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $49.9 million for the year ended December 31, 2021, which includes $27.8 million of equity in net income, excluding $6.5 million of amortization of investment in affiliate step-up, plus $15.6 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $42.5 million for the year ended December 31, 2020, which includes $21.2 million of equity in net income, excluding $6.6 million of amortization of investment in affiliate step-up, plus $14.7 million of joint venture depreciation, amortization and interest.

(3) Our total Adjusted EBITDA by Segment differs from our total consolidated Adjusted EBITDA due to unallocated corporate expenses.

Ecoservices :

Adjusted EBITDA for the year ended December 31, 2021 was $177.7 million, an increase of $20.5 million, or 13.0%, compared with $157.2 million for the year ended December 31, 2020.

Ecoservices’ adjusted EBITDA increased due to higher demand of regeneration services, favorable pricing, improved cost efficiencies and the benefit of the Chem32 acquisition.

Catalyst Technologies :

Adjusted EBITDA for the year ended December 31, 2021 was $88.0 million, an increase of $13.5 million, or 18.1%, compared with $74.5 million for the year ended December 31, 2020.

Adjusted EBITDA increased due to improved volume on the continued strong demand for polyethylene catalysts, increased demand for catalyst used in renewable fuels and emission control catalysts along with favorable product mix driving improved Adjusted EBITDA margins.

A reconciliation of net income attributable to Ecovyst Inc.

to Adjusted EBITDA is as follows:

(in millions)

Reconciliation of net (loss) income attributable to PQ Group Holdings Inc.

to Segment Adjusted EBITDA

Net (loss) income from continuing operations $ (176.3) $ 65.1

(Benefit) provision for income taxes (48.1) 39.7

Reconciliation of net income attributable to Ecovyst Inc.

to Adjusted EBITDA

Net income from continuing operations $ 1.8 $ 54.3

Provision (benefit) for income taxes 12.1 (52.1)

Interest expense, net 37.0 50.4

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Amortization of investment in affiliate step-up (b)

Goodwill impairment charge 260.0 —

Debt extinguishment costs 26.9 25.0

Net gain on asset disposals (c)

Foreign currency exchange (gain) loss (d)

LIFO expense (e)

Net loss on asset disposals (c)

Foreign currency exchange loss (gain) (d)

LIFO benefit (e)

Transaction and other related costs (f)

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Restructuring, integration and business optimization expenses (g)

Defined benefit plan pension cost (h)

Defined benefit plan pension benefit (h)

Adjusted EBITDA $ 227.6 $ 192.6

Unallocated corporate expenses 36.1 41.0

Segment Adjusted EBITDA $ 374.1 $ 434.9

(a) We use Adjusted EBITDA as a performance measure to evaluate our financial results.

Because our Catalysts segment includes our 50% interest in the Zeolyst Joint Venture, we include an adjustment for our 50% proportionate share of depreciation, amortization and interest expense of the Zeolyst Joint Venture.

(b) Represents the amortization of the fair value adjustments associated with the equity affiliate investment in the Zeolyst Joint Venture as a result of the Business Combination.

Because our Catalyst Technologies segment includes our 50% interest in the Zeolyst Joint Venture, we include an adjustment for our 50% proportionate share of depreciation, amortization and interest expense of the Zeolyst Joint Venture.

(b) Represents the amortization of the fair value adjustments associated with the equity affiliate investment in the Zeolyst Joint Venture as a result of the combination of the businesses of PQ Holdings Inc.

and Eco Services Operations LLC in May 2016 (the “Business Combination”).

We determined the fair value of the equity affiliate investment and the fair value step-up was then attributed to the underlying assets of the Zeolyst Joint Venture.

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(c) When asset disposals occur, we remove the impact of net gain/loss of the disposed asset because such impact primarily reflects the non-cash write-off of long-lived assets no longer in use.

During the years ended December 31, 2020 and 2019, respectively, the net gain on asset disposals includes the gains related to the sale of a non-core product line and sale of property.

(d) Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income primarily related to the non-permanent intercompany debt denominated in local currency translated to U.S.

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that are valued using the LIFO method, which we believe provides a means of comparison to other companies that may not use the same basis of accounting for inventories.

(f) Represents the costs related to several transactions that are completed, pending or abandoned and that we believe are not representative of our ongoing business operations.

(f) Relates to certain transaction costs, including debt financing, due diligence and other costs related to transactions that are completed, pending or abandoned, that we believe are not representative of our ongoing business operations.

(g) Includes the impact of restructuring, integration and business optimization expenses which are incremental costs that are not representative of our ongoing business operations.

(h) Represents adjustments for defined benefit pension plan costs in our statement of income.

More than two-thirds of our defined benefit pension plan obligations are under defined benefit pension plans that are frozen, and the remaining obligations primarily relate to plans operated in certain of our non-U.S.

locations that, pursuant to jurisdictional requirements, cannot be frozen.

(h) Represents adjustments for defined benefit pension plan (benefit) costs in our statement of income.

All of our defined benefit pension plan obligations are under defined benefit pension plans that are frozen.

As such, we do not view such expenses as core to our ongoing business operations.

(i) Other costs consist of certain expenses that are not core to our ongoing business operations, including environmental remediation-related costs associated with the legacy operations of our business prior to the Business Combination, capital and franchise taxes and non-cash asset retirement obligation accretion.

(i) Other costs consist of certain expenses that are not core to our ongoing business operations, including environmental remediation-related costs, capital and franchise taxes.

Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions).

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(in millions)

Reconciliation of net (loss) income attributable to PQ Group Holdings Inc.

Reconciliation of net income attributable to Ecovyst Inc.

to Adjusted Net Income (1)(2)

Net (loss) income from continuing operations $ (227.6) $ (48.1) $ (179.5) $ 105.4 $ 39.7 $ 65.7

Net (loss) income attributable to the non-controlling interest - continuing operations (3.2) — (3.2) 0.6 — 0.6

Net (loss) income attributable to PQ Group Holdings Inc.

Net income attributable to Ecovyst Inc.

$ 13.9 $ 12.1 $ 1.8 $ 2.2 $ (52.1) $ 54.3

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6.5 1.6 4.9 6.6 1.7 4.9

Goodwill impairment charge 260.0 — 260.0 — — —

Debt extinguishment costs 26.9 6.6 20.3 25.0 6.3 18.7

Net (gain) loss on asset disposals (c)

Net loss on asset disposals (c)

5.7 1.4 4.3 4.7 1.2 3.5

Foreign currency exchange (gain) loss (d)

Foreign currency exchange loss (gain) (d)

4.7 1.0 3.7 (5.3) (0.6) (4.7)

LIFO (benefit) expense (e)

LIFO benefit (e)

(1.9) (0.5) (1.4) (5.3) (1.3) (4.0)

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3.0 0.7 2.3 2.0 0.5 1.5

Defined benefit plan pension cost (h)

— — — 3.0 0.7 2.3

Defined benefit plan pension benefit (h)

(0.9) (0.2) (0.7) (0.6) (0.2) (0.4)

Adjusted Net Income, including non-cash GILTI tax and tax reform 104.5 (32.4) 136.9 140.3 48.9 91.4

Impact of non-cash GILTI tax (3)

3.6 0.9 2.7 3.0 0.7 2.3

Impact of tax reform (4)

Adjusted Net Income, including Impact of Discrete Tax Items 95.3 31.8 63.5 50.6 (39.5) 90.1

Impact of Discrete Tax Items (3)

— (6.1) 6.1 — — —

Adjusted Net Income $ 95.3 $ 25.7 $ 69.6 $ 50.6 $ (39.5) $ 90.1

(1) We define adjusted net inco me as net (loss) income attributable to PQ Group Holdings adjusted for non-operating income or expense and the impact of certain non-cash or other items that are included in net income that we do not consider indicative of our ongoing operating performance.

(1) We define adjusted net inco me as net (loss) income attributable to Ecovyst Inc.

adjusted for non-operating income or expense and the impact of certain non-cash or other items that are included in net income that we do not consider indicative of our ongoing operating performance.

Adjusted net income is presented as a key performance indicator as we believe it will enhance a prospective investor’s understanding of our results of operations and financial condition.

Adjusted net income may not be comparable with net income or adjusted net income as defined by other companies.

(2) Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.

(3) Amount represents the impact to tax expense in net income before non-controlling interest and the related adjustments to net income associated with the GILTI provisions of the Tax Cuts and Jobs Act of 2017 (“TCJA”).

We are required to record the incremental tax provision impact with respect to GILTI as a result of having historical U.S.

net operating loss (“NOL”) amounts to offset the GILTI taxable income inclusion.

This NOL utilization precluded us from recognizing GILTI credits which would otherwise help offset the tax impacts of GILTI.

During the fourth quarter of 2020, as a result of the sale of the Performance Materials business, our NOL balance will be fully utilized.

Beginning in the fourth quarter of 2020, we are no longer adjusting for the impact of the GILTI provisions of the TCJA since the NOLs have been fully utilized and GILTI now represents a cash tax impact.

(4) Represents the transition tax adjustment for the impact of the TCJA and the rate change in the Netherlands related to the Dutch Tax Plan 2019 recorded in net income.

The adjustments to net (loss) income attributable to PQ Group Holdings Inc.

(2) Ref er to the Adjusted EBITDA notes above for more information with respect to each adjustment.

(3) Represents intraperiod allocation rules related to a change in the UK legislature, which increased the UK corporate rate as well as an uncertain tax position related to a foreign entity.

The adjustments to net (loss) income attributable to Ecovyst Inc.

are shown net of applicable statutory tax rates.

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Sales decreased $36.8 million to $495.9 million.

The decrease in sales was primarily due to lower sales volumes and the unfavorable effects of foreign currency translation, which was partially offset by higher average customer prices and favorable mix.

The decrease in sales was primarily due to lower sales volumes and pass-through of lower sulfur pricing.

Gross profit decreased $16.3 million to $150.9 million.

Our decrease in gross profit was primarily due to lower sales volumes, unfavorable manufacturing costs and the unfavorable effects of foreign currency translation, which was partially offset by favorable customer pricing.

The decrease in gross profit was primarily due to the lower sales volumes partially offset by favorable fixed manufacturing costs.

Operating Income

Operating income decreased by $14.4 million to $51.6 million.

Our decrease in operating income was primarily due to a decrease in gross profit for the year ended December 31, 2019.

The decrease in operating income was primarily due to a decrease in gross profit for the year ended December 31, 2020.

Equity in Net Income from Affiliated Companies

Equity in net income of affiliated companies for the year ended December 31, 2020 was $21.0 million, compared with net income of $45.8 million for the year ended December 31, 2019.

The increase was due to higher earnings of $9.3 million generated by the Zeolyst Joint Venture during the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The decrease was due to lower earnings of $24.6 million generated by the Zeolyst Joint Venture during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The following is our consolidated statement of income and a summary of financial results for the years ended December 31, 2020 and 2019.

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Income from continuing operations before income taxes and noncontrolling interest 2.2 43.4 (41.2) (94.9) %

Provision for income taxes 39.7 33.6 6.1 18.2 %

(Benefit) provision for income taxes (52.1) 12.3 (64.4) (523.6) %

Effective tax rate (2,350.6) % 28.3 %

Net income from continuing operations 54.3 31.1 23.2 74.6 %

Net income from discontinued operations, net of tax 14.6 9.2 5.4 58.7 %

Net income 80.3 59.6 20.7 34.7 %

Net income attributable to the noncontrolling interest - continuing operations 0.6 1.1 (0.5) (45.5) %

Net income attributable to the noncontrolling interest - discontinued operations $ 0.2 $ 0.2 $ — — %

Net income attributable to PQ Group Holdings Inc.

Net (loss) income from discontinued operations, net of tax (336.0) 49.2 (385.2) (782.9) %

Net (loss) income (281.7) 80.3 (362.0) (450.8) %

Net (loss) income attributable to the noncontrolling interest - discontinued operations $ (2.9) $ 0.8 $ (3.7) (462.5) %

Net (loss) income attributable to Ecovyst Inc.

$ (278.8) $ 79.5 $ (358.3) (450.7) %

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(in millions, except percentages)

Refining Services $ 447.1 $ 455.6 $ (8.5) (1.9) %

Catalysts 85.7 72.1 13.6 18.9 %

Performance Chemicals 670.5 704.4 (33.9) (4.8) %

Eliminations (3.4) (3.2) (0.2)

Ecoservices $ 401.9 $ 447.1 $ (45.2) (10.1) %

Catalyst Technologies 94.0 85.7 8.3 9.7 %

Total sales $ 495.9 $ 532.8 $ (36.9) (6.9) %

Refining Services :

Sales in Refining Services for the year ended December 31, 2019 were $447.1 million, a decrease of $8.5 million, or 1.9%, compared to sales of $455.6 million for the year ended December 31, 2018.

The decrease in sales was primarily due to lower sales volumes of $30.4 million, which was partially offset by favorable customer mix driving higher average selling prices of $21.9 million.

The decrease in volumes was due to lower demand for virgin sulfuric acid and unexpected customer plant outages.

The favorable customer mix was driven by the roll-off of a below-market contract and other contract renewals in our regenerated sulfuric acid and virgin sulfuric acid product lines.

Sales in Catalysts for the year ended December 31, 2019 were $85.7 million, an increase of $13.6 million, or 18.9%, compared to sales of $72.1 million for the year ended December 31, 2018.

The increase in sales was primarily due to higher sales volumes of $11.6 million and higher average selling price from product mix of $3.3 million.

The increase in sales was due to the timing of customer orders for methyl methacrylate catalyst and higher customer demand and pricing within our polyolefin catalysts product line.

Performance Chemicals :

Sales in Performance Chemicals for the year ended December 31, 2019 were $670.5 million, a decrease of $33.9 million, or 4.8%, compared to sales of $704.4 million for the year ended December 31, 2018.

The decrease in sales was primarily due to lower sales volumes of $36.4 million and the unfavorable effects of foreign currency translation of $17.5 million, which was partially offset by higher average selling price and favorable mix of $20.0 million.

The decrease in sales was a result of lower volumes sold to the consumer products and industrial and process chemicals industries and the unfavorable effects of foreign currency translation driven by the stronger U.S.

dollar, which was partially offset by higher pricing to cover raw material cost increases.

Gross profit for the year ended December 31, 2019 was $298.4 million, a decrease of $5.0 million, or 1.6%, compared with $303.4 million for the year ended December 31, 2018.

The decrease in gross profit was due to lower volumes of $31.7 million, unfavorable manufacturing costs of $22.0 million, and unfavorable foreign currency translation of $5.2 million, which was partially offset by favorable customer pricing of $45.1 million and favorable product mix of $8.3 million.

The decrease in volumes was due to a decline in sulfuric acid sales and lower sales to the consumer and industrial products industries.

The unfavorable change in manufacturing costs was driven by the higher labor costs, timing of plant maintenance projects and increased transportation costs during the year ended December 31, 2019.

The unfavorable effects of foreign currency were driven by the stronger U.S.

Favorable customer pricing was primarily a result of a roll-off of a below-market contract in our virgin sulfuric acid product line.

Favorable product mix was driven by increased volumes of higher-margin Silica Catalysts products.

Ecoservices :

Sales in Ecoservices for the year ended December 31, 2020 were $401.9 million, a decrease of $45.2 million, or 10.1%, compared to sales of $447.1 million for the year ended December 31, 2019.

The decrease in sales was primarily due to lower sales volumes of $26.7 million and lower average selling price from pass-through costs of $18.5 million.

The decrease in volumes was due to lower regeneration services demand from refinery utilization rates driven by COVID-19.

The unfavorable pricing was driven by pass-through of lower sulfur costs.

Catalyst Technologies :

Sales in Catalyst Technologies for the year ended December 31, 2020 were $94.0 million, an increase of $8.3 million, or 9.7%, compared to sales of $85.7 million for the year ended December 31, 2019.

The increase in sales was primarily due to higher sales volumes of $10.6 million, partially offset by lower average selling price from product mix of $1.2 million and the unfavorable effects of foreign currency translation of $1.1 million.

The increase in sales was due to higher customer demand within our polyethylene catalysts product line.

Gross profit for the year ended December 31, 2020 was $150.9 million, a decrease of $16.3 million, or 9.7%, compared with $167.2 million for the y ear ended December 31, 2019.

The decrease in gross profit was due to unfavorable average selling price of $19.7 million and lower volumes of $10.9 million which was partly offset by favorable manufacturing costs of $23.1 million.

Unfavorable customer pricing was primarily a result of pass-through of lower sulfur costs.

The decrease in volumes was due to a decline in sulfuric acid sales which was partially offset by increased customer demand within our polyethylene catalysts product line.

The favorable change in manufacturing costs were driven by the timing of plant maintenance projects.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2019 were $129.5 million, a decrease of $1.9 million, or 1.4%, compared with $131.4 million for the year ended December 31, 2018.

The decrease in selling, general and administrative expenses was due to lower research and development expenditures and a decrease in professional fees, which was partially offset by an increase in compensation-related costs.

Selling, general and administrative expenses for the year ended December 31, 2020 were $81.5 million, a decrease of $2.0 million, or 2.4%, compared with $83.5 million for t he year ended December 31, 2019.

The decrease in selling, general and administrative expenses was due to lower discretionary spending partially offset by an increase in stock compensation expense.

Other Operating Expense, Net

Other operating expense, net for the year ended December 31, 2020 was $17.8 million, an increase of $0.1 million, or 0.6%, compared with $17.7 million for the year ended December 31, 2019.

The increase in other operating expense, net was primarily due to the impact of non-recurring gains in the current year as compared to the prior year.

During the year ended December 31, 2019 we realized a gain of $11.0 million on the disposition of assets related to a non-core product line as well as a gain of $7.1 million on the sale of property.

During the year ended December 31, 2018, we recognized non-recurring gains on the termination of a customer supply contract of $20.6 million and insurance recoveries totaling $6.5 million related to losses sustained as a result of Hurricane Harvey in August 2017 (of which $5.5 million was recorded in other operating expense, net).

Other operating expense, net was consistent between both periods.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies for the year ended December 31, 2019 was $46.0 million, an increase of $8.4 million, compared with income of $37.6 million for the year ended December 31, 2018.

The increase was primarily due to $52.2 million of earnings generated by the Zeolyst Joint Venture during the year ended December 31, 2019 as compared to $42.9 million for the year ended December 31, 2018 which was a result of higher year-over-year growth in hydrocracking catalyst and specialty chemical event-driven sales.

Equity in net income of affiliated companies for the year ended December 31, 2020 was $21.0 million, a decrease of $24.8 million, compared with income of $45.8 million for the year ended December 31, 2019.

The decrease was primarily due to $26.7 million of earnings generated by the Zeolyst Joint Venture during the year ended December 31, 2020 as compared to $52.2 million for the year ended December 31, 2019 which was a result of the timing of hydrocracking catalyst change-outs and lower demand for custom catalysts and emission control catalysts in heavy duty diesel production driven by the COVID-19 pandemic.

Interest Expense, Net

Interest expense, net for the year ended December 31, 2019 was $87.1 million, a decrease of $3.7 million, as compared with $90.8 million for the year ended December 31, 2018.

The decrease in interest expense was due to lower average debt balances.

Interest ex pense, net for the year ended December 31, 2020 was $50.4 million, a decrease of $16.5 million, as compared with $66.9 million for the year ended December 31, 2019.

The decrease in interest expense was due to lower interest rates on our variable rate debt along with lower average debt balances and a favorable increase in variable versus fixed rate debt.

Debt Extinguishment Costs

Debt extinguishment costs for the years ended December 31, 2020 and 2019 were $25.0 million and $3.4 million, respectively.

During the year ended December 31, 2019, we prepaid $210.0 million of outstanding principal balance on the Term Loan Facility (as defined below).

In connection with this prepayment, we wrote off $1.0 million of previously unamortized deferred financing costs and original issue discount of $2.4 million as debt extinguishment costs.

During the year ended December 31, 2018, we prepaid $100.0 million of outstanding principal balance on the Term Loan Facility (as defined below).

In connection with this prepayment, we wrote off $0.6 million of previously unamortized deferred financing costs and original issue discount of $1.3 million as debt extinguishment costs.

On February 8, 2018 we refinanced our existing senior secured term loan facility with a $1,267.0 million senior secured term loan facility to reduce the applicable interest rates.

On December 14, 2020, we completed the sale of our Performance Materials business which triggered an obligation to provide partial payment under our existing senior secured term loan facilities.

As a result of the required payments, previous unamortized deferred financing costs of $2.7 million and original issue discount of $5.8 million were written off as debt extinguishment costs.

In conjunction with the issuance of the senior secured term loan facility, we paid $10.6 million in prepayment premiums and recorded $0.1 million of new creditor and third-party financing fees as debt extinguishment costs.

In addition, previous unamortized deferred financing costs of $2.1 million and original issue discount of $1.2 million associated with the 6.75% Senior Secured Notes due 2022 were written off as debt extinguishment costs.

On February 7, 2020, we amended our existing senior secured term loan facility to reduce the applicable interest rates and extend the maturity of the facility to February 2027.

We recorded $2.2 million of new creditor and third-party financing fees as debt extinguishment costs.

During the year ended December 31, 2019, we prepaid $210.0 million of outstanding principal balance on the 2018 Term Loan Facility (as defined below).

In connection with this prepayment, we wrote off $1.0 million of previously unamortized deferred financing costs and original issue discount of $2.4 million as debt extinguishment costs.

Other (Income) Expense, Net

Other (income) expense, net was income of $2.4 million for the year ended December 31, 2019, a favorable change of $13.0 million, compared with expense of $10.6 million for the year ended December 31, 2018.

The change primarily consisted of $2.3 million in sales and use tax refunds received during the year ended December 31, 2019 and $10.1 million of lower foreign currency losses primarily related to the non-permanent intercompany debt denominated in local currency and translated to U.S.

Provision for Income Taxes

The provision for income taxes for the year ended December 31, 2019 was $39.7 million compared to a $33.6 million provision for the year ended December 31, 2018.

Other (income) expense, net was income of $5.0 million for the year ended December 31, 2020, a favorable change of $3.1 million, compared with income of $1.9 million for the year ended December 31, 2019.

The change primarily consisted of $5.3 million of foreign currency gains on the non-permanent intercompany debt denominated in local currency and translated to U.S.

dollars and transactional currency translation in the current year period as compared to foreign currency loss of $1.2 million in the prior year period.

(Benefit) Provision for Income Taxes

The (benefit) provision for income taxes for the year ended December 31, 2020 was $52.1 million benefit compared to a $12.3 million provision for the year ended December 31, 2019.

The effective income tax rate for the year ended December 31, 2020 was (2,350.6)% compared to 28.3% for the year ended December 31, 2019.

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federal statutory income tax rate and our effective income tax rate for the year ended December 31, 2020 was mainly due to the impact of the GILTI provisions of U.S.

tax reform, the effect of permanent differences related to foreign currency exchange gain or loss, differing tax rates in foreign jurisdictions compared to the U.S.

statutory tax rate, tax rate changes and state taxes.

tax reform, foreign tax credit benefit and the impact of intra-period allocation as a result of the Performance Chemicals and Performance Materials businesses being classified as held for sale.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for the year ended December 31, 2018 was mainly due to the impact of the GILTI provisions of U.S.

tax reform, the effect of permanent differences related to foreign currency exchange gain or loss, changes in valuation allowances, differing tax rates in foreign jurisdictions as compared to the U.S.

statutory tax rate and tax rate changes.

Net Income Attributable to PQ Group Holdings

For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net income attributable to PQ Group Holdings was $79.5 million for the year ended December 31, 2019 as compared to a net income of $58.3 million for the year ended December 31, 2018.

federal statutory income tax rate and our effective income tax rate for the year ended December 31, 2019 was mainly due to state and local taxes, GILTI and the impact of intra-period allocation as a result of the Performance Chemicals and Performance Materials businesses being classified as held for sale.

Net (Loss) Income Attributable to Ecovyst Inc.

For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net loss attributable to Ecovyst Inc.

was $278.8 million for the year ended December 31, 2020 as compared to a net income of $79.5 million for the year ended December 31, 2019.

Adjusted EBITDA

Summarized Segment Adjusted EBITDA information is shown below in the following table:

Summarized Adjusted EBITDA information is shown below in the following table:

December 31, Change

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(in millions, except percentages)

Segment Adjusted EBITDA (1) :

Refining Services

$ 175.6 $ 176.5 $ (0.9) (0.5) %

Catalysts (2)

107.8 81.1 26.7 32.9 %

Performance Chemicals

151.5 168.2 (16.7) (9.9) %

Total Segment Adjusted EBITDA (3)

Adjusted EBITDA (1) :

Ecoservices $ 157.2 $ 175.6 $ (18.4) (10.5) %

Catalyst Technologies (2)

74.5 107.8 (33.3) (30.9) %

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(39.1) (43.3) 4.2 (9.7) %

Adjusted EBITDA $ 393.9 $ 388.0 $ 5.9 1.5 %

(1) We define Segment Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Segment Adjusted EBITDA.

Segment Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalysts segment is $68.1 million for the year ended December 31, 2019, which includes $45.9 million of equity in net income, excluding $7.5 million of amortization of investment in affiliate step-up plus $14.7 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalysts segment is $56.7 million for the year ended December 31, 2018, which includes $37.5 million of equity in net income, excluding $6.6 million of amortization of investment in affiliate step-up plus $12.6 million of joint venture depreciation, amortization and interest.

(3) Our total Segment Adjusted EBITDA differs from our total consolidated Adjusted EBITDA due to unallocated corporate expenses.

Refining Services:

Total $ 192.6 $ 240.1 $ (47.5) (19.8) %

(1) We define Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Adjusted EBITDA.

Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $42.5 million for the year ended December 31, 2020, which includes $21.2 million of equity in net income, excluding $6.6 million of amortization of investment in affiliate step-up plus $14.7 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $68.1 million for the year ended December 31, 2019, which includes $45.9 million of equity in net income, excluding $7.5 million of amortization of investment in affiliate step-up plus $14.7 million of joint venture depreciation, amortization and interest.

(3) Our total Adjusted EBITDA by Segment differs from our total consolidated Adjusted EBITDA due to unallocated corporate expenses.

Ecoservices :

Adjusted EBITDA for the year ended December 31, 2020 was $157.2 million, a decrease of $18.4 million, or 10.5%, compared with $175.6 million for the year ended December 31, 2019.

Refining Services adjusted EBITDA was consistent with the prior year, and negatively impacted by decreased demand for virgin sulfuric acid, unexpected customer plant outages, timing of plant turnaround costs and the absence of a gain from insurance proceeds related to Hurricane Harvey, which was offset by the roll-off of a below-market contract and other contract renewals in our regenerated sulfuric acid and virgin sulfuric acid product lines.

Adjusted EBITDA for the year ended December 31, 2019 was $107.8 million, an increase of $26.7 million, or 32.9%, compared with $81.1 million for the year ended December 31, 2018.

Adjusted EBITDA increased due to favorable costs from building inventories to meet future sales commitments, higher polyolefin catalysts product group sales and increased sales of chemical synthesis catalysts sold to the methyl methacrylate end market.

Performance Chemicals:

Ecoservices adjusted EBITDA decreased due to lower regeneration services demand as a result of reduced refinery utilization rates, partially offset by fixed and SG&A related cost savings.

Catalyst Technologies :

Adjusted EBITDA for the year ended December 31, 2020 was $74.5 million, a decrease of $33.3 million, or 30.9%, compared with $107.8 million for the year ended December 31, 2019.

The decrease in Adjusted EBITDA was due to lower volumes of product sold to the industrial and consumer product industries and the strengthening of the U.S.

dollar, which was partially offset by favorable product mix.

A reconciliation of net income attributable to PQ Group Holdings to Segment Adjusted EBITDA is as follows:

Adjusted EBITDA decreased due to lower volumes in the Zeolyst joint venture and unfavorable inventory absorption due to lower production and inventory depletion to align with expected lower demand.

A reconciliation of net income attributable to Ecovyst Inc.

to Adjusted EBITDA is as follows:

(in millions)

Reconciliation of net income attributable to PQ Group Holdings Inc.

to Segment Adjusted EBITDA

Reconciliation of net income attributable to Ecovyst Inc.

to Adjusted EBITDA

Net income from continuing operations $ 54.3 $ 31.1

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Debt extinguishment costs 25.0 3.4

Net (gain) loss on asset disposals (c)

Foreign currency exchange loss (d)

LIFO expense (e)

Net loss on asset disposals (c)

Foreign currency exchange (gain) loss (d)

LIFO (benefit) expense (e)

Transaction and other related costs (f)

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Restructuring, integration and business optimization expenses (g)

Defined benefit plan pension cost (h)

Gain on contract termination (i)

Defined benefit plan pension cost (benefit) cost (h)

Adjusted EBITDA $ 192.6 $ 240.1

Unallocated corporate expenses 41.0 37.8

Segment Adjusted EBITDA $ 434.9 $ 425.7

(a) We use Adjusted EBITDA as a performance measure to evaluate our financial results.

(b) Represents the amortization of the fair value adjustments associated with the equity affiliate investment in the Zeolyst Joint Venture as a result of the Business Combination.

We determined the fair value of the equity affiliate investment and the fair value step-up was then attributed to the underlying assets of the Zeolyst Joint Venture.

Amortization is primarily related to the fair value adjustments associated with inventory, fixed assets and intangible assets, including customer relationships and technical know-how.

Amortization is primarily related to the fair value adjustments associated with fixed assets and intangible assets, including customer relationships and technical know-how.

(c) When asset disposals occur, we remove the impact of net gain/loss of the disposed asset because such impact primarily reflects the non-cash write-off of long-lived assets no longer in use.

During the year ended December 31, 2019, the net gain on asset disposals includes the gains related to the sale of a non-core product line and sale of property.

(d) Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income primarily related to the Euro-denominated term loan (which was settled as part of the February 2018 term loan refinancing) and the non-permanent intercompany debt denominated in local currency translated to U.S.

(e) Represents non-cash adjustments to the Company’s LIFO reserves for certain inventories in the U.S.

that are valued using the LIFO method, which we believe provides a means of comparison to other companies that may not use the same basis of accounting for inventories.

(f) Represents the costs related to several transactions that are completed, pending or abandoned and that we believe are not representative of our ongoing business operations.

(f) Relates to certain transaction costs, including debt financing, due diligence and other costs related to transactions that are completed, pending or abandoned and that we believe are not representative of our ongoing business operations.

(g) Includes the impact of restructuring, integration and business optimization expenses which are incremental costs that are not representative of our ongoing business operations.

(h) Represents adjustments for defined benefit pension plan costs in our statement of income.

locations that, pursuant to jurisdictional requirements, cannot be frozen.

(h) Represents adjustments for defined benefit pension plan (benefit) costs in our statement of income.

All of our defined benefit pension plan obligations are under defined benefit pension plans that are frozen.

As such, we do not view such expenses as core to our ongoing business operations.

(i) Represents a non-cash gain on the write-off of the remaining liability under a contractual supply arrangement.

As part of Eco’s acquisition of substantially all of the assets of Solvay USA Inc’ sulfuric acid refining services business unit on December 1, 2014, we recognized a liability as part of business combination accounting related to our obligation to serve a customer under a pre-existing unfavorable supply agreement.

In December 2018, the customer who was party to the agreement closed its facility, and as a result, we were relieved from our obligation to continue to supply the customer on the below market contract.

Because the fair value of the unfavorable contract liability was recognized as part of the application of business combination accounting, and since the write-off of the remaining liability was non-cash in nature, we believe this gain is a special item that is not representative of our ongoing business operations.

(j) Other costs consist of certain expenses that are not core to our ongoing business operations, including environmental remediation-related costs associated with the legacy operations of our business prior to the Business Combination, capital and franchise taxes, non-cash asset retirement obligation accretion and the initial implementation of procedures to comply with Section 404 of the Sarbanes-Oxley Act.

(i) Other costs consist of certain expenses that are not core to our ongoing business operations, including environmental remediation-related costs, capital and franchise taxes.

Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions).

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(in millions)

Reconciliation of net income attributable to PQ Group Holdings Inc.

Reconciliation of net (loss) income attributable to Ecovyst Inc.

to Adjusted Net Income (1)(2)

Net income from continuing operations $ 105.4 $ 39.7 $ 65.7 $ 84.0 $ 33.6 $ 50.4

Net income attributable to the non-controlling interest - continuing operations 0.6 — 0.6 1.1 — 1.1

Net income attributable to PQ Group Holdings Inc.

Net income attributable to Ecovyst Inc.

$ 2.2 $ (52.1) $ 54.3 $ 43.4 $ 12.3 $ 31.1

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Debt extinguishment costs 25.0 6.3 18.7 3.4 0.8 2.6

Net (gain) loss on asset disposals (d)

Net loss on asset disposals (c)

4.7 1.2 3.5 4.6 1.2 3.4

Foreign currency exchange loss (e)

Foreign currency exchange (gain) loss (d)

(5.3) (0.6) (4.7) 1.2 (0.1) 1.3

LIFO expense (f)

LIFO (benefit) expense (e)

(5.3) (1.3) (4.0) 6.5 1.7 4.8

Transaction and other related costs (h)

Transaction and other related costs (f)

1.1 0.3 0.8 0.2 0.1 0.1

Equity-based compensation 17.2 4.0 13.2 13.3 3.1 10.2

Restructuring, integration and business optimization expenses (i)

3.6 0.9 2.7 8.7 2.2 6.5

Defined benefit plan pension cost (j)

Restructuring, integration and business optimization expenses (g)

2.0 0.5 1.5 2.6 0.7 1.9

Gain on contract termination (k)

Defined benefit plan pension (benefit) cost (h)

(0.6) (0.2) (0.4) 0.6 0.2 0.4

3.0 0.7 2.3 0.4 (0.1) 0.5

Adjusted Net Income, including non-cash GILTI tax and tax reform 140.3 48.9 91.4 130.6 45.7 84.9

Adjusted Net Income, including non-cash GILTI tax and Impact of Discrete Tax Items 50.6 (39.5) 90.1 83.7 21.7 62.0

Impact of non-cash GILTI tax (3)

— — — — (1.0) 1.0

Impact of tax reform (4)

Impact of Discrete Tax Items (4)

— — — — (3.6) 3.6

Adjusted Net Income $ 50.6 $ (39.5) $ 90.1 $ 83.7 $ 17.1 $ 66.6

(1) We define adjusted net income as net income attributable to PQ Group Holdings adjusted for non-operating income or expense and the impact of certain non-cash or other items that are included in net income that we do not consider indicative of our ongoing operating performance.

(1) We define adjusted net income as net (loss) income attributable to Ecovyst Inc.

adjusted for non-operating income or expense and the impact of certain non-cash or other items that are included in net income that we do not consider indicative of our ongoing operating performance.

Adjusted net income is presented as a key performance indicator as we believe it will enhance a prospective investor’s understanding of our results of operations and financial condition.

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(2) Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.

(3) Amount represents the impact to tax expense in net income before non-controlling interest and the related adjustments to net income associated with the GILTI provisions of the TCJA.

We were required to record incremental tax provision impact with respect to GILTI even though we had historical NOL amounts to offset the GILTI taxable income inclusion.

We were required to record incremental tax provision impact with respect to GILTI as a result of having historical U.S.

net operating loss (“NOL”) amounts to offset the GILTI taxable income inclusion.

This NOL utilization precluded us from recognizing GILTI credits which would otherwise help offset the tax impacts of GILTI.

No GILTI credits will be recognized with respect to GILTI until the cumulative NOL balance had been exhausted.

Because the GILTI provision did not impact our cash taxes (given available U.S.

NOLs), we do not view this item as a component of core operations.

(4) Represents the transaction tax adjustment for the impact of the TCJA and the rate change in the Netherlands related to the Dutch Tax Plan 2019 recorded in net income.

The adjustments to net income attributable to PQ Group Holdings Inc.

Beginning with the year ended 2020, we are no longer adjusting for the impact of the GILTI provisions of the TCJA since the NOLs have been fully utilized and GILTI now represents a cash tax impact.

(4) Represents the rate change in the Netherlands related to the Dutch Tax Plan 2019 recorded in net income.

The adjustments to net income attributable to Ecovyst Inc.

are shown net of applicable statutory tax rates.

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Before any impact of hedges, a one percent change in assumed interest rates for our variable interest credit facilities would have an annual impact of approximately $9.0 million on interest expense.

None of the principal balances on our debt are due in the next twelve months.

The principal balance due in the next twelve months is $9.0 million.

Interest payments due within the next twelve months are $30.2 million using the interest rate effective as of December 31, 2021 on our variable interest credit facilities.

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Such charges could have a material impact on our financial position, results of operations, or cash flows.

Purchase commitments

We have entered into short and long-term purchase commitments for various key raw materials and energy requirements.

The purchase obligations include agreements with various suppliers to purchase goods that are enforceable and legally binding, and that specify all significant terms, including fixed and minimum quantities to be purchased, fixed, minimum or variable provisions, and the approximate timing of the transaction.

As of December 31, 2020, we had $22.0 million in purchase commitments, excluding agreements that are cancellable without penalty, of which $13.7 million is expected to be incurred in 2021.

2021 2020 2019

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Continuing Operations

Net (loss) income $ (179.5) $ 65.8 $ 50.4

Net income $ 1.8 $ 54.3 $ 31.1

Non-cash and non-operating activities (1)

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Net cash provided by operating activities, continuing operations $ 137.3 $ 140.1 $ 133.2

(1) Includes depreciation, amortization, changes related to purchase accounting fair value adjustments, amortization of deferred financing costs and original issue discount, goodwill impairment charges, debt extinguishment costs, foreign currency exchange gains and losses, pension and postretirement healthcare benefit expense and funding, deferred income tax benefit, net losses on asset disposals, stock compensation expense, equity in net income and dividends received from affiliated companies, and net interest income on swaps designated as net investment hedges.

(1) Includes depreciation, amortization, amortization of deferred financing costs and original issue discount, debt extinguishment costs, foreign currency exchange gains and losses, pension and postretirement healthcare benefit expense and funding, deferred income tax benefit, net losses on asset disposals, stock compensation expense, equity in net income and dividends received from affiliated companies.

2021 2020 2019

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Purchases of property, plant and equipment $ (60.0) $ (54.8) $ (55.3)

Investment in affiliated companies — — (5.0)

Proceeds from business divestiture, net of cash and indebtedness 978.4 624.3 —

Proceeds from sale of assets — 2.4 —

Proceeds from sale of product line 18.0 27.7 —

Proceeds from sale of investment 1.8 — —

Proceeds from settlement of swaps designated as net investment hedges — 38.1 —

Net interest proceeds on swaps designated as net investment hedges 5.0 8.5 4.9

Business combinations, net of cash acquired (42.6) — —

Other, net (0.1) (0.1) 0.7

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Continuing Operations

Net revolver borrowings $ — $ — $ (25.0)

Net cash repayments on debt obligations (542.9) (470.3) (215.0)

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Net cash used in financing activities, continuing operations $ (963.1) $ (720.2) $ (214.7)

The following discussions related to our cash flows are presented on a continuing operations basis, which excludes the cash flows from our former Performance Materials business accounted for as a discontinued operation.

The following discussions related to our cash flows are presented on a continuing operations basis, which excludes the cash flows from our former Performance Chemicals and Performance Materials businesses, which are accounted for as discontinued operations.

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Net cash provided by operating activities was $137.3 million for the year ended December 31, 2021, compared to $140.1 million provided for the year ended December 31, 2020.

Cash generated by net income and non-working capital related activities was lower during the year ended December 31, 2020 by $24.4 million compared to the prior year.

Cash provided by working capital during the year ended December 31, 2020 was favorable compared to the year ended December 31, 2019.

Working capital for the year ended December 31, 2020 provided cash of $9.2 million, compared to cash provided of $7.0 million for the year ended December 31, 2019.

The decrease in cash generated by net income and non-working capital related activities of $24.4 million as compared to the prior year period was primarily due to a decrease in gross profit driven by lower sales volumes and higher transaction related costs.

The $2.2 million increase in cash from working capital as compared to the prior year was primarily due to favorable changes in inventory and accounts payable, which were partially offset by unfavorable changes in accrued liabilities, accounts receivable and prepaid and other assets balances.

The favorable change in inventory balances is due to a reduction in inventory in 2020 compared to an inventory build in 2019.

We increased inventory levels at the end of the 2019 period within our polyolefin catalyst product group to meet sales demand in the 2020 period.

The favorable change in accounts payable is due to timing of payments.

The unfavorable change in accrued liabilities was primarily due to the timing of interest payments.

The reduced cash flow contribution from accounts receivable was driven by the timing of collections on our receivable balances during the current year period versus prior year periods.

The prior year period began with a higher receivable balances due to increased sales volumes at the end of December 31, 2018, of which those receivables were collected early in the 2019 period.

Net cash provided by investing activities was $562.3 million for the year ended December 31, 2020, compared to net cash used of $18.8 million during the year ended December 31, 2019.

Cash generated by net income and non-working capital related activities was higher during the year ended December 31, 2021 by $29.8 million compared to the prior year.

Cash used by working capital during the year ended December 31, 2021 was unfavorable compared to the year ended December 31, 2020.

Working capital for the year ended December 31, 2021 used cash of $18.1 million, compared to cash provided of $14.5 million for the year ended December 31, 2020.

The increase in cash generated by net income and non-working capital related activities of $29.8 million as compared to the prior year period was primarily due to an increase in gross profit driven by higher sales volumes.

The $32.6 million decrease in cash from working capital as compared to the prior year was primarily due to favorable changes in accrued liabilities, inventories, and accounts payables, which were offset by unfavorable changes in accounts receivable and prepaids.

The unfavorable change in accounts receivable was driven by the increase in sales volumes and higher pass-through pricing within our Ecoservices segment and the timing of sales within our Catalyst Technologies segment.

The unfavorable change in prepaid and other current assets relates to the timing of receivables from related parties and the timing of insurance prepayments.

The increase in cash provided by inventory was due to the increase in sales within our Catalyst Technologies segment in the current year period.

The favorable change in accounts payable is due to the timing of vendor payments as well as capital spending.

The favorable change in accrued liabilities relates to changes in various accruals.

Net cash provided by investing activities was $875.7 million for the year ended December 31, 2021, compared to net cash provided of $571.8 million during the year ended December 31, 2020.

Cash used in investing activities primarily consisted of $60.0 million and $54.8 million to fund capital expenditures during the years ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2020, we sold our Performance Materials business for net cash proceeds of $624.3 million, sold a product line which resulted in proceeds of $18.0 million, sold additional assets which generated proceeds of $9.4 million, received $5.0 million in interest proceeds related to our cross currency swaps and sold our investment in a joint venture of $1.8 million.

During the year ended December 31, 2019, we settled our cross currency swaps and received cash proceeds of $38.1 million, sold a product line which resulted in proceeds of $27.7 million, sold additional assets which generated proceeds of $17.6 million and received $8.5 million in interest proceeds related to our cross currency swaps.

During the year ended December 31, 2021, we divested our Performance Chemicals business and received $978.4 million in net proceeds and acquired Chem32 LLC for $42.6 million.

We received proceeds of $2.4 million related to the sale of non-core assets during the year ended December 31, 2020.

Net cash used in financing activities was $963.1 million for the year ended December 31, 2021, compared to net cash used of $720.2 million during the year ended December 31, 2020.

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Net cash provided by operating activities was $140.1 million for the year ended December 31, 2020, compared to $133.2 million provided for the year ended December 31, 2019.

Cash generated by net income and non-working capital related activities was lower during the year ended December 31, 2019 by $4.5 million compared to the prior year.

Cash used by working capital during the year ended December 31, 2019 was favorable compared to the year ended December 31, 2018.

Working capital for the year ended December 31, 2019 provided cash of $7.0 million, compared to cash used of $12.0 million for the year ended December 31, 2018.

The decrease in cash generated by net income and non-working capital related activities of $4.5 million as compared to the prior year period was primarily due to a decrease in gross profit driven by lower customer volumes and higher labor costs.

The $19.0 million increase in cash from working capital as compared to the prior year was primarily due to favorable changes in accounts receivable, prepaid and other current assets and accounts payable, which were partially offset by unfavorable changes in accrued liabilities and inventory balances.

The increase in cash flow related to accounts receivable was due the timing of collections on our receivable balances during the current year period.

We had higher receivables at the end of the 2018 period, of which those receivables were collected early in the 2019 period.

The favorable change in prepaid and other current assets was due to lower receivable balances with our joint ventures and other related parties as well as the receipt of insurance proceeds during the year ended December 31, 2019.

The favorable change in accounts payable was due to decrease in capital spending.

The unfavorable change in accrued liabilities was primarily due to the timing of wage and interest payments.

The unfavorable change in inventory was due to higher inventory build to meet future sales commitments.

Net cash used in investing activities was $18.8 million for the year ended December 31, 2019, compared to net cash used of $98.7 million during the year ended December 31, 2018.

Cash generated by net income and non-working capital related activities was higher during the year ended December 31, 2020 by $3.0 million compared to the prior year.

Cash provided by working capital during the year ended December 31, 2020 was favorable compared to the year ended December 31, 2019.

Working capital for the year ended December 31, 2020 provided cash of $14.5 million, compared to cash provided of $10.6 million for the year ended December 31, 2019.

The increase in cash generated by net income and non-working capital related activities of $3.0 million as compared to the prior year period was primarily due to a decrease in gross profit driven by lower sales volumes.

The $3.9 million increase in cash from working capital as compared to the prior year was primarily due to unfavorable changes in accrued liabilities and prepaid and other current assets, which were partially offset by favorable changes in accounts receivable, inventories and accounts payable.

The unfavorable change in accrued liabilities was primarily due to the timing of interest and employee-related payments.

The increased cash flow contribution from accounts receivable was driven by the timing of collections on our receivable balances during the current year period versus prior year period.

The favorable change in inventory balances

is due to a reduction in inventory in 2020 compared to an inventory build in 2019.

We increased inventory levels at the end of the 2019 period within our polyethylene catalyst product group to meet sales demand in the 2020 period.

The favorable change in accounts payable is due to timing of capital expenditure payments.

Net cash provided by investing activities was $571.8 million for the year ended December 31, 2020, compared to net cash used of $54.6 million during the year ended December 31, 2019.

Cash used in investing activities primarily consisted of $54.8 million and $55.3 million to fund capital expenditures during the years ended December 31, 2020 and 2019, respectively.

During the year ended December 31, 2019, we settled our cross currency swaps and received proceeds of $38.1 million, sold a product line which resulted in proceeds of $27.7 million, sold additional assets which generated proceeds of $17.6 million and received $8.5 million in interest proceeds related to our cross currency swaps.

During the year ended December 31, 2018, we sold assets which generated proceeds of $12.4 million and received $4.9 million in interest proceeds related to our cross currency swaps.

During the year ended December 31, 2020, we sold our Performance Materials business for net cash proceeds of $624.3 million and sold additional assets which generated proceeds of $2.4 million.

Net cash used in financing activities was $720.2 million for the year ended December 31, 2020, compared to net cash used of $214.7 million during the year ended December 31, 2019.

Net cash used in financing activities was primarily driven by $215.0 million and $107.5 million in repayments of our term debt and revolving credit facility made during the years ended December 31, 2019 and 2018, respectively.

Net cash used in financing activities was primarily driven by $470.3 million and $215.0 million in net repayments of our debt and revolving credit facility made during the years ended December 31, 2020 and 2019, respectively.

During the year ended December 31, 2020, we paid a dividend of $1.80 per common share, which resulted in a cash outflow of $243.7 million.

(in millions)

Senior Secured Term Loan Facility due February 2027 $ 671.7 $ 947.5

New Senior Secured Term Loan Facility due February 2027 459.7 —

6.75% Senior Secured Notes due 2022 — 625.0

the 2018 Term Loan Facility $ — $ 671.7

the 2020 Term Loan Facility — 459.7

the 2021 Term Loan Facility 895.5 —

5.75% Senior Unsecured Notes due 2025 — 295.0

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On May 4, 2016, we entered into senior secured credit facilities (collectively, the “2016 Senior Secured Credit Facilities”) that were comprised of a $1,200.0 million term loan facility consisting of a $900.0 million U.S.

On February 8, 2018, we refinanced the 2016 Term Loan Facility with a new $1,267.0 million senior secured term loan facility (the “Term Loan Facility”) by entering into the Third Amendment Agreement to the 2016 Term Loan Facility, which amended and restated the 2016 Term Loan Facility.

Pursuant to the Third Amendment Agreement, the Term Loan Facility accrued interest at a floating rate of LIBOR (with a zero percent minimum LIBOR floor) plus 2.50% per annum and was scheduled to mature in February 2025.

In February 2020, we re-priced the $459.7 million Term Loan Facility to reduce the applicable interest rate and extend the maturity of the facility to February 2027.

The terms of the facility were substantially consistent following the re-pricing, except that borrowings under the term loan will bear interest at a rate equal to a floating rate of LIBOR plus 2.25% per annum.

The ABL Facility provides for up to $200.0 million in revolving credit borrowings consisting of up to $150.0 million in U.S.

dollar-denominated tranche and a $300.0 million Euro-denominated (or €265.0 million) tranche (the “2016 Term Loan Facility”), and a $200.0 million asset-based revolving credit facility (the “ABL Facility”), which provided for up to $200.0 million in revolving credit borrowings consisting of up to $150.0 million in U.S.

available borrowings, up to $10.0 million in Canadian available borrowings and up to $40.0 million of European available borrowings.

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In addition, there is an annual commitment fee equal to 0.375%, with a step-down to 0.25% based on the average usage of the revolving credit borrowings available.

As of December 31, 2020, there were no revolving credit borrowings under the ABL Facility.

Revolving credit borrowings are payable at our option throughout the term of the ABL Facility with the balance due May 4, 2021.

We were in compliance with all debt covenants as of December 31, 2020 and 2019, respectively.

On March 20, 2020, we amended our existing ABL facility to increase the aggregate amount of the revolving loan commitments available by $50.0 million to $250.0 million, consisting of up to $195.0 million in U.S.

On February 8, 2018, we refinanced the 2016 Term Loan Facility with a new $1,267.0 million senior secured term loan facility by entering into the Third Amendment Agreement to the 2016 Term Loan Facility, which amended and restated the 2016 Term Loan Facility.

Pursuant to the Third Amendment Agreement, the 2018 Term Loan Facility accrued interest at a floating rate of LIBOR (with a zero percent minimum LIBOR floor) plus 2.50% per annum and was scheduled to mature in February 2025.

On February 7, 2020, we re-priced the 2018 Term Loan Facility to reduce the applicable interest rate and extend the maturity of the facility to February 2027.

The terms of the facility were substantially consistent following the re-pricing, except that borrowings under the term loan bore interest at a rate equal to a floating rate of LIBOR plus 2.25% per annum.

On March 20, 2020, we amended the ABL Facility to increase the aggregate amount of the revolving loan commitments available by $50.0 million to $250.0 million, consisting of up to $195.0 million in U.S.

commitments, up to $15.0 million in Canadian commitments and up to $40.0 million in European commitments.

The maturity of the facility has been extended to March 20, 2025.

The maturity of the facility was extended to March 20, 2025.

Following the amendment, the borrowings under the amended ABL Facility bear interest at a rate equal to the LIBOR rate or the base rate plus a margin of between 1.25% and 1.75% or 0.25% to 0.75%, respectively.

The Company has the ability to request letters of credit under the ABL Facility.

The Company had $18.2 million of letters of credit outstanding as of December 31, 2020, which reduce available borrowings under the ABL Facility by such amounts.

On July 22, 2020, we entered into an agreement for a new senior secured term loan facility (the “2020 Term Loan Facility) for an aggregate principal amount of $650.0 million an original issue discount of 1.5% and interest at a floating rate of LIBOR (with a 1.0% minimum LIBOR floor) plus 3.0% per annum.

The proceeds were used to redeem our existing $625.0 million of 6.75% Senior Secured Notes due 2022 and pay the associated early redemption premiums.

The 2020 Term Loan Facility required scheduled quarterly amortization payments, each equal to 0.25% of the original principal amount of the loans under the 2020 Term Loan Facility.

On June 9, 2021, we entered into another agreement for a new senior secured term loan facility (the “2021 Term Loan Facility”) for an aggregate principal amount of $900.0 million with an original issue discount of 0.25% and interest at a floating rate of LIBOR (with a 0.50% minimum LIBOR floor) plus 2.75% per annum.

We also amended the ABL Facility (the “2021 ABL Amendment”).

The proceeds from the 2021 Term Loan Facility were used to pay in full the 2020 Term Loan Facility and partially pay the 2018 Term Loan Facility.

The 2021 ABL Amendment amended the aggregate amount of revolving loan commitments available to the borrowers to $100 million, consisting of $90 million in U.S.

commitments and $10 million in European commitments and extended the maturity date to August 2, 2026.

Effective on August 1, 2021, we completed the sale of our Performance Chemicals business for $1.1 billion, subject to certain adjustments as set forth in the agreement.

We used a portion of the net cash proceeds to repay the remaining 2018 Term Loan Facility principal amount of $231,363.

As of December 31, 2021, there were no revolving credit borrowings under the ABL Facility.

Revolving credit borrowings are payable at our option throughout the term of the ABL Facility with the balance due August 2, 2026.

We were in compliance with all debt covenants as of December 31, 2021 and 2020, respectively.

We have the ability to request letters of credit under the ABL Facility.

We had $17.5 million of letters of credit outstanding as of December 31, 2021, which reduce available borrowings under the ABL Facility by such amounts.

6.75% Senior Secured Notes due 2022 - Redeemed in 2020

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The proceeds were used to redeem the 6.75% Senior Secured Notes.

Refer to the New Senior Secured Term Loan Facility section of this note for further discussion.

New Senior Secured Term Loan Facility due February 2027

In July 2020, we entered into an agreement for a new senior secured term loan facility in an aggregate principal amount of $650.0 million with an original issue discount of 1.5% and interest at a floating rate of LIBOR (with a 1.0% minimum LIBOR floor) plus 3.0% per annum.

The proceeds were used to redeem our existing $625.0 million of 6.75% Senior Secured Notes due 2022 and pay the associated early redemption premiums.

The new senior secured term loan facility requires scheduled quarterly amortization payments, each equal to 0.25% of the original principal amount of the loans under the new senior secured term loan facility.

5.75% Senior Unsecured Notes due 2025

5.75% Senior Unsecured Notes due 2025 - Redeemed in 2021

On December 11, 2017, we issued $300.0 million aggregate principal amount of 5.75% Senior Unsecured Notes due 2025 (the “5.75% Senior Unsecured Notes”) in a private placement exempt from the registration requirements of the Securities Act.

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Interest on the 5.75% Senior Unsecured Notes is to be paid semi-annually on February 15 and August 15, commencing August 15, 2018, at an annual rate of 5.75% per year.

On August 1, 2021, we used a portion of the net cash proceeds from the sale of our Performance Chemicals business to redeem the 5.750% Senior Notes.

The 5.750% Senior Notes were redeemed at a redemption price equal to the sum of 102.875% of the principal amount outstanding plus accrued and unpaid interest to, but excluding, August 2, 2021.

Capital Expenditures

8 unchanged sentences

Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods.

Growth capital expenditures are lower in the year ended December 31, 2020 as compared to December 31, 2019 due to delayed expansion capital to align with market conditions.

Maintenance capital expenditures are lower in the year ended December 31, 2019 as compared to December 31, 2018 due to lower plant maintenance costs and the timing of turnaround projects.

Capital expenditures are higher in the year ended December 31, 2021 as compared to December 31, 2020 as both growth and maintenance expenditures has resumed since COVID-19.

Capital expenditures are lower in the year ended December 31, 2020 as compared to December 31, 2019 as both growth and maintenance expenditures were delayed to align with general market conditions.

Pension Funding

We paid $9.1 million, $8.8 million and $6.8 million in cash contributions into our defined benefit pension plans and other postretirement plans during the years ended December 31, 2020, 2019 and 2018, respectively.

We paid an immaterial amount in cash contributions into our defined benefit pension plans and other postretirement plans in December 31, 2021 and $3.3 million and $5.0 million in 2020 and 2019, respectively.

The net periodic pension and postretirement expense was $0.3 million, $0.4 million, and $1.5 million for those same periods, respectively.

As of December 31, 2021 and 2020, our pension plans and other post-retirement benefit plans were underfunded by $4.2 million and $12.2 million, respectively.

In addition, our supplemental retirement plan had a liability balance of $12.4 million and $11.7 million as of December 31, 2020 and 2019, respectively, which is funded by our general assets including assets held in a Rabbi trust, or restoration plan assets, of $3.7 million and $4.2 million as of December 31, 2020 and 2019, respectively.

Off-Balance Sheet Arrangements

We had $17.5 million and $18.2 million of outstanding letters of credit on our revolver facility as of December 31, 2021 and 2020, respectively.

Critical Accounting Policies and Estimates

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with GAAP and our significant accounting policies are described in Note 2 to our consolidated financial statements.

3 unchanged sentences

We review these matters and reflect changes in estimates as appropriate.

We have identified below the accounting policies, estimates and critical judgment areas that we believe could have a material effect on our financial position, liquidity or results of operations.

We have identified

below the accounting policies, estimates and critical judgment areas that we believe could have a material effect on our financial position, liquidity or results of operations.

Revenue Recognition

20 unchanged sentences

As described above, our MSAs with our customers may outline prices for individual products or contract provisions.

MSAs in the our Performance Chemicals and Refining Services segments may contain provisions whereby raw materials costs are passed-through to the customer per the terms of their contract.

MSAs in the our Ecoservices segment may contain provisions whereby raw materials costs are passed-through to the customer per the terms of their contract.

Our exposure to fluctuations in raw materials prices is limited, as the majority of pass-through contract provisions reset based on fluctuations in the underlying raw material price.

MSAs in our Refining Services segment also contain take-or-pay arrangements, whereby the customer would incur a penalty in the form of a shortfall volume fee.

MSAs in our Ecoservices segment also contain take-or-pay arrangements, whereby the customer would incur a penalty in the form of a shortfall volume fee.

Currently there is no history in which customers fail to meet the contractual minimum.

15 unchanged sentences

The quantitative test identifies both the potential existence of impairment and the amount of impairment loss.

In performing our annual impairment test on goodwill as of October 1, 2020, we determined that an impairment existed with respect to our Performance Chemicals segment.

As a result, we recorded a non-cash goodwill impairment charge of $260.0 million.

In applying the quantitative test, the Company calculates and compares the reporting unit’s estimated fair value to its carrying value, including goodwill.

If the fair value of a reporting unit exceeds its carrying value, goodwill is not impaired.

If the carrying value of a reporting unit exceeds its implied fair value, an impairment charge is recognized, requiring recognition of a goodwill impairment charge for the differential up to the carrying value of goodwill.

If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value.

An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit and the loss establishes a new basis in the goodwill.

12 unchanged sentences

If we choose to bypass the qualitative assessment, or if the qualitative assessment indicates that the indefinite-lived intangible asset is more likely than not impaired, a quantitative impairment test must be performed.

Unlike the goodwill impairment test, the quantitative test for indefinite-lived intangible assets is a one-step test comparing the fair value of the asset to its carrying amount.

The quantitative test for indefinite-lived intangible assets is a one-step test comparing the fair value of the asset to its carrying amount.

If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss is recognized in an amount equal to the difference.

36 unchanged sentences

We recognize potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Tax examinations are often complex as tax authorities may disagree with the treatment of items reported by us and may require several years to resolve.

Tax examinations are often complex as tax authorities may disagree with the treatment of items

reported by us and may require several years to resolve.

These accrued liabilities represent a provision for taxes that are reasonably expected to be incurred on the basis of available information but which are not certain.

On December 22, 2017, the TCJA was enacted into law.

The TCJA provided for several significant tax law changes and modifications, including the reduction of the U.S.

federal corporate income tax rate from 35% to 21%, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, as well as the creation of new taxes on certain foreign-sourced earnings.

At December 31, 2018 we had completed our accounting for the impacts of the enactment of the Act.

The 2020 U.S.

federal impact to tax expense with respect to GILTI is $7.8 million.

Based on FASB guidance, we are permitted to make an accounting policy election to either (1) treat the taxes incurred as a result of the GILTI provision as a current-period expense when incurred or (2) factor such amounts into our measurement of deferred taxes.

We have elected to treat any expense incurred as a current-period expense.

Stock-Based Compensation

24 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis