Segments and Related Information

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Segments and Related Information

Segments and Related Information

a. Segment Reporting

The Company determines its reportable segments based on how the business is managed internally for the products sold to customers, including how results are reviewed and resources are allocated by the chief operating decision makers (“CODM”). The Company’s operations are managed by the CODM using the following reportable segments:

• Specialty Products. The specialty products segment produces a variety of lubricating oils, solvents, waxes, synthetic lubricants and other products which are sold to customers who purchase these products primarily as raw material components for industrial, consumer and automotive goods. Specialty products also include synthetic lubricants used in manufacturing, mining and automotive applications.

• Fuel Products. The fuel products segment produces primarily gasoline, diesel, jet fuel, and asphalt which are primarily sold to customers located in the PADD 3 and PADD 4 areas within the U.S.

• Corporate. The corporate segment primarily consists of general and administrative expenses not allocated to the Specialty Products or Fuel Products segments.

During the third quarter of 2019, the CODM changed how the Company assesses performance, allocates resources, and allocates certain costs. In response to those changes, a corporate segment was added. Prior to the third quarter of 2019, various pricing models were used in determining the calculation of inter-segment sales. Beginning in the third quarter of 2019, all inter-segment sales are calculated using market-based transfer pricing. Further, cost allocations were modified to conform to the new segment alignments. This change in management reporting has resulted in an increase in the inter-segment sales reported by the Company’s specialty products operating segment. Prior period amounts have been recast to conform with the current presentation. These changes in management reporting had no impact on consolidated revenue, segment reporting of external sales or consolidated Adjusted EBITDA.

During the first quarter of 2020, the CODM changed the definition and calculation of Adjusted EBITDA, which is used by the Company for evaluating performance, allocating resources and managing the business. The revised definition and calculation of Adjusted EBITDA now includes LCM inventory adjustments and LIFO adjustments, (see items (g) and (h) below,) which were

previously excluded. This revised definition and calculation better reflects the performance of the Company’s business segments including cash flows. Adjusted EBITDA has been revised for all periods presented to consistently reflect this change.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies as disclosed in Note 2 — “Summary of Significant Accounting Policies,” of the Company’s 2019 Annual Report on Form 10-K, except that the disaggregated financial results for the reporting segments have been prepared using a management approach, which is consistent with the basis and manner in which management internally disaggregates financial information for the purposes of assisting internal operating decisions. The Company accounts for inter-segment sales and transfers at cost plus a specified mark-up. The Company will periodically refine its expense allocation methodology for its segment reporting as more refined information becomes available and the industry or market changes. The Company evaluates performance based upon Adjusted EBITDA (a non-GAAP financial measure). The Company defines Adjusted EBITDA for any period as EBITDA adjusted for (a) impairment; (b) unrealized gains and losses from mark to market accounting for hedging activities; (c) realized gains and losses under derivative instruments excluded from the determination of net income (loss); (d) non-cash equity-based compensation expense and other non-cash items (excluding items such as accruals of cash expenses in a future period or amortization of a prepaid cash expense) that were deducted in computing net income (loss); (e) debt refinancing fees, premiums and penalties; (f) any net loss realized in connection with an asset sale that was deducted in computing net income (loss); (g) LCM inventory adjustments; (h) the impact of liquidation of inventory layers calculated using the LIFO method; and (i) all extraordinary, unusual or non-recurring items of gain or loss, or revenue or expense.

The Company manages its assets on a total company basis, not by segment. Therefore, management does not review any asset information by segment and, accordingly, the Company does not report asset information by segment.

Reportable segment information for the three months ended June 30, 2020 and 2019, is as follows (in millions):

Three Months Ended June 30, 2020	Specialty Products			Fuel Products			Corporate			Eliminations			Consolidated Total
Sales:
External customers	$	232.7		$	221.0		$	—		$	—		$	453.7
Inter-segment sales	11.2			4.8			—			(16.0		)	—
Total sales	$	243.9		$	225.8		$	—		$	(16.0	)	$	453.7
Adjusted EBITDA	$	56.1		$	1.9		$	(17.0	)	$	—		$	41.0
Reconciling items to net income:
Depreciation and amortization	10.1			17.8			1.9			—			29.8
LCM / LIFO gain	(4.2		)	(27.9		)	—			—			(32.1		)
Loss on impairment and disposal of assets	—			0.1			0.6			—			0.7
Interest expense	—			(0.4		)	31.0			—			30.6
Unrealized (gain) loss on derivatives	(0.4		)	1.6			—			—			1.2
Equity-based compensation and other items													7.0
Income tax expense													0.2
Net income													$	3.6
Three Months Ended June 30, 2019	Specialty Products			Fuel Products			Corporate			Eliminations			Consolidated Total
Sales:
External customers	$	344.4		$	552.5		$	—		$	—		$	896.9
Inter-segment sales	24.4			12.4			—			(36.8		)	—
Total sales	$	368.8		$	564.9		$	—		$	(36.8	)	$	896.9
Adjusted EBITDA	$	55.1		$	50.2		$	(28.3	)	$	—		$	77.0
Reconciling items to net loss:
Depreciation and amortization	12.2			18.5			1.9			—			32.6
LCM / LIFO gain	0.4			(3.0		)	—			—			(2.6		)
Loss on impairment and disposal of assets	—			0.1			16.1			—			16.2
Interest expense	—			4.3			28.8			—			33.1
Gain on debt extinguishment	—			—			(0.3		)	—			(0.3		)
Unrealized loss on derivatives	7.6			4.6			—			—			12.2
Equity-based compensation and other items													2.3
Income tax expense													0.3
Net loss													$	(16.8	)

Reportable segment information for the six months ended June 30, 2020 and 2019, is as follows (in millions):

Six Months Ended June 30, 2020	Specialty Products			Fuel Products			Corporate			Eliminations			Consolidated Total
Sales:
External customers	$	559.6		$	586.7		$	—		$	—		$	1,146.3
Inter-segment sales	28.6			12.8			—			(41.4		)	—
Total sales	$	588.2		$	599.5		$	—		$	(41.4	)	$	1,146.3
Adjusted EBITDA	$	120.6		$	41.1		$	(37.0	)	$	—		$	124.7
Reconciling items to net loss:
Depreciation and amortization	21.9			35.6			3.8			—			61.3
LCM / LIFO loss	18.0			16.4			—			—			34.4
Loss on impairment and disposal of assets	1.5			0.1			5.1			—			6.7
Interest expense	—			(2.1		)	62.0			—			59.9
Unrealized gain on derivatives	(0.1		)	(30.3		)	—			—			(30.4		)
Other non-recurring income													(1.2		)
Equity-based compensation and other items													4.1
Income tax expense													0.7
Net loss													$	(10.8	)
Six Months Ended June 30, 2019	Specialty Products			Fuel Products			Corporate			Eliminations			Consolidated Total
Sales:
External customers	$	696.6		$	1,051.6		$	—		$	—		$	1,748.2
Inter-segment sales	47.2			23.4			—			(70.6		)	—
Total sales	$	743.8		$	1,075.0		$	—		$	(70.6	)	$	1,748.2
Income from unconsolidated affiliates	$	3.8		$	—		$	—		$	—		$	3.8
Adjusted EBITDA	$	113.5		$	76.1		$	(52.9	)	$	—		$	136.7
Reconciling items to net loss:
Depreciation and amortization	23.7			38.2			3.7			—			65.6
LCM / LIFO gain	(5.3		)	(35.3		)	—			—			(40.6		)
Loss on impairment and disposal of assets	—			11.8			16.1			—			27.9
Interest expense	—			7.1			58.3			—			65.4
Gain on debt extinguishment	—			—			(0.7		)	—			(0.7		)
Unrealized loss on derivatives	8.1			6.7			—			—			14.8
Gain on sale of unconsolidated affiliate	(1.2		)	—			—			—			(1.2		)
Equity-based compensation and other items													5.7
Income tax expense													0.2
Net loss													$	(0.4	)

b. Geographic Information

International sales accounted for less than ten percent of consolidated sales in each of the three and six months ended June 30, 2020 and 2019. Substantially all of the Company’s long-lived assets are domestically located.

c. Product Information

The Company offers specialty products primarily in categories consisting of lubricating oils, solvents, waxes, packaged and synthetic specialty products and other. Fuel products categories primarily consist of gasoline, diesel, jet fuel, asphalt, heavy fuel oils and other. The following table sets forth the major product category sales for each of the Specialty products and Fuel products segments for the three months ended June 30, 2020 and 2019 (dollars in millions):

	Three Months Ended June 30,
	2020				2019
Specialty products:
Lubricating oils	$	91.4	20.1	%	$	152.5	17.0	%
Solvents	47.3		10.4	%	80.7		9.0	%
Waxes	27.9		6.2	%	31.6		3.5	%
Packaged and synthetic specialty products	58.8		13.0	%	60.7		6.8	%
Other	7.3		1.6	%	18.9		2.1	%
Total	$	232.7	51.3	%	$	344.4	38.4	%
Fuel products:
Gasoline	$	67.4	14.9	%	$	183.8	20.5	%
Diesel	98.6		21.7	%	218.1		24.3	%
Jet fuel	10.4		2.3	%	40.7		4.5	%
Asphalt, heavy fuel oils and other	44.6		9.8	%	109.9		12.3	%
Total	$	221.0	48.7	%	$	552.5	61.6	%
Consolidated sales	$	453.7	100.0	%	$	896.9	100.0	%

The following table sets forth the major product category sales for the six months ended June 30, 2020 and 2019 (dollars in millions):

	Six Months Ended June 30,
	2020				2019
Specialty products:
Lubricating oils	$	230.0	20.1	%	$	304.6	17.4	%
Solvents	124.4		10.9	%	168.1		9.6	%
Waxes	58.4		5.0	%	62.5		3.6	%
Packaged and synthetic specialty products	116.5		10.2	%	120.6		6.9	%
Other	30.3		2.6	%	40.8		2.3	%
Total	$	559.6	48.8	%	$	696.6	39.8	%
Fuel products:
Gasoline	$	188.3	16.4	%	$	341.4	19.6	%
Diesel	252.4		22.0	%	444.0		25.4	%
Jet fuel	36.3		3.2	%	61.3		3.5	%
Asphalt, heavy fuel oils and other	109.7		9.6	%	204.9		11.7	%
Total	$	586.7	51.2	%	$	1,051.6	60.2	%
Consolidated sales	$	1,146.3	100.0	%	$	1,748.2	100.0	%

d. Major Customers

During the three and six months ended June 30, 2020 and 2019, the Company had no customer that represented 10% or greater of consolidated sales.

e. Major Suppliers

During the three months ended June 30, 2020 and 2019, the Company had two suppliers that supplied approximately 57.2% and 67.7%, respectively, of its crude oil supply. During the six months ended June 30, 2020 and 2019, the Company had two suppliers that supplied approximately 54.6% and 63.0%, respectively, of its crude oil supply.