EXHIBIT 99.3
PQ GROUP HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Overview
On March 1, 2021, PQ Group Holdings Inc. (the “Company”), announced that it has entered into a definitive agreement to sell its Performance Chemicals business to a partnership established by Cerberus Capital Management, L.P. and Koch Minerals & Trading LLC (the “Purchaser”). Pursuant to the Purchase Agreement, and upon anticipated closing, the Company will divest its Performance Chemicals business to the Purchaser through the sale of the Company’s direct and indirect equity interests in each of the Company’s subsidiaries comprising the Performance Chemicals business (the “Transaction”) in exchange for a purchase price of $1.1 billion in cash, subject to certain adjustments specified therein, including for indebtedness, cash, working capital and transaction expenses of the Performance Chemicais business at the closing of the Transaction. Upon the anticipated close in 2021 and finalization of net cash proceeds, the Company is required to use portions of the proceeds to repay the outstanding debt and expects to restructure its debt, which is estimated to result in a debt reduction of $450 million to $550 million (the “Estimated Required Debt Repayment”). In addition, subject to the debt restructuring, the Company plans to return capital to shareholders through a special dividend of $2.50 to $3.25 per share (subject to Board approval and declaration).
In conjunction with entering into the definitive agreement, Performance Chemicals met the criteria set forth in Accounting Standards Codification 205-20, Presentation of Financial Statements – Discontinued Operations (“ASC 205-20”). As a result, the results of operations of Performance Chemicals will be presented as discontinued operations in the consolidated statements of operations for all periods presented beginning with the quarterly financial statements to be filed on Form 10-Q for the quarter ended March 31, 2021.
The unaudited pro forma condensed consolidated financial statements were prepared in accordance with Article 11 of Regulation S-X and have been derived from the historical financial statements prepared in accordance with accounting principles generally accepted in the United States of America and are presented based on available information and certain assumptions that management believes are reasonable.
The unaudited pro forma financial statements present the Company’s unaudited pro forma condensed consolidated financial statements reflecting the effect of the Transaction as well as the Estimated Required Debt Repayment. The unaudited pro forma condensed consolidated balance sheet reflects the Company’s financial position as if the Transaction and the Estimated Required Debt Repayment had occurred on December 31, 2020. The unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2020 is presented as if the Transaction and Estimated Required Debt Repayment had occurred on January 1, 2020. The unaudited pro forma condensed consolidated statements of income for the years ended December 31, 2019 and 2018 are presented with the elimination of the historical Performance Chemicals financial results as discontinued operations.
The unaudited pro forma condensed consolidated financial statements and the accompanying notes should be read in conjunction with our historical financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only and are not necessarily indicative of the operating results that would have occurred if the Transaction had been completed as of the dates set forth above, nor are they indicative of the future results of the Company. The unaudited condensed pro forma financial statements do not purport to project the future operating results or financial position of the Company following the Transaction.
PQ GROUP HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2020
(In thousands)
| Historical As Reported |
(A) Divestiture of Performance Chemicals |
(B) Pro Forma Adjustments |
Pro Forma | |||||||||||||
| ASSETS |
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| Cash and cash equivalents |
$ | 135,531 | $ | 973,580 | $ | (500,000 | ) | $ | 609,111 | |||||||
| Accounts receivables, net |
132,619 | (86,695 | ) | — | 45,924 | |||||||||||
| Inventories, net |
127,436 | (75,625 | ) | — | 51,811 | |||||||||||
| Prepaid and other current assets |
32,554 | (18,641 | ) | — | 13,913 | |||||||||||
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| Total current assets |
428,140 | 792,619 | (500,000 | ) | 720,759 | |||||||||||
| Investments in affiliated companies |
458,452 | (324 | ) | — | 458,128 | |||||||||||
| Property, plant and equipment, net |
983,235 | (390,541 | ) | — | 592,694 | |||||||||||
| Goodwill |
717,738 | (326,173 | ) | — | 391,565 | |||||||||||
| Other intangible assets, net |
526,303 | (388,857 | ) | — | 137,446 | |||||||||||
| Right-of-use lease assets |
48,239 | (19,296 | ) | — | 28,943 | |||||||||||
| Other long-term assets |
35,714 | (23,124 | ) | — | 12,590 | |||||||||||
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| Total assets |
$ | 3,197,821 | $ | (355,696 | ) | $ | (500,000 | ) | $ | 2,342,125 | ||||||
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| LIABILITIES |
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| Accounts payable |
112,333 | (74,228 | ) | — | 38,105 | |||||||||||
| Operating lease liabilities—current |
15,194 | (8,479 | ) | — | 6,715 | |||||||||||
| Accrued liabilities |
73,811 | (25,144 | ) | — | 48,667 | |||||||||||
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| Total current liabilities |
201,338 | (107,851 | ) | — | 93,487 | |||||||||||
| Long-term debt, excluding current portion |
1,400,369 | — | (489,645 | ) | 910,724 | |||||||||||
| Deferred income taxes |
175,901 | (49,900 | ) | — | 126,001 | |||||||||||
| Operating lease liabilities—noncurrent |
32,019 | (10,047 | ) | — | 21,972 | |||||||||||
| Other long-term liabilities |
111,015 | (97,021 | ) | — | 13,994 | |||||||||||
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| Total liabilities |
$ | 1,920,642 | $ | (264,819 | ) | $ | (489,645 | ) | $ | 1,166,178 | ||||||
| EQUITY |
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| Common stock |
1,371 | — | — | 1,371 | ||||||||||||
| Preferred stock |
— | — | — | — | ||||||||||||
| Additional paid-in capital |
1,477,859 | — | — | 1,477,859 | ||||||||||||
| (Accumulated deficit) retained earnings |
(175,758 | ) | (206,309 | ) | (10,355 | ) | (392,422 | ) | ||||||||
| Treasury stock |
(11,081 | ) | — | — | (11,081 | ) | ||||||||||
| Accumulated other comprehensive loss |
(15,265 | ) | 115,485 | — | 100,220 | |||||||||||
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| Total PQ Group Holdings Inc. equity |
1,277,126 | (90,824 | ) | (10,355 | ) | 1,175,947 | ||||||||||
| Noncontrolling interest |
53 | (53 | ) | — | — | |||||||||||
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| Total equity |
1,277,179 | (90,877 | ) | (10,355 | ) | 1,175,947 | ||||||||||
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| Total liabilities and equity |
$ | 3,197,821 | $ | (355,696 | ) | $ | (500,000 | ) | $ | 2,342,125 | ||||||
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See accompanying notes to the unaudited pro forma condensed consolidated financial statements.
2
PQ GROUP HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2020
(In thousands, except per share amounts)
| Historical As Reported |
(C) Divestiture of Performance Chemicals |
(D) Pro Forma Adjustments |
Pro Forma | |||||||||||||
| Sales |
$ | 1,107,363 | $ | (611,443 | ) | — | $ | 495,920 | ||||||||
| Cost of goods sold |
834,007 | (487,787 | ) | — | 346,220 | |||||||||||
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| Gross profit |
273,356 | (123,656 | ) | — | 149,700 | |||||||||||
| Selling, general and administrative expenses |
125,294 | (43,778 | ) | — | 81,516 | |||||||||||
| Goodwill impairment charge |
260,000 | (260,000 | ) | — | — | |||||||||||
| Other operating expense, net |
50,986 | (33,144 | ) | — | 17,842 | |||||||||||
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| Operating (loss) income |
(162,924 | ) | 213,266 | — | 50,342 | |||||||||||
| Equity in net income from affiliated companies |
(21,237 | ) | 172 | — | (21,065 | ) | ||||||||||
| Interest expense, net |
66,979 | (14,272 | ) | — | 52,707 | |||||||||||
| Debt extinguishment costs |
25,028 | — | 7,832 | 32,860 | ||||||||||||
| Other (income) expense, net |
(6,109 | ) | 548 | — | (5,561 | ) | ||||||||||
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| (Loss) income from continuing operations before income taxes |
(227,585 | ) | 226,818 | (7,832 | ) | (8,599 | ) | |||||||||
| (Benefit) provision for income taxes |
(48,122 | ) | (13,909 | ) | (1,964 | ) | (63,995 | ) | ||||||||
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| Net (loss) income from continuing operations |
(179,463 | ) | 240,727 | (5,868 | ) | 55,396 | ||||||||||
| Less: Net (loss) income attributable to the noncontrolling interest—continuing operations |
(3,198 | ) | 3,198 | — | — | |||||||||||
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| Net (loss) income attributable to PQ Group Holdings Inc. |
(176,265 | ) | 237,529 | (5,868 | ) | 55,396 | ||||||||||
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| Net (loss) income per share |
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| Basic (loss) income per share – continuing operations |
$ | (1.30 | ) | $ | 0.41 | |||||||||||
| Diluted (loss) income per share – continuing operations |
$ | (1.30 | ) | $ | 0.41 | |||||||||||
| Weighted average shares outstanding |
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| Basic |
135,528,977 | 135,528,977 | ||||||||||||||
| Diluted |
135,528,977 | 135,528,977 | ||||||||||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial statements.
3
PQ GROUP HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2019
(In thousands, except per share amounts)
| Historical As Reported |
(C) Divestiture of Performance Chemicals |
Pro Forma | ||||||||||
| Sales |
$ | 1,199,914 | $ | (667,166 | ) | $ | 532,748 | |||||
| Cost of goods sold |
901,512 | (535,157 | ) | 366,355 | ||||||||
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| Gross profit |
298,402 | (132,009 | ) | 166,393 | ||||||||
| Selling, general and administrative expenses |
129,516 | (46,133 | ) | 83,383 | ||||||||
| Other operating expense, net |
21,378 | (3,858 | ) | 17,520 | ||||||||
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| Operating income |
147,508 | (82,018 | ) | 65,490 | ||||||||
| Equity in net income from affiliated companies |
(46,022 | ) | 120 | (45,902 | ) | |||||||
| Interest expense, net |
87,072 | (18,576 | ) | 68,496 | ||||||||
| Debt extinguishment costs |
3,400 | — | 3,400 | |||||||||
| Other (income) expense, net |
(2,372 | ) | (349 | ) | (2,721 | ) | ||||||
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| Income from continuing operations before income taxes and noncontrolling interest |
105,430 | (63,213 | ) | 42,217 | ||||||||
| Provision (benefit) for income taxes |
39,677 | (30,408 | ) | 9,269 | ||||||||
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| Net income from continuing operations |
65,753 | (32,805 | ) | 32,948 | ||||||||
| Less: Net income attributable to the noncontrolling interest – continuing operations |
617 | (617 | ) | — | ||||||||
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| Net income attributable to PQ Group Holdings Inc. |
$ | 65,136 | $ | (32,188 | ) | $ | 32,948 | |||||
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| Net income per share |
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| Basic income per share – continuing operations |
$ | 0.48 | $ | 0.25 | ||||||||
| Diluted income per share – continuing operations |
$ | 0.48 | $ | 0.24 | ||||||||
| Weighted average shares outstanding |
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| Basic |
134,389,667 | 134,389,667 | ||||||||||
| Diluted |
135,548,694 | 135,548,694 | ||||||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial statements.
4
PQ GROUP HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2018
(In thousands, except per share amounts)
| Historical As Reported |
(C) Divestiture of Performance Chemicals |
Pro Forma | ||||||||||
| Sales |
$ | 1,228,926 | $ | (701,266 | ) | $ | 527,660 | |||||
| Cost of goods sold |
925,534 | (555,918 | ) | 369,616 | ||||||||
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| Gross profit |
303,392 | (145,348 | ) | 158,044 | ||||||||
| Selling, general and administrative expenses |
131,402 | (46,585 | ) | 84,817 | ||||||||
| Other operating expense, net |
16,427 | (13,396 | ) | 3,031 | ||||||||
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| Operating income |
155,563 | (85,367 | ) | 70,196 | ||||||||
| Equity in net income from affiliated companies |
(37,569 | ) | 177 | (37,392 | ) | |||||||
| Interest expense, net |
90,758 | (17,510 | ) | 73,248 | ||||||||
| Debt extinguishment costs |
7,751 | — | 7,751 | |||||||||
| Other (income) expense, net |
10,603 | 3,737 | 14,340 | |||||||||
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| Income before income taxes and noncontrolling interest |
84,020 | (71,771 | ) | 12,249 | ||||||||
| Provision (benefit) for income taxes |
33,641 | (25,058 | ) | 8,583 | ||||||||
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| Net income from continuing operations |
50,379 | (46,713 | ) | 3,666 | ||||||||
| Less: Net income attributable to the noncontrolling interest – continuing operations |
1,108 | (1,108 | ) | — | ||||||||
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| Net income attributable to PQ Group Holdings Inc. |
49,271 | (45,605 | ) | 3,666 | ||||||||
| Net income per share |
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| Basic income per share – continuing operations |
$ | 0.37 | $ | 0.03 | ||||||||
| Diluted income per share – continuing operations |
$ | 0.37 | $ | 0.03 | ||||||||
| Weighted average shares outstanding |
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| Basic |
133,380,567 | 133,380,567 | ||||||||||
| Diluted |
134,684,931 | 134,684,931 | ||||||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial statements.
5
PQ GROUP HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements (i) are presented based upon available information and assumptions that the Company believes are reasonable, (ii) are intended for informational purposes only, (iii) are not necessarily indicative of and do not purport to represent what the Company’s operating results would have been had the Transaction and related events (including the Estimated Required Debt Repayment) occurred as described or what the Company’s future operating results will be after giving effect to these events, and (iv) do not reflect all actions that may be undertaken by the Company after the divestiture of the Performance Chemicals business. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The special dividend is not reflected in the unaudited pro forma condensed consolidated financial statements as it has not been declared and is not a required use of proceeds from the Transaction.
(A) The unaudited pro forma condensed consolidated balance sheet as of December 31, 2020 reflects the following divestiture-related adjustments as if the Transaction occurred on December 31, 2020:
| • | The purchase price of $1.1 billion less adjustments for indebtedness, cash and working capital per the Purchase Agreement, plus estimated transaction expenses of $20.0 million |
| • | The elimination of the net assets subject to the Performance Chemicals divestiture |
| • | Estimated taxes of $25.6 million resulting from the Transaction. This adjustment reflects management’s best estimate at the time of this current report filed on Form 8-K. The Company will reflect the after-tax gain (loss) from the sale in its financial statements in the period the sale is completed, which is anticipated to close in 2021. |
| • | Recognition of a preliminary $206.3 million loss on the sale, net of estimated taxes. The actual after-tax loss to be recorded on the sale of Performance Chemicals will change based on items including the exact closing date, adjustments to the estimated transactions costs as well as final calculations related to the tax basis of the assets. The preliminary estimated loss was calculated as follows (in millions): |
| Estimated proceeds, net of transaction costs and closing adjustments(1) |
$ | 1,016.6 | ||
| Performance Chemicals net assets held for sale |
(1,081.8 | ) | ||
| Recognition of accumulated translation adjustments resulting from the sale of Performance Chemicals’ foreign subsidiaries |
(115.5 | ) | ||
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| Pre-tax loss on the sale of Performance Chemicals |
(180.7 | ) | ||
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| Estimated taxes on the sale of Performance Chemicals |
(25.6 | ) | ||
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| After-tax loss on the sale of Performance Chemicals |
$ | (206.3 | ) | |
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| (1) | Expected after-tax proceeds of $995 million, net of transaction costs and closing adjustments. |
(B) The unaudited pro forma condensed consolidated balance sheet as of December 31, 2020 reflects an Estimated Required Debt Repayment of approximately $297 million of the Senior Secured Term Loan Facility due February 2027 and $203 million of the New Senior Secured Term Loan Facility due February 2027. The Estimated Required Debt Repayment results in the recognition of an estimated $10.4 million loss on extinguishment of debt, which includes the write-off of $3.2 million of unamortized deferred financing costs and $7.2 million of original issue discount.
6
(C) The divestiture of the Performance Chemicals business columns on the unaudited pro forma condensed consolidated financial statements represents the historical financial results directly attributable to the Performance Chemicals business including the interest expense associated with the Estimated Required Debt Repayment noted in (B), in accordance with ASC 205-20.
(D) The unaudited pro forma condensed consolidated income statement for the year ended December 31, 2020 reflects an estimated loss on extinguishment of debt of $7.8 million, and the associated tax impact of $2.0 million, related to the Estimated Required Debt Repayment of $500 million, assuming the Estimated Required Debt Repayment was made on January 1, 2020.