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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38221
PQ Group Holdings Inc.
Delaware 81-3406833
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
 
300 Lindenwood Drive 
Malvern,Pennsylvania19355
(Address of principal executive offices) (Zip Code)

(610)
651-4400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock, par value $0.01 per sharePQGNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  
The number of shares of common stock outstanding as of May 6, 2020 was 136,591,952.

1

Table of Contents

PQ GROUP HOLDINGS INC.

INDEX—FORM 10-Q
March 31, 2020
Page

2

Table of Contents

PART IFINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED).

PQ GROUP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(unaudited)
 
Three months ended
March 31,
20202019
Sales$361,598  $359,221  
Cost of goods sold272,999  278,311  
Gross profit88,599  80,910  
Selling, general and administrative expenses43,298  40,708  
Other operating expense, net21,942  10,739  
Operating income23,359  29,463  
Equity in net (income) from affiliated companies(8,350) (2,064) 
Interest expense, net24,455  28,618  
Debt extinguishment costs2,513    
Other (income) expense, net2,805  (2,979) 
Income before income taxes and noncontrolling interest1,936  5,888  
Provision for income taxes1,427  2,447  
Net income509  3,441  
Less: Net income attributable to the noncontrolling interest285  290  
Net income attributable to PQ Group Holdings Inc.$224  $3,151  
Net income per share:
Basic income per share$  $0.02  
Diluted income per share$  $0.02  
Weighted average shares outstanding:
Basic135,240,897  133,946,308  
Diluted136,086,082  134,894,354  
See accompanying notes to condensed consolidated financial statements.

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PQ GROUP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
Three months ended
March 31,
20202019
Net income$509  $3,441  
Other comprehensive income (loss), net of tax:
Pension and postretirement benefits(15) (30) 
Net loss from hedging activities(529) (1,552) 
Foreign currency translation(46,355) 7,167  
Total other comprehensive income (loss)(46,899) 5,585  
Comprehensive income (loss)(46,390) 9,026  
Less: Comprehensive income (loss) attributable to noncontrolling interests(3,203) 605  
Comprehensive income (loss) attributable to PQ Group Holdings Inc.$(43,187) $8,421  
See accompanying notes to condensed consolidated financial statements.

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PQ GROUP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)

March 31,
2020
December 31,
2019
ASSETS
Cash and cash equivalents$107,667  $72,284  
Accounts receivable, net197,080  179,632  
Inventories, net265,042  280,945  
Prepaid and other current assets41,294  35,730  
Total current assets611,083  568,591  
Investments in affiliated companies479,249  472,929  
Property, plant and equipment, net1,147,879  1,186,770  
Goodwill1,248,734  1,259,805  
Other intangible assets, net652,315  676,385  
Right-of-use lease assets53,655  57,295  
Other long-term assets103,956  99,070  
Total assets$4,296,871  $4,320,845  
LIABILITIES
Notes payable and current maturities of long-term debt$8,489  $7,766  
Accounts payable127,320  144,365  
 Operating lease liabilities—current
15,235  15,183  
Accrued liabilities95,310  102,154  
Total current liabilities246,354  269,468  
Long-term debt, excluding current portion1,961,687  1,899,196  
Deferred income taxes215,044  218,037  
 Operating lease liabilities—noncurrent
38,083  40,156  
Other long-term liabilities94,563  108,670  
Total liabilities2,555,731  2,535,527  
Commitments and contingencies (Note 16)
EQUITY
Common stock ($0.01 par); authorized shares 450,000,000; issued shares 137,313,883 and 136,861,382 on March 31, 2020 and December 31, 2019, respectively; outstanding shares 136,596,198 and 136,464,961 on March 31, 2020 and December 31, 2019, respectively
1,373  1,369  
Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on March 31, 2020 and December 31, 2019
    
Additional paid-in capital1,702,996  1,696,899  
Retained earnings103,237  103,013  
Treasury stock, at cost; shares 717,685 and 396,421 on March 31, 2020 and December 31, 2019, respectively
(10,372) (6,483) 
Accumulated other comprehensive loss(58,759) (15,348) 
Total PQ Group Holdings Inc. equity1,738,475  1,779,450  
Noncontrolling interest2,665  5,868  
Total equity1,741,140  1,785,318  
Total liabilities and equity$4,296,871  $4,320,845  
See accompanying notes to condensed consolidated financial statements.
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PQ GROUP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common
stock
Additional
paid-in
capital
Retained
earnings
Treasury
stock, at
cost 
Accumulated
other
comprehensive
income (loss)
Non-
controlling
interest
Total
Balance, December 31, 2019$1,369  $1,696,899  $103,013  $(6,483) $(15,348) $5,868  $1,785,318  
Net income
—  —  224  —  —  285  509  
Other comprehensive income
—  —  —  —  (43,411) (3,488) (46,899) 
Repurchases of common shares
—  —  —  (3,889) —  —  (3,889) 
Stock compensation expense
—  5,920  —  —  —  —  5,920  
Shares issued under equity incentive plan, net of forfeitures
4  177  —  —  —  —  181  
Balance, March 31, 2020$1,373  $1,702,996  $103,237  $(10,372) $(58,759) $2,665  $1,741,140  
Common
stock
Additional
paid-in
capital
Retained
earnings
Treasury
stock, at
cost 
Accumulated
other
comprehensive
income (loss)
Non-
controlling
interest 
Total 
Balance, December 31, 2018, as previously reported$1,358  $1,674,703  $25,523  $(2,920) $(39,104) $4,585  $1,664,145  
Cumulative effect adjustment from adoption of new accounting standards—  —  (2,049) —  1,874  —  (175) 
December 31, 2018, as adjusted1,358  1,674,703  23,474  (2,920) (37,230) 4,585  1,663,970  
Net income
—  —  3,151  —  —  290  3,441  
Other comprehensive income
—  —  —  —  5,270  315  5,585  
Repurchases of common shares
—  —  —  (1,339) —  —  (1,339) 
Stock compensation expense
—  3,400  —  —  —  —  3,400  
Shares issued under equity incentive plan, net of forfeitures
2  213  —  —  —  —  215  
Balance, March 31, 2019$1,360  $1,678,316  $26,625  $(4,259) $(31,960) $5,190  $1,675,272  
See accompanying notes to condensed consolidated financial statements.
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PQ GROUP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
March 31,
20202019
Cash flows from operating activities:
Net income$509  $3,441  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation33,501  33,154  
Amortization12,169  12,740  
Amortization of deferred financing costs and original issue discount1,271  1,401  
Foreign currency exchange (gain) loss3,337  (2,689) 
Pension and postretirement healthcare benefit expense(65) 1,176  
Pension and postretirement healthcare benefit funding(3,150) (3,372) 
Deferred income tax (benefit) provision(1,519) 1,181  
Net loss on asset disposals9,420  820  
Stock compensation5,920  3,400  
Equity in net income from affiliated companies(8,350) (2,064) 
Dividends received from affiliated companies  5,000  
Net interest income on swaps designated as net investment hedges(1,771) (3,890) 
Other, net(694) (3,644) 
Working capital changes that provided (used) cash, excluding the effect of acquisitions and dispositions:
Receivables(26,050) 1,121  
Inventories(9,736) (19,152) 
Prepaids and other current assets(742) 2,890  
Accounts payable(1,329) (3,898) 
Accrued liabilities(8,190) (777) 
Net cash provided by operating activities4,531  26,838  
Cash flows from investing activities:
Purchases of property, plant and equipment(28,105) (33,627) 
Proceeds from sale of assets2,375    
Proceeds from sale of investment1,761    
Net interest proceeds on swaps designated as net investment hedges1,771  3,890  
Other, net  470  
Net cash used in investing activities(22,198) (29,267) 
Cash flows from financing activities:
Draw down of revolving credit facilities117,434  32,381  
Repayments of revolving credit facilities(52,668) (28,888) 
Debt issuance costs(3,023)   
Repayments of long-term debt  (5,000) 
Stock repurchases(3,889) (1,339) 
Other, net447  294  
Net cash provided by (used in) financing activities58,301  (2,552) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(4,263) (660) 
Net change in cash, cash equivalents and restricted cash36,371  (5,641) 
Cash, cash equivalents and restricted cash at beginning of period73,917  59,726  
Cash, cash equivalents and restricted cash at end of period$110,288  $54,085  
For supplemental cash flow disclosures, see Note 20.
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts
(unaudited)


1. Background and Basis of Presentation:
Description of Business
PQ Group Holdings Inc. and subsidiaries (the “Company” or “PQ Group Holdings”) is a leading integrated and innovative global provider of specialty catalysts, materials, chemicals and services. The Company supports customers globally through its strategically located network of manufacturing facilities. The Company believes that its products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.
The Company has four uniquely positioned specialty businesses: Refining Services provides sulfuric acid recycling to the North American refining industry; Catalysts serves the packaging and engineered plastics industry and the global refining, petrochemical and emissions control industries through its Zeolyst joint venture; Performance Materials produces transportation reflective safety markings for roads and airports; and Performance Chemicals supplies diverse product end uses, including personal and industrial cleaning products, fuel-efficient tires, surface coatings, and food and beverage products.
Seasonal changes and weather conditions typically affect the Company’s Performance Materials and Refining Services segments. In particular, the Company’s Performance Materials segment generally experiences lower sales and profit in the first and fourth quarters of the year because highway striping projects typically occur during warmer weather months. Additionally, the Company’s Refining Services segment typically experiences similar seasonal fluctuations as a result of higher demand for gasoline products in the summer months. As a result, working capital requirements tend to be higher in the first and second quarters of the year, which can adversely affect the Company’s liquidity and cash flows. Because of this seasonality associated with certain of the Company’s segments, results for any one quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full year.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations for interim reporting. In the opinion of management, all adjustments of a normal and recurring nature necessary to state fairly the financial position and results of operations have been included. The results of operations are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
COVID-19
In March 2020, the outbreak of a novel coronavirus (“COVID-19”) was declared a National Public Health Emergency by the United States. COVID-19 continues to spread throughout the world and has adversely impacted economic activity and contributed to significant declines and volatility in financial markets. In response to the COVID-19 pandemic, the federal government and various state, local and foreign governments have issued decrees and orders that have closed many businesses and implemented social distancing, travel and other restrictions. The Company’s manufacturing operations, as well as the operations of its key vendors and the majority of its key customers, have continued to operate with limited interruptions as essential businesses.
The Company’s condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period presented. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there was no material adverse impact on the Company’s results of operations for the three months ended March 31, 2020.
2. New Accounting Standards:
Recently Adopted Accounting Standards
In June 2016, the FASB issued guidance that affects loans, trade receivables and any other financial assets that have the contractual right to receive cash. Under the new guidance, an entity is required to recognize expected credit losses rather than incurred losses for financial assets. The new guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted the new guidance effective January 1, 2020, with no material impact to the Company’s consolidated financial position, results of operations or cash flows.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts
(unaudited)

In August 2018, the FASB issued guidance which modifies certain disclosure requirements over fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, including all interim periods within that fiscal year. The Company adopted the new guidance effective January 1, 2020. The Company does not classify any of its derivative contracts as Level 3 assets or liabilities, nor did the Company have any transfers amongst fair value levels during the quarter ended March 31, 2020. As such, the guidance did not have an impact on the fair value measurement disclosures included in the Company’s consolidated financial statements.
In January 2017, the FASB issued guidance which eliminates the second step from the traditional two-step goodwill impairment test. Under current guidance, an entity performed the first step of the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount; if an impairment loss was indicated, the entity computed the implied fair value of goodwill to determine whether an impairment loss existed, and if so, the amount to recognize. Under the new guidance, an impairment loss is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value (the Step 1 test), with no further testing required. Any impairment loss recognized is limited to the amount of goodwill allocated to the reporting unit. The new guidance is effective for public companies that are Securities and Exchange Commission (“SEC”) registrants for fiscal years beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted the new guidance on January 1, 2020, and will apply the guidance prospectively to its goodwill impairment tests.
Accounting Standards Not Yet Adopted
In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The new guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts
(unaudited)

3. Revenue from Contracts with Customers:
Disaggregated Revenue
The Company’s primary means of disaggregating revenues is by reportable segments, which can be found in Note 17 to these condensed consolidated financial statements.
The Company’s portfolio of products are integrated into a variety of end uses, which are described in the table below.
Key End UsesKey Products
Industrial & process chemicals• Silicate precursors for the tire industry
• Glass beads, or microspheres, for metal finishing end uses
Fuels & emission control• Refinery catalysts
• Emission control catalysts
• Catalyst recycling services
• Silicate for catalyst manufacturing
Packaging & engineered plastics• Catalysts for high-density polyethlene and chemicals syntheses
• Antiblocks for film packaging
• Solid and hollow microspheres for composite plastics
• Sulfur derivatives for nylon production
Highway safety & construction• Reflective markings for roadways and airports
• Silica gels for surface coatings
Consumer products• Silica gels for edible oil and beer clarification
• Precipitated silicas, silicates and zeolites for the dentifrice and
  dishwasher and laundry detergent applications
Natural resources• Silicates for drilling muds
• Hollow glass beads, or microspheres, for oil well cements
• Silicates and alum for water treatment mining
• Bleaching aids for paper
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PQ GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts
(unaudited)

The following tables disaggregate the Company’s sales, by segment and end use, for the three months ended March 31, 2020 and 2019:
Three months ended March 31, 2020
Refining
Services
CatalystsPerformance MaterialsPerformance ChemicalsTotal
Industrial & process chemicals$19,359  $47  $12,123  $59,833  $91,362  
Fuels & emission control (1)
55,710    40    55,750  
Packaging & engineered plastics10,734  24,817  17,471  14,275  67,297  
Highway safety & construction (1)
    32,643  20,190  52,833  
Consumer products      64,026  64,026  
Natural resources14,887    3,292  15,955  34,134  
Total segment sales100,690  24,864  65,569  174,279  365,402  
Eliminations(925) (47) (54) (2,778) (3,804) 
Total$99,765  $24,817  $65,515  $171,501  $361,598  

Three months ended March 31, 2019
Refining
Services
CatalystsPerformance MaterialsPerformance ChemicalsTotal
Industrial & process chemicals$18,402  $276  $13,028  $59,652  $91,358  
Fuels & emission control (1)
57,690        57,690  
Packaging & engineered plastics12,689  15,590  17,382  14,730  60,391  
Highway safety & construction (1)
    27,360  21,938  49,298  
Consumer products      68,509  68,509  
Natural resources17,063    3,319  15,633  36,015  
Total segment sales105,844  15,866  61,089  180,462  363,261  
Eliminations(887) (276) (48) (2,829) (4,040) 
Total$104,957  $15,590  $61,041  $177,633  $359,221  

(1)  As described in Note 1, the Company experiences seasonal sales fluctuations to customers in the fuels & emission control and highway safety & construction end uses.
Contract Assets and Liabilities
A contract asset is a right to consideration in exchange for goods that the Company has transferred to a customer when that right is conditional on something other than the passage of time. A contract liability exists when the Company receives consideration in advance of performance obligations. The Company has no contract assets on its condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019.
The Company recognized a $9,000 contract liability associated with the sale of a portion of its sulfate salts product line in June 2019, of which $5,175 and $6,450 of deferred revenue remained as of March 31, 2020 and December 31, 2019, respectively. The Company recognized revenue of $1,269 related to this contract liability during the three months ended March 31, 2020. The Company did not recognize revenue related to this contract liability during the three months ended March 31, 2019.
4. Fair Value Measurements:
Fair values are based on quoted market prices when available. When market prices are not available, fair values are generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality. In instances where there is little or no market activity for the same or similar instruments, the Company estimates fair values using methods, models and assumptions that management believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of management estimation and judgment that
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts
(unaudited)

becomes significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk inherent in a particular methodology, model or input used.
The Company’s financial assets and liabilities carried at fair value have been classified based upon a fair value hierarchy. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). The classification of an asset or a liability is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows:
•  Level 1—Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets.
• Level 2—Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves.
• Level 3—Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date.
The following table presents information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

March 31,
2020
Quoted Prices in
Active Markets
(Level 1) 
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Assets:
Derivative contracts (Note 13)$10,604  $  $10,604  $  
Restoration plan assets3,435  3,435      
Total$14,039  $3,435  $10,604  $  
Liabilities:
Derivative contracts (Note 13)$5,217  $  $5,217  $  

December 31,
2019
Quoted Prices in
Active Markets
(Level 1) 
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Assets:
Derivative contracts (Note 13)$3,928  $  $3,928  $  
Restoration plan assets4,199  4,199