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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, 2021
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, Pennsylvania
19355
(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 filerAccelerated filer
Non-accelerated filerSmaller 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 13, 2021 was 136,924,458.

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PQ GROUP HOLDINGS INC.

INDEX—FORM 10-Q
March 31, 2021
Page

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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,
20212020
Sales$126,624 $125,554 
Cost of goods sold96,505 87,850 
Gross profit30,119 37,704 
Selling, general and administrative expenses22,130 22,280 
Other operating expense, net5,507 3,450 
Operating income2,482 11,974 
Equity in net (income) from affiliated companies(5,210)(8,295)
Interest expense, net10,456 15,298 
Debt extinguishment costs 2,513 
Other expense, net5,174 7,470 
Loss from continuing operations before income taxes and noncontrolling interest(7,938)(5,012)
Benefit for income taxes(5,190)(1,665)
Net loss from continuing operations(2,748)(3,347)
Net (loss) income from discontinued operations, net of tax(89,770)3,856 
Net (loss) income(92,518)509 
Less: Net income attributable to the noncontrolling interest - discontinued operations117 285 
Net (loss) income attributable to PQ Group Holdings Inc.$(92,635)$224 
Loss from continuing operations attributable to PQ Group Holdings Inc.$(2,748)$(3,347)
(Loss) income from discontinued operations attributable to PQ Group Holdings Inc.(89,887)3,571 
Net (loss) income attributable to PQ Group Holdings Inc.$(92,635)$224 
Net (loss) income per share:
Basic loss per share - continuing operations$(0.02)$(0.02)
Diluted loss per share - continuing operations$(0.02)$(0.02)
Basic (loss) income per share - discontinued operations$(0.66)$0.02 
Diluted (loss) income per share - discontinued operations$(0.66)$0.02 
Basic loss per share$(0.68)$0.00 
Diluted loss per share$(0.68)$0.00 
Weighted average shares outstanding:
Basic136,006,082 135,240,897 
Diluted136,006,082 136,086,082 
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,
20212020
Net (loss) income$(92,518)$509 
Other comprehensive loss, net of tax:
Pension and postretirement benefits(43)(15)
Net gain (loss) from hedging activities765 (529)
Foreign currency translation(3,861)(46,355)
Total other comprehensive loss(3,139)(46,899)
Comprehensive loss(95,657)(46,390)
Less: Comprehensive loss attributable to noncontrolling interests(277)(3,203)
Comprehensive loss attributable to PQ Group Holdings Inc.$(95,380)$(43,187)
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,
2021
December 31,
2020
ASSETS
Cash and cash equivalents$55,171 $114,011 
Accounts receivable, net56,987 46,183 
Inventories, net48,934 52,789 
Prepaid and other current assets16,767 11,677 
Current assets held for sale191,380 204,007 
Total current assets369,239 428,667 
Investments in affiliated companies455,285 458,128 
Property, plant and equipment, net593,016 591,710 
Goodwill429,505 391,565 
Other intangible assets, net134,661 137,446 
Right-of-use lease assets31,711 28,943 
Other long-term assets15,142 12,445 
Long-term assets held for sale1,035,418 1,149,443 
Total assets$3,063,977 $3,198,347 
LIABILITIES
Current maturities of long-term debt$ $ 
Accounts payable42,012 38,106 
Operating lease liabilities—current7,458 6,715 
Accrued liabilities47,065 45,475 
Current liabilities held for sale96,087 111,569 
Total current liabilities192,622 201,865 
Long-term debt, excluding current portion1,401,573 1,400,369 
Deferred income taxes120,928 125,668 
Operating lease liabilities—noncurrent24,079 21,972 
Other long-term liabilities15,247 15,744 
Long-term liabilities held for sale123,045 155,550 
Total liabilities1,877,494 1,921,168 
Commitments and contingencies (Note 17)
EQUITY
Common stock ($0.01 par); authorized shares 450,000,000; issued shares 137,815,163 and 137,102,143 on March 31, 2021 and December 31, 2020, respectively; outstanding shares 136,932,950 and 136,318,557 on March 31, 2021 and December 31, 2020, respectively
1,378 1,371 
Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on March 31, 2021 and December 31, 2020
  
Additional paid-in capital1,484,799 1,477,859 
Accumulated deficit(268,393)(175,758)
Treasury stock, at cost; shares 882,213 and 783,586 on March 31, 2021 and December 31, 2020, respectively
(12,551)(11,081)
Accumulated other comprehensive loss(18,010)(15,265)
Total PQ Group Holdings Inc. equity1,187,223 1,277,126 
Noncontrolling interest(740)53 
Total equity1,186,483 1,277,179 
Total liabilities and equity$3,063,977 $3,198,347 
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
(Accumulated deficit)Treasury
stock, at
cost 
Accumulated
other
comprehensive
income (loss)
Non-
controlling
interest
Total
Balance, December 31, 2020$1,371 $1,477,859 $(175,758)$(11,081)$(15,265)$53 $1,277,179 
Net (loss) income— — (92,635)— — 117 (92,518)
Other comprehensive loss— — — — (2,745)(394)(3,139)
Repurchases of common shares— — — (1,470)— — (1,470)
Distributions to noncontrolling interests
— — — — — (516)(516)
Stock compensation expense
— 6,877 — — — — 6,877 
Shares issued under equity incentive plan, net of forfeitures
7 63 — — — — 70 
Balance, March 31, 2021$1,378 $1,484,799 $(268,393)$(12,551)$(18,010)$(740)$1,186,483 
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 loss— — — — (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 $1,741,140 
See accompanying notes to condensed consolidated financial statements.
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PQ GROUP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
March 31,
20212020
Cash flows from operating activities:
Net (loss) income$(92,518)$509 
Net loss (income) from discontinued operations89,770 (3,856)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation16,526 15,777 
Amortization2,974 2,898 
Amortization of deferred financing costs and original issue discount532 724 
Foreign currency exchange loss5,101 7,070 
Pension and postretirement healthcare (benefit) expense(595)131 
Pension and postretirement healthcare funding (891)
Deferred income tax benefit(4,344)(699)
Net loss on asset disposals778 163 
Stock compensation6,305 4,294 
Equity in net income from affiliated companies(5,210)(8,295)
Dividends received from affiliated companies5,000  
Other, net(3,395)(267)
Working capital changes that provided (used) cash, excluding the effect of acquisitions and dispositions:
Receivables(9,404)(1,219)
Inventories4,564 3,495 
Prepaids and other current assets(2,232)(291)
Accounts payable4,652 (3,111)
Accrued liabilities(1,958)(5,352)
Net cash provided by operating activities, continuing operations16,546 11,080 
Net cash provided by (used in) operating activities, discontinued operations877 (6,549)
Net cash provided by operating activities17,423 4,531 
Cash flows from investing activities:
Purchases of property, plant and equipment(12,563)(10,005)
Business combinations, net of cash acquired(41,994) 
Proceeds from sale of assets 2,375 
Net cash used in investing activities, continuing operations(54,557)(7,630)
Net cash used in investing activities, discontinued operations(22,012)(14,568)
Net cash used in investing activities(76,569)(22,198)
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Three months ended
March 31,
20212020
Cash flows from financing activities:
Draw down of revolving credit facilities 104,029 
Repayments of revolving credit facilities (44,983)
Debt issuance costs (3,023)
Stock repurchases(1,470)(3,889)
Other, net12 447 
Net cash (used in) provided by financing activities, continuing operations(1,458)52,581 
Net cash (used in) provided by financing activities, discontinued operations(520)5,720 
Net cash (used in) provided by financing activities$(1,978)$58,301 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,708)(4,263)
Net change in cash, cash equivalents and restricted cash(63,832)36,371 
Cash, cash equivalents and restricted cash at beginning of period137,219 73,917 
Cash, cash equivalents and restricted cash at end of period$73,387 $110,288 
Less: cash, cash equivalents, and restricted cash of discontinued operations(16,625)(53,356)
Cash, cash equivalents and restricted cash at end of period of continuing operations$56,762 $56,932 
For supplemental cash flow disclosures, see Note 21.
See accompanying notes to condensed consolidated financial statements.
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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)


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 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 two uniquely positioned specialty businesses: Refining Services provides sulfuric acid recycling to the North American refining industry for the production of alkylate and provides on-purpose virgin sulfuric acid for water treatment, mining, and industrial applications; and Catalysts provides finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics and, through its Zeolyst joint venture, supplies zeolites used for catalysts that remove nitric oxide from diesel engine emissions as well as sulfur from fuels during the refining process.
The Company’s Refining Services 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 result in higher sales and working capital requirements in the second and third quarters.
Effective December 14, 2020, the Company completed the sale of its Performance Materials business and the results of operations of this business have been presented as discontinued operations in the condensed consolidated financial statements for the three months ended March 31, 2020. See Note 3 for more information on the transaction.
On February 28, 2021, the Company entered into a definitive agreement to sell its Performance Chemicals business for $1,100,000, subject to certain purchase price adjustments as set forth in the agreement. Upon entering into the definitive agreement, the transaction met the held for sale criteria and consequently the financial results of the Performance Chemicals business are reported in discontinued operations in the condensed consolidated financial statements for all periods presented. See Note 3 for more information on the transaction.
The notes to the condensed consolidated financial statements, unless otherwise indicated, are on a continuing operations basis.
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, 2020.
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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)

2. New Accounting Standards:
Recently Adopted Accounting Standards
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 adopted the new guidance effective January 1, 2021, with no material impact to the Company’s condensed consolidated financial position, results of operations or cash flows.
Accounting Standards Not Yet Adopted
In March 2020, the FASB issued guidance to address certain accounting consequences from the anticipated transition from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The new guidance contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and may be elected over time as reference rate reform activities occur. The Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based on matches the index of the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
3. Divestitures:
Performance Materials Divestiture
On December 14, 2020, the Company completed the sale of its Performance Materials business. In the fourth quarter of 2020, the Performance Materials business met the criteria set forth in Accounting Standards Codification 205-20, Presentation of Financial Statements - Discontinued Operations (“ASC 205-20”), as the sale represented a strategic shift that had a major effect on the Company’s operations and financial results. As a result, the Company’s condensed consolidated financial statements for the three months ended March 31, 2020 reflect the Performance Materials business as a discontinued operation. The divested business historically represented a reportable segment of the Company, including certain Australian operations that were historically reported in the Performance Chemicals reportable segment.

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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 table summarizes the results of discontinued operations related to the Performance Materials divestiture:
Three months ended
March 31,
2020
Sales$67,891 
Cost of goods sold51,587 
Selling, general and administrative expenses9,285 
Other operating expense, net12,874 
Operating loss(5,855)
Interest expense, net (1)
5,132 
Other income, net(912)
Loss from discontinued operations before income tax(10,075)
Benefit for income taxes(4,285)
Loss from discontinued operations, net of tax$(5,790)

(1)The closing of the transaction triggered the Company’s obligation to provide partial repayment under its Amended and Restated Term Loan Credit Agreement, dated May 4, 2016 and its New Term Loan Credit Agreement, dated as of July 22, 2020. As such, interest expense has been allocated to discontinued operations on the basis of the Company’s mandatory repayment of $275,787 of the Senior Secured Term Loan Facility due February 2027 and its mandatory repayment of $188,722 of the New Senior Secured Term Loan Facility due February 2027.
During the three months ended March 31, 2021, the Company incurred transaction costs of $1,446 and stock-based compensation expense of $653, and an associated tax benefit of $514 related to the Performance Materials divestiture which is included in loss from discontinued operations, net of tax.
Net income attributable to the noncontrolling interest related to the Performance Materials business, net of tax was $51 for the three months ended March 31, 2020. Net loss attributable to PQ Group Holdings Inc., related to the Performance Materials business, net of tax was $5,841 for the three months ended March 31, 2020.
Upon the close of the transaction, the Company entered into a Transition Services Agreement with the buyer pursuant to which the buyer is receiving certain services to provide for the orderly transition of various functions and processes after the closing of the transaction. The services under the Transition Services Agreement include information technology, accounting, tax, financial services, human resources, facilities, and other administrative support services. These services are provided for a period of nine months, with three 30-day extensions available. The Company billed $1,571 under the Transition Services Agreement to the buyer during the three months ended March 31, 2021. Those billings are included in selling, general and administrative expenses on the condensed consolidated financial statements for the three months ended March 31, 2021.
Performance Chemicals Divestiture
On February 28, 2021, the Company entered into a definitive agreement to sell its Performance Chemicals business to Sparta Aggregator L.P., a partnership established by Koch Minerals & Trading, LLC and Cerberus Capital Management, L.P. for a purchase price of $1,100,000 which is subject to certain adjustments including indebtedness, cash, working capital and transaction expenses. The transaction is expected to close by the end of 2021, subject to regulatory approvals and customary closing conditions.
In the first quarter of 2021, the Performance Chemicals business met the criteria set forth in ASC 205-20, as the sale represents a strategic shift that will have a major effect on the Company’s operations and financial results. As a result, the Company’s condensed consolidated financial statements for all periods presented reflect the Performance Chemicals business as a discontinued operation. The Performance Chemicals business historically represented a reportable segment of the Company.

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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 disposal group was tested for recoverability as of the balance sheet date, and the Company recognized an expected disposal loss of approximately $95,594 during the three months ended March 31, 2021. The expected disposal loss is included in net loss from discontinued operations, net of tax on the condensed consolidated statement of income. In the condensed consolidated balance sheet as of March 31, 2021, the Company recorded the disposal loss to goodwill and a valuation allowance of approximately $75,084 and $20,514, respectively, included in long-term assets held for sale. Completion of the sale may be for amounts that could vary from the current fair value estimate. The Company’s estimate of fair value will be evaluated and recognized each reporting period until the divestiture is complete.
The following table summarizes the results of discontinued operations related to Performance Chemicals for the periods presented:
Three months ended
March 31,
20212020
Sales$164,523 $171,184 
Cost of goods sold125,853 136,593 
Selling, general and administrative expenses11,716 11,733 
Other operating expense, net17,480 5,617 
Impairment of assets held for sale95,594  
Operating (loss) income(86,120)17,241 
Equity in net income from affiliated companies(38)(55)
Interest expense, net (1)
3,215 4,026 
Other income, net(5,523)(3,753)
(Loss) income from discontinued operations before income tax(83,774)17,023 
Provision for income taxes4,411 7,377 
(Loss) income from discontinued operations, net of tax$(88,185)$9,646 

(1)Upon the close of the transaction and finalization of net cash proceeds, the Company is required to use a portion of the proceeds to repay outstanding debt and is expected to restructure its debt, which is estimated to result in a debt reduction of $450,000 to $550,000. Certain debt requirements will be triggered that will result in the Company’s obligation to provide partial repayment under its Amended and Restated Term Loan Credit Agreement, dated May 4, 2016 and its New Term Loan Credit Agreement, dated as of July 22, 2020. As such, interest expense has been allocated to discontinued operations on the basis of the Company’s estimated mandatory repayment of $296,859 of the Senior Secured Term Loan Facility due February 2027 and its estimated mandatory repayment of $203,141 of the New Senior Secured Term Loan Facility due February 2027.
Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $117 and $234 for the three months ended March 31, 2021 and 2020, respectively. Net (loss) income attributable to PQ Group Holdings Inc., related to the Performance Chemicals business, net of tax was $(88,302) and $9,412 for the three months ended March 31, 2021 and 2020, respectively.
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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 table summarizes the assets and liabilities of discontinued operations related to the Performance Chemicals divestiture as of March 31, 2021 and December 31, 2020.
March 31,
2021
December 31,
2020
ASSETS
Cash and cash equivalents$16,579 $21,520 
Accounts receivables, net91,265 86,961 
Inventories, net68,907 74,647 
Prepaid and other current assets14,629 20,879 
Current assets held for sale$191,380 $204,007 
Investments in affiliated companies$362 $324 
Property, plant and equipment, net382,699 391,524 
Goodwill248,736 326,173 
Other intangible assets, net381,001 388,857 
Right-of-use lease assets19,610 19,296 
Other long-term assets23,524 23,269 
Valuation allowance(20,514) 
Long-term assets held for sale$1,035,418 $1,149,443 
LIABILITIES
Accounts payable$63,918 $74,754 
Operating lease liabilities—current8,105 8,479 
Accrued liabilities24,064 28,336 
Current liabilities held for sale$96,087 $111,569 
Deferred income taxes$53,572 $50,232 
Operating lease liabilities—noncurrent10,256 10,047 
Other long-term liabilities59,217 95,271 
Long-term liabilities held for sale$123,045 $155,550 


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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)

4. 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 18 to these condensed consolidated financial statements.
The Company’s portfolio of products is integrated into a variety of end uses, which are described in the table below.
Key End UsesKey Products
Industrial & process chemicals• Sulfur derivatives for industrial production
• Treatment services
Fuels & emission control• Refining catalysts
• Emission control catalysts
• Catalyst recycling services
Packaging & engineered plastics• Catalysts for high-density polyethlene and chemicals syntheses
• Antiblock for film packaging
• Sulfur derivatives for nylon production
Natural resources• Sulfur derivatives for mining
The following tables disaggregate the Company’s sales, by segment and end use, for the three months ended March 31, 2021 and 2020:
Three months ended March 31, 2021
Refining
Services
CatalystsTotal
Industrial & process chemicals$16,947 $ $16,947 
Fuels & emission control(1)
55,192  55,192 
Packaging & engineered plastics10,622 26,402 37,024 
Natural resources17,461  17,461 
Total segment sales100,222 26,402 126,624 

Three months ended March 31, 2020
Refining
Services
CatalystsTotal
Industrial & process chemicals$19,359 $47 $19,406 
Fuels & emission control(1)
55,710  55,710 
Packaging & engineered plastics10,734 24,817 35,551 
Natural resources14,887  14,887 
Total segment sales100,690 24,864 125,554 

(1)As described in Note 1, the Company experiences seasonal sales fluctuations to customers in the fuels & emission control end use.
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 being satisfied. The Company has no contract assets or liabilities on its condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. For the three months ended March 31, 2021 and 2020, revenue recognized from performance obligations related to prior periods was not material.
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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)

5. 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 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, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

March 31,
2021
Quoted Prices in
Active Markets
(Level 1) 
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Assets:
Derivative contracts (Note 14)$285 $ $285 $ 
Liabilities:
Derivative contracts (Note 14)$3,023 $ $3,023 $ 

December 31,
2020
Quoted Prices in
Active Markets
(Level 1) 
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Liabilities:
Derivative contracts (Note 14)$3,704 $ $3,704 $ 



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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)

Derivative contracts
Derivative assets and liabilities can be exchange-traded or traded over-the-counter (“OTC”). The Company generally values exchange-traded derivatives using models that calibrate to market transactions and eliminate timing differences between the closing price of the exchange-traded derivatives and their underlying instruments. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, forward curves, measures of volatility, and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as forward contracts, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment.
During the quarter ended March 31, 2021, the Company had interest rate caps and cross-currency swaps that were fair valued using Level 2 inputs. In March 2021, the Company settled its cross-currency swaps, which were used as a hedging instrument of its net investment in foreign assets in its Performance Chemicals segment. Refer to Note 14 of these condensed consolidated financial statements for additional information. In addition, the Company applies a credit valuation adjustment to reflect credit risk which is calculated based on credit default swaps. To the extent that the Company’s net exposure under a specific master agreement is an asset, the Company utilizes the counterparty’s default swap rate. If the net exposure under a specific master agreement is a liability, the Company utilizes a default swap rate comparable to PQ Group Holdings. The credit valuation adjustment is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the Company’s liabilities or that a market participant would be willing to pay for the Company’s assets.
6. Stockholders' Equity:
Accumulated Other Comprehensive Income (Loss)
The following tables present the tax effects of each component of other comprehensive income (loss) for the three months ended March 31, 2021 and 2020:
Three months ended March 31,
20212020
Pre-tax
amount
Tax benefit/
(expense)
After-tax amountPre-tax
amount
Tax benefit/
(expense)
After-tax amount
Defined benefit and other postretirement plans:
Amortization of net gains$1 $ $1 $44 $(8)$36 
Amortization of prior service cost(58)14 (44)(64)13 (51)
Benefit plans, net(57)14 (43)(20)5 (15)
Net gain (loss) from hedging activities1,020 (255)765 (705)176 (529)
Foreign currency translation(1)
(6,308)2,447 (3,861)(50,057)3,702 (46,355)
Other comprehensive loss$(5,345)$2,206 $(3,139)$(50,782)$3,883 $(46,899)

(1)The income tax benefit or expense included in other comprehensive income is attributed to the portion of foreign currency translation associated with the Company’s cross-currency interest rate swaps, for which the tax effect is based on the applicable U.S. deferred income tax rate. See Note 14 to these condensed consolidated financial statements for information regarding the Company’s cross-currency interest rate swaps.

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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 table presents the changes in accumulated other comprehensive income (loss), net of tax, by component for the three months ended March 31, 2021 and 2020:
Defined benefit
and other
postretirement
plans 
Net gain (loss)
from hedging
activities
Foreign
currency
translation 
Total 
December 31, 2020$5,278 $(660)$(19,883)$(15,265)
Other comprehensive income (loss) before reclassifications(86)683 (3,467)(2,870)
Amounts reclassified from accumulated other comprehensive income(1)
43 82  125 
March 31, 2021$5,235 $105 $(23,350)$(18,010)
December 31, 2019$3,568 $(1,838)$(17,078)$(15,348)
Other comprehensive loss before reclassifications(2)(984)(42,867)(43,853)
Amounts reclassified from accumulated other comprehensive income(1)
(13)455  442 
March 31, 2020$3,553 $(2,367)$(59,945)$(58,759)

(1)See the following table for details about these reclassifications. Amounts in parentheses indicate debits.
The following table presents the reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2021 and 2020:
Details about Accumulated Other Comprehensive
Income Components
Amounts Reclassified from Accumulated Other
Comprehensive Income(1)
Affected Line Item where
Income is Presented
Three months ended
March 31,
20212020
Amortization of defined benefit and other postretirement items:
Prior service (cost) credit$(58)$52 
Other income (expense)(2)
Actuarial gains (losses)1 (34)
Other income (expense)(2)
(57)18 Total before tax
14 (5)Tax benefit (expense)
$(43)$13 Net of tax
Gains and losses on cash flow hedges:
Interest rate caps$(109)$(231)Interest expense
Natural gas swaps (373)Cost of goods sold
(109)(604)Total before tax
27 149 Tax benefit
$(82)$(455)Net of tax
Total reclassifications for the period$(125)$(442)Net of tax

(1)Amounts in parentheses indicate debits to profit/loss.
(2)These accumulated other comprehensive income (loss) components are components of net periodic pension and other postretirement cost (see Note 16 to these condensed consolidated financial statements for additional details).
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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)

Stock Repurchase Program
The Company records repurchases of its common stock for treasury at cost. Upon the reissuance of the Company’s common stock from treasury, differences between the proceeds from reissuance and the average cost of the treasury stock are credited or charged to capital in excess of par value to the extent of prior credits related to the reissuance of treasury stock. If no such credits exist, the differences are charged to retained earnings.
On March 12, 2020, the Company’s Board approved a plan to purchase up to $50,000 of PQ Group Holdings Inc. common stock under a stock repurchase program approved by the Company’s Board of Directors. The Company may repurchase shares from time to time for cash in open market transactions or in privately negotiated transactions in accordance with applicable federal securities laws. The Company will determine the timing and the amount of any repurchases based on its evaluation of market conditions, share price and other factors. The stock repurchase program is valid until March 2022.
During the three months ended March 31, 2020, the Company repurchased 211,700 shares on the open market at an average price of $9.73, for a total of $2,059. The Company has not made any additional repurchases under the program through March 31, 2021. As of March 31, 2021, $47,941 was available for additional share repurchases under the program.

7. Acquisition:
On March 1, 2021 (the “Closing Date”), the Company completed the acquisition of Chem32, LLC (“Chem32”) as part of a stock transaction (the “Acquisition”) for $44,000 in cash. The net cash paid on the closing date by the Company was $41,994, after certain customary adjustments for indebtedness, working capital, cash and a holdback amount pursuant to the agreement. Based in Orange, Texas, Chem32 is a leader in ex situ pre-sulfiding and pre-activation for hydro-processing catalysts.
The Acquisition was accounted for using the acquisition method of accounting. Under the acquisition method, the purchase price was allocated to the identifiable net assets acquired based on the fair values of the identifiable assets acquired and liabilities assumed as of the Closing Date. The excess of the purchase price over fair values of the identifiable net assets acquired was recorded to goodwill.
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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 table sets forth the calculation and preliminary allocation of the purchase price to the identifiable net assets acquired with respect to the Acquisition:

Provisional Purchase
Price Allocation
Cash paid, net of cash acquired$41,994 
Holdback2,000 
Total consideration, net of cash acquired$