What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-09 compared with 2021-08-09 · 322 added, 224 removed, 820 unchanged (40% of the section changed)

4 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

9 unchanged sentences

Other (income) expense, net ( 218 ) ( 4,197 ) 3,081 ( 236 )

(Loss) income from continuing operations before income taxes and noncontrolling interest ( 176 ) 9,687 ( 8,114 ) 4,675

Income (loss) from continuing operations before income taxes and noncontrolling interest 7,280 ( 1,349 ) ( 834 ) 3,326

Provision (benefit) for income taxes 2,591 21,310 5,095 ( 4,985 )

Net (loss) income from continuing operations ( 7,870 ) 34,317 ( 10,618 ) 30,970

Net income (loss) from discontinued operations, net of tax 6,520 ( 18,070 ) ( 83,250 ) ( 14,214 )

Net income (loss) from continuing operations 4,689 ( 22,659 ) ( 5,929 ) 8,311

Net (loss) income from discontinued operations, net of tax ( 75,872 ) 30,469 ( 159,122 ) 16,255

Net (loss) income ( 71,183 ) 7,810 ( 165,051 ) 24,566

2 unchanged sentences

$ ( 71,259 ) $ 7,512 $ ( 165,384 ) $ 23,662

(Loss) income from continuing operations attributable to Ecovyst Inc.

Income (loss) from continuing operations attributable to Ecovyst Inc.

$ 4,689 $ ( 22,659 ) $ ( 5,929 ) $ 8,311

Income (loss) from discontinued operations attributable to Ecovyst Inc.

(Loss) income from discontinued operations attributable to Ecovyst Inc.

( 75,948 ) 30,171 ( 159,455 ) 15,351

16 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

2 unchanged sentences

Pension and postretirement benefits 1,090 ( 20 ) 1,005 ( 48 )

Net gain (loss) from hedging activities 413 495 1,178 ( 34 )

Net gain from hedging activities 460 945 1,638 911

Foreign currency translation 2,952 13,572 11,254 ( 20,844 )

Total other comprehensive income (loss) 4,502 14,497 13,897 ( 19,981 )

Comprehensive income (loss) 11,184 28,668 ( 84,473 ) ( 17,722 )

Comprehensive income (loss) attributable to noncontrolling interests 593 697 316 ( 2,506 )

Comprehensive income (loss) attributable to Ecovyst Inc.

Comprehensive (loss) income ( 66,681 ) 22,307 ( 151,154 ) 4,585

Comprehensive (loss) income attributable to noncontrolling interests ( 203 ) 607 113 ( 1,899 )

Comprehensive (loss) income attributable to Ecovyst Inc.

$ ( 66,478 ) $ 21,700 $ ( 151,267 ) $ 6,484

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

2021 December 31,

28 unchanged sentences

authorized shares 450,000,000 ;

issued shares 137,828,218 and 137,102,143 on June 30, 2021 and December 31, 2020, respectively;

outstanding shares 136,946,005 and 136,318,557 on June 30, 2021 and December 31, 2020, respectively

issued shares 137,835,243 and 137,102,143 on September 30, 2021 and December 31, 2020, respectively;

outstanding shares 136,953,030 and 136,318,557 on September 30, 2021 and December 31, 2020, respectively

Preferred stock ($ 0.01 par);

authorized shares 50,000,000 ;

no shares issued or outstanding on June 30, 2021 and December 31, 2020

no shares issued or outstanding on September 30, 2021 and December 31, 2020

Additional paid-in capital 1,068,815 1,477,859

1 unchanged sentence

Treasury stock, at cost;

shares 882,213 and 783,586 on June 30, 2021 and December 31, 2020, respectively

shares 882,213 and 783,586 on September 30, 2021 and December 31, 2020, respectively

( 12,551 ) ( 11,081 )

32 unchanged sentences

Balance, June 30, 2021 $ 1,378 $ 1,492,334 $ ( 269,883 ) $ ( 12,551 ) $ ( 5,929 ) $ ( 740 ) $ 1,204,609

— — ( 71,259 ) — — 76 ( 71,183 )

Other comprehensive income (loss)

— — — — 4,781 ( 279 ) 4,502

Dividends paid on common stock ($ 3.20 per share)

— ( 435,593 ) — — — — ( 435,593 )

Disposal of business — — — — ( 8,036 ) 943 ( 7,093 )

Stock compensation expense

— 11,961 — — — — 11,961

Shares issued under equity incentive plan, net of forfeitures

— 113 — — — — 113

Balance, September 30, 2021 $ 1,378 $ 1,068,815 $ ( 341,142 ) $ ( 12,551 ) $ ( 9,184 ) $ — $ 707,316

stock Additional

24 unchanged sentences

Balance, June 30, 2020 $ 1,368 $ 1,709,367 $ 119,163 $ ( 10,372 ) $ ( 46,714 ) $ 3,362 $ 1,776,174

— — 7,512 — — 298 7,810

Other comprehensive income

— — — — 14,188 309 14,497

Tax withholdings on equity award vesting — — — ( 162 ) — — ( 162 )

Distributions to noncontrolling interests

— — — — — ( 270 ) ( 270 )

Stock compensation expense

— 6,137 — — — — 6,137

Balance, September 30, 2020 $ 1,368 $ 1,715,504 $ 126,675 $ ( 10,534 ) $ ( 32,526 ) $ 3,699 $ 1,804,186

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six months ended

Nine months ended

September 30,

Cash flows from operating activities:

Net (loss) income $ ( 165,051 ) $ 24,566

Net loss from discontinued operations 83,250 14,214

Net loss (income) from discontinued operations 159,122 ( 16,255 )

Adjustments to reconcile net income to net cash provided by operating activities:

3 unchanged sentences

Debt extinguishment costs 12,818 14,146

Foreign currency exchange loss 3,882 3,709

Foreign currency exchange loss (gain) 4,803 ( 577 )

Pension and postretirement healthcare (benefit) expense ( 1,786 ) 341

13 unchanged sentences

Net cash provided by operating activities, continuing operations 92,286 56,413

Net cash provided by operating activities, discontinued operations 12,077 37,806

Net cash (used in) provided by operating activities, discontinued operations ( 7,420 ) 94,193

Net cash provided by operating activities 84,866 150,606

1 unchanged sentence

Purchases of property, plant and equipment ( 44,648 ) ( 34,568 )

Proceeds from business divestiture, net of cash 980,350 —

Business combinations, net of cash acquired ( 42,782 ) —

1 unchanged sentence

Other, net ( 8 ) ( 4 )

Net cash used in investing activities, continuing operations ( 70,033 ) ( 19,862 )

Net cash provided by (used in) investing activities, continuing operations 892,912 ( 32,197 )

Net cash used in investing activities, discontinued operations ( 40,943 ) ( 9,854 )

Net cash used in investing activities ( 102,043 ) ( 36,222 )

Six months ended

Net cash provided by (used in) investing activities 851,969 ( 42,051 )

Nine months ended

September 30,

Cash flows from financing activities:

4 unchanged sentences

Repayments of long-term debt ( 1,428,613 ) ( 626,625 )

Debt prepayment fees ( 8,481 ) ( 10,550 )

Proceeds from failed sale-leaseback 14,104 —

Dividends paid to stockholders ( 435,593 ) —

Repurchases of common shares ( 1,470 ) ( 4,051 )

Tax withholdings on equity award vesting ( 1,470 ) ( 1,830 )

Proceeds from stock options exercised 223 181

Other, net ( 104 ) —

25 unchanged sentences

In connection with the closing of the sale of the Performance Chemicals business, PQ Group Holdings Inc.

changed its name from “PQ Group Holdings Inc.” to “ Ecovyst Inc.”, changed the ticker symbol of its common stock listed on the New York Stock Exchange from “PQG” to “ECVT” and rebranded PQ Group Holdings segments from “Refining Services” to “Ecoservices” and “Catalysts” to “Catalyst Technologies”.

changed its name from “PQ Group Holdings Inc.” to “ Ecovyst Inc.”, changed the ticker symbol of its common stock listed on the New York Stock Exchange from “PQG” to “ECVT” and rebranded its segments from “Refining Services” to “Ecoservices” and “Catalysts” to “Catalyst Technologies”.

The Company has two uniquely positioned specialty businesses:

29 unchanged sentences

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 and six months ended June 30, 2020 reflect the Performance Materials business as a discontinued operation.

As a result, the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 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.

1 unchanged sentence

Three months ended

June 30, 2020 Six Months Ended

June 30, 2020

September 30, 2020 Nine months ended

September 30, 2020

Sales $ 106,777 $ 280,663

1 unchanged sentence

Selling, general and administrative expenses 8,710 26,337

Other operating (income) expense, net ( 168 ) 12,706

Other operating expense, net 3,879 16,585

Operating income 13,739 28,887

Interest expense, net (1)

Other expense, net 1,077 165

Other income, net ( 1,126 ) ( 961 )

Income from discontinued operations before income tax 10,971 17,038

Provision for income taxes 7,790 3,505

(Benefit) provision for income taxes ( 420 ) 3,085

Income from discontinued operations, net of tax $ 11,391 $ 13,953

1 unchanged sentence

As such, interest expense has been allocated to discontinued operations on the basis of the Company’s mandatory repayment of $ 275,787 of the Sen ior 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 June 30, 2021, the Company incurred transaction costs of $ 84 and stock-based compensation expense of $ 630 , and an associated tax benefit of $ 192 related to the Performance Materials divestiture which is included in loss from discontinued operations, net of tax.

During the six months ended June 30, 2021, the Company incurred transaction costs of $ 1,530 and stock-based compensation expense of $ 1,283 , and an associated tax benefit of $ 706 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 Perf ormance Materials business, net of tax was $ 71 and $ 122 for the three and six months ended June 30, 2020.

Net income attributable to Ecovyst Inc., related to the Performance Materials business, net of tax was $ 8,281 and $ 2,440 for the three and six months ended June 30, 2020.

During the three months ended September 30, 2021, the Company incurred transaction costs of $ 264 and stock-based compensation expense of $ 1,194 , and an associated tax benefit of $ 339 related to the Performance Materials divestiture which is included in loss from discontinued operations, net of tax.

During the nine months ended September 30, 2021, the Company incurred transaction costs of $ 1,794 and stock-based compensation expense of $ 2,477 , and an associated tax benefit of $ 1,045 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 Perf ormance Materials business, net of tax was $ 97 and $ 219 for the three and nine months ended September 30, 2020, respectively.

Net income attributable to Ecovyst Inc., related to the Performance Materials business, net of tax was $ 11,294 and $ 13,734 for the three and nine months ended September 30, 2020, respectively.

AND SUBSIDIARIES

2 unchanged sentences

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 admi nistrative support services.

These services are provided for a period of nine months, with three 30-day extensions available.

The Company billed $ 1,401 and $ 3,061 under the Transition Services Agreement to the buyer during the three and six months ended June 30, 2021, respectively.

Those billings are included in selling, general and administrative expenses on the condensed consolidated financial statements for the three and six months ended June 30, 2021.

The services under the Transition Services Agreement include information technology, accounting, tax, financial services, human resources, facilities, and ot her administrative support services.

These services were provided for a period of nine months, with three 30-day extensions available.

The Company billed $ 253 and $ 3,314 under the Transition Services Agreement to the buyer during the three and nine months ended September 30, 2021, respectively.

Those billings are included in selling, general and administrative expenses on the condensed consolidated financial statements for the three and nine months ended September 30, 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 $ 1,100,000 , subject to certain adjustments including indebtedness, cash, working capital and transaction expenses.

The Company completed the sale of the Performance Chemicals business effective on August 1, 2021.

On February 28, 2021, the Company entered into a definitive agreement to sell its Performance Chemicals business to Sparta Aggregator L.P.

(the “Buyer”), a partnership established by Koch Minerals & Trading, LLC and Cerberus Capital Management, L.P., for $ 1,100,000 , subject to certain adjustments including indebtedness, cash, working capital and transaction expenses.

The Company completed the sale of the Performance Chemicals business on August 1, 2021.

In the first quarter of 2021, the Performance Chemicals business met the discontinued operations 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.

1 unchanged sentence

The Performance Chemicals business historically represented a reportable segment of the Company.

The disposal group was tested for recoverability as of each of the balance sheet dates since meeting the discontinued operations criteria, and the Company recognized an expected disposal loss of approximately $ 13,990 and $ 109,584 during the three and six months ended June 30, 2021.

The expected disposal loss is included in net loss from discontinued operations, net of tax on the condensed consolidated statements of income.

In the condensed consolidated balance sheet as of June 30, 2021, the Company recorded the disposal loss to goodwill and a valuation allowance of approximately $ 75,080 and $ 34,504 , respectively, included in long-term assets held for sale.

Completion of the sale may be for amounts that could vary from the current estimate.

The Company’s estimate of fair value will be evaluated and recognized each reporting period until the divestiture is complete.

Prior to the closing of the transaction, the disposal group was tested for recoverability as of each of the balance sheet dates since meeting the discontinued operations criteria, and the Company recognized an estimated disposal loss of $ 13,990 and $ 109,584 during the three and six months ended June 30, 2021, respectively, which was included in net loss from discontinued operations, net of tax on the condensed consolidated statements of income for the respective periods.

The final loss on the sale of the Performance Chemicals business was $ 157,539 , which is included in net (loss) income from discontinued operations, net of tax in the Company’s condensed consolidated statements of income for the nine months ended September 30, 2021.

The following is a reconciliation of the loss recorded on the sale:

Net proceeds received from the sale of the Performance Chemicals business $ 980,350

Transaction costs ( 35,402 )

Net assets derecognized ( 1,102,487 )

Loss on sale of the Performance Chemicals business $ ( 157,539 )

In connection with the sale of the Performance Chemicals business and the related loss, as noted above, the Company has recognized a tax benefit of $ 33,052 within net loss from discontinued operations, net of tax on the condensed consolidated statement of income.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share and per share amounts)

The following table summarizes the results of discontinued operations related to Performance Chemicals for the periods presented:

The following table summarizes the results of discontinued operations related to the Performance Chemicals business for the periods presented:

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

2 unchanged sentences

Selling, general and administrative expenses 6,552 9,709 29,758 31,440

Other operating expense, net 11,850 8,462 29,330 14,079

Impairment of assets held for sale 13,990 — 109,584 —

Other operating (income) expense, net (1)

( 18,993 ) 5,075 10,337 19,154

Goodwill impairment charge

Loss on sale of the Performance Chemicals business 123,035 — 157,539 —

Operating income (loss) ( 95,203 ) 14,558 ( 167,064 ) 42,128

2 unchanged sentences

1,916 4,318 10,730 11,698

Other (income) expense, net ( 840 ) 320 ( 6,363 ) ( 3,434 )

Income (loss) income from discontinued operations before income tax 9,548 6,680 ( 74,226 ) 23,703

Provision for income taxes 2,507 33,102 6,918 40,479

Income (loss) income from discontinued operations, net of tax $ 7,041 $ ( 26,422 ) $ ( 81,144 ) $ ( 16,776 )

Other expense (income), net 153 334 ( 6,210 ) ( 3,100 )

(Loss) income from discontinued operations before income tax ( 97,247 ) 9,955 ( 171,473 ) 33,658

(Benefit) provision for income taxes ( 22,494 ) ( 9,125 ) ( 15,576 ) 31,354

(Loss) income from discontinued operations, net of tax $ ( 74,753 ) $ 19,080 $ ( 155,897 ) $ 2,304

(1) The Company reclassified transaction costs that were previously recorded to this line item and included those charges in the line item Loss on sale of the Performance Chemicals business during the three months ended September 30, 2021 .

(2) Upon the close of the transaction, the Company used a portion of the net proceeds to repay a portion of its outstanding debt amounting to $ 526,363 .

Refer to Note 13 for additional details on the repayment of outstanding debt.

Prior to the Company’s debt refinancing in June 2021, the Company’s outstanding term loan facilities had mandatory repayment provisions.

As a result, interest expense has been allocated to discontinued operations on the basis of the Company’s total repayment of $ 526,363 .

Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $ 140 and $ 250 for the three months ended June 30, 2021 and 2020, respectively.

Net income (loss) income attributable to Ecovyst Inc., related to the Performance Chemicals business, net of tax was $ 6,901 and $( 26,672 ) for the three months ended June 30, 2021 and 2020, respectively.

Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $ 257 and $ 485 for the six months ended June 30, 2021 and 2020, respectively.

Net (loss) income attributable to Ecovyst Inc., related to the Performance Chemicals business, net of tax was $( 81,401 ) and $( 17,261 ) for the six months ended June 30, 2021 and 2020, respectively.

Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $ 76 and $ 200 for the three months ended September 30, 2021 and 2020, respectively.

Net income (loss) income attributable to Ecovyst Inc., related to the Performance Chemicals business, net of tax was $( 74,829 ) and $ 18,880 for the three months ended September 30, 2021 and 2020, respectively.

Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $ 333 and $ 685 for the nine months ended September 30, 2021 and 2020, respectively.

Net (loss) income attributable to Ecovyst Inc., related to the Performance Chemicals business, net of tax was $( 156,230 ) and $ 1,619 for the nine months ended September 30, 2021 and 2020, respectively.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share and per share amounts)

The following table summarizes the assets and liabilities of discontinued operations related to the Performance Chemicals divestiture as of June 30, 2021 and December 31, 2020.

2021 December 31,

The following table summarizes the assets and liabilities of discontinued operations related to the divestiture of the Performance Chemicals business as of December 31, 2020.

Cash and cash equivalents $ 22,153

9 unchanged sentences

Other long-term assets 23,269

Valuation allowance ( 34,504 ) —

Long-term assets held for sale $ 1,149,443

7 unchanged sentences

Long-term liabilities held for sale $ 155,354

In connection with the divestiture of the Performance Chemicals business, the Company entered into a contract manufacturing agreement effective on August 2, 2021 with PQ Silicas UK Ltd., a subsidiary of the Buyer, related to a facility in Warrington, United Kingdom.

Pursuant to this agreement, the Buyer will manufacture and sell silica catalyst finished good products to the Company, which are finished good products sold within the Company’s Catalyst Technologies segment.

Additionally, certain machinery, equipment, and other tangible personal property assets identified in the Agreement (“Catalyst Production Assets”) owned by the Buyer will be used exclusively in the manufacture of silica catalyst products for the Company.

The Company does not meet the requirements for a sale-leaseback transaction as described in Accounting Standards Codification 842-40, Leases - Sale-Leaseback Transactions.

Under the failed-sale-leaseback accounting model, the Company is deemed under GAAP to still own the Catalyst Production Assets, which the Company must continue to reflect in its consolidated balance sheet and depreciate over the assets’ remaining useful lives.

Based on the estimated fair market values of the Catalyst Production Assets, the failed-sale-leaseback accounting treatment resulted in a loss of $ 14,104 due to the requirement to treat a certain amount of the pre-tax cash proceeds from the divestiture as though it were the result of a financing obligation.

The agreement has an initial term of five years, with an option to renew, as well as an “Option Bill of Sale” which provides for the transfer from the Buyer to the Company of the Catalyst Production Assets upon the Company’s exercise of a one-dollar purchase option.

Payments made to the Buyer under the contact manufacturing agreement were $ 1,351 for the three and nine months ended September 30, 2021.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share and per share amounts)

In addition to the contract manufacturing agreement noted above, the Company also entered into certain supply agreements with the Buyer, as well as a Transition Services Agreement, pursuant to which the Buyer is receiving and performing 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 six months.

Billings under the Transition Services Agreement to the Buyer during the three and nine months ended September 30, 2021 were immaterial.

Those billings are included in selling, general and administrative expenses on the condensed consolidated financial statements for the three and nine months ended September 30, 2021.

Revenue from Contracts with Customers:

12 unchanged sentences

Natural resources • Sulfur derivatives for mining

The following tables disaggregate the Company’s sales, by segment and end use, for the three and six months ended June 30, 2021 and 2020:

Three months ended June 30, 2021

Ecoservices Silica Catalysts Total

The following tables disaggregate the Company’s sales, by segment and end use, for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30, 2021

Ecoservices Catalyst Technologies Total

Industrial & process chemicals $ 23,297 $ 5 $ 23,302

4 unchanged sentences

Total segment sales $ 137,550 $ 29,878 $ 167,428

Eliminations ( 4 ) — ( 4 )

Total $ 120,737 $ 26,215 $ 146,952

Three months ended June 30, 2020

Ecoservices Silica Catalysts Total

Three months ended September 30, 2020

Ecoservices Catalyst Technologies Total

Industrial & process chemicals $ 17,447 $ 51 $ 17,498

7 unchanged sentences

(Dollars in thousands, except share and per share amounts)

Six months ended June 30, 2021

Ecoservices Silica Catalysts Total

Nine months ended September 30, 2021

Ecoservices Catalyst Technologies Total

Industrial & process chemicals $ 58,581 $ 5 $ 58,586

4 unchanged sentences

Total segment sales $ 358,509 $ 82,495 $ 441,004

Eliminations ( 4 ) — ( 4 )

Total $ 220,959 $ 52,617 $ 273,576

Six months ended June 30, 2020

Ecoservices Silica Catalysts Total

Nine months ended September 30, 2020

Ecoservices Catalyst Technologies Total

Industrial & process chemicals $ 53,518 $ 100 $ 53,618

8 unchanged sentences

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 June 30, 2021 and December 31, 2020.

For the three and six months ended June 30, 2021 and 2020, revenue recognized from performance obligations related to prior periods was not material.

The Company has no contract assets or liabilities on its condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020.

For the three and nine months ended September 30, 2021 and 2020, revenue recognized from performance obligations related to prior periods was not material.

Fair Value Measurements:

11 unchanged sentences

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.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share and per share amounts)

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 June 30, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

The following table presents information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

September 30,

2021 Quoted Prices in

21 unchanged sentences

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 six months ended June 30, 2021, th e Company had interest rate c aps th at were fair valued using Level 2 inputs.

As of September 30, 2021, th e Company had interest rate c aps th at 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.

9 unchanged sentences

Accumulated Other Comprehensive Income (Loss)

The following tables present the tax effects of each component of other comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020:

Three months ended June 30,

The following tables present the tax effects of each component of other comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,

amount Tax benefit/

5 unchanged sentences

Amortization of prior service cost ( 58 ) 14 ( 44 ) ( 52 ) 13 ( 39 )

Settlement gain 1,507 ( 374 ) 1,133 — — —

Benefit plans, net 1,450 ( 360 ) 1,090 ( 24 ) 4 ( 20 )

Net gain (loss) from hedging activities 551 ( 138 ) 413 660 ( 165 ) 495

Net gain from hedging activities 613 ( 153 ) 460 1,260 ( 315 ) 945

Foreign currency translation (1)

( 1,555 ) 4,507 2,952 17,596 ( 4,024 ) 13,572

Other comprehensive income (loss) $ 12,658 $ ( 124 ) $ 12,534 $ 13,794 $ ( 1,373 ) $ 12,421

Six months ended June 30,

Other comprehensive income $ 508 $ 3,994 $ 4,502 $ 18,832 $ ( 4,335 ) $ 14,497

Nine months ended September 30,

amount Tax benefit/

3 unchanged sentences

Defined benefit and other postretirement plans:

Amortization of net gains and (losses) $ 3 $ ( 1 ) $ 2 $ 65 $ ( 16 ) $ 49

Amortization of net gains $ 4 $ ( 1 ) $ 3 $ 93 $ ( 25 ) $ 68

Amortization of prior service cost ( 174 ) 43 ( 131 ) ( 155 ) 39 ( 116 )

Settlement gain 1,507 ( 374 ) 1,133 — — —

Benefit plans, net 1,337 ( 332 ) 1,005 ( 62 ) 14 ( 48 )

Net (loss) gain from hedging activities 1,571 ( 393 ) 1,178 ( 45 ) 11 ( 34 )

Net gain from hedging activities 2,184 ( 546 ) 1,638 1,215 ( 304 ) 911

Foreign currency translation (1)

7 unchanged sentences

(Dollars in thousands, except share and per share amounts)

The following table presents the changes in accumulated other comprehensive income (loss), net of tax, by component for the six months ended June 30, 2021 and 2020:

The following table presents the changes in accumulated other comprehensive income (loss), net of tax, by component for the nine months ended September 30, 2021 and 2020:

Defined benefit

4 unchanged sentences

December 31, 2020 $ 5,278 $ ( 660 ) $ ( 19,883 ) $ ( 15,265 )

Other comprehensive income (loss) before reclassifications ( 170 ) 1,043 8,243 9,116

Other comprehensive income before reclassifications 877 1,425 11,474 13,776

Amounts reclassified from accumulated other comprehensive income (1)

June 30, 2021 $ 5,193 $ 518 $ ( 11,640 ) $ ( 5,929 )

128 213 — 341

Disposal of business 3,743 — ( 11,779 ) ( 8,036 )

September 30, 2021 $ 10,026 $ 978 $ ( 20,188 ) $ ( 9,184 )

December 31, 2019 $ 3,568 $ ( 1,838 ) $ ( 17,078 ) $ ( 15,348 )

2 unchanged sentences

( 48 ) 939 — 891

June 30, 2020 $ 3,540 $ ( 1,872 ) $ ( 48,382 ) $ ( 46,714 )

September 30, 2020 $ 3,520 $ ( 927 ) $ ( 35,119 ) $ ( 32,526 )

(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 and six months ended June 30, 2021 and 2020:

The following table presents the reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2021 and 2020:

Details about Accumulated Other Comprehensive

4 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

23 unchanged sentences

On March 12, 2020, the Company’s Board of Directors (the “Board”) approved a plan to purchase up to $ 50,000 of Ecovyst Inc.

common stock under a stock repurchase program approved by the Company’s Board.

common stock under a stock repurchase program approved by the Board.

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.

2 unchanged sentences

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 no t made any additional repurchases under the program through June 30, 2021.

As of June 30, 2021, $ 47,941 was available for additional share repurchases under the program.

The Company has no t made any additional repurchases under the program through September 30, 2021.

As of September 30, 2021, $ 47,941 was available for additional share repurchases under the program.

Tax Withholdings on Equity Award Vesting

1 unchanged sentence

These transactions when they occur are accounted for as stock repurchases by the Company, with the shares returned to treasury stock at a cost representing the payment by the Company of the tax obligations on behalf of the employees in lieu of shares for the vesting unit.

The fair value of the shares withheld to cover tax payments were $ 1,470 and $ 1,830 for the six months ended June 30, 2021 and 2020, respectively.

The fair value of the shares withheld to cover tax payments were $ 1,470 and $ 1,992 for the nine months ended September 30, 2021 and 2020, respectively.

Dividends Paid

On August 4, 2021, the Board declared a special cash dividend of $ 3.20 per share, using after tax cash proceeds from the sale of the Performance Chemicals business.

The dividend was paid on August 23, 2021 to the Company’s stockholders of record at the close of business on August 12, 2021.

Refer to Note 3 of these condensed consolidated financial statements for additional details.

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.

7 unchanged sentences

(Dollars in thousands, except share and per share amounts)

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:

The following table sets forth the calculation of the purchase price to the identifiable net assets acquired with respect to the Acquisition, which was substantially complete as of September 30, 2021 :

Provisional Purchase

Price Allocation Adjustments Purchase

Price Allocation

7 unchanged sentences

Property, plant and equipment 5,046 — 5,046

Other intangible assets — 22,100 22,100

Other long-term assets 38 153 191

4 unchanged sentences

Goodwill 37,646 ( 22,729 ) 14,917

The valuation of the identifiable assets and liabilities included in the table above is preliminary and is subject to change, as the Company is in the process of evaluating the information required to determine the fair values of certain identifiable assets and liabilities acquired, including inventory, property, plant and equipment and intangible assets.

An increased portion of the purchase price allocated to the identifiable net assets acquired will reduce the amount recognized for goodwill and may result in increased cost of goods sold, depreciation and/or amortization expense.

Adjustments to the provisional amounts during the measurement period that result in changes to depreciation, amortization or other income effects will be recognized in the reporting period(s) in which the adjustments are determined.

The Company’s condensed consolidated financial statements include Chem32’s results of operations from the Closing Date through June 30, 2021.

$ 43,994 $ ( 212 ) $ 43,782

In accordance with the requirements of the purchase method of accounting for acquisitions, accounts receivable and inventories were recorded at fair market value.

As of the Closing Date, the fair value of accounts receivable approximated historical cost.

The gross contractual amount of accounts receivable at the Closing Date was $ 1,368 , of which there was no amount deemed uncollectible.

Fair value of inventory is defined as estimated selling prices less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity, which the Company determined acquired cost equalled fair value of the inventory acquired.

The Company’s cost of goods sold for the three and nine months ended September 30, 2021 includes a pre-tax charge of $ 148 of additional amortization expense related to identified intangible assets, which would have been recorded during the reporting period if the adjustments to the provisional amounts had been recognized as of the Closing Date.

The Company’s other operating expense, net for the three and nine months ended September 30, 2021 includes a pre-tax charge of $ 1,108 of additional amortization expense related to identified intangible assets, which would have been recorded during the reporting period if the adjustments to the provisional amounts had been recognized as of the Closing Date.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

The valuation of intangibles assets acquired and the related weighted-average amortization periods are as follows:

Amount Weighted-Average

Expected Useful Life

Intangible assets subject to amortization:

Customer relationships $ 16,000 10

Technical know-how 3,800 10

Contracts 700 5

Trade names 1,600 10

Total intangible assets subject to amortization $ 22,100

The Company’s condensed consolidated financial statements include Chem32’s results of operations from the Closing Date through September 30, 2021.

Net sales and net income attributable to Chem32 during this period are included in the Company’s condensed consolidated statement of income and are immaterial for the periods presented.

Pro forma financial information has not been presented as it is immaterial for the three and six months ended June 30, 2021 and 2020 .

The Company believes that the Acquisition will enable it to offer a more robust portfolio of services within the refining industry leveraging our existing relationships, which contributed to a total purchase price that resulted in the recognition of goodwill.

Pro forma financial information has not been presented as it is immaterial for the three and nine months ended September 30, 2021 and 2020 .

The Company believes that the Acquisition will enable it to offer a more robust portfolio of services within the refining industry leveraging the Company’s existing relationships, which contributed to a total purchase price that resulted in the recognition of goodwill.

The Company assigned all of the goodwill to the Ecoservices segment.

The goodwill associated with the Acquisition is deductible for tax purposes.

The change in the carrying amount of goodwill for the six months ended June 30, 2021 is summarized as follows:

The change in the carrying amount of goodwill for the nine months ended September 30, 2021 is summarized as follows:

Ecoservices Catalyst Technologies Total

2 unchanged sentences

Foreign exchange impact — ( 354 ) ( 354 )

Balance as of June 30, 2021 $ 349,538 $ 80,167 $ 429,705

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

Balance as of September 30, 2021 $ 326,809 $ 79,319 $ 406,128

Other Operating Expense, Net:

1 unchanged sentence

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

6 unchanged sentences

$ 6,314 $ 3,427 $ 16,786 $ 11,319

(1) During the six months ended June 30, 2021, the Company’s results were impacted by costs associated with severance charges for certain executives and employees.

(1) During the nine months ended September 30, 2021, the Company’s results were impacted by costs associated with severance charges for certain executives and employees.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

Inventories, Net:

Inventories, net are classified and valued as follows:

September 30,

2021 December 31,

7 unchanged sentences

$ 48,068 $ 52,789

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

Investments in Affiliated Companies:

The Company accounts for investments in affiliated companies under the equity method.

Affiliated companies accounted for on the equity basis as of June 30, 2021 are as follows:

Affiliated companies accounted for on the equity basis as of September 30, 2021 are as follows:

Company Country Percent

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Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

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the Company’s share of the net assets and net income of affiliates is calculated based on the percent ownership specified in the table above.

The Company’s investments in affiliated companies balance as of June 30, 2021 and December 31, 2020 includes net purchase accounting fair value adjustments of $ 240,620 and $ 243,899 , respectively, related to the series of transactions consummated on May 4, 2016 to reorganize and combine the businesses of PQ Holdings Inc.

The Company’s investments in affiliated companies balance as of September 30, 2021 and December 31, 2020 includes net purchase accounting fair value adjustments of $ 239,020 and $ 243,899 , respectively, related to the series of transactions consummated on May 4, 2016 to reorganize and combine the businesses of PQ Holdings Inc.

and Eco Services Operations LLC, consisting primarily of goodwill and intangible assets such as customer relationships, technical know-how and trade names.

Consolidated equity in net income from affiliates is net of $ 1,620 and $ 3,278 of amortization expense related to purchase accounting fair value adjustments for the three and six months ended June 30, 2021, respectively.

Consolidated equity in net income from affiliates is net of $ 1,659 and $ 3,317 of amortization expense related to purchase accounting fair value adjustments for the three and six months ended June 30, 2020, respectively.

Consolidated equity in net income from affiliates is net of $ 1,601 and $ 4,879 of amortization expense related to purchase accounting fair value adjustments for the three and nine months ended September 30, 2021, respectively.

Consolidated equity in net income from affiliates is net of $ 1,659 and $ 4,975 of amortization expense related to purchase accounting fair value adjustments for the three and nine months ended September 30, 2020, respectively.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

Property, Plant and Equipment:

A summary of property, plant and equipment, at cost, and related accumulated depreciation is as follows:

September 30,

2021 December 31,

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$ 595,088 $ 591,710

Depreciation expense was $ 17,529 and $ 16,340 for the three months ended June 30, 2021 and 2020, respectively.

Depreciation expense was $ 33,533 and $ 31,635 for the six months ended June 30, 2021 and 2020, respectively.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

Depreciation expense was $ 16,369 and $ 16,222 for the three months ended September 30, 2021 and 2020, respectively.

Depreciation expense was $ 49,902 and $ 47,857 for the nine months ended September 30, 2021 and 2020, respectively.

Long-term Debt:

The summary of long-term debt is as follows:

September 30,

2021 December 31,

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The fair value of a financial instrument is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

As of June 30, 2021 and December 31, 2020, the fair value of the term loan facilities, senior secured and unsecured notes was $ 1,431,568 and $ 1,427,123 , respectively.

As of September 30, 2021 and December 31, 2020, the fair value of the term loan facilities and unsecured notes was $ 898,872 and $ 1,427,123 , respectively.

The fair value is classified as Level 2 based upon the fair value hierarchy (see Note 5 to these condensed consolidated financial statements for further information on fair value measurements).

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

As a result of amending the term loan facilities during the three and six months ended June 30, 2021, the Company recorded $ 5,736 of new creditor and third-party financing costs as debt extinguishment costs.

In addition, previous unamortized deferred financing costs of $ 1,725 and original issue discount of $ 3,664 associated with the previously outstanding debt were written off as debt extinguishment costs.

In June 2021, PQ Corp also entered into a third amendment agreement (the “ABL Amendment”), which amended its ABL Credit Agreement, dated as of May 4, 2016 (the “ABL Credit Agreement” and, as amended by the ABL Amendment, the “Amended ABL Credit Agreement”).

The ABL Amendment amended the ABL Credit Agreement to, among other things, following the sale of Performance Chemicals, decrease the aggregate amount of revolving loan commitments available to the borrowers thereunder by an aggregate amount of $ 150,000 to $ 100,000 , consisting of $ 90,000 in U.S.

commitments and $ 10,000 on in European commitments and extended the maturity date with respect to borrowings under the Amended ABL Credit Agreement to August 2, 2026.

As a result of the ABL Amendment, unamortized deferred financing costs of $ 592 associated with the ABL Credit Agreement were written off as debt extinguishment costs during the three and six months ended June 30, 2021.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share and per share amounts)

As a result of amending the term loan facilities during the nine months ended September 30, 2021, the Company recorded $ 5,736 of new creditor and third-party financing costs as debt extinguishment costs.

The ABL Amendment amended the ABL Credit Agreement to, among other things, following the sale of the Performance Chemicals business, decrease the aggregate amount of revolving loan commitments available to the borrowers thereunder by an aggregate amount of $ 150,000 to $ 100,000 , consisting of $ 90,000 in U.S.

commitments and $ 10,000 on in European commitments and extended the maturity date with respect to borrowings under the Amended ABL Credit Agreement to August 2, 2026.

As a result of the ABL Amendment, unamortized deferred financing costs of $ 485 and original issue discount of $ 107 associated with the ABL Credit Agreement were written off as debt extinguishment costs during the three and nine months ended September 30, 2021.

2016 Term Loan Facility - Repaid in 2021

Concurrent with, and using a portion of the net cash proceeds from, the divestiture of the Performance Chemicals business in August 2021, the Company repaid the remaining principal balance of $ 231,363 on the 2016 Term Loan Facility.

The Company wrote off $ 849 of unamortized deferred financing costs and $ 2,395 of original issue discount as debt extinguishment costs during the three and nine months ended September 30, 2021.

5.750% Senior Notes due 2025 - Redeemed in 2021

Concurrent with, and using a portion of the net proceeds from, the divestiture of the Performance Chemicals business in August 2021, the Company redeemed the remaining principal balance of $ 295,000 of its 5.750% Senior Notes due 2025.

In connection with the redemption of the 5.750% Senior Notes due 2025, the Company paid a redemption premium of $ 8,481 which was recorded as debt extinguishment costs during the three and nine months ended September 30, 2021.

In addition, previous unamortized deferred financing costs of $ 2,262 and original issue discount of $ 1,198 associated with the previously outstanding debt were written off as debt extinguishment costs during the three and nine months ended September 30, 2021.

Financial Instruments:

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As the derivatives are designated and qualify as cash flow hedges, the gains or losses on the interest rate cap agreements are recorded in stockholders’ equity as a component of OCI, net of tax.

Reclassifications of the gains and losses on the interest rate cap agreements into earnings are recorded as part of interest expense in the condensed consolidated statements of income as the Company makes its interest payments on the hedged portion of its senior secured credit facilities.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

on the hedged portion of its senior secured credit facilities.

Fair value is determined based on estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices.

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The total cumulative annuitized premium on the $ 500,000 of notional variable-rate debt is $ 4,410 .

The cap rate in effect at June 30, 2021 was 0.84 % associated with the $ 500,000 of notional variable-rate debt.

The cap rate in effect at September 30, 2021 was 0.84 % associated with the $ 500,000 of notional variable-rate debt.

In July 2020, the Company entered into additional interest rate cap agreements to mitigate interest rate volatility from August 2020 to August 2023, with a cap rate of 1.00 % on $ 400,000 of notional variable-rate debt.

The cap rate in effect at June 30, 2021 was 1.00 % associated with the $ 400,000 of notional variable-rate debt.

The cap rate in effect at September 30, 2021 was 1.00 % associated with the $ 400,000 of notional variable-rate debt.

In August 2021, PQ Corporation novated $ 900,000 of its interest rate caps to Ecovyst Catalyst Technologies LLC.

Other than the novation, there were no other changes to the interest rate cap.

Use of Derivative Financial Instruments to Manage Foreign Currency Risk.

5 unchanged sentences

Changes in the fair value of the swaps attributable to the cross-currency basis spread are excluded from the assessment of hedge effectiveness and are recorded in current period earnings.

In March 2021, as a result of the Performance Materials and Performance Chemicals divestitures, the Company settled its cross-currency swaps.

In March 2021, as a result of the divestitures of the Performance Materials and Performance Chemicals businesses, the Company settled its cross-currency swaps.

At the date of settlement, the total notional value of the cross-currency swaps was $ 311,380 .

The Company paid $ 13,170 in cash to settle the swaps, which is included in n et cash used in investing activities, discontinued operations in the Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2021, as the underlying subsidiary subject to the net investment hedging relationship is part of the Performance Chemicals business.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

As of June 30, 2021 , an unrealized pre-tax gain of $ 16,708 is recorded in accumulated other comprehensive income in the Company’s condensed consolidated balance sheet.

This gain will be reclassified into earnings as part of the gain (loss) on sale upon completion of the Performance Chemicals divestiture.

The fair values of derivative instruments held as of June 30, 2021 and December 31, 2020 are shown below:

Balance sheet location June 30,

The Company paid $ 13,170 in cash to settle the swaps, which is included in n et cash used in investing activities, discontinued operations in the Company’s condensed consolidated statement of cash flows for the nine months ended September 30, 2021, as the underlying subsidiary subject to the net investment hedging relationship is part of the Performance Chemicals business.

The fair values of derivative instruments held as of September 30, 2021 and December 31, 2020 are shown below:

Balance sheet location September 30,

2021 December 31,

8 unchanged sentences

Total derivative liabilities $ 1,937 $ 3,704

The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges on AOCI for the three and six months ended June 30, 2021 and 2020:

Three months ended June 30,

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges on AOCI for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,

Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income

Interest rate caps Interest (expense) income $ 510 $ ( 104 ) $ 573 $ 506

Six months ended June 30,

Nine months ended September 30,

Interest rate caps Interest (expense) income $ 1,901 $ ( 283 ) $ ( 347 ) $ ( 18 )

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

The following tables show the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020:

The following tables show the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020:

Location and amount of gain (loss) recognized in income on cash flow hedging relationships

Three months ended June 30,

Three months ended September 30,

Cost of goods sold Interest (expense)

6 unchanged sentences

Location and amount of gain (loss) recognized in income on cash flow hedging relationships

Six months ended June 30,

Nine months ended September 30,

Cost of goods sold Interest (expense)

5 unchanged sentences

Amount of gain (loss) reclassified from AOCI into income — ( 283 ) — ( 18 )

The amount of unrealized losses in AOCI related to the Company’s cash flow hedges that is expected to be reclassified to the condensed consolidated statement of income over the next twelve months is $ 863 as of June 30, 2021.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share and per share amounts)

The following tables show the effect of the Company’s net investment hedges on AOCI and the condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020:

The following tables show the effect of the Company’s net investment hedges on AOCI and the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020:

Amount of gain (loss) recognized in OCI on derivative Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) reclassified from AOCI into income Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)

Three months ended

June 30, Three months ended

September 30, Three months ended

September 30,

2021 2020 2021 2020 2021 2020

Cross-currency interest rate swaps $ — $ ( 5,206 ) Gain (loss) on sale of subsidiary $ — $ — Interest (expense) income $ — $ 1,552

Cross-currency interest rate swaps $ — $ ( 5,206 ) Net (loss) income from discontinued operations, net of tax $ 9,754 $ — Interest (expense) income $ — $ 1,552

Amount of pre-tax gain (loss) recognized in OCI on derivative Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) reclassified from AOCI into income Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)

Six months ended

June 30, Six months ended

Nine months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020 2021 2020

Cross-currency interest rate swaps $ 9,787 $ 9,603 Net income from discontinued operations (1)

$ — $ — Interest (expense) income $ 545 $ 3,244

(1) Includes the gain (loss) on the sale of the underlying subsidiary.

Cross-currency interest rate swaps $ 9,787 $ 9,603 Net (loss) income from discontinued operations, net of tax $ 9,754 $ — Interest (expense) income $ 545 $ 3,244

Income Taxes:

The effective income tax rate for the three months ended June 30, 2021 was ( 4,371.6 )% compared to ( 254.3 )% for the three months ended June 30, 2020.

The effective income tax rate for the six months ended June 30, 2021 was ( 30.9 )% compared to ( 562.5 )% for the six months ended June 30, 2020.

The Company’s effective income tax rate has fluctuated primarily due to changes in income mix, the impacts of the Global Intangible Low Taxed Income (“GILTI”) tax rules, discrete impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result of the Performance Chemicals divestiture, tax rate changes and changes in foreign exchange gains and losses, which create permanent differences in certain jurisdictions.

The effective income tax rate for the three months ended September 30, 2021 was 35.6 % compared to ( 1,579.7 )% for the three months ended September 30, 2020.

The effective income tax rate for the nine months ended September 30, 2021 was ( 610.9 )% compared to ( 149.9 )% for the nine months ended September 30, 2020.

The Company’s effective income tax rate has fluctuated primarily due to changes in income mix, the impacts of the Global Intangible Low Taxed Income (“GILTI”) tax rules, discrete impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result of the divestiture of the Performance Chemicals business, tax rate changes and changes in foreign exchange gains and losses, which create permanent differences in certain jurisdictions.

The difference between the U.S.

federal statutory income tax rate and the Company’s effective income tax rate for the six months ended June 30, 2021 was mainly due to state and local taxes, discrete tax impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result of the Performance Chemicals divestiture, tax rate changes and the tax effect of permanent differences related to foreign currency exchange gain or loss.

federal statutory income tax rate and the Company’s effective income tax rate for the nine months ended September 30, 2021 was mainly due to state and local taxes, discrete tax impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result of the divestiture of the Performance Chemicals business, tax rate changes and the tax effect of permanent differences related to foreign currency exchange gain or loss.

The difference between the U.S.

federal statutory income tax rate and the Company’s effective income tax rate for the six months ended June 30, 2020 was mainly due to state and local taxes, GILTI and the impact of intra-period allocation as a result of the Performance Chemicals and Performance Materials businesses being classified as held for sale.

Benefit Plans:

The following information is provided for (1) the Company-sponsored defined benefit pension plans covering employees in the U.S.

and certain employees at its foreign subsidiaries and (2) the Company-sponsored unfunded plans to provide certain health care benefits to retired employees in the U.S.

federal statutory income tax rate and the Company’s effective income tax rate for the nine months ended September 30, 2020 was mainly due to state and local taxes, GILTI and the impact of intra-period allocation as a result of the Performance Chemicals and Performance Materials businesses being classified as held for sale.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share and per share amounts)

Benefit Plans:

The following information is provided for (1) the Company-sponsored defined benefit pension plans covering employees in the U.S.

and certain employees at its foreign subsidiaries and (2) the Company-sponsored unfunded plans to provide certain health care benefits to retired employees in the U.S.

Components of net periodic expense (benefit) are as follows:

1 unchanged sentence

Three months ended

June 30, Three months ended

September 30, Three months ended

September 30,

2021 2020 2021 2020

3 unchanged sentences

Amortization of net loss — — — 24

Settlement (gain) recognized ( 26 ) — — —

Net periodic expense (benefit) $ ( 568 ) $ ( 103 ) $ — $ 308

Six months ended

June 30, Six months ended

Nine months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

3 unchanged sentences

Amortization of net loss — — — 70

Settlement (gain) recognized ( 26 ) — — —

Net periodic (benefit) expense $ ( 1,654 ) $ ( 307 ) $ — $ 877

1 unchanged sentence

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

15 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

Ecoservices $ 137,550 $ 107,604 $ 358,509 $ 298,727

Silica Catalysts (1)

Catalyst Technologies (1)

29,878 23,071 82,495 73,143

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joint ventures (collectively, the “Zeolyst Joint Venture”) accounted for using the equity method (see Note 11 to these condensed consolidated financial statements for further information).

The proportionate share of sales is $ 33,186 and $ 40,852 for the three months ended June 30, 2021 and 2020, respectively.

The proportionate share of sales is $ 62,164 and $ 73,143 for the six months ended June 30, 2021 and 2020, respectively.

The proportionate share of sales is $ 32,820 and $ 26,552 for the three months ended September 30, 2021 and 2020, respectively.

The proportionate share of sales is $ 94,984 and $ 99,695 for the nine months ended September 30, 2021 and 2020, respectively.

(2) The Company defines Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

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

(3) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 12,055 for the three months ended June 30, 2021, which includes $ 6,779 of equity in net income plus $ 1,620 of amortization of investment in affiliate step-up and $ 3,656 of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 16,855 for the three months ended June 30, 2020, which includes $ 11,489 of equity in net income plus $ 1,659 of amortization of investment in affiliate step-up and $ 3,707 of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 22,592 for the six months ended June 30, 2021, which includes $ 12,014 of equity in net income plus $ 3,278 of amortization of investment in affiliate step-up and $ 7,300 of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 30,580 for the six months ended June 30, 2020, which includes $ 19,806 of equity in net income plus $ 3,317 of amortization of investment in affiliate step-up and $ 7,457 of joint venture depreciation, amortization and interest.

(3) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 14,493 for the three months ended September 30, 2021, which includes $ 8,780 of equity in net income plus $ 1,601 of amortization of investment in affiliate step-up and $ 4,112 of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 5,331 for the three months ended September 30, 2020, which includes $ 76 of equity in net income plus $ 1,658 of amortization of investment in affiliate step-up and $ 3,597 of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 37,085 for the nine months ended September 30, 2021, which includes $ 20,794 of equity in net income plus $ 4,879 of amortization of investment in affiliate step-up and $ 11,412 of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 35,911 for the nine months ended September 30, 2020, which includes $ 19,882 of equity in net income plus $ 4,975 of amortization of investment in affiliate step-up and $ 11,054 of joint venture depreciation, amortization and interest.

(4) Total Segment Adjusted EBITDA differs from the Company’s consolidated Adjusted EBITDA due to unallocated corporate expenses.

2 unchanged sentences

(Dollars in thousands, except share and per share amounts)

A reconciliation of net loss from continuing operations to Segment Adjusted EBITDA is as follows:

A reconciliation of net income (loss) from continuing operations to Segment Adjusted EBITDA is as follows:

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

Reconciliation of net (loss) income from continuing operations to Segment Adjusted EBITDA

Net (loss) income from continuing operations $ ( 7,870 ) $ 34,317 $ ( 10,618 ) $ 30,970

Reconciliation of net income (loss) from continuing operations to Segment Adjusted EBITDA

Net income (loss) from continuing operations $ 4,689 $ ( 22,659 ) $ ( 5,929 ) $ 8,311

Provision (benefit) for income taxes 2,591 21,310 5,095 ( 4,985 )

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Depreciation and amortization 20,599 19,122 60,084 56,543

Segment EBITDA 28,550 43,569 50,568 72,530

EBITDA 36,884 28,203 87,452 100,733

Joint venture depreciation, amortization and interest 4,112 3,597 11,412 11,054

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Net loss on asset disposals 2,156 642 4,535 1,245

Foreign currency exchange (gain) loss ( 1,219 ) ( 3,361 ) 3,882 3,709

Foreign exchange losses (gains) 922 ( 4,286 ) 4,803 ( 577 )

LIFO benefit ( 1,295 ) ( 1,261 ) ( 1,998 ) ( 4,902 )

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Stock-Based Compensation:

The Company is authorized to issue shares for common stock awards to employees, directors and affiliates of the Company in connection with the PQ Group Holdings Inc.

2017 Omnibus Incentive Plan, as Amended and Restated (the “2017 Plan”).

During the six months ended June 30, 2021, the Company granted 1,697,623 restricted stock units and 211,985 performance stock units (at target) under the 2017 Plan as part of its equity incentive compensation program.

Each restricted stock unit provides the recipient with the right to receive a share of common stock subject to graded vesting terms based on service, which for the awards granted during the six months ended June 30, 2021, generally requires approximately one year of service for members of the Company’s board of directors and approximately three years of service for employees.

The performance stock units granted during the six months ended June 30, 2021 provide the recipients with the right to receive shares of common stock dependent on the achievement of a total shareholder return (“TSR”) goal, and are generally subject to the provision of service through the vesting date of the award.

The Company is authorized to issue shares for common stock awards to employees, directors and affiliates of the Company in connection with the Ecovyst Inc.

(formerly PQ Group Holdings Inc.) 2017 Omnibus Incentive Plan, as Amended and Restated (the “2017 Plan”).

During the nine months ended September 30, 2021, the Company granted 1,697,623 restricted stock units and 211,985 performance stock units (at target) under the 2017 Plan as part of its equity incentive compensation program.

Each restricted stock unit provides the recipient with the right to receive a share of common stock subject to graded vesting terms based on service, which for the awards granted during the nine months ended September 30, 2021, generally requires approximately one year of service for members of the Company’s board of directors and approximately three years of service for employees.

The performance stock units granted during the nine months ended September 30, 2021 provide the recipients with the right to receive shares of common stock dependent on the achievement of a total shareholder return (“TSR”) goal, and are generally subject to the provision of service through the vesting date of the award.

The performance period for the TSR goal is measured based on a three-year performance period from January 1, 2021 through December 31, 2023.

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The performance stock units, to the extent earned, will vest on the date the Company’s compensation and governance committee certifies the achievement of the performance metric for the three-year period ending December 31, 2023, which will occur subsequent to the end of the performance period but before the Company files its annual consolidated financial statements for the year ending December 31, 2023.

The value of the restricted stock units granted during the six months ended June 30, 2021 was based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, in accordance with the Company’s policy for valuing such awards.

The value of the restricted stock units granted during the nine months ended September 30, 2021 was based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, in accordance with the Company’s policy for valuing such awards.

Compensation expense related to the restricted stock units is recognized on a straight-line basis over the respective vesting period.

The TSR goal of the performance stock units granted during the six months ended June 30, 2021 is considered a market condition as opposed to a vesting condition.

The TSR goal of the performance stock units granted during the nine months ended September 30, 2021 is considered a market condition as opposed to a vesting condition.

Because a market condition is not considered a vesting condition, it is reflected in the grant date fair value of the award, and the associated compensation cost based on the fair value of the award is recognized over the performance period, regardless of whether the Company actually achieves the market condition or the level of achievement, as long as service is provided by the recipient.

The Company used a Monte Carlo simulation to estimate the fair value of the portion of the awards subject to the TSR goal.

The following table provides the assumptions used to determine the grant date fair value of the market condition-dependent / TSR goal-based portion of the Company’s performance stock units granted during the six months ended June 30, 2021 using a Monte Carlo simulation:

The following table provides the assumptions used to determine the grant date fair value of the market condition-dependent / TSR goal-based portion of the Company’s performance stock units granted during the nine months ended September 30, 2021 using a Monte Carlo simulation:

Expected dividend yield — %

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(Dollars in thousands, except share and per share amounts)

The following table summarizes the activity for the Company’s restricted stock units and performance stock units for the six months ended June 30, 2021:

The following table summarizes the activity for the Company’s restricted stock units and performance stock units for the nine months ended September 30, 2021:

Restricted Stock Units Performance Stock Units

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Forfeited ( 69,877 ) $ 15.83 ( 15,211 ) $ 16.75

Nonvested as of June 30, 2021 2,732,741 $ 15.72 1,166,648 $ 16.92

Nonvested as of September 30, 2021 2,695,266 $ 15.71 1,162,510 $ 16.92

2021 Modifications

As more fully described in Note 6 to these condensed consolidated financial statements, the Company’s Board of Directors declared a special cash dividend of $ 3.20 per share to stockholders of record as of the close of business on August 12, 2021.

The dividend declaration also included a dividend equivalent for all unvested restricted stock units, performance stock units and restricted stock awards (collectively, the “awards”) as of August 23, 2021 equal to $ 3.20 per award.

Additionally, the Company’s Board of Directors approved a reduction in the strike price on all outstanding vested and unvested stock options by the amount of the dividend payment.

Further, with respect to stock options and awards held by employees of Performance Chemicals at the time of the sale (see Note 3 to these condensed consolidated financial statements), the Company’s Board of Directors approved modifications to the post-termination stock option exercise, and stock option and award vesting periods.

The modifications provide that all stock options held by Performance Chemicals employees that were vested as of the date of the sale are eligible to be exercised for a period of one year from the date of the sale.

Additionally, modifications to unvested stock options and awards allow holders to continue to vest in those instruments under the original terms of the instruments for a period of one year from the date of sale.

The terms of the modifications to the Performance Chemicals awards are contingent upon the employee providing continued service to the Buyer.

The modifications impacted all holders of the Company’s stock options and awards and resulted in incremental stock-based compensation expense of $6,667 recognized during the three and nine months ended September 30, 2021.

Of this amount, $2,635 was included in loss from discontinued operations, net of tax on the Company’s consolidated statements of income for the three and nine months ended September 30, 2021.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

Total Stock-Based Compensation Expense

Stock-based compensation expense for the Company is as follows:

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Stock-based compensation expense, net of income tax benefit $ 11,003 $ 4,616 $ 23,340 $ 13,858

With the new grants of restricted stock units and performance stock units during the six months ended June 30, 2021, unrecognized compensation cost at June 30, 2021 was $ 33,653 for restricted stock units and $ 10,004 for performance stock units considered probable of vesting.

The weighted-average period over which these costs are expected to be recognized at June 30, 2021 is 1.79 years for the restricted stock units and 1.42 years for the performance stock units.

Activity related to the Company’s stock options and restricted stock awards was not material for the six months ended June 30, 2021.

With the new grants of restricted stock units and performance stock units during the nine months ended September 30, 2021, unrecognized compensation cost at September 30, 2021 was $ 31,800 for restricted stock units and $ 8,991 for performance stock units considered probable of vesting.

The weighted-average period over which these costs are expected to be recognized at September 30, 2021 is 1.54 years for the restricted stock units and 1.16 years for the performance stock units.

Activity related to the Company’s stock options and restricted stock awards was not material for the nine months ended September 30, 2021.

Earnings per Share:

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Potential common shares reflect (1) unvested restricted stock awards and restricted stock units with service vesting conditions, (2) performance stock units with vesting conditions considered probable of achievement and (3) options to purchase common stock, all of which have been included in the diluted earnings per share calculation using the treasury stock method.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

The reconciliation from basic to diluted weighted average shares outstanding is as follows:

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Weighted average shares outstanding – Diluted 137,354,427 135,106,969 136,111,555 136,188,033

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

Basic and diluted loss per share are calculated as follows:

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Diluted (loss) income per share $ ( 0.52 ) $ 0.06 $ ( 1.22 ) $ 0.17

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

The table below presents the details of the Company’s weighted average equity-based awards outstanding during each respective period that were excluded from the calculation of diluted earnings per share:

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Restricted stock awards and stock options with performance only vesting conditions were not included in the dilution calculation, as the performance targets have not been achieved nor were probable of achievement as of the end of the respective periods.

On a weighted average basis, options to purchase 603,159 shares of common stock at the historical exercise price of $ 16.97 per share and 241,316 shares of common stock at the historical exercise price of $ 17.50 per share for the three months ended June 30, 2020, were excluded from the computation of diluted earnings per share, because the combination of the options’ exercise price and remaining unamortized stock-based compensation expense was greater than the average market price of the common shares.

On a weighted average basis, options to purchase 606,325 shares of common stock at the historical exercise price of $ 16.97 per share and 241,316 shares of common stock at the historical exercise price of $ 17.50 per share for the six months ended June 30, 2020, were excluded from the computation of diluted earnings per share, because the combination of the options’ exercise price and remaining unamortized stock-based compensation expense was greater than the average market price of the common shares.

On a weighted average basis, options to purchase 603,159 shares of common stock at the historical exercise price of $ 16.97 per share and 241,316 shares of common stock at the historical exercise price of $ 17.50 per share for the three months ended September 30, 2020, were excluded from the computation of diluted earnings per share, because the combination of the options’ exercise price and remaining unamortized stock-based compensation expense was greater than the average market price of the common shares.

On a weighted average basis, options to purchase 605,262 shares of common stock at the historical exercise price of $ 16.97 per share and 241,316 shares of common stock at the historical exercise price of $ 17.50 per share for the nine months ended September 30, 2020, were excluded from the computation of diluted earnings per share, because the combination of the options’ exercise price and remaining unamortized stock-based compensation expense was greater than the average market price of the common shares.

The stock options with a historical exercise price of $ 16.97 per share expire on October 2, 2027, while the stock options with a historical exercise price of $ 17.50 per share expire on August 9, 2028.

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With the exception of operating leases, the following table presents supplemental cash flow information for the consolidated Company:

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Cash paid during the period for:

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Operating leases 7,946 8,376

(1) Cash paid for interest is shown net of capitalized interest for the periods presented and excludes $ 2,307 and $ 1,771 of net interest proceeds on swaps designated as net investment hedges for the six months ended June 30, 2021 and 2020, respectively, which are included within cash flows from investing activities, discontinued operations in the Company’s condensed consolidated statements of cash flows.

The followin g table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets as of June 30, 2021 and 2020 to the total of the same amounts shown in the condensed consolidated statements of cash flows for the six months then ended:

(1) Cash paid for interest is shown net of capitalized interest for the periods presented and excludes $ 2,307 and $ 4,622 of net interest proceeds on swaps designated as net investment hedges for the nine months ended September 30, 2021 and 2020, respectively, which are included within cash flows from investing activities, discontinued operations in the Company’s condensed consolidated statements of cash flows.

The followin g table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets as of September 30, 2021 and 2020 to the total of the same amounts shown in the condensed consolidated statements of cash flows for the nine months then ended:

September 30,

Cash and cash equivalents $ 104,752 $ 122,891

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Subsequent Events:

Effective on August 1, 2021, PQ Group Holdings completed the sale of its Performance Chemicals business for $ 1,100,000 , subject to certain adjustments as set forth in the agreement.

See Note 3 for more information on the transaction.

The Company used a portion of the net cash proceeds to repay the entire Senior Secured Term Loan Facility due February 2027 of $ 231,363 and the 5.750% Senior Notes due 2025 of $ 295,000 .

The 5.750% Senior Notes due 2025 were redeemed at a redemption price equal to the sum of 102.875% of the principal amount outstanding plus accrued and unpaid interest to, but excluding, August 2, 2021.

Additionally, the Company’s Board declared a special cash dividend of $ 3.20 per share, payable on August 23, 2021 to shareholders of record as of the close of business on August 12, 2021.

In connection with the closing of the sale of the Performance Chemicals business, PQ Group Holdings Inc.

changed its name from “PQ Group Holdings Inc.” to “ Ecovyst Inc.”.

Refer to Note 1 for more information on the corporate name change, ticker symbol change and rebranding of segments.

Other than the items set forth above, the Company has evaluated subsequent events since the balance sheet date and determined that there are no additional items to disclose.

T he Company has evaluated subsequent events since the balance sheet date and determined that there are no additional items to disclose.

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

What changed 10-Q

Item 1. Financial Statements