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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

or

2023
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 001-12019

QUAKER CHEMICAL CORPORATION

(Exact name of Registrantregistrant as specified in its charter)

Pennsylvania

23-0993790

A Pennsylvania Corporation

No. 23-0993790

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One Quaker Park,

901 E. Hector Street,

Conshohocken, Pennsylvania

19428-2380

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (610) 832-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each Exchangeexchange on which registered

Common Stock, $1.00$1 par value

KWR

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the Registrantregistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x   No  ☐ 

o

Indicate by check mark if the Registrantregistrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ☐   No  x

Indicate by check mark whether the Registrantregistrant (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  x   No  ☐

o

Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ S- T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to submit and post such files).  Yes  x   No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☐    

o

Indicate by check mark whether the Registrantregistrant 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”,filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x 

x

Accelerated filer  ☐ 

o

Non-accelerated filer  ☐ 

(Do not check if smaller reporting company)

o

Smaller reporting company  ☐ 

o
Emerging growth company  ☐ 

o

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)13(a) of the Exchange Act.  ☐ 

o

Indicate by check mark whether the Registrantregistrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐o   No  x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the Registrant.last business day of the registrant’s most recently completed second fiscal quarter. (The aggregate market value is computed by reference to the last reported sale on the New York Stock Exchange on June 30, 2017)2023): $1,908,157,945

$2,689,694,842

Indicate the number of shares outstanding of each of the Registrant’sregistrant’s classes of common stock, as of the latest practicable date:  13,306,968date 17,991,778 shares of Common Stock, $1.00 Par Value, as of January 31, 2018.

February 29, 2024.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement relating to the 20182024 Annual Meeting of Shareholders are incorporated by reference into Part III.


Table of Contents
Quaker Chemical Corporation
Table of Contents
Page

QUAKER CHEMICAL CORPORATION

2

Table of Contents

7

Page

18

Item 1C.

Part I

18

Business

2

19

Risk Factors

6

19

Unresolved Staff Comments

11

19

Properties

11

20

Item 3.

Legal Proceedings

11

Item 4.

Mine Safety Disclosures

11

Item 4(a).

Executive Officers of the Registrant

12

Part II

14

22

Selected Financial Data

16

23

17

24

30

39

31

41

74

89

74

89

Other Information

74

89

89

75

90

Executive Compensation

75

90

75

90

75

90

76

90

77

91

80

94

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Table of Contents
PART I

As used in this Annual Report on Form 10-K (the “Report”), the terms “Quaker Houghton,” the “Company,” “we”“we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires.

The “Combination” refers to the Quaker combination with Houghton International, Inc. (“Houghton”).

Item 1. Business.

General Description

The Company was organized in 1918 and incorporated as a Pennsylvania business corporation in 1930. Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, the Company’s customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, container, mining, and metalworking companies. Quaker Houghton develops, produces, and markets a broad range of formulated specialty chemical specialty products and offers chemical management services (“CMS”(which we refer to as “FluidcareTM”) for various heavy industrial and manufacturing applications in a global portfolio throughout its four regions: the North America region, thethree segments: Americas; Europe, Middle East and Africa (“EMEA”) region, the; and Asia/Pacific regionPacific.
The major product lines of Quaker Houghton include metal removal fluids, cleaning fluids, corrosion inhibitors, metal drawing and the South America region.  The principal productsforming fluids, die cast mold releases, heat treatment and services in Quaker’s global portfolio include: (i)quenchants, metal forging fluids, hydraulic fluids, specialty greases, offshore sub-sea energy control fluids, rolling lubricants, (used by manufacturers of steel in the hotrod and cold rolling of steelwire drawing fluids and by manufacturers of aluminum in the hot rolling of aluminum); (ii) machining and grinding compounds (used by metalworking customers in cutting, shaping, and grinding metal parts which require specialsurface treatment to enable them to tolerate the manufacturing process, achieve closer tolerance, and improve tool life); (iii) hydraulic fluids (used by steel, metalworking, and other customers to operate hydraulic equipment); (iv) corrosion preventives (used by steel and metalworking customers to protect metal during manufacture, storage, and shipment); (v) specialty greases (used in automotive and aerospace production processes and applications, the manufacturing of steel, and various other applications); (vi) metal finishing compounds (used to prepare metal surfaces for special treatments such as galvanizing and tin plating and to prepare metal for further processing); (vii) forming compounds (used to facilitate the drawing and extrusion of metal products); (viii) chemical milling maskants for the aerospace industry; (ix) temporary and permanent coatings for metal and concrete products; (x) construction products, such as flexible sealants and protective coatings, for various applications; (xi) bio-lubricants (that are mainly used in machinery in the forestry and construction industries); (xii) die casting lubricants; and (xiii) programs to provide CMS.chemicals. The following are the respective contributions to consolidated net sales of each individualof our principal product linelines representing more than 10% or more of consolidated net sales for any of the past three years:

 

 

 

2017

 

2016

 

2015

 

 

Rolling lubricants

 

17.8

%

 

19.0

%

 

18.6

%

 

 

Machining and grinding compounds

 

15.8

%

 

14.9

%

 

15.3

%

 

 

Hydraulic fluids

 

11.6

%

 

12.0

%

 

12.6

%

 

 

Corrosion preventives

 

11.4

%

 

11.8

%

 

12.0

%

 

 

Specialty greases

 

10.0

%

 

10.1

%

 

8.5

%

 

Acquisition Activity

On April 4, 2017, Quaker entered into a share purchase agreement with Gulf Houghton Lubricants, Ltd. (“Gulf”) to purchase the entire issued and outstanding share capital of Houghton International, Inc. (“Houghton”) (herein referred to as “the Combination”).  The shares will be bought for aggregate purchase consideration consisting of: (i) $172.5 million in cash; (ii) a number of shares of common stock, $1.00 par value per share, of the Company comprising 24.5% of the common stock outstanding upon the closing of the Combination; and (iii) the Company’s assumption of Houghton’s net indebtedness as of the closing of the Combination, which was approximately $690 million at signing.  At closing, the total aggregate purchase consideration is dependentyears based on the Company’s stock price and the level of Houghton’s indebtedness. 

The Company secured $1.15 billion in commitments from Bank of America Merrill Lynch and Deutsche Bank to fund the Combination and to provide additional liquidity, and has since replaced these commitments with a syndicated bank agreement (“the New Credit Facility”) with a group of lenders for $1.15 billion.  The New Credit Facility is contingent upon and will not be effective until the closing of the Combination.  The New Credit Facility includes a $400.0 million multicurrency revolver, a $575.0 million USD term loan and a $175.0 million EUR equivalent term loan, each with a five-year term from the date the New Credit Facility becomes effective.  The maximum amount available under the New Credit Facility can be increased by $200.0 million at the Company’s option if the lenders agree and the Company satisfies certain conditions.  Borrowings under the New Credit Facility will bear interest at a base rate or LIBOR rate plus a margin.  The Company currently estimates the annual floating rate cost will be in the 3.50% to 3.75% range based on current market interest rates.  The New Credit Facility will be subject to certain financial and other covenants, including covenants that the Company’s consolidated net debt to adjusted EBITDA ratio cannot exceed 4.25 to 1 and the Company’s consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1.  Both the USD and EUR equivalent term loans will have quarterly principal amortization during their respective five-year terms, with 5% amortization of the principal balance due in years 1 and 2, 7.5% in year 3, and 10% in years 4 and 5, with the remaining principal amounts due at maturity.Until closing, the Company incurs certain interest costs paid to maintain the banks’ committed capital.  These interest costs began to accrue on September 29, 2017 and bear an interest rate of 0.30% per annum.

In addition, the issuance of the Company’s shares at closing of the Combination was subject to approval by Quaker’s shareholders under the rules of the New York Stock Exchange, and approval was received at a meeting of the Company’s shareholders during the third quarter of 2017.  Also, the Combination is subject to regulatory approval in the United States, Europe, China and Australia.  The Company received regulatory approval from China in July 2017 and from Australia in October 2017.  Depending on the remaining regulatory approvals and other customary terms and conditions set forth in the share purchase agreement, the Company currently estimates closing of the Combination will occur during the first half of 2018. 

product line segmentation:

2

Major Product Line202320222021
Metal removal fluids23.6 %22.9 %23.4 %
Rolling lubricants19.5 %20.8 %22.2 %
Hydraulic fluids14.1 %14.1 %13.6 %

In December 2017, the Company expanded its business through the acquisition of the remaining 45% ownership interest in its India affiliate, Quaker Chemical India Private Limited (“QCIL”) for approximately $31.8 million.  QCIL sells products to the steel and metalworking industries in India and has associates based in various locations around India.  The Company had been a joint venture partner in QCIL for 20 years.  India is a market with strong growth opportunities in most of the Company’s business lines and this acquisition, along with a new plant in Dahej to be completed in 2018, further strengthens the Company’s position in India while also simplifying the overall corporate structure and improving organizational efficiencies.  In addition, the Company acquired assets associated with a business that markets, sells and manufacturers certain metalworking fluids in North America in May 2017 for approximately $5.4 million. 

Sales Revenue

A substantial portion of Quaker’sthe Company’s sales worldwide are made directly through its own employees and its CMSFluidcareTM programs, with the balance being handledsold through distributors and agents. QuakerThe Company’s employees typically visit the plants of customers regularly, some work on site, and through training and experience, identify production issuesneeds which can be resolved or alleviatedotherwise addressed either by adapting Quaker’sutilizing the Company’s existing products or by applying new formulations developed in Quaker’sits laboratories.  Quaker’s new business development relies less on the use of advertising, and more heavily upon its reputation in the markets which it serves.  Generally, separate manufacturing facilities of a single customer are served by different personnel.

The Company recognizes revenue in accordance with the terms of its underlying customer agreements, when title and risk of loss have been transferred, when collectability is reasonably assured, and when pricing is fixed or determinable.  This generally occurs for product sales when products are shipped or delivered to customers; for consignment-type arrangements, upon usage by the customer; and for services, when they are performed.  Related to other income generation, Quaker receives license fees and royalties and includes them in other income when the amounts are recognized in accordance with their agreed-upon terms, when performance obligations are satisfied, when the amount is fixed or determinable, and when collectability is reasonably assured. 

As part of the Company’s CMS,FluidcareTM business, certain third-party product sales to customers are managed by the Company. Where the Company acts as principal, revenues are recognized on a gross reporting basis at the selling price negotiated with its customers. Where the Company acts as an agent suchfor its customers, revenue is recorded using therecognized on a net reporting method as service revenuesbasis at the amount of the administrative fee earned by the Company for ordering the goods. Third-party products transferred under arrangements resultingSeeNote 5of Notes to Consolidated Financial Statements in net reporting revenue totaled $44.5 million, $43.5 million and $48.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. 

Item 8 of this Report.

Competition

The specialty chemical specialty industry comprises a number of companies of similar in size to Quaker Houghton, as well as companies larger and smaller than Quaker.  Quakerin size. The Company cannot readily determine its precise competitive position in every industry it serves. Based on information available to Quaker, however,However, the Company estimates it holds a leading global position in the market for industrial process fluids to produce sheet steel.  The Company also believes it holds significantincluding leading global positions in the markets for process fluids in portions of the automotive and industrial markets.markets, and a leading position in the market for process fluids to produce sheet steel and aluminum. The offerings of many of ourthe Company’s competitors differ from those of Quaker;Quaker Houghton; some offer a broad portfolio of fluids, including general lubricants, while others have more specialized product ranges. All competitors provide different levels of technical services to individual customers. Competition in the industry is based primarily on the ability to supply products and provide productstechnical services that meet the needs of the customer at an appropriate price and render technical servicesvalue to both the Company and laboratory assistance to the customer, and to a lesser extent on price.

customer.

Major Customers and Markets

In 2017, Quaker’s2023, Quaker Houghton’s five largest customers (each composed of multiple subsidiaries or divisions with semi-autonomous purchasing authority) accounted for approximately 18%12% of consolidated net sales, with its largest customer accounting for approximately 8%3% of consolidated net sales. A significant portion of Quaker’sthe Company’s revenues are realized from the sale of process fluids and services to manufacturers of steel, aluminum, automobiles, aircraft, appliances,industrial equipment, and durable goods and, therefore, Quaker Houghton is subject to the same business cycles as those experienced by these manufacturers and their customers.  Quaker’s
The Company’s financial performance is generally correlated to the volume of global production within the industries it serves, rather than discretelydirectly related to the financial performance of such industries.its customers. Furthermore, steel and aluminum customers typically have limited manufacturing locations compared to metalworking customers and generally use higher volumes of products at a single location.

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Table of Contents
Raw Materials

Quaker Houghton uses over 1,000approximately 3,000 raw materials, including animal fats, vegetable oils, mineral oils, and derivatives, animal fats and derivatives, vegetable oils and derivatives,oleochemicals, ethylene, derivatives, solvents, surface activesurfactant agents, various smaller quantities of chemicalschemical compounds that act as additives to our base formulations, (“additives”) and a wide variety of other organic and inorganic compounds.  During the years ended December 31, 2017, 2016compounds and 2015, three of our larger raw material groups (mineral oils andvarious derivatives animal fats and derivatives, and vegetable oils and derivatives) in the aggregate accounted for approximately one third of the total cost of Quaker’s raw material purchases during each period, with each being roughly proportional to the total aggregate spend.foregoing. The price of mineral oil and its derivatives can be affected by the price of crude oil and industry refining capacity. Animal fat and vegetable oil prices, as well as the prices of other raw materials, are impacted by their own unique supply and demand factors, and by biodiesel consumption which is alsocan be affected by the price of crude oil.  In addition, other significant raw material purchases including ethylene derivatives, solvents, surface active agents and additives are also indirectly impacted by trends in mineral oil and derivatives and, therefore, crude oil trends.by government incentives for low-carbon fuels. Accordingly, significant fluctuations in the price of crude oil couldcan have a material impact

3

on the cost of these raw materials. In addition, many of the raw materials used by Quaker Houghton are commodity chemicals which can experience significant price volatility. Accordingly, Quaker’sAs experienced during 2022 and 2023, the Company’s earnings have been and could continue to be affected by market changes in raw material prices. Reference is madeRefer to the disclosure contained in Item 7A of this Report.

Report for additional information.

Patents and Trademarks

Quaker Houghton has a limited number of patents and patent applications including patents issued, applied for, or acquired in the United StatesU.S. and in various foreign countries, some of which may prove to be material to its business.  Principal reliance is placed upon Quaker’sbusiness, with the earliest patent expiry in 2024. The Company principally relies on its proprietary formulae and the application of its skillsapplications know-how and experience to meet customer needs. Quaker’sQuaker Houghton products are identified by numerous trademarks that are registered throughout its marketedmarketing area.

Research and Development—Development - Laboratories

Quaker’s

The Company maintains approximately thirty separate laboratory facilities worldwide that are primarily devoted to applied research and development. In addition, the Company maintains quality control labs at each of its manufacturing facilities. Quaker Houghton research and development laboratories areis directed primarily toward applied research and developmenttechnology since the nature of Quaker’sthe Company’s business requires continual modification and improvement of formulations to provide chemical specialtiesspecialty chemicals to satisfy customer requirements. Quaker maintains quality control laboratory facilities in eachIf problems are encountered which cannot be resolved by local laboratories, the problem is referred to one of its manufacturing locations.  In addition, Quaker maintains laboratory facilitiesour ten principal laboratories, located in Conshohocken, Pennsylvania; Valley Forge, Pennsylvania; Aurora, Illinois; Santa Fe Springs, California; Batavia, New York; Aurora, Illinois; Dayton, Ohio; Uithoorn, Thethe Netherlands; Navarra, Spain;Coventry, United Kingdom; Dortmund, Germany; Barcelona, Spain; Rio de Janiero, Brazil;Turin, Italy or Qingpu, China; and Kolkata, India that, in addition to quality control, are devoted primarily to applied research and development.

China.

Research and development costs are expensed as incurred. Research and development expenses during the years ended December 31, 2017, 20162023, 2022 and 20152021 were $23.9$50.3 million, $22.5$46.0 million and $22.1$44.9 million, respectively.

Most of Quaker’s

Recent Acquisition Activity
During February 2024, the Company acquired I.K.V. Tribologie IKVT and its subsidiaries (“IKVT”) for approximately 27.0 million EUR, or $29.1 million subject to routine and associated companies also have laboratory facilities.  Although not as complete as the laboratories mentioned above, these facilities are generally sufficient for the requirementscustomary post-closing adjustments related to working capital and net indebtedness levels. IKVT will be part of the customers being served.  If problemsCompany’s EMEA segment and specializes in high-performance lubricants and greases, including original equipment manufacturer first-fill greases that are encountered which cannot be resolved by local laboratories, such problems are generally referredprimarily used in the automotive, aerospace, electronics, and other industrial markets. The acquisition of IKVT strengthens the Company’s position in first fill greases. See Note 2 of Notes to the laboratory staffConsolidated Financial Statements in Conshohocken, Santa Fe Springs, Uithoorn or Qingpu.

Item 8 of this Report.

Regulatory Matters

In order to facilitate compliance with applicable federal, state, and local statutes and regulations relating to occupational health and safety and protection of the environment, the Company has an ongoing program of site assessment for the purpose of identifying capital expenditures or other actions that may be necessary to comply with such requirements. The program includes periodic inspections of each facility by Quakerthe Company and/or independent experts, as well as ongoing inspections and training by on-site personnel. Such inspections, among other things, address operational matters, record keeping, reporting requirements and capital improvements. Capital expenditures directed solely or primarily to regulatory compliance amounted to approximately $1.6$3.5 million, $0.9$2.2 million and $2.3$4.2 million during the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.  In 2018, the Company expects to incur approximately $2.4 million for capital expenditures directed primarily to regulatory compliance.

Number of Employees

On December 31, 2017, Quaker’s consolidated companies had approximately 2,110 full-time employees of whom approximately 640 were employed by the parent company and its U.S. subsidiaries, and approximately 1,470 were employed by its non-U.S. subsidiaries.  Associated companies of Quaker (in which it owns 50% or less and has significant influence) employed approximately 70 people on December 31, 2017.

Company Segmentation

The Company’s operating segments, which are consistent with its reportable operating segments, reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the chief operating decision maker assesses the Company’s performance.
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During the first quarter of 2023, the Company assesses and managesreorganized its performance.executive management team to align with its new business structure. The Company’s new structure includes three reportable operatingsegments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific. Prior to the Company’s reorganization, the Company’s historical reportable segments are organizedwere: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. Prior period information has been recast to align with the Company’s business structure as of January 1, 2023, including reportable segments and customer industry disaggregation. As a result of the Company’s new organizational structure effective January 1, 2023, the Company reallocated goodwill previously held by geographythe former Global Specialty Businesses segment to the remaining business segments as follows: North America, EMEA, Asia/Pacificof January 1, 2023. However, the Company did not recast the carrying amount of goodwill for the years ended December 31, 2022 and South America.  2021. See NoteNotes 4, 5, and 15 of Notes to Consolidated Financial Statements which appears in Item 8 of this Report and is incorporated herein by this reference.

Report.

Non-U.S. Activities

Since significant revenues and earnings are generated by non-U.S. operations, Quaker’sthe Company’s financial results are affected by currency fluctuations, particularly between the U.S. dollar and the euro, the British pound sterling, the Brazilian real, the Mexican peso, the Chinese renminbi and the Indian rupee, and the impact of those currency fluctuations on the underlying economies. Incorporated by referenceReference is made to (i) the foreign exchange risk information contained in Item 7A of this Report, (ii) the geographic information in Note 4 of Notes to Consolidated Financial Statements included in Item 8 of this Report, and (iii) information regarding risks attendant to foreign operations included in Item 1A of this Report.

Number of Employees
On December 31, 2023, Quaker Houghton had approximately 4,400 full-time employees globally of whom approximately 900 were employed by the parent company and its U.S. subsidiaries, and approximately 3,500 were employed by its non-U.S. subsidiaries. Associated companies of Quaker Houghton (in which it owns 50% or less and has significant influence) employed approximately 600 people on December 31, 2023.
Core Values
Quaker Houghton considers its employees as its greatest strength in differentiating our business and strengthening our market positions. We have established core values that are inclusive of embracing diversity and creating a culture where we learn from and are inspired by the many cultures, backgrounds and knowledge of our team members. The Company’s goal is to have an organization that is inclusive of all its people and is representative of the communities in which we operate.
The Company’s core values are (i) live safe; (ii) act with integrity; (iii) drive results; (iv) exceed customer expectations; (v) embrace diversity; and (vi) do great things together. Our core values embody who we are as a company, and these values, in words and actions, build a safer, stronger Quaker Houghton, and these values guide the Company’s internal conduct and its relationship with the outside world. By fostering a culture and environment that exemplifies our core values, we gain, as a company, unique perspectives, backgrounds and varying experiences to ensure continued long-term success. The Company respects and values all of its employees and believes inclusion, diversity and equality are essential pillars to drive the Company’s success.
Aligned to our core values, in 2023, we evolved our enterprise-wide approach to volunteerism. All full-time employees are provided up to 16 hours per calendar year to volunteer for a non-profit or charity of their choice. The policy is supported by recommendations to our colleagues regarding volunteering opportunities, such as educational or cultural institutions, healthcare institutions, civic and community centers, and non-profit organizations focusing on science, technology, engineering, and math (“STEM”) learning.
Sustainability Governance and Strategy
In 2020, we established the Board Sustainability Committee, which has specific responsibility to assist the Board of Directors (the “Board”) in its assessment, evaluation, and oversight of the Company’s sustainability programs and initiatives pertaining to the Company’s business, operations, and employees. In formulating our sustainability strategy, our Executive Leadership Team (“ELT”) and Board consider certain risks and uncertainties that may materially impact our financial condition and results of operations. These risks and uncertainties are further described in Item 1A of this Report.
In 2021, we set a target to achieve carbon neutrality in our global operations by 2030 and net zero emissions across our entire value chain by 2050. In addition, the Company established 15 long-term environmental and social goals, based on the results of the Company's 2020 materiality assessment, which was completed with input from customers, investors, suppliers, and internal stakeholders. Our 15 long-term goals are closely aligned with the United Nations Sustainable Development Goals. We also identified short-term and medium-term milestones that may help support the achievement of our 2030 targets.
In 2022, we made progress on certain of the Company’s identified 2030 goals in accordance with the baselines set during 2021. During 2022, the Company launched Green Chemistry Guidelines globally that align with principles recommended by the American Chemical Society and the Company’s established sustainability goals. Additionally, the Company made investments in renewable energy certificates, and increased the percentage of raw materials that are renewable. We will provide further updates on our short-term milestones in our 2023 Sustainability Report.
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Table of Contents
Sustainability Report
We report our progress on our Sustainability strategy in our sustainability report, which is published annually and is available on our corporate website at home.quakerhoughton.com/sustainability. The Company’s 2022 Sustainability Report reflects the most recent available data on a variety of topics, including specific information relating to the Company’s: (i) environmental footprint and climate change commitments; (ii) diversity initiatives; (iii) safety initiatives and performance; and (iv) sustainable solutions portfolio. Information in these sustainability reports and on our website are not incorporated by reference in this Report and, accordingly, should not be considered part of this Report.
Talent Development, Culture and Total Rewards
We strive to make Quaker Houghton a great place to work for all employees. We are committed to creating a workplace where employees feel valued, respected and challenged, while fostering an environment that attracts and engages a talented workforce that contributes to the Company’s growth and sustained success. Our Compensation and Human Resources Committee is responsible for overseeing our policies and strategies related to culture and human capital, including diversity, equity and inclusion.
Our Quaker Houghton University is available to all employees and provides a library of tools and resources for career development and growth. Through ongoing dialogue with leaders, employees are encouraged to plan for their development and leverage the tools available to create meaningful and actionable development plans that drive personal and company growth.
We place importance on developing our leaders at all levels, whether a colleague is leading themselves or providing for others, as wells as providing them with opportunities to enhance their effectiveness. Our leaders have access to various learning and development experiences, including our Quaker Houghton internal leadership development program (“MAP”) for new or first-time managers, Performance and Rewards training, and specialized opportunities for external coaching, leadership assessments, or external development programs. We continue to enable a robust Organization and Talent Review (“OTR”) process in which each department’s talent landscape is evaluated, potential of talent is assessed, critical roles are identified, and succession planning occurs for our most senior positions. Output of these processes results in career development and other related talent plans designed to ensure we have the talent we need both now and in the future to deliver results.
Additionally, we regularly evaluate our total rewards offerings for our employees, including health and wellness benefits, paid-time off policies, monetary compensation, and educational reimbursements, to ensure that our total compensation and benefits packages are aligned with our business strategy, organizational culture, and diversity and inclusion approach and allow us to remain competitive in the markets we serve and comply with local statutory wage and benefit laws. We strive to create a culture where recognition is ingrained, including utilization of an enterprise reward and recognition program that celebrates and incentivizes the results and behaviors of our employees and their impacts on our teams and Company. Creating, fostering, and maintaining a culture in which every colleague can be their best self is a driving force in our engagement efforts.
We pay particular attention to the wellness and well-being of our employees with specific investments in a variety of health-related topics including forums for learning, dialogue, and enterprise collaboration. During 2023, we prioritized these efforts, with purpose driven investments in wellness and well-being. We launched a global well-being platform, Virgin Pulse, which provides access to activities, tools and resources on a variety of wellness topics. We celebrated World Mental Health Day with enterprise discussions and education on various topics. We also increased our benefits investments by providing paid parental leave for our U.S. colleagues regardless of birthing status, and we implemented a global family planning program to support the fertility-related healthcare needs of our colleagues.
Diversity, Equity, and Inclusion (“DEI”)
Quaker Houghton strives to cultivate a diverse, equitable, and inclusive culture that reflects the global nature of our organization. We believe diversity and inclusion are embodied by having working norms whereby employees feel included, engaged, and rewarded, regardless of their background or where they sit in the organization. When employees feel this way, we are a stronger, more inclusive organization and better equipped to utilize our colleagues’ diverse skills and talents to drive innovation and business success. Accordingly, Quaker Houghton provides equal employment opportunities and does not discriminate based on age, ethnicity, sex, sexual identity, disability/medical condition, race, religion, or sexual orientation. Diversity is one of our core values, and our unwavering commitment to DEI is further reflected as a core element in our Code of Conduct. We seek to create an environment where every employee can feel their best allowing them to be their best.
Inclusion and diversity begin with the Board and ELT. The Board is comprised of ten individuals with diverse experience and credentials, selected for their business acumen and ability to challenge and add value to management. Our current Board composition includes two female and four racially diverse directors out of a total of twelve directors. For additional information on the Company’s leadership, refer to Item 4(a) Information about our Executive Officers and Item 10. Directors, Executive Officers and Corporate Governance.
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As part of our Human Capital strategy, we established a Culture and Engagement Taskforce (“Taskforce”) that represents the voice of our colleagues in focusing on the Company’s overall culture, as well as driving forward progress with specific DEI related initiatives. The Taskforce also functions as our Diversity and Inclusion Council. The Taskforce helped launch our Culture Survey, supported the implementation of our global framework for Colleague Resource Groups (“CRGs”) and launched two new CRGs at the Company. We remain on track to achieve the goals we have set for ourselves tied to diverse representation in our workforce.
In addition to providing learning and engagement opportunities to Company colleagues, we also recognize the importance of building an inclusive talent pipeline and external partnerships play a key role in how we do this. For example, the Company is a corporate member of Women in Manufacturing and a sponsor of the Women Automotive Network, both of which are organizations invested in supporting and promoting women in their respective industries. We are also a corporate supporter and sponsor of the Future of STEM Scholars Initiative, an organization that strives to increase the presence of students currently underrepresented in the STEM talent pool. We are proud of our collaboration with these organizations and others, and believe they will be an important part of ensuring we enable a pipeline of diverse candidates both now and in the future. We continue to invest in women and diverse talent through partnership with external leadership development firms, providing opportunities to our talent that will accelerate their leadership development professionally and personally.
Workplace Safety
We are committed to maintaining a strong safety culture and to emphasizing the importance of our employees’ role in identifying, mitigating and communicating safety risks. We maintain policies and operational practices that communicate a culture where all levels of employees are responsible for safety. We believe that the achievement of superior safety performance is both an important short-term and long-term strategic goal in managing our operations. We emphasize ten “lifesaving” rules which make a significant difference in preventing serious injuries and fatalities. We have launched several “Live Safe” initiatives to create an environment of openness and awareness in which all employees are actively engaged in meeting safety targets. We are keen in reporting near misses, hazard identifications and educating our employees on their “Stop Work Authority”, which are seen as leading indicators, helping us to get to zero incidents. Our leading indicators are proactive and preventive measures that can shed light about the effectiveness of safety and health activities and reveal potential problems in a safety and health program. We also require all employees to regularly complete safety training. Additionally, our ELT is closely involved in our safety programs, conducts regular reviews of safety performance metrics and reviews the Company’s safety performance during Company-wide meetings.
Quaker Houghton on the Internet

Financial results, news and other information about Quaker Houghton can be accessed from the Company’s website at http:https://www.quakerchem.com.www.quakerhoughton.com. This site includes important information on the Company’s locations, products and services, financial reports, news releases and career opportunities. The Company’s periodic and current reports on Forms 10-K, 10-Q, 8-K, and other filings, including exhibits and supplemental schedules filed therewith, and amendments to those reports, filed with the Securities and

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Exchange Commission (“SEC”) are available on the Company’s website free of charge, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information contained on, or that may be accessed through, the Company’s website is not incorporated by reference in this Report and, accordingly, you should not consider that information part of this Report.

Factors that May Affect Our Future Results

(Cautionary Statements under the Private Securities Litigation Reform Act of 1995)

Certain information included in this Report and other materials filed or to be filed by Quakerus with the SEC, (asas well as information included in oral statements or other written statements made or to be made by us)us, contain or may contain forward-looking statements withinthat fall under the meaningsafe harbor provisions of Section 27Athe Private Securities Litigation Reform Act of 1995 and the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts.facts and can generally be identified by words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “outlook,” “target,” “possible,” “potential,” “plan” or similar expressions, but these terms are not the exclusive means of identifying such statements. We have based these forward-looking statements on our currentassumptions, projections and expectations about future events.  events that we believe are reasonable based on currently available information, including statements regarding the potential effects of the conflicts in Ukraine and the Middle East, inflation, and global supply chain constraints on the Company’s business, results of operations, and financial condition; our expectation that we will maintain sufficient liquidity and remain in compliance with the terms of the Company’s credit facility; expectations about future demand and raw material costs; and statements regarding the impact of increased raw material costs and pricing initiatives.
These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance, and business, including:

which may differ materially from expectations, estimates and projections because of many factors, including, but not limited to:

•

statements relating to our business strategy;

•

our current and future results and plans; and

•

statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or similar expressions.

•the timing and extent of the projected impacts on our business of acts of war or terrorism, including the conflicts in Ukraine and the Middle East, and actions taken by various governments and governmental organizations in response;

•inflationary pressures, cost increases, and constraints and disruptions in the global supply chain;
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•the potential timing, impacts, and other uncertainties of acquisitions and divestitures, including our ability to realize synergies, integrate acquisitions or separate divested assets and businesses;
•the potential for changes in global and regional economic conditions and for a variety of macroeconomic events, including the possibility of global or regional slowdowns or recessions, inflation, deflation or stagflation and its impact on our business, raw materials purchases and/or profitability of our business, a global pandemic, and interest rate changes, to impact the value of our assets or result in asset impairments; and
•our current and future results and plans including our sustainability goals and enterprise strategy.
Such statements include information relating to current and future business activities, operational matters, capital spending, and financing sources. From time to time, forward-looking statements are also included in Quaker’sthe Company’s other periodic reports on Forms 10-K, 10-Q and 8-K, press releases, and other materials released to, or statements made to, the public.

Any or all of the forward-looking statements in this Report, in Quaker’sthe Company’s Annual Report to Shareholders for 20172023 and in any other public statements we make may turn out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Report will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in Quaker’sthe Company’s subsequent reports on Forms 10-K, 10-Q, 8-K and other related filings should be consulted. Our forward-looking statements are subject to risks, uncertainties and assumptions about us and our operations that are subject to change based on various important factors, some of which are beyond our control.  A major risk is that the demand for the Company’s products and services is largely derived from the demand for our customers’ products, which subjects the Company to uncertainties related to downturns in a customer’s business and unanticipated customer production shutdowns.  slowdowns and shutdowns, including as is currently being experienced by many automotive industry companies as a result of supply chain disruptions.
Other major risks and uncertainties include, but are not limited to, inflationary pressures, including the potential for continued significant increases in raw material costs,costs; supply chain disruptions; customer financial stability, worldwideinstability; rising interest rates and the possibility of economic recession; economic and political conditions,disruptions including the impacts of the military conflicts between Russia and Ukraine and between Israel and Hamas; tariffs, trade restrictions and the economic and other sanctions imposed by other nations on Russia and/or other government or government organizations; suspensions of activities in Russia by many multinational companies and the potential expansion of military activity; foreign currency fluctuations,fluctuations; significant changes in applicable tax rates and regulations,regulations; future terrorist attacks and other acts of violence, eachviolence; the impacts of which is discussedconsolidation in greater detail in Item 1Aour industry, including loss or consolidation of this Report.  a major customer; and the potential occurrence of cyber-security breaches, cyber-security attacks and other security incidents.
Furthermore, the Company is subject to the same business cycles as those experienced by our customers in the steel, automobile, aircraft, appliance,industrial equipment, aluminum, and durable goods manufacturers.industries.
Our forward-looking statements are subject to risks, uncertainties and assumptions about the Company and its operations that are subject to change based on various important factors, some of which are beyond our control. In addition to the factors above, our forward-looking statements are qualified with respect to the risks disclosed elsewhere in this Report, including in Item 1A, Risk Factors, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 7A,Quantitative and Qualitative Disclosures About Market Risk. These risks, uncertainties, and possible inaccurate assumptions relevant to our business could cause our actual results to differ materially from expected and historical results.  Other factors beyond those discussed in this Report, could also adversely affect us including, but not limited to the following related to the Combination:

•

the risk that a required regulatory approval will not be obtained or is subject to conditions that are not anticipated or acceptable to us;

•

the potential that regulatory authorities may require that we make divestitures in connection with the Combination of a greater amount than we anticipated, which would result in a smaller than anticipated combined business;

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the risk that a closing condition to the Combination may not be satisfied in a timely manner;

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risks associated with the financing of the Combination;

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the occurrence of any event, change or other circumstance that could give rise to the termination of the share purchase agreement;

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potential adverse effects on Quaker Chemical’s business, properties or operations caused by the implementation of the Combination;

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Quaker Chemical’s ability to promptly, efficiently and effectively integrate the operations of Houghton and Quaker Chemical;

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risks related to each company’s distraction from ongoing business operations due to the Combination; and,

•

the outcome of any legal proceedings that may be instituted against the companies related to the Combination.

Therefore, we caution you not to place undue reliance on our forward-looking statements.  For

Item 1A. Risk Factors.
There are many factors that may affect our business and results of operations, including the following risks relating to: (1) the demand for our products and services and our ability to grow our customer base; (2) our business operations, including internal and external factors that may impact our operational continuity; (3) our international operations; (4) our supply chain; (5) domestic and foreign taxation and government regulation and oversight; and (6) more information regarding these risks and uncertainties as well as certain additional risksgeneral risk factors that we face, see refermay impact our business.
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Risks Related to the Risk Factors section, which appears in Item 1A of this report, as well as the proxy statement the Company filed on July 31, 2017Demand for our Products and inServices and our quarterly and other reports filed from time to time with the SEC.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

Customer Base

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Item 1A.  Risk Factors.

Changes to the industries and markets that Quaker serveswe serve could have a material adverse effect on the Company’sour liquidity, financial position and results of operations.

The business environment

As the leader in whichindustrial process fluids, the Company operates remains uncertain.  The Company is subject to the same business cycles as those experienced by our customers that participate in the steel, automobile, aircraft, appliance,industrial equipment, aerospace, aluminum and durable goods manufacturers.  A major risk is thatindustries. Because demand for the Company’sour products and services is largely derived from the global demand for itsour customers’ products, which subjects the Companywe are subject to uncertainties related to downturns in our customers’ businessbusinesses and unanticipated shutdowns or curtailments of our customers’ production.  The Company hasproduction, including as a result of adverse changes affecting national, regional and global economies or increased competitive pressure within our customers’ industries. Our customers may experience deterioration of their businesses, cash flow shortages and difficulty obtaining financing, leading them to delay or cancel plans to purchase products, and they may not be able to fulfill their obligations in a timely fashion. We have limited ability to adjust its cost levelour costs contemporaneously with changes in sales and gross margins.  Thus,sales; thus, a significant sudden downturn in sales or gross margins due to reductions in global production within the industries the Company serveswe serve and/or weak end-user markets could have a material adverse effect on the Company’sour liquidity, financial position and results of operations.

Further, our suppliers and other business partners may experience similar conditions, which could impact their ability to fulfill their obligations to us and also result in material adverse effects on our liquidity, financial position and results of operations.

Changes in competition in the industries and markets Quaker serveswe serve could have a material adverse effect on the Company’sour liquidity, financial position and results of operations.

The specialty chemical industry comprises a number of companies of similar size as well as companies larger and smaller than Quaker.  It is estimated that Quaker holds a leading and significant global position in the markets for process fluids to produce sheet steel, and significant global positions in portions of the automotive and industrial markets.  These industries are highly competitive and a number ofthere are many companies with significant financial resources and/or customer relationships that compete with us to provide similar products and services. OurSome competitors may be positionedable to offer more favorable or flexible pricing and service terms or, due to their greater access to resources, may be better able to adapt to changes in conditions in our industries, fluctuations in the costs of raw materials or changes in global economic conditions, potentially resulting in reduced profitability and/or a loss of market share for us. The pricing decisions of our competitors could lead us to decrease our prices which could negatively affect our margins and profitability. In addition, severalour competitors could potentially consolidate their businesses toand gain scale toor better position their product offerings, which could have a negative impact on our profitability and market share. Historically, competitionCompetition in theour industry historically has also been based primarily on the ability to provide products that meet the needs of the customer and render technical services and laboratory assistance, which our competitors may be able to the customer and,accomplish more effectively than we are able to a lesser extent, on price.  Factors critical to the Company’s business include successfully differentiating the Company’s offerings from its competition, operating efficiently and profitably as a globally integrated Company, and increasing market share and customer penetration through internally developed business programs and strategic acquisitions.do. If the Company iswe are unsuccessful with differentiation,differentiating ourselves, it could have a material adverse effect on the Company’sour liquidity, financial position and results of operations.

Our business depends on attractingoperations and retaining qualified management and other key personnel.

The unanticipated departurewe could lose market share to our competitors.

Loss of any key membera significant customer, bankruptcy of our management teama major customer, or other key personnelthe closure of or significant reduction in production at a customer site could have ana material adverse effect on our business.  Givenliquidity, financial position and results of operations.
During 2023, the relative sizeCompany’s top five largest customers (each composed of the Company and the breadth of its global operations, there are a limited number of qualified personnel to assume the responsibilities of management levelmultiple subsidiaries or other key employees.  In addition, because of the specialized and technical naturedivisions with semi-autonomous purchasing authority) together accounted for approximately 12% of our business,consolidated net sales, with the largest customer accounting for approximately 3% of our future performance is dependentconsolidated net sales. The loss of a significant customer could have a material adverse effect on our abilityliquidity, financial position and results of operations. Also, a significant portion of our revenues is derived from sales to attract, developcustomers in the cyclical steel, aerospace, aluminum and retain qualified management, commercial, technical,automotive industries, where bankruptcies have occurred in the past and other key personnel.  Competitionwhere companies have periodically experienced financial difficulties. If a significant customer experiences financial difficulties or files for such personnel is intense, andbankruptcy protection, we may be unable to collect on our receivables, and customer manufacturing sites may be closed, or contracts voided. The bankruptcy of a major customer could therefore have a material adverse effect on our liquidity, financial position and results of operations. Also, some of our customers, primarily in the steel, aluminum and aerospace industries, often have fewer manufacturing locations compared to other metalworking customers and generally use higher volumes of products at a single location. The loss, closure, or significant reduction in production at one or more of these locations or other major sites of a significant customer could have a material adverse effect on our business.
We may not be able to timely develop, manufacture and gain market acceptance of new and enhanced products required to maintain or expand our business, which could adversely affect our competitive position and our liquidity, financial position and results of operations.
We believe that our continued success depends on our ability to continuously develop and manufacture new products and product enhancements on a timely and cost-effective basis in response to customer demands for higher performance process chemicals and other product offerings. Our competitors may develop new products or enhancements to their products that offer performance, features and lower prices that may render our products less competitive or obsolete, and we may lose business and/or significant market share. The development and commercialization of new products require significant expenditures over an extended period of time, and some products that we seek to develop may fail to gain traction or never become profitable. In any event, ongoing investments in research and development for the future do not yield an immediate beneficial impact on our operating results and therefore could result in higher costs without a proportional increase in revenues.
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In addition, our customers use our specialty chemicals for a broad range of applications. Changes in our customers’ products or processes or changes in regulatory, legislative or industry requirements may lead our customers to reduce consumption of the specialty chemicals that we produce or make them unnecessary or less attractive. Customers may also adopt alternative materials or processes that do not require our products. An example of such evolving customer demands and industry trends is the movement towards light weighting of materials and electric vehicles. Should a customer decide to use a different material or technology due to price, performance or other considerations, we may not be able to supply a product that meets the customer’s new requirements. Consequently, it is important that we develop new products to replace the products that mature and decline in use. Despite our efforts, we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our customers’ future needs or achieve market acceptance. Moreover, new products may have lower margins than the products they replace. Our business, results of operations, cash flows and margins could be materially adversely affected if we are unable to successfully manage the maturation or obsolescence of our existing products and the introduction of new products successfully.
Risks Related to Business Operations, Including Internal and External Factors that May Impact Our Operational Continuity
Our ability to profitably operate our consolidated company as anticipated requires us to effectively identify and consummate the strategic acquisitions we identify and to successfully integrate these acquisitions into our consolidated operations. An inability to appropriately capitalize on growth, including organic growth and future acquisitions, could adversely affect our liquidity, financial position and results of operations.
We have completed several acquisitions over the past several years. Acquired companies may have significant latent liabilities that may not be discovered before they are acquired and may not be reflected in the price we pay. Acquisitions also could have a dilutive effect on our financial results and while they generally result in goodwill, goodwill could be impaired in the future resulting in a charge to earnings.
Our ability to implement our growth strategy may be limited by our ability to identify appropriate acquisition or joint venture candidates, our financial resources, including available cash and borrowing capacity, and our ability to negotiate and complete suitable arrangements. Further, the success of our growth depends on our ability to navigate risks such as those listed above and successfully integrate acquisitions, including, but not limited to, our ability to:
•successfully execute the integration or consolidation of the acquired or additional business into our existing processes and operations;
•develop or modify financial reporting, information systems, and other related financial tools to ensure overall financial integrity and adequacy of internal control procedures;
•identify and capitalize on potential synergies, including cost reduction opportunities, while retaining legacy business and other related attributes;
•adequately address challenges arising from the increased scope, geographic diversity and complexity of our operations; and
•further penetrate existing, and expand into new, markets with the product capabilities acquired in acquisitions.
If we fail to successfully integrate acquisitions into our existing business, our financial condition and results of operations could be adversely affected. We may fail to obtain the benefits we anticipate from our recently completed or future acquisitions or joint ventures and we may not create the appropriate infrastructure to support such additional growth from organic or acquired businesses, which could also have a material adverse effect on our liquidity, financial position and results of operations.
Gulf and its wholly-owned subsidiary, QH Hungary Holdings Limited, have a significant minority stake in the Company and the contractual ability to nominate certain directors of the Company, which may enable them to influence the direction of our business and significant corporate decisions.
Gulf and its wholly-owned subsidiary, QH Hungary Holdings Limited (together, the “Gulf Affiliates”), remain our largest shareholders. If they were to make available for sale a portion of their shares, that portion could represent a significant amount of common stock of the Company being sold which could have an adverse impact on the Company’s stock price.
In addition, the Gulf Affiliates currently have the right to designate three individuals for election to the Board and this right, together with their share ownership, gives them substantial influence over our business, including over matters submitted to a vote of our shareholders, including the election of directors, amendment of our organizational documents, acquisitions or other business combinations involving the Company, and potentially the ability to prevent extraordinary transactions such as a takeover attempt or business combination. The concentration of ownership of our shares held by the Gulf Affiliates may make some future actions more difficult without their support. The Gulf Affiliates, however, among other provisions in the shareholders agreement, have agreed that for so long as any of their designees are on the Board, and for six months thereafter, they will vote all Quaker Houghton shares consistent with the recommendations of the Board for each director nominee as reflected in each proxy statement of the Company, including in support of any Quaker Houghton directors nominated for election or re-election to the Board (except as would conflict with their rights to designees on the Board). Nevertheless, the interests of Gulf may conflict with our interests or the interests of our other shareholders, though we are not aware of any such existing conflicts of interest at this time.
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Failure to comply with any material provision of our principal credit facility or other debt agreements could have a material adverse effect on our liquidity, financial position and results of operations.
Our principal credit facility requires the Company to comply with certain provisions and covenants, and, while we do not currently consider these provisions and covenants to be overly restrictive, they could become more difficult to comply with as business or financial conditions change. We are also subject to interest rate risk due to the variable interest rates within the credit facility and if interest rates continue to attractrise significantly, these interest costs would increase as well.
Our principal credit facility contains provisions that are customary for facilities of its type, including affirmative and negative covenants, financial covenants and events of default, including restrictions on (a) the incurrence of additional indebtedness, (b) investments in and acquisitions of other businesses, lines of business and divisions, (c) the making of dividends or retain such personnel.  In an effort to mitigate such risks,capital stock purchases and (d) dispositions of assets. Other financial covenants contained in our principal credit facility include a consolidated interest coverage test and a consolidated net leverage test. Customary events of default in the credit facility include, among others, defaults for non-payment, breach of representations and warranties, non-performance of covenants, cross-defaults, insolvency, and a change of control of the Company utilizes retention bonuses, offers competitive payin certain circumstances. If we are unable to comply with the financial and maintains continuous succession planning, but there can be no assurance that these mitigating factors will be adequateother provisions of our principal credit facility, we could become in default. The occurrence of an event of default under the credit facility could result in all loans and other obligations becoming immediately due and payable and the facility being terminated. In addition, deterioration in the Company’s results of operations or financial position could significantly increase borrowing costs.
Our variable rate indebtedness subjects us to attractinterest rate risk, which could cause our debt service obligations to increase significantly or retain qualified management or other key personnel.

Inabilityresult in an inability to obtain sufficient financing on favorable terms. Additionally, rising interest rates could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

We carry, and will continue to carry for the foreseeable future, a substantial amount of debt and other fixed obligations. Our ability to satisfy these obligations, finance acquisitions, repurchase shares, and pay dividends rely on our access to capital, which depends in large part on cash flow generated by our business and the availability of debt financing. The Company’s principal credit facility permits interest on certain borrowings to be calculated based on the Term Secured Overnight Financing Rate (“Term SOFR”), which exposes us to interest rate risk. See Note 19 of Notes to Consolidated Financial Statements included in Item 8 of this Report.
Interest rate increases, which were experienced during 2022 and 2023, increase our debt service obligations on the variable rate indebtedness even though the amount borrowed remains the same, which requires us to use more of our available cash to service our indebtedness. In order to manage the Company’s exposure to variable interest rate risk associated with the Company’s principal credit facility, in the first quarter of 2023, the Company entered into three year interest rate swaps to convert a portion of the Company’s variable interest rate borrowings to an average fixed rate plus an applicable margin as provided in the Company’s principal credit facility, based on the Company’s consolidated net leverage ratio. See Note 24 of Notes to Consolidated Financial Statements included in Item 8 of this Report.
Rising interest rates not only increase our cost of capital but could also have a dampening effect on overall economic activity and the financial condition of the Company's customers, either or both of which could negatively affect customer demand for the Company's products and customers' ability to repay their obligations. Rising interest rates could also cause credit market dislocations, which could have an impact on the Company’s and its customers' cost of capital.
Risks Related to our International Operations
Our global presence subjects us to political and economic risks that could adversely affect our business, liquidity, financial position and results of operations.
A significant portion of our revenues and earnings are generated by our non-U.S. operations. Our success as a global business depends, in part, upon our ability to succeed across different legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in all of the locations where we do business. Risks inherent in our global operations include:
•trade protection measures including import and export controls, trade embargoes, and trade sanctions affecting countries or regions we serve that could result in our losing access to customers and suppliers in those countries or regions;
•unexpected adverse changes in export duties, quotas and tariffs and difficulties in obtaining export licenses;
•termination or substantial modification of international trade agreements that may adversely affect our access to raw materials and to markets for our products;
•our agreements with counterparties in countries outside the U.S. may be difficult for us to enforce and related receivables may take longer or be difficult for us to collect;
•less protective foreign intellectual property laws, and more generally, legal systems that may be less developed and predictable than those in the U.S.;
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•limitations on ownership or participation in local enterprises as well as the potential for expropriation or nationalization of enterprises;
•instability in or adverse changes to the economic, political, social, legal or regulatory conditions in a country or region where we do business, including hyperinflationary conditions or as a result of terrorist activities, or as a result of political and/or military conflict; and
•complex and dynamic local tax regulations, including changes in foreign laws and tax rates or U.S. laws and tax rates with respect to foreign income that may unexpectedly increase the rate at which our income is taxed, impose new and additional taxes on remittances, repatriation or other payments by subsidiaries, or cause the loss of previously recorded tax benefits.
The current global geopolitical and trade environment creates the potential for increased escalation of domestic and international tariffs and retaliatory trade policies. Further changes in U.S. trade policy and additional retaliatory actions by U.S. trade partners could result in a worsening of economic conditions. If we are unable to successfully manage these and other risks associated with our international businesses, the risks could have a material adverse effect on our business, results of operations and financial condition.
The scope of our international operations subjects us to risks from currency fluctuations that could adversely affect our liquidity, financial position and results of operations.
Our non-U.S. operations generate significant revenues and earnings. Fluctuations in foreign currency exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of the products and services we provide in international markets where payment for our products and services is made in the local currency. Our financial results are affected by currency fluctuations, particularly between the U.S. dollar and the euro, the British pound sterling, the Brazilian real, the Mexican peso, the Chinese renminbi and the Indian rupee and the impact of those currency fluctuations on the underlying economies. During the past three years, sales by our non-U.S. subsidiaries, which use their local currencies as their functional currency, accounted for approximately 60% to 70% of our consolidated net sales. We generally do not use financial instruments that expose us to significant risk involving foreign currency transactions; however, the relative size of our non-U.S. activities has a significant impact on reported operating results and our net assets. Therefore, as exchange rates change, our results can be materially affected. Incorporated by reference is the foreign exchange risk information contained in Item 7A of this Report and the geographic information in Note 4 of Notes to Consolidated Financial Statements included in Item 8 of this Report.
Also, we occasionally source inventory in a different country than that of the intended sale. This practice can give rise to foreign exchange risk. We seek to mitigate this risk through local sourcing of raw materials in the majority of our locations.
Risks Relating to Our Supply Chain
If we are unable to obtain price increases or contract concessions sufficient to offset increases in the costs of raw materials, couldthis can continue to result in a loss of sales, gross margin,profit, and/or market share and couldcan have a material adverse effect on the Company’sour liquidity, financial position and results of operations. Conversely, an inabilityif we fail to implement timely price decreases to compensate for changesadjust prices in a declining raw material costscost environment, we could result in a loss oflose sales, gross margin,profit, and/or market share andwhich could have a material adverse effect on the Company’sour liquidity, financial position and results of operations.

Quaker Houghton uses over 1,000approximately 3,000 different raw materials, including animal fats, vegetable oils, mineral oils, and derivatives, animal fats and derivatives, vegetable oils and derivatives,oleochemicals, ethylene, derivatives, solvents, surface activesurfactant agents, various smaller quantities of chemicalschemical compounds that act as additives to our base formulations, (“additives”) and a wide variety of other organic and inorganic compounds.  During the years ended December 31, 2017, 2016compounds, and 2015, three of our larger raw material groups (mineral oils andvarious derivatives animal fats and derivatives, and vegetable oils and derivatives) in the aggregate accounted for approximately one third of the total cost of Quaker’s raw material purchases during each period, with each being roughly proportional to the total aggregate spend.foregoing. The price of mineral oils and itstheir derivatives can be affected by the price of crude oil and industry refining capacity. Animal fat and vegetable oil prices, as well as the prices of other raw materials, are impacted by their own specific supply and demand factors, as well as by biodiesel consumption which iscan also be affected by the price of crude oil. In addition, other significant raw material purchases including ethylene derivatives, solvents, surface active agents and additives are also indirectly impacted by trends in mineral oil and derivatives and, therefore, crude oil trends.  Accordingly, significant fluctuations in the priceprices of crude oil couldour raw materials in the past have had and are expected to continue to have a material impact on the cost of theseour raw materials. In addition, many of the raw materials used by Quakerwe use are commodity chemicals, which can experiencehave experienced significant price volatility.

volatility in recent years.

We generally attempt to pass through changes in the prices of raw materials to our customers, but we may be unable to do so (or may be delayed in doing so). In addition, raising prices we charge to our customers in order to offset increases in the prices we pay for raw materials could cause us to suffer a loss of sales volumes. Although the Company haswe have been successful in the past in recovering a substantial amount of raw material cost increases while retaining itsour customers, there can be no assurance that the Company canwe will be able to continue to recoveroffset higher raw material costs or retain customers in the future.  Conversely, the Company has been successful in maintaining acceptable levels of margin in periods of raw material price declines, but there can be no assurance that the Company can continue to maintain its margins through appropriate price and contract concessions while retaining its customers in the future.  As a result of the Company’s past pricing actions in periods of

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rising and declining costs, customers may become more likely to consider competitors’ products, some of which may be available at a lower cost. A significant change in margin or the loss of customers due to pricing actions could result in a material adverse effect on the Company’sour liquidity, financial position and results of operations.

operations as described within Item 7 of this Report.

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Lack of availability of raw materials and issues associated with sourcing from some single suppliers and some suppliers in volatile economic environments could have a material adverse effect on the Company’sour liquidity, financial position and results of operations.

The specialty chemical specialty industry can experience tightness ofperiodically experiences supply shortages for certain raw materials. In addition, inwe source some cases, we sourcematerials from a single supplier and/or from suppliers in economiesjurisdictions that have experienced political or economic instability. Even if we have multiple suppliers of a particular raw material, there are occasionally shortages. Any significant disruption in supply could affect our ability to obtain raw materials or satisfactory substitutes or could increase the cost of such raw materials or substitutes, which could have a material adverse effect on our liquidity, financial position and results of operations. In addition, certain raw materials that the Company useswe use are subject to various regulatory laws, and a change in theour ability to legally use such raw materials may impact Quaker’sthe products or services we are able to offer which could negatively affect our ability to compete and could adversely affect our liquidity, financial position and results of operations.

Loss of a significant manufacturing facility may materially and adversely affect the Company’sor disruptions within our supply chain or in transportation could have a material adverse effect on our liquidity, financial position and results of operations.

Quaker has multiple

Our manufacturing facilities are located throughout the world. In certain countries, such as Brazil and China, there is only one such facility.  IfWhile we have some redundant capabilities, if one of the Company’sour facilities is damagedforced to such an extent that production is halted for an extended period, the Companyshut down or curtail operations because of damage or other factors, including natural disasters, labor difficulties or widespread public health crises, we may not be able to timely supply itsour customers. This could result in a loss of sales over an extended period or permanently. TheWhile the Company does take stepsseeks to mitigate against this risk includingthrough business continuity and contingency planning and procuring property and casualty insurance (including business interruption insurance).  Nevertheless,other measures, the loss of salesproduction in any one region over an extended period of time could have a significant material adverse effect on Quaker’s liquidity, financial position and results of operations.

Loss of a significant customer, bankruptcy of a major customer, or the closure of a customer site could have a material adverse effect on our liquidity, financial position and results of operations.

During 2017, In addition, a widespread public health crisis may cause significant travel disruptions, quarantines and/or closures, which could result in disruptions to our five largest customers (each composed of multiple subsidiaries or divisions with semi-autonomous purchasing authority) together accounted for approximately 18%manufacturing and production operations at our facilities, as well as those of our consolidated net sales, with the largest customer accounting for approximately 8% of our consolidated net sales.  The loss of a significant customer could have a material adverse effect on Quaker’s liquidity, financial positionsuppliers and results of operation.

Also, a significant portion of Quaker’s revenues is derived from salescustomers. Any losses due to customers in the steel and automotive industries; including some of our larger customers, where a number of bankruptcies have occurred in the past and where companies have experienced financial difficulties.  As part of a bankruptcy process, the Company’s pre-petition receivablesthese events may not be realized and customer manufacturing sitescovered by our existing insurance policies or may be closedsubject to certain deductibles.

We could be similarly adversely affected by other disruptions to our supply chain and transportation network. The Company relies heavily on railroads, ships, and over-the-road shipping methods to transport raw materials to its manufacturing facilities and to transport finished products to customers. The costs of transporting our products could be negatively affected by factors outside of our control, including shipping container shortages or contracts voided.  The bankruptcy of a major customerglobal imbalances in shipping capabilities, transportation disruptions or rate increases, increased border controls or closures, extreme weather events, tariffs, rising fuel costs, armed conflicts and capacity constraints. Significant delays or increased costs affecting our supply chain could have a material adverse effect on the Company’s liquidity,materially affect our financial positioncondition and results of operations. Also, steel customers typicallyDisruptions at our suppliers have limited manufacturing locations comparedrecently and could in the future lead to metalworking customers and generally use higher volumesshort term or long term increases in raw material or energy costs and/or reduced availability of products at a single location.  The lossmaterials or closure of one or more steel mills or other major sites of a significant customer could have a material adverse effect on Quaker’s business.

Impairment evaluations of goodwill, intangible assets, investments or other long-lived assets could result in a reduction inenergy, potentially affecting our recorded asset values, which could have a material adverse effect on the Company’s liquidity, financial positioncondition and results of operation.

The Company performs reviews of goodwilloperations.

Risks Relating to Domestic and indefinite-lived intangible assets on an annual basis, or more frequently if triggering events indicate a possible impairment.  The Company tests goodwill at the reporting unit level by comparing the carrying value of the net assets of the reporting unit, including goodwill, to the unit's fair value.  Similarly, the Company tests indefinite-lived intangible assets by comparing the fair value of the assets to their carrying values.  If the carrying values of goodwill or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets may be considered impaired.  In addition, the Company will perform a review of a definite-lived intangible asset or other long-lived asset when changes in circumstances or events indicate a possible impairment.  An estimate of undiscounted cash flows produced by the asset or appropriate group of assets is compared with its carrying value to determine if an impairment charge is warranted.  If any impairment or related charge is warranted, then Quaker’s liquidity, financial positionForeign Taxation and results of operations could be materially affected.

Government Regulation and Oversight

Changes in tax laws could result in fluctuations in our effective tax rate and could have a material effect on the Company’sour liquidity, financial position and results of operation.

The Company is subject tooperations.

We pay income taxes in the U.S. and various foreign jurisdictions; with our domestic and international tax liabilities being subject to the allocation of income among these different jurisdictions. Our effective tax rate is derived from a combination of local tax rates and tax attributes applicable to the Company,our operations in the various countries, states and other jurisdictions in which we operate. Our effective tax rate and respective tax liabilities could therefore be materially affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in tax rates, expiration or lapses of tax credits or incentives, changes in uncertain tax positions, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or in how they are interpreted or enforced, including matters such as transfer

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pricing.  One such example of the potential impact from changes in tax law is the impact of the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”).  The Company has made reasonable interpretations and assumptions with regard to various uncertainties and ambiguities in the application of certain provisions of U.S. Tax Reform.  It is possible that the Internal Revenue Service (“IRS”) could issue subsequent guidance or take positions on audit that differ from the Company’s interpretations and assumptions.  Incorporated by reference is further information regarding U.S. Tax Reform in Note 8 of Notes to Consolidated Financial Statements included in Item 8 of this Report. In addition, we are regularly under audit by tax authorities, and the final decisions of such audits could materially affect our current tax estimates and tax positions. See Note 10 and Note 25 of Notes to Consolidated Financial Statements in Item 8 of this Report for a discussion of uncertain tax positions, tax years subject to examination, and audits and inspections. Any of these factors or similar tax-related risks could cause the Company to experience anour effective tax rate and tax-related payments, thatincluding any such payments related to tax liabilities of businesses we have acquired, to significantly differ from previous periods and current or future expectations which could have a significant material adverse effect on Quaker’sour liquidity, financial position and results of operations.

Failure to comply with any material provision of our primary credit facility or other debt agreements

Pending and future legal proceedings including environmental matters could have a material adverse effect on our liquidity, financial position and results of operations.

The Company's current primary credit facility (“the Credit Facility”) is a $300.0 million syndicated multicurrency credit agreement with a group of lenders which matures in June 2019.  The amount available under this facility can be increased to $400.0 million at the Company's option if the lenders agree and the Company satisfies certain conditions.  The Credit Facility provides the availability of revolving credit borrowings, and bears interest at either a base rate or LIBOR plus a margin based on the Company's consolidated leverage ratio.

The Credit Facility contains covenants that impose certain restrictions, including limitations on investments, acquisitions and liens, as well as default provisions customary for facilities of its type.  While these covenants and restrictions are not currently considered to be overly restrictive, they could become more difficult to comply with as our business or financial conditions change.  In addition, deterioration in the Company’s results of operations or financial position could significantly increase borrowing costs.

Quaker is exposed to market rate risk for changes in interest rates due to the variable interest rate applied to the Company’s borrowings under the Credit Facility and certain other, similar, but smaller credit facilities.  Accordingly, if interest rates rise significantly, the cost of debt to Quaker will increase, perhaps significantly, depending on the extent and timing of Quaker’s borrowings under its credit facilities.  As of December 31, 2017, the Company had $48.5 million in outstanding borrowings under its credit facilities.  Incorporated by reference is the interest rate risk information contained in Item 7A of this Report.

Pending and future legal proceedings, including environmental matters, may materially and adversely affect the Company’s liquidity, financial position, and results of operations, as well as itsour reputation in the markets it serves.

we serve.

The Company is aand its subsidiaries are routinely party to proceedings, cases, and requests for information from, and negotiations with, various claimants and federal and state agencies relating to various legal matters, including tax and environmental matters. An adverse resultSee Note 10 and Note 25 of Notes to Consolidated Financial Statements in one or more pending or on-going matters or any potential future matterItem 8 of a similar nature could materiallythis Report, which describes uncertain tax positions and adversely affect the Company’s liquidity, financial position,audits and results of operations,inspections, as well as its reputation in the markets it serves.  In addition, non-compliance with applicable laws and regulations, particularly the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other similar laws and regulations, could result in a negative impact to the Company’s reputation, potential fines or ongoing monitoring, which could also have a material adverse effect on the Company’s liquidity, financial position, and results of operations.  Incorporated herein by reference is thecertain information concerning pending asbestos-related litigation against an inactive subsidiary, amounts accrued associated with certain environmental, non-capital remediation costs and other potential commitments or contingencies highlightedcontingencies. An adverse result in Note 23one or more pending or ongoing matters or any potential future matter of Notes to Consolidated Financial Statements, which appearsa similar nature could materially and adversely affect our liquidity, financial position, and results of operations, as well as our reputation in Item 8the markets we serve.
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Contents

Failure to comply with the complex global regulatory environment in which the Company operateswe operate could have an adverse impact on the Company’sour reputation and/or a material adverse effect on the Company’sour liquidity, financial position and results of operations.

We are subject to government regulation in all of the jurisdictions in which we conduct our business. Changes in the regulatory environmentenvironments in which the Company operates,we operate, particularly, but not limited to, the United States,U.S., Mexico, Brazil, China, India, Thailand, Australia, the U.K. and the European Union,EU, could lead to heightened regulatory compliance costs and scrutiny, could adversely impact our ability to continue selling certain products in our domesticthe U.S. or foreign markets, and/or could otherwise increase the cost of doing business. While the Company mitigateswe seek to mitigate these risks through variousa variety of actions, including receiving Responsible Care certification, on-goingCertification, ongoing employee training, and administering aemploying comprehensive environmental, health and safety program,programs, there is no guarantee these actions will prevent all potential regulatory compliance issues. For instance, failure to comply with the European Union’sEU’s Registration, Evaluation, Authorization and Restriction of Chemicals (REACH)(“REACH”) regulations or other similar laws and regulations could result in theour inability to sell certain non-compliant products or we could incur fines, ongoing monitoring andobligations or other future business consequences, which could have a material adverse effect on the Company’sour liquidity, financial position and results of operations.

Potential product, service In addition, the U.S. Toxic Substances Control Act (“TSCA”) requires chemicals to be assessed against a risk-based safety standard and that unreasonable risks identified during risk evaluation be eliminated. This regulation and other pending initiatives at the U.S. state level, as well as initiatives in Canada, Asia and other regions, could potentially require toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. These assessments may result in heightened concerns about the chemicals involved and additional requirements being placed on their production, handling, labeling or use. These concerns and additional requirements could also increase the cost incurred by our customers to use our chemical products and otherwise limit their use which could lead to a decrease in demand for these products. A decrease in demand due to these issues could have an adverse impact on our business and results of operations.

Further, we are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act and other anti-bribery, anti-corruption and anti-money laundering laws in jurisdictions around the world. These and similar laws generally prohibit companies and their officers, directors, employees and third-party intermediaries, business partners and agents, from making improper payments or providing other improper items of value to government officials or other persons. While we have policies and procedures and internal controls designed to address compliance with such laws, including employee training programs, we cannot guarantee that our employees and third-party intermediaries, business partners and agents will not take, or be alleged to have taken, actions in violation of such policies and laws for which we may be ultimately held responsible. Detecting, investigating and resolving actual or alleged violations can be extensive and require a significant diversion of time, resources and attention from senior management. Any violation of these or other applicable anti-bribery, anti-corruption and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, and criminal or civil sanctions, penalties and fines, any of which could adversely affect our business and financial condition.
The shipment of goods, services and technology across international borders subjects us to extensive trade laws and regulations. Our import activities are governed by the unique customs laws and regulations in each of the countries where we operate. Moreover, many countries, including the U.S., control the export and re-export of certain goods, services and technology and impose related liability claimsexport record-keeping and reporting obligations, which can be burdensome. Governments may also impose economic sanctions against certain countries, persons and entities that may restrict or prohibit transactions involving such countries, persons and entities, which may limit or prevent our conduct of business in certain jurisdictions.
The laws and regulations concerning import activity, export record-keeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations can cause delays in shipments and unscheduled operational downtime. Moreover, any failure to comply with applicable legal and regulatory trading obligations could result in criminal and civil penalties and sanctions such as fines, imprisonment, debarment from governmental contracts, seizure of shipments and loss of import and export privileges. In addition, investigations by governmental authorities as well as legal, social, economic and political issues in these countries could have a material adverse effect on the Company’s liquidity, financial position andour business, results of operations.

        The development, manufactureoperations and salefinancial condition. We are also subject to the risks that our employees, joint venture partners and agents outside of specialty chemical productsthe U.S. may fail to comply with other applicable laws.

Uncertainty related to environmental regulation and industry standards relating to, as well as physical risks of, climate change and biodiversity loss, could impact our results of operations and financial position.
Increased public and stakeholder awareness and concern regarding global climate change, biodiversity loss, and other related services involve inherent exposureenvironmental risks may result in more extensive international, regional and/or federal requirements or industry standards to potential product liability claims, service level claims, product recalls and related adverse publicity.  Anyreduce or mitigate the effects of these potential productchanges. These regulations could mandate even more restrictive regulatory or service risks couldindustry standards than the voluntary goals that we have established or require changes to be adopted on a more accelerated time frame. New disclosure requirements have been adopted in the EU and California and additional rule making is expected to be adopted by the SEC. There continues to be a lack of consistent legislation related to disclosure and operational matters, which creates economic and regulatory uncertainty. Though we are closely following developments in this area and changes in the regulatory landscape in the U.S. and across our other markets, we cannot predict how or when those challenges may ultimately impact our business. While certain climate change initiatives may result in new business opportunities for us in the area of alternative fuel technologies and emissions control, compliance with these initiatives may also result in substantialadditional costs to us including, among other things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations.
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In addition, the potential physical impacts of climate change and unexpected expendituresbiodiversity loss are highly uncertain and will be particular to the circumstances developing in various geographical regions. These may include extreme weather events and long-term changes in temperature levels and water availability as well as damaged ecosystems. The physical risks of climate change and biodiversity loss may impact our facilities, our customers and suppliers, and the availability and costs of materials and natural resources, sources and supply of energy, product demand and manufacturing. In particular, climate change serves as a risk multiplier increasing both the frequency and severity of natural disasters that may affect customer confidence inour business operations.
If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements upon us or our products, or our operations are disrupted due to physical impacts of climate change or biodiversity loss, our business, capital expenditures, results of operations, financial condition and services,competitive position could be negatively impacted.
We are subject to stringent labor and employment laws in many jurisdictions in which we operate, and our relationship with our employees could deteriorate which could adversely impact our operations.
A majority of our full-time employees are employed outside the U.S. In many jurisdictions where we operate, labor and employment laws and regulations grant significant job protection to certain employees including rights on termination of employment. In addition, in certain countries our employees are represented by works councils or are governed by collective bargaining agreements and we are often required to consult with and seek the consent or advice of such representatives. These regulations and laws, together with our obligations to seek consent or consult with the relevant unions or works councils, could have a material adverse effectsignificant impact on the Company’s liquidity, financial positionour flexibility in managing costs and results of operations.  Although the

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Company maintains product and other general liability insurance, there can be no assurance that the types or levels of coverage maintained are adequateresponding to cover these potential risks.  In addition,market changes. While the Company may notbelieves it has generally positive relations with its labor unions and employees, there is no guarantee the Company will be able to continuesuccessfully negotiate new or renew labor agreements without work stoppages, labor difficulties or unfavorable terms. If we were to maintain its existing insurance coverageexperience any extended interruption of operations at any of our facilities because of strikes or obtain comparable or additional insurance coverage at a reasonable cost, if at all, in the event a significant product or service claim arises.

other work stoppages, our results of operations and financial condition could be materially and adversely affected.

We may be unable to adequately protect our proprietary rights and trade brands, which may limit the Company’sour ability to compete in its markets.

        Quaker hasour markets and could adversely affect our liquidity, financial position and results of operations.

We have a limited number of patents and patent applications, including patents issued, applied for, or acquired in the United StatesU.S. and in various foreign countries, some of which may prove to beare material to itsour business. Principal reliance is placed upon Quaker’sHowever, we rely principally on our proprietary formulae and the application of its skillsapplications know-how and experience to meet customer needs. Also, Quaker’sour products are identified by trademarks that are registered throughout its marketedour marketing area. Despite our efforts to protect suchour proprietary information through patent and trademark filings, throughand the use of appropriate trade secret protections, and through the inability of certain products to be effectively replicated by others, it is possible that competitors or other unauthorized third parties may obtain, copy, use, disclose or disclosereplicate our technologies,formulae, products, and processes. Similarly, third parties may assert claims against us and our customers and distributors alleging our products infringe upon third-party intellectual property rights. In addition, the laws and/or judicial systems of foreign countries in which we design, manufacture, market and sell our products may afford little or no effective protection of our proprietary technology or trade brands. Also, security over our global information technology structure is subject to increasing risks associated with cyber-crime and other affiliatedrelated cyber-security threats. These potential risks to our proprietary information, and trade brands and other intellectual property could subject the Companyus to increased competition and a failure to protect, defend or enforce our intellectual property rights could negatively impact our liquidity, financial position and results of operations.

We might not

General Risk Factors
Our business could be able to timely develop,adversely affected by environmental, health and safety laws and regulations or by potential product, service or other related liability claims.
The development, manufacture and gain market acceptancesale of newspecialty chemical products and enhanced products requiredother related services involve inherent exposure to maintain or expand our business.

We believepotential product liability claims, service level claims, product recalls and related adverse publicity. Some customers have and may in the future require us to represent that our continued success depends onproducts conform to certain product specifications provided by them. Any failure to comply with such specifications could result in claims or legal action against us. Any of the foregoing potential product or service risks could also result in substantial and unexpected expenditures and affect customer confidence in our ability to continuously develop and manufacture new products and product enhancements on a timely and cost-effective basis, in response to customers’ demands for higher performance process chemicals, coatings, greases and other product offerings.  Our competitors may develop new products or enhancements to their products that offer performance, features and lower prices that may render our products less competitive or obsolete, and, as a consequence, we may lose business and/or significant market share.  The development and commercialization of new products require significant expenditures over an extended period of time, and some products that we seek to develop may never become profitable.  In addition, we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our customers’ future needs or achieve market acceptance.

An inability to appropriately capitalize on growth, including organic growth, leveraging prior acquisitions, or integrating future acquisitions, may adversely affect the Company’s liquidity, financial position and results of operations.

The Company continues to grow organically through increased end-market growth, incremental market share gains, and extending previously acquired technologies through its existing channels. Such growth is dependent on prevailing market conditions and the Company’s ability to execute over time.  In addition, the Company has completed multiple acquisitions over the past several years and may continue to seek acquisitions to grow its business in the future.  The success of the Company’s growth depends on its ability to successfully integrate these acquisitions, including, but not limited to its ability to do the following:

•

successfully execute the integration or consolidation of the acquired or additional business into existing processes and operations;

•

develop or modify financial reporting, information systems and other related financial tools to ensure overall financial integrity and adequacy of internal control procedures;

•

identify and take advantage of potential synergies, including cost reduction opportunities, while maintaining legacy business and other related attributes; and

•

further penetrate existing, and expand into new, markets with the product capabilities acquired in acquisitions.

The Company may fail to derive significant benefits or may not create the appropriate infrastructure to support such additional growth from organic or acquired businesses,services, which could have a material adverse effect on Quaker’sour liquidity, financial position and results of operations.

The scope

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In addition, our business is subject to hazards associated with the manufacturing, handling, use, storage, and transportation of chemical materials and products, including historical operations at our current and former facilities. These potential hazards could cause personal injury and loss of life, severe damage to, or destruction of, property or equipment and environmental contamination or other environmental damage, which could have an adverse effect on our business, financial condition and results of operations. In the jurisdictions in which we operate, we are subject to numerous U.S. and non-U.S. national, federal, state and local environmental, health and safety laws and regulations, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated properties. We currently use, and in the past have used, hazardous substances at many of our internationalfacilities, and we have in the past been, and may in the future be, subject to claims relating to exposure to hazardous materials. We also have generated, and continue to generate, hazardous wastes at a number of our facilities. Liabilities associated with the investigation and cleanup of hazardous substances, as well as personal injury, property damages or natural resource damages arising from the release of, or exposure to, such hazardous substances, may be imposed in many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally (so that a responsible party may be held liable for more than its share of the losses involved, or even the entire loss). These liabilities may also be imposed on many different entities, including, for example, current and prior property owners or operators, as well as entities that arranged for the disposal of the hazardous substances. The liabilities may be material and can be difficult to identify or quantify. In addition, the occurrence of disruptions, shutdowns or other material operating problems at our facilities or those of our customers due to any of these risks could adversely affect our reputation and have a material adverse effect on our operations subjectsas a whole, including our results of operations and cash flows, both during and after the period of operational difficulties.
Further, some of the raw materials we handle are subject to government regulation that affect the manufacturing processes, handling, uses and applications of our products. In addition, our production facilities and a number of our distribution centers require numerous operating permits. Due to the nature of these requirements and changes in our operations, our operations may exceed limits under permits or we may not have the proper permits to conduct our operations.
Ongoing compliance with environmental laws, regulations and permits that impact registration/approval requirements, transportation and storage of raw materials and finished products, and storage and disposal of wastes could require us to make changes in manufacturing processes or product formulations and could have a material adverse effect on our results of operations. We may incur substantial costs, including fines, damages, criminal or civil sanctions and remediation costs, or experience interruptions in our operations, including as a result of revocation, non-renewal or modification of the Company’s operating permits and revocation of the Company’s product registrations, for violations arising under these laws or permit requirements. Any such revocation, modification or non-renewal may require the Company to cease or limit the manufacture and sale of its products at one or more of its facilities, which may limit or prevent the Company’s ability to meet product demand or build new facilities and may have a material adverse effect on the Company’s business, financial position, results of operations and cash flows. Additional information may arise in the future concerning the nature or extent of our liability with respect to identified sites, and additional sites may be identified for which we are alleged to be liable, that could cause us to materially increase our environmental accrual or the upper range of the costs we believe we could reasonably incur for such matters. Increased compliance costs may not affect competitors in the same way that they affect us due to differences in product formulations, manufacturing locations or other factors, and we could be at a competitive disadvantage, which might adversely affect our financial performance.
We could be subject to indemnity claims and liable for other payments relating to properties or businesses we have divested.
In connection with the sale of certain properties and businesses, we agreed to indemnify the purchasers for certain types of matters, including certain breaches of representations and warranties, taxes and certain environmental matters. With respect to environmental matters, the discovery of contamination arising from properties that we have divested may expose us to indemnity obligations under the sale agreements with the buyers of such properties or cleanup obligations and other damages under applicable environmental laws, even if we were not aware of the contamination. We may not have insurance coverage for such indemnity obligations. Further, we cannot predict the nature or amount of any indemnity or other obligations we may have to pay the applicable purchaser. These payments may be costly and may adversely affect our financial condition and results of operations.
Our insurance may not fully cover all potential exposures.
We maintain product, property, business interruption, casualty, and other general liability insurance, but this may not cover all risks associated with the hazards of our business and these coverages are subject to limitations, including butdeductibles and coverage limits. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including liabilities for environmental remediation. In addition, from time to time, various types of insurance for companies in the specialty chemical industry have not limitedbeen available on commercially acceptable terms and, in some cases, have not been available at all. We are potentially at additional risk if one or more of our insurance carriers fail. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the ratings and survival of some of our insurers. Future downgrades in the ratings of enough insurers could adversely impact both the availability of appropriate insurance coverage and its cost. In the future, we may not be able to risks from currency fluctuations,obtain coverage at current levels, if at all, and our premiums may increase significantly on coverage that we maintain.
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Impairment evaluations of goodwill, intangible assets, investments or other long-lived assets could result in a reduction in our recorded asset values which could have a material adverse effect on our financial position and results of operations.
We perform reviews of goodwill and indefinite-lived intangible assets on an annual basis, or more frequently if triggering events indicate a possible impairment. We test goodwill at the reporting unit level by comparing the carrying value of the net assets of the reporting unit, including goodwill, to the reporting unit's fair value. Similarly, we test indefinite-lived intangible assets by comparing the fair value of the assets to their carrying values. If the carrying values of goodwill or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets would be considered impaired. In addition, we perform a review of a definite-lived intangible asset or other long-lived asset when changes in trade regulations, politicalcircumstances or events indicate a possible impairment. If any impairment or related charge is warranted, as we determined to be the case in the fourth quarter of 2022, when we recognized a $93.0 million impairment charge related to our EMEA reportable segment, then our financial position and economic instability, and complex local tax environments.

Since significant revenues and earnings are generated by non-U.S.results of operations Quaker’s financial results are affected by currency fluctuations, particularly between the U.S. dollar and the euro, the Brazilian real, the Mexican peso, the Chinese renminbi, and the Indian rupee, and the impact of those currency fluctuations on the underlying economies.  During the past three years, sales by non-U.S. subsidiaries accounted for approximately 60% of our consolidated net sales.  Generally, all of the Company’s operations use their local currency as their functional currency.  The Company generally does not use financial instruments that expose it to significant risk involving foreign currency transactions; however, the relative size of its non-U.S. activities has a significant impact on reported operating results and the Company’s net assets.  Therefore, as exchange rates vary, Quaker’s results cancould be materially affected. Incorporated by reference is the foreign exchange risk information contained in Item 7A of this Report and the geographic information inSee Note 415 of Notes to Consolidated Financial Statements included in Item 8 of this Report.

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The Company occasionally sources inventoryIf we identify a material weakness in internal control over financial reporting, or if we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud, either of which could have a different country than thatmaterial effect on us.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the intended sale.  This practice can give riseSarbanes-Oxley Act of 2002 requires us to foreign exchange risk.  The Company mitigates this risk through local sourcing of raw materialsevaluate and report on our internal control over financial reporting. We cannot be certain that we will be successful in maintaining adequate internal control over our financial reporting and financial processes in the majority of its locations.

As of December 31, 2017, the Company held approximately $79.0 million of its total cash and cash equivalents in its non-U.S. subsidiaries.  The Company can access this cash without restriction, however, it is subject to possible risks including currency fluctuations and tax-related impacts.  Additional risks associated with the Company’s international operations include, but are not limited to: instability in economic conditions in certain countries; changes in a country’s political situation; trade protection measures; longer customer payment cycles; different payment practices such as the use of bankers acceptance drafts or other similar credit instruments; licensing and other legal requirements; the difficulties of staffing and managing dispersed international operations; less protective foreign intellectual property laws; legal systems thatfuture. We may be less developed and predictable than those in the United States; andfuture discover areas of our internal controls that need improvement. Furthermore, to the extent our business grows or significantly changes, our internal controls may become more complex, and dynamic local tax regulations.

The pending Houghton Combination subjects the Companywe could require significantly more resources to new and heightened risks which may adversely affect the Company’s liquidity, financial position and results of operations.

As previously describedensure our internal controls remain effective. If we identify material weaknesses in the Business section, in Item 1 of this report, on April 4, 2017, Quaker entered into a share purchase agreement with Gulf to purchase the entire issued and outstanding share capital of Houghton.  In connection with the Combination, the Company secured $1.15 billion in commitments and has since replaced these commitments with the New Credit Facility with a group of lenders for $1.15 billion.  There are several areas of risk related to the pending Houghton Combination whichfuture, it could negatively impact our operations or the Company’s liquidity, financial positionmarket value of our common stock. Additionally, the existence of any material weakness may require management to devote significant time and results of operations, including, butincur significant expense to remediate any such material weaknesses and management may not limited to:

•

issuance of the Company’s common stock as a part of the consideration paid for the Combination, equal to 24.5% of the common stock outstanding after the issuance, will have a dilutive effect on the existing holders of the Company’s common stock and may result in a decline in the market price of the Company’s common stock;

•

the percentage of outstanding shares of the Company’s common stock to be issued in connection with the Combination is not adjustable based on the market price of the Company’s common stock and, as a result, the Combination consideration at closing may have greater or less implied value than at the time the share purchase agreement was signed;

•

issuance of the Company’s common stock to Gulf as part of the consideration paid for the Combination will provide Gulf with an almost 24.5% ownership interest in the Company, and Gulf will also have the contractual ability to nominate certain directors of the Company, which may enable Gulf to influence the direction of the Company’s business, or could prevent the Company’s other shareholders from determining significant corporate decisions without Gulf participation;

•

the Combination will present the Company with integration and consolidation risks, and the Company may be unable to profitably operate the consolidated company, or may fail to achieve expected cost synergies or expand the Company’s business into new markets and geographies;

•

failure to retain key employees could diminish the benefits of the Combination and subject the Company to further integration risks;

•

the Company has and will continue to incur significant transaction and integration costs in connection with the Combination, including, but not limited to, fees paid to financial advisors, legal, financial, tax and accounting advisors and filing fees;

•

the potential for regulatory authorities to require divestitures in connection with the Combination of a greater amount than we anticipated, which would result in a smaller than anticipated combined business;

•

the Company may fail to complete the Combination if required conditions, many of which are outside of the Company’s control, are not satisfied, including various customary closing conditions as well as potential divestitures required in connection with obtaining regulatory approval;

•

if the Combination has not closed by April 4, 2018, the Company and Gulf each have the right to terminate the share purchase agreement and if the Combination is not completed, the price of the Company’s common stock could decline and the Company’s future business and operations could be harmed, including by failing to realize the expected benefits of the Combination, costs which must be paid even if the Combination is not completed, and potential litigation relating to failure to complete the Combination;

•

the Company will significantly increase its debt obligations upon closing of the Combination and execution of the New Credit Facility which requires the Company to comply with certain provisions and covenants, and while the Company does not currently anticipate the New Credit Facility provisions and covenants to be overly restrictive, they could become more difficult to comply with as business or financial conditions change;

•

the Company will be subject to interest rate risk due to the variable interest rates within the New Credit Facility and if interest rates rise significantly interest costs will increase, perhaps significantly; and

•

the New Credit Facility expires April 4, 2018 if the Combination has not closed by that date and the New Credit Facility has not been executed; the Company expects to negotiate an extension of the New Credit Facility, if necessary, in a timely manner, but such negotiations may result in additional fees or conditions.

Incorporated herein by reference is information concerning the Combination includedbe able to remediate any such material weaknesses in Note 2 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.  For more information regarding certain of the risks and uncertainties related to the Combination, you should refer to the proxy statement the Company filed on July 31, 2017 with the SEC.

a timely manner.

10

Disruption of critical information systems or material breaches in the security of our systems maycould adversely affect our business and our customer relationships.

Quaker reliesrelationships and subject us to fines or other regulatory actions.

We rely on information technology systems to obtain, process, analyze, manage, transmit, and store electronic information in our day-to-day operations. The CompanyWe also reliesrely on itsour technology infrastructure among other functions,in all aspects of our business, including to interact with customers and suppliers, fulfill orders and bill, collect and make payments, ship products, provide support to customers, and fulfill contractual obligations and otherwise conduct business.obligations. Our information technology systems are subject to potential disruptions, including significant network or power outages, cyberattacks, computer viruses, other malicious codes, and/or unauthorized access attempts, any of which, if successful, could result in data leaks or otherwise compromise our confidential or proprietary information and disrupt our operations. Security breaches could result in unauthorized disclosure of confidential information or personal data belonging to our employees, partners, customers or suppliers for which we may incur liability. Cybersecurity threats, attempted intrusions and other incidents, such as these, are becoming more sophisticated and frequent,frequent. Security breaches and cyber incidents have, from time to time, occurred and may occur in the future. Although the breaches and cyber incidents experienced to date have not had a material impact, there can be no assurance that our protective measures will prevent security breaches that could have a significant impact on our business, reputation and financial results.  Failure
We are subject to the data privacy and protection laws and regulations adopted by federal, state and foreign legislatures and governmental agencies in various countries in which we operate, including the EU General Data Protection Regulation. Implementing and complying with these laws and regulations may be more costly or take longer than we anticipate or could otherwise affect our business operations.
In addition, some U.S. state governments have enacted or are considering enacting more stringent laws and regulations protecting personal information and data. For instance, California passed the California Consumer Privacy Act of 2018, (“CCPA”), which went into effect in January 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as for private rights of action for certain data breaches that result in the loss of personal information. In addition, the California Consumer Rights Act (“CPRA”) was recently enacted to strengthen elements of the CCPA and became effective January 1, 2023. A number of other states have considered similar privacy proposals, with states like Virginia and Colorado enacting their own privacy laws. These privacy laws and the evolving regulatory environment related to personal data may impact our business activities.
Breaches, cyber incidents and disruptions, or failure to comply with laws and regulations related to information security or privacy could result in legal claims or proceedings against us by governmental entities or individuals, significant fines, penalties or judgements, disruption of our operations, remediation requirements, changes to our business practices, and damage to our reputation. Therefore, a failure to monitor, maintain or protect our information technology systems and data integrity effectively or to anticipate, plan for and recover from significant disruptions to these systems could have a material adverse effect on our business, results of operations or financial condition.

16
Our business depends on attracting and retaining qualified management and other key personnel.
Due to the specialized and technical nature of our business, our future performance is dependent on our ability to attract, develop and retain qualified leadership, commercial, technical, and other key personnel. Competition for such talent is intense, and we may be unable to continue to attract or retain such personnel. In an effort to mitigate such risks, the Company utilizes retention bonuses, offers competitive total rewards and maintains continuous succession planning, including for our senior executive officers. However, there can be no assurance that these mitigating factors will be adequate to attract or retain qualified management or other key personnel. Failure to retain key employees, failure to successfully transition key roles, or the inability to hire, train, retain and manage qualified personnel could also adversely affect our business.
Increasing scrutiny and changing expectations from stakeholders with respect to our Environmental, Social and Governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks.
Companies across all industries are facing increasing scrutiny from stakeholders related to their ESG practices. Investor advocacy groups, institutional investors, investment funds, and other influential parties are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, investors’ increased focus and activism related to ESG and similar matters may impact access to capital, as investors may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices.
We face pressures from certain stakeholders to prioritize and promote sustainable practices and reduce our carbon footprint. Our stakeholders may pressure us to implement ESG procedures or standards beyond those we have in place in order to continue engaging with us, to remain invested in us, or before they will make further investments in us. Additionally, we may face reputational challenges in the event our ESG procedures or standards do not meet the standards set by certain constituencies. We have adopted certain practices as highlighted in the Company’s Sustainability Report, including with respect to environmental stewardship. The Company’s Sustainability Report is published annually and is available on the Company’s corporate website at home.quakerhoughton.com/sustainability.
Further, as we work to align with the recommendations of recognized third-party frameworks, we continue to expand our disclosures in these areas. This is consistent with our commitment to executing on a strategy that reflects the economic, social, and environmental impact we have on the world while advancing and complementing our business strategy. Our disclosures on these matters and standards we set for ourselves or a failure to meet these standards, may influence our reputation and the value of our brand. It is possible that our stakeholders might not be satisfied with our ESG efforts or the speed of their adoption. If we do not meet our stakeholders’ expectations, our business and/or our ability to access capital could be harmed. Any harm to our reputation resulting from setting these standards or our failure or perceived failure to meet such standards could adversely affect our business, financial performance, and growth.
Additionally, adverse effects upon our customers’ industries related to the worldwide social and political environment, including uncertainty or instability resulting from climate change or biodiversity loss, changes in political leadership and environmental policies, changes in geopolitical-social views toward fossil fuels and renewable energy, concern about the environmental impact of climate change or biodiversity loss, and investors’ expectations regarding ESG matters, may also adversely affect demand for our services. Any long-term material adverse effect on our customers or their industries could have a significant financial and operational adverse impact on our business.
Legislation requiring disclosure related to ESG matters is increasingly being adopted by governments in various jurisdictions, including the EU and California, which requirements are expected to be applicable to us or certain of our operations and which impose varying and differing requirements. These developing requirements can significantly expand climate and other sustainability related disclosure requirements, which could require substantial time and attention of management and financial resources. Additionally, we could be subjected to negative responses by governmental actors, such as anti-ESG legislation, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. We are closely monitoring these developments.
Terrorist attacks, other acts of violence or war, natural disasters, widespread public health crises or other uncommon global events may affect the markets in which we operate and our profitability.

profitability which could adversely affect our liquidity, financial position and results of operations.

Terrorist attacks, other acts of violencearmed conflicts or war, including cyber-attacks, natural disasters, widespread public health crises, or other uncommon global events, such as the current military conflicts between Russia and Ukraine and between Israel and Hamas, as well as responses to such events including sanctions, boycotts, protests or other restrictive actions by the United States and/or other countries or its residents, may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks against the U.S. or other locations where we do business. Also, other uncommon global events such as earthquakes, tornados, hurricanes, fires, floods, and tsunamis cannot be predicted.
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Terrorist attacks, other acts of violencearmed conflicts or armed conflicts,war, including cyber-attacks, and natural disasters, which may be amplified by ongoing global climate change and biodiversity loss, may directly impact our physical facilities and/or those of our suppliers or customers. AdditionalIn addition, terrorist attacks or natural disasters may disrupt the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels, if at all, for all of our facilities. Furthermore, anyIn addition, available insurance coverage may not be sufficient to cover all of these eventsthe damage incurred or, if available, may make travelbe prohibitively expensive. Widespread public health crises could also disrupt operations of the Company, its suppliers and the transportationcustomers which could have a material adverse impact on our results of our supplies and products more difficult and more expensive, and ultimately affect the sales of our products.  operations.
The consequences of terrorist attacks, other acts of violence or armed conflicts or war, including cyber-attacks, natural disasters, widespread public health crises or other uncommon global events can be unpredictable, and we may not be able to foresee or effectively plan for these events, resulting in a material adverse effect on our business, results of operations or financial condition.

Epidemic diseases could negatively affect various aspects of our business, make it more difficult to meet our obligations to our customers, and could result in reduced demand from our customers. These could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, which could impact all or any locations in which the Company does business as well as the Company’s customers and suppliers. A significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products and likely impact our operating results. To the extent that the Company’s customers and suppliers are materially and adversely impacted by a widespread outbreak of contagious disease, this could reduce the availability, or result in delays, of materials or supplies to or from the Company, which in turn could materially interrupt the Company’s business operations.
Item 1B. Unresolved Staff Comments.

None.

Item 1C. Cybersecurity.
The Company is subject to various cybersecurity risks that could adversely affect our business, financial condition, and results of operations, including intellectual property theft; fraud; extortion; harm to employees or customers; violation of privacy laws and other litigation and legal risk; and reputational risk. Refer to the “Risk Factors” section, which appears in Item 1A of this Report for more information regarding these risks.
As of the date of this report, we are not aware of any risks from cybersecurity incidents that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition, individually or in the aggregate.
Governance
The Board, primarily through the Audit Committee, oversees management's approach to managing cybersecurity risks. Management provides cybersecurity updates to the Audit Committee, at least quarterly, and material cybersecurity incidents are reported to the Board.
Quaker Houghton has a dedicated Global Cyber Security team led by the Director, Global Security that is responsible for identifying, assessing, monitoring, managing and communicating the Company’s cybersecurity risks. Collectively this team has decades of dedicated cybersecurity experience with personnel experienced and certified in various disciplines, including data privacy, enterprise risk management, cloud security and ethical hacking.
The Global Cyber Security team reports to the Chief Digital Information Officer (“CDIO”), who in turn reports to the Chief Executive Officer (“CEO”). Refer to the “Information about our Executive Officers” section, which appears in Item 4(a) of this report for more information about the CDIO’s relevant professional experience and qualifications.
Risk Management and Strategy
Key cybersecurity risks are incorporated into our enterprise risk management framework. Our cybersecurity risk management program leverages the National Institute of Standards and Technology (“NIST”) framework, which organizes cybersecurity risk management actions into five categories: identify, protect, detect, respond, and recover. The Company’s cybersecurity risk management program and strategy includes the following:
•Cybersecurity Operations Centers - We, along with certain third-parties, operate several global cybersecurity operations centers, which provide 24/7 monitoring and incident response capabilities. In the event of an alert, our cybersecurity operations centers coordinates the investigation and remediation of such alerts.
•Partnerships with Cybersecurity Companies- We partner with specialized cybersecurity companies and organizations, leveraging third-party technology and expertise. These partnerships help monitor and maintain the performance and effectiveness of our cybersecurity products.
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•Annual and Periodic Assessments by Third Parties- Our cyber risk management program undergoes periodic assessments by third parties and including annual penetration and disaster recovery tests.
•Policies and Training - We maintain company-wide policies and procedures concerning cybersecurity, which are reviewed and approved by appropriate management members. All employees are required to complete cybersecurity training periodically, with additional specialized trainings for certain roles. We conduct monthly phishing simulation exercises with mandatory training on failure.
•Incident Response- In case of a cybersecurity incident, we follow a documented incident response process, which outlines steps from detection to mitigation, recovery, and notification, including notifying senior leadership and the Board as appropriate based on severity.
•Third-Party Service Providers- In addition to assessing our own cybersecurity preparedness, we also consider and evaluate cybersecurity risks associated with use of third-party service providers. We assess third party cybersecurity controls through a cybersecurity questionnaire and include security and privacy addendums to our contracts where applicable.
Item 2. Properties.

Quaker’s

Quaker Houghton’s corporate headquarters and a laboratory facility are located in its North America segment’s Conshohocken, Pennsylvania, location.which is within the Americas’ segment. The Company’s other principal facilities in its North AmericaAmericas’ segment are located in Aurora, Illinois; Detroit, Michigan; Middletown, Ohio; Santa Fe Springs, California; Carrollton, Georgia; Aurora, Illinois; Zion, Illinois; Detroit, Michigan; Madison Heights, Michigan; Batavia, New York; Cleveland, Ohio; Dayton, Ohio; Middletown, Ohio; Strongsville, Ohio; Lewisburg, Tennessee; Waterloo, Ontario; and Monterrey, N.L., Mexico.Mexico; Rio de Janeiro, Brazil and Sao Paulo, Brazil. The Company’s EMEA segment has principal facilities in Uithoorn, The Netherlands; Barcelona,Dortmund, Germany; Monheim am Rhein, Germany; Barbera, Spain; Navarra,Bera, Spain; Santa Perpetua de Mogoda, Spain; Karlshamn, Sweden; Turin, Italy Coventry, U.K; and Tradate, Italy.Broms Grove, U.K. The Company’s Asia/Pacific segment operates out of its principal facilities located in Chongqing, China; Qingpu, China; Kolkata,Shanghai, China; Songjiang, China; Dahej, India; Rayong, Thailand; Moorabbin, Australia; and Sydney, Australia, while its South America segment operates out of its principal facility in Rio de Janeiro, Brazil.  Perth, Australia.
With the exception of the Conshohocken, Santa Fe Springs, Madison Heights, Lewisburg, Monheim am Rhein, Aurora, Karlshamn, Songjiang, Rayong, and Sydney Coventry sites, which are leased, the remaining principal facilities are owned by Quakerthe Company and, as of December 31, 2017,2023, were mortgage free. Quaker Houghton also leases sales, laboratory, manufacturing, and warehouse facilities in other locations.

Quaker’s

Quaker Houghton’s principal facilities (excluding Conshohocken) consist of various manufacturing, administrative, warehouse, and laboratory buildings. Substantially all of the buildings (including Conshohocken) are of fire-resistant construction and are equipped with sprinkler systems.  All facilities are primarily of masonry and/or steel construction and are adequate and suitable for Quaker’s present operations.  The Company has a program to identify needed capital improvements that are implemented as management considers necessary or desirable.  Most locations have various numbers of raw material storage tanks, ranging from 21 to 58, 155 at each location with a capacitycapacities ranging from 1,000300 to 82,00070,000 gallons, and processing or manufacturing vessels ranging in capacity from 81 to 16,00054 at each location with capacities ranging from 2 to 29,000 gallons.

Each of Quaker’sQuaker Houghton’s non-U.S. associated companies (in which it owns a 50% or less interest and has significant influence) owns or leases a plant and/or sales facilities in various locations, with the exception of Primex, Ltd.

Item 3. Legal Proceedings.

The Company is a party to proceedings, cases, and requests for information from, and negotiations with, various claimants and Federal and state agencies relating to various matters, including environmental matters. For information concerning pending asbestos-related litigation against an inactive subsidiary, certain environmental non-capital remediation costs and other legal-related matters, reference is maderefer to Note 2325 of Notes to Consolidated Financial Statements, included in Item 8 of this Report, which is incorporated herein by this reference. The Company is a party to other litigation which management currently believes will not have a material adverse effect on the Company’s results of operations, cash flow or financial condition.

Item 4. Mine Safety Disclosures.

Not Applicable

applicable.

11

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Item 4(a). Information about our Executive Officers of the Registrant.

Set forth below is information regarding theOfficers.

Our executive officers as of February 29, 2024 are listed below with their respective ages, positions currently held at the Company, each of whom (withand principal occupation and business experience during at least the exception of Ms. Hall) have been employed by the Company for more thanlast five years, including the respective positions and offices with the Company held by each over the respective periods indicated.years. Each of the executive officers, with the exception of Mr. Hostetter,Jeffrey Kutz, is electedappointed annually to a one-yearone year term. Mr. HostetterKutz is considered an executive officer in his capacity as principal accounting officer for purposes of this Item.

Item 4(a).

Name, Age, and Present


Position with the Company

Business Experience During the Past Five


Years and Period Served as an Officer

Michael F. Barry, 59

Chairman of the Board,

Andrew E. Tometich, 57
Chief Executive Officer

and President and Director

Mr. Barry,Tometich, who has been employed by the Company since 1998,October 2021, has served as Chairman of the Board since May 2009, in addition to his position as Chief Executive Officer and President held since October 2008.  He served as interim Chief Financial Officer from October through November 2015.  He served as Senior Vice President and Managing Director – North America from January 2006 to October 2008.  He served as Senior Vice President and Global Industry Leader – Metalworking and Coatings from July through December 2005.  He served as Vice President and Global Industry Leader – Industrial Metalworking and Coatings from January 2004 through June 2005 and Vice President and Chief Financial Officer from 1998 to August 2004. 

Mary Dean Hall, 60

Vice President, Chief Financial Officer

and Treasurer

Ms. Hall has served as Vice President, Chief Financial Officer and Treasurer since she joined the Company in November 2015.2021. Prior to joining the Company, Ms. HallMr. Tometich served as theExecutive Vice President, Hygiene, Health and Treasurer of EastmanConsumable Adhesives at H.B. Fuller Company from August 2019 until September 2021. Before that, Mr. Tometich was Senior Vice President, Specialty Materials Business at Corning Incorporated from September 2017 until August 2019 and President, Performance Silicones Business Unit at The Dow Chemical Company from April 2009June 2016 until October 2015.  Prior to that role, she held various senior-level financialFebruary 2017 after having positions of increasing responsibility with Eastmanat Dow Corning Corporation and its subsidiaries from 19951989 through 2009, including Treasurer, Vice President and Controller, and Vice President, Finance. 

2016.

D. Jeffry Benoliel, 59

Vice President and Global Leader –

Metalworking, Can and Mining

Mr. Benoliel, who has been employed by the Company since 1995, has served as Global Leader – Mining since May 2014, in addition to his position as Vice President and Global Leader – Metalworking and Can since July 2013 and his role as Corporate Secretary, a position held from 1998 through March 2015.  He served as Vice President – Global Metalworking and Fluid Power from June 2011 through June 2013 and served as General Counsel from 2001 to March 2012. 

Joseph A. Berquist, 46

52

Executive Vice President, and Managing

Director – North America

Chief Commercial Officer

Mr. Berquist, who has been employed by the Company since 1997, has served as Executive Vice President, Chief Commercial Officer since January 1, 2023. Prior to that role, he served as Executive Vice President, Chief Strategy Officer, and Managing Director, Global Specialty Businesses from September 2021 until December 2022. Additionally, he served as Interim Managing Director of EMEA from August 2022 through December 2022. Before that, he served as Senior Vice President, Global Specialty Businesses and Chief Strategy Officer from August 2019 to September 2021. Mr. Berquist served as Vice President and Managing Director – North America sincefrom April 2010. 

2010 until July 2019.

Ronald S. Ettinger, 65

Jeewat Bijlani, 47
Executive Vice President, – Human Resources

Chief Strategy Officer

Mr. Ettinger,Bijlani, who has been employed by the Company since 2002,August 2019, has served as Executive Vice President-Human ResourcesPresident, Chief Strategy Officer since January 1, 2023. Prior to that role, he served as Senior Vice President, Managing Director - Americas from August 2019 until December 2011. 

2022. Prior to joining the Company, Mr. Bijlani served as President, Americas and Global Strategic Businesses of Houghton from March 2015 until July 2019.
Jeffrey L. Fleck, 53
Senior Vice President, Chief Global Supply Chain Officer

12

Name, Age, and Present

Position withMr. Fleck has served as Senior Vice President, Chief Global Supply Chain Officer since he joined the Company

Business Experience During on February 27, 2023. Prior to joining the Past Five

YearsCompany, Mr. Fleck served as Senior Vice President, Chief Supply Chain Officer at Georgia-Pacific Consumer Products Company. Before that, he served as Senior Vice President, Chief Supply Chain and Period Served as anR&D Officer

at Zep, Inc. from 2010 to 2015. Mr. Fleck’s previous experience also includes various supply chain management leadership positions at The Clorox Company, American Home Products, and Cargill Incorporated.

Shane W. Hostetter, 36

   Global Controller and Principal

   Accounting42

Executive Vice President, Chief Financial Officer

Mr. Hostetter, who has been employed by the Company since July 2011, has served as Executive Vice President, Chief Financial Officer since March 1, 2023. In addition to his current position, he served as Chief Accounting Officer from October 2, 2023 to January 2, 2024. Mr. Hostetter previously served as Senior Vice President, Chief Financial Officer from April 2021 through February 2023. Prior to that role, he served as Vice President, Finance and Chief Accounting Officer from August 2019 until April 2021. He served as Global Controller and Principal Accounting Officer sincefrom September 2014.  He2014 until July 2019.

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Name, Age, and Present
Position with the Company		Business Experience During the Past Five
Years and Period Served as an Officer
Melissa Leneis, 41
Executive Vice President, Chief Human Resources Officer
Ms. Leneis has served as Corporate Controller and Principal AccountingExecutive Vice President, Chief Human Resources Officer since March 1, 2023. She previously served as Senior Vice President, Chief Human Resources Officer from May 2013July 2022 through February 2023. Prior to August 2014.  Hejoining the Company, Ms. Leneis served as Assistant Global Controller from July 2011 to May 2013.

Dieter Laininger, 54

Executive Vice President and Managing

Director – South AmericaChief Human Resources Officer at InterDigital, Inc. from October 2019 through June 2022. Prior to that role, she served in various Human Resources leadership roles at InterDigital. Prior to joining InterDigital, Ms. Leneis was responsible for leading global teams of Human Resources business partners at Johnson Controls (formerly Tyco International), from October 2012 through September 2018. Her previous experience also includes Human Resources leadership positions with MEI, Inc. (formerly Mars) and

    Global Leader – Primary Metals

Lockheed Martin Corporation.
Anna Ransley, 46
Senior Vice President, Chief Digital Information Officer

Mr. Laininger, whoMs. Ransley has been employed byserved as Senior Vice President, Chief Digital Information Officer since she joined the Company since 1991, hasin July 2023. Prior to joining the Company, Ms. Ransley served as Global Chief Information Officer at Godiva Chocolatier from September 2021 through March 2023. Prior to joining Godiva, she served as Vice President, Digital and Managing Director – South America,Technology and US Chief Information Officer at Heineken from January 2017 through September 2021. Previously, Ms. Ransley held various IT leadership positions at companies such as Boehringer Ingelheim, Connolly, Inc. and Hyperion/Oracle.

Dr. David Slinkman, 59
Senior Vice President, Chief Technology Officer
Dr. Slinkman has served as Senior Vice President, Chief Technology Officer since January 2013,he joined the Company in additionAugust 2019. Prior to his positionjoining the Company, Dr. Slinkman served as Vice President and Global Leader – Primary Metals, to which he was appointed in June 2011. 

of Technology of Houghton from March 2012 until July 2019.

Joseph F. Matrange, 75

Robert T. Traub, 59
Senior Vice President, General Counsel and Global Leader – Coatings

Corporate Secretary

Mr. Matrange,Traub, who has been employed by the Company since 2000, has served as Senior Vice President, General Counsel and Global Leader – CoatingsCorporate Secretary since October 2008.August 2019. He has also served as President of AC Products, Inc., a California subsidiary, since October 2000, and Epmar Corporation, a California subsidiary, since April 2002.

Jan F. Nieman, 56

Vice President and Global Leader – Grease and

Fluid Power, Global Strategy and Marketing

Mr. Nieman, who has been employed by the Company since 1992, haspreviously served as Vice President, – Global StrategyGeneral Counsel and Marketing since May 2014, in addition to his position as Global Leader – Grease and Fluid Power since August 2013.  He alsoCorporate Secretary from April 2015 until July 2019.

Jeffrey J. Kutz, 64
Vice President, Chief Accounting Officer
Mr. Kutz has served as Global Leader – Mining from August 2013 through April 2014.  Hethe Vice President, Chief Accounting Officer since he joined the Company on January 2, 2024. Prior to joining the Company, Mr. Kutz served as Vice President, Corporate Controller & Principal Accounting Officer and Managing Director, – Asia/PacificTechnical Accounting & Reporting and Executive Director, Accounting Policy & Reporting at Air Products and Chemicals Inc. from February 2005 through July 2013.

2012 until December 2023. He also held senior leadership roles at Exelon Corporation from 2008 to 2012, and Chatham Financial from 2001 to 2008.

Wilbert Platzer, 56

Vice President and Managing

    Director – EMEA

Mr. Platzer, who has been employed by the Company since 1995, has served as Vice President and Managing Director – EMEA since January 2006.

Adrian Steeples, 57

Vice President and Managing

    Director – Asia/Pacific

Mr. Steeples, who has been employed by the Company since 2010, has served as Vice President and Managing Director – Asia/Pacific since July 2013.  He served as Industry Business Director – Metalworking from March 2011 through June 2013.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the trading symbol KWR. The following table sets forth, for the calendar quartersBoard declared cash dividends that totaled $1.78 per share of outstanding common stock or $32.0 million during the two most recent fiscal years, the rangeyear ended December 31, 2023 and $1.70 per share of high and low sales prices for theoutstanding common stock as reportedor $30.5 million during the year ended December 31, 2022. In February and May 2023, our Board declared quarterly cash dividends of $0.435 per share of outstanding common stock, payable to shareholders of record in April 2023 and July 2023, respectively. Subsequently, our Board declared quarterly dividends of $0.455 per share of outstanding common stock in August and November 2023, respectively, payable to shareholders of record in October 2023 and January 2024, respectively. We currently expect to continue paying comparable cash dividends on a quarterly basis in the NYSE composite tape (amounts roundedfuture. Future declaration of dividends and the establishment of future record dates and payment dates are subject to the nearest penny),final determination of our Board, and the quarterly dividends declaredwill be based on our future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and paid:

other factors our Board may deem relevant.

 

Price Range

 

Dividends

 

Dividends

 

2017

 

2016

 

Declared

 

Paid

 

High

 

Low

 

High

 

Low

 

2017

 

2016

 

2017

 

2016

First quarter

$

138.95

 

$

124.92

 

$

86.92

 

$

68.20

 

$

0.345

 

$

0.320

 

$

0.345

 

$

0.320

Second quarter

 

153.90

 

 

127.70

 

 

93.61

 

 

81.12

 

 

0.355

 

 

0.345

 

 

0.345

 

 

0.320

Third quarter

 

154.38

 

 

129.98

 

 

106.61

 

 

85.93

 

 

0.355

 

 

0.345

 

 

0.355

 

 

0.345

Fourth quarter

 

165.93

 

 

146.48

 

 

139.92

 

 

102.82

 

 

0.355

 

 

0.345

 

 

0.355

 

 

0.345

There are currently no restrictions that currently limiton the Company’s ability to pay dividends ordividends. However, in the event that our net leverage ratio were to rise above 2.5x, certain restrictions would apply. Refer to the Company believes are likely to materially limit the paymentdescription of future dividends.  If a default under the Company’s primary Credit Facility werein Note 19 of Notes to occur and continue, the payment of dividends would be prohibited.  Reference is made to the “Liquidity and Capital Resources” disclosure containedConsolidated Financial Statements in Item 78 of this Report.

Report for more information about the covenants.

As of January 17, 2018, there were 825 shareholders of record of the Company’s common stock, its only outstanding class of equity securities.

Prior to September 7, 2017, the Company’s Articles of Incorporation included a time-based voting system that granted special ten-for-one-voting rights to shareholders who had beneficially owned their Quaker Chemical Corporation common stock continuously for a period of at least 36 consecutive calendar months (dating from the first day of the first full calendar month on or after the date the holder acquired beneficial ownership of such common stock) before the record date for a shareholder vote.  At a meeting of the Company’s shareholders on September 7, 2017, the Company’s shareholders approved an amendment of the Company’s Articles of Incorporation that provides that every holder of Quaker Chemical Corporation common stock will be entitled to one vote for each share of common stock of the Company.  As of January 17, 2018, 13,306,5642024, 17,992,471 shares of Quaker common stock were issued and outstanding and were held by 605 shareholders of record. Each share of common stock is entitled to one vote per share.

Reference is made to the information in Item 12 of this Report under the caption “Equity Compensation Plans,” which is incorporated herein by this reference.

The following table sets forth information concerning shares of the Company’s common stock acquired by the Company during the fourth quarter of 2023 for the period covered by this report:

Issuer Purchases of Equity Securities

 

 

 

 

 

 

 

(c)

 

(d)

 

 

 

 

 

 

 

Total Number of

 

Approximate Dollar

 

 

(a)

 

(b)

 

Shares Purchased

 

Value of Shares that

 

 

Total Number

 

Average

 

as part of Publicly

 

May Yet be

 

 

of Shares

 

Price Paid

 

Announced Plans

 

Purchased Under the

Period

Period

 

Purchased (1)

 

Per Share (2)

 

or Programs

 

Plans or Programs (3)

October 1 - October 31

 

—

 

$

—

 

—

 

$

86,865,026

November 1 - November 30

 

314

 

$

155.55

 

—

 

$

86,865,026

December 1 - December 31

 

—

 

$

—

 

—

 

$

86,865,026

Period
Period(a)
Total Number
of Shares
Purchased (1)		(b)
Average
Price Paid
Per Share (2)		(c)
Total Number of
Shares Purchased
as part of Publicly
Announced Plans
or Programs		(d)
Approximate Dollar
Value of Shares that
May Yet be
Purchased Under the
Plans or Programs (3)
October 1 - October 31, 2023
November 1 - November 30, 2023
December 1 - December 31, 2023

Total

Total

 

314

 

$

155.55

 

—

 

$

86,865,026

(1)AllDuring October 2023, 14,618 shares of the Company’s common stock that had been held in an indemnification escrow account established in connection with the Combination were released to the Company in satisfaction of Combination-related indemnification receivables associated with the settlement of certain income tax audits for tax periods prior to August 1, 2019. The Company subsequently retired the shares received from escrow, which did not reduce the total number of authorized shares. The remaining of these shares were acquired from employees upon theirrelated to the surrender of Quaker Chemical Corporation shares in payment of the exercise price of employee stock options exercised or for the payment of taxes upon exercise of employee stock options or the vesting of restricted stock.

stock awards or units.

(2)The price paid for shares acquired from employees pursuant to employee benefit and share-based compensation plans is in each case, based on the closing price of the Company’s common stock on the date of exercise or vesting as specified by the plan pursuant to which the applicable option, restricted stock award, or restricted stock unit was granted.

(3)On May 6, 2015, the Board of Directors of the Company approved, and the Company announced, a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $100,000,000 of Quaker Chemical Corporation common stock (the “2015 Share Repurchase Program”).  The 2015 Share Repurchase Program, which replaced the Company’s other share repurchase plans then in effect,, and it has no expiration date. There were no shares acquired by the Company pursuant to the 2015 Share Repurchase Program during the quarter ended December 31, 2017.

2023. On February 28, 2024, the 2015 Share Repurchase Program was terminated in connection with the Board’s approval of a new share repurchase program. See Note 22 in Notes to Consolidated Financial Statements contained in Item 8 of this Report.

14

22

Table of Contents
Stock Performance Graph
The following graph compares the cumulative total return (assuming reinvestment of dividends) from December 31, 20122018 to December 31, 2017 2023 for (i) Quaker’s common stock, (ii) the S&P SmallCap 600MidCap 400 Index (the “SmallCap“MidCap Index”), and (iii) the S&P 600400 Materials Group Index (the “Materials Group Index”). The graph assumes the investment of $100 onon December 31, 20122018 in each of Quaker’s common stock, the stocks comprising the SmallCapMidCap Index and the stocks comprising the Materials Group Index.

 

 

 12/31/2012 

 

12/31/2013

 

12/31/2014

 

12/31/2015

 

12/31/2016

 

12/31/2017

Quaker

 

$

100.00

 

$

145.30

 

$

176.12

 

$

150.05

 

$

252.15

 

$

300.12

SmallCap Index

 

 

100.00

 

 

141.31

 

 

149.45

 

 

146.50

 

 

185.40

 

 

209.94

Materials Group Index

 

 

100.00

 

 

135.80

 

 

136.20

 

 

101.28

 

 

156.67

 

 

172.21

Index, respectively.

15

486
Company / Index12/31/201812/31/201912/31/202012/31/202112/31/202212/31/2023
Quaker Chemical Corp.$100.00 $93.35 $145.07 $133.00 $97.21 $125.53 
S&P MidCap 400 Index100.00 126.19 143.43 178.94 155.57 181.14 
S&P 400 Materials Group Index100.00 120.87 133.74 176.84 172.01 200.44 

Item 6. Selected Financial Data.

The following table sets forth selected financial data for the Company and its consolidated subsidiaries:

Reserved.

 

 

 

 

Year Ended December 31,

(in thousands, except dividends and per share data):

 

2017 (1)

 

2016 (2)

 

2015 (3)

 

2014 (4)

 

2013 (5)

Summary of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

820,082

 

$

746,665

 

$

737,555

 

$

765,860

 

$

729,395

 

Income before taxes and equity in net income of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

associated companies

 

60,668

 

 

84,009

 

 

70,230

 

 

78,293

 

 

72,826

 

Net income attributable to Quaker Chemical

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporation

 

20,278

 

 

61,403

 

 

51,180

 

 

56,492

 

 

56,339

 

Per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Quaker Chemical

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporation Common Shareholders - basic

$

1.53

 

$

4.64

 

$

3.84

 

$

4.27

 

$

4.28

 

 

Net income attributable to Quaker Chemical

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporation Common Shareholders - diluted

$

1.52

 

$

4.63

 

$

3.84

 

$

4.26

 

$

4.27

 

 

Dividends declared

 

1.41

 

 

1.355

 

 

1.26

 

 

1.15

 

 

0.995

 

 

Dividends paid

 

1.40

 

 

1.33

 

 

1.24

 

 

1.10

 

 

0.99

Financial Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

$

251,843

 

$

249,057

 

$

233,517

 

$

218,982

 

$

191,222

 

Total assets

 

722,126

 

 

692,028

 

 

680,727

 

 

664,376

 

 

583,642

 

Long-term debt

 

61,068

 

 

65,769

 

 

81,439

 

 

75,328

 

 

17,321

 

Total equity

 

409,618

 

 

412,606

 

 

381,243

 

 

365,135

 

 

344,696

23

Notes to the above table:

(1)Net income attributable to Quaker Chemical Corporation in 2017 includes equity income from a captive insurance company

Table of $2.5 million after tax, and a $0.6 million insurance insolvency recovery, offset by $30.8 million of Houghton combination-related expenses, which includes $0.9 million of interest costs to maintain committed capital to fund the Combination, $22.2 million of tax charges related to the U.S. Tax Cuts and Jobs Act, a $1.9 million U.S. pension plan settlement charge, $0.3 million of charges related to cost streamlining initiatives in the Company’s corporate group, a $0.1 million loss on disposal of a held-for-sale asset, and after-tax charges of $0.4 million related to currency conversions at the Company’s 50% owned equity affiliate in Venezuela.  See the Non-GAAP Measures section, which appears in Item 7 of this report.

(2)Net income attributable to Quaker Chemical Corporation in 2016 includes equity income from a captive insurance company of $1.7 million after tax, and $0.4 million of a credit related to the Company’s 2015 global restructuring program, offset by $1.5 million of Houghton combination-related expenses, and an after-tax charge of $0.1 million related to a currency conversion at the Company’s 50% owned equity affiliate in Venezuela.  See the Non-GAAP Measures section, which appears in Item 7 of this report.

(3)Net income attributable to Quaker Chemical Corporation in 2015 includes equity income from a captive insurance company of $2.1 million after tax, offset by an after-tax charge of $2.8 million related to a currency conversion at the Company’s 50% owned equity affiliate in Venezuela, $2.8 million of Verkol transaction-related expenses, $0.2 million of charges related to cost streamlining initiatives in the Company’s South America segment, $0.3 million of charges related to certain U.S. customer bankruptcies, and $6.8 million of charges related to the Company’s 2015 global restructuring program.  See the Non-GAAP Measures section, which appears in Item 7 of this report.

(4)Net income attributable to Quaker Chemical Corporation in 2014 includes equity income from a captive insurance company of $2.4 million after tax, offset by an after-tax charge of $0.3 million related to a currency conversion at the Company’s 50% owned equity affiliate in Venezuela, $1.2 million of charges related to cost streamlining initiatives in the Company’s EMEA and South America segments, a $0.9 million charge related to a U.K. pension plan amendment, and $0.8 million of charges related to certain customer bankruptcies. 

(5)Net income attributable to Quaker Chemical Corporation in 2013 includes equity income from a captive insurance company of $5.5 million after tax, an increase to other income of $2.5 million related to a mineral oil excise tax refund, and an increase to other income of $0.5 million related to a change in an acquisition-related earnout liability, partially offset by an after-tax charge of $0.4 million related to a currency conversion at the Company’s 50% owned equity affiliate in Venezuela, $1.4 million of charges related to cost streamlining initiatives in the Company’s EMEA and South America segments, and a $0.8 million net charge related to a non-income tax contingency.

16

Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Executive Summary

As used in this Annual Report on Form 10-K (the “Report”), the terms “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. The “Combination” refers to the Quaker combination with Houghton International, Inc. (“Houghton”).
Executive Summary
Quaker Houghton is the global leader in industrial process fluids. With a leading global providerpresence around the world, including operations in over 25 countries, our customers include thousands of process fluids, chemical specialties,the world’s most advanced and technical expertise to a wide range of industries, includingspecialized steel, aluminum, automotive, aerospace, offshore, container, mining, aerospace, tube and pipe, cans,metalworking companies. Our high-performing, innovative and others.  For nearly 100 years, Quaker has helped customers around the world achieve production efficiency, improve product quality, and lower costs through a combination of innovativesustainable solutions are backed by best-in-class technology, deep process knowledge, and customized services. HeadquarteredQuaker Houghton is headquartered in Conshohocken, Pennsylvania, USA, Quaker serves businesses worldwide withlocated near Philadelphia in the U.S.
Overall, 2023 was a networksuccessful year as the Company achieved substantial earnings growth led by its value-based pricing and margin improvement initiatives while navigating through a challenging macroeconomic and geopolitical environment, which included the direct and indirect impacts of dedicatedthe ongoing global conflicts, raw material cost fluctuations, inflationary pressures, supply chain and experienced professionals whose mission islogistics challenges, and foreign currency volatility. Net sales of $1,953.3 million in 2023 increased 1% compared to make$1,943.6 million in 2022, primarily due to increases in selling price and product mix of approximately 7% and favorable impacts from foreign currency translation of approximately 1%, partially offset by a difference.

7% decline in sales volumes. The increase in selling price and product mix was primarily driven by the year-over-year impact of our value-based pricing initiatives. The decline in sales volumes compared to 2022 was primarily attributable to softer end market conditions across all regions, the Company’s value-based pricing initiatives and customer order patterns, as well as impacts of the ongoing war in Ukraine in the EMEA segment, the direct and indirect impacts of the United Auto Workers (“UAW”) strike in the Americas segment, and the wind-down of the tolling agreement for products previously divested related to the Combination, partially offset by new business wins in all segments.

The Company delivered solid operating resultsgenerated net income of $112.7 million or $6.26 per diluted share in 2017 as strong volume growth2023, compared to a net loss of $15.9 million or $0.89 per diluted share in 2022. The Company’s reported net income in 2023 primarily reflects a recovery in gross margins compared to prior year and continued disciplinethe impacts of certain non-recurring items during 2022. Excluding this and other non-recurring and non-core items, the Company’s current year non-GAAP net income and non-GAAP earnings per diluted share were $137.6 million and $7.65, respectively, compared to $105.3 million and $5.87, respectively, in managing2022. The Company generated adjusted EBITDA of $320.4 million compared to $257.2 million in 2022, an increase of 25%. The higher year-over-year adjusted EBITDA was primarily a result of an increase in net sales and an increase in gross margins, partially offset by higher selling, general and administrative expenses (“SG&A”) largely offsetas a decline in gross margin compared to the prior year.  Specifically, net sales increased 10% to $820.1 million in 2017 compared to $746.7 million in 2016 primarily due to a 7% growth in volumes, including acquisitions.  Driven by the strong 2017 volume levels, the Company’s gross profit increased 4%result of year-over-year despite a decline in gross margin to 35.5% in 2017 compared to 37.5% in 2016.  The decrease in the Company’s gross margin was primarily due toinflationary pressures and higher raw material costs compared to the prior year and a change in the mix of products sold.  In addition, the current year’s operating income benefited from the Company’s ability to significantly grow its net sales while only slightly increasing its SG&A.  During 2017, the Company incurred $30.8 million, or $1.90 per diluted share, of costs associated with the Company’s previously announced pending combination with Houghton International, Inc. (“Houghton”) (herein referred to as “the Combination” and “combination-related expenses”), which includes $0.9 million of interest costs (“ticking fees”) to maintain committed capital to fund the Combination.  In 2016, the Company incurred $1.5 million, or $0.11 per diluted share, of due-diligence combination-related expenses.  Including these combination-related expenses, a fourth quarter of 2017 charge of $22.2 million associated with the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”) and certain other non-core items, the Company’s 2017 net income and earnings per diluted share decreased to $20.3 million and $1.52, respectively, compared to $61.4 million and $4.63, respectively, in 2016.  Excluding the combination-related expenses, U.S. Tax Reform charges and other non-core items in each period, the Company’s non-GAAP earnings per diluted share increased 9% to $5.01 in 2017 compared to $4.60 in the prior year.  The Company’s full year adjusted EBITDA was a record $115.2 million in 2017, an increase of 8% compared to $106.6 million in the prior year.labor-related costs. See the Non-GAAP Measures section of this Item below,below.
The Company’s 2023 operating performance in each of its three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific, reflect similar drivers to that of its consolidated performance as each of the Company’s reportable segments net sales benefited from year-over-year increases in selling price and product mix, partially offset by the unfavorable impact of foreign currency translation in the Asia/Pacific segment. All geographic segments had lower sales volumes. Operating earnings increased across all segments due to higher net sales in the EMEA and Americas and an improvement in segment operating margins, driven by favorable pricing and product mix as well as other itemsoperating improvements. Additional details of each segment’s operating performance are further discussed in the Company’s Consolidated Operations Reviewreportable segments review, in the Operations section of this Item 7, below.

From a regional perspective, the Company’s 2017 operating performance was highlighted by strong volume growth and market share gains in all four of its regions, partially offset by declining gross margins in the Company’s three largest regions.  Both the Company’s Europe, Middle East and Africa (“EMEA”) and Asia/Pacific regions increased their operating earnings on strong net sales growth due to higher sales volumes, coupled with a relatively consistent level of SG&A, partially offset by lower gross margin year-over-year.  Each region’s decrease in gross margin was largely due to raw material cost increases and changes in price and product mix.  In South America, the Company continued its year-over-year trend of improving results and was able to grow profitability through higher sales volumes, increases from selling price and product mix and an overall increase in gross margin, on relatively consistent levels of SG&A.  The Company’s North America region had relatively consistent operating earnings year-over-year as higher sales volumes, including contributions from the Company’s 2016 acquisition of Lubricor Inc. (“Lubricor”), and increases from selling price and product mix were offset by a decline in gross margin due to similar drivers in EMEA and Asia/Pacific, noted above, and an increase in SG&A primarily as a result of the Lubricor acquisition.  See the Reportable Operating Segments Review, in the Operations section of this Item, below. 

The Company generated net operating cash flow of $64.8$279.0 million in 20172023 compared to $73.8$41.8 million in 2016.2022. The decreaseincrease in net operating cash flow year-over-year was primarily due to cash outflows related to certain combination-related expenses which offset the benefits from lower levels of cash invested in the Company’s working capital during 2017, lower restructuring payments year-over-year and the Company’s strongreflects improved operating performance in 2017.2023 as well as an improvement in net working capital. The key drivers of the Company’s operating cash flow and working capitaloverall liquidity are further discussed in the Company’s Liquidity and Capital Resources section of this Item 7, below.

Overall, the Company delivered strong results in 2023 including an increase in net sales, an improvement in gross margins, an increase in operating cash flow. Looking ahead to 2024, while the macroeconomic environment remains uncertain, we believe the business is pleasedwell positioned to continue to outpace our market growth rates by earning new business by delivering value-added solutions and services to its customers. The Company is committed to its margin improvement initiatives in 2024, while balancing customer relationships and the cost to serve with delivering another solid year.  Specifically,the value we provide to customers. Additionally, the Company was ableexpects to grow organic volumes by 6% on continued market share gainscontinue to make progress with its enterprise growth strategy, including investing in its long-term growth initiatives, advancing its customer intimate strategy, progressing with its sustainability program and increased production in several of the Company’s end markets.  Also,positioning the Company to deliver continued its disciplined approach to managing SG&A which helped offset a declineearnings growth in its gross margin in 2017.  While the impact2024 and beyond.
24
Table of U.S. Tax Reform in the fourth quarter and combination-related expenses incurred throughout 2017 led to a decrease in reported net income and earnings per diluted share year-over-year, excluding these costs and other non-core items, the Company’s strong 2017 operating performance resulted in a 9% increase in its non-GAAP earnings per diluted share compared to 2016 and drove an 8% increase year-over-year in adjusted EBITDA to a record $115.2 million during 2017.

Looking forward to 2018, the Company currently expects the closing of the Combination to occur during the first half of 2018, once regulatory approvals in the U.S. and Europe are received and other customary closing conditions are satisfied.  As previously disclosed, the Combination will approximately double the Company’s annual sales and adjusted EBITDA, not including estimated synergies, which are expected to meet or exceed $45 million once fully achieved by the third year.  Depending upon the exact timing of the Combination’s close, the Company anticipates it will realize a portion of the Houghton sales and adjusted EBITDA in 2018.

17

Contents

For Quaker’s current business, the Company believes it will continue to grow its volumes and leverage its SG&A and remains optimistic that its gross margin will gradually rise throughout 2018 from its current 35% levels to 36%, heading toward our 37% target.  The Company expects that market share gains, on-going discipline in managing SG&A and the benefits of past acquisitions will continue to help offset its gross margin and other market challenges.  Overall, the Company remains confident in its future and expects 2018 to be another good year for both the current Quaker business and the combined new company post-closing of the Combination.

Critical Accounting Policies and Estimates

Quaker’s

Quaker Houghton’s discussion and analysis of its financial condition and results of operations are based upon Quaker’sits consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States.States (“U.S. GAAP”). The preparation of these financial statements requires Quakerthe Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, Quakerthe Company evaluates its estimates, including those related to customer sales incentives, product returns, bad debts,credit losses, inventories, property, plant and equipment (“PP&E”), investments, goodwill, intangible assets, income taxes, financing operations, business combinations, restructuring, incentive compensation plans (including equity-based compensation), pensions and other postretirement benefits, and contingencies and litigation.  Quaker bases itsrestructuring. These estimates onreflect historical experience as well as our best judgment about current and/or future economic and onmarket conditions and their effects and various other assumptions that are believed to be reasonable under such circumstances,based on currently available information, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, actual results may differ materially from these estimates under different assumptions or conditions.

Quaker Houghton believes the following critical accounting policies describe the more significant judgments and estimates used in the preparation of its consolidated financial statements:

1.

Accounts receivable and inventory exposures — Quakerexposures: The Company establishes allowances for doubtful accountscredit losses for estimatedlosses resulting from the inability of its customers to make required payments. If the financial condition of Quaker’sthe Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As part of itsour terms of trade, Quakerwe may custom manufacture products for certain large customers and/or may ship products on a consignment basis. Further, a significant portion of Quaker’s revenuesour revenue is derived from sales to customers in industries where a number of bankruptcies have occurred in past years and where companies have experienced past financial difficulties. WhenIf a significant customer bankruptcy occurs, Quakerthen we must judge the amount of proceeds, if any, that may ultimately be received through the bankruptcy or liquidation process. These matters may increase the Company’s exposure should a bankruptcy occur and may require a write down or a disposal of certain inventory.inventory as well as the failure to collect receivables. Reserves for customers filing for bankruptcy protection are generally established at 75-100%based on a percentage of the amount of receivables outstanding at the bankruptcy filing date. However, initially establishing athis reserve and the amount theretothereof is dependent on the Company’s evaluation of likely proceeds to be received from the bankruptcy process, which could result in the Company recognizing minimal or no reserve at the date of bankruptcy. LargeWe generally reserve for large and/or financially distressed customers are generally reserved for on a specific review basis, while a general reserve is maintained for other customers based on historical experience. The Company’s consolidated allowance for doubtful accountscredit losses was $5.5$13.3 million and $7.2$13.5 million as of December 31, 20172023 and 2016,2022, respectively. The Company recorded expense to increase its provision for doubtful accountscredit losses by $0.1$1.3 million, $1.4$4.3 million and $1.5$0.7 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. Changing the amount of expense recorded to the Company’s provisions by 10% would have increased or decreased the Company’s pre-tax earnings by less than $0.1 million, $0.1$0.4 million and $0.1 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. See Note 1012 of Notes to Consolidated Financial Statements which appears in Item 8 of this Report.

2. Environmental and litigation reserves — Accruals for environmental and litigation matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.  Accrued liabilities are exclusive of claims against third parties and are not discounted.  Environmental costs and remediation costs are capitalized if the costs extend the life, increase the capacity or improve the safety or efficiency of the property from the date acquired or constructed, and/or mitigate or prevent contamination in the future.  Estimates for accruals for environmental matters are based on a variety of potential technical solutions, governmental regulations and other factors, and are subject to a wide range of potential costs for remediation and other actions.  A considerable amount of judgment is required in determining the most likely estimate within the range of total costs, and the factors determining this judgment may vary over time.  Similarly, reserves for litigation and similar matters are based on a range of potential outcomes and require considerable judgment in determining the most probable outcome.  If no amount within the range is considered more probable than any other amount, the Company accrues the lowest amount in that range in accordance with generally accepted accounting principles.  See Note 23 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

3. Realizability of equity investments — Quaker holds equity investments in various foreign companies, where it has the ability to influence, but not control, the operations of the entity and its future results.  Quaker would record an impairment charge to an investment if it believed a decline in value that was other than temporary occurred.  Adverse changes in market conditions, poor operating results of underlying investments, devaluation of foreign currencies or other events or circumstances could result in losses or an inability to recover the carrying value of the investments, potentially leading to an impairment charge in the future.  The carrying amount of the Company’s equity investments as of December 31, 2017 was $25.7 million, which included four investments: $19.5 million, for a 33% interest, in Primex, Ltd. (Barbados); approximately $5.7 million, for a 50% interest, in Nippon Quaker Chemical, Ltd. (Japan); $0.4 million, for a 50% interest, in Kelko Quaker Chemical, S.A. (Panama); and $0.1 million, for a 50% interest, in Kelko Quaker Chemical, S.A. (Venezuela), respectively.  See Note 14 of Notes to Consolidated Financial Statements, which appears

18

in Item 8 of this Report.

4. Tax exposures, uncertain tax positions and valuation allowances — Quakerallowances: The Company records expenses and liabilities for taxesbased on estimates of amounts that will be ultimately determined to beas deductible or taxable in tax returns filed in various jurisdictions. The filed tax returns are subject to audit, which often occur several years subsequent to the date of the financial statements. Disputes or disagreements may arise during audits over the timing or validity of certain items, such as taxable income or deductions, which may not be resolved for extended periods of time. QuakerThe Company also evaluates for uncertain tax positions on all income tax positions taken on previously filed tax returns or expected to be taken on a future tax return in accordance with FIN 48, which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return and, also, whether the benefits of tax positions will beare probable or if they are more likely than not to be sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not to be sustained upon audit, the company would recognizeCompany recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, the company wouldCompany does not recognize any portion of the benefit in its financial statements. In addition, the Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Also, the Company would netnets its liability for unrecognized tax benefits against deferred tax assets related to net operating losses or other tax credit carryforwards ifcarryforward on the basis that the uncertain tax position wereis settled for the presumed amount at the balance sheet date.

Quaker

The Company also records valuation allowances when necessary to reduce its deferred tax assets to the amount that is more likely than not to be realized. While Quakerthe Company has considered future taxable income and employs prudent and feasible tax planning strategies in assessingassesses the need for a valuation allowance, in the event Quaker Houghton were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should Quakerthe Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Both determinations could have a material impact on the Company’s financial statements.

On December 22, 2017,

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Table of Contents
Pursuant to the United States enacted Tax Cuts and Jobs Act (“U.S. Tax Reform.  Among other provisions,Reform”), the Company recorded a $15.5 million transition tax liability for U.S. Tax Reform reduces the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, implements a new system of taxation for non-U.S. earnings which eliminates U.S. federal income taxes on dividends from certain foreign subsidiaries, and imposes a one-time tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries. As of December 31, 2023, $8.5 million in installments have been paid with the remaining $7.0 million to be paid through installments in future years. However, the Company may also be subject to other taxes, such as withholding taxes and dividend distribution taxes, if certain foreign subsidiaries.  Theundistributed earnings are ultimately remitted to the U.S. As of December 31, 2023, the Company has made reasonable interpretations and assumptions with regard to various uncertainties and ambiguities ina deferred tax liability of $8.2 million, which primarily represents the application of certain provisions of U.S. Tax Reform.  It is possible that the Internal Revenue Service (“IRS”) could issue subsequent guidance or take positions on audit that differ from the Company’s interpretations and assumptions.  The Company currently believes that subsequent guidance issued or interpretations made by the IRS will not be materially different from the Company’s applicationestimate of the provisions of U.S. Tax Reform, and would not have a material adverse effect on the Company’s tax liability, earnings, or financial condition.  Whilenon-U.S. taxes the Company maintains its intentionwill incur to continueremit certain previously taxed earnings to reinvest the earnings of its foreign subsidiaries for working capital needs and certain other foreign growth initiatives, provisions of U.S. Tax Reform would generally enable the Company to repatriate earnings from certain foreign subsidiaries without any additional U.S. corporate income tax expense. It is the Company’s current intention to continue to reinvest its future undistributed earnings of non-U.S. subsidiaries to support working capital needs and certain other growth initiatives.initiatives outside of the U.S. The amount of such undistributed earnings at December 31, 20172023 was approximately $300$379.2 million. As aAny tax liability which might result from ultimate remittance of U.S. Tax Reform, specifically the one-timethese earnings is expected to be substantially offset by foreign tax on the deemed repatriation, the Company has provided for U.S. income taxes on these undistributed earnings, however, the Company could be subjectcredits (subject to other taxes, such as withholding taxes and dividend distribution taxes, if these undistributed earnings were ultimately remitted to the U.S.certain limitations). It is currently impractical to estimate any such incremental tax expense. See Note 810 of Notes to Consolidated Financial Statements which appears in Item 8 of this Report.

5.

Goodwill and other intangible assets — assets: The Company accounts for business combinations under the acquisition method ofaccounting. This method requires the recording of acquired assets, including separately identifiable intangible assets, at their acquisition date fair values. Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. The determination of the estimated fair value of assets acquired requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates,the weighted average cost of capital (“WACC”), royalty rates, asset lives and market multiples, among other items. When necessary, the Company consults with external advisors to help determine fair value. For non-observable market values, the Company may determine fair value using acceptable valuation principles, including the excess earnings, relief from royalty, lost profit or cost methods.

The Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives. Goodwill and intangible assets whichthat have indefinite lives are not amortized and are required to be assessed at least annually for impairment. The Company comparescompletes its annual goodwill and indefinite-lived intangible asset impairment test during the assets’ fair valuefourth quarter of each year, or more frequently if triggering events indicate a possible impairment. The Company’s consolidated goodwill at December 31, 2023 and 2022 was $512.5 million and $515.0 million, respectively. The Company has four indefinite-lived intangible assets totaling $193.2 million as of December 31, 2023, including $192.1 million of indefinite-lived intangible assets for trademarks and tradename associated with the Combination. Comparatively, the Company had four indefinite-lived intangible assets for trademarks and tradename totaling $189.1 million as of December 31, 2022.
During the fourth quarter of 2022, the Company recorded a non-cash impairment charge of $93.0 million to theirwrite down the carrying value primarily based on future discounted cash flows,of the EMEA reporting unit Goodwill to its estimated fair values. In connection with the Company’s reorganization and the associated change in order to determine if anreportable segments and reporting units during the first quarter of 2023, the Company performed the required impairment charge is warranted.  The estimatesassessments directly before and immediately after the change in reporting units and concluded that it was not more likely than not that the fair values of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance.  Assumptions used in these forecasts are consistent with internal planning, butany of the actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance, and economic conditions.  The Company’s assumed weighted average cost of capital and estimated future net operating profit after tax are particularly important in determining estimated future cash flows.

Theprevious or new reporting units were less than their respective carrying amounts. Additionally, the Company completed its annual impairment assessment as of the end of the third quarter of 2017 by performing a qualitative

19

assessment.  Based on the assessment performed, the Company concluded that there was no evidence of events or circumstances that would indicate a material change from the Company’s prior year quantitative assessment by reporting unit. Therefore, the Company has concluded that no goodwill impairment exists in any of its reporting units as of September 30, 2017.To better align the Company’s annual goodwill impairment assessment with the Company’s budget process and its related timing, the Company elected to update its annual goodwill impairment assessment during the fourth quarter of 2017October 1, 2023 and concluded no impairment charge was warranted.  Going forward,existed.

In completing the annual impairment assessment, the Company will complete itsused a WACC assumption of approximately 12.0% and holding all other assumptions constant, the WACC would have to increase by approximately 3.0 percentage points before the Company’s EMEA reporting unit’s remaining goodwill would be fully impaired. In addition, holding EBITDA margins and all other assumptions constant, the Company’s compound annual goodwill impairment assessmentrevenue growth rate during the fourth quarter.entire projection period would need to decline by approximately 4.0 percentage points before the Company’s EMEA reporting unit’s remaining goodwill would be fully impaired. Similarly, holding revenue growth rates and all other assumptions constant, the Company’s average EBITDA margins throughout the discreet projection period would need to decline by approximately 7.3 percentage points before the Company’s EMEA reporting unit’s remaining goodwill would be fully impaired.
The Company continually evaluates financial performance, economic conditions and other recent developments in assessing if a triggering event indicates that the carrying values of goodwill, indefinite-lived, or long-lived assets might be impaired. Notwithstanding the results of the Company’s impairment assessments during 2023, if the Company is unable to maintain the actions aimed at improving the financial performance of the EMEA reporting unit, or interest rates continue to rise, which leads to an increase in the cost of capital, then these conditions could result in a triggering event for the EMEA reporting unit. This assessment could result in an impairment of the EMEA reporting unit’s remaining goodwill, indefinite-lived intangible assets, or long-lived assets. See Note 1315 of Notes to Consolidated Financial Statements which appears in Item 8 of this Report.

6.

Pension and Postretirement benefits — benefits: The Company provides certain defined benefit pension and other postretirement benefitsto current employees, former employees and retirees. Independent actuaries, in accordance with accounting principles generally accepted in the United States,U.S. GAAP, perform the required valuations to determine benefit expense and, if necessary, non-cash charges to equity for additional minimum pension liabilities. Critical assumptions used in the actuarial valuation include the weighted average discount rate, which is based on applicable yield curve data, including the use of a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans, rates of increase in compensation levels, and expected long-term rates of return on assets. If different assumptions were used, additional pension expense or charges to equity might be required.
26
AsTable of December 31, 2015, the Company elected to use a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans, which includes the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits beginning in the first quarter of 2016.  This change resulted in a decrease in the service and interest components for pension cost in the years ended December 31, 2017 and 2016, respectively, compared to the year ended December 31, 2015.  Historically, the Company estimated service and interest cost components utilizing a single weighted-average discount rate derived from a specific yield curve used to measure the benefit obligation at the beginning of the period.  Under the spot-rate approach, service and interest cost components have been estimated based on the application of the spot rates on a given yield curve at each future year to each plan's projected cash flows to measure the benefit obligation at the beginning of the period.  The Company made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates.  This change has been accounted for as a change in accounting estimate and, accordingly, accounted for prospectively.ContentsThe Company’s U.S. pension plan year-end is November 30, and the measurement date is December 31.  See Note 18 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.  The following table highlights the potential impact on the Company’s pre-tax earnings, due to changes in these assumptions with respect to the Company’s pension plans, based on assets and liabilities as of December 31, 2017:

 

 

1/2 Percentage Point Increase

 

 

1/2 Percentage Point Decrease

(Amounts in millions)

Foreign

 

Domestic

 

Total

 

Foreign

 

Domestic

 

Total

Discount rate (1)

$

0.5

 

$

0.1

 

$

0.6

 

$

(0.5)

 

$

(0.1)

 

$

(0.6)

Expected rate of return on plan assets (2)

 

0.4

 

 

0.2

 

 

0.6

 

 

(0.4)

 

 

(0.2)

 

 

(0.6)

(1)T he weighted-average discount rate used to determine net periodic benefit costs for the year ended December 31, 2017 was 2.17% for Foreign plans and 3.88% for Domestic plans.

(2)The weighted average expected rate of return on plan assets used to determine net periodic benefit costs for the year ended December 31, 2017 was 2.12% for Foreign plans and 7.0% for Domestic plans.

7. Restructuring and other related liabilities – A restructuring and related activities program may consist of charges for employee severance, rationalization of manufacturing facilities and other related expenses.  To account for such, the Company applies the Financial Accounting Standards Board’s guidance regarding exit or disposal cost obligations.  This guidance requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, is estimable, and payment is probable.  See Note 5 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

Recently Issued Accounting Standards

See Note 3 of Notes to the Consolidated Financial Statements which appears in Item 8 of this Report for a discussion regarding recently issued accounting standards.

Liquidity and Capital Resources

Quaker’s

At December 31, 2023, the Company had cash and cash equivalents increased to $89.9of $194.5 million. Total cash and cash equivalents was $181.0 million as ofat December 31, 2017 from $88.82022. The $13.5 million as of December 31, 2016.  The $1.1 million increase in cash and cash equivalents was the net result of $64.8$279.0 million of cash provided by operating activities and a $5.4approximately $0.7 million positive impactof favorable impacts due to the effect of foreign exchange ratescurrency translation on cash, partiallylargely offset by $13.9$238.6 million of cash used in financing activities and $27.6 million of cash used in investing activities and $55.2 million ofactivities.
Net cash used in financing activities.

Net cashflows provided by operating activities was $64.8were $279.0 million in 20172023 compared to $73.8$41.8 million 2016.in 2022. The $9.0 million decrease was primarily the result ofincrease in net operating cash outflows of $25.9 millionflow year-over-year reflects higher year-over-year operating performance as well as a cash inflow from working capital, notably reductions in accounts receivable and inventory, in the current year, demonstrating the Company’s ongoing focus on cash conversion. Comparatively, during 2022, operating cash flow was negatively impacted by a significant working capital investment due to inflationary impacts on inventory and related pricing impacts on accounts receivable.

Net cash flows used in investing activities were $27.6 million in 2023 compared to just $1.0$40.2 million in 2022. This $12.6 million decrease in cash outflows used in investing activities is the result of higher current year proceeds from asset dispositions and higher acquisition-related payments in the prior year, associated with payments for combination-related expenses, described below.  Partially offsetting these higher cash outflows for combination-related expenses year-over-year was lower cash invested in working capital, primarily due to a decrease in cash outflows related to accounts receivable partially offset by higher cash outflows from inventory.  The Company’s higher net sales year-over-year drove an increase in its accounts receivables, but this increase was largely offset by improved working capital management and, also,

20

a significant collection of receivables from a certain customer late in the fourth quarter of 2017 which was uncommon, did not occur during 2016, and is not expected to recur in 2018.  Related to cash outflows from inventory, the Company re-stocked inventory levels throughout 2017 to a level sufficient to address its significant production and demand increases from 2016 year-end.  The Company’s operating cash flows during 2017 were also the result of improved operating performance year-over-year and lower restructuring payments made as part of the Company’s global restructuring program initiated in the fourth quarter of 2015, described below.

Net cash used in investing activities decreased from $23.8 million in 2016 to $13.9 million in 2017, primarily due to lower payments for acquisitionsexpenditures in the current year.  During 2017, the Company had

Net cash outflows of $5.4 million for the acquisition of assets associated with a business that markets, sells and manufactures certain metalworking fluids.  In 2016, the Company had cash outflows of $15.0 million for the acquisition of Lubricor, Inc. and its affiliated entities, the purchase of a business associated with dust control products for the mining industry and a post-closing adjustment to finalize the Company’s 2015 acquisition of Verkol, S.A.U.  In addition, the Company had higher proceeds from the disposition of assets during 2017, primarily as a result of the disposition of a held-for-sale asset at the Company’s India affiliate during the fourth quarter of 2017.  Partially offsetting these decreases in cash outflows year-over-year was an increase in capital spending during 2017 as compared to 2016, primarily due to expenditures for several small projects across all of its regions, as well as an increase in spending related to a new manufacturing facility in India that is expected to be completed in 2018.  Changes in the Company’s restricted cash, which is dependent upon the timing of claims and payments associated with a subsidiary’s asbestos litigation, were down slightly year-over-year.

Net cashflows used in financing activities was $55.2were $238.6 million in 20172023 compared to $38.1net cash flows provided by financing activities of $24.7 million in 2016.2022. The $17.1$263.3 million increase in net cash outflows from financing activities was primarily duerelated to $31.8 millionnet repayments of cash usedborrowings in the current year, primarily under the Company’s fourth quarterCredit Facility, described further below, as compared to net borrowings in 2022, which included the impact of 2017 purchasenew borrowings, net of the remaining noncontrolling interest in its India affiliate.  This 2017 cash outflow was partially offset by lower repayments of long-termold borrowings and debt year-over-year, with repayments of $2.9 million during 2017 comparedissuance costs, related to repayments of $14.5 million during 2016.the June 2022 credit facility amendment. In addition, the Company paid $18.6$31.7 million inof cash dividends to shareholders during 2017,2023, a $1.0$1.5 million, or 5.1%, increase in cash dividends compared to the prior year period.  In 2016,year.

During June 2022, the Company, completed $5.9 million in share repurchases, with no comparable cash payments during the current year.

The Company’sand its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S. Dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to its primary credit facility (“the(the “Credit Facility”). The Credit Facility”) isFacility established (A) a $300.0new $150.0 million syndicated multicurrencyEuro equivalent senior secured term loan (the “Euro Term Loan”), (B) a new $600.0 million senior secured term loan (the “U.S. Term Loan”), and (C) a new $500.0 million senior secured revolving credit agreement with a group of lenders which maturesfacility (the “Revolver”), each maturing in June 2019.2027. The maximumCompany has the right to increase the amount available underof the Credit Facility can be increasedby an aggregate amount not to $400.0exceed the greater of $300.0 million ator 100% of Consolidated EBITDA, subject to certain conditions including the Company’s option if the lenders agree and the Company satisfies certain conditions.  Borrowings under the Credit Facility generally bear interest at a base rate or LIBOR rate plus a margin.  The Credit Facility has certain financial and other covenants, with the key financial covenant requiring that the Company’s consolidated net debtagreement to adjusted EBITDA ratio cannot exceed 3.50 to 1.  provide financing by any lender providing such increase.

As of December 31, 20172023, the Company had Credit Facility borrowings outstanding of $744.5 million. The Company had unused capacity under the Revolver of approximately $465.7 million, which is net of bank letters of credit of approximately $3.4 million, as of December 31, 2023. The Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and 2016,municipality-related loans, which totaled $11.1 million as of December 31, 2023. Total unused capacity under these arrangements as of December 31, 2023 was approximately $35 million. The Company’s total net debt as of December 31, 2023 was $561.1 million, which consists of total borrowings of $755.6 million less cash and cash equivalents of $194.5 million. The Credit Facility contains affirmative and negative covenants, financial covenants and events of default. Financial covenants contained in the Company’sCredit Facility include a consolidated interest coverage ratio test and a consolidated net debt to adjusted EBITDAleverage ratio was below 1.0 to 1, andtest. As of December 31, 2023, the Company was also in compliance with all of its otherthe Credit Facility covenants. Refer to the description of the Company’s primary Credit Facility in Note 19 of Notes to Consolidated Financial Statements in Item 8 of this Report for more information about the covenants and events of default.
The weighted average variable interest rate incurred on the outstanding borrowings under the Credit Facility during the twelve months ended December 31, 2023 was approximately 6.2%. As of December 31, 2017 and 2016,2023, the Company had total credit facilityweighted interest rate on the outstanding borrowings of $48.5 million and $47.9 million, respectively, primarily under the Credit Facility.Facility was approximately 6.3%. As part of the Credit Facility, the Company is required to pay a commitment fee ranging from 0.150% to 0.275% related to unutilized commitments under the Revolver, depending on the Company’s consolidated net leverage ratio. The Company’s other debt obligationsCompany had unused capacity under the Revolver of approximately $465.7 million, which is net of bank letters of credit of approximately $3.4 million, as of December 31, 20172023.
In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, such as SOFR, in the first quarter of 2023, the Company entered into $300.0 million notional amounts of three-year interest rate swaps to convert a portion of the Company’s variable rate borrowings into an average fixed rate obligation of 3.64% plus an applicable margin as provided in the Credit Facility based on the Company’s consolidated net leverage ratio. As of December 31, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.3%. See Note 24 of Notes to Consolidated Financial Statements in Item 8 of this Report.
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Table of Contents
In connection with executing the original credit facility in 2019 (“Original Credit Facility”) and 2016, respectively,the amended Credit Facility during the second quarter of 2022, the Company capitalized certain third-party and creditor debt issuance costs. Costs attributed to the Euro Term Loan and U.S. Term Loan were primarily industrial development bondsrecorded as a direct reduction of Long-term debt on the Consolidated Balance Sheet. These capitalized costs, as well as the previously capitalized costs that were not written off will collectively be amortized into Interest expense over the five year term of the Credit Facility. As of December 31, 2023, the Company had $1.5 million of debt issuance costs recorded as a reduction of Long-term debt on the Consolidated Balance Sheet and municipality-related loans.

Quaker’s$3.3 million of debt issuance costs recorded within Other assets on the Consolidated Balance Sheet. Comparatively, as of December 31, 2022, the Company had $2.0 million of debt issuance costs recorded as an offset of Long-term debt on the Consolidated Balance Sheet and $4.3 million of debt issuance costs recorded within Other assets on the Consolidated Balance Sheet.

The Company uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on certain assets and/or liabilities denominated in certain foreign currencies. During the year ended December 31, 2023, the Company entered into and settled forward contracts resulting in cash proceeds of $2.1 million. See Note 24 of Notes to Consolidated Financial Statements in Item 8 of this Report.
The Company had no Combination, integration and other acquisition-related expenses during 2023, except for $0.5 million in other income related to changes for an indemnification asset related to the Combination. Comparatively, in 2022, the Company incurred $11.0 million of total Combination, integration and other acquisition-related expenses, which includes $2.4 million of other expense related to an indemnification asset partially offset by a $0.2 million gain on the sale of certain held-for-sale real property assets.
The Company incurred $4.7 million of strategic planning expenses for the year ended December 31, 2023 as compared to $14.4 million for the year ended December 31, 2022. The Company expects to incur minimal additional operating costs and associated cash flows related to strategic planning expenses through the beginning of 2024.
Quaker Houghton’s management approved, and the Company initiated, a global restructuring plan in the fourth quarter of 2015 (the “2015“QH Program”) in 2019 as part of its planned cost synergies associated with the Combination. The QH Program included restructuring and associated severance costs to reduce its operating costs.total headcount by approximately 400 people globally and plans for the closure of certain manufacturing and non-manufacturing facilities. The Company had substantially completed all of the initiatives under the 2015QH Program during 2016in 2022 with an immaterial amount of remaining severance paid in 2023.
In the fourth quarter of 2022, the Company’s management initiated a global cost and settlementoptimization program to improve its cost structure and drive a more profitable and productive organization. The exact timing to complete all actions and final costs associated will depend on a number of thesefactors and are subject to change. The Company expects additional headcount reductions and restructuring costs may be incurred in the future. The Company expects to generate full annualized run-rate cost savings from the global cost and optimization program of approximately $20 million by the end of 2024. The Company expects total cash costs of this program to be approximately 1 to 1.5 times annualized savings. The Company recognized $7.6 million, $3.2 million and $1.4 million of restructuring and related charges primarily occurred in 2016, with only minimal settlements and cash payments remaining after 2016, which were completed during the first half of 2017.  Duringfor the years ended December 31, 20172023, 2022 and 2016, the Company utilized $0.7 million and $5.3 million,2021, respectively, of operating cash flow for the settlement of certain restructuring liabilities under the 2015 Program.  The Company estimates the full year pre-tax cost savings as a result of these programs. The Company made cash payments related to the settlement of restructuring liabilities for these programs of $9.8 million and $1.5 million during the years ended December 31, 2023 and 2022, respectively. The Company has remaining restructuring accruals, as of December 31, 2023, for this program was approximately $5of $3.4 million, during 2017 compared to approximately half of this amount realized during 2016.

On April 4, 2017, Quaker entered into a share purchase agreement with Gulf Houghton Lubricants, Ltd. to purchase the entire issued and outstanding share capital of Houghton.  The shares will be bought for aggregate purchase consideration consisting of: (i) $172.5 million in cash; (ii) a number of shares of common stock, $1.00 par value per share, ofwhich the Company comprising 24.5% ofexpects to settle over the common stock outstanding upon the closing of the Combination; and (iii) the Company’s assumption of Houghton’s net indebtedness as of the closing of the Combination, which was approximately $690 million at signing.next twelve months. See Note 27 of Notes to Consolidated Financial Statements.

In connection with the Combination, the Company secured $1.15 billionStatements in commitments from Bank of America Merrill Lynch and Deutsche Bank to fund the purchase consideration and provide additional liquidity and has since replaced these commitments with a syndicated bank agreement (“the New Credit Facility”) with a group of lenders for $1.15 billion.  The New Credit Facility is contingent upon and will not be effective until the closing of the Combination, and will have to be extended if the Combination does not close by April 4, 2018.  The New Credit Facility includes a $400.0 million multicurrency revolver, a $575.0 million USD term loan and a $175.0 million EUR equivalent term loan, each with a five-year term from the date the New Credit Facility becomes effective.  The maximum amount available under the New Credit Facility can be increased by $200.0 million at the Company’s option if the lenders agree and the Company satisfies certain conditions.  Borrowings under the New Credit Facility will bear interest at a base rate or LIBOR rate plus a margin, and the Company currently estimates the annual floating rate cost will be in the 3.50% to 3.75% range based on current market interest rates.  The New Credit Facility will be subject to certain financial and other covenants, including covenants that the Company’s consolidated net debt to adjusted EBITDA ratio cannot exceed 4.25 to 1 and the Company’s consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1.  Both the USD and EUR equivalent term loans

21

will have quarterly principal amortization during their respective five-year terms, with 5% amortization of the principal balance due in years 1 and 2, 7.5% in year 3, and 10% in years 4 and 5, with the remaining principal amounts due at maturity.  Until closing, the Company incurs certain interest costs paid to maintain the banks’ committed capital (“ticking fees”), which began to accrue on September 29, 2017.  The ticking fees bear an interest rate of 0.30% per annum.

The Company incurred $30.8 million of combination-related expenses during 2017, which includes $0.9 million of ticking fees, described in the Non-GAAP measures sectionItem 8 of this Item, below, and made cash payments of $25.9 million related to these costs.  During 2018, the Company currently estimates it will have additional expenses and related similar cash outflows of approximately $30 to $35 million through closing of the Combination for similar combination-related expenses, including cash payments for bank fees which we expect to capitalize.  In addition, post-closing of the combination, the Company expects it will incur significant additional costs and make associated cash payments to integrate the Company and Houghton and to begin realizing the Combination’s total anticipated cost synergies, which we currently estimate to meet or exceed $45 million.  The timing and an accurate range of these additional costs and cash payments post-closing are not estimable at this time.  However, based on market precedent, the Company currently projects these costs and cash payments to approximate one times anticipated synergies, and, also, the Company expects them to be incurred over a three-year period post-close.

The Company received regulatory approval for the Combination from China in July 2017 and from Australia in October 2017.  In addition, at a shareholder meeting held during the third quarter of 2017, the Company’s shareholders approved the issuance of the new shares of the Company’s common stock at closing of the Combination.  Currently, the closing of the Combination is expected during the first half of 2018, and is contingent upon customary closing conditions and the remaining regulatory approvals in the United States and Europe.  Given these contingencies and the overall timing of the Combination, the Company has not recorded any estimated costs for additional expenses that the Company expects, but had yet to incur as of December 31, 2017, related to the Combination.

In addition to approving the issuance of the Company’s shares at closing of the Combination, at the same shareholders meeting noted above, the Company’s shareholders approved an amendment of the Company’s Articles of Incorporation that provides that every holder of Quaker Chemical Corporation common stock will be entitled to one vote for each share of common stock of the Company.  Prior to this amendment, the Company’ Articles of Incorporation included a time-based voting system that granted special ten-for-one-voting rights to shareholders who had beneficially owned their Quaker Chemical Corporation common stock continuously for a period of at least 36 consecutive calendar months.

Report.

As of December 31, 2017,2023, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $8.4$19.7 million. The Company cannot determine a reliable estimate of the timing of cash flows by period related to its uncertain tax position liability. However, should the entire liability be paid, the amount of the payment may be reduced by up to $4.6$5.6 million as a result of offsetting benefits in other tax jurisdictions. RelatedDuring 2021, the Company recorded $13.1 million of non-income tax credits for certain of its Brazilian subsidiaries. The Company utilized these credits to offset certain Brazilian federal tax payments during 2022. See Note 25 of Notes to Consolidated Financial Statements in Item 8 of this Report.
During 2021, two of the Company’s locations suffered property damage as a result of flooding and electrical fire, respectively. The Company maintains property insurance for all of its locations globally. The Company, its insurance adjuster, and insurance carrier actively managed the remediation and restoration activities associated with each of these events and have settled on both claims. In total, the Company received payments from its insurers of $7.2 million, after an aggregate deductible of $2.0 million. The Company and its insurance carrier continue to review the impact of U.S. Tax Reform,the electrical fire on the production facility’s operations as it relates to a potential business interruption insurance claim; however, as of the date of this Report, the Company currently estimatescannot reasonably estimate any probable amount of business interruption insurance claim recoverable. Therefore, the gross deemed repatriation transition tax (“Transition Tax”) on previously untaxed accumulated and current earnings and profitsCompany has not recorded a gain contingency for a possible business interruption insurance claim as of certainDecember 31, 2023. See Note 25 of the Company’s foreign subsidiariesNotes to be approximately $18.4 million, including both the estimated U.S. federal as well as state tax amounts.  The Company will elect to pay the U.S. federal Transition Tax overConsolidated Financial Statements in Item 8 years, as allowed, $15.8 million of which is considered a long-term tax payable due after 2018 with the remainder due during 2018, along with all estimated state tax amounts, as presented in the contractual obligations table, below.

this Report.

28
Table of Contents
The Company believes it is capable of supportingthat its existing cash, anticipated cash flows from operations and available additional liquidity will be sufficient to support its operating requirements and fundingfund its business objectives for at least the next twelve months and beyond, including but not limited to, payments of dividends to shareholders, costs related to the Combination,payments for restructuring activities including further strategic and optimization initiatives, pension plan contributions, capital expenditures, other business opportunities (including potential acquisitions), implementing actions to achieve the Company’s sustainability goals and other potential contingencies, through internally generated funds supplemented withcontingencies. The Company also believes it has sufficient additional liquidity to support its operating requirements and to fund its business obligations for the period beyond the next twelve months, including the aforementioned items which are expected to recur annually, as well as future principal and interest payments on the Company’s Credit Facility, tax obligations and other long-term liabilities. The Company’s liquidity is affected by many factors, some based on normal operations of our business and others related to the impact of the pandemic and other events on our business and on global economic conditions as well as industry uncertainties, which we cannot predict. We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We may seek, as we believe appropriate, additional debt or equity as needed.

financing which would provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including possible acquisitions and investments. The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including the actual and projected demand for our products, specialty chemical industry conditions, competitive factors, and the condition of financial markets, among others.

On February 28, 2024, the Board approved a new share repurchase program (“2024 Share Repurchase Program”), authorizing the Company to repurchase up to an aggregate of $150 million of the Company’s outstanding common stock. The 2024 Share Repurchase Program is effective immediately and has no expiration date. In connection with the 2024 Share Repurchase Program, the Company’s previous share repurchase program (“2015 Share Repurchase Program”), which was approved by the Board in 2015 and had no expiration date, was terminated. See further information in Note 22

of Notes to Consolidated Financial Statements in Item 8 of this Report.

The following table summarizes the Company’s contractual obligations as of December 31, 2017,2023, and the effect such obligations are expected to have on its liquidity and cash flows in future periods. Pension and other postretirement plan contributions beyond 20182023 are not determinable since the amount of any contribution is heavily dependent on the future economic environment and investment returns on pension trust assets. The timing of payments related to other long-term liabilities which consistconsists primarily of deferred compensation agreements and environmental reserves, also cannot be readily determined due to their uncertainty. Interest obligations on the Company’s long-term debt and capital leases assume the current debt levels will be outstanding for the entire respective period and apply the interest rates in effect as of December 31, 2017.2023.

 

 

 

Payments due by period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2023 and

Contractual Obligations

 

 

Total

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Beyond

Long-term debt

 

$

66,956

 

$

5,736

 

$

49,160

 

$

694

 

$

407

 

$

282

 

$

10,677

Interest obligations

 

 

7,108

 

 

1,716

 

 

1,001

 

 

534

 

 

526

 

 

526

 

 

2,805

Operating leases

 

 

27,600

 

 

5,345

 

 

4,494

 

 

3,708

 

 

3,208

 

 

2,812

 

 

8,033

Purchase obligations

 

 

1,893

 

 

1,893

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Transition Tax

 

 

18,388

 

 

2,563

 

 

1,376

 

 

1,376

 

 

1,376

 

 

1,376

 

 

10,321

Pension and other postretirement plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contributions

 

 

10,329

 

 

10,329

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Other long-term liabilities (See Note 19 of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements)

 

 

6,529

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

6,529

Total contractual cash obligations

 

$

138,803

 

$

27,582

 

$

56,031

 

$

6,312

 

$

5,517

 

$

4,996

 

$

38,365

Payments due by period
(dollars in thousand)2029 and
Beyond
Contractual ObligationsTotal20242025202620272028
Long-term debt (See Note 19 of Notes to Consolidated Financial Statements)$755,046 $23,250 $36,955 $36,914 $647,899 $10,028 $— 
Interest obligations (See Note 19 of Notes to Consolidated Financial Statements)155,556 46,855 44,948 42,601 20,977 175 — 
Capital lease obligations (See Note 6 of Notes to Consolidated Financial Statements)1,032 256 29 229 259 15 244 
Operating leases (See Note 6 of Notes to Consolidated Financial Statements)39,694 13,130 9,027 6,840 3,543 1,909 5,245 
Purchase obligations1,285,259 1,282,910 783 783 783 — — 
Income taxes payable (See Note 10 and Note 21 of Notes to Consolidated Financial Statements)8,849 4,023 4,697 129 — — — 
Pension and other postretirement plan contributions (See Note 20 of Notes to Consolidated Financial Statements)14,070 14,070 — — — — — 
Other long-term liabilities (See Note 21 of Notes to Consolidated Financial Statements)7,480 — — — — — 7,480 
Total contractual cash obligations$2,266,986 $1,384,494 $96,439 $87,496 $673,461 $12,127 $12,969 

29
Non-GAAP Measures

Included

The information in this Form 10-K filing are twoincludes non-GAAP (unaudited) financial measures:information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share and adjusted EBITDA.share. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader’s understanding of the financial performance of the Company, are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not indicative of future operating performance or not considered core to the Company’s operations. Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP. In addition, our definitions of EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per share as discussed and reconciled below to the more comparable GAAP measures, may not be comparable to similarly named measures reported by other companies.
The following tables reconcileCompany presents EBITDA which is calculated as net income attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not indicative of future operating performance or not considered core to the Company’s operations. In addition, the Company presents non-GAAP operating income which is calculated as operating income plus or minus certain items that are not indicative of future operating performance or not considered core to the Company’s operations. Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The Company believes these non-GAAP measures provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share (unaudited)as additional performance measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies, in each case adjusted, EBITDAas applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the “two-class share method.” The Company believes that non-GAAP net income and non-GAAP earnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
Certain of the prior period non-GAAP financial measures presented in the following tables have been adjusted to conform with current period presentation. The following tables reconcile the Company’s non-GAAP financial measures (unaudited) to their most directly comparable GAAP financial measures:

 

 

For the years ended December 31,

 

 

2017

 

2016

 

2015

GAAP earnings per diluted share attributable to Quaker Chemical

 

 

 

 

 

 

 

 

 

Corporation Common Shareholders

$

1.52

 

$

4.63

 

$

3.84

Equity income in a captive insurance company per diluted share (a)

 

(0.19)

 

 

(0.13)

 

 

(0.16)

Restructuring (credit) expense per diluted share (b)

 

—

 

 

(0.02)

 

 

0.36

Verkol transaction-related expenses per diluted share (c)

 

—

 

 

—

 

 

0.15

Houghton combination-related expenses per diluted share (d)

 

1.90

 

 

0.11

 

 

—

U.S. Tax Reform charges per diluted share (e)

 

1.67

 

 

—

 

 

—

U.S. pension plan settlement charge per diluted share (f)

 

0.09

 

 

—

 

 

—

Customer bankruptcy costs per diluted share (g)

 

—

 

 

—

 

 

0.02

Cost streamlining initiatives per diluted share (h)

 

0.01

 

 

—

 

 

0.01

Loss on disposal of held-for-sale asset per diluted share (i)

 

0.01

 

 

—

 

 

—

Insurance insolvency recovery per diluted share (j)

 

(0.03)

 

 

—

 

 

—

Currency conversion impact of the Venezuelan bolivar fuerte per diluted share (k)

 

0.03

 

 

0.01

 

 

0.21

     

 

 

 

 

 

 

 

 

 

Non-GAAP earnings per diluted share (l)

$

5.01

 

$

4.60

 

$

4.43

measures (dollars in thousands, unless otherwise noted, except per share amounts):

23

Non-GAAP Operating Income and Margin ReconciliationsFor the years ended December 31,
202320222021
Operating income$214,495 $52,304 $150,466 
Combination, integration and other acquisition-related (credits) expenses (a)— 8,812 25,412 
Restructuring and related charges, net (b)7,588 3,163 1,433 
Strategic planning expenses (c)4,704 14,446 — 
Russia-Ukraine conflict related expenses (j)— 2,487 — 
Facility remediation (recovery) costs, net (d)— — 1,509 
Impairment charges (e)— 93,000 — 
Other charges (i)987 3,679 3,805 
Non-GAAP operating income$227,774 $177,891 $182,625 
Non-GAAP operating margin (%) (o)11.7 %9.2 %10.4 %
30

Table of Contents
 

 

 

 

 

 

 

 

 

 

For the years ended December 31,

 

 

2017

 

 

2016

 

 

2015

Net income attributable to Quaker Chemical Corporation

$

20,278

 

$

61,403

 

$

51,180

Depreciation and amortization

 

19,966

 

 

19,566

 

 

19,206

Interest expense (d)

 

3,892

 

 

2,889

 

 

2,585

Taxes on income before equity in net income of associated companies (e)

 

41,653

 

 

23,226

 

 

17,785

Equity income in a captive insurance company (a)

 

(2,547)

 

 

(1,688)

 

 

(2,078)

Restructuring (credit) expense (b)

 

—

 

 

(439)

 

 

6,790

Verkol transaction-related expenses (c)

 

—

 

 

—

 

 

2,813

Houghton combination-related expenses (d)

 

29,938

 

 

1,531

 

 

—

U.S. pension plan settlement charge (f)

 

1,860

 

 

—

 

 

—

Customer bankruptcy costs (g)

 

—

 

 

—

 

 

328

Cost streamlining initiatives (h)

 

286

 

 

—

 

 

173

Loss on disposal of held-for-sale asset (i)

 

125

 

 

—

 

 

—

Insurance insolvency recovery (j)

 

(600)

 

 

—

 

 

—

Currency conversion impact of the Venezuelan bolivar fuerte (k)

 

388

 

 

88

 

 

2,806

     

 

 

 

 

 

 

 

 

Adjusted EBITDA

$

115,239

 

$

106,576

 

$

101,588

Adjusted EBITDA margin (%) (m)

 

14.1%

 

 

14.3%

 

 

13.8%

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income ReconciliationsFor the years ended December 31,
202320222021
Net income (loss) attributable to Quaker Chemical Corporation$112,748 $(15,931)$121,369 
Depreciation and amortization (a)(m)83,020 81,514 87,728 
Interest expense, net50,699 32,579 22,326 
Taxes on income (loss) before equity in net income of associated companies55,585 24,925 34,939 
EBITDA302,052 123,087 266,362 
Equity (income) loss in a captive insurance company (f)(2,090)1,427 (4,993)
Combination, integration and other acquisition-related (credits) expenses (a)(475)10,990 18,718 
Restructuring and related charges, net (b)7,588 3,163 1,433 
Strategic planning expenses (c)4,704 14,446 — 
Facility remediation (recovery) costs, net (d)(2,141)(1,804)2,066 
Impairment charges (e)— 93,000 — 
Currency conversion impacts of hyper-inflationary economies (g)7,849 1,617 564 
Brazilian non-income tax credits (h)— — (13,087)
Russia-Ukraine conflict related expenses (j)— 2,487 — 
Loss on extinguishment of debt (k)— 6,763 — 
Other charges (i)2,892 1,974 3,046 
Adjusted EBITDA$320,379 $257,150 $274,109 
Adjusted EBITDA margin (%) (o)16.4 %13.2 %15.6 %
Adjusted EBITDA$320,379 $257,150 $274,109 
Less: Depreciation and amortization - adjusted (a)83,020 81,514 87,002 
Less: Interest expense, net50,699 32,579 22,326 
Less: Taxes on income (loss) before equity in net income of associated companies - adjusted (l)(n)49,017 37,737 41,976 
Non-GAAP net income$137,643 $105,320 $122,805 

31
Table of Contents
Non-GAAP Earnings per Diluted Share ReconciliationsFor the years ending December 31,
202320222021
GAAP earnings (loss) per diluted share attributable to Quaker Chemical Corporation common shareholders$6.26 $(0.89)$6.77 
Equity (income) loss in a captive insurance company per diluted share (f)(0.12)0.08 (0.28)
Combination, integration and other acquisition-related (credits) expenses per diluted share (a)(0.03)0.49 0.82 
Restructuring and related charges, net per diluted share (b)0.32 0.13 0.07 
Strategic planning expenses per diluted share (c)0.21 0.63 — 
Facility remediation (recovery) costs, net per diluted share (d)(0.09)(0.08)0.09 
Impairment charges per diluted share (e)— 5.19 — 
Currency conversion impacts of hyper-inflationary economies per diluted share (g)0.44 0.09 0.03 
Brazilian non-income tax credits per diluted share (h)— — (0.46)
Russia-Ukraine conflict related expenses per diluted share (j)— 0.12 — 
Loss on extinguishment of debt per diluted share (k)— 0.29 — 
Other charges per diluted share (i)0.12 0.08 0.13 
Impact of certain discrete tax items per diluted share (l)0.54 (0.26)(0.32)
Non-GAAP earnings per diluted share (p)$7.65 $5.87 $6.85 
(a)Combination, integration and other acquisition-related (credits) expenses include certain legal, financial, and other advisory and consultant costs incurred in connection with the Combination integration activities including internal control readiness and remediation. These amounts also include expense associated with the Company's other recent acquisitions, including certain legal, financial, and other advisory and consultant costs incurred in connection with due diligence as well as costs associated with selling inventory from acquired businesses which was adjusted to fair value as part of purchase accounting. These costs are not indicative of the future operating performance of the Company. Approximately $0.2 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively, of these pre-tax costs were considered non-deductible for the purpose of determining the Company’s effective tax rate, and, therefore, taxes on income before equity in net income of associated companies - adjusted reflects the impact of these items. During 2021, the Company recorded $0.7 million of accelerated depreciation related to certain of the Company’s facilities, which is included in the caption “Combination, integration and other acquisition-related (credits) expenses” in the reconciliation of operating income to non-GAAP operating income and included in the caption “Depreciation and amortization” in the reconciliation of net income attributable to the Company to EBITDA, but excluded from the caption “Depreciation and amortization – adjusted” in the reconciliation of adjusted EBITDA to non-GAAP net income attributable to the Company. During 2023, 2022 and 2021, the Company recorded $0.5 million of other income, $2.4 million of other expense and $0.6 million of other income, respectively, related to an indemnification asset. During 2021, the Company recorded $0.8 million related to the sale of inventory from acquired businesses which was adjusted to fair value. During 2022 and 2021, the Company recorded a gain of $0.2 million and $5.4 million, respectively, on the sale of certain held-for-sale real property assets related to the Combination. Each of these items are included in the caption “Combination, integration and other acquisition-related (credits) expenses” in the reconciliation of GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share as well as the reconciliation of Net Income attributable to Quaker Chemical Corporation to Adjusted EBITDA and Non-GAAP net income. See Notes 2, 9 and 10 of Notes to Consolidated Financial Statements, which appear in Item 8 of this Report.
(b)Restructuring and related charges, net represent the costs incurred by the Company associated with the Company’s restructuring programs. These costs are not indicative of the future operating performance of the Company. During 2023, 2022 and 2021, the Company recorded restructuring and related charges of $7.6 million, $3.2 million and $1.4 million, respectively. See Note 7 of Notes to Consolidated Financial Statements, which appear in Item 8 of this Report.
(c)Strategic planning expenses include certain consultant and advisory expenses for the Company's long-term strategic planning, as well as process optimization and the next phase of the Company's long-term integration to further optimize its footprint, processes and other functions. These costs are not indicative of the future operating performance of the Company.
(d)Facility remediation (recovery) costs, net, presents the gross costs associated with remediation, cleaning and subsequent restoration costs associated with the property damage to certain of the Company’s facilities, net of insurance recoveries received. These charges are non-recurring and are not indicative of the future operating performance of the Company. See Note 25 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.
(e)Impairment charges represents the non-cash charges taken to write down the value of goodwill and indefinite-lived intangible assets. These charges are not indicative of the future operating performance of the Company. See Note 15 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.
32
Table of Contents
(f)Equity income (loss) in a captive insurance company represents the after-tax income attributable to the Company’s interest in Primex, Ltd. (“Primex”), a captive insurance company. The Company holds a 33%32% investment in and has significant influence over Primex, and therefore accounts for this interestinvestment under the equity method of accounting. The income attributable to Primex is not indicative of the future operating performance of the Company and is not considered core to the Company’s operations. See Note 1416 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(b)Restructuring (credit) expense

(g)Currency conversion impacts of hyper-inflationary economies represents the chargeforeign currency remeasurement impacts associated with the Company’s affiliates whose local economies are designated as hyper-inflationary under U.S. GAAP. During the years ended December 31, 2023, 2022 and 2021, the Company incurred (ornon-deductible, pre-tax charges related to the Company’s Argentina and Türkiye affiliates. The charges incurred related to the immediate recognition of foreign currency remeasurement in the Consolidated Statements of Income associated with these entities are not indicative of the future operating performance of the Company See Note 1 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.
(h)Brazilian non-income tax credits represent indirect tax credits related to certain of the Company’s Brazilian subsidiaries prevailing in a legal claim as well as the Brazil Supreme Court ruling on these non -income tax matters. The non-income tax credit recorded)is non-recurring and not indicative of the future operating performance of the Company. See Note 25 of Note to Consolidated Financial Statements, which appears in Item 8 of this Report.
(i)Other charges include executive transition costs, pension and postretirement benefit costs (income), non-service components and charges incurred by an inactive subsidiary of the Company as a result of the termination of restrictions on insurance settlement reserves. These expenses are not indicative of the future operating performance of the Company. See Notes 1, 12 and 20 of Notes to Consolidated Financial Statements, which appear in Item 8 of this Report.
(j)Russia-Ukraine conflict related expenses represent the direct costs associated with the Company's exit of operations in Russia during 2022, primarily employee separation benefits, as well as costs associated with establishing specific reserves or changes to existing reserves for trade accounts receivable within the Company's EMEA reportable segment due to the economic instability associated with certain customer accounts receivables which have been directly impacted by the Company associated with a global restructuring program which was initiatedcurrent economic conflict between Russia and Ukraine or the Company's decision to end operations in the fourth quarter of 2015.Russia. These costsexpenses are not indicative of the future operating performance of the Company. See Note 512 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(c)Verkol transaction-related expenses represent

(k)In connection with executing the Credit Facility, the Company recorded a loss on extinguishment of debt of approximately $6.8 million which includes the write-off of certain one-time transaction-relatedpreviously unamortized deferred financing costs as well as a portion of the third-party and creditor debt issuance costs incurred in connection withto execute the execution of the Company’s 2015 Verkol acquisition.Credit Facility. These costsexpenses are not indicative of the future operating performance of the Company. See Note 2119 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(d)Houghton combination-related expenses

(l)The impacts of certain discrete tax items include certain legal, environmental, financial,impacts of tax law changes, valuation allowance adjustments, uncertain tax positions and other advisoryprior year true-ups, and consultant costs incurred in connection with the strategic evaluationimpact on certain intercompany asset transfers. For 2023 the impacts also include $6.7 million of diligence on, and execution of the definitive agreement to combine with Houghton, as well as regulatory and shareholder approvals and integration planning associated with the Combination.  These costs are not indicative of the future operating performance of the Company.  Certain of these costs were considered non-deductiblewithholding taxes for the purposerepatriation of determining the Company’s effective tax rate and, therefore, the earnings per diluted share amount reflects this impact.  In addition, beginning in September 2017, thenon-U.S. earnings. The Company began to incur ticking fees to maintain the capital commitment related to the pending Combination.  These interest costsdoes not believe these items are included in the caption Houghton combination-related expenses in the reconciliation of GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share above, but are included in the caption Interest expense in the reconciliation of Net income attributable to Quaker Chemical Corporation to Adjusted EBITDA above.  See Note 2 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(e)U.S. Tax Reform charges represent the tax expense incurred by the Company as a result of the Tax Cuts and Jobs Act of 2017.  This tax expense includes the Company’s estimated impact of the Transition Tax, net of eliminating U.S. federal income taxes on dividends from certain foreign subsidiaries in the current year, of approximately $17.8 million, as well as the impact of revaluing certain of the Company’s domestic deferred tax balances from 35% to the new 21% U.S. corporate tax rate of approximately $4.4 million.  These tax expenses were the result of a specific one-time event and are notcore or indicative of future operating performance of the Company.  U.S. Tax Reform charges are included within Taxes on income before equity in net income of associated companies in the reconciliation of Net income attributable to Quaker Chemical Corporation to Adjusted EBITDA.  See Note 8 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.    

(f)U.S. pension plan settlement charge represents the expense recorded related to the Company’s U.S. pension plan settlement to its vested terminated participants.  This settlement charge represents the immediate recognition into expense ofand has adjusted them as a portion of the unrecognized loss within accumulated other comprehensive loss (“AOCI”) on the balance sheet in proportion to the share of the projected benefit obligation that was settled by these payments.  This charge was the result of a specific one-time event and is not

24

indicative of the future operating performance of the Company.  See Note 18 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(g)Customer bankruptcy costs represent the costs associated with reserving for trade accounts receivable of certain customers who filed for bankruptcy protection.  These expenses are not indicative of the future operating performance of the Company.Non-GAAP measure. See Note 10 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report

(h)Cost streamlining initiatives represent expensesReport.

(m)Depreciation and amortization includes $1.0 million for both of the years ended December 31, 2023 and 2022, respectively, and $1.2 million for the year ended December 31, 2021, of amortization expense recorded within equity in net income of associated with certain actions taken to reorganize the Company’s corporate staff in 2017 and certain actions takencompanies in the Company’s South America reportable operating segment in 2015Consolidated Statements of Operations, which is attributable to streamline and enhance segment profitability.  These costs are not indicativethe amortization of the future operating performance of the Company. 

(i)Loss on disposal of held-for-sale asset represents a one-time charge to write down thefair value of held-for-sale asset atstep up for the Company’s India affiliate to its fair value.  This charge was the result of a specific one-time event and is not indicative of the future operating performance of the Company. 

(j)Insurance insolvency recovery represents income associated with a cash receipt from an insolvent insurance carrier for previously submitted claims by an inactive subsidiary of the Company.  This other income is not indicative of the future operating performance of the Company.  See Notes 7 and 23 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.   

(k)Currency conversion impact of the Venezuelan bolivar fuerte represents losses incurred at the Company’s Venezuelan affiliate50% interest Korea Houghton Corporation as a result of changesrequired purchase accounting.

(n)Taxes on income before equity in Venezuela’s foreign exchange markets and controls and the conversionnet income of certain bolivar fuerte to U.S. dollars.  The losses were the result of specific one-time changes to Venezuela’s foreign exchange controls and one-time currency conversions of certain bolivar fuerte to U.S. dollars and are not indicative of the future operating performance of the Company.  See Note 14 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(l)Within the Company’s calculation of Non-GAAP earnings per diluted share above, each reconciling item includesassociated companies – adjusted presents the impact of any current and deferred income tax expense (benefit), as applicable.  Theapplicable, of the reconciling items presented in the reconciliation of net income tax expense (benefit) relatedattributable to these itemsQuaker Chemical Corporation to adjusted EBITDA and was determined utilizing the applicable rates in the taxing jurisdictions in which these adjustments occurred. 

(m)occurred, subject to deductibility.

(o)The Company calculates Adjustedadjusted EBITDA margin and non-GAAP operating margin as the percentage of Adjustedadjusted EBITDA and non-GAAP operating income to consolidated net sales.

(p)The Company calculates non-GAAP earnings per diluted share as non-GAAP net income attributable to the Company per weighted average diluted shares outstanding using the “two-class share method” to calculate such in each given period.
Off-Balance Sheet Arrangements
The Company had approximately $5 million of bank letters of credit and guarantees as of December 31, 2023. The bank letters of credit and guarantees are not significant to the Company’s liquidity or capital resources. See Note 19 of Notes to Consolidated Financial Statements in Item 8 of this Report.
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Operations

Consolidated Operations Review – Comparison of 20172023 with 2016

2022

Net sales were a record $1,953.3 million in 2017 of $820.1 million increased 10%2023 compared to net sales of $746.7$1,943.6 million in 2016.2022. The $73.4 million increase in net sales of approximately $9.7 million or 1% year-over-year was the result of a 6% increase in organic volumes, a 1% or $10.7 million increase from sales attributable to the Company’s 2016 acquisition of Lubricor, a 2% increaseprimarily due to changesan increase in selling price and product mix of 7% and the positiveapproximately 1% favorable impact of foreign currency translation of $4.9 million or 1%. 

Cost of goods sold (“COGS”) in 2017 of $528.6 million increased 13% from $466.6 million in 2016.  The increase in COGS was primarily due to the increase in product volumes, noted above, as well as additional COGS attributed to the Company’s 2016 acquisition of Lubricor, the impact of certain raw material cost increases and changes in product mix, and the negative impact of foreign currency translation year-over-year.  In addition, 2017 and 2016 COGS include reclassifications related to the Company’s first quarter of 2017 adoption and retrospective application of an accounting standard update regarding the classification of certain pension costs on the income statement.  See Note 3 of Notes to Consolidated Financial Statements.

Gross profit in 2017 increased $11.4 million or 4% compared to 2016, primarily driven by the increase in sales volumes, noted above,translations, partially offset by a lower gross margindecline in sales volumes of 35.5%approximately 7%. The increase in 2017selling price and product mix was primarily driven by year-over-year impact of our value-based pricing initiatives. The decline in sales volumes was primarily attributable to softer end market conditions across all regions, including the direct and indirect impacts of the UAW strike, the Company’s value-based pricing initiatives and customer order patterns, as well as the impacts of the ongoing war in Ukraine in the EMEA segment, and the wind-down of the tolling agreement for products previously divested related to the Combination, partially offset by new business wins in all segments, as mentioned above.

COGS were $1,247.7 million in 2023 compared to 37.5%$1,330.9 million in 2016.2022. The decrease in COGS of 6% reflects lower spend on the decline in current year sales volumes, which more than offset higher costs due to inflationary pressures in the Company’s gross margin in 2017 was primarily due to higherglobal raw material, manufacturing and supply chain and logistics costs compared to the prior year.
Gross profit in 2023 of $705.6 million increased $93.0 million or approximately 15% from 2022. The Company’s reported gross margin in 2023 was 36.1% compared to 31.5% in 2022. The Company’s current year improvement in gross margin was primarily driven by the year-over-year impact of our value-based pricing and a change in the mix of certain products sold. 

margin improvement initiatives.

SG&A in 20172023 increased $5.1$28.2 million compared to 2016 primarily2022 driven by higher labor-related costs including year-over-year inflationary increases and higher levels of incentive compensation on improved Company performance, partially offset by lower SG&A due to additional SG&A associated with the Company’s prior year Lubricor acquisition, an increase due to the impact of foreign currency translation higher labor-related costs primarily duecompared to annual compensation increasesthe prior year.
During 2022, the Company incurred $8.8 million of Combination, integration and incentive compensation, as well as a first quarter of 2017 cost streamlining initiative, described inother acquisition-related expenses. See the Non-GAAP measuresMeasures section of this Item, above. These increases to SG&AThere were partially offset by decreases as a resultno similar costs incurred during 2023.
The Company incurred Restructuring and related charges of certain cost savings efforts, including the impact of the 2015 global restructuring program in the current year.  In addition, 2017$7.6 million and 2016 SG&A include reclassifications$3.2 million during 2023 and 2022, respectively, related to the Company’s first quarter of 2017 adoption of the pension accounting standard update noted above. 

The Company substantially completed the 2015 globalprevious and current restructuring program during 2016, and recognized a restructuring credit of $0.4 million during the fourth quarter of 2016 to update its initial estimates for employee separation costs.  There were no comparable restructuring costs or credits during 2017. 

During 2017, the Company incurred $29.9 million of costs related to its previously announced Combination with Houghton, described inprograms. See the Non-GAAP measuresMeasures section of this Item, above.  The

In 2022, the Company incurred $1.5recorded a $93.0 million non-cash impairment charge to write down the value of goodwill associated with the Company’s EMEA reportable segment. This non-cash impairment charge was the result of the Company’s trigger based fourth quarter of 2022 impairment assessment. There were no similar combination-related expensesimpairment charges in 2016.

2023. See the Critical Accounting Policies and Estimates section as well as the Non-GAAP Measures section, of this Item, above.

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Operating income in 20172023 was $62.7$214.5 million compared to $85.4$52.3 million in 2016.2022. Excluding the non-cash impairment charge, as well as other non-core items that are not indicative of future operating performance, the Company’s current year non-GAAP operating income was $227.8 million compared to $177.9 million in the prior year. The decreaseincrease in non-GAAP operating income was primarily due to the Houghton combination-related expenses along with slightly higher levels ofgross profit partially offset by higher SG&A, notas described above.

The Company had Other expense of $10.7 million in 2023 compared to $12.6 million in 2022. The 2023 and 2022 results include $2.1 million and $1.8 million, respectively of facility remediation recoveries, while prior year’s Other expense also includes $6.8 million of loss on extinguishment of debt related to the Houghton Combination, which more than offset gross profitCompany’s refinancing the Original Credit Facility and $2.4 million of expense related to an indemnification asset. Also, there were higher foreign currency transaction losses in 2023 compared to 2022.
Interest expense, net, increased $18.1 million compared to 2022, primarily driven by increases in the average borrowings outstanding coupled with an increase in interest rates year-over-year as the weighted average interest rate incurred on strong volume growth, noted above.  

borrowings under the Company’s primary credit facility was approximately 6.2% during 2023 compared to approximately 3.0% during 2022.

The Company had otherCompany’s effective tax rates for 2023 and 2022 were an expense of $0.7 million36.3% and 350.2%, respectively. The Company’s current year effective tax rate was primarily impacted by changes to the valuation allowance for and the usage of certain foreign tax credits, withholding taxes and deferred taxes on unremitted earnings, and the impact of the mix of pre-tax earnings. The Company’s 2022 effective tax rate was driven by the non-cash impairment charge, the impact of pre-tax earnings and the mix of such earnings, foreign tax inclusions and withholding taxes, partially offset by a reduction in 2017 compared to $0.5 millionreserves for uncertain tax positions and changes in 2016.the valuation allowance for foreign tax credits. Excluding the impact of all non-core items in each year, described in the Non-GAAP Measures section of this Item, above, the Company estimates that the 2023 and 2022 effective tax rates would have been approximately 28% and 27%, respectively. The increase in other expensehigher estimated current year effective tax rate was primarily driven by pre-tax earnings and the mix of such earnings. In 2023, the Company recognized $6.7 million of withholding taxes for the repatriation of non-U.S. earnings that the Company does not believe is core or indicative of future performance and has adjusted these withholding taxes as a second quarterNon-GAAP measure. The Company may experience continued volatility in its effective tax rates due to several factors, including the timing of 2017tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, the unpredictability of the timing and amount of certain incentives in various tax jurisdictions, and the timing and amount of certain share-based compensation-related tax benefits, among other factors. In addition, the foreign tax credit valuation allowance, or absence thereof, is based on a number of variables, including forecasted earnings, which may vary.
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Equity in net income of associated companies increased $13.4 million in 2023 compared to 2022, primarily due to higher current year income from the Company’s interest in a captive insurance company (see the Non-GAAP Measures section of this Item, above) due to higher market performance on equity investments and from the Company’s 50% interest in a joint venture in Korea due to overall market improvement.
Net income attributable to noncontrolling interest was approximately $0.1 million for both 2023 and 2022.
Foreign exchange negatively impacted the Company’s yearly results by approximately 1% driven by the impact from foreign currency translation on earnings as well as higher foreign exchange transaction losses in the current year as compared to the prior year.
Consolidated Operations Review – Comparison of 2022 with 2021
Net sales were a record $1,943.6 million in 2022 compared to $1,761.2 million in 2021. The increase in net sales of approximately $182.4 million or 10% year-over-year was primarily due to an increase in selling price and product mix of approximately 22% and additional net sales from acquisitions of 1%, partially offset by a decline in sales volumes of approximately 7% and the unfavorable impact from foreign currency translation of approximately 6%. The increase in selling price and product mix was primarily driven by price increases implemented to offset the significant increases in raw material and other input costs that began during 2021 and continued throughout 2022. The decline in sales volumes was primarily attributable to softer end market demand, particularly in the EMEA and Asia/Pacific segments, the wind-down of the tolling agreement for products previously divested related to the Combination and the impact of the ongoing war in Ukraine, partially offset by net new business wins, including the impact of the Company’s ongoing value-based pricing initiatives. The impact from foreign currency translation is primarily the result of the year-over-year strengthening of the U.S. pension plan settlementDollar compared to major world currencies including the Euro and the Chinese renminbi.
COGS were $1,330.9 million in 2022 compared to $1,166.5 million in 2021. The increase in COGS of 14% was driven by the continued increases in the Company’s global raw material, manufacturing and supply chain and logistics costs compared to the prior year.
Gross profit in 2022 of $612.7 million increased $18.0 million or approximately 3% from 2021. The Company’s reported gross margin in 2022 was 31.5% compared to 33.8% in 2021. The Company’s current year gross margin reflects a significant increase in raw material and other input costs and the impacts of constraints on the global supply chain, partially offset by the Company’s ongoing value-based pricing initiatives.
SG&A in 2022 increased $36.6 million compared to 2021 due primarily to the impact of sales increases on direct selling costs, higher operating costs due to inflationary pressures, costs associated with strategic planning initiatives (see the Non-GAAP Measures section of this Item, above), and additional SG&A from recent acquisitions, partially offset by lower SG&A due to foreign currency translation compared to the prior year. In addition, SG&A was lower in the prior year period as a result of continued temporary cost saving measures the Company implemented in response to the onset of COVID-19.
During 2022 and 2021, the Company incurred $8.8 million and $23.9 million, respectively, of Combination, integration and other acquisition-related expenses. See the Non-GAAP Measures section of this Item, above.
The Company incurred restructuring expenses of $3.2 million and $1.4 million during 2022 and 2021, respectively, related to the Company’s restructuring programs. See the Non-GAAP Measures section of this Item, above.
In 2022, the Company recorded a $93.0 million non-cash impairment charge and ato write down the value of goodwill associated with the Company’s EMEA reportable segment. This non-cash impairment charge is the result of the Company’s trigger based fourth quarter of 20172022 impairment assessment. There were no similar impairment charges in 2021. See the Critical Accounting Policies and Estimates section as well as the Non-GAAP Measures section, of this Item, above.
Operating income in 2022 was $52.3 million compared to $150.5 million in 2021. Excluding the non-cash impairment charge, as well as other non-core items that are not indicative of future operating performance, the Company’s current year non-GAAP operating income was $177.9 million compared to $182.6 million in the prior year. The decline in non-GAAP operating income was primarily due to higher SG&A, as described above.
Other expense in 2022 includes $6.8 million of loss on extinguishment of debt related to the disposal of a held-for-sale asset,Company’s refinancing the Original Credit Facility, partially offset by $1.8 million of facility remediation insurance recoveries and $2.4 million of income associated withrelated to an insurance insolvency recoveryindemnification asset. Other income in 2021 includes $13.1 million of non-income tax credits recorded by the fourth quarterCompany’s Brazilian subsidiaries as well as a $4.8 million gain on the sale of 2017, all of which are described incertain held-for-sale real property assets. See the Non-GAAP measuresMeasures section of this Item, above. In addition, the Company hadforeign exchange losses, net, were higher foreign currency transaction gains realized in 20172022 as compared to 2016 and2021.
Interest expense, net, increased $10.3 million compared to 2021, primarily driven by increases in the average borrowings outstanding coupled with an increase in receipts of local municipality-related grants in one ofinterest rates year-over-year as the weighted average interest rate incurred on borrowings under the Company’s regions year-over-year.  Also, both 2017 and 2016 other expense includes reclassifications relatedprimary credit facility was approximately 3.0% during 2022 compared to approximately 1.6% during 2021. This was partially offset by lower amortization of debt issuance costs in 2022 as compared to 2021 due to the Company’s first quarterJune 2022 credit facility amendment and write off of 2017 adoptioncertain previously capitalized debt issuance costs.
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Table of the pension accounting standard update, noted above, with non-service pension costs being consistent in 2017 compared to 2016, excluding the plan settlement charge noted above.

Interest expense increased $1.0 million year-over-year, primarily due to costs incurred to maintain the committed capital for the pending Houghton Combination.  Interest income increased $0.5 million in 2017 compared to 2016, primarily due to an increase in the level of the Company’s invested cash in certain regions with higher returns.

Contents

The Company’s effective tax rates for 20172022 and 20162021 were 68.7%an expense of 350.2% and 27.6%an expense of 23.8%, respectively. The primary drivers of the increase in the Company’s effective tax rate during 2017 were the current year impact of certain non-deductible Houghton combination-related expenses as well as $22.2 million of charges related to U.S. Tax Reform, described in the Non-GAAP measures section of this Item, above.  The Company estimates that its 2017 effective tax rate would have been approximately 27%, without the impact of U.S. Tax Reform and non-deductible Houghton combination-related expenses.  These increases to the current year effective tax rate werewas largely driven by the non-cash impairment charge described above and to a lesser extent a decline in profits, earnings mix, foreign tax inclusions and withholding taxes, partially offset by a reduction in reserves for uncertain tax positions and changes in the favorablevaluation allowance for foreign tax credits. The Company’s 2021 effective tax rate was driven by a higher level of pre-tax earnings and mix of earnings, as well as deferred taxes on unremitted earnings. In addition, the rate was impacted by certain one-time charges and benefits related to an intercompany intangible asset transfer and related royalty income recognition offset by changes in the valuation allowance for foreign tax credits. Excluding the impact of tax benefits for deductionsall non-core items in excess of compensation cost associated with stock option exercises and restricted stock vestingeach year, described in the current year as a resultNon-GAAP Measures section of this Item, above, the Company’s first quarter of 2017 adoption of an accounting standard update regardingCompany estimates that the tax impact of certain share-based compensation.  See Note 3 of Notes to Consolidated Financial Statements.  In 2016, there were minimal non-deductible Houghton combination-related expenses, no charges similar to those of the 2017 U.S. Tax Reform2022 and no comparable share-based compensation-related tax benefits.  Also, in both 2017 and 2016, the Company’s mix of foreign earnings in jurisdictions with lower2021 effective tax rates impacted each year’swould have been approximately 27% and 26%, respectively. The higher estimated current year tax expense.rate was primarily driven by a lower level of pre-tax earnings and the impact of changes in mix of earnings. The Company has experienced and expects to continue tomay experience continued volatility in its effective tax rates due to several factors, including the timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, the unpredictability of the timing and amount of certain incentives in various tax jurisdictions, the treatment of certain acquisition-related costs and the timing and amount of certain share-based compensation-related tax benefits, among other factors.

In addition, the foreign tax credit valuation allowance, or absence thereof, is based on a number of variables, including forecasted earnings, which may vary.

Equity in net income of associated companies (“equity income”) increased $1.0decreased $7.4 million in 20172022 compared to the 2016.  The increase in equity income was2021, primarily due to higher earnings from the Company’s interest in a captive insurance company in thelower current year.  In addition, the Company recorded currency conversion charges in both 2017 and 2016, respectively, associated with the Company’s Venezuela affiliate.  The Company’s interest in a captive insurance company and the currency conversion charges recorded are described in the Non-GAAP measures section of this Item, above. 

The Company had a $0.4 million increase in net income attributable to noncontrolling interest in 2017 compared to 2016, primarily due to an increase in performance from certain consolidated affiliates in the Company’s Asia/Pacific region partially offset by the impact of the Company’s purchase of the remaining interest in its India joint venture in December 2017.

The impacts from foreign currency translation negatively impacted the Company’s 2017 results by less than 1% or $0.01 per diluted share, which does not include the foreign currency transaction gains realized in other income during 2017 or the currency conversion charge associated with the Company’s Venezuelan affiliate recorded in equity income noted above.

Consolidated Operations Review – Comparison of 2016 with 2015

Net sales in 2016 of $746.7 million increased 1% from $737.6 million in 2015.  This increase was primarily the result of a 3% increase in organic volumes and $19.4 million or approximately 2% of sales attributable to the Company’s 2016 and 2015 acquisitions, partially offset by the negative impact of foreign currency translation of $21.7 million or 3%, and declines in selling price and product mix of 1%.

COGS in 2016 of $466.6 million increased 1% from $459.8 million in 2015.  The increase in COGS was primarily due to increases in product volume, including additional cost of goods sold attributed to the Company’s 2016 and 2015 acquisitions, partially offset by the impact of foreign currency translation and certain changes in raw material costs and product mix.  In addition, 2016 and 2015 COGS include reclassifications related to the Company’s first quarter of 2017 adoption of the pension accounting standard update, noted above. 

Gross profit in 2016 increased $2.3 million or 1% compared to 2015, driven by the increase in sales volumes noted above, on a slightly lower gross margin of 37.5% in 2016 compared to 37.7% in 2015.

The SG&A decrease of $2.7 million from 2015 was primarily due to a decline from foreign currency translation, one-time transaction related expenses related to the Verkol acquisition in 2015, a 2015 cost streamlining initiative in South America, and certain customer bankruptcies recorded in 2015, described in the Non-GAAP Measures section of this Item, above.  The Company incurred

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higher SG&A year-over-year from annual compensation increases, as well as incremental costs associated with the Company’s 2015 and 2016 acquisitions, however, these costs were largely offset by certain cost savings efforts, including the 2015 global restructuring program, noted below.  In addition, 2016 and 2015 SG&A includes reclassifications related to the Company’s first quarter of 2017 adoption of the pension accounting standard update, noted above. 

The Company had a restructuring expense of $6.8 million in 2015 related to a global restructuring program initiated in the fourth quarter of 2015, as described in the Non-GAAP Measures section of this Item, above.  During 2016, the Company recognized a restructuring credit of $0.4 million to update its initial estimates for employee separation costs. 

During 2016, the Company incurred $1.5 million of costs related to its previously announced Combination with Houghton, described in the Non-GAAP measures section of this Item, above.  There were no comparable costs incurred during 2015. 

Operating income in 2016 was $85.4 million compared to $74.6 million in 2015.  The $10.8 million increase in operating income was primarily due to an increase in sales volumes, as well as lower SG&A and restructuring expenses year-over-year, partially offset by the slight decline in gross margin during 2016.

Other expense decreased $2.9 million in 2016 compared to 2015.  The decrease was primarily driven by foreign currency transaction gains realized in 2016 compared to foreign currency transaction losses in 2015 as well as higher receipts of local municipality-related grants in one of the Company’s regions year-over-year.  In addition, 2016 and 2015 other expense includes reclassifications related to the Company’s first quarter of 2017 adoption of the pension accounting standard update, noted above, with lower non-service related pension costs incurred in 2016 compared to 2015. 

Interest expense was $0.3 million higher in 2016 compared to 2015, primarily due to increased average borrowings outstanding during 2016 as a result of the Company’s acquisition activity.  Interest income was $0.4 million higher in 2016 compared to 2015, primarily due to an increase in the level of the Company’s invested cash in certain regions with higher returns and increased interest received on certain tax-related credits in 2016. 

The Company’s effective tax rates for 2016 and 2015 were 27.6% and 25.3%, respectively.  The primary contributors to the difference between the 2016 and 2015 effective tax rates were certain one-time items recorded during 2015, including the accelerated recognition of certain tax-related incentives due to changes in local tax regulations and adjustments related to previous years’ tax estimates.  Also, in both 2015 and 2016, the Company’s mix of foreign earnings in jurisdictions with lower effective tax rates impacted each year’s tax expense.

Equity income increased $2.0 million in 2016 compared to 2015.  The increase in equity income was primarily due to a smaller currency conversion charge recorded at the Company’s Venezuela affiliate partially offset by lower equityyear income from the Company’s interest in a captive insurance company described in(see the Non-GAAP Measures section of this Item, above. 

The $0.1 million increaseabove) due to lower market performance on equity investments and from the Company’s 50% interest in neta joint venture in Korea due to overall market challenges.

Net income attributable to noncontrolling interest in 2016 compared to 2015 was primarily due to a stronger performance atless than $0.1 million for both 2022 and 2021.
Foreign exchange negatively impacted the Company’s India affiliate.

The impactsyearly results by approximately 8% driven by the negative impact from foreign currency translation negatively impactedon earnings as well as higher foreign exchange transaction losses in the current year as compared to the prior year.

Reportable Segments Review - Comparison of 2023 with 2022
The Company’s reportable segments reflect the structure of the Company’s 2016 resultsinternal organization, the method by approximately 4% or $0.19 per diluted share, which doesthe Company’s resources are allocated and the manner by which the chief operating decision maker of the Company assesses its performance. During the first quarter of 2023, the Company reorganized its executive management team to align with its new business structure. The Company’s new structure includes three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific.
The three segments are comprised of the assets and operations in each respective region, including assets and operations formerly included in the Global Specialty Businesses segment. Prior to the Company’s reorganization, the Company’s historical reportable segments were: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. Prior period information has been recast to reflect the Company’s new reportable segments. However, the Company did not includerecast the foreign currency transaction gains realizedcarrying amount of goodwill for the years ended December 31, 2022 and 2021. See Notes 1, 4, 5, and 15 of Notes to Consolidated Financial Statements in Item 8 of this Report.
Segment operating earnings for the Company’s reportable segments are comprised of net sales less COGS and SG&A directly related to the respective segment’s sales of products and services. Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other income during 2016 or the currency conversion charge associatedacquisition-related expenses and Restructuring and related charges, are not included in segment operating earnings. Other items not specifically identified with the Company’s Venezuelan affiliate recorded in equityreportable segments include interest expense, net, and other income noted above.

Reportable Operating Segment Review – Comparison of 2017 with 2016

The Company sells its industrial process fluids, chemical specialties and technical expertise to a wide range of industries in a global product portfolio throughout its four segments: (i) North America, (ii) EMEA, (iii) Asia/Pacific and (iv) South America.

North America

North America(expense), net.

Americas
Americas represented approximately 43%50% of the Company’s consolidated net sales in 2017.2023. The segment’s net sales were $356.6$977.1 million, an increase of $20.4$30.6 million or 6%3% compared to 2016.  2022. The increase in net sales was primarily due to increasedhigher selling price and product mix of 8% and favorable foreign currency impacts of 1%, partially offset by a decrease in sales volumes of 3%, including acquisitions,approximately 6%. The decline in sales volumes was primarily driven by softer market conditions, customer order patterns, the direct and anindirect impacts of the UAW strike, and the Company’s value-based pricing initiatives, partially offset by new business wins. The increase in selling price and product mix of 3%.  The negative impact of foreign currency translation on net sales year-over-year was less than 1%,primarily driven primarily by a slight weakening ofvalue-based price increases implemented to offset the Mexican peso against the U.S. dollar year-over-year.  This reportable segment’s operating earnings, excluding indirect expenses, were $77.7 million, a decrease of $0.1 million compared to 2016.  North America’s relatively consistent operating earnings were the net result of a decline in gross margin and higher levels of SG&A, which offset higher gross profit on the increase in net sales, noted above.  The decline in gross margin was due tosignificant increases in certain raw material, costsmanufacturing and changes in product mix.other input costs. The higher SG&A was primarily due to increases in labor costs primarily associated with annual merit increases and additional SG&A associated with the Lubricor acquisition.

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EMEA

EMEA represented approximately 28% of the Company’s consolidated net sales in 2017.  The segment’s net sales were $226.2 million, an increase of $25.3 million or 13% compared to 2016.  The increase in net sales was primarily due to higher volumes of 7%, an increase in selling price and product mix of 4% and the positive impact of foreign currency translation of 2%.  The foreign exchange impact was primarily due to a strengthening of the euro against the U.S. dollar, as this exchange rate averaged approximately 1.13 in 2017 compared to approximately 1.10 in 2016.  This reportable segment’s operating earnings, excluding indirect expenses, were $35.4 million, an increase of $1.5 million or 5% compared to 2016.  The increase in EMEA’s operating earnings was driven by higher gross profit on the increase in net sales, partially offset by a lower gross margin due to increases in certain raw material costs and product mix and slightly higher SG&A year-over-year due to increases in labor costs primarily associated with annual merit increases and improved segment performance. 

Asia/Pacific

Asia/Pacific represented approximately 25% of the Company’s consolidated net sales in 2017.  The segment’s net sales were $201.0 million, an increase of $21.9 million or 12% compared to 2016.  The increase in net sales was primarily due to higher volumes of 16% partially offset by a decrease in selling price and product mix of 4% and the negative impact of foreign currency translation of less than 1%.  The foreign exchange impact was primarily due to a weakening of the Chinese renminbi against the U.S. dollar, which offset a strengthening of the Indian rupee against the U.S. dollar, year-over-year.  These exchange rate averaged 6.75 and 65.1 in 2017 compared to 6.64 and 67.18 in 2016, respectively.  This reportable segment’s operating earnings, excluding indirect expenses, were $48.3 million, an increase of $2.5 million or 5% compared to 2016.  The increase in Asia/Pacific’s operating earnings was driven by higher gross profit on the increase in net sales, noted above, partially offset by a lower gross margin due to increases in certain raw material costs and product mix and slightly higher SG&A year-over-year due to increases in labor costs primarily associated with annual merit increases and improved segment performance. 

South America

South America represented approximately 4% of the Company’s consolidated net sales in 2017.  The segment’s net sales were $36.2 million, an increase of $5.8 million or 19% compared to 2016.  The increase in net sales was primarily due to higher volumes of 6%, an increase in selling price and product mix of 7% and the positive impact of foreign currency translation of 6%.  The foreign exchange impact was primarily due to a strengthening of the Brazilian real against the U.S. dollar, which offset a weakening of the Argentinian peso against the U.S. dollar, year-over-year.  These exchange rates averaged 3.19 and 16.50 in 2017 compared 3.47 and 14.73 in 2016, respectively.  This reportable segment’s operating earnings, excluding indirect expenses, were $3.9 million, an increase of $2.5 million or 183% compared to 2016.  The increase in South America’s operating earnings was driven by higher gross profit on the increase in net sales, as well as a higher gross margin primarily due to lower raw material costs.  These increases to operating earnings year-over-year were partially offset by slightly higher SG&A due to increases in labor costs primarily associated with annual merit increases and improved segment performance.

Reportable Operating Segment Review – Comparison of 2016 with 2015

North America

North America represented approximately 45% of the Company’s consolidated net sales in 2016.  The segment’s net sales were $336.2 million, a decrease of $8.1 million or 2% compared to 2015.  The decrease in net sales was primarily due to the negative impact of foreign currency translation of 2% and a decrease in selling price and product mix of approximately 1%, partially offset by higher volumes of 1%.  Thefavorable foreign exchange impact was primarily due to the weakening of the Mexican pesoU.S. dollar against the U.S. dollar, as this exchange rate averaged 18.64 in 2016 compared to 15.83 in 2015.Mexican peso. This reportable segment’s operating earnings excluding indirect expenses, were $77.8$266.0 million, a decreasean increase of $2.4$42.4 million or 3%19% compared to 2015.  The decrease was mainly due to lower2022 primarily driven by an increase in net sales noted above, partially offsetand an improvement in segment operating margins driven by increased gross margin on lower raw material costs and product mix.  This segment had relatively consistent levels of SG&A year-over-year as normal annual compensation increases were offset by lower segment performance and the Company’s cost savings efforts.

ongoing margin improvement initiatives.

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EMEA

EMEA represented approximately 27%29% of the Company’s consolidated net sales in 2016.2023. The segment’s net sales were $200.9$571.3 million, an increase of $21.2$8.8 million or 12%2% compared to 2015.  2022. The increase in net sales was a result of a 9% increase in selling price and a favorable impact from foreign currency translation of 2%, which was partially offset by a decrease in sales volumes of approximately 9%. The increase in selling price and product mix was primarily driven by value-based price increases implemented to offset the significant increases in raw material, manufacturing and other input costs. The favorable foreign currency translation impact was primarily due to higherthe weakening of the U.S. dollar against the Euro. The decrease in sales volumes including acquisitions,was primarily driven by softer market conditions, the Company’s value-based pricing initiatives, customer order patterns and the impacts of 13%the wind-down of the tolling agreement for products previously divested related to the Combination as well as the ongoing war in Ukraine, partially offset by new business wins. This segment’s operating earnings were $104.8 million, an increase of $28.4 million or 37% compared to 2022. The increase in segment operating earnings was primarily driven by an increase in net sales and an improvement in segment operating margins driven by the Company’s ongoing margin improvement initiatives.
Asia/Pacific
Asia/Pacific represented approximately 21% of the Company’s consolidated net sales in 2023. The segment’s net sales were $404.9 million, a decrease of 7% or approximately $29.7 million compared to 2022. The decrease in net sales was a result of lower sales volumes of 7% and an unfavorable impact from foreign currency translation of 4%, partially offset by a 4% increase in selling price and product mix. The decrease in sales volumes was primarily driven by softer end market conditions and the negative impactimpacts of foreign currency translation of 1%.the Company’s value-based pricing initiatives, partially offset by new business wins. The increase in selling price and product mix was primarily driven by value-based price increases implemented to offset the significant increases in raw material, manufacturing and other input costs. The unfavorable foreign exchange impact was primarily due to a weakeningthe strengthening of the euro against the U.S. dollar as this exchange rate averaged approximately 1.10 in 2016 compared to 1.11 in 2015.against the Chinese renminbi. This reportable segment’s operating earnings excluding indirect expenses, were $33.8$118.5 million, an increase of $5.6$12.6 million or 20%12% compared to 2015.  The increase was mainly driven by2022 as a result of higher gross profit on the increased net sales, noted above, partially offset by a slightly lower gross margin due primarily to product mix.  In addition, the segment had relatively consistent levels of SG&A as incremental operating costs from the 2015 Verkol acquisition, increased labor-related costs on improved segment performance and normal annual compensation increases were offset bymargins reflecting the Company’s cost savings efforts. 

value-based pricing initiatives and the Company’s ongoing margin improvement initiatives.

28

Reportable Segments Review – Comparison of 2022 with 2021
Americas

Asia/Pacific

Asia/PacificAmericas represented approximately 24%49% of the Company’s consolidated net sales in 2016.2022. The segment’s net sales were $179.1$946.5 million, an increase of $184.3 million or 24% compared to 2021. The increase in net sales was due to higher selling price and product mix of 28% and additional net sales from acquisition of 1%, partially offset by a decrease in organic sales volumes of approximately 5%. The increase in selling price and product mix is primarily driven by price increases implemented to offset the significant increases in raw material, manufacturing and other input costs that began during 2021 and continued through 2022. The current year decline in organic sales volumes was primarily driven by softer end market conditions, primarily in the automotive industry, due to the semiconductor supply constraints and to a lesser extent the primary metals markets, the wind-down of the tolling agreement for products previously divested related to the Combination, the Company’s ongoing value-based pricing initiatives, partially offset by net new business wins. This segment’s operating earnings were $223.6 million, an increase of $47.4 million or 27% compared to 2021 primarily driven by higher margins as the Company’s ongoing value-based pricing initiatives offset the ongoing inflationary pressures on the business.

EMEA
EMEA represented approximately 29% of the Company’s consolidated net sales in 2022. The segment’s net sales were $562.5 million, a decrease of approximately $1.9$1.6 million or less than 1% compared to 2015.  2021. The decrease in net sales was primarily due to the negativea result of a 20% increase in selling price and product mix and additional net sales from acquisition of 2% which was more than offset by an unfavorable impact of foreign currency translation of 5%15% and a decrease in sales volumes of 7%. The increase in selling price and product mix was primarily driven by price increases implemented to offset the significant increases in raw material, manufacturing and other input costs that began during 2021 and continued through 2022. The decrease in sales volumes was primarily driven by current geopolitical and macroeconomic pressures including the direct and indirect impacts of 3%,the ongoing war in Ukraine and the impact of the economic and other sanctions by other nations on Russia in response to the war, as well as the wind-down of the tolling agreement for products previously divested related to the Combination and softer economic conditions in the region. The significant and unfavorable foreign currency translation impact was primarily due to the strengthening of the U.S. dollar against the euro. This segment’s operating earnings were $76.4 million, a decrease of $34.6 million or 31% compared to 2021. The decrease in segment operating earnings was primarily a result of lower net sales, lower gross margins, and inflationary pressures on other costs, including SG&A.
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Asia/Pacific
Asia/Pacific represented approximately 22% of the Company’s consolidated net sales in 2022. The segment’s net sales were $434.6 million, a decrease of less than 1% or approximately $0.3 million compared to 2021. The decrease in net sales was a result of a 15% increase in selling price and product mix offset by lower sales volumes of 10% and an unfavorable impact from foreign currency translation of 5%. The increase in selling price and product mix was primarily driven by price increases implemented to offset the significant increases in raw material, manufacturing and other input costs that began during 2021 and continued through 2022. The decline in sales volumes was primarily driven by softer market conditions, primarily in China, in part as a result of the government imposed COVID-19 quarantine and related production disruptions implemented at the end of March 2022 and continued throughout 2022, partially offset by higher product volumes of 7%.net new business wins. The unfavorable foreign exchange impact was primarily due to a weakeningthe strengthening of the Chinese renminbi and Indian rupee against the U.S. dollar as these exchange rates averaged 6.64 and 67.18 in 2016 compared to 6.23 and 64.07 in 2015, respectively.against the Chinese renminbi. This reportable segment’s operating earnings excluding indirect expenses, were $45.9 million, an increase of $0.8 million or 2% compared to 2015.  The increase was mainly driven by gross margin expansion due to lower raw material costs and product mix, which was partially offset by the decrease in net sales, noted above.  SG&A was relatively consistent year-over-year as annual compensation increases were offset by the Company’s cost savings efforts. 

South America

South America represented approximately 4% of the Company’s consolidated net sales in 2016.  The segment’s net sales were $30.4$105.8 million, a decrease of $2.1$3.4 million or 6%3% compared to 2015.  The decrease in2021 as a result of lower net sales, was primarily due to the negative impact of foreign currency translation of 14% and lower product volumes of approximately 3%, partially offset by an increase in selling price and product mix of 11%.  The foreign exchange impact was primarily due to a weakening of the Brazilian real and Argentinian peso against the U.S. dollar, as these exchange rates averaged 3.47 and 14.73 in 2016 compared 3.28 and 9.19 in 2015, respectively.  This reportable segment’s operating earnings, excluding indirect expenses, were $1.4 million, a decrease of $0.4 million or 22% compared to 2015.  The decrease was mainly driven by the decrease in net sales, noted above, and lower gross margin due to higher raw materialmargins, and inflationary pressures on other costs, which were partially offset by lower overall labor-related costs due to the segment’s decreased performance and the positive effects of various cost savings efforts, including the Company’s prior years’ streamlining efforts in this segment.

SG&A.

Environmental Clean-up Activities

The Company is involved in environmental clean-up activities in connection with an existing plant location and former waste disposal sites. In 1992, the Company identifiedThis includes certain soil and groundwater contamination the Company identified in 1992 at AC Products, Inc. (“ACP”), a wholly owned subsidiary. In voluntary coordination with the Santa Ana California Regional Water Quality Board, (“SACRWQB”), ACP has been remediating the contamination. In 2007, ACP agreed to operate two groundwater treatment systems, so as to hydraulically contain groundwater contamination emanating from ACP’s site until such time as the concentrations of contaminants are below the current Federal maximum contaminant level for four consecutive quarterly sampling events. In 2014, ACP ceased operation at one of its two groundwater treatment systems, as it had met the above condition for closure. In 2020, the Santa Ana Regional Water Quality Control Board asked that ACP conduct some additional indoor and outdoor soil vapor testing on and near the ACP site to confirm that ACP continues to meet the applicable local standards and ACP has begun the testing program. Such testing began in 2020 and continued into 2021. As of December 31, 2017,2023, ACP believes it is close to meeting the conditions for closure of the remaining groundwater treatment system but continues to operate this system while in discussions with the relevant authorities andauthorities.
As of December 31, 2023, the Company believes that the range of potential-known liabilities associated with the balance of ACP’sthe ACP water remediation program is approximately $0.1 million to $1.0 million. The low and high ends of the range are based on the length of operation of the treatment system as required by the conditions noted above, as determined by groundwater modeling. Costs of operation include the operation and maintenance of the extraction well, groundwater monitoring, program management, and soil vapor testing.
The Company is also party to environmental matters related to certain domestic and foreign properties. These environmental matters primarily require the Company to perform long-term monitoring as well as operating and maintenance at each of the applicable sites. During the year ended December 31, 2023, there have been no significant changes to the facts or circumstances of these matters, aside from ongoing monitoring and maintenance activities and routine payments associated with each of these sites. The Company continually evaluates its obligations related to such matters, and based on historical costs incurred and projected costs to be incurred over the next 26 years, has estimated the present value range of costs for all of these environmental matters, on a discounted basis, to be between approximately $5.0 million and $6.0 million as of December 31, 2023, for which $5.1 million is accrued within other accrued liabilities and other non-current liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2023. Comparatively, as of December 31, 2022, the Company had $5.3 million accrued with respect to these matters. These accrued amounts are inclusive of the Brazilian environmental matter discussed below.
The Company’s Sao Paulo, Brazil site was required under Brazilian environmental, health and safety regulations to perform an environmental assessment as part of a permit renewal process. Initial investigations identified soil and ground water contamination in select areas of the site. The site has conducted a multi-year soil and groundwater investigation and corresponding risk assessments based on the result of the investigations. In 2017, the site had to submit a new 5-year permit renewal request and was asked to complete additional investigations to further delineate the site based on review of the technical data by the local regulatory agency, Companhia Ambiental do Estado de São Paulo (“CETESB”). Based on review of the updated investigation data, CETESB issued a Technical Opinion regarding the investigation and remedial actions taken to date. The site developed an action plan and submitted it to CETESB in 2018 based on CETESB requirements. The site intervention plan primarily requires the site, amongst other actions, to conduct periodic monitoring for methane in soil vapors, source zone delineation, groundwater plume delineation, bedrock aquifer assessment, update the human health risk assessment, develop a current site conceptual model and conduct a remedial feasibility study and provide a revised intervention plan. In 2020, the site submitted a report on the activities completed including the revised site conceptual model and results of the remedial feasibility study and recommended remedial strategy for the site.
The Company believes that it has made adequate accruals for costs associated with other environmental matters of which it is aware. Approximately $0.2 million and $0.3 million were accrued as of December 31, 2023 and 2022, respectively, to provide for such anticipated future environmental assessments and remediation costs.
Notwithstanding the foregoing, the Company cannot be certain that future liabilities in the form of remediation expenses and damages will not be in excess of the high end of the range.exceed amounts reserved. See Note 2325 of Notes to Consolidated Financial Statements which appears in Item 8 of this Report.

38
General

See Item 7A of this Report, below, for further discussion of certain quantitative and qualitative disclosures about market risk.

29

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Quaker Houghton is exposed to the impact of interest rates, foreign currency fluctuations, changes in commodity prices, and credit risk.

Except as otherwise disclosed below, the market risks discussed below did not change materially from December 31, 2022.

Interest Rate Risk. Quaker’s exposure to changes in interest rates relates primarilyDuring June 2022, the Company entered into an amendment to its primary credit facilitiesfacility (the “Credit Facility”). Interest rates for Quaker’s credit facilities are generally based on a base rate or LIBOR plus a spread.  Accordingly, if interest rates rise significantly, the cost of debt to Quaker will increase.  This can have an adverse effect on Quaker, depending on the extent of Quaker’s borrowings throughout a given year.  As of December 31, 2017, Quaker had $48.5 million outstanding under its credit facilities at a weighted average borrowing rate of approximately 1.88%.  If interest rates had changed by 10%, the Company’s interest expense on its credit facilities for the year ended December 31, 2017 would have correspondingly increased or decreased by approximately $0.1 million.Quaker’s other long-term and short-term debt consists primarily of fixed rate bonds and loans which are not exposed to interest rate fluctuations.  The Company previously used derivative financial instruments primarily for the purposes of hedging exposures to fluctuations in interest rates.  The Company did not use any similar instruments in 2017 or 2016, and has not entered into derivative contracts for trading or speculative purposes.  See the information included under the caption “Derivatives” in Note 119 of Notes to Consolidated Financial Statements, which appears in Item 8 of this ReportReport. As of December 31, 2023, borrowings under the Credit Facility bear interest at either term SOFR or a base rate, in each case, plus an applicable margin based upon the Company’s consolidated net leverage ratio, and, is incorporated herein by reference.

in the case of term SOFR, a spread adjustment equal to 0.10% per annum. As a result of the variable interest rates applicable under the Credit Facility, if interest rates rise significantly, the cost of debt to the Company will increase. This may have an adverse effect on the Company, depending on the extent of the Company’s borrowings outstanding throughout a given year. As of December 31, 2023, the Company had outstanding borrowings under the Credit Facility of approximately $744.5 million. The weighted average interest rate applicable on outstanding borrowings under the Credit Facility was approximately 6.3% as of December 31, 2023. An interest rate change of 100 basis points would result in an approximate $7.4 million increase or decrease to interest expense for the year ended December 31, 2023.

In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, such as SOFR, in the first quarter of 2023, the Company entered into $300.0 million notional amounts of three year interest rate swaps to convert a portion of the Company’s variable rate borrowings into an average fixed rate obligation of 3.64% plus an applicable margin as provided in the Credit Facility based on the Company’s consolidated net leverage ratio. As of December 31, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.3%. These interest rate swaps are designated and qualify as cash flow hedges. The Company has previously used derivative financial instruments primarily for the purpose of hedging exposures to fluctuations in interest rates.
Foreign Exchange Risk. A significant portion of Quaker’sthe Company’s revenues and earnings are generated by its foreign operations.These foreign operations also represent a significant portion of Quaker’sQuaker Houghton’s assets and liabilities. Generally, all of these foreign operations use the local currency as their functional currency. Accordingly, Quaker’sQuaker Houghton’s financial results are affected by foreign currency fluctuations, particularly between the U.S. dollar and the euro, the British pound sterling, the Brazilian real, the Mexican peso, the Chinese renminbi and the Indian rupee. Quaker’sQuaker Houghton’s results can be materially affected depending on the volatility and magnitude of foreign exchange rate changes. If the euro, the British pound sterling, the Brazilian real, the Mexican peso, the Chinese renminbi and the Indian rupee had all strengthenedweakened or weakenedstrengthened by 10% against the U.S. dollar, the Company’s 20172023 revenues andwould have correspondingly decreased or increased by approximately $100.7 million. Similarly, pre-tax earnings would have correspondingly increasedincrease or decreaseddecrease by approximately $42.6 million and $5.8 million, respectively. 

$12.8 million.

The Company generally does not use financial instruments that expose it to significant risk involving foreign currency transactions. However, the size of its non-U.S. activities has a significant impact on reported operating results and the attendant net assets. During the past three years, sales by its non-U.S. subsidiaries accounted for approximately 60% to 70% of ourits consolidated net sales.

In addition, the Company occasionally sources inventory among its worldwide operations. This practice can give rise to foreign exchange risk resulting from the varying cost of inventory to the receiving location, as well as from the revaluation of intercompany balances. The Company primarily mitigates this risk through local sourcing efforts.

Commodity Price Risk. Many of the raw materials used by Quaker Houghton are derivatives of commodity chemicals, and derivatives of such, which canexperience significant price volatility, and therefore Quaker’sQuaker Houghton’s earnings can be materially affected by market changes in raw material prices. At times, Quakerthe Company has entered into fixed-price purchase contracts to manage this risk. These contracts provide protection to Quaker Houghton if the prices for the contracted raw materials rise; however, in certain limited circumstances, Quaker willthe Company may not realize the benefit if such prices decline. A gross margin change of one percentage point would correspondingly have increased or decreased the Company’s pre-tax earnings by approximately $8.2$19.5 million.

Credit Risk. Quaker Houghton establishes allowances for doubtful accountscredit losses for estimated losses resulting from the inability of itscustomers to make required payments. If the financial condition of Quaker’sQuaker Houghton’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required. Downturns in the overall economic climate may also exacerbate specific customer financial issues. A significant portion of Quaker’sthe Company’s revenues isare derived from sales to customers in the steel and automotive industries, including some of our larger customers, where a number of bankruptcies have occurred in the past years and where companies have experienced past financial difficulty.  Whendifficulties. Though infrequent, when a bankruptcy occurs, Quaker Houghton must judge the amount of proceeds, if any, that may ultimately be received through the bankruptcy or liquidation process.
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Table of Contents
In addition, as part of its terms of trade, Quaker Houghton may custom manufacture products for certain large customers and/or may ship product on a consignment basis. These practices may increase the Company’s exposure should a bankruptcy occur and may require a write-down or disposal of certain inventory due to its estimated obsolescence or limited marketability.marketability as well as of accounts receivable. Customer returns of products or disputes may also result in similar issues related to the realizability of recorded accounts receivable or returned inventory. The Company recorded expense to increase its provision for doubtful accountscredit losses by $0.1$1.3 million, $1.4$4.3 million and $1.5$0.7 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. A change of 10% to the expense recorded to the Company’s provision would have increased or decreased the Company’s pre-tax earnings by less than $0.1 million, $0.1$0.4 million and $0.1 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.

30

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Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Quaker Chemical Corporation
Index to Consolidated Financial Statements

Page

Financial Statements:

Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID

238)

32

42

Consolidated Statements of IncomeOperations

33

44

Consolidated Statements of ComprehensiveIncome

(Loss)

34

45

Consolidated Balance Sheets

35

46

Consolidated Statements of Cash Flows

36

47

Consolidated Statements of Changes in Equity

37

48

Notes to Consolidated Financial Statements

38

49

31

41

Table of Contents
Report of Independent Registered Public Accounting Firm

Tothe Shareholders and Board of Directors and Shareholders of Quaker Chemical Corporation:

Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Quaker Chemical Corporation and its subsidiaries (the “Company”) as of December 31, 2017 2023 and 20162022, and the related consolidated statements of income,operations, of comprehensive income (loss), of changes in equity and of cash flowsfor each of the three years in the period ended December 31, 2017,2023, including the related notes (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016, 2022, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 2017 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,, included in the accompanying Management's Report on Internal Control over Financial Reporting. appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits inin accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Annual Goodwill Impairment Assessments for the EMEA and Asia/Pacific Reporting Units
As described in Notes 1, 15, and 23 to the consolidated financial statements, the Company’s consolidated goodwill balance was $513 million as of December 31, 2023, of which $66 million relates to the EMEA reporting unit and $163 million relates to the Asia/Pacific reporting unit. Management completes its annual goodwill impairment test during the fourth quarter of each year, or more frequently if triggering events indicate a possible impairment in one or more of its reporting units. In completing a quantitative goodwill impairment test, management compares the reporting unit’s fair value, primarily based on future discounted cash flows, to its carrying value in order to determine if an impairment charge is warranted. The determination of the estimated fair value requires management’s judgment and involves the use of significant estimates and assumptions, including revenue growth rates, gross margin levels, operating expenses, and weighted average cost of capital, among other items. Management completed its annual impairment assessment as of October 1, 2023 and concluded no impairment existed.
The principal considerations for our determination that performing procedures relating to the annual goodwill impairment assessments for the EMEA and Asia/Pacific reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the EMEA and Asia/Pacific reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, gross margin levels, and operating expenses used in the valuation of the EMEA reporting unit and revenue growth rates used in the valuation of the Asia/Pacific reporting unit; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the EMEA and Asia/Pacific reporting units. These procedures also included, among others, (i) testing management’s process for developing the fair value estimates of the EMEA and Asia/Pacific reporting units; (ii) evaluating the appropriateness of the discounted cash flow model used by management; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model; and (iv) evaluating the reasonableness of significant assumptions used by management related to the revenue growth rates, gross margin levels, and operating expenses used in the valuation of the EMEA reporting unit and the revenue growth rates used in the valuation of the Asia/Pacific reporting unit. Evaluating management’s assumptions related to the revenue growth rates, gross margin levels, and operating expenses involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the EMEA and Asia/Pacific reporting units; (ii) whether the assumptions were consistent with evidence obtained in other areas of the audit; and (iii) for revenue growth rates, whether the assumptions were consistent with external market and industry data. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the Company’s discounted cash flow model.
/s/PricewaterhouseCoopers, LLP

Philadelphia, Pennsylvania

February 28, 2018

29, 2024

We have served as the Company’s auditor since at least 1972.

We have not been able to determine the specific year we began serving as auditor of the Company.

32

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QUAKER CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

OPERATIONS

(Dollars in thousands, except per share data)

data)

 

 

 

Year Ended December 31,

 

 

 

2017

 

2016

 

2015

 

 

 

 

 

 

 

 

Net sales

$

820,082

 

$

746,665

 

$

737,555

Costs and expenses

  

 

 

 

 

 

 

 

 

 

Cost of goods sold

  

528,587

 

 

466,555

 

 

459,810

 

 

Selling, general and administrative expenses

  

198,813

 

 

193,665

 

 

196,387

 

 

Restructuring and related activities

  

—

 

 

(439)

 

 

6,790

 

 

Combination-related expenses

  

29,938

 

 

1,531

 

 

—

 

  

757,338

 

 

661,312

 

 

662,987

Operating income

  

62,744

 

 

85,353

 

 

74,568

Other expense, net

  

(718)

 

 

(492)

 

 

(3,377)

Interest expense

  

(3,892)

 

 

(2,889)

 

 

(2,585)

Interest income

  

2,534

 

 

2,037

 

 

1,624

Income before taxes and equity in net income of associated companies

  

60,668

 

 

84,009

 

 

70,230

Taxes on income before equity in net income of associated companies

 

41,653

 

 

23,226

 

 

17,785

Income before equity in net income of associated companies

 

19,015

 

 

60,783

 

 

52,445

Equity in net income of associated companies

 

3,285

 

 

2,256

 

 

261

Net income

 

22,300

 

 

63,039

 

 

52,706

Less: Net income attributable to noncontrolling interest

 

2,022

 

 

1,636

 

 

1,526

Net income attributable to Quaker Chemical Corporation

$

20,278

 

$

61,403

 

$

51,180

Earnings per common share data:

  

 

 

  

 

 

  

 

 

Net income attributable to Quaker Chemical Corporation Common

 

 

 

 

 

 

 

 

 

 

Shareholders – basic

$

1.53

 

$

4.64

 

$

3.84

 

Net income attributable to Quaker Chemical Corporation Common

 

 

 

 

 

 

 

 

 

 

Shareholders – diluted

$

1.52

 

$

4.63

 

$

3.84

Year Ended December 31,
202320222021
Net sales$1,953,313 $1,943,585 $1,761,158 
Cost of goods sold (excluding amortization expense - See Note 15)1,247,669 1,330,931 1,166,518 
Gross profit705,644 612,654 594,640 
Selling, general and administrative expenses483,561 455,408 418,856 
Impairment charges— 93,000 — 
Restructuring and related charges, net7,588 3,163 1,433 
Combination, integration and other acquisition-related expenses— 8,779 23,885 
Operating income214,495 52,304 150,466 
Other (expense) income, net(10,672)(12,607)18,851 
Interest expense, net(50,699)(32,579)(22,326)
Income before taxes and equity in net income of associated companies153,124 7,118 146,991 
Taxes on income before equity in net income of associated companies55,585 24,925 34,939 
Income (loss) before equity in net income of associated companies97,539 (17,807)112,052 
Equity in net income of associated companies15,333 1,965 9,379 
Net income (loss)112,872 (15,842)121,431 
Less: Net income attributable to noncontrolling interest124 89 62 
Net income (loss) attributable to Quaker Chemical Corporation$112,748 $(15,931)$121,369 
Per share data:
Net income (loss) attributable to Quaker Chemical Corporation common shareholders – basic$6.27 $(0.89)$6.79 
Net income (loss) attributable to Quaker Chemical Corporation common shareholders – diluted$6.26 $(0.89)$6.77 



The accompanying notes are an integral part of these consolidated financial statements.

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QUAKER CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(LOSS)

(Dollars in thousands)

thousands)

 

 

 

Year Ended December 31,

 

 

 

2017

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Net income

$

22,300

 

$

63,039

 

$

52,706

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss), net of tax

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

21,076

 

 

(13,772)

 

 

(24,869)

 

Defined benefit retirement plans

 

 

 

 

 

 

 

 

 

 

Net (loss) gain arising during the period, other

 

(96)

 

 

(2,990)

 

 

3,821

 

 

Amortization of actuarial loss

 

2,255

 

 

2,155

 

 

2,561

 

 

Amortization of prior service gain

 

(84)

 

 

(82)

 

 

(82)

 

Unrealized (loss) gain on available-for-sale securities

 

(130)

 

 

537

 

 

(978)

 

 

Other comprehensive gain (loss)

 

23,021

 

 

(14,152)

 

 

(19,547)

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

45,321

 

 

48,887

 

 

33,159

Less: Comprehensive income attributable to noncontrolling interest

 

(2,736)

 

 

(1,575)

 

 

(889)

Comprehensive income attributable to Quaker Chemical Corporation

$

42,585

 

$

47,312

 

$

32,270

Year Ended December 31,
202320222021
Net income (loss)$112,872 $(15,842)$121,431 
Other comprehensive income (loss), net of tax
Currency translation adjustments16,725 (82,368)(46,952)
Defined benefit retirement plans
Net (loss) gain arising during the period, other(5,792)8,177 9,210 
Amortization of actuarial loss(385)628 1,078 
Amortization of prior service cost (gain)34 (228)7 
Current period change in fair value of derivatives1,407 1,372 2,226 
Unrealized gain (loss) on available-for-sale securities1,817 (1,881)(2,945)
Other comprehensive income (loss)13,806 (74,300)(37,376)
Comprehensive income (loss)126,678 (90,142)84,055 
Less: Comprehensive income attributable to noncontrolling interest(106)(39)(78)
Comprehensive income (loss) attributable to Quaker Chemical Corporation$126,572 $(90,181)$83,977 



The accompanying notes are an integral part of these consolidated financial statements.

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QUAKER CHEMICAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value and share amounts)

)

 

 

 

December 31,

 

 

 

 

2017

 

 

2016

December 31,December 31,
202320232022

ASSETS

ASSETS

 

 

 

 

 

 

Current assets

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

89,879

 

$

88,818

Accounts receivable, net

 

  

208,358

 

195,225

Inventories, net

 

  

87,221

 

77,082

Prepaid expenses and other current assets

 

  

21,128

 

 

15,343

 

Total current assets

 

  

406,586

 

  

376,468

Current assets
Current assets
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Total current assets

Property, plant and equipment, net

Property, plant and equipment, net

 

  

86,704

 

 

85,734

Right of use lease assets

Goodwill

Goodwill

 

  

86,034

 

80,804

Other intangible assets, net

Other intangible assets, net

 

  

71,603

 

73,071

Investments in associated companies

Investments in associated companies

 

  

25,690

 

22,817

Non-current deferred tax assets

 

  

15,460

 

24,382

Other assets

 

  

30,049

 

 

28,752

 

Total assets

 

$

722,126

 

$

692,028

Deferred tax assets
Other non-current assets
Total assets

 

  

 

  

 

 

  

 

LIABILITIES AND EQUITY

LIABILITIES AND EQUITY

 

  

 

 

  

 

LIABILITIES AND EQUITY
LIABILITIES AND EQUITY

Current liabilities

Current liabilities

 

  

 

 

  

 

Short-term borrowings and current portion of long-term debt

 

$

5,736

 

$

707

Accounts payable

 

  

93,008

 

  

77,583

Dividends payable

 

 

4,724

 

4,581

Accrued compensation

 

  

22,846

 

  

19,356

Accrued restructuring

 

 

—

 

670

Accrued pension and postretirement benefits

 

 

1,108

 

1,086

Other current liabilities

 

  

27,321

 

  

23,428

 

Total current liabilities

 

  

154,743

 

  

127,411

Current liabilities
Current liabilities
Short-term borrowings and current portion of long-term debt
Short-term borrowings and current portion of long-term debt
Short-term borrowings and current portion of long-term debt
Accounts payable
Dividends payable
Accrued compensation
Accrued restructuring
Accrued pension and postretirement benefits
Other accrued liabilities
Total current liabilities

Long-term debt

Long-term debt

 

  

61,068

 

  

65,769

Non-current deferred tax liabilities

 

 

9,653

 

12,008

Long-term lease liabilities
Deferred tax liabilities

Non-current accrued pension and postretirement benefits

Non-current accrued pension and postretirement benefits

 

  

35,548

 

  

38,348

Other non-current liabilities

Other non-current liabilities

 

  

51,496

 

  

35,886

 

Total liabilities

 

  

312,508

 

  

279,422

Commitments and contingencies (Note 23)

 

 

 

 

 

 

Total liabilities
Commitments and contingencies (Note 25)Commitments and contingencies (Note 25)

Equity

Equity

 

  

 

 

  

 

Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding

 

  

 

 

  

 

 

2017 – 13,307,976 shares; 2016 – 13,277,832 shares

 

 

13,308

 

13,278

Capital in excess of par value

 

  

93,528

 

  

112,475

Retained earnings

 

  

365,936

 

  

364,414

Accumulated other comprehensive loss

 

  

(65,100)

 

  

(87,407)

 

Total Quaker shareholders’ equity

 

  

407,672

 

  

402,760

Noncontrolling interest

 

 

1,946

 

 

9,846

 

Total equity

 

 

409,618

 

 

412,606

 

Total liabilities and equity

 

$

722,126

 

$

692,028

Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2023 – 17,991,988 shares; 2022 – 17,950,264 shares
Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2023 – 17,991,988 shares; 2022 – 17,950,264 shares
Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2023 – 17,991,988 shares; 2022 – 17,950,264 shares
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total Quaker shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity



The accompanying notes are an integral part of these consolidated financial statements.

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QUAKER CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Year Ended December 31,Year Ended December 31,
2023202320222021
Cash flows from operating activities
Net income (loss)
Net income (loss)
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of debt issuance costs
Amortization of debt issuance costs
Amortization of debt issuance costs
Depreciation and amortization
Equity in undistributed earnings of associated companies, net of dividends
Acquisition-related fair value adjustments related to inventory
Deferred income taxes
Uncertain tax positions (non-deferred portion)
Deferred compensation and other, net
Deferred compensation and other, net
Deferred compensation and other, net
Share-based compensation
Loss on extinguishment of debt
Gain on disposal of property, plant, equipment and other assets
Impairment charges
Impairment charges
Impairment charges
Combination and other acquisition-related expenses, net of payments
Combination and other acquisition-related expenses, net of payments
Combination and other acquisition-related expenses, net of payments
Restructuring and related charges
Pension and other postretirement benefits
Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions:
Accounts receivable
Accounts receivable
Accounts receivable
Inventories
Prepaid expenses and other current assets
Change in restructuring liabilities
Accounts payable and accrued liabilities
Estimated taxes on income (loss)
Net cash provided by operating activities
Cash flows from investing activities
Investments in property, plant and equipment
Investments in property, plant and equipment
Investments in property, plant and equipment
Payments related to acquisitions, net of cash acquired
Proceeds from disposition of assets
Net cash used in investing activities
Net cash used in investing activities
Net cash used in investing activities
Cash flows from financing activities
Payments of long-term debt
Payments of long-term debt
Payments of long-term debt
Proceeds from long-term debt
Proceeds from long-term debt
Proceeds from long-term debt
(Repayments) borrowings on revolving credit facilities, net
Repayments on other debt, net
Financing-related debt issuance costs
Financing-related debt issuance costs
Financing-related debt issuance costs
Dividends paid
Stock options exercised, other

 

 

Year Ended December 31,

 

 

2017

 

2016

 

2015

Cash flows from operating activities

  

  

  

  

  

 

 

  

Net cash (used in) provided by financing activities

Net income

$

22,300

 

$

63,039

 

$

52,706

Net cash (used in) provided by financing activities

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

 

 

 

 

 

 

 

Depreciation

  

12,598

 

12,557

 

12,395

 

Amortization

  

7,368

 

7,009

 

6,811

 

Equity in undistributed (earnings) losses of associated companies, net of dividends

  

(2,895)

 

(1,969)

 

578

 

Deferred income taxes

 

3,754

 

5,488

 

(2,401)

 

Uncertain tax positions (non-deferred portion)

 

(817)

 

(3,206)

 

(1,122)

 

Non-current income taxes payable

 

15,825

 

—

 

—

 

Deferred compensation and other, net

  

1,074

 

(424)

 

14

 

Share-based compensation

  

4,190

 

6,349

 

5,919

 

Restructuring and related activities

 

—

 

(439)

 

6,790

 

Loss (gain) on disposal of property, plant and equipment and other assets

  

79

 

(18)

 

(12)

 

Insurance settlement realized

  

(762)

 

(1,023)

 

(760)

 

Combination-related expenses, net of payments

 

4,952

 

503

 

—

 

Pension and other postretirement benefits

  

(123)

 

(3,420)

 

2,591

(Decrease) increase in cash from changes in current assets and current

  

 

 

 

 

 

 

liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

  

(1,941)

 

(11,705)

 

(188)

 

Inventories

  

(6,135)

 

(1,870)

 

1,292

 

Prepaid expenses and other current assets

  

(2,932)

 

(703)

 

(721)

 

Accounts payable and accrued liabilities

  

12,381

 

14,063

 

(9,040)

 

Restructuring liabilities

 

(675)

 

(5,252)

 

(490)

 

Estimated taxes on income

 

(3,479)

 

 

(5,226)

 

 

(930)

 

   

Net cash provided by operating activities

  

64,762

 

  

73,753

 

  

73,432

Cash flows from investing activities

  

 

 

  

 

 

  

 

 

Investments in property, plant and equipment

  

(10,872)

 

(9,954)

 

(11,033)

 

Payments related to acquisitions, net of cash acquired

  

(5,363)

 

(15,024)

 

(24,058)

 

Proceeds from disposition of assets

 

1,577

 

186

 

135

 

Insurance settlement interest earned

  

50

 

32

 

35

 

Change in restricted cash, net

  

712

 

 

991

 

 

725

 

   

Net cash used in investing activities

  

(13,896)

 

  

(23,769)

 

  

(34,196)

Cash flows from financing activities

  

 

 

  

 

 

  

 

 

Proceeds from long-term debt

  

—

 

—

 

6,163

 

Repayment of long-term debt

  

(2,853)

 

(14,513)

 

(477)

 

Dividends paid

  

(18,613)

 

(17,625)

 

(16,513)

 

Stock options exercised, other

  

(1,956)

 

(811)

 

1,048

 

Payments for repurchase of common stock

 

—

 

(5,859)

 

(7,276)

 

Excess tax benefit related to stock option exercises

 

—

 

678

 

384

 

Purchase of noncontrolling interest in affiliates, net

 

(31,787)

 

—

 

—

 

Payment of acquisition-related liabilities

 

—

 

—

 

(226)

 

   

Net cash used in financing activities

  

(55,209)

 

  

(38,130)

 

  

(16,897)

 

Effect of exchange rate changes on cash

  

5,404

 

 

(4,089)

 

 

(6,017)

 

 

Net increase in cash and cash equivalents

  

1,061

 

7,765

 

16,322

 

 

Cash and cash equivalents at beginning of period

  

88,818

 

 

81,053

 

 

64,731

 

 

Cash and cash equivalents at end of period

$

89,879

 

$

88,818

 

$

81,053

Net cash (used in) provided by financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

Supplemental cash flow disclosures:

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Income taxes

$

21,544

 

$

25,043

 

$

20,996

 

Interest

 

2,767

 

2,481

 

2,223

Non-cash activities:

 

 

 

 

 

 

 

Change in accrued purchases of property, plant and equipment, net

$

(240)

 

$

363

 

$

209

Cash paid during the year for:
Cash paid during the year for:
Cash paid during the year for:
Income taxes, net of refunds
Income taxes, net of refunds
Income taxes, net of refunds
Interest
Non-cash activities:
Change in accrued purchases of property, plant and equipment, net
Change in accrued purchases of property, plant and equipment, net
Change in accrued purchases of property, plant and equipment, net



The accompanying notes are an integral part of these consolidated financial statements.

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QUAKER CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

other

 

 

 

 

 

 

 

 

 

Common

 

excess of

 

Retained

 

comprehensive

 

Noncontrolling

 

 

 

 

 

 

stock

 

par value

 

earnings

 

loss

 

interest

 

Total

Balance as of December 31, 2014

$

13,301

 

$

99,056

 

$

299,524

 

$

(54,406)

 

$

7,660

 

$

365,135

 

Net income

 

—

 

 

—

 

 

51,180

 

 

—

 

 

1,526

 

 

52,706

 

Amounts reported in other comprehensive loss

 

—

 

 

—

 

 

—

 

 

(18,910)

 

 

(637)

 

 

(19,547)

 

Repurchases of common stock

 

(87)

 

 

—

 

 

(7,189)

 

 

—

 

 

—

 

 

(7,276)

 

Dividends ($1.26 per share)

 

—

 

 

—

 

 

(16,775)

 

 

—

 

 

—

 

 

(16,775)

 

Disposition of noncontrolling interest

 

—

 

 

—

 

 

—

 

 

—

 

 

(351)

 

 

(351)

 

Shares issued upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and other

 

17

 

 

602

 

 

—

 

 

—

 

 

—

 

 

619

 

Shares issued for employee stock purchase plan

 

6

 

 

423

 

 

—

 

 

—

 

 

—

 

 

429

 

Equity based compensation plans

 

51

 

 

5,868

 

 

—

 

 

—

 

 

—

 

 

5,919

 

Excess tax benefit from stock option exercises

 

—

 

 

384

 

 

—

 

 

—

 

 

—

 

 

384

Balance as of December 31, 2015

 

13,288

 

 

106,333

 

 

326,740

 

 

(73,316)

 

 

8,198

 

 

381,243

 

Net income

 

—

 

 

—

 

 

61,403

 

 

—

 

 

1,636

 

 

63,039

 

Amounts reported in other comprehensive loss

 

—

 

 

—

 

 

—

 

 

(14,091)

 

 

(61)

 

 

(14,152)

 

Repurchases of common stock

 

(84)

 

 

—

 

 

(5,775)

 

 

—

 

 

—

 

 

(5,859)

 

Dividends ($1.355 per share)

 

—

 

 

—

 

 

(17,954)

 

 

—

 

 

—

 

 

(17,954)

 

Acquisition of noncontrolling interest

 

—

 

 

—

 

 

—

 

 

—

 

 

73

 

 

73

 

Shares issued upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and other

 

11

 

 

(1,313)

 

 

—

 

 

—

 

 

—

 

 

(1,302)

 

Shares issued for employee stock purchase plan

 

6

 

 

485

 

 

—

 

 

—

 

 

—

 

 

491

 

Equity based compensation plans

 

57

 

 

6,292

 

 

—

 

 

—

 

 

—

 

 

6,349

 

Excess tax benefit from stock option exercises

 

—

 

 

678

 

 

—

 

 

—

 

 

—

 

 

678

Balance as of December 31, 2016

 

13,278

 

 

112,475

 

 

364,414

 

 

(87,407)

 

 

9,846

 

 

412,606

 

Net income

 

—

 

 

—

 

 

20,278

 

 

—

 

 

2,022

 

 

22,300

 

Amounts reported in other comprehensive loss

 

—

 

 

—

 

 

—

 

 

22,307

 

 

714

 

 

23,021

 

Dividends ($1.41 per share)

 

—

 

 

—

 

 

(18,756)

 

 

—

 

 

—

 

 

(18,756)

 

Acquisition of noncontrolling interest

 

—

 

 

(21,151)

 

 

—

 

 

—

 

 

(10,636)

 

 

(31,787)

 

Shares issued upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and other

 

5

 

 

(2,456)

 

 

—

 

 

—

 

 

—

 

 

(2,451)

 

Shares issued for employee stock purchase plan

 

4

 

 

491

 

 

—

 

 

—

 

 

—

 

 

495

 

Equity based compensation plans

 

21

 

 

4,169

 

 

—

 

 

—

 

 

—

 

 

4,190

Balance as of December 31, 2017

$

13,308

 

$

93,528

 

$

365,936

 

$

(65,100)

 

$

1,946

 

$

409,618

Common
stock		Capital in
excess of
par value		Retained
earnings		Accumulated
other
comprehensive
loss		Noncontrolling
interest		Total
Balance as of December 31, 2020$17,851 $905,171 $423,940 $(26,598)$550 $1,320,914 
Net income— — 121,369 — 62 121,431 
Amounts reported in other comprehensive (loss) income— — — (37,392)16 (37,376)
Dividends declared ($1.62 per share)— — (28,975)— — (28,975)
Shares issued upon exercise of stock options and other17 1,677 — — — 1,694 
Share-based compensation plans29 10,205 — — — 10,234 
Balance as of December 31, 202117,897 917,053 516,334 (63,990)628 1,387,922 
Net (loss) income— — (15,931)— 89 (15,842)
Amounts reported in other comprehensive (loss) income— — — (74,250)(50)(74,300)
Dividends declared ($1.70 per share)— — (30,483)— — (30,483)
Shares issued upon exercise of stock options and other1 (355)— — — (354)
Share-based compensation plans52 11,590 — — — 11,642 
Balance as of December 31, 202217,950 928,288 469,920 (138,240)667 1,278,585 
Net income— — 112,748 — 124 112,872 
Amounts reported in other comprehensive income (loss)— — — 13,825 (19)13,806 
Dividends declared ($1.78 per share)— — (32,027)— — (32,027)
Distributions to noncontrolling interest affiliate shareholders— — — — (169)(169)
Shares issued upon exercise of stock options and other3 (2,836)— — — (2,833)
Share-based compensation plans39 14,649 — — — 14,688 
Balance as of December 31, 2023$17,992 $940,101 $550,641 $(124,415)$603 $1,384,922 



The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Note 1 – Basis of Presentation and Significant Accounting Policies

As used in these Notes to Consolidated Financial Statements, the terms “Quaker,” “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. The “Combination” refers to the Quaker combination with Houghton International, Inc. (“Houghton”).
Basis of presentation: The accompanying consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include the accounts of Quaker Houghton and its controlled subsidiaries.
Principles of consolidation: All majority-owned subsidiaries are included in the Company’s consolidated financial statements,with appropriate elimination of intercompany balances and transactions. InvestmentsFor consolidated subsidiaries in associated companies (lesswhich the Company’s ownership is less than majority-owned and100%, the outside shareholders’ interests are reflected as non-controlling interests within the consolidated financial statements. The Company applies the equity method of accounting to investments in which the Company has significant influence)influence but does not control the operating and financial decisions of the investee. This generally applies when the Company’s ownership interest in common stock of the investee is between 20% and 50%. Such investments are accounted for underpresented on the equity method.Consolidated Balance Sheet at “Investments in associated companies.” We initially record our investment at cost and subsequently adjust the investment to recognize our share of net earnings and losses and distributions received. The Company’s share of net income or losses in these investments in associated companies is included in the Consolidated Statements of Income.Operations. The Company periodically reviews these investments for impairments and, if necessary, would adjust these investments to their fair value when a declineevents of changes in market value or other impairment indicators are deemed tocircumstances indicate that the carrying amount of the investment may be other than temporary.other-than-temporarily impaired. See Note 14 of Notes to Consolidated Financial Statements.16 for additional information. The Company is not the primary beneficiary of any variable interest entities (“VIEs”) and therefore the Company’s consolidated financial statements do not include the accounts of any VIEs.

Accounting estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and the accompanying notes. Actual results could differ from such estimates.
Translation of foreign currency: Assets and liabilities of non-U.S. subsidiaries and associated companies are translated intoU.S. dollars at the respective rates of exchange prevailing at the end of the year. Income and expense accounts are translated at average exchange rates prevailing during the year. Translation adjustments resulting from this process are recorded directly in equity as accumulated other comprehensive (loss) income (“AOCI”) and will be included as income or expense only upon sale or substantial liquidation of the underlying investment.entity or asset. Generally, all of the Company’s non-U.S. subsidiaries use their local currency as their functional currency.

Segments: The Company’s operating segments, which are consistent with its reportable segments, reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the chief operating decision maker assesses the Company’s performance.
During the first quarter of 2023, the Company reorganized its executive management team to align with its new business structure. The Company’s new structure includes three reportable segments: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia/Pacific. Prior to the Company’s reorganization, the Company’s historical reportable segments were: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. Prior period segment financial information has been recast to align with segment change, including reportable segments and customer industry disaggregation. See Notes 4, 5, and 15 for additional information.
Reclassifications: Certain information has been reclassified to conform to the current year presentation.
Business combinations: The Company accounts for business combinations under the acquisition method of accounting. Thismethod requires the recording of acquired assets, including separately identifiable intangible assets, and assumed liabilities at their respective acquisition date estimated fair values. Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. The determination of the estimated fair value of assets acquired and liabilities assumed requires significant estimates and assumptions. Based on the assessment of additional information during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the estimated fair value of assets acquired and liabilities assumed. See Note 2 for additional information.
Revenue recognition: The Company recognizes revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services transferred to its customers. To do this, the Company applies a five-step model, which requires the Company to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation.
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QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The Company identifies a contract with a customer when a sales agreement indicates approval and commitment of the parties; identifies the rights of the parties; identifies the payment terms; has commercial substance; and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
The Company identifies a performance obligation in a contract for each promised good or service that is separately identifiable from other obligations in the contract and for which the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer. The Company determines the transaction price as the amount of consideration it expects to be entitled to in exchange for fulfilling the performance obligations, including the effects of any variable consideration, significant financing elements, amounts payable to the customer or noncash consideration. For any contracts that have more than one performance obligation, the Company allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for satisfying each performance obligation.
In accordance with the last step of the five-step model, the Company recognizes revenue when, or as, it satisfies the performance obligation in a contract by transferring control of a promised good or providing the service to the customer. The Company typically satisfies its performance obligations and recognizes revenue at a point in time for product sales, generally when products are shipped or delivered to the customer, depending on the terms underlying each arrangement. In circumstances where the Company’s products are on consignment, revenue is generally recognized upon usage or consumption by the customer. For any FluidcareTM or other services provided by the Company to the customer, the Company typically satisfies its performance obligations and recognizes revenue over time, as the promised services are performed. The Company uses input methods to recognize revenue over time related to these services, including labor costs and time incurred. The Company believes that these input methods represent the most indicative measure of the FluidcareTM or other service work performed by the Company.
The Company does not have standard payment terms for all customers; however, the Company’s general payment terms require customers to pay for products or services provided after the performance obligation is satisfied. The Company does not have significant financing arrangements with its customers. Therefore, the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.
In addition, the Company expenses costs to obtain a contract as incurred when the expected period of benefit, and therefore the amortization period, is one year or less. In addition, the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, value added, excise and various other taxes. Lastly, the Company has elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, rather than an additional promised service. The Company does not have significant amounts of variable consideration in its contracts with customers and where applicable, the Company’s estimates of variable consideration are not constrained.
The Company records certain third-party license fees in Other (expense) income, net, in its Consolidated Statement of Operations, which generally include sales-based royalties in exchange for the license of intellectual property. These license fees are recognized in accordance with their agreed-upon terms and when performance obligations are satisfied, which is generally when the third party has a subsequent sale.
The Company recognizes a contract asset or receivable on its Consolidated Balance Sheet when the Company performs a service or transfers a good in advance of receiving consideration. A receivable is the Company’s right to consideration that is unconditional and only the passage of time is required before payment of that consideration is due. A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer.
A contract liability is recognized when the Company receives consideration, or if it has the unconditional right to receive consideration, in advance of performance. A contract liability is the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration, or a specified amount of consideration is due, from the customer.
See Note 5 for additional information.
Right of use lease assets and lease liabilities: The Company determines if an arrangement is a lease at its inception. Thisdetermination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if the Company obtains the rights to direct the use of, and obtains substantially all of the economic benefits from the use of, the underlying asset. Lease expense for variable leases and short-term leases is recognized when the obligation is incurred.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by an option to extend the lease that the Company is reasonably certain it will exercise. Operating leases are included in right of use lease assets, other accrued liabilities and long-term lease liabilities on the Consolidated Balance Sheet. Right of use lease assets and liabilities are recognized at each lease’s commencement date based on the present value of its lease payments over its respective lease term. Operating lease expense is recognized on a straight-line basis over the lease term.
The Company uses the stated borrowing rate for a lease when readily determinable. When a stated borrowing rate is not available in a lease agreement, the Company uses its incremental borrowing rate based on information available at the lease’s commencement date to determine the present value of its lease payments. In determining the incremental borrowing rate used to present value each of its leases, the Company considers certain information including fully secured borrowing rates readily available to the Company and its subsidiaries. The Company includes finance leases in PP&E, current portion of long-term debt and long-term debt on the Consolidated Balance Sheet. See Note 6 for additional information.
Restructuring activities: Restructuring programs consist of employee severance, rationalization of manufacturing or otherfacilities and other related items. To account for such programs, the Company recognizes a liability for a cost associated with an exit or disposal activity, when the liability is incurred, is estimable, and payment is probable. See Note 7 for additional information.
Share-based compensation: The Company recognizes the fair value of share-based compensation as a component of expense. The Company has a long-term incentive program (“LTIP”) for key employees which provides for the granting of options to purchase stock at prices not less than its market value on the date of the grant. Most options become exercisable within three years after the date of the grant for a period of time determined by the Company, but not to exceed seven years from the date of grant. The Company did not grant any stock options during 2023.
Restricted stock awards and restricted stock units issued under the LTIP program are subject to time vesting generally over a one to three year period. In addition, as part of the Company’s Annual Incentive Plan, non-vested shares may be issued to key employees, which generally would vest over a two to five year period.
Prior to 2023, the Company generally has assumed a forfeiture rate of 13% based on historical experience. Beginning in 2023, the Company elected to account for forfeitures on new awards as they occur for service condition aspects of certain share-based awards.
The Company also issues various performance-dependent stock awards as a component of its LTIP. For performance-dependent stock units for which the performance target is market-based and tied to Total Shareholder Return, the grant date fair value is based on grant-date stock price adjusted for the likelihood of attaining certain predetermined performance goals and is calculated by utilizing a Monte Carlo simulation model. For performance-dependent stock units for which payout is linked to the achievement of a performance-based return on invested capital, the grant date fair value is based on the trading price of the Company’s stock on the grant date. Compensation expense for the performance-dependent is recognized on a straight-line basis over the vesting period, generally three years.
See Note 8 for additional information.
Research and development costs: Research and development costs are expensed as incurred and are included in selling, generaland administrative expenses (“SG&A”). Research and development expenses were $50.3 million, $46.0 million and $44.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Hyper-inflationary accounting: Economies that have a cumulative three year rate of inflation exceeding 100% are consideredhyper-inflationary. A legal entity that operates within an economy deemed to be hyper-inflationary is required to remeasure its monetary assets and liabilities to the applicable published exchange rates and record the associated gains or losses resulting from the remeasurement directly to the Consolidated Statements of Operations.
Argentina’s and Türkiye’s economies were considered hyper-inflationary effective July 1, 2018 and April 1, 2022, respectively. As of, and for the year ended December 31, 2023, the Company's Argentine and Turkish subsidiaries represented a combined 1% and 2% of the Company’s consolidated total assets and net sales, respectively. For the years ended December 31, 2023, 2022 and 2021, the Company recorded $7.8 million, $1.6 million, and $0.6 million, respectively, of remeasurement losses associated with the applicable currency conversions related to Argentina and Türkiye. These losses were recorded within foreign exchange losses, net, which is a component of Other (expense) income, net, in the Company’s Consolidated Statements of Operations.
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QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Income taxes and uncertain tax positions: The provision for income taxes is determined using the asset and liability approachof accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year and the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company accounts for uncertainty in income taxes by applying the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. The Company determines whether the benefits of tax positions are probable or more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, the Company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, the Company does not recognize any portion of the benefit in the financial statements. Additionally, the Company monitors and adjusts for derecognition, classification, and penalties and interest in interim periods, with appropriate disclosure and transition thereto. Also, the amount of interest expense and income related to uncertain tax positions is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized, including timing differences, and the amount previously taken or expected to be taken in a tax return. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. Finally, when applicable, the Company nets its liability for unrecognized tax benefits against deferred tax assets related to net operating losses or other tax credit carryforwards that would apply if the uncertain tax position were settled for the presumed amount at the balance sheet date.
Pursuant to the Tax Cuts and Jobs Act (“U.S. Tax Reform”), specifically the one-time tax on deemed repatriation (the “Transition Tax”), the Company has provided for U.S. income tax on its undistributed earnings of non-U.S. subsidiaries, however, the Company is subject to and will incur other taxes, such as withholding taxes and dividend distribution taxes, if these undistributed earnings were ultimately remitted to the U.S. The Company currently intends to reinvest its future undistributed earnings of non-U.S. subsidiaries to support working capital needs and certain other growth initiatives of those subsidiaries. However, in certain cases the Company has and may in the future change its indefinite reinvestment assertion for any or all of these undistributed earnings. In this case, the Company would estimate and record a tax liability and corresponding tax expense for the amount of non-U.S. income taxes it would incur to ultimately remit these earnings to the U.S. See Note 10 for additional information.
Earnings per share: The Company calculates earnings per share for non-vestedstock awards with rights to non-forfeitable dividends, which requires non-vested stock awards with rights to non-forfeitable dividends to be included as part of the basic weighted average share calculation under the two-class method. See Note 11 for additional information.
Comprehensive income (loss): The Company presents Other comprehensive income (loss) in its Statements of Comprehensive Income (Loss). The Company discloses significant amounts reclassified from each component of AOCI, the related tax amounts and the income statement line items affected by such reclassifications. See Note 22 for additional information.
Cash and cash equivalents: The Company invests temporary and excess funds in money market securities and financial instruments having maturities typically within 90 days. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has not experienced losses from the aforementioned investments.

Accounts receivable and allowance for credit losses: Trade accounts receivable subject the Company to credit risk.Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The Company recognizes an allowance for credit losses, which represents the portion of the receivable that the Company does not expect to collect over its contractual life, considering past events and reasonable and supportable forecasts of future economic conditions. The Company’s allowance for credit losses on its trade accounts receivable is based on specific collectability facts and circumstances for each outstanding receivable and customer, the aging of outstanding receivables, and the associated collection risk the Company estimates for certain past due aging categories, and also, the general risk to all outstanding accounts receivable based on historical amounts determined to be uncollectible. The Company does not have any off-balance-sheet credit exposure related to its customers. See Note 12 for additional information.
Inventories: Inventories are valued at the lower of cost or net realizable value, and are valued using the first-in, first-out method. See Note 1113 for additional information.
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Contents

QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Long-lived assets: Property, plant and equipment arePP&E is stated at cost.gross cost, less accumulated depreciation. Depreciation is computed using the straight-line method on an individual asset basis over the following estimated useful lives: buildings and improvements, 10 to 45 years;33 years, or the remaining term of the lease; and machinery and equipment, 14 to 15 years.10 years, or the remaining term of the lease. The carrying values of long-lived assets are evaluated whenever changes in circumstances or current events indicate the carrying amount of such assets may not be recoverable. An estimate of undiscounted cash flows produced by the asset, or the appropriate group of assets, is compared with the carrying value to determine whether an impairment exists. If necessary, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and their estimated fair value. Fair value is based on current and anticipated future cash flows. Upon sale or other dispositions of long-lived assets, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposals, is recorded in the Consolidated Statements of Income.Operations. Expenditures for renewals or improvements that increase the estimated useful life or capacity of the assets are capitalized, whereas expenditures for repairs and maintenance are expensed when incurred. See Note 12 of Notes to Consolidated Financial Statements.

9 and 14 for additional information.

Capitalized software: The Company capitalizes certain costs in connection with developing or obtaining software for internaluse, depending on the associated project. These costs are amortized over a period of 3 to 5 years once the assets are ready for their intended use. In connection with the implementations and upgrades to the Company’s global transaction, consolidation and other related systems, approximately $1.3$4.5 million and $1.4$3.5 million of net costs were capitalized in property, plant and equipmentPP&E on the Company’s December 31, 2017 and 2016 Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively.

Goodwill and other intangible assets: The Company records goodwill, definite-lived intangible assets and indefinite-livedintangible assets at fair value at the date of acquisition. Goodwill and indefinite-lived intangible assets are not amortized but tested for impairment at least annually. These tests will be performed more frequently if triggering events indicate potential impairment. In completing a quantitative goodwill impairment test, the Company compares a reporting unit’s fair value, primarily based on future discounted cash flows, to its carrying value in order to determine if an impairment charge is warranted.
Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, generally for periods ranging from 43 to 2024 years. The Company continually evaluates the reasonableness of the useful lives of these assets, consistent with the discussion of long-lived assets, above.
See Note 13 of Notes 15 and 23 for additional information.
Fair value measurements: Fair value is defined as an exit price, or the price that would be received to Consolidated Financial Statements.

Revenue recognition: sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company currently recognizes revenueutilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. See Notes 20, 23 and 24 for additional information. The following briefly describes those three levels:

•Level 1: Observable inputs such as quoted prices (unadjusted) in accordance withactive markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the termsasset or liability, either directly or indirectly, for sustainability the full term of the underlying agreements, when titleasset or liability. These include quoted prices for similar assets or liabilities in active markets and risk of loss have been transferred, when collectability is reasonably assured, and when pricing is fixedquoted prices for identical or determinable.  For the Company, this generally occurs when productssimilar assets or liabilities in markets that are shipped or delivered to customers or, for consignment-type arrangements, upon usage by the customer and when services are performed.  License fees and royalties are included in other income when recognized in accordance with their agreed-upon terms, when performance obligations are satisfied, when the amount is fixed or determinable, and when collectability is reasonably assured.

During the first quarter of 2018, the Company will adopt the provisions of the Financial Accounting Standards Board’s (“FASB’s”) new revenue recognition guidance, which will require the Company to recognize revenue to depict the transfer of

not active.

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QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.  To do this, the Company will apply the five-step model in the FASB’s guidance, which requires the Company to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation.  See Note 3 of Notes to Consolidated Financial Statements. 

As part of the Company’s chemical management services, certain third-party product sales to customers are managed by the Company.  Where the Company acts as a principal, revenues are recognized on a gross reporting basis at the selling price negotiated with its customers.  Where the Company acts as an agent, such revenue is recorded using net reporting as service revenue at the amount of the administrative fee earned by the Company for ordering the goods.  Third-party products transferred under arrangements resulting in net reporting totaled $44.5 million, $43.5 million and $48.6 million•Level 3: Unobservable inputs for the years ended December 31, 2017, 2016 and 2015, respectively.

Accounts receivable and allowance for doubtful accounts: Trade accounts receivable subjectasset or liability that reflect the Company to credit risk.  Trade accounts receivable are recorded atreporting entity's own assumptions about the invoiced amount and generally do not bear interest.  The allowance for doubtful accounts isassumptions that market participants would use in pricing the Company’s best estimate of the amount of probable credit losses with its existing accounts receivable.  Reserves for customers filing for bankruptcy protection are generally established at 75-100% of the amount outstanding at the bankruptcy filing date.  However, initially establishing a reserve and the amount thereto is dependent on the Company’s evaluation of likely proceeds to be received from the bankruptcy process, which could result in the Company recognizing minimalasset or no reserve at the date of bankruptcy.  Large and/or financially distressed customers are generally reserved for on a specific review basis while a general reserve is established for other customers based on historical experience.  The Company performs a formal review of its allowance for doubtful accounts quarterly.  Account balances are charged off against the allowance when the Company deems it is probable the receivable will not be recovered.  The Company does not have any off-balance-sheet credit exposure related to its customers.  During the year ended December 31, 2017, the Company’s five largest customers accounted for approximately 18% of its consolidated net sales with the largest customer accounting for approximately 8% of the Company’s consolidated net sales.  See Note 10 of Notes to Consolidated Financial Statements.

Research and development costs: Research and development costs are expensed as incurred and are included in selling, general and administrative expenses (“SG&A”).Research and development expenses were $23.9 million, $22.5 million and $22.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Environmental liabilities and expenditures: Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.  If there is a range of estimated liability and no amount in that range is considered more probable than another, then the Company records the lowest amount in the range in accordance with generally accepted accounting principles.  Accrued liabilities are exclusive of claims against third parties and are not discounted. Environmental costs and remediation costs are capitalized if the costs extend the life, increase the capacity or improve safety or efficiency of the property from the date acquired or constructed, and/or mitigate or prevent contamination in the future.  See Note 23 of Notes to Consolidated Financial Statements.

Asset retirement obligations: The Company follows the FASB’s guidance regarding asset retirement obligations, which addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs.  Also, the Company follows the FASB’s guidance for conditional asset retirement obligations (“CARO”), which relates to legal obligations to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity.  In accordance with this guidance, the Company records a liability when there is enough information regarding the timing of the CARO to perform a probability-weighted discounted cash flow analysis.As of December 31, 2017 and 2016, the Company had limited exposure to such obligations and had immaterial liabilities recorded for such on its Consolidated Balance Sheets.

liability.

Pension and other postretirement benefits: The Company maintains various noncontributory retirement plans, the largest of which is in the U.S., covering aportion of its employees in the U.S. and certain other countries.  The plans of the Company’s subsidiaries incountries, including the Netherlands, the United Kingdom (“U.K.”), Mexico, Sweden, Germany and Sweden are subject to the provisions of FASB’s guidance regarding employers’ accounting for defined benefit pension plans.France. The plans of the remaining non-U.S. subsidiaries are, for the most part, either fully insured or integrated with the local governments’ plans and are not subject to the provisions of the guidance.plans. The guidance requires that employers recognizeCompany recognizes on a prospective basis the funded status of theirthe defined benefit pension and other postretirement plans on their consolidated balance sheetits Consolidated Balance Sheets and, also, recognizerecognizes as a component of other comprehensive income,AOCI, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost.  The Company’s U.S. pensionIn addition, the Company recognizes a settlement charge in its Consolidated Statements of Operations when certain events occur, including plan year endstermination or the settlement of certain plan liabilities. A settlement charge represents the immediate recognition into expense of a portion of the unrecognized loss within AOCI on November 30 and the measurement date is December 31.balance sheet in proportion to the share of the projected benefit obligation that was settled. The measurement date for the Company’s other postretirement benefits plan is December 31.

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QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

The Company’s global pension investment policies are designed to ensure that pension assets are invested in a manner consistent with meeting the future benefit obligations of the pension plans and maintaining compliance with various laws and regulations including the Employee Retirement Income Security Act of 1974. The Company establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. The Company’s investment horizon is generally long term, and, accordingly, the target asset allocations encompass a long-term perspective of capital markets, expected risk and return and perceived future economic conditions while also considering the profile of plan liabilities. To the extent feasible, the short-term investment portfolio is managed to immunizematch the short-term obligations, the intermediate portfolio duration is immunizedmatched to reduce the risk of volatility in intermediate plan distributions, and the total return portfolio is expectedmanaged to maximize the long-term real growth of plan assets. The critical investment principles of diversification, assessment of risk and targeting the optimal expected returns for given levels of risk are applied. The Company’s investment guidelines prohibit the use of securities such as letter stock and other unregistered securities, commodities or commodity contracts, short sales, margin transactions, private placements (unless specifically addressed by addendum), or any derivatives, options or futures for the purpose of portfolio leveraging.

The target asset allocation is reviewed periodically and is determined based on a long-term projection of capital market outcomes, inflation rates, fixed income yields, returns, volatilities and correlation relationships. The interaction between plan assets and benefit obligations is periodically studied to assist in establishing such strategic asset allocation targets. Asset performance is monitored with an overall expectation that plan assets will meet or exceed benchmark performance over rolling five-yearfive year periods. The Company’s pension committee, as authorized by the Company’s Board, of Directors, has discretion to manage the assets within established asset allocation ranges approved by senior management of the Company.As of December 31, 2017, the plan’s investments were in compliance with all approved ranges of asset allocations.  See Note 18 of Notes to Consolidated Financial Statements.

Comprehensive income (loss): The Company presents other comprehensive income (loss) in its Statements of Comprehensive Income.  The Company follows the FASB’s guidance regarding the disclosure of reclassifications from AOCI which requires the disclosure of significant amounts reclassified from each component of AOCI, the related tax amounts and the income statement line items affected by such reclassifications.  See Note 20 of Notes to Consolidated Financial Statements.

Income taxes and uncertain tax positions: The provision for income taxes is determined using the asset and liability approach of accounting for income taxes.  Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid.  The provision for income taxes represents income taxes paid or payable for the current year and the change in deferred taxes during the year.  Deferred taxes result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted.  Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.  The FASB’s guidance regarding accounting for uncertainty in income taxes prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return.  The guidance further requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position.  For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements.  For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements.  Additionally, the Company monitors and adjusts for derecognition, classification, and penalties and interest in interim periods, with appropriate disclosure and transition thereto.  Also, the amount of interest expense and income related to uncertain tax positions is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized, including timing differences, and the amount previously taken or expected to be taken in a tax return.  The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.  Finally, when applicable, the Company nets its liability for unrecognized tax benefits against deferred tax assets related to net operating losses or other tax credit carryforwards that would apply if the uncertain tax position were settled for the presumed amount at the balance sheet date.See Note 8 of Notes to Consolidated Financial Statements.

additional information.

Derivatives:The Company is exposed to the impact of changes in interest rates, foreign currency fluctuations, changes in commodity prices and credit risk. Historically, the Company has utilized interest rate swap agreements to enhance its ability to manage risk, including exposure to variability in interest payments associated with its variable rate debt. Derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures.
In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, such as the Secured Overnight Financing Rate (“SOFR”), in the first quarter of 2023, the Company entered into $300.0 million notional amounts of three year interest rate swaps to convert a portion of the Company’s variable rate borrowings into a fixed rate obligation. The Company is currentlyrecords these instruments on a net basis within the Consolidated Balance Sheets. These interest rate swaps are designated as cash flow hedges and, as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective and reclassified to interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not using derivative instruments to mitigateoccur. See Note 24 for additional information.
A significant portion of the risks associated withCompany’s revenues and earnings are generated by its foreign operations. These foreign operations also represent a significant portion of the Company’s assets and liabilities. Generally, all of these foreign operations use the local currency fluctuations, changes in commodity prices or credit risk, but has used derivative financial instruments primarily for purposes of hedging exposures to fluctuations in interestas their functional currency and translate their assets and liabilities into U.S. dollars at current exchange rates in effect on the past.  If usedbalance sheet date. The gains and losses that result from this process are shown as translation adjustments in Accumulated Other Comprehensive Income in the future,equity section of the balance sheet. Many of these operations have transactions in currencies other than their functional currency, which creates foreign exchange remeasurement risk. The Company will recognizeuses foreign exchange forward contracts to economically hedge the entire changeimpact of the variability in exchange rates on certain assets and/or liabilities denominated in certain foreign currencies. These forward contracts are marked-to-market at each reporting date, with changes in the fair value of the hedging instrumentunderlying instruments, as well as gains and losses on the hedged foreign currency transactions recognized in earnings in Other (expense) income, net. The fair value of the forward contract is determined from sources independent of the Company, including the financial institutions which are party to the derivative instruments. See Note 24 for additional information.
Environmental liabilities and expenditures: Accruals for environmental matters are recorded when it is probable that a liabilityhas been incurred and the amount of the liability can be reasonably estimated. If there is a range of estimated liability and no amount in that range is considered more probable than another, then the Company records the lowest amount in the same income statement line asrange. Environmental costs and remediation costs are capitalized if the hedged item.  costs extend the life, increase the capacity or improve safety or efficiency of the property from the date acquired or constructed, and/or mitigate or prevent contamination in the future. See Note 25 for additional information.
Asset retirement obligations: The Company currently usesassesses whether it has legal or conditional obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, or development and/or the normal operation of a long-lived asset, including any legal obligations that require disposal of a replaced part that is a component of a tangible long-lived asset. As of December 31, 2023 and 2022, the Company had no derivative instruments designated as hedges and, also, has not entered into derivative contracts for tradingsignificant exposure or speculative purposes.

liabilities recorded on its Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Fair value measurements: The
Note 2 – Business Combinations
Recent Acquisitions
During February 2024, the Company utilizes the FASB’s guidance regarding fair value measurements, which establishes a common definition for fair value to be applied to guidance requiring use of fair value, establishes a framework for measuring fair valueacquired I.K.V. Tribologie IKVT and expands disclosure about such fair value measurements.  Specifically, the guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  See Notes 18 and 22 of Notes to Consolidated Financial Statements.  The following is a brief description of those three levels:

•

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•

Level 3: Unobservable inputs that reflect the reporting entity's own assumptions.

Share-based compensation: The Company applies the FASB’s guidance regarding share-based payments, which requires the recognition of the fair value of share-based compensation as a component of expense.  The Company has a long-term incentive programits subsidiaries (“LTIP”IKVT”) for key employees which provides for the granting of options to purchase stock at prices not less than its market value on the date of the grant.  Most options become exercisable between one and three years after the date of the grant for a period of time determined by the Company, but not to exceed seven years from the date of grant.  Restricted stock awards and restricted stock units (“RSU”) issued under the LTIP program are generallyapproximately 27.0 million EUR, or $29.1 million, subject to time vesting over a oneroutine and customary post-closing adjustments related to five-year period.  In addition, asworking capital and net indebtedness levels. IKVT will be part of the Company’s Global Annual Incentive Plan (“GAIP”), nonvested shares may be issued to key employees, which generally vest over a two to five-year period.  In addition, whileEMEA segment and specializes in high-performance lubricants and greases, including original equipment manufacturer first-fill greases that are primarily used in the FASB’s guidance permits the Company to make an accounting policy election to account for forfeitures as they occur for service condition aspectsautomotive, aerospace, electronics, and other industrial markets. The acquisition of certain share-based awards, the Company has decided not to elect this accounting policy and instead has elected to continue utilizing a forfeiture rate assumption.  Based on historical experience, the Company has assumed a forfeiture rate of 13% on certain of its nonvested stock awards.  The Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture is higher than estimated.  See Note 6 of Notes to Consolidated Financial Statements.

Earnings per share: The Company follows the FASB’s guidance regarding the calculation of earnings per share for nonvested stock awards with rights to non-forfeitable dividends.  The guidance requires nonvested stock awards with rights to non-forfeitable dividends to be included as part of the basic weighted average share calculation under the two-class method.  See Note 9 of Notes to Consolidated Financial Statements.

Segments:The Company’s reporting segments are the same asIKVT strengthens the Company’s operating segments.position in first fill greases. The Company’s reportable operating segments reflectresults of operations of this acquisition are not included in the structureConsolidated Statements of Operations presented, because the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the Company assesses its performance.  The Company’s reportable operating segments are organized by geography as follows: (i) North America, (ii) Europe, Middle East and Africa (“EMEA”), (iii) Asia/Pacific and (iv) South America.  See Note 4date of Notesclosing was subsequent to Consolidated Financial Statements.

Business combinations: The Company accounts for business combinations under the acquisition method of accounting.  This method requires the recording of acquired assets, including separately identifiable intangible assets and assumed liabilities at their respective acquisition date estimated fair values.  Any excess of theDecember 31, 2023. Preliminary purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill.  The determination of the estimated fair valueallocation of assets acquired and liabilities assumed requires significant estimates and assumptions.  Based onhave not been presented as that information is not available as of the assessmentdate of additional information during the measurement period, which may be up to one year from the acquisition date,these Consolidated Financial Statements.

Previous Acquisitions
In October 2022, the Company may record adjustmentsacquired a business that provides pickling and rinsing products and services, which is part of the EMEA reportable segment, for approximately 3.5 million EUR or approximately $3.5 million. The Company allocated $2.8 million of the purchase price to the estimated fair valueintangible assets, comprised of assets acquired and liabilities assumed.  See Note 21$2.3 million of Notes to Consolidated Financial Statements.

Restructuring activities:Restructuring programs consist of employee severance, rationalization of manufacturing or other facilities and other related items.  To account for such programs, the Company applies FASB’s guidance regarding exit or disposal cost obligations.  This guidance requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, is estimable, and payment is probable.  See Note 5 of Notes to Consolidated Financial Statements.

Reclassifications: Certain information has been reclassified to conform to the current year presentation. During the first quarter of 2017, the Company early adopted an accounting standard update regarding the classification of pension costs.  The guidance in this accounting standard update was requiredcustomer relationships to be applied retrospectively, which resulted in a reclassificationamortized over 10 years; $0.2 million of existing product technologies to the Company’s Consolidated Statementsbe amortized over 10 years; and $0.3 million of Income for the years ended December 31, 2016 and 2015, respectively.  See Note 3 of Noteslicensed trademarks to Consolidated Financial Statements.  be amortized over 10 years. In addition, the Company recorded $0.8 million of goodwill related to expected value not allocated to other acquired assets.

In January 2022, the Company acquired a business that provides pickling inhibitor technologies, drawing lubricants and stamping oil, and various other lubrication, rust preventative, and cleaner applications, which is part of the Americas reportable segment for approximately $8.0 million. The Company allocated $5.6 million of the purchase price to intangible assets, comprised of $5.1 million of customer relationships to be amortized over 14 years; and $0.5 million of existing product technologies to be amortized over 14 years. In addition, the Company recorded $1.8 million of goodwill related to expected value not allocated to other acquired assets, all of which is expected to be tax deductible in various jurisdictions in which the Company operates. During the third quarter of 2023 the Company finalized post-closing adjustments that resulted in the Company paying less than $0.1 million of additional purchase consideration. Factors contributing to the purchase price that resulted in goodwill included the acquisition of business processes and personnel that will allow Quaker Houghton to better serve its customers.
In January 2022, the Company acquired a business related to the sealing and impregnation of metal castings for the automotive sector, as well as impregnation resin and impregnation systems for metal parts, which is part of the EMEA reportable segment for approximately 1.2 million EUR or approximately $1.4 million.
In November 2021, the Company acquired Baron Industries (“Baron”), a privately held company that provides vacuum impregnation services of castings, powder metals and electrical components for its Americas reportable segment for $11.0 million, including an initial cash payment of $7.1 million, subject to post-closing adjustments as well as certain earn-out provisions that are payable at various times from 2022 through 2025. The earn-out provisions could total a maximum of $4.5 million. In September 2022, the Company paid $2.5 million related to certain of these earnout provisions. As of December 31, 2023, the Company has made certain reclassificationsremaining earnout liabilities recorded on its Consolidated Balance Sheet of $1.0 million. The Company allocated $8.0 million of the purchase price to prior year disclosures regarding combination-related itemsintangible assets, $1.1 million of property, plant and equipment and $1.5 million of other assets acquired net of liabilities assumed, which includes $0.3 million of cash acquired. In addition, the Company recorded $0.4 million of goodwill, none of which is expected to conform withbe tax deductible. Intangible assets comprised $7.2 million of customer relationships to be amortized over 15 years; and $0.8 million of existing product technology to be amortized over 13 years. Factors contributing to the current period presentation.  See Note 2purchase price that resulted in goodwill included the acquisition of Notesbusiness processes and personnel that will allow Quaker Houghton to better serve its customers. During the third quarter of 2022, the Company finalized post-closing adjustments that resulted in the Company receiving less than $0.1 million.
In November 2021, the Company acquired a business that provides hydraulic fluids, coolants, cleaners, and rust preventative oils in Türkiye for its EMEA reportable segment for 3.2 million EUR or approximately $3.7 million.
In September 2021, the Company acquired the remaining interest in Grindaix-GmbH (“Grindaix”), a Germany-based, high-tech provider of coolant control and delivery systems for its EMEA reportable segment for 2.4 million EUR or approximately $2.9 million, which is gross of approximately $0.3 million of cash acquired. Previously, in February 2021, the Company acquired a 38% ownership interest in Grindaix for 1.4 million EUR or approximately $1.7 million. The Company recorded its initial investment as an equity method investment within the Consolidated Financial Statements.

Accounting estimates: The preparationStatements and accounted for the purchase of financial statementsthe remaining interest as a step acquisition whereby the Company remeasured the previously held equity method investment to its fair value.

In June 2021, the Company acquired certain assets for its chemical milling maskants product line in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of

EMEA reportable segment for 2.3 million EUR or approximately $2.8 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

contingencies at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period.  Actual results could differ from such estimates.

Note 2 – Houghton Combination

On April 4, 2017, Quaker entered into a share purchase agreement with Gulf Houghton Lubricants, Ltd. to purchase the entire issued and outstanding share capital of Houghton International, Inc. (“Houghton”) (herein referred to as “the Combination”).  The shares will be bought for aggregate purchase consideration consisting of: (i) $172.5 million in cash; (ii) a number of shares of common stock, $1.00 par value per share, of

In February 2021, the Company comprising 24.5%acquired a tin-plating solutions business for the steel end market for $25.0 million. This acquisition is part of the common stock outstanding upon the closing of the Combination; and (iii) the Company’s assumption of Houghton’s net indebtedness as of the closing of the Combination, which was approximately $690 million at signing.  At closing, the total aggregate purchase consideration is dependent on the Company’s stock price and the level of Houghton’s indebtedness. 

The Company secured $1.15 billion in commitments from Bank of America Merrill Lynch and Deutsche Bank to fund the Combination and to provide additional liquidity, and has since replaced these commitments with a syndicated bank agreement (“the New Credit Facility”) with a group of lenders for $1.15 billion.  The New Credit Facility is contingent upon and will not be effective until the closing of the Combination.  The New Credit Facility includes a $400.0 million multicurrency revolver, a $575.0 million USD term loan and a $175.0 million EUR equivalent term loan, each with a five-year term from the date the New Credit Facility becomes effective.  The maximum amount available under the New Credit Facility can be increased by $200.0 million at the Company’s option if the lenders agree and the Company satisfies certain conditions.  Borrowings under the New Credit Facility will bear interest at a base rate or LIBOR rate plus a margin.  The Company currently estimates the annual floating rate cost will be in the 3.50% to 3.75% range based on current market interest rates.  The New Credit Facility will be subject to certain financial and other covenants, including covenants that the Company’s consolidated net debt to adjusted EBITDA ratio cannot exceed 4.25 to 1 and the Company’s consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1.  Both the USD and EUR equivalent term loans will have quarterly principal amortization during their respective five-year terms, with 5% amortization of the principal balance due in years 1 and 2, 7.5% in year 3, and 10% in years 4 and 5, with the remaining principal amounts due at maturity.Until closing, the Company incurs certain interest costs paid to maintain the banks’ committed capital (“ticking fees”), which began to accrue on September 29, 2017 and bear an interest rate of 0.30% per annum.

In addition, the issuance of the Company’s shares at closinggeographic reportable segments. The Company allocated $19.6 million of the Combination was subjectpurchase price to approval by Quaker’s shareholders under the rulesintangible assets, comprised of the New York Stock Exchange.  This approval was received at$18.3 million of customer relationships, to be amortized over 19 years; $0.9 million of existing product technology to be amortized over 14 years; and $0.4 million of a meeting of the Company’s shareholders during the third quarter of 2017.  Also, the Combination is subjectlicensed trademark to regulatory approval in the United States, Europe, China and Australia.  The Company received regulatory approval from China in July 2017 and from Australia in October 2017.  Depending on the remaining regulatory approvals and other customary terms and conditions set forth in the share purchase agreement, the Company currently estimates closing of the Combination to occur during the first half of 2018.

The Company incurred costs of $30.8 million during the year ended December 31, 2017 for certain legal, environmental, financial, and other advisory and consultant costs related to due diligence, regulatory and shareholder approvals, integration planning associated with the Combination and ticking fees.  The Company incurred $1.5 million during the year ended December 31, 2016 for certain legal, environmental, financial, and other advisory and consultant costs related to due diligence.  There were no similar costs incurred during the year ended December 31, 2015.  As of December 31, 2017 and 2016, the Company had current liabilities related to the Combination of $5.5 million and $0.5 million, respectively, primarily recorded within other current liabilities on its Consolidated Balance Sheets.be amortized over 3 years. In addition, the Company has maderecorded $5.0 million of goodwill, all of which is expected to be tax deductible in various jurisdictions in which we operate.

In December 2021, the Company completed its acquisition of Coral Chemical Company (“Coral”), a privately held, U.S.-based provider of metal finishing fluid solutions. The acquired assets and liabilities were assigned to the Americas reportable segment. The original purchase price was approximately $54.1 million, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels.
Subsequent to the acquisition, the Company and the sellers of Coral (the “Sellers”) have worked to finalize certain reclassificationspost-closing adjustments. During the second quarter of 2022, after failing to reach resolution, the Sellers filed suit asserting certain amounts owed related to tax attributes of the acquisition. Since the second quarter of 2022, there have been no material changes to the facts and circumstances of the claim asserted by the Sellers, and the Company continues to believe the potential range of exposure for this claim is $0 to $1.5 million.
As of December 31, 2023, the allocations of the purchase prices for all acquisitions, except IKVT, were finalized and the one year measurement periods have all ended.
The results of operations of each acquisition completed prior year disclosures regarding combination-related items to conformDecember 31, 2023 and subsequent to the respective acquisition dates are included in the Consolidated Statements of Operations. Applicable transaction expenses associated with these acquisitions are included in Combination, integration and other acquisition-related expenses in the current period presentation.

Company’s Consolidated Statements of Operations. Certain pro forma and other information is not presented, as the operations of the acquired assets and businesses are not considered material to the overall operations of the Company for the periods presented.

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards Not Yet Adopted
The FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures in November 2023. This ASU expands on reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The required disclosure, which is on an accounting standard update in August 2017annual and interim basis, specifies that significant segment expenses are expenses that are regularly provided to increase transparency of the economics relatedchief operating decision maker and are used to risk management activities within the financial statements and enhance transparency and understandability of hedge results.  This accounting standard update eliminates the requirementevaluate performance by segment to separately measure and report hedge ineffectiveness and requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item.  The guidance within this accounting standard updatemake decisions about resource allocations. ASU 2023-07 is effective for annual and interim periods beginning after December 15, 2018.  All transition requirements and elections should be applied to hedging relationships existing on the date of adoption.  For cash flow and net investment hedges existing at the date of adoption, the Company should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to AOCI with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that the Company adopts.  The amended presentation and disclosure guidance is required only prospectively.  Early adoption is permitted including adoption in any interim period for which financial statements have not been issued or made available for issuance.  The Company has elected to early adopt the guidance in this accounting standard update during

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QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

the fourth quarter of 2017, with no impact to its financial statements.  The Company does not currently use any derivative instruments designated as hedges, but may choose to in the future.

The FASB issued an accounting standard update in May 2017 to clarify when changes to the terms or conditions of a share-based payment award must be accounted for as modifications.  This accounting standard update will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications.  This accounting standard update will allow companies to make certain changes to awards without accounting for them as modifications and an entity is not required to estimate the value of the award immediately before and after the change if the change doesn’t affect any of the inputs to the model used to value the award.  The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2017.  The guidance within this accounting standard update should be applied prospectively to awards modified on or after the adoption date.  Early adoption is permitted including adoption in any interim period for which financial statements have not been issued or made available for issuance.  During the second quarter of 2017, the Company elected to early adopt this guidance with no impact to its financial statements.

The FASB issued an accounting standard update in March 2017 to improve the presentation of net periodic pension and postretirement benefit cost.  Defined benefit pension and postretirement benefit costs (“net benefit cost”) comprise several components that reflect different aspects of an employer’s financial arrangements as well as the cost of benefits provided to employees.  This accounting standard update requires that an employer disaggregate the service cost component from the other components of net benefit cost, provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization.  The guidance within this accounting standard update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic benefit in assets.  This accounting standard update is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods.  Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance.  During the first quarter of 2017, the Company elected to early adopt the guidance within this accounting standard update, including the use of a practical expedient which allows the Company to use amounts previously disclosed in its pension and other postretirement benefits note for the prior period as the estimation basis for applying the required retrospective presentation.  Adoption of this guidance resulted in a reclassification to the Company’s Consolidated Statements of Income for the years ended December 31, 2016 and 2015, as previously reported cost of goods sold (“COGS”) were reduced by $0.5 and $0.7 million, respectively, and SG&A were reduced by $1.8 million and $2.6 million, respectively, with a corresponding increase to other expense, net, of $2.3 million and $3.3 million, respectively.  In addition, these required retrospective reclassifications resulted in an immaterial adjustment to previously reported direct operating earnings within the Company’s reportable operating segment disclosures for the years ended December 31, 2016 and 2015, respectively, as well as reclassifications to the Company’s quarterly results for the year ended December 31, 2016.  See Note 4, Note 7, Note 18 and Note 24 of Notes to Consolidated Financial Statements.

The FASB issued an accounting standard update in January 2017 simplifying the test for goodwill impairment by eliminating the Step 2 computation.  The accounting standard update modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value.  The guidance removes the requirement to determine a goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination.  The guidance within this accounting standard update should be applied on a prospective basis, and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  Early2023, with early adoption permitted. The Company is permitted for interim or annual goodwill impairment tests performedcurrently evaluating the disclosure requirements of this standard and the impact on testing dates after January 1, 2017.  During the third quarter of 2017, in connection with the Company’s 2017 annual goodwill impairment test, the Company elected to early adopt this guidance with no impact to its financial statements.

Consolidated Financial Statements and related disclosures.

The FASB issued an accounting standard updateASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures in January 2017December 2023. This ASU requires public business entities to clarifydisclose additional information in specified categories with respect to the definitionreconciliation of the effective tax rate to the statutory rate (the “rate reconciliation”) for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  The amendments in this accounting standard update provide a more robust framework to use in determining when a set of assets and activities is a business.  The guidance within this accounting standard updatespecified threshold. ASU 2023-09 is effective for annual and interim periodsfiscal years beginning after December 15, 2017.  Early adoption is permitted in limited circumstances, and the amendments in this accounting standard update should be applied prospectively, with no disclosures required at transition.2024. The Company does not currently meet the criteria for early application of the amendments and therefore has not early adopted the guidance.  The Company will evaluate the potential impact of this guidance on future transactions, as applicable. 

The FASB issued an accounting standard update in November 2016 requiring that the statement of cash flows explain both the

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QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

change in the total cash and cash equivalents, and, also, the amounts generally described as restricted cash or restricted cash equivalents.  This will require amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning and ending amounts shown on the statement of cash flows.  The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2017.  Early adoption is permitted and the guidance requires application using a retrospective transition method to each period presented when adopted.  While permitted, the Company has not early adopted the guidance and is currently evaluating the appropriate implementation strategy.  Adoption of the guidance will not have an impact on the Company’s earnings or balance sheet but will result in changes to certain disclosures within the statement of cash flows, notably cash flows from investing activities.

The FASB issued an accounting standard update in August 2016 to standardize how certain transactions are classified in the statement of cash flows.  Specific transactions covered by the accounting standard update include debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank owned life insurance policies, distributions received from equity method investments and beneficial interest in securitization transactions.  The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2017.  Early adoption is permitted, provided that all of the amendments are adopted in the same period.  The guidance requires application using a retrospective transition method.  While permitted, the Company has not early adopted the guidance and is currently evaluating the appropriate implementation strategy.  Adoption of the guidance will not have an impact on the Company’s earnings or balance sheet but may result in certain reclassifications on the statement of cash flows, including reclassifications between cash flows from operating activities, investing activities and financing activities, respectively.

The FASB issued an accounting standard update in March 2016 involving several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, use of a forfeiture rate, and classification on the statement of cash flows.  The guidance within this accounting standard update was effective for annual and interim periods beginning after December 15, 2016.  When adopted, application of the guidance will vary based on each aspect of the update, including adoption under retrospective, modified retrospective or prospective approaches.  Early adoption was permitted.  During the first quarter of 2017, the Company adopted the guidance within the accounting standard update as required.  The impact of adoption for the Company included the elimination of recording the tax effects of deductions in excess of compensation cost through equity as the guidance in this accounting standard update requires all tax effects related to share-based payments to now be recorded through the income statement.  The tax effects of awards are required to be treated as discrete items in the interim reporting period in which the share-based compensation-related tax benefits occur.  In addition, when applying the treasury stock method for computing diluted earnings per share, there are no longer assumed proceeds from the share-based compensation-related tax benefits and as a result, there are fewer shares considered to be repurchased in the calculation.  This results in an assumption of more incremental shares being issued upon the exercise of share-based payment awards; therefore, equity awards will have a more dilutive effect on earnings per share.  As required, the Company has applied these changes in the guidance prospectively, beginning in the first quarter of 2017.  The result of these changes was a tax benefit of $1.4 million recorded during the year ended December 31, 2017 and an immaterial number of dilutive shares added to the Company’s earnings per share calculation for the year ended December 31, 2017.  In addition, all tax-related cash flows resulting from share-based payments are now required to be reported as operating activities in the statement of cash flows under this new guidance.  Either prospective or retrospective transitiondisclosure requirements of this provision was permitted,standard and the Company has elected to apply the cash flow classification guidance on a prospective basis, consistent with the prospective transition for the treatment of excess tax benefits in the income statement.  Lastly, the accounting standard update permitted Companies to make an accounting policy election to account for forfeitures as they occur for service condition aspects of certain share-based awards, rather than estimating forfeitures each period.  While permitted, the Company has decided not to elect this accounting policy change, and instead has elected to continue utilizing a forfeiture rate assumption.  Based on historical experience, the Company has assumed a forfeiture rate of 13% on certain of its nonvested stock awards.  See Note 6, Note 8 and Note 9 of Notes to Consolidated Financial Statements.     

The FASB issued an accounting standard update in February 2016 regarding the accounting and disclosure for leases.  Specifically, the update will require entities that lease assets to recognize the assets and liabilities for the rights and obligations created by those leases on the balance sheet, in most instances.  The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2018, and should be applied on a modified retrospective basis for the reporting periods presented.  Early adoption is permitted.  The Company has not early adopted and is currently evaluating the potential impact of this guidance and an appropriate implementation strategy.  The Company has begun its impact assessment, including taking an inventory of its outstanding leases globally.  While the Company’s evaluation of this guidance is in the early stages, the Company currently expects adoption of this guidance to have an impact on its balance sheet.

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QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

The FASB issued an accounting standard update in May 2014 regarding the accounting for and disclosure of revenue recognition.  Specifically, the update outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which will be common to both U.S. GAAP and InternationalConsolidated Financial Reporting Standards.  The guidance was effective for annual and interim periods beginning after December 15, 2016, and allowed for full retrospective adoption of prior period data or a modified retrospective adoption.  Early adoption was not permitted.  In August 2015, the FASB issued an accounting standard update to delay the effective date of the new revenue standard by one year, or, in other words, to be effective for annual and interim periods beginning after December 15, 2017.  Entities are permitted to adopt the new revenue standard early but not before the original effective date.  During 2016 and 2017, the FASB issued a series of accounting standard updates to clarify and expand on the implementation guidance, including principal versus agent considerations, identification of performance obligations, licensing, other technical corrections and adding certain practical expedients.  The amendments in these 2016 and 2017 updates did not change the core principles of the guidance previously issued in May 2014.

During 2016, the Company reviewed its historical accounting policies and practices to identify potential differences with the requirements of the new revenue recognition standard, as it related to the Company’s contracts and sales arrangements.  As of December 31, 2017, the Company has completed its impact assessment for the implementation of the new revenue recognition guidance.  This impact assessment and work performed included global and cross functional interviews and questionnaires, sales agreement and other sales document reviews, as well as technical considerations for the Company’s future transactional accounting, financial reporting and disclosure requirements.  The Company expects to adopt the guidance in the first quarter of 2018, as required, using a modified retrospective adoption approach applied to those contracts which will not be completed as of December 31, 2017.  In addition, the Company will elect to apply certain of the permitted practical expedients within the revenue recognition guidance, including practical expedients around significant financing components, sales taxes and shipping and handling activities. 

Based on information reviewed to date and the impact assessment conclusions reached so far, the Company does not expect the adoption of this revenue recognition guidance to have a material impact on its reported earnings, cash flows, or balance sheet; however, the Company does expect the adoption to increase the amount and level of disclosures concerning the Company’s net sales.  In addition, the Company has begun preliminary considerations for how the new revenue recognition guidance may impact Houghton, as it pertains to the potential Combination.

Statements.

Note 4 – Business Segments

The Company’s reportable operating segments, which are organizedconsistent with its reportable segments, reflect the structure of the Company’s internal organization, the method by geography as follows:which the Company’s resources are allocated and the manner by which the chief operating decision maker assesses the Company’s performance. During the first quarter of 2023, the Company reorganized certain of its executive management team to align with its new business structure, which reflects the method by which the Company currently assesses its performance and allocates its resources. The Company has three reportable segments: (i) North America,Americas; (ii) EMEA,EMEA; and (iii) Asia/PacificPacific. The three segments are composed of the net sales and (iv) South America.  Operatingoperations in each respective region. The three geographic segments are composed of the net sales and operations in each respective region, including net sales and operations formerly included in the Global Specialty Businesses segment. Prior period information has been recast to reflect the Company’s new reportable segments. However, the Company did not recast the carrying amount of goodwill for the years ended December 31, 2022 and 2021. See Notes 1, 4, 5, and 15 for additional information.
56
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QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Segment operating earnings excluding indirect operating expenses, for each of the Company’s reportable operating segments isare comprised of revenuesthe segment’s net sales less directly related COGS and SG&A directly related to the respective region’s product sales.  The indirect operating&A. Operating expenses consist of SG&A not directly attributable to the productnet sales of each respective reportablesegment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating segment.earnings. Other items not specifically identified with the Company’s reportable operating segments include interestInterest expense, interestnet and Other (expense) income, license fees from non-consolidated affiliates, amortization expense and other expense, net.

45

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

The following tables present information about the performance of the Company’s reportable operating segments for the years ended December 31, 2017, 20162023, 2022 and 2015:2021.

 

2017

 

2016

 

2015

Net sales

Net sales

  

  

  

  

  

  

  

  

Net sales202320222021

North America

$

356,598

 

$

336,174

 

$

344,248

EMEA

  

226,243

 

  

200,917

 

  

179,717

Asia/Pacific

 

201,008

 

179,131

 

181,056

South America

 

36,233

 

 

30,443

 

 

32,534

Americas
EMEA
Asia/Pacific

Total net sales

Total net sales

$

820,082

 

$

746,665

 

$

737,555

 

 

2017

 

2016

 

2015

Operating earnings, excluding indirect operating expenses

 

 

 

 

 

 

North America

$

77,694

 

$

77,833

 

$

80,239

 

EMEA

  

35,350

 

  

33,810

 

  

28,236

 

Asia/Pacific

 

48,342

 

 

45,866

 

 

45,107

 

South America

 

3,927

 

 

1,386

 

 

1,785

Total operating earnings, excluding indirect operating expenses

 

165,313

 

 

158,895

 

 

155,367

Non-operating charges

 

(65,142)

 

 

(65,316)

 

 

(66,999)

Restructuring and related activities

 

—

 

 

439

 

 

(6,790)

Combination-related expenses

 

(29,938)

 

 

(1,531)

 

 

—

Depreciation of corporate assets and amortization

 

(7,489)

 

 

(7,134)

 

 

(7,010)

Operating income

 

62,744

 

 

85,353

 

 

74,568

Other expense, net

 

(718)

 

 

(492)

 

 

(3,377)

Interest expense

 

(3,892)

 

 

(2,889)

 

 

(2,585)

Interest income

 

2,534

 

 

2,037

 

 

1,624

Income before taxes and equity in net income of

 

 

 

 

 

 

 

 

 

associated companies

$

60,668

 

$

84,009

 

$

70,230

202320222021
Segment operating earnings
Americas$266,036 $223,629 $176,253 
EMEA104,811 76,364 110,981 
Asia/Pacific118,458 105,842 109,233 
Total segment operating earnings489,305 405,835 396,467 
Combination, integration and other acquisition-related expenses— (8,779)(23,885)
Restructuring and related charges, net(7,588)(3,163)(1,433)
Fair value step up of acquired inventory sold— — (801)
Impairment charges— (93,000)— 
Non-operating and administrative expenses(206,398)(187,841)(157,309)
Depreciation of corporate assets and amortization(60,824)(60,748)(62,573)
Operating income214,495 52,304 150,466 
Other (expense) income, net(10,672)(12,607)18,851 
Interest expense, net(50,699)(32,579)(22,326)
Income before taxes and equity in net income of associated companies$153,124 $7,118 $146,991 

The following tables present information regarding the Company’s reportable segments’ assets and long-lived assets, excluding goodwill, as of December 31, 2017, 20162023, 2022 and 2015:

2021. Management does not use goodwill by segment to evaluate performance or allocate resources.

 

 

2017

 

2016

 

2015

Segment assets

 

 

 

 

 

 

 

 

 

North America (including Corporate)

$

324,260

 

$

321,404

 

$

317,082

 

EMEA

 

177,267

 

 

147,021

 

 

162,647

 

Asia/Pacific

 

196,891

 

 

200,218

 

 

181,389

 

South America

 

23,708

 

 

23,385

 

 

19,609

 

Total segment assets

$

722,126

 

$

692,028

 

$

680,727

Segment assets, excluding goodwill202320222021
Americas$903,319 $1,196,906 $1,160,921 
EMEA703,338 583,861 685,812 
Asia/Pacific595,036 525,847 477,833 
Total segment assets$2,201,693 $2,306,614 $2,324,566 

 

 

2017

 

2016

 

2015

Segment long-lived assets

 

 

 

 

 

 

 

 

 

North America (including Corporate)

$

88,818

 

$

86,775

 

$

87,421

 

EMEA

 

28,507

 

 

25,630

 

 

27,101

 

Asia/Pacific

 

22,427

 

 

22,040

 

 

23,096

 

South America

 

2,691

 

 

2,858

 

 

2,573

 

Total segment long-lived assets

$

142,443

 

$

137,303

 

$

140,191

Segment long-lived assets202320222021
Americas$159,015 $150,294 $145,390 
EMEA83,488 87,279 89,637 
Asia/Pacific123,846 120,761 125,365 
Total segment long-lived assets$366,349 $358,334 $360,392 

46

57

Table of Contents

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

The following tables present information regarding the Company’s reportable segments’ capital expenditures and depreciation for the years ended December 31, 2017, 2016 and 2015:

 

 

2017

 

2016

 

2015

Capital expenditures

 

 

 

 

 

 

 

 

 

North America (including Corporate)

$

3,919

 

$

2,918

 

$

4,166

 

EMEA

 

3,936

 

 

3,263

 

 

3,081

 

Asia/Pacific

 

2,458

 

 

3,269

 

 

3,169

 

South America

 

559

 

 

504

 

 

617

 

Total segment capital expenditures

$

10,872

 

$

9,954

 

$

11,033

 

 

2017

 

2016

 

2015

Depreciation

 

 

 

 

 

 

 

 

 

North America

$

5,791

 

$

5,672

 

$

5,577

 

EMEA

 

3,368

 

 

3,323

 

 

2,975

 

Asia/Pacific

 

2,669

 

 

2,765

 

 

2,812

 

South America

 

649

 

 

672

 

 

832

 

Total segment depreciation

$

12,477

 

$

12,432

 

$

12,196

The following table presents information regarding the Company’s product lines that represent more than 10% of consolidated revenuesidentifiable assets for the years ended December 31, 2017, 20162023, 2022 and 2015, with the remaining product sales being immaterial to present:

2021:

 

2017

 

2016

 

2015

Rolling lubricants

17.8

%

 

19.0

%

 

18.6

%

Machining and grinding compounds

15.8

%

 

14.9

%

 

15.3

%

Hydraulic fluids

11.6

%

 

12.0

%

 

12.6

%

Corrosion preventives

11.4

%

 

11.8

%

 

12.0

%

Specialty greases

10.0

%

 

10.1

%

 

8.5

%

Capital expenditures202320222021
Americas$25,650 $19,121 $11,716 
EMEA7,561 6,065 7,428 
Asia/Pacific5,589 3,353 2,313 
Total segment capital expenditures$38,800 $28,539 $21,457 

During the years ended December 31, 2017, 2016 and 2015, the North America segment had approximately $49.2 million, $35.8 million and $34.0 million of

Depreciation202320222021
Americas$12,298 $11,723 $13,599 
EMEA7,321 6,608 8,294 
Asia/Pacific4,214 4,593 4,756 
Total segment depreciation$23,833 $22,924 $26,649 
The following table summarizes net sales respectively, which were attributable to non-domestic operations.  As of December 31, 2017, 2016 and 2015, the North America segment had approximately $4.9 million, $4.9 million and $2.7 million of long-lived assets, respectively, which were attributable to non-domestic operations.

Inter-segment revenuenon-U.S. domiciled operations for the years ended December 31, 2017, 20162023, 2022 and 2015 was $9.4 million, $8.3 million and $9.1 million for North America, $22.0 million, $18.1 million and $17.8 million for EMEA, $0.4 million, $0.7 million and $1.0 million for Asia/Pacific and less than $0.1 million for the years ended December 31, 2017, 2016 and 2015 for South America, respectively.  However, all2021:

Non-U.S. operations202320222021
Total net sales$1,234,571 $1,246,700 $1,198,377 
Long-lived assets148,515 156,374 155,208 
All inter-segment transactions have been eliminated from each reportable operating segment’s net sales and earnings for all periods presented in the above tables. The following table summarizes inter-segment revenues for the years ended December 31, 2023, 2022 and 2021:
Inter-segment revenues202320222021
Americas$9,005 $11,552 $13,307 
EMEA24,865 44,605 40,396 
Asia/Pacific2,651 957 1,951 
Note 5 – Net Sales and Revenue Recognition
Arrangements Resulting in Net Reporting
As part of the Company’s FluidcareTM business, certain third-party product sales to customers are managed by the Company. The Company transferred third-party products under arrangements resulting in net reporting of $81.8 million, $83.8 million and $71.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Customer Concentration
A significant portion of the Company’s revenues are realized from the sale of process fluids and services to manufacturers of steel, aluminum, automobiles, aircraft, industrial equipment, and durable goods. During the year ended December 31, 2023, the Company’s five largest customers (each composed of multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately 12% of consolidated net sales, with its largest customer accounting for approximately 3% of consolidated net sales.
Contract Assets and Liabilities
The Company had no material contract assets recorded on its Consolidated Balance Sheets as of December 31, 2023 and 2022.
The Company had approximately $4.5 million and $5.7 million of deferred revenue as of December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, respectively, the Company satisfied all of the associated performance obligations and recognized into revenue the advance payments received and recorded as of December 31, 2022 and 2021, respectively.
58
Table of Contents

QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Disaggregated Revenue
The Company sells its various industrial process fluids, its specialty chemicals and its technical expertise as a global product portfolio. The Company generally manages and evaluates its performance by reportable segment first, and then by customer industries. Net sales of each of the Company’s major product lines are generally spread throughout all three of the Company’s segments, and in most cases, approximately proportionate to the level of total sales in each segment.
The following tables present disaggregated information regarding the Company’s net sales, first by major product lines that represent more than 10% of the Company’s consolidated net sales for any of the years ended December 31, 2023, 2022 and 2021, and followed then by a disaggregation of the Company’s net sales by segment and customer industry for the years ended December 31, 2023, 2022 and 2021.
Major Product Line202320222021
Metal removal fluids23.6 %22.9 %23.4 %
Rolling lubricants19.5 %20.8 %22.2 %
Hydraulic fluids14.1 %14.1 %13.6 %
Net sales for the year ending December 31, 2023
AmericasEMEAAsia/PacificConsolidated
Total
Customer Industries
Metals$268,174 $136,979 $195,578 $600,731 
Metalworking and other708,921 434,368 209,293 1,352,582 
$977,095 $571,347 $404,871 $1,953,313 
Net sales for the year ending December 31, 2022
AmericasEMEAAsia/PacificConsolidated
Total
Customer Industries
Metals$252,513 $137,767 $214,377 $604,657 
Metalworking and other694,003 424,741 220,184 1,338,928 
$946,516 $562,508 $434,561 $1,943,585 
Net sales for the year ending December 31, 2021
AmericasEMEAAsia/PacificConsolidated
Total
Customer Industries
Metals$210,340 $141,950 $207,160 $559,450 
Metalworking and other551,871 422,178 227,659 1,201,708 
$762,211 $564,128 $434,819 $1,761,158 
Note 6 – Leases
The Company has operating leases for certain facilities, vehicles and machinery and equipment with remaining lease terms up to 11 years. In addition, the Company has certain land use leases with remaining lease terms up to 92 years.
The Company’s finance leases are included in PP&E each of the Consolidated Balance Sheets. See Note 14 for additional information. The Company has no material variable lease costs or sublease income for the years ended December 31, 2023, 2022 and 2021.
The following table sets forth the components of the Company’s lease cost for the years ended December 31, 2023, 2022 and 2021:
December 31, 2023December 31, 2022December 31, 2021
Operating lease expense$14,981 $15,171 $14,061 
Short-term lease expense760 816 861 
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Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Supplemental cash flow information related to the Company’s leases is as follows:
December 31,
2023		December 31,
2022		December 31,
2021
Cash paid for amounts included in the measurement of lease liabilities
     Operating cash flows from operating leases$16,020 $19,215 $13,859 
Non-cash lease liabilities activity
     Leased right-of-use assets obtained in exchange for new operating lease liabilities10,044 23,356 11,142 
Supplemental balance sheet information related to the Company’s leases is as follows:
December 31, 2023December 31, 2022
Right of use lease assets$38,614 $43,766 
Other accrued liabilities11,965 12,024 
Long-term lease liabilities22,937 26,967 
Total operating lease liabilities$34,902 $38,991 
Weighted average remaining lease term (years)5.15.1
Weighted average discount rate4.91 %4.36 %
Maturities of operating lease liabilities as of December 31, 2023 were as follows:
For the year ended December 31, 2024$13,130 
For the year ended December 31, 20259,027 
For the year ended December 31, 20266,840 
For the year ended December 31, 20273,543 
For the year ended December 31, 20281,909 
For the year ended December 31, 2029 and beyond5,245 
Total lease payments39,694 
Less: imputed interest(4,792)
Present value of lease liabilities$34,902 

Note 57 – Restructuring and Related Activities

In response to weak economic conditions and market declines in many regions, Quaker’s management

The Company approved a global restructuring plan (the “2015“QH Program”) as part of its initial plan to realize certain cost synergies associated with the Combination in the third quarter of 2019. The Company completed all of the initiatives and paid all remaining severance related to the QH Program as of the year ended December 31, 2023.
In 2022, the Company initiated a global cost and optimization program to improve its cost structure and drive a more profitable and productive organization. This program includes certain restructuring activities to further simplify, optimize and strengthen the Company’s footprint, go-to-market strategy, portfolio and organization. As of December 31, 2023, the program included restructuring and associated severance costs to reduce headcount by approximately 120 positions globally. These headcount reductions began in the fourth quarter of 20152022 and are expected to reduce its operating costs.  The 2015 Program includedbe completed in 2024.
Under the re-organization of certain commercial functions, the consolidation of certain distribution, laboratory and administrative offices, and other related severance charges.  In addition to these actions, during the fourth quarter of 2015 the Company made a decision to make available-for-sale certain technology of one of its existing businesses, which also resulted inCompany’s restructuring programs, employee severance and $0.3 million of intangible assets being reclassified to other current assets as of December 31, 2015.  During the fourth quarter of 2016, the Company made a decision to no longer market or make available-for-sale this technology, which resulted in $0.3 million of other current assets being reclassified back to intangible assets as of December 31, 2016.

The 2015 Program included provisions for the reduction of total headcount by approximately 65 employees globally.  As a result of this program, the Company recognized a $6.8 million restructuring charge in the fourth quarter of 2015.  Employee separation costsbenefits varied depending on local regulations within certain foreign countries and included severance and other benefits. The Company substantially completedexact timing to complete all actions and final costs associated will depend on a number of factors and are subject to change. Restructuring costs incurred during the initiatives under the 2015 Program in 2016years ended December 31, 2023, 2022 and settlement of these charges occurred primarily in

47

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

2016 as well.  During the fourth quarter of 2016, the Company recognized a restructuring credit of $0.4 million in connection with the 2015 Program, due2021 include severance costs to reduce headcount, including customary and routine adjustments to initial estimates for employee separation costs, as well as costs to close certain facilities and are recorded in Restructuring and related charges in the reversalCompany’s Consolidated Statements of certain accrued employee separation costs as a resultOperations.

60
Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Activity in the change in available-for-sale technology, noted above.  The Company completed all of the remaining initiatives under the 2015 Program during the first half of 2017 and does not expect to incur furtherCompany’s accrual for its restructuring charges under this program.

Restructuring activity recognized in each reportable operating segment in connection with the 2015 Program duringprograms for the years ended December 31, 2017, 20162023 and 20152022 are as follows:

Accrued restructuring as of December 31, 2021$4,087 
Restructuring and related charges3,163 
Cash payments(1,532)
Currency translation adjustments(235)
Accrued restructuring as of December 31, 20225,483 
Restructuring and related charges7,588 
Cash payments(9,786)
Currency translation adjustments65 
Accrued restructuring as of December 31, 2023$3,350 
In connection with the plans for closure of certain manufacturing and non-manufacturing facilities, the Company made available for sale certain facilities and property. During the years ended December 31, 2023, 2022 and 2021, certain of these facilities were sold and the Company recognized a gain of $1.4 million, $0.2 million and $5.4 million, respectively, which is included within Other (expense) income, net on the Consolidated Statements of Operations. Additionally, certain properties with an aggregate book value of approximately $1.6 million continue to be held-for-sale as follows:

of December 31, 2023 and are recorded in Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. The Company expects to complete the sale of these properties in 2024. The Company will continue to evaluate its existing facilities and footprint, which may include making certain other facilities or property available for sale in the future. As described in Note 4, Restructuring and related charges are not included in the Company’s reportable segments’ measure of operating earnings.

 

 

North

 

 

 

 

 

 

 

South

 

 

 

 

 

America

 

EMEA

 

Asia/Pacific

 

America

 

Total

Accrued restructuring as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 December 31, 2014

$

—

 

$

—

 

$

—

 

$

—

   

$

—

 

Restructuring charges

 

2,025

 

 

4,390

 

 

338

 

 

37

 

 

6,790

 

Cash payments

 

(158)

 

 

(130)

 

 

(202)

 

 

—

 

 

(490)

 

Currency translation adjustments

 

—

 

 

5

 

 

(1)

 

 

(1)

 

 

3

Accrued restructuring as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 December 31, 2015

 

1,867

 

 

4,265

 

 

135

 

 

36

   

 

6,303

 

Restructuring credits

 

—

 

 

(439)

 

 

—

 

 

—

 

 

(439)

 

Cash payments

 

(1,671)

 

 

(3,404)

 

 

(138)

 

 

(39)

 

 

(5,252)

 

Currency translation adjustments

 

—

 

 

52

 

 

3

 

 

3

 

 

58

Accrued restructuring as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 December 31, 2016

196

 

 

474

 

 

—

 

 

—

 

 

670

 

Restructuring charges and adjustments

 

(126)

 

 

126

 

 

—

 

 

—

 

 

—

 

Cash payments

 

(70)

 

 

(605)

 

 

—

 

 

—

 

 

(675)

 

Currency translation adjustments

  

—

 

 

5

 

 

—

 

 

—

 

 

5

Accrued restructuring as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 December 31, 2017

$

—

 

$

—

 

$

—

 

$

—

   

$

—

Note 68 – Share-Based Compensation

The Company recognized the following share-based compensation expense in SG&A in its Consolidated Statements of IncomeOperations for the years ended December 31, 2017, 20162023, 2022 and 2015:

2021:

 

2017

 

 

2016

 

 

2015

2023202320222021

Stock options

$

958

 

$

848

 

$

730

Nonvested stock awards and restricted stock units

 

2,935

 

 

3,121

 

 

2,937

Employee stock purchase plan

 

88

 

 

87

 

 

75

Non-vested stock awards and restricted stock units

Non-elective and elective 401(k) matching contribution in stock

 

72

 

 

2,124

 

 

2,052

Director stock ownership plan

 

137

 

 

169

 

 

125

Performance stock units

Total share-based compensation expense

$

4,190

 

$

6,349

 

$

5,919

During

Share-based compensation expense is recorded in SG&A, except for $0.2 million and $0.9 million during the first quarter of 2017, the Company began matching non-elective and elective 401(k) contributions in cash rather than stock.  Also, the Company’s estimated tax payable as ofyears ended December 31, 20162022 and 2015, was sufficient to fully recognize $0.7 million2021, respectively, recorded within Combination, integration and $0.4 million, respectively, of excess tax benefits related to stock option exercises as cash inflows from financing activities in its Consolidated Statements of Cash Flows. 

other acquisition-related expenses.

48

Stock Options

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Stock option activity under all plans is as follows:
Number of
Options		Weighted
Average
Exercise
Price
(per option)		Weighted
Average
Remaining
Contractual
Term (years)		Aggregate
Intrinsic
Value
Options outstanding as of January 1, 2023119,482$183.39 
Options exercised(55,168)148.01 
Options forfeited(1,461)185.05 
Options outstanding as of December 31, 202362,853$214.40 4.3$1,474 
Options expected to vest after December 31, 202319,756$177.92 5.2$701 
Options exercisable as of December 31, 202343,097$195.48 3.9$773 
61
Table of Contents

 

 

 

 

Weighted

 

Weighted

 

 

 

 

 

 

 

Average

 

Average

 

 

 

 

 

 

 

Exercise

 

Remaining

 

Aggregate

 

 

Number of

 

Price

 

Contractual

 

Intrinsic

 

 

Options

 

(per option)

 

Term (years)

 

Value

Options outstanding as of January 1, 2017

117,220

 

$

75.34

 

 

 

 

 

 

Options granted

42,477

 

 

134.60

 

 

 

 

 

 

Options exercised

(48,442)

 

 

75.94

 

 

 

 

 

Options outstanding as of December 31, 2017

111,255

 

$

97.71

 

5.3

 

$

6,013

Options expected to vest after December 31, 2017

99,484

 

$

100.64

 

5.5

 

$

5,086

Options exercisable as of December 31, 2017

11,771

 

$

72.95

 

3.9

 

$

928

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The total intrinsic value of options exercised during the years ended December 31, 2017, 20162023, 2022 and 20152021 was approximately $3.4$3.6 million, $2.9$0.8 million and $0.9$2.7 million, respectively. Intrinsic value is calculated as the difference between the current market price of the underlying security and the strike price of a related option.

A summary of the Company’s outstanding stock options as of December 31, 20172023 is as follows:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Weighted

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Number

 

Remaining

 

Average

 

Number

 

Average

 

 

Range of

 

of Options

 

Contractual

 

Exercise Price

 

of Options

 

Exercise Price

 

 

Exercise Prices

 

Outstanding

 

Term (years)

 

(per option)

 

Exercisable

 

(per option)

 

 

$

30.01

 

-

 

$

40.00

 

552

 

1.2

 

$

38.13

 

552

 

$

38.13

 

 

$

40.01

 

-

 

$

50.00

 

—

 

—

 

 

—

 

—

 

 

—

 

 

$

50.01

 

-

 

$

60.00

 

874

 

2.2

 

 

58.26

 

874

 

 

58.26

 

 

$

60.01

 

-

 

$

70.00

 

—

 

—

 

 

—

 

—

 

 

—

 

 

$

70.01

 

-

 

$

80.00

 

52,946

 

5.0

 

 

72.21

 

7,984

 

 

72.72

 

 

$

80.01

 

-

 

$

90.00

 

14,406

 

4.2

 

 

87.30

 

2,361

 

 

87.30

 

 

$

90.01

 

-

 

$

130.00

 

—

 

—

 

 

—

 

—

 

 

—

 

 

$

130.01

 

-

 

$

140.00

 

42,477

 

6.2

 

 

134.60

 

—

 

 

—

 

 

 

 

 

 

 

 

 

 

111,255

 

5.3

 

 

97.71

 

11,771

 

 

72.95

 

Range of
Exercise Prices		Number
of Options
Outstanding		Weighted
Average
Remaining
Contractual
Term (years)		Weighted
Average
Exercise Price
(per option)		Number
of Options
Exercisable		Weighted
Average
Exercise Price
(per option)
$120.01 -$150.00 15,4813.7137.76 12,660136.73 
$150.01 -$180.00 25,6524.8174.77 10,236169.46 
$220.01 -$250.00 21,7204.2245.10 20,201245.49 
62,8534.3214.40 43,097195.48 

As of December 31, 2017,2023, unrecognized compensation expense related to options granted in 2015, 2016during 2022 and 20172021 was less than $0.1 million, $0.4$0.2 million and $0.8$0.1 million, respectively, to be recognized over a weighted average period of 1.780.8 years.

Consistent with prior years, the

The Company granted stock options under its LTIP plan that are subject only to time vesting generally over a three-yearthree year period induring 2022 and 2021. The Company granted no stock options during the first quarters of 2014, 2015, 2016 and 2017.year ended December 31, 2023. For the purposes of determining the fair value of stock option awards, the Company uses theused a Black-Scholes option pricing model and primarily used the assumptions set forth in the table below:

 

 

2017

 

2016

 

2015

 

2014

 

 

 

 

 

Number of stock options granted

42,477

 

 

67,444

 

 

38,698

 

 

37,048

 

 

 

 

 

 

Dividend yield

1.49

%

 

1.49

%

 

1.55

%

 

2.00

%

 

 

 

 

 

Expected volatility

25.52

%

 

28.39

%

 

36.32

%

 

43.34

%

 

 

 

 

 

Risk-free interest rate

1.67

%

 

1.08

%

 

1.22

%

 

1.22

%

 

 

 

 

 

Expected term (years)

4.0

 

 

4.0

 

 

4.0

 

 

4.0

 

 

 

 

 

July 2022 GrantMarch 2022 GrantMarch 2021 Grant
Number of stock options granted4,83727,07725,250
Dividend yield0.79 %0.80 %0.85 %
Expected volatility40.47 %38.60 %37.33 %
Risk-free interest rate2.87 %2.07 %0.60 %
Expected term (years)4.04.04.0

49

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

These awards areThe fair value of these options is being amortized on a straight-line basis over the respective vesting period of each award. The Company recognized the following share-based compensation expense recorded on each award during the years ended December 31, 2017, 20162023, 2022 and 2015, respectively, is as follows: 2021:
202320222021
2022 Stock option awards494 783 — 
2021 Stock option awards446 521 429 
2020 Stock option awards99 443 516 
2019 Stock option awards— 27 234 
2018 Stock option awards— — 56 
   Total1,039 1,774 1,235 
62
Table of Contents

 

 

 

2017

 

 

2016

 

 

2015

 

 

2017 Stock option awards

$

308

 

$

—

 

$

—

 

 

2016 Stock option awards

$

332

 

$

282

 

$

—

 

 

2015 Stock option awards

$

276

 

$

276

 

$

232

 

 

2014 Stock option awards

$

42

 

$

254

 

$

257

 

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Restricted Stock Awards
Activity of nonvested sharesnon-vested restricted stock awards granted under the Company’s LTIP plan is shown below:

 

 

 

 

Weighted

 

 

 

 

 

Average Grant

 

 

 

Number of

 

Date Fair Value

 

 

 

Shares

 

(per share)

 

 

Nonvested awards, December 31, 2016

109,083

 

$

76.23

 

��

Granted

17,315

 

$

136.18

 

 

Vested

(53,749)

 

$

75.68

 

 

Forfeited

(485)

 

$

76.41

 

 

Nonvested awards, December 31, 2017

72,164

 

$

91.03

 

Number of
Shares		Weighted Average Grant Date Fair Value (per share)
Non-vested restricted stock awards, December 31, 202279,455$171.61 
Granted43,008184.61 
Vested(33,685)149.26 
Forfeited(11,021)180.41 
Non-vested restricted stock awards, December 31, 202377,757$187.24 

The fair value of the nonvestednon-vested stock is based on the trading price of the Company’s common stock on the date of grant. The Company adjusts the grant date fair value for expected forfeitures based on historical experience for similar awards. As of December 31, 2017,2023, unrecognized compensation expense related to these awards was $2.1$6.1 million, to be recognized over a weighted average remaining period of 1.611.3 years.

Restricted Stock Units
Activity of nonvestednon-vested restricted stock units granted under the Company’s LTIP plan is shown below:

 

 

 

 

Weighted

 

 

 

 

 

Average Grant

 

 

 

Number of

 

Date Fair Value

 

 

 

Units

 

(per unit)

 

 

Nonvested awards, December 31, 2016

5,771

 

$

78.69

 

 

Granted

1,332

 

$

134.60

 

 

Vested

(2,702)

 

$

78.37

 

 

Forfeited

(124)

 

$

105.38

 

 

Nonvested awards, December 31, 2017

4,277

 

$

95.53

 

Number of
Units		Weighted Average Grant Date Fair Value (per unit)
Non-vested restricted stock units, December 31, 202218,500$171.83 
Granted6,675180.38 
Vested(7,014)152.17 
Forfeited(1,959)184.08 
Non-vested restricted stock units, December 31, 202316,202$180.14 

The fair value of the nonvestednon-vested restricted stock units is based on the trading price of the Company’s common stock on the date of grant. The Company adjusts the grant date fair value for expected forfeitures based on historical experience for similar awards. As of December 31, 2017,2023, unrecognized compensation expense related to these awards was $0.2$1.2 million, to be recognized over a weighted average remaining period of 1.821.4 years.

Employee

Performance Stock Purchase Plan

In 2000, the Board adopted an Employee Stock Purchase PlanUnits

The Company grants performance-dependent stock awards (“ESPP”PSUs”) whereby employeesas a component of its LTIP, which will be settled in a certain number of shares subject to market-based and time-based vesting conditions. The number of fully vested shares that may purchase Company stock through a payroll deduction plan.  Purchases are madeultimately be issued as settlement for each award may range from the plan and credited0% up to each participant’s account at the end of each month (the “Investment Date”).  The purchase price200% of the stock is 85%target award, subject to the achievement of the fair market valueCompany’s total shareholder return (“TSR”) relative to the performance of the Company’s peer group, the S&P Midcap 400 Materials group, and separately the achievement of a performance-based return on invested capital (“ROIC”) measure. The service period required for the Investment Date.  The planPSUs is compensatorythree years and the 15% discount is expensed on the Investment Date.  All employees, including officers, are eligible to participate in this plan.  A participant may withdraw all uninvested payment balances credited to a participant’s account at any time.  An employee whose stock ownershipmeasurement period of the Company exceeds five percentmarket-based and performance objectives is generally from January 1 of the outstanding common stock is not eligibleyear of grant through December 31 of the year prior to participate in this plan.

issuances of the shares upon settlement.

50

63

Table of Contents

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

2013
Compensation expense for PSUs is measured based on their grant date fair value and is recognized on a straight-line basis over the three-year vesting period. The fair value of PSUs granted with a ROIC condition is based on the trading price of the Company’s common stock on the date of grant. PSUs granted with a relative TSR condition are valued using a Monte Carlo simulation on the grant date. The grant-date fair value of the PSUs valued using a Monte Carlo simulation, which included the following assumptions set forth in the table below:
20232022CEO Grant 2021 (1)2021
Number of PSUs granted16,98418,4623,77512,103
Risk-free interest rate3.85 %2.11 %0.65 %0.29 %
Dividend yield0.96 %0.93 %0.72 %0.64 %
Expected term (years)3.03.03.03.0
(1)On September 2, 2021, the Board appointed Andrew Tometich to serve as CEO and entered into an Employment Agreement, which included an equity award consisting of a mix of time-based restricted stock and PSUs.
As of December 31, 2023, there was approximately $6.8 million of total unrecognized compensation cost related to PSUs which the Company expects to recognize over a weighted-average period of 2.0 years.
Defined Contribution Plan
Beginning in April 2020 and continuing through March 2021, the Company matched both non-elective and elective 401(k) contributions in fully vested shares of the Company’s common stock rather than cash. There were no matching contributions in stock for the years ended December 31, 2023 and 2022. For the year ended December 31, 2021, total contributions in stock were $1.5 million.
2023 Director Stock Ownership Plan

In 2013,March 2023, the Company adopted the 20132023 Director Stock Ownership Plan (the “Plan”), to encourage the Directors to increase their individual investment in the Company, which was approved at the Company’s May 20132023 shareholders’ meeting. The Plan authorizes the issuance of up to 75,000 shares of Quaker common stock in accordance with the terms of the Plan in payment of all or a portion of the annual cash retainer payable to each of the Company’s non-employee directors in 20132023 and subsequent years during the term of the Plan. Under the Plan, each director who, on May 1of the applicable calendar year, owns less than 400%500% of the annual cash retainer for the applicable calendar year, divided by the average of the closing price of a share of Quaker Common Stock as reported by the composite tape of the New York Stock Exchange for the previous calendar year (the “Threshold Amount”), is required to receive 75% of the annual cash retainer in Quaker common stock and 25% of the retainer in cash, unless the director elects to receive a greater percentage of Quaker common stock, up to 100% of the annual cash retainer for the applicable year. Each director who owns more than the Threshold Amount may elect to receive common stock in payment of a percentage (up to 100%) of the annual cash retainer. The annual retainer is approximately $0.1 million and the retainer payment date is June 1.

Note 79 – Other Expense,(Expense) Income, net

The components of other expense,

Other (expense) income, net for the years ended December 31, 2017, 20162023, 2022 and 20152021 are as follows:
202320222021
Income from third party license fees$1,210 $1,268 $1,367 
Foreign exchange losses, net(14,785)(9,399)(3,821)
Gain on disposals of property, plant, equipment and other assets, net1,307 168 4,695 
Non-income tax refunds and other related credits (expense)1,339 (1,613)15,155 
Pension and postretirement benefit (costs) income, non-service components(2,033)1,704 759 
Loss on extinguishment of debt— (6,763)— 
Facility remediation recoveries, net2,141 1,804 — 
Other non-operating income, net149 224 696 
Total other (expense) income, net$(10,672)$(12,607)$18,851 
Foreign exchange losses, net, during the years ended December 31, 2023, 2022 and 2021, include foreign currency transaction losses of approximately $7.8 million, $1.6 million and $0.6 million, respectively, related to hyper-inflationary accounting. See Note 1 for additional information.
64
Table of Contents

 

2017

 

2016

 

2015

Income from third party license fees

$

861

 

$

978

 

$

875

Foreign exchange gains (losses), net

 

891

 

 

172

 

 

(1,184)

(Loss) gain on fixed asset disposals, net

 

(79)

 

 

50

 

 

6

Non-income tax refunds and other related credits

 

1,015

 

 

398

 

 

141

Pension and postretirement benefit costs, non-service components

 

(4,234)

 

 

(2,302)

 

 

(3,308)

Insurance insolvency recovery

 

600

 

 

—

 

 

—

Other non-operating income

 

380

 

 

338

 

 

261

Other non-operating expense

 

(152)

 

 

(126)

 

 

(168)

Other expense, net

$

(718)

 

$

(492)

 

$

(3,377)

QUAKER CHEMICAL CORPORATION

Insurance insolvency recovery

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Gain on disposals of property, plant, equipment and other assets, net, includes losses related to certain fixed asset disposals resulting from the property damage caused by flooding of the Company’s Conshohocken, Pennsylvania headquarters in 2021, described in Note 25 of Notes to Consolidated Financial Statements. This caption also includes gains in 2023, 2022 and 2021 on the sale of certain held-for-sale real property assets, described in Note 7 of Notes to Consolidated Financial Statements.
Non-income tax refunds and other related credits (expense) during the year ended December 31, 2017 represents cash proceeds from an insolvent insurance carrier2023 and 2022 includes adjustments to a Combination-related indemnification asset associated with respect to previously filed recovery claim by an inactive subsidiarythe settlement of certain income tax audits at certain of the Company.

Company’s Italian and German affiliates for tax periods prior to August 1, 2019, whereas during the year ended December 31, 2021, this includes certain non-income tax credits for the Company’s Brazilian subsidiaries described in Note 825 of Notes to Consolidated Financial Statements.

Loss on extinguishment of debt during the year ended December 31, 2022 includes the write-off of certain previously unamortized deferred financing costs as well as a portion of the third party and creditor debt issuance costs incurred to execute an amendment to the Company’s primary credit facility. See Note 19 for additional information.
Facility remediation recoveries, net for the years ended December 31, 2023 and 2022 reflects payments received from insurers related to the property damage incurred during 2021, noted above. See Notes 18 and 25 for additional information.
Note 10 – Taxes on Income and Uncertain Tax Positions

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referredwhich we refer to as the Tax Cuts and Jobs Act (“U.S. Tax Reform”).Reform. U.S. Tax Reform includes multiple changes to the U.S. tax code with varying effects on the Company’s 2017 results, including, but not limited to, (i) a revaluation of the Company’s domestic deferred tax assets and liabilities based upon the reduction of the U.S. federal statutory corporate income tax rate from 35% to 21% and (ii) implementingimplemented a new system of taxation for non-U.S. earnings which eliminateseliminated U.S. federal income taxes on dividends from certain foreign subsidiaries and imposesimposed a one-time transition tax on the deemed repatriation of undistributed earnings of certain foreign subsidiaries that is payable over eight years. Accordingly, the Company had initially recorded a $15.5 million transition tax liability for U.S. Tax Reformincome taxes on undistributed earnings of non-U.S. subsidiaries. As of December 31, 2023, $8.5 million in installments have been paid with the remaining $7.0 million to be paid through installments in future years. The Company may also makes changesbe subject to other taxes, such as withholding taxes and dividend distribution taxes, if these undistributed earnings are ultimately remitted to the U.S. tax code that will affect 2018 and future years, including, but not limited to, (i) reduction
Taxes on income before equity in net income of the U.S. federal statutory corporate tax rate; (ii) elimination of the corporate alternative minimum tax; (iii) the creation of the base erosion anti-abuse tax, a new minimum tax; (iv) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (v) a new provision designed to tax global intangible low-taxed income (“GILTI”), which allowsassociated companies for the possibility of using foreign tax credits (“FTCs”) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (vi) a new limitation on deductible interest expense; (vii) the repeal of the domestic production activity deduction; (viii) limitations on the deductibility of certain executive compensation; (ix) limitations on the use of FTCs to reduce the U.S. income tax liability; (x) a reduction in the dividends received deduction from 70% to 50% (in the case of less-than-20%-owned subsidiaries), and from 80% to 65% (in the case of less-than-80%-owned subsidiaries); and (xi) limitations on net operating losses (“NOLs”) generated afteryears ended December 31, 2017, to 80 percent2023, 2022 and 2021 are as follows:
202320222021
Current:
Federal$12,159 $(708)$955 
State2,938 1,450 2,115 
Foreign51,930 34,735 44,375 
Total67,027 35,477 47,445 
Deferred:
Federal518 (2,798)(3,863)
State(163)(713)(3,117)
Foreign(11,797)(7,041)(5,526)
Total$(11,442)$(10,552)$(12,506)
Taxes on income before equity in net income of associated companies$55,585 $24,925 $34,939 
The components of taxable income. 

The SEC staff issued guidance on accountingincome before taxes and equity of associated companies for the tax effectsyears ended December 31, 2023, 2022 and 2021 are as follows:

202320222021
U.S.$14,520 $(4,933)$7,263 
Foreign138,604 12,051 139,728 
Total$153,124 $7,118 $146,991 
65
Table of U.S. Tax Reform and provided a one-year measurement period for companies to complete the accounting.  Companies are required to reflect the income tax effects of those aspects of U.S. Tax Reform for which the accounting is complete.  To the extent that a company’s accounting for certain income tax effects of U.S. Tax Reform are incomplete but the company is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.  If a company cannot determine a provisional estimate to be included in the financial statements, it should Contents

51

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

continue to use the applicable accounting guidance on the basis of the provisions of the tax laws that were in effect immediately before the enactment of U.S. Tax Reform.

In connection with the Company’s initial analysis of the impact of U.S. Tax Reform, the Company has recorded incremental tax expense of $22.2 million for the year ended December 31, 2017, which includes deferred tax expense of approximately $4.5 million and current tax expense of approximately $17.8 million, net of the impact of eliminating U.S. federal income taxes on dividends from certain foreign subsidiaries in the current year, the details of which are described below.  The Company has made reasonable interpretations and assumptions with regard to various uncertainties and ambiguities in the application of certain provisions of U.S. Tax Reform.  It is possible that the Internal Revenue Service (“IRS”) could issue subsequent guidance or take positions on audit that differ from the Company’s interpretations and assumptions.  The Company currently believes subsequent guidance issued or interpretations made by the IRS will not be materially different from the Company’s application of the provisions of U.S. Tax Reform. 

U.S. Tax Reform reduced the U.S. federal statutory corporate tax rate from 35% to 21%, effective January 1, 2018.  Consequently, the Company has recorded a decrease in domestic net deferred tax assets of approximately $4.5 million with a corresponding net adjustment to deferred income tax expense for the year ended December 31, 2017.  The deemed repatriation transition tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of the Company’s foreign subsidiaries.  To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of E&P of its relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings after 1986.  The Company made a reasonable estimate of its Transition Tax and recorded a gross provisional Transition Tax obligation of $18.4 million in its December 31, 2017 financial statements.  The Company will elect to pay its Transition Tax in installments over eight years as provided for in U.S. Tax Reform.

In addition, U.S. Tax Reform creates a new requirement that GILTI earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder.  GILTI is the excess of the shareholder’s net CFC tested income over the net deemed tangible income return, which is currently defined as the excess of (i) 10 percent of the aggregate of the U.S. shareholder’s pro-rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (ii) the amount of certain interest expense taken into account in the determination of net CFC-tested income.  Based upon the most recent information, the Company does not believe that it will be subject to the new GILTI tax rules.  The Company is continuing to evaluate this provision of U.S. Tax Reform and expects to finalize its assessment during the one-year measurement period provided for by the SEC to complete the accounting for U.S. Tax Reform.

Taxes on income for the years ended December 31, 2017, 2016 and 2015 are as follows:

 

 

 

 

2017

 

 

2016

 

 

2015

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

Federal

$

21,265

 

$

4,680

 

$

8,924

 

 

 

State

 

2,529

 

 

518

 

 

188

 

 

 

Foreign

 

14,105

 

 

12,540

 

 

11,074

 

 

 

 

 

37,899

 

 

17,738

 

 

20,186

 

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

Federal

 

6,889

 

 

4,601

 

 

404

 

 

 

State

 

(36)

 

 

104

 

 

(16)

 

 

 

Foreign

 

(3,099)

 

 

783

 

 

(2,789)

 

 

Total

$

41,653

 

$

23,226

 

$

17,785

 

The components of earnings before income taxes for the years ended December 31, 2017, 2016 and 2015 are as follows:

 

 

 

2017

 

 

2016

 

 

2015

 

 

Domestic

$

10,468

 

$

31,175

 

$

25,219

 

 

Foreign

 

50,200

 

 

52,834

 

 

45,011

 

 

Total

$

60,668

 

$

84,009

 

$

70,230

 

52

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Total deferred tax assets and liabilities are composed of the following as of December 31, 2017 2023 and 2016:2022:
20232022
Pension and other postretirement benefits$6,539 $5,777 
Allowance for credit losses2,627 2,246 
Insurance and litigation reserves534 716 
Performance incentives5,839 3,327 
Equity-based compensation2,980 2,723 
Prepaid expense541 486 
Operating loss carryforward22,693 20,519 
Foreign tax credit and other credits13,360 5,506 
Interest12,926 9,928 
Restructuring reserves403 791 
Right of use lease assets8,018 8,440 
Inventory reserves4,810 3,712 
Research and development11,125 11,936 
Other5,712 3,562 
Total deferred tax assets, gross98,107 79,669 
Valuation allowance(24,182)(11,730)
Total deferred tax assets, net$73,925 $67,939 
Depreciation10,240 11,935 
Intangibles177,320 182,838 
Lease liabilities9,105 9,590 
Outside basis in equity investment5,276 5,886 
Unremitted earnings8,204 6,766 
Total deferred tax liabilities$210,145 $217,015 
Total net deferred tax liabilities$(136,220)$(149,076)
The Company’s net deferred tax assets and liabilities are classified in the Consolidated Balance Sheets as of December 31, 2023 and 2022 as follows:
20232022
Non-current deferred tax assets$10,737 $11,218 
Non-current deferred tax liabilities146,957 160,294 
Total net deferred tax liabilities$(136,220)$(149,076)
As of December 31, 2023, the Company has a deferred tax liability of $8.2 million on certain undistributed foreign earnings, which primarily represents the Company’s estimate of the non-U.S. income taxes the Company will incur to ultimately remit certain earnings to the U.S. Otherwise, it is the Company’s current intention to reinvest its additional undistributed earnings of certain non-U.S. subsidiaries to support working capital needs and certain other growth initiatives outside of the U.S. The amount of such undistributed earnings at December 31, 2023 was approximately $379.2 million. Any tax liability which might result from ultimate remittance of these earnings is expected to be substantially offset by foreign tax credits (subject to certain limitations). It is currently impractical to estimate any such incremental tax expense.
The Company has $7.3 million of deferred tax assets related to state net operating losses. Management analyzed the expected impact of the reversal of existing taxable temporary differences, considered expiration dates, analyzed current state tax laws, and determined that $1.9 million of state net operating loss carryforwards is expected to be realized as a future benefit based on the reversal of deferred tax liabilities. Accordingly, a partial valuation allowance of $5.4 million has been established. These state net operating losses are subject to various carryforward periods of 5 years to 20 years or an indefinite carryforward period. An additional $0.9 million of valuation allowance was established for other net state deferred tax assets.
66
Table of Contents

 

 

 

2017

 

 

2016

 

 

Retirement benefits

$

5,472

 

$

8,236

 

 

Allowance for doubtful accounts

 

1,134

 

 

1,925

 

 

Insurance and litigation reserves

 

497

 

 

707

 

 

Postretirement benefits

 

1,056

 

 

1,623

 

 

Supplemental retirement benefits

 

2,679

 

 

3,670

 

 

Performance incentives

 

3,779

 

 

5,197

 

 

Equity-based compensation

 

1,071

 

 

2,088

 

 

Insurance settlement

 

4,581

 

 

7,755

 

 

Operating loss carryforward

 

8,602

 

 

7,343

 

 

Foreign tax credit and other credits

 

3,043

 

 

—

 

 

Uncertain tax positions

 

(410)

 

 

(101)

 

 

Restructuring

 

—

 

 

217

 

 

Other

 

2,816

 

 

2,834

 

 

 

 

34,320

 

 

41,494

 

 

Valuation allowance

 

(7,401)

 

 

(6,344)

 

 

Total deferred tax assets, net

$

26,919

 

$

35,150

 

 

Depreciation

 

4,444

 

 

5,709

 

 

Europe pension and other

 

1,295

 

 

1,055

 

 

Amortization and other

 

15,373

 

 

16,012

 

 

Total deferred tax liabilities

$

21,112

 

$

22,776

 

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The Company has $15.6 million of deferred tax assets related to foreign net operating loss carryforwards. A partial valuation allowance of $2.4 million has been established against this amount resulting in a net $13.2 million expected future benefit. These foreign net operating losses are subject to various carryforward periods with the majority having an indefinite carryforward period. An additional partial valuation allowance of $3.0 million has been established against certain other foreign deferred tax assets.
Foreign tax credits may be carried forward for 10 years. Management analyzed the expected impact of the utilization of foreign tax credits based on certain assumptions such as projected U.S. taxable income, overall domestic loss recapture, and annual limitations due to the ownership change under the Internal Revenue Code. The Company had a foreign tax credit carry forward of $13.0 million and $5.2 million as of December 31, 2023 and 2022, respectively, with a $12.5 million and $1.3 million valuation allowance as of December 31, 2023 and 2022, respectively, reflecting the amount of credits that are not expected to be utilized before expiration.
The following are the changes in the Company’s deferred tax asset valuation allowance for the years ended December 31, 2017, 20162023, 2022 and 2015:

2021:

 

 

 

 

 

 

 

 

 

 

 

Effect of

 

 

 

 

 

Balance at

 

 

Additional

 

 

Allowance

 

 

Exchange

 

 

Balance

 

 

Beginning

 

 

Valuation

 

 

Utilization

 

 

Rate

 

 

at End

 

 

of Period

 

 

Allowance

 

 

and Other

 

 

Changes

 

 

of Period

Valuation Allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

$

6,344

 

$

1,127

 

$

(61)

 

$

(9)

 

$

7,401

Year ended December 31, 2016

$

6,259

 

$

294

 

$

(187)

 

$

(22)

 

$

6,344

Year ended December 31, 2015

$

7,345

 

$

86

 

$

(802)

 

$

(370)

 

$

6,259

202320222021
Balance at January 1,$11,730 $17,400 $21,511 
   Net charges to income tax expense$14,393 $1,119 $359 
   Release of valuation allowance$(1,941)$(6,789)$(4,470)
Balance at December 31,$24,182 $11,730 $17,400 

The Company’s net deferred tax assets and liabilities are classified in the Consolidated Balance Sheets as of December 31, 2017 and 2016 as follows:

 

 

2017

 

2016

 

 

Non-current deferred tax assets

$

15,460

 

$

24,382

 

 

Non-current deferred tax liabilities

 

9,653

 

 

12,008

 

 

Net deferred tax asset

$

5,807

 

$

12,374

 

53

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

The following is a reconciliation of income taxes at the Federal statutory rate with income taxes recorded by the Company for the years ended December 31, 2017, 20162023, 2022 and 2015:2021:

 

 

2017

 

 

2016

 

 

2015

Income tax provision at the Federal statutory tax rate

$

21,229

 

$

29,403

 

$

24,578

Transition Tax

 

18,388

 

 

—

 

 

—

Revaluation of U.S. deferred tax assets and liabilities

 

4,470

 

 

—

 

 

—

Non-deductible acquisition expenses

 

4,779

 

 

696

 

 

122

Share-based compensation

 

(1,419)

 

 

—

 

 

—

Differences in tax rates on foreign earnings and remittances

 

(2,663)

 

 

(2,862)

 

 

(5,097)

Foreign dividends

 

—

 

 

2,939

 

 

2,690

Excess foreign tax credit utilization

 

(2,761)

 

 

(5,493)

 

 

(4,141)

Research and development activities credit utilization

 

(235)

 

 

(238)

 

 

(245)

Uncertain tax positions

 

(651)

 

 

(833)

 

 

226

Domestic production activities deduction

 

(1,155)

 

 

(875)

 

 

(910)

State income tax provisions, net

 

569

 

 

357

 

 

133

Non-deductible entertainment and business meals expense

 

248

 

 

238

 

 

249

Miscellaneous items, net

 

854

 

 

(106)

 

 

180

Taxes on income

$

41,653

 

$

23,226

 

$

17,785

202320222021
Income tax provision at the Federal statutory tax rate$32,156 $1,495 $30,868 
Unremitted earnings1,211 (1,839)1,841 
Tax law changes / reform47 823 1,955 
U.S. tax on foreign operations9,014 4,864 10,479 
Pension settlement— — — 
Foreign derived intangible income(1,147)(917)(8,698)
Non-deductible acquisition expenses— 45 129 
Withholding taxes11,193 7,785 6,584 
Foreign tax credits(3,432)(5,850)(14,725)
Share-based compensation973 1,234 600 
Foreign tax rate differential4,731 4,782 1,712 
Research and development credit(2,000)(1,757)(1,685)
Audit Settlements456 2,697 1,378 
Uncertain tax positions(598)(6,375)519 
State income tax provisions, net2,158 432 (1,446)
Non-deductible meals and entertainment416 146 426 
Intercompany transfer of intangible assets(584)(1,932)4,347 
Goodwill Impairment— 19,550 — 
Miscellaneous items, net991 (258)655 
Taxes on income before equity in net income of associated companies$55,585 $24,925 $34,939 

As of

For the years ended December 31, 2017, the Company domestically had a net deferred tax asset of $0.3 million.  In addition, the Company has foreign tax loss carryforwards of $8.9 million of which $0.2 million expires in 2018, $0.3 million expires in 2019, $0.1 million expires in 2020, $0.2 million expires in 2021, $0.1 million expires in2023 and 2022, and $0.8 million expires thereafter.  The remaining foreign tax losses have no expiration dates.  A partial valuation allowance has been established with respect to the tax benefit of these losses for $0.8 million.

It is the Company’s intention to continue to reinvest its undistributed earnings of non-U.S. subsidiaries to support working capital needs and certain other growth initiatives.  The amount of such undistributed earnings at December 31, 2017 was approximately $300.0 million.  As a result of U.S. Tax Reform, specifically the Transition Tax, the Company has provided for U.S. income taxes on these undistributed earnings, however, the Company could be subject to other taxes, such as withholding taxes and dividend distribution taxes if these undistributed earnings were ultimately remitted to the U.S.  It is currently impractical to estimate any such incremental tax expense.

As of December 31, 2017, the Company’s cumulative liability for gross unrecognized tax benefits was $6.8 million. Thewere $15.7 million and $16.3 million, respectively. For the years ended December 31, 2023 and 2022, the Company had accrued approximately $1.0$1.1 million and $1.3 million, respectively, for cumulative penalties and $0.6$2.9 million and $2.7 million, respectively, for cumulative interest asinterest.

67
Table of December 31, 2017.  As of December 31, 2016, the Company’s cumulative liability for gross unrecognized tax benefits was $6.2 million.  The Company had accrued $1.6 million for cumulative penalties and $0.7 million for cumulative interest as of December 31, 2016. 

Contents

QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of tax expense on income before equity in net income of associated companies in its Consolidated Statements of Income.Operations. The Company recognized a creditbenefit of $0.7$0.4 million for penalties and a creditan expense of $0.2$0.1 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 2017,2023, a creditbenefit of $0.2$1.7 million for penalties and a creditbenefit of $0.7$0.3 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 2016,2022, and $0.2a benefit of $0.5 million for penalties and a creditbenefit of $0.2$0.3 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 2015.

2021.

The Company estimates that during the year ending December 31, 2018,2023, it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $1.0$2.7 million due to the expiration of the statute of limitations with regard to certain tax positions. This estimated reduction in the cumulative liability for unrecognized tax benefits does not consider any increase in liability for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative liability for unrecognized tax benefits with regard to new tax positions for the year ending December 31, 2018.

2023.

54

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively, is as follows:

 

 

2017

 

 

2016

 

 

2015

2023202320222021

Unrecognized tax benefits as of January 1

Unrecognized tax benefits as of January 1

$

6,240

 

$

11,032

 

$

11,845

(Decrease) increase in unrecognized tax benefits taken in prior periods
Increase in unrecognized tax benefits taken in current period
Decrease in unrecognized tax benefits due to lapse of statute of limitations
Decrease in unrecognized tax benefits due to audit settlements

Decrease in unrecognized tax benefits taken in prior periods

 

(308)

 

(869)

 

(416)

Increase in unrecognized tax benefits taken in current period

 

2,347

 

1,921

 

2,512

Decrease in unrecognized tax benefits due to lapse of statute of limitations

 

(2,116)

 

(5,744)

 

(1,924)

Increase (decrease) due to foreign exchange rates

 

598

 

 

(100)

 

 

(985)

(Decrease) increase due to foreign exchange rates
(Decrease) increase due to foreign exchange rates
(Decrease) increase due to foreign exchange rates

Unrecognized tax benefits as of December 31

Unrecognized tax benefits as of December 31

$

6,761

 

$

6,240

 

$

11,032

The amount of net unrecognized tax benefits above that, if recognized, would impact the Company’s tax expense and effective tax rate is $2.2$10.1 million, $1.8$10.2 million and $1.1$15.2 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions include Brazil from 2000, Italy from 2007,are shown in the Netherlands from 2011,table below:
JurisdictionOpen Years
Brazil2018-2023
China2018-2023
Germany2018-2023
India2017-2023
Italy2007, 2019-2023
Mexico2018-2023
Netherlands2017-2023
Spain2018-2023
U.S. Federal and State2019-2023
United Kingdom2018-2023
Positions challenged by the United Kingdom and Mexico from 2012, Spain and China from 2013, India from fiscal year beginning April 1, 2013 and ending March 31, 2014,taxing authorities may be settled or applied by the United States from 2014, and various domestic stateCompany. As a result, income tax jurisdictions from 2008.

As previously reported, the Italian tax authorities have assessed additional tax due fromuncertainties are recognized in the Company’s subsidiary, Quaker Italia S.r.l., relating tofinancial statements in accordance with the tax years 2007 through 2013.  The Company has filedaccounting for competent authority relief from these assessments under the Mutual Agreement Proceduresincome taxes, when applicable.

68
Table of the Organization for Economic Co-Operation and Development for all yearsContents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except 2007.As of December 31, 2017, the Company believes it has adequate reserves, where merited, for uncertain tax positions with respect to these and all other audits.

per share amounts, unless otherwise stated)

Note 911 – Earnings Per Share

The following table summarizes earnings per share calculations for the years ended December 31, 2017, 20162023, 2022 and 2015:

2021:

 

2017

 

2016

 

2015

2023202320222021

Basic earnings per common share

Basic earnings per common share

 

   

 

 

 

 

 

   

Net income attributable to Quaker Chemical Corporation

$

20,278

 

$

61,403

 

$

51,180

Less: income allocated to participating securities

  

(137)

 

  

(515)

 

  

(443)

Net income available to common shareholders

$

20,141

 

$

60,888

 

$

50,737

Basic weighted average common shares outstanding

 

13,204,872

 

13,136,138

 

13,199,630

Basic earnings per common share

$

1.53

 

$

4.64

 

$

3.84

Net income (loss) attributable to Quaker Chemical Corporation
Net income (loss) attributable to Quaker Chemical Corporation
Net income (loss) attributable to Quaker Chemical Corporation
Less: (income) loss allocated to participating securities
Net income (loss) available to common shareholders
Basic weighted average common shares outstandingBasic weighted average common shares outstanding17,892,46117,841,48717,805,034
Basic earnings (loss) per common share

 

 

 

 

 

 

 

Diluted earnings per common share

Diluted earnings per common share

 

 

 

 

 

 

Net income attributable to Quaker Chemical Corporation

$

20,278

 

$

61,403

 

$

51,180

Less: income allocated to participating securities

 

(137)

 

 

(514)

 

 

(443)

Net income available to common shareholders

$

20,141

 

$

60,889

 

$

50,737

Basic weighted average common shares outstanding

 

13,204,872

 

 

13,136,138

 

 

13,199,630

Effect of dilutive securities

 

41,074

 

 

24,331

 

 

15,219

Diluted weighted average common shares outstanding

 

13,245,946

 

 

13,160,469

 

 

13,214,849

Diluted earnings per common share

Diluted earnings per common share

$

1.52

 

$

4.63

 

$

3.84

Diluted earnings per common share
Net income (loss) attributable to Quaker Chemical Corporation
Net income (loss) attributable to Quaker Chemical Corporation
Net income (loss) attributable to Quaker Chemical Corporation
Less: (income) loss allocated to participating securities
Net income (loss) available to common shareholders
Basic weighted average common shares outstandingBasic weighted average common shares outstanding17,892,46117,841,48717,805,034
Effect of dilutive securitiesEffect of dilutive securities22,34815,00550,090
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding17,914,80917,856,49217,855,124
Diluted earnings (loss) per common share

Certain stock options, and restricted stock units and PSUs are not included in the diluted earnings per share calculation sincewhen the effect would have been anti-dilutive. The calculated amount of anti-diluted shares not included were 3,67110,621 in 2017, 6782023, 28,222 in 20162022 and 6,6844,070 in 2015.

2021.

55

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Note 1012 – Accounts Receivable and Allowance for Doubtful Accounts

Credit Losses

As of December 31, 20172023 and 2016,2022, the Company had gross trade accounts receivable totaling $213.8$458.3 million and $202.4 million with trade accounts receivable greater than 90 days past due of $15.2 million and $18.0$486.4 million, respectively. The following are changes in the allowance for doubtful accountscredit losses during the years ended December 31, 2017, 20162023, 2022 and 2015:

2021:

 

 

 

 

 

 

 

 

 

 

 

Exchange Rate

 

 

 

 

 

Balance at

 

Changes

 

Write-Offs

 

Changes

 

Balance

 

 

Beginning

 

to Costs and

 

Charged to

 

and Other

 

at End

 

 

of Period

 

Expenses

 

Allowance

 

Adjustments

 

of Period

Allowance for Doubtful Accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

$

7,220

 

$

137

 

$

(2,206)

 

$

306

 

$

5,457

Year ended December 31, 2016

$

7,818

 

$

1,375

 

$

(1,949)

 

$

(24)

 

$

7,220

Year ended December 31, 2015

$

6,498

 

$

1,460

 

$

(261)

 

$

121

 

$

7,818

Balance at
Beginning
of Period		Changes
to Costs and
Expenses		Write-Offs
Charged to
Allowance		Exchange Rate
Changes
and Other
Adjustments		Balance
at End
of Period
Year ended December 31, 2023$13,527 $1,327 $(961)$(591)$13,302 
Year ended December 31, 2022$12,334 $4,319 $(2,441)$(685)$13,527 
Year ended December 31, 2021$13,145 $653 $(946)$(518)$12,334 

During the year ended December 31, 2015, the Company recorded a charge of $0.3 million to its allowance for doubtful accounts and SG&A, due to the bankruptcies of certain customers.  There were no similar charges during the years ended December 31, 2017 or 2016, respectively.  Included in write-offs charged to allowance during the years ended December 31, 2017 and 2016 were outstanding receivables related to certain prior year customer bankruptcies, which the Company previously reserved for, but settled during 2017 and 2016, respectively.

Included in exchange rate changes and other adjustments for the years ended December 31, 2016 and 2015, are allowance for doubtful accounts of less than $0.1 million and $0.4 million acquired in 2016 and 2015 business acquisitions, respectively.  There was no similar adjustment in 2017.

Note 1113 – Inventories

Total inventories

Inventories, net, as of December 31, 2017 2023 and 2016 2022 were as follows:
20232022
Raw materials and supplies$119,047 $151,105 
Work in process, finished goods and reserves114,810 133,743 
Total inventories, net$233,857 $284,848 
69
Table of Contents

 

 

 

2017

 

 

2016

 

 

Raw materials and supplies

$

44,439

 

$

37,772

 

 

Work in process and finished goods

 

42,782

 

 

39,310

 

 

Total inventories

$

87,221

 

$

77,082

 

QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)

Note 1214 – Property, Plant and Equipment

Property, plant and equipment as of December 31, 2017 2023 and 2016 2022 were as follows:

 

 

 

2017

 

 

2016

 

 

Land

$

10,635

 

$

9,707

 

 

Building and improvements

 

87,111

 

 

80,740

 

 

Machinery and equipment

 

153,312

 

 

140,595

 

 

Construction in progress

 

4,932

 

 

4,964

 

 

 

 

255,990

 

 

236,006

 

 

Less accumulated depreciation

 

(169,286)

 

 

(150,272)

 

 

 

$

86,704

 

$

85,734

 

20232022
Land$26,110 $29,010 
Building and improvements147,135 138,759 
Machinery and equipment263,999 240,097 
Construction in progress16,175 20,324 
Property, plant and equipment, at cost453,419 428,190 
Less: accumulated depreciation(245,608)(229,595)
Total property, plant and equipment, net$207,811 $198,595 

As of December 31, 2017, the Company has no capital leases or2023, PP&E includes $0.6 million of finance lease assets and future minimum lease payments.

Property with an aggregate book value of approximately $1.6 million is held-for-sale as of December 31, 2023 and is recorded in Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. See Note 7 for additional information.

Note 1315 – Goodwill and Other Intangible Assets

In connection with the Company’s reorganization and the associated change in reportable segments and reporting units during the first quarter of 2023, the Company reallocated goodwill previously held by the former Global Specialty Businesses segment to the remaining business segments as of January 1, 2023. Changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 were as follows:
AmericasEMEAAsia/PacificGlobal Specialty BusinessesTotal
Balance as of December 31, 2021$214,023 $135,520 $162,458 $119,193 $631,194 
Goodwill additions1,853 251 — (59)2,045 
Goodwill impairments— (93,000)— — (93,000)
Currency translation and other adjustments23 (8,204)(12,083)(4,967)(25,231)
Balance as of December 31, 2022215,899 34,567 150,375 114,167 515,008 
Reallocation of reporting units63,697 31,711 18,759 (114,167)— 
Balance as of January 1, 2023279,596 66,278 169,134 — 515,008 
Currency translation and other adjustments3,507 (338)(5,659)— (2,490)
Balance as of December 31, 2023$283,103 $65,940 $163,475 $— $512,518 
Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of December 31, 2023 and 2022 were as follows:
Gross Carrying
Amount		Accumulated
Amortization		Net Book Value
202320222023202220232022
Customer lists and rights to sell$841,562 $831,600 $243,872 $191,286 $597,690 $640,314 
Trademarks, formulations and product technology161,613 158,564 55,879 46,281 105,734 112,283 
Other5,892 7,576 5,776 6,390 116 1,186 
Total definite-lived intangible assets$1,009,067 $997,740 $305,527 $243,957 $703,540 $753,783 
70
Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The Company recorded $58.2 million, $57.5 million and $59.9 million of amortization expense during the years ended December 31, 2023, 2022 and 2021, respectively. Amortization is recorded within SG&A in the Company’s Consolidated Statements of Operations. Estimated annual aggregate amortization expense for the subsequent five years is as follows:
For the year ended December 31, 2024$57,839 
For the year ended December 31, 202557,150 
For the year ended December 31, 202656,854 
For the year ended December 31, 202756,513 
For the year ended December 31, 202856,047 
The Company has historically completedfour indefinite-lived intangible assets totaling $193.2 million as of December 31, 2023, including $192.1 million of indefinite-lived intangible assets for trademarks and tradename associated with the Combination. Comparatively, the Company had four indefinite-lived intangible assets for trademarks and tradename totaling $189.1 million as of December 31, 2022.
The Company completes its annual goodwill and indefinite-lived intangible asset impairment test as ofduring the end of the thirdfourth quarter of each year, or more frequently if triggering events indicate a possible impairment in one or more of its reporting units. During the fourth quarter of 2022, the Company recorded a non-cash impairment charge of $93.0 million to write down the carrying value of the EMEA reporting unit Goodwill to its estimated fair values. In connection with the Company’s reorganization and the associated change in reportable segments and reporting units during the first quarter of 2023, the Company performed the required impairment assessments directly before and immediately after the change in reporting units and concluded that it was not more likely than not that the fair values of any of the Company’s previous or new reporting units were less than their respective carrying amounts. Additionally, the Company completed its annual impairment assessment as of October 1, 2023 and concluded no impairment existed. See Note 23 for additional information.
The Company continually evaluates financial performance, economic conditions and other relevantrecent developments in assessing if an interim period impairment test for onea triggering event indicates that the carrying values of goodwill, indefinite-lived, or more of its reporting units is necessary.  The Company completed its annual impairment assessment aslong-lived assets might be impaired. Notwithstanding the results of the endCompany’s impairment assessments during 2023, if the Company is unable to maintain the actions aimed at improving the financial performance of the third quarter of 2017 and no impairment charge was warranted.  In addition, the Company has recorded no impairment charges in its past.  To better align the Company’s annual goodwill impairment assessment with the Company’s budget process and its related timing, the Company electedEMEA reporting unit, or interest rates continue to update its annual goodwill impairment assessment during the fourth quarter of 2017 and concluded no

56

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

impairment charge was warranted.  Going forward, the Company will complete its annual goodwill impairment assessment during the fourth quarter.

Changesrise, which leads to an increase in the carrying amountcost of goodwillcapital, then these conditions could result in a triggering event for the years ended December 31, 2017 and 2016 were as follows:

 

 

North

 

 

 

 

 

 

 

South

 

 

 

 

 

America

 

EMEA

 

Asia/Pacific

 

America

 

Total

Balance as of December 31, 2015

$

42,443

 

$

19,280

 

$

15,244

 

$

2,144

   

$

79,111

 

Goodwill additions (reductions)

 

3,311

 

 

(114)

 

 

—

 

 

—

 

 

3,197

 

Currency translation adjustments

  

(264)

 

 

(977)

 

 

(678)

 

 

415

 

 

(1,504)

Balance as of December 31, 2016

 

45,490

 

 

18,189

 

 

14,566

 

 

2,559

   

 

80,804

 

Goodwill additions

 

1,832

 

 

—

 

 

—

 

 

—

 

 

1,832

 

Currency translation adjustments

 

249

 

 

2,315

 

 

890

 

 

(56)

 

 

3,398

Balance as of December 31, 2017

$

47,571

 

$

20,504

 

$

15,456

 

$

2,503

 

$

86,034

Gross carrying amounts and accumulated amortization for definite-lived intangible assets asEMEA reporting unit. This assessment could result in an impairment of December 31, 2017 and 2016 were as follows:

 

Gross Carrying

 

Accumulated

 

Amount

 

Amortization

 

2017

 

2016

 

2017

 

2016

Customer lists and rights to sell

$

76,581

 

$

71,454

   

$

25,394

   

$

20,043

Trademarks, formulations and product technology

  

33,025

 

  

31,436

   

  

14,309

   

  

11,748

Other

  

6,114

   

  

6,023

   

  

5,514

   

  

5,151

Total definite-lived intangible assets

$

115,720

   

$

108,913

   

$

45,217

   

$

36,942

The Company recorded $7.4 million, $7.0 million and $6.8 million of amortization expense during the years ended December 31, 2017, 2016 and 2015, respectively. Estimated annual aggregate amortization expense for the subsequent five years is as follows:

 

For the year ended December 31, 2018

$

7,348

 

 

For the year ended December 31, 2019

 

7,244

 

 

For the year ended December 31, 2020

 

6,956

 

 

For the year ended December 31, 2021

 

6,576

 

 

For the year ended December 31, 2022

 

6,449

 

The Company has twoEMEA reporting unit’s remaining goodwill, indefinite-lived intangible assets, totaling $1.1 million for trademarks as of December 31, 2017 and 2016. 

or long-lived assets.

Note 1416 – Investments in Associated Companies

As of December 31, 2017,2023, the Company held a 50% investment in and had significant influence over Nippon Quaker Chemical, Ltd. (Japan)(“Nippon Japan”), Kelko Quaker Chemical, S.A. (Panama)(“Kelko Panama”) and Kelko Quaker Chemical, S.A. (Venezuela)Houghton Korea, and held a 33%32% investment in and had significant influence over Primex, Ltd. (Barbados)(“Primex”).

The carrying amount of the Company’s equity investments as of December 31, 20172023 was $25.7$101.2 million, which includes its investments of $19.5$72.0 million in Primex, Ltd. (Barbados); approximately $5.7Houghton Korea; $22.1 million in Primex; $6.6 million in Nippon Quaker Chemical, Ltd. (Japan); $0.4Japan; and $0.5 million in Kelko Quaker Chemical, S.A. (Panama); and $0.1 millionPanama.

The following table is a summary of equity income in Kelko Quaker Chemical, S.A. (Venezuela). 

Venezuela’s economy has been considered hyper inflationary under U.S. GAAP since 2010, at which timeassociated companies by investment for the Company’s Venezuela equity affiliate, Kelko Quaker Chemical, S.A. (“Kelko Venezuela”), changed its functional currency from the bolivar fuerte (“BsF”) to the U.S. dollar.  Accordingly, all gains and losses resulting from the remeasurement of Kelko Venezuela’s monetary assets and liabilities to published exchange rates are required to be recorded directly to the Consolidated Statements of Income.  As ofyears ending December 31, 2014, there were three legally available exchange rates in Venezuela, the CADIVI (or the official rate, 6.3 BsF per U.S. dollar), the SICAD 12023, 2022 and the SICAD II.  Kelko Venezuela had access to the CADIVI for imported goods, had not been invited to participate in any SICAD I auctions and had limited access to the SICAD II mechanism.  Accordingly,2021:

202320222021
Houghton Korea$11,442 $2,644 $3,808 
Nippon Japan1,492 323 461 
Kelko Panama309 425 154 
Grindaix (1)— — (37)
Primex2,090 (1,427)4,993 
Total equity in net income of associated companies$15,333 $1,965 $9,379 
(1)In February 2021, the Company measuredacquired a 38% ownership interest in Grindaix. From that date through September 2021 when the Company purchased the remaining interest of Grindaix, the Company accounted for its 38% interest under the equity investmentmethod of accounting and other related assets with Kelko Venezuela at the CADIVI exchange rate asrecorded equity in net income of December 31, 2014.  During the first quarterassociated companies. See Note 2 for additional information.
71
Table of 2015, the Venezuela government announced changes to its foreign exchange controls.  There continued to be three exchange mechanisms, however, they consisted of the CADIVI, a combined SICAD I and SICAD II auction mechanism (the Contents

57

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

“SICAD”) and a newly created, marginal currency system (the “SIMADI”).  In light of the first quarter of 2015 changes to Venezuela’s foreign exchange controls and the on-going economic challenges in Venezuela, the Company re-assessed Kelko Venezuela’s access to U.S. dollars, the impact on the operations of Kelko Venezuela, and the impact on the Company’s equity investment and other related

Note 17 – Other Non-Current Assets
Other non-current assets which resulted in revaluing its equity investment in Kelko Venezuela and other related assets to the SIMADI exchange rate of approximately 193 BsF per U.S. dollar as of March 31, 2015.  This resulted in a charge of $2.8 million in the first quarter of 2015. 

During the first quarter of 2016, the Venezuela government announced further changes to its foreign exchange controls, including eliminating the CADIVI, SICAD and SIMADI exchange rate mechanisms and replacing them with a new dual foreign exchange rate system, which consists of a protected “DIPRO” exchange rate, with a rate fixed at 10 BsF per U.S. dollar and, also, a floating supplementary market exchange rate known as the “DICOM.”  The DIPRO rate is only available for payment of certain imports of essential goods in the food and health sectors while the DICOM governs all other transactions not covered by the DIPRO.  In light of these changes to the foreign exchange controls during the first quarter of 2016, the Company again re-assessed Kelko Venezuela’s access to U.S. dollars, the impact on the operations of Kelko Venezuela, and the impact on the Company’s equity investment and other related assets.  The Company did not believe it had access to the DIPRO and, therefore, believed the DICOM to be the exchange rate system available to Kelko Venezuela, which resulted in a currency conversion charge of $0.1 million in the first quarter of 2016.  Due to ongoing economic and political instability in Venezuela, the DICOM BsF per U.S. dollar exchange rate has continued to devalue during 2017.  This resulted in the Company recording currency conversion charges totaling $0.4 million during the year ended December 31, 2017 to write down the Company’s equity investment to the current DICOM exchange rate.  These currency conversion charges2023 and 2022 were recorded through equity in net income of associated companies in the Company’s Consolidated Statements of Income.  as follows:

20232022
Uncertain tax positions (See Note 10)$5,307 $5,803 
Pension assets (See Note 20)3,879 8,639 
Debt issuance costs (See Note 19)3,340 4,305 
Interest rate swap (See Note 24)1,828 — 
Long-term note receivable1,014 1,016 
Trust investment601 604 
Indemnification assets (See Notes 10 and 21)430 3,909 
Bad debt and bad debt provisions (See Note 12)302 440 
Supplemental retirement income program (See Notes 20 and 23)286 2,114 
Other1,783 909 
Total other non-current assets$18,770 $27,739 
As of December 31, 2017, the Company’s equity investment in Kelko Venezuela was valued at the DICOM exchange rate of approximately 3,341 BsF per U.S. dollar.

Summarized financial information of Nippon Quaker Chemical, Ltd. (Japan), Kelko Quaker Chemical, S.A. (Panama)2023 and Kelko Quaker Chemical, S.A. (Venezuela), in the aggregate, is as follows:

 

 

 

As of December 31,

 

 

 

 

2017

 

 

2016

 

 

Current Assets

$

37,683

 

$

37,998

 

 

Noncurrent Assets

 

936

 

 

1,244

 

 

Current Liabilities

 

24,858

 

 

26,683

 

 

Noncurrent Liabilities

 

1,457

 

 

1,166

 

 

 

 

Year Ended December 31,

 

 

 

 

2017

 

 

2016

 

 

2015

 

 

Net Sales

$

42,555

 

$

41,448

 

$

40,282

 

 

Gross Margin

 

13,440

 

 

13,082

 

 

12,887

 

 

Income Before Income Taxes

 

2,900

 

 

2,289

 

 

(2,843)

 

 

Net Income

 

1,471

 

 

1,210

 

 

(3,631)

 

Summarized financial information of Primex, Ltd. is as follows:

 

 

 

As of December 31,

 

 

 

 

2017

 

 

2016

 

 

Total Assets

$

120,154

 

$

116,742

 

 

Total Liabilities

 

54,258

 

 

58,775

 

 

 

 

Year Ended December 31,

 

 

 

 

2017

 

 

2016

 

 

2015

 

 

Revenue

$

14,042

 

$

5,632

 

$

7,058

 

 

Income Before Income Taxes

 

11,705

 

 

5,622

 

 

8,407

 

 

Net Income

 

7,788

 

 

5,148

 

 

6,334

 

58

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Note 15 – Other Assets

Other assets as of December 31, 2017 and 2016 were as follows: 

 

 

2017

 

2016

 

 

Restricted insurance settlement

$

21,171

   

$

21,883

 

 

Uncertain tax positions

 

4,543

 

 

3,892

 

 

Supplemental retirement income program

  

1,594

   

  

1,410

 

 

Pension assets

  

1,184

   

  

—

 

 

Other

 

1,557

 

 

1,567

 

 

Total other assets

$

30,049

   

$

28,752

 

As of December 31, 2017,2022, one of the Company’s U.S.foreign pension plan’s fair value of plan assets exceeded its gross benefit obligation and was therefore over-funded, which is represented by the line Pension assets in the table above. See also Notes 18 of Notes to Consolidated Financial Statements.

Previously, an inactive subsidiary of the Company executed separate settlement and release agreements with two of its insurance carriers for $35.0Approximately 1.0 million of which $21.2 million remains.  The proceeds of both settlements are restricted and can only be usedpayments related to pay claims and costs of defense associated with the subsidiary’s asbestos litigation.  The proceeds of the settlement and release agreementsthis plan have been deposited into interest bearing accounts which earned less than $0.1 million inmade to escrow and are excluded from the years ended December 31, 2017 and 2016, respectively, offset by $0.8 million and $1.0 million of net payments in 2017 and 2016, respectively.  Due to the restricted nature of the proceeds, a corresponding deferred credit was established in “Other non-current liabilities” for an equal and offsetting amount, and will remain until the restrictions lapse or the funds are exhausted via payments of claims and costs of defense.  See also Notes 19 and 23 of Notes to Consolidated Financial Statements.

Note 16 – Other Current Liabilities

Other current liabilitiesplan’s Net benefit obligation as of December 31, 2017 and 2016 were as follows: 

 

 

 

2017

 

 

2016

 

 

Non-income taxes

$

9,196

 

$

9,278

 

 

Professional fees

 

5,019

 

 

1,980

 

 

Selling expenses

 

2,846

 

 

2,699

 

 

Customer advances

 

1,507

 

 

492

 

 

Freight

 

1,780

 

 

2,212

 

 

Legal

 

1,169

 

 

754

 

 

Accrued interest

 

884

 

 

5

 

 

Current income taxes payable

 

841

 

 

2,753

 

 

Accrued rent and facilities

 

775

 

 

500

 

 

Other

 

3,304

 

 

2,755

 

 

Total other current liabilities

$

27,321

 

$

23,428

 

2023. See Note 17 – Debt

Debt as20 for additional information.

As of December 31, 20172022, Indemnification assets relates to certain Houghton foreign subsidiaries for which the Company expects it will incur additional tax amounts which are subject to indemnification under the terms of the Combination share and 2016 includes the following:

purchase agreement. A portion of these indemnification assets have a corresponding uncertain tax position recorded in other non-current liabilities. See Notes 10 and 21 for additional information.

 

 

 

2017

 

 

2016

 

 

Credit facilities

$

48,514

 

$

47,948

 

 

Industrial development bonds

 

15,000

 

 

15,000

 

 

Municipality-related loans

 

3,290

 

 

3,470

 

 

Other debt obligations (including capital leases)

 

—

 

 

58

 

 

 

 

66,804

 

 

66,476

 

 

Short-term debt (including capital leases)

 

—

 

 

(58)

 

 

Current portion of long-term debt

 

(5,736)

 

 

(649)

 

 

 

$

61,068

 

$

65,769

 

59

Note 18 – Other Accrued Liabilities
Other accrued liabilities as of December 31, 2023 and 2022 were as follows:
20232022
Non-income taxes$27,295 $25,525 
Short-term lease liabilities (See Note 6)11,965 12,024 
Selling expenses and freight accruals7,789 9,822 
Current income taxes payable (See Note 10)14,835 12,966 
Professional fees, legal, and acquisition-related accruals5,577 5,415 
Accrued interest (See Note 19)2,630 2,749 
Customer advances and sales return reserves2,454 6,585 
Accrued insurance2,295 1,305 
Accrued environmental reserves (See Note 25)1,187 654 
Accrued rent and facilities1,104 972 
Accrued non-pension benefits581 1,812 
Interest rate swap (See Note 24)159 — 
Other12,444 7,044 
Total other accrued liabilities$90,315 $86,873 
72

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QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Note 19 – Debt
Debt as of December 31, 2023 and 2022 includes the following:
As of December 31, 2023As of December 31, 2022
Interest
Rate		Outstanding
Balance		Interest
Rate		Outstanding
Balance
Credit Facilities:
Revolver5.13%30,904 5.17%195,673 
U.S. Term Loan6.71%561,250 5.70%596,250 
EURO Term Loan5.13%152,366 1.50%151,572 
Industrial development bonds5.26%10,000 5.26%10,000 
Bank lines of credit and other debt obligationsVarious1,092 Various1,303 
Total debt$755,612 $954,798 
Less: debt issuance costs(1,545)(1,992)
Less: short-term and current portion of long-term debts(23,444)(19,245)
Total long-term debt$730,623 $933,561 
Credit facilities

During June 2022, the Company, and its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S. Dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to the Original Credit Facility (the “Credit Facility”). The Company’s primaryCredit Facility established (A) a new $150.0 million Euro equivalent senior secured term loan (the “Euro Term Loan”), (B) a new $600.0 million senior secured term loan (the “U.S. Term Loan”), and (C) a new $500.0 million senior secured revolving credit facility (“(the “Revolver”). The Company has the right to increase the amount of the Credit Facility”) is aFacility by an aggregate amount not to exceed the greater of $300.0 million syndicated multicurrency creditor 100% of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), subject to certain conditions including the agreement with a groupto provide financing by any lender providing such increase. In addition, the Credit Facility also:
(i) eliminated the requirement that material foreign subsidiaries must guaranty the Original Euro Term Loan;
(ii) replaced the U.S. Dollar borrowings reference rate from LIBOR to SOFR;
(iii) extended the maturity date of lenders which maturesthe Original Credit Facility from August 2024 to June 2027; and
(iv) effected certain other changes to the Original Credit Facility as set forth in June 2019.  the Credit Facility.
The maximum amount availableCompany used the proceeds of the Credit Facility to repay all outstanding loans under the Original Credit Facility, unpaid accrued interest and fees on the closing date under the Original Credit Facility and certain expenses and fees. U.S. Dollar-denominated borrowings under the Credit Facility can be increased to $400.0 millionbear interest, at the Company’s option ifelection, at the lenders agreebase rate or term SOFR plus an applicable rate ranging from 1.00% to 1.75% for term SOFR loans and from 0.00% to 0.75% for base rate loans, depending upon the Company satisfies certain conditions.Company’s consolidated net leverage ratio. Loans based on term SOFR also include a spread adjustment equal to 0.10% per annum. Borrowings under the Credit Facility generallydenominated in currencies other than U.S. Dollars bear interest at a base rate or LIBORthe alternative currency term rate plus a margin.  the applicable rate ranging from 1.00% to 1.75%.
The Credit Facility contains affirmative and negative covenants, financial covenants and events of default, including without limitation restrictions on (a) the incurrence of additional indebtedness; (b) investments in and acquisitions of other businesses, lines of business and divisions; (c) the making of dividends or capital stock purchases; and (d) dispositions of assets. Dividends and share repurchases are permitted in annual amounts not exceeding the greater of $75 million annually and 25% of consolidated EBITDA if there is no default. If the consolidated net leverage ratio is less than 2.50 to 1.00, then the Company is no longer subject to restricted payments.
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Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Financial covenants contained in the Credit Facility include a consolidated interest coverage ratio test and a consolidated net leverage ratio test. The consolidated net leverage ratio at the end of a quarter may not be greater than 4.00 to 1.00, subject to a permitted increase during a four-quarter period after certain acquisitions. The Company has the option of replacing the consolidated net leverage ratio test with a consolidated senior net leverage ratio test if the Company issues certain financialtypes of unsecured notes, subject to certain limitations. Events of default in the Credit Facility include without limitation defaults for non-payment, breach of representations and warranties, non-performance of covenants, cross-defaults, insolvency, and a change of control in certain circumstances. The occurrence of an event of default under the Credit Facility could result in all loans and other covenants, withobligations becoming immediately due and payable and the key financial covenant requiring that the Company’s consolidated net debt to adjusted EBITDA ratio cannot exceed 3.50 to 1.Credit Facility being terminated. As of December 31, 20172023 and 2016, the Company’s consolidated net debt to adjusted EBITDA ratio was below 1.0 to 1, andDecember 31, 2022, the Company was also in compliance with all of its otherthe Credit Facility covenants.
The weighted average variable interest rate incurred on the outstanding borrowings under the Credit Facility during the twelve months ended December 31, 2023 was approximately 6.2%. As of December 31, 2017 and 2016,2023, the Company had total credit facilityweighted interest rate on the outstanding borrowings of approximately $48.5 million and $47.9 million, primarily under the Credit Facility at weightedwas approximately 6.3%. In addition to paying interest on outstanding principal under the Original Credit Facility, the Company was required to pay a commitment fee ranging from 0.2% to 0.3% depending on the Company’s consolidated net leverage ratio under the Original Revolver in respect of the unutilized commitments thereunder. As part of the Credit Facility, the Company is required to pay a commitment fee ranging from 0.150% to 0.275% related to unutilized commitments under the Revolver, depending on the Company’s consolidated net leverage ratio. The Company had unused capacity under the Revolver of approximately $465.7 million, which is net of bank letters of credit of approximately $3.4 million, as of December 31, 2023.
The Company previously capitalized $23.7 million of certain third-party debt issuance costs in connection with executing the Original Credit Facility. Approximately $15.5 million of the capitalized costs were attributed to the Original Term Loans and recorded as a direct reduction of Long-term debt on the Company’s Consolidated Balance Sheet. Approximately $8.3 million of the capitalized costs were attributed to the Original Revolver and recorded within Other assets on the Company’s Consolidated Balance Sheet. These capitalized costs are being amortized into interest expense over the five year term of the Original Credit Facility. Prior to executing the Credit Facility, as of December 31, 2021, the Company had $8.0 million of debt issuance costs recorded as a reduction of Long-term debt attributable to the Original Credit Facility and $4.3 million of debt issuance costs recorded within Other assets attributable to the Original Credit Facility.
In connection with executing the Credit Facility, the Company recorded a loss on extinguishment of debt of approximately $6.8 million which includes the write-off of certain previously unamortized deferred financing costs as well as a portion of the third-party and creditor debt issuance costs incurred to execute the Credit Facility. Also in connection with executing the Credit Facility, during the second quarter of 2022, the Company capitalized $2.2 million of certain third-party and creditor debt issuance costs. Approximately $0.7 million of the capitalized costs were attributed to the Euro Term Loan and U.S. Term Loan. These costs were recorded as a direct reduction of Long-term debt on the Consolidated Balance Sheet. Approximately $1.5 million of the capitalized costs were attributed to the Revolver and recorded within Other assets on the Consolidated Balance Sheet. These capitalized costs, as well as the previously capitalized costs that were not written off will collectively be amortized into Interest expense over the five year term of the Credit Facility. As of December 31, 2023, the Company had $1.5 million of debt issuance costs recorded as a reduction of Long-term debt on the Consolidated Balance Sheet and $3.3 million of debt issuance costs recorded within Other assets on the Consolidated Balance Sheet.
In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, in the first quarter of 2023, the Company entered into $300.0 million notional amounts of three year interest rate swaps to convert a portion of the Company’s variable interest rate borrowings to an average borrowing ratesfixed rate of 1.88% and 1.25%, respectively. 

3.64% plus an applicable margin as provided in the Credit Facility, based on the Company’s consolidated net leverage ratio. As of December 31, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus an applicable margin, was 5.3%. See Note 24 for additional information.

Industrial development bonds

The

As of December 31, 2023 and 2022, the Company has twohad fixed rate, industrial development authority demand bonds with $5.0totaling $10.0 million in principal amount due in 2018 bearing interest at a rate of 5.60%, and $10.0 million due in 2028 bearing interest at a rate of 5.26%.2028. These bonds have similar covenants to the Credit Facility noted above.

Municipality-related loans

As part

Bank lines of a past expansion project at thecredit and other debt obligations
The Company has certain unsecured bank lines of credit and discounting facilities in certain foreign subsidiaries, which are not collateralized. The Company’s Middletown, Ohio facility, it agreed to aother debt obligations primarily consist of certain domestic and foreign low interest rate $3.5 million loan with the Ohio Departmentor interest-free municipality-related loans, local credit facilities of Development.  Principal repayment on this loan began in September 2010 with its final maturity being in February 2021.  The current interest rate of 2% will rise to 3% beginning March 2019 until final maturity.  Ascertain foreign subsidiaries and capital lease obligations. Total unused capacity under these arrangements as of December 31, 20172023, was approximately $35 million.
In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s only other off-balance sheet arrangements include certain financial and 2016, there was $1.1 million and $1.5 million, respectively, outstanding on this loan.

other guarantees. The Company’s Verkol S.A.U. (“Verkol”) subsidiary has certain loans issued by the local government which are either interest-free or bear interest at a subsidized rate.  These loans mature periodically, with the last maturity occurring in 2028.  The Company records these loans at fair value based on market interest rates on the datetotal bank letters of acquisitioncredit and continues to measure the loans at amortized cost, recognizing the implicit interest incurred.  Asguarantees outstanding as of December 31, 20172023 were approximately $5 million.

74
Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The Company incurred the following debt related expenses included within Interest expense, net, in the Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2016, there was $2.2 and $2.0 million, respectively, outstanding for these loans.

During the next five years, payments2021:

202320222021
Interest expense$53,582 $33,691 $19,089 
Amortization of debt issuance costs1,413 2,942 4,749 
Total$54,995 $36,633 $23,838 
Based on the Company’s debt are duevariable interest rates associated with the Credit Facility and the Original Credit Facility, as follows:

 

2018

$

5,736

 

 

2019

 

49,160

 

 

2020

 

694

 

 

2021

 

407

 

 

2022

 

282

 

As of December 31, 20172023 and 2016,2022, the amounts at which the Company’s total debt iswere recorded are not materially different from their fair market value.

60

As of December 31, 2023, annual principal maturities on long-term borrowings, including the current portion, are as follows:
For the year ended December 31, 2024$23,250 
For the year ended December 31, 202536,955 
For the year ended December 31, 202636,914 
For the year ended December 31, 2027647,899 
For the year ended December 31, 202810,028 
Total maturities on debt in the next five fiscal years755,046 

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Note 1820 – Pension and Other Postretirement Benefits

The following table shows the funded status of the Company’s plans’ funded status reconciled with amounts reported in the Consolidated Balance Sheets as of December 31, 20172023 and 2016:

2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Post-

 

 

 

 

Pension Benefits

 

Retirement Benefits

 

 

 

 

2017

 

 

2016

 

2017

 

2016

Change in benefit obligation

Foreign

 

Domestic

 

Total

 

Foreign

 

Domestic

 

Total

 

Domestic

 

Domestic

Gross benefit obligation at beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of year

$

103,491

 

$

67,254

 

$

170,745

 

$

92,406

 

$

66,862

 

$

159,268

 

$

4,730

 

$

5,422

Service cost

 

3,219

 

 

337

 

 

3,556

 

 

2,378

 

 

298

 

 

2,676

 

 

8

 

 

10

Interest cost

 

2,066

 

 

1,932

 

 

3,998

 

 

2,314

 

 

2,114

 

 

4,428

 

 

144

 

 

142

Employee contributions

 

68

 

 

—

 

 

68

 

 

71

 

 

—

 

 

71

 

 

—

 

 

—

Plan settlements

 

—

 

 

(4,341)

 

 

(4,341)

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

Benefits paid

 

(2,503)

 

 

(4,031)

 

 

(6,534)

 

 

(1,583)

 

 

(4,522)

 

 

(6,105)

 

 

(448)

 

 

(443)

Plan expenses and premiums paid

 

(210)

 

 

—

 

 

(210)

 

 

(155)

 

 

(275)

 

 

(430)

 

 

—

 

 

—

Actuarial (gain) loss

 

(1,164)

 

 

1,826

 

 

662

 

 

14,848

 

 

2,777

 

 

17,625

 

 

295

 

 

(401)

Translation differences and other

 

13,385

 

 

—

 

 

13,385

 

 

(6,788)

 

 

—

 

 

(6,788)

 

 

—

 

 

—

Gross benefit obligation at end of year

$

118,352

 

$

62,977

 

$

181,329

 

$

103,491

 

$

67,254

 

$

170,745

 

$

4,729

 

$

4,730

Change in plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    year

beginning of year

$

86,844

 

$

49,197

 

$

136,041

 

$

76,156

 

$

46,701

 

$

122,857

 

$

—

 

$

—

Actual return on plan assets

 

116

 

 

6,865

 

 

6,981

 

 

14,472

 

 

2,516

 

 

16,988

 

 

—

 

 

—

Employer contributions

 

2,867

 

 

4,574

 

 

7,441

 

 

3,103

 

 

4,777

 

 

7,880

 

 

448

 

 

443

Employee contributions

 

68

 

 

—

 

 

68

 

 

71

 

 

—

 

 

71

 

 

—

 

 

—

Plan settlements

 

—

 

 

(4,341)

 

 

(4,341)

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

Benefits paid

 

(2,503)

 

 

(4,031)

 

 

(6,534)

 

 

(1,583)

 

 

(4,522)

 

 

(6,105)

 

 

(448)

 

 

(443)

Plan expenses and premiums paid

 

(210)

 

 

(300)

 

 

(510)

 

 

(155)

 

 

(275)

 

 

(430)

 

 

—

 

 

—

Translation differences

 

11,440

 

 

—

 

 

11,440

 

 

(5,220)

 

 

—

 

 

(5,220)

 

 

—

 

 

—

Fair value of plan assets at end of year

$

98,622

 

$

51,964

 

$

150,586

 

$

86,844

 

$

49,197

 

$

136,041

 

$

—

 

$

—

Net benefit obligation recognized

$

(19,730)

 

$

(11,013)

 

$

(30,743)

 

$

(16,647)

 

$

(18,057)

 

$

(34,704)

 

$

(4,729)

 

$

(4,730)

Amounts recognized in the balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

sheet consist of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

$

—

 

$

1,184

 

$

1,184

 

$

—

 

$

—

 

$

—

 

$

—

 

$

—

 

 

Current liabilities

 

(89)

 

 

(560)

 

 

(649)

 

 

(61)

 

 

(574)

 

 

(635)

 

 

(459)

 

 

(451)

 

 

Non-current liabilities

 

(19,641)

 

 

(11,637)

 

 

(31,278)

 

 

(16,586)

 

 

(17,483)

 

 

(34,069)

 

 

(4,270)

 

 

(4,279)

Net benefit obligation recognized

$

(19,730)

 

$

(11,013)

 

$

(30,743)

 

$

(16,647)

 

$

(18,057)

 

$

(34,704)

 

$

(4,729)

 

$

(4,730)

Amounts not yet reflected in net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

periodic benefit costs and included in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

$

1,744

 

$

(59)

 

$

1,685

 

$

1,687

 

$

(122)

 

$

1,565

 

$

—

 

$

—

 

 

Accumulated loss

 

(22,598)

 

 

(27,133)

 

 

(49,731)

 

 

(20,214)

 

 

(33,147)

 

 

(53,361)

 

 

(823)

 

 

(581)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AOCI

 

(20,854)

 

 

(27,192)

 

 

(48,046)

 

 

(18,527)

 

 

(33,269)

 

 

(51,796)

 

 

(823)

 

 

(581)

 

 

Cumulative employer contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in excess of or (below) net periodic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

benefit cost

 

1,124

 

 

16,179

 

 

17,303

 

 

1,880

 

 

15,212

 

 

17,092

 

 

(3,906)

 

 

(4,149)

Net benefit obligation recognized

$

(19,730)

 

$

(11,013)

 

$

(30,743)

 

$

(16,647)

 

$

(18,057)

 

$

(34,704)

 

$

(4,729)

 

$

(4,730)

Pension BenefitsOther Post-
Retirement Benefits
2023202220232022
ForeignU.S.TotalForeignU.S.TotalU.S.U.S.
Change in benefit obligation
Gross benefit obligation at beginning of year$130,554 $79,086 $209,640 $228,752 $103,420 $332,172 $1,606 $2,010 
Service cost399 28 427 465 47 512 — — 
Interest cost6,083 3,849 9,932 3,079 2,145 5,224 69 37 
Employee contributions— — — 20 — 20 — — 
Effect of plan amendments— (15)(15)303 — 303 — (2)
Curtailment (gain) loss(213)— (213)207 — 207 — — 
Plan settlements— — — (1,726)— (1,726)— — 
Benefits paid(6,086)(6,031)(12,117)(5,343)(5,838)(11,181)(182)(176)
Plan expenses and premiums paid— — — (66)— (66)— — 
Actuarial loss (gain)7,809 2,146 9,955 (77,244)(20,688)(97,932)(150)(263)
Translation differences and other6,233 — 6,233 (17,893)— (17,893)— — 
Gross benefit obligation at end of year$144,779 $79,063 $223,842 $130,554 $79,086 $209,640 $1,343 $1,606 

61

75

Table of Contents

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Pension BenefitsOther Post-
Retirement Benefits
2023202220232022
ForeignU.S.TotalForeignU.S.TotalU.S.U.S.
Change in plan assets
Fair value of plan assets at beginning of year$129,944 $59,591 $189,535 $216,886 $77,680 $294,566 $— $— 
Actual return on plan assets4,474 4,640 9,114 (65,396)(14,871)(80,267)— — 
Employer contributions1,566 2,767 4,333 3,241 2,620 5,861 182 176 
Employee contributions— — — 20 — 20 — — 
Plan settlements— — — (1,726)— (1,726)— — 
Benefits paid(6,086)(6,031)(12,117)(5,343)(5,838)(11,181)(182)(176)
Plan expenses and premiums paid— — — (66)— (66)— — 
Translation differences5,489 — 5,489 (17,672)— (17,672)— — 
Fair value of plan assets at end of year$135,387 $60,967 $196,354 $129,944 $59,591 $189,535 $— $— 
Net benefit obligation recognized$(9,392)$(18,096)$(27,488)$(610)$(19,495)$(20,105)$(1,343)$(1,606)
Amounts recognized in the balance sheet consist of:
Non-current assets$2,834 $— $2,834 $8,639 $— $8,639 $— $— 
Current liabilities(273)(1,757)(2,030)(210)(1,128)(1,338)(178)(222)
Non-current liabilities(11,953)(16,339)(28,292)(9,039)(18,367)(27,406)(1,165)(1,384)
Net benefit obligation recognized$(9,392)$(18,096)$(27,488)$(610)$(19,495)$(20,105)$(1,343)$(1,606)
Amounts not yet reflected in net periodic benefit costs and included in accumulated other comprehensive loss:
Prior service (cost) credit(353)— (353)(333)(36)(369)— 16 
Accumulated (loss) gain(19,117)2,248 (16,869)(10,387)2,532 (7,855)1,241 1,218 
AOCI(19,470)2,248 (17,222)(10,720)2,496 (8,224)1,241 1,234 
Cumulative employer contributions in excess of or (below) net periodic benefit cost10,078 (20,344)(10,266)10,110 (21,991)(11,881)(2,584)(2,840)
Net benefit obligation recognized$(9,392)$(18,096)$(27,488)$(610)$(19,495)$(20,105)$(1,343)$(1,606)
The accumulated benefit obligation for all defined benefit pension plans was $176.3$217.5 million ($62.279.1 million DomesticU.S. and approximately $114.1$138.4 million Foreign) and $167.1$204.5 million ($66.779.1 million DomesticU.S. and $100.4approximately $125.4 million Foreign) as of December 31, 20172023 and 2016,2022, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets:

2017

 

 

2016

Foreign

 

Domestic

 

Total

 

Foreign

 

Domestic

 

Total

Projected benefit obligation

$

118,352

 

$

12,197

 

$

130,549

 

$

103,491

 

$

67,254

 

$

170,745

202320232022
ForeignForeignU.S.TotalForeignU.S.Total

Accumulated benefit obligation

 

114,069

 

 

11,456

 

 

125,525

 

 

100,463

 

 

66,676

 

 

167,139

Fair value of plan assets

 

98,622

 

 

—

 

 

98,622

 

 

86,844

 

 

49,197

 

 

136,041

Information for pension plans with a projected benefit obligation in excess of plan assets:
20232022
ForeignU.S.TotalForeignU.S.Total
Projected benefit obligation$93,733 $79,063 $172,796 $71,318 $79,086 $150,404 
Fair value of plan assets81,507 60,967 142,474 61,805 59,591 121,396 
76
Table of Contents

 

2017

 

 

2016

 

Foreign

 

Domestic

 

Total

 

Foreign

 

Domestic

 

Total

Projected benefit obligation

$

118,352

 

$

12,197

 

$

130,549

 

$

103,491

 

$

67,254

 

$

170,745

Fair value of plan assets

 

98,622

 

 

—

 

 

98,622

 

 

86,844

 

 

49,197

 

 

136,041

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Components of net periodic benefit costs – pension plans:

2017

 

 

2016

Foreign

 

Domestic

 

Total

 

Foreign

 

Domestic

 

Total

202320232022
ForeignForeignU.S.TotalForeignU.S.Total

Service cost

$

3,219

 

$

337

 

$

3,556

 

$

2,378

 

$

298

 

$

2,676

Interest cost

 

2,066

 

 

1,932

 

 

3,998

 

 

2,314

 

 

2,114

 

 

4,428

Expected return on plan assets

 

(1,994)

 

 

(3,067)

 

 

(5,061)

 

 

(2,026)

 

 

(3,316)

 

 

(5,342)

Settlement loss

 

—

 

 

1,946

 

 

1,946

 

 

—

 

 

—

 

 

—

Settlement gain
Curtailment (gain) loss

Actuarial loss amortization

 

862

 

 

2,396

 

 

3,258

 

 

839

 

 

2,336

 

 

3,175

Prior service (credit) cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

amortization

 

(167)

 

 

63

 

 

(104)

 

 

(164)

 

 

63

 

 

(101)

Net periodic benefit cost

$

3,986

 

$

3,607

 

$

7,593

 

$

3,341

 

$

1,495

 

$

4,836

Prior service cost amortization
Net periodic benefit cost (income)

 

 

 

 

2015

 

 

 

 

Foreign

 

Domestic

 

Total

 

 

 

Service cost

$

2,799

 

$

250

 

$

3,049

 

 

 

Interest cost

 

2,476

 

 

2,541

 

 

5,017

 

 

 

Expected return on plan assets

 

(2,092)

 

 

(3,453)

 

 

(5,545)

 

 

 

Settlement loss

 

170

 

 

—

 

 

170

 

 

 

Actuarial loss amortization

 

1,136

 

 

2,353

 

 

3,489

 

 

 

Prior service (credit) cost amortization

 

(164)

 

 

63

 

 

(101)

 

 

 

Net periodic benefit cost

$

4,325

 

$

1,754

 

$

6,079

 

2021
ForeignU.S.Total
Service cost$698 $547 $1,245 
Interest cost2,594 1,737 4,331 
Expected return on plan assets(4,686)(3,611)(8,297)
Settlement loss35 — 35 
Actuarial loss amortization996 2,252 3,248 
Prior service credit amortization3 7 10 
Net periodic benefit (income) cost$(360)$932 $572 

62

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Other changes recognized in other comprehensive income – pension plans:
20232022
ForeignU.S.TotalForeignU.S.Total
Net (gain) loss arising during the period$8,605 $398 $9,003 $(7,008)$(3,555)$(10,563)
Settlement loss— (23)(23)— (323)(323)
Prior service (cost) credit— (15)(15)303 (7)296 
Actuarial (loss) gain(388)(92)(480)(587)1,247 660 
Curtailment recognition(28)— (28)(3)— (3)
Effect of exchange rates on amounts included in AOCI560 — 560 (1,169)— (1,169)
Total recognized in other comprehensive loss (income)8,749 268 9,017 (8,464)(2,638)(11,102)
Total recognized in net periodic benefit cost and other comprehensive loss (income)$10,163 $1,389 $11,552 $(8,595)$(3,625)$(12,220)
77
Table of Contents

 

 

 

2017

 

 

2016

 

 

 

Foreign

 

Domestic

 

Total

 

Foreign

 

Domestic

 

Total

Net loss (gain) arising during

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the period

$

715

 

$

(1,672)

 

$

(957)

 

$

2,401

 

$

3,576

 

$

5,977

Recognition of amortization in net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

periodic benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

 

167

 

 

(63)

 

 

104

 

 

164

 

 

(63)

 

 

101

 

 

Actuarial loss

 

(862)

 

 

(4,342)

 

 

(5,204)

 

 

(839)

 

 

(2,336)

 

 

(3,175)

Effect of exchange rates on amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

included in AOCI

 

2,308

 

 

—

 

 

2,308

 

 

(1,347)

 

 

—

 

 

(1,347)

Total recognized in other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss (income)

 

2,328

 

 

(6,077)

 

 

(3,749)

 

 

379

 

 

1,177

 

 

1,556

Total recognized in net periodic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

benefit cost and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

comprehensive loss (income)

$

6,314

 

$

(2,470)

 

$

3,844

 

$

3,720

 

$

2,672

 

$

6,392

QUAKER CHEMICAL CORPORATION

 

 

 

 

2015

 

 

 

 

 

 

Foreign

 

 

Domestic

 

 

Total

 

 

Net (gain) loss arising during period

$

(3,537)

 

$

1,134

 

$

(2,403)

 

 

Recognition of amortization in net periodic benefit

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

 

164

 

 

(63)

 

 

101

 

 

 

 

Actuarial loss

 

(1,306)

 

 

(2,353)

 

 

(3,659)

 

 

Effect of exchange rates on amounts included

 

 

 

 

 

 

 

 

 

 

 

 in AOCI

 

(2,353)

 

 

—

 

 

(2,353)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total recognized in other comprehensive income

 

(7,032)

 

 

(1,282)

 

 

(8,314)

 

 

Total recognized in net periodic benefit cost and

 

 

 

 

 

 

 

 

 

 

 

other comprehensive (income) loss

$

(2,707)

 

$

472

 

$

(2,235)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except per share amounts, unless otherwise stated)
2021
ForeignU.S.Total
Net (gain) loss arising during period$(388)$(448)$(836)
Settlement loss(83)(2,252)(2,335)
Prior service credit— (7)(7)
Actuarial (loss) gain(954)(6,925)(7,879)
Curtailment recognition(3)— (3)
Effect of exchange rates on amounts included in AOCI(1,390)— (1,390)
Total recognized in other comprehensive loss(2,818)(9,632)(12,450)
Total recognized in net periodic benefit cost and other comprehensive loss$(3,178)$(8,700)$(11,878)
Components of net periodic benefit costs – other postretirement plan:

 

 

 

2017

 

 

2016

 

 

2015

 

 

Service cost

$

8

 

$

10

 

$

17

 

 

Interest cost

 

144

 

 

142

 

 

195

 

 

Actuarial loss amortization

 

54

 

 

—

 

 

83

 

 

Net periodic benefit costs

$

206

 

$

152

 

$

295

 

202320222021
Service cost$— $— $1 
Interest cost69 37 27 
Actuarial gain amortization(128)(79)(82)
Prior service credit amortization(16)(32)(31)
Net periodic benefit costs$(75)$(74)$(85)

Other changes recognized in other comprehensive income – other postretirement benefit plans:

 

 

 

 

2017

 

 

2016

 

 

2015

 

 

Net loss (gain) arising during period

$

295

 

$

(401)

 

$

(302)

 

 

Amortization of actuarial loss in net periodic

 

 

 

 

 

 

 

 

 

 

 

benefit costs

 

(54)

 

 

—

 

 

(83)

 

 

Total recognized in other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(income)

 

241

 

 

(401)

 

 

(385)

 

 

Total recognized in net periodic benefit cost and

 

 

 

 

 

 

 

 

 

 

 

other comprehensive loss (income)

$

447

 

$

(249)

 

$

(90)

 

202320222021
Net (gain) loss arising during period$(150)$(263)$(992)
Recognition of amortizations in net periodic benefit cost— (2)(78)
Prior service credit16 32 31 
Actuarial gain amortization127 79 82 
Total recognized in other comprehensive (income) loss(7)(154)(957)
Total recognized in net periodic benefit cost and other comprehensive (income) loss$(82)$(228)$(1,042)

63

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Estimated amounts that will be amortized from accumulated other comprehensive loss over the next fiscal year:

 

 

 

 

 

 

 

 

 

 

 

 

Other Post-

 

 

 

 

Pension Plans

 

Retirement

 

 

 

 

Foreign

 

Domestic

 

Total

 

Benefits

 

 

Actuarial loss

$

890

 

$

2,283

 

$

3,173

 

$

58

 

 

Prior service (credit) cost

 

(177)

 

 

59

 

 

(118)

 

 

—

 

 

 

$

713

 

$

2,342

 

$

3,055

 

$

58

 

Weighted-average assumptions used to determine benefit obligations as of December 31, 20172023 and 2016:2022:

Pension BenefitsOther Postretirement
Benefits
2023202220232022
U.S. Plans
Discount rate4.94%5.21%4.87%5.14%
Rate of compensation increaseN/AN/AN/AN/A
Foreign Plans
Discount rate4.35%6.29%N/AN/A
Rate of compensation increase3.27%3.93%N/AN/A
78
Table of Contents

 

 

 

 

 

 

 

 

 

Other Postretirement

 

 

 

 

Pension Benefits

 

Benefits

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

U.S. Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

3.44

%

 

3.88

%

 

3.39

%

 

3.73

%

 

 

Rate of compensation increase

3.63

%

 

3.63

%

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

2.31

%

 

2.17

%

 

N/A

 

 

N/A

 

 

 

Rate of compensation increase

2.89

%

 

2.48

%

 

N/A

 

 

N/A

 

 

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Weighted-average assumptions used to determine net periodic benefit costs for the years ended December 31, 20172023, 2022 and 2016:

2021:

 

 

 

 

 

 

 

 

 

Other Postretirement

 

 

 

 

Pension Benefits

 

Benefits

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

U.S. Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

3.88

%

 

4.07

%

 

3.73

%

 

3.88

%

 

 

Expected long-term return on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

plan assets

7.00

%

 

7.20

%

 

N/A

 

 

N/A

 

 

 

Rate of compensation increase

3.63

%

 

3.63

%

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

2.17

%

 

2.95

%

 

N/A

 

 

N/A

 

 

 

Expected long-term return on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

plan assets

2.12

%

 

2.65

%

 

N/A

 

 

N/A

 

 

 

Rate of compensation increase

2.48

%

 

2.41

%

 

N/A

 

 

N/A

 

 

Pension BenefitsOther Postretirement
Benefits
202320222021202320222021
U.S. Plans
Discount rate5.21 %2.67 %2.67 %5.15 %2.45 %1.90 %
Expected long-term return on plan assets5.50 %5.75 %5.75 %N/AN/AN/A
Rate of compensation increaseN/AN/A6.00 %N/AN/AN/A
Foreign Plans
Discount rate4.77 %3.97 %1.38 %N/AN/AN/A
Expected long-term return on plan assets4.03 %2.26 %2.06 %N/AN/AN/A
Rate of compensation increase3.38 %3.21 %2.52 %N/AN/AN/A

The long-term rates of return on assets were selected from within the reasonable range of rates determined by (a) historical real returns for the asset classes covered by the investment policy and (b) projections of inflation over the long-term period during which benefits are payable to plan participants. See Note 1 of Notes to Consolidated Financial Statements for furtheradditional information.

Assumed health care cost trend rates as of December 31, 20172023, 2022 and 2016:

2021:

 

 

 

2017

 

2016

 

 

Health care cost trend rate for next year

6.40

%

 

6.70

%

 

 

Rate to which the cost trend rate is assumed to decline (the

 

 

 

 

 

 

 

 

ultimate trend rate)

4.50

%

 

4.50

%

 

 

Year that the rate reaches the ultimate trend rate

2037

 

 

2037

 

 

202320222021
Health care cost trend rate for next year6.87 %5.60 %5.65 %
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)4.00 %4.00 %4.00 %
Year that the rate reaches the ultimate trend rate204820472046

64

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Assumed health care cost trend rates could have a significant effect on the amounts reported for the health care plans.  A one-percentage-point change in assumed health care cost trend rates would have the following effects:

 

 

 

 

1% Point

 

 

1% Point

 

 

 

 

 

Increase

 

 

Decrease

 

 

Effect on total service and interest cost

$

16

 

$

(14)

 

 

Effect on postretirement benefit obligations

 

356

 

 

(311)

 

Plan Assets and Fair Value

The Company’s pension plan target asset allocation and the weighted-average asset allocations as of December 31, 20172023 and 20162022 by asset category were as follows:

 

Asset Category

Target

 

2017

 

2016

 

 

U.S. Plans

 

 

 

 

 

 

 

 

 

 

Equity securities

56

%

 

59

%

 

60

%

 

 

Debt securities

43

%

 

40

%

 

39

%

 

 

Other

1

%

 

1

%

 

1

%

 

 

 

Total

100

%

 

100

%

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Plans

 

 

 

 

 

 

 

 

 

 

Equity securities and other

25

%

 

25

%

 

24

%

 

 

Debt securities

75

%

 

75

%

 

76

%

 

 

 

Total

100

%

 

100

%

 

100

%

 

Asset CategoryTarget20232022
U.S. Plans
Equity securities30 %23 %32 %
Debt securities70 %70 %60 %
Other— %7 %8 %
Total100 %100 %100 %
Foreign Plans
Equity securities15 %15 %8 %
Debt securities60 %63 %79 %
Other25 %22 %13 %
Total100 %100 %100 %

As of December 31, 20172023 and 2016,2022, “Other” consisted principally of cash and cash equivalents, (approximately 1% of plan assetsand investments in each respective period).

real estate funds.

The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuationfair value hierarchy, where applicable:

applicable (refer to Note 1, Basis of Presentation and Significant Accounting Policies, for a definition of the levels of the fair value hierarchy):

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and money market funds and are classified as Level 1 investments.

Common Stock

Common stock is valued based on quoted market prices on an exchange

79
Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in an active market and is classified as Level 1 investments.

thousands, except per share amounts, unless otherwise stated)

Commingled Funds

Investments in the U.S. pension planpooled separate accounts consist primarily of mutual funds, each of which follows a separate investment strategy, and foreignare valued based on the reported unit value at year end. Foreign pension plan commingled funds represent pooled institutional investments, including primarily collective investment trusts. These commingled funds are not available on an exchange or in an active market and these investments are valued using their net asset value (“NAV”), which is generally based on the underlying asset values of the pooled investments held in the trusts.

As of December 31, 2017,2023, the U.S. pension plan commingled funds included approximately 60 percent of investments in equity securities and 40 percent of investments in fixed income securities.  As of December 31, 2017, foreign pension plan commingled funds included approximately 3135 percent of investments in equity securities, 5750 percent of investments in fixed income securities, and 1214 percent of other non-related investments, primarily real estate.

As of December 31, 2022, the foreign pension plan commingled funds included approximately 34 percent of investments in equity securities, 50 percent of investments in fixed income securities, and 16 percent of other non-related investments, primarily real estate.

Pooled Separate Accounts

Investments in the U.S. pension plan pooled separate accounts consist of insurance annuity contracts and are valued based on the reported unit value at year end. Units of the pooled separate account are not traded on an exchange or in an active marketmarket; however, valuation is based on the underlying investments of each pooled separate account and theseare classified as Level 2 investments. As of December 31, 2023, the U.S. pension plan pooled separate accounts included approximately 25 percent of investments arein equity securities and 75 percent of investments in fixed income securities.
Fixed Income Government Securities
Investments in foreign pension plans fixed income government securities were valued using their NAV.

third party pricing services which are based on a combination of quoted market prices on an exchange in an active market as well as proprietary pricing models and inputs using observable market data and are classified as Level 2 investments.

Insurance Contract

The Company’s foreign pension plans invest in two separate insurance contracts. Investments in the first foreign pension plan insurance contract are valued at the highest value available for the Company at year end, either the reported cash surrender value of the contract or the vested benefit obligation. Both the cash surrender value and

65

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

the vested benefit obligation are determined based on unobservable inputs, which are contractually or actuarially determined, regarding returns, fees, the present value of the future cash flows of the contract and benefit obligations.

During 2023, one of the Company’s foreign pension plans invested in an insurance contract that is valued at the value available for the Company at year end (i.e. the vested benefit obligation). The vested benefit obligation is determined based on unobservable inputs, which are actuarially determined, regarding returns, the present value of the future cash flows of the contract isand benefit obligations. Both this contract and the contract described above are classified as a Level 3 investment.

investments.

Diversified Equity Securities - Registered Investment Companies

Investments in the foreign pension planplans diversified equity securities of registered investment companies are based upon the quoted redemption value of shares in the fund owned by the plan at year end. The shares of the fund are not available on an exchange or in an active market; however, the fair value is determined based on the underlying investments in the fund as traded on an exchange in an active market and are classified as Level 2 investments.

Fixed Income – Foreign Registered Investment Companies

Investments in the foreign pension planplans fixed income securities of foreign registered investment companies are based upon the quoted redemption value of shares in the fund owned by the plan at year end. The shares of the fund are not available on an exchange or in an active market; however, the fair value is determined based on the underlying investments in the fund as traded on an exchange in an active market and are classified as Level 2 investments.

Real Estate

The

Diversified Investment Fund - Registered Investment Companies
Investments in the foreign pension plan’splan diversified investment fund of registered investment companies are based upon the quoted redemption value of shares in the fund owned by the plan at year end. This fund is not available on an exchange or in an active market and this investment is valued using its NAV, which is generally based on the underlying asset values of the investments held. There were no such investments as of December 31, 2023 and 2022.
80
Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Other – Alternative Investments
Investments in the foreign pension plans include certain other alternative investments such as inflation and interest rate swaps. These investments are valued based on unobservable inputs, which are contractually or actuarially determined, regarding returns, fees, the present value of future cash flows of the contract and benefit obligations. These alternative investments are classified as Level 3 investments.
Real Estate
The U.S. and foreign pension plans’ investment in real estate consists of an investmentinvestments in a property fund.funds. The fund’sfunds’ underlying investments consist of real property which are valued using unobservable inputs. TheThese property fund isfunds are classified as a Level 3 investment.

investments.

As of December 31, 20172023 and 2016,2022, the U.S. and foreign plans’ investments measured at fair value on a recurring basis were as follows:

 

 

 

 

 

 

Fair Value Measurements at December 31, 2017

 

 

 

 

Total

 

Using Fair Value Hierarchy

U.S. Pension Assets

Fair Value

 

Level 1

 

Level 2

 

Level 3

Cash and cash equivalents

$

449

 

$

449

 

$

—

 

$

—

Small capitalization common stock

 

1,508

 

 

1,508

 

 

—

 

 

—

 

Subtotal U.S. pension plan assets in fair value hierarchy

$

1,957

 

$

1,957

 

$

—

 

$

—

Commingled funds measured at NAV

 

48,527

 

 

 

 

 

 

 

 

 

Pooled separate accounts measured at NAV

 

1,480

 

 

 

 

 

 

 

 

 

 

 

Total U.S. pension plan assets

$

51,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Pension Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

26

 

$

26

 

$

—

 

$

—

Insurance contract

 

82,092

 

 

—

 

 

—

 

 

82,092

Diversified equity securities - registered investment companies

 

9,002

 

 

—

 

 

9,002

 

 

—

Fixed income - foreign registered investment companies

 

2,951

 

 

—

 

 

2,951

 

 

—

Real estate - registered investment companies

 

2,428

 

 

—

 

 

—

 

 

2,428

 

Sub-total of foreign pension assets in fair value hierarchy

$

96,499

 

$

26

 

$

11,953

 

$

84,520

Commingled funds measured at NAV

 

2,123

 

 

 

 

 

 

 

 

 

 

 

Total foreign pension assets

$

98,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total pension assets in fair value hierarchy

$

98,456

 

$

1,983

 

$

11,953

 

$

84,520

 

 

 

Total pension assets measured at NAV

 

52,130

 

 

 

 

 

 

 

 

 

 

 

 

Total pension assets

$

150,586

 

 

 

 

 

 

 

 

 

66

Fair Value Measurements at December 31, 2023
Total
Fair Value		Using Fair Value Hierarchy
U.S. Pension AssetsLevel 1Level 2Level 3
Pooled separate accounts$56,820 $— $56,820 $— 
Real estate4,147 — — 4,147 
Subtotal U.S. pension plan assets in fair value hierarchy$60,967 $— $56,820 $4,147 
Total U.S. pension plan assets$60,967 
Foreign Pension Assets
Cash and cash equivalents$1,582 $1,582 $— $— 
Insurance contract118,393 — — 118,393 
Diversified equity securities - registered investment companies1,892 — 1,892 — 
Fixed income – foreign registered investment companies9,676 — 9,676 — 
Real estate1,771 — — 1,771 
Subtotal foreign pension assets in fair value hierarchy$133,314 $1,582 $11,568 $120,164 
Commingled funds measured at NAV2,073 
Total foreign pension assets$135,387 
Total pension assets in fair value hierarchy$194,281 $1,582 $68,388 $124,311 
Total pension assets measured at NAV2,073 
Total pension assets$196,354 
81

Table of Contents

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

 

 

 

 

Fair Value Measurements at December 31, 2016

Fair Value Measurements at December 31, 2022
Fair Value Measurements at December 31, 2022
Fair Value Measurements at December 31, 2022
Total
Fair Value
Total
Fair Value
Total
Fair Value
U.S. Pension Assets
U.S. Pension Assets
U.S. Pension Assets
Pooled separate accounts
Pooled separate accounts
Pooled separate accounts
Real estate
Real estate
Real estate
Subtotal U.S. pension plan assets in fair value hierarchy
Subtotal U.S. pension plan assets in fair value hierarchy
Subtotal U.S. pension plan assets in fair value hierarchy
Total U.S. pension plan assets
Total U.S. pension plan assets
Total U.S. pension plan assets

 

 

Total

 

Using Fair Value Hierarchy

U.S. Pension Assets

Fair Value

 

Level 1

 

Level 2

 

Level 3

Cash and cash equivalents

$

302

 

$

302

 

$

—

 

$

—

Small capitalization common stock

 

1,279

 

 

1,279

 

 

—

 

 

—

Foreign Pension Assets

Subtotal U.S. pension plan assets in fair value hierarchy

$

1,581

 

$

1,581

 

$

—

 

$

—

Commingled funds measured at NAV

 

46,185

 

 

 

 

 

 

 

 

 

Pooled separate accounts measured at NAV

 

1,431

 

 

 

 

 

 

 

 

 

 

Total U.S. pension plan assets

$

49,197

 

 

 

 

 

 

 

 

 

Foreign Pension Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Pension Assets

Foreign Pension Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

Cash and cash equivalents

$

130

 

$

130

 

$

—

 

$

—

Cash and cash equivalents
Cash and cash equivalents
Insurance contract
Insurance contract

Insurance contract

Insurance contract

 

72,778

 

 

—

 

 

—

 

 

72,778

Diversified equity securities - registered investment companies

Diversified equity securities - registered investment companies

 

7,308

 

 

—

 

 

7,308

 

 

—

Fixed income - foreign registered investment companies

 

2,753

 

 

—

 

 

2,753

 

 

—

Real estate - registered investment companies

 

2,041

 

 

—

 

 

—

 

 

2,041

Diversified equity securities - registered investment companies
Diversified equity securities - registered investment companies
Fixed income – foreign registered investment companies
Fixed income – foreign registered investment companies
Fixed income – foreign registered investment companies

Subtotal foreign pension assets in fair value hierarchy

$

85,010

 

$

130

 

$

10,061

 

$

74,819

Real estate
Real estate
Real estate
Subtotal foreign pension assets in fair value hierarchy
Subtotal foreign pension assets in fair value hierarchy
Subtotal foreign pension assets in fair value hierarchy

Commingled funds measured at NAV

Commingled funds measured at NAV

 

1,834

 

 

 

 

 

 

 

 

 

Commingled funds measured at NAV
Commingled funds measured at NAV
Total foreign pension assets
Total foreign pension assets
Total foreign pension assets

 

Total foreign pension plan assets

$

86,844

 

 

 

 

 

 

 

 

 

Total pension assets in fair value hierarchy

 

 

 

 

 

 

 

 

 

 

 

 

 

Total pension assets in fair value hierarchy

 

Total pension assets in fair value hierarchy

$

86,591

 

$

1,711

 

$

10,061

 

$

74,819

 

Total pension assets measured at NAV

 

49,450

 

 

 

 

 

 

 

 

 

 

Total pension assets

$

136,041

 

 

 

 

 

 

 

 

 

Total pension assets in fair value hierarchy
Total pension assets measured at NAV
Total pension assets measured at NAV
Total pension assets measured at NAV
Total pension assets
Total pension assets
Total pension assets

During the third quarter of 2023, one of the Company’s pension plans in the U.K. liquidated approximately $50 million of its invested assets and subsequently funded and entered into an insurance annuity contract, which will provide for the pension plan’s defined benefit obligations to participants.
Certain investments that are measured at fair value using the NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented for these investments in the preceding tables are intended to permit reconciliation of the fair value hierarchies to the line items presented in the statements of net assets available for benefits.

Changes in the fair value of the foreign plans’ Level 3 investments during the years ended December 31, 20172023 and 20162022 were as follows:
Insurance
Contract		Real EstateAlternative
Investments		Total
Balance as of December 31, 2021$99,527 $11,547 $6,979 $118,053 
Purchases(1,136)(122)(6,979)(8,237)
Unrealized losses(32,305)(1,842)— (34,147)
Currency translation adjustment(6,123)(681)— (6,804)
Balance as of December 31, 202259,963 8,902 — 68,865 
Purchases47,640 (303)— 47,337 
Unrealized gains (losses)7,621 (2,867)— 4,754 
Currency translation adjustment3,169 186 — 3,355 
Balance as of December 31, 2023$118,393 $5,918 $— $124,311 
82

 

 

 

 

Insurance

 

 

Real Estate

 

 

 

 

 

 

 

 

Contract

 

 

Fund

 

 

Total

 

 

Balance as of December 31, 2015

$

62,409

 

$

2,388

 

$

64,797

 

 

 

Purchases

 

2,584

 

 

—

 

 

2,584

 

 

 

Settlements

 

(1,350)

 

 

—

 

 

(1,350)

 

 

 

Unrealized gains

 

12,005

 

 

56

 

 

12,061

 

 

 

Currency translation adjustment

 

(2,870)

 

 

(403)

 

 

(3,273)

 

 

Balance as of December 31, 2016

 

72,778

 

 

2,041

 

 

74,819

 

 

 

Purchases

 

2,350

 

 

—

 

 

2,350

 

 

 

Settlements

 

(1,661)

 

 

—

 

 

(1,661)

 

 

 

Unrealized (losses) gains

 

(1,425)

 

 

188

 

 

(1,237)

 

 

 

Currency translation adjustment

 

10,050

 

 

199

 

 

10,249

 

 

Balance as of December 31, 2017

$

82,092

 

$

2,428

 

$

84,520

 

U.S. pension assets include Company common stock in the amountsTable of $1.5 million (3% of total U.S. plan assets) and $1.3 million (3% of total U.S. plan assets) as of December 31, 2017 and 2016, respectively.Contents

During the second quarter of 2017, the Company’s U.S. pension plan offered a cash settlement to its vested terminated participants, which allowed them to receive the value of their pension benefits as a single lump sum payment.  As payments from the U.S. pension plan for this cash out offering exceeded the service and interest cost components of the U.S. pension plan expense for the year ended December 31, 2017, the Company recorded a settlement charge of approximately $1.9 million.  This settlement charge represented the immediate recognition into expense of a portion of the unrecognized loss within AOCI on the balance sheet in proportion to the share of the projected benefit obligation that was settled by these payments.  The gross pension benefit obligation

67

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

was reduced

The Company contributes to a multiemployer defined benefit pension plan under terms of a collective bargaining union contract (the Cleveland Bakers and Teamsters Pension Fund, Employer Identification Number: 34-0904419-001). The expiration date of the collective bargaining contract is May 1, 2025. As of January 1, 2022, the last valuation date available for the multiemployer plan, total plan liabilities were approximately $576 million. As of December 31, 2022, the multiemployer pension plan had total plan assets of approximately $340 million. The Company’s contribution rate to the multiemployer pension plan is specified in the collective bargaining union contract and contributions are made to the plan based on its union employee payroll. The Company contributed $0.1 million during the year ended December 31, 2023. The Employee Retirement Income Security Act of 1974, as amended by approximately $4.0 millionthe Multi-Employer Pension Plan Amendments Act of 1980, imposes certain contingent liabilities upon an employer who is a contributor to a multiemployer pension plan if the employer withdraws from the plan or the plan is terminated or experiences a mass withdrawal. While the Company may also have additional liabilities imposed by law as a result of these payments.its participation in the multiemployer defined benefit pension plan, there is no liability as of December 31, 2023.
The settlement charge was recognizedPension Protection Act of 2006 (the “PPA”) also added special funding and operational rules generally applicable to plan years beginning after 2007 for multiemployer plans with certain classifications based on a multitude of factors (including, for example, the plan’s funded percentage, cash flow position and whether the plan is projected to experience a minimum funding deficiency). The plan to which the Company contributes is in “critical” status. Plans in the “critical” status classification must adopt measures to improve their funded status through other expense, net,a funding improvement or rehabilitation plan which may require additional contributions from employers (which may take the form of a surcharge on benefit contributions) and/or modifications to retiree benefits. The amount of additional funds that the Company’s Consolidated StatementsCompany may be obligated to contribute to the plan in the future cannot be estimated as such amounts will be likely based on future levels of Income.

work that require the specific use of those union employees covered by the plan, and the amount of that future work and the number of affected employees that may be needed is not reasonably estimable.

Cash Flows

Contributions

The Company expects to make minimum cash contributions of $9.9approximately $5.7 million to its pension plans ($4.6(approximately $3.3 million DomesticU.S. and $5.3$2.4 million Foreign) and approximately $0.4$0.2 million to its other postretirement benefit plan in 2018. 

2024.

Estimated Future Benefit Payments

The

Excluding any impact related to the PPA noted above, the following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

 

 

 

 

 

 

 

 

 

 

 

Other Post-

 

 

 

Pension Benefits

 

Retirement

 

 

 

Foreign

 

Domestic

 

Total

 

Benefits

 

 

2018

$

2,205

 

$

4,473

 

$

6,678

 

$

459

 

 

2019

 

2,384

 

 

4,420

 

 

6,804

 

 

441

 

 

2020

 

2,623

 

 

4,187

 

 

6,810

 

 

416

 

 

2021

 

3,322

 

 

4,159

 

 

7,481

 

 

489

 

 

2022

 

3,346

 

 

4,165

 

 

7,511

 

 

364

 

 

2023 to 2027

 

19,491

 

 

22,218

 

 

41,709

 

 

1,502

 

Pension BenefitsOther Post-
Retirement
Benefits
ForeignU.S.Total
2024$6,235 $7,657 $13,892 $178 
20256,640 6,805 13,445 168 
20267,403 6,793 14,196 160 
20277,127 6,154 13,281 139 
20287,328 6,085 13,413 130 
2029 to 203345,090 28,648 73,738 517 

The Company maintains a plan under which supplemental retirement benefits are provided to certain officers. Benefits payable under the plan are based on a combination of years of service and existing postretirement benefits. Included in total pension costs are charges of $1.4$0.6 million, $0.9$0.7 million and $0.9$3.0 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively, representing the annual accrued benefits under this plan.

Defined Contribution Plan

The Company hassponsors various defined contribution plans in both its U.S. and non-U.S. subsidiaries, under which eligible participants may defer a portion of their compensation up to the allowable amount as determined by the plan. All contributions and Company matches are invested at the direction of the participant. The most significant plan is the Company's primary U.S. 401(k) plan with an employer match covering a majority of its domesticU.S. employees. The plan allows forBeginning in April 2020 and continuing through March 2021, the Company previously paid a nonelective contribution on behalf of participants who have completed one year of service equal to 3% of the eligible participants’ compensation in the form of Company common stock.  During the first quarter of 2017, the Company began matchingmatched both non-elective and elective 401(k) contributions in cash,fully vested shared of the Company’s common stock rather than stock.  cash. See Note 8 for additional information. Total Company contributions under this U.S. 401(k) plan were $2.9$6.1 million, $2.7$7.2 million and $2.6$4.8 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
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QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)

Note 1921 – Other Non-Current Liabilities

Other non-current liabilities as of December 31, 20172023 and 20162022 were as follows: 

follows:

 

 

2017

 

2016

 

 

Restricted insurance settlement

$

21,171

   

$

21,883

 

 

Non-current income taxes payable

 

15,825

 

 

—

 

 

Uncertain tax positions (includes interest and penalties)

  

7,970

   

  

7,933

 

 

Deferred and other long-term compensation

 

5,905

 

 

5,550

 

 

Other

 

625

 

 

520

 

 

Total other non-current liabilities

$

51,496

   

$

35,886

 

20232022
Uncertain tax positions, including interest and penalties (See Note 10)$19,630 $20,322 
Non-current income taxes payable (See Note 10)4,695 8,883 
Environmental reserves (See Note 25)3,874 4,342 
Deferred and other long-term compensation2,871 3,132 
Acquisition-related earnout liability (See Note 2)475 1,024 
Other260 961 
Total other non-current liabilities$31,805 $38,664 

See also Notes 8, 15 and 23 of Notes to Consolidated Financial Statements.

Note 2022 – Equity and Accumulated Other Comprehensive Loss

In May 2015, the Company’s Board of Directors authorized a share repurchase program for the repurchase of up to $100.0 million of Quaker Chemical Corporation common stock (the “2015 Share Repurchase Program”).  The 2015 Share Repurchase Program has no expiration date.  The 2015 Share Repurchase Program provides a framework of conditions under which management can repurchase shares of the Company’s common stock.  These purchases may be made in the open market or in private and negotiated transactions and will be in accordance with applicable laws, rules and regulations.  In connection with the 2015 Share Repurchase Program, the remaining unutilized 1995 and 2005 Board of Directors authorized share repurchase programs were terminated.

In connection with the 2015 Share Repurchase Program, the Company acquired 83,879 shares of common stock for $5.9 million, during the year ended December 31, 2016, and 87,386 shares of common stock for $7.3 million during the year ended December 31,

68

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

2015.  There were no share repurchases under the 2015 Share Repurchase Program during the year ended December 31, 2017.  The Company has elected not to hold treasury shares and therefore has retired the shares as they are repurchased.  It is the Company’s accounting policy to record the excess paid over par value as a reduction in retained earnings for all shares repurchased.

Prior to September 7, 2017, the Company’s Articles of Incorporation included a time-based voting system that granted special ten-for-one-voting rights to shareholders who had beneficially owned their Quaker Chemical Corporation common stock continuously for a period of at least 36 consecutive calendar months (dating from the first day of the first full calendar month on or after the date the holder acquired beneficial ownership of such common stock) before the record date for a shareholder vote.  At a meeting of the Company’s shareholders on September 7, 2017, the Company’s shareholders approved an amendment of the Company’s Articles of Incorporation that provides that every holder of Quaker Chemical Corporation common stock will be entitled to one vote for each share of common stock of the Company.

The Company has 30,000,000 shares of common stock authorized with a par value of $1, and 13,307,97617,991,988 and 13,277,83217,950,264 shares issued and outstanding as of December 31, 20172023 and 2016,2022, respectively. The change in shares issued and outstanding during 20172023 was primarily related to 20,91538,522 shares issued for equity-basedshare-based compensation plans 4,091 shares issued for the ESPP and 4,8783,202 shares issued for the exercise of stock options and other employee and director-related share activity.

The Company is authorized to issue 10,000,000 shares of preferred stock with $1 par value, subject to approval by the Board of Directors.Board. The Board of Directors may designate one or more series of preferred stock and the number of shares, rights, preferences, and limitations of each series. As of December 31, 2017,2023, no preferred stock had been issued.
On February 28, 2024, the Board approved a new share repurchase program (“2024 Share Repurchase Program”), authorizing the Company to repurchase up to an aggregate of $150 million of the Company’s outstanding common stock. The 2024 Share Repurchase Program is effective immediately and has no expiration date. In connection with the 2024 Share Repurchase Program, the Company’s previous share repurchase program (“2015 Share Repurchase Program”), which was approved by the Board in 2015 and had no expiration date, was terminated. The 2015 Share Repurchase Program was approved for the repurchase of up to $100 million of Quaker Chemical Corporation common stock. As of December 31, 2023, there was approximately $86.9 million of common stock remaining under the 2015 Share Repurchase Program. The Company did not repurchase any shares under any programs for the years ended December 31, 2023, 2022 and 2021.
Under the 2024 Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 and under Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The Company plans to employ trading plans for the repurchase of shares pursuant to the 2024 Share Repurchase Program, which would permit the Company to purchase shares, at predetermined price targets, when it may otherwise be precluded from doing so. The repurchases may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors.
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QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The following table shows the reclassifications from and resulting balances of AOCI for the years ended December 31, 2017, 20162023, 2022 and 2015:

2021:

 

 

 

 

 

 

 

 

 

Unrealized Gain (Loss) in

 

 

 

 

 

 

 

 

 

Defined

 

 

 

 

 

 

 

Currency

 

Benefit

 

Available-for-

 

 

 

 

 

 

Translation

 

Pension

 

Sale

 

 

 

 

 

 

Adjustments

 

Plans

 

Securities

 

Total

Balance as of December 31, 2014

$

(14,312)

 

$

(41,551)

 

$

1,457

 

$

(54,406)

 

Other comprehensive (loss) income before reclassifications

 

(24,232)

 

 

5,057

 

 

(850)

 

 

(20,025)

 

Amounts reclassified from AOCI

 

—

 

 

3,642

 

 

(632)

 

 

3,010

 

Related tax amounts

 

—

 

 

(2,399)

 

 

504

 

 

(1,895)

Balance as of December 31, 2015

 

(38,544)

 

 

(35,251)

 

 

479

 

 

(73,316)

 

Other comprehensive (loss) income before reclassifications

 

(13,711)

 

 

(4,229)

 

 

834

 

 

(17,106)

 

Amounts reclassified from AOCI

 

—

 

 

3,075

 

 

(17)

 

 

3,058

 

Related tax amounts

 

—

 

 

237

 

 

(280)

 

 

(43)

Balance as of December 31, 2016

 

(52,255)

 

 

(36,168)

 

 

1,016

 

 

(87,407)

 

Other comprehensive income (loss) before reclassifications

 

20,362

 

 

(1,646)

 

 

2,299

 

 

21,015

 

Amounts reclassified from AOCI

 

—

 

 

5,154

 

 

(2,494)

 

 

2,660

 

Related tax amounts

 

—

 

 

(1,433)

 

 

65

 

 

(1,368)

Balance as of December 31, 2017

$

(31,893)

 

$

(34,093)

 

$

886

 

$

(65,100)

Currency
Translation
Adjustments		Defined
Benefit
Pension
Plans		Unrealized
Gain (Loss) in
Available-for-
Sale Securities		Derivative
Instruments		Total
Balance as of December 31, 2020$(2,875)$(23,467)$3,342 $(3,598)$(26,598)
Other comprehensive income (loss) before reclassifications(46,968)11,948 (531)2,890 (32,661)
Amounts reclassified from AOCI— 1,459 (3,197)— (1,738)
Related tax amounts— (3,112)783 (664)(2,993)
Balance as of December 31, 2021(49,843)(13,172)397 (1,372)(63,990)
Other comprehensive (loss) income before reclassifications(82,318)10,789 (3,276)— (74,805)
Amounts reclassified from AOCI— 479 895 1,372 2,746 
Related tax amounts— (2,691)500 — (2,191)
Balance as of December 31, 2022(132,161)(4,595)(1,484)— (138,240)
Other comprehensive income (loss) before reclassifications16,744 (7,702)1,753 1,828 12,623 
Amounts reclassified from AOCI— (464)547 — 83 
Related tax amounts— 2,023 (483)(421)1,119 
Balance as of December 31, 2023$(115,417)$(10,738)$333 $1,407 $(124,415)

Approximately 25% and 75% of the amounts reclassified from accumulated other comprehensive loss to the Consolidated Statements of Income for defined benefit retirement plans during the years ended December 31, 2017, 2016 and 2015 were recorded in COGS and SG&A, respectively.  See Note 18 of Notes to Consolidated Financial Statements for further information. 

All reclassifications related to unrealizedUnrealized gain (loss) inon available-for-sale securities relate to the Company’s equity interest in a captive insurance company and are recorded in equityEquity in net income of associated companies. The amounts reported on the Consolidated Statements of Changes in EquityOther comprehensive income (loss) for non-controlling interest are related to currencyCurrency translation adjustments.

Note 2123 – Business Acquisitions

In December 2017,Fair Value Measures

Fair value is defined as an exit price, or the Company acquiredprice that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the remaining 45% ownership interestmeasurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
• Level 1 - Quoted prices (unadjusted) in its India affiliate, Quaker Chemical India Private Limited (“QCIL”)active markets for 2,025.0 million INR,identical assets or approximately $31.8 million, from its joint venture partner, Asianol Lubricants Private Limited.  QCIL sells productsliabilities.
• Level 2 - Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.
• Level 3 - Inputs that are unobservable for the asset or liability based on our own assumptions about the assumptions market participants would use in pricing the asset or liability.
Refer to the steel and metalworking industries in India and has associates based in various locations around India.  The Company had beenNote 24, Hedging Activities, for a joint venture partner in QCIL for 20 years.  QCIL is a partdescription of the Company’s Asia/Pacific reportable operating segment.  As this acquisition was a change in an existing controlling ownership,derivative instruments including the Company recorded $21.2 million of excess purchase price over the carryingvaluation techniques used to determine fair value and support for their classification within Level 2 of the noncontrolling interest in Capital in excess of par value. 

fair value hierarchy.

69

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

In May 2017, the Company acquired assets associated with a business that markets, sells and manufactures certain metalworking fluids for its North America reportable operating segment for 7.3 million CAD, or approximately $5.4 million.  The Company allocated approximately $3.0 million of the purchase price to intangible assets, comprised of trademarks and formulations, to be amortized over 15 years; a non-competition agreement, to be amortized over 5 years; and customer relationships, to be amortized over 10 years.  In addition, the Company recorded an other current asset of approximately $0.6 million acquired with the business, and approximately $1.8 million of goodwill related to expected value not allocated to other acquired assets, all of which will be tax deductible.

In November 2016, the Company acquired Lubricor Inc. andvalues its affiliated entities (“Lubricor”), a metalworking fluids manufacturer headquartered in Waterloo, Ontario for its North America reportable operating segment for 16.0 million CAD, or approximately $12.0 million.  In May 2016, the Company acquired assets of a business that is associated with dust control products for the mining industry for its North America reportable operating segment for $1.9 million. 

During the first quarter of 2017, the Company identified and recorded an adjustment to the allocation of the purchase price for the Lubricor acquisition.  The adjustment was the result of finalizing a post-closing settlement based on the Company’s assessment of additional information related to assets acquired and liabilities assumed.  As of December 31, 2017, the allocation of the purchase price for all of the Company’s 2016 acquisitions have been finalized.  The following table presents the final allocation of the purchase price of the assets acquired and liabilities assumed in all of the Company’s acquisitions in 2016:

 

2016 Acquisitions

 

 

 

Current assets (includes cash acquired)

$

3,443

 

 

Property, plant and equipment

 

2,574

 

 

Intangibles

 

 

 

 

 

Customer lists and rights to sell

 

5,041

 

 

 

Trademarks, formulations and

 

 

 

 

 

   product technology

 

2,543

 

 

 

Other intangibles

 

127

 

 

Goodwill

 

3,355

 

 

 

Total assets purchased

 

17,083

 

 

Current liabilities

 

(1,198)

 

 

Other long-term liabilities

 

(2,019)

 

 

 

Total liabilities assumed

 

(3,217)

 

 

 

Gross cash paid for acquisition

$

13,866

 

 

 

Less: cash acquired

 

105

 

 

 

Net cash paid for acquisition

$

13,761

 

In July 2015, the Company acquired Verkol, a leading specialty grease and other lubricants manufacturer based in northern Spain, included in its EMEA reportable operating segment, for 37.7 million EUR, or approximately $41.4 million.  This includes a post-closing adjustment of 1.3 million EUR, or approximately $1.4 million that was accrued as of December 31, 2015 and paid during the first quarter of 2016.  The purchase included cash acquired of 14.1 million EUR, or approximately $15.4 million, and assumed long-term debt of 2.2 million EUR, or approximately $2.4 million.  In addition, the Company incurred $2.8 million of one-time transaction expenses in the third quarter of 2015, related to this acquisition.

In December 2014, the Company acquired a business that is principally concerned with safety fluid applications for mining sites in its Asia/Pacific reportable operating segment for net consideration of approximately 2.9 million AUD, or approximately $2.4 million.  The Company also assumed an additional 0.3 million AUD, or approximately $0.2 million hold-back of consideration, which was paid out and settled during the fourth quarter of 2015. 

In November 2014, the Company acquired Binol AB, a leading bio-lubricants producer primarily serving the Nordic region, included in it EMEA reportable operating segment, for 136.5 million SEK, or approximately $18.5 million, which is net of 4.4 million SEK, or approximately $0.5 million, received by the Company as part of a post-closing adjustment in the first quarter of 2015.

The results of operations of the acquired businesses and assets are included in the Consolidated Statements of Income from their respective acquisition dates.  Transaction expenses associated with these acquisitions are included in SG&A in the Company’s Consolidated Statements of Income.  Certain pro forma and other information is not presented, as the operations of the acquired businesses are not material to the overall operations of the Company for the periods presented.

70

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Note 22 – Fair Value Measures

The Company’s assets subject tocompany-owned life insurance policies at fair value measurement were as follows:

 

 

 

 

 

Fair Value Measurements at December 31, 2017

 

 

 

Total

 

Using Fair Value Hierarchy

Assets

Fair Value

 

Level 1

 

Level 2

 

Level 3

Company-owned life insurance

$

1,594

 

$

—

 

$

1,594

 

$

—

Total

$

1,594

 

$

—

 

$

1,594

 

$

—

 

 

 

 

 

Fair Value Measurements at December 31, 2016

 

 

 

Total

 

Using Fair Value Hierarchy

Assets

Fair Value

 

Level 1

 

Level 2

 

Level 3

Company-owned life insurance

$

1,410

 

$

—

 

$

1,410

 

$

—

Total

$

1,410

 

$

—

 

$

1,410

 

$

—

The fair values of Company-owned life insurance are based on quotes for like instruments with similar credit ratings and terms. TheDuring June 2023, the Company did not have liabilitiessurrendered and liquidated $1.9 million of these life insurance policies. As a result, the Company owns an immaterial remaining amount of company-owned life insurance policies as of the year ended December 31, 2023. These assets were subject to fair value measurement andas follows:

Fair Value Measurements at December 31, 2022
Total Fair ValueUsing Fair Value Hierarchy
AssetsLevel 1Level 2Level 3
Company-owned life insurance$2,114 $— $2,114 $— 
Total$2,114 $— $2,114 $— 
The Company did not hold any Level 3 investments as of December 31, 20172023 or 2016, respectively, so related disclosures2022, respectively.
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Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
Items Measured at Fair Value on Nonrecurring Basis
The Company is also required to measure certain items, including intangible assets and goodwill, at fair value on a nonrecurring basis. For non-observable market values, the Company determines fair value using acceptable valuation principles, including the excess earnings, relief from royalty, lost profit, or cost methods. The determination of the estimated fair values of intangible assets and goodwill requires management’s judgment and involves the use of significant estimates and assumptions, including revenue growth rates, gross margin levels, operating expenses, the weighted average cost of capital (“WACC”), and royalty rates, among other items. Significant unobservable inputs used to estimate the fair values as of the Company’s October 1, 2023 goodwill impairment assessment included WACCs of 11.0%, 12.0% and 11.0% for the Company’s Americas, EMEA and Asia/Pacific reporting units, respectively. See Note 15 for additional information.
Note 24 – Hedging Activities
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates and interest rate risk. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts and interest rate swap agreements. The Company does not hold or enter into financial instruments for trading or speculative purposes.
Foreign Exchange Forward Contracts
A significant portion of the Company’s revenues and earnings are generated by its foreign operations. These foreign operations also represent a significant portion of the Company’s assets and liabilities. Generally, these foreign operations have the local currency as their functional currency and many have transactions in currencies other than their functional currency, which creates foreign exchange risk. The Company uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on certain monetary assets and liabilities denominated in certain foreign currencies. These forward contracts are marked-to-market at each reporting date. Changes in the fair value of the underlying instrument and settlements are recognized in earnings in Other non-operating income, net. The fair value of the forward contract is determined from sources independent of the Company, including the financial institutions which are party to the derivative instruments.
All open foreign exchange forward contracts as of December 31, 2023 were entered into as hedges against the U.S. dollar. As of December 31, 2023, the Company had open foreign exchange forward contracts with a notional U.S. dollar value of the following:
CurrencyDecember 31,
2023
Mexican Peso$16,700 
Japanese Yen9,000 
  Total$25,700 
Open foreign exchange forward contracts as of December 31, 2023 had maturities occurring over a period of one month.
Interest Rate Swaps
In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, such as the Secured Overnight Financing Rate (“SOFR”), in the first quarter of 2023, the Company entered into $300.0 million notional amounts of three year interest rate swaps to convert a portion of the Company’s variable rate borrowings into a fixed rate obligation. See Note 19 for additional information.
These interest rate swaps are designated as cash flow hedges and, as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective and reclassified to interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not been included.occur. Interest rate swaps are entered into with a limited number of counterparties within several tranches, each of which allows for net settlement of all contracts through a single payment to participating counterparties in a single currency in the event of a default or termination of any one contract. As such, in accordance with the Company’s accounting policy, these derivative instruments are recorded on a net basis within the Consolidated Balance Sheets.
Prior to expiration in October 2022, the interest rate swaps associated with the Original Credit Facility were entered into with a limited number of counterparties, each of which allowed for net settlement of all contracts through a single payment in a single currency in the event of a default or termination of any one contract. As such, in accordance with the Company’s accounting policy, these derivative instruments were recorded on a net basis within the Consolidated Balance Sheets.
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QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The fair value of the Company’s interest rate swaps and forward exchange contracts is determined from sources independent of the Company, including the financial institutions which are party to the derivative instruments, using standard pricing models that consider the value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that match both the time to maturity and currency of the underlying instruments. These standard pricing models utilize inputs that are derived from or corroborated by observable market data such as interest rate yield curves as well as currency spot and forward rates; therefore, the fair value of our derivatives is classified as a Level 2 measurement. The balance sheet classification and fair values of the Company’s derivative instruments are as follows:
Derivative instrumentsConsolidated Balance Sheet LocationDecember 31,
20232022
Interest rate swapsOther non-current assets$1,828 $— 
Foreign currency forward contractsOther accrued liabilities(159)— 
The following table presents the net unrealized loss deferred to AOCI:
December 31,
20232022
Derivatives designated as cash flow hedges
Interest rate swapsAOCI$1,407 $— 
The following table presents the net gain recognized in the Company’s Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021:
Derivative instrumentsConsolidated Statement of Operations Location202320222021
Interest rate swapsInterest expense, net$3,555 $— $2,649 
Foreign exchange forward contractsOther income, net2,134 — — 
Total$5,689 $— $2,649 

Note 2325 – Commitments and Contingencies

In 1992,the early 1990s, the Company identified certain soil and groundwater contamination at AC Products, Inc. (“ACP”), a wholly owned subsidiary. In voluntary coordination with the Santa Ana California Regional Water Quality Board, (“SACRWQB”), ACP has been remediating the contamination, the principal contaminant of which is perchloroethylene (“PERC”). In 2004, the Orange County Water District (“OCWD”) filed a civil complaint against ACP and other parties seeking to recover compensatory and other damages related to the investigation and remediation of the contamination in the groundwater. Pursuant to a settlement agreement with OCWD, ACP agreed, among other things, to operate the two groundwater treatment systems to hydraulically contain groundwater contamination emanating from ACP’s site until the concentrations of PERC released by ACP fell below the current Federal maximum contaminant level for four consecutive quarterly sampling events. In 2014, ACP ceased operation at one of its two groundwater treatment systems, as it had met the above condition for closure. In 2020, the Santa Ana Regional Water Quality Control Board asked that ACP conduct some additional indoor and outdoor soil vapor testing on and near the ACP site to confirm that ACP continues to meet the applicable local standards. ACP began to perform such testing program work in 2022, and testing is expected to continue into 2024. As of December 31, 2017,2023, ACP believes it is close to meeting the conditions for closure of the remaining groundwater treatment system but continues to operate this system while in discussions with the relevant authorities.

As of December 31, 2017,2023, the Company believes that the range of potential-known liabilities associated with the balance of the ACP water remediation program is approximately $0.1 million to $1.0 million. The low and high ends of the range are based on the length of operation of the treatment system as required by the conditions noted above, as determined by groundwater modeling. Costs of operation include the operation and maintenance of the extraction well, groundwater monitoring, program management, and program management. 

soil vapor testing.

87
Table of Contents
QUAKER CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
The Company’s Sao Paulo, Brazil site was required under Brazilian environmental, health and safety regulations to perform an environmental assessment as part of a permit renewal process. Initial investigations identified soil and ground water contamination in select areas of the site. The site has conducted a multi-year soil and groundwater investigation and corresponding risk assessments based on the result of the investigations. In 2017, the site had to submit a new 5-year permit renewal request and was asked to complete additional investigations to further delineate the site based on review of the technical data by the local regulatory agency, Companhia Ambiental do Estado de São Paulo (“CETESB”). Based on review of the updated investigation data, CETESB issued a Technical Opinion regarding the investigation and remedial actions taken to date. The site developed an action plan and submitted it to CETESB in 2018 based on CETESB requirements. The site intervention plan primarily requires the site, amongst other actions, to conduct periodic monitoring for methane in soil vapors, source zone delineation, groundwater plume delineation, bedrock aquifer assessment, update the human health risk assessment, develop a current site conceptual model and conduct a remedial feasibility study and provide a revised intervention plan. In 2020, the site submitted a report on the activities completed including the revised site conceptual model and results of the remedial feasibility study and recommended remedial strategy for the site.
Additionally, the Company is party to environmental matters related to certain domestic and foreign properties. These environmental matters primarily require the Company to perform long-term monitoring, as well as operating and maintenance at each of the applicable sites. During the year ended December 31, 2023, there have been no significant changes to the facts or circumstances of these matters, aside from ongoing monitoring and maintenance activities and routine payments associated with each of these sites. Based on the Company’s current obligations, historical costs incurred, and projected costs to be incurred over the next 26 years, the Company estimated the present value range of costs for all of these environmental matters, on a discounted basis, to be between approximately $5.0 million and $6.0 million as of December 31, 2023, for which $5.1 million is accrued within other accrued liabilities and other non-current liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2023. Comparatively, as of December 31, 2022, the Company had $5.3 million accrued for these matters.
Other environmental matters include participation in certain payments in connection with four currently active environmental consent orders related to certain hazardous waste cleanup activities under the U.S. Federal Superfund statute. The Company has been designated a potentially responsible party (“PRP”) by the Environmental Protection Agency along with other PRPs depending on the site, and has other obligations to perform cleanup activities at certain other foreign subsidiaries. These environmental matters primarily require the Company to perform long-term monitoring as well as operating and maintenance at each of the applicable sites.
The Company believes although there can be no assurance regarding the outcome of other unrelated environmental matters, that it has made adequate accruals for costs associated with other environmental problemsmatters of which it is aware. Approximately $0.2 million wasand $0.3 million were accrued as of December 31, 20172023 and 2016,2022, respectively, to provide for such anticipated future environmental assessments and remediation costs.

An inactive subsidiary

During 2021, one of the CompanyCompany’s Brazilian subsidiaries received a notice that was acquired in 1978 sold certain products containing asbestos, primarilyit had prevailed on an installed basis,existing legal claim in regard to certain non-income (indirect) taxes that had been previously charged and is amongpaid, specifically the defendantsprogram of social integration (“PIS”) and contribution for the financing of social security (“COFINS”) levied by the Brazilian States on the sale of goods. As a result of these court rulings, during 2021, the Company recognized non-income tax credits of 67.0 million BRL or approximately $13.3 million, which was recorded within Prepaid and other current assets on the Company’s Consolidated Balance Sheet. As of December 31, 2023 and 2022, the Company used the full amount of credits.
During 2021, two of the Company’s locations suffered property damages as a result of flooding and electrical fire, respectively. The Company maintains property insurance for all of its facilities globally. In Conshohocken, Pennsylvania, the Company’s global headquarters, as well as its laboratory, experienced property damages as a result of flooding from Hurricane Ida. Also, one of the Company’s North American production facilities experienced an electrical fire that resulted in numerous lawsuits alleging injury due to exposure to asbestos.damage and the temporary shutdown of production, and also required remediation, cleaning, and subsequent restoration. The subsidiary discontinued operations in 1991Company, its insurance adjuster and insurance carrier actively managed the remediation and restoration activities associated with each of these events and have settled both claims. Through December 31, 2023, the Company received payments from its insurers of $7.2 million associated with these events after an aggregate deductible of $2.0 million. For the years ended December 31, 2023 and 2022, the Company recognized a gain on insurance recoveries of $2.1 million and $1.8 million, respectively. The Company has no remaining assets other than proceeds received from insurance settlements.  To date,receivable associated with these events as of December 31, 2023. The Company and its insurance carrier continue to review the overwhelming majority of these claims have been disposed of without payment and there have been no adverse judgments against the subsidiary.  Based on a continued analysisimpact of the existing and anticipated future claims againstelectrical fire on the production facility’s operations as it relates to a potential business interruption insurance claim; however, as of the date of this subsidiary, it is currently projected that the subsidiary’s total liability over the next 50 years for these claims is approximately $1.9 million (excluding costs of defense).  AlthoughReport, the Company has also been named as a defendant in certaincannot reasonably estimate any probable amount of these cases, no claims have been actively pursued against the Company, andbusiness interruption insurance claim recoverable. Therefore, the Company has not contributed to the defense or settlement of any of these cases pursued against the subsidiary.  These cases were handled by the subsidiary’s primary and excess insurers who had agreed in 1997 to pay all defense costs and be responsiblerecorded a gain contingency for all damages assessed against the subsidiary arising out of existing and future asbestos claims up to the aggregate limits of their policies.  A significant portion of this primarya possible business interruption insurance coverage was provided by an insurer that is insolvent, and the other primary insurers asserted that the aggregate limits of their policies have been exhausted.  The subsidiary challenged the applicability of these limits to the claims being brought against the subsidiary.  In response, two of the three carriers entered into separate settlement and release agreements with the subsidiary in 2005 and 2007 for $15.0 million and $20.0 million, respectively.  The proceeds of both settlements are restricted and can only be used to pay claims and costs of defense associated with the subsidiary’s

71

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

asbestos litigation.  In 2007, the subsidiary and the remaining primary insurance carrier entered into a Claim Handling and Funding Agreement, under which the carrier is paying 27% of defense and indemnity costs incurred by or on behalf of the subsidiary in connection with asbestos bodily injury claims.  The agreement continues until terminated and can only be terminated by either party by providing a minimum of two years prior written notice.  Asclaim as of December 31, 2017, no notice of termination has been given under this agreement.  At the end of the term of the agreement, the subsidiary may choose to again pursue its claim against this insurer regarding the application of the policy limits.  The Company believes that, if the coverage issues under the primary policies with the remaining carrier are resolved adversely to the subsidiary and all settlement proceeds were used, the subsidiary may have limited additional coverage from a state guarantee fund established following the insolvency of one of the subsidiary’s primary insurers.  Nevertheless, liabilities in respect of claims may exceed the assets and coverage available to the subsidiary.

If the subsidiary’s assets and insurance coverage were to be exhausted, claimants of the subsidiary may actively pursue claims against the Company because of the parent-subsidiary relationship.  The Company does not believe that such claims would have merit or that the Company would be held to have liability for any unsatisfied obligations of the subsidiary as a result of such claims.  After evaluating the nature of the claims filed against the subsidiary and the small number of such claims that have resulted in any payment, the potential availability of additional insurance coverage at the subsidiary level, the additional availability of the Company’s own insurance and the Company’s strong defenses to claims that it should be held responsible for the subsidiary’s obligations because of the parent-subsidiary relationship, the Company believes it is not probable that the Company will incur losses.  The Company has been successful to date having any claims naming it dismissed during initial proceedings.  Since the Company may be in this stage of litigation for some time, it is not possible to estimate additional losses or range of loss, if any.

2023.

The Company is party to other litigation which management currently believes will not have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

The Company leases certain manufacturing and office facilities and equipment under non-cancelable operating leases with various terms from 1 to 15 years expiring in 2027. Rent expense for the years ended December 31, 2017, 2016 and 2015 was $6.4 million, $5.6 million, and $5.9 million, respectively.

The Company’s minimum rental commitments under operating leases as of December 31, 2017 for future years were approximately:

 

 

2018

$

5,345

 

 

 

2019

 

4,494

 

 

 

2020

 

3,708

 

 

 

2021

 

3,208

 

 

 

2022

 

2,812

 

 

 

2023 and beyond

 

8,033

 

72

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

Note 24 – Quarterly Results (unaudited)

 

 

 

First

 

Second

 

Third

 

Fourth

 

 

 

Quarter (1)

 

Quarter (2)

 

Quarter (3)

 

Quarter (4)

2017

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

194,909

   

$

201,183

   

$

212,918

 

$

211,072

 

Gross profit

 

70,887

 

 

71,835

 

 

74,776

 

 

73,997

 

Operating income

  

13,758

 

  

17,903

   

 

14,009

 

 

17,074

 

Net income (loss) attributable to Quaker Chemical Corporation

 

6,992

 

 

11,906

 

 

11,142

 

 

(9,762)

 

Net income (loss) attributable to Quaker Chemical Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shareholders - Basic (5)

$

0.53

   

$

0.90

   

$

0.84

 

$

(0.73)

 

Net income (loss) attributable to Quaker Chemical Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shareholders - Diluted (5)

$

0.52

   

$

0.89

   

$

0.83

 

$

(0.73)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

Net sales

$

178,077

   

$

186,915

   

$

190,428

 

$

191,245

 

Gross profit

 

67,981

 

 

71,401

 

 

70,897

 

 

69,831

 

Operating income

 

19,838

 

  

22,701

   

 

21,863

 

 

20,951

 

Net income attributable to Quaker Chemical Corporation

 

12,946

 

 

15,015

 

 

16,008

 

 

17,434

 

Net income attributable to Quaker Chemical Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shareholders - Basic (5)

$

0.98

   

$

1.13

   

$

1.21

 

$

1.31

 

Net income attributable to Quaker Chemical Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shareholders - Diluted (5)

$

0.98

   

$

1.13

   

$

1.21

 

$

1.31

(1)  Net income attributable to Quaker Chemical Corporation for both the first quarter of 2017 and 2016 includes earnings from the Company’s equity interest in a captive insurance company of $0.6 million and $0.1 million, respectively.  Net income attributable to Quaker Chemical Corporation for the first quarter of 2017 includes Houghton combination-related expenses of $9.1 million and $0.3 million of cost streamlining expenses associated with certain actions taken to reorganize the Company’s corporate staff.  Net income attributable to Quaker Chemical Corporation for the first quarter of 2016 includes a currency conversion charge of $0.1 million related to the Company’s 50% owned equity affiliate in Venezuela. 

(2)  Net income attributable to Quaker Chemical Corporation for both the second quarter of 2017 and 2016 includes earnings from the Company’s equity interest in a captive insurance company of $0.4 million and $0.3 million, respectively.  Net income attributable to Quaker Chemical Corporation for the second quarter of 2017 includes Houghton combination-related expenses of $4.3 million, a $1.9 million charge for the Company’s U.S. pension plan settlement of its vested terminated participants and a currency conversion charge of $0.3 million related to the Company’s 50% owned equity affiliate in Venezuela.   

(3)  Net income attributable to Quaker Chemical Corporation for both the third quarter of 2017 and 2016 includes earnings from the Company’s equity interest in a captive insurance company of $0.4 million and $0.6 million, respectively and charges of $9.7 million and $1.2 million, respectively, for Houghton combination-related expenses.  Net income attributable to Quaker Chemical Corporation for the third quarter of 2017 includes a currency conversion charge of less than $0.1 million related to the Company’s 50% owned equity affiliate in Venezuela.

(4)  Net income attributable to Quaker Chemical Corporation for both the fourth quarter of 2017 and 2016 includes earnings from the Company’s equity interest in a captive insurance company of $1.1 million and $0.7 million, respectively and charges of $7.7 million and $0.4 million, respectively, for Houghton combination-related expenses, including ticking fees in the fourth quarter of 2017.  Net income attributable to Quaker Chemical Corporation for the fourth quarter of 2017 includes a charge of $22.2 million related to the impact of U.S. Tax Reform, a charge of $0.1 million related to a loss on disposal of a held-for-sale asset, other income of $0.6 million related to cash proceeds from an insolvent insurance carrier with respect to previously filed recovery claims by an inactive subsidiary of In addition, the Company and a currency conversion chargehas an immaterial amount of less than $0.1 million  related to the Company’s 50% owned equity affiliate in Venezuela.  Net income attributable to Quaker Chemical Corporation for the fourth quartercontractual purchase obligations.

88
Table of 2016 includes credits of $0.4 million, related to a global restructuring plan. 

(5)  Basic and diluted per share amounts of net income attributable to Quaker Chemical Corporation common shareholders for all four quarters above may not total to the full year amounts presented in the Company’s consolidated financial statements for the years ended December 31, 2017 and 2016, respectively, due to rounding.Contents

73

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not Applicable.

Item 9A. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that, as of December 31, 2023, the end of the period covered by this reportReport, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective.

Management’s Report on Internal Control over Financial Reporting

The management of Quaker

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternalControl—Integrated Framework (2013) (the “COSO framework”). Based on its assessment, Quaker’s managementManagement has concluded that as ofDecember 31, 2017,2023, the Company’s internal control over financial reporting is effective based on those criteria.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 20172023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in theirits report which is included in “Item 8. Financial Statements and Supplementary Data.”

Changes in Internal ControlsControl Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our principal executive officer and principal financial officer, has evaluated our internal control over financial reporting to determine whether any changes to our internal control over financial reporting occurred during the fourth quarter of the year ended December 31, 20172023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no such changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting occurred during the fourth quarter of the year ended December 31, 2017. 

2023.

Item 9B. Other Information.

None.

74

Insider Trading Arrangements and Policies
No director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company adopted or terminated any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K) during the Company’s fourth quarter ended December 31, 2023.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
89

Table of Contents
PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Incorporated by reference is (i) the information beginning with and including the caption “Proposal 1—Election of Directors and Nominee Biographies” in Quaker’sQuaker Houghton’s definitive Proxy Statement relating to the 20182024 Annual Meeting of Shareholders, to be filed with the SECSecurities and Exchange Commission no later than 120 days after the close of its fiscal year ended December 31, 20172023 (the “2018“2024 Proxy Statement”) to, but not including, the sub-caption “Governance Committee Procedures for Selecting Director Nominees, ,”” (ii) the information appearing in Item 4(a) of this Report, (iii) the information in the 2018 Proxy Statement beginning with and including the caption, “Section 16(a) Beneficial Ownership Reporting Compliance” to, but not including, the caption “Certain Relationships and Related Transactions,” (iv) the information in the 20182024 Proxy Statement beginning with and including the sub-caption “Code of Conduct” to, but not including, the caption “Compensation Committee Interlocks and Insider Participation,” and (v)(iv) the information in the 20182024 Proxy Statement beginning with and including the sub-caption “Shareholder Nominations and Recommendations” to, but not including, the sub-caption “Board Oversight of Risk.”

Information about our Executive Officers is included in Item 4(a) of this Report.

Item 11. Executive Compensation.

Incorporated by reference is (i) the information in the 20182024 Proxy Statement beginning with and including the caption “Compensation Committee Interlocks and Insider Participation” to, but not including the caption “Stock Ownership of Certain Beneficial Owners and Management.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Incorporated by reference is the information in the 20182024 Proxy Statement beginning with and including the caption “Stock Ownership of Certain Beneficial Owners and Management” to, but not including, the caption “Section 16(a) Beneficial Ownership Reporting Compliance.“Certain Relationships and Related Party Transactions.”

Equity Compensation Plans

The following table sets forth certain information relating to the Company’s equity compensation plans as of December 31, 2017.2023. Each number of securities reflected in the table is a reference to shares of Quaker common stock.

 

Equity Compensation Plan Information

 

 

 

 

 

 

Number of securities

 

 

Number of securities

 

 

 

remaining available for

 

 

to be issued upon

 

Weighted-average

 

future issuance under

 

 

exercise of

 

exercise price of

 

equity compensation plans

 

 

outstanding options,

 

outstanding options,

 

(excluding securities

Equity Compensation Plan Information

Plan Category

Plan Category

 

warrants and rights

 

 

warrants and rights

 

reflected in column (a))

 

 

(a)

 

 

(b)

 

(c)

 

Equity compensation plans approved

 

 

 

 

 

 

 

 

by security holders

 

111,255

 

$

97.71

 

905,890

(1)

Equity compensation plans not approved

 

 

 

 

 

 

 

by security holders

 

—

 

 

—

 

—

 

Plan Category
Plan Category
(a)
(a)
(a)
Equity compensation plans approved by security holders
Equity compensation plans approved by security holders
Equity compensation plans approved by security holders62,853$214.40 460,407(1)
Equity compensation plans not approved by security holders

Total

Total

 

111,255

 

$

97.71

 

905,890

(1)

Total
Total62,853$214.40 460,407(1)

(1)

As of December 31, 2017, 304,900 of these shares were available for issuance as restricted stock awards under the Company’s 2001 Global Annual Incentive Plan, 533,032 shares were available for issuance upon the exercise of stock options and/or as restricted stock awards and/or restricted stock unit awards under the Company’s 2016 Long-Term Performance Incentive Plan, and 67,958 shares were available for issuance under the 2013 Director Stock Ownership Plan.

(1)As of December 31, 2023, 304,900 of these shares were available for issuance as restricted stock awards under the Company’s 2001 Global Annual Incentive Plan, 81,390 shares were available for issuance upon the exercise of stock options and/or as restricted stock awards and/or restricted stock unit awards under the Company’s 2016 Long-Term Performance Incentive Plan and 74,117 shares were available for issuance under the 2023 Director Stock Ownership Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Incorporated by reference is (i) the information in the 20182024 Proxy Statement beginning with and including the caption “Certain Relationships and Related Party Transactions” to, but not including, the caption “Proposal 2—5 — Ratification of Appointment of Independent Registered Public Accounting Firm,” (ii) the information in the 20182024 Proxy Statement beginning with and including the sub-caption “Director Independence” to, but not including, the sub-caption “Governance Committee Procedures for Selecting Director Nominees,” and (iii) the information in the 20182024 Proxy Statement beginning with and including the caption “Meetings and Committees of the Board” to, but not including, the caption “Compensation Committee Interlocks and Insider Participation.”

75

Item 14. Principal Accountant Fees and Services.

Incorporated by reference is the information in the 20182024 Proxy Statement beginning with and including the sub-caption “Audit Fees” to, but not including, the statement recommending a vote for ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018.

2024.

76

90

Table of Contents
PART IV

Item 15.Exhibits and Financial Statement Schedules.

(a)Exhibits and Financial Statement Schedules

1.Financial Statements and Supplementary Data

Page

Financial Statements

Page

Financial Statements:

Report of Independent Registered Public Accounting Firm

32

42

Consolidated Statements of IncomeOperations

33

44

Consolidated Statements of Comprehensive Income

Income(Loss)

34

45

Consolidated Balance Sheets

35

46

Consolidated Statements of Cash Flows

36

47

Consolidated Statements of Changes in Equity

37

48

Notes to Consolidated Financial Statements

38

49

2.Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of 50% or less owned companies have been omitted because none of the companies meets the criteria requiring inclusion of such statements.

3.Exhibits - filed pursuant to, and numbered in accordance with Item 601 of Regulation S-K (all of which are under Commission File number 001-12019, except as otherwise noted):

3(i)(a) —

Articles of Incorporation (as amended through July 31, 2013).  Incorporated by reference to Exhibit 3.1 as filed by Registrant with Form 8-K filed on July 31, 2013.

3(i)(b) —

Articles of Amendment dated September 7, 2017, to the Articles of Incorporation.  Incorporated by reference to Exhibit 3.1 as filed by Registrant with Form 8-K filed on September 11, 2017.

3(ii) —

By-laws (as amended and restated, effective May 6, 2015).  Incorporated by reference to Exhibit 3.2 as filed by Registrant with Form 8-K filed on May 8, 2015.

10.1 —

Settlement Agreement and Release between Registrant, an inactive subsidiary of the Registrant, and Hartford Accident and Indemnity Company dated December 12, 2005.  Incorporated by reference to Exhibit 10 (nnn) as filed by the Registrant with Form 10-K for the year 2005.

  10.2 —

Employment Agreement by and between L. Willem Platzer and Quaker Chemical B.V., a Netherlands corporation and a subsidiary of Registrant, dated August 21, 2006.  Incorporated by reference to Exhibit 10 as filed by the Registrant with Form 8-K filed on August 22, 2006. *

   10.3 —

Financing Agreement by and among Montgomery County Industrial Development Authority and Registrant and Brown Brothers Harriman & Co. dated February 1, 2007.  Incorporated by reference to Exhibit 10(yyy) as filed by the Registrant with Form 10-K for the year ended 2006.

   10.4 —

Settlement Agreement and Release between Registrant, an inactive subsidiary of Registrant and Federal Insurance Company dated March 26, 2007.  Incorporated by reference to Exhibit 10(zzz) as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2007.

   10.5 —

Change in Control Agreement by and between Registrant and L. Willem Platzer dated April 2, 2007, effective January 1, 2007.  Incorporated by reference to Exhibit 10(aaaa) as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2007. *

   10.6 —

Change in Control Agreement by and between Registrant and Jan F. Nieman dated June 27, 2007, effective January 1, 2007.  Incorporated by reference to Exhibit 10(cccc) as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2007. *

77

   10.7 —

2.1

—

   10.8 —

Settlement Agreement and Mutual Release entered into between AC Products, Inc., wholly owned subsidiary of Registrant, and Orange County Water District, effective November 8, 2007.  Incorporated by reference to Exhibit 10.47 as filed by the Registrant with Form 10-K for the year ended 2007.

   10.9 —

Financing Agreement by and among Butler County Port Authority and Registrant and Brown Brothers Harriman & Co. dated May 15, 2008.  Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2008.

   10.10 —

Employment Agreement by and between Registrant and Michael F. Barry dated July 1, 2008.  Incorporated by reference to Exhibit 10.5 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2008. *

   10.11 —

Change in Control Agreement by and between Registrant and Michael F. Barry dated July 1, 2008.  Incorporated by reference to Exhibit 10.6 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2008. *

10.12 —

Butler County Port Authority Industrial Development Revenue Bond dated May 15, 2008.  Incorporated by reference to Exhibit 10.7 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2008.

10.13 —

Memorandum of Employment by and between Registrant and Joseph F. Matrange dated September 30, 2008.   Incorporated by reference to Exhibit 10.48 as filed by the Registrant with Form 10-K for the year ended 2008. *

10.14 —

Memorandum of Employment by and between Registrant and D. Jeffry Benoliel dated October 1, 2008.  Incorporated by reference to Exhibit 10.49 as filed by the Registrant with Form 10-K for the year ended 2008. *

10.15 —

Change in Control Agreement by and between Registrant and D. Jeffry Benoliel dated November 19, 2008, effective January 1, 2008.  Incorporated by reference to Exhibit 10.54 as filed by the Registrant with Form 10-K for the year ended 2008. *

   10.16 —

Change in Control Agreement by and between Registrant and Joseph F. Matrange dated November 19, 2008, effective October 1, 2008.  Incorporated by reference to Exhibit 10.55 as filed by the Registrant with Form 10-K for the year ended 2008. *

10.17 —

Change in Control Agreement by and between Registrant and Ronald S. Ettinger dated November 19, 2008, effective October 1, 2008.  Incorporated by reference to Exhibit 10.56 as filed by the Registrant with Form 10-K for the year ended 2008. *

   10.18 —

Supplemental Retirement Income Program (as amended and restated effective January 1, 2008), approved November 19, 2008.  Incorporated by reference to Exhibit 10.58 as filed by the Registrant with Form 10-K for the year ended 2008. *

   10.19 —

Memorandum of Employment by and between Registrant and Joseph Berquist dated April 1, 2010.  Incorporated by reference to Exhibit 10.2 as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2010. *

   10.20 —

Change in Control Agreement by and between Registrant and Joseph Berquist dated April 1, 2010.  Incorporated by reference to Exhibit 10.3 as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2010. *

   10.21 —

Employment Agreement by and between Dieter Laininger and Quaker Chemical B.V., a subsidiary of the registrant, dated June 1, 2011, effective June 15, 2011.  Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2011. *

   10.22 —

Change in Control Agreement by and between Registrant and Dieter Laininger dated May 31, 2011, effective June 15, 2011.  Incorporated by reference to Exhibit 10.2 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2011. *

78

   10.23 —

2011 Long-Term Performance Incentive Plan.  Incorporated by reference to Appendix C to the Registrant’s definitive proxy statement filed on March 31, 2011. *

   10.24 —

Form of Restricted Stock Unit Agreement for executive officers and other employees under Registrant’s 2011 Long-Term Performance Incentive Plan.  Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2012. *

   10.25 —

Expatriate Agreement by and between the Registrant and Adrian Steeples, dated January 29, 2013, effective July 1, 2013.  Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2013. *

   10.26 —

2013 Director Stock Ownership Plan as approved May 8, 2013.  Incorporated by reference to Appendix B to the Registrant’s definitive proxy statement filed on March 28, 2013. *

   10.27 —

Amended and Restated Multicurrency Credit Agreement by and between Registrant and Bank of America, N.A. and certain other lenders dated June 14, 2013.  Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2013.

   10.28 —

Memorandum of Employment and Addendum by and between Registrant and Jan F. Nieman, effective August 1, 2013.  Incorporated by reference to Exhibit 10.2 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2013. *

   10.29 —

Expatriate Agreement by and between the Registrant and Dieter Laininger, dated and effective February 27, 2014.  Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2014. *

   10.30 —

Memorandum of Employment by and between Registrant and Mary Dean Hall, dated and effective November 30, 2015. Incorporated by reference to Exhibit 10.60 as filed by the Registrant with Form 10-K for the year ended 2015. *

   10.31 —

Change in control agreement by and between Registrant and Mary Dean Hall, dated and effective November 30, 2015.  Incorporated by reference to Exhibit 10.61 as filed by the Registrant with Form 10-K for the year ended 2015. *

   10.32 —

Retirement Savings Plan, as amended and restated effective January 1, 2016.  Incorporated by reference to Exhibit 10.62 as filed by the Registrant with Form 10-K for the year ended 2015. *

   10.33 —

Global Annual Incentive Plan (as amended and restated effective February 24, 2016).  Incorporated by reference to Appendix B to the Registrant’s definitive proxy statement filed on March 28, 2016. *

   10.34 —

2016 Long-Term Performance Incentive Plan.  Incorporated by reference to Appendix C to the Registrant’s definitive proxy statement filed on March 28, 2016. *

   10.35 —

Form of Restricted Stock Award Agreement for executive officers and other employees under Registrant’s 2016 Long-Term Performance Incentive Plan.  Incorporated by reference to Exhibit 10.3 as filed by Registrant with Form 8-K filed on May 6, 2016. *

   10.36 —

Form of Restricted Stock Unit Agreement for executive officers and other employees under Registrant’s 2016 Long-Term Performance Incentive Plan.  Incorporated by reference to Exhibit 10.4 as filed by Registrant with Form 8-K filed on May 6, 2016. *

   10.37—

Share Purchase Agreement, dated April 4, 2017, by and among Quaker Chemical Corporation, a Pennsylvania corporation, Gulf Houghton Lubricants, Ltd., an exempted company incorporated under the laws of the Cayman Islands, Global Houghton Ltd., an exempted company incorporated under the laws of the Cayman Islands, and certain members of the management of Global Houghton Ltd. and Gulf Houghton Lubricants, Ltd., as agent for the Sellers. Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 8-K, filed on April 5, 2017. **

***

   10.38—

3.1

—

3.2—
4.1—
4.2—
10.1—
10.2—
10.3—
10.4—
10.5—
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10.6—
10.7—
10.8—
10.9—
10.10—
10.11—
10.12—
10.13—
10.14—
10.15—
10.16—
10.17—
10.18—
10.19—
10.20—
10.21—
10.22—
10.23—
10.24—
92
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10.25—
10.26—
10.27—
10.28—
10.29—
10.30—
10.31—
10.32—
10.33—
10.34—
10.35—
10.36—
10.37—
10.38—

10.39

—

10.40—

79

   10.39—

Amendment No. 1, dated as of May 23, 2017,March 17, 2020, to the Amended and Restated Multicurrency Credit Agreement, dated as of June 14, 2013.August 1, 2019. Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 8-K filed on May 25, 2017.March 17, 2020.

10.41—
10.42—
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10.43

—

10.44—
10.45—
10.46—
10.47—
21.0—

23      —

23.0

—

31.1    —

—

31.2    —

—

32.1    —

—

32.2    —

—

101.INS  —

97.0

—

101.INS—Inline XBRL Instance Document

Document*

101.SCH—

101.SCH

—

Inline XBRL Taxonomy Extension Schema Document

Document*

101.CAL—

101.CAL

—

Inline XBRL Taxonomy Calculation Linkbase Document

Document*

101.DEF —

—

Inline XBRL Taxonomy Definition Linkbase Document

Document*

101.LAB

—

Inline XBRL Taxonomy Label Linkbase Document*

101.LAB—

101.PRE

—

Inline XBRL LabelTaxonomy Presentation Linkbase Document

Document*

101.PRE—

104.0

—

Cover Page Interactive Data File (formatted as Inline XBRL Presentation Linkbase Document

and contained in Exhibit 101.INS)*
*

Filed herewith.

*

*

This exhibit is a management contract or compensation plan or arrangement required to be filed as an exhibit to this Report.

Furnished herewith.

**

*

Certain exhibits and schedules have been omitted, and the Company agrees to furnish supplementally to the Securities and Exchange Commissioncommission a copy of any omitted exhibits and schedules upon request.

(b) Exhibits required by Regulation 601 S-K

See (a) 3 of this Item 15.

(c) Financial Statement Schedules

See (a) 2 of this Item 15.

†

Management contract or compensatory plan

Item 16. Form 10-K Summary.

The Company has elected not to include a Form 10-K summary under this Item 16.

80

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

QUAKER CHEMICAL CORPORATION

Registrant

By:

/s/ ANDREW E. TOMETICH

By:

/s/    MICHAEL F. BARRY

Andrew E. Tometich

Michael F. Barry

Chairman of the Board,

Director, Chief Executive Officer and President

Date: February 28, 2018

29, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures

Capacity

Capacity

Date

/s/ MICHAEL F. BARRY

ANDREW E. TOMETICH

Principal Executive Officer and

February 28, 2018

Michael F. Barry

Director

Chairman of the Board, Chief Executive Officer and President

February 29, 2024

Andrew E. Tometich

Principal Executive Officer and Director

/s/ MARY DEAN HALL

SHANE W. HOSTETTER

Principal Financial Officer

February 28, 2018

Mary Dean Hall

Executive Vice President, Chief Financial Officer and Treasurer

February 29, 2024

Shane W. Hostetter

Principal Financial Officer

/s/ JEFFREY J. KUTZ

Vice President, Chief Accounting Officer

February 29, 2024

/s/    SHANE W. HOSTETTER

Jeffrey J. Kutz

Principal Accounting Officer

/s/ MICHAEL F. BARRY

Director, Non-Executive Chair of the BoardFebruary 28, 2018

29, 2024

Shane W. Hostetter

Michael F. Barry

/s/ RUSSELL R. SHALLER

Director

February 29, 2024

Global Controller

Russell R. Shaller

/s/ CHARLOTTE C. HENRY

Director

February 29, 2024

Charlotte C. Henry

/s/    DONALD R. CALDWELL

Director

February 28, 2018

Donald R. Caldwell

/s/    ROBERT E. CHAPPELL

Director

February 28, 2018

Robert E. Chappell

/s/    WILLIAM R. COOK

Director

February 28, 2018

William R. Cook

/s/ MARK A. DOUGLAS

Director

Director

February 28, 2018

29, 2024

Mark A. Douglas

/s/ JEFFRY D. FRISBY

Director

Director

February 28, 2018

29, 2024

Jeffry D. Frisby

/s/ WILLIAM H. OSBORNE

Director

Director

February 28, 2018

29, 2024

William H. Osborne

/s/    ROBERT H. ROCK

Director

February 28, 2018

Robert H. Rock

/s/ FAY WEST

Director

Director

February 28, 2018

29, 2024

Fay West

/s/ SANJAY HINDUJA

Director

February 29, 2024
Sanjay Hinduja

/s/ RAMASWAMI SESHASAYEE

DirectorFebruary 29, 2024
Ramaswami Seshasayee
/s/ MICHAEL SHANNONDirectorFebruary 29, 2024
Michael Shannon

81

95