UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM
10-Q

[X]

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

☒
QUARTERLY
REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2017

2021

OR

[   ]

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

☐
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 Registrant as specified in its charter)

Pennsylvania

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)

23-0993790
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
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

610
-
832-4000
Not Applicable

Former name, former address and former fiscal year,
if changed since last report.

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

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1 par value
KWR
New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.
Yes[X] 
☒
No[  ]

☐
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 (§
(§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required
to submit and post such files).
Yes   [X]
☒
No[  ]

☐
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”,
and “emerging growth company” in Rule 12b-2 of
the Exchange Act.

Large accelerated filer[X] 

Accelerated filer  [  ]

Non-accelerated filer  [  ] (Do not check if a smaller reporting company)

Smaller reporting company [  ]

Emerging growth company  [  ]

☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrantRegistrant has elected not to
use the extended transition period for complying with any new
or revised
financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.[  ]

☐
Indicate by check mark whether the registrantRegistrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes[  ]
☐
No[X] 

☒
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest practicable date.

Number of Shares of Common Stock

Outstanding on September 30, 2017

13,299,294

Outstanding on October 31, 2021

17,894,480
1
QUAKER CHEMICAL CORPORATION
AND CONSOLIDATED
SUBSIDIARIES

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017
and September 30, 2016

2

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended
September 30, 2017 and September 30, 2016

3

Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016

4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017
and September 30, 2016

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

30

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 6.

Exhibits

33

Signatures

33

1

Page
PART I

I.
FINANCIAL INFORMATION

Item 1.
Financial Statements (Unaudited).

Quaker Chemical Corporation

(unaudited)

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and September 30, 2020
2
3
4
5
6
Item 2.
27
Item 3.
44
Item 4.
45
PART
II
Item 1.
47
Item 1A.
47
Item 2.
47
Item 6.
48
Signatures
48
2
PART
I
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited).
Quaker Chemical Corporation
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)

 

 

 

Unaudited

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30, 

 

 

 

2017

 

2016

 

2017

 

2016

Net sales

$

212,918

 

$

190,428

 

$

609,010

 

$

555,420

Cost of goods sold

  

138,142

 

  

119,531

 

  

391,512

 

  

345,141

Gross profit

  

74,776

 

  

70,897

 

  

217,498

 

  

210,279

Selling, general and administrative expenses

  

51,092

 

  

47,877

 

  

148,740

 

  

144,720

Combination-related expenses

 

9,675

 

 

1,157

 

 

23,088

 

 

1,157

Operating income

  

14,009

 

 

21,863

 

  

45,670

 

  

64,402

Other income (expense), net

  

249

 

  

(10)

 

  

(1,427)

 

  

(245)

Interest expense

  

(793)

 

  

(758)

 

  

(2,229)

 

  

(2,226)

Interest income

  

762

 

  

551

 

  

1,825

 

  

1,444

Income before taxes and equity in net income of associated

 

 

 

 

 

 

 

 

 

 

 

 

companies

  

14,227

 

  

21,646

 

  

43,839

 

  

63,375

Taxes on income before equity in net income of associated

 

 

 

 

 

 

 

 

 

 

 

 

companies

  

3,140

 

  

6,121

 

  

14,229

 

  

19,664

Income before equity in net income of associated companies

  

11,087

 

  

15,525

 

  

29,610

 

  

43,711

Equity in net income of associated companies

  

617

 

  

826

 

  

2,049

 

  

1,389

Net income

 

11,704

 

 

16,351

 

 

31,659

 

 

45,100

Less: Net income attributable to noncontrolling interest

 

562

 

 

343

 

 

1,619

 

 

1,131

Net income attributable to Quaker Chemical Corporation

$

11,142

 

$

16,008

 

$

30,040

 

$

43,969

Per share data:

  

 

 

  

 

 

  

 

 

  

 

 

Net income attributable to Quaker Chemical Corporation 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shareholders – basic

$

0.84

 

$

1.21

 

$

2.26

 

$

3.32

 

Net income attributable to Quaker Chemical Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shareholders – diluted

$

0.83

 

$

1.21

 

$

2.25

 

$

3.32

 

Dividends declared

$

0.355

 

$

0.345

 

$

1.055

 

$

1.010

Unaudited

Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Net sales
$
449,072
$
367,224
$
1,314,117
$
1,031,825
Cost of goods sold (
excluding amortization expense - See Note 14
)
303,941
227,032
858,341
660,396
Gross profit
145,131
140,192
455,776
371,429
Selling, general and administrative expenses
104,215
97,037
317,204
282,405
Indefinite-lived intangible asset impairment
0
0
0
38,000
Restructuring and related charges
(880)
1,383
593
3,585
Combination, integration and other acquisition-related expenses
5,786
6,913
18,259
22,786
Operating income
36,010
34,859
119,720
24,653
Other income (expense), net
647
(239)
19,344
(22,407)
Interest expense, net
(5,637)
(6,837)
(16,725)
(22,109)
Income (loss) before taxes and equity in net income of
associated companies
31,020
27,783
122,339
(19,863)
Taxes on income (loss)
before equity in net income of associated
companies
795
2,245
26,702
(7,603)
Income (loss) before equity in net income of associated
companies
30,225
25,538
95,637
(12,260)
Equity in net income of associated companies
848
1,804
7,668
3,536
Net income (loss)
31,073
27,342
103,305
(8,724)
Less: Net income attributable to noncontrolling interest
15
38
62
88
Net income (loss) attributable to Quaker Chemical Corporation
$
31,058
$
27,304
$
103,243
$
(8,812)
Per share data:
Net income (loss) attributable to Quaker Chemical Corporation
common shareholders – basic
$
1.74
$
1.53
$
5.78
$
(0.50)
Net income (loss) attributable to Quaker Chemical Corporation
common shareholders – diluted
$
1.73
$
1.53
$
5.76
$
(0.50)
Dividends declared
$
0.415
$
0.395
$
1.205
$
1.165
The accompanying notes are an integral part of these condensed consolidated financial statements.

2

3
Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive Income

(Loss)

(Dollars in thousands)

 

 

 

Unaudited

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2017

 

2016

 

2017

 

2016

Net income

$

11,704

 

$

16,351

 

$

31,659

 

$

45,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

5,764

 

 

(715)

 

 

18,528

 

 

(1,074)

 

Defined benefit retirement plans

 

62

 

 

460

 

 

2,171

 

 

1,641

 

Unrealized gain on available-for-sale securities

 

286

 

 

195

 

 

453

 

 

808

 

 

Other comprehensive income (loss)

 

6,112

 

 

(60)

 

 

21,152

 

 

1,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

17,816

 

 

16,291

 

 

52,811

 

 

46,475

Less: Comprehensive income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

interest

 

(409)

 

 

(520)

 

 

(2,037)

 

 

(1,217)

Comprehensive income attributable to Quaker Chemical

 

 

 

 

 

 

 

 

 

 

 

 

Corporation

$

17,407

 

$

15,771

 

$

50,774

 

$

45,258

Unaudited

Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Net income (loss)
$
31,073
$
27,342
$
103,305
$
(8,724)
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(19,905)
33,618
(29,201)
(10,582)
Defined benefit retirement plans
904
(257)
2,593
16,913
Current period change in fair value of derivatives
436
354
1,450
(3,738)
Unrealized (loss) gain on available-for-sale securities
(215)
556
(2,961)
453
Other comprehensive (loss) income
(18,780)
34,271
(28,119)
3,046
Comprehensive income (loss)
12,293
61,613
75,186
(5,678)
Less: Comprehensive (income) loss attributable to
noncontrolling interest
(15)
(56)
(68)
25
Comprehensive income (loss) attributable to Quaker Chemical
Corporation
$
12,278
$
61,557
$
75,118
$
(5,653)
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

4
Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par valuevalue)
Unaudited
September 30,
December 31,
2021
2020
ASSETS
Current assets
Cash and share amounts)

cash equivalents

 

 

 

Unaudited

 

 

 

September 30,

 

December 31,

 

 

 

2017

 

2016

ASSETS

  

  

 

  

  

Current assets

  

  

 

  

  

 

Cash and cash equivalents

$

109,088

 

$

88,818

 

Accounts receivable, net

  

218,243

 

  

195,225

 

Inventories

  

 

 

  

 

 

 

Raw materials and supplies

  

44,300

 

  

37,772

 

 

Work-in-process and finished goods

  

45,952

 

  

39,310

 

Prepaid expenses and other current assets

  

24,272

 

  

15,343

 

 

Total current assets

  

441,855

 

  

376,468

Property, plant and equipment, at cost

  

253,548

 

  

236,006

 

Less accumulated depreciation

  

(167,270)

 

  

(150,272)

 

 

Net property, plant and equipment

  

86,278

 

  

85,734

Goodwill

  

85,816

 

  

80,804

Other intangible assets, net

  

73,514

 

  

73,071

Investments in associated companies

  

25,191

 

  

22,817

Non-current deferred tax assets

  

22,229

 

  

24,382

Other assets

  

29,644

 

  

28,752

 

 

Total assets

$

764,527

 

$

692,028

  

 

 

  

 

 

  

 

LIABILITIES AND EQUITY

  

 

 

  

 

Current liabilities

  

 

 

  

 

 

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

$

700

 

$

707

 

Accounts and other payables

  

95,584

 

  

82,164

 

Accrued compensation

  

20,470

 

  

19,356

 

Accrued restructuring

 

—

 

 

670

 

Other current liabilities

  

39,367

 

  

24,514

 

 

Total current liabilities

  

156,121

 

  

127,411

Long-term debt

  

72,374

 

  

65,769

Non-current deferred tax liabilities

  

12,618

 

  

12,008

Other non-current liabilities

  

71,355

 

  

74,234

 

 

Total liabilities

  

312,468

 

  

279,422

Commitments and contingencies (Note 16)

 

 

 

 

 

Equity

  

 

 

  

 

 

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

  

 

 

  

 

 

 

outstanding 2017 – 13,299,294 shares; 2016 – 13,277,832 shares

 

13,299

 

 

13,278

 

Capital in excess of par value

  

113,129

 

  

112,475

 

Retained earnings

  

380,421

 

  

364,414

 

Accumulated other comprehensive loss

  

(66,673)

 

  

(87,407)

 

 

Total Quaker shareholders’ equity

  

440,176

 

  

402,760

Noncontrolling interest

 

11,883

 

 

9,846

Total equity

 

452,059

 

 

412,606

 

 

Total liabilities and equity

$

764,527

 

$

692,028

$

141,393
$
181,833
Accounts receivable, net
433,631
372,974
Inventories
Raw materials and supplies
121,951
86,148
Work-in-process
and finished goods
132,943
101,616
Prepaid expenses and other current assets
63,278
50,156
Total current
assets
893,196
792,727
Property, plant and equipment,
at cost
423,469
423,253
Less accumulated depreciation
(232,636)
(219,370)
Property, plant and equipment,
net
190,833
203,883
Right of use lease assets
34,314
38,507
Goodwill
630,669
631,212
Other intangible assets, net
1,048,688
1,081,358
Investments in associated companies
94,110
95,785
Deferred tax assets
18,409
16,566
Other non-current assets
31,608
31,796
Total assets
$
2,941,827
$
2,891,834
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt
$
52,611
$
38,967
Accounts and other payables
219,601
198,872
Accrued compensation
40,655
43,300
Accrued restructuring
4,050
8,248
Other current liabilities
93,042
93,573
Total current
liabilities
409,959
382,960
Long-term debt
839,275
849,068
Long-term lease liabilities
24,599
27,070
Deferred tax liabilities
174,405
192,763
Other non-current liabilities
109,893
119,059
Total liabilities
1,558,131
1,570,920
Commitments and contingencies (Note 19)
Equity
Common stock $
1
par value; authorized
30,000,000
shares; issued and
outstanding 2021 –
17,888,577
shares; 2020 –
17,850,616
shares
17,889
17,851
Capital in excess of par value
914,277
905,171
Retained earnings
505,635
423,940
Accumulated other comprehensive loss
(54,723)
(26,598)
Total Quaker
shareholders’ equity
1,383,078
1,320,364
Noncontrolling interest
618
550
Total equity
1,383,696
1,320,914
Total liabilities and equity
$
2,941,827
$
2,891,834
The accompanying notes are an integral part of these condensed consolidated financial statements.

4

5
Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

 

 

 

 

Unaudited

 

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

 

 

2017

 

2016

Cash flows from operating activities

  

  

  

  

  

 

Net income

$

31,659

 

$

45,100

 

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

  

 

 

  

 

 

 

Depreciation

  

9,464

 

  

9,469

 

 

Amortization

  

5,490

 

  

5,319

 

 

Equity in undistributed earnings of associated companies, net of dividends

  

(1,919)

 

  

(1,314)

 

 

Deferred compensation and other, net

  

(1,190)

 

  

3,083

 

 

Stock-based compensation

  

3,269

 

  

4,942

 

 

(Gain) loss on disposal of property, plant, equipment and other assets

  

(50)

 

  

44

 

 

Insurance settlement realized

  

(542)

 

  

(809)

 

 

Combination-related expenses, net of payments

 

10,367

 

 

1,157

 

 

Pension and other postretirement benefits

  

608

 

  

(3,373)

 

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

 

 

  

 

 

 

 

liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

  

(12,946)

 

  

(5,926)

 

 

Inventories

  

(9,272)

 

  

(3,741)

 

 

Prepaid expenses and other current assets

  

(5,217)

 

  

(868)

 

 

Accounts payable and accrued liabilities

  

11,755

 

  

4,088

 

 

Restructuring liabilities

 

(675)

 

 

(4,194)

 

 

   

Net cash provided by operating activities

  

40,801

 

  

52,977

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

  

 

 

  

 

 

 

Investments in property, plant and equipment

  

(8,032)

 

  

(6,311)

 

 

Payments related to acquisitions, net of cash acquired

  

(5,363)

 

  

(3,244)

 

 

Proceeds from disposition of assets

 

67

 

 

54

 

 

Insurance settlement interest earned

  

35

 

  

24

 

 

Change in restricted cash, net

  

507

 

  

785

 

 

   

Net cash used in investing activities

  

(12,786)

 

  

(8,692)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

  

 

 

  

 

 

 

Proceeds from long-term debt

  

4,472

 

  

—

 

 

Repayments of long-term debt

  

(488)

 

  

(6,842)

 

 

Dividends paid

  

(13,893)

 

  

(13,052)

 

 

Stock options exercised, other

  

(2,594)

 

  

64

 

 

Payments for repurchase of common stock

 

—

 

 

(5,859)

 

 

Excess tax benefit related to stock option exercises

 

—

 

 

167

 

 

   

Net cash used in financing activities

  

(12,503)

 

  

(25,522)

Effect of foreign exchange rate changes on cash

  

4,758

 

  

(792)

 

 

Net increase in cash and cash equivalents

  

20,270

 

  

17,971

 

 

Cash and cash equivalents at beginning of period

  

88,818

 

  

81,053

 

 

Cash and cash equivalents at end of period

$

109,088

 

$

99,024

Unaudited

Nine Months Ended
September 30,
2021
2020
Cash flows from operating activities
Net income (loss)
$
103,305
$
(8,724)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Amortization of debt issuance costs
3,562
3,562
Depreciation and amortization
65,440
62,818
Equity in undistributed earnings of associated companies, net of dividends
(7,563)
1,415
Acquisition-related fair value adjustments related to inventory
801
229
Deferred compensation, deferred taxes and other,
net
(21,865)
(30,657)
Share-based compensation
8,441
17,820
(Gain) loss on disposal of property,
plant, equipment and other assets
(4,819)
105
Insurance settlement realized
0
(818)
Indefinite-lived intangible asset impairment
0
38,000
Combination and other acquisition-related expenses, net of payments
(1,705)
2,498
Restructuring and related charges
593
3,585
Pension and other postretirement benefits
(5,638)
16,219
(Decrease) increase in cash from changes in current assets and current
liabilities, net of acquisitions:
Accounts receivable
(68,664)
30,225
Inventories
(72,962)
2,137
Prepaid expenses and other current assets
(24,512)
(113)
Change in restructuring liabilities
(4,557)
(12,772)
Accounts payable and accrued liabilities
32,652
(13,481)
Net cash provided by operating activities
2,509
112,048
Cash flows from investing activities
Investments in property,
plant and equipment
(12,823)
(12,184)
Payments related to acquisitions, net of cash acquired
(31,975)
(3,132)
Proceeds from disposition of assets
14,744
11
Insurance settlement interest earned
0
41
Net cash used in investing activities
(30,054)
(15,264)
Cash flows from financing activities
Payments of term loan debt
(28,558)
(28,132)
Borrowings (repayments) on revolving credit facilities, net
39,143
(16,485)
Repayments on other debt, net
(585)
(527)
Dividends paid
(21,175)
(20,520)
Stock options exercised, other
704
2,385
Purchase of noncontrolling interest in affiliates
0
(1,047)
Distributions to noncontrolling affiliate shareholders
0
(751)
Net cash used in financing activities
(10,471)
(65,077)
Effect of foreign exchange rate changes on cash
(2,486)
(529)
Net (decrease) increase in cash, cash equivalents and restricted cash
(40,502)
31,178
Cash, cash equivalents and restricted cash at the beginning of the period
181,895
143,555
Cash, cash equivalents and restricted cash at the end of the period
$
141,393
$
174,733
The accompanying notes are an integral part of these condensed consolidated financial
statements.

5

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

6
Note 1 – Basis of Presentation and Description of Business
Basis of Presentation
As used in these Notes to Condensed Consolidated Financial Information

Statements of

this Quarterly Report on Form 10-Q for the period
ended September 30, 2021 (the “Report”),
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.
As used in these Notes to Condensed Consolidated Financial Statements,
the term Legacy Quaker refers to the Company
prior to the closing of its combination with Houghton International, Inc. (“Houghton”)
(herein referred to as the “Combination”).
The
condensed consolidated financial statements included herein are
unaudited and have been prepared in accordance with generally
accepted accounting principles in the United States (“U.S. GAAP”) for interim
financial reporting and the United States Securities and
Exchange Commission (“SEC”) regulations.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. GAAP have been condensed or omitted
pursuant to such rules and SEC regulations.
In the opinion of
management, the financial statements reflect all adjustments (consisting consisting
only of normal recurring adjustments except certain material adjustments, as discussed below) which are necessary for a
fair statement of the financial position, results of operations and cash
flows for the interim periods.
The results for the three and nine months
ended September 30, 2017, respectively,2021 are not necessarily indicative of the results to be expected
for the full year.
These financial statements
should be read in conjunction with the Company’s
Annual Report filed on Form 10-K for the year ended December
31, 2016.  2020 (the
“2020 Form 10-K”).
During the first quarter of 2017,three months ended September 30, 2020, the Company early adopted an accounting standard update regarding the classification of pension costs.  The guidance in this accounting standard update was required to be applied retrospectively, which resulted in a reclassification
identified and corrected certain immaterial adjustments relating
to the three months ended March 31, 2020 as well as the three and six months
ended June 30, 2020.
These adjustments related to the
Company’s Condensed Consolidated Statement over-recognition
of Incomecost of goods sold (“COGS”) and corresponding under-recognition
of inventory, as well as the
associated tax impact of these adjustments, in the Company’s
previously issued interim financial statements for the three months
ended March 31, 2020 and the three and six months ended June 30, 2020.
These adjustments impact the Company’s
Americas
reportable segment.
The cumulative amount of reduction to COGS recorded in the three and nine months ended
September 30, 2020
was approximately $
1.7
million, with approximately $
0.7
million related to the three months ended March 31, 2020 and
approximately $
1.0
million related to the three months ended June 30, 2020.
Description of Business
The Company was organized in 1918, incorporated as a Pennsylvania
business corporation in 1930, and in August 2019
completed the Combination with Houghton to form Quaker Houghton.
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, can,
mining, and metalworking
companies.
Quaker Houghton develops, produces, and markets a broad range of formulated
chemical specialty products and offers
chemical management services (which the Company refers to as “Fluidcare”)
for various heavy industrial and manufacturing
applications throughout its
4
segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; and
Global Specialty
Businesses.
Hyper-inflationary economies
Based on various indices or index compilations being used to monitor inflation
in Argentina as well as economic instability,
effective July 1, 2018, Argentina’s
economy was considered hyper-inflationary under U.S. GAAP.
As of, and for the three and nine
months ended September 30, 2021, the Company's Argentine
subsidiaries represented less than
1
% of the Company’s consolidated
total assets and net sales, respectively.
During the three and nine months ended September 30, 2016, respectively.  See Note 3 2021, the Company
recorded less than
$
0.1
million and $
0.3
million, respectively,
of Notesremeasurement losses associated with the applicable currency conversions
related to Condensed Consolidated Financial Statements.  

Venezuela’s economy has been considered hyper inflationary under U.S. GAAP since 2010, at which time 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 Condensed Consolidated Statements of Income.  During the first quarter of 2016, the Venezuela government announced changes to its foreign exchange controls, including eliminating the CADIVI, SICAD and SIMADI exchange rate mechanisms and replacing them with a dual exchange rate system, which consists of a protected DIPRO exchange rate, with a rate fixed at 10 BsF per U.S. dollars and, also, a floating 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,

Argentina.
Comparatively, during the first quarter of 2016 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 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 a currency conversion charge of less than $0.1 million and $0.4 million in the
three and nine months ended September 30, 2017,2020, the Company recorded $
0.2
million and $
0.3
million, respectively,
of remeasurement losses associated with the applicable currency conversions
related to write down the Company’s equity investment to the current DICOM exchange rate.  Argentina.
These currency conversion charges losses
were recorded through equity inwithin foreign exchange losses, net, which is a component
of other income of associated companies(expense), net, in the Company’s
Condensed Consolidated StatementStatements of Income for each period, respectively.  As of September 30, 2017,Operations.
COVID-19
Management continues to monitor the Company’s equity investmentimpact that the COVID-19 pandemic
is having on the Company, the overall
specialty
chemical industry, and
the economies and markets in Kelko Venezuela was $0.1 million, valued atwhich the current DICOM exchange rate of approximately 3,341 BsF per U.S. dollar. 

As partCompany operates.

The full extent of the Company’s chemical management services, certain third-party product salesCOVID-19 pandemic
related business and travel restrictions and changes to customersbusiness and consumer behavior
intended to reduce its spread are managed by uncertain as of
the Company.  Where the Company acts as a principal, revenue is recognized on a gross reporting basis at the selling price negotiated with customers.  Where the Company acts as an agent, such revenue is recorded using net reporting of service revenue, at the amountdate of the administrative fee earned by the Company for ordering the goods.  Third-party products transferred under arrangements resulting in net reporting totaled $11.2 million and $33.0 million for the three and nine months ended September 30, 2017, respectively.  Comparatively, third-party products transferred under arrangements resulting in net reporting totaled $10.7 million and $32.8 million for the three and nine months ended September 30, 2016, respectively.

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 toReport 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 dependent on the Company’s stock priceCOVID-19 and the levelresponses of Houghton’s indebtedness. 

The Company secured $1.15 billion in commitments from Bank of America Merrill Lynch and Deutsche Bankgovernmental

authorities continue 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 currently includes a $400.0 million multicurrency revolver, a $575.0

6

evolve globally.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

million USD term loan

7
Further, management continues to evaluate
how COVID-19-related circumstances, such as remote work arrangements, affect
financial reporting processes, internal control over financial reporting,
and disclosure controls and procedures.
While the
circumstances have presented and are expected to continue to present challenges,
at this time, Management does not believe that
COVID-19 has had a $175.0 million EUR equivalent term loan, each with a five year term frommaterial impact on financial reporting processes, internal
control over financial reporting, and disclosure
controls and procedures.
The Company cannot reasonably estimate the datemagnitude of the New Credit Facility becomes effective.  The maximum amount available under the New Credit Facility can be increased by $200.0 million ateffects
these conditions will have on the Company’s option if
operations in
the lenders agreefuture as they are subject to significant uncertainties relating to the ultimate
geographic spread of the virus, the incidence and
severity of the symptoms, the duration or resurgences
of the outbreak including the impact of new variants, the global availability,
acceptance and efficacy of vaccines, the length of the travel restrictions
and business closures imposed by governments of impacted
countries, and the Company satisfies certain conditions.  Borrowings undereconomic response by governments of impacted countries,
all of which continue to evolve.
To the New Credit Facility will generally 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 3.0% to 3.5% range based on current market interest rates.  The New Credit Facility will be subject to certain financial and other covenants, including covenants extent
that the Company’s consolidated net debt customers and suppliers continue
to adjusted EBITDA ratio cannot exceed 4.25be significantly and adversely impacted by COVID-19, this
could reduce the availability,
or result in delays, of materials or supplies to 1 or from the Company,
which in turn could significantly
interrupt the Company’s business operations.
Such impacts could grow and become more significant to the Company’s
operations
and the Company’s consolidated adjusted EBITDAliquidity
or financial position.
Therefore, given the continuously evolving global developments with respect to
this pandemic, the Company cannot reasonably estimate the magnitude or
the full extent to which COVID-19 may impact the
Company’s results of operations,
liquidity or financial position.
Note 2 – Business Acquisitions
2021 Acquisitions
In September 2021, the Company acquired the remaining interest expense ratio cannot be lower than 3.0 to 1.  Both in Grindaix-GmbH
(“Grindaix”), a Germany-based, high-tech
provider of coolant control and delivery systems for approximately
2.4
million EUR or approximately $
2.9
million for its Global
Specialty Businesses reportable segment.
Previously, in February 2021,
the USDCompany acquired a
38
% ownership interest in Grindaix
for approximately
1.4
million EUR or approximately $
1.7
million.
The Company recorded its initial investment as an equity method
investment within the Condensed Consolidated Financial Statements and EUR equivalent term loans will have quarterly principal amortization during their respective five year terms, with 5% amortization
accounted for the purchase 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,interest as a step
acquisition whereby the Company will only incurremeasured the previously held
equity method investment to its fair value.
In June 2021, the Company acquired certain interest costs paidassets for its chemical maskants
product line in the Global Specialty Businesses
reportable segment for
2.3
million EUR or approximately $
2.8
million.
The Company accounted for the acquisition using the asset
acquisition method under ASC 805,
Business Combinations
.
In February 2021, the Company acquired a tin-plating solutions business
for the steel end market for approximately $
25
million.
This acquisition is part of each of the Company’s
geographic reportable segments.
The Company allocated $
19.6
million of the
purchase price to maintain the banks’ committed capital (“ticking fees”), which beganintangible assets, comprised of $
18.3
million of customer relationships, to accrue on September 29, 2017.  The ticking fees will bear an interest rate be amortized over
19 years
; $
0.9
million
of 0.30% per annum.

existing product technology to be amortized over

14 years
; and $
0.4
million of a licensed trademark to be amortized over
3 years
.
In addition, the issuanceCompany recorded $
5.0
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 we
operate.
As of September 30, 2021, the allocation of the
purchase price has not been finalized and the
one year
measurement period has not ended.
Further adjustments may be necessary as a
result of the Company’s shares at closingon-going
assessment of additional information related to the fair value of assets acquired
and liabilities
assumed.
The results of operations of the acquired assets and businesses subsequent to the
respective acquisition dates are included in the
Condensed Consolidated Statements of Operations as of September 30, 2021.
Applicable transaction expenses associated with these
acquisitions are included in Combination, integration and other acquisition
-related expenses in the Company’s Condensed
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.
In November 2021, the Company closed two additional acquisitions that expand
its strategic product offerings and increase the
Company’s presence in its core metalworking
industries.
The total initial purchase price for these acquisitions was approximately $
10
million, subject to approval by Quaker’s shareholders underpost-closing adjustments as well as certain earn-out
provisions that could total approximately $
4
million.
Transaction expenses associated with these
acquisitions are included in Combination, integration and other acquisition-related
expenses in the rulesCondensed Consolidated Statements of Operations.
The results of operations of these two acquisitions are not
included in the Consolidated Statements of Operations because the date of
closing for each was subsequent to September 30, 2021.
Preliminary purchase price allocation of assets acquired and liabilities assumed
have not been presented as that information is not
available as of the New York Stock Exchange,date of these Condensed Consolidated Financial Statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
8
Previous Acquisitions
In December 2020, the Company completed its acquisition of Coral Chemical
Company (“Coral”), a privately held, U.S.-based
provider of metal finishing fluid solutions.
The acquisition provides technical expertise and approvalproduct solutions for pre-treatment,
metalworking and wastewater treatment applications to the beverage
cans and general industrial end markets.
The original purchase
price was received atapproximately $
54.1
million, subject to routine and customary post-closing adjustments related to working
capital and net
indebtedness levels.
The Company anticipates finalizing its post-closing adjustments for the Coral acquisition
during the fourth
quarter of 2021.
The following table presents the preliminary estimated fair values of
Coral net assets acquired:
Measurement
December 22,
December 22,
Period
2020
2020 (1)
Adjustments
(as adjusted)
Cash and cash equivalents
$
958
$
0
$
958
Accounts receivable
8,473
0
8,473
Inventories
4,527
0
4,527
Prepaid expenses and other assets
181
0
181
Property, plant and equipment
10,467
652
11,119
Intangible assets
30,300
(500)
29,800
Goodwill
2,814
270
3,084
Total assets purchased
57,720
422
58,142
Long-term debt including current portions and finance leases
183
556
739
Accounts payable, accrued expenses and other accrued liabilities
3,482
0
3,482
Total liabilities assumed
3,665
556
4,221
Total consideration
paid for Coral
54,055
(134)
53,921
Less: estimated purchase price settlement
0
(134)
(134)
Less: cash acquired
958
0
958
Net cash paid for Coral
$
53,097
$
0
$
53,097
(1) As previously disclosed in the Company’s
2020 Form 10-K
.
Measurement period adjustments recorded during the first nine months of
2021 include certain adjustments related to refining
original estimates for assets and liabilities for certain acquired finance
leases, as well the adjustment to reflect the expected settlement
of post-closing working capital and net indebtedness true ups to the original purchase
price.
As of September 30, 2021, the allocation
of the purchase price for Coral has not been finalized and the
one year
measurement period has not ended.
Further adjustments may
be necessary as a meetingresult of the Company’s
on-going assessment of additional information related to the fair value of assets acquired
and liabilities assumed.
In May 2020, the Company acquired Tel
Nordic ApS (“TEL”), a company that specializes in lubricants and engineering primarily
in high pressure aluminum die casting for its EMEA reportable segment.
Consideration paid was in the form of a convertible
promissory note in the amount of
20.0
million DKK, or approximately $
2.9
million, which was subsequently converted into shares of
the Company’s common stock.
An adjustment to the purchase price of approximately
0.4
million DKK, or less than $
0.1
million, was
made as a result of finalizing a post-closing settlement in the second
quarter of 2020.
The Company allocated approximately $
2.4
million of the purchase price to intangible assets to be amortized over
17 years
.
In addition, the Company recorded approximately
$
0.5
million of goodwill, related to expected value not allocated to other acquired
assets, none of which will be tax deductible.
As of
September 30, 2021, the allocation of the purchase price of TEL was finalized
and the
one year
measurement period ended.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
9
In March 2020, the Company acquired the remaining
49
% ownership interest in one of its South African affiliates, Quaker
Chemical South Africa Limited (“QSA”) for
16.7
million ZAR, or approximately $
1.0
million, from its joint venture partner PQ
Holdings South Africa.
QSA is a part of the Company’s shareholders duringEMEA
reportable segment.
As this acquisition was a change in an existing
controlling ownership, the third quarterCompany recorded $
0.7
million of 2017.  Also,excess purchase price over the Combination iscarrying value of the noncontrolling
interest in Capital in excess of par value.
In October 2019, the Company completed its acquisition of the operating
divisions of Norman Hay plc (“Norman Hay”), a private
U.K. company that provides specialty chemicals, operating equipment, and
services to industrial end markets.
The original purchase
price was
80.0
million GBP,
on a cash-free and debt-free basis, subject to regulatory approval in the United States, Europe, Chinaroutine and Australia.  customary post-closing
adjustments related to
working capital and net indebtedness levels.
The Company received regulatory approval from China in July 2017finalized its post-closing adjustments for the
Norman Hay acquisition 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 either late in the fourth quarter of 2017 or
paid approximately
2.5
million GBP during the first quarter of 2018. 

The Company incurred costs of $9.7 million and $23.1 million during the three and nine months ending September 30, 2017, respectively, and $1.2 million during the three and nine months ending September 30, 2016, respectively, for certain legal, environmental, financial, and other advisory and consultant costs related2020 to due diligence, regulatory and shareholder approvals as well as integration planning associated with the Combination.  As of September 30, 2017 and December 31, 2016, the Company had current liabilities related to the Combination of $11.4 million and $0.5 million, respectively, primarily recorded within other current liabilities on its Condensed Consolidated Balance Sheets.  In addition, the Company has made certain reclassifications to prior year disclosures regarding combination-related items to conform with the current period presentation. 

settle such adjustments.

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards
Adopted
The Financial Accounting Standards Board ("FASB"(“FASB”)
issued anAccount Standards Update (“ASU”)
ASU 2019-12
, Income Taxes
(Topic
740): Simplifying the Accounting for Income Taxes
in December 2019 to simplify the accounting standard update in August 2017 to increase transparency of the economics related to risk management activities within the financial statements and enhance transparency and understandability of hedge results. This accounting standard update eliminates the requirement 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 samefor income statement line as the hedged item.  taxes.
The
guidance within this accounting standard update removes
certain exceptions, including the exception to the incremental approach for
certain intra-period tax allocations, to the requirement to recognize
or not recognize certain deferred tax liabilities for equity method
investments and foreign subsidiaries, and to the general methodology for
calculating income taxes in an interim period when a year-to-
date loss exceeds the anticipated loss for the year.
Further, the guidance simplifies the accounting related
to franchise taxes, the step
up in tax basis for goodwill, current and deferred tax expense, and codification
improvements for income taxes related to employee
stock ownership plans.
The guidance is effective for annual and interim periods beginning
after December 15, 2018.  All transition requirements and elections should be applied to hedging relationships existing2020.
The Company
adopted this standard on the date of adoption.  For cash flow and net investment hedges existing at the datea prospective basis, effective January
1, 2021.
There was no cumulative effect of adoption the Company should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of recorded within
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 does not currently use any derivative instruments designated as hedges, but may choose to in the future. The Company has not early adopted the guidance and will evaluate the potential impact of this guidance on future transactions, as applicable.

January 1, 2021.

The FASB issued an accounting standard update ASU 2020
-04,
Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform
on
Financial Reporting
in May 2017 to clarify when changesMarch 2020.
The FASB subsequently
issued ASU 2021-01,
Reference Rate Reform (Topic
848): Scope
in
January 2021 which clarified the guidance but did not materially change
the guidance or its applicability to the terms or conditionsCompany.
The
amendments provide temporary optional expedients and exceptions
for applying U.S. GAAP to contract modifications, hedging
relationships and other transactions to ease the potential accounting
and financial reporting burden associated with transitioning away
from reference rates that are expected to be discontinued, including
the London Interbank Offered Rate (“LIBOR”).
ASU 2020-04 is
effective for the Company as of a share-based payment award must March 12, 2020 and generally can
be accountedapplied through December 31, 2022.
As of September 30, 2021,
the expedients provided in ASU 2020-04 do not presently impact
the Company; however, the Company will continue
to monitor for as modifications.  This accounting standard update will reduce diversity in practice
potential impacts on its consolidated financial statements.
Note 4 – Business 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 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 modificationsmanner by which the chief operating
decision maker assesses the Company’s
performance.
The Company has
4
reportable segments: (i) Americas; (ii) EMEA; (iii)
Asia/Pacific; and an entity is not required to estimate the value(iv) Global Specialty Businesses.
The three geographic segments are composed of the award immediately beforenet sales and afteroperations in
each respective region, excluding net sales and operations managed globally
by the change ifGlobal Specialty Businesses segment, which
includes the change doesn’t affect anyCompany’s container,
metal finishing, mining, offshore, specialty coatings, specialty grease
and Norman Hay businesses.
Segment operating earnings for each 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

Company’s

7

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

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 presentationreportable segments are comprised of the service cost component and the other components of segment’s

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 Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2016, as previously reported cost of goods sold (“COGS”) were reduced by $0.1 and $0.4 million, respectively,sales less directly
related COGS and selling, general and administrative expenses (“SG&A”) were reduced by $0.4 million and $1.3 million, respectively, with a corresponding increase to other expense, net, of $0.5 million and $1.7 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 three and nine months ended September 30, 2016, respectively.  See Note 4, Note 7 and Note 8 of Notes to Condensed 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.

Operating expenses not directly attributable to the condition that exists when the carrying amountnet
sales 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 assetseach respective segment, such as certain corporate and liabilities as if that reporting unit had been acquiredadministrative costs, Combination,
integration and other acquisition-
related expenses, and Restructuring and related charges,
are not included 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.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  During the third quarter of 2017, in connectionsegment operating earnings.
Other items not specifically
identified with the Company’s 2017 annual goodwill impairment test, the Company elected to early adopt this guidance with no impact to its financial statements.

The FASB issued an accounting standard update in January 2017 to clarify the definition of 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 assetsreportable

segments include interest expense, net and activities is a business.  The guidance within this accounting standard update is effective for annual and interim periods 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.  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 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.

8

other income (expense), net.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

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 stock 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 stock 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 $0.6 million and $1.4 million recorded during the three and nine months ended September 30, 2017, respectively, and an immaterial number of dilutive shares added to the Company’s earnings per share calculation for the three and nine months ended September 30, 2017, respectively.  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 transition of this provision was permitted, 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 9 and Note

10 of Notes to Condensed 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.

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 International 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 September 30, 2017, the Company has substantially completed its impact assessment for the implementation of the new revenue recognition guidance.  This impact assessment and work performed to date 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. 

9

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

The Company has begun preliminary considerations for how the new revenue recognition guidance may impact Houghton, as it pertains to the potential Combination.  The Company anticipates using the remainder of 2017 to finalize its impact assessment and to further develop its considerations for the potential Houghton Combination.  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.

Note 4 – Business Segments

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.  Operating earnings, excluding indirect operating expenses, for the Company’s reportable operating segments is comprised of revenues less COGS and SG&A directly related to the respective region’s product sales.  The indirect operating expenses consist of SG&A not directly attributable to the product sales of each respective reportable operating segment.  Other items not specifically identified with the Company’s reportable operating segments include interest expense, interest income, license fees from non-consolidated affiliates, amortization expense and other income (expense), net.

The following table presents information about the performance of the Company’s
reportable operating segments for the three and nine
months ended September 30, 2021 and 2020.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Net sales
Americas
$
150,799
$
119,540
$
425,343
$
330,012
EMEA
122,241
94,005
365,491
276,546
Asia/Pacific
98,659
84,877
286,924
226,850
Global Specialty Businesses
77,373
68,802
236,359
198,417
Total net sales
$
449,072
$
367,224
$
1,314,117
$
1,031,825
Segment operating earnings
Americas
$
31,273
$
31,099
$
97,155
$
70,590
EMEA
20,153
17,439
68,802
46,269
Asia/Pacific
23,285
27,304
73,990
66,106
Global Specialty Businesses
20,663
21,161
69,041
58,114
Total segment operating
earnings
95,374
97,003
308,988
241,079
Combination, integration and other acquisition-related expenses
(5,786)
(6,913)
(18,259)
(22,786)
Restructuring and related charges
880
(1,383)
(593)
(3,585)
Fair value step up of acquired inventory sold
0
0
(801)
(226)
Indefinite-lived intangible asset impairment
0
0
0
(38,000)
Non-operating and administrative expenses
(38,691)
(39,786)
(122,760)
(110,282)
Depreciation
of corporate assets and amortization
(15,767)
(14,062)
(46,855)
(41,547)
Operating income
36,010
34,859
119,720
24,653
Other income (expense), net
647
(239)
19,344
(22,407)
Interest expense, net
(5,637)
(6,837)
(16,725)
(22,109)
Income (loss) before taxes and equity in net income of
associated companies
$
31,020
$
27,783
$
122,339
$
(19,863)
Inter-segment revenues for the three and nine months ended September
30, 20172021 were $
3.6
million and 2016:

$

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2017

 

2016

 

2017

 

2016

Net sales

  

 

  

  

  

  

  

  

  

  

  

 

North America

$

90,450

 

$

86,126

 

$

268,122

 

$

251,586

 

EMEA

  

58,775

 

  

49,825

 

  

167,209

 

  

150,582

 

Asia/Pacific

  

54,200

 

  

45,892

 

  

147,074

 

  

130,555

 

South America

  

9,493

 

  

8,585

 

  

26,605

 

  

22,697

Total net sales

$

212,918

 

$

190,428

 

$

609,010

 

$

555,420

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings, excluding indirect operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

North America

$

18,888

 

$

20,397

 

$

59,146

 

$

59,334

 

EMEA

 

8,862

 

 

8,340

 

 

26,325

 

 

25,385

 

Asia/Pacific

 

13,963

 

 

11,737

 

 

36,018

 

 

33,865

 

South America

  

965

 

  

680

 

  

2,826

 

  

703

Total operating earnings, excluding indirect operating expenses

  

42,678

 

  

41,154

 

  

124,315

 

  

119,287

Combination-related expenses

 

(9,675)

 

 

(1,157)

 

 

(23,088)

 

 

(1,157)

Nonoperating charges

 

(17,108)

 

 

(16,404)

 

 

(50,067)

 

 

(48,409)

Amortization expense

  

(1,886)

 

  

(1,730)

 

  

(5,490)

 

  

(5,319)

Consolidated operating income

 

14,009

 

 

21,863

 

 

45,670

 

 

64,402

Other income (expense), net

 

249

 

 

(10)

 

 

(1,427)

 

 

(245)

Interest expense

  

(793)

 

  

(758)

 

  

(2,229)

 

  

(2,226)

Interest income

  

762

 

  

551

 

  

1,825

 

  

1,444

Consolidated income before taxes and equity in net income of

 

 

 

 

 

 

 

 

 

 

 

 

associated companies

$

14,227

 

$

21,646

 

$

43,839

 

$

63,375

 

 

 

 

 

 

 

 

 

 

 

 

 

9.3

million for Americas,
$
6.8
million and $
21.9
million for EMEA, $
0.8
million and $
1.3
million for Asia/Pacific, and $
1.8
million and $
5.9
million for Global
Specialty Businesses, respectively.
Inter-segment revenues for the three and nine months ended
September 30, 20172020 were $2.8 $
1.7
million and $7.4 $
7.0
million for North America, $6.2 Americas, $
5.3
million and $16.0 $
16.1
million for EMEA, $0.2 $
0.2
million and $0.3 $
0.5
million for Asia/Pacific, respectively,and
$
1.1
million and less than $0.1 $
3.4
million for South America in both periods.  Inter-segment revenues for the three and nine months ended September 30, 2016 were $2.5 million and $6.3 million for North America, $5.3 million and $13.2 million for EMEA, $0.1 million and $0.5 million for Asia/Pacific, respectively, and less than $0.1 million for South America in both periods.Global Specialty Businesses, respectively.
However, all inter-segment
transactions have been
eliminated from each reportable operating segment’s
net sales and earnings for all periods presented above.

10

in the above tables.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

Note 5 – RestructuringNet Sales and Related Activities

During the fourth quarter of 2015, in response to weak economic conditions and market declines in many regions, Quaker’s management approved a global restructuring plan (the “2015 Program”) to reduce its operating costs.  The 2015 Program included the re-organization of certain commercial functions, the consolidation of certain distribution, laboratory and administrative offices, and other related severance charges.  The 2015 Program included provisions for the reduction of total headcount of approximately 65 employees globally.  Employee separation benefits varied depending on local regulations within certain foreign countries and included severance and other benefits.  Revenue Recognition

Business Description
The Company completed alldevelops, produces, and markets a broad range of formulated
chemical specialty products and offers chemical
management services (“Fluidcare”) for various heavy industrial and
manufacturing applications throughout its four segments.
A
significant portion of the remaining initiatives underCompany’s
revenues are realized from the 2015 Program during the second quartersale of 2017process fluids and does not expect services made directly
to incur further restructuring charges under this program.

Restructuring activity recognized by reportable operating segment in connectionmanufacturers

through its own employees and its Fluidcare programs, with the 2015 Program duringbalance
being handled through distributors and agents.
As part of the nine months ended September 30, 2017Company’s Fluidcare
business, 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, revenue is as follows:

recognized on a net reporting

 

 

 

North

 

 

 

 

 

 

 

 

 

 

America

 

EMEA

 

Total

 

 

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 September 30, 2017

$

—

 

$

—

 

$

—

 

Note 6 – Stock-Based Compensation

basis at the amount of the administrative fee earned by

the Company for ordering the goods.
The Company transferred third-party products under arrangements recognized the following stock-based compensation expense in SG&A in its Condensed Consolidated Statements
on a net reporting
basis of Income$
18.9
million and $
53.4
million for the three and nine months ended September 30, 2017 2021, respectively,
and 2016:

$

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2017

 

2016

 

2017

 

2016

Stock options

$

243

 

$

215

 

$

714

 

$

632

Nonvested stock awards and restricted stock units

 

717

 

 

773

 

 

2,314

 

 

2,366

Employee stock purchase plan

 

22

 

 

21

 

 

66

 

 

64

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

 

8

 

 

473

 

 

72

 

 

1,749

Director stock ownership plan

 

34

 

 

37

 

 

103

 

 

131

Total stock-based compensation expense

$

1,024

 

$

1,519

 

$

3,269

 

$

4,942

11.1

During

million and
$
29.9
million for the first quarter three and nine months ended September 30, 2020, respectively.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
11
As previously disclosed in the Company’s
2020 Form 10-K, during 2020, the Company’s
five largest customers (each composed
of 2017,multiple subsidiaries or divisions with semiautonomous purchasing
authority) accounted for approximately
10
% of consolidated net
sales, with its largest customer accounting for approximately
3
% of consolidated net sales.
Revenue Recognition Model
The Company applies the five-step model in the FASB’s
guidance, which requires the Company began matching non-electiveto: (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 elective 401(k) contributions in cash rather than stock.  Also,(v) recognize
revenue when, or as, the Company satisfies a performance
obligation.
Refer to the Company’s estimated taxes payable2020 Form 10-K
for additional information on the Company’s
revenue recognition policies,
including its practical expedients and accounting policy elections.
Allowance for Doubtful Accounts
As previously disclosed in the Company’s
2020 Form 10-K, during 2020, the Company adopted, as required, an accounting
standard update related to the accounting and disclosure of credit losses effective
January 1, 2020.
The Company recognizes an
allowance for credit losses, which represents the portion of its trade accounts
receivable that the Company does not expect to collect
over the 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 receivables 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.
Contract Assets and Liabilities
The Company recognizes a contract asset or receivable on its Condensed
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.
The Company
had no material contract assets recorded on its Condensed Consolidated
Balance Sheets as of September 30, 2016 was sufficient2021 or December 31,
2020.
A contract liability is recognized when the Company receives consideration,
or if it has the unconditional right to fully recognize $0.2 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.
The Company’s
contract liabilities primarily represent deferred revenue recorded
for customer payments received by the Company prior to the
Company satisfying the associated performance obligation.
Deferred revenues are presented within other current liabilities in the
Company’s Condensed Consolidated
Balance Sheets.
The Company had approximately $
4.4
million and $
4.0
million of excess taxdeferred
revenue as of September 30, 2021 and December 31, 2020, respectively.
For the nine months ended September 30, 2021, the
Company satisfied all of the associated performance obligations
and recognized into revenue the advance payments received and
recorded as of December 31, 2020.
Disaggregated Revenue
The following tables disaggregate the Company’s
net sales by segment, geographic region, customer industry,
and timing of
revenue recognized for the three and nine months ended September 30, 2021
and 2020.
Three Months Ended September 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
56,954
$
38,483
$
53,994
$
149,431
Metalworking and other
93,845
83,758
44,665
222,268
150,799
122,241
98,659
371,699
Global Specialty Businesses
46,008
19,253
12,112
77,373
$
196,807
$
141,494
$
110,771
$
449,072
Timing of Revenue Recognized
Product sales at a point in time
$
188,340
$
131,982
$
108,559
$
428,881
Services transferred over time
8,467
9,512
2,212
20,191
$
196,807
$
141,494
$
110,771
$
449,072
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
12
Three Months Ended September 30, 2020
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
42,098
$
25,362
$
45,001
$
112,461
Metalworking and other
77,442
68,643
39,876
185,961
119,540
94,005
84,877
298,422
Global Specialty Businesses
39,197
17,429
12,176
68,802
$
158,737
$
111,434
$
97,053
$
367,224
Timing of Revenue Recognized
Product sales at a point in time
$
153,820
$
107,093
$
94,660
$
355,573
Services transferred over time
4,917
4,341
2,393
11,651
$
158,737
$
111,434
$
97,053
$
367,224
Nine Months Ended September 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
155,546
$
108,391
$
151,944
$
415,881
Metalworking and other
269,797
257,100
134,980
661,877
425,343
365,491
286,924
1,077,758
Global Specialty Businesses
137,447
61,203
37,709
236,359
$
562,790
$
426,694
$
324,633
$
1,314,117
Timing of Revenue Recognized
Product sales at a point in time
$
537,161
$
400,982
$
316,222
$
1,254,365
Services transferred over time
25,629
25,712
8,411
59,752
$
562,790
$
426,694
$
324,633
$
1,314,117
Nine Months Ended September 30, 2020
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
121,458
$
80,174
$
122,006
$
323,638
Metalworking and other
208,554
196,372
104,844
509,770
330,012
276,546
226,850
833,408
Global Specialty Businesses
115,722
49,603
33,092
198,417
$
445,734
$
326,149
$
259,942
$
1,031,825
Timing of Revenue Recognized
Product sales at a point in time
$
431,266
$
313,511
$
254,011
$
998,788
Services transferred over time
14,468
12,638
5,931
33,037
$
445,734
$
326,149
$
259,942
$
1,031,825
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
13
Note 6 – Leases
The Company determines if an arrangement is a lease at its inception.
This determination 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.
The Company has operating leases for certain facilities, vehicles and machinery
and equipment with remaining lease terms up to
10 years
.
In addition, the Company has certain land use leases with remaining lease terms up
to
94 years
.
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 current
liabilities and long-term lease liabilities on the Condensed 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.
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 has immaterial finance leases, which are included in property,
plant and equipment, current portion of
long-term debt and long-term debt on the Condensed Consolidated Balance
Sheet.
Operating lease expense is recognized on a straight-line basis over the
lease term.
Operating lease expense for the three and nine
months ended September 30, 2021 was $
3.4
million and $
10.6
million, respectively.
Comparatively, operating
lease expense for the
three and nine months ended September 30, 2020 was $
3.7
million and $
10.6
million, respectively.
Short-term lease expense for the
three and nine months ended September 30, 2021 was $
0.2
million and $
0.8
million, respectively.
Comparatively, short-term
lease
expense for the three and nine months ended September 30, 2020
was $
0.2
million and $
1.1
million, respectively.
The Company has
0
material variable lease costs or sublease income for the three or nine months ended September
30, 2021 and 2020.
Cash paid for operating leases during the nine months ended September 30, 2021
and 2020 was $
10.4
million and $
10.5
million,
respectively.
The Company recorded new right of use lease assets and associated lease liabilities of $
5.6
million during the nine
months ended September 30, 2021.
Supplemental balance sheet information related to stock option exercisesthe Company’s
leases is as cash inflows from financing activities in itsfollows:
September 30,
December 31,
2021
2020
Right of use lease assets
$
34,314
$
38,507
Other current liabilities
9,356
10,901
Long-term lease liabilities
24,599
27,070
Total operating lease liabilities
$
33,955
$
37,971
Weighted average
remaining lease term (years)
5.7
6.0
Weighted average
discount rate
4.26%
4.20%
Maturities of operating lease liabilities as of September 30, 2021 were
as follows:
September 30,
2021
For the remainder of 2021
$
2,978
For the year ended December 31, 2022
9,695
For the year ended December 31, 2023
7,564
For the year ended December 31, 2024
5,623
For the year ended December 31, 2025
4,340
For the year ended December 31, 2026 and beyond
8,104
Total lease payments
38,304
Less: imputed interest
(4,349)
Present value of lease liabilities
$
33,955
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
14
Note 7 – Restructuring and Related Activities
The Company’s management approved a global restructuring plan (the “QH Program”) as part of its plan to realize certain cost
synergies associated with the Combination in the third quarter of 2019. The QH Program includes restructuring and associated
severance costs to reduce total headcount by approximately 400 people globally, as well as plans for the closure of certain
manufacturing and non-manufacturing facilities. The exact timing and total costs associated with the QH Program will depend on a
number of factors and is subject to change; however, the Company currently expects reduction in headcount and site closures to
continue to occur throughout 2021 and into 2022 under the QH Program and estimates that anticipated cost synergies realized from the
QH Program will approximate one-times the restructuring costs incurred. Employee separation benefits will vary depending on local
regulations within certain foreign countries and will include severance and other benefits.
All costs incurred to date relate to 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 Company’s
Condensed Statements of Cash FlowsOperations.
As described in Note 4 of Notes to Condensed Consolidated
Financial Statements, restructuring and related charges
are not included in the Company’s calculation of
reportable segments’ measure
of operating earnings and therefore these costs are not reviewed by
or recorded to reportable segments.
Activity in the Company’s accrual
for restructuring under the QH Program for the nine months ended September 30, 2016.

2021

is as
follows:
QH Program
Accrued restructuring as of December 31, 2020
$
8,248
Restructuring and related charges
593
Cash payments
(4,557)
Currency translation adjustments
(234)
Accrued restructuring as of September 30, 2021
$
4,050
Note 8 – Share-Based Compensation
The Company recognized the following share-based compensation expense
in its Condensed Consolidated Statements of
Operations for the three and nine months ended September 30, 2021
and 2020:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Stock options
$
298
$
353
$
938
$
1,138
Non-vested stock awards and restricted stock units
1,277
1,259
3,963
3,782
Non-elective and elective 401(k) matching contribution in stock
0
910
1,553
2,072
Director stock ownership plan
241
243
660
337
Performance stock units
491
280
1,327
560
Annual incentive plan
0
7,102
0
9,931
Total share-based
compensation expense
$
2,307
$
10,147
$
8,441
$
17,820
Share-based compensation expense is recorded in SG&A, except for $
0.2
million and $
0.7
million for the three and nine months
ended September 30, 2021, respectively,
and $
0.4
million and $
1.2
million for the three and nine months ended September 30, 2020,
respectively, recorded
within Combination, integration and other acquisition-related expenses.
Stock Options
During the first quarternine months of 2017,2021, the Company granted stock options
under its long-term incentive plan (“LTIP”)
that are
subject only to timetime-based vesting over a three-year
three
year period.
For the purposes of determining the fair value of stock option awards,
the
Company used thea Black-Scholes option pricing model and which primarily used
the assumptions set forth in the table below:

Number of options granted

42,477

Dividend yield

1.49

%

Expected volatility

25.52

%

Risk-free interest rate

1.67

%

Expected term (years)

4.0

25,250
Dividend yield
0.85
%
Expected volatility
37.33
%
Risk-free interest rate
0.60
%
Expected term (years)
4.0
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
15
The fair value of these options is amortized on a straight-line basis over the
vesting period.
As of September 30, 2017, 2021,
unrecognized compensation expense related to all stock options granted was $1.5 $
2.1
million, to be recognized over a weighted average
remaining period of 1.9
2.1
years.  There were no stock options granted in the second or third quarters of 2017, respectively.

Restricted Stock Awards
and Restricted Stock Units
During the first nine months of 2017,ended September 30, 2021, the Company granted 17,315 nonvested
17,692
non-vested restricted shares and 1,332 nonvested
2,791
non-
vested restricted stock units under its LTIP, plan that
which are subject only to timetime-based vesting, generally over a three-year
three year
period.
The fair value
of these awardsgrants 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 of these awards for expected forfeitures based on historical experience.
As of September 30, 2017,2021, unrecognized
compensation expense related to the non-vested restricted
shares was $
5.1
million, to be recognized over a weighted average
remaining period of
1.7
years, and unrecognized compensation expense

11

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

related to the nonvestednon-vested restricted shares

stock units was $2.7 $
0.9
million,
to be recognized over a weighted average remaining period of 1.7
2.0
years.
Performance Stock Units
During the first nine months of 2021, the Company granted performance
-dependent stock awards (“PSUs”) as 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 ultimately be issued as settlement for each award
may range from
0
% up to
200
% of the target award,
subject to the achievement of the Company’s
total shareholder return (“TSR”) relative to the performance of the Company’s
peer
group, the S&P Midcap 400 Materials group.
The service period required for the PSUs is three years and the TSR measurement
period for the PSUs is from January 1 of the year of grant through December 31 of the year prior
to issuance of the shares upon
settlement.
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 grant-date fair value of the PSUs granted during the first nine months
of 2021 was estimated using
a Monte Carlo simulation on the grant date and using the following assumptions:
(i) a risk-free rate of
0.29
%; (ii) an expected term of
3.0
years; and (iii) a three year daily historical volatility for each of the companies in the peer group,
including Quaker Houghton.
As of September 30, 2021, the Company estimates that it will issue approximately
23,756
fully vested shares as of the applicable
settlement date of all outstanding PSUs awards based on the conditions
of the PSUs and performance to date for each award.
As of
September 30, 2021, there was approximately $
3.7
million of total unrecognized compensation expensecost related to nonvested restricted stock units was $0.2 million,PSUs, which the
Company expects to be recognizedrecognize over a weighted average remainingweighted-average period of 2.0
2.1
years.

Annual Incentive Plan
The Company maintains an Annual Incentive Plan (“AIP”), which may be
settled in cash or a certain number of shares subject to
performance-based and time-based vesting conditions.
As of September 30, 2020, it had been the Company’s
intention to settle the
2020 AIP in shares, and therefore, expense associated with the AIP in 2020
was recorded as a component of share-based
compensation expense.
In the fourth quarter of 2020, the Company determined that it would settle the 2020
AIP in cash.
Therefore,
the share-based compensation associated with the AIP during the
year ended December 31, 2020 was reclassified from a component
of share-based compensation expense to incentive compensation.
This determination and conclusion had no impact on the
classification of AIP expense within the Company’s
Condensed Consolidated Statement of Operations for the periods as both are
a
component of SG&A.
As of September 30, 2021, it is the Company’s
intention to settle the 2021 AIP in cash.
Defined Contribution Plan
The Company has a 401(k) plan with an employer match covering
a majority of its U.S. employees.
The Company matches
50
%
of the first
6
% of compensation that is contributed to the plan, with a maximum matching contribution of
3
% of compensation.
Additionally,
the plan provides for non-elective nondiscretionary contributions on behalf
of participants who have completed one year
of service equal to
3
% of the eligible participants’ compensation.
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.
For the three months ended September 30, 2021, there were
0
matching contributions in stock.
For the nine months ended
September 30, 2021, total contributions were $
1.5
million. Comparatively,
total contributions for the three and nine months ended
September 30, 2020 were $
0.9
million and $
2.1
million, respectively.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
16
Note 79 – Pension and Other Postretirement
Benefits

The components of net periodic benefit cost for the three and nine months
ended September 30, 20172021 and 20162020 are as follows:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

Postretirement

 

 

 

 

 

 

 

Postretirement

 

 

Pension Benefits

 

Benefits

 

Pension Benefits

 

Benefits

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

Service cost

$

921

 

$

672

 

$

2

 

$

—

 

$

2,710

 

$

2,025

 

$

6

 

$

8

Interest cost

 

994

 

 

1,111

 

 

36

 

 

28

 

 

3,005

 

 

3,344

 

 

108

 

 

106

Expected return on plan assets

 

(1,276)

 

 

(1,329)

 

 

—

 

 

—

 

 

(3,857)

 

 

(4,027)

 

 

—

 

 

—

Settlement charge

 

—

 

 

—

 

 

—

 

 

—

 

 

1,860

 

 

—

 

 

—

 

 

—

Actuarial loss (gain) amortization

 

798

 

 

769

 

 

13

 

 

(30)

 

 

2,459

 

 

2,389

 

 

40

 

 

—

Prior service cost amortization

 

(28)

 

 

(25)

 

 

—

 

 

—

 

 

(76)

 

 

(76)

 

 

—

 

 

—

Net periodic benefit cost

$

1,409

 

$

1,198

 

$

51

 

$

(2)

 

$

6,101

 

$

3,655

 

$

154

 

$

114

Three Months Ended September 30,

During

Nine Months Ended September 30,
Other
Other
Postretirement
Postretirement
Pension Benefits
Benefits
Pension Benefits
Benefits
2021
2020
2021
2020
2021
2020
2021
2020
Service cost
$
289
$
1,227
$
(2)
$
2
$
921
$
3,565
$
1
$
5
Interest cost
1,078
1,527
(1)
25
3,262
4,782
20
77
Expected return on plan assets
(2,075)
(3,526)
0
0
(6,250)
(7,246)
0
0
Settlement charge
0
0
0
0
0
22,667
0
0
Actuarial loss amortization
737
626
(85)
15
2,449
2,288
(85)
46
Prior service cost amortization
3
(42)
0
0
8
(123)
0
0
Net periodic benefit cost
$
32
$
(188)
$
(88)
$
42
$
390
$
25,933
$
(64)
$
128
As disclosed in the secondCompany’s 2020
Form 10-K, in the fourth quarter of 2017,2018, the Company’sCompany began the process of terminating
its
legacy Quaker non-contributory U.S. pension plan offered(“Legacy Quaker
U.S. Pension Plan”).
During the third quarter of 2019, the
Company received a cash settlementfavorable termination determination letter from the
Internal Revenue Service (“I.R.S.”) and completed the
Legacy Quaker U.S. Pension Plan termination during the first quarter of 2020.
In order to its vested terminated participants, terminate the Legacy Quaker U.S. Pension
Plan in accordance with I.R.S. and Pension Benefit Guaranty Corporation requirements,
the Company was required to fully fund the
Legacy Quaker U.S. Pension Plan on a termination basis and the amount
necessary to do so was approximately $
1.8
million, subject to
final true up adjustments,
which allowed them to receivewere completed in the valuethird quarter of their pension benefits as2020 resulting in a single lump sum payment.  As payments fromrefund in premium received
in the U.S. pension plan for this cash out offering exceeded the service and interest cost componentsthird
quarter of the U.S. pension plan expense for 2017,2020 of approximately $
1.6
million.
In addition, the Company recorded a non-cash pension settlement charge
at plan
termination of approximately $1.9 $
22.7
million.
This settlement charge representedincluded the immediate recognition into expense of a portion
of the related
unrecognized losslosses within accumulated other comprehensive loss (loss) income
(“AOCI”) on the balance sheet in proportion to the shareas of the projected benefit obligation that was settled by these payments.  The gross pension benefit obligation was reduced by approximately $4.0 million as a result of these payments.  The settlement charge was recognized through other expense, net, on the Company’s Condensed Consolidated Statement of Income.

plan termination

date.
Employer Contributions

The Company previously disclosed in its financial statements for the year ended December 31, 2016, that it expected to make minimum cash contributions of $7.8 million to its pension plans and $0.5 million to its other postretirement benefit plans in 2017. 

As of September 30, 2017, $5.1 2021, $
5.7
million and $0.3 $
0.2
million of contributions have been made to the Company’s
U.S. and foreign
pension plans and its other postretirement benefit plans, respectively.

respectively

.
Taking into consideration
current minimum cash contribution
requirements, the Company expects to make full year cash contributions
of approximately $
6
million to its U.S. and foreign pension
plans and less than $
1
million to its other postretirement benefit plans in 2021
.
Note 810 – Other Income (Expense), Net

The components of other income (expense), net, for the three and nine months
ended September 30, 20172021 and 20162020 are as
follows:

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2017

 

2016

 

2017

 

2016

Income from third party license fees

$

141

 

$

264

 

$

612

 

$

713

Foreign exchange gains, net

 

545

 

 

149

 

 

580

 

 

463

Gain on fixed asset disposals, net

 

22

 

 

3

 

 

50

 

 

7

Non-income tax refunds and other related credits

 

130

 

 

72

 

 

748

 

 

133

Pension and postretirement benefit costs, non-service components

 

(537)

 

 

(524)

 

 

(3,539)

 

 

(1,736)

Other non-operating income

 

47

 

 

54

 

 

288

 

 

265

Other non-operating expense

 

(99)

 

 

(28)

 

 

(166)

 

 

(90)

Other income (expense), net

$

249

 

$

(10)

 

$

(1,427)

 

$

(245)

12

Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Income from third party license fees
$
314
$
190
$
1,026
$
702
Foreign exchange gains (losses), net
368
(1,897)
(1,948)
(3,080)
(Loss) gain on disposals of property,
plant, equipment and other
assets, net
(537)
(24)
4,819
(105)
Non-income tax refunds and other related credits
3
0
14,395
2,131
Pension and postretirement benefit income (costs),
non-service components
343
1,375
596
(22,491)
Other non-operating income, net
156
117
456
436
Total other income
(expense), net
$
647
$
(239)
$
19,344
$
(22,407)
Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

Note 9 – Income Taxes
17
The (Loss) gain on disposals of property,
plant, equipment and Uncertain Income Tax Positions

The Company’s effective tax rate forother assets, net, during the three months ended

September 30, 2017 was 22.1% compared
2021,
includes losses related to 28.3% forcertain fixed asset disposals resulting from the three months ended September 30, 2016.  The
property damage caused by flooding of the Company’s effective tax rate for
Conshohocken, Pennsylvania headquarters, described in Note 19 of Notes
to Condensed Consolidated Financial Statements, and
during the nine months ended September 30, 2017 was 32.5% compared2021, includes the gain on the
sale of certain held-for-sale real property assets related to 31.0% for
the Combination.
Non-income tax refunds and other related credits during the nine months ended September
30, 2016.  2021 includes
certain non-income tax credits for the Company’s
Brazilian subsidiaries described in Note 19 of Notes to Condensed Consolidated
Financial Statements.
Pension and postretirement benefit income (costs), non-service
components during both the three and nine
months ended September 30, 2020 includes the refund in premium described
in Note 9 of Notes to Condensed Consolidated Financial
Statements.
In addition, this line also includes the Legacy Quaker U.S. Pension Plan non
-cash settlement charge during the nine
months ended September 30, 2020, also described in Note 9 of Notes to
Condensed Consolidated Financial Statements.
Note 11 – Income Taxes
and Uncertain Income Tax
Positions
The Company’s effective
tax rates for the three and nine months ended September 30, 2017, 2021 were an expense
of
2.6
% and
21.8
%,
respectively, include the impactcompared
to an expense of certain non-deductible Houghton combination-related expenses, as well as tax benefits for deductions in excess
8.1
% and a benefit of compensation cost associated with stock option exercises and restricted stock vesting.  There were no comparable non-deductible combination-related expenses or stock compensation-related tax benefits recorded through tax expense during the three or nine months ended September 30, 2016.  The Company’s effective tax rates
38.3
% for the three and nine months ended September 30, 2016, respectively, reflect earnings taxed at one2020,
respectively.
The Company’s current year
effective tax rates were largely impacted by changes in permanent
reinvestment assertions,
changes in foreign tax credit valuation allowances, tax law changes in a foreign
jurisdiction, deferred tax benefits related to an
intercompany intangible asset transfer and the income tax impacts of certain
non-income tax credits recorded by the Company’s
Brazilian subsidiaries described in Note 19 of Notes to Condensed Consolidated
Financial Statements.
Comparatively,
the prior year
effective tax rates were impacted by the tax effect
of certain one-time pre-tax losses as well as certain tax charges and benefits
in the
prior year period including those related to changes in tax regulations and
other changes in foreign tax credit valuation allowances, tax
law changes in foreign jurisdictions and the tax impacts of the Company’s subsidiaries at a statutory rate
termination of 25% while awaiting recertificationits Legacy Quaker U.S. Pension Plan.
As of a concessionary 15% tax rate, whichDecember 31, 2020, the Company received and recordedhad a deferred tax liability of $
5.9
million, which primarily represents the full year benefitCompany’s
estimate of during non-U.S. taxes it will incur to repatriate certain foreign earnings to
the fourth quarterU.S.
The balance as of 2016.  This concessionary tax rate was available to the Company during the three and nine months ended September 30, 2017.  The Company’s effective tax rates for both the three and nine months ended September 30, 2017 and September 30, 2016 include the tax benefit of changes in uncertain tax positions, which were more favorable to the effective tax rate in the prior year periods as compared to the current year.   

2021 was

$
5.8
million. As of September 30, 2017,2021, the Company’s
cumulative liability for gross unrecognized tax benefits was $7.0 million.  As$
24.0
million, an
increase of $
1.9
million from the cumulative liability accrued as of December 31, 2016, the Company’s cumulative liability for gross unrecognized tax benefits was $6.2 million. 

2020.

The Company continues to recognize interest and penalties associated with uncertain
tax positions as a component of taxes on
income (loss) before equity in net income of associated companies
in its Condensed Consolidated Statements of Income.  Operations.
The
Company recognized an expense for interest of approximately $
0.2
million and $
0.4
million and a creditbenefit of less than $0.1 $
0.1
million and $0.1 million for interest, and an expense of $0.1 million and $0.2
$
0.2
million for penalties in its Condensed Consolidated StatementsStatement of IncomeOperations for the
three and nine months ended September 30, 2017, respectively.  The Company
2021, respectively,
and recognized a credit for interest of $0.7 $
0.2
million and $0.6 million for interest and a creditan expense of $0.1 $
0.4
million and an expense of $0.2 million for penalties of
less than $
0.1
million and $
0.5
million in its Condensed Consolidated StatementsStatement of IncomeOperations for the
three and nine months ended
September 30, 2016,2020, respectively.
As of September 30, 2017,2021, the Company had accrued $0.7 $
3.3
million for cumulative interest and $2.0 $
3.5
million for cumulative penalties in its Condensed Consolidated
Balance Sheets, compared to $0.7 $
3.0
million for cumulative interest and $1.6
$
3.9
million for cumulative penalties accrued at December 31, 2016.

2020.

During the nine months ended September 30, 20172021 and 2016, 2020,
the Company recognized a decreasedecreases of $0.8 $
1.2
million and $1.5 $
1.9
million, respectively,
in its cumulative liability for gross unrecognized tax
benefits due to the expiration of the applicable statutes of limitations for
certain tax years.  During the nine months ended September 30, 2016, the Company recognized a decrease of $3.6 million in its cumulative liability for gross unrecognized tax benefits due to settlements with tax authorities.  There were no similar settlements during the nine months ended September 30, 2017.

The Company estimates that during the year ending December 31, 2017, 2021
it will reduce its cumulative liability for gross
unrecognized tax benefits by approximately $1.2 to $1.3 $
1.5
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, 2017.

2021.

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 Italy from
2006
, Brazil from 2000, Italy from 2007,
2011
,
the Netherlands and China from
2015
, Mexico, Spain, Germany and the United Kingdom from 2011, China
2016
, Canada and the U.S. from 2012, Spain
2018
,
India from 2013, the United States from 2014,fiscal year beginning April 1, 2018 and ending March 31,
2019
, and various domesticU.S. state tax jurisdictions from 2007. 

2011
.
As previously reported, thethe Italian tax authorities have assessed additional tax due from the Company’s subsidiary, Quaker Italia
S.r.l., relating to the tax years 2007 through 2013.2015. The Company has filed for competent authority relief from these assessments under
the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except
2007. In 2020, the respective tax authorities in Italy, Spain and the Netherlands reached agreement with respect to the MAP
proceedings which the Company has accepted.
As of September 30, 2017, 2021, the Company has received $
1.6
million in refunds from the
Netherlands and Spain and currently expects to pay $
2.6
million due to Italy in the fourth quarter of 2021.
As of September 30, 2021,
the Company believes it has adequate reserves where merited, for the remaining uncertain
tax positions with respectrelated to all of these audits. 

13

2007.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

18
Houghton Italia, S.r.l is also involved
in a corporate income tax audit with the Italian tax authorities covering tax years
2014
through
2018
.
As of September 30, 2021, the Company has a $
6.0
million reserve for uncertain tax positions relating to matters
related to this audit.
Because the reserve relates to the tax periods prior to August 1, 2019, the tax liability was established
through
purchase accounting related to the Combination.
The Company has also submitted an indemnification claim against funds held in
escrow by Houghton’s former
owners and as a result, a corresponding $
5.4
million indemnification receivable has also been
established through purchase accounting.
In October 2021, the Company settled a portion of the Houghton Italia
S.r.l corporate
income tax audit with the Italian tax authorities for the tax year 2015.
The Company remains under audit for tax years 2014 and 2016
through 2018 and believes it has adequate reserves for the remaining uncertain
tax positions.
Houghton Deutschland GmbH is also under audit by the German tax authorities for
the tax years
2015
through
2017
.
Based on
preliminary audit findings, primarily related to transfer pricing,
the Company has recorded reserves for $
0.9
million as of September
30, 2021.
Of this amount, $
0.8
million relates to tax periods prior to the Combination and therefore
the Company has submitted an
indemnification claim with Houghton’s
former owners for any tax liabilities arising pre-Combination.
As a result, a corresponding
$
0.8
million indemnification receivable has also been established to offset
the $
0.8
million tax liability.
In October 2021 the
Company received a settlement proposal from the German
tax authorities and is currently reviewing the proposal with Houghton’s
former owners.
Note 1012 – Earnings Per Share

The following table summarizes earnings per share calculations for
the three and nine months ended September 30, 20172021 and 2016:

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2017

 

2016

 

2017

 

2016

Basic earnings per common share

 

   

 

 

 

 

 

   

 

 

 

 

Net income attributable to Quaker Chemical Corporation

$

11,142

 

$

16,008

 

$

30,040

 

$

43,969

 

Less: income allocated to participating securities

  

(76)

 

  

(130)

 

  

(222)

 

  

(373)

 

Net income available to common shareholders

$

11,066

 

$

15,878

 

$

29,818

 

$

43,596

 

Basic weighted average common shares outstanding

 

13,217,165

 

 

13,143,884

 

 

13,196,255

 

 

13,128,996

Basic earnings per common share

$

0.84

 

$

1.21

 

$

2.26

 

$

3.32

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Quaker Chemical Corporation

$

11,142

 

$

16,008

 

$

30,040

 

$

43,969

 

Less: income allocated to participating securities

 

(76)

 

 

(130)

 

 

(222)

 

 

(373)

 

Net income available to common shareholders

$

11,066

 

$

15,878

 

$

29,818

 

$

43,596

 

Basic weighted average common shares outstanding

 

13,217,165

 

 

13,143,884

 

 

13,196,255

 

 

13,128,996

 

Effect of dilutive securities

 

34,528

 

 

29,960

 

 

41,818

 

 

18,829

 

Diluted weighted average common shares outstanding

 

13,251,693

 

 

13,173,844

 

 

13,238,073

 

 

13,147,825

Diluted earnings per common share

$

0.83

 

$

1.21

 

$

2.25

 

$

3.32

2020:

Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Basic earnings (loss) per common share
Net income (loss) attributable to Quaker Chemical Corporation
$
31,058
$
27,304
$
103,243
$
(8,812)
Less: (income) loss allocated to participating securities
(119)
(113)
(413)
44
Net income (loss) available to common shareholders
$
30,939
$
27,191
$
102,830
$
(8,768)
Basic weighted average common shares outstanding
17,812,216
17,743,538
17,800,082
17,704,662
Basic earnings (loss) per common share
$
1.74
$
1.53
$
5.78
$
(0.50)
Diluted earnings (loss) per common share
Net income (loss) attributable to Quaker Chemical Corporation
$
31,058
$
27,304
$
103,243
$
(8,812)
Less: (income) loss allocated to participating securities
(119)
(113)
(412)
44
Net income (loss) available to common shareholders
$
30,939
$
27,191
$
102,831
$
(8,768)
Basic weighted average common shares outstanding
17,812,216
17,743,538
17,800,082
17,704,662
Effect of dilutive securities
58,176
57,327
59,986
0
Diluted weighted average common shares outstanding
17,870,392
17,800,865
17,860,068
17,704,662
Diluted earnings (loss) per common share
$
1.73
$
1.53
$
5.76
$
(0.50)
Certain stock options and restricted stock units are not included in the diluted
earnings (loss) per share calculation sincewhen the effect
would have been anti-dilutive.
The calculated amount of anti-diluted shares not included were 4,300 was
5,531
and 4,819
3,722
for the three and nine
months ended September 30, 2017, respectively,2021,
respectively.
All of the Company’s potentially
dilutive shares for the nine months ended
September 30, 2020 are anti-dilutive and not included in the dilutive loss per
share calculations because of the Company’s net
loss
during the period.
There were
0 and 3,465
anti-dilutive shares excluded from the diluted earnings per share calculation for the three months
ended September 30, 2020.
Note 13 – Restricted Cash
Prior to December 2020, the Company had restricted cash recorded in other assets related to proceeds from an inactive subsidiary
of the Company which previously executed separate settlement and release agreements with two of its insurance carriers for an
original total value of $35.0 million.
The proceeds of both settlements were restricted and could only be used
to pay claims and costs
of defense associated with the subsidiary’s
asbestos litigation.
The proceeds of the settlement and release agreements were deposited
into interest bearing accounts that earned less than $
0.1
million offset by $
0.8
million of net payments during the nine months ended
September 30, 2016, respectively.

2020.

Due to the restricted nature of the proceeds, a corresponding deferred credit was established
in other non-current
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
19
liabilities for an equal and offsetting amount that continued
until the restrictions lapsed.
As disclosed in the Company’s 2020
Form
10-K, during December 2020, the restrictions ended on these previously
received insurance settlements and the Company transferred
the cash into an operating account.
The following table provides a reconciliation of cash, cash equivalents
and restricted cash as of September 30, 2021 and 2020,
as
well as December 31, 2020 and 2019:
September 30,
December 31,
2021
2020
2020
2019
Cash and cash equivalents
$
141,393
$
155,750
$
181,833
$
123,524
Restricted cash included in other current assets
0
82
62
353
Restricted cash included in other assets
0
18,901
0
19,678
Cash, cash equivalents and restricted cash
$
141,393
$
174,733
$
181,895
$
143,555
Note 1114 – Goodwill and Other Intangible Assets

The Company has historically completed its annual goodwill impairment test as of the end of the third quarter of each year, or more frequently if triggering events indicate a possible impairment in one or more of its reporting units.  The Company continually evaluates financial performance, economic conditions and other relevant developments in assessing if an interim period impairment test for one or more of its reporting units is necessary.  The Company completed its annual impairment assessment as of the end of the third quarter of 2017 and no impairment charge was warranted.  In addition, the Company has recorded no impairment charges in its past. 

Changes in the carrying amount of goodwill for the nine months ended
September 30, 20172021 were as follows:

 

 

North

 

 

 

 

 

 

 

South

 

 

 

 

 

America

 

EMEA

 

Asia/Pacific

 

America

 

Total

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

  

373

 

 

2,111

 

 

633

 

 

63

   

 

3,180

Balance as of September 30, 2017

$

47,695

 

$

20,300

 

$

15,199

 

$

2,622

   

$

85,816

Global

Specialty
Americas
EMEA
Asia/Pacific
Businesses
Total
Balance as of December 31, 2020
$
213,242
$
140,162
$
158,090
$
119,718
$
631,212
Goodwill additions
1,208
2,626
1,308
1,951
7,093
Currency translation and other adjustments
(621)
(5,530)
1,109
(2,594)
(7,636)
Balance as of September 30, 2021
$
213,829
$
137,258
$
160,507
$
119,075
$
630,669
Gross carrying amounts and accumulated amortization for definite-lived
intangible assets as of September 30, 20172021 and
December 31, 20162020 were as follows:

 

 

Gross Carrying

 

Accumulated

 

 

Amount

 

Amortization

 

 

2017

 

2016

 

2017

 

2016

Customer lists and rights to sell

$

76,671

   

$

71,454

   

$

24,176

   

$

20,043

Trademarks, formulations and product technology

  

33,022

   

  

31,436

   

  

13,782

   

  

11,748

Other

  

6,142

   

  

6,023

   

  

5,463

   

  

5,151

Total definite-lived intangible assets

$

115,835

   

$

108,913

   

$

43,421

   

$

36,942

14

Quaker Chemical Corporation

Notes

Gross Carrying
Accumulated
Amount
Amortization
2021
2020
2021
2020
Customer lists and rights to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except sharesell

$
847,909
$
839,551
$
135,571
$
99,806
Trademarks, formulations and per share amounts, unless otherwise stated)

(Unaudited)

product
technology
167,682
166,448
36,871
30,483
Other
6,325
6,372
5,886
5,824
Total definite-lived
intangible assets
$
1,021,916
$
1,012,371
$
178,328
$
136,113
The Company amortizes definite-lived intangible assets on a straight-line basis over
their useful lives.
The Company recorded $1.9
$
14.9
million and $5.5 $
44.7
million of amortization expense for the three and nine months ended September
30, 2017,2021, respectively.
Comparatively,
the Company recorded $1.7 $
14.0
million and $5.3 $
41.7
million of amortization expense for the three and nine months ended
September 30, 2016,2020, respectively.
Estimated annual aggregate amortization expense for the current year
and subsequent five years is as follows:

 

For the year ended December 31, 2017

$

7,342

 

 

For the year ended December 31, 2018

 

7,346

 

 

For the year ended December 31, 2019

 

7,243

 

 

For the year ended December 31, 2020

 

6,957

 

 

For the year ended December 31, 2021

 

6,578

 

 

For the year ended December 31, 2022

 

6,450

 

For the year ended December 31, 2021

$
58,852
For the year ended December 31, 2022
59,173
For the year ended December 31, 2023
59,005
For the year ended December 31, 2024
58,338
For the year ended December 31, 2025
57,653
For the year ended December 31, 2026
57,346
The Company has twofour indefinite-lived intangible assets totaling $1.1 $
205.1
million as of both September 30, 2021 and December 31,
2020, including $
204.0
million of indefinite-lived intangible assets for trademarks and tradename associated
with the Combination.
Goodwill and intangible assets that have indefinite lives are not amortized and
are required to be assessed at least annually for
impairment.
The Company completes its annual goodwill and indefinite-lived intangible asset impairment
test during the fourth
quarter of each year.
The Company continuously evaluates if triggering events indicate a possible impairment
in one or more of its
reporting units or indefinite-lived or long-lived assets.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
20
The Company previously disclosed in its 2020 Form 10-K that as of March 31, 2020,
the Company concluded that the impact of
COVID-19 did not represent a triggering event with regards to the Company’s
reporting units or indefinite-lived and long-lived assets,
except for the Company’s Houghton
and Fluidcare trademarks and tradename indefinite-lived intangible assets.
The determination of
estimated fair value of the Houghton and Fluidcare trademarks and tradename
indefinite-lived assets was based on a relief from
royalty valuation method, which requires management’s
judgment and often involves the use of significant estimates and assumptions,
including assumptions with respect to the weighted average cost of capital
(“WACC”)
and royalty rates, as well as revenue growth
rates and terminal growth rates.
In the first quarter of 2020, as a result of the impact of COVID-19 driving
a decrease in projected
legacy Houghton net sales during that year and the impact of the sales decline on
projected future legacy Houghton net sales as well as
an increase in the WACC
assumption utilized in the quantitative impairment assessment, the
Company concluded that the estimated
fair values of the Houghton and Fluidcare trademarks and tradename
intangible assets were less than their carrying values.
As a
result, an impairment charge of $
38.0
million was recorded in the first quarter of 2020 to write down the carrying values of
these
intangible assets to their estimated fair values.
As of September 30, 20172021, the Company continued to evaluate all potential triggering
events, including the on-going impact of
COVID-19 on the Company’s operations,
and the volatility and uncertainty in the economic outlook as a result of COVID-19,
to
determine if this indicated it was more likely than not that the carrying value
of any of the Company’s reporting
units or indefinite-
lived or long-lived intangible assets were not recoverable.
The Company concluded that the impact of COVID-19 did not represent
a
triggering event as of September 30, 2021.
While the Company concluded that the impact of COVID-19 did not represent a
triggering
event as of September 30, 2021, the Company will continue to evaluate the
impact of COVID-19 on the Company’s
current and
projected results. If the current economic conditions worsen or projections
of the timeline for recovery are significantly extended, then
the Company may conclude in the future that the impact from COVID-19
requires the need to perform further interim quantitative
impairment tests, which could result in additional impairment charges
in the future.
Note 15 – Debt
Debt as of September 30, 2021 and December 31, 2016.

Note 12 – Debt

2020 includes the following:

As of September 30, 2021
As of December 31, 2020
Interest
Outstanding
Interest
Outstanding
Rate
Balance
Rate
Balance
Credit Facilities:
Revolver
1.58%
$
198,543
1.65%
$
160,000
U.S. Term Loan
1.58%
547,500
1.65%
570,000
EURO Term Loan
1.50%
142,559
1.50%
157,062
Industrial development bonds
5.26%
10,000
5.26%
10,000
Bank lines of credit and other debt obligations
Various
2,060
Various
2,072
Total debt
$
900,662
$
899,134
Less: debt issuance costs
(8,776)
(11,099)
Less: short-term and current portion of long-term debts
(52,611)
(38,967)
Total long-term debt
$
839,275
$
849,068
Credit facilities
The Company’s primary credit facility (“
(as amended, the Credit“Credit Facility”) is comprised of a $300.0 $
400.0
million syndicated multicurrency credit agreement
revolver (the “Revolver”), a $
600.0
million term loan (the “U.S. Term
Loan”), each with the Company as borrower,
and a $
150.0
million (as of August 1, 2019) Euro equivalent term loan (the “EURO Term
Loan” and together with the “U.S. Term
Loan”, the
“Term Loans”)
with Quaker Chemical B.V.,
a Dutch subsidiary of the Company as borrower, each
with a group
five year
term maturing in
August 2024.
Subject to the consent of lenders which matures in June 2019.  the administrative agent and certain other conditions, the Company
may designate additional
borrowers.
The maximum amount available under the Credit Facility can be increased by up
to $400.0 $
300.0
million at the Company’s option
request if thethere are lenders who agree to accept additional commitments and
the Company satisfieshas satisfied certain other conditions.
Borrowings under the Credit Facility generally bear interest at a base rate or LIBOR plus an
applicable margin based upon the Company’s
consolidated net leverage ratio.
There are LIBOR replacement provisions that contemplate a further amendment
when LIBOR ceases
to be reported.
The variable interest rate plusincurred on the outstanding borrowings under
the Credit Facility as of and during the nine
months ended September 30, 2021 was approximately
1.6
%.
In addition to paying interest on outstanding principal under the Credit
Facility, the Company
is required to pay a margin.  commitment fee ranging from
0.2
% to
0.3
% depending on the Company’s consolidated
net
leverage ratio to the lenders under the Revolver in respect of the unutilized
commitments thereunder.
The Company has unused
capacity under the Revolver of approximately $
197
million, net of bank letters of credit of approximately $
4
million, as of September
30, 2021.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
21
The Credit Facility hasis subject to certain financial and other covenants,covenants. The Company’s initial consolidated net debt to
consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the key financial covenant requiring thatpermitted ratio over the Company’sterm of the Credit
Facility.
As of September 30, 2021, the consolidated net debt to adjusted EBITDA
may not exceed
4.00
to 1.
The Company’s
consolidated adjusted EBITDA to interest expense ratio cannot exceed 3.50 be less than
3.0
to 1.  1 over the term of the agreement.
The Credit
Facility also prohibits the payment of cash dividends if the Company
is in default or if the amount of the dividend paid annually
exceeds the greater of $
50.0
million and
20
% of consolidated adjusted EBITDA unless the ratio of consolidated net debt
to
consolidated adjusted EBITDA is less than
2.0
to 1, in which case there is no such limitation on amount.
As of September 30, 2017 2021
and December 31, 2016, the Company’s consolidated net debt to adjusted EBITDA ratio was below 1.0 to 1, and2020, the Company was also in compliance with all of its other covenants.  As of September 30, 2017 and December 31, 2016, the Company had total credit facility borrowings of $54.7 million and $47.9 million, respectively, primarily under the Credit Facility.  Facility covenants.
The Company’s other outstanding debt obligations as of September 30, 2017 and December 31, 2016 were primarily industrial development bonds and municipality-related loans.  At September 30, 2017 and December 31, 2016, the amounts at which the Company’s debt is recorded are not materiality different fromTerm Loans have quarterly
principal amortization during their fair market value.    

Note 13 – Equity

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

five year
terms, with
5.0
% amortization of the Company’s common stock.  These purchases may be madeprincipal balance due in the open market oryears 1 and 2,
7.5
% in privateyear
3, and negotiated transactions
10.0
% in years 4 and will be in accordance with applicable laws, rules and regulations.  In connection5, with the 2015 Share Repurchase Program, the Company acquired 83,879 shares of common stock for $5.9 million duringremaining principal amount due at maturity.
During the nine months ended September 30, 2016.  There were no share repurchases under
2021, the 2015 Share Repurchase Program duringCompany made quarterly amortization payments related to the nine months ended
Term Loans totaling $
28.6
million.
The Credit Facility is
guaranteed by certain of the Company’s
domestic subsidiaries and is secured by first priority liens on substantially all of the assets of
the Company and the domestic subsidiary guarantors, subject to certain
customary exclusions.
The obligations of the Dutch borrower
are guaranteed only by certain foreign subsidiaries on an unsecured basis.
The Credit Facility required the Company to fix its variable interest rates on at least
20
% of its total Term Loans.
In order to
satisfy this requirement as well as to manage the Company’s
exposure to variable interest rate risk associated with the Credit Facility,
in November 2019, the Company entered into $
170.0
million notional amounts of three year interest rate swaps at a base rate of
1.64
%
plus an applicable margin as provided in the Credit Facility,
based on the Company’s consolidated
net leverage ratio.
At the time the
Company entered into the swaps, and as of September 30, 2017.  2021, the
aggregate interest rate on the swaps, including the fixed base rate
plus an applicable margin, was
3.1
%.
See Note 18 of Notes to Condensed Consolidated Financial Statements.
The Company capitalized $
23.7
million of certain third-party debt issuance costs in connection with executing
the Credit Facility.
Approximately $
15.5
million of the capitalized costs were attributed to the Term
Loans and recorded as a direct reduction of long-
term debt on the Company’s Condensed
Consolidated Balance Sheet.
Approximately $
8.3
million of the capitalized costs were
attributed to the Revolver and recorded within other assets on the Company’s
Condensed Consolidated Balance Sheet.
These
capitalized costs are being amortized into interest expense over the
five year term of the Credit Facility.
As of September 30, 2021
and December 31, 2020, the Company had $
8.8
million and $
11.1
million, respectively, of debt
issuance costs recorded as a reduction
of long-term debt.
As of September 30, 2021 and December 31, 2020, the Company had $
4.7
million and $
5.9
million, respectively,
of debt issuance costs recorded within other assets.
Industrial development bonds
As of September 30, 2021 and December 31, 2020, the Company had fixed
rate, industrial development authority bonds totaling
$
10.0
million in principal amount due in
2028
.
These bonds have similar covenants to the Credit Facility noted above.
Bank lines of credit and other debt obligations
The Company has electedcertain unsecured bank lines of credit and discounting
facilities in one of its foreign subsidiaries, which are not
collateralized.
The Company’s other debt obligat
ions primarily consist of certain domestic and foreign low interest rate or interest-
free municipality-related loans, local credit facilities of certain foreign subsidiaries
and capital lease obligations.
Total unused
capacity under these arrangements as of September 30, 2021 was approximately
$
39
million.
In addition to hold treasury shares, and has retired the shares as they are repurchased.  It isbank letters of credit described in the “Credit facilities” subsection above, the Company’s accounting policy to recordonly other off-balance
sheet arrangements include certain financial and other guarantees. The Company’s total bank letters of credit and guarantees
outstanding as of September 30, 2021 were approximately $7 million.
The Company incurred the excess paid over par value following debt related expenses included
within Interest expense, net, in the Condensed Consolidated
Statements of Operations:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Interest expense
$
4,779
$
5,957
$
14,242
$
19,621
Amortization of debt issuance costs
1,187
1,188
3,562
3,562
Total
$
5,966
$
7,145
$
17,804
$
23,183
Based on the variable interest rates associated with the Credit Facility,
as a reduction in retained earnings for all shares repurchased.

Prior toof September 7, 2017,30, 2021 and December 31, 2020, the

amounts at which 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
total debt were recorded are not materially different from
their fair market value.
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 going forward.

15

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

22
Note 16 – Equity
The following tables present the changes in equity,
net of tax, for the three and nine months ended September 30, 20172021 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common

 

Excess of

 

Retained

 

Comprehensive

 

Noncontrolling

 

 

 

 

 

 

Stock

 

Par Value

 

Earnings

 

Loss

 

Interest

 

Total

Balance at June 30, 2017

$

13,310

 

$

113,747

 

$

374,001

 

$

(72,938)

 

$

11,474

 

$

439,594

 

Net income

 

—

 

 

—

 

 

11,142

 

 

—

 

 

562

 

 

11,704

 

Amounts reported in other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income (loss)

 

—

 

 

—

 

 

—

 

 

6,265

 

 

(153)

 

 

6,112

 

Dividends ($0.355 per share)

 

—

 

 

—

 

 

(4,722)

 

 

—

 

 

—

 

 

(4,722)

 

Share issuance and equity-based

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plans

 

(11)

 

 

(618)

 

 

—

 

 

—

 

 

—

 

 

(629)

Balance at September 30, 2017

$

13,299

 

$

113,129

 

$

380,421

 

$

(66,673)

 

$

11,883

 

$

452,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2016

$

13,250

 

$

109,751

 

$

340,127

 

$

(71,790)

 

$

8,895

 

$

400,233

 

Net income

 

—

 

 

—

 

 

16,008

 

 

—

 

 

343

 

 

16,351

 

Amounts reported in other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(loss) income

 

—

 

 

—

 

 

—

 

 

(237)

 

 

177

 

 

(60)

 

Dividends ($0.345 per share)

 

—

 

 

—

 

 

(4,575)

 

 

—

 

 

—

 

 

(4,575)

 

Acquisition of noncontrolling interest

 

—

 

 

—

 

 

—

 

 

—

 

 

40

 

 

40

 

Share issuance and equity-based

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plans

 

7

 

 

1,671

 

 

—

 

 

—

 

 

—

 

 

1,678

 

Excess tax benefit from stock option exercises

 

—

 

 

31

 

 

—

 

 

—

 

 

—

 

 

31

Balance at September 30, 2016

$

13,257

 

$

111,453

 

$

351,560

 

$

(72,027)

 

$

9,455

 

$

413,698

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common

 

Excess of

 

Retained

 

Comprehensive

 

Noncontrolling

 

 

 

 

 

 

Stock

 

Par Value

 

Earnings

 

Loss

 

Interest

 

Total

Balance at December 31, 2016

$

13,278

 

$

112,475

 

$

364,414

 

$

(87,407)

 

$

9,846

 

$

412,606

 

Net income

 

—

 

 

—

 

 

30,040

 

 

—

 

 

1,619

 

 

31,659

 

Amounts reported in other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income

 

—

 

 

—

 

 

—

 

 

20,734

 

 

418

 

 

21,152

 

Dividends ($1.055 per share)

 

—

 

 

—

 

 

(14,033)

 

 

—

 

 

—

 

 

(14,033)

 

Share issuance and equity-based

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plans

 

21

 

 

654

 

 

—

 

 

—

 

 

—

 

 

675

Balance at September 30, 2017

$

13,299

 

$

113,129

 

$

380,421

 

$

(66,673)

 

$

11,883

 

$

452,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

$

13,288

 

$

106,333

 

$

326,740

 

$

(73,316)

 

$

8,198

 

$

381,243

 

Net income

 

—

 

 

—

 

 

43,969

 

 

—

 

 

1,131

 

 

45,100

 

Amounts reported in other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income

 

—

 

 

—

 

 

—

 

 

1,289

 

 

86

 

 

1,375

 

Repurchases of common stock

 

(84)

 

 

—

 

 

(5,775)

 

 

—

 

 

—

 

 

(5,859)

 

Dividends ($1.01 per share)

 

—

 

 

—

 

 

(13,374)

 

 

—

 

 

—

 

 

(13,374)

 

Acquisition of noncontrolling interest

 

—

 

 

—

 

 

—

 

 

—

 

 

40

 

 

40

 

Share issuance and equity-based

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plans

 

53

 

 

4,953

 

 

—

 

 

—

 

 

—

 

 

5,006

 

Excess tax benefit from stock option exercises

 

—

 

 

167

 

 

—

 

 

—

 

 

—

 

 

167

Balance at September 30, 2016

$

13,257

 

$

111,453

 

$

351,560

 

$

(72,027)

 

$

9,455

 

$

413,698

16

2020:

Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at June 30, 2021
$
17,878
$
910,862
$
482,001
$
(35,943)
$
603
$
1,375,401
Net income
0
0
31,058
0
15
31,073
Amounts reported in other comprehensive
loss
0
0
0
(18,780)
0
(18,780)
Dividends ($
0.415
per share)
0
0
(7,424)
0
0
(7,424)
Share issuance and equity-based
compensation plans
11
3,415
0
0
0
3,426
Balance at September 30, 2021
$
17,889
$
914,277
$
505,635
$
(54,723)
$
618
$
1,383,696
Balance at June 30, 2020
$
17,800
$
896,108
$
362,265
$
(109,264)
$
432
$
1,167,341
Net income
0
0
27,304
0
38
27,342
Amounts reported in other comprehensive
income
0
0
0
34,254
17
34,271
Dividends ($
0.395
per share)
0
0
(7,048)
0
0
(7,048)
Share issuance and equity-based
compensation plans
31
4,494
0
0
0
4,525
Balance at September 30, 2020
$
17,831
$
900,602
$
382,521
$
(75,010)
$
487
$
1,226,431
Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at December 31, 2020
$
17,851
$
905,171
$
423,940
$
(26,598)
$
550
$
1,320,914
Net income
0
0
103,243
0
62
103,305
Amounts reported in other comprehensive
(loss) income
0
0
0
(28,125)
6
(28,119)
Dividends ($
1.205
per share)
0
—
(21,548)
0
0
(21,548)
Share issuance and equity-based
compensation plans
38
9,106
0
0
0
9,144
Balance at September 30, 2021
$
17,889
$
914,277
$
505,635
$
(54,723)
$
618
$
1,383,696
Balance at December 31, 2019
$
17,735
$
888,218
$
412,979
$
(78,170)
$
1,604
$
1,242,366
Cumulative effect of an accounting change
0
0
(911)
0
0
(911)
Balance at January 1, 2020
17,735
888,218
412,068
(78,170)
1,604
1,241,455
Net (loss) income
0
0
(8,812)
0
88
(8,724)
Amounts reported in other comprehensive
income (loss)
0
0
0
3,160
(114)
3,046
Dividends ($
1.165
per share)
0
0
(20,735)
0
0
(20,735)
Acquisition of noncontrolling interest
0
(707)
0
0
(340)
(1,047)
Distributions to noncontrolling affiliate
shareholders
0
0
0
0
(751)
(751)
Share issuance and equity-based
compensation plans
96
13,091
0
0
0
13,187
Balance at September 30, 2020
$
17,831
$
900,602
$
382,521
$
(75,010)
$
487
$
1,226,431
Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

23
The following tables show the reclassifications from and resulting balances
of AOCI for the three and nine months ended
September 30, 20172021 and 2016:

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Currency

 

Defined

 

Gain (Loss) in

 

 

 

 

 

 

 

Translation

 

Benefit

 

Available-for-

 

 

 

 

 

 

 

Adjustments

 

Pension Plans

 

Sale Securities

 

Total

Balance at June 30, 2017

 

$

(40,062)

 

$

(34,059)

 

$

1,183

 

$

(72,938)

 

Other comprehensive income (loss) before

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassifications

 

 

5,917

 

 

(611)

 

 

688

 

 

5,994

 

Amounts reclassified from AOCI

 

 

—

 

 

784

 

 

(254)

 

 

530

 

Current period other comprehensive income

 

 

5,917

 

 

173

 

 

434

 

 

6,524

 

Related tax amounts

 

 

—

 

 

(111)

 

 

(148)

 

 

(259)

 

Net current period other comprehensive income

 

 

5,917

 

 

62

 

 

286

 

 

6,265

Balance at September 30, 2017

 

$

(34,145)

 

$

(33,997)

 

$

1,469

 

$

(66,673)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2016

 

$

(38,812)

 

$

(34,070)

 

$

1,092

 

$

(71,790)

 

Other comprehensive (loss) income before

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassifications

 

 

(892)

 

 

3

 

 

575

 

 

(314)

 

Amounts reclassified from AOCI

 

 

—

 

 

713

 

 

(280)

 

 

433

 

Current period other comprehensive (loss) income

 

 

(892)

 

 

716

 

 

295

 

 

119

 

Related tax amounts

 

 

—

 

 

(256)

 

 

(100)

 

 

(356)

 

Net current period other comprehensive (loss) income

 

 

(892)

 

 

460

 

 

195

 

 

(237)

Balance at September 30, 2016

 

$

(39,704)

 

$

(33,610)

 

$

1,287

 

$

(72,027)

2020:

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Currency

 

Defined

 

Gain (Loss) in

 

 

 

 

 

 

 

Translation

 

Benefit

 

Available-for-

 

 

 

 

 

 

 

Adjustments

 

Pension Plans

 

Sale Securities

 

Total

Balance at December 31, 2016

 

$

(52,255)

 

$

(36,168)

 

$

1,016

 

$

(87,407)

 

Other comprehensive income (loss) before

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassifications

 

 

18,110

 

 

(684)

 

 

1,578

 

 

19,004

 

Amounts reclassified from AOCI

 

 

—

 

 

4,284

 

 

(889)

 

 

3,395

 

Current period other comprehensive income

 

 

18,110

 

 

3,600

 

 

689

 

 

22,399

 

Related tax amounts

 

 

—

 

 

(1,429)

 

 

(236)

 

 

(1,665)

 

Net current period other comprehensive income

 

 

18,110

 

 

2,171

 

 

453

 

 

20,734

Balance at September 30, 2017

 

$

(34,145)

 

$

(33,997)

 

$

1,469

 

$

(66,673)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

$

(38,544)

 

$

(35,251)

 

$

479

 

$

(73,316)

 

Other comprehensive (loss) income before

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassifications

 

 

(1,160)

 

 

116

 

 

1,087

 

 

43

 

Amounts reclassified from AOCI

 

 

—

 

 

2,313

 

 

136

 

 

2,449

 

Current period other comprehensive (loss) income

 

 

(1,160)

 

 

2,429

 

 

1,223

 

 

2,492

 

Related tax amounts

 

 

—

 

 

(788)

 

 

(415)

 

 

(1,203)

 

Net current period other comprehensive (loss) income

 

 

(1,160)

 

 

1,641

 

 

808

 

 

1,289

Balance at September 30, 2016

 

$

(39,704)

 

$

(33,610)

 

$

1,287

 

$

(72,027)

Defined

Approximately 75% and 25% of the amounts

Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at June 30, 2021
$
(12,177)
$
(21,778)
$
596
$
(2,584)
$
(35,943)
Other comprehensive (loss) income before
reclassifications
(19,905)
488
(85)
567
(18,935)
Amounts reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statements of Income for defined benefit retirement plans during the three and nine months endedAOCI
0
709
(176)
0
533
Related tax amounts
0
(293)
46
(131)
(378)
Balance at September 30, 2017 and 2016 were recorded2021
$
(32,082)
$
(20,874)
$
381
$
(2,148)
$
(54,723)
Balance at June 30, 2020
$
(88,637)
$
(17,363)
$
1,148
$
(4,412)
$
(109,264)
Other comprehensive income (loss) before
reclassifications
33,601
(901)
810
460
33,970
Amounts reclassified from AOCI
0
584
(104)
0
480
Related tax amounts
0
60
(150)
(106)
(196)
Balance at September 30, 2020
$
(55,036)
$
(17,620)
$
1,704
$
(4,058)
$
(75,010)
Defined
Unrealized
Currency
Benefit
Gain (Loss) in SG&A and COGS, respectively.  See Note 7 of Notes to Condensed Consolidated Financial Statements for further information. 
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at December 31, 2020
$
(2,875)
$
(23,467)
$
3,342
$
(3,598)
$
(26,598)
Other comprehensive (loss) income before
reclassifications
(29,207)
1,009
(489)
1,883
(26,804)
Amounts reclassified from AOCI
0
2,423
(3,259)
0
(836)
Related tax amounts
0
(839)
787
(433)
(485)
Balance at September 30, 2021
$
(32,082)
$
(20,874)
$
381
$
(2,148)
$
(54,723)
Balance at December 31, 2019
$
(44,568)
$
(34,533)
$
1,251
$
(320)
$
(78,170)
Other comprehensive (loss) income before
reclassifications
(10,468)
(409)
802
(4,855)
(14,930)
Amounts reclassified from AOCI
0
25,550
(229)
0
25,321
Related tax amounts
0
(8,228)
(120)
1,117
(7,231)
Balance at September 30, 2020
$
(55,036)
$
(17,620)
$
1,704
$
(4,058)
$
(75,010)
All reclassifications related to unrealized gain (loss) in available-for-sale securities relate
to the Company’s equity
interest in a
captive insurance company and are recorded in equity in net income
of associated companies.
The amounts reported in other
comprehensive income for non-controllingnoncontrolling interest are related to currency
translation adjustments.

17

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

Note 14 – Business Acquisitions

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. and 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 September 30, 2017, the allocation of the purchase price for the Lubricor acquisition has not been finalized and the one-year measurement period has not ended.  Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed.

The following table presents the current allocations 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 acquisitions

$

13,866

 

 

 

Less: cash acquired

 

105

 

 

 

Net cash paid for acquisitions

$

13,761

 

In July 2015, the Company acquired Verkol, S.A.U., 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 included 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.

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

18

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

Note 1517 – Fair Value
Measurements

The Company has valued its company-owned life insurance policies at fair value.
These assets are subject to fair value
measurement as follows:

 

 

 

 

 

Fair Value Measurements at September 30, 2017

 

 

 

Total

 

Using Fair Value Hierarchy

Assets

Fair Value

 

Level 1

 

Level 2

 

Level 3

Company-owned life insurance

$

1,533

 

$

—

 

$

1,533

 

$

—

Total

$

1,533

 

$

—

 

$

1,533

 

$

—

Fair Value

Measurements at September 30, 2021

 

 

 

 

 

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

 

$

—

Total

Using Fair Value
Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
$
2,135
$
0
$
2,135
$
0
Total
$
2,135
$
0
$
2,135
$
0
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
24
Fair Value
Measurements at December 31, 2020
Total
Using Fair Value
Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
$
1,961
$
0
$
1,961
$
0
Total
$
1,961
$
0
$
1,961
$
0
The fair values of Company-owned life insurance assets are based on quotes
for like instruments with similar credit ratings and
terms.
The Company did not hold any Level 3 investments as of September 30, 2017
2021 or December 31, 2016,2020, respectively,
so related
disclosures have not been included.

Note 1618 – Hedging Activities
In order to satisfy certain requirements of the Credit Facility as well as to manage
the Company’s exposure to variable
interest
rate risk associated with the Credit Facility,
in November 2019, the Company entered into $
170.0
million notional amounts of
three
year
interest rate swaps.
See Note 15 of Notes to Condensed Consolidated Financial Statements.
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 occur.
The balance sheet classification and fair values of the Company’s
derivative instruments, which are Level 2 measurements, are as
follows:
Fair Value
Condensed Consolidated
September 30,
December 31,
Balance Sheet Location
2021
2020
Derivatives designated as cash flow hedges:
Interest rate swaps
Other non-current liabilities
$
2,789
$
4,672
$
2,789
$
4,672
The following table presents the net unrealized loss deferred to AOCI:
September 30,
December 31,
2021
2020
Derivatives designated as cash flow hedges:
Interest rate swaps
AOCI
$
2,148
$
3,598
$
2,148
$
3,598
The following table presents the net loss reclassified from AOCI to earnings:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Amount and location of expense reclassified
from AOCI into expense (effective portion)
Interest expense, net
$
(672)
$
(640)
$
(1,974)
$
(1,105)
Interest rate swaps are entered into with a limited number of counterparties,
each of which allows for net settlement of all
contracts through a single payment in a single currency in the event of a default
on 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 Condensed
Consolidated Balance Sheets.
Note 19 – Commitments and Contingencies

The Company previously disclosed in its Annual Report filed on2020 Form 10-K for the year ended December 31, 2016 that AC Products, Inc.
(“ACP”), a wholly owned subsidiary,
has been
operating a groundwater treatment system to hydraulically contain groundwater
contamination emanating from ACP’s site,
the
principal contaminant of which is perchloroethylene (“PERC”).  perchloroethylene.
As of September 30, 2017,2021, ACP believes it is close to meeting the conditions
for
closure of the groundwater treatment system, but continues to operate
this system while in discussions with the relevant authorities.
As of September 30, 2017,2021, the Company believes that the range of potential-knownpotential
-known liabilities associated with the balance of the ACP
water remediation program is approximately $0.1 $
0.1
million to $1.0 $
1.0
million.
The low and high ends of the range are based on the length
of operation of the treatment system as determined by groundwater modeling.
Costs of operation include the operation and
maintenance of the extraction well, groundwater monitoring and
program management.

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
25
The Company previously disclosed in its Annual Report filed on2020 Form 10-K for the year ended December 31, 2016 that an inactive
subsidiary of the Company that was acquired in 1978
sold certain products containing asbestos, primarily on an installed basis, and
is among the defendants in numerous lawsuits alleging
injury due to exposure to asbestos.
During the three and nine months ended September 30, 2017,2021, there have been
no significant
changes to the facts or circumstances of this matter previously disclosed matter,
aside from on-going claims and routine payments associated
with this litigation.
Based on a continued analysis of the existing and anticipated future claims against this subsidiary,
it is currently
projected that the subsidiary’s total
liability over the next 50 years for these claims is approximately $2.2 $
0.4
million (excluding costs of
defense).

The Company previously disclosed in its 2020 Form 10-K that it is party to certain environmental
matters related to certain
domestic and foreign properties currently or previously owned by Houghton.
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 three and
nine months ended September 30, 2021, there have been no significant
changes to the facts or circumstances of these previously
disclosed matters, aside from on-going monitoring and maintenance
activities and routine payments associated with each of the 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 28 years, has estimated the present value
range of costs for all of the Houghton environmental matters,
on
a discounted basis, to be between approximately $
5.5
million and $
6.5
million as of September 30, 2021, for which $
5.7
million was
accrued within other accrued liabilities and other non-current liabilities on
the Company’s Condensed
Consolidated Balance Sheet as
of September 30, 2021.
Comparatively, as of December
31, 2020, the Company had $
6.0
million accrued for with respect to these
matters.
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
problems of which it is aware.
Approximately $0.2 $
0.3
million and $
0.1
million was accrued atas of September 30, 20172021 and December 31, 2016, 2020,
respectively, to provide for
such anticipated
future environmental assessments and remediation costs.
The Company previously disclosed in its 2020 Form 10-K that during the fourth
quarter of 2020, one of the Company’s
subsidiaries received a notice of inspection from a taxing authority
in a country where certain of its subsidiaries operate which related
to a non-income (indirect) tax that may be applicable to certain products the
subsidiary sells.
During the third quarter of 2021, the
Company’s subsidiary received
notice from the taxing authority that the inspection was closed, with no tax
assessment issued.
Based
on this development, during the third quarter of 2021, the Company reversed
its previously recorded $
1.8
million liability related to
this matter.
The Company also reversed the associated $
1.1
million indemnification receivable, as the asserted tax liability in
part
related to a Houghton entity acquired in the Combination and for
the periods prior to the Combination, for which the Company would
be indemnified by Houghton’s
former owners.
Based on all available information as of the date of this Report, the Company does not
anticipate further tax inspection or liabilities related to this matter to be
asserted by the taxing authority.
During the first half of 2021, one of the Company’s
Brazilian subsidiaries received a notice that it had prevailed on an existing
legal claim in regard to certain non-income (indirect) taxes that had been
previously charged and paid.
The matter specifically relates
to companies’ rights to exclude the state tax on goods circulation (a valued-added-tax
or
VAT
equivalent, known in Brazil as “ICMS”)
from the calculation of certain additional indirect taxes (specifically the program
of social integration (“PIS”) and contribution for the
financing of social security (“COFINS”)) levied by the Brazilian States on the sale of
goods.
In May 2021, the Brazilian Supreme
Court concluded that ICMS should not be included in the tax base of PIS
and COFINS, and confirmed the methodology for
calculating the PIS and COFINS tax credit claims to which taxpayers are
entitled.
The Company’s Brazilian entities had
previously
filed legal or administrative disputes on this matter and are entitled to receive
tax credits and interest dating back to five years
preceding the date of their legal claims.
As a result of these court rulings, during the second quarter of 2021, the
Company recognized
non-income tax credits of
67.0
million BRL or approximately $
13.3
million, which included approximately $
8.4
million for the PIS
and COFINS tax credits as well as interest on these tax credits of $
4.9
million.
The tax credits to which the Company’s Brazilian
subsidiaries are entitled are claimable once registered with the
Brazilian tax authorities.
The Company submitted its formal claim for
tax credits in October 2021.
These tax credits can be used to offset future Brazilian federal taxes and
the Company currently
anticipates using the full amount of credits during the five year period of
time permitted.
During the third quarter of 2021, the
Brazilian Supreme Court ruled that interest income to which companies are
entitled for matters such as this claim should not be
taxable, which resulted in a reduction to the estimated income tax expense
associated with the tax credits recorded.
In connection with obtaining regulatory approvals for the Combination,
certain steel and aluminum related product lines of
Houghton were divested on August 1, 2019. In July 2021, the entity that acquired
these divested product lines submitted an
indemnification claim for certain alleged breaches of representation made
by Houghton in the agreement pursuant to which such assets
had been divested.
The Company and the acquirer have agreed to extend the period for
a possible negotiated resolution of this claim
through November 30, 2021 so that both parties can evaluate the other’s
positions with respect to the subject matters of the claim.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
26
The Company is evaluating the merits of the alleged losses in the indemnification
claim received.
As of the date of this Report, the
Company does not believe it is reasonably possible to determine or quantify
any possible exposure.
During the third quarter of 2021, two of the Company’s
locations suffered property damages as a result of flooding and fire.
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 in its Global Specialty Businesses segment experienced an
electrical fire that
resulted in damage and the temporary shutdown of production,
and also required remediation, cleaning and subsequent restoration.
The Company, its insurance
adjuster and insurance carrier are actively managing the remediation and restoration
activities associated
with these events and at this time the Company has concluded, based on all available
information and discussions with its insurance
adjuster and insurance carrier, that the losses incurred
during the third quarter of 2021 will be covered under the Company’s
property
insurance coverage, net of an aggregate deductible of $
2.0
million.
The Company has received advance payments from its insurers of
$
1.0
million and has recorded an insurance receivable associated with these events
(and a gain on insurance recoveries for losses
incurred) of $
1.7
million as of September 30, 2021.
The Company and its insurance carrier are in early stages of reviewing the impact
of 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 cannot reasonably estimate any
probable amount of business interruption insurance claim
recoverable, therefore the Company has not recorded a gain contingency
for a possible business interruption insurance claim as of
September 30, 2021.
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.

19

In addition, the Company has an immaterial amount of contractual
purchase obligations.

Quaker Chemical Corporation

Management’s Discussion and Analysis

27
Item 2.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
.

Executive Summary

As used in this 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.
As used in
this Report, the term Legacy Quaker refers to the Company prior to the closing of
its combination with Houghton International, Inc.
(“Houghton”) (herein referred to as the “Combination”) on August 1, 2019.
Throughout the Report, all figures presented, unless
otherwise stated, reflect the results of operations of the combined company for the
three and nine months ended September 30, 2021
and 2020.
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, can, 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.  Headquartered
Quaker Houghton is headquartered in Conshohocken,
Pennsylvania, USA, Quaker serves businesses worldwide with a network of dedicated and experienced professionals whose mission is to make a difference.

The Company had a solid operating performancelocated near Philadelphia in the United States.

The Company’s third quarter
results were highlighted by record net sales as well as the on-going execution of 2017, as strong volume growth
integration
activities and synergy realization, but these positive
financial impacts were partially offset by continued discipline in managing its selling, general raw material
cost headwinds
and administrative expenses (“SG&A”) largely offset a decline in gross margin compared to the prior year.  global supply chain pressures.
Specifically, net sales increased 12% to $212.9 of $449.1
million in the third quarter of 20172021 increased 22% compared to $190.4
$367.2 million in the third quarter of 2016 driven by a 7% growth in volumes, including acquisitions, a 3% increase2020, primarily due to changes inhigher volumes
of approximately 10%, including additional net sales from
acquisitions of 4%, increases from selling price and product mix of
approximately 10% and a 2%the positive impact from foreign currency translation.  Driven
translation of 2%.
The increase in sales volumes compared to the third quarter of 2020 was primarily a
result of continued market
share gains and the year-over-year improvement
in end market conditions since the beginning of the COVID-19 pandemic.
The
increase in selling price and product mix is primarily the result of
the Company’s price increases implemented
during 2021 to help
offset the unprecedented increases in raw material
costs the Company has experienced throughout 2021.
The Company’s current
quarter gross margin of 32.3% declined sequentially
compared to 35.5% in the second quarter of 2021
which, as the Company had
expected,
was lower than the 38.2% in the prior year third quarter,
driven by the strong volume levels, the Company’s gross profit increased 5% quarter-over-quarter, despite a declinecontinued increase in gross margin to 35.1%raw material costs and logistics
pressures.
The Company had net income in the third quarter of 20172021 of $31.1 million, or $1.73 per diluted
share, compared to 37.2% in thea third quarter
of 2016.  2020 net income of $27.3 million, or $1.53 per diluted share.
The decrease incurrent quarter results reflect the Company’s gross margin was primarily due to higher raw material costs compared toheadwinds noted
above while the prior year third quarter net income was affected by
the COVID-19 pandemic and a change inits impact on the mixglobal economy,
including most of products sold.  In addition, the current quarter’s operating income benefited from the Company’s ability to significantly grow its net sales while only slightly increasing its SG&A.  During the third quarter of 2017, the Company incurred $9.7 million, or $0.52 per diluted share, of
end customers.
Excluding non-recurring items including costs associated with the Company’s previously announced combination with Houghton International, Inc. (“Houghton”) (herein referred to as “the Combination”).  The Company incurred $1.2 million, or $0.08 per diluted share, of similar combination-related costsCombination
and
other non-core items in each period, the Company’s
third quarter of 2016.   Including these combination-related expenses, the Company’s third quarter of 2017 net income and2021 non-GAAP earnings per diluted share were $11.1 million and $0.83, respectively,$1.63 compared
to $16.0 million and $1.21 per diluted share, respectively, in the third quarter of 2016.  Excluding these costs and other non-core items, coupled with a lower current quarter effective tax rate, the Company’s non-GAAP earnings per diluted share increased 6% to $1.32 in the third quarter of 2017 compared to $1.25$1.56 in the prior year.  year third quarter.
The Company’s current quarter adjusted
EBITDA was $29.4of $66.2 million increased 3% compared to
$63.9 million in the third quarter of 2017, an 2020 primarily due to the significant
increase of 4%in net sales quarter-over-quarter as well as higher
realized cost synergies from the Combination and foreign
currency transaction gains in the current quarter compared to $28.3 millionforeign
currency transaction losses in the prior year. 

From a regional perspective, the Company’s third quarter of 2017 operating performance was highlighted by strong volume growth and market share gains in three of its four regions which was2020, partially offset

by declininglower gross margins driven by higher raw material costs and
the impacts of disruptions in the global supply chain experienced in 2021
as well as higher selling, general and administrative
expenses (“SG&A”) including the impact
of higher sales on direct selling expenses and additional SG&A from recent acquisitions.
The Company estimates that it realized cost synergies associated
with the Combination of approximately $19 million during the
third
quarter of 2021 compared to approximately $17 million during
the third quarter of 2020.
See the Non-GAAP Measures section of this
Item below, as well as other
items discussed in the Company’s three largest regions.  The Company’s Europe, Middle East and Africa (“EMEA”) region increased its operating earnings due to strong net sales growth on higher sales volumes and price and product mix, coupled with a relatively consistent level of SG&A, largely offset by lower gross margin quarter-over-quarter.  In the Company’s Asia/Pacific region, operating earnings increased quarter-over-quarter as an increase in sales volumes and relatively consistent SG&A was partially offset by a slight decline in gross margin.  In South America, the Company continued its positive results and was able to grow profitability through higher sales volumes, increases from price and product mix and an overall increase in gross margin, on relatively consistent levels of SG&A.  The Company’s North American region experienced a decline in its operating earnings as contributions from the Company’s 2016 acquisition of Lubricor Inc. (“Lubricor”) and increases from price and product mix were more than offset by a decline in gross margin and slightly higher SG&A.  See the Reportable Operating Segments
Consolidated Operations Review in the Operations section of this Item,
below.

The Company’s third quarter
of 2021 operating performance in each of its four reportable segments: (i) Americas;
(ii) Europe,
Middle East and Africa (“EMEA”); (iii) Asia/Pacific; and (iv) Global Specialty
Businesses, reflect similar drivers to that of its
consolidated performance.
All four segments had higher net sales compared to the third quarter of 2020 reflecting
the continued
rebound in 2021 from the negative impacts
of COVID-19 on the Company’s
end markets during 2020 as well as continued success of
taking market share in each of the Company’s
segments during the third quarter of 2021.
All of the Company’s segments benefited
from higher organic sales volumes,
which excludes the benefits of recent acquisitions, as compared
to the prior year quarter, additional
net sales from acquisitions, the positive impact from foreign currency
translation due to the strengthening of most major currencies
against the U.S. dollar, and from increases in
selling price and product mix.
As reported, the Company’s Americas and
EMEA
segment operating earnings were higher compared to the third quarter of 2020
reflecting the increase in net sales including the benefits
of acquisitions; however, all of the Company’s
segment’s operating earnings were negatively
impacted by the unprecedented raw
material cost increases and the impacts of disruptions in the global supply
chain that continued throughout the third quarter of 2021 as
well as higher SG&A which were a result of an increase in direct selling expenses
associated with year-over-year inflation increases
and increases due to the increase in net sales as well as the lower levels of prior year SG&A
as a result of temporary cost saving
measures implemented in response to COVID-19.
Quaker Chemical Corporation
Management’s Discussion and Analysis
28
The Company generatedhad a net operating cash flow of $20.0 million in the third quarter of 2017, increasing its year-to-date net operating cash flow to $40.8 million compared to $53.0$2.5 million in the first nine
months of 2016.  2021 as compared to net operating cash
flow of $112.0 million in the first nine
months of 2020.
The decrease in net operating cash flow year-over-year was primarily driven
by a significant change in working capital compared to the prior year,
mainly increases in accounts receivable, due to cash outflows relatedhigher net sales
and inventory, due to certain Houghton combination-related expenses
higher costs as well as building inventories in response to global supply chain
and higher levels of cash invested in the Company’s working capital during 2017 as a result of the Company’s strong volume growth.  logistics pressures.
The key
drivers of the Company’s operating
cash flow and working capital are further discussed in the Company’s
Liquidity and Capital
Resources section of this Item, below.

Overall, the Company is pleased with another solid quarter.  Specifically, Company’s third
quarter results were good, despite being negatively impacted by
the Company was able to grow organic volumesautomotive semiconductor
shortage and continued supply chain challenges.
Increases in net sales in all segments were driven by 5% onthe continued market share gainsyear-over
-year
improvement in the Company’s
end-markets and increased production in somecustomer demand from lower levels experienced
during 2020 as a result of
COVID-19; however, each segment was negatively
impacted by the Company’s end markets.  Also,significant escalation of raw material costs as well as higher
SG&A.
While sequential operating performance as compared to the Companysecond
quarter of 2021 was slightly lower, continued its disciplined approach to managing SG&A which helped offset a decline in its gross marginstrong
customer demand in the third quarter of 2017.  While the combination-related expenses incurred in the third quarter of 2017 led to a decrease in reported net income quarter-over-quarter, excluding these costs and other non-core items, the Company’s operating performance resulted in a 4% increase in its adjusted EBITDA quarter-over-quarter, and2021 coupled with a lower effective tax rate in the current period, drove a 6% increase in its non-GAAP earnings per diluted share compared to the third quarter of 2016.  Looking forward to the remainder of 2017 and into the early part of 2018, the Company believes its strong volumes will continue and is optimistic that its gross margin will begin to gradually rise and head back to its 37% target.  The Company expects that on-going
market share gains on-going discipline in managing SG&A and the benefitsexecution of past acquisitions willintegration activities and
synergy realization helped offset the negative
impacts from the continued escalation of raw material costs and continued supply
chain
pressures.
As the Company looks to the rest of 2021, it expects gross margins
to continue to help offset its gross margin be challenged by increased raw material costs
and other market challenges.  Overall,supply chain headwinds, although it also expects to have sequential improvement
in product margins from current quarter levels
as it continues to implement price increases.
In addition, although the Company remains confidentexpects customer demand for most of its businesses
to remain strong, it also anticipates some near-term headwinds
due to the power restrictions in its future China, the global semiconductor
shortages in the automotive industry,
and stillsome seasonality trends which the Company typically experiences in the last quarter
of the
year.
Looking ahead to 2022, the Company expects 2017another strong year with net sales and earnings
growth to be another good year for Quaker,above normal long-
term trends as the Company expects good growth in end markets, continued
market share gains and higher gross margins as pricing
initiatives catch up from the lag experienced in 2021 due to significant raw
material inflation.
On-going impact of COVID-19
The global outbreak of COVID-19 has negatively impacted all locations where
the Company does business.
Although the
Company has now operated in this COVID-19 environment for
over a year, the full extent of the outbreak and related
business
impacts continue to remain uncertain and volatile, and therefore
the full extent to which COVID-19 may impact the Company’s
future
results of operations or financial condition is uncertain.
This outbreak has significantly disrupted the operations of the Company
and
those of its suppliers and customers.
During the pandemic, the Company has experienced volume declines and
lower net sales as
compared to pre-COVID-19 levels, as further described in this section.
Management continues to expect growthmonitor the impact that the
COVID-19 pandemic is having on the Company,
the overall specialty chemical industry and the economies and markets in which
the
Company operates.
Given the continuously evolving global developments with respect to this pandemic,
the Company cannot, as of
the date of this Report, reasonably estimate the magnitude or the full extent of
the impact to its future results of operations or to the
ability of it or its customers to resume more normal operations, even as certain restrictions
are lifted.
The prolonged pandemic and
resurgences
of the outbreak including as new variants continue to emerge,
and continued restrictions on day-to-day life and business
operations may result in volume declines and lower net sales year-over-year,in future periods.
To the extent that the Company’s
customers and increases
suppliers continue to be significantly and adversely impacted by
COVID-19, this could reduce the availability,
or result in adjusted EBITDA and non-GAAP earnings per share fordelays, of
materials or supplies to or from the eighth consecutive year.

Company,

20

Quaker Chemical Corporation

Management’s Discussion and Analysis

Related towhich in turn could significantly interrupt the Houghton Combination, Company’s

business operations.
Given
this ongoing uncertainty,
the Company received shareholder approvalcautions that its future results of operations could be significantly adversely
impacted by
COVID-19.
Further, management continues to evaluate
how COVID-19-related circumstances, such as remote work arrangements,
illness or staffing shortages and travel restrictions have affected
financial reporting processes and systems, internal control over
financial reporting, and disclosure controls and procedures.
While the circumstances have presented and are expected to continue
to
present challenges, and have necessitated additional time and resources
to be deployed to sufficiently address the challenges brought
on by the pandemic, at this time, management does not believe that COVID-19
has had a meeting heldmaterial impact on financial reporting
processes, internal controls over financial reporting, or disclosure controls
and procedures.
The Company’s top priority,
especially during this pandemic, is to protect the health and safety of its employees
and customers,
while working to ensure business continuity to meet customers’ needs.
The Company continues to take steps to protect the health and
wellbeing of its people in September 2017affected areas through various
actions, including enabling work at home where needed and also received regulatory approval from China in July 2017possible, and from Australia in October 2017. 
employing social distancing standards, implementing
travel restrictions where applicable, enhancing onsite hygiene practices, and
instituting visitation restrictions at the Company’s
facilities.
The closingCompany has not and does not expect that it will incur material
expenses implementing these health and safety policies.
All of the Combination is still subject to regulatory approvalCompany’s 31 production
facilities worldwide are open and
operating and are deemed as essential businesses in the U.S.jurisdictions where
they are operating.
The Company believes that to date it
has been able to meet the needs of all its customers across the globe despite the
current economic challenges.
The Company’s third
quarter of 2021 showed year-over-year
improvement from the prior year third quarter and Europe and other customary closing conditions.  continued a trend of gradual
volume
improvement which began in the second half of 2020.
The Company continues to expect closing that the impact from COVID-19 will
gradually improve subject to the effective containment
of the Combinationvirus and its variants and successful distribution and acceptance of the
Quaker Chemical Corporation
Management’s Discussion and Analysis
29
available vaccines.
However, the incidence of reported cases of COVID-19
or a variant in several geographies where the Company
has significant operations remains high and continues to occur either late inevolve and it remains
highly uncertain as to how long the fourth quarterglobal pandemic
and related economic challenges will last and when our customers’ businesses
will recover to pre-COVID-19 levels.
The Company
took various actions to temporarily conserve cash and reduce costs since the
onset of 2017 or during the first quarterpandemic and these temporary initiatives
were designed and implemented so that the Company could successfully manage
through the challenging COVID-19 situation while
continuing to protect the health of 2018.  

its employees, meet customers’ needs,

maintain the Company’s long-term competitive
advantages
and above-market growth, and enable it to continue to effec
tively integrate Houghton.
While the actions taken to date to protect our
workforce, to continue to serve our customers with excellence and to conserve
cash and reduce costs, have been effective thus far,
further actions to respond to the pandemic and its effects may
be necessary as conditions continue to evolve.
Liquidity and Capital Resources

Quaker’s

At September 30, 2021, the Company had cash, and cash equivalents increased to $109.1and restricted
cash of $141.4 million.
Total cash, cash
equivalents and restricted cash was $181.9 million at September 30, 2017 from $88.8December
31, 2020.
The $40.5 million at December 31, 2016.  The $20.3 million increasedecrease in cash, cash equivalents and
restricted cash was the net result of $40.8approximately $30.1 million of
cash used in investing activities, $10.5 million of cash used in
financing activities, and a $2.5 million negative impact due to the effect
of foreign currency translation,
partially offset by $2.5 million
of cash provided by operating activities and a $4.8 million positive impact due to the effect of foreign exchange rates onactivities.
Net cash partially offset by $12.8 million of cash used in investing activities and $12.5 million of cash used in financing activities.    

Net cashflows provided by operating activities was $40.8were $2.5 million in the

first nine months of 2021 compared to $112.0 million in
the first nine months of 20172020.
The decrease in net operating cash flows of $109.5 million was primarily
driven by a significant change
in working capital.
The significant increase in current year net sales resulted in a large increase in
accounts receivable in the first nine
months of 2021 as compared to $53.0 millionaccounts receivable being a cash inflow in
the prior year as sales and the associated accounts
receivables significantly declined during the first nine months of 2020
due to the negative impact from COVID-19.
In addition, the
Company has experienced an increase in inventory in the first nine months
of 2016.  The $12.2 million decrease was primarily the2021 as a result of cash outflows of $12.7 millioncontinued rising raw material costs as
well as a build in inventory to ensure the current year associated with payments related Company has appropriate stock
to meet customer demands in response to ongoing stress on
the Combination, described below.  There were no similar cash payments in the nine months ended September 30, 2016.  global supply chain.
In addition, the Company had higher cash invested dividends received from its associated companies
in working capital,the first nine
months of 2020, primarily due to higher sales and production volumes$5.0 million received from the Company’s
joint venture in the current quarter.  Specifically, the increase in net sales quarter-over-quarter drove higher levels of accounts receivables and the Company re-stocked inventories that were seasonally low at year end.  In addition, the Company had higher cash outflows due to its prepaid taxes, which increased due to improved results and timing of payments.  These operating cash outflows during the nine months ended September 30, 2017 were partially offset by the Company’s improved operating performance year-over-year, benefits from lower pension-related funding due to timing of contributions 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 increased from $8.7 million Korea with no similar dividend received

in the first nine months of 20162021 related to the timing of dividends received.
Net cash flows used in investing activities were $30.1 million in the
first nine months of 2021 compared to $15.3 million in the
first nine months of 2020.
This increase in cash outflows was driven by higher cash payments related to acquisitions
during the first
nine months of 2021, including $25.0 million for certain assets related to tin-plating
solutions primarily for steel end markets.
These
higher cash outflows were partially offset by cash proceeds
of approximately $14.7 million from the disposition of assets, which
includes the sale of certain held-for-sale real property assets related to the Combination.
Capital expenditures were relatively
consistent at $12.8 million in the first nine months of 2017, primarily due to higher payments for acquisitions and capital expenditures.  During the first nine months of 2017, the Company had cash outflows of $5.4 million for the acquisition of assets associated with a business that markets, sells and manufactures certain metalworking fluids, whereas during the first nine months of 2016, the Company had cash outflows of $3.2 million due to a post-closing adjustment to finalize its acquisition of Verkol, S.A.U.  In addition, the Company had higher additions to property, plant and equipment during the first nine months of 2017 as2021 compared to the first nine months of 2016, primarily due to timing of expenditures for several small projects across all of its regions.  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 relatively consistent year-over-year.

Net cash used in financing activities was $12.5 $12.2

million in the first nine months of 20172020.
Net cash flows used in financing activities were $10.5 million in the first nine
months of 2021 compared to $25.5$65.1 million in the
first nine months of 2020.
The decrease in net cash flows used in financing activities of $54.6 million
was primarily driven an
increase in borrowings in the current year under the Company’s
revolving credit facility compared to repayments in the prior year
which was primarily driven by the significant working capital investment
in the current year described above.
In addition, the
Company paid $21.2 million of cash dividends during the first nine months
of 2021, a $0.7 million or 3% increase in cash dividends
compared to the prior year.
Finally, during the first nine
months of 2020, the Company used $1.0 million to purchase the remaining
noncontrolling interest in a South Africa affiliate.
Prior to this buyout,
this South Africa affiliate made a distribution to the prior
noncontrolling affiliate shareholder of approximately
$0.8 million in the first nine months of 2016.  The $13.0 million decrease was primarily due to proceeds from long-term debt, net of repayments, of $4.0 million2020.
There were no similar
noncontrolling interest activities in the first nine months of 2017 compared to net repayments of long-term debt of $6.8 million in the first nine months of 2016.  The current year proceeds from long-term debt coupled with cash on hand were primarily used to finance the higher cash payments for acquisitions year-over-year and cash payments associated with combination-related expenses, described below.  In addition, the Company paid $13.9 million in cash dividends during the first nine months of 2017, a $0.8 million increase in cash dividends compared to the prior year period.  In the first nine months of 2016, the Company completed $5.9 million in share repurchases, with no comparable cash payments during the current year. 

2021.

The Company’s primary credit facility (“
(the Credit“Credit Facility”) is comprised of a $300.0$400.0 million syndicated multicurrency credit agreement
revolver (the
“Revolver”), a $600.0 million term loan (the “U.S. Term
Loan”), each with the Company as borrower, and
a $150.0 million (as of
August 1, 2019) Euro equivalent term loan (the “Euro Term
Loan” and together with the U.S. Term
Loan”, the “Term Loans”)
with
Quaker Chemical B.V.,
a Dutch subsidiary of the Company as borrower,
each with a groupfive year term maturing in August 2024.
Subject
to the consent of lenders which matures in June 2019.  the administrative agent and certain other conditions,
the Company may designate additional borrowers.
The
maximum amount available under the Credit Facility can be increased by
up to $400.0$300.0 million at the Company’s option request
if the there are
lenders who agree to accept additional commitments and the Company satisfieshas
satisfied certain other 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 thatan applicable margin
based on the Company’s consolidated
net debtleverage
ratio.
There are LIBOR replacement provisions that contemplate a further amendment
when LIBOR ceases to adjusted EBITDA ratio cannot exceed 3.50 to 1.  As of September 30, 2017 and December 31, 2016,be reported.
The
weighted average interest rate incurred on the Company’s consolidated net debt to adjusted EBITDA ratio was below 1.0 to 1, and the Company was also in compliance with all of its other covenants.  As of September 30, 2017 and December 31, 2016, the Company had total credit facilityoutstanding borrowings of $54.7 million and $47.9 million, respectively, primarily
under the Credit Facility.  The Company’s other debt obligationsFacility during both the first nine months of
2021 and as of September 30, 2017 and December 31, 2016 were primarily industrial development bonds and municipality-related loans. 

Quaker’s management approved2021 was approximately 1.6%.

In addition to paying interest on outstanding principal under the Credit
Facility, the Company
is required to pay a global restructuring plancommitment fee ranging from 0.2% to 0.3% depending on
the Company’s consolidated net
leverage ratio to the lenders under the Revolver in the fourth quarter of 2015 (the “2015 Program”) to reduce its operating costs.  The Company substantially completed allrespect of the initiatives under the 2015 Program during 2016 and settlement of these charges primarily occurred in 2016, with only minimal settlements and cash payments remaining after 2016, which were completed during the first half of 2017.  During the first nine months of 2017 and 2016, the Company utilized $0.7 million and $4.2 million, respectively, of operating cash flow for the settlement of certain restructuring liabilities under the 2015 Program.  The Company still projects full year pre-tax cost savings as a result of this program to approximate $5 million in 2017 compared to approximately half of this amount realized during 2016.

unutilized

21

commitments thereunder.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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. 

30
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.  See Note 2 of Notes to Condensed Consolidated Financial Statements.

In connection with the Combination, the Company secured $1.15 billion 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.  The New Credit Facility currently 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 generally 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 3.0% to 3.5% range based on current market interest rates.  The New Credit Facility will be subject to certain financial and other covenants, including covenants thatcovenants.

The Company’s initial consolidated net
debt to
consolidated adjusted EBITDA ratio could not exceed 4.25 to 1,
with step downs in the Company’spermitted ratio over the term of the Credit
Facility.
As of September 30, 2021,
the consolidated net debt to consolidated adjusted EBITDA ratio cannotmay
not exceed 4.254.00 to 1 and the 1.
The
Company’s consolidated
adjusted EBITDA to interest expense ratio cannotmay not be lowerless than 3.0 to 1.  Both1 over the USD
term of the agreement.
The
Credit Facility also prohibits the payment of cash dividends if the Company
is in default or if the amount of the dividends paid
annually exceeds the greater of $50.0 million and EUR equivalent term loans will20% of consolidated adjusted
EBITDA unless the ratio of consolidated net debt to
consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation
on amount.
As of September 30, 2021,
and December 31, 2020, the Company was in compliance with all of the
Credit Facility covenants.
The Term Loans have quarterly
principal amortization during their respective five year terms, with 5%5.0% amortization
of the principal balance due in years 1 and 2, 7.5% in year
3, and 10%10.0% in years 4 and 5, with the remaining principal amountsamount due
at maturity.  Until closing,
The Credit Facility is guaranteed by certain of the
Company’s domestic subsidiaries and
is secured by first priority liens on substantially all of the assets of the Company
and the
domestic subsidiary guarantors, subject to certain customary exclusions.
The obligations of the Dutch borrower are guaranteed only
by certain foreign subsidiaries on an unsecured basis.
The Credit Facility required the Company will only incur certainto fix its variable interest costs paidrates on
at least 20% of its total Term
Loans.
In order to maintain
satisfy this requirement as well as to manage the banks’ committed capital (“ticking fees”), which beganCompany’s
exposure to accrue on September 29, 2017.  The ticking fees will bear anvariable interest rate risk associated with the Credit Facility,
in November 2019, the Company entered into $170.0 million notional
amounts of 0.30% per annum.

three year interest rate swaps at a base rate of 1.64%

plus an applicable margin as provided in the Credit Facility,
based on the Company’s consolidated
net leverage ratio.
At the time the
Company entered into the swaps, and as of September 30, 2021, the
aggregate interest rate on the swaps, including the fixed base rate
plus an applicable margin, was 3.1%.
The Company capitalized $23.7 million of certain third-party debt issuance
costs in connection with executing the Credit Facility.
Approximately $15.5 million of the capitalized costs were attributed to the 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
Revolver and recorded within other assets on the Company’s
Condensed Consolidated Balance Sheet.
These capitalized costs are
being amortized into interest expense over the five year term of the Credit
Facility.
As of September 30, 2021, the Company had Credit Facility borrowings
outstanding of $888.6 million.
As of December 31,
2020, the Company had Credit Facility borrowings outstanding of $887.1
million.
The Company has unused capacity under the
Revolver of approximately $197 million, net of bank letters of credit
of approximately $4 million, as September 30, 2021.
The
Company’s other debt obligations
are primarily industrial development bonds, bank lines of credit and municipality-related
loans,
which totaled $12.1 million as of both September 30, 2021 and December
31, 2020.
Total unused capacity under
these arrangements
as of September 30, 2021 was approximately $39 million.
The Company’s total net debt as of September
30, 2021 was $759.3
million.
The Company estimates that it realized cost synergies in the first nine
months of 2021 of approximately $56 million compared to
approximately $40 million in the first nine months of 2020.
The Company continues to expect to realize Combination cost synergies
of approximately $75 million in 2021 and $80 million in 2022.
The Company continues to expect to incur additional costs and make
associated cash payments to integrate Quaker and Houghton and continue
realizing the Combination’s total anticipated
cost synergies.
The Company expects total cash payments, including those pursuant
to the QH Program, described below,
but excluding incremental
capital expenditures related to the Combination, will be approximately
1.3 times its total anticipated 2022 cost synergies of $80
million.
A significant portion of these costs were already incurred in 2019, 2020 and the
first nine months of 2021, but the Company
expects to continue to incur such costs throughout the remainder
of 2021 and into 2022.
The Company incurred $23.1$13.6 million of combination-related total
Combination, integration and other acquisition-related expenses in the first
nine months of 2021, which includes $0.7 million of
accelerated depreciation and is net of a $5.4 million gain on the sale of
certain held-for-sale real property assets, described in the
Non-
GAAP Measures section of this Item below.
Comparatively, in the first nine months
of 2020, the Company incurred $23.4 million of
total Combination, integration and other acquisition-related expenses
,
including $0.8 million of accelerated depreciation, described in
the Non-GAAP Measures section of this Item below.
The Company had aggregate net cash outflows of approximately $20.0
million
related to the Combination, integration and other acquisition-related
expenses during the first nine months of 2017, described2021 as compared to
$20.9 million during the first nine months of 2020.
Quaker Houghton’s management
approved, and the Company initiated, a global restructuring plan (the
“QH Program”) in the Non-GAAP measures section
third quarter of this Item, below, 2019 as part of its planned cost synergies associated
with the Combination.
The QH Program includes restructuring
and associated severance costs to reduce total headcount by approximately
400 people globally and plans for the closure of certain
manufacturing and non-manufacturing facilities.
In connection with the plans for closure of certain manufacturing and non-
manufacturing facilities, the Company made a decision to make available
for sale certain facilities during the second quarter of 2020.
During the first quarter of 2021, certain of these facilities were sold
and the Company recognized a gain on disposal of $5.4 million
included within other income (expense), net on the Condensed
Consolidated Statement of Operations.
The exact timing and total
costs associated with the QH Program will depend on a number of factors
and is subject to change; however, reductions in headcount
and site closures have continued into 2021.
The Company currently expects additional headcount reductions and site closures
to occur
Quaker Chemical Corporation
Management’s Discussion and Analysis
31
into 2022 and estimates that the anticipated cost synergies
realized under the QH Program will approximate one-times restructuring
costs incurred.
The Company made cash payments of $12.7 million related to these costs.  Assuming an early 2018 closing, the Company currently estimates it will incursettlement of restructuring liabilities under
the QH Program during
the first nine months of 2021 of approximately $5 $4.6 million compared
to $10$12.8 million in the first nine months of additional combination-related expenses and make comparable associated cash payments during 2020.
In
the fourth quarter of 2017,2018, the Company began the process of terminating
its non-contributory U.S. pension plan (“the Legacy
Quaker U.S. Pension Plan”) and in this process, which primarily relatewas completed
during the first quarter of 2020, the Company was required to integration planning and regulatory approvals associated with
fully fund the Combination.  The Company received regulatory approval from ChinaLegacy Quaker U.S. Pension Plan on a termination basis in July 2017 and from Australia in October 2017.  the
amount of approximately $1.8 million, subject to final
true up adjustments.
In addition, at a shareholder meeting during the third quarter of 2017,2020, the Company’s shareholders approvedCompany finalized the issuanceamount of liability and related
annuity payments and
received a refund in premium of $1.6 million.
In addition, the new sharesCompany recorded
a non-cash pension settlement charge at plan
termination of the Company’s common stock at closing of the Combination.  Currently, the closing of the Combination is expected by the end of 2017 or early 2018, and is contingent upon customary closing conditions and the remaining regulatory approvalsapproximately $22.7 million 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 September 30, 2017, related to the Combination. 

In addition to approving the issuance of the Company’s shares at closing of the Combination, noted above, at the same thirdfirst quarter of 2017 shareholders meeting, 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 going forward.  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. 

2020.

As of September 30, 2017,2021, the Company’s
gross liability for uncertain tax positions, including interest and penalties,
was $9.7 $30.8
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 $5.3$7.6 million as a result of
offsetting benefits in other tax jurisdictions.

During the first nine months of 2021, the Company recorded $13.3 million of non-
income tax credits for certain of its Brazilian subsidiaries.
The Company expects to utilize these credits to offset
certain Brazilian
federal tax payments over approximately two years beginning in the
fourth quarter of 2021.
See Note 19 of Notes to Condensed
Consolidated Financial Statements in Item 1 of this Report.
During the third quarter of 2021, two of the Company’s
locations suffered property damage as a result of flooding and fire.
The
Company maintains property insurance for all of its facilities globally.
The Company, its insurance
adjuster and insurance carrier are
actively managing the remediation and restoration activities associated
with both of these events and at this time the Company has
concluded, based on all available information and discussions with its insurance
adjuster and insurance carrier, that the losses incurred
during the third quarter of 2021 will be covered under the Company’s
property insurance coverage, net of an aggregate deductible
of
$2.0 million.
The Company has received advance payments from its insurers of $1.0 million and
has recorded an insurance receivable
associated with these events of $1.7 million as of September 30, 2021.
The Company and its insurance carrier are in early stages of
reviewing the impact on operations as it relates to a potential business interruption
insurance claim; however, as of the date of
this
report, the Company cannot reasonably estimate any probable amount
of business interruption insurance claim recoverable, therefore
the Company has not recorded a gain contingency for a possible business interruption
insurance claim as of September 30, 2021.
See
Note 19 of Notes to Condensed Consolidated Financial Statements in Item
1 of this Report.
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 funding fund
its business objectives for at least the next twelve months, including but not
limited to, payments of dividends to shareholders, costs related to the
Combination and integration, pension plan contributions, capital
expenditures, other business opportunities (including potential acquisitions)
and other potential contingencies, through internally generated funds supplemented withcontingencies.
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
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.

Critical Accounting Policies

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 Company’s critical accounting policies set forth in its Annual Reporttiming and
amount of potential capital requirements cannot be determined at this time
and will depend on Form 10-K for the year ended December 31, 2016 remain materially consistent.  However, the Company completed its annual goodwill impairment assessment during the third quartera number of 2017.  Based on this assessment, the following is an update to the Company’s related critical accounting policy:

Goodwill and other intangible assets — 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, at their acquisition date fair values.  Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is

22

Quaker Chemical Corporation

Management’s Discussion and Analysis

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, 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,factors, 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

actual and intangible assets which have indefinite lives are not amortizedprojected demand for our products, specialty chemical industry
conditions, competitive factors, and are required to be assessed at least annually for impairment.  The Company compares the assets’ fair value to their carrying value, primarily based on future discounted cash flows, in order to determine if an impairment charge is warranted.  The estimatescondition 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, but the actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance, and economic conditions. 

The Company completed its annual impairment assessment as of the end of the third quarter of 2017 by performing a qualitative (“step 0”) 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.

financial markets, among others.
Non-GAAP Measures

Included

The information in this Form 10-Q 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 meaningfulmeani
ngful 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 considered 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.

Quaker Chemical Corporation
Management’s Discussion and Analysis
32
The following tables reconcileCompany presents EBITDA which is calculated as net income (loss)
attributable to the Company before depreciation and
amortization, interest expense, net, and taxes on income (loss) 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 considered 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 considered 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.
The following tables reconcile the Company’s
non-GAAP financial measures (unaudited) to their most directly
comparable
GAAP (unaudited) financial measures:

measures (dollars in thousands unless otherwise

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2017

 

2016

 

2017

 

2016

GAAP earnings per diluted share attributable to Quaker Chemical Corporation

 

 

 

 

 

 

 

 

 

 

 

 

common shareholders

$

0.83

 

$

1.21

 

$

2.25

 

$

3.32

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

 

(0.03)

 

 

(0.04)

 

 

(0.11)

 

 

(0.07)

Houghton combination-related expenses per diluted share (b)

 

0.52

 

 

0.08

 

 

1.47

 

 

0.08

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

 

—

 

 

—

 

 

0.09

 

 

—

Cost streamlining initiative per diluted share (d)

 

—

 

 

—

 

 

0.01

 

 

—

Currency conversion impacts of the Venezuelan bolivar fuerte per diluted share (e)

 

0.00

 

 

—

 

 

0.03

 

 

0.01

Non-GAAP earnings per diluted share

$

1.32

 

$

1.25

 

$

3.74

 

$

3.34

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2017

 

2016

 

2017

 

2016

Net income attributable to Quaker Chemical Corporation

$

11,142

 

$

16,008

 

$

30,040

 

$

43,969

Depreciation and amortization

 

5,017

 

 

4,868

 

 

14,954

 

 

14,788

Interest expense

 

793

 

 

758

 

 

2,229

 

 

2,226

Taxes on income before equity in net income of associated companies

 

3,140

 

 

6,121

 

 

14,229

 

 

19,664

Equity income in a captive insurance company (a)

 

(400)

 

 

(597)

 

 

(1,427)

 

 

(952)

Houghton combination-related expenses (b)

 

9,675

 

 

1,157

 

 

23,088

 

 

1,157

U.S. pension plan settlement charge (c)

 

—

 

 

—

 

 

1,860

 

 

—

Cost streamlining initiative (d)

 

—

 

 

—

 

 

286

 

 

—

Currency conversion impacts of the Venezuelan bolivar fuerte (e)

 

35

 

 

—

 

 

375

 

 

88

Adjusted EBITDA

$

29,402

 

$

28,315

 

$

85,634

 

$

80,940

Adjusted EBITDA margin (%) (f)

 

13.8%

 

 

14.9%

 

 

14.1%

 

 

14.6%

noted, except per share amounts):

23

Non-GAAP Operating Income and Margin Reconciliations
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Operating income
$
36,010
$
34,859
$
119,720
$
24,653
Houghton combination, integration and other

acquisition-related expenses (a)
5,963
6,913
18,977
23,442
Restructuring and related charges (b)
(880)
1,383
593
3,585
Fair value step up of acquired inventory sold (c)
—
—
801
226
CEO transition costs (d)
285
—
1,097
—
Inactive subsidiary's non-operating litigation costs (e)
320
—
613
—
Customer bankruptcy costs (f)
—
—
—
463
Facility remediation costs, net (g)
1,490
—
1,490
—
Indefinite-lived intangible asset impairment (h)
—
—
—
38,000
Non-GAAP operating income
$
43,188
$
43,155
$
143,291
$
90,369
Non-GAAP operating margin (%) (p)
9.6%
11.8%
10.9%
8.8%
Quaker Chemical Corporation

Management’s Discussion and Analysis

33
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin
and Non-GAAP Net Income Reconciliations
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Net income (loss) attributable to Quaker Chemical Corporation
$
31,058
$
27,304
$
103,243
$
(8,812)
Depreciation and amortization (a)(m)
21,542
21,022
66,334
63,764
Interest expense, net
5,637
6,837
16,725
22,109
Taxes on income (loss)
before equity in net income
of associated companies
795
2,245
26,702
(7,603)
EBITDA
59,032
57,408
213,004
69,458
Equity income in a captive insurance company represents the after(i)
(108)
(542)
(4,071)
(697)
Houghton combination, integration and other
acquisition-related expenses (a)
5,786
6,913
12,871
22,679
Restructuring and related charges (b)
(880)
1,383
593
3,585
Fair value step up of acquired inventory sold (c)
—
—
801
226
CEO transition costs (d)
285
—
1,097
—
Inactive subsidiary's non-operating litigation costs (e)
320
—
613
—
Customer bankruptcy costs (f)
—
—
—
463
Facility remediation costs, net (g)
2,019
—
2,019
—
Indefinite-lived intangible asset impairment (h)
—
—
—
38,000
Pension and postretirement benefit (income) costs,
non-service components (j)
(343)
(1,375)
(596)
22,491
Brazilian non-income tax credits (k)
—
—
(13,293)
—
Currency conversion impacts of hyper-inflationary economies (l)
58
154
336
278
Adjusted EBITDA
$
66,169
$
63,941
$
213,374
$
156,483
Adjusted EBITDA margin (%) (p)
14.7%
17.4%
16.2%
15.2%
Adjusted EBITDA
$
66,169
$
63,941
$
213,374
$
156,483
Less: Depreciation and amortization - adjusted (a)
21,365
21,022
65,616
63,002
Less: Interest expense, net
5,637
6,837
16,725
22,109
Less: Taxes on income
before equity in net income
of associated companies - adjusted (a)(o)
9,765
8,337
31,277
15,473
Non-GAAP net income
$
29,402
$
27,745
$
99,756
$
55,899
Quaker Chemical Corporation
Management’s Discussion and Analysis
34
Non-GAAP Earnings per Diluted Share Reconciliations
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
GAAP earnings (loss) per diluted share attributable to the Company’s interest
Quaker Chemical Corporation common shareholders
$
1.73
$
1.53
$
5.76
$
(0.50)
Equity income in Primex, Ltd. (“Primex”), a captive insurance company.  The Company holds a 33% investment incompany
per diluted share (i)
(0.01)
(0.03)
(0.23)
(0.04)
Houghton combination, integration and has significant influence over Primex,other
acquisition-related expenses per diluted share (a)
0.26
0.30
0.58
1.03
Restructuring and therefore accounts for this interest under the equity methodrelated charges per diluted share (b)
(0.04)
0.06
0.03
0.15
Fair value step up of accounting.  The income attributable to Primex is not considered core to the Company’s operations.      

(b)acquired inventory sold per diluted share (c)

—
—
0.03
0.01
CEO transition costs per diluted share (d)
0.01
—
0.05
—
Inactive subsidiary's non-operating litigation costs per
diluted share (e)
0.02
—
0.03
—
Customer bankruptcy costs per diluted share (f)
—
—
—
0.02
Facility remediation costs, net, per diluted share (g)
0.09
—
0.09
—
Indefinite-lived intangible asset impairment per diluted share (h)
—
—
—
1.65
Pension and postretirement benefit (income) costs,
non-service components per diluted share (j)
(0.02)
(0.06)
(0.03)
0.83
Brazilian non-income tax credits per diluted share (k)
(0.04)
—
(0.48)
—
Currency conversion impacts of hyper-inflationary
economies per diluted share (l)
0.00
0.01
0.02
0.02
Impact of certain discrete tax items per diluted share (m)
(0.37)
(0.25)
(0.29)
(0.02)
Non-GAAP earnings per diluted share (q)
$
1.63
$
1.56
$
5.56
$
3.15
(a)
Houghton combination-related combination, integration and other acquisition-related
expenses include certain legal, environmental, financial, and other advisory and
consultant costs incurred in connection with the strategic evaluation of, diligence on,post-closing integration
activities including internal control readiness and execution
remediation.
These
costs are not indicative of the definitive agreementfuture operating performance of the Company.
Approximately $0.2 million
and $0.7 million in the three and nine months ended September 30, 2021, respectively,
and approximately $0.3 million and $1.5
million in the three and nine months ended September 30, 2020, 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 the three and nine months ended September
30, 2021, the Company recorded $0.2 million and $0.7 million, respectively,
of accelerated depreciation related to combine with Houghton,certain of the
Company’s facilities compared
to $0.8 million during the nine months ended September 30, 2020, which is included
in the
caption “Houghton combination, integration and other acquisition-related
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
(loss) 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 the nine months ended
September 30, 2021, the Company recorded a $5.4 million gain on the sale of
certain held-for-sale real property assets related to
the Combination which is included in the caption “Houghton combination,
integration and other acquisition-related expenses” in
the reconciliation of GAAP earnings (loss) per diluted share attributed
to Quaker Chemical Corporation common shareholders to
Non-GAAP earnings per diluted share as well as regulatorythe reconciliation of net
income (loss) attributable to Quaker Chemical
Corporation to Adjusted EBITDA and shareholder approvalsNon-GAAP net income.
See Note 2 of Notes to Condensed Consolidated Financial
Statements, which appears in Item 1 of this Report.
(b)
Restructuring and integration planningrelated charges represent the
costs incurred by the Company associated with the QH restructuring program
which was initiated in the third quarter of 2019 as part of the Company’s
plan to realize cost synergies associated with the
Combination.
These costs are not indicative of the future operating performance of the Company.  In addition, certain
See Note 7 of these costs were considered non-deductible for the purposeNotes to
Condensed Consolidated Financial Statements, which appears in Item
1 of determining the Company’s effective tax rate and, therefore, the earnings per diluted share amount reflects this impact. 

Report.

(c)U.S. pension plan settlement charge represents the
Fair value step up of acquired inventory sold relates to expense recorded relatedassociated with
selling inventory of acquired businesses which
was adjusted to the Company’s U.S. pension plan cash settlementfair value as a part of purchase accounting.
This increase to its vested terminated participants.  This settlement charge represents the immediate recognition into expense of 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 andCOGS is not indicative of the future operating
performance of the Company.

Quaker Chemical Corporation
Management’s Discussion and Analysis
35
(d)Cost streamlining initiative
CEO transition costs represent the costs related to the Company’s
search and hiring of a new CEO in connection with the
previously announced executive transition planned for the end of 2021.
These expenses are not indicative of the future operating
performance of the Company.
(e)
Inactive subsidiary’s non
-operating litigation costs represents expenses associated with certain actions taken to reorganizethe charges incurred by
an inactive subsidiary of the Company and
are a result of the termination of restrictions on insurance settlement reserves as previously
disclosed in the Company’s corporate staff.  Overall, these costs are non-core and are indirect operating expenses that are not attributable to the product sales of any respective reportable operating segment, and, therefore,2020
Form 10-K.
These charges are not indicative of the future operating performance
of the Company.

(e)Currency conversion impacts

See Note 9 of Notes to
Condensed Consolidated Financial Statements, which appears in Item
1 of this Report.
(f)
Customer bankruptcy costs represent the cost associated with a specific
reserve for trade accounts receivable related to a customer
who filed for bankruptcy protection.
These expenses are not indicative of the Venezuelan bolivar fuerte represent after tax losses incurred atfuture operating performance
of the Company’s Venezuelan affiliate as a resultCompany.
(g)
Facility remediation costs, net, presents the gross costs associated with remediation,
cleaning and subsequent restoration costs
associated with the property damages to certain of changes in Venezuela’s foreign exchange markets and controls and the conversionCompany’s
facilities, net of bolivar fuerte to U.S. dollars.  The losses were the result of changes to Venezuela’s market and foreign exchange controlsinsurance recoveries received.
These charges
are non-recurring and are not indicative of the future operating performance
of the Company.

See Note 19 of Notes to Condensed
Consolidated Financial Statements, which appears in Item 1 of this Report.
(h)
Indefinite-lived intangible asset impairment represents the non-cash
charge taken to write down the value of certain indefinite-
lived intangible assets associated with the Houghton Combination.
The Company has no prior history of goodwill or intangible
asset impairments and this charge is not indicative of the future
operating performance of the Company.
See Note 14 of Notes to
Condensed Consolidated Financial Statements, which appears in Item
1 of this Report.
(i)
Equity income 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 32% investment in and has significant influence over
Primex, and therefore accounts for this interest 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.
(j)
Pension and postretirement benefit (income) costs, non-service components
represent the pre-tax, non-service component of the
Company’s pension and postretirement
net periodic benefit cost in each period.
These costs are not indicative of the future
operating performance of the Company.
The amount in the nine months ended September 30, 2020 includes the $22.7
million
settlement charge for the Company’s
termination of the Legacy Quaker U.S. Pension Plan.
See Note 9 of Notes to Condensed
Consolidated Financial Statements, which appears in Item 1 of this Report.
(k)
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 Brazilian Supreme Court ruling
on these non-income tax matters.
The third quarter of
2021 impact to Non-GAAP earnings per diluted share reflects the tax only
adjustment related to the Brazilian Supreme Court
ruling on the taxability of interest income.
The non-income tax credit is non-recurring and not indicative of the future operating
performance of the Company.
See Note 19 of Notes to Condensed Consolidated Financial Statements, which
appears in Item 1 of
this Report.
(l)
Currency conversion impacts of hyper-inflationary economies represents
the foreign currency remeasurement impacts associated
with the Company’s affiliates
whose local economies are designated as hyper-inflationary under
U.S. GAAP.
During the three
and nine months ended September 30, 2021 and 2020, the Company
incurred non-deductible, pre-tax charges related to the
Company’s Argentine
affiliates.
These charges related to the immediate recognition of
foreign currency remeasurement in the
Condensed Consolidated Statements of Operations associated with these entities are
not indicative of the future operating
performance of the Company.
See Note 1 of Notes to Condensed Consolidated Financial Statements, which
appears in Item 1 of
this Report.
(m)
The impact of certain discrete tax items includes the impact of changes
in certain valuation allowance recorded on certain of the
Company’s foreign
tax credits, tax law changes in a foreign jurisdiction, changes in withholding rates,
the tax impacts of non-
income tax credits associated with certain of the Company’s
Brazilian subsidiaries and the associated impact on previously
accrued for distributions at certain of the Company’s
Asia/Pacific subsidiaries, the one-time deferred tax benefit recorded on the
transfer of additional intangible assets between the Company’s
subsidiaries as well as the offsetting impact and amortization
of a
deferred tax benefit the Company recorded in the fourth quarters of
2019 and 2020 related to a similar intercompany intangible
asset transfer.
See Note 11 of Notes to Condensed Consolidated Financial
Statements, which appears in Item 1 of this Report.
(n)
Depreciation and amortization for the three and nine months ended
September 30, 2021 includes approximately $0.3 million and
$0.9 million, respectively,
and for the three and nine months ended September 30, 2020 includes $0.2 million
and $0.9 million,
respectively, of
amortization expense recorded within equity in net income of associated companies
in the Company’s Condensed
Consolidated Statements of Operations, which is attributable to
the amortization of the fair value step up for the Company’s
50%
interest in a Houghton joint venture in Korea as a result of required purchase accounting.
Quaker Chemical Corporation
Management’s Discussion and Analysis
36
(o)
Taxes on income
before equity in net income of associated companies – adjusted presents the impact
of any current and deferred
income tax expense (benefit), as applicable, of the reconciling items presented
in the reconciliation of net income (loss)
attributable to Quaker Chemical Corporation to adjusted EBITDA, and
was determined utilizing the applicable rates in the taxing
jurisdictions in which these adjustments occurred, subject to deductibility.
Houghton combination, integration and other
acquisition-related expenses described in (a) resulted in incremental taxes of $1.4 million
and $3.1 million during the three and
nine months ended September 30, 2021, and $1.7
million and $5.1 million during the three and nine months ended September 30,
2020,
respectively.
Restructuring and related charges described in (b) resulted in
a tax benefit of $0.2 million and incremental
taxes of $0.1 million during the three and nine months ended September
30, 2021, respectively, and
$0.4 million and $0.9
million
for the three and nine months ended September 30, 2020, respectively.
Fair value step up of acquired inventory sold described in
(c) resulted in incremental taxes of $0.2 million during the nine months
ended September 30, 2021 and less than $0.1 million
during
the nine months ended September 30, 2020.
CEO transition expenses described in (d) resulted in incremental taxes of $0.1
million and $0.3 million during the three and nine months ended September
30, 2021, respectively.
Inactive subsidiary litigation
described in (e) resulted in incremental taxes of $0.1 million and approximately
$0.2 million during the three and nine months
ended September 30, 2021, respectively.
Customer bankruptcy costs described in (f) resulted in incremental taxes of $0.1 million
during the nine months ended September 30, 2020.
Facility fire and flood remediation costs described in (g) resulted in
incremental taxes of $0.5 million in each of the three and nine months
ended September 30, 2021.
Indefinite-lived intangible
asset impairment described in (h) resulted in incremental taxes of $8.7 million
during the nine months ended September 30, 2020.
Pension and postretirement benefit (income) costs, non-service components
described in (j) resulted in a tax benefit of
approximately $0.1 million during each of the three and nine months
ended September 30, 2021,
and a reduction of taxes of $0.3
million and incremental taxes of $7.7 million for the three and nine months
ended September 30, 2020, respectively.
Brazilian
non-income tax credits described in (k) resulted in incremental taxes of
approximately $0.6 million and a tax benefit of $4.7
million during the three and nine months ended September 30, 2021.
Tax impact of certain discrete
items described in (m) above
resulted in a tax benefit of approximately $6.5 million and $5.1 million
during three and nine months ended September 30, 2021,
respectively, and resulted
in a tax benefit of $4.5 million and $0.4 million for the three and nine months ended
September 30,
2020,
respectively.
(p)
The Company calculates Adjustedadjusted EBITDA margin
and non-GAAP operating margin as the percentage of Adjustedadjusted EBITDA into
and
non-GAAP operating income to consolidated net sales.

(q)
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 no material off-balance sheet items, as defined
under Item 303(a)(4) of Regulation S-K as of September 30,
2021.
The Company’s only off-balance
sheet items outstanding as of September 30, 2021 represented approximately
$7 million of
total bank letters of credit and guarantees.
The bank letters of credit and guarantees are not significant to the Company’s
liquidity or
capital resources.
See Note 15 of Notes to Condensed Consolidated Financial Statements in Item 1 of
this Report.
Operations

Consolidated Operations Review – Comparison of the Third
Quarter of 20172021 with the Third Quarter of 2016

2020

Net sales were $449.1 million in the third quarter
of 2017 of $212.9 million increased 12% from $190.42021
compared to $367.2 million in the third quarter of 2016.  2020.
The $22.5 million increase in net sales
increase of approximately $81.8 million or 22% quarter-over-quarter
was driven by a 5% increase in organic volumes, a 2%, or $2.9 million increase from sales primarily attributable to the Company’s fourth quarter of 2016 acquisition of Lubricor, a 3% increase due to changes inhigher sales volumes of 10%, which
includes additional net sales from recent acquisitions of 4%, increases
from selling price and product mix of 10% and the positive
impact of foreign currency translation of $3.8 million, or 2%.

Costs of goods sold (“COGS”)

The increase in organic sales volumes compared to the third quarter
of 20172020 was
primarily the result of $138.1 million increased 16%the continued year-over-year
improvement in end market conditions and continued market share gains realized
in the current quarter.
Sales from $119.5acquisitions is driven by the Company’s
acquisition of Coral Chemical Company (“Coral”) in
December 2020 as well as the tin-plating solutions business acquired
in February 2021.
The increase from selling price and product
mix includes the impact of current year selling price increases implemented
in response to the increases in raw material costs
experienced in 2021.
The positive impact from foreign currency translation is primarily the result of the
strengthening of the Chinese
renminbi,
euro, and Mexican peso against the U.S. dollar quarter-over-quarter.
COGS were $303.9 million in the third quarter of 2016.  2021 compared to
$227.0 million in the third quarter of 2020.
The increase in
COGS of 34% was primarily due todriven by the associated COGS on the increase in product volumes, notednet
sales described above as well as additional COGS attributed and continued increases in the
Company’s global raw material costs compared
to the Company’s 2016 acquisition of Lubricor, the impact of certain raw material cost increases, changes in product mixprior year quarter and the negative impactimpacts of foreign currency translation quarter-over-quarter.  In addition,supply constraints in the third quarters of 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 Condensed Consolidated Financial Statements.

current year.

Gross profit in the third quarter of 20172021 of $145.1 million increased $3.9$4.9 million
or 5%,approximately 4% from the third quarter of 2016.  The increase in gross profit was
2020, due primarily due to the increase in net sales volumes, noted above, largely offset by a lower above.
The Company’s reported
gross margin of 35.1% in the third quarter of 2017 2021 was
32.3%
compared to 37.2%38.2% in the third quarter of 2016.  2020.
The decreaselower current quarter gross margin is driven by significant raw material
cost increases that began in the Company’s gross margin quarter-over-quarter was primarily due to higher raw material costs compared tofourth quarter of 2020 and have continued throughout
2021 and the prior year quarterimpacts of constraints on the
world’s global supply
chain.
Quaker Chemical Corporation
Management’s Discussion and a change in the mix of certain products sold.   

Analysis

37
SG&A in the third quarter of 20172021 increased $3.2$7.2 million compared
to the third quarter of 2016 2020 due primarily to the impact of
sales increases on direct selling costs, year-over-year
inflation increases,
additional SG&A from recent acquisitions and higher SG&A
due to foreign currency translation, partially offset by
lower incentive compensation quarter-over-quarter as well as the net impactbenefits of several factors.  Specifically,
additional realized cost savings associated with the Company’sCombination quarter-over-quarter.
In addition, SG&A increasedwas lower in the prior year
period as a result of temporary cost saving measures the Company
implemented in response to COVID-19.
While the Company
continues to manage costs during the on-going pandemic, it has incurred
higher labor-related costs, primarily dueSG&A quarter-over-quarter as the
global economy
continues to annual compensation increases and the timing of certain incentive compensation accruals, and additional SG&Agradually rebound.
The Company estimates that it realized cost synergies associated with the Company’s 2016 Lubricor acquisition, as well as increases due to foreign currency translation.  These were partially offset by decreases to SG&A as a result
Combination of certain cost savings efforts, including the 2015 global restructuring program.  In addition,
approximately $19 million during the third quarters of 2017 and 2016 SG&A includes reclassifications related to the Company’s first quarter of 2017 adoption2021 compared
to approximately $17 million during the third quarter of the pension accounting standard update, noted above. 

2020.

During the third quarter of 2017,2021 and 2020, the Company incurred $9.7 $5.8
million and $6.9 million, respectively,
of costsCombination,
integration and other acquisition-related expenses primarily for professional
fees related to its previously announced combination with Houghton described in the Non-GAAP measures section of this Item, above.  The Company incurred $1.2 million of similar combination-related expenses in the third quarter of 2016.

24

Quaker Chemical Corporation

Management’s Discussionintegration and Analysis

other

Operating income in the third quarter of 2017 was $14.0 million compared to $21.9 million in the third quarter of 2016.  The decrease in operating income was primarily due to higher combination-related expenses along with slightly higher levels of SG&A not related to the Houghton combination, which more than offset gross profit increases on strong volume growth, noted above. 

Other income (expense), net, increased $0.3 million quarter-over-quarter primarily due to higher foreign currency transaction gains realized in the third quarter of 2017 compared to the third quarter of 2016.  In addition, the third quarters of 2017 and 2016 other income (expense), net, includes reclassifications related to the Company’s first quarter of 2017 adoption of the pension accounting standard update, noted above.    

The Company had a relatively consistent level of interest expense in both the third quarters of 2017 and 2016, respectively.  Interest income increased $0.2 million quarter-over-quarter primarily due to an increase in the level of the Company’s invested cash in certain regions with higher returns.

The Company’s effective tax rates for the third quarters of 2017 and 2016 were 22.1% and 28.3%, respectively.  The Company’s relatively low third quarter of 2017 effective tax rate was primarily driven by a tax benefit for deductions in excess of compensation cost associated with stock option exercises and restricted stock vesting in the current quarter as a result of the Company’s first quarter of 2017 adoption of an accounting standard update regarding the tax impact of certain stock-based compensation.  See Note 3 of Notes to Condensed Consolidated Financial Statements.  There were no comparable stock compensation-related tax benefits during the third quarter of 2016.  Comparatively, the third quarter of 2016 effective tax rate was elevated, as it reflected earnings taxed at one of the Company’s subsidiaries at a statutory rate of 25% while awaiting recertification of a concessionary 15% tax rate, which the Company received and recorded the full year benefit of during the fourth quarter of 2016.  This concessionary tax rate was available to the Company throughout 2017.  Both the third quarters of 2017 and 2016 effective tax rates included the tax benefit of changes in uncertain tax positions, which were more favorable to the effective tax rate in the prior year quarter as compared to the current quarter.

Equity in net income of associated companies (“equity income”) decreased $0.2 million quarter-over-quarter, primarily due to the lower earnings from the Company’s interest in a captive insurance company in the current quarter.  In addition, the Company recorded an immaterial currency conversion charge in the third quarter of 2017 associated with the Company’s Venezuela affiliate due to the on-going devaluation of the Venezuelan bolivar fuerte. 

acquisition-related activities.
See the Non-GAAP Measures section of this Item, above.

The Company initiated a restructuring program during the third quarter
of 2019 as part of its global plan to realize cost synergies
associated with the Combination.
The Company incurred restructuring and related charges for reductions
in headcount and site
closures under this program,
net of adjustments to initial estimates for severance, of a credit of $0.8 million
and expense $1.4 million
during the third quarters of 2021 and 2020, respectively.
See the Non-GAAP Measures section of this Item, above.
Operating income in the third quarter of 2021 was $36.0 million compared
to $34.9 million in the third quarter of 2020.
Excluding Combination, integration and other acquisition-related expenses,
restructuring and related charges and other non-core
items, the Company’s current quarter
non-GAAP operating income was consistent at $43.2 million in each of the current quarter
and
the prior year quarter primarily due to the increase in net sales described
above and the benefits from cost savings related to the
Combination offset by an increase in SG&A as well as the significant
increases in raw material costs quarter-over-quarter.
The Company had aother income, net, of $0.6 million in the third quarter
of 2021 compared to other expense, net, of $0.2 million increase
in the third quarter of 2020.
The third quarter of 2021 included foreign currency transaction gains compared
to foreign currency
transaction losses incurred in the prior year quarter.
In addition, the Company had lower non-service components of pension and
postretirement benefit costs in the current quarter,
partially offset by higher losses on fixed asset disposals related to the events
mentioned as facility remediation activities above.
See the Non-GAAP Measures section of this Item, above.
Interest expense, net, decreased $1.2 million compared to the third
quarter of 2020 driven by lower current quarter borrowings
outstanding as a result of the additional revolver borrowings drawn
down in March 2020 at the onset of the pandemic which were
subsequently repaid in September 2020 and, to a lesser extent, a slight decline
in overall interest rates quarter-over-quarter.
The Company’s effective
tax rates for the third quarters of 2021 and 2020 were 2.6% and 8.1%, respectively.
The Company’s
lower current quarter effective tax rate is primarily driven
by a one-time deferred tax benefit related to an intercompany intangible
asset transfer, described in the Non-GAAP
measures section of this Item, above.
Comparatively, the prior
year third quarter effective
tax rate was impacted by the tax effect of certain one-time
items including benefits related to the impact of tax regulations and other
changes in foreign tax credit valuation allowances, a change in a foreign
subsidiary’s statutory rate and impacts related
to the
Combination.
Excluding the impact of these items as well as all other non-core items in each quarter,
described in the Non-GAAP
Measures section of this Item, above, the Company estimates that its third quarters
of 2021 and 2020 effective tax rates would have
been approximately 25% and 24%, respectively.
The higher estimated current quarter tax rate was primarily driven by the impact
of
changes in mix of earnings and provision to return adjustments in the prior period,
partially offset with a change in permanent
reinvestment assertions.
Equity in net income of associated companies decreased $1.0 million
in the third quarter of 2021 compared to the third quarter of
2020, primarily due to lower current year quarter income from the Company’s
interest in a captive insurance company as well as from
its 50% interest in a joint venture in Korea compared to the prior year quarter.
See the Non-GAAP Measures section of this Item,
above.
Net income attributable to noncontrolling interest was less than $0.1 million
in both the third quarterquarters of 2017 compared to2021 and 2020.
Foreign exchange positively impacted the Company’s
third quarter of 2016, primarily due to an increase in performance from certain consolidated affiliates inresults by approximately 10% driven by the Company’s Asia/Pacific region.

In addition to both the foreign currency transaction gains realized in other income and the currency conversion charge associated with the Company’s Venezuelan affiliate recorded in equity income, noted above, the impacts positive impact

from foreign currency translation positively impactedon earnings as well as foreign exchange
transaction gains in the Company’scurrent year quarter as compared to
foreign exchange transaction losses in the prior year third quarter of 2017 results by approximately 1%, or $0.02 per diluted share.

quarter.

Consolidated Operations Review – Comparison of the First Nine Months of 2017 202
1
with the First Nine Months of 2016

2020

Net sales for the first nine months of 2017 of $609.0 million increased 10% compared to net sales of $555.4 million for the first nine months of 2016.  The $53.6 million increase in net sales was the result of a 6% increase in organic volumes, a 2%, or $8.5 million increase from sales attributable to the Company’s 2016 acquisition of Lubricor and a 2% increase due to changes in price and product mix, partially offset by the negative impact of foreign currency translation of $1.2 million, or less than 1%.

COGS in the first nine months of 2017 of $391.5 million increased 13% from $345.1were $1,314.1 million in the first nine months of 2016.  The increase in COGS was primarily due2021 compared 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, partially offset by the positive impact of foreign currency translation year-over-year.  In addition, the first nine months of 2017 and 2016 COGS include reclassifications related to the Company’s first quarter of 2017 adoption of the pension accounting standard update, noted above. 

Gross profit for the first nine months of 2017 increased $7.2 $1,031.8

million or 3%, from the first nine months of 2016, primarily driven by the increase in sales volumes, noted above, partially offset by a lower gross margin of 35.7% in the first nine months of 2017 compared to 37.9% 2020.
The net sales increase of $282.3 million or 27% period-over-period
reflects a benefit from higher sales volumes of 18%, which
includes additional net sales from recent acquisitions of 4%, increases
in the first nine months of 2016.  Similar to the discussion of quarter-over-quarter changes in gross margin above, the decrease in the Company’s gross margin for the first nine months of 2017 was primarily due to higher raw material costs compared to the prior yearselling price and a change in theproduct mix of certain products sold. 

SG&A for5%, and the first nine monthspositive impact

from foreign currency translation of 2017 increased $4.0 million4%.
The increase in sales volumes compared to the first nine months of 20162020 was primarily
due
to improved end market conditions from the same factors noted in the quarter-over-quarter discussion, above, including additional SG&A associated with the Company’s prior year Lubricor acquisitionimpacts of COVID-19 and an increase in labor-related costs primarily due to annual compensation increases and the timing of certain incentive compensation accruals, as well as a first quarter of 2017 cost streamlining initiative, described in the Non-GAAP measures section of this Item, above.  These increases to SG&A were partially offset by decreases due to foreign currency translation, and decreases as a result of certain cost savings efforts, including the impact of the 2015 global restructuring program in the current

25

continued market share gains.
Additional net sales

Quaker Chemical Corporation

Management’s Discussion and Analysis

year.  In addition,

38
from acquisitions relate primarily to the acquisitions of a tin-plating solutions
business and Coral, acquired in February 2021 and
December 2020, respectively.
The increase from selling price and product mix includes the benefits of
current year selling price
increases implemented to date to help offset the rising
raw material and input costs.
The positive impact from foreign currency
translation is primarily the result of the strengthening of the euro
and Chinese Renminbi against the U.S. dollar year-over-year.
COGS were $858.3 million in the first nine months of 20172021 compared to
$660.4 million in the first nine months of 2020.
The
increase in COGS of 30% was driven by the associated COGS on the increase
in net sales as described above, and 2016 the higher raw
material costs noted in the quarterly discussion.
Gross profit in the first nine months of 2021 increased $84.3 million
or 23% from the first nine months of 2020, due primarily to
the increase in net sales described above.
The Company’s reported gross margin
in the first nine months of 2021 was 34.7%
compared to 36.0% in the first nine months of 2020.
The Company’s lower current year gross margin
was primarily due to the
significant raw material increases described in the third quarter discussion
above.
SG&A include reclassifications related in the first nine months of 2021 increased $34.8 million compared
to the Company’s first nine months of 2020 due primarily to the
same drivers described in the third quarter of 2017 adoption of the pension accounting standard update, noteddiscussion above.

During the first nine months of 2017,2021 and 2020, the Company incurred $23.1
$18.3 million and $22.8 million, respectively,
of costs
Combination, integration and other acquisition-related expenses primarily
for professional fees related to its previously announced combination with Houghton described inintegration and
other acquisition-related activities.
See the Non-GAAP measuresMeasures section of this Item, above.
As described above, the Company initiated a restructuring program
during the third quarter of 2019 as part of its global plan to
realize cost synergies associated with the Combination.
The Company incurred $1.2recorded restructuring and related charges of $0.6 million of similar combination-related expenses in
during the first nine months of 2016.

2021 compared to $3.6 million during the first nine

months of 2020 under this program.
See the Non-
GAAP Measures section of this Item, above.
During the first quarter of 2020, the Company recorded a $38.0 million
non-cash impairment charge to write down the value of
certain indefinite-lived intangible assets associated with the Combination.
This non-cash impairment charge is related to certain
acquired Houghton trademarks and tradenames and was primarily
the result of the projected negative impacts of COVID-19 as of
March 31, 2020 on their estimated fair values.
There was no similar impairment charges recorded during the first nine
months of
2021.
Operating income in the first nine months of 20172021 was $45.7 $119.7
million compared to $64.4$24.7 million in the first nine months of 2016.  The decrease in2020.
Excluding Combination, integration and other acquisition-related expenses,
restructuring and related charges, the non-cash indefinite-
lived intangible asset impairment charge, and other non
-core items, the Company’s
current year non-GAAP operating income wasof
$143.3 million increased compared to $90.4 million in the prior
year period, primarily due to the Houghton combination expenses along with slightly higher levels of SG&A notincrease in net sales described above
and the continued benefits from cost savings related to the Houghton combination, which more thanCombination
,
partially offset gross profitby higher SG&A and the negative impact of
significant increases in raw material costs due to constraints on strong volume growth, noted above. 

the overall

global supply chain.
The Company hadCompany’s other expense of $1.4
income, net, was $19.3 million in the first nine months of 20172021 compared to $0.2other
expense, net of $22.4
million in the prior year period.
The year-over-year change was primarily due to other income related to certain non-income
tax
credits recorded by the Company’s
Brazilian subsidiaries during the second quarter of 2021 as well as the gain on
the sale of certain
held-for-sale real property assets during the first quarter of 2021
compared to a first quarter of 2020 pension plan settlement charge
associated with the termination of the Legacy Quaker U.S. Pension Plan.
See the Non-GAAP Measures section of this Item, above.
Interest expense, net, decreased $5.4 million in the first nine months
of 2016.  The increase in other expense was primarily driven by a second quarter of 2017 U.S. pension plan settlement charge, described in the Non-GAAP measures section of this Item, above, partially offset  by slightly higher foreign currency transaction gains realized in the first nine months of 20172021 compared to the first nine months of 2016 and an increase in receipts of local municipality-related grants in one2020 driven by
lower current year borrowings outstanding as a result of the additional
revolver borrowings drawn down in March 2020 at the onset of
the pandemic as well as a decline in overall interest rates year-over-year,
as the weighted average interest rate incurred on borrowings
under the Company’s regions year-over-year.  In addition,credit
facility was approximately 1.6% during the first nine months of 2017 and 2016 other expense includes reclassifications related2021 compared to the Company’s first quarter of 2017 adoption of the pension accounting standard update, noted above.    

Interest expense was relatively consistent year-over-year.  Interest income increased $0.4 million inapproximately

2.2%
during the first nine months of 2017 compared to the first nine months of 2016, primarily due to an increase in the level of the Company’s invested cash in certain regions with higher returns.

2020.

The Company’s effective
tax rates for the first nine months of 20172021 and 20162020 were 32.5%an expense of 21.8% compared to a benefit of
38.3%, respectively.
The Company’s effective
tax rate for the nine months ended September 30, 2021 was impacted by certain
U.S.
tax law changes, the tax impact of certain non-income tax credits recorded by
the Company’s Brazilian subsidiaries, and 31.0%, respectively.  The a deferred
tax
benefit related to an intercompany intangible asset transfer.
Comparatively,
the prior year first nine months effective tax rate was
impacted by the tax effect of certain one-time pre-tax losses as well as certain tax
charges and benefits in the period including those
related to changes in foreign tax credit valuation allowances, tax law changes
in a foreign jurisdiction, the tax impacts of the
Company’s termination
of its Legacy Quaker U.S. Pension Plan and the Houghton indefinite-lived trademarks
and tradename
intangible asset impairment.
Excluding the impact of these items as well as all other non-core items in each
year, described in the
Non-GAAP Measures section of this Item, above, the Company estimates that
its first nine months of 20172021 and 2020 effective tax rate
rates were relatively consistent at approximately 25% and 23%, respectively.
The year-over-year increase was elevated due tolargely
driven by the
impact of changes in pre-tax income levels on certain non-deductible Houghton combination-related expenses, which weretax adjustments in each
period and the mix of earnings,
as well as withholding
taxes on repatriations and provision to return adjustments in the prior
period, partially offset by the favorable impact of tax benefits for deductionswith a change in excess of compensation cost associated with stock option exercisespermanent reinvestment
Quaker Chemical Corporation
Management’s Discussion and restricted stock vesting, noted above.  There were no comparable non-deductible combination-related expenses or stock compensation-related tax benefits during the first nine months of 2016.  Comparatively, the first nine months of 2016 effective tax rate was elevated, as it reflected earnings taxed at one of the Company’s subsidiaries at a statutory tax rate of 25% while awaiting recertification of a concessionary 15% tax rate, which the Company received and recorded the full year benefit of during the fourth quarter of 2016.  This concessionary tax rate was available to the Company throughout 2017.  Analysis
39
assertions.
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 stockshare-based compensation-related tax benefits, among
other factors.

In addition, the foreign tax credit valuation
allowance is based on a number of variables, including forecasted earnings,
which may vary.
Equity in net income of associated companies increased $0.7$4.1 million in
the first nine months of 20172021 compared to the first nine
months of 2016.  The increase in equity income was2020, primarily due to higher current year earnings from the
Company’s interest in a captive insurance company in
company.
See the current year. 
Non-GAAP Measures section of this Item, above.
In addition, the Company recorded a currency conversion charge had slightly higher earnings year-over-year
from the
Company’s 50% interest in its joint
venture in Korea.
Net income attributable to noncontrolling interest was less than $0.1 million
in both the first nine months of 20172021 and 2016, respectively, associated with2020.
Foreign exchange positively impacted 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 $0.5 million increase in net income attributable to noncontrolling interest in the

first nine months of 2017 compared to2021 results by approximately 6% driven by the first nine months of 2016, primarily due to an increase in performance from certain consolidated affiliates in the Company’s Asia/Pacific region.

The impacts

positive impact from foreign currency translation negatively impactedon earnings as well as lower foreign
exchange transaction losses in the Company’s first nine months of 2017 results by approximately 1%, or $0.04 per diluted share, which does not includecurrent year
as compared to the foreign currency transaction gains realized in other income or the currency conversion charge associated with the Company’s Venezuelan affiliate recorded in equity income, noted above.

prior year period.

Reportable Operating Segments Review

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.

- Comparison of the Third

Quarter of 2017 2021
with the Third Quarter of 2016

North America

North America2020

The Company’s 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 of the Company
assesses its
performance.
The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii)
Asia/Pacific; and (iv) Global Specialty
Businesses.
The three geographic segments are composed of the net sales and operations
in each respective region, excluding net
sales and operations managed globally by the Global Specialty Businesses
segment, which includes the Company’s
container, metal
finishing, mining, offshore, specialty coatings, specialty
grease and Norman Hay businesses.
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 product
sales.
Operating expenses not directly attributable to the net sales of each respective
segment,
such as certain corporate and administrative costs, Combination,
integration and other acquisition-related expenses,
Restructuring and related charges, and COGS related
to acquired inventory sold, which is adjusted to fair value as part of purchase
accounting,
are not included in segment operating earnings.
Other items not specifically identified with the Company’s
reportable
segments include interest expense, net, and other income (expense),
net.
Americas
Americas represented approximately 43%34% of the Company’s
consolidated net sales in the third quarter of 2017.  2021.
The segment’s
net sales were $90.5$150.8 million, an increase of $4.3$31.3 million or 5%26% compared
to the third quarter of 2016.  The increase in 2020.
Excluding sales from
acquisitions, the segment’s
net sales increase quarter-over-quarter of approximately 21% was primarily duedriven
by higher volumes of 9%, a
benefit in selling price and product mix of 10% and the positive impact
of foreign currency translation of 2%.
The current quarter
organic volume increase was driven by the
continued improvement in end market conditions compared to anthe prior year quarter
which
was impacted by COVID-19.
The increase in selling price and product mix of 4% is primarily driven by price
increases implemented to help
offset the significant increases in raw material
and a positive impact of foreign currency translation of 1%.  Volumes including acquisitions were consistent quarter-over-quarter.  other input costs incurred during 2021.
The foreign exchange impact was primarily due to a
driven by the strengthening of the Mexican peso against the U.S. dollar,
as this exchange rate averaged 17.8120.02 in the third quarter of 2017
2021 compared

26

Quaker Chemical Corporation

Management’s Discussion and Analysis

to 18.74 in22.06 during the third quarter of 2016.  2020.

This segment’s operating earnings excluding indirect expenses, were $18.9
$31.3 million, a decreasean increase of $1.5 $0.2
million or 7%1% compared to the third quarter of 2016.  2020.
The decrease inrelatively consistent segment operating earnings quarter-over-quarter was primarily
is the
net result of lower gross profit on a decline in gross margin due to increases in certainnet sales, described above, offset by lower
gross margins driven by the continued raw material costs cost increases
and changes in product mix.  Operating earnings were also negatively impacted byglobal supply chain and logistics pressures coupled with higher
SG&A primarily due to increasesincluding an increase in labordirect selling costs associated with annual merit increases.

higher net sales, SG&A from acquisitions and an increase in SG&A as the prior
year third quarter included temporary cost savings
measures implemented in response to the onset of the COVID-19 pandemic.
EMEA

EMEA represented approximately 28%27% of the Company’s
consolidated net sales in the third quarter of 2017.  2021.
The segment’s net
sales were $58.8$122.2 million, an increase of $9.0$28.3 million or 18%30% compared
to the third quarter of 2016.  2020.
The increase in net sales was primarily due to higher volumes of 8%, increases in
driven by a benefit from selling price and product mix of 4% and19%, increases in organic
volumes of approximately 9%, the positive impact
of foreign currency translation of 6%1%, and additional net sales from acquisitions of
1%.
The increase in selling price and product mix
is primarily driven by price increases implemented to offset
the significant increase in raw material and other input costs incurred
during 2021.
The current quarter volume increase was driven by the continued improvement in end market
conditions compared to
the prior year quarter which was heavily impacted by COVID-19.
The foreign exchange impact was primarily due to a driven by the
strengthening of the euro against the U.S. dollar as this exchange rate averaged
1.18 in the third quarter of 20172021 compared to 1.121.17 in
the third quarter of 2016.  2020.
This segment’s operating earnings excluding indirect expenses, were $8.9 $20.2
million, an increase of $0.5$2.7 million or 6%16% compared to the
third quarter of 2016.  2020.
The increase in segment operating earnings quarter-over-quarter was due toreflects the higher gross profit, driven by the increased net
sales noteddescribed above, partially offset by a decline in
Quaker Chemical Corporation
Management’s Discussion and Analysis
40
lower current quarter gross margin due tomargins driven by the continued
raw material cost increases and global supply chain and logistics
pressures as well as higher SG&A including increases in certain raw materialdirect selling costs and changes in product mix.  Also, EMEA’s SG&A increased inassociated with
higher net sales as well as increases as the
prior year third quarter of 2017 comparedincluded temporary cost savings measures implemented
in response to the prior year quarter due toonset of the region’s improved performance and the impact of foreign currency translation, partially offset by the Company’s past cost savings efforts.

COVID-19 pandemic.

Asia/Pacific

Asia/Pacific represented approximately 25%22% of the Company’s
consolidated net sales in the third quarter of 2017.  2021.
The segment’s
net sales were $54.2$98.7 million, an increase of $8.3approximately $13.8 million
or 18%16% compared to the third quarter of 2016.  2020.
The increase
in net sales quarter-over-quarter was primarily due to higher volumes of 20% partially offset by decreases in selling price and product mix of 2%.  This segment’s operating earnings, excluding indirect expenses, were $14.0 million, an increase of $2.2 million or 19% compared to the third quarter of 2016.  The increase in operating earnings was primarily driven by higher gross profit on the increased net sales, noted above, partially offset by a decline in gross margin due to increases in certain raw material costs and changes in product mix and higher levels of SG&A on improved segment performance.

South America

South America represented approximately 4% of the Company’s consolidated net sales in the third quarter of 2017.  The segment’s net sales were $9.5 million, an increase $0.9 million or 11% compared to the third quarter of 2016.  The increase in net sales was primarily due to higher volumes of 3%, an increase in selling price and product mix

of 7% and, the positive impact of foreign currency translation of approximately5%,
increases from selling price and product mix of 3% and additional net sales from
acquisitions of 1%.
The current quarter volume
increase was driven by the continued improvement in end market conditions
compared to the prior year quarter which was impacted
by COVID-19.
The foreign exchange impact was primarily due to the strengthening of the Brazilian real Chinese renminbi
against the U.S. dollar as
this exchange rate averaged 3.166.47 in the third quarter of 20172021 compared
to 3.246.92 in the third quarter of 2016.  2020.
This segment’s operating
earnings excluding indirect expenses, were $1.0 $23.3 million, a decrease of $4.0 million or 15% compared
to the third quarter of 2020.
The decrease in segment
operating earnings was largely driven by the continued
raw material cost increases and global supply chain and logistics pressures as
well as higher direct selling costs associated with higher net sales.
Global Specialty Businesses
Global Specialty Businesses represented approximately 17% of the
Company’s consolidated net sales in the
third quarter of 2021.
The segment’s net sales were $77.4
million, an increase of $0.3$8.6 million or 42%12% compared to the third quarter of 2016.  2020.
Excluding net
sales from acquisitions, the segment’s
net sales would have increased 5% quarter-over-quarter
driven by increases in selling price and
product mix, including Norman Hay,
of 13% and the positive impact of foreign currency translation of 2% partially offset
by volume
declines of 10%.
Both the changes in selling price and product mix and sales volumes were primarily
driven by higher amounts of
shipments of a lower priced product in the Company’s
mining business in the prior year period.
The increaseforeign exchange impact was a
result of similar strengthening of certain currencies in EMEA and
Americas as described above.
This segment’s operating earnings
were $20.7 million, a decrease of $0.5 million or 2% compared to the third quarter
of 2020.
The decrease in segment operating
earnings was driven by higher gross profit on the increased net sales, noted above,continued raw material cost increases and global
supply chain and logistics pressures as well as higher gross margin on raw material cost changes and impacts
SG&A, including SG&A from foreign exchange.  These increases to operating earnings were partially offset by an increaseacquisitions in the segment’s SG&A quarter-over-quarter primarily due to improved segment performance and the impact of foreign currency translation.

current year quarter.

Reportable Segments Review - Comparison of the First Nine Monthsmonths of 2017 2021
with the First Nine Monthsmonths of 2016

North America

North America2020

Americas
Americas represented approximately 44%32% of the Company’s
consolidated net sales in the first nine months of 2017.  2021.
The
segment’s net sales were $268.1 $425.3
million, an increase of $16.5$95.3 million or 7%29% compared to the first nine months of 2016.  2020.
The increase
in net sales was primarily due to higher sales volumes of 3%approximately
16%, includingadditional net sales from acquisitions and an increase inof 6% primarily resulting
from Coral, benefits from selling price and product mix of 4%6%, partially offset by and
the negativepositive impact of foreign currency translation of less than 1%.
The foreign exchange impact
current year volume increase was primarily due to a weakeningdriven by the continued economic
rebound from the COVID-19 slowdown that began in late March
and continued throughout the third quarter of the Mexican peso against the U.S. dollar, as this exchange rate averaged 18.82 in the first nine months of 2017 compared to 18.28 in the first nine months of 2016.  2020.
This reportable segment’s operating earnings excluding indirect expenses, were $59.1 $97.2
million, a decreasean increase of $0.2 $26.6
million or 38% compared to the first nine months of 2016.  2020.
The decrease duringincrease in segment operating earnings reflects the first nine months of 2017 washigher net
sales
described above, partially offset by lower gross margins
in the result of a decline in gross margin due to increases in certain raw material costs and changes in product mix, andcurrent year period coupled with higher SG&A, including SG&A from
acquisitions primarily due to higher labor costs associated with annual merit increases, which offset higher gross profit on increased sales volumes, notedthe same drivers as described in the third quarter
discussion above.

EMEA

EMEA represented approximately 28% of the Company’s
consolidated net sales in the first nine months of 2017.  2021.
The segment’s
net sales were $167.2$365.5 million, an increase of $16.6$88.9 million or 11%32% compared
to the first nine months of 2016.  2020.
The increase in net
sales was primarily due to higher sales volumes of 8% and15%, increases in selling price and product
mix of 3%8%, partially offset by the negative impact ofpositive impacts from foreign currency
exchange translation of less than 1%.  The foreign exchange impact was primarily due to a weakening of the euro

27

Quaker Chemical Corporation

Management’s Discussion7% and Analysis

against the U.S. dollar, as this exchange rate averaged 1.11 in the first nine months of 2017 compared to 1.12 in the first nine months of 2016.  This reportable segment’s operating earnings, excluding indirect expenses, were $26.3 million, an increase of $0.9 million, or 4% compared to the first nine months of 2016.  The increase in operating earnings was primarily driven by higher gross profit on the increasedadditional net sales noted above, partially offset by a decline in gross margin due to increases in certain raw material costs and changes in product mix.  EMEA benefitted from a relatively consistent levelacquisitions of SG&A in the first nine months of 2017 compared to the first nine months of 2016, which

2%.
The current year volume increase was the net result of the Company’s past cost savings efforts and the impact of foreign currency translation offset by the improved segment performance year-over-year.

Asia/Pacific

Asia/Pacific represented approximately 24% of the Company’s consolidated net sales in the first nine months of 2017.  The segment’s net sales were $147.1 million, an increase of $16.5 million or 13% compared to the first nine months of 2016.  The increase in net sales was primarily due to higher volumes of 17%, partially offset by decreases in selling price and product mix of 3% and the negative impact of foreign currency translation of 1%.  The foreign exchange impact was primarily due to the weakening of the Chinese renminbi against the U.S. dollar, as this exchange rate averaged 6.80 in the first nine months of 2017 compared to 6.58 in the first nine months of 2016.  This reportable segment’s operating earnings, excluding indirect expenses, were $36.0 million, an increase of $2.2 million or 6% compared to the first nine months of 2016.  The increase during the first nine months of 2017 was primarily due to higher gross profit partially offset by an increase in the segment’s SG&A.  Gross profit increases were driven by the increases in net sales, noted above, partially offset by a gross margin decline due to increases in certain raw material costs and changes in product mix.  The region’s higher levels of SG&A were primarily driven by

continued economic rebound from the improved segment performance year-over-year. 

South America

South America represented approximately 4% of the Company’s consolidated net sales in the first nine months of 2017.  The segment’s net sales were $26.6 million, an increase of $3.9 million or 17% compared to the first nine months of 2016.  The increase in net sales was primarily due to higher volumes of 3%, an increase in selling price and product mix of 6% and a positive impact of foreign currency translation of 8%.  COVID-19 slowdown.

The foreign exchange impact was primarily due to the strengthening of
the Brazilian realeuro and British pound against the U.S. dollar as thisthese exchange raterates averaged 3.17
1.20 and 1.39, respectively,
during the first nine
months of 2021 compared to 1.12 and 1.27, respectively,
during the first nine months of 2020.
This segment’s operating earnings
were $68.8 million, an increase of $22.5 million or 49% compared
to the first nine months of 2020.
The increase in segment operating
earnings reflect the higher net sales described above partially offset
lower gross margins in the current year period coupled with
higher
direct selling expenses on the increase in net sales primarily due to the same
drivers as described in the third quarter discussion above.
Asia/Pacific
Asia/Pacific represented approximately 22% of the Company’s
consolidated net sales in the first nine months of 2017 compared to 3.53 in the first nine months2021.
The
segment’s net sales were $286.9
million, an increase of 2016.  This reportable segment’s operating earnings, excluding indirect expenses, were $2.8$60.1 million which increased $2.1 millionor 26% compared to the first nine months of 2016.  2020.
The increase
in net sales was driven by higher sales volumes of approximately 19% and
the positive impact of foreign currency translation of 7%.
The current year volume increase was driven by the
continued gradual economic rebound from the COVID-19 slowdown as the
pandemic notably impacted China beginning in the first quarter of 2020 and then
the rest of the region through the third quarter of
Quaker Chemical Corporation
Management’s Discussion and Analysis
41
2020.
The foreign exchange impact was primarily due to the strengthening
of the Chinese renminbi against the U.S. dollar as this
exchange rate averaged 6.47 during the first nine months of 2017 was mainly driven by2021
compared to 6.99 during the first nine months of 2020.
This
segment’s operating earnings were
$74.0 million, an increase of $7.9 million or 12% compared to the first nine
months of 2020.
The
increase in segment operating earnings reflect the higher net sales described
above partially offset lower gross profitmargins
in the current
year period coupled with higher direct selling expenses on the increase
in net sales noted above,primarily due to the same drivers as well as higher gross margin ondescribed in
the third quarter discussion above.
Global Specialty Businesses
Global Specialty Businesses represented 18% of the Company’s
consolidated net sales in the first nine months of 2021.
The
segment’s net sales were $236.4
million, an increase of $37.9 million or 19% compared to the first nine months of 2020.
The increase
in net sales was driven by benefits from selling price and product mix, raw materialincluding
Norman Hay, of 16%, additional
net sales from
acquisitions of 7% primarily driven by Coral, and the positive impact of
foreign currency transaction of 3%, partially offset by
decreases in volumes of 7%.
The foreign exchange impact was a result of similar strengthening of
certain currencies in EMEA and
Americas as described above.
Both the changes in selling price and impacts from foreign exchange.  In addition,product mix and sales volumes were
primarily driven by higher
shipments of a lower priced product in the Company’s
mining business in the period year period.
This segment’s SG&A declined year-over-year primarily due operating earnings
were $69.0 million, an increase of $10.9 million or 19% compared
to the positive effectsfirst nine months of various cost savings efforts which2020.
The increase in segment operating
earnings reflects the higher net sales described above, partially offset
by lower gross margins in the current year period coupled with
higher SG&A, including SG&A from improved segment performanceacquisitions primarily due
to the same drivers as described in the third quarter discussion above.
Quaker Chemical Corporation
Management’s Discussion and the impact of foreign currency translation.

Analysis

42
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 Quaker Chemical Corporation with the SEC
Securities and Exchange Commission (“SEC”) (as well as information
included in oral statements or other written statements made or
to be made by us) contain or may contain forward-looking statements within the
meaning of Section 27A of 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.
We have based
these forward-looking statements, including statements
regarding the potential effects of the COVID-19 pandemic
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 remediate any of our material
weaknesses in internal control over financial reporting, and statements regarding
the impact of increased raw material costs and
pricing initiatives on our current expectations about future
events.
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:

·statements relating to

•
the potential benefits of the Combination and other acquisitions;
•
the impacts on our business strategy;

·as a result of the COVID-19 pandemic and

any projected global economic rebound or
anticipated positive results due to Company actions taken in response;
•
cost increases in prices of raw materials and the impacts of constraints and
disruptions in the global supply chain;
•
our current and future results and plans; and

·

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

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’s the 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 the Company’s
Annual Report to Shareholders for 2020 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

28

Quaker Chemical Corporation

Management’s Discussion and Analysis

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 demand for the Company’s

products and services is
largely derived from the demand for itsour 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 disruption.
Other major risks and uncertainties include, but are not
limited to, the primary and secondary impacts of the COVID-19 pandemic,
including actions taken in response to the pandemic by
various governments, which could exacerbate some or all of the other
risks and uncertainties faced by the Company,
as well as the
potential for significant increases in raw material costs, supply chain
disruptions, customer financial stability, instability,
worldwide economic
and political conditions,disruptions, foreign currency fluctuations,
significant changes in applicable tax rates and regulations, future terrorist
attacks and other acts of violence.
Furthermore, the Company is subject to the same business cycles as those experienced
by our
customers in the steel, automobile, aircraft, appliance,industrial equipment, and durable
goods manufacturers.  industries.
The ultimate impact of COVID-19 on
our business will depend on, among other things, the extent and duration of
the pandemic, the severity of the disease and the number
of people infected with the virus including as new variants emerge,
the continued uncertainty regarding global availability,
administration, acceptance and long-term efficacy
of vaccines, or other treatments for COVID-19 or its variants, the longer-term
effects on the economy of the pandemic, including the
resulting market volatility,
and by the measures taken by governmental
authorities and other third parties restricting day-to-day life and
business operations and the length of time that such measures remain
in place, as well as laws and other governmental programs implemented
to address the pandemic or assist impacted businesses, such
as fiscal stimulus and other legislation designed to deliver monetary
aid and other relief.
Other factors could also adversely affect us,
including those related to the Combination and other acquisitions and the
integration of acquired businesses.
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.
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, including those related to the Combination, could also adversely affect us including, but not limited to:

·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 for regulatory authorities to require divestitures in connection with the Combination, which would result in a smaller than anticipated combined business;

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

·risks associated with the financing of the Combination;

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

·potential adverse effects on

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

·Quaker Chemical’s ability to promptly, efficientlyChemical Corporation

Management’s Discussion and effectively integrate the operations of Houghton International and Quaker Chemical;

·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 following announcement of the share purchase agreement and transactions contemplated therein.

Analysis

43
Therefore, we caution you not to place undue reliance on our forward-looking
statements.
For more information regarding these
risks and uncertainties as well as certain additional risks that we face, you should
refer to the Risk Factors detailedsection, which appears in Item 1A of in
our 2020 Form 10-K for the year ended December 31, 2016, the proxy statement filed on July 31, 2017 and in our quarterly and other reports filed from time to
time with the Commission.  SEC.
This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.

1995

29

.
Quaker Houghton on the Internet
Financial results, news and other information about Quaker Houghton
can be accessed from the Company’s
website at
https://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 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.

44
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk.

We have evaluated
the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on
Form
10-K for the year ended December 31, 2016,2020, and we believe there has been no material
change to that information.

30

45
Item 4.
Controls and Procedures.

Evaluation 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.  Report.
Based on that evaluation, our principal executive officer and our principal
financial officer
have concluded that, as of 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.

not effective

as of September 30, 2021 because of the material weaknesses in our internal
control over financial reporting, as described below.
As previously disclosed in “Item 9A. Controls and Procedures.” in the Company’s
2020 Form 10-K, through the process of
evaluating risks and corresponding changes to the design of existing or the
implementation of new controls in light of the significant
non-recurring transactions that occurred during 2019, including the Combination,
the Company identified certain deficiencies in its
application of the principles associated with the
Committee of Sponsoring Organization of
the Treadway Commission
in Internal
Control – Integrated Framework (2013)
that management has concluded in the aggregate constitute a material weakness.
A material
weakness is a deficiency,
or combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable
possibility that a material misstatement of annual or interim financial statements will not
be prevented or detected on a timely basis.
We did not
design and maintain effective controls in response to the risks of material
misstatement.
Specifically, changes to existing
controls or the implementation of new controls were not sufficient
to respond to changes to the risks of material misstatement in
financial reporting as a result of becoming a larger,
more complex global organization due to the Combination.
This material
weakness also contributed to an additional material weakness as we did not design
and maintain effective controls over the review of
pricing, quantity and customer data to verify that revenue recognized was complete
and accurate.
These material weaknesses did not
result in material misstatements to the interim or annual consolidated financial
statements.
However, these material weaknesses could
result in misstatements to our account balances and disclosures that could
result in a material misstatement to the interim or annual
consolidated financial statements that would not be prevented or detected.
Notwithstanding these material weaknesses, the Company has concluded
that the unaudited condensed consolidated financial
statements included in this Report present fairly,
in all material respects, the financial position of the Company as of September 30,
2021 and December 31, 2020, and that the results of its operations and its cash flows
and changes in equity for both the three and nine
month periods ended September 30, 2021 and 2020, are in conformity with
accounting principles generally accepted in the United
States of America.
Progress on Remediation
of Material Weaknesses
The Company and its Board of Directors, including the Audit Committee of the Board
of Directors, are committed to maintaining
a strong internal control environment.
Since identifying the material weaknesses, the Company has dedicated
a significant amount of
time and resources to remediate all of the previously identified material weaknesses as quickly
and effectively as possible. During
2020 and into 2021, the Company dedicated multiple internal resources and
supplemented those internal resources with various third-
party specialists to assist with the formalization of a robust and detailed
remediation plan.
In undertaking remediation activities, the
Company has hired additional personnel dedicated to financial and information
technology compliance to further supplement its
internal resources.
In addition, the Company has established a global network of personnel to assist local management
in
understanding control performance and documentation requirements.
In order to sustain this network, the Company conducts periodic
trainings and hosts discussions to address questions on a current basis.
However, the impact of COVID-19,
including travel
restrictions and remote work arrangements required the Company
to adapt and make changes to its internal controls integration plans
as well as its remediation plans, and has presented and is expected to continue
to present challenges with regards to the timing of the
Company’s remediation
and integration plan activities.
Despite the challenges brought on by COVID-19 and driven by the
Company’s priority of creating a
long-term sustainable control
structure to ensure stability for a company that has more than doubled in
size since August 2019, the Company continues to make
substantial strides towards remediating the underlying causes of the
previously disclosed material weaknesses in our risk assessment
process and within our revenue process, as further discussed below.
Risk Assessment –
We previously determined
that our risk assessment process was not designed adequately to respond
to changes
to the risks of material misstatement to financial reporting.
In order to remediate this material weakness, we have designed and
implemented an improved risk assessment process, including identifying
and assessing those risks attendant to the significant changes
within the Company as a result of becoming a larger,
more complex global organization due to the Combination.
During 2020, a full
review was performed of our processes and controls across significant
locations in order to identify and address potential design gaps.
In addition to individual transactional-level control enhancements, this review
resulted in (i) an enhanced financial statement risk
assessment, (ii) the standardization of existing legal entity and newly
implemented segment quarterly analytics and quarterly closing
packages completed by key financial reporting personnel, (iii) a global
account reconciliation review program and (iv) enhancements
to our quarterly identification and reassessment of new and existing business
and information technology risks that could affect our
financial reporting.
Monitoring is also performed through our enhanced quarterly controls certification
process, whereby changes in
business or information technology processes or control owners are identified
and addressed timely.
Although we have implemented
46
and tested the additional controls as noted in our remediation plan and found them
to be effective, this material weakness will not be
considered remediated due to the Revenue – Price and Quantity material weakness,
discussed below.
Once the Revenue – Price and
Quantity material weakness is remediated, we expect the Risk Assessment material
weakness will also be remediated.
Revenue – Price and Quantity –
We previously determined
that we did not design and maintain effective controls over the review
of pricing, quantity and customer data to verify that revenue recognized
was complete and accurate.
In order to remediate this
material weakness, the Company made significant progress in its redesign
of certain aspects of its revenue process and related
controls.
The Company has identified and agreed upon design enhancements and requirements for
each revenue sub-process.
The
design includes enhancements to entity-level and transactional-level
manual controls as well as IT general and application controls.
During the third quarter of 2021 and through the date of this Form 10-Q filing
for the period ended September 30, 2021, the Company
has implemented these design changes.
While the Company believes that the enhancements to these entity-level, transactional
and IT
general and application controls will sufficiently address the material
weakness previously identified, because the additional controls
have not been fully tested, this material weakness is not yet remediated.
The existing material weakness will not be considered
remediated until the applicable remedial controls have been operat
ing for a sufficient period of time and management has concluded,
through testing, that the controls are operating effectively.
Given the significant resources the Company has dedicated to remediation
of its material weaknesses, the Company is committed
to remediation and expects that in 2021 it will successfully remediate its price
and quantity and its risk assessment material
weaknesses.
Changes in internal control 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
quarter ended September 30, 20172021 that have materially affected,
or are reasonably likely to materially affect, our internal
control over financial reporting.
Based on that evaluation, no suchas described above, there were changes that have materially
affected, or are reasonably likely to materially affect,
our internal control over financial reporting occurred during the quarter ended
September 30, 2017.

31

2021.

47
PART
II.

OTHER INFORMATION

Items 1A, 3, 4 and 45 of Part II are inapplicable and have been omitted.

Item 1.
Legal Proceedings.

Incorporated by reference is the information in Note 1619 of the Notes to
the Condensed Consolidated Financial Statements in Part
I, Item 1, of this Report.

Item 1A. Risk Factors.
The Company’s business, financial
conditions, results of operations and cash flows are subject to various risks
that could cause
actual results to vary materially from recent results or from anticipated future
results.
In addition to the other information set forth in
this Report, you should carefully consider the risk factors previously disclosed
in Part I, Item 1A of our 2020 Form 10-K.
There have
been no material changes to the risk factors described therein.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

Proceeds.

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

Report:

 

 

 

 

 

 

 

(c)

 

 

(d)

 

 

 

 

 

 

 

Total Number of

 

 

Approximate Dollar

 

 

(a)

 

 

(b)

 

Shares Purchased

 

 

Value of Shares that

 

 

Total Number

 

 

Average

 

as part of

 

 

May Yet be

 

 

of Shares

 

 

Price Paid

 

Publicly Announced

 

 

Purchased Under the

Period

 

Purchased (1)

 

 

Per Share (2)

 

Plans or Programs

 

 

Plans or Programs (3)

July 1 - July 31

 

1,643

 

$

146.53

 

—

 

$

86,865,026

August 1 - August 31

 

12,702

 

$

135.41

 

—

 

$

86,865,026

September 1 - September 30

 

—

 

$

—

 

—

 

$

86,865,026

Total

 

14,345

 

$

136.68

 

—

 

$

86,865,026

(c)

(d)
Total
Number of
Approximate Dollar
(a)
(b)
Shares Purchased
Value of
Shares that
Total
Number
Average
as part of
May Yet
be
of Shares
Price Paid
Publicly Announced
Purchased Under the
Period
Purchased (1)
Per Share (2)
Plans or Programs
Plans or Programs (3)
July 1 - July 31
—
$
—
—
$
86,865,026
August 1 - August 31
491
$
251.74
—
$
86,865,026
September 1 - September 30
34
$
240.64
—
$
86,865,026
Total
525
$
251.02
—
$
86,865,026
(1)
All of these shares were acquired from employees upon their 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, or 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
$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 September 30, 2017.

2021.

Limitation on the Payment of Dividends
The Credit Facility has certain limitations on the payment of dividends
and other so-called restricted payments.
See Note 15 of
Notes to Condensed Consolidated Financial Statements, in Part I, Item
1, of this Report.
48
Item 5.  Other Information.

As part6.

Exhibits.
(a) Exhibits
3.1
–
3.2
–
10.1
–
10.2
–
10.3
–
31.1
–
31.2
–
32.1
–
32.2
–
101.INS
Inline XBRL Instance Document*
101.SCH
Inline XBRL Taxonomy
Extension Schema Document*
101.CAL
Inline XBRL Taxonomy
Extension Calculation Linkbase Document*
101.DEF
Inline XBRL Taxonomy
Extension Definition Linkbase Document*
101.LAB
Inline XBRL Taxonomy
Extension Label Linkbase Document*
101.PRE
Inline XBRL Taxonomy
Extension Presentation Linkbase Document*
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained
in accordance with the terms of that program.  As contemplated by the Agreement, payment to Mr. Benoliel of severance and other benefits is subject to his execution and non-revocation of a Release in a form satisfactory to the Company.  For additional information, see “Severance and Change in Control Benefits” and “Potential Payments Upon TerminationExhibit 101.INS)*
* Filed herewith.
** Furnished herewith.
† Management contract or Change in Control”, in the Company’s definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on March 31, 2017 for additional information. 

compensatory plan.

32

Item 6.  Exhibits

(a) Exhibits

 

 

 

 

 

 

 

31.1

 

–

 

Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2

 

–

 

Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1

 

–

 

Certification of Chief Executive Officer of the Company Pursuant to 18 U.S. C. Section 1350

32.2

 

–

 

Certification of Chief Financial Officer of the Company Pursuant to 18 U.S. C. Section 1350

101.INS

 

–

 

XBRL Instance Document

101.SCH

 

–

 

XBRL Extension Schema Document

101.CAL

 

–

 

XBRL Calculation Linkbase Document

101.DEF

 

–

 

XBRL Definition Linkbase Document

101.LAB

 

–

 

XBRL Label Linkbase Document

101.PRE

 

–

 

XBRL Presentation Linkbase Document

 

 

 

 

 

 

*********

Pursuant to the requirements 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)

/s/ Mary Dean Hall

Date: October 26, 2017

Mary Dean Hall, Vice President, Chief Financial Officer and Treasurer (officer duly authorized on behalf of, and principal financial officer of, the Registrant)

33

QUAKER CHEMICAL CORPORATION
(Registrant)
/s/ Shane W. Hostetter
Date: November 4, 2021
Shane W. Hostetter,
Senior Vice President, Chief Financial
Officer (officer duly authorized on behalf of, and principal
financial officer of, the Registrant)