FORM 10-Q
| ||
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
March 31, 2023 Pennsylvania incorporation or organization) (I.R.S. Employer Identification No.) 19428 – 2380 (Address of principal executive offices) (Zip Code) Non-accelerated filer o Number of Shares of Common Stock Outstanding on Page 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 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Unaudited Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Net income Net income $ 11,704 $ 16,351 $ 31,659 $ 45,100 Other comprehensive income (loss), net of tax 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 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 $ 45,258September 30, 2017[ ]o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Registrantregistrant as specified in its charter)Pennsylvania23-099379023-0993790 (State or other jurisdiction of One Quaker Park, Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $1 par value KWR New York Stock Exchange Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] x No [ ]oand 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]x No [ ]oRegistrantregistrant 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] x Accelerated filer [ ]o [ ] (Do not check if a smaller reporting company)Smaller reporting company [ ]o Emerging growth company [ ]o [ ]o[ ]o No [X] xSeptemberApril 30, 201713,299,294at September 30, 2017 as of March 31, 2023 and December 31, 20162022CondensedCondensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017
March 31, 2023and September 30, 2016March 31, 202262030313232323333Three Months Ended
March 31,2023 2022 Net sales $ 500,148 $ 474,171 Cost of goods sold (excluding amortization expense - See Note 13) 326,698 328,100 Gross profit 173,450 146,071 Selling, general and administrative expenses 119,549 111,795 Restructuring and related charges, net 3,972 820 Combination, integration and other acquisition-related expenses — 4,053 Operating income 49,929 29,403 Other expense, net (2,239) (2,206) Interest expense, net (13,242) (5,345) Income before taxes and equity in net income of associated companies 34,448 21,852 Taxes on income before equity in net income of associated Companies 9,533 2,866 Income before equity in net income of associated Companies 24,915 18,986 Equity in net income of associated companies 4,626 835 Net income 29,541 19,821 Less: Net income attributable to noncontrolling interest 7 5 Net income attributable to Quaker Chemical Corporation $ 29,534 $ 19,816 Per share data: Net income attributable to Quaker Chemical Corporation common shareholders – basic $ 1.64 $ 1.11 Net income attributable to Quaker Chemical Corporation common shareholders – diluted $ 1.64 $ 1.11 Dividends declared $ 0.435 $ 0.415 Three Months Ended
March 31,2023 2022 Net income $ 29,541 $ 19,821 Other comprehensive income (loss), net of tax Currency translation adjustments Currency translation adjustments 14,468 (6,866) Defined benefit retirement plans Defined benefit retirement plans (126) 496 Current period change in fair value of derivatives Current period change in fair value of derivatives 390 1,100 Unrealized gain (loss) on available-for-sale securities Unrealized gain (loss) on available-for-sale securities 334 (1,000) Other comprehensive income (loss) Other comprehensive income (loss) 15,066 (6,270) Comprehensive income 44,607 13,551 Less: Comprehensive income attributable to noncontrolling interest Less: Comprehensive income attributable to noncontrolling interest (10) (6) Comprehensive income attributable to Quaker Chemical Corporation Comprehensive income attributable to Quaker Chemical Corporation $ 44,597 $ 13,545
Unaudited September 30, December 31, 2017 2016 ASSETS ASSETS Current 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 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 Goodwill 85,816 80,804 Other intangible assets, net Other intangible assets, net 73,514 73,071 Investments in associated companies 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 LIABILITIES AND EQUITY Current liabilities 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 Long-term debt 72,374 65,769 Non-current deferred tax liabilities 12,618 12,008 Other non-current liabilities Other non-current liabilities 71,355 74,234 Total liabilities 312,468 279,422 Commitments and contingencies (Note 16) Equity 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 Noncontrolling interest 11,883 9,846 Total equity Total equity 452,059 412,606 Total liabilities and equity $ 764,527 $ 692,028 Unaudited Nine Months Ended September 30, 2017 2016 Cash flows from operating activities 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 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 Statements of this Quarterly Report on Form 10-Q for the period ended March 31, 2023 (the “Report”), the terms “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. The “Combination” refers to the legacy Quaker combination with Houghton International, Inc. (“Houghton”). structure. The Company’s new structure includes three reportable 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 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 $ — $ — $ — 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 cost related to PSUs, which the 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 Service cost $ 921 $ 672 $ 2 $ — $ 2,710 $ 2,025 $ 6 $ 8 Interest cost Interest cost 994 1,111 36 28 3,005 3,344 108 106 Expected return on plan assets Expected return on plan assets (1,276) (1,329) — — (3,857) (4,027) — — Settlement charge — — — — 1,860 — — — Actuarial loss (gain) amortization 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 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) Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Basic earnings per common share 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 Basic earnings per common share $ 0.84 $ 1.21 $ 2.26 $ 3.32 Diluted earnings per common share 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 Diluted earnings per common share $ 0.83 $ 1.21 $ 2.25 $ 3.32 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 Gross Carrying Accumulated Amount Amortization 2017 2016 2017 2016 Customer lists and rights to sell Customer lists and rights to sell $ 76,671 $ 71,454 $ 24,176 $ 20,043 Trademarks, formulations and product technology Trademarks, formulations and product technology 33,022 31,436 13,782 11,748 Other Other 6,142 6,023 5,463 5,151 Total definite-lived intangible assets Total definite-lived intangible assets $ 115,835 $ 108,913 $ 43,421 $ 36,942 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 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 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) 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) 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 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 December 31, 2016 Total Using Fair Value Hierarchy Assets Fair Value Level 1 Level 2 Level 3 Company-owned life insurance $ 1,410 $ — $ 1,410 $ — Total $ 1,410 $ — $ 1,410 $ — The fair values of Company-owned life insurance assets are based on quotes for like instruments with similar credit ratings and terms. These assets are subject to fair value measurement as follows: electrical fire, respectively. The Company 2023 and continues to expect to deliver higher earnings in 2023 as compared to 2022. Report. financing which would provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including possible acquisitions and organic investments. The financial markets, among others. 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% 2022 included foreign exchange transaction losses. The current year quarter. margins reflecting the Company’s ongoing initiatives aimed at offsetting the significant inflationary pressures impacting the business. ongoing initiatives aimed at offsetting Analysis Analysis (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 stock awards or units. (a) Exhibits 31.1 – 31.2 – 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 QUAKER CHEMICAL CORPORATIONvalue and share amounts)value)March 31,
2023December 31,
2022ASSETS Current assets Cash and cash equivalents Cash and cash equivalents $ 189,872 $ 180,963 Accounts receivable, net Accounts receivable, net 482,746 472,888 Inventories Inventories Raw materials and supplies Raw materials and supplies 148,119 151,105 Work-in-process and finished goods Work-in-process and finished goods 145,375 133,743 Prepaid expenses and other current assets Prepaid expenses and other current assets 63,189 55,438 Total current assets Total current assets 1,029,301 994,137 Property, plant and equipment, at cost 439,367 428,190 Less: Accumulated depreciation Less: Accumulated depreciation (236,279) (229,595) Property, plant and equipment, net Property, plant and equipment, net 203,088 198,595 Right of use lease assets Right of use lease assets 43,344 43,766 Goodwill 517,206 515,008 Other intangible assets, net 936,345 942,925 Investments in associated companies 90,841 88,234 Deferred tax assets Deferred tax assets 10,422 11,218 Other non-current assets Other non-current assets 27,916 27,739 Total assets Total assets $ 2,858,463 $ 2,821,622 LIABILITIES AND EQUITY Current liabilities Short-term borrowings and current portion of long-term debt Short-term borrowings and current portion of long-term debt $ 19,350 $ 19,245 Accounts payable Accounts payable 216,633 193,983 Dividends payable Dividends payable 7,822 7,808 Accrued compensation Accrued compensation 26,713 39,834 Accrued restructuring Accrued restructuring 6,809 5,483 Accrued pension and postretirement benefits Accrued pension and postretirement benefits 1,572 1,560 Other accrued liabilities Other accrued liabilities 90,513 86,873 Total current liabilities Total current liabilities 369,412 354,786 Long-term debt 921,555 933,561 Long-term lease liabilities Long-term lease liabilities 26,086 26,967 Deferred tax liabilities Deferred tax liabilities 157,935 160,294 Non-current accrued pension and postretirement benefits Non-current accrued pension and postretirement benefits 28,985 28,765 Other non-current liabilities 37,702 38,664 Total liabilities Total liabilities 1,541,675 1,543,037 Commitments and contingencies (Note 18) Commitments and contingencies (Note 18) Equity Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding March 31, 2023 – 17,981,822 shares; December 31, 2022 – 17,950,264 shares Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding March 31, 2023 – 17,981,822 shares; December 31, 2022 – 17,950,264 shares 17,982 17,950 Capital in excess of par value Capital in excess of par value 929,674 928,288 Retained earnings Retained earnings 491,632 469,920 Accumulated other comprehensive loss Accumulated other comprehensive loss (123,177) (138,240) Total Quaker shareholders’ equity Total Quaker shareholders’ equity 1,316,111 1,277,918 Noncontrolling interest 677 667 Total equity 1,316,788 1,278,585 Total liabilities and equity Total liabilities and equity $ 2,858,463 $ 2,821,622 Three Months Ended
March 31,2023 2022 Cash flows from operating activities Net income Net income $ 29,541 $ 19,821 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of debt issuance costs Amortization of debt issuance costs 353 1,187 Depreciation and amortization Depreciation and amortization 20,246 20,447 Equity in undistributed earnings of associated companies, net of dividends Equity in undistributed earnings of associated companies, net of dividends (4,401) 2,135 Deferred compensation, deferred taxes and other, net Deferred compensation, deferred taxes and other, net (2,231) (3,801) Share-based compensation Share-based compensation 3,527 2,462 Combination and other acquisition-related expenses, net of payments Combination and other acquisition-related expenses, net of payments — (4,246) Restructuring and related charges Restructuring and related charges 3,972 820 Pension and other postretirement benefits Pension and other postretirement benefits (415) (1,316) (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable Accounts receivable (3,974) (26,270) Inventories Inventories (5,792) (33,873) Prepaid expenses and other current assets Prepaid expenses and other current assets (6,765) (6,506) Change in restructuring liabilities Change in restructuring liabilities (2,747) (408) Accounts payable and accrued liabilities Accounts payable and accrued liabilities 6,468 23,249 Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities 37,782 (6,299) Cash flows from investing activities Cash flows from investing activities Investments in property, plant and equipment Investments in property, plant and equipment (6,161) (8,847) Payments related to acquisitions, net of cash acquired Payments related to acquisitions, net of cash acquired — (9,383) Net cash used in investing activities Net cash used in investing activities (6,161) (18,230) Cash flows from financing activities Cash flows from financing activities Payments of long-term debt Payments of long-term debt (4,703) (14,112) (Payments) borrowings on revolving credit facilities, net (Payments) borrowings on revolving credit facilities, net (9,776) 43,000 Payments on other debt, net Payments on other debt, net (469) (102) Dividends paid Dividends paid (7,809) (7,428) Other stock related activity Other stock related activity (2,109) (801) Net cash (used in) provided by financing activities Net cash (used in) provided by financing activities (24,866) 20,557 Effect of foreign exchange rate changes on cash 2,154 348 Net decrease in cash and cash equivalents Net decrease in cash and cash equivalents 8,909 (3,624) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the beginning of the period 180,963 165,176 Cash and cash equivalents at the end of the period Cash and cash equivalents at the end of the period $ 189,872 $ 161,552 Common
StockCapital in
Excess of
Par ValueRetained
EarningsAccumulated
Other
Comprehensive
LossNoncontrolling
InterestTotal Balance as of December 31, 2021 $ 17,897 $ 917,053 $ 516,334 $ (63,990) $ 628 $ 1,387,922 Net income — — 19,816 — 5 19,821 Amounts reported in other comprehensive (loss) income — — — (6,271) 1 (6,270) Dividends ($0.415 per share) — — (7,434) — — (7,434) Share issuance and equity-based compensation plans 15 1,646 — — — 1,661 Balance as of March 31, 2022 $ 17,912 $ 918,699 $ 528,716 $ (70,261) $ 634 $ 1,395,700 Balance as of December 31, 2022 $ 17,950 $ 928,288 $ 469,920 $ (138,240) $ 667 $ 1,278,585 Net income — — 29,534 — 7 29,541 Amounts reported in other comprehensive income — — — 15,063 3 15,066 Dividends ($0.435 per share) — — (7,822) — — (7,822) Share issuance and equity-based compensation plans 32 1,386 — — — 1,418 Balance as of March 31, 2023 $ 17,982 $ 929,674 $ 491,632 $ (123,177) $ 677 $ 1,316,788 share and per share amounts, unless otherwise stated)(Unaudited)InformationSEC regulations. In the opinion of management, the financial statements reflect all adjustments (consistingconsisting 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,March 31, 2023 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. 2022 (the “2022 Form 10-K”).2017,2023, the Company early adopted an accounting standard update regarding the classification of pension costs. The guidance in this accounting standard update was requiredreorganized its executive management team to be applied retrospectively, which resulted in a reclassification to the Company’s Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2016, respectively. See Note 3 of Notes 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”), changedalign with 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, 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, respectively, to write down the Company’s equity investment to the current DICOM exchange rate. These currency conversion charges were recorded through equity in net income of associated companies in the Company’s Condensed Consolidated Statement of Income for each period, respectively. As of September 30, 2017, the Company’s equity investment in Kelko Venezuela was $0.1 million, valued at the current DICOM exchange rate of approximately 3,341 BsF per U.S. dollar. As part of the Company’s chemical management services, certain third-party product sales to customers are managed by the Company. Where the Company acts as a principal, 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 amount 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.On April 4, 2017, Quaker entered into a share purchase agreement with Gulf Houghton Lubricants, Ltd. to purchase the entire issued and outstanding share capital of Houghton International, Inc. (“Houghton”) (herein referred to as “the Combination”). The shares will be bought for aggregate purchase consideration consisting of: (i) $172.5 million in cash; (ii) a number of shares of common stock, $1.00 par value per share, of 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 price and the level of Houghton’s indebtedness. The Company secured $1.15 billion in commitments from Bank of America Merrill Lynch and Deutsche Bank to fund the Combination and to provide additional liquidity, and has since replaced these commitments with a syndicated bank agreement (“the New Credit Facility”) with a group of lenders for $1.15 billion. The New Credit Facility is contingent upon and will not be effective until the closing of the Combination. The New Credit Facility currently includes a $400.0 million multicurrency revolver, a $575.0 6Quaker Chemical CorporationNotes to Condensed Consolidated Financial Statements - Continued(Dollars in thousands, except share and per share amounts, unless otherwise stated)(Unaudited)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. 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 that the Company’s consolidated net debt to adjusted EBITDA ratio cannot exceed 4.25 to 1 and the Company’s consolidated adjusted EBITDA to interest expense ratio cannot be lower than 3.0 to 1. Both the USD and EUR equivalent term loans will have quarterly principal amortization during their respective five year terms, with 5% amortization of the principal balance due in years 1 and 2, 7.5% in year 3, and 10% in years 4 and 5, with the remaining principal amounts due at maturity.Until closing, the Company will only incur certain interest costs paid to maintain the banks’ committed capital (“ticking fees”), which began to accrue on September 29, 2017. The ticking fees will bear an interest rate of 0.30% per annum.In addition, the issuance of the Company’s shares at closing of the Combination was subject to approval by Quaker’s shareholders under the rules of the New York Stock Exchange, and approval was received at a meeting of the Company’s shareholders during the third quarter of 2017. Also, the Combination is subject to regulatory approval in the United States, Europe, China and Australia. The Company received regulatory approval from China in July 2017 and from Australia in October 2017. Depending on the remaining regulatory approvals and other customary terms and conditions set forth in the share purchase agreement, the Company currently estimates closing of the Combination to occur either late in the fourth quarter of 2017 or 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 related 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. Note 3 – Recently Issued Accounting StandardsThe Financial Accounting Standards Board ("FASB") issued an 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 same income statement line as the hedged item. The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2018. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. For cash flow and net investment hedges existing at the date of adoption, the Company should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that the Company adopts. The amended presentation and disclosure guidance is required only prospectively. Early adoption is permitted including adoption in any interim period for which financial statements have not been issued or made available for issuance. The Company 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.The FASB issued an accounting standard update in May 2017 to clarify when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. This accounting standard update will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. This accounting standard update will allow companies to make certain changes to awards without accounting for them as modifications and an entity is not required to estimate the value of the award immediately before and after the change if the change doesn’t affect any of the inputs to the model used to value the award. The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2017. The guidance within this accounting standard update should be applied prospectively to awards modified on or after the adoption date. Early adoption is permitted including adoption in any interim period for which financial statements have not been issued or made available for issuance. During the second quarter of 2017, the Company elected to early adopt this guidance with no impact to its financial statements.The FASB issued an accounting standard update in March 2017 to improve the presentation of net periodic pension and postretirement benefit cost. Defined benefit pension and postretirement benefit costs (“net benefit cost”) comprise several components that reflect different aspects of an employer’s financial arrangements as well as the cost of benefits provided to employees. This accounting standard update requires that an employer disaggregate the service cost component from the other components of net benefit cost, provides explicit guidance on how to present the service cost component and the other components of 7Quaker Chemical CorporationNotes 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 presentation of the service cost component and the other components of net periodic benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic benefit in assets. This accounting standard update is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. During the first quarter of 2017, the Company elected to early adopt the guidance within this accounting standard update, including the use of a practical expedient which allows the Company to use amounts previously disclosed in its pension and other postretirement benefits note for the prior period as the estimation basis for applying the required retrospective presentation. Adoption of this guidance resulted in a reclassification to the Company’s 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, 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 to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. The guidance removes the requirement to determine a goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in anew 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 connection with the Company’s 2017 annual goodwill impairment test, the Company elected to early adopt this guidance with no impact to its financial statements.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 assets 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.8Quaker Chemical CorporationNotes 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. 9Quaker Chemical CorporationNotes 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.operating segments are organized by geography as follows:segments: (i) North America,Americas; (ii) Europe, Middle East and Africa (“EMEA”),; and (iii) Asia/PacificPacific. Prior to the Company’s reorganization, the Company’s historical reportable segments were: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) South America. OperatingGlobal Specialty Businesses. Prior period information has been recast to align with the Company’s business structure as of January 1, 2023, including reportable segments, customer industry disaggregation, and goodwill. See Notes 4, 5, and 13 of Notes to Condensed Consolidated Financial Statements.excluding indirect operating expenses, for each of the Company’s reportable operating segments isare comprised of revenuesthe segment’s net sales less COGS and SG&A directly related to the respective region’s product sales. The indirect operatingCost of goods sold (“COGS”) and Selling, general and administrative expenses consist of (“SG&A&A”). Operating expenses not directly attributable to the productnet sales of each respective reportablesegment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating segment.earnings. Other items not specifically identified with the Company’s reportable operating segments include interestInterest expense, interest income, license fees from non-consolidated affiliates, amortizationnet and Other expense, and other income (expense), net.operating segments for the three and nine months ended September 30, 2017 and 2016:segments:Three Months Ended
March 31,2023 2022 Net sales Americas $ 251,413 $ 212,091 EMEA 152,449 146,819 Asia/Pacific 96,286 115,261 Total net sales $ 500,148 $ 474,171 Segment operating earnings Americas $ 66,125 $ 45,022 EMEA 27,571 23,247 Asia/Pacific 27,652 24,501 Total segment operating earnings 121,348 92,770 Combination, integration and other acquisition-related expenses — (4,053) Restructuring and related charges, net (3,972) (820) Non-operating and administrative expenses (51,771) (43,305) Depreciation of corporate assets and amortization (15,676) (15,189) Operating income 49,929 29,403 Other expense, net (2,239) (2,206) Interest expense, net (13,242) (5,345) Income before taxes and equity in net income of associated companies $ 34,448 $ 21,852 Inter-segment revenues for the three and nine months ended September 30, 2017 were $2.8 million and $7.4 million for North America, $6.2 million and $16.0 million for EMEA, $0.2 million and $0.3 million for Asia/Pacific, respectively, and less than $0.1 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. However, all operating segment’s net sales and earnings for all periods presented above.in the above tables.10Three Months Ended
March 31,2023 2022 Americas 2,827 3,056 EMEA 6,093 12,176 Asia/Pacific 59 297 share and per share amounts, unless otherwise stated)(Unaudited)51 of Notes to Condensed Consolidated Financial Statements.Three Months Ended March 31, 2023 Americas EMEA Asia/Pacific Consolidated
TotalCustomer Industries Metals $ 68,134 $ 39,103 $ 46,660 $ 153,897 Metalworking and other 183,279 113,346 49,626 346,251 $ 251,413 $ 152,449 $ 96,286 $ 500,148 Timing of Revenue Recognized Product sales at a point in time $ 240,481 $ 141,506 $ 93,923 $ 475,910 Services transferred over time 10,932 10,943 2,363 24,238 $ 251,413 $ 152,449 $ 96,286 $ 500,148 Three Months Ended March 31, 2022 Americas EMEA Asia/Pacific Consolidated
TotalCustomer Industries Metals $ 55,317 $ 36,793 $ 55,682 $ 147,792 Metalworking and other 156,774 110,026 59,579 326,379 $ 212,091 $ 146,819 $ 115,261 $ 474,171 Timing of Revenue Recognized Product sales at a point in time $ 201,775 $ 136,803 $ 112,548 $ 451,126 Services transferred over time 10,316 10,016 2,713 23,045 $ 212,091 $ 146,819 $ 115,261 $ 474,171 Three Months Ended
March 31,2023 2022 Operating lease expense $ 3,936 $ 3,409 Short-term lease expense 211 219 Three Months Ended
March 31,2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,857 $ 3,365 Non-cash lease liabilities activity: Leased assets obtained in exchange for new operating lease liabilities 2,833 4,689 March 31,
2023December 31,
2022Right of use lease assets $ 43,344 $ 43,766 Other current liabilities 12,652 12,024 Long-term lease liabilities 26,086 26,967 Total operating lease liabilities $ 38,738 $ 38,991 Weighted average remaining lease term (years) 4.96 5.10 Weighted average discount rate 4.50 % 4.36 % March 31,
2023For the remainder of 2023 $ 10,749 For the year ended December 31, 2024 11,784 For the year ended December 31, 2025 7,740 For the year ended December 31, 2026 5,614 For the year ended December 31, 2027 2,616 For the year ended December 31, 2028 and beyond 5,496 Total lease payments 43,999 Less: imputed interest (5,261) Present value of lease liabilities $ 38,738 fourththird quarter of 2015, in response to weak economic conditions and market declines in many regions, Quaker’s2019, the Company’s management approved a global restructuring plan (the “2015“QH Program”) as part of its initial plan to realize certain cost synergies associated with the Combination. As of December 31, 2022, the Company substantially completed all of the initiatives under the QH Program with only an immaterial amount of remaining severance still to be paid, which is expected to be completed during 2023.its operating costs.headcount by approximately 75 positions globally. These headcount reductions began in the fourth quarter of 2022 and are expected to continue throughout 2023. The 2015 Program included the re-organizationexact timing to complete all actions and final costs associated will depend on a number 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. factors that are subject to change.variedvary depending on local regulations within certain foreign countries and includedinclude severance and other benefits. The Company completed all of the remaining initiativesRestructuring costs include severance costs to reduce headcount, including customary and routine adjustments to initial estimates for employee separation costs, as well as costs to close certain facilities under the 2015 Program duringQH Program. These costs are recorded in Restructuring and related charges in the second quarterCompany’s Consolidated Statements of 2017Operations. As described in Note 4 of Notes to Consolidated Financial Statements, Restructuring and doesrelated charges are not expectincluded in the Company’s calculation of reportable segments’ measure of operating earnings and therefore these costs are not reviewed by or recorded to incur furtherreportable segments.charges under this program.Restructuring activity recognized by reportable operating segment in connection with the 2015 Program during the nine months ended September 30, 2017 isprograms are as follows:Restructuring Programs Accrued restructuring as of December 31, 2022 $ 5,483 Restructuring and related charges, net 3,972 Cash payments (2,747) Currency translation adjustments 101 Accrued restructuring as of March 31, 2023 $ 6,809 68 – Stock-BasedShare-Based Compensationstock-basedshare-based compensation expense in SG&A in its Condensed Consolidated Statements of IncomeOperations:Three Months Ended
March 31,2023 2022 Stock options $ 431 $ 267 Non-vested stock awards and restricted stock units 2,171 1,548 Director stock ownership plan 10 24 Performance stock units 915 623 Total share-based compensation expense $ 3,527 $ 2,462 and nine months ended September 30, 2017March 31, 2022, recorded within Combination, integration and 2016: other acquisition-related expenses.During the first quarter of 2017, the Company began matching non-elective and elective 401(k) contributions in cash rather than stock. Also, the Company’s estimated taxes payable as of September 30, 2016 was sufficient to fully recognize $0.2 million of excess tax benefits related to stock option exercises as cash inflows from financing activities in its Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016.During the first quarter of 2017, the Company granted stock options under its long-term incentive plan (“LTIP”) that are subject only to time vesting over a three-year period. For the purposes of determining the fair value of stock option awards, the Company used the Black-Scholes option pricing model and the assumptions set forth in the table below:Number of options granted42,477Dividend yield1.49%Expected volatility25.52%Risk-free interest rate1.67%Expected term (years)4.0The fair value of these options is amortized on a straight-line basis over the vesting period. As of September 30, 2017,March 31, 2023, unrecognized compensation expense related to unvested stock options granted was $1.5$0.9 million, to be recognized over a weighted average remaining period of 1.91.3 years. There were no stock options granted in the second or third quarters of 2017, respectively.first ninethree months of 2017,ended March 31, 2023, the Company granted 17,315 nonvested29,862 non-vested restricted shares and 1,332 nonvested6,675 non-vested restricted stock units under its LTIPlong-term incentive plan that(“LTIP”), which are subject only to timetime-based vesting, generally over one to three years. The fair value of these grants is based on the last sale price of the Company’s common stock on the date of grant. As of March 31, 2023, unrecognized compensation expense related to the non-vested restricted shares was $10.6 million, to be recognized over a three-yearweighted average remaining period of 2.6 years, and unrecognized compensation expense related to non-vested restricted stock units was $2.5 million, to be recognized over a weighted average remaining period of 1.8 years.these awardsPSUs granted with a ROIC condition is based on the trading price of the Company’s common stock on the date of grant. PSUs granted with a relative TSR condition are valued using a Monte Carlo simulation on the date of grant. The Company adjusts the grant dategrant-date fair value of thesethe PSUs valued using a Monte Carlo simulation, which included the following assumptions set forth in the table below:2023
GrantsNumber of PSUs granted 15,707 Risk-free interest rate 3.85% Dividend yield 0.96% Expected term (years) 3.0 expected forfeitures based on historical experience.such outstanding PSUs awards. As of September 30, 2017,March 31, 2023, there was approximately $9.9 million of total unrecognized compensation expense 11Quaker Chemical CorporationNotes to Condensed Consolidated Financial Statements - Continued(Dollars in thousands, except share and per share amounts, unless otherwise stated)(Unaudited)nonvested restricted shares was $2.7 million,Company expects to be recognizedrecognize over a weighted average remainingweighted-average period of 1.7 years, and unrecognized compensation expense related to nonvested restricted stock units was $0.2 million, to be recognized over a weighted average remaining period of 2.02.6 years. for the three and nine months ended September 30, 2017 and 2016 are as follows:Three Months Ended March 31, Pension Benefits Other Postretirement Benefits 2023 2022 2023 2022 Service cost $ 104 $ 180 $ — $ (8) Interest cost 2,455 1,360 19 9 Expected return on plan assets (1,997) (2,084) — — Actuarial loss (gain) amortization 101 257 (30) (24) Prior service cost (income) amortization Prior service cost (income) amortization 8 2 (4) 1 Net periodic benefit (income) cost Net periodic benefit (income) cost $ 671 $ (285) $ (15) $ (22) During the second quarter of 2017, the Company’s U.S. pension plan offered a cash settlement to its vested terminated participants, which allowed them to receive the value of their pension benefits as a single lump sum payment. As payments from the U.S. pension plan for this cash out offering exceeded the service and interest cost components of the U.S. pension plan expense for 2017, the Company recorded a settlement charge of approximately $1.9 million. This settlement charge represented the immediate recognition into expense of a portion of the unrecognized loss within 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. 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.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. September 30, 2017, $5.1March 31, 2023, $1.0 million and $0.3less than $0.1 million of contributions have been made to the Company’s U.S. and foreign pension plans and its other postretirement benefit plans, respectively.Note 8 – Other Income (Expense), NetThe components Taking into consideration current minimum cash contribution requirements, the Company currently expects to make full year cash contributions of approximately $5.3 million to its U.S. and foreign pension plans and approximately $0.2 million to its other income (expense), net, for the three and nine months ended September 30, 2017 and 2016 are as follows:12 share and per share amounts, unless otherwise stated)(Unaudited)910 – Other expense, netThree Months Ended
March 31,2023 2022 Income from third party license fees $ 325 $ 404 Foreign exchange losses, net (3,326) (1,905) Non-income tax refunds and other related credits (expense) 360 (1,322) Pension and postretirement benefit (costs) income, non-service components (552) 479 Facility remediation recovery, net 827 — Other non-operating income, net 127 138 Total other expense, net $ (2,239) $ (2,206) September 30, 2017March 31, 2023 was 22.1% comparedimpacted by various items including foreign tax inclusions, withholding taxes, foreign tax credits, and net tax expense related to 28.3% forshare-based compensation, partially offset with changes in uncertain tax positions and favorable return to provision adjustments. Comparatively, the three months ended September 30, 2016. The Company’sprior year effective tax rate was largely impacted by changes in the valuation allowance for foreign tax credits due to legislative guidance issued and audit settlements reached with Italian tax authorities. In addition, the nine months ended September 30, 2017 was 32.5% compared to 31.0% for the nine months ended September 30, 2016. The Company’s effective tax rates for the three and nine months ended September 30, 2017, respectively, include the impact of certain non-deductible Houghton combination-related expenses, as well as tax benefits for deductions in excess 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 throughCompany incurred higher tax expense during the three or nine months ended September 30, 2016. The Company’s effective tax rates for the three and nine months ended September 30, 2016, respectively, reflect earnings taxed atMarch 31, 2022 related to one of the Company’s subsidiaries recording earnings at a statutory tax rate of 25% while awaitingthe recertification of aits 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 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. As of September 30, 2017, the Company’s cumulative liability for gross unrecognized tax benefits was $7.0 million. As of December 31, 2016, the Company’s cumulative liability for gross unrecognized tax benefits was $6.2 million. The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on income before equity in net income of associated companies in its Condensed Consolidated Statements of Income. The Company recognized a credit of less than $0.1 million and $0.1 million for interest, and an expense of $0.1 million and $0.2 million for penalties in its Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017, respectively. The Company recognized a credit of $0.7 million and $0.6 million for interest and a credit of $0.1 million and expense of $0.2 million for penalties in its Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, the Company had accrued $0.7 million for cumulative interest and $2.0 million for cumulative penalties in its Condensed Consolidated Balance Sheets, compared to $0.7 million for cumulative interest and $1.6 million for cumulative penalties accrued at December 31, 2016.During the nine months ended September 30, 2017 and 2016, the Company recognized a decrease of $0.8 million and $1.5 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, it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $1.2 to $1.3 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.The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions include Brazil from 2000, Italy from 2007, the Netherlands and the United Kingdom from 2011, China from 2012, Spain from 2013, the United States from 2014, and various domestic state tax jurisdictions from 2007. 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 and obtained 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 the first quarter of 2022, the Company settled the $2.6 million assessment due to the Italian tax authorities, while having already received $1.6 million in refunds from the Netherlands and Spain. As of September 30, 2017,March 31, 2023, the Company believes itpaid the full settlement, of which approximately $0.2 million was refunded.adequatean indemnification receivable of $3.9 million in connection with its claim against the former owners of Houghton for any pre-Combination tax liabilities arising from this matter, as well as other audit settlements and tax matters.where merited, for uncertain tax positions with respect to allthis matter at this time. share and per share amounts, unless otherwise stated)(Unaudited)calculations for the three and nine months ended September 30, 2017 and 2016:calculations:Three Months Ended
March 31,2023 2022 Basic earnings per common share Net income attributable to Quaker Chemical Corporation Net income attributable to Quaker Chemical Corporation $ 29,534 $ 19,816 Less: income allocated to participating securities Less: income allocated to participating securities (145) (78) Net income available to common shareholders Net income available to common shareholders $ 29,389 $ 19,738 Basic weighted average common shares outstanding Basic weighted average common shares outstanding 17,866,670 17,826,061 Basic earnings per common share $ 1.64 $ 1.11 Diluted earnings per common share Net income attributable to Quaker Chemical Corporation Net income attributable to Quaker Chemical Corporation $ 29,534 $ 19,816 Less: income allocated to participating securities Less: income allocated to participating securities (145) (78) Net income available to common shareholders Net income available to common shareholders $ 29,389 $ 19,738 Basic weighted average common shares outstanding Basic weighted average common shares outstanding 17,866,670 17,826,061 Effect of dilutive securities Effect of dilutive securities 32,076 25,798 Diluted weighted average common shares outstanding Diluted weighted average common shares outstanding 17,898,746 17,851,859 Diluted earnings per common share $ 1.64 $ 1.11 and restricted stock units, and PSUs are not included in the diluted earnings per share calculation sincewhen the effect would have been anti-dilutive. The calculated amount of anti-diluted shares not included were 4,30015,327 and 4,81912,260 for the three and nine months ended September 30, 2017, respectively,March 31, 2023 and 0 and 3,465 for the three and nine months ended September 30, 2016,2022, respectively.has historically completedcompletes its annual goodwill and indefinite-lived intangible asset impairment test as ofduring the end of the thirdfourth quarter of each year, or more frequently if triggering events indicate a possible impairment in one or more of its reporting units.impairment. The Company continually evaluates financial performance, economic conditions and other relevantrecent developments, including rising interest rates and the cost of capital among other factors, in assessing if an interim period impairment test for onea triggering event indicates that the carrying values of goodwill, indefinite-lived, or more of itslong-lived assets are impaired. The Company concluded that during the first quarter the ongoing financial, economic or geopolitical conditions did not represent a triggering event.is necessary. Theduring the first quarter of 2023, the Company completed its annualperformed the required impairment assessment asassessments directly before and immediately after the change in reporting units and concluded that it was not more likely than not that the fair values of any of the end of the third quarter of 2017 and no impairment charge was warranted. In addition, the Company has recorded no impairment charges inCompany’s previous or new reporting units were less than its past. carrying amount.for the nine months ended September 30, 2017 were as follows:follows. Prior period information has been recast to reflect the Company’s current period reportable segments. See Note 1 of Notes to Condensed Consolidated Financial Statements.Americas EMEA Asia/Pacific Global
Specialty
BusinessesTotal Balance as of December 31, 2022 $ 215,899 $ 34,567 $ 150,375 $ 114,167 $ 515,008 Reallocation of reporting units 63,697 31,711 18,759 (114,167) — Balance as of January 1, 2023 279,596 66,278 169,134 — 515,008 Goodwill additions (reductions) — — — — — Currency translation adjustments 1,773 (116) 541 — 2,198 Balance as of March 31, 2023 $ 281,369 $ 66,162 $ 169,675 $ — $ 517,206 as of September 30, 2017 and December 31, 2016 were as follows:Gross Carrying
AmountAccumulated
AmortizationNet Book Value March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 Customer lists and rights to sell $ 839,280 $ 831,600 $ 205,800 $ 191,286 $ 633,480 $ 640,314 Trademarks, formulations and product technology 160,149 158,564 48,856 46,281 111,293 112,283 Other 6,168 7,576 5,848 6,390 320 1,186 Total definite-lived intangible assets $ 1,005,597 $ 997,740 $ 260,504 $ 243,957 $ 745,093 $ 753,783 14Quaker Chemical CorporationNotes to Condensed Consolidated Financial Statements - Continued(Dollars in thousands, except share and per share amounts, unless otherwise stated)(Unaudited)$1.9 million and $5.5 million of amortization expense for the three and nine months ended September 30, 2017, respectively. Comparatively, the Company recorded $1.7 million and $5.3 million of amortization expense for the three and nine months ended September 30, 2016, respectively. as follows:Three Months Ended
March 31,2023 2022 Amortization expense $ 14,513 $ 14,553 For the remainder of 2023 $ 43,829 For the year ended December 31, 2024 57,734 For the year ended December 31, 2025 56,953 For the year ended December 31, 2026 56,708 For the year ended December 31, 2027 56,410 As of March 31, 2023 As of December 31, 2022 Interest
RateOutstanding
BalanceInterest
RateOutstanding
BalanceCredit Facilities: Revolver 6.0% $ 185,897 5.2% $ 195,673 U.S. Term Loan 6.3% 592,500 5.7% 596,250 Euro Term Loan 4.1% 153,072 3.1% 151,572 Industrial development bonds 5.3% 10,000 5.3% 10,000 Bank lines of credit and other debt obligations Various 1,317 Various 1,303 Total debt $ 942,786 $ 954,798 Less: debt issuance costs (1,881) (1,992) Less: short-term and current portion of long-term debts (19,350) (19,245) Total long-term debt $ 921,555 $ 933,561 two indefinite-lived intangible assets totaling $1.1 million for trademarks at September 30, 2017 and December 31, 2016.The Company’s primary credit facility (“the Credit Facility”) is a $300.0 million syndicated multicurrency credit agreement with a groupright to increase the amount of lenders which matures in June 2019. The maximum amount available under the Credit Facility can be increasedby an aggregate amount not to $400.0exceed the greater of $300.0 million ator 100% of Consolidated EBITDA, subject to certain conditions including the Company’s option if the lenders agree andagreement to provide financing by any lender providing such increase.satisfies certain conditions. Borrowings under the Credit Facility generally bear interest at a base rate or LIBOR rate plus a margin. The Credit Facility has certain financial and other covenants, with the key financial covenant requiring that the Company’s consolidated net debt to adjusted EBITDA ratio cannot exceed 3.50 to 1. As of September 30, 2017 and December 31, 2016, 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 otherthe Credit Facility covenants. See Note 20 of Notes to Consolidated Financial Statements in the Company’s 2022 Form 10-K.September 30, 2017March 31, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 5.9%. As part of the Credit Facility, in addition to paying interest on outstanding principal, the Company is also required to pay an annual commitment fee ranging from 0.150% to 0.275% related to unutilized commitments under the Revolver, depending on the Company’s consolidated net leverage ratio. The Company had unused capacity under the Revolver of approximately $311 million, which is net of bank letters of credit of approximately $3 million, as of March 31, 2023.2016,2022, the Company had total credit facility borrowings of $54.7fixed rate, industrial development authority bonds totaling $10.0 million and $47.9 million, respectively, primarily underin principal amount due in 2028. These bonds have similar covenants to the Credit Facility.Facility noted above.outstanding debt obligations 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, 2017March 31, 2023 was approximately $35 million.Three Months Ended
March 31,2023 2022 Interest expense $ 13,876 $ 4,746 Amortization of debt issuance costs 353 1,187 Total $ 14,229 $ 5,933 2016 were primarily industrial development bonds and municipality-related loans. At September 30, 2017 and December 31, 2016,2022, the amounts at which the Company’s total debt iswere recorded are not materialitymaterially different from their fair market value.1315 – EquityIn May 2015, the Company’s Board of Directors authorized a share repurchase program for the repurchase of up to $100.0 million of Quaker Chemical Corporation common stock (the “2015 Share Repurchase Program”). The 2015 Share Repurchase Program has no expiration date. The 2015 Share Repurchase Program provides a framework of conditions under which management can repurchase shares of the Company’s common stock. These purchases may be made in the open market or in private and negotiated transactions and will be in accordance with applicable laws, rules and regulations. In connection with the 2015 Share Repurchase Program, the Company acquired 83,879 shares of common stock for $5.9 million during the nine months ended September 30, 2016. There were no share repurchases under the 2015 Share Repurchase Program during the nine months ended September 30, 2017. The Company has elected not to hold treasury shares, and has retired the shares as they are repurchased. It is the Company’s accounting policy to record the excess paid over par value as a reduction in retained earnings for all shares repurchased.Prior to September 7, 2017, the Company’s Articles of Incorporation included a time-based voting system that granted special ten-for-one-voting rights to shareholders who had beneficially owned their Quaker Chemical Corporation common stock continuously for a period of at least 36 consecutive calendar months (dating from the first day of the first full calendar month on or after the date the holder acquired beneficial ownership of such common stock) before the record date for a shareholder vote. At a meeting of the Company’s shareholders on September 7, 2017, the Company’s shareholders approved an amendment of the Company’s Articles of Incorporation that provides that every holder of Quaker Chemical Corporation common stock will be entitled to one vote for each share of common stock of the Company going forward.15Quaker Chemical CorporationNotes to Condensed Consolidated Financial Statements - Continued(Dollars in thousands, except share and per share amounts, unless otherwise stated)(Unaudited)The following tables present the changes in equity, net of tax, for the three and nine months ended September 30, 2017 and 2016:16Quaker Chemical CorporationNotes to Condensed Consolidated Financial Statements - Continued(Dollars in thousands, except share and per share amounts, unless otherwise stated)(Unaudited)AOCI for the three and nine months ended September 30, 2017 and 2016:Approximately 75% and 25% of the 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 ended September 30, 2017 and 2016 were recorded in SG&A and COGS, respectively. See Note 7 of Notes to Condensed Consolidated Financial Statements for further information. income (“AOCI”):Currency
Translation
AdjustmentsDefined
Benefit
Pension
PlansUnrealized
(Loss) Gain in
Available-for-
Sale SecuritiesDerivative
InstrumentsTotal Balance as of December 31, 2022 $ (132,161) $ (4,595) $ (1,484) $ — $ (138,240) Other comprehensive income (loss) before reclassifications 14,465 (243) 462 506 15,190 Amounts reclassified from AOCI — 76 (40) — 36 Related tax amounts — 41 (88) (116) (163) Balance as of March 31, 2023 $ (117,696) $ (4,721) $ (1,150) $ 390 $ (123,177) Balance as of December 31, 2021 $ (49,843) $ (13,172) $ 397 $ (1,372) $ (63,990) Other comprehensive (loss) income before reclassifications (6,867) 432 (1,277) 1,429 (6,283) Amounts reclassified from AOCI — 229 11 — 240 Related tax amounts — (165) 266 (329) (228) Balance as of March 31, 2022 $ (56,710) $ (12,676) $ (603) $ (272) $ (70,261) (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 share and per share amounts, unless otherwise stated)(Unaudited)14 – Business AcquisitionsIn 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: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.18Quaker Chemical CorporationNotes to Condensed Consolidated Financial Statements - Continued(Dollars in thousands, except share and per share amounts, unless otherwise stated)(Unaudited)Note 1516 – Fair Value MeasurementsThese assets are subject to fair value measurement as follows:Total
Fair ValueFair Value Measurements as of March 31, 2023
Using Fair Value HierarchyAssets Level 1 Level 2 Level 3 Company-owned life insurance $ 2,204 $ — $ 2,204 $ — Total $ 2,204 $ — $ 2,204 $ — Total
Fair ValueFair Value Measurements as of December 31, 2022
Using Fair Value HierarchyAssets Level 1 Level 2 Level 3 Company-owned life insurance $ 2,114 $ — $ 2,114 $ — Total $ 2,114 $ — $ 2,114 $ — diddoes not hold or enter into financial instruments for trading or speculative purposes.Currency March 31,
2023Mexican Peso $ 18,000 3 investments2 measurements, are as of September 30, 2017 or December 31, 2016, respectively, so related disclosures have not been included.Fair Value Condensed Consolidated
Balance Sheet LocationMarch 31,
2023December 31,
2022Derivatives designated as cash flow hedges: Interest rate swaps Other non-current Assets $ 506 $ — March 31,
2023December 31,
2022Derivatives designated as cash flow hedges: Interest rate swaps AOCI $ 390 $ — Location and Amount of Gain (Loss) Recognized in
Statements of OperationsThree Months Ended
March 31,2023 2022 Interest rate swaps Interest expense, net $ — $ (637) Foreign exchange forward contracts Other expense, net 293 — $ 293 $ (637) 1618 – Commitments and ContingenciesAnnual Report filed on2022 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”). As of September 30, 2017, ACP believes it is close to meeting the conditions for closuretwo of the groundwater treatment system, but continues to operate this system while in discussions with the relevant authorities. AsCompany’s locations suffered property damages as a result of September 30, 2017, the Company believes that the range of potential-known liabilities associated with the balance of the ACP water remediation program is approximately $0.1 million to $1.0 million. The lowflooding 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.previously disclosed inmaintains property and flood insurance for all of its Annual Report filed on 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.locations globally. During the ninethree months ended September 30, 2017,March 31, 2023, there have been no significant changes to the facts or circumstances of this matter previously disclosed asidematter, other than the ongoing work with the Company’s insurance adjuster and insurance carrier regarding the insurance claims submitted. Through March 31, 2023, the Company has received cumulative payments from on-going claims and routine paymentsits insurers of $5.7 million associated with this litigation. Basedthese events. During the three months ended March 31, 2023, the Company recognized a gain on a continued analysisinsurance recoveries of $0.8 million. See Note 10 of Notes to the existing and anticipated future claims against this subsidiary, it is currently projected thatCondensed Consolidated Financial Statements. subsidiary’s total liability over the next 50 years for these claims is approximately $2.2 million (excluding costs of defense).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 million was accrued at September 30, 2017 and December 31, 2016, respectively, to provide for such anticipated future environmental assessments and remediation costs. The Company is party to certain environmental matters and other litigation. See Note 26 of Notes to Consolidated Financial Statements in the Company’s 2022 Form 10-K. During the three months ended March 31, 2023, there have been no significant changes to the facts or circumstances of any of the previously disclosed matters. In addition, during the three months ended March 31, 2023, there are no new environmental matters or litigation which management currentlythat the Company believes will not have a material adverse effect on the Company’s results of operations, cash flows or financial condition.19leading global providerpresence around the world, including operations in over 25 countries, our customers include thousands of process fluids, chemical specialties,the world’s most advanced and technical expertise to a wide range of industries, includingspecialized steel, aluminum, automotive, aerospace, offshore, container, mining, aerospace, tube and pipe, cans,metalworking companies. Our high-performing, innovative and others. For nearly 100 years, Quaker has helped customers around the world achieve production efficiency, improve product quality, and lower costs through a combination of innovativesustainable solutions are backed by best-in-class technology, deep process knowledge, and customized services. HeadquarteredQuaker Houghton is headquartered in Conshohocken, Pennsylvania, USA, Quaker serves businesses worldwidelocated near Philadelphia in the U.S.network of dedicated and experienced professionals whose mission isrecovery in gross margins compared to make a difference.The Company had a solid operating performance in the thirdprior year quarter, of 2017, as strong volume growth and continued discipline in managing itspartially offset by higher selling, general and administrative expenses (“SG&A”) largely offsetas a decline in gross margin compared toresult of significant year-over-year inflationary pressures and higher labor-related costs. See the prior year. Specifically, net sales increased 12% to $212.9 million in the third quarterNon-GAAP Measures section of 2017 compared to $190.4 million in the third quarter of 2016 driven by a 7% growth in volumes, including acquisitions, a 3% increase due to changes in price and product mix and a 2% positive impact from foreign currency translation. Driven by the strong volume levels, the Company’s gross profit increased 5% quarter-over-quarter, despite a decline in gross margin to 35.1% in the third quarter of 2017 compared to 37.2% in the third quarter of 2016. The decreasethis Item below, as well as other items discussed in the Company’s gross margin was primarily due to higher raw material costs compared to the prior year and a changeConsolidated Operations Review in the mixOperations section 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. this Item, below.thirdfirst quarter of 2017,2023, the Company incurred $9.7 million, or $0.52 per diluted share, of costs associatedreorganized its executive management team to align 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 costs in the third quarter of 2016. Including these combination-related expenses, the Company’s third quarter of 2017 net income and earnings per diluted share were $11.1 million and $0.83, respectively, 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 in the prior year.its new business structure. The Company’s adjusted EBITDA was $29.4 million in the third quarter of 2017, an increase of 4% compared to $28.3 million 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 innew structure includes three of its four regions which was partially offset by declining gross margins in the Company’s three largest regions. The Company’sreportable segments: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”) region; and (iii) Asia/Pacific. The Company’s first quarter of 2023 operating performance in each of its three reportable segments reflect similar drivers to that of its consolidated performance. Operating earnings for all segments increased its operating earnings duecompared to strongthe prior year quarter, driven by higher net sales growth on higher sales volumesin the Americas and priceEMEA and product mix, coupled with a relatively consistent levelan improvement in margins in all three segments. Additional details of SG&A, largely offset by lower gross margin quarter-over-quarter. Ineach segment’s operating performance are further discussed 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 Review, in the Operations section of this Item, below.The Company generated netcash 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 $53.0activities were $37.8 million in the first ninethree months of 2016. The decrease2023 compared to net cash flows used in operating activities of $6.3 million in the first three months of 2022. The net operating cash flowinflow year-over-year was primarily duereflects higher operating performance in 2023 compared to cash outflows related to certain Houghton combination-related expenses and higher levels of cash invested in the Company’s2022 as well as lower working capital during 2017 as a result of the Company’s strong volume growth.investments year-over-year. 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.is pleased with another solid quarter. Specifically, the Company was able to grow organic volumesdelivered a strong quarter including a record level of net sales, driven by 5% on continued market share gainsstrong price realization and increased productiona recovery in some of the Company’s end markets. Also, the Company continued its disciplined approach to managing SG&A which helped offset a decline in its gross margin in the thirdcurrent period. These factors contributed to the Company’s current 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 costsearnings growth despite ongoing inflationary pressures, macroeconomic and geopolitical challenges and other non-core items,disruptions that impacted the Company’s operating performance resulted in a 4% increase in its adjusted EBITDA quarter-over-quarter,customers and 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.end markets. Looking forward toat 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 market share gains, on-going discipline in managing SG&A and the benefits of past acquisitions will continue to help offset its gross margin and other market challenges. Overall,2023, the Company remains confident infocused on executing on items within its futurecontrol as it manages through a continued uneven and still expects 2017 to be another good year for Quaker, as the Company continues to expect growth in net sales year-over-year,uncertain macroeconomic and increases in adjusted EBITDA and non-GAAP earnings per share for the eighth consecutive year.20Related to the Houghton Combination, the Company received shareholder approval at a meeting held in September 2017 and also received regulatory approval from China in July 2017 and from Australia in October 2017. The closing of the Combination is still subject to regulatory approval in the U.S. and Europe and other customary closing conditions.end market environment. The Company continues to expect closingis encouraged by its continued execution and the positive momentum of the Combination to occur either late in the fourth quarter of 2017 or during the first quarter of 2018. Quaker’sincreased to $109.1of $189.9 million. Total cash and cash equivalents was $181.0 million at September 30, 2017 from $88.8 million atas of December 31, 2016.2022. The $20.3$8.9 million increase in cash and cash equivalents was the net result of $40.8$37.8 million of cash provided by operating activities and a $4.8 million positive impact due to the effect of foreign exchange rates on cash,currency translation of $2.2 million partially offset by $12.8$24.9 million of cash used in financing activities and $6.2 million of cash used in investing activities and $12.5 million ofactivities.used in financing activities. Net cashflows provided by operating activities was $40.8were $37.8 million in the first ninethree months of 20172023 compared to $53.0net cash flows used in operating activities of $6.3 million in the first ninethree months of 2016.2022. The $12.2 million decrease was primarily the resultincrease in net operating cash flow year-over-year reflects higher year-over-year operating performance as well as lower levels of cash outflows of $12.7 millionworking capital investment in the current year, associated with payments relatedreflecting a more stable period as compared to the Combination, described below. Thereprior year and demonstrating the Company’s ongoing focus on cash conversion, including managing inventory levels.no similar cash payments$6.2 million in the ninefirst three months ended September 30, 2016. In addition, the Company had higher cash invested in working capital, primarily dueof 2023 compared to higher sales and production volumes$18.2 million in the current quarter. Specifically, the increase in net sales quarter-over-quarter drove higher levelsfirst three months 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 timing2022. The lower level 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 $8.7year-over-year is the result of slightly lower capital expenditures in the current year and the absence of payments related to acquisitions. See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.ninethree months of 20162023 compared to $12.8net cash flows provided by financing activities of $20.6 million in the first ninethree months of 2017, primarily due to higher payments for acquisitions and capital expenditures. During the first nine months of 2017, the Company had2022. The increase in net 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 as 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 million in the first nine months of 2017 compared to $25.5 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 million in the first nine months of 2017 comparedrelated to net repayments of long-term debt of $6.8 millionborrowings in the first ninethree months of 2016. The current year proceeds from long-term debt coupled with cash on hand were2023, primarily usedunder the Company’s Credit Facility, described further below, as compared to financenet borrowings in the higher cash payments for acquisitions year-over-year and cash payments associated with combination-related expenses, described below.first three months of 2022. In addition, the Company paid $13.9$7.8 million inof cash dividends during the first ninethree months of 2017,2023, a $0.8$0.4 million, or 5% increase, in cash dividends compared to the prior year period. In the first nine months of 2016,quarter.completed $5.9 million in share repurchases, with no comparable cash payments during the current year. The Company’sand its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S. Dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to its primary credit facility. The amended credit facility (“the Credit(the “Credit Facility”) isestablished (A) a $300.0$150.0 million syndicated multicurrencyEuro equivalent senior secured term loan (the “Euro Term Loan”), (B) a $600.0 million senior secured term loan (the “U.S. Term Loan”), and (C) a $500.0 million senior secured revolving credit agreement with a group of lenders which maturesfacility (the “Revolver”), each maturing in June 2019.2027. The maximumCompany has the right to increase the amount available underof the Credit Facility can be increasedby an aggregate amount not to $400.0exceed the greater of $300.0 million ator 100% of Consolidated EBITDA, subject to certain conditions including the Company’s option if the lenders agree andagreement to provide financing by any lender providing such increase.satisfies certain conditions. Borrowingshad Credit Facility borrowings outstanding of $931.5 million. As of December 31, 2022, the Company had Credit Facility borrowings outstanding of $943.5 million. The Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans, which totaled $11.3 million as of both March 31, 2023 and December 31, 2022. Total unused capacity under these arrangements as of March 31, 2023 was approximately $35 million. The Company’s total net debt as of March 31, 2023, which consists of total borrowings of $942.8 million less cash and cash equivalents of $189.9, was $752.9 million. The Credit Facility contains affirmative and negative covenants, financial covenants and events of default. Financial covenants contained in the Credit Facility generally bearinclude a consolidated interest atcoverage ratio test and a base rate or LIBOR rate plus a margin. The Credit Facility has certain financial and other covenants, with the key financial covenant requiring that the Company’s consolidated net debt to adjusted EBITDAleverage ratio cannot exceed 3.50 to 1.test. As of September 30, 2017 and DecemberMarch 31, 2016, the Company’s consolidated net debt to adjusted EBITDA ratio was below 1.0 to 1, and2023, the Company was also in compliance with all of the Credit Facility covenants. Refer to the description of the Company’s primary Credit Facility in Note 20 of Notes to Consolidated Financial Statements in its other covenants.2022 Form 10-K and in Note 14 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report for more information about the covenants and events of default.September 30, 2017March 31, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 5.9%. As part of the Credit Facility, in addition to paying interest on the outstanding principal, the Company is also required to pay an annual commitment fee ranging from 0.150% to 0.275% related to unutilized commitments under the Revolver, depending on the Company’s consolidated net leverage ratio. The Company had unused capacity under the Revolver of approximately $311 million, which is net of bank letters of credit of approximately $3 million, as of March 31, 2023.2016,2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.2%. See Note 17 of Notes to Condensed Consolidated Financial Statements.credit facility borrowingsCombination, integration and other acquisition-related expenses, which includes $2.0 million of $54.7other expenses related to indemnification assets, described in the Non-GAAP Measures section of this Item below. The Company had net cash outflows related to the Combination, integration and other acquisition-related expenses during the first three months of 2022 of $4.2 million. The Company had no Combination, integration and other acquisition-related expenses in the first three months of 2023.$47.9 million, respectively, primarily underassociated cash flows, as well as higher capital expenditures related to strategic planning, process optimization and the Credit Facility. next phase of the Company’s long-term integration to further optimize its footprint, processes and other functions in 2023 and thereafter.other debt obligations as of September 30, 2017management approved, and December 31, 2016 were primarily industrial development bonds and municipality-related loans. Quaker’s management approvedthe Company initiated, a global restructuring plan in the fourth quarter of 2015 (the “2015“QH Program”) to reducein 2019 as part of its operating costs. Theplanned cost synergies associated with the Combination. As of December 31, 2022, the Company has substantially completed all of the initiatives under the 2015QH Program during 2016with only an immaterial amount of remaining severance still to be paid, which is expected to continue into 2023. In the fourth quarter of 2022, the Company’s management initiated a global cost and settlementoptimization program to improve its cost structure and drive a more profitable and productive organization. The exact timing to complete all actions and final costs associated will depend on a number of factors and are subject to change. The Company is continuing to evaluate and expects to implement further actions under this program, and as a result, additional headcount reductions and restructuring costs may be incurred in the future. The Company expects to generate full run-rate cost savings from the global cost and optimization program of approximately $20 million by the end of 2024. The Company expects total cash costs of this program to be approximately 1 to 1.5 times savings. The Company recognized Restructuring and related charges of $4.0 million and $0.8 million in the first three months of 2023 and 2022, respectively, as a result of these charges primarily occurred in 2016, with only minimal settlements andprograms. The Company made 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 forrelated to the settlement of certain restructuring liabilities under the 2015 Program.restructuring programs during the firststill projects full year pre-tax cost savingshas remaining restructuring accruals as a result of this program to approximate $5March 31, 2023, for these programs of $6.8 million, in 2017 compared to approximately half of this amount realized during 2016.21On April 4, 2017, Quaker entered into a share purchase agreement with Gulf Houghton Lubricants, Ltd. to purchase the entire issued and outstanding share capital of Houghton. The shares will be bought for aggregate purchase consideration consisting of: (i) $172.5 million in cash; (ii) a number of shares of common stock, $1.00 par value per share, ofwhich the Company comprising 24.5% ofexpects to settle over the common stock outstanding upon the closing of the Combination; and (iii) the Company’s assumption of Houghton’s net indebtedness as of the closing of the Combination, which was approximately $690 million at signing.next twelve months. See Note 27 of Notes to Condensed Consolidated Financial Statements.In connection with the Combination, the Company secured $1.15 billionStatements in commitments from Bank of America Merrill Lynch and Deutsche Bank to fund the purchase consideration and provide additional liquidity and has since replaced these commitments with a syndicated bank agreement (“the New Credit Facility”) with a group of lenders for $1.15 billion. The New Credit Facility is contingent upon and will not be effective until the closing of the Combination. 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 that the Company’s consolidated net debt to adjusted EBITDA ratio cannot exceed 4.25 toItem 1 and the Company’s consolidated adjusted EBITDA to interest expense ratio cannot be lower than 3.0 to 1. Both the USD and EUR equivalent term loans will have quarterly principal amortization during their respective five year terms, with 5% amortization of the principal balance due in years 1 and 2, 7.5% in year 3, and 10% in years 4 and 5, with the remaining principal amounts due at maturity. Until closing, the Company will only incur certain interest costs paid to maintain the banks’ committed capital (“ticking fees”), which began to accrue on September 29, 2017. The ticking fees will bear an interest rate of 0.30% per annum.The Company incurred $23.1 million of combination-related expenses during the first nine months of 2017, described in the Non-GAAP measures section of this Item, below, and made cash payments of $12.7 million related to these costs. Assuming an early 2018 closing, the Company currently estimates it will incur approximately $5 to $10 million of additional combination-related expenses and make comparable associated cash payments during the fourth quarter of 2017, which primarily relate to integration planning and regulatory approvals associated with the Combination. The Company received regulatory approval from China in July 2017 and from Australia in October 2017. In addition, at a shareholder meeting during the third quarter of 2017, the Company’s shareholders approved the issuance of the new shares of the Company’s common stock at closing of the Combination. Currently, the closing of the Combination is expected by the end of 2017 or early 2018, and is contingent upon customary closing conditions and the remaining regulatory approvals in the United States and Europe. Given these contingencies and the overall timing of the Combination, the Company has not recorded any estimated costs for additional expenses that the Company expects, but had yet to incur as of 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 third 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. September 30, 2017,March 31, 2023, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $9.7$20.2 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$6.3 million as a result of offsetting benefits in other tax jurisdictions.it is capable of supportingthat its existing cash, anticipated cash flows from operations and available additional liquidity will be sufficient to support its operating requirements and fundingfund its business objectives for at least the next twelve months, including but not limited to, payments of dividends to shareholders, costs related to the Combination, pension plan contributions, capital expenditures, other business opportunities (including potential acquisitions), implementing actions to achieve the Company’s sustainability goals and other potential contingencies, through internally generated funds supplemented withknown or anticipated contingencies. The Company believes it has sufficient additional liquidity to support its operating requirements and to fund its business obligations for the period beyond the next twelve months as well, including the aforementioned items which are expected to recur annually, as well as future principal and interest payments on the Company’s Credit Facility, tax obligations and other long-term liabilities. The Company’s liquidity is affected by many factors, some based on normal operations of our business and others related to the impact of the pandemic and other global events on our business and on global economic conditions as well as industry uncertainties, which we cannot predict. We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We may seek, as we believe appropriate, additional debt or equity as needed.Critical Accounting PoliciesCompany’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 22recorded 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. Goodwillactual 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.Includedfiling are twoincludes non-GAAP (unaudited) financial measures:information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share and adjusted EBITDA.share. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader’s understanding of the financial performance of the Company, are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not 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. The following tables reconcileIn addition, our definitions of EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share, (unaudited)as discussed and reconciled below to the most comparable respective GAAP measures, may not be comparable to similarly named measures reported by other companies.measures:23Non-GAAP Operating Income and Margin Reconciliations Three Months Ended
March 31,2023 2022 Operating income $ 49,929 $ 29,403 Combination, integration and other acquisition-related expenses (a) — 4,053 Restructuring and related charges, net (b) 3,972 820 Strategic planning expenses (c) 2,087 3,088 Russia-Ukraine conflict related expenses (d) — 1,166 Other charges (e) 305 631 Non-GAAP operating income $ 56,293 $ 39,161 Non-GAAP operating margin (%) (j) 11.3 % 8.3 % EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations Three Months Ended
March 31,2023 2022 Net income attributable to Quaker Chemical Corporation $ 29,534 $ 19,816 Depreciation and amortization (h) 20,510 20,727 Interest expense, net 13,242 5,345 Taxes on income before equity in net income of associated companies (i) 9,533 2,866 EBITDA 72,819 48,754 Equity (income) loss in a captive insurance company (f) (422) 244 Combination, integration and other acquisition-related expenses (a) — 6,032 Restructuring and related charges, net (b) 3,972 820 Strategic planning expenses (c) 2,087 3,088 Russia-Ukraine conflict related expenses (d) — 1,166 Other charges (e) 335 340 Adjusted EBITDA $ 78,791 $ 60,444 Adjusted EBITDA margin (%) (j) 15.8 % 12.7 % Adjusted EBITDA $ 78,791 $ 60,444 Less: Depreciation and amortization (h) 20,510 20,727 Less: Interest expense, net 13,242 5,345 Less: Taxes on income before equity in net income of associated companies - adjusted (a)(i) 11,047 8,902 Non-GAAP net income $ 33,992 $ 25,470 Non-GAAP Earnings per Diluted Share Reconciliations Three Months Ended
March 31,2023 2022 GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders $ 1.64 $ 1.11 Equity (income) loss in a captive insurance company per diluted share (f) (0.02) 0.01 Combination, integration and other acquisition-related expenses per diluted share (a) — 0.25 Restructuring and related charges, net per diluted share (b) 0.17 0.03 Strategic planning expenses per diluted share (c) 0.10 0.14 Russia-Ukraine conflict related expenses per diluted share (d) — 0.06 Other charges per diluted share (e) 0.01 0.01 Impact of certain discrete tax items per diluted share (g) (0.01) (0.19) Non-GAAP earnings per diluted share (k) $ 1.89 $ 1.42 after taxafter-tax income attributable to the Company’s interest in Primex, Ltd. (“Primex”), a captive insurance company. The Company holds a 33%32% investment in and has significant influence over Primex, and therefore accounts for this 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.(b)Houghton combination-relatedincludedescribed in (a) resulted in incremental taxes of approximately $1.4 million for the three months ended March 31, 2022. Restructuring and related charges, net described in (b) above resulted in incremental taxes of $1.0 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively. Strategic planning expenses described in (c) above resulted in incremental taxes of $0.5 million and $0.7 million for the three months ended March 31, 2023 and 2022, respectively. Russia-Ukraine conflict related expenses described in (d) resulted in incremental taxes of $0.3 million for the three months ended March 31, 2022. Other charges described in (e) resulted in a net tax benefit of less than $0.1 million and incremental taxes of less than $0.1 million for the three months ended March 31, 2023 and 2022, respectively. The impact of certain discrete items described in (g) resulted in incremental tax expense of less than $0.1 million and $3.4 million for the three months ended March 31, 2023 and 2022, respectively. environmental, financial and other advisory and consultant costsexpenses for integration activities. There were no similar expenses incurred in connection with the strategic evaluationfirst quarter of diligence on,2023. See the Non-GAAP Measures section of this Item, above.executionrelated charges of $4.0 million and $0.8 million during the definitive agreementfirst quarters of 2023 and 2022, respectively, related to combine with Houghton, as well as regulatoryreductions in headcount and shareholder approvalssite closures under the Company’s previous and integration planning associated withcurrent restructuring programs. See the Combination. These costsNon-GAAP Measures section of this Item, above.Company. In addition, certainCompany described in the Non-GAAP Measures section of these costs were considered non-deductible for the purpose of determiningthis Item, above, the Company’s effective tax rate and, therefore, the earnings per diluted share amount reflects this impact. (c)U.S. pension plan settlement charge represents the expense recorded relatednon-GAAP operating income increased to the Company’s U.S. pension plan cash settlement 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 and is not indicative of the future operating performance of the Company. (d)Cost streamlining initiative represents expenses associated with certain actions taken to reorganize 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, are not indicative of the future operating performance of the Company. (e)Currency conversion impacts of the Venezuelan bolivar fuerte represent after tax losses incurred at the Company’s Venezuelan affiliate as a result of changes in Venezuela’s foreign exchange markets and controls and the conversion of bolivar fuerte to U.S. dollars. The losses were the result of changes to Venezuela’s market and foreign exchange controls and are not indicative of the future operating performance of the Company. (f)The Company calculates Adjusted EBITDA margin as the percentage of Adjusted EBITDA into consolidated net sales.OperationsConsolidated Operations Review – Comparison of the Third Quarter of 2017 with the Third Quarter of 2016Net sales in the third quarter of 2017 of $212.9 million increased 12% from $190.4$56.3 million in the thirdfirst quarter of 2016. The $22.5 million increase in net sales was driven by a 5% increase in organic volumes, a 2%, or $2.9 million increase from sales primarily attributable2023 as compared to the Company’s fourth quarter of 2016 acquisition of Lubricor, a 3% increase due to changes in price and product mix and the positive impact of foreign currency translation of $3.8 million, or 2%.Costs of goods sold (“COGS”) in the third quarter of 2017 of $138.1 million increased 16% from $119.5$39.2 million in the third quarter of 2016. The increase in COGS was primarily due to the increase in product volumes, noted above, as well as additional COGS attributed to the Company’s 2016 acquisition of Lubricor, the impact of certain raw material cost increases, changes in product mix and the negative impact of foreign currency translation quarter-over-quarter. In addition, 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.Gross profit in the third quarter of 2017 increased $3.9 million, or 5%, from the third quarter of 2016. The increase in gross profit was primarily due to the increase in sales volumes, noted above, largely offset by a lower gross margin of 35.1% in the third quarter of 2017 compared to 37.2% in the third quarter of 2016. The decrease in the Company’s gross margin quarter-over-quarter was2022 primarily due to higher raw material costs compared to the prior year quarter and a change in the mix of certain products sold. SG&A in the third quarter of 2017 increased $3.2 million compared to the third quarter of 2016 due to the net impact of several factors. Specifically, the Company’s SG&A increased as a result of higher labor-related costs, primarily due to annual compensation increases and the timing of certain incentive compensation accruals, and additional SG&A associated with the Company’s 2016 Lubricor acquisition, as well as increases due to foreign currency translation. These weregross profit partially offset by decreases tohigher SG&A, as a resultdescribed above.certain cost savings efforts, including$2.2 million in both the 2015 global restructuring program. In addition, the third quarters of 2017 and 2016 SG&A includes reclassifications related to the Company’s first quarter of 2017 adoption of2023 and 2022. Both the pension accounting standard update, noted above. During the third quarter of 2017, the Company incurred $9.7 million of costs 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 2016.24Operating 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 20172023 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. 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 regarding2023 also included a gain on insurance recoveries, while 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 thirdfirst 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 at2022 included an expense related to 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.Combination-related indemnification asset. See the Non-GAAP Measures section of this Item, above.The Company had a $0.2 million increase inincome attributable to noncontrolling interest in the third quarter of 2017 compared to the third quarter of 2016, primarily due to an increase in performance from certain consolidated affiliates in 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 from foreign currency translation positively impacted the Company’s third quarter of 2017 results by approximately 1%, or $0.02 per diluted share.Consolidated Operations Review – Comparison of the First Nine Months of 2017 with the First Nine Months of 2016Net 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 $345.1$13.2 million in the first nine monthsquarter of 2016. The increase2023 compared to $5.3 million in COGS was primarily due to the increase in product volumes, noted above, as well as additional COGS attributed to the Company’s 2016 acquisition of Lubricor, the impact of certain raw material cost increases and changes in product mix, 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 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% 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 year and a change in the mix of certain products sold. SG&A for the first nine months of 2017 increased $4.0 million compared to the first nine months of 2016 primarily due to the same factors noted in the quarter-over-quarter discussion, above, including additional SG&A associated with the Company’s prior year Lubricor acquisition and2022, 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$7.9 million as a result of certain cost savings efforts, including the impact of the 2015 global restructuring program in the current 25year. In addition, the first nine months of 2017 and 2016 SG&A include reclassifications related to the Company’s first quarter of 2017 adoption of the pension accounting standard update, noted above. During the first nine months of 2017, the Company incurred $23.1 million of costs 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 first nine months of 2016.Operating income in the first nine months of 2017 was $45.7 million compared to $64.4 million in the first nine months of 2016. The decrease in operating income was primarily due to the Houghton combination 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. The Company had other expense of $1.4 million in the first nine months of 2017 compared to $0.2 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 2017 compared to the first nine months of 2016 and an increase in receipts of local municipality-related grants in one ofinterest rates quarter-over-quarter, as well as higher average borrowings outstanding during the Company’s regions year-over-year. In addition, the first nine months of 2017 and 2016 other expense includes reclassifications related 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 in 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.nine monthsquarters of 20172023 and 20162022 were 32.5%27.7% and 31.0%13.1%, respectively. The Company’s first nineeffective tax rate for the three months of 2017ended March 31, 2023 was impacted by various items including foreign tax inclusions, withholding taxes, foreign tax credits, and net tax expense related to share-based compensation, partially offset with changes in uncertain tax positions and favorable return to provision adjustments. Comparatively, the prior year effective tax rate was elevatedlargely impacted by changes in the valuation allowance for foreign tax credits due to legislative guidance issued and audit settlements reached with Italian tax authorities. In addition, the impact of certain non-deductible Houghton combination-related expenses, which were partially offset by the favorable impact ofCompany incurred higher tax benefits for deductions in excess of compensation cost associated with stock option exercises and restricted stock vesting, noted above. There were no comparable non-deductible combination-related expenses or stock compensation-related tax benefitsexpense during the first ninethree months of 2016. Comparatively, the first nine months of 2016 effective tax rate was elevated, as it reflected earnings taxed atended March 31, 2022 related to one of the Company’s subsidiaries recording earnings at a statutory tax rate of 25% while awaitingthe recertification of aits concessionary 15% tax rate whichwas pending receipt. Excluding the impact of non-core items in each quarter, described in the Non-GAAP Measures section of this Item, above, the Company receivedestimates that its effective tax rates for both the first quarters of 2023 and recorded the full year benefit of during the fourth quarter of 2016. This concessionary tax rate was available to the Company throughout 2017.2022 would have been approximately 27%. The Company has experienced and expects to continue to experiencecontinued volatility in its effective tax rates due to several factors, including the timing and scope 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.increased $0.7of associated companies was $4.6 million in the first nine monthsquarter of 20172023 compared to $0.8 million in the first nine monthsquarter of 2016. The2022, an increase in equity income wasof $3.8 million, primarily due to higher earningscurrent year income from the Company’s interest in a captive insurance company in the current year. In addition, the Company recorded a currency conversion charge in both the first nine months of 2017 and 2016, respectively, associated withas well as from the Company’s Venezuela affiliate. The Company’s50% interest in a captive insurance company and the currency conversion charges recorded are describedjoint venture in Korea. See the Non-GAAP measuresMeasures section of this Item, above.The Company had a $0.5 million increase in netnine monthsquarter of 2017 compared to the first nine months of 2016, primarily due to an increase in performance from certain consolidated affiliates in2023 and 2022.Asia/Pacific region.The impactsfirst quarter of 2023 results by approximately 7% driven by the impact from foreign currency translation negatively impactedon earnings as well as higher foreign exchange transaction losses in the current quarter as compared to the prior year first quarter.nine monthsquarter of 2017 results by approximately 1%, or $0.04 per diluted share, which does2023, the Company reorganized its executive management team to align with its new business structure. The Company’s new structure includes three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific.includedirectly attributable to the foreign currency transaction gains realized innet sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other income or the currency conversion charge associatedacquisition-related expenses and Restructuring and related charges. Other items not specifically identified with the Company’s Venezuelan affiliate recorded in equity income, noted above.Reportable Operating Segments ReviewThe Company sells its industrial process fluids, chemical specialtiesreportable segments include interest expense, net, 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 with the Third Quarter of 2016North AmericaNorth Americaother expense, net.43%50% of the Company’s consolidated net sales in the thirdfirst quarter of 2017.2023. The segment’s net sales were $90.5$251.4 million, an increase of $4.3$39.3 million or 5%19%, compared to the thirdfirst quarter of 2016.2022. The increase in net sales was primarily due to anhigher selling price and product mix of 22% and the favorable impact of foreign currency translation of 1%, partially offset by a decrease in organic sales volumes of 4%. The increase in selling price and product mix of 4% and a positivewas primarily driven by the year-over-year impact of foreign currency translation of 1%. Volumes including acquisitions were consistent quarter-over-quarter. price increases implemented throughout 2022 to offset the significant increases in raw material and other input costs. The foreign exchange impactcurrent quarter decline in organic sales volumes was primarily due to a strengtheningdriven by softer market conditions, the wind-down of the Mexican peso againsttolling agreement for products previously divested related to the U.S. dollar, as this exchange rate averaged 17.81 inCombination and the third quarter of 2017 compared 26to 18.74 in the third quarter of 2016.Company’s ongoing value-based pricing initiatives partially offset by new business wins. This segment’s operating earnings excluding indirect expenses, were $18.9$66.1 million, a decreasean increase of $1.5$21.1 million or 7%47%, compared to the thirdfirst quarter of 2016. The decrease in operating earnings quarter-over-quarter was2022 primarily the result of lower gross profit on a decline in gross margin due to increases in certain raw material costs and changes in product mix. Operating earnings were also negatively impacteddriven by higher SG&A, primarily due to increasesnet sales coupled with a recovery in labor costs associated with annual merit increases.28%31% of the Company’s consolidated net sales in the thirdfirst quarter of 2017.2023. The segment’s net sales were $58.8$152.4 million, an increase of $9.0$5.6 million or 18%4%, compared to the thirdfirst quarter of 2016. The increase2022. This was driven by higher selling price and product mix of 19%, partially offset by the unfavorable impact of foreign currency translation of 4% and a decrease in net sales was primarily due to higher volumes of 8%, increases11%. The increase in selling price and product mix was primarily driven by the year-over-year impact of 4%price increases implemented throughout 2022 to offset the significant increases in raw material and other input costs. The decline in sales volumes was primarily driven by softer market conditions, including the direct and indirect impacts of the ongoing war in Ukraine, as well as lower volumes associated with the Company’s ongoing value-based pricing initiatives and the positive impactwind-down of the tolling agreement for products previously divested related to the Combination. The unfavorable foreign currencycurrency translation of 6%. The foreign exchange impact was primarily due to athe strengthening of the euroU.S. dollar against the U.S. dollar,euro as this exchange rate averaged 1.181.07 U.S. dollar per euro in the thirdfirst quarter of 20172023 compared to 1.12 U.S. dollar per euro in the thirdfirst quarter of 2016.2022. This segment’s operating earnings excluding indirect expenses, were $8.9$27.6 million, an increase of $0.5$4.3 million or 6%19%, compared to the thirdfirst quarter of 2016.2022. The increase in segment operating earnings quarter-over-quarter was due to higher gross profit,primarily driven by the increasedhigher net sales noted above, partially offset bycoupled with a declinerecovery in gross margin due to increases in certain raw material costs and changes in product mix. Also, EMEA’s SG&A increased in the third quarter of 2017 compared to the prior year quarter due to the region’s improved performance and the impact of foreign currency translation, partially offset bymargins reflecting the Company’s past cost savings efforts.25%19% of the Company’s consolidated net sales in the thirdfirst quarter of 2017.2023. The segment’s net sales were $54.2$96.3 million, an increasea decrease of $8.3$19.0 million or 18%16%, compared to the thirdfirst quarter of 2016.2022. The increasedecrease in net sales was primarily due to higherdriven by lower organic sales volumes of 20%22% and an unfavorable impact from foreign currency translation of 6%, partially offset by decreases inhigher selling price and product mix of 2%12%. 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 increasedecline in operating earningsorganic sales volumes was primarily driven by higher gross profit onsofter market conditions, including the increased net sales, noted above, partially offset by a declineimpact of COVID-19 lockdown measures, primarily 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 AmericaSouth America represented approximately 4% ofChina, as well as lower volumes associated with the Company’s consolidated net sales in the third quarter of 2017.ongoing value-based pricing initiatives. 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 approximately 1%. Theunfavorable foreign exchange impact was primarily due to the strengthening of the Brazilian realU.S. dollar against the U.S. dollar,Chinese renminbi as this exchange rate averaged 3.16 in the third quarter of 2017 compared to 3.24 in the third quarter of 2016. This segment’s operating earnings, excluding indirect expenses, were $1.0 million, an increase of $0.3 million or 42% compared to the third quarter of 2016. The increase in operating earnings was driven by higher gross profit on the increased net sales, noted above, as well as higher gross margin on raw material cost changes and impacts from foreign exchange. These increases to operating earnings were partially offset by an increase in the segment’s SG&A quarter-over-quarter primarily due to improved segment performance and the impact of foreign currency translation.Comparison of the First Nine Months of 2017 with the First Nine Months of 2016North AmericaNorth America represented approximately 44% of the Company’s consolidated net sales6.84 Chinese renminbi per U.S. dollar in the first nine monthsquarter of 2017. The segment’s net sales were $268.1 million, an increase of $16.5 million or 7%2023 compared to 6.35 Chinese renminbi per U.S. dollar in the first nine monthsquarter of 2016.2022. The increase in net sales was primarily due to higher volumes of 3%, including acquisitions, and an increase in selling price and product mix of 4%, partially offsetwas primarily driven by the negativeyear-over-year impact of foreign currency translation of less than 1%. The foreign exchange impact was primarily dueprice increases implemented throughout 2022 to a weakening ofoffset the Mexican peso against the U.S. dollar, as this exchange rate averaged 18.82significant increases in the first nine months of 2017 compared to 18.28 in the first nine months of 2016.raw material and other input costs. This reportable segment’s operating earnings excluding indirect expenses, were $59.1 million, a decrease of $0.2 million compared to the first nine months of 2016. The decrease during the first nine months of 2017 was the result of a decline in gross margin due to increases in certain raw material costs and changes in product mix, and higher SG&A, primarily due to higher labor costs associated with annual merit increases, which offset higher gross profit on increased sales volumes, noted above.EMEAEMEA represented approximately 28% of the Company’s consolidated net sales in the first nine months of 2017. The segment’s net sales were $167.2$27.7 million, an increase of $16.6 million or 11% compared to the first nine months of 2016. The increase in net sales was primarily due to higher volumes of 8% and increases in selling price and product mix of 3%, partially offset by the negative impact of foreign currency translation of less than 1%. The foreign exchange impact was primarily due to a weakening of the euro 27against 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 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. EMEA benefitted from a relatively consistent level of SG&A in the first nine months of 2017 compared to the first nine months of 2016, which 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/PacificAsia/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$3.2 million or 13% compared to the first nine monthsquarter of 2016.2022. The increase in net salessegment operating earnings 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 a recovery in margins reflecting 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 higherCompany’s ongoing initiatives aimed at offsetting the significant inflationary pressures as well as slightly lower levels of SG&A, were primarily driven bywhich more than offset the improved segment performance year-over-year. South AmericaSouth 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 increasedecline in net sales was primarily due to higher volumessales.product mix of 6% and a positive impact of foreign currency translation of 8%. The foreign exchange impact was primarily due to the strengthening of the Brazilian real against the U.S. dollar as this exchange rate averaged 3.17 in the first nine months of 2017 compared to 3.53 in the first nine months of 2016. This reportable segment’s operating earnings, excluding indirect expenses, were $2.8 million, which increased $2.1 million compared to the first nine months of 2016. The increase during the first nine months of 2017 was mainly driven by higher gross profit on the increase in net sales, noted above, as well as higher gross margin on selling price and product mix, raw material changes and impacts from foreign exchange. In addition, the segment’s SG&A declined year-over-year primarily due to the positive effects of various cost savings efforts which offset higher SG&A from improved segment performance and the impact of foreign currency translation.Quakerus with the SEC, (asas well as information included in oral statements or other written statements made or to be made by us)us, contain or may contain forward-looking statements 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 on our current expectations about future events. events, including statements regarding the potential effects of the COVID-19 pandemic, the Russia and Ukraine conflict, inflation, bank failures, higher interest rate environment, global supply chain constraints on the Company’s business, results of operations, and financial condition, our expectation that we will maintain sufficient liquidity, remain in compliance with the terms of the Company’s credit facility, expectations about future demand and raw material costs and statements regarding the impact of increased raw material costs and pricing initiatives.·statements relating tostrategy;·as a result of the COVID-19 pandemic;plans;plans including our sustainability goals; and·other similar expressions.Quaker’sthe Company’s other periodic reports on Forms 10-K, 10-Q and 8-K, press releases, and other materials released to, or statements made to, the public.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 28about 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 disruptions.stability,instability, rising interest rates and the possibility of economic recession, worldwide economic and political conditions,disruptions including the impacts of the military conflict between Russia and Ukraine, the economic and other sanctions imposed by other nations on Russia, suspensions of activities in Russia by many multinational companies and the potential expansion of military activity, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence.appliance,industrial equipment, and durable goods manufacturers. These risks, uncertainties, and possible inaccurate assumptions relevant to our business could cause our actual results to differ materially from expected and historical results.industries. 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, efficiently and effectively integrate the operations of Houghton International and Quaker Chemical;·risksthose related to each company’s distraction from ongoing business operations due toacquisitions and the Combination;integration of acquired businesses.·the outcome of any legal proceedings that may be instituted against the companies following announcement of the share purchase agreement and transactions contemplated therein.you should refer to the Risk Factors detailedsection, which appears in Item 1A ofin our 2022 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 1995.292016,2022, and we believe there has been no material change to that information.information, except the interest rate risk noted below.30report.Report. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that, as of March 31, 2023, the end of the period covered by this reportReport, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective.September 30, 2017March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no such changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting occurred during the quarter ended September 30, 2017.March 31, 2023.311618 of the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1, of this Report.report:Report:Period (a)
Total Number
of Shares
Purchased (1)(b)
Average
Price Paid
Per Share (2)(c)
Total Number of
Shares Purchased as part of Publicly Announced Plans or Programs(d)
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (3)January 1 - January 31 103 $ 196.87 — $ 86,865,026 February 1 - February 28 30,521 $ 215.44 — $ 86,865,026 March 1 - March 31 5,033 $ 193.28 — $ 86,865,026 Total 35,657 $ 201.86 — $ 86,865,026 upon theirrelated to the surrender of Quaker Chemical Corporation shares in payment of the exercise price of employee stock options exercised or for the payment of taxes upon exercise of employee stock options or the vesting of restricted stock. in each case, based on the closing price of the Company’s common stock on the date of exercise or vesting as specified by the plan pursuant to which the applicable option, restricted stock award, or restricted stock unit was granted. new share repurchase program, pursuant to which the Company is authorized to repurchase up to $100,000,000 of Quaker Chemical Corporation common stock (the “2015 Share Repurchase Program”). The 2015 Share Repurchase Program, which replaced the Company’s other share repurchase plans then in effect,, and it has no expiration date. There were no shares acquired by the Company pursuant to the 2015 Share Repurchase Program during the quarter ended September 30, 2017.Item 5. Other Information.As partMarch 31, 2023.Company’s integration planning for its combination with Houghton International, Inc., the Company intends to restructure its senior management reporting structure. In connection with that restructuring, it was determined that the position currently held by Mr. Jeffry Benoliel (Vice President and Global Leaderpayment of Metalworking, Can and Mining), would likely be restructured if the transaction is consummated. Following mutually agreeable discussions with Mr. Benoliel, it has been decided that, subject to the closing of the combination, his current position will be restructured and he will not be re-assigned to another senior position with the Company. Instead, Mr. Benoliel will receive severancedividends and other benefits that will be substantially similarso-called restricted payment covenants. See Note 14 of Notes to those he would have receivedCondensed Consolidated Financial Statements, in connection with a terminationPart I, Item 1, of employment following a change in controlthis Report.3.1 3.1 – 3.2 3.2 – 10.1 10.1 – 10.2 10.2 – 10.3 10.3 – 31.1 – 31.2 – 32.1 – 32.2 – 101.INS – Inline XBRL Instance Document* 101.SCH – Inline XBRL Taxonomy Schema Document* 101.CAL – Inline XBRL Taxonomy Calculation Linkbase Document* 101.DEF – Inline XBRL Taxonomy Definition Linkbase Document* 101.LAB – Inline XBRL Taxonomy Label Linkbase Document* 101.PRE – Inline XBRL Taxonomy Presentation Linkbase Document* 104 104 – Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)* (Registrant)(Registrant) /s/ Mary Dean Hall/s/ Shane W. Hostetter Date: October 26, 2017May 4, 2023Mary Dean Hall,Shane W. Hostetter, Senior Vice President, Chief Financial Officer and Treasurer (officer duly authorized on behalf of, and principal financial officer of, the Registrant)33