UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM
10-Q
 
 
☒
QUARTERLY
 
REPORT PURSUANT TO SECTION 13
 
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31,September 30, 2022
OR
 
☐
TRANSITION REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 
OF 1934
For the transition period from
 
to
Commission file number
001-12019
QUAKER CHEMICAL CORPORATION
(Exact name of Registrantregistrant as specified in its charter)
 
 
Pennsylvania
 
23-0993790
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
901 E. Hector Street
,
Conshohocken
,
Pennsylvania
 
19428 – 2380
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
610
-
832-4000
Not Applicable
Former name, former address and former fiscal year,
 
if changed since last report.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1 par value
KWR
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed
all reports
required to be filed by Section 13 or 15(d) of the Securities
 
Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
 
was required to file such reports), and (2) has been subject
 
to such filing requirements for the past 90
days.
 
Yes
 
☒
 
No
 
☐
 
Indicate by check mark whether the registrant has submitted
 
electronically every Interactive Data File required to be submitted
 
pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such
 
such shorter period that the registrant was required
to submit
such files).
 
Yes
 
☒
 
No
 
☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
 
filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smallerfiler”, “smaller reporting company,”company”,
 
and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
 
☒
Accelerated filer
 
☐
Non-accelerated filer
 
☐
Smaller reporting company
☐
Emerging growth company
 
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use
 
the extended transition period for complying with any new
 
or revised
financial accounting standards provided pursuant to Section 13(a)
 
of the Exchange Act.
 
☐
Indicate by check mark whether the registrant is a shell company (as
 
defined in Rule 12b-2 of the Exchange Act).
 
Yes
 
☐
 
No
 
☒
Indicate the number of shares outstanding of each of the
 
issuer’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock
Outstanding on April 30,October 31, 2022
 
17,912,08617,931,664
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
PART
 
I
FINANCIAL INFORMATION
Item 1.
 
Financial Statements (Unaudited).
Quaker Chemical Corporation
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
Three Months Ended March 31,
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Net sales
$
474,171492,218
$
429,783449,072
$
1,458,777
$
1,314,117
Cost of goods sold (excluding(
excluding amortization expense - See Note 13)13
)
 
328,100331,469
 
273,589303,941
 
1,002,393
858,341
Gross profit
 
146,071160,749
 
156,194145,131
456,384
455,776
Selling, general and administrative expenses
 
111,795115,456
 
104,310104,215
343,081
317,204
Restructuring and related (credits) charges, net
820(1,423)
1,175(880)
(604)
593
Combination, integration and other acquisition-related expenses
4,0532,107
5,8155,786
7,992
18,259
Operating income
 
29,40344,609
36,010
 
44,894105,915
119,720
Other income (expense) income,, net
 
(2,206)85
 
4,687647
(10,520)
19,344
Interest expense, net
(8,389)
(5,345)(5,637)
(20,228)
(5,470)(16,725)
Income before taxes and equity in net income of
associated companies
 
21,85236,305
 
44,11131,020
75,167
122,339
Taxes on income before
 
equity in net income of associated companies
Companies
 
2,86610,185
 
10,689795
 
14,425
26,702
Income before equity in net income of associated companies
Companies
 
18,98626,120
 
33,42230,225
60,742
95,637
Equity in net (loss) income of associated companies
 
835(212)
 
5,210848
 
(642)
7,668
Net income
19,82125,908
38,63231,073
60,100
103,305
Less: Net income attributable to noncontrolling interest
541
1715
74
62
Net income attributable to Quaker Chemical Corporation
$
19,81625,867
$
38,61531,058
$
60,026
$
103,243
Per share data:
 
 
Net income attributable to Quaker Chemical Corporation common
common shareholders – basic
$
1.111.44
$
2.161.74
$
3.35
$
5.78
Net income attributable to Quaker Chemical Corporation common
 
common shareholders – diluted
$
1.111.44
$
2.151.73
$
3.35
$
5.76
Dividends declared
$
0.435
$
0.415
$
0.3951.265
$
1.205
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
Quaker Chemical Corporation
Condensed Consolidated Statements of Comprehensive
Income
(Dollars in thousands)
Unaudited
Three Months Ended March 31,
Nine Months Ended
September 30,
 
September 30,
2022
2021
2022
2021
Net income
$
19,82125,908
$
38,63231,073
$
60,100
$
103,305
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(6,866)(71,986)
(25,461)(19,905)
(155,284)
(29,201)
Defined benefit retirement plans
496497
1,292904
2,400
2,593
Current period change in fair value of derivatives
1,100(140)
562436
1,535
1,450
Unrealized loss on available-for-sale securities
(1,000)(818)
(3,025)(215)
(2,385)
(2,961)
Other comprehensive loss
(6,270)(72,447)
(26,632)(18,780)
(153,734)
(28,119)
Comprehensive (loss) income
13,551(46,539)
12,00012,293
(93,634)
75,186
Less: Comprehensive income
loss attributable to
noncontrolling
interest
(6)(3)
(15)
(5)
(68)
Comprehensive (loss) income attributable to Quaker Chemical
Corporation
$
13,545(46,542)
$
11,98512,278
$
(93,639)
$
75,118
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
Unaudited
March 31,
September 30,
December 31,
2022
2021
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
$
161,552138,891
$
165,176
Accounts receivable, net
 
458,459461,912
 
430,676
Inventories
Raw materials and supplies
146,289165,280
129,382
Work-in-process
 
and finished goods
153,506151,860
135,149
Prepaid expenses and other current assets
 
67,85366,760
 
59,871
Total current
 
assets
 
987,659984,703
 
920,254
Property, plant and equipment,
 
at cost
439,318
425,650
434,344
Less accumulatedLess: Accumulated depreciation
(242,203)(237,276)
(236,824)
Property, plant and equipment,
 
net
197,115188,374
197,520
Right of use lease assets
38,24537,005
36,635
Goodwill
 
630,938591,032
 
631,194
Other intangible assets, net
 
1,012,068915,956
 
1,027,782
Investments in associated companies
 
90,00376,748
 
95,278
Deferred tax assets
 
11,49610,519
 
16,138
Other non-current assets
 
29,19827,163
 
30,959
Total assets
$
2,996,7222,831,500
$
2,955,760
LIABILITIES AND EQUITY
 
 
Current liabilities
 
 
Short-term borrowings and current portion of long-term debt
$
61,38520,471
$
56,935
Accounts payable
 
253,906209,343
 
226,656
Dividends payable
7,4337,800
7,427
Accrued compensation
 
26,39632,993
 
38,197
Accrued restructuring
4,4351,798
4,087
Accrued pension and postretirement benefits
1,5491,536
1,548
Other accrued liabilities
 
97,44591,790
 
95,617
Total current
 
liabilities
 
452,549365,731
 
430,467
Long-term debt
 
858,287931,491
 
836,412
Long-term lease liabilities
27,43325,697
26,335
Deferred tax liabilities
 
170,622151,208
 
179,025
Non-current accrued pension and postretirement benefits
44,66738,222
45,984
Other non-current liabilities
 
47,46439,521
 
49,615
Total liabilities
 
1,601,0221,551,870
 
1,567,838
Commitments and contingencies (Note 18)
Equity
 
 
Common stock $
1
 
par value; authorized
30,000,000
 
shares; issued and
 
 
outstanding 2022 –
17,911,58317,931,205
 
shares; 2021 –
17,897,033
shares
17,91217,931
17,897
Capital in excess of par value
 
918,699925,037
 
917,053
Retained earnings
 
528,716553,685
 
516,334
Accumulated other comprehensive loss
 
(70,261)(217,655)
 
(63,990)
Total Quaker
 
shareholders’ equity
 
1,395,0661,278,998
 
1,387,294
Noncontrolling interest
 
634632
628
Total equity
1,395,7001,279,630
1,387,922
Total liabilities and equity
$
2,996,7222,831,500
$
2,955,760
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Unaudited
ThreeNine Months Ended March 31,
September 30,
 
2022
2021
Cash flows from operating activities
 
 
 
 
 
Net income
$
19,82160,100
$
38,632103,305
Adjustments to reconcile net income to net cash used in operating activities:
 
 
Amortization of debt issuance costs
1,187
1,1872,589
3,562
Depreciation and amortization
 
20,44760,692
 
22,14565,440
Equity in undistributed earnings of associated companies, net of dividends
 
2,1353,612
 
(5,105)(7,563)
Acquisition-related fair value adjustments related to inventory
0—
801
Deferred compensation, deferred taxes and other,
 
net
(3,778)
(9,888)(8,811)
(21,865)
Share-based compensation
 
2,4628,635
 
3,7798,441
Loss on extinguishment of debt
5,246
—
Gain on disposal of property, plant,
 
equipment and other assets
 
(23)(33)
 
(5,410)(4,819)
Combination and other acquisition-related expenses, net of payments
(4,246)(4,265)
(2,884)(1,705)
Restructuring and related (credits) charges
820(604)
1,175593
Pension and other postretirement benefits
 
(1,316)(6,556)
 
(1,034)(5,638)
(Decrease) increase in cash from changes in current assets and current
 
 
liabilities, net of acquisitions:
Accounts receivable
 
(26,270)(65,256)
 
(46,270)(68,664)
Inventories
 
(33,873)(72,386)
 
(24,994)(72,962)
Prepaid expenses and other current assets
 
(6,506)(11,081)
 
(8,315)(24,512)
Change in restructuring liabilities
(408)(1,234)
(3,034)(4,557)
Accounts payable and accrued liabilities
 
23,2493,059
 
26,59732,652
 
Net cash used in(used in) provided by operating activities
 
(6,299)(26,293)
 
(12,618)2,509
Cash flows from investing activities
 
 
Investments in property,
 
plant and equipment
 
(8,847)(20,230)
 
(3,934)(12,823)
Payments related to acquisitions, net of cash acquired
 
(9,383)(9,421)
 
(26,655)(31,975)
Proceeds from disposition of assets
065
14,744
 
Net cash used in investing activities
 
(18,230)(29,586)
 
(15,845)(30,054)
Cash flows from financing activities
 
 
Payments of long-term debt
 
(14,112)(668,500)
 
(9,551)(28,558)
BorrowingsProceeds from long-term debt
750,000
—
(Payments) borrowings on revolving credit facilities, net
43,000
30,000(10,418)
Repayments
39,143
Borrowings (payments) on other debt, net
(102)2,131
(188)
(585)
Financing-related debt issuance costs
(3,734)
—
Dividends paid
 
(7,428)(22,302)
 
(7,052)(21,175)
Stock options exercised, other
 
(801)(616)
 
(178)704
 
Net cash provided by (used in) financing activities
 
20,55746,561
 
13,031(10,471)
 
Effect of foreign exchange rate changes on cash
 
348(16,967)
 
(3,008)(2,486)
Net decrease in cash and cash equivalents
 
(3,624)(26,285)
 
(18,440)(40,502)
Cash and cash equivalents at the beginning of the period
 
165,176
 
181,895
Cash and cash equivalents at the end of the period
$
161,552138,891
$
163,455141,393
The accompanying notes are an integral part
of these unaudited condensed consolidated
financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
Quaker Chemical Corporation
Condensed Consolidated Statements of Changes in Equity
 
(Unaudited; Dollars in thousands, except per share amounts)
(Unaudited)
Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at December 31, 2020
$
17,851
$
905,171
$
423,940
$
(26,598)
$
550
$
1,320,914
Net income
0—
0—
38,615
0—
17
38,632
Amounts reported in other
comprehensive loss
0—
0—
0—
(26,630)
(2)
(26,632)
Dividends ($
0.395
 
per share)
0—
0—
(7,062)
0—
0—
(7,062)
Share issuance and equity-based
compensation plans
24
3,577
0—
0—
0—
3,601
Balance at March 31, 2021
$
17,875
$
908,748
$
455,493
$
(53,228)
$
565
$
1,329,453
Net income
—
—
33,570
—
30
33,600
Amounts reported in other
comprehensive gain
—
—
—
17,285
8
17,293
Dividends ($
0.395
per share)
—
—
(7,062)
—
—
(7,062)
Share issuance and equity-based
compensation plans
3
2,114
—
—
—
2,117
Balance at June 30, 2021
$
17,878
$
910,862
$
482,001
$
(35,943)
$
603
$
1,375,401
Net income
—
—
31,058
—
15
31,073
Amounts reported in other
comprehensive loss
—
—
—
(18,780)
—
(18,780)
Dividends ($
0.415
per share)
—
—
(7,424)
—
—
(7,424)
Share issuance and equity-based
compensation plans
11
3,415
—
—
—
3,426
Balance at September 30, 2021
$
17,889
$
914,277
$
505,635
$
(54,723)
$
618
$
1,383,696
Balance at December 31, 2021
$
17,897
$
917,053
$
516,334
$
(63,990)
$
628
$
1,387,922
Net income
0—
0—
19,816
0—
5
19,821
Amounts reported in other
comprehensive loss(loss) income
0—
0—
0—
(6,271)
1
(6,270)
Dividends ($
0.415
 
per share)
0—
0—
(7,434)
0—
0—
(7,434)
Share issuance and equity-based
compensation plans
15
1,646
0—
0—
0—
1,661
Balance at March 31, 2022
$
17,912
$
918,699
$
528,716
$
(70,261)
$
634
$
1,395,700
Net income
—
—
14,343
—
28
14,371
Amounts reported in other
comprehensive loss
—
—
—
(74,985)
(33)
(75,018)
Dividends ($
0.415
per share)
—
—
(7,438)
—
—
(7,438)
Share issuance and equity-based
compensation plans
8
2,943
—
—
—
2,951
Balance at June 30, 2022
$
17,920
$
921,642
$
535,621
$
(145,246)
$
629
$
1,330,566
Net income
—
—
25,867
—
41
25,908
Amounts reported in other
comprehensive loss
—
—
—
(72,409)
(38)
(72,447)
Dividends ($
0.435
per share)
—
—
(7,803)
—
—
(7,803)
Share issuance and equity-based
compensation plans
11
3,395
—
—
—
3,406
Balance at September 30, 2022
$
17,931
$
925,037
$
553,685
$
(217,655)
$
632
$
1,279,630
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
7
Note 1 – Basis of Presentation and Description of Business
 
Basis of Presentation
As used in these Notes to Condensed Consolidated Financial Statements theof
 
this Quarterly Report on Form 10-Q for the period
ended September 30, 2022 (the “Report”),
the terms “Quaker,” “Quaker Houghton,”
the “Company,”
“Company,” “we,we,” and “our” refer to Quaker Chemical
Corporation
(doing (doing business as Quaker Houghton), its subsidiaries, and
associated companies, unless the context otherwise requires.
 
As used in these Notes to Condensed Consolidated Financial Statements,
the term Legacy Quaker“Combination” refers to the Company prior to the closing of itslegacy Quaker combination
with Houghton International, Inc. (“Houghton”)
(herein referred to as the “Combination”).
 
The condensed consolidated financial statements included herein are unaudited and
 
haveand
have been prepared in accordance with generally accepted accounting principles
 
in the United States (“U.S. GAAP”) for interim financial
financial reporting and the United States Securities and Exchange Commission
(“SEC”)
regulations.
 
Certain information and footnote
disclosures normally included in financial statements prepared in accordance
 
with U.S. GAAP have been condensed or omitted
pursuant to such rules and regulations.
 
In the opinion of management, the financial statements reflect all adjustments
 
consisting only
of normal recurring adjustments 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 threenine months ended March 31,September 30, 2022 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, 2021 (the “2021 Form 10-K”).
 
Description of Business
The Company was organized in 1918, incorporated as a Pennsylvania
 
business corporation in 1930, and in August 2019
completed the Combination with Houghton to form Quaker Houghton.
 
Quaker Houghton is the global leader in industrial process
fluids.
 
With a presence around the world, including
 
operations in over
25
 
countries, the Company’s customers
 
include thousands of
the world’s most advanced and specialized
 
steel, aluminum, automotive, aerospace, offshore, can,
 
mining, and metalworking
companies.
 
Quaker Houghton develops, produces, and markets a broad range of formulated chemical
 
chemical specialty products and offers
chemical management services (which the Company refers to as “Fluidcare
TM
”) for various heavy industrial and manufacturing
applications throughout its
4four
 
segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; and
 
Global Specialty
Businesses.
Hyper-inflationary economies
Based on various indices or index compilations being used to monitor inflation
 
in Argentina as well as economic instability,
effective July 1, 2018, Argentina’s
 
economy was Argentina’s and
Türkiye’s economies were
considered hyper-inflationary under U.S. GAAP.GAAP effective
July 1, 2018 and April 1, 2022, respectively.
 
As
of, and for the three and nine months
ended March 31,September 30, 2022,
the Company's Argentine
and Turkish subsidiaries represented a
less thancombined
1
% and
2
% of the Company’s consolidated
 
total assets and
net sales, respectively.
 
During each of the three and nine months ended March 31,
September 30, 2022, and 2021, the Company
recorded $
0.21.0
 
million ofand $
1.2
million, respectively,
of remeasurement losses associated with the
applicable currency conversions related to Argentina
 
and Türkiye.
Comparatively, during the three
and nine months ended September
30, 2021, the Company recorded less than $
0.1
million and $
0.3
million, respectively, of
remeasurement losses associated with the
applicable currency conversions related to Argentina.
 
These losses were recorded within
foreign exchange losses, net, which is a
component of other (expense) income, net,
in the Company’s
Condensed Consolidated
Statements of Income.
Note 2 – Business Acquisitions
2022 Acquisitions
 
In JanuarySubsequent to the date of these financial statements, in October 2022,
the Company acquired a business that provides pickling
inhibitor technologies for the steel industry,
drawing and
lubricantsrinsing products and stamping oil for metalworking, and various other lubrication,
rust preventative, and cleaner applications, for its
Americas reportable segment for approximately $
8.0
million.
This business broadens the Company’s
product offerings within its
existing metals and metalworking business in the Americas region.
The Company allocated $
5.6
millionservices, which is part of the purchase price to
intangible assets, comprised of $
5.1
EMEA reportable segment,
 
million of customer relationships to be amortized over
14
years; and $
0.5
million of existing
product technologies to be amortized over
14
years.
In addition, the Company recorded $
1.8
million of goodwill related to expected
value not allocated to other acquired assets, all of which is expected to be tax deductible
in various jurisdictions
in which the
Company operates.
In January 2022, the Company acquired a business related to the sealing and impregnation
of metal castings for the automotive
sector, as well as impregnation resin and
impregnation systems for metal parts, for its Global Specialty Business reportable segment
for approximately
1.23.5
 
million EUR or approximately
$
1.43.5
 
million.
 
This business expandsacquisition, along with the Company's geographic presenceCompany’s
January 2022 acquisition in the Americas (described below), which had
Germany as well as broadens itssimilar specializations and product offerings andin pickling
 
service capabilities within its existing impregnation business acquiredinhibitor technologies, strengthens Quaker Houghton’s
 
as part ofposition in pickling
inhibitors and additives, enabling the Norman Hay acquisition in 2019.Company to better support
and optimize production processes for customers across the Metals
industry.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
8
In January 2022, the Company acquired a business that provides pickling
inhibitor technologies, drawing lubricants and stamping
oil, and various other lubrication, rust preventative, and cleaner applications,
which is part of the Americas reportable segment for
approximately $
8.0
million.
This business broadens the Company’s
product offerings within its existing metals and metalworking
business in the Americas region.
The Company allocated $
5.6
million of the purchase price to intangible assets, comprised of $
5.1
million of customer relationships to be amortized over
14
years; and $
0.5
million of existing product technologies to be amortized
over
14
years.
In addition, the Company recorded $
1.8
million of goodwill related to expected value not allocated to other acquired
assets, all of which is expected to be tax deductible in various jurisdictions in which
the Company operates.
During the third quarter
of 2022 the Company finalized post-closing adjustments that resulted in
the Company paying less than $
0.1
million of additional
purchase consideration.
Factors contributing to the purchase price that resulted in goodwill included
the acquisition of business
processes and personnel that will allow Quaker Houghton to better serve
its customers.
In January 2022, the Company acquired a business related to the sealing
and impregnation of metal castings for the automotive
sector, as well as impregnation resin and
impregnation systems for metal parts, which is part of the Global Specialty Businesses
reportable segment for approximately
1.2
million EUR or approximately $
1.4
million.
This business expands the Company's
geographic presence in Germany as well as broadens its product offerings
and service capabilities within its existing impregnation
business.
The results of operations of the January 2022 acquired assets and businessesacquisitions subsequent to
 
to the respective acquisition dates are included in the
the unaudited Condensed Consolidated Statements of Income for the quarter endednine month
 
March 31,period ended September 30, 2022.
 
Applicable
transaction expenses
associated with these acquisitions are included
in Combination,
integration and other acquisition-related
expenses in the Company’s unaudited
unaudited Condensed Consolidated Statements of Income.
 
Certain pro forma and other information is not
presented, as the operations
of the acquired assets and businessesacquisitions are not considered material
to the overall operations
of the Company for the periods
presented.
The results of operations of the October acquisition is not included in the Consolidated Statements of
Operations because
the date of closing was subsequent to September 30, 2022.
Preliminary purchase price allocation of assets acquired and liabilities
assumed for this business acquired has not been presented as that information
is not available as of the date of these Condensed
Consolidated Financial Statements.
Previous Acquisitions
 
In November 2021, the Company acquired Baron Industries (“Baron”),
 
a privately held Companycompany that provides vacuum
impregnation services of castings, powder metals and electrical components
 
for its Global Specialty Businesses reportable segment for
$
11.0
 
million, including an initial cash payment of $
7.1
 
million, subject to post-closing adjustments as well as certain earn-out
provisions initially estimated at $
3.9
million that are payable at differentvarious times from 2022 through
2025.
 
The earn-out provisions
could total a maximum of $
4.5
million.
In September 2022, the Company paid $
2.5
million related to certain of these earnout provisions.
The Company recorded an
incremental earn-out expense of $
0.1
million during the three and nine months ended September 30, 2022 related to
these earnout
provisions, recorded within the financial
statement caption “Combination, integration and other acquisition-related
expenses” on the
Company’s Condensed Consolidated
Statements of Income.
As of September 30, 2022, the Company has remaining earnout liabilities
recorded on its Condensed Consolidated Balance Sheet of $
1.6
 
million.
 
The Company allocated $
8.0
 
million of the purchase price to
intangible assets, $
1.1
 
million of
property, plant and
 
and equipment and $
1.5
 
million of other assets acquired net of liabilities assumed,
which includes $
0.3
 
million of cash
acquired.
 
In addition, the Company recorded $
0.4
 
million of goodwill, all of which is expected to
be tax deductible.
 
Intangible assets
comprised $
7.2
 
million of customer relationships to be amortized over
15 years
; and $
0.8
 
million
of existing product technology to be
amortized over
13 years
.
 
Factors contributing to the purchase price that resulted in goodwill
included the acquisition of business processes and personnel that will allow Quaker
Houghton to better serve its customers.
During
the third quarter of 2022 the Company finalized post-closing adjustments
that resulted in the Company receiving less than $
0.1
million.
 
In November 2021, the Company acquired a business that provides hydraulic
 
hydraulic fluids, coolants, cleaners, and rust preventative oils
in TurkeyTürkiye for its EMEA reportable segment for
3.2
 
million EUR or approximately $
3.7
 
million.
In September 2021, the Company acquired the remaining interest in Grindaix
 
-GmbHGmbH (“Grindaix”), a Germany-based, high-tech
provider of coolant control and delivery systems for its Global Specialty Businesses reportable
 
segment for
2.4
 
million EUR or
approximately $
2.9
 
million, which is gross of approximately $
0.3
 
million of cash acquired.
 
Previously, in February
 
2021, the
Company acquired a
38
% ownership interest in Grindaix for
1.4
 
million EUR or approximately $
1.7
 
million.
 
The Company recorded
its initial investment as an equity method investment within the Condensed
Consolidated Financial
Statements and accounted for the
purchase of
the remaining interest as a step acquisition whereby the Company remeasured
 
remeasured the previously held equity method
investment to its fair
value.
In June 2021, the Company acquired certain assets for its chemical milling maskants
 
maskants product line in the Global Specialty
Businesses reportable segment for
2.3
 
million EUR or approximately $
2.8
 
million.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
9
In February 2021, the Company acquired a tin-plating solutions business for
 
for the steel end market for $
25.0
 
million.
 
This
acquisition is part of each of the Company’s
 
geographic reportable segments.
 
The Company allocated $
19.6
 
million of the purchase
price to intangible assets, comprised of $
18.3
 
million of customer relationships, to be amortized over
19 years
;
years; $
0.9
 
million of existing
product technology to be amortized over
14 years
;
years; and $
0.4
 
million of a licensed trademark to be amortized over
3 years
.
years.
 
In addition,
the Company recorded $
5.0
 
million of goodwill, all of which is expected to be tax deductible in various jurisdictions
in which
we
operate.
 
Factors contributing to the purchase price that resulted in goodwill included the
 
acquisition of business processes and
personnel that will allow Quaker Houghton to better serve its customers.
 
As of March 31,September 30, 2022, the allocation of the purchase price of theseall of the Company’s
2022 acquisitions, the acquisition in
Türkiye and Baron have
not been finalized and the one-year measurement
measurement period has not ended, with the exception of the tin-plating
solutions business acquired in February 2021, the
measurement period for which ended in February 2022.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.
 
and liabilities assumed.
 
In December 2020, the Company acquired Coral Chemical CorporationCompany,
LLC (“Coral”),
a privately held U.S.-based provider of metal
metal finishing fluid solutions.
 
Subsequent to the acquisition, the Company and the sellers of Coral (the “Sellers”
“Sellers”) have
worked to finalize
finalize certain post-closing adjustments.
 
In AprilDuring the second quarter of 2022, after failing to reach resolution,
the Sellers filed suit
asserting certain
amounts owed
related to tax attributes of the acquisition.
 
Based onDuring the third quarter of 2022, there have been no
material changes to the facts and circumstances of the claim asserted by the
Sellers, and the Company continues to believe the
believes the potential range of exposure for this claim is $
0
 
to $
1.5
 
million.
Note 3 – Recently Issued Accounting Standards
Recently Issued Accounting Standards
 
Adopted
The FASB issued ASU 2020
 
-04,
, Reference Rate Reform (Topic
 
848): Facilitation of the Effects of Reference Rate Reform
 
on
Financial Reporting
 
in March 2020.
 
The FASB subsequently
 
issued ASU 2021-01,
, Reference Rate Reform (Topic
 
848): Scope
 
in
January 2021 which clarified the guidance but did not materially change
 
the guidance or its applicability to the Company.
 
The
amendments provide temporary optional expedients and exceptions
 
for applying U.S. GAAP to contract modifications, hedging
relationships and other transactions to ease the potential accounting
 
and financial reporting burden associated with transitioning away
from reference rates that are expected to be discontinued, including
 
the London Interbank Offered Rate (“LIBOR”).
 
ASU 2020-04 is
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
9
effective for the Company as of March 12, 2020 and generally can
 
be applied through December 31, 2022.
 
On December 10, 2021,June 17, 2022, the
the Company entered into a Second Amendmentan amendment to Credit Agreement (“Secondits primary credit facility which,
 
Amendment”) with Bank of America N.A., an update
to provideamong other things, provided for the use of a non-USDUSD currency
LIBOR successor rate.
The Company elected to apply the expedients provided in ASU
2020-04 with respect to the Second Amendment.
The Company will continue to monitor for potential impacts related to its USD-
based LIBOR rates.rate (the Secured Overnight Financing Rate (“SOFR”)).
 
See Note 14 of Notes to Condensed Consolidated Financial
Statements.
Note 4 – Business Segments
The Company’s operating
 
segments, which are consistent with its reportable segments, reflect the structure of the
Company’s
internal organization, the method by which the Company’s
 
resources are allocated and the manner by which the chief operating
decision maker assesses the Company’s
 
performance.
 
The Company has
4four
 
reportable segments: (i) Americas; (ii) EMEA; (iii)
Asia/Pacific; and (iv) Global Specialty Businesses.
 
The three geographic segments are composed of the net sales and operations in
each respective region, excluding net sales and operations managed globally
 
by the Global Specialty Businesses segment.
The Global
Specialty Businesses segment which
includes the Company’s container,
 
container, metal finishing,
 
mining, offshore, specialty coatings, specialty
grease and Norman
Hay businesses.
Segment operating earnings for each of the Company’s
 
reportable segments are comprised of the segment’s
 
net sales less directly
related cost of goods sold (“COGS”) and selling, general and administrative
 
expenses (“SG&A”).
 
Operating expenses not directly
attributable to the net sales of each respective segment,
such as certain corporate
and administrative costs, Combination, integration
and other acquisition-related expenses, and Restructuring and related
charges,
 
are not included in segment operating earnings.
 
Other
items not specifically identified with the Company’s
 
reportable segments include interestInterest expense, net and otherOther (expense) income,
net.
The following table presents information about the performance of the Company’s
reportable operating segments for the three
months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
 
2022
2021
Net sales
 
 
 
 
 
 
Americas
$
154,144
$
134,871
EMEA
 
125,687
 
119,814
Asia/Pacific
 
104,234
 
96,706
Global Specialty Businesses
 
90,106
 
78,392
Total
 
net sales
$
474,171
$
429,783
Segment operating earnings
Americas
$
29,220
$
32,234
EMEA
16,766
25,244
Asia/Pacific
21,907
27,478
Global Specialty Businesses
 
25,035
 
24,169
Total
 
segment operating earnings
 
92,928
 
109,125
Combination, integration and other acquisition-related expenses
(4,053)
(5,815)
Restructuring and related charges
(820)
(1,175)
Fair value step up of acquired inventory sold
0
(801)
Non-operating and administrative expenses
 
(43,463)
 
(40,992)
Depreciation of corporate assets and amortization
 
(15,189)
 
(15,448)
Operating income
29,403
44,894
Other (expense) income, net
(2,206)
4,687
Interest expense, net
 
(5,345)
 
(5,470)
Income before taxes and equity in net income of associated companies
$
21,852
$
44,111
Inter-segment revenues for the three months ended March 31,
 
2022 and 2021 were $
2.9
 
million and $
3.3
 
million for Americas,
$
8.9
 
million and $
8.8
 
million for EMEA, $
0.3
 
million and $
0.1
 
million for Asia/Pacific and $
1.7
 
million and $
2.0
 
million for Global
Specialty Businesses, respectively.
 
However, all inter-segment transactions
 
have been eliminated from each reportable operating
segment’s net sales and earnings for
 
all periods presented in the above tables.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
10
The following table presents information about the performance of the Company’s
reportable segments for the three and nine
months ended September 30, 2022 and 2021.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Net sales
Americas
$
186,546
$
150,799
$
513,438
$
425,343
EMEA
113,367
122,241
362,107
365,491
Asia/Pacific
91,211
98,659
295,273
286,924
Global Specialty Businesses
101,094
77,373
287,959
236,359
Total net sales
$
492,218
$
449,072
$
1,458,777
$
1,314,117
Segment operating earnings
Americas
$
44,986
$
31,273
$
107,991
$
97,155
EMEA
9,883
20,153
39,932
68,802
Asia/Pacific
23,336
23,285
67,469
73,990
Global Specialty Businesses
30,746
20,663
83,622
69,041
Total segment operating
earnings
108,951
95,374
299,014
308,988
Combination, integration and other acquisition-related expenses
(2,107)
(5,786)
(7,992)
(18,259)
Restructuring and related credits (charges), net
1,423
880
604
(593)
Fair value step up of acquired inventory sold
-
-
-
(801)
Non-operating and administrative expenses
(47,852)
(38,691)
(139,894)
(122,760)
Depreciation of corporate assets and amortization
(15,806)
(15,767)
(45,817)
(46,855)
Operating income
44,609
36,010
105,915
119,720
Other income (expense), net
85
647
(10,520)
19,344
Interest expense, net
(8,389)
(5,637)
(20,228)
(16,725)
Income before taxes and equity in net income of
associated companies
$
36,305
$
31,020
$
75,167
$
122,339
Inter-segment revenues for the three and nine months ended September
30, 2022, were $
2.6
million and $
8.8
million for
Americas, $
6.4
million and $
27.7
million for EMEA, $
0.3
million and $
0.7
million for Asia/Pacific, and $
2.3
million and $
6.0
million
for Global Specialty Businesses, respectively.
Inter-segment revenues
for the three and nine months ended September 30, 2021, were
$
3.6
million and $
9.3
million for Americas, $
6.8
million and $
21.9
million for EMEA, $
0.8
million and $
1.3
million for Asia/Pacific,
and $
1.8
million and $
5.9
million for Global Specialty Businesses, respectively.
However, all inter-segment
transactions have been
eliminated from each reportable operating segment’s
net sales and earnings for all periods presented in the above tables.
Note 5 – Net Sales and Revenue Recognition
Arrangements Resulting in Net Reporting
As part of the Company’s Fluidcare
TM
 
business, certain third-party product sales to customers are managed by the
Company.
 
The
Company transferred third-party products under arrangements recognized
 
on a net reporting basis of $
19.821.4
 
million and $
17.861.7
 
million
for the three and nine months ended March 31,September 30, 2022, respectively,
and $
18.9
million and $
53.4
million for the three and nine
months ended September 30, 2021, respectively.
Customer Concentration
A significant portion of the Company’s
 
revenues are realized from the sale of process fluids and services to manufacturers of
steel, aluminum, automobiles, aircraft, aerospace,
industrial and agricultural equipment, and durable
goods.
 
As previously disclosed in the
Company’s 2021 Form 10-K, for
during the year ended December 31, 2021, the Company’s
 
five largest customers (each composed of
multiple subsidiaries or
divisions
with semiautonomous purchasing authority)
accounted for approximately
10
% of consolidated net
sales, with its largest customer
accounting for approximately
3
% of consolidated net sales.
Contract Assets and Liabilities
The Company had no material contract assets recorded on its Condensed
Consolidated Balance Sheets as of March 31, 2022 or
December 31, 2021.
The Company had approximately $
6.9
million and $
7.0
million of deferred revenue as of March 31, 2022 and December 31,
2021, respectively.
For three months ended March 31, 2022, the Company satisfied all of the associated performance
obligations and
recognized into revenue the advance payments received and recorded
as of December 31, 2021.
Disaggregated Revenue
The Company sells its various industrial process fluids, its specialty chemicals
 
and its technical expertise as a global product
portfolio.
 
The Company generally manages and evaluates its performance by segment
 
first, and then by customer industry,
 
rather than
by individual product lines.
 
Also, net sales of each of the Company’s major product
 
lines are generally spread throughout all three of
the Company’s geographic
 
regions, and in most cases, approximately proportionate to the level of total sales in each
 
region.
The following tables disaggregate the Company’s
 
net sales by segment, geographic region, customer industry,
 
and timing of
revenue recognized for the three months ended March 31, 2022 and 2021.
Three Months Ended March 31, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
56,160
$
36,839
$
55,287
 
$
148,286
Metalworking and other
97,984
88,848
48,947
235,779
154,144
125,687
104,234
384,065
Global Specialty Businesses
57,264
20,021
12,821
90,106
$
211,408
$
145,708
$
117,055
$
474,171
Timing of Revenue Recognized
Product sales at a point in time
$
201,284
$
137,203
$
114,625
 
$
453,112
Services transferred over time
10,124
8,505
2,430
21,059
$
211,408
$
145,708
$
117,055
$
474,171
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
11
Contract Assets and Liabilities
The Company had no material contract assets recorded on its Condensed
Consolidated Balance Sheets as of September 30, 2022
or December 31, 2021.
The Company had approximately $
6.0
million and $
7.0
million of deferred revenue as of September 30, 2022 and December 31,
2021, respectively.
For the nine months ended September 30, 2022, the Company satisfied all of the
associated performance
obligations and recognized into revenue the advance payments received
and recorded as of December 31, 2021.
Disaggregated Revenue
The Company sells its various industrial process fluids, its specialty chemicals
and its technical expertise as a global product
portfolio.
The Company generally manages and evaluates its performance by segment
first, and then by customer industry,
rather than
by individual product lines.
Also, net sales of each of the Company’s major product
lines are generally spread throughout all three of
the Company’s geographic
regions, and in most cases, are approximately proportionate to the level of
total sales in each region.
The following tables disaggregate the Company’s
net sales by segment, geographic region, customer industry,
and timing of
revenue recognized for the three and nine months ended September 30, 2022
and 2021.
Three Months Ended March 31,September 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
69,249
$
32,690
$
52,856
$
154,795
Metalworking and other
117,297
80,677
38,355
236,329
186,546
113,367
91,211
391,124
Global Specialty Businesses
67,469
20,185
13,440
101,094
$
254,015
$
133,552
$
104,651
$
492,218
Timing of Revenue Recognized
Product sales at a point in time
$
244,162
$
127,045
$
101,945
$
473,152
Services transferred over time
9,853
6,507
2,706
19,066
$
254,015
$
133,552
$
104,651
$
492,218
Three Months Ended September 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
46,79356,954
$
34,27438,483
$
49,743
53,994
$
130,810149,431
Metalworking and other
88,07893,845
85,54083,758
46,96344,665
220,581222,268
134,871150,799
119,814122,241
96,70698,659
351,391371,699
Global Specialty Businesses
45,25646,008
20,27219,253
12,86412,112
78,39277,373
$
180,127196,807
$
140,086141,494
$
109,570110,771
$
429,783449,072
Timing of Revenue Recognized
Product sales at a point in time
$
171,594188,340
$
131,162131,982
$
106,399
108,559
$
409,155428,881
Services transferred over time
8,5338,467
8,9249,512
3,1712,212
20,62820,191
$
180,127196,807
$
140,086141,494
$
109,570110,771
$
429,783
Note 6 - Leases
The Company has operating leases for certain facilities, vehicles and machinery
and equipment with remaining lease terms up to
10 years
.
Operating lease expense is recognized on a straight-line basis over the lease term. In addition,
the Company has certain land
use leases with remaining lease terms up to
93 years
.
The Company has
0
material variable lease costs or sublease income for three months ended March
31, 2022 and 2021. The
following table sets forth the components of the Company’s
lease cost for three months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
2022
2021
Operating lease expense
$
3,409
$
3,612
Short-term lease expense
219
251
Supplemental cash flow information related to the Company’s
leases is as follows
:
Three Months Ended
March 31,
2022
2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
3,365
$
3,579
Non-cash lease liabilities activity:
Leased assets obtained in exchange for new operating lease liabilities
4,689
3,050
Supplemental balance sheet information related to the Company’s
leases is as follows:
March 31,
December 31,
2022
2021
Right of use lease assets
$
38,245
$
36,635
Other current liabilities
10,540
9,976
Long-term lease liabilities
27,433
26,335
Total operating lease liabilities
$
37,973
$
36,311
Weighted average
remaining lease term (years)
5.9
5.6
Weighted average
discount rate
4.14%
4.22%449,072
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
12
Nine Months Ended September 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
188,782
$
107,115
$
163,739
$
459,636
Metalworking and other
324,656
254,992
131,534
711,182
513,438
362,107
295,273
1,170,818
Global Specialty Businesses
187,099
61,530
39,330
287,959
$
700,537
$
423,637
$
334,603
$
1,458,777
Timing of Revenue Recognized
Product sales at a point in time
$
670,581
$
400,870
$
326,760
$
1,398,211
Services transferred over time
29,956
22,767
7,843
60,566
$
700,537
$
423,637
$
334,603
$
1,458,777
Nine Months Ended September
30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
155,546
$
108,391
$
151,944
$
415,881
Metalworking and other
269,797
257,100
134,980
661,877
425,343
365,491
286,924
1,077,758
Global Specialty Businesses
137,447
61,203
37,709
236,359
$
562,790
$
426,694
$
324,633
$
1,314,117
Timing of Revenue Recognized
Product sales at a point in time
$
537,161
$
400,982
$
316,222
$
1,254,365
Services transferred over time
25,629
25,712
8,411
59,752
$
562,790
$
426,694
$
324,633
$
1,314,117
Note 6 - Leases
The Company has operating leases for certain facilities, vehicles and machinery
and equipment with remaining lease terms up to
9 years
.
Operating lease expense is recognized on a straight-line basis over the
lease term. In addition, the Company has certain land
use leases with remaining lease terms up to
93 years
.
The Company has
no
material variable lease costs, sublease income or finance leases for three and nine
months ended September
30, 2022 and 2021. The following table sets forth the components of
the Company’s lease cost for three and nine
months ended
September 30, 2022 and 2021:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Operating lease expense
$
3,664
$
3,408
$
10,592
$
10,568
Short-term lease expense
201
221
625
755
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
13
Supplemental cash flow information related to the Company’s
leases is as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating leases
$
3,768
$
3,365
$
10,575
$
10,433
Non-cash lease liabilities activity:
Leased assets obtained in exchange for new
operating lease liabilities
2,599
1,711
10,672
5,587
Supplemental balance sheet information related to the Company’s
leases is as follows:
September 30,
December 31,
2022
2021
Right of use lease assets
$
37,005
$
36,635
Other current liabilities
11,143
9,976
Long-term lease liabilities
25,697
26,335
Total operating lease liabilities
$
36,840
$
36,311
Weighted average
remaining lease term (years)
5.4
5.6
Weighted average
discount rate
4.43%
4.22%
Maturities of operating lease liabilities as of March 31, 2022 were as follows:
March 31,September 30,
2022
For the remainder of 2022
$
8,9903,262
For the year ended December 31, 2023
9,51310,668
For the year ended December 31, 2024
7,2928,429
For the year ended December 31, 2025
5,3756,087
For the year ended December 31, 2026
4,3384,512
For the year ended December 31, 2027 and beyond
7,0466,785
Total lease payments
42,55439,743
Less: imputed interest
(4,581)(2,903)
Present value of lease liabilities
$
37,97336,840
Note 7 – Restructuring and Related Activities
The Company’s management approved a global restructuring plan (the “QH Program”) as part of its plan to realize certain cost
synergies associated with the Combination in the third quarter of 2019. The QH Program includesincluded restructuring and associated
severance costs to reduce total headcount by approximately 400 people globally, as well as plans for the closure of certain
manufacturing and
non-manufacturing facilities.
The exact timing to complete all actions and totalfinal costs associated with the QH Program will depend on
a
number of factors and are subject to change; however,
the Company currently expects reductionshad reduction in headcount and site closures to
continue to occur throughout 2022 under the QH Program.
Program in 2022 and expects final headcount reductions to continue into 2023. Employee separation benefits will varyvaried depending on
local regulations
within certain foreign countries and will includeincluded severance and other benefits.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
14
All costs incurred to date relaterelated to severance costs to reduce headcount, including customary
 
including customary and routine adjustments to initial estimates
estimates for employee separation costs, as well as costs to close certain facilities are recorded
 
facilities and are recorded in Restructuring and related
(credits) charges in
the Company’s Condensed
 
Condensed Consolidated Statements of Income.
The credits recognized in the nine months ended September 30, 2022
reflect customary and routine adjustments to initial estimates for
employee separation costs.
At this time, the Company does not
expect to incur material additional costs under the QH Program.
 
As described in Note 4 of the Notes to Condensed Consolidated
Consolidated Financial Statements, restructuring and related charges
 
are not included in the Company’s calculation of
 
calculation of reportable
segments’ measure
of operating earnings and therefore these costs are not
reviewed by or recorded
to reportable segments.
Activity in the Company’s accrual
 
for restructuring under the QH Program for the threenine months ended March 31,September 30, 2022
 
is as
follows:
QH Program
Accrued restructuring as of December 31, 2021
$
4,087
Restructuring and related charges(credits)
820(604)
Cash payments
(408)(1,234)
Currency translation adjustments
(64)
(451)
Accrued restructuring as of March 31,September 30, 2022
$
4,4351,798
Note 8 – Share-Based Compensation
The Company recognized the following share-based compensation expense
 
in its Condensed Consolidated Statements of Income
for the three and nine months ended March 31,September 30, 2022 and 2021:
Three Months Ended
March 31,Nine Months Ended
September 30,
 
September 30,
2022
2021
2022
2021
Stock options
$
267533
$
308298
$
1,269
$
938
Non-vested stock awards and restricted stock units
1,5481,783
1,3961,277
4,998
3,963
Non-elective and elective 401(k) matching contribution in stock
0—
—
—
1,553
Director stock ownership plan
249
203241
53
660
Performance stock units
623875
319491
2,314
1,327
Total share-based
 
compensation expense
$
2,4623,200
$
3,7792,307
$
8,634
$
8,441
Share-based compensation expense is recorded in SG&A, except for less than
 
$
0.1
 
million and $
0.2
 
million for the three and nine
months ended September 30, 2022, respectively,
 
and $
0.2
 
million and $
0.7
 
million for the three and nine months ended September 30,
2021,
 
respectively, recorded within
 
Combination, integration and other acquisition-related expenses.
Stock Options
During the first nine months of 2022, 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 a Black-Scholes option pricing model and the assumptions set forth
in the table below:
March 2022
July 2022
Grant
Grant
Number of options granted
27,077
4,837
Dividend yield
0.80
%
0.79
%
Expected volatility
38.60
%
40.47
%
Risk-free interest rate
2.07
%
2.87
%
Expected term (years)
4.0
4.0
The fair value of these options is amortized on a straight-line basis over the
vesting period.
As of September 30, 2022,
unrecognized compensation expense related to all stock options granted was $
2.0
million, to be recognized over a weighted average
remaining period of
1.5
years.
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
1315
Share-based compensation expense is recorded in SG&A, except for less than $
0.1
million and $
0.3
million during the three
months ended March 31, 2022 and 2021, respectively,
recorded within Combination, integration and other acquisition-related
expenses.
Stock Options
During the first quarter of 2022, 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 a Black-Scholes option pricing model and the assumptions set forth
in the table below:
March 2022
Grant
Number of options granted
27,077
Dividend yield
0.80
%
Expected volatility
38.60
%
Risk-free interest rate
2.07
%
Expected term (years)
4.0
The fair value of these options is amortized on a straight-line basis over the vesting period.
As of March 31, 2022, unrecognized
compensation expense related to all stock options granted
was $
2.9
million, to be recognized over a weighted average remaining
period of
1.9
years.
Restricted Stock Awards
 
and Restricted Stock Units
During the threenine months ended March 31,September 30, 2022, the Company granted
17,42535,846
 
non-vested restricted shares and
4,490
 
non-vestednon-
vested restricted stock units under its LTIP,
 
which are subject to time-based vesting, generally over a
three year
 
period.
 
The fair value
of these grants is
based on the trading price of the Company’s
 
common stock on the date of grant.
 
The Company adjusts the grant
date fair value of
these awards for expected forfeitures based on historical experience.
 
As of March 31,September 30, 2022, unrecognized
compensation expense
related to the nonvestednon-vested restricted
shares was $
6.45.9
 
million, to be recognized over a weighted average
remaining period of
1.6
years, and unrecognized compensation expense related to non-vested restricted
stock units was $
1.0
million,
to be recognized over a weighted average remaining period of
2.1
years,
and unrecognized compensation expense related to nonvested restricted
stock units was $
1.3
million, to be recognized over a weighted
average remaining period of
2.31.9
 
years.
Performance Stock Units
The Company grants performance-dependent stock awards (“PSUs”) as a component
 
of its LTIP,
 
which will be settled in a
certain number of shares subject to market-based and time-based vesting conditions.
 
The number of fully vested shares that may
ultimately be issued as settlement for each award may range from
0
% up to
200
% of the target award, subject to the achievement of
the Company’s total shareholder
 
return (“TSR”) relative to the performance of the Company’s
 
peer group, the S&P Midcap 400
Materials group.
 
The service period required for the PSUs is three years and the TSR measurement
 
period for the PSUs is generally
from January 1 of the year of grant through December 31 of the year prior
 
to issuancesissuance of the shares upon settlement.
Compensation expense for PSUs
is measured based on their grant date fair value
and is recognized on
a straight-line basis over
the three year vesting period.
 
The grant-date fair value of the PSUs was estimated using a Monte Carlo
 
simulation on the grant date
and using the following assumptions set forth in the table below:
March 2022
GrantGrants
Number of PSUs granted
16,82018,462
Risk-free interest rate
2.11
%
Dividend yield
0.93
%
Expected term (years)
3.0
As of March 31,September 30, 2022, the Company estimates that it will issue 0 fully vested shares
as of the applicable settlement date of all
outstanding PSUs awards based on the conditions of the PSUs and performance
 
to date for each award.award, the Company estimates
that it will
no
t issue any fully vested shares as of the applicable settlement date of all outstanding
PSUs awards.
 
As of March 31, 2022,
thereSeptember 30,
2022, there was approximately $
6.44.8
 
million of total unrecognized compensation cost related to PSUs which the Company
 
expects to recognize
recognize over a weighted-average period of
2.32.0
 
years.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
14
Defined Contribution Plan
The Company has a 401(k) plan with an employer match covering a majority
 
a majority of its U.S. employees.
 
The Company matches
50
%
of the first
6
% of compensation that is contributed to the plan, with a maximum matching contribution of 3%
3
% of
compensation.
 
Additionally, the plan
 
provides for non-elective nondiscretionary contributions on behalf of participants
 
who have completed one year
of service equal to
3
% of the eligible participants’ compensation.
 
Beginning in April 2020 and continuing through March 2021, the
Company matched both non-elective and elective 401(k) contributions
 
in fully vested shares
of the Company’s common stock
 
stock rather
than cash.
 
There were
0no
 
matching contributions in stock for the three and nine months ended March 31,September 30, 2022. For
 
For the three nine
months ended
March 31, September 30, 2021, total contributions were $
1.5
 
million.
Note 9 – Pension and Other Postretirement
Benefits
The components of net periodic benefit (income) cost for the three months
ended March 31, 2022 and 2021 are as follows:
Three Months Ended March 31,
Other
Pension Benefits
Postretirement Benefits
2022
2021
2022
2021
Service cost
$
180
$
316
$
(8)
$
1
Interest cost
1,360
1,090
9
11
Expected return on plan assets
(2,084)
(2,082)
0
0
Actuarial loss (gain) amortization
257
855
(24)
0
Prior service cost (income) amortization
2
2
1
0
Total net periodic benefit
(income) cost
$
(285)
$
181
$
(22)
$
12
Employer Contributions
As of March 31, 2022, $
1.0
 
million and $
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.
 
Taking into consideration
 
current minimum cash contribution
requirements, the Company currently expects to make full year cash contributions
 
of approximately $
6.6
 
million to its U.S. and
foreign pension plans and approximately $
0.2
 
million to its other postretirement benefit plans in 2022.
Note 10 – Other (Expense) Income, Net
The components of other (expense) income, net for the three months ended
 
March 31, 2022 and 2021 are as follows:
Three Months Ended
 
March 31,
2022
2021
Income from third party license fees
$
404
$
339
Foreign exchange losses, net
(1,905)
(1,478)
Gain on disposals of property,
 
plant, equipment and other assets, net
23
5,410
Non-income tax refunds and other related (expense) credits
(1,322)
97
Pension and postretirement benefit income, non-service components
479
124
Other non-operating income, net
115
195
Total other (expense)
 
income, net
$
(2,206)
$
4,687
Non-income tax refunds and other related (expense) credits during the
 
three months ended March 31, 2022 includes other expense
related to an indemnification asset associated with the settlement of certain
 
income tax audits at one of the Company’s
 
Italian affiliates
for tax periods prior to August 1, 2019.
 
See Note 11 of Notes to Condensed Consolidated
 
Financial Statements.
 
Gain on disposals of
property, plant, equipment
 
and other assets, net, during the three months ended March 31, 2021, includes a gain on the
 
sale of certain
held-for-sale real property assets related to the Combination.
 
Foreign exchange losses, net, during each of the three months ended
March 31, 2022 and 2021 include foreign currency transaction losses of approximately
 
$
0.2
 
million related to hyper-inflationary
accounting for the Company’s Argentine
 
subsidiaries.
 
See Note 1 of Notes to Condensed Consolidated Financial Statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
15
Note 11 – Income Taxes
 
and Uncertain Income Tax
 
Positions
The Company’s effective
 
tax rates for the three months ended March 31, 2022 and 2021 were
13.1
% and
24.2
%, respectively.
 
The Company’s effective
 
tax rate for the three months ended March 31, 2022 was largely driven by changes in
 
the valuation
allowance for foreign tax credits due to recently issued legislative guidance
 
and audit settlements reached with Italian tax authorities.
In addition, the Company incurred higher tax expense during the three months
ended March 31, 2022 related to the Company
recording earnings in one of its subsidiaries at a statutory tax rate of
25
% while it awaits recertification of a concessionary
15
% tax
rate, which was available to the Company during all of 2021.
Comparatively,
the prior year first quarter effective tax rate was
impacted by the sale of a subsidiary which included certain held-for-sale
real property assets related to the Combination.
As of December 31, 2021, the Company had a deferred tax liability of $
8.4
million on certain undistributed foreign earnings,
which primarily represents the Company’s
estimate of non-U.S. income taxes the Company will incur to ultimately remit certain
earnings to the U.S.
The balance as of March 31, 2022 was $
8.0
million.
As of March 31, 2022, the Company’s
cumulative liability for gross unrecognized tax benefits was $
20.1
million, a decrease of
approximately $
2.4
million from the cumulative liability accrued as of December 31, 2021.
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 benefit of $
0.3
million for interest and a benefit of $
1.6
million for penalties in its Condensed Consolidated Statements of
Income for the three months ended March 31, 2022, and recognized
an expense of less than $
0.1
million for interest and a benefit of
$
0.1
million for penalties in its Condensed Consolidated Statements of Income for the
three months ended March 31, 2021.
As of
March 31, 2022, the Company had accrued $
2.7
million for cumulative interest and $
1.6
million for cumulative penalties in its
Condensed Consolidated Balance Sheets, compared to $
3.1
million for cumulative interest and $
3.1
million for cumulative penalties
accrued at December 31, 2021.
During the three months ended March 31, 2022 and 2021, the Company
recognized decreases of $
2.8
million and $
0.3
million,
respectively, in its cumulative
liability for gross unrecognized tax benefits due to the settlement of income
tax audits with the Italian
tax authorities, as well as the expiration of the applicable statutes of
limitations for certain tax years.
The Company estimates that during the year ending December 31, 202
2
it will reduce its cumulative liability for gross
unrecognized tax benefits by approximately $
4.2
million due to the settlement of income tax audits and 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, 2022.
The Company
and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various
state and foreign
tax jurisdictions.
Tax years that remain subject
to examination by major tax jurisdictions include Italy from
2007
, Brazil from
2011
,
Germany from
2015
, the Netherlands, Mexico and China from
2016
, Canada, Spain, and the U.S. from
2017
, the United Kingdom
from
2018
, India from fiscal year beginning April 1, 2017 and ending March 31,
2018
, and various U.S. state tax jurisdictions from
2011
.
As previously reported, the 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 2015. The Company has filed for competent authority relief from these assessments under
the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except
2007. In 2020, the respective tax authorities in Italy, Spain and the Netherlands reached agreement with respect to the MAP
proceedings which the Company has accepted.
As of March 31, 2022, the Company has received $
1.6
million in refunds from the
Netherlands and Spain.
In February 2022, the Company received a settlement notice from the Italian taxing
authorities confirming the
amount due of $
2.6
million, having granted the Company’s request
to utilize its remaining net operating losses to partially offset
the
liability.
As a result of the settlement the Company recognized tax expense of $
0.8
million for the quarter ended March 31, 2022.
Houghton Italia, S.r.l is also involved
in a corporate income tax audit with the Italian tax authorities covering tax years
2014
through
2018
.
During the fourth quarter of 2021, the Company settled a portion of the Houghton Italia,
S.r.l. corporate income tax
audit with the Italian tax authorities for the tax years
2014
and
2015
.
During the three months ended March 31, 2022 the Company
settled tax years 2016 through 2018 for a total of $
2.1
million.
In total, the Company has now settled all years 2014 through 2018 for
$
3.7
million.
Accordingly, the Company has
released all reserves relating to this audit for the settled tax years.
As a result of the
settlement and reserve release the Company recognized a net benefit
to the tax provision of $
2.1
million during the first quarter of
2022.
The Company has established an indemnification receivable of $
3.8
million in connection with its claim against the former
owners of Houghton for any pre-Combination tax liabilities arising from
this matter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
16
Houghton Deutschland GmbH isNote 9 – Pension and Other Postretirement
Benefits
The components of net periodic benefit (income) cost for the three and
nine months ended September 30, 2022 and 2021 are as
follows:
Three Months Ended September 30,
Nine Months Ended September 30,
Other
Other
Postretirement
Postretirement
Pension Benefits
Benefits
Pension Benefits
Benefits
2022
2021
2022
2021
2022
2021
2022
2021
Service cost (income)
$
166
$
289
$
1
$
(2)
$
520
$
921
$
1
$
1
Interest cost (income)
1,272
1,078
8
(1)
3,949
3,262
19
20
Expected return on plan assets
(1,942)
(2,075)
—
—
(6,038)
(6,250)
—
—
Actuarial loss (gain)
amortization
238
737
(23)
(85)
743
2,449
(70)
(85)
Prior service cost (income)
amortization
3
3
(8)
—
8
8
(17)
—
Net periodic benefit (income)
cost
$
(263)
$
32
$
(22)
$
(88)
$
(818)
$
390
$
(67)
$
(64)
Employer Contributions
As of September 30, 2022, $
5.5
million and $
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
.
Taking into consideration
current minimum cash contribution
requirements, the Company currently expects to make full year cash contributions
of approximately $
6.6
million to its U.S. and
foreign pension plans and approximately $
0.2
million to its other postretirement benefit plans in 2022
.
Note 10 – Other Income (Expense), Net
The components of other income (expense), net, for the three and nine months
ended September 30, 2022 and 2021 are as
follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Income from third party license fees
$
253
$
314
$
906
$
1,026
Foreign exchange (losses) gain, net
(1,928)
368
(5,859)
(1,948)
Gain (loss) on disposals of property,
plant, equipment and other
assets, net
48
(537)
33
4,819
Non-income tax refunds and other related credits (expense)
122
3
(1,617)
14,395
Pension and postretirement benefit income,
non-service components
452
343
1,406
596
Loss on extinguishment of debt
—
—
(6,763)
—
Gain on insurance recoveries
1,104
—
1,104
—
Other non-operating income, net
34
156
270
456
Total other income
(expense), net
$
85
$
647
$
(10,520)
$
19,344
Gain (loss) on disposals of property,
plant, equipment and other assets, net, during the three months ended September 30, 2021,
includes losses related to certain fixed asset disposals resulting from property
damage.
See Note 18 of Notes to Condensed
Consolidated Financial Statements.
During the nine months ended September 30, 2021, this caption also underincludes
the gain on the sale
of certain held-for-sale real property assets related to
the Combination.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
17
Non-income tax refunds and other related credits (expense) during
the nine months ended September 30, 2022, includes
adjustments to Combination-related indemnification assets associated with the
settlement of certain income tax audits at certain of the
Company’s Italian and German
affiliates for tax periods prior to August 1, 2019.
See Note 11 of Notes to Condensed Consolidated
Financial Statements.
During the nine months ended September 30, 2021 this caption includes certain
non-income tax credits for the
Company’s Brazilian subsidiaries.
See Note 18 of Notes to Condensed Consolidated Financial Statements.
Loss on extinguishment of debt during the nine months ended September
30, 2022 includes the write-off of certain previously
unamortized deferred financing costs as well as a portion of the third
party and creditor debt issuance costs incurred to execute an
amendment to the Company’s primary
credit facility.
See Note 14 of Notes to the Condensed Consolidated Financial Statements.
Gain on insurance recoveries during the three and nine months ended September
30, 2022, reflects payments received from
insurers related to the property damage incurred during the three
months ended September 2021, noted above.
See Note 18 of Notes
to the Condensed Consolidated Financial Statements.
Note 11 – Income Taxes
and Uncertain Income Tax
Positions
The Company’s effective
tax rates for the three and nine months ended September 30, 2022 were
28.1
% and
19.2
%, respectively,
compared to
2.6
% and
21.8
% for the three and nine months ended September 30, 2021, respectively.
The Company’s effective
tax
rate for the nine months ended September 30, 2022 was impacted by various
items including a decline in forecasted profits and
earnings mix, foreign tax inclusions, changes in the valuation allowance
for foreign tax credits, the impact of audit settlements reached
with Italian tax authorities, a reduction in reserves for uncertain tax positions
and withholding taxes.
In addition, the Company
incurred higher tax expense during the three and nine months ended
September 30, 2022 at one of its subsidiaries as it accrued taxes at
a statutory tax rate of
25
% while it awaits recertification of a concessionary
15
% tax rate, which was available to the Company during
all of 2021.
Comparatively, the prior year
effective tax rates were largely impacted by changes in permanent
reinvestment assertions,
changes in foreign tax credit valuation allowances, tax law changes in a foreign
jurisdiction, deferred tax benefits related to an
intercompany intangible asset transfer and the income tax impacts of certain
non-income tax credits recorded by the Company’s
Brazilian subsidiaries.
As of December 31, 2021, the Company had a deferred tax liability of $
8.4
million on certain undistributed foreign earnings,
which primarily represents the Company’s
estimate of non-U.S. income taxes the Company will incur to ultimately remit certain
earnings to the U.S.
As of September 30, 2022 this deferred tax liability balance was $
6.9
million.
As of September 30, 2022, the
Company’s cumulative liability
for gross unrecognized tax benefits was $
16.2
million, a decrease of approximately $
6.3
million from
the cumulative liability accrued as of December 31, 2021.
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 an expense for interest of $
0.1
million and a benefit for interest of $
0.2
million and a benefit of less than $
0.1
million and
$
1.6
million for penalties in its Condensed Consolidated Statement of Income for
the three and nine months ended September 30,
2022, respectively,
and recognized an expense for interest of approximately $
0.2
million and $
0.4
million and a benefit of less than
$
0.1
million and $
0.2
million for penalties in its Condensed Consolidated Statement of Income for the
three and nine months ended
September 30, 2021, respectively.
As of September 30, 2022, the Company had accrued $
2.6
million for cumulative interest and $
1.4
million for cumulative penalties in its Condensed Consolidated
Balance Sheets, compared to $
3.1
million for cumulative interest and
$
3.1
million for cumulative penalties accrued at December 31, 2021.
During the nine months ended September 30, 2022 and 2021, the Company
recognized decreases of $
3.8
million and $
1.2
million, respectively,
in its cumulative liability for gross unrecognized tax benefits due to the settlement of
income tax audits with
both the Italian and German tax authorities, as well as the expiration of the
applicable statutes of limitations for certain tax years.
The Company estimates that during the year ending December 31, 202
2
it will reduce its cumulative liability for gross
unrecognized tax benefits by approximately $
4.1
million due to the settlement of income tax audits and 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, 2022.
The Company and its subsidiaries are subject to U.S. Federal income tax,
as well as the income tax of various state and foreign
tax jurisdictions.
Tax years that remain subject
to examination by major tax jurisdictions include Italy from
2007
, Brazil from
2011
,
the Netherlands from
2016
, Canada, China, Mexico and the U.S. from
2017
, Germany, Spain and the United
Kingdom from
2018
,
India from fiscal year beginning April 1, 2017 and ending March 31,
2018
, and various U.S. state tax jurisdictions from
2011
.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
18
As previously reported, the Italian tax authorities have assessed additional
tax due from the Company’s subsidiary,
Quaker Italia
S.r.l., relating to the tax years
20152007
 
through
20172015
.
 
Based onThe Company has filed for competent authority relief from these assessments under
preliminary audit findings, primarily related to transfer pricing,the Mutual Agreement Procedures (“MAP”) of the Organization
 
for Economic Co-Operation and Development for all years except
2007.
In 2020, the respective tax authorities in Italy,
Spain and the Netherlands reached agreement with respect to the MAP
proceedings which the Company has recorded reserves forhad accepted.
As of September 30, 2022, the Company received $
0.31.6
 
million asin refunds from the
Netherlands and Spain.
In February 2022, the Company received a settlement notice from the Italian taxing
authorities confirming the
amount due of March 31,
2022.
Of this amount, $
0.32.6
 
million, relates having granted the Company’s request
to tax periods priorutilize its remaining net operating losses to partially offset
the Combination and therefore
liability.
As of September 30, 2022, the Company has paid the full settlement amount,
 
has submitted anof which approximately $
indemnification claim with Houghton’s0.2
 
former ownersmillion was
confirmed to be refundable.
Houghton Italia, S.r.l was involved
in a corporate income tax audit with the Italian tax authorities covering tax years
2014
through
2018
.
During the fourth quarter of 2021, the Company settled a portion of the Houghton
Italia, S.r.l. corporate income tax audit
with
the Italian tax authorities for anythe tax liabilities arising pre-Combination.years 2014 and 2015.
During the nine months ended September 30, 2022, the Company settled
tax years 2016 through 2018 for a total of $
2.1
million.
In total, the Company has now settled all years 2014 through 2018 for $
3.7
million.
Accordingly, the Company has
released all reserves relating to this audit for the settled tax years.
 
As a result of the
settlement and reserve release the Company recognized a correspondingnet benefit
to the tax provision of $
1.9
million during the first nine months
of 2022.
The Company has an indemnification receivable has also been established.of approximately $
3.6
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.
Note 12 – Earnings Per Share
The following table summarizes earnings per share calculations for
 
the three and nine months ended March 31,September 30, 2022 and
2021:
Three Months Ended
March 31,
 
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Basic earnings per common share
 
Net income attributable to Quaker Chemical Corporation
$
19,81625,867
$
38,61531,058
$
60,026
$
103,243
Less: income allocated to participating securities
 
(78)(115)
 
(154)(119)
(250)
(413)
Net income available to common shareholders
$
19,73825,752
$
38,46130,939
$
59,776
$
102,830
Basic weighted average common shares outstanding
17,826,06117,847,305
17,785,37017,812,216
17,835,976
17,800,082
Basic earnings per common share
$
1.111.44
$
2.161.74
$
3.35
$
5.78
Diluted earnings per common share
Net income attributable to Quaker Chemical Corporation
$
19,81625,867
$
38,61531,058
$
60,026
$
103,243
Less: income allocated to participating securities
(78)(115)
(154)
(119)
(250)
(412)
Net income available to common shareholders
$
19,73825,752
$
38,46130,939
$
59,776
$
102,831
Basic weighted average common shares outstanding
17,826,06117,847,305
17,785,37017,812,216
17,835,976
17,800,082
Effect of dilutive securities
25,79812,566
70,60758,176
15,465
59,986
Diluted weighted average common shares outstanding
17,851,85917,859,871
17,855,97717,870,392
17,851,441
17,860,068
Diluted earnings per common
share
$
1.111.44
$
2.151.73
$
3.35
$
5.76
Certain stock options,
restricted stock units and PSUs are not included
in the diluted earnings per share calculation
when the
effect would have been anti-dilutive.
 
The calculated amount of anti-diluted shares not included were
12,26025,896
 
and
2,08324,618
 
for the three
and nine months ended March 31,September 30, 2022, respectively,
and 2021, respectively.
5,531
 
and
3,722
Note 13 – Goodwill and Other Intangible Assets
 
Changes in the carrying amount of goodwill for the three and nine months ended
March 31, 2022 were as follows:
September 30,
Global
Specialty
Americas
EMEA
Asia/Pacific
Businesses
Total
Balance as of December 31, 2021,
$
214,023
$
135,520
$
162,458
$
119,193
$
631,194
Goodwill additions
1,752
0
0
32
1,784
Currency translation adjustments
1,376
(2,569)
(328)
(519)
(2,040)
Balance as of March 31, 2022
$
217,151
$
132,951
$
162,130
$
118,706
$
630,938 respectively.
Gross carrying amounts and accumulated amortization for definite-lived
 
intangible assets as of March 31, 2022 and December 31,
2021 were as follows:
Gross Carrying
Accumulated
Amount
Amortization
2022
2021
2022
2021
Customer lists and rights to sell
$
855,309
 
$
853,122
 
$
159,576
 
$
147,858
Trademarks, formulations and product
 
technology
 
162,408
 
 
163,974
 
 
40,565
 
 
38,747
Other
 
6,361
 
 
6,309
 
 
5,989
 
 
5,900
Total definite-lived
 
intangible assets
$
1,024,078
 
$
1,023,405
 
$
206,130
 
$
192,505
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
1719
Note 13 – Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended
September 30, 2022 were as follows:
Global
Specialty
Americas
EMEA
Asia/Pacific
Businesses
Total
Balance as of December 31, 2021
$
214,023
$
135,520
$
162,458
$
119,193
$
631,194
Goodwill additions (reductions)
1,853
—
—
(59)
1,794
Currency translation adjustments
(810)
(16,826)
(16,462)
(7,858)
(41,956)
Balance as of September 30, 2022
$
215,066
$
118,694
$
145,996
$
111,276
$
591,032
Gross carrying amounts and accumulated amortization for definite-lived
intangible assets as of September 30, 2022 and
December 31, 2021 were as follows:
Gross Carrying
Accumulated
Amount
Amortization
2022
2021
2022
2021
Customer lists and rights to sell
$
803,346
$
853,122
$
173,893
$
147,858
Trademarks, formulations and product
technology
150,164
163,974
42,484
38,747
Other
6,611
6,309
5,973
5,900
Total definite-lived
intangible assets
$
960,121
$
1,023,405
$
222,350
$
192,505
The Company amortizes definite-lived intangible assets on a straight-line basis over
 
their useful lives.
 
The Company recorded
$
14.614.1
 
million and $
14.843.3
 
million of amortization expense for the three and nine months ended MarchSeptember
 
31,30, 2022, and 2021, respectively.
 
Comparatively,
the Company recorded $
14.9
million and $
44.7
million of amortization expense for the three and nine months ended
September 30, 2021, respectively.
Estimated annual aggregate amortization expense for the current year
 
and subsequent five years and beyond is as follows:
For the year ended December 31, 2022
$
59,46555,628
For the year ended December 31, 2023
59,29355,454
For the year ended December 31, 2024
58,70154,848
For the year ended December 31, 2025
57,92454,027
For the year ended December 31, 2026
57,67853,835
For the year ended December 31, 2027 and beyond
532,124513,988
The Company hashad four indefinite-lived intangible assets totaling
$
194.1178.2
 
million as of March 31,September 30, 2022, including $
193.0177.1
million of
indefinite-lived intangible assets for trademarks and tradenametradenames associated
 
with the Combination.
 
Comparatively, the
Company had
four indefinitely-livedindefinite-lived intangible assets for trademarks and tradename
 
tradenames totaling $
196.9
 
million as of December 31, 2021.
The Company completes its annual goodwill and indefinite-lived intangible
 
asset impairment test during the fourth quarter of
each year, or more frequently if triggering
events indicate a possible impairment.
Note 14 – Debt
The Company continually evaluates financial
Debtperformance, economic conditions and other recent developments in
assessing if a triggering event indicates that the carrying values
of goodwill, indefinite-lived, or long-lived assets are impaired.
The Company continues to monitor various financial, economic and
geopolitical conditions impacting the Company,
including the ongoing Russia-Ukraine war and the Company’s
decision to cease
operations in Russia, continued raw material cost escalation, supply chain
constraints and disruptions, as well as rising interest rates
and the cost of March 31,capital among other factors.
The Company concluded that these and other factors, which have and continue to
impact
the Company, did not
represent a triggering event during the third quarter of 2022, except for
the Company’s EMEA reporting unit
and December 31, 2021 includes the following:associated goodwill, as well as the related asset group.
The Company concluded that during the third quarter of 2022 the
Asescalation of March 31, 2022these events adversely impacted EMEA’s
financial performance and represented a triggering event.
As a result of December 31, 2021
Interest
Outstandingthis conclusion, the Company completed an interim impairment
 
assessment for its EMEA reporting unit, as well as
Interest
Outstandingthe related asset group, during the third quarter of 2022.
 
The Company concluded that the undiscounted cash flows exceeded the
Ratecarrying value of the long-lived assets, and it is not more likely than not that
an impairment exists.
In completing a quantitative
Balancegoodwill impairment test, the Company compares the reporting unit
’s fair value, primarily based on future
discounted cash flows, to
Rateits carrying value in order to determine if an impairment charge is warranted.
The estimates of future discounted cash flows involve
Balanceconsiderable management judgment and are based upon certain significant
Credit Facilities:
Revolver
1.68%
$
254,453
1.62%
$
211,955
U.S. Term Loan
1.71%
528,750
1.65%
540,000
EURO Term Loan
1.50%
132,037
1.50%
137,616
Industrial development bonds
5.26%
10,000
5.26%
10,000
Bank linesassumptions including the weighted average cost of credit and other debt obligations
Various
1,659
Various
1,777
Total debt
$
926,899
$
901,348
Less: debt issuance costs
(7,227)
(8,001)
Less: short-term and current portion of long-term debts
(61,385)
(56,935)
Total long-term debt
$
858,287
$
836,412capital
Credit facilities
The Company’s primary credit facility
 
(as amended, the “Credit Facility”) is comprised of a $
400.0
 
million multicurrency
revolver (the “Revolver”), a $
600.0
 
million term loan (the “U.S. Term
 
Loan”), each with the Company as borrower,
 
and a $
150.0
million (as of August 1, 2019) Euro equivalent term loan (the “EURO Term
 
Loan” and together with the “U.S. Term
 
Loan”, the
“Term Loans”)
 
with Quaker Chemical B.V.,
 
a Dutch subsidiary of the Company as borrower, each
 
with a five year term maturing in
August 2024
.
 
Subject to the consent of the administrative agent and certain other conditions, the Company
 
may designate additional
borrowers.
 
The maximum amount available under the Credit Facility can be increased by up
 
to $
300.0
 
million at the Company’s
request if there are lenders who agree to accept additional commitments and
 
the Company has satisfied certain other conditions.
 
Borrowings under the Credit Facility bear interest at a base rate or LIBOR plus an
 
applicable margin based upon the Company’s
consolidated net leverage ratio.
 
On December 10, 2021, the Company entered into the Second Amendment with Bank of America
N.A., to include among other things, an update to provide for use of a non-USD
 
currency LIBOR successor rate.
 
The variable interest
rate incurred on the outstanding borrowings under the Credit Facility during
 
the three months ended March 31, 2022 was
approximately
1.6
%.
 
As of March 31, 2022, the interest rate of the outstanding borrowings under the Credit
 
Facility was
approximately
1.7
%.
 
In addition to paying interest on outstanding principal under the Credit Facility,
 
the Company is required to pay
a commitment fee ranging from
0.2
% to
0.3
% depending on the Company’s consolidated
 
net leverage ratio to the lenders under the
Revolver in respect of the unutilized commitments thereunder.
 
The Company has unused capacity under the Revolver of
approximately $
142
 
million, net of bank letters of credit of approximately $
4
 
million, as of March 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
1820
The Credit Facility is subjectas well as projected EBITDA, which includes assumptions related to certain financialrevenue
growth rates, gross margin levels and other covenants.operating
expenses.
 
As a result of this interim impairment assessment,
The Company’s initial consolidated net debt to
consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the permitted ratio over the termestimated fair value of the CreditEMEA reporting unit exceeded its
Facility. As of March 31, 2021,carrying value by approximately
22
% and the consolidated net debt to adjusted EBITDA may not exceed 3.75 to 1. The Company’sCompany concluded no impairment was warranted.
consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1 overNotwithstanding the termresults of the agreement. The CreditCompany’s
Facility also prohibits the payment of cash dividendsinterim impairment assessment, if the Company is unable to successfully
implement selling price increases aimed at more than offsetting
raw material costs and ongoing inflationary pressures and the financial
performance of the EMEA reporting unit declines further,
or interest rates continue to rise and this leads to an increase in defaultthe cost of
capital,
then it is possible these financial, economic and geopolitical conditions could
result in another triggering event for the EMEA
reporting unit in the future and could lead to a potential impairment
.
In addition, if any of these financial, economic or ifgeopolitical
conditions has a more significant adverse effect on the Company,
these could lead to a potential impairment of the Company’s
goodwill or other indefinite-lived or long-lived assets.
Note 14 – Debt
Debt as of September 30, 2022 and December 31, 2021 includes the following:
As of September 30, 2022
As of December 31, 2021
Interest
Outstanding
Interest
Outstanding
Rate
Balance
Rate
Balance
Credit Facilities:
Original Revolver
—
$
—
1.62%
$
211,955
Original U.S. Term
Loan
—
—
1.65%
540,000
Original Euro Term
Loan
—
—
1.50%
137,616
Amended Revolver
4.12%
201,536
—
—
Amended U.S. Term
Loan
4.26%
600,000
—
—
Amended Euro Term
Loan
1.50%
139,627
—
—
Industrial development bonds
5.26%
10,000
5.26%
10,000
Bank lines of credit and other debt obligations
Various
2,903
Various
1,777
Total debt
$
954,066
$
901,348
Less: debt issuance costs
(2,104)
(8,001)
Less: short-term and current portion of long-term debts
(20,471)
(56,935)
Total long-term debt
$
931,491
$
836,412
Credit facilities
The Company, its wholly
owned subsidiary,
Quaker Chemical B.V.,
as borrowers, Bank of America, N.A., as administrative
agent, U.S. Dollar swing line lender and letter of credit issuer,
and the other lenders party thereto, entered into a credit agreement on
August 1, 2019, as amended (the “Original Credit Facility”).
The Original Credit Facility was comprised of a $
400.0
million
multicurrency revolver (the “Original Revolver”), a $
600.0
million term loan (the “Original U.S. Term
Loan”), each with the
Company as borrower, and a $
150.0
million (as of August 1, 2019) Euro equivalent term loan (the “Original Euro Term
Loan”) with
Quaker Chemical B.V.,
a Dutch subsidiary of the Company as borrower,
each with a
five year
term, maturing in
August 2024
.
During June 2022, the Company,
and its wholly owned subsidiary,
Quaker Houghton B.V.,
as borrowers, Bank of America, N.A.,
as administrative agent, U.S. Dollar swing line lender and letter of credit
issuer, Bank of America Europe Designated Active
Company, as Euro
Swing Line Lender, certain guarantors and other lenders
entered into an amendment to the Original Credit Facility
(the “Amended Credit Facility”). The Amended Credit Facility established
(A) a new $
150.0
million Euro equivalent senior secured
term loan (the “Amended Euro Term
Loan”), (B) a new $
600.0
million senior secured term loan (the “Amended U.S. Term
Loan”),
and (C) a new $
500.0
million senior secured revolving credit facility (the “Amended Revolver”).
The Company has the right to
increase the amount of the dividend paid annuallyAmended Credit Facility by an aggregate amount
exceedsnot to exceed the greater of $50.0 $
300.0
million or
100
% of
Consolidated EBITDA, subject to certain conditions including the agreement
to provide financing by any lender providing such
increase).
In addition, the Amended Credit Facility also:
(i) eliminated
the requirement that material foreign subsidiaries must guaranty the Original Euro
Term Loan;
(ii) replaced
the U.S. Dollar borrowings reference rate from LIBOR to SOFR;
(iii) extended the maturity date of the Original Credit Facility from
August 2024
to
June 2027
; and
(iv) effected certain other changes to the Original Credit
Facility as set forth in the Amended Credit Facility.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
21
The Company used the proceeds of the Amended Credit Facility to repay
all outstanding loans under the Original Credit Facility,
unpaid accrued interest and 20%fees on the closing date under the Original
Credit Facility and certain expenses and fees.
U.S. Dollar-
denominated
borrowings under the Amended Credit Facility bear interest, at the Company’s
election, at the base rate or term SOFR
plus an applicable rate ranging from
1.00
% to
1.75
% for term SOFR loans and from
0.00
% to
0.75
% for base rate loans, depending
upon the Company’s consolidated
net leverage ratio.
Loans based on term SOFR also include a spread adjustment equal to
0.10
% per
annum.
Borrowings under the Amended Credit Facility denominated
in currencies other than U.S. Dollars bear interest at the
alternative currency term rate plus the applicable rate ranging from
1.00
% to
1.75
%.
The Amended Credit Facility contains affirmative
and negative covenants, financial covenants and events of default, including
without limitation restrictions on (a) the incurrence of additional
indebtedness;
(b) investments in and acquisitions of other businesses,
lines of business and divisions; (c) the making of dividends or capital stock
purchases;
and (d) dispositions of assets.
Dividends and
share repurchases are permitted in annual amounts not exceeding the greater
of $
75
million annually and
25
% of consolidated adjusted
EBITDA unlessif there is no default.
If the ratio of consolidated net debt to
consolidated adjusted EBITDAleverage ratio is less than 2.0
2.50
to 1, in which case there
1.00
, then the Company is no such limitation on amount.longer subject to
restricted payments.
Financial covenants contained in the Amended Credit Facility include
a consolidated interest coverage ratio test and a
consolidated net leverage ratio test.
The consolidated net leverage ratio at the end of a quarter may not be
greater than
4.00
 
to
1.00
,
subject to a permitted increase during a four-quarter
period after certain acquisitions.
The Company has the option of replacing the
consolidated net leverage ratio test with a consolidated senior net leverage ratio
test if the Company issues certain types of unsecured
notes, subject to certain limitations.
Events of default in the Amended Credit Facility include without limitation
defaults for non-
payment, breach of representations and warranties, non-performance
of covenants, cross-defaults, insolvency,
and a change of control
in certain circumstances.
The occurrence of an event of default under the Amended Credit Facility could result
in all loans and other
obligations becoming immediately due and payable and the Amended
Credit Facility being terminated.
As of March 31,September 30, 2022, andthe
December 31, 2021, the Company was in compliance with all of the Amended Credit Facility covenantscovenants.
The weighted average variable interest rate incurred on the outstanding
borrowings under the Original Credit Facility and the
Amended Credit Facility during the nine months ended September
30, 2022 was approximately
2.4
%. As of September 30, 2022, the
interest rate on the outstanding borrowings under the Amended Credit
Facility was approximately
3.8
%.
In addition to paying interest
on outstanding principal under the Original Credit Facility,
the Company was required to pay a commitment fee ranging from
0.2
% to
0.3
% depending on the Company’s consolidated
net leverage ratio under the Original Revolver in respect of the unutilized
commitments thereunder.
As part of the Amended Credit Facility,
the Company is required to pay a commitment fee ranging from
0.150
% to
0.275
% related to unutilized commitments under the Amended Revolver,
depending on the Company’s consolidated
net
leverage ratio.
 
The Term LoansCompany had unused capacity under the Amended Revolver of approximately
 
have quarterly$
principal amortization during their295
million, which is net of bank
letters of credit of approximately $
3
million, as of September 30, 2022.
The Company previously capitalized $
23.7
million of certain third-party debt issuance costs in connection with executing the
Original Credit Facility.
Approximately $
15.5
million of the capitalized costs were attributed to the Original Term
Loans and
recorded as a direct reduction of Long-term debt on the Condensed
Consolidated Balance Sheet.
Approximately $
8.3
million of the
capitalized costs were attributed to the Original Revolver and recorded
within Other assets on the Condensed Consolidated Balance
Sheet.
These capitalized costs were being amortized into Interest expense over
the
five year
 
terms, with
5.0
% amortizationterm of the principal balance due in years 1 and 2,
7.5
% in year
3, and
10.0
% in years 4 and 5, with the remaining principal amount due at maturity.Original Credit Facility.
 
DuringAs
of December 31, 2021, the three months ended March 31, 2022,Company had $
8.0
million of debt issuance costs recorded as a reduction of Long-term debt attributable
to
the Original Credit Facility.
As of December 31, 2021, the Company made quarterly amortization payments relatedhad $
4.3
million of debt issuance costs recorded within Other
assets attributable to the Original Credit Facility.
Prior to executing the Amended Credit Facility,
 
the Term Loans totaling
Company had $
14.16.6
 
million.million of
debt issuance costs recorded as a reduction of Long-term debt attributable
 
Theto the Original Credit Facility isand $
guaranteed by3.5
million of debt
issuance costs recorded within Other assets attributable to the Original
Credit Facility.
In connection with executing the Amended Credit Facility,
the Company recorded a loss on extinguishment of debt of
approximately $
6.8
million which includes the write-off of certain previously
unamortized deferred financing costs as well as a
portion of the Company’sthird-party and creditor debt issuance costs incurred
 
domestic subsidiaries to execute the Amended Credit Facility.
Also in connection with
executing the Amended Credit Facility,
during the second quarter of 2022, the Company capitalized $
2.2
million of certain third-party
and is secured by first priority liens on substantially allcreditor debt issuance costs.
Approximately $
0.7
million of the capitalized costs were attributed to the Amended Euro Term
Loan
and Amended U.S. Term
Loan.
These costs were recorded as a direct reduction of Long-term debt on the
Condensed Consolidated
Balance Sheet.
Approximately $
1.5
million of the capitalized costs were attributed to the Amended Revolver and
recorded within
Other assets on the Condensed Consolidated Balance Sheet.
These capitalized costs, as well as the previously capitalized costs that
were not written off will collectively be amortized into Interest expense
over the
five year
term of the Amended Credit Facility.
As of
September 30, 2022, the Company and the domestic subsidiary guarantors, subject to certainhad $
2.1
 
customary exclusions.million of debt issuance costs recorded as a reduction of Long-term debt on the
Condensed Consolidated Balance Sheet and $
4.6
 
million of debt issuance costs recorded within Other assets on the Condensed
Consolidated Balance Sheet.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
22
The obligations of the Dutch borrower
are guaranteed only by certain foreign subsidiaries on an unsecured basis.
TheOriginal Credit Facility required the Company to fix its variable interest
rates on at least
20
% of its total Original Term
Loans.
 
In order to
satisfy this requirement as well as to manage the Company’s
 
exposure to variable interest rate risk associated with
the Original Credit Facility,
in November 2019, the Company entered into $
170.0
 
million notional amounts of three yearthree-year interest rate
swaps at a base rate of
1.64
%
plus an applicable margin as provided in the Original Credit Facility,
 
based on the Company’s
consolidated
net leverage ratio.
 
At the time the
Company entered into the swaps, and as of March 31, September 30,
2022, the aggregate interest
interest rate on the swaps, including the fixed base rate plus
an applicable margin,
was
3.1
%.
 
The Amended Credit Facility does not require
the Company to fix variable interest rates on any portion of its borrowings.
As of September 30, 2022, the Company had not amended
its current interest rate swaps.
In October 2022, the Company’s interest
rate swap contracts expired.
Upon expiration, the Company is
entitled to a cash payment from the counterparties, which is materially consistent
with the fair value as of September 30, 2022.
See
Note 17 of Notes to Condensed Consolidated Financial Statements.
The Company capitalized $
23.7
million of certain third-party debt issuance costs in connection with executing
the Credit Facility.
Approximately $
15.5
million of the capitalized costs were attributed to the Term
Loans and recorded as a direct reduction of long-
term debt on the Company’s Consolidated
Balance Sheet.
Approximately $
8.3
million of the capitalized costs were attributed to the
Revolver and recorded within other assets on the Company’s
Consolidated Balance Sheet.
These capitalized costs are being
amortized into interest expense over the
five year
term of the Credit Facility.
As of March 31, 2022 and December 31, 2021, the
Company had $
7.2
million and $
8.0
million, respectively,
of debt issuance costs recorded as a reduction of long-term debt.
As of
March 31, 2022 and December 31, 2021, the Company had $
3.9
million and $
4.3
million, respectively,
of debt issuance costs recorded
within other assets.
 
Industrial development bonds
As of March 31,September 30, 2022 and December 31, 2021, the Company had fixed rate,
 
rate, industrial development authority bonds totaling
$
10.0
 
million in principal amount due in
2028
.
 
These bonds have similar covenants to the Amended Credit Facility noted above.
Bank lines of credit and other debt obligations
The Company has certain unsecured bank lines of credit and discounting
 
facilities in certain foreign subsidiaries, which are not
collateralized.
 
The Company’s other 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 March 31,September 30, 2022 was approximately
 
$
3012
 
million.
In addition to the bank letters of credit described in the “Credit facilities” subsection
above, the Company’s only other
off-balance
sheet arrangements include certain financial and other guarantees.
The Company’s total bank letters of
credit and guarantees
outstanding as of March 31,September 30, 2022 were approximately $
6
$5 million.
The Company incurred the following debt related expenses included
 
within Interest expense, net, in the Condensed Consolidated
Statements of Income:
Three Months Ended
March 31,Nine Months Ended
September 30,
 
September 30,
2022
2021
2022
2021
Interest expense
$
4,7469,465
$
4,6504,779
$
20,339
$
14,242
Amortization of debt issuance costs
353
1,187
1,1872,589
3,562
Total
$
5,9339,818
$
5,8375,966
$
22,928
$
17,804
Based on the variable interest rates associated with the Amended Credit Facility,
 
as of March 31,September 30, 2022 and the Original
Credit Facility as of December 31, 2021, the amounts
at which the Company’s
total debt
were recorded are not materially different
from their fair market value.
On September 30, 2022, annual maturities on the Amended Credit Facility in the
next five fiscal years (excluding the reduction to
long-term debt attributed to capitalized and unamortized debt issuance
costs) are as follows:
`
September 30,
2022
For the remainder of 2022
$
4,623
For the year ended December 31, 2023
18,491
For the year ended December 31, 2024
23,113
For the year ended December 31, 2025
36,981
For the year ended December 31, 2026
36,981
For the year ended December 31, 2027
820,974
Total payments
$
941,163
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
1923
Note 15 – Accumulated Other Comprehensive Income
The following tables show the reclassifications from and resulting balances
 
of accumulated other comprehensive income
(“AOCI”) for the three and nine months ended March 31,September 30, 2022 and 2021:
Defined
Unrealized
Currency
Benefit
(Loss) Gain in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at June 30, 2022
$
(133,110)
$
(11,269)
$
(1,170)
$
303
$
(145,246)
Other comprehensive (loss) income before
Reclassifications
(71,948)
453
(1,006)
(182)
(72,683)
Amounts reclassified from AOCI
—
210
(30)
—
180
Related tax amounts
—
(166)
218
42
94
Balance at September 30, 2022
$
(205,058)
$
(10,772)
$
(1,988)
$
163
$
(217,655)
Balance at June 30, 2021
$
(12,177)
$
(21,778)
$
596
$
(2,584)
$
(35,943)
Other comprehensive (loss) income before
Reclassifications
(19,905)
488
(85)
567
(18,935)
Amounts reclassified from AOCI
—
709
(176)
—
533
Related tax amounts
—
(293)
46
(131)
(378)
Balance at September 30, 2021
$
(32,082)
$
(20,874)
$
381
$
(2,148)
$
(54,723)
Defined
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
RetirementPension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at December 31, 2021
$
(49,843)
$
(13,172)
$
397
$
(1,372)
$
(63,990)
Other comprehensive (loss) income before
reclassifications
(6,867)(155,215)
4322,535
(1,277)(3,326)
1,4291,993
(6,283)(154,013)
Amounts reclassified from AOCI
0—
229657
11306
0—
240963
Related tax amounts
0—
(165)(792)
266635
(329)(458)
(228)(615)
Balance at March 31,September 30, 2022
$
(56,710)(205,058)
$
(12,676)(10,772)
$
(603)(1,988)
$
(272)163
$
(70,261)(217,655)
Balance at December 31, 2020
$
(2,875)
$
(23,467)
$
3,342
$
(3,598)
$
(26,598)
Other comprehensive (loss) income before
 
reclassifications
(25,459)(29,207)
7811,009
(745)(489)
7301,883
(24,693)(26,804)
Amounts reclassified from AOCI
0—
8622,423
(3,085)(3,259)
0—
(2,223)(836)
Related tax amounts
0—
(351)(839)
805787
(168)(433)
286(485)
Balance at March 31,September 30, 2021
$
(28,334)(32,082)
$
(22,175)(20,874)
$
317381
$
(3,036)(2,148)
$
(53,228)(54,723)
All reclassifications related to unrealized gain (loss) in available-for-sale securities relate
 
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
 
currency translation adjustments.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
24
Note 16 – Fair Value
 
Measurements
The Company has valued its company-owned life insurance policies at fair value.
 
These assets are subject to fair value
measurement as follows:
Fair Value
 
Measurements at March 31,September 30, 2022
Total
Using Fair Value
 
Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
$
2,3952,018
$
0—
$
2,3952,018
$
0—
Total
$
2,3952,018
$
0—
$
2,3952,018
$
0—
Fair Value
 
Measurements at December 31, 2021
Total
Using Fair Value
 
Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
 
$
2,533
$
0—
$
2,533
$
0—
Total
$
2,533
$
0—
$
2,533
$
0—
The fair values of Company-owned life insurance assets are based on quotes
 
for like instruments with similar credit ratings and
terms.
 
The Company did not
no
t hold any Level 3 investments as of March 31,
September 30, 2022 or December 31,
2021, respectively,
so related
disclosures have not been included.
Note 17 – Hedging Activities
In order to satisfy certain requirements of the Original Credit Facility as well as to manage
 
the Company’s exposure to variable
 
interestvariable
interest rate risk associated with the Original Credit Facility,
 
in November 2019, the Company entered into $
170.0
 
million notional
amounts of three
three year
interest rate swaps.
 
See Note 14 of Notes to Condensed Consolidated Financial Statements.
 
These interest rate
swaps are
designated as cash flow hedges and, as such, the contracts are marked-to-market
 
at each reporting date and any unrealized
gains or
losses are included in AOCI to the extent effective
and reclassified to interest
expense in the period during which the transaction
effectstransaction affects earnings or it becomes probable
that the forecasted
transaction will not occur.
In June 2022, the Company amended the Original Credit Facility.
 
See Note 14 of Notes to the Condensed Consolidated Financial
Statements.
The Amended Credit Facility does not require the Company to fix variable
interest rates on any portion of its borrowings.
In October 2022, the Company’s
interest rate swap contracts expired.
Upon expiration, the Company is entitled to a cash payment
from the counterparties, which is materially consistent with the fair value as of
September 30, 2022.
The balance sheet classification and fair values of the Company’s
derivative instruments, which are Level 2 measurements, are as
follows:
Fair Value
Condensed Consolidated
September 30,
December 31,
Balance Sheet Location
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
Prepaid expenses and other current assets
$
212
$
—
Other accrued liabilities
—
1,782
$
212
$
1,782
The following table presents the net unrealized (gain) loss deferred to AOCI:
September 30,
December 31,
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
AOCI
$
163
$
1,372
$
163
$
1,372
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
20
The balance sheet classification and fair values of the Company’s
derivative instruments, which are Level 2 measurements, are as
follows:
Fair Value
Consolidated
March 31,
December 31,
Balance Sheet Location
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
Other accrued liabilities
$
353
$
1,782
$
353
$
1,782
The following table presents the net unrealized loss deferred to AOCI:
March 31,
December 31,
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
AOCI
$
272
$
1,372
$
272
$
1,372
25
The following table presents the net gain (loss) reclassified from AOCI to earnings:
Three Months Ended
March 31,Nine Months Ended
September 30,
 
September 30,
2022
2021
2022
2021
Amount and location of expense reclassified
Interest income
from AOCI into expense (Effective Portion)(effective portion)
Interest expense,(expense), net
$
(637)134
$
(643)(672)
$
(882)
$
(1,974)
Interest rate swaps are entered into with a limited number of counterparties,
 
each of which allows for net settlement of all
contracts through a single payment in a single currency in the event
of a default on
or termination of any one contract.
 
As such, in
accordance with the Company’s accounting
 
policy, these derivative instruments
 
are recorded on a net basis within the Condensed
Consolidated Balance Sheets.
Note 18 – Commitments and Contingencies
The Company previously disclosed in its 2021 Form 10-K that AC Products, Inc.
 
(“ACP”), a wholly owned subsidiary,
 
has beenin 2007,
operating aagreed to operate two groundwater treatment systems, so as to hydraulically
contain groundwater contamination emanating from
ACP’s site until such time as the concentrations
of contaminants are below the current Federal maximum contaminant
level for four
consecutive quarterly sampling events. In 2014, ACP ceased operation
at one of its two groundwater treatment systems, as it had met
the above condition for closure. As of September 30, 2022, ACP continues
to operate the second groundwater treatment system, to hydraulically contain groundwaterwhile
the Company discusses with the relevant authorities whether the second
 
contamination emanating from ACP’s site,
the
principal contaminant of which is perchloroethylene.
As of March 31, 2022, ACP believes it is close to meetinggroundwater treatment system meets the conditions for
closure ofclosure.
In addition, the groundwater treatment system, butSanta Ana Regional Water
Quality Control Board requested that ACP conduct additional indoor
and outdoor
soil vapor testing on and near the ACP site to confirm that ACP continues to operatemeet the applicable
 
this system while in discussions with the relevant authorities.
local soil vapor standards.
 
As of March 31,
September 30, 2022, ACP performed such testing and is awaiting the review
of the results from the Santa Ana Regional Water
Quality
Control Board.
As of September 30, 2022, the Company believes that the range of potential-knownpot
 
ential-known liabilities associated with the balance of the ACP
ACP water remediation program is approximately $
0.1
 
million to $
1.0
 
million.
 
The low and high ends of the range are based on the length
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.
The Company previously disclosed in its 2021 Form 10-K that an inactive
 
subsidiary of the Company that was acquired in 1978
sold certain products containing asbestos, primarily on an installed basis, and
 
is among the defendants in numerous lawsuits alleging
injury due to exposure to asbestos.
 
During the three and nine months ended March 31,September 30, 2022, there have been
no significant
changes to the facts
or circumstances of this previously disclosed matter,
 
aside from on-going claims and routine payments associated
with this litigation.
 
Based on a continued analysis of the existing and anticipated future claims against this subsidiary,
 
this subsidiary, it is currently
projected that the
subsidiary’s total
liability over
the next
50 years
for these claims is approximately $
0.3
 
million (excluding costs of
defense).
The Company previously disclosed in its 2021 Form 10-K that it is party to certain environmental
 
matters related to certain
domestic and foreign properties.
 
These environmental matters primarily require the Company
 
to perform long-term monitoring asand
well as operating and maintenance at each of the applicable sites.
 
During the three and nine months ended March 31,September 30, 2022, there have been
 
been no
significant changes to the facts or circumstances of these previously disclosed
 
matters, aside from on-going monitoring and
maintenance activities and routine payments associated with each of
 
the sites.
 
The Company continually evaluates its obligations
related to such matters, and based on historical costs incurred and
 
projected costs to be incurred over the next
27 approximately 30 years,
, has estimated
the range of costs for all of these environmental matters, on
a discounted
basis, to be between approximately $
55.0
million and $
6.0
 
million and $
6
million
as of March 31,September 30, 2022, for which $
5.95.2
 
million was accrued within other accrued liabilities and other non-currentnon-
current liabilities on the
Company’s
 
Condensed Consolidated Balance Sheet as of March 31,September 30, 2022.
 
Comparatively, as of
December
31, 2021, the Company
had $
5.6
 
million accrued for with respect to these matters.
Although there can be no assurance regarding the outcome of other
unrelated environmental matters, the Company believes that it
has made adequate accruals for costs associated with other environmental matters
for which it is aware, and has accrued $
0.4
million
as of both September 30, 2022 and December 31, 2021, respectively,
to provide for such anticipated future environmental assessments
and remediation costs.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
2126
The Company believes, although therepreviously disclosed in its 2021 Form 10-K that during the first nine
months of 2021, one of the Company’s
Brazilian subsidiaries received a notice that it had prevailed on an existing legal
claim in regard to certain non-income (indirect) taxes
that had been previously charged and paid.
The matter specifically related to companies’ rights to exclude the state tax on goods
circulation (a valued-added-tax or VAT
equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect
taxes (specifically the program of social integration (“PIS”) and contribution
for the financing of social security (“COFINS”)) levied
by the Brazilian States on the sale of goods.
In May 2021, the Brazilian Supreme Court concluded that ICMS should
not be included
in the tax base of PIS and COFINS, and confirmed the methodology for calculating the
PIS and COFINS tax credit claims to which
taxpayers are entitled.
The Company’s Brazilian entities had previously
filed legal or administrative disputes on this matter and are
entitled to receive tax credits and interest dating back five years preceding the
date of their legal claims.
As a result of these court
rulings in the first nine months of 2021, the Company recognized non-income
tax credits of
67.0
million BRL or approximately $
13.3
million, which includes approximately $
8.4
million for the PIS and COFINS tax credits as well as interest on these tax credits of $
4.9
million.
The tax credits to which the Company’s
Brazilian subsidiaries are entitled are claimable once registered with the Brazilian
tax authorities which the Company subsequently completed.
These tax credits can be no assurance regardingused to offset future Brazilian federal taxes
and
the Company currently anticipates using the full amount of credits during the
 
outcomefive year period of other unrelated environmental matters, that
it has made adequate accruals for costs associated with other environmental
problems of which it is aware.
Approximately $
0.4
million were accrued as of both March 31, 2022 and December 31, 2021,
respectively, to provide
for such anticipated future
environmental assessments and remediation costs.
time permitted.
In connection with obtaining regulatory approvals for the Combination,
 
certain steel and aluminum related product lines of
Houghton were divested in August 2019.
The Company previously disclosed
in its 2021 Form 10-K that in July 2021, the entity
that
acquired these divested product lines submitted an indemnification claim
 
for certain alleged breaches of representation made by
Houghton in the agreement pursuant to which such assets had been divested.
 
The Company responded to the subject matters of the
indemnification claim and during the first quarter of 2022, the
matter was resolved
consistent with the Company’s expectations
 
expectations and
position that there were
no
amounts owed by the Company.
The Company previously disclosed in its 2021 Form 10-K that two of the Company’s
 
locations suffered property damages as a
result of flooding and electrical fire, respectively.
 
The Company maintains property and flood insurance for all of its facilities
globally.
 
During the three
nine months ended March 31,September 30, 2022, there have been no significant changes to
 
to the facts or circumstances of
these previously disclosed
matters, aside from the on-going restoration
of both sites.
 
The Company, its insurance
 
adjuster and
insurance carrier are actively
managing the remediation and restoration
activities associated with these
events and at this time the
Company has concluded, based on
all available information and discussions
with its insurance adjuster
and insurance carrier,
that the
losses were covered under the Company’s
 
under the
Company’s property and flood insurance
coverage, net of an aggregate deductible of $
2.0
 
million.
 
The
Through September 30, 2022, the Company has received payments from
its insurers of $
2.13.9
 
million and has recorded an insurance receivable associated with these events (andevents.
During the three months ended September 30, 2022, the Company recognized
 
a gain on insurance recoveries
for losses incurred) of $
0.51.1
million.
The
Company has recorded an insurance receivable of $
0.2
 
million as of March 31,September 30, 2022.
See Note 10 of Notes to the Condensed
Consolidated Financial Statements.
The Company is party to other litigation which management currently
 
believes will not have a material adverse effect on the
Company’s results of operations,
 
cash flows or financial condition.
 
In addition, the Company has an immaterial amount of contractual
purchase obligations.
Quaker Chemical Corporation
Management’s Discussion and Analysis
2227
Item 2.
 
Management’s Discussion and Analysis
 
Analysis of Financial Condition and Results of Operations
.
As used in this Report, the terms “Quaker Houghton,”
the “Company,”
 
,” “we,”“we” and “our” refer to Quaker Chemical Corporation
(doing business as Quaker Houghton), its subsidiaries, and associated companies,
 
unless the context otherwise requires.
 
The term the
Legacy Quaker“Combination” refers to the Company prior to the closing of itslegacy Quaker combination with Houghton
 
with Houghton International, Inc. in 2019 (“Houghton”)
(herein referred to as the “Combination”). on August 1, 2019.
Executive Summary
Quaker Houghton is the global leader in industrial process fluids.
 
With a presence around the world, including operations
 
in over
25 countries, our customers include thousands of the world’s
 
most advanced and specialized steel, aluminum, automotive, aerospace,
offshore, can,container, mining,
and metalworking companies.
 
Our high-performing, innovative and sustainable solutions are backed
by best-
in-classbest-in-class technology,
 
deep process knowledge, and customized services.
 
Quaker Houghton is headquartered in Conshohocken,
Pennsylvania, located near Philadelphia in the U.S.
Overall, the Company’s firstCompany delivered solid results in the third quarter of 2022
 
of 2022 performance reflecteddespite continued progress navigating through
a very challengingand persistent financial, economic and
economic environment,geopolitical headwinds, including significantongoing raw material cost escalation supply
 
and overall inflationary pressures, supply chain and logistics disruptions
challenges, the direct and the direct,
indirect and global impacts of the ongoing war in Ukraine, and other global eventsZero-COVID
 
that presented headwinds to the Companypolicies in the first quarterChina, and foreign currency
of 2022.volatility.
 
NetNotwithstanding these challenges, net sales in the firstthird quarter of 2022
were $474.2$492.2 million, an increase of 10% compared
to $429.8$449.1 million in the firstthird quarter
of 2021,2021.
This was primarily driven by an increase in selling price and product mix of
of approximately 17%25% and additional net sales from
acquisitions of 2%1%, partially
offset by a decline in organic
sales volumevolumes of 6%9% and the
an unfavorable impact from foreign currency
translation of 3%7%.
 
The increase in selling price and product mix iswas primarily the result
of
continued and strategic price increases
implemented to help offset the unprecedented increase in
 
raw material costs as well as global supply chain and logistics and labor cost
ongoing inflationary pressures that began duringat the onset of 2021 and continued throughhave escalated
throughout 2021 and into the first quarter
nine months of 2022.
 
The decline in organic sales volumes was primarily
attributable to
softer end
market conditions, particularly in Europe and Asia/Pacific, the comparison to a very strong first quarter of 2021, wherewind-down
 
customers replenished their supply chains due to the
continued economic recovery from COVID-19, the impact of lower
volumes related to the tolling agreement for products previously divested
products associated withrelated to the Combination and lower sales volumes attributablethe direct and indirect impacts of the ongoing
 
to the war in Ukraine.
 
The Company’s organic
sales
volumes increased approximately 3% sequentially compared to the
fourth quarter of 2021, as continued new business wins were
partially offset by the Company’s
actions to strategically reduce volumes in accordance with its ongoing value
-based pricing
initiatives.
The Company generated net income in the firstthird quarter of 2022 of $19.8$25.9 million,
 
or $1.11$1.44 per diluted share, compared to a firstnet
quarter of 2021 net income of $38.6$31.1 million, or $2.15$1.73 per diluted share in the third quarter
 
share.of 2021.
 
Excluding non-recurring and non-core items in each period, the
the Company’s firstthird quarter of 2022
 
non-GAAP earnings per diluted share were $1.42$1.74 compared to $2.11
$1.63 in the prior
year first quarter
and the
Company’s current quarter
 
adjusted EBITDA of $60.4was $70.3 million decreased 22% compared to $77.1
$66.2 million in the firstthird quarter
of
2021.
 
These results
were primarily driven by lower gross marginshigher net sales in
the current quarter duecoupled with
an improvement in gross margins compared to significantlythe prior
year quarter, partially offset
by the unfavorable impact of foreign currency translation and higher raw material and
other input costs as well as the direct and indirect impacts of global supply chain disruptions,selling,
 
and to a lesser extent, by higher selling,
general and administrative
expenses (“SG&A”). as a result of significant year-over-year
 
Sequentially, the Company’s
adjusted EBITDA was relatively flat compared to the
fourth quarter of 2021.inflationary pressures.
 
See the Non-GAAP Measures section of this Item
below,
as well as other
items discussed in the Company’s
Consolidated Operations Review in the Operations section of this Item,
below.
The Company’s firstthird quarter
of 2022
operating performance in each of its four reportable segments: (i) Americas;
 
Americas; (ii) Europe,
Middle East and Africa (“EMEA”); (iii) Asia/Pacific; and (iv) Global Specialty
 
Businesses, reflect similar drivers to that of its
consolidated performance as each of the Company’s
 
reportable segments net sales benefitted from double-digit year-over-year
increases in selling
price and product mix, and additionalwhile those increases in net sales from acquisitions, while mostwere
 
segments were partially offset by lower sales volumesthe significant and unfavorable
and the unfavorable impact of foreign currency translation.
 
Operating earnings from All geographic segments had lower organic sales volumes, however
organic sales volumes for
the Global SpecialtySpeciality Businesses increased in the third quarter of
2022 compared to the prior year quarter whereasdue to continued end market
demand.
Operating earnings for the Global Specialty Businesses and Americas increased compared
to the prior year quarter, driven
by higher net sales and an improvement in margins.
Operating earnings for Asia/Pacific were relatively flat year-over-year
as lower
net sales were offset by an improvement in the segment’s
margins.
EMEA operating earnings from
the Americas, Asia/Pacific, and EMEA segments declined.
This
was a result of lower segment gross margins which
were unfavorably impacted by the lag in price capturedeclined compared to the continuedprior year due
costto the persistent and significant inflationary pressures on our raw materials global supply chainand
other costs and logistics networks,the negative impact of foreign currency
translation, partially offset by continued price
 
and manufacturing, labor and other costs.realization.
 
Additional
details of each segment’s operating
 
operating performance are further
discussed in the Company’s Reportable
 
Reportable Segments Review, in the Operations
 
in the
Operations section of this Item, below.
The Company had a net operating cash outflow of $6.3$26.3 million in the first quarternine
 
months of 2022 as compared to a net operating cash
outflowflow of $12.6$2.5 million in the first quarternine months of 2021.
 
Despite theThe net operating cash outflow year-over-year reflects lower year-to-date
operating performance in both periods,2022 compared to 2021 as well as the continued
significant current year working capital investment
primarily related to higher accounts receivable due to the increase in net
operating cash flow quarter-over-quarter
 
was primarily driven by a modest improvement in working capital compared to the prior
year
first quarter, notably by a lower outflow
related to accounts receivable partially offset by an increase insales, higher inventory
due to higher raw
material costs and a build in certain inventory in response to global supply
chain and logistics challenges.lower levels of accounts payable.
 
The key drivers of the
Company’s operating
 
operating cash flow and working capital are further discussed in
the Company’s Liquidity
 
Liquidity and Capital Resources section
of this Item, below.
Quaker Chemical Corporation
Management’s Discussion and Analysis
2328
Overall, results in the firstCompany delivered another quarter of 2022 reflectedstrong net sales growth,
driven by strong price realization, both sequentially
and year-over-year.
Coupled with an improvement in gross margin, these factors contributed
to the Company’s current quarter
earnings growth despite the ongoing inflationary pressures, unfavorable
foreign currency translation, macroeconomic and geopolitical
challenges and other disruptions that impacted the Company’s
 
ability to continue to navigate through persistent raw material
cost pressures, supply chain challenges including those impactingcustomers and end markets. Looking at the remainder of 2022,
 
the
Company remains focused on semiconductors for the automotive end markets and the impacts
of certain global economic events including the Russia conflict with Ukraine.executing on items within its control
 
Increasesas it manages through a continued uneven end market environment
and softer market conditions, primarily in net sales in all segments were primarily
driven by an increase in selling price implemented to offset the ongoingEurope and Asia/Pacific.
 
andThe Company is encouraged by the resilience of its diversified
portfolio despite significant escalation of raw material costs and a
favorable demand environment across most of the Company’suncertainty caused by several macroeconomic
 
markets.factors.
 
However, raw material cost increases continuedWe continue
 
to outpaceexpect to deliver further sequential
the Company’s broad-based
pricing initiativesgross margin improvement in the fourth quarter
of 2022, as well as higher earnings in the second half of 2022 as compared to
the first quarter
half of 2022 and the Company’s
margins and earnings reflect the
significantly different cost environment in the first
quarter of 2022 compared to the first quartersecond half of 2021.
 
The Company continues to
implement further aggressive and strategic price increases and is actively
managing its cost structure to mitigate the current and
expected inflationary pressures.
While significant uncertainty exists, notably due to pandemic-related
restrictions in China and the
ongoing war in Ukraine, the Company remains committed to advancing
its customer intimate strategy, recovering
its margins and
investing in value enhancing initiatives to better position the Company
to continue to deliver on its growth potential.
OngoingOn-going impact of COVID-19
The global outbreak of COVID-19 in March of 2020 has negatively impacted
all locations where
the Company does business.
 
Although the
Company has now operated in this COVID-19 environment for
 
for more than two years, the full extent of the outbreak and
related business impacts
continue to remain uncertain and volatile, and
therefore the full extent
to which COVID-19 may impact the
Company’s future results of operations
 
future results
of operations or financial condition is uncertain.
 
This outbreak has significantly disrupted the operations of
the Company and those of
its suppliers and customers and, at times during
the pandemic, the Company
has experienced volume
declines and lower net sales as
compared to pre-COVID-19 levels.
 
Management continues to monitor the impact that the COVID-19 pandemic is having
on the Company,
 
is having on the
Company, the overall specialty
chemical industry and the economies and markets in which the Company
operates.
 
The prolonged
prolonged pandemic and resurgences of the outbreak including
 
as new variants continue to emerge, and continued restrictions on
 
day-to-dayday-
to-day life
and business operations such as continuing restrictions in China,
as well as increased border controls or closures and transportation
disruptions,
 
disruptions may result in volume declines
and lower net sales in future periods.
 
To the extent that the Company’s
 
customers and
suppliers continue to be significantly and
are adversely impacted by COVID-19, this could reduce the availability,
 
availability, or result in delays,
of materials or supplies to or
from the
Company, which in
 
in turn could significantly interrupt the Company’s
 
business operations.
 
Given this ongoing uncertainty,
the
the Company cautions that its future results of operations could be significantly
 
and adversely impacted by COVID-19.
 
While the
circumstances have presented and are expected to continue to present challenges
 
and have necessitated additional time and resources
to be deployed to sufficiently address the challenges
 
brought on by the pandemic at this time, managementManagement does not believe that
COVID-19 has had a material impact on its financial reporting processes, internal
 
controls over financial reporting, or disclosure controls
controls and procedures.
 
The Company’s top priority
 
especially during this pandemic, is to protect the health and safety of its employees and
customers,
while working to ensure business
continuity to meet customers’ needs.
 
TheDuring the pandemic, the Company has taken incremental steps to protect
the health and
wellbeing of its people in affected areas through various actions, including
 
enabling work at home where needed and practicable, and
employing social distancing standards, implementing travel restrictions where
 
applicable, enhancing onsite hygiene practices, and
instituting visitation restrictions at the Company’s
 
facilities.
 
The Company has not and does not expect that it will incur material
expenses implementing these health and safety policies.
 
With the exception of its Shanghai-based operations,
which have been and
continue to be significantly impacted since late March 2022 due to government restrictions
currently in place in that province of
China, allAll of the Company’s more
than 30 other production
facilities worldwide are open
and operating
and are deemed as essential
businesses in the jurisdictions where
they are operating and the Company believes
that to date it has been able to meet the needs of all
its customers across the globe despite the current challenges.operating.
 
The Company continues to expect
that the impacts from COVID-19 will
gradually decline subject to the effective containment
 
containment of the virus and its variants and successful
distribution and acceptance of the
available vaccines and treatments; however,
 
the incidence of reported cases of COVID-19 or a
variant in several geographies where
the Company has significant operations
remains relatively high.
 
Differing government responses
to these reported cases continues to
evolve and
it therefore remains highly uncertain
as to how long the global pandemic
and related
economic challenges will last in each of the
jurisdictions where the Company does conducts
business and when our customers’ businesses
businesses will recover to pre-COVID-19 levels.
 
As a result
of the government-imposed quarantine and lockdown measures implemented
at the end of March 2022, which are currently in effect,
the Company’s Shanghai
-based locations have been and continue to be significantly impacted as of the date of
this Form 10-Q.
The
negative impact of these measures to operations and liquidity has and will be
experienced during the second quarter of 2022, and the
ultimate impact will depend on the duration of the quarantine and lockdown
measures in effect.
While the actions the Company has taken to date to
protect our workforce, to
continue to serve
our customers with excellence
and to conserve cash and reduce costs as applicable,
have
been effective thus far,
further actions to
to respond to the pandemic and its effects may be necessary as conditions
 
continue to evolve.
Impact of Political Conflicts
 
A significant portion of the Company’s
 
revenues and earnings are generated by non-U.S. operations which subjectsoperations.
 
This subjects the Company
to political and economic risks that could adversely affect the Company’s
 
business, liquidity, financial
 
position and results of
operations.
 
The existence of military conflicts, for example the Russian invasion of Ukraine, bring
 
inherent risks such as the potential
for supply chain disruptions, increased costs of resources including oil, decreased
trade activity and other consequences related to
to economic or other sanctions.
 
The U.S.
Quaker Chemical Corporation
Management’s Discussion and Analysis
24
government and other nations have imposed significant restrictions on
 
on most companies’ ability
to do business in Russia as a result of
the military conflict between Russia and Ukraine.
 
It is not possible to predict the broader or
longer-term consequences
of this conflict,
which could include further sanctions, embargoes,
 
embargoes, regional instability, geopolitical
 
geopolitical shifts
and adverse effects on macroeconomic conditions,
conditions, security conditions, currency exchange rates and financial
markets.
 
Such geo-political instabilityThe military
conflict between Russia and uncertainty could
haveUkraine has had a negative impact on the Company’s
 
ability to sell to, ship products to, collect payments
from, and support customers in certain
regions based on trade restrictions,
embargoes and export
control law restrictions, and
logistics
restrictions including closures of air space.
 
air
space, andIf this conflict continues or expands, it could increase the costs, risks and adverse
impacts
from these new
challenges.
 
The Company and its customers and suppliers may also be the subject of
increased cyber-attacks.
Quaker Chemical Corporation
Management’s Discussion and Analysis
29
 
During the second quarter of 2022, the Company decided to cease its operations
in Russia.
 
The Company’s operations in the
conflict areas including Russia, Ukraine and Belarus represent historically represented
less than 2% of the Company’s consolidated net
 
the Company’ssales
consolidated net sales and less than 1% of the Company’s
 
consolidated total assets.
 
The Company’s primary exposure
 
exposure in the conflict areas related to
area relates to outstanding customer accounts receivable.
 
The Company is actively monitoring theits outstanding Russian receivables for collections
collections and has recorded incremental allowance allowances
for doubtful accounts
where warranted.
The Company continues to review the
facts and circumstances of its customers and the impact of the ongoing
sanctions as they relate to its continued business with impacted
customers and the collectability of outstanding accounts receivable.
The Company also has and continues to monitor the impact of the
volatility and uncertainty in the economic outlook as a result of the conflict with respect
to the recoverability of its long-term and
indefinite-lived assets, including assessing potential triggering events for
impairment considerations related to intangible assets and
goodwill.
As of March 31, 2022, the Company concluded that the conflict and its current and projected
impact to the Company did
not represent a triggering event and the Company continues to monitor and evaluate
the evolving situation.
Liquidity and Capital Resources
At March 31,September 30, 2022, the Company had cash and cash equivalents of
 
$161.6138.9 million.
 
Total cash and cash equivalents
was $165.2
$165.2 million at December 31, 2021.
 
The $3.6$26.3 million decrease in cash and cash equivalents was the net result of
 
of $18.2$46.6 million of
cash used
in investingprovided by financing activities and $6.3offset by $26.3 million of
cash used in operating activities, partiall$29.6
 
y
offset by $20.6 million of cash provided byused in
financinginvesting activities and a $0.3$17.0 million positivenegative impact due to the effect
 
of foreign currency translation.
Net cash flows used in operating activities were $6.3$26.3 million in the first three monthsnine
 
months of 2022 compared to net cash flows used in
provided by operating activities of $12.6$2.5 million in the first threenine months
of 2021.
 
The increasedecrease in net operating cash flowsflow year-over-
year reflects lower first nine months of $6.3 million wasthe year operating performance
in 2022 compared to 2021 as well as the continued significant
primarily driven by a lowercurrent year working capital outflow quarter-over-quarter,investment primarily related to higher
 
asaccounts receivable due to the Company had a smaller increase in accounts
receivable in the first quarter of 2022 due to changes in current quarter net
sales, which was partially offset by a higher outflow from
inventory due to increasesan increase in raw material costs and, continuedto a lesser extent, a build in certain inventory
 
of stock in response to global supply chain and logistics
challenges, and other recent global economic events.
Also, in the first quarteras well as lower levels of 2022, the Company received a $2.8 million dividend
from the Company’s Korean
joint venture, with no similar dividend received in the prior year period.
accounts payable due to timing.
Net cash flows used in investing activities were $18.2$29.6 million in the
 
first threenine months of 2022 compared to $15.8$30.1 million in the
first threenine months of 2021.
 
This increaseThe relatively consistent level of cash used in cash outflows was ainvesting activities year-over-year
is the net result of lower
cash proceeds from the disposition
of assets which
included the sale of certain
held-for-sale real property assets related to the
Combination in the prior year period, and higher capital expenditures
expenditures in the current year largely related to certain infrastructure and
sustainability-related spending,
 
infrastructure and sustainability-related spending.
These increases in cash
used in investing activities were partially offset by
lower cash payments related to acquisitions as a result
of the level of acquisition
activity in each year.
 
See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.
Net cash flows provided by financing activities were $20.6$46.6 million in the first
 
threenine months of 2022 compared to $13.0net cash flows
used in financing activities of $10.5 million in
the first threenine months
of 2021.
 
The increase in net cash flows was primarily related to ana
larger increase in borrowings
in the current year under
under the Company’s credit facility,
 
facilitywhich was amended and extended, as compared to further
described below, in
the prior year.second quarter of 2022.
 
In addition, the Company paid $7.4$22.3 million of cash dividends
during the first three nine
months of 2022, a $0.4$1.1 million or 5% increase in cash dividends compared
 
compared to the prior year.
 
See Note 2
The Company, its wholly
owned subsidiary,
Quaker Chemical B.V.,
as borrowers, Bank of NotesAmerica, N.A., as administrative
agent, U.S. Dollar swing line lender and letter of credit issuer,
and the other lenders party thereto, entered into a credit agreement on
August 1, 2019, as amended (the “Original Credit Facility”).
During June 2022, the
Company, and its wholly owned
subsidiary,
Quaker Houghton B.V.,
as borrowers, Bank of America, N.A., as administrative agent, U.S. Dollar swing
line lender and letter of
credit issuer, Bank of America Europe
Designated Active Company,
as Euro Swing Line Lender, certain guarantors
and other lenders
entered into an amendment to Condensed Consolidated Financial Statements in Item 1the Original Credit Facility (the “Amended
Credit Facility”).
The Company used the proceeds of this Report.the
Amended Credit Facility to repay all outstanding loans under the Original
Credit Facility, as well as accrued interest
and fees, and to
terminate the revolving credit commitments under the Original Credit
Facility.
The Company’s primary credit facilityAmended Credit
 
(the “Credit Facility”)Facility is comprised of a $400.0$500.0 million multicurrency revolver,
 
revolver (the
“Revolver”), a $600.0 million term loan (the “U.S. Termand
Loan”), each with the Company as borrower, and
a $150.0 million (as of
August 1, 2019) June 17, 2022) Euro equivalent term loan (the “Euro Term(collectively,
 
Loan” and together with the U.S.“Amended Term
Loan”, the “Term Loans”)
 
with the Company and
Quaker ChemicalHoughton B.V.,
 
a Dutch subsidiary of the Company as borrower,
borrowers, each with a five yearfive-year term maturing in August 2024.June 2027.
 
Subject
to the consent of the administrative agentAdministrative
Agent and certain other conditions,
 
conditions, the Company may designate additional borrowers. The Company
 
Thehas the right to increase the
maximum amount available of the Amended Credit Facility by an aggregate amount not
to exceed the greater of (i) $300 million and (ii) 100% of
Consolidated EBITDA, subject to certain conditions, including
the agreement to provide financing by any Lender providing any such
increase. U.S. Dollar-denominated borrowings
under the Credit Facility can be increased by
up to $300.0 million at the Company’s request
if there are
lenders who agree to accept additional commitments and the Company has
satisfied certain other conditions.
Borrowings under the
Amended Credit Facility bear interest, at athe Company’s
election, at the base
rate or term Secured Overnight Financing Rate (“SOFR”) plus an applicable
rate ranging from 1.00% to 1.75% for term SOFR loans
and from 0.00% to 0.75% for base rate plus an applicable marginloans, depending upon the
 
Company’s consolidated net leverage
ratio.
Loans based on the Company’s consolidatedterm
SOFR also include a spread adjustment equal to 0.10% per annum.
 
net leverage ratio.
The
weighted average interest rate incurred on the outstanding borrowings
Borrowings under the Amended Credit Facility during bothdenominated in
currencies other than U.S. Dollars bear interest at the first quarter of 2022
and as of March 31, 2022 was approximately 1.6%.alternative currency
 
term rate plus the applicable rate ranging from 1.00% to
1.75%. In addition to paying interest on outstanding principal under
the Amended Credit Facility,
the Company
is required to pay a
commitment fee ranging from 0.2%
0.15% to 0.3%0.275% depending on the Company’s
 
Company’s consolidated net leverage
ratio to the lendersLenders under the
Amended Revolver in respect of the unutilized commitments
thereunder.
Quaker Chemical Corporation
Management’s Discussion and Analysis
2530
The Amended Credit Facility is subject to certaincontains affirmative
and negative covenants, financial covenants and other covenants.events of default that are
customary for agreements of this nature.
 
The Company’s initial consolidated netAmended Credit Facility contains a number of customary business covenants,
 
debt toincluding
consolidated adjusted EBITDA ratio could not exceed 4.25 to 1,without limitation restrictions on (a) the incurrence of additional
 
with step downsindebtedness by the Company or certain of its subsidiaries, (b)
investments in the permitted ratio over the termand acquisitions of the Credit
Facility.other businesses, lines of business and
 
Asdivisions by the Company or certain of March 31, 2022, its subsidiaries, (c)
the consolidated net debt to consolidated adjustedpayment of dividends or capital stock purchases by the Company
 
EBITDA ratio may not exceed 3.75 to 1.or certain of its subsidiaries and (d) dispositions
 
Theof assets by the
Company or certain of its subsidiaries.
Dividends and share repurchases are permitted in annual amounts
not exceeding the greater of
$75 million annually and 25% of Consolidated EBITDA if there is no default.
If the Company’s consolidated
 
adjusted EBITDAnet leverage ratio is less
than 2.50 to 1.00 then the Company is no longer subject to restricted payments
.
Financial covenants contained in the Amended Credit Facility include
a consolidated interest expensecoverage ratio test and a
consolidated net leverage ratio test.
The consolidated net leverage ratio at the end of a quarter may not be less
greater than 3.04.00 to 1 over the1.00,
subject to a permitted increase during a four quarter period after certain
 
term of the agreement.acquisitions.
 
The Company has the option of replacing the
Credit Facility also prohibits the payment of cash dividendsconsolidated net leverage ratio test with a consolidated senior net leverage ratio
test if the Company
is in default or if the amount issues certain types of the dividends paidunsecured
annually exceeds the greater of $50.0 million and 20% of consolidated adjusted
EBITDA unless the ratio of consolidated net debt, to
consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation
on amount.
As of March 31, 2022 and
December 31, 2021, the Company was in compliance with all of the Credit Facility
covenants.
The Term Loans
have quarterly
principal amortization during their five year terms, with 5.0% amortization
of the principal balance due in years 1 and 2, 7.5% in year
3, and 10.0% in years 4 and 5, with the remaining principal amount due
at maturity.
The Credit Facility is guaranteed by certain of the
Company’s domestic subsidiaries
and is secured by first priority liens on substantially all of the assets of the
Company and the
domestic subsidiary guarantors, subject to certain customary exclusions.limitations. Customary events of
default in the Amended Credit Facility include without limitation
defaults for non-payment, breach of representations and warranties, non
-performance of covenants, cross-defaults, insolvency,
and a
change of control of the Company in certain circumstances.
 
The occurrence of an event of default under the Amended Credit Facility
could result in all loans and other obligations ofbecoming immediately
due and payable and the Dutch borrower are guaranteed onlyAmended Credit Facility being
by certain foreign subsidiaries on an unsecured basis.terminated.
The Original Credit Facility required the Company to fix its variable interest
rates on
at least 20% of its total Original Term
Loans.
 
In order to
satisfy this requirement as well as to manage the Company’s
 
exposure to variable interest rate risk associated with
the Original Credit Facility,
in November 2019, the Company entered into $170.0 million notional
 
amounts of three year interest rate
swaps at a base rate of 1.64%
plus an applicable margin as provided
in the Original Credit Facility, based
 
based on the Company’s
consolidated
net leverage ratio.
 
At the time the
Company entered into the swaps, and as of March 31, September 30,
2022, the aggregate interest
interest rate on the swaps, including the fixed base rate plus
an applicable margin,
was 3.1%.
 
In October 2022, the Company’s interest rate
swap contracts expired.
Upon expiration, the Company is entitled to a cash payment from the counterparties, which
is materially
consistent with the fair value as of September 30, 2022.
The Amended Credit Facility does not require the Company to fix variable
interest rates on any portion of its borrowings.
The Company previously capitalized $23.7 million of certain third-party
debt issuance
costs in connection with executing the Original
Credit Facility.
 
Approximately $15.5 million of the capitalized costs were attributed
to the Original Term
Loans and recorded
as a
direct reduction of long-
termLong-term debt on the Company’s Condensed Consolidated
 
Consolidated Balance Sheet.
 
Approximately $8.3 million of the capitalized
costs were
attributed to the Original Revolver and recorded within other Other
assets on the Company’s
Condensed Consolidated Balance Sheet.
 
These
capitalized costs arewere being amortized into interestInterest expense over the
 
five yearthe five-year term of the Original Credit Facility.
 
As of March December
31, 2022,2021, the Company had Credit Facility borrowings outstanding$8.0 million of debt issuance costs recorded
 
as a reduction of $915.2 million.Long-term debt attributable to the Original
Credit Facility.
 
As of December 31, 2021, the
Company had $4.3 million of debt issuance
costs recorded within Other assets
attributable to the Original Credit Facility.
Prior to executing the Amended Credit Facility,
the Company had $6.6 million of debt
issuance costs recorded as a reduction of Long-term debt attributable
to the Original Credit Facility and $3.5 million of debt issuance
costs recorded within Other assets attributable to the Original Credit Facility.
In connection with executing the Amended Credit
Facility, the Company
recorded a loss on extinguishment of debt of approximately $6.8 million which
includes the write-off of certain
previously unamortized deferred financing costs as well as a portion of
the third party and creditor debt issuance costs incurred to
execute the Amended Credit Facility.
Also in connection with executing the Amended Credit Facility,
during the third quarter of
2022, the Company capitalized $2.2 million of certain third-party
debt issuance costs.
Approximately $0.7 million of the capitalized
costs were attributed to the Amended Euro Term
Loan and Amended U.S. Term
Loan. These costs were recorded as a direct reduction
of Long-term debt on the Condensed Consolidated Balance Sheet.
Approximately $1.5 million of the capitalized costs were attributed
to the Amended Revolver and recorded within Other assets on the
Condensed Consolidated Balance Sheet.
These capitalized costs, as
well as the previously capitalized costs that were not written off
will collectively be amortized into Interest expense over the five-year
term of the Amended Credit Facility.
As of September 30, 2022, the Company had $2.1 million of debt issuance costs recorded
as a
reduction of Long-term debt on the Condensed Consolidated Balance Sheet
and $4.6 million of debt issuance costs recorded within
Other assets on the Condensed Consolidated Balance Sheet.
As of September 30, 2022, the Company had Amended Credit Facility borrowings
outstanding of $941.2 million.
As of
December 31, 2021, the Company had Original Credit Facility borrowings
outstanding of $889.6
million.
 
The Company has unused
capacity under the Amended Revolver of
approximately $142 $295
million, net of bank letters of credit of approximately
$4 $3 million, as of March 31,
September 30, 2022.
 
The Company’s other
debt obligations are
primarily industrial development bonds, bank
lines of credit and
municipality-related loans, which totaled $11.7
$12.9 million and $11.8
million as of March
31,September 30, 2022 and December 31, 2021,
respectively.
 
Total unused capacity under
 
these
arrangements as of March 31,September 30, 2022
was approximately $30$12 million.
 
The
Company’s total net debt
as of
March 31, September 30, 2022
was $765.3$815.2 million.
million.
Quaker Chemical Corporation
Management’s Discussion and Analysis
31
The Company incurred $6.0$10.4 million of total Combination, integration
 
integration and other acquisition-related expenses in the first quarternine
months of
2022, which includes $2.0$2.4 million of other expenses related to an indemnification
 
asset,indemnification assets, described in the Non-GAAP
Measures section
of this Item below.
 
Comparatively, in the first quarternine months
 
of 2021, the Company incurred $0.8$13.6 million of total Combination,
integration
Combination, integration and other acquisition-related expenses, which
was net of a $5.4 million gain
on the sale of certain held-for-saleheld-for-
sale real property assets
and also $0.4included $0.7 million of accelerated depreciation.
 
The Company had aggregate net cash outflows of
approximately $8.3$11.5 million
related to the Combination,
 
Combination, integration and other acquisition-related expenses during
the first three nine
months
of 2022 as compared to
$8.7
$20.0 million during the first threenine months
of 2021.
 
During the first quarternine months of 2022, the
Company incurred $3.1$10.7 million of strategic
planning and transformation
expenses.
 
The Company expects that these additional
operating costs and associated
cash flows, as well
as higher capital expenditures
related to strategic planning, process optimization and
and the next phase of the Company’s long
 
long-term
-term integration to further optimize its footprint, processes and other functions
 
functions will continue in
2022 and overextend into the next several years.
Quaker Houghton’s managementManagement
 
approved, and the Company initiated, a global restructuring plan (the
 
“QH Program”) in the
third quarter of 2019 as part of its planned cost synergies associated
 
with the Combination.
 
The QH Program includesincluded restructuring
and associated severance costs to reduce total headcount by approximately
 
400 people globally and plans for the closure of certain
manufacturing and non-manufacturing facilities.
 
The exact timing to complete all actions and totalfinal costs associated with the QH
Program continues
to
will depend on a number of factors and isare subject to change; however,
 
reductionsthe Company has had reduction in headcount and site closures have occurred, and the
Company currently expects additional headcount reductions and
site closures to occur throughout the year and estimates that the
anticipated cost synergies realized under the QH Program in 2022 and expects final headcount reductions
 
will approximate one-times restructuringto continue into 2023.
At this time, the Company does
not expect to incur material additional costs incurred.under the QH Program.
 
The Company
made cash payments related to the settlement of
restructuring liabilities under
the QH Program during the first threenine months
of 2022 of
approximately $0.4$1.8 million compared to $3.0 $4.6
million in the first threenine months
of 2021.
As of March 31,September 30, 2022, the Company’s
 
gross liability for uncertain tax positions, including interest and penalties,
 
was $24.5$20.1
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 $7.2$6.4 million as a result of
offsetting benefits in other tax jurisdictions.
Quaker Chemical Corporation
Management’s Discussion and Analysis
26
In 2021, two of the Company’s locations
 
suffered significant property damage as a result of flooding
 
and electrical fire.
 
The Company
Company maintains property and flood insurance for all of its facilities globally.
 
The Company, its insurance
 
adjuster and insurance
carrier are actively
managing the remediation and restoration activities associated
with both
of these events and at this time the
Company has concluded,
based on all available information and discussions
with its insurance
adjuster and insurance carrier,
that the
losses incurred
during
2021 were covered under the Company’s
 
property and flood insurance coverage, net of an aggregate deductible
of $2.0
million.
 
TheThrough September 30, 2022, the Company
has received payments from its insurers of $2.1
$3.9 million andassociated with
these events.
The Company has recorded
an insurance receivable associated with these events of $0.5
$0.2 million as of March 31,September
30, 2022.
 
See Note 18 of Notes to
Condensed Consolidated Financial Statements in Item
1 of this Report.
 
The Company believes that its existing cash, anticipated cash flows from
 
operations and available additional liquidity will be
sufficient to support its operating requirements and fund
 
its business objectives for at least the next twelve months, including but not
limited to, payments of dividends to shareholders, costs related to ongoing
 
acquisition integration and optimization,
pension plan
contributions, capital expenditures, other business opportunities (including
 
potential acquisitions), implementing actions to achieve the
Company’s sustainability
 
goals and other potential known 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 Amended
 
Credit Facility,
transition tax obligations
and other long-term liabilities.
 
The Company’s liquidity is affected
 
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 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 timing
and amount of potential capital requirements
cannot be determined
at this time and will depend on a number of factors,
including the
actual and projected demand for our products,
specialty chemical industry
conditions, competitive factors, and
the condition of
financial markets, among others.
Critical Accounting Policies and Estimates
The Company’s critical accounting
policies and estimates, as set forth in its 2021
Form 10-K remain materially consistent.
However, due to the ongoing financial,
economic and geopolitical conditions impacting the Company,
the Company re-evaluated
certain of its estimates, most notably its estimates and assumptions with regards
to the fair value of its EMEA reporting unit during the
third quarter of 2022.
Quaker Chemical Corporation
Management’s Discussion and Analysis
32
Goodwill:
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 recorded as goodwill.
The determination of
the estimated fair value of assets acquired requires management’s
judgment and often involves the use of significant estimates and
assumptions.
When necessary, the Company
consults with external advisors to help determine fair value.
Goodwill and intangible assets that have indefinite lives are not amortized
and are required to be assessed at least annually for
impairment.
The Company completes its annual goodwill and indefinite-lived intangible asset impairment
test during the fourth
quarter of each year, or more frequently
if triggering events indicate a possible impairment.
The Company continually
evaluates
financial performance, economic conditions and other recent developments
in assessing if a triggering event indicates that the carrying
values of goodwill, indefinite-lived, or long-lived assets are impaired.
The Company continues to monitor various financial, economic
and geopolitical conditions impacting the Company,
including the ongoing Russia-Ukraine war and the Company’s
decision to cease
operations in Russia, continued raw material cost escalation, supply
chain constraints and disruptions, as well as rising interest rates
and the cost of capital among other factors.
The Company concluded that these and other factors, which have and continue
to impact
the Company, did not
represent a triggering event during the third quarter of 2022, except for the Company’s
EMEA reporting unit
and the associated goodwill,
as well as the related asset group.
The Company concluded that during the third quarter of 2022 the
escalation of these events adversely impacted EMEA’s
financial performance and represented a triggering event.
As a result of this conclusion, the Company completed an interim impairment
assessment for its EMEA reporting unit, as well as
the related asset group, during the third quarter of 2022.
The Company concluded that the undiscounted cash flows exceeded
the
carrying value of the long-lived assets and it is not more likely than not that
an impairment exists.
In completing a quantitative
goodwill impairment test, the Company compares the reporting
unit’s fair value, primarily based
on future discounted cash flows, to
its carrying value in order to determine if an impairment charge
is warranted.
The estimates of future discounted cash flows involve
considerable management judgment and are based upon certain significan
t
assumptions including the weighted average cost of capital
as well as projected EBITDA, which includes assumptions related to
revenue growth rates, gross margin levels and operating
expenses.
As a result of this interim impairment assessment, the estimated fair value of
the EMEA reporting unit exceeded its
carrying value by approximately 22% and the Company concluded
no impairment was warranted.
In completing the interim
quantitative impairment assessment, the Company used a WACC
assumption of approximately 10.0% and holding all other
assumptions constant, the WACC
would have to increase by approximately 1.8 percentage points
before the Company’s EMEA
reporting unit would be considered impaired.
In addition, holding EBITDA margins and all other assumptions constant,
the
Company’s compound
annual revenue growth rate during the entire projection period would need to decline
by approximately 3.0
percentage points before the Company’s
EMEA reporting unit would be considered impaired.
Similarly, holding reve
nue growth rates
and all other assumptions constant, the Company’s
average EBITDA margins throughout the entire projection
period would need to
decline by approximately 1.7 percentage points before the
Company’s EMEA reporting unit would be
considered impaired.
Notwithstanding the results of the Company’s
interim impairment assessment, if the Company is unable to successfully
implement selling price increases aimed at more than offsetting
raw material costs and ongoing inflationary pressures and the financial
performance of the EMEA reporting unit declines further,
or interest rates continue to rise and this leads to an increase in the cost of
capital, then it is possible these financial, economic and geopolitical conditions
could result in another triggering event for the EMEA
reporting unit in the future and could lead to a potential impairment.
In addition, if any of these financial, economic or geopolitical
conditions has a more significant adverse effect on
the Company, these could lead to a potential impairment
of the Company’s
goodwill or other indefinite-lived or long-lived assets.
Non-GAAP Measures
The information in this Form 10-Q filing includes non-GAAP (unaudited)
 
financial information that includes EBITDA, adjusted
EBITDA, adjusted EBITDA margin, non-GAAP operating
 
income, non-GAAP operating margin, non-GAAP net
 
net income and non-
GAAP earnings per diluted 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 indicative of future operating
performance of the Company,
 
and facilitate a 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
 
and should not be considered a substitute for the financial
information presented in accordance with GAAP.
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
33
The Company presents EBITDA which is calculated as net income attributable
 
to the Company before depreciation and
amortization, interest expense, net, and taxes on income before equity
in net (loss) income
of associated companies.
 
The Company also
also presents adjusted EBITDA which is calculated as EBITDA plus or minus
 
minus certain items that are not considered indicative of future operating
operating performance or not considered core to the Company’s
 
operations.
 
In addition, the Company presents non-GAAP operating income
income which is calculated as operating income plus or minus certain items that
are not
considered indicative of future operating
performance or not
considered core to the Company’s
 
operations.
 
Adjusted EBITDA margin and non-GAAP operating margin
 
are
calculated as the
percentage of adjusted EBITDA and non-GAAP operating income
 
income to consolidated net sales, respectively.
 
The
Company believes
these non-GAAP measures provide transparent
and useful information and
are widely used by analysts, investors, analysts,
and competitorspeers in
our industry as well as by management in assessing the operating performance
 
performance of the Company on a consistent basis.
Additionally, the
 
Company presents non-GAAP net income and non-GAAP earnings per diluted share
 
as additional performance
measures.
 
Non-GAAP net income is calculated as adjusted EBITDA, defined above,
 
less depreciation and amortization, interest
expense, net, and taxes on income before equity in net (loss) income
of associated
companies, in each case adjusted, as applicable, for any
any depreciation, amortization, interest or tax impacts resulting from
the non-core
items identified in the reconciliation of net income
attributable to the Company to adjusted EBITDA.
 
Non-GAAP earnings per diluted share is calculated as non-GAAP net income
per
diluted share as accounted for under the “two-class share method.”
 
The Company believes that non-GAAP net income and non-
GAAP earnings per diluted share provide transparent and useful information
 
and are widely used by investors, analysts, investors, and peers in
competitors in our industry as well as by management in assessing the operating performance
 
performance of the Company on a consistent basis.
Certain of the prior period non-GAAP financial measures presented
 
in the following tables have been adjusted to conform with
current period presentation.
The following tables reconcile the Company’s
non-GAAP financial measures (unaudited) to their most
directly comparable GAAP (unaudited) financial measures
(dollars in thousands unless otherwise noted, except per share amounts):
Non-GAAP Operating Income and Margin Reconciliations
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Operating income
$
44,609
$
36,010
$
105,915
$
119,720
Combination, restructuring and other
acquisition-related expenses (a)
717
5,083
7,421
20,371
Strategic planning and transformation expenses (b)
4,545
—
10,745
—
Executive transition costs (c)
913
285
2,097
1,097
Russia-Ukraine conflict related expenses (d)
88
—
2,183
—
Facility remediation costs, net (f)
—
1,490
—
1,490
Other charges (e)
70
320
546
613
Non-GAAP operating income
$
50,942
$
43,188
$
128,907
$
143,291
Non-GAAP operating margin (%) (m)
10.3%
9.6%
8.8%
10.9%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
27
The following tables reconcile the Company’s
non-GAAP financial measures (unaudited) to their most directly comparable
GAAP (unaudited) financial measures (dollars in thousands, unless otherwise
noted, except per share amounts):
Non-GAAP Operating Income and Margin Reconciliations
Three Months Ended
March 31,
2022
2021
Operating income
$
29,403
$
44,894
Combination, integration and other acquisition-related expenses (a)
4,053
6,230
Strategic planning and transformation expenses (b)
3,088
-
Restructuring and related charges (c)
820
1,175
Fair value step up of acquired inventory sold (d)
—
801
Executive transition costs (e)
539
504
Inactive subsidiary's non-operating litigation costs (f)
92
51
Customer insolvency costs (g)
1,166
—
Non-GAAP operating income
$
39,161
$
53,655
Non-GAAP operating margin (%) (n)
8.3%
12.5%34
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and
and Non-GAAP Net Income Reconciliations
Three Months Ended
March 31,Nine Months Ended
September 30,
 
September 30,
2022
2021
2022
2021
Net income attributable to Quaker Chemical Corporation
$
19,81625,867
$
38,61531,058
$
60,026
$
103,243
Depreciation and amortization (a) (l)(k)
20,72719,908
22,44821,542
61,491
66,334
Interest expense, net (a)
5,3458,389
5,4705,637
20,228
16,725
Taxes on income before
 
before equity in net (loss) income
of associated companies (m)(l)
2,86610,185
10,689795
14,425
26,702
EBITDA
$64,349
48,75459,032
$156,170
77,222213,004
Equity loss (income) in a captive insurance company (h)(i)
244174
(3,080)(108)
2,199
(4,071)
Combination, integrationrestructuring and other
acquisition-related expenses (a)
6,032717
4274,906
9,817
14,265
Strategic planning and transformation expenses (b)
3,0884,545
—
Restructuring and related charges (c)
820
1,175
Fair value step up of acquired inventory sold (d)10,745
—
801
Executive transition costs (e)(c)
539913
504285
Inactive subsidiary's non-operating litigation costs (f)2,097
921,097
51Russia-Ukraine conflict related expenses (d)
Customer insolvency costs (g)
1,16688
—
Pension and postretirement benefit income, non-service components
(i)2,183
(479)—
(124)Facility remediation (recovery) costs, net (f)
Currency conversion impacts(1,104)
2,019
(1,104)
2,019
Brazilian non-income tax credits (g)
—
—
—
(13,293)
Loss on extinguishment of hyper-inflationary economies (j)debt (h)
188—
172—
6,763
—
Other charges (e)
609
35
356
353
Adjusted EBITDA
$
60,44470,291
$
77,14866,169
$
189,226
$
213,374
Adjusted EBITDA margin (%) (n)(m)
12.7%14.3%
18.0%14.7%
13.0%
16.2%
Adjusted EBITDA
$
60,44470,291
$
77,14866,169
$
189,226
$
213,374
Less: Depreciation and amortization - adjusted (a)
20,72719,908
22,03321,365
61,491
65,616
Less: Interest expense, net
5,3458,389
5,4705,637
20,228
16,725
Less: Taxes on income
 
before equity in net income
of associated companies - adjusted
(k)(m) (a)(l)
8,90210,821
11,7399,765
27,189
31,277
Non-GAAP net income
$
25,47031,173
$
37,906
29,402
$
80,318
$
Quaker Chemical Corporation
Management’s Discussion and Analysis
2899,756
Non-GAAP Earnings per Diluted Share Reconciliations
Three Months Ended
March 31,Nine Months Ended
September 30,
 
September 30,
2022
2021
2022
2021
GAAP earnings per diluted share attributable to
Quaker Chemical Corporation
common shareholders
$
1.111.44
$
2.151.73
$
3.35
$
5.76
Equity loss (income) in a captive insurance company
per diluted share (h)(i)
0.01
(0.17)(0.01)
0.12
(0.23)
Combination, integrationrestructuring and other
acquisition-related expenses per diluted
share (a)
0.250.04
0.040.22
0.45
0.64
Strategic planning and transformation expenses per
diluted share (b)
0.140.19
—
Restructuring and related charges per diluted share (c)
0.03
0.05
Fair value step up of acquired inventory sold per diluted share (d)0.46
—
0.03
Executive transition costs per diluted share (e)(c)
0.020.04
0.020.01
Inactive subsidiary's non-operating litigation0.09
0.05
Russia-Ukraine conflict related expenses per diluted share (d)
0.01
—
0.11
—
Facility remediation (recovery) costs, net per diluted share (f)
0.00
(0.05)
0.00
0.09
Customer insolvency costs(0.05)
0.09
Brazilian non-income tax credits per diluted share (g)
0.06—
(0.04)
—
Pension and postretirement benefit costs, non-service components(0.48)
Loss on extinguishment of debt per diluted
share (i)(h)
(0.02)—
(0.00)—
Currency conversion impacts of hyper-inflationary economies0.29
—
Other charges per
diluted share (j)(e)
0.010.04
0.01—
0.03
0.02
Impact of certain discrete tax items per diluted share (k)(j)
(0.19)0.02
(0.02)(0.37)
(0.37)
(0.29)
Non-GAAP earnings per diluted share (o)(n)
$
1.421.74
$
2.111.63
$
4.48
$
5.56
Quaker Chemical Corporation
Management’s Discussion and Analysis
35
(a)
Combination,
integration restructuring and other acquisition-related expenses include
certain legal, financial,
and other advisory and consultant
consultant costs incurred in connection with integrationthe Combination integrat
ion activities including internal
control readiness and remediation.
remediation as well as costs incurred by the Company associated with the
QH restructuring program, which was initiated in the
third quarter of 2019 as part of the Company’s
plan to realize cost synergies associated with the Combination.
These amounts
also include expense associated with other of the Company’s
acquisitions, including certain legal, financial, and other advisory
and consultant costs incurred in connection with due diligence as well as costs associated
with selling inventory from acquired
businesses which was adjusted to fair value as part of purchase accounting.
 
These costs are not
indicative of the future operating
performance of the Company.
 
Less than $0.1Approximately $0.3 million and $0.1$0.5 million for the three and nine months
ended September 30,
ended March 31, 2022, and 2021, respectively,
 
and approximately $0.2 million and $0.7 million in the three and nine months ended September
30, 2021,
respectively, of
these pre-tax costs were considered non-deductible for the purpose of
determining the Company’s
 
effective tax
rate, and, therefore, taxes on income before equity in
net income of associated
companies - adjusted reflects the impact of these
items.
 
During the threenine months ended March 31,September 30, 2022, the Company recorded
$2.02.4 million of other expense related to an
indemnification asset.asset, which is included in the caption “Combination,
restructuring and other acquisition-related expenses” in the
reconciliation of GAAP earnings per diluted share attributed to
Quaker Chemical Corporation common shareholders to Non-
GAAP earnings per diluted share as well as the reconciliation of net
income attributable to Quaker Chemical Corporation to
Adjusted EBITDA and Non-GAAP net income.
 
During the three and nine months ended March 31,September 30, 2021, the Company
recorded $0.4$0.2 million $0.7 million, respectively,
of accelerated depreciation related to certain of the Company’s
 
the Company’s facilities, which
is included
in the caption
“Combination, integration “Combination, restructuring and other acquisition-relatedacquisition
-related expenses” in the
reconciliation of operating
income to non-GAAP
operating income and included in the caption “Depreciation
“Depreciation and amortization”
in the reconciliation of net
income attributable to
the Company to EBITDA, but excluded from the
caption “Depreciation
and amortization –- adjusted” in the
reconciliation of
adjusted EBITDA to non-GAAP net income attributable
to the Company
.Company.
 
During the threenine months ended March 31,
September 30, 2021, the
Company recorded a $5.4 million gain on the sale of
certain held-for-sale
real property assets related to
the Combination which is
included in the caption “Combination, integration
restructuring and other acquisition-related
expenses” in the
reconciliation of GAAP earnings
per diluted share attributed to
Quaker Chemical Corporation common shareholders to Non-
GAAP earnings per diluted share as well as the reconciliation of net
income attributable to Quaker Chemical Corporation common
shareholders to Non-GAAP earnings per diluted share as
well as the reconciliation of net income attributable to Quaker Chemical Corporation
to Adjusted EBITDA and Non-GAAP net
income.
 
During the three and nine months ended September 30, 2022, respectively,
the
Company recorded restructuring and related credits of $1.4 million
and $0.6 million, respectively,
and $0.9 million and net
charges of $0.6 million during the three and nine months ended September
30, 2021, respectively.
During the nine months ended
September 30, 2021, the Company recorded $0.8 million related to the sale of
inventory from acquired businesses which was
adjusted to fair value.
See Notes 2, 7, 10 and 11 of Notes to Condensed Consolidated
Financial Statements, which appear in Item
1 of this Report.
(b)
Strategic planning and transformation expenses include certain consultant
 
and advisory expenses for the Company’s
 
long-term
strategic planning, as well as process optimization and the next phase
 
of the Company’s long-term integration
 
to further optimize
its footprint, processes and other functions.
 
These costs are not indicative of the future operating performance of the Company.
(c)
Restructuring and related charges represent the
costs incurred by the Company associated with the QH restructuring program
which was initiated in the third quarter of 2019 as part of the Company’s
plan to realize cost synergies associated with the
Combination.
These costs are not indicative of the future operating performance of the Company.
See Note 7 of Notes to
Condensed Consolidated Financial Statements, which appears in Item
1 of this Report.
(d)
Fair value step up of acquired inventory sold relates to expense associated with selling
inventory from acquired businesses which
was adjusted to fair value as part of purchase accounting.
These increases in costs of goods sold (“COGS”) are not indicative of
the future operating performance of the Company.
(e)
Executive transition costs represent the costs related to the Company’s
 
search, hiring and transition to a new CEO in connection
with the executive transition that took place in 2021 as well as the on-goingsearch,
 
searchhiring and transition for a new Chief Human Resources Officer
other officers during the first quarter
nine months of 2022.
These expenses are one-time in nature and not indicative of the future operating
performance of the
Company.
(d)
Russia-Ukraine conflict related expenses represent the direct costs associated
with the Company’s
exit of operations in Russia
during 2022, primarily for employee separation benefits, as well as costs associated
with establishing specific reserves or changes
to existing reserves for trade accounts receivable within the Company’s
EMEA reportable segment due to the economic instability
associated with certain customer
accounts receivables which have been directly impacted by the current
economic conflict
between Russia and Ukraine or the Company’s
decision to end operations in Russia.
These expenses are not indicative of the
future operating performance of the Company.
(e)
Other charges include charges incurred
by an inactive subsidiary of the Company as a result of the termination of restrictions on
insurance settlement reserves, non-service components of the Company’s
pension and postretirement net periodic benefit income
and the foreign currency remeasurement impacts associated with the
Company’s affiliates whose
local economies are designated
as hyper-inflationary under U.S. GAAP.
 
These expenses are not indicative of the future operating performance
of the Company.
 
Company.
See Notes 1 and 9 of Notes to Condensed Consolidated Financial Statements,
which appear in Item 1 of this Report.
(f)
Inactive subsidiary’s nonFacility remediation (recovery) costs, net presents the costs associated
 
-operating litigationwith remediation, cleaning and subsequent restoration costs represent the charges incurred by
an inactive subsidiaryassociated with property damages to certain of the Company andCompany’s
are a resultfacilities, net of the termination of restrictions on insurance settlement reserves
.recoveries received.
 
These charges are
non-recurring and are not indicative of the future
operating performance
of the Company.
See Note 18 of Notes to Condensed
Consolidated Financial Statements, which appears in Item 1 of this Report.
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
2936
(g)
Customer insolvency costsBrazilian non-income tax credits represent the costs associated with a specific
reserve or changes to existing reserves for trade accounts
receivable within the Company’s
EMEA reportable segmentindirect tax credits related to certain customers who filed for
 
bankruptcy protectionof the Company’s Brazilian subsidiaries
prevailing in a legal claim as
well as costs the Brazilian Supreme Court ruling
on these non-income tax matters.
The 2021 impact to
Non-GAAP earnings per diluted share reflects the tax only adjustment
related to specific reservesthe Brazilian Supreme Court ruling on the
taxability of interest income.
The non-income tax credit is non-recurring and not indicative of the future operating
performance
of the Company.
See Note 18 of Notes to Condensed Consolidated Financial Statements, which
appears in Item 1 of this Report.
(h)
In connection with executing the Amended Credit Facility,
the Company recorded fora loss on extinguishment of debt of
approximately $6.8 million which includes the write-off
of certain customer accountspreviously unamortized deferred financing costs as well as a
portion of the third-party and creditor debt issuance costs incurred
 
receivables which have been directly impacted by
to execute the current economic conflict between Russia and Ukraine.Amended Credit Facility.
 
These expenses are
not indicative of the future operating performance
of the Company.
 
See Note 14 of Notes to Condensed Consolidated Financial
(h)Statements, which appears in Item 1 of this Report.
(i)
Equity loss (income)
in a captive insurance company represents the after-tax
 
(loss) incomeloss (income) attributable to the Company’s
 
interest
in Primex, Ltd. (“Primex”),
a captive insurance company.
 
The Company holds a 32% investment in and has significant influence
over Primex, and therefore accounts for this interest under the equity method
 
of accounting.
 
The loss (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.
(i)
Pension and postretirement benefit income,
non-service components represent the pre-tax, non-service
component of the
Company’s pension and postretirement
net periodic benefit income in each period.
These costs are not indicative of the future
operating performance of the Company.
See Note 9 of Notes to Condensed Consolidated Financial Statements, which appears
in
Item 1 of this Report.
(j)
Currency conversion impacts of hyper-inflationary economies represents
the foreign currency remeasurement impacts associated
with the Company’s affiliates
whose local economies are designated as hyper-inflationary under
U.S. GAAP.
During both the
three months ended March 31, 2022
and 2021, the Company incurred non-deductible, pre-tax charges
related to the Company’s
Argentine affiliates.
The charges incurred related to the immediate recognition of foreign currency
remeasurement in the
Consolidated Statements of Income associated with these entities are not indicative
of the future operating performance of the
Company.
See Note 1 of Notes to Condensed Consolidated Financial Statements, which appears
in Item 1 of this Report.
(k)
The impacts of certain discrete tax items include changes in valuation
 
allowances recorded on certain Brazilian branch foreign tax
credits and the recording of deferred taxes on Brazilian branch income.
 
Both of these discrete items related to a result of tax law
changes in
the U.S. due to the issuance of final foreign tax credit regulations during the
 
during the period.
 
Additionally, the Company
has discrete
discrete items related to the remeasurement of deferred taxes on the transfer
of intellectual property and the release of the reserves for
uncertain tax positions
settled during the quarterperiod and certain taxes, penalties,
penalties, and interest due as a result of the settlements.
 
See
Note 11 of Notes to Condensed Consolidated
 
Financial Statements,
which appears in Item 1 of this Report.
(l)(k)
Depreciation and amortization for the three and nine months ended
September 30, 2022 includes approximately $0.3 million and
$0.8 million, respectively,
and for the three and nine months ended March 31,September 30, 2021 includes $0.3 million
 
2022 and 2021 each included $0.3$0.9 million,
respectively, of
 
million of amortization
expense recorded within equity in net incomeloss (income) of associated companies
 
in the Company’s
Condensed Consolidated
Statement Statements of
Income,
income, which is attributable to
the amortization of the fair value step up for the
Company’s
50% interest in a Houghton joint venture
venture in Korea as a result of required purchase accounting.
(m)(l)
Taxes on income
 
before equity in net incomeloss (income) of associated companies – adjusted presents the impact
 
of any current and deferred
deferred income tax expense (benefit), as applicable, of the reconciling
items presented
in the reconciliation of net income
attributable to
Quaker Chemical Corporation to adjusted EBITDA, and
was determined
utilizing the applicable rates in the taxing
jurisdictions in
which these adjustments occurred, subject to deductibility.
 
Combination, integrationrestructuring and other acquisition-relatedacquisition-
related expenses
described in (a) resulted in incremental taxes of $1.4 million and $0.1approximately
$0.2
 
million duringand $1.8 million for the three and
nine months ended March 31,September 30, 2022, respectively,
compared to $1.2 million and $3.4 million for the three and nine months
ended September 30, 2021, respectively.
 
Strategic planning and transformation expenses describes in (b) above resulted in
in incremental taxes of $0.7
$1.0 million duringand $2.4 million for the three and
nine months ended March 31, 2022.September 30, 2022, respectively.
 
Restructuring and related charges
Executive transition costs described in (c) resulted in incremental
taxes of $0.2
$0.2 million during each ofand $0.5 million for the three and nine
months ended March 31,September 30, 2022, respectively,
 
compared to $0.1 million and 2021.$0.3 million for the three and nine months ended
September 30, 2021, respectively.
 
Fair value step up of acquired inventory
soldRussia-Ukraine conflict related expenses described in (d) resulted in
incremental taxes of $0.2less
than $0.1 million duringand $0.5
 
million for the three and nine months ending March 31, 2021.ended September 30, 2022,
 
Executiverespectively.
Other charges
transition expenses described in (e) resulted in a tax benefit of less than $0.1 million and $0.1 million
for the three and nine months ended September
30, 2022, respectively,
and incremental taxes of less than $0.1
million during each ofand $0.1 million in the three and nine months ended March 31,
2022 andSeptember 30, 2021.
 
Inactive subsidiary non-operating litigationFacility remediation (recovery) costs, net described in (f) resulted in a tax benefit
of $0.3 million in the
three and nine months ended September 30, 2022, respectively and
incremental taxes of $0.5 million in the three and nine months
ended September 30, 2021.
Brazilian non-income tax credits described in (g) resulted in incremental
 
taxes of less than $0.1approximately $0.6
million for eachand a tax benefit of the three months ended March 31, 2022 and 2021.
Customer insolvency costs described in (g) resulted in
incremental taxes of $0.3$4.7 million during the three and nine months ended
 
March 31, 2022.September 30, 2021, respectively.
 
Pension and postretirement benefit income,Loss on
non-service componentsextinguishment of debt described in (i)(h) resulted in a tax benefitincremental taxes of $0.1
 
$1.6 million and less than $0.1 million forduring the threenine months ended September 30,
ended March 31, 2022 and 2021, respectively.2022.
 
The impact of certain discrete items described in (k)(j) resulted in a tax benefit of $0.5 million
and an incremental expense of
$3.4 million and $0.46.4 million for the three and nine months ended March 31, 2022September 30,
 
2022, respectively, compared
to a benefit of $6.5 million and
$5.1 million for the three and nine months ended September 30,
2021, respectively.
(n)(m)
The Company calculates adjusted EBITDA margin
 
and non-GAAP operating margin as the percentage of adjusted EBITDA
 
and
non-GAAP operating income to consolidated net sales.
(o)(n)
The Company calculates non-GAAP earnings per diluted share as non
 
-GAAP net income attributable to the Company per
weighted average diluted shares outstanding using the “two-class share method”
 
to calculate such in each given period.
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
3037
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet commitments or
 
obligations as of March 31,September 30, 2022.
 
The Company’s only off-
balance sheet items outstanding as of March 31,September 30, 2022 representedincludes approximately
 
$65 million of total bank letters of credit and
guarantees.
 
The bank letters of credit and guarantees are not significant to the Company’s
 
liquidity or capital resources.
 
See Note 14
of Notes to Condensed Consolidated Financial Statements in Item
 
1 of this Report.
Operations
Consolidated Operations Review – Comparison of the First Third
Quarter of 2022
with the FirstThird Quarter of 2021
Net sales were $474.2$492.2 million in the firstthird quarter of 2022 compared to $429.8
 
to $449.1 million in the firstthird quarter of 2021.
 
The net sales
increase of $44.4$43.1 million or 10% quarter-over-quarter reflects increases inan increase
 
in selling price and product mix of approximately 17%25% and
additional net
sales from acquisitions of 2%1%, partially offset
by a decline
in organic sales volumevolumes of approximately 6%9% and the unfavorable impact
impact from foreign currency translation of 3%7%.
 
The increase in selling price and product mix iswas primarily driven by price
increases
implemented to help offset the significant increases in raw
 
material and other input costs that began during 2021.2021 and has continued in 2022.
 
The decline in organic sales
volumes was primarily
attributable to softer end market conditions, particularly in Europe and
Asia/Pacific, the comparison to a very strong first quarterwind-down of the tolling agreement for products previously
 
divested related to the Combination and the impact of 2021, where customers replenished their supply
chains,the ongoing war in Ukraine, partially offset by net new
business wins, including the impact of lower volumes related to the tolling agreementCompany’s
 
for previously divested products associated with the Combinationongoing value-based
and lower sales volumes attributable to the war in Ukraine.pricing initiatives.
COGS were $328.1$331.5 million in the firstthird quarter of 2022 compared to $273.6
 
$303.9 million in the firstthird quarter of 2021.
 
The increase in
COGS of $54.5$27.5 million or 20%9% was driven by the associated COGS on the
increase in net sales described above as well as continued
increases in the Company’s global
 
global raw material, manufacturing and supply
chain and logistics costs compared to the prior year.
Gross profit in the firstthird quarter of 2022 decreased $10.1increased $15.6 million or 6%11%
 
from the firstthird quarter of 2021.
 
The Company’s reported
gross margin in the firstthird quarter of 2022 was 30.8% 32.7%, an improvement
compared to
36.3% 32.3% in the firstthird quarter of 2021.2021 as increases in
selling prices, due to the Company’s
 
The Company’s current quarter
gross margin reflects avalue based pricing initiatives, helped offset the significant increase
in raw
material and other
input costs experienced throughout the firstthird quarter of
2022 and
the impacts of constraints on the global supply chain, partially offset
by the Company’s ongoing value
-based pricing initiatives. 2022.
SG&A in the firstthird quarter of 2022 increased $7.5 $11.2
million or 7% compared11%
 
compared to the firstthird quarter of 2021 due primarily to the impact
impact of sales increases on direct selling costs, inflationary impacts oninflation-driven higher
 
operating costs, costs associated with strategic planning and
transformation initiatives (see the Non-GAAP Measures section of
 
this Item, above), and additional SG&A from recent acquisitions
partially offset by lower SG&A due to foreign currency
 
translation and lower incentive compensation compared to the prior year.
 
In
addition, SG&A was lower in the prior year period as a result of continued
temporary cost saving measures the Company
implemented in response to the onset of COVID-19.
During the firstthird quarter of 2022, the Company incurred $4.1$2.1 million
of Combination,
 
integration and other acquisition-related
operating expenses primarily for professional fees related to the Houghton
 
integration and other acquisition-related activities.
 
Comparatively,
 
the Company incurred $5.8 million of expenses in the prior year firstthird quarter,
 
primarily due to various professional
fees related to legal, financial and other advisory and consultant expenses
 
for integration activities including internal control readiness
and remediation.
 
See the Non-GAAP Measures section of this Item, above.
The Company initiated a restructuring program during the third quarter
 
of 2019 as part of its global plan to realize cost synergies
associated with the Combination.
 
The Company incurred Restructuringrestructuring and related (credits) charges
for reductions
in headcount and site
site closures under this program, net of adjustments to initial estimates for severance
 
of $0.8a credit of $1.4 million and $1.2$0.9 million
during the first
third quarters of 2022 and 2021, respectively.
 
See the Non-GAAP Measures section of this Item, above.
Operating income in the firstthird quarter of 2022 was $29.4$44.6 million compared
 
to $44.9$36.0 million in the firstthird quarter of 2021.
 
Excluding
Excluding non-recurring and non-core expenses that are not indicative
of the future operating
performance of the Company described
in the Non-
GAAPNon-GAAP Measures section of this Item, above, the Company’s
 
current quarter non-GAAP operating income decreased
increased to $39.2 million
$50.9 million compared to $53.7$43.2 million in the prior year firstthird quarter primarily due
 
due to the lower gross profit and higher SG&A
described above.
 
The Company had other expense,income, net, of $2.2$0.1 million in the firstthird quarter
 
of 2022 compared to other income, net of $4.7$0.6 million in
the firstthird quarter of
2021.
 
The firstthird quarter of 2022 includes other expenses related to the impact of certain adjustment
to the
Company’s indemnification
receivables, while the prior year first quarter other income includesincluded a gain on
the sale of certain held-for-
sale real property assets.
See insurance recoveries, see the Non-GAAP Measures
section of this Item, above.
 
In
addition, the Company incurred foreign exchange transaction losses in the third
quarter of 2022 compared to the foreign exchange
transaction gains in the prior year quarter.
Interest expense, net, decreased $0.1increased $2.8 million compared to the firstthird quarter
 
of 2021 due toas a slight decreaseresult of increases in the average
borrowings outstanding in the firstthird quarter of 2022 compared to the first
 
the third quarter of 2021 on relatively consistentcoupled with an increase in interest rates during
both the first quarter of 2022 and 2021.
The Company’s effective
tax rates for the first quarters of 2022 and 2021 were 13.1% and 24.2%, respectively.
The Company’s
effective tax rate for the three months ended March 31,
2022 was largely driven by changes in the valuation allowance for foreign
tax
credits due to recently issued legislative guidance and impacts due to settlements
reached on certain tax audits.
Comparatively, the
prior year first quarter effective tax rate was impacted by the sale of
a subsidiary which included certain held-for-sale real propertyquarter-over-quarter.
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
3138
assets related to the Combination.The Company’s effective
 
Excluding the impact of these items as well as all other non-core items in each quarter,
described in
the Non-GAAP Measures section of this Item, above, the Company
estimates that its effective tax rates for the first quarterthird quarters of 2022
and 2021 would have been approximately 27%were 28.1% and 25%2.6%, respectively.
 
The Company’s
effective tax rate for the third quarter of 2022
was largely driven by a decline in forecasted profits and earnings mix,
foreign tax
inclusions, changes in the valuation allowance for foreign tax credits,
a reduction in reserves for uncertain tax positions and
withholding taxes. In addition, the Company incurred higher tax expense
during the three
months ended March 31,third quarter of 2022 primarily related to the
Company recording earnings
in one of its subsidiaries at a statutory tax rate of
25% while it awaits recertification of a concessionary
15% tax rate, which
was available to the Company during all of 2021.
 
TheComparatively, the prior
year quarter effective tax rate was
primarily driven by a one-time deferred tax benefit related to an intercompany
intangible asset transfer. Excluding
the impact of non-
core items in each quarter, described
in the Non-GAAP Measures section of this Item, above, the Company estimates that its effective
tax rates for its third quarters of 2022 and 2021 would have been approximately
26% and 25%, respectively.
The Company expects
continued 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,
 
tax positions, the unpredictability of the timing and
amount of certain
incentives in various tax jurisdictions, including the high technology incentive
at one of our subsidiaries based in China which is
currently up for triennial renewal, the treatment of certain acquisition-related
 
certain acquisition-related costs and the timing and amount
of certain share-based
compensation-related tax benefits, among
other factors.
Equity in net income of associated companies decreased $4.4$1.1 million
 
in the firstthird quarter of 2022 compared to the firstthird quarter of
2021, primarily due to lower current year income from the Company’s
 
interest in a captive insurance company due to lower market
performance on equity investments and from the Company’s
Company’s 50% interest in a joint venture in Korea due to overall market challenges.
 
in Korea.
See the Non-GAAP Measures section of this Item, above.
Net income attributable to noncontrolling interest was less than $0.1 million
 
in both the firstthird quarters of 2022 and 2021.
 
Foreign exchange unfavorably impacted the Company’s
 
firstthird quarter of 2022 results by approximately 4%7% driven by the impact
from foreign currency translation on earnings as well as higher foreign
 
exchange transaction losses in the current quarter as compared
to the prior year third quarter.
Consolidated Operations Review – Comparison of the First Nine Months of 2022
with the First Nine Months of 2021
Net sales were $1,458.8 million in the first quarter.nine months of 2022 compared to $1,314.1
million in the first nine months of 2021.
The net sales increase of $144.7 million or 11%
year-over-year reflects increases in selling price
and product mix of approximately
21% and additional net sales from acquisitions of 1% partially offset
by a decline in organic sales volumes of approximately 6% and
the unfavorable impact from foreign currency translation of 5%.
The increase in selling price and product mix was primarily driven
by price increases implemented to help offset the significant increases
in raw material and other input costs that began during 2021
and continued in 2022.
The decline in sales volumes was primarily attributable to the comparison
to a strong first half of 2021, and
primarily in the first quarter of 2021, where customers replenished their
supply chains.
Lower volumes were also due to softer end
market conditions, particularly in Europe and Asia/Pacific, the wind-down
of the tolling agreement for products previously divested
related to the Combination and the impact of the ongoing war in Ukraine,
partially offset by net new business wins, including the
impact of the Company’s ongoing
value-based pricing initiatives.
COGS were $1,002.4 million in the first nine months of 2022 compared
to $858.3 million in the first nine months of 2021.
The
increase in COGS of $144.1 million or 17% was driven by the significant
increase in the Company’s global raw
material,
manufacturing and supply chain and logistics costs compared to the prior
year.
Gross profit in the first nine months of 2022 increased $0.6 million or
less than 1% from the first nine months of 2021.
The
Company’s reported gross
margin in the first nine months of 2022 was 31.3% compared to 34.7% in
the first nine months of 2021.
The Company’s current year
gross margin reflects a significant increase in raw material
and other input costs and the impacts of
constraints on the global supply chain, partially offset by
the Company’s ongoing value
-based pricing initiatives.
SG&A in the first nine months of 2022 increased $25.9 million or 8% compared
to the first nine months of 2021 due primarily to
the impact of sales increases on direct selling costs, inflation driven higher
operating costs, costs associated with strategic planning
and transformation initiatives (see the Non-GAAP Measures section of
this Item, above), and additional SG&A from recent
acquisitions,
partially offset by lower SG&A due to foreign currency
translation compared to the prior year.
In addition, SG&A was
lower in the prior year period as a result of continued temporary cost saving
measures the Company implemented in response to the
onset of COVID-19.
During the first nine months of 2022, the Company incurred $8.0
million of Combination, integration and other acquisition-
related operating expenses primarily for professional fees related to the Houghton
integration and other acquisition-related activities.
Comparatively,
the Company incurred $18.3 million of expenses in the prior year’s
first nine months, primarily due to various
professional fees related to legal, financial and other advisory and
consultant expenses for integration activities including internal
control readiness and remediation.
See the Non-GAAP Measures section of this Item, above.
Quaker Chemical Corporation
Management’s Discussion and Analysis
39
The Company initiated a restructuring program during the third quarter
of 2019 as part of its global plan to realize cost synergies
associated with the Combination.
The Company incurred Restructuring and related credits for reductions in headcount and
site
closures under this program, net of adjustments to initial estimates for severance
of $0.6 million during the first nine months of 2022
compared to Restructuring and related charges for reductions in headcount
and site closures under this program, net of adjustments to
initial estimates for severance of $0.6 million during the first nine
months of 2021.
See the Non-GAAP Measures section of this Item,
above.
Operating income in the first nine months of 2022 was $105.9 million
compared to $119.7 million in the first nine months of
2021.
Excluding non-recurring and non-core expenses that are not indicative
of the future operating performance of the Company
described in the Non-GAAP Measures
section of this Item, above, the Company’s
current year non-GAAP operating income
decreased to $128.9 million for the first nine months of 2022 compared
to $143.3 million in the prior year’s first nine months
primarily due to the lower gross profit and higher SG&A described above.
The Company had other expense, net, of $10.5 million in the first nine months
of 2022 compared to other income, net of $19.3
million in the first nine months of 2021.
The first nine months of 2022’s results include
$6.8 million of loss on extinguishment of debt
related to the Company’s
refinancing the Original Credit Facility and also higher foreign currency transaction
losses year-over-year,
while the prior year’s first nine months of 2022 other income includes
$14.4 million of non-income tax credits recorded by the
Company’s Brazilian subsidiaries
as well as a $4.8 million gain on the sale of certain held-for-sale real property assets.
Interest expense, net, increased $3.5 million compared to the first nine
months of 2021, due to an increase in the average
borrowings outstanding in the first nine months of 2022 coupled
with an increase in interest rates in the current year as compared to
the prior year.
The Company’s effective
tax rates for the first nine months of 2022 and 2021 were 19.2% and 21.8%, respective
ly.
The
Company’s effective
tax rate for the nine months ended September 30, 2022 was largely driven
by a decline in forecasted profits and
earnings mix, foreign tax inclusions, changes in the valuation allowance
for foreign tax credits, the impact of audit settlements reached
with Italian tax authorities, a reduction in reserves for uncertain tax positions
and withholding taxes. In addition, the Company
incurred higher tax expense during the nine months ended September
30, 2022 primarily related to the Company recording earnings in
one of its subsidiaries at a statutory tax rate of 25% while it awaits recertification
of a concessionary 15% tax rate, which was
available to the Company during all of 2021. Comparatively,
the prior year nine-month effective tax rate was impacted
by certain U.S.
tax law changes, the tax impact of certain non-income tax credits recorded by
the Company’s Brazilian subsidiaries, and a deferred
tax
benefit related to an intercompany intangible asset transfer.
Excluding the impact of non-core items in each period, described in
the
Non-GAAP Measures section of this Item, above, the Company estimates that
its effective tax rates for the first nine months of 2022
and 2021 would have been approximately 26% and 25%, respectively.
Equity in net income of associated companies decreased $8.3 million
in the first nine months of 2022 compared to the first nine
months of 2021, primarily due to lower current year income from
the Company’s interest in a captive insurance
company due to lower
market performance on equity investments (see the Non-GAAP Measures
section of this Item, above), as well as lower current year
income from the Company’s 50% interest
in a joint venture in Korea.
Net income attributable to noncontrolling interest was less than $0.1 million
in both the first nine months of 2022 and 2021.
Foreign exchange unfavorably impacted the Company’s
first nine months of 2022 results by approximately 7% driven by the
impact from foreign currency translation on earnings as well as higher
foreign exchange transaction losses in the current year as
compared to the prior year’s first nine months.
Reportable Segments Review - Comparison of the First Third
Quarter of 2022
 
with the FirstThird Quarter of 2021
The Company’s reportable
 
segments reflect the structure of the Company’s
 
internal organization, the method by which the
Company’s resources are allocated
 
and the manner by which the chief operating decision maker of the Company
 
assesses its
performance.
 
The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii)
 
Asia/Pacific; and (iv) Global Specialty
Businesses.
 
The three geographic segments are composed of the net sales and operations
 
in each respective region, excluding net
sales and operations managed globally by the Global Specialty Businesses
 
segment, which includes the Company’s
 
container, metal
finishing, mining, offshore, specialty coatings, specialty
 
grease and Norman Hay businesses.
 
Segment operating earnings for the Company’s
 
reportable segments are comprised of net sales less COGS and SG&A directly
related to the respective segment’s product
 
sales.
 
Operating expenses not directly attributable to the net sales of each respective
segment,
such as certain corporate and administrative costs, Combination,
 
integration and other acquisition-related expenses,
Restructuring and related charges, and COGS related
 
to acquired inventory sold, which is adjusted to fair value as part of purchase
accounting,
are not included in segment operating earnings.
 
Other items not specifically identified with the Company’s
 
reportable
segments include interest expense, net, and other (expense) income, net.
Quaker Chemical Corporation
Management’s Discussion and Analysis
40
Americas
Americas represented approximately 33%38% of the Company’s
 
consolidated net sales in the firstthird quarter of 2022.
The segment’s
net sales were $186.5 million, an increase of $35.7 million or 24% compared
to the third quarter of 2021.
The increase in net sales
was due to higher selling price and product mix of 30% and additional
net sales from acquisition of 1%, partially offset by a decrease
in organic sales volumes of 7%. The increase in selling price and
product mix was primarily driven by price increases implemented to
offset the significant increases in raw material and other input costs that
began during 2021 and continued through the third quarter of
2022.
The current quarter decline in organic sales volumes was primarily
driven by the wind-down of the tolling agreement for
products previously divested related to the Combination, the Company’s
ongoing value-based pricing initiatives and lower volumes
sold into the automotive industry due to the semiconductor supply constraints,
partially offset by net new business wins.
This
segment’s operating earnings were
$45.0 million, an increase of $13.7 million compared to the third quarter
of 2021 primarily driven
by higher net sales, which were partially offset by ongoing
inflationary pressures on the business.
EMEA
EMEA represented approximately 23% of the Company’s
consolidated net sales in the third quarter of 2022.
 
The segment’s net
sales were $154.1$113.4 million, an increasea decrease of $19.3
$8.9 million, or 14%7%, compared
to the firstthird quarter of 2021.
 
The increase in net salesThis was
due to driven by higher selling
price and product mix of 22%21% which was more than offset
by the unfavorable impact of foreign currency translation of 18% and additional net sales from
acquisitions of 2% partially offset by decreases ina
organicdecrease in sales volumes of 10%.
 
The increase in selling price and product mix iswas primarily driven by price
 
increases implemented to
helpto offset the significant increases in raw material and other input
 
other input costs that began during 2021 and have continued inthrough the third quarter
of 2022.
 
The
current quarter decline in organic sales volumevolumes was largely
primarily driven by the impactcurrent geopolitical and macroeconomic
pressures including the
direct and indirect impacts of the ongoing war in Ukraine and the impact
of the economic and other sanctions by other nations on
Russia in response to the war, as well as lower volumes related to
associated with the Company’s ongoing
value-based pricing initiatives, the
wind-down of the tolling agreement for
products previously divested products associated withrelated
to the Combination and softer economic conditions in the
region.
 
The significant and the prior year period comparison,unfavorable foreign currency translation impact was primarily
 
which included a strong rebounddue to the strengthening of the U.S. dollar
from COVID-19 impacts.against the euro as this exchange rate averaged 1.01 in the third quarter
of 2022 compared to 1.18 in the third quarter of 2021.
 
This
segment’s operating earnings were $29.2
 
$9.9 million, a decrease of $3.0$10.3 million or 9%51% compared to the third quarter
first quarter of 2021.
 
The
decrease in segment operating earnings was primarily a result of lower gross
 
net sales and lower gross margins driven bydue to the lag insignificant
price increases as compared to continued raw material cost increases and globalinflationary pressures on the Company’s
 
supply chain and logistics pressures, as well as higher
SG&A including an increase in direct selling costs SG&A from acquisitionsexceeding the impact of its value-based pricing actions.
 
and year-over-year inflationary increases
.
Operating earnings in EMEA
EMEAwere also negatively impacted by foreign currency translation.
Asia/Pacific
Asia/Pacific represented approximately 26%19% of the Company’s
 
consolidated net sales in the firstthird quarter of 2022.
 
The segment’s net
net sales were $125.7$91.2 million, an increasea decrease of $5.9$7.4 million or 5%8% compared
 
to the firstthird quarter of 2021.
 
The increasedecrease in net sales was due
to driven by lower organic sales volumes of 20% and an unfavorable
impact from foreign currency translation of 6%, partially offset
by
higher selling price and product mix of 18% and additional net sales from
acquisitions of 2%, partially offset by the unfavorable
impact of foreign currency translation of 9% and a decrease in organic
sales volumes
of 6%.
 
The increase in selling price and product
mix iswas primarily driven by price increases
implemented to help offset
the significant increases in raw
material and other input costs
that began during 2021 and have continued through the
third quarter of 2022. The decline in organic sales volumes was primarily
driven by softer market conditions, primarily in China, as a
result of government imposed COVID-19 quarantines
and related production disruptions implemented at the end of March 2022
and
continued throughout the third quarter of 2022, partially offset by
net new business.
The unfavorable foreign exchange impact was
primarily due to the strengthening of the U.S. dollar against the Chinese renminbi
as this exchange rate averaged 6.85 in the third
quarter of 2022 compared to 6.47 in the third quarter of 2021.
This segment’s operating earnings were
$23.3 million, an increase of
$0.1 million compared to the third quarter of 2021 as lower net sales were offset
by improved margins.
Global Specialty Businesses
Global Specialty Businesses represented approximately 21% of the
Company’s consolidated net sales in the
third quarter of 2022.
The segment’s net sales were $101.1
million, an increase of $23.7 million or 31% compared to the third quarter
of 2021.
The increase
in net sales was driven by higher selling price and product mix of 20%,
an increase in organic sales volumes of 12% and additional net
sales from acquisitions of 2%, partially offset by an unfavorable
impact from foreign currency translation of 6%.
The increase in
selling price and product mix was primarily driven by price increases
implemented to help offset the significant increases in raw
material and other input costs that began during 2021 and continued through
the third quarter of 2022.
 
The current quarterincrease in organic volume declinesales
volumes was primarily drivenattributable to a continued favorable demand
 
by the current
economic pressures including the direct and indirect impacts of theenvironment for this segment’s products.
 
Russia-Ukraine conflict and the impact of economic and otherThe unfavorable
sanctions by other nations on Russia as well as the prior year period comparison
including a strong rebound from COVID-19 impacts.
The foreign exchange impact was primarily due to the weakening of thestrengthening
 
euro againstof the U.S. dollar against the euro as this exchange rate averaged
1.12described in the first quarter of 2022 compared to 1.21 in the first quarter ofEMEA section
2021.above.
 
This segment’s operating earnings
 
were $16.8$30.7 million, a
decreasean increase of $8.5$10.1 million or 34%49% compared to the firstthird quarter
of
2021.
 
The decreaseincrease in segment operating earnings was primarily areflects the higher net sales and
gross margins in the current year despite slightly
higher raw materials costs due to continued inflationary pressures.
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
3241
resultReportable Segments Review - Comparison of lower gross margins driven by the lag in price increases as comparedFirst Nine months of 2022
 
to continued raw material cost increases and globalwith the First Nine months of 2021
supply chain and logistics pressures, coupled with higher SG&A including
an increase in direct selling costs, SG&A from acquisitionsAmericas
and year-over-year inflationary increases
.
Asia/Pacific
Asia/PacificAmericas represented approximately 22%35% of the Company’s
 
consolidated net sales in the first quarternine months of 2022.
The
segment’s net sales were $513.4
million, an increase of $88.1 million or 21% compared to the first nine months of 2021.
The increase
in net sales was due to higher selling price and product mix of 27%
and additional net sales from acquisitions of 1%, partially offset
by a decrease in organic sales volumes of 7%.
The increase in selling price and product mix was primarily driven by price increases
implemented to help offset the significant increases in raw
material and other input costs that began during 2021 and have continued
into 2022.
The decline in organic sales volumes was primarily driven by lower sales volumes into
the automotive end market, the
wind-down of the tolling agreement for products previously divested related
to the Combination, the prior year period comparison
which included a strong rebound from COVID-19 impacts and the Company’s
ongoing value-based pricing initiatives, partially offset
by net new business wins.
This segment’s operating earnings were
$108.0 million, an increase of $10.8 million or 11%
compared to
the first nine months of 2021.
The increase in segment operating earnings was primarily a result of higher net
sales which more than
offset lower gross margins driven by inflationary
pressures.
EMEA
EMEA represented approximately 25% of the Company’s
consolidated net sales in the first nine months of 2022.
 
The segment’s
net sales were $104.2$362.1 million, an increasea decrease of $7.5$3.4 million or 8%1% compared
 
to the first quarternine months of 2021.
 
The increasedecrease in net sales was
driven bywas a result of higher selling price and product mix of 12% partially offset20% and additional
 
net sales from acquisitions of 1%, more than offset by lowerthe
unfavorable impact of foreign currency translation of 15% and
a decrease in organic sales volumes of 4%7%.
 
The increase in selling
price and product mix iswas primarily driven by price increases implemented
 
to help offset the significant increases in raw material and
other input costs that began during 2021 and have continued throughout
the first quarter ofinto 2022.
 
The current quarter decline in organic
sales volumevolumes was primarily driven by lower activity primarily
the current geopolitical and macroeconomic pressures including
the direct and indirect impacts of the ongoing war in China relatedUkraine and the
impact of the economic and other sanctions by other nations on Russia in response
 
to government mandates regarding the current year
Olympics as well as country restrictions over power and export relatedwar, lower volumes
 
activity comparedassociated with the
Company’s ongoing value
-based pricing initiatives, the wind-down of the tolling agreement for products previously
divested related to a very favorable demand environment in
the Combination, the prior year period.period comparison which included
a strong rebound from COVID-19 impacts, and softer economic
conditions in the region in the current period, partially offset by
net new business wins.
The unfavorable foreign exchange impact was
primarily due to the strengthening of the U.S. dollar against the euro
as this exchange rate averaged 1.07 in the first nine months of
2022 compared to 1.20 in first nine months of 2021.
 
This segment’s operating earnings were $39.9
 
were $21.9 million, a decrease of $5.6 $28.9
million or 20%42% compared to the first
quarter nine months of 2021.
 
The decrease in segment operating earnings was primarily a result of lower
gross margins
driven by the lag in price
increases as compared to continued raw material cost increases and globalsignificant inflationary pressures
 
supply chain and logistics pressures, coupled with higherthe negative impact of foreign currency translation year-over-year.
SG&A including an increase in direct selling costs and year-over-year inflationary
increases.Asia/Pacific
Global Specialty Businesses
Global Specialty BusinessesAsia/Pacific represented approximately 19%20% of the Company’s
 
Company’s consolidated net sales in the
first quarternine months of 2022.
 
The
The segment’s net sales were $90.1$295.3
 
million, an increase of $11.7$8.3 million or 15%3% compared
to the first quarternine months of 2021.
 
The increase in
in net sales was driven by higher selling price and product mix of 10%15%, including
 
Norman Hay, additional partially offset by lower organic sales volumes
of 9% and the
unfavorable impact of foreign currency translation of 3%.
The increase in selling price and product mix was primarily driven by price
increases implemented to help offset the significant
increases in raw material and other input costs that began during 2021 and
continued into 2022.
The decline in organic sales volumes was primarily driven by softer end
market conditions in China as a result
of the government imposed COVID-19 quarantine and related production
disruptions and the prior year comparison which included a
strong rebound from COVID-19 impacts as customers replenished
their supply chains, partially offset by net new business wins.
This
segment’s operating earnings were
$67.5 million, a decrease of $6.5 million or 9% compared to the first nine months of
2021.
The
decrease in segment operating earnings was primarily a result of higher
net sales, fromwhich was more than offset by lower gross margins
due to significant inflationary pressures and the unfavorable impact
 
acquisitionsof foreign currency translation.
Global Specialty Businesses
Global Specialty Businesses represented approximately 20% of 4%the
Company’s consolidated net sales in the
first nine months of
2022.
The segment’s net sales were $288.0
million, an increase of $51.6 million or 22% compared to the first nine months of 2021.
The increase in net sales was driven by higher selling price and product
mix of 15%, an increase in organic sales volumes of 2%8% and
additional net sales from acquisitions of 3%, partially offset
 
by the unfavorable impact from foreign currency transactiontranslation of
approximately 1%4%.
 
The increase in selling price and product mix iswas primarily driven by price increases implemented
 
implemented to help offset the
the significant increases in raw material and other input costs that began during
 
2021 and continued throughout the first quarter ofinto 2022.
The increase in
organic sales volumes was primarily attributable
 
to a continued favorable demand environment for our this segment’s
products.
 
The
unfavorable foreign
exchange impact was primarily due to the weakening of the eurostrengthening
 
againstof the U.S. dollar against the euro described in the EMEA
section above.
 
This
segment’s operating earnings were
 
$25.0were $83.6 million, an increase of $0.9$14.6 million or 4%21% compared to the first quarter
 
nine
months of 2021.
 
The
increase in segment operating earnings reflects the aforementioned
higher net sales and comparable gross
margins, partially offset
by slightly lower gross marginsthe negative impact of foreign currency translation.
 
in
Quaker Chemical Corporation
the current year coupled with higher SG&A, including an increase in direct
selling costs, SG&A from acquisitionsManagement’s Discussion and year-over-yearAnalysis
inflationary increases.42
Factors That May Affect Our Future Results
(Cautionary Statements Under the Private Securities Litigation Reform
 
Act of 1995)
Certain information included in this Report and other materials filed or
 
to be filed by Quaker Chemical Corporation with the SEC,
as well as information included in oral statements or other written statements made
 
or to be made by us, contain or may contain
forward-looking statements within the meaning of Section 27A of the
 
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
 
These statements can be identified by the fact that they do not relate strictly to
historical or current facts.
 
We have based
 
these forward-looking statements, including statements regarding the potential
 
effects of the
COVID-19 pandemic and global supply chain constraints on the Company’s
 
business, results of operations, and financial condition,
our expectation that we will maintain sufficient liquidity, and
 
remediate any of our material weaknesses in internal control over
financial reporting, and statements regarding the impact of increased
raw material costs and
pricing initiatives on our current
expectations about future
events.
 
These forward-looking statements include statements with respect to
 
our beliefs, plans, objectives, goals, expectations,
anticipations, intentions, financial condition, results of operations, future
 
performance, and business, including:
 
•
 
the potential benefits of the Combination and other acquisitions;
 
•
 
the impacts on our business as a result of the COVID-19 pandemic;
•
the timing and extent of the projected impacts on our business as a result of the Ukrainian
 
and Russian conflict;conflict and
actions taken by various governments and governmental organizations
in response;
•
cost increases in prices of raw materials and the impacts of constraints and
disruptions in the global supply
chain;
•
the potential for a variety of macroeconomic events, including the possibility of global
 
or regional recessions, inflation
generally, cost increases in
prices of raw materials such as oil and increasing interest rates, to impact the value of our
assets or result in asset impairments;
•
our current and future results and plans including our sustainability goals; and
 
•
 
statements that include the words “may,”
 
“could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,”
“intend,” “plan” or similar expressions.
Such statements include information relating to current and future business activities,
 
operational matters, capital spending, and
financing sources.
 
From time to time, forward-looking statements are also included in the Company’s
 
other periodic reports on Forms
10-K, 10-Q and 8-K, press releases, and other materials released to,
 
or statements made to, the public.
Quaker Chemical Corporation
Management’s Discussion and Analysis
33
Any or all of the forward-looking statements in this Report, in the Company’s
 
Annual Report to Shareholders for 2021 and in any
other public statements we make may turn out to be wrong.
 
This can occur as a result of inaccurate assumptions or as a consequence
of known or unknown risks and uncertainties.
 
Many factors discussed in this Report will be important in determining our future
performance.
 
Consequently, actual results may
 
differ materially from those that might be anticipated from our forward-looking
statements.
We undertake
 
no obligation to publicly update any forward-looking statements, whether
 
as a result of new information, future
events or otherwise.
 
However, any further disclosures made on
 
related subjects in the Company’s subsequent
 
reports on Forms 10-K,
10-Q, 8-K and other related filings should be consulted.
 
A major risk is that demand for the Company’s
 
products and services is
largely derived from the demand for our customers’ products,
 
which subjects the Company to uncertainties related to downturns in a
customer’s business and unanticipated customer production
 
slowdowns and shutdowns, including as is currently being experienced by
many automotive industry companies as a result of supply chain disruption.
 
Other major risks and uncertainties include, but are not
limited to, the primary and secondary impacts of the COVID-19 pandemic,
 
including actions taken in response to the pandemic by
various governments, which could exacerbate some or all of the other
 
risks and uncertainties faced by the Company,
 
as well as
inflationary pressures, including the
potential for continued significant
increases in raw material costs, supply chain disruptions,
disruptions, customer financial instability,
 
rising interest rates and the possibility of economic recession, worldwide
economic
and political
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
 
many multinational companies and the potential expansion
of military
activity, foreign currency
 
currency fluctuations, significant changes in applicable tax rates and regulations, future
 
regulations, future terrorist attacks
and other acts
of violence.
 
Furthermore, the Company is subject to the same business cycles as those experienced by
 
by our customers in
the steel,
automobile, aircraft, industrial equipment, and durable goods industries.
 
The ultimate impact of COVID-19 on our business will
will depend
on, among other things, the extent and duration of the
pandemic, the severity of
the disease and the number of people infected
infected with the virus including new variants, the continued uncertainty regarding
 
regarding global availability, administration,
 
administration, acceptance and long-
long-termterm efficacy of vaccines, or other treatments for COVID-19 or
 
COVID-19 or its variants, the longer-term effects
on the economy of
the pandemic,
pandemic, including the resulting market volatility,
 
and by the measures taken by governmental authorities and other third partiesparti
es restricting day-
restricting day-to-dayto-day life and business operations and the length
of time that such measures
remain in place, as well as laws and other governmental
governmental programs implemented to address the pandemic or assist impacted
 
businesses, such as fiscal stimulus and other
legislation designed to
deliver monetary aid and other relief.
 
Other factors could also adversely affect us, including those related
 
to
acquisitions and the
integration of acquired businesses.
 
Our forward-looking statements are subject to risks, uncertainties and
assumptions about the
Quaker Chemical Corporation
Management’s Discussion and Analysis
43
Company and its operations that are subject to change
based on various important
factors, some of which are
beyond our control.
 
These risks, uncertainties, and possible inaccurate assumptions relevant
to our
business could cause our actual
results to differ
materially from expected and historical
results.
 
Therefore, we caution you not to place undue reliance on our forward-looking
 
statements.
 
For more information regarding these
risks and uncertainties as well as certain additional risks that we face,
 
refer to the Risk Factors section, which appears in Item 1A in
our 2021 Form 10-K and in our quarterly and other reports filed from time to
 
time with the SEC.
 
This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
Quaker Houghton on the Internet
 
Financial results, news and other information about Quaker Houghton
 
can be accessed from the Company’s
 
website at
https://www.quakerhoughton.com
.www.quakerhoughton.com.
 
This site includes important information on the Company’s
 
locations, products and services,
financial reports, news releases and career opportunities.
 
The Company’s periodic and current reports
 
on Forms 10-K, 10-Q, 8-K, and
other filings, including exhibits and supplemental schedules filed therewith,
 
and amendments to those reports, filed with the SEC are
available on the Company’s website,
 
free of charge, as soon as reasonably practicable after they
 
are electronically filed with or
furnished to the SEC.
 
Information contained on, or that may be accessed through,
the Company’s
website is not incorporated
by
reference in this Report and, accordingly,
 
you should not consider that information part of this Report.
3444
Item 3.
 
Quantitative and Qualitative Disclosures About Market
 
Risk.
We have evaluated
 
the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on
 
Report on Form
10-K for the year ended December 31, 2021, and we believe there has been
no material
change to that information.information, except the interest
rate risk information noted below.
Interest Rate Risk
The Company’s exposure to
interest rate risk relates primarily to its outstanding borrowings under its credit facility.
During June
2022, the Company entered into an amendment to its primary credit facility
(the “Original Credit Facility”, or as amended, the
“Amended Credit Facility”). See Note 14 of Notes to Condensed Consolidated
Financial Statements, which appears in Item 1 of this
Report. As of September 30, 2022, borrowings under the Amended
Credit Facility bear interest at either term SOFR or a base rate, in
each case, plus an applicable margin based upon the Company’s
consolidated net leverage ratio, and, in the case of term SOFR, a
spread adjustment equal to 0.10% per annum. As a result of the variable interest rates applicable
under the Amended Credit Facility,
if
interest rates rise significantly,
the cost of debt to the Company will increase. This can have an adverse effect
on the Company,
depending on the extent of the Company’s
borrowings outstanding throughout a given year.
As of September 30, 2022, the Company
had outstanding borrowings under the Amended Credit Facility of approximately
$941.2 million. The interest rate applicable on
outstanding borrowings under the Amended Credit Facility was approximately
3.8% as of September 30, 2022. As of December 31,
2021, the Company had outstanding borrowings under the Original Credit
Facility of approximately $889.6 million. The variable
interest rate incurred on the outstanding borrowings under the Original Credit
Facility during the year ended December 31, 2021 was
approximately 1.6%. If interest rates had changed by 10% during 2021, the
Company’s interest expense for
the period ended
December 31, 2021 on its credit facilities, including the Original Credit Facility borrowings
outstanding post-closing of the
Combination, would have correspondingly increased or decreased by approximately
$1 million. Likewise, if interest rates had changed
by 10% during the nine month period ended September 30, 2022, the Company’s
interest expense for the nine month period ended
September 30, 2022 on its credit facilities, including the Amended Credit
Facility borrowings outstanding, would have
correspondingly increased or decreased by approximately $2.2
million. The Original Credit Facility required the Company to fix its
variable interest rates on at least 20% of its total term loans. In order to satisfy this requirement
as well as to manage the Company’s
exposure to variable interest rate risk associated with the Original Credit Facility,
in November 2019, the Company entered into
$170.0 million notional amounts of three year interest rate swaps at a base rate of 1.64%
plus an applicable margin as provided in the
Original Credit Facility, based
on the Company’s consolidated net
leverage ratio. At the time the Company entered into the swaps, and
as of September 30, 2022, the aggregate interest rate on the swaps, including
the fixed base rate plus an applicable margin, was 3.1%.
In October 2022, the Company’s
interest rate swap contracts expired.
Upon expiration, the Company is entitled to a cash payment
from the counterparties, which is materially consistent with the fair value as of
September 30, 2022. The Amended Credit Facility
does not require the Company to fix variable interest rates on any portion of its borrowings.
3545
Item 4.
 
Controls and Procedures.
Evaluation of disclosure controls
 
and procedures.
 
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), our management, including our
 
principal executive officer and principal financial officer,
 
has
evaluated the effectiveness of our disclosure controls
 
and procedures (as defined in Rule 13a-15(e) under the Exchange Act )Act) as of the
end of the period covered by this Report.
 
Based on that evaluation, our principal executive officer and our principal
 
financial officer
have concluded that, as of March 31,September 30, 2022, the end of the period covered by
 
by this Report, our disclosure controls and procedures (as
(as defined in Rule 13a-15(e) under the Exchange Act) were effective.
Changes in internal control over financial reporting.
 
As required by Rule 13a-15(d) under the Exchange Act, our
management, including our principal executive officer
 
and principal financial officer, has evaluated
 
our internal control over
financial reporting to determine whether any changes to our internal control
 
over financial reporting occurred during the
quarter ended March 31,September 30, 2022 that have materially affected, or
 
or are reasonably likely to materially affect, our internal control
control over financial reporting.
 
Based on that evaluation, there were no changes that have materially affected,
 
or are reasonably
reasonably likely to materially affect, our internal control over
financial reporting
during the quarter ended March 31, September 30,
2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3646
PART
 
II.
 
OTHER INFORMATION
Items 3, 4 and 5 of Part II are inapplicable and have been omitted.
Item 1.
 
Legal Proceedings.
Incorporated by reference is the information in Note 18 of the Notes to the
 
Condensed Consolidated Financial Statements in Part
I, Item 1, of
this Report.
Item 1A.
Risk Factors.
The Company’s business, financial
 
condition, results of operations and cash flows are subject to various
risks that
could cause
actual results to vary materially from recent results or from anticipated future
 
results.
 
In addition to the other information set forth in
this Report, you should carefully consider the risk factors previously disclosed
 
in Part I, Item 1A of our 2021
Form 10-K.
 
While thereThere have
have been no material changes to the risk factors described in our 2021 Form 10-K,
reference is made to the developments discussed
under the headings
Ongoing impact of COVID-19
and
Impact of Political Conflicts
within Item 2 of this Report.therein.
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth information concerning shares of the
 
the Company’s common stock acquired
 
by the Company during
the period covered by this Report:
(c)
(d)
Total
 
Number of
Approximate Dollar
(a)
(b)
Shares Purchased
 
Value of
 
Shares that
Total
 
Number
Average
as part of
May Yet
 
be
of Shares
Price Paid
Publicly Announced
Purchased Under the
Period
Purchased (1)
Per Share (2)
Plans or Programs
Plans or Programs (3)
JanuaryJuly 1 - JanuaryJuly 31
494258
 
$
227.19135.19
 
—
$
86,865,026
 
FebruaryAugust 1 - February 28August 31
4,7172,853
 
$
189.45160.22
 
—
$
86,865,026
 
MarchSeptember 1 - March 31September 30
161473
 
$
174.07165.52
 
—
$
86,865,026
 
Total
5,3723,584
 
$
192.46159.12
 
—
$
86,865,026
 
(1)
All of these shares were acquired from employees related 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 awards or units.
(2)
The price paid for shares acquired from employees pursuant to employee
 
benefit and share-based compensation plans is
based on the closing price of the Company’s
 
common stock on the date of exercise or vesting as specified by the plan
pursuant to which the applicable option, restricted stock award, or restricted
 
stock unit was granted.
(3)
On May 6, 2015, the Board of Directors of the Company approved, and the
 
Company announced, a 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”), 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 March 31,September 30, 2022.
Limitation on the Payment of Dividends
The Amended Credit Facility has certain limitations on the payment of dividends
 
dividends and other so-called restricted payments.
See
Note 14 of
Notes to Condensed Consolidated Financial Statements, in Part
I, Item
1, of this Report.
 
3747
Item 6.
 
Exhibits.
(a) Exhibits
3.1
–
3.2
–
31.1
–
31.2
–
32.1
–
32.2
–
101.INS
–
Inline XBRL Instance Document*
101.SCH
–
Inline XBRL Taxonomy
 
Extension Schema Document*
101.CAL
–
Inline XBRL Taxonomy
 
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
–
Cover Page Interactive Data File (formatted as Inline XBRL and contained
 
in Exhibit 101.INS)*
*Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan.
*********
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has
duly caused this report to be signed
on its
behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
QUAKER CHEMICAL CORPORATION
(Registrant)
 
 
 
 
/s/ Shane W. Hostetter________________________________Hostetter
Date: May 5,November 3, 2022
 
 
 
Shane W. Hostetter,
 
Senior Vice President, Chief Financial
Officer (officer duly authorized on behalf of, and principal
financial officer of, the Registrant)