UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
10-Q
☒
QUARTERLY
REPORT PURSUANT TO SECTION 13
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 20222023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from
to
Commission file number 001-12019
001-12019
QUAKER CHEMICAL CORPORATION
(Exact name of Registrantregistrant as specified in its charter)
Pennsylvania23-0993790
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
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)
Conshohocken, Pennsylvania
19428 – 2380
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:
610
-
832-4000 610-832-4000
Not Applicable
Former name, former address and former fiscal year,
if changed since last report.
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $1 par valueKWRNew York Stock Exchange
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1 par value
KWR
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.     Yes    x     No    o
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
shorter period that the registrant was required to submit
such files).
Yes
☒
xNo
☐
o
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 filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
☒
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.
o
☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes
☐
oNo
☒x
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock
Outstanding on April 30, 2022
Number of Shares of Common Stock Outstanding on April 30, 202317,980,840
17,912,086
Table of Contents
Quaker Chemical Corporation
1
QUAKER CHEMICAL CORPORATION
AND CONSOLIDATED
SUBSIDIARIESTable of Contents
Page
2
Financial Statements (Unaudited)
2
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and March 31, 2022
2
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and March 31, 2022
3
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022
4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and March 31, 2022
5
Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2023 and
6
Notes to Condensed Consolidated Financial Statements
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
21
Quantitative and Qualitative Disclosures about Market Risk.
32
Controls and Procedures.
32
OTHER INFORMATION.
Legal Proceedings.
33
Risk Factors.
33
Unregistered Sales of Equity Securities and Use of Proceeds.
33
Exhibits.
34
35
Page
PART
I.
FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the Three Months EndedMarch 31, 2022 and 2021
2
Condensed Consolidated Statements of Comprehensive Income forthe Three Months Ended March 31, 2022 and 2021
3
Condensed Consolidated Balance Sheets at March 31, 2022 andDecember 31, 2021
4
Condensed Consolidated Statements of Cash Flows for the Three MonthsEnded March 31, 2022 and 2021
5
Condensed Consolidated Statements of Changes in Equity for the Three Months
Ended March 31, 2022 and 2021
6
Notes to Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysisof Financial Condition and Results of Operations.
22
Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
34
Item 4.
Controls and Procedures.
35
PART
II.
OTHER INFORMATION.
36
Item 1.
Legal Proceedings.
36
Item 1A.
Risk Factors.
36
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
36
Item 6.
Exhibits.
37
Signatures
37
1
Table of Contents
2
PART
I
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited).
Quaker Chemical Corporation
Condensed Consolidated Statements of IncomeOperations
(Unaudited; Dollars in thousands, except per share data)
Unaudited
Three Months Ended March 31,
2022
2021
Net sales
$
474,171
$
429,783
Cost of goods sold (excluding amortization expense - See Note 13)
328,100
273,589
Gross profit
146,071
156,194
Selling, general and administrative expenses
111,795
104,310
Restructuring and related charges
820
1,175
Combination, integration and other acquisition-related expenses
4,053
5,815
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
Taxes on income before
equity in net income of associated companies
2,866
10,689
Income before equity in net income of associated companies
18,986
33,422
Equity in net income of associated companies
835
5,210
Net income
19,821
38,632
Less: Net income attributable to noncontrolling interest
5
17
Net income attributable to Quaker Chemical Corporation
$
19,816
$
38,615
Per share data:
Net income attributable to Quaker Chemical Corporation common
shareholders – basic
$
1.11
$
2.16
Net income attributable to Quaker Chemical Corporation common
shareholders – diluted
$
1.11
$
2.15
Dividends declared
$
0.415
$
0.395
Three Months Ended
March 31,
20232022
Net sales$500,148 $474,171 
Cost of goods sold (excluding amortization expense - See Note 13)326,698 328,100 
Gross profit173,450 146,071 
Selling, general and administrative expenses119,549 111,795 
Restructuring and related charges, net3,972 820 
Combination, integration and other acquisition-related expenses— 4,053 
Operating income49,929 29,403 
Other expense, net(2,239)(2,206)
Interest expense, net(13,242)(5,345)
Income before taxes and equity in net income of associated companies34,448 21,852 
Taxes on income before equity in net income of associated Companies9,533 2,866 
Income before equity in net income of associated Companies24,915 18,986 
Equity in net income of associated companies4,626 835 
Net income29,541 19,821 
Less: Net income attributable to noncontrolling interest7 5 
Net income attributable to Quaker Chemical Corporation$29,534 $19,816 
Per share data:
Net income attributable to Quaker Chemical Corporation common shareholders – basic$1.64 $1.11 
Net income attributable to Quaker Chemical Corporation common shareholders – diluted$1.64 $1.11 
Dividends declared$0.435 $0.415 
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
2
Quaker Chemical Corporation
Condensed Consolidated Statements of Comprehensive
Income
(Unaudited; Dollars in thousands)
Unaudited
Three Months Ended March 31,
2022
2021
Net income
$
19,821
$
38,632
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(6,866)
(25,461)
Defined benefit retirement plans
496
1,292
Current period change in fair value of derivatives
1,100
562
Unrealized loss on available-for-sale securities
(1,000)
(3,025)
Other comprehensive loss
(6,270)
(26,632)
Comprehensive income
13,551
12,000
Less: Comprehensive income attributable to noncontrolling
interest
(6)
(15)
Comprehensive income attributable to Quaker Chemical Corporation
$
13,545
$
11,985
Three Months Ended
March 31,
20232022
Net income$29,541 $19,821 
Other comprehensive income (loss), net of tax
Currency translation adjustments14,468 (6,866)
Defined benefit retirement plans(126)496 
Current period change in fair value of derivatives390 1,100 
Unrealized gain (loss) on available-for-sale securities334 (1,000)
Other comprehensive income (loss)15,066 (6,270)
Comprehensive income44,607 13,551 
Less: Comprehensive income attributable to noncontrolling interest(10)(6)
Comprehensive income attributable to Quaker Chemical Corporation$44,597 $13,545 
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
3
Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Unaudited; Dollars in thousands, except par value)
Unaudited
March 31,
December 31,
2022
2021
ASSETS
Current assets
Cash and cash equivalents
$
161,552
$
165,176
Accounts receivable, net
458,459
430,676
Inventories
Raw materials and supplies
146,289
129,382
Work-in-process
and finished goods
153,506
135,149
Prepaid expenses and other current assets
67,853
59,871
Total current
assets
987,659
920,254
Property, plant and equipment,
at cost
439,318
434,344
Less accumulated depreciation
(242,203)
(236,824)
Property, plant and equipment,
net
197,115
197,520
Right of use lease assets
38,245
36,635
Goodwill
630,938
631,194
Other intangible assets, net
1,012,068
1,027,782
Investments in associated companies
90,003
95,278
Deferred tax assets
11,496
16,138
Other non-current assets
29,198
30,959
Total assets
$
2,996,722
$
2,955,760
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt
$
61,385
$
56,935
Accounts payable
253,906
226,656
Dividends payable
7,433
7,427
Accrued compensation
26,396
38,197
Accrued restructuring
4,435
4,087
Accrued pension and postretirement benefits
1,549
1,548
Other accrued liabilities
97,445
95,617
Total current
liabilities
452,549
430,467
Long-term debt
858,287
836,412
Long-term lease liabilities
27,433
26,335
Deferred tax liabilities
170,622
179,025
Non-current accrued pension and postretirement benefits
44,667
45,984
Other non-current liabilities
47,464
49,615
Total liabilities
1,601,022
1,567,838
Commitments and contingencies (Note 18)
Equity
Common stock, $
1
par value; authorized
outstanding 2022 –
17,911,583
shares; 2021 –
17,897,033 shares
17,912
17,897
Capital in excess of par value
918,699
917,053
Retained earnings
528,716
516,334
Accumulated other comprehensive loss
(70,261)
(63,990)
Total Quaker
shareholders’ equity
1,395,066
1,387,294
Noncontrolling interest
634
628
Total equity
1,395,700
1,387,922
Total liabilities and equity
$
2,996,722
$
2,955,760
March 31,
2023		December 31,
2022
ASSETS
Current assets
Cash and cash equivalents$189,872$180,963
Accounts receivable, net482,746472,888
Inventories
Raw materials and supplies148,119151,105
Work-in-process and finished goods145,375133,743
Prepaid expenses and other current assets63,18955,438
Total current assets1,029,301994,137
Property, plant and equipment, at cost439,367428,190
Less: Accumulated depreciation(236,279)(229,595)
Property, plant and equipment, net203,088198,595
Right of use lease assets43,34443,766
Goodwill517,206515,008
Other intangible assets, net936,345942,925
Investments in associated companies90,84188,234
Deferred tax assets10,42211,218
Other non-current assets27,91627,739
Total assets$2,858,463$2,821,622
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt$19,350$19,245
Accounts payable216,633193,983
Dividends payable7,8227,808
Accrued compensation26,71339,834
Accrued restructuring6,8095,483
Accrued pension and postretirement benefits1,5721,560
Other accrued liabilities90,51386,873
Total current liabilities369,412354,786
Long-term debt921,555933,561
Long-term lease liabilities26,08626,967
Deferred tax liabilities157,935160,294
Non-current accrued pension and postretirement benefits28,98528,765
Other non-current liabilities37,70238,664
Total liabilities1,541,6751,543,037
Commitments and contingencies (Note 18)
Equity
Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding March 31, 2023 – 17,981,822 shares; December 31, 2022 – 17,950,264 shares17,98217,950
Capital in excess of par value929,674928,288
Retained earnings491,632469,920
Accumulated other comprehensive loss(123,177)(138,240)
Total Quaker shareholders’ equity1,316,1111,277,918
Noncontrolling interest677667
Total equity1,316,7881,278,585
Total liabilities and equity$2,858,463$2,821,622
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
4
Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited; Dollars in thousands)
Unaudited
Three Months Ended March 31,
2022
2021
Cash flows from operating activities
Net income
$
19,821
$
38,632
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of debt issuance costs
1,187
1,187
Depreciation and amortization
20,447
22,145
Equity in undistributed earnings of associated companies, net of dividends
2,135
(5,105)
Acquisition-related fair value adjustments related to inventory
0
801
Deferred compensation, deferred taxes and other,
net
(3,778)
(9,888)
Share-based compensation
2,462
3,779
Gain on disposal of property, plant,
equipment and other assets
(23)
(5,410)
Combination and other acquisition-related expenses, net of payments
(4,246)
(2,884)
Restructuring and related charges
820
1,175
Pension and other postretirement benefits
(1,316)
(1,034)
(Decrease) increase in cash from changes in current assets and current
liabilities, net of acquisitions:
Accounts receivable
(26,270)
(46,270)
Inventories
(33,873)
(24,994)
Prepaid expenses and other current assets
(6,506)
(8,315)
Change in restructuring liabilities
(408)
(3,034)
Accounts payable and accrued liabilities
23,249
26,597
Net cash used in operating activities
(6,299)
(12,618)
Cash flows from investing activities
Investments in property,
plant and equipment
(8,847)
(3,934)
Payments related to acquisitions, net of cash acquired
(9,383)
(26,655)
Proceeds from disposition of assets
0
14,744
Net cash used in investing activities
(18,230)
(15,845)
Cash flows from financing activities
Payments of long-term debt
(14,112)
(9,551)
Borrowings on revolving credit facilities, net
43,000
30,000
Repayments on other debt, net
(102)
(188)
Dividends paid
(7,428)
(7,052)
Stock options exercised, other
(801)
(178)
Net cash provided by financing activities
20,557
13,031
Effect of foreign exchange rate changes on cash
348
(3,008)
Net decrease in cash and cash equivalents
(3,624)
(18,440)
Cash and cash equivalents at the beginning of the period
165,176
181,895
Cash and cash equivalents at the end of the period
$
161,552
$
163,455
Three Months Ended
March 31,
20232022
Cash flows from operating activities
Net income$29,541 $19,821 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of debt issuance costs353 1,187 
Depreciation and amortization20,246 20,447 
Equity in undistributed earnings of associated companies, net of dividends(4,401)2,135 
Deferred compensation, deferred taxes and other, net(2,231)(3,801)
Share-based compensation3,527 2,462 
Combination and other acquisition-related expenses, net of payments— (4,246)
Restructuring and related charges3,972 820 
Pension and other postretirement benefits(415)(1,316)
(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:
Accounts receivable(3,974)(26,270)
Inventories(5,792)(33,873)
Prepaid expenses and other current assets(6,765)(6,506)
Change in restructuring liabilities(2,747)(408)
Accounts payable and accrued liabilities6,468 23,249 
Net cash provided by (used in) operating activities37,782 (6,299)
Cash flows from investing activities
Investments in property, plant and equipment(6,161)(8,847)
Payments related to acquisitions, net of cash acquired— (9,383)
Net cash used in investing activities(6,161)(18,230)
Cash flows from financing activities
Payments of long-term debt(4,703)(14,112)
(Payments) borrowings on revolving credit facilities, net(9,776)43,000 
Payments on other debt, net(469)(102)
Dividends paid(7,809)(7,428)
Other stock related activity(2,109)(801)
Net cash (used in) provided by financing activities(24,866)20,557 
Effect of foreign exchange rate changes on cash2,154 348 
Net decrease in cash and cash equivalents8,909 (3,624)
Cash and cash equivalents at the beginning of the period180,963 165,176 
Cash and cash equivalents at the end of the period$189,872 $161,552 
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
5
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
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
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
Common
Stock		Capital in
Excess of
Par Value		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Noncontrolling
Interest		Total
Balance as of December 31, 2021$17,897 $917,053 $516,334 $(63,990)$628 $1,387,922 
Net income— — 19,816 — 5 19,821 
Amounts reported in other comprehensive (loss) income— — — (6,271)1 (6,270)
Dividends ($0.415 per share)— — (7,434)— — (7,434)
Share issuance and equity-based compensation plans15 1,646 — — — 1,661 
Balance as of March 31, 2022$17,912 $918,699 $528,716 $(70,261)$634 $1,395,700 
Balance as of December 31, 2022$17,950 $928,288 $469,920 $(138,240)$667 $1,278,585 
Net income— — 29,534 — 7 29,541 
Amounts reported in other comprehensive income— — — 15,063 3 15,066 
Dividends ($0.435 per share)— — (7,822)— — (7,822)
Share issuance and equity-based compensation plans32 1,386 — — — 1,418 
Balance as of March 31, 2023$17,982 $929,674 $491,632 $(123,177)$677 $1,316,788 
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
6
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited; 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 of this Quarterly Report on Form 10-Q for the
period ended March 31, 2023 (the “Report”), the terms “Quaker,” “Quaker Houghton,” the
“Company, “Company,” “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 The “Combination” refers to the Company prior to the closing of itslegacy Quaker combination
with Houghton International, Inc. (“Houghton”).
(herein referred to as the “Combination”).Basis of Presentation
The condensed consolidated financial statements included herein are unaudited and
have
been prepared in accordance with generally accepted accounting principles
in the United States (“U.S. GAAP”) for interim financial
reporting and the United States Securities and Exchange Commission (“SEC”)
regulations.
Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted
pursuant to such rules and 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 three months ended March 31, 20222023 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, 20212022 (the “2021“2022 Form 10-K”).
During the first quarter of 2023, the Company reorganized its executive management team to align with its new business structure. The Company’s new structure includes three reportable segments: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia/Pacific. Prior to the Company’s reorganization, the Company’s historical reportable segments were: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. Prior period information has been recast to align with the Company’s business structure as of January 1, 2023, including reportable segments, customer industry disaggregation, and goodwill. See Notes 4, 5, and 13 of Notes to Condensed Consolidated Financial Statements.
Description of Business
The Company was organized in 1918 and incorporated as a Pennsylvania
business corporation in 1930, and in August 2019
completed the Combination with Houghton to form Quaker Houghton.
1930. Quaker Houghton is the global leader in industrial process
fluids.
With a presence around the world, including
operations in over
25
countries, the Company’s customers
include thousands of
the world’s most advanced and specialized
steel, aluminum, automotive, aerospace, offshore, can,
container, mining, and metalworking
companies.
Quaker Houghton develops, produces, and markets a broad range of formulated chemical
specialty products and offers
chemical management services, (whichwhich the Company refers to as “Fluidcare
TM
”), for various heavy industrial and manufacturing applications.
applications throughout its
4
segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; and
Global Specialty
Businesses.
Hyper-inflationary economies
Based on various indices or index compilations being used to monitor inflation
in Argentina as well as economic instability,
Argentina’s and Türkiye’s economies were considered hyper-inflationary under U.S. GAAP effective July 1, 2018 Argentina’s
economy was considered hyper-inflationary under U.S. GAAP.
and April 1, 2022, respectively. As of, and for the three months
ended March 31, 2022,2023, the Company's Argentine and Turkish subsidiaries represented
less than
1
% a combined 1% and 2% of the Company’s consolidated
total assets and
net sales, respectively.
During eachthe three months ended March 31, 2023, the Company recorded $0.5 million of remeasurement losses associated with the applicable currency conversions related to Argentina and Türkiye. Comparatively, during the three months ended March 31, 2022, and 2021, the Company
recorded $
0.2
$0.2 million 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,Other expense, net,
in the Company’s Condensed Consolidated
Statements of Income.
Operations.
Note 2 – Business Acquisitions
2022Previous Acquisitions
In October 2022, the Company acquired a business that provides pickling and rinsing products and services, which is part of the EMEA reportable segment, for approximately 3.5 million EUR or approximately $3.5 million. This acquisition, along with the Company’s January 2022 acquisition in the Americas (described below), which had similar specializations and product offerings in pickling inhibitor technologies, strengthens Quaker Houghton’s position in pickling inhibitors and additives, enabling the Company to better support and optimize production processes for customers across the Metals industry. As of March 31, 2023, the allocation of the purchase of this acquisition in October 2022 has not been finalized and the one-year measurement period has not ended. Further adjustments may be necessary as a result of the Company’s ongoing assessment of additional information related to the fair value of assets acquired and liabilities assumed.
7
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)
In January 2022, the Company acquired a business that provides pickling
inhibitor technologies, for the steel industry,
drawing
lubricants and stamping oil, for metalworking, and various other lubrication,
rust preventative, and cleaner applications, for its
which is part of the Americas reportable segment for approximately $
8.0
$8.0 million.
This business broadens the Company’s
product offerings within its
existing metals and metalworking business in the Americas region.
The During the third quarter of 2022 the Company allocated $
5.6
finalized post-closing adjustments that resulted in the Company paying less than $0.1 million of theadditional 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
consideration. Also 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 Businesswhich is part of the EMEA reportable segment
for approximately
1.2
million EUR or approximately $
1.4
$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 acquired
as part of
the Norman Hay acquisition in 2019.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
8
business. The results of operationsallocation of the purchase prices of both of these January 2022 acquired assets and businesses subsequent
to the respective acquisition dates are included inacquisitions has been finalized.
the unaudited Condensed Consolidated Statements of Income for the quarter ended
March 31, 2022.
Applicable transaction expenses
associated with these acquisitions are included in Combination,
integration and other acquisition-related expenses in the Company’s
unaudited Condensed Consolidated Statements of Income.
Certain pro forma and other information is not presented, as the operations
of the acquired assets and businesses are not considered material to the overall operations
of the Company for the periods presented.
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 BusinessesAmericas reportable segment for
$
11.0
$11.0 million, including an initial cash payment of $
7.1
$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
$4.5 million.
The Company allocated $
8.0
million of the purchase price to intangible assets, $
1.1
million of
property, plant and
equipment and $
1.5
million of other assets acquired net of liabilities assumed, which includes $
0.3
million of cash
acquired.
In addition, the Company recorded $
0.4
million of goodwill, 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
.
In November 2021, the Company acquired a business that provides
hydraulic fluids, coolants, cleaners, and rust preventative oils
in Turkey for its EMEA reportable segment for
3.2
million EUR or approximately $
3.7
million.
In September 2021, the Company acquired the remaining interest in Grindaix
-GmbH (“Grindaix”), a Germany-based, high-tech
provider of coolant control and delivery systems for its 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 Consolidated Financial
Statements and accounted for the purchase of
the remaining interest as a step acquisition whereby the Company remeasured
the previously held equity method investment to its fair
value.
In June 2021, the Company acquired certain assets for its chemical milling maskants
product line in the Global Specialty
Businesses reportable segment for
2.3
million EUR or approximately $
2.8
million.
In February 2021, the Company acquired a tin-plating solutions business 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
; $
0.9
million of existing
product technology to be amortized over
14 years
; and $
0.4
million of a licensed trademark to be amortized over
3 years
.
In addition,
the 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, 2023, the Company has remaining earnout liabilities recorded on its Condensed Consolidated Balance Sheet of $1.6 million. Additionally, during the third quarter of 2022 the allocationCompany finalized post-closing adjustments that resulted in the Company receiving a payment of the purchase price of these acquisitions have
not been finalized and the one-yearless than $0.1 million.
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.
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.
In December 2020, the Company acquired Coral Chemical CorporationCompany, LLC (“Coral”),
a privately held U.S.-based provider of metal
finishing fluid solutions.
Subsequent to the acquisition, the Company and the sellers of Coral (the “Sellers”) have
worked to finalize
certain post-closing adjustments.
In April During the second quarter of 2022, after failing to reach resolution, the Sellers filed suit asserting certain
amounts owed
related to tax attributes of the acquisition.
Based on During the first quarter of 2023, there have been no material changes to the facts and circumstances of the claim asserted by the Sellers, and the Company
believes continues to believe the potential range of exposure for this claim is $$0 to $1.5 million.
0
to $
1.5
million.
Note 3 – Recently Issued Accounting Standards
Recently Issued Accounting Standards
Adopted
The FASBThere have been no recently issued ASU 2020
-04accounting standards that will have a material impact on the Company’s condensed consolidated financial statements and related footnote disclosures.
, 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,
the Company entered into a Second Amendment to Credit Agreement (“Second
Amendment”) with Bank of America N.A., an update
to provide for the use of a non-USD 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.
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
4
three reportable segments: (i) Americas; (ii) EMEA; (iii)
Asia/Pacific; and (iv) Global Specialty Businesses.
(iii) Asia/Pacific. 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
includesregion. All prior period information has been recast to reflect the Company’s container,
metal finishing,
mining, offshore, specialty coatings, specialty grease and Norman
Hay businesses.new reportable segments. See Note 1 of Notes to Condensed Consolidated Financial Statements.
Segment operating earnings for each of the Company’s
reportable segments are comprised of the segment’s
net sales less directly
related costCost of goods sold (“COGS”) and selling,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 other (expense) income,
Other expense, net.
The following table presents information about the performance8
Table of the Company’s
reportable operating segments for the three
Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
10The following table presents information about the performance of the Company’s reportable segments:
Three Months Ended
March 31,
20232022
Net sales
Americas$251,413 $212,091 
EMEA152,449 146,819 
Asia/Pacific96,286 115,261 
Total net sales$500,148 $474,171 
Segment operating earnings
Americas$66,125 $45,022 
EMEA27,571 23,247 
Asia/Pacific27,652 24,501 
Total segment operating earnings121,348 92,770 
Combination, integration and other acquisition-related expenses— (4,053)
Restructuring and related charges, net(3,972)(820)
Non-operating and administrative expenses(51,771)(43,305)
Depreciation of corporate assets and amortization(15,676)(15,189)
Operating income49,929 29,403 
Other expense, net(2,239)(2,206)
Interest expense, net(13,242)(5,345)
Income before taxes and equity in net income of associated companies$34,448 $21,852 
The following table summarizes inter-segment revenues. All inter-segment transactions have been eliminated from each reportable segment’s net sales and earnings for all periods presented in the above tables.
Three Months Ended
March 31,
20232022
Americas2,827 3,056 
EMEA6,093 12,176 
Asia/Pacific59 297 
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 $
19.8
$20.7 million and $
17.8
$19.8 million
for the three months ended March 31, 2023 and 2022, and 2021, respectively.
Customer Concentration
A significant portion of the Company’s
revenues are realized from the sale of process fluids and services to manufacturers of
steel, aluminum, automobiles, aircraft,aerospace, industrial and agricultural equipment, and durable
goods.
As previously disclosed in the 2021Company’s 2022 Form 10-K,
during for the year ended December 31, 2021,2022, the Company’s
five largest customers (each composed of multiple subsidiaries or
divisions
with semiautonomous purchasing authority) accounted for approximately
10
% 11% of consolidated net sales, with its largest customer
accounting for approximately
3
% 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, 20222023 or
December 31, 2021.2022.
9
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)
The Company had approximately $
6.9
$3.5 million and $
7.0
$5.7 million of deferred revenue as of March 31, 20222023 and December 31,
2021, 2022, respectively.
For the three months ended March 31, 2022,2023, the Company satisfied all of the associated performance
obligations and
recognized into revenue the advance payments received and recorded
as of December 31, 2021.2022.
Disaggregated Revenue
The Company sells its various industrial process fluids, its specialty chemicals
and its technical expertise as a global product
portfolio.
The Company generally manages and evaluates its performance by reportable segment
first, and then by customer industry,
rather than
by individual product lines.
Also, netindustries. 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,
industries, and timing of
revenue recognized forrecognized. Prior period information has been recast to reflect 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
TimingCompany’s current period customer industry disaggregation. See Note 1 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 - ContinuedStatements.
(Dollars in thousands, except per share amounts,
unless otherwise stated)
Three Months Ended March 31, 2023
AmericasEMEAAsia/PacificConsolidated
Total
Customer Industries
Metals$68,134 $39,103 $46,660 $153,897 
Metalworking and other183,279 113,346 49,626 346,251 
$251,413 $152,449 $96,286 $500,148 
Timing of Revenue Recognized
Product sales at a point in time$240,481 $141,506 $93,923 $475,910 
Services transferred over time10,932 10,943 2,363 24,238 
$251,413 $152,449 $96,286 $500,148 
(Unaudited)
Three Months Ended March 31, 2022
AmericasEMEAAsia/PacificConsolidated
Total
Customer Industries
Metals$55,317 $36,793 $55,682 $147,792 
Metalworking and other156,774 110,026 59,579 326,379 
$212,091 $146,819 $115,261 $474,171 
Timing of Revenue Recognized
Product sales at a point in time$201,775 $136,803 $112,548 $451,126 
Services transferred over time10,316 10,016 2,713 23,045 
$212,091 $146,819 $115,261 $474,171 
11
Three Months Ended March 31, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
46,793
$
34,274
$
49,743
$
130,810
Metalworking and other
88,078
85,540
46,963
220,581
134,871
119,814
96,706
351,391
Global Specialty Businesses
45,256
20,272
12,864
78,392
$
180,127
$
140,086
$
109,570
$
429,783
Timing of Revenue Recognized
Product sales at a point in time
$
171,594
$
131,162
$
106,399
$
409,155
Services transferred over time
8,533
8,924
3,171
20,628
$
180,127
$
140,086
$
109,570
$
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
.
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
.
92 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 2021:10
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
:
Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
12The Company has no material variable lease costs, sublease income, or finance leases for the three months ended March 31, 2023 and 2022. The components of the Company’s lease expense are as follows:
Three Months Ended
March 31,
20232022
Operating lease expense$3,936 $3,409 
Short-term lease expense211 219 
Supplemental cash flow information related to the Company’s leases is as follows:
Three Months Ended
March 31,
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$3,857 $3,365 
Non-cash lease liabilities activity:
Leased assets obtained in exchange for new operating lease liabilities2,833 4,689 
Supplemental balance sheet information related to the Company’s leases is as follows:
March 31,
2023		December 31,
2022
Right of use lease assets$43,344 $43,766 
Other current liabilities12,652 12,024 
Long-term lease liabilities26,086 26,967 
Total operating lease liabilities$38,738 $38,991 
Weighted average remaining lease term (years)4.965.10
Weighted average discount rate4.50 %4.36 %
Maturities of operating lease liabilities as of March 31, 2022 were as follows:
March 31,
2023
For the remainder of 2023$10,749 
For the year ended December 31, 202411,784 
For the year ended December 31, 20257,740 
For the year ended December 31, 20265,614 
For the year ended December 31, 20272,616 
For the year ended December 31, 2028 and beyond5,496 
Total lease payments43,999 
Less: imputed interest(5,261)
Present value of lease liabilities$38,738 
March 31,
2022
For the remainder of 2022
$
8,990
For the year ended December 31, 2023
9,513
For the year ended December 31, 2024
7,292
For the year ended December 31, 2025
5,375
For the year ended December 31, 2026
4,338
For the year ended December 31, 2027 and beyond
7,046
Total lease payments
42,554
Less: imputed interest
(4,581)
Present value of lease liabilities
$
37,973
Note 7 – Restructuring and Related Activities
TheIn the third quarter of 2019, the Company’s management approved a global restructuring plan (the “QH Program”) as part of its initial plan to realize certain cost
synergies associated with the CombinationCombination. As of December 31, 2022, the Company substantially completed all of the initiatives under the QH Program with only an immaterial amount of remaining severance still to be paid, which is expected to be completed during 2023.
11
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)
In the thirdfourth quarter of 2019. The QH Program includes2022, the Company’s management initiated a global cost and optimization program to improve its cost structure and drive a more profitable and productive organization. As of March 31, 2023, the program included restructuring and associated
severance costs to reduce total headcount by approximately 400 people globally, as well as plans for75 positions globally. These headcount reductions began in the closurefourth quarter of certain
manufacturing2022 and non-manufacturing facilities.
are expected to continue throughout 2023. The exact timing to complete all actions and totalfinal costs associated with the QH Program will depend on
a
number of factors andthat are subject to change; however,
the Company currently expects reductions in headcount and site closures tochange.
continue to occur throughout 2022 under the QH Program.
Employee separation benefits will vary depending on local regulations
within certain foreign countries and will include severance and other benefits.
All Restructuring costs incurred to date relate toinclude severance costs to reduce headcount,
including customary and routine adjustments to initial
estimates for employee separation costs, as well as costs to close certain
facilities andunder the QH Program. These costs are recorded in Restructuring and related
charges in the Company’s
Condensed Consolidated Statements of Income.
Operations. As described in Note 4 of Notes to Condensed
Consolidated Financial Statements, restructuringRestructuring and related charges
are not included in the Company’s
calculation of reportable
segments’ measure of operating earnings and therefore these costs are not
reviewed by or recorded to reportable segments.
ActivityChanges in the Company’s accrual
accruals for its restructuring under the QH Program for the three months ended March 31, 2022
isprograms are as follows:
follows:
Restructuring Programs
Accrued restructuring as of December 31, 2022$5,483
Restructuring and related charges, net3,972 
Cash payments(2,747)
Currency translation adjustments101 
Accrued restructuring as of March 31, 2023$6,809
QH Program
Accrued restructuring as of December 31, 2021
$
4,087
Restructuring and related charges
820
Cash payments
(408)
Currency translation adjustments
(64)
Accrued restructuring as of March 31, 2022
$
4,435
Note 8 – Share-Based Compensation
The Company recognized the following share-based compensation expense
in its Condensed Consolidated Statements of IncomeOperations:
Three Months Ended
March 31,
20232022
Stock options$431$267
Non-vested stock awards and restricted stock units2,1711,548
Director stock ownership plan1024
Performance stock units915623
Total share-based compensation expense$3,527$2,462
Share-based compensation expense is recorded in SG&A, except for less than $0.1 million for the three months ended March 31, 2022, recorded within Combination, integration and 2021:
Three Months Ended
March 31,
2022
2021other acquisition-related expenses.
Stock optionsOptions
$As of March 31, 2023, unrecognized compensation expense related to unvested stock options was $0.9 million, to be recognized over a weighted average remaining period of 1.3 years.
267Restricted Stock Awards and Restricted Stock Units
$
308
Non-vested stock awardsDuring the three months ended March 31, 2023, the Company granted 29,862 non-vested restricted shares and 6,675 non-vested restricted stock units
1,548
1,396
Non-elective under its long-term incentive plan (“LTIP”), which are subject to time-based vesting, generally over one to three years. The fair value of these grants is based on the last sale price of the Company’s common stock on the date of grant. As of March 31, 2023, unrecognized compensation expense related to the non-vested restricted shares was $10.6 million, to be recognized over a weighted average remaining period of 2.6 years, and elective 401(k) matching contribution in stock
0
1,553
Director stock ownership plan
24
203
Performanceunrecognized compensation expense related to non-vested restricted stock units
623
319
Total share-based
compensation expense
$
2,462
$
3,779
was $2.5 million, to be recognized over a weighted average remaining period of 1.8 years.
12
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
13
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 three months ended March 31, 2022, the Company granted
17,425
non-vested restricted shares and
4,490
non-vested
restricted stock units under its LTIP,
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, 2022, unrecognized compensation expense
related to the nonvested restricted shares was $
6.4
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
2.3
years.
Performance Stock Units
TheAs a component of its LTIP, the Company grants performance-dependentperformance-based stock unit awards (“PSUs”) as a component
of its LTIP,
, which will be settled in a
certain number of shares subject to market-based or performance-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
% 0% up to
200
% 200% of the target award, subject to the achievement of
the Company’s market-based total shareholder
return (“TSR”) metric relative to the performance of the Company’s
peer group, the S&P Midcap 400
Materials group.
group, and separately the achievement of a performance-based return on invested capital (“ROIC”) measure. The service period required for the PSUs is generally three years and the TSR measurement
period forof the PSUsmarket-based and performance objectives is generally
from January 1 of the year of grant through December 31 of the year prior
to issuancesissuance of the shares upon settlement.
shares.
Compensation expense for PSUs
is measured based on theirthe grant date fair value and is recognized on
a straight-line vesting method basis over
the three yearapplicable vesting period.
The fair value of PSUs granted with a ROIC condition is based on the trading price of the Company’s common stock on the date of grant. PSUs granted with a relative TSR condition are valued using a Monte Carlo simulation on the date of grant. The grant-date fair value of the PSUs was estimatedvalued using a Monte Carlo
simulation, on the grant date
and usingwhich included the following assumptions set forth in the table below:
2023
Grants
Number of PSUs granted15,707
Risk-free interest rate3.85%
Dividend yield0.96%
Expected term (years)3.0
March 2022
Grant
NumberBased on the conditions of the PSUs granted
16,820
Risk-free interest rate
2.11
%
Dividend yield
0.93
%
Expected term (years)
3.0
Asand performance to date for each of the outstanding PSU awards as of March 31, 2022,2023, the Company estimates that it will issue 047,203 fully vested shares
as of the applicable settlement date of all
for such outstanding PSUs awards based on the conditions of the PSUs and performance
to date for each award.
awards. As of March 31, 2022,
2023, there
was approximately $
6.4
$9.9 million of total unrecognized compensation cost related to PSUs, which the Company
expects to recognize
over a weighted-average period of 2.6 years.
2.3
Note 9 – Pension and Other Postretirement Benefits
The components of net periodic benefit (income) cost are as follows:
Three Months Ended March 31,
Pension BenefitsOther Postretirement Benefits
2023202220232022
Service cost$104$180$—$(8)
Interest cost2,4551,360199 
Expected return on plan assets(1,997)(2,084)——
Actuarial loss (gain) amortization101257(30)(24)
Prior service cost (income) amortization82(4)1
Net periodic benefit (income) cost$671 $(285)$(15)$(22)
Employer Contributions
As of March 31, 2023, $1.0 million and less than $0.1 million of contributions have been made to the Company’s U.S. and foreign pension plans and its other postretirement benefit plans, respectively. Taking into consideration current minimum cash contribution requirements, the Company currently expects to make full year cash contributions of approximately $5.3 million to its U.S. and foreign pension plans and approximately $0.2 million to its other postretirement benefit plans in 2023.
years.
13
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; 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 of its U.S. employees.
The Company matches
50
%
of the first
6
% of compensation that is contributed to the plan, with a maximum matching contribution of 3% of
compensation.
Additionally, the plan
provides for non-elective nondiscretionary contributions on behalf of participants
who have completed one year
of service equal to
3
% of the eligible participants’ compensation.
Beginning in April 2020 and continuing through March 2021, the
Company matched both non-elective and elective 401(k) contributions
in fully vested shares
of the Company’s common stock
rather
than cash.
There were
0
matching contributions in stock for the three months ended March 31, 2022. For
the three months ended
March 31, 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, Netexpense, net
The components of other (expense) income,Other expense, 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
Three Months Ended
March 31,
20232022
Income from third party license fees$325$404
Foreign exchange losses, net(3,326)(1,905)
Non-income tax refunds and other related credits (expense)360(1,322)
Pension and postretirement benefit (costs) income, non-service components(552)479
Facility remediation recovery, net827—
Other non-operating income, net127138
Total other expense, net$(2,239)$(2,206)
Non-income tax refunds and other related credits (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
relatedadjustments to ana Combination-related 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,Facility remediation recovery, net, during the three months ended March 31, 2021, includes2023, reflects a gain recorded on the
sale of certain
held-for-sale real property assets payments received from insurers related to previously incurred costs from the Combination.
Foreign exchange losses, net, during eachremediation and restoration 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.
property damage. See Note 118 of Notes to the 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
Positions
The Company’s effective
tax rates for the three months ended March 31, 2023 and 2022 were 27.7% and 2021 were
13.1
% and
24.2
%13.1%, respectively.
The Company’s effective
tax rate for the three months ended March 31, 20222023 was impacted by various items including foreign tax inclusions, withholding taxes, foreign tax credits, and net tax expense related to share-based compensation, partially offset with changes in uncertain tax positions and favorable return to provision adjustments. Comparatively, the prior year effective tax rate was largely drivenimpacted by changes in
the valuation
allowance for foreign tax credits due to recentlylegislative guidance 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 itsthe Company’s subsidiaries recording earnings at a statutory tax rate of
25
% 25% while it awaitsthe recertification of aits concessionary
15
% tax
rate, which was available to the Company during all of 2021.
Comparatively,
the prior year first quarter effective 15% tax rate was pending receipt.
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 and obtained competent authority relief from these assessments under
the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except
2007. In 2020, the respective tax authorities in Italy, Spain and the Netherlands reached agreement with respect to the MAP
proceedings which the Company has accepted.
Asfirst quarter of March 31, 2022, the Company hassettled the $2.6 million assessment due to the Italian tax authorities, while having already received $
1.6
$1.6 million in refunds from the
Netherlands and Spain.
In February 2022, As of March 31, 2023, the Company received apaid the full settlement, notice from the Italian taxing
authorities confirming the
amount due of $
2.6
which approximately $0.2 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.was refunded.
Houghton Italia, S.r.l iswas 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, the2018. The Company has now settled all years 2014 through 2018 for
$
3.7
million.
Accordingly, the Company has
$3.7 million and, accordingly, 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
millionyears during the first quarter of
2022.
The settlement is to be paid via installments through 2026 and, through March 31, 2023, the Company paid $1.1 million of such installments. The Company has established an indemnification receivable of $
3.8
$3.9 million in connection with its claim against the former
owners of Houghton for any pre-Combination tax liabilities arising from
this matter.matter, as well as other audit settlements and tax matters.
In the first quarter of 2023, the Company was notified by the Spanish tax authorities of audits to commence for several of its legal entities operating in Spain and spanning tax years 2018 through 2021. The Company arranged introductory meetings with the taxing authorities and has begun to provide documentation in response to their inquiries. The Company has not established any reserves for this matter at this time.
14
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
16
Houghton Deutschland GmbH is also under audit by the German tax authorities for
the tax years
2015
through
2017
.
Based on
preliminary audit findings, primarily related to transfer pricing,
the Company has recorded reserves for $
0.3
million as of March 31,
2022.
Of this amount, $
0.3
million relates to tax periods prior to the Combination and therefore the Company
has submitted an
indemnification claim with Houghton’s
former owners for any tax liabilities arising pre-Combination.
As a result, a corresponding
indemnification receivable has also been established.
Note 12 – Earnings Per Share
The following table summarizes earnings per share calculations for
the three months ended March 31, 2022 and 2021:
calculations:
Three Months Ended
Three Months Ended
March 31,
20232022
Basic earnings per common share
Net income attributable to Quaker Chemical Corporation$29,534 $19,816 
Less: income allocated to participating securities(145)(78)
Net income available to common shareholders$29,389 $19,738 
Basic weighted average common shares outstanding17,866,67017,826,061
Basic earnings per common share$1.64 $1.11 
Diluted earnings per common share
Net income attributable to Quaker Chemical Corporation$29,534 $19,816 
Less: income allocated to participating securities(145)(78)
Net income available to common shareholders$29,389 $19,738 
Basic weighted average common shares outstanding17,866,67017,826,061
Effect of dilutive securities32,07625,798
Diluted weighted average common shares outstanding17,898,74617,851,859
Diluted earnings per common share$1.64 $1.11 
March 31,
2022
2021
Basic earnings per common share
Net income attributable to Quaker Chemical Corporation
$
19,816
$
38,615
Less: income allocated to participating securities
(78)
(154)
Net income available to common shareholders
$
19,738
$
38,461
Basic weighted average common shares outstanding
17,826,061
17,785,370
Basic earnings per common share
$
1.11
$
2.16
Diluted earnings per common share
Net income attributable to Quaker Chemical Corporation
$
19,816
$
38,615
Less: income allocated to participating securities
(78)
(154)
Net income available to common shareholders
$
19,738
$
38,461
Basic weighted average common shares outstanding
17,826,061
17,785,370
Effect of dilutive securities
25,798
70,607
Diluted weighted average common shares outstanding
17,851,859
17,855,977
Diluted earnings per common
share
$
1.11
$
2.15
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
15,327 and 12,260
and
2,083
for the three
months ended March 31, 2023 and 2022, and 2021, respectively.
Note 13 – Goodwill and Other Intangible Assets
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, including rising interest rates and the cost of capital among other factors, in assessing if a triggering event indicates that the carrying values of goodwill, indefinite-lived, or long-lived assets are impaired. The Company concluded that during the first quarter the ongoing financial, economic or geopolitical conditions did not represent a triggering event.
In connection with the Company’s reorganization and the associated change in reportable segments and reporting units during the first quarter of 2023, the Company performed the required impairment assessments directly before and immediately after the change in reporting units and concluded that it was not more likely than not that the fair values of any of the Company’s previous or new reporting units were less than its carrying amount.
Changes in the carrying amount of goodwill for the three months ended
March 31, 2022 were as follows:follows. Prior period information has been recast to reflect the Company’s current period reportable segments. See Note 1 of Notes to Condensed Consolidated Financial Statements.
AmericasEMEAAsia/PacificGlobal
Specialty
Businesses		Total
Balance as of December 31, 2022$215,899$34,567$150,375$114,167$515,008
Reallocation of reporting units63,697 31,711 18,759 (114,167)—
Balance as of January 1, 2023279,596 66,278 169,134 — 515,008 
Goodwill additions (reductions)— — — — —
Currency translation adjustments1,773 (116)541 — 2,198
Balance as of March 31, 2023$281,369$66,162$169,675$—$517,206
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
$
630,93815
Gross carrying amounts and accumulated amortization for definite-lived
intangible assets asTable of March 31, 2022 and December 31,
Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
17Gross carrying amounts and accumulated amortization for definite-lived intangible assets were as follows:
Gross Carrying
Amount		Accumulated
Amortization		Net Book Value
March 31, 2023December 31, 2022March 31, 2023December 31, 2022March 31, 2023December 31, 2022
Customer lists and rights to sell$839,280$831,600$205,800$191,286$633,480$640,314
Trademarks, formulations and product technology160,149158,56448,85646,281111,293112,283
Other6,1687,5765,8486,3903201,186
Total definite-lived intangible assets$1,005,597$997,740$260,504$243,957$745,093$753,783
The Company amortizes definite-lived intangible assets on a straight-line basis over
their useful lives.
The Company recorded
$
14.6
million and $
14.8
million of amortization expense for the three months ended Marchas follows:
31, 2022 and 2021, respectively.
Three Months Ended
March 31,
20232022
Amortization expense$14,513 $14,553 
Estimated annual aggregate amortization expense for the current year
and subsequent five years and beyond is as follows:
For the remainder of 2023$43,829
For the year ended December 31, 202457,734
For the year ended December 31, 202556,953
For the year ended December 31, 202656,708
For the year ended December 31, 202756,410
For the year endedAs of March 31, 2023 and December 31, 2022,
$
59,465
For the year ended December 31, 2023
59,293
For the year ended December 31, 2024
58,701
For the year ended December 31, 2025
57,924
For the year ended December 31, 2026
57,678
For the year ended December 31, 2027 and beyond
532,124
The Company has four indefinite-lived intangible assets totaling $
194.1
million as of March 31, 2022, including $
193.0
million of
had indefinite-lived intangible assets for trademarks and tradename associated
with the Combination.
Comparatively, the Company hadtradenames totaling $191.3 million and $189.1 million, respectively.
four indefinitely-lived intangible assets for trademarks and tradename
totaling $
196.9
million as of December 31, 2021.
Note 14 – Debt
Debt as
The following table sets forth the components of March 31, 2022 and December 31, 2021 includes the following:Company’s debt:
As of March 31, 2023As of December 31, 2022
Interest
Rate		Outstanding
Balance		Interest
Rate		Outstanding
Balance
Credit Facilities:
Revolver6.0%$185,897 5.2%$195,673 
U.S. Term Loan6.3%592,500 5.7%596,250 
Euro Term Loan4.1%153,072 3.1%151,572 
Industrial development bonds5.3%10,000 5.3%10,000 
Bank lines of credit and other debt obligationsVarious1,317 Various1,303 
Total debt$942,786 $954,798 
Less: debt issuance costs(1,881)(1,992)
Less: short-term and current portion of long-term debts(19,350)(19,245)
Total long-term debt$921,555 $933,561 
16
Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
18Credit facilities
The Credit Facility is subject toDuring 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 financialguarantors and other covenants.
lenders entered into an amendment to its primary credit facility. The Company’s initial consolidated net debtamended credit facility (the “Credit Facility”) established (A) a $150.0 million Euro equivalent senior secured term loan (the “Euro Term Loan”), (B) a $600.0 million senior secured term loan (the “U.S. Term Loan”), and (C) a $500.0 million senior secured revolving credit facility (the “Revolver”), each maturing in June 2027. The Company has the right to
consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the permitted ratio over the term of the Credit
Facility. As of March 31, 2021, the consolidated net debt to adjusted EBITDA may not exceed 3.75 to 1. The Company’s
consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1 over the term of the agreement. The Credit
Facility also prohibits the payment of cash dividends if the Company is in default or if increase the amount of the dividend paid annually
exceedsCredit Facility by an aggregate amount not to exceed the greater of $50.0$300.0 million and 20%or 100% of consolidated adjustedConsolidated EBITDA, unlesssubject to certain conditions including the ratio of consolidated net debtagreement to provide financing by any lender providing such increase.
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, 2021,2023, the Company was in compliance with all of the Credit Facility covenantscovenants. See Note 20 of Notes to Consolidated Financial Statements in the Company’s 2022 Form 10-K.
.
The Term Loans
have quarterly
principal amortizationweighted average variable interest rate incurred on the outstanding borrowings under the Credit Facility 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.
During the three months ended March 31, 2022,
2023 was approximately 5.8%. As of March 31, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 5.9%. As part of the Credit Facility, in addition to paying interest on outstanding principal, the Company made quarterly amortization paymentsis also required to pay an annual commitment fee ranging from 0.150% to 0.275% related to
unutilized commitments under the Term Loans totaling
$
14.1
million.
The Credit Facility is
guaranteed by certain ofRevolver, depending on the Company’s
domestic subsidiaries and consolidated net leverage ratio. The Company had unused capacity under the Revolver of approximately $311 million, which is secured by first priority liens on substantially allnet of the assetsbank letters of credit of approximately $3 million, as of March 31, 2023.
the Company and the domestic subsidiary guarantors, subject to certain
customary exclusions.
The obligations of the Dutch borrower
are guaranteed only by certain foreign subsidiaries on an unsecured basis.
The Credit Facility required the Company to fix its variable interest rates on at least
20
% of its total Term Loans.
In order to
satisfy this requirement as well as to manage the Company’s
exposure to variable interest rate risk associated with the Credit Facility,
in November 2019,the first quarter of 2023, the Company entered into $
170.0
$300.0 million notional amounts of three year interest rate swaps atto convert a baseportion of the Company’s variable rate borrowings to an average fixed rate of
1.64
%
3.64% plus an applicable margin as provided in the Credit Facility
based on the Company’s consolidated
net leverage ratio.
At the time the
Company entered into the swaps, and as As of March 31, 2022,2023, the aggregate
interest rate on the swaps, including the fixed base rate plus
an the applicable margin, was
3.1
% 5.2%.
See Note 17 of Notes to Condensed Consolidated Financial Statements.
TheIn connection with executing the original credit facility in 2019 and the amended Credit Facility during the second quarter of 2022, the Company capitalized $
23.7
an aggregate of $2.2 million of certain third-party and creditor debt issuance costs in connection with executing
the Credit Facility.
costs. Approximately $
15.5
$0.7 million of the capitalized costs were attributed to the Euro Term
Loans Loan and U.S. Term Loan. These costs were recorded as a direct reduction of long-
termLong-term debt on the Company’sCondensed Consolidated
Balance Sheet.
Approximately $
8.3
$1.5 million of the capitalized costs were attributed to the
Revolver and recorded within otherOther assets on the Company’s
Condensed Consolidated Balance Sheet.
These capitalized costs are being
will collectively be amortized into interestInterest expense over the
five year
term of the Credit Facility.
As of March 31, 2022 and December 31, 2021,2023, the
Company had $
7.2
$1.9 million and $
8.0
million, respectively,
of debt issuance costs recorded as a reduction of long-term debt.
As of
March 31, 2022Long-term debt on the Condensed Consolidated Balance Sheet and December 31, 2021, the Company had $
3.9
$4.1 million and $
4.3
million, respectively,
of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet. Comparatively, as of December 31, 2022, the Company had $2.0 million of debt issuance costs recorded as a reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $4.3 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet.
within other assets.
Industrial development bonds
As of March 31, 20222023 and December 31, 2021,2022, the Company had fixed rate,
industrial development authority bonds totaling
$
10.0
$10.0 million in principal amount due in
2028
.
2028. These bonds have similar covenants to the 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-
freeinterest-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, 20222023 was approximately
$
30
$35 million.
In addition to the bank letters of credit described in the “Credit facilities” subsection
above, the Company’s only other
off-balance
sheet arrangements include certain financial and other guarantees.
The Company’s total bank letters of
credit and guarantees
outstanding as of March 31, 20222023 were approximately $
6$5 million.
million.
The Company incurred the following debt related expenses included
within Interest expense, net, in the Condensed Consolidated
Statements of Income:17
Three Months Ended
March 31,
2022
2021
Interest expense
$
4,746
$
4,650
Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
19Interest expense, net
The Company incurred the following debt related expenses included within Interest expense, net, in the Condensed Consolidated Statements of Operations:
Three Months Ended
March 31,
20232022
Interest expense$13,876 $4,746 
Amortization of debt issuance costs353 1,187 
Total$14,229 $5,933 
Based on the variable interest rates associated with the Credit Facility, as of March 31, 2023 and as of December 31, 2022, the amounts at which the Company’s total debt were recorded are not materially different from their fair market value.
Note 15 – Accumulated Other Comprehensive Income
The following tables show the reclassifications from and resulting balances
of accumulated other comprehensive income
(“AOCI”) for the three months ended March 31, 2022 and 2021:
:
Defined
Currency
Translation
Adjustments		Defined
Benefit
Pension
Plans		Unrealized
(Loss) Gain in
Available-for-
Sale Securities		Derivative
Instruments		Total
Balance as of December 31, 2022$(132,161)$(4,595)$(1,484)$— $(138,240)
Other comprehensive income (loss) before reclassifications14,465 (243)462 506 15,190 
Amounts reclassified from AOCI— 76 (40)— 36 
Related tax amounts— 41 (88)(116)(163)
Balance as of March 31, 2023$(117,696)$(4,721)$(1,150)$390 $(123,177)
Balance as of December 31, 2021$(49,843)$(13,172)$397 $(1,372)$(63,990)
Other comprehensive (loss) income before reclassifications(6,867)432 (1,277)1,429 (6,283)
Amounts reclassified from AOCI— 229 11 — 240 
Related tax amounts— (165)266 (329)(228)
Balance as of March 31, 2022$(56,710)$(12,676)$(603)$(272)$(70,261)
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Retirement
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)
432
(1,277)
1,429
(6,283)
Amounts reclassified from AOCI
0
229
11
0
240
Related tax amounts
0
(165)
266
(329)
(228)
Balance at March 31, 2022
$
(56,710)
$
(12,676)
$
(603)
$
(272)
$
(70,261)
Balance at December 31, 2020
$
(2,875)
$
(23,467)
$
3,342
$
(3,598)
$
(26,598)
Other comprehensive (loss) income before
reclassifications
(25,459)
781
(745)
730
(24,693)
Amounts reclassified from AOCI
0
862
(3,085)
0
(2,223)
Related tax amounts
0
(351)
805
(168)
286
Balance at March 31, 2021
$
(28,334)
$
(22,175)
$
317
$
(3,036)
$
(53,228)
All reclassifications related to unrealized (loss) gain (loss) in available-for-sale securities
relate to the Company’s equity
interest in a
captive insurance company and are recorded in equity in net income
of associated companies.
The amounts reported in other
comprehensive income for non-controllingnoncontrolling interest are related to
currency translation adjustments.
18
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)
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, 2022
Total
Using Fair Value
Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
$
2,395
$
0
$
2,395
$
0
Total
$
2,395
$
0
$
2,395
$
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. These assets are subject to fair value measurement as follows:
terms.
The Company did not hold any Level 3 investments as of March 31,
2022 or December 31, 2021, respectively,
so related
Total
Fair Value		Fair Value Measurements as of March 31, 2023
Using Fair Value Hierarchy
AssetsLevel 1Level 2Level 3
Company-owned life insurance$2,204 $— $2,204 $— 
Total$2,204 $— $2,204 $— 
disclosures have not been included.
Total
Fair Value		Fair Value Measurements as of December 31, 2022
Using Fair Value Hierarchy
AssetsLevel 1Level 2Level 3
Company-owned life insurance$2,114 $— $2,114 $— 
Total$2,114 $— $2,114 $— 
Note 17 – Hedging Activities
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates and interest rate risk. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts and interest rate swap agreements. The Company does not hold or enter into financial instruments for trading or speculative purposes.
Foreign Exchange Forward Contracts
A significant portion of the Company’s revenues and earnings are generated by its foreign operations. These foreign operations also represent a significant portion of the Company’s assets and liabilities. Generally, all of these foreign operations use the local currency as their functional currency and many have some operations in currencies other than their functional currency, which creates foreign exchange risk. The Company uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on certain assets and/or liabilities denominated in certain foreign currencies. These forward contracts are marked-to-market at each reporting date. Changes in the fair value of the underlying instrument and settlements are recognized in earnings. The fair value of the forward contract is determined from sources independent of the Company, including the financial institutions which are party to the derivative instruments.
During the three months ended March 31, 2023, the Company entered into and settled forward contracts with an aggregate notional amount totaling $16.0 million, resulting in cash proceeds of $0.3 million. The following table displays the notional amounts of the net foreign exchange hedge positions outstanding:
CurrencyMarch 31,
2023
Mexican Peso$18,000 
Interest Rate Swaps
In order to satisfy certain requirements of the Credit Facility as well as to manage
the Company’s exposure to variable
interest
rate risk associated with the Credit Facility,
in November 2019,the first quarter of 2023, the Company entered into $
170.0
$300.0 million notional amounts of three
year interest rate swaps.
swaps to convert a portion of the Company’s variable rate borrowings into a fixed rate obligation. 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
effects earnings or it becomes probable that the forecasted
transaction will not occur.
19
Table of Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; 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, whichThese interest rate swaps 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 presentshedges and, as such, the netcontracts are marked-to-market at each reporting date and any 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
The following table presents the net gain reclassified fromgains or losses are included in AOCI to earnings:
Three Months Ended
March 31,
2022
2021
Amountthe extent effective and location ofreclassified to interest expense reclassified
from AOCI into expense (Effective Portion)
Interest expense, net
$
(637)
$
(643)
in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur. 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.
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
Balance Sheet Location		March 31,
2023		December 31,
2022
Derivatives designated as cash flow hedges:
Interest rate swapsOther non-current Assets$506 $— 
The following table presents the net unrealized (gain) loss deferred to AOCI:
March 31,
2023		December 31,
2022
Derivatives designated as cash flow hedges:
Interest rate swapsAOCI$390 $— 
The following table presents the net gain (loss) reclassified from AOCI to earnings:
Location and Amount of Gain (Loss) Recognized in
Statements of Operations
Three Months Ended
March 31,
20232022
Interest rate swapsInterest expense, net$— $(637)
Foreign exchange forward contractsOther expense, net293 — 
$293 $(637)
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 been
operating a groundwater treatment system to hydraulically contain groundwater
contamination emanating from ACP’s site,
the
principal contaminant of which is perchloroethylene.
As of March 31, 2022, ACP believes it is close to meeting the conditions for
closure of the groundwater treatment system, but continues to operate
this system while in discussions with the relevant authorities.
As of March 31, 2022, the Company believes that the range of potential-known
liabilities associated with the balance of the ACP
water remediation program is approximately $
0.1
million to $
1.0
million.
The low and high ends of the range are based on the length
of operation of the treatment system as 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 20212022 Form 10-K that an inactive
subsidiarytwo of the Company’s locations suffered property damages as a result of flooding and electrical fire, respectively. The Company that was acquired in 1978
sold certain products containing asbestos, primarily on an installed basis,maintains property and
is among the defendants in numerous lawsuits alleging
injury due to exposure to asbestos.
flood insurance for all of its locations globally. During the three months ended March 31, 2022,2023, 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, 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 as
well as operating and maintenance at each of the applicable sites.
During the three months ended March 31, 2022, there have been
no
significant changes to the facts or circumstances of thesethis previously disclosed
matters, aside matter, other than the ongoing work with the Company’s insurance adjuster and insurance carrier regarding the insurance claims submitted. Through March 31, 2023, the Company has received cumulative payments from on-going monitoring and
maintenance activities and routine paymentsits insurers of $5.7 million associated with each of
these events. During 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 years
, has estimated
the range of costs for all of these environmental matters, on a discounted
basis, to be between approximately $
5
million and $
6
million
as ofthree months ended March 31, 2022, for which $
5.9
million was accrued within other accrued liabilities and other non-current
liabilities2023, the Company recognized a gain on the
Company’s
Condensed Consolidated Balance Sheet asinsurance recoveries of March 31, 2022.
Comparatively, as$0.8 million. See Note 10 of December
31, 2021, the Company
had $
5.6
million accrued for with respect to these matters.
Quaker Chemical Corporation
Notes to the Condensed Consolidated Financial Statements.
As previously disclosed in its 2022 Form 10-K, the Company is party to certain environmental matters and other litigation. See Note 26 of Notes to Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
21
Thethe Company’s 2022 Form 10-K. During the three months ended March 31, 2023, there have been no significant changes to the facts or circumstances of any of the previously disclosed matters. In addition, during the three months ended March 31, 2023, there are no new environmental matters or litigation that the Company believes althoughwill have a material adverse effect on the Company’s results of operations, cash flows or financial condition. Although there can be no assurance regarding the
outcome of other unrelatedany of the ongoing environmental matters or litigation the Company is party to, the Company believes that
it has made adequate accruals for costs and liabilities associated with other environmental
problems of matters or provisions for ongoing litigation for which it is aware.
Approximately $
0.4
The Company has accrued approximately $6 million were accrued as of both March 31, 20222023 and December 31, 2021,
2022, respectively, to provide
for such anticipated future
environmental assessments and remediation costs.
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
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 fire, respectively.
The Company maintains property insurance for all of its facilities globally.
During the three
months ended March 31, 2022, there have been no significant changes 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 property insurance
coverage, net of an aggregate deductible of $
2.0ongoing matters.
million.
The Company has received payments from
its insurers of $
2.1
million and has recorded an insurance receivable associated with these events (and
a gain on insurance recoveries
for losses incurred) of $
0.5
million as of March 31, 2022.
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.
20
Table of Contents
Quaker Chemical Corporation
Management’s Discussion and Analysis
22
Item 2.
Management’s Discussion and
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 (doing business as Quaker Houghton), its subsidiaries, and associated companies,
unless the context otherwise requires.
The term
Legacy Quaker the “Combination” refers to the Company prior to the closing of itslegacy Quaker combination
with Houghton International, Inc. in 2019 (“Houghton”) on August 1, 2019.
(herein referred to as the “Combination”).
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 first quarter
of 2022 performance reflectedDespite continued progress navigating through
a very challenging
economic environment, including significant raw material cost escalation, supply
chain and logistics disruptions and the direct,
indirect and global impacts of the war in Ukraine and other global events
that presentedgeopolitical headwinds, to the Company in thedelivered a strong first quarter
of 2022.
2023 performance. Net sales in the first quarter of 20222023 were $474.2a record $500.1 million, an increase of 10%5% compared
to $429.8$474.2 million in the first quarter
of 2021,2022. This was primarily driven by an increase in selling price and product mix
of approximately 17% and additional net sales from
acquisitions of 2%19%, partially offset by a decline in organic
sales volumevolumes of 6%11% and thean unfavorable impact from foreign currency
translation of 3%.
The increase in selling price and product mix iswas primarily the result of
continued and strategic price increases
value-based pricing initiatives implemented throughout 2022 to help offset the unprecedented increase in
raw material costs as well as global supply chain and logistics and labor cost
pressures that began during 2021 and continued through the first quarter
of 2022.
ongoing inflationary pressures. The decline in organic sales volumes was primarily
attributable to the comparison to a very strong first quarter of 2021, where
customers replenished their supply chains due to the
continued economic recovery from COVID-19,softer end market conditions, notably in EMEA and Asia/Pacific, the impact of lower
volumes related tothe ongoing war in Ukraine, the wind-down of the tolling agreement for products previously divested
products associated with related to the Combination and lower sales volumes attributable
to the war in Ukraine.
The Company’s organic
sales
volumes increased approximately 3% sequentially compared to the
fourth quarter of 2021, as continuedongoing value-based pricing initiatives, partially offset by 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 first quarter of 20222023 of $29.5 million, or $1.64 per diluted share, compared to net income of $19.8 million,
or $1.11 per diluted share compared to ain the first
quarter of 2021 net income of $38.6 million, or $2.15 per diluted
share.
2022. Excluding non-recurring and non-core items in each period,
the Company’s first quarter of 2022
2023 non-GAAP earnings per diluted share were $1.42$1.89 compared to $2.11
$1.42 in the prior year first quarter
and the Company’s current quarter
adjusted EBITDA of $60.4was $78.8 million decreased 22% compared to $77.1
$60.4 million in the first quarter of
2021.
2022. These results were primarily driven by lower gross marginsthe higher net sales in
the current quarter, dueas described above, coupled with a recovery in gross margins compared to significantly higher raw material and
other input costs as well as the direct and indirect impacts of global supply chain disruptions,
and to a lesser extent,prior year quarter, partially offset by higher selling,
general and administrative expenses (“SG&A”).
Sequentially, the Company’s
adjusted EBITDA was relatively flat compared to the
fourth quarter as a result of 2021.
significant year-over-year inflationary pressures and higher labor-related costs. 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’sDuring the first quarter of 2022
operating performance in each of2023, the Company reorganized its fourexecutive management team to align with its new business structure. The Company’s new structure includes three reportable segments: (i)
Americas; (ii) Europe,
Middle East and Africa (“EMEA”); and (iii) Asia/Pacific; and (iv) Global Specialty
Businesses,Pacific. The Company’s first quarter of 2023 operating performance in each of its three reportable segments reflect similar drivers to that of its
consolidated performance as each of the Company’s
reportable segments net sales benefitted from double-digit increases in selling
price and product mix and additional net sales from acquisitions, while most
segments were partially offset by lower sales volumes
and the unfavorable impact of foreign currency translation.
performance. Operating earnings from the Global Specialty Businessesfor all segments increased
compared to the prior year quarter, whereas operating earnings from
driven by higher net sales in the Americas Asia/Pacific, and EMEA segments declined.
This
was a result of lower segment grossand an improvement in margins which
were unfavorably impacted by the lag in price capture compared to the continued
cost pressures on our raw materials, global supply chain and logistics networks,
and manufacturing, labor and other costs.
all three segments. Additional
details of each segment’s
operating performance are further discussed in the Company’s
Reportable Segments Review,
in the
Operations section of this Item, below.
The Company had aNet cash flows provided by operating activities were $37.8 million in the first three months of 2023 compared to net cash flows used in operating cash outflowactivities of $6.3 million in the first quarter
three months of 2022 as compared to a net operating cash
outflow of $12.6 million in the first quarter of 2021.
Despite the2022. The net operating cash outflowinflow year-over-year reflects higher operating performance in both periods, the increase in net
operating cash flow quarter-over-quarter
was primarily driven by a modest improvement in2023 compared to 2022 as well as lower working capital compared to the prior
year
first quarter, notably by a lower outflow
related to accounts receivable partially offset by an increase in inventory
due to higher raw
material costs and a build in certain inventory in response to global supply
chain and logistics challenges.
investments year-over-year. The key drivers of the
Company’s operating
cash flow and working capital are further discussed in the Company’s
Liquidity and Capital Resources section
of this Item, below.
Overall, the Company delivered a strong quarter including a record level of net sales, driven by strong price realization and a recovery in gross margin in the current period. These factors contributed to the Company’s current quarter earnings growth despite ongoing inflationary pressures, macroeconomic and geopolitical challenges and other disruptions that impacted the Company’s customers and end markets. Looking at the remainder of 2023, the Company remains focused on executing on items within its control as it manages through a continued uneven and uncertain macroeconomic and end market environment. The Company is encouraged by its continued execution and the positive momentum of the first quarter of 2023 and continues to expect to deliver higher earnings in 2023 as compared to 2022.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in “Management’s Discussion and Analysis” and “Note 1 – Significant Accounting Policies” to the Consolidated Financial Statements in our 2022 Form 10-K. There have been no material changes to the critical accounting policies and estimates previously disclosed in its 2022 Form 10-K remain materially consistent.
21
Table of Contents
Quaker Chemical Corporation
Management’s Discussion and Analysis
23
Overall, resultsRecently Issued Accounting Standards
See Note 3 of Notes to Condensed Consolidated Financial Statements, in the first quarter of 2022 reflected the Company’s
ability to continue to navigate through persistent raw material
cost pressures, supply chain challenges including those impacting
on semiconductors for the automotive end markets and the impacts
of certain global economic events including the Russia conflict with Ukraine.
Increases in net sales in all segments were primarily
driven by an increase in selling price implemented to offset the ongoing
and significant escalation of raw material costs and a
favorable demand environment across most of the Company’s
markets.
However, raw material cost increases continued
to outpace
the Company’s broad-based
pricing initiatives in the first quarter 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 quarter 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.
Ongoing impact of COVID-19
The global outbreak of COVID-19 has negatively impacted all locations where
the Company does business.
Although the
Company has now operated in this COVID-19 environment for
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 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, the overall specialty
chemical industry and the economies and markets in which the Company operates.
The prolonged
pandemic and resurgences of the outbreak including
as new variants continue to emerge, and continued restrictions on
day-to-day life
and business operations as well as increased border controls or closures and transportation
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
adversely impacted by COVID-19, this could reduce the availability,
or result in delays, of materials or supplies to or from the
Company, which in
turn could significantly interrupt the Company’s
business operations.
Given this ongoing uncertainty,
the
Company cautions that its future results of operations could be significantly
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, management does not believe that
COVID-19 has had a material impact on financial reporting processes, internal
controls over financial reporting, or disclosure controls
and procedures.
The Company’s top priority,
especially during this pandemic, is to protect the health and safety of its employees and
customers,
while working to ensure business continuity to meet customers’ needs.
The Company has taken 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, all 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.
The Company continues to expect that the impacts from COVID-19 will
gradually decline subject to the effective 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 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 business and when our customers’
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 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 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 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, decreased trade activity and other consequences related
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
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
Part I, Item 1, of this conflict,Report for a discussion regarding recently issued accounting standards.
which could include further sanctions, embargoes,
regional instability, geopolitical
shifts and adverse effects on macroeconomic
conditions, security conditions, currency exchange rates and financial
markets.
Such geo-political instability and uncertainty could
have 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, and could increase the costs, risks and adverse impacts from these new
challenges.
The Company may also be the subject of
increased cyber-attacks.
The Company’s operations in the
conflict areas including Russia, Ukraine and Belarus represent less than 2% of
the Company’s
consolidated net sales and less than 1% of the Company’s
consolidated total assets.
The Company’s primary
exposure in the conflict
area relates to outstanding customer accounts receivable.
The Company is actively monitoring the outstanding receivables for
collections and has recorded incremental allowance 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
AtAs of March 31, 2022, the Company2023, we had cash and cash equivalents of
$161.6 $189.9 million.
Total cash and cash equivalents
was $165.2
$181.0 million atas of December 31, 2021.
2022. The $3.6$8.9 million decreaseincrease in cash and cash equivalents was the net result
of $18.2$37.8 million of cash used
in investingprovided by operating activities and $6.3a positive impact due to the effect of foreign currency translation of $2.2 million partially offset by $24.9 million of cash used in operatingfinancing activities partiall
y
offset by $20.6and $6.2 million of cash provided by
financing activities and a $0.3 million positive impact due to the effect
of foreign currency translation.used in investing activities.
Net cash flows used inprovided by operating activities were $6.3 million in the first three months
of 2022 compared to net cash flows used in
operating activities of $12.6$37.8 million in the first three months of 2021.
2023 compared to net cash flows used in operating activities of $6.3 million in the first three months of 2022. The increase in net operating cash flowsflow year-over-year reflects higher year-over-year operating performance as well as lower levels of $6.3 million was
primarily driven by a lower working capital outflow quarter-over-quarter,
as the Company had a smaller increase in accounts
receivableinvestment in the first quarter of 2022 duecurrent year, reflecting a more stable period as compared to changes in current quarter net
sales, which was partially offset by a higher outflow from
inventory due to increases in raw material costs and continued build
of stock in response to global supply chain and logistics
challenges and other recent global economic events.
Also, in the first quarter 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.
and demonstrating the Company’s ongoing focus on cash conversion, including managing inventory levels.
Net cash flows used in investing activities were $18.2$6.2 million in the
first three months of 20222023 compared to $15.8$18.2 million in the
first three months of 2021.
This increase2022. The lower level of cash used in cash outflows was ainvesting activities year-over-year is the result of slightly 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 in the current year largely related to certain
infrastructure and sustainability-related spending.
These increases in cash
used in investing activities were partially offset by
lower cashthe absence of payments related to acquisitions as a result of the level of acquisition
activity in each year.
Net cash flows provided by financing activities were $20.6 million in the first
three months of 2022 compared to $13.0 million in
the first three months of 2021.
The increase in net cash flows was primarily related to an increase in borrowings
in the current year
under the Company’s credit
facility as compared to the prior year.
In addition, the Company paid $7.4 million of cash dividends
during the first three months of 2022, a $0.4 million or 5% increase in cash dividends
compared to the prior year.
acquisitions. See Note 2 of Notes
to Condensed Consolidated Financial Statements in Item 1 of this Report.
Net cash flows used in financing activities were $24.9 million in the first three months of 2023 compared to net cash flows provided by financing activities of $20.6 million in the first three months of 2022. The increase in net cash outflows was primarily related to net repayments of borrowings in the first three months of 2023, primarily under the Company’s Credit Facility, described further below, as compared to net borrowings in the first three months of 2022. In addition, the Company paid $7.8 million of cash dividends during the first three months of 2023, a $0.4 million, or 5% increase, in cash dividends compared to the prior year quarter.
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 its primary credit facility. The amended credit facility
(the (the “Credit Facility”) is comprised ofestablished (A) a $400.0$150.0 million multicurrency
revolverEuro equivalent senior secured term loan (the
“Revolver” “Euro Term Loan”), (B) a $600.0 million senior secured term loan (the “U.S. Term
Loan”), and (C) a $500.0 million senior secured revolving credit facility (the “Revolver”), 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
June 2027. The Company has the right to increase the consentamount 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 an aggregate amount not to exceed the greater of $300.0 million ator 100% of Consolidated EBITDA, subject to certain conditions including the Company’s request
if there areagreement to provide financing by any lender providing such increase.
lenders who agree to accept additional commitments andAs of March 31, 2023, the Company has
satisfied certain other conditions.
Borrowings under the
had Credit Facility bear interest at a base rate plus an applicable margin
based onborrowings outstanding of $931.5 million. As of December 31, 2022, the Company had Credit Facility borrowings outstanding of $943.5 million. The Company’s consolidated
other debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans, which totaled $11.3 million as of both March 31, 2023 and December 31, 2022. Total unused capacity under these arrangements as of March 31, 2023 was approximately $35 million. The Company’s total net leverage ratio.
debt as of March 31, 2023, which consists of total borrowings of $942.8 million less cash and cash equivalents of $189.9, was $752.9 million. The
weighted average interest rate incurred on the outstanding borrowings
under Credit Facility contains affirmative and negative covenants, financial covenants and events of default. Financial covenants contained in the Credit Facility during both the first quarter of 2022
include a consolidated interest coverage ratio test and as of March 31, 2022 was approximately 1.6%.
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.
Quaker Chemical Corporation
Management’s Discussion and Analysis
25
The Credit Facility is subject to certain financial and other covenants.
The Company’s initial consolidated net
debt to
consolidated adjusted EBITDA ratio could not exceed 4.25 to 1,
with step downs in the permitted ratio over the term of the Credit
Facility.
test. As of March 31, 2022, the consolidated net debt to consolidated adjusted
EBITDA ratio may not exceed 3.75 to 1.
The
Company’s consolidated
adjusted EBITDA to interest expense ratio may not be less than 3.0 to 1 over the
term of the agreement.
The
Credit Facility also prohibits the payment of cash dividends if the Company
is in default or if the amount of the dividends paid
annually exceeds the greater of $50.0 million and 20% of consolidated adjusted
EBITDA unless the ratio of consolidated net debt to
consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation
on amount.
As of March 31, 2022 and
December 31, 2021,2023, 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
Refer to the description 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.
TheCompany’s primary Credit Facility is guaranteed by certainin Note 20 of Notes to Consolidated Financial Statements in its 2022 Form 10-K and in Note 14 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report for more information about the covenants and events of default.
The weighted average variable interest rate incurred on the outstanding borrowings under the Credit Facility during the three months ended March 31, 2023 was approximately 5.8%. As of March 31, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 5.9%. As part of the
Company’s domestic subsidiaries
and is secured by first priority liens on substantially all of the assets of the
Company and the
domestic subsidiary guarantors, subject to certain customary exclusions.
The obligations of the Dutch borrower are guaranteed only
by certain foreign subsidiaries on an unsecured basis.
The Credit Facility, requiredin addition to paying interest on the outstanding principal, the Company is also required to fix its variable interest ratespay an annual commitment fee ranging from 0.150% to 0.275% related to unutilized commitments under the Revolver, depending on
at least 20% the Company’s consolidated net leverage ratio. The Company had unused capacity under the Revolver of its total Termapproximately $311 million, which is net of bank letters of credit of approximately $3 million, as of March 31, 2023.
22
Loans.
Table of Contents
Quaker Chemical Corporation
Management’s Discussion and Analysis
In order to
satisfy this requirement as well as to manage the Company’s
exposure to variable interest rate risk associated with the Credit Facility,
in November 2019,the first quarter of 2023, the Company entered into $170.0$300.0 million notional
amounts of three yearthree-year interest rate swaps atto convert a baseportion of the Company’s variable rate borrowings into an average fixed rate obligation of 1.64%
3.64% plus an applicable margin as provided in the Credit Facility
based on the Company’s consolidated
net leverage ratio.
At the time the
Company entered into the swaps, and as As of March 31, 2022,2023, the aggregate
interest rate on the swaps, including the fixed base rate plus
an the applicable margin, was 3.1%5.2%.
See Note 17 of Notes to Condensed Consolidated Financial Statements.
The Company capitalized $23.7 million of certain third-party debt issuance
costs inIn connection with executing the original credit facility in 2019 and the amended Credit Facility.
Approximately $15.5 millionFacility during the second quarter of 2022, the Company capitalized costs werecertain third-party and creditor debt issuance costs. Costs attributed to the Euro Term
Loans Loan and U.S. Term Loan were recorded as a direct reduction of long-
termLong-term debt on the Company’s Condensed
Consolidated Balance Sheet.
Approximately $8.3 million of the capitalized costs were
Costs attributed to the Revolver andwere recorded within otherOther assets on the Company’s
Condensed Consolidated Balance Sheet.
These
capitalized costs are beingwill collectively be amortized into interestInterest expense over the
five year five-year term of the Credit Facility.
As of March 31, 2022, the Company had Credit Facility borrowings outstanding
$1.9 million of $915.2 million.
Asdebt issuance costs recorded as a reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $4.1 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet. Comparatively, as of December 31, 2021,2022, the
Company had Credit Facility borrowings outstanding$2.0 million of $889.6debt issuance costs recorded as a reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $4.3 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet.
million.
The Company has unused capacity underuses foreign exchange forward contracts to economically hedge the Revolverimpact of
approximately $142 million, net of bank letters of credit of approximately
$4 million, as of the variability in exchange rates on certain assets and/or liabilities denominated in certain foreign currencies. During the three months ended March 31, 2022.
The Company’s other2023, the Company entered into and settled forward contracts with an aggregate notional amount totaling $16.0 million, resulting in cash proceeds of $0.3 million. See Note 17 of Notes to Condensed Consolidated Financial Statements.
debt obligations are primarily industrial development bonds, bank
linesIn the first three months of credit and municipality-related loans, which totaled $11.7
million and $11.8 million as of March
31, 2022 and December 31, 2021, respectively.
Total unused capacity under
these
arrangements as of March 31, 2022
was approximately $30 million.
The Company’s total net debt as of
March 31, 2022
was $765.3
million.
The, the Company incurred $6.0 million of total Combination,
integration and other acquisition-related expenses, in the first quarter of
2022, which includes $2.0 million of other expenses related to an indemnification
asset, assets, described in the Non-GAAP Measures section
of this Item below.
Comparatively, in the first quarter
of 2021, the Company incurred $0.8 million of total Combination,
integration
and other acquisition-related expenses, which was net of a $5.4 million gain
on the sale of certain held-for-sale real property assets
and also $0.4 million of accelerated depreciation.
The Company had aggregate net cash outflows of approximately $8.3 million
related to the Combination,
integration and other acquisition-related expenses during the first three months
of 2022 of $4.2 million. The Company had no Combination, integration and other acquisition-related expenses in the first three months of 2023.
During the first three months of 2023, the Company incurred $2.1 million of strategic planning expenses for the planning phase as compared to
$8.7
$3.1 million during the first three months of 2021.
During the first quarter of 2022 the Company incurred $3.1 million of strategic
planning and transformation expenses.
. The Company expects that theseto incur additional operating costs and associated
cash flows, as well
as higher capital expenditures related to strategic planning, process optimization
and the next phase of the Company’s
long-term
integration to further optimize its footprint, processes and other
functions will continue functions in 20222023 and over the next several years.thereafter.
Quaker Houghton’sThe Company’s management
approved, and the Company initiated, a global restructuring plan (the
“QH “QH Program”) in the
third quarter of 2019 as part of its planned cost synergies associated
with the Combination.
The As of December 31, 2022, the Company has substantially completed all of the initiatives under the QH Program includes restructuring
with only an immaterial amount of remaining severance still to be paid, which is expected to continue into 2023. In the fourth quarter of 2022, the Company’s management initiated a global cost and associated severance costsoptimization program to reduce total headcount by approximately
400 people globallyimprove its cost structure and plans for the closure of certain
manufacturingdrive a more profitable and non-manufacturing facilities.
productive organization. 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,
reductions in headcountchange. The Company is continuing to evaluate and site closures have occurred,expects to implement further actions under this program, and the
Company currently expectsas a result, additional headcount reductions and
site closures to occur throughout the year and estimates that the
anticipated cost synergies realized under the QH Program
will approximate one-times restructuring costs incurred.
may be incurred in the future. The Company
expects to generate full run-rate cost savings from the global cost and optimization program of approximately $20 million by the end of 2024. The Company expects total cash costs of this program to be approximately 1 to 1.5 times savings. The Company recognized Restructuring and related charges of $4.0 million and $0.8 million in the first three months of 2023 and 2022, respectively, as a result of these programs. The Company made cash payments related to the settlement of restructuring liabilities under
the QH Programrestructuring programs during the firstthree months of 20222023 of
approximately $0.4$2.7 million compared to $3.0$0.4 million in the first three months
of 2021.2022. The Company has remaining restructuring accruals as of March 31, 2023, for these programs of $6.8 million, which the Company expects to settle over the next twelve months. See Note 7 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.
As of March 31, 2022,2023, the Company’s
gross liability for uncertain tax positions, including interest and penalties,
was $24.5
$20.2 million.
The Company cannot determine a reliable estimate of the timing of cash flows
by period related to its uncertain tax position
liability.
However, should the entire liability be
paid, the amount of the payment may be reduced by up to $7.2$6.3 million as a result of
offsetting benefits in other tax jurisdictions.
23
Table of Contents
Quaker Chemical Corporation
Management’s Discussion and Analysis
26
In 2021,The Company previously disclosed in its 2022 Form 10-K that two of the Company’s locations
suffered significant property damagedamages as a result of flooding
and fire.
electrical fire, respectively. The Company
maintains property and flood insurance for all of its facilitieslocations globally.
The Company, its During the three months ended March 31, 2023, there have been no significant changes to the facts or circumstances of this previously disclosed matter, other than the ongoing work with the Company’s insurance
adjuster and insurance carrier are actively
managingregarding the remediation and restoration activities associated with both
of these events and at this timeinsurance claims submitted. Through March 31, 2023, 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 insurance coverage, net of an aggregate deductible of $2.0
million.
The Company
has received cumulative payments from its insurers of $2.1$5.7 million and has recorded
an insurance receivable associated with these events of $0.5
million as ofevents. During the three months ended March 31, 2022.
2023, the Company recognized a gain on insurance recoveries of $0.8 million. See NoteNotes 10 and 18 of Notes to the Condensed Consolidated Financial Statements, in Item
1 of this Report.
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
Credit Facility,
transition tax obligations and other long-term liabilities.
The Company’s liquidity is affected
by many factors, some based on normal
operations of our business and others related to the impact of the pandemic
and other global events on our business and on global
economic conditions as well as industry uncertainties, which we cannot predict.
We also cannot predict
economic conditions and
industry downturns or the timing, strength or duration of recoveries.
We may seek,
as we believe appropriate, additional debt or
equity 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.
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
income and non-
GAAPnon-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
should not be considered a substitute for the financial
information presented in accordance with GAAP.
In addition, our definitions of EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share, as discussed and reconciled below to the most comparable respective GAAP measures, may not be comparable to similarly named measures reported by other companies.
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 income
of associated companies.
The Company also
presents adjusted EBITDA which is calculated as EBITDA plus or minus
certain items that are not considered indicative of future operating
performance or not considered core to the Company’s
operations.
In addition, the Company presents non-GAAP operating income,
which is calculated as operating income plus or minus certain items that are not
considered indicative of future operating performance or not
considered core to the Company’s
operations.
Adjusted EBITDA margin and non-GAAP operating margin
are calculated as the
percentage of adjusted EBITDA and non-GAAP operating income
to consolidated net sales, respectively.
The Company believes
these non-GAAP measures provide transparent and useful information and
are widely used by investors, analysts, investors, and competitorspeers in
our industry as well as by management in assessing the operating performance
of the Company on a consistent basis.
Additionally, the
Company presents non-GAAP net income and non-GAAP earnings per diluted share
as additional performance
measures.
Non-GAAP net income is calculated as adjusted EBITDA, defined above,
less depreciation and amortization, interest
expense, net, and taxes on income before equity in net income of associated
companies, in each case adjusted, as applicable, for any
depreciation, amortization, interest or tax impacts resulting from the non-core
items identified in the reconciliation of net income
attributable to the Company to adjusted EBITDA.
Non-GAAP earnings per diluted share is calculated as non-GAAP net income per
diluted share as accounted for under the “two-class share method.”
The Company believes that non-GAAP net income and non-
GAAPnon-GAAP earnings per diluted share provide transparent and useful information
and are widely used by investors, analysts, investors, and
competitors peers in our industry as well as by management in assessing the operating
performance of the Company on a consistent basis.
24
Table of Contents
Quaker Chemical Corporation
Management’s Discussion and Analysis
27
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
Non-GAAP Operating Income and Margin ReconciliationsThree Months Ended
March 31,
20232022
Operating income$49,929 $29,403 
Combination, integration and other acquisition-related expenses (a)— 4,053 
Restructuring and related charges, net (b)3,972 820 
Strategic planning expenses (c)2,087 3,088 
Russia-Ukraine conflict related expenses (d)— 1,166 
Other charges (e)305 631 
Non-GAAP operating income$56,293 $39,161 
Non-GAAP operating margin (%) (j)11.3 %8.3 %
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%
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and
Non-GAAP Net Income Reconciliations
Three Months Ended
March 31,
2022
2021
Net income attributable to Quaker Chemical Corporation
$
19,816
$
38,615
Depreciation and amortization (a) (l)
20,727
22,448
Interest expense, net (a)
5,345
5,470
Taxes on income
before equity in net income of associated companies (m)
2,866
10,689
EBITDA
$
48,754
$
77,222
Equity loss (income) in a captive insurance company (h)
244
(3,080)
Combination, integration and other acquisition-related expenses (a)
6,032
427
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
—
Pension and postretirement benefit income, non-service components
(i)
(479)
(124)
Currency conversion impacts of hyper-inflationary economies (j)
188
172
Adjusted EBITDA
$
60,444
$
77,148
Adjusted EBITDA margin (%) (n)
12.7%
18.0%
Adjusted EBITDA
$
60,444
$
77,148
Less: Depreciation and amortization - adjusted (a)
20,727
22,033
Less: Interest expense, net
5,345
5,470
Less: Taxes on income
before equity in net income of associated companies - adjusted
(k)(m)
8,902
11,739
Non-GAAP net income
$
25,470
$
37,906
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income ReconciliationsThree Months Ended
March 31,
20232022
Net income attributable to Quaker Chemical Corporation$29,534 $19,816 
Depreciation and amortization (h)20,510 20,727 
Interest expense, net13,242 5,345 
Taxes on income before equity in net income of associated companies (i)9,533 2,866 
EBITDA72,819 48,754 
Equity (income) loss in a captive insurance company (f)(422)244 
Combination, integration and other acquisition-related expenses (a)— 6,032 
Restructuring and related charges, net (b)3,972 820 
Strategic planning expenses (c)2,087 3,088 
Russia-Ukraine conflict related expenses (d)— 1,166 
Other charges (e)335 340 
Adjusted EBITDA$78,791 $60,444 
Adjusted EBITDA margin (%) (j)15.8 %12.7 %
Adjusted EBITDA$78,791 $60,444 
Less: Depreciation and amortization (h)20,510 20,727 
Less: Interest expense, net13,242 5,345 
Less: Taxes on income before equity in net income of associated companies - adjusted (a)(i)11,047 8,902 
Non-GAAP net income$33,992 $25,470 
25
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Quaker Chemical Corporation
Management’s Discussion and Analysis
28
Non-GAAP Earnings per Diluted Share Reconciliations
Non-GAAP Earnings per Diluted Share ReconciliationsThree Months Ended
March 31,
20232022
GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders$1.64 $1.11 
Equity (income) loss in a captive insurance company per diluted share (f)(0.02)0.01 
Combination, integration and other acquisition-related expenses per diluted share (a)— 0.25 
Restructuring and related charges, net per diluted share (b)0.17 0.03 
Strategic planning expenses per diluted share (c)0.10 0.14 
Russia-Ukraine conflict related expenses per diluted share (d)— 0.06 
Other charges per diluted share (e)0.01 0.01 
Impact of certain discrete tax items per diluted share (g)(0.01)(0.19)
Non-GAAP earnings per diluted share (k)$1.89 $1.42 
Three Months Ended
March 31,
2022
2021
GAAP earnings per diluted share attributable to Quaker Chemical Corporation
common shareholders
$
1.11
$
2.15
Equity loss (income) in a captive insurance company per diluted share (h)
0.01
(0.17)
(a)Combination, integration and other acquisition-related expenses per diluted
share (a)
0.25
0.04
Strategic planning and transformation expenses per diluted share (b)
0.14
—
Restructuring and related charges per diluted share (c)
0.03
0.05
Fair value step up of acquired inventory sold per diluted share (d)
—
0.03
Executive transition costs per diluted share (e)
0.02
0.02
Inactive subsidiary's non-operating litigation costs per diluted share (f)
0.00
0.00
Customer insolvency costs per diluted share (g)
0.06
—
Pension and postretirement benefit costs, non-service components per diluted
share (i)
(0.02)
(0.00)
Currency conversion impacts of hyper-inflationary economies per
diluted share (j)
0.01
0.01
Impact of certain discrete tax items per diluted share (k)
(0.19)
(0.02)
Non-GAAP earnings per diluted share (o)
$
1.42
$
2.11
(a)
Combination,
integration and other acquisition-related expenses include certain legal, financial,
and other advisory and consultant
costs incurred in connection with integration activities including internal
control readiness and remediation.
These costs are not
indicative of the future operating performance of the Company.
Less than $0.1 million and $0.1 million for the three months
ended March 31, 2022 and 2021, respectively,
of these pre-tax costs were considered non-deductible for the purpose of
determining the Company’s
effective tax rate, and, therefore, taxes on income before equity in
net income of associated
companies - adjusted reflects the impact of these items.
During the three months ended March 31, 2022, the Company recorded
$2.0 million of other expense related to an indemnification asset.
During the three months ended March 31, 2021, the Company
recorded $0.4 million of accelerated depreciation related to certain of
the Company’s facilities, which is included
in the caption
“Combination integration activities. These amounts also include expense associated with the Company's other recent acquisitions, including certain legal, financial, and other acquisition-related expenses”advisory and consultant costs incurred in the
reconciliation of operating income to non-GAAP
operating income and included in the caption “Depreciation and amortization”
in the reconciliation of net income attributable to
the Company to EBITDA, but excluded from the caption “Depreciation
and amortization – adjusted” in the reconciliation of
adjusted EBITDA to non-GAAP net income attributable to the Company
.
During the three months ended March 31, 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 and other acquisition-related
expenses” in the reconciliation of GAAP earnings
per diluted share attributable to Quaker Chemical Corporation common
shareholders to Non-GAAP earnings per diluted share as
well as the reconciliation of net income attributable to Quaker Chemical Corporation
to Adjusted EBITDA and Non-GAAP net
income.
(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.
connection with due diligence. These costs are not indicative of the future operating performance of the Company. Less than $0.1 million for the three months ended March 31, 2022 of these pre-tax costs were considered non-deductible for the purpose of determining the Company’s effective tax rate, and, therefore, taxes on income before equity in net income of associated companies - adjusted reflects the impact of these items. During the three months ended March 31, 2022, the Company recorded $2.0 million of other expense related to an indemnification asset, which is included in the caption “Combination, integration 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. There were no Combination, integration and other acquisition-related expenses incurred in the first quarter of 2023. See Notes 2, 10, and 11 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this Report.
(c)
(b)Restructuring and related charges represent the
costs incurred by the Company associated with the QHCompany’s 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.
programs. These costs are not indicative of the future operating performance of the Company.
See Note 7 of Notes to
Condensed Consolidated Financial Statements, which appearsappear in Item
1 of this Report.
(d)
Fair value step up(c)Strategic planning expenses include certain consultant and advisory expenses for the Company’s strategic planning phase of acquired inventory sold relatesits long-term process optimization and integration projects to expense associated with selling
inventory from acquired businesses which
was adjusted to fair value as part of purchase accounting.
further optimize its footprint, processes and other functions. These increasesplanning phase costs are one-time in costs of goods sold (“COGS”) arenature and not indicative of
the future operating performance of the Company.
(e)
Executive transition(d)Russia-Ukraine conflict related expenses represent the costs representassociated with a specific reserve or changes to existing reserves for trade accounts receivable within the Company’s EMEA reportable segment related to certain customers who filed for bankruptcy protection as well as costs related to specific reserves recorded for certain customer accounts receivables which in each case were directly impacted by the Company’s
search, hiringongoing conflict between Russia and transition to a new CEO in connection
with the executive transition that took place in 2021 as well as the on-going
search for a new Chief Human Resources Officer
during the first quarter of 2022.
Ukraine. These expenses are not indicative of the future operating performance of the
Company. Company.
(f)
Inactive subsidiary’s non
-operating litigation(e)Other charges include executive transition costs, represent thefacility remediation insurance recoveries, net, charges incurred by
an inactive subsidiary of the Company and
areas a result of the termination of restrictions on insurance settlement reserves,
.
These charges are not indicative non-service components of the future
operating performance ofCompany’s pension and postretirement net periodic benefit income, and the Company.
Quaker Chemical Corporation
Management’s Discussion and Analysis
29
(g)
Customer insolvency costs represent the costsforeign currency remeasurement impacts associated with a specific
reserve or changes to existing reserves for trade accounts
receivable within the Company’s
EMEA reportable segment related to certain customers who filed for
bankruptcy protection affiliates whose local economies are designated as
well as costs related to specific reserves recorded for certain customer accounts
receivables which have been directly impacted by
the current economic conflict between Russia and Ukraine.
hyper-inflationary under U.S. GAAP. These expenses are not indicative of the future operating performance
of the Company.
See Notes 1, 9 and 18 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this Report.
(h)
(f)Equity loss (income)
income in a captive insurance company represents the after-tax
(loss) 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)
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.
operations.
26
Table of Contents
(i)Quaker Chemical Corporation
PensionManagement’s Discussion and postretirement benefit income,
Analysis
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)
(g)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 period.
period ended March 31, 2023. Additionally, the Company has
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, 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)
(h)Depreciation and amortization for both the three months ended March 31,
2023 and 2022 and 2021 each includedinclude approximately $0.3
million of amortization
expense recorded within equity in net income of associated companies
in the Company’s Condensed Consolidated
Statement Statements of
Income,
Operations, which is attributable to the amortization of the fair value step up for the Company’s
50% interest in a Houghton joint
venture in Korea as a result of required purchase accounting.
(m)
(i)Taxes on income
before equity in net income of associated companies – adjusted presents the impact
of any current and deferred
income tax expense (benefit), as applicable, of the reconciling items presented
in the reconciliation of net income 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, integration and other acquisition-related expenses
described in (a) resulted in incremental taxes of approximately $1.4 million and $0.1
million duringfor the three months ended March 31, 20222022. Restructuring and
2021, respectively.
Strategic planning and transformation expenses describes related charges, net described in (b) above resulted
in incremental taxes of $0.7
$1.0 million duringand $0.2 million for the three months ended March 31, 2022.
Restructuring2023 and related charges2022, respectively. Strategic planning expenses described in (c) above resulted in incremental
taxes of $0.2$0.5 million during each ofand $0.7 million for the three months ended March 31, 2022
2023 and 2021.
Fair value step up of acquired inventory
sold2022, respectively. Russia-Ukraine conflict related expenses described in (d) resulted in incremental taxes of $0.2$0.3 million during
the three months ending March 31, 2021.
Executive
transition expenses described in (e) resulted in incremental taxes of $0.1
million during each of the three months ended March 31,
2022 and 2021.
Inactive subsidiary non-operating litigation costs described in (f) resulted in incremental
taxes of less than $0.1
million for each of the three months ended March 31, 2022 and 2021.
Customer insolvency costs2022. Other charges described in (g) resulted in
incremental taxes of $0.3 million during the three months ended
March 31, 2022.
Pension and postretirement benefit income,
non-service components described in (i)(e) resulted in a net tax benefit of less than $0.1
million and incremental taxes of less than $0.1 million for the three months
ended March 31, 2023 and 2022, and 2021, respectively.
The impact of certain discrete items described in (k)(g) resulted in aincremental tax benefitexpense of
$3.4 less than $0.1 million and $0.4$3.4 million for the three months ended March 31, 2022
2023 and 2021,2022, respectively.
(n)
(j)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)
(k)The Company calculates non-GAAP earnings per diluted share as non
-GAAPnon-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
30
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet commitments or
obligations as of March 31, 2022.
2023. The Company’s only off-
balanceoff-balance sheet items outstanding as of March 31, 2022 represented2023 includes approximately
$6 $5 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 Quarter of 2022
2023 with the First Quarter of 20212022
Net sales were $500.1 million in the first quarter of 2023 compared to $474.2 million in the first quarter of 2022 compared to $429.8
million in the first quarter of 2021.
2022. The net sales
increase of $44.4$25.9 million or 10%5% quarter-over-quarter reflects increasesan increase in
selling price and product mix of approximately 17% and
additional net sales from acquisitions of 2%19%, partially offset
by a decline in organic sales volumevolumes of approximately 6%11% and the unfavorable
impact from foreign currency translation of approximately 3%.
The increase in selling price and product mix iswas primarily driven by price increases
year-over-year impact of our value-based pricing initiatives implemented to help offset the significant increases in raw
material and other input costs that began during 2021.
costs. The decline in organic sales
volumes was primarily attributable to softer end market conditions, notably in EMEA and Asia/Pacific, the comparison to a very strong first quarter
impacts of 2021, where customers replenished their supply
chains, the impactongoing war in Ukraine, the wind-down of lower volumesthe tolling agreement for products previously divested related to the tolling agreement
for previously divested products associated withCombination, and the Combination
and lower sales volumes attributable to the war in Ukraine.Company’s ongoing value-based pricing initiatives.
COGS were $326.7 million in the first quarter of 2023 compared to $328.1 million in the first quarter of 2022, compareda decrease of $1.4 million. The relatively consistent level of COGS in both periods reflects lower spend on the decline in current year volumes, which more than offset higher costs due to $273.6
million in the first quarter of 2021.
The increase in
COGS of $54.5 million or 20% was driven by the associated COGS on the
increase in net sales described above as well as continued
increasesinflationary pressures in the Company’s global
raw material, manufacturing and supply chain and logistics costs compared to the prior year.
Gross profit was $173.5 million in the first quarter of 2023 compared to $146.1 million in the first quarter of 2022, decreased $10.1an increase of $27.4 million or 6%
from the first quarter of 2021.
19%. The Company’s reported
gross margin in the first quarter of 20222023 was 30.8%34.7% compared to
36.3% in the first quarter of 2021.
The Company’s current quarter
gross margin reflects a significant increase in raw
material and other input costs experienced throughout the first quarter of
2022 and
the impacts of constraints on the global supply chain, partially offset
by the Company’s ongoing value
-based pricing initiatives.
SG&A 30.8% in the first quarter of 2022 increased $7.5primarily driven by the year-over-year impact of our value-based pricing initiatives implemented to offset the significant increases in raw material and other input costs.
27
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Quaker Chemical Corporation
Management’s Discussion and Analysis
SG&A was $119.5 million or 7% compared
toin the first quarter of 2021 due primarily2023 compared to $111.8 million in the impact
first quarter of sales2022, an increase $7.8 million or 7%, driven by higher labor-related costs including year-over-year inflationary increases and higher levels of incentive compensation on direct selling costs, inflationary impacts on 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
improved Company performance, 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 lowerThe Company incurred $4.1 million of Combination, integration and other acquisition-related operating expenses 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 quarter of 2022, the Company incurred $4.1 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 first 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.
activities. There were no similar expenses incurred in the first quarter of 2023. See the Non-GAAP Measures section of this Item, above.
The Company initiated a restructuring program during the third quarter
of 2019 as part of its global plan to realize cost synergies
associated with the Combination.
The Company incurred Restructuring and related charges forof $4.0 million and $0.8 million during the first quarters of 2023 and 2022, respectively, related to reductions
in headcount and site
closures under this program, net of adjustments to initial estimates for severance
of $0.8 millionthe Company’s previous and $1.2 million during the first
quarters of 2022 and 2021, respectively.
current restructuring programs. See the Non-GAAP Measures section of this Item, above.
Operating income in the first quarter of 20222023 was $29.4$49.9 million compared
to $44.9$29.4 million in the first quarter of 2021.
2022. 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
compared to $53.7$56.3 million in the prior year first quarter of 2023 as compared to $39.2 million in the first quarter of 2022 primarily due
to the lowerhigher gross profit partially offset by higher SG&A, described above.
The Company had otherOther expense, net of $2.2 million in the first quarter
of 2022 compared to other income, net of $4.7 million in
both the first quarter of 2021.
2023 and 2022. Both the first quarter of 2023 and 2022 included foreign exchange transaction losses. The first quarter of 2023 also included a gain on insurance recoveries, while the first quarter of 2022 includes other expensesincluded an expense related to the impact of certain adjustment
to the
Company’sa Combination-related indemnification
receivables, while the prior year first quarter other income includes a gain on
the sale of certain held-for-
sale real property assets.
asset. See the Non-GAAP Measures section of this Item, above.
Interest expense, net, decreased $0.1was $13.2 million in the first quarter of 2023 compared to the first quarter
of 2021, due to a slight decrease in the average
borrowings outstanding$5.3 million in the first quarter of 2022, compared to the first
quarteran increase of 2021 on relatively consistent$7.9 million as a result of an increase in interest rates quarter-over-quarter, as well as higher average borrowings outstanding during
both the first quarter of 2022 and 2021.current year quarter.
The Company’s effective
tax rates for the first quarters of 2023 and 2022 were 27.7% and 2021 were 13.1% and 24.2%, respectively.
The Company’s
effective tax rate for the three months ended March 31,
2022 2023 was impacted by various items including foreign tax inclusions, withholding taxes, foreign tax credits, and net tax expense related to share-based compensation, partially offset with changes in uncertain tax positions and favorable return to provision adjustments. Comparatively, the prior year effective tax rate was largely drivenimpacted by changes in the valuation allowance for foreign
tax
credits due to recently issued legislative guidance issued and impacts dueaudit settlements reached with Italian tax authorities. In addition, the Company incurred higher tax expense during the three months ended March 31, 2022 related to settlements
reached on certainone of the Company’s subsidiaries recording earnings at a statutory tax audits.
Comparatively,rate of 25% while the
prior year first quarter effective recertification of its concessionary 15% tax rate was impacted by the sale of
a subsidiary which included certain held-for-sale real property
Quaker Chemical Corporation
Management’s Discussion and Analysis
31
assets related to the Combination.
pending receipt. 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 both the first quarterquarters of 2022
2023 and 20212022 would have been approximately 27% and 25%, respectively.
. The Company incurred higher tax expense during the three
months ended March 31, 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.
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, the unpredictability of the timing and
amount of certain incentives in various tax jurisdictions, the treatment of
certain acquisition-related costs and the timing and amount
of certain share-based compensation-related tax benefits, among
other factors.
Equity in net income of associated companies decreased $4.4was $4.6 million
in the first quarter of 2023 compared to $0.8 million in the first quarter of 2022, compared to the first quarteran increase of
2021, $3.8 million, primarily due to lowerhigher current year income from the Company’s
interest in a captive insurance company andas well as from the
Company’s 50% interest in a joint venture
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 first quartersquarter of 20222023 and 2021.
2022.
Foreign exchange unfavorably impacted the Company’s
first quarter of 20222023 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 first quarter.
Reportable Segments Review - Comparison of the First Quarter of 2022
2023 with the First Quarter of 20212022
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.
During the first quarter of 2023, the Company reorganized its executive management team to align with its new business structure. The Company has fourCompany’s new structure includes three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific.
28
Table of Contents
Quaker Chemical Corporation
Management’s Discussion and Analysis
The three geographic segments are comprised of the assets and operations in each respective region, including assets and operations formerly included in the Global Specialty Businesses segment. Prior to the Company’s reorganization, the Company’s historical reportable segments were: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty
Businesses.
The three geographic segments are composed ofAll prior period information has been recast to reflect 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.
new reportable segments.
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
and 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.
charges. Other items not specifically identified with the Company’s
reportable
segments include interest expense, net, and other (expense) income,expense, net.
Americas
Americas represented approximately 33%50% of the Company’s
consolidated net sales in the first quarter of 2022.
2023. The segment’s net
sales were $154.1$251.4 million, an increase of $19.3$39.3 million or 14%19%, compared
to the first quarter of 2021.
2022. The increase in net sales was
due to higher selling price and product mix of 22% and additional net sales from
acquisitionsthe favorable impact of 2%foreign currency translation of 1%, partially offset by decreasesa decrease in
organic sales volumes of 10%4%.
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 in 2022.
The
current quarter decline in organic sales volume was largely
driven by theyear-over-year impact of lower volumes related to the tolling agreement for
previously divested products associated with the Combination
and the prior year period comparison,
which included a strong rebound
from COVID-19 impacts.
This segment’s operating earnings were $29.2
million, a decrease of $3.0 million or 9% compared to the
first quarter 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 global
supply chain and logistics pressures, as well as higher
SG&A including an increase in direct selling costs, SG&A from acquisitions
and year-over-year inflationary increases
.
EMEA
EMEA represented approximately 26% of the Company’s
consolidated net sales in the first quarter of 2022.
The segment’s net
sales were $125.7 million, an increase of $5.9 million or 5% compared
to the first quarter of 2021.
The increase in net sales was due
to 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 is primarily driven by price increases implemented throughout 2022 to help offset
the significant increases in raw material and other input costs
that began during 2021 and have continued in 2022.
costs. The current quarter decline in organic volume declinesales volumes was primarily driven
by softer market conditions, the current
economic pressures including the direct and indirect impactswind-down of the
Russia-Ukraine conflict tolling agreement for products previously divested related to the Combination and the impact of economic and other
sanctionsCompany’s ongoing value-based pricing initiatives partially offset 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 the
euro against the U.S. dollar as this exchange rate averaged
1.12 in the first quarter of 2022 compared to 1.21 in the first quarter of
2021.
new business wins. This segment’s operating earnings
were $16.8$66.1 million, a
decreasean increase of $8.5$21.1 million or 34%47%, compared to the first quarter of 2021.
The decrease in segment operating earnings was2022 primarily a
Quaker Chemical Corporation
Management’s Discussion and Analysis
32
result of lower gross margins driven by the lag in price increases as compared
to continued raw material cost increases and global
supply chain and logistics pressures, coupled with higher SG&A including
an increase in direct selling costs, SG&A from acquisitions
and year-over-year inflationary increases
.
Asia/Pacific
Asia/Pacific represented approximately 22% of the Company’s
consolidated net sales in the first quarter of 2022.
The segment’s
net sales were $104.2 million, an increase of $7.5 million or 8% compared
to the first quarter of 2021.
The increase in net sales was
driven by higher selling price and product mix of 12% partially offset
by lower organicnet sales volumes of 4%.
The increasecoupled with a recovery in selling
price and product mix is primarily driven by price increases implemented
to help offsetmargins reflecting the Company’s ongoing initiatives aimed at offsetting the significant increases in raw material andinflationary pressures impacting the business.
other input costs that began during 2021 and continued throughout
the first quarter of 2022.
The current quarter decline in organicEMEA
sales volume was primarily driven by lower activity primarily in China related
to government mandates regarding the current year
Olympics as well as country restrictions over power and export related
activity compared to a very favorable demand environment in
the prior year period.
This segment’s operating earnings
were $21.9 million, a decrease of $5.6 million or 20% compared to the first
quarter 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 global
supply chain and logistics pressures, coupled with higher
SG&A including an increase in direct selling costs and year-over-year inflationary
increases.
Global Specialty Businesses
Global Specialty BusinessesEMEA represented approximately 19%31% of the
Company’s consolidated net sales in the
first quarter of 2022.
2023. The segment’s net sales were $90.1
$152.4 million, an increase of $11.7$5.6 million or 15%4%, compared
to the first quarter of 2021.
The increase
in net sales2022. This was driven by higher selling price and product mix of 10%, including
Norman Hay, additional net sales from
acquisitions
of 4% and an increase in organic sales volumes of 2%19%, partially offset
by the unfavorable impact fromof foreign currency transactiontranslation of
approximately 1% 4% and a decrease in sales volumes of 11%.
The increase in selling price and product mix iswas primarily driven by the year-over-year impact of price increases implemented
throughout 2022 to help offset the
significant increases in raw material and other input costs that began during
2021costs. The decline in sales volumes was primarily driven by softer market conditions, including the direct and continued throughoutindirect impacts of the ongoing war in Ukraine, as well as lower volumes associated with the Company’s ongoing value-based pricing initiatives and the wind-down of the tolling agreement for products previously divested related to the Combination. The unfavorable foreign currency translation impact was primarily due to the strengthening of the U.S. dollar against the euro as this exchange rate averaged 1.07 U.S. dollar per euro in the first quarter of 2023 compared to 1.12 U.S. dollar per euro in the first quarter of 2022.
This segment’s operating earnings were $27.6 million, an increase of $4.3 million or 19%, compared to the first quarter of 2022. The increase in segment operating earnings was primarily driven by higher net sales coupled with a recovery in margins reflecting the Company’s ongoing initiatives aimed at offsetting the significant inflationary pressures on impacting the business.
Asia/Pacific
Asia/Pacific represented approximately 19% of the Company’s consolidated net sales in the first quarter of 2023. The segment’s net sales were $96.3 million, a decrease of $19.0 million or 16%, compared to the first quarter of 2022. The decrease in net sales was driven by lower organic sales volumes of 22% and an unfavorable impact from foreign currency translation of 6%, partially offset by higher selling price and product mix of 12%. The decline in organic sales volumes was primarily attributable
to a favorable demand environment for our products.
driven by softer market conditions, including the impact of COVID-19 lockdown measures, primarily in China, as well as lower volumes associated with the Company’s ongoing value-based pricing initiatives. The unfavorable foreign
exchange impact was primarily due to the weakeningstrengthening of the euro
against the U.S. dollar describedagainst the Chinese renminbi as this exchange rate averaged 6.84 Chinese renminbi per U.S. dollar in the EMEA section above.
first quarter of 2023 compared to 6.35 Chinese renminbi per U.S. dollar in the first quarter of 2022. The increase in selling price and product mix was primarily driven by year-over-year impact of price increases implemented throughout 2022 to offset the significant increases in raw material and other input costs. This
segment’s operating earnings were
$25.0 $27.7 million, an increase of $0.9$3.2 million or 4%13% compared to the first quarter
of 2021.
2022. The
increase in segment operating earnings reflectswas primarily driven by a recovery in margins reflecting the aforementioned
higher net sales partially offset byCompany’s ongoing initiatives aimed at offsetting the significant inflationary pressures as well as slightly lower gross margins
in
the current year coupled with higherlevels of SG&A, including an increasewhich more than offset the decline in directnet sales.
29
selling costs, SG&A from acquisitions
Table of Contents
Quaker Chemical Corporation
Management’s Discussion and year-over-yearAnalysis
inflationary increases.
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 Corporationus 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 on our current expectations about future events, including statements regarding the potential
effects of the
COVID-19 pandemic, the Russia and Ukraine conflict, inflation, bank failures, higher interest rate environment, global supply chain constraints on the Company’s
business, results of operations, and financial condition,
our expectation that we will maintain sufficient liquidity, and
remediate anyremain in compliance with the terms of ourthe Company’s credit facility, expectations about future demand and raw material weaknesses in internal control over
financial reporting,costs and statements regarding the impact of increased
raw material costs and pricing initiatives on our current
expectations about future events.
initiatives.
These forward-looking statements include statements with respect to
our beliefs, plans, objectives, goals, expectations,
anticipations, intentions, financial condition, results of operations, future
performance, and business, including:
•
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;
•inflationary pressures, cost increases and the impacts of constraints and disruptions in the global supply chain;
•the potential benefits of acquisitions
•the potential for a variety of macroeconomic events, including the possibility of global or regional recessions, inflation generally, continued or accelerated cost increases in prices of raw materials such as oil and increasing interest rates, to impact the impactsvalue of constraints and
disruptionsour assets or result in the global supply chain;asset impairments or otherwise adversely affect our business;
•
our current and future results and plans including our sustainability goals; and
•
statements that include the words “may,”
“could, “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,”
“intend, “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 20212022 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.disruptions.
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, 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 companies and the potential expansion
of military activity, foreign
currency fluctuations, significant changes in applicable tax rates and
regulations, future terrorist attacks
and other acts of violence.
Furthermore, the Company is subject to the same business cycles as those experienced by
our customers in
the steel, automobile, aircraft, industrial equipment, and durable goods industries.
The ultimate impact of COVID-19 on our business
will depend on, among other things, the extent and duration of the
pandemic, the severity of the disease and the number of people
infected with the virus including new variants, the continued uncertainty
regarding global availability,
administration, acceptance and
long-term efficacy of vaccines, or other treatments for
COVID-19 or its variants, the longer-term effects
on the economy of the
pandemic, including the resulting market volatility,
and by the measures taken by governmental authorities and other third parties
restricting day-to-day life and business operations and the length
of time that such measures remain in place, as well as laws and other
governmental programs implemented to address the pandemic or assist impacted
businesses, such as fiscal stimulus and other
legislation designed to deliver monetary aid and other relief.
Other factors could also adversely affect us, including those related
to
acquisitions and the integration of acquired businesses.
Our forward-looking statements are subject to risks, uncertainties and
assumptions about the Company
30
Table of Contents
Quaker Chemical Corporation
Management’s Discussion 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.
Analysis
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 20212022 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.
31
34Table of Contents
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk.
We have evaluated
the information required under this Item that was disclosed in Part II, Item 7A, of our Annual
Report on Form
10-K for the year ended December 31, 2021,2022, and we believe there has been no material
change to that information.
information, except the interest rate risk noted below.
Interest Rate Risk.
During June 2022, the Company entered into an amendment to its primary credit facility (the “Original Credit Facility”, or as amended, the “Credit Facility”). See Note 20 of Notes to Consolidated Financial Statements included in Item 8 of our 2022 Form 10-K and Note 14 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report. As of December 31, 2022, borrowings under the Credit Facility bear interest at either term Secured Overnight Financing Rate (“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 Credit Facility, if interest rates rise significantly, the cost of debt to the Company will increase. This may have an adverse effect on the Company, depending on the extent of the Company’s borrowings outstanding throughout a given year. As of December 31, 2022, and March 31, 2023, the Company had outstanding borrowings under the Credit Facility of approximately $943.5 million and $931.5 million, respectively. The weighted average interest rate applicable on outstanding borrowings under the Credit Facility was approximately 4.9% and 5.9% as of December 31, 2022, and March 31, 2023, respectively. The weighted average interest rate applicable on outstanding borrowings under the Original Credit Facility and the Credit Facility during the year ended December 31, 2022 was approximately 3.0% and the three months ended March 31, 2023 was approximately 5.8%. An interest rate change of 100 basis points would result in an approximate $9.4 million and $9.3 million increase or decrease to interest expense for the year ended December 31, 2022 and the year ended December 31, 2023, respectively.
35In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, in the first quarter of 2023, the Company entered into $300.0 million notional amounts of three year interest rate swaps to convert a portion of the Company’s variable rate borrowings into an average fixed rate obligation of 3.64% plus an applicable margin as provided in the Credit Facility based on the Company’s consolidated net leverage ratio. As of March 31, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.2%. These interest rate swaps are designated and qualify as cash flow hedges. The Company has previously used derivative financial instruments primarily for the purpose of hedging exposures to fluctuations in interest rates.
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, 2022,2023, the end of the period covered by
this Report, our disclosure controls and procedures (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, 20222023 that have materially affected, or
are reasonably likely to materially affect, our internal control
over financial reporting.
Based on that evaluation, there were no changes that have materially affected,
or are reasonably
likely to materially affect, our internal control over financial reporting
during the quarter ended March 31, 2022.2023.
32
Table of Contents
36
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
2022 Form 10-K.
While there
There have been no material changes to the risk factors described in our 2021 Form 10-K,
reference is made to the developments discussedtherein.
under the headings
Ongoing impact of COVID-19
and
Impact of Political Conflicts
within Item 2 of this Report.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth information concerning shares of
the Company’s common stock acquired
by the Company during
the period covered by this Report:
(c)
Period(a)
Total Number
of Shares
Purchased (1)		(b)
Average
Price Paid
Per Share (2)		(c)
Total Number of
Shares Purchased as part of Publicly Announced Plans or Programs		(d)
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (3)
January 1 - January 31103$196.87 —$86,865,026 
February 1 - February 2830,521$215.44 —$86,865,026 
March 1 - March 315,033$193.28 —$86,865,026 
Total35,657$201.86 —$86,865,026 
(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)
January 1 - January 31
494
$
227.19
—
$
86,865,026
February 1 - February 28
4,717
$
189.45
—
$
86,865,026
March 1 - March 31
161
$
174.07
—
$
86,865,026
Total
5,372
$
192.46
—
$
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 $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, 2022.2023.
Limitation on the Payment of Dividends
The Credit Facility has certain limitations on the payment of dividends
and other so-called restricted payments.payment covenants. See Note 14 of
Notes to Condensed Consolidated Financial Statements, in Part I, Item
1, of this Report.
33
Table of Content
37
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)*
3.1–
Amended and Restated Articles of Incorporation (as amended through July 24, 2019). Incorporated by reference to Exhibit 3.1 as filed by the Registrant with its quarterly report on Form 10-Q filed on August 1, 2019.
3.2–
Amended and Restated By-laws (effective December 19, 2022). Incorporated by reference to Exhibit 3.1 as filed by the Registrant within its current report on Form 8-K on December 20, 2022.
 10.1–
Employment Agreement by and between the Registrant and Jeffrey Fleck dated January 23, 2023, effective February 27, 2023.*†
 10.2–
Form of Change of Control Agreement by and between the Registrant and certain executive officers (including Jeffrey Fleck).*†
 10.3–
31.1–
Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*
31.2–
Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*
32.1–
Certification of Chief Executive Officer of the Company Pursuant to 18 U.S. C. Section 1350.**
32.2–
Certification of Chief Financial Officer of the Company Pursuant to 18 U.S. C. Section 1350.**
101.INS–Inline XBRL Instance Document*
101.SCH–Inline XBRL Taxonomy Schema Document*
101.CAL–Inline XBRL Taxonomy Calculation Linkbase Document*
101.DEF–Inline XBRL Taxonomy Definition Linkbase Document*
101.LAB–Inline XBRL Taxonomy Label Linkbase Document*
101.PRE–Inline XBRL Taxonomy Presentation Linkbase Document*
104–Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)*
* Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan.
*********
34
Table of Content
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
Date: May 4, 2023Shane W. Hostetter, Senior Vice President, Chief Financial Officer (officer duly authorized on behalf of, and principal financial officer of, the Registrant)
QUAKER CHEMICAL CORPORATION
(Registrant)
/s/ Shane W. Hostetter________________________________
Date: May 5, 2022
Shane W. Hostetter,
Senior Vice President, Chief Financial
Officer (officer duly authorized on behalf of, and principal
financial officer of, the Registrant)35