UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
10-Q
☒
QUARTERLYREPORT PURSUANT TO SECTION 13 | | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
September 30, 20222023
OR
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐
TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period fromto Commission file number 001-12019
QUAKER CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | |
Pennsylvania | 23-0993790 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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 class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $1 par value | | KWR | | New 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 filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange 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 oYes
☒
☐
Indicate by check mark whether the registrant has submittedelectronically every Interactive Data File required to be submittedpursuant 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
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”,
and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | x | | Accelerated filer | o | |
| Non-accelerated filer | o | | Smaller reporting company | o | |
| | | | Emerging growth company | o | |
☒
☐
☐
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to usethe extended transition period for complying with any newor 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 (asdefined in Rule 12b-2 of the Exchange Act).Yes ☐
☒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 October 31, 2022 | | | | | |
Number of Shares of Common Stock Outstanding on October 31, 2023 | 17,984,916 |
17,931,664
Quaker Chemical Corporation
1
QUAKER CHEMICAL CORPORATIONAND CONSOLIDATEDSUBSIDIARIESTable of ContentsPage
FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
2
3
4
5
6
7
Item 2.
27
Item 3.
44
Item 4.
45
Item 1.
46
Item 1A.
46
Item 2.
46
Item 6.
47
Signatures
471
2
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
Nine Months Ended
2022
2021
2022
2021
Net sales
$
492,218
$
449,072
$
1,458,777
$
1,314,117
Cost of goods sold (
excluding amortization expense - See Note 13
)
331,469
303,941
1,002,393
858,341
Gross profit
160,749
145,131
456,384
455,776
Selling, general and administrative expenses
115,456
104,215
343,081
317,204
Restructuring and related (credits) charges, net
(1,423)
(880)
(604)
593
Combination, integration and other acquisition-related expenses
2,107
5,786
7,992
18,259
Operating income
44,609
36,010
105,915
119,720
Other income (expense), net
85
647
(10,520)
19,344
Interest expense, net
(8,389)
(5,637)
(20,228)
(16,725)
Income before taxes and equity in net income of
associated companies
36,305
31,020
75,167
122,339
Taxes on income beforeequity in net income of associatedCompanies
10,185
795
14,425
26,702
Income before equity in net income of associated
Companies
26,120
30,225
60,742
95,637
Equity in net (loss) income of associated companies
(212)
848
(642)
7,668
Net income
25,908
31,073
60,100
103,305
Less: Net income attributable to noncontrolling interest
41
15
74
62
Net income attributable to Quaker Chemical Corporation
$
25,867
$
31,058
$
60,026
$
103,243
Per share data:
Net income attributable to Quaker Chemical Corporation
common shareholders – basic
$
1.44
$
1.74
$
3.35
$
5.78
Net income attributable to Quaker Chemical Corporationcommon shareholders – diluted
$
1.44
$
1.73
$
3.35
$
5.76
Dividends declared
$
0.435
$
0.415
$
1.265
$
1.205 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net sales | $ | 490,612 | | | $ | 492,218 | | | $ | 1,486,204 | | | $ | 1,458,777 | |
Cost of goods sold (excluding amortization expense - See Note 13) | 307,265 | | | 331,469 | | | 951,716 | | | 1,002,393 | |
Gross profit | 183,347 | | | 160,749 | | | 534,488 | | | 456,384 | |
Selling, general and administrative expenses | 122,810 | | | 115,456 | | | 362,212 | | | 343,081 | |
Restructuring and related charges (credits), net | 1,019 | | | (1,423) | | | 6,034 | | | (604) | |
Combination, integration and other acquisition-related expenses | — | | | 2,107 | | | — | | | 7,992 | |
Operating income | 59,518 | | | 44,609 | | | 166,242 | | | 105,915 | |
Other (expense) income, net | (2,713) | | | 85 | | | (8,558) | | | (10,520) | |
Interest expense, net | (12,781) | | | (8,389) | | | (38,744) | | | (20,228) | |
Income before taxes and equity in net income of associated companies | 44,024 | | | 36,305 | | | 118,940 | | | 75,167 | |
Taxes on income before equity in net income of associated companies | 13,593 | | | 10,185 | | | 36,956 | | | 14,425 | |
Income before equity in net income of associated companies | 30,431 | | | 26,120 | | | 81,984 | | | 60,742 | |
Equity in net income (loss) of associated companies | 3,279 | | | (212) | | | 10,660 | | | (642) | |
Net income | 33,710 | | | 25,908 | | | 92,644 | | | 60,100 | |
Less: Net income attributable to noncontrolling interest | 40 | | | 41 | | | 94 | | | 74 | |
Net income attributable to Quaker Chemical Corporation | $ | 33,670 | | | $ | 25,867 | | | $ | 92,550 | | | $ | 60,026 | |
Per share data: | | | | | | | |
Net income attributable to Quaker Chemical Corporation common shareholders – basic | $ | 1.87 | | | $ | 1.44 | | | $ | 5.15 | | | $ | 3.35 | |
Net income attributable to Quaker Chemical Corporation common shareholders – diluted | $ | 1.87 | | | $ | 1.44 | | | $ | 5.14 | | | $ | 3.35 | |
Dividends declared | $ | 0.455 | | | $ | 0.435 | | | $ | 1.325 | | | $ | 1.265 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statements of Comprehensive Income
(Unaudited; Dollars in thousands)
Unaudited
Three Months Ended
Nine Months Ended
2022
2021
2022
2021
Net income
$
25,908
$
31,073
$
60,100
$
103,305
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(71,986)
(19,905)
(155,284)
(29,201)
Defined benefit retirement plans
497
904
2,400
2,593
Current period change in fair value of derivatives
(140)
436
1,535
1,450
Unrealized loss on available-for-sale securities
(818)
(215)
(2,385)
(2,961)
Other comprehensive loss
(72,447)
(18,780)
(153,734)
(28,119)
Comprehensive (loss) income
(46,539)
12,293
(93,634)
75,186
Less: Comprehensiveloss attributable tononcontrolling interest
(3)
(15)
(5)
(68)
Comprehensive (loss) income attributable to Quaker Chemical
Corporation
$
(46,542)
$
12,278
$
(93,639)
$
75,118 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 33,710 | | | $ | 25,908 | | | $ | 92,644 | | | $ | 60,100 | |
| | | | | | | |
Other comprehensive (loss) income, net of tax | | | | | | | |
Currency translation adjustments | (25,504) | | | (71,986) | | | (24,116) | | | (155,284) | |
Defined benefit retirement plans | 281 | | | 497 | | | 852 | | | 2,400 | |
Current period change in fair value of derivatives | 1,241 | | | (140) | | | 5,804 | | | 1,535 | |
Unrealized (loss) gain on available-for-sale securities | (637) | | | (818) | | | 938 | | | (2,385) | |
Other comprehensive loss | (24,619) | | | (72,447) | | | (16,522) | | | (153,734) | |
| | | | | | | |
Comprehensive income (loss) | 9,091 | | | (46,539) | | | 76,122 | | | (93,634) | |
Less: Comprehensive loss attributable to noncontrolling interest | (36) | | | (3) | | | (55) | | | (5) | |
Comprehensive income (loss) attributable to Quaker Chemical Corporation | $ | 9,055 | | | $ | (46,542) | | | $ | 76,067 | | | $ | (93,639) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Unaudited; Dollars in thousands, except par value)
Unaudited
September 30,
December 31,
2022
2021
ASSETS
Current assets
Cash and cash equivalents
$
138,891
$
165,176
Accounts receivable, net
461,912
430,676
Inventories
Raw materials and supplies
165,280
129,382
Work-in-processand finished goods151,860
135,149
Prepaid expenses and other current assets
66,760
59,871
984,703
920,254
Property, plant and equipment,at cost425,650
434,344
Less: Accumulated depreciation
(237,276)
(236,824)
Property, plant and equipment,net188,374
197,520
Right of use lease assets
37,005
36,635
Goodwill
591,032
631,194
Other intangible assets, net
915,956
1,027,782
Investments in associated companies
76,748
95,278
Deferred tax assets
10,519
16,138
Other non-current assets
27,163
30,959
Total assets
$
2,831,500
$
2,955,760
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt
$
20,471
$
56,935
Accounts payable
209,343
226,656
Dividends payable
7,800
7,427
Accrued compensation
32,993
38,197
Accrued restructuring
1,798
4,087
Accrued pension and postretirement benefits
1,536
1,548
Other accrued liabilities
91,790
95,617
365,731
430,467
Long-term debt
931,491
836,412
Long-term lease liabilities
25,697
26,335
Deferred tax liabilities
151,208
179,025
Non-current accrued pension and postretirement benefits
38,222
45,984
Other non-current liabilities
39,521
49,615
Total liabilities
1,551,870
1,567,838
Commitments and contingencies (Note 18)
Equity
Common stock $
1
30,000,000
outstanding 2022 –
17,931,205
17,897,033
17,931
17,897
Capital in excess of par value
925,037
917,053
Retained earnings
553,685
516,334
Accumulated other comprehensive loss
(217,655)
(63,990)
Total Quakershareholders’ equity1,278,998
1,387,294
632
628
Total equity
1,279,630
1,387,922
Total liabilities and equity
$
2,831,500
$
2,955,760 | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 198,358 | | $ | 180,963 |
Accounts receivable, net | 446,459 | | 472,888 |
Inventories | | | |
Raw materials and supplies | 129,204 | | 151,105 |
Work-in-process and finished goods | 121,566 | | 133,743 |
Prepaid expenses and other current assets | 70,724 | | 55,438 |
Total current assets | 966,311 | | 994,137 |
Property, plant and equipment, at cost | 431,565 | | 428,190 |
Less: Accumulated depreciation | (235,125) | | | (229,595) | |
Property, plant and equipment, net | 196,440 | | 198,595 |
Right of use lease assets | 38,595 | | 43,766 |
Goodwill | 504,457 | | 515,008 |
Other intangible assets, net | 890,464 | | 942,925 |
Investments in associated companies | 92,965 | | 88,234 |
Deferred tax assets | 9,569 | | 11,218 |
Other non-current assets | 33,705 | | 27,739 |
Total assets | $ | 2,732,506 | | $ | 2,821,622 |
LIABILITIES AND EQUITY | | | |
Current liabilities | | | |
Short-term borrowings and current portion of long-term debt | $ | 19,246 | | $ | 19,245 |
Accounts payable | 190,067 | | 193,983 |
Dividends payable | 8,190 | | 7,808 |
Accrued compensation | 43,641 | | 39,834 |
Accrued restructuring | 3,590 | | 5,483 |
Accrued pension and postretirement benefits | 1,574 | | 1,560 |
Other accrued liabilities | 85,799 | | 86,873 |
Total current liabilities | 352,107 | | 354,786 |
Long-term debt | 804,973 | | 933,561 |
Long-term lease liabilities | 22,163 | | 26,967 |
Deferred tax liabilities | 151,606 | | 160,294 |
Non-current accrued pension and postretirement benefits | 27,344 | | 28,765 |
Other non-current liabilities | 33,212 | | 38,664 |
Total liabilities | 1,391,405 | | 1,543,037 |
Commitments and contingencies (Note 18) | | | |
Equity | | | |
Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding September 30, 2023 – 18,000,855 shares; December 31, 2022 – 17,950,264 shares | 18,001 | | 17,950 |
Capital in excess of par value | 938,473 | | 928,288 |
Retained earnings | 538,628 | | 469,920 |
Accumulated other comprehensive loss | (154,724) | | | (138,240) | |
Total Quaker shareholders’ equity | 1,340,378 | | 1,277,918 |
Noncontrolling interest | 723 | | 667 |
Total equity | 1,341,101 | | 1,278,585 |
Total liabilities and equity | $ | 2,732,506 | | $ | 2,821,622 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited; Dollars in thousands)
Unaudited
Nine Months Ended
2022
2021
Cash flows from operating activities
Net income
$
60,100
$
103,305
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of debt issuance costs
2,589
3,562
Depreciation and amortization
60,692
65,440
Equity in undistributed earnings of associated companies, net of dividends
3,612
(7,563)
Acquisition-related fair value adjustments related to inventory
—
801
Deferred compensation, deferred taxes and other,net(8,811)
(21,865)
Share-based compensation
8,635
8,441
Loss on extinguishment of debt
5,246
—
Gain on disposal of property, plant,equipment and other assets(33)
(4,819)
Combination and other acquisition-related expenses, net of payments
(4,265)
(1,705)
Restructuring and related (credits) charges
(604)
593
Pension and other postretirement benefits
(6,556)
(5,638)
(Decrease) increase in cash from changes in current assets and currentliabilities, net of acquisitions:
Accounts receivable
(65,256)
(68,664)
Inventories
(72,386)
(72,962)
Prepaid expenses and other current assets
(11,081)
(24,512)
Change in restructuring liabilities
(1,234)
(4,557)
Accounts payable and accrued liabilities
3,059
32,652
Net cash (used in) provided by operating activities
(26,293)
2,509
Cash flows from investing activities
Investments in property,plant and equipment(20,230)
(12,823)
Payments related to acquisitions, net of cash acquired
(9,421)
(31,975)
Proceeds from disposition of assets
65
14,744
Net cash used in investing activities
(29,586)
(30,054)
Cash flows from financing activities
Payments of long-term debt
(668,500)
(28,558)
Proceeds from long-term debt
750,000
—
(Payments) borrowings on revolving credit facilities, net
(10,418)
39,143
Borrowings (payments) on other debt, net
2,131
(585)
Financing-related debt issuance costs
(3,734)
—
Dividends paid
(22,302)
(21,175)
Stock options exercised, other
(616)
704
Net cash provided by (used in) financing activities
46,561
(10,471)
Effect of foreign exchange rate changes on cash
(16,967)
(2,486)
Net decrease in cash and cash equivalents
(26,285)
(40,502)
Cash and cash equivalents at the beginning of the period
165,176
181,895
Cash and cash equivalents at the end of the period
$
138,891
$
141,393 | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash flows from operating activities | | | |
Net income | $ | 92,644 | | | $ | 60,100 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Amortization of debt issuance costs | 1,059 | | | 2,589 | |
Depreciation and amortization | 61,434 | | | 60,692 | |
Equity in undistributed earnings of associated companies, net of dividends | (7,486) | | | 3,612 | |
| | | |
Deferred compensation, deferred taxes and other, net | (515) | | | (8,844) | |
Share-based compensation | 11,189 | | | 8,635 | |
Loss on extinguishment of debt | — | | | 5,246 | |
| | | |
Combination and other acquisition-related expenses, net of payments | — | | | (4,265) | |
Restructuring and related charges (credits), net | 6,034 | | | (604) | |
Pension and other postretirement benefits | (2,000) | | | (6,556) | |
Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: | | | |
Accounts receivable | 22,133 | | | (65,256) | |
Inventories | 30,607 | | | (72,386) | |
Prepaid expenses and other current assets | (9,771) | | | (11,081) | |
Change in restructuring liabilities | (7,914) | | | (1,234) | |
Accounts payable and accrued liabilities | 2,046 | | | 3,059 | |
Net cash provided by (used in) operating activities | 199,460 | | | (26,293) | |
Cash flows from investing activities | | | |
Investments in property, plant and equipment | (25,794) | | | (20,230) | |
Payments related to acquisitions, net of cash acquired | — | | | (9,421) | |
| | | |
Proceeds from disposition of assets | — | | | 65 | |
Net cash used in investing activities | (25,794) | | | (29,586) | |
Cash flows from financing activities | | | |
Payments of long-term debt | (14,075) | | | (668,500) | |
Proceeds from long-term debt | — | | | 750,000 | |
Payments on revolving credit facilities, net | (112,835) | | | (10,418) | |
Borrowings on other debt, net | 797 | | | 2,131 | |
Financing-related debt issuance costs | — | | | (3,734) | |
Dividends paid | (23,459) | | | (22,302) | |
Other stock related activity | (953) | | | (616) | |
Net cash (used in) provided by financing activities | (150,525) | | | 46,561 | |
Effect of foreign exchange rate changes on cash | (5,746) | | | (16,967) | |
Net increase (decrease) in cash and cash equivalents | 17,395 | | | (26,285) | |
Cash and cash equivalents at the beginning of the period | 180,963 | | | 165,176 | |
Cash and cash equivalents at the end of the period | $ | 198,358 | | | $ | 138,891 | |
The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statements of Changes in Equity
(Unaudited; Dollars in thousands, except per share amounts)
Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at December 31, 2020
$
17,851
$
905,171
$
423,940
$
(26,598)
$
550
$
1,320,914
Net income
—
—
38,615
—
17
38,632
Amounts reported in other
comprehensive loss
—
—
—
(26,630)
(2)
(26,632)
Dividends ($
0.395
—
—
(7,062)
—
—
(7,062)
Share issuance and equity-based
compensation plans
24
3,577
—
—
—
3,601
Balance at March 31, 2021
$
17,875
$
908,748
$
455,493
$
(53,228)
$
565
$
1,329,453
Net income
—
—
33,570
—
30
33,600
Amounts reported in other
comprehensive gain
—
—
—
17,285
8
17,293
Dividends ($
0.395
—
—
(7,062)
—
—
(7,062)
Share issuance and equity-based
compensation plans
3
2,114
—
—
—
2,117
Balance at June 30, 2021
$
17,878
$
910,862
$
482,001
$
(35,943)
$
603
$
1,375,401
Net income
—
—
31,058
—
15
31,073
Amounts reported in other
comprehensive loss
—
—
—
(18,780)
—
(18,780)
Dividends ($
0.415
—
—
(7,424)
—
—
(7,424)
Share issuance and equity-based
compensation plans
11
3,415
—
—
—
3,426
Balance at September 30, 2021
$
17,889
$
914,277
$
505,635
$
(54,723)
$
618
$
1,383,696
Balance at December 31, 2021
$
17,897
$
917,053
$
516,334
$
(63,990)
$
628
$
1,387,922
Net income
—
—
19,816
—
5
19,821
Amounts reported in other
comprehensive (loss) income
—
—
—
(6,271)
1
(6,270)
Dividends ($
0.415
—
—
(7,434)
—
—
(7,434)
Share issuance and equity-based
compensation plans
15
1,646
—
—
—
1,661
Balance at March 31, 2022
$
17,912
$
918,699
$
528,716
$
(70,261)
$
634
$
1,395,700
Net income
—
—
14,343
—
28
14,371
Amounts reported in other
comprehensive loss
—
—
—
(74,985)
(33)
(75,018)
Dividends ($
0.415
—
—
(7,438)
—
—
(7,438)
Share issuance and equity-based
compensation plans
8
2,943
—
—
—
2,951
Balance at June 30, 2022
$
17,920
$
921,642
$
535,621
$
(145,246)
$
629
$
1,330,566
Net income
—
—
25,867
—
41
25,908
Amounts reported in other
comprehensive loss
—
—
—
(72,409)
(38)
(72,447)
Dividends ($
0.435
—
—
(7,803)
—
—
(7,803)
Share issuance and equity-based
compensation plans
11
3,395
—
—
—
3,406
Balance at September 30, 2022
$
17,931
$
925,037
$
553,685
$
(217,655)
$
632
$
1,279,630 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 plans | 15 | | | 1,646 | | | — | | | — | | | — | | | 1,661 | |
Balance as of March 31, 2022 | $ | 17,912 | | | $ | 918,699 | | | $ | 528,716 | | | $ | (70,261) | | | $ | 634 | | | $ | 1,395,700 | |
Net income | — | | | — | | | 14,343 | | | — | | | 28 | | | 14,371 | |
Amounts reported in other comprehensive loss | — | | | — | | | — | | | (74,985) | | | (33) | | | (75,018) | |
Dividends ($0.415 per share) | — | | | — | | | (7,438) | | | — | | | — | | | (7,438) | |
Share issuance and equity-based compensation plans | 8 | | | 2,943 | | | — | | | — | | | — | | | 2,951 | |
Balance as of June 30, 2022 | $ | 17,920 | | | $ | 921,642 | | | $ | 535,621 | | | $ | (145,246) | | | $ | 629 | | | $ | 1,330,566 | |
Net income | — | | | — | | | 25,867 | | | — | | | 41 | | | 25,908 | |
Amounts reported in other comprehensive loss | — | | | — | | | — | | | (72,409) | | | (38) | | | (72,447) | |
Dividends ($0.435 per share) | — | | | — | | | (7,803) | | | — | | | — | | | (7,803) | |
Share issuance and equity-based compensation plans | 11 | | | 3,395 | | | — | | | — | | | — | | | 3,406 | |
Balance as of September 30, 2022 | $ | 17,931 | | | $ | 925,037 | | | $ | 553,685 | | | $ | (217,655) | | | $ | 632 | | | $ | 1,279,630 | |
| | | | | | | | | | | |
Balance as of December 31, 2022 | $ | 17,950 | | | $ | 928,288 | | | $ | 469,920 | | | $ | (138,240) | | | $ | 667 | | | $ | 1,278,585 | |
Net income | — | | | — | | | 29,534 | | | — | | | 7 | | | 29,541 | |
Amounts reported in other comprehensive income | — | | | — | | | — | | | 15,063 | | | 3 | | | 15,066 | |
Dividends ($0.435 per share) | — | | | — | | | (7,822) | | | — | | | — | | | (7,822) | |
Share issuance and equity-based compensation plans | 32 | | | 1,386 | | | — | | | — | | | — | | | 1,418 | |
Balance as of March 31, 2023 | $ | 17,982 | | | $ | 929,674 | | | $ | 491,632 | | | $ | (123,177) | | | $ | 677 | | | $ | 1,316,788 | |
Net income | — | | | — | | | 29,346 | | | — | | | 47 | | | 29,393 | |
Amounts reported in other comprehensive loss | — | | | — | | | — | | | (6,931) | | | (38) | | | (6,969) | |
Dividends ($0.435 per share) | — | | | — | | | (7,830) | | | — | | | — | | | (7,830) | |
Share issuance and equity-based compensation plans | 17 | | | 5,267 | | | — | | | — | | | — | | | 5,284 | |
Balance as of June 30, 2023 | $ | 17,999 | | | $ | 934,941 | | | $ | 513,148 | | | $ | (130,108) | | | $ | 686 | | | $ | 1,336,666 | |
Net income | — | | | — | | | 33,670 | | | — | | | 40 | | | 33,710 | |
Amounts reported in other comprehensive loss | — | | | — | | | — | | | (24,616) | | | (3) | | | (24,619) | |
Dividends ($0.455 per share) | — | | | — | | | (8,190) | | | — | | | — | | | (8,190) | |
Share issuance and equity-based compensation plans | 2 | | | 3,532 | | | — | | | — | | | — | | | 3,534 | |
Balance as of September 30, 2023 | $ | 18,001 | | | $ | 938,473 | | | $ | 538,628 | | | $ | (154,724) | | | $ | 723 | | | $ | 1,341,101 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
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 September 30,
20222023 (the “Report”),
the terms “Quaker Houghton,”
the “Company,”
“we, “we,” and “our” refer to Quaker Chemical
Corporation (doing business as Quaker Houghton), its subsidiaries, and
associated companies, unless the context otherwise requires.
As used in these Notes to Condensed Consolidated Financial Statements,the The “Combination” refers to the legacy Quaker combination
with Houghton International, Inc. (“Houghton”).
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 nine months ended September 30,
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 and customer industry disaggregation. As a result of the Company’s new organizational structure effective January 1, 2023, the Company reallocated goodwill previously held by the former Global Specialty Businesses segment to the remaining business segments as of January 1, 2023. However, the Company did not recast the carrying amount of goodwill for the year ended December 31, 2022. 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 Pennsylvaniabusiness 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
four
segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; andGlobal SpecialtyBusinesses.
Hyper-inflationary economies
Based on various indices or index compilations being used to monitor inflationas well as economic instability,Argentina’s and
Türkiye’s economies were
considered hyper-inflationary under U.S. GAAP effective
July 1, 2018 and April 1, 2022, respectively.
As
of, and for the three and nine months ended September 30,
2022,2023, the Company's Argentine
and Turkish subsidiaries represented a
combined
1
% 1% and
2
% 2% of the Company’s consolidated
total assets and net sales, respectively.
During the three and nine months ended
September 30, 2023, the Company recorded $1.2 million and $2.9 million of remeasurement losses associated with the applicable currency conversions, respectively. Comparatively, during the three and nine months ended September 30, 2022, the Company recorded $
1.0
1.2
$1.2 million
respectively,of remeasurement losses associated with the
applicable currency conversions,
related to Argentinaand Türkiye.Comparatively, during the threeand nine months ended September30, 2021, the Company recorded less than $
0.1
0.3
million, respectively, ofremeasurement losses associated with theapplicable currency conversions related to Argentina.respectively. These losses were recorded within foreign exchange losses, net, which is a
component of
otherOther (expense) income, net, in the Company’s
Condensed Consolidated Statements of
Income. Operations.Note 2 – Business Acquisitions
2022Previous Acquisitions
Subsequent to the date of these financial statements, inIn 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
$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
Metalsmetals industry. As of September 30, 2023, the allocation of the purchase of this acquisition has been finalized.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
8
In January 2022, the Company acquired a business that provides pickling
inhibitor technologies, drawing lubricants and stamping
oil, and various other lubrication, rust preventative, and cleaner applications,
which is part of the Americas reportable segment, for
approximately $
8.0
$8.0 million.
This business broadens the Company’s
product offerings within its existing metals and metalworking
business in the Americas region.
The Company allocated $5.6
million of the purchase price to intangible assets, comprised of $5.1
million of customer relationships to be amortized over
14
0.5
million of existing product technologies to be amortizedover
14
years.In addition, the Company recorded $1.8
million of goodwill related to expected value not allocated to other acquiredassets, all of which is expected to be tax deductible in various jurisdictions in whichthe Company operates.During the third quarter
of 2022 the Company finalized post-closing adjustments that resulted in
the Company paying less than
$0.1
$0.1 million of additional
purchase consideration.
Factors contributing to the purchase price that resulted Also in
goodwill includedthe acquisition of businessprocesses and personnel that will allow Quaker Houghton to better serveits customers.In January 2022, the Company acquired a business related to the sealing
and impregnation of metal castings for the automotive
sector, as well as impregnation resin and
impregnation systems for metal parts, which is part of the
Global Specialty BusinessesEMEA 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.
The
results of operationsallocation of the
purchase prices of both of these January 2022 acquisitions
subsequent tothe respective acquisition dates are included in thehave been finalized.unaudited Condensed Consolidated Statements of Income for the nine monthperiod ended September 30, 2022.Applicabletransaction expenses associated with these acquisitions are includedin Combination, integration and other acquisition-relatedexpenses in the Company’s unauditedCondensed Consolidated Statements of Income.Certain pro forma and other information is notpresented, as the operations of the acquisitions are not considered materialto the overall operations of the Company for the periodspresented.The results of operations of the October acquisition is not included in the Consolidated Statements ofOperations becausethe date of closing was subsequent to September 30, 2022.Preliminary purchase price allocation of assets acquired and liabilitiesassumed for this business acquired has not been presented as that informationis not available as of the date of these CondensedConsolidated Financial Statements.
Previous Acquisitions
In November 2021, the Company acquired Baron Industries,
(“Baron”),a privately held company that provides vacuum
impregnation services of castings, powder metals and electrical components
for its
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 that are payable at various times from 2022 through 2025.
The earn-out provisions could total a maximum of
$4.5
In September 2022, the Company paid $
2.5
million related to certain of these earnout provisions.The Company recorded anincremental earn-out expense of $
0.1
million during the three and nine months ended September 30, 2022 related tothese earnoutprovisions, recorded within the financialstatement caption “Combination, integration and other acquisition-relatedexpenses” on theCompany’s Condensed ConsolidatedStatements of Income.As of September 30,
2022,2023, the Company has remaining
earnoutearn-out liabilities
recorded on its Condensed Consolidated Balance Sheet of $
1.6
$1.1 million.
The Company allocated $ 8.0
million of the purchase price tointangible assets, $
1.1
million of property, plantand 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 tobe tax deductible.Intangible assets comprised $7.2
million of customer relationships to be amortized over15 years
; and $
0.8
of existing product technology to be amortized over
13 years
.Factors contributing to the purchase price that resulted in goodwillincluded the acquisition of business processes and personnel that will allow QuakerHoughton to better serve its customers.During Additionally, during the third quarter of 2022 the Company finalized post-closing adjustments
that resulted in the Company receiving
a payment of less than
$ 0.1
$0.1 million.
In November 2021, the Company acquired a business that provides hydraulicfluids, coolants, cleaners, and rust preventative oilsin Türkiye for its EMEA reportable segment for
3.2
million EUR or approximately $3.7
In September 2021, the Company acquired the remaining interest in GrindaixGmbH (“Grindaix”), a Germany-based, high-techprovider of coolant control and delivery systems for its Global Specialty Businesses reportablesegment for2.4
approximately $
2.9
million, which is gross of approximately $0.3
million of cash acquired.Previously, in February2021, theCompany acquired a
38
% ownership interest in Grindaix for
1.4
million EUR or approximately $1.7
million.The Company recordedits initial investment as an equity method investment within the CondensedConsolidated Financial Statements and accounted for thepurchase of the remaining interest as a step acquisition whereby the Companyremeasured the previously held equity methodinvestment to its fair value.
In June 2021, the Company acquired certain assets for its chemical millingmaskants product line in the Global SpecialtyBusinesses reportable segment for
2.3
million EUR or approximately $2.8
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,unless otherwise stated)(Unaudited)
9
In February 2021, the Company acquired a tin-plating solutions businessfor the steel end market for $25.0
acquisition is part of each of the Company’sgeographic reportable segments.The Company allocated $19.6
price to intangible assets, comprised of $
18.3
million of customer relationships, to be amortized over19
0.9
product technology to be amortized over
14
0.4
million of a licensed trademark to be amortized over3
the Company recorded $
5.0
million of goodwill, all of which is expected to be tax deductible in various jurisdictionsin which weoperate.Factors contributing to the purchase price that resulted in goodwill included theacquisition of business processes andpersonnel that will allow Quaker Houghton to better serve its customers.
As of September 30, 2022, the allocation of the purchase price of all of the Company’s2022 acquisitions, the acquisition inTürkiye and Baron have not been finalized and the one-year measurementperiod has not ended.Further adjustments may benecessary as a result of the Company’son-going assessment of additional information related to the fair value ofassets acquired andIn December 2020, the Company acquired Coral Chemical Company,
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” “Sellers”) have worked to
finalize certain post-closing adjustments.
During the second quarter of 2022, after failing to reach resolution,
the Sellers filed suit
asserting certain amounts owed related to tax attributes of the acquisition.
During the
third quarterfirst nine months of
2022,2023, there have been no
material changes to the facts and circumstances of the claim asserted by the
Sellers, and the Company continues to believe the
potential range of exposure for this claim is $$0 to $1.5 million.
0
1.5
Note 3 – Recently Issued Accounting Standards
Recently Issued Accounting StandardsAdoptedThe FASBThere have been no recently issued
ASU 2020-04,accounting standards that will have a material impact on the Company’s condensed consolidated financial statements and related footnote disclosures.Reference Rate Reform (Topic848): Facilitation of the Effects of Reference Rate ReformonFinancial Reporting
in March 2020.The FASB subsequentlyissued ASU 2021-01,Reference Rate Reform (Topic848): ScopeJanuary 2021 which clarified the guidance but did not materially changethe guidance or its applicability to the Company.Theamendments provide temporary optional expedients and exceptionsfor applying U.S. GAAP to contract modifications, hedgingrelationships and other transactions to ease the potential accountingand financial reporting burden associated with transitioning awayfrom reference rates that are expected to be discontinued, includingthe London Interbank Offered Rate (“LIBOR”).ASU 2020-04 iseffective for the Company as of March 12, 2020 and generally canbe applied through December 31, 2022.On June 17, 2022, theCompany entered into an amendment to its primary credit facility which,among other things, provided for the use of a USD currencyLIBOR successor rate (the Secured Overnight Financing Rate (“SOFR”)).See Note 14 of Notes to Condensed Consolidated FinancialStatements.
Note 4 – Business Segments
The Company’s operatingsegments, which are consistent with its reportable segments, reflect the structure of the Company’sinternal organization, the method by which the Company’sresources are allocated and the manner by which the chief operatingdecision maker assesses the Company’sperformance.The Company has
four
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 globallybyregion. All prior period information has been recast to reflect the
Global Specialty Businesses segment.The GlobalSpecialty Businesses segment includes the Company’s
container, metal finishing,mining, offshore, specialty coatings, specialtygrease 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
(credits), net, are not included in segment operating earnings.
Other
items not specifically identified with the Company’s
reportable segments include Interest expense, net and Other (expense) income,
net.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
10
The following table presents information about the performance of the Company’s
reportable
segments for the three and ninesegments:months ended September 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net sales | | | | | | | |
Americas | $ | 245,899 | | | $ | 254,678 | | | $ | 750,531 | | | $ | 702,580 | |
EMEA | 139,620 | | | 134,386 | | | 435,602 | | | 426,739 | |
Asia/Pacific | 105,093 | | | 103,154 | | | 300,071 | | | 329,458 | |
Total net sales | $ | 490,612 | | | $ | 492,218 | | | $ | 1,486,204 | | | $ | 1,458,777 | |
| | | | | | | |
Segment operating earnings | | | | | | | |
Americas | $ | 69,148 | | | $ | 66,749 | | | $ | 204,280 | | | $ | 164,065 | |
EMEA | 27,922 | | | 15,479 | | | 81,076 | | | 58,803 | |
Asia/Pacific | 30,963 | | | 26,723 | | | 86,604 | | | 76,146 | |
Total segment operating earnings | 128,033 | | | 108,951 | | | 371,960 | | | 299,014 | |
Combination, integration and other acquisition-related expenses | — | | | (2,107) | | | — | | | (7,992) | |
Restructuring and related (charges) credits, net | (1,019) | | | 1,423 | | | (6,034) | | | 604 | |
Non-operating and administrative expenses | (52,280) | | | (47,852) | | | (154,001) | | | (139,894) | |
Depreciation of corporate assets and amortization | (15,216) | | | (15,806) | | | (45,683) | | | (45,817) | |
Operating income | 59,518 | | | 44,609 | | | 166,242 | | | 105,915 | |
Other (expense) income, net | (2,713) | | | 85 | | | (8,558) | | | (10,520) | |
Interest expense, net | (12,781) | | | (8,389) | | | (38,744) | | | (20,228) | |
Income before taxes and equity in net income of associated companies | $ | 44,024 | | | $ | 36,305 | | | $ | 118,940 | | | $ | 75,167 | |
Three Months Ended
Nine Months Ended
2022
2021
2022
2021
Net sales
Americas
$
186,546
$
150,799
$
513,438
$
425,343
EMEA
113,367
122,241
362,107
365,491
Asia/Pacific
91,211
98,659
295,273
286,924
Global Specialty Businesses
101,094
77,373
287,959
236,359
Total net sales
$
492,218
$
449,072
$
1,458,777
$
1,314,117
Segment operating earnings
Americas
$
44,986
$
31,273
$
107,991
$
97,155
EMEA
9,883
20,153
39,932
68,802
Asia/Pacific
23,336
23,285
67,469
73,990
Global Specialty Businesses
30,746
20,663
83,622
69,041
Total segment operatingearnings108,951
95,374
299,014
308,988
Combination, integration and other acquisition-related expenses
(2,107)
(5,786)
(7,992)
(18,259)
Restructuring and related credits (charges), net
1,423
880
604
(593)
Fair value step up of acquired inventory sold-
-
-
(801)
Non-operating and administrative expenses
(47,852)
(38,691)
(139,894)
(122,760)
Depreciation of corporate assets and amortization
(15,806)
(15,767)
(45,817)
(46,855)
Operating income
44,609
36,010
105,915
119,720
Other income (expense), net
85
647
(10,520)
19,344
Interest expense, net
(8,389)
(5,637)
(20,228)
(16,725)
Income before taxes and equity in net income of
associated companies
$
36,305
$
31,020
$
75,167
$
122,339
Inter-segment revenues for the three and nine months ended September30, 2022, were $2.6
8.8
Americas, $
6.4
27.7
0.3
0.7
million for Asia/Pacific, and $2.3
6.0
for Global Specialty Businesses, respectively.Inter-segment revenuesfor the three and nine months ended September 30, 2021, were$
3.6
9.3
6.8
21.9
0.8
1.3
million for Asia/Pacific,and $
1.8
5.9
million for Global Specialty Businesses, respectively.However, allThe following table summarizes inter-segment
revenues. All inter-segment transactions have been
eliminated from each reportable
operating segment’s
net sales and earnings for all periods presented in the above tables.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Americas | $ | 1,772 | | | $ | 2,702 | | | $ | 6,778 | | | $ | 9,200 | |
EMEA | 5,161 | | | 9,448 | | | 18,718 | | | 37,259 | |
Asia/Pacific | 793 | | | 327 | | | 1,329 | | | 739 | |
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 theCompany.The Company transferred third-party products under arrangements recognized
on a net reporting basis of
$21.4
61.7
for the three and nine months ended September 30, 2023, respectively, and $21.4 million and $61.7 million for the three and nine months ended September 30, 2022,
respectively,respectively.
and $ 18.9
53.4
million for the three and ninemonths ended September 30, 2021, respectively.
Customer Concentration
A significant portion of the Company’s
revenues are realized from the sale of process fluids and services to manufacturers of
steel, aluminum, automobiles, aerospace,
industrial and agricultural equipment, and durable goods.
As previously disclosed in the
Company’s
20212022 Form 10-K,
forthe year ended December 31, 2021, the Company’s
five largest customers
combined (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.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
11
Contract Assets and Liabilities
The Company had no material contract assets recorded on its Condensed
Consolidated Balance Sheets as of September 30,
20222023 or December 31, 2021.2022.
The Company had approximately $
6.0
7.0
$5.7 million of deferred revenue as of September 30,
20222023 and December 31,
2021, 2022, respectively.
For the nine months ended September 30,
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 thanby 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. Prior period information has been recast to reflect the Company’s current period customer industry disaggregation. See Note 1 of Notes to Condensed Consolidated Financial Statements.revenue recognized for the three and nine months ended September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Americas | | EMEA | | Asia/Pacific | | Consolidated Total |
Customer Industries | | | | | | | |
Metals | $ | 67,957 | | | $ | 32,630 | | | $ | 49,320 | | | $ | 149,907 | |
Metalworking and other | 177,942 | | | 106,990 | | | 55,773 | | | 340,705 | |
| | | | | | | |
| | | | | | | |
| $ | 245,899 | | | $ | 139,620 | | | $ | 105,093 | | | $ | 490,612 | |
| | | | | | | |
Timing of Revenue Recognized | | | | | | | |
Product sales at a point in time | $ | 235,209 | | | $ | 128,586 | | | $ | 102,305 | | | $ | 466,100 | |
Services transferred over time | 10,690 | | | 11,034 | | | 2,788 | | | 24,512 | |
| $ | 245,899 | | | $ | 139,620 | | | $ | 105,093 | | | $ | 490,612 | |
and 2021. | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Americas | | EMEA | | Asia/Pacific | | Consolidated Total |
Customer Industries | | | | | | | |
Metals | $ | 204,834 | | | $ | 104,376 | | | $ | 144,109 | | | $ | 453,319 | |
Metalworking and other | 545,697 | | | 331,226 | | | 155,962 | | | 1,032,885 | |
| | | | | | | |
| | | | | | | |
| $ | 750,531 | | | $ | 435,602 | | | $ | 300,071 | | | $ | 1,486,204 | |
| | | | | | | |
Timing of Revenue Recognized | | | | | | | |
Product sales at a point in time | $ | 718,187 | | | $ | 402,508 | | | $ | 291,740 | | | $ | 1,412,435 | |
Services transferred over time | 32,344 | | | 33,094 | | | 8,331 | | | 73,769 | |
| $ | 750,531 | | | $ | 435,602 | | | $ | 300,071 | | | $ | 1,486,204 | |
Three Months Ended September 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
69,249
$
32,690
$
52,856
$
154,795
Metalworking and other
117,297
80,677
38,355
236,329
186,546
113,367
91,211
391,124
Global Specialty Businesses
67,469
20,185
13,440
101,094
$
254,015
$
133,552
$
104,651
$
492,218
Timing of Revenue Recognized
Product sales at a point in time
$
244,162
$
127,045
$
101,945
$
473,152
Services transferred over time
9,853
6,507
2,706
19,066
$
254,015
$
133,552
$
104,651
$
492,21810
Three Months Ended September 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
56,954
$
38,483
$
53,994
$
149,431
Metalworking and other
93,845
83,758
44,665
222,268
150,799
122,241
98,659
371,699
Global Specialty Businesses
46,008
19,253
12,112
77,373
$
196,807
$
141,494
$
110,771
$
449,072
Product sales at a point in time
$
188,340
$
131,982
$
108,559
$
428,881
Services transferred over time
8,467
9,512
2,212
20,191
$
196,807
$
141,494
$
110,771
$
449,072
Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
12 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Americas | | EMEA | | Asia/Pacific | | Consolidated Total |
Customer Industries | | | | | | | |
Metals | $ | 67,943 | | | $ | 32,748 | | | $ | 51,341 | | | $ | 152,032 | |
Metalworking and other | 186,735 | | | 101,638 | | | 51,813 | | | 340,186 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| $ | 254,678 | | | $ | 134,386 | | | $ | 103,154 | | | $ | 492,218 | |
| | | | | | | |
Timing of Revenue Recognized | | | | | | | |
Product sales at a point in time | $ | 243,699 | | | $ | 124,566 | | | $ | 99,929 | | | $ | 468,194 | |
Services transferred over time | 10,979 | | | 9,820 | | | 3,225 | | | 24,024 | |
| $ | 254,678 | | | $ | 134,386 | | | $ | 103,154 | | | $ | 492,218 | |
Nine Months Ended September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Americas | | EMEA | | Asia/Pacific | | Consolidated Total |
Customer Industries | | | | | | | |
Metals | $ | 185,784 | | | $ | 107,163 | | | $ | 163,239 | | | $ | 456,186 | |
Metalworking and other | 516,796 | | | 319,576 | | | 166,219 | | | 1,002,591 | |
| | | | | | | |
| | | | | | | |
| $ | 702,580 | | | $ | 426,739 | | | $ | 329,458 | | | $ | 1,458,777 | |
| | | | | | | |
Timing of Revenue Recognized | | | | | | | |
Product sales at a point in time | $ | 669,945 | | | $ | 396,944 | | | $ | 321,031 | | | $ | 1,387,920 | |
Services transferred over time | 32,635 | | | 29,795 | | | 8,427 | | | 70,857 | |
| $ | 702,580 | | | $ | 426,739 | | | $ | 329,458 | | | $ | 1,458,777 | |
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
188,782
$
107,115
$
163,739
$
459,636
Metalworking and other
324,656
254,992
131,534
711,182
513,438
362,107
295,273
1,170,818
Global Specialty Businesses
187,099
61,530
39,330
287,959
$
700,537
$
423,637
$
334,603
$
1,458,777
Timing of Revenue Recognized
Product sales at a point in time
$
670,581
$
400,870
$
326,760
$
1,398,211
Services transferred over time
29,956
22,767
7,843
60,566
$
700,537
$
423,637
$
334,603
$
1,458,777
Nine Months Ended September30, 2021Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
155,546
$
108,391
$
151,944
$
415,881
Metalworking and other
269,797
257,100
134,980
661,877
425,343
365,491
286,924
1,077,758
Global Specialty Businesses
137,447
61,203
37,709
236,359
$
562,790
$
426,694
$
324,633
$
1,314,117
Timing of Revenue Recognized
Product sales at a point in time
$
537,161
$
400,982
$
316,222
$
1,254,365
Services transferred over time
25,629
25,712
8,411
59,752
$
562,790
$
426,694
$
324,633
$
1,314,117
Note 6 - Leases
The Company has operating leases for certain facilities, vehicles and machinery
and equipment with remaining lease terms up to
9 years
. 8 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 92 years.
93 years
.
The Company has
had no
material variable lease costs, sublease income, or finance leases for
the three and nine
months ended September
30,
20222023 and
2021.2022. The
following table sets forth the components of
the Company’s lease
cost for three and ninemonths endedexpense are as follows:September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Operating lease expense | $ | 3,886 | | | $ | 3,664 | | | $ | 11,532 | | | $ | 10,592 | |
Short-term lease expense | 193 | | | 201 | | | 587 | | | 625 | |
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Operating lease expense
$
3,664
$
3,408
$
10,592
$
10,568
Short-term lease expense
201
221
625
75511
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
13
Supplemental cash flow information related to the Company’s
leases is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | $ | 3,917 | | | $ | 3,768 | | | $ | 11,547 | | | $ | 10,575 | |
Non-cash lease liabilities activity: | | | | | | | |
Leased assets obtained in exchange for new operating lease liabilities | 2,910 | | | 2,599 | | | 6,566 | | | 10,672 | |
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating leases
$
3,768
$
3,365
$
10,575
$
10,433
Non-cash lease liabilities activity:
Leased assets obtained in exchange for new
operating lease liabilities
2,599
1,711
10,672
5,587
Supplemental balance sheet information related to the Company’s
leases is as follows:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Right of use lease assets | $ | 38,595 | | | $ | 43,766 | |
| | | |
Other current liabilities | 12,113 | | | 12,024 | |
Long-term lease liabilities | 22,163 | | | 26,967 | |
Total operating lease liabilities | $ | 34,276 | | | $ | 38,991 | |
| | | |
Weighted average remaining lease term (years) | 4.82 | | 5.10 |
Weighted average discount rate | 4.67 | % | | 4.36 | % |
September 30,
December 31,
2022
2021
Right of use lease assets
$
37,005
$
36,635
Other current liabilities
11,143
9,976
Long-term lease liabilities
25,697
26,335
Total operating lease liabilities
$
36,840
$
36,311
Weighted averageremaining lease term (years)5.4
5.6
Weighted averagediscount rate4.43%
4.22%
Maturities of operating lease liabilities were as follows:
| | | | | |
| September 30, 2023 |
For the remainder of 2023 | $ | 3,691 | |
For the year ended December 31, 2024 | 12,589 | |
For the year ended December 31, 2025 | 8,417 | |
For the year ended December 31, 2026 | 6,286 | |
For the year ended December 31, 2027 | 3,051 | |
For the year ended December 31, 2028 and beyond | 5,614 | |
Total lease payments | 39,648 | |
Less: imputed interest | (5,372) | |
Present value of lease liabilities | $ | 34,276 | |
September 30,
2022
For the remainder of 2022
$
3,262
For the year ended December 31, 2023
10,668
For the year ended December 31, 2024
8,429
For the year ended December 31, 2025
6,087
For the year ended December 31, 2026
4,512
For the year ended December 31, 2027 and beyond
6,785
Total lease payments
39,743
Less: imputed interest
(2,903)
Present value of lease liabilities
$
36,840
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 Combination inCombination. As of December 31, 2022, the thirdCompany substantially completed all of the initiatives under the QH Program with only an immaterial amount of remaining severance still to be paid, which has been paid as of September 30, 2023.
In the fourth quarter of 2019. The QH Program2022, 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 September 30, 2023, the program included restructuring and associated
severance costs to reduce total headcount by approximately 400 people globally, as well as100 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 final costs associated with the QH Programwill depend on a
number of factors andthat are subject to change; however, the Company had reduction in headcount and site closures under the QH
Program in 2022 and expects final headcount reductions to continue into 2023. Employee separation benefits varied depending on
local regulations within certain foreign countries and included severance and other benefits.
change.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
14
AllEmployee separation benefits vary depending on local regulations within certain foreign countries and include severance and other benefits. Restructuring costs
incurred related 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
under the QH Program. These costs are recorded
in Restructuring and related
(credits) charges in
the Company’s
CondensedConsolidated Statements of
Income.The credits recognized in the nine months ended September 30, 2022reflect customary and routine adjustments to initial estimates foremployee separation costs.At this time, the Company does notexpect to incur material additional costs under the QH Program.Operations. As described in Note 4 of
the 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.
Activity inIn connection with the
Company’s accrualplans for
restructuring underclosure of certain manufacturing and non-manufacturing facilities, the
QH ProgramCompany has made available for
sale certain facilities and property. During the
ninethree months ended September 30,
2022is2023, the Company classified certain properties with aggregate book value of approximately $6.9 million as
held-for-sale that are recorded in Prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheets. The Company expects to complete the sale of these properties over the next 12 months.Changes in the Company’s accruals for its restructuring programs are as follows:
| | | | | |
| Restructuring Programs |
Accrued restructuring as of December 31, 2022 | $ | 5,483 |
Restructuring and related charges, net | 6,034 | |
Cash payments | (7,914) | |
Currency translation adjustments | (13) | |
Accrued restructuring as of September 30, 2023 | $ | 3,590 |
QH Program
Accrued restructuring as of December 31, 2021
$
4,087
Restructuring and related (credits)
(604)
Cash payments
(1,234)
Currency translation adjustments
(451)
Accrued restructuring as of September 30, 2022
$
1,798
Note 8 – Share-Based Compensation
The Company recognized the following share-based compensation expense
in its Condensed Consolidated Statements of
IncomeOperations: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Stock options | $ | 203 | | $ | 533 | | $ | 837 | | $ | 1,269 |
Non-vested stock awards and restricted stock units | 2,429 | | 1,783 | | 7,192 | | 4,998 |
Director stock ownership plan | 30 | | 9 | | 56 | | 53 |
Performance stock units | 1,113 | | 875 | | 3,104 | | 2,314 |
Total share-based compensation expense | $ | 3,775 | | $ | 3,200 | | $ | 11,189 | | $ | 8,634 |
Share-based compensation expense is recorded in SG&A, except for $0.1 million and $0.2 million for the three and nine months ended September 30, 2022, and 2021:
Three Months Ended
Nine Months Ended
2022
2021
2022
2021
Stock options
$
533
$
298
$
1,269
$
938
Non-vested stock awards and restricted stock units
1,783
1,277
4,998
3,963
Non-elective and elective 401(k) matching contribution in stock
—
—
—
1,553
Director stock ownership plan
9
241
53
660
Performance stock units
875
491
2,314
1,327
Total share-basedcompensation expense$
3,200
$
2,307
$
8,634
$
8,441
Share-based compensation expense is recorded in SG&A, except for less than$0.1
0.2
million for the three and ninemonths ended September 30, 2022, respectively,and $0.2
0.7
million for the three and nine months ended September 30,2021,respectively, recorded within
Combination, integration and other acquisition-related expenses.
Stock Options
During the first nine months of 2022, the Company granted stock optionsunder its long-term incentive plan (“LTIP”)that aresubject only to time vesting over a
three year
period.For the purposes of determining the fair value of stock option awards, theCompany used a Black-Scholes option pricing model and the assumptions set forthin the table below:March 2022
July 2022
Grant
Grant
Number of options granted
27,077
4,837
Dividend yield
0.80
%
0.79
%
Expected volatility
38.60
%
40.47
%
Risk-free interest rate
2.07
%
2.87
%
Expected term (years)
4.0
4.0
The fair value of these options is amortized on a straight-line basis over thevesting period.As of September 30,
2022,2023, unrecognized compensation expense related to allunvested stock options granted was $
2.0
$0.5 million, to be recognized over a weighted average
remaining period of 0.9 years.
1.5Restricted Stock Awards and Restricted Stock Units
During the nine months ended September 30, 2023, the Company granted 38,894 non-vested restricted shares and 6,675 non-vested restricted stock units 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 September 30, 2023, unrecognized compensation expense related to the non-vested restricted shares was $8.0 million, to be recognized over a weighted average remaining period of 1.4 years, and unrecognized compensation expense related to non-vested restricted stock units was $1.6 million, to be recognized over a weighted average remaining period of 1.5 years.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
15
Restricted Stock Awardsand Restricted Stock UnitsDuring the nine months ended September 30, 2022, the Company granted
35,846
non-vested restricted shares and4,490
vested restricted stock units under its LTIP,which are subject to time-based vesting, generally over athree year
of these grants is based on the trading price of the Company’scommon stock on the date of grant.The Company adjusts the grantdate fair value of these awards for expected forfeitures based on historical experience.As of September 30, 2022, unrecognizedcompensation expense related to the non-vested restrictedshares was $5.9
million, to be recognized over a weighted averageremaining period of
1.6
years, and unrecognized compensation expense related to non-vested restrictedstock units was $1.0
to be recognized over a weighted average remaining period of
1.9
Performance Stock Units
TheAs a component of its LTIP, the Company grants performance-dependentperformance-based stock unit awards (“PSUs”) as a componentof its LTIP,, which will be settled in acertain 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 measurementperiod forof the PSUsmarket-based and performance objectives is generallyfrom January 1 of the year of grant through December 31 of the year prior
to issuance 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 dateand usingwhich included the following assumptions set forth in the table below:
| | | | | |
| 2023 Grants |
Number of PSUs granted | 16,861 |
Risk-free interest rate | 3.85% |
Dividend yield | 0.96% |
Expected term (years) | 3.0 |
2022
Grants
Number of PSUs granted
18,462
Risk-free interest rate
2.11
%
Dividend yield
0.93
%
Expected term (years)
3.0
As of September 30, 2022, basedBased on the conditions of the PSUs and performance
to date for each
award,of the outstanding PSU awards as of September 30, 2023, the Company estimates
that it will
no
t issue
any25,613 fully vested shares as of the applicable settlement date
of allfor such outstanding
PSUs awards.
As of September 30,
2022, 2023, there was approximately $
4.8
$8.0 million of total unrecognized compensation cost related to PSUs, which the Company
expects to
recognize over a weighted-average period of 2.2 years.
2.0
Defined Contribution PlanNote 9 – Pension and Other Postretirement BenefitsThe
Company has a 401(k) plan with an employer match covering a majoritycomponents of
its U.S. employees.The Company matchesnet periodic benefit cost (income) are as follows:50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
| 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Service cost | $ | 109 | | $ | 166 | | $ | — | | $ | 1 | | | $ | 320 | | $ | 520 | | $ | — | | $ | 1 |
Interest cost | 2,487 | | 1,272 | | 14 | | 8 | | | 7,452 | | 3,949 | | 51 | | 19 |
Expected return on plan assets | (2,033) | | | (1,942) | | | — | | — | | (6,056) | | | (6,038) | | | — | | — |
Actuarial loss (gain) amortization | 103 | | 238 | | (36) | | | (23) | | | 308 | | 743 | | (95) | | | (70) | |
Prior service cost (income) amortization | 18 | | 3 | | (4) | | | (8) | | 26 | | 8 | | (12) | | | (17) |
Net periodic benefit cost (income) | $ | 684 | | | $ | (263) | | $ | (26) | | | $ | (22) | | | $ | 2,050 | | | $ | (818) | | $ | (56) | | | $ | (67) | |
%
of the first
6
% of compensation that is contributed to the plan, with a maximum matching contribution of
3
Additionally, the planprovides for non-elective nondiscretionary contributions on behalf of participantswho have completedIn July 2023, one
yearof service equal to
3
% of the eligible participants’ compensation.Beginning in April 2020 and continuing through March 2021, theCompany matched both non-elective and elective 401(k) contributionsin fully vested shares of the Company’s
commonstock ratherno
matching contributionspension plans in
stockthe U.K. liquidated approximately $50 million of its invested assets and subsequently funded and entered into an insurance annuity contract, which will provide for the
three and nine months endedpension plan’s defined benefit obligations to participants.Employer Contributions
As of September 30,
2022.For2023, $3.4 million and $0.1 million of contributions have been made to the
nine months ended September 30, 2021, totalCompany’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 were $
1.5of approximately $5.2 million to its U.S. and foreign pension plans and approximately $0.2 million to its other postretirement benefit plans in 2023.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
16
Note 9 – Pension and Other PostretirementBenefitsThe components of net periodic benefit (income) cost for the three andnine months ended September 30, 2022 and 2021 are asfollows:
Three Months Ended September 30,Nine Months Ended September 30,Other
Other
Postretirement
Postretirement
Pension Benefits
Benefits
Pension Benefits
Benefits
2022
2021
2022
2021
2022
2021
2022
2021
Service cost (income)
$
166
$
289
$
1
$
(2)
$
520
$
921
$
1
$
1
Interest cost (income)
1,272
1,078
8
(1)
3,949
3,262
19
20
Expected return on plan assets
(1,942)
(2,075)
—
—
(6,038)
(6,250)
—
—
Actuarial loss (gain)
amortization
238
737
(23)
(85)
743
2,449
(70)
(85)
Prior service cost (income)
amortization
3
3
(8)
—
8
8
(17)
—
Net periodic benefit (income)
$
(263)
$
32
$
(22)
$
(88)
$
(818)
$
390
$
(67)
$
(64)
Employer Contributions
As of September 30, 2022, $
5.5
0.1
million of contributions have been made to the Company’sU.S. and foreignpension plans and its other postretirement benefit plans, respectively.Taking into considerationcurrent minimum cash contributionrequirements, the Company currently expects to make full year cash contributionsof approximately $6.6
foreign pension plans and approximately $
0.2
million to its other postretirement benefit plans in 2022.
Note 10 – Other Income (Expense), Net(expense) income, net
The components of
otherOther (expense) income,
(expense), net
for the three and nine monthsended September 30, 2022 and 2021 are as
follows:follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Income from third party license fees | $ | 245 | | $ | 253 | | $ | 891 | | $ | 906 |
Foreign exchange losses, net | (2,498) | | | (1,928) | | (10,049) | | | (5,859) | |
(Loss) gain on disposals of property, plant, equipment and other assets, net | (25) | | 48 | | | (91) | | 33 |
Non-income tax refunds and other related credits (expense) | 91 | | 122 | | 1,339 | | | (1,617) |
Pension and postretirement benefit (costs) income, non-service components | (549) | | 452 | | (1,674) | | 1,406 |
Facility remediation recoveries, net | — | | 1,104 | | 1,014 | | 1,104 |
Loss on extinguishment of debt | — | | — | | — | | | (6,763) |
Other non-operating income, net | 23 | | 34 | | 12 | | 270 |
Total other (expense) income, net | $ | (2,713) | | $ | 85 | | $ | (8,558) | | | $ | (10,520) |
Three Months Ended
Nine Months Ended
2022
2021
2022
2021
Income from third party license fees
$
253
$
314
$
906
$
1,026
Foreign exchange (losses) gain, net
(1,928)
368
(5,859)
(1,948)
Gain (loss) on disposals of property,plant, equipment and otherassets, net
48
(537)
33
4,819
Non-income tax refunds and other related credits (expense)
122
3
(1,617)
14,395
Pension and postretirement benefit income,non-service components
452
343
1,406
596
Loss on extinguishment of debt
—
—
(6,763)
—
Gain on insurance recoveries
1,104
—
1,104
—
Other non-operating income, net
34
156
270
456
Total other income(expense), net$
85
$
647
$
(10,520)
$
19,344
Gain (loss) on disposals of property,plant, equipment and other assets, net, during the three months ended September 30, 2021,includes losses related to certain fixed asset disposals resulting from propertydamage.See Note 18 of Notes to CondensedConsolidated Financial Statements.During the nine months ended September 30, 2021, this caption also includesthe gain on the saleof certain held-for-sale real property assets related tothe Combination.Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,unless otherwise stated)(Unaudited)
17
Non-income tax refunds and other related credits (expense) during
the nine months ended September 30,
2023 and nine months ended September 30, 2022
includesinclude adjustments to
a Combination-related indemnification
assetsasset associated with the
settlement of certain income tax audits
at certain of the Company’s Italian and Germanaffiliates for tax periods prior to August 1, 2019.
See Note 11 of Notes to Condensed Consolidated
Financial Statements.
DuringFacility remediation recoveries, net, during the nine months ended September 30,
2021 this caption includes certainnon-income tax credits for2023 and the
Company’s Brazilian subsidiaries. three and nine months ended September 30, 2022, reflect gains recorded on the payments received from insurers related to previously incurred costs from the remediation and restoration of property damage incurred during the three months ended September 30, 2021. See Note 18 of Notes to
the Condensed Consolidated Financial Statements.
Loss on extinguishment of debt during the nine months ended September
30, 2022,
includes therepresents a write-off of certain previously
unamortized deferred financing costs as well as a portion of
the third
party and creditor debt issuance costs incurred to execute an
amendment to the Company’s primary
credit facility.
See Note 14 of Notes to
the Condensed Consolidated Financial Statements.
Gain on insurance recoveries during the three and nine months ended September30, 2022, reflects payments received frominsurers related to the property damage incurred during the threemonths ended September 2021, noted above.See Note 18 of Notesto the Condensed Consolidated Financial Statements.
Note 11 – Income Taxes
and Uncertain Income Tax
PositionsPositionsThe Company’s effective
tax rates for the three and nine months ended September 30,
20222023 were
28.1
% 30.9% and
19.2
% 31.1%, respectively,
compared to
2.6
% 28.1% and
21.8
% 19.2% for the three and nine months ended September 30,
2021,2022, respectively.
The Company’s effective
tax
rate for the
ninethree months ended September 30,
20222023 was
primarily impacted by
foreign tax inclusions, withholding taxes, return to provision adjustments, the impact of U.S. Department of Treasury guidance on the usage of foreign tax credits, and the mix of earnings. The effective tax rate for the first nine months of 2023 was further impacted by various
other items including
a declinechanges to the valuation allowance for and the usage of foreign tax credits due to an enacted law change in
forecasted profitsBrazil, and
earnings mix, share-based compensation. Comparatively, the prior year effective tax rates were largely impacted by foreign tax inclusions, changes in the valuation allowance
for foreign tax credits, the impact of audit settlements,
reachedwith Italian tax authorities, a reduction in reserves for uncertain tax positions,
withholding taxes, and
withholding taxes.the impact of forecasted earnings and the mix of such earnings. In addition, the
Companyincurred higher tax expense during the three and nine months endedSeptember 30, 2022 at one of its subsidiaries as it accrued taxes ata statutory tax rate of
25
% while it awaits recertification of a concessionary
15
% tax rate, which was available to the Company during
all of 2021.Comparatively, the prior yearCompany’s effective tax rates
were largely impacted by changes in permanentreinvestment assertions,changes in foreign tax credit valuation allowances, tax law changes in a foreignjurisdiction, deferred tax benefits related to anintercompany intangible asset transfer and the income tax impacts of certainnon-income tax credits recorded by the Company’sBrazilian subsidiaries.
As of December 31, 2021, the Company had a deferred tax liability of $
8.4
million on certain undistributed foreign earnings,which primarily represents the Company’sestimate of non-U.S. income taxes the Company will incur to ultimately remit certainearnings to the U.S.As of September 30, 2022 this deferred tax liability balance was $6.9
million.As of September 30, 2022, theCompany’s cumulative liabilityfor
gross unrecognized tax benefits was $16.2
million, a decrease of approximately $6.3
the cumulative liability accrued as of December 31, 2021.
The Company continues to recognize interest and penalties associated with uncertaintax positions as a component of taxes onincome before equity in net income of associated companies in its CondensedConsolidated Statements of Income.The Companyrecognized an expense for interest of $
0.1
million and a benefit for interest of $0.2
million and a benefit of less than $0.1
$
1.6
million for penalties in its Condensed Consolidated Statement of Income forthe three and nine months ended September 30,
2022 were impacted by the Company recording earnings of one of its subsidiaries at a statutory tax rate of 25% while the recertification of its concessionary 15% tax rate was pending receipt.2022, respectively,
and recognized an expenseAs previously reported, Houghton Italia, S.r.l was involved in a corporate income tax audit with the Italian tax authorities covering tax years 2014 through 2018. The Company settled all years 2014 through 2018 for
interest of approximately $0.2
0.4
million and a benefit of less than$
0.1
0.2
million for penalties in its Condensed Consolidated Statement of Incomeaccordingly, released all reserves relating to this audit for the
three settled tax years during the first quarter of 2022. The settlement is to be paid via installments through 2026 and,
nine months endedthrough September 30,
2021, respectively.As of September 30, 2022,2023, the Company
had accrued $ 2.6
has paid $1.5 million
for cumulative interest and $ 1.4
of such installments. Having received approximately $1.2 million
for cumulative penalties in its Condensed ConsolidatedBalance Sheets, compared to $ 3.1
million for cumulative interest and$
3.1
million for cumulative penalties accrued at December 31, 2021.Duringfrom escrow during the
nine months ended September 30, 2022 and 2021,quarter, the Company
recognized decreases has a remaining indemnification receivable of
$3.8
1.2
million, respectively,in
connection with its
cumulative liabilityclaim against the former owners of Houghton for
gross unrecognizedany pre-Combination tax
benefits due to the settlement ofincome tax audits withboth the Italian and German tax authorities,liabilities arising from this matter, as well as
the expiration of theapplicable statutes of limitations for certainother audit settlements and tax
years.The Company estimates that during the year ending December 31, 2022it will reduce its cumulative liability for grossunrecognized tax benefits by approximately $
4.1matters.
million due to the settlement of income tax audits and the expiration of the statute oflimitations with regard to certain tax positions.This estimated reduction in the cumulative liability for unrecognizedtax benefits doesnot consider any increase in liability for unrecognized tax benefits with regardto existing tax positions or any increase in cumulativeliability for unrecognized tax benefits with regard to new tax positions forthe 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 foreigntax jurisdictions.Tax years that remain subjectto examination by major tax jurisdictions include Italy from2007
, Brazil from
2011
,
the Netherlands from
2016
, Canada, China, Mexico and the U.S. from
2017
, Germany, Spain and the UnitedKingdom from2018
,
India from fiscal year beginning April 1, 2017 and ending March 31,
2018
, and various U.S. state tax jurisdictions from
2011
15
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
18
As previously reported,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. In addition, in July 2023, the Company was notified by the Italian tax authorities
have assessed additionaltax due fromof an audit to commence for one of the Company’s
subsidiary,Quaker ItaliaS.r.l., relatingItalian subsidiaries for tax year 2019. Both of these audit proceedings are ongoing and the Company has been providing documentation in response to the tax years
2007
2015
.all of their inquiries. The Company has
filednot established any reserves for
competent authority relief from these
assessments undermatters at this time.the Mutual Agreement Procedures (“MAP”) of the Organizationfor Economic Co-Operation and Development for all years except2007.In 2020, the respective tax authorities in Italy,Spain and the Netherlands reached agreement with respect to the MAPproceedings which the Company had accepted.As of September 30, 2022, the Company received $1.6
million in refunds from theNetherlands and Spain.In February 2022, the Company received a settlement notice from the Italian taxingauthorities confirming theamount due of $
2.6
million, having granted the Company’s requestto utilize its remaining net operating losses to partially offsettheliability.As of September 30, 2022, the Company has paid the full settlement amount,of which approximately $0.2
confirmed to be refundable.Houghton Italia, S.r.l was involvedin a corporate income tax audit with the Italian tax authorities covering tax years2014
2018
.During the fourth quarter of 2021, the Company settled a portion of the HoughtonItalia, S.r.l. corporate income tax auditwiththe Italian tax authorities for the tax years 2014 and 2015.During the nine months ended September 30, 2022, the Company settledtax years 2016 through 2018 for a total of $
2.1
million.In total, the Company has now settled all years 2014 through 2018 for $3.7
million.Accordingly, the Company hasreleased all reserves relating to this audit for the settled tax years.As a result of thesettlement and reserve release the Company recognized a net benefitto the tax provision of $1.9
million during the first nine monthsof 2022.The Company has an indemnification receivable of approximately $3.6
million in connection with its claim against theformer owners of Houghton for any pre-Combination taxliabilities arising from this matter, as well as other auditsettlements.Note 12 – Earnings Per Share
The following table summarizes earnings per share
calculations forthe three and nine months ended September 30, 2022 andcalculations:2021: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Basic earnings per common share | | | | | | | |
Net income attributable to Quaker Chemical Corporation | $ | 33,670 | | | $ | 25,867 | | | $ | 92,550 | | | $ | 60,026 | |
Less: income allocated to participating securities | (164) | | | (115) | | | (464) | | | (250) | |
Net income available to common shareholders | $ | 33,506 | | | $ | 25,752 | | | $ | 92,086 | | | $ | 59,776 | |
Basic weighted average common shares outstanding | 17,908,754 | | 17,847,305 | | 17,889,444 | | 17,835,976 |
Basic earnings per common share | $ | 1.87 | | | $ | 1.44 | | | $ | 5.15 | | | $ | 3.35 | |
| | | | | | | |
Diluted earnings per common share | | | | | | | |
Net income attributable to Quaker Chemical Corporation | $ | 33,670 | | | $ | 25,867 | | | $ | 92,550 | | | $ | 60,026 | |
Less: income allocated to participating securities | (164) | | | (115) | | | (464) | | | (250) | |
Net income available to common shareholders | $ | 33,506 | | | $ | 25,752 | | | $ | 92,086 | | | $ | 59,776 | |
Basic weighted average common shares outstanding | 17,908,754 | | 17,847,305 | | 17,889,444 | | 17,835,976 |
Effect of dilutive securities | 12,520 | | 12,566 | | 16,709 | | 15,465 |
Diluted weighted average common shares outstanding | 17,921,274 | | 17,859,871 | | 17,906,153 | | 17,851,441 |
Diluted earnings per common share | $ | 1.87 | | | $ | 1.44 | | | $ | 5.14 | | | $ | 3.35 | |
Nine Months Ended
2022
2021
2022
2021
Basic earnings per common share
Net income attributable to Quaker Chemical Corporation
$
25,867
$
31,058
$
60,026
$
103,243
Less: income allocated to participating securities
(115)
(119)
(250)
(413)
Net income available to common shareholders
$
25,752
$
30,939
$
59,776
$
102,830
Basic weighted average common shares outstanding
17,847,305
17,812,216
17,835,976
17,800,082
Basic earnings per common share
$
1.44
$
1.74
$
3.35
$
5.78
Diluted earnings per common share
Net income attributable to Quaker Chemical Corporation
$
25,867
$
31,058
$
60,026
$
103,243
Less: income allocated to participating securities
(115)
(119)
(250)
(412)
Net income available to common shareholders
$
25,752
$
30,939
$
59,776
$
102,831
Basic weighted average common shares outstanding
17,847,305
17,812,216
17,835,976
17,800,082
Effect of dilutive securities
12,566
58,176
15,465
59,986
Diluted weighted average common shares outstanding
17,859,871
17,870,392
17,851,441
17,860,068
Diluted earnings per common share
$
1.44
$
1.73
$
3.35
$
5.76
Certain stock options, restricted stock units, and PSUs are not included
in the diluted earnings per share calculation when the
effect would have been anti-dilutive.
The calculated amount of anti-diluted shares not included were
25,896
24,618
11,598 and
nine months ended September 30, 2022, respectively,and 5,531
3,722
10,453 for the three and nine months ended September 30,
2023, respectively, and 25,896 and 24,618 for the three and nine months ended September 30, 2022, respectively. 2021, respectively.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,unless otherwise stated)(Unaudited)
19
Note 13 – Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months endedSeptember 30, 2022 were as follows:Global
Specialty
Americas
EMEA
Asia/Pacific
Businesses
Total
Balance as of December 31, 2021
$
214,023
$
135,520
$
162,458
$
119,193
$
631,194
Goodwill additions (reductions)
1,853
—
—
(59)
1,794
Currency translation adjustments
(810)
(16,826)
(16,462)
(7,858)
(41,956)
Balance as of September 30, 2022
$
215,066
$
118,694
$
145,996
$
111,276
$
591,032
Gross carrying amounts and accumulated amortization for definite-livedintangible assets as of September 30, 2022 andDecember 31, 2021 were as follows:
Gross Carrying
Accumulated
Amount
Amortization
2022
2021
2022
2021
Customer lists and rights to sell
$
803,346
$
853,122
$
173,893
$
147,858
Trademarks, formulations and producttechnology150,164
163,974
42,484
38,747
Other
6,611
6,309
5,973
5,900
Total definite-livedintangible assets$
960,121
$
1,023,405
$
222,350
$
192,505
The Company amortizes definite-lived intangible assets on a straight-line basis overtheir useful lives.The Company recorded$
14.1
43.3
million of amortization expense for the three and nine months ended September30, 2022, respectively.Comparatively,the Company recorded $14.9
44.7
million of amortization expense for the three and nine months endedSeptember 30, 2021, respectively.
Estimated annual aggregate amortization expense for the current yearand subsequent five years and beyond is as follows:For the year ended December 31, 2022
$
55,628
For the year ended December 31, 2023
55,454
For the year ended December 31, 2024
54,848
For the year ended December 31, 2025
54,027
For the year ended December 31, 2026
53,835
For the year ended December 31, 2027 and beyond
513,988
The Company had four indefinite-lived intangible assets totaling$178.2
million as of September 30, 2022, including $177.1
million of indefinite-lived intangible assets for trademarks and tradenames associatedwith the Combination.Comparatively, theCompany had four indefinite-lived intangible assets for trademarks andtradenames totaling $196.9
million as of December 31, 2021.The Company completes its annual goodwill and indefinite-lived intangibleasset 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, inassessing if a triggering event indicates that the carrying valuesof goodwill, indefinite-lived, or long-lived assets are impaired.
The Company continues to monitor various financial, economic andgeopolitical conditions impacting the Company,including the ongoing Russia-Ukraine war and the Company’sdecision to ceaseoperations in Russia, continued raw material cost escalation, supply chainconstraints and disruptions, as well as rising interest ratesand the cost of capital among other factors.The Company concluded that these and other factors, which have and continue toimpactthe Company, did notrepresent a triggering event during the third quarter of 2022, except forthe Company’s EMEA reporting unitand the associated goodwill, as well as the related asset group.The Company concluded that during the third quarter
of 2022 the
escalation of these events adversely impacted EMEA’s ongoing financial,
performance and representedeconomic or geopolitical conditions did not represent a triggering event.
As a resultIn connection with the Company’s reorganization and the associated change in reportable segments and reporting units during the first quarter of
this conclusion,2023, the Company
completed an interimperformed the required impairment
assessment for its EMEA assessments directly before and immediately after the change in reporting
unit, as well asthe related asset group, during the third quarter of 2022.The Companyunits and concluded that
the undiscounted cash flows exceeded thecarrying value of the long-lived assets, and it
iswas not more likely than not that
an impairment exists.In completing a quantitativegoodwill impairment test, the
Company comparesfair values of any of the
Company’s previous or new reporting
unit’s fair value, primarily based on futurediscounted cash flows, toitsunits were less than their respective carrying
value in order to determine if an impairment charge is warranted.The estimates of future discounted cash flows involveconsiderable management judgment and are based upon certain significantassumptions including the weighted average cost of capital amounts.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
20
Changes in the carrying amount of goodwill were as
well as projected EBITDA, which includes assumptions relatedfollows. Prior period information has been recast to
revenuegrowth rates, gross margin levels and operating expenses.As a result of this interim impairment assessment,the estimated fair value of the EMEA reporting unit exceeded its
carrying value by approximately
22
% and the Company concluded no impairment was warranted.
Notwithstanding the results ofreflect the Company’s
interim impairment assessment, if the Company is unable to successfullyimplement selling price increases aimed at more than offsettingraw material costs and ongoing inflationary pressures and the financialperformance current period reportable segments. See Note 1 of
the EMEA reporting unit declines further,or interest rates continue to rise and this leads to an increase in the cost ofcapital,then it is possible these financial, economic and geopolitical conditions couldresult in another triggering event for the EMEAreporting unit in the future and could lead to a potential impairment.In addition, if any of these financial, economic or geopoliticalconditions has a more significant adverse effect on the Company,these could lead to a potential impairment of the Company’sgoodwill or other indefinite-lived or long-lived assets.
Debt as of September 30, 2022 and December 31, 2021 includes the following:
As of September 30, 2022
As of December 31, 2021
Interest
Interest
Rate
Balance
Rate
Balance
Credit Facilities:
Original Revolver
—
$
—
1.62%
$
211,955
—
—
1.65%
540,000
—
—
1.50%
137,616
Amended Revolver
4.12%
201,536
—
—
4.26%
600,000
—
—
1.50%
139,627
—
—
Industrial development bonds
5.26%
10,000
5.26%
10,000
Bank lines of credit and other debt obligations
Various
2,903
Various
1,777
Total debt
$
954,066
$
901,348
Less: debt issuance costs
(2,104)
(8,001)
Less: short-term and current portion of long-term debts
(20,471)
(56,935)
Total long-term debt
$
931,491
$
836,412
Credit facilities
The Company, its whollyowned subsidiary,Quaker Chemical B.V.,as borrowers, Bank of America, N.A., as administrativeagent, U.S. Dollar swing line lender and letter of credit issuer,and the other lenders party thereto, entered into a credit agreement onAugust 1, 2019, as amended (the “Original Credit Facility”).The Original Credit Facility was comprised of a $400.0
multicurrency revolver (the “Original Revolver”), a $
600.0
million term loan (the “Original U.S. TermLoan”), each with theCompany as borrower, and a $
150.0
million (as of August 1, 2019) Euro equivalent term loan (the “Original Euro TermLoan”) withQuaker Chemical B.V.,a Dutch subsidiary of the Company as borrower,each with afive year
August 2024
During June 2022, the Company,and its wholly owned subsidiary,Quaker Houghton B.V.,as borrowers, Bank of America, N.A.,as administrative agent, U.S. Dollar swing line lender and letter of creditissuer, Bank of America Europe Designated ActiveCompany, as EuroSwing Line Lender, certain guarantors and other lendersentered into an amendment to the Original Credit Facility(the “Amended Credit Facility”). The Amended Credit Facility established(A) a new $150.0
million Euro equivalent senior securedterm loan (the “Amended Euro TermLoan”), (B) a new $600.0
million senior secured term loan (the “Amended U.S. TermLoan”),and (C) a new $
500.0
million senior secured revolving credit facility (the “Amended Revolver”).The Company has the right toincrease the amount of the Amended Credit Facility by an aggregate amountnot to exceed the greater of $300.0
100
% of
Consolidated EBITDA, subject to certain conditions including the agreementto provide financing by any lender providing suchincrease).In addition, the Amended Credit Facility also:(i) eliminatedthe requirement that material foreign subsidiaries must guaranty the Original EuroTerm Loan;(ii) replacedthe U.S. Dollar borrowings reference rate from LIBOR to SOFR;(iii) extended the maturity date of the Original Credit Facility from
August 2024
June 2027
; and
(iv) effected certain other changes to the Original CreditFacility as set forth in the Amended Credit Facility.Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - ContinuedStatements.
(Dollars in thousands, except per share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Americas | | EMEA | | Asia/Pacific | | Global Specialty Businesses | | Total |
Balance as of December 31, 2022 | $ | 215,899 | | $ | 34,567 | | $ | 150,375 | | $ | 114,167 | | $ | 515,008 |
Reallocation of reporting units | 63,697 | | | 31,711 | | | 18,759 | | | (114,167) | | | — |
Balance as of January 1, 2023 | 279,596 | | | 66,278 | | | 169,134 | | | — | | | 515,008 | |
| | | | | | | | | |
Currency translation adjustments | 2,561 | | | (805) | | | (12,307) | | | — | | | (10,551) |
Balance as of September 30, 2023 | $ | 282,157 | | $ | 65,473 | | $ | 156,827 | | $ | — | | $ | 504,457 |
Gross carrying amounts
unless otherwise stated) and accumulated amortization for definite-lived intangible assets were as follows: (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
Customer lists and rights to sell | $ | 824,893 | | $ | 831,600 | | $ | 226,956 | | $ | 191,286 | | $ | 597,937 | | $ | 640,314 |
Trademarks, formulations and product technology | 157,362 | | 158,564 | | 52,534 | | 46,281 | | 104,828 | | 112,283 |
Other | 5,854 | | 7,576 | | 5,734 | | 6,390 | | 120 | | 1,186 |
Total definite-lived intangible assets | $ | 988,109 | | $ | 997,740 | | $ | 285,224 | | $ | 243,957 | | $ | 702,885 | | $ | 753,783 |
21
The Company
used the proceeds of the Amended Credit Facility to repayall outstanding loans under the Original Credit Facility,unpaid accrued interest and feesamortizes definite-lived intangible assets on
the closing date under the OriginalCredit Facility and certain expenses and fees.U.S. Dollar-denominatedborrowings under the Amended Credit Facility bear interest, at the Company’selection, at the base rate or term SOFRplus an applicable rate ranging from
1.00
% to
1.75
% for term SOFR loans and from
0.00
% to
0.75
% for base rate loans, depending
upon the Company’s consolidatednet leverage ratio.Loans based on term SOFR also include a
spread adjustment equal to0.10
% per
annum.Borrowings under the Amended Credit Facility denominatedin currencies other than U.S. Dollars bear interest at thealternative currency term rate plus the applicable rate ranging from
1.00
% to
1.75
%.
The Amended Credit Facility contains affirmativeand negative covenants, financial covenants and events of default, includingwithout limitation restrictions on (a) the incurrence of additionalindebtedness;(b) investments in and acquisitions of other businesses,lines of business and divisions; (c) the making of dividends or capital stockpurchases;and (d) dispositions of assets.Dividends andshare repurchases are permitted in annual amounts not exceeding the greaterof $75
25
% of consolidated
EBITDA if there is no default.If the consolidated net leverage ratio is less than2.50
1.00
, then the Company is no longer subject to
Financial covenants contained in the Amended Credit Facility includea consolidated interest coverage ratio test and aconsolidated net leverage ratio test.The consolidated net leverage ratio at the end of a quarter may not begreater than4.00
1.00
,
subject to a permitted increase during a four-quarterperiod after certain acquisitions.straight-line basis over their useful lives. The Company
hasrecorded amortization expense as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Amortization expense | $ | 14,529 | | | $ | 14,102 | | | $ | 43,734 | | | $ | 43,343 | |
Estimated annual aggregate amortization expense for the option of replacing thecurrent year and subsequent five years and beyond is as follows:
consolidated net leverage ratio test with a consolidated senior net leverage ratiotest if the Company issues certain types of unsecured | | | | | |
For the remainder of 2023 | $ | 13,455 |
For the year ended December 31, 2024 | 56,630 |
For the year ended December 31, 2025 | 55,942 |
For the year ended December 31, 2026 | 55,650 |
For the year ended December 31, 2027 | 55,309 |
| |
notes, subject to certain limitations.Events of default in the Amended Credit Facility include without limitationdefaults for non-payment, breach of representations and warranties, non-performanceof covenants, cross-defaults, insolvency,and a change of controlin certain circumstances.The occurrence of an event of default under the Amended Credit Facility could resultin all loans and otherobligations becoming immediately due and payable and the AmendedCredit Facility being terminated.As of September 30,
2022, theCompany was in compliance with all of the Amended Credit Facility covenants.
The weighted average variable interest rate incurred on the outstandingborrowings under the Original Credit Facility2023 and
theAmended Credit Facility during the nine months ended September30, 2022 was approximately2.4
%. As of September 30, 2022, the
interest rate on the outstanding borrowings under the Amended CreditFacility was approximately3.8
%.In addition to paying intereston outstanding principal under the Original Credit Facility,the Company was required to pay a commitment fee ranging from0.2
% to
0.3
% depending on the Company’s consolidatednet leverage ratio under the Original Revolver in respect of the unutilizedcommitments thereunder.As part of the Amended Credit Facility,the Company is required to pay a commitment fee ranging from0.150
% to
0.275
% related to unutilized commitments under the Amended Revolver,depending on the Company’s consolidatednetleverage ratio.The Company had unused capacity under the Amended Revolver of approximately$295
million, which is net of bankletters of credit of approximately $
3
million, as of September 30, 2022.The Company previously capitalized $
23.7
million of certain third-party debt issuance costs in connection with executing theOriginal Credit Facility.Approximately $15.5
million of the capitalized costs were attributed to the Original TermLoans andrecorded as a direct reduction of Long-term debt on the CondensedConsolidated Balance Sheet.Approximately $8.3
capitalized costs were attributed to the Original Revolver and recordedwithin Other assets on the Condensed Consolidated BalanceSheet.These capitalized costs were being amortized into Interest expense overthefive year
term of the Original Credit Facility.Asof December 31, 2021, the Company had $
8.0
million of debt issuance costs recorded as a reduction of Long-term debt attributabletothe Original Credit Facility.As of December 31, 2021, the Company had $4.3
million of debt issuance costs recorded within Otherassets attributable to the Original Credit Facility.Prior to executing the Amended Credit Facility,the Company had $6.6
debt issuance costs recorded as a reduction of Long-term debt attributableto the Original Credit Facility and $3.5
issuance costs recorded within Other assets attributable to the OriginalCredit Facility.In connection with executing the Amended Credit Facility,the Company recorded a loss on extinguishment of debt ofapproximately $
6.8
million which includes the write-off of certain previouslyunamortized deferred financing costs as well as aportion of the third-party and creditor debt issuance costs incurredto execute the Amended Credit Facility.Also in connection withexecuting the Amended Credit Facility,during the second quarter of 2022, the Company capitalized $2.2
million of certain third-partyand creditor debt issuance costs.Approximately $0.7
million of the capitalized costs were attributed to the Amended Euro TermLoanand Amended U.S. TermLoan.These costs were recorded as a direct reduction of Long-term debt on theCondensed ConsolidatedBalance Sheet.Approximately $1.5
million of the capitalized costs were attributed to the Amended Revolver andrecorded withinOther assets on the Condensed Consolidated Balance Sheet.These capitalized costs, as well as the previously capitalized costs thatwere not written off will collectively be amortized into Interest expenseover thefive year
term of the Amended Credit Facility.As ofSeptember 30, 2022, the Company had $
2.1indefinite-lived intangible assets for trademarks and tradenames totaling $187.6 million and $189.1 million, respectively.
million of debt issuance costs recorded as a reduction of Long-term debt on theCondensed Consolidated Balance Sheet and $
4.6
million of debt issuance costs recorded within Other assets on the CondensedConsolidated Balance Sheet. 17
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
22Note 14 – Debt
The Originalfollowing table sets forth the components of the Company’s debt:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2023 | | As of December 31, 2022 |
| Interest Rate | | Outstanding Balance | | Interest Rate | | Outstanding Balance |
Credit Facilities: | | | | | | | |
Revolver | 6.0% | | $ | 82,838 | | | 5.2% | | $ | 195,673 | |
U.S. Term Loan | 6.7% | | 585,000 | | | 5.7% | | 596,250 | |
Euro Term Loan | 5.0% | | 146,918 | | | 3.1% | | 151,572 | |
Industrial development bonds | 5.3% | | 10,000 | | | 5.3% | | 10,000 | |
Bank lines of credit and other debt obligations | Various | | 1,120 | | | Various | | 1,303 | |
Total debt | | | $ | 825,876 | | | | | $ | 954,798 | |
Less: debt issuance costs | | | (1,657) | | | | | (1,992) | |
Less: short-term and current portion of long-term debts | | | (19,246) | | | | | (19,245) | |
Total long-term debt | | | $ | 804,973 | | | | | $ | 933,561 | |
Credit facilities
During June 2022, the Company, and its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S. dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to its primary credit facility. The amended 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 increase the amount of the Credit Facility requiredby an aggregate amount not to exceed the greater of $300.0 million or 100% of Consolidated EBITDA, subject to certain conditions including the agreement to provide financing by any lender providing such increase.
As of September 30, 2023, the Company was in compliance with all of the Credit Facility covenants. See Note 20 of Notes to fix itsConsolidated Financial Statements in the Company’s 2022 Form 10-K.
The weighted average variable interestrates incurred on at leastthe outstanding borrowings under the Credit Facility during the three and nine months ended September 30, 2023 were approximately 6.4% and 6.1%, respectively. As of September 30, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 6.3%. As part of the Credit Facility, in addition to paying interest on outstanding principal, the Company is also required to pay an annual commitment fee ranging from 0.150% to 0.275% related to unutilized commitments under the Revolver, depending on the Company’s consolidated net leverage ratio. The Company had unused capacity under the Revolver of approximately $414 million, which is net of bank letters of credit of approximately $3 million, as of September 30, 2023. 20
% of its total Original Term
Loans.In order
to satisfy this requirement as well as to manage the Company’s
exposure to variable interest rate risk associated with
the
Original Credit Facility,
in
November 2019,the 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 to an average fixed rate of
1.64
% 3.64% plus an applicable margin as provided in the
Original Credit Facility
based on the Company’s
consolidated net leverage ratio.
At the time the Company entered into the swaps, and as As of September 30,
2022, 2023, the aggregate interest
rate on the swaps, including the fixed base rate plus
anthe applicable margin,
was
3.1
% 5.3%.
The Amended Credit Facility does not requirethe Company to fix variable interest rates on any portion of its borrowings.As of September 30, 2022, the Company had not amendedits current interest rate swaps.In October 2022, the Company’s interestrate swap contracts expired.Upon expiration, the Company isentitled to a cash payment from the counterparties, which is materially consistentwith the fair value as of September 30, 2022.See
Note 17 of Notes to Condensed Consolidated Financial Statements.
In connection with executing the original credit facility in 2019 and the amended Credit Facility during the second quarter of 2022, the Company capitalized an aggregate of $2.2 million of certain third-party and creditor debt issuance costs. Approximately $0.7 million of the capitalized costs were attributed to the Euro Term Loan and U.S. Term Loan. These costs were recorded as a direct offset of Long-term debt on the Condensed Consolidated Balance Sheet. Approximately $1.5 million of the capitalized costs were attributed to the Revolver and recorded within Other assets on the Condensed Consolidated Balance Sheet. These capitalized costs will collectively be amortized into Interest expense over the five year term of the Credit Facility. As of September 30, 2023, the Company had $1.7 million of debt issuance costs recorded as an offset of Long-term debt on the Condensed Consolidated Balance Sheet and $3.6 million 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 an offset 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.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)
Industrial development bonds
As of September 30,
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
Amended Credit Facility noted above.
Bank lines of credit and other debt obligations
The Company has certain unsecured bank lines of credit and discounting
facilities in certain foreign subsidiaries, which are not
collateralized.
The Company’s other debt obligations
primarily consist of certain domestic and foreign low interest rate or
interest-freeinterest-free municipality-related loans, local credit facilities of certain foreign subsidiaries,
and capital lease obligations.
Total unused
capacity under these arrangements as of September 30,
20222023 was approximately
$12
In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s other off-balance
sheet arrangements include certain financial and other guarantees. The Company’s total bank letters of credit and guarantees
outstanding as of September 30, 20222023 were approximately $5 million.
Interest expense, net
The Company incurred the following debt related expenses included
within Interest expense, net, in the Condensed Consolidated
Statements of Income:
Operations:Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Interest expense | $ | 12,598 | | | $ | 9,465 | | | $ | 40,863 | | | $ | 20,339 | |
Amortization of debt issuance costs | 353 | | | 353 | | | 1,059 | | | 2,589 | |
Total | $ | 12,951 | | | $ | 9,818 | | | $ | 41,922 | | | $ | 22,928 | |
Nine Months Ended
2022
2021
2022
2021
Interest expense
$
9,465
$
4,779
$
20,339
$
14,242
Amortization of debt issuance costs
353
1,187
2,589
3,562
Total
$
9,818
$
5,966
$
22,928
$
17,804
Based on the variable interest rates associated with the
Amended Credit Facility,
as of September 30,
20222023 and
the OriginalCredit Facility as of December 31,
2021,2022, the amounts at which the Company’s
total debt were recorded are not materially different
from their fair market value.
On September 30, 2022, annual maturities on the Amended Credit Facility in thenext five fiscal years (excluding the reduction tolong-term debt attributed to capitalized and unamortized debt issuancecosts) are as follows:`
September 30,
2022
For the remainder of 2022
$
4,623
For the year ended December 31, 2023
18,491
For the year ended December 31, 2024
23,113
For the year ended December 31, 2025
36,981
For the year ended December 31, 2026
36,981
For the year ended December 31, 2027
820,974
Total payments
$
941,163
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,unless otherwise stated)(Unaudited)
23
Note 15 – Accumulated Other Comprehensive Income
The following tables show the reclassifications from and resulting balances
of accumulated other comprehensive income
(“AOCI”) for the three and nine months ended September 30, 2022 and 2021::
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency Translation Adjustments | | Defined Benefit Pension Plans | | Unrealized (Loss) Gain in Available-for- Sale Securities | | Derivative Instruments | | Total |
Balance at June 30, 2023 | $ | (130,738) | | | $ | (4,024) | | | $ | 91 | | | $ | 4,563 | | | $ | (130,108) | |
Other comprehensive (loss) income before Reclassifications | (25,501) | | | 304 | | | (802) | | | 1,612 | | | (24,387) | |
Amounts reclassified from AOCI | — | | | 71 | | | (4) | | | | | 67 | |
Related tax amounts | — | | | (94) | | | 169 | | | (371) | | | (296) | |
Balance at September 30, 2023 | $ | (156,239) | | | $ | (3,743) | | | $ | (546) | | | $ | 5,804 | | | $ | (154,724) | |
| | | | | | | | | |
Balance at June 30, 2022 | $ | (133,110) | | | $ | (11,269) | | | $ | (1,170) | | | $ | 303 | | | $ | (145,246) | |
Other comprehensive (loss) income before Reclassifications | (71,948) | | | 453 | | | (1,006) | | | (182) | | | (72,683) | |
Amounts reclassified from AOCI | — | | | 210 | | | (30) | | | — | | | 180 | |
Related tax amounts | — | | | (166) | | | 218 | | | 42 | | | 94 | |
Balance at September 30, 2022 | $ | (205,058) | | | $ | (10,772) | | | $ | (1,988) | | | $ | 163 | | | $ | (217,655) | |
Defined
Unrealized
Currency
Benefit
(Loss) Gain in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at June 30, 2022
$
(133,110)
$
(11,269)
$
(1,170)
$
303
$
(145,246)
Other comprehensive (loss) income beforeReclassifications
(71,948)
453
(1,006)
(182)
(72,683)
Amounts reclassified from AOCI
—
210
(30)
—
180
Related tax amounts
—
(166)
218
42
94
Balance at September 30, 2022
$
(205,058)
$
(10,772)
$
(1,988)
$
163
$
(217,655)
Balance at June 30, 2021
$
(12,177)
$
(21,778)
$
596
$
(2,584)
$
(35,943)
Other comprehensive (loss) income before
Reclassifications
(19,905)
488
(85)
567
(18,935)
Amounts reclassified from AOCI
—
709
(176)
—
533
Related tax amounts
—
(293)
46
(131)
(378)
Balance at September 30, 2021
$
(32,082)
$
(20,874)
$
381
$
(2,148)
$
(54,723)19
Defined
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Pension
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
(155,215)
2,535
(3,326)
1,993
(154,013)
Amounts reclassified from AOCI
—
657
306
—
963
Related tax amounts
—
(792)
635
(458)
(615)
Balance at September 30, 2022
$
(205,058)
$
(10,772)
$
(1,988)
$
163
$
(217,655)
Balance at December 31, 2020
$
(2,875)
$
(23,467)
$
3,342
$
(3,598)
$
(26,598)
Other comprehensive (loss) income beforereclassifications
(29,207)
1,009
(489)
1,883
(26,804)
Amounts reclassified from AOCI
—
2,423
(3,259)
—
(836)
Related tax amounts
—
(839)
787
(433)
(485)
Balance at September 30, 2021
$
(32,082)
$
(20,874)
$
381
$
(2,148)
$
(54,723)
All reclassifications related to unrealized gain (loss) in available-for-sale securities relateto the Company’s equityinterest in acomprehensive income for noncontrolling interest are related to currencytranslation adjustments.Contents
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
24 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 reclassifications | (24,078) | | | 915 | | | 640 | | | 7,538 | | | (14,985) | |
Amounts reclassified from AOCI | — | | | 225 | | | 547 | | | | | 772 | |
Related tax amounts | — | | | (288) | | | (249) | | | (1,734) | | | (2,271) | |
Balance as of September 30, 2023 | $ | (156,239) | | | $ | (3,743) | | | $ | (546) | | | $ | 5,804 | | | $ | (154,724) | |
| | | | | | | | | |
Balance as of December 31, 2021 | $ | (49,843) | | | $ | (13,172) | | | $ | 397 | | | $ | (1,372) | | | $ | (63,990) | |
Other comprehensive (loss) income before reclassifications | (155,215) | | | 2,535 | | | (3,326) | | | 1,993 | | | (154,013) | |
Amounts reclassified from AOCI | — | | | 657 | | | 306 | | | — | | | 963 | |
Related tax amounts | — | | | (792) | | | 635 | | | (458) | | | (615) | |
Balance as of September 30, 2022 | $ | (205,058) | | | $ | (10,772) | | | $ | (1,988) | | | $ | 163 | | | $ | (217,655) | |
All reclassifications related to unrealized (loss) gain 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 noncontrolling interest are related to currency translation adjustments.
Note 16 – Fair Value
Measurements
The Company has valued its company-owned life insurance policies at fair value.
These assets are subject to fair valuemeasurement as follows:
Fair ValueMeasurements at September 30, 2022Total
Using Fair ValueHierarchyAssets
Fair Value
Level 1
Level 2
Level 3
Company-owned During June 2023, the Company surrendered and liquidated $1.9 million of these life insurance
$
2,018
$
—
$
2,018
$
—
Total
$
2,018
$
—
$
2,018
$
—
Fair ValueMeasurements at December 31, 2021Total
Using Fair ValueHierarchyAssets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance$
2,533
$
—
$
2,533
$
—
Total
$
2,533
$
—
$
2,533
$
—
policies. 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 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Fair Value | | Fair Value Measurements as of September 30, 2023 Using Fair Value Hierarchy |
Assets | | | Level 1 | | Level 2 | | Level 3 |
Company-owned life insurance | | $ | 285 | | | $ | — | | | $ | 285 | | | $ | — | |
Total | | $ | 285 | | | $ | — | | | $ | 285 | | | $ | — | |
no | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Fair Value | | Fair Value Measurements as of December 31, 2022 Using Fair Value Hierarchy |
Assets | | | Level 1 | | Level 2 | | Level 3 |
Company-owned life insurance | | $ | 2,114 | | | $ | — | | | $ | 2,114 | | | $ | — | |
Total | | $ | 2,114 | | | $ | — | | | $ | 2,114 | | | $ | — | |
t hold any Level 3 investments as of September 30, 2022 or December 31,2021, respectively, so relateddisclosures have not been included.
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.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated)
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 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 in Other (expense) income, net. The fair value of the forward contract is determined from sources independent of the Company, including the financial institutions which are party to the derivative instruments.
All open foreign exchange forward contracts as of September 30, 2023 were entered into as hedges against the U.S. dollar. As of September 30, 2023, the Company had open foreign exchange forward contracts with a notional U.S. dollar value of the following:
| | | | | | | | |
Currency | | September 30, 2023 |
Mexican Peso | | $ | 41,900 | |
Japanese Yen | | 4,500 | |
| | $ | 46,400 | |
Open foreign exchange forward contracts as of September 30, 2023 had maturities occurring over a period of one month.
Interest Rate Swaps
In order to
satisfy certain requirements of the Original Credit Facility as well as to manage
the Company’s exposure to
variable
interest rate risk associated with the
Original Credit Facility,
such as the Secured Overnight Financing Rate (“SOFR”), in
November 2019,the first quarter of 2023, the Company entered into
$170.0
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 affects earnings or it becomes probable
that the forecasted transaction will not occur.
In June 2022, Interest rate swaps are entered into with a limited number of counterparties within several tranches, each of which allows for net settlement of all contracts through a single payment to participating counterparties in a single currency in the
Company amendedevent of a default on or termination of any one contract. As such, in accordance with the
Original Credit Facility.See Note 14 of Notes toCompany’s accounting policy, these derivative instruments are recorded on a net basis within the Condensed Consolidated
FinancialStatements.The Amended Credit Facility does not require the Company to fix variableinterest rates on any portion of its borrowings.In October 2022, the Company’sinterest rate swap contracts expired.Upon expiration, the Company is entitled to a cash paymentfrom the counterparties, which is materially consistent with the fair value as ofSeptember 30, 2022.Balance Sheets.The balance sheet classification and fair values of the Company’s
derivative instruments, which are Level 2 measurements, are as
follows:follows: | | | | | | | | | | | | | | | | | |
| | | Fair Value |
| Condensed Consolidated Balance Sheet Location | | September 30, 2023 | | December 31, 2022 |
Derivatives designated as cash flow hedges: | | | | | |
Interest rate swaps | Other non-current Assets | | $ | 7,538 | | | $ | — | |
Foreign currency forward contracts | Other current liabilities | | (564) | | | $ | — | |
| | | $ | 6,974 | | | $ | — | |
Fair Value
Condensed Consolidated
December 31,
Balance Sheet Location
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
Prepaid expenses and other current assets
$
212
$
—
Other accrued liabilities
—
1,782
$
212
$
1,782
The following table presents the net unrealized (gain) loss deferred to AOCI:
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
Derivatives designated as cash flow hedges: | | | | |
Interest rate swaps | AOCI | $ | 5,804 | | | $ | — | |
| | | | |
December 31,
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
AOCI
$
163
$
1,372
$
163
$
1,37221
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(
Unaudited; Dollars in thousands, except per share amounts,
unless otherwise stated)
(Unaudited)
25
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 September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Interest rate swaps | Interest expense, net | $ | 1,198 | | | $ | 134 | | | $ | 2,259 | | | $ | (882) | |
Foreign exchange forward contracts | Other (expense) income, net | (29) | | | — | | | 2,107 | | | — | |
| | $ | 1,169 | | | $ | 134 | | | $ | 4,366 | | | $ | (882) | |
Three Months Ended
Nine Months Ended
2022
2021
2022
2021
Amount and location of expense reclassified
Interest income
from AOCI into expense (effective portion)
(expense), net
$
134
$
(672)
$
(882)
$
(1,974)
Interest rate swaps are entered into with a limited number of counterparties,each of which allows for net settlement of allcontracts through a single payment in a single currency in the eventof a default on or termination of any one contract.As such, inaccordance with the Company’s accountingpolicy, these derivative instrumentsare recorded on a net basis within the CondensedConsolidated Balance Sheets.
Note 18 – Commitments and Contingencies
The Company previously disclosed in its 2021 Form 10-K that AC Products, Inc.(“ACP”), a wholly owned subsidiary,in 2007,agreed to operate two groundwater treatment systems, so as to hydraulicallycontain groundwater contamination emanating fromACP’s site until such time as the concentrationsof contaminants are below the current Federal maximum contaminantlevel for fourconsecutive quarterly sampling events. In 2014, ACP ceased operationat one of its two groundwater treatment systems, as it had metthe above condition for closure. As of September 30, 2022, ACP continuesto operate the second groundwater treatment system, whilethe Company discusses with the relevant authorities whether the secondgroundwater treatment system meets the conditions forclosure.In addition, the Santa Ana Regional WaterQuality Control Board requested that ACP conduct additional indoorand outdoorsoil vapor testing on and near the ACP site to confirm that ACP continues to meet the applicablelocal soil vapor standards.As ofSeptember 30, 2022, ACP performed such testing and is awaiting the reviewof the results from the Santa Ana Regional WaterQualityControl Board.
As of September 30, 2022, the Company believes that the range of potential-known liabilities associated with the balance of theACP water remediation program is approximately $
0.1
1.0
million.The low and high ends of the range are based on thelength of operation of the treatment system as determined by groundwatermodeling.Costs of operation include the operation andmaintenance of the extraction well, groundwater monitoring andprogram management.The Company previously disclosed in its
2021 Form 10-K that an inactivesubsidiary of the Company that was acquired in 1978sold certain products containing asbestos, primarily on an installed basis, andis among the defendants in numerous lawsuits alleginginjury due to exposure to asbestos.During the three and nine months ended September 30, 2022
there have beenno significantchanges to the facts or circumstances of this previously disclosed matter,aside from on-going claims and routine payments associatedwith this litigation.Based on a continued analysis of the existing and anticipated future claims against this subsidiary,it is currentlyprojected that the subsidiary’s totalliability over the next 50 years for these claims is approximately $0.3
million (excluding costs ofdefense).
The Company previously disclosed in its 2021 Form 10-K that it is party to certain environmentalmatters related to certaindomestic and foreign properties.These environmental matters primarily require the Companyto perform long-term monitoring andmaintenance at each of the applicable sites.During the three and nine months ended September 30, 2022, there havebeen nosignificant changes to the facts or circumstances of these previously disclosedmatters, aside from on-going monitoring andmaintenance activities and routine payments associated with each ofthe sites.The Company continually evaluates its obligationsrelated to such matters, and based on historical costs incurred andprojected costs to be incurred over the next approximately 30 years,has estimated the range of costs for all of these environmental matters, ona discounted basis, to be between approximately $5.0
million and $
6.0
million as of September 30, 2022, for which $5.2
million was accrued within other accrued liabilities and other non-current liabilities on the Company’sCondensed Consolidated Balance Sheet as of September 30, 2022.Comparatively, as ofDecember 31, 2021, the Company had $
5.6
million accrued for with respect to these matters.Although there can be no assurance regarding the outcome of otherunrelated environmental matters, the Company believes that ithas made adequate accruals for costs associated with other environmental mattersfor which it is aware, and has accrued $0.4
as of both September 30, 2022 and December 31, 2021, respectively,to provide for such anticipated future environmental assessmentsand remediation costs.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,unless otherwise stated)(Unaudited)
26
The Company previously disclosed in its 2021 Form 10-K that during the first ninemonths of 2021, one of the Company’sBrazilian subsidiaries received a notice that it had prevailed on an existing legalclaim in regard to certain non-income (indirect) taxesthat had been previously charged and paid.The matter specifically related to companies’ rights to exclude the state tax on goodscirculation (a valued-added-tax or VATequivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirecttaxes (specifically the program of social integration (“PIS”) and contributionfor the financing of social security (“COFINS”)) leviedby the Brazilian States on the sale of goods.In May 2021, the Brazilian Supreme Court concluded that ICMS shouldnot be includedin the tax base of PIS and COFINS, and confirmed the methodology for calculating thePIS and COFINS tax credit claims to whichtaxpayers are entitled.The Company’s Brazilian entities had previouslyfiled legal or administrative disputes on this matter and areentitled to receive tax credits and interest dating back five years preceding thedate of their legal claims.As a result of these courtrulings in the first nine months of 2021, the Company recognized non-incometax credits of67.0
million BRL or approximately $13.3
million, which includes approximately $
8.4
million for the PIS and COFINS tax credits as well as interest on these tax credits of $4.9
million.The tax credits to which the Company’sBrazilian subsidiaries are entitled are claimable once registered with the Braziliantax authorities which the Company subsequently completed.These tax credits can be used to offset future Brazilian federal taxesandthe Company currently anticipates using the full amount of credits during thefive year period of time permitted.In connection with obtaining regulatory approvals for the Combination,certain steel and aluminum related product lines ofHoughton were divested in August 2019. The Company previously disclosedin its 2021 Form 10-K that in July 2021, the entity thatacquired these divested product lines submitted an indemnification claimfor certain alleged breaches of representation made byHoughton in the agreement pursuant to which such assets had been divested.The Company responded to the subject matters of theindemnification claim and during the first quarter of 2022, thematter was resolved consistent with the Company’sexpectations andposition 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
damagesdamage as a
result of flooding and electrical fire, respectively.
The Company maintains property and flood insurance for all of its
facilitieslocations globally.
During the three and nine months ended September 30, 2023, there have been no significant changes to the facts or circumstances of this previously disclosed matter, other than ongoing work with the Company’s insurance adjuster and insurance carrier regarding the insurance claims submitted. Through September 30, 2023, the Company has received cumulative payments from its insurers of $5.9 million associated with these events. During the nine months ended September 30,
2022, there have been no significant changesto the facts or circumstances of these previously disclosed matters, aside from the on-going restorationof both sites.The Company, its insuranceadjuster andinsurance carrier are actively managing the remediation and restorationactivities associated with these events and at this time theCompany has concluded, based on all available information and discussionswith its insurance adjuster and insurance carrier,that thelosses were covered under the Company’sproperty and flood insurance coverage, net of an aggregate deductible of $2.0
Through September 30, 2022,2023, the Company
has received payments fromits insurers of $3.9
million associated with these events.During the three months ended September 30, 2022, the Company recognized
a gain on insurance recoveries of
$1.1
Company has recorded an insurance receivable of $
0.2
million as of September 30, 2022.See Note 10 of Notes to the Condensed
Consolidated Financial Statements.
TheAs 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 in the Company’s 2022 Form 10-K. During the three and nine months ended September 30, 2023, there have been no significant changes to the facts or circumstances of any of the previously disclosed matters. In addition, during the three and nine months ended September 30, 2023, there are no new environmental matters or litigation
which management currentlythat the Company believes will
not have a material adverse effect on the
Company’s results of operations,
cash flows, or financial condition.
In addition, Although there can be no assurance regarding the outcome of any of the ongoing environmental matters or litigation the Company
is party to, the Company believes that it has
an immaterial amountmade adequate accruals for costs and liabilities associated with environmental matters or provisions for ongoing litigation for which it is aware. The Company has accrued approximately $6 million as of
contractualboth September 30, 2023 and December 31, 2022, respectively, for these ongoing matters.purchase obligations.
Quaker Chemical Corporation
Management’s Discussion and Analysis
27
Management’s Discussion and Analysisof 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 the
“Combination” “Combination” refers to the legacy Quaker combination with Houghton
International, Inc. (“Houghton”) on August 1, 2019.
Executive Summary
Quaker Houghton is the global leader in industrial process fluids.
With a presence around the world, including operations
in over
25 countries, our customers include thousands of the world’s
most advanced and specialized steel, aluminum, automotive, aerospace,
offshore, container, mining,
and metalworking companies.
Our high-performing, innovative and sustainable solutions are backed
by
best-in-class technology,
deep process knowledge, and customized services.
Quaker Houghton is headquartered in Conshohocken,
Pennsylvania, located near Philadelphia in the U.S.
Overall,Despite a continued challenging economic environment, the Company delivered
solidstrong results in the third quarter of
2022despite continued and persistent financial, economic andgeopolitical headwinds, including ongoing raw material cost escalationand overall inflationary pressures, supply chain and logisticschallenges, the direct and indirect impacts of the ongoing war in Ukraine, Zero-COVIDpolicies in China, and foreign currencyvolatility.Notwithstanding these challenges, net2023. Net sales in the third quarter of
20222023 were
$492.2$490.6 million,
an increasea decrease of
10%less than 1% compared
to
$449.1$492.2 million in the third quarter of
2021.2022. This was primarily driven by an increase in selling price and product mix of
approximately
25%2% and
additional net sales from acquisitionsa favorable impact of
1%, partiallyoffset by a decline in organic sales volumes of 9% andan unfavorable impact from foreign currency translation of
7%.2%, offset by a 4% decrease in sales volumes. The increase in selling price and product mix was primarily the result
of
strategic price increasesvalue-based pricing initiatives implemented,
primarily in 2022, to offset
theongoing inflationary
pressures that began at the onset of 2021 and have escalatedthroughout 2021 and into the first nine months of 2022.pressures. The decline in
organic sales volumes was primarily attributable to
softer soft end
market conditions,
particularlyprimarily in
Europethe Americas and
Asia/Pacific, the wind-downof the tolling agreement for products previously divestedrelated to the Combination and the direct and indirect impacts of the ongoingwar in Ukraine.EMEA segments, partially offset by new business wins.The Company generated net income in the third quarter of
20222023 of
$25.9$33.7 million,
or
$1.44$1.87 per diluted share, compared to net
income of
$31.1$25.9 million, or
$1.73$1.44 per diluted share in the third quarter
of
2021.2022. Excluding non-recurring
and non-core items in each period, the
Company’s third quarter of
20222023 non-GAAP earnings per diluted share were
$1.74$2.05 compared to
$1.63$1.74 in the prior
year quarter and the
Company’s current quarter
adjusted EBITDA was
$70.3$84.4 million compared to
$66.2$70.3 million in the third quarter
of
2021.2022. These
resultscurrent quarter earnings were primarily driven by
higher net sales in the current quarter coupled withan improvementa recovery in gross margins compared to the prior
year quarter, partially offset
by
the unfavorable impact of foreign currency translation and higher selling,
general and administrative
expenses (“SG&A”) as a result of
significant year-over-year
inflationary
pressures.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.
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. The Company’s third quarter
of
20222023 operating performance in each of its
fourthree reportable
segments: (i) Americas;(ii) Europe, Middle East and Africa (“EMEA”); (iii) Asia/Pacific; and (iv) Global SpecialtyBusinesses,segments reflect similar drivers to that of its
consolidated
performance as each of the Company’sreportableperformance. Operating earnings for all segments
net sales benefitted from double-digit year-over-yearincreases in selling price and product mix, while those increases in net sales werepartially offset by the significant and unfavorableimpact of foreign currency translation.All geographic segments had lower organic sales volumes, howeverorganic sales volumes forthe Global Speciality Businesses increased
in the third quarter of2022 compared to the prior year quarter,
due to continued end marketdemand.Operating earnings for the Global Specialty Businesses and Americas increased comparedto the prior year quarter, driven
by higher net sales and an improvement in margins.Operating earnings for Asia/Pacific were relatively flat year-over-yearas lowernet sales were offset by an improvement in
the segment’smargins.EMEA operating earnings declined compared to the prior year dueto the persistent and significant inflationary pressures on raw materials andother costs and the negative impact of foreign currencytranslation, partially offset by continued pricerealization.margins in 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 a netNet cash flows provided by operating
cash outflow of $26.3 million in the first ninemonths of 2022 compared to net operating cashflow of $2.5activities were $199.5 million in the first nine months of
2021.2023 compared to net cash flows used in operating activities of $26.3 million in the first nine months of 2022. The net operating cash
outflowinflow year-over-year reflects
lower year-to-datehigher operating performance in
20222023 compared to
20212022 as well as
the continuedsignificant current yeara favorable shift from a working capital investment
primarily related in the prior year to
higher accounts receivable due topositive cash flows from working capital in the
increase in netsales, higher inventory due to higher raw material costs andlower levelsfirst nine months of
accounts payable.2023. 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.
Quaker Chemical Corporation
Management’s Discussion and Analysis
28
Overall, the Company delivered
anotherstrong results in the third quarter of
strong2023 including relatively stable net sales
growth,driven by strong price realization, both sequentiallyand
year-over-year.Coupled with an improvement in gross
margin, thesemargins. These factors contributed
to the Company’s current quarter
earnings growth despite
the ongoing inflationary pressures,
unfavorableforeign currency translation, macroeconomic and geopolitical
challenges,
soft end market conditions and other
disruptionsfactors that
have impacted the Company’s
customers and end markets. Looking at the remainder of
2022,2023, the
Company remains focused on executing on items within its control
as it manages through a continued uneven
and uncertain macroeconomic, geopolitical and end market environment,
and softer market conditions, primarily as well as the potential impact of the automotive industry labor dispute in
Europe and Asia/Pacific.the Americas segment. The Company is encouraged by
its continued execution on its financial and operational priorities and the
resiliencepositive momentum built through the first nine months of
its diversifiedportfolio despite significant uncertainty caused by several macroeconomicfactors.We continue2023 and continues to expect to deliver
further sequentialgross margin improvement in the fourth quarterof 2022, as well as higher earnings
and cash flow in
the second half of 20222023 as compared to
the first 2022.half of 2022
Critical Accounting Policies and
second half of 2021.Estimates On-going impact of COVID-19
The global outbreak of COVID-19Our significant accounting policies are described in
March of 2020 has negatively impactedall locations where the Company does business.Although the Company has now operated in this COVID-19 environmentfor more than two years, the full extent of the outbreak“Management’s Discussion and
related business impacts continue to remain uncertain Analysis” and
volatile, andtherefore the full extent to which COVID-19 may impact theCompany’s future results of operationsor financial condition is uncertain.This outbreak has significantly disrupted the operations ofthe Company and those of its suppliers and customers and, at times duringthe pandemic, the Company has experienced volumedeclines as compared to pre-COVID-19 levels.Management continues to monitor the impact that the COVID-19 pandemic is havingon the Company,the overall specialty chemical industry and the economies and markets in which the Companyoperates.Theprolonged pandemic and resurgences of the outbreak includingas new variants continue to emerge, and continued restrictions onday-to-day life and business operations such as continuing restrictions in China,as well as border controls or closures and transportationdisruptions,may result in volume declines and lower net sales in future periods.To the extent that the Company’scustomers andsuppliers are adversely impacted by COVID-19, this could reduce theavailability, or result in delays,of materials or supplies to orfrom the Company, whichin turn could significantly interrupt the Company’sbusiness operations.Given this ongoing uncertainty,the Company cautions that its future results of operations could be significantlyand adversely impacted by COVID-19.While thecircumstances have presented and are expected to continue to present challengesand have necessitated additional time and resourcesto be deployed to sufficiently address the challengesbrought on by the pandemic at this time, Management does not believe thatCOVID-19 has had a material impact on its financial reporting processes, internalcontrols over financial reporting, or disclosureThe Company’s top priorityis to protect the health and safety of its employees and customers, while working to ensure businesscontinuity to meet customers’ needs.During the pandemic, the Company has taken incremental steps to protectthe health andwellbeing of its people in affected areas through various actions, includingenabling work at home where needed and practicable, andemploying social distancing standards, implementing travel restrictions whereapplicable, enhancing onsite hygiene practices, andinstituting visitation restrictions at the Company’sfacilities.The Company has not and does not expect that it will incur materialexpenses implementing these health and safety policies.All of the Company’s more than 30 productionfacilities worldwide are openand operating and are deemed as essential businesses in the jurisdictions wherethey are operating.The Company continues to expectthat the impacts from COVID-19 will gradually decline subject“Note 1 – Significant Accounting Policies” to the
effectivecontainment of the virus and its variants and successfuldistribution and acceptance of the available vaccines and treatments; however,the incidence of reported cases of COVID-19 or avariantConsolidated Financial Statements in
several geographies where the Company has significant operationsremains relatively high.Differing government responsesto these reported cases continues to evolve and it therefore remains highly uncertainas to how long the global pandemic and relatedeconomic challenges will last in each of the jurisdictions where the Company conductsbusiness and when our
customers’ businesseswill recover to pre-COVID-19 levels.While the actions the Company has taken to date to protect our workforce, tocontinue to serveour customers with excellence and to conserve cash and reduce costs as applicable,2022 Form 10-K. There have been
effective thus far,further actions torespondno material changes to the pandemiccritical accounting policies and estimates previously disclosed in its effects may be necessary as conditions2022 Form 10-K remain materially consistent.
continueRecently Issued Accounting Standards
See Note 3 of Notes to evolve.
Impact of Political Conflicts
A significant portion of the Company’srevenues and earnings are generated by non-U.S. operations.This subjects the Companyto political and economic risks that could adversely affect the Company’sbusiness, liquidity, financialposition and results ofoperations.The existence of military conflicts, for example the Russian invasion of Ukraine, bringinherent risks such as the potentialfor supply chain disruptions, increased costs of resources including oil, decreasedtrade activity and other consequences related toeconomic or other sanctions.The U.S. government and other nations have imposed significant restrictionson most companies’ abilityto do businessCondensed Consolidated Financial Statements, in
Russia as a result of the military conflict between Russia and Ukraine.It is not possible to predict the broader orlonger-term consequencesPart I, Item 1, of this
conflict, which could include further sanctions,embargoes, regional instability,geopolitical shiftsReport for a discussion regarding recently issued accounting standards.and adverse effects on macroeconomic conditions,security conditions, currency exchange rates and financial markets.The militaryconflict between Russia and Ukraine has had a negative impact on the Company’sability to sell to, ship products to, collect paymentsfrom, and support customers in certain regions based on trade restrictions,embargoes and export control law restrictions, andlogisticsrestrictions including closures of air space.If this conflict continues or expands, it could increase the costs, risks and adverseimpactsfrom these new challenges.The Company and its customers and suppliers may also be the subject of increased cyber-attacks.23
Quaker Chemical Corporation
Management’s Discussion and Analysis
29
During the second quarter of 2022, the Company decided to cease its operationsin Russia.The Company’s operations in theconflict areas including Russia, Ukraine and Belarus historically representedless than 2% of the Company’s consolidated netsalesand less than 1% of the Company’sconsolidated total assets.The Company’s primary exposurein the conflict areas related tooutstanding customer accounts receivable.The Company is actively monitoring its outstanding Russian receivables for collectionsand has recorded incremental allowancesfor doubtful accounts where warranted.Liquidity and Capital Resources
AtAs of September 30,
2022, the Company2023, we had cash and cash equivalents of
$138.9 $198.4 million.
Total cash and cash equivalents was
$165.2 $181.0 million
atas of December 31,
2021.2022. The
$26.3$17.4 million
decreaseincrease in cash and cash equivalents was the net result of
$46.6 $199.5 million of
cash provided by
financingoperating activities
partially offset by
$26.3 million ofcash used in operating activities, $29.6$150.5 million of cash used in
financing activities, $25.8 million of cash used in investing activities and
a $17.0 million negativean unfavorable impact due to the effect
of foreign currency
translation.translation of approximately $5.8 million. Net
cash flows provided by operating activities were $199.5 million in the first nine months of 2023 compared to net cash flows used in operating activities
wereof $26.3 million in the first nine
months of
2022 compared to net cash flowsprovided by operating activities of $2.5 million in the first nine monthsof 2021.2022. The
decreaseincrease in net operating cash flow
year-over-year-over-year reflects higher year-over-year operating performance as well as a cash inflow from working capital, notably reductions in accounts receivable and inventory, in the current year,
reflects lowerdemonstrating the Company’s ongoing focus on cash conversion. Comparatively, during the first nine months of
the year2022, operating
performancein 2022 compared to 2021 as well as the continuedcash flow was negatively impacted by a significant
current year working capital investment
primarily related to higheraccounts receivable due to
the increase in net sales, higherinflationary impacts on inventory
due to an increase in costs and
to a lesser extent, a build in certain inventoryin response to global supply chain and logistics challenges, as well as lower levels ofrelated pricing impacts on accounts payable due to timing.receivable.
Net cash flows used in investing activities were
$29.6$25.8 million in the
first nine months of
20222023 compared to
$30.1$29.6 million in the
first nine months of
2021.2022. The
relatively consistentlower level of cash used in investing activities year-over-year
is the
net result of lower
cash proceeds from payments in the
disposition of assets which included the sale of certainheld-for-sale real property assetscurrent year related to
acquisitions which the
Combination Company had in the prior year,
period, andpartially offset by higher capital expenditures
in the current
year largely related to certain infrastructure andsustainability-related spending,partially offset by lower cash payments related to acquisitions as a resultof the level of acquisitionactivity in each year.
See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.
Net
cash flows used in financing activities were $150.5 million in the first nine months of 2023 compared to net cash flows provided by financing activities
wereof $46.6
million in the firstnine months of 2022 compared to net cash flowsused in financing activities of $10.5 million in the first nine months
of
2021.2022. The increase in net cash
flowsoutflows was primarily related to
alarger increase innet repayments of borrowings in the
current yearfirst nine months of 2023, primarily under
the Company’s
Credit Facility, described further below, as compared to net borrowings in the first nine months of 2022, which included the impact of new borrowings, net of repayments of old borrowings and debt issuance costs, related to the June 2022 credit facility
which was amended and extended, as amendment, described further
described below, inthe second quarter of 2022. below. In addition, the Company paid
$22.3$23.5 million of cash dividends during the first nine
months of
2022,2023, a
$1.1$1.2 million, or 5% increase, in cash dividends compared
to the prior
year.year quarter.The Company, its whollyowned subsidiary,Quaker Chemical B.V.,as borrowers, Bank of America, N.A., as administrativeagent, U.S. Dollar swing line lender and letter of credit issuer,and the other lenders party thereto, entered into a credit agreement onAugust 1, 2019, as amended (the “Original Credit Facility”).During June 2022, the
Company, and its wholly owned
subsidiary,
Quaker Houghton B.V.,
as borrowers, Bank of America, N.A., as administrative agent, U.S.
Dollardollar swing
line lender and letter of
credit issuer, Bank of America Europe
Designated Active Company,
as Euro Swing Line Lender, certain guarantors
and other lenders
entered into an amendment to
the Original Credit Facilityits primary credit facility. The amended credit facility (the
“AmendedCredit“Credit Facility”)
.The Company used the proceeds of theAmended Credit Facility to repay all outstanding loans under the OriginalCredit Facility, as well as accrued interest 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
fees, and toterminate the revolving credit commitments under the Original CreditFacility.The Company’s Amended CreditFacility is comprised of(C) a $500.0 million
multicurrency revolver,a $600.0 million term loan anda $150.0 million (as of June 17, 2022) Euro equivalent term loan (collectively,the “Amended Term Loans”senior secured revolving credit facility (the “Revolver”)
with the Company andQuaker Houghton B.V.,
as borrowers, each
with a five-year term maturing in June 2027.
Subject to the consent of the AdministrativeAgent and certain otherconditions, the The Company
may designate additional borrowers. The Companyhas the right to increase the
amount of the
Amended Credit Facility by an aggregate amount not
to exceed the greater of
(i) $300$300.0 million
and (ii)or 100% of
Consolidated EBITDA, subject to certain conditions including
the agreement to provide financing by any
Lenderlender providing
any such
increase.increase. U.S. Dollar-denominated borrowingsunderAs of September 30, 2023, the AmendedCompany had Credit Facility bear interest, atborrowings outstanding of $814.8 million. As of December 31, 2022, the Company’selection, at the baserate or term Secured Overnight Financing Rate (“SOFR”) plus an applicablerate ranging from 1.00% to 1.75% for term SOFR loansand from 0.00% to 0.75% for base rate loans, depending upon theCompany’s consolidated net leverageratio.Loans based on termSOFR also include a spread adjustment equal to 0.10% per annum.Borrowings under the AmendedCompany had Credit Facility
denominated incurrenciesborrowings outstanding of $943.5 million. The Company’s other
than U.S. Dollars bear interest at the alternative currencyterm rate plus the applicable rate ranging from 1.00% to1.75%debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans, which totaled $11.1 million as of September 30, 2023 and $11.3 million as of December 31, 2022. In addition to paying interest on outstanding principalTotal unused capacity underthe Amended Credit Facility, the Companyis required to pay acommitment fee ranging from 0.15% to 0.275% depending on the these arrangements as of September 30, 2023 was approximately $34 million. The Company’s consolidatedtotal net leverageratio to the Lenders under theAmended Revolver in respectdebt as of the unutilized commitments thereunder.
Quaker Chemical Corporation
Management’s DiscussionSeptember 30, 2023, which consists of total borrowings of $825.9 million less cash and Analysis
30
cash equivalents of $198.4 million, was $627.5 million. The Amended Credit Facility contains affirmativeand negative covenants, financial covenants and events of default that are customary for agreements of this nature.The Amended Credit Facility contains a number of customary business covenants,includingwithout limitation restrictions on (a) the incurrence of additionalindebtedness by the Company or certain of its subsidiaries, (b)investments in and acquisitions of other businesses, lines of business anddivisions by the Company or certain of its subsidiaries, (c)the payment of dividends or capital stock purchases by the Companyor certain of its subsidiaries and (d) dispositionsof assets by theCompany or certain of its subsidiaries.Dividends and share repurchases are permitted in annual amountsnot exceeding the greater of$75 million annually and 25% of Consolidated EBITDA if there is no default.
If the Company’s consolidatednet leverage ratio is lessthan 2.50 to 1.00 then the Company is no longer subject to restricted payments.Financial covenants contained in the
Amended Credit Facility include
a consolidated interest coverage ratio test and a
consolidated net leverage ratio test.
The consolidated net leverage ratio at the end of a quarter may not begreater than 4.00 to 1.00,subject to a permitted increase during a four quarter period after certainacquisitions.The Company has the option of replacing theconsolidated net leverage ratio test with a consolidated senior net leverage ratiotest if the Company issues certain types of unsecureddebt, subject to certain customary limitations. Customary events ofdefault in the Amended Credit Facility include without limitationdefaults for non-payment, breach of representations and warranties, non-performance of covenants, cross-defaults, insolvency,and achange of control of the Company in certain circumstances.The occurrence of an event of default under the Amended Credit Facilitycould result in all loans and other obligations becoming immediatelydue and payable and the Amended Credit Facility beingThe Original Credit Facility required the Company to fix its variable interestrates on at least 20% of its total Original TermLoans.In order to satisfy this requirement as well as to manage the Company’sexposure to variable interest rate risk associated withthe Original Credit Facility,in November 2019, the Company entered into $170.0 million notionalamounts of three year interest rateswaps at a base rate of 1.64% plus an applicable margin as providedin the Original Credit Facility, basedon the Company’sconsolidated net leverage ratio.At the time the Company entered into the swaps, and as of September 30,2022, the aggregate interestrate on the swaps, including the fixed base rate plus an applicable margin,was 3.1%.In October 2022, the Company’s interest rateswap contracts expired.Upon expiration, the Company is entitled to a cash payment from the counterparties, whichis materiallyconsistent with the fair value as of September 30, 2022.The Amended Credit Facility does not require the Company to fix variableinterest rates on any portion of its borrowings.
The Company previously capitalized $23.7 million of certain third-partydebt issuance costs in connection with the OriginalCredit Facility.Approximately $15.5 million of the capitalized costs were attributedto the Original Term Loans and recordedas adirect reduction of Long-term debt on the Condensed ConsolidatedBalance Sheet.Approximately $8.3 million of the capitalizedcosts were attributed to the Original Revolver and recorded within Otherassets on the Condensed Consolidated Balance Sheet.Thesecapitalized costs were being amortized into Interest expense overthe five-year term of the Original Credit Facility.As of December31, 2021, the Company had $8.0 million of debt issuance costs recordedas a reduction of Long-term debt attributable to the OriginalCredit Facility.As of December 31, 2021, the Company had $4.3 million of debt issuancecosts recorded within Other assetsattributable to the Original Credit Facility.Prior to executing the Amended Credit Facility,the Company had $6.6 million of debtissuance costs recorded as a reduction of Long-term debt attributableto the Original Credit Facility and $3.5 million of debt issuancecosts recorded within Other assets attributable to the Original Credit Facility.In connection with executing the Amended CreditFacility, the Companyrecorded a loss on extinguishment of debt of approximately $6.8 million whichincludes the write-off of certainpreviously unamortized deferred financing costs as well as a portion ofthe third party and creditor debt issuance costs incurred toexecute the Amended Credit Facility.Also in connection with executing the Amended Credit Facility,during the third quarter of2022, the Company capitalized $2.2 million of certain third-partydebt issuance costs.Approximately $0.7 million of the capitalizedcosts were attributed to the Amended Euro TermLoan and Amended U.S. TermLoan. These costs were recorded as a direct reductionof Long-term debt on the Condensed Consolidated Balance Sheet.Approximately $1.5 million of the capitalized costs were attributedto the Amended Revolver and recorded within Other assets on theCondensed Consolidated Balance Sheet.These capitalized costs, aswell as the previously capitalized costs that were not written offwill collectively be amortized into Interest expense over the five-yearterm of the Amended Credit Facility.As of September 30,
2022,2023, the Company
had $2.1 millionwas in compliance with all of
debt issuance costs recordedas athe Credit Facility covenants. Refer to the description of the Company’s primary Credit Facility in Note 20 of Notes to Consolidated Financial Statements in its 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.reduction of Long-term debtThe weighted average variable interest rate incurred on the Condensed Consolidated Balance Sheetoutstanding borrowings under the Credit Facility during the three and $4.6 million of debt issuance costs recorded withinOther assets on the Condensed Consolidated Balance Sheet.
nine months ended September 30, 2023 was approximately 6.4% and 6.1%, respectively. As of September 30, 2022,2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 6.3%. As part of the Credit Facility, in addition to paying interest on the outstanding principal, the Company had Amended Credit Facility borrowingsoutstanding of $941.2 million.As of December 31, 2021,is also required to pay an annual commitment fee ranging from 0.150% to 0.275% related to unutilized commitments under the
Revolver, depending on the Company’s consolidated net leverage ratio. The Company had
Original Credit Facility borrowingsoutstanding of $889.6 million.The Company has unused
capacity under the
Amended Revolver of approximately
$295$414 million,
which is net of bank letters of credit of approximately $3 million, as
September 30, 2022.The Company’s other debt obligations areprimarily industrial development bonds, bank lines of credit andmunicipality-related loans, which totaled $12.9 million and $11.8million as of September 30,
2022 and December 31, 2021,2023.respectively.Total unused capacity underthese arrangements as of September 30, 2022 was approximately $12 million.TheCompany’s total net debtas of September 30, 2022 was $815.2 million.24
Quaker Chemical Corporation
Management’s Discussion and Analysis
31
In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, such as SOFR, in the first quarter of 2023, the Company entered into $300.0 million notional amounts of three-year interest rate swaps to convert a portion of the Company’s variable rate borrowings into an average fixed rate obligation of 3.64% plus an applicable margin as provided in the Credit Facility based on the Company’s consolidated net leverage ratio. As of September 30, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.3%. See Note 17 of Notes to Condensed Consolidated Financial Statements.
In connection with executing the original credit facility in 2019 and the amended Credit Facility during the second quarter of 2022, the Company capitalized certain third-party and creditor debt issuance costs. Costs attributed to the Euro Term Loan and U.S. Term Loan were recorded as a direct offset of Long-term debt on the Condensed Consolidated Balance Sheet. Costs attributed to the Revolver were recorded within Other assets on the Condensed Consolidated Balance Sheet. These capitalized costs will collectively be amortized into Interest expense over the five-year term of the Credit Facility. As of September 30, 2023, the Company had $1.7 million of debt issuance costs recorded as an offset of Long-term debt on the Condensed Consolidated Balance Sheet and $3.6 million 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 an offset 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.
The Company uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on certain assets and/or liabilities denominated in certain foreign currencies. During the first nine months ended 2023, the Company entered into and settled forward contracts resulting in cash proceeds of $2.1 million. See Note 17 of Notes to Condensed Consolidated Financial Statements.
In the first nine months of 2022, the Company incurred $10.4$8.0 million of total Combination, integration and other acquisition-related expenses, described in the Non-GAAP Measures section of this Item below. The Company had net cash outflows related to the Combination, integration and other acquisition-related expenses during the first nine months of 2022 of $4.3 million. The Company had no Combination, integration and other acquisition-related expenses in the first nine months of
2022, which includes $2.42023, except for $0.5 million
ofin other
expensesincome related to
changes for an indemnification
assets, described inasset related to the
Non-GAAPCombination.Measures section of this Item below.Comparatively, inDuring the first nine monthsof 2021,2023, the Company incurred $13.6$3.8 million of totalCombination, integration and other acquisition-relatedstrategic planning expenses
whichwas net of a $5.4 million gain on the sale of certain held-for-sale real property assets and also included $0.7 million of accelerated depreciation.The Company had aggregate net cash outflows ofapproximately $11.5 million related to theCombination, integration and other acquisition-related expenses duringthe first ninemonths of 2022 as compared to
$20.0$4.5 million during the first
nine monthsof 2021.During the first nine months of 2022 theCompany incurred $10.7 million of strategic planning and transformationexpenses.. The Company expects that theseto incur additionaloperating 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-termlong-term integration to further optimize its footprint, processes and other
functionswill continuefunctions in 2023 and thereafter.2022 and extend into the next several years.
Quaker Houghton’s ManagementThe Company’s management approved, and the Company initiated, a global restructuring plan (the“QH “QH Program”) in thethird quarter of 2019 as part of its planned cost synergies associated
with the Combination.
The As of December 31, 2022, the Company had substantially completed all of the initiatives under the QH Program
included restructuringwith only an immaterial amount of remaining severance still to be paid, which has been paid as of September 30, 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 approximately400 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 final costs associated
with the QHProgram will depend on a number of factors and are subject to
change; however,thechange. The Company
has had reduction in headcount and siteclosures under the QH Program in 2022is continuing to evaluate and expects
finalto implement further actions under this program, and as a result, additional headcount reductions
and restructuring costs may be incurred in the future. The Company expects to
continue into 2023.Atgenerate 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
time,program to be approximately 1 to 1.5 times savings. The Company recognized Restructuring and related charges of $6.0 million and $0.6 million for the
Company doesnot expect to incur material additional costs under the QH Program.nine months ended September 30, 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 first
nine monthsof 20222023 of approximately $1.8$7.9 million compared to $4.6$0.4 million in the first nine months of 2021.2022. The Company has remaining restructuring accruals, as of September 30, 2023, for this program of $3.6 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 September 30,
2022,2023, the Company’s
gross liability for uncertain tax positions, including interest and penalties,
was
$20.1$20.4 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
$6.4$6.5 million as a result of
offsetting benefits in other tax jurisdictions.
Quaker Chemical Corporation
Management’s Discussion and Analysis
The Company previously disclosed in its 2022 Form 10-K that two of the Company’s locations
suffered
significant property damage as a result of flooding
and electrical
fire.fire, respectively. The
Company maintains property and flood insurance for all of its
facilitieslocations globally.
The Company, its insuranceadjuster During the three and
insurancecarrier are actively managingnine months ended September 30, 2023, there have been no significant changes to the
remediation and restoration activities associatedfacts or circumstances of this previously disclosed matter, other than ongoing work with
both of these events and at this time the
Company has concluded, based on all available information and discussionswith its Company’s insurance adjuster and insurance carrier
that regarding the
losses incurred during 2021 were covered under the Company’sproperty and flood insurance
coverage, net of an aggregate deductibleof $2.0 million.claims submitted. Through September 30,
2022,2023, the Company has received
cumulative payments from its insurers of
$3.9 $5.9 million associated with
these events.
The During the nine months ended September 30, 2023, the Company
has recorded anrecognized a gain on insurance
receivablerecoveries of
$0.2 million as of September30, 2022.$1.0 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 ongoingacquisition integration and optimization, pension plancontributions, capital expenditures, other
businessgrowth opportunities (including
potential acquisitions),
pension plan contributions, implementing actions to achieve the
Company’s sustainability
goals and other potential known or anticipated contingencies.
The Company
also believes it has sufficient
additional liquidity to support its operating requirements and to fund its business
obligations for the period beyond the next twelve
months,
as well, including the aforementioned items which are expected
to recur annually, as well as future principal
and interest
payments on the Company’s
AmendedCredit Facility, tax obligations
and other long-term liabilities.
The Company’s liquidity
is
affected by many factors, some based on normal operations of
our business and others related to the impact of the pandemic and other
global events on our business and on global economic conditions as well as industry uncertainties,
which we cannot predict.
We also
cannot predict economic conditions and industry downturns or the
timing, strength or duration of recoveries.
We may seek,
as we
believe appropriate, additional debt or equity financing
whichthat would
provide capital for corporate purposes, working capital funding,
additional liquidity needs or to fund future growth opportunities, including
possible acquisitions and organic investments.
The timing
and amount of potential capital requirements cannot be determined
at this time and will depend on a number of factors, including the
actual and projected demand for our products, specialty chemical industry
conditions, competitive factors, and the condition of
financial markets, among others.
Critical Accounting Policies and Estimates
The Company’s critical accountingpolicies and estimates, as set forth in its 2021Form 10-K remain materially consistent.However, due to the ongoing financial,economic and geopolitical conditions impacting the Company,the Company re-evaluatedcertain of its estimates, most notably its estimates and assumptions with regardsto the fair value of its EMEA reporting unit during thethird quarter of 2022.
Quaker Chemical Corporation
Management’s Discussion and Analysis
32
Goodwill:
The Company accounts for business combinations underthe acquisition method of accounting.This method requiresthe recording of acquired assets, including separately identifiable intangibleassets, at their acquisition date fair values.Any excess ofthe purchase price over the estimated fair value of theidentifiable net assets acquired is recorded as goodwill.The determination ofthe estimated fair value of assets acquired requires management’sjudgment and often involves the use of significant estimates andassumptions.When necessary, the Companyconsults with external advisors to help determine fair value.Goodwill and intangible assets that have indefinite lives are not amortizedand are required to be assessed at least annually forimpairment.The Company completes its annual goodwill and indefinite-lived intangible asset impairmenttest during the fourthquarter of each year, or more frequentlyif triggering events indicate a possible impairment.The Company continuallyevaluatesfinancial performance, economic conditions and other recent developmentsin assessing if a triggering event indicates that the carryingvalues of goodwill, indefinite-lived, or long-lived assets are impaired.The Company continues to monitor various financial, economicand geopolitical conditions impacting the Company,including the ongoing Russia-Ukraine war and the Company’sdecision to ceaseoperations in Russia, continued raw material cost escalation, supplychain constraints and disruptions, as well as rising interest ratesand the cost of capital among other factors.The Company concluded that these and other factors, which have and continueto impactthe Company, did notrepresent a triggering event during the third quarter of 2022, except for the Company’sEMEA reporting unitand the associated goodwill,as well as the related asset group.The Company concluded that during the third quarter of 2022 theescalation of these events adversely impacted EMEA’sfinancial performance and represented a triggering event.As a result of this conclusion, the Company completed an interim impairmentassessment for its EMEA reporting unit, as well asthe related asset group, during the third quarter of 2022.The Company concluded that the undiscounted cash flows exceededthecarrying value of the long-lived assets and it is not more likely than not thatan impairment exists.In completing a quantitativegoodwill impairment test, the Company compares the reportingunit’s fair value, primarily basedon future discounted cash flows, toits carrying value in order to determine if an impairment chargeis warranted.The estimates of future discounted cash flows involveconsiderable management judgment and are based upon certain significantassumptions including the weighted average cost of capitalas well as projected EBITDA, which includes assumptions related torevenue growth rates, gross margin levels and operatingexpenses.As a result of this interim impairment assessment, the estimated fair value ofthe EMEA reporting unit exceeded itscarrying value by approximately 22% and the Company concludedno impairment was warranted.In completing the interimquantitative impairment assessment, the Company used a WACCassumption of approximately 10.0% and holding all otherassumptions constant, the WACCwould have to increase by approximately 1.8 percentage pointsbefore the Company’s EMEAreporting unit would be considered impaired.In addition, holding EBITDA margins and all other assumptions constant,theCompany’s compoundannual revenue growth rate during the entire projection period would need to declineby approximately 3.0percentage points before the Company’sEMEA reporting unit would be considered impaired.Similarly, holding revenue growth ratesand all other assumptions constant, the Company’saverage EBITDA margins throughout the entire projectionperiod would need todecline by approximately 1.7 percentage points before theCompany’s EMEA reporting unit would beconsidered impaired.Notwithstanding the results of the Company’sinterim impairment assessment, if the Company is unable to successfullyimplement selling price increases aimed at more than offsettingraw material costs and ongoing inflationary pressures and the financialperformance of the EMEA reporting unit declines further,or interest rates continue to rise and this leads to an increase in the cost ofcapital, then it is possible these financial, economic and geopolitical conditionscould result in another triggering event for the EMEAreporting unit in the future and could lead to a potential impairment.In addition, if any of these financial, economic or geopoliticalconditions has a more significant adverse effect onthe Company, these could lead to a potential impairmentof the Company’sgoodwill or other indefinite-lived or long-lived assets.
Non-GAAP Measures
The information in this Form 10-Q 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.
Quaker Chemical Corporation
Management’s Discussion In addition, our definitions of EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and Analysis
33non-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
(loss) 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,
and peers 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
(loss) 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, and peers in
our industry as well as by management in assessing the operating performance
of the Company on a consistent basis.
Quaker Chemical Corporation
Management’s Discussion and Analysis
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 (dollars in thousands unless otherwise noted, except per share amounts):
Non-GAAP Operating Income and Margin Reconciliations | | | | | | | | | | | | | | | | | | | | | | | |
Non-GAAP Operating Income and Margin Reconciliations | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Operating income | $ | 59,518 | | | $ | 44,609 | | | $ | 166,242 | | | $ | 105,915 | |
Combination, integration and other acquisition-related expenses (a) | — | | | 2,107 | | | — | | | 7,992 | |
Restructuring and related charges (credits), net (b) | 1,019 | | | (1,423) | | | 6,034 | | | (609) | |
Strategic planning expenses (c) | 1,093 | | | 4,545 | | | 3,759 | | | 10,745 | |
| | | | | | | |
Russia-Ukraine conflict related expenses (d) | — | | | 88 | | | — | | | 2,183 | |
Other charges (e) | 206 | | | 1,016 | | | 855 | | | 2,681 | |
Non-GAAP operating income | $ | 61,836 | | | $ | 50,942 | | | $ | 176,890 | | | $ | 128,907 | |
Non-GAAP operating margin (%) (l) | 12.6 | % | | 10.3 | % | | 11.9 | % | | 8.8 | % |
Three Months Ended
Nine Months Ended
2022
2021
2022
2021
Operating income
$
44,609
$
36,010
$
105,915
$
119,720
Combination, restructuring and otheracquisition-related expenses (a)717
5,083
7,421
20,371
Strategic planning and transformation expenses (b)
4,545
—
10,745
—
Executive transition costs (c)
913
285
2,097
1,097
Russia-Ukraine conflict related expenses (d)
88
—
2,183
—
Facility remediation costs, net (f)
—
1,490
—
1,490
Other charges (e)
70
320
546
613
Non-GAAP operating income
$
50,942
$
43,188
$
128,907
$
143,291
Non-GAAP operating margin (%) (m)
10.3%
9.6%
8.8%
10.9%
| | | | | | | | | | | | | | | | | | | | | | | |
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income attributable to Quaker Chemical Corporation | $ | 33,670 | | | $ | 25,867 | | | $ | 92,550 | | | $ | 60,026 | |
Depreciation and amortization (j) | 20,866 | | | 19,908 | | | 62,210 | | | 61,491 | |
Interest expense, net | 12,781 | | | 8,389 | | | 38,744 | | | 20,228 | |
Taxes on income before equity in net income of associated companies (k) | 13,593 | | | 10,185 | | | 36,956 | | | 14,425 | |
EBITDA | 80,910 | | | 64,349 | | | 230,460 | | | 156,170 | |
Equity (income) loss in a captive insurance company (f) | (756) | | | 174 | | | (748) | | | 2,199 | |
Combination, integration and other acquisition-related expenses (credits) (a) | — | | | 2,107 | | | (475) | | | 10,387 | |
Restructuring and related charges (credits), net (b) | 1,019 | | | (1,423) | | | 6,034 | | | (609) | |
Strategic planning expenses (c) | 1,093 | | | 4,545 | | | 3,759 | | | 10,745 | |
| | | | | | | |
Russia-Ukraine conflict related expenses (d) | — | | | 88 | | | — | | | 2,183 | |
| | | | | | | |
Currency conversion impacts of hyper-inflationary economies (g) | 1,229 | | | 991 | | | 2,869 | | | 1,216 | |
Loss on extinguishment of debt (i) | — | | | — | | | — | | | 6,763 | |
Other charges (credits) (e) | 886 | | | (540) | | | 1,515 | | | 172 | |
Adjusted EBITDA | $ | 84,381 | | | $ | 70,291 | | | $ | 243,414 | | | $ | 189,226 | |
Adjusted EBITDA margin (%) (l) | 17.2 | % | | 14.3 | % | | 16.4 | % | | 13.0 | % |
| | | | | | | |
Adjusted EBITDA | $ | 84,381 | | | $ | 70,291 | | | $ | 243,414 | | | $ | 189,226 | |
Less: Depreciation and amortization (j) | 20,866 | | | 19,908 | | | 62,210 | | | 61,491 | |
Less: Interest expense, net | 12,781 | | | 8,389 | | | 38,744 | | | 20,228 | |
Less: Taxes on income before equity in net income of associated companies - adjusted (a)(k) | 13,806 | | | 10,821 | | | 36,766 | | | 27,189 | |
Non-GAAP net income | $ | 36,928 | | | $ | 31,173 | | | $ | 105,694 | | | $ | 80,318 | |
Quaker Chemical Corporation
Management’s Discussion and Analysis
34
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin | | | | | | | | | | | | | | | | | | | | | | | |
Non-GAAP Earnings per Diluted Share Reconciliations | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders | $ | 1.87 | | | $ | 1.44 | | | $ | 5.14 | | | $ | 3.35 | |
Equity (income) loss in a captive insurance company per diluted share (f) | (0.04) | | | 0.01 | | | (0.04) | | | 0.12 | |
Combination, integration and other acquisition-related expenses (credits) per diluted share (a) | — | | | 0.09 | | | (0.03) | | | 0.47 | |
Restructuring and related charges (credits), net per diluted share (b) | 0.04 | | | (0.05) | | | 0.25 | | | (0.02) | |
Strategic planning expenses per diluted share (c) | 0.04 | | | 0.19 | | | 0.17 | | | 0.46 | |
Russia-Ukraine conflict related expenses per diluted share (d) | — | | | 0.01 | | | — | | | 0.11 | |
| | | | | | | |
Currency conversion impacts of hyper-inflationary economies per diluted share (g) | 0.07 | | | 0.06 | | 0.16 | | | 0.07 | |
Loss on extinguishment of debt per diluted share (i) | — | | | — | | | — | | | 0.29 | |
Other charges (credits) per diluted share (e) | 0.04 | | | (0.03) | | | 0.06 | | | — | |
Impact of certain discrete tax items per diluted share (h) | 0.03 | | | 0.02 | | | 0.16 | | | (0.37) | |
Non-GAAP earnings per diluted share (m) | $ | 2.05 | | | $ | 1.74 | | | $ | 5.87 | | | $ | 4.48 | |
and Non-GAAP Net Income Reconciliations
Three Months Ended
Nine Months Ended
2022
2021
2022
2021
Net income attributable to Quaker Chemical Corporation
$
25,867
$
31,058
$
60,026
$
103,243
Depreciation and amortization (a)(k)
19,908
21,542
61,491
66,334
Interest expense, net
8,389
5,637
20,228
16,725
Taxes on income beforeequity in net (loss) incomeof associated companies (l)10,185
795
14,425
26,702
EBITDA
64,349
59,032
156,170
213,004
Equity loss (income) in a captive insurance company (i)
174
(108)
2,199
(4,071)
Combination, restructuring and other
acquisition-related expenses (a)717
4,906
9,817
14,265
Strategic planning and transformation expenses (b)
4,545
—
10,745
—
Executive transition costs (c)
913
285
2,097
1,097
Russia-Ukraine conflict related expenses (d)
88
—
2,183
—
Facility remediation (recovery) costs, net (f)
(1,104)
2,019
(1,104)
2,019
Brazilian non-income tax credits (g)
—
—
—
(13,293)
Loss on extinguishment of debt (h)
—
—
6,763
—
Other charges (e)
609
35
356
353
Adjusted EBITDA
$
70,291
$
66,169
$
189,226
$
213,374
Adjusted EBITDA margin (%) (m)
14.3%
14.7%
13.0%
16.2%
Adjusted EBITDA
$
70,291
$
66,169
$
189,226
$
213,374
Less: Depreciation and amortization - adjusted (a)
19,908
21,365
61,491
65,616
Less: Interest expense, net
8,389
5,637
20,228
16,725
Less: Taxes on incomebefore equity in net incomeof associated companies - adjusted (a)(l)10,821
9,765
27,189
31,277
Non-GAAP net income
$
31,173
$
29,402
$
80,318
$
99,756
Non-GAAP Earnings per Diluted Share Reconciliations
Three Months Ended
Nine Months Ended
2022
2021
2022
2021
GAAP earnings per diluted share attributable to
Quaker Chemical Corporation common shareholders
$
1.44
$
1.73
$
3.35
$
5.76
Equity loss (income) in a captive insurance company
0.01
(0.01)
0.12
(0.23)
Combination, restructuring and otheracquisition-related expenses per diluted share (a)0.04
0.22
0.45
0.64
Strategic planning and transformation expenses per
0.19
—
0.46
—
Executive transition costs per diluted share (c)
0.04
0.01
0.09
0.05
Russia-Ukraine conflict related expenses per diluted share (d)
0.01
—
0.11
—
Facility remediation (recovery) costs, net per diluted share (f)
(0.05)
0.09
(0.05)
0.09
Brazilian non-income tax credits per diluted share (g)
—
(0.04)
—
(0.48)
Loss on extinguishment of debt per diluted share (h)
—
—
0.29
—
Other charges per diluted share (e)
0.04
—
0.03
0.02
Impact of certain discrete tax items per diluted share (j)
0.02
(0.37)
(0.37)
(0.29)
Non-GAAP earnings per diluted share (n)
$
1.74
$
1.63
$
4.48
$
5.56
Quaker Chemical Corporation
Management’s Discussion and Analysis
35
(a)
Combination, restructuringintegration and other acquisition-related expenses
include(credits) in 2022 included certain legal, financial, and other advisory and
consultant costs incurred in connection with the Combination
integrationintegration activities
including internal control readiness and
remediation as well as costs incurred by the Company similar expenses associated with the
QH restructuring program, which was initiated in thethird quarter of 2019 as part of the Company’splan to realize cost synergies associated with the Combination.These amountsalso include expense associated with Company's other
of the Company’sacquisitions, including certain legal, financial, and other advisoryand consultant costs incurred in connection with due diligence as well as costs associatedwith selling inventory from acquiredbusinesses which was adjusted to fair value as part of purchase accounting.recent acquisitions. These costs are not indicative of the future operating
performance of the Company.
Approximately $0.3 million and $0.5 million for the three and nine months
ended September 30,
2022
respectively,and approximately $0.2 million and $0.7 million in the three and nine months ended September30, 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 nine months ended September 30, 2023, the Company recorded $0.5 million of other income due to changes in an indemnification asset related to the Combination. Similarly, during the nine months ended September 30, 2022, the Company recorded
$2.4 $2.4 million,
respectively, of other expense
due to changes in a Combination-related indemnification asset. The amounts recorded that are related to
anthe changes in indemnification
asset, which isassets are included in the caption “Combination,
restructuring integration and other acquisition-related
(credits) expenses” in the
reconciliation of GAAP earnings per diluted share attributed to
Quaker Chemical Corporation common shareholders to
Non-GAAPNon-GAAP earnings per diluted share as well as the reconciliation of net
income attributable to Quaker Chemical Corporation to
Adjusted EBITDA and Non-GAAP net income.
During the three and nine months ended September 30, 2021, the Companyrecorded $0.2 million $0.7 million, respectively,of accelerated depreciation related to certain of the Company’sfacilities, whichis included in the caption “Combination, restructuring and other acquisition-related expenses” in the reconciliation of operatingincome to non-GAAP operating income and included in the caption“Depreciation and amortization” in the reconciliation of netincome attributable to the Company to EBITDA, but excluded from thecaption “Depreciation and amortization - adjusted” in thereconciliation of adjusted EBITDA to non-GAAP net income attributableto the Company.During the nine months endedSeptember 30, 2021, the Company recorded a $5.4 million gain on the sale ofcertain held-for-sale real property assets related tothe Combination which is included in the caption “Combination,restructuring and other acquisition-related expenses” in thereconciliation of GAAP earnings per diluted share attributed toQuaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share as well as the reconciliation of netincome attributable to Quaker Chemical Corporation toAdjusted EBITDA and Non-GAAP net income.During the three and nine months ended September 30, 2022, respectively,theCompany recorded restructuring and related credits of $1.4 millionand $0.6 million, respectively,and $0.9 million and netcharges of $0.6 million during the three and nine months ended September30, 2021, respectively.During the nine months endedSeptember 30, 2021, the Company recorded $0.8 million related to the sale ofinventory from acquired businesses which wasadjusted to fair value.See Notes 2,
7, 10, and 11 of Notes to Condensed Consolidated
Financial Statements, which appear in Item
1 of this Report.
(b)
Strategic planningRestructuring and transformation expenses include certain consultantand advisory expenses forrelated charges (credits), net represent the costs (credits) incurred by the Company associated with the Company’slong-termstrategic planning, as well as process optimization and the next phaseof the Company’s long-term integrationto further optimizeits footprint, processes and other functions. restructuring programs. These costs
(credits) are not indicative of the future operating performance of the Company.
See Note 7 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this Report.(c)
Executive transition costs represent the costs related toStrategic planning expenses include certain consultant and advisory expenses for the Company’ssearch, hiring strategic planning phase of its long-term process optimization and transitionintegration projects to a new CEO in connectionwith the executive transition that took place in 2021 as well as the search,hiringfurther optimize its footprint, processes and
transition for other
officers during the firstnine months of 2022.functions. These
expensesplanning phase costs are one-time in nature and not indicative of the future operating
performance of the
Company.Company.
(d)
Russia-Ukraine conflict related expenses represent the direct costs associatedwith the Company’sexit of operations in Russia during 2022,
primarilyincluding costs for employee separation benefits, as well as costs associated
with establishing specific reserves or changes
to existing reserves for trade accounts receivable within the Company’s
EMEA reportable segment
due to the economic instabilityassociated withfor certain
customeraccounts receivables which have beencustomers who filed for bankruptcy protection and were directly impacted by the
currenteconomic conflict
between Russia and
Ukraine or the Company’sdecision to end operations in Russia.Ukraine. These expenses are not indicative of the
future operating performance of the Company.
(e)
Other charges (credits) include executive transition costs, facility remediation insurance recoveries, net, charges incurredby an inactive subsidiary of the Company as a result of the termination of restrictions on insurance settlement reserves
and non-service components of the Company’s
pension and postretirement net periodic benefit income
and
the foreign currency remeasurement impacts associated with theCompany’s affiliates whoselocal economies are designatedas hyper-inflationary under U.S. GAAP.These expenses are not indicative of the future operating performanceof the Company.expense. See Notes
19 and
9 of Notes to Condensed Consolidated Financial Statements,which appear in Item 1 of this Report. (f)
Facility remediation (recovery) costs, net presents the costs associatedwith remediation, cleaning and subsequent restoration costsassociated with property damages to certain of the Company’sfacilities, net of insurance recoveries received.These charges arenon-recurring and are not indicative of the future operating performanceof the Company.See Note 18 of Notes to CondensedConsolidated Financial Statements, which appears in Item 1 of this Report.Quaker Chemical Corporation
Management’s Discussion and Analysis
36
(g)
Brazilian non-income tax credits represent indirect tax credits related to certainof the Company’s Brazilian subsidiariesprevailing in a legal claim as well as the Brazilian Supreme Court rulingon these non-income tax matters.The 2021 impact toNon-GAAP earnings per diluted share reflects the tax only adjustmentrelated to the Brazilian Supreme Court ruling on thetaxability of interest income.The non-income tax credit is non-recurring and not indicative of the future operatingperformanceof the Company.See Note 18 of Notes to Condensed Consolidated Financial Statements, which
appears appear in Item 1 of this Report.
In connection with executing the Amended Credit Facility,the Company recorded a loss on extinguishment of debt ofQuaker Chemical Corporationapproximately $6.8 million which includes the write-offManagement’s Discussion and Analysis
of certain previously unamortized deferred financing costs as well as aportion of the third-party and creditor debt issuance costs incurredto execute the Amended Credit Facility.These expenses arenot indicative of the future operating performance of the Company.See Note 14 of Notes to Condensed Consolidated FinancialStatements, which appears in Item 1 of this Report.
(i)
(f)Equity (income) loss (income) in a captive insurance company represents the after-taxloss (income) income attributable to the Company’sinterest in Primex, Ltd. (“Primex”), a captive insurance company.
The Company holds a 32% investment in and has significant influence
over Primex, and therefore accounts for this interest under the equity method
of accounting.
The
(income) loss
(income) attributable to
Primex is not indicative of the future operating performance of the
Company and is not considered core to the Company’s
operations.operations.(g)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 and nine months ended September 30, 2023 and 2022, the Company incurred non-deductible, pre-tax charges related to the Company’s Argentina and Türkiye affiliates. The charges incurred related to the immediate recognition of foreign currency remeasurement in the Consolidated Statements of Income associated with these entities are not indicative of the future operating performance of the Company. See Note 1 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.
(j)
(h)The impacts of certain discrete tax items include changes in valuationallowances recorded on certain Brazilian branch foreign tax credits and the
recording ofrelated deferred
taxes on Brazilian branch income.Both of thesetaxes. These discrete items
relatedrelate to tax law changes
occurring in
2022 and 2023, both in the United States and Brazil which impacted the creditability of Brazilian foreign taxes in the U.S.
due to the issuance of final foreign tax credit regulations during theperiod.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 period and certain taxes, penalties,and interest due as a result of the settlements.positions. See
Note 11 of Notes to Condensed Consolidated
Financial Statements, which appears in Item 1 of this Report.
(k)(i)In connection with executing the Amended Credit Facility, the Company recorded a loss on extinguishment of debt of approximately $6.8 million during the period ended September 30, 2022 which includes the write-off of certain previously unamortized deferred financing costs as well as a portion of the third-party and creditor debt issuance costs incurred to execute the Amended Credit Facility. These expenses are not indicative of the future operating performance of the Company. See Note 14 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.
(j)Depreciation and amortization for the three and nine months endedSeptember 30, 2022 includes approximately $0.3 million and $0.8 million, respectively,and forboth the three and nine months ended September 30,
20212023 and September 30, 2022 includes
approximately $0.3 million
and
$0.9$0.8 million,
respectively, of
amortization expense recorded within equity in net
loss (income)income of associated companies
in the Company’s
Condensed Consolidated Statements of
income,Operations, which is attributable to
the amortization of the fair value step up for the
Company’s 50% interest in a joint venture
in Korea as a result of required purchase accounting.
(l)
(k)Taxes on incomebefore equity in net loss (income)income of associated companies – adjusted presents the impactof 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,
restructuringintegration and other
acquisition-relatedacquisition-related expenses
(credits) described in (a) resulted in
an incremental
taxestax expense of
approximately$0.2$0.5 million and
$1.8 million for the three andnine months ended September 30, 2022, respectively,compared to $1.2 million and $3.4 million for the three and nine monthsended September 30, 2021, respectively.Strategic planning and transformation expenses describes in (b) above resulted inincremental taxes of $1.0 million and $2.4 million for the three andnine months ended September 30, 2022, respectively.Executive transition costs described in (c) resulted in incremental taxes of$0.2 million and $0.5 million for the three and ninemonths ended September 30, 2022, respectively,compared to $0.1 million and $0.3 million for the three and nine months endedSeptember 30, 2021, respectively.Russia-Ukraine conflict related expenses described in (d) resulted inincremental taxes of lessthan $0.1 million and $0.5$1.9 million for the three and nine months ended September 30, 2022,
respectively.
Other chargesdescribed in (e) resulted in a tax benefit of less than $0.1 million Restructuring and
$0.1 millionfor the three and nine months ended September30, 2022, respectively,and incremental taxes of less than $0.1 million and $0.1 million in the three and nine months endedSeptember 30, 2021.Facility remediation (recovery) costs,related charges (credits), net described in
(f) resulted in a tax benefitof $0.3 million in thethree and nine months ended September 30, 2022, respectively andincremental taxes of $0.5 million in the three and nine monthsended September 30, 2021.Brazilian non-income tax credits described in (g) resulted in incrementaltaxes of approximately $0.6million and a tax benefit of $4.7 million during the three and nine months endedSeptember 30, 2021, respectively.Loss onextinguishment of debt described in (h)(b) above resulted in incremental taxes of
$1.6 $0.2 million
during the nine months ended September 30,2022.The impact of certain discrete items described in (j) resulted in a tax benefit of $0.5 millionand
an incremental expense of$6.4$1.5 million for the three and nine months ended September 30,
2022, 2023, respectively, compared
to
aan incremental benefit of
$6.5$0.3 million and
$5.1 $0.1 million for the three and nine months ended September 30,
2021, 2022, respectively.
Strategic planning expenses described in (c) above resulted in incremental taxes of $0.3 million and $0.9 million for the three and nine months ended September 30, 2023, respectively, compared to incremental taxes of $1.0 million and $2.5 million for the three and nine months ended September 30, 2022, respectively. Russia-Ukraine conflict related expenses described in (d) resulted in incremental taxes of less than $0.1 million and $0.5 million for the three and nine months ended September 30, 2022, respectively. Other charges described in (e) resulted in incremental taxes of $0.2 million and $0.4 million for the three and nine months ended September 30, 2023, compared to incremental taxes of $0.1 million and a tax benefit of $0.1 million for the three and nine months ended September 30, 2022, respectively. The impact of certain discrete items described in (h) resulted in a tax benefit of $0.5 million and $2.9 million for the three and nine months ended September 30, 2023, respectively, compared to a tax benefit of $0.5 million and incremental taxes of $6.4 million for the three and nine months ended September 30, 2022, respectively. Loss on extinguishment of debt described in (i) resulted in incremental taxes of $1.6 million during the nine months ended September 30, 2022.(m)
(l)The Company calculates adjusted EBITDA marginand non-GAAP operating margin as the percentage of adjusted EBITDAand non-GAAP operating income to consolidated net sales.
(n)
(m)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
37
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet commitments or
obligations as of September 30,
2022.2023. The Company’s
off-balanceoff-balance sheet items outstanding as of September 30,
20222023 includes approximately
$5 $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 Third
Quarter of
20222023 with the Third Quarter of
20212022Net sales were $490.6 million in the third quarter of 2023 compared to $492.2 million in the third quarter of 2022 comparedto $449.1 million in the third quarter of 2021.2022. The net sales increase decrease of
$43.1$1.6 million, or
10%less than 1%, quarter-over-quarter reflects an increase
in selling price and product mix of
25%approximately 2% and
additional netsales from acquisitionsa favorable impact of
1%foreign currency translation of 2%,
partially offset by a decline
in
organic sales volumes of approximately
9% and the unfavorable impactfrom foreign currency translation of 7%4%.
The increase in selling price and product mix was primarily driven by
priceincreasesimplemented to offset the significant increases in rawmaterial and other input costs that began during 2021 and has continued in 2022.year-over-year impact of our value-based pricing initiatives. The decline in
organic sales volumes was primarily
attributable to softer end market conditions
particularly in Europeacross the Company’s EMEA and
Asia/Pacific, the wind-down of the tolling agreement for products previouslydivested related to the Combination Americas segments and the
impact ofthe ongoing war in Ukraine,Company’s value-based pricing initiatives, partially offset by
netan increase in sales volumes in the Asia/Pacific segment and a positive contribution from new
business wins
including the impact of the Company’songoing value-basedpricing initiatives.in all segments.
COGS were $307.3 million in the third quarter of 2023 compared to $331.5 million in the third quarter of 2022, compareda decrease of $24.2 million. The decrease in COGS reflects lower spend on the decline in current year sales volumes and to a lesser extent softening in the Company’s global raw material costs.
$303.9Gross profit was $183.3 million in the third quarter of
2021.The increase inCOGS of $27.5 million or 9% was driven by the continued increases in the Company’sglobal raw material, manufacturing and supplychain and logistics costs2023 compared to the prior year.
Gross profit$160.7 million in the third quarter of 2022,
increased $15.6an increase of approximately $22.6 million or
11%from the third quarter of 2021.14%. The Company’s reported
gross margin in the third quarter of
20222023 was
32.7%, an improvement37.4% compared to
32.3% in the third quarter of 2021 as increases inselling prices, due to the Company’svalue based pricing initiatives, helped offset the significant increasein raw material and otherinput costs experienced throughout the third quarter of 2022.
SG&A32.7% in the third quarter of 2022 increased $11.2primarily driven by the year-over-year impact of our value-based pricing initiatives, primarily implemented in 2022, which offset significant increases in raw material and other input costs.
SG&A was $122.8 million
or 11%compared toin the third quarter of
2021 due primarily to theimpact of sales increases on direct selling costs, inflation-driven higheroperating costs, costs associated with strategic planning andtransformation initiatives (see the Non-GAAP Measures section ofthis Item, above), and additional SG&A from recent acquisitionspartially offset by lower SG&A due to foreign currencytranslation2023 compared to
the prior year.During$115.5 million in the third quarter of 2022, thean increase of approximately $7.3 million or 6%, driven by higher labor-related costs, including year-over-year inflationary increases, and higher levels of incentive compensation due to improved Company performance.
The Company incurred $2.1 million of Combination,
integration and other acquisition-related operating expenses primarily for professional fees related to the Houghtonintegration and other acquisition-related
activities.Comparatively,the Company incurred $5.8 million ofoperating expenses in the
prior year third quarter
of 2022, primarily due to various professional
fees related to legal, financial and other advisory and consultant expenses
for
Combination integration
activities including internal control readinessand remediation.Seeactivities. There were no similar expenses incurred in the
Non-GAAP Measures sectionthird quarter of
this Item, above.2023.The Company
initiated a restructuring program during the third quarterof 2019 as part of its global plan to realize cost synergiesassociated with the Combination.The Company incurred
restructuringRestructuring and related
(credits) charges
for reductions in headcount andsite closures under this program, net of
adjustments to initial estimates for severanceof$1.0 million and a credit of $1.4 million
and $0.9 millionduring the third quarters of
2023 and 2022,
respectively, related to reductions in headcount and
2021, respectively.site closures under the Company’s restructuring programs. See the Non-GAAP Measures section of this Item, above.
Operating income in the third quarter of
20222023 was
$44.6$59.5 million compared
to
$36.0$44.6 million in the third 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-GAAP Measures section of this Item, above, the Company’s
current quarter non-GAAP operating income increased to
$50.9 million compared to $43.2 $61.8 million in the
prior year third quarter
of 2023 as compared to $50.9 million in the third quarter of 2022 primarily
due to
the lowerhigher gross profit
andpartially offset by higher SG&A,
The Company had
Other expense, net of $2.7 million in the third quarter of 2023 as compared to other income, net of $0.1 million in the third quarter
of 2022. Both the third quarter of 2023 and 2022 included foreign exchange transaction losses, which were higher in the current year. The third quarter of 2022
compared to $0.6also included facility remediation recoveries, net of $1.1 million. The Company had no such facility remediation recoveries during the third quarter of 2023. See the Non-GAAP Measures section of this Item, above.Interest expense, net, was $12.8 million in the third quarter of
2021.The third quarter of 2022 included a gain on insurance recoveries, see the Non-GAAP Measuressection of this Item, above.Inaddition, the Company incurred foreign exchange transaction losses in the thirdquarter of 2022 2023 compared to
the foreign exchangetransaction gains in the prior year quarter.
Interest expense, net, increased $2.8$8.4 million
compared to the third quarterof 2021 as a result of increases in the averageborrowings outstanding in the third quarter of 2022,
compared tothe third quarteran increase of
2021 coupled with$4.4 million as a result of an increase in interest rates
quarter-over-quarter.
partially offset by a reduction in borrowings outstanding.
Quaker Chemical Corporation
Management’s Discussion and Analysis
38
The Company’s effective
tax rates for the third quarters of
2023 and 2022
were 30.9% and
2021 were 28.1%
and 2.6%, respectively.
The Company’s
effective tax rate for the third quarter of 2023 was primarily impacted by foreign tax inclusions, withholding taxes, return to provision adjustments, the impact of U.S Department of Treasury guidance on the usage of foreign tax credits, and the impact of forecasted pre-tax earnings and the mix of such earnings. Comparatively, the effective tax rate for the third quarter of 2022
was largely driven by
a decline in forecasted profits and earnings mix,foreign tax inclusions, changes in the valuation allowance for foreign tax
credits,inclusions, a reduction in reserves for uncertain tax positions,
andwithholding
taxes.taxes, and the impact of forecasted pre-tax earnings and the mix of such earnings. In addition, the
Company incurred highereffective tax
expenseduringrate for the third quarter of 2022
primarily related towas impacted by the
Company recording earnings
inof one of its subsidiaries at a statutory tax rate of
25% while
it awaitsthe recertification of
aits concessionary
15% tax rate
which was
available to the Company during all of 2021.Comparatively, the prioryear quarter effective tax rate wasprimarily driven by a one-time deferred tax benefit related to an intercompanyintangible asset transfer.pending receipt. Excluding
the impact of
non-corenon-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
itsthe third quarters of
20222023 and
20212022 would have been approximately
26% 28% and
25%26%, respectively.
The Company expects
continued volatility in its effective tax rates due to several factors,
including the timing and scope of tax audits and the expiration of
applicable statutes of limitations as they relate to uncertain tax positions,
the unpredictability of the timing and amount of certain
incentives in various tax jurisdictions,
including the high technology incentiveat one of our subsidiaries based in China which iscurrently up for triennial renewal, 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 $1.1was $3.3 million
in the third quarter of 2023 compared to a net loss of $0.2 million in the third quarter of 2022,
compared to the third quarteran increase of
2021, $3.5 million, primarily due to
lowerhigher current year income from the Company’s
interest in a captive insurance company
due to lower marketperformance on equity investments andas well as from the Company’s
50% interest in a joint venture in
Korea due to overall market challenges.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 third
quartersquarter of
20222023 and
2021.2022.Foreign exchange
unfavorablynegatively impacted the Company’s
third quarter of 2023 results by approximately 1% compared to the third quarter of 2022
results by approximately 7% driven by the impact
from foreign currency translation on earnings as well as higher foreign
exchange transaction losses in the current quarter as compared
to the prior year third quarter.
Consolidated Operations Review – Comparison of the First Nine Months of
20222023 with the First Nine Months of
20212022Net sales were $1,486.2 million in the first nine months of 2023 compared to $1,458.8 million in the first nine months of 2022 compared to $1,314.1million in the first nine months of 2021. 2022. The net sales increase of
$144.7$27.4 million or
11%2% year-over-year reflects increases in selling price
and product mix of approximately
21% and additional net sales from acquisitions of 1% 11%, partially offset
by a decline in
organic sales volumes of approximately
6% andthe unfavorable impact from foreign currency translation of 5%9%.
The increase in selling price and product mix was primarily driven
by
price increases implemented to help offset the significant increasesin raw material and other input costs that began during 2021and continued in 2022.year-over-year impact of our value-based pricing initiatives. The decline in sales volumes was primarily attributable to
softer end market conditions across all regions, the
comparisonto a strong first halfCompany’s value-based pricing initiatives and customer order patterns, as well as the impacts of
2021, andprimarilythe ongoing war in Ukraine in the
first quarter of 2021, where customers replenished theirsupply chains.Lower volumes were also due to softer endmarket conditions, particularly in EuropeEMEA segment, and
Asia/Pacific, the wind-down
of the tolling agreement for products previously divested
related to the Combination,
and the impact of the ongoing war in Ukraine,partially offset by
net new business wins,
including theimpact of the Company’s ongoingvalue-based pricing initiatives.as mentioned above.COGS were
$951.7 million in the first nine months of 2023 compared to $1,002.4 million in the first nine months of
2022 comparedto $858.3 million in the first nine months of 2021.2022. The
increase decrease in COGS of
$144.1$50.7 million or
17% was driven by5% reflects lower spend on the
significantincreasedecline in current year sales volumes, which more than offset higher costs due to inflationary pressures in the Company’s global raw
material,
manufacturing and supply chain and logistics costs compared to the prior
year.
Gross profit in the first nine months of
20222023 increased
$0.6$78.1 million or
less than 1% 17% from the first nine months of
2021.2022. The
Company’s reported gross
margin in the first nine months of
20222023 was
31.3%36.0% compared to
34.7%31.3% in
the first nine months of
2021.2022. The Company’s current year
improvement in gross margin
reflectswas primarily driven by the year-over-year impact of our value-based pricing initiatives and, to a
significant increaselesser extent, decreases in raw material
and other input
costs and the impacts of constraints on the global supply chain, partially offset bythe Company’s ongoing value-based pricing initiatives.costs.SG&A in the first nine months of
20222023 increased
$25.9$19.1 million or
8%6% compared
to the first nine months of
2021 due primarily tothe impact2022 driven by higher labor-related costs including year-over-year inflationary increases and higher levels of
sales increasesincentive compensation on
direct selling costs, inflation driven higheroperating costs, costs associated with strategic planningand transformation initiatives (see the Non-GAAP Measures section ofthis Item, above), and additional SG&A from recentacquisitions,improved Company performance, partially offset by lower SG&A due to foreign currency
translation compared to the prior year.
In addition, SG&A waslowerThe Company incurred $8.0 million of Combination, integration and other acquisition related operating expenses in
the prior year period as a result of continued temporary cost savingmeasures the Company implemented in response to theonset of COVID-19.
During the first nine months of 2022,
the Company incurred $8.0million of Combination, integration and other acquisition-related operating expenses primarily for professional fees related to the Houghtonintegration and other acquisition-related activities.Comparatively,the Company incurred $18.3 million of expenses in the prior year’sfirst nine months, primarily due to various
professional fees related to legal, financial and other advisory and
consultant expenses for integration activities including internal
control
readiness and remediation.
There were no similar costs in the first nine months of 2023. See the Non-GAAP Measures section of this Item, above.
Quaker Chemical Corporation
Management’s Discussion and Analysis
39
The Company initiated a restructuring program during the third quarterof 2019 as part of its global plan to realize cost synergiesassociated with the Combination.The Company incurred Restructuring and related
charges of $6.0 million and credits
for reductions in headcount andsiteclosures under this program, net of adjustments to initial estimates for severanceof $0.6 million during the first nine months of
2022compared to Restructuring2023 and
2022, respectively, related
charges forto reductions in headcount
and site closures under
this program, net of adjustments toinitial estimates for severance of $0.6 million during the
first ninemonths of 2021.Company’s previous and current restructuring programs. See the Non-GAAP Measures section of this Item,
above.
Quaker Chemical Corporation
Management’s Discussion and Analysis
Operating income in the first nine months of
20222023 was
$105.9$166.2 million
compared to
$119.7$105.9 million in the first nine months 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-GAAP Measures
section of this Item, above, the Company’s
current year non-GAAP operating income
decreased increased to
$128.9$176.9 million for the first nine months of
20222023 compared
to
$143.3$128.9 million in the prior year’s first nine months
primarily due to
the lowerhigher gross profit
andpartially offset by higher SG&A, described above.
The Company had
otherOther expense
net, of
$8.6 million in the first nine months of 2023 compared to $10.5 million in the first nine months
of
2022 compared to other income, net of $19.3million in the first nine months of 2021.2022. The first nine months of
2022’s2023 and 2022 results include
$6.8 $1.0 million
and $1.1 million, respectively, of
loss on extinguishment of debtrelated to the Company’srefinancing the Original Credit Facility and also higher foreign currency transactionlosses year-over-year,facility remediation recoveries, while the prior year’s first nine months of 2022
other incomeOther expense also includes
$14.4 a $6.8 million of
non-income tax credits recorded byloss on extinguishment of debt related to the
Company’s
Brazilian subsidiariesas well as a $4.8 million gain onrefinancing the
saleOriginal Credit Facility. See the Non-GAAP Measures section of
certain held-for-sale real property assets.this Item, above. Also, there was higher foreign currency transaction losses in 2023 compared to 2022.Interest expense, net, increased
$3.5$18.5 million
compared to the first ninemonths of 2021, due to an increase in the averageborrowings outstanding in the first nine months of
2023 compared to the first nine months of 2022,
coupledwithdue to an increase in interest rates in the current year
partially offset by lower borrowings outstanding as compared to
the prior year.
The Company’s effective
tax rates for the first nine months of
2023 and 2022
were 31.1% and
2021 were 19.2%
and 21.8%,
respectively.respectively. The
Company’s effective
tax rate for the nine months ended September 30, 2023 was primarily impacted by changes to the valuation allowance for and the usage of foreign tax credits due to an enacted law change in Brazil and additional guidance from the U.S Department of Treasury, foreign tax inclusions, withholding taxes, share-based compensation, state income taxes, and the impact of forecasted pre-tax earnings and the mix of such earnings. Comparatively, the effective tax rate for the nine months ended September 30, 2022 was
largely drivenimpacted by
a decline in forecasted profits andearnings mix, foreign tax inclusions, changes in the valuation allowance
for foreign tax credits, the impact of audit settlements,
reachedwith Italian tax authorities, a reduction in reserves for uncertain tax positions,
withholding taxes, and
withholding taxes.the impact of forecasted pre-tax earnings and the mix of such earnings. In addition, the
Companyincurred highereffective tax
expenserate during the nine months ended September
30, 2022
primarily related towas impacted by the Company recording earnings
inof one of its subsidiaries at a statutory tax rate of 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 nine-month effective tax rate was
impactedby certain U.S.tax law changes, the tax impact of certain non-income tax credits recorded bythe Company’s Brazilian subsidiaries, and a deferredtaxbenefit related to an intercompany intangible asset transfer.pending receipt. Excluding the impact of non-core items in each period, described in
the
Non-GAAP Measures section of this Item, above, the Company estimates that
its effective tax rates for the first nine months of
20222023 and
20212022 would have been approximately
26%28% and
25%26%, respectively.
The Company expects continued volatility in its effective tax rates due to several factors, including the timing and scope of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, 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
(loss) of associated companies
decreased $8.3increased $11.3 million
in the first nine months of
20222023 compared to the first nine
months of
2021,2022, primarily due to
lowerhigher current year income from
the Company’s interest in a captive insurance
company
due to lowermarket performance on equity investments (see the Non-GAAP Measures
section of this Item, above), as well as
lowerhigher current year
income from the Company’s 50% interest
in a joint venture in Korea.
Net income attributable to noncontrolling interest was less than $0.1 million
in both the first nine months of
20222023 and
2021.2022.Foreign exchange unfavorably impacted the Company’s
first nine months of
20222023 results by approximately
7%3% driven by the
impact from foreign currency translation on earnings as well as higher
foreign exchange transaction losses in the current year as
compared to the prior year’s first nine months.
Reportable Segments Review - Comparison of the Third
Quarter of
20222023 with the Third Quarter of
20212022The 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. The three segments are comprised of the assets and operations in each respective region, including assets and operations formerly included in the Global Specialty Businesses segment. Prior to the Company’s reorganization, the Company’s historical reportable segments were: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global SpecialtyBusinesses.
The three geographic segments are composed of the net sales and operationsin each respective region, excluding netsales and operations managed globally by the Global Specialty Businessessegment, which includesAll prior period information has been recast to reflect the Company’scontainer, metal new reportable segments.finishing, mining, offshore, specialty coatings, specialtygrease and Norman Hay businesses.Segment operating earnings for the Company’sreportable 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 relatedto acquired inventory sold, which is adjusted to fair value as part of purchase accounting,are not included in segment operating earnings.(credits), net. Other items not specifically identified with the Company’sreportablesegments include interestInterest expense, net, and otherOther (expense) income, net.net.
Quaker Chemical Corporation
Management’s Discussion and Analysis
40
Americas
Americas represented approximately 38%50% of the Company’sconsolidated net sales in the third quarter of 2022.2023. The segment’s net sales were
$186.5$245.9 million,
an increasea decrease of
$35.7$8.8 million or
24%3%, compared
to the third quarter of
2021.The increase2022. This was driven by a decrease in
net sales
was due to volumes of approximately 8%, partially offset by higher selling price and product mix of
30%approximately 3% and
additionalnet sales from acquisition of 1%, partially offset by a
decreasein organic sales volumes of 7%. The increase in selling price andproduct mix was primarily driven by price increases implemented tooffset the significant increases in raw material and other input costs thatbegan during 2021 and continued through the third quarter of2022.The current quarter decline in organic sales volumes was primarilydriven by the wind-down of the tolling agreement forproducts previously divested related to the Combination, the Company’songoing value-based pricing initiatives and lower volumessold into the automotive industry due to the semiconductor supply constraints,partially offset by net new business wins.Thissegment’s operating earnings were$45.0 million, an increase of $13.7 million compared to the third quarterof 2021 primarily drivenby higher net sales, which were partially offset by ongoinginflationary pressures on the business.EMEA
EMEA represented approximately 23% of the Company’sconsolidated net sales in the third quarter of 2022.The segment’s netsales were $113.4 million, a decrease of$8.9 million, or 7%, compared to the third quarter of 2021.This was driven by higher sellingprice and product mix of 21% which was more than offsetby the unfavorablefavorable impact of foreign currency translation of
18% and adecrease2%. The current quarter decline in sales volumes of 10%.compared to the prior year was primarily driven by softer market conditions, customer order patterns and the Company’s value-based pricing initiatives, partially offset by new business wins. The increase in selling price and product mix was primarily driven by priceincreases implementedto offset the
significant increases in raw material and other inputcosts that began during 2021 and continued through the third quarteryear-over-year impact of
2022.price increases. The decline in sales volumesfavorable foreign exchange impact was primarily driven by the current geopolitical and macroeconomicpressures including the direct and indirect impacts of the ongoing war in Ukraine and the impactof the economic and other sanctions by other nations onRussia in response to the war, as well as lower volumesassociated with the Company’s ongoingvalue-based pricing initiatives, thewind-down of the tolling agreement for products previously divested relatedto the Combination and softer economic conditions in theregion.The significant and unfavorable foreign currency translation impact was primarilydue to the
strengtheningweakening of the U.S. dollar
against the
euroMexican peso as this exchange rate
averaged 1.01 in the third quarterof 2022 compared to 1.18averaged 17.06 Mexican peso per U.S. dollar in the third quarter of 2021.Thissegment’s operating earnings were$9.9 million, a decrease of $10.3 million or 51% compared2023 compared to the third quarterof 2021.Thedecrease in segment operating earnings was primarily a result of lowernet sales and lower gross margins due to the significantinflationary pressures on the Company’scosts exceeding the impact of its value-based pricing actions.Operating earnings in EMEAwere also negatively impacted by foreign currency translation.
Asia/Pacific
Asia/Pacific represented approximately 19% of the Company’sconsolidated net sales20.23 Mexican peso per U.S. dollar in the third quarter of 2022.TheThis segment’snet sales operating earnings were
$91.2$69.1 million,
a decreasean increase of
$7.4$2.4 million or
8%4%, comparedto the third quarter of 2021.2022 primarily driven by an improvement in the segment’s operating margins.EMEA
The decrease inEMEA represented approximately 29% of the Company’s consolidated net sales in the third quarter of 2023. The segment’s net sales were $139.6 million, an increase of $5.2 million or 4%, compared to the third quarter of 2022. This was
driven by
lower organic sales volumes of 20% and an unfavorableimpact from foreign currency translation of 6%, partially offsetbyhigher selling price and product mix of
18%approximately 6% and a favorable impact from foreign currency translation of 7%, partially offset by a decrease in sales volumes of 9%.
The increase in selling price and product mix was primarily driven by the year-over-year impact of price increasesimplementedincreases. The favorable foreign currency translation impact was primarily due to offset the significant increasesweakening of the U.S. dollar against the euro as this exchange rate averaged 1.09 U.S. dollars per euro in rawmaterial and other input costs that began during 2021 and continued through thethird quarter of 2023 compared to 1.01 U.S. dollars per euro in the third quarter of 2022. The decline in organic sales volumes was primarilydriven by softer market conditions, the Company’s value-based pricing initiatives, customer order patterns and the impacts of the wind-down of the tolling agreement for products previously divested related to the Combination as well as the ongoing war in Ukraine, partially offset by new business wins. This segment’s operating earnings were $27.9 million, an increase of $12.4 million or 80%, compared to the third quarter of 2022 primarily driven by an increase in China, as anet sales and an improvement in operating margins. resultAsia/Pacific
Asia/Pacific represented approximately 21% of government imposed COVID-19 quarantinesand related production disruptions implemented at the end of March 2022and continued throughoutCompany’s consolidated net sales in the third quarter of
2022,2023. The segment’s net sales were $105.1 million, an increase of $1.9 million or 2%, compared to the third quarter of 2022. This was driven by higher sales volumes of 6% partially offset by
net an unfavorable impact from foreign currency translation of 4%. The increase in sales volumes was primarily driven by an increase in end market activity, albeit at lower levels and new
business.business wins, partially offset by the impacts of the Company’s value-based pricing initiatives. The increase in selling price and product mix was primarily driven by year-over-year impact of price increases. The unfavorable foreign exchange impact was
primarily due to the strengthening of the U.S. dollar against the Chinese renminbi
as this exchange rate
averaged 6.85 in the thirdquarter of 2022 compared to 6.47averaged 7.24 Chinese renminbi per U.S. dollar in the third quarter of 2021.2023 compared to 6.84 Chinese renminbi per U.S. dollar in the third quarter of 2022. This segment’s operating earnings were$23.3 $31.0 million, an increase of$0.1 $4.2 million
or 16% compared to the third quarter of
2021 as lower2022 primarily driven by an increase in net sales
were offsetby improved margins.and an improvement in operating margins as well as slightly lower levels of SG&A.Global Specialty Businesses
Global Specialty BusinessesReportable Segments Review - Comparison of the First Nine Months of 2023 with the First Nine Months of 2022
Americas
Americas represented approximately 21%50% of theCompany’s consolidated net sales in thethird quarter first nine months of 2022. 2023. The segment’s net sales were
$101.1$750.5 million, an increase of $23.7$48.0 million or 31%7% compared to the third quarterfirst nine months of 2021.The increase in net sales2022. This was driven by higher selling price and product mix of 20%,an increase in organic sales volumes of 12% and additional netsales from acquisitionsa favorable impact of
2%foreign currency translation of 1%, partially offset by an unfavorableimpact from foreign currency translation of 6%.The increase inselling price and product mix was primarily driven by price increasesimplemented to help offset the significant increases in rawmaterial and other input costs that began during 2021 and continued throughthe third quarter of 2022.The increase in organic salesvolumes was primarily attributable to a continued favorable demandenvironment for this segment’s products.The unfavorableforeign exchange impact was primarily due to the strengtheningof the U.S. dollar against the euro as described in the EMEA sectionabove.This segment’s operating earningswere $30.7 million, an increase of $10.1 million or 49% compared to the third quarterof2021.The increase in segment operating earnings reflects the higher net sales andgross margins in the current year despite slightlyhigher raw materials costs due to continued inflationary pressures.
Quaker Chemical Corporation
Management’s Discussion and Analysis
41
Reportable Segments Review - Comparison of the First Nine months of 2022with the First Nine months of 2021Americas
Americas represented approximately 35% of the Company’sconsolidated net sales in the first nine months of 2022.Thesegment’s net sales were $513.4million, an increase of $88.1 million or 21% compared to the first nine months of 2021.The increasein net sales was due to higher selling price and product mix of 27%and additional net sales from acquisitions of 1%, partially offsetby a decrease in
organic sales volumes of
7%6%.The increase in selling price and product mix was primarily driven by the year-over-year impact of price increasesimplementedincreases. The favorable foreign currency impact was primarily due to help offset the significant increasesweakening of the U.S. dollar against the Mexican peso as this exchange rate averaged 17.78 Mexican peso per U.S. dollar in rawmaterial and other input costs that began during 2021 and have continuedinto the first nine months of 2023 compared to 20.25 Mexican peso per U.S. dollar in the first nine months of 2022.The decline in organic sales volumes compared to the prior year was primarily driven by lower sales volumes intosofter market conditions, the automotive end market,Company’s value-based pricing initiatives, customer order patterns, and thewind-down of the tolling agreement for products previously divested related
to the Combination,
the prior year period comparisonwhich included a strong rebound from COVID-19 impacts and the Company’songoing value-based pricing initiatives, partially offset
by
net new business
wins.wins, as mentioned above. This segment’s operating earnings were$108.0204.3 million, an increase of $10.8$40.2 million or 11%25%compared tothe first nine
months of 2021.The increase in segment operating earnings was2022 primarily a result of higher netsales which more thanoffset lower gross margins driven by inflationaryhigher net sales coupled with an improvement in operating margins, as mentioned above.
Quaker Chemical Corporation
Management’s Discussion and Analysis
EMEA
EMEA represented approximately 25%30% of the Company’sconsolidated net sales in the first nine months of 2022.2023. The segment’s net sales were
$362.1$435.6 million,
a decreasean increase of
$3.4$8.9 million or
1%2% compared
to the first
nine months of 2021.The decrease in net sales2022. This was a result of higher selling price and product mix of
20%13% and
additionalnet sales from acquisitions of 1%, more than offset by the unfavorablea favorable impact of foreign currency translation of
15% andapproximately 1%, partially offset by a decrease in
organic sales volumes of
7%12%.
The increase in sellingprice and product mix was primarily driven by price increases implementedto help offset the significant increases in raw material andother input costs that began during 2021 and have continued into 2022.The decline in organic sales volumes was primarily driven bythe current geopolitical and macroeconomic pressures includingthe direct and indirect impacts of the ongoing war in Ukraine and theimpact of the economic and other sanctions by other nations on Russia in responseto the war, lower volumesassociated with theCompany’s ongoing value-based pricing initiatives, the wind-down of the tolling agreement for products previouslydivested related tothe Combination, the prior year period comparison which includeda strong rebound from COVID-19 impacts, and softer economicconditions in the region in the current period, partially offset bynet new business wins.The unfavorable foreign exchange impact wasprimarily due to the strengthening of the U.S. dollar against the euroas this exchange rate averaged 1.07 in the first nine months of2022 compared to 1.20 in first nine months of 2021.This segment’s operating earnings were $39.9million, a decrease of $28.9million or 42% compared to the first nine months of 2021.The decrease in segment operating earnings was primarily a result of lowergross margins driven by significant inflationary pressuresand the negative impact of foreign currency translation year-over-year.Asia/Pacific
Asia/Pacific represented approximately 20% of the Company’sconsolidated net sales in the first nine months of 2022.Thesegment’s net sales were $295.3million, an increase of $8.3 million or 3% compared to the first nine months of 2021.The increase innet sales was driven by higher selling price and product mix of 15%,partially offset by lower organic sales volumesof 9% and theunfavorable impact of foreign currency translation of 3%.The increase in selling price and product mix was primarily driven by the year-over-year impact of priceincreases implemented increases. The favorable foreign currency impact was primarily due to help offset the significantincreasesweakening of the U.S. dollar against the euro as this exchange rate averaged 1.08 U.S. dollars per euro in raw material and other input costs that began during 2021 andcontinued intothe first nine months of 2023 compared to 1.07 U.S. dollars per euro in the first nine months of 2022.The decline in organic sales volumes was primarily driven by softer endmarket conditions, in China as a resultthe Company’s value-based pricing initiatives, customer order patterns, the impacts of the
government imposed COVID-19 quarantine and related productiondisruptionsongoing war in Ukraine and the
prior year comparison which included a strong rebound from COVID-19 impacts as customers replenishedtheir supply chains,wind-down of the tolling agreement for products previously divested related to the Combination, partially offset by
net new business wins.
This
segment’s operating earnings were $81.1 million, an increase of $22.3 million or 38% compared to the first nine months of 2022 primarily driven by higher net sales coupled with an improvement in operating margins, as mentioned above.
Asia/Pacific
$67.5Asia/Pacific represented approximately 20% of the Company’s consolidated net sales in the first nine months of 2023. The segment’s net sales were $300.1 million, a decrease of $6.5$29.4 million or 9% compared to the first nine months of2021.The decrease in segment operating earnings2022. This was primarily a result of highernet sales, which was more than offsetdriven by lower gross marginsdue to significant inflationary pressuressales volumes of 10% and thean unfavorable impactof foreign currency translation.Global Specialty Businesses
Global Specialty Businesses represented approximately 20%translation of
theCompany’s consolidated net sales in thefirst nine months of2022.The segment’s net sales were $288.0million, an increase of $51.6 million or 22% compared to the first nine months of 2021.The increase in net sales was driven5%, partially offset by higher selling price and productmix of 15%, an increase6%.The decline in organic sales volumes was primarily driven by softer market conditions, customer order patterns, including the impact of 8%COVID-19 lockdown measures, primarily in China, andadditional net sales from acquisitions of 3%, the Company’s value-based pricing initiatives, partially offset
by
new business wins.The unfavorable foreign exchange impact was primarily due to the unfavorable impact from foreign currency translationstrengthening ofapproximately 4%. the U.S. dollar against the Chinese renminbi as this exchange rate averaged 7.02 Chinese renminbi per U.S. dollar in the first nine months of 2023 compared to 6.59 Chinese renminbi per U.S. dollar in the first nine months of 2022. The increase in selling price and product mix was primarily driven by year-over-year impact of price increases,implemented to help offsetthe significant increases in raw material and other input costs that began during2021 and continued into 2022.The increase inorganic sales volumes was primarily attributableto a continued favorable demand environment for this segment’sproducts.Theunfavorable foreign exchange impact was primarily due to the strengtheningof the U.S. dollar against the euro described in the EMEAsection above. as mentioned above. This segment’s operating earningswere $83.6$86.6 million, an increase of $14.6$10.5 million or 21%14% compared to the firstninemonths of 2021.The increase2022. This was primarily driven by a recovery in segment operating earnings reflects highermargins as well as slightly lower levels of SG&A, which more than offset the decline in net sales, and comparable grossmargins, partially offsetas mentioned above. by the negative impact of foreign currency translation.
Quaker Chemical Corporation
Management’s Discussion and Analysis
42
Factors That May Affect Our Future Results
(Cautionary Statements Under the Private Securities Litigation Reform
Act of 1995)
Certain information included in this Report and other materials filed or
to be filed by
Quaker Chemical 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 conflict between Russia and
Ukraine, inflation, bank failures, higher interest rate environment, global supply chain constraints on the Company’s
business, results of operations, and financial condition,
our expectation that we will maintain sufficient liquidity,
remain in compliance with the terms of the Company’s credit facility, expectations about future demand and raw material costs and statements regarding the impact of increased raw material costs and
pricing
initiatives on our current expectations about futureevents.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 Ukrainianand Russian conflict and actions taken by various governments and governmental organizations
in response;
•the potential impacts of the automotive industry labor dispute
•inflationary pressures, cost increases and the impacts of constraints and disruptions in the global supplychain; •the potential benefits of acquisitions;
•the potential for a variety of macroeconomic events, including the possibility of globalor regional recessions, inflation generally,
continued or accelerated cost increases in
prices of raw materials such as oil and increasing interest rates, to impact the value of our
assets or result in asset impairments;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.
Quaker Chemical Corporation
Management’s Discussion and Analysis
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.
Any or all of the forward-looking statements in this Report, in the Company’s
Annual Report to Shareholders for 2021 2022 Form 10-K 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 and labor disputes.
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 byvarious governments, which could exacerbate some or all of the otherrisks 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
conflictconflicts between Russia and Ukraine
and between Israel and Hamas, 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, the impact of consolidation in our industry, including loss or consolidation of a major customer and the potential occurrence of cyber-security breaches, cyber-security attacks and other security incidents.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 willdependon, among other things, the extent and duration of the pandemic, the severity ofthe disease and the number of people infectedwith the virus including new variants, the continued uncertainty regardingglobal availability, administration,acceptance and long-term efficacy of vaccines, or other treatments for COVID-19 orits variants, the longer-term effects on the economy ofthe 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 measuresremain in place, as well as laws and other governmentalprograms implemented to address the pandemic or assist impactedbusinesses, such as fiscal stimulus and other legislation designed todeliver 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 andassumptions about theQuaker Chemical Corporation
Management’s Discussion and Analysis
43
Company and its operations that are subject to change based on various importantfactors, some of which are beyond our control.These risks, uncertainties, and possible inaccurate assumptions relevantto our business could cause our actual results to differmaterially from expected and historical results.Therefore, we caution you not to place undue reliance on our forward-looking
statements.
For more information regarding these
risks and uncertainties as well as certain additional risks that we face,
refer to the Risk Factors section, which appears in Item 1A in
our
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.
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.
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, except the interest
rate risk information noted below.
Interest Rate Risk
The Company’s exposure tointerest rate risk relates primarily to its outstanding borrowings under its credit facility.During June2022, the Company entered into an amendment to its primary credit facility
(the (the “Original Credit Facility”, or as amended, the
“Amended Credit “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 ConsolidatedFinancial Statements, which appears in Item 1 of thisReport. As of
September 30,December 31, 2022, borrowings under the
AmendedCredit Facility bear interest at either term
SOFRSecured 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
Amended Credit Facility,
if
interest rates rise significantly,
the cost of debt to the Company will increase. This
canmay have an adverse effect
on the Company,
depending on the extent of the Company’s
borrowings outstanding throughout a given year.
As of September 30, 2022, the Companyhad outstanding borrowings under the Amended Credit Facility of approximately$941.2 million. The interest rate applicable onoutstanding borrowings under the Amended Credit Facility was approximately3.8% as of September 30, 2022. As of December 31,
2021, 2022, and September 30, 2023, the Company had outstanding borrowings under the Original CreditFacility of approximately $889.6 million.$943.5 million and $814.8 million, respectively. The variableweighted average interest rate
incurredapplicable on
outstanding borrowings under the
Credit Facility was approximately 4.9% and 6.3% as of December 31, 2022, and September 30, 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, 20212022 was approximately
1.6%. If interest rates had changed by 10% during 2021, theCompany’s interest expense forthe period endedDecember 31, 2021 on its credit facilities, including the Original Credit Facility borrowingsoutstanding post-closing of theCombination, would have correspondingly increased or decreased by approximately$1 million. Likewise, if interest rates had changedby 10% during3.0% and the nine
month periodmonths ended
September 30, 2022, the Company’s2023 was approximately 6.1%. An interest rate change of 100 basis points would result in an approximate $9.4 million and $8.1 million increase or decrease to interest expense for the nine month periodyear ended December 31, 2022 and the year ended December 31, 2023, respectively.September 30, 2022 on its credit facilities, including the Amended CreditFacility borrowings outstanding, would havecorrespondingly increased or decreased by approximately $2.2million. The Original Credit Facility required the Company to fix itsvariable interest rates on at least 20% of its total term loans. In order
to satisfy this requirementas well as to manage the Company’s
exposure to variable interest rate risk associated with the
Original Credit Facility,
such as SOFR, 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 into an average fixed rate obligation of
1.64%3.64% plus an applicable margin as provided in the
Original Credit Facility based
on the Company’s consolidated net
leverage ratio.
At the time the Company entered into the swaps, andasAs of September 30,
2022,2023, the aggregate interest rate on the swaps, including
the fixed base rate plus
anthe applicable margin, was
3.1%5.3%.
In October 2022, the Company’s These interest rate
swap contracts expired.Upon expiration,swaps are designated and qualify as cash flow hedges. The Company has previously used derivative financial instruments primarily for the
Company is entitledpurpose of hedging exposures to
a cash paymentfluctuations in interest rates.from the counterparties, which is materially consistent with the fair value as ofSeptember 30, 2022. The Amended Credit Facilitydoes not require the Company to fix variable interest rates on any portion of its borrowings.
45
Item 4.
Controls and Procedures.
Evaluation of disclosure controlsand procedures. As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our
principal executive officer and principal financial officer,
has
evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this Report.
Based on that evaluation, our principal executive officer and our principal
financial officer
have concluded that, as of September 30,
2022,2023, the end of the period covered
by this Report, our disclosure controls and procedures
(as (as defined in Rule 13a-15(e) under the Exchange Act) were effective.
Changes in internal control over financial reporting.
As required by Rule 13a-15(d) under the Exchange Act, our management, including our principal executive officer
and principal financial officer, has evaluated
our internal control over
financial reporting to determine whether any changes to our internal control
over financial reporting occurred during the
quarter ended September 30,
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
September 30, 2023.
46
OTHER INFORMATION
Items 3 4 and 54 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
20212022 Form 10-K.
There have
been no material changes to the risk factors described therein.
Item 2.
Unregistered Sales of Equity Securities,
and Use of
Proceeds.Proceeds and Issuer Purchases of Equity Securities.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) |
July 1 - July 31 | | 2,661 | | $ | 195.06 | | | — | | $ | 86,865,026 | |
August 1 - August 31 | | 130 | | $ | 204.79 | | | — | | $ | 86,865,026 | |
September 1 - September 30 | | — | | $ | — | | | — | | $ | 86,865,026 | |
Total | | 2,791 | | $ | 195.37 | | | — | | $ | 86,865,026 | |
(d)
Approximate Dollar
(a)
(b)
Average
as part of
of Shares
Price Paid
Publicly Announced
Purchased Under the
Period
Purchased (1)
Per Share (2)
Plans or Programs
Plans or Programs (3)
July 1 - July 31
$
—
$
August 1 - August 31
$
—
$
September 1 - September 30
$
—
$
Total
$
—
$
(1)
All of these shares were acquired from employees related to the surrenderof 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 employeebenefit 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 theCompany 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 September 30,
2022.2023.Limitation on the Payment of Dividends
The
Amended 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.
47
Item
6.Exhibits.5. Other Information.(a) ExhibitsInsider Trading Arrangements and Policies
3.1
–
3.2
–
31.1
–
On August 31, 2023, Jeewat Bijlani, Executive Vice President, Chief Strategy Officer, entered into a Rule 10b5-1 written trading arrangement intended to satisfy the affirmative defense of Rule 13a-14(a) of10b5-1(c) under the Securities Exchange Act of 1934, as amended. Mr. Bijlani’s trading arrangement covers the sale of up to 2,900 shares of Company common stock and the exercise and sale of up to 6,338 shares of Company common stock upon the exercise of incentive and non-qualified stock options from December 1, 2023 until July 31, 2024.
31.2
–Item 6. Exhibits.
32.1
–
32.2
–
101.INS
–
Inline XBRL Instance Document*
101.SCH
–
Inline XBRL TaxonomySchema Document*101.CAL
–
Inline XBRL TaxonomyCalculation Linkbase Document*101.DEF
–
Inline XBRL TaxonomyDefinition Linkbase Document*101.LAB
–
Inline XBRL TaxonomyLabel Linkbase Document*101.PRE
–
Inline XBRL TaxonomyPresentation Linkbase Document*104
–
Cover Page Interactive Data File (formatted as Inline XBRL and containedin Exhibit 101.INS)* | | | | | | | | |
3.1 | – | |
3.2 | – | |
31.1 | – | |
31.2 | – | |
32.1 | – | |
32.2 | – | |
101.INS | – | Inline XBRL Instance Document* |
101.SCH | – | Inline XBRL Taxonomy Schema Document* |
101.CAL | – | Inline XBRL Taxonomy Calculation Linkbase Document* |
101.DEF | – | Inline XBRL Taxonomy Definition Linkbase Document* |
101.LAB | – | Inline XBRL Taxonomy Label Linkbase Document* |
101.PRE | – | Inline XBRL Taxonomy Presentation Linkbase Document* |
104 | – | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)* |
*Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan.
*********
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| QUAKER CHEMICAL CORPORATION |
| (Registrant) |
| |
| /s/ Shane W. Hostetter |
Date: November 2, 2023 | Shane W. Hostetter, Executive Vice President, Chief Financial Officer (officer duly authorized on behalf of, and principal financial officer of, the Registrant) |
QUAKER CHEMICAL CORPORATION
/s/ Shane W. Hostetter
Date: November 3, 2022
Shane W. Hostetter,Senior Vice President, Chief FinancialOfficer (officer duly authorized on behalf of, and principal
financial officer of, the Registrant)39