Quaker Chemical (KWR) 10-Q 2022 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM

10-Q

☒

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

For the quarterly period ended

March 31, 2022

OR

☐

TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For 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.)

901 E. Hector Street

,

Conshohocken

,

Pennsylvania

19428 – 2380

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

610

-

832-4000

Not Applicable

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

KWR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reportsrequired 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 registrantwas required to file such reports), and (2) has been subjectto such filing requirements for the past 90

days.Yes

☒

No

☐

Indicate by check mark whether the registrant has submittedelectronically every Interactive Data File required to be submittedpursuant to Rule 405 of RegulationS-T

(§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submitsuch files).

Yes

☒

No

☐

Indicate by check mark whether the registrant is a large accelerated filer, an acceleratedfiler, 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

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to usethe extended transition period for complying with any newor revised

financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).Yes

☐

No

☒

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

Number of Shares of Common Stock

Outstanding on April 30, 2022

17,912,086

1

QUAKER CHEMICAL CORPORATIONAND CONSOLIDATEDSUBSIDIARIES

Page

PARTI.

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

2

3

4

5

Condensed Consolidated Statements of Changes in Equity for the Three MonthsEnded March 31, 2022 and 2021

6

7

Item 2.

22

Item 3.

34

Item 4.

35

PARTII.

36

Item 1.

36

Item 1A.

36

Item 2.

36

Item 6.

37

Signatures

37

2

PARTI

FINANCIAL INFORMATION

Item 1.Financial Statements (Unaudited).

Quaker Chemical Corporation

Condensed Consolidated Statements of Income

(Dollars in thousands, except per share data)

Unaudited

Three Months Ended March 31,

2022

2021

Net sales

$

474,171

$

429,783

Cost of goods sold (excluding amortization expense - See Note 13)

328,100

273,589

Gross profit

146,071

156,194

Selling, general and administrative expenses

111,795

104,310

Restructuring and related charges

820

1,175

Combination, integration and other acquisition-related expenses

4,053

5,815

Operating income

29,403

44,894

Other (expense) income, net

(2,206)

4,687

Interest expense, net

(5,345)

(5,470)

Income before taxes and equity in net income of associated companies

21,852

44,111

Taxes on income beforeequity in net income of associated companies

2,866

10,689

Income before equity in net income of associated companies

18,986

33,422

Equity in net income of associated companies

835

5,210

Net income

19,821

38,632

Less: Net income attributable to noncontrolling interest

5

17

Net income attributable to Quaker Chemical Corporation

$

19,816

$

38,615

Per share data:

Net income attributable to Quaker Chemical Corporation common

shareholders – basic

$

1.11

$

2.16

Net income attributable to Quaker Chemical Corporation common

shareholders – diluted

$

1.11

$

2.15

Dividends declared

$

0.415

$

0.395

The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.

3

Quaker Chemical Corporation

Condensed Consolidated Statements of ComprehensiveIncome

(Dollars in thousands)

Unaudited

Three Months Ended March 31,

2022

2021

Net income

$

19,821

$

38,632

Other comprehensive (loss) income, net of tax

Currency translation adjustments

(6,866)

(25,461)

Defined benefit retirement plans

496

1,292

Current period change in fair value of derivatives

1,100

562

Unrealized loss on available-for-sale securities

(1,000)

(3,025)

Other comprehensive loss

(6,270)

(26,632)

Comprehensive income

13,551

12,000

Less: Comprehensive income attributable to noncontrollinginterest

(6)

(15)

Comprehensive income attributable to Quaker Chemical Corporation

$

13,545

$

11,985

The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.

4

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)

Unaudited

March 31,

December 31,

2022

2021

ASSETS

Current assets

Cash and cash equivalents

$

161,552

$

165,176

Accounts receivable, net

458,459

430,676

Inventories

Raw materials and supplies

146,289

129,382

Work-in-processand finished goods

153,506

135,149

Prepaid expenses and other current assets

67,853

59,871

Total currentassets

987,659

920,254

Property, plant and equipment,at cost

439,318

434,344

Less accumulated depreciation

(242,203)

(236,824)

Property, plant and equipment,net

197,115

197,520

Right of use lease assets

38,245

36,635

Goodwill

630,938

631,194

Other intangible assets, net

1,012,068

1,027,782

Investments in associated companies

90,003

95,278

Deferred tax assets

11,496

16,138

Other non-current assets

29,198

30,959

Total assets

$

2,996,722

$

2,955,760

LIABILITIES AND EQUITY

Current liabilities

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

$

61,385

$

56,935

Accounts payable

253,906

226,656

Dividends payable

7,433

7,427

Accrued compensation

26,396

38,197

Accrued restructuring

4,435

4,087

Accrued pension and postretirement benefits

1,549

1,548

Other accrued liabilities

97,445

95,617

Total currentliabilities

452,549

430,467

Long-term debt

858,287

836,412

Long-term lease liabilities

27,433

26,335

Deferred tax liabilities

170,622

179,025

Non-current accrued pension and postretirement benefits

44,667

45,984

Other non-current liabilities

47,464

49,615

Total liabilities

1,601,022

1,567,838

Commitments and contingencies (Note 18)

Equity

Common stock, $

1

par value; authorized

outstanding 2022 –

17,911,583

shares; 2021 –

17,897,033 shares

17,912

17,897

Capital in excess of par value

918,699

917,053

Retained earnings

528,716

516,334

Accumulated other comprehensive loss

(70,261)

(63,990)

Total Quakershareholders’ equity

1,395,066

1,387,294

Noncontrolling interest

634

628

Total equity

1,395,700

1,387,922

Total liabilities and equity

$

2,996,722

$

2,955,760

The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.

5

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

Unaudited

Three Months Ended March 31,

2022

2021

Cash flows from operating activities

Net income

$

19,821

$

38,632

Adjustments to reconcile net income to net cash used in operating activities:

Amortization of debt issuance costs

1,187

1,187

Depreciation and amortization

20,447

22,145

Equity in undistributed earnings of associated companies, net of dividends

2,135

(5,105)

Acquisition-related fair value adjustments related to inventory

0

801

Deferred compensation, deferred taxes and other,net

(3,778)

(9,888)

Share-based compensation

2,462

3,779

Gain on disposal of property, plant,equipment and other assets

(23)

(5,410)

Combination and other acquisition-related expenses, net of payments

(4,246)

(2,884)

Restructuring and related charges

820

1,175

Pension and other postretirement benefits

(1,316)

(1,034)

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

liabilities, net of acquisitions:

Accounts receivable

(26,270)

(46,270)

Inventories

(33,873)

(24,994)

Prepaid expenses and other current assets

(6,506)

(8,315)

Change in restructuring liabilities

(408)

(3,034)

Accounts payable and accrued liabilities

23,249

26,597

Net cash used in operating activities

(6,299)

(12,618)

Cash flows from investing activities

Investments in property,plant and equipment

(8,847)

(3,934)

Payments related to acquisitions, net of cash acquired

(9,383)

(26,655)

Proceeds from disposition of assets

0

14,744

Net cash used in investing activities

(18,230)

(15,845)

Cash flows from financing activities

Payments of long-term debt

(14,112)

(9,551)

Borrowings on revolving credit facilities, net

43,000

30,000

Repayments on other debt, net

(102)

(188)

Dividends paid

(7,428)

(7,052)

Stock options exercised, other

(801)

(178)

Net cash provided by financing activities

20,557

13,031

Effect of foreign exchange rate changes on cash

348

(3,008)

Net decrease in cash and cash equivalents

(3,624)

(18,440)

Cash and cash equivalents at the beginning of the period

165,176

181,895

Cash and cash equivalents at the end of the period

$

161,552

$

163,455

The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.

6

Quaker Chemical Corporation

Condensed Consolidated Statements of Changes in Equity

(Dollars in thousands, except per share amounts)

(Unaudited)

Accumulated

Capital in

Other

Common

Excess of

Retained

Comprehensive

Noncontrolling

Stock

Par Value

Earnings

Loss

Interest

Total

Balance at December 31, 2020

$

17,851

$

905,171

$

423,940

$

(26,598)

$

550

$

1,320,914

Net income

0

0

38,615

0

17

38,632

Amounts reported in other

comprehensive loss

0

0

0

(26,630)

(2)

(26,632)

Dividends ($

0.395

per share)

0

0

(7,062)

0

0

(7,062)

Share issuance and equity-based

compensation plans

24

3,577

0

0

0

3,601

Balance at March 31, 2021

$

17,875

$

908,748

$

455,493

$

(53,228)

$

565

$

1,329,453

Balance at December 31, 2021

$

17,897

$

917,053

$

516,334

$

(63,990)

$

628

$

1,387,922

Net income

0

0

19,816

0

5

19,821

Amounts reported in other

comprehensive loss

0

0

0

(6,271)

1

(6,270)

Dividends ($

0.415

per share)

0

0

(7,434)

0

0

(7,434)

Share issuance and equity-based

compensation plans

15

1,646

0

0

0

1,661

Balance at March 31, 2022

$

17,912

$

918,699

$

528,716

$

(70,261)

$

634

$

1,395,700

The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

7

Note 1 – Basis of Presentation and Description of Business

Basis of Presentation

As used in these Notes to Condensed Consolidated Financial Statements, theterms “Quaker,” “Quaker Houghton,” the

“Company,” “we,” and “our” refer to Quaker Chemical Corporation(doing business as Quaker Houghton), its subsidiaries, and

associated companies, unless the context otherwise requires.As used in these Notes to Condensed Consolidated Financial Statements,

the term Legacy Quaker refers to the Company prior to the closing of its combinationwith Houghton International, Inc. (“Houghton”)

(herein referred to as the “Combination”).The condensed consolidated financial statements included herein are unaudited andhave

been prepared in accordance with generally accepted accounting principlesin 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 accordancewith U.S. GAAP have been condensed or omitted

pursuant to such rules and regulations.In the opinion of management, the financial statements reflect all adjustmentsconsisting only

of normal recurring adjustments, which are necessary for a fair statement ofthe financial position, results of operations and cash flows

for the interim periods.The results for the three months ended March 31, 2022 are not necessarily indicativeof the results to be

expected for the full year.These financial statements should be read in conjunction with the Company’sAnnual Report filed on Form

10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

Description of Business

The Company was organized in 1918, incorporated as a Pennsylvaniabusiness corporation in 1930, and in August 2019

completed the Combination with Houghton to form Quaker Houghton.Quaker Houghton is the global leader in industrial process

fluids.With a presence around the world, includingoperations in over

25

countries, the Company’s customersinclude thousands of

the world’s most advanced and specializedsteel, aluminum, automotive, aerospace, offshore, can,mining, and metalworking

companies.Quaker Houghton develops, produces, and markets a broad range of formulated chemicalspecialty products and offers

chemical management services (which the Company refers to as “Fluidcare

TM

”) for various heavy industrial and manufacturing

applications throughout its

4

segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; andGlobal Specialty

Businesses.

Hyper-inflationary economies

Based on various indices or index compilations being used to monitor inflationin Argentina as well as economic instability,

effective July 1, 2018, Argentina’seconomy was considered hyper-inflationary under U.S. GAAP.As of, and for the three months

ended March 31, 2022, the Company's Argentine subsidiaries representedless than

1

% of the Company’s consolidatedtotal assets and

net sales, respectively.During each of the three months ended March 31, 2022 and 2021, the Companyrecorded $

0.2

million of

remeasurement losses associated with the applicable currency conversionsrelated to Argentina.These losses were recorded within

foreign exchange losses, net, which is a component of other (expense) income, net,in the Company’s Condensed Consolidated

Statements of Income.

Note 2 – Business Acquisitions

2022 Acquisitions

In January 2022, the Company acquired a business that provides picklinginhibitor technologies for the steel industry,drawing

lubricants and stamping oil for metalworking, and various other lubrication,rust preventative, and cleaner applications, for its

Americas reportable segment for approximately $

8.0

million.This business broadens the Company’sproduct offerings within its

existing metals and metalworking business in the Americas region.The Company allocated $

5.6

million of the purchase price to

intangible assets, comprised of $

5.1

million of customer relationships to be amortized over

14

years; and $

0.5

million of existing

product technologies to be amortized over

14

years.In addition, the Company recorded $

1.8

million of goodwill related to expected

value not allocated to other acquired assets, all of which is expected to be tax deductiblein various jurisdictionsin which the

Company operates.

In January 2022, the Company acquired a business related to the sealing and impregnationof metal castings for the automotive

sector, as well as impregnation resin andimpregnation systems for metal parts, for its Global Specialty Business reportable segment

for approximately

1.2

million EUR or approximately $

1.4

million.This business expands the Company's geographic presence in

Germany as well as broadens its product offerings andservice capabilities within its existing impregnation business acquiredas part of

the Norman Hay acquisition in 2019.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

8

The results of operations of the 2022 acquired assets and businesses subsequentto the respective acquisition dates are included in

the unaudited Condensed Consolidated Statements of Income for the quarter endedMarch 31, 2022.Applicable transaction expenses

associated with these acquisitions are included in Combination,integration and other acquisition-related expenses in the Company’s

unaudited Condensed Consolidated Statements of Income.Certain pro forma and other information is not presented, as the operations

of the acquired assets and businesses are not considered material to the overall operationsof the Company for the periods presented.

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 componentsfor its Global Specialty Businesses reportable segment for

$

11.0

million, including an initial cash payment of $

7.1

million, subject to post-closing adjustments as well as certain earn-out

provisions initially estimated at $

3.9

million that are payable at different times from 2022 through2025.The earn-out provisions

could total a maximum of $

4.5

million.The Company allocated $

8.0

million of the purchase price to intangible assets, $

1.1

million of

property, plant andequipment and $

1.5

million of other assets acquired net of liabilities assumed, which includes $

0.3

million of cash

acquired.In addition, the Company recorded $

0.4

million of goodwill, all of which is expected to be tax deductible.Intangible assets

comprised $

7.2

million of customer relationships to be amortized over

15 years

; and $

0.8

million of existing product technology to be

amortized over

13 years

.

In November 2021, the Company acquired a business that provideshydraulic fluids, coolants, cleaners, and rust preventative oils

in Turkey for its EMEA reportable segment for

3.2

million EUR or approximately $

3.7

million.

In September 2021, the Company acquired the remaining interest in Grindaix-GmbH (“Grindaix”), a Germany-based, high-tech

provider of coolant control and delivery systems for its Global Specialty Businesses reportablesegment for

2.4

million EUR or

approximately $

2.9

million, which is gross of approximately $

0.3

million of cash acquired.Previously, in February2021, the

Company acquired a

38

% ownership interest in Grindaix for

1.4

million EUR or approximately $

1.7

million.The Company recorded

its initial investment as an equity method investment within the Consolidated FinancialStatements and accounted for the purchase of

the remaining interest as a step acquisition whereby the Company remeasuredthe previously held equity method investment to its fair

value.

In June 2021, the Company acquired certain assets for its chemical milling maskantsproduct line in the Global Specialty

Businesses reportable segment for

2.3

million EUR or approximately $

2.8

million.

In February 2021, the Company acquired a tin-plating solutions business forthe steel end market for $

25.0

million.This

acquisition is part of each of the Company’sgeographic reportable segments.The Company allocated $

19.6

million of the purchase

price to intangible assets, comprised of $

18.3

million of customer relationships, to be amortized over

19 years

; $

0.9

million of existing

product technology to be amortized over

14 years

; and $

0.4

million of a licensed trademark to be amortized over

3 years

.In addition,

the Company recorded $

5.0

million of goodwill, all of which is expected to be tax deductible in various jurisdictions in whichwe

operate.Factors contributing to the purchase price that resulted in goodwill included theacquisition of business processes and

personnel that will allow Quaker Houghton to better serve its customers.

As of March 31, 2022, the allocation of the purchase price of these acquisitions havenot been finalized and the one-year

measurement period has not ended, with the exception of the tin-platingsolutions business acquired in February 2021, the

measurement period for which ended in February 2022.Further adjustments may be necessary as a result of the Company’son-going

assessment of additional information related to the fair value of assets acquiredand liabilities assumed.

In December 2020, the Company acquired Coral Chemical Corporation (“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”) haveworked to finalize

certain post-closing adjustments.In April 2022, after failing to reach resolution, the Sellers filed suit asserting certainamounts owed

related to tax attributes of the acquisition.Based on the facts and circumstances of the claim asserted by the Sellers, the Company

believes the potential range of exposure for this claim is $

0

to $

1.5

million.

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting StandardsAdopted

The FASB issued ASU 2020-04

, Reference Rate Reform (Topic848): Facilitation of the Effects of Reference Rate Reformon

Financial Reporting

in March 2020.The FASB subsequentlyissued ASU 2021-01

, Reference Rate Reform (Topic848): Scope

in

January 2021 which clarified the guidance but did not materially changethe guidance or its applicability to the Company.The

amendments provide temporary optional expedients and exceptionsfor applying U.S. GAAP to contract modifications, hedging

relationships and other transactions to ease the potential accountingand financial reporting burden associated with transitioning away

from reference rates that are expected to be discontinued, includingthe London Interbank Offered Rate (“LIBOR”).ASU 2020-04 is

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

9

effective for the Company as of March 12, 2020 and generally canbe applied through December 31, 2022.On December 10, 2021,

the Company entered into a Second Amendment to Credit Agreement (“SecondAmendment”) with Bank of America N.A., an update

to provide for the use of a non-USD currency LIBOR successor rate.The Company elected to apply the expedients provided in ASU

2020-04 with respect to the Second Amendment.The Company will continue to monitor for potential impacts related to its USD-

based LIBOR rates.See Note 14 of Notes to Condensed Consolidated Financial Statements.

Note 4 – Business Segments

The Company’s operatingsegments, which are consistent with its reportable segments, reflect the structure of theCompany’s

internal organization, the method by which the Company’sresources are allocated and the manner by which the chief operating

decision maker assesses the Company’sperformance.

The Company has

4

reportable segments: (i) Americas; (ii) EMEA; (iii)

Asia/Pacific; and (iv) Global Specialty Businesses.The three geographic segments are composed of the net sales and operations in

each respective region, excluding net sales and operations managed globallyby the Global Specialty Businesses segment, which

includes the Company’s container,metal finishing,mining, offshore, specialty coatings, specialty grease and NormanHay businesses.

Segment operating earnings for each of the Company’sreportable segments are comprised of the segment’snet sales less directly

related cost of goods sold (“COGS”) and selling, general and administrativeexpenses (“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 relatedcharges,are not included in segment operating earnings.Other

items not specifically identified with the Company’sreportable segments include interest expense, net and other (expense) income,

net.

The following table presents information about the performance of the Company’sreportable operating segments for the three

months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Net sales

Americas

$

154,144

$

134,871

EMEA

125,687

119,814

Asia/Pacific

104,234

96,706

Global Specialty Businesses

90,106

78,392

Totalnet sales

$

474,171

$

429,783

Segment operating earnings

Americas

$

29,220

$

32,234

EMEA

16,766

25,244

Asia/Pacific

21,907

27,478

Global Specialty Businesses

25,035

24,169

Totalsegment operating earnings

92,928

109,125

Combination, integration and other acquisition-related expenses

(4,053)

(5,815)

Restructuring and related charges

(820)

(1,175)

Fair value step up of acquired inventory sold

0

(801)

Non-operating and administrative expenses

(43,463)

(40,992)

Depreciation of corporate assets and amortization

(15,189)

(15,448)

Operating income

29,403

44,894

Other (expense) income, net

(2,206)

4,687

Interest expense, net

(5,345)

(5,470)

Income before taxes and equity in net income of associated companies

$

21,852

$

44,111

Inter-segment revenues for the three months ended March 31,2022 and 2021 were $

2.9

million and $

3.3

million for Americas,

$

8.9

million and $

8.8

million for EMEA, $

0.3

million and $

0.1

million for Asia/Pacific and $

1.7

million and $

2.0

million for Global

Specialty Businesses, respectively.However, all inter-segment transactionshave been eliminated from each reportable operating

segment’s net sales and earnings forall periods presented in the above tables.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

10

Note 5 – Net Sales and Revenue Recognition

Arrangements Resulting in Net Reporting

As part of the Company’s Fluidcare

TM

business, certain third-party product sales to customers are managed by the Company.The

Company transferred third-party products under arrangements recognizedon a net reporting basis of $

19.8

million and $

17.8

million

for the three months ended March 31, 2022 and 2021, respectively.

Customer Concentration

A significant portion of the Company’srevenues are realized from the sale of process fluids and services to manufacturers of

steel, aluminum, automobiles, aircraft, industrial equipment, and durablegoods.As previously disclosed in the 2021 Form 10-K,

during the year ended December 31, 2021, the Company’sfive largest customers (each composed of multiple subsidiaries ordivisions

with semiautonomous purchasing authority) accounted for approximately

10

% of consolidated net sales, with its largest customer

accounting for approximately

3

% of consolidated net sales.

Contract Assets and Liabilities

The Company had no material contract assets recorded on its CondensedConsolidated Balance Sheets as of March 31, 2022 or

December 31, 2021.

The Company had approximately $

6.9

million and $

7.0

million of deferred revenue as of March 31, 2022 and December 31,

2021, respectively.For three months ended March 31, 2022, the Company satisfied all of the associated performanceobligations and

recognized into revenue the advance payments received and recordedas of December 31, 2021.

Disaggregated Revenue

The Company sells its various industrial process fluids, its specialty chemicalsand its technical expertise as a global product

portfolio.The Company generally manages and evaluates its performance by segmentfirst, and then by customer industry,rather than

by individual product lines.Also, net sales of each of the Company’s major productlines are generally spread throughout all three of

the Company’s geographicregions, and in most cases, approximately proportionate to the level of total sales in eachregion.

The following tables disaggregate the Company’snet sales by segment, geographic region, customer industry,and timing of

revenue recognized for the three months ended March 31, 2022 and 2021.

Three Months Ended March 31, 2022

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

$

56,160

$

36,839

$

55,287

$

148,286

Metalworking and other

97,984

88,848

48,947

235,779

154,144

125,687

104,234

384,065

Global Specialty Businesses

57,264

20,021

12,821

90,106

$

211,408

$

145,708

$

117,055

$

474,171

Timing of Revenue Recognized

Product sales at a point in time

$

201,284

$

137,203

$

114,625

$

453,112

Services transferred over time

10,124

8,505

2,430

21,059

$

211,408

$

145,708

$

117,055

$

474,171

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

11

Three Months Ended March 31, 2021

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

$

46,793

$

34,274

$

49,743

$

130,810

Metalworking and other

88,078

85,540

46,963

220,581

134,871

119,814

96,706

351,391

Global Specialty Businesses

45,256

20,272

12,864

78,392

$

180,127

$

140,086

$

109,570

$

429,783

Timing of Revenue Recognized

Product sales at a point in time

$

171,594

$

131,162

$

106,399

$

409,155

Services transferred over time

8,533

8,924

3,171

20,628

$

180,127

$

140,086

$

109,570

$

429,783

Note 6 - Leases

The Company has operating leases for certain facilities, vehicles and machineryand equipment with remaining lease terms up to

10 years

.Operating lease expense is recognized on a straight-line basis over the lease term. In addition,the Company has certain land

use leases with remaining lease terms up to

93 years

.

The Company has

0

material variable lease costs or sublease income for three months ended March31, 2022 and 2021. The

following table sets forth the components of the Company’slease cost for three months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Operating lease expense

$

3,409

$

3,612

Short-term lease expense

219

251

Supplemental cash flow information related to the Company’sleases is as follows

:

Three Months Ended

March 31,

2022

2021

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

$

3,365

$

3,579

Non-cash lease liabilities activity:

Leased assets obtained in exchange for new operating lease liabilities

4,689

3,050

Supplemental balance sheet information related to the Company’sleases is as follows:

March 31,

December 31,

2022

2021

Right of use lease assets

$

38,245

$

36,635

Other current liabilities

10,540

9,976

Long-term lease liabilities

27,433

26,335

Total operating lease liabilities

$

37,973

$

36,311

Weighted averageremaining lease term (years)

5.9

5.6

Weighted averagediscount rate

4.14%

4.22%

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

12

Maturities of operating lease liabilities as of March 31, 2022 were as follows:

March 31,

2022

For the remainder of 2022

$

8,990

For the year ended December 31, 2023

9,513

For the year ended December 31, 2024

7,292

For the year ended December 31, 2025

5,375

For the year ended December 31, 2026

4,338

For the year ended December 31, 2027 and beyond

7,046

Total lease payments

42,554

Less: imputed interest

(4,581)

Present value of lease liabilities

$

37,973

Note 7 – Restructuring and Related Activities

The Company’s management approved a global restructuring plan (the “QH Program”) as part of its plan to realize certain cost

synergies associated with the Combination in the third quarter of 2019. The QH Program includes restructuring and associated

severance costs to reduce total headcount by approximately 400 people globally, as well as plans for the closure of certain

manufacturing and non-manufacturing facilities.

The exact timing and total costs associated with the QH Program will depend ona

number of factors and are subject to change; however,the Company currently expects reductions in headcount and site closures to

continue to occur throughout 2022 under the QH Program.Employee separation benefits will vary depending on local regulations

within certain foreign countries and will include severance and other benefits.

All costs incurred to date relate to severance costs to reduce headcount,including customary and routine adjustments to initial

estimates for employee separation costs, as well as costs to close certainfacilities and are recorded in Restructuring and related

charges in the Company’sCondensed Consolidated Statements of Income.As described in Note 4 of Notes to Condensed

Consolidated Financial Statements, restructuring and related chargesare not included in the Company’scalculation of reportable

segments’ measure of operating earnings and therefore these costs are notreviewed by or recorded to reportable segments.

Activity in the Company’s accrualfor restructuring under the QH Program for the three months ended March 31, 2022is as

follows:

QH Program

Accrued restructuring as of December 31, 2021

$

4,087

Restructuring and related charges

820

Cash payments

(408)

Currency translation adjustments

(64)

Accrued restructuring as of March 31, 2022

$

4,435

Note 8 – Share-Based Compensation

The Company recognized the following share-based compensation expensein its Condensed Consolidated Statements of Income

for the three months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Stock options

$

267

$

308

Non-vested stock awards and restricted stock units

1,548

1,396

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

0

1,553

Director stock ownership plan

24

203

Performance stock units

623

319

Total share-basedcompensation expense

$

2,462

$

3,779

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

13

Share-based compensation expense is recorded in SG&A, except for less than $

0.1

million and $

0.3

million during the three

months ended March 31, 2022 and 2021, respectively,recorded within Combination, integration and other acquisition-related

expenses.

Stock Options

During the first quarter of 2022, the Company granted stock options underits long-term incentive plan (��LTIP”) that are subject

only to time vesting over a

three year

period.For the purposes of determining the fair value of stock option awards, the Company

used a Black-Scholes option pricing model and the assumptions set forthin the table below:

March 2022

Grant

Number of options granted

27,077

Dividend yield

0.80

%

Expected volatility

38.60

%

Risk-free interest rate

2.07

%

Expected term (years)

4.0

The fair value of these options is amortized on a straight-line basis over the vesting period.As of March 31, 2022, unrecognized

compensation expense related to all stock options grantedwas $

2.9

million, to be recognized over a weighted average remaining

period of

1.9

years.

Restricted Stock Awardsand Restricted Stock Units

During the three months ended March 31, 2022, the Company granted

17,425

non-vested restricted shares and

4,490

non-vested

restricted stock units under its LTIP,subject to time-based vesting, generally over a

three year

period.The fair value of these grants is

based on the trading price of the Company’scommon stock on the date of grant.The Company adjusts the grant date fair value of

these awards for expected forfeitures based on historical experience.As of March 31, 2022, unrecognized compensation expense

related to the nonvested restricted shares was $

6.4

million, to be recognized over a weighted average remaining period of

2.1

years,

and unrecognized compensation expense related to nonvested restrictedstock units was $

1.3

million, to be recognized over a weighted

average remaining period of

2.3

years.

Performance Stock Units

The Company grants performance-dependent stock awards (“PSUs”) as a componentof its LTIP,which will be settled in a

certain number of shares subject to market-based and time-based vesting conditions.The number of fully vested shares that may

ultimately be issued as settlement for each award may range from

0

% up to

200

% of the target award, subject to the achievement of

the Company’s total shareholderreturn (“TSR”) relative to the performance of the Company’speer group, the S&P Midcap 400

Materials group.The service period required for the PSUs is three years and the TSR measurementperiod for the PSUs is generally

from January 1 of the year of grant through December 31 of the year priorto issuances of the shares upon settlement.

Compensation expense for PSUsis measured based on their grant date fair value and is recognized ona straight-line basis over

the three year vesting period.The grant-date fair value of the PSUs was estimated using a Monte Carlosimulation on the grant date

and using the following assumptions set forth in the table below:

March 2022

Grant

Number of PSUs granted

16,820

Risk-free interest rate

2.11

%

Dividend yield

0.93

%

Expected term (years)

3.0

As of March 31, 2022, the Company estimates that it will issue 0 fully vested sharesas of the applicable settlement date of all

outstanding PSUs awards based on the conditions of the PSUs and performanceto date for each award.As of March 31, 2022,there

was approximately $

6.4

million of total unrecognized compensation cost related to PSUs which the Companyexpects to recognize

over a weighted-average period of

2.3

years.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

14

Defined Contribution Plan

The Company has a 401(k) plan with an employer match coveringa majority of its U.S. employees.The Company matches

50

%

of the first

6

% of compensation that is contributed to the plan, with a maximum matching contribution of 3% ofcompensation.

Additionally, the planprovides for non-elective nondiscretionary contributions on behalf of participantswho have completed one year

of service equal to

3

% of the eligible participants’ compensation.Beginning in April 2020 and continuing through March 2021, the

Company matched both non-elective and elective 401(k) contributionsin fully vested sharesof the Company’s common stockrather

than cash.There were

0

matching contributions in stock for the three months ended March 31, 2022. Forthe three months ended

March 31, 2021, total contributions were $

1.5

million.

Note 9 – Pension and Other PostretirementBenefits

The components of net periodic benefit (income) cost for the three monthsended March 31, 2022 and 2021 are as follows:

Three Months Ended March 31,

Other

Pension Benefits

Postretirement Benefits

2022

2021

2022

2021

Service cost

$

180

$

316

$

(8)

$

1

Interest cost

1,360

1,090

9

11

Expected return on plan assets

(2,084)

(2,082)

0

0

Actuarial loss (gain) amortization

257

855

(24)

0

Prior service cost (income) amortization

2

2

1

0

Total net periodic benefit(income) cost

$

(285)

$

181

$

(22)

$

12

Employer Contributions

As of March 31, 2022, $

1.0

million and $

0.1

million of contributions have been made to the Company’sU.S. and foreign pension

plans and its other postretirement benefit plans, respectively.Taking into considerationcurrent minimum cash contribution

requirements, the Company currently expects to make full year cash contributionsof approximately $

6.6

million to its U.S. and

foreign pension plans and approximately $

0.2

million to its other postretirement benefit plans in 2022.

Note 10 – Other (Expense) Income, Net

The components of other (expense) income, net for the three months endedMarch 31, 2022 and 2021 are as follows:

Three Months Ended

March 31,

2022

2021

Income from third party license fees

$

404

$

339

Foreign exchange losses, net

(1,905)

(1,478)

Gain on disposals of property,plant, equipment and other assets, net

23

5,410

Non-income tax refunds and other related (expense) credits

(1,322)

97

Pension and postretirement benefit income, non-service components

479

124

Other non-operating income, net

115

195

Total other (expense)income, net

$

(2,206)

$

4,687

Non-income tax refunds and other related (expense) credits during thethree months ended March 31, 2022 includes other expense

related to an indemnification asset associated with the settlement of certainincome tax audits at one of the Company’sItalian affiliates

for tax periods prior to August 1, 2019.See Note 11 of Notes to Condensed ConsolidatedFinancial Statements.Gain on disposals of

property, plant, equipmentand other assets, net, during the three months ended March 31, 2021, includes a gain on thesale of certain

held-for-sale real property assets related to the Combination.Foreign exchange losses, net, during each of the three months ended

March 31, 2022 and 2021 include foreign currency transaction losses of approximately$

0.2

million related to hyper-inflationary

accounting for the Company’s Argentinesubsidiaries.See Note 1 of Notes to Condensed Consolidated Financial Statements.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

15

Note 11 – Income Taxesand Uncertain Income TaxPositions

The Company’s effectivetax rates for the three months ended March 31, 2022 and 2021 were

13.1

% and

24.2

%, respectively.

The Company’s effectivetax rate for the three months ended March 31, 2022 was largely driven by changes inthe valuation

allowance for foreign tax credits due to recently issued legislative guidanceand audit settlements reached with Italian tax authorities.

In addition, the Company incurred higher tax expense during the three monthsended March 31, 2022 related to the Company

recording earnings in one of its subsidiaries at a statutory tax rate of

25

% while it awaits recertification of a concessionary

15

% tax

rate, which was available to the Company during all of 2021.Comparatively,the prior year first quarter effective tax rate was

impacted by the sale of a subsidiary which included certain held-for-salereal property assets related to the Combination.

As of December 31, 2021, the Company had a deferred tax liability of $

8.4

million on certain undistributed foreign earnings,

which primarily represents the Company’sestimate of non-U.S. income taxes the Company will incur to ultimately remit certain

earnings to the U.S.The balance as of March 31, 2022 was $

8.0

million.

As of March 31, 2022, the Company’scumulative liability for gross unrecognized tax benefits was $

20.1

million, a decrease of

approximately $

2.4

million from the cumulative liability accrued as of December 31, 2021.

The Company continues to recognize interest and penalties associated with uncertaintax positions as a component of taxes on

income before equity in net income of associated companies in its CondensedConsolidated Statementsof Income.The Company

recognized a benefit of $

0.3

million for interest and a benefit of $

1.6

million for penalties in its Condensed Consolidated Statements of

Income for the three months ended March 31, 2022, and recognizedan expense of less than $

0.1

million for interest and a benefit of

$

0.1

million for penalties in its Condensed Consolidated Statements of Income for thethree months ended March 31, 2021.As of

March 31, 2022, the Company had accrued $

2.7

million for cumulative interest and $

1.6

million for cumulative penalties in its

Condensed Consolidated Balance Sheets, compared to $

3.1

million for cumulative interest and $

3.1

million for cumulative penalties

accrued at December 31, 2021.

During the three months ended March 31, 2022 and 2021, the Companyrecognized decreases of $

2.8

million and $

0.3

million,

respectively, in its cumulativeliability for gross unrecognized tax benefits due to the settlement of incometax audits with the Italian

tax authorities, as well as the expiration of the applicable statutes oflimitations for certain tax years.

The Company estimates that during the year ending December 31, 2022it will reduce its cumulative liability for gross

unrecognized tax benefits by approximately $

4.2

million due to the settlement of income tax audits and the expiration of the statute of

limitations with regard to certain tax positions.This estimated reduction in the cumulative liability for unrecognizedtax benefits does

not consider any increase in liability for unrecognized tax benefits with regardto existing tax positions or any increase in cumulative

liability for unrecognized tax benefits with regard to new tax positions forthe year ending December31, 2022.

The Companyand its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of variousstate and foreign

tax jurisdictions.Tax years that remain subjectto examination by major tax jurisdictions include Italy from

2007

, Brazil from

2011

,

Germany from

2015

, the Netherlands, Mexico and China from

2016

, Canada, Spain, and the U.S. from

2017

, the United Kingdom

from

2018

, India from fiscal year beginning April 1, 2017 and ending March 31,

2018

, and various U.S. state tax jurisdictions from

2011

.

As previously reported, the Italian tax authorities have assessed additional tax due from the Company’s subsidiary, Quaker Italia

S.r.l., relating to the tax years 2007 through 2015. The Company has filed for competent authority relief from these assessments under

the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except

2007. In 2020, the respective tax authorities in Italy, Spain and the Netherlands reached agreement with respect to the MAP

proceedings which the Company has accepted.

As of March 31, 2022, the Company has received $

1.6

million in refunds from the

Netherlands and Spain.In February 2022, the Company received a settlement notice from the Italian taxingauthorities confirming the

amount due of $

2.6

million, having granted the Company’s requestto utilize its remaining net operating losses to partially offsetthe

liability.As a result of the settlement the Company recognized tax expense of $

0.8

million for the quarter ended March 31, 2022.

Houghton Italia, S.r.l is also involvedin a corporate income tax audit with the Italian tax authorities covering tax years

2014

through

2018

.During the fourth quarter of 2021, the Company settled a portion of the Houghton Italia,S.r.l. corporate income tax

audit with the Italian tax authorities for the tax years

2014

and

2015

.During the three months ended March 31, 2022 the Company

settled tax years 2016 through 2018 for a total of $

2.1

million.In total, the Company has now settled all years 2014 through 2018 for

$

3.7

million.Accordingly, the Company hasreleased all reserves relating to this audit for the settled tax years.As a result of the

settlement and reserve release the Company recognized a net benefitto the tax provision of $

2.1

million during the first quarter of

2022.The Company has established an indemnification receivable of $

3.8

million in connection with its claim against the former

owners of Houghton for any pre-Combination tax liabilities arising fromthis matter.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

16

Houghton Deutschland GmbH is also under audit by the German tax authorities forthe tax years

2015

through

2017

.Based on

preliminary audit findings, primarily related to transfer pricing,the Company has recorded reserves for $

0.3

million as of March 31,

2022.Of this amount, $

0.3

million relates to tax periods prior to the Combination and therefore the Companyhas submitted an

indemnification claim with Houghton’sformer owners for any tax liabilities arising pre-Combination.As a result, a corresponding

indemnification receivable has also been established.

Note 12 – Earnings Per Share

The following table summarizes earnings per share calculations forthe three months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Basic earnings per common share

Net income attributable to Quaker Chemical Corporation

$

19,816

$

38,615

Less: income allocated to participating securities

(78)

(154)

Net income available to common shareholders

$

19,738

$

38,461

Basic weighted average common shares outstanding

17,826,061

17,785,370

Basic earnings per common share

$

1.11

$

2.16

Diluted earnings per common share

Net income attributable to Quaker Chemical Corporation

$

19,816

$

38,615

Less: income allocated to participating securities

(78)

(154)

Net income available to common shareholders

$

19,738

$

38,461

Basic weighted average common shares outstanding

17,826,061

17,785,370

Effect of dilutive securities

25,798

70,607

Diluted weighted average common shares outstanding

17,851,859

17,855,977

Diluted earnings per commonshare

$

1.11

$

2.15

Certain stock options,restricted stock units and PSUs are not included in the diluted earnings per share calculationwhen the

effect would have been anti-dilutive.The calculated amount of anti-diluted shares not included were

12,260

and

2,083

for the three

months ended March 31, 2022 and 2021, respectively.

Note 13 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the three months endedMarch 31, 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

1,752

0

0

32

1,784

Currency translation adjustments

1,376

(2,569)

(328)

(519)

(2,040)

Balance as of March 31, 2022

$

217,151

$

132,951

$

162,130

$

118,706

$

630,938

Gross carrying amounts and accumulated amortization for definite-livedintangible assets as of March 31, 2022 and December 31,

2021 were as follows:

Gross Carrying

Accumulated

Amount

Amortization

2022

2021

2022

2021

Customer lists and rights to sell

$

855,309

$

853,122

$

159,576

$

147,858

Trademarks, formulations and producttechnology

162,408

163,974

40,565

38,747

Other

6,361

6,309

5,989

5,900

Total definite-livedintangible assets

$

1,024,078

$

1,023,405

$

206,130

$

192,505

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

17

The Company amortizes definite-lived intangible assets on a straight-line basis overtheir useful lives.The Company recorded

$

14.6

million and $

14.8

million of amortization expense for the three months ended March31, 2022 and 2021, respectively.

Estimated annual aggregate amortization expense for the current yearand subsequent five years is as follows:

For the year ended December 31, 2022

$

59,465

For the year ended December 31, 2023

59,293

For the year ended December 31, 2024

58,701

For the year ended December 31, 2025

57,924

For the year ended December 31, 2026

57,678

For the year ended December 31, 2027 and beyond

532,124

The Company has four indefinite-lived intangible assets totaling $

194.1

million as of March 31, 2022, including $

193.0

million of

indefinite-lived intangible assets for trademarks and tradename associatedwith the Combination.Comparatively, the Company had

four indefinitely-lived intangible assets for trademarks and tradenametotaling $

196.9

million as of December 31, 2021.

Note 14 – Debt

Debt as of March 31, 2022 and December 31, 2021 includes the following:

As of March 31, 2022

As of December 31, 2021

Interest

Outstanding

Interest

Outstanding

Rate

Balance

Rate

Balance

Credit Facilities:

Revolver

1.68%

$

254,453

1.62%

$

211,955

U.S. Term Loan

1.71%

528,750

1.65%

540,000

EURO Term Loan

1.50%

132,037

1.50%

137,616

Industrial development bonds

5.26%

10,000

5.26%

10,000

Bank lines of credit and other debt obligations

Various

1,659

Various

1,777

Total debt

$

926,899

$

901,348

Less: debt issuance costs

(7,227)

(8,001)

Less: short-term and current portion of long-term debts

(61,385)

(56,935)

Total long-term debt

$

858,287

$

836,412

Credit facilities

The Company’s primary credit facility(as amended, the “Credit Facility”) is comprised of a $

400.0

million multicurrency

revolver (the “Revolver”), a $

600.0

million term loan (the “U.S. TermLoan”), each with the Company as borrower,and a $

150.0

million (as of August 1, 2019) Euro equivalent term loan (the “EURO TermLoan” and together with the “U.S. TermLoan”, the

“Term Loans”)with Quaker Chemical B.V.,a Dutch subsidiary of the Company as borrower, eachwith a five year term maturing in

August 2024

.Subject to the consent of the administrative agent and certain other conditions, the Companymay designate additional

borrowers.The maximum amount available under the Credit Facility can be increased by upto $

300.0

million at the Company’s

request if there are lenders who agree to accept additional commitments andthe Company has satisfied certain other conditions.

Borrowings under the Credit Facility bear interest at a base rate or LIBOR plus anapplicable margin based upon the Company’s

consolidated net leverage ratio.On December 10, 2021, the Company entered into the Second Amendment with Bank of America

N.A., to include among other things, an update to provide for use of a non-USDcurrency LIBOR successor rate.The variable interest

rate incurred on the outstanding borrowings under the Credit Facility duringthe three months ended March 31, 2022 was

approximately

1.6

%.As of March 31, 2022, the interest rate of the outstanding borrowings under the CreditFacility was

approximately

1.7

%.In addition to paying interest on outstanding principal under the Credit Facility,the Company is required to pay

a commitment fee ranging from

0.2

% to

0.3

% depending on the Company’s consolidatednet leverage ratio to the lenders under the

Revolver in respect of the unutilized commitments thereunder.The Company has unused capacity under the Revolver of

approximately $

142

million, net of bank letters of credit of approximately $

4

million, as of March 31, 2022.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

18

The Credit Facility is subject to certain financial and other covenants.

The Company’s initial consolidated net debt to

consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the permitted ratio over the term of the Credit

Facility. As of March 31, 2021, the consolidated net debt to adjusted EBITDA may not exceed 3.75 to 1. The Company’s

consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1 over the term of the agreement. The Credit

Facility also prohibits the payment of cash dividends if the Company is in default or if the amount of the dividend paid annually

exceeds the greater of $50.0 million and 20% of consolidated adjusted EBITDA unless the ratio of consolidated net debt to

consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation on amount.

As of March 31, 2022 and

December 31, 2021, the Company was in compliance with all of the Credit Facility covenants

.The Term Loanshave quarterly

principal amortization during their

five year

terms, with

5.0

% amortization of the principal balance due in years 1 and 2,

7.5

% in year

3, and

10.0

% in years 4 and 5, with the remaining principal amount due at maturity.During the three months ended March 31, 2022,

the Company made quarterly amortization payments related tothe Term Loans totaling$

14.1

million.The Credit Facility is

guaranteed by certain of the Company’sdomestic subsidiaries and is secured by first priority liens on substantially all of the assets of

the Company and the domestic subsidiary guarantors, subject to certaincustomary exclusions.The obligations of the Dutch borrower

are guaranteed only by certain foreign subsidiaries on an unsecured basis.

The Credit Facility required the Company to fix its variable interest rates on at least

20

% of its total Term Loans.In order to

satisfy this requirement as well as to manage the Company’sexposure to variable interest rate risk associated with the Credit Facility,

in November 2019, the Company entered into $

170.0

million notional amounts of three year interest rate swaps at a base rate of

1.64

%

plus an applicable margin as provided in the Credit Facility,based on the Company’s consolidatednet leverage ratio.At the time the

Company entered into the swaps, and as of March 31, 2022, the aggregateinterest rate on the swaps, including the fixed base rate plus

an applicable margin, was

3.1

%.See Note 17 of Notes to Condensed Consolidated Financial Statements.

The Company capitalized $

23.7

million of certain third-party debt issuance costs in connection with executingthe Credit Facility.

Approximately $

15.5

million of the capitalized costs were attributed to the TermLoans and recorded as a direct reduction of long-

term debt on the Company’s ConsolidatedBalance Sheet.Approximately $

8.3

million of the capitalized costs were attributed to the

Revolver and recorded within other assets on the Company’sConsolidated Balance Sheet.These capitalized costs are being

amortized into interest expense over the

five year

term of the Credit Facility.As of March 31, 2022 and December 31, 2021, the

Company had $

7.2

million and $

8.0

million, respectively,of debt issuance costs recorded as a reduction of long-term debt.As of

March 31, 2022 and December 31, 2021, the Company had $

3.9

million and $

4.3

million, respectively,of debt issuance costs recorded

within other assets.

Industrial development bonds

As of March 31, 2022 and December 31, 2021, the Company had fixed rate,industrial development authority bonds totaling

$

10.0

million in principal amount due in

2028

.These bonds have similar covenants to the Credit Facility noted above.

Bank lines of credit and other debt obligations

The Company has certain unsecured bank lines of credit and discountingfacilities in certain foreign subsidiaries, which are not

collateralized.The Company’s other debt obligationsprimarily consist of certain domestic and foreign low interest rate or interest-

free municipality-related loans, local credit facilities of certain foreign subsidiariesand capital lease obligations.Total unused

capacity under these arrangements as of March 31, 2022 was approximately$

30

million.

In addition to the bank letters of credit described in the “Credit facilities” subsectionabove, the Company’s only otheroff-balance

sheet arrangements include certain financial and other guarantees.The Company’s total bank letters ofcredit and guarantees

outstanding as of March 31, 2022 were approximately $

6

million.

The Company incurred the following debt related expenses includedwithin Interest expense, net, in the Condensed Consolidated

Statements of Income:

Three Months Ended

March 31,

2022

2021

Interest expense

$

4,746

$

4,650

Amortization of debt issuance costs

1,187

1,187

Total

$

5,933

$

5,837

Based on the variable interest rates associated with the Credit Facility,as of March 31, 2022 and December 31, 2021, the amounts

at which the Company’s total debtwere recorded are not materially different from their fair market value.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

19

Note 15 – Accumulated Other Comprehensive Income

The following tables show the reclassifications from and resulting balancesof accumulated other comprehensive income

(“AOCI”) for the three months ended March 31, 2022 and 2021:

Defined

Unrealized

Currency

Benefit

Gain (Loss) in

Translation

Retirement

Available-for-

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance at December 31, 2021

$

(49,843)

$

(13,172)

$

397

$

(1,372)

$

(63,990)

Other comprehensive (loss) income before

reclassifications

(6,867)

432

(1,277)

1,429

(6,283)

Amounts reclassified from AOCI

0

229

11

0

240

Related tax amounts

0

(165)

266

(329)

(228)

Balance at March 31, 2022

$

(56,710)

$

(12,676)

$

(603)

$

(272)

$

(70,261)

Balance at December 31, 2020

$

(2,875)

$

(23,467)

$

3,342

$

(3,598)

$

(26,598)

Other comprehensive (loss) income before

reclassifications

(25,459)

781

(745)

730

(24,693)

Amounts reclassified from AOCI

0

862

(3,085)

0

(2,223)

Related tax amounts

0

(351)

805

(168)

286

Balance at March 31, 2021

$

(28,334)

$

(22,175)

$

317

$

(3,036)

$

(53,228)

All reclassifications related to unrealized gain (loss) in available-for-sale securitiesrelate to the Company’s equityinterest in a

captive insurance company and are recorded in equity in net incomeof associated companies.The amounts reported in other

comprehensive income for non-controlling interest are related tocurrency translation adjustments.

Note 16 – Fair ValueMeasurements

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

measurement as follows:

Fair ValueMeasurements at March 31, 2022

Total

Using Fair ValueHierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

$

2,395

$

0

$

2,395

$

0

Total

$

2,395

$

0

$

2,395

$

0

Fair ValueMeasurements at December 31, 2021

Total

Using Fair ValueHierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

$

2,533

$

0

$

2,533

$

0

Total

$

2,533

$

0

$

2,533

$

0

The fair values of Company-owned life insurance assets are based on quotesfor like instruments with similar credit ratings and

terms.The Company did not hold any Level 3 investments as of March 31,2022 or December 31, 2021, respectively,so related

disclosures have not been included.

Note 17 – Hedging Activities

In order to satisfy certain requirements of the Credit Facility as well as to managethe Company’s exposure to variableinterest

rate risk associated with the Credit Facility,in November 2019, the Company entered into $

170.0

million notional amounts of three

year interest rate swaps.See Note 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-marketat each reporting date and any unrealized gains or

losses are included in AOCI to the extent effective and reclassified to interestexpense in the period during which the transaction

effects earnings or it becomes probable that the forecastedtransaction will not occur.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

20

The balance sheet classification and fair values of the Company’sderivative instruments, which are Level 2 measurements, are as

follows:

Fair Value

Consolidated

March 31,

December 31,

Balance Sheet Location

2022

2021

Derivatives designated as cash flow hedges:

Interest rate swaps

Other accrued liabilities

$

353

$

1,782

$

353

$

1,782

The following table presents the net unrealized loss deferred to AOCI:

March 31,

December 31,

2022

2021

Derivatives designated as cash flow hedges:

Interest rate swaps

AOCI

$

272

$

1,372

$

272

$

1,372

The following table presents the net gain reclassified from AOCI to earnings:

Three Months Ended

March 31,

2022

2021

Amount and location of expense reclassified

from AOCI into expense (Effective Portion)

Interest expense, net

$

(637)

$

(643)

Interest rate swaps are entered into with a limited number of counterparties,each of which allows for net settlement of all

contracts through a single payment in a single currency in the event of a default onor termination of any one contract.As such, in

accordance with the Company’s accountingpolicy, these derivative instrumentsare recorded on a net basis within the Condensed

Consolidated Balance Sheets.

Note 18 – Commitments and Contingencies

The Company previously disclosed in its 2021 Form 10-K that AC Products, Inc.(“ACP”), a wholly owned subsidiary,has been

operating a groundwater treatment system to hydraulically contain groundwatercontamination emanating from ACP’s site,the

principal contaminant of which is perchloroethylene.As of March 31, 2022, ACP believes it is close to meeting the conditions for

closure of the groundwater treatment system, but continues to operatethis system while in discussions with the relevant authorities.

As of March 31, 2022, the Company believes that the range of potential-knownliabilities associated with the balance of the ACP

water remediation program is approximately $

0.1

million to $

1.0

million.The low and high ends of the range are based on the length

of operation of the treatment system as determined by groundwater modeling.Costs of operation include the operation and

maintenance of the extraction well, groundwater monitoring andprogram management.

The Company previously disclosed in its 2021 Form 10-K that an inactivesubsidiary of the Company that was acquired in 1978

sold certain products containing asbestos, primarily on an installed basis, andis among the defendants in numerous lawsuits alleging

injury due to exposure to asbestos.During the three months ended March 31, 2022, there have been no significantchanges to the facts

or circumstances of this previously disclosed matter,aside from on-going claims and routine payments associated with this litigation.

Based on a continued analysis of the existing and anticipated future claims againstthis subsidiary, it is currentlyprojected that the

subsidiary’s total liability overthe next

50 years

for these claims is approximately $

0.3

million (excluding costs of defense).

The Company previously disclosed in its 2021 Form 10-K that it is party to certain environmentalmatters related to certain

domestic and foreign properties.These environmental matters primarily require the Companyto perform long-term monitoring as

well as operating and maintenance at each of the applicable sites.During the three months ended March 31, 2022, there have beenno

significant changes to the facts or circumstances of these previously disclosedmatters, aside from on-going monitoring and

maintenance activities and routine payments associated with each ofthe sites.The Company continually evaluates its obligations

related to such matters, and based on historical costs incurred andprojected costs to be incurred over the next

27 years

, has estimated

the range of costs for all of these environmental matters, on a discountedbasis, to be between approximately $

5

million and $

6

million

as of March 31, 2022, for which $

5.9

million was accrued within other accrued liabilities and other non-currentliabilities on the

Company’sCondensed Consolidated Balance Sheet as of March 31, 2022.Comparatively, as of December31, 2021, the Company

had $

5.6

million accrued for with respect to these matters.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

21

The Company believes, although there can be no assurance regarding theoutcome of other unrelated environmental matters, that

it has made adequate accruals for costs associated with other environmentalproblems of which it is aware.Approximately $

0.4

million were accrued as of both March 31, 2022 and December 31, 2021,respectively, to providefor such anticipated future

environmental assessments and remediation costs.

In connection with obtaining regulatory approvals for the Combination,certain steel and aluminum related product lines of

Houghton were divested in August 2019.The Company previously disclosed in its 2021 Form 10-K that in July 2021, the entitythat

acquired these divested product lines submitted an indemnification claimfor certain alleged breaches of representation made by

Houghton in the agreement pursuant to which such assets had been divested.The Company responded to the subject matters of the

indemnification claim and during the first quarter of 2022 the matter was resolvedconsistent with the Company’s expectationsand

position that there were no amounts owed by the Company.

The Company previously disclosed in its 2021 Form 10-K that two of the Company’slocations suffered property damages as a

result of flooding and fire, respectively.The Company maintains property insurance for all of its facilities globally.During the three

months ended March 31, 2022, there have been no significant changes tothe facts or circumstances of these previously disclosed

matters, aside from the on-going restoration of both sites.The Company, its insuranceadjuster and insurance carrier are actively

managing the remediation and restoration activities associated with theseevents and at this time the Company has concluded, based on

all available information and discussions with its insurance adjusterand insurance carrier, that the losses were coveredunder the

Company’s property insurancecoverage, net of an aggregate deductible of $

2.0

million.The Company has received payments from

its insurers of $

2.1

million and has recorded an insurance receivable associated with these events (anda gain on insurance recoveries

for losses incurred) of $

0.5

million as of March 31, 2022.

The Company is party to other litigation which management currentlybelieves will not have a material adverse effect on the

Company’s results of operations,cash flows or financial condition.In addition, the Company has an immaterial amount of contractual

purchase obligations.

Quaker Chemical Corporation

Management’s Discussion and Analysis

22

Item 2.

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

.

As used in this Report, the terms “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation

(doing business as Quaker Houghton), its subsidiaries, and associated companies,unless the context otherwise requires.The term

Legacy Quaker refers to the Company prior to the closing of its combinationwith Houghton International, Inc. in 2019 (“Houghton”)

(herein referred to as the “Combination”).

Executive Summary

Quaker Houghton is the global leader in industrial process fluids.With a presence around the world, including operationsin over

25 countries, our customers include thousands of the world’smost advanced and specialized steel, aluminum, automotive, aerospace,

offshore, can, 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, the Company’s first quarterof 2022 performance reflected continued progress navigating througha very challenging

economic environment, including significant raw material cost escalation, supplychain and logistics disruptions and the direct,

indirect and global impacts of the war in Ukraine and other global eventsthat presented headwinds to the Company in the first quarter

of 2022.Net sales in the first quarter of 2022 were $474.2 million, an increase of 10% comparedto $429.8 million in the first quarter

of 2021, primarily driven by an increase in selling price and product mixof approximately 17% and additional net sales from

acquisitions of 2%, partially offset by a decline in organicsales volume of 6% and the unfavorable impact from foreign currency

translation of 3%.The increase in selling price and product mix is primarily the result ofcontinued and strategic price increases

implemented to help offset the unprecedented increase inraw material costs as well as global supply chain and logistics and labor cost

pressures that began during 2021 and continued through the first quarterof 2022.The decline in organic sales volumes was primarily

attributable to the comparison to a very strong first quarter of 2021, wherecustomers replenished their supply chains due to the

continued economic recovery from COVID-19, the impact of lowervolumes related to the tolling agreement for previously divested

products associated with the Combination and lower sales volumes attributableto the war in Ukraine.The Company’s organicsales

volumes increased approximately 3% sequentially compared to thefourth quarter of 2021, as continued new business wins were

partially offset by the Company’sactions to strategically reduce volumes in accordance with its ongoing value-based pricing

initiatives.

The Company generated net income in the first quarter of 2022 of $19.8 million,or $1.11 per diluted share, compared to a first

quarter of 2021 net income of $38.6 million, or $2.15 per dilutedshare.Excluding non-recurring and non-core items in each period,

the Company’s first quarter of 2022non-GAAP earnings per diluted share were $1.42 compared to $2.11in the prior year first quarter

and the Company’s current quarteradjusted EBITDA of $60.4 million decreased 22% compared to $77.1million in the first quarter of

2021.These results were primarily driven by lower gross margins inthe current quarter due to significantly higher raw material and

other input costs as well as the direct and indirect impacts of global supply chain disruptions,and to a lesser extent, by higher selling,

general and administrative expenses (“SG&A”).Sequentially, the Company’sadjusted EBITDA was relatively flat compared to the

fourth quarter of 2021.See the Non-GAAP Measures section of this Item below,as well as other items discussed in the Company’s

Consolidated Operations Review in the Operations section of this Item,below.

The Company’s first quarter of 2022operating performance in each of its four reportable segments: (i)Americas; (ii) Europe,

Middle East and Africa (“EMEA”); (iii) Asia/Pacific; and (iv) Global SpecialtyBusinesses, reflect similar drivers to that of its

consolidated performance as each of the Company’sreportable segments net sales benefitted from double-digit increases in selling

price and product mix and additional net sales from acquisitions, while mostsegments were partially offset by lower sales volumes

and the unfavorable impact of foreign currency translation.Operating earnings from the Global Specialty Businesses increased

compared to the prior year quarter whereas operating earnings fromthe Americas, Asia/Pacific, and EMEA segments declined.This

was a result of lower segment gross margins whichwere unfavorably impacted by the lag in price capture compared to the continued

cost pressures on our raw materials, global supply chain and logistics networks,and manufacturing, labor and other costs.Additional

details of each segment’soperating performance are further discussed in the Company’sReportable Segments Review,in the

Operations section of this Item, below.

The Company had a net operating cash outflow of $6.3 million in the first quarterof 2022 as compared to a net operating cash

outflow of $12.6 million in the first quarter of 2021.Despite the net operating cash outflow in both periods, the increase in net

operating cash flow quarter-over-quarterwas primarily driven by a modest improvement in working capital compared to the prioryear

first quarter, notably by a lower outflowrelated to accounts receivable partially offset by an increase in inventorydue to higher raw

material costs and a build in certain inventory in response to global supplychain and logistics challenges.The key drivers of the

Company’s operatingcash flow and working capital are further discussed in the Company’sLiquidity and Capital Resources section

of this Item, below.

Quaker Chemical Corporation

Management’s Discussion and Analysis

23

Overall, results in the first quarter of 2022 reflected the Company’sability to continue to navigate through persistent raw material

cost pressures, supply chain challenges including those impactingon semiconductors for the automotive end markets and the impacts

of certain global economic events including the Russia conflict with Ukraine.Increases in net sales in all segments were primarily

driven by an increase in selling price implemented to offset the ongoingand significant escalation of raw material costs and a

favorable demand environment across most of the Company’smarkets.However, raw material cost increases continuedto outpace

the Company’s broad-basedpricing initiatives in the first quarter of 2022, and the Company’smargins and earnings reflect the

significantly different cost environment in the firstquarter of 2022 compared to the first quarter of 2021.The Company continues to

implement further aggressive and strategic price increases and is activelymanaging its cost structure to mitigate the current and

expected inflationary pressures.While significant uncertainty exists, notably due to pandemic-relatedrestrictions in China and the

ongoing war in Ukraine, the Company remains committed to advancingits customer intimate strategy, recoveringits margins and

investing in value enhancing initiatives to better position the Companyto continue to deliver on its growth potential.

Ongoing impact of COVID-19

The global outbreak of COVID-19 has negatively impacted all locations wherethe Company does business.Although the

Company has now operated in this COVID-19 environment fortwo years, the full extent of the outbreak and related business impacts

continue to remain uncertain and volatile, and therefore the full extentto which COVID-19 may impact the Company’sfuture results

of operations or financial condition is uncertain.This outbreak has significantly disrupted the operations of the Company and those of

its suppliers and customers and at times during the pandemic, the Companyhas experienced volume declines and lower net sales as

compared to pre-COVID-19 levels.Management continues to monitor the impact that the COVID-19 pandemicis having on the

Company, the overall specialtychemical industry and the economies and markets in which the Company operates.The prolonged

pandemic and resurgences of the outbreak includingas new variants continue to emerge, and continued restrictions onday-to-day life

and business operations as well as increased 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 and suppliers continue to be significantly and

adversely impacted by COVID-19, this could reduce the availability,or result in delays, of materials or supplies to or from the

Company, which inturn could significantly interrupt the Company’sbusiness operations.Given this ongoing uncertainty,the

Company cautions that its future results of operations could be significantlyadversely impacted by COVID-19.While the

circumstances have presented and are expected to continue to present challenges,and have necessitated additional time and resources

to be deployed to sufficiently address the challengesbrought on by the pandemic, at this time, management does not believe that

COVID-19 has had a material impact on financial reporting processes, internalcontrols over financial reporting, or disclosure controls

and procedures.

The Company’s top priority,especially during this pandemic, is to protect the health and safety of its employees andcustomers,

while working to ensure business continuity to meet customers’ needs.The Company has taken steps to protect the health and

wellbeing of its people in affected areas through various actions, includingenabling work at home where needed and practicable, and

employing social distancing standards, implementing travel restrictions whereapplicable, enhancing onsite hygiene practices, and

instituting visitation restrictions at the Company’sfacilities.The Company has not and does not expect that it will incur material

expenses implementing these health and safety policies.With the exception of its Shanghai-based operations,which have been and

continue to be significantly impacted since late March 2022 due to government restrictionscurrently in place in that province of

China, all of the Company’s morethan 30 other production facilities worldwide are open and operatingand are deemed as essential

businesses in the jurisdictions where they are operating and the Company believesthat to date it has been able to meet the needs of all

its customers across the globe despite the current challenges.The Company continues to expect that the impacts from COVID-19 will

gradually decline subject to the effective containmentof the virus and its variants and successful distribution and acceptance of the

available vaccines and treatments; however,the incidence of reported cases of COVID-19 or a variant in several geographies where

the Company has significant operations remains high.Differing government responses to these reported cases continues toevolve and

it therefore remains highly uncertain as to how long the global pandemicand related economic challenges will last in each of the

jurisdictions where the Company does business and when our customers’businesses will recover to pre-COVID-19 levels.As a result

of the government-imposed quarantine and lockdown measures implementedat the end of March 2022, which are currently in effect,

the Company’s Shanghai-based locations have been and continue to be significantly impacted as of the date ofthis Form 10-Q.The

negative impact of these measures to operations and liquidity has and will beexperienced during the second quarter of 2022, and the

ultimate impact will depend on the duration of the quarantine and lockdownmeasures in effect.While the actions taken to date to

protect our workforce, to continue to serve our customers with excellenceand to conserve cash and reduce costs as applicable, have

been effective thus far, further actionsto respond to the pandemic and its effects may be necessary as conditionscontinue to evolve.

Impact of Political Conflicts

A significant portion of the Company’srevenues and earnings are generated by non-U.S. operations which subjectsthe Company

to political and economic risks that could adversely affect the Company’sbusiness, liquidity, financialposition and results of

operations.The existence of military conflicts, for example the Russian invasion of Ukraine, bringinherent risks such as the potential

for supply chain disruptions, decreased trade activity and other consequences relatedto economic or other sanctions.The U.S.

Quaker Chemical Corporation

Management’s Discussion and Analysis

24

government and other nations have imposed significant restrictions onmost companies’ ability to do business in Russia as a result of

the military conflict between Russia and Ukraine.It is not possible to predict the broader or longer-term consequencesof this conflict,

which could include further sanctions, embargoes,regional instability, geopoliticalshifts and adverse effects on macroeconomic

conditions, security conditions, currency exchange rates and financialmarkets.Such geo-political instability and uncertainty could

have a negative impact on the Company’sability to sell to, ship products to, collect payments from, and support customers in certain

regions based on trade restrictions, embargoes and exportcontrol law restrictions, and logistics restrictions including closures ofair

space, and could increase the costs, risks and adverse impacts from these newchallenges.The Company may also be the subject of

increased cyber-attacks.

The Company’s operations in theconflict areas including Russia, Ukraine and Belarus represent less than 2% ofthe Company’s

consolidated net sales and less than 1% of the Company’sconsolidated total assets.The Company’s primaryexposure in the conflict

area relates to outstanding customer accounts receivable.The Company is actively monitoring the outstanding receivables for

collections and has recorded incremental allowance for doubtful accountswhere warranted.The Company continues to review the

facts and circumstances of its customers and the impact of the ongoingsanctions as they relate to its continued business with impacted

customers and the collectability of outstanding accounts receivable.The Company also has and continues to monitor the impact of the

volatility and uncertainty in the economic outlook as a result of the conflict with respectto the recoverability of its long-term and

indefinite-lived assets, including assessing potential triggering events forimpairment considerations related to intangible assets and

goodwill.As of March 31, 2022, the Company concluded that the conflict and its current and projectedimpact to the Company did

not represent a triggering event and the Company continues to monitor and evaluatethe evolving situation.

Liquidity and Capital Resources

At March 31, 2022, the Company had cash and cash equivalents of$161.6 million.Total cash and cash equivalentswas $165.2

million at December 31, 2021.The $3.6 million decrease in cash and cash equivalents was the net resultof $18.2 million of cash used

in investing activities and $6.3 million of cash used in operating activities partiallyoffset by $20.6 million of cash provided by

financing activities and a $0.3 million positive impact due to the effectof foreign currency translation.

Net cash flows used in operating activities were $6.3 million in the first three monthsof 2022 compared to net cash flows used in

operating activities of $12.6 million in the first three months of 2021.The increase in net operating cash flows of $6.3 million was

primarily driven by a lower working capital outflow quarter-over-quarter,as the Company had a smaller increase in accounts

receivable in the first quarter of 2022 due to changes in current quarter netsales, which was partially offset by a higher outflow from

inventory due to increases in raw material costs and continued buildof stock in response to global supply chain and logistics

challenges and other recent global economic events.Also, in the first quarter of 2022, the Company received a $2.8 million dividend

from the Company’s Koreanjoint venture, with no similar dividend received in the prior year period.

Net cash flows used in investing activities were $18.2 million in thefirst three months of 2022 compared to $15.8 million in the

first three months of 2021.This increase in cash outflows was a result of lower cash proceeds from the dispositionof assets which

included the sale of certain held-for-sale real property assets related to theCombination in the prior year period, and higher capital

expenditures in the current year largely related to certaininfrastructure and sustainability-related spending.These increases in cash

used in investing activities were partially offset bylower cash payments related to acquisitions as a result of the level of acquisition

activity in each year.

Net cash flows provided by financing activities were $20.6 million in the firstthree months of 2022 compared to $13.0 million in

the first three months of 2021.The increase in net cash flows was primarily related to an increase in borrowingsin the current year

under the Company’s creditfacility as compared to the prior year.In addition, the Company paid $7.4 million of cash dividends

during the first three months of 2022, a $0.4 million or 5% increase in cash dividendscompared to the prior year.See Note 2 of Notes

to Condensed Consolidated Financial Statements in Item 1 of this Report.

The Company’s primary credit facility(the “Credit Facility”) is comprised of a $400.0 million multicurrencyrevolver (the

“Revolver”), a $600.0 million term loan (the “U.S. TermLoan”), each with the Company as borrower, anda $150.0 million (as of

August 1, 2019) Euro equivalent term loan (the “Euro TermLoan” and together with the U.S. TermLoan”, the “Term Loans”)with

Quaker Chemical B.V.,a Dutch subsidiary of the Company as borrower,each with a five year term maturing in August 2024.Subject

to the consent of the administrative agent and certain other conditions,the Company may designate additional borrowers.The

maximum amount available under the Credit Facility can be increased byup to $300.0 million at the Company’s requestif there are

lenders who agree to accept additional commitments and the Company hassatisfied certain other conditions.Borrowings under the

Credit Facility bear interest at a base rate plus an applicable marginbased on the Company’s consolidatednet leverage ratio.The

weighted average interest rate incurred on the outstanding borrowingsunder the Credit Facility during both the first quarter of 2022

and as of March 31, 2022 was approximately 1.6%.In addition to paying interest on outstanding principal under the Credit Facility,

the Company is required to pay a commitment fee ranging from 0.2%to 0.3% depending on the Company’sconsolidated net leverage

ratio to the lenders under the Revolver in respect of the unutilized commitmentsthereunder.

Quaker Chemical Corporation

Management’s Discussion and Analysis

25

The Credit Facility is subject to certain financial and other covenants.The Company’s initial consolidated netdebt to

consolidated adjusted EBITDA ratio could not exceed 4.25 to 1,with step downs in the permitted ratio over the term of the Credit

Facility.As of March 31, 2022, the consolidated net debt to consolidated adjustedEBITDA ratio may not exceed 3.75 to 1.The

Company’s consolidatedadjusted EBITDA to interest expense ratio may not be less than 3.0 to 1 over theterm of the agreement.The

Credit Facility also prohibits the payment of cash dividends if the Companyis in default or if the amount of the dividends paid

annually exceeds the greater of $50.0 million and 20% of consolidated adjustedEBITDA unless the ratio of consolidated net debt to

consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitationon amount.As of March 31, 2022 and

December 31, 2021, the Company was in compliance with all of the Credit Facilitycovenants.The Term Loanshave quarterly

principal amortization during their five year terms, with 5.0% amortizationof the principal balance due in years 1 and 2, 7.5% in year

3, and 10.0% in years 4 and 5, with the remaining principal amount dueat maturity.The Credit Facility is guaranteed by certain of the

Company’s domestic subsidiariesand is secured by first priority liens on substantially all of the assets of theCompany and the

domestic subsidiary guarantors, subject to certain customary exclusions.The obligations of the Dutch borrower are guaranteed only

by certain foreign subsidiaries on an unsecured basis.

The Credit Facility required the Company to fix its variable interest rates onat least 20% of its total TermLoans.In order to

satisfy this requirement as well as to manage the Company’sexposure to variable interest rate risk associated with the Credit Facility,

in November 2019, the Company entered into $170.0 million notionalamounts of three year interest rate swaps at a base rate of 1.64%

plus an applicable margin as provided in the Credit Facility,based on the Company’s consolidatednet leverage ratio.At the time the

Company entered into the swaps, and as of March 31, 2022, the aggregateinterest rate on the swaps, including the fixed base rate plus

an applicable margin, was 3.1%.

The Company capitalized $23.7 million of certain third-party debt issuancecosts in connection with executing the Credit Facility.

Approximately $15.5 million of the capitalized costs were attributed to the TermLoans and recorded as a direct reduction of long-

term debt on the Company’s CondensedConsolidated Balance Sheet.Approximately $8.3 million of the capitalized costs were

attributed to the Revolver and recorded within other assets on the Company’sCondensed Consolidated Balance Sheet.These

capitalized costs are being amortized into interest expense over thefive year term of the Credit Facility.

As of March 31, 2022, the Company had Credit Facility borrowings outstandingof $915.2 million.As of December 31, 2021, the

Company had Credit Facility borrowings outstanding of $889.6million.The Company has unused capacity under the Revolver of

approximately $142 million, net of bank letters of credit of approximately$4 million, as of March 31, 2022.The Company’s other

debt obligations are primarily industrial development bonds, banklines of credit and municipality-related loans, which totaled $11.7

million and $11.8 million as of March31, 2022 and December 31, 2021, respectively.Total unused capacity underthese

arrangements as of March 31, 2022was approximately $30 million.The Company’s total net debt as ofMarch 31, 2022was $765.3

million.

The Company incurred $6.0 million of total Combination,integration and other acquisition-related expenses in the first quarter of

2022, which includes $2.0 million of other expenses related to an indemnificationasset, described in the Non-GAAP Measures section

of this Item below.Comparatively, in the first quarterof 2021, the Company incurred $0.8 million of total Combination,integration

and other acquisition-related expenses, which was net of a $5.4 million gainon the sale of certain held-for-sale real property assets

and also $0.4 million of accelerated depreciation.The Company had aggregate net cash outflows of approximately $8.3 million

related to the Combination,integration and other acquisition-related expenses during the first three monthsof 2022 as compared to

$8.7million during the first three months of 2021.During the first quarter of 2022, the Company incurred $3.1 million of strategic

planning and transformation expenses.The Company expects that these additional operating costs and associatedcash flows, as well

as higher capital expenditures related to strategic planning, process optimizationand the next phase of the Company’slong-term

integration to further optimize its footprint, processes and otherfunctions will continue in 2022 and over the next several years.

Quaker Houghton’s managementapproved, and the Company initiated, a global restructuring plan (the“QH Program”) in the

third quarter of 2019 as part of its planned cost synergies associatedwith the Combination.The QH Program includes restructuring

and associated severance costs to reduce total headcount by approximately400 people globally and plans for the closure of certain

manufacturing and non-manufacturing facilities.The exact timing and total costs associated with the QH Program continuesto

depend on a number of factors and is subject to change; however,reductions in headcount and site closures have occurred, and the

Company currently expects additional headcount reductions andsite closures to occur throughout the year and estimates that the

anticipated cost synergies realized under the QH Programwill approximate one-times restructuring costs incurred.The Company

made cash payments related to the settlement of restructuring liabilities underthe QH Program during the first three months of 2022 of

approximately $0.4 million compared to $3.0 million in the first three monthsof 2021.

As of March 31, 2022, the Company’sgross liability for uncertain tax positions, including interest and penalties,was $24.5

million.The Company cannot determine a reliable estimate of the timing of cash flowsby period related to its uncertain tax position

liability.However, should the entire liability bepaid, the amount of the payment may be reduced by up to $7.2 million as a result of

offsetting benefits in other tax jurisdictions.

Quaker Chemical Corporation

Management’s Discussion and Analysis

26

In 2021, two of the Company’s locationssuffered significant property damage as a result of floodingand fire.The Company

maintains property insurance for all of its facilities globally.The Company, its insuranceadjuster and insurance carrier are actively

managing the remediation and restoration activities associated with bothof these events and at this time the Company has concluded,

based on all available information and discussions with its insuranceadjuster and insurance carrier, that the losses incurredduring

2021 were covered under the Company’sproperty insurance coverage, net of an aggregate deductible of $2.0million.The Company

has received payments from its insurers of $2.1 million and has recordedan insurance receivable associated with these events of $0.5

million as of March 31, 2022.See Note 18 of Notes to Condensed Consolidated Financial Statements in Item1 of this Report.

The Company believes that its existing cash, anticipated cash flows fromoperations and available additional liquidity will be

sufficient to support its operating requirements and fundits 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 plan

contributions, capital expenditures, other business opportunities (includingpotential acquisitions), implementing actions to achieve the

Company’s sustainabilitygoals and other potential contingencies.The Company believes it has sufficient additional liquidity to

support its operating requirements and fund its business obligations forthe period beyond the next twelve months as well, including

the aforementioned items which are expected to recur annually,as well as future principal payments on the Company’sCredit Facility,

transition tax obligations and other long-term liabilities.The Company’s liquidity is affectedby many factors, some based on normal

operations of our business and others related to the impact of the pandemicand other global events on our business and on global

economic conditions as well as industry uncertainties, which we cannot predict.We also cannot predicteconomic conditions and

industry downturns or the timing, strength or duration of recoveries.We may seek,as we believe appropriate, additional debt or

equity financing which would provide capital for corporate purposes,working capital funding, additional liquidity needs or to fund

future growth opportunities, including possible acquisitions andinvestments.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, andthe condition of financial markets, among others.

Non-GAAP Measures

The information in this Form 10-Q filing includes non-GAAP (unaudited)financial information that includes EBITDA, adjusted

EBITDA, adjusted EBITDA margin, non-GAAP operatingincome, non-GAAP operating margin, non-GAAP netincome and non-

GAAP earnings per diluted share.The Company believes these non-GAAP financial measures provide meaningful supplemental

information as they enhance a reader’s understandingof 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 financialmeasures exclude items

that are not considered indicative of future operating performance or notconsidered core to the Company’s operations.Non-GAAP

results are presented for supplemental informational purposes only andshould not be considered a substitute for the financial

information presented in accordance with GAAP.

The Company presents EBITDA which is calculated as net income attributableto the Company before depreciation and

amortization, interest expense, net, and taxes on income before equity in net incomeof associated companies.The Company also

presents adjusted EBITDA which is calculated as EBITDA plus or minuscertain items that are not indicative of future operating

performance or not considered core to the Company’soperations.In addition, the Company presents non-GAAP operating income

which is calculated as operating income plus or minus certain items that are notindicative of future operating performance or not

considered core to the Company’soperations.Adjusted EBITDA margin and non-GAAP operating marginare calculated as the

percentage of adjusted EBITDA and non-GAAP operating incometo consolidated net sales, respectively.The Company believes

these non-GAAP measures provide transparent and useful information andare widely used by analysts, investors, and competitors in

our industry as well as by management in assessing the operating performanceof the Company on a consistent basis.

Additionally, theCompany presents non-GAAP net income and non-GAAP earnings per diluted shareas additional performance

measures.Non-GAAP net income is calculated as adjusted EBITDA, defined above,less depreciation and amortization, interest

expense, net, and taxes on income before equity in net income of associatedcompanies, in each case adjusted, as applicable, for any

depreciation, amortization, interest or tax impacts resulting from the non-coreitems identified in the reconciliation of net income

attributable to the Company to adjusted EBITDA.Non-GAAP earnings per diluted share is calculated as non-GAAP net income per

diluted share as accounted for under the “two-class share method.”The Company believes that non-GAAP net income and non-

GAAP earnings per diluted share provide transparent and useful informationand are widely used by analysts, investors, and

competitors in our industry as well as by management in assessing the operatingperformance of the Company on a consistent basis.

Quaker Chemical Corporation

Management’s Discussion and Analysis

27

The following tables reconcile the Company’snon-GAAP financial measures (unaudited) to their most directly comparable

GAAP (unaudited) financial measures (dollars in thousands, unless otherwisenoted, except per share amounts):

Non-GAAP Operating Income and Margin Reconciliations

Three Months Ended

March 31,

2022

2021

Operating income

$

29,403

$

44,894

Combination, integration and other acquisition-related expenses (a)

4,053

6,230

Strategic planning and transformation expenses (b)

3,088

-

Restructuring and related charges (c)

820

1,175

Fair value step up of acquired inventory sold (d)

—

801

Executive transition costs (e)

539

504

Inactive subsidiary's non-operating litigation costs (f)

92

51

Customer insolvency costs (g)

1,166

—

Non-GAAP operating income

$

39,161

$

53,655

Non-GAAP operating margin (%) (n)

8.3%

12.5%

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and

Non-GAAP Net Income Reconciliations

Three Months Ended

March 31,

2022

2021

Net income attributable to Quaker Chemical Corporation

$

19,816

$

38,615

Depreciation and amortization (a) (l)

20,727

22,448

Interest expense, net (a)

5,345

5,470

Taxes on incomebefore equity in net income of associated companies (m)

2,866

10,689

EBITDA

$

48,754

$

77,222

Equity loss (income) in a captive insurance company (h)

244

(3,080)

Combination, integration and other acquisition-related expenses (a)

6,032

427

Strategic planning and transformation expenses (b)

3,088

—

Restructuring and related charges (c)

820

1,175

Fair value step up of acquired inventory sold (d)

—

801

Executive transition costs (e)

539

504

Inactive subsidiary's non-operating litigation costs (f)

92

51

Customer insolvency costs (g)

1,166

—

Pension and postretirement benefit income, non-service components(i)

(479)

(124)

Currency conversion impacts of hyper-inflationary economies (j)

188

172

Adjusted EBITDA

$

60,444

$

77,148

Adjusted EBITDA margin (%) (n)

12.7%

18.0%

Adjusted EBITDA

$

60,444

$

77,148

Less: Depreciation and amortization - adjusted (a)

20,727

22,033

Less: Interest expense, net

5,345

5,470

Less: Taxes on incomebefore equity in net income of associated companies - adjusted(k)(m)

8,902

11,739

Non-GAAP net income

$

25,470

$

37,906

Quaker Chemical Corporation

Management’s Discussion and Analysis

28

Non-GAAP Earnings per Diluted Share Reconciliations

Three Months Ended

March 31,

2022

2021

GAAP earnings per diluted share attributable to Quaker Chemical Corporation

common shareholders

$

1.11

$

2.15

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

0.01

(0.17)

Combination, integration and other acquisition-related expenses per dilutedshare (a)

0.25

0.04

Strategic planning and transformation expenses per diluted share (b)

0.14

—

Restructuring and related charges per diluted share (c)

0.03

0.05

Fair value step up of acquired inventory sold per diluted share (d)

—

0.03

Executive transition costs per diluted share (e)

0.02

0.02

Inactive subsidiary's non-operating litigation costs per diluted share (f)

0.00

0.00

Customer insolvency costs per diluted share (g)

0.06

—

Pension and postretirement benefit costs, non-service components per dilutedshare (i)

(0.02)

(0.00)

Currency conversion impacts of hyper-inflationary economies perdiluted share (j)

0.01

0.01

Impact of certain discrete tax items per diluted share (k)

(0.19)

(0.02)

Non-GAAP earnings per diluted share (o)

$

1.42

$

2.11

(a)

Combination,integration and other acquisition-related expenses include certain legal, financial,and other advisory and consultant

costs incurred in connection with integration activities including internalcontrol readiness and remediation.These costs are not

indicative of the future operating performance of the Company.Less than $0.1 million and $0.1 million for the three months

ended March 31, 2022 and 2021, respectively,of these pre-tax costs were considered non-deductible for the purpose of

determining the Company’seffective tax rate, and, therefore, taxes on income before equity innet income of associated

companies - adjusted reflects the impact of these items.During the three months ended March 31, 2022, the Company recorded

$2.0 million of other expense related to an indemnification asset.During the three months ended March 31, 2021, the Company

recorded $0.4 million of accelerated depreciation related to certain ofthe Company’s facilities, which is includedin the caption

“Combination, integration and other acquisition-related expenses” in thereconciliation of operating income to non-GAAP

operating income and included in the caption “Depreciation and amortization”in the reconciliation of net income attributable to

the Company to EBITDA, but excluded from the caption “Depreciationand amortization – adjusted” in the reconciliation of

adjusted EBITDA to non-GAAP net income attributable to the Company.During the three months ended March 31, 2021, the

Company recorded a $5.4 million gain on the sale of certain held-for-salereal property assets related to the Combination which is

included in the caption “Combination, integration and other acquisition-relatedexpenses” in the reconciliation of GAAP earnings

per diluted share attributable to Quaker Chemical Corporation commonshareholders to Non-GAAP earnings per diluted share as

well as the reconciliation of net income attributable to Quaker Chemical Corporationto Adjusted EBITDA and Non-GAAP net

income.

(b)

Strategic planning and transformation expenses include certain consultantand advisory expenses for the Company’slong-term

strategic planning, as well as process optimization and the next phaseof the Company’s long-term integrationto further optimize

its footprint, processes and other functions.These costs are not indicative of the future operating performance of the Company.

(c)

Restructuring and related charges represent thecosts incurred by the Company associated with the QH restructuring program

which was initiated in the third quarter of 2019 as part of the Company’splan to realize cost synergies associated with the

Combination.These costs are not indicative of the future operating performance of the Company.See Note 7 of Notes to

Condensed Consolidated Financial Statements, which appears in Item1 of this Report.

(d)

Fair value step up of acquired inventory sold relates to expense associated with sellinginventory from acquired businesses which

was adjusted to fair value as part of purchase accounting.These increases in costs of goods sold (“COGS”) are not indicative of

the future operating performance of the Company.

(e)

Executive transition costs represent the costs related to the Company’ssearch, hiring and transition to a new CEO in connection

with the executive transition that took place in 2021 as well as the on-goingsearch for a new Chief Human Resources Officer

during the first quarter of 2022.These expenses are not indicative of the future operating performance of theCompany.

(f)

Inactive subsidiary’s non-operating litigation costs represent the charges incurred byan inactive subsidiary of the Company and

are a result of the termination of restrictions on insurance settlement reserves.These charges are not indicative of the future

operating performance of the Company.

Quaker Chemical Corporation

Management’s Discussion and Analysis

29

(g)

Customer insolvency costs represent the costs associated with a specificreserve or changes to existing reserves for trade accounts

receivable within the Company’sEMEA reportable segment related to certain customers who filed forbankruptcy protection as

well as costs related to specific reserves recorded for certain customer accountsreceivables which have been directly impacted by

the current economic conflict between Russia and Ukraine.These expenses are not indicative of the future operating performance

of the Company.

(h)

Equity loss (income)in a captive insurance company represents the after-tax(loss) 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 methodof accounting.The loss (income)attributable to

Primex is not indicative of the future operating performance of theCompany and is not considered core to the Company’s

operations.

(i)

Pension and postretirement benefit income,non-service components represent the pre-tax, non-servicecomponent of the

Company’s pension and postretirementnet periodic benefit income in each period.These costs are not indicative of the future

operating performance of the Company.See Note 9 of Notes to Condensed Consolidated Financial Statements, which appearsin

Item 1 of this Report.

(j)

Currency conversion impacts of hyper-inflationary economies representsthe foreign currency remeasurement impacts associated

with the Company’s affiliateswhose local economies are designated as hyper-inflationary underU.S. GAAP.During both the

three months ended March 31, 2022and 2021, the Company incurred non-deductible, pre-tax chargesrelated to the Company’s

Argentine affiliates.The charges incurred related to the immediate recognition of foreign currencyremeasurement in the

Consolidated Statements of Income associated with these entities are not indicativeof the future operating performance of the

Company.See Note 1 of Notes to Condensed Consolidated Financial Statements, which appearsin Item 1 of this Report.

(k)

The impacts of certain discrete tax items include changes in valuationallowances recorded on certain Brazilian branch foreign tax

credits and the recording of deferred taxes on Brazilian branch income.Both of these discrete items related to a result of tax law

changes in the U.S. due to the issuance of final foreign tax credit regulationsduring the period.Additionally, the Company has

discrete items related to the release of the reserves for uncertain tax positionssettled during the quarter and certain taxes,

penalties, and interest due as a result of the settlements.See Note 11 of Notes to Condensed ConsolidatedFinancial Statements,

which appears in Item 1 of this Report.

(l)

Depreciation and amortization for the three months ended March 31,2022 and 2021 each included $0.3million of amortization

expense recorded within equity in net income of associated companiesin the Company’s Condensed ConsolidatedStatement of

Income,which is attributable to the amortization of the fair value step up for the Company’s50% interest in a Houghton joint

venture in Korea as a result of required purchase accounting.

(m)

Taxes on incomebefore equity in net income of associated companies – adjusted presents the impactof any current and deferred

income tax expense (benefit), as applicable, of the reconciling items presentedin the reconciliation of net income attributable to

Quaker Chemical Corporation to adjusted EBITDA, and was determinedutilizing the applicable rates in the taxing jurisdictions in

which these adjustments occurred, subject to deductibility.Combination, integration and other acquisition-related expenses

described in (a) resulted in incremental taxes of $1.4 million and $0.1million during the three months ended March 31, 2022 and

2021, respectively.Strategic planning and transformation expenses describes in (b) above resultedin incremental taxes of $0.7

million during the three months ended March 31, 2022.Restructuring and related charges described in (c) resulted in incremental

taxes of $0.2 million during each of the three months ended March 31, 2022and 2021.Fair value step up of acquired inventory

sold described in (d) resulted in incremental taxes of $0.2 million duringthe three months ending March 31, 2021.Executive

transition expenses described in (e) resulted in incremental taxes of $0.1million during each of the three months ended March 31,

2022 and 2021.Inactive subsidiary non-operating litigation costs described in (f) resulted in incrementaltaxes of less than $0.1

million for each of the three months ended March 31, 2022 and 2021.Customer insolvency costs described in (g) resulted in

incremental taxes of $0.3 million during the three months endedMarch 31, 2022.Pension and postretirement benefit income,

non-service components described in (i) resulted in a tax benefit of $0.1million and less than $0.1 million for the three months

ended March 31, 2022 and 2021, respectively.The impact of certain discrete items described in (k) resulted in a tax benefit of

$3.4 million and $0.4 million for the three months ended March 31, 2022and 2021, respectively.

(n)

The Company calculates adjusted EBITDA marginand non-GAAP operating margin as the percentage of adjusted EBITDAand

non-GAAP operating income to consolidated net sales.

(o)

The Company calculates non-GAAP earnings per diluted share as non-GAAP net income attributable to the Company per

weighted average diluted shares outstanding using the “two-class share method”to calculate such in each given period.

Quaker Chemical Corporation

Management’s Discussion and Analysis

30

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet commitments orobligations as of March 31, 2022.The Company’s only off-

balance sheet items outstanding as of March 31, 2022 represented approximately$6 million of total bank letters of credit and

guarantees.The bank letters of credit and guarantees are not significant to the Company’sliquidity or capital resources.See Note 14

of Notes to Condensed Consolidated Financial Statements in Item1 of this Report.

Operations

Consolidated Operations Review – Comparison of the First Quarter of 2022with the First Quarter of 2021

Net sales were $474.2 million in the first quarter of 2022 compared to $429.8million in the first quarter of 2021.The net sales

increase of $44.4 million or 10% quarter-over-quarter reflects increases inselling price and product mix of approximately 17% and

additional net sales from acquisitions of 2% partially offsetby a decline in sales volume of approximately 6% and the unfavorable

impact from foreign currency translation of 3%.The increase in selling price and product mix is primarily driven by price increases

implemented to help offset the significant increases in rawmaterial and other input costs that began during 2021.The decline in sales

volumes was primarily attributable to the comparison to a very strong first quarterof 2021, where customers replenished their supply

chains, the impact of lower volumes related to the tolling agreementfor previously divested products associated with the Combination

and lower sales volumes attributable to the war in Ukraine.

COGS were $328.1 million in the first quarter of 2022 compared to $273.6million in the first quarter of 2021.The increase in

COGS of $54.5 million or 20% was driven by the associated COGS on theincrease in net sales described above as well as continued

increases in the Company’s globalraw material and supply chain and logistics costs compared to the prior year.

Gross profit in the first quarter of 2022 decreased $10.1 million or 6%from the first quarter of 2021.The Company’s reported

gross margin in the first quarter of 2022 was 30.8% compared to36.3% in the first quarter of 2021.The Company’s current quarter

gross margin reflects a significant increase in rawmaterial and other input costs experienced throughout the first quarter of2022 and

the impacts of constraints on the global supply chain, partially offsetby the Company’s ongoing value-based pricing initiatives.

SG&A in the first quarter of 2022 increased $7.5 million or 7% comparedto the first quarter of 2021 due primarily to the impact

of sales increases on direct selling costs, inflationary impacts on higheroperating costs, costs associated with strategic planning and

transformation initiatives (see the Non-GAAP Measures section ofthis Item, above), and additional SG&A from recent acquisitions

partially offset by lower SG&A due to foreign currencytranslation and lower incentive compensation compared to the prior year.In

addition, SG&A was lower in the prior year period as a result of continuedtemporary cost saving measures the Company

implemented in response to the onset of COVID-19.

During the first quarter of 2022, the Company incurred $4.1 millionof 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 of expenses in the prior year first quarter,primarily due to various professional

fees related to legal, financial and other advisory and consultant expensesfor integration activities including internal control readiness

and remediation.See the Non-GAAP Measures section of this Item, above.

The Company initiated a restructuring program during the third quarterof 2019 as part of its global plan to realize cost synergies

associated with the Combination.The Company incurred Restructuring and related charges for reductionsin headcount and site

closures under this program, net of adjustments to initial estimates for severanceof $0.8 million and $1.2 million during the first

quarters of 2022 and 2021, respectively.See the Non-GAAP Measures section of this Item, above.

Operating income in the first quarter of 2022 was $29.4 million comparedto $44.9 million in the first quarter of 2021.Excluding

non-recurring and non-core expenses that are not indicative of the future operatingperformance of the Company described in the Non-

GAAP Measures section of this Item, above, the Company’scurrent quarter non-GAAP operating income decreasedto $39.2 million

compared to $53.7 million in the prior year first quarter primarily dueto the lower gross profit described above.

The Company had other expense, net, of $2.2 million in the first quarterof 2022 compared to other income, net of $4.7 million in

the first quarter of 2021.The first quarter of 2022 includes other expenses related to the impact of certain adjustmentto the

Company’s indemnificationreceivables, while the prior year first quarter other income includes a gain onthe sale of certain held-for-

sale real property assets.See the Non-GAAP Measures section of this Item, above.

Interest expense, net, decreased $0.1 million compared to the first quarterof 2021, due to a slight decrease in the average

borrowings outstanding in the first quarter of 2022 compared to the firstquarter of 2021 on relatively consistent interest rates during

both the first quarter of 2022 and 2021.

The Company’s effectivetax rates for the first quarters of 2022 and 2021 were 13.1% and 24.2%, respectively.The Company’s

effective tax rate for the three months ended March 31,2022 was largely driven by changes in the valuation allowance for foreigntax

credits due to recently issued legislative guidance and impacts due to settlementsreached on certain tax audits.Comparatively, the

prior year first quarter effective tax rate was impacted by the sale ofa subsidiary which included certain held-for-sale real property

Quaker Chemical Corporation

Management’s Discussion and Analysis

31

assets related to the Combination.Excluding the impact of these items as well as all other non-core items in each quarter,described in

the Non-GAAP Measures section of this Item, above, the Companyestimates that its effective tax rates for the first quarter of 2022

and 2021 would have been approximately 27% and 25%, respectively.The Company incurred higher tax expense during the three

months ended March 31, 2022 primarily related to the Company recording earningsin one of its subsidiaries at a statutory tax rate of

25% while it awaits recertification of a concessionary 15% tax rate, whichwas available to the Company during all of 2021.The

Company expects continued volatility in its effective taxrates due to several factors, including the timing and scope of tax audits and

the expiration of applicable statutes of limitations as they relate to uncertaintax positions, the unpredictability of the timing and

amount of certain incentives in various tax jurisdictions, the treatment ofcertain acquisition-related costs and the timing and amount

of certain share-based compensation-related tax benefits, amongother factors.

Equity in net income of associated companies decreased $4.4 millionin the first quarter of 2022 compared to the first quarter of

2021, primarily due to lower current year income from the Company’sinterest in a captive insurance company and from the

Company’s 50% interest in a joint venturein Korea.See the Non-GAAP Measures section of this Item, above.

Net income attributable to noncontrolling interest was less than $0.1 millionin both the first quarters of 2022 and 2021.

Foreign exchange unfavorably impacted the Company’sfirst quarter of 2022 results by approximately 4% driven by the impact

from foreign currency translation on earnings as well as higher foreignexchange transaction losses in the current quarter as compared

to the prior year first quarter.

Reportable Segments Review - Comparison of the First Quarter of 2022with the First Quarter of 2021

The Company’s reportablesegments reflect the structure of the Company’sinternal organization, the method by which the

Company’s resources are allocatedand the manner by which the chief operating decision maker of the Companyassesses its

performance.The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii)Asia/Pacific; and (iv) Global Specialty

Businesses.The three geographic segments are composed of the net sales and operationsin each respective region, excluding net

sales and operations managed globally by the Global Specialty Businessessegment, which includes the Company’scontainer, metal

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 productsales.Operating expenses not directly attributable to the net sales of each respective

segment, such as certain corporate and administrative costs, Combination,integration and other acquisition-related expenses,

Restructuring and related charges, and COGS relatedto acquired inventory sold, which is adjusted to fair value as part of purchase

accounting, are not included in segment operating earnings.Other items not specifically identified with the Company’sreportable

segments include interest expense, net, and other (expense) income, net.

Americas

Americas represented approximately 33% of the Company’sconsolidated net sales in the first quarter of 2022.The segment’s net

sales were $154.1 million, an increase of $19.3 million or 14% comparedto the first quarter of 2021.The increase in net sales was

due to higher selling price and product mix of 22% and additional net sales fromacquisitions of 2% partially offset by decreases in

organic sales volumes of 10%.The increase in selling price and product mix is primarily driven by priceincreases implemented to

help offset the significant increases in raw material andother input costs that began during 2021 and have continued in 2022.The

current quarter decline in organic sales volume was largelydriven by the impact of lower volumes related to the tolling agreement for

previously divested products associated with the Combinationand the prior year period comparison,which included a strong rebound

from COVID-19 impacts.This segment’s operating earnings were $29.2million, a decrease of $3.0 million or 9% compared to the

first quarter of 2021.The decrease in segment operating earnings was primarily a result of lower grossmargins driven by the lag in

price increases as compared to continued raw material cost increases and globalsupply chain and logistics pressures, as well as higher

SG&A including an increase in direct selling costs, SG&A from acquisitionsand year-over-year inflationary increases.

EMEA

EMEA represented approximately 26% of the Company’sconsolidated net sales in the first quarter of 2022.The segment’s net

sales were $125.7 million, an increase of $5.9 million or 5% comparedto the first quarter of 2021.The increase in net sales was due

to higher selling price and product mix of 18% and additional net sales fromacquisitions of 2%, partially offset by the unfavorable

impact of foreign currency translation of 9% and a decrease in organicsales volumesof 6%.The increase in selling price and product

mix is primarily driven by price increases implemented to help offsetthe significant increases in raw material and other input costs

that began during 2021 and have continued in 2022.The current quarter organic volume decline was primarily drivenby the current

economic pressures including the direct and indirect impacts of theRussia-Ukraine conflict and the impact of economic and other

sanctions by other nations on Russia as well as the prior year period comparisonincluding a strong rebound from COVID-19 impacts.

The foreign exchange impact was primarily due to the weakening of theeuro against the U.S. dollar as this exchange rate averaged

1.12 in the first quarter of 2022 compared to 1.21 in the first quarter of2021.This segment’s operating earningswere $16.8 million, a

decrease of $8.5 million or 34% compared to the first quarter of 2021.The decrease in segment operating earnings was primarily a

Quaker Chemical Corporation

Management’s Discussion and Analysis

32

result of lower gross margins driven by the lag in price increases as comparedto continued raw material cost increases and global

supply chain and logistics pressures, coupled with higher SG&A includingan increase in direct selling costs, SG&A from acquisitions

and year-over-year inflationary increases.

Asia/Pacific

Asia/Pacific represented approximately 22% of the Company’sconsolidated net sales in the first quarter of 2022.The segment’s

net sales were $104.2 million, an increase of $7.5 million or 8% comparedto the first quarter of 2021.The increase in net sales was

driven by higher selling price and product mix of 12% partially offsetby lower organic sales volumes of 4%.The increase in selling

price and product mix is primarily driven by price increases implementedto help offset the significant increases in raw material and

other input costs that began during 2021 and continued throughoutthe first quarter of 2022.The current quarter decline in organic

sales volume was primarily driven by lower activity primarily in China relatedto government mandates regarding the current year

Olympics as well as country restrictions over power and export relatedactivity compared to a very favorable demand environment in

the prior year period.This segment’s operating earningswere $21.9 million, a decrease of $5.6 million or 20% compared to the first

quarter of 2021.The decrease in segment operating earnings was primarily a result of lower gross marginsdriven by the lag in price

increases as compared to continued raw material cost increases and globalsupply chain and logistics pressures, coupled with higher

SG&A including an increase in direct selling costs and year-over-year inflationaryincreases.

Global Specialty Businesses

Global Specialty Businesses represented approximately 19% of theCompany’s consolidated net sales in thefirst quarter of 2022.

The segment’s net sales were $90.1million, an increase of $11.7 million or 15% comparedto the first quarter of 2021.The increase

in net sales was driven by higher selling price and product mix of 10%, includingNorman Hay, additional net sales fromacquisitions

of 4% and an increase in organic sales volumes of 2%, partially offsetby the unfavorable impact from foreign currency transaction of

approximately 1%.The increase in selling price and product mix is primarily driven by price increases implementedto help offset the

significant increases in raw material and other input costs that began during2021 and continued throughout the first quarter of 2022.

The increase in organic sales volumes was primarily attributableto a favorable demand environment for our products.The foreign

exchange impact was primarily due to the weakening of the euroagainst the U.S. dollar described in the EMEA section above.This

segment’s operating earnings were$25.0 million, an increase of $0.9 million or 4% compared to the first quarterof 2021.The

increase in segment operating earnings reflects the aforementionedhigher net sales partially offset by slightly lower gross marginsin

the current year coupled with higher SG&A, including an increase in directselling costs, SG&A from acquisitions and year-over-year

inflationary increases.

Factors That May Affect Our Future Results

(Cautionary Statements Under the Private Securities Litigation ReformAct of 1995)

Certain information included in this Report and other materials filed orto be filed by Quaker Chemical Corporation with the SEC,

as well as information included in oral statements or other written statements madeor to be made by us, contain or may contain

forward-looking statements within the meaning of Section 27A of theSecurities 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 basedthese forward-looking statements, including statements regarding the potentialeffects of the

COVID-19 pandemic and global supply chain constraints on the Company’sbusiness, results of operations, and financial condition,

our expectation that we will maintain sufficient liquidity andremediate any of our material weaknesses in internal control over

financial reporting, and statements regarding the impact of increasedraw material costs and pricing initiatives on our current

expectations about future events.

These forward-looking statements include statements with respect toour beliefs, plans, objectives, goals, expectations,

anticipations, intentions, financial condition, results of operations, futureperformance, 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;

•

cost increases in prices of raw materials and the impacts of constraints anddisruptions in the global supply chain;

•

our current and future results and plans including our sustainability goals; and

•

statements that include the words “may,”“could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,”

“intend,” “plan” or similar expressions.

Such statements include information relating to current and future business activities,operational matters, capital spending, and

financing sources.From time to time, forward-looking statements are also included in the Company’sother periodic reports on Forms

10-K, 10-Q and 8-K, press releases, and other materials released to,or statements made to, the public.

Quaker Chemical Corporation

Management’s Discussion and Analysis

33

Any or all of the forward-looking statements in this Report, in the Company’sAnnual Report to Shareholders for 2021 and in any

other public statements we make may turn out to be wrong.This can occur as a result of inaccurate assumptions or as a consequence

of known or unknown risks and uncertainties.Many factors discussed in this Report will be important in determining our future

performance.Consequently, actual results maydiffer materially from those that might be anticipated from our forward-looking

statements.

We undertakeno obligation to publicly update any forward-looking statements, whetheras a result of new information, future

events or otherwise.However, any further disclosures made onrelated subjects in the Company’s subsequentreports on Forms 10-K,

10-Q, 8-K and other related filings should be consulted.A major risk is that demand for the Company’sproducts 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 productionslowdowns and shutdowns, including as is currently being experienced by

many automotive industry companies as a result of supply chain disruption.Other major risks and uncertainties include, but are not

limited to, the primary and secondary impacts of the COVID-19 pandemic,including actions taken in response to the pandemic by

various governments, which could exacerbate some or all of the otherrisks and uncertainties faced by the Company,as well as the

potential for significant increases in raw material costs, supply chaindisruptions, customer financial instability,worldwide economic

and political disruptions including the impacts of the military conflictbetween Russia and Ukraine, the economic and other sanctions

imposed by other nations on Russia, suspensions of activities in Russia bymany multinational companies and the potential expansion

of military activity, foreigncurrency fluctuations, significant changes in applicable tax rates andregulations, future terrorist attacks

and other acts of violence.Furthermore, the Company is subject to the same business cycles as those experienced byour customers in

the steel, automobile, aircraft, industrial equipment, and durable goods industries.The ultimate impact of COVID-19 on our business

will depend on, among other things, the extent and duration of thepandemic, the severity of the disease and the number of people

infected with the virus including new variants, the continued uncertaintyregarding global availability,administration, acceptance and

long-term efficacy of vaccines, or other treatments forCOVID-19 or its variants, the longer-term effectson the economy of the

pandemic, including the resulting market volatility,and by the measures taken by governmental authorities and other third parties

restricting day-to-day life and business operations and the lengthof time that such measures remain in place, as well as laws and other

governmental programs implemented to address the pandemic or assist impactedbusinesses, such as fiscal stimulus and other

legislation designed to deliver monetary aid and other relief.Other factors could also adversely affect us, including those relatedto

acquisitions and the integration of acquired businesses.Our forward-looking statements are subject to risks, uncertainties and

assumptions about the Company and its operations that are subject to changebased on various important factors, some of which are

beyond our control.These risks, uncertainties, and possible inaccurate assumptions relevant to ourbusiness could cause our actual

results to differ materially from expected and historicalresults.

Therefore, we caution you not to place undue reliance on our forward-lookingstatements.For more information regarding these

risks and uncertainties as well as certain additional risks that we face,refer to the Risk Factors section, which appears in Item 1A in

our 2021 Form 10-K and in our quarterly and other reports filed from time totime 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 Houghtoncan be accessed from the Company’swebsite at

https://www.quakerhoughton.com.This site includes important information on the Company’slocations, products and services,

financial reports, news releases and career opportunities.The Company’s periodic and current reportson 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 theyare electronically filed with or

furnished to the SEC.Information contained on, or that may be accessed through, the Company’swebsite is not incorporated by

reference in this Report and, accordingly,you should not consider that information part of this Report.

34

Item 3.Quantitative and Qualitative Disclosures About MarketRisk.

We have evaluatedthe information required under this Item that was disclosed in Part II, Item 7A, of our AnnualReport on Form

10-K for the year ended December 31, 2021, and we believe there has been no materialchange to that information.

35

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 ourprincipal executive officer and principal financial officer,has

evaluated the effectiveness of our disclosure controlsand 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 principalfinancial officer

have concluded that, as of March 31, 2022, the end of the period covered bythis Report, our disclosure controls and procedures (as

defined in Rule 13a-15(e) under the Exchange Act) were effective.

Changes in internal control over financial reporting.

As required by Rule 13a-15(d) under the Exchange Act, our

management, including our principal executive officerand principal financial officer, has evaluatedour internal control over

financial reporting to determine whether any changes to our internal controlover financial reporting occurred during the

quarter ended March 31, 2022 that have materially affected, orare 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 reportingduring the quarter ended March 31, 2022.

36

PARTII.

OTHER INFORMATION

Items 3, 4 and 5 of Part II are inapplicable and have been omitted.

Item 1.Legal Proceedings.

Incorporated by reference is the information in Note 18 of the Notes to theConsolidated Financial Statements in Part I, Item 1, of

this Report.

Item 1A.Risk Factors.

The Company’s business, financialcondition, results of operations and cash flows are subject to various risks thatcould cause

actual results to vary materially from recent results or from anticipated futureresults.In addition to the other information set forth in

this Report, you should carefully consider the risk factors previously disclosedin Part I, Item 1A of our 2021Form 10-K.While there

have been no material changes to the risk factors described in our 2021 Form 10-K,reference is made to the developments discussed

under the headings

Ongoing impact of COVID-19

and

Impact of Political Conflicts

within Item 2 of this Report.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information concerning shares ofthe Company’s common stock acquiredby the Company during

the period covered by this Report:

(c)

(d)

TotalNumber of

Approximate Dollar

(a)

(b)

Shares Purchased

Value ofShares that

TotalNumber

Average

as part of

May Yetbe

of Shares

Price Paid

Publicly Announced

Purchased Under the

Period

Purchased (1)

Per Share (2)

Plans or Programs

Plans or Programs (3)

January 1 - January 31

494

$

227.19

—

$

86,865,026

February 1 - February 28

4,717

$

189.45

—

$

86,865,026

March 1 - March 31

161

$

174.07

—

$

86,865,026

Total

5,372

$

192.46

—

$

86,865,026

(1)

All of these shares were acquired from employees related to the surrenderof Quaker Chemical Corporation shares in

payment of the exercise price of employee stock options exercised orfor 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’scommon stock on the date of exercise or vesting as specified by the plan

pursuant to which the applicable option, restricted stock award, or restrictedstock 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 of Quaker Chemical Corporation

common stock (the “2015 Share Repurchase Program”), and it has no expirationdate.There were no shares acquired by the

Company pursuant to the 2015 Share Repurchase Program during thequarter ended March 31, 2022.

Limitation on the Payment of Dividends

The Credit Facility has certain limitations on the payment of dividendsand other so-called restricted payments. See Note 14 of

Notes to Condensed Consolidated Financial Statements, in Part I, Item1, of this Report.

37

Item 6.Exhibits.

(a) Exhibits

3.1

–

Amended and Restated Articles of Incorporation (as amended through July 24, 2019). Incorporated by reference to

Exhibit 3.1 as filed by the Registrant with its quarterly report on Form 10-Q filed on August 1, 2019.

3.2

–

Restated By-laws (effective May 6, 2015, as amended through March 27, 2020). Incorporated by reference to Exhibit

3.2 as filed by the Registrant within its quarterly report on Form 10-Q filed on May 11, 2020.

31.1

–

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

1934.*

31.2

–

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

1934.*

32.1

–

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

32.2

–

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

101.INS

–

Inline XBRL Instance Document*

101.SCH

–

Inline XBRL TaxonomyExtension Schema 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)*

* 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: May 5, 2022

Shane W. Hostetter,Senior Vice President, Chief Financial

Officer (officer duly authorized on behalf of, and principal

financial officer of, the Registrant)