Company Quick10K Filing
Quaker Chemical
Price156.75 EPS2
Shares16 P/E84
MCap2,537 P/FCF72
Net Debt678 EBIT44
TEV3,215 TEV/EBIT74
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-20
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-07-30
10-Q 2018-03-31 Filed 2018-04-30
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-05-01
10-K 2016-12-31 Filed 2017-02-28
10-Q 2016-09-30 Filed 2016-10-26
10-Q 2016-06-30 Filed 2016-07-27
10-Q 2016-03-31 Filed 2016-04-27
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-10-28
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-04-29
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-10-28
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-04-29
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-10-29
10-Q 2013-06-30 Filed 2013-07-29
10-Q 2013-03-31 Filed 2013-04-29
10-K 2012-12-31 Filed 2013-03-06
10-Q 2012-09-30 Filed 2012-10-30
10-Q 2012-06-28 Filed 2012-07-30
10-Q 2012-03-31 Filed 2012-04-30
10-K 2011-12-31 Filed 2012-03-07
10-Q 2011-09-30 Filed 2011-10-25
10-Q 2011-06-30 Filed 2011-07-27
10-Q 2011-03-31 Filed 2011-04-26
10-K 2010-12-31 Filed 2011-03-02
10-Q 2010-09-30 Filed 2010-10-26
10-Q 2010-06-30 Filed 2010-07-29
10-Q 2010-03-31 Filed 2010-04-27
10-K 2009-12-31 Filed 2010-03-03
8-K 2020-05-19
8-K 2020-05-13
8-K 2020-05-11
8-K 2020-03-27
8-K 2020-03-17
8-K 2020-03-02
8-K 2019-11-12
8-K 2019-10-18
8-K 2019-08-29
8-K 2019-08-01
8-K 2019-08-01
8-K 2019-08-01
8-K 2019-07-11
8-K 2019-07-02
8-K 2019-05-08
8-K 2019-05-02
8-K 2019-03-13
8-K 2019-02-28
8-K 2018-12-14
8-K 2018-11-01
8-K 2018-08-01
8-K 2018-07-30
8-K 2018-05-29
8-K 2018-05-09
8-K 2018-04-30
8-K 2018-02-28

KWR 10Q Quarterly Report

Part I
Item 1.Financial Statements (Unaudited).
Note 1 - Condensed Financial Information
Note 2 - Business Combinations
Note 3 - Recently Issued Accounting Standards
Note 4 - Business Segments
Note 5 - Net Sales and Revenue Recognition
Note 6 - Leases
Note 7 - Restructuring and Related Activities
Note 8 - Share - Based Compensation
Note 9 - Pension and Other Postretirement Benefits
Note 10 - Other Expense, Net
Note 11 - Income Taxes and Uncertain Income Tax Positions
Note 12 - Earnings per Share
Note 13 - Restricted Cash
Note 14 - Goodwill and Other Intangible Assets
Note 15 - Debt
Note 16 - Equity
Note 17 - Fair Value Measurements
Note 18 - Hedging Activities
Note 19 - Commitments and Contingencies
Note 20 - Covid - 19 Global Pandemic
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II.
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-3.2 exhibit32.htm
EX-10.2 exhibit102.htm
EX-31.1 exhibit311.htm
EX-31.2 exhibit312.htm
EX-32.1 exhibit321.htm
EX-32.2 exhibit322.htm

Quaker Chemical Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.82.21.71.10.60.02012201420172020
Assets, Equity
0.40.30.20.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.90.50.2-0.2-0.5-0.92012201420172020
Ops, Inv, Fin

44

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

 

 

 

FORM 10-Q

 

 

 

 

 

[X]

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

For the quarterly period ended March 31, 2020

 

OR

 

[ ]

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

For the transition period from              to             

 

Commission file number 001-12019

 

 

 

 

QUAKER CHEMICAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

 

 

 

 

 

 

Pennsylvania

 

23-0993790

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

 

One Quaker Park, 901 E. Hector Street,

Conshohocken, Pennsylvania

 

19428 – 2380

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: 610-832-4000

 

Not Applicable

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

 

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

KWR

New York Stock Exchange

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  [X] No [ ]

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer [X]

 

Accelerated filer [ ]

 

 

Non-accelerated filer [ ]

Smaller reporting company [ ]

 

 

Emerging growth company [ ]

 

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

 

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

 

 

 

Number of Shares of Common Stock

Outstanding on April 30, 2020

 

 

17,758,645

 

 


 

 

QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES

 

 

 

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements (unaudited)

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and March 31, 2019

2

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and March 31, 2019

3

 

 

Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019

4

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and March 31, 2019

5

 

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

28

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk.

40

Item 4.

 

Controls and Procedures.

41

PART II.

 

OTHER INFORMATION.

42

Item 1.

 

Legal Proceedings.

42

Item 1A.

 

Risk Factors.

42

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

43

Item 6.

 

Exhibits.

44

Signatures

44

 

1


 

PART I

FINANCIAL INFORMATION

 

Item 1.Financial Statements (Unaudited).

 

Quaker Chemical Corporation

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)

 

 

 

Unaudited

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Net sales

$

378,561

 

$

211,210

Cost of goods sold (excluding amortization expense - See note 14)

 

244,710

 

 

135,443

Gross profit

 

133,851

 

 

75,767

Selling, general and administrative expenses

 

98,701

 

 

51,455

Indefinite-lived intangible asset impairment

 

38,000

 

 

-

Restructuring and related charges

 

1,716

 

 

-

Combination and other acquisition-related expenses

 

7,878

 

 

4,483

Operating (loss) income

 

(12,444)

 

 

19,829

Other expense, net

 

(21,175)

 

 

(635)

Interest expense, net

 

(8,461)

 

 

(776)

(Loss) income before taxes and equity in net income of associated companies

 

(42,080)

 

 

18,418

Taxes on (loss) income before equity in net income of associated companies

 

(13,070)

 

 

4,929

(Loss) income before equity in net income of associated companies

 

(29,010)

 

 

13,489

Equity in net income of associated companies

 

666

 

 

411

Net (loss) income

 

(28,344)

 

 

13,900

Less: Net income attributable to noncontrolling interest

 

37

 

 

56

Net (loss) income attributable to Quaker Chemical Corporation

$

(28,381)

 

$

13,844

Earnings per common share data:

 

 

 

 

 

 

Net (loss) income attributable to Quaker Chemical Corporation common

 

 

 

 

 

 

shareholders – basic

$

(1.60)

 

$

1.04

 

Net (loss) income attributable to Quaker Chemical Corporation common

 

 

 

 

 

 

shareholders – diluted

$

(1.60)

 

$

1.03

 

Dividends declared

$

0.385

 

$

0.370

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive Income

(Dollars in thousands)

 

 

 

 

 

Unaudited

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

Net (loss) income

$

(28,344)

 

$

13,900

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

Currency translation adjustments

 

(54,751)

 

 

(432)

 

Defined benefit retirement plans

 

16,957

 

 

706

 

Current period change in fair value of derivatives

 

(3,981)

 

 

 

Unrealized (loss) gain on available-for-sale securities

 

(1,711)

 

 

1,273

 

 

Other comprehensive (loss) income

 

(43,486)

 

 

1,547

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

(71,830)

 

 

15,447

Less: Comprehensive income (loss) attributable to noncontrolling interest

 

95

 

 

(55)

Comprehensive (loss) income attributable to Quaker Chemical Corporation

$

(71,735)

 

$

15,392

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value and share amounts)

 

 

 

 

 

 

Unaudited

 

 

 

 

March 31,

 

December 31,

 

 

 

 

2020

 

2019

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

$

316,437

 

$

123,524

 

Accounts receivable, net

 

357,902

 

 

375,982

 

Inventories

 

 

 

 

 

 

 

Raw materials and supplies

 

81,827

 

 

82,058

 

 

Work-in-process and finished goods

 

96,041

 

 

92,892

 

Prepaid expenses and other current assets

 

43,021

 

 

41,516

 

 

Total current assets

 

895,228

 

 

715,972

 

Property, plant and equipment, at cost

 

390,353

 

 

398,834

 

 

Less accumulated depreciation

 

(188,261)

 

 

(185,365)

 

 

 

Property, plant and equipment, net

 

202,092

 

 

213,469

Right of use lease assets

 

40,496

 

 

42,905

Goodwill

 

592,385

 

 

607,205

Other intangible assets, net

 

1,050,203

 

 

1,121,765

Investments in associated companies

 

84,089

 

 

93,822

Deferred tax assets

 

14,706

 

 

14,745

Other non-current assets

 

41,352

 

 

40,433

 

 

Total assets

$

2,920,551

 

$

2,850,316

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

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

$

38,112

 

$

38,332

 

Accounts and other payables

 

177,976

 

 

170,929

 

Accrued compensation

 

24,819

 

 

45,620

 

Accrued restructuring

 

14,548

 

 

18,043

 

Other current liabilities

 

85,132

 

 

87,010

 

 

Total current liabilities

 

340,587

 

 

359,934

Long-term debt

 

1,076,292

 

 

882,437

Long-term lease liabilities

 

29,402

 

 

31,273

Deferred tax liabilities

 

190,880

 

 

211,094

Other non-current liabilities

 

120,849

 

 

123,212

 

 

Total liabilities

 

1,758,010

 

 

1,607,950

Commitments and contingencies (Note 19)

 

 

 

 

 

Equity

 

 

 

 

 

 

Common stock, $1 par value; authorized 30,000,000 shares; issued and

 

 

 

 

 

 

 

outstanding 2020 – 17,752,255 shares; 2019 – 17,735,162 shares

 

17,752

 

 

17,735

 

Capital in excess of par value

 

888,533

 

 

888,218

 

Retained earnings

 

377,362

 

 

412,979

 

Accumulated other comprehensive loss

 

(121,524)

 

 

(78,170)

 

 

Total Quaker shareholders’ equity

 

1,162,123

 

 

1,240,762

Noncontrolling interest

 

418

 

 

1,604

Total equity

 

1,162,541

 

 

1,242,366

 

 

Total liabilities and equity

$

2,920,551

 

$

2,850,316

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

 

 

 

 

 

Unaudited

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

2019

Cash flows from operating activities

 

 

 

 

 

 

Net (loss) income

$

(28,344)

 

$

13,900

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Amortization of debt issuance costs

 

1,187

 

 

42

 

 

Depreciation and amortization

 

21,197

 

 

4,859

 

 

Equity in undistributed earnings of associated companies, net of dividends

 

4,285

 

 

(186)

 

 

Deferred compensation, deferred taxes and other, net

 

(22,988)

 

 

(6,842)

 

 

Share-based compensation

 

4,682

 

 

1,012

 

 

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

 

(2)

 

 

(9)

 

 

Insurance settlement realized

 

(229)

 

 

(190)

 

 

Indefinite-lived intangible asset impairment

 

38,000

 

 

-

 

 

Combination and other acquisition-related expenses, net of payments

 

(519)

 

 

(1,012)

 

 

Restructuring and related charges

 

1,716

 

 

-

 

 

Pension and other postretirement benefits

 

22,453

 

 

(1,346)

 

Increase (decrease) in cash from changes in current assets and current

 

 

 

 

 

 

 

liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

2,322

 

 

(5,470)

 

 

Inventories

 

(10,162)

 

 

946

 

 

Prepaid expenses and other current assets

 

(3,263)

 

 

324

 

 

Change in restructuring liabilities

 

(4,841)

 

 

-

 

 

Accounts payable and accrued liabilities

 

(5,275)

 

 

(6,008)

 

 

 

Net cash provided by operating activities

 

20,219

 

 

20

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investments in property, plant and equipment

 

(4,892)

 

 

(2,537)

 

 

Payments related to acquisitions, net of cash acquired

 

(3,160)

 

 

(500)

 

 

Proceeds from disposition of assets

 

 

 

8

 

 

Insurance settlement interest earned

 

31

 

 

65

 

 

 

Net cash used in investing activities

 

(8,021)

 

 

(2,964)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Payments of long-term debt

 

(9,371)

 

 

-

 

 

Borrowings (repayments) on revolving credit facilities, net

 

205,500

 

 

(24,034)

 

 

(Repayments) borrowings on other debt, net

 

(185)

 

 

86

 

 

Dividends paid

 

(6,828)

 

 

(4,935)

 

 

Stock options exercised, other

 

(696)

 

 

(1,489)

 

 

Purchase of noncontrolling interest in affiliates

 

(1,047)

 

 

-

 

 

Distributions to noncontrolling affiliate shareholders

 

(751)

 

 

-

 

 

 

Net cash provided by (used in) financing activities

 

186,622

 

 

(30,372)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash

 

(6,424)

 

 

1,004

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

192,396

 

 

(32,312)

Cash, cash equivalents and restricted cash at the beginning of the period

 

143,555

 

 

124,425

Cash, cash equivalents and restricted cash at the end of the period

$

335,951

 

$

92,113

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

 

 

Note 1 – Condensed Financial Information

As used in these Notes to Condensed Consolidated Financial Statements, the terms “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 combination with Houghton International, Inc. (“Houghton”) (herein referred to as the “Combination”). The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and the United States Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods. The results for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).

Hyper-inflationary economies

Economies that have a cumulative three-year rate of inflation exceeding 100% are considered hyper-inflationary in accordance with U.S. GAAP. A legal entity that operates within an economy deemed to be hyper-inflationary is required to remeasure its monetary assets and liabilities to the applicable published exchange rates and record the associated gains or losses resulting from the remeasurement directly to the Condensed Consolidated Statements of Operations.

Based on various indices or index compilations currently being used to monitor inflation in Argentina as well as recent economic instability, effective July 1, 2018, Argentina’s economy was considered hyper-inflationary under U.S. GAAP. As a result, the Company began applying hyper-inflationary accounting with respect to the Company's wholly owned Argentine subsidiary beginning July 1, 2018. In addition, Houghton has an Argentina subsidiary to which hyper-inflationary accounting also is applied. As of, and for the three months ended March 31, 2020, the Company's Argentine subsidiaries represented less than 1% of the Company’s consolidated total assets and net sales, respectively. During the three months ended March 31, 2020 and 2019, the Company recorded $0.1 million and $0.2 million, respectively, of remeasurement losses associated with the applicable currency conversions related to Argentina. These losses were recorded within foreign exchange gains (losses), net, which is a component of other expense, net, in the Company’s Condensed Consolidated Statements of Operations.

Note 2 – Business Combinations

Houghton

On August 1, 2019, the Company completed the Combination, whereby the Company acquired all of the issued and outstanding shares of Houghton from Gulf Houghton Lubricants, Ltd. and certain other selling shareholders in exchange for a combination of cash and shares of the Company’s common stock in accordance with the Share Purchase Agreement, dated April 4, 2017. Houghton is a leading global provider of specialty chemicals and technical services for metalworking and other industrial applications. The Company believes that combining Quaker’s and Houghton’s products and service offerings will allow Quaker Houghton to better serve its customers in its various end markets.

The Combination was subject to certain regulatory and shareholder approvals. At a shareholder meeting held during 2017, the Company’s shareholders approved the issuance of new shares of the Company’s common stock at closing of the Combination. Also in 2017, the Company received regulatory approvals for the Combination from China and Australia. The Company received regulatory approvals from the European Commission (“EC”) during the second quarter of 2019 and the U.S. Federal Trade Commission (“FTC”) in July 2019. The approvals from the FTC and the EC required the concurrent divestiture of certain steel and aluminum related product lines of Houghton, which were sold by Houghton on August 1, 2019 for approximately $37 million in cash. The final remedy agreed with the EC and the FTC was consistent with the Company’s previous expectation that the total divested product lines would be approximately 3% of the combined company’s net sales.

6


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

The following table summarizes the fair value of consideration transferred in the Combination:

 

Cash transferred to Houghton shareholders (a)

$

170,829

 

 

Cash paid to extinguish Houghton debt obligations

 

702,556

 

 

Fair value of common stock issued as consideration (b)

 

789,080

 

 

 

Total fair value of consideration transferred

$

1,662,465

 

(a) A portion is held in escrow by a third party, subject to indemnification rights that lapse upon the achievement of certain milestones.

(b) Amount was determined based on approximately 4.3 million shares, comprising 24.5% of the common stock of the Company immediately after the closing, and the closing price per share of Quaker Chemical Corporation common stock of $182.27 on August 1, 2019.

The Company accounted for the Combination under the acquisition method of accounting. This method requires the recording of acquired assets, including separately identifiable intangible assets, at their fair value on the acquisition date. Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. The determination of the estimated fair value of assets acquired, including indefinite and definite-lived intangible assets, requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, customer attrition rates, royalty rates, asset lives and market multiples, among other items. Fair values were determined by management, using a variety of methodologies and resources, including external independent valuation experts. The valuation methods included physical appraisals, discounted cash flow analyses, excess earnings, relief from royalty, and other appropriate valuation techniques to determine the fair value of assets acquired and liabilities assumed.

The following table presents the current preliminary estimated fair values of Houghton net assets acquired:

 

 

 

 

 

Measurement

 

 

 

 

 

 

August 1,

 

Period

 

August 1, 2019

 

 

 

 

2019 (1)

 

Adjustments

 

(as adjusted)

 

 

Cash and cash equivalents

$

75,821

 

$

 

$

75,821

 

 

Accounts receivable, net

 

178,922

 

 

 

 

178,922

 

 

Inventories, net

 

95,193

 

 

 

 

95,193

 

 

Prepaid expenses and other assets

 

10,652

 

 

207

 

 

10,859

 

 

Property, plant and equipment

 

115,529

 

 

(66)

 

 

115,463

 

 

Right of use lease assets

 

10,673

 

 

 

 

10,673

 

 

Investments in associated companies

 

66,447

 

 

 

 

66,447

 

 

Other non-current assets

 

4,710

 

 

1,553

 

 

6,263

 

 

Intangible assets

 

1,028,400

 

 

 

 

1,028,400

 

 

Goodwill

 

494,915

 

 

(23)

 

 

494,892

 

 

 

Total assets purchased

 

2,081,262

 

 

1,671

 

 

2,082,933

 

 

Short-term borrowings, not refinanced at closing

 

9,297

 

 

 

 

9,297

 

 

Accounts payable, accrued expenses and other accrued liabilities

 

150,078

 

 

146

 

 

150,224

 

 

Deferred tax liabilities

 

205,082

 

 

(28)

 

 

205,054

 

 

Long-term lease liabilities

 

6,607

 

 

 

 

6,607

 

 

Other non-current liabilities

 

47,733

 

 

1,553

 

 

49,286

 

 

 

Total liabilities assumed

 

418,797

 

 

1,671

 

 

420,468

 

 

 

Total consideration paid for Houghton

 

1,662,465

 

 

 

 

1,662,465

 

 

 

Less: cash acquired

 

75,821

 

 

 

 

75,821

 

 

 

Less: fair value of common stock issued as consideration

 

789,080

 

 

 

 

789,080

 

 

 

Net cash paid for Houghton

$

797,564

 

$

 

$

797,564

 

(1)As previously disclosed in the Company’s 2019 Form 10-K.

7


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

As of March 31, 2020, the allocation of the purchase price for the Combination has not been finalized and the one-year measurement period has not ended. While not currently expected, further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed. Houghton assets acquired and liabilities assumed have been assigned to each of the Company’s reportable segments on a specific identification or allocated basis, as applicable. Measurement period adjustments recorded during the first quarter of 2020 related primarily to the recognition of other non-current assets and other non-current liabilities based on additional information obtained regarding certain tax audits and associated rights to indemnification.

Combination and other acquisition-related expenses have been and are expected to continue to be significant. The Company incurred total costs of $8.3 million and $5.3 million for the three months ended March 31, 2020 and 2019, respectively, related to the Combination and other acquisition-related activities. These costs included certain legal, financial and other advisory and consultant costs related to due diligence, regulatory approvals and integration planning and post-closing integration activities. These costs also include $0.5 million of accelerated depreciation charges during the three months ended March 31, 2020 and $0.9 million of interest costs to maintain the bank commitment (“ticking fees”) for the Combination during the three months ended March 31, 2019. The Company had current liabilities related to the Combination and other acquisition-related activities of $6.1 million and $6.6 million as of March 31, 2020 and December 31, 2019, respectively, primarily recorded within other accrued liabilities on its Condensed Consolidated Balance Sheets.

Norman Hay

On October 1, 2019, the Company completed its acquisition of the operating divisions of Norman Hay plc (“Norman Hay”), a private U.K. company that provides specialty chemicals, operating equipment, and services to industrial end markets. The acquisition adds new technologies in automotive, original equipment manufacturer (“OEM”), and aerospace, as well as engineering expertise which is expected to strengthen the Company’s existing equipment solutions platform. The acquired Norman Hay assets and liabilities were assigned to the Global Specialty Businesses reportable segment. The original purchase price was 80.0 million GBP, on a cash-free and debt-free basis, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels.

The following table presents the preliminary estimated fair values of Norman Hay net assets acquired:

 

 

 

 

 

Measurement

 

 

 

 

 

 

October 1,

 

Period

 

October 1, 2019

 

 

 

 

2019 (1)

 

Adjustments

 

(as adjusted)

 

 

Cash and cash equivalents

$

18,981

 

$

 

$

18,981

 

 

Accounts receivable, net

 

15,471

 

 

 

 

15,471

 

 

Inventories, net

 

8,213

 

 

 

 

8,213

 

 

Prepaid expenses and other assets

 

4,203

 

 

 

 

4,203

 

 

Property, plant and equipment

 

14,981

 

 

 

 

14,981

 

 

Right of use lease assets

 

10,608

 

 

 

 

10,608

 

 

Intangible assets

 

51,088

 

 

 

 

51,088

 

 

Goodwill

 

29,384

 

 

(166)

 

 

29,218

 

 

 

Total assets purchased

 

152,929

 

 

(166)

 

 

152,763

 

 

Long-term debt included current portions

 

485

 

 

 

 

485

 

 

Accounts payable, accrued expenses and other accrued liabilities

 

13,488

 

 

(708)

 

 

12,780

 

 

Deferred tax liabilities

 

12,746

 

 

708

 

 

13,454

 

 

Long-term lease liabilities

 

8,594

 

 

 

 

8,594

 

 

 

Total liabilities assumed

 

35,313

 

 

 

 

35,313

 

 

 

Total consideration paid for Norman Hay

 

117,616

 

 

(166)

 

 

117,450

 

 

 

Less: estimated purchase price settlement (2)

 

3,287

 

 

(3,287)

 

 

 

 

 

Less: cash acquired

 

18,981

 

 

 

 

18,981

 

 

 

Net cash paid for Norman Hay

$

95,348

 

$

3,121

 

$

98,469

 

(1) As previously disclosed in the Company’s 2019 Form 10-K.

(2) The Company finalized its post-closing adjustments for the Norman Hay acquisition and paid approximately 2.5 million GBP during the first quarter of 2020 to settle such adjustments.

As of March 31, 2020, the allocation of the purchase price for Norman Hay has not been finalized and the one-year measurement period has not ended. Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed.

8


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

Other Acquisitions

In March 2020, the Company acquired the remaining 49% ownership interest in one of its South African affiliates, Quaker Chemical South Africa Limited (“QSA”) for 16.7 million ZAR, or approximately $1.0 million, from its joint venture partner PQ Holdings South Africa. QSA is a part of the Company’s Europe, Middle East and Africa (“EMEA”) reportable segment. As this acquisition was a change in an existing controlling ownership, the Company recorded $0.7 million of excess purchase price over the carrying value of the non-controlling interest in Capital in excess of par value. In addition, subsequent to the date of these Condensed Consolidated Financial Statements, in May 2020 the Company acquired a company from Denmark for an approximately $3 million note, which will be settled subsequent to the filing of this Form 10-Q in the second quarter of 2020 with the Company’s common stock. In 2018 the Company purchased certain formulations and product technology for the mining industry for $1.0 million, with $0.5 million of the purchase price paid at signing and the remaining $0.5 million of the purchase price paid during the first quarter of 2019.

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards Adopted

The Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract in August 2018 that clarifies the accounting for implementation costs incurred in a cloud computing arrangement under a service contract. This guidance generally aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement under a service contract with the requirements for capitalizing implementation costs related to internal-use software. The guidance within this accounting standard update is effective for annual periods beginning after December 15, 2019 and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption was permitted. The Company adopted this standard on a prospective basis, effective January 1, 2020. There was no cumulative effect of adoption recorded within retained earnings on January 1, 2020.

The FASB issued ASU 2018-14, Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans in August 2018 that modifies certain disclosure requirements for fair value measurements. The guidance removes certain disclosure requirements regarding transfers between levels of the fair value hierarchy as well as certain disclosures related to the valuation processes for certain fair value measurements. Further, the guidance added certain disclosure requirements including unrealized gains and losses and significant unobservable inputs used to develop certain fair value measurements. The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2019, and should be applied prospectively in the initial year of adoption or prospectively to all periods presented, depending on the amended disclosure requirement. Early adoption was permitted. The Company adopted this standard on a prospective basis, effective January 1, 2020. ASU 2018-14 addresses disclosures only and will not have an impact on the Company’s consolidated financial statements.

The FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments in June 2016 related to the accounting for and disclosure of credit losses. The FASB subsequently issued several additional accounting standard updates which amended and clarified the guidance, but did not materially change the guidance or its applicability to the Company. This accounting guidance introduces a new model for recognizing credit losses on financial instruments, including customer accounts receivable, based on an estimate of current expected credit losses. The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2019. Early adoption was permitted. The Company did not early adopt, but did adopt the guidance in this accounting standard update, including all applicable subsequent updates to this accounting guidance, as required, on a modified retrospective basis, effective January 1, 2020. Adoption did not have a material impact to the Company’s financial statements as expected. However, as a result of this adoption, the Company recorded a cumulative effect of accounting change that resulted in an increase to its allowance for doubtful accounts of $0.5 million, a decrease to deferred tax liabilities of $0.1 million and a decrease to retained earnings of $0.4 million.

In accordance with this guidance, the Company recognizes an allowance for credit losses reflecting the net amount expected to be collected from its financial assets, primarily trade accounts receivable. This allowance represents the portion of the receivable that the Company does not expect to collect over its contractual life, considering past events and reasonable and supportable forecasts of future economic conditions. The Company’s allowance for credit losses on its trade accounts receivable is based on specific collectability facts and circumstances for each outstanding receivable and customer, the aging of outstanding receivables and the associated collection risk the Company estimates for certain past due aging categories, and also, the general risk to all outstanding accounts receivable based on historical amounts determined to be uncollectible.

9


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

Recently Issued Accounting Standards Not Yet Adopted

The FASB issued Account Standards Update (“ASU”) 2020-01 Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) –Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 in January 2020 clarifying the interaction among the accounting standards related to equity securities, equity method investments, and certain derivatives. The new guidance, among other things, states that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting, for the purposes of applying the fair value measurement alternative immediately before applying or upon discontinuing the equity method. The new guidance also addresses the measurement of certain purchased options and forward contracts used to acquire investments. The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2020 and is to be applied prospectively. Early adoption is permitted. The Company has not early adopted the guidance and is currently evaluating its implementation.

The FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes in December 2019 to simplify the accounting for income taxes. The guidance within this accounting standard update removes certain exceptions, including the exception to the incremental approach for certain intra-period tax allocations, to the requirement to recognize or not recognize certain deferred tax liabilities for equity method investments and foreign subsidiaries, and to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Further, the guidance simplifies the accounting related to franchise taxes, the step up in tax basis for goodwill, current and deferred tax expense, and codification improvements for income taxes related to employee stock ownership plans. The guidance is effective for annual and interim periods beginning after December 15, 2020. Early adoption is permitted. The Company has not early adopted the guidance and is currently evaluating its implementation.

The FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement in August 2018 that modifies certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this accounting standard update remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of certain disclosures, and add new disclosure requirements as relevant. The guidance within this accounting standard update is effective for annual periods beginning after December 15, 2020, and should be applied retrospectively to all periods presented. Early adoption is permitted. The Company has not early adopted the guidance and is currently evaluating its implementation.

 

Note 4 – Business Segments

The Company’s operating segments, which are consistent with its reportable segments, reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the Company and the chief operating decision maker assess its performance. During the third quarter of 2019 and in connection with the Combination, the Company reorganized its executive management team to align with its new business structure, which reflects the method by which the chief operating decision maker of the Company assesses its performance and allocates its resources. The Company’s current reportable segment structure includes four segments: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. The three geographic segments are composed of the net sales and operations in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment, which includes the Company’s container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses. All prior period information for Legacy Quaker has been recast to reflect these four segments as the Company’s new reportable segments. Prior to the Company’s re-segmentation during the third quarter of 2019, the Company’s historical reportable segments were four geographic regions: (i) North America; (ii) EMEA; (iii) Asia/Pacific; and (iv) South America.

Though the Company changed its reportable segments in the third quarter of 2019, the calculation of the reportable segments’ measures of earnings remains otherwise generally consistent with past practices. Segment operating earnings for the Company’s reportable segments are comprised of net sales less cost of goods sold (“COGS”) and selling, general and administrative expenses (“SG&A”) directly related to the respective segment’s product sales. Operating expenses not directly attributable to the net sales of each respective segment are not included in segment operating earnings, such as certain corporate and administrative costs, Combination and other acquisition-related expenses, and restructuring and related charges. Other items not specifically identified with the Company’s reportable segments include interest expense, net and other expense, net.

 

10


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

The following table presents information about the performance of the Company’s reportable operating segments for the three months ended March 31, 2020 and 2019:

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2020

 

2019

 

 

Net sales

 

 

 

 

 

 

 

 

Americas

$

129,896

 

$

72,225

 

 

 

EMEA

 

104,839

 

 

52,425

 

 

 

Asia/Pacific

 

73,552

 

 

46,167

 

 

 

Global Specialty Businesses

 

70,274

 

 

40,393

 

 

Total net sales

$

378,561

 

$

211,210

 

 

 

 

 

 

 

 

 

 

 

Segment operating earnings

 

 

 

 

 

 

 

 

Americas

$

29,188

 

$

14,339

 

 

 

EMEA

 

18,359

 

 

8,793

 

 

 

Asia/Pacific

 

19,541

 

 

12,812

 

 

 

Global Specialty Businesses

 

20,560

 

 

10,604

 

 

Total segment operating earnings

 

87,648

 

 

46,548

 

 

Combination and other acquisition-related expenses

 

(7,878)

 

 

(4,483)

 

 

Restructuring and related charges

 

(1,716)

 

 

 

 

Indefinite-lived intangible asset impairment

 

(38,000)

 

 

 

 

Non-operating and administrative expenses

 

(38,451)

 

 

(20,348)

 

 

Depreciation of corporate assets and amortization

 

(14,047)

 

 

(1,888)

 

 

Operating (loss) income

 

(12,444)

 

 

19,829

 

 

Other expense, net

 

(21,175)

 

 

(635)

 

 

Interest expense, net

 

(8,461)

 

 

(776)

 

 

(Loss) income before taxes and equity in net income of associated companies

$

(42,080)

 

$

18,418

 

Inter-segment revenues for the three months ended March 31, 2020 and 2019 were $2.9 million and $1.4 million for Americas, $5.5 million and $5.3 million for EMEA, $0.1 million and less than $0.1 million for Asia/Pacific and $1.3 million and $1.5 million for Global Specialty Businesses, respectively. However, all inter-segment transactions have been eliminated from each reportable operating segment’s net sales and earnings for all periods presented in the above tables.

Note 5 – Net Sales and Revenue Recognition

Business Description

The Company develops, produces, and markets a broad range of formulated chemical specialty products and offers chemical management services (“Fluidcare”) for various heavy industrial and manufacturing applications throughout its four segments. The Combination increased the Company’s addressable metalworking, metals and industrial end markets, including steel, aluminum, aerospace, defense, transportation-OEM, transportation-components, offshore sub-sea energy, architectural aluminum, construction, tube and pipe, can and container, mining, specialty coatings and specialty greases. The Combination also strengthened the product portfolio of the combined Company. The major product lines of Quaker Houghton include metal removal fluids, cleaning fluids, corrosion inhibitors, metal drawing and forming fluids, die cast mold releases, heat treatment and quenchants, metal forging fluids, hydraulic fluids, specialty greases, offshore sub-sea energy control fluids, rolling lubricants, rod and wire drawing fluids and surface treatment chemicals.

A substantial portion of the Company’s sales worldwide are made directly through its own employees and its Fluidcare programs, with the balance being handled through distributors and agents. The Company’s employees typically visit the plants of customers regularly, work on site, and, through training and experience, identify production needs which can be resolved or otherwise addressed either by adapting the Company’s existing products or by applying new formulations developed in its laboratories. The specialty chemical industry comprises many companies similar in size to the Company, as well as companies larger and smaller than Quaker Houghton. The offerings of many of the Company’s competitors differ from those of Quaker Houghton; some offer a broad portfolio of fluids, including general lubricants, while others have a more specialized product range. All competitors provide different levels of technical services to individual customers. Competition in the industry is based primarily on the ability to provide products that meet the needs of the customer, render technical services and laboratory assistance to the customer and, to a lesser extent, on price.

11


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

 

As part of the Company’s Fluidcare business, certain third-party product sales to customers are managed by the Company. Where the Company acts as a principal, revenues are recognized on a gross reporting basis at the selling price negotiated with its customers. Where the Company acts as an agent, revenue is recognized on a net reporting basis at the amount of the administrative fee earned by the Company for ordering the goods. In determining whether the Company is acting as a principal or an agent in each arrangement, the Company considers whether it is primarily responsible for the obligation to provide the specified good, has inventory risk before the specified good has been transferred to the customer and has discretion in establishing the prices for the specified goods. The Company transferred third-party products under arrangements recognized on a net reporting basis of $12.5 million and $10.4 million for the three months ended March 31, 2020 and 2019, respectively.

A significant portion of the Company’s revenues are realized from the sale of process fluids and services to manufacturers of steel, aluminum, automobiles, aircraft, industrial equipment, and durable goods, and, therefore, the Company is subject to the same business cycles as those experienced by these manufacturers and their customers. The Company’s financial performance is generally correlated to the volume of global production within the industries it serves, rather than discretely related to the financial performance of such industries. Furthermore, steel and aluminum customers typically have limited manufacturing locations compared to metalworking customers and generally use higher volumes of products at a single location. As previously disclosed in its 2019 Form 10-K, during 2019, the Company’s five largest customers (each composed of multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately 12% of consolidated net sales, with its largest customer accounting for approximately 6% of consolidated net sales.