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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM
10-Q
 
 
QUARTERLY
 
REPORT PURSUANT TO SECTION 13
 
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2022
OR
 
TRANSITION REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 
OF 1934
For the transition period from
 
to
 
Commission file number
001-12019
QUAKER CHEMICAL CORPORATION
(Exact name of 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 reports required to be filed by Section 13 or 15(d) of the Securities
 
Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
 
was required to file such reports), and (2) has been subject
 
to such filing requirements for the past 90
days.
 
Yes
 
 
No
 
 
Indicate by check mark whether the registrant has submitted
 
electronically every Interactive Data File required to be submitted
 
pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for
 
such shorter period that the registrant was required
 
to submit such files).
 
Yes
 
 
No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
 
filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “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 use
 
the extended transition period for complying with any new
 
or revised
financial accounting standards provided pursuant to Section 13(a)
 
of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as
 
defined in Rule 12b-2 of the Exchange Act).
 
Yes
 
 
No
 
Indicate the number of shares outstanding of each of the
 
issuer’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock
Outstanding on October 31, 2022
 
17,931,664
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
PART
 
I
FINANCIAL INFORMATION
Item 1.
 
Financial Statements (Unaudited).
Quaker Chemical Corporation
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
Three Months Ended
Nine Months Ended
September 30,
 
September 30,
 
2022
2021
2022
2021
Net sales
$
492,218
$
449,072
$
1,458,777
$
1,314,117
Cost of goods sold (
excluding amortization expense - See Note 13
)
 
331,469
 
303,941
 
1,002,393
 
858,341
Gross profit
 
160,749
 
145,131
 
456,384
 
455,776
Selling, general and administrative expenses
 
115,456
 
104,215
 
343,081
 
317,204
Restructuring and related (credits) charges, net
(1,423)
(880)
(604)
593
Combination, integration and other acquisition-related expenses
2,107
5,786
7,992
18,259
Operating income
 
44,609
36,010
 
105,915
 
119,720
Other income (expense), net
 
85
 
647
 
(10,520)
 
19,344
Interest expense, net
(8,389)
(5,637)
(20,228)
(16,725)
Income before taxes and equity in net income of
associated companies
 
36,305
 
31,020
 
75,167
 
122,339
Taxes on income before
 
equity in net income of associated
Companies
 
10,185
 
795
 
14,425
 
26,702
Income before equity in net income of associated
Companies
 
26,120
 
30,225
 
60,742
 
95,637
Equity in net (loss) income of associated companies
 
(212)
 
848
 
(642)
 
7,668
Net income
25,908
31,073
60,100
103,305
Less: Net income attributable to noncontrolling interest
41
15
74
62
Net income attributable to Quaker Chemical Corporation
$
25,867
$
31,058
$
60,026
$
103,243
Per share data:
 
 
 
 
Net income attributable to Quaker Chemical Corporation
common shareholders – basic
$
1.44
$
1.74
$
3.35
$
5.78
Net income attributable to Quaker Chemical Corporation
 
common shareholders – diluted
$
1.44
$
1.73
$
3.35
$
5.76
Dividends declared
$
0.435
$
0.415
$
1.265
$
1.205
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
Quaker Chemical Corporation
Condensed Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Unaudited
Three Months Ended
Nine Months Ended
September 30,
 
September 30,
 
2022
2021
2022
2021
Net income
$
25,908
$
31,073
$
60,100
$
103,305
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(71,986)
(19,905)
(155,284)
(29,201)
Defined benefit retirement plans
497
904
2,400
2,593
Current period change in fair value of derivatives
(140)
436
1,535
1,450
Unrealized loss on available-for-sale securities
(818)
(215)
(2,385)
(2,961)
Other comprehensive loss
(72,447)
(18,780)
(153,734)
(28,119)
Comprehensive (loss) income
(46,539)
12,293
(93,634)
75,186
Less: Comprehensive
 
loss attributable to
noncontrolling interest
(3)
(15)
(5)
(68)
Comprehensive (loss) income attributable to Quaker Chemical
Corporation
$
(46,542)
$
12,278
$
(93,639)
$
75,118
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
Unaudited
September 30,
December 31,
2022
2021
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
$
138,891
$
165,176
Accounts receivable, net
 
461,912
 
430,676
Inventories
 
 
Raw materials and supplies
165,280
129,382
Work-in-process
 
and finished goods
151,860
135,149
Prepaid expenses and other current assets
 
66,760
 
59,871
Total current
 
assets
 
984,703
 
920,254
Property, plant and equipment,
 
at cost
 
425,650
 
434,344
Less: Accumulated depreciation
(237,276)
(236,824)
Property, plant and equipment,
 
net
188,374
197,520
Right of use lease assets
37,005
36,635
Goodwill
 
591,032
 
631,194
Other intangible assets, net
 
915,956
 
1,027,782
Investments in associated companies
 
76,748
 
95,278
Deferred tax assets
 
10,519
 
16,138
Other non-current assets
 
27,163
 
30,959
Total assets
$
2,831,500
$
2,955,760
LIABILITIES AND EQUITY
 
 
Current liabilities
 
 
Short-term borrowings and current portion of long-term debt
$
20,471
$
56,935
Accounts payable
 
209,343
 
226,656
Dividends payable
7,800
7,427
Accrued compensation
 
32,993
 
38,197
Accrued restructuring
1,798
4,087
Accrued pension and postretirement benefits
1,536
1,548
Other accrued liabilities
 
91,790
 
95,617
Total current
 
liabilities
 
365,731
 
430,467
Long-term debt
 
931,491
 
836,412
Long-term lease liabilities
25,697
26,335
Deferred tax liabilities
 
151,208
 
179,025
Non-current accrued pension and postretirement benefits
38,222
45,984
Other non-current liabilities
 
39,521
 
49,615
Total liabilities
 
1,551,870
 
1,567,838
Commitments and contingencies (Note 18)
Equity
 
 
Common stock $
1
 
par value; authorized
30,000,000
 
shares; issued and
 
 
outstanding 2022 –
17,931,205
 
shares; 2021 –
17,897,033
 
shares
17,931
17,897
Capital in excess of par value
 
925,037
 
917,053
Retained earnings
 
553,685
 
516,334
Accumulated other comprehensive loss
 
(217,655)
 
(63,990)
Total Quaker
 
shareholders’ equity
 
1,278,998
 
1,387,294
Noncontrolling interest
 
632
628
Total equity
1,279,630
1,387,922
Total liabilities and equity
$
2,831,500
$
2,955,760
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Unaudited
Nine Months Ended
September 30,
 
2022
2021
Cash flows from operating activities
 
 
 
 
 
Net income
$
60,100
$
103,305
Adjustments to reconcile net income to net cash used in operating activities:
 
 
Amortization of debt issuance costs
 
2,589
 
3,562
Depreciation and amortization
 
60,692
 
65,440
Equity in undistributed earnings of associated companies, net of dividends
 
3,612
 
(7,563)
Acquisition-related fair value adjustments related to inventory
801
Deferred compensation, deferred taxes and other,
 
net
 
(8,811)
 
(21,865)
Share-based compensation
 
8,635
 
8,441
Loss on extinguishment of debt
5,246
Gain on disposal of property, plant,
 
equipment and other assets
 
(33)
 
(4,819)
Combination and other acquisition-related expenses, net of payments
(4,265)
(1,705)
Restructuring and related (credits) charges
(604)
593
Pension and other postretirement benefits
 
(6,556)
 
(5,638)
(Decrease) increase in cash from changes in current assets and current
 
 
liabilities, net of acquisitions:
Accounts receivable
 
(65,256)
 
(68,664)
Inventories
 
(72,386)
 
(72,962)
Prepaid expenses and other current assets
 
(11,081)
 
(24,512)
Change in restructuring liabilities
(1,234)
(4,557)
Accounts payable and accrued liabilities
 
3,059
 
32,652
 
Net cash (used in) provided by operating activities
 
(26,293)
 
2,509
Cash flows from investing activities
 
 
Investments in property,
 
plant and equipment
 
(20,230)
 
(12,823)
Payments related to acquisitions, net of cash acquired
 
(9,421)
 
(31,975)
Proceeds from disposition of assets
65
14,744
 
Net cash used in investing activities
 
(29,586)
 
(30,054)
Cash flows from financing activities
 
 
Payments of long-term debt
 
(668,500)
 
(28,558)
Proceeds from long-term debt
750,000
(Payments) borrowings on revolving credit facilities, net
 
(10,418)
 
39,143
Borrowings (payments) on other debt, net
2,131
 
(585)
Financing-related debt issuance costs
(3,734)
Dividends paid
 
(22,302)
 
(21,175)
Stock options exercised, other
 
(616)
 
704
 
Net cash provided by (used in) financing activities
 
46,561
 
(10,471)
 
Effect of foreign exchange rate changes on cash
 
(16,967)
 
(2,486)
Net decrease in cash and cash equivalents
 
(26,285)
 
(40,502)
Cash and cash equivalents at the beginning of the period
 
165,176
 
181,895
Cash and cash equivalents at the end of the period
$
138,891
$
141,393
The accompanying notes are an integral part of these unaudited condensed consolidated
 
financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
Quaker Chemical Corporation
Condensed Consolidated Statements of Changes in Equity
 
(Unaudited; Dollars in thousands, except per share amounts)
Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at December 31, 2020
$
17,851
$
905,171
$
423,940
$
(26,598)
$
550
$
1,320,914
Net income
38,615
17
38,632
Amounts reported in other
comprehensive loss
(26,630)
(2)
(26,632)
Dividends ($
0.395
 
per share)
(7,062)
(7,062)
Share issuance and equity-based
compensation plans
24
3,577
3,601
Balance at March 31, 2021
$
17,875
$
908,748
$
455,493
$
(53,228)
$
565
$
1,329,453
Net income
33,570
30
33,600
Amounts reported in other
comprehensive gain
17,285
8
17,293
Dividends ($
0.395
 
per share)
(7,062)
(7,062)
Share issuance and equity-based
compensation plans
3
2,114
2,117
Balance at June 30, 2021
$
17,878
$
910,862
$
482,001
$
(35,943)
$
603
$
1,375,401
Net income
31,058
15
31,073
Amounts reported in other
comprehensive loss
(18,780)
(18,780)
Dividends ($
0.415
 
per share)
(7,424)
(7,424)
Share issuance and equity-based
compensation plans
11
3,415
3,426
Balance at September 30, 2021
$
17,889
$
914,277
$
505,635
$
(54,723)
$
618
$
1,383,696
Balance at December 31, 2021
$
17,897
$
917,053
$
516,334
$
(63,990)
$
628
$
1,387,922
Net income
19,816
5
19,821
Amounts reported in other
comprehensive (loss) income
(6,271)
1
(6,270)
Dividends ($
0.415
 
per share)
(7,434)
(7,434)
Share issuance and equity-based
compensation plans
15
1,646
1,661
Balance at March 31, 2022
$
17,912
$
918,699
$
528,716
$
(70,261)
$
634
$
1,395,700
Net income
14,343
28
14,371
Amounts reported in other
comprehensive loss
(74,985)
(33)
(75,018)
Dividends ($
0.415
 
per share)
(7,438)
(7,438)
Share issuance and equity-based
compensation plans
8
2,943
2,951
Balance at June 30, 2022
$
17,920
$
921,642
$
535,621
$
(145,246)
$
629
$
1,330,566
Net income
25,867
41
25,908
Amounts reported in other
comprehensive loss
(72,409)
(38)
(72,447)
Dividends ($
0.435
 
per share)
(7,803)
(7,803)
Share issuance and equity-based
compensation plans
11
3,395
3,406
Balance at September 30, 2022
$
17,931
$
925,037
$
553,685
$
(217,655)
$
632
$
1,279,630
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
7
Note 1 – Basis of Presentation and Description of Business
 
Basis of Presentation
As used in these Notes to Condensed Consolidated Financial Statements of
 
this Quarterly Report on Form 10-Q for the period
ended September 30, 2022 (the “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.
 
As used in these Notes to Condensed Consolidated Financial Statements,
 
the “Combination” refers to the legacy Quaker combination
with Houghton International, Inc. (“Houghton”).
 
The condensed consolidated financial statements included herein are unaudited
 
and
have been prepared in accordance with generally accepted accounting principles
 
in the United States (“U.S. GAAP”) for interim
financial reporting and the United States Securities and Exchange Commission
 
(“SEC”) regulations.
 
Certain information and footnote
disclosures normally included in financial statements prepared in accordance
 
with U.S. GAAP have been condensed or omitted
pursuant to such rules and regulations.
 
In the opinion of management, the financial statements reflect all adjustments
 
consisting only
of normal recurring adjustments which are necessary for a fair statement of
 
the financial position, results of operations and cash flows
for the interim periods.
 
The results for the nine months ended September 30, 2022 are not necessarily indicative
 
of the results to be
expected for the full year.
 
These financial statements should be read in conjunction with the Company’s
 
Annual Report filed on Form
10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
 
Description of Business
The Company was organized in 1918, incorporated as a Pennsylvania
 
business corporation in 1930, and in August 2019
completed the Combination with Houghton to form Quaker Houghton.
 
Quaker Houghton is the global leader in industrial process
fluids.
 
With a presence around the world, including
 
operations in over
25
 
countries, the Company’s customers
 
include thousands of
the world’s most advanced and specialized
 
steel, aluminum, automotive, aerospace, offshore, can,
 
mining, and metalworking
companies.
 
Quaker Houghton develops, produces, and markets a broad range of formulated
 
chemical specialty products and offers
chemical management services (which the Company refers to as “Fluidcare
TM
”) for various heavy industrial and manufacturing
applications throughout its
four
 
segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; and
 
Global Specialty
Businesses.
Hyper-inflationary economies
Based on various indices or index compilations being used to monitor inflation
 
as well as economic instability,
 
Argentina’s and
Türkiye’s economies were
 
considered hyper-inflationary under U.S. GAAP effective
 
July 1, 2018 and April 1, 2022, respectively.
 
As
of, and for the three and nine months ended September 30, 2022,
 
the Company's Argentine
 
and Turkish subsidiaries represented a
combined
1
% and
2
% of the Company’s consolidated
 
total assets and net sales, respectively.
 
During the three and nine months ended
September 30, 2022, the Company recorded $
1.0
 
million and $
1.2
 
million, respectively,
 
of remeasurement losses associated with the
applicable currency conversions related to Argentina
 
and Türkiye.
 
Comparatively, during the three
 
and nine months ended September
30, 2021, the Company recorded less than $
0.1
 
million and $
0.3
 
million, respectively, of
 
remeasurement losses associated with the
applicable currency conversions related to Argentina.
 
These losses were recorded within foreign exchange losses, net, which is a
component of other (expense) income, net, in the Company’s
 
Condensed Consolidated Statements of Income.
Note 2 – Business Acquisitions
2022 Acquisitions
 
Subsequent to the date of these financial statements, in October 2022,
 
the Company acquired a business that provides pickling and
rinsing products and services, which is part of the EMEA reportable segment,
 
for approximately
3.5
 
million EUR or approximately
$
3.5
 
million.
 
This acquisition, along with the Company’s
 
January 2022 acquisition in the Americas (described below), which had
similar specializations and product offerings in pickling
 
inhibitor technologies, strengthens Quaker Houghton’s
 
position in pickling
inhibitors and additives, enabling the Company to better support
 
and optimize production processes for customers across the Metals
industry.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
8
In January 2022, the Company acquired a business that provides pickling
 
inhibitor technologies, drawing lubricants and stamping
oil, and various other lubrication, rust preventative, and cleaner applications,
 
which is part of the Americas reportable segment for
approximately $
8.0
 
million.
 
This business broadens the Company’s
 
product offerings within its existing metals and metalworking
business in the Americas region.
 
The Company allocated $
5.6
 
million of the purchase price to intangible assets, comprised of $
5.1
million of customer relationships to be amortized over
14
 
years; and $
0.5
 
million of existing product technologies to be amortized
over
14
 
years.
 
In addition, the Company recorded $
1.8
 
million of goodwill related to expected value not allocated to other acquired
assets, all of which is expected to be tax deductible in various jurisdictions in which
 
the Company operates.
 
During the third quarter
of 2022 the Company finalized post-closing adjustments that resulted in
 
the Company paying less than $
0.1
 
million of additional
purchase consideration.
 
Factors contributing to the purchase price that resulted in goodwill included
 
the acquisition of business
processes and personnel that will allow Quaker Houghton to better serve
 
its customers.
In January 2022, the Company acquired a business related to the sealing
 
and impregnation of metal castings for the automotive
sector, as well as impregnation resin and
 
impregnation systems for metal parts, which is part of the Global Specialty Businesses
reportable segment for approximately
1.2
 
million EUR or approximately $
1.4
 
million.
 
This business expands the Company's
geographic presence in Germany as well as broadens its product offerings
 
and service capabilities within its existing impregnation
business.
The results of operations of the January 2022 acquisitions subsequent to
 
the respective acquisition dates are included in the
unaudited Condensed Consolidated Statements of Income for the nine month
 
period ended September 30, 2022.
 
Applicable
transaction expenses associated with these acquisitions are included
 
in Combination, integration and other acquisition-related
expenses in the Company’s unaudited
 
Condensed Consolidated Statements of Income.
 
Certain pro forma and other information is not
presented, as the operations of the acquisitions are not considered material
 
to the overall operations of the Company for the periods
presented.
 
The results of operations of the October acquisition is not included in the Consolidated Statements of
 
Operations because
the date of closing was subsequent to September 30, 2022.
 
Preliminary purchase price allocation of assets acquired and liabilities
assumed for this business acquired has not been presented as that information
 
is not available as of the date of these Condensed
Consolidated Financial Statements.
Previous Acquisitions
 
In November 2021, the Company acquired Baron Industries (“Baron”),
 
a privately held company that provides vacuum
impregnation services of castings, powder metals and electrical components
 
for its Global Specialty Businesses reportable segment for
$
11.0
 
million, including an initial cash payment of $
7.1
 
million, subject to post-closing adjustments as well as certain earn-out
provisions that are payable at various times from 2022 through 2025.
 
The earn-out provisions could total a maximum of $
4.5
 
million.
 
In September 2022, the Company paid $
2.5
 
million related to certain of these earnout provisions.
 
The Company recorded an
incremental earn-out expense of $
0.1
 
million during the three and nine months ended September 30, 2022 related to
 
these earnout
provisions, recorded within the financial
 
statement caption “Combination, integration and other acquisition-related
 
expenses” on the
Company’s Condensed Consolidated
 
Statements of Income.
 
As of September 30, 2022, the Company has remaining earnout liabilities
recorded on its Condensed Consolidated Balance Sheet of $
1.6
 
million.
 
The Company allocated $
8.0
 
million of the purchase price to
intangible assets, $
1.1
 
million of property, plant
 
and equipment and $
1.5
 
million of other assets acquired net of liabilities assumed,
which includes $
0.3
 
million of cash acquired.
 
In addition, the Company recorded $
0.4
 
million of goodwill, all of which is expected to
be tax deductible.
 
Intangible assets comprised $
7.2
 
million of customer relationships to be amortized over
15 years
; and $
0.8
 
million
of existing product technology to be amortized over
13 years
.
 
Factors contributing to the purchase price that resulted in goodwill
included the acquisition of business processes and personnel that will allow Quaker
 
Houghton to better serve its customers.
 
During
the third quarter of 2022 the Company finalized post-closing adjustments
 
that resulted in the Company receiving less than $
0.1
million.
 
In November 2021, the Company acquired a business that provides hydraulic
 
fluids, coolants, cleaners, and rust preventative oils
in Türkiye for its EMEA reportable segment for
3.2
 
million EUR or approximately $
3.7
 
million.
In September 2021, the Company acquired the remaining interest in Grindaix
 
GmbH (“Grindaix”), a Germany-based, high-tech
provider of coolant control and delivery systems for its Global Specialty Businesses reportable
 
segment for
2.4
 
million EUR or
approximately $
2.9
 
million, which is gross of approximately $
0.3
 
million of cash acquired.
 
Previously, in February
 
2021, the
Company acquired a
38
% ownership interest in Grindaix for
1.4
 
million EUR or approximately $
1.7
 
million.
 
The Company recorded
its initial investment as an equity method investment within the Condensed
 
Consolidated Financial Statements and accounted for the
purchase of the remaining interest as a step acquisition whereby the Company
 
remeasured the previously held equity method
investment to its fair value.
In June 2021, the Company acquired certain assets for its chemical milling
 
maskants product line in the Global Specialty
Businesses reportable segment for
2.3
 
million EUR or approximately $
2.8
 
million.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
9
In February 2021, the Company acquired a tin-plating solutions business
 
for the steel end market for $
25.0
 
million.
 
This
acquisition is part of each of the Company’s
 
geographic reportable segments.
 
The Company allocated $
19.6
 
million of the purchase
price to intangible assets, comprised of $
18.3
 
million of customer relationships, to be amortized over
19
 
years; $
0.9
 
million of existing
product technology to be amortized over
14
 
years; and $
0.4
 
million of a licensed trademark to be amortized over
3
 
years.
 
In addition,
the Company recorded $
5.0
 
million of goodwill, all of which is expected to be tax deductible in various jurisdictions
 
in which we
operate.
 
Factors contributing to the purchase price that resulted in goodwill included the
 
acquisition of business processes and
personnel that will allow Quaker Houghton to better serve its customers.
 
As of September 30, 2022, the allocation of the purchase price of all of the Company’s
 
2022 acquisitions, the acquisition in
Türkiye and Baron have 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.
 
 
In December 2020, the Company acquired Coral Chemical Company,
 
LLC (“Coral”), a privately held U.S.-based provider of
metal finishing fluid solutions.
 
Subsequent to the acquisition, the Company and the sellers of Coral (the
 
“Sellers”) have worked to
finalize certain post-closing adjustments.
 
During the second quarter of 2022, after failing to reach resolution,
 
the Sellers filed suit
asserting certain amounts owed related to tax attributes of the acquisition.
 
During the third quarter of 2022, there have been no
material changes to the facts and circumstances of the claim asserted by the
 
Sellers, and the Company continues to believe the
potential range of exposure for this claim is $
0
 
to $
1.5
 
million.
Note 3 – Recently Issued Accounting Standards
 
Recently Issued Accounting Standards
 
Adopted
The FASB issued ASU 2020
 
-04,
Reference Rate Reform (Topic
 
848): Facilitation of the Effects of Reference Rate Reform
 
on
Financial Reporting
 
in March 2020.
 
The FASB subsequently
 
issued ASU 2021-01,
Reference Rate Reform (Topic
 
848): Scope
 
in
January 2021 which clarified the guidance but did not materially change
 
the guidance or its applicability to the Company.
 
The
amendments provide temporary optional expedients and exceptions
 
for applying U.S. GAAP to contract modifications, hedging
relationships and other transactions to ease the potential accounting
 
and financial reporting burden associated with transitioning away
from reference rates that are expected to be discontinued, including
 
the London Interbank Offered Rate (“LIBOR”).
 
ASU 2020-04 is
effective for the Company as of March 12, 2020 and generally can
 
be applied through December 31, 2022.
 
On June 17, 2022, the
Company entered into an amendment to its primary credit facility which,
 
among other things, provided for the use of a USD currency
LIBOR successor rate (the Secured Overnight Financing Rate (“SOFR”)).
 
See Note 14 of Notes to Condensed Consolidated Financial
Statements.
Note 4 – Business Segments
The Company’s operating
 
segments, which are consistent with its reportable segments, reflect the structure of the Company’s
internal organization, the method by which the Company’s
 
resources are allocated and the manner by which the chief operating
decision maker assesses the Company’s
 
performance.
 
The Company has
four
 
reportable segments: (i) Americas; (ii) EMEA; (iii)
Asia/Pacific; and (iv) Global Specialty Businesses.
 
The three geographic segments are composed of the net sales and operations in
each respective region, excluding net sales and operations managed globally
 
by the Global Specialty Businesses segment.
 
The Global
Specialty Businesses segment includes the Company’s
 
container, metal finishing,
 
mining, offshore, specialty coatings, specialty
grease and Norman Hay businesses.
Segment operating earnings for each of the Company’s
 
reportable segments are comprised of the segment’s
 
net sales less directly
related cost of goods sold (“COGS”) and selling, general and administrative
 
expenses (“SG&A”).
 
Operating expenses not directly
attributable to the net sales of each respective segment, such as certain corporate
 
and administrative costs, Combination, integration
and other acquisition-related expenses, and Restructuring and related charges,
 
are not included in segment operating earnings.
 
Other
items not specifically identified with the Company’s
 
reportable segments include Interest expense, net and Other (expense) income,
net.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
10
The following table presents information about the performance of the Company’s
 
reportable segments for the three and nine
months ended September 30, 2022 and 2021.
Three Months Ended
Nine Months Ended
September 30,
 
September 30,
 
2022
2021
2022
2021
Net sales
 
 
 
 
 
 
 
 
 
 
Americas
$
186,546
$
150,799
$
513,438
$
425,343
EMEA
 
113,367
 
122,241
 
362,107
 
365,491
Asia/Pacific
 
91,211
 
98,659
 
295,273
 
286,924
Global Specialty Businesses
 
101,094
 
77,373
 
287,959
 
236,359
Total net sales
$
492,218
$
449,072
$
1,458,777
$
1,314,117
Segment operating earnings
Americas
$
44,986
$
31,273
$
107,991
$
97,155
EMEA
9,883
20,153
39,932
68,802
Asia/Pacific
23,336
23,285
67,469
73,990
Global Specialty Businesses
 
30,746
 
20,663
 
83,622
 
69,041
Total segment operating
 
earnings
 
108,951
 
95,374
 
299,014
 
308,988
Combination, integration and other acquisition-related expenses
(2,107)
(5,786)
(7,992)
(18,259)
Restructuring and related credits (charges), net
1,423
880
604
(593)
Fair value step up of acquired inventory sold
 
-
-
-
(801)
Non-operating and administrative expenses
(47,852)
(38,691)
(139,894)
(122,760)
Depreciation of corporate assets and amortization
 
(15,806)
 
(15,767)
 
(45,817)
 
(46,855)
Operating income
44,609
36,010
105,915
119,720
Other income (expense), net
85
647
(10,520)
19,344
Interest expense, net
 
(8,389)
 
(5,637)
 
(20,228)
 
(16,725)
Income before taxes and equity in net income of
associated companies
$
36,305
$
31,020
$
75,167
$
122,339
Inter-segment revenues for the three and nine months ended September
 
30, 2022, were $
2.6
 
million and $
8.8
 
million for
Americas, $
6.4
 
million and $
27.7
 
million for EMEA, $
0.3
 
million and $
0.7
 
million for Asia/Pacific, and $
2.3
 
million and $
6.0
 
million
for Global Specialty Businesses, respectively.
 
Inter-segment revenues
 
for the three and nine months ended September 30, 2021, were
$
3.6
 
million and $
9.3
 
million for Americas, $
6.8
 
million and $
21.9
 
million for EMEA, $
0.8
 
million and $
1.3
 
million for Asia/Pacific,
and $
1.8
 
million and $
5.9
 
million for Global Specialty Businesses, respectively.
 
However, all inter-segment
 
transactions have been
eliminated from each reportable operating segment’s
 
net sales and earnings for all periods presented in the above tables.
Note 5 – Net Sales and Revenue Recognition
Arrangements Resulting in Net Reporting
As part of the Company’s Fluidcare
TM
 
business, certain third-party product sales to customers are managed by the
 
Company.
 
The
Company transferred third-party products under arrangements recognized
 
on a net reporting basis of $
21.4
 
million and $
61.7
 
million
for the three and nine months ended September 30, 2022, respectively,
 
and $
18.9
 
million and $
53.4
 
million for the three and nine
months ended September 30, 2021, respectively.
Customer Concentration
A significant portion of the Company’s
 
revenues are realized from the sale of process fluids and services to manufacturers of
steel, aluminum, automobiles, aerospace,
 
industrial and agricultural equipment, and durable goods.
 
As previously disclosed in the
Company’s 2021 Form 10-K, for
 
the year ended December 31, 2021, the Company’s
 
five largest customers (each composed of
multiple subsidiaries or divisions with semiautonomous purchasing authority)
 
accounted for approximately
10
% of consolidated net
sales, with its largest customer accounting for approximately
3
% of consolidated net sales.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
11
Contract Assets and Liabilities
The Company had no material contract assets recorded on its Condensed
 
Consolidated Balance Sheets as of September 30, 2022
or December 31, 2021.
The Company had approximately $
6.0
 
million and $
7.0
 
million of deferred revenue as of September 30, 2022 and December 31,
2021, respectively.
 
For the nine months ended September 30, 2022, the Company satisfied all of the
 
associated performance
obligations and recognized into revenue the advance payments received
 
and recorded as of December 31, 2021.
Disaggregated Revenue
The Company sells its various industrial process fluids, its specialty chemicals
 
and its technical expertise as a global product
portfolio.
 
The Company generally manages and evaluates its performance by segment
 
first, and then by customer industry,
 
rather than
by individual product lines.
 
Also, net sales of each of the Company’s major product
 
lines are generally spread throughout all three of
the Company’s geographic
 
regions, and in most cases, are approximately proportionate to the level of
 
total sales in each region.
The following tables disaggregate the Company’s
 
net sales by segment, geographic region, customer industry,
 
and timing of
revenue recognized for the three and nine months ended September 30, 2022
 
and 2021.
Three Months Ended September 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
69,249
$
32,690
$
52,856
$
154,795
Metalworking and other
117,297
80,677
38,355
236,329
186,546
113,367
91,211
391,124
Global Specialty Businesses
67,469
20,185
13,440
101,094
$
254,015
$
133,552
$
104,651
$
492,218
Timing of Revenue Recognized
Product sales at a point in time
$
244,162
$
127,045
$
101,945
$
473,152
Services transferred over time
9,853
6,507
2,706
19,066
$
254,015
$
133,552
$
104,651
$
492,218
Three Months Ended September 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
56,954
$
38,483
$
53,994
$
149,431
Metalworking and other
93,845
83,758
44,665
222,268
150,799
122,241
98,659
371,699
Global Specialty Businesses
46,008
19,253
12,112
77,373
$
196,807
$
141,494
$
110,771
$
449,072
Timing of Revenue Recognized
Product sales at a point in time
$
188,340
$
131,982
$
108,559
$
428,881
Services transferred over time
8,467
9,512
2,212
20,191
$
196,807
$
141,494
$
110,771
$
449,072
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
12
Nine Months Ended September 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
188,782
$
107,115
$
163,739
$
459,636
Metalworking and other
324,656
254,992
131,534
711,182
513,438
362,107
295,273
1,170,818
Global Specialty Businesses
187,099
61,530
39,330
287,959
$
700,537
$
423,637
$
334,603
$
1,458,777
Timing of Revenue Recognized
Product sales at a point in time
$
670,581
$
400,870
$
326,760
$
1,398,211
Services transferred over time
29,956
22,767
7,843
60,566
$
700,537
$
423,637
$
334,603
$
1,458,777
Nine Months Ended September
 
30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
155,546
$
108,391
$
151,944
$
415,881
Metalworking and other
269,797
257,100
134,980
661,877
425,343
365,491