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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
June 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 July 31, 2022
 
17,929,045
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Net sales
$
492,388
$
435,262
$
966,559
$
865,045
Cost of goods sold (
excluding amortization expense - See Note 13
)
 
342,824
 
280,811
 
670,924
 
554,400
Gross profit
 
149,564
 
154,451
 
295,635
 
310,645
Selling, general and administrative expenses
 
115,830
 
108,679
 
227,625
 
212,989
Restructuring and related (credits) charges, net
(1)
298
819
1,473
Combination, integration and other acquisition-related expenses
1,832
6,658
5,885
12,473
Operating income
 
31,903
38,816
 
61,306
 
83,710
Other (expense) income, net
 
(8,399)
 
14,010
 
(10,605)
 
18,697
Interest expense, net
(6,494)
(5,618)
(11,839)
(11,088)
Income before taxes and equity in net (loss) income of
associated companies
 
17,010
 
47,208
 
38,862
 
91,319
Taxes on income before
 
equity in net (loss) income of associated
companies
 
1,374
 
15,218
 
4,240
 
25,907
Income before equity in net (loss) income of associated
companies
 
15,636
 
31,990
 
34,622
 
65,412
Equity in net (loss) income of associated companies
 
(1,265)
 
1,610
 
(430)
 
6,820
Net income
14,371
33,600
34,192
72,232
Less: Net income attributable to noncontrolling interest
28
30
33
47
Net income attributable to Quaker Chemical Corporation
$
14,343
$
33,570
$
34,159
$
72,185
Per share data:
 
 
 
 
Net income attributable to Quaker Chemical Corporation
common shareholders – basic
$
0.80
$
1.88
$
1.91
$
4.04
Net income attributable to Quaker Chemical Corporation
 
common shareholders – diluted
$
0.80
$
1.88
$
1.91
$
4.03
Dividends declared
$
0.415
$
0.395
$
0.830
$
0.790
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
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Net income
$
14,371
$
33,600
$
34,192
$
72,232
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(76,433)
16,165
(83,299)
(9,296)
Defined benefit retirement plans
1,407
397
1,903
1,689
Current period change in fair value of derivatives
575
452
1,675
1,014
Unrealized (loss) gain on available-for-sale securities
(567)
279
(1,567)
(2,746)
Other comprehensive (loss) income
(75,018)
17,293
(81,288)
(9,339)
Comprehensive (loss) income
(60,647)
50,893
(47,096)
62,893
Less: Comprehensive
 
income (loss) attributable to
noncontrolling interest
5
(38)
(1)
(53)
Comprehensive (loss) income attributable to Quaker Chemical
Corporation
$
(60,642)
$
50,855
$
(47,097)
$
62,840
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
June 30,
 
December 31,
2022
2021
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
$
202,348
$
165,176
Accounts receivable, net
 
465,352
 
430,676
Inventories
 
 
Raw materials and supplies
163,055
129,382
Work-in-process
 
and finished goods
150,387
135,149
Prepaid expenses and other current assets
 
64,674
 
59,871
Total current
 
assets
 
1,045,816
 
920,254
Property, plant and equipment,
 
at cost
 
432,068
 
434,344
Less: Accumulated depreciation
(239,571)
(236,824)
Property, plant and equipment,
 
net
192,497
197,520
Right of use lease assets
36,317
36,635
Goodwill
 
610,167
 
631,194
Other intangible assets, net
 
962,580
 
1,027,782
Investments in associated companies
 
83,678
 
95,278
Deferred tax assets
 
10,897
 
16,138
Other non-current assets
 
28,804
 
30,959
Total assets
$
2,970,756
$
2,955,760
LIABILITIES AND EQUITY
 
 
Current liabilities
 
 
Short-term borrowings and current portion of long-term debt
$
14,485
$
56,935
Accounts payable
 
246,345
 
226,656
Dividends payable
7,437
7,427
Accrued compensation
 
29,359
 
38,197
Accrued restructuring
3,812
4,087
Accrued pension and postretirement benefits
1,541
1,548
Other accrued liabilities
 
97,746
 
95,617
Total current
 
liabilities
 
400,725
 
430,467
Long-term debt
 
972,369
 
836,412
Long-term lease liabilities
25,695
26,335
Deferred tax liabilities
 
156,468
 
179,025
Non-current accrued pension and postretirement benefits
42,755
45,984
Other non-current liabilities
 
42,178
 
49,615
Total liabilities
 
1,640,190
 
1,567,838
Commitments and contingencies (Note 18)
Equity
 
 
Common stock $
1
 
par value; authorized
30,000,000
 
shares; issued and
 
 
outstanding 2022 –
17,919,750
 
shares; 2021 –
17,897,033
 
shares
17,920
17,897
Capital in excess of par value
 
921,642
 
917,053
Retained earnings
 
535,621
 
516,334
Accumulated other comprehensive loss
 
(145,246)
 
(63,990)
Total Quaker
 
shareholders’ equity
 
1,329,937
 
1,387,294
Noncontrolling interest
 
629
628
Total equity
1,330,566
1,387,922
Total liabilities and equity
$
2,970,756
$
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
Six Months Ended
June 30,
 
2022
2021
Cash flows from operating activities
 
 
 
 
 
Net income
$
34,192
$
72,232
Adjustments to reconcile net income to net cash used in operating activities:
 
 
Amortization of debt issuance costs
 
2,236
 
2,375
Depreciation and amortization
 
41,036
 
44,188
Equity in undistributed earnings of associated companies, net of dividends
 
3,400
 
(6,715)
Acquisition-related fair value adjustments related to inventory
—
801
Deferred compensation, deferred taxes and other,
 
net
 
(10,223)
 
(13,849)
Share-based compensation
 
5,433
 
6,134
Loss on extinguishment of debt
5,246
—
Loss (gain) on disposal of property,
 
plant, equipment and other assets
 
15
 
(5,356)
Combination and other acquisition-related expenses, net of payments
(3,880)
(2,305)
Restructuring and related charges
819
1,473
Pension and other postretirement benefits
 
(2,269)
 
(2,223)
(Decrease) increase in cash from changes in current assets and current
 
 
liabilities, net of acquisitions:
Accounts receivable
 
(51,944)
 
(47,252)
Inventories
 
(58,427)
 
(57,020)
Prepaid expenses and other current assets
 
(5,558)
 
(20,111)
Change in restructuring liabilities
(797)
(4,214)
Accounts payable and accrued liabilities
 
32,298
 
22,274
 
Net cash used in operating activities
 
(8,423)
 
(9,568)
Cash flows from investing activities
 
 
Investments in property,
 
plant and equipment
 
(15,138)
 
(6,974)
Payments related to acquisitions, net of cash acquired
 
(9,383)
 
(29,424)
Proceeds from disposition of assets
85
14,744
 
Net cash used in investing activities
 
(24,436)
 
(21,654)
Cash flows from financing activities
 
 
Payments of long-term debt
 
(668,500)
 
(19,065)
Proceeds from long-term debt
750,000
—
Borrowings on revolving credit facilities, net
 
16,703
 
29,433
Repayments on other debt, net
(155)
 
(219)
Financing-related debt issuance costs
(3,734)
—
Dividends paid
 
(14,862)
 
(14,113)
Stock options exercised, other
 
(821)
 
(416)
 
Net cash provided by (used in) financing activities
 
78,631
 
(4,380)
 
Effect of foreign exchange rate changes on cash
 
(8,600)
 
(683)
Net increase (decrease) in cash and cash equivalents
 
37,172
 
(36,285)
Cash and cash equivalents at the beginning of the period
 
165,176
 
181,895
Cash and cash equivalents at the end of the period
$
202,348
$
145,610
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
 
(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
—
—
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
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
—
—
—
(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
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 June 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 six months ended June 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
 
in Argentina as well as economic instability,
effective July 1, 2018, Argentina’s
 
economy was considered hyper-inflationary under U.S. GAAP.
 
As of, and for the three and six
months ended June 30, 2022, the Company's Argentine
 
subsidiaries represented less than
1
% of the Company’s consolidated
 
total
assets and net sales, respectively.
 
During the three and six months ended June 30, 2022, the Company recorded less than $
0.1
 
million
and $
0.2
 
million, respectively, of remeasurement
 
losses associated with the applicable currency conversions related to Argentina.
 
Comparatively,
 
during the three and six months ended June 30, 2021, the Company recorded
 
$
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
 
In January 2022, the Company acquired a business that provides pickling
 
inhibitor technologies for the steel industry,
 
drawing
lubricants and stamping oil for metalworking, and various other lubrication,
 
rust preventative, and cleaner applications, for its
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.
 
In January 2022, the Company acquired a business related to the sealing and impregnation
 
of metal castings for the automotive
sector, as well as impregnation resin and
 
impregnation systems for metal parts, for its Global Specialty 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.
 
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 acquisitions subsequent to the respective
 
acquisition dates are included in the unaudited
Condensed Consolidated Statements of Income for the six month period ended
 
June 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.
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 initially estimated at $
3.9
 
million that are payable at different times from 2022 through
 
2025.
 
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 and
 
equipment and $
1.5
 
million of other assets acquired net of liabilities assumed, which includes $
0.3
 
million of cash
acquired.
 
In addition, the Company recorded $
0.4
 
million of goodwill, all of which is expected to be tax deductible.
 
Intangible assets
comprised $
7.2
 
million of customer relationships to be amortized over
15 years
; and $
0.8
 
million of existing product technology to be
amortized over
13 years
.
 
In November 2021, the Company acquired a business that provides hydraulic
 
fluids, coolants, cleaners, and rust preventative oils
in Turkey for its EMEA reportable segment for
3.2
 
million EUR or approximately $
3.7
 
million.
In September 2021, the Company acquired the remaining interest in Grindaix
 
-GmbH (“Grindaix”), a Germany-based, high-tech
provider of coolant control and delivery systems for its Global Specialty Businesses reportable
 
segment for
2.4
 
million EUR or
approximately $
2.9
 
million, which is gross of approximately $
0.3
 
million of cash acquired.
 
Previously, in February
 
2021, the
Company acquired a
38
% ownership interest in Grindaix for
1.4
 
million EUR or approximately $
1.7
 
million.
 
The Company recorded
its initial investment as an equity method investment within the 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.
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 related to expected value not allocated to other acquired
 
assets, 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 personne
 
l
 
that will allow Quaker Houghton to better serve its customers.
 
As of June 30, 2022, the allocation of the purchase price of all of the Company’s
 
2022 acquisitions, Grindaix, the acquisition in
Turkey,
 
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 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”) 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.
 
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.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
9
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 six
months ended June 30, 2022 and 2021.
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Net sales
 
 
 
 
 
 
 
 
 
 
Americas
$
172,747
$
139,673
$
326,891
$
274,544
EMEA
 
123,053
 
123,436
 
248,740
 
243,250
Asia/Pacific
 
99,828
 
91,559
 
204,062
 
188,265
Global Specialty Businesses
 
96,760
 
80,594
 
186,866
 
158,986
Total net sales
$
492,388
$
435,262
$
966,559
$
865,045
Segment operating earnings
Americas
$
33,785
$
33,648
$
63,005
$
65,882
EMEA
13,283
23,405
30,049
48,649
Asia/Pacific
22,226
23,227
44,133
50,705
Global Specialty Businesses
 
27,841
 
24,209
 
52,876
 
48,378
Total segment operating
 
earnings
 
97,135
 
104,489
 
190,063
 
213,614
Combination, integration and other acquisition-related expenses
(1,832)
(6,658)
(5,885)
(12,473)
Restructuring and related credits (charges), net
1
(298)
(819)
(1,473)
Fair value step up of acquired inventory sold
 
—
—
—
(801)
Non-operating and administrative expenses
(48,579)
(43,077)
(92,042)
(84,069)
Depreciation of corporate assets and amortization
 
(14,822)
 
(15,640)
 
(30,011)
 
(31,088)
Operating income
31,903
38,816
61,306
83,710
Other (expense) income, net
(8,399)
14,010
(10,605)
18,697
Interest expense, net
 
(6,494)
 
(5,618)
 
(11,839)
 
(11,088)
Income before taxes and equity in net (loss) income of
associated companies
$
17,010
$
47,208
$
38,862
$
91,319
Inter-segment revenues for the three and six months ended
 
June 30, 2022, were $
3.3
 
million and $
6.2
 
million for Americas, $
12.4
million and $
21.3
 
million for EMEA, $
0.1
 
million and $
0.4
 
million for Asia/Pacific, and $
2.0
 
million and $
3.7
 
million for Global
Specialty Businesses, respectively.
 
Inter-segment revenues for the three and six months ended
 
June 30, 2021, were $
2.4
 
million and
$
5.7
 
million for Americas, $
6.3
 
million and $
15.1
 
million for EMEA, $
0.4
 
million and $
0.5
 
million for Asia/Pacific, and $
2.1
 
million
and $
4.1
 
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 $
20.5
 
million and $
40.3
 
million
for the three and six months ended June 30, 2022, respectively,
 
and $
16.7
 
million and $
34.5
 
million for the three and six months ended
June 30, 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
11
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, during
 
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.
Contract Assets and Liabilities
The Company had no material contract assets recorded on its Condensed
 
Consolidated Balance Sheets as of June 30, 2022 or
December 31, 2021.
The Company had approximately $
6.6
 
million and $
7.0
 
million of deferred revenue as of June 30, 2022 and December 31, 2021,
respectively.
 
For the six months ended June 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, 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 six months ended June 30, 2022
 
and 2021.
Three Months Ended June 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
63,373
$
37,586
$
55,596
$
156,555
Metalworking and other
109,374
85,467
44,232
239,073
172,747
123,053
99,828
395,628
Global Specialty Businesses
62,367
21,324
13,069
96,760
$
235,114
$
144,377
$
112,897
$
492,388
Timing of Revenue Recognized
Product sales at a point in time
$
225,135
$
136,622
$
110,190
$
471,947
Services transferred over time
9,979
7,755
2,707
20,441
$
235,114
$
144,377
$
112,897
$
492,388
Three Months Ended June 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
51,799
$
35,634
$
48,207
$
135,640
Metalworking and other
87,874
87,802
43,352
219,028
139,673
123,436
91,559
354,668
Global Specialty Businesses
46,183
21,678
12,733
80,594
$
185,856
$
145,114
$
104,292
$
435,262
Timing of Revenue Recognized
Product sales at a point in time
$
177,227
$
137,838
$
101,264
$
416,329
Services transferred over time
8,629
7,276
3,028
18,933
$
185,856
$
145,114
$
104,292
$
435,262
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
12
Six Months Ended June 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
119,533
$
74,425
$
110,883
$
304,841
Metalworking and other
207,358
174,315
93,179
474,852
326,891
248,740
204,062
779,693
Global Specialty Businesses
119,631
41,345
25,890
186,866
$
446,522
$
290,085
$
229,952
$
966,559
Timing of Revenue Recognized
Product sales at a point in time
$
426,419
$
273,825
$
224,815
$
925,059
Services transferred over time
20,103
16,260
5,137
41,500
$
446,522
$
290,085
$
229,952
$
966,559
Six Months Ended June 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
98,592
$
69,908
$
97,950
$
266,450
Metalworking and other
175,952
173,342
90,315
439,609
274,544
243,250
188,265
706,059
Global Specialty Businesses
91,439
41,950
25,597
158,986
$
365,983
$
285,200
$
213,862
$
865,045
Timing of Revenue Recognized
Product sales at a point in time
$
348,821
$
269,000
$
207,663
$
825,484
Services transferred over time
17,162
16,200
6,199
39,561
$
365,983
$
285,200
$
213,862
$
865,045
Note 6 - Leases
The Company has operating leases for certain facilities, vehicles and machinery
 
and 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
no
 
material variable lease costs, sublease income or finance leases for three and six months ended
 
June 30,
2022 and 2021. The following table sets forth the components of the Company’s
 
lease cost for three and six months ended June 30,
2022 and 2021:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Operating lease expense
$
3,519
$
3,548
$
6,928
$
7,160
Short-term lease expense
205
283
424
534
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
13
Supplemental cash flow information related to the Company’s
 
leases is as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating leases
$
3,442
$
3,489
$
6,807
$
7,068
Non-cash lease liabilities activity:
Leased assets obtained in exchange for new
operating lease liabilities
3,385
825
8,074
3,875
Supplemental balance sheet information related to the Company’s
 
leases is as follows:
June 30,
December 31,
2022
2021
Right of use lease assets
$
36,317
$
36,635
Other current liabilities
10,452
9,976
Long-term lease liabilities
25,695
26,335
Total operating lease liabilities
$
36,147
$
36,311
Weighted average
 
remaining lease term (years)
5.6
5.6
Weighted average
 
discount rate
4.14%
4.22%
Maturities of operating lease liabilities were as follows:
June 30,
2022
For the remainder of 2022
$
6,201
For the year ended December 31, 2023
10,076
For the year ended December 31, 2024
7,815
For the year ended December 31, 2025
5,749
For the year ended December 31, 2026
4,449
For the year ended December 31, 2027 and beyond
6,678
Total lease payments
40,968
Less: imputed interest
(4,821)
Present value of lease liabilities
$
36,147
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 depend on a
number of factors and are subject to change; however, the Company currently expects reduction in headcount and site closures under
the QH Program to continue to occur throughout 2022 and into 2023. 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 certain facilities
 
and are recorded in Restructuring and related
charges in the Company’s
 
Condensed Consolidated Statements of Income.
 
As described in Note 4 of Notes to Condensed
Consolidated Financial Statements, restructuring and related charges
 
are not included in the Company’s
 
calculation of reportable