10-Q 1 kwr-20220331.htm QUAKER CHEMICAL CORPORATION kwr-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
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10-Q
 
 
☒
QUARTERLY
 
REPORT PURSUANT TO SECTION 13
 
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 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 April 30, 2022
 
17,912,086
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 March 31,
2022
2021
Net sales
$
474,171
$
429,783
Cost of goods sold (excluding amortization expense - See Note 13)
 
328,100
 
273,589
 
Gross profit
 
146,071
 
156,194
Selling, general and administrative expenses
 
111,795
 
104,310
Restructuring and related charges
820
1,175
Combination, integration and other acquisition-related expenses
4,053
5,815
 
Operating income
 
29,403
 
44,894
Other (expense) income, net
 
(2,206)
 
4,687
Interest expense, net
 
(5,345)
 
(5,470)
 
Income before taxes and equity in net income of associated companies
 
21,852
 
44,111
Taxes on income before
 
equity in net income of associated companies
 
2,866
 
10,689
 
Income before equity in net income of associated companies
 
18,986
 
33,422
Equity in net income of associated companies
 
835
 
5,210
 
Net income
19,821
38,632
Less: Net income attributable to noncontrolling interest
5
17
 
Net income attributable to Quaker Chemical Corporation
$
19,816
$
38,615
Per share data:
 
 
Net income attributable to Quaker Chemical Corporation common
shareholders – basic
$
1.11
$
2.16
Net income attributable to Quaker Chemical Corporation common
 
shareholders – diluted
$
1.11
$
2.15
Dividends declared
$
0.415
$
0.395
The accompanying notes are an integral 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 March 31,
 
2022
2021
Net income
$
19,821
$
38,632
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(6,866)
(25,461)
Defined benefit retirement plans
496
1,292
Current period change in fair value of derivatives
1,100
562
Unrealized loss on available-for-sale securities
(1,000)
(3,025)
Other comprehensive loss
(6,270)
(26,632)
 
Comprehensive income
13,551
12,000
Less: Comprehensive income attributable to noncontrolling
 
interest
(6)
(15)
Comprehensive income attributable to Quaker Chemical Corporation
$
13,545
$
11,985
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
March 31,
 
December 31,
2022
2021
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
$
161,552
$
165,176
Accounts receivable, net
 
458,459
 
430,676
Inventories
Raw materials and supplies
146,289
129,382
Work-in-process
 
and finished goods
153,506
135,149
Prepaid expenses and other current assets
 
67,853
 
59,871
Total current
 
assets
 
987,659
 
920,254
Property, plant and equipment,
 
at cost
439,318
434,344
Less accumulated depreciation
(242,203)
(236,824)
Property, plant and equipment,
 
net
197,115
197,520
Right of use lease assets
38,245
36,635
Goodwill
 
630,938
 
631,194
Other intangible assets, net
 
1,012,068
 
1,027,782
Investments in associated companies
 
90,003
 
95,278
Deferred tax assets
 
11,496
 
16,138
Other non-current assets
 
29,198
 
30,959
Total assets
$
2,996,722
$
2,955,760
LIABILITIES AND EQUITY
 
 
Current liabilities
 
 
Short-term borrowings and current portion of long-term debt
$
61,385
$
56,935
Accounts payable
 
253,906
 
226,656
Dividends payable
7,433
7,427
Accrued compensation
 
26,396
 
38,197
Accrued restructuring
4,435
4,087
Accrued pension and postretirement benefits
1,549
1,548
Other accrued liabilities
 
97,445
 
95,617
Total current
 
liabilities
 
452,549
 
430,467
Long-term debt
 
858,287
 
836,412
Long-term lease liabilities
27,433
26,335
Deferred tax liabilities
 
170,622
 
179,025
Non-current accrued pension and postretirement benefits
44,667
45,984
Other non-current liabilities
 
47,464
 
49,615
Total liabilities
 
1,601,022
 
1,567,838
Commitments and contingencies (Note 18)
Equity
 
 
Common stock, $
1
 
par value; authorized
 
 
 
outstanding 2022 –
17,911,583
 
shares; 2021 –
17,897,033 shares
17,912
17,897
Capital in excess of par value
 
918,699
 
917,053
Retained earnings
 
528,716
 
516,334
Accumulated other comprehensive loss
 
(70,261)
 
(63,990)
Total Quaker
 
shareholders’ equity
 
1,395,066
 
1,387,294
Noncontrolling interest
 
634
628
Total equity
1,395,700
1,387,922
Total liabilities and equity
$
2,996,722
$
2,955,760
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Unaudited
Three Months Ended March 31,
 
2022
2021
Cash flows from operating activities
 
 
 
 
 
Net income
$
19,821
$
38,632
Adjustments to reconcile net income to net cash used in operating activities:
 
 
Amortization of debt issuance costs
1,187
1,187
Depreciation and amortization
 
20,447
 
22,145
Equity in undistributed earnings of associated companies, net of dividends
 
2,135
 
(5,105)
Acquisition-related fair value adjustments related to inventory
—
801
Deferred compensation, deferred taxes and other,
 
net
(3,778)
(9,888)
Share-based compensation
 
2,462
 
3,779
Gain on disposal of property, plant,
 
equipment and other assets
 
(23)
 
(5,410)
Combination and other acquisition-related expenses, net of payments
(4,246)
(2,884)
Restructuring and related charges
820
1,175
Pension and other postretirement benefits
 
(1,316)
 
(1,034)
(Decrease) increase in cash from changes in current assets and current
 
 
liabilities, net of acquisitions:
Accounts receivable
 
(26,270)
 
(46,270)
Inventories
 
(33,873)
 
(24,994)
Prepaid expenses and other current assets
 
(6,506)
 
(8,315)
Change in restructuring liabilities
(408)
(3,034)
Accounts payable and accrued liabilities
 
23,249
 
26,597
 
Net cash used in operating activities
 
(6,299)
 
(12,618)
Cash flows from investing activities
 
 
Investments in property,
 
plant and equipment
 
(8,847)
 
(3,934)
Payments related to acquisitions, net of cash acquired
 
(9,383)
 
(26,655)
Proceeds from disposition of assets
—
14,744
 
Net cash used in investing activities
 
(18,230)
 
(15,845)
Cash flows from financing activities
 
 
Payments of long-term debt
 
(14,112)
 
(9,551)
Borrowings on revolving credit facilities, net
43,000
30,000
Repayments on other debt, net
(102)
(188)
Dividends paid
 
(7,428)
 
(7,052)
Stock options exercised, other
 
(801)
 
(178)
 
Net cash provided by financing activities
 
20,557
 
13,031
 
Effect of foreign exchange rate changes on cash
 
348
 
(3,008)
Net decrease in cash and cash equivalents
 
(3,624)
 
(18,440)
Cash and cash equivalents at the beginning of the period
 
165,176
 
181,895
Cash and cash equivalents at the end of the period
$
161,552
$
163,455
The accompanying notes are an integral 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
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
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, 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
 
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 three months ended March 31, 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 months
ended March 31, 2022, the Company's Argentine subsidiaries represented
 
less than
1
% of the Company’s consolidated
 
total assets and
net sales, respectively.
 
During each of the three months ended March 31, 2022 and 2021, the Company
 
recorded $
0.2
 
million 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 Business reportable segment
for approximately
1.2
 
million EUR or approximately $
1.4
 
million.
 
This business expands the Company's geographic presence in
Germany as well as broadens its product offerings and
 
service capabilities within its existing impregnation business acquired
 
as part of
the Norman Hay acquisition in 2019.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
8
The results of operations of the 2022 acquired assets and businesses subsequent
 
to the respective acquisition dates are included in
the unaudited Condensed Consolidated Statements of Income for the quarter ended
 
March 31, 2022.
 
Applicable transaction expenses
associated with these acquisitions are included in Combination,
 
integration and other acquisition-related expenses in the Company’s
unaudited Condensed Consolidated Statements of Income.
 
Certain pro forma and other information is not presented, as the operations
of the acquired assets and businesses are not considered material to the overall 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 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, 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 March 31, 2022, the allocation of the purchase price of these acquisitions have
 
not been finalized and the one-year
measurement period has not ended, with the exception of the tin-plating
 
solutions business acquired in February 2021, the
measurement period for which ended in February 2022.
 
Further adjustments may be necessary as a result of the Company’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.
 
In April 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.
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
9
effective for the Company as of March 12, 2020 and generally can
 
be applied through December 31, 2022.
 
On December 10, 2021,
the Company entered into a Second Amendment to Credit Agreement (“Second
 
Amendment”) with Bank of America N.A., an update
to provide for the use of a non-USD currency LIBOR successor rate.
 
The Company elected to apply the expedients provided in ASU
2020-04 with respect to the Second Amendment.
 
The Company will continue to monitor for potential impacts related to its USD-
based LIBOR rates.
 
See Note 14 of Notes to Condensed Consolidated Financial Statements.
Note 4 – Business Segments
The Company’s 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, which
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.
The following table presents information about the performance of the Company’s
 
reportable operating segments for the three
months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
 
2022
2021
Net sales
 
 
 
 
 
 
Americas
$
154,144
$
134,871
EMEA
 
125,687
 
119,814
Asia/Pacific
 
104,234
 
96,706
Global Specialty Businesses
 
90,106
 
78,392
Total
 
net sales
$
474,171
$
429,783
Segment operating earnings
Americas
$
29,220
$
32,234
EMEA
16,766
25,244
Asia/Pacific
21,907
27,478
Global Specialty Businesses
 
25,035
 
24,169
Total
 
segment operating earnings
 
92,928
 
109,125
Combination, integration and other acquisition-related expenses
(4,053)
(5,815)
Restructuring and related charges
(820)
(1,175)
Fair value step up of acquired inventory sold
—
(801)
Non-operating and administrative expenses
 
(43,463)
 
(40,992)
Depreciation of corporate assets and amortization
 
(15,189)
 
(15,448)
Operating income
29,403
44,894
Other (expense) income, net
(2,206)
4,687
Interest expense, net
 
(5,345)
 
(5,470)
Income before taxes and equity in net income of associated companies
$
21,852
$
44,111
Inter-segment revenues for the three months ended March 31,
 
2022 and 2021 were $
2.9
 
million and $
3.3
 
million for Americas,
$
8.9
 
million and $
8.8
 
million for EMEA, $
0.3
 
million and $
0.1
 
million for Asia/Pacific and $
1.7
 
million and $
2.0
 
million for Global
Specialty Businesses, respectively.
 
However, all inter-segment transactions
 
have been eliminated from each reportable operating
segment’s net sales and earnings for
 
all periods presented in the above tables.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
10
Note 5 – Net Sales and Revenue Recognition
Arrangements Resulting in Net Reporting
As part of the Company’s Fluidcare
TM
 
business, certain third-party product sales to customers are managed by the Company.
 
The
Company transferred third-party products under arrangements recognized
 
on a net reporting basis of $
19.8
 
million and $
17.8
 
million
for the three months ended March 31, 2022 and 2021, respectively.
 
Customer Concentration
A significant portion of the Company’s
 
revenues are realized from the sale of process fluids and services to manufacturers of
steel, aluminum, automobiles, aircraft, industrial equipment, and durable
 
goods.
 
As previously disclosed in the 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 March 31, 2022 or
December 31, 2021.
The Company had approximately $
6.9
 
million and $
7.0
 
million of deferred revenue as of March 31, 2022 and December 31,
2021, respectively.
 
For three months ended March 31, 2022, the Company satisfied all of the associated 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 months ended March 31, 2022 and 2021.
Three Months Ended March 31, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
56,160
$
36,839
$
55,287
 
$
148,286
Metalworking and other
97,984
88,848
48,947
235,779
154,144
125,687
104,234
384,065
Global Specialty Businesses
57,264
20,021
12,821
90,106
$
211,408
$
145,708
$
117,055
$
474,171
Timing of Revenue Recognized
Product sales at a point in time
$
201,284
$
137,203
$
114,625
 
$
453,112
Services transferred over time
10,124
8,505
2,430
21,059
$
211,408
$
145,708
$
117,055
$
474,171
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
11
Three Months Ended March 31, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
46,793
$
34,274
$
49,743
 
$
130,810
Metalworking and other
88,078
85,540
46,963
220,581
134,871
119,814
96,706
351,391
Global Specialty Businesses
45,256
20,272
12,864
78,392
$
180,127
$
140,086
$
109,570
$
429,783
Timing of Revenue Recognized
Product sales at a point in time
$
171,594
$
131,162
$
106,399
 
$
409,155
Services transferred over time
8,533
8,924
3,171
20,628
$
180,127
$
140,086
$
109,570
$
429,783
Note 6 - Leases
The Company has operating leases for certain facilities, vehicles and 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 or sublease income for three months ended March
 
31, 2022 and 2021. The
following table sets forth the components of the Company’s
 
lease cost for three months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
2022
2021
Operating lease expense
$
3,409
$
3,612
Short-term lease expense
219
251
Supplemental cash flow information related to the Company’s
 
leases is as follows
:
Three Months Ended
March 31,
2022
2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
3,365
$
3,579
Non-cash lease liabilities activity:
Leased assets obtained in exchange for new operating lease liabilities
4,689
3,050
Supplemental balance sheet information related to the Company’s
 
leases is as follows:
March 31,
December 31,
2022
2021
Right of use lease assets
$
38,245
$
36,635
Other current liabilities
10,540
9,976
Long-term lease liabilities
27,433
26,335
Total operating lease liabilities
$
37,973
$
36,311
Weighted average
 
remaining lease term (years)
5.9
5.6
Weighted average
 
discount rate
4.14%
4.22%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
12
Maturities of operating lease liabilities as of March 31, 2022 were as follows:
March 31,
2022
For the remainder of 2022
$
8,990
For the year ended December 31, 2023
9,513
For the year ended December 31, 2024
7,292
For the year ended December 31, 2025
5,375
For the year ended December 31, 2026
4,338
For the year ended December 31, 2027 and beyond
7,046
Total lease payments
42,554
Less: imputed interest
(4,581)
Present value of lease liabilities
$
37,973
Note 7 – Restructuring and Related Activities
The Company’s management approved a global restructuring plan (the “QH Program”) as part of its plan to realize certain cost
synergies associated with the Combination in the third quarter of 2019. The QH Program includes restructuring and associated
severance costs to reduce total headcount by approximately 400 people globally, as well as plans for the closure of certain
manufacturing and non-manufacturing facilities.
 
The exact timing and total costs associated with the QH Program will depend on
 
a
number of factors and are subject to change; however,
 
the Company currently expects reductions in headcount and site closures to
continue to occur throughout 2022 under the QH Program.
 
Employee separation benefits will vary depending on local regulations
within certain foreign countries and will include severance and other benefits.
 
All costs incurred to date relate to severance costs to reduce headcount,
 
including customary and routine adjustments to initial
estimates for employee separation costs, as well as costs to close 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
segments’ measure of operating earnings and therefore these costs are not
 
reviewed by or recorded to reportable segments.
Activity in the Company’s accrual
 
for restructuring under the QH Program for the three months ended March 31, 2022
 
is as
follows:
QH Program
Accrued restructuring as of December 31, 2021
$
4,087
Restructuring and related charges
820
Cash payments
(408)
Currency translation adjustments
(64)
Accrued restructuring as of March 31, 2022
$
4,435
Note 8 – Share-Based Compensation
The Company recognized the following share-based compensation expense
 
in its Condensed Consolidated Statements of Income
for the three months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
 
2022
2021
Stock options
$
267
$
308
Non-vested stock awards and restricted stock units
1,548
1,396
Non-elective and elective 401(k) matching contribution in stock
—
1,553
Director stock ownership plan
24
203
Performance stock units
623
319
Total share-based
 
compensation expense
$
2,462
$
3,779
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
13
Share-based compensation expense is recorded in SG&A, except for less than $
0.1
 
million and $
0.3
 
million during the three
months ended March 31, 2022 and 2021, respectively,
 
recorded within Combination, integration and other acquisition-related
expenses.
Stock Options
During the first quarter of 2022, the Company granted stock options under
 
its long-term incentive plan (“LTIP
 
”) that are subject
only to time vesting over a
three year
 
period.
 
For the purposes of determining the fair value of stock option awards, the Company
used a Black-Scholes option pricing model and the assumptions set forth
 
in the table below:
March 2022
Grant
Number of options granted
27,077
Dividend yield
0.80
%
Expected volatility
38.60
%
Risk-free interest rate
2.07
%
Expected term (years)
4.0
The fair value of these options is amortized on a straight-line basis over the vesting period.
 
As of March 31, 2022, unrecognized
compensation expense related to all stock options granted
 
was $
2.9
 
million, to be recognized over a weighted average remaining
period of
1.9
 
years.
Restricted Stock Awards
 
and Restricted Stock Units
During the three months ended March 31, 2022, the Company granted
17,425
 
non-vested restricted shares and
4,490
 
non-vested
restricted stock units under its LTIP,
 
subject to time-based vesting, generally over a
three year
 
period.
 
The fair value of these grants is
based on the trading price of the Company’s
 
common stock on the date of grant.
 
The Company adjusts the grant date fair value of
these awards for expected forfeitures based on historical experience.
 
As of March 31, 2022, unrecognized compensation expense
related to the nonvested restricted shares was $
6.4
 
million, to be recognized over a weighted average remaining period of
2.1
 
years,
and unrecognized compensation expense related to nonvested restricted
 
stock units was $
1.3
 
million, to be recognized over a weighted
average remaining period of
2.3
 
years.
Performance Stock Units
The Company grants performance-dependent stock awards (“PSUs”) as a component
 
of its LTIP,
 
which will be settled in a
certain number of shares subject to market-based and time-based vesting conditions.
 
The number of fully vested shares that may
ultimately be issued as settlement for each award may range from
0
% up to
200
% of the target award, subject to the achievement of
the Company’s total shareholder
 
return (“TSR”) relative to the performance of the Company’s
 
peer group, the S&P Midcap 400
Materials group.
 
The service period required for the PSUs is three years and the TSR measurement
 
period for the PSUs is generally
from January 1 of the year of grant through December 31 of the year prior
 
to issuances of the shares upon settlement.
 
Compensation expense for PSUs
 
is measured based on their grant date fair value and is recognized on
 
a straight-line basis over
the three year vesting period.
 
The grant-date fair value of the PSUs was estimated using a Monte Carlo
 
simulation on the grant date
and using the following assumptions set forth in the table below:
March 2022
Grant
Number of PSUs granted
16,820
Risk-free interest rate
2.11
%
Dividend yield
0.93
%
Expected term (years)
3.0
As of March 31, 2022, the Company estimates that it will issue 0 fully vested shares
 
as of the applicable settlement date of all
outstanding PSUs awards based on the conditions of the PSUs and performance
 
to date for each award.
 
As of March 31, 2022,
 
there
was approximately $
6.4
 
million of total unrecognized compensation cost related to PSUs which the Company
 
expects to recognize
over a weighted-average period of
2.3
 
years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
14
Defined Contribution Plan
The Company has a 401(k) plan with an employer match covering
 
a majority of its U.S. employees.
 
The Company matches
50
%
of the first
6
% of compensation that is contributed to the plan, with a maximum matching contribution of 3% of
 
compensation.
 
Additionally, the plan
 
provides for non-elective nondiscretionary contributions on behalf of participants
 
who have completed one year
of service equal to
3
% of the eligible participants’ compensation.
 
Beginning in April 2020 and continuing through March 2021, the
Company matched both non-elective and elective 401(k) contributions
 
in fully vested shares
 
of the Company’s common stock
 
rather
than cash.
 
There were
no
 
matching contributions in stock for the three months ended March 31, 2022. For
 
the three months ended
March 31, 2021, total contributions were $
1.5
 
million.
Note 9 – Pension and Other Postretirement
 
Benefits
The components of net periodic benefit (income) cost for the three months
 
ended March 31, 2022 and 2021 are as follows:
Three Months Ended March 31,
 
Other
Pension Benefits
Postretirement Benefits
2022
2021
2022
2021
Service cost
$
180
$
316
$
(8)
$
1
Interest cost
1,360
1,090
9
11
Expected return on plan assets
(2,084)
(2,082)
—
—
Actuarial loss (gain) amortization
257
855
(24)
—
Prior service cost (income) amortization
2
2
1
—
Total net periodic benefit
 
(income) cost
$
(285)
$
181
$
(22)
$
12
Employer Contributions
As of March 31, 2022, $
1.0
 
million and $
0.1
 
million of contributions have been made to the Company’s
 
U.S. and foreign pension
plans and its other postretirement benefit plans, respectively.
 
Taking into consideration
 
current minimum cash contribution
requirements, the Company currently expects to make full year cash contributions
 
of approximately $
6.6
 
million to its U.S. and
foreign pension plans and approximately $
0.2
 
million to its other postretirement benefit plans in 2022.
Note 10 – Other (Expense) Income, Net
The components of other (expense) income, net for the three months ended
 
March 31, 2022 and 2021 are as follows:
Three Months Ended
 
March 31,
2022
2021
Income from third party license fees
$
404
$
339
Foreign exchange losses, net
(1,905)
(1,478)
Gain on disposals of property,
 
plant, equipment and other assets, net
23
5,410
Non-income tax refunds and other related (expense) credits
(1,322)
97
Pension and postretirement benefit income, non-service components
479
124
Other non-operating income, net
115
195
Total other (expense)
 
income, net
$
(2,206)
$
4,687
Non-income tax refunds and other related (expense) credits during the
 
three months ended March 31, 2022 includes other expense
related to an indemnification asset associated with the settlement of certain
 
income tax audits at one of the Company’s
 
Italian affiliates
for tax periods prior to August 1, 2019.
 
See Note 11 of Notes to Condensed Consolidated
 
Financial Statements.
 
Gain on disposals of
property, plant, equipment
 
and other assets, net, during the three months ended March 31, 2021, includes a gain on the
 
sale of certain
held-for-sale real property assets related to the Combination.
 
Foreign exchange losses, net, during each of the three months ended
March 31, 2022 and 2021 include foreign currency transaction losses of approximately
 
$
0.2
 
million related to hyper-inflationary
accounting for the Company’s Argentine
 
subsidiaries.
 
See Note 1 of Notes to Condensed Consolidated Financial Statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
15
Note 11 – Income Taxes
 
and Uncertain Income Tax
 
Positions
The Company’s effective
 
tax rates for the three months ended March 31, 2022 and 2021 were
13.1
% and
24.2
%, respectively.
 
The Company’s effective
 
tax rate for the three months ended March 31, 2022 was largely driven by changes in
 
the valuation
allowance for foreign tax credits due to recently issued legislative guidance
 
and audit settlements reached with Italian tax authorities.
 
In addition, the Company incurred higher tax expense during the three months
 
ended March 31, 2022 related to the Company
recording earnings in one of its subsidiaries at a statutory tax rate of
25
% while it awaits recertification of a concessionary
15
% tax
rate, which was available to the Company during all of 2021.
 
Comparatively,
 
the prior year first quarter effective tax rate was
impacted by the sale of a subsidiary which included certain held-for-sale
 
real property assets related to the Combination.
 
As of December 31, 2021, the Company had a deferred tax liability of $
8.4
 
million on certain undistributed foreign earnings,
which primarily represents the Company’s
 
estimate of non-U.S. income taxes the Company will incur to ultimately remit certain
earnings to the U.S.
 
The balance as of March 31, 2022 was $
8.0
 
million.
As of March 31, 2022, the Company’s
 
cumulative liability for gross unrecognized tax benefits was $
20.1
 
million, a decrease of
approximately $
2.4
 
million from the cumulative liability accrued as of December 31, 2021.
 
The Company continues to recognize interest and penalties associated with uncertain
 
tax positions as a component of taxes on
income before equity in net income of associated companies in its Condensed
 
Consolidated Statements
 
of Income.
 
The Company
recognized a benefit of $
0.3
 
million for interest and a benefit of $
1.6
 
million for penalties in its Condensed Consolidated Statements of
Income for the three months ended March 31, 2022, and recognized
 
an expense of less than $
0.1
 
million for interest and a benefit of
$
0.1
 
million for penalties in its Condensed Consolidated Statements of Income for the
 
three months ended March 31, 2021.
 
As of
March 31, 2022, the Company had accrued $
2.7
 
million for cumulative interest and $
1.6
 
million for cumulative penalties in its
Condensed Consolidated Balance Sheets, compared to $
3.1
 
million for cumulative interest and $
3.1
 
million for cumulative penalties
accrued at December 31, 2021.
During the three months ended March 31, 2022 and 2021, the Company
 
recognized decreases of $
2.8
 
million and $
0.3
 
million,
respectively, in its cumulative
 
liability for gross unrecognized tax benefits due to the settlement of income
 
tax audits with the Italian
tax authorities, as well as the expiration of the applicable statutes of
 
limitations for certain tax years.
The Company estimates that during the year ending December 31, 202
 
2
 
it will reduce its cumulative liability for gross
unrecognized tax benefits by approximately $
4.2
 
million due to the settlement of income tax audits and the expiration of the statute of
limitations with regard to certain tax positions.
 
This estimated reduction in the cumulative liability for unrecognized
 
tax benefits does
not consider any increase in liability for unrecognized tax benefits with regard
 
to existing tax positions or any increase in cumulative
liability for unrecognized tax benefits with regard to new tax positions for
 
the year ending December
 
31, 2022.
The Company
 
and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various
 
state and foreign
tax jurisdictions.
 
Tax years that remain subject
 
to examination by major tax jurisdictions include Italy from
2007
, Brazil from
2011
,
Germany from
2015
, the Netherlands, Mexico and China from
2016
, Canada, Spain, and the U.S. from
2017
, the United Kingdom
from
2018
, India from fiscal year beginning April 1, 2017 and ending March 31,
2018
, and various U.S. state tax jurisdictions from
2011
.
 
As previously reported, the Italian tax authorities have assessed additional tax due from the Company’s subsidiary, Quaker Italia
S.r.l., relating to the tax years 2007 through 2015. The Company has filed for competent authority relief from these assessments under
the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except
2007. In 2020, the respective tax authorities in Italy, Spain and the Netherlands reached agreement with respect to the MAP
proceedings which the Company has accepted.
 
As of March 31, 2022, the Company has received $
1.6
 
million in refunds from the
Netherlands and Spain.
 
In February 2022, the Company received a settlement notice from the Italian taxing
 
authorities confirming the
amount due of $
2.6
 
million, having granted the Company’s request
 
to utilize its remaining net operating losses to partially offset
 
the
liability.
 
As a result of the settlement the Company recognized tax expense of $
0.8
 
million for the quarter ended March 31, 2022.
Houghton Italia, S.r.l is also involved
 
in a corporate income tax audit with the Italian tax authorities covering tax years
2014
through
2018
.
 
During the fourth quarter of 2021, the Company settled a portion of the Houghton Italia,
 
S.r.l. corporate income tax
audit with the Italian tax authorities for the tax years
2014
 
and
2015
.
 
During the three months ended March 31, 2022 the Company
settled tax years 2016 through 2018 for a total of $
2.1
 
million.
 
In total, the Company has now settled all years 2014 through 2018 for
$
3.7
 
million.
 
Accordingly, the Company has
 
released all reserves relating to this audit for the settled tax years.
 
As a result of the
settlement and reserve release the Company recognized a net benefit
 
to the tax provision of $
2.1
 
million during the first quarter of
2022.
 
The Company has established an indemnification receivable of $
3.8
 
million in connection with its claim against the former
owners of Houghton for any pre-Combination tax liabilities arising from
 
this matter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
16
Houghton Deutschland GmbH is also under audit by the German tax authorities for
 
the tax years
2015
 
through
2017
.
 
Based on
preliminary audit findings, primarily related to transfer pricing,
 
the Company has recorded reserves for $
0.3
 
million as of March 31,
2022.
 
Of this amount, $
0.3
 
million relates to tax periods prior to the Combination and therefore the Company
 
has submitted an
indemnification claim with Houghton’s
 
former owners for any tax liabilities arising pre-Combination.
 
As a result, a corresponding
indemnification receivable has also been established.
Note 12 – Earnings Per Share
The following table summarizes earnings per share calculations for
 
the three months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
 
2022
2021
Basic earnings per common share
 
Net income attributable to Quaker Chemical Corporation
$
19,816
$
38,615
Less: income allocated to participating securities
 
(78)
 
(154)
Net income available to common shareholders
$
19,738
$
38,461
Basic weighted average common shares outstanding
17,826,061
17,785,370
Basic earnings per common share
$
1.11
$
2.16
Diluted earnings per common share
Net income attributable to Quaker Chemical Corporation
$
19,816
$
38,615
Less: income allocated to participating securities
(78)
(154)
Net income available to common shareholders
$
19,738
$
38,461
Basic weighted average common shares outstanding
17,826,061
17,785,370
Effect of dilutive securities
25,798
70,607
Diluted weighted average common shares outstanding
17,851,859
17,855,977
Diluted earnings per common
 
share
$
1.11
$
2.15
Certain stock options,
 
restricted stock units and PSUs are not included in the diluted earnings per share calculation
 
when the
effect would have been anti-dilutive.
 
The calculated amount of anti-diluted shares not included were
12,260
 
and
2,083
 
for the three
months ended March 31, 2022 and 2021, respectively.
 
Note 13 – Goodwill and Other Intangible Assets
 
Changes in the carrying amount of goodwill for the three months ended
 
March 31, 2022 were as follows:
Global
Specialty
Americas
EMEA
Asia/Pacific
Businesses
Total
Balance as of December 31, 2021
$
214,023
$
135,520
$
162,458
$
119,193
 
$
631,194
Goodwill additions
1,752
—
—
32
1,784
Currency translation adjustments
 
1,376
(2,569)
(328)
(519)
 
(2,040)
Balance as of March 31, 2022
$
217,151
$
132,951
$
162,130
$
118,706
 
$
630,938
Gross carrying amounts and accumulated amortization for definite-lived
 
intangible assets as of March 31, 2022 and December 31,
2021 were as follows:
Gross Carrying
Accumulated
Amount
Amortization
2022
2021
2022
2021
Customer lists and rights to sell
$
855,309
 
$
853,122
 
$
159,576
 
$
147,858
Trademarks, formulations and product
 
technology
 
162,408
 
 
163,974
 
 
40,565
 
 
38,747
Other
 
6,361
 
 
6,309
 
 
5,989
 
 
5,900
Total definite-lived
 
intangible assets
$
1,024,078
 
$
1,023,405
 
$
206,130
 
$
192,505
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
17
The Company amortizes definite-lived intangible assets on a straight-line basis over
 
their useful lives.
 
The Company recorded
$
14.6
 
million and $
14.8
 
million of amortization expense for the three months ended March
 
31, 2022 and 2021, respectively.
 
Estimated annual aggregate amortization expense for the current year
 
and subsequent five years is as follows:
For the year ended December 31, 2022
$
59,465
For the year ended December 31, 2023
59,293
For the year ended December 31, 2024
58,701
For the year ended December 31, 2025
57,924
For the year ended December 31, 2026
57,678
For the year ended December 31, 2027 and beyond
532,124
The Company has four indefinite-lived intangible assets totaling $
194.1
 
million as of March 31, 2022, including $
193.0
 
million of
indefinite-lived intangible assets for trademarks and tradename associated
 
with the Combination.
 
Comparatively, the Company had
four indefinitely-lived intangible assets for trademarks and tradename
 
totaling $
196.9
 
million as of December 31, 2021.
 
Note 14 – Debt
Debt as of March 31, 2022 and December 31, 2021 includes the following:
As of March 31, 2022
As of December 31, 2021
Interest
Outstanding
 
Interest
Outstanding
 
Rate
Balance
Rate
Balance
Credit Facilities:
Revolver
1.68%
$
254,453
1.62%
$
211,955
U.S. Term Loan
1.71%
528,750
1.65%
540,000
EURO Term Loan
1.50%
132,037
1.50%
137,616
Industrial development bonds
5.26%
10,000
5.26%
10,000
Bank lines of credit and other debt obligations
Various
1,659
Various
1,777
Total debt
$
926,899
$
901,348
Less: debt issuance costs
(7,227)
(8,001)
Less: short-term and current portion of long-term debts
(61,385)
(56,935)
Total long-term debt
$
858,287
$
836,412
Credit facilities
The Company’s primary credit facility
 
(as amended, the “Credit Facility”) is comprised of a $
400.0
 
million multicurrency
revolver (the “Revolver”), a $
600.0
 
million term loan (the “U.S. Term
 
Loan”), each with the Company as borrower,
 
and a $
150.0
million (as of August 1, 2019) Euro equivalent term loan (the “EURO Term
 
Loan” and together with the “U.S. Term
 
Loan”, the
“Term Loans”)
 
with Quaker Chemical B.V.,
 
a Dutch subsidiary of the Company as borrower, each
 
with a five year term maturing in
August 2024
.
 
Subject to the consent of the administrative agent and certain other conditions, the Company
 
may designate additional
borrowers.
 
The maximum amount available under the Credit Facility can be increased by up
 
to $
300.0
 
million at the Company’s
request if there are lenders who agree to accept additional commitments and
 
the Company has satisfied certain other conditions.
 
Borrowings under the Credit Facility bear interest at a base rate or LIBOR plus an
 
applicable margin based upon the Company’s
consolidated net leverage ratio.
 
On December 10, 2021, the Company entered into the Second Amendment with Bank of America
N.A., to include among other things, an update to provide for use of a non-USD
 
currency LIBOR successor rate.
 
The variable interest
rate incurred on the outstanding borrowings under the Credit Facility during
 
the three months ended March 31, 2022 was
approximately
1.6
%.
 
As of March 31, 2022, the interest rate of the outstanding borrowings under the Credit
 
Facility was
approximately
1.7
%.
 
In addition to paying interest on outstanding principal under the Credit Facility,
 
the Company is required to pay
a commitment fee ranging from
0.2
% to
0.3
% depending on the Company’s consolidated
 
net leverage ratio to the lenders under the
Revolver in respect of the unutilized commitments thereunder.
 
The Company has unused capacity under the Revolver of
approximately $
142
 
million, net of bank letters of credit of approximately $
4
 
million, as of March 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
18
The Credit Facility is subject to certain financial and other covenants.
 
The Company’s initial consolidated net debt to
consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the permitted ratio over the term of the Credit
Facility. As of March 31, 2021, the consolidated net debt to adjusted EBITDA may not exceed 3.75 to 1. The Company’s
consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1 over the term of the agreement. The Credit
Facility also prohibits the payment of cash dividends if the Company is in default or if the amount of the dividend paid annually
exceeds the greater of $50.0 million and 20% of consolidated adjusted EBITDA unless the ratio of consolidated net debt to
consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation on amount.
 
As of March 31, 2022 and
December 31, 2021, the Company was in compliance with all of the Credit Facility covenants
.
 
The Term Loans
 
have quarterly
principal amortization during their
five year