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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

 

 

 

FORM 10-Q

 

 

 

 

 


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

For the quarterly period ended September 30, 2019

 

OR

 


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

For the transition period from               to              

 

Commission file number 001-12019

 

 

 

 

QUAKER CHEMICAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

 

 

 

 

 

 

Pennsylvania

 

23-0993790

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

 

One Quaker Park, 901 E. Hector Street,

Conshohocken, Pennsylvania

 

19428 – 2380

(Address of principal executive offices)

 

(Zip Code)

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

 

Not Applicable

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

 

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

KWR

New York Stock Exchange

 

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

 

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

 

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

 

 

Large accelerated filer

 

Accelerated filer

 

 

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

 

 

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

 

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

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

 

 

 

Number of Shares of Common Stock

Outstanding on October 31, 2019

 

 

17,732,310

 

 


 

 

QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES

 

 

 

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements (unaudited)

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and September 30, 2018

2

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2019 and September 30, 2018

3

 

 

Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018

4

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and September 30, 2018

5

 

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

 

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

30

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

44

Item 4.

 

Controls and Procedures

45

PART II.

 

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

46

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 6.

 

Exhibits

47

Signatures

48

 

1


 

PART I

FINANCIAL INFORMATION

 

Item 1.Financial Statements (Unaudited).

 

Quaker Chemical Corporation

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)

 

 

 

 

Unaudited

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2019

 

2018

 

2019

 

2018

Net sales

$

325,130

 

$

222,022

 

$

742,209

 

$

656,039

Cost of goods sold

 

220,073

 

 

140,929

 

 

486,224

 

 

418,562

 

Gross profit

 

105,057

 

 

81,093

 

 

255,985

 

 

237,477

Selling, general and administrative expenses

 

80,812

 

 

53,270

 

 

182,293

 

 

157,360

Restructuring and related activities

 

24,045

 

 

 

 

24,045

 

 

Combination and other acquisition-related expenses

 

14,702

 

 

2,904

 

 

23,789

 

 

12,404

 

Operating (loss) income

 

(14,502)

 

 

24,919

 

 

25,858

 

 

67,713

Other income (expense), net

 

203

 

 

(523)

 

 

(389)

 

 

(631)

Interest expense, net

 

(6,102)

 

 

(989)

 

 

(7,611)

 

 

(3,223)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

associated companies

 

(20,401)

 

 

23,407

 

 

17,858

 

 

63,859

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

 

 

 

 

 

 

 

 

 

 

 

 

companies

 

(5,633)

 

 

4,330

 

 

4,096

 

 

13,554

 

(Loss) income before equity in net income of associated

 

 

 

 

 

 

 

 

 

 

 

 

 

companies

 

(14,768)

 

 

19,077

 

 

13,762

 

 

50,305

Equity in net income of associated companies

 

1,787

 

 

694

 

 

2,806

 

 

1,623

 

Net (loss) income

 

(12,981)

 

 

19,771

 

 

16,568

 

 

51,928

Less: Net income attributable to noncontrolling interest

 

72

 

 

81

 

 

186

 

 

260

 

Net (loss) income attributable to Quaker Chemical Corporation

$

(13,053)

 

$

19,690

 

$

16,382

 

$

51,668

Per share data:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to Quaker Chemical Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

common shareholders – basic

$

(0.80)

 

$

1.48

 

$

1.15

 

$

3.88

 

Net (loss) income attributable to Quaker Chemical Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

common shareholders – diluted

$

(0.80)

 

$

1.47

 

$

1.14

 

$

3.87

 

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

2


 

Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Dollars in thousands)

 

 

 

 

 

Unaudited

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2019

 

2018

 

2019

 

2018

Net (loss) income

$

(12,981)

 

$

19,771

 

$

16,568

 

$

51,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

(28,305)

 

 

(6,859)

 

 

(29,256)

 

 

(17,111)

 

Defined benefit retirement plans

 

1,126

 

 

678

 

 

2,354

 

 

2,258

 

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

 

(81)

 

 

162

 

 

1,499

 

 

(493)

 

 

Other comprehensive loss

 

(27,260)

 

 

(6,019)

 

 

(25,403)

 

 

(15,346)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

(40,241)

 

 

13,752

 

 

(8,835)

 

 

36,582

Less: Comprehensive loss (income) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest

 

22

 

 

(43)

 

 

(115)

 

 

(146)

Comprehensive (loss) income attributable to Quaker Chemical

 

 

 

 

 

 

 

 

 

 

 

 

Corporation

$

(40,219)

 

$

13,709

 

$

(8,950)

 

$

36,436

 

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

3


 

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

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

 

 

 

 

 

Unaudited

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

$

128,161

 

$

104,147

 

Accounts receivable, net

 

370,725

 

 

202,139

 

Inventories

 

 

 

 

 

 

 

Raw materials and supplies

 

82,254

 

 

48,134

 

 

Work-in-process and finished goods

 

92,132

 

 

45,956

 

Prepaid expenses and other current assets

 

51,290

 

 

18,134

 

 

Total current assets

 

724,562

 

 

418,510

Property, plant and equipment, at cost

 

380,480

 

 

254,237

 

Less accumulated depreciation

 

(176,371)

 

 

(170,314)

 

 

Property, plant and equipment, net

 

204,109

 

 

83,923

Right of use lease assets

 

33,789

 

 

Goodwill

 

557,323

 

 

83,333

Other intangible assets, net

 

1,064,048

 

 

63,582

Investments in associated companies

 

91,937

 

 

21,316

Non-current deferred tax assets

 

5,415

 

 

6,946

Other non-current assets

 

43,313

 

 

32,055

 

 

Total assets

$

2,724,496

 

$

709,665

LIABILITIES AND EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

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

$

36,535

 

$

670

 

Accounts and other payables

 

173,722

 

 

92,754

 

Accrued compensation

 

41,714

 

 

25,727

 

Accrued restructuring

 

19,320

 

 

 

Other current liabilities

 

74,469

 

 

32,319

 

 

Total current liabilities

 

345,760

 

 

151,470

Long-term debt

 

826,503

 

 

35,934

Long-term lease liabilities

 

24,259

 

 

Non-current deferred tax liabilities

 

212,673

 

 

10,003

Other non-current liabilities

 

111,851

 

 

75,889

 

 

Total liabilities

 

1,521,046

 

 

273,296

Commitments and contingencies (Note 18)

 

 

 

 

 

Equity

 

 

 

 

 

 

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

 

 

 

 

 

 

 

outstanding 2019 – 17,730,728 shares; 2018 – 13,338,026 shares

 

17,731

 

 

13,338

 

Capital in excess of par value

 

885,765

 

 

97,304

 

Retained earnings

 

404,569

 

 

405,125

 

Accumulated other comprehensive loss

 

(106,047)

 

 

(80,715)

 

 

Total Quaker shareholders’ equity

 

1,202,018

 

 

435,052

Noncontrolling interest

 

1,432

 

 

1,317

Total equity

 

1,203,450

 

 

436,369

 

 

Total liabilities and equity

$

2,724,496

 

$

709,665

 

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

4


 

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

 

 

 

 

 

Unaudited

 

 

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

 

 

2019

 

2018

Cash flows from operating activities

 

 

 

 

 

 

Net income

$

16,568

 

$

51,928

 

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

 

 

 

 

 

 

 

Amortization of debt issuance costs

 

792

 

 

 

 

Depreciation and amortization

 

23,868

 

 

14,911

 

 

Equity in undistributed earnings of associated companies, net of dividends

 

(129)

 

 

2,658

 

 

Acquisition-related fair value adjustments related to inventory

 

10,214

 

 

 

 

Deferred compensation, deferred taxes and other, net

 

(17,204)

 

 

(898)

 

 

Share-based compensation

 

3,042

 

 

2,847

 

 

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

 

(111)

 

 

(680)

 

 

Insurance settlement realized

 

(624)

 

 

(680)

 

 

Combination and other acquisition-related expenses, net of payments

 

(14,218)

 

 

(349)

 

 

Restructuring and related activities

 

24,045

 

 

 

 

Pension and other postretirement benefits

 

434

 

 

(1,113)

 

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

 

 

 

 

 

 

 

liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

2,655

 

 

(14,029)

 

 

Inventories

 

1,376

 

 

(12,719)

 

 

Prepaid expenses and other current assets

 

(10,931)

 

 

2,196

 

 

Restructuring liabilities

 

(4,645)

 

 

 

 

Accounts payable and accrued liabilities

 

344

 

 

6,824

 

 

 

Net cash provided by operating activities

 

35,476

 

 

50,896

Cash flows from investing activities

 

 

 

 

 

 

 

Investments in property, plant and equipment

 

(10,112)

 

 

(8,815)

 

 

Payments related to acquisitions, net of cash acquired

 

(798,064)

 

 

(500)

 

 

Proceeds from disposition of assets

 

75

 

 

803

 

 

Insurance settlement interest earned

 

185

 

 

102

 

 

 

Net cash used in investing activities

 

(807,916)

 

 

(8,410)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from term loan debt

 

750,000

 

 

 

 

Borrowings (repayments) on revolving credit facilities, net

 

85,966

 

 

(11,040)

 

 

Borrowings (repayments) on other long-term debt, net

 

415

 

 

(478)

 

 

Financing-related debt issuance costs

 

(23,747)

 

 

 

 

Dividends paid

 

(15,003)

 

 

(14,385)

 

 

Stock options exercised, other

 

733

 

 

(227)

 

 

Distributions to noncontrolling affiliate shareholders

 

 

 

(834)

 

 

 

Net cash provided by (used in) financing activities

 

798,364

 

 

(26,964)

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash

 

(1,889)

 

 

(6,168)

 

 

 

 

 

 

 

 

 

Net increase in cash, cash equivalents and restricted cash

 

24,035

 

 

9,354

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

 

124,425

 

 

111,050

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

$

148,460

 

$

120,404

 

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

5


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

 

Note 1 – Condensed Financial Information

As used in these Notes to Condensed Consolidated Financial Statements, the terms “Quaker”, “Quaker Houghton”, the “Company”, “we” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. As used in these Notes to Condensed Consolidated Financial Statements, the term Legacy Quaker refers to the Company prior to closing of its combination with Houghton International, Inc. (“Houghton”) (herein referred to as the “Combination”). The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and the United States Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments which are of a normal and recurring nature and 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 and nine months ended September 30, 2019, respectively, 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, as amended by the Company’s Form 10-K/A, for the year ended December 31, 2018.

Hyper-inflationary economies

Economies that have a cumulative three-year rate of inflation exceeding 100% are considered hyper-inflationary under U.S. GAAP. A legal entity that operates within an economy deemed to be hyper-inflationary is required to remeasure its monetary assets and liabilities to the applicable published exchange rates and record the associated gains or losses resulting from the remeasurement directly to the Condensed Consolidated Statements of Operations. The Company has a 50-50 joint venture in a Venezuelan affiliate, Kelko Quaker Chemical, S.A. Venezuela’s economy has been considered hyper-inflationary under U.S. GAAP since 2010. During the three and nine months ended September 30, 2018, the Company recorded remeasurement losses of less than $0.1 million and $0.3 million, respectively, associated with the applicable currency conversions related to Venezuela. These losses were recorded within equity in net income of associated companies in the Company’s Condensed Consolidated Statements of Operations. Due to heightened foreign exchange controls and restrictions currently present within Venezuela, during the third quarter of 2018 the Company concluded that it no longer had significant influence over this affiliate. Prior to this determination, the Company historically accounted for this affiliate under the equity method. As of September 30, 2019 and December 31, 2018, the Company has no remaining carrying value for its investment in Kelko Venezuela. 

Based on various indices or index compilations currently being used to monitor inflation in Argentina as well as recent economic instability, effective July 1, 2018, Argentina’s economy was considered hyper-inflationary under U.S. GAAP. As a result, the Company began applying hyper-inflationary accounting with respect to the Company's wholly owned Argentine subsidiary beginning July 1, 2018. In addition, Houghton has an Argentine subsidiary to which hyper-inflationary accounting also is applied. As of, and for the nine months ended September 30, 2019, the Company's Argentine subsidiaries represented less than 1% of the Company’s consolidated total assets and net sales, respectively. During the three and nine months ended September 30, 2019, the Company recorded $0.7 million and $0.9 million, respectively, of remeasurement losses associated with the applicable currency conversions related to Argentina. Comparatively, during each of the three and nine months ended September 30, 2018, the Company recorded approximately $0.5 million of remeasurement losses associated with the applicable currency conversion related to Argentina. These losses were recorded within foreign exchange gains (losses), net, which is a component of other income (expense), net, in the Company’s Condensed Consolidated Statements of Operations.

Note 2 – Business Combinations

Houghton

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

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

6


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

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

 

Cash transferred to Houghton shareholders (a)

$

170,829

 

Cash paid to extinguish Houghton debt obligations

 

702,556

 

Fair value of common stock issued as consideration (b)

 

789,080

 

 

Total fair value of consideration transferred

$

1,662,465

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

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

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

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

 

Cash and cash equivalents

$

75,821

 

Accounts receivable, net

 

179,745

 

Inventories, net

 

95,193

 

Prepaid expenses and other assets

 

11,373

 

Deferred tax assets

 

8,703

 

Property, plant and equipment

 

125,099

 

Right of use lease assets

 

10,747

 

Investments in associated companies

 

69,683

 

Other non-current assets

 

1,368

 

Intangible assets

 

1,022,500

 

Goodwill

 

483,921

 

 

Total assets purchased

 

2,084,153

 

Short-term borrowings, not refinanced at closing

 

9,297

 

Accounts payable, accrued expenses and other current liabilities

 

152,829

 

Deferred tax liabilities

 

213,779

 

Long-term lease liabilities

 

6,655

 

Other non-current liabilities

 

39,128

 

 

Total liabilities assumed

 

421,688

 

 

Total consideration paid for Houghton

 

1,662,465

 

 

Less: cash acquired

 

75,821

 

 

Less: fair value of common stock issued as consideration

 

789,080

 

 

Net cash paid for Houghton

$

797,564

Investments in associated companies presented in the table above represents the Company’s initial fair value estimate of its 50% interest in a Houghton joint venture in Korea. The Company accounts for this interest under the equity method of accounting. The Company allocated $1,022.5 million of the purchase price to intangible assets, comprised of $242.0 million of trademarks and formulations, to which management has assigned indefinite lives; $671.4 million of customer relationships, to be amortized over 16 to 18 years; and $109.1 million of existing product technology, to be amortized over 20 years. In addition, the Company recorded $483.9 million of goodwill related to expected value not allocated to other acquired assets, none of which will be tax deductible. Factors contributing to the purchase price that resulted in goodwill included the acquisition of management, technology, intellectual property, business processes and personnel that will allow Quaker Houghton to better serve its customers. The expanded portfolio is expected to generate significant cross-selling opportunities and allow further expansion into growth markets such as India, Korea, Brazil and Mexico.

7


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

As of September 30, 2019, the allocation of the purchase price for the Combination has not been finalized and the one-year measurement period has not ended. Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed.

Commencing August 1, 2019, the Company’s Condensed Consolidated Statements of Operations included the results of Houghton. Net sales of Houghton subsequent to closing of the Combination and included in the Company’s Condensed Consolidated Statements of Operations were $119.5 million. The following unaudited pro forma consolidated financial information has been prepared as if the Combination had taken place on January 1, 2018. The unaudited pro forma results include certain adjustments to each company’s historical actual results, including: (i) additional depreciation and amortization expense based on the initial estimates of fair value step up and estimated useful lives of depreciable fixed assets, definite-lived intangible assets and investment in associated companies acquired; (ii) adoption of required accounting guidance and alignment of related accounting policies, (iii) elimination of transactions between Quaker and Houghton; (iv) elimination of results associated with the divested product lines; (v) adjustment to interest expense, net, to reflect the impact of the financing and capital structure of the combined Company; and (vi) adjustment for certain Combination and other acquisition-related costs to reflect such costs as if they were incurred in the period immediately following the pro-forma closing of the Combination on January 1, 2018. The adjustments described in (vi) include an expense recorded in costs of goods sold (“COGS”) associated with selling inventory acquired in the Combination which was adjusted to fair value as part of purchase accounting, restructuring expense incurred associated with the Company’s global restructuring program initiated post-closing of the Combination and certain other integration costs incurred post-closing included in combination and other acquisition-related expenses. These costs have been presented in the pro forma results as if they were incurred during the nine months ended September 30, 2018. Pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated, or that may result in the future for various reasons, including the potential impact of revenue and cost synergies on the business.

 

 

Three Months Ended

 

Nine Months Ended

Unaudited Pro Forma

September 30,

 

September 30,

(as if the Combination occurred on January 1, 2018)

2019

 

2018

 

2019

 

2018

Net sales

$

386,396

 

$

417,460

 

$

1,170,981

 

$

1,255,242

Net income attributable to Quaker Chemical Corporation

 

22,491

 

 

28,459

 

 

70,533

 

 

41,322

Combination and other acquisition-related expenses have been and are expected to continue to be significant. The Company incurred total costs of $15.1 million and $25.9 million during the three and nine months ended September 30, 2019, and $3.8 million and $14.4 million during the three and nine months ended September 30, 2018, respectively, related to the Combination and other acquisition-related activities. These costs included certain legal, financial and other advisory and consultant costs related to due diligence, regulatory approvals and integration planning as well as professional fees associated with closing the Combination. These costs also include interest costs to maintain the bank commitment (“ticking fees”) for the Combination during each of three and nine months ended September 30, 2019 and 2018, and specifically during the nine months ended September 30, 2018, a gain on the sale of an available-for-sale asset. As of September 30, 2019 and December 31, 2018, the Company had current liabilities related to the Combination and other acquisition-related activities of $6.8 million and $8.2 million, respectively, primarily recorded within other current liabilities on its Condensed Consolidated Balance Sheets.

Norman Hay

On October 1, 2019, the Company completed its acquisition of the operating divisions of Norman Hay plc, a private U.K. company that provides specialty chemicals, operating equipment, and services to industrial end markets, for a purchase price of 80.0 million GBP or approximately $98 million, subject to certain normal and routine post-closing adjustments. The results of operations of the acquired operating divisions of Norman Hay plc are not included in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019, because the date of closing was after September 30, 2019. Transaction expenses associated with this acquisition that were incurred during the three and nine months ended September 30, 2019 are included in Combination and other acquisition-related expenses in the Company’s Condensed Consolidated Statements of Operations. A preliminary purchase price allocation of assets acquired and liabilities assumed has not been presented as that information is not available as of the date of these Condensed Consolidated Financial Statements.

Other Acquisitions

In March 2018, the Company purchased certain formulations and product technology for the mining industry for $1.0 million. The Company allocated the entire purchase price to intangible assets representing formulations and product technology, to be amortized over 10 years. In accordance with the terms of the applicable purchase agreement, $0.5 million of the purchase price was paid at signing, and the remaining $0.5 million of the purchase price was paid during the first quarter of 2019.

8


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

Note 3 – Recently Issued Accounting Standards

The Financial Accounting Standards Board (“FASB”) issued an accounting standard update in August 2018 that modifies certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this accounting standard update remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of certain disclosures, and add new disclosure requirements as relevant. The guidance within this accounting standard update is effective for annual periods beginning after December 15, 2020, and should be applied retrospectively to all periods presented. Early adoption is permitted. The Company has not early adopted the guidance and is currently evaluating its implementation.

The FASB also issued an accounting standard update in August 2018 that clarifies the accounting for implementation costs incurred in a cloud computing arrangement under a service contract. This guidance generally aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement under a service contract with the requirements for capitalizing implementation costs related to internal-use software. The guidance within this accounting standard update is effective for annual periods beginning after December 15, 2019 and may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. The Company has not early adopted the guidance and is currently evaluating its implementation.

The FASB issued an additional accounting standard update in August 2018 that modifies certain disclosure requirements for fair value measurements. The guidance removes certain disclosure requirements regarding transfers between levels of the fair value hierarchy as well as certain disclosures related to the valuation processes for certain fair value measurements. Further, the guidance added certain disclosure requirements including unrealized gains and losses and significant unobservable inputs used to develop certain fair value measurements. The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2019, and may be applied prospectively in the initial year of adoption or retrospectively to all periods presented, depending on the amended disclosure requirement. Early adoption is permitted. The Company has not early adopted the guidance and is currently evaluating its implementation.

The FASB issued an accounting standard update in February 2018 that allows a reclassification from accumulated other comprehensive (loss) income (“AOCI”) to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”) enacted in December 2017. The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2018, and may be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in U.S. Tax Reform is recognized. Early adoption was permitted. The Company adopted this guidance in the first quarter of 2019, as required, but elected not to reclassify any stranded tax effects resulting from U.S. Tax Reform, therefore adoption of this guidance did not have any impact on its financial statements.

The FASB issued an accounting standard update in June 2016 related to the accounting for and disclosure of credit losses. In May 2019, the FASB issued an accounting standard update to provide targeted transition relief to increase comparability of financial statements. The guidance introduces a new model for recognizing credit losses on financial instruments, including customer accounts receivable, based on an estimate of current expected credit losses. The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2019, and aspects of the guidance which may be applicable to the Company should be applied on a modified retrospective basis. Early adoption is permitted. The Company has not early adopted the guidance and is currently evaluating its implementation.

The FASB issued an accounting standard update in February 2016 regarding the accounting and disclosure for leases. During 2018 and 2019, the FASB issued a series of accounting standard updates to clarify and expand on the original 2016 implementation guidance, including providing an accounting policy election for lessors, certain targeted improvements around comparative reporting requirements and accounting for lease and non-lease components by lessors as well as other technical corrections and improvements. The amendments in these 2018 and 2019 updates did not change the core principles of the guidance previously issued in February 2016. The guidance within all of the leasing accounting standard updates were effective for annual and interim periods beginning after December 15, 2018, and should have been applied on a modified retrospective basis, applying the transition requirements either (a) at the beginning of the earliest period presented in the financial statements in the year of adoption (January 1, 2017) or (b) in the period of adoption (January 1, 2019). Early adoption was permitted.

As part of the Company’s implementation planning and its impact assessment related to the new lease accounting guidance, the Company developed a detailed project plan, identified and established a cross-functional implementation team and developed pre-adoption internal controls. In addition, the Company gathered an inventory of the Company’s outstanding leases globally, performed certain review procedures to ensure completeness of its lease population and abstracted required information from its lease population for inclusion within the Company’s leasing software. The Company performed similar implementation planning and impact assessment procedures as it relates to Houghton.

9


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

For legacy Quaker, the Company adopted the guidance in the first quarter of 2019, as required, electing to use a modified retrospective transition approach and applied transition requirements as of January 1, 2019, as permitted. Subsequent to the acquisition of Houghton, previously a private company, the Company adopted the guidance and elected to use a modified retrospective transition approach and applied transition requirements as of August 1, 2019. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. In addition, the Company elected to apply certain of the permitted transition practical expedients within the new lease accounting related to lease identification, lease classification, and initial direct costs. The Company made certain accounting policy elections as a result of adopting the new lease accounting guidance, which include not separating lease and non-lease components, applying a portfolio approach in the development of the Company’s discount rates, applying the short-term lease exemption and establishing a capitalization threshold policy.

Adoption of the lease accounting guidance did not have a material impact on the Company’s reported earnings or cash flows, however, adoption did result in a material impact to the Company’s balance sheet to establish the right of use lease assets and associated lease liabilities. As of January 1, 2019, legacy Quaker recorded a cumulative effect of an accounting change that resulted in an increase to its right of use lease assets of $27.3 million, an increase of $5.3 million of short-term lease liabilities and $21.4 million of long-term lease liabilities, a decrease in property, plant and equipment, net of $1.1 million, a decrease in other current liabilities of $0.4 million and a decrease to retained earnings of less than $0.1 million. The cumulative effect of an accounting change related to Houghton as of August 1, 2019 resulted in an increase to its right of use lease assets of $10.7 million, and an increase of $4.1 million of short-term lease liabilities and approximately $6.6 million of long-term lease liabilities. See Note 6 of Notes to Condensed Consolidated Financial Statements.

Note 4 – Business Segments

The Company’s reportable segments reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the Company assesses its performance. During the third quarter of 2019 and in connection with the Combination, the Company reorganized its executive management team to align with its new business structure, which reflects the method by which the Company assesses its performance and allocates its resources. The Company’s new reportable segment structure includes four segments: (i) Americas; (ii) Europe, Middle East and Africa (“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 and specialty grease businesses. All prior period information for legacy Quaker has been recast to reflect these four segments as the Company’s new reportable segments. Prior to the Company’s re-segmentation during the third quarter of 2019, the Company’s historical reportable segments were four geographic regions: (i) North America; (ii) EMEA; (iii) Asia/Pacific; and (iv) South America.

Though the Company changed its reportable segments in the third quarter of 2019, the calculation of the reportable segments’ measures of earnings remains otherwise generally consistent with past practices. Segment operating earnings for the Company’s reportable segments are comprised of net sales less COGS and selling, general and administrative expenses (“SG&A”) directly related to the respective segment’s product sales. Operating expenses not directly attributable to the net sales of each respective segment are excluded from segment operating earnings, which includes certain corporate and administrative costs, Combination and other acquisition-related expenses, restructuring and related activities and COGS related to acquired Houghton inventory sold, which was adjusted to fair value as a part of purchase accounting. Other items not specifically identified with the Company’s reportable segments include interest expense, net and other income (expense), net.

10


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

The following table presents information about the performance of the Company’s reportable segments for the three and nine months ended September 30, 2019 and 2018:

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2019

 

2018

 

2019

 

2018

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

Americas

$

116,710

 

$

77,374

 

$

260,682

 

$

225,115

 

EMEA

 

82,468

 

 

51,346

 

 

184,280

 

 

164,753

 

Asia/Pacific

 

74,266

 

 

49,928

 

 

165,234

 

 

143,388

 

Global Specialty Businesses

 

51,686

 

 

43,374

 

 

132,013

 

 

122,783

Total net sales

$

325,130

 

$

222,022

 

$

742,209

 

$

656,039

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating earnings

 

 

 

 

 

 

 

 

 

 

 

 

Americas

$

23,880

 

$

16,998

 

$

52,235

 

$

47,877

 

EMEA

 

13,370

 

 

8,592

 

 

31,232

 

 

28,102

 

Asia/Pacific

 

20,404

 

 

14,012

 

 

45,375

 

 

39,631

 

Global Specialty Businesses

 

14,983

 

 

12,215

 

 

36,100

 

 

33,224

Total segment operating earnings

 

72,637

 

 

51,817

 

 

164,942

 

 

148,834

Combination and other acquisition-related expenses

 

(14,702)

 

 

(2,904)

 

 

(23,789)

 

 

(12,404)

Restructuring and related activities

 

(24,045)

 

 

 

 

(24,045)

 

 

Fair value step up of Houghton inventory sold

 

(10,214)

 

 

 

 

(10,214)

 

 

Non-operating and administrative expenses

 

(29,123)

 

 

(22,064)

 

 

(68,266)

 

 

(63,044)

Depreciation of corporate assets and amortization

 

(9,055)

 

 

(1,930)

 

 

(12,770)

 

 

(5,673)

Operating (loss) income

 

(14,502)

 

 

24,919

 

 

25,858

 

 

67,713

Other income (expense), net

 

203

 

 

(523)

 

 

(389)

 

 

(631)

Interest expense, net

 

(6,102)

 

 

(989)

 

 

(7,611)

 

 

(3,223)

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

 

 

 

 

 

 

 

 

 

 

 

 

associated companies

$

(20,401)

 

$

23,407

 

$

17,858

 

$

63,859

Inter-segment revenues for the three and nine months ended September 30, 2019 were $2.1 million and $4.8 million for Americas, $5.3 million and $15.4 million for EMEA, less than $0.1 million and $0.1 million for Asia/Pacific, and $1.4 million and $4.1 million for Global Specialty Businesses, respectively. Inter-segment revenues for the three and nine months ended September 30, 2018 were $2.4 million and $6.5 million for Americas, $4.5 million and $16.8 million for EMEA, less than $0.1 million and $0.5 million for Asia/Pacific, and $1.2 million and $3.7 million for Global Specialty Businesses, respectively. However, all inter-segment transactions have been eliminated from each reportable segment’s net sales and earnings for all periods presented above.

Note 5 – Net Sales and Revenue Recognition

Business Description

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

A substantial portion of the Company’s sales worldwide are made directly through its own employees and its Fluidcare programs, with the balance being handled through distributors and agents. The Company’s employees visit the plants of customers regularly, work on site, and, through training and experience, identify production needs which can be resolved or alleviated either by adapting the Company’s existing products or by applying new formulations developed in its laboratories. The chemical specialty industry comprises many companies similar in size to the Company, as well as companies larger and smaller than Quaker Houghton. The

11


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

offerings of many of the Company’s competitors differ from those of Quaker Houghton; some offer a broad portfolio of fluids, including general lubricants, while others have a more specialized product range. All competitors provide different levels of technical services to individual customers. Competition in the industry is based primarily on the ability to provide products that meet the needs of the customer, render technical services and laboratory assistance to the customer and, to a lesser extent, on price.

As part of the Company’s Fluidcare business, certain third-party product sales to customers are managed by the Company. Where the Company acts as a principal, revenues are recognized on a gross reporting basis at the selling price negotiated with its customers. Where the Company acts as an agent, revenue is recognized on a net reporting basis generally at the amount of the administrative fee earned by the Company for ordering the goods. In determining whether the Company is acting as a principal or an agent in each arrangement, the Company considers whether it is primarily responsible for the obligation to provide the specified good, has inventory risk before the specified good has been transferred to the customer and has discretion in establishing the prices for the specified goods. The Company transferred third-party products under arrangements recognized on a net reporting basis of $13.6 million and $34.4 million for the three and nine months ended September 30, 2019, respectively, and $11.7 million and $35.8 million for the three and nine months ended September 30, 2018, respectively.

A significant portion of the Company’s revenues are realized from the sale of process fluids and services to manufacturers of steel, automobiles, aircraft, appliances, and durable goods, and, therefore, the Company is subject to the same business cycles as those experienced by these manufacturers and their customers. The Company’s financial performance is generally correlated to the volume of global production within the industries it serves, rather than discretely related to the financial performance of such industries. Furthermore, steel customers typically have limited manufacturing locations compared to metalworking customers and generally use higher volumes of products at a single location. As previously disclosed in its Annual Report filed on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2018, during 2018 the Company’s five largest customers (each composed of multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately 17% of consolidated net sales, with its largest customer accounting for approximately 8% of consolidated net sales.

Revenue Recognition Model

The Company applies the FASB’s guidance on revenue recognition which requires the Company to recognize revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services transferred to its customers. To do this, the Company applies the five-step model in the FASB’s guidance, which requires the Company to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation.

The Company identifies a contract with a customer when a sales agreement indicates approval and commitment of the parties; identifies the rights of the parties; identifies the payment terms; has commercial substance; and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In most instances, the Company’s contract with a customer is the customer’s purchase order. For certain customers, the Company may also enter into a sales agreement which outlines a framework of terms and conditions which apply to all future and subsequent purchase orders for that customer. In these situations, the Company’s contract with the customer includes both the sales agreement and the specific customer purchase order. Because the Company’s contract with a customer is typically for a single transaction or customer purchase order, the duration of the contract is almost always one year or less. As a result, the Company has elected to apply certain practical expedients and omit certain disclosures of remaining performance obligations for contracts that have an initial term of one year or less as permitted by the FASB.

The Company identifies a performance obligation in a contract for each promised good or service that is separately identifiable from other obligations in the contract and for which the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer. The Company determines the transaction price as the amount of consideration it expects to be entitled to in exchange for fulfilling the performance obligations, including the effects of any variable consideration, significant financing elements, amounts payable to the customer or noncash consideration. For any contracts that have more than one performance obligation, the Company allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for satisfying each performance obligation.

In accordance with the last step of the FASB’s guidance, the Company recognizes revenue when, or as, it satisfies the performance obligation in a contract by transferring control of a promised good or providing the service to the customer. The Company recognizes revenue over time whenever the customer simultaneously receives and consumes the benefits provided by the Company’s performance; the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or the Company’s performance does not create an asset with an alternative use to the entity, and the entity has an

12


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

enforceable right to payment, including a profit margin, for performance completed to date. For performance obligations not satisfied over time, the Company determines the point in time at which a customer obtains control of an asset and the Company satisfies a performance obligation by considering when the Company has a right to payment for the asset; the customer has legal title to the asset; the Company has transferred physical possession of the asset; the customer has the significant risks and rewards of ownership of the asset; or the customer has accepted the asset.

The Company typically satisfies its performance obligations and recognizes revenue at a point in time for product sales, generally when products are shipped or delivered to the customer, depending on the terms underlying each arrangement. In circumstances where the Company’s products are on consignment, revenue is generally recognized upon usage or consumption by the customer. For any Fluidcare or other services provided by the Company to the customer, the Company typically satisfies its performance obligations and recognizes revenue over time, as the promised services are performed. The Company uses input methods to recognize revenue over time related to these services, including labor costs and time incurred. The Company believes that these input methods represent the most indicative measure of the Fluidcare or other service work performed by the Company.

Other Considerations

The Company does not have standard payment terms for all customers globally, however the Company’s general payment terms require customers to pay for products or services provided after the performance obligation is satisfied. The Company does not have significant financing arrangements with its customers. The Company does not have significant amounts of variable consideration in its contracts with customers and where applicable, the Company’s estimates of variable consideration are not constrained. The Company records certain third-party license fees in other income (expense), net, in its Condensed Consolidated Statements of Operations, which generally include sales-based royalties in exchange for the license of intellectual property. These license fees are recognized in accordance with their agreed-upon terms and when performance obligations are satisfied, which is generally when the third party has a subsequent sale.

Practical Expedients and Accounting Policy Elections

The Company has made certain accounting policy elections and elected to use certain practical expedients as permitted by the FASB in applying the guidance on revenue recognition. It is the Company’s policy not to adjust the promised amount of consideration for the effects of a significant financing component because the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less. In addition, it is the Company’s policy to expense costs to obtain a contract as incurred when the expected period of benefit, and therefore the amortization period, is one year or less. It is also the Company’s accounting policy to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, value added, excise and various other taxes. Lastly, the Company has elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfilment cost, rather than an additional promised service.

Contract Assets and Liabilities

The Company recognizes a contract asset or receivable on its Condensed Consolidated Balance Sheet when the Company performs a service or transfers a good in advance of receiving consideration. A receivable is the Company’s right to consideration that is unconditional and only the passage of time is required before payment of that consideration is due. A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. The Company had no material contract assets recorded on its Condensed Consolidated Balance Sheets as of September 30, 2019 or December 31, 2018.

A contract liability is recognized when the Company receives consideration, or if it has the unconditional right to receive consideration, in advance of performance. A contract liability is the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration, or a specified amount of consideration is due, from the customer. The Company’s contract liabilities primarily represent deferred revenue recorded for customer payments received by the Company prior to the Company satisfying the associated performance obligation. Deferred revenues are presented within other current liabilities in the Company’s Condensed Consolidated Balance Sheets. The Company had approximately $2.4 million and $1.3 million of deferred revenue as of September 30, 2019 and December 31, 2018, respectively. During the nine months ended September 30, 2019, the Company satisfied the associated performance obligations and recognized revenue of $1.3 million related to advance customer payments.

 

13


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

(Unaudited)

 

Disaggregated Revenue

The Company sells its various industrial process fluids, its chemical specialties 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. The Company has provided annual net sales information for its product lines greater than 10% in its previously filed Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2018. Those annual percentages are generally consistent with the current year’s net sales by product line, excluding the Combination. Also, net sales of each of the Company’s major product lines are generally spread throughout all three of the Company’s geographic segments, 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, region, customer industry, and timing of revenue recognized for the three and nine months ended September 30, 2019 and 2018. The Company has made certain reclassifications of disaggregated customer industry disclosures for the three and nine months ended September 30, 2018 to conform with the Company’s current period customer industry segmentation.

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

Consolidated

 

Americas

 

EMEA

 

Asia/Pacific

 

Total

Customer Industries

 

 

 

 

 

 

 

 

 

 

 

Metals

$

45,782

 

$

26,440

 

$

40,667

 

$

112,889

Metalworking and other

 

70,928

 

 

56,028

 

 

33,599

 

 

160,555

 

 

116,710

 

 

82,468

 

 

74,266

 

 

273,444

Global Specialty Businesses

 

38,813

 

 

5,071

 

 

7,802

 

 

51,686

 

$

155,523

 

$

87,539

 

$

82,068

 

$

325,130

 

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognized

 

 

 

 

 

 

 

 

 

 

 

Product sales at a point in time

$

150,906

 

$

85,579

 

$

80,362

 

$

316,847

Services transferred over time

 

4,617

 

 

1,960

 

 

1,706

 

 

8,283

 

$

155,523

 

$

87,539

 

$

82,068

 

$

325,130

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

Consolidated

 

Americas

 

EMEA

 

Asia/Pacific

 

Total

Customer Industries

 

 

 

 

 

 

 

 

 

 

 

Metals

$

42,052

 

$

23,998

 

$

31,553

 

$

97,603

Metalworking and other

 

35,322

 

 

27,348