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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
 
 
 
 
 
FORM
10-Q
 
 
 
 
 
 
QUARTERLY
 
REPORT PURSUANT TO SECTION
 
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 
OF 1934
For the quarterly period ended
June 30, 2021
 
OR
 
TRANSITION REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT OF 1934
For the transition period from
 
to
 
 
Commission file number
001-12019
 
 
 
 
 
QUAKER CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
 
 
 
 
 
 
Pennsylvania
 
23-0993790
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
901 E. Hector Street
,
Conshohocken
,
Pennsylvania
 
19428 – 2380
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
610
-
832-4000
 
Not Applicable
Former name, former address and former fiscal year,
 
if changed since last report.
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1 par value
KWR
New York Stock Exchange
 
Indicate by check mark whether the Registrant (1) has filed all reports
 
required to be filed by Section 13 or 15(d) of the Securities Exchange
 
Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
 
to file such reports), and (2) has been subject to such filing requirements
 
for the past 90
days.
 
Yes
 
 
No
 
 
 
Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required
 
to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter
 
period that the registrant was required to submit such files) .
 
Yes
 
 
No
 
 
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”
 
in Rule 12b-2 of
the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
 
Non-accelerated filer
 
 
Smaller reporting
 
company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period
 
for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange
 
Act.
 
 
 
Indicate by check mark whether the Registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act).
 
Yes
 
 
No
 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common
 
stock, as of the latest practicable date.
 
 
 
Number of Shares of Common Stock
Outstanding on July 31, 2021
 
17,878,247
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
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
Six Months Ended
June 30,
 
June 30,
 
2021
2020
2021
2020
Net sales
$
435,262
$
286,040
$
865,045
$
664,601
Cost of goods sold (
excluding amortization expense - See Note 14
)
 
280,811
 
188,654
 
554,400
 
433,364
Gross profit
 
154,451
 
97,386
 
310,645
 
231,237
Selling, general and administrative expenses
 
108,679
 
86,667
 
212,989
 
185,368
Indefinite-lived intangible asset impairment
38,000
Restructuring and related charges
298
486
1,473
2,202
Combination, integration and other acquisition-related
 
expenses
6,658
7,995
12,473
15,873
Operating income (loss)
 
38,816
2,238
 
83,710
 
(10,206)
Other income (expense), net
 
14,010
 
(993)
 
18,697
 
(22,168)
Interest expense, net
(5,618)
(6,811)
(11,088)
(15,272)
Income (loss) before taxes and equity in net income of
associated companies
 
47,208
 
(5,566)
 
91,319
 
(47,646)
Taxes on income
 
(loss) before equity in net income of associated
companies
 
15,218
 
3,222
 
25,907
 
(9,848)
Income (loss) before equity in net income of associated
companies
 
31,990
 
(8,788)
 
65,412
 
(37,798)
Equity in net income of associated companies
 
1,610
 
1,066
 
6,820
 
1,732
Net income (loss)
33,600
(7,722)
72,232
(36,066)
Less: Net income attributable to noncontrolling interest
30
13
47
50
Net income (loss) attributable to Quaker Chemical Corporation
$
33,570
$
(7,735)
$
72,185
$
(36,116)
Per share data:
 
 
 
 
Net income (loss) attributable to Quaker Chemical Corporation
common shareholders – basic
$
1.88
$
(0.43)
$
4.04
$
(2.03)
Net income (loss) attributable to Quaker Chemical Corporation
 
common shareholders – diluted
$
1.88
$
(0.43)
$
4.03
$
(2.03)
Dividends declared
$
0.395
$
0.385
$
0.790
$
0.770
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
Quaker Chemical Corporation
Condensed Consolidated Statements of Comprehensive Income (Loss)
 
(Dollars in thousands)
 
Unaudited
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2021
2020
2021
2020
Net income (loss)
 
$
33,600
$
(7,722)
$
72,232
$
(36,066)
Other comprehensive income (loss), net of tax
Currency translation adjustments
16,165
10,551
(9,296)
(44,200)
Defined benefit retirement plans
397
213
1,689
17,170
Current period change in fair value of derivatives
452
(111)
1,014
(4,092)
Unrealized gain (loss) on available-for-sale securities
279
1,608
(2,746)
(103)
Other comprehensive income (loss)
17,293
12,261
(9,339)
(31,225)
Comprehensive income (loss)
50,893
4,539
62,893
(67,291)
Less: Comprehensive (income) loss attributable to
noncontrolling interest
(38)
(14)
(53)
81
Comprehensive income (loss) attributable to Quaker Chemical
Corporation
$
50,855
$
4,525
$
62,840
$
(67,210)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value and share amounts)
 
Unaudited
June 30,
 
December 31,
2021
2020
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
$
145,610
$
181,833
Accounts receivable, net
 
418,642
 
372,974
Inventories
 
 
Raw materials and supplies
 
116,491
 
86,148
Work-in-process
 
and finished goods
 
126,318
 
101,616
Prepaid expenses and other current assets
 
60,844
 
50,156
Total current
 
assets
 
867,905
 
792,727
Property, plant and
 
equipment, at cost
 
424,360
 
423,253
Less accumulated depreciation
 
(229,919)
 
(219,370)
Property, plant and
 
equipment, net
 
194,441
 
203,883
Right of use lease assets
36,160
38,507
Goodwill
 
633,449
 
631,212
Other intangible assets, net
 
1,068,795
 
1,081,358
Investments in associated companies
 
98,013
 
95,785
Deferred tax assets
 
13,392
 
16,566
Other non-current assets
 
32,664
 
31,796
Total assets
$
2,944,819
$
2,891,834
LIABILITIES AND EQUITY
 
 
Current liabilities
 
 
Short-term borrowings and current portion of long-term debt
$
48,079
$
38,967
Accounts and other payables
 
219,617
 
198,872
Accrued compensation
 
33,399
 
43,300
Accrued restructuring
5,278
8,248
Other current liabilities
 
94,061
 
93,573
Total current
 
liabilities
 
400,434
 
382,960
Long-term debt
 
847,154
 
849,068
Long-term lease liabilities
25,668
27,070
Deferred tax liabilities
 
181,264
 
192,763
Other non-current liabilities
 
114,898
 
119,059
Total liabilities
 
1,569,418
 
1,570,920
Commitments and contingencies (Note 19)
Equity
 
 
Common stock $
1
 
par value; authorized
30,000,000
 
shares; issued and
 
 
outstanding 2021 –
17,878,137
 
shares; 2020 –
17,850,616
 
shares
17,878
17,851
Capital in excess of par value
 
910,862
 
905,171
Retained earnings
 
482,001
 
423,940
Accumulated other comprehensive loss
 
(35,943)
 
(26,598)
Total Quaker
 
shareholders’ equity
 
1,374,798
 
1,320,364
Noncontrolling interest
 
603
550
Total equity
1,375,401
1,320,914
Total liabilities and
 
equity
$
2,944,819
$
2,891,834
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
 
Unaudited
Six Months Ended
June 30,
 
2021
2020
Cash flows from operating activities
 
 
 
 
 
Net income (loss)
 
$
72,232
$
(36,066)
Adjustments to reconcile net income (loss) to net cash (used
 
in) provided by operating activities:
 
 
Amortization of debt issuance costs
 
2,375
 
2,375
Depreciation and amortization
 
44,188
 
42,079
Equity in undistributed earnings of associated companies,
 
net of dividends
 
(6,715)
 
3,219
Acquisition-related fair value adjustments related to inventory
801
229
Deferred compensation, deferred taxes and other,
 
net
 
(13,849)
 
(22,033)
Share-based compensation
 
6,134
 
7,673
(Gain) loss on disposal of property,
 
plant, equipment and other assets
 
(5,356)
 
81
Insurance settlement realized
 
 
(542)
Indefinite-lived intangible asset impairment
38,000
Combination and other acquisition-related expenses, net of
 
payments
(2,305)
1,860
Restructuring and related charges
1,473
2,202
Pension and other postretirement benefits
 
(2,223)
 
18,784
(Decrease) increase in cash from changes in current assets and
 
current
 
 
liabilities, net of acquisitions:
Accounts receivable
 
(47,252)
 
61,659
Inventories
 
(57,020)
 
(3,689)
Prepaid expenses and other current assets
 
(20,111)
 
(2,849)
Change in restructuring liabilities
(4,214)
(9,592)
Accounts payable and accrued liabilities
 
22,274
 
(58,728)
 
Net cash (used in) provided by operating activities
 
(9,568)
 
44,662
Cash flows from investing activities
 
 
Investments in property,
 
plant and equipment
 
(6,974)
 
(7,534)
Payments related to acquisitions, net of cash acquired
 
(29,424)
 
(3,132)
Proceeds from disposition of assets
14,744
11
Insurance settlement interest earned
 
 
37
 
Net cash used in investing activities
 
(21,654)
 
(10,618)
Cash flows from financing activities
 
 
Payments of term loan debt
 
(19,065)
 
(18,702)
Borrowings on revolving credit facilities, net
 
29,433
 
205,500
Repayments on other debt, net
(219)
 
(684)
Dividends paid
 
(14,113)
 
(13,662)
Stock options exercised, other
 
(416)
 
(1,923)
Purchase of noncontrolling interest in affiliates
(1,047)
Distributions to noncontrolling affiliate shareholders
(751)
 
Net cash (used in) provided by financing activities
 
(4,380)
 
168,731
 
Effect of foreign exchange rate changes on
 
cash
 
(683)
 
(4,575)
Net (decrease) increase in cash, cash equivalents and restricted
 
cash
 
(36,285)
 
198,200
Cash, cash equivalents and restricted cash at the beginning
 
of the period
 
181,895
 
143,555
Cash, cash equivalents and restricted cash at the end of
 
the period
$
145,610
$
341,755
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
6
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 which are
necessary for a fair statement of the financial position,
 
results of operations and cash flows for the interim periods.
 
The results for the
six months ended June 30, 2021 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,
2020 (the “2020 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 offe
 
rs
chemical management services (which the Company refers
 
to as “Fluidcare”) for various heavy industrial and manufacturing
applications throughout its
four
 
segments: Americas; Europe, Middle East and Africa (“EMEA”);
 
Asia/Pacific; and Global Specialty
Businesses.
Hyper-inflationary economies
 
Based on various indices or index compilations being
 
used to monitor inflation in Argentina as well as economic
 
instability,
effective July 1, 2018, Argentina’s
 
economy was considered hyper-inflationary under U.S.
 
GAAP.
 
As of, and for the three and six
months ended June 30, 2021, the Company's Argentine
 
subsidiaries represented less than
1
% of the Company’s consolidated
 
total
assets and net sales, respectively.
 
During the three and six months ended June 30, 2021, the Company
 
recorded $
0.1
 
million and $
0.3
million,
 
respectively, of remeasurement
 
losses associated with the applicable currency conversions related
 
to Argentina.
 
Comparatively,
 
during the three and six months ended June 30, 2020, the
 
Company recorded less than $
0.1
 
million and $
0.1
 
million,
respectively, of
 
remeasurement losses associated with the applicable currency
 
conversions
 
related to Argentina.
 
These losses were
recorded within foreign exchange losses, net, which
 
is a component of other income (expense), net, in the Company’s
 
Condensed
Consolidated Statements of Operations.
COVID-19
Management continues to monitor the impact that the COVID-19
 
pandemic is having on the Company,
 
the overall specialty
chemical industry,
 
and the economies and markets in which the Company operates.
 
The full extent of the COVID-19 pandemic
related business and travel restrictions and changes to
 
business and consumer behavior intended to reduce its spread are
 
uncertain as of
the date of this Quarterly Report on Form 10-Q for the
 
period ended June 30, 2021 (the “Report”) as COVID-19
 
and the responses of
governmental authorities continue to evolve globally.
Further, management continues to
 
evaluate how COVID-19-related circumstances, such as remote
 
work arrangements, affect
financial reporting processes, internal control over financial
 
reporting, and disclosure controls and procedures.
 
While the
circumstances have presented and are expected to continue
 
to present challenges, at this time, Management does not believe that
COVID-19 has had a material impact on financial reporting
 
processes, internal control over financial reporting,
 
and disclosure
controls and procedures.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
7
The Company cannot reasonably estimate the magnitude
 
of the effects these conditions will have on the Company’s
 
operations in
the future as they are subject to significant uncertainties
 
relating to the ultimate geographic spread of the virus,
 
the incidence and
severity of the symptoms, the duration or resurgences
 
of the outbreak including the impact of new variants, the global
 
availability and
acceptance of vaccines as well as their efficacy,
 
the length of the travel restrictions and business closures imposed by
 
governments of
impacted countries, and the economic response by governments
 
of impacted countries, all of which continue to evolve.
To the extent
 
that the Company’s customers and
 
suppliers continue to be significantly and adversely impacted by
 
COVID-19, this
could reduce the availability,
 
or result in delays, of materials or supplies to or from
 
the Company, which in
 
turn could significantly
interrupt the Company’s
 
business operations.
 
Such impacts could grow and become more significant to the
 
Company’s operations
and the Company’s liquidity
 
or financial position.
 
Therefore, given the speed and frequency of continuously
 
evolving developments
with respect to this pandemic, the Company cannot reasonably
 
estimate the magnitude or the full extent to which COVID-19
 
may
impact the Company’s results
 
of operations, liquidity or financial position.
Note 2 – Business Acquisitions
2021 Acquisitions
In June 2021, the Company acquired certain assets for its chemical
 
maskants product line in the Global Specialty Businesses
reportable segment for
2.3
 
million EUR or approximately $
2.8
 
million.
 
The Company accounted for the acquisition using the asset
acquisition method under ASC 805,
Business Combinations
.
 
In February 2021, the Company acquired a tin-plating
 
solutions business for the steel end market for approximately $
25
 
million.
 
This acquisition is part of each of the Company’s
 
geographic reportable segments.
 
The Company allocated $
19.6
 
million of the
purchase price to intangible assets, comprised of $
18.3
 
million of customer relationships, to be amortized over
19 years
; $
0.9
 
million
of existing product technology to be amortized over
14 years
; and $
0.4
 
million of a licensed trademark to be amortized over
3 years
.
 
In addition, the Company recorded $
5.0
 
million of goodwill related to expected value not allocated
 
to other acquired assets, all of
which is expected to be tax deductible.
 
As of June 30, 2021, the allocation of the purchase price 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.
 
Additionally, in February
 
2021, the Company acquired a
38
% ownership interest in a Germany-based, high-tech
 
provider of
coolant control and delivery systems for approximately
1.4
 
million EUR or approximately $
1.7
 
million.
 
The Company recorded this
investment as an equity method investment within
 
the Condensed Consolidated Financial Statements.
The results of operations of the acquired assets and businesses subsequent
 
to the respective acquisition dates are included in the
Condensed Consolidated Statements of Operations as of June
 
30, 2021.
 
Applicable transaction expenses associated with these
acquisitions are included in Combination, integration
 
and other acquisition-related expenses in the Company’s
 
Condensed
Consolidated Statements of Operations.
 
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 December 2020,
 
the Company completed its acquisition of Coral Chemical Company
 
(“Coral”), a privately held, U.S.-based
provider of metal finishing fluid solutions.
 
The acquisition provides technical expertise and product solutions
 
for pre-treatment,
metalworking and wastewater treatment applications
 
to the beverage cans and general industrial end markets.
 
The original purchase
price was approximately $
54.1
 
million, subject to routine and customary post-closing adjustments related
 
to working capital and net
indebtedness levels.
 
The Company anticipates finalizing its post-closing adjustments
 
for the Coral acquisition during 2021 and
currently estimates it will receive approximately $
0.1
 
million to settle such adjustments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
8
The following table presents the preliminary estimated fair
 
values of Coral net assets acquired:
Measurement
December 22,
December 22,
Period
2020
2020 (1)
Adjustments
(as adjusted)
Cash and cash equivalents
$
958
$
$
958
Accounts receivable
8,473
8,473
Inventories
4,527
4,527
Prepaid expenses and other assets
181
181
Property, plant and
 
equipment
10,467
652
11,119
Intangible assets
30,300
(500)
29,800
Goodwill
2,814
270
3,084
Total assets purchased
57,720
422
58,142
Long-term debt including current portions and finance leases
183
556
739
Accounts payable, accrued expenses and other accrued
 
liabilities
3,482
3,482
Total liabilities assumed
3,665
556
4,221
Total consideration
 
paid for Coral
54,055
(134)
53,921
Less: estimated purchase price settlement
(134)
(134)
Less: cash acquired
958
958
Net cash paid for Coral
$
53,097
$
$
53,097
(1) As previously disclosed in the Company’s
 
2020 Form 10-K
.
Measurement period adjustments recorded during the first
 
six months of 2021 include certain adjustments related
 
to refining
original estimates for assets and liabilities for certain
 
acquired finance leases, as well the adjustment to reflect the expected
 
settlement
of post-closing working capital and net indebtedness true
 
ups to the original purchase price.
 
As of June 30, 2021,
 
the allocation of the
purchase price for Coral 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.
 
In May 2020, the Company acquired Tel
 
Nordic ApS (“TEL”), a company that specializes in lubricants and engineering
 
primarily
in high pressure aluminum die casting for its Europe,
 
Middle East and Africa (“EMEA”) reportable segment.
 
Consideration paid was
in the form of a convertible promissory note in the amount
 
of
20.0
 
million DKK, or approximately $
2.9
 
million, which was
subsequently converted into shares of the Company’s
 
common stock.
 
An adjustment to the purchase price of approximately
0.4
million DKK, or less than $
0.1
 
million, was made as a result of finalizing a post-closing
 
settlement in the second quarter of 2020.
 
The
Company allocated approximately $
2.4
 
million of the purchase price to intangible assets to be amortized
 
over
17 years
.
 
In addition,
the Company recorded approximately $
0.5
 
million of goodwill, related to expected value not allocated to
 
other acquired assets, none
of which will be tax deductible.
 
As of June 30, 2021, the allocation of the purchase price of TEL
 
was finalized and the
one year
measurement period ended.
 
In March 2020, the Company acquired the remaining
49
% ownership interest in one of its South African affiliates,
 
Quaker
Chemical South Africa Limited (“QSA”) for
16.7
 
million ZAR, or approximately $
1.0
 
million, from its joint venture partner PQ
Holdings South Africa.
 
QSA is a part of the Company’s
 
Europe, Middle East and Africa (“EMEA”) reportable segment.
 
As this
acquisition was a change in an existing controlling ownership,
 
the Company recorded $
0.7
 
million of excess purchase price over the
carrying value of the noncontrolling interest in Capital in
 
excess of par value.
 
In October 2019, the Company completed its acquisition
 
of the operating divisions of Norman Hay plc (“Norman
 
Hay”), a private
U.K. company that provides specialty chemicals, operating
 
equipment, and services to industrial end markets.
 
The original purchase
price was
80.0
 
million GBP,
 
on a cash-free and debt-free basis, subject to routine
 
and customary post-closing adjustments related to
working capital and net indebtedness levels.
 
The Company finalized its post-closing adjustments for
 
the Norman Hay acquisition and
paid approximately
2.5
 
million GBP during the first quarter of 2020 to settle such adjustments.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
9
Note 3 – Recently Issued Accounting Standards
 
Recently Issued Accounting Standards
 
Adopted
The Financial Accounting Standards Board (“FASB”)
 
issued Account Standards Update (“ASU”)
 
ASU 2019-12
, Income Taxes
(Topic
 
740): Simplifying the Accounting for Income Taxes
 
in December 2019 to simplify the accounting for income taxes.
 
The
guidance within this accounting standard update
 
removes certain exceptions, including the exception to the
 
incremental approach for
certain intra-period tax allocations, to the requirement
 
to recognize or not recognize certain deferred tax liabilities for
 
equity method
investments and foreign subsidiaries, and to the general
 
methodology for calculating income taxes in an interim period
 
when a year-to-
date loss exceeds the anticipated loss for the year.
 
Further, the guidance simplifies the accounting
 
related to franchise taxes, the step
up in tax basis for goodwill, current and deferred tax
 
expense, and codification improvements for income taxes related
 
to employee
stock ownership plans.
 
The guidance is effective for annual and interim
 
periods beginning after December 15, 2020.
 
The Company
adopted this standard on a prospective basis, effective
 
January 1, 2021.
 
There was no cumulative effect of adoption recorded
 
within
retained earnings on January 1, 2021.
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 (“LI
 
BOR”).
 
ASU 2020-04 is
effective for the Company as of March 12,
 
2020 and generally can be applied through December 31, 2022.
 
As of June 30, 2021, the
expedients provided in ASU 2020-04 do not presently
 
impact the Company; however, the Company
 
will continue to monitor for
potential impacts on its 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
 
income (expense),
net.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
10
The following table presents information about the performance
 
of the Company’s reportable segments
 
for the three and six
months ended June 30, 2021 and 2020.
 
Certain immaterial reclassifications within the segment disclosures
 
for the three and six
months ended June 30, 2020 have been made to conform
 
with the Company’s current customer
 
industry segmentation.
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2021
2020
2021
2020
Net sales
 
 
 
 
 
 
 
 
 
 
Americas
$
139,673
$
80,576
$
274,544
$
210,472
EMEA
 
123,436
 
77,702
 
243,250
 
182,541
Asia/Pacific
 
91,559
 
68,421
 
188,265
 
141,973
Global Specialty Businesses
 
80,594
 
59,341
 
158,986
 
129,615
Total net sales
$
435,262
$
286,040
$
865,045
$
664,601
Segment operating earnings
Americas
$
33,648
$
10,303
$
65,882
$
39,491
EMEA
23,405
10,471
48,649
28,830
Asia/Pacific
23,227
19,261
50,705
38,802
Global Specialty Businesses
 
24,209
 
16,393
 
48,378
 
36,953
Total segment operating
 
earnings
 
104,489
 
56,428
 
213,614
 
144,076
Combination, integration and other acquisition-related
 
expenses
(6,658)
(7,995)
(12,473)
(15,873)
Restructuring and related charges
(298)
(486)
(1,473)
(2,202)
Fair value step up of acquired inventory sold
 
(226)
(801)
(226)
Indefinite-lived intangible asset impairment
(38,000)
Non-operating and administrative expenses
(43,077)
(32,045)
(84,069)
(70,496)
Depreciation
 
of corporate assets and amortization
 
(15,640)
 
(13,438)
 
(31,088)
 
(27,485)
Operating income (loss)
 
38,816
2,238
83,710
(10,206)
Other income (expense), net
14,010
(993)
18,697
(22,168)
Interest expense, net
 
(5,618)
 
(6,811)
 
(11,088)
 
(15,272)
Income (loss) before taxes and equity in net income of
associated companies
$
47,208
$
(5,566)
$
91,319
$
(47,646)
Inter-segment revenues for the three and six months
 
ended June 30, 2021 were $
2.4
 
million and $
5.7
 
million for Americas, $
6.3
million and $
15.1
 
million for EMEA, $
0.4
 
million and $
0.5
 
million for Asia/Pacific, and $
2.1
 
million and $
4.1
 
million for Global
Specialty Businesses, respectively.
 
Inter-segment revenues for the three and six months
 
ended June 30, 2020 were $
2.4
 
million and
$
5.3
 
million for Americas, $
5.3
 
million and $
10.8
 
million for EMEA, $
0.1
 
million and $
0.3
 
million for Asia/Pacific, and $
1.0
 
million
and $
2.3
 
million for Global Specialty Businesses, respectively.
 
However, all inter-segment
 
transactions have been eliminated from
each reportable operating segment’s
 
net sales and earnings for all periods presented in the above
 
tables.
Note 5 – Net Sales and Revenue Recognition
Business Description
The Company develops, produces, and markets a broad
 
range of formulated chemical specialty products and offers
 
chemical
management services (“Fluidcare”) for various heavy
 
industrial and manufacturing applications throughout its four
 
segments.
 
A
significant portion of the Company’s
 
revenues are realized from the sale of process fluids and services
 
made directly to manufacturers
through its own employees and its Fluidcare programs,
 
with the balance being handled through distributors and
 
agents.
As part of the Company’s
 
Fluidcare business, certain third-party product sales to customers are
 
managed by the Company.
 
Where
the Company acts as a principal, revenues are recognized
 
on a gross reporting basis at the selling price negotiated with
 
its customers.
Where the Company acts as an agent, revenue is recognized on
 
a net reporting basis at the amount of the administrative fee earned
 
by
the Company for ordering the goods.
 
The Company transferred third-party products under arrangements recognized
 
on a net reporting
basis of $
16.7
 
million and $
34.5
 
million for the three and six months ended June 30, 2021, respectively,
 
and $
6.2
 
million and $
18.7
million for the three and six months ended June 30,
 
2020, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
11
As previously disclosed in the Company’s
 
2020 Form 10-K, during 2020, 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.
 
Revenue Recognition Model
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.
 
Refer to the Company’s 2020
 
Form 10-K for additional information on the Company’s
 
revenue recognition policies,
including its practical expedients and accounting policy
 
elections.
 
Allowance for Doubtful Accounts
As previously disclosed in the Company’s
 
2020 Form 10-K, during 2020, the Company adopted, as required,
 
an accounting
standard update related to the accounting and disclosure
 
of credit losses effective January 1, 2020.
 
The Company recognizes an
allowance for credit losses, which represents the portion
 
of its trade accounts receivable that the Company does not expect
 
to collect
over the contractual life, considering past events and
 
reasonable and supportable forecasts of future economic conditions.
 
The
Company’s allowance
 
for credit losses on its trade accounts receivables is based on
 
specific collectability facts and circumstances for
each outstanding receivable and customer,
 
the aging of outstanding receivables, and the associated collection
 
risk the Company
estimates for certain past due aging categories, and
 
also, the general risk to all outstanding accounts receivable based on historical
amounts determined to be uncollectible.
 
The Company does not have any off-balance-sheet
 
credit exposure related to its customers.
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 June 30, 2021 or December
 
31, 2020.
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 $
4.3
 
million and $
4.0
 
million of deferred
revenue as of June 30, 2021 and December 31, 2020,
 
respectively.
 
For the six months ended June 30, 2021, the Company satisfied
 
all
of the associated performance obligations and recognized
 
into revenue the advance payments received and recorded
 
as of December
31, 2020.
Disaggregated Revenue
The following tables disaggregate the Company’s
 
net sales by segment, geographic region, customer industry,
 
and timing of
revenue recognized for the three and six months ended
 
June 30, 2021 and 2020.
Three Months Ended June 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
51,799
$
35,634
$
48,207
$
135,640
Metalworking and other
87,874
87,802
43,352
219,028
139,673
123,436
91,559
354,668
Global Specialty Businesses
46,183
21,678
12,733
80,594
$
185,856
$
145,114
$
104,292
$
435,262
Timing of Revenue Recognized
Product sales at a point in time
$
177,227
$
137,838
$
101,264
$
416,329
Services transferred over time
8,629
7,276
3,028
18,933
$
185,856
$
145,114
$
104,292
$
435,262
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
12
 
Three Months Ended June 30, 2020
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
32,687
$
24,924
$
35,416
$
93,027
Metalworking and other
47,889
52,778
33,005
133,672
80,576
77,702
68,421
226,699
Global Specialty Businesses
32,294
15,569
11,478
59,341
$
112,870
$
93,271
$
79,899
$
286,040
Timing of Revenue Recognized
Product sales at a point in time
$
108,644
$
87,995
$
78,195
$
274,834
Services transferred over time
4,226
5,276
1,704
11,206
$
112,870
$
93,271
$
79,899
$
286,040
 
Six Months Ended June 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
98,592
$
69,908
$
97,950
$
266,450
Metalworking and other
175,952
173,342
90,315
439,609
274,544
243,250
188,265
706,059
Global Specialty Businesses
91,439
41,950
25,597
158,986
$
365,983
$
285,200
$
213,862
$
865,045
Timing of Revenue Recognized
Product sales at a point in time
$
348,821
$
269,000
$
207,663
$
825,484
Services transferred over time
17,162
16,200
6,199
39,561
$
365,983
$
285,200
$
213,862
$
865,045
 
Six Months Ended June 30, 2020
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
79,360
$
54,812
$
77,005
$
211,177
Metalworking and other
131,112
127,729
64,968
323,809
210,472
182,541
141,973
534,986
Global Specialty Businesses
76,525
32,174
20,916
129,615
$
286,997
$
214,715
$
162,889
$
664,601
Timing of Revenue Recognized
Product sales at a point in time
$
277,446
$
206,418
$
159,351
$
643,215
Services transferred over time
9,551
8,297
3,538
21,386
$
286,997
$
214,715
$
162,889
$
664,601
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
13
Note 6 – Leases
The Company determines if an arrangement is a lease
 
at its inception.
 
This determination generally depends on whether the
arrangement conveys the right to control the use of an
 
identified fixed asset explicitly or implicitly for a period of
 
time in exchange for
consideration.
 
Control of an underlying asset is conveyed if the Company
 
obtains the rights to direct the use of, and obtains
substantially all of the economic benefits from the use
 
of, the underlying asset.
 
Lease expense for variable leases and short-term
leases is recognized when the obligation is incurred.
 
The Company has operating leases for certain facilities, vehicles
 
and machinery and equipment with remaining lease terms up
 
to
10 years
.
 
In addition, the Company has certain land use leases with remaining
 
lease terms up to
94 years
.
 
The lease term for all of the
Company’s leases includes
 
the non-cancellable period of the lease plus any additional periods
 
covered by an option to extend the lease
that the Company is reasonably certain it will exercise.
 
Operating leases are included in right of use lease assets
, other current
liabilities and long-term lease liabilities
 
on the Condensed Consolidated Balance Sheet.
 
Right of use lease assets and liabilities are
recognized at each lease’s
 
commencement date based on the present value of its lease payments
 
over its respective lease term.
 
The
Company uses the stated borrowing rate for a lease when
 
readily determinable.
 
When a stated borrowing rate is not available in a
lease agreement, the Company uses its incremental borrowing
 
rate based on information available at the lease’s
 
commencement date
to determine the present value of its lease payments.
 
In determining the incremental borrowing rate used to present
 
value each of its
leases, the Company considers certain information
 
including fully secured borrowing rates readily available to the Company
 
and its
subsidiaries.
 
The Company has immaterial finance leases, which are
 
included in property, plant
 
and equipment, current portion of
long-term debt and long-term debt on the Condensed Consolidated
 
Balance Sheet.
Operating lease expense is recognized on a straight-line
 
basis over the lease term.
 
Operating lease expense for the three and six
months ended June 30, 2021 was $
3.6
 
million and $
7.2
 
million, respectively.
 
Comparatively, operating
 
lease expense for the three
and six months ended June 30, 2020 was $
3.5
 
million and $
6.9
 
million, respectively.
 
Short-term lease expense for the three and six
months ended June 30, 2021 was $
0.2
 
million and $
0.5
 
million, respectively.
 
Comparatively, short-term
 
lease expense for the three
and six months ended June 30, 2020 was $
0.4
 
million and $
0.9
 
million, respectively.
 
The Company has
no
 
material variable lease
costs or sublease income for the three or six months ended
 
June 30, 2021 and 2020.
 
Cash paid for operating leases during the six months ended
 
June 30, 2021 and 2020 was $
7.1
 
million and $
6.8
 
million,
respectively.
 
The Company recorded new right of use lease assets and associated lease liabilities
 
of $
3.9
 
million during the six
months ended June 30, 2021.
 
Supplemental balance sheet information related to the Company’s
 
leases is as follows:
June 30,
December 31,
2021
2020
Right of use lease assets
$
36,160
$
38,507
Other current liabilities
10,064
10,901
Long-term lease liabilities
25,668
27,070
Total operating
 
lease liabilities
$
35,732
$
37,971
Weighted average
 
remaining lease term (years)
5.8
6.0
Weighted average
 
discount rate
4.26%
4.20%
Maturities of operating lease liabilities as of June 30,
 
2021 were as follows:
June 30,
2021
For the remainder of 2021
$
6,052
For the year ended December 31, 2022
9,400
For the year ended December 31, 2023
7,234
For the year ended December 31, 2024
5,355
For the year ended December 31, 2025
4,260
For the year ended December 31, 2026 and beyond
8,152
Total lease payments
40,453
Less: imputed interest
(4,721)
Present value of lease liabilities
$
35,732
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
14
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 is subject to change; however, the Company currently expects reduction in headcount and site closures to
continue to occur throughout 2021 and into 2022 under the QH Program and estimates that anticipated cost synergies realized from the
QH Program will approximate one-times the restructuring costs incurred. 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 as well as costs to close certain facilities and are
 
recorded
in Restructuring and related charges in the
 
Company’s Condensed Statements
 
of Operations.
 
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 six months ended
 
June 30, 2021 is as follows:
QH Program
Accrued restructuring as of December 31,
 
2020
$
8,248
Restructuring and related charges
1,473
Cash payments
(4,214)
Currency translation adjustments
 
(229)
Accrued restructuring as of June 30, 2021
$
5,278
Note 8 – Share-Based Compensation
The Company recognized the following share-based compensation
 
expense in its Condensed Consolidated Statements of
Operations for the three and six months ended June 30, 2021
 
and 2020:
 
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2021
2020
2021
2020
Stock options
$
332
$
353
$
640
$
785
Non-vested stock awards and restricted stock units
1,290
1,259
2,686
2,523
Non-elective and elective 401(k) matching contribution in
 
stock
1,162
1,553
1,162
Director stock ownership plan
216
54
419
94
Performance stock units
517
280
836
280
Annual incentive plan
(117)
2,829
Total share-based
 
compensation expense
$
2,355
$
2,991
$
6,134
$
7,673
Share-based compensation expense is recorded in SG&A,
 
except for $
0.2
 
million and $
0.5
 
million for the three and six months
ended June 30, 2021, respectively,
 
and $
0.3
 
million and $
0.8
 
million for the three and six months ended June 30, 2020, respectively,
recorded within Combination, integration
 
and other acquisition-related expenses.
Stock Options
 
During the first six months of 2021, the Company granted
 
stock options under its long-term incentive plan (“LTIP”)
 
that are
subject only to time-based 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
 
which primarily used the assumptions set forth in the table below:
Number of options granted
25,250
Dividend yield
0.85
%
Expected volatility
37.33
%
Risk-free interest rate
0.60
%
Expected term (years)
4.0
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
15
The fair value of these options is amortized on a straight
 
-line basis over the vesting period.
 
As of June 30, 2021,
 
unrecognized
compensation expense related to all stock options
 
granted was $
2.4
 
million, to be recognized over a weighted average remaining
period of
2.3
 
years.
 
Restricted Stock Awards
 
and Restricted Stock Units
 
During the six months ended June 30, 2021, the Company
 
granted
17,692
 
non-vested restricted shares and
2,791
 
non-vested
restricted stock units under its LTIP,
 
which are 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 June 30, 2021, unrecognized compensation
expense related to the non-vested restricted shares was $
6.3
 
million, to be recognized over a weighted average remaining
 
period of
1.9
years, and unrecognized compensation expense
 
related to non-vested restricted stock units was $
1.1
 
million, to be recognized over a
weighted average remaining period of
2.1
 
years.
Performance Stock Units
During the first six months of 2021, the Company granted
 
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 from January 1 of the year of grant
 
through December 31 of the year prior to issuance 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 granted during
 
the first six months of 2021 was estimated using a
Monte Carlo simulation on the grant date and using the
 
following assumptions: (i) a risk-free rate of
0.29
%; (ii) an expected term of
3.0
 
years; and (iii) a three year daily historical volatility for each of
 
the companies in the peer group, including Quaker Houghton.
 
As of June 30, 2021, the Company estimates that it will issue
 
approximately
14,698
 
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
June 30, 2021, there was approximately $
4.2
 
million of total unrecognized compensation cost related to PSUs, which
 
the Company
expects to recognize over a weighted-average period
 
of
2.3
 
years.
Annual Incentive Plan
The Company maintains an Annual Incentive Plan
 
(“AIP”), which may be settled in cash or a certain number of
 
shares subject to
performance-based and time-based vesting conditions.
 
As of June 30, 2020, it was the Company’s
 
intention to settle the 2020 AIP in
shares, and therefore, expense associated with the AIP in
 
2020 was recorded as a component of share-based compensation
 
expense.
 
In
the fourth quarter of 2020, the Company determined that it
 
would settle the 2020 AIP in cash.
 
Therefore, the share-based
compensation associated with the AIP during the year
 
ended December 31, 2020 was reclassified from a component
 
of share-based
compensation expense to incentive compensation.
 
This determination and conclusion had no impact on the
 
classification of AIP
expense within the Company’s
 
Condensed Consolidated Statement of Operations for
 
the periods as both are a component of SG&A.
 
As of June 30, 2021, it is the Company’s
 
intention to settle the 2021 AIP in cash.
 
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.
 
For the three months ended June 30, 2021, there were
no
 
matching contributions in stock.
 
For the six months ended June
30, 2021, total contributions were $
1.5
 
million and for both the three and six months ended June 30, 2020,
 
total contributions were
$
1.2
 
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
 
- Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
 
16
Note 9 – Pension and Other Postretirement
 
Benefits
The components of net periodic benefit cost for the
 
three and six months ended June 30, 2021 and 2020 are as follows:
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Other
Other
Postretirement
Postretirement
Pension Benefits
Benefits
Pension Benefits
Benefits
2021
2020
2021
2020
2021
2020
2021
2020
Service cost
$
316
$
1,164
$
2
$
1
$
632
$
2,338
$
3
$
3
Interest cost
1,094
1,486
10
26
2,184
3,255
21
52
Expected return on plan assets
(2,093)
(1,761)
(4,175)
(3,720)
Settlement charge