UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Number of Shares of Common Stock
Outstanding on October 31, 2021
1
QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Page
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
2
3
4
5
6
Item 2.
27
Item 3.
44
Item 4.
45
PART II
Item 1.
47
Item 1A.
47
Item 2.
47
Item 6.
48
Signatures
48
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
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Net sales
$
$
$
$
Cost of goods sold (
excluding amortization expense - See Note 14
)
Gross profit
Selling, general and administrative expenses
Indefinite-lived intangible asset impairment
Restructuring and related charges
(880 )
Combination, integration and other acquisition-related expenses
Operating income
Other income (expense), net
(239 )
(22,407 )
Interest expense, net
(5,637 )
(6,837 )
(16,725 )
(22,109 )
Income (loss) before taxes and equity in net income of
associated companies
(19,863 )
Taxes on income (loss) before equity in net income of associated
companies
(7,603 )
Income (loss) before equity in net income of associated
companies
(12,260 )
Equity in net income of associated companies
Net income (loss)
(8,724 )
Less: Net income attributable to noncontrolling interest
Net income (loss) attributable to Quaker Chemical Corporation
$
$
$
$
(8,812 )
Per share data:
Net income (loss) attributable to Quaker Chemical Corporation
common shareholders – basic
$
$
$
$
(0.50 )
Net income (loss) attributable to Quaker Chemical Corporation
common shareholders – diluted
$
$
$
$
(0.50 )
Dividends declared
$
$
$
$
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
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Net income (loss)
$
$
$
$
(8,724 )
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(19,905 )
(29,201 )
(10,582 )
Defined benefit retirement plans
(257 )
Current period change in fair value of derivatives
(3,738 )
Unrealized (loss) gain on available-for-sale securities
(215 )
(2,961 )
Other comprehensive (loss) income
(18,780 )
(28,119 )
Comprehensive income (loss)
(5,678 )
Less: Comprehensive (income) loss attributable to
noncontrolling interest
(15 )
(56 )
(68 )
Comprehensive income (loss) attributable to Quaker Chemical
Corporation
$
$
$
$
(5,653 )
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)
Unaudited
September 30,
December 31,
2021
2020
ASSETS
Current assets
Cash and cash equivalents
$
$
Accounts receivable, net
Inventories
Raw materials and supplies
Work-in-process and finished goods
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, at cost
Less accumulated depreciation
(232,636 )
(219,370 )
Property, plant and equipment, net
Right of use lease assets
Goodwill
Other intangible assets, net
Investments in associated companies
Deferred tax assets
Other non-current assets
Total assets
$
$
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt
$
$
Accounts and other payables
Accrued compensation
Accrued restructuring
Other current liabilities
Total current liabilities
Long-term debt
Long-term lease liabilities
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 19)
Equity
Common stock $
outstanding 2021 –
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
(54,723 )
(26,598 )
Total Quaker shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
$
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
Nine Months Ended
September 30,
2021
2020
Cash flows from operating activities
Net income (loss)
$
$
(8,724 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of debt issuance costs
Depreciation and amortization
Equity in undistributed earnings of associated companies, net of dividends
(7,563 )
Acquisition-related fair value adjustments related to inventory
Deferred compensation, deferred taxes and other, net
(21,865 )
(30,657 )
Share-based compensation
(Gain) loss on disposal of property, plant, equipment and other assets
(4,819 )
Insurance settlement realized
(818 )
Indefinite-lived intangible asset impairment
Combination and other acquisition-related expenses, net of payments
(1,705 )
Restructuring and related charges
Pension and other postretirement benefits
(5,638 )
(Decrease) increase in cash from changes in current assets and current
liabilities, net of acquisitions:
Accounts receivable
(68,664 )
Inventories
(72,962 )
Prepaid expenses and other current assets
(24,512 )
(113 )
Change in restructuring liabilities
(4,557 )
(12,772 )
Accounts payable and accrued liabilities
(13,481 )
Net cash provided by operating activities
Cash flows from investing activities
Investments in property, plant and equipment
(12,823 )
(12,184 )
Payments related to acquisitions, net of cash acquired
(31,975 )
(3,132 )
Proceeds from disposition of assets
Insurance settlement interest earned
Net cash used in investing activities
(30,054 )
(15,264 )
Cash flows from financing activities
Payments of term loan debt
(28,558 )
(28,132 )
Borrowings (repayments) on revolving credit facilities, net
(16,485 )
Repayments on other debt, net
(585 )
(527 )
Dividends paid
(21,175 )
(20,520 )
Stock options exercised, other
Purchase of noncontrolling interest in affiliates
(1,047 )
Distributions to noncontrolling affiliate shareholders
(751 )
Net cash used in financing activities
(10,471 )
(65,077 )
Effect of foreign exchange rate changes on cash
(2,486 )
(529 )
Net (decrease) increase in cash, cash equivalents and restricted cash
(40,502 )
Cash, cash equivalents and restricted cash at the beginning of the period
Cash, cash equivalents and restricted cash at the end of the period
$
$
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 of this Quarterly Report on Form 10-Q for the period
ended September 30, 2021 (the “Report”), the terms “Quaker,” “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker
Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise
requires. As used in these Notes to Condensed Consolidated Financial Statements, the term Legacy Quaker refers to the Company
prior to the closing of its combination with Houghton International, Inc. (“Houghton”) (herein referred to as the “Combination”). The
condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally
accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and the United States Securities and
Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the financial statements reflect all adjustments consisting only of normal recurring adjustments which are necessary for a
fair statement of the financial position, results of operations and cash flows for the interim periods. The results for the nine months
ended September 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”).
During the three months ended September 30, 2020, the Company identified and corrected certain immaterial adjustments relating
to the three months ended March 31, 2020 as well as the three and six months ended June 30, 2020. These adjustments related to the
Company’s over-recognition of cost of goods sold (“COGS”) and corresponding under-recognition of inventory, as well as the
associated tax impact of these adjustments, in the Company’s previously issued interim financial statements for the three months
ended March 31, 2020 and the three and six months ended June 30, 2020. These adjustments impact the Company’s Americas
reportable segment. The cumulative amount of reduction to COGS recorded in the three and nine months ended September 30, 2020
was approximately $
approximately $
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
the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, can, mining, and metalworking
companies. Quaker Houghton develops, produces, and markets a broad range of formulated chemical specialty products and offers
chemical management services (which the Company refers to as “Fluidcare”) for various heavy industrial and manufacturing
applications throughout its
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 nine
months ended September 30, 2021, the Company's Argentine subsidiaries represented less than
% of the Company’s consolidated
total assets and net sales, respectively. During the three and nine months ended September 30, 2021, the Company recorded less than
$
Argentina. Comparatively, during the three and nine months ended September 30, 2020, the Company recorded $
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 the Report as COVID-19 and the responses of governmental authorities continue to evolve globally.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
7
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.
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,
acceptance and efficacy of vaccines, 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 continuously evolving global 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 September 2021, the Company acquired the remaining interest in Grindaix-GmbH (“Grindaix”), a Germany-based, high-tech
provider of coolant control and delivery systems for approximately
Specialty Businesses reportable segment. Previously, in February 2021, the Company acquired a
% ownership interest in Grindaix
for approximately
investment within the Condensed Consolidated Financial Statements and accounted for the purchase of the remaining interest as a step
acquisition whereby the Company remeasured the previously held equity method investment to its fair value.
In June 2021, the Company acquired certain assets for its chemical maskants product line in the Global Specialty Businesses
reportable segment for
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 $
This acquisition is part of each of the Company’s geographic reportable segments. The Company allocated $
purchase price to intangible assets, comprised of $
; $
of existing product technology to be amortized over
; and $
.
In addition, the Company recorded $
which is expected to be tax deductible in various jurisdictions in which we operate. As of September 30, 2021, the allocation of the
purchase price has not been finalized and the
result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities
assumed.
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 September 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.
In November 2021, the Company closed two additional acquisitions that expand its strategic product offerings and increase the
Company’s presence in its core metalworking industries. The total initial purchase price for these acquisitions was approximately $
million, subject to post-closing adjustments as well as certain earn-out provisions that could total approximately $
Transaction expenses associated with these acquisitions are included in Combination, integration and other acquisition-related
expenses in the Condensed Consolidated Statements of Operations. The results of operations of these two acquisitions are not
included in the Consolidated Statements of Operations because the date of closing for each was subsequent to September 30, 2021.
Preliminary purchase price allocation of assets acquired and liabilities assumed have not been presented as that information is not
available as of the date of these Condensed Consolidated Financial Statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
8
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 $
indebtedness levels. The Company anticipates finalizing its post-closing adjustments for the Coral acquisition during the fourth
quarter of 2021.
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
$
$
$
Accounts receivable
Inventories
Prepaid expenses and other assets
Property, plant and equipment
Intangible assets
(500 )
Goodwill
Total assets purchased
Long-term debt including current portions and finance leases
Accounts payable, accrued expenses and other accrued liabilities
Total liabilities assumed
Total consideration paid for Coral
(134 )
Less: estimated purchase price settlement
(134 )
(134 )
Less: cash acquired
Net cash paid for Coral
$
$
$
(1) As previously disclosed in the Company’s 2020 Form 10-K
.
Measurement period adjustments recorded during the first nine 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 September 30, 2021, the allocation
of the purchase price for Coral has not been finalized and the
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 EMEA reportable segment. Consideration paid was in the form of a convertible
promissory note in the amount of
the Company’s common stock. An adjustment to the purchase price of approximately
made as a result of finalizing a post-closing settlement in the second quarter of 2020. The Company allocated approximately $
million of the purchase price to intangible assets to be amortized over
. In addition, the Company recorded approximately
$
September 30, 2021, the allocation of the purchase price of TEL was finalized and the
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
9
In March 2020, the Company acquired the remaining
% ownership interest in one of its South African affiliates, Quaker
Chemical South Africa Limited (“QSA”) for
Holdings South Africa. QSA is a part of the Company’s EMEA reportable segment. As this acquisition was a change in an existing
controlling ownership, the Company recorded $
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
working capital and net indebtedness levels. The Company finalized its post-closing adjustments for the Norman Hay acquisition and
paid approximately
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
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
Reference Rate Reform (Topic 848): Scope
January 2021 which clarified the guidance but did not materially change the guidance or its applicability to the Company. The
amendments provide temporary optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging
relationships and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away
from reference rates that are expected to be discontinued, including the London Interbank Offered Rate (“LIBOR”). ASU 2020-04 is
effective for the Company as of March 12, 2020 and generally can be applied through December 31, 2022. As of September 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
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 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 nine
months ended September 30, 2021 and 2020.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Net sales
Americas
$
$
$
$
EMEA
Asia/Pacific
Global Specialty Businesses
Total net sales
$
$
$
$
Segment operating earnings
Americas
$
$
$
$
EMEA
Asia/Pacific
Global Specialty Businesses
Total segment operating earnings
Combination, integration and other acquisition-related expenses
(5,786 )
(6,913 )
(18,259 )
(22,786 )
Restructuring and related charges
(1,383 )
(593 )
(3,585 )
Fair value step up of acquired inventory sold
(801 )
(226 )
Indefinite-lived intangible asset impairment
(38,000 )
Non-operating and administrative expenses
(38,691 )
(39,786 )
(122,760 )
(110,282 )
Depreciation of corporate assets and amortization
(15,767 )
(14,062 )
(46,855 )
(41,547 )
Operating income
Other income (expense), net
(239 )
(22,407 )
Interest expense, net
(5,637 )
(6,837 )
(16,725 )
(22,109 )
Income (loss) before taxes and equity in net income of
associated companies
$
$
$
$
(19,863 )
Inter-segment revenues for the three and nine months ended September 30, 2021 were $
$
Specialty Businesses, respectively. Inter-segment revenues for the three and nine months ended September 30, 2020 were $
million and $
$
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.
basis of $
$
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
% of consolidated net
sales, with its largest customer accounting for approximately
% 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.
had no material contract assets recorded on its Condensed Consolidated Balance Sheets as of September 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.
revenue as of September 30, 2021 and December 31, 2020, respectively. For the nine months ended September 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 nine months ended September 30, 2021 and 2020.
Three Months Ended September 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
$
$
$
Metalworking and other
Global Specialty Businesses
$
$
$
$
Timing of Revenue Recognized
Product sales at a point in time
$
$
$
$
Services transferred over time
$
$
$
$
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 September 30, 2020
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
$
$
$
Metalworking and other
Global Specialty Businesses
$
$
$
$
Timing of Revenue Recognized
Product sales at a point in time
$
$
$
$
Services transferred over time
$
$
$
$
Nine Months Ended September 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
$
$
$
Metalworking and other
Global Specialty Businesses
$
$
$
$
Timing of Revenue Recognized
Product sales at a point in time
$
$
$
$
Services transferred over time
$
$
$
$
Nine Months Ended September 30, 2020
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
$
$
$
Metalworking and other
Global Specialty Businesses
$
$
$
$
Timing of Revenue Recognized
Product sales at a point in time
$
$
$
$
Services transferred over time
$
$
$
$
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
. In addition, the Company has certain land use leases with remaining lease terms up to
. 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 nine
months ended September 30, 2021 was $
three and nine months ended September 30, 2020 was $
three and nine months ended September 30, 2021 was $
expense for the three and nine months ended September 30, 2020 was $
Cash paid for operating leases during the nine months ended September 30, 2021 and 2020 was $
respectively. The Company recorded new right of use lease assets and associated lease liabilities of $
months ended September 30, 2021.
Supplemental balance sheet information related to the Company’s leases is as follows:
September 30,
December 31,
2021
2020
Right of use lease assets
$
$
Other current liabilities
Long-term lease liabilities
Total operating lease liabilities
$
$
Weighted average remaining lease term (years)
Weighted average discount rate
Maturities of operating lease liabilities as of September 30, 2021 were as follows:
September 30,
2021
For the remainder of 2021
$
For the year ended December 31, 2022
For the year ended December 31, 2023
For the year ended December 31, 2024
For the year ended December 31, 2025
For the year ended December 31, 2026 and beyond
Total lease payments
Less: imputed interest
(4,349 )
Present value of lease liabilities
$
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
All costs incurred to date relate to severance costs to reduce headcount, including customary and routine adjustments to initial
estimates for employee separation costs, as well as costs to close certain facilities and are recorded in Restructuring and related
charges in the Company’s Condensed 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 nine months ended September 30, 2021 is as
follows:
QH Program
Accrued restructuring as of December 31, 2020
$
Restructuring and related charges
Cash payments
(4,557 )
Currency translation adjustments
(234 )
Accrued restructuring as of September 30, 2021
$
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 nine months ended September 30, 2021 and 2020:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Stock options
$
$
$
$
Non-vested stock awards and restricted stock units
Non-elective and elective 401(k) matching contribution in stock
Director stock ownership plan
Performance stock units
Annual incentive plan
Total share-based compensation expense
$
$
$
$
Share-based compensation expense is recorded in SG&A, except for $
ended September 30, 2021, respectively, and $
respectively, recorded within Combination, integration and other acquisition-related expenses.
Stock Options
During the first nine 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
Company used a Black-Scholes option pricing model and which primarily used the assumptions set forth in the table below:
Number of options granted
Dividend yield
%
Expected volatility
%
Risk-free interest rate
%
Expected term (years)
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 September 30, 2021,
unrecognized compensation expense related to all stock options granted was $
remaining period of
Restricted Stock Awards and Restricted Stock Units
During the nine months ended September 30, 2021, the Company granted
vested restricted stock units under its LTIP, which are subject to time-based vesting, generally over a
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 September 30, 2021, unrecognized
compensation expense related to the non-vested restricted shares was $
remaining period of
to be recognized over a weighted average remaining period of
Performance Stock Units
During the first nine 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
% up to
% 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
a Monte Carlo simulation on the grant date and using the following assumptions: (i) a risk-free rate of
%; (ii) an expected term of
As of September 30, 2021, the Company estimates that it will issue approximately
settlement date of all outstanding PSUs awards based on the conditions of the PSUs and performance to date for each award. As of
September 30, 2021, there was approximately $
Company expects to recognize over a weighted-average period of
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 September 30, 2020, it had been 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 September 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
%
of the first
% of compensation that is contributed to the plan, with a maximum matching contribution of
% of compensation.
Additionally, the plan provides for non-elective nondiscretionary contributions on behalf of participants who have completed one year
of service equal to
% 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 September 30, 2021, there were
September 30, 2021, total contributions were $
September 30, 2020 were $
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 nine months ended September 30, 2021 and 2020 are as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
Other
Other
Postretirement
Postretirement
Pension Benefits
Benefits
Pension Benefits
Benefits
2021
2020
2021
2020
2021
2020
2021
2020
Service cost
$
$
$
(2 )
$
$
$
$
$
Interest cost
(1 )
Expected return on plan assets
(2,075 )
(3,526 )
(6,250 )
(7,246 )
Settlement charge
Actuarial loss amortization
(85 )
(85 )
Prior service cost amortization
(42 )
(123 )
Net periodic benefit cost
$
$
(188 )
$
(88 )
$
$
$
$
(64 )
$
As disclosed in the Company’s 2020 Form 10-K, in the fourth quarter of 2018, the Company began the process of terminating its
legacy Quaker non-contributory U.S. pension plan (“Legacy Quaker U.S. Pension Plan”). During the third quarter of 2019, the
Company received a favorable termination determination letter from the Internal Revenue Service (“I.R.S.”) and completed the
Legacy Quaker U.S. Pension Plan termination during the first quarter of 2020. In order to terminate the Legacy Quaker U.S. Pension
Plan in accordance with I.R.S. and Pension Benefit Guaranty Corporation requirements, the Company was required to fully fund the
Legacy Quaker U.S. Pension Plan on a termination basis and the amount necessary to do so was approximately $
final true up adjustments, which were completed in the third quarter of 2020 resulting in a refund in premium received in the third
quarter of 2020 of approximately $
termination of approximately $
unrecognized losses within accumulated other comprehensive (loss) income (“AOCI”) on the balance sheet as of the plan termination
date.
Employer Contributions
As of September 30, 2021, $
pension plans and its other postretirement benefit plans, respectively . Taking into consideration current minimum cash contribution
requirements, the Company expects to make full year cash contributions of approximately $
plans and less than $
.
Note 10 – Other Income (Expense), Net
The components of other income (expense), net, for the three and nine months ended September 30, 2021 and 2020 are as
follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Income from third party license fees
$
$
$
$
Foreign exchange gains (losses), net
(1,897 )
(1,948 )
(3,080 )
(Loss) gain on disposals of property, plant, equipment and other
assets, net
(537 )
(24 )
(105 )
Non-income tax refunds and other related credits
Pension and postretirement benefit income (costs),
non-service components
(22,491 )
Other non-operating income, net
Total other income (expense), net
$
$
(239 )
$
$
(22,407 )
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
17
The (Loss) gain on disposals of property, plant, equipment and other assets, net, during the three months ended September 30,
2021, includes losses related to certain fixed asset disposals resulting from the property damage caused by flooding of the Company’s
Conshohocken, Pennsylvania headquarters, described in Note 19 of Notes to Condensed Consolidated Financial Statements, and
during the nine months ended September 30, 2021, includes the gain on the sale of certain held-for-sale real property assets related to
the Combination. Non-income tax refunds and other related credits during the nine months ended September 30, 2021 includes
certain non-income tax credits for the Company’s Brazilian subsidiaries described in Note 19 of Notes to Condensed Consolidated
Financial Statements. Pension and postretirement benefit income (costs), non-service components during both the three and nine
months ended September 30, 2020 includes the refund in premium described in Note 9 of Notes to Condensed Consolidated Financial
Statements. In addition, this line also includes the Legacy Quaker U.S. Pension Plan non -cash settlement charge during the nine
months ended September 30, 2020, also described in Note 9 of Notes to Condensed Consolidated Financial Statements.
Note 11 – Income Taxes and Uncertain Income Tax Positions
The Company’s effective tax rates for the three and nine months ended September 30, 2021 were an expense of
% and
%,
respectively, compared to an expense of
% and a benefit of
% for the three and nine months ended September 30, 2020,
respectively. The Company’s current year effective tax rates were largely impacted by changes in permanent reinvestment assertions,
changes in foreign tax credit valuation allowances, tax law changes in a foreign jurisdiction, deferred tax benefits related to an
intercompany intangible asset transfer and the income tax impacts of certain non-income tax credits recorded by the Company’s
Brazilian subsidiaries described in Note 19 of Notes to Condensed Consolidated Financial Statements. Comparatively, the prior year
effective tax rates were impacted by the tax effect of certain one-time pre-tax losses as well as certain tax charges and benefits in the
prior year period including those related to changes in tax regulations and other changes in foreign tax credit valuation allowances, tax
law changes in foreign jurisdictions and the tax impacts of the Company’s termination of its Legacy Quaker U.S. Pension Plan.
As of December 31, 2020, the Company had a deferred tax liability of $
estimate of non-U.S. taxes it will incur to repatriate certain foreign earnings to the U.S. The balance as of September 30, 2021 was
$
increase of $
The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on
income (loss) before equity in net income of associated companies in its Condensed Consolidated Statements of Operations. The
Company recognized an expense for interest of approximately $
$
2021, respectively, and recognized a credit for interest of $
less than $
September 30, 2020, respectively. As of September 30, 2021, the Company had accrued $
million for cumulative penalties in its Condensed Consolidated Balance Sheets, compared to $
$
the Company recognized decreases of $
benefits due to the expiration of the applicable statutes of limitations for certain tax years.
The Company estimates that during the year ending December 31, 2021 it will reduce its cumulative liability for gross
unrecognized tax benefits by approximately $
positions. This estimated reduction in the cumulative liability for unrecognized tax benefits does not consider any increase in liability
for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative liability for unrecognized tax benefits
with regard to new tax positions for the year ending December 31, 2021.
The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign
tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions include Italy from
, Brazil from
,
the Netherlands and China from
, Mexico, Spain, Germany and the United Kingdom from
, Canada and the U.S. from
,
India from fiscal year beginning April 1, 2018 and ending March 31,
, and various U.S. state tax jurisdictions from
.
Netherlands and Spain and currently expects to pay $
the Company believes it has adequate reserves for the remaining uncertain tax positions related to 2007.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
18
Houghton Italia, S.r.l is also involved in a corporate income tax audit with the Italian tax authorities covering tax years
through
. As of September 30, 2021, the Company has a $
related to this audit. Because the reserve relates to the tax periods prior to August 1, 2019, the tax liability was established through
purchase accounting related to the Combination. The Company has also submitted an indemnification claim against funds held in
escrow by Houghton’s former owners and as a result, a corresponding $
established through purchase accounting. In October 2021, the Company settled a portion of the Houghton Italia S.r.l corporate
income tax audit with the Italian tax authorities for the tax year 2015. The Company remains under audit for tax years 2014 and 2016
through 2018 and believes it has adequate reserves for the remaining uncertain tax positions.
Houghton Deutschland GmbH is also under audit by the German tax authorities for the tax years
. Based on
preliminary audit findings, primarily related to transfer pricing, the Company has recorded reserves for $
30, 2021. Of this amount, $
indemnification claim with Houghton’s former owners for any tax liabilities arising pre-Combination. As a result, a corresponding
$
Company received a settlement proposal from the German tax authorities and is currently reviewing the proposal with Houghton’s
former owners.
Note 12 – Earnings Per Share
The following table summarizes earnings per share calculations for the three and nine months ended September 30, 2021 and
2020:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Basic earnings (loss) per common share
Net income (loss) attributable to Quaker Chemical Corporation
$
$
$
$
(8,812 )
Less: (income) loss allocated to participating securities
(119 )
(113 )
(413 )
Net income (loss) available to common shareholders
$
$
$
$
(8,768 )
Basic weighted average common shares outstanding
Basic earnings (loss) per common share
$
$
$
$
(0.50 )
Diluted earnings (loss) per common share
Net income (loss) attributable to Quaker Chemical Corporation
$
$
$
$
(8,812 )
Less: (income) loss allocated to participating securities
(119 )
(113 )
(412 )
Net income (loss) available to common shareholders
$
$
$
$
(8,768 )
Basic weighted average common shares outstanding
Effect of dilutive securities
Diluted weighted average common shares outstanding
Diluted earnings (loss) per common share
$
$
$
$
(0.50 )
Certain stock options and restricted stock units are not included in the diluted earnings (loss) per share calculation when the effect
would have been anti-dilutive. The calculated amount of anti-diluted shares not included was
months ended September 30, 2021, respectively. All of the Company’s potentially dilutive shares for the nine months ended
September 30, 2020 are anti-dilutive and not included in the dilutive loss per share calculations because of the Company’s net loss
during the period. There were
ended September 30, 2020.
Note 13 – Restricted Cash
of defense associated with the subsidiary’s asbestos litigation. The proceeds of the settlement and release agreements were deposited
into interest bearing accounts that earned less than $
September 30, 2020. Due to the restricted nature of the proceeds, a corresponding deferred credit was established in other non-current
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
19
liabilities for an equal and offsetting amount that continued until the restrictions lapsed. As disclosed in the Company’s 2020 Form
10-K, during December 2020, the restrictions ended on these previously received insurance settlements and the Company transferred
the cash into an operating account.
The following table provides a reconciliation of cash, cash equivalents and restricted cash as of September 30, 2021 and 2020, as
well as December 31, 2020 and 2019:
September 30,
December 31,
2021
2020
2020
2019
Cash and cash equivalents
$
$
$
$
Restricted cash included in other current assets
Restricted cash included in other assets
Cash, cash equivalents and restricted cash
$
$
$
$
Note 14 – Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended September 30, 2021 were as follows:
Global
Specialty
Americas
EMEA
Asia/Pacific
Businesses
Total
Balance as of December 31, 2020
$
$
$
$
$
Goodwill additions
Currency translation and other adjustments
(621 )
(5,530 )
(2,594 )
(7,636 )
Balance as of September 30, 2021
$
$
$
$
$
Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of September 30, 2021 and
December 31, 2020 were as follows:
Gross Carrying
Accumulated
Amount
Amortization
2021
2020
2021
2020
Customer lists and rights to sell
$
$
$
$
Trademarks, formulations and product technology
Other
Total definite-lived intangible assets
$
$
$
$
The Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded
$
Comparatively, the Company recorded $
September 30, 2020, respectively.
Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows:
For the year ended December 31, 2021
$
For the year ended December 31, 2022
For the year ended December 31, 2023
For the year ended December 31, 2024
For the year ended December 31, 2025
For the year ended December 31, 2026
The Company has four indefinite-lived intangible assets totaling $
2020, including $
Goodwill and intangible assets that have indefinite lives are not amortized and are required to be assessed at least annually for
impairment. The Company completes its annual goodwill and indefinite-lived intangible asset impairment test during the fourth
quarter of each year. The Company continuously evaluates if triggering events indicate a possible impairment in one or more of its
reporting units or indefinite-lived or long-lived assets.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
20
The Company previously disclosed in its 2020 Form 10-K that as of March 31, 2020, the Company concluded that the impact of
COVID-19 did not represent a triggering event with regards to the Company’s reporting units or indefinite-lived and long-lived assets,
except for the Company’s Houghton and Fluidcare trademarks and tradename indefinite-lived intangible assets. The determination of
estimated fair value of the Houghton and Fluidcare trademarks and tradename indefinite-lived assets was based on a relief from
royalty valuation method, which requires management’s judgment and often involves the use of significant estimates and assumptions,
including assumptions with respect to the weighted average cost of capital (“WACC”) and royalty rates, as well as revenue growth
rates and terminal growth rates. In the first quarter of 2020, as a result of the impact of COVID-19 driving a decrease in projected
legacy Houghton net sales during that year and the impact of the sales decline on projected future legacy Houghton net sales as well as
an increase in the WACC assumption utilized in the quantitative impairment assessment, the Company concluded that the estimated
fair values of the Houghton and Fluidcare trademarks and tradename intangible assets were less than their carrying values. As a
result, an impairment charge of $
intangible assets to their estimated fair values.
As of September 30, 2021, the Company continued to evaluate all potential triggering events, including the on-going impact of
COVID-19 on the Company’s operations, and the volatility and uncertainty in the economic outlook as a result of COVID-19, to
determine if this indicated it was more likely than not that the carrying value of any of the Company’s reporting units or indefinite-
lived or long-lived intangible assets were not recoverable. The Company concluded that the impact of COVID-19 did not represent a
triggering event as of September 30, 2021. While the Company concluded that the impact of COVID-19 did not represent a triggering
event as of September 30, 2021, the Company will continue to evaluate the impact of COVID-19 on the Company’s current and
projected results. If the current economic conditions worsen or projections of the timeline for recovery are significantly extended, then
the Company may conclude in the future that the impact from COVID-19 requires the need to perform further interim quantitative
impairment tests, which could result in additional impairment charges in the future.
Note 15 – Debt
Debt as of September 30, 2021 and December 31, 2020 includes the following:
As of September 30, 2021
As of December 31, 2020
Interest
Outstanding
Interest
Outstanding
Rate
Balance
Rate
Balance
Credit Facilities:
Revolver
$
$
U.S. Term Loan
EURO Term Loan
Industrial development bonds
Bank lines of credit and other debt obligations
Total debt
$
$
Less: debt issuance costs
(8,776 )
(11,099 )
Less: short-term and current portion of long-term debts
(52,611 )
(38,967 )
Total long-term debt
$
$
Credit facilities
The Company’s primary credit facility (as amended, the “Credit Facility”) is comprised of a $
revolver (the “Revolver”), a $
million (as of August 1, 2019) Euro equivalent term loan (the “EURO Term Loan” and together with the “U.S. Term Loan”, the
“Term Loans”) with Quaker Chemical B.V., a Dutch subsidiary of the Company as borrower, each with a
August 2024. Subject to the consent of the administrative agent and certain other conditions, the Company may designate additional
borrowers. The maximum amount available under the Credit Facility can be increased by up to $
request if there are lenders who agree to accept additional commitments and the Company has satisfied certain other conditions.
Borrowings under the Credit Facility bear interest at a base rate or LIBOR plus an applicable margin based upon the Company’s
consolidated net leverage ratio. There are LIBOR replacement provisions that contemplate a further amendment when LIBOR ceases
to be reported. The variable interest rate incurred on the outstanding borrowings under the Credit Facility as of and during the nine
months ended September 30, 2021 was approximately
%. In addition to paying interest on outstanding principal under the Credit
Facility, the Company is required to pay a commitment fee ranging from
% to
% depending on the Company’s consolidated net
leverage ratio to the lenders under the Revolver in respect of the unutilized commitments thereunder. The Company has unused
capacity under the Revolver of approximately $
30, 2021.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
21
consolidated adjusted EBITDA to interest expense ratio cannot be less than
Facility also prohibits the payment of cash dividends if the Company is in default or if the amount of the dividend paid annually
exceeds the greater of $
% of consolidated adjusted EBITDA unless the ratio of consolidated net debt to
consolidated adjusted EBITDA is less than
principal amortization during their
% amortization of the principal balance due in years 1 and 2,
% in year
3, and
% in years 4 and 5, with the remaining principal amount due at maturity. During the nine months ended September 30,
2021, the Company made quarterly amortization payments related to the Term Loans totaling $
guaranteed by certain of the Company’s domestic subsidiaries and is secured by first priority liens on substantially all of the assets of
the Company and the domestic subsidiary guarantors, subject to certain customary exclusions. The obligations of the Dutch borrower
are guaranteed only by certain foreign subsidiaries on an unsecured basis.
The Credit Facility required the Company to fix its variable interest rates on at least
% of its total Term Loans. In order to
satisfy this requirement as well as to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility,
in November 2019, the Company entered into $
%
plus an applicable margin as provided in the Credit Facility, based on the Company’s consolidated net leverage ratio. At the time the
Company entered into the swaps, and as of September 30, 2021, the aggregate interest rate on the swaps, including the fixed base rate
plus an applicable margin, was
%. See Note 18 of Notes to Condensed Consolidated Financial Statements.
The Company capitalized $
Approximately $
term debt on the Company’s Condensed Consolidated Balance Sheet. Approximately $
attributed to the Revolver and recorded within other assets on the Company’s Condensed Consolidated Balance Sheet. These
capitalized costs are being amortized into interest expense over the five year term of the Credit Facility. As of September 30, 2021
and December 31, 2020, the Company had $
of long-term debt. As of September 30, 2021 and December 31, 2020, the Company had $
of debt issuance costs recorded within other assets.
Industrial development bonds
As of September 30, 2021 and December 31, 2020, the Company had fixed rate, industrial development authority bonds totaling
$
. These bonds have similar covenants to the Credit Facility noted above.
Bank lines of credit and other debt obligations
The Company has certain unsecured bank lines of credit and discounting facilities in one of its foreign subsidiaries, which are not
collateralized. The Company’s other debt obligat ions primarily consist of certain domestic and foreign low interest rate or interest-
free municipality-related loans, local credit facilities of certain foreign subsidiaries and capital lease obligations. Total unused
capacity under these arrangements as of September 30, 2021 was approximately $
The Company incurred the following debt related expenses included within Interest expense, net, in the Condensed Consolidated
Statements of Operations:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Interest expense
$
$
$
$
Amortization of debt issuance costs
Total
$
$
$
$
Based on the variable interest rates associated with the Credit Facility, as of September 30, 2021 and December 31, 2020, the
amounts at which the Company’s total debt were recorded are not materially different from their fair market value.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
22
Note 16 – Equity
The following tables present the changes in equity, net of tax, for the three and nine months ended September 30, 2021 and 2020:
Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at June 30, 2021
$
$
$
$
(35,943 )
$
$
Net income
Amounts reported in other comprehensive
loss
(18,780 )
(18,780 )
Dividends ($
(7,424 )
(7,424 )
Share issuance and equity-based
compensation plans
Balance at September 30, 2021
$
$
$
$
(54,723 )
$
$
Balance at June 30, 2020
$
$
$
$
(109,264 )
$
$
Net income
Amounts reported in other comprehensive
income
Dividends ($
(7,048 )
(7,048 )
Share issuance and equity-based
compensation plans
Balance at September 30, 2020
$
$
$
$
(75,010 )
$
$
Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at December 31, 2020
$
$
$
$
(26,598 )
$
$
Net income
Amounts reported in other comprehensive
(loss) income
(28,125 )
(28,119 )
Dividends ($
(21,548 )
(21,548 )
Share issuance and equity-based
compensation plans
Balance at September 30, 2021
$
$
$
$
(54,723 )
$
$
Balance at December 31, 2019
$
$
$
$
(78,170 )
$
$
Cumulative effect of an accounting change
(911 )
(911 )
Balance at January 1, 2020
(78,170 )
Net (loss) income
(8,812 )
(8,724 )
Amounts reported in other comprehensive
income (loss)
(114 )
Dividends ($
(20,735 )
(20,735 )
Acquisition of noncontrolling interest
(707 )
(340 )
(1,047 )
Distributions to noncontrolling affiliate
shareholders
(751 )
(751 )
Share issuance and equity-based
compensation plans
Balance at September 30, 2020
$
$
$
$
(75,010 )
$
$
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
23
The following tables show the reclassifications from and resulting balances of AOCI for the three and nine months ended
September 30, 2021 and 2020:
Defined
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at June 30, 2021
$
(12,177 )
$
(21,778 )
$
$
(2,584 )
$
(35,943 )
Other comprehensive (loss) income before
reclassifications
(19,905 )
(85 )
(18,935 )
Amounts reclassified from AOCI
(176 )
Related tax amounts
(293 )
(131 )
(378 )
Balance at September 30, 2021
$
(32,082 )
$
(20,874 )
$
$
(2,148 )
$
(54,723 )
Balance at June 30, 2020
$
(88,637 )
$
(17,363 )
$
$
(4,412 )
$
(109,264 )
Other comprehensive income (loss) before
reclassifications
(901 )
Amounts reclassified from AOCI
(104 )
Related tax amounts
(150 )
(106 )
(196 )
Balance at September 30, 2020
$
(55,036 )
$
(17,620 )
$
$
(4,058 )
$
(75,010 )
Defined
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at December 31, 2020
$
(2,875 )
$
(23,467 )
$
$
(3,598 )
$
(26,598 )
Other comprehensive (loss) income before
reclassifications
(29,207 )
(489 )
(26,804 )
Amounts reclassified from AOCI
(3,259 )
(836 )
Related tax amounts
(839 )
(433 )
(485 )
Balance at September 30, 2021
$
(32,082 )
$
(20,874 )
$
$
(2,148 )
$
(54,723 )
Balance at December 31, 2019
$
(44,568 )
$
(34,533 )
$
$
(320 )
$
(78,170 )
Other comprehensive (loss) income before
reclassifications
(10,468 )
(409 )
(4,855 )
(14,930 )
Amounts reclassified from AOCI
(229 )
Related tax amounts
(8,228 )
(120 )
(7,231 )
Balance at September 30, 2020
$
(55,036 )
$
(17,620 )
$
$
(4,058 )
$
(75,010 )
All reclassifications related to unrealized gain (loss) in available-for-sale securities relate to the Company’s equity interest in a
captive insurance company and are recorded in equity in net income of associated companies. The amounts reported in other
comprehensive income for noncontrolling interest are related to currency translation adjustments.
Note 17 – Fair Value Measurements
The Company has valued its company-owned life insurance policies at fair value. These assets are subject to fair value
measurement as follows:
Fair Value Measurements at September 30, 2021
Total
Using Fair Value Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
$
$
$
$
Total
$
$
$
$
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
24
Fair Value Measurements at December 31, 2020
Total
Using Fair Value Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
$
$
$
$
Total
$
$
$
$
The fair values of Company-owned life insurance assets are based on quotes for like instruments with similar credit ratings and
terms. The Company did not hold any Level 3 investments as of September 30, 2021 or December 31, 2020, respectively, so related
disclosures have not been included.
Note 18 – Hedging Activities
In order to satisfy certain requirements of the Credit Facility as well as to manage the Company’s exposure to variable interest
rate risk associated with the Credit Facility, in November 2019, the Company entered into $
designated as cash flow hedges and, as such, the contracts are marked-to-market at each reporting date and any unrealized gains or
losses are included in AOCI to the extent effective and reclassified to interest expense in the period during which the transaction
affects earnings or it becomes probable that the forecasted transaction will not occur.
The balance sheet classification and fair values of the Company’s derivative instruments, which are Level 2 measurements, are as
follows:
Fair Value
Condensed Consolidated
September 30,
December 31,
Balance Sheet Location
2021
2020
Derivatives designated as cash flow hedges:
Interest rate swaps
Other non-current liabilities
$
$
$
$
The following table presents the net unrealized loss deferred to AOCI:
September 30,
December 31,
2021
2020
Derivatives designated as cash flow hedges:
Interest rate swaps
AOCI
$
$
$
$
The following table presents the net loss reclassified from AOCI to earnings:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Amount and location of expense reclassified
from AOCI into expense (effective portion)
Interest expense, net
$
(672 )
$
(640 )
$
(1,974 )
$
(1,105 )
Interest rate swaps are entered into with a limited number of counterparties, each of which allows for net settlement of all
contracts through a single payment in a single currency in the event of a default on or termination of any one contract. As such, in
accordance with the Company’s accounting policy, these derivative instruments are recorded on a net basis within the Condensed
Consolidated Balance Sheets.
Note 19 – Commitments and Contingencies
The Company previously disclosed in its 2020 Form 10-K that AC Products, Inc. (“ACP”), a wholly owned subsidiary, has been
operating a groundwater treatment system to hydraulically contain groundwater contamination emanating from ACP’s site, the
principal contaminant of which is perchloroethylene. As of September 30, 2021, ACP believes it is close to meeting the conditions for
closure of the groundwater treatment system, but continues to operate this system while in discussions with the relevant authorities.
As of September 30, 2021, the Company believes that the range of potential -known liabilities associated with the balance of the ACP
water remediation program is approximately $
of operation of the treatment system as determined by groundwater modeling. Costs of operation include the operation and
maintenance of the extraction well, groundwater monitoring and program management.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
25
The Company previously disclosed in its 2020 Form 10-K that an inactive subsidiary of the Company that was acquired in 1978
sold certain products containing asbestos, primarily on an installed basis, and is among the defendants in numerous lawsuits alleging
injury due to exposure to asbestos. During the three and nine months ended September 30, 2021, there have been no significant
changes to the facts or circumstances of this previously disclosed matter, aside from on-going claims and routine payments associated
with this litigation. Based on a continued analysis of the existing and anticipated future claims against this subsidiary, it is currently
projected that the subsidiary’s total liability over the next 50 years for these claims is approximately $
defense).
The Company previously disclosed in its 2020 Form 10-K that it is party to certain environmental matters related to certain
domestic and foreign properties currently or previously owned by Houghton. These environmental matters primarily require the
Company to perform long-term monitoring as well as operating and maintenance at each of the applicable sites. During the three and
nine months ended September 30, 2021, there have been no significant changes to the facts or circumstances of these previously
disclosed matters, aside from on-going monitoring and maintenance activities and routine payments associated with each of the sites.
The Company continually evaluates its obligations related to such matters, and based on historical costs incurred and projected costs
to be incurred over the next 28 years, has estimated the present value range of costs for all of the Houghton environmental matters, on
a discounted basis, to be between approximately $
accrued within other accrued liabilities and other non-current liabilities on the Company’s Condensed Consolidated Balance Sheet as
of September 30, 2021. Comparatively, as of December 31, 2020, the Company had $
matters.
The Company believes, although there can be no assurance regarding the outcome of other unrelated environmental matters, that
it has made adequate accruals for costs associated with other environmental problems of which it is aware. Approximately $
million and $
future environmental assessments and remediation costs.
The Company previously disclosed in its 2020 Form 10-K that during the fourth quarter of 2020, one of the Company’s
subsidiaries received a notice of inspection from a taxing authority in a country where certain of its subsidiaries operate which related
to a non-income (indirect) tax that may be applicable to certain products the subsidiary sells. During the third quarter of 2021, the
Company’s subsidiary received notice from the taxing authority that the inspection was closed, with no tax assessment issued. Based
on this development, during the third quarter of 2021, the Company reversed its previously recorded $
this matter. The Company also reversed the associated $
related to a Houghton entity acquired in the Combination and for the periods prior to the Combination, for which the Company would
be indemnified by Houghton’s former owners. Based on all available information as of the date of this Report, the Company does not
anticipate further tax inspection or liabilities related to this matter to be asserted by the taxing authority.
During the first half of 2021, one of the Company’s Brazilian subsidiaries received a notice that it had prevailed on an existing
legal claim in regard to certain non-income (indirect) taxes that had been previously charged and paid. The matter specifically relates
to companies’ rights to exclude the state tax on goods circulation (a valued-added-tax or
VAT
equivalent, known in Brazil as “ICMS”)
from the calculation of certain additional indirect taxes (specifically the program of social integration (“PIS”) and contribution for the
financing of social security (“COFINS”)) levied by the Brazilian States on the sale of goods. In May 2021, the Brazilian Supreme
Court concluded that ICMS should not be included in the tax base of PIS and COFINS, and confirmed the methodology for
calculating the PIS and COFINS tax credit claims to which taxpayers are entitled. The Company’s Brazilian entities had previously
filed legal or administrative disputes on this matter and are entitled to receive tax credits and interest dating back to five years
preceding the date of their legal claims. As a result of these court rulings, during the second quarter of 2021, the Company recognized
non-income tax credits of
and COFINS tax credits as well as interest on these tax credits of $
subsidiaries are entitled are claimable once registered with the Brazilian tax authorities. The Company submitted its formal claim for
tax credits in October 2021. These tax credits can be used to offset future Brazilian federal taxes and the Company currently
anticipates using the full amount of credits during the five year period of time permitted. During the third quarter of 2021, the
Brazilian Supreme Court ruled that interest income to which companies are entitled for matters such as this claim should not be
taxable, which resulted in a reduction to the estimated income tax expense associated with the tax credits recorded.
In connection with obtaining regulatory approvals for the Combination, certain steel and aluminum related product lines of
Houghton were divested on August 1, 2019. In July 2021, the entity that acquired these divested product lines submitted an
indemnification claim for certain alleged breaches of representation made by Houghton in the agreement pursuant to which such assets
had been divested. The Company and the acquirer have agreed to extend the period for a possible negotiated resolution of this claim
through November 30, 2021 so that both parties can evaluate the other’s positions with respect to the subject matters of the claim.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
26
The Company is evaluating the merits of the alleged losses in the indemnification claim received. As of the date of this Report, the
Company does not believe it is reasonably possible to determine or quantify any possible exposure.
During the third quarter of 2021, two of the Company’s locations suffered property damages as a result of flooding and fire. The
Company maintains property insurance for all of its facilities globally. In Conshohocken, Pennsylvania, the Company’s global
headquarters as well as its laboratory experienced property damages as a result of flooding from Hurricane Ida. Also, one of the
Company’s North American production facilities in its Global Specialty Businesses segment experienced an electrical fire that
resulted in damage and the temporary shutdown of production, and also required remediation, cleaning and subsequent restoration.
The Company, its insurance adjuster and insurance carrier are actively managing the remediation and restoration activities associated
with these events and at this time the Company has concluded, based on all available information and discussions with its insurance
adjuster and insurance carrier, that the losses incurred during the third quarter of 2021 will be covered under the Company’s property
insurance coverage, net of an aggregate deductible of $
$
incurred) of $
of the electrical fire on the production facility’s operations as it relates to a potential business interruption insurance claim; however,
as of the date of this Report, the Company cannot reasonably estimate any probable amount of business interruption insurance claim
recoverable, therefore the Company has not recorded a gain contingency for a possible business interruption insurance claim as of
September 30, 2021.
The Company is party to other litigation which management currently believes will not have a material adverse effect on the
Company’s results of operations, cash flows or financial condition. In addition, the Company has an immaterial amount of contractual
purchase obligations.
Quaker Chemical Corporation
Management’s Discussion and Analysis
27
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
.
As used in this Report, the terms “Quaker Houghton,” the “Company,” “we” and “our” refer to Quaker Chemical Corporation
(doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. As used in
this Report, 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”) on August 1, 2019. Throughout the Report, all figures presented, unless
otherwise stated, reflect the results of operations of the combined company for the three and nine months ended September 30, 2021
and 2020.
Executive Summary
Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over
25 countries, our customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace,
offshore, can, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best-
in-class technology, deep process knowledge, and customized services. Quaker Houghton is headquartered in Conshohocken,
Pennsylvania, located near Philadelphia in the United States.
The Company’s third quarter results were highlighted by record net sales as well as the on-going execution of integration
activities and synergy realization, but these positive financial impacts were partially offset by continued raw material cost headwinds
and global supply chain pressures. Specifically, net sales of $449.1 million in the third quarter of 2021 increased 22% compared to
$367.2 million in the third quarter of 2020, primarily due to higher volumes of approximately 10%, including additional net sales from
acquisitions of 4%, increases from selling price and product mix of approximately 10% and the positive impact from foreign currency
translation of 2%. The increase in sales volumes compared to the third quarter of 2020 was primarily a result of continued market
share gains and the year-over-year improvement in end market conditions since the beginning of the COVID-19 pandemic. The
increase in selling price and product mix is primarily the result of the Company’s price increases implemented during 2021 to help
offset the unprecedented increases in raw material costs the Company has experienced throughout 2021. The Company’s current
quarter gross margin of 32.3% declined sequentially compared to 35.5% in the second quarter of 2021 which, as the Company had
expected, was lower than the 38.2% in the prior year third quarter, driven by the continued increase in raw material costs and logistics
pressures.
The Company had net income in the third quarter of 2021 of $31.1 million, or $1.73 per diluted share, compared to a third quarter
of 2020 net income of $27.3 million, or $1.53 per diluted share. The current quarter results reflect the gross margin headwinds noted
above while the prior year third quarter net income was affected by the COVID-19 pandemic and its impact on the global economy,
including most of the Company’s end customers. Excluding non-recurring items including costs associated with the Combination and
other non-core items in each period, the Company’s third quarter of 2021 non-GAAP earnings per diluted share were $1.63 compared
to $1.56 in the prior year third quarter. The Company’s current quarter adjusted EBITDA of $66.2 million increased 3% compared to
$63.9 million in the third quarter of 2020 primarily due to the significant increase in net sales quarter-over-quarter as well as higher
realized cost synergies from the Combination and foreign currency transaction gains in the current quarter compared to foreign
currency transaction losses in the third quarter of 2020, partially offset by lower gross margins driven by higher raw material costs and
the impacts of disruptions in the global supply chain experienced in 2021 as well as higher selling, general and administrative
expenses (“SG&A”) including the impact of higher sales on direct selling expenses and additional SG&A from recent acquisitions.
The Company estimates that it realized cost synergies associated with the Combination of approximately $19 million during the third
quarter of 2021 compared to approximately $17 million during the third quarter of 2020. See the Non-GAAP Measures section of this
Item below, as well as other items discussed in the Company’s Consolidated Operations Review in the Operations section of this Item,
below.
The Company’s third quarter of 2021 operating performance in each of its four reportable segments: (i) Americas; (ii) Europe,
Middle East and Africa (“EMEA”); (iii) Asia/Pacific; and (iv) Global Specialty Businesses, reflect similar drivers to that of its
consolidated performance. All four segments had higher net sales compared to the third quarter of 2020 reflecting the continued
rebound in 2021 from the negative impacts of COVID-19 on the Company’s end markets during 2020 as well as continued success of
taking market share in each of the Company’s segments during the third quarter of 2021. All of the Company’s segments benefited
from higher organic sales volumes, which excludes the benefits of recent acquisitions, as compared to the prior year quarter, additional
net sales from acquisitions, the positive impact from foreign currency translation due to the strengthening of most major currencies
against the U.S. dollar, and from increases in selling price and product mix. As reported, the Company’s Americas and EMEA
segment operating earnings were higher compared to the third quarter of 2020 reflecting the increase in net sales including the benefits
of acquisitions; however, all of the Company’s segment’s operating earnings were negatively impacted by the unprecedented raw
material cost increases and the impacts of disruptions in the global supply chain that continued throughout the third quarter of 2021 as
well as higher SG&A which were a result of an increase in direct selling expenses associated with year-over-year inflation increases
and increases due to the increase in net sales as well as the lower levels of prior year SG&A as a result of temporary cost saving
measures implemented in response to COVID-19.
Quaker Chemical Corporation
Management’s Discussion and Analysis
28
The Company had a net operating cash flow of $2.5 million in the first nine months of 2021 as compared to net operating cash
flow of $112.0 million in the first nine months of 2020. The decrease in net operating cash flow year-over-year was primarily driven
by a significant change in working capital compared to the prior year, mainly increases in accounts receivable, due to higher net sales
and inventory, due to higher costs as well as building inventories in response to global supply chain and logistics pressures. The key
drivers of the Company’s operating cash flow and working capital are further discussed in the Company’s Liquidity and Capital
Resources section of this Item, below.
Overall, the Company’s third quarter results were good, despite being negatively impacted by the automotive semiconductor
shortage and continued supply chain challenges. Increases in net sales in all segments were driven by the continued year-over -year
improvement in the Company’s end-markets and increased customer demand from lower levels experienced during 2020 as a result of
COVID-19; however, each segment was negatively impacted by the significant escalation of raw material costs as well as higher
SG&A. While sequential operating performance as compared to the second quarter of 2021 was slightly lower, continued strong
customer demand in the third quarter of 2021 coupled with on-going market share gains and the execution of integration activities and
synergy realization helped offset the negative impacts from the continued escalation of raw material costs and continued supply chain
pressures.
As the Company looks to the rest of 2021, it expects gross margins to continue to be challenged by increased raw material costs
and supply chain headwinds, although it also expects to have sequential improvement in product margins from current quarter levels
as it continues to implement price increases. In addition, although the Company expects customer demand for most of its businesses
to remain strong, it also anticipates some near-term headwinds due to the power restrictions in China, the global semiconductor
shortages in the automotive industry, and some seasonality trends which the Company typically experiences in the last quarter of the
year. Looking ahead to 2022, the Company expects another strong year with net sales and earnings growth to be above normal long-
term trends as the Company expects good growth in end markets, continued market share gains and higher gross margins as pricing
initiatives catch up from the lag experienced in 2021 due to significant raw material inflation.
On-going impact of COVID-19
The global outbreak of COVID-19 has negatively impacted all locations where the Company does business. Although the
Company has now operated in this COVID-19 environment for over a year, the full extent of the outbreak and related business
impacts continue to remain uncertain and volatile, and therefore the full extent to which COVID-19 may impact the Company’s future
results of operations or financial condition is uncertain. This outbreak has significantly disrupted the operations of the Company and
those of its suppliers and customers. During the pandemic, the Company has experienced volume declines and lower net sales as
compared to pre-COVID-19 levels, as further described in this section. 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. Given the continuously evolving global developments with respect to this pandemic, the Company cannot, as of
the date of this Report, reasonably estimate the magnitude or the full extent of the impact to its future results of operations or to the
ability of it or its customers to resume more normal operations, even as certain restrictions are lifted. The prolonged pandemic and
resurgences of the outbreak including as new variants continue to emerge, and continued restrictions on day-to-day life and business
operations may result in volume declines and lower net sales in future periods. 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. Given
this ongoing uncertainty, the Company cautions that its future results of operations could be significantly adversely impacted by
COVID-19. Further, management continues to evaluate how COVID-19-related circumstances, such as remote work arrangements,
illness or staffing shortages and travel restrictions have affected financial reporting processes and systems, internal control over
financial reporting, and disclosure controls and procedures. While the circumstances have presented and are expected to continue to
present challenges, and have necessitated additional time and resources to be deployed to sufficiently address the challenges brought
on by the pandemic, at this time, management does not believe that COVID-19 has had a material impact on financial reporting
processes, internal controls over financial reporting, or disclosure controls and procedures.
The Company’s top priority, especially during this pandemic, is to protect the health and safety of its employees and customers,
while working to ensure business continuity to meet customers’ needs. The Company continues to take steps to protect the health and
wellbeing of its people in affected areas through various actions, including enabling work at home where needed and possible, and
employing social distancing standards, implementing travel restrictions where applicable, enhancing onsite hygiene practices, and
instituting visitation restrictions at the Company’s facilities. The Company has not and does not expect that it will incur material
expenses implementing these health and safety policies. All of the Company’s 31 production facilities worldwide are open and
operating and are deemed as essential businesses in the jurisdictions where they are operating. The Company believes that to date it
has been able to meet the needs of all its customers across the globe despite the current economic challenges. The Company’s third
quarter of 2021 showed year-over-year improvement from the prior year third quarter and continued a trend of gradual volume
improvement which began in the second half of 2020. The Company continues to expect that the impact from COVID-19 will
gradually improve subject to the effective containment of the virus and its variants and successful distribution and acceptance of the
Quaker Chemical Corporation
Management’s Discussion and Analysis
29
available vaccines. However, the incidence of reported cases of COVID-19 or a variant in several geographies where the Company
has significant operations remains high and continues to evolve and it remains highly uncertain as to how long the global pandemic
and related economic challenges will last and when our customers’ businesses will recover to pre-COVID-19 levels. The Company
took various actions to temporarily conserve cash and reduce costs since the onset of the pandemic and these temporary initiatives
were designed and implemented so that the Company could successfully manage through the challenging COVID-19 situation while
continuing to protect the health of its employees, meet customers’ needs, maintain the Company’s long-term competitive advantages
and above-market growth, and enable it to continue to effec tively integrate Houghton. While the actions taken to date to protect our
workforce, to continue to serve our customers with excellence and to conserve cash and reduce costs, have been effective thus far,
further actions to respond to the pandemic and its effects may be necessary as conditions continue to evolve.
Liquidity and Capital Resources
At September 30, 2021, the Company had cash, cash equivalents and restricted cash of $141.4 million. Total cash, cash
equivalents and restricted cash was $181.9 million at December 31, 2020. The $40.5 million decrease in cash, cash equivalents and
restricted cash was the net result of approximately $30.1 million of cash used in investing activities, $10.5 million of cash used in
financing activities, and a $2.5 million negative impact due to the effect of foreign currency translation, partially offset by $2.5 million
of cash provided by operating activities.
Net cash flows provided by operating activities were $2.5 million in the first nine months of 2021 compared to $112.0 million in
the first nine months of 2020. The decrease in net operating cash flows of $109.5 million was primarily driven by a significant change
in working capital. The significant increase in current year net sales resulted in a large increase in accounts receivable in the first nine
months of 2021 as compared to accounts receivable being a cash inflow in the prior year as sales and the associated accounts
receivables significantly declined during the first nine months of 2020 due to the negative impact from COVID-19. In addition, the
Company has experienced an increase in inventory in the first nine months of 2021 as a result of continued rising raw material costs as
well as a build in inventory to ensure the Company has appropriate stock to meet customer demands in response to ongoing stress on
the global supply chain. In addition, the Company had higher cash dividends received from its associated companies in the first nine
months of 2020, primarily due to $5.0 million received from the Company’s joint venture in Korea with no similar dividend received
in the first nine months of 2021 related to the timing of dividends received.
Net cash flows used in investing activities were $30.1 million in the first nine months of 2021 compared to $15.3 million in the
first nine months of 2020. This increase in cash outflows was driven by higher cash payments related to acquisitions during the first
nine months of 2021, including $25.0 million for certain assets related to tin-plating solutions primarily for steel end markets. These
higher cash outflows were partially offset by cash proceeds of approximately $14.7 million from the disposition of assets, which
includes the sale of certain held-for-sale real property assets related to the Combination. Capital expenditures were relatively
consistent at $12.8 million in the first nine months of 2021 compared to $12.2 million in the first nine months of 2020.
Net cash flows used in financing activities were $10.5 million in the first nine months of 2021 compared to $65.1 million in the
first nine months of 2020. The decrease in net cash flows used in financing activities of $54.6 million was primarily driven an
increase in borrowings in the current year under the Company’s revolving credit facility compared to repayments in the prior year
which was primarily driven by the significant working capital investment in the current year described above. In addition, the
Company paid $21.2 million of cash dividends during the first nine months of 2021, a $0.7 million or 3% increase in cash dividends
compared to the prior year. Finally, during the first nine months of 2020, the Company used $1.0 million to purchase the remaining
noncontrolling interest in a South Africa affiliate. Prior to this buyout, this South Africa affiliate made a distribution to the prior
noncontrolling affiliate shareholder of approximately $0.8 million in the first nine months of 2020. There were no similar
noncontrolling interest activities in the first nine months of 2021.
The Company’s primary credit facility (the “Credit Facility”) is comprised of a $400.0 million multicurrency revolver (the
“Revolver”), a $600.0 million term loan (the “U.S. Term Loan”), each with the Company as borrower, and a $150.0 million (as of
August 1, 2019) Euro equivalent term loan (the “Euro Term Loan” and together with the U.S. Term Loan”, the “Term Loans”) with
Quaker Chemical B.V., a Dutch subsidiary of the Company as borrower, each with a five year term maturing in August 2024. Subject
to the consent of the administrative agent and certain other conditions, the Company may designate additional borrowers. The
maximum amount available under the Credit Facility can be increased by up to $300.0 million at the Company’s request if there are
lenders who agree to accept additional commitments and the Company has satisfied certain other conditions. Borrowings under the
Credit Facility bear interest at a base rate or LIBOR plus an applicable margin based on the Company’s consolidated net leverage
ratio. There are LIBOR replacement provisions that contemplate a further amendment when LIBOR ceases to be reported. The
weighted average interest rate incurred on the outstanding borrowings under the Credit Facility during both the first nine months of
2021 and as of September 30, 2021 was approximately 1.6%. In addition to paying interest on outstanding principal under the Credit
Facility, the Company is required to pay a commitment fee ranging from 0.2% to 0.3% depending on the Company’s consolidated net
leverage ratio to the lenders under the Revolver in respect of the unutilized commitments thereunder.
Quaker Chemical Corporation
Management’s Discussion and Analysis
30
The Credit Facility is subject to certain financial and other covenants. The Company’s initial consolidated net debt to
consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the permitted ratio over the term of the Credit
Facility. As of September 30, 2021, the consolidated net debt to consolidated adjusted EBITDA ratio may not exceed 4.00 to 1. The
Company’s consolidated adjusted EBITDA to interest expense ratio may not be less than 3.0 to 1 over the term of the agreement. The
Credit Facility also prohibits the payment of cash dividends if the Company is in default or if the amount of the dividends paid
annually exceeds the greater of $50.0 million and 20% of consolidated adjusted EBITDA unless the ratio of consolidated net debt to
consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation on amount. As of September 30, 2021,
and December 31, 2020, the Company was in compliance with all of the Credit Facility covenants. The Term Loans have quarterly
principal amortization during their five year terms, with 5.0% amortization of the principal balance due in years 1 and 2, 7.5% in year
3, and 10.0% in years 4 and 5, with the remaining principal amount due at maturity. The Credit Facility is guaranteed by certain of the
Company’s domestic subsidiaries and is secured by first priority liens on substantially all of the assets of the Company and the
domestic subsidiary guarantors, subject to certain customary exclusions. The obligations of the Dutch borrower are guaranteed only
by certain foreign subsidiaries on an unsecured basis.
The Credit Facility required the Company to fix its variable interest rates on at least 20% of its total Term Loans. In order to
satisfy this requirement as well as to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility,
in November 2019, the Company entered into $170.0 million notional amounts of three year interest rate swaps at a base rate of 1.64%
plus an applicable margin as provided in the Credit Facility, based on the Company’s consolidated net leverage ratio. At the time the
Company entered into the swaps, and as of September 30, 2021, the aggregate interest rate on the swaps, including the fixed base rate
plus an applicable margin, was 3.1%.
The Company capitalized $23.7 million of certain third-party debt issuance costs in connection with executing the Credit Facility.
Approximately $15.5 million of the capitalized costs were attributed to the Term Loans and recorded as a direct reduction of long-
term debt on the Company’s Consolidated Balance Sheet. Approximately $8.3 million of the capitalized costs were attributed to the
Revolver and recorded within other assets on the Company’s Condensed Consolidated Balance Sheet. These capitalized costs are
being amortized into interest expense over the five year term of the Credit Facility.
As of September 30, 2021, the Company had Credit Facility borrowings outstanding of $888.6 million. As of December 31,
2020, the Company had Credit Facility borrowings outstanding of $887.1 million. The Company has unused capacity under the
Revolver of approximately $197 million, net of bank letters of credit of approximately $4 million, as September 30, 2021. The
Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans,
which totaled $12.1 million as of both September 30, 2021 and December 31, 2020. Total unused capacity under these arrangements
as of September 30, 2021 was approximately $39 million. The Company’s total net debt as of September 30, 2021 was $759.3
million.
The Company estimates that it realized cost synergies in the first nine months of 2021 of approximately $56 million compared to
approximately $40 million in the first nine months of 2020. The Company continues to expect to realize Combination cost synergies
of approximately $75 million in 2021 and $80 million in 2022. The Company continues to expect to incur additional costs and make
associated cash payments to integrate Quaker and Houghton and continue realizing the Combination’s total anticipated cost synergies.
The Company expects total cash payments, including those pursuant to the QH Program, described below, but excluding incremental
capital expenditures related to the Combination, will be approximately 1.3 times its total anticipated 2022 cost synergies of $80
million. A significant portion of these costs were already incurred in 2019, 2020 and the first nine months of 2021, but the Company
expects to continue to incur such costs throughout the remainder of 2021 and into 2022. The Company incurred $13.6 million of total
Combination, integration and other acquisition-related expenses in the first nine months of 2021, which includes $0.7 million of
accelerated depreciation and is net of a $5.4 million gain on the sale of certain held-for-sale real property assets, described in the Non-
GAAP Measures section of this Item below. Comparatively, in the first nine months of 2020, the Company incurred $23.4 million of
total Combination, integration and other acquisition-related expenses , including $0.8 million of accelerated depreciation, described in
the Non-GAAP Measures section of this Item below. The Company had aggregate net cash outflows of approximately $20.0 million
related to the Combination, integration and other acquisition-related expenses during the first nine months of 2021 as compared to
$20.9 million during the first nine months of 2020.
Quaker Houghton’s management approved, and the Company initiated, a global restructuring plan (the “QH Program”) in the
third quarter of 2019 as part of its planned cost synergies associated with the Combination. The QH Program includes restructuring
and associated severance costs to reduce total headcount by approximately 400 people globally and plans for the closure of certain
manufacturing and non-manufacturing facilities. In connection with the plans for closure of certain manufacturing and non-
manufacturing facilities, the Company made a decision to make available for sale certain facilities during the second quarter of 2020.
During the first quarter of 2021, certain of these facilities were sold and the Company recognized a gain on disposal of $5.4 million
included within other income (expense), net on the Condensed Consolidated Statement of Operations. The exact timing and total
costs associated with the QH Program will depend on a number of factors and is subject to change; however, reductions in headcount
and site closures have continued into 2021. The Company currently expects additional headcount reductions and site closures to occur
Quaker Chemical Corporation
Management’s Discussion and Analysis
31
into 2022 and estimates that the anticipated cost synergies realized under the QH Program will approximate one-times restructuring
costs incurred. The Company made cash payments related to the settlement of restructuring liabilities under the QH Program during
the first nine months of 2021 of approximately $4.6 million compared to $12.8 million in the first nine months of 2020.
In the fourth quarter of 2018, the Company began the process of terminating its non-contributory U.S. pension plan (“the Legacy
Quaker U.S. Pension Plan”) and in this process, which was completed during the first quarter of 2020, the Company was required to
fully fund the Legacy Quaker U.S. Pension Plan on a termination basis in the amount of approximately $1.8 million, subject to final
true up adjustments. In the third quarter of 2020, the Company finalized the amount of liability and related annuity payments and
received a refund in premium of $1.6 million. In addition, the Company recorded a non-cash pension settlement charge at plan
termination of approximately $22.7 million in the first quarter of 2020.
As of September 30, 2021, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $30.8
million. The Company cannot determine a reliable estimate of the timing of cash flows by period related to its uncertain tax position
liability. However, should the entire liability be paid, the amount of the payment may be reduced by up to $7.6 million as a result of
offsetting benefits in other tax jurisdictions. During the first nine months of 2021, the Company recorded $13.3 million of non-
income tax credits for certain of its Brazilian subsidiaries. The Company expects to utilize these credits to offset certain Brazilian
federal tax payments over approximately two years beginning in the fourth quarter of 2021. See Note 19 of Notes to Condensed
Consolidated Financial Statements in Item 1 of this Report.
During the third quarter of 2021, two of the Company’s locations suffered property damage as a result of flooding and fire. The
Company maintains property insurance for all of its facilities globally. The Company, its insurance adjuster and insurance carrier are
actively managing the remediation and restoration activities associated with both of these events and at this time the Company has
concluded, based on all available information and discussions with its insurance adjuster and insurance carrier, that the losses incurred
during the third quarter of 2021 will be covered under the Company’s property insurance coverage, net of an aggregate deductible of
$2.0 million. The Company has received advance payments from its insurers of $1.0 million and has recorded an insurance receivable
associated with these events of $1.7 million as of September 30, 2021. The Company and its insurance carrier are in early stages of
reviewing the impact on operations as it relates to a potential business interruption insurance claim; however, as of the date of this
report, the Company cannot reasonably estimate any probable amount of business interruption insurance claim recoverable, therefore
the Company has not recorded a gain contingency for a possible business interruption insurance claim as of September 30, 2021. See
Note 19 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.
The Company believes that its existing cash, anticipated cash flows from operations and available additional liquidity will be
sufficient to support its operating requirements and fund its business objectives for at least the next twelve months, including but not
limited to, payments of dividends to shareholders, costs related to the Combination and integration, pension plan contributions, capital
expenditures, other business opportunities (including potential acquisitions) and other potential contingencies. The Company’s
liquidity is affected by many factors, some based on normal operations of our business and others related to the impact of the
pandemic on our business and on global economic conditions as well as industry uncertainties, which we cannot predict. We also
cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries. We may seek, as we
believe appropriate, additional debt or equity financing which would provide capital for corporate purposes, working capital funding,
additional liquidity needs or to fund future growth opportunities, including possible acquisitions and investments. The timing and
amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including the
actual and projected demand for our products, specialty chemical industry conditions, competitive factors, and the condition of
financial markets, among others.
Non-GAAP Measures
The information in this Form 10-Q includes non-GAAP (unaudited) financial information that includes EBITDA, adjusted
EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-
GAAP earnings per diluted share. The Company believes these non-GAAP financial measures provide meani ngful supplemental
information as they enhance a reader’s understanding of the financial performance of the Company, are indicative of future operating
performance of the Company, and facilitate a comparison among fiscal periods, as the non-GAAP financial measures exclude items
that are not considered indicative of future operating performance or not considered core to the Company’s operations. Non-GAAP
results are presented for supplemental informational purposes only and should not be considered a substitute for the financial
information presented in accordance with GAAP.
Quaker Chemical Corporation
Management’s Discussion and Analysis
32
The Company presents EBITDA which is calculated as net income (loss) attributable to the Company before depreciation and
amortization, interest expense, net, and taxes on income (loss) before equity in net income of associated companies. The Company
also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not considered indicative of future
operating performance or not considered core to the Company’s operations. In addition, the Company presents non-GAAP operating
income which is calculated as operating income plus or minus certain items that are not considered indicative of future operating
performance or not considered core to the Company’s operations. Adjusted EBITDA margin and non-GAAP operating margin are
calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The
Company believes these non-GAAP measures provide transparent and useful information and are widely used by analysts, investors,
and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent
basis.
Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance
measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest
expense, net, and taxes on income before equity in net income of associated companies, in each case adjusted, as applicable, for any
depreciation, amortization, interest or tax impacts resulting from the non -core items identified in the reconciliation of net income
attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per
diluted share as accounted for under the “two-class share method.” The Company believes that non-GAAP net income and non-
GAAP earnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and
competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
The following tables reconcile the Company’s non-GAAP financial measures (unaudited) to their most directly comparable
GAAP (unaudited) financial measures (dollars in thousands unless otherwise noted, except per share amounts):
Non-GAAP Operating Income and Margin Reconciliations
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Operating income
$
36,010
$
34,859
$
119,720
$
24,653
Houghton combination, integration and other
5,963
6,913
18,977
23,442
Restructuring and related charges (b)
(880)
1,383
593
3,585
Fair value step up of acquired inventory sold (c)
—
—
801
226
CEO transition costs (d)
285
—
1,097
—
Inactive subsidiary's non-operating litigation costs (e)
320
—
613
—
Customer bankruptcy costs (f)
—
—
—
463
Facility remediation costs, net (g)
1,490
—
1,490
—
Indefinite-lived intangible asset impairment (h)
—
—
—
38,000
Non-GAAP operating income
$
43,188
$
43,155
$
143,291
$
90,369
Non-GAAP operating margin (%) (p)
9.6%
11.8%
10.9%
8.8%
Quaker Chemical Corporation
Management’s Discussion and Analysis
33
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin
and Non-GAAP Net Income Reconciliations
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Net income (loss) attributable to Quaker Chemical Corporation
$
31,058
$
27,304
$
103,243
$
(8,812)
Depreciation and amortization (a)(m)
21,542
21,022
66,334
63,764
Interest expense, net
5,637
6,837
16,725
22,109
Taxes on income (loss) before equity in net income
795
2,245
26,702
(7,603)
EBITDA
59,032
57,408
213,004
69,458
Equity income in a captive insurance company (i)
(108)
(542)
(4,071)
(697)
Houghton combination, integration and other
5,786
6,913
12,871
22,679
Restructuring and related charges (b)
(880)
1,383
593
3,585
Fair value step up of acquired inventory sold (c)
—
—
801
226
CEO transition costs (d)
285
—
1,097
—
Inactive subsidiary's non-operating litigation costs (e)
320
—
613
—
Customer bankruptcy costs (f)
—
—
—
463
Facility remediation costs, net (g)
2,019
—
2,019
—
Indefinite-lived intangible asset impairment (h)
—
—
—
38,000
Pension and postretirement benefit (income) costs,
(343)
(1,375)
(596)
22,491
Brazilian non-income tax credits (k)
—
—
(13,293)
—
Currency conversion impacts of hyper-inflationary economies (l)
58
154
336
278
Adjusted EBITDA
$
66,169
$
63,941
$
213,374
$
156,483
Adjusted EBITDA margin (%) (p)
14.7%
17.4%
16.2%
15.2%
Adjusted EBITDA
$
66,169
$
63,941
$
213,374
$
156,483
Less: Depreciation and amortization - adjusted (a)
21,365
21,022
65,616
63,002
Less: Interest expense, net
5,637
6,837
16,725
22,109
Less: Taxes on income before equity in net income
9,765
8,337
31,277
15,473
Non-GAAP net income
$
29,402
$
27,745
$
99,756
$
55,899
Quaker Chemical Corporation
Management’s Discussion and Analysis
34
Non-GAAP Earnings per Diluted Share Reconciliations
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
GAAP earnings (loss) per diluted share attributable to
Quaker Chemical Corporation common shareholders
$
1.73
$
1.53
$
5.76
$
(0.50)
Equity income in a captive insurance company
(0.01)
(0.03)
(0.23)
(0.04)
Houghton combination, integration and other
0.26
0.30
0.58
1.03
Restructuring and related charges per diluted share (b)
(0.04)
0.06
0.03
0.15
Fair value step up of acquired inventory sold per diluted share (c)
—
—
0.03
0.01
CEO transition costs per diluted share (d)
0.01
—
0.05
—
Inactive subsidiary's non-operating litigation costs per
0.02
—
0.03
—
Customer bankruptcy costs per diluted share (f)
—
—
—
0.02
Facility remediation costs, net, per diluted share (g)
0.09
—
0.09
—
Indefinite-lived intangible asset impairment per diluted share (h)
—
—
—
1.65
Pension and postretirement benefit (income) costs,
(0.02)
(0.06)
(0.03)
0.83
Brazilian non-income tax credits per diluted share (k)
(0.04)
—
(0.48)
—
Currency conversion impacts of hyper-inflationary
0.00
0.01
0.02
0.02
Impact of certain discrete tax items per diluted share (m)
(0.37)
(0.25)
(0.29)
(0.02)
Non-GAAP earnings per diluted share (q)
$
1.63
$
1.56
$
5.56
$
3.15
(a)
Houghton combination, integration and other acquisition-related expenses include certain legal, financial, and other advisory and
consultant costs incurred in connection with post-closing integration activities including internal control readiness and
remediation. These costs are not indicative of the future operating performance of the Company. Approximately $0.2 million
and $0.7 million in the three and nine months ended September 30, 2021, respectively, and approximately $0.3 million and $1.5
million in the three and nine months ended September 30, 2020, respectively, of these pre-tax costs were considered non-
deductible for the purpose of determining the Company’s effective tax rate, and, therefore, taxes on income before equity in net
income of associated companies - adjusted reflects the impact of these items. During the three and nine months ended September
30, 2021, the Company recorded $0.2 million and $0.7 million, respectively, of accelerated depreciation related to certain of the
Company’s facilities compared to $0.8 million during the nine months ended September 30, 2020, which is included in the
caption “Houghton combination, integration and other acquisition-related expenses” in the reconciliation of operating income to
non-GAAP operating income and included in the caption “Depreciation and amortization” in the reconciliation of net income
(loss) attributable to the Company to EBITDA, but excluded from the caption “Depreciation and amortization - adjusted” in the
reconciliation of adjusted EBITDA to non-GAAP net income attributable to the Company. During the nine months ended
September 30, 2021, the Company recorded a $5.4 million gain on the sale of certain held-for-sale real property assets related to
the Combination which is included in the caption “Houghton combination, integration and other acquisition-related expenses” in
the reconciliation of GAAP earnings (loss) per diluted share attributed to Quaker Chemical Corporation common shareholders to
Non-GAAP earnings per diluted share as well as the reconciliation of net income (loss) attributable to Quaker Chemical
Corporation to Adjusted EBITDA and Non-GAAP net income. See Note 2 of Notes to Condensed Consolidated Financial
Statements, which appears in Item 1 of this Report.
(b)
Restructuring and related charges represent the costs incurred by the Company associated with the QH restructuring program
which was initiated in the third quarter of 2019 as part of the Company’s plan to realize cost synergies associated with the
Combination. These costs are not indicative of the future operating performance of the Company. See Note 7 of Notes to
Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.
(c)
Fair value step up of acquired inventory sold relates to expense associated with selling inventory of acquired businesses which
was adjusted to fair value as a part of purchase accounting. This increase to COGS is not indicative of the future operating
performance of the Company.
Quaker Chemical Corporation
Management’s Discussion and Analysis
35
(d)
CEO transition costs represent the costs related to the Company’s search and hiring of a new CEO in connection with the
previously announced executive transition planned for the end of 2021. These expenses are not indicative of the future operating
performance of the Company.
(e)
Inactive subsidiary’s non -operating litigation costs represents the charges incurred by an inactive subsidiary of the Company and
are a result of the termination of restrictions on insurance settlement reserves as previously disclosed in the Company’s 2020
Form 10-K. These charges are not indicative of the future operating performance of the Company. See Note 9 of Notes to
Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.
(f)
Customer bankruptcy costs represent the cost associated with a specific reserve for trade accounts receivable related to a customer
who filed for bankruptcy protection. These expenses are not indicative of the future operating performance of the Company.
(g)
Facility remediation costs, net, presents the gross costs associated with remediation, cleaning and subsequent restoration costs
associated with the property damages to certain of the Company’s facilities, net of insurance recoveries received. These charges
are non-recurring and are not indicative of the future operating performance of the Company. See Note 19 of Notes to Condensed
Consolidated Financial Statements, which appears in Item 1 of this Report.
(h)
Indefinite-lived intangible asset impairment represents the non-cash charge taken to write down the value of certain indefinite-
lived intangible assets associated with the Houghton Combination. The Company has no prior history of goodwill or intangible
asset impairments and this charge is not indicative of the future operating performance of the Company. See Note 14 of Notes to
Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.
(i)
Equity income in a captive insurance company represents the after-tax income attributable to the Company’s interest in Primex,
Ltd. (“Primex”), a captive insurance company. The Company holds a 32% investment in and has significant influence over
Primex, and therefore accounts for this interest under the equity method of accounting. The income attributable to Primex is not
indicative of the future operating performance of the Company and is not considered core to the Company’s operations.
(j)
Pension and postretirement benefit (income) costs, non-service components represent the pre-tax, non-service component of the
Company’s pension and postretirement net periodic benefit cost in each period. These costs are not indicative of the future
operating performance of the Company. The amount in the nine months ended September 30, 2020 includes the $22.7 million
settlement charge for the Company’s termination of the Legacy Quaker U.S. Pension Plan. See Note 9 of Notes to Condensed
Consolidated Financial Statements, which appears in Item 1 of this Report.
(k)
Brazilian non-income tax credits represent indirect tax credits related to certain of the Company’s Brazilian subsidiaries
prevailing in a legal claim as well as the Brazilian Supreme Court ruling on these non-income tax matters. The third quarter of
2021 impact to Non-GAAP earnings per diluted share reflects the tax only adjustment related to the Brazilian Supreme Court
ruling on the taxability of interest income. The non-income tax credit is non-recurring and not indicative of the future operating
performance of the Company. See Note 19 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of
this Report.
(l)
Currency conversion impacts of hyper-inflationary economies represents the foreign currency remeasurement impacts associated
with the Company’s affiliates whose local economies are designated as hyper-inflationary under U.S. GAAP. During the three
and nine months ended September 30, 2021 and 2020, the Company incurred non-deductible, pre-tax charges related to the
Company’s Argentine affiliates. These charges related to the immediate recognition of foreign currency remeasurement in the
Condensed Consolidated Statements of Operations associated with these entities are not indicative of the future operating
performance of the Company. See Note 1 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of
this Report.
(m)
The impact of certain discrete tax items includes the impact of changes in certain valuation allowance recorded on certain of the
Company’s foreign tax credits, tax law changes in a foreign jurisdiction, changes in withholding rates, the tax impacts of non-
income tax credits associated with certain of the Company’s Brazilian subsidiaries and the associated impact on previously
accrued for distributions at certain of the Company’s Asia/Pacific subsidiaries, the one-time deferred tax benefit recorded on the
transfer of additional intangible assets between the Company’s subsidiaries as well as the offsetting impact and amortization of a
deferred tax benefit the Company recorded in the fourth quarters of 2019 and 2020 related to a similar intercompany intangible
asset transfer. See Note 11 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.
(n)
Depreciation and amortization for the three and nine months ended September 30, 2021 includes approximately $0.3 million and
$0.9 million, respectively, and for the three and nine months ended September 30, 2020 includes $0.2 million and $0.9 million,
respectively, of amortization expense recorded within equity in net income of associated companies in the Company’s Condensed
Consolidated Statements of Operations, which is attributable to the amortization of the fair value step up for the Company’s 50%
interest in a Houghton joint venture in Korea as a result of required purchase accounting.
Quaker Chemical Corporation
Management’s Discussion and Analysis
36
(o)
Taxes on income before equity in net income of associated companies – adjusted presents the impact of any current and deferred
income tax expense (benefit), as applicable, of the reconciling items presented in the reconciliation of net income (loss)
attributable to Quaker Chemical Corporation to adjusted EBITDA, and was determined utilizing the applicable rates in the taxing
jurisdictions in which these adjustments occurred, subject to deductibility. Houghton combination, integration and other
acquisition-related expenses described in (a) resulted in incremental taxes of $1.4 million and $3.1 million during the three and
nine months ended September 30, 2021, and $1.7 million and $5.1 million during the three and nine months ended September 30,
2020, respectively. Restructuring and related charges described in (b) resulted in a tax benefit of $0.2 million and incremental
taxes of $0.1 million during the three and nine months ended September 30, 2021, respectively, and $0.4 million and $0.9 million
for the three and nine months ended September 30, 2020, respectively. Fair value step up of acquired inventory sold described in
(c) resulted in incremental taxes of $0.2 million during the nine months ended September 30, 2021 and less than $0.1 million
during the nine months ended September 30, 2020. CEO transition expenses described in (d) resulted in incremental taxes of $0.1
million and $0.3 million during the three and nine months ended September 30, 2021, respectively. Inactive subsidiary litigation
described in (e) resulted in incremental taxes of $0.1 million and approximately $0.2 million during the three and nine months
ended September 30, 2021, respectively. Customer bankruptcy costs described in (f) resulted in incremental taxes of $0.1 million
during the nine months ended September 30, 2020. Facility fire and flood remediation costs described in (g) resulted in
incremental taxes of $0.5 million in each of the three and nine months ended September 30, 2021. Indefinite-lived intangible
asset impairment described in (h) resulted in incremental taxes of $8.7 million during the nine months ended September 30, 2020.
Pension and postretirement benefit (income) costs, non-service components described in (j) resulted in a tax benefit of
approximately $0.1 million during each of the three and nine months ended September 30, 2021, and a reduction of taxes of $0.3
million and incremental taxes of $7.7 million for the three and nine months ended September 30, 2020, respectively. Brazilian
non-income tax credits described in (k) resulted in incremental taxes of approximately $0.6 million and a tax benefit of $4.7
million during the three and nine months ended September 30, 2021. Tax impact of certain discrete items described in (m) above
resulted in a tax benefit of approximately $6.5 million and $5.1 million during three and nine months ended September 30, 2021,
respectively, and resulted in a tax benefit of $4.5 million and $0.4 million for the three and nine months ended September 30,
2020, respectively.
(p)
The Company calculates adjusted EBITDA margin and non-GAAP operating margin as the percentage of adjusted EBITDA and
non-GAAP operating income to consolidated net sales.
(q)
The Company calculates non-GAAP earnings per diluted share as non -GAAP net income attributable to the Company per
weighted average diluted shares outstanding using the “two-class share method” to calculate such in each given period.
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet items, as defined under Item 303(a)(4) of Regulation S-K as of September 30,
2021. The Company’s only off-balance sheet items outstanding as of September 30, 2021 represented approximately $7 million of
total bank letters of credit and guarantees. The bank letters of credit and guarantees are not significant to the Company’s liquidity or
capital resources. See Note 15 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.
Operations
Consolidated Operations Review – Comparison of the Third Quarter of 2021 with the Third Quarter of 2020
Net sales were $449.1 million in the third quarter of 2021 compared to $367.2 million in the third quarter of 2020. The net sales
increase of approximately $81.8 million or 22% quarter-over-quarter was primarily due to higher sales volumes of 10%, which
includes additional net sales from recent acquisitions of 4%, increases from selling price and product mix of 10% and the positive
impact of foreign currency translation of 2%. The increase in organic sales volumes compared to the third quarter of 2020 was
primarily the result of the continued year-over-year improvement in end market conditions and continued market share gains realized
in the current quarter. Sales from acquisitions is driven by the Company’s acquisition of Coral Chemical Company (“Coral”) in
December 2020 as well as the tin-plating solutions business acquired in February 2021. The increase from selling price and product
mix includes the impact of current year selling price increases implemented in response to the increases in raw material costs
experienced in 2021. The positive impact from foreign currency translation is primarily the result of the strengthening of the Chinese
renminbi, euro, and Mexican peso against the U.S. dollar quarter-over-quarter.
COGS were $303.9 million in the third quarter of 2021 compared to $227.0 million in the third quarter of 2020. The increase in
COGS of 34% was driven by the associated COGS on the increase in net sales described above and continued increases in the
Company’s global raw material costs compared to the prior year quarter and the impacts of supply constraints in the current year.
Gross profit in the third quarter of 2021 of $145.1 million increased $4.9 million or approximately 4% from the third quarter of
2020, due primarily to the increase in net sales noted above. The Company’s reported gross margin in the third quarter of 2021 was
32.3% compared to 38.2% in the third quarter of 2020. The lower current quarter gross margin is driven by significant raw material
cost increases that began in the fourth quarter of 2020 and have continued throughout 2021 and the impacts of constraints on the
world’s global supply chain.
Quaker Chemical Corporation
Management’s Discussion and Analysis
37
SG&A in the third quarter of 2021 increased $7.2 million compared to the third quarter of 2020 due primarily to the impact of
sales increases on direct selling costs, year-over-year inflation increases, additional SG&A from recent acquisitions and higher SG&A
due to foreign currency translation, partially offset by lower incentive compensation quarter-over-quarter as well as the benefits of
additional realized cost savings associated with the Combination quarter-over-quarter. In addition, SG&A was lower in the prior year
period as a result of temporary cost saving measures the Company implemented in response to COVID-19. While the Company
continues to manage costs during the on-going pandemic, it has incurred higher SG&A quarter-over-quarter as the global economy
continues to gradually rebound. The Company estimates that it realized cost synergies associated with the Combination of
approximately $19 million during the third quarter of 2021 compared to approximately $17 million during the third quarter of 2020.
During the third quarter of 2021 and 2020, the Company incurred $5.8 million and $6.9 million, respectively, of Combination,
integration and other acquisition-related expenses primarily for professional fees related to Houghton integration and other
acquisition-related activities. See the Non-GAAP Measures section of this Item, above.
The Company initiated a restructuring program during the third quarter of 2019 as part of its global plan to realize cost synergies
associated with the Combination. The Company incurred restructuring and related charges for reductions in headcount and site
closures under this program, net of adjustments to initial estimates for severance, of a credit of $0.8 million and expense $1.4 million
during the third quarters of 2021 and 2020, respectively. See the Non-GAAP Measures section of this Item, above.
Operating income in the third quarter of 2021 was $36.0 million compared to $34.9 million in the third quarter of 2020.
Excluding Combination, integration and other acquisition-related expenses, restructuring and related charges and other non-core
items, the Company’s current quarter non-GAAP operating income was consistent at $43.2 million in each of the current quarter and
the prior year quarter primarily due to the increase in net sales described above and the benefits from cost savings related to the
Combination offset by an increase in SG&A as well as the significant increases in raw material costs quarter-over-quarter.
The Company had other income, net, of $0.6 million in the third quarter of 2021 compared to other expense, net, of $0.2 million
in the third quarter of 2020. The third quarter of 2021 included foreign currency transaction gains compared to foreign currency
transaction losses incurred in the prior year quarter. In addition, the Company had lower non-service components of pension and
postretirement benefit costs in the current quarter, partially offset by higher losses on fixed asset disposals related to the events
mentioned as facility remediation activities above. See the Non-GAAP Measures section of this Item, above.
Interest expense, net, decreased $1.2 million compared to the third quarter of 2020 driven by lower current quarter borrowings
outstanding as a result of the additional revolver borrowings drawn down in March 2020 at the onset of the pandemic which were
subsequently repaid in September 2020 and, to a lesser extent, a slight decline in overall interest rates quarter-over-quarter.
The Company’s effective tax rates for the third quarters of 2021 and 2020 were 2.6% and 8.1%, respectively. The Company’s
lower current quarter effective tax rate is primarily driven by a one-time deferred tax benefit related to an intercompany intangible
asset transfer, described in the Non-GAAP measures section of this Item, above. Comparatively, the prior year third quarter effective
tax rate was impacted by the tax effect of certain one-time items including benefits related to the impact of tax regulations and other
changes in foreign tax credit valuation allowances, a change in a foreign subsidiary’s statutory rate and impacts related to the
Combination. Excluding the impact of these items as well as all other non-core items in each quarter, described in the Non-GAAP
Measures section of this Item, above, the Company estimates that its third quarters of 2021 and 2020 effective tax rates would have
been approximately 25% and 24%, respectively. The higher estimated current quarter tax rate was primarily driven by the impact of
changes in mix of earnings and provision to return adjustments in the prior period, partially offset with a change in permanent
reinvestment assertions.
Equity in net income of associated companies decreased $1.0 million in the third quarter of 2021 compared to the third quarter of
2020, primarily due to lower current year quarter income from the Company’s interest in a captive insurance company as well as from
its 50% interest in a joint venture in Korea compared to the prior year quarter. See the Non-GAAP Measures section of this Item,
above.
Net income attributable to noncontrolling interest was less than $0.1 million in both the third quarters of 2021 and 2020.
Foreign exchange positively impacted the Company’s third quarter results by approximately 10% driven by the positive impact
from foreign currency translation on earnings as well as foreign exchange transaction gains in the current year quarter as compared to
foreign exchange transaction losses in the prior year third quarter.
Consolidated Operations Review – Comparison of the First Nine Months of 202 1 with the First Nine Months of 2020
Net sales were $1,314.1 million in the first nine months of 2021 compared to $1,031.8 million in the first nine months of 2020.
The net sales increase of $282.3 million or 27% period-over-period reflects a benefit from higher sales volumes of 18%, which
includes additional net sales from recent acquisitions of 4%, increases in selling price and product mix of 5%, and the positive impact
from foreign currency translation of 4%. The increase in sales volumes compared to the first nine months of 2020 was primarily due
to improved end market conditions from the prior year impacts of COVID-19 and continued market share gains. Additional net sales
Quaker Chemical Corporation
Management’s Discussion and Analysis
38
from acquisitions relate primarily to the acquisitions of a tin-plating solutions business and Coral, acquired in February 2021 and
December 2020, respectively. The increase from selling price and product mix includes the benefits of current year selling price
increases implemented to date to help offset the rising raw material and input costs. The positive impact from foreign currency
translation is primarily the result of the strengthening of the euro and Chinese Renminbi against the U.S. dollar year-over-year.
COGS were $858.3 million in the first nine months of 2021 compared to $660.4 million in the first nine months of 2020. The
increase in COGS of 30% was driven by the associated COGS on the increase in net sales as described above, and the higher raw
material costs noted in the quarterly discussion.
Gross profit in the first nine months of 2021 increased $84.3 million or 23% from the first nine months of 2020, due primarily to
the increase in net sales described above. The Company’s reported gross margin in the first nine months of 2021 was 34.7%
compared to 36.0% in the first nine months of 2020. The Company’s lower current year gross margin was primarily due to the
significant raw material increases described in the third quarter discussion above.
SG&A in the first nine months of 2021 increased $34.8 million compared to the first nine months of 2020 due primarily to the
same drivers described in the third quarter discussion above.
During the first nine months of 2021 and 2020, the Company incurred $18.3 million and $22.8 million, respectively, of
Combination, integration and other acquisition-related expenses primarily for professional fees related to Houghton integration and
other acquisition-related activities. See the Non-GAAP Measures section of this Item, above.
As described above, the Company initiated a restructuring program during the third quarter of 2019 as part of its global plan to
realize cost synergies associated with the Combination. The Company recorded restructuring and related charges of $0.6 million
during the first nine months of 2021 compared to $3.6 million during the first nine months of 2020 under this program. See the Non-
GAAP Measures section of this Item, above.
During the first quarter of 2020, the Company recorded a $38.0 million non-cash impairment charge to write down the value of
certain indefinite-lived intangible assets associated with the Combination. This non-cash impairment charge is related to certain
acquired Houghton trademarks and tradenames and was primarily the result of the projected negative impacts of COVID-19 as of
March 31, 2020 on their estimated fair values. There was no similar impairment charges recorded during the first nine months of
2021.
Operating income in the first nine months of 2021 was $119.7 million compared to $24.7 million in the first nine months of 2020.
Excluding Combination, integration and other acquisition-related expenses, restructuring and related charges, the non-cash indefinite-
lived intangible asset impairment charge, and other non -core items, the Company’s current year non-GAAP operating income of
$143.3 million increased compared to $90.4 million in the prior year period, primarily due to the increase in net sales described above
and the continued benefits from cost savings related to the Combination , partially offset by higher SG&A and the negative impact of
significant increases in raw material costs due to constraints on the overall global supply chain.
The Company’s other income, net, was $19.3 million in the first nine months of 2021 compared to other expense, net of $22.4
million in the prior year period. The year-over-year change was primarily due to other income related to certain non-income tax
credits recorded by the Company’s Brazilian subsidiaries during the second quarter of 2021 as well as the gain on the sale of certain
held-for-sale real property assets during the first quarter of 2021 compared to a first quarter of 2020 pension plan settlement charge
associated with the termination of the Legacy Quaker U.S. Pension Plan. See the Non-GAAP Measures section of this Item, above.
Interest expense, net, decreased $5.4 million in the first nine months of 2021 compared to the first nine months of 2020 driven by
lower current year borrowings outstanding as a result of the additional revolver borrowings drawn down in March 2020 at the onset of
the pandemic as well as a decline in overall interest rates year-over-year, as the weighted average interest rate incurred on borrowings
under the Company’s credit facility was approximately 1.6% during the first nine months of 2021 compared to approximately 2.2%
during the first nine months of 2020.
The Company’s effective tax rates for the first nine months of 2021 and 2020 were an expense of 21.8% compared to a benefit of
38.3%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2021 was impacted by certain U.S.
tax law changes, the tax impact of certain non-income tax credits recorded by the Company’s Brazilian subsidiaries, and a deferred tax
benefit related to an intercompany intangible asset transfer. Comparatively, the prior year first nine months effective tax rate was
impacted by the tax effect of certain one-time pre-tax losses as well as certain tax charges and benefits in the period including those
related to changes in foreign tax credit valuation allowances, tax law changes in a foreign jurisdiction, the tax impacts of the
Company’s termination of its Legacy Quaker U.S. Pension Plan and the Houghton indefinite-lived trademarks and tradename
intangible asset impairment. Excluding the impact of these items as well as all other non-core items in each year, described in the
Non-GAAP Measures section of this Item, above, the Company estimates that its first nine months of 2021 and 2020 effective tax
rates were relatively consistent at approximately 25% and 23%, respectively. The year-over-year increase was largely driven by the
impact of changes in pre-tax income levels on certain tax adjustments in each period and the mix of earnings, as well as withholding
taxes on repatriations and provision to return adjustments in the prior period, partially offset with a change in permanent reinvestment
Quaker Chemical Corporation
Management’s Discussion and Analysis
39
assertions. The Company may experience continued volatility in its effective tax rates due to several factors, including the timing of
tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, the unpredictability of the
timing and amount of certain incentives in various tax jurisdictions, the treatment of certain acquisition-related costs and the timing
and amount of certain share-based compensation-related tax benefits, among other factors. In addition, the foreign tax credit valuation
allowance is based on a number of variables, including forecasted earnings, which may vary.
Equity in net income of associated companies increased $4.1 million in the first nine months of 2021 compared to the first nine
months of 2020, primarily due to higher current year earnings from the Company’s interest in a captive insurance company. See the
Non-GAAP Measures section of this Item, above. In addition, the Company had slightly higher earnings year-over-year from the
Company’s 50% interest in its joint venture in Korea.
Net income attributable to noncontrolling interest was less than $0.1 million in both the first nine months of 2021 and 2020.
Foreign exchange positively impacted the Company’s first nine months of 2021 results by approximately 6% driven by the
positive impact from foreign currency translation on earnings as well as lower foreign exchange transaction losses in the current year
as compared to the prior year period.
Reportable Segments Review - Comparison of the Third Quarter of 2021 with the Third Quarter of 2020
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 chief operating decision maker of the Company assesses its
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 the Company’s reportable segments are comprised of net sales less COGS and SG&A directly
related to the respective segment’s product sales. 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,
Restructuring and related charges, and COGS related to acquired inventory sold, which is adjusted to fair value as part of purchase
accounting, 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.
Americas
Americas represented approximately 34% of the Company’s consolidated net sales in the third quarter of 2021. The segment’s
net sales were $150.8 million, an increase of $31.3 million or 26% compared to the third quarter of 2020. Excluding sales from
acquisitions, the segment’s net sales increase quarter-over-quarter of approximately 21% was driven by higher volumes of 9%, a
benefit in selling price and product mix of 10% and the positive impact of foreign currency translation of 2%. The current quarter
organic volume increase was driven by the continued improvement in end market conditions compared to the prior year quarter which
was impacted by COVID-19. The increase in selling price and product mix is primarily driven by price increases implemented to help
offset the significant increases in raw material and other input costs incurred during 2021. The foreign exchange impact was primarily
driven by the strengthening of the Mexican peso against the U.S. dollar, as this exchange rate averaged 20.02 in the third quarter of
2021 compared to 22.06 during the third quarter of 2020. This segment’s operating earnings were $31.3 million, an increase of $0.2
million or 1% compared to the third quarter of 2020. The relatively consistent segment operating earnings quarter-over-quarter is the
net result of increases in net sales, described above, offset by lower gross margins driven by the continued raw material cost increases
and global supply chain and logistics pressures coupled with higher SG&A including an increase in direct selling costs associated with
higher net sales, SG&A from acquisitions and an increase in SG&A as the prior year third quarter included temporary cost savings
measures implemented in response to the onset of the COVID-19 pandemic.
EMEA
EMEA represented approximately 27% of the Company’s consolidated net sales in the third quarter of 2021. The segment’s net
sales were $122.2 million, an increase of $28.3 million or 30% compared to the third quarter of 2020. The increase in net sales was
driven by a benefit from selling price and product mix of 19%, increases in organic volumes of approximately 9%, the positive impact
of foreign currency translation of 1%, and additional net sales from acquisitions of 1%. The increase in selling price and product mix
is primarily driven by price increases implemented to offset the significant increase in raw material and other input costs incurred
during 2021. The current quarter volume increase was driven by the continued improvement in end market conditions compared to
the prior year quarter which was heavily impacted by COVID-19. The foreign exchange impact was primarily driven by the
strengthening of the euro against the U.S. dollar as this exchange rate averaged 1.18 in the third quarter of 2021 compared to 1.17 in
the third quarter of 2020. This segment’s operating earnings were $20.2 million, an increase of $2.7 million or 16% compared to the
third quarter of 2020. The increase in segment operating earnings reflects the higher net sales described above, partially offset by
Quaker Chemical Corporation
Management’s Discussion and Analysis
40
lower current quarter gross margins driven by the continued raw material cost increases and global supply chain and logistics
pressures as well as higher SG&A including increases in direct selling costs associated with higher net sales as well as increases as the
prior year third quarter included temporary cost savings measures implemented in response to the onset of the COVID-19 pandemic.
Asia/Pacific
Asia/Pacific represented approximately 22% of the Company’s consolidated net sales in the third quarter of 2021. The segment’s
net sales were $98.7 million, an increase of approximately $13.8 million or 16% compared to the third quarter of 2020. The increase
in net sales quarter-over-quarter was driven by increases in volumes of 7%, the positive impact of foreign currency translation of 5%,
increases from selling price and product mix of 3% and additional net sales from acquisitions of 1%. The current quarter volume
increase was driven by the continued improvement in end market conditions compared to the prior year quarter which was impacted
by COVID-19. The foreign exchange impact was primarily due to the strengthening of the Chinese renminbi against the U.S. dollar as
this exchange rate averaged 6.47 in the third quarter of 2021 compared to 6.92 in the third quarter of 2020. This segment’s operating
earnings were $23.3 million, a decrease of $4.0 million or 15% compared to the third quarter of 2020. The decrease in segment
operating earnings was largely driven by the continued raw material cost increases and global supply chain and logistics pressures as
well as higher direct selling costs associated with higher net sales.
Global Specialty Businesses
Global Specialty Businesses represented approximately 17% of the Company’s consolidated net sales in the third quarter of 2021.
The segment’s net sales were $77.4 million, an increase of $8.6 million or 12% compared to the third quarter of 2020. Excluding net
sales from acquisitions, the segment’s net sales would have increased 5% quarter-over-quarter driven by increases in selling price and
product mix, including Norman Hay, of 13% and the positive impact of foreign currency translation of 2% partially offset by volume
declines of 10%. Both the changes in selling price and product mix and sales volumes were primarily driven by higher amounts of
shipments of a lower priced product in the Company’s mining business in the prior year period. The foreign exchange impact was a
result of similar strengthening of certain currencies in EMEA and Americas as described above. This segment’s operating earnings
were $20.7 million, a decrease of $0.5 million or 2% compared to the third quarter of 2020. The decrease in segment operating
earnings was driven by the continued raw material cost increases and global supply chain and logistics pressures as well as higher
SG&A, including SG&A from acquisitions in the current year quarter.
Reportable Segments Review - Comparison of the First Nine months of 2021 with the First Nine months of 2020
Americas
Americas represented approximately 32% of the Company’s consolidated net sales in the first nine months of 2021. The
segment’s net sales were $425.3 million, an increase of $95.3 million or 29% compared to the first nine months of 2020. The increase
in net sales was due to higher sales volumes of approximately 16%, additional net sales from acquisitions of 6% primarily resulting
from Coral, benefits from selling price and product mix of 6%, and the positive impact of foreign currency translation of 1%. The
current year volume increase was driven by the continued economic rebound from the COVID-19 slowdown that began in late March
and continued throughout the third quarter of 2020. This segment’s operating earnings were $97.2 million, an increase of $26.6
million or 38% compared to the first nine months of 2020. The increase in segment operating earnings reflects the higher net sales
described above, partially offset by lower gross margins in the current year period coupled with higher SG&A, including SG&A from
acquisitions primarily due to the same drivers as described in the third quarter discussion above.
EMEA
EMEA represented approximately 28% of the Company’s consolidated net sales in the first nine months of 2021. The segment’s
net sales were $365.5 million, an increase of $88.9 million or 32% compared to the first nine months of 2020. The increase in net
sales was due to higher sales volumes of 15%, increases in selling price and product mix of 8%, the positive impacts from foreign
exchange translation of 7% and additional net sales from acquisitions of 2%. The current year volume increase was driven by the
continued economic rebound from the COVID-19 slowdown. The foreign exchange impact was primarily due to the strengthening of
the euro and British pound against the U.S. dollar as these exchange rates averaged 1.20 and 1.39, respectively, during the first nine
months of 2021 compared to 1.12 and 1.27, respectively, during the first nine months of 2020. This segment’s operating earnings
were $68.8 million, an increase of $22.5 million or 49% compared to the first nine months of 2020. The increase in segment operating
earnings reflect the higher net sales described above partially offset lower gross margins in the current year period coupled with higher
direct selling expenses on the increase in net sales primarily due to the same drivers as described in the third quarter discussion above.
Asia/Pacific
Asia/Pacific represented approximately 22% of the Company’s consolidated net sales in the first nine months of 2021. The
segment’s net sales were $286.9 million, an increase of $60.1 million or 26% compared to the first nine months of 2020. The increase
in net sales was driven by higher sales volumes of approximately 19% and the positive impact of foreign currency translation of 7%.
The current year volume increase was driven by the continued gradual economic rebound from the COVID-19 slowdown as the
pandemic notably impacted China beginning in the first quarter of 2020 and then the rest of the region through the third quarter of
Quaker Chemical Corporation
Management’s Discussion and Analysis
41
2020. The foreign exchange impact was primarily due to the strengthening of the Chinese renminbi against the U.S. dollar as this
exchange rate averaged 6.47 during the first nine months of 2021 compared to 6.99 during the first nine months of 2020. This
segment’s operating earnings were $74.0 million, an increase of $7.9 million or 12% compared to the first nine months of 2020. The
increase in segment operating earnings reflect the higher net sales described above partially offset lower gross margins in the current
year period coupled with higher direct selling expenses on the increase in net sales primarily due to the same drivers as described in
the third quarter discussion above.
Global Specialty Businesses
Global Specialty Businesses represented 18% of the Company’s consolidated net sales in the first nine months of 2021. The
segment’s net sales were $236.4 million, an increase of $37.9 million or 19% compared to the first nine months of 2020. The increase
in net sales was driven by benefits from selling price and product mix, including Norman Hay, of 16%, additional net sales from
acquisitions of 7% primarily driven by Coral, and the positive impact of foreign currency transaction of 3%, partially offset by
decreases in volumes of 7%. The foreign exchange impact was a result of similar strengthening of certain currencies in EMEA and
Americas as described above. Both the changes in selling price and product mix and sales volumes were primarily driven by higher
shipments of a lower priced product in the Company’s mining business in the period year period. This segment’s operating earnings
were $69.0 million, an increase of $10.9 million or 19% compared to the first nine months of 2020. The increase in segment operating
earnings reflects the higher net sales described above, partially offset by lower gross margins in the current year period coupled with
higher SG&A, including SG&A from acquisitions primarily due to the same drivers as described in the third quarter discussion above.
Quaker Chemical Corporation
Management’s Discussion and Analysis
42
Factors That May Affect Our Future Results
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
Certain information included in this Report and other materials filed or to be filed by Quaker Chemical Corporation with the
Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or
to be made by us) contain or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the
fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements, including statements
regarding the potential effects of the COVID-19 pandemic and global supply chain constraints on the Company’s business, results of
operations, and financial condition, our expectation that we will maintain sufficient liquidity and remediate any of our material
weaknesses in internal control over financial reporting, and statements regarding the impact of increased raw material costs and
pricing initiatives on our current expectations about future events.
These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations,
anticipations, intentions, financial condition, results of operations, future performance, and business, including:
•
the potential benefits of the Combination and other acquisitions;
•
the impacts on our business as a result of the COVID-19 pandemic and any projected global economic rebound or
anticipated positive results due to Company actions taken in response;
•
cost increases in prices of raw materials and the impacts of constraints and disruptions in the global supply chain;
•
our current and future results and plans; and
•
statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,”
“intend,” “plan” or similar expressions.
Such statements include information relating to current and future business activities, operational matters, capital spending, and
financing sources. From time to time, forward-looking statements are also included in the Company’s other periodic reports on Forms
10-K, 10-Q and 8-K, press releases, and other materials released to, or statements made to, the public.
Any or all of the forward-looking statements in this Report, in the Company’s Annual Report to Shareholders for 2020 and in any
other public statements we make may turn out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence
of known or unknown risks and uncertainties. Many factors discussed in this Report will be important in determining our future
performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking
statements.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future
events or otherwise. However, any further disclosures made on related subjects in the Company’s subsequent reports on Forms 10-K,
10-Q, 8-K and other related filings should be consulted. A major risk is that demand for the Company’s products and services is
largely derived from the demand for our customers’ products, which subjects the Company to uncertainties related to downturns in a
customer’s business and unanticipated customer production slowdowns and shutdowns, including as is currently being experienced by
many automotive industry companies as a result of supply chain disruption. Other major risks and uncertainties include, but are not
limited to, the primary and secondary impacts of the COVID-19 pandemic, including actions taken in response to the pandemic by
various governments, which could exacerbate some or all of the other risks and uncertainties faced by the Company, as well as the
potential for significant increases in raw material costs, supply chain disruptions, customer financial instability, worldwide economic
and political disruptions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist
attacks and other acts of violence. Furthermore, the Company is subject to the same business cycles as those experienced by our
customers in the steel, automobile, aircraft, industrial equipment, and durable goods industries. The ultimate impact of COVID-19 on
our business will depend on, among other things, the extent and duration of the pandemic, the severity of the disease and the number
of people infected with the virus including as new variants emerge, the continued uncertainty regarding global availability,
administration, acceptance and long-term efficacy of vaccines, or other treatments for COVID-19 or its variants, the longer-term
effects on the economy of the pandemic, including the resulting market volatility, and by the measures taken by governmental
authorities and other third parties restricting day-to-day life and business operations and the length of time that such measures remain
in place, as well as laws and other governmental programs implemented to address the pandemic or assist impacted businesses, such
as fiscal stimulus and other legislation designed to deliver monetary aid and other relief. Other factors could also adversely affect us,
including those related to the Combination and other acquisitions and the integration of acquired businesses. Our forward-looking
statements are subject to risks, uncertainties and assumptions about the Company and its operations that are subject to change based
on various important factors, some of which are beyond our control. These risks, uncertainties, and possible inaccurate assumptions
relevant to our business could cause our actual results to differ materially from expected and historical results.
Quaker Chemical Corporation
Management’s Discussion and Analysis
43
Therefore, we caution you not to place undue reliance on our forward-looking statements. For more information regarding these
risks and uncertainties as well as certain additional risks that we face, refer to the Risk Factors section, which appears in Item 1A in
our 2020 Form 10-K and in our quarterly and other reports filed from time to time with the SEC. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995 .
Quaker Houghton on the Internet
Financial results, news and other information about Quaker Houghton can be accessed from the Company’s website at
https://www.quakerhoughton.com. This site includes important information on the Company’s locations, products and services,
financial reports, news releases and career opportunities. The Company’s periodic and current reports on Forms 10-K, 10-Q, 8-K, and
other filings, including exhibits and supplemental schedules filed therewith, and amendments to those reports, filed with the SEC are
available on the Company’s website, free of charge, as soon as reasonably practicable after they are electronically filed with or
furnished to the SEC. Information contained on, or that may be accessed through, the Company’s website is not incorporated by
reference in this Report and, accordingly, you should not consider that information part of this Report.
44
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We have evaluated the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on Form
10-K for the year ended December 31, 2020, and we believe there has been no material change to that information.
45
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures.
amended (the “Exchange Act”), our management, including our principal executive officer and principal financial officer, has
evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act ) as of the
end of the period covered by this Report. Based on that evaluation, our principal executive officer and our principal financial officer
have concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Exchange Act) were not effective as of September 30, 2021 because of the material weaknesses in our internal
control over financial reporting, as described below.
As previously disclosed in “Item 9A. Controls and Procedures.” in the Company’s 2020 Form 10-K, through the process of
evaluating risks and corresponding changes to the design of existing or the implementation of new controls in light of the significant
non-recurring transactions that occurred during 2019, including the Combination, the Company identified certain deficiencies in its
application of the principles associated with the
Committee of Sponsoring Organization of the Treadway Commission in Internal
Control – Integrated Framework (2013)
weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.
We did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing
controls or the implementation of new controls were not sufficient to respond to changes to the risks of material misstatement in
financial reporting as a result of becoming a larger, more complex global organization due to the Combination. This material
weakness also contributed to an additional material weakness as we did not design and maintain effective controls over the review of
pricing, quantity and customer data to verify that revenue recognized was complete and accurate. These material weaknesses did not
result in material misstatements to the interim or annual consolidated financial statements. However, these material weaknesses could
result in misstatements to our account balances and disclosures that could result in a material misstatement to the interim or annual
consolidated financial statements that would not be prevented or detected.
Notwithstanding these material weaknesses, the Company has concluded that the unaudited condensed consolidated financial
statements included in this Report present fairly, in all material respects, the financial position of the Company as of September 30,
2021 and December 31, 2020, and that the results of its operations and its cash flows and changes in equity for both the three and nine
month periods ended September 30, 2021 and 2020, are in conformity with accounting principles generally accepted in the United
States of America.
Progress on Remediation of Material Weaknesses
The Company and its Board of Directors, including the Audit Committee of the Board of Directors, are committed to maintaining
a strong internal control environment. Since identifying the material weaknesses, the Company has dedicated a significant amount of
time and resources to remediate all of the previously identified material weaknesses as quickly and effectively as possible. During
2020 and into 2021, the Company dedicated multiple internal resources and supplemented those internal resources with various third-
party specialists to assist with the formalization of a robust and detailed remediation plan. In undertaking remediation activities, the
Company has hired additional personnel dedicated to financial and information technology compliance to further supplement its
internal resources. In addition, the Company has established a global network of personnel to assist local management in
understanding control performance and documentation requirements. In order to sustain this network, the Company conducts periodic
trainings and hosts discussions to address questions on a current basis. However, the impact of COVID-19, including travel
restrictions and remote work arrangements required the Company to adapt and make changes to its internal controls integration plans
as well as its remediation plans, and has presented and is expected to continue to present challenges with regards to the timing of the
Company’s remediation and integration plan activities.
Despite the challenges brought on by COVID-19 and driven by the Company’s priority of creating a long-term sustainable control
structure to ensure stability for a company that has more than doubled in size since August 2019, the Company continues to make
substantial strides towards remediating the underlying causes of the previously disclosed material weaknesses in our risk assessment
process and within our revenue process, as further discussed below.
Risk Assessment –
to the risks of material misstatement to financial reporting. In order to remediate this material weakness, we have designed and
implemented an improved risk assessment process, including identifying and assessing those risks attendant to the significant changes
within the Company as a result of becoming a larger, more complex global organization due to the Combination. During 2020, a full
review was performed of our processes and controls across significant locations in order to identify and address potential design gaps.
In addition to individual transactional-level control enhancements, this review resulted in (i) an enhanced financial statement risk
assessment, (ii) the standardization of existing legal entity and newly implemented segment quarterly analytics and quarterly closing
packages completed by key financial reporting personnel, (iii) a global account reconciliation review program and (iv) enhancements
to our quarterly identification and reassessment of new and existing business and information technology risks that could affect our
financial reporting. Monitoring is also performed through our enhanced quarterly controls certification process, whereby changes in
business or information technology processes or control owners are identified and addressed timely. Although we have implemented
46
and tested the additional controls as noted in our remediation plan and found them to be effective, this material weakness will not be
considered remediated due to the Revenue – Price and Quantity material weakness, discussed below. Once the Revenue – Price and
Quantity material weakness is remediated, we expect the Risk Assessment material weakness will also be remediated.
Revenue – Price and Quantity –
We previously determined that we did not design and maintain effective controls over the review
of pricing, quantity and customer data to verify that revenue recognized was complete and accurate. In order to remediate this
material weakness, the Company made significant progress in its redesign of certain aspects of its revenue process and related
controls. The Company has identified and agreed upon design enhancements and requirements for each revenue sub-process. The
design includes enhancements to entity-level and transactional-level manual controls as well as IT general and application controls.
During the third quarter of 2021 and through the date of this Form 10-Q filing for the period ended September 30, 2021, the Company
has implemented these design changes. While the Company believes that the enhancements to these entity-level, transactional and IT
general and application controls will sufficiently address the material weakness previously identified, because the additional controls
have not been fully tested, this material weakness is not yet remediated. The existing material weakness will not be considered
remediated until the applicable remedial controls have been operat ing for a sufficient period of time and management has concluded,
through testing, that the controls are operating effectively.
Given the significant resources the Company has dedicated to remediation of its material weaknesses, the Company is committed
to remediation and expects that in 2021 it will successfully remediate its price and quantity and its risk assessment material
weaknesses.
Changes in internal control over financial reporting.
management, including our principal executive officer and principal financial officer, has evaluated our internal control over
financial reporting to determine whether any changes to our internal control over financial reporting occurred during the
quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. Based on that evaluation, as described above, there were changes that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended
September 30, 2021.
47
PART II.
OTHER INFORMATION
Items 3, 4 and 5 of Part II are inapplicable and have been omitted.
Item 1. Legal Proceedings.
Incorporated by reference is the information in Note 19 of the Notes to the Condensed Consolidated Financial Statements in Part
I, Item 1, of this Report.
Item 1A. Risk Factors.
The Company’s business, financial conditions, results of operations and cash flows are subject to various risks that could cause
actual results to vary materially from recent results or from anticipated future results. In addition to the other information set forth in
this Report, you should carefully consider the risk factors previously disclosed in Part I, Item 1A of our 2020 Form 10-K. There have
been no material changes to the risk factors described therein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth information concerning shares of the Company’s common stock acquired by the Company during
the period covered by this Report:
(c)
(d)
Total Number of
Approximate Dollar
(a)
(b)
Shares Purchased
Value of Shares that
Total Number
Average
as part of
May Yet be
of Shares
Price Paid
Publicly Announced
Purchased Under the
Period
Purchased (1)
Per Share (2)
Plans or Programs
Plans or Programs (3)
July 1 - July 31
—
$
—
—
$
86,865,026
August 1 - August 31
491
$
251.74
—
$
86,865,026
September 1 - September 30
34
$
240.64
—
$
86,865,026
Total
525
$
251.02
—
$
86,865,026
(1)
All of these shares were acquired from employees upon their surrender of Quaker Chemical Corporation shares in payment of
the exercise price of employee stock options exercised or for the payment of taxes upon exercise of employee stock options
or the vesting of restricted stock awards or units.
(2)
The price paid for shares acquired from employees pursuant to employee benefit and share-based compensation plans is, in
each case, based on the closing price of the Company’s common stock on the date of exercise or vesting as specified by the
plan pursuant to which the applicable option, restricted stock award, or restricted stock unit was granted.
(3)
On May 6, 2015, the Board of Directors of the Company approved, and the Company announced, a share repurchase
program, pursuant to which the Company is authorized to repurchase up to $100,000,000 of Quaker Chemical Corporation
common stock (the “2015 Share Repurchase Program”), and it has no expiration date. There were no shares acquired by the
Company pursuant to the 2015 Share Repurchase Program during the quarter ended September 30, 2021.
Limitation on the Payment of Dividends
The Credit Facility has certain limitations on the payment of dividends and other so-called restricted payments. See Note 15 of
Notes to Condensed Consolidated Financial Statements, in Part I, Item 1, of this Report.
48
Item 6. Exhibits.
(a) Exhibits
3.1
–
3.2
–
10.1
–
10.2
–
10.3
–
31.1
–
31.2
–
32.1
–
32.2
–
101.INS
Inline XBRL Instance Document*
101.SCH
Inline XBRL Taxonomy Extension Schema Document*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)*
* Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan.
*********
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
QUAKER CHEMICAL CORPORATION
/s/ Shane W. Hostetter
Date: November 4, 2021
Shane W. Hostetter, Senior Vice President, Chief Financial
Officer (officer duly authorized on behalf of, and principal
financial officer of, the Registrant)
EXHIBIT 10.1
1
EMPLOYMENT AGREEMENT
September 2, 2021
NAME:
Andrew Tometich
[ REDACTED ]
[ REDACTED ]
The parties to this Employment Agreement (“Agreement”) are Andrew Tometich (“You” or the “Executive”) and
Quaker Chemical Corporation, d/b/a Quaker Houghton, a Pennsylvania corporation (“Quaker Houghton” or the
“Company”).
You are hereby appointed as the Company’s Chief Executive Officer and President effective December 1, 2021
with an anticipated start date of on or about October 11, 2021.
legally bound hereby the parties hereto agree as follows:
1.
Duties
President. You shall perform all duties consistent with such position as well as any other duties that are assigned to you
from time to time by Quaker Houghton’s Board of Directors. You agree that during the term of your employment with
Quaker Houghton to devote your knowledge, skill, and working time solely and exclusively to the business and interests of
Quaker Houghton and its subsidiaries.
2. Compensation
you will be entitled to participate, to the extent eligible, in any of Quaker Houghton’s annual and long term incentive plans,
retirement savings plan (401k plan), and will be entitled to vacations, paid holidays, and medical, dental, and other benefits
as are made generally available by Quaker Houghton to its full-time U.S. employees. During your employment with Quaker
Houghton, your salary will not be reduced by Quaker Houghton without your prior written consent. Your initial
compensation and benefits are outlined on Addendum 1, which is attached hereto and made a part hereof.
3. Term of Employment
.
Your employment with Quaker Houghton may be terminated on ninety (90) days' written notice by either party,
with or without cause or reason whatsoever. Within ninety (90) days after termination of your employment, you will be
given an accounting of all monies due you. Notwithstanding the foregoing, Quaker Houghton has the right to terminate your
employment upon less than ninety (90) days’ notice for Cause (as defined below).
2
4. Covenant Not to Disclose
a. As Chief Executive Officer, you acknowledge that the identity of Quaker Houghton's (and any of Quaker
Houghton's affiliates’) customers, the requirements of such customers, pricing and payment terms quoted and charged to
such customers, the identity of Quaker Houghton's suppliers and terms of supply (and the suppliers and related terms of
supply of any of Quaker Houghton's customers for which chemical and other management services are being provided),
information concerning the method and conduct of Quaker Houghton's (and any affiliate’s) business such as formulae,
formulation information, application technology, manufacturing information, marketing information, strategic and
marketing plans, financial information, financial statements (audited and unaudited), budgets, corporate practices and
procedures, research and development efforts, and laboratory test methods and all of Quaker Houghton's (and its affiliates’)
manuals, documents, notes, letters, records, and computer programs are Quaker Houghton's confidential information
("Confidential Information") and are Quaker Houghton’s (and/or any of its affiliates’, as the case may be) sole and exclusive
property. You agree that at no time during or following your employment with Quaker Houghton will you appropriate for
your own use, divulge or pass on, directly or through any other individual or entity or to any third party, any Quaker
Houghton Confidential Information. Upon termination of your employment with Quaker Houghton and prior to final
payment of all monies due to you under Section 2 or at any other time upon Quaker Houghton's request, you agree to
surrender immediately to Quaker Houghton any and all materials in your possession or control which include or contain
any Quaker Houghton Confidential Information.
b. You acknowledge that, by this Section 4(b), you have been notified in accordance with the Defend Trade
Secrets Act that, notwithstanding the foregoing:
(i)
You will not be held criminally or civilly liable under any federal or state trade secret law or this
Agreement for the disclosure of Confidential Information that: (A) you make (1) in confidence to a federal, state, or local
government official, either directly or indirectly, or to your attorney; and (2) solely for the purpose of reporting or
investigating a suspected violation of law; or (B) you make in a complaint or other document that is filed under seal in a
lawsuit or other proceeding.
(ii)
If you file a lawsuit for retaliation by Quaker Houghton for reporting a suspected violation of law,
you may disclose Confidential Information to your attorney and use the Confidential Information in the court proceeding if
you: (A) file any document containing Confidential Information under seal and (B) do not disclose Confidential Information,
except pursuant to court order.
impede or interfere with your right, without prior notice to Quaker Houghton, to provide information to the government,
participate in any government investigations, file a court or administrative complaint, testify in proceedings regarding
Quaker Houghton’s past or future conduct, or engage in any future activities protected under any statute administered by
any government agency.
5. Covenant Not to Compete
In consideration of your position of Chief Executive Officer for Quaker Houghton and the training and Confidential
Information you are to receive from Quaker Houghton, you agree that during your employment with Quaker Houghton and
for a period of eighteen (18) months thereafter, regardless of the reason for your termination, you will not:
a. directly or indirectly, together or separately or with any third party, whether as an employee, individual
proprietor, partner, stockholder, officer, director, or investor, or in a joint venture or any other capacity whatsoever, actively
engage in business or assist anyone or any firm in business as a manufacturer, seller, or distributor of specialty chemical
products which are the same, like, similar to, or which compete with Quaker Houghton’s (or any of its affiliates’) products
or services; and
b. directly or indirectly recruit, solicit or encourage any Quaker Houghton (or any of its affiliates’) employee
or otherwise induce such employee to leave Quaker Houghton’s (or any of its affiliates’) employ, or to become an employee
or otherwise be associated with you or any firm, corporation, business, or other entity with which you are or may become
associated; and
3
c. solicit or induce any of Quaker Houghton's suppliers of products and/or services (or a supplier of products
and/or services of a customer who is being provided or solicited for the provision of chemical management or other services
by Quaker Houghton) to terminate or alter its contractual relationship with Quaker Houghton (and/or any such customer).
The parties consider these restrictions reasonable, including the period of time during which the restrictions are
effective. However, if any restriction or the period of time specified should be found to be unreasonable in any court
proceeding, then such restriction shall be modified or the period of time shall be shortened as is found to be reasonable so
that the foregoing covenant not to compete may be enforced. You agree that in the event of a breach or threatened breach
by you of the provisions of the restrictive covenants contained in Section 4 or in this Section 5, Quaker Houghton will suffer
irreparable harm, and monetary damages may not be an adequate remedy. Therefore, if any breach occurs, or is threatened,
in addition to all other remedies available to Quaker Houghton, at law or in equity, Quaker Houghton shall be entitled as a
matter of right to specific performance of the covenants contained herein by way of temporary or permanent injunctive
relief. In the event of any breach of the restrictive covenant contained in this Section 5, the term of the restrictive covenant
shall be extended by a period of time equal to that period beginning on the date such violation commenced and ending when
the activities constituting such violation cease.
6. Contractual Restrictions
You represent and warrant to Quaker Houghton that: (a) there are no restrictions, agreements, or understandings to
which you are a party that would prevent or make unlawful your employment with Quaker Houghton and (b) your
employment by Quaker Houghton shall not constitute a breach of any contract, agreement, or understanding, oral or written,
to which you are a party or by which you are bound. You further represent that you will not use any trade secret, proprietary
or otherwise confidential information belonging to a prior employer or other third party in connection with your employment
with Quaker Houghton.
7. Inventions
All improvements, modifications, formulations, processes, discoveries or inventions ("Inventions"), whether or not
patentable, which were originated, conceived or developed by you solely or jointly with others (a) during your working
hours or at Quaker Houghton’s expense or at Quaker Houghton's premises or at a customer’s premises or (b) during your
employment with Quaker Houghton and additionally for a period of one year thereafter, and which relate to (i) Quaker
Houghton’s business or (ii) any research, products, processes, devices, or machines under actual or anticipated development
or investigation by Quaker Houghton at the earlier of (i) that time or (ii) as the date of termination of employment, shall be
Quaker Houghton’s sole property. You shall promptly disclose to Quaker Houghton all Inventions that you conceive or
become aware of at any time during your employment with Quaker Houghton and shall keep complete, accurate, and
authentic notes, data and records of all Inventions and of all work done by you solely or jointly with others, in the manner
directed by Quaker Houghton. You hereby transfer and assign to Quaker Houghton all of your right, title, and interest in
and to any and all Inventions which may be conceived or developed by you solely or jointly with others during your
employment with Quaker Houghton. You shall assist Quaker Houghton in applying, obtaining, and enforcing any United
States Letters Patent and Foreign Letters Patent on any such Inventions and to take such other actions as may be necessary
or desirable to protect Quaker Houghton's interests therein. Upon request, you shall execute any and all applications,
assignments, or other documents that Quaker Houghton deems necessary and desirable for such purposes. You have
attached hereto a list of unpatented inventions that you have made or conceived prior to your employment with Quaker
Houghton, and it is agreed that those inventions shall be excluded from the terms of this Agreement.
8.
Termination
.
(a)
Either party may terminate this Agreement per the terms of Section 3 hereof and Quaker Houghton, in its sole
discretion, may terminate your employment at any time for Cause (as defined herein). If you incur a Separation
from Service (as defined below) by decision and action of Quaker Houghton for any reason other than Cause
or death Quaker Houghton agrees to:
4
1. Provide you with reasonable outplacement assistance, either by providing the services in-kind, or
by reimbursing reasonable expenses actually incurred by you in connection with your Separation from Service.
The outplacement services must be provided during the one-year period following your Separation from
Service. If any expenses are to be reimbursed, you must request the reimbursement within eighteen months of
your Separation from Service and reimbursement will be made within 30 days of the receipt of your request;
and
2. Pay you a severance consisting of 18 months of salary and bonus at target paid biweekly over such
eighteen months commencing on the Payment Date (as defined below) and continuing on Quaker Houghton's
normal payroll dates thereafter; provided you sign a Release within 45 days of the later of the date you receive
the Release or your Separation from Service. Continuation of all medical and dental coverage’s will also be
available for 18 months at a level equal to the coverage provided before your Separation from Service.
(b)
If the Executive dies during the Term of Employment, the Company shall not thereafter be obligated to make
any further payments under this Agreement except for amounts accrued as of the date of the Executive’s death,
and except that the Company shall pay a death benefit equal to 100% of base salary in effect on the day before
your death and 50% of base salary in each of the four years thereafter. “Beneficiary” shall mean the person
designated by the Executive to receive benefits under this Agreement in a writing filed by the Executive with
the Company’s human resources department before the Executive’s death or, if the Executive fails to designate
a beneficiary or the designated beneficiary predeceases the Executive, the Executive’s Beneficiary shall be his
surviving spouse or, if the Executive has no surviving spouse, his estate.
“Separation from Service”
meaning of Treas. Reg. §1.409A-1(h) or any successor thereto.
material breach of this Agreement (after having received notice thereof and a reasonable opportunity to cure or correct) or
the Company’s policies, (ii) dishonesty, fraud, willful malfeasance, gross negligence, or other gross misconduct, in each
case relating to the performance of your duties hereunder which is materially injurious to Quaker Houghton, or (iii)
conviction of or plea of guilty or nolo contendere to a felony.
“Payment Date”
(as defined in Treas. Reg. §1.409A-1(i)) as of the date of your Separation from Service, and the severance described in
subsection (b) is deferred compensation subject to section 409A of the Code, the first business day of the seventh month
following the month in which your Separation from Service occurs. If the Payment Date is described in clause (y), the
amount paid on the Payment Date shall include all monthly installments that would have been paid earlier had clause (y)
not been applicable, plus interest at the Wall Street Journal Prime Rate published in the Wall Street Journal on the date of
your Separation from Service (or the previous business day if such day is not a business day), for the period from the date
payment would have been made had clause (y) not been applicable through the date payment is made.
“Release”
Houghton and all related parties with respect to all matters arising out of your employment with Quaker Houghton, or the
termination thereof (other than for claims for any entitlements under the terms of this Agreement or any plans or programs
of Quaker Houghton under which you have accrued a benefit) that Quaker Houghton provides to you no later than ten days
after your Separation from Service. If a release is not provided to you within this time period, the severance shall be paid
even if you do not sign a release.
9. Indemnification
Quaker Houghton shall defend you and hold you harmless to the fullest extent permitted by applicable law in
connection with any claim, action, suit, investigation or proceeding arising out of or relating to performance by you of
5
services for, or actions of you as a director, officer, or employee of Quaker Houghton or any parent, subsidiary or affiliate
of Quaker Houghton, or of any other person or enterprise at Quaker Houghton’s request. Expenses incurred by you in
defending such a claim, action, suit or investigation or criminal proceeding shall be paid by Quaker Houghton in advance
of the final disposition thereof upon the receipt by the Company of an undertaking by or on your behalf to repay said
amounts unless it shall ultimately be determined that you are entitled to be indemnified hereunder; provided, however, that
this shall not apply to a nonderivative action commenced by Quaker Houghton against you.
10. Governing Law.
Pennsylvania without reference to principles of conflicts of laws.
11. Miscellaneous
This Agreement and the Change in Control Agreement to which you are a party, constitute the entire integrated
agreement concerning the subjects covered herein. In case any provision of this Agreement shall be invalid, illegal, or
otherwise unenforceable, the validity, legality, and enforceability of the remaining provisions shall not thereby be affected
or impaired. You may not assign any of your rights or obligations under this Agreement without Quaker Houghton’s prior
written consent. Quaker Houghton may assign this Agreement in its discretion, including to any affiliate or upon a sale of
assets or equity, merger or other corporate transaction; provided that Quaker Houghton obtains the assignee’s written
commitment to honor the terms and conditions contained herein. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania without regard to any conflict of laws. This Agreement
shall be binding upon you, your heirs, executors, and administrators and shall inure to the benefit of Quaker Houghton as
well as its successors and assigns. In the event of any overlap in the restrictions contained herein, including Sections 4
and/or 5 above, with similar restrictions contained in any other agreement, such restrictions shall be read together so as to
provide the broadest restriction possible.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.
WITNESS:
QUAKER CHEMICAL CORPORATION
DBA QUAKER HOUGHTON
/s/ Robert T. Traub
/s/ Michael F. Barry
WITNESS:
/s/ Danielle R. Tometich
/s/ Andrew E. Tometich
ANDREW TOMETICH
6
ADDENDUM 1
Base Salary:
Your salary will be payable on a bi-weekly basis at the rate of
$30,769.23, which is annualized at $800,000. You will be eligible for your
next salary increase in 2023.
Annual and Long-
Term Bonuses:
For your position, you are eligible to participate in the Annual Incentive Plan
(“AIP”) with a target award percentage for 2022 year of 100% of your base
salary, dependent upon Quaker Houghton’s financial results and personal
objectives to be determined.
You will be eligible to participate in the 2022-2024 Long-Term Incentive Plan
(“LTIP”). Your award for the 2022-2024 performance period includes a mix
of time-based restricted stock, stock options, and target performance stock
units (PSU’s) , such mix to be determined by the Company’s Compensation
and Human Resources Committee. The value, at a target level, is $1,680,000.
All incentive compensation awards are made at the Company’s discretion, are
subject to change, and require the approval of the Company’s Compensation
and Human Resources Committee.
Special One-time Grants:
You will be provided a one-time cash payment $550,000
to offset the annual
incentive at your current employment and in lieu of any potential annual
incentive earned in 2021 at Quaker Houghton. This cash payment will be
payable in the first quarter of 2022 at the time the Quaker Houghton AIP
payments are made to AIP participants generally. Such cash payment is
subject to a claw-back and must be repaid to the Company if you terminate
your employment with Quaker Houghton for any reason other than for cause
or if a change a control occurs within the first two (2) years of your tenure
with Quaker Houghton.
You will also be provided a one-time equity award equaling a cash value at
time of grant of $1,750,000 in order to offset the equity that will expire upon
your accepting employment with Quaker Houghton. Such award will be
provided as a mix of 50% time-based restricted stock and 50% PSU’s. The
time based restricted stock will vest one year from the date of grant, which
will be on your first day of employment with Quaker Houghton (currently
anticipated to be October 11, 2021). However, in the event that your
employment is terminated for any reason (other than cause) within the first
twelve (12) months of your start date, then the vesting date of the time based
restricted stock described in this paragraph will be accelerated to the date of
termination. The grant of 50% PSUs will also be made on your first day of
employment and will be based on the three year period starting October 1,
2021 and ending September 30, 2024.
Relocation:
You will receive, as soon as administratively possible after your start date, a
lump sum payment of $150,000.00 to cover all relocation expenses, which
will be grossed up for taxes. If you should voluntarily leave Quaker within
7
one year of receipt of these funds, all financial relocation assistance must be
reimbursed to Quaker Houghton.
Financial Planning:
You will be eligible to be reimbursed for up to $8,000 per calendar year for
expenses incurred for financial planning and/or tax preparation.
Benefits:
Quaker Houghton offers a Flexible Benefits Program that is subject to change.
This gives you the opportunity to choose from a variety of options creating a
customized benefits package. The following benefits are currently part of the
program. In each of these areas, you are offered a range of options so you
may choose the ones that make the most sense for your personal situation.
●
Medical
●
Dental
●
Life & AD&D Insurance
●
Long-term Disability
●
Health Care and Dependent Care Flexible Spending Accounts (FSAs)
●
Retirement Savings Plan (401K)
●
The Company is reviewing a non-qualified deferred compensation
(excess) plan, which if adopted will be part of your overall benefits
package
Vacation / Holidays:
You will be eligible for 25 PTO days per calendar year while you are
working in the U.S. You will begin to accrue an additional 5 days of PTO
per calendar year when you meet the next service level as defined in the
plan. In addition, you will be eligible to be paid for regional holidays.
Unused vacation days will not roll over from year to year, unless applicable
law requires otherwise.
1
EXHIBIT 10.2
CHANGE IN CONTROL AGREEMENT
d/b/a QUAKER HOUGHTON, a Pennsylvania corporation (the “Company”), and Andrew Tometich (the
“Executive”).
W I T N E S S E T H T H A T
2021; and
“Agreement”);
herein and intending to be legally bound hereby, the Executive and the Company agree as follows:
1.
Term of Agreement.
in effect through December 31, 2022; provided, however, that the term of this Agreement shall automatically be
extended for successive one-year periods thereafter, unless, not later than eighteen (18) months preceding the
calendar year for which the term would otherwise automatically extend, the Company shall have given written
notice to the Executive of intention not to extend this Agreement for an additional year, in which event this
Agreement shall continue in effect until December 31 of the calendar year immediately preceding the calendar
year for which the term would have otherwise automatically extended. Notwithstanding any such notice not to
extend, if a Change in Control (as defined in Section 2) occurs during the original or extended term of this
Agreement, this Agreement shall remain in effect after a Change in Control until all obligations of the parties
hereto under this Agreement shall have been satisfied.
2.
Change in Control.
(a)
Any person (a “Person”), as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) (other than (i) the Company and/or its wholly owned
subsidiaries; (ii) any ESOP or other employee benefit plan of the Company and any trustee or other fiduciary in
such capacity holding securities under such plan; (iii) any corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their ownership of stock of the Company;
or (iv) any other Person who, within the one year prior to the event which would otherwise be a Change in
Control, is an executive officer of the Company or any group of Persons of which he voluntarily is a part), is or
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined voting power of the Company’s then
outstanding securities or such lesser percentage of voting power, but not less than 15%, as determined by the
members of the Board of Directors of the Company who are independent directors (as defined in the New York
Stock Exchange, Inc. Listed Company Manual);
(b)
During any two-year period after the Effective Date, Directors of the Company in office at the
beginning of such period plus any new Director (other than a Director designated by a Person who has entered
2
into an agreement with the Company to effect a transaction within the purview of subsections (a) or (c)) whose
election by the Board of Directors of the Company or whose nomination for election by the Company’s
shareholders was approved by a vote of at least two-thirds of the Directors then still in office who either were
Directors at the beginning of the period or whose election or nomination for election was previously so
approved shall cease for any reason to constitute at least a majority of the Board;
(c)
The consummation of (i) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which the Company’s voting common shares (the
“Common Shares”) would be converted into cash, securities, and/or other property, other than a merger of the
Company in which holders of Common Shares immediately prior to the merger have the same proportionate
ownership of voting shares of the surviving corporation immediately after the merger as they had in the
Common Shares immediately before; or (ii) any sale, lease, exchange, or other transfer (in one transaction or a
series of related transactions) of all or substantially all the assets or earning power of the Company; or
(d)
The Company’s shareholders or the Company’s Board of Directors shall approve the liquidation
or dissolution of the Company.
3.
Entitlement to Change in Control Benefits; Certain Definitions.
a Separation from Service under the circumstances described in (a) below (a “Covered Termination”), provided
the Executive executes and does not revoke a Release (as defined below), if any, provided by the Company.
(a)
A Covered Termination shall have occurred in the event the Executive’s employment with the
Company or its affiliates is terminated within two (2) years following a Change in Control by:
(i)
The Company or its affiliates without Cause (as defined below); or
(ii)
Resignation of the Executive for Good Reason (as defined below).
Executive’s employment with the Company and its affiliates is terminated (i) as a result of death or Disability
(as defined below), or (ii) by the Company or its affiliates for Cause. In the event the Executive’s employment
is terminated for any reason prior to a Change in Control, the Executive shall have no rights to any payments or
benefits under this Agreement and, after any such termination, this Agreement shall be of no further force or
effect.
between the Executive and the Company (after having received notice thereof and a reasonable opportunity to
cure or correct), (ii) dishonesty, fraud, willful malfeasance, gross negligence, or other gross misconduct, in each
case relating to the performance of the Executive’s employment with the Company or its affiliates which is
materially injurious to the Company, or (iii) conviction of or plea of guilty to a felony, such Cause to be
determined, in each case, by a resolution approved by at least two-thirds of the Directors of the Company after
having afforded the Executive a reasonable opportunity to appear before the Board of Directors of the Company
and present his position.
regulations thereunder.
3
maintained by the Company for employees generally or, if the Company does not maintain such a plan, the
long-term disability plan most recently maintained by the Company for employees generally.
to the Executive’s death or Disability: (i) any reduction in the Executive’s base salary from that provided
immediately before the Covered Termination or, if higher, immediately before the Change in Control; (ii) any
reduction in the Executive’s bonus opportunity (including cash and noncash incentives) or increase in the goals
or standards required to accrue that opportunity, as compared to the opportunity and goals or standards in effect
immediately before the Change in Control; (iii) a material adverse change in the nature or scope of the
Executive’s authorities, powers, functions, or duties from those in effect immediately before the Change in
Control; (iv) a reduction in the Executive’s benefits from those provided immediately before the Change in
Control, disregarding any reduction under a plan or program covering employees generally that applies to all
employees covered by the plan or program; (or (v) the Executive being required to accept a primary
employment location which is more than twenty-five (25) miles from the location at which he primarily was
employed during the ninety (90) day period prior to a Change in Control.
th
Section 9.
Company and all related parties with respect to all matters arising out of the Executive’s employment by the
Company and its affiliates, or the termination thereof (other than claims for any entitlements under the terms of
this Agreement, under the employment agreement between the Executive and the Company, or under any plans
or programs of the Company under which the Executive has accrued a benefit) that the Company provides to
the Executive no later than three days after the date of the Executive’s Covered Termination. Notwithstanding
any provision of this Agreement to the contrary, if the Company provides a Release to the Executive, the
Executive shall not be entitled to any payments or benefits under this Agreement unless the Executive executes
the Release within 45 days of the later of the date he receives the Release or the date of his Covered
Termination, and the Executive does not revoke the Release.
affiliates within the meaning of Treas. Reg. §1.409A-1(h) or any successor thereto.
of the Code as of the date of his Separation from Service.
4.
Severance Allowance.
(a)
Amount of Severance Allowance. In the event of a Covered Termination, the Company shall pay
or cause to be paid to the Executive in cash a severance allowance (the “Severance Allowance”) equal to two
times the sum of the amounts determined in accordance with the following paragraphs (i) and (ii):
(i)
An amount equivalent to the highest annualized base salary which the Executive was
entitled to receive from the Company and its subsidiaries at any time during his
employment prior to the Covered Termination; and
(ii)
An amount equal to the average of the aggregate annual amounts paid to the Executive in
the Applicable Three-Year Period under all applicable annual incentive compensation
plans maintained by the Company and its affiliates (other than compensation relating to
relocation expense; the grant, exercise, or settlement of stock options, restricted stock or
4
performance incentive units or the sale or other disposition of shares received upon
exercise or settlement of such awards); provided, however, that (x) in determining the
average amount paid under the annual incentive plan during the Applicable Three-Year
Period there shall be excluded any year in which no amounts were paid to the Executive
under that plan; (y) there shall be excluded from such calculation any amounts paid to the
Executive under any such incentive compensation plan as a result of the acceleration of
such payments under such plan due to termination of the plan, a Change in Control, or a
similar occurrence; and (z) in no event shall the amount under this paragraph (ii) be less
than the amount of the mid/target bonus which would otherwise have been payable to the
Executive under the annual incentive compensation plans for the calendar year in which
the Change in Control occurred. The Applicable Three-Year Period shall be (A) if the
Executive has received an annual incentive compensation plan payment in the calendar
year of his Covered Termination, the calendar year in which such Covered Termination
occurs and the two preceding calendar years, or (B) in any other case, the three calendar
years preceding the calendar year in which the Executive’s Covered Termination occurs;
provided, however, that the Applicable Three-Year Period shall be determined by
substituting “ Change In Control” for “Covered Termination” if such substitution results
in a higher amount under this subsection (ii).
determining the amount of the Severance Allowance hereunder.
(b)
Payment of Severance Allowance. The Severance Allowance shall be paid to the Executive in a
lump sum on the Payment Date if the applicable Change in Control is also a change in control event as defined
in Treas. Reg. §1.409A-3(i)(5) (or any successor thereto). In any other case, the Severance Allowance shall be
paid in twenty-four monthly installments commencing on the Payment Date, each of which is equal to one-
twenty-fourth (1/24th) of the amount of the Severance Allowance determined under Section 4(a), which are
treated as a right to a series of separate payments for purposes of Section 409A of the Code.
5.
Outplacement and Welfare Benefits.
(a)
Outplacement. Subject to Section 6, for a period of one year following a Covered Termination of
the Executive, the Company shall make or cause to be made available to the Executive, at its expense,
outplacement counseling and other outplacement services comparable to those available for the Company’s
senior executives prior to the Change in Control.
(b)
Welfare Benefits. Subject to Section 6, for a period of 24 months following a Covered
Termination of the Executive, the Executive and the Executive’s dependents shall be entitled to participate in
the Company’s life, medical, and dental insurance plans at the Company’s expense, in accordance with the
terms of such plans at the time of such Covered Termination as if the Executive were still employed by the
Company or its affiliates under this Agreement. If, however, life, medical, or dental insurance benefits are not
paid or provided under any such plan to the Executive or his dependents because the Executive is no longer an
employee of the Company or its subsidiaries, the Company itself shall, to the extent necessary, pay or otherwise
provide for such benefits to the Executive and his dependents.
5
6.
Effect of Other Employment.
which benefits are continuing pursuant to Section 5: (a) the Executive shall notify the Company not later than
the day such employment commences; and (b) the benefits provided for in Section 5 shall terminate as of the
date of such employment. For the purposes of this Section 6, the Executive shall be deemed to have become
“employed” by another entity or person only if the Executive becomes essentially a full-time employee of a
person or an entity (not more than 30% of which is owned by the Executive and/or members of his family); and
the Executive’s “family” shall mean his parents, his siblings and their spouses, his children and their spouses,
and the Executive’s spouse and her parents and siblings. Nothing herein shall relieve the Company of its
obligations for compensation or benefits accrued up to the time of termination provided for herein.
6
7.
Other Payments and Benefits.
the Executive’s earned but unpaid base salary through the Covered Termination at the rate in effect on the date
of the Covered Termination, or if higher, at the rate in effect at any time during the 90-day period preceding the
Change in Control; (b) any unpaid bonus or annual incentive payable to the Executive in respect of the calendar
year ending prior to the Covered Termination; (c) the pro rata portion of any and all unpaid bonuses and annual
incentive awards for the calendar year in which the Covered Termination occurs, said pro rata portion to be
calculated on the fractional portion (the numerator of said fraction being the number of days between January 1
and the date of the Covered Termination, and the denominator of which is 365) of the mid/target bonuses or
annual incentive awards for such calendar year; and (d) the pro rata portion of any and all awards under the
Company’s long term incentive plan for the performance period(s) in which the Covered Termination occurs,
said pro rata portion to be calculated on the fractional portion (the numerator of said fraction being the number
of days between the first day of the applicable performance period and the date of the Covered Termination, and
the denominator of which is the total number of days in the applicable performance period) of the amount of the
award which would have been payable had (i) the Covered Termination not occurred, and (ii) the mid/target
level of performance been achieved for the applicable performance period. The Executive shall be entitled to
receive any other payments or benefits that the Executive is entitled to pursuant to the express terms of any
compensation or benefit plan or arrangement of the Company or any of its affiliates; provided that: (x) the
Severance Allowance (i) shall be in lieu of any severance payments to which the Executive might otherwise be
entitled under the terms of any severance pay plan, policy, or arrangement maintained by the Company or the
employment agreement between the Executive and the Company, and (ii) shall be credited against any
severance payments to which the Executive may be entitled by statute; (y) any annual incentive described in
subsection (b) or (c) shall decrease (or shall be decreased by), but not below zero, the amount of the annual
incentive payable (or paid) with respect to the same calendar year under the Company's annual incentive plan;
and (z) any amount described in (d) shall decrease (or shall be decreased by), but not below zero, the amount of
the analogous performance award payable (or paid) with respect to the same performance period(s) under the
Company’s long term incentive plan(s).
8.
Death After Covered Termination .
Executive under Section 4 and the first sentence of Section 7 and not paid prior to the Executive’s death shall be
made to the person or persons who may be designated by the Executive in writing or, in the event he fails to so
designate, to the Executive’s personal representatives, (b) the Executive’s spouse and dependents shall be
eligible for the welfare benefits described in Section 5(b). Payments pursuant to subsection (a) shall be made
on the later of (i) the date payment would have been made to the Executive without regard to Section 9, or (ii)
the date of the Executive’s death.
7
9.
Certain Section 409A Rules.
(a)
Specified Employee. Notwithstanding any provision of this Agreement to the contrary, if the
Executive is a Specified Employee, any payment or benefit under this Agreement that constitutes deferred
compensation subject to Section 409A of the Code and for which the payment event is Separation from Service
shall be not be made or provided before the date that is six months after the date of the Executive’s Separation
from Service. Any payment or benefit that is delayed pursuant to this Section 9 shall be made or provided on
the first business day of the seventh month following the month in which the Executive’s Separation from
Service occurs. With respect to any cash payment delayed pursuant to this Section 9, the first payment shall
include interest, at the Wall Street Journal Prime Rate published in the Wall Street Journal on the date of the
Executive’s Covered Termination (or the previous business day if such date is not a business day), for the
period from the date the payment would have been made but for this Section 9 through the date payment is
made. The provisions of this Section 9 shall apply only to the extent required to avoid the Executive’s
incurrence of any additional tax or interest under Section 409A of the Code.
(b)
Reimbursement and In-Kind Benefits. Notwithstanding any provision of this Agreement to the
contrary, with respect to in-kind benefits provided or expenses eligible for reimbursement under this Agreement
which are subject to Section 409A of the Code, (i) the benefits provided or the amount of expenses eligible for
reimbursement during any calendar year shall not affect the benefits provided or expenses eligible for
reimbursement in any other calendar year, except as otherwise provided in Treas. Reg. §1.409A-3(i)(1)(iv)(B),
and (ii) the reimbursement of an eligible expense shall be made as soon as practicable after the Executive
requests such reimbursement (subject to Section 9(a)), but not later than the December 31 following the
calendar year in which the expense was incurred.
(c)
Interpretation and Construction. This Agreement is intended to comply with Section 409A of the
Code and shall be administered, interpreted and construed in accordance therewith to avoid the imposition of
additional tax under Section 409A of the Code.
10.
Confidentiality and Noncompetition.
(a)
Confidential Information. The Executive acknowledges that information concerning the method
and conduct of the Company’s (and any affiliate’s) business, including, without limitation, strategic and
marketing plans, budgets, corporate practices and procedures, financial statements, customer and supplier
information, formulae, formulation information, application technology, manufacturing information, and
laboratory test methods and all of the Company’s (and any affiliate’s) manuals, documents, notes, letters,
records, and computer programs (“Proprietary Business Information”), are the sole and exclusive property of
the Company (and/or the Company’s affiliates, as the case may be) and are likely to constitute, contain or reveal
trade secrets (“Trade Secrets”) of the Company (and/or the Company’s affiliate’s, as the case may be). The term
“Trade Secrets” as used herein does not include Proprietary Business Information that is known or becomes
known to the public through no act or failure to act on the part of the Executive, or which can be clearly shown
by written records to have been known by the Executive prior to the commencement of his employment with
the Company.
(i)
The Executive agrees that at no time during or following his employment with the
Company will he use, divulge, or pass on, directly or through any other individual or
entity, any Trade Secrets.
(ii)
Upon termination of the Executive’s employment with the Company regardless of the
reason for the termination of the Executive’s employment hereunder, or at any other time
8
upon the Company’s request, the Executive agrees to forthwith surrender to the Company
any and all materials in his possession or control which constitute or contain any
Proprietary Business Information.
(b)
Noncompetition. The Executive agrees that during his employment and for a period of two (2)
years thereafter, regardless of the reason for the termination of the Executive’s employment, he will not:
(i)
directly or indirectly, together or separately or with any third party, whether as an
individual proprietor, partner, stockholder, officer, director, joint venturer, investor, or in
any other capacity whatsoever actively engage in business or assist anyone or any firm in
business as a manufacturer, seller, or distributor of specialty chemical products or
chemical management services which are the same, like, similar to, or which compete
with the products and services offered by the Company (or any of its affiliates);
(ii)
directly or indirectly recruit, solicit or encourage any employee of the Company (or any
of its affiliates) or otherwise induce such employee to leave the employ of the Company
(or any of its affiliates) or to become an employee or otherwise be associated with his or
any firm, corporation, business or other entity with which he is or may become
associated; or
(iii)
solicit, directly or indirectly, for himself or as agent or employee of any person,
partnership, corporation, or other entity (other than for the Company), any then or former
customer, supplier, or client of the Company with the intent of actively engaging in
business which would cause competitive harm to the Company (or any of its affiliates).
(c)
Severability. The Executive acknowledges and agrees that all of the foregoing restrictions are
reasonable as to the period of time and scope. However, if any paragraph, sentence, clause, or other provision is
held invalid or unenforceable by a court of competent and relevant jurisdiction, such provision shall be deemed
to be modified in a manner consistent with the intent of such original provision so as to make it valid and
enforceable, and this Agreement and the application of such provision to persons and circumstances other than
those with respect to which it would be invalid or unenforceable shall not be affected thereby.
(d)
Remedies. The Executive agrees and recognizes that in the event of a breach or threatened
breach of the provisions of the restrictive covenants contained in this Section 10, the Company may suffer
irreparable harm, and monetary damages may not be an adequate remedy. Therefore, if any breach occurs or is
threatened, the Company shall be entitled to seek equitable remedies, including injunctive relief in any court of
applicable jurisdiction notwithstanding the provisions of Section 12. In the event of any breach of the restrictive
covenant contained in this Section 10, the term of the restrictive covenant specified herein shall be extended by
a period of time equal to that period beginning on the date such violation commenced and ending when the
activities constituting such violation cease. Furthermore, if a court or arbitration panel determines that the
Executive has breached any of the provisions of this Section 10, the Company’s obligations to pay amounts and
continue the benefits under this Agreement to the Executive (and his dependents) shall immediately terminate.
9
11.
Set-Off Mitigation.
Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense, or other claim, right, or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of the provisions of this
Agreement.
12.
Arbitration: Costs and Expenses of Enforcement.
(a)
Arbitration. Except as otherwise provided in Sections 10(d) and 13, any controversy or claim
arising out of or relating to this Agreement or the breach thereof which cannot promptly be resolved by the
parties shall be promptly submitted to and settled exclusively by arbitration in the City of Philadelphia,
Pennsylvania, in accordance with the laws of the Commonwealth of Pennsylvania by three arbitrators, one of
whom shall be appointed by the Company, one by the Executive, and the third of whom shall be appointed by
the first two arbitrators. The arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this
Section 12. Judgment upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
(b)
Costs and Expenses. In the event that it shall be necessary or desirable for the Executive to
retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any and all of
his rights under this Agreement at any time during his lifetime, the Company shall pay (or the Executive shall
be entitled to recover from the Company, as the case may be) his reasonable attorneys’ fees and costs and
expenses in connection with the enforcement of his said rights (including those incurred in or related to any
arbitration proceedings provided for in subsection (a) and the enforcement of any arbitration award in court),
regardless of the final outcome.
13.
Limitation on Payment Obligation.
(a)
Definitions. For purposes of this Section 13, all terms capitalized but not otherwise defined
herein shall have the meanings as set forth in Section 280G of the Code. In addition:
(i)
the term “Parachute Payment” shall mean a payment described in Section 280G(b)(2)(A)
or Section 280G(b)(2)(B) of the Code (including, but not limited to, any stock option
rights, stock grants, and other cash and noncash compensation amounts that are treated as
payments under either such section) and not excluded under Section 280G(b)(4)(A) or
Section 280G(b)(6) of the Code;
(ii)
the term “Reasonable Compensation” shall mean reasonable compensation for prior
personal services as defined in Section 280G(b)(4)(B) of the Code and subject to the
requirement that any such reasonable compensation must be established by clear and
convincing evidence; and
(iii)
the portion of the “Base Amount” and the amount of “Reasonable Compensation”
allocable to any “Parachute Payment” shall be determined in accordance with Section
280G(b)(3) and (4) of the Code.
(b)
Limitation. Notwithstanding any other provision of this Agreement, Parachute Payments to be
made to or for the benefit of the Executive but for this subsection (b), whether pursuant to this Agreement or
otherwise, shall be reduced if and to the extent necessary so that the aggregate Present Value of all such
10
Parachute Payments shall be at least one dollar ($1.00) less than the greater of (i) three times the Executive’s
Base Amount and (ii) the aggregate Reasonable Compensation allocable to such Parachute Payments. Any
reduction in Parachute Payments caused by reason of this subsection (b) shall be applied in the manner least
economically detrimental to the Executive. In the event reduction of two or more types of payments would be
economically equivalent, the reduction shall be applied pro-rata to such types of payments.
Executive under this Agreement or otherwise only to the extent required to avoid any material risk of the
imposition of excise taxes on the Executive under Section 4999 of the Code or the disallowance of a deduction
to the Company under Section 280G(a) of the Code. In the making of any such interpretation and application,
the Executive shall be presumed to be a disqualified individual for purposes of applying the limitations set forth
in this subsection (b) without regard to whether or not the Executive meets the definition of disqualified
individual set forth in Section 280G(c) of the Code. In the event that the Executive and the Company are unable
to agree as to the application of this subsection (b), the Company’s independent auditors shall select
independent tax counsel to determine the amount of such limits. Such selection of tax counsel shall be subject to
the Executive’s consent, provided that the Executive shall not unreasonably withhold his consent. The
determination of such tax counsel under this Section 13 shall be final and binding upon the Executive and the
Company.
(c)
Illegal Payments. Notwithstanding any other provision of this Agreement, no payment shall be
made hereunder to or for the benefit of the Executive if and to the extent that such payments are determined to
be illegal.
14.
Notices.
sufficient if in writing, and if hand delivered or if sent by registered or certified mail, if to the Executive, at the
last address he had filed in writing with the Company or if to the Company, at its principal executive offices.
Notices, requests, etc. shall be effective when actually received by the addressee or at such address.
15.
Withholding.
required by law, withhold applicable Federal, state and local income and other taxes from any payments due to
the Executive hereunder.
16.
Assignment and Benefit.
(a)
This Agreement is personal to the Executive and shall not be assignable by the Executive, by
operation of law, or otherwise without the prior written consent of the Company otherwise than by will or the
laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the
Executive’s heirs and legal representatives.
(b)
This Agreement shall inure to the benefit of and be binding upon the Company and its successors
and assigns, including, without limitation, any subsidiary of the Company to which the Company may assign
any of its rights hereunder; provided, however, that no assignment of this Agreement by the Company, by
operation of law, or otherwise shall relieve it of its obligations hereunder except an assignment of this
Agreement to, and its assumption by, a successor pursuant to subsection (c).
(c)
The Company shall require any successor (whether direct or indirect, by purchase, merger,
consolidation, operation of law, or otherwise) to all or substantially all of the business and/or assets of the
11
Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken place, but, irrespective of any
such assignment or assumption, this Agreement shall inure to the benefit of and be binding upon such a
successor. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid.
17.
Governing Law.
of Pennsylvania without reference to principles of conflicts of laws.
18.
Entire Agreement; Amendment.
(a)
Except for the change in control provisions set forth in the Company’s annual incentive plan and
long term incentive plan, this Agreement represents the entire agreement and understanding of the parties with
respect to the subject matter hereof. The Executive understands and acknowledges that the Company’s
severance plan, annual incentive plan and long term incentive plans are hereby amended with respect to the
Executive to avoid duplication of benefits, as provided in Section 7.
(b)
The Company reserves the right to unilaterally amend this Agreement without the consent of the
Executive to the extent the Compensation and Human Resources Committee of the Company’s Board of
Directors (in its sole discretion) determines is necessary or appropriate to avoid the additional tax under Section
409A(a)(1)(B) of the Code; otherwise, this Agreement may not be altered or amended except by an agreement
in writing executed by the Company and the Executive.
19.
No Waiver.
be deemed to be a waiver of any future noncompliance with such provision or of noncompliance with any other
provision.
20.
Severability.
unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
21.
Indemnification.
law in connection with any claim, action, suit, investigation or proceeding arising out of or relating to
performance by the Executive of services for, or action of the Executive as a director, officer or employee of the
Company or any parent, subsidiary or affiliate of the Company, or of any other person or enterprise at the
Company’s request. Expenses incurred by the Executive in defending such a claim, action, suit or investigation
or criminal proceeding shall be paid by the Company in advance of the final disposition thereof upon the receipt
by the Company of an undertaking by or on behalf of the Executive to repay said amount unless it shall
ultimately be determined that the Executive is entitled to be indemnified hereunder; provided, however, that this
shall not apply to a nonderivative action commenced by the Company against the Executive.
12
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its
Board of Directors, the Company has caused these presents to be executed in its name and on its behalf and
attested by its Secretary or Assistant Secretary, all as of the day and year first above written.
QUAKER CHEMICAL CORPORATION
DBA QUAKER HOUGHTON
By:
/s/ Michael F. Barry
EXECUTIVE
/s/ Andrew E Tometich
Andrew Tometich
EXHIBIT 10.3
1
August 18, 2021
Joe Berquist
Quaker Houghton
Dear Joe:
Congratulations! I am pleased to offer you this promotion to the EVP, Chief Strategy Officer and MD, Global Specialty Businesses. In
addition to your current responsibilities for directing the Company’s strategic priorities and leading the Global Specialty Business
segment, you will be responsible for directing the Company’s global merger & acquisition process and organization, leading our
Corporate Sustainability efforts, directing our strategic and operational approach for supporting our information technology
infrastructure, and our plan and execution for digitization by leading our Information Technology organization.
Your tentative start date for this position is September 9, 2021.
We believe you can make significant contributions in this role and will
find this opportunity engaging and rewarding. Please review the details of the offer below.
Salary
Your new annualized salary is $500,000, effective on September 9, 2021. You will be eligible for your next merit increase in April
2022, reflective of performance year 2021.
Annual Incentive Plan
You will continue to participate in our 2021 Annual Incentive Plan (AIP), with an annual bonus target of 65% of your base salary. This
is inclusive of the full 2021 annual performance for your responsibility areas and based on your revised base salary.
Long Term Incentive Plan
You will be eligible to participate in our Long Term Incentive Plan (LTIP) at a target value of 100% of your base salary. For the 2021
plan year, you received a grant on March 15
th
$230,000 in October 2021 to reflect the difference from the grant provided in March of 2021. The Restricted Stock grant is time based
and will vest in accordance with the LTIP rules.
The terms and conditions of your employment remain in effect, except as specifically set forth above. Quaker Houghton reserves the
right to modify your job title, duties and compensation, as well as all company rules, practices and other terms of employment.
We are excited about this opportunity for you Joe and look forward to you accepting this expanded role with Quaker Houghton. After
your review of this offer, please sign below to confirm your acceptance and return to me with a copy to Rob Traub and Kym Johnson.
Sincerely,
/s/ Michael F. Barry
Mike Barry
CEO, President and Chairman of the Board
Quaker Chemical Corporation
A Quaker Houghton Company
901 E. Hector Street
Conshohocken, PA 19428-2380
T: 610.832.4000
quakerhoughton.com
2
Employee Offer Acceptance
I accept the terms and conditions outlined above:
/s/ Joseph C. Berquist
18-August-2021
Joseph Berquist
Date
1
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF THE COMPANY PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Michael F. Barry, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Quaker Chemical Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: November 4, 2021
/s/ Michael F. Barry
Michael F. Barry
Chief Executive Officer
1
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER OF THE COMPANY PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Shane Hostetter, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Quaker Chemical Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: November 4, 2021
/s/ Shane W. Hostetter
Shane W. Hostetter
Chief Financial Officer
1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned hereby certifies that the Form 10-Q Quarterly Report of Quaker Chemical Corporation (the “Company”) for the
quarterly period ended September 30, 2021 filed with the Securities and Exchange Commission (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 4, 2021
/s/ Michael F. Barry
Michael F. Barry
Chief Executive Officer of Quaker Chemical Corporation
1
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned hereby certifies that the Form 10-Q Quarterly Report of Quaker Chemical Corporation (the “Company”) for the
quarterly period ended September 30, 2021 filed with the Securities and Exchange Commission (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 4, 2021
/s/ Shane W. Hostetter
Shane W. Hostetter
Chief Financial Officer of Quaker Chemical Corporation