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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(Exact name of registrant as specified in its charter)
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incorporation or organization)
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Identification No.)
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,
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:
-
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Former name, former address and former fiscal year, if changed since last report.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
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Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) .
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock
Outstanding on July 31, 2022
1
QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
Page
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
2
3
4
5
6
7
Item 2.
26
Item 3.
43
Item 4.
44
PART II
Item 1.
45
Item 1A.
45
Item 2.
45
Item 6.
46
Signatures
46
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Quaker Chemical Corporation
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Net sales
$
$
$
$
Cost of goods sold (
excluding amortization expense - See Note 13
)
Gross profit
Selling, general and administrative expenses
Restructuring and related (credits) charges, net
(1 )
Combination, integration and other acquisition-related expenses
Operating income
Other (expense) income, net
(8,399 )
(10,605 )
Interest expense, net
(6,494 )
(5,618 )
(11,839 )
(11,088 )
Income before taxes and equity in net (loss) income of
associated companies
Taxes on income before equity in net (loss) income of associated
companies
Income before equity in net (loss) income of associated
companies
Equity in net (loss) income of associated companies
(1,265 )
(430 )
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Quaker Chemical Corporation
$
$
$
$
Per share data:
Net income attributable to Quaker Chemical Corporation
common shareholders – basic
$
$
$
$
Net income attributable to Quaker Chemical Corporation
common shareholders – diluted
$
$
$
$
Dividends declared
$
$
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Quaker Chemical Corporation
Condensed Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Unaudited
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Net income
$
$
$
$
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(76,433 )
(83,299 )
(9,296 )
Defined benefit retirement plans
Current period change in fair value of derivatives
Unrealized (loss) gain on available-for-sale securities
(567 )
(1,567 )
(2,746 )
Other comprehensive (loss) income
(75,018 )
(81,288 )
(9,339 )
Comprehensive (loss) income
(60,647 )
(47,096 )
Less: Comprehensive income (loss) attributable to
noncontrolling interest
(38 )
(1 )
(53 )
Comprehensive (loss) income attributable to Quaker Chemical
Corporation
$
(60,642 )
$
$
(47,097 )
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
Unaudited
June 30,
December 31,
2022
2021
ASSETS
Current assets
Cash and cash equivalents
$
$
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
(239,571 )
(236,824 )
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 payable
Dividends payable
Accrued compensation
Accrued restructuring
Accrued pension and postretirement benefits
Other accrued liabilities
Total current liabilities
Long-term debt
Long-term lease liabilities
Deferred tax liabilities
Non-current accrued pension and postretirement benefits
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 18)
Equity
Common stock $
outstanding 2022 –
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
(145,246 )
(63,990 )
Total Quaker shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Unaudited
Six Months Ended
June 30,
2022
2021
Cash flows from operating activities
Net income
$
$
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of debt issuance costs
Depreciation and amortization
Equity in undistributed earnings of associated companies, net of dividends
(6,715 )
Acquisition-related fair value adjustments related to inventory
Deferred compensation, deferred taxes and other, net
(10,223 )
(13,849 )
Share-based compensation
Loss on extinguishment of debt
Loss (gain) on disposal of property, plant, equipment and other assets
(5,356 )
Combination and other acquisition-related expenses, net of payments
(3,880 )
(2,305 )
Restructuring and related charges
Pension and other postretirement benefits
(2,269 )
(2,223 )
(Decrease) increase in cash from changes in current assets and current
liabilities, net of acquisitions:
Accounts receivable
(51,944 )
(47,252 )
Inventories
(58,427 )
(57,020 )
Prepaid expenses and other current assets
(5,558 )
(20,111 )
Change in restructuring liabilities
(797 )
(4,214 )
Accounts payable and accrued liabilities
Net cash used in operating activities
(8,423 )
(9,568 )
Cash flows from investing activities
Investments in property, plant and equipment
(15,138 )
(6,974 )
Payments related to acquisitions, net of cash acquired
(9,383 )
(29,424 )
Proceeds from disposition of assets
Net cash used in investing activities
(24,436 )
(21,654 )
Cash flows from financing activities
Payments of long-term debt
(668,500 )
(19,065 )
Proceeds from long-term debt
Borrowings on revolving credit facilities, net
Repayments on other debt, net
(155 )
(219 )
Financing-related debt issuance costs
(3,734 )
Dividends paid
(14,862 )
(14,113 )
Stock options exercised, other
(821 )
(416 )
Net cash provided by (used in) financing activities
(4,380 )
Effect of foreign exchange rate changes on cash
(8,600 )
(683 )
Net increase (decrease) in cash and cash equivalents
(36,285 )
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Quaker Chemical Corporation
Condensed Consolidated Statements of Changes in Equity
(Dollars in thousands, except per share amounts)
(Unaudited)
Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at December 31, 2020
$
$
$
$
(26,598 )
$
$
Net income
Amounts reported in other
comprehensive loss
(26,630 )
(2 )
(26,632 )
Dividends ($
(7,062 )
(7,062 )
Share issuance and equity-based
compensation plans
Balance at March 31, 2021
$
$
$
$
(53,228 )
$
$
Net income
Amounts reported in other
comprehensive gain
Dividends ($
(7,062 )
(7,062 )
Share issuance and equity-based
compensation plans
Balance at June 30, 2021
$
$
$
$
(35,943 )
$
$
Balance at December 31, 2021
$
$
$
$
(63,990 )
$
$
Net income
Amounts reported in other
comprehensive loss
(6,271 )
(6,270 )
Dividends ($
(7,434 )
(7,434 )
Share issuance and equity-based
compensation plans
Balance at March 31, 2022
$
$
$
$
(70,261 )
$
$
Net income
Amounts reported in other
comprehensive loss
(74,985 )
(33 )
(75,018 )
Dividends ($
(7,438 )
(7,438 )
Share issuance and equity-based
compensation plans
Balance at June 30, 2022
$
$
$
$
(145,246 )
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
7
Note 1 – Basis of Presentation and Description of Business
Basis of Presentation
As used in these Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for the period
ended June 30, 2022 (the “Report”), the terms “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical
Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires.
As used in these Notes to Condensed Consolidated Financial Statements, the “Combination” refers to the legacy Quaker combination
with Houghton International, Inc. (“Houghton”). The condensed consolidated financial statements included herein are unaudited and
have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim
financial reporting and the United States Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments consisting only
of normal recurring adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows
for the interim periods. The results for the six months ended June 30, 2022 are not necessarily indicative of the results to be expected
for the full year. These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for
the year ended December 31, 2021 (the “2021 Form 10-K”).
Description of Business
The Company was organized in 1918, incorporated as a Pennsylvania business corporation in 1930, and in August 2019
completed the Combination with Houghton to form Quaker Houghton. Quaker Houghton is the global leader in industrial process
fluids. With a presence around the world, including operations in over
the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, can, mining, and metalworking
companies. Quaker Houghton develops, produces, and markets a broad range of formulated chemical specialty products and offers
chemical management services (which the Company refers to as “Fluidcare
TM
”) for various heavy industrial and manufacturing
applications throughout its
Businesses.
Hyper-inflationary economies
Based on various indices or index compilations being used to monitor inflation in Argentina as well as economic instability,
effective July 1, 2018, Argentina’s economy was considered hyper-inflationary under U.S. GAAP. As of, and for the three and six
months ended June 30, 2022, the Company's Argentine subsidiaries represented less than
% of the Company’s consolidated total
assets and net sales, respectively. During the three and six months ended June 30, 2022, the Company recorded less than $
and $
Comparatively, during the three and six months ended June 30, 2021, the Company recorded $
respectively, of remeasurement losses associated with the applicable currency conversions related to Argentina. These losses were
recorded within foreign exchange losses, net, which is a component of other (expense) income, net, in the Company’s Condensed
Consolidated Statements of Income.
Note 2 – Business Acquisitions
2022 Acquisitions
lubricants and stamping oil for metalworking, and various other lubrication, rust preventative, and cleaner applications, for its
Americas reportable segment for approximately $
existing metals and metalworking business in the Americas region. The Company allocated $
intangible assets, comprised of $
; and $
product technologies to be amortized over
. In addition, the Company recorded $
value not allocated to other acquired assets, all of which is expected to be tax deductible in various jurisdictions in which the
Company operates.
sector, as well as impregnation resin and impregnation systems for metal parts, for its Global Specialty Businesses reportable segment
for approximately
Germany as well as broadens its product offerings and service capabilities within its existing impregnation business.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
8
The results of operations of the 2022 acquisitions subsequent to the respective acquisition dates are included in the unaudited
Condensed Consolidated Statements of Income for the six month period ended June 30, 2022. Applicable transaction expenses
associated with these acquisitions are included in Combination, integration and other acquisition-related expenses in the Company’s
unaudited Condensed Consolidated Statements of Income. Certain pro forma and other information is not presented, as the operations
of the acquisitions are not considered material to the overall operations of the Company for the periods presented.
Previous Acquisitions
impregnation services of castings, powder metals and electrical components for its Global Specialty Businesses reportable segment for
$
provisions initially estimated at $
could total a maximum of $
property, plant and equipment and $
acquired. In addition, the Company recorded $
comprised $
; and $
amortized over
.
in Turkey for its EMEA reportable segment for
In September 2021, the Company acquired the remaining interest in Grindaix -GmbH (“Grindaix”), a Germany-based, high-tech
provider of coolant control and delivery systems for its Global Specialty Businesses reportable segment for
approximately $
Company acquired a
% ownership interest in Grindaix for
its initial investment as an equity method investment within the Condensed Consolidated Financial Statements and accounted for the
purchase of the remaining interest as a step acquisition whereby the Company remeasured the previously held equity method
investment to its fair value.
In June 2021, the Company acquired certain assets for its chemical milling maskants product line in the Global Specialty
Businesses reportable segment for
In February 2021, the Company acquired a tin-plating solutions business for the steel end market for $
acquisition is part of each of the Company’s geographic reportable segments. The Company allocated $
price to intangible assets, comprised of $
; $
product technology to be amortized over
; and $
. In addition,
the Company recorded $
expected to be tax deductible in various jurisdictions in which we operate. Factors contributing to the purchase price that resulted in
goodwill included the acquisition of business processes and personne l that will allow Quaker Houghton to better serve its customers.
Turkey, and Baron have not been finalized and the one-year measurement period has not ended. Further adjustments may be
necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and
liabilities assumed.
finishing fluid solutions. Subsequent to the acquisition, the Company and the sellers of Coral (the “Sellers”) have worked to finalize
certain post-closing adjustments. During the second quarter of 2022, after failing to reach resolution, the Sellers filed suit asserting
certain amounts owed related to tax attributes of the acquisition. Based on the facts and circumstances of the claim asserted by the
Sellers, the Company believes the potential range of exposure for this claim is $
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
9
Note 3 – Recently Issued Accounting Standards
Recently Issued Accounting Standards Adopted
The FASB issued ASU 2020 -04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting
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. On June 17, 2022, the
Company entered into an amendment to its primary credit facility which, among other things, provided for the use of a USD currency
LIBOR successor rate (the Secured Overnight Financing Rate (“SOFR”)). See Note 14 of Notes to Condensed Consolidated Financial
Statements.
Note 4 – Business Segments
The Company’s operating segments, which are consistent with its reportable segments, reflect the structure of the Company’s
internal organization, the method by which the Company’s resources are allocated and the manner by which the chief operating
decision maker assesses the Company’s performance. The Company has
Asia/Pacific; and (iv) Global Specialty Businesses. The three geographic segments are composed of the net sales and operations in
each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment. The Global
Specialty Businesses segment includes the Company’s container, metal finishing, mining, offshore, specialty coatings, specialty
grease and Norman Hay businesses.
Segment operating earnings for each of the Company’s reportable segments are comprised of the segment’s net sales less directly
related cost of goods sold (“COGS”) and selling, general and administrative expenses (“SG&A”). Operating expenses not directly
attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration
and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating earnings. Other
items not specifically identified with the Company’s reportable segments include Interest expense, net and Other (expense) income,
net.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
10
The following table presents information about the performance of the Company’s reportable segments for the three and six
months ended June 30, 2022 and 2021.
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Net sales
Americas
$
$
$
$
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
(1,832 )
(6,658 )
(5,885 )
(12,473 )
Restructuring and related credits (charges), net
(298 )
(819 )
(1,473 )
Fair value step up of acquired inventory sold
(801 )
Non-operating and administrative expenses
(48,579 )
(43,077 )
(92,042 )
(84,069 )
Depreciation of corporate assets and amortization
(14,822 )
(15,640 )
(30,011 )
(31,088 )
Operating income
Other (expense) income, net
(8,399 )
(10,605 )
Interest expense, net
(6,494 )
(5,618 )
(11,839 )
(11,088 )
Income before taxes and equity in net (loss) income of
associated companies
$
$
$
$
Inter-segment revenues for the three and six months ended June 30, 2022, were $
million and $
Specialty Businesses, respectively. Inter-segment revenues for the three and six months ended June 30, 2021, were $
$
and $
each reportable operating segment’s net sales and earnings for all periods presented in the above tables.
Note 5 – Net Sales and Revenue Recognition
Arrangements Resulting in Net Reporting
As part of the Company’s Fluidcare
TM
Company transferred third-party products under arrangements recognized on a net reporting basis of $
for the three and six months ended June 30, 2022, respectively, and $
June 30, 2021, respectively.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
11
Customer Concentration
A significant portion of the Company’s revenues are realized from the sale of process fluids and services to manufacturers of
steel, aluminum, automobiles, aerospace, industrial and agricultural equipment, and durable goods. As previously disclosed in the
Company’s 2021 Form 10-K, during the year ended December 31, 2021, the Company’s five largest customers (each composed of
multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately
% of consolidated net
sales, with its largest customer accounting for approximately
% of consolidated net sales.
Contract Assets and Liabilities
The Company had no material contract assets recorded on its Condensed Consolidated Balance Sheets as of June 30, 2022 or
December 31, 2021.
The Company had approximately $
respectively. For the six months ended June 30, 2022, the Company satisfied all of the associated performance obligations and
recognized into revenue the advance payments received and recorded as of December 31, 2021.
Disaggregated Revenue
The Company sells its various industrial process fluids, its specialty chemicals and its technical expertise as a global product
portfolio. The Company generally manages and evaluates its performance by segment first, and then by customer industry, rather than
by individual product lines. Also, net sales of each of the Company’s major product lines are generally spread throughout all three of
the Company’s geographic regions, and in most cases, approximately proportionate to the level of total sales in each region.
The following tables disaggregate the Company’s net sales by segment, geographic region, customer industry, and timing of
revenue recognized for the three and six months ended June 30, 2022 and 2021.
Three Months Ended June 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
$
$
$
Metalworking and other
Global Specialty Businesses
$
$
$
$
Timing of Revenue Recognized
Product sales at a point in time
$
$
$
$
Services transferred over time
$
$
$
$
Three Months Ended June 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
Six Months Ended June 30, 2022
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
$
$
$
$
Six Months Ended June 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
$
$
$
$
Note 6 - Leases
The Company has operating leases for certain facilities, vehicles and machinery and equipment with remaining lease terms up to
. Operating lease expense is recognized on a straight-line basis over the lease term. In addition, the Company has certain land
use leases with remaining lease terms up to
.
The Company has
2022 and 2021. The following table sets forth the components of the Company’s lease cost for three and six months ended June 30,
2022 and 2021:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Operating lease expense
$
$
$
$
Short-term lease expense
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
13
Supplemental cash flow information related to the Company’s leases is as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating leases
$
$
$
$
Non-cash lease liabilities activity:
Leased assets obtained in exchange for new
operating lease liabilities
Supplemental balance sheet information related to the Company’s leases is as follows:
June 30,
December 31,
2022
2021
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 were as follows:
June 30,
2022
For the remainder of 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
For the year ended December 31, 2027 and beyond
Total lease payments
Less: imputed interest
(4,821 )
Present value of lease liabilities
$
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 Consolidated Statements of Income. As described in Note 4 of Notes to Condensed
Consolidated Financial Statements, restructuring and related charges are not included in the Company’s calculation of reportable
segments’ measure of operating earnings and therefore these costs are not reviewed by or recorded to reportable segments.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
14
Activity in the Company’s accrual for restructuring under the QH Program for the six months ended June 30, 2022 is as follows:
QH Program
Accrued restructuring as of December 31, 2021
$
Restructuring and related charges
Cash payments
(797 )
Currency translation adjustments
(297 )
Accrued restructuring as of June 30, 2022
$
Note 8 – Share-Based Compensation
The Company recognized the following share-based compensation expense in its Condensed Consolidated Statements of Income
for the three and six months ended June 30, 2022 and 2021:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
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
Total share-based compensation expense
$
$
$
$
Share-based compensation expense is recorded in SG&A, except for $
ended June 30, 2022, respectively, and $
recorded within Combination, integration and other acquisition-related expenses.
Stock Options
During the first six months of 2022, the Company granted stock options under its long-term incentive plan (“LTIP”) that are
subject only to time vesting over a
three
Company used a Black-Scholes option pricing model and the assumptions set forth in the table below:
March 2022
Grant
Number of options granted
Dividend yield
%
Expected volatility
%
Risk-free interest rate
%
Expected term (years)
The fair value of these options is amortized on a straight-line basis over the vesting period. As of June 30, 2022, unrecognized
compensation expense related to all stock options granted was $
period of
Restricted Stock Awards and Restricted Stock Units
During the six months ended June 30, 2022, the Company granted
restricted stock units under its LTIP, which are subject to time-based vesting, generally over a
these grants is based on the trading price of the Company’s common stock on the date of grant. The Company adjusts the grant date
fair value of these awards for expected forfeitures based on historical experience. As of June 30, 2022, unrecognized compensation
expense related to the non-vested restricted shares was $
years, and unrecognized compensation expense related to non-vested restricted stock units was $
weighted average remaining period of
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
15
Performance Stock Units
The Company grants performance-dependent stock awards (“PSUs”) as a component of its LTIP, which will be settled in a
certain number of shares subject to market-based and time-based vesting conditions. The number of fully vested shares that may
ultimately be issued as settlement for each award may range from
% 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 generally
from January 1 of the year of grant through December 31 of the year prior to issuance of the shares upon settlement.
Compensation expense for PSUs is measured based on their grant date fair value and is recognized on a straight-line basis over
the three year vesting period. The grant-date fair value of the PSUs was estimated using a Monte Carlo simulation on the grant date
and using the following assumptions set forth in the table below:
March 2022
Grant
Number of PSUs granted
Risk-free interest rate
%
Dividend yield
%
Expected term (years)
As of June 30, 2022, based on the conditions of the PSUs and performance to date for each award, the Company estimates that it
will
t issue any fully vested shares as of the applicable settlement date of all outstanding PSUs awards. As of June 30, 2022, there
was approximately $
over a weighted-average period of
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. There were
June 30, 2021, total contributions were $
Note 9 – Pension and Other Postretirement Benefits
The components of net periodic benefit (income) cost for the three and six months ended June 30, 2022 and 2021 are as follows:
Three Months Ended June 30,
Six Months Ended June 30,
Other
Other
Postretirement
Postretirement
Pension Benefits
Benefits
Pension Benefits
Benefits
2022
2021
2022
2021
2022
2021
2022
2021
Service cost
$
$
$
$
$
$
$
$
Interest cost
Expected return on plan assets
(2,012 )
(2,093 )
(4,097 )
(4,175 )
Actuarial loss amortization
(23 )
(47 )
Prior service cost amortization
(9 )
(8 )
Net periodic benefit (income)
$
(271 )
$
$
(22 )
$
$
(556 )
$
$
(44 )
$
Employer Contributions
As of June 30, 2022, $
plans and its other postretirement benefit plans, respectively. Taking into consideration current minimum cash contribution
requirements, the Company currently expects to make full year cash contributions of approximately $
foreign pension plans and approximately $
.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
16
Note 10 – Other (Expense) Income, Net
The components of other (expense) income, net, for the three and six months ended June 30, 2022 and 2021 are as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Income from third party license fees
$
$
$
$
Foreign exchange losses, net
(2,026 )
(838 )
(3,931 )
(2,316 )
(Loss) gain on disposals of property, plant, equipment and other
assets, net
(38 )
(54 )
(15 )
Non-income tax refunds and other related (expense) credits
(417 )
(1,739 )
Pension and postretirement benefit income,
non-service components
Loss on extinguishment of debt
(6,763 )
(6,763 )
Other non-operating income, net
Total other (expense) income, net
$
(8,399 )
$
$
(10,605 )
$
Non-income tax refunds and other related (expense) credits during the three and six months ended June 30, 2022, includes
adjustments to Combination-related indemnification assets associated with the settlement of certain income tax audits at certain of the
Company’s Italian and German affiliates for tax periods prior to August 1, 2019. See Note 11 of Notes to Condensed Consolidated
Financial Statements. During the second quarter of 2022, the Company recorded a loss on extinguishment of debt of approximately
$
party and creditor debt issuance costs incurred to execute an amendment to the Company’s primary credit facility. See Note 14 of
Notes to the Condensed Consolidated Financial Statements.
Loss (gain) on disposals of property, plant, equipment and other assets, net, during the six months ended June 30, 2021, includes a
gain on the sale of certain held-for-sale real property assets related to the Combination.
Note 11 – Income Taxes and Uncertain Income Tax Positions
The Company’s effective tax rates for the three and six months ended June 30, 2022 were
% and
%, respectively,
compared to
% and
% for the three and six months ended June 30, 2021, respectively. The Company’s effective tax rate for
the six months ended June 30, 2022 was largely driven by state tax benefits, changes in the valuation allowance for foreign tax credits
due to recently issued legislative guidance, the impact of audit settlements reached with German and Italian tax authorities, a deferred
tax benefit associated with an intercompany asset transfer, a reduction in reserves for uncertain tax positions relating to management
fees, withholding taxes for increased forecasted dividends and the effects of lower pre-tax earnings and the mix of such earnings. In
addition, the Company incurred higher tax expense during the three and six months ended June 30, 2022 at one of its subsidiaries as it
accrued taxes at a statutory tax rate of
% while it awaits recertification of a concessionary
% tax rate, which was available to the
Company during all of 2021. Comparatively, the prior year effective tax rates were largely impacted by the sale of a subsidiary which
included certain held-for-sale real property assets related to the Combination , changes in foreign tax credit valuation allowances, tax
law changes in a foreign jurisdiction and the income tax impacts of certain non-income tax credits recorded by the Company’s
Brazilian subsidiaries.
As of December 31, 2021, the Company had a deferred tax liability of $
which primarily represents the Company’s estimate of non-U.S. income taxes the Company will incur to ultimately remit certain
earnings to the U.S. As of June 30, 2022 this deferred tax liability balance was $
cumulative liability for gross unrecognized tax benefits was $
cumulative liability accrued as of December 31, 2021.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
17
The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on
income before equity in net income of associated companies in its Condensed Consolidated Statements of Income. The Company
recognized a benefit for interest of less than $
$
respectively, and recognized an expense for interest of approximately $
million and $
2021, respectively. As of June 30, 2022, the Company had accrued $
cumulative penalties in its Condensed Consolidated Balance Sheets, compared to $
for cumulative penalties accrued at December 31, 2021.
During the six months ended June 30, 2022 and 2021, the Company recognized decreases of $
respectively, in its cumulative liability for gross unrecognized tax benefits due to the settlement of income tax audits with both the
Italian and German tax authorities, as well as the expiration of the applicable statutes of limitations for certain tax years.
The Company estimates that during the year ending December 31, 202 2 it will reduce its cumulative liability for gross
unrecognized tax benefits by approximately $
limitations with regard to certain tax positions. This estimated reduction in the cumulative liability for unrecognized tax benefits does
not consider any increase in liability for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative
liability for unrecognized tax benefits with regard to new tax positions for the year ending December 31, 2022.
The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign
tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions include Italy from
, Brazil from
,
Germany from
, the Netherlands and Mexico from
, Canada, China, Spain and the U.S. from
, the United Kingdom
from
, India from fiscal year beginning April 1, 2017 and ending March 31,
, and various U.S. state tax jurisdictions from
.
Netherlands and Spain. In February 2022, the Company received a settlement notice from the Italian taxing authorities confirming the
amount due of $
liability. As of June 30, 2022, the Company has paid the full settlement amount, of which approximately $
refundable.
Houghton Italia, S.r.l is also involved in a corporate income tax audit with the Italian tax authorities covering tax years
through
. During the fourth quarter of 2021, the Company settled a portion of the Houghton Italia, S.r.l. corporate income tax
audit with the Italian tax authorities for the tax years 2014 and 2015. During the six months ended June 30, 2022, the Company
settled tax years 2016 through 2018 for a total of $
$
settlement and reserve release the Company recognized a net benefit to the tax provision of $
2022. The Company has an indemnification receivable of $
Houghton for any pre-Combination tax liabilities arising from this matter.
As previously reported, Houghton Deutschland GmbH is also under audit by the German tax authorities for the tax years
through
. In the second quarter of 2022 the Company settled the corporate tax audit for the tax years 2015-2017 with the German
tax authorities for a total of $
against the former owners of Houghton for any pre-Combination tax liabilities arising from this matter.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
18
Note 12 – Earnings Per Share
The following table summarizes earnings per share calculations for the three and six months ended June 30, 2022 and 2021:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Basic earnings per common share
Net income attributable to Quaker Chemical Corporation
$
$
$
$
Less: income allocated to participating securities
(58 )
(134 )
(136 )
(287 )
Net income available to common shareholders
$
$
$
$
Basic weighted average common shares outstanding
Basic earnings per common share
$
$
$
$
Diluted earnings per common share
Net income attributable to Quaker Chemical Corporation
$
$
$
$
Less: income allocated to participating securities
(58 )
(134 )
(136 )
(287 )
Net income available to common shareholders
$
$
$
$
Basic weighted average common shares outstanding
Effect of dilutive securities
Diluted weighted average common shares outstanding
Diluted earnings per common share
$
$
$
$
Certain stock options, restricted stock units and PSUs are not included in the diluted earnings per share calculation when the
effect would have been anti-dilutive. The calculated amount of anti-diluted shares not included were
and six months ended June 30, 2022, respectively, and
Note 13 – Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the six months ended June 30, 2022 were as follows:
Global
Specialty
Americas
EMEA
Asia/Pacific
Businesses
Total
Balance as of December 31, 2021
$
$
$
$
$
Goodwill additions
Currency translation adjustments
(9,969 )
(8,185 )
(4,894 )
(22,811 )
Balance as of June 30, 2022
$
$
$
$
$
Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of June 30, 2022 and December 31,
2021 were as follows:
Gross Carrying
Accumulated
Amount
Amortization
2022
2021
2022
2021
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 $
June 30, 2021, respectively.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
19
Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows:
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
For the year ended December 31, 2027 and beyond
The Company had four indefinite-lived intangible assets totaling $
indefinite-lived intangible assets for trademarks and tradename associated with the Combination. Comparatively, the Company had
four indefinite-lived intangible assets for trademarks and tradename totaling $
The Company completes its annual goodwill and indefinite-lived intangible asset impairment test during the fourth quarter of
each year, or more frequently if triggering events indicate a possible impairment. The Company continually evaluates financial
performance, economic conditions and other relevant developments in assessing if a triggering event indicates that it is more likely
than not that the carrying value of any of the Company’s reporting units or indefinite-lived or long-lived assets is not recoverable.
Company continues to monitor various financial, economic and geopolitical conditions impacting the Company, including the Russia-
Ukraine war and the Company’s decision to cease operations in Russia, raw material, supply chain, and logistics cost escalation, and
rising interest rates and cost of capital among other factors. The Company concluded that these and other factors which have and
continue to impact the Company did not represent a triggering event as of June 30, 2022. The Company continues to take action to
offset these headwinds including, but not limited to, implementing selling price increases aimed at offsetting raw material costs and
ongoing inflationary pressures. However, if the Company is unable to successfully implement these actions and future or projected
financial performance declines, then it is possible any of these financial, economic or geopolitical conditions could represent a
triggering event in the future and could lead to a potential impairment of the Company’s reporting unit goodwill or other indefinite-
lived or long-lived assets.
Note 14 – Debt
Debt as of June 30, 2022 and December 31, 2021 includes the following:
As of June 30, 2022
As of December 31, 2021
Interest
Outstanding
Interest
Outstanding
Rate
Balance
Rate
Balance
Credit Facilities:
Original Revolver
$
$
Original U.S. Term Loan
Original Euro Term Loan
Amended Revolver
Amended U.S. Term Loan
Amended Euro Term Loan
Industrial development bonds
Bank lines of credit and other debt obligations
Total debt
$
$
Less: debt issuance costs
(2,216 )
(8,001 )
Less: short-term and current portion of long-term debts
(14,485 )
(56,935 )
Total long-term debt
$
$
Credit facilities
The Company, its wholly owned subsidiary, Quaker Chemical B.V., as borrowers, Bank of America, N.A., as administrative
agent, U.S. Dollar swing line lender and letter of credit issuer, and the other lenders party thereto, entered into a credit agreement on
August 1, 2019, as amended (the “Original Credit Facility”). The Original Credit Facility was comprised of a $
multicurrency revolver (the “Original Revolver”), a $
Company as borrower, and a $
Quaker Chemical B.V., a Dutch subsidiary of the Company as borrower, each with a five-year term, maturing in
.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
20
During June 2022, the Company, and its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A.,
as administrative agent, U.S. Dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active
Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to the Original Credit Facility
(the “Amended Credit Facility”). The Amended Credit Facility established (A) a new $
term loan (the “Amended Euro Term Loan”), (B) a new $
and (C) a new $
increase the amount of the Amended Credit Facility by an aggregate amount not to exceed the greater of $
% of
Consolidated EBITDA, subject to certain conditions including the agreement to provide financing by any lender providing such
increase). In addition, the Amended Credit Facility also:
(i) eliminated the requirement that material foreign subsidiaries must guaranty the Original Euro Term Loan;
(ii) replaced the U.S. Dollar borrowings reference rate from LIBOR to SOFR;
(iii) extended the maturity date of the Original Credit Facility from August 2024 to June 2027; and
(iv) effected certain other changes to the Original Credit Facility as set forth in the Amended Credit Facility.
The Company used the proceeds of the Amended Credit Facility to repay all outstanding loans under the Original Credit Facility,
unpaid accrued interest and fees on the closing date under the Original Credit Facility and certain expenses and fees. U.S. Dollar-
denominated borrowings under the Amended Credit Facility bear interest, at the Company’s election, at the base rate or term SOFR
plus an applicable rate ranging from
% to
% for term SOFR loans and from
% to
% for base rate loans, depending
upon the Company’s consolidated net leverage ratio. Loans based on term SOFR also include a spread adjustment equal to
% per
annum. Borrowings under the Amended Credit Facility denominated in currencies other than U.S. Dollars bear interest at the
alternative currency term rate plus the applicable rate ranging from
% to
%.
The Amended Credit Facility contains affirmative and negative covenants, financial covenants and events of default, including
without limitation restrictions on (a) the incurrence of additional indebtedness; (b) investments in and acquisitions of other businesses,
lines of business and divisions; (c) the making of dividends or capital stock purchases; and (d) dispositions of assets. Dividends and
share repurchases are permitted in annual amounts not exceeding the greater of $
% of consolidated
EBITDA if there is no default. All restricted payments may be made if there is no default and if the consolidated net leverage ratio is
less than
.
Financial covenants contained in the Amended Credit Facility include a consolidated interest coverage ratio test and a
consolidated net leverage ratio test. The consolidated net leverage ratio at the end of a quarter may not be greater than
,
subject to a permitted increase during a four-quarter period after certain acquisitions. The Company has the option of replacing the
consolidated net leverage ratio test with a consolidated senior net leverage ratio test if the Company issues certain types of unsecured
notes, subject to certain limitations. Events of default in the Amended Credit Facility include without limitation defaults for non-
payment, breach of representations and warranties, non-performance of covenants, cross-defaults, insolvency, and a change of control
in certain circumstances. The occurrence of an event of default under the Amended Credit Facility could result in all loans and other
obligations becoming immediately due and payable and the Amended Credit Facility being terminated. As of June 30, 2022, the
Company was in compliance with all of the Amended Credit Facility covenants.
The weighted average variable interest rate incurred on the outstanding borrowings under the Original Credit Facility and the
Amended Credit Facility during the six months ended June 30, 2022 was approximately
%. As of June 30, 2022, the interest rate on
the outstanding borrowings under the Amended Credit Facility was approximately
%. In addition to paying interest on outstanding
principal under the Original Credit Facility, the Company was required to pay a commitment fee ranging from
% to
%
depending on the Company’s consolidated net leverage ratio under the Original Revolver in respect of the unutilized commitments
thereunder. As part of the Amended Credit Facility, the Company is required to pay a commitment fee ranging from
% to
% related to unutilized commitments under the Amended Revolver, depending on the Company’s consolidated net leverage
ratio. The Company had unused capacity under the Amended Revolver of approximately $
approximately $
The Company previously capitalized $
Original Credit Facility. Approximately $
recorded as a direct reduction of Long-term debt on the Condensed Consolidated Balance Sheet. Approximately $
capitalized costs were attributed to the Original Revolver and recorded within Other assets on the Condensed Consolidated Balance
Sheet. These capitalized costs were being amortized into Interest expense over the
of December 31, 2021, the Company had $
the Original Credit Facility. As of December 31, 2021, the Company had $
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
21
assets attributable to the Original Credit Facility. Prior to executing the Amended Credit Facility, the Company had $
debt issuance costs recorded as a reduction of Long-term debt attributable to the Original Credit Facility and $
issuance costs recorded within Other assets attributable to the Original Credit Facility.
In connection with executing the Amended Credit Facility, the Company recorded a loss on extinguishment of debt of
approximately $
portion of the third-party and creditor debt issuance costs incurred to execute the Amended Credit Facility. Also in connection with
executing the Amended Credit Facility, during the second quarter of 2022, the Company capitalized $
and creditor debt issuance costs. Approximately $
and Amended U.S. Term Loan. These costs were recorded as a direct reduction of Long-term debt on the Condensed Consolidated
Balance Sheet. Approximately $
Other assets on the Condensed Consolidated Balance Sheet. These capitalized costs, as well as the previously capitalized costs that
were not written off will collectively be amortized into Interest expense over the five-year term of the Amended Credit Facility. As of
June 30, 2022, the Company had $
Consolidated Balance Sheet and $
Balance Sheet.
The Original Credit Facility required the Company to fix its variable interest rates on at least
% of its total Original 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 Original Credit Facility, in November 2019, the Company entered into $
swaps at a base rate of
% plus an applicable margin as provided in the Original Credit Facility, based on the Company’s
consolidated net leverage ratio. At the time the Company entered into the swaps, and as of June 30, 2022, the aggregate interest rate
on the swaps, including the fixed base rate plus an applicable margin, was
%. The Amended Credit Facility does not require the
Company to fix variable interest rates on any portion of its borrowings. As of June 30, 2022, the Company has not amended its
current interest rate swaps. See Note 17 of Notes to Condensed Consolidated Financial Statements.
Industrial development bonds
As of June 30, 2022 and December 31, 2021, the Company had fixed rate, industrial development authority bonds totaling $
million in principal amount due in
. These bonds have similar covenants to the Amended Credit Facility noted above.
Bank lines of credit and other debt obligations
The Company has certain unsecured bank lines of credit and discount ing facilities in certain foreign subsidiaries, which are not
collateralized. The Company’s other debt obligations 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 June 30, 2022 was approximately $
The Company incurred the following debt related expenses included within Interest expense, net, in the Condensed Consolidated
Statements of Income:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Interest expense
$
$
$
$
Amortization of debt issuance costs
Total
$
$
$
$
Based on the variable interest rates associated with the Amended Credit Facility, as of June 30, 2022 and the Original Credit
Facility as of December 31, 2021, 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
On June 30, 2022, annual maturities on the Amended Credit Facility in the next five fiscal years (excluding the reduction to
long-term debt attributed to capitalized and unamortized debt issuance costs) are as follows:
`
June 30,
2022
For the remainder of 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
For the year ended December 31, 2027
Total payments
$
Note 15 – Accumulated Other Comprehensive Income
The following tables show the reclassifications from and resulting balances of accumulated other comprehensive income
(“AOCI”) for the three and six months ended June 30, 2022 and 2021:
Defined
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at March 31, 2022
$
(56,710 )
$
(12,676 )
$
(603 )
$
(272 )
$
(70,261 )
Other comprehensive (loss) income before
reclassifications
(76,400 )
(1,043 )
(75,046 )
Amounts reclassified from AOCI
Related tax amounts
(461 )
(172 )
(482 )
Balance at June 30, 2022
$
(133,110 )
$
(11,269 )
$
(1,170 )
$
$
(145,246 )
Balance at March 31, 2021
$
(28,334 )
$
(22,175 )
$
$
(3,036 )
$
(53,228 )
Other comprehensive income (loss) before
reclassifications
(260 )
Amounts reclassified from AOCI
Related tax amounts
(195 )
(64 )
(134 )
(393 )
Balance at June 30, 2021
$
(12,177 )
$
(21,778 )
$
$
(2,584 )
$
(35,943 )
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
23
Defined
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at December 31, 2021
$
(49,843 )
$
(13,172 )
$
$
(1,372 )
$
(63,990 )
Other comprehensive (loss) income before
reclassifications
(83,267 )
(2,320 )
(81,330 )
Amounts reclassified from AOCI
Related tax amounts
(626 )
(500 )
(709 )
Balance at June 30, 2022
$
(133,110 )
$
(11,269 )
$
(1,170 )
$
$
(145,246 )
Balance at December 31, 2020
$
(2,875 )
$
(23,467 )
$
$
(3,598 )
$
(26,598 )
Other comprehensive (loss) income before
reclassifications
(9,302 )
(404 )
(7,869 )
Amounts reclassified from AOCI
(3,083 )
(1,369 )
Related tax amounts
(546 )
(302 )
(107 )
Balance at June 30, 2021
$
(12,177 )
$
(21,778 )
$
$
(2,584 )
$
(35,943 )
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 16 – 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 June 30, 2022
Total
Using Fair Value Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
$
$
$
$
Total
$
$
$
$
Fair Value Measurements at December 31, 2021
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 June 30, 2022 or December 31, 2021, respectively, so related
disclosures have not been included.
Note 17 – Hedging Activities
In order to satisfy certain requirements of the Original Credit Facility as well as to manage the Company’s exposure to variable
interest rate risk associated with the Original Credit Facility, in November 2019, the Company entered into $
amounts of
swaps are 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.
In June 2022, the Company amended the Original Credit Facility. See Note 14 of Notes to the Condensed Consolidated Financial
Statements. The Amended Credit Facility does not require the Company to fix variable interest rates on any portion of its borrowings.
The balance sheet classification and fair values of the Company’s derivative instruments, which are Level 2 measurements, are as
follows:
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
24
Fair Value
Condensed Consolidated
June 30,
December 31,
Balance Sheet Location
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
Prepaid expenses and other current assets
$
$
Other accrued liabilities
$
394
$
The following table presents the net unrealized (gain) loss deferred to AOCI:
June 30,
December 31,
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
AOCI
$
(303 )
$
$
(303 )
$
The following table presents the net loss reclassified from AOCI to earnings:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Amount and location of expense reclassified
from AOCI into expense (effective portion)
Interest expense, net
$
(378 )
$
(659 )
$
(1,015 )
$
(1,302 )
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 18 – Commitments and Contingencies
The Company previously disclosed in its 2021 Form 10-K that AC Products, Inc. (“ACP”), a wholly owned subsidiary, in 2007,
agreed to operate two groundwater treatment systems, so as to hydraulically contain groundwater contamination emanating from
ACP’s site until such time as the concentrations of contaminants are below the current Federal maximum contaminant level for four
consecutive quarterly sampling events. In 2014, ACP ceased operation at one of its two groundwater treatment systems, as it had met
the above condition for closure. As of June 30, 2022, ACP continues to operate the second groundwater treatment system, while the
Company discusses with the relevant authorities whether the second groundwater treatment system meets the conditions for closure.
In addition, the Santa Ana Regional Water Quality Control Board requested that ACP conduct additional indoor and outdoor soil
vapor testing on and near the ACP site to confirm that ACP continues to meet the applicable local soil vapor standards. As of June 30,
2022, ACP performed such testing and is awaiting the review of the results from the Santa Ana Regional Water Quality Control
Board.
As of June 30, 2022, 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.
The Company previously disclosed in its 2021 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 six months ended June 30, 2022, 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 $
The Company previously disclosed in its 2021 Form 10-K that it is party to certain environmental matters related to certain
domestic and foreign properties. These environmental matters primarily require the Company to perform long-term monitoring and
maintenance at each of the applicable sites. During the three and six months ended June 30, 2022, 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
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts, unless otherwise stated)
(Unaudited)
25
matters, and based on historical costs incurred and projected costs to be incurred over the next approximately 30 years, has estimated
the range of costs for all of these environmental matters, on a discounted basis, to be between approximately $
million as of June 30, 2022, for which $
Company’s Condensed Consolidated Balance Sheet as of June 30, 2022. Comparatively, as of December 31, 2021, the Company had
$
Although there can be no assurance regarding the outcome of other unrelated environmental matters, the Company believes that it
has made adequate accruals for costs associated with other environmental problems for which it is aware, and has accrued $
as of both June 30, 2022 and December 31, 2021, respectively, to provide for such anticipated future environmental assessments and
remediation costs.
The Company previously disclosed in its 2021 Form 10-K that during the first six months 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 related 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 five years preceding the date of their legal claims. As a result of these court
rulings in the first six months of 2021, the Company recognized non-income tax credits of
million, which includes approximately $
million. The tax credits to which the Company’s Brazilian subsidiaries are entitled are claimable once registered with the Brazilian
tax authorities which the Company subsequently completed. 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.
In connection with obtaining regulatory approvals for the Combination, certain steel and aluminum related product lines of
Houghton were divested in August 2019. The Company previously disclosed in its 2021 Form 10-K that 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 responded to the subject matters of the
indemnification claim and during the first quarter of 2022, the matter was resolved consistent with the Company’s expectations and
position that there were no amounts owed by the Company.
The Company previously disclosed in its 2021 Form 10-K that two of the Company’s locations suffered property damages as a
result of flooding and fire, respectively. The Company maintains property insurance for all of its facilities globally. During the six
months ended June 30, 2022, there have been no significant changes to the facts or circumstances of these previously disclosed
matters, aside from the on-going restoration of both sites. 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 were covered under the
Company’s property insurance coverage, net of an aggregate deductible of $
its insurers of $
for losses incurred) of $
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
26
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. The term the
“Combination” refers to the legacy Quaker combination with Houghton International, Inc. (“Houghton”) on August 1, 2019.
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, container, 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 U.S.
Overall, the Company’s second quarter of 2022 performance reflected continued progress navigating through a myriad of
financial, economic and geopolitical headwinds, including persistent and significant raw material cost escalation and overall
inflationary pressures, supply chain and logistics challenges, production and distribution disruptions due to COVID-19 related actions
in China, the direct and indirect impacts of the ongoing war in Ukraine and foreign currency volatility. Despite these challenges, net
sales in the second quarter of 2022 were a record $492.4 million, representing an increase of approximately 13% compared to $435.3
million in the second quarter of 2021. This was primarily driven by an increase in selling price and product mix of approximately
22% and additional net sales from acquisitions of 1%, partially offset by a decline in organic sales volumes of 4% and the unfavorable
impact from foreign currency translation of 6%. The increase in selling price and product mix is primarily the result of strategic price
increases implemented to help offset the ongoing inflationary pressures that began during 2021 and have continued into 2022. The
decline in organic sales volumes was primarily attributable to COVID-19 related disruptions in China, the wind-down of the tolling
agreement for products previously divested related to the Combination, the impact of the war in Ukraine and the Company’s ongoing
value-based pricing initiatives.
The Company generated net income in the second quarter of 2022 of $14.3 million, or $0.80 per diluted share, compared to net
income of $33.6 million, or $1.88 per diluted share in the second quarter of 2021. Excluding non-recurring and non-core items in each
period, the Company’s second quarter of 2022 non-GAAP earnings per diluted share were $1.32 compared to $1.82 in the prior year
quarter and the Company’s current quarter adjusted EBITDA was $58.5 million compared to $70.1 million in the second quarter of
2021. These results were primarily driven by lower gross margins in the current quarter due to a significant increase in raw material
and other input costs as well as the direct and indirect impacts of global supply chain disruptions, the unfavorable impact of foreign
currency, and to a lesser extent, by higher selling, general and administrative expenses (“SG&A”). 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 second quarter of 2022 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 as each of the Company’s reportable segments net sales benefitted year-over-year from double-digit
increases in selling price and product mix and additional net sales from acquisitions, while those increases in net sales for most
segments were partially offset by lower organic sales volumes and the unfavorable impact of foreign currency translation. Organic
volumes for the Global Speciality Businesses increased in the second quarter of 2022 compared to the prior year quarter due to strong
demand for this segment’s products . Operating earnings for the Global Specialty Businesses and Americas increased compared to the
prior year quarter, whereas operating earnings for Asia/Pacific and EMEA declined, due to the persistent and significant inflationary
pressures on raw materials and other costs, the impact of COVID-19 disruptions in China, and the negative impact of foreign currency
translation, partially offset by continued price realization. Sequentially, operating earnings increased in Global Speciality Businesses
and the Americas driven by higher selling prices, and was relatively consistent in Asia/Pacific. Operating margins for the three
aforementioned segments increased sequentially, as price realization was able to help offset the inflationary pressures on each of the
segment’s gross margins. Additional details of each segment’s operating performance are further discussed in the Company’s
Reportable Segments Review, in the Operations section of this Item, below.
Quaker Chemical Corporation
Management’s Discussion and Analysis
27
The Company had a net operating cash outflow of $8.4 million in the first six months of 2022 as compared to a net operating cash
outflow of $9.6 million in the first six months of 2021. The net operating cash outflow in both periods reflects a significant working
capital investment primarily related to higher accounts receivable due to the increase in net sales as well as higher inventory due
primarily to the rising cost of raw materials and to a lesser extent a build in certain inventory stock in response to global supply chain
and logistics challenges. 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 delivered another quarter of strong net sales growth, driven by strong price realization and above market
growth. The expected decline in earnings was primarily driven by ongoing inflationary pressures, COVID-19 disruptions in China,
unfavorable currency translation, geopolitical issues and other disruptions that impacted our customers and end markets.
Notwithstanding, we delivered double-digit year-over-year increases in selling price and largely stabilized the Company’s gross
margins on a sequential basis despite continued increases in our costs. Looking at the remainder of 2022, the Company’s focus
remains on executing on items within its control. The Company is encouraged by the momentum in its business and resilience of its
end markets, with some regional differences. The Company continues to work with its customers to get the needed pricing to offset
the persistent inflationary pressures on its margin while also exhibiting continued cost controls. Despite significant uncertainty
caused by several macroeconomic factors, the Company continues to expect to deliver sequential gross margin expansion and earnings
growth in the second half of 2022.
On-going impact of COVID-19
The global outbreak of COVID-19 in March of 2020 has negatively impacted all locations where the Company does business.
Although the Company has now operated in this COVID-19 environment for more than two years, 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 and, at times during the pandemic, the Company has experienced volume
declines as compared to pre-COVID-19 levels. 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
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 such as recent restrictions in China as well as border controls or closures and transportation
disruptions may result in volume declines and lower net sales in future periods. To the extent that the Company’s customers and
suppliers are 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 and adversely impacted by COVID-19. 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 its financial reporting processes, internal controls over financial reporting, or disclosure
controls and procedures.
The Company’s top priority is to protect the health and safety of its employees and customers, while working to ensure business
continuity to meet customers’ needs. During the pandemic, the Company has taken incremental steps to protect the health and
wellbeing of its people in affected areas through various actions, including enabling work at home where needed and practicable, 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 more than 30 production facilities worldwide are open
and operating and are deemed as essential businesses in the jurisdictions where they are operating. The Company continues to expect
that the impacts from COVID-19 will gradually decline subject to the effective containment of the virus and its variants and successful
distribution and acceptance of the available vaccines and treatments; however, the incidence of reported cases of COVID-19 or a
variant in several geographies where the Company has significant operations remains relatively high. Differing government responses
to these reported cases continues to evolve and it therefore remains highly uncertain as to how long the global pandemic and related
economic challenges will last in each of the jurisdictions where the Company conducts business and when our customers’ businesses
will recover to pre-COVID-19 levels. Though the Company was able to supply customers with value added solutions, as a result of
the government-imposed quarantine and lockdown measures implemented at the end of March 2022 and continuing in effect until
early June 2022, the Company’s Shanghai, China-based locations were significantly impacted. The negative impact of those measures
on our operations and liquidity was experienced during the second quarter of 2022 and the ultimate impact will depend on how
quickly the Chinese economy recovers from the quarantine and lockdown measures that were temporarily implemented. While the
actions the Company has taken to date to protect our workforce, to continue to serve our customers with excellence and to conserve
cash and reduce costs as applicable, have been effective thus far, further actions to respond to the pandemic and its effects may be
necessary as conditions continue to evolve.
Quaker Chemical Corporation
Management’s Discussion and Analysis
28
Impact of Political Conflicts
to political and economic risks that could adversely affect the Company’s business, liquidity, financial position and results of
operations. The existence of military conflicts, for example the Russian invasion of Ukraine, bring inherent risks such as the potential
for supply chain disruptions, increased costs of resources including oil, decreased trade activity and other consequences related to
economic or other sanctions. The U.S. government and other nations have imposed significant restrictions on most companies’ ability
to do business in Russia as a result of the military conflict between Russia and Ukraine. It is not possible to predict the broader or
longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts
and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. The military
conflict between Russia and Ukraine has had a negative impact on the Company’s ability to sell to, ship products to collect payments
from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics
restrictions including closures of air space. If this conflict continues or expands, it could increase the costs, risks and adverse impacts
from these new challenges. The Company and its customers and suppliers may also be the subject of increased cyber-attacks.
conflict areas including Russia, Ukraine and Belarus historically represented less than 2% of the Company’s consolidated net sales
and less than 1% of the Company’s consolidated total assets. The Company’s primary exposure in the conflict areas related to
outstanding customer accounts receivable. The Company is actively monitoring its outstanding Russian receivables for collections
and has recorded incremental allowances for doubtful accounts where warranted.
Liquidity and Capital Resources
At June 30, 2022, the Company had cash and cash equivalents of $202.3 million. Total cash and cash equivalents was $165.2
million at December 31, 2021. The $37.2 million increase in cash and cash equivalents was the net result of $78.6 million of cash
provided by financing activities partially offset by $8.4 million of cash used in operating activities, $24.4 million of cash used in
investing activities and $8.6 million negative impact due to the effect of foreign currency translation.
Net cash flows used in operating activities were $8.4 million in the first six months of 2022 compared to net cash flows used in
operating activities of $9.6 million in the first six months of 2021. The net operating cash outflow in both periods reflects working
capital investment primarily related to higher accounts receivable due to the increase in net sales and higher inventory due primarily to
the rising cost of raw materials and to a lesser extent a build in certain inventory in response to global supply chain and logistics
challenges. The slight improvement in operating cash flow year-over-year is a result of a lower working capital investment partially
offset by lower earnings in the first six months of 2022 compared to the first six months of 2021.
Net cash flows used in investing activities were $24.4 million in the first six months of 2022 compared to $21.7 million in the first
six months of 2021. This increase in cash outflows was a result of lower cash proceeds from the disposition of assets which included
the sale of certain held-for-sale real property assets related to the Combination in the prior year period, and higher capital expenditures
in the current year largely related to certain infrastructure and sustainability-related spending. These increases in cash used in
investing activities were partially offset by lower cash payments related to acquisitions as a result of the level of acquisition activity in
each year. See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Report.
Net cash flows provided by financing activities were $78.6 million in the first six months of 2022 compared to net cash flows
used in financing activities of $4.4 million in the first six months of 2021. The increase in net cash flows was primarily related to an
increase in borrowings in the current year under the Company’s credit facility, which was amended and extended, as further described
below, in the second quarter of 2022. In addition, the Company paid $14.9 million of cash dividends during the first six months of
2022, a $0.7 million or 5% increase in cash dividends compared to the prior year.
The Company, its wholly owned subsidiary, Quaker Chemical B.V., as borrowers, Bank of America, N.A., as administrative
agent, U.S. Dollar swing line lender and letter of credit issuer, and the other lenders party thereto, entered into a credit agreement on
August 1, 2019, as amended (the “Original Credit Facility”). During June 2022, the Company, and its wholly owned subsidiary,
Quaker Houghton B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S. Dollar swing line lender and letter of
credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders
entered into an amendment to the Original Credit Facility (the “Amended Credit Facility”). The Company used the proceeds of the
Amended Credit Facility to repay all outstanding loans under the Original Credit Facility, as well as accrued interest and fees, and to
terminate the revolving credit commitments under the Original Credit Facility.
Quaker Chemical Corporation
Management’s Discussion and Analysis
29
The Company’s Amended Credit Facility is comprised of a $500.0 million multicurrency revolver, a $600.0 million term loan and
a $150.0 million (as of June 17, 2022) Euro equivalent term loan (collectively, the “Amended Term Loans”) with the Company and
Quaker Houghton B.V., as borrowers, each with a five-year term maturing in June 2027. Subject to the consent of the Administrative
Agent and certain other conditions, the Company may designate additional borrowers. The Company has the right to increase the
amount of the Amended Credit Facility by an aggregate amount not to exceed the greater of (i) $300 million and (ii) 100% of
Consolidated EBITDA, subject to certain conditions, including the agreement to provide financing by any Lender providing any such
increase. U.S. Dollar-denominated borrowings under the Amended Credit Facility bear interest, at the Company’s election, at the base
rate or term Secured Overnight Financing Rate (“SOFR”) plus an applicable rate ranging from 1.00% to 1.75% for term SOFR loans
and from 0.00% to 0.75% for base rate loans, depending upon the Company’s consolidated net leverage ratio. Loans based on term
SOFR also include a spread adjustment equal to 0.10% per annum. Borrowings under the Amended Credit Facility denominated in
currencies other than U.S. Dollars bear interest at the alternative currency term rate plus the applicable rate ranging from 1.00% to
1.75%. In addition to paying interest on outstanding principal under the Amended Credit Facility, the Company is required to pay a
commitment fee ranging from 0.15% to 0.275% depending on the Company’s consolidated net leverage ratio to the Lenders under the
Amended Revolver in respect of the unutilized commitments thereunder.
The Amended Credit Facility contains affirmative and negative covenants, financial covenants and events of default that are
customary for agreements of this nature. The Amended Credit Facility contains a number of customary business covenants, including
without limitation restrictions on (a) the incurrence of additional indebtedness by the Company or certain of its subsidiaries, (b)
investments in and acquisitions of other businesses, lines of business and divisions by the Company or certain of its subsidiaries, (c)
the payment of dividends or capital stock purchases by the Company or certain of its subsidiaries and (d) dispositions of assets by the
Company or certain of its subsidiaries. Dividends and share repurchases are permitted in annual amounts not exceeding the greater of
$75 million annually and 25% of Consolidated EBITDA if there is no default. All restricted payments may be made if there is no
default and if the consolidated net leverage ratio is less than 2.50 to 1.00.
Financial covenants contained in the Amended Credit Facility include a consolidated interest coverage ratio test and a
consolidated net leverage ratio test. The consolidated net leverage ratio at the end of a quarter may not be greater than 4.00 to 1.00,
subject to a permitted increase during a four quarter period after certain acquisitions. The Company has the option of replacing the
consolidated net leverage ratio test with a consolidated senior net leverage ratio test if the Company issues certain types of unsecured
debt, subject to certain customary limitations. Customary events of default in the Amended Credit Facility include without limitation
defaults for non-payment, breach of representations and warranties, non -performance of covenants, cross-defaults, insolvency, and a
change of control of the Company in certain circumstances. The occurrence of an event of default under the Amended Credit Facility
could result in all loans and other obligations becoming immediately due and payable and the Amended Credit Facility being
terminated.
The Original Credit Facility required the Company to fix its variable interest rates on at least 20% of its total Original 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 Original 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 Original Credit Facility, based on the Company’s
consolidated net leverage ratio. At the time the Company entered into the swaps, and as of June 30, 2022, the aggregate interest rate
on the swaps, including the fixed base rate plus an applicable margin, was 3.1%. The Amended Credit Facility does not require the
Company to fix variable interest rates on any portion of its borrowings.
The Company previously capitalized $23.7 million of certain third-party debt issuance costs in connection with the Original
Credit Facility. Approximately $15.5 million of the capitalized costs were attributed to the Original Term Loans and recorded as a
direct reduction of Long-term debt on the Condensed Consolidated Balance Sheet. Approximately $8.3 million of the capitalized
costs were attributed to the Original Revolver and recorded within Other assets on the Condensed Consolidated Balance Sheet. These
capitalized costs were being amortized into Interest expense over the five-year term of the Original Credit Facility. As of December
31, 2021, the Company had $8.0 million of debt issuance costs recorded as a reduction of Long-term debt attributable to the Original
Credit Facility. As of December 31, 2021, the Company had $4.3 million of debt issuance costs recorded within Other assets
attributable to the Original Credit Facility. Prior to executing the Amended Credit Facility, the Company had $6.6 million of debt
issuance costs recorded as a reduction of Long-term debt attributable to the Original Credit Facility and $3.5 million of debt issuance
costs recorded within Other assets attributable to the Original Credit Facility. In connection with executing the Amended Credit
Facility, the Company recorded a loss on extinguishment of debt of approximately $6.8 million which includes the write-off of certain
previously unamortized deferred financing costs as well as a portion of the third party and creditor debt issuance costs incurred to
execute the Amended Credit Facility. Also in connection with executing the Amended Credit Facility, during the second quarter of
2022, the Company capitalized $2.2 million of certain third-party debt issuance costs. Approximately $0.7 million of the capitalized
costs were attributed to the Amended Euro Term Loan and Amended U.S. Term Loan. These costs were recorded as a direct reduction
of Long-term debt on the Condensed Consolidated Balance Sheet. Approximately $1.5 million of the capitalized costs were attributed
to the Amended Revolver and recorded within Other assets on the Condensed Consolidated Balance Sheet. These capitalized costs, as
well as the previously capitalized costs that were not written off will collectively be amortized into Interest expense over the five-year
Quaker Chemical Corporation
Management’s Discussion and Analysis
30
term of the Amended Credit Facility. As of June 30, 2022, the Company had $2.2 million of debt issuance costs recorded as a
reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $4.8 million of debt issuance costs recorded within
Other assets on the Condensed Consolidated Balance Sheet.
As of June 30, 2022, the Company had Amended Credit Facility borrowings outstanding of $977.6 million. As of December 31,
2021, the Company had Original Credit Facility borrowings outstanding of $889.6 million. The Company has unused capacity under
the Amended Revolver of approximately $268 million, net of bank letters of credit of approximately $4 million, as June 30, 2022.
The Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and municipality -related loans,
which totaled $11.5 million and $11.8 million as of June 30, 2022 and December 31, 2021, respectively. Total unused capacity under
these arrangements as of June 30, 2022 was approximately $28 million. The Company’s total net debt as of June 30, 2022 was $786.7
million.
The Company incurred $8.3 million of total Combination, integration and other acquisition-related expenses in the first six
months of 2022, which includes $2.4 million of other expenses related to indemnification assets, described in the Non-GAAP
Measures section of this Item below. Comparatively, in the first six months of 2021, the Company incurred $7.6 million of total
Combination, integration and other acquisition-related expenses, which was net of a $5.4 million gain on the sale of certain held-for-
sale real property assets and also included $0.5 million of accelerated depreciation. The Company had aggregate net cash outflows of
approximately $9.2 million related to the Combination, integration and other acquisition -related expenses during the first six months
of 2022 as compared to $14.8 million during the first six months of 2021. During the first six months of 2022, the Company incurred
$6.2 million of strategic planning and transformation expenses. The Company expects that these additional operating costs and
associated cash flows, as well as higher capital expenditures related to strategic planning, process optimization and the next phase of
the Company’s long-term integration to further optimize its footprint, processes and other functions will continue in 2022 and
potentially extend into the next several years.
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. The exact timing and total costs associated with the QH Program depe nds on a
number of factors and is subject to change; however, reductions in headcount and site closures have occurred, and the Company
currently expects additional headcount reductions and site closures to occur throughout 2022 and into 2023. The Company made cash
payments related to the settlement of restructuring liabilities under the QH Program during the first six months of 2022 of
approximately $0.8 million compared to $4.2 million in the first six months of 2021.
As of June 30, 2022, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $21.9 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 $6.9 million as a result of offsetting
benefits in other tax jurisdictions.
In 2021, two of the Company’s locations suffered significant 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
2021 were covered under the Company’s property insurance coverage, net of an aggregate deductible of $2.0 million. The Company
has received payments from its insurers of $2.1 million and has recorded an insurance receivable associated with these events of $0.9
million as of June 30, 2022. See Note 18 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 ongoing acquisition integration and optimization, pension plan
contributions, capital expenditures, other business opportunities (including potential acquisitions), implementing actions to achieve the
Company’s sustainability goals and other potential known or anticipated contingencies. The Company believes it has sufficient
additional liquidity to support its operating requirements and to fund its business obligations for the period beyond the next twelve
months as well, including the aforementioned items which are expected to recur annually, as well as future principal and interest
payments on the Company’s Amended Credit Facility, tax obligations and other long-term liabilities. 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 and other
global events 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 organic 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
Quaker Chemical Corporation
Management’s Discussion and Analysis
31
actual and projected demand for our products, specialty chemical indust ry 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 meaningful 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.
The Company presents EBITDA which is calculated as net income attributable to the Company before depreciation and
amortization, interest expense, net, and taxes on income before equity in net (loss) 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 investors, analysts,
and peers 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 (loss) 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 investors, analysts, and peers in
our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
Certain of the prior period non-GAAP financial measures presented in the following tables have been adjusted to conform with
current period presentation. 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
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Operating income
$
31,903
$
38,816
$
61,306
$
83,710
Combination, restructuring and other
1,831
7,082
6,704
15,288
Strategic planning and transformation expenses (b)
3,112
—
6,200
—
Executive transition costs (c)
645
308
1,184
812
Russia-Ukraine conflict related expenses (d)
929
—
2,095
—
Other charges (e)
385
242
476
293
Non-GAAP operating income
$
38,805
$
46,448
$
77,965
$
100,103
Non-GAAP operating margin (%) (l)
7.9%
10.7%
8.1%
11.6%
Quaker Chemical Corporation
Management’s Discussion and Analysis
32
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin
and Non-GAAP Net Income Reconciliations
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Net income attributable to Quaker Chemical Corporation
$
14,343
$
33,570
$
34,159
$
72,185
Depreciation and amortization (a)(j)
20,856
22,344
41,583
44,792
Interest expense, net
6,494
5,618
11,839
11,088
Taxes on income before equity in net (loss) income
1,374
15,218
4,240
25,907
EBITDA
43,067
76,750
91,821
153,972
Equity loss (income) in a captive insurance company (f)
1,781
(883)
2,025
(3,963)
Combination, restructuring and other
2,248
6,956
9,100
9,359
Strategic planning and transformation expenses (b)
3,112
—
6,200
—
Executive transition costs (c)
645
308
1,184
812
Russia-Ukraine conflict related expenses (d)
929
—
2,095
—
Brazilian non-income tax credits (g)
—
(13,293)
—
(13,293)
Loss on extinguishment of debt (h)
6,763
—
6,763
—
Other charges (e)
(54)
219
(253)
318
Adjusted EBITDA
$
58,491
$
70,057
$
118,935
$
147,205
Adjusted EBITDA margin (%) (l)
11.9%
16.1%
12.3%
17.0%
Adjusted EBITDA
$
58,491
$
70,057
$
118,935
$
147,205
Less: Depreciation and amortization - adjusted (a)
20,856
22,218
41,583
44,251
Less: Interest expense, net
6,494
5,618
11,839
11,088
Less: Taxes on income before equity in net income
7,466
9,773
16,368
21,512
Non-GAAP net income
$
23,675
$
32,448
$
49,145
$
70,354
Non-GAAP Earnings per Diluted Share Reconciliations
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
GAAP earnings per diluted share attributable to
Quaker Chemical Corporation common shareholders
$
0.80
$
1.88
$
1.91
$
4.03
Equity loss (income) in a captive insurance company
0.10
(0.05)
0.11
(0.22)
Combination, restructuring and other
0.13
0.30
0.41
0.42
Strategic planning and transformation expenses per
0.13
—
0.27
—
Executive transition costs per diluted share (c)
0.03
0.02
0.05
0.04
Russia-Ukraine conflict related expenses per diluted share (d)
0.04
—
0.10
—
Brazilian non-income tax credits per diluted share (g)
—
(0.44)
—
(0.44)
Loss on extinguishment of debt per diluted share (h)
0.29
—
0.29
—
Other charges per diluted share (e)
0.01
(0.01)
0.02
Impact of certain discrete tax items per diluted share (i)
(0.20)
0.10
(0.39)
0.08
Non-GAAP earnings per diluted share (m)
$
1.32
$
1.82
$
2.74
$
3.93
Quaker Chemical Corporation
Management’s Discussion and Analysis
33
(a)
Combination, restructuring and other acquisition-related expenses include certain legal, financial, and other advisory and
consultant costs incurred in connection with the Combination integration activities including internal control readiness and
remediation as well as 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 amounts
also include expense associated with other of the Company’s acquisitions, including cost associated with selling inventory from
acquired businesses which was adjusted to fair value as part of purchase accounting. These costs are not indicative of the future
operating performance of the Company. Approximately $0.1 million and $0.2 million for the three and six months ended June
30, 2022, respectively, and approximately $0.4 million and $0.5 million in the three and six months ended June 30, 2021,
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 six months ended June 30, 2022, the Company recorded $0.4 million and $2.4 million, respectively,
of other expense related to an indemnification asset, which is included in the caption “Combination, restructuring and other
acquisition-related expenses” in the reconciliation of GAAP earnings 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 attributable to Quaker
Chemical Corporation to Adjusted EBITDA and Non-GAAP net income . During the three and six months ended June 30, 2021,
the Company recorded $0.1 million $0.5 million, respectively, of accelerated depreciation related to certain of the Company’s
facilities, which is included in the caption “Combination, restructuring 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 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 six months ended June 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 “Combination, restructuring and other acquisition-related
expenses” in the reconciliation of GAAP earnings 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 attributable to Quaker Chemical
Corporation to Adjusted EBITDA and Non-GAAP net income. During the three and six months ended June 30, 2022,
respectively, the Company recorded restructuring and related charges of less than $0.1 million and $0.8 million, respectively, and
$0.3 million and $1.5 million during the three and six months ended June 30, 2021, respectively. During the six months ended
June 30, 2021, the Company recorded $0.8 million related to the sale of inventory from acquired businesses which was adjusted
to fair value. See Notes 2, 7, 10 and 11 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this
Report.
(b)
Strategic planning and transformation expenses include certain consultant and advisory expenses for the Company’s long-term
strategic planning, as well as process optimization and the next phase of the Company’s long-term integration to further optimize
its footprint, processes and other functions. These costs are not indicative of the future operating performance of the Company.
(c)
Executive transition costs represent the costs related to the Company’s search, hiring and transition to a new CEO in connection
with the executive transition that took place in 2021 as well as the search, hiring and transition for other officers during the first
six months of 2022. These expenses are one-time in nature and not indicative of the future operating performance of the
Company.
(d)
Russia-Ukraine conflict related expenses represent the direct costs associated with the Company’s exit of operations in Russia
during the second quarter of 2022, primarily for employee separation benefits, as well as costs associated with establishing
specific reserves or changes to existing reserves for trade accounts receivable within the Company’s EMEA reportable segment
due to the economic instability associated with certain customer accounts receivables which have been directly impacted by the
current economic conflict between Russia and Ukraine or the Company’s decision to end operations in Russia. These expenses
are not indicative of the future operating performance of the Company.
(e)
Other charges include charges incurred by an inactive subsidiary of the Company as a result of the termination of restrictions on
insurance settlement reserves, non-service components of the Company’s pension and postretirement net periodic benefit income
and the foreign currency remeasurement impacts associated with the Company’s affiliates whos e local economies are designated
as hyper-inflationary under U.S. GAAP. These expenses are not indicative of the future operating performance of the Company.
See Notes 1 and 9 of Notes to Condensed Consolidated Financial Statements, which appear in Item 1 of this Report.
(f)
Equity loss (income) in a captive insurance company represents the after-tax loss (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 loss (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.
Quaker Chemical Corporation
Management’s Discussion and Analysis
34
(g)
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 non-income tax
credits arising from the claim and court ruling are non-recurring and not indicative of the future operating performance of the
Company. See Note 18 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this Report.
(h)
In connection with executing the Amended Credit Facility, the Company recorded a loss on extinguishment of debt of
approximately $6.8 million which includes the write-off of certain previously unamortized deferred financing costs as well as a
portion of the third-party and creditor debt issuance costs incurred to execute the Amended Credit Facility. These expenses are
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)
The impacts of certain discrete tax items include changes in valuation allowances recorded on certain Brazilian branch foreign tax
credits and the recording of deferred taxes on Brazilian branch income. Both of these discrete items related to tax law changes in
the U.S. due to the issuance of final foreign tax credit regulations during the period. Additionally, the Company has discrete
items related to the release of the reserves for uncertain tax positions settled during the quarter and certain taxes, penalties, and
interest due as a result of the settlements. See Note 11 of Notes to Condensed Consolidated Financial Statements, which appears
in Item 1 of this Report.
(j)
Depreciation and amortization for the three and six months ended June 30, 2022 includes approximately $0.2 million and $0.5
million, respectively, and for the three and six months ended June 30, 2021 includes $0.3 million and $0.6 million, respectively,
of amortization expense recorded within equity in net loss (income) of associated companies in the Company’s Condensed
Consolidated Statements of income, which is attributable to the amortization of the fair value step up for the Company’s 50%
interest in a joint venture in Korea as a result of required purchase accounting.
(k)
Taxes on income before equity in net loss (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
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. Combination, restructuring and other acquisition-
related expenses described in (a) resulted in a tax benefit of approximatel y $0.1 million and incremental taxes of $1.6 million for
the three and six months ended June 30, 2022, respectively, compared to $1.6 million and $2.2 million for the three and six
months ended June 30, 2021, respectively. Strategic planning and transformation expenses describes in (b) above resulted in
incremental taxes of $0.7 million and $1.4 million for the three and six months ended June 30, 2022, respectively. Executive
transition costs described in (c) resulted in incremental taxes of $0.2 million and $0.3 million for the three and six months ended
June 30, 2022, respectively, compared to $0.1 million and $0.2 million for the three and six months ended June 30, 2021,
respectively. Russia-Ukraine conflict related expenses described in (d) resulted in incremental taxes of $0.2 million and $0.5
million for the three and six months ended June 30, 2022, respectively. Other charges described in (e) resulted in incremental
taxes of less than $0.1 million and a tax benefit of less than $0.1 million for the three and six months ended June 30, 2022,
respectively, compared to $0.1 million during each of the three and six months ended June 30, 2021. Brazilian non-income tax
credits described in (g) resulted in incremental taxes of $5.3 million during the three and six months ended June 30, 2021. Loss
on extinguishment of debt described in (h) resulted in incremental taxes of $1.6 million during the three and six months ended
June 30, 2022. The impact of certain discrete items described in (i) resulted in a tax benefit of $3.5 million and $6.9 million for
the three and six months ended June 30, 2022, respectively, compared to $1.9 million and $1.5 million for the three and six
months ended June 30, 2021, respectively.
(l)
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.
(m)
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 commitments or obligations as of June 30, 2022. The Company’s off -balance
sheet items outstanding as of June 30, 2022 includes approximately $5 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 14 of Notes to Condensed
Consolidated Financial Statements in Item 1 of this Report.
Quaker Chemical Corporation
Management’s Discussion and Analysis
35
Operations
Consolidated Operations Review – Comparison of the Second Quarter of 2022 with the Second Quarter of 2021
Net sales were $492.4 million in the second quarter of 2022 compared to $435.3 million in the second quarter of 2021. The net
sales increase of $57.1 million or 13% quarter-over-quarter reflects increases in selling price and product mix of approximately 22%
and additional net sales from acquisitions of 1% partially offset by the unfavorable impact from foreign currency translation of 6% and
a decline in organic sales volumes of approximately 4%. 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 that began during 2021 and
continued into 2022. The decline in organic sales volumes was primarily attributable to COVID-19 related production disruptions in
China, the tolling agreement for products previously divested related to the Combination, the ongoing war in Ukraine and the
Company’s ongoing value -based pricing initiatives.
COGS were $342.8 million in the second quarter of 2022 compared to $280.8 million in the second quarter of 2021. The increase
in COGS of $62.0 million or 22% was driven by the continued increases in the Company’s global raw material and supply chain and
logistics costs compared to the prior year.
Gross profit in the second quarter of 2022 decreased $4.9 million or 3% from the second quarter of 2021. The Company’s
reported gross margin in the second quarter of 2022 was 30.4% compared to 35.5% in the second quarter of 2021. The Company’s
current quarter gross margin reflects the continued significant increase in raw material and other input costs experienced throughout
the second quarter of 2022 and the impacts of constraints on the global supply chain, partially offset by the Company’s ongoing value-
based pricing initiatives.
SG&A in the second quarter of 2022 increased $7.2 million or 7% compared to the second quarter of 2021 due primarily to the
impact of sales increases on direct selling costs, inflation driven higher operating costs, costs associated with strategic planning and
transformation initiatives (see the Non-GAAP Measures section of this Item, above), and additional SG&A from recent acquisitions
partially offset by lower SG&A due to foreign currency translation compared to the prior year.
During the second quarter of 2022, the Company incurred $1.8 million of Combination, integration and other acquisition-related
operating expenses primarily for professional fees related to the Houghton integration and other acquisition-related activities.
Comparatively, the Company incurred $6.7 million of expenses in the prior year second quarter, primarily due to various professional
fees related to legal, financial and other advisory and consultant expenses for integration activities including internal control readiness
and remediation. 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 (credits) charges for reductions in headcount and
site closures under this program, net of adjustments to initial estimates for severance of a credit of less than $0.1 million and a charge
of $0.3 million during the second quarters of 2022 and 2021, respectively. See the Non-GAAP Measures section of this Item, above.
Operating income in the second quarter of 2022 was $31.9 million compared to $38.8 million in the second quarter of 2021.
Excluding non-recurring and non-core expenses that are not indicat ive of the future operating performance of the Company described
in the Non-GAAP Measures section of this Item, above, the Company’s current quarter non-GAAP operating income decreased to
$38.8 million compared to $46.4 million in the prior year second quarter primarily due to the lower gross profit and higher SG&A
described above.
The Company had other expense, net, of $8.4 million in the second quarter of 2022 compared to other income, net of $14.0
million in the second quarter of 2021. The second quarter of 2022 includes a loss on extinguishment of debt of $6.8 million associated
with the refinancing of the Original Credit Facility while the second quarter of 2021 included $13.3 million of income related to
certain non-income tax credits recorded by the Company’s Brazilian subsidiaries. See the Non-GAAP Measures section of this Item,
above. In addition, the Company incurred higher foreign exchange transaction losses in the second quarter of 2022 compared to the
prior year quarter.
Interest expense, net, increased $0.9 million compared to the second quarter of 2021 as a result of increases in the average
borrowings outstanding in the second quarter of 2022 compared to the second quarter of 2021 coupled with an increase in interest
rates quarter-over-quarter.
The Company’s effective tax rates for the second quarters of 2022 and 2021 were 8.1% and 32.2%, respectively. The Company’s
effective tax rate for the second quarter of 2022 was largely driven by state tax benefits, a reduction in reserves for uncertain tax
positions relating to management fees, a deferred tax benefit associated with an intercompany asset transfer, withholding taxes for
increased forecasted dividends, and the effects of lower pre-tax earnings and the mix of such earnings. In addition, the Company
incurred higher tax expense during the second quarter of 2022 primarily related to the Company recording earnings in one of its
subsidiaries at a statutory tax rate of 25% while it awaits recertification of a concessionary 15% tax rate, which was available to the
Company during all of 2021. Comparatively, the prior year quarter effective tax rate was impacted by changes in foreign tax credit
Quaker Chemical Corporation
Management’s Discussion and Analysis
36
valuation allowances, tax law changes in foreign jurisdictions as well as the tax impacts of certain non-income tax credits recorded by
the Company’s Brazilian subsidiaries. Excluding the impact of non-core items in each quarter, described in the Non-GAAP Measures
section of this Item, above, the Company estimates that its effective tax rates for both the second quarters of 2022 and 2021 would
have been approximately 24%. The Company expects continued volatility in its effective tax rates due to several factors, including the
timing and scope 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, including the high technology incentive at
one of our subsidiaries based in China which is currently up for triennial renewal, the treatment of certain acquisition-related costs and
the timing and amount of certain share-based compensation-related tax benefits, among other factors.
Equity in net income of associated companies decreased $2.9 million in the second quarter of 2022 compared to the second
quarter of 2021, primarily due to lower current year income from the Company’s interest in a captive insurance company and from the
Company’s 50% interest in a joint venture in Korea. 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 second quarters of 2022 and 2021.
Foreign exchange unfavorably impacted the Company’s second quarter of 2022 results by approximately 11% driven by the
impact from foreign currency translation on earnings as well as higher foreign exchange transaction losses in the current quarter as
compared to the prior year second quarter.
Consolidated Operations Review – Comparison of the First Six Months of 2022 with the First Six Months of 2021
Net sales were $966.6 million in the first six months of 2022 compared to $865.0 million in the first six months of 2021. The net
sales increase of $101.5 million or 12% year-over-year reflects increases in selling price and product mix of approximately 19% and
additional net sales from acquisitions of 2% partially offset by a decline in organic sales volumes of approximately 5% and the
unfavorable impact from foreign currency translation of 4%. 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 that began during 2021 and
continued into 2022. The decline in sales volumes was primarily attributable to the comparison to a very strong first half of 2021, and
primarily the first quarter of 2021, where customers replenished their supply chains, the impact of lower volumes related to the tolling
agreement for products previously divested related to the Combination, the ongoing war in Ukraine, COVID-19 disruptions in China
and the Company’s ongoing value-based pricing initiatives.
COGS were $670.9 million in the first six months of 2022 compared to $554.4 million in the first six months of 2021. The
increase in COGS of $116.5 million or 21% was driven by the continued increases in the Company’s global raw material and supply
chain and logistics costs compared to the prior year.
Gross profit in the first six months of 2022 decreased $15.0 million or 5% from the first six months of 2021. The Company’s
reported gross margin in the first six months of 2022 was 30.6% compared to 35.9% in the first six months of 2021. The Company’s
current year gross margin reflects a significant increase in raw material and other input costs and the impacts of constraints on the
global supply chain, partially offset by the Company’s ongoing value-based pricing initiatives.
SG&A in the first six months of 2022 increased $14.6 million or 7% compared to the first six months of 2021 due primarily to the
impact of sales increases on direct selling costs, inflation driven higher operating costs, costs associated with strategic planning and
transformation initiatives (see the Non-GAAP Measures section of this Item, above), and additional SG&A from recent acquisitions
partially offset by lower SG&A due to foreign currency translation compared to the prior year. In addition, SG&A was lower in the
prior year period as a result of continued temporary cost saving measures the Company implemented in response to the onset of
COVID-19.
During the first six months of 2022, the Company incurred $5.9 million of Combination, integration and other acquisition-related
operating expenses primarily for professional fees related to the Houghton integration and other acquisition-related activities.
Comparatively, the Company incurred $12.5 million of expenses in the prior year’s first six months, primarily due to various
professional fees related to legal, financial and other advisory and consultant expenses for integration activities including internal
control readiness and remediation. 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 $0.8 million and $1.5 million during the first six
months of 2022 and 2021, respectively. See the Non-GAAP Measures section of this Item, above.
Operating income in the first six months of 2022 was $61.3 million compared to $83.7 million in the first six months of 2021.
Excluding non-recurring and non-core expenses that are not indicative of the future operating performance of the Company described
in the Non-GAAP Measures section of this Item, above, the Company’s current year non-GAAP operating income decreased to $78.0
million for the first six months of 2022 compared to $100.1 million in the prior year’s first six months primarily due to the lower gross
profit and higher SG&A described above.
Quaker Chemical Corporation
Management’s Discussion and Analysis
37
The Company had other expense, net, of $10.6 million in the first six months of 2022 compared to other income, net of $18.7
million in the first six months of 2021. The first six months of 2022’s results include $6.8 million loss on extinguishment of debt
related to the Company’s refinancing the Original Credit Facility and other expenses of $2.4 million related to the impact of certain
adjustments to the Company’s Combination related indemnification receivables, while the prior year’s first six months of 2022 other
income includes $13.3 million of income related to certain non-income tax credits recorded by the Company’s Brazilian subsidiary as
well as a $5.4 million gain on the sale of certain held-for-sale real property assets. See the Non-GAAP Measures section of this Item,
above. In addition, the Company incurred higher foreign exchange transaction losses in the first six months of 2022 compared to the
prior year period.
Interest expense, net, increased $0.8 million compared to the first six months of 2021, due to an increase in the average
borrowings outstanding in the first six months of 2022 coupled with an increase in interest rates in the current year as compared to the
prior year.
The Company’s effective tax rates for the first six months of 2022 and 2021 were 10.9% and 28.4%, respectively. The
Company’s eff ective tax rate for the six months ended June 30, 2022 was largely driven by changes in the valuation allowance for
foreign tax credits due to recently issued legislative guidance, impacts due to settlements reached on certain tax audits, state tax
benefits, a reduction in reserves for uncertain tax positions relating to management fees, a deferred tax benefit associated with an
intercompany asset transfer, withholding taxes for increased forecasted dividends and the effects of lower pre-tax earnings and the mix
of such earnings. Comparatively, the prior year six month effective tax rate was impacted by the sale of a subsidiary which included
certain held-for-sale real property assets related to the Combination, certain U.S. tax law changes and the tax impact of certain non-
income tax credits recorded by the Company’s Brazilian subsidiaries. Excluding the impact of all other non-core items in each period,
described in the Non-GAAP Measures section of this Item, above, the Company estimates that its effective tax rates for the first six
months of 2022 and 2021 would have been approximately 26% and 24%, respectively. In addition, the Company incurred higher tax
expense during the six months ended June 30, 2022 primarily related to the Company recording earnings in one of its subsidiaries at a
statutory tax rate of 25% while it awaits recertification of a concessionary 15% tax rate, which was available to the Company during
all of 2021.
Equity in net income of associated companies decreased $7.3 million in the first six months of 2022 compared to the first six
months of 2021, primarily due to lower current year income from the Company’s interest in a captive insurance company and from the
Company’s 50% interest in a joint venture in Korea. 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 first six months of 2022 and 2021.
Foreign exchange unfavorably impacted the Company’s first six months of 2022 results by approximately 7% driven by the
impact from foreign currency translation on earnings as well as higher foreign exchange transaction losses in the current year as
compared to the prior year’s first six months.
Reportable Segments Review - Comparison of the Second Quarter of 202 2 with the Second Quarter of 2021
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 (expense) income, net.
Quaker Chemical Corporation
Management’s Discussion and Analysis
38
Americas
Americas represented approximately 35% of the Company’s consolidated net sales in the second quarter of 2022. The segment’s net
sales were $172.7 million, an increase of $33.1 million or 24% compared to the second quarter of 2021. The increase in net sales was
due to higher selling price and product mix of 28%, additional net sales from acquisitions of 1% and a favorable impact from foreign
currency translation of 1%, partially offset by a 6% decline in organic sales volumes. 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 that
began during 2021 and continued through the second quarter of 2022. The current quarter decline in organic sales volumes was
primarily driven by the tolling agreement for previously divested products related to the Combination, the Company’s ongoing value-
based pricing initiatives and lower volumes into the automotive industry due to the semiconductor supply constraints, partially offset
by net new business wins. This segment’s operating earnings were $33.8 million, an increase of $0.1 million compared to the second
quarter of 2021. The increase in segment operating earnings was primarily driven by higher net sales which were partially offset by
on-going inflationary pressures on our business.
EMEA
EMEA represented approximately 25% of the Company’s consolidated net sales in the second quarter of 2022. The segment’s
net sales were $123.1 million, a decrease of $0.4 million compared to the second quarter of 2021. This was driven by higher selling
price and product mix of 21% and additional net sales from acquisitions of approximately 1%, partially offset by the unfavorable
impact of foreign currency translation of 15% and a decrease in organic sales volumes of 7%. The increase in selling price and
product mix was primarily driven by price increases implemented to help offset the significant increases in raw material and other
input costs that began during 2021 and continued through the second quarter of 2022. The decline in organic sales volumes was
primarily driven by the current geopolitical and macroeconomic pressures including the direct and indirect impacts of the ongoing war
in Ukraine and the impact of the economic and other sanctions by other nations on Russia in response to the war, as well as lower
volumes associated with the Company’s ongoing value-based pricing initiatives, the tolling agreement for products previously
divested related to the Combination and softer economic conditions in the region. The unfavorable foreign exchange impact was
primarily due to the strengthening of the U.S. dollar against the euro as this exchange rate averaged 1.07 in the second quarter of 2022
compared to 1.20 in the second quarter of 2021. This segment’s operating earnings were $13.3 million, a decrease of $10.1 million or
43% compared to the second quarter of 2021. The decrease in segment operating earnings was primarily a result of higher net sales
which were more than offset by lower gross margins due to inflationary pressures on the Company’s costs exceeding its value-based
pricing actions. Operating earnings were also negatively impacted by foreign currency translation.
Asia/Pacific
Asia/Pacific represented approximately 20% of the Company’s consolidated net sales in the second quarter of 2022. The
segment’s net sales were $99.8 million, an increase of $8.3 million or 9% compared to the second quarter of 2021. The increase in net
sales was driven by higher selling price and product mix of 17% partially offset by lower organic sales volumes of 4% and an
unfavorable impact from foreign currency translation of 4%. The increase in selling price and product mix was primarily driven by
price increases implemented to help offset the significant increases in raw material and other input costs that began during 2021 and
continued through the second quarter of 2022, partially offset by a net increase in volumes elsewhere in the region. The decline in
organic sales volumes was primarily driven by lower sales volumes in China as a result of the government imposed COVID-19
quarantine and related production disruptions implemented at the end of March 2022 and continued throughout the second quarter of
2022. The unfavorable foreign exchange impact was primarily due to the strengthening of the U.S. dollar against the Chinese
renminbi as this exchange rate averaged 6.61 in the second quarter of 2022 compared to 6.46 in the second quarter of 2021. This
segment’s operating earnings were $22.2 million, a decrease of $1.0 million or 4% compared to the second quarter of 2021. The
decrease in segment operating earnings was primarily a result of higher net sales which was more than offset by lower gross margins
due to inflationary pressures and higher costs as a result of the COVID-19 production disruptions in China.
Global Specialty Businesses
Global Specialty Businesses represented approximately 20% of the Company’s consolidated net sales in the second quarter of
2022. The segment’s net sales were $96.8 million, an increase of $16.2 million or 20% compared to the second quarter of 2021. The
increase in net sales was driven by higher selling price and product mix of 11%, additional net sales from acquisitions of 3% and an
increase in organic sales volumes of 10%, partially offset by the unfavorable impact from foreign currency translation of 4%. The
increase in selling price and product mix was primarily driven by price increases implemented to help offset the significant increases
in raw material and other input costs that began during 2021 and continued through the second quarter of 2022. The increase in
organic sales volumes was primarily attributable to a continued favorable demand environment for this segment’s products. The
unfavorable foreign exchange impact was primarily due to the strengthening of the U.S. dollar against the euro as described in the
EMEA section above. This segment’s operating earnings were $27.8 million, an increase of $3.6 million or 15% compared to the
second quarter of 2021. The increase in segment operating earnings reflects the higher net sales partially offset by lower gross
margins in the current year and slightly higher operating expenses due to inflationary pressures.
Quaker Chemical Corporation
Management’s Discussion and Analysis
39
Reportable Segments Review - Comparison of the First Six months of 2022 with the First Six months of 2021
Americas
Americas represented approximately 34% of the Company’s consolidated net sales in the first six months of 2022. The segment’s
net sales were $326.9 million, an increase of $52.4 million or 19% compared to the first six months of 2021. The increase in net sales
was due to higher selling price and product mix of 26%, additional net sales from acquisitions of 1% and the favorable impacts of
foreign currency translation of 1%, partially offset by a decrease in organic sales volumes of 9%. The increase in selling price and
product mix was primarily driven by price increases implemented to help offset the significant increases in raw material and other
input costs that began during 2021 and have continued into 2022. The current year decline in organic sales volumes was primarily
driven by lower sales volumes into the automotive end market, the tolling agreement for previously divested products related to the
Combination, the prior year period comparison which included a strong rebound from COVID-19 impacts and the Company’s
ongoing value-based pricing initiatives, partially offset by net new business wins. This segment’s operating earnings were $63.0
million, a decrease of $2.9 million or 4% compared to the first six months of 2021. The decrease in segment operating earnings was
primarily a result of higher net sales which was more than offset by lower gross margins driven by inflationary pressures.
EMEA
EMEA represented approximately 26% of the Company’s consolidated net sales in the first six months of 2022. The segment’s
net sales were $248.7 million, an increase of $5.5 million or 2% compared to the first six months of 2021. The increase in net sales
was due to higher selling price and product mix of 19% and additional net sales from acquisitions of 2%, partially offset by the
unfavorable impact of foreign currency translation of 12% and a decrease in organic sales volumes of 7%. The increase in selling
price and product mix was primarily driven by price increases implemented to help offset the significant increases in raw material and
other input costs that began during 2021 and have continued into 2022. The decline in organic sales volumes was primarily driven by
the current geopolitical and macroeconomic pressures including the direct and indirect impacts of the ongoing war in Ukraine and the
impact of the economic and other sanctions by other nations on Russia in respons e to the war, lower volumes associated with the
Company’s ongoing value -based pricing initiatives, the tolling agreement for products previously divested related to the Combination,
the prior year period comparison which included a strong rebound from COVID-19 impacts, and softer economic conditions in the
region in the current period, partially offset by net new business wins. The unfavorable foreign exchange impact was primarily due to
the strengthening of the U.S. dollar against the euro as this exchange rate averaged 1.09 in the first six months of 2022 compared to
1.21 in first six months of 2021. This segment’s operating earnings were $30.0 million, a decrease of $18.6 million or 38% compared
to the first six months of 2021. The decrease in segment operating earnings was primarily a result of higher net sales which was more
than offset by lower gross margins driven by significant inflationary pressures and the negative impact of foreign currency translation
year-over-year.
Asia/Pacific
Asia/Pacific represented approximately 21% of the Company’s consolidated net sales in the first six months of 2022. The
segment’s net sales were $204.1 million, an increase of $15.8 million or 8% compared to the first six months of 2021. The increase in
net sales was driven by higher selling price and product mix of 14% partially offset by lower organic sales volumes of 4% and the
unfavorable impacts of foreign currency translation of 2%. The increase in selling price and product mix was primarily driven by
price increases implemented to help offset the significant increases in raw material and other input costs that began during 2021 and
continued into 2022. The current year decline in organic sales volumes was primarily driven by lower sales volumes in China as a
result of the government imposed COVID-19 quarantine and related production disruptions implemented at the end of March 2022
and which continued throughout the second quarter of 2022 and the prior year comparison which included a strong rebound from
COVID-19 impacts as customers replenished their supply chains, partially offset by net new business wins. This segment’s operating
earnings were $44.1 million, a decrease of $6.6 million or 13% compared to the first six months of 2021. The decrease in segment
operating earnings was primarily a result of higher net sales which was more than offset by lower gross margins driven by significant
inflationary pressures and the unfavorable impact of foreign currency translation.
Quaker Chemical Corporation
Management’s Discussion and Analysis
40
Global Specialty Businesses
Global Specialty Businesses represented approximately 19% of the Company’s consolidated net sales in the first six months of
2022. The segment’s net sales were $186.9 million, an increase of $27.9 million or 18% compared to the first six months of 2021.
The increase in net sales was driven by higher selling price and product mix of 11%, an increase in organic sales volumes of 6% and
additional net sales from acquisitions of 4%, partially offset by the unfavorable impact from foreign currency translation of
approximately 3%. The increase in selling price and product mix was primarily driven by price increases implemented to help offset
the significant increases in raw material and other input costs that began during 2021 and continued into 2022. The increase in
organic sales volumes was primarily attributable to a continued favorable demand environment for this segment’s products. The
unfavorable foreign exchange impact was primarily due to the strengthening of the U.S. dollar against the euro described in the EMEA
section above. This segment’s operating earnings were $52.9 million, an increase of $4.5 million or 9% compared to the first six
months of 2021. The increase in segment operating earnings reflects higher net sales partially offset by lower gross margins driven by
inflationary pressures and the negative impact of foreign currency translation year-over-year.
Quaker Chemical Corporation
Management’s Discussion and Analysis
41
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 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;
•
the timing and extent of the projected impacts on our business as a result of the Ukrainian and Russian conflict and
actions taken by various governments and governmental organizat ions in response;
•
cost increases and the impacts of constraints and disruptions in the global supply chain;
•
the potential for a variety of macroeconomic events, including the possibility of global or regional recessions, inflation
generally, cost increases in prices of raw materials such as oil and increasing interest rates, to impact the value of our
assets or result in asset impairments;
•
our current and future results and plans including our sustainability goals; 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 2021 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 conseque nce
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
inflationary pressures, including the potential for significant increases in raw material costs, supply chain disruptions, customer
financial instability, rising interest rates and the possibility of economic recession, worldwide economic and political disruptions
including the impacts of the military conflict between Russia and Ukraine, the economic and other sanctions imposed by other nations
on Russia, suspensions of activities in Russia by many multinational companies and the potential expansion of military activity,
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 new variants, 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 acquisitions and the
Quaker Chemical Corporation
Management’s Discussion and Analysis
42
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.
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 2021 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.
43
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, 2021, and we believe there has been no material change to that information, except the interest
rate risk noted below.
Interest Rate Risk.
The Company’s exposure to interest rate risk relates primarily to its outstanding borrowings under its credit facility. During June
2022, the Company entered into an amendment to its primary credit facility (the “Original Credit Facility”, or as amended, the
“Amended Credit Facility”). See Note 14 of Notes to Condensed Consolidated Financial Statements, which appears in Item 1 of this
Report. As of June 30, 2022, borrowings under the Amended Credit Facility bear interest at either term SOFR or a base rate, in each
case, plus an applicable margin based upon the Company’s consolidated net leverage ratio, and, in the case of term SOFR, a spread
adjustment equal to 0.10% per annum. As a result of the variable interest rates applicable under the Amended Credit Facility, if
interest rates rise significantly, the cost of debt to the Company will increase. This can have an adverse effect on the Company,
depending on the extent of the Company’s borrowings outstanding throughout a given year.
As of June 30, 2022, the Company had outstanding borrowings under the Amended Credit Facility of approximately $977.6
million. The interest rate applicable on outstanding borrowings under the Amended Credit Facility was approximately 2.8% as of
June 30, 2022. As of December 31, 2021, the Company had outstanding borrowings under the Original Credit Facility of
approximately $889.6 million. The variable interest rate incurred on the outstanding borrowings under the Original Credit Facility
during the year ended December 31, 2021 was approximately 1.6%. If interest rates had changed by 10% during 2021, the
Company’s interest expense for the period ended December 31, 2021 on its credit facilities, including the Original Credit Facility
borrowings outstanding post-closing of the Combination, would have correspondingly increased or decreased by approximately $1
million. Likewise, if interest rates had changed by 10% during the six month period ended June 30, 2022, the Company’s interest
expense for the six month period ended June 30, 2022 on its credit facilities, including the Amended Credit Facility borrowings
outstanding, would have correspondingly increased or decreased by approximately $2 million.
The Original 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 Original
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 Original Credit Facility, based on the Company’s consolidated net
leverage ratio. At the time the Company entered into the swaps, and as of June 30, 2022, the aggregate interest rate on the swaps,
including the fixed base rate plus an applicable margin, was 3.1%. The Amended Credit Facility does not require the Company to fix
variable interest rates on any portion of its borrowings.
44
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 June 30, 2022, 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 effective.
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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting. Based on that evaluation, there were no changes that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting during the quarter ended June 30, 2022.
45
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 18 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 condition, 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 2021 Form 10-K. While there
have been no material changes to the risk factors described in our 2021 Form 10-K, reference is made to the developments discussed
under the headings
On-going impact of COVID-19
Impact of Political Conflicts
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)
April 1 - April 30
280
$
162.86
—
$
86,865,026
May 1 - May 31
729
$
147.04
—
$
86,865,026
June 1 - June 30
56
$
149.52
—
$
86,865,026
Total
1,065
$
151.33
—
$
86,865,026
(1)
All of these shares were acquired from employees related to the 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
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 June 30, 2022.
Limitation on the Payment of Dividends
The Amended Credit Facility has certain limitations on the payment of dividends and other so-called restricted payments. See
Note 14 of Notes to Condensed Consolidated Financial Statements, in Part I, Item 1, of this Report.
46
Item 6. Exhibits.
(a) Exhibits
3.1
–
3.2
–
10.1
–
Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 8-K filed on June 21, 2022.
10.2
–
10.3
–
10.4
–
10.5
–
31.1
–
31.2
–
32.1
–
32.2
–
101.INS
–
Inline XBRL Instance Document*
101.SCH
–
Inline XBRL Taxonomy Schema Document*
101.CAL
–
Inline XBRL Taxonomy Calculation Linkbase Document*
101.DEF
–
Inline XBRL Taxonomy Definition Linkbase Document*
101.LAB
–
Inline XBRL Taxonomy Label Linkbase Document*
101.PRE
–
Inline XBRL Taxonomy 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: August 4, 2022
Shane W. Hostetter, Senior Vice President, Chief Financial
Officer (officer duly authorized on behalf of, and principal
financial officer of, the Registrant)
EXHIBIT 10.2
1
EMPLOYMENT AGREEMENT
May 24, 2022
NAME:
Melissa Leneis
[ REDACTED ]
The parties to this Employment Agreement (“Agreement”) are Melissa Leneis
(“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 Senior Vice President and Chief Human Resources Officer (“CHRO”).
legally bound hereby the parties hereto agree as follows:
1.
Duties
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 CEO. 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
.
The Your employment with Quaker 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 has the right to terminate your employment upon
less than ninety (90) days’ notice for Cause (as defined below).
4. Covenant Not to Disclose
a. As CHRO, 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,
2
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 CHRO 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
one (1) year 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
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
3
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, death, or Disability
(as defined below), Quaker Houghton agrees to:
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 twelve months’ severance in bi-weekly installments commencing on the Payment Date (as
defined below) and continuing on Quaker Houghton's normal payroll dates thereafter, each of which is equal to
the total of your bi-weekly base salary at the time of your Separation from Service plus 12 months of the target
incentive of the Company’s annual incentive plan, 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
4
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 single-sum cash death benefit to the Executive’s Beneficiary equal to 200% of the
annual rate of the Executive’s base salary as in effect on the day before the Executive’s death or be entitled to the death
benefit (as a multiple of base salary) to which any other executive officer would be entitled. To that end, the Company
currently has a program in which all executive officers in the Company’s Executive Leadership Team participate, which
entitle each to a death benefit equal to 100% of base salary in the year of 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.
c. Disability of Executive. If the Executive is unable to perform his duties hereunder by reason of disability
as defined in the Company’s Long-Term Disability Plan (“Disability”), then the Board shall have the right to terminate the
Executive’s employment upon 30 days prior written notice to the Executive at any time during the continuation of such
Disability. In the event the Executive is terminated pursuant to this Section 8(c), the Company shall not thereafter be
obligated to make any further payments under this Agreement except for amounts accrued as of the date of such termination,
and except that the Executive shall receive supplemental disability payments. Such supplemental disability payments shall
be paid to the Executive after the Executive’s Separation from Service at the same time that disability payments are due to
be paid to the Executive under the Company’s Long-Term Disability Plan and each such payment shall be equal to the
excess of (a) the amount that would be payable under the Company’s Long-Term Disability Plan (disregarding any
withholding) if the Executive elected a benefit of 50% of applicable pay and such plan did not limit the dollar amount of
periodic payments thereunder, over (b) the amount that would be payable under the Company’s Long-Term Disability Plan
(disregarding any withholding) if the Executive elected a benefit of 50% of applicable pay. The “Company’s Long-Term
Disability Plan” shall mean the long-term disability plan maintained by the Company for employees generally; provided,
however, that if the Company does not maintain such a long-term disability plan at the time of the Executive’s termination
under this Section 8(c), or terminates such plan after the Executive’s termination of employment but before all disability
payments have been paid to the Executive under the terms of such plan as in effect prior to its termination, (x) the
“Company’s Long-Term Disability Plan” shall mean the long-term disability plan most recently maintained by the Company
for employees generally, and (y) the amount determined under subsection (b) shall equal zero dollars ($0). Such
supplemental disability payments shall be payable from the Company’s general assets or, if the Company so elects, from a
supplemental disability policy purchased by the Company.
“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.
5
“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
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 05/31/2022
/s/ Andrew E. Tometich 05/24/2022
Robert T. Traub
Andrew E. Tometich
WITNESS:
/s/ Robert T. Traub 05/31/2022
/s/ Melissa Leneis 05/24/2022
Robert T. Traub
Melissa Leneis
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ADDENDUM 1
Base Salary:
Your salary will be payable on a bi-weekly basis at the rate of
$17,500, which is annualized at $455,000. 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 full year of 65% 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”) for
the full year of 2022. Your award for the 2022-2024 performance period includes an even mix
of time-based restricted stock, stock options, and target performance stock units (PSU’s). The
value, at a target level is $600,000.
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 equity award within 7 days of your start date equaling a cash
value at time of grant of $1,000,000 in order to offset the equity that will expire upon your
accepting employment with Quaker Houghton. Such award will be provided as time-based
restricted stock with cliff vesting one year from the date of grant. Such payment is subject to
a claw-back and must be repaid to the Company if you voluntarily terminate your employment
with Quaker Houghton for any reason other than cause within the first two (2) years of your
tenure with Quaker Houghton. Further, if you terminate for cause or if you are involuntarily
terminated by Quaker Houghton for any reason other than cause, no clawback will apply.
You will be provided a one-time cash award equaling $300,000 in order to offset the cash
bonus opportunity that will expire upon your accepting employment with Quaker Houghton.
Such award will be cash and will be paid out in two equal installments of $150,000 upon 90
days of employment and 180 days of employment, respectively. Such cash award must be
repaid to the Company if you terminate your employment with Quaker Houghton for any
reason other than cause within the first two (2) years of your tenure with Quaker Houghton.
Further, if you terminate for cause or if you are involuntarily terminated by Quaker Houghton
for any reason other than cause, no clawback will apply.
Financial Planning:
You will be eligible to be reimbursed for up to $3,500 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)
●
The Company is reviewing a non-qualified deferred compensation plan, which if adopted
will be part of your overall benefits package.
7
In addition to these flexible benefits, Quaker Houghton also currently offers the following
benefit plans:
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 10.3
CHANGE IN CONTROL AGREEMENT
HOUGHTON, a Pennsylvania corporation (the “Company”), and MELISSA LENEIS (the “Manager”),
W I T N E S S E T H T H A T
shareholders that the Company and its subsidiaries be able to attract, retain, and motivate highly qualified management personnel and,
in particular, that they be assured of continuity of management in the event of any actual or threatened change in control of the
Company; and
WHEREAS, the Board of Directors of the Company believes that the execution by the Company of change in control
agreements with certain management personnel, including the Manager, is an important factor in achieving this desired end;
legally bound hereby, the Manager and the Company agree that the Change in Control Agreement is amended and restated, as follows:
1.
Term of Agreement.
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 Manager 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); provided, however, that a Change in Control
shall not be deemed to have occurred under the provisions of this subsection (a) by reason of the beneficial ownership of voting
securities by members of the Benoliel family (as defined below) unless and until the beneficial ownership of all members of the
Benoliel family (including any other individuals or entities who or which, together with any member or members of the Benoliel
family, are deemed under Sections 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds 50% of the combined
voting power of the Company’s then outstanding securities;
(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 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;
2
(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 .
Service under the circumstances described in (a) below (a “Covered Termination”), provided the Manager 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 Manager’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 Manager for Good Reason (as defined below).
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 Manager’s employment is terminated for any reason prior to a Change in Control, the Manager
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.
“Cause” shall mean (i) the Manager’s willful and material breach of the employment agreement, if any, between the Manager
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 Manager’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 Manager a reasonable opportunity to appear before the Board of Directors of the Company and present his position.
“Code” shall mean the Internal Revenue Code of 1986, as amended, together with any applicable regulations thereunder.
“Disability” shall mean covered total and permanent disability as defined in the long-term disability plan 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.
“Good Reason” shall mean any of the following actions without the Manager’s consent, other than due to the Manager’s
death or Disability: (i) any reduction in the Manager’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 Manager’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
Manager’s authorities, powers, functions, or duties from those in effect immediately before the Change in Control; (iv) a reduction in
the Manager’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 Manager 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.
related parties with respect to all matters arising out of the Manager’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 any employment agreement
between the Manager and the Company, or under any plans or programs of the Company under which the Manager has accrued a
3
benefit) that the Company provides to the Manager no later than three days after the date of the Manager’s Covered Termination.
Notwithstanding any provision of this Agreement to the contrary, if the Company provides a Release to the Manager, the Manager
shall not be entitled to any payments or benefits under this Agreement unless the Manager 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 Manager does not revoke the Release.
meaning of Treas. Reg. §1.409A-1(h) or any successor thereto.
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 Manager in cash a severance allowance (the “Severance Allowance ”) equal to 1.5 (one and one-half) 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 Manager 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 Manager 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 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 Manager under that plan; and (y) there shall be
excluded from such calculation any amounts paid to the Manager 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. The Applicable Three-Year Period shall be (A) if the Manager
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 Manager’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).
In no event shall any retention bonus or change in control or success fee be taken into account when determining the amount of the
Severance Allowance hereunder.
(b)
Payment of Severance Allowance. The Severance Allowance shall be paid to the Manager 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 eighteen monthly installments commencing on the
Payment Date, each of which is equal to one eighteenth (1/18th) 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 Manager, the
Company shall make or cause to be made available to the Manager, at its expense, outplacement counseling and other outplacement
services comparable to those available for the Company’s senior managers prior to the Change in Control.
(b)
Welfare Benefits. Subject to Section 6, for a period eighteen months following a Covered Termination of the
Manager, the Manager and the Manager’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 Manager 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 Manager or his dependents because the Manager 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
Manager and his dependents.
4
6.
Effect of Other Employment.
continuing pursuant to Section 5: (a) the Manager 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
Manager shall be deemed to have become “employed” by another entity or person only if the Manager becomes essentially a full-time
employee of a person or an entity (not more than 30% of which is owned by the Manager and/or members of his family); and the
Manager’s “family” shall mean his parents, his siblings and their spouses, his children and their spouses, and the Manager’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.
7.
Other Payments and Benefits.
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 Manager 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 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 target level of performance been achieved for the applicable
performance period. The Manager shall be entitled to receive any other payments or benefits that the Manager 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 Manager might otherwise be entitled under the terms
of any severance pay plan, policy, or arrangement maintained by the Company or the employment agreement, if any, between the
Manager and the Company, and (ii) shall be credited against any severance payments to which the Manager 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 (currently the
2001 Global Annual Incentive Plan); and (z) any amount described in subsection (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) (currently the 2011 Long-Term Performance Incentive Plan).
8.
Death After Covered Termination .
the first sentence of Section 7 and not paid prior to the Manager’s death shall be made to the person or persons who may be designated
by the Manager in writing or, in the event he fails to so designate, to the Manager’s personal representatives, and (b) the Manager’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 Manager without regard to Section 9, or (ii) the date of the
Manager’s death.
9.
Certain Section 409A Rules.
(a)
Specified Employee. Notwithstanding any provision of this Agreement to the contrary, if the Manager 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 not be made or provided before the date that is six months after the
date of the Manager’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 Manager’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 Manager’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 Manager’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
5
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 Manager
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 Manager 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
Manager, or which can be clearly shown by written records to have been known by the Manager prior to the commencement of his
employment with the Company.
(i)
The Manager 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 Manager’s employment with the Company regardless of the reason for the
termination of the Manager’s employment hereunder, or at any other time upon the Company’s request, the
Manager 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 Manager agrees that during his employment and for a period of one (1) year thereafter,
regardless of the reason for the termination of the Manager’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 Manager 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 Manager 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 notwithsta nding the provisions of Section 12. In the event of any
6
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 Manager 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 Manager (and his
dependents) shall immediately terminate.
11.
Set-Off Mitigation.
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 Manager or others. In no event shall the Manager be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Manager 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 Manager, 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 Manager 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 Manager 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 Manager 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 Parachute Payments shall be at least one dollar ($1.00) less than the
greater of (i) three times the Manager’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 Manager. 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.
Agreement or otherwise only to the extent required to avoid any material risk of the imposition of excise taxes on the Manager 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 Manager 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 Manager meets the definition of disqualified individual
7
set forth in Section 280G(c) of the Code. In the event that the Manager 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 Manager’s consent, provided that the Manager shall not unreasonably withhold his
consent. The determination of such tax counsel under this Section 13 shall be final and binding upon the Manager 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 Manager if and to the extent that such payments are determined to be illegal.
14.
Notices.
and if hand delivered or if sent by registered or certified mail, if to the Manager, 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.
applicable Federal, state and local income and other taxes from any payments due to the Manager hereunder.
16.
Assignment and Benefit.
(a)
This Agreement is personal to the Manager and shall not be assignable by the Manager, 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 Manager’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 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.
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
plans, this Agreement represents the entire agreement and understanding of the parties with respect to the subject matter hereof. The
Manager understands and acknowledges that the Company’s severance plan, annual incentive plan and long term incentive plans are
hereby amended with respect to the Manager 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 Manager to the
extent the Compensation/Management Development 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 Manager.
19.
No Waiver.
waiver of any future noncompliance with such provision or of noncompliance with any other provision.
20.
Severability.
8
reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.
21.
Indemnification.
with any claim, action, suit, investigation or proceeding arising out of or relating to performance by the Manager of services for, or
action of the Manager 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 Manager 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 Manager to repay said amount unless it shall ultimately be determined that the
Manager is entitled to be indemnified hereunder; provided, however, that this shall not apply to a nonderivative action commenced by
the Company against the Manager.
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.
ATTEST:
/s/ Robert T. Traub
05/31/2022
EXHIBIT 10.4
1
EMPLOYMENT AGREEMENT
June 23, 2022
NAME:
Dhruwa Rai
[ REDACTED ]
The parties to this Employment Agreement (“Agreement”) are Dhruwa Rai
(“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 Senior Vice President and Chief Information and Digital Officer
(“CIDO”).
legally bound hereby the parties hereto agree as follows:
1.
Duties
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 CEO. 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 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 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 CIDO, 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 CIDO 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
one (1) year 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, death, or Disability
(as defined below), Quaker Houghton agrees to:
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.
4
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 twelve months’ severance in bi-weekly installments commencing on the Payment Date (as
defined below) and continuing on Quaker Houghton's normal payroll dates thereafter, each of which is equal to
the total of your bi-weekly base salary at the time of your Separation from Service, 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 single-sum cash death benefit to the Executive’s Beneficiary equal to 200% of the
annual rate of the Executive’s base salary as in effect on the day before the Executive’s death or be entitled to the death
benefit (as a multiple of base salary) to which any other executive officer would be entitled. To that end, the Company
currently has a program in which all executive officers in the Company’s Executive Leadership Team participate, which
entitle each to a death benefit equal to 100% of base salary in the year of 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.
c. Disability of Executive. If the Executive is unable to perform his duties hereunder by reason of disability
as defined in the Company’s Long-Term Disability Plan (“Disability”), then the Board shall have the right to terminate the
Executive’s employment upon 30 days prior written notice to the Executive at any time during the continuation of such
Disability. In the event the Executive is terminated pursuant to this Section 8(c), the Company shall not thereafter be
obligated to make any further payments under this Agreement except for amounts accrued as of the date of such termination,
and except that the Executive shall receive supplemental disability payments. Such supplemental disability payments shall
be paid to the Executive after the Executive’s Separation from Service at the same time that disability payments are due to
be paid to the Executive under the Company’s Long-Term Disability Plan and each such payment shall be equal to the
excess of (a) the amount that would be payable under the Company’s Long-Term Disability Plan (disregarding any
withholding) if the Executive elected a benefit of 50% of applicable pay and such plan did not limit the dollar amount of
periodic payments thereunder, over (b) the amount that would be payable under the Company’s Long-Term Disability Plan
(disregarding any withholding) if the Executive elected a benefit of 50% of applicable pay. The “Company’s Long-Term
Disability Plan” shall mean the long-term disability plan maintained by the Company for employees generally; provided,
however, that if the Company does not maintain such a long-term disability plan at the time of the Executive’s termination
under this Section 8(c), or terminates such plan after the Executive’s termination of employment but before all disability
payments have been paid to the Executive under the terms of such plan as in effect prior to its termination, (x) the
“Company’s Long-Term Disability Plan” shall mean the long-term disability plan most recently maintained by the Company
for employees generally, and (y) the amount determined under subsection (b) shall equal zero dollars ($0). Such
supplemental disability payments shall be payable from the Company’s general assets or, if the Company so elects, from a
supplemental disability policy purchased by the Company.
“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.
5
“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
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.
6
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
Robert T. Traub, SVP, General Counsel and
Corporate Secretary
WITNESS:
/s/ James Myran
/s/ Dhruwa Rai
James Myran
Dhruwa Rai
7
ADDENDUM 1
Base Salary:
Your salary will be payable on a bi-weekly basis at the rate of
$14,615, which is annualized at $380,000. 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 full year of 55% 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”) for the full year of 2022. Your award for the 2022-2024 performance
period includes an even mix of time-based restricted stock, stock options, and target
performance stock units (PSU’s). The value, at a target level is $100,000.
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 award equaling $100,000 in order to offset
the cash bonus opportunity that will expire upon your accepting employment with
Quaker Houghton. Such award will be cash and will be paid out in October of 2022
assuming a start date prior to then. Such cash award must be repaid to the Company
if you either voluntarily leave your employment or are dismissed for cause within
the first two (2) years of your tenure with Quaker Houghton per the attached Sign-
On Bonus Acknowledgement.
Financial Planning:
You will be eligible to be reimbursed for up to $3,500 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)
In addition to these flexible benefits, Quaker Houghton also currently offers the
following benefit plans:
1
EXHIBIT 10.5
CHANGE IN CONTROL AGREEMENT
HOUGHTON, a Pennsylvania corporation (the “Company”), and DHRUWA RAI (the “Manager”),
W I T N E S S E T H T H A T
shareholders that the Company and its subsidiaries be able to attract, retain, and motivate highly qualified management personnel and,
in particular, that they be assured of continuity of management in the event of any actual or threatened change in control of the
Company; and
WHEREAS, the Board of Directors of the Company believes that the execution by the Company of change in control
agreements with certain management personnel, including the Manager, is an important factor in achieving this desired end;
legally bound hereby, the Manager and the Company agree that the Change in Control Agreement is amended and restated, as follows:
1.
Term of Agreement.
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 Manager 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); provided, however, that a Change in Control
shall not be deemed to have occurred under the provisions of this subsection (a) by reason of the beneficial ownership of voting
securities by members of the Benoliel family (as defined below) unless and until the beneficial ownership of all members of the
Benoliel family (including any other individuals or entities who or which, together with any member or members of the Benoliel
family, are deemed under Sections 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds 50% of the combined
voting power of the Company’s then outstanding securities;
(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 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;
2
(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 .
Service under the circumstances described in (a) below (a “Covered Termination”), provided the Manager 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 Manager’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 Manager for Good Reason (as defined below).
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 Manager’s employment is terminated for any reason prior to a Change in Control, the Manager
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.
“Cause” shall mean (i) the Manager’s willful and material breach of the employment agreement, if any, between the Manager
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 Manager’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 Manager a reasonable opportunity to appear before the Board of Directors of the Company and present his position.
“Code” shall mean the Internal Revenue Code of 1986, as amended, together with any applicable regulations thereunder.
“Disability” shall mean covered total and permanent disability as defined in the long-term disability plan 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.
“Good Reason” shall mean any of the following actions without the Manager’s consent, other than due to the Manager’s
death or Disability: (i) any reduction in the Manager’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 Manager’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
Manager’s authorities, powers, functions, or duties from those in effect immediately before the Change in Control; (iv) a reduction in
the Manager’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 Manager 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.
related parties with respect to all matters arising out of the Manager’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 any employment agreement
between the Manager and the Company, or under any plans or programs of the Company under which the Manager has accrued a
3
benefit) that the Company provides to the Manager no later than three days after the date of the Manager’s Covered Termination.
Notwithstanding any provision of this Agreement to the contrary, if the Company provides a Release to the Manager, the Manager
shall not be entitled to any payments or benefits under this Agreement unless the Manager 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 Manager does not revoke the Release.
meaning of Treas. Reg. §1.409A-1(h) or any successor thereto.
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 Manager in cash a severance allowance (the “Severance Allowance”) equal to 1.5 (one and one-half) 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 Manager 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 Manager 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 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 Manager under that plan; and (y) there shall be
excluded from such calculation any amounts paid to the Manager 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. The Applicable Three-Year Period shall be (A) if the Manager
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 Manager’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).
In no event shall any retention bonus or change in control or success fee be taken into account when determining the amount of the
Severance Allowance hereunder.
(b)
Payment of Severance Allowance. The Severance Allowance shall be paid to the Manager 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 eighteen monthly installments commencing on the
Payment Date, each of which is equal to one eighteenth (1/18th) 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 Manager, the
Company shall make or cause to be made available to the Manager, at its expense, outplacement counseling and other outplacement
services comparable to those available for the Company’s senior managers prior to the Change in Control.
(b)
Welfare Benefits. Subject to Section 6, for a period eighteen months following a Covered Termination of the
Manager, the Manager and the Manager’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 Manager 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 Manager or his dependents because the Manager 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
Manager and his dependents.
4
6.
Effect of Other Employment.
continuing pursuant to Section 5: (a) the Manager 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
Manager shall be deemed to have become “employed” by another entity or person only if the Manager becomes essentially a full-time
employee of a person or an entity (not more than 30% of which is owned by the Manager and/or members of his family); and the
Manager’s “family” shall mean his parents, his siblings and their spouses, his children and their spouses, and the Manager’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.
7.
Other Payments and Benefits.
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 Manager 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 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 target level of performance been achieved for the applicable
performance period. The Manager shall be entitled to receive any other payments or benefits that the Manager 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 Manager might otherwise be entitled under the terms
of any severance pay plan, policy, or arrangement maintained by the Company or the employment agreement, if any, between the
Manager and the Company, and (ii) shall be credited against any severance payments to which the Manager 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 (currently the
2001 Global Annual Incentive Plan); and (z) any amount described in subsection (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) (currently the 2011 Long-Term Performance Incentive Plan).
8.
Death After Covered Termination .
the first sentence of Section 7 and not paid prior to the Manager’s death shall be made to the person or persons who may be designated
by the Manager in writing or, in the event he fails to so designate, to the Manager’s personal representatives, and (b) the Manager’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 Manager without regard to Section 9, or (ii) the date of the
Manager’s death.
9.
Certain Section 409A Rules.
(a)
Specified Employee. Notwithstanding any provision of this Agreement to the contrary, if the Manager 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 not be made or provided before the date that is six months after the
date of the Manager’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 Manager’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 Manager’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 Manager’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
5
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 Manager
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.
(d)
10.
Confidentiality and Noncompetition.
(a)
Confidential Information. The Manager 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
Manager, or which can be clearly shown by written records to have been known by the Manager prior to the commencement of his
employment with the Company.
(i)
The Manager 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 Manager’s employment with the Company regardless of the reason for the
termination of the Manager’s employment hereunder, or at any other time upon the Company’s request, the
Manager 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 Manager agrees that during his employment and for a period of one (1) year thereafter,
regardless of the reason for the termination of the Manager’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 Manager 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 Manager 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,
6
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 Manager 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 Manager (and his
dependents) shall immediately terminate.
11.
Set-Off Mitigation.
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 Manager or others. In no event shall the Manager be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable to the Manager 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 Manager, 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 Manager 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 Manager 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 Manager 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 Parachute Payments shall be at least one dollar ($1.00) less than the
greater of (i) three times the Manager’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 Manager. 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.
Agreement or otherwise only to the extent required to avoid any material risk of the imposition of excise taxes on the Manager 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 Manager shall be presumed to be a disqualified individual for purposes of applying the
7
limitations set forth in this subsection (b) without regard to whether or not the Manager meets the definition of disqualified individual
set forth in Section 280G(c) of the Code. In the event that the Manager 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 Manager’s consent, provided that the Manager shall not unreasonably withhold his
consent. The determination of such tax counsel under this Section 13 shall be final and binding upon the Manager 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 Manager if and to the extent that such payments are determined to be illegal.
14.
Notices.
and if hand delivered or if sent by registered or certified mail, if to the Manager, 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.
applicable Federal, state and local income and other taxes from any payments due to the Manager hereunder.
16.
Assignment and Benefit.
(a)
This Agreement is personal to the Manager and shall not be assignable by the Manager, 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 Manager’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 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.
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
plans, this Agreement represents the entire agreement and understanding of the parties with respect to the subject matter hereof. The
Manager understands and acknowledges that the Company’s severance plan, annual incentive plan and long term incentive plans are
hereby amended with respect to the Manager 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 Manager to the
extent the Compensation/Management Development 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 Manager.
19.
No Waiver.
waiver of any future noncompliance with such provision or of noncompliance with any other provision.
20.
Severability.
8
reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.
21.
Indemnification.
with any claim, action, suit, investigation or proceeding arising out of or relating to performance by the Manager of services for, or
action of the Manager 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 Manager 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 Manager to repay said amount unless it shall ultimately be determined that the
Manager is entitled to be indemnified hereunder; provided, however, that this shall not apply to a nonderivative action commenced by
the Company against the Manager.
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.
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, Andrew E. Tometich , 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: August 4, 2022
/s/ Andrew E. Tometich
Andrew E. Tometich
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 W. 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: August 4, 2022
/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 June 30, 2022 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: August 4, 2022
/s/ Andrew E. Tometich
Andrew E. Tometich
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 June 30, 2022 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: August 4, 2022
/s/ Shane W. Hostetter
Shane W. Hostetter
Chief Financial Officer of Quaker Chemical Corporation