What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-03-01 compared with 2021-03-01 · 103 added, 114 removed, 44 unchanged (83% of the section changed)

Quantitative and Qualitative Disclosures About Market Risk.

Quaker Houghton is exposed to the impact of interest

rates, foreign currency fluctuations, changes in commodity prices,

The current economic environment associated with COVID-19 has led

to significant volatility and uncertainty with each

Quaker Houghton is exposed to the impact of interest rates, foreign

currency fluctuations, changes in commodity prices, and

The current economic environment associated with COVID-19 has led to significant volatility

and uncertainty with each

of these market risks.

“Risk Factors.” of this Report for additional

discussions of the current and potential risks

“Risk Factors.” of this Report for additional discussions of

the current and potential risks

associated with the COVID-19 pandemic.

4 unchanged sentences

The Company’s exposure

to changes in interest rates relates primarily to its borrowings

under the Credit

Facility as of December 31, 2020 and 2019.

Borrowings under the Credit Facility bear interest at a base rate

or LIBOR plus an

applicable margin based upon the Company’s

consolidated net leverage ratio.

As a result of the variable interest rates applicable

under the Credit Facility,

if interest rates rise significantly,

the cost of debt to the Company could increase as

This could have an

adverse effect on the Company,

to changes in interest rates relates primarily to its borrowings under the Credit

Borrowings under the Credit Facility bear interest at a specified benchmark

plus an applicable margin based upon the

Company’s consolidated

net leverage ratio and the currency of the borrowing.

In December 2021, the Company entered into the

Second Amendment to provide an update for the use of a non-USD currency LIBOR successor

At this time, it remains uncertain

what rate will succeed LIBOR for loans denominated in U.S.

As a result of the variable interest rates applicable under the

Credit Facility, including

with respect to any future successor rate if interest rates rise significantly,

the cost of debt to the Company

could increase as well.

This could have an adverse effect on the Company,

depending on the extent of the Company’s

borrowings outstanding throughout a given year.

December 31, 2020, the Company had outstanding borrowings

under the Credit Facility of approximately $887.1 million.

variable interest rate incurred on the outstanding

borrowings under the Credit Facility during the year ended

December 31, 2020 was

approximately 2.2%.

outstanding throughout a given year.

As of December 31, 2021, the Company had outstanding borrowings under

the Credit Facility of

approximately $889.6 million.

The variable interest rate incurred on the outstanding borrowings under

the 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, 2020 on its credit facilities, including the

Credit Facility borrowings outstanding post-closing of the Combination,

would have correspondingly increased or decreased

by approximately $0.8 million.

The Credit Facility required the Company to fix its variable

interest rates on at least 20% of its total Term

satisfy this requirement as well as to manage the

Company’s exposure to variable

interest rate risk associated with the Credit Facility,

in November 2019, the Company entered into $170.0

million notional amounts of three-year interest rate swaps at a base

1.64% plus an applicable margin as provided

in the Credit Facility, based on

the Company’s consolidated net

leverage ratio.

time the Company entered into the swaps and as of December

31, 2020, the aggregate interest rate on the swaps, including

base rate plus an applicable margin, was 3.1%.

These interest rate swaps are designated and qualify as cash flow

Company has previously used derivative financial instruments

primarily for the purpose of hedging exposures to fluctuations

interest rates.

Foreign Exchange Risk

expense for the period ended December 31, 2021 on its credit facilities, including

the Credit Facility borrowings outstanding post-

closing of the Combination, would have correspondingly

increased or decreased by approximately $0.8 million.

The Credit Facility required the Company to fix its variable interest rates on at least 20%

of its total Term Loans.

satisfy this requirement as well as to manage the Company’s

exposure to variable interest rate risk associated with the Credit Facility,

in November 2019, the Company entered into $170.0 million notional amounts

of three year interest rate swaps at a base rate of 1.64%

plus an applicable margin as provided in the Credit Facility,

based on the Company’s consolidated

net leverage ratio.

At the time the

Company entered into the swaps and as of December 31, 2021, the aggregate

interest rate on the swaps, including the fixed base rate

plus an applicable margin, was 3.1%.

These interest rate swaps are designated and qualify as cash flow hedges.

The Company has

previously used derivative financial instruments primarily for the

purpose of hedging exposures to fluctuations in interest rates.

Foreign Exchange

A significant portion of the Company’s

revenues and earnings are generated by its foreign operations.

These foreign operations also represent a significant portion

of Quaker Houghton’s assets and

These foreign operations also represent a significant portion of Quake

Houghton’s assets and liabilities.

Generally, all of these

foreign operations use the local currency as their functional

foreign operations use the local currency as their functional currency.

Accordingly, Quaker Houghton’s

financial results are affected

by foreign currency fluctuations, particularly between the

dollar and the euro, the British pound sterling, the Brazilian real,

Mexican peso, the Chinese renminbi and the Indian

Quaker Houghton’s results

can be materially affected depending on the

volatility and magnitude of foreign exchange rate

If the euro, the British pound sterling, the Brazilian real,

peso, the Chinese renminbi and the Indian rupee had

all weakened or strengthened by 10% against the U.S.

the Company’s

by foreign currency fluctuations, particularly between the U.S.

and the euro, the British pound sterling, the Brazilian real, the

Mexican peso, the Chinese renminbi and the Indian rupee.

Quaker Houghton’s results can

be materially affected depending on the

volatility and magnitude of foreign exchange rate changes.

If the euro, the British pound sterling, the Brazilian real, the Mexican

peso, the Chinese renminbi and the Indian rupee had all weakened or strengthened

by 10% against the U.S.

dollar, the Company’s

2021 revenues and pre-tax earnings would have correspondingly

1 unchanged sentence

million, respectively.

The Company generally does not use financial instruments

that expose it to significant risk involving foreign currency

The Company generally does not use financial instruments that expose

it to significant risk involving foreign currency

transactions.

However, the size of its non-U.S.

has a significant impact on reported operating results and

the attendant net

activities has a significant

impact on reported operating results and the attendant net

During the past three years, sales by its non-U.S.

subsidiaries accounted for approximately 60% to 70% of

its consolidated net

In addition, the Company occasionally sources inventory

among its worldwide operations.

subsidiaries accounted

for approximately 60% to 70% of its consolidated net

In addition, the Company occasionally sources inventory among

its worldwide operations.

This practice can give rise to

foreign exchange risk resulting from the varying cost of

inventory to the receiving location, as well as from the revaluation

foreign exchange risk resulting from the varying cost of inventory to the receiving

location, as well as from the revaluation of

intercompany balances.

The Company primarily mitigates this risk through local sourcing

The Company primarily mitigates this risk through local sourcing efforts.

Commodity Price Risk

Many of the raw materials used by Quaker Houghton

are derivatives of commodity chemicals, which can

Many of the raw materials used by Quaker Houghton are

derivatives of commodity chemicals, which can

experience significant price volatility,

and therefore Quaker Houghton’s

earnings can be materially affected by market changes

earnings can be materially affected by market changes in raw

material prices.

At times, the Company has entered into fixed-price purchase

contracts to manage this risk.

At times, the Company has entered into fixed-price purchase contracts to manage

These contracts provide

protection to Quaker Houghton if the prices for the contracted

raw materials rise;

however, in certain

circumstances, the Company

protection to Quaker Houghton if the prices for the contracted raw materials

however, in certain circumstances, the Company

may not realize the benefit if such prices decline.

A gross margin change of one percentage point,

would correspondingly

A gross margin change of one percentage point, would correspondingly

increased or decreased the Company’s

5 unchanged sentences

customers were to deteriorate, resulting in an

impairment of their ability to make payments, additional allowances

might be required.

impairment of their ability to make payments, additional allowances might

Downturns in the overall economic climate

2 unchanged sentences

revenues are derived from sales to

customers in the steel and automotive industries, including

some of our larger customers, where bankruptcies

have occurred in the past

and where companies have experienced past financial

difficulties.

customers in the steel and automotive industries, including some of

our larger customers, where bankruptcies have occurred

and where companies have experienced past financial difficulties.

Though infrequent, when a bankruptcy occurs, Quaker Houghton

must judge the amount of proceeds, if any,

that may ultimately be received through the bankruptcy or

liquidation process.

as part of its terms of trade, Quaker Houghton may custom

manufacture products for certain large customers

and/or may ship product

on a consignment basis.

that may ultimately be received through the bankruptcy or liquidation process.

In addition, as part of its terms of trade, Quaker Houghton may custom

manufacture products for certain large customers and/or

may ship product on a consignment basis.

These practices may increase the Company’s

exposure should a bankruptcy occur and may require a write-

down or disposal of certain inventory due to its estimated obsolescence

or limited marketability as well as of accounts receivable.

Customer returns of products or disputes may also result in

similar issues related to the realizability of recorded

accounts receivable or

returned inventory.

The Company recorded expense to its provision for doubtful

accounts by $3.6 million, $1.9 million and $0.5

million for the years ended December 31, 2020, 2019

and 2018, respectively.

A change of 10% to the expense recorded to the

Company’s provision

would have increased or decreased the Company’s

exposure should a bankruptcy occur and may

require a write-down or disposal of certain inventory due to its estimated obsolescence

or limited marketability as well as of accounts

Customer returns of products or disputes may also result in similar issues related to

the realizability of recorded accounts

receivable or returned inventory.

The Company recorded expense to its provision for doubtful accounts by $0.7

million, $3.6 million

and $1.9 million for the years ended December 31, 2021, 2020 and 2019,

respectively.

A change of 10% to the expense recorded to

the Company’s provision would

have increased or decreased the Company’s

pre-tax earnings by $0.1 million, $0.4 million and $0.2

million for the years ended December 31, 2020, 2019

and 2018, respectively.

million for the years ended December 31, 2021, 2020 and 2019, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk