QUAKER CHEMICAL CORP 10-K

Item 8. Financial Statements and Supplementary Data. QUAKER CHEMICAL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 43 Consolidated Statements of Income 45 Consolidated Statements of Comprehensive Income 46 Consolidated Balance Sheets 47 Consolidated Statements of Cash Flows 48 Consolidated Statements of Changes in Equity 49 Notes to Consolidated Financial Statements 50 43 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Quaker Chemical Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Quaker Chemical Corporation and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Baron Industries and Grindaix GmbH from its assessment of internal control over financial reporting as of December 31, 2021 because they were acquired by the Company in purchase business combinations during 2021. We have also excluded Baron Industries and Grindaix from our audit of internal control over financial reporting. Baron Industries and Grindaix are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting for each entity represent less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 44 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Houghton Trademarks and Tradename – Annual Impairment Assessment As described in Note 16 to the consolidated financial statements, the Company’s consolidated other intangible assets, net balance was $1,027.8 million as of December 31, 2021, and the indefinite-lived intangible asset was $196.9 million, which substantially relates to the Houghton trademarks and tradename. Management completes its annual indefinite-lived intangible asset impairment test during the fourth quarter of each year, or more frequently if triggering events indicate a possible impairment. Management completed its annual impairment assessment during the fourth quarter of 2021 for the Houghton trademarks and tradename and concluded no impairment charge was warranted. The determination of estimated fair value of the Houghton trademarks and tradename is based on a relief from royalty valuation method, which requires management’s judgment and often involves the use of significant estimates and assumptions with respect to the weighted average cost of capital and royalty rates, as well as revenue growth rates and terminal growth rates. The principal considerations for our determination that performing procedures relating to the Houghton trademarks and tradename annual impairment assessment is a critical audit matter are (i) the significant judgment by management when determining the fair value of the Houghton trademarks and tradename; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the royalty rate, revenue growth rates, and terminal growth rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s indefinite-lived intangible assets annual impairment assessment, including controls over the valuation of the Houghton trademarks and tradename. These procedures also included, among others (i) testing management’s process for determining the fair value estimate; (ii) evaluating the appropriateness of the relief from royalty valuation method; (iii) testing the completeness and accuracy of underlying data used in the method; and (iv) evaluating the reasonableness of significant assumptions related to the royalty rate, revenue growth rates and terminal growth rates. Evaluating management’s assumptions related to the royalty rate, revenue growth rates, and terminal growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the legacy Houghton business; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the relief from royalty valuation method and the royalty rate assumption. /s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 1, 2022 We have served as the Company’s auditor since at least 1972. We have not been able to determine the specific year we began serving as auditor of the Company. 45 QUAKER CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME ( Dollars in thousands, except per share data ) Year Ended December 31, 2021 2020 2019 Net sales $ 1,761,158 $ 1,417,677 $ 1,133,503 Cost of goods sold (excluding amortization expense - See Note 16) 1,166,518 904,234 741,386 Gross profit 594,640 513,443 392,117 Selling, general and administrative expenses 418,856 380,752 283,828 Indefinite-lived intangible asset impairment - 38,000 - Restructuring and related charges 1,433 5,541 26,678 Combination, integration and other acquisition-related expenses 23,885 29,790 35,477 Operating income 150,466 59,360 46,134 Other income (expense), net 18,851 ( 5,618 ) ( 254 ) Interest expense, net ( 22,326 ) ( 26,603 ) ( 16,976 ) Income before taxes and equity in net income of associated companies 146,991 27,139 28,904 Taxes on income before equity in net income of associated companies 34,939 ( 5,296 ) 2,084 Income before equity in net income of associated companies 112,052 32,435 26,820 Equity in net income of associated companies 9,379 7,352 5,064 Net income 121,431 39,787 31,884 Less: Net income attributable to noncontrolling interest 62 129 262 Net income attributable to Quaker Chemical Corporation $ 121,369 $ 39,658 $ 31,622 Per share data: Net income attributable to Quaker Chemical Corporation common shareholders – basic $ 6.79 $ 2.23 $ 2.08 Net income attributable to Quaker Chemical Corporation common shareholders – diluted $ 6.77 $ 2.22 $ 2.08 The accompanying notes are an integral part of these consolidated financial statements. 46 QUAKER CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ( Dollars in thousands ) Year Ended December 31, 2021 2020 2019 Net income $ 121,431 $ 39,787 $ 31,884 Other comprehensive (loss) income, net of tax Currency translation adjustments ( 46,952 ) 41,601 4,779 Defined benefit retirement plans Net gain (loss) arising during the period, other 9,210 8,827 ( 6,289 ) Amortization of actuarial loss 1,078 2,308 2,458 Amortization of prior service gain 7 ( 69 ) ( 151 ) Current period change in fair value of derivatives 2,226 ( 3,278 ) ( 320 ) Unrealized (loss) gain on available-for-sale securities ( 2,945 ) 2,091 2,093 Other comprehensive (loss) income ( 37,376 ) 51,480 2,570 Comprehensive income 84,055 91,267 34,454 Less: Comprehensive income attributable to noncontrolling interest ( 78 ) ( 37 ) ( 287 ) Comprehensive income attributable to Quaker Chemical Corporation $ 83,977 $ 91,230 $ 34,167 The accompanying notes are an integral part of these consolidated financial statements. 47 QUAKER CHEMICAL CORPORATION CONSOLIDATED BALANCE SHEETS ( Dollars in thousands, except par value ) December 31, 2021 2020 ASSETS Current assets Cash and cash equivalents $ 165,176 $ 181,833 Accounts receivable, net 430,676 372,974 Inventories, net 264,531 187,764 Prepaid expenses and other current assets 59,871 50,156 Total current assets 920,254 792,727 Property, plant and equipment, net 197,520 203,883 Right of use lease assets 36,635 38,507 Goodwill 631,194 631,212 Other intangible assets, net 1,027,782 1,081,358 Investments in associated companies 95,278 95,785 Deferred tax assets 16,138 16,566 Other non-current assets 30,959 31,796 Total assets $ 2,955,760 $ 2,891,834 LIABILITIES AND EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $ 56,935 $ 38,967 Accounts payable 226,656 191,821 Dividends payable 7,427 7,051 Accrued compensation 38,197 43,300 Accrued restructuring 4,087 8,248 Accrued pension and postretirement benefits 1,548 1,466 Other accrued liabilities 95,617 92,107 Total current liabilities 430,467 382,960 Long-term debt 836,412 849,068 Long-term lease liabilities 26,335 27,070 Deferred tax liabilities 179,025 192,763 Non-current accrued pension and postretirement benefits 45,984 63,890 Other non-current liabilities 49,615 55,169 Total liabilities 1,567,838 1,570,920 Commitments and contingencies (Note 26) - - Equity Common stock, $ 1 par value; authorized 30,000,000 shares; issued and outstanding 2021 – 17,897,033 shares; 2020 – 17,850,616 shares 17,897 17,851 Capital in excess of par value 917,053 905,171 Retained earnings 516,334 423,940 Accumulated other comprehensive loss ( 63,990 ) ( 26,598 ) Total Quaker shareholders’ equity 1,387,294 1,320,364 Noncontrolling interest 628 550 Total equity 1,387,922 1,320,914 Total liabilities and equity $ 2,955,760 $ 2,891,834 The accompanying notes are an integral part of these consolidated financial statements. 48 QUAKER CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ( Dollars in thousands ) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities Net income $ 121,431 $ 39,787 $ 31,884 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of debt issuance costs 4,749 4,749 1,979 Depreciation and amortization 86,550 83,246 44,895 Equity in undistributed earnings of associated companies, net of dividends ( 8,971 ) 4,862 ( 2,115 ) Acquisition-related fair value adjustments related to inventory 801 229 11,714 Deferred income taxes ( 12,506 ) ( 38,281 ) ( 24,242 ) Uncertain tax positions (non-deferred portion) ( 922 ) 1,075 958 Non-current income taxes payable - - 856 Deferred compensation and other, net ( 5,325 ) ( 471 ) ( 6,789 ) Share-based compensation 11,038 10,996 4,861 (Gain) loss on disposal of property, plant, equipment and other assets ( 4,695 ) 871 ( 58 ) Insurance settlement realized - ( 1,035 ) ( 822 ) Indefinite-lived intangible asset impairment - 38,000 - Gain on inactive subsidiary litigation and settlement reserve - ( 18,144 ) - Combination and other acquisition-related expenses, net of payments ( 1,974 ) 860 ( 14,414 ) Restructuring and related charges 1,433 5,541 26,678 Pension and other postretirement benefits ( 6,330 ) 16,535 46 (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable ( 67,473 ) 17,170 19,926 Inventories ( 84,428 ) ( 3,854 ) 10,844 Prepaid expenses and other current assets ( 21,174 ) 927 ( 4,640 ) Change in restructuring liabilities ( 5,266 ) ( 15,745 ) ( 8,899 ) Accounts payable and accrued liabilities 37,998 22,308 ( 8,915 ) Estimated taxes on income 3,997 8,763 ( 1,373 ) Net cash provided by operating activities 48,933 178,389 82,374 Cash flows from investing activities Investments in property, plant and equipment ( 21,457 ) ( 17,901 ) ( 15,545 ) Payments related to acquisitions, net of cash acquired ( 42,417 ) ( 56,230 ) ( 893,412 ) Proceeds from disposition of assets 14,744 2,702 103 Insurance settlement interest earned - 44 222 Net cash used in investing activities ( 49,130 ) ( 71,385 ) ( 908,632 ) Cash flows from financing activities Payments of long-term debt ( 38,011 ) ( 37,615 ) - Proceeds from term loan debt - - 750,000 Borrowings (repayments) on revolving credit facilities, net 53,031 ( 11,485 ) 147,135 Repayments on other debt, net ( 776 ) ( 661 ) ( 8,798 ) Financing-related debt issuance costs - - ( 23,747 ) Dividends paid ( 28,599 ) ( 27,563 ) ( 21,830 ) Stock options exercised, other 890 3,867 1,370 Purchase of noncontrolling interest in affiliates - ( 1,047 ) - Distributions to noncontrolling affiliate shareholders - ( 751 ) - Net cash (used in) provided by financing activities ( 13,465 ) ( 75,255 ) 844,130 Effect of foreign exchange rate changes on cash ( 3,057 ) 6,591 1,258 Net (decrease) increase in cash, cash equivalents and restricted cash ( 16,719 ) 38,340 19,130 Cash, cash equivalents and restricted cash at the beginning of the period 181,895 143,555 124,425 Cash, cash equivalents and restricted cash at the end of the period $ 165,176 $ 181,895 $ 143,555 Supplemental cash flow disclosures: Cash paid during the year for: Income taxes, net of refunds $ 34,775 $ 20,253 $ 15,499 Interest 19,298 23,653 19,553 Non-cash activities: Change in accrued purchases of property, plant and equipment, net $ 2,132 $ ( 1,376 ) $ 1,978 The accompanying notes are an integral part of these consolidated financial statements. 49 QUAKER CHEMICAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ( Dollars in thousands, except per share amounts ) Accumulated Capital in other Common excess of Retained comprehensive Noncontrollin stock par value earnings loss interest Total Balance as of December 31, 2018 $ 13,338 $ 97,304 $ 405,125 $ ( 80,715 ) $ 1,317 $ 436,369 Cumulative effect of an accounting change - - ( 44 ) - - ( 44 ) Balance as of January 1, 2019 13,338 97,304 405,081 ( 80,715 ) 1,317 436,325 Net income - - 31,622 - 262 31,884 Amounts reported in other comprehensive income - - - 2,545 25 2,570 Dividends declared ($ 1.525 per share) - - ( 23,724 ) - - ( 23,724 ) Shares issued related to the Combination 4,329 784,751 - - - 789,080 Shares issued upon exercise of stock options and other 23 871 - - - 894 Shares issued for employee stock purchase plan 3 473 - - - 476 Share-based compensation plans 42 4,819 - - - 4,861 Balance as of December 31, 2019 17,735 888,218 412,979 ( 78,170 ) 1,604 1,242,366 Cumulative effect of an accounting change - - ( 911 ) - - ( 911 ) Balance as of January 1, 2020 17,735 888,218 412,068 ( 78,170 ) 1,604 1,241,455 Net income - - 39,658 - 129 39,787 Amounts reported in other comprehensive income (loss) - - - 51,572 ( 92 ) 51,480 Dividends declared ($ 1.56 per share) - - ( 27,786 ) - - ( 27,786 ) Acquisition of noncontrolling interest - ( 707 ) - - ( 340 ) ( 1,047 ) Distributions to noncontrolling affiliate shareholders - - - - ( 751 ) ( 751 ) Shares issued upon exercise of stock options and other 66 6,714 - - - 6,780 Share-based compensation plans 50 10,946 - - - 10,996 Balance as of December 31, 2020 17,851 905,171 423,940 ( 26,598 ) 550 1,320,914 Net income - - 121,369 - 62 121,431 Amounts reported in other comprehensive (loss) income - - - ( 37,392 ) 16 ( 37,376 ) Dividends declared ($ 1.62 per share) - - ( 28,975 ) - - ( 28,975 ) Shares issued upon exercise of stock options and other 17 1,677 - - - 1,694 Share-based compensation plans 29 10,205 - - - 10,234 Balance as of December 31, 2021 $ 17,897 $ 917,053 $ 516,334 $ ( 63,990 ) $ 628 $ 1,387,922 The accompanying notes are an integral part of these consolidated financial statements. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ( Dollars in thousands, except per share amounts, unless otherwise stated ) 50 Note 1 – Significant Accounting Policies As used in these Notes to Consolidated Financial Statements, the terms “Quaker,” “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. As used in these Notes to Consolidated Financial Statements, the term Legacy Quaker refers to the Company prior to the closing of its combination with Houghton International, Inc. (“Houghton”) (herein referred to as the “Combination”). Principles of consolidation: All majority-owned subsidiaries are included in the Company’s consolidated financial statements, with appropriate elimination of intercompany balances and transactions. Investments in associated companies (less than majority- owned and in which the Company has significant influence) are accounted for under the equity method. The Company’s share of net income or losses in these investments in associated companies is included in the Consolidated Statements of Income. The Company periodically reviews these investments for impairments and, if necessary, would adjust these investments to their fair value when a decline in market value or other impairment indicators are deemed to be other than temporary. See Note 17 of Notes to Consolidated Financial Statements. The Company is not the primary beneficiary of any variable interest entities (“VIEs”) and therefore the Company’s consolidated financial statements do not include the accounts of any VIEs. Translation of foreign currency: Assets and liabilities of non-U.S. subsidiaries and associated companies are translated into U.S. dollars at the respective rates of exchange prevailing at the end of the year. Income and expense accounts are translated at average exchange rates prevailing during the year. Translation adjustments resulting from this process are recorded directly in equity as accumulated other comprehensive (loss) income (“AOCI”) and will be included as income or expense only upon sale or liquidation of the underlying entity or asset. Generally, all of the Company’s non-U.S. subsidiaries use their local currency as their functional currency. Cash and cash equivalents: The Company invests temporary and excess funds in money market securities and financial instruments having maturities within 90 days. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has not experienced losses from the aforementioned investments. Accounts receivable and allowance for doubtful accounts: Trade accounts receivable subject the Company to credit risk. Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of expected credit losses with its existing accounts receivable. The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on a modified retrospective basis, effective January 1, 2020. The Company recognizes an allowance for credit losses, which represents the portion of the receivable that the Company does not expect to collect over its contractual life, considering past events and reasonable and supportable forecasts of future economic conditions. The Company’s allowance for credit losses on its trade accounts receivable is based on specific collectability facts and circumstances for each outstanding receivable and customer, the aging of outstanding receivables, and the associated collection risk the Company estimates for certain past due aging categories, and also, the general risk to all outstanding accounts receivable based on historical amounts determined to be uncollectible. The Company does not have any off-balance-sheet credit exposure related to its customers. See Note 13 of Notes to Consolidated Financial Statements. Inventories: Inventories are valued at the lower of cost or net realizable value, and are valued using the first-in, first-out method. See Note 14 of Notes to Consolidated Financial Statements. Right of use lease assets and lease liabilities: The Company determines if an arrangement is a lease at its inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if the Company obtains the rights to direct the use of, and obtains substantially all of the economic benefits from the use of, the underlying asset. Lease expense for variable leases and short-term leases is recognized when the obligation is incurred. The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by an option to extend the lease that the Company is reasonably certain it will exercise. Operating leases are included in right of use lease assets, other accrued liabilities and long-term lease liabilities on the Consolidated Balance Sheet. Right of use lease assets and liabilities are recognized at each lease’s commencement date based on the present value of its lease payments over its respective lease term. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 51 The Company uses the stated borrowing rate for a lease when readily determinable. When a stated borrowing rate is not available in a lease agreement, the Company uses its incremental borrowing rate based on information available at the lease’s commencement date to determine the present value of its lease payments. In determining the incremental borrowing rate used to present value each of its leases, the Company considers certain information including fully secured borrowing rates readily available to the Company and its subsidiaries. The Company has immaterial finance leases, which are included in Property, plant and equipment (“PP&E”) , current portion of long-term debt and long-term debt on the Consolidated Balance Sheet. Long-lived assets: PP&E is stated at gross cost, less accumulated depreciation. Depreciation is computed using the straight- line method on an individual asset basis over the following estimated useful lives: buildings and improvements, 10 to 45 years; and machinery and equipment, 1 to 15 years. The carrying values of long-lived assets are evaluated whenever changes in circumstances or current events indicate the carrying amount of such assets may not be recoverable. An estimate of undiscounted cash flows produced by the asset, or the appropriate group of assets, is compared with the carrying value to determine whether an impairment exists. If necessary, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and their estimated fair value. Fair value is based on current and anticipated future cash flows. Upon sale or other dispositions of long-lived assets, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposals, is recorded in the Consolidated Statements of Income. Expenditures for renewals or improvements that increase the estimated useful life or capacity of the assets are capitalized, whereas expenditures for repairs and maintenance are expensed when incurred. See Notes 9 and 15 of Notes to Consolidated Financial Statements. Capitalized software: The Company capitalizes certain costs in connection with developing or obtaining software for internal use, depending on the associated project. These costs are amortized over a period of 3 to 5 years once the assets are ready for their intended use. In connection with the implementations and upgrades to the Company’s global transaction, consolidation and other related systems, approximately $ 3.6 million and $ 2.3 million of net costs were capitalized in PP&E on the Company’s Consolidated Balance Sheets at December 31, 2021 and 2020, respectively. Goodwill and other intangible assets: The Company records goodwill, definite-lived intangible assets and indefinite-lived intangible assets at fair value at the date of acquisition. Goodwill and indefinite-lived intangible assets are not amortized but tested for impairment at least annually. These tests will be performed more frequently if triggering events indicate potential impairment. Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, generally for periods ranging from 3 to 24 years. The Company continually evaluates the reasonableness of the useful lives of these assets, consistent with the discussion of long-lived assets, above. See Note 16 of Notes to Consolidated Financial Statements. Revenue recognition: The Company applies the Financial Accounting Standards Board’s (“FASB’s”) guidance on revenue recognition which requires the Company to recognize revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services transferred to its customers. To do this, the Company applies the five-step model in the FASB’s guidance, which requires the Company to: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation. The Company identifies a contract with a customer when a sales agreement indicates approval and commitment of the parties; identifies the rights of the parties; identifies the payment terms; has commercial substance; and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. The Company identifies a performance obligation in a contract for each promised good or service that is separately identifiable from other obligations in the contract and for which the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer. The Company determines the transaction price as the amount of consideration it expects to be entitled to in exchange for fulfilling the performance obligations, including the effects of any variable consideration, significant financing elements, amounts payable to the customer or noncash consideration. For any contracts that have more than one performance obligation, the Company allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for satisfying each performance obligation. In accordance with the last step of the FASB’s guidance, the Company recognizes revenue when, or as, it satisfies the performance obligation in a contract by transferring control of a promised good or providing the service to the customer. The Company typically satisfies its performance obligations and recognizes revenue at a point in time for product sales, generally when products are shipped or delivered to the customer, depending on the terms underlying each arrangement. In circumstances where the Company’s products are on consignment, revenue is generally recognized upon usage or consumption by the customer. For any Fluidcare TM or other services provided by the Company to the customer, the Company typically satisfies its performance obligations QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 52 and recognizes revenue over time, as the promised services are performed. The Company uses input methods to recognize revenue over time related to these services, including labor costs and time incurred. The Company believes that these input methods represent the most indicative measure of the Fluidcare TM or other service work performed by the Company. The Company does not have standard payment terms for all customers, however the Company’s general payment terms require customers to pay for products or services provided after the performance obligation is satisfied. The Company does not have significant financing arrangements with its customers. Therefore, the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less. In addition, the Company expenses costs to obtain a contract as incurred when the expected period of benefit, and therefore the amortization period, is one year or less. In addition, the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, value added, excise and various other taxes. Lastly, the Company has elected to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfilment cost, rather than an additional promised service. The Company does not have significant amounts of variable consideration in its contracts with customers and where applicable, the Company’s estimates of variable consideration are not constrained. The Company records certain third-party license fees in other income (expense), net, in its Consolidated Statement of Income, which generally include sales-based royalties in exchange for the license of intellectual property. These license fees are recognized in accordance with their agreed-upon terms and when performance obligations are satisfied, which is generally when the third party has a subsequent sale. The Company recognizes a contract asset or receivable on its Consolidated Balance Sheet when the Company performs a service or transfers a good in advance of receiving consideration. A receivable is the Company’s right to consideration that is unconditional and only the passage of time is required before payment of that consideration is due. A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. A contract liability is recognized when the Company receives consideration, or if it has the unconditional right to receive consideration, in advance of performance. A contract liability is the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration, or a specified amount of consideration is due, from the customer. See Note 5 of Notes to Consolidated Financial Statements. Research and development costs: Research and development costs are expensed as incurred and are included in selling, general and administrative expenses (“SG&A”). Research and development expenses were $ 44.9 million, $ 40.0 million and $ 32.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. Environmental liabilities and expenditures: Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. If there is a range of estimated liability and no amount in that range is considered more probable than another, then the Company records the lowest amount in the range in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Environmental costs and remediation costs are capitalized if the costs extend the life, increase the capacity or improve safety or efficiency of the property from the date acquired or constructed, and/or mitigate or prevent contamination in the future. See Note 26 of Notes to Consolidated Financial Statements. Asset retirement obligations: The Company follows the FASB’s guidance regarding asset retirement obligations, which addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. Also, the Company follows the FASB’s guidance for conditional asset retirement obligations (“CARO”), which relates to legal obligations to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. In accordance with this guidance, the Company records a liability when there is enough information regarding the timing of the CARO to perform a probability-weighted discounted cash flow analysis. As of December 31, 2021 and 2020, the Company had limited exposure to such obligations and had immaterial liabilities recorded for such on its Consolidated Balance Sheets. Pension and other postretirement benefits: The Company maintains various noncontributory retirement plans, covering a portion of its employees in the U.S. and certain other countries, including the Netherlands, the United Kingdom (“U.K.”), Mexico, Sweden, Germany and France. These retirement plans are subject to the provisions of FASB’s guidance regarding employers’ accounting for defined benefit pension plans. The plans of the remaining non-U.S. subsidiaries are, for the most part, either fully insured or integrated with the local governments’ plans and are not subject to the provisions of the guidance. The guidance requires QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 53 that employers recognize on a prospective basis the funded status of their defined benefit pension and other postretirement plans on their consolidated balance sheet and, also, recognize as a component of AOCI, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost. In addition, the guidance requires that an employer recognize a settlement charge in their consolidated statement of income when certain events occur, including plan termination or the settlement of certain plan liabilities. A settlement charge represents the immediate recognition into expense of a portion of the unrecognized loss within AOCI on the balance sheet in proportion to the share of the projected benefit obligation that was settled. The measurement date for the Company’s postretirement benefits plan is December 31. The Company’s global pension investment policies are designed to ensure that pension assets are invested in a manner consistent with meeting the future benefit obligations of the pension plans and maintaining compliance with various laws and regulations including the Employee Retirement Income Security Act of 1974. The Company establishes strategic asset allocation percentage targets and benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. The Company’s investment horizon is generally long term, and, accordingly, the target asset allocations encompass a long-term perspective of capital markets, expected risk and return and perceived future economic conditions while also considering the profile of plan liabilities. To the extent feasible, the short-term investment portfolio is managed to match the short -term obligations, the intermediate portfolio duration is matched to reduce the risk of volatility in intermediate plan distributions, and the total return portfolio is managed to maximize the long-term real growth of plan assets. The critical investment principles of diversification, assessment of risk and targeting the optimal expected returns for given levels of risk are applied. The Company’s investment guidelines prohibit the use of securities such as letter stock and other unregistered securities, commodities or commodity contracts, short sales, margin transactions, private placements (unless specifically addressed by addendum), or any derivatives, options or futures for the purpose of portfolio leveraging. The target asset allocation is reviewed periodically and is determined based on a long-term projection of capital market outcomes, inflation rates, fixed income yields, returns, volatilities and correlation relationships. The interaction between plan assets and benefit obligations is periodically studied to assist in establishing such strategic asset allocation targets. Asset performance is monitored with an overall expectation that plan assets will meet or exceed benchmark performance over rolling five year periods. The Company’s pension committee, as authorized by the Company’s Board of Directors (the “Board”), has discretion to manage the assets within established asset allocation ranges approved by senior management of the Company. See Note 21 of Notes to Consolidated Financial Statements. Comprehensive income (loss): The Company presents other comprehensive income (loss) in its Statements of Comprehensive Income. The Company follows the FASB’s guidance regarding the disclosure of reclassifications from AOCI which requires the disclosure of significant amounts reclassified from each component of AOCI, the related tax amounts and the income statement line items affected by such reclassifications. See Note 23 of Notes to Consolidated Financial Statements. Income taxes and uncertain tax positions: The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year and the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The FASB’s guidance regarding accounting for uncertainty in income taxes prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. The guidance further requires the determination of whether the benefits of tax positions are probable or more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. Additionally, the Company monitors and adjusts for derecognition, classification, and penalties and interest in interim periods, with appropriate disclosure and transition thereto. Also, the amount of interest expense and income related to uncertain tax positions is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized, including timing differences, and the amount previously taken or expected to be taken in a tax return. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. Finally, when applicable, the Company nets its liability for unrecognized tax benefits against deferred tax assets related to net operating losses or other tax credit carryforwards that would apply if the uncertain tax position were settled for the presumed amount at the balance sheet date. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 54 Pursuant to the Tax Cuts and Jobs Act (“U.S. Tax Reform”), specifically the one-time tax on deemed repatriation (the “Transition Tax”), the Company has provided for U.S. income tax on its undistributed earnings of non-U.S. subsidiaries, however, the Company is subject to and will incur other taxes, such as withholding taxes and dividend distribution taxes, if these undistributed earnings were ultimately remitted to the U.S. The Company currently intends to reinvest its future undistributed earnings of non-U.S. subsidiaries to support working capital needs and certain other growth initiatives of those subsidiaries. However, in certain cases the Company has and may in the future change its indefinite reinvestment assertion for any or all of these undistributed earnings. In this case, the Company would estimate and record a tax liability and corresponding tax expense for the amount of non-U.S. income taxes it would incur to ultimately remit these earnings to the U.S. See Note 10 of Notes to Consolidated Financial Statements. Derivatives: The Company is exposed to the impact of changes in interest rates, foreign currency fluctuations, changes in commodity prices and credit risk. The Company utilizes interest rate swap agreements to enhance its ability to manage risk, including exposure to variability in interest payments associated with its variable rate debt. Derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. As of December 31, 2021 and 2020, the Company had certain interest rate swap agreements that were designated as cash flow hedges. 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. The Company records these instruments on a net basis within the Consolidated Balance Sheets. The effective portion of the change in fair value of the agreement is recorded in AOCI and will be recognized in the Consolidated Statements of Income when the hedge item affects earnings or losses or it becomes probable that the forecasted transaction will not occur. See Note 25 of Notes to Consolidated Financial Statements. Fair value measurements: The Company utilizes the FASB’s guidance regarding fair value measurements, which establishes a common definition for fair value to be applied to guidance requiring use of fair value, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. Specifically, the guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. See Notes 21 and 24 of Notes to Consolidated Financial Statements. The following is a brief description of those three levels: • Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. • Level 3: Unobservable inputs that reflect the reporting entity's own assumptions. Share-based compensation: The Company applies the FASB’s guidance regarding share-based payments, which requires the recognition of the fair value of share-based compensation as a component of expense. The Company has a long-term incentive program (“LTIP”) for key employees which provides for the granting of options to purchase stock at prices not less than its market value on the date of the grant. Most options become exercisable within three years after the date of the grant for a period of time determined by the Company, but not to exceed seven years from the date of grant. Restricted stock awards and restricted stock units issued under the LTIP program are subject to time vesting generally over a one to three year period. In addition, as part of the Company’s Annual Incentive Plan, nonvested shares may be issued to key employees, which generally would vest over a two to five year period. In addition, while the FASB’s guidance permits the Company to make an accounting policy election to account for forfeitures as they occur for service condition aspects of certain share-based awards, the Company has decided not to elect this accounting policy and instead has elected to continue utilizing a forfeiture rate assumption. Based on historical experience, the Company has assumed a forfeiture rate of 13 % on certain of its nonvested stock awards. The Company will record additional expense if the actual forfeiture rate is lower than estimated and will record a recovery of prior expense if the actual forfeiture is higher than estimated. The Company also issues performance-dependent stock awards as a component of its LTIP. The fair value of the performance- dependent stock awards is based on their grant-date market value adjusted for the likelihood of attaining certain pre-determined performance goals and is calculated by utilizing a Monte Carlo simulation model. Compensation expense is recognized on a straight- line basis over the vesting period, generally three years . See Note 8 of the Notes to Consolidated Financial Statements. Earnings per share: The Company follows the FASB’s guidance regarding the calculation of earnings per share for nonvested stock awards with rights to non-forfeitable dividends. The guidance requires nonvested stock awards with rights to non-forfeitable dividends to be included as part of the basic weighted average share calculation under the two-class method. See Note 11 of Notes to Consolidated Financial Statements. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 55 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 . See Note 4 of Notes to Consolidated Financial Statements. Hyper-inflationary accounting: Economies that have a cumulative three year rate of inflation exceeding 100 % are considered hyper-inflationary in accordance with U.S. GAAP. A legal entity that operates within an economy deemed to be hyper-inflationary is required to remeasure its monetary assets and liabilities to the applicable published exchange rates and record the associated gains or losses resulting from the remeasurement directly to the Consolidated Statements of Income. Based on various indices or index compilations being used to monitor inflation in Argentina as well as recent economic instability, effective July 1, 2018, Argentina’s economy was considered hyper-inflationary under U.S. GAAP. As of, and for the year ended December 31, 2021, the Company's Argentine subsidiaries represented less than 1 % of the Company’s consolidated total assets and net sales, respectively. During the years ended December 31, 2021, 2020 and 2019, the Company recorded $ 0.6 million, $ 0.4 million, and $ 1.0 million, respectively, of remeasurement losses associated with the applicable currency conversions related to Argentina. Business combinations: The Company accounts for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets, including separately identifiable intangible assets, and assumed liabilities at their respective acquisition date estimated fair values. Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. The determination of the estimated fair value of assets acquired and liabilities assumed requires significant estimates and assumptions. Based on the assessment of additional information during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the estimated fair value of assets acquired and liabilities assumed. See Note 2 of Notes to Consolidated Financial Statements. Restructuring activities: Restructuring programs consist of employee severance, rationalization of manufacturing or other facilities and other related items. To account for such programs, the Company applies FASB’s guidance regarding exit or disposal cost obligations. This guidance requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, is estimable, and payment is probable. See Note 7 of Notes to Consolidated Financial Statements. Reclassifications: Certain information has been reclassified to conform to the current year presentation. Accounting estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from such estimates. Note 2 – Business Combinations 2021 Acquisitions In November 2021, the Company acquired Baron Industries (“Baron”), a privately held Company that provides vacuum impregnation services of castings, powder metals and electrical components for its Global Specialty Businesses reportable segment for $ 11.0 million, including an initial cash payment of $ 7.1 million, subject to post-closing adjustments as well as certain earn-out provisions currently estimated at $ 3.9 million that are payable at different times from 2022 through 2025. The earn-out provisions could total a maximum of $ 4.5 million. The Company allocated $ 8.0 million of the purchase price to intangible assets, $ 1.1 million of property, plant and equipment and $ 1.5 million of other assets acquired net of liabilities assumed, which includes $ 0.3 million of cash acquired. In addition, the Company recorded $ 0.4 million of goodwill, none of which is expected to be tax deductible. Intangible assets comprised $ 7.2 million of customer relationships to be amortized over 15 years ; and $ 0.8 million of existing product technology to be amortized over 13 years . In November 2021, the Company acquired a business that provides hydraulic fluids, coolants, cleaners, and rust preventative oils in Turkey for its EMEA reportable segment for 3.2 million EUR or approximately $ 3.7 million. 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 2.4 million EUR or approximately $ 2.9 million, which is gross of approximately $ 0.3 million of cash acquired. Previously, in February 2021, the Company acquired a 38 % ownership interest in Grindaix for 1.4 million EUR or approximately $ 1.7 million. The Company recorded 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. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 56 In June 2021, the Company acquired certain assets for its chemical milling maskants product line in the Global Specialty Businesses reportable segment for 2.3 million EUR or approximately $ 2.8 million. In February 2021, the Company acquired a tin-plating solutions business for the steel end market for $ 25.0 million. This acquisition is part of each of the Company’s geographic reportable segments. The Company allocated $ 19.6 million of the purchase price to intangible assets, comprised of $ 18.3 million of customer relationships, to be amortized over 19 years ; $ 0.9 million of existing product technology to be amortized over 14 years ; and $ 0.4 million of a licensed trademark to be amortized over 3 years . In addition, the Company recorded $ 5.0 million of goodwill, all of which is 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 personnel that will allow Quaker Houghton to better serve its customers. As of December 31, 2021, the allocation of the purchase price of the 2021 acquisitions has not been finalized and the one year measurement period has not ended for any of these acquisitions. 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. The results of operations of the 2021 acquired assets and businesses subsequent to the respective acquisition dates are included in the Consolidated Statements of Income for the year ended December 31, 2021. Applicable transaction expenses associated with these acquisitions are included in Combination, integration and other acquisition -related expenses in the Company’s Consolidated Statements of Income. Certain pro forma and other information is not presented, as the operations of the acquired assets and businesses are not considered material to the overall operations of the Company for the periods presented. 2022 Acquisitions In January 2022, the Company acquired a business related to the sealing and impregnation of metal castings for the automotive sector, as well as impregnation resin and impregnation systems for metal parts, for its Global Specialty Business reporting segment for approximately 1.2 million EUR or approximately $ 1.4 million. This business expands the Company's geographic presence in Germany as well as broadens its product offerings and service capabilities within its existing impregnation business that was initially entered into as part of its past acquisition of Norman Hay. Also in in January 2022, the Company acquired a business that provides pickling inhibitor technologies for the steel industry, drawing lubricants and stamping oil for metalworking, and various other lubrication, rust preventative, and cleaner applications, for its Americas reportable segment for approximately $ 8.0 million. This business broadens the Company’s product offerings within its existing metals and metalworking business in the Americas region. The results of operations of these two January 2022 acquisitions are not included in the Consolidated Statements of Income because the date of closing for each was subsequent to December 31, 2021. Preliminary purchase price allocation of assets acquired and liabilities assumed have not been presented as that information is not available as of the date of these Consolidated Financial Statements. Houghton In August 2019, the Company completed the Combination, whereby the Company acquired all of the issued and outstanding shares of Houghton from Gulf Houghton Lubricants, Ltd. and certain other selling shareholders in exchange for a combination of cash and shares of the Company’s common stock in accordance with the Share Purchase Agreement dated April 4, 2017. Commencing August 1, 2019, the Company’s Consolidated Statements of Income included the results of Houghton. Net sales of Houghton subsequent to closing of the Combination and included in the Company’s Consolidated Statements of Income for the year ended December 31, 2019 were $ 299.8 million. The following unaudited pro forma consolidated financial information has been prepared as if the Combination had taken place on January 1, 2018. The unaudited pro forma results include certain adjustments to each company’s historical actual results, including: (i) additional depreciation and amortization expense based on the initial estimates of fair value step up and estimated useful lives of depreciable fixed assets, definite-lived intangible assets and investment in associated companies acquired; (ii) adoption of required accounting guidance and alignment of related accounting policies, (iii) elimination of transactions between Legacy Quaker and Houghton; (iv) elimination of results associated with the divested product lines; (v) adjustment to interest expense, net, to reflect the impact of the financing and capital structure of the combined Company; and (vi) adjustment for certain Combination, integration and other acquisition-related costs to reflect such costs as if they were incurred in the period immediately following the pro-forma closing of the Combination on January 1, 2018. The adjustments described in (vi) include an expense recorded in costs of goods sold (“COGS”) associated with selling inventory acquired in the Combination which was adjusted to fair value as part of purchase accounting, restructuring expense incurred associated with the Company’s global restructuring program initiated post-closing of the Combination and certain other integration costs incurred post-closing included in combination and other acquisition-related expenses. These costs have been presented in the unaudited pro forma table below as these QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 57 costs on a pro forma basis were incurred during the year ended December 31, 2018. Unaudited pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated, or that may result in the future for various reasons, including the potential impact of revenue and cost synergies on the business. For the year ending Unaudited Pro Forma December 31, (as if the Combination occurred on January 1, 2018) 2019 Net sales $ 1,562,427 Net income attributable to Quaker Chemical Corporation 94,537 Combination, integration and other acquisition-related expenses have been and are expected to continue to be significant. The Company incurred total costs of $ 18.6 million, $ 30.3 million and $ 38.0 million for the years ended December 31, 2021, 2020 and 2019, respectively, related to the Combination, integration and other acquisition-related activities. These costs included certain legal, financial and other advisory and consultant costs incurred in connection with post-closing integration activities including internal control readiness and remediation, as well as due diligence, regulatory approvals and closing the Combination. These costs also included interest costs to maintain the bank commitment (“ticking fees”) for the Combination during the year ended December 31, 2019, accelerated depreciation charges during the years ended December 31, 2021, 2020 and 2019, a gain on the sale of a held-for-sale real property during the year ended December 31, 2021, a loss on the sale of a held-for-sale asset during the year ended December 31, 2020, and recorded income related to indemnification rights during the years ended December 31, 2021 and 2020. As of December 31, 2021 and 2020, the Company had current liabilities related to the Combination and other acquisition-related activities of $ 5.5 million and $ 7.5 million, respectively, primarily recorded within other accrued liabilities on its Consolidated Balance Sheets. Other Previous Acquisitions In December 2020, the Company completed its acquisition of Coral Chemical Company (“Coral”), a privately held, U.S.-based provider of metal finishing fluid solutions. The acquisition provides technical expertise and product solutions for pre-treatment, metalworking and wastewater treatment applications to the beverage cans and general industrial end markets. The acquired Coral assets and liabilities were assigned to the Americas and Global Specialty Businesses reportable segments. The original purchase price was approximately $ 54.1 million, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels. The following table presents the final estimated fair values of Coral net assets acquired: Measurement December 22, December 22, Period 2020 2020 (1) Adjustments (as adjusted) Cash and cash equivalents $ 958 $ - $ 958 Accounts receivable 8,473 - 8,473 Inventories 4,527 - 4,527 Prepaid expenses and other assets 181 - 181 Property, plant and equipment 10,467 652 11,119 Intangible assets 30,300 ( 500 ) 29,800 Goodwill 2,814 804 3,618 Total assets purchased 57,720 956 58,676 Long-term debt including current portions and finance leases 183 556 739 Accounts payable, accrued expenses and other accrued liabilities 3,482 - 3,482 Total liabilities assumed 3,665 556 4,221 Total consideration paid for Coral 54,055 400 54,455 Less: estimated purchase price settlement - 400 400 Less: cash acquired 958 - 958 Net cash paid for Coral $ 53,097 $ - $ 53,097 (1) As previously disclosed in the Company’s 2020 Form 10-K. Measurement period adjustments recorded during the year ended December 31, 2021 include certain adjustments related to refining original estimates for assets and liabilities for certain acquired finance leases, as well as an adjustment to reflect the expected settlement of post-closing working capital and net indebtedness true ups to the initial purchase price. The Company continues to work QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 58 with the seller to finalize certain post-closing adjustments and the above table includes the Company’s best estimate as of December 31, 2021. As of December 31, 2021, the allocation of the purchase price for Coral has been finalized and the one year measurement period has ended. In May 2020, the Company acquired Tel Nordic ApS (“TEL”), a company that specializes in lubricants and engineering primaril y in high pressure aluminum die casting for its EMEA reportable segment. Consideration paid was in the form of a convertible promissory note in the amount of 20.0 million DKK, or approximately $ 2.9 million, which was subsequently converted into shares of the Company’s common stock. An adjustment to the purchase price of approximately 0.4 million DKK, or less than $ 0.1 million, was made as a result of finalizing a post-closing settlement in the second quarter of 2020. The Company allocated approximately $ 2.4 million of the purchase price to intangible assets to be amortized over 17 years . In addition, the Company recorded approximately $ 0.5 million of goodwill, related to expected value not allocated to other acquired assets, none of which will be tax deductible. As of December 31, 2021, the allocation of the purchase price of TEL was finalized and the one year measurement period ended. In March 2020, the Company acquired the remaining 49 % ownership interest in one of its South African affiliates, Quaker Chemical South Africa Limited (“QSA”) for 16.7 million ZAR, or approximately $ 1.0 million, from its joint venture partner PQ Holdings South Africa. QSA is a part of the Company’s EMEA reportable segment. As this acquisition was a change in an existing controlling ownership, the Company recorded $ 0.7 million of excess purchase price over the carrying value of the noncontrolling interest in Capital in excess of par value. In October 2019, the Company completed its acquisition of the operating divisions of Norman Hay plc (“Norman Hay”), a private U.K. company that provides specialty chemicals, operating equipment, and services to industrial end markets. The original purchase price was 80.0 million GBP, on a cash-free and debt-free basis, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels. The Company finalized its post-closing adjustments for the Norman Hay acquisition and paid approximately 2.5 million GBP during the first quarter of 2020 to settle such adjustments. Note 3 – Recently Issued Accounting Standards Recently Issued Accounting Standards Adopted The Financial Accounting Standards Board (“FASB”) issued Account Standards Update (“ASU”) ASU 2019-12 , Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes in December 2019 to simplify the accounting for income taxes. The guidance within this accounting standard update removes certain exceptions, including the exception to the incremental approach for certain intra-period tax allocations, to the requirement to recognize or not recognize certain deferred tax liabilities for equity method investments and foreign subsidiaries, and to the general methodology for calculating income taxes in an interim period when a year-to- date loss exceeds the anticipated loss for the year. Further, the guidance simplifies the accounting related to franchise taxes, the step up in tax basis for goodwill, current and deferred tax expense, and codification improvements for income taxes related to employee stock ownership plans. The guidance is effective for annual and interim periods beginning after December 15, 2020. The Company adopted this standard, as required, effective January 1, 2021. There was no cumulative effect of adoption recorded within retained earnings on January 1, 2021. The FASB issued ASU 2020 -04 , Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting in March 2020. The FASB subsequently issued ASU 2021-01 , Reference Rate Reform (Topic 848): Scope in January 2021 which clarified the guidance but did not materially change the guidance or its applicability to the Company. The amendments provide temporary optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away from reference rates that are expected to be discontinued, including the London Interbank Offered Rate (“LIBOR”). ASU 2020-04 is effective for the Company as of March 12, 2020 and generally can be applied through December 31, 2022. On December 10, 2021, the Company entered into a Second Amendment to Credit Agreement (“Second Amendment”) with Bank of America N.A., an update to provide for the use of a non-USD currency LIBOR successor rate. The Company elected to apply the expedients provided in ASU 2020-04 with respect to the Second Amendment. The Company will continue to monitor for potential impacts related to its USD- based LIBOR rates. See Note 20 of Notes to Consolidated Financial Statements.. Note 4 – Business Segments The Company’s operating segments, which are consistent with its reportable segments, reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the chief operating decision maker assesses the Company’s performance. The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. The three geographic segments are composed of the net sales and operations in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment, which includes the Company’s container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 59 Segment operating earnings for each of the Company’s reportable segments are comprised of the segment’s net sales less directly related COGS and SG&A. Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating earnings. Other items not specifically identified with the Company’s reportable segments include interest expense, net and other income (expense), net. The following tables present information about the performance of the Company’s reportable segments for the years ended December 31, 2021, 2020 and 2019. 2021 2020 2019 Net sales Americas $ 572,643 $ 450,161 $ 392,121 EMEA 480,126 383,187 285,570 Asia/Pacific 388,160 315,299 247,839 Global Specialty Businesses 320,229 269,030 207,973 Total net sales $ 1,761,158 $ 1,417,677 $ 1,133,503 2021 2020 2019 Segment operating earnings Americas $ 124,863 $ 96,379 $ 78,297 EMEA 85,209 69,163 47,014 Asia/Pacific 96,318 88,356 67,512 Global Specialty Businesses 90,632 79,690 58,881 Total segment operating earnings 397,022 333,588 251,704 Combination, integration and other acquisition-related expenses ( 23,885 ) ( 29,790 ) ( 35,477 ) Restructuring and related charges ( 1,433 ) ( 5,541 ) ( 26,678 ) Fair value step up of acquired inventory sold ( 801 ) ( 226 ) ( 11,714 ) Indefinite-lived intangible asset impairment - ( 38,000 ) - Non-operating and administrative expenses ( 157,864 ) ( 143,202 ) ( 104,572 ) Depreciation of corporate assets and amortization ( 62,573 ) ( 57,469 ) ( 27,129 ) Operating income 150,466 59,360 46,134 Other income (expense), net 18,851 ( 5,618 ) ( 254 ) Interest expense, net ( 22,326 ) ( 26,603 ) ( 16,976 ) Income before taxes and equity in net income of associated companies $ 146,991 $ 27,139 $ 28,904 The following tables present information regarding the Company’s reportable segments’ assets and long-lived assets, including certain identifiable assets as well as an allocation of shared assets, as of December 31, 2021, 2020 and 2019: 2021 2020 2019 Segment assets Americas $ 983,521 $ 969,551 $ 926,122 EMEA 714,659 697,821 688,663 Asia/Pacific 750,970 713,004 685,476 Global Specialty Businesses 506,610 511,458 550,055 Total segment assets $ 2,955,760 $ 2,891,834 $ 2,850,316 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 60 2021 2020 2019 Segment long-lived assets Americas $ 129,321 $ 122,302 $ 139,170 EMEA 69,990 69,344 56,108 Asia/Pacific 123,130 119,233 126,166 Global Specialty Businesses 37,951 59,091 69,184 Total segment long-lived assets $ 360,392 $ 369,970 $ 390,628 The following tables present information regarding the Company’s reportable segments’ capital expenditures and depreciation for identifiable assets for the years ended December 31, 2021, 2020 and 2019: 2021 2020 2019 Capital expenditures Americas $ 9,678 $ 6,451 $ 6,404 EMEA 6,767 3,844 3,263 Asia/Pacific 2,264 5,688 3,857 Global Specialty Businesses 2,748 1,918 2,021 Total segment capital expenditures $ 21,457 $ 17,901 $ 15,545 2021 2020 2019 Depreciation Americas $ 12,074 $ 12,322 $ 7,500 EMEA 6,936 6,813 4,560 Asia/Pacific 4,596 4,672 3,458 Global Specialty Businesses 3,043 3,544 2,248 Total segment depreciation $ 26,649 $ 27,351 $ 17,766 During the years ended December 31, 2021, 2020 and 2019, the Company had approximately $ 1,198.4 million, $ 963.2 million and $ 719.8 million of net sales, respectively, attributable to non-U.S. operations. As of December 31, 2021, 2020 and 2019, the Company had approximately $ 155.2 million, $ 176.6 million and $ 174.4 million of long-lived assets, respectively, attributable to non- U.S. operations. Inter-segment revenue for the years ended December 31, 2021, 2020 and 2019 was $ 12.2 million, $ 9.1 million and $ 7.3 million for Americas, $ 29.0 million, $ 22.0 million and $ 20.3 million for EMEA, $ 1.6 million, $ 0.6 million and $ 0.2 million for Asia/Pacific and $ 7.4 million, $ 4.7 million and $ 5.4 million for Global Specialty Businesses, respectively. However, all inter-segment transactions have been eliminated from each reportable operating segment’s net sales and earnings for all periods presented in the above tables. Note 5 – Net Sales and Revenue Recognition Arrangements Resulting in Net Reporting As part of the Company’s Fluidcare TM business, certain third-party product sales to customers are managed by the Company. The Company transferred third-party products under arrangements resulting in net reporting of $ 71.7 million, $ 42.5 million and $ 48.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. 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, aircraft, industrial equipment, and durable goods. 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 10 % of consolidated net sales, with its largest customer accounting for approximately 3 % of consolidated net sales. Contract Assets and Liabilities The Company had no material contract assets recorded on its Consolidated Balance Sheets as of December 31, 2021 and 2020. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 61 The Company had approximately $ 7.0 million and $ 4.0 million of deferred revenue as of December 31, 2021 and 2020, respectively. During the years ended December 31, 2021 and 2020, respectively, the Company satisfied all of the associated performance obligations and recognized into revenue the advance payments received and recorded as of December 31, 2020 and 2019, respectively. 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 present disaggregated information regarding the Company’s net sales, first by major product lines that represent more than 10 % of the Company’s consolidated net sales for any of the years ended December 31, 2021, 2020 and 2019, and followed then by a disaggregation of the Company’s net sales by segment, geographic region, customer industry, and timing of revenue recognized for the years ended December 31, 2021, 2020 and 2019. 2021 2020 2019 Metal removal fluids 23.4 % 23.9 % 19.9 % Rolling lubricants 22.2 % 21.8 % 21.9 % Hydraulic fluids 13.6 % 13.3 % 13.0 % Net sales for the year ending December 31, 2021 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 210,340 $ 141,950 $ 207,160 $ 559,450 Metalworking and other 362,303 338,176 181,000 881,479 572,643 480,126 388,160 1,440,929 Global Specialty Businesses 186,859 80,541 52,829 320,229 $ 759,502 $ 560,667 $ 440,989 $ 1,761,158 Timing of Revenue Recognized Product sales at a point in time $ 724,357 $ 527,083 $ 429,130 $ 1,680,570 Services transferred over time 35,145 33,584 11,859 80,588 $ 759,502 $ 560,667 $ 440,989 $ 1,761,158 Net sales for the year ending December 31, 2020 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 163,135 $ 107,880 $ 168,096 $ 439,111 Metalworking and other 287,026 275,307 147,203 709,536 450,161 383,187 315,299 1,148,647 Global Specialty Businesses 154,796 68,164 46,070 269,030 $ 604,957 $ 451,351 $ 361,369 $ 1,417,677 Timing of Revenue Recognized Product sales at a point in time $ 580,663 $ 434,549 $ 352,917 $ 1,368,129 Services transferred over time 24,294 16,802 8,452 49,548 $ 604,957 $ 451,351 $ 361,369 $ 1,417,677 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 62 Net sales for the year ending December 31, 2019 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 171,784 $ 100,605 $ 141,870 $ 414,259 Metalworking and other 220,337 184,965 105,969 511,271 392,121 285,570 247,839 925,530 Global Specialty Businesses 149,428 30,115 28,430 207,973 $ 541,549 $ 315,685 $ 276,269 $ 1,133,503 Timing of Revenue Recognized Product sales at a point in time $ 525,802 $ 310,274 $ 269,228 $ 1,105,304 Services transferred over time 15,747 5,411 7,041 28,199 $ 541,549 $ 315,685 $ 276,269 $ 1,133,503 Note 6 – Leases The Company has operating leases for certain facilities, vehicles and machinery and equipment with remaining lease terms up to 10 years. In addition, the Company has certain land use leases with remaining lease terms up to 94 years. Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense for the years ended December 31, 2021, 2020 and 2019 was $ 14.1 million, $ 14.2 million, and $ 9.4 million, respectively. Short-term lease expense for the years ended December 31, 2021, 2020 and 2019 was $ 0.9 million, $ 1.3 million and $ 1.5 million, respectively. The Company has no material variable lease costs or sublease income for the years ended December 31, 2021, 2020 and 2019. Cash paid for operating leases during the years ended December 31, 2021, 2020 and 2019 was $ 13.9 million, $ 14.1 million and $ 9.2 million, respectively. The Company recorded new right of use lease assets and associated lease liabilities of $ 11.1 million during the year ended December 31, 2021. Supplemental balance sheet information related to the Company’s leases is as follows: December 31, December 31, 2021 2020 Right of use lease assets $ 36,635 $ 38,507 Other accrued liabilities 9,976 10,901 Long-term lease liabilities 26,335 27,070 Total operating lease liabilities $ 36,311 $ 37,971 Weighted average remaining lease term (years) 5.6 6.0 Weighted average discount rate 4.22 % 4.20 % Maturities of operating lease liabilities as of December 31, 2021 were as follows: December 31, 2021 For the year ended December 31, 2022 $ 11,346 For the year ended December 31, 2023 9,041 For the year ended December 31, 2024 7,017 For the year ended December 31, 2025 5,292 For the year ended December 31, 2026 4,197 For the year ended December 31, 2027 and beyond 4,502 Total lease payments 41,395 Less: imputed interest ( 5,084 ) Present value of lease liabilities $ 36,311 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 63 Note 7 – Restructuring and Related Activities The Company’s management approved a global restructuring plan (the “QH Program”) as part of its plan to realize certain cost synergies associated with the Combination in the third quarter of 2019. The QH Program includes restructuring and associated severance costs to reduce total headcount by approximately 400 people globally, as well as plans for the closure of certain manufacturing and non-manufacturing facilities. The exact timing and total costs associated with the QH Program will depend on a number of factors and is subject to change; however, the Company currently expects reduction in headcount and site closures to continue to occur into 2022 under the QH Program. Employee separation benefits will vary depending on local regulations within certain foreign countries and will include severance and other benefits. All costs incurred to date relate to severance costs to reduce headcount, 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 Consolidated Statements of Income. As described in Note 4 of Notes to Consolidated Financial Statements, Restructuring and related charges are not included in the Company’s calculation of reportable segments’ measure of operating earnings and therefore these costs are not reviewed by or recorded to reportable segments. Activity in the Company’s accrual for restructuring under the QH Program for the years ended December 31, 2021 and 2020 is as follows: QH Program Accrued restructuring as of December 31, 2019 $ 18,043 Restructuring and related charges 5,541 Cash payments ( 15,745 ) Currency translation adjustments 409 Accrued restructuring as of December 31, 2020 8,248 Restructuring and related charges 1,433 Cash payments ( 5,266 ) Currency translation adjustments ( 328 ) Accrued restructuring as of December 31, 2021 $ 4,087 In connection with the plans for closure of certain manufacturing and non-manufacturing facilities, the Company has made a decision to make available for sale certain facilities. During the years ended December 31, 2021 and 2020, certain of these facilities were sold and the Company recognized a gain of $ 5.4 million in 2021 and a loss of approximately $ 0.6 million in 2020 which is included within other income (expense), net on the Consolidated Statement of Income. Additionally, certain buildings and land with an aggregate book value of approximately $ 0.7 million continues to be held-for-sale as of December 31, 2021 and are recorded in prepaid expenses and other current assets on the Company’s Consolidated Balance Sheet. The Company will continue to evaluate for future decisions about making certain other facilities available for sale. Note 8 – Share-Based Compensation The Company recognized the following share-based compensation expense in its Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019: 2021 2020 2019 Stock options $ 1,235 $ 1,491 $ 1,448 Non-vested stock awards and restricted stock units 5,438 5,012 3,206 Non-elective and elective 401(k) matching contribution in stock 1,553 3,112 - Employee stock purchase plan - - 84 Director stock ownership plan 901 541 123 Performance stock units 1,911 840 - Total share-based compensation expense $ 11,038 $ 10,996 $ 4,861 Share-based compensation expense is recorded in SG&A, except for $ 0.9 million, $ 1.5 million and $ 0.9 million during the years ended December 31, 2021, 2020 and 2019, respectively, recorded within Combination, integration and other acquisition-related expenses. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 64 Stock Options Stock option activity under all plans is as follows: Weighted Weighted Average Average Exercise Remaining Aggregate Number of Price Contractual Intrinsic Options (per option) Term (years) Value Options outstanding as of January 1, 2021 110,336 $ 143.51 Options granted 25,250 245.17 Options exercised ( 22,540 ) 143.49 Options forfeited ( 3,362 ) 190.65 Options outstanding as of December 31, 2021 109,684 $ 165.47 4.8 $ 7,550 Options expected to vest after December 31, 2021 67,680 $ 178.10 5.4 $ 3,929 Options exercisable as of December 31, 2021 42,004 $ 145.12 3.9 $ 3,621 The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was approximately $ 2.7 million, $ 6.5 million and $ 2.5 million, respectively. Intrinsic value is calculated as the difference between the current market price of the underlying security and the strike price of a related option. A summary of the Company’s outstanding stock options as of December 31, 2021 is as follows: Weighted Average Weighted Weighted Number Remaining Average Number Average Range of of Options Contractual Exercise Price of Options Exercise Price Exercise Prices Outstanding Term (years) (per option) Exercisable (per option) $ 49.01 - $ 80.00 711 - $ 72.12 711 $ 72.12 $ 80.01 - $ 100.00 1,309 - 87.30 1,309 87.30 $ 120.01 - $ 150.00 43,482 5.2 136.62 12,873 136.59 $ 150.01 - $ 180.00 40,593 3.7 154.23 27,111 153.88 $ 220.01 - $ 250.00 23,589 6.2 245.15 - - 109,684 4.8 165.47 42,004 145.12 As of December 31, 2021, unrecognized compensation expense related to options granted in 2021, 2020 and 2019 was $ 1.8 million, $ 1.2 million and $ 0.3 million, respectively, to be recognized over a weighted average period of 1.9 years. The Company granted stock options under its LTIP plan that are subject only to time vesting generally over a three year period during 2021, 2020, 2019 and 2018. For the purposes of determining the fair value of stock option awards, the Company used a Black- Scholes option pricing model and primarily used the assumptions set forth in the table below: 2021 2020 2019 2018 Number of stock options granted 25,250 49,115 51,610 35,842 Dividend yield 0.85 % 0.99 % 1.12 % 1.37 % Expected volatility 37.33 % 31.57 % 26.29 % 24.73 % Risk-free interest rate 0.60 % 0.36 % 1.52 % 2.54 % Expected term (years) 4.0 4.0 4.0 4.0 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 65 The fair value of these options is being amortized on a straight-line basis over the respective vesting period of each award. The compensation expense recorded on each award during the years ended December 31, 2021, 2020 and 2019, respectively, is as follows: 2021 2020 2019 2021 Stock option awards $ 429 $ - $ - 2020 Stock option awards 516 385 - 2019 Stock option awards 234 698 665 2018 Stock option awards 56 357 364 2017 Stock option awards - 51 369 Restricted Stock Awards Activity of non-vested restricted stock awards granted under the Company’s LTIP plan is shown below: Number of Weighted Average Grant Shares Date Fair Value (per share) Nonvested awards, December 31, 2020 71,768 $ 151.17 Granted 23,536 242.29 Vested ( 23,638 ) 157.63 Forfeited ( 2,973 ) 172.15 Nonvested awards, December 31, 2021 68,693 $ 179.26 The fair value of the non-vested stock 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 for expected forfeitures based on historical experience for similar awards. As of December 31, 2021, unrecognized compensation expense related to these awards was $ 5.1 million, to be recognized over a weighted average remaining period of 1.5 years. Restricted Stock Units Activity of non-vested restricted stock units granted under the Company’s LTIP plan is shown below: Number of Weighted Average Grant Units Date Fair Value (per unit) Nonvested awards, December 31, 2020 10,845 $ 147.70 Granted 2,791 245.49 Vested ( 2,570 ) 155.34 Forfeited ( 89 ) 141.77 Nonvested awards, December 31, 2021 10,977 $ 170.82 The fair value of the non-vested restricted stock units 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 for expected forfeitures based on historical experience for similar awards. As of December 31, 2021, unrecognized compensation expense related to these awards was $ 0.8 million, to be recognized over a weighted average remaining period of 1.8 years. 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 0 % up to 200 % of the target award, subject to the achievement of the Company’s total shareholder return (“TSR”) relative to the performance of the Company’s peer group, the S&P Midcap 400 Materials group. The service period required for the PSUs is three years and the TSR measurement period for the PSUs is generally from January 1 of the year of grant through December 31 of the year prior to issuances of the shares upon settlement. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 66 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: CEO Grant 2021 (1) 2021 2020 Fully vested shares 3,775 12,103 18,485 Risk-free interest rate 0.65 % 0.29 % 0.28 % Dividend yield 0.72 % 0.64 % 1.13 % Expected term (years) 3.0 3.0 3.0 (1) On September 2, 2021, the Board appointed Andrew Tometich to serve as CEO and entered into an Employment Agreement, and granted an equity award consisting of a mix of time-based restricted stock and PSUs. As of December 31, 2021, there was approximately $ 4.3 million of total unrecognized compensation cost related to PSUs which the Company expects to recognize over a weighted-average period of 1.4 years. Defined Contribution Plan The Company has a 401(k) plan with an employer match covering a majority of its U.S. employees. The Company matches 50 % of the first 6 % of compensation that is contributed to the plan, with a maximum matching contribution of 3 % of compensation. Additionally, the plan provides for non-elective nondiscretionary contributions on behalf of participants who have completed one year of service equal to 3 % of the eligible participant's compensation. Beginning in April 2020 and continuing through March 2021, the Company matched both non-elective and elective 401(k) contributions in fully vested shares of the Company’s common stock rather than cash. For the years ended December 31, 2021, and 2020, total contributions were $ 1.5 million and $ 3.1 million, respectively. Employee Stock Purchase Plan In 2000, the Board adopted an Employee Stock Purchase Plan (“ESPP”) whereby employees may purchase Company stock through a payroll deduction plan. Purchases were made from the plan and credited to each participant’s account on the last day of each calendar month in which the organized securities trading markets in the U.S. were open for business (the “Investment Date”). The purchase price of the stock was 85 % of the fair market value on the Investment Date. The plan was compensatory, and the 15 % discount was expensed on the Investment Date. All employees, including officers, were eligible to participate in this plan. A participant could withdraw all uninvested payment balances credited to a participant’s account at any time. An employee whose stock ownership of the Company exceeds five percent of the outstanding common stock was not eligible to participate in this plan. Effective January 1, 2020, the Company discontinued the ESPP. 2013 Director Stock Ownership Plan In 2013, the Company adopted the 2013 Director Stock Ownership Plan (the “Plan”), to encourage the Directors to increase their investment in the Company, which was approved at the Company’s May 2013 shareholders’ meeting. The Plan authorizes the issuance of up to 75,000 shares of Quaker common stock in accordance with the terms of the Plan in payment of all or a portion of the annual cash retainer payable to each of the Company’s non-employee directors in 2013 and subsequent years during the term of the Plan. Under the Plan, each director who, on May 1 of the applicable calendar year, owns less than 400 % of the annual cash retainer for the applicable calendar year, divided by the average of the closing price of a share of Quaker Common Stock as reported by the composite tape of the New York Stock Exchange for the previous calendar year (the “Threshold Amount”), is required to receive 75 % of the annual cash retainer in Quaker common stock and 25 % of the retainer in cash, unless the director elects to receive a greater percentage of Quaker common stock, up to 100 % of the annual cash retainer for the applicable year. Each director who owns more than the Threshold Amount may elect to receive common stock in payment of a percentage (up to 100 %) of the annual cash retainer. The annual retainer is $ 0.1 million and the retainer payment date is June 1. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 67 Note 9 – Other Income (Expense), net Other income (expense), net, for the years ended December 31, 2021, 2020 and 2019 are as follows: 2021 2020 2019 Income from third party license fees $ 1,367 $ 999 $ 1,035 Foreign exchange (losses) gains, net ( 3,821 ) ( 6,082 ) 223 Gain (loss) on disposals of property, plant, equipment and other assets, net 4,695 ( 871 ) 58 Non-income tax refunds and other related credits 15,155 3,345 1,118 Pension and postretirement benefit income (costs), non-service components 759 ( 21,592 ) ( 2,805 ) Gain on changes in insurance settlement restrictions of an inactive subsidiary and related insurance insolvency recovery - 18,144 60 Other non-operating income, net 696 439 57 Total other income (expense), net $ 18,851 $ ( 5,618 ) $ ( 254 ) Gain (loss) on disposals of property, plant, equipment and other assets, net, includes losses related to certain fixed assets disposals resulting from the property damage caused by flooding of the Company’s Conshohocken, Pennsylvania headquarters in 2021, described in Note 26 of Notes to Consolidated Financial Statements, as well as a gain in 2021 and a loss in 2020 on the sale of certain held-for-sale real property assets related to the Combination, described in Note 7 of Notes to Consolidated Financial Statements. Non- income tax refunds and other related credits during the year ended December 31, 2021 includes certain non-income tax credits for the Company’s Brazilian subsidiaries described in Note 26 of Notes to Consolidated Financial Statements. Pension and postretirement benefit income (costs), non-service components during the year ended December 31, 2020 include a $ 1.6 million refund in premium and a $ 22.7 million non-cash settlement charge related to the Legacy Quaker U.S. Pension Plan, as described in Note 21 of Notes to Consolidated Financial Statements. Gain on changes in insurance settlement restrictions of an inactive subsidiary and related insurance insolvency recovery relate to the termination of restrictions over certain cash that was previously designated solely to be used for settlement of asbestos claims at an inactive subsidiary of the Company and cash proceeds from an insolvent insurance carrier with respect to previously filed recovery claims. See Note 12, Note 19 and Note 26 of Notes to Consolidated Financial Statements. Foreign exchange (losses) gains, net, during the years ended December 31, 2021, 2020 and 2019, include foreign currency transaction losses of approximately $ 0.6 million, $ 0.4 million and $ 1.0 million, respectively, related to hyper-inflationary accounting for the Company’s Argentine subsidiaries. See Note 1 of Notes to Consolidated Financial Statements. Note 10 – Taxes on Income On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as U.S. Tax Reform. U.S. Tax Reform implemented a new system of taxation for non-U.S. earnings which eliminated U.S. federal income taxes on dividends from certain foreign subsidiaries and imposed a one-time transition tax on the deemed repatriation of undistributed earnings of certain foreign subsidiaries that is payable over eight years. Following numerous regulations, notices, and other formal guidance published by the Internal Revenue Service (“I.R.S.”), U.S. Department of Treasury, and various state taxing authorities, the Company completed its accounting for the transition tax and has elected to pay its $ 15.5 million transition tax in installments over eight years as permitted under U.S. Tax Reform. As of December 31, 2021, $ 7.0 million in installments have been paid with the remaining $ 8.5 million to be paid through installments in future years. As of December 31, 2021, the Company has a deferred tax liability of $ 8.4 million on certain undistributed foreign earnings, which primarily represents the Company’s estimate of the non-U.S. income taxes the Company will incur to ultimately remit certain earnings to the U.S. The Company’s reinvestment assertions are further explained below. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 68 Taxes on income before equity in net income of associated companies for the years ended December 31, 2021, 2020 and 2019 are as follows: 2021 2020 2019 Current: Federal $ 955 $ ( 1,359 ) $ ( 239 ) State 2,115 1,171 352 Foreign 44,375 33,173 26,213 47,445 32,985 26,326 Deferred: Federal ( 3,863 ) ( 28,437 ) ( 9,267 ) State ( 3,117 ) ( 3,087 ) ( 396 ) Foreign ( 5,526 ) ( 6,757 ) ( 14,579 ) Total $ 34,939 $ ( 5,296 ) $ 2,084 The components of earnings before income taxes for the years ended December 31, 2021, 2020 and 2019 are as follows: 2021 2020 2019 U.S. $ 7,263 $ ( 66,585 ) $ ( 46,697 ) Foreign 139,728 93,724 75,601 Total $ 146,991 $ 27,139 $ 28,904 Total deferred tax assets and liabilities are composed of the following as of December 31, 2021 and 2020: 2021 2020 Retirement benefits $ 11,860 $ 15,237 Allowance for doubtful accounts 2,155 2,316 Insurance and litigation reserves 675 842 Performance incentives 2,881 5,914 Equity-based compensation 1,920 1,282 Prepaid expense 460 756 Operating loss carryforward 18,544 16,693 Foreign tax credit and other credits 16,285 24,873 Interest 9,940 16,812 Restructuring reserves 631 1,121 Right of use lease assets 8,322 9,346 Inventory reserves 2,941 2,225 Research and development 8,832 7,974 Other 2,846 3,005 88,292 108,396 Valuation allowance ( 17,400 ) ( 21,511 ) Total deferred tax assets, net $ 70,892 $ 86,885 Depreciation 11,580 15,473 Foreign pension and other 2,332 1,807 Intangibles 197,066 222,794 Lease liabilities 8,421 9,151 Outside basis in equity investment 5,999 7,938 Unremitted Earnings 8,381 5,919 Total deferred tax liabilities $ 233,779 $ 263,082 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 69 The Company has $ 10.6 million of deferred tax assets related to state net operating losses. A partial valuation allowance of $ 8.0 million has been established against this amount resulting in a net $ 2.6 million expected future benefit. Management analyzed the expected impact of the reversal of existing taxable temporary differences, considered expiration dates, analyzed current state tax laws, and determined that $ 2.6 million of state net operating loss carryforwards will be realized based on the reversal of deferred tax liabilities. These state net operating losses are subject to various carryforward periods of 5 years to 20 years or an indefinite carryforward period. An additional $ 0.5 million of valuation allowance was established for other net state deferred tax assets. The Company has $ 8.0 million of deferred tax assets related to foreign net operating loss carryforwards. A partial valuation allowance of $ 2.5 million has been established against the $ 8.0 million due to the expected expiration of these losses before they are able to be utilized. These foreign net operating losses are subject to various carryforward periods with the majority having an indefinite carryforward period. An additional partial valuation allowance of $ 0.6 million has been established against certain other foreign deferred tax assets. In conjunction with the Combination, the Company acquired foreign tax credit deferred tax assets of $ 41.8 million expiring between 2019 and 2028. Foreign tax credits may be carried forward for 10 years. Management analyzed the expected impact of the utilization of foreign tax credits based on certain assumptions such as projected U.S. taxable income, overall domestic loss recapture, and annual limitations due to the ownership change under the Internal Revenue Code. The Company had a foreign tax credit carry forward of $15.9 million and $ 24.9 million as of December 31, 2021 and 2020, respectively, with a $5.8 million and $ 10.2 million valuation allowance as of December 31, 2021 and 2020, respectively, reflecting the amount of credits that are not expected to be utilized before expiration. The Company also acquired disallowed interest deferred tax assets of $ 14.0 million as part of the Combination. Disallowed interest may be carried forward indefinitely. Management analyzed the expected impact of the utilization of disallowed interest carryforwards based on projected US taxable income and determined that the Company will utilize all expected future benefits by 2022. As of December 31, 2021, the Company had a net realizable disallowed interest carryforward of $ 9.4 million on its balance sheet. As of December 31, 2021, the Company had deferred tax liabilities of $ 178.0 million primarily related to the step-up in intangibles resulting from the Combination and Norman Hay acquisition. As part of the Combination, the Company acquired a 50 % interest in the Korea Houghton Corporation joint venture and has recorded a $ 6.0 million deferred tax liability for its outside basis difference. The following are the changes in the Company’s deferred tax asset valuation allowance for the years ended December 31, 2021, 2020 and 2019: Effect of Balance at Purchase Additional Allowance Exchange Balance Beginning Accounting Valuation Utilization Rate at End of Period Adjustments Allowance and Other Changes of Period Valuation Allowance Year ended December 31, 2021 $ 21,511 $ - $ 29 $ ( 4,470 ) $ 330 $ 17,400 Year ended December 31, 2020 $ 13,834 $ 7,148 $ 2,738 $ ( 2,153 ) $ ( 56 ) $ 21,511 Year ended December 31, 2019 $ 7,520 $ 13,752 $ 832 $ ( 8,227 ) $ ( 43 ) $ 13,834 The Company’s net deferred tax assets and liabilities are classified in the Consolidated Balance Sheets as of December 31, 2021 and 2020 as follows: 2021 2020 Non-current deferred tax assets $ 16,138 $ 16,566 Non-current deferred tax liabilities 179,025 192,763 Net deferred tax liability $ ( 162,887 ) $ ( 176,197 ) QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 70 The following is a reconciliation of income taxes at the Federal statutory rate with income taxes recorded by the Company for the years ended December 31, 2021, 2020 and 2019. Certain immaterial reclassifications within the presentation of the reconciliation of income taxes have been made to the years ended December 31, 2020 and 2019: 2021 2020 2019 Income tax provision at the Federal statutory tax rate $ 30,868 $ 5,699 $ 6,070 Unremitted earnings 1,841 ( 2,308 ) ( 4,383 ) Tax law changes / reform 1,955 ( 1,059 ) ( 416 ) U.S. tax on foreign operations 10,479 5,140 574 Pension settlement - ( 2,247 ) - Foreign derived intangible income ( 8,698 ) ( 7,339 ) ( 1,699 ) Non-deductible acquisition expenses 129 131 1,743 Withholding taxes 6,584 7,809 8,621 Foreign tax credits ( 14,725 ) ( 4,699 ) ( 3,787 ) Share-based compensation 600 335 ( 540 ) Foreign tax rate differential 3,090 1,139 1,444 Research and development credit ( 1,685 ) ( 1,018 ) ( 830 ) Uncertain tax positions 519 1,990 899 State income tax provisions, net ( 1,446 ) ( 2,245 ) ( 117 ) Non-deductible meals and entertainment 426 290 318 Intercompany transfer of intangible assets 4,347 ( 4,384 ) ( 5,318 ) Miscellaneous items, net 655 ( 2,530 ) ( 495 ) Taxes on income before equity in net income of associated companies $ 34,939 $ ( 5,296 ) $ 2,084 Pursuant to U.S. Tax Reform, the Company recorded a $ 15.5 million transition tax liability for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries. However, the Company may also be subject to other taxes, such as withholding taxes and dividend distribution taxes, if these undistributed earnings are ultimately remitted to the U.S. As a result of the Combination, additional third-party debt was incurred resulting in the Company re-evaluating its global cash strategy in order to meet its goal of reducing leverage in upcoming years. As of December 31, 2021, the Company has a deferred tax liability $ 8.4 million, which primarily represents the estimate of the non-U.S. taxes the Company will incur to ultimately remit these earnings to the U.S. It is the Company’s current intention to reinvest its additional undistributed earnings of non-U.S. subsidiaries to support working capital needs and certain other growth initiatives outside of the U.S. The amount of such undistributed earnings at December 31, 2021 was approximately $ 377.4 million. Any tax liability which might result from ultimate remittance of these earnings is expected to be substantially offset by foreign tax credits (subject to certain limitations). It is currently impractical to estimate any such incremental tax expense. As of December 31, 2021, the Company’s cumulative liability for gross unrecognized tax benefits was $ 22.5 million. The Company had accrued approximately $ 3.1 million for cumulative penalties and $ 3.1 million for cumulative interest as of December 31, 2021. As of December 31, 2020, the Company’s cumulative liability for gross unrecognized tax benefits was $ 22.2 million. The Company had accrued approximately $ 3.9 million for cumulative penalties and $ 3.0 million for cumulative interest as of December 31, 2020. The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of tax expense on income before equity in net income of associated companies in its Consolidated Statements of Income. The Company recognized a benefit of $ 0.5 million for penalties and an expense of $ 0.3 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 2021, an expense of less than $ 0.1 million for penalties and $ 0.6 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 2020, and a credit of $ 0.2 million for penalties and an expense of $ 0.2 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 201 9. The Company estimates that during the year ending December 31, 2022, it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $ 2.3 million due to the expiration of the statute of 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. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 71 A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019, respectively, is as follows: 2021 2020 2019 Unrecognized tax benefits as of January 1 $ 22,152 $ 19,097 $ 7,050 Increase (decrease) in unrecognized tax benefits taken in prior periods 1,002 2,025 ( 28 ) Increase in unrecognized tax benefits taken in current period 2,915 3,095 1,935 Decrease in unrecognized tax benefits due to lapse of statute of limitations ( 2,631 ) ( 3,659 ) ( 1,029 ) Increase in unrecognized tax benefits due to acquisition - 597 11,301 (Decrease) increase due to foreign exchange rates ( 974 ) 997 ( 132 ) Unrecognized tax benefits as of December 31 $ 22,464 $ 22,152 $ 19,097 The amount of net unrecognized tax benefits above that, if recognized, would impact the Company’s tax expense and effective tax rate is $ 15.2 million, $ 14.7 million and $ 13.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. 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 2007, Brazil from 2011 , the Netherlands, Mexico and China from 2016 , Mexico, Canada, Germany, Spain, U.S. and the United Kingdom from 2017 , India from fiscal year beginning April 1, 2019 and ending March 31, 2020, and various U.S. state tax jurisdictions from 2011 . As previously reported, the Italian tax authorities have assessed additional tax due from the Company’s subsidiary, Quaker Italia S.r.l., relating to the tax years 2007 through 2015. The Company has filed for competent authority relief from these assessments under the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except 2007. In 2020, the respective tax authorities in Italy, Spain, and Netherland reached agreement with respect to the MAP proceedings, which the Company has accepted. As of December 31, 2021, the Company has received $ 1.6 million in refunds from the Netherlands and Spain and has an accrual for $ 2.4 million due to Italy. In February 2022, the Company received a settlement notice from the Italian taxing authorities confirming the amount due of $ 2.6 million, having granted the Company’s request to utilize its remaining net operating losses to partially offset the liability. This amendment to the tax assessment is expected to result in the Company recognizing tax expense of $ 0.6 million in Q1 2022. Houghton Italia, S.r.l is also involved in a corporate income tax audit with the Italian tax authorities covering tax years 2014 through 2018. As of December 31, 2021, the Company has a $ 5.0 million reserve for uncertain tax positions relating to matters related to this audit. Because the reserve relates to the tax periods prior to August 1, 2019, the tax liability was established through purchase accounting related to the Combination. The Company has also submitted an indemnification claim against funds held in escrow by Houghton’s former owners and as a result, a corresponding $ 5.9 million indemnification receivable has also been established through purchase accounting. 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. The Company remains under audit for tax years 2016 through 2018 and believes it has adequate reverses for the remaining uncertain tax positions. Houghton Deutschland GmbH is also under audit by the German tax authorities for tax years 2015 through 2017. Based on preliminary audit findings, primarily related to transfer pricing, the Company has recorded a reserve for $ 0.4 million as of December 31, 2021. Of this amount, $ 0.3 million relates to tax periods prior to the Combination and therefore the Company has submitted an indemnification claim with Houghton’s former owners for any tax liabilities arising pre-Combination. As a result, a corresponding indemnification receivable has also been established. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 72 Note 11 – Earnings Per Share The following table summarizes earnings per share calculations for the years ended December 31, 2021, 2020 and 2019: 2021 2020 2019 Basic earnings per common share Net income attributable to Quaker Chemical Corporation $ 121,369 $ 39,658 $ 31,622 Less: income allocated to participating securities ( 480 ) ( 148 ) ( 90 ) Net income available to common shareholders $ 120,889 $ 39,510 $ 31,532 Basic weighted average common shares outstanding 17,805,034 17,719,792 15,126,928 Basic earnings per common share $ 6.79 $ 2.23 $ 2.08 Diluted earnings per common share Net income attributable to Quaker Chemical Corporation $ 121,369 $ 39,658 $ 31,622 Less: income allocated to participating securities ( 479 ) ( 148 ) ( 90 ) Net income available to common shareholders $ 120,890 $ 39,510 $ 31,532 Basic weighted average common shares outstanding 17,805,034 17,719,792 15,126,928 Effect of dilutive securities 50,090 31,087 36,243 Diluted weighted average common shares outstanding 17,855,124 17,750,879 15,163,171 Diluted earnings per common share $ 6.77 $ 2.22 $ 2.08 The Company’s calculation of earnings per diluted share attributable to Quaker Chemical Corporation common shareholders for the year ended December 31, 2019 was impacted by the variability of its reported earnings during the year and the approximately 4.3 million shares issued as a component of the consideration transferred in the Combination, comprising 24.5 % of the common stock of the Company immediately after the closing. 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 4,070 in 2021, 945 in 2020 and 108 in 2019. Note 12 – Restricted Cash Prior to December 2020, the Company had restricted cash recorded in other assets related to proceeds from an inactive subsidiary of the Company which previously executed separate settlement and release agreements with two of its insurance carriers for an original total value of $ 35.0 million. The proceeds of both settlements were restricted and could only be used to pay claims and costs of defense associated with the subsidiary’s asbestos litigation. The proceeds of the settlement and release agreements were deposited into interest bearing accounts which earned less then $ 0.1 million and $ 0.2 million in the years ended December 31, 2020, and 2019, respectively, offset by $ 1.0 million and $ 0.8 million of net payments during 2020 and 2019, respectively. Due to the restricted nature of the proceeds, a corresponding deferred credit was established in other non-current liabilities for an equal and offsetting amount that continued until the restrictions lapsed. During December 2020, the restrictions ended on these previously received insurance settlements and the Company transferred the cash into an operating account. In connection with the termination in restrictions, the Company recognized an $ 18.1 million gain on its Consolidated Statement of Income in Other income (expense ), net, for the amount of previously restricted cash, net of the estimated liability to pay claims and associated with the inactive subsidiary’s asbestos litigation as of December 31, 2020. Therefore, due to these restrictions ending, there is no restricted cash for the year ended December 31, 2021. See Notes 18, 22 and 26 of Notes to Consolidated Financial Statements. The following table provides a reconciliation of cash, cash equivalents and restricted cash as December 31, 2021, 2020, 2019 and 2018: 2021 2020 2019 2018 Cash and cash equivalents $ 165,176 $ 181,833 $ 123,524 $ 104,147 Restricted cash included in other current assets - 62 353 - Restricted cash included in other assets - - 19,678 20,278 Cash, cash equivalents and restricted cash $ 165,176 $ 181,895 $ 143,555 $ 124,425 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 73 Note 13 – Accounts Receivable and Allowance for Doubtful Accounts As of December 31, 2021 and 2020, the Company had gross trade accounts receivable totaling $ 443.0 million and $ 386.1 million, respectively. The following are changes in the allowance for doubtful accounts during the years ended December 31, 2021, 2020 and 2019: Exchange Rate Balance at Changes Write-Offs Changes Balance Beginning to Costs and Charged to and Other at End of Period Expenses Allowance Adjustments of Period Allowance for Doubtful Accounts Year ended December 31, 2021 $ 13,145 $ 653 $ ( 946 ) $ ( 518 ) $ 12,334 Year ended December 31, 2020 $ 11,716 $ 3,582 $ ( 2,187 ) $ 34 $ 13,145 Year ended December 31, 2019 $ 5,187 $ 1,925 $ ( 322 ) $ 4,926 $ 11,716 Included in exchange rate changes and other adjustments for the year ended December 31, 2019 are the allowance for doubtful accounts of $ 5.0 million related to the acquired receivables in connection with the Combination and Norman Hay acquisition. Note 14 – Inventories Inventories, net, as of December 31, 2021 and 2020 were as follows: 2021 2020 Raw materials and supplies $ 129,382 $ 86,148 Work in process, finished goods and reserves 135,149 101,616 Total inventories, net $ 264,531 $ 187,764 Note 15 – Property, Plant and Equipment Property, plant and equipment as of December 31, 2021 and 2020 were as follows: 2021 2020 Land $ 30,793 $ 33,009 Building and improvements 134,313 135,595 Machinery and equipment 252,779 246,242 Construction in progress 16,459 8,407 Property, plant and equipment, at cost 434,344 423,253 Less: accumulated depreciation ( 236,824 ) ( 219,370 ) Total property, plant and equipment, net $ 197,520 $ 203,883 As of December 31, 2021, PP&E includes $ 0.8 million of finance lease assets and future minimum lease payments. In connection with the plans for closure of certain facilities, certain buildings and land with an aggregate book value of approximately $ 0.7 million continue to be held-for-sale as of December 31, 2021 and are recorded in prepaid expenses and other current assets on the Company’s Consolidated Balance Sheet. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 74 Note 16 – Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 were as follows: Global Specialty Americas EMEA Asia/Pacific Businesses Total Balance as of December 31, 2019 $ 216,385 $ 133,018 $ 141,727 $ 116,075 $ 607,205 Goodwill additions 1,485 531 - 1,329 3,345 Currency translation and other adjustments ( 4,628 ) 6,613 16,363 2,314 20,662 Balance as of December 31, 2020 213,242 140,162 158,090 119,718 631,212 Goodwill additions 1,490 3,380 1,308 2,624 8,802 Currency translation and other adjustments ( 709 ) ( 8,022 ) 3,060 ( 3,149 ) ( 8,820 ) Balance as of December 31, 2021 $ 214,023 $ 135,520 $ 162,458 $ 119,193 $ 631,194 Other adjustments in the table above includes updates to the Company’s allocation of the Houghton purchase price and associated goodwill to each of the Company’s reportable segments during the year ended December 31, 2020, including a $ 2.6 million decrease in the Americas, a $ 1.4 million decrease in EMEA, a $ 8.0 million increase in Asia/Pacific and a $ 0.5 million increase in Global Specialty Businesses. Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of December 31, 2021 and 2020 were as follows: Gross Carrying Accumulated Amount Amortization 2021 2020 2021 2020 Customer lists and rights to sell $ 853,122 $ 839,551 $ 147,858 $ 99,806 Trademarks, formulations and product technology 163,974 166,448 38,747 30,483 Other 6,309 6,372 5,900 5,824 Total definite-lived intangible assets $ 1,023,405 $ 1,012,371 $ 192,505 $ 136,113 The Company recorded $ 59.9 million, $ 55.9 million and $ 26.7 million of amortization expense during the years ended December 31, 2021, 2020 and 2019, respectively. Amortization is recorded within SG&A in the Company’s Consolidated Statements of Income. Estimated annual aggregate amortization expense for the subsequent five years is as follows: For the year ended December 31, 2022 $ 59,900 For the year ended December 31, 2023 59,727 For the year ended December 31, 2024 59,138 For the year ended December 31, 2025 58,383 For the year ended December 31, 2026 58,108 The Company has four indefinite-lived intangible assets totaling $ 196.9 million as of December 31, 2021, including $ 195.8 million of 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 $ 205.1 million as of December 31, 2020. 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 in one or more of its reporting units. The Company completed its annual impairment assessment during the fourth quarter of 2021 and concluded no impairment charge was warranted. The Company continually evaluates financial performance, economic conditions and other relevant developments in assessing if an interim period impairment test for one or more of its reporting units is necessary. As of March 31, 2020, the Company evaluated the initial impact of COVID-19 on the Company’s operations, and the volatility and uncertainty in the economic outlook as a result of COVID-19 to determine if they indicated it was more likely than not that the carrying value of any of the Company’s reporting units or indefinite-lived or long-lived assets was not recoverable. The Company concluded that the impact of COVID-19 did not represent a triggering event as of March 31, 2020 with regards to the Company’s QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 75 reporting units or indefinite-lived and long-lived assets, except for the Company’s Houghton and Fluidcare TM trademarks and tradename indefinite-lived intangible assets. The determination of estimated fair value of the Houghton and Fluidcare TM trademarks and tradename indefinite-lived assets was based on a relief from royalty valuation method which requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to the weighted average cost of capital (“WACC”) and royalty rates, as well as revenue growth rates and terminal growth rates. In the first quarter of 2020, as a result of the impact of COVID-19 driving a decrease in projected legacy Houghton net sales in the current year and the impact of the current year decline on projected future legacy Houghton net sales as well as an increase in the WACC assumption utilized in the quantitative impairment assessment, the Company concluded that the estimated fair values of the Houghton and Fluidcare TM trademarks and tradename intangible assets were less than their carrying values. As a result, an impairment charge of $ 38.0 million, primarily related to the Houghton trademarks and tradename, to write down the carrying values of these intangible assets to their estimated fair values was recorded in the first quarter of 2020. Note 17 – Investments in Associated Companies As of December 31, 2021, the Company held a 50 % investment in and had significant influence over Nippon Quaker Chemical, Ltd. (“Nippon Japan”), Kelko Quaker Chemical, S.A. (“Kelko Panama”) and Houghton Korea acquired in 2019 in connection with the Combination, and held a 32 % investment in and had significant influence over Primex, Ltd. (“Primex”). The carrying amount of the Company’s equity investments as of December 31, 2021 was $ 95.3 million, which includes investments of $ 66.4 million in Houghton Korea; $ 21.5 million in Primex; $ 7.1 million in Nippon Japan; and $ 0.3 million in Kelko Panama. The Company also has a 50 % equity interest in Kelko Venezuela. Due to heightened foreign exchange controls, deteriorating economic circumstances and other restrictions in Venezuela, during 2018 the Company concluded that it no longer had significant influence over this affiliate. Prior to this determination, the Company historically accounted for this affiliate under the equity method. As of December 31, 2021 and 2020, the Company had no remaining carrying value for its investment in Kelko Venezuela. The following table is a summary of equity income in associated companies by investment for the years ending December 31, 2021, 2020 and 2019: Year Ended December 31, 2021 2020 2019 Houghton Korea $ 3,808 $ 5,241 $ 2,337 Nippon Japan 461 853 850 Kelko Panama 154 107 55 Grindaix (1) ( 37 ) - - Primex 4,993 1,151 1,822 Total equity in net income of associated companies $ 9,379 $ 7,352 $ 5,064 (1) In February 2021, the Company acquired a 38 % ownership interest in Grindaix. From that date through September 2021 when the Company purchased the remaining interest of Grindaix, the Company accounted for its 38 % interest under the equity method of accounting and recorded equity in net income of associated companies. See Note 2 of Notes to Consolidated Financial Statements. As the Combination closed on August 1, 2019, the Company included five months of equity income from Houghton Korea in its December 31, 2019 Consolidated Statement of Income. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 76 Note 18 – Other Non-Current Assets Other non-current assets as of December 31, 2021 and 2020 were as follows: 2021 2020 Pension assets $ 7,916 $ 6,748 Uncertain tax positions 6,931 7,209 Indemnification assets 6,630 7,615 Debt issuance costs 4,267 5,919 Supplemental retirement income program 2,269 1,961 Other 2,946 2,344 Total other non -current assets $ 30,959 $ 31,796 As of December 31, 2021 and 2020, indemnification assets relates to certain Houghton foreign subsidiaries for which the Company expects it will incur additional tax amounts which are subject to indemnification under the terms of the Combination share and purchase agreement. These indemnification assets have a corresponding uncertain tax position recorded in other non-current liabilities. As of December 31, 2021 and 2020, one of the Company’s foreign pension plan’s fair value of plan assets exceeded its gross benefit obligation and was therefore over-funded, which is represented by the line Pension assets in the table above. See Notes 10, 12, 21 and 22 of Notes to Consolidated Financial Statements. Note 19 – Other Accrued Liabilities Other accrued liabilities as of December 31, 2021 and 2020 were as follows: 2021 2020 Non-income taxes $ 23,725 $ 26,080 Current income taxes payable 16,642 13,124 Professional fees, legal, and acquisition-related accruals 12,264 11,437 Selling expenses and freight accruals 11,695 10,475 Short-term lease liabilities 9,976 10,901 Customer advances and sales return reserves 7,965 6,380 Interest rate swap 1,782 - Other 11,568 13,710 Total other accrued liabilities $ 95,617 $ 92,107 Note 20 – Debt Debt as of December 31, 2021 and 2020 includes the following: As of December 31, 2021 As of December 31, 2020 Interest Outstanding Interest Outstanding Rate Balance Rate Balance Credit Facilities: Revolver 1.62 % $ 211,955 1.65 % $ 160,000 U.S. Term Loan 1.65 % 540,000 1.65 % 570,000 EURO Term Loan 1.50 % 137,616 1.50 % 157,062 Industrial development bonds 5.26 % 10,000 5.26 % 10,000 Bank lines of credit and other debt obligations Various 1,777 Various 2,072 Total debt $ 901,348 $ 899,134 Less: debt issuance costs ( 8,001 ) ( 11,099 ) Less: short-term and current portion of long-term debts ( 56,935 ) ( 38,967 ) Total long-term debt $ 836,412 $ 849,068 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 77 Credit facilities The Company’s primary credit facility (as amended, the “Credit Facility”) is comprised of a $ 400.0 million multicurrency revolver (the “Revolver”), a $ 600.0 million term loan (the “U.S. Term Loan”), each with the Company as borrower, and a $ 150.0 million (as of August 1, 2019) Euro equivalent term loan (the “EURO Term Loan” and together with the “U.S. Term Loan”, the “Term Loans”) with Quaker Chemical B.V., a Dutch subsidiary of the Company as borrower, each with a five year term maturing in August 2024 . Subject to the consent of the administrative agent and certain other conditions, the Company may designate additional borrowers. The maximum amount available under the Credit Facility can be increased by up to $ 300.0 million at the Company’s request if there are lenders who agree to accept additional commitments and the Company has satisfied certain other conditions. Borrowings under the Credit Facility bear interest at a base rate or LIBOR plus an applicable margin based upon the Company’s consolidated net leverage ratio. On December 10, 2021, the Company entered into the Second Amendment with Bank of America N.A., to include among other things, an update to provide for use of a non-USD currency LIBOR successor rate. The variable interest rate incurred on the outstanding borrowings under the Credit Facility as of and during the year ended December 31, 2021 was approximately 1.6 %. In addition to paying interest on outstanding principal under the Credit Facility, the Company is required to pay a commitment fee ranging from 0.2 % to 0.3 % depending on the Company’s consolidated net leverage ratio to the lenders under the Revolver in respect of the unutilized commitments thereunder. The Company has unused capacity under the Revolver of approximately $ 184 million, net of bank letters of credit of approximately $ 4 million, as of December 31, 2021. The Credit Facility is subject to certain financial and other covenants . The Company’s initial consolidated net debt to consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the permitted ratio over the term of the Credit Facility. As of December 31, 2021, the consolidated net debt to adjusted EBITDA may not exceed 3.75 to 1. The Company’s consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1 over the term of the agreement. The Credit Facility also prohibits the payment of cash dividends if the Company is in default or if the amount of the dividend paid annually exceeds the greater of $ 50.0 million and 20 % of consolidated adjusted EBITDA unless the ratio of consolidated net debt to consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation on amount. As of December 31, 2021 and December 31, 2020, the Company was in compliance with all of the Credit Facility covenants. The Term Loans have quarterly principal amortization during their five year terms, with 5.0 % amortization of the principal balance due in years 1 and 2, 7.5 % in year 3, and 10.0 % in years 4 and 5, with the remaining principal amount due at maturity. During the year ended December 31, 2021, the Company made four quarterly amortization payments related to the Term Loans totaling $ 38.0 million. The Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries and is secured by first priority liens on substantially all of the assets of the Company and the domestic subsidiary guarantors, subject to certain customary exclusions. The obligations of the Dutch borrower are guaranteed only by certain foreign subsidiaries on an unsecured basis. The Credit Facility required the Company to fix its variable interest rates on at least 20 % of its total Term Loans. In order to satisfy this requirement as well as to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, in November 2019, the Company entered into $ 170.0 million notional amounts of three year interest rate swaps at a base rate of 1.64 % plus an applicable margin as provided in the Credit Facility, based on the Company’s consolidated net leverage ratio. At the time the Company entered into the swaps, and as of December 31, 2021, the aggregate interest rate on the swaps, including the fixed base rate plus an applicable margin, was 3.1 %. See Note 25 of Notes to Consolidated Financial Statements. The Company capitalized $ 23.7 million of certain third-party debt issuance costs in connection with executing the Credit Facility. Approximately $ 15.5 million of the capitalized costs were attributed to the Term Loans and recorded as a direct reduction of long- term debt on the Company’s Consolidated Balance Sheet. Approximately $ 8.3 million of the capitalized costs were attributed to the Revolver and recorded within other assets on the Company’s Consolidated Balance Sheet. These capitalized costs are being amortized into interest expense over the five year term of the Credit Facility. As of December 31, 2021 and 2020, the Company had $ 8.0 million and $ 11.1 million, respectively, of debt issuance costs recorded as a reduction of long-term debt. As of December 31, 2021 and 2020, the Company had $ 4.3 million and $ 5.9 million, respectively, of debt issuance costs recorded within other non-current assets. Industrial development bonds As of December 31, 2021 and 2020, the Company had fixed rate, industrial development authority bonds totaling $ 10.0 million in principal amount due in 2028 . These bonds have similar covenants to the Credit Facility noted above. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 78 Bank lines of credit and other debt obligations The Company has certain unsecured bank lines of credit and discounting 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 December 31, 2021, was approximately $ 26 million. In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s only other off-balance sheet arrangements include certain financial and other guarantees. The Company’s total bank letters of credit and guarantees outstanding as of December 31, 2021 were approximately $ 6 million. The Company incurred the following debt related expenses included within Interest expense, net, in the Consolidated Statements of Income: Year Ended December 31, 2021 2020 2019 Interest expense $ 19,089 $ 23,552 $ 16,788 Amortization of debt issuance costs 4,749 4,749 1,979 Total $ 23,838 $ 28,301 $ 18,767 Based on the variable interest rates associated with the Credit Facility, as of December 31, 2021 and 2020, the amounts at which the Company’s total debt were recorded are not materially different from their fair market value. At December 31, 2021, annual maturities on long-term borrowings maturing in the next five fiscal years (excluding the reduction to long-term debt attributed to capitalized and unamortized debt issuance costs) are as follows: 2022 $ 56,978 2023 75,765 2024 758,241 2025 298 2026 145 Note 21 – Pension and Other Postretirement Benefits The following table shows the funded status of the Company’s plans’ reconciled with amounts reported in the Consolidated Balance Sheets as of December 31, 2021 and 2020: Other Post- Pension Benefits Retirement Benefits 2021 2020 2021 2020 Foreign U.S. Total Foreign U.S. Total U.S. U.S. Change in benefit obligation Gross benefit obligation at beginning of year $ 247,675 $ 109,969 $ 357,644 $ 217,893 $ 153,723 $ 371,616 $ 3,234 $ 4,266 Service cost 698 547 1,245 4,340 491 4,831 1 5 Interest cost 2,594 1,737 4,331 3,416 2,923 6,339 27 77 Employee contributions 71 - 71 73 - 73 - - Effect of plan amendments - - - - 50 50 ( 78 ) - Curtailment gain - - - ( 2,324 ) - ( 2,324 ) - - Plan settlements ( 541 ) - ( 541 ) ( 2,316 ) ( 53,494 ) ( 55,810 ) - - Benefits paid ( 6,869 ) ( 5,064 ) ( 11,933 ) ( 5,087 ) ( 6,138 ) ( 11,225 ) ( 182 ) ( 250 ) Plan expenses and premiums paid ( 74 ) - ( 74 ) ( 135 ) - ( 135 ) - - Transfer in of business acquisition 231 - 231 - - - - - Actuarial (gain) loss ( 4,160 ) ( 3,769 ) ( 7,929 ) 16,834 12,414 29,248 ( 992 ) ( 864 ) Translation differences and other ( 10,873 ) - ( 10,873 ) 14,981 - 14,981 - - Gross benefit obligation at end of year $ 228,752 $ 103,420 $ 332,172 $ 247,675 $ 109,969 $ 357,644 $ 2,010 $ 3,234 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 79 Other Post- Pension Benefits Retirement Benefits 2021 2020 2021 2020 Foreign U.S. Total Foreign U.S. Total U.S. U.S. Change in plan assets Fair value of plan assets at beginning of year $ 228,789 $ 73,481 $ 302,270 $ 195,099 $ 120,550 $ 315,649 $ - $ - Actual return on plan assets 915 7,201 8,116 20,367 10,759 31,126 - - Employer contributions 4,289 2,063 6,352 6,912 2,302 9,214 182 250 Employee contributions 71 - 71 73 - 73 - - Plan settlements ( 541 ) - ( 541 ) ( 2,316 ) ( 53,494 ) ( 55,810 ) - - Benefits paid ( 6,869 ) ( 5,065 ) ( 11,934 ) ( 5,087 ) ( 6,138 ) ( 11,225 ) ( 182 ) ( 250 ) Plan expenses and premiums paid ( 74 ) - ( 74 ) ( 135 ) ( 498 ) ( 633 ) - - Translation differences ( 9,694 ) - ( 9,694 ) 13,876 - 13,876 - - Fair value of plan assets at end of year $ 216,886 $ 77,680 $ 294,566 $ 228,789 $ 73,481 $ 302,270 $ - $ - Net benefit obligation recognized $ ( 11,866 ) $ ( 25,740 ) $ ( 37,606 ) $ ( 18,886 ) $ ( 36,488 ) $ ( 55,374 ) $ ( 2,010 ) $ ( 3,234 ) Amounts recognized in the balance sheet consist of: Non-current assets $ 7,916 $ - $ 7,916 $ 6,748 $ - $ 6,748 $ - $ - Current liabilities ( 191 ) ( 1,137 ) ( 1,328 ) ( 568 ) ( 612 ) ( 1,180 ) ( 220 ) ( 286 ) Non-current liabilities ( 19,591 ) ( 24,603 ) ( 44,194 ) ( 25,066 ) ( 35,876 ) ( 60,942 ) ( 1,790 ) ( 2,948 ) Net benefit obligation recognized $ ( 11,866 ) $ ( 25,740 ) $ ( 37,606 ) $ ( 18,886 ) $ ( 36,488 ) $ ( 55,374 ) $ ( 2,010 ) $ ( 3,234 ) Amounts not yet reflected in net periodic benefit costs and included in accumulated other comprehensive loss: Prior service (cost) credit ( 22 ) 43 21 ( 26 ) 50 24 46 - Accumulated (loss) gain ( 19,163 ) ( 9,763 ) ( 28,926 ) ( 21,976 ) ( 5,532 ) ( 27,508 ) 1,034 124 AOCI ( 19,185 ) ( 9,720 ) ( 28,905 ) ( 22,002 ) ( 5,482 ) ( 27,484 ) 1,080 124 Cumulative employer contributions in excess of or (below) net periodic benefit cost 7,319 ( 16,020 ) ( 8,701 ) 3,116 ( 31,006 ) ( 27,890 ) ( 3,090 ) ( 3,358 ) Net benefit obligation recognized $ ( 11,866 ) $ ( 25,740 ) $ ( 37,606 ) $ ( 18,886 ) $ ( 36,488 ) $ ( 55,374 ) $ ( 2,010 ) $ ( 3,234 ) The accumulated benefit obligation for all defined benefit pension plans was $ 321.5 million ($ 103.4 million U.S. and $ 218.1 million Foreign) and $ 344.4 million ($ 109.5 million U.S. and approximately $ 234.9 million Foreign) as of December 31, 2021 and 2020, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets: 2021 2020 Foreign U.S. Total Foreign U.S. Total Projected benefit obligation $ 138,963 $ 103,420 $ 242,383 $ 32,373 $ 109,969 $ 142,342 Accumulated benefit obligation 128,268 103,420 231,688 30,892 109,540 140,432 Fair value of plan assets 119,181 77,680 196,861 18,074 73,481 91,555 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 80 Information for pension plans with a projected benefit obligation in excess of plan assets: 2021 2020 Foreign U.S. Total Foreign U.S. Total Projected benefit obligation $ 138,963 $ 103,420 $ 242,383 $ 32,373 $ 109,969 $ 142,342 Fair value of plan assets 119,181 77,680 196,861 18,074 73,481 91,555 Components of net periodic benefit costs – pension plans: 2021 2020 Foreign U.S. Total Foreign U.S. Total Service cost $ 698 $ 547 $ 1,245 $ 4,340 $ 491 $ 4,831 Interest cost 2,594 1,737 4,331 3,416 2,923 6,339 Expected return on plan assets ( 4,686 ) ( 3,611 ) ( 8,297 ) ( 4,262 ) ( 4,810 ) ( 9,072 ) Settlement loss (gain) 35 - 35 ( 88 ) 22,667 22,579 Curtailment charge - - - ( 1,155 ) - ( 1,155 ) Actuarial loss amortization 996 2,252 3,248 886 2,110 2,996 Prior service cost (credit) amortization 3 7 10 ( 167 ) - ( 167 ) Net periodic benefit (income) cost $ ( 360 ) $ 932 $ 572 $ 2,970 $ 23,381 $ 26,351 2019 Foreign U.S. Total Service cost $ 3,507 $ 434 $ 3,941 Interest cost 3,046 3,313 6,359 Expected return on plan assets ( 3,668 ) ( 3,227 ) ( 6,895 ) Settlement loss 258 - 258 Actuarial loss amortization 757 2,348 3,105 Prior service credit amortization ( 165 ) - ( 165 ) Net periodic benefit cost $ 3,735 $ 2,868 $ 6,603 Other changes recognized in other comprehensive income – pension plans: 2021 2020 Foreign U.S. Total Foreign U.S. Total Net (gain) loss arising during the period $ ( 388 ) $ ( 448 ) $ ( 836 ) $ ( 1,594 ) $ 1,536 $ ( 58 ) Effect of plan amendment Recognition of amortization in net periodic benefit cost Settlement loss ( 83 ) ( 2,252 ) ( 2,335 ) ( 39 ) ( 22,667 ) ( 22,706 ) Prior service (cost) credit - ( 7 ) ( 7 ) 1,325 50 1,375 Actuarial (loss) gain ( 954 ) ( 6,925 ) ( 7,879 ) ( 758 ) 3,967 3,209 Curtailment Recognition ( 3 ) - ( 3 ) ( 3 ) - ( 3 ) Effect of exchange rates on amounts included in AOCI ( 1,390 ) - ( 1,390 ) 1,535 - 1,535 Total recognized in other comprehensive (income) loss ( 2,818 ) ( 9,632 ) ( 12,450 ) 466 ( 17,114 ) ( 16,648 ) Total recognized in net periodic benefit cost and other comprehensive (income) loss $ ( 3,178 ) $ ( 8,700 ) $ ( 11,878 ) $ 3,436 $ 6,267 $ 9,703 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 81 2019 Foreign U.S. Total Net loss arising during period $ 3,826 $ 3,926 $ 7,752 Recognition of amortization in net periodic benefit cost Prior service credit 196 - 196 Actuarial loss ( 1,015 ) ( 2,347 ) ( 3,362 ) Effect of exchange rates on amounts included in AOCI ( 61 ) - ( 61 ) Total recognized in other comprehensive loss 2,946 1,579 4,525 Total recognized in net periodic benefit cost and other comprehensive loss $ 6,681 $ 4,447 $ 11,128 Components of net periodic benefit costs – other postretirement plan: 2021 2020 2019 Service cost $ 1 $ 5 $ 6 Interest cost 27 77 143 Actuarial loss amortization ( 82 ) ( 5 ) - Prior service credit amortization ( 31 ) - - Net periodic benefit costs $ ( 85 ) $ 77 $ 149 Other changes recognized in other comprehensive income – other postretirement benefit plans: 2021 2020 2019 Net (gain) loss arising during period $ ( 992 ) $ ( 864 ) $ 395 Recognition of amortizations in net periodic benefit cost ( 78 ) - - Prior service credit 31 - - Actuarial gain amortization 82 5 - Total recognized in other comprehensive (income) loss ( 957 ) ( 859 ) 395 Total recognized in net periodic benefit cost and other comprehensive (income) loss $ ( 1,042 ) $ ( 782 ) $ 544 Weighted-average assumptions used to determine benefit obligations as of December 31, 2021 and 2020: Other Postretirement Pension Benefits Benefits 2021 2020 2021 2020 U.S. Plans: Discount rate 2.58 % 2.19 % 2.45 % 2.05 % Rate of compensation increase N/A 6.00 % N/A N/A Foreign Plans: Discount rate 1.71 % 1.79 % N/A N/A Rate of compensation increase 2.21 % 2.74 % N/A N/A QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 82 Weighted-average assumptions used to determine net periodic benefit costs for the years ended December 31, 2021 and 2020: Other Postretirement Pension Benefits Benefits 2021 2020 2021 2020 U.S. Plans: Discount rate 2.67 % 3.11 % 1.90 % 2.99 % Expected long-term return on plan assets 5.75 % 6.50 % N/A N/A Rate of compensation increase 6.00 % 6.00 % N/A N/A Foreign Plans: Discount rate 1.38 % 2.30 % N/A N/A Expected long-term return on plan assets 2.06 % 2.20 % N/A N/A Rate of compensation increase 2.52 % 2.79 % N/A N/A The long-term rates of return on assets were selected from within the reasonable range of rates determined by (a) historical real returns for the asset classes covered by the investment policy and (b) projections of inflation over the long-term period during which benefits are payable to plan participants. See Note 1 of Notes to Consolidated Financial Statements for further information. Assumed health care cost trend rates as of December 31, 2021 and 2020: 2021 2020 Health care cost trend rate for next year 5.65 % 5.70 % Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 4.00 % 4.50 % Year that the rate reaches the ultimate trend rate 2046 2037 Plan Assets and Fair Value The Company’s pension plan target asset allocation and the weighted-average asset allocations as of December 31, 2021 and 2020 by asset category were as follows: Asset Category Target 2021 2020 U.S. Plans Equity securities 44 % 46 % 58 % Debt securities 50 % 48 % 36 % Other 6 % 6 % 6 % Total 100 % 100 % 100 % Foreign Plans Equity securities 39 % 36 % 33 % Debt securities 50 % 43 % 45 % Other 11 % 21 % 22 % Total 100 % 100 % 100 % QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 83 As of December 31, 2021 and 2020, “Other” consisted principally of cash and cash equivalents, and investments in real estate funds. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, where applicable: Cash and Cash Equivalents Cash and cash equivalents consist of cash and money market funds and are classified as Level 1 investments. Commingled Funds Investments in the U.S. pension plan and foreign pension plan commingled funds represent pooled institutional investments, including primarily collective investment trusts. These commingled funds are not available on an exchange or in an active market and these investments are valued using their net asset value (“NAV”), which is generally based on the underlying asset values of the investments held in the trusts. As of December 31, 2021, the foreign pension plan commingled funds included approximately 35 percent of investments in equity securities, 51 percent of investments in fixed income securities, and 14 percent of other non-related investments, primarily real estate. Pooled Separate Accounts Investments in the U.S. pension plan pooled separate accounts consist of annuity contracts and are valued based on the reported unit value at year end. Units of the pooled separate account are not traded on an exchange or in an active market; however, valuation is based on the underlying investments of each pooled separate account and are classified as Level 2 investments. As of December 31, 2021, the U.S. pension plan pooled separate accounts included approximately 49 percent of investments in equity securities and 51 percent of investments in fixed income securities. Fixed Income Government Securities Investments in foreign pension plans fixed income government securities were valued using third party pricing services which are based on a combination of quoted market prices on an exchange in an active market as well as proprietary pricing models and inputs using observable market data and are classified as Level 2 investments. Insurance Contract Investments in the foreign pension plan insurance contract are valued at the highest value available for the Company at year end, either the reported cash surrender value of the contract or the vested benefit obligation. Both the cash surrender value and the vested benefit obligation are determined based on unobservable inputs, which are contractually or actuarially determined, regarding returns, fees, the present value of the future cash flows of the contract and benefit obligations. The contract is classified as a Level 3 investment. Diversified Equity Securities - Registered Investment Companies Investments in the foreign pension plans diversified equity securities of registered investment companies are based upon the quoted redemption value of shares in the fund owned by the plan at year end. The shares of the fund are not available on an exchange or in an active market; however, the fair value is determined based on the underlying investments in the fund as traded on an exchange in an active market and are classified as Level 2 investments. Fixed Income – Foreign Registered Investment Companies Investments in the foreign pension plans fixed income securities of foreign registered investment companies are based upon the quoted redemption value of shares in the fund owned by the plan at year end. The shares of the fund are not available on an exchange or in an active market; however, the fair value is determined based on the underlying investments in the fund as traded on an exchange in an active market and are classified as Level 2 investments. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 84 Diversified Investment Fund - Registered Investment Companies Investments in the foreign pension plan diversified investment fund of registered investment companies are based upon the quoted redemption value of shares in the fund owned by the plan at year end. This fund is not available on an exchange or in an active market and this investment is valued using its NAV, which is generally based on the underlying asset values of the investments held. As of December 31, 2021, the diversified investment funds included approximately 62 percent of investments in equity securities, 20 percent of investments in fixed income securities, and 18 percent of other alternative investments. Other – Alternative Investments Investments in the foreign pension plans include certain other alternative investments such as inflation and interest rate swaps. These investments are valued based on unobservable inputs, which are contractually or actuarially determined, regarding returns, fees, the present value of future cash flows of the contract and benefit obligations. These alternative investments are classified as Level 3 investments. Real Estate The U.S. and foreign pension plans’ investment in real estate consists of investments in property funds. The funds’ underlying investments consist of real property which are valued using unobservable inputs. These property funds are classified as a Level 3 investment. As of December 31, 2021 and 2020, the U.S. and foreign plans’ investments measured at fair value on a recurring basis were as follows: Fair Value Measurements at December 31, 2021 Total Using Fair Value Hierarchy U.S. Pension Assets Fair Value Level 1 Level 2 Level 3 Pooled separate accounts $ 72,721 $ - $ 72,721 $ - Real estate 4,959 - - 4,959 Subtotal U.S. pension plan assets in fair value hierarchy $ 77,680 $ - $ 72,721 $ 4,959 Total U.S. pension plan assets $ 77,680 Foreign Pension Assets Cash and cash equivalents $ 1,989 $ 1,989 $ - $ - Insurance contract 99,527 - - 99,527 Diversified equity securities - registered investment companies 10,999 - 10,999 - Fixed income – foreign registered investment companies 3,593 - 3,593 - Fixed income government securities 35,339 - 35,339 - Real estate 6,588 - - 6,588 Other - alternative investments 6,979 - - 6,979 Sub-total of foreign pension assets in fair value hierarchy $ 165,014 $ 1,989 $ 49,931 $ 113,094 Commingled funds measured at NAV 2,300 Diversified investment fund - registered investment companies measured at NAV 49,572 Total foreign pension assets $ 216,886 Total pension assets in fair value hierarchy $ 242,694 $ 1,989 $ 122,652 $ 118,053 Total pension assets measured at NAV 51,872 Total pension assets $ 294,566 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 85 Fair Value Measurements at December 31, 2020 Total Using Fair Value Hierarchy U.S. Pension Assets Fair Value Level 1 Level 2 Level 3 Pooled separate accounts $ 69,385 $ - $ 69,385 $ - Real estate 4,096 - - 4,096 Subtotal U.S. pension plan assets in fair value hierarchy $ 73,481 $ - $ 69,385 $ 4,096 Total U.S. pension plan assets $ 73,481 Foreign Pension Assets Cash and cash equivalents $ 634 $ 634 $ - $ - Insurance contract 112,920 - - 112,920 Diversified equity securities - registered investment companies 8,851 - 8,851 - Fixed income – foreign registered investment companies 3,711 - 3,711 - Fixed income government securities 37,579 - 37,579 - Real estate 5,679 - - 5,679 Other - alternative investments 10,638 - - 10,638 Sub-total of foreign pension assets in fair value hierarchy $ 180,012 $ 634 $ 50,141 $ 129,237 Commingled funds measured at NAV 2,368 Diversified investment fund - registered investment companies measured at NAV 46,409 Total foreign pension assets $ 228,789 Total pension assets in fair value hierarchy $ 253,493 $ 634 $ 119,526 $ 133,333 Total pension assets measured at NAV 48,777 Total pension assets $ 302,270 Certain investments that are measured at fair value using the NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented for these investments in the preceding tables are intended to permit reconciliation of the fair value hierarchies to the line items presented in the statements of net assets available for benefits. Changes in the fair value of the plans’ Level 3 investments during the years ended December 31, 2021 and 2020 were as follows: Insurance Alternative Contract Real Estate Investments Total Balance as of December 31, 2019 $ 92,657 $ 9,581 $ 9,436 $ 111,674 Purchases 3,902 18 989 4,909 Settlements ( 2,027 ) - - ( 2,027 ) Unrealized gains (losses) 8,917 ( 16 ) ( 171 ) 8,730 Currency translation adjustment 9,471 192 384 10,047 Balance as of December 31, 2020 112,920 9,775 10,638 133,333 Purchases 1,722 ( 78 ) ( 334 ) 1,310 Settlements ( 1,812 ) - - ( 1,812 ) Unrealized (losses) gains ( 5,031 ) 1,926 ( 3,282 ) ( 6,387 ) Currency translation adjustment ( 8,272 ) ( 76 ) ( 43 ) ( 8,391 ) Balance as of December 31, 2021 $ 99,527 $ 11,547 $ 6,979 $ 118,053 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 86 In the fourth quarter of 2018, the Company began the process of terminating its Legacy Quaker noncontributory U.S. pension plan (“Legacy Quaker U.S. Pension Plan”). During the third quarter of 2019, the Company received a favorable termination determination letter from the I.R.S. and completed the Legacy Quaker U.S. Pension Plan termination during the first quarter of 2020. In order to terminate the Legacy Quaker U.S. Pension Plan in accordance with I.R.S. and Pension Benefit Guaranty Corporation requirements, the Company was required to fully fund the Legacy Quaker U.S. Pension Plan on a termination basis and the amount necessary to do so was approximately $ 1.8 million, subject to final true up adjustments. In the third quarter of 2020, the Company finalized the amount of the liability and related annuity payments and received a refund in premium of approximately $ 1.6 million. In addition, the Company recorded a non-cash pension settlement charge at plan termination of approximately $ 22.7 million. This settlement charge included the immediate recognition into expense of the related unrecognized losses within AOCI on the balance sheet as of the plan termination date. In connection with the Combination, the Company indirectly acquired all of Houghton’s defined benefit pension plans, which are included in the tables set forth above. The pension plans cover certain U.S. salaried and hourly employees as well as certain employees in the U.K., France and Germany. The Houghton U.S. plans provide benefits based on an employee’s years of service and compensation received for the highest five consecutive years of earnings. The foreign plans provide benefits based on a formula of years and service and a percentage of compensation which varies among the various countries. The Company contributes to a multiemployer defined benefit pension plan under terms of a collective bargaining union contract (the Cleveland Bakers and Teamsters Pension Fund, Employer Identification Number: 34-0904419-001). The expiration date of the collective bargaining contract is May 1, 2022 . As of January 1, 2020, the last valuation date available for the multiemployer plan, total plan liabilities were approximately $ 587 million. As of December 31, 2020, the multiemployer pension plan had total plan assets of approximately $ 387 million. The Company’s contribution rate to the multiemployer pension plan is specified in the collective bargaining union contract and contributions are made to the plan based on its union employee payroll. The Company contributed $ 0.2 million during the year ended December 31, 2021. The Employee Retirement Income Security Act of 1974, as amended by the Multi- Employer Pension Plan Amendments Act of 1980, imposes certain contingent liabilities upon an employer who is a contributor to a multiemployer pension plan if the employer withdraws from the plan or the plan is terminated or experiences a mass withdrawal. While the Company may also have additional liabilities imposed by law as a result of its participation in the multiemployer defined benefit pension plan, there is no liability as of December 31, 2021. The Pension Protection Act of 2006 (the “PPA”) also added special funding and operational rules generally applicable to plan years beginning after 2007 for multiemployer plans with certain classifications based on a multitude of factors (including, for example, the plan’s funded percentage, cash flow position and whether the plan is projected to experience a minimum funding deficiency). The plan to which the Company contributes is in “critical” status. Plans in the “critical” status classification must adopt measures to improve their funded status through a funding improvement or rehabilitation plan which may require additional contributions from employers (which may take the form of a surcharge on benefit contributions) and/or modifications to retiree benefits. The amount of additional funds that the Company may be obligated to contribute to the plan in the future cannot be estimated as such amounts will be likely based on future levels of work that require the specific use of those union employees covered by the plan, and the amount of that future work and the number of affected employees that may be needed is not reasonably estimable. Cash Flows Contributions The Company expects to make minimum cash contributions of approximately$ 10.6 million to its pension plans (approximately $ 6.6 million U.S. and $ 4.0 million Foreign) and approximately $ 0.2 million to its other postretirement benefit plan in 2022. Estimated Future Benefit Payments Excluding any impact related to the PPA noted above, the following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Other Post- Pension Benefits Retirement Foreign U.S. Total Benefits 2022 $ 6,678 $ 6,627 $ 13,305 $ 220 2023 6,661 6,043 12,704 209 2024 6,475 6,205 12,680 187 2025 6,984 6,199 13,183 174 2026 7,702 6,213 13,915 157 2027 to 2031 42,577 30,169 72,746 625 QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 87 The Company maintains a plan under which supplemental retirement benefits are provided to certain officers. Benefits payable under the plan are based on a combination of years of service and existing postretirement benefits. Included in total pension costs are charges of $ 3.0 million, $ 2.5 million and $ 1.8 million for the years ended December 31, 2021, 2020 and 2019, respectively, representing the annual accrued benefits under this plan. Defined Contribution Plan The Company has a 401(k) plan with an employer match covering a majority of its U.S. employees. The plan allows for and the Company previously paid a nonelective contribution on behalf of participants who have completed one year of service equal to 3% of the eligible participants’ compensation in the form of Company common stock. During 2019 and 2018, the Company made both non- elective and elective 401(k) matching contributions in cash, rather than stock. Beginning in April 2020 and continuing through March 2021, the Company matched both non-elective and elective 401(k) contributions in fully vested shared of the Company’s common stock rather than cash. See Note 8 of Notes to Consolidated Financial Statements. Total Company contributions were $ 4.8 million, $ 5.7 million and $ 4.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. Note 22 – Other Non-Current Liabilities Other non-current liabilities as of December 31, 2021 and 2020 were as follows: 2021 2020 Uncertain tax positions (includes interest and penalties) $ 28,665 $ 28,961 Non-current income taxes payable 8,500 8,500 Deferred and other long-term compensation 6,388 6,257 Environmental reserves 4,424 4,610 Inactive subsidiary litigation and settlement reserve 410 542 Fair value of interest rate swaps - 4,672 Other 1,228 1,627 Total other non -current liabilities $ 49,615 $ 55,169 The Fair value of interest rate swaps as of December 31, 2021 has been reclassified to other accrued liabilities in connection with the expiration of the swap contract in November 2022. See Notes 19 and 25 of Notes to Consolidated Financial Statements. Note 23 – Equity and Accumulated Other Comprehensive Loss The Company has 30,000,000 shares of common stock authorized with a par value of $ 1 , and 17,897,033 and 17,850,616 shares issued and outstanding as of December 31, 2021 and 2020, respectively. The change in shares issued and outstanding during 2021 was primarily related to 29,415 shares issued for share-based compensation plans and 17,002 shares issued for the exercise of stock options and other share activity. The Company is authorized to issue 10,000,000 shares of preferred stock with $ 1 par value, subject to approval by the Board. The Board may designate one or more series of preferred stock and the number of shares, rights, preferences, and limitations of each series. As of December 31, 2021, no preferred stock had been issued. The Company has a share repurchase program that was approved by its Board in 2015 for the repurchase of up to $ 100.0 million of Quaker Chemical Corporation common stock. The Company has no t repurchased any shares under the program for the years ended December 31, 2021, 2020 and 2019. As of December 31, 2021, there was approximately $ 86.9 million of common stock remaining to be purchased under this share repurchase program. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 88 The following table shows the reclassifications from and resulting balances of AOCI for the years ended December 31, 2021, 2020 and 2019: Defined Unrealized Gain (Loss) in Currency Benefit Translation Pension Available-for- Derivative Adjustments Plans Sale Securities Instruments Total Balance as of December 31, 2018 $ ( 49,322 ) $ ( 30,551 ) $ ( 842 ) $ - $ ( 80,715 ) Other comprehensive income (loss) before reclassifications 4,754 ( 8,088 ) 2,951 ( 415 ) ( 798 ) Amounts reclassified from AOCI - 3,169 ( 301 ) - 2,868 Related tax amounts - 937 ( 557 ) 95 475 Balance as of December 31, 2019 ( 44,568 ) ( 34,533 ) 1,251 ( 320 ) ( 78,170 ) Other comprehensive income (loss) before reclassifications 41,693 ( 6,617 ) 2,848 ( 4,257 ) 33,667 Amounts reclassified from AOCI - 24,141 ( 202 ) - 23,939 Related tax amounts - ( 6,458 ) ( 555 ) 979 ( 6,034 ) Balance as of December 31, 2020 ( 2,875 ) ( 23,467 ) 3,342 ( 3,598 ) ( 26,598 ) Other comprehensive (loss) income before reclassifications ( 46,968 ) 11,948 ( 531 ) 2,890 ( 32,661 ) Amounts reclassified from AOCI - 1,459 ( 3,197 ) - ( 1,738 ) Related tax amounts - ( 3,112 ) 783 ( 664 ) ( 2,993 ) Balance as of December 31, 2021 $ ( 49,843 ) $ ( 13,172 ) $ 397 $ ( 1,372 ) $ ( 63,990 ) 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 non-controlling interest are related to currency translation adjustments. Note 24 – Fair Value Measures 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 December 31, 2021 Total Using Fair Value Hierarchy Assets Fair Value Level 1 Level 2 Level 3 Company-owned life insurance $ 2,533 $ - $ 2,533 $ - Total $ 2,533 $ - $ 2,533 $ - Fair Value Measurements at December 31, 2020 Total Using Fair Value Hierarchy Assets Fair Value Level 1 Level 2 Level 3 Company-owned life insurance $ 1,961 $ - $ 1,961 $ - Total $ 1,961 $ - $ 1,961 $ - 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 December 31, 2021 or 2020, respectively, so related disclosures have not been included. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 89 Note 25 – Hedging Activities In order to satisfy certain requirements of the Credit Facility as well as to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, in November 2019, the Company entered into $ 170.0 million notional amounts of three year interest rate swaps. See Note 20 of Notes to Consolidated Financial Statements. These interest rate 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 effects earnings or it becomes probable that the forecasted transaction will not occur. The balance sheet classification and fair values of the Company’s derivative instruments, which are Level 2 measurements, are as follows: Fair Value Consolidated Balance Sheet December 31, Location 2021 2020 Derivatives designated as cash flow hedges: Interest rate swaps Other accrued liabilities $ 1,782 $ - Other non-current liabilities - 4,672 $ 1,782 $ 4,672 The following table presents the net unrealized loss deferred to AOCI: December 31, 2021 2020 Derivatives designated as cash flow hedges: Interest rate swaps AOCI $ 1,372 $ 3,598 $ 1,372 $ 3,598 The following table presents the net loss reclassified from AOCI to earnings: For the Years Ended December 31, 2021 2020 2019 Amount and location of (expense) income reclassified from AOCI into (expense) income (Effective Portion) Interest expense, net $ ( 2,649 ) $ ( 1,754 ) $ 29 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 Consolidated Balance Sheets. Note 26 – Commitments and Contingencies In 1992, the Company identified certain soil and groundwater contamination at AC Products, Inc. (“ACP”), a wholly owned subsidiary. In voluntary coordination with the Santa Ana California Regional Water Quality Board, ACP has been remediating the contamination, the principal contaminant of which is perchloroethylene (“PERC”). In 2004, the Orange County Water District (“OCWD”) filed a civil complaint against ACP and other parties seeking to recover compensatory and other damages related to the investigation and remediation of the contamination in the groundwater. Pursuant to a settlement agreement with OCWD, ACP agreed, among other things, to operate the two groundwater treatment systems to hydraulically contain groundwater contamination emanating from ACP’s site until the concentrations of PERC released by ACP fell 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. In 2020, the Santa Ana Regional Water Quality Control Board asked that ACP conduct some additional indoor and outdoor soil vapor testing on and near the ACP site to confirm that ACP continues to meet the applicable local standards and ACP performed such testing program work in 2021 and will continue into 2022. As of December 31, 2021, ACP believes it is close to meeting the conditions for closure of the remaining groundwater treatment system but continues to operate this system while in discussions with the relevant authorities. QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 90 As of December 31, 2021, the Company believes that the range of potential -known liabilities associated with the balance of ACP water remediation program is approximately $ 0.1 million to $ 1.0 million. The low and high ends of the range are based on the length 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. 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. The subsidiary discontinued operations in 1991 and has no remaining assets other than proceeds received from insurance settlements. To date, the overwhelming majority of these claims have been disposed of without payment and there have been no adverse judgments against the subsidiary. 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 $ 0.4 million (excluding costs of defense). Although the Company has also been named as a defendant in certain of these cases, no claims have been actively pursued against the Company, and the Company has not contributed to the defense or settlement of any of these cases pursued against the subsidiary. These cases were originally handled by the subsidiary’s primary and excess insurers who had agreed in 1997 to pay all defense costs and be responsible for all damages assessed against the subsidiary arising out of existing and future asbestos claims up to the aggregate limits of their policies. A significant portion of this primary insurance coverage was provided by an insurer that is insolvent, and the other primary insurers asserted that the aggregate limits of their policies had been exhausted. The subsidiary challenged the applicability of these limits to the claims being brought against the subsidiary. In response, two of the three carriers entered into separate settlement and release agreements with the subsidiary in 2005 and 2007 for $ 15.0 million and $ 20.0 million, respectively. In 2007, the subsidiary and the remaining primary insurance carrier entered into a Claim Handling and Funding Agreement, under which the carrier is paying 27 % of defense and indemnity costs incurred by or on behalf of the subsidiary in connection with asbestos bodily injury claims. The agreement continues until terminated and can only be terminated by either party by providing a minimum of two years prior written notice. As of December 31, 2021, no notice of termination has been given under this agreement. At the end of the term of the agreement, the subsidiary may choose to again pursue its claim against this insurer regarding the application of the policy limits. The Company believes that, if the coverage issues under the primary policies with the remaining carrier are resolved adversely to the subsidiary and all settlement proceeds were used, the subsidiary may have limited additional coverage from a state guarantee fund established following the insolvency of one of the subsidiary’s primary insurers. Nevertheless, liabilities in respect of claims may exceed the assets and coverage available to the subsidiary. If the subsidiary’s assets and insurance coverage were to be exhausted, claimants of the subsidiary may actively pursue claims against the Company because of the parent-subsidiary relationship. The Company does not believe that such claims would have merit or that the Company would be held to have liability for any unsatisfied obligations of the subsidiary as a result of such claims. After evaluating the nature of the claims filed against the subsidiary and the small number of such claims that have resulted in any payment, the potential availability of additional insurance coverage at the subsidiary level, the additional availability of the Company’s own insurance and the Company’s strong defenses to claims that it should be held responsible for the subsidiary’s obligations because of the parent-subsidiary relationship, the Company believes it is not probable that the Company will incur losses. The Company has been successful to date having claims naming it dismissed during initial proceedings. Since the Company may be in this stage of litigation for some time, it is not possible to estimate additional losses or range of loss, if any. The Company is party to environmental matters related to certain domestic and foreign properties. These environmental matters primarily require the Company to perform long-term monitoring as well as operating and maintenance at each of the applicable sites. During the year ended December 31, 2021, there have been no significant changes to the facts or circumstances of these matters, aside from ongoing monitoring and maintenance activities and routine payments associated with each of these sites. The Company continually evaluates its obligations related to such matters, and based on historical costs incurred and projected costs to be incurred over the next 27 years, has estimated the present value range of costs for all of these environmental matters, on a discounted basis, to be between approximately $ 5.0 million and $ 6.0 million as of December 31, 2021, for which $ 5.6 million is accrued within other accrued liabilities and other non-current liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2021. Comparatively, as of December 31, 2020, the Company had $ 6.0 million accrued for with respect to these matters. The Company’s Sao Paulo, Brazil site was required under Brazilian environmental, health and safety regulations to perform an environmental assessment as part of a permit renewal process. Initial investigations identified soil and ground water contamination in select areas of the site. The site has conducted a multi-year soil and groundwater investigation and corresponding risk assessments based on the result of the investigations. In 2017, the site had to submit a new 5-year permit renewal request and was asked to complete additional investigations to further delineate the site based on review of the technical data by the local regulatory agency, Companhia Ambiental do Estado de São Paulo (“CETESB”). Based on review of the updated investigation data, CETESB issued a Technical Opinion regarding the investigation and remedial actions taken to date. The site developed an action plan and submitted it QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 91 to CETESB in 2018 based on CETESB requirements. The site intervention plan primarily requires the site, amongst other actions, to conduct periodic monitoring for methane in soil vapors, source zone delineation, groundwater plume delineation, bedrock aquifer assessment, update the human health risk assessment, develop a current site conceptual model and conduct a remedial feasibility study and provide a revised intervention plan. In 2019, the site submitted a report on the activities completed including the revised site conceptual model and results of the remedial feasibility study and recommended remedial strategy for the site. Other environmental matters include participation in certain payments in connection with four currently active environmental consent orders related to certain hazardous waste cleanup activities under the U.S. Federal Superfund statute. The Company has been designated a potentially responsible party (“PRP”) by the Environmental Protection Agency along with other PRPs depending on the site, and has other obligations to perform cleanup activities at certain other foreign subsidiaries. These environmental matters primarily require the Company to perform long-term monitoring as well as operating and maintenance at each of the applicable sites. The Company believes, although there can be no assurance regarding the outcome of other unrelated environmental matters, that it has made adequate accruals for costs associated with other environmental problems of which it is aware. Approximately $ 0.4 million and $ 0.1 million were accrued as of December 31, 2021 and 2020, respectively, to provide for such anticipated future environmental assessments and remediation costs. During the fourth quarter of 2020, one of the Company’s subsidiaries received a notice of inspection from a taxing authority in a country where certain of its subsidiaries operate which related to a non-income (indirect) tax that may be applicable to certain products the subsidiary sells. During the third quarter of 2021, the Company’s subsidiary received notice from the taxing authority that the inspection was closed, with no tax assessment issued. Based on this development, during the third quarter of 2021, the Company reversed its previously recorded $ 1.8 million liability related to this matter. The Company also reversed the associated $ 1.1 million indemnification receivable, as the asserted tax liability in part related to a Houghton entity acquired in the Combination and for the periods prior to the Combination, for which the Company would have rights to indemnification from Houghton’s former owners. Based on all available information as of the date of this report, the Company does not anticipate further tax liabilities related to this matter to be asserted by the taxing authority. During 2021, one of the Company’s Brazilian subsidiaries received a notice that it had prevailed on an existing legal claim in regard to certain non-income (indirect) taxes that had been previously charged and paid. The matter specifically relates to companies’ rights to exclude the state tax on goods circulation (a valued-added-tax or VAT equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect taxes (specifically the program of social integration (“PIS”) and contribution for the financing of social security (“COFINS”)) levied by the Brazilian States on the sale of goods. In May 2021, the Brazilian Supreme Court concluded that ICMS should not be included in the tax base of PIS and COFINS, and confirmed the methodology for calculating the PIS and COFINS tax credit claims to which taxpayers are entitled. The Company’s Brazilian entities had previously filed legal or administrative disputes on this matter and are entitled to receive tax credits and interest dating back to five years preceding the date of their legal claims. As a result of these court rulings, during the second quarter of 2021, the Company recognized non-income tax credits of 67.0 million BRL or approximately $ 13.3 million, which included approximately $ 8.4 million for the PIS and COFINS tax credits as well as interest on these tax credits of $ 4.9 million, and is recorded within prepaid and other current assets on the Company’s Consolidated Balance Sheet. The tax credits to which the Company’s Brazilian subsidiaries are entitled are claimable once registered with the Brazilian tax authorities. The Company submitted its formal claim for tax credits in October 2021. These tax credits can be used to offset future Brazilian federal taxes and the Company currently anticipates using the full amount of credits during the five year period of time permitted. During the third quarter of 2021, the Brazilian Supreme Court ruled that interest income to which companies are entitled for matters such as this claim should not be taxable, which resulted in a reduction to the estimated income tax expense associated with the tax credits recorded. In connection with obtaining regulatory approvals for the Combination, certain steel and aluminum related product lines of Houghton were divested in August 2019. In July 2021, the entity that acquired these divested product lines submitted an indemnification claim for certain alleged breaches of representation made by Houghton in the agreement pursuant to which such assets had been divested. The Company and the acquirer have agreed to extend the period for a possible negotiated resolution of this claim through March 31, 2022 so that both parties can evaluate the other’s positions with respect to the subject matters of the claim. The Company is evaluating the merits of the alleged losses in the indemnification claim received. As of the date of this Report, the Company does not believe it is reasonably possible to determine or quantify any possible exposure. During the third quarter of 2021, two of the Company’s locations suffered property damages as a result of flooding and fire, respectively. The Company maintains property insurance for all of its facilities globally. In Conshohocken, Pennsylvania, the Company’s global headquarters as well as its laboratory experienced property damages as a result of flooding from Hurricane Ida. Also, one of the Company’s North American production facilities in its Global Specialty Businesses segment experienced an electrical fire that resulted in damage and the temporary shutdown of production, and also required remediation, cleaning and subsequent restoration. The Company, its insurance adjuster and insurance carrier are actively managing the remediation and restoration activities associated with these events and at this time the Company has concluded, based on all available information and discussions with its QUAKER CHEMICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued ( Dollars in thousands, except per share amounts, unless otherwise stated ) 92 insurance adjuster and insurance carrier, that the losses incurred during the third quarter of 2021 will be covered under the Company’s property insurance coverage, net of an aggregate deductible of $ 2.0 million. The Company has received payments from its insurers of $ 2.1 million and has recorded an insurance receivable associated with these events (and a gain on insurance recoveries for losses incurred) of $ 0.7 million as of December 31, 2021. The Company and its insurance carrier are in early stages of reviewing the impact of the electrical fire on the production facility’s operations as it relates to a potential business interruption insurance claim; however, as of the date of this Report, the Company cannot reasonably estimate any probable amount of business interruption insurance claim recoverable, therefore the Company has not recorded a gain contingency for a possible business interruption insurance claim as of December 31, 2021. The Company is party to other litigation which management currently believes will not have a material adverse effect on the Company’s results of operations, cash flows or financial condition. In addition, the Company has an immaterial amount of contractual purchase obligations. 93 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not Applicable.