QUAKER CHEMICAL CORP 10-Q

Item 1. Financial Statements (Unaudited). Quaker Chemical Corporation Condensed Consolidated Statements of Income (Dollars in thousands, except per share data) Unaudited Three Months Ended March 31, 2022 2021 Net sales $ 474,171 $ 429,783 Cost of goods sold (excluding amortization expense - See Note 13) 328,100 273,589 Gross profit 146,071 156,194 Selling, general and administrative expenses 111,795 104,310 Restructuring and related charges 820 1,175 Combination, integration and other acquisition-related expenses 4,053 5,815 Operating income 29,403 44,894 Other (expense) income, net ( 2,206 ) 4,687 Interest expense, net ( 5,345 ) ( 5,470 ) Income before taxes and equity in net income of associated companies 21,852 44,111 Taxes on income before equity in net income of associated companies 2,866 10,689 Income before equity in net income of associated companies 18,986 33,422 Equity in net income of associated companies 835 5,210 Net income 19,821 38,632 Less: Net income attributable to noncontrolling interest 5 17 Net income attributable to Quaker Chemical Corporation $ 19,816 $ 38,615 Per share data: Net income attributable to Quaker Chemical Corporation common shareholders – basic $ 1.11 $ 2.16 Net income attributable to Quaker Chemical Corporation common shareholders – diluted $ 1.11 $ 2.15 Dividends declared $ 0.415 $ 0.395 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Quaker Chemical Corporation Condensed Consolidated Statements of Comprehensive Income (Dollars in thousands) Unaudited Three Months Ended March 31, 2022 2021 Net income $ 19,821 $ 38,632 Other comprehensive (loss) income, net of tax Currency translation adjustments ( 6,866 ) ( 25,461 ) Defined benefit retirement plans 496 1,292 Current period change in fair value of derivatives 1,100 562 Unrealized loss on available-for-sale securities ( 1,000 ) ( 3,025 ) Other comprehensive loss ( 6,270 ) ( 26,632 ) Comprehensive income 13,551 12,000 Less: Comprehensive income attributable to noncontrolling interest ( 6 ) ( 15 ) Comprehensive income attributable to Quaker Chemical Corporation $ 13,545 $ 11,985 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Quaker Chemical Corporation Condensed Consolidated Balance Sheets (Dollars in thousands, except par value) Unaudited March 31, December 31, 2022 2021 ASSETS Current assets Cash and cash equivalents $ 161,552 $ 165,176 Accounts receivable, net 458,459 430,676 Inventories Raw materials and supplies 146,289 129,382 Work-in-process and finished goods 153,506 135,149 Prepaid expenses and other current assets 67,853 59,871 Total current assets 987,659 920,254 Property, plant and equipment, at cost 439,318 434,344 Less accumulated depreciation ( 242,203 ) ( 236,824 ) Property, plant and equipment, net 197,115 197,520 Right of use lease assets 38,245 36,635 Goodwill 630,938 631,194 Other intangible assets, net 1,012,068 1,027,782 Investments in associated companies 90,003 95,278 Deferred tax assets 11,496 16,138 Other non-current assets 29,198 30,959 Total assets $ 2,996,722 $ 2,955,760 LIABILITIES AND EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $ 61,385 $ 56,935 Accounts payable 253,906 226,656 Dividends payable 7,433 7,427 Accrued compensation 26,396 38,197 Accrued restructuring 4,435 4,087 Accrued pension and postretirement benefits 1,549 1,548 Other accrued liabilities 97,445 95,617 Total current liabilities 452,549 430,467 Long-term debt 858,287 836,412 Long-term lease liabilities 27,433 26,335 Deferred tax liabilities 170,622 179,025 Non-current accrued pension and postretirement benefits 44,667 45,984 Other non-current liabilities 47,464 49,615 Total liabilities 1,601,022 1,567,838 Commitments and contingencies (Note 18) Equity Common stock, $ 1 par value; authorized outstanding 2022 – 17,911,583 shares; 2021 – 17,897,033 shares 17,912 17,897 Capital in excess of par value 918,699 917,053 Retained earnings 528,716 516,334 Accumulated other comprehensive loss ( 70,261 ) ( 63,990 ) Total Quaker shareholders’ equity 1,395,066 1,387,294 Noncontrolling interest 634 628 Total equity 1,395,700 1,387,922 Total liabilities and equity $ 2,996,722 $ 2,955,760 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Quaker Chemical Corporation Condensed Consolidated Statements of Cash Flows (Dollars in thousands) Unaudited Three Months Ended March 31, 2022 2021 Cash flows from operating activities Net income $ 19,821 $ 38,632 Adjustments to reconcile net income to net cash used in operating activities: Amortization of debt issuance costs 1,187 1,187 Depreciation and amortization 20,447 22,145 Equity in undistributed earnings of associated companies, net of dividends 2,135 ( 5,105 ) Acquisition-related fair value adjustments related to inventory — 801 Deferred compensation, deferred taxes and other, net ( 3,778 ) ( 9,888 ) Share-based compensation 2,462 3,779 Gain on disposal of property, plant, equipment and other assets ( 23 ) ( 5,410 ) Combination and other acquisition-related expenses, net of payments ( 4,246 ) ( 2,884 ) Restructuring and related charges 820 1,175 Pension and other postretirement benefits ( 1,316 ) ( 1,034 ) (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable ( 26,270 ) ( 46,270 ) Inventories ( 33,873 ) ( 24,994 ) Prepaid expenses and other current assets ( 6,506 ) ( 8,315 ) Change in restructuring liabilities ( 408 ) ( 3,034 ) Accounts payable and accrued liabilities 23,249 26,597 Net cash used in operating activities ( 6,299 ) ( 12,618 ) Cash flows from investing activities Investments in property, plant and equipment ( 8,847 ) ( 3,934 ) Payments related to acquisitions, net of cash acquired ( 9,383 ) ( 26,655 ) Proceeds from disposition of assets — 14,744 Net cash used in investing activities ( 18,230 ) ( 15,845 ) Cash flows from financing activities Payments of long-term debt ( 14,112 ) ( 9,551 ) Borrowings on revolving credit facilities, net 43,000 30,000 Repayments on other debt, net ( 102 ) ( 188 ) Dividends paid ( 7,428 ) ( 7,052 ) Stock options exercised, other ( 801 ) ( 178 ) Net cash provided by financing activities 20,557 13,031 Effect of foreign exchange rate changes on cash 348 ( 3,008 ) Net decrease in cash and cash equivalents ( 3,624 ) ( 18,440 ) Cash and cash equivalents at the beginning of the period 165,176 181,895 Cash and cash equivalents at the end of the period $ 161,552 $ 163,455 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Quaker Chemical Corporation Condensed Consolidated Statements of Changes in Equity (Dollars in thousands, except per share amounts) (Unaudited) Accumulated Capital in Other Common Excess of Retained Comprehensive Noncontrolling Stock Par Value Earnings Loss Interest Total Balance at December 31, 2020 $ 17,851 $ 905,171 $ 423,940 $ ( 26,598 ) $ 550 $ 1,320,914 Net income — — 38,615 — 17 38,632 Amounts reported in other comprehensive loss — — — ( 26,630 ) ( 2 ) ( 26,632 ) Dividends ($ 0.395 per share) — — ( 7,062 ) — — ( 7,062 ) Share issuance and equity-based compensation plans 24 3,577 — — — 3,601 Balance at March 31, 2021 $ 17,875 $ 908,748 $ 455,493 $ ( 53,228 ) $ 565 $ 1,329,453 Balance at December 31, 2021 $ 17,897 $ 917,053 $ 516,334 $ ( 63,990 ) $ 628 $ 1,387,922 Net income — — 19,816 — 5 19,821 Amounts reported in other comprehensive loss — — — ( 6,271 ) 1 ( 6,270 ) Dividends ($ 0.415 per share) — — ( 7,434 ) — — ( 7,434 ) Share issuance and equity-based compensation plans 15 1,646 — — — 1,661 Balance at March 31, 2022 $ 17,912 $ 918,699 $ 528,716 $ ( 70,261 ) $ 634 $ 1,395,700 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 7 Note 1 – Basis of Presentation and Description of Business Basis of Presentation As used in these Notes to Condensed Consolidated Financial Statements, the terms “Quaker,” “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. As used in these Notes to Condensed Consolidated Financial Statements, the term Legacy Quaker refers to the Company prior to the closing of its combination with Houghton International, Inc. (“Houghton”) (herein referred to as the “Combination”). The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and the United States Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments consisting only of normal recurring adjustments, which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Description of Business The Company was organized in 1918, incorporated as a Pennsylvania business corporation in 1930, and in August 2019 completed the Combination with Houghton to form Quaker Houghton. Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, the Company’s customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, can, mining, and metalworking companies. Quaker Houghton develops, produces, and markets a broad range of formulated chemical specialty products and offers chemical management services (which the Company refers to as “Fluidcare TM ”) for various heavy industrial and manufacturing applications throughout its four segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; and Global Specialty Businesses. Hyper-inflationary economies Based on various indices or index compilations being used to monitor inflation in Argentina as well as economic instability, effective July 1, 2018, Argentina’s economy was considered hyper-inflationary under U.S. GAAP. As of, and for the three months ended March 31, 2022, the Company's Argentine subsidiaries represented less than 1 % of the Company’s consolidated total assets and net sales, respectively. During each of the three months ended March 31, 2022 and 2021, the Company recorded $ 0.2 million of remeasurement losses associated with the applicable currency conversions related to Argentina. These losses were recorded within foreign exchange losses, net, which is a component of other (expense) income, net, in the Company’s Condensed Consolidated Statements of Income. Note 2 – Business Acquisitions 2022 Acquisitions 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 Company allocated $ 5.6 million of the purchase price to intangible assets, comprised of $ 5.1 million of customer relationships to be amortized over 14 years; and $ 0.5 million of existing product technologies to be amortized over 14 years. In addition, the Company recorded $ 1.8 million of goodwill related to expected value not allocated to other acquired assets, all of which is expected to be tax deductible in various jurisdictions in which the Company operates. 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 reportable 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 acquired as part of the Norman Hay acquisition in 2019. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 8 The results of operations of the 2022 acquired assets and businesses subsequent to the respective acquisition dates are included in the unaudited Condensed Consolidated Statements of Income for the quarter ended March 31, 2022. Applicable transaction expenses associated with these acquisitions are included in Combination, integration and other acquisition-related expenses in the Company’s unaudited Condensed Consolidated Statements of Income. Certain pro forma and other information is not presented, as the operations of the acquired assets and businesses are not considered material to the overall operations of the Company for the periods presented. Previous 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 initially 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, all 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 Consolidated Financial Statements and accounted for the purchase of the remaining interest as a step acquisition whereby the Company remeasured the previously held equity method investment to its fair value. In June 2021, the Company acquired certain assets for its chemical milling maskants product line in the Global Specialty Businesses reportable segment for 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 March 31, 2022, the allocation of the purchase price of these acquisitions have not been finalized and the one-year measurement period has not ended, with the exception of the tin-plating solutions business acquired in February 2021, the measurement period for which ended in February 2022. Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed. In December 2020, the Company acquired Coral Chemical Corporation (“Coral”), a privately held U.S.-based provider of metal finishing fluid solutions. Subsequent to the acquisition, the Company and the sellers of Coral (the “Sellers”) have worked to finalize certain post-closing adjustments. In April 2022, after failing to reach resolution, the Sellers filed suit asserting certain amounts owed related to tax attributes of the acquisition. Based on the facts and circumstances of the claim asserted by the Sellers, the Company believes the potential range of exposure for this claim is $ 0 to $ 1.5 million. Note 3 – Recently Issued Accounting Standards Recently Issued Accounting Standards Adopted The FASB issued ASU 2020 -04 , Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting 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 Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 9 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 14 of Notes to Condensed Consolidated Financial Statements. Note 4 – Business Segments The Company’s operating segments, which are consistent with its reportable segments, reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the chief operating decision maker assesses the Company’s performance. The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. The three geographic segments are composed of the net sales and operations in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment, which includes the Company’s container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses. Segment operating earnings for each of the Company’s reportable segments are comprised of the segment’s net sales less directly related cost of goods sold (“COGS”) and selling, general and administrative expenses (“SG&A”). Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating earnings. Other items not specifically identified with the Company’s reportable segments include interest expense, net and other (expense) income, net. The following table presents information about the performance of the Company’s reportable operating segments for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Net sales Americas $ 154,144 $ 134,871 EMEA 125,687 119,814 Asia/Pacific 104,234 96,706 Global Specialty Businesses 90,106 78,392 Total net sales $ 474,171 $ 429,783 Segment operating earnings Americas $ 29,220 $ 32,234 EMEA 16,766 25,244 Asia/Pacific 21,907 27,478 Global Specialty Businesses 25,035 24,169 Total segment operating earnings 92,928 109,125 Combination, integration and other acquisition-related expenses ( 4,053 ) ( 5,815 ) Restructuring and related charges ( 820 ) ( 1,175 ) Fair value step up of acquired inventory sold — ( 801 ) Non-operating and administrative expenses ( 43,463 ) ( 40,992 ) Depreciation of corporate assets and amortization ( 15,189 ) ( 15,448 ) Operating income 29,403 44,894 Other (expense) income, net ( 2,206 ) 4,687 Interest expense, net ( 5,345 ) ( 5,470 ) Income before taxes and equity in net income of associated companies $ 21,852 $ 44,111 Inter-segment revenues for the three months ended March 31, 2022 and 2021 were $ 2.9 million and $ 3.3 million for Americas, $ 8.9 million and $ 8.8 million for EMEA, $ 0.3 million and $ 0.1 million for Asia/Pacific and $ 1.7 million and $ 2.0 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. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 10 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 recognized on a net reporting basis of $ 19.8 million and $ 17.8 million for the three months ended March 31, 2022 and 2021, 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. As previously disclosed in the 2021 Form 10-K, during the year ended December 31, 2021, the Company’s five largest customers (each composed of multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately 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 Condensed Consolidated Balance Sheets as of March 31, 2022 or December 31, 2021. The Company had approximately $ 6.9 million and $ 7.0 million of deferred revenue as of March 31, 2022 and December 31, 2021, respectively. For three months ended March 31, 2022, the Company satisfied all of the associated performance obligations and recognized into revenue the advance payments received and recorded as of December 31, 2021. Disaggregated Revenue The Company sells its various industrial process fluids, its specialty chemicals and its technical expertise as a global product portfolio. The Company generally manages and evaluates its performance by segment first, and then by customer industry, rather than by individual product lines. Also, net sales of each of the Company’s major product lines are generally spread throughout all three of the Company’s geographic regions, and in most cases, approximately proportionate to the level of total sales in each region. The following tables disaggregate the Company’s net sales by segment, geographic region, customer industry, and timing of revenue recognized for the three months ended March 31, 2022 and 2021. Three Months Ended March 31, 2022 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 56,160 $ 36,839 $ 55,287 $ 148,286 Metalworking and other 97,984 88,848 48,947 235,779 154,144 125,687 104,234 384,065 Global Specialty Businesses 57,264 20,021 12,821 90,106 $ 211,408 $ 145,708 $ 117,055 $ 474,171 Timing of Revenue Recognized Product sales at a point in time $ 201,284 $ 137,203 $ 114,625 $ 453,112 Services transferred over time 10,124 8,505 2,430 21,059 $ 211,408 $ 145,708 $ 117,055 $ 474,171 Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 11 Three Months Ended March 31, 2021 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 46,793 $ 34,274 $ 49,743 $ 130,810 Metalworking and other 88,078 85,540 46,963 220,581 134,871 119,814 96,706 351,391 Global Specialty Businesses 45,256 20,272 12,864 78,392 $ 180,127 $ 140,086 $ 109,570 $ 429,783 Timing of Revenue Recognized Product sales at a point in time $ 171,594 $ 131,162 $ 106,399 $ 409,155 Services transferred over time 8,533 8,924 3,171 20,628 $ 180,127 $ 140,086 $ 109,570 $ 429,783 Note 6 - Leases The Company has operating leases for certain facilities, vehicles and machinery and equipment with remaining lease terms up to 10 years . Operating lease expense is recognized on a straight-line basis over the lease term. In addition, the Company has certain land use leases with remaining lease terms up to 93 years . The Company has no material variable lease costs or sublease income for three months ended March 31, 2022 and 2021. The following table sets forth the components of the Company’s lease cost for three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Operating lease expense $ 3,409 $ 3,612 Short-term lease expense 219 251 Supplemental cash flow information related to the Company’s leases is as follows : Three Months Ended March 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 3,365 $ 3,579 Non-cash lease liabilities activity: Leased assets obtained in exchange for new operating lease liabilities 4,689 3,050 Supplemental balance sheet information related to the Company’s leases is as follows: March 31, December 31, 2022 2021 Right of use lease assets $ 38,245 $ 36,635 Other current liabilities 10,540 9,976 Long-term lease liabilities 27,433 26,335 Total operating lease liabilities $ 37,973 $ 36,311 Weighted average remaining lease term (years) 5.9 5.6 Weighted average discount rate 4.14 % 4.22 % Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 12 Maturities of operating lease liabilities as of March 31, 2022 were as follows: March 31, 2022 For the remainder of 2022 $ 8,990 For the year ended December 31, 2023 9,513 For the year ended December 31, 2024 7,292 For the year ended December 31, 2025 5,375 For the year ended December 31, 2026 4,338 For the year ended December 31, 2027 and beyond 7,046 Total lease payments 42,554 Less: imputed interest ( 4,581 ) Present value of lease liabilities $ 37,973 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 are subject to change; however, the Company currently expects reductions in headcount and site closures to continue to occur throughout 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 Condensed Consolidated Statements of Income. As described in Note 4 of Notes to Condensed Consolidated Financial Statements, restructuring and related charges are not included in the Company’s calculation of reportable segments’ measure of operating earnings and therefore these costs are not reviewed by or recorded to reportable segments. Activity in the Company’s accrual for restructuring under the QH Program for the three months ended March 31, 2022 is as follows: QH Program Accrued restructuring as of December 31, 2021 $ 4,087 Restructuring and related charges 820 Cash payments ( 408 ) Currency translation adjustments ( 64 ) Accrued restructuring as of March 31, 2022 $ 4,435 Note 8 – Share-Based Compensation The Company recognized the following share-based compensation expense in its Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Stock options $ 267 $ 308 Non-vested stock awards and restricted stock units 1,548 1,396 Non-elective and elective 401(k) matching contribution in stock — 1,553 Director stock ownership plan 24 203 Performance stock units 623 319 Total share-based compensation expense $ 2,462 $ 3,779 Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 13 Share-based compensation expense is recorded in SG&A, except for less than $ 0.1 million and $ 0.3 million during the three months ended March 31, 2022 and 2021, respectively, recorded within Combination, integration and other acquisition-related expenses. Stock Options During the first quarter of 2022, the Company granted stock options under its long-term incentive plan (“LTIP ”) that are subject only to time vesting over a three year period. For the purposes of determining the fair value of stock option awards, the Company used a Black-Scholes option pricing model and the assumptions set forth in the table below: March 2022 Grant Number of options granted 27,077 Dividend yield 0.80 % Expected volatility 38.60 % Risk-free interest rate 2.07 % Expected term (years) 4.0 The fair value of these options is amortized on a straight-line basis over the vesting period. As of March 31, 2022, unrecognized compensation expense related to all stock options granted was $ 2.9 million, to be recognized over a weighted average remaining period of 1.9 years. Restricted Stock Awards and Restricted Stock Units During the three months ended March 31, 2022, the Company granted 17,425 non-vested restricted shares and 4,490 non-vested restricted stock units under its LTIP, subject to time-based vesting, generally over a three year period. The fair value of these grants is based on the trading price of the Company’s common stock on the date of grant. The Company adjusts the grant date fair value of these awards for expected forfeitures based on historical experience. As of March 31, 2022, unrecognized compensation expense related to the nonvested restricted shares was $ 6.4 million, to be recognized over a weighted average remaining period of 2.1 years, and unrecognized compensation expense related to nonvested restricted stock units was $ 1.3 million, to be recognized over a weighted average remaining period of 2.3 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. Compensation expense for PSUs is measured based on their grant date fair value and is recognized on a straight-line basis over the three year vesting period. The grant-date fair value of the PSUs was estimated using a Monte Carlo simulation on the grant date and using the following assumptions set forth in the table below: March 2022 Grant Number of PSUs granted 16,820 Risk-free interest rate 2.11 % Dividend yield 0.93 % Expected term (years) 3.0 As of March 31, 2022, the Company estimates that it will issue 0 fully vested shares as of the applicable settlement date of all outstanding PSUs awards based on the conditions of the PSUs and performance to date for each award. As of March 31, 2022, there was approximately $ 6.4 million of total unrecognized compensation cost related to PSUs which the Company expects to recognize over a weighted-average period of 2.3 years. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 14 Defined Contribution Plan The Company has a 401(k) plan with an employer match covering a majority of its U.S. employees. The Company matches 50 % of the first 6 % of compensation that is contributed to the plan, with a maximum matching contribution of 3% of compensation. Additionally, the plan provides for non-elective nondiscretionary contributions on behalf of participants who have completed one year of service equal to 3 % of the eligible participants’ compensation. Beginning in April 2020 and continuing through March 2021, the Company matched both non-elective and elective 401(k) contributions in fully vested shares of the Company’s common stock rather than cash. There were no matching contributions in stock for the three months ended March 31, 2022. For the three months ended March 31, 2021, total contributions were $ 1.5 million. Note 9 – Pension and Other Postretirement Benefits The components of net periodic benefit (income) cost for the three months ended March 31, 2022 and 2021 are as follows: Three Months Ended March 31, Other Pension Benefits Postretirement Benefits 2022 2021 2022 2021 Service cost $ 180 $ 316 $ ( 8 ) $ 1 Interest cost 1,360 1,090 9 11 Expected return on plan assets ( 2,084 ) ( 2,082 ) — — Actuarial loss (gain) amortization 257 855 ( 24 ) — Prior service cost (income) amortization 2 2 1 — Total net periodic benefit (income) cost $ ( 285 ) $ 181 $ ( 22 ) $ 12 Employer Contributions As of March 31, 2022, $ 1.0 million and $ 0.1 million of contributions have been made to the Company’s U.S. and foreign pension plans and its other postretirement benefit plans, respectively. Taking into consideration current minimum cash contribution requirements, the Company currently expects to make full year cash contributions of approximately $ 6.6 million to its U.S. and foreign pension plans and approximately $ 0.2 million to its other postretirement benefit plans in 2022. Note 10 – Other (Expense) Income, Net The components of other (expense) income, net for the three months ended March 31, 2022 and 2021 are as follows: Three Months Ended March 31, 2022 2021 Income from third party license fees $ 404 $ 339 Foreign exchange losses, net ( 1,905 ) ( 1,478 ) Gain on disposals of property, plant, equipment and other assets, net 23 5,410 Non-income tax refunds and other related (expense) credits ( 1,322 ) 97 Pension and postretirement benefit income, non-service components 479 124 Other non-operating income, net 115 195 Total other (expense) income, net $ ( 2,206 ) $ 4,687 Non-income tax refunds and other related (expense) credits during the three months ended March 31, 2022 includes other expense related to an indemnification asset associated with the settlement of certain income tax audits at one of the Company’s Italian affiliates for tax periods prior to August 1, 2019. See Note 11 of Notes to Condensed Consolidated Financial Statements. Gain on disposals of property, plant, equipment and other assets, net, during the three months ended March 31, 2021, includes a gain on the sale of certain held-for-sale real property assets related to the Combination. Foreign exchange losses, net, during each of the three months ended March 31, 2022 and 2021 include foreign currency transaction losses of approximately $ 0.2 million related to hyper-inflationary accounting for the Company’s Argentine subsidiaries. See Note 1 of Notes to Condensed Consolidated Financial Statements. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 15 Note 11 – Income Taxes and Uncertain Income Tax Positions The Company’s effective tax rates for the three months ended March 31, 2022 and 2021 were 13.1 % and 24.2 %, respectively. The Company’s effective tax rate for the three months ended March 31, 2022 was largely driven by changes in the valuation allowance for foreign tax credits due to recently issued legislative guidance and audit settlements reached with Italian tax authorities. In addition, the Company incurred higher tax expense during the three months ended March 31, 2022 related to the Company recording earnings in one of its subsidiaries at a statutory tax rate of 25 % while it awaits recertification of a concessionary 15 % tax rate, which was available to the Company during all of 2021. Comparatively, the prior year first quarter effective tax rate was impacted by the sale of a subsidiary which included certain held-for-sale real property assets related to the Combination. As of December 31, 2021, the Company had a deferred tax liability of $ 8.4 million on certain undistributed foreign earnings, which primarily represents the Company’s estimate of non-U.S. income taxes the Company will incur to ultimately remit certain earnings to the U.S. The balance as of March 31, 2022 was $ 8.0 million. As of March 31, 2022, the Company’s cumulative liability for gross unrecognized tax benefits was $ 20.1 million, a decrease of approximately $ 2.4 million from the cumulative liability accrued as of December 31, 2021. The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on income before equity in net income of associated companies in its Condensed Consolidated Statements of Income. The Company recognized a benefit of $ 0.3 million for interest and a benefit of $ 1.6 million for penalties in its Condensed Consolidated Statements of Income for the three months ended March 31, 2022, and recognized an expense of less than $ 0.1 million for interest and a benefit of $ 0.1 million for penalties in its Condensed Consolidated Statements of Income for the three months ended March 31, 2021. As of March 31, 2022, the Company had accrued $ 2.7 million for cumulative interest and $ 1.6 million for cumulative penalties in its Condensed Consolidated Balance Sheets, compared to $ 3.1 million for cumulative interest and $ 3.1 million for cumulative penalties accrued at December 31, 2021. During the three months ended March 31, 2022 and 2021, the Company recognized decreases of $ 2.8 million and $ 0.3 million, respectively, in its cumulative liability for gross unrecognized tax benefits due to the settlement of income tax audits with the Italian tax authorities, as well as the expiration of the applicable statutes of limitations for certain tax years. The Company estimates that during the year ending December 31, 202 2 it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $ 4.2 million due to the settlement of income tax audits and 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. 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 , Germany from 2015 , the Netherlands, Mexico and China from 2016 , Canada, Spain, and the U.S. from 2017 , the United Kingdom from 2018 , India from fiscal year beginning April 1, 2017 and ending March 31, 2018 , 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 the Netherlands reached agreement with respect to the MAP proceedings which the Company has accepted. As of March 31, 2022, the Company has received $ 1.6 million in refunds from the Netherlands and Spain. 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. As a result of the settlement the Company recognized tax expense of $ 0.8 million for the quarter ended March 31, 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 . During the fourth quarter of 2021, the Company settled a portion of the Houghton Italia, S.r.l. corporate income tax audit with the Italian tax authorities for the tax years 2014 and 2015 . During the three months ended March 31, 2022 the Company settled tax years 2016 through 2018 for a total of $ 2.1 million. In total, the Company has now settled all years 2014 through 2018 for $ 3.7 million. Accordingly, the Company has released all reserves relating to this audit for the settled tax years. As a result of the settlement and reserve release the Company recognized a net benefit to the tax provision of $ 2.1 million during the first quarter of 2022. The Company has established an indemnification receivable of $ 3.8 million in connection with its claim against the former owners of Houghton for any pre-Combination tax liabilities arising from this matter. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 16 Houghton Deutschland GmbH is also under audit by the German tax authorities for the tax years 2015 through 2017 . Based on preliminary audit findings, primarily related to transfer pricing, the Company has recorded reserves for $ 0.3 million as of March 31, 2022. 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. Note 12 – Earnings Per Share The following table summarizes earnings per share calculations for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Basic earnings per common share Net income attributable to Quaker Chemical Corporation $ 19,816 $ 38,615 Less: income allocated to participating securities ( 78 ) ( 154 ) Net income available to common shareholders $ 19,738 $ 38,461 Basic weighted average common shares outstanding 17,826,061 17,785,370 Basic earnings per common share $ 1.11 $ 2.16 Diluted earnings per common share Net income attributable to Quaker Chemical Corporation $ 19,816 $ 38,615 Less: income allocated to participating securities ( 78 ) ( 154 ) Net income available to common shareholders $ 19,738 $ 38,461 Basic weighted average common shares outstanding 17,826,061 17,785,370 Effect of dilutive securities 25,798 70,607 Diluted weighted average common shares outstanding 17,851,859 17,855,977 Diluted earnings per common share $ 1.11 $ 2.15 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 12,260 and 2,083 for the three months ended March 31, 2022 and 2021, respectively. Note 13 – Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill for the three months ended March 31, 2022 were as follows: Global Specialty Americas EMEA Asia/Pacific Businesses Total Balance as of December 31, 2021 $ 214,023 $ 135,520 $ 162,458 $ 119,193 $ 631,194 Goodwill additions 1,752 — — 32 1,784 Currency translation adjustments 1,376 ( 2,569 ) ( 328 ) ( 519 ) ( 2,040 ) Balance as of March 31, 2022 $ 217,151 $ 132,951 $ 162,130 $ 118,706 $ 630,938 Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of March 31, 2022 and December 31, 2021 were as follows: Gross Carrying Accumulated Amount Amortization 2022 2021 2022 2021 Customer lists and rights to sell $ 855,309 $ 853,122 $ 159,576 $ 147,858 Trademarks, formulations and product technology 162,408 163,974 40,565 38,747 Other 6,361 6,309 5,989 5,900 Total definite-lived intangible assets $ 1,024,078 $ 1,023,405 $ 206,130 $ 192,505 Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 17 The Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded $ 14.6 million and $ 14.8 million of amortization expense for the three months ended March 31, 2022 and 2021, respectively. Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows: For the year ended December 31, 2022 $ 59,465 For the year ended December 31, 2023 59,293 For the year ended December 31, 2024 58,701 For the year ended December 31, 2025 57,924 For the year ended December 31, 2026 57,678 For the year ended December 31, 2027 and beyond 532,124 The Company has four indefinite-lived intangible assets totaling $ 194.1 million as of March 31, 2022, including $ 193.0 million of indefinite-lived intangible assets for trademarks and tradename associated with the Combination. Comparatively, the Company had four indefinitely-lived intangible assets for trademarks and tradename totaling $ 196.9 million as of December 31, 2021. Note 14 – Debt Debt as of March 31, 2022 and December 31, 2021 includes the following: As of March 31, 2022 As of December 31, 2021 Interest Outstanding Interest Outstanding Rate Balance Rate Balance Credit Facilities: Revolver 1.68 % $ 254,453 1.62 % $ 211,955 U.S. Term Loan 1.71 % 528,750 1.65 % 540,000 EURO Term Loan 1.50 % 132,037 1.50 % 137,616 Industrial development bonds 5.26 % 10,000 5.26 % 10,000 Bank lines of credit and other debt obligations Various 1,659 Various 1,777 Total debt $ 926,899 $ 901,348 Less: debt issuance costs ( 7,227 ) ( 8,001 ) Less: short-term and current portion of long-term debts ( 61,385 ) ( 56,935 ) Total long-term debt $ 858,287 $ 836,412 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 during the three months ended March 31, 2022 was approximately 1.6 %. As of March 31, 2022, the interest rate of the outstanding borrowings under the Credit Facility was approximately 1.7 %. 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 $ 142 million, net of bank letters of credit of approximately $ 4 million, as of March 31, 2022. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 18 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 March 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 March 31, 2022 and December 31, 2021, 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 three months ended March 31, 2022, the Company made quarterly amortization payments related to the Term Loans totaling $ 14.1 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 March 31, 2022, the aggregate interest rate on the swaps, including the fixed base rate plus an applicable margin, was 3.1 %. See Note 17 of Notes to Condensed 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 March 31, 2022 and December 31, 2021, the Company had $ 7.2 million and $ 8.0 million, respectively, of debt issuance costs recorded as a reduction of long-term debt. As of March 31, 2022 and December 31, 2021, the Company had $ 3.9 million and $ 4.3 million, respectively, of debt issuance costs recorded within other assets. Industrial development bonds As of March 31, 2022 and December 31, 2021, 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. 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 March 31, 2022 was approximately $ 30 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 March 31, 2022 were approximately $ 6 million. The Company incurred the following debt related expenses included within Interest expense, net, in the Condensed Consolidated Statements of Income: Three Months Ended March 31, 2022 2021 Interest expense $ 4,746 $ 4,650 Amortization of debt issuance costs 1,187 1,187 Total $ 5,933 $ 5,837 Based on the variable interest rates associated with the Credit Facility, as of March 31, 2022 and December 31, 2021, the amounts at which the Company’s total debt were recorded are not materially different from their fair market value. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 19 Note 15 – Accumulated Other Comprehensive Income The following tables show the reclassifications from and resulting balances of accumulated other comprehensive income (“AOCI”) for the three months ended March 31, 2022 and 2021: Defined Unrealized Currency Benefit Gain (Loss) in Translation Retirement Available-for- Derivative Adjustments Plans Sale Securities Instruments Total Balance at December 31, 2021 $ ( 49,843 ) $ ( 13,172 ) $ 397 $ ( 1,372 ) $ ( 63,990 ) Other comprehensive (loss) income before reclassifications ( 6,867 ) 432 (1,277) 1,429 ( 6,283 ) Amounts reclassified from AOCI — 229 11 — 240 Related tax amounts — ( 165 ) 266 ( 329 ) ( 228 ) Balance at March 31, 2022 $ ( 56,710 ) $ ( 12,676 ) $ ( 603 ) $ ( 272 ) $ ( 70,261 ) Balance at December 31, 2020 $ ( 2,875 ) $ ( 23,467 ) $ 3,342 $ ( 3,598 ) $ ( 26,598 ) Other comprehensive (loss) income before reclassifications ( 25,459 ) 781 ( 745 ) 730 ( 24,693 ) Amounts reclassified from AOCI — 862 ( 3,085 ) — ( 2,223 ) Related tax amounts — ( 351 ) 805 ( 168 ) 286 Balance at March 31, 2021 $ ( 28,334 ) $ ( 22,175 ) $ 317 $ ( 3,036 ) $ ( 53,228 ) 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 16 – Fair Value Measurements The Company has valued its company-owned life insurance policies at fair value. These assets are subject to fair value measurement as follows: Fair Value Measurements at March 31, 2022 Total Using Fair Value Hierarchy Assets Fair Value Level 1 Level 2 Level 3 Company-owned life insurance $ 2,395 $ — $ 2,395 $ — Total $ 2,395 $ — $ 2,395 $ — 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 $ — 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 March 31, 2022 or December 31, 2021, respectively, so related disclosures have not been included. Note 17 – Hedging Activities In order to satisfy certain requirements of the 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 14 of Notes to Condensed 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. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 20 The balance sheet classification and fair values of the Company’s derivative instruments, which are Level 2 measurements, are as follows: Fair Value Consolidated March 31, December 31, Balance Sheet Location 2022 2021 Derivatives designated as cash flow hedges: Interest rate swaps Other accrued liabilities $ 353 $ 1,782 $ 353 $ 1,782 The following table presents the net unrealized loss deferred to AOCI: March 31, December 31, 2022 2021 Derivatives designated as cash flow hedges: Interest rate swaps AOCI $ 272 $ 1,372 $ 272 $ 1,372 The following table presents the net gain reclassified from AOCI to earnings: Three Months Ended March 31, 2022 2021 Amount and location of expense reclassified from AOCI into expense (Effective Portion) Interest expense, net $ ( 637 ) $ ( 643 ) Interest rate swaps are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract. As such, in accordance with the Company’s accounting policy, these derivative instruments are recorded on a net basis within the Condensed Consolidated Balance Sheets. Note 18 – Commitments and Contingencies The Company previously disclosed in its 2021 Form 10-K that AC Products, Inc. (“ACP”), a wholly owned subsidiary, has been operating a groundwater treatment system to hydraulically contain groundwater contamination emanating from ACP’s site, the principal contaminant of which is perchloroethylene. As of March 31, 2022, ACP believes it is close to meeting the conditions for closure of the groundwater treatment system, but continues to operate this system while in discussions with the relevant authorities. As of March 31, 2022, the Company believes that the range of potential-known liabilities associated with the balance of the 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. The Company previously disclosed in its 2021 Form 10-K that an inactive subsidiary of the Company that was acquired in 1978 sold certain products containing asbestos, primarily on an installed basis, and is among the defendants in numerous lawsuits alleging injury due to exposure to asbestos. During the three months ended March 31, 2022, there have been no significant changes to the facts or circumstances of this previously disclosed matter, aside from on-going claims and routine payments associated with this litigation. Based on a continued analysis of the existing and anticipated future claims against this subsidiary, it is currently projected that the subsidiary’s total liability over the next 50 years for these claims is approximately $ 0.3 million (excluding costs of defense). The Company previously disclosed in its 2021 Form 10-K that it is party to certain environmental matters related to certain domestic and foreign properties. These environmental matters primarily require the Company to perform long-term monitoring as well as operating and maintenance at each of the applicable sites. During the three months ended March 31, 2022, there have been no significant changes to the facts or circumstances of these previously disclosed matters, aside from on-going monitoring and maintenance activities and routine payments associated with each of the sites. The Company continually evaluates its obligations related to such matters, and based on historical costs incurred and projected costs to be incurred over the next 27 years , has estimated the range of costs for all of these environmental matters, on a discounted basis, to be between approximately $ 5 million and $ 6 million as of March 31, 2022, for which $ 5.9 million was accrued within other accrued liabilities and other non-current liabilities on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2022. Comparatively, as of December 31, 2021, the Company had $ 5.6 million accrued for with respect to these matters. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 21 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 were accrued as of both March 31, 2022 and December 31, 2021, respectively, to provide for such anticipated future environmental assessments and remediation costs. In connection with obtaining regulatory approvals for the Combination, certain steel and aluminum related product lines of Houghton were divested in August 2019. The Company previously disclosed in its 2021 Form 10-K that in July 2021, the entity that acquired these divested product lines submitted an indemnification claim for certain alleged breaches of representation made by Houghton in the agreement pursuant to which such assets had been divested. The Company responded to the subject matters of the indemnification claim and during the first quarter of 2022 the matter was resolved consistent with the Company’s expectations and position that there were no amounts owed by the Company. The Company previously disclosed in its 2021 Form 10-K that two of the Company’s locations suffered property damages as a result of flooding and fire, respectively. The Company maintains property insurance for all of its facilities globally. During the three months ended March 31, 2022, there have been no significant changes to the facts or circumstances of these previously disclosed matters, aside from the on-going restoration of both sites. The Company, its insurance adjuster and insurance carrier are actively managing the remediation and restoration activities associated with these events and at this time the Company has concluded, based on all available information and discussions with its insurance adjuster and insurance carrier, that the losses were covered under the Company’s property insurance coverage, net of an aggregate deductible of $ 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 $ 0.5 million as of March 31, 2022. The Company is party to other litigation which management currently believes will not have a material adverse effect on the Company’s results of operations, cash flows or financial condition. In addition, the Company has an immaterial amount of contractual purchase obligations. Quaker Chemical Corporation Management’s Discussion and Analysis 22