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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net sales $ 492,218 $ 449,072 $ 1,458,777 $ 1,314,117 Cost of goods sold ( excluding amortization expense - See Note 13 ) 331,469 303,941 1,002,393 858,341 Gross profit 160,749 145,131 456,384 455,776 Selling, general and administrative expenses 115,456 104,215 343,081 317,204 Restructuring and related (credits) charges, net ( 1,423 ) ( 880 ) ( 604 ) 593 Combination, integration and other acquisition-related expenses 2,107 5,786 7,992 18,259 Operating income 44,609 36,010 105,915 119,720 Other income (expense), net 85 647 ( 10,520 ) 19,344 Interest expense, net ( 8,389 ) ( 5,637 ) ( 20,228 ) ( 16,725 ) Income before taxes and equity in net income of associated companies 36,305 31,020 75,167 122,339 Taxes on income before equity in net income of associated Companies 10,185 795 14,425 26,702 Income before equity in net income of associated Companies 26,120 30,225 60,742 95,637 Equity in net (loss) income of associated companies ( 212 ) 848 ( 642 ) 7,668 Net income 25,908 31,073 60,100 103,305 Less: Net income attributable to noncontrolling interest 41 15 74 62 Net income attributable to Quaker Chemical Corporation $ 25,867 $ 31,058 $ 60,026 $ 103,243 Per share data: Net income attributable to Quaker Chemical Corporation common shareholders – basic $ 1.44 $ 1.74 $ 3.35 $ 5.78 Net income attributable to Quaker Chemical Corporation common shareholders – diluted $ 1.44 $ 1.73 $ 3.35 $ 5.76 Dividends declared $ 0.435 $ 0.415 $ 1.265 $ 1.205 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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net income $ 25,908 $ 31,073 $ 60,100 $ 103,305 Other comprehensive (loss) income, net of tax Currency translation adjustments ( 71,986 ) ( 19,905 ) ( 155,284 ) ( 29,201 ) Defined benefit retirement plans 497 904 2,400 2,593 Current period change in fair value of derivatives ( 140 ) 436 1,535 1,450 Unrealized loss on available-for-sale securities ( 818 ) ( 215 ) ( 2,385 ) ( 2,961 ) Other comprehensive loss ( 72,447 ) ( 18,780 ) ( 153,734 ) ( 28,119 ) Comprehensive (loss) income ( 46,539 ) 12,293 ( 93,634 ) 75,186 Less: Comprehensive loss attributable to noncontrolling interest ( 3 ) ( 15 ) ( 5 ) ( 68 ) Comprehensive (loss) income attributable to Quaker Chemical Corporation $ ( 46,542 ) $ 12,278 $ ( 93,639 ) $ 75,118 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 September 30, December 31, 2022 2021 ASSETS Current assets Cash and cash equivalents $ 138,891 $ 165,176 Accounts receivable, net 461,912 430,676 Inventories Raw materials and supplies 165,280 129,382 Work-in-process and finished goods 151,860 135,149 Prepaid expenses and other current assets 66,760 59,871 Total current assets 984,703 920,254 Property, plant and equipment, at cost 425,650 434,344 Less: Accumulated depreciation ( 237,276 ) ( 236,824 ) Property, plant and equipment, net 188,374 197,520 Right of use lease assets 37,005 36,635 Goodwill 591,032 631,194 Other intangible assets, net 915,956 1,027,782 Investments in associated companies 76,748 95,278 Deferred tax assets 10,519 16,138 Other non-current assets 27,163 30,959 Total assets $ 2,831,500 $ 2,955,760 LIABILITIES AND EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $ 20,471 $ 56,935 Accounts payable 209,343 226,656 Dividends payable 7,800 7,427 Accrued compensation 32,993 38,197 Accrued restructuring 1,798 4,087 Accrued pension and postretirement benefits 1,536 1,548 Other accrued liabilities 91,790 95,617 Total current liabilities 365,731 430,467 Long-term debt 931,491 836,412 Long-term lease liabilities 25,697 26,335 Deferred tax liabilities 151,208 179,025 Non-current accrued pension and postretirement benefits 38,222 45,984 Other non-current liabilities 39,521 49,615 Total liabilities 1,551,870 1,567,838 Commitments and contingencies (Note 18) Equity Common stock $ 1 par value; authorized 30,000,000 shares; issued and outstanding 2022 – 17,931,205 shares; 2021 – 17,897,033 shares 17,931 17,897 Capital in excess of par value 925,037 917,053 Retained earnings 553,685 516,334 Accumulated other comprehensive loss ( 217,655 ) ( 63,990 ) Total Quaker shareholders’ equity 1,278,998 1,387,294 Noncontrolling interest 632 628 Total equity 1,279,630 1,387,922 Total liabilities and equity $ 2,831,500 $ 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 Nine Months Ended September 30, 2022 2021 Cash flows from operating activities Net income $ 60,100 $ 103,305 Adjustments to reconcile net income to net cash used in operating activities: Amortization of debt issuance costs 2,589 3,562 Depreciation and amortization 60,692 65,440 Equity in undistributed earnings of associated companies, net of dividends 3,612 ( 7,563 ) Acquisition-related fair value adjustments related to inventory — 801 Deferred compensation, deferred taxes and other, net ( 8,811 ) ( 21,865 ) Share-based compensation 8,635 8,441 Loss on extinguishment of debt 5,246 — Gain on disposal of property, plant, equipment and other assets ( 33 ) ( 4,819 ) Combination and other acquisition-related expenses, net of payments ( 4,265 ) ( 1,705 ) Restructuring and related (credits) charges ( 604 ) 593 Pension and other postretirement benefits ( 6,556 ) ( 5,638 ) (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable ( 65,256 ) ( 68,664 ) Inventories ( 72,386 ) ( 72,962 ) Prepaid expenses and other current assets ( 11,081 ) ( 24,512 ) Change in restructuring liabilities ( 1,234 ) ( 4,557 ) Accounts payable and accrued liabilities 3,059 32,652 Net cash (used in) provided by operating activities ( 26,293 ) 2,509 Cash flows from investing activities Investments in property, plant and equipment ( 20,230 ) ( 12,823 ) Payments related to acquisitions, net of cash acquired ( 9,421 ) ( 31,975 ) Proceeds from disposition of assets 65 14,744 Net cash used in investing activities ( 29,586 ) ( 30,054 ) Cash flows from financing activities Payments of long-term debt ( 668,500 ) ( 28,558 ) Proceeds from long-term debt 750,000 — (Payments) borrowings on revolving credit facilities, net ( 10,418 ) 39,143 Borrowings (payments) on other debt, net 2,131 ( 585 ) Financing-related debt issuance costs ( 3,734 ) — Dividends paid ( 22,302 ) ( 21,175 ) Stock options exercised, other ( 616 ) 704 Net cash provided by (used in) financing activities 46,561 ( 10,471 ) Effect of foreign exchange rate changes on cash ( 16,967 ) ( 2,486 ) Net decrease in cash and cash equivalents ( 26,285 ) ( 40,502 ) Cash and cash equivalents at the beginning of the period 165,176 181,895 Cash and cash equivalents at the end of the period $ 138,891 $ 141,393 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 (Unaudited; Dollars in thousands, except per share amounts) 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 Net income — — 33,570 — 30 33,600 Amounts reported in other comprehensive gain — — — 17,285 8 17,293 Dividends ($ 0.395 per share) — — ( 7,062 ) — — ( 7,062 ) Share issuance and equity-based compensation plans 3 2,114 — — — 2,117 Balance at June 30, 2021 $ 17,878 $ 910,862 $ 482,001 $ ( 35,943 ) $ 603 $ 1,375,401 Net income — — 31,058 — 15 31,073 Amounts reported in other comprehensive loss — — — ( 18,780 ) — ( 18,780 ) Dividends ($ 0.415 per share) — — ( 7,424 ) — — ( 7,424 ) Share issuance and equity-based compensation plans 11 3,415 — — — 3,426 Balance at September 30, 2021 $ 17,889 $ 914,277 $ 505,635 $ ( 54,723 ) $ 618 $ 1,383,696 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) income — — — ( 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 Net income — — 14,343 — 28 14,371 Amounts reported in other comprehensive loss — — — ( 74,985 ) ( 33 ) ( 75,018 ) Dividends ($ 0.415 per share) — — ( 7,438 ) — — ( 7,438 ) Share issuance and equity-based compensation plans 8 2,943 — — — 2,951 Balance at June 30, 2022 $ 17,920 $ 921,642 $ 535,621 $ ( 145,246 ) $ 629 $ 1,330,566 Net income — — 25,867 — 41 25,908 Amounts reported in other comprehensive loss — — — ( 72,409 ) ( 38 ) ( 72,447 ) Dividends ($ 0.435 per share) — — ( 7,803 ) — — ( 7,803 ) Share issuance and equity-based compensation plans 11 3,395 — — — 3,406 Balance at September 30, 2022 $ 17,931 $ 925,037 $ 553,685 $ ( 217,655 ) $ 632 $ 1,279,630 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 7 Note 1 – Basis of Presentation and Description of Business Basis of Presentation As used in these Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for the period ended September 30, 2022 (the “Report”), the terms “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires. As used in these Notes to Condensed Consolidated Financial Statements, the “Combination” refers to the legacy Quaker combination with Houghton International, Inc. (“Houghton”). The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and the United States Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments consisting only of normal recurring adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods. The results for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Description of Business The Company was organized in 1918, incorporated as a Pennsylvania business corporation in 1930, and in August 2019 completed the Combination with Houghton to form Quaker Houghton. Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 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 as well as economic instability, Argentina’s and Türkiye’s economies were considered hyper-inflationary under U.S. GAAP effective July 1, 2018 and April 1, 2022, respectively. As of, and for the three and nine months ended September 30, 2022, the Company's Argentine and Turkish subsidiaries represented a combined 1 % and 2 % of the Company’s consolidated total assets and net sales, respectively. During the three and nine months ended September 30, 2022, the Company recorded $ 1.0 million and $ 1.2 million, respectively, of remeasurement losses associated with the applicable currency conversions related to Argentina and Türkiye. Comparatively, during the three and nine months ended September 30, 2021, the Company recorded less than $ 0.1 million and $ 0.3 million, respectively, of remeasurement losses associated with the applicable currency conversions related to Argentina. These losses were recorded within foreign exchange losses, net, which is a component of other (expense) income, net, in the Company’s Condensed Consolidated Statements of Income. Note 2 – Business Acquisitions 2022 Acquisitions Subsequent to the date of these financial statements, in October 2022, the Company acquired a business that provides pickling and rinsing products and services, which is part of the EMEA reportable segment, for approximately 3.5 million EUR or approximately $ 3.5 million. This acquisition, along with the Company’s January 2022 acquisition in the Americas (described below), which had similar specializations and product offerings in pickling inhibitor technologies, strengthens Quaker Houghton’s position in pickling inhibitors and additives, enabling the Company to better support and optimize production processes for customers across the Metals industry. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 8 In January 2022, the Company acquired a business that provides pickling inhibitor technologies, drawing lubricants and stamping oil, and various other lubrication, rust preventative, and cleaner applications, which is part of the 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. During the third quarter of 2022 the Company finalized post-closing adjustments that resulted in the Company paying less than $ 0.1 million of additional purchase consideration. 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. 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, which is part of the Global Specialty Businesses 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. The results of operations of the January 2022 acquisitions subsequent to the respective acquisition dates are included in the unaudited Condensed Consolidated Statements of Income for the nine month period ended September 30, 2022. Applicable transaction expenses associated with these acquisitions are included in Combination, integration and other acquisition-related expenses in the Company’s unaudited Condensed Consolidated Statements of Income. Certain pro forma and other information is not presented, as the operations of the acquisitions are not considered material to the overall operations of the Company for the periods presented. The results of operations of the October acquisition is not included in the Consolidated Statements of Operations because the date of closing was subsequent to September 30, 2022. Preliminary purchase price allocation of assets acquired and liabilities assumed for this business acquired has not been presented as that information is not available as of the date of these Condensed Consolidated Financial Statements. 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 that are payable at various times from 2022 through 2025. The earn-out provisions could total a maximum of $ 4.5 million. In September 2022, the Company paid $ 2.5 million related to certain of these earnout provisions. The Company recorded an incremental earn-out expense of $ 0.1 million during the three and nine months ended September 30, 2022 related to these earnout provisions, recorded within the financial statement caption “Combination, integration and other acquisition-related expenses” on the Company’s Condensed Consolidated Statements of Income. As of September 30, 2022, the Company has remaining earnout liabilities recorded on its Condensed Consolidated Balance Sheet of $ 1.6 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 . 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. During the third quarter of 2022 the Company finalized post-closing adjustments that resulted in the Company receiving less than $ 0.1 million. In November 2021, the Company acquired a business that provides hydraulic fluids, coolants, cleaners, and rust preventative oils in Türkiye 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. 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. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 9 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 September 30, 2022, the allocation of the purchase price of all of the Company’s 2022 acquisitions, the acquisition in Türkiye and Baron have not been finalized and the one-year measurement period has not ended. Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed. In December 2020, the Company acquired Coral Chemical Company, LLC (“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. During the second quarter of 2022, after failing to reach resolution, the Sellers filed suit asserting certain amounts owed related to tax attributes of the acquisition. During the third quarter of 2022, there have been no material changes to the facts and circumstances of the claim asserted by the Sellers, and the Company continues to believe 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 effective for the Company as of March 12, 2020 and generally can be applied through December 31, 2022. On June 17, 2022, the Company entered into an amendment to its primary credit facility which, among other things, provided for the use of a USD currency LIBOR successor rate (the Secured Overnight Financing Rate (“SOFR”)). See Note 14 of Notes to Condensed Consolidated Financial Statements. Note 4 – Business Segments The Company’s operating segments, which are consistent with its reportable segments, reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the chief operating decision maker assesses the Company’s performance. The Company has 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. The Global Specialty Businesses segment includes the Company’s container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses. Segment operating earnings for each of the Company’s reportable segments are comprised of the segment’s net sales less directly related cost of goods sold (“COGS”) and selling, general and administrative expenses (“SG&A”). Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating earnings. Other items not specifically identified with the Company’s reportable segments include Interest expense, net and Other (expense) income, net. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 10 The following table presents information about the performance of the Company’s reportable segments for the three and nine months ended September 30, 2022 and 2021. Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net sales Americas $ 186,546 $ 150,799 $ 513,438 $ 425,343 EMEA 113,367 122,241 362,107 365,491 Asia/Pacific 91,211 98,659 295,273 286,924 Global Specialty Businesses 101,094 77,373 287,959 236,359 Total net sales $ 492,218 $ 449,072 $ 1,458,777 $ 1,314,117 Segment operating earnings Americas $ 44,986 $ 31,273 $ 107,991 $ 97,155 EMEA 9,883 20,153 39,932 68,802 Asia/Pacific 23,336 23,285 67,469 73,990 Global Specialty Businesses 30,746 20,663 83,622 69,041 Total segment operating earnings 108,951 95,374 299,014 308,988 Combination, integration and other acquisition-related expenses ( 2,107 ) ( 5,786 ) ( 7,992 ) ( 18,259 ) Restructuring and related credits (charges), net 1,423 880 604 ( 593 ) Fair value step up of acquired inventory sold - - - ( 801 ) Non-operating and administrative expenses ( 47,852 ) ( 38,691 ) ( 139,894 ) ( 122,760 ) Depreciation of corporate assets and amortization ( 15,806 ) ( 15,767 ) ( 45,817 ) ( 46,855 ) Operating income 44,609 36,010 105,915 119,720 Other income (expense), net 85 647 ( 10,520 ) 19,344 Interest expense, net ( 8,389 ) ( 5,637 ) ( 20,228 ) ( 16,725 ) Income before taxes and equity in net income of associated companies $ 36,305 $ 31,020 $ 75,167 $ 122,339 Inter-segment revenues for the three and nine months ended September 30, 2022, were $ 2.6 million and $ 8.8 million for Americas, $ 6.4 million and $ 27.7 million for EMEA, $ 0.3 million and $ 0.7 million for Asia/Pacific, and $ 2.3 million and $ 6.0 million for Global Specialty Businesses, respectively. Inter-segment revenues for the three and nine months ended September 30, 2021, were $ 3.6 million and $ 9.3 million for Americas, $ 6.8 million and $ 21.9 million for EMEA, $ 0.8 million and $ 1.3 million for Asia/Pacific, and $ 1.8 million and $ 5.9 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 recognized on a net reporting basis of $ 21.4 million and $ 61.7 million for the three and nine months ended September 30, 2022, respectively, and $ 18.9 million and $ 53.4 million for the three and nine months ended September 30, 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, aerospace, industrial and agricultural equipment, and durable goods. As previously disclosed in the Company’s 2021 Form 10-K, for 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. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 11 Contract Assets and Liabilities The Company had no material contract assets recorded on its Condensed Consolidated Balance Sheets as of September 30, 2022 or December 31, 2021. The Company had approximately $ 6.0 million and $ 7.0 million of deferred revenue as of September 30, 2022 and December 31, 2021, respectively. For the nine months ended September 30, 2022, the Company satisfied all of the associated performance obligations and recognized into revenue the advance payments received and recorded as of December 31, 2021. Disaggregated Revenue The Company sells its various industrial process fluids, its specialty chemicals and its technical expertise as a global product portfolio. The Company generally manages and evaluates its performance by segment first, and then by customer industry, rather than by individual product lines. Also, net sales of each of the Company’s major product lines are generally spread throughout all three of the Company’s geographic regions, and in most cases, are approximately proportionate to the level of total sales in each region. The following tables disaggregate the Company’s net sales by segment, geographic region, customer industry, and timing of revenue recognized for the three and nine months ended September 30, 2022 and 2021. Three Months Ended September 30, 2022 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 69,249 $ 32,690 $ 52,856 $ 154,795 Metalworking and other 117,297 80,677 38,355 236,329 186,546 113,367 91,211 391,124 Global Specialty Businesses 67,469 20,185 13,440 101,094 $ 254,015 $ 133,552 $ 104,651 $ 492,218 Timing of Revenue Recognized Product sales at a point in time $ 244,162 $ 127,045 $ 101,945 $ 473,152 Services transferred over time 9,853 6,507 2,706 19,066 $ 254,015 $ 133,552 $ 104,651 $ 492,218 Three Months Ended September 30, 2021 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 56,954 $ 38,483 $ 53,994 $ 149,431 Metalworking and other 93,845 83,758 44,665 222,268 150,799 122,241 98,659 371,699 Global Specialty Businesses 46,008 19,253 12,112 77,373 $ 196,807 $ 141,494 $ 110,771 $ 449,072 Timing of Revenue Recognized Product sales at a point in time $ 188,340 $ 131,982 $ 108,559 $ 428,881 Services transferred over time 8,467 9,512 2,212 20,191 $ 196,807 $ 141,494 $ 110,771 $ 449,072 Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 12 Nine Months Ended September 30, 2022 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 188,782 $ 107,115 $ 163,739 $ 459,636 Metalworking and other 324,656 254,992 131,534 711,182 513,438 362,107 295,273 1,170,818 Global Specialty Businesses 187,099 61,530 39,330 287,959 $ 700,537 $ 423,637 $ 334,603 $ 1,458,777 Timing of Revenue Recognized Product sales at a point in time $ 670,581 $ 400,870 $ 326,760 $ 1,398,211 Services transferred over time 29,956 22,767 7,843 60,566 $ 700,537 $ 423,637 $ 334,603 $ 1,458,777 Nine Months Ended September 30, 2021 Consolidated Americas EMEA Asia/Pacific Total Customer Industries Metals $ 155,546 $ 108,391 $ 151,944 $ 415,881 Metalworking and other 269,797 257,100 134,980 661,877 425,343 365,491 286,924 1,077,758 Global Specialty Businesses 137,447 61,203 37,709 236,359 $ 562,790 $ 426,694 $ 324,633 $ 1,314,117 Timing of Revenue Recognized Product sales at a point in time $ 537,161 $ 400,982 $ 316,222 $ 1,254,365 Services transferred over time 25,629 25,712 8,411 59,752 $ 562,790 $ 426,694 $ 324,633 $ 1,314,117 Note 6 - Leases The Company has operating leases for certain facilities, vehicles and machinery and equipment with remaining lease terms up to 9 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, sublease income or finance leases for three and nine months ended September 30, 2022 and 2021. The following table sets forth the components of the Company’s lease cost for three and nine months ended September 30, 2022 and 2021: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Operating lease expense $ 3,664 $ 3,408 $ 10,592 $ 10,568 Short-term lease expense 201 221 625 755 Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 13 Supplemental cash flow information related to the Company’s leases is as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,768 $ 3,365 $ 10,575 $ 10,433 Non-cash lease liabilities activity: Leased assets obtained in exchange for new operating lease liabilities 2,599 1,711 10,672 5,587 Supplemental balance sheet information related to the Company’s leases is as follows: September 30, December 31, 2022 2021 Right of use lease assets $ 37,005 $ 36,635 Other current liabilities 11,143 9,976 Long-term lease liabilities 25,697 26,335 Total operating lease liabilities $ 36,840 $ 36,311 Weighted average remaining lease term (years) 5.4 5.6 Weighted average discount rate 4.43 % 4.22 % Maturities of operating lease liabilities were as follows: September 30, 2022 For the remainder of 2022 $ 3,262 For the year ended December 31, 2023 10,668 For the year ended December 31, 2024 8,429 For the year ended December 31, 2025 6,087 For the year ended December 31, 2026 4,512 For the year ended December 31, 2027 and beyond 6,785 Total lease payments 39,743 Less: imputed interest ( 2,903 ) Present value of lease liabilities $ 36,840 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 included restructuring and associated severance costs to reduce total headcount by approximately 400 people globally, as well as the closure of certain manufacturing and non-manufacturing facilities. The exact timing to complete all actions and final costs associated with the QH Program depend on a number of factors and are subject to change; however, the Company had reduction in headcount and site closures under the QH Program in 2022 and expects final headcount reductions to continue into 2023. Employee separation benefits varied depending on local regulations within certain foreign countries and included severance and other benefits. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 14 All costs incurred related 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 are recorded in Restructuring and related (credits) charges in the Company’s Condensed Consolidated Statements of Income. The credits recognized in the nine months ended September 30, 2022 reflect customary and routine adjustments to initial estimates for employee separation costs. At this time, the Company does not expect to incur material additional costs under the QH Program. As described in Note 4 of the Notes to Condensed Consolidated Financial Statements, restructuring and related charges are not included in the Company’s calculation of reportable segments’ measure of operating earnings and therefore these costs are not reviewed by or recorded to reportable segments. Activity in the Company’s accrual for restructuring under the QH Program for the nine months ended September 30, 2022 is as follows: QH Program Accrued restructuring as of December 31, 2021 $ 4,087 Restructuring and related (credits) ( 604 ) Cash payments ( 1,234 ) Currency translation adjustments ( 451 ) Accrued restructuring as of September 30, 2022 $ 1,798 Note 8 – Share-Based Compensation The Company recognized the following share-based compensation expense in its Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Stock options $ 533 $ 298 $ 1,269 $ 938 Non-vested stock awards and restricted stock units 1,783 1,277 4,998 3,963 Non-elective and elective 401(k) matching contribution in stock — — — 1,553 Director stock ownership plan 9 241 53 660 Performance stock units 875 491 2,314 1,327 Total share-based compensation expense $ 3,200 $ 2,307 $ 8,634 $ 8,441 Share-based compensation expense is recorded in SG&A, except for less than $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2022, respectively, and $ 0.2 million and $ 0.7 million for the three and nine months ended September 30, 2021, respectively, recorded within Combination, integration and other acquisition-related expenses. Stock Options During the first nine months of 2022, the Company granted stock options under its long-term incentive plan (“LTIP”) that are subject only to time vesting over a three 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 July 2022 Grant Grant Number of options granted 27,077 4,837 Dividend yield 0.80 % 0.79 % Expected volatility 38.60 % 40.47 % Risk-free interest rate 2.07 % 2.87 % Expected term (years) 4.0 4.0 The fair value of these options is amortized on a straight-line basis over the vesting period. As of September 30, 2022, unrecognized compensation expense related to all stock options granted was $ 2.0 million, to be recognized over a weighted average remaining period of 1.5 years. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 15 Restricted Stock Awards and Restricted Stock Units During the nine months ended September 30, 2022, the Company granted 35,846 non-vested restricted shares and 4,490 non- vested restricted stock units under its LTIP, which are 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 September 30, 2022, unrecognized compensation expense related to the non-vested restricted shares was $ 5.9 million, to be recognized over a weighted average remaining period of 1.6 years, and unrecognized compensation expense related to non-vested restricted stock units was $ 1.0 million, to be recognized over a weighted average remaining period of 1.9 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 issuance of the shares upon settlement. Compensation expense for PSUs is measured based on their grant date fair value and is recognized on a straight-line basis over the three year vesting period. The grant-date fair value of the PSUs was estimated using a Monte Carlo simulation on the grant date and using the following assumptions set forth in the table below: 2022 Grants Number of PSUs granted 18,462 Risk-free interest rate 2.11 % Dividend yield 0.93 % Expected term (years) 3.0 As of September 30, 2022, based on the conditions of the PSUs and performance to date for each award, the Company estimates that it will no t issue any fully vested shares as of the applicable settlement date of all outstanding PSUs awards. As of September 30, 2022, there was approximately $ 4.8 million of total unrecognized compensation cost related to PSUs which the Company expects to recognize over a weighted-average period of 2.0 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 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 and nine months ended September 30, 2022. For the nine months ended September 30, 2021, total contributions were $ 1.5 million. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 16 Note 9 – Pension and Other Postretirement Benefits The components of net periodic benefit (income) cost for the three and nine months ended September 30, 2022 and 2021 are as follows: Three Months Ended September 30, Nine Months Ended September 30, Other Other Postretirement Postretirement Pension Benefits Benefits Pension Benefits Benefits 2022 2021 2022 2021 2022 2021 2022 2021 Service cost (income) $ 166 $ 289 $ 1 $ ( 2 ) $ 520 $ 921 $ 1 $ 1 Interest cost (income) 1,272 1,078 8 ( 1 ) 3,949 3,262 19 20 Expected return on plan assets ( 1,942 ) ( 2,075 ) — — ( 6,038 ) ( 6,250 ) — — Actuarial loss (gain) amortization 238 737 ( 23 ) ( 85 ) 743 2,449 ( 70 ) ( 85 ) Prior service cost (income) amortization 3 3 ( 8 ) — 8 8 ( 17 ) — Net periodic benefit (income) cost $ ( 263 ) $ 32 $ ( 22 ) $ ( 88 ) $ ( 818 ) $ 390 $ ( 67 ) $ ( 64 ) Employer Contributions As of September 30, 2022, $ 5.5 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 Income (Expense), Net The components of other income (expense), net, for the three and nine months ended September 30, 2022 and 2021 are as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Income from third party license fees $ 253 $ 314 $ 906 $ 1,026 Foreign exchange (losses) gain, net ( 1,928 ) 368 ( 5,859 ) ( 1,948 ) Gain (loss) on disposals of property, plant, equipment and other assets, net 48 ( 537 ) 33 4,819 Non-income tax refunds and other related credits (expense) 122 3 ( 1,617 ) 14,395 Pension and postretirement benefit income, non-service components 452 343 1,406 596 Loss on extinguishment of debt — — ( 6,763 ) — Gain on insurance recoveries 1,104 — 1,104 — Other non-operating income, net 34 156 270 456 Total other income (expense), net $ 85 $ 647 $ ( 10,520 ) $ 19,344 Gain (loss) on disposals of property, plant, equipment and other assets, net, during the three months ended September 30, 2021, includes losses related to certain fixed asset disposals resulting from property damage. See Note 18 of Notes to Condensed Consolidated Financial Statements. During the nine months ended September 30, 2021, this caption also includes the gain on the sale of certain held-for-sale real property assets related to the Combination. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 17 Non-income tax refunds and other related credits (expense) during the nine months ended September 30, 2022, includes adjustments to Combination-related indemnification assets associated with the settlement of certain income tax audits at certain of the Company’s Italian and German affiliates for tax periods prior to August 1, 2019. See Note 11 of Notes to Condensed Consolidated Financial Statements. During the nine months ended September 30, 2021 this caption includes certain non-income tax credits for the Company’s Brazilian subsidiaries. See Note 18 of Notes to Condensed Consolidated Financial Statements. Loss on extinguishment of debt during the nine months ended September 30, 2022 includes the write-off of certain previously unamortized deferred financing costs as well as a portion of the third party and creditor debt issuance costs incurred to execute an amendment to the Company’s primary credit facility. See Note 14 of Notes to the Condensed Consolidated Financial Statements. Gain on insurance recoveries during the three and nine months ended September 30, 2022, reflects payments received from insurers related to the property damage incurred during the three months ended September 2021, noted above. See Note 18 of Notes to the Condensed Consolidated Financial Statements. Note 11 – Income Taxes and Uncertain Income Tax Positions The Company’s effective tax rates for the three and nine months ended September 30, 2022 were 28.1 % and 19.2 %, respectively, compared to 2.6 % and 21.8 % for the three and nine months ended September 30, 2021, respectively. The Company’s effective tax rate for the nine months ended September 30, 2022 was impacted by various items including a decline in forecasted profits and earnings mix, foreign tax inclusions, changes in the valuation allowance for foreign tax credits, the impact of audit settlements reached with Italian tax authorities, a reduction in reserves for uncertain tax positions and withholding taxes. In addition, the Company incurred higher tax expense during the three and nine months ended September 30, 2022 at one of its subsidiaries as it accrued taxes 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 effective tax rates were largely impacted by changes in permanent reinvestment assertions, changes in foreign tax credit valuation allowances, tax law changes in a foreign jurisdiction, deferred tax benefits related to an intercompany intangible asset transfer and the income tax impacts of certain non-income tax credits recorded by the Company’s Brazilian subsidiaries. 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. As of September 30, 2022 this deferred tax liability balance was $ 6.9 million. As of September 30, 2022, the Company’s cumulative liability for gross unrecognized tax benefits was $ 16.2 million, a decrease of approximately $ 6.3 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 an expense for interest of $ 0.1 million and a benefit for interest of $ 0.2 million and a benefit of less than $ 0.1 million and $ 1.6 million for penalties in its Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2022, respectively, and recognized an expense for interest of approximately $ 0.2 million and $ 0.4 million and a benefit of less than $ 0.1 million and $ 0.2 million for penalties in its Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, the Company had accrued $ 2.6 million for cumulative interest and $ 1.4 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 nine months ended September 30, 2022 and 2021, the Company recognized decreases of $ 3.8 million and $ 1.2 million, respectively, in its cumulative liability for gross unrecognized tax benefits due to the settlement of income tax audits with both the Italian and German tax authorities, as well as the expiration of the applicable statutes of limitations for certain tax years. The Company estimates that during the year ending December 31, 202 2 it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $ 4.1 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 , the Netherlands from 2016 , Canada, China, Mexico and the U.S. from 2017 , Germany, Spain and 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 . Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 18 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 had accepted. As of September 30, 2022, the Company 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 of September 30, 2022, the Company has paid the full settlement amount, of which approximately $ 0.2 million was confirmed to be refundable. Houghton Italia, S.r.l was 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 nine months ended September 30, 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 $ 1.9 million during the first nine months of 2022. The Company has an indemnification receivable of approximately $ 3.6 million in connection with its claim against the former owners of Houghton for any pre-Combination tax liabilities arising from this matter, as well as other audit settlements. Note 12 – Earnings Per Share The following table summarizes earnings per share calculations for the three and nine months ended September 30, 2022 and 2021: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Basic earnings per common share Net income attributable to Quaker Chemical Corporation $ 25,867 $ 31,058 $ 60,026 $ 103,243 Less: income allocated to participating securities ( 115 ) ( 119 ) ( 250 ) ( 413 ) Net income available to common shareholders $ 25,752 $ 30,939 $ 59,776 $ 102,830 Basic weighted average common shares outstanding 17,847,305 17,812,216 17,835,976 17,800,082 Basic earnings per common share $ 1.44 $ 1.74 $ 3.35 $ 5.78 Diluted earnings per common share Net income attributable to Quaker Chemical Corporation $ 25,867 $ 31,058 $ 60,026 $ 103,243 Less: income allocated to participating securities ( 115 ) ( 119 ) ( 250 ) ( 412 ) Net income available to common shareholders $ 25,752 $ 30,939 $ 59,776 $ 102,831 Basic weighted average common shares outstanding 17,847,305 17,812,216 17,835,976 17,800,082 Effect of dilutive securities 12,566 58,176 15,465 59,986 Diluted weighted average common shares outstanding 17,859,871 17,870,392 17,851,441 17,860,068 Diluted earnings per common share $ 1.44 $ 1.73 $ 3.35 $ 5.76 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 25,896 and 24,618 for the three and nine months ended September 30, 2022, respectively, and 5,531 and 3,722 for the three and nine months ended September 30, 2021, respectively. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 19 Note 13 – Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill for the nine months ended September 30, 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 (reductions) 1,853 — — ( 59 ) 1,794 Currency translation adjustments ( 810 ) ( 16,826 ) ( 16,462 ) ( 7,858 ) ( 41,956 ) Balance as of September 30, 2022 $ 215,066 $ 118,694 $ 145,996 $ 111,276 $ 591,032 Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of September 30, 2022 and December 31, 2021 were as follows: Gross Carrying Accumulated Amount Amortization 2022 2021 2022 2021 Customer lists and rights to sell $ 803,346 $ 853,122 $ 173,893 $ 147,858 Trademarks, formulations and product technology 150,164 163,974 42,484 38,747 Other 6,611 6,309 5,973 5,900 Total definite-lived intangible assets $ 960,121 $ 1,023,405 $ 222,350 $ 192,505 The Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded $ 14.1 million and $ 43.3 million of amortization expense for the three and nine months ended September 30, 2022, respectively. Comparatively, the Company recorded $ 14.9 million and $ 44.7 million of amortization expense for the three and nine months ended September 30, 2021, respectively. Estimated annual aggregate amortization expense for the current year and subsequent five years and beyond is as follows: For the year ended December 31, 2022 $ 55,628 For the year ended December 31, 2023 55,454 For the year ended December 31, 2024 54,848 For the year ended December 31, 2025 54,027 For the year ended December 31, 2026 53,835 For the year ended December 31, 2027 and beyond 513,988 The Company had four indefinite-lived intangible assets totaling $ 178.2 million as of September 30, 2022, including $ 177.1 million of indefinite-lived intangible assets for trademarks and tradenames associated with the Combination. Comparatively, the Company had four indefinite-lived intangible assets for trademarks and tradenames totaling $ 196.9 million as of December 31, 2021. The Company completes its annual goodwill and indefinite-lived intangible asset impairment test during the fourth quarter of each year, or more frequently if triggering events indicate a possible impairment. The Company continually evaluates financial performance, economic conditions and other recent developments in assessing if a triggering event indicates that the carrying values of goodwill, indefinite-lived, or long-lived assets are impaired. The Company continues to monitor various financial, economic and geopolitical conditions impacting the Company, including the ongoing Russia-Ukraine war and the Company’s decision to cease operations in Russia, continued raw material cost escalation, supply chain constraints and disruptions, as well as rising interest rates and the cost of capital among other factors. The Company concluded that these and other factors, which have and continue to impact the Company, did not represent a triggering event during the third quarter of 2022, except for the Company’s EMEA reporting unit and the associated goodwill, as well as the related asset group. The Company concluded that during the third quarter of 2022 the escalation of these events adversely impacted EMEA’s financial performance and represented a triggering event. As a result of this conclusion, the Company completed an interim impairment assessment for its EMEA reporting unit, as well as the related asset group, during the third quarter of 2022. The Company concluded that the undiscounted cash flows exceeded the carrying value of the long-lived assets, and it is not more likely than not that an impairment exists. In completing a quantitative goodwill impairment test, the Company compares the reporting unit ’s fair value, primarily based on future discounted cash flows, to its carrying value in order to determine if an impairment charge is warranted. The estimates of future discounted cash flows involve considerable management judgment and are based upon certain significant assumptions including the weighted average cost of capital Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 20 as well as projected EBITDA, which includes assumptions related to revenue growth rates, gross margin levels and operating expenses. As a result of this interim impairment assessment, the estimated fair value of the EMEA reporting unit exceeded its carrying value by approximately 22 % and the Company concluded no impairment was warranted. Notwithstanding the results of the Company’s interim impairment assessment, if the Company is unable to successfully implement selling price increases aimed at more than offsetting raw material costs and ongoing inflationary pressures and the financial performance of the EMEA reporting unit declines further, or interest rates continue to rise and this leads to an increase in the cost of capital, then it is possible these financial, economic and geopolitical conditions could result in another triggering event for the EMEA reporting unit in the future and could lead to a potential impairment . In addition, if any of these financial, economic or geopolitical conditions has a more significant adverse effect on the Company, these could lead to a potential impairment of the Company’s goodwill or other indefinite-lived or long-lived assets. Note 14 – Debt Debt as of September 30, 2022 and December 31, 2021 includes the following: As of September 30, 2022 As of December 31, 2021 Interest Outstanding Interest Outstanding Rate Balance Rate Balance Credit Facilities: Original Revolver — $ — 1.62 % $ 211,955 Original U.S. Term Loan — — 1.65 % 540,000 Original Euro Term Loan — — 1.50 % 137,616 Amended Revolver 4.12 % 201,536 — — Amended U.S. Term Loan 4.26 % 600,000 — — Amended Euro Term Loan 1.50 % 139,627 — — Industrial development bonds 5.26 % 10,000 5.26 % 10,000 Bank lines of credit and other debt obligations Various 2,903 Various 1,777 Total debt $ 954,066 $ 901,348 Less: debt issuance costs ( 2,104 ) ( 8,001 ) Less: short-term and current portion of long-term debts ( 20,471 ) ( 56,935 ) Total long-term debt $ 931,491 $ 836,412 Credit facilities The Company, its wholly owned subsidiary, Quaker Chemical B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S. Dollar swing line lender and letter of credit issuer, and the other lenders party thereto, entered into a credit agreement on August 1, 2019, as amended (the “Original Credit Facility”). The Original Credit Facility was comprised of a $ 400.0 million multicurrency revolver (the “Original Revolver”), a $ 600.0 million term loan (the “Original 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 “Original Euro Term Loan”) with Quaker Chemical B.V., a Dutch subsidiary of the Company as borrower, each with a five year term, maturing in August 2024 . During June 2022, the Company, and its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S. Dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to the Original Credit Facility (the “Amended Credit Facility”). The Amended Credit Facility established (A) a new $ 150.0 million Euro equivalent senior secured term loan (the “Amended Euro Term Loan”), (B) a new $ 600.0 million senior secured term loan (the “Amended U.S. Term Loan”), and (C) a new $ 500.0 million senior secured revolving credit facility (the “Amended Revolver”). The Company has the right to increase the amount of the Amended Credit Facility by an aggregate amount not to exceed the greater of $ 300.0 million or 100 % of Consolidated EBITDA, subject to certain conditions including the agreement to provide financing by any lender providing such increase). In addition, the Amended Credit Facility also: (i) eliminated the requirement that material foreign subsidiaries must guaranty the Original Euro Term Loan; (ii) replaced the U.S. Dollar borrowings reference rate from LIBOR to SOFR; (iii) extended the maturity date of the Original Credit Facility from August 2024 to June 2027 ; and (iv) effected certain other changes to the Original Credit Facility as set forth in the Amended Credit Facility. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 21 The Company used the proceeds of the Amended Credit Facility to repay all outstanding loans under the Original Credit Facility, unpaid accrued interest and fees on the closing date under the Original Credit Facility and certain expenses and fees. U.S. Dollar- denominated borrowings under the Amended Credit Facility bear interest, at the Company’s election, at the base rate or term SOFR plus an applicable rate ranging from 1.00 % to 1.75 % for term SOFR loans and from 0.00 % to 0.75 % for base rate loans, depending upon the Company’s consolidated net leverage ratio. Loans based on term SOFR also include a spread adjustment equal to 0.10 % per annum. Borrowings under the Amended Credit Facility denominated in currencies other than U.S. Dollars bear interest at the alternative currency term rate plus the applicable rate ranging from 1.00 % to 1.75 %. The Amended Credit Facility contains affirmative and negative covenants, financial covenants and events of default, including without limitation restrictions on (a) the incurrence of additional indebtedness; (b) investments in and acquisitions of other businesses, lines of business and divisions; (c) the making of dividends or capital stock purchases; and (d) dispositions of assets. Dividends and share repurchases are permitted in annual amounts not exceeding the greater of $ 75 million annually and 25 % of consolidated EBITDA if there is no default. If the consolidated net leverage ratio is less than 2.50 to 1.00 , then the Company is no longer subject to restricted payments. Financial covenants contained in the Amended Credit Facility include a consolidated interest coverage ratio test and a consolidated net leverage ratio test. The consolidated net leverage ratio at the end of a quarter may not be greater than 4.00 to 1.00 , subject to a permitted increase during a four-quarter period after certain acquisitions. The Company has the option of replacing the consolidated net leverage ratio test with a consolidated senior net leverage ratio test if the Company issues certain types of unsecured notes, subject to certain limitations. Events of default in the Amended Credit Facility include without limitation defaults for non- payment, breach of representations and warranties, non-performance of covenants, cross-defaults, insolvency, and a change of control in certain circumstances. The occurrence of an event of default under the Amended Credit Facility could result in all loans and other obligations becoming immediately due and payable and the Amended Credit Facility being terminated. As of September 30, 2022, the Company was in compliance with all of the Amended Credit Facility covenants. The weighted average variable interest rate incurred on the outstanding borrowings under the Original Credit Facility and the Amended Credit Facility during the nine months ended September 30, 2022 was approximately 2.4 %. As of September 30, 2022, the interest rate on the outstanding borrowings under the Amended Credit Facility was approximately 3.8 %. In addition to paying interest on outstanding principal under the Original Credit Facility, the Company was required to pay a commitment fee ranging from 0.2 % to 0.3 % depending on the Company’s consolidated net leverage ratio under the Original Revolver in respect of the unutilized commitments thereunder. As part of the Amended Credit Facility, the Company is required to pay a commitment fee ranging from 0.150 % to 0.275 % related to unutilized commitments under the Amended Revolver, depending on the Company’s consolidated net leverage ratio. The Company had unused capacity under the Amended Revolver of approximately $ 295 million, which is net of bank letters of credit of approximately $ 3 million, as of September 30, 2022. The Company previously capitalized $ 23.7 million of certain third-party debt issuance costs in connection with executing the Original Credit Facility. Approximately $ 15.5 million of the capitalized costs were attributed to the Original Term Loans and recorded as a direct reduction of Long-term debt on the Condensed Consolidated Balance Sheet. Approximately $ 8.3 million of the capitalized costs were attributed to the Original Revolver and recorded within Other assets on the Condensed Consolidated Balance Sheet. These capitalized costs were being amortized into Interest expense over the five year term of the Original Credit Facility. As of December 31, 2021, the Company had $ 8.0 million of debt issuance costs recorded as a reduction of Long-term debt attributable to the Original Credit Facility. As of December 31, 2021, the Company had $ 4.3 million of debt issuance costs recorded within Other assets attributable to the Original Credit Facility. Prior to executing the Amended Credit Facility, the Company had $ 6.6 million of debt issuance costs recorded as a reduction of Long-term debt attributable to the Original Credit Facility and $ 3.5 million of debt issuance costs recorded within Other assets attributable to the Original Credit Facility. In connection with executing the Amended Credit Facility, the Company recorded a loss on extinguishment of debt of approximately $ 6.8 million which includes the write-off of certain previously unamortized deferred financing costs as well as a portion of the third-party and creditor debt issuance costs incurred to execute the Amended Credit Facility. Also in connection with executing the Amended Credit Facility, during the second quarter of 2022, the Company capitalized $ 2.2 million of certain third-party and creditor debt issuance costs. Approximately $ 0.7 million of the capitalized costs were attributed to the Amended Euro Term Loan and Amended U.S. Term Loan. These costs were recorded as a direct reduction of Long-term debt on the Condensed Consolidated Balance Sheet. Approximately $ 1.5 million of the capitalized costs were attributed to the Amended Revolver and recorded within Other assets on the Condensed Consolidated Balance Sheet. These capitalized costs, as well as the previously capitalized costs that were not written off will collectively be amortized into Interest expense over the five year term of the Amended Credit Facility. As of September 30, 2022, the Company had $ 2.1 million of debt issuance costs recorded as a reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $ 4.6 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 22 The Original Credit Facility required the Company to fix its variable interest rates on at least 20 % of its total Original Term Loans. In order to satisfy this requirement as well as to manage the Company’s exposure to variable interest rate risk associated with the Original Credit Facility, in November 2019, the Company entered into $ 170.0 million notional amounts of three-year interest rate swaps at a base rate of 1.64 % plus an applicable margin as provided in the Original Credit Facility, based on the Company’s consolidated net leverage ratio. At the time the Company entered into the swaps, and as of September 30, 2022, the aggregate interest rate on the swaps, including the fixed base rate plus an applicable margin, was 3.1 %. The Amended Credit Facility does not require the Company to fix variable interest rates on any portion of its borrowings. As of September 30, 2022, the Company had not amended its current interest rate swaps. In October 2022, the Company’s interest rate swap contracts expired. Upon expiration, the Company is entitled to a cash payment from the counterparties, which is materially consistent with the fair value as of September 30, 2022. See Note 17 of Notes to Condensed Consolidated Financial Statements. Industrial development bonds As of September 30, 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 Amended 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 September 30, 2022 was approximately $ 12 million. In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s other off-balance sheet arrangements include certain financial and other guarantees. The Company’s total bank letters of credit and guarantees outstanding as of September 30, 2022 were approximately $ 5 million. The Company incurred the following debt related expenses included within Interest expense, net, in the Condensed Consolidated Statements of Income: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Interest expense $ 9,465 $ 4,779 $ 20,339 $ 14,242 Amortization of debt issuance costs 353 1,187 2,589 3,562 Total $ 9,818 $ 5,966 $ 22,928 $ 17,804 Based on the variable interest rates associated with the Amended Credit Facility, as of September 30, 2022 and the Original Credit Facility as of December 31, 2021, the amounts at which the Company’s total debt were recorded are not materially different from their fair market value. On September 30, 2022, annual maturities on the Amended Credit Facility in the next five fiscal years (excluding the reduction to long-term debt attributed to capitalized and unamortized debt issuance costs) are as follows: ` September 30, 2022 For the remainder of 2022 $ 4,623 For the year ended December 31, 2023 18,491 For the year ended December 31, 2024 23,113 For the year ended December 31, 2025 36,981 For the year ended December 31, 2026 36,981 For the year ended December 31, 2027 820,974 Total payments $ 941,163 Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 23 Note 15 – Accumulated Other Comprehensive Income The following tables show the reclassifications from and resulting balances of accumulated other comprehensive income (“AOCI”) for the three and nine months ended September 30, 2022 and 2021: Defined Unrealized Currency Benefit (Loss) Gain in Translation Pension Available-for- Derivative Adjustments Plans Sale Securities Instruments Total Balance at June 30, 2022 $ ( 133,110 ) $ ( 11,269 ) $ ( 1,170 ) $ 303 $ ( 145,246 ) Other comprehensive (loss) income before Reclassifications ( 71,948 ) 453 ( 1,006 ) ( 182 ) ( 72,683 ) Amounts reclassified from AOCI — 210 ( 30 ) — 180 Related tax amounts — ( 166 ) 218 42 94 Balance at September 30, 2022 $ ( 205,058 ) $ ( 10,772 ) $ ( 1,988 ) $ 163 $ ( 217,655 ) Balance at June 30, 2021 $ ( 12,177 ) $ ( 21,778 ) $ 596 $ ( 2,584 ) $ ( 35,943 ) Other comprehensive (loss) income before Reclassifications ( 19,905 ) 488 ( 85 ) 567 ( 18,935 ) Amounts reclassified from AOCI — 709 ( 176 ) — 533 Related tax amounts — ( 293 ) 46 ( 131 ) ( 378 ) Balance at September 30, 2021 $ ( 32,082 ) $ ( 20,874 ) $ 381 $ ( 2,148 ) $ ( 54,723 ) Defined Unrealized Currency Benefit Gain (Loss) in Translation Pension Available-for- Derivative Adjustments Plans Sale Securities Instruments Total Balance at December 31, 2021 $ ( 49,843 ) $ ( 13,172 ) $ 397 $ ( 1,372 ) $ ( 63,990 ) Other comprehensive (loss) income before reclassifications ( 155,215 ) 2,535 ( 3,326 ) 1,993 ( 154,013 ) Amounts reclassified from AOCI — 657 306 — 963 Related tax amounts — ( 792 ) 635 ( 458 ) ( 615 ) Balance at September 30, 2022 $ ( 205,058 ) $ ( 10,772 ) $ ( 1,988 ) $ 163 $ ( 217,655 ) Balance at December 31, 2020 $ ( 2,875 ) $ ( 23,467 ) $ 3,342 $ ( 3,598 ) $ ( 26,598 ) Other comprehensive (loss) income before reclassifications ( 29,207 ) 1,009 ( 489 ) 1,883 ( 26,804 ) Amounts reclassified from AOCI — 2,423 ( 3,259 ) — ( 836 ) Related tax amounts — ( 839 ) 787 ( 433 ) ( 485 ) Balance at September 30, 2021 $ ( 32,082 ) $ ( 20,874 ) $ 381 $ ( 2,148 ) $ ( 54,723 ) All reclassifications related to unrealized gain (loss) in available-for-sale securities relate to the Company’s equity interest in a captive insurance company and are recorded in equity in net income of associated companies. The amounts reported in other comprehensive income for noncontrolling interest are related to currency translation adjustments. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 24 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 September 30, 2022 Total Using Fair Value Hierarchy Assets Fair Value Level 1 Level 2 Level 3 Company-owned life insurance $ 2,018 $ — $ 2,018 $ — Total $ 2,018 $ — $ 2,018 $ — 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 no t hold any Level 3 investments as of September 30, 2022 or December 31, 2021, respectively, so related disclosures have not been included. Note 17 – Hedging Activities In order to satisfy certain requirements of the Original Credit Facility as well as to manage the Company’s exposure to variable interest rate risk associated with the Original Credit Facility, in November 2019, the Company entered into $ 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 affects earnings or it becomes probable that the forecasted transaction will not occur. In June 2022, the Company amended the Original Credit Facility. See Note 14 of Notes to the Condensed Consolidated Financial Statements. The Amended Credit Facility does not require the Company to fix variable interest rates on any portion of its borrowings. In October 2022, the Company’s interest rate swap contracts expired. Upon expiration, the Company is entitled to a cash payment from the counterparties, which is materially consistent with the fair value as of September 30, 2022. The balance sheet classification and fair values of the Company’s derivative instruments, which are Level 2 measurements, are as follows: Fair Value Condensed Consolidated September 30, December 31, Balance Sheet Location 2022 2021 Derivatives designated as cash flow hedges: Interest rate swaps Prepaid expenses and other current assets $ 212 $ — Other accrued liabilities — 1,782 $ 212 $ 1,782 The following table presents the net unrealized (gain) loss deferred to AOCI: September 30, December 31, 2022 2021 Derivatives designated as cash flow hedges: Interest rate swaps AOCI $ 163 $ 1,372 $ 163 $ 1,372 Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 25 The following table presents the net gain (loss) reclassified from AOCI to earnings: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Amount and location of expense reclassified Interest income from AOCI into expense (effective portion) (expense), net $ 134 $ ( 672 ) $ ( 882 ) $ ( 1,974 ) Interest rate swaps are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract. As such, in accordance with the Company’s accounting policy, these derivative instruments are recorded on a net basis within the Condensed Consolidated Balance Sheets. Note 18 – Commitments and Contingencies The Company previously disclosed in its 2021 Form 10-K that AC Products, Inc. (“ACP”), a wholly owned subsidiary, in 2007, agreed to operate two groundwater treatment systems, so as to hydraulically contain groundwater contamination emanating from ACP’s site until such time as the concentrations of contaminants are below the current Federal maximum contaminant level for four consecutive quarterly sampling events. In 2014, ACP ceased operation at one of its two groundwater treatment systems, as it had met the above condition for closure. As of September 30, 2022, ACP continues to operate the second groundwater treatment system, while the Company discusses with the relevant authorities whether the second groundwater treatment system meets the conditions for closure. In addition, the Santa Ana Regional Water Quality Control Board requested that ACP conduct additional indoor and outdoor soil vapor testing on and near the ACP site to confirm that ACP continues to meet the applicable local soil vapor standards. As of September 30, 2022, ACP performed such testing and is awaiting the review of the results from the Santa Ana Regional Water Quality Control Board. As of September 30, 2022, the Company believes that the range of pot ential-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 and nine months ended September 30, 2022, there have been no significant changes to the facts or circumstances of this previously disclosed matter, aside from on-going claims and routine payments associated with this litigation. Based on a continued analysis of the existing and anticipated future claims against this subsidiary, it is currently projected that the subsidiary’s total liability over the next 50 years for these claims is approximately $ 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 and maintenance at each of the applicable sites. During the three and nine months ended September 30, 2022, there have been no significant changes to the facts or circumstances of these previously disclosed matters, aside from on-going monitoring and maintenance activities and routine payments associated with each of the sites. The Company continually evaluates its obligations related to such matters, and based on historical costs incurred and projected costs to be incurred over the next approximately 30 years, has estimated the range of costs for all of these environmental matters, on a discounted basis, to be between approximately $ 5.0 million and $ 6.0 million as of September 30, 2022, for which $ 5.2 million was accrued within other accrued liabilities and other non- current liabilities on the Company’s Condensed Consolidated Balance Sheet as of September 30, 2022. Comparatively, as of December 31, 2021, the Company had $ 5.6 million accrued for with respect to these matters. Although there can be no assurance regarding the outcome of other unrelated environmental matters, the Company believes that it has made adequate accruals for costs associated with other environmental matters for which it is aware, and has accrued $ 0.4 million as of both September 30, 2022 and December 31, 2021, respectively, to provide for such anticipated future environmental assessments and remediation costs. Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Dollars in thousands, except per share amounts, unless otherwise stated) (Unaudited) 26 The Company previously disclosed in its 2021 Form 10-K that during the first nine months of 2021, one of the Company’s Brazilian subsidiaries received a notice that it had prevailed on an existing legal claim in regard to certain non-income (indirect) taxes that had been previously charged and paid. The matter specifically related to companies’ rights to exclude the state tax on goods circulation (a valued-added-tax or VAT equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect taxes (specifically the program of social integration (“PIS”) and contribution for the financing of social security (“COFINS”)) levied by the Brazilian States on the sale of goods. In May 2021, the Brazilian Supreme Court concluded that ICMS should not be included in the tax base of PIS and COFINS, and confirmed the methodology for calculating the PIS and COFINS tax credit claims to which taxpayers are entitled. The Company’s Brazilian entities had previously filed legal or administrative disputes on this matter and are entitled to receive tax credits and interest dating back five years preceding the date of their legal claims. As a result of these court rulings in the first nine months of 2021, the Company recognized non-income tax credits of 67.0 million BRL or approximately $ 13.3 million, which includes approximately $ 8.4 million for the PIS and COFINS tax credits as well as interest on these tax credits of $ 4.9 million. The tax credits to which the Company’s Brazilian subsidiaries are entitled are claimable once registered with the Brazilian tax authorities which the Company subsequently completed. These tax credits can be used to offset future Brazilian federal taxes and the Company currently anticipates using the full amount of credits during the five year period of time permitted. In connection with obtaining regulatory approvals for the Combination, certain steel and aluminum related product lines of Houghton were divested in August 2019. The Company previously disclosed in its 2021 Form 10-K that in July 2021, the entity that acquired these divested product lines submitted an indemnification claim for certain alleged breaches of representation made by Houghton in the agreement pursuant to which such assets had been divested. The Company responded to the subject matters of the indemnification claim and during the first quarter of 2022, the matter was resolved consistent with the Company’s expectations and position that there were no amounts owed by the Company. The Company previously disclosed in its 2021 Form 10-K that two of the Company’s locations suffered property damages as a result of flooding and electrical fire, respectively. The Company maintains property and flood insurance for all of its facilities globally. During the nine months ended September 30, 2022, there have been no significant changes to the facts or circumstances of these previously disclosed matters, aside from the on-going restoration of both sites. The Company, its insurance adjuster and insurance carrier are actively managing the remediation and restoration activities associated with these events and at this time the Company has concluded, based on all available information and discussions with its insurance adjuster and insurance carrier, that the losses were covered under the Company’s property and flood insurance coverage, net of an aggregate deductible of $ 2.0 million. Through September 30, 2022, the Company has received payments from its insurers of $ 3.9 million associated with these events. During the three months ended September 30, 2022, the Company recognized a gain on insurance recoveries of $ 1.1 million. The Company has recorded an insurance receivable of $ 0.2 million as of September 30, 2022. See Note 10 of Notes to the Condensed Consolidated Financial Statements. The Company is party to other litigation which management currently believes will not have a material adverse effect on the Company’s results of operations, cash flows or financial condition. In addition, the Company has an immaterial amount of contractual purchase obligations. Quaker Chemical Corporation Management’s Discussion and Analysis 27