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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-03-01 · 559 added, 1932 removed, 50 unchanged (98% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations.

As used in this Annual Report on Form 10-K (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.

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”)

on August 1, 2019.

Throughout the Report, all figures

presented, unless otherwise stated, reflect the results of operations

of the combined company for the years ended December 31, 2020

and for the year ended

December 31, 2019, the results of Legacy Quaker plus five months

of Houghton’s operations post-

closing of the Combination on August 1, 2019.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this Annual Report on Form 10-K (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.

The “Combination” refers to the Quaker combination with Houghton International, Inc.

(“Houghton”).

Executive Summary

Quaker Houghton is the global leader in industrial process fluids.

With a presence around the world, including

operations in over

25 countries, our customers include thousands of the world’s

most advanced and specialized steel, aluminum, automotive, aerospace,

offshore, can, mining, and metalworking companies.

Our high-performing, innovative and sustainable solutions are backed by best-

in-class technology,

deep process knowledge, and customized services.

Quaker Houghton is headquartered in Conshohocken,

Pennsylvania, located near Philadelphia in the U.S.

Overall, the Company’s 2021 performance

was highlighted by the continued recovery from the impacts of COVID-19 in

well as the ongoing execution of integration activities and synergy

realization, which led to record net sales and adjusted EBITDA in

2021 despite the continued escalation in raw material cost headwinds

and global supply chain pressures.

Specifically, net sales of

$1,761.2 million in 2021

increased 24% compared to $1,417.7 million in 2020, primarily

due to higher volumes of approximately

13%, including additional net sales from acquisitions of 4%, increases from

selling price and product mix of approximately 8% and

the positive impact from foreign currency translation of 3%.

The increase in sales volumes

compared to 2020 was primarily a result

of continued new business wins and the year-over-year

improvement in end market conditions since the beginning of the COVID-19

pandemic in early 2020, partially offset by lower automotive

sales due to semiconductor shortages and delayed shipments due

supply chain challenges that occurred towards the end of 2021.

The increase in selling price and product mix is primarily the result of

the Company’s broad price

increases implemented during 2021 to help offset the unprecedented

increases in raw material costs as well

as global supply chain and logistics cost pressures the Company has experienced

throughout 2021.

The Company’s net income and

earnings per diluted share of $121.4 million and $6.77 in 2021, respectively,

increased compared

to $39.7 million and $2.22 per diluted share, respectively,

Excluding non-recurring items, including costs associated with the

Combination and other non-core items in each period, the Company’s

current year non-GAAP net income and non-GAAP earnings

per diluted share were $122.8 million and $6.85, respectively,

compared to $85.2 million and $4.78, respectively,

increase in the Company’s current

year earnings drove a 23% higher adjusted EBITDA to a full year record

of $274.1 million

compared to $222.0 million in 2020, primarily due to the significant increase

in net sales year-over-year as well as higher realized cost

synergies from the Combination, partially offset

by lower gross margins driven by higher raw material and input costs and the

of disruptions in the global supply chain experienced in 2021 as well as higher selling,

general and administrative expenses (“SG&A”)

including the impact of higher sales on direct selling expenses and additional

SG&A from recent acquisitions.

The Company’s 2021

operating performance in each of its four reportable segments:

With a presence around the world, including operations in over 25 countries, our customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, container, mining, and metalworking companies.

Our high-performing, innovative and sustainable solutions are backed by best-in-class technology, deep process knowledge, and customized services.

Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the U.S.

Overall, 2022 was a successful year as the Company navigated through a challenging financial, economic and geopolitical backdrop, which included the direct and indirect impacts of the ongoing war in Ukraine, Zero-COVID policies in China, significant raw material cost escalation, inflationary pressures on manufacturing and generally, all other global costs, supply chain and logistics challenges, and significant foreign currency volatility.

Net sales of $1,943.6 million in 2022 increased 10% compared to $1,761.2 million in 2021, primarily due to increases from selling price and product mix of approximately 22% and additional net sales from acquisitions of 1%, partially offset by a 7% decline in organic sales volumes and an unfavorable impact from foreign currency translation of 6%.

The increase in selling price and product mix was primarily the result of strategic price increases implemented to offset the ongoing inflationary pressures that began at the onset of 2021 and continued throughout 2022.

The decline in organic sales volumes compared to 2021 was primarily a result of softer end market conditions, particularly in Europe and Asia/Pacific, the wind-down of the tolling agreement for products previously divested related to the Combination and the direct and indirect impacts of the ongoing war in Ukraine, partially offset by higher volumes due to net new business wins.

The Company had a net loss of $15.9 million or $0.89 per diluted share in 2022, compared to net income of $121.4 million or $6.77 per diluted share in 2021.

The Company’s reported net loss in 2022 primarily reflects a non-cash goodwill impairment charge of $93.0 million in the fourth quarter related to the EMEA reportable segment.

Excluding this and other non-recurring or non-core items in each period, the Company’s current year non-GAAP net income and non-GAAP earnings per diluted share were $105.3 million and $5.87, respectively, compared to $122.8 million and $6.85, respectively, in 2021.

The Company generated adjusted EBITDA of $257.2 million compared to $274.1 million in 2021.

The lower year-over-year adjusted EBITDA was primarily a result of higher net sales which were offset by lower gross margins driven by higher raw material costs, higher manufacturing and other input costs, the impacts of disruptions in the global supply chain experienced in 2022, and higher selling, general and administrative expenses (“SG&A”), including the impact of higher sales on direct selling expenses, and additional SG&A from recent acquisitions.

The lower year-over-year non-GAAP net income and non-GAAP earnings per diluted share were also impacted by higher interest expense and tax expense in 2022.

See the Non-GAAP Measures section of this Item below.

The Company’s 2022 operating performance in each of its four reportable segments:

(i) Americas;

(iii) Asia/Pacific;

and (iv) Global Specialty Businesses, reflect similar drivers to that of

its consolidated performance.

All four segments had higher net

sales compared to 2020 reflecting the continued rebound in 2021

from the negative impacts of COVID-19 on the Company’s

markets as well as continued success of winning new business in each of the

Company’s segments during 2021.

Company’s geographic segments

benefited from higher organic sales volumes in 2021

while all of the Company’s segments also

benefitted from additional net sales from acquisitions, the positive impact

from foreign currency translation due to the strengthening of

most major currencies against the U.S.

and from increases in selling price and product mix.

As reported, each of the

Company’s reportable

segment operating earnings were higher compared to 2020 reflecting the increase

in net sales including the

benefits of acquisitions and other factors mentioned;

however, all of the Company’s

segment’s operating earnings were negatively

impacted by persistent raw material inflation, higher logistics, labor and manufacturing

costs, impacts of disruptions to the global

supply chain as well as higher SG&A which were a result of an increase

in direct selling expenses associated with year-over-year

inflation increases and increases due to the increase in net sales as well as the lower levels

of prior year SG&A as a result of

temporary cost saving measures implemented in response to COVID-19.

Additional details of each segment’s

operating performance

are further discussed in the Company’s

reportable segments review, in the

Operations section of this Item 7, below.

The Company generated net operating cash flow of $48.9 million in 2021

compared to $178.4 million in 2020.

The decrease in

net operating cash flow year-over-year

was primarily driven by a significant change in working capital compared

to the prior year,

mainly increases in accounts receivable, due to higher net sales and in inventory,

due to higher costs as well as building inventories in

response to global supply chain and logistics pressures.

The key drivers of the Company’s operating

cash flow and overall liquidity

are further discussed in the Company’s

Liquidity and Capital Resources section of this Item 7, below.

Overall, the Company’s 2021 results

were good and reflected the Company’s

ability to navigate through persistent raw material

cost pressures, supply chain challenges and automotive semiconductor

Increases in net sales in all segments were driven by

the continued year-over-year improvement

in the Company’s end-markets and increased

customer demand from lower levels

experienced during 2020 as a result of COVID-19;

each segment was negatively impacted by the significant

escalation of

raw material costs as well as higher levels of SG&A compared to the prior

year which included certain temporary cost saving

measures adopted during the onset of COVID-19.

Continued strong customer demand in 2021 coupled with ongoing new business

wins and the execution of integration activities and synergy realization

helped to partially offset the negative impacts from the

continued escalation of raw material costs and continued supply chain pressures.

As the Company looks toward 2022, the business is well positioned to

continue to outpace market growth rates and deliver value-

added solutions and services to its customers.

Demand remains healthy across most of our end markets;

expects raw material cost pressures and supply chain disruptions to persist throughout

To mitigate these headwinds,

Company continues to implement further price actions and is actively

managing its cost structure.

The Company believes these

actions will begin to drive a recovery in margins as it progresses through

The Company remains committed to advancing its

customer intimate strategy and sustainability program and delivering

earnings growth in 2022 and beyond.

and (iv) Global Specialty Businesses, reflect similar drivers to that of its consolidated performance as each of the Company’s reportable segments net sales benefited from double-digit year-over-year increases in selling price and product mix, while those increases in net sales were partially offset by the significant and unfavorable impact of foreign currency translation in the EMEA, Asia/Pacific and Global Specialties Businesses.

All geographic segments had lower organic sales volumes;

however, organic sales volumes for the Global Specialty Businesses increased in 2022 compared to the prior year due to improved demand.

Operating earnings for the Global Specialty Businesses and Americas increased due to higher net sales and an improvement in margins.

Operating earnings declined slightly in Asia/Pacific due to slightly lower margins and a strong comparison in the first half of 2021.

EMEA operating earnings declined compared to the prior year due to the persistent and significant inflationary pressures on raw materials and other costs and the negative impact of foreign currency translation, partially offset by price realization.

Additional details of each segment’s operating performance are further discussed in the Company’s reportable segments review, in the Operations section of this Item 7, below.

The Company generated net operating cash flow of $41.8 million in 2022 compared to $48.9 million in 2021.

The decrease in net operating cash flow year-over-year was primarily driven by a lower operating performance in 2022 compared to 2021 coupled with significant working capital investments in each year.

The key drivers of the Company’s operating cash flow and overall liquidity are further discussed in the Company’s Liquidity and Capital Resources section of this Item 7, below.

Overall, the Company delivered solid results in 2022, primarily due to strong price realization, as a result of the Company’s ongoing value-based pricing initiatives, and positive net new business wins, in the face of extreme economic head wins.

Looking ahead to 2023, we believe the business is well positioned to continue to outpace market growth rates by delivering value-added solutions and services to its customers.

The Company is committed to improving its margins as we progress through 2023, through both price and cost actions, while balancing customer relationships with the value we provide and the overall raw material environment and customer relationships.

Additionally, the Company expects to continue to invest in its long-term growth including advancing its customer intimate strategy, progressing with its sustainability program and positioning the Company to deliver earnings growth in 2023 and beyond.

On-going impact of COVID-19

The global outbreak of COVID-19 has negatively impacted all locations where

the Company does business.

Company has now operated in this COVID-19 environment for almost

two years, the full extent of the outbreak and related business

impacts continue to remain uncertain and volatile, and therefore the

full extent to which COVID-19 may impact the Company’s

results of operations or financial condition is uncertain.

This outbreak has significantly disrupted the operations of the Company

those of its suppliers and customers.

During the pandemic, the Company initially experienced volume declines

and lower net sales as

compared to pre-COVID-19 levels, as further described in this section.

Management continues to monitor the impact that the

COVID-19 pandemic is having on the Company,

the overall specialty chemical industry and the economies and markets in which the

Company operates.

The prolonged pandemic and resurgences of the outbreak including as new

variants continue to emerge, and

continued restrictions on day-to-day life and business

operations as well as increased border controls or closures and transportation

disruptions may result in volume declines and lower net sales in future periods.

To the extent that the Company’s

customers and

suppliers continue to be significantly and adversely impacted by

COVID-19, this could reduce the availability,

or result in delays, of

materials or supplies to or from the Company,

which in turn could significantly interrupt the Company’s

business operations.

this ongoing uncertainty,

the Company cautions that its future results of operations could be significantly adversely

Further, management continues to evaluate

how COVID-19-related circumstances, such as remote work arrangements,

illness or staffing shortages and travel restrictions have affected

financial reporting processes and systems, internal control over

financial reporting, and disclosure controls and procedures.

While the circumstances have presented and are expected to continue

present challenges, and have necessitated additional time and resources

to be deployed to sufficiently address the challenges brought

on by the pandemic, at this time, management does not believe that COVID-19

has had a material impact on financial reporting

processes, internal controls over financial reporting, or disclosure controls

and procedures.

The Company’s top priority,

especially during this pandemic, is to protect the health and safety of its employees

and customers,

while working to ensure business continuity to meet customers’ needs.

The Company continues to take steps to protect the health and

wellbeing of its people in affected areas through various

actions, including enabling work at home where needed and practicable, and

employing social distancing standards, implementing

travel restrictions where applicable, enhancing onsite hygiene practices, and

instituting visitation restrictions at the Company’s

The Company has not and does not expect that it will incur material

expenses implementing these health and safety policies.

All of the Company’s more than 30 production

facilities worldwide are open

and operating and are deemed as essential businesses in the jurisdictions where

they are operating.

The Company believes that to date

it has been able to meet the needs of all its customers across the globe despite

the current economic challenges.

The Company’s fiscal

year 2021 showed year-over-year improvement

from the prior fiscal year and continued a trend of gradual volume improvement which

began in the second half of 2020.

The Company continues to expect that the impacts from COVID-19 will gradually

decline subject

to the effective containment of the virus and its variants and successful

distribution and acceptance of the available vaccines and

However, the incidence of reported cases of COVID-19

or a variant in several geographies where the Company has

significant operations remains high and continues to evolve and it remains

highly uncertain as to how long the global pandemic and

related economic challenges will last and when our customers’ businesses will recover

to pre-COVID-19 levels.

The Company took

various actions to temporarily conserve cash and reduce costs since the onset of

the pandemic and these temporary initiatives were

designed and implemented so that the Company could successfully manage

through the challenging COVID-19 situation while

continuing to protect the health of its employees, meet customers’ needs,

maintain the Company’s long-term competitive

and above-market growth, and enable it to continue to effectively

integrate Houghton.

While the actions taken to date to protect our

workforce, to continue to serve our customers with excellence and to conserve

cash and reduce costs, have been effective thus far,

further actions to respond to the pandemic and its effects may

be necessary as conditions continue to evolve.

During 2022, the direct and indirect effects of COVID-19 continued to negatively impact the Company's business operations, as well as those of its customers and suppliers, including increased costs and decreased availability of labor and raw materials.

The Company’s top priority, especially during this pandemic, has been to protect the health and safety of its employees and customers, while working to ensure business continuity and meet its customers’ needs.

In response, the Company implemented additional operational, health, and safety protocols, including enabling remote work where needed and practicable, employing social distancing standards, implementing travel restrictions where necessary, enhancing onsite hygiene practices, and instituting visitation restrictions at the Company’s facilities;

where necessary, these operational changes remain in place.

All of the Company’s more than 30 production facilities worldwide are open and operating and are deemed as essential businesses in the jurisdictions where they are operating.

Although restrictions imposed by governments around the world have largely been eliminated or loosened, management continues to monitor and respond to the impacts related to COVID-19 on the Company, the overall specialty chemical industry, and the economies and markets in which the Company and its customers and suppliers operate.

Management continues to evaluate how COVID-19-related circumstances, such as remote work arrangements, illness or staffing shortages and travel restrictions have affected financial reporting processes and systems, internal control over financial reporting, and disclosure controls and procedures.

At this time, management does not believe that COVID-19 has had a material impact on financial reporting processes, internal controls over financial reporting, or disclosure controls and procedures.

Impact of Political Conflicts

A significant portion of the Company’s revenues and earnings are generated by non-U.S.

This subjects the Company to political and economic risks that could adversely affect the Company’s business, liquidity, financial position and results of operations.

The existence of military conflicts, for example the ongoing war between Russia and Ukraine, bring inherent risks such as the potential for supply chain disruptions, increased costs of resources including oil, decreased trade activity and other consequences related to economic or other sanctions.

government and other nations have imposed significant restrictions on most companies’ ability to do business in Russia as a result of the war between Russia and Ukraine.

It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets.

The war between Russia and Ukraine has had a negative impact on the Company’s ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions including closures of air space.

If this conflict continues or expands, it could increase the costs, risks and adverse impacts from these new challenges.

The Company and its customers and suppliers may also be the subject of increased cyber-attacks.

During the second quarter of 2022, the Company decided to cease its operations in Russia.

The Company’s operations in the conflict areas including Russia, Ukraine, and Belarus historically represented less than 2% of the Company’s consolidated net sales and less than 1% of the Company’s consolidated total assets.

The Company’s primary exposure in the conflict areas related to outstanding customer accounts receivable.

The Company is actively monitoring its outstanding Russian receivables for collections and has recorded incremental allowances for credit losses where warranted.

Critical Accounting Policies and Estimates

Quaker Houghton’s discussion

and analysis of its financial condition and results of operations are based

upon its consolidated

financial statements which have been prepared in accordance with accounting

principles generally accepted in the United States (“U.S.

The preparation of these financial statements requires the Company

to make estimates and judgments that affect the

reported amounts of assets, liabilities, revenues and expenses, and related disclosure

of contingent assets and liabilities.

ongoing basis, the Company evaluates its estimates, including those related

to customer sales incentives, product returns, bad debts,

inventories, property,

plant and equipment (“PP&E”), investments, goodwill, intangible assets, income taxes,

business combinations,

restructuring, incentive compensation plans (including equity-based

compensation), pensions and other postretirement benefits,

contingencies and litigation.

Quaker Houghton bases its estimates on historical experience and on various

other assumptions that are

believed to be reasonable under such circumstances, the results of which

form the basis for making judgments about the carrying

values of assets and liabilities that are not readily apparent from other sources.

However, actual results may differ from

estimates under different assumptions or conditions.

Quaker Houghton believes the following critical accounting policies describe

the more significant judgments and estimates used

in the preparation of its consolidated financial statements:

Quaker Houghton’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, the Company evaluates its estimates, including those related to customer sales incentives, product returns, credit losses, inventories, property, plant and equipment (“PP&E”), investments, goodwill, intangible assets, income taxes, business combinations, restructuring, incentive compensation plans (including equity-based compensation), pensions and other postretirement benefits, contingencies and litigation.

Quaker Houghton bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under such circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

However, actual results may differ from these estimates under different assumptions or conditions.

Quaker Houghton believes the following critical accounting policies describe the more significant judgments and estimates used in the preparation of its consolidated financial statements:

Accounts receivable and inventory exposures:

Quaker Houghton establishes allowances for doubtful accounts for estimated

losses resulting from the inability of its customers to make required

If the financial condition of the Company’s

were to deteriorate, resulting in an impairment of their ability to make payments,

additional allowances may be required.

our terms of trade, we may custom manufacture products for certain large

customers and/or may ship products on a consignment basis.

Further, a significant portion of our revenue

is derived from sales to customers in industries where companies have experienced

financial difficulties.

If a significant customer bankruptcy occurs, then we must judge the amount of proceeds,

if any, that may

ultimately be received through the bankruptcy or liquidation process.

These matters may increase the Company’s

exposure should a

bankruptcy occur, and may require

a write down or a disposal of certain inventory as well as the failure to collect receivables.

Reserves for customers filing for bankruptcy protection are established

based on a percentage of the amount of receivables outstanding

at the bankruptcy filing date.

However, initially establishing this reserve

and the amount thereof is dependent on the Company’s

evaluation of likely proceeds to be received from the bankruptcy process, which

could result in the Company recognizing minimal or

no reserve at the date of bankruptcy.

We generally reserve

for large and/or financially distressed customers on a specific review

while a general reserve is maintained for other customers based on

historical experience.

The Company’s consolidated

allowance for

doubtful accounts was $12.3 million and $13.1 million as of December 31,

and 2020, respectively.

The Company recorded

expense to increase its provision for doubtful accounts by $0.7 million,

$3.6 million and $1.9 million for the years ended December

31, 2021, 2020 and 2019, respectively.

Changing the amount of expense recorded to the Company’s

provisions by 10% would have

increased or decreased the Company’s

pre-tax earnings by $0.1 million, $0.4

million and $0.2 million for the years ended December

31, 2021, 2020 and 2019, respectively.

The Company establishes allowances for credit losses for estimated losses resulting from the inability of its customers to make required payments.

If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

As part of our terms of trade, we may custom manufacture products for certain large customers and/or may ship products on a consignment basis.

Further, a significant portion of our revenue is derived from sales to customers in industries where companies have experienced past financial difficulties.

If a significant customer bankruptcy occurs, then we must judge the amount of proceeds, if any, that may ultimately be received through the bankruptcy or liquidation process.

These matters may increase the Company’s exposure should a bankruptcy occur, and may require a write down or a disposal of certain inventory as well as the failure to collect receivables.

Reserves for customers filing for bankruptcy protection are established based on a percentage of the amount of receivables outstanding at the bankruptcy filing date.

However, initially establishing this reserve and the amount thereof is dependent on the Company’s evaluation of likely proceeds to be received from the bankruptcy process, which could result in the Company recognizing minimal or no reserve at the date of bankruptcy.

We generally reserve for large and/or financially distressed customers on a specific review basis, while a general reserve is maintained for other customers based on historical experience.

The Company’s consolidated allowance for credit losses was $13.5 million and $12.3 million as of December 31, 2022 and 2021, respectively.

The Company recorded expense to increase its provision for credit losses by $4.3 million, $0.7 million and $3.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Changing the amount of expense recorded to the Company’s provisions by 10% would have increased or decreased the Company’s pre-tax earnings by $0.4 million, $0.1 million and $0.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

See Note 13 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Environmental and litigation reserves:

for environmental and litigation matters are recorded when

it is probable that a

liability has been incurred and the amount of the liability can be reasonably

Environmental costs and remediation costs are

capitalized if the costs extend the life, increase the capacity or improve

the safety or efficiency of the property from the date acquired

or constructed, and/or mitigate or prevent contamination in the future.

Estimates for accruals for environmental matters are based on a

variety of potential technical solutions, governmental regulations and

other factors, and are subject to a wide range of potential costs

for remediation and other actions.

A considerable amount of judgment is required in determining the most likely

estimate within the

range of total costs, and the factors determining this judgment may vary

Similarly, reserves for litigation

matters are based on a range of potential outcomes and require considerable

judgment in determining the most probable outcome.

no amount within the range is considered more probable than any other

amount, the Company accrues the lowest amount in that range

in accordance with generally accepted accounting principles.

See Note 26 of Notes to Consolidated Financial Statements in Item 8 of

Realizability of equity investments:

The Company holds equity investments in various foreign companies

where it has the

ability to influence, but not control, the operations of the entity

and its future results.

The Company would record an impairment

charge to an investment if it concluded that a decline in value that was other

than temporary occurred.

Adverse changes in market

conditions, poor operating results of underlying investments, devaluation

of foreign currencies or other events or circumstances could

result in losses or an inability to recover the carrying value of the investments,

potentially leading to an impairment charge in the

The carrying amount of the Company’s

equity investments as of December 31, 2021

million, which included four

$21.5 million for a 32% interest in Primex, Ltd.

$7.1 million for a 50% interest in Nippon Quaker Chemical,

$0.3 million for a 50% interest in Kelko Quaker Chemical, S.A.

and $66.4 million for a 50% interest in Korea

Houghton Corporation (Korea).

The Company also has a 50% interest in a Venezuelan

affiliate, Kelko Quaker Chemical, S.A

Due to heightened foreign exchange controls, deteriorating economic circumstances

and other restrictions in Venezuela,

during 2018 the Company concluded that it no longer had significant

influence over this affiliate.

Prior to this determination, the

Company historically accounted for this affiliate under

the equity method.

As of December 31, 2021

and 2020, the Company had no

remaining carrying value for its investment in Venezuela.

See Note 17 of Notes to Consolidated Financial Statements in Item 8 of this

exposures, uncertain tax positions and valuation allowances:

Quaker Houghton records expenses and liabilities for taxes

based on estimates of amounts that will be determined as deductible in tax

returns filed in various jurisdictions.

The filed tax returns

are subject to audit, which often occur several years subsequent to

the date of the financial statements.

Disputes or disagreements may

arise during audits over the timing or validity of certain items or deductions,

which may not be resolved for extended periods of time.

The Company also evaluates uncertain tax positions on all income tax

positions taken on previously filed tax returns or expected to be

taken on a future tax return in accordance with FIN 48, which prescribes

the recognition threshold and measurement attributes for

financial statement recognition and measurement of tax positions taken

or expected to be taken on a tax return and, also, whether the

benefits of tax positions are probable or if they will be more likely than not to be sustained upon

audit based upon the technical merits

of the tax position.

For tax positions that are determined to be more likely than not to be sustained upon audit, the

recognizes the largest amount of benefit that is greater

than 50% likely of being realized upon ultimate settlement in the financial

For tax positions that are not determined to be more likely than not

sustained upon audit, the Company does not recognize

any portion of the benefit in its financial statements.

In addition, the Company’s

continuing practice is to recognize interest and/or

penalties related to income tax matters in income tax expense.

Also, the Company nets its liability for unrecognized tax benefits

against deferred tax assets related to net operating losses or other tax credit carryforward

on the basis that the uncertain tax position is

settled for the presumed amount at the balance sheet date.

Quaker Houghton also records valuation allowances when necessary

to reduce its deferred tax assets to the amount that is more

likely than not to be realized.

While the Company has considered future taxable income and assesses the need for

allowance, in the event Quaker Houghton were to determine that it would

be able to realize its deferred tax assets in the future in

excess of its net recorded amount, an adjustment to the deferred

tax asset would increase income in the period such determination was

Likewise, should the Company determine that it would not be able to realize all or part of

its net deferred tax assets in the

future, an adjustment to the deferred tax asset would be charged

to income in the period such determination was made.

determinations could have a material impact on the Company’s

financial statements.

Pursuant to the Tax

Cuts and Jobs Act (“U.S.

Reform”), the Company recorded a $15.5 million transition tax liability

Tax exposures, uncertain tax positions and valuation allowances:

The Company records expenses and liabilities for taxes based on estimates of amounts that will be determined as deductible or taxable in tax returns filed in various jurisdictions.

The filed tax returns are subject to audit, which often occur several years subsequent to the date of the financial statements.

Disputes or disagreements may arise during audits over the timing or validity of certain items, such as taxable income or deductions, which may not be resolved for extended periods of time.

The Company also evaluates uncertain tax positions on all income tax positions taken on previously filed tax returns or expected to be taken on a future tax return in accordance with FIN 48, which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return and, also, whether the benefits of tax positions are probable or if they will be more likely than not to be sustained upon audit based upon the technical merits of the tax position.

For tax positions that are determined to be more likely than not to be sustained upon audit, the Company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements.

For tax positions that are not determined to be more likely than not sustained upon audit, the Company does not recognize any portion of the benefit in its financial statements.

In addition, the Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

Also, the Company nets its liability for unrecognized tax benefits against deferred tax assets related to net operating losses or other tax credit carryforward on the basis that the uncertain tax position is settled for the presumed amount at the balance sheet date.

The Company also records valuation allowances when necessary to reduce its deferred tax assets to the amount that is more likely than not to be realized.

While the Company has considered future taxable income and assesses the need for a valuation allowance, in the event Quaker Houghton were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.

Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Both determinations could have a material impact on the Company’s financial statements.

Pursuant to the Tax Cuts and Jobs Act (“U.S.

Tax Reform”), the Company recorded a $15.5 million transition tax liability for U.S.

income taxes on the undistributed earnings of non-U.S.

subsidiaries.

As of December 31, 2021, $7.0 million in installment have

been paid with the remaining $8.5 million to be paid through installments in future

However, the Company may also be subject

to other taxes, such as withholding taxes and dividend distribution taxes,

if these undistributed earnings are ultimately remitted to the

As of December 31, 2021, the Company has a deferred tax liability of

$8.4 million, which primarily represents the estimate of

taxes the Company will incur to remit certain previously

taxed earnings to the U.S.

It is the Company’s current intention

to reinvest its future undistributed earnings of non-U.S.

subsidiaries to support

working capital needs and certain other growth

initiatives outside of the U.S.

The amount of such undistributed earnings at December 31, 2021

was approximately $377.4

Any tax liability which might result from ultimate remittance of these earnings

is expected to be substantially offset by

foreign tax credits (subject to certain limitations).

As of December 31, 2022 , $6.9 million in installments have been paid with the remaining $8.6 million t o be paid through installments in future years.

However, the Company may also be subject to other taxes, such as withholding taxes and dividend distribution taxes, if certain undistributed earnings are ultimately remitted to the U.S.

As of December 31, 2022, the Company has a deferred tax liability of $6.8 million, which primarily represents the estimate of the non-U.S.

taxes the Company will incur to remit certain previously taxed earnings to the U.S.

It is the Company’s current intention to reinvest its future undistributed earnings of non-U.S.

subsidiaries to support working capital needs and certain other growth initiatives outside of the U.S.

The amount of such undistributed earnings at December 31, 2022 was approximately $424.7 million .

Any tax liability which might result from ultimate remittance of these earnings is expected to be substantially offset by foreign tax credits (subject to certain limitations).

It is currently impractical to estimate any such incremental tax expense.

10 of Notes to Consolidated Financial Statements in Item 8 of this Report.

See Note 10 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Goodwill and other intangible assets:

The Company accounts for business combinations under the acquisition

This method requires the recording of acquired assets, including separately identifiable

intangible assets, at their

acquisition date fair values.

Any excess of the purchase price over the estimated fair value of the identifiable

net assets acquired is

recorded as goodwill.

The determination of the estimated fair value of assets acquired requires management’s

judgment and often

involves the use of significant estimates and assumptions, including

assumptions with respect to future cash inflows and outflows,

discount rates, royalty rates, asset lives and market multiples, among other

When necessary, the Company consults with

external advisors to help determine fair value.

For non-observable market values, the Company may determine fair value

acceptable valuation principles, including the excess earnings, relief

from royalty, lost profit or cost

The Company amortizes definite-lived intangible assets on a straight-line

basis over their useful lives.

Goodwill and intangible

assets that have indefinite lives are not amortized and are required to be assessed at least annually

for impairment.

completes its annual goodwill and indefinite-lived intangible asset impairment

test during the fourth quarter of each year, or

frequently if triggering events indicate a possible impairment.

The Company’s consolidated

goodwill at both December 31, 2021 and

2020 was $631.2 million.

The Company completed its annual impairment assessment over goodwill during

the fourth quarter of 2021

by performing a qualitative assessment.

Based on the assessment performed, the Company concluded that there

was no evidence of

events or circumstances that would indicate a material change from

the Company’s prior year quantitative

assessment by reporting

unit and, therefore, no impairment charges were

The Company’s consolidated indefinite

-lived intangible assets at

December 31, 2021 and 2020 were $196.9 million and $205.1 million,

respectively, which primarily

consists of Houghton and

trademarks and tradename.

The Company completed its annual indefinite-lived intangible asset impairment assessment

during the fourth quarter of 2021, and determined that no impairment

charge was warranted.

The determination of estimated fair

value of these indefinite-lived intangible assets is based on a relief from royalty

valuation method, which requires management’s

judgment and often involves the use of significant estimates and assumptions,

including assumptions with respect to royalty rates, as

well as revenue growth rates and terminal growth rates.

The Company’s impairment assessment

concluded that the carrying value of

acquired Houghton and Fluidcare

trademarks and tradename intangible assets exceeded fair value by

approximately 61%.

16 of Notes to Consolidated Financial Statements in Item 8 of this Report.

As previously disclosed, as of March 31, 2020, the Company concluded that

the impact of COVID-19 did not represent a

event with regards to any of the Company’s

indefinite-lived and long-lived assets, except for the Company’s

trademarks and tradename indefinite-lived intangible assets.

In the first quarter of 2020, as a result of the impact of

COVID-19 driving a decrease in projected legacy Houghton net sales during

that year and the impact of the sales decline on projected

future legacy Houghton net sales as well as an increase in the weighted average

cost of capital assumption utilized in the quantitative

impairment assessment, the Company concluded that the estimated fair

values of the Houghton and Fluidcare

trademarks and

tradename intangible assets were less than their carrying values.

As a result, an impairment charge of $38.0 million

during the first quarter of 2020 to write down the carrying values of these intangible

assets to their estimated fair values.

The Company accounts for business combinations under the acquisition method of accounting.

This method requires the recording of acquired assets, including separately identifiable intangible assets, at their acquisition date fair values.

Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill.

The determination of the estimated fair value of assets acquired requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, the weighted average cost of capital (“WACC”), royalty rates, asset lives and market multiples, among other items.

When necessary, the Company consults with external advisors to help determine fair value.

For non-observable market values, the Company may determine fair value using acceptable valuation principles, including the excess earnings, relief from royalty, lost profit or cost methods.

The Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives.

Goodwill and intangible assets that have indefinite lives are not amortized and are required to be assessed at least annually for impairment.

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’s consolidated goodwill at December 31, 2022 and 2021 was $515.0 million and $631.2 million, respectively.

The Company has four indefinite-lived intangible assets totaling $189.1 million as of December 31, 2022, including $188.0 million of indefinite-lived intangible assets for trademarks and tradename associated with the Combination.

Comparatively, the Company had four indefinite-lived intangible assets for trademarks and tradename totaling $196.9 million as of December 31, 2021.

The Company completed its annual impairment assessment as of October 1, 2022 and concluded no impairment charge was warranted.

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.

During the fourth quarter of 2022, subsequent to the Company completing its annual impairment test as of October 1, 2022, the Company concluded that the continued negative impacts of the aforementioned events, most notably the continued rise in interest rates which led to an increase in the Company’s cost of capital, as well as lower than expected financial performance driven by the ongoing lag in margin recovery represented an additional triggering event for the Company’s EMEA reporting unit and the associated goodwill, as well as the related asset group.

As a result of this conclusion, the Company completed an interim impairment assessment as of December 31, 2022 for its EMEA reporting unit and the related asset group.

The Company concluded that the undiscounted cash flows exceeded the carrying value of the long-lived assets, and it was 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 judgment and are based upon certain significant assumptions including the WACC as well as projected EBITDA, which includes assumptions related to revenue growth rates, gross margin levels and operating expenses.

As a result of the impact of financial, economic, and geopolitical conditions driving a decrease in EMEA earnings in the current year, the impact of the current year decline on projected future earnings, as well as an increase in the WACC assumption utilized in this fourth quarter interim quantitative impairment assessment, the Company concluded that the estimated fair value of the EMEA reporting unit was less than its carrying value.

As a result, a non-cash impairment charge of $93.0 million to write down the carrying value of the EMEA reporting unit Goodwill to its estimated fair values was recorded in the fourth quarter of 2022.

After this impairment charge, as of December 31, 2022, goodwill for the EMEA reporting unit was $34.6 million.

In completing the interim quantitative impairment assessment, the Company used a WACC assumption of approximately 12.0% and holding all other assumptions constant, the WACC would have to increase by approximately 0.8 percentage points before the Company’s EMEA reporting unit’s remaining goodwill would be fully impaired.

In addition, holding EBITDA margins and all other assumptions constant, the Company’s compound annual revenue growth rate during the entire projection period would need to decline by approximately 1.6 percentage points before the Company’s EMEA reporting unit’s remaining goodwill would be fully impaired.

Similarly, holding revenue growth rates and all other assumptions constant, the Company’s average EBITDA margins throughout the discreet projection period would need to decline by approximately 2.3 percentage points before the Company’s EMEA reporting unit’s remaining goodwill would be fully impaired.

Notwithstanding the results of the Company’s annual and trigger based interim impairment assessments during 2022 and the goodwill impairment charge taken in the fourth quarter of 2022, if the Company is unable to successfully implement actions 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 potentially lead to an additional impairment of the EMEA reporting unit’s remaining goodwill or other indefinite-lived or long-lived assets.

See Note 16 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Pension and Postretirement benefits:

The Company provides certain defined benefit pension and

other postretirement benefits

to current employees, former employees and retirees.

The Company provides certain defined benefit pension and other postretirement benefits to current employees, former employees and retirees.

Independent actuaries, in accordance with U.S.

perform the required

valuations to determine benefit expense and, if necessary,

non-cash charges to equity for additional minimum pension liabilities.

Critical assumptions used in the actuarial valuation include the weighted

average discount rate, which is based on applicable yield

curve data, including the use of a split discount rate (spot-rate approach)

plans and certain foreign plans, rates of increase

in compensation levels, and expected long-term rates of return

If different assumptions were used, additional pension

expense or charges to equity might be required.

The following table highlights the potential impact on the Company’s

pre-tax earnings due to changes in assumptions with respect

to the Company’s defined benefit pension

and postretirement benefit plans, based on assets and liabilities as of December 31,

1/2 Percentage Point Increase

1/2 Percentage Point Decrease

(dollars in millions)

Discount rate (1)

Expected rate of return on plan

The weighted-average discount rate used to determine net periodic benefit

costs for the year ended December 31, 2021 was

1.4% for Foreign plans and 2.7% for U.S.

The weighted average expected rate of return on plan assets used to determine

net periodic benefit costs for the year ended

December 31, 2021 was 2.1% for Foreign plans and 5.8% for U.S.

Restructuring and other related liabilities:

A restructuring related program may consist of charges for

employee severance,

rationalization of manufacturing facilities and other related expenses.

To account for such, the

Company applies the Financial

Accounting Standards Board’s

guidance regarding exit or disposal cost obligations.

This guidance requires that a liability for a cost

associated with an exit or disposal activity be recognized when the liability

is incurred, is estimable, and payment is probable.

Note 7 of Notes to Consolidated Financial Statements in Item 8 of this Report.

GAAP, perform the required valuations to determine benefit expense and, if necessary, non-cash charges to equity for additional minimum pension liabilities.

Critical assumptions used in the actuarial valuation include the weighted average discount rate, which is based on applicable yield curve data, including the use of a split discount rate (spot-rate approach) for the U.S.

plans and certain foreign plans, rates of increase in compensation levels, and expected long-term rates of return on assets.

If different assumptions were used, additional pension expense or charges to equity might be required.

Recently Issued Accounting Standards

See Note 3 of Notes to the Consolidated Financial Statements in Item 8 of this Report

for a discussion regarding recently issued

accounting standards.

See Note 3 of Notes to the Consolidated Financial Statements in Item 8 of this Report for a discussion regarding recently issued accounting standards.

Liquidity and Capital Resources

At December 31, 2021, the Company had cash, cash equivalents and

restricted cash of $165.2 million.

Total cash, cash

equivalents and restricted cash was $181.9 million at December

The $16.7 million decrease in cash, cash equivalents and

restricted cash was the net result $49.1 million of cash used in investing

activities, $13.5 million of cash used in financing activities

and approximately $3.1 million of negative impacts due to the effect

of foreign currency translation on cash, partially offset by $48.9

million of cash provided by operating activities.

Net cash flows provided by operating activities were $48.9 million in

2021 compared to $178.4 million in 2020.

The Company’s

current year net operating cash flow decrease was primarily driven by

a significant change in working capital which more than offset

the Company’s higher earnings in 2021

The significant increase in current year net sales resulted in a large

increase in accounts

receivable in 2021 as compared to a significant decrease during

2020 as net sales and the associated accounts receivables significantly

declined in 2020

due to the negative impact from COVID-19.

In addition, the Company has experienced an increase in inventory in

2021 as a result of continued rising raw material costs as well as a build in

inventory to ensure the Company has appropriate stock to

meet customer demands in response to ongoing stress on the global supply

Net cash flows used in investing activities were $49.1 million in 2021

compared to $71.4 million in 2020.

This $22.3 million

decrease in cash outflows used in investing activities was due to lower cash payments

related to acquisitions during 2021 as a result of

the level of acquisition activity in each year and higher cash proceeds

from the disposition of assets, which includes the sale of certain

held-for-sale real property assets related to the Combination.

Capital expenditures also increased to $21.5 million in 2021 compared

to $17.9 million in 2020 due to the continued strategic and integration related

capital investments the Company has and continues to

Net cash flows used in financing activities were $13.5 million in 2021

compared to $75.3 million in 2020.

The $61.8 million

decrease in net cash outflows from financing activities was primarily

driven by an increase in borrowings in the current year under the

Company’s revolving credit

facility compared to repayments in the prior year which was driven by significant

working capital

investment in the current year described above.

In addition, the Company paid $28.6 million of cash dividend during

million or 4% increase in cash dividends compared to the prior year due to cash dividend

per share increases.

Finally, during 2020,

the Company used $1.0 million to purchase the remaining noncontrolling

interest in one of its South African affiliates.

Prior to this

buyout, this South African affiliate made a distribution

to the prior noncontrolling affiliate shareholder of approximately $0.8

There were no similar noncontrolling interest activities in 2021.

The Company’s primary credit facility

(the “Credit Facility”) is comprised of a $400.0 million multicurrency

revolver (the

“Revolver”), a $600.0 million term loan (the “U.S.

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.

Loan”, the “Term Loans”)

Quaker Chemical B.V.,

a Dutch subsidiary of the Company as borrower,

each with a five year term maturing in August 2024.

to the consent of the administrative agent and certain other conditions,

the Company may designate additional borrowers.

maximum amount available under the Credit Facility can be increased by

up to $300.0 million at the Company’s request

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

On December 10, 2021, the Company amended the Credit Facility to include an update

to provide for the use of a non-USD

currency LIBOR successor rate.

The weighted average interest rate incurred on the outstanding borrowings

under the Credit Facility

during the year ended and as of December 31, 2021 was approximately

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 Credit Facility is subject to certain financial and other covenants.

The Company’s initial consolidated net

consolidated adjusted EBITDA ratio could not exceed 4.25 to 1,

with step downs in the permitted ratio over the term of the Credit

As of December 31, 2021, the consolidated net debt to consolidated

adjusted EBITDA ratio may not exceed 3.75 to 1.

Company’s consolidated

adjusted EBITDA to interest expense ratio may not be less than 3.0 to 1 over the

term of the agreement.

Credit Facility also prohibits the payment of cash dividends

if the Company is in default or if the amount of the dividends

annually exceeds the greater of $50.0 million and 20% of consolidated adjusted

EBITDA unless the ratio of consolidated net debt to

consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no

such limitation on amount.

As of December 31, 2021

and 2020, the Company was in compliance with all of the Credit Facility covenants.

The Term Loans have quarterly

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.

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.

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

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

in November 2019, the Company entered into $170.0

million notional amounts of three year interest rate swaps at a base rate of 1.64%

plus an applicable margin as provided in the Credit Facility,

based on the Company’s consolidated

net leverage ratio.

At the time the

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

aggregate interest rate on the swaps, including the fixed base rate

plus an applicable margin, was 3.1%.

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

Revolver and recorded within other assets on the Company’s

Consolidated Balance Sheet.

These capitalized costs are being

amortized into interest expense over the five year term of the Credit Facility.

As of December 31, 2021, the Company had Credit Facility borrowings

outstanding of $889.6 million.

As of December 31, 2020,

the Company had Credit Facility borrowings outstanding of $887.1

The Company has unused capacity under the Revolver of

approximately $184 million, net of bank letters of credit of approximately

$4 million, as of December 31, 2021.

The Company’s other

debt obligations are primarily industrial development bonds

bank lines of credit and municipality-related loans, which totaled $11.8

million and $12.1

million as of December 31, 2021

and 2020, respectively.

Total unused capacity under

these arrangements as of

December 31, 2021 was approximately $26 million.

The Company’s total net debt

as of December 31, 2021 was $736.2 million.

The Company estimates that it realized full year cost synergies related

to the Combination in 2021

of approximately $75 million

compared to $58 million in 2020.

The Company has fully achieved its annual target Combination cost synergies

of approximately $80

million going forward.

The Company incurred $18.6 million of total Combination, integration

and other acquisition-related expenses

in 2021, which includes $0.7 million of accelerated depreciation

and is net of a $5.4 million gain on the sale of certain held-for-sale

real property assets and $0.6 million of other income related to an indemnification

asset, described in the Non-GAAP Measures

section of this Item below.

The Company had aggregate net cash outflows of approximately $20.6 million

related to the Combination,

integration and other acquisition-related expenses during 2021.

Comparatively, in 2020, the

Company incurred $30.3 million of total

Combination, integration and other acquisition-related expenses, including

$0.8 million of accelerated depreciation, a $0.6 million loss

on the sale of held-for-sale assets, an $0.8 million of other income related to an indemnification

asset, and aggregate net cash outflows

related to these costs were approximately $29.4 million.

While the Company has incurred significant integration costs in 2019, 2020

and 2021, the Company expects to incur additional integration and operating

costs as well as higher capital expenditures to further

optimize its footprint, processes and other functions over the next several years.

Quaker Houghton’s management

approved, and the Company initiated, a global restructuring plan (the

“QH Program”) in the

third quarter of 2019 as part of its planned cost synergies associated

with the Combination and recorded $26.7 million in restructuring

and related charges in 2019.

The Company recognized an additional $1.4 million and $5.5 million

of restructuring and related charges

in 2021 and 2020, respectively,

as a result of the QH Program.

The QH Program includes restructuring and associated severance costs

to reduce total headcount by approximately 400 people globally and

plans for the closure of certain manufacturing and non-

manufacturing facilities.

In connection with the plans for closure of certain manufacturing and non-manufacturing

facilities, the

Company made a decision to make available for sale certain facilities during

the second quarter of 2020.

During the first quarter of

2021 and fourth quarter of 2020, certain of these facilities were sold

and the Company recognized a gain on disposal of $5.4 million

and a loss on disposal of $0.6 million, respectively,

included within other income (expense), net on the Consolidated Statement of

The exact timing and total costs associated with the QH Program will depend on a number of

factors and is subject to

however, reductions in headcount

and site closures have continued,

and the Company currently expects additional headcount

reductions and site closures to occur into 2022 and estimates that the anticipated

cost synergies realized under the QH Program will

approximate one-times restructuring costs incurred.

The Company made cash payments related to the settlement of restructuring

liabilities under the QH Program during 2021 of approximately $5.3 million

compared to $15.7 million in 2020.

During the first quarter of 2020, the Company completed the termination

of the Legacy Quaker U.S.

Pension Plan and funded the

plan on a termination basis with approximately $1.8 million, subject to final

true up adjustments.

In the third quarter of 2020, the

Company finalized the amount of liability and related annuity payments and

received a refund in premium of $1.6 million.

addition, the Company recorded a non-cash pension settlement charge

at plan termination of approximately $22.7 million in the first

quarter of 2020.

As of December 31, 2021, the Company’s

gross liability for uncertain tax positions, including interest and penalties,

The Company cannot determine a reliable estimate of the timing of cash flows

by period related to its uncertain tax position

However, should the entire liability be

paid, the amount of the payment may be reduced by up to $7.3 million as a result of

offsetting benefits in other tax jurisdictions.

During the year ended 2021, the Company recorded $13.1 million of non-income tax

credits for certain of its Brazilian subsidiaries.

The Company expects to utilize these credits to offset certain Brazilian

payments over approximately two years, which began in the fourth quarter

See Note 26 of Notes to Consolidated Financial

Statements in Item 8 of this Report.

During the third quarter of 2021, two of the Company’s

locations suffered property damage as a result of flooding and fire.

Company maintains property insurance for all of its facilities globally.

The Company, its insurance

adjuster and insurance carrier are

actively managing the remediation and restoration activities associated

with both of these events and at this time the Company has

concluded, based on all available information and discussions with its insurance

adjuster and insurance carrier, that the losses incurred

during 2021 will be covered under the Company’s

property insurance coverage, net of an aggregate deductible of $2.0 million.

Company has received payments from its insurers of $2.1 million and has

recorded an insurance receivable associated with these

events of $0.7 million as of December 31, 2021.

The Company and its insurance carrier continue to review the impact on operations

as it relates to a potential business interruption insurance claim;

as of the date of this report, the Company cannot reasonably

estimate any probable amount of business interruption insurance

claim recoverable, therefore the Company has not recorded a gain

contingency for a possible business interruption insurance claim as of December

See Note 26 of Notes to Consolidated

Financial Statements in Item 8 of this Report.

The Company believes that its existing cash, anticipated cash flows from

operations and available additional liquidity will be

sufficient to support its operating requirements and fund

its business objectives for at least the next twelve months and beyond,

including but not limited to, payments of dividends to shareholders, costs

related to the Combination and other acquisitions and as

well as ongoing integration and optimization,

pension plan contributions, capital expenditures, other business opportunities

potential acquisitions),

implementing actions to achieve the Company’s

sustainability goals and other potential contingencies.

Company’s liquidity is affected

by many factors, some based on normal operations of our business and

others related to the impact of

the pandemic on our business and on global economic conditions as well as industry

uncertainties, which we cannot predict.

cannot predict economic conditions and industry downturns or the

timing, strength or duration of recoveries.

believe appropriate, additional debt or equity financing which would

provide capital for corporate purposes, working capital funding,

additional liquidity needs or to fund future growth opportunities, including

possible acquisitions and investments.

The timing and

amount of potential capital requirements cannot be determined at this time

and will depend on a number of factors, including the

actual and projected demand for our products, specialty chemical industry

conditions, competitive factors, and the condition of

financial markets, among others.

The following table summarizes the Company’s

contractual obligations as of December 31, 2021, and the effect such

are expected to have on its liquidity and cash flows in future periods.

Pension and postretirement plan contributions beyond 2021 are

not determinable since the amount of any contribution is heavily dependent

on the future economic environment and investment

returns on pension trust assets.

The timing of payments related to other long-term liabilities which consists primarily

compensation agreements and environmental reserves, also cannot

be readily determined due to their uncertainty.

Interest obligations

on the Company’s long-term

debt and capital leases assume the current debt levels will be outstanding for

the entire respective period

and apply the interest rates in effect as of December 31, 2021.

At December 31, 2022, the Company had cash, cash equivalents and restricted cash of $181.0 million.

Total cash, cash equivalents and restricted cash was $165.2 million at December 31, 2021.

The $15.8 million increase in cash and cash equivalents was the net result of $41.8 million of cash provided by operating activities and $24.7 million of cash provided by financing activities partially offset by $40.2 million of cash used in investing activities and approximately $10.5 million of negative impacts due to the effect of foreign currency translation on cash.

Net cash flows provided by operating activities were $41.8 million in 2022 compared to $48.9 million in 2021.

The Company’s slightly lower current year net operating cash flow was primarily driven by lower earnings in 2022 as compared to 2021, partially offset by a lower working capital investment year-over-year.

While the Company experienced ongoing working capital investment in 2022, the amount decelerated as compared to 2021.

The year-over-year increase in net sales was larger in 2021 than in 2022, resulting in a smaller increase in accounts receivable in the current year.

In addition, during 2022, the Company utilized certain non-income tax credits which were recognized during 2021, resulting in a decrease in working capital during the current year.

Lastly, during 2021 there was a larger increase in inventory as a result of higher costs and, to a lesser extent, a build in certain inventory in response to global supply chain and logistics challenges, however, this larger prior year increase in inventory was partially offset by higher levels of accounts payable in the prior year as well, due to timing of purchases.

Net cash flows used in investing activities were $40.2 million in 2022 compared to $49.1 million in 2021.

This $8.9 million decrease in cash outflows used in investing activities was due to lower cash payments related to acquisitions as a result of the level of acquisition activity in each year, partially offset by lower cash proceeds from the disposition of assets which includes the sale of certain held-for-sale real property assets related to the Combination, and higher capital expenditures in the current year largely related to certain infrastructure and sustainability-related spending.

Net cash flows provided by financing activities were $24.7 million in 2022 compared to net cash flows used in financing activities of $13.5 million in 2021.

The $38.1 million increase in net cash inflows from financing activities was primarily driven by an increase in borrowings in the current year under the Company’s primary credit facility (described below), including the impact of new borrowings, net of repayments of old borrowings and current year debt issuance costs, related to the June 2022 credit facility amendment.

In addition, the Company paid $30.1 million of cash dividends during 2022, a $1.5 million or 5.3% increase in cash dividends compared to the prior year due to cash dividend per share increases.

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.

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 Term SOFR;

(iii) extended the maturity date of the Original Credit Facility from August 2024 to June 2027;

(iv) effected certain other changes to the Original Credit Facility as set forth in the Amended Credit Facility.

The Company used the proceeds of the Amended Credit Facility to repay all outstanding loans under the Original Credit Facility, unpaid accrued interest and fees on the closing date under the Original Credit Facility and certain expenses and fees.

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;

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 December 31, 2022 and December 31, 2021, the Company was in compliance with all of the Amended and Original 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 twelve months ended December 31, 2022 was approximately 3.0%.

As of December 31, 2022, the interest rate on the outstanding borrowings under the Amended Credit Facility was approximately 4.9%.

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 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 Company’s Consolidated Balance Sheet.

Approximately $8.3 million of the capitalized costs were attributed to the Original 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 Original Credit Facility.

Prior to executing the Amended 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 and $4.3 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.

These costs were recorded as a direct reduction of Long-term debt on the Consolidated Balance Sheet.

Approximately $1.5 million of the capitalized costs were attributed to the Amended Revolver and recorded within Other assets on the 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 December 31, 2022, the Company had $2.0 million of debt issuance costs recorded as a reduction of Long-term debt on the Consolidated Balance Sheet and $4.3 million of debt issuance costs recorded within Other assets on the Consolidated Balance Sheet.

The Original Credit Facility required the Company to fix its variable interest rates on at least 20% of its total Term Loans.

In order to satisfy this requirement as well as to manage the Company’s exposure to variable interest rate risk associated with the Original Credit Facility, in November 2019, the Company entered into $170.0 million notional amounts of three year interest rate swaps at a base rate of 1.64% plus an applicable margin as provided in the Original Credit Facility, based on the Company’s consolidated net leverage ratio.

In October 2022, the Company’s interest rate swap contracts expired.

Upon expiration, the Company received a cash payment from the counterparties of $0.2 million.

See Note 25 of Notes to Consolidated Financial Statements.

As of December 31, 2022, the Company had Amended Credit Facility borrowings outstanding of $943.5 million.

The Company had unused capacity under the Amended Revolver of approximately $301 million, which is net of bank letters of credit of approximately $3 million, as of December 31, 2022.

The Company’s other debt obligations are primarily industrial development bonds, bank lines of credit and municipality-related loans, which totaled $11.3 million as of December 31, 2022.

Total unused capacity under these arrangements as of December 31, 2022 was approximately $35 million.

The Company’s total net debt as of December 31, 2022 was $773.8 million.

The Company incurred $11.0 million of total Combination, integration and other acquisition-related expenses in 2022, which includes $2.4 million of other expense related to an indemnification asset and is net of a $0.2 million gain on the sale of certain held-for-sale real property assets, described in the Non-GAAP Measures section of this Item below.

The Company had aggregate net cash outflows of approximatel y $13.3 million related to Combination, integration and other acquisition-related expenses during 2022.

Comparatively, in 2021, the Company incurred $18.6 million of total Combination, integration and other acquisition-related expenses, including $0.7 million of accelerated depreciation and is net of a $5.4 million gain on the sale of certain held-for-sale real property assets, as well as a $0.6 million of other income related to an indemnification asset.

Net cash outflows related to these costs were approximately $20.6 million during 2021.

During 2022, the Company incurred $14.4 million of strategic planning expenses.

The Company expects that these additional operating costs and associated cash flows, as well as higher capital expenditures related to strategic planning, process optimization and the next phase of the Company’s long-term integration to further optimize its footprint, processes and other functions will continue in 2023 and extend into the next several years.

Quaker Houghton’s management approved, and the Company initiated, a global restructuring plan (the “QH Program”) in 2019 as part of its planned cost synergies associated with the Combination.

The QH Program included restructuring and associated severance costs to reduce total headcount by approximately 400 people globally and plans for the closure of certain manufacturing and non-manufacturing facilities.

As of December 31, 2022, the Company has substantially completed all of the initiatives under the QH Program with only an immaterial amount of remaining severance still to be paid, which is expected to be completed during 2023.

In response to current macroeconomic headwinds and softer operating conditions in 2022, the Company’s Management initiated a global cost and optimization program to improve its cost structure and drive a more profitable and productive organization.

This program has and will include certain restructuring activities as part of the plan to further optimize and strengthen the Company’s footprint, optimize the go-to-market strategy, simplify the portfolio and organization, and enable the Company to deliver on its strategic plan.

During the fourth quarter of 2022, initial actions under this program included restructuring and associated severance costs to reduce headcount by approximately 40 positions globally.

These headcount reductions began in the fourth quarter of 2022 and are expected to be completed in 2023.

The Company is continuing to evaluate and expects to implement further actions under this program, and as a result, additional headcount reductions and restructuring costs may be incurred in the future.

Under the Company’s restructuring programs, employee separation benefits varied depending on local regulations within certain foreign countries and included severance and other benefits.

The exact timing to complete all actions and final costs associated will depend on a number of factors and are subject to change.

The Company recognized $3.2 million, $1.4 million and $5.5 million of restructuring and related charges for the years ended December 31, 2022, 2021 and 2020, respectively, as a result of these programs.

The Company made cash payments related to the settlement of restructuring liabilities for these programs of $1.5 million and $5.3 million during the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company’s gross liability for uncertain tax positions, including interest and penalties, was $20.3 million.

The Company cannot determine a reliable estimate of the timing of cash flows by period related to its uncertain tax position liability.

However, should the entire liability be paid, the amount of the payment may be reduced by up to $6.1 million as a result of offsetting benefits in other tax jurisdictions.

During 2021, the Company recorded $13.1 million of non-income tax credits for certain of its Brazilian subsidiaries.

The Company utilized these credits to offset certain Brazilian federal tax payments during 2022.

See Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report.

During 2021, two of the Company’s locations suffered property damage as a result of flooding and electrical fire, respectively.

The Company maintains property insurance for all of its locations globally.

The Company, its insurance adjuster, and insurance carrier are actively managing the remediation and restoration activities associated with each of these events.

Based on all available information and discussions with its insurance adjuster and insurance carrier, that the losses incurred during 2021 are expected to be covered under the Company’s property insurance coverage, net of an aggregate deductible of $2.0 million.

To date, the Company has received payments from its insurers of $4.6 million and has recorded an insurance receivable associated with these events of $0.2 million as of December 31, 2022.

The Company and its insurance carrier continue to review the impact of the electrical fire on the production facility’s operations as it relates to a potential business interruption insurance claim;

however, as of the date of this Report, the Company cannot reasonably estimate any probable amount of business interruption insurance claim recoverable.

Therefore, the Company has not recorded a gain contingency for a possible business interruption insurance claim as of December 31, 2022.

See Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report.

The Company believes that its existing cash, anticipated cash flows from operations and available additional liquidity will be sufficient to support its operating requirements and fund its business objectives for at least the next twelve months and beyond, including but not limited to, payments of dividends to shareholders, payments for restructuring activities including further strategic and optimization initiatives, pension plan contributions, capital expenditures, other business opportunities (including potential acquisitions), implementing actions to achieve the Company’s sustainability goals and other potential contingencies.

The Company’s liquidity is affected by many factors, some based on normal operations of our business and others related to the impact of the pandemic and other events on our business and on global economic conditions as well as industry uncertainties, which we cannot predict.

We also cannot predict economic conditions and industry downturns or the timing, strength or duration of recoveries.

We may seek, as we believe appropriate, additional debt or equity financing which would provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including possible acquisitions and investments.

The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including the actual and projected demand for our products, specialty chemical industry conditions, competitive factors, and the condition of financial markets, among others.

The following table summarizes the Company’s contractual obligations as of December 31, 2022, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

Pension and postretirement plan contributions beyond 2022 are not determinable since the amount of any contribution is heavily dependent on the future economic environment and investment returns on pension trust assets.

The timing of payments related to other long-term liabilities which consists primarily of deferred compensation agreements and environmental reserves, also cannot be readily determined due to their uncertainty.

Interest obligations on the Company’s long-term debt and capital leases assume the current debt levels will be outstanding for the entire respective period and apply the interest rates in effect as of December 31, 2022.

Payments due by period

(dollars in thousands)

Contractual Obligations

Long-term debt

Interest obligations

Capital lease obligations

Operating leases

(dollars in thousand) 2028 and

Contractual Obligations Total 2023 2024 2025 2026 2027

Long-term debt (See Note 20 of Notes to Consolidated Financial Statements) $ 954,240 $ 19,063 $ 23,740 $ 37,745 $ 37,705 $ 825,964 $ 10,023

Interest obligations (See Note 20 of Notes to Consolidated Financial Statements) 196,374 45,771 44,745 43,263 41,438 20,982 175

Capital lease obligations (See Note 6 of Notes to Consolidated Financial Statements) 813 210 25 186 196 16 180

Operating leases (See Note 6 of Notes to Consolidated Financial Statements) 45,002 13,551 11,149 7,266 5,280 2,457 5,299

Purchase obligations 5,756 5,687 69 — — — —

Transition tax

Pension and other postretirement plan

contributions

Other long-term liabilities (See Note 22 of

Notes to Consolidated Financial Statements)

Total contractual

cash obligations

Non-current income taxes payable (See Note 10 and Note 22 of Notes to Consolidated Financial Statements) 8,883 — — — — — 8,883

Pension and other postretirement plan contributions (See Note 21 of Notes to Consolidated Financial Statements) 13,187 13,187 — — — — —

Other long-term liabilities (See Note 22 of Notes to Consolidated Financial Statements) 9,148 — — — — — 9,148

Total contractual cash obligations $ 1,233,403 $ 97,469 $ 79,728 $ 88,460 $ 84,619 $ 849,419 $ 33,708

Non-GAAP Measures

The information in this Form 10-K filing includes non-GAAP (unaudited)

financial information that includes EBITDA, adjusted

EBITDA, adjusted EBITDA margin, non-GAAP operating

income, non-GAAP operating margin, non-GAAP net

income and non-

GAAP earnings per diluted share.

The Company believes these non-GAAP financial measures provide meaningful supplemental

information as they enhance a reader’s understanding

of the financial performance of the Company,

are indicative of future operating

performance of the Company,

and facilitate a comparison among fiscal periods, as the non-GAAP financial

measures exclude items

that are not indicative of future operating performance or not considered

core to the Company’s operations.

Non-GAAP results are

presented for supplemental informational purposes only and should not be

considered a substitute for the financial information

presented in accordance with GAAP.

The Company presents EBITDA which is calculated as net income attributable

to the Company before depreciation and

amortization, interest expense, net, and taxes on income before equity in net income

of associated companies.

The Company also

presents adjusted EBITDA which is calculated as EBITDA plus or minus

certain items that are not indicative of future operating

performance or not considered core to the Company’s

In addition, the Company presents non-GAAP operating income

which is calculated as operating income plus or minus certain items that are

not indicative of future operating performance or not

considered core to the Company’s

Adjusted EBITDA margin and non-GAAP operating margin

are calculated as the

percentage of adjusted EBITDA and non-GAAP operating income

to consolidated net sales, respectively.

The Company believes

these non-GAAP measures provide transparent and useful information and

are widely used by analysts, investors, and competitors in

our industry as well as by management in assessing the operating performance

of the Company on a consistent basis.

Additionally, the

Company presents non-GAAP net income and non-GAAP earnings per diluted share

as additional performance

Non-GAAP net income is calculated as adjusted EBITDA, defined above,

less depreciation and amortization, interest

expense, net, and taxes on income before equity in net income of associated

companies, in each case adjusted, as applicable, for any

depreciation, amortization, interest or tax impacts resulting from the non-core

items identified in the reconciliation of net income

attributable to the Company to adjusted EBITDA.

Non-GAAP earnings per diluted share is calculated as non-GAAP net income

diluted share as accounted for under the “two-class share method.”

The Company believes that non-GAAP net income and non-

GAAP earnings per diluted share provide transparent and useful information

and are widely used by analysts, investors, and

competitors in our industry as well as by management in assessing the operating

performance of the Company on a consistent basis.

The following tables reconcile the Company’s

non-GAAP financial measures (unaudited) to their most directly comparable

GAAP financial measures (dollars in thousands, unless otherwise noted,

except per share amounts):

Non-GAAP Operating Income and Margin Reconciliations

For the years ended December 31,

The information in this Form 10-K filing includes non-GAAP (unaudited) financial information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share.

The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader’s understanding of the financial performance of the Company, are indicative of future operating performance of the Company, and facilitate a comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not indicative of future operating performance or not considered core to the Company’s operations.

Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.

The Company presents EBITDA which is calculated as net income attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies.

The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not indicative of future operating performance or not considered core to the Company’s operations.

In addition, the Company presents non-GAAP operating income which is calculated as operating income plus or minus certain items that are not indicative of future operating performance or not considered core to the Company’s operations.

Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively.

The Company believes these non-GAAP measures provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.

Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance measures.

Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies, in each case adjusted, as applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA.

Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the “two-class share method.” The Company believes that non-GAAP net income and non-GAAP earnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.

Certain of the prior period non-GAAP financial measures presented in the following tables have been adjusted to conform with current period presentation.

The following tables reconcile the Company’s non-GAAP financial measures (unaudited) to their most directly comparable GAAP financial measures (dollars in thousands, unless otherwise noted, except per share amounts):

Non-GAAP Operating Income and Margin Reconciliations For the years ended December 31,

2022 2021 2020

Operating income $ 52,304 $ 150,466 $ 59,360

Houghton combination, integration and other

acquisition-related expenses (a)

Restructuring and related charges (b)

Fair value step up of acquired inventory sold (c)

Executive transition costs (d)

Inactive subsidiary's non-operating litigation costs (e)

Customer bankruptcy costs (f)

Facility remediation costs, net (g)

Charges related to the settlement of a non-core equipment sale (h)

Indefinite-lived intangible asset impairment (i)

Combination, restructuring and other acquisition-related expenses (a) 11,975 26,845 36,213

Strategic planning expenses (b) 14,446 — —

Executive transition costs (c) 2,813 2,986 —

Russia-Ukraine conflict related expenses (k) 2,487 — —

Facility remediation (recovery) costs, net (d) — 1,509 —

Impairment charges (e) 93,000 — 38,000

Other charges (j) 866 819 463

Non-GAAP operating income $ 177,891 $ 182,625 $ 134,036

Non-GAAP operating margin (%) (r)

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and

Non-GAAP Net Income Reconciliations

For the years ended December 31,

Net income attributable to Quaker Chemical Corporation

Depreciation and amortization (a)(p)

Interest expense, net (a)

Taxes on income before

equity in net income of associated companies (q)

Equity income in a captive insurance company (j)

Houghton combination, integration and other

acquisition-related expenses (a)

Restructuring and related charges (b)

Fair value step up of acquired inventory sold (c)

Executive transition costs (d)

Inactive subsidiary’s non

-operating litigation cost (e)

Customer bankruptcy costs (f)

Facility remediation costs, net (g)

Charges related to the settlement of a non-core equipment sale (h)

Indefinite-lived intangible asset impairment (i)

Pension and postretirement benefit (income) costs,

non-service components (k)

Gain on changes in insurance settlement restrictions of an inactive

subsidiary and related insurance insolvency recovery (l)

Brazilian non-income tax credits (m)

Currency conversion impacts of hyper-inflationary economies (n)

Non-GAAP operating margin (%) (p) 9.2 % 10.4 % 9.5 %

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations For the years ended December 31,

2022 2021 2020

Net (loss) income attributable to Quaker Chemical Corporation $ (15,931) $ 121,369 $ 39,658

Depreciation and amortization (a)(n) 81,514 87,728 84,494

Interest expense, net 32,579 22,326 26,603

Taxes on income (loss) before equity in net income of associated companies (o) 24,925 34,939 (5,296)

EBITDA 123,087 266,362 145,459

Equity income in a captive insurance company (f) 1,427 (4,993) (1,151)

Combination, restructuring and other acquisition-related expenses (a) 14,153 20,151 35,305

Strategic planning expenses (b) 14,446 — —

Executive transition costs (c) 2,813 2,986 —

Facility remediation (recovery) costs, net (d) (1,804) 2,066 —

Impairment charges (e) 93,000 — 38,000

Pension and postretirement benefit (income) costs, non-service components (g) (1,704) (759) 21,592

Gain on changes in insurance settlement restrictions of an inactive subsidiary and related insurance insolvency recovery (h) — — (18,144)

Brazilian non-income tax credits (i) — (13,087) —

Russia-Ukraine conflict related expenses (k) 2,487 — —

Loss on extinguishment of debt (l) 6,763 — —

Other charges (j) 2,482 1,383 913

Adjusted EBITDA $ 257,150 $ 274,109 $ 221,974

Adjusted EBITDA margin (%) (r)

Adjusted EBITDA margin (%) (p) 13.2 % 15.6 % 15.7 %

Adjusted EBITDA $ 257,150 $ 274,109 $ 221,974

Depreciation and amortization - adjusted (a) 81,514 87,002 83,732

Interest expense, net - adjusted (a)

Taxes on income

before equity in net income

of associated companies - adjusted (o)(q)

Interest expense, net 32,579 22,326 26,603

Taxes on income (loss) before equity in net income of associated companies - adjusted (m)(o) 37,737 41,976 26,488

Non-GAAP net income $ 105,320 $ 122,805 $ 85,151

Non-GAAP Earnings per Diluted Share Reconciliations

For the years ending December 31,

GAAP earnings per diluted share attributable to

Quaker Chemical Corporation common shareholders

Equity income in a captive insurance company per diluted share (j)

Houghton combination, integration and other

acquisition-related expenses per diluted share (a)

Restructuring and related charges per diluted share (b)

Fair value step up of acquired inventory sold per diluted share (c)

Executive transition costs per diluted share (d)

Inactive subsidiary’s non

-operating litigation costs per diluted share (e)

Customer bankruptcy costs per diluted share (f)

Facility remediation costs, net per diluted share (g)

Charges related to the settlement of a non-core equipment

sale per diluted share (h)

Indefinite-lived intangible asset impairment per diluted share (i)

Pension and postretirement benefit costs, non-service

components per diluted share (k)

Gain on changes in insurance settlement restrictions of an inactive

subsidiary and related insurance insolvency recovery per diluted share (l)

Brazilian non-income tax credits per diluted share (m)

Currency conversion impacts of hyper-inflationary economies

per diluted share (n)

Impact of certain discrete tax items per diluted share (o)

Non-GAAP earnings per diluted share (s)

Houghton combination, integration and other acquisition-related

expenses include certain legal, financial, and other advisory and

consultant costs incurred in connection with post-closing integration

activities including internal control readiness and

remediation, as well as due diligence, regulatory approvals and closing

the Combination.

These costs are not indicative of the

future operating performance of the Company.

Approximately $0.6 million, $1.5 million and $9.4 million for the years ended

December 31, 2021, 2020 and 2019, respectively,

of these pre-tax costs were considered non-deductible for the purpose of

determining the Company’s

effective tax rate, and, therefore, taxes on income before equity in

net income of associated

companies - adjusted reflects the impact of these items.

During 2021, 2020 and 2019, the Company recorded $0.7 million, $0.8

million, and $0.6 million, respectively,

of accelerated depreciation related to certain of the Company’s

facilities, which is

included in the caption “Houghton combination, integration and other

acquisition-related expenses” in the reconciliation of

operating income to non-GAAP operating income and included in the

caption “Depreciation and amortization” in the

reconciliation of net income attributable to the Company to EBITDA, but

excluded from the caption “Depreciation and

amortization – adjusted” in the reconciliation of adjusted EBITDA to

non-GAAP net income attributable to the Company.

2019, the Company incurred $2.1 million of ticking fees to maintain the bank

commitment related to the Combination.

interest costs are included in the caption “Interest expense, net” in the reconciliation

of net income attributable to the Company to

EBITDA, but are excluded from the caption “Interest expense, net

– adjusted” in the reconciliation of adjusted EBITDA to non-

GAAP net income.

During 2021 and 2020, the Company recorded $0.6 million and $0.8 million, respectively,

of other income

related to an indemnification asset.

During 2021 and 2020, the Company recorded a gain of $5.4 million

and a loss of $0.6

million, respectively,

on the sale of certain held-for-sale real property assets related to

the Combination.

Each of these items are

included in the caption “Houghton combination, integration and other

acquisition expenses” in the reconciliation of GAAP

earnings per diluted share attributable to Quaker Chemical Corporation

common shareholders to Non-GAAP earnings per diluted

share as well as the reconciliation of Net Income attributable to Quaker

Chemical Corporation to Adjusted EBITDA and Non-

GAAP net income See Note 2 and Note 9 of Notes to Consolidated Financial

Statements, which appears in Item 8 of this Report.

Restructuring and related charges represent the

costs incurred by the Company associated with the QH restructuring program

which was initiated in the third quarter of 2019 as part of the Company’s

plan to realize cost synergies associated with the

Non-GAAP Earnings per Diluted Share Reconciliations For the years ending December 31,

2022 2021 2020

GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders $ (0.89) $ 6.77 $ 2.22

Equity income in a captive insurance company per diluted share (f) 0.08 (0.28) (0.07)

Combination, restructuring and other acquisition-related expenses per diluted share (a) 0.62 0.89 1.55

Strategic planning expenses per diluted share (b) 0.63 — —

Executive transition costs per diluted share (c) 0.12 0.13 —

Facility remediation (recovery) costs, net per diluted share (d) (0.08) 0.09 —

Impairment charges per diluted share (e) 5.19 — 1.65

Pension and postretirement benefit costs, non-service components per diluted share (g) (0.08) (0.04) 0.79

Gain on changes in insurance settlement restrictions of an inactive subsidiary and related insurance insolvency recovery per diluted share (h) — — (0.78)

Brazilian non-income tax credits per diluted share (i) — (0.46) —

Russia-Ukraine conflict related expenses per diluted share (k) 0.12 — —

Loss on extinguishment of debt per diluted share (l) 0.29 — —

Other charges per diluted share (i) 0.13 0.07 0.04

Impact of certain discrete tax items per diluted share (m) (0.26) (0.32) (0.62)

Non-GAAP earnings per diluted share (q) $ 5.87 $ 6.85 $ 4.78

(a) Combination, restructuring and other acquisition-related expenses include certain legal, financial, and other advisory and consultant costs incurred in connection with the Combination integration activities including internal control readiness and remediation.

These amounts also include expense associated with the Company's other recent acquisitions, including certain legal, financial, and other advisory and consultant costs incurred in connection with due diligence as well as costs associated with selling inventory from acquired businesses which was adjusted to fair value as part of purchase accounting.

These costs are not indicative of the future operating performance of the Company.

See Note 7 of Notes to

Consolidated Financial Statements,

which appears in Item 8 of this Report.

Fair value step up of inventory sold relates to expense associated with selling

inventory of acquired businesses which was

adjusted to fair value as part of purchase accounting.

This increases to costs of goods sold (“COGS”) are not indicative of the

future operating performance of the Company.

Executive transition costs represent the costs related to the Company’s

search, hiring and transition to a new CEO in connection

with the executive transition that look place in 2021.

These expenses are not indicative of the future operating performance of the

Inactive subsidiary’s non

-operating litigation costs represents the charges incurred by

an inactive subsidiary of the Company and

are a result of the termination of restrictions on insurance settlement reserves.

These charges are not indicative of the future

operating performance of the Company.

See Note 26 of Notes to Consolidated Financial Statements, which appears

Customer bankruptcy costs represent the cost associated with a specific

reserve for trade accounts receivable related to a customer

who filed for bankruptcy protection.

These expenses are not indicative of the future operating performance

of the Company.

Note 13 of Notes to Consolidated Financial Statements, which appears

in Item 8 of this Report.

Facility remediation costs, net, presents the gross costs associated with remediation,

cleaning and subsequent restoration costs

associated with the property damage to certain of the Company’s

facilities, net of insurance recoveries received.

These charges

are non-recurring and are not indicative of the future operating performance

of the Company.

See Note 26 of Notes to

Consolidated Financial Statements, which appears in Item 8 of this Report.

Charges related to the settlement of a non-core equipment

sale represent the pre-tax charge related to a one-time, uncommon,

customer settlement associated with a prior sale of non-core equipment.

These charges are not indicative of the future operating

performance of the Company.

Indefinite-lived intangible asset impairment represents the non-cash

charge taken to write down the value of certain indefinite-

lived intangible assets associated with the Combination.

The Company has no prior history of goodwill or intangible asset

impairments and this charge is not indicative of the future operating

performance of the Company.

See Note 16 of Notes to

Consolidated Financial Statements, which appears in Item 8 of this Report.

Equity income in a captive insurance company represents the after-tax

income attributable to the Company’s

interest in Primex,

Approximately $0.2 million, $0.6 million and $1.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, of these pre-tax costs were considered non-deductible for the purpose of determining the Company’s effective tax rate, and, therefore, taxes on income before equity in net income of associated companies - adjusted reflects the impact of these items.

During 2021 and 2020, the Company recorded $0.7 million and $0.8 million, respectively, of accelerated depreciation related to certain of the Company’s facilities, which is included in the caption “Combination, restructuring and other acquisition-related expenses” in the reconciliation of operating income to non-GAAP operating income and included in the caption “Depreciation and amortization” in the reconciliation of net income attributable to the Company to EBITDA, but excluded from the caption “Depreciation and amortization – adjusted” in the reconciliation of adjusted EBITDA to non-GAAP net income attributable to the Company.

During 2022, 2021 and 2020, the Company recorded $2.4 million of other expense and, $0.6 million and $0.8 million, respectively, of other income related to an indemnification asset.

During 2022, 2021 and 2020, the Company recorded restructuring and related charges of $3.2 million, $1.4 million and $5.5 million, respectively.

During 2021 and 2020, the Company recorded $0.8 million and $0.2 million, respectively, related to the sale of inventory from acquired businesses which was adjusted to fair value.

During 2022, 2021 and 2020, the Company recorded a gain of $0.2 million, a gain of $5.4 million and a loss of $0.6 million, respectively, on the sale of certain held-for-sale real property assets related to the Combination.

Each of these items are included in the caption “Combination, restructuring and other acquisition-related expenses” in the reconciliation of GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share as well as the reconciliation of Net Income attributable to Quaker Chemical Corporation to Adjusted EBITDA and Non-GAAP net income.

See Notes 2, 7, 9 and 10 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(b) Strategic planning expenses include certain consultant and advisory expenses for the Company's long-term strategic planning, as well as process optimization and the next phase of the Company's long-term integration to further optimize its footprint, processes and other functions.

These costs are not indicative of the future operating performance of the Company.

(c) Executive transition costs represent the costs related to the Company’s search, hiring and transition to a new CEO in connection with the executive transition that occurred in 2021 as well as the, hiring and transition for other officers during 2022.

These expenses are one-time in nature and are not indicative of the future operating performance of the Company.

(d) Facility remediation (recovery) costs, net, presents the gross costs associated with remediation, cleaning and subsequent restoration costs associated with the property damage to certain of the Company’s facilities, net of insurance recoveries received.

These charges are non-recurring and are not indicative of the future operating performance of the Company.

See Note 26 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(e) Impairment charges represents the non-cash charges taken to write down the value of goodwill and indefinite-lived intangible assets.

These charges are not indicative of the future operating performance of the Company.

See Note 16 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(f) Equity income in a captive insurance company represents the after-tax income attributable to the Company’s interest in Primex, Ltd.

(“Primex”), a captive insurance company.

The Company holds a 32% investment in and has significant influence over

Primex, and therefore accounts for this investment under the equity method of

The income attributable to Primex is

not indicative of the future operating performance of the Company

and is not considered core to the Company’s operations.

Pension and postretirement benefit (income) costs, non-service components

represent the pre-tax, non-service components of the

Company’s pension and postretirement

net periodic benefit cost in each period.

These costs are not indicative of the future

operating performance of the Company.

The year ended December 31, 2020 includes a $22.7 million settlement charge

Company’s termination

of the Legacy Quaker U.S.

The Company holds a 32% investment in and has significant influence over Primex, and therefore accounts for this investment under the equity method of accounting.

The income attributable to Primex is not indicative of the future operating performance of the Company and is not considered core to the Company’s operations.

See Note 17 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(g) Pension and postretirement benefit (income) costs, non-service components represent the pre-tax, non-service components of the Company’s pension and postretirement net periodic benefit cost in each period.

These costs are not indicative of the future operating performance of the Company.

The year ended December 31, 2020 includes a $22.7 million settlement charge for the Company’s termination of a noncontributory U.S.

pension plan.

See Note 21 of Notes to Consolidated Financial Statements,

which appears in Item 8 of this Report.

Gain on changes in insurance settlement restrictions of an inactive subsidiary

and related insurance insolvency recovery

represents income associated with the gain on the termination of restrictions

on insurance settlement reserves and the cash

receipts from an insolvent insurance carrier for previously submitted

claims by an inactive subsidiary of the Company.

income is not indicative of the future operating performance of the Company.

See Notes 9 and 26 of Notes to Consolidated

Financial Statements, which appears in Item 8 of this Report.

Brazilian non-income tax credits represent indirect tax credits related to certain

of the Company’s Brazilian subsidiaries

prevailing in a legal claim as well as the Brazil Supreme Court ruling on these non

-income tax matters.

The non-income tax

credit is non-recurring and not indicative of the future operating performance

of the Company.

See Note 26 of Note to

Consolidated Financial Statements, which appears in Item 8 of this Report.

Currency conversion impacts of hyper-inflationary economies represents

the foreign currency remeasurement impacts associated

with the Company’s affiliates

whose local economies are designated as hyper-inflationary under

An entity which

operates within an economy deemed to be hyper-inflationary

GAAP is required to remeasure its monetary assets and

liabilities to the applicable published exchange rates and record the

associated gains or losses resulting from the remeasurement

directly to the Consolidated Statements of Income.

economy has been considered hyper-inflationary under

GAAP since 2010, while Argentina’s

economy has been considered hyper-inflationary beginning

July 1, 2018.

In addition, the

Company’s Argentine

Houghton subsidiary also applies hyper-inflationary accounting.

During 2021, 2020 and 2019, the

Company incurred non-deductible, pre-tax charges

related to the Company’s Argentine

The charges incurred related to

the immediate recognition of foreign currency remeasurement in the

Consolidated Statements of Income associated with these

entities are not indicative of the future operating performance of the Company.

See Notes 1, 9 and 17 of Notes to Consolidated

Financial Statements, which appears in Item 8 of this Report.

The impacts of certain discrete tax items includes

the impact of changes in certain valuation allowances

recorded on certain of the

Company’s foreign

tax credits, tax law changes in foreign jurisdictions, changes in withholding tax rates, the

tax impacts of non-

income tax credits associated with certain of the Company’s

Brazilian subsidiaries and the associated impact on previously

accrued for distributions at certain of the Company’s

Asia/Pacific subsidiaries, the one-time deferred tax benefit recorded on the

transfer of intangible assets between the Company’s

subsidiaries as well as the offsetting impact and amortization

of a deferred

tax benefit the Company recorded during 2020 and 2019 related to

similar intercompany intangible asset transfers.

Additionally,

the 2019 amounts include certain transition tax adjustments related to adjustments

to adopt U.S.

See Note 10 of

Notes to Consolidated Financial Statements, which appears in Item

8 of this Report.

Depreciation and amortization for the years ended December 31, 2021,

2020 and 2019 includes $1.2 million, $1.2 million and

$0.4 million, respectively,

of amortization expense recorded within equity in net income of associated

companies in the

Company’s Consolidated

Statements of Income, which is attributable to the amortization of the fair value step up for

Company’s 50% interest Korea Houghton

Corporation as a result of required purchase accounting.

Taxes on income

before equity in net income of associated companies – adjusted presents the impact

of any current and deferred

income tax expense (benefit), as applicable, of the reconciling items presented

in the reconciliation of net income attributable to

Quaker Chemical Corporation to adjusted EBITDA, and was determined

utilizing the applicable rates in the taxing jurisdictions in

which these adjustments occurred, subject to deductibility.

Houghton combination, integration and other acquisition-related

expenses described in (a) resulted in incremental taxes of $4.2 million

for 2021, $6.9 million for 2020, and $6.7 million for 2019.

Restructuring and related charges described in (b)

resulted in incremental taxes of $0.3 million for 2021, $1.4 million for 2020

and $6.2 million for 2019.

Fair value step up of inventory sold described in (c) resulted in incremental taxes of $0.2 million,

than $0.1 million and $2.9 million for 2021, 2020 and 2019, respectively.

Executive transition expenses described in (d) resulted

in incremental taxes of $0.7 million for 2021.

Inactive subsidiary non-operating litigation costs described in (e) resulted in

incremental taxes of $0.2

million for 2021.

Customer bankruptcy costs described in (f) resulted in incremental taxes of $0.1

million in 2020 and $0.3 million in 2019.

Facility remediation costs, net described in (g) results in incremental taxes of $0.5

million for 2021.

Charges related to the settlement of a non-core equipment

sale described in (h) resulted in incremental taxes of

$0.1 million for 2019.

Indefinite-lived intangible asset impairment described in (i) resulted in

incremental taxes of $8.7 million

Pension and postretirement benefit (income) costs, non-service components

described in (k) resulted in a reduction of

taxes of $0.1 million for 2021 and incremental taxes of $7.5 million for 2020,

and $0.7 million for 2019.

Gain on changes in

insurance settlement restrictions of an inactive subsidiary

and related insurance insolvency recovery described in (l) resulted in a

reduction of taxes of $4.2 million in 2020 and less than $0.1 million in

Brazilian non-income tax credits described in (m)

resulted in a reduction of taxes of $4.8 million for 2021.

The impact of certain discrete items described in (o) resulted in a tax

benefit of $5.8 million for 2021, incremental taxes of $11.2

million for 2020, and a reduction of taxes of $5.7 million in 2019.

The Company calculates adjusted EBITDA margin

and non-GAAP operating margin as the percentage of adjusted EBITDA

non-GAAP operating income to consolidated net sales.

The Company calculates non-GAAP earnings per diluted share as non

-GAAP net income attributable to the Company per

weighted average diluted shares outstanding using the “two-class share method”

to calculate such in each given period.

See Note 21 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(h) Gain on changes in insurance settlement restrictions of an inactive subsidiary and related insurance insolvency recovery represents income associated with the gain on the termination of restrictions on insurance settlement reserves and the cash receipts from an insolvent insurance carrier for previously submitted claims by an inactive subsidiary of the Company.

This other income is not indicative of the future operating performance of the Company.

See Notes 9 and 26 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(i) Brazilian non-income tax credits represent indirect tax credits related to certain of the Company’s Brazilian subsidiaries prevailing in a legal claim as well as the Brazil Supreme Court ruling on these non -income tax matters.

The non-income tax credit is non-recurring and not indicative of the future operating performance of the Company.

See Note 26 of Note to Consolidated Financial Statements, which appears in Item 8 of this Report.

(j) Other charges include charges incurred by an inactive subsidiary of the Company as a result of the termination of restrictions on insurance settlement reserves, the foreign currency remeasurement impacts associated with the Company’s affiliates whose local economies are designated as hyper-inflationary under U.S.

GAAP and costs associated with specific reserves for trade accounts receivable related to a customer who filed for bankruptcy during 2020.

These expenses are not indicative of the future operating performance of the Company.

See Notes 1 and 13 of Notes to Consolidated Financial Statements, which appear in Item 8 of this Report.

(k) Russia-Ukraine conflict related expenses represent the direct costs associated with the Company's exit of operations in Russia during 2022, primarily employee separation benefits, as well as costs associated with establishing specific reserves or changes to existing reserves for trade accounts receivable within the Company's EMEA reportable segment due to the economic instability associated with certain customer accounts receivables which have been directly impacted by the current economic conflict between Russia and Ukraine or the Company's decision to end operations in Russia.

These expenses are not indicative of the future operating performance of the Company.

See Note 13 of Notes to Consolidated Financial Statements, which appear in Item 8 of this Report.

(l) In connection with executing the Amended Credit Facility, the Company recorded a loss on extinguishment of debt of approximately $6.8 million which includes the write-off of certain previously unamortized deferred financing costs as well as a portion of the third-party and creditor debt issuance costs incurred to execute the Amended Credit Facility.

These expenses are not indicative of the future operating performance of the Company.

See Note 20 of Notes to Consolidated Financial Statements, which appear in Item 8 of this Report.

(m) The impacts of certain discrete tax items includes the impact of changes in valuation allowances recorded on certain of the Company’s foreign tax credits, tax law changes in foreign jurisdictions, changes in withholding tax rates, the tax impacts of non-income tax credits associated with certain of the Company’s Brazilian subsidiaries and the associated impact on previously accrued for distributions at certain of the Company’s Asia/Pacific subsidiaries, deferred tax benefits recorded on the transfer of intangible assets between the Company’s subsidiaries as well as the offsetting impact and amortization of a deferred tax benefit the Company recorded during 2020 related to similar intercompany intangible asset transfers.

See Note 10 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report.

(n) Depreciation and amortization for the years ended December 31, 2022, 2021 and 2020 includes $1.0 million, $1.2 million and $1.2 million, respectively, of amortization expense recorded within equity in net income of associated companies in the Company’s Consolidated Statements of Operations, which is attributable to the amortization of the fair value step up for the Company’s 50% interest Korea Houghton Corporation as a result of required purchase accounting.

(o) Taxes on income before equity in net income of associated companies – adjusted presents the impact of any current and deferred income tax expense (benefit), as applicable, of the reconciling items presented in the reconciliation of net income attributable to Quaker Chemical Corporation to adjusted EBITDA, and was determined utilizing the applicable rates in the taxing jurisdictions in which these adjustments occurred, subject to deductibility.

Combination, restructuring and other acquisition-related expenses described in (a) resulted in incremental taxes of $2.8 million for 2022, $4.7 million for 2021, and $8.3 million for 2020.

Strategic planning expenses described in (b) resulted in incremental taxes of $3.3 million for 2022.

Executive transition costs described in (c) resulted in incremental taxes of $0.6 million and $0.7 million for the years 2022 and 2021, respectively.

Facility remediation costs, net described in (d) results in a tax benefit of $0.4 million for 2022 and incremental taxes of $0.5 million for 2021.

Impairment charges described in (e) resulted in incremental taxes of $8.7 million for 2020.

Pension and postretirement benefit (income) costs, non-service components described in (g) resulted in a reduction of taxes of $0.3 million and $0.1 million for 2022 and 2021, respectively, and incremental taxes of $7.5 million for 2020.

Gain on changes in insurance settlement restrictions of an inactive subsidiary and related insurance insolvency recovery described in (h) resulted in a reduction of taxes of $4.2 million in 2020.

Brazilian non-income tax credits described in (i) resulted in a reduction of taxes of $4.8 million for 2021.

Other charges described in (j) resulted in incremental taxes of $0.2 million, $0.2 million and $0.1 million during 2022, 2021 and 2020, respectively.

Russia-Ukraine conflict related expenses described in (k) resulted in incremental taxes of $0.5 million for 2022.

Loss on extinguishment of debt described in (l) resulted in incremental taxes of $1.6 million for 2022.

The impact of certain discrete tax items described in (m) resulted in incremental taxes of $4.4 million for 2022, a tax benefit of $5.8 million for 2021, and incremental taxes of $11.2 million for 2020.

(p) The Company calculates adjusted EBITDA margin and non-GAAP operating margin as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales.

(q) The Company calculates non-GAAP earnings per diluted share as non-GAAP net income attributable to the Company per weighted average diluted shares outstanding using the “two-class share method” to calculate such in each given period.

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet commitments or

obligations as of December 31, 2021.

The Company’s only off-

balance sheet commitments or obligations outstanding as of December 31,

2021 represented approximately $6 million of total bank

letters of credit and guarantees.

The bank letters of credit and guarantees are not significant to the Company’s

liquidity or capital

The Company had no material off-balance sheet commitments or obligations as of December 31, 2022.

The Company’s only off-balance sheet commitments or obligations outstanding as of December 31, 2022 represented approximately $5 million of total bank letters of credit and guarantees.

The bank letters of credit and guarantees are not significant to the Company’s liquidity or capital resources.

See Note 20 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Consolidated Operations Review – Comparison of 2022 with 2021

Net sales were $1,761.2 million in 2021 compared to $1,417.7 million

The net sales increase of approximately $343.5

million or 24% year-over-year was primarily due to higher sales volumes of

13%, which includes additional net sales from recent

acquisitions of 4%, increases from selling price and product mix of 8% and

the positive impact of foreign currency translation of 3%.

The increase in organic sales volumes compared to 2020

was primarily the result of the continued year-over-year

improvement in end

market conditions from the prior year impacts of COVID-19 and continued

market share gains.

Sales from acquisitions is primarily

driven by the Company’s acquisition

of Coral Chemical Company (“Coral”) in December 2020 and

the tin-plating solutions business

acquired in February 2021.

The increase from selling price and product mix includes the impact of current

year selling price increases

implemented in response to the increases in raw material costs experienced

The positive impact from foreign currency

translation is primarily the result of the strengthening of the Chinese renminbi,

euro, Mexican peso, the Canadian dollar and the

British pound against the U.S.

dollar year-over-year.

Net sales were a record $1,943.6 million in 2022 compared to $1,761.2 million in 2021.

The increase in net sales of approximately $182.4 million or 10% year-over-year was primarily due to an increase in selling price and product mix of approximately 22% and additional net sales from acquisitions of 1%, partially offset by a decline in organic sales volumes of approximately 7% and the unfavorable impact from foreign currency translation of approximately 6%.

The increase in selling price and product mix was primarily driven by price increases implemented to offset the significant increases in raw material and other input costs that began during 2021 and continued throughout 2022.

The decline in organic sales volumes was primarily attributable to softer end market demand, particularly in the EMEA and Asia/Pacific segments, the wind-down of the tolling agreement for products previously divested related to the Combination and the impact of the ongoing war in Ukraine, partially offset by net new business wins, including the impact of the Company’s ongoing value-based pricing initiatives.

The impact from foreign currency translation is primarily the result of the year-over-year strengthening of the U.S.

Dollar compared to major world currencies including the Euro and the Chinese renminbi.

COGS were $1,330.9 million in 2022 compared to $1,166.5 million in 2021.

The increase in COGS of 29% was driven by the

associated COGS on the increase in net sales described above, and

continued increases in the Company’s global

raw material costs

compared to the prior year and the impacts of supply constraints in the current year.

Gross profit in 2021 of $594.6 million increased $81.2 million or approximately

16% from 2020, due primarily to the increase in

net sales noted above.

The Company’s reported gross margin

in 2021 was 33.8% compared to 36.2% in 2020.

The lower current year

gross margin is primarily attributable to increased raw materials and

other costs that began in the fourth quarter of 2020 and have

continued throughout 2021 and the impacts of constraints on the world’s

global supply chain partially offset by the Company’s

ongoing pricing initiatives.

SG&A in 2021 increased $38.1 million compared to 2020 due primarily to

the impact of sales increases on direct selling costs,

year-over-year inflation increases, additional

SG&A from recent acquisitions and higher SG&A due to foreign currency

partially offset by lower incentive compensation year-over

-year as well as the benefits of additional realized cost synergies associated

with the Combination year-over-year.

In addition, SG&A was lower in the prior year period as a result of temporary

measures the Company implemented in response to COVID-19.

While the Company continues to manage costs during the on-going

pandemic, it has incurred higher SG&A year-over-year

as the global economy continues to gradually rebound.

During 2021 and 2020, the Company incurred $23.9 million and $29.8

million, respectively, of

Combination, integration and

other acquisition-related expenses primarily for professional fees related

to Houghton integration and other acquisition-related

The increase in COGS of 14% was driven by the continued increases in the Company’s global raw material, manufacturing and supply chain and logistics costs compared to the prior year.

Gross profit in 2022 of $612.7 million increased $18.0 million or approximately 3% from 2021.

The Company’s reported gross margin in 2022 was 31.5% compared to 33.8% in 2021.

The Company’s current year gross margin reflects a significant increase in raw material and other input costs and the impacts of constraints on the global supply chain, partially offset by the Company’s ongoing value-based pricing initiatives.

SG&A in 2022 increased $36.6 million compared to 2021 due primarily to the impact of sales increases on direct selling costs, higher operating costs due to inflationary pressures, costs associated with strategic planning initiatives (see the Non-GAAP Measures section of this Item, above), and additional SG&A from recent acquisitions, partially offset by lower SG&A due to foreign currency translation compared to the prior year.

In addition, SG&A was lower in the prior year period as a result of continued temporary cost saving measures the Company implemented in response to the onset of COVID-19.

During 2022 and 2021, the Company incurred $8.8 million and $23.9 million, respectively, of Combination, integration and other acquisition-related expenses.

See the Non-GAAP Measures section of this Item, above.

The Company initiated a restructuring program during 2019 as part of

its global plan to realize cost synergies associated with the

The Company incurred restructuring and related charges for reductions

in headcount and site closures under this

program, net of adjustments to initial estimates for severance, of

an expense of $1.4 million and $5.5 million during 2021 and 2020,

respectively.

The Company incurred restructuring expenses of $3.2 million and $1.4 million during 2022 and 2021, respectively, related to the Company’s restructuring programs.

See the Non-GAAP Measures section of this Item, above.

Operating income in 2021 was $150.5 million compared to $59.4 million

Excluding Combination, integration and other

acquisition-related expenses, restructuring and related charges and

other non-core items, the Company’s

current year non-GAAP

operating income of $182.6 million increased compared to $134.0

million in the prior year, primarily due

to the increase in net sales

described above and the benefits from cost savings related to the Combination

offset by an increase in SG&A as well as the significant

increases in raw material costs year-over-year.

The Company estimates that it realized cost synergies associated with the

of approximately $75 million during 2021 compared to approximately

$58 million during 2020.

The Company had other income, net, of $18.9 million in 2021 compared

to other expense, net, of $5.6 million in 2020.

over-year change was primarily a result of other income related to certain

non-income tax credits recorded by the Company’s

Brazilian subsidiaries, the gain on the sale of certain held-for-sale real property assets and lower

foreign currency transaction losses in

2021 as compared to the prior year.

The Company had non-service components of pension and postretirement

benefit income in the

current year compared to an expense in the prior year as a result of the $22.7

million pension settlement charge directly related to the

termination of the Legacy Quaker U.S.

pension plan partially offset

by a $18.1 million gain related to the lapse of restrictions over

certain cash that was previously designated solely for the settlement of

asbestos claims at an inactive subsidiary,

all of which are

described in the Non-GAAP Measures section of this Item, above.

Interest expense, net, decreased $4.3 million compared to 2020 driven

by lower current year average borrowings outstanding as a

result of the additional revolver borrowings drawn during part of 2020

at the onset of the pandemic to add additional liquidity,

with a decline in overall interest rates year-over-year,

as the weighted average interest rate incurred on borrowings under the

Company’s credit facility was approximately

1.6% during 2021 compared to approximately 2.2% during 2020.

The Company’s effective

tax rates for 2021 and 2020 were an expense of 23.8% and benefit of 19.5%, respectively.

Company’s higher current year

effective tax rate is driven by a higher level of pre-tax earnings and

mix of earnings, as well as

deferred tax expense related to the planned repatriation of non-U.S.

In addition, the rate was impacted by certain one-time

charges and benefits related to an intercompany intangible

asset transfer and related royalty income recognition offset

by changes in

the valuation allowance for foreign tax credits.

Comparatively, the prior

year effective tax rate was impacted by the tax effect of

certain one-time tax charges and benefits related to a 2020 intercompany

intangible asset transfer, additional charges

for uncertain tax

positions relating to certain foreign tax audits, and the tax impact of the Company’s

termination of its Legacy Quaker U.S.

Excluding the impact of these items as well as all other non-core items in

each year, described in the Non-GAAP Measures

section of this Item, above, the Company estimates that the 2021 and 2020

effective tax rates would have been approximately 26%

and 25%, respectively.

The higher estimated current year tax rate was primarily driven by a higher level of pre

-tax earnings and the

impact of changes in mix of earnings,

deferred taxes related to the planned repatriation of non-U.S.

earnings, and provision

adjustments in the prior period.

The Company may experience continued volatility in its effective tax

rates due to several factors,

including the timing of tax audits and the expiration of applicable statutes of

limitations as they relate to uncertain tax positions, the

unpredictability of the timing and amount of certain incentives in various

tax jurisdictions, the treatment of certain acquisition-related

costs and the timing and amount of certain share-based compensation-related

tax benefits, among other factors.

In addition, the

foreign tax credit valuation allowance, or absence thereof, is based on

a number of variables, including forecasted earnings, which

Equity in net income of associated companies increased $2.0 million in

2021 compared to 2020, primarily due to higher current

year income from the Company’s interest

in a captive insurance company partially offset by lower earnings

from the Company’s 50%

interest in a joint venture in Korea compared to the prior year.

In 2022, the Company recorded a $93.0 million non-cash impairment charge to write down the value of goodwill associated with the Company’s EMEA reportable segment.

This non-cash impairment charge is the result of the Company’s trigger based fourth quarter of 2022 impairment assessment.

There were no similar impairment charges in 2022 and no charges in 2021.

See the Critical Accounting Policies and Estimates section as well as the Non-GAAP Measures section, of this Item, above.

Operating income in 2022 was $52.3 million compared to $150.5 million in 2021.

Excluding the non-cash impairment charge, as well as other non-core items that are not indicative of future operating performance, the Company’s current year non-GAAP operating income was $177.9 million compared to $182.6 million in the prior year.

The decline in non-GAAP operating income was primarily due to the higher SG&A, as described above.

Other expense in 2022 includes $6.8 million of loss on extinguishment of debt related to the Company’s refinancing the Original Credit Facility, partially offset by $1.8 million of facility remediation insurance recoveries and $2.4 million of other income related to an indemnification asset.

Other income in 2021 includes $13.1 million of non-income tax credits recorded by the Company’s Brazilian subsidiaries as well as a $4.8 million gain on the sale of certain held-for-sale real property assets.

See the Non-GAAP Measures section of this Item, above.

Net income attributable to noncontrolling interest was less than $0.1 million

in 2021 compared to $0.1 million in 2020

result of the first quarter of 2020 acquisition of the remaining ownership

interest in one of the Company’s South

African affiliates

Foreign exchange positively impacted the Company’s

yearly results by approximately 6% driven by the positive impact from

foreign currency translation on earnings as well as lower foreign exchange

transaction losses in the current year as compared to the

In addition, foreign exchange losses, net, were higher in 2022 as compared to 2021.

Interest expense, net, increased $10.3 million compared to 2021, primarily driven by increases in the average borrowings outstanding coupled with an increase in interest rates year-over-year as the weighted average interest rate incurred on borrowings under the Company’s primary credit facility was approximately 3.0% during 2022 compared to approximately 1.6% during 2021.

This was partially offset by lower amortization of debt issuance costs in 2022 as compared to 2021 due to the June 2022 credit facility amendment and write off of certain previously capitalized debt issuance costs.

The Company’s effective tax rates for 2022 and 2021 were an expense of 350.2% and an expense of 23.8%, respectively.

The Company’s current year effective tax rate was largely driven by the non-cash impairment charge described above and to a lesser extent a decline in profits, earnings mix, foreign tax inclusions and withholding taxes, partially offset by a reduction in reserves for uncertain tax positions and changes in the valuation allowance for foreign tax credits.

The Company’s 2021 effective tax rate was driven by a higher level of pre-tax earnings and mix of earnings, as well as a deferred tax expense related to the planned repatriation of non-U.S.

In addition, the rate was impacted by certain one-time charges and benefits related to an intercompany intangible asset transfer and related royalty income recognition offset by changes in the valuation allowance for foreign tax credits.

Excluding the impact of all non-core items in each year, described in the Non-GAAP Measures section of this Item, above, the Company estimates that the 2022 and 2021 effective tax rates would have been approximately 27% and 26%, respectively.

The higher estimated current year tax rate was primarily driven by a lower level of pre-tax earnings and the impact of changes in mix of earnings.

The Company may experience continued volatility in its effective tax rates due to several factors, including the timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, the unpredictability of the timing and amount of certain incentives in various tax jurisdictions, the treatment of certain acquisition-related costs and the timing and amount of certain share-based compensation-related tax benefits, among other factors.

In addition, the foreign tax credit valuation allowance, or absence thereof, is based on a number of variables, including forecasted earnings, which may vary.

Equity in net income of associated companies decreased $7.4 million in 2022 compared to 2021, primarily due to lower current year income from the Company’s interest in a captive insurance company (see the Non-GAAP Measures section of this Item, above) due to lower market performance on equity investments and from the Company’s 50% interest in a joint venture in Korea due to overall market challenges.

Net income attributable to noncontrolling interest was less than $0.1 million for both 2022 and 2021.

Foreign exchange negatively impacted the Company’s yearly results by approximately 8% driven by the negative impact from foreign currency translation on earnings as well as higher foreign exchange transaction losses in the current year as compared to the prior year.

Consolidated Operations Review – Comparison of 2021 with 2020

Net sales were $1,417.7 million in 2020 compared to $1,133.5 million

The net sales increase of 25% year-over-year

includes additional net sales from acquisitions, primarily Houghton

and Norman Hay, of $408.6 million.

Excluding net sales related

to acquisitions, the Company’s prior

year net sales would have declined approximately 11%

which reflects a decrease in sales volumes

of 9%, a negative impact from foreign currency translation of 1% and

a decrease from selling price and product mix of 1%.

primary driver of the volume decline in the prior year was the negative

impact of COVID-19 on global production levels.

Net sales were $1,761.2 million in 2021 compared to $1,417.7 million in 2020.

The net sales increase of approximately $343.5 million or 24% year-over-year was primarily due to higher sales volumes of 13%, which includes additional net sales from recent acquisitions of 4%, increases from selling price and product mix of 8% and the positive impact of foreign currency translation of 3%.

The increase in organic sales volumes compared to 2020 was primarily the result of the continued year-over-year improvement in end market conditions from the prior year impacts of COVID-19 and continued market share gains.

Sales from acquisitions are primarily driven by the Company’s acquisition of Coral Chemical Company (“Coral”) in December 2020 and the tin-plating solutions business acquired in February 2021.

The increase from selling price and product mix includes the impact of current year selling price increases implemented in response to the increases in raw material costs experienced in 2021.

The positive impact from foreign currency translation is primarily the result of the strengthening of the Chinese renminbi, euro, Mexican peso, the Canadian dollar and the British pound against the U.S.

dollar year-over-year.

COGS were $1,166.5 million in 2021 compared to $904.2 million in 2020.

The increase in COGS of 22% was primarily due to the

inclusion of a full year of Houghton and Norman Hay COGS and $0.8 million of

accelerated depreciation charges in 2020, partially

offset by lower prior year COGS on the decline in net sales due

to COVID-19 and 2019 charges of $11.7

million to increase acquired

inventory to its fair value, described in the Non-GAAP Measures section of this Item

Gross profit in 2020 increased $121.3 million or 31% from 2019 due primarily

to additional gross profit from Houghton and

The Company’s reported gross

margin in 2020 was 36.2% compared to 34.6% in 2019, which included

the inventory

fair value step up described above.

Excluding one-time increases to COGS in both periods, the Company

estimates that its gross

margins for 2020 and 2019 would have been 36.3% and 35.7%,

respectively.

The estimated increase in gross margin year-over-year

was primarily due to lower COGS as a result of the Company’s

progress on Combination-related logistics, procurement and

manufacturing cost savings initiatives, partially offset

by the lower sales volumes on certain fixed manufacturing costs.

SG&A in 2020 increased $96.9 million compared to 2019 due primarily to

additional SG&A from Houghton and Norman Hay,

partially offset by the impact of COVID-19 cost savings

actions, including lower travel expenses, and the benefits of realized costs

savings associated with the Combination.

During 2020, the Company incurred $29.8 million of Combination,

integration and other acquisition-related expenses, primarily

for professional fees related to Houghton integration and other acquisition

-related activities.

Comparatively,

the Company incurred

$35.5 million of similar expenses in 2019,

primarily due to various professional fees related to integration planning

and regulatory

approval as well as professional fees associated with closing the Combination.

See the Non-GAAP Measures section of this Item,

The Company initiated a restructuring program during the third quarter

of 2019 as part of its global plan to realize cost synergies

associated with the Combination.

The Company recorded additional restructuring and related charges

of $5.5 million during 2020

to $26.7 million during 2019 under this program.

The increase in COGS of 29% was driven by the associated COGS on the increase in net sales described above, and continued increases in the Company’s global raw material costs compared to the prior year and the impacts of supply constraints in the current year.

Gross profit in 2021 of $594.6 million increased $81.2 million or approximately 16% from 2020, due primarily to the increase in net sales noted above.

The Company’s reported gross margin in 2021 was 33.8% compared to 36.2% in 2020.

The lower current year gross margin is primarily attributable to increased raw materials and other costs that began in the fourth quarter of 2020 and have continued throughout 2021 and the impacts of constraints on the world’s global supply chain partially offset by the Company’s ongoing pricing initiatives.

SG&A in 2021 increased $38.1 million compared to 2020 due primarily to the impact of sales increases on direct selling costs, year-over-year inflation increases, additional SG&A from recent acquisitions and higher SG&A due to foreign currency translation, partially offset by lower incentive compensation year-over-year as well as the benefits of additional realized cost synergies associated with the Combination year-over-year.

In addition, SG&A was lower in the prior year period as a result of temporary cost saving measures the Company implemented in response to COVID-19.

While the Company continues to manage costs during the ongoing pandemic, it has incurred higher SG&A year-over-year as the global economy continues to gradually rebound.

During 2021 and 2020, the Company incurred $23.9 million and $29.8 million, respectively, of Combination, integration and other acquisition-related expenses primarily for professional fees related to Houghton integration and other acquisition-related activities.

See the Non-GAAP Measures section of this Item, above.

During the first quarter of 2020, the Company recorded a $38.0 million

non-cash impairment charge to write down the value of

certain indefinite-lived intangible assets associated with the Combination.

This non-cash impairment charge is related to certain

acquired Houghton trademarks and tradenames and is primarily the

result of the negative impacts of COVID-19 on their estimated fair

There were no additional impairment charges in the remainder of

2020 or in 2019.

See the Critical Accounting Policies and

Estimates section as well as the Non-GAAP Measures section, of this Item, above.

Operating income in 2020 was $59.4 million compared to $46.1 million

Excluding Combination, integration and other

acquisition-related expenses, restructuring and related charges, the

non-cash indefinite-lived intangible asset impairment charge,

other expenses that are not indicative of the Company’s

future operating performance, the Company’s

non-GAAP operating income

during 2020 of $134.0 million increased compared to $121.9 million

in 2019, primarily due to additional operating income from

Houghton and Norman Hay and the benefits from costs savings initiatives related

to the Combination, partially offset by the current

year negative impact due to COVID-19.

The Company’s other

expense, net, was $5.6 million in 2020 compared to $0.3 million in 2019.

The year-over-year increase in

other expense, net was primarily due to the first quarter of 2020 non-cash

settlement charge of $22.7 million associated with the

termination of the Legacy Quaker U.S.

Pension Plan, partially offset

by a fourth quarter of 2020 gain of $18.1 million related to the

lapsing of restrictions over certain cash that was previously designated

solely for the settlement of asbestos claims at an inactive

subsidiary of the Company,

which are both described in the Non-GAAP Measures section of this Item, above.

Additionally, the

increase year-over-year in other expense,

net, includes higher foreign currency transaction losses in 2020.

Interest expense, net, increased $9.6 million in 2020 compared to 2019 primarily

due to a full year of borrowings under the

Company’s Credit Facility to

finance the closing of the Combination on August 1, 2019, partially offset

by lower overall interest rates

The Company’s effective

tax rates for 2020 and 2019 were a benefit of 19.5% and an expense of 7.2%, respectively.

Company’s 2020 effective

tax rate was impacted by the tax effect of certain one-time

tax charges and benefits, including deferred tax

benefits related to an intercompany intangible asset transfer,

as well as changes in the valuation allowance for foreign tax credits,

additional charges for uncertain tax positions relating to

certain foreign tax audits, and the tax impact of the Company’s

termination of

its Legacy Quaker U.S.

The Company initiated a restructuring program during 2019 as part of its global plan to realize cost synergies associated with the Combination.

The Company incurred restructuring and related charges for reductions in headcount and site closures under this program, net of adjustments to initial estimates for severance, of an expense of $1.4 million and $5.5 million during 2021 and 2020, respectively.

See the Non-GAAP Measures section of this Item, above.

Operating income in 2021 was $150.5 million compared to $59.4 million in 2020.

Excluding Combination, integration and other acquisition-related expenses, restructuring and related charges and other non-core items, the Company’s current year non-GAAP operating income of $182.6 million increased compared to $134.0 million in the prior year, primarily due to the increase in net sales described above and the benefits from cost savings related to the Combination offset by an increase in SG&A as well as the significant increases in raw material costs year-over-year.

The Company estimates that it realized cost synergies associated with the Combination of approximately $75 million during 2021 compared to approximately $58 million during 2020.

The Company had other (expense) income, net, of $18.9 million in 2021 compared to other expense, net, of $5.6 million in 2020.

The year-over-year change was primarily a result of other income related to certain non-income tax credits recorded by the Company’s Brazilian subsidiaries, the gain on the sale of certain held-for-sale real property assets and lower foreign currency transaction losses in 2021 as compared to the prior year.

The Company had non-service components of pension and postretirement benefit income in the current year compared to an expense in the prior year as a result of the $22.7 million pension settlement charge directly related to the termination of a noncontributory U.S.

pension plan partially offset by a $18.1 million gain related to the lapse of restrictions over certain cash that was previously designated solely for the settlement of asbestos claims at an inactive subsidiary, all of which are described in the Non-GAAP Measures section of this Item, above.

Interest expense, net, decreased $4.3 million compared to 2020 driven by lower current year average borrowings outstanding as a result of the additional revolver borrowings drawn during part of 2020 at the onset of the pandemic to add additional liquidity, coupled with a decline in overall interest rates year-over-year, as the weighted average interest rate incurred on borrowings under the Company’s credit facility was approximately 1.6% during 2021 compared to approximately 2.2% during 2020.

The Company’s effective tax rates for 2021 and 2020 were an expense of 23.8% and benefit of 19.5%, respectively.

The Company’s higher current year effective tax rate is driven by a higher level of pre-tax earnings and mix of earnings, as well as deferred tax expense related to the planned repatriation of non-U.S.

Comparatively, the prior year effective tax rate was impacted by the tax effect of certain one-time tax charges and benefits related to a 2020 intercompany intangible asset transfer, additional charges for uncertain tax positions relating to certain foreign tax audits, and the tax impact of the Company’s termination of a noncontributory U.S.

pension plan.

Comparatively, the 2019 effectiv

tax rate was primarily impacted by certain non-deductible

costs associated with the Combination as well as a deferred tax benefit related

to a separate intercompany intangible asset transfer.

Excluding the impact of all non-core items in each year,

described in the Non-GAAP measures section of this Item, above, the

Company estimates that its effective tax rates for 2020

and 2019 were approximately 25% and 22%, respectively.

The year-over-year

increase is driven primarily by higher U.S.

income taxes resulting from a

change in certain deductions and the taxability of foreign

earnings in the U.S., partially offset by a change in the mix of earnings.

Equity in net income of associated companies increased $2.3 million in

2020 compared to 2019, primarily due to additional

earnings from our 50% interest in a joint venture in Korea partially offset

by lower earnings from the Company’s

interest in a captive

insurance company.

Excluding the impact of these items as well as all other non-core items in each year, described in the Non-GAAP Measures section of this Item, above, the Company estimates that the 2021 and 2020 effective tax rates would have been approximately 26% and 25%, respectively.

The higher estimated current year tax rate was primarily driven by a higher level of pre-tax earnings and the impact of changes in mix of earnings, deferred taxes related to the planned repatriation of non-U.S.

earnings, and provision to return adjustments in the prior period.

In addition, the foreign tax credit valuation allowance, or absence thereof, is based on a number of variables, including forecasted earnings, which may vary.

Equity in net income of associated companies increased $2.0 million in 2021 compared to 2020, primarily due to higher current year income from the Company’s interest in a captive insurance company partially offset by lower earnings from the Company’s 50% interest in a joint venture in Korea compared to the prior year.

See the Non-GAAP Measures section of this Item, above.

Net income attributable to noncontrolling interest was $0.1 million in

2020 compared to $0.3 million in 2019 primarily a result of

the first quarter of 2020 acquisition of the remaining ownership interest

in one of the Company’s South African

Foreign exchange negatively impacted the Company’s

2020 results by approximately $0.38 per diluted share, primarily due

higher foreign exchange transaction losses year-over-year and, to

a lesser extent, an aggregate negative impact from foreign currency

translation on earnings.

Net income attributable to noncontrolling interest was less than $0.1 million in 2021 compared to $0.1 million in 2020 primarily a result of the first quarter of 2020 acquisition of the remaining ownership interest in one of the Company’s South African affiliates.

Foreign exchange positively impacted the Company’s yearly results by approximately 6% driven by the positive impact from foreign currency translation on earnings as well as lower foreign exchange transaction losses in the current year as compared to the prior year.

Reportable Segments Review - Comparison of 2022 with 2021

The Company’s reportable

segments reflect the structure of the Company’s

internal organization, the method by which the

Company’s resources are allocated

and the manner by which the chief operating decision maker of the Company

As of December 31, 2022, and 2021, the Company’s reportable segments reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the chief operating decision maker of the Company assesses its performance.

The Company has four reportable segments:

(i) Americas;

Asia/Pacific;

and (iv) Global Specialty

The three geographic segments are composed of the net sales and operations

in each respective region, excluding net

sales and operations managed globally by the Global Specialty Businesses

segment, which includes the Company’s

container, metal

finishing, mining, offshore, specialty coatings, specialty grease and

Norman Hay businesses.

Segment operating earnings for the Company’s

reportable segments are comprised of net sales less COGS and SG&A directly

related to the respective segment’s product

Operating expenses not directly attributable to the net sales of each respective

segment, such as certain corporate and administrative costs, Combination,

integration and other acquisition-related expenses,

Restructuring and related charges, and COGS related

to acquired inventory sold, which is adjusted to fair value as part of purchase

accounting, are not included in segment operating earnings.

Other items not specifically identified with the Company’s

segments include interest expense, net, and other income (expense),

Americas represented approximately 33% of the Company’s

consolidated net sales in 2021.

The segment’s net sales were $572.6

million, an increase of $122.5 million or 27% compared to 2020.

The increase in net sales was driven by a benefit in selling price and

product mix of 11%, increases in organic

volumes of approximately 10%, additional net sales from acquisitions of 5%, and the

positive impact of foreign currency translation of 1%.

The current year organic volume increase was driven by the continued

improvement in end market conditions compared to the prior year which

was impacted by COVID-19.

The increase in selling price

and product mix is primarily driven by price increases implemented

to help offset the significant increases in raw material and other

input costs incurred during 2021.

The foreign exchange impact was primarily driven by the strengthening of

the Mexican peso against

dollar, as this exchange rate averaged

20.27 in 2021 compared to 21.34 during 2020.

This segment’s operating earnings were

$124.9 million, an increase of $28.5 million or 30% compared to 2020.

The increase in segment operating earnings reflects the higher

net sales, described above, partially offset by lower gross

margins driven by the continued raw material cost increases and

supply chain and logistics pressures coupled with higher SG&A including

an increase in direct selling costs associated with higher net

sales, SG&A from acquisitions and an increase in SG&A as the prior year

included temporary cost savings measures implemented in

response to the onset of the COVID-19 pandemic.

EMEA represented approximately 27% of the Company’s

consolidated net sales in 2021.

The segment’s net sales were $480.1

million, an increase of $96.9 million or 25% compared to 2020.

The increase in net sales was driven by a benefit from selling price

and product mix of 10%, increases in organic volumes of

approximately 9%, the positive impact of foreign currency translation of 4%,

and additional net sales from acquisitions of 2%.

The increase in selling price and product mix is primarily driven by price increases

implemented to offset the significant increase in raw

material and other input costs incurred during 2021.

The current year volume

increase was driven by the continued improvement in end market conditions

compared to the prior year which was heavily impacted

The foreign exchange impact was primarily driven by the strengthening

of the euro against the U.S.

dollar as this

exchange rate averaged 1.18 in 2021 compared to 1.14 in 2020.

This segment’s operating earnings were

$85.2 million, an increase of

$16.0 million or 23% compared to 2020.

The increase in segment operating earnings reflects the higher net sales described

partially offset by lower current year gross margins

driven by the continued raw material cost increases and global supply chain and

logistics pressures as well as higher SG&A including increases in direct selling

costs associated with higher net sales as well as

increases as the prior year included temporary cost savings measures implemented

in response to the onset of the COVID-19

Asia/Pacific represented approximately 22% of the Company’s

consolidated net sales in 2021.

The segment’s net sales were

$388.2 million, an increase of approximately $72.9 million or 23%

compared to 2020.

The increase in net sales year-over-year was

driven by increases in volumes of approximately 15%, the positive impact

of foreign currency translation of 5%, increases from

selling price and product mix of 2% and additional net sales from

acquisitions of 1%.

The current year volume increase was driven by

the continued improvement in end market conditions compared to the prior

year which was impacted by COVID-19.

exchange impact was primarily due to the strengthening of the Chinese renminbi

against the U.S.

dollar as this exchange rate averaged

6.45 in 2021 compared to 6.90 in 2020.

This segment’s operating earnings were

$96.3 million, an increase of $8.0 million or 9%

compared to 2020.

The increase in segment operating earnings was driven by the higher net sales described above,

partially offset by

lower gross margins driven by the continued raw material cost increases

and global supply chain and logistics pressures as well as

higher direct selling costs associated with higher net sales and an increase

in SG&A as the prior year included temporary cost savings

measures implemented in response to the onset of the COVID-19 pandemic

(iii) Asia/Pacific;

and (iv) Global Specialty Businesses.

The three geographic segments are composed of the net sales and operations in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment, which includes the Company’s container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses.

Segment operating earnings for the Company’s reportable segments are comprised of net sales less COGS and SG&A directly related to the respective segment’s sales of products and services.

Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, Restructuring and related charges, and COGS related to acquired inventory sold, which is adjusted to fair value as part of purchase accounting, are not included in segment operating earnings.

Other items not specifically identified with the Company’s reportable segments include interest expense, net, and other income (expense), net.

Americas represented approximately 36% of the Company’s consolidated net sales in 2022.

The segment’s net sales were $696.1 million, an increase of $123.5 million or 22% compared to 2021.

The increase in net sales was due to higher selling price and product mix of 28% and additional net sales from acquisition of 1%, partially offset by a decrease in organic sales volumes of approximately 7%.

The increase in selling price and product mix is primarily driven by price increases implemented to offset the significant increases in raw material, manufacturing and other input costs that began during 2021 and continued through 2022.

The current year decline in organic sales volumes was primarily driven by softer end market conditions, primarily in the automotive industry, due to the semiconductor supply constraints and to a lesser extent the primary metals markets, the wind-down of the tolling agreement for products previously divested related to the Combination, the Company’s ongoing value-based pricing initiatives, partially offset by net new business wins.

This segment’s operating earnings were $148.2 million, an increase of $23.3 million or 19% compared to 2021 primarily driven by higher margins as the Company’s ongoing value-based pricing initiatives offset the ongoing inflationary pressures on the business.

EMEA represented approximately 24% of the Company’s consolidated net sales in 2022.

The segment’s net sales were $474.6 million, a decrease of $5.5 million or 1% compared to 2021.

The decrease in net sales was a result of a 20% increase in selling price and product mix and additional net sales from acquisition of 2% which was more than offset by an unfavorable impact of foreign currency translation of 14% and a decrease in sales volumes of 9%.

The increase in selling price and product mix was primarily driven by price increases implemented to offset the significant increases in raw material, manufacturing and other input costs that began during 2021 and continued through 2022.

The decline in sales volumes was primarily driven by current geopolitical and macroeconomic pressures including the direct and indirect impacts of the ongoing war in Ukraine and the impact of the economic and other sanctions by other nations on Russia in response to the war, as well as the wind-down of the tolling agreement for products previously divested related to the Combination and softer economic conditions in the region.

The significant and unfavorable foreign currency translation impact was primarily due to the strengthening of the U.S.

dollar against the euro as this exchange rate averaged 1.05 in 2022 compared to 1.18 in 2021.

This segment’s operating earnings were $50.7 million, a decrease of $34.5 million or 40% compared to 2021.

The decrease in segment operating earnings was primarily a result of lower net sales, lower gross margins, and inflationary pressures on other costs, including SG&A.

Asia/Pacific represented approximately 20% of the Company’s consolidated net sales in 2022.

The segment’s net sales were $386.5 million, a decrease of less than 1% or approximately $1.7 million compared to 2021.

The decrease in net sales was a result of a 16% increase in selling price and product mix offset by lower sales volumes of 11% and an unfavorable impact from foreign currency translation of 5%.

The decline in organic sales volumes was primarily driven by softer market conditions, primarily in China, in part as a result of the government imposed COVID-19 quarantine and related production disruptions implemented at the end of March 2022 and continued throughout 2022, partially offset by net new business wins.

The unfavorable foreign exchange impact was primarily due to the strengthening of the U.S.

dollar against the Chinese renminbi as this exchange rate averaged 6.71 Chinese renminbi per USD in 2022 compared to 6.45 Chinese renminbi per USD in 2021.

This segment’s operating earnings were $93.0 million, a decrease of $3.3 million or 3% compared to 2021 as a result of lower net sales, lower gross margins, and inflationary pressures on other costs, including SG&A.

Global Specialty Businesses

Global Specialty Businesses represented approximately 18% of the

Company’s consolidated net sales in

The segment’s net

sales were $320.2 million, an increase of $51.2 million or 19% compared

The increase in net sales was driven by increases in

selling price and product mix, including Norman Hay,

of 14%, additional net sales from acquisitions of 8%, and the positive impact

foreign currency translation of 2% partially offset by volume declines

of approximately 5%.

Both the changes in selling price and

product mix and sales volumes were primarily driven by higher amounts of

shipments of a lower priced product in the Company’s

mining business in the prior year.

The foreign exchange impact was a result of similar strengthening of certain

currencies in EMEA

and Americas as described above.

This segment’s

operating earnings were $90.6 million, an increase of $10.9 million or 14%

compared to 2020.

The increase in segment operating earnings reflects the higher net sales, described

above, partially offset by lower

gross margins in the current year coupled with higher SG&A, including

an increase in direct selling costs associated with higher net

sales, SG&A from acquisitions and an increase in SG&A as the prior year

included temporary cost savings measures implemented in

response to the onset of the COVID-19 pandemic.

Global Specialty Businesses represented approximately 20% of the Company’s consolidated net sales in 2022.

The segment’s net sales were $386.4 million, an increase of $66.2 million or 21% compared to 2021.

The increase in net sales was driven by higher selling price and product mix of 17%, an increase in organic sales volumes of 5% and additional net sales from acquisitions of 3%, partially offset by an unfavorable impact from foreign currency translation of 4%.

The increase in selling price and product mix was primarily driven by price increases implemented to help offset the significant increases in raw material, manufacturing and other input costs that began during 2021 and continued through 2022.

The increase in organic sales volumes was primarily attributable to a continued favorable demand environment for this segment’s products.

The unfavorable foreign exchange impact was primarily due to the strengthening of the U.S.

dollar against the euro as described in the EMEA section above.

This segment’s operating earnings were $113.9 million, an increase of $23.3 million or 26% compared to 2021.

The increase in segment operating earnings reflects the higher net sales and gross margins in the current year as the Company’s value-based pricing initiatives offset higher raw materials, manufacturing and other costs resulting from continued inflationary pressures.

Reportable Segments Review – Comparison of 2021 with 2020

Americas represented approximately 32% of the Company’s

consolidated net sales in 2020.

The segment’s net sales were $450.2

million, an increase of $58.0 million or 15% compared to 2019.

The increase in net sales reflects additional net sales from

acquisitions of $120.4 million, primarily a result of the inclusion of

seven additional months of Houghton net sales, as the

Combination closed on August 1, 2019.

Excluding net sales from acquisitions, the segment’s

net sales decreased by approximately

16% due to lower volumes of 12% and a negative impact of foreign

currency translation of 4%.

The volume decline was driven by

the economic slowdown that began in late March and continued throughout

2020 due to the impacts of COVID-19.

exchange impact was primarily due to the weakening of the Brazilian real

and the Mexican peso against the U.S.

exchange rates averaged 5.10 and 21.34, respectively,

in 2020 compared to 3.94 and 19.24, respectively in 2019.

This segment’s

operating earnings were $96.4 million, an increase of $18.1 million or

23% compared to 2019.

The increase in segment operating

earnings reflects the inclusion of a full year of Houghton net sales, noted,

above, and the impacts on gross margins and SG&A due to

the Combination’s cost synergies

and costs savings actions related to COVID-19 year-over-year,

partially offset by the impact of

COVID-19 on sales volumes and higher COGS and SG&A due to seven additional

months of Houghton in 2020.

EMEA represented approximately 27% of the Company’s

consolidated net sales in 2020.

The segment’s net sales were $383.2

million, an increase of $97.6 million or 34% compared to 2019.

The increase in net sales reflects additional net sales from

acquisitions of $117.9 million, primarily

a result of the inclusion of seven additional months of Houghton net sales, as the

Combination closed on August 1, 2019.

Excluding net sales from acquisitions, the segment’s

net sales decreased year-over-year by

approximately 7% due to lower volumes of 10%, partially offset by

a positive impact of foreign currency translation of 2% and

increases in selling price and product mix of 1%.

The current year volume decline was driven by the economic slowdown that began

in late March and continued throughout 2020 due to the impacts of COVID-19.

The foreign exchange impact was primarily due to the

strengthening of the euro against the U.S.

dollar as this exchange rate averaged

1.14 in 2020 compared to 1.12 in 2019.

segment’s operating earnings were

$69.2 million, an increase of $22.1 million or 47% compared to 2019.

The increase in segment

operating earnings reflects the inclusion of a full year of Houghton net sales,

noted, above, and the impacts on gross margins and

SG&A due to the Combination’s cost synergies

and costs savings actions related to COVID-19 year-over-year,

partially offset by the

impact of COVID-19 on sales volumes and higher COGS and SG&A due

to seven additional months of Houghton in 2020.

Asia/Pacific represented approximately 22% of the Company’s

consolidated net sales in 2020.

The segment’s net sales were

$315.3 million, an increase of $67.5 million or 27% compared to 2019.

The increase in net sales reflects the inclusion of seven

additional months of Houghton net sales of $79.7 million, as the Combination

closed on August 1, 2019.

Excluding Houghton net

sales, the segment’s net sales decreased

by approximately 5% year-over-year was due

to lower volumes of 3% and decreases in selling

price and product mix of 3% partially offset by the positive

impact of foreign currency translation of 1%.

The current year volume

decline was driven by the economic slowdown that began in the first quarter

of 2020 in China and in late March throughout the rest of

the region due to the impacts of COVID-19.

The foreign exchange impact was primarily due to the strengthening of the Chinese

renminbi against the U.S.

While this exchange rate averaged 6.90 in each of 2020 and 2019, respectively,

post the closing of

the Combination, this exchange rate strengthened in the last 5 months of 2020

to average 6.72 compared to 7.06 in the last 5 months of

2019, partially offset by the weakening of the Indian rupee against the

dollar as this exchange rate averaged 73.95 in 2020

compared to 70.35 in 2019.

This segment’s operating earnings were

$88.4 million, an increase of $20.8 million or 31% compared to

The increase in segment operating earnings reflects the inclusion of incremental

Houghton net sales, noted, above, and the

impacts on gross margins and SG&A due to the Combination’s

cost synergies and costs savings actions related to COVID-19 year-

over-year, partially offset

by the impact of COVID-19 on sales volumes and higher COGS and SG&A due

to seven additional months

of Houghton in 2020.

Americas represented approximately 33% of the Company’s consolidated net sales in 2021.

The segment’s net sales were $572.6 million, an increase of $122.5 million or 27% compared to 2020.

The increase in net sales was driven by a benefit in selling price and product mix of 11%, increases in organic volumes of approximately 10%, additional net sales from acquisitions of 5%, and the positive impact of foreign currency translation of 1%.

The current year organic volume increase was driven by the continued improvement in end market conditions compared to the prior year which was impacted by COVID-19.

The increase in selling price and product mix is primarily driven by price increases implemented to help offset the significant increases in raw material and other input costs incurred during 2021.

The foreign exchange impact was primarily driven by the strengthening of the Mexican peso against the U.S.

dollar, as this exchange rate averaged 20.27 in 2021 compared to 21.34 during 2020.

This segment’s operating earnings were $124.9 million, an increase of $28.5 million or 30% compared to 2020.

The increase in segment operating earnings reflects the higher net sales, described above, partially offset by lower gross margins driven by the continued raw material cost increases and global supply chain and logistics pressures coupled with higher SG&A including an increase in direct selling costs associated with higher net sales, SG&A from acquisitions and an increase in SG&A as the prior year included temporary cost savings measures implemented in response to the onset of the COVID-19 pandemic.

EMEA represented approximately 27% of the Company’s consolidated net sales in 2021.

The segment’s net sales were $480.1 million, an increase of $96.9 million or 25% compared to 2020.

The increase in net sales was driven by a benefit from selling price and product mix of 10%, increases in organic volumes of approximately 9%, the positive impact of foreign currency translation of 4%, and additional net sales from acquisitions of 2%.

The increase in selling price and product mix is primarily driven by price increases implemented to offset the significant increase in raw material and other input costs incurred during 2021.

The current year volume increase was driven by the continued improvement in end market conditions compared to the prior year which was heavily impacted by COVID-19.

The foreign exchange impact was primarily driven by the strengthening of the euro against the U.S.

dollar as this exchange rate averaged 1.18 in 2021 compared to 1.14 in 2020.

This segment’s operating earnings were $85.2 million, an increase of $16.0 million or 23% compared to 2020.

The increase in segment operating earnings reflects the higher net sales described above, partially offset by lower current year gross margins driven by the continued raw material cost increases and global supply chain and logistics pressures as well as higher SG&A including increases in direct selling costs associated with higher net sales as well as increases as the prior year included temporary cost savings measures implemented in response to the onset of the COVID-19 pandemic.

Asia/Pacific represented approximately 22% of the Company’s consolidated net sales in 2021.

The segment’s net sales were $388.2 million, an increase of approximately $72.9 million or 23% compared to 2020.

The increase in net sales year-over-year was driven by increases in volumes of approximately 15%, the positive impact of foreign currency translation of 5%, increases from selling price and product mix of 2% and additional net sales from acquisitions of 1%.

The current year volume increase was driven by the continued improvement in end market conditions compared to the prior year which was impacted by COVID-19.

The foreign exchange impact was primarily due to the strengthening of the Chinese renminbi against the U.S.

dollar as this exchange rate averaged 6.45 in 2021 compared to 6.90 in 2020.

This segment’s operating earnings were $96.3 million, an increase of $8.0 million or 9% compared to 2020.

The increase in segment operating earnings was driven by the higher net sales described above, partially offset by lower gross margins driven by the continued raw material cost increases and global supply chain and logistics pressures as well as higher direct selling costs associated with higher net sales and an increase in SG&A as the prior year included temporary cost savings measures implemented in response to the onset of the COVID-19 pandemic.

Global Specialty Businesses

Global Specialty Businesses represented approximately 19% of the

Company’s consolidated net sales in

The segment’s net

sales were $269.0 million, an increase of $61.1 million or 29% compared

The increase in net sales reflects the inclusion of

seven additional months of Houghton net sales and nine additional months

of Norman Hay net sales, totaling $90.6 million, as the

Combination closed on August 1, 2019 and the Norman Hay acquisition

closed on October 1, 2019.

Excluding Houghton and

Norman Hay net sales, the segment’s

net sales decreased by approximately 14% year-over-year

due to lower volumes of 7%,

decreases in selling price and product mix of 5% and a negative impact from foreign

currency translation of 2%.

The current year

volume decline was primarily due to a decrease in the Company’s

specialty coatings business driven by Boeing’s

temporarily stop production of the 737 Max aircraft and volume declines

due to the economic slowdown resulting from COVID-19.

Partially offsetting these volume declines, and

contributing to the decrease in selling price and product mix, were higher shipments of

a lower priced product in the Company’s

mining business compared to 2019.

The foreign exchange impact was primarily due to the

weakening of the Brazilian real against the U.S.

dollar described

in the Americas section, above.

This segment’s operating earnings

were $79.7 million, an increase of $20.8 million or 35% compared

The increase in segment operating earnings reflects the

inclusion of incremental Houghton and Norman Hay net sales, noted

above, coupled with an increase in gross margin due to the

Company’s progress on Combination

-related logistics, procurement and manufacturing cost savings initiatives, partially

higher SG&A, including seven additional months of Houghton

and nine additional months of Norman Hay SG&A in 2020.

Global Specialty Businesses represented approximately 18% of the Company’s consolidated net sales in 2021.

The segment’s net sales were $320.2 million, an increase of $51.2 million or 19% compared to 2020.

The increase in net sales was driven by increases in selling price and product mix, including Norman Hay, of 14%, additional net sales from acquisitions of 8%, and the positive impact of foreign currency translation of 2% partially offset by volume declines of approximately 5%.

Both the changes in selling price and product mix and sales volumes were primarily driven by higher amounts of shipments of a lower priced product in the Company’s mining business in the prior year.

The foreign exchange impact was a result of similar strengthening of certain currencies in EMEA and Americas as described above.

This segment’s operating earnings were $90.6 million, an increase of $10.9 million or 14% compared to 2020.

The increase in segment operating earnings reflects the higher net sales, described above, partially offset by lower gross margins in the current year coupled with higher SG&A, including an increase in direct selling costs associated with higher net sales, SG&A from acquisitions and an increase in SG&A as the prior year included temporary cost savings measures implemented in response to the onset of the COVID-19 pandemic.

Environmental Clean-up Activities

The Company is involved in environmental clean-up activities in connection

with an existing plant location and former waste

disposal sites.

This includes certain soil and groundwater contamination the

Company identified in 1992 at AC Products, Inc.

The Company is involved in environmental clean-up activities in connection with an existing plant location and former waste disposal sites.

This includes certain soil and groundwater contamination the Company identified in 1992 at AC Products, Inc.

(“ACP”), a wholly owned subsidiary.

In voluntary coordination with the Santa Ana California Regional Water

Quality Board, ACP

has been remediating the contamination.

In 2007, ACP 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

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

In 2020, the Santa Ana Regional Water

Control Board asked that ACP conduct some additional indoor

and outdoor soil vapor testing on and near the ACP site to confirm that

ACP continues to meet the applicable local standards and ACP has begun the

testing program.

Such testing began in 2020 and

continued into 2021.

As of December 31, 2021, ACP believes it is close to meeting the conditions for closure

of the remaining

groundwater treatment system but continues to operate this system while in

discussions with the relevant authorities.

As of December

31, 2021, 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.

The Company is party to environmental matters related to certain domestic

and foreign properties.

The Company’s Sao Paulo,

Brazil site was required under Brazilian environmental, health and

safety regulations to perform an environmental assessment as part

of a permit renewal process.

Initial investigations identified soil and ground water contamination in

select areas of the site.

has conducted a multi-year soil and groundwater investigation and

corresponding risk assessments based on the result of the

investigations.

In 2017, the site had to submit a new 5-year permit renewal request and was asked to

complete additional

investigations to further delineate the site based on review of the technical

data by the local regulatory agency,

Companhia Ambiental

do Estado de São Paulo (“CETESB”).

Based on review of the updated investigation data, CETESB issued a Technical

regarding the investigation and remedial actions taken to date.

The site developed an action plan and submitted it to CETESB in 2018

based on CETESB requirements.

The site intervention plan primarily requires the site, among other actions,

to conduct periodic

monitoring for methane in soil vapors, source zone delineation, groundwater

plume delineation, bedrock aquifer assessment, update

the human health risk assessment, develop a current site conceptual model

and conduct a remedial feasibility study and provide a

revised intervention plan.

In 2019, the site submitted a report on the activities completed including the revised

site conceptual model

and results of the remedial feasibility study and recommended remedial

strategy for the site.

Other environmental matters include

participation in certain payments in connection with four currently

active environmental consent orders related to certain hazardous

waste cleanup activities under the U.S.

In voluntary coordination with the Santa Ana California Regional Water Quality Board, ACP has been remediating the contamination.

In 2007, ACP 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.

In 2020, the Santa Ana Regional Water Quality Control Board asked that ACP conduct some additional indoor and outdoor soil vapor testing on and near the ACP site to confirm that ACP continues to meet the applicable local standards and ACP has begun the testing program.

Such testing began in 2020 and continued into 2021.

As of December 31, 2022, ACP believes it is close to meeting the conditions for closure of the remaining groundwater treatment system but continues to operate this system while in discussions with the relevant authorities.

As of December 31, 2022, the Company believes that the range of potential-known liabilities associated with the balance of ACP water remediation program is approximately $0.1 million to $1.0 million.

The low and high ends of the range are based on the length of operation of the treatment system as determined by groundwater modeling.

Costs of operation include the operation and maintenance of the extraction well, groundwater monitoring, program management, and soil vapor testing.

The Company is also party to environmental matters related to certain domestic and foreign properties.

These environmental matters primarily require the Company to perform long-term monitoring as well as operating and maintenance at each of the applicable sites.

During the year ended December 31, 2022, there have been no significant changes to the facts or circumstances of these matters, aside from ongoing monitoring and maintenance activities and routine payments associated with each of these sites.

The Company continually evaluates its obligations related to such matters, and based on historical costs incurred and projected costs to be incurred over the next 26 years, has estimated the present value range of costs for all of these environmental matters, on a discounted basis, to be between approximately $5.0 million and $6.0 million as of December 31, 2022, for which $5.3 million is accrued within other accrued liabilities and other non-current liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2022.

Comparatively, as of December 31, 2021, the Company had $5.6 million accrued for with respect to these matters.

The Company’s Sao Paulo, Brazil site was required under Brazilian environmental, health and safety regulations to perform an environmental assessment as part of a permit renewal process.

Initial investigations identified soil and ground water contamination in select areas of the site.

The site has conducted a multi-year soil and groundwater investigation and corresponding risk assessments based on the result of the investigations.

In 2017, the site had to submit a new 5-year permit renewal request and was asked to complete additional investigations to further delineate the site based on review of the technical data by the local regulatory agency, Companhia Ambiental do Estado de São Paulo (“CETESB”).

Based on review of the updated investigation data, CETESB issued a Technical Opinion regarding the investigation and remedial actions taken to date.

The site developed an action plan and submitted it to CETESB in 2018 based on CETESB requirements.

The site intervention plan primarily requires the site, among other actions, to conduct periodic monitoring for methane in soil vapors, source zone delineation, groundwater plume delineation, bedrock aquifer assessment, update the human health risk assessment, develop a current site conceptual model and conduct a remedial feasibility study and provide a revised intervention plan.

In 2019, the site submitted a report on the activities completed including the revised site conceptual model and results of the remedial feasibility study and recommended remedial strategy for the site.

Other environmental matters include participation in certain payments in connection with four currently active environmental consent orders related to certain hazardous waste cleanup activities under the U.S.

Federal Superfund statute.

The Company has been designated a potentially responsible party

(“PRP”) by the Environmental Protection Agency along with other

PRPs depending on the site, and has other obligations to perform

cleanup activities at certain other foreign subsidiaries.

These environmental matters primarily require the Company to perform

term monitoring as well as operating and maintenance at each of the applicable

The Company continually evaluates its obligations related to such matters,

and based on historical costs incurred and projected

costs to be incurred over the next 27 years, has estimated the present value range

of costs for these environmental matters, on a

discounted basis, to be between approximately $5.0 million and $6.0

million as of December 31, 2021, for which $5.6 million is

accrued within other accrued liabilities and other non-current liabilities on

the Company’s Consolidated

Balance Sheet as of

December 31, 2021.

Comparatively, as of

December 31, 2020, the Company had $6.0 million accrued with respect

to these matters.

The Company believes, although there can be no assurance regarding the

outcome of other unrelated environmental matters, that

it has made adequate accruals for costs associated with other environmental

problems of which it is aware.

Approximately $0.4

million and $0.1 million were accrued as of December 31, 2021

and 2020, respectively, to provide for

such anticipated future

environmental assessments and remediation costs.

Notwithstanding the foregoing, the Company cannot be certain that

future liabilities in the form of remediation expenses and

damages will not exceed amounts reserved.

The Company has been designated a potentially responsible party (“PRP”) by the Environmental Protection Agency along with other PRPs depending on the site, and has other obligations to perform cleanup activities at certain other foreign subsidiaries.

These environmental matters primarily require the Company to perform long-term monitoring as well as operating and maintenance at each of the applicable sites.

The Company believes, although there can be no assurance regarding the outcome of other unrelated environmental matters, that it has made adequate accruals for costs associated with other environmental problems of which it is aware.

Approximately $0.3 million and $0.4 million were accrued as of December 31, 2022 and 2021, respectively, to provide for such anticipated future environmental assessments and remediation costs.

Notwithstanding the foregoing, the Company cannot be certain that future liabilities in the form of remediation expenses and damages will not exceed amounts reserved.

See Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report

See Item 7A of this Report, below,

for further discussion of certain quantitative and qualitative disclosures

about market risk.

See Item 7A of this Report, below, for further discussion of certain quantitative and qualitative disclosures about market risk.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis