What changed in this filing

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Item 1. Financial Statements

2023-08-01 compared with 2023-05-04 · 209 added, 117 removed, 536 unchanged (38% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net sales $ 495,444 $ 492,388 $ 995,592 $ 966,559

Cost of goods sold (excluding amortization expense - See Note 13) 326,698 328,100

Cost of goods sold (excluding amortization expense -

See Note 13) 317,753 342,824 644,451 670,924

Gross profit 177,691 149,564 351,141 295,635

Selling, general and administrative expenses 119,853 115,830 239,402 227,625

Restructuring and related charges, net 3,972 820

Restructuring and related charges (credits), net 1,043 ( 1 ) 5,015 819

Combination, integration and other acquisition-related expenses — 1,832 — 5,885

5 unchanged sentences

Income before equity in net income of associated companies 26,638 15,636 51,553 34,622

Equity in net income of associated companies 4,626 835

Equity in net income (loss) of associated companies 2,755 ( 1,265 ) 7,381 ( 430 )

Net income 29,393 14,371 58,934 34,192

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net income $ 29,393 $ 14,371 $ 58,934 $ 34,192

Other comprehensive income (loss), net of tax

Other comprehensive (loss) income, net of tax

Currency translation adjustments ( 13,080 ) ( 76,433 ) 1,388 ( 83,299 )

2 unchanged sentences

Unrealized gain (loss) on available-for-sale securities 1,241 ( 567 ) 1,575 ( 1,567 )

Other comprehensive income (loss) 15,066 ( 6,270 )

Comprehensive income 44,607 13,551

Comprehensive income attributable to noncontrolling interest ( 10 ) ( 6 )

Comprehensive income attributable to Quaker Chemical Corporation $ 44,597 $ 13,545

Other comprehensive (loss) income ( 6,969 ) ( 75,018 ) 8,097 ( 81,288 )

Comprehensive income (loss) 22,424 ( 60,647 ) 67,031 ( 47,096 )

Comprehensive (loss) income attributable to noncontrolling interest ( 9 ) 5 ( 19 ) ( 1 )

Comprehensive income (loss) attributable to Quaker Chemical Corporation $ 22,415 $ ( 60,642 ) $ 67,012 $ ( 47,097 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

40 unchanged sentences

authorized 30,000,000 shares;

issued and outstanding March 31, 2023 – 17,981,822 shares;

issued and outstanding

June 30, 2023 – 17,999,223 shares;

December 31, 2022 – 17,950,264 shares

12 unchanged sentences

Dollars in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities

6 unchanged sentences

Share-based compensation 7,414 5,433

Loss on extinguishment of debt — 5,246

Combination and other acquisition-related expenses, net of payments — ( 3,880 )

1 unchanged sentence

Pension and other postretirement benefits ( 308 ) ( 2,269 )

(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:

Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions:

Accounts receivable 22,017 ( 51,944 )

7 unchanged sentences

Payments related to acquisitions, net of cash acquired — ( 9,383 )

Proceeds from disposition of assets — 85

Net cash used in investing activities ( 17,040 ) ( 24,436 )

1 unchanged sentence

Payments of long-term debt ( 9,439 ) ( 668,500 )

Proceeds from long-term debt — 750,000

(Payments) borrowings on revolving credit facilities, net ( 62,778 ) 16,703

Payments on other debt, net ( 456 ) ( 155 )

Financing-related debt issuance costs — ( 3,734 )

Dividends paid ( 15,631 ) ( 14,862 )

2 unchanged sentences

Effect of foreign exchange rate changes on cash ( 1,554 ) ( 8,600 )

Net decrease in cash and cash equivalents 8,909 ( 3,624 )

Net increase in cash and cash equivalents 8,442 37,172

Cash and cash equivalents at the beginning of the period 180,963 165,176

18 unchanged sentences

Balance as of March 31, 2022 $ 17,912 $ 918,699 $ 528,716 $ ( 70,261 ) $ 634 $ 1,395,700

Net income — — 14,343 — 28 14,371

Amounts reported in other comprehensive loss — — — ( 74,985 ) ( 33 ) ( 75,018 )

Dividends ($ 0.415 per share)

— — ( 7,438 ) — — ( 7,438 )

Share issuance and equity-based compensation plans 8 2,943 — — — 2,951

Balance as of June 30, 2022 $ 17,920 $ 921,642 $ 535,621 $ ( 145,246 ) $ 629 $ 1,330,566

Balance as of December 31, 2022 $ 17,950 $ 928,288 $ 469,920 $ ( 138,240 ) $ 667 $ 1,278,585

5 unchanged sentences

Balance as of March 31, 2023 $ 17,982 $ 929,674 $ 491,632 $ ( 123,177 ) $ 677 $ 1,316,788

Net income — — 29,346 — 47 29,393

Amounts reported in other comprehensive loss — — — ( 6,931 ) ( 38 ) ( 6,969 )

Dividends ($ 0.435 per share)

— — ( 7,830 ) — — ( 7,830 )

Share issuance and equity-based compensation plans 17 5,267 — — — 5,284

Balance as of June 30, 2023 $ 17,999 $ 934,941 $ 513,148 $ ( 130,108 ) $ 686 $ 1,336,666

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3 unchanged sentences

Note 1 – Basis of Presentation and Description of Business

As used in these Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for the period ended March 31, 2023 (the “Report”), the terms “Quaker Houghton,” the “Company,” “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker Houghton), its subsidiaries, and associated companies, unless the context otherwise requires.

As used in these Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for the period ended June 30, 2023 (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 legacy Quaker combination with Houghton International, Inc.

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In the opinion of management, the financial statements reflect all adjustments consisting only of normal recurring adjustments, which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods.

The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year.

The results for the six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year.

These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

8 unchanged sentences

and (iv) Global Specialty Businesses.

Prior period information has been recast to align with the Company’s business structure as of January 1, 2023, including reportable segments, customer industry disaggregation, and goodwill.

Prior period information has been recast to align with the Company’s business structure as of January 1, 2023, including reportable segments, customer industry disaggregation.

As a result of the Company’s new organizational structure effective January 1, 2023, the Company reallocated goodwill previously held by the former Global Specialty Businesses segment to the remaining business segments as of January 1, 2023.

However, the Company did not recast the carrying amount of goodwill for the year ended December 31, 2022.

See Notes 4, 5, and 13 of Notes to Condensed Consolidated Financial Statements.

7 unchanged sentences

GAAP effective July 1, 2018 and April 1, 2022, respectively.

As of, and for the three months ended March 31, 2023, the Company's Argentine and Turkish subsidiaries represented a combined 1 % and 2 % of the Company’s consolidated total assets and net sales, respectively.

During the three months ended March 31, 2023, the Company recorded $ 0.5 million of remeasurement losses associated with the applicable currency conversions related to Argentina and Türkiye.

Comparatively, during the three months ended March 31, 2022, the Company recorded $ 0.2 million of remeasurement losses associated with the applicable currency conversions related to Argentina.

As of, and for the three and six months ended June 30, 2023, the Company's Argentine and Turkish subsidiaries represented a combined 1 % and 2 % of the Company’s consolidated total assets and net sales, respectively.

During the three and six months ended June 30, 2023, the Company recorded $ 1.1 million and $ 1.6 million of remeasurement losses associated with the applicable currency conversions, respectively.

Comparatively, during the three and six months ended June 30, 2022, the Company recorded less than $ 0.1 million and $ 0.2 million of remeasurement losses associated with the applicable currency conversions, respectively.

These losses were recorded within foreign exchange losses, net, which is a component of Other expense, net, in the Company’s Condensed Consolidated Statements of Operations.

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This acquisition, along with the Company’s January 2022 acquisition in the Americas (described below), which had similar specializations and product offerings in pickling inhibitor technologies, strengthens Quaker Houghton’s position in pickling inhibitors and additives, enabling the Company to better support and optimize production processes for customers across the Metals industry.

As of March 31, 2023, the allocation of the purchase of this acquisition in October 2022 has not been finalized and the one-year measurement period has not ended.

As of June 30, 2023, the allocation of the purchase of this acquisition in October 2022 has not been finalized and the one-year measurement period has not ended.

Further adjustments may be necessary as a result of the Company’s ongoing assessment of additional information related to the fair value of assets acquired and liabilities assumed.

7 unchanged sentences

This business broadens its product offerings and service capabilities within its existing impregnation business.

The allocation of the purchase prices of both of these January 2022 acquisitions has been finalized.

The allocation of the purchase prices of both of these January 2022 acquisitions have been finalized.

In November 2021, the Company acquired Baron Industries, a privately held company that provides vacuum impregnation services of castings, powder metals and electrical components for its Americas reportable segment for $ 11.0 million, including an initial cash payment of $ 7.1 million, subject to post-closing adjustments, as well as certain earn-out provisions that are payable at various times from 2022 through 2025.

The earn-out provisions could total a maximum of $ 4.5 million.

As of March 31, 2023, the Company has remaining earnout liabilities recorded on its Condensed Consolidated Balance Sheet of $ 1.6 million.

As of June 30, 2023, the Company has remaining earn-out liabilities recorded on its Condensed Consolidated Balance Sheet of $ 1.3 million.

Additionally, during the third quarter of 2022 the Company finalized post-closing adjustments that resulted in the Company receiving a payment of less than $ 0.1 million.

2 unchanged sentences

During the second quarter of 2022, after failing to reach resolution, the Sellers filed suit asserting certain amounts owed related to tax attributes of the acquisition.

During the first quarter of 2023, there have been no material changes to the facts and circumstances of the claim asserted by the Sellers, and the Company continues to believe the potential range of exposure for this claim is $ 0 to $ 1.5 million.

During the first six months of 2023, there have been no material changes to the facts and circumstances of the claim asserted by the Sellers, and the Company continues to believe the potential range of exposure for this claim is $ 0 to $ 1.5 million.

Note 3 – Recently Issued Accounting Standards

4 unchanged sentences

and (iii) Asia/Pacific.

The three geographic segments are composed of the net sales and operations in each respective region.

The three segments are composed of the net sales and operations in each respective region.

All prior period information has been recast to reflect the Company’s new reportable segments.

1 unchanged sentence

Segment operating earnings for each of the Company’s reportable segments are comprised of the segment’s net sales less directly related Cost of goods sold (“COGS”) and Selling, general and administrative expenses (“SG&A”).

Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating earnings.

Other items not specifically identified with the Company’s reportable segments include Interest expense, net and Other expense, net.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Americas $ 253,219 $ 235,809 $ 504,632 $ 447,900

8 unchanged sentences

Combination, integration and other acquisition-related expenses — ( 1,832 ) — ( 5,885 )

Restructuring and related charges, net ( 3,972 ) ( 820 )

Restructuring and related (charges) credits, net ( 1,043 ) 1 ( 5,015 ) ( 819 )

Non-operating and administrative expenses ( 49,950 ) ( 48,579 ) ( 101,721 ) ( 92,042 )

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Americas 2,179 3,441 5,006 6,497

4 unchanged sentences

As part of the Company’s Fluidcare TM business, certain third-party product sales to customers are managed by the Company.

The Company transferred third-party products under arrangements recognized on a net reporting basis of $ 20.7 million and $ 19.8 million for the three months ended March 31, 2023 and 2022, respectively.

The Company transferred third-party products under arrangements recognized on a net reporting basis of $ 21.0 million and $ 41.7 million for the three and six months ended June 30, 2023, respectively, and $ 20.5 million and $ 40.3 million for the three and six months ended June 30, 2022, respectively.

Customer Concentration

A significant portion of the Company’s revenues are realized from the sale of process fluids and services to manufacturers of steel, aluminum, automobiles, aerospace, industrial and agricultural equipment, and durable goods.

As previously disclosed in the Company’s 2022 Form 10-K, for the year ended December 31, 2022, the Company’s five largest customers (each composed of multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately 11 % of consolidated net sales, with its largest customer accounting for approximately 3 % of consolidated net sales.

Contract Assets and Liabilities

The Company had no material contract assets recorded on its Condensed Consolidated Balance Sheets as of March 31, 2023 or December 31, 2022.

As previously disclosed in the Company’s 2022 Form 10-K, for the year ended December 31, 2022, the Company’s five largest customers combined (each composed of multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately 11 % of consolidated net sales, with its largest customer accounting for approximately 3 % of consolidated net sales.

Quaker Chemical Corporation

1 unchanged sentence

Dollars in thousands, except per share amounts, unless otherwise stated)

The Company had approximately $ 3.5 million and $ 5.7 million of deferred revenue as of March 31, 2023 and December 31, 2022, respectively.

For the three months ended March 31, 2023, the Company satisfied all of the associated performance obligations and recognized into revenue the advance payments received and recorded as of December 31, 2022.

Contract Assets and Liabilities

The Company had no material contract assets recorded on its Condensed Consolidated Balance Sheets as of June 30, 2023 or December 31, 2022.

The Company had approximately $ 3.1 million and $ 5.7 million of deferred revenue as of June 30, 2023 and December 31, 2022, respectively.

For the six months ended June 30, 2023, the Company satisfied all of the associated performance obligations and recognized into revenue the advance payments received and recorded as of December 31, 2022.

Disaggregated Revenue

5 unchanged sentences

See Note 1 of Notes to Condensed Consolidated Financial Statements.

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Americas EMEA Asia/Pacific Consolidated

7 unchanged sentences

$ 253,219 $ 143,533 $ 98,692 $ 495,444

Three Months Ended March 31, 2022

Six Months Ended June 30, 2023

Americas EMEA Asia/Pacific Consolidated

7 unchanged sentences

$ 504,632 $ 295,982 $ 194,978 $ 995,592

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Three Months Ended June 30, 2022

Americas EMEA Asia/Pacific Consolidated

Customer Industries

Metals $ 62,633 $ 37,622 $ 56,217 $ 156,472

Metalworking and other 173,176 107,913 54,827 335,916

$ 235,809 $ 145,535 $ 111,044 $ 492,388

Timing of Revenue Recognized

Product sales at a point in time $ 224,469 $ 135,576 $ 108,555 $ 468,600

Services transferred over time 11,340 9,959 2,489 23,788

$ 235,809 $ 145,535 $ 111,044 $ 492,388

Six Months Ended June 30, 2022

Americas EMEA Asia/Pacific Consolidated

Customer Industries

Metals $ 117,950 $ 74,415 $ 111,899 $ 304,264

Metalworking and other 329,950 217,939 114,406 662,295

$ 447,900 $ 292,354 $ 226,305 $ 966,559

Timing of Revenue Recognized

Product sales at a point in time $ 426,244 $ 272,379 $ 221,103 $ 919,726

Services transferred over time 21,656 19,975 5,202 46,833

$ 447,900 $ 292,354 $ 226,305 $ 966,559

Note 6 - Leases

2 unchanged sentences

In addition, the Company has certain land use leases with remaining lease terms up to 92 years.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

The Company has no material variable lease costs, sublease income, or finance leases for the three months ended March 31, 2023 and 2022.

The Company had no material variable lease costs, sublease income, or finance leases for the three and six months ended June 30, 2023 and 2022.

The components of the Company’s lease expense are as follows:

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Operating lease expense $ 3,710 $ 3,519 $ 7,646 $ 6,928

Short-term lease expense 183 205 394 424

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Supplemental cash flow information related to the Company’s leases is as follows:

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Cash paid for amounts included in the measurement of lease liabilities:

23 unchanged sentences

As of December 31, 2022, the Company 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.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

In the fourth quarter of 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.

As of March 31, 2023, the program included restructuring and associated severance costs to reduce headcount by approximately 75 positions globally.

As of June 30, 2023, the program included restructuring and associated severance costs to reduce headcount by approximately 80 positions globally.

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

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

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Employee separation benefits vary depending on local regulations within certain foreign countries and include severance and other benefits.

8 unchanged sentences

Currency translation adjustments 72

Accrued restructuring as of March 31, 2023 $ 6,809

Accrued restructuring as of June 30, 2023 $ 5,160

Note 8 – Share-Based Compensation

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Stock options $ 203 $ 469 $ 634 $ 736

3 unchanged sentences

Total share-based compensation expense $ 3,887 $ 2,971 $ 7,414 $ 5,433

Share-based compensation expense is recorded in SG&A, except for less than $ 0.1 million for the three months ended March 31, 2022, recorded within Combination, integration and other acquisition-related expenses.

Share-based compensation expense is recorded in SG&A, except for $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2022, respectively, recorded within Combination, integration and other acquisition-related expenses.

Stock Options

As of March 31, 2023, unrecognized compensation expense related to unvested stock options was $ 0.9 million, to be recognized over a weighted average remaining period of 1.3 years.

As of June 30, 2023, unrecognized compensation expense related to unvested stock options was $ 0.7 million, to be recognized over a weighted average remaining period of 1.1 years.

Restricted Stock Awards and Restricted Stock Units

During the three months ended March 31, 2023, the Company granted 29,862 non-vested restricted shares and 6,675 non-vested restricted stock units under its long-term incentive plan (“LTIP”) , which are subject to time-based vesting, generally over one to three years .

During the six months ended June 30, 2023, the Company granted 37,052 non-vested restricted shares and 6,675 non-vested restricted stock units under its long-term incentive plan (“LTIP”) , which are subject to time-based vesting, generally over one to three years .

The fair value of these grants is based on the last sale price of the Company’s common stock on the date of grant.

As of March 31, 2023, unrecognized compensation expense related to the non-vested restricted shares was $ 10.6 million, to be recognized over a weighted average remaining period of 2.6 years, and unrecognized compensation expense related to non-vested restricted stock units was $ 2.5 million, to be recognized over a weighted average remaining period of 1.8 years.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

As of June 30, 2023, unrecognized compensation expense related to the non-vested restricted shares was $ 9.6 million, to be recognized over a weighted average remaining period of 1.5 years, and unrecognized compensation expense related to non-vested restricted stock units was $ 2.1 million, to be recognized over a weighted average remaining period of 1.7 years.

Performance Stock Units

2 unchanged sentences

The service period required for the PSUs is generally three years and the measurement period of the market-based and performance objectives is generally from January 1 of the year of grant through December 31 of the year prior to issuance of the shares.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Compensation expense for PSUs is measured based on the grant date fair value and is recognized on a straight-line vesting method basis over the applicable vesting period.

6 unchanged sentences

Expected term (years) 3.0

Based on the conditions of the PSUs and performance to date for each of the outstanding PSU awards as of March 31, 2023, the Company estimates that it will issue 47,203 fully vested shares as of the applicable settlement date for such outstanding PSUs awards.

As of March 31, 2023, there was approximately $ 9.9 million of total unrecognized compensation cost related to PSUs, which the Company expects to recognize over a weighted-average period of 2.6 years.

Based on the conditions of the PSUs and performance to date for each of the outstanding PSU awards as of June 30, 2023, the Company estimates that it will issue 56,272 fully vested shares as of the applicable settlement date for such outstanding PSUs awards.

As of June 30, 2023, there was approximately $ 8.8 million of total unrecognized compensation cost related to PSUs, which the Company expects to recognize over a weighted-average period of 2.4 years.

Note 9 – Pension and Other Postretirement Benefits

The components of net periodic benefit (income) cost are as follows:

Three Months Ended March 31,

Pension Benefits Other Postretirement Benefits

Three Months Ended June 30, Six Months Ended June 30,

Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits

2023 2022 2023 2022 2023 2022 2023 2022

4 unchanged sentences

Prior service cost (income) amortization — 2 ( 4 ) ( 9 ) — 5 ( 8 ) ( 8 )

Net periodic benefit (income) cost $ 671 $ ( 285 ) $ ( 15 ) $ ( 22 )

Net periodic benefit cost (income) $ 695 $ ( 271 ) $ ( 15 ) $ ( 22 ) $ 1,366 $ ( 556 ) $ ( 30 ) $ ( 44 )

In July 2023, one of the Company’s pension plans in the U.K.

liquidated approximately $ 50 million of its invested assets and subsequently funded and entered into an insurance annuity contract, which will provide for the pension plan’s defined benefit obligations to participants.

Employer Contributions

As of March 31, 2023, $ 1.0 million and less than $ 0.1 million of contributions have been made to the Company’s U.S.

As of June 30, 2023, $ 1.3 million and less than $ 0.1 million of contributions have been made to the Company’s U.S.

and foreign pension plans and its other postretirement benefit plans, respectively.

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Income from third party license fees $ 321 $ 249 $ 646 $ 653

3 unchanged sentences

Facility remediation recovery, net 187 — 1,014 —

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

Other non-operating income, net ( 204 ) 83 ( 77 ) 221

Total other expense, net $ ( 3,606 ) $ ( 8,399 ) $ ( 5,845 ) $ ( 10,605 )

Non-income tax refunds and other related credits (expense) during the three months ended March 31, 2022, includes adjustments to a Combination-related indemnification asset associated with the settlement of certain income tax audits at one of the Company’s Italian for tax periods prior to August 1, 2019.

Non-income tax refunds and other related credits (expense) during both the three and six months ended June 30, 2023 and 2022, include adjustments to a Combination-related indemnification asset associated with the settlement of certain income tax audits for tax periods prior to August 1, 2019.

See Note 11 of Notes to Condensed Consolidated Financial Statements.

Facility remediation recovery, net, during the three months ended March 31, 2023, reflects a gain recorded on the payments received from insurers related to previously incurred costs from the remediation and restoration of property damage.

Facility remediation recovery, net, during the three and six months ended June 30, 2023, reflects gains recorded on the payments received from insurers related to previously incurred costs from the remediation and restoration of property damage.

See Note 18 of Notes to the Condensed Consolidated Financial Statements.

Loss on extinguishment of debt during the three and six months ended June 30, 2022, represents a write-off of certain previously unamortized deferred financing costs as well as a portion of third party and creditor debt issuance costs incurred to execute an amendment to the Company’s primary credit facility.

See Note 14 of Notes to Condensed Consolidated Financial Statements.

Note 11 – Income Taxes and Uncertain Income Tax Positions

The Company’s effective tax rates for the three months ended March 31, 2023 and 2022 were 27.7 % and 13.1 %, respectively.

The Company’s effective tax rate for the three months ended March 31, 2023 was impacted by various items including foreign tax inclusions, withholding taxes, foreign tax credits, and net tax expense related to share-based compensation, partially offset with changes in uncertain tax positions and favorable return to provision adjustments.

Comparatively, the prior year effective tax rate was largely impacted by changes in the valuation allowance for foreign tax credits due to legislative guidance issued and audit settlements reached with Italian tax authorities.

In addition, the Company incurred higher tax expense during the three months ended March 31, 2022 related to one of the Company’s subsidiaries recording earnings at a statutory tax rate of 25% while the recertification of its concessionary 15% tax rate was pending receipt.

As previously reported, the Italian tax authorities assessed additional tax due from the Company’s subsidiary, Quaker Italia S.r.l., relating to the tax years 2007 through 2015.

The Company filed for and obtained competent authority relief under the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except 2007.

In the first quarter of 2022, the Company settled the $ 2.6 million assessment due to the Italian tax authorities, while having already received $ 1.6 million in refunds from the Netherlands and Spain.

As of March 31, 2023, the Company paid the full settlement, of which approximately $ 0.2 million was refunded.

Houghton Italia, S.r.l was also involved in a corporate income tax audit with the Italian tax authorities covering tax years 2014 through 2018.

The Company’s effective tax rates for the three and six months ended June 30, 2023 were 34.2 % and 31.2 %, respectively, compared to 8.1 % and 10.9 % for the three and six months ended June 30, 2022, respectively.

The Company’s effective tax rate for the three months ended June 30, 2023 was primarily impacted by changes to the valuation allowance for and the usage of foreign tax credits due to an enacted law change in Brazil and the effects of lower pre-tax earnings and the mix of such earnings.

The effective tax rate for the first six months of 2023 was further impacted by various other items including foreign tax inclusions, withholding taxes, and net tax expense related to share-based compensation, partially offset with changes in uncertain tax positions and favorable return to provision adjustments.

Comparatively, the prior year effective tax rates were largely impacted by state tax benefits, changes in the foreign tax credit valuation allowance, the impact of audit settlements, a deferred tax benefit associated with an intercompany asset transfer, a reduction in reserves for uncertain tax positions relating to management fees, withholding taxes, and the effects of lower pre-tax earnings and the mix of such earnings.

In addition, the Company’s effective tax rates for three and six months ended June 30, 2022 were impacted by the Company recording earnings at a statutory tax rate of 25% while the recertification of its concessionary 15% tax rate was pending receipt.

As previously reported, Houghton Italia, S.r.l was involved in a corporate income tax audit with the Italian tax authorities covering tax years 2014 through 2018.

The Company settled all years 2014 through 2018 for $ 3.7 million and, accordingly, released all reserves relating to this audit for the settled tax years during the first quarter of 2022.

The settlement is to be paid via installments through 2026 and, through March 31, 2023, the Company paid $ 1.1 million of such installments.

The settlement is to be paid via installments through 2026 and, through June 30, 2023, the Company paid $ 1.3 million of such installments.

The Company has an indemnification receivable of $ 4.4 million in connection with its claim against the former owners of Houghton for any pre-Combination tax liabilities arising from this matter, as well as other audit settlements and tax matters.

In the first quarter of 2023, the Company was notified by the Spanish tax authorities of audits to commence for several of its legal entities operating in Spain and spanning tax years 2018 through 2021.

The Company arranged introductory meetings with the taxing authorities and has begun to provide documentation in response to their inquiries.

The Company has not established any reserves for this matter at this time.

In addition, in July 2023, the Company was notified by the Italian tax authorities of an audit to commence for one of the Company’s Italian subsidiaries for tax year 2019.

Both of these audit proceedings are ongoing and the Company has been providing documentation in response to all of their inquiries.

The Company has not established any reserves for these matters at this time.

Quaker Chemical Corporation

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Basic earnings per common share

13 unchanged sentences

Certain stock options, restricted stock units, and PSUs are not included in the diluted earnings per share calculation when the effect would have been anti-dilutive.

The calculated amount of anti-diluted shares not included were 15,327 and 12,260 for the three months ended March 31, 2023 and 2022, respectively.

The calculated amount of anti-diluted shares not included were 8,232 and 10,940 for the three and six months ended June 30, 2023, respectively, and 33,039 and 24,731 for the three and six months ended June 30, 2022, respectively.

Note 13 – Goodwill and Other Intangible Assets

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The Company continually evaluates financial performance, economic conditions and other recent developments, including rising interest rates and the cost of capital among other factor s, in assessing if a triggering event indicates that the carrying values of goodwill, indefinite-lived, or long-lived assets are impaired.

The Company concluded that during the first quarter the ongoing financial, economic or geopolitical conditions did not represent a triggering event.

In connection with the Company’s reorganization and the associated change in reportable segments and reporting units during the first quarter of 2023, the Company performed the required impairment assessments directly before and immediately after the change in reporting units and concluded that it was not more likely than not that the fair values of any of the Company’s previous or new reporting units were less than its carrying amount.

The Company concluded that during the second quarter the ongoing financial, economic or geopolitical conditions did not represent a triggering event.

Changes in the carrying amount of goodwill were as follows.

6 unchanged sentences

Balance as of January 1, 2023 279,596 66,278 169,134 — 515,008

Goodwill additions (reductions) — — — — —

Currency translation adjustments 3,493 ( 920 ) ( 10,211 ) — ( 7,638 )

Balance as of March 31, 2023 $ 281,369 $ 66,162 $ 169,675 $ — $ 517,206

Balance as of June 30, 2023 $ 283,089 $ 65,358 $ 158,923 $ — $ 507,370

Quaker Chemical Corporation

5 unchanged sentences

Amortization Net Book Value

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Customer lists and rights to sell $ 834,707 $ 831,600 $ 217,124 $ 191,286 $ 617,583 $ 640,314

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Amortization expense $ 14,692 $ 14,688 $ 29,205 $ 29,241

5 unchanged sentences

For the year ended December 31, 2027 56,056

As of March 31, 2023 and December 31, 2022, the Company had indefinite-lived intangible assets for trademarks and tradenames totaling $ 191.3 million and $ 189.1 million, respectively.

As of June 30, 2023 and December 31, 2022, the Company had indefinite-lived intangible assets for trademarks and tradenames totaling $ 191.3 million and $ 189.1 million, respectively.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Note 14 – Debt

The following table sets forth the components of the Company’s debt:

As of March 31, 2023 As of December 31, 2022

As of June 30, 2023 As of December 31, 2022

Rate Outstanding

11 unchanged sentences

Total long-term debt $ 863,934 $ 933,561

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Credit facilities

4 unchanged sentences

The Company has the right to increase the amount of the Credit Facility by an aggregate amount not to exceed the greater of $ 300.0 million or 100 % of Consolidated EBITDA, subject to certain conditions including the agreement to provide financing by any lender providing such increase.

As of March 31, 2023, the Company was in compliance with all of the Credit Facility covenants.

As of June 30, 2023, the Company was in compliance with all of the Credit Facility covenants.

See Note 20 of Notes to Consolidated Financial Statements in the Company’s 2022 Form 10-K.

The weighted average variable interest rate incurred on the outstanding borrowings under the Credit Facility during the three months ended March 31, 2023 was approximately 5.8 %.

As of March 31, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 5.9 %.

The weighted average variable interest rates incurred on the outstanding borrowings under the Credit Facility during the three and six months ended June 30, 2023 were approximately 6.2 % and 6.0 %, respectively.

As of June 30, 2023, the interest rate on the outstanding borrowings under the Credit Facility was approximately 6.3 %.

As part of the Credit Facility, in addition to paying interest on outstanding principal, the Company is also required to pay an annual commitment fee ranging from 0.150 % to 0.275 % related to unutilized commitments under the Revolver, depending on the Company’s consolidated net leverage ratio.

The Company had unused capacity under the Revolver of approximately $ 311 million, which is net of bank letters of credit of approximately $ 3 million, as of March 31, 2023.

The Company had unused capacity under the Revolver of approximately $ 364 million, which is net of bank letters of credit of approximately $ 3 million, as of June 30, 2023.

In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, in the first quarter of 2023, the Company entered into $ 300.0 million notional amounts of three year interest rate swaps to convert a portion of the Company’s variable rate borrowings to an average fixed rate of 3.64 % plus an applicable margin as provided in the Credit Facility based on the Company’s consolidated net leverage ratio.

As of March 31, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.2 %.

As of June 30, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.2 %.

See Note 17 of Notes to Condensed Consolidated Financial Statements.

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These capitalized costs will collectively be amortized into Interest expense over the five year term of the Credit Facility.

As of March 31, 2023, the Company had $ 1.9 million of debt issuance costs recorded as a reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $ 4.1 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet.

As of June 30, 2023, the Company had $ 1.8 million of debt issuance costs recorded as a reduction of Long-term debt on the Condensed Consolidated Balance Sheet and $ 3.8 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet.

Comparatively, 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 Condensed Consolidated Balance Sheet and $ 4.3 million of debt issuance costs recorded within Other assets on the Condensed Consolidated Balance Sheet.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Industrial development bonds

As of March 31, 2023 and December 31, 2022, the Company had fixed rate, industrial development authority bonds totaling $ 10.0 million in principal amount due in 2028.

As of June 30, 2023 and December 31, 2022, the Company had fixed rate, industrial development authority bonds totaling $ 10.0 million in principal amount due in 2028.

These bonds have similar covenants to the Credit Facility noted above.

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The Company’s other debt obligations primarily consist of certain domestic and foreign low interest rate or interest-free municipality-related loans, local credit facilities of certain foreign subsidiaries, and capital lease obligations.

Total unused capacity under these arrangements as of March 31, 2023 was approximately $ 35 million.

Total unused capacity under these arrangements as of June 30, 2023 was approximately $ 34 million.

In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s other off-balance sheet arrangements include certain financial and other guarantees.

The Company’s total bank letters of credit and guarantees outstanding as of March 31, 2023 were approximately $ 5 million.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

The Company’s total bank letters of credit and guarantees outstanding as of June 30, 2023 were approximately $ 5 million.

Interest expense, net

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Interest expense $ 14,389 $ 6,134 $ 28,265 $ 10,880

1 unchanged sentence

Total $ 14,742 $ 7,183 $ 28,971 $ 13,116

Based on the variable interest rates associated with the Credit Facility, as of March 31, 2023 and as of December 31, 2022, the amounts at which the Company’s total debt were recorded are not materially different from their fair market value.

Based on the variable interest rates associated with the Credit Facility, as of June 30, 2023 and as of December 31, 2022, the amounts at which the Company’s total debt were recorded are not materially different from their fair market value.

Note 15 – Accumulated Other Comprehensive Income

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Instruments Total

Balance at March 31, 2023 $ ( 117,696 ) $ ( 4,721 ) $ ( 1,150 ) $ 390 $ ( 123,177 )

Other comprehensive (loss) income before Reclassifications ( 13,042 ) 854 979 5,420 ( 5,789 )

Amounts reclassified from AOCI — 78 591 — 669

Related tax amounts — ( 235 ) ( 329 ) ( 1,247 ) ( 1,811 )

Balance at June 30, 2023 $ ( 130,738 ) $ ( 4,024 ) $ 91 $ 4,563 $ ( 130,108 )

Balance at March 31, 2022 $ ( 56,710 ) $ ( 12,676 ) $ ( 603 ) $ ( 272 ) $ ( 70,261 )

Other comprehensive (loss) income before Reclassifications ( 76,400 ) 1,650 ( 1,043 ) 747 ( 75,046 )

Amounts reclassified from AOCI — 218 325 — 543

Related tax amounts — ( 461 ) 151 ( 172 ) ( 482 )

Balance at June 30, 2022 $ ( 133,110 ) $ ( 11,269 ) $ ( 1,170 ) $ 303 $ ( 145,246 )

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Adjustments Defined

Plans Unrealized

(Loss) Gain in

Available-for-

Sale Securities Derivative

Instruments Total

Balance as of December 31, 2022 $ ( 132,161 ) $ ( 4,595 ) $ ( 1,484 ) $ — $ ( 138,240 )

2 unchanged sentences

Related tax amounts — ( 194 ) ( 418 ) ( 1,363 ) ( 1,975 )

Balance as of March 31, 2023 $ ( 117,696 ) $ ( 4,721 ) $ ( 1,150 ) $ 390 $ ( 123,177 )

Balance as of June 30, 2023 $ ( 130,738 ) $ ( 4,024 ) $ 91 $ 4,563 $ ( 130,108 )

Balance as of December 31, 2021 $ ( 49,843 ) $ ( 13,172 ) $ 397 $ ( 1,372 ) $ ( 63,990 )

2 unchanged sentences

Related tax amounts — ( 626 ) 417 ( 500 ) ( 709 )

Balance as of March 31, 2022 $ ( 56,710 ) $ ( 12,676 ) $ ( 603 ) $ ( 272 ) $ ( 70,261 )

Balance as of June 30, 2022 $ ( 133,110 ) $ ( 11,269 ) $ ( 1,170 ) $ 303 $ ( 145,246 )

All reclassifications related to unrealized (loss) gain in available-for-sale securities relate to the Company’s equity interest in a captive insurance company and are recorded in equity in net income of associated companies.

The amounts reported in other comprehensive income for noncontrolling interest are related to currency translation adjustments.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Note 16 – Fair Value Measurements

The Company has valued its company-owned life insurance policies at fair value.

During June 2023, the Company surrendered and liquidated $ 1.9 million of these life insurance policies.

The fair values of Company-owned life insurance assets are based on quotes for like instruments with similar credit ratings and terms.

These assets are subject to fair value measurement as follows:

Fair Value Fair Value Measurements as of March 31, 2023

Fair Value Fair Value Measurements as of June 30, 2023

Using Fair Value Hierarchy

11 unchanged sentences

The Company does not hold or enter into financial instruments for trading or speculative purposes.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

Foreign Exchange Forward Contracts

1 unchanged sentence

These foreign operations also represent a significant portion of the Company’s assets and liabilities.

Generally, all of these foreign operations use the local currency as their functional currency and many have some operations in currencies other than their functional currency, which creates foreign exchange risk.

Generally, all of these foreign operations use the local currency as their functional currency and many have operations in currencies other than their functional currency, which creates foreign exchange risk.

The Company uses foreign exchange forward contracts to economically hedge the impact of the variability in exchange rates on certain assets and/or liabilities denominated in certain foreign currencies.

These forward contracts are marked-to-market at each reporting date.

Changes in the fair value of the underlying instrument and settlements are recognized in earnings.

Changes in the fair value of the underlying instrument and settlements are recognized in earnings in Other expense, net.

The fair value of the forward contract is determined from sources independent of the Company, including the financial institutions which are party to the derivative instruments.

During the three months ended March 31, 2023, the Company entered into and settled forward contracts with an aggregate notional amount totaling $ 16.0 million, resulting in cash proceeds of $ 0.3 million.

The following table displays the notional amounts of the net foreign exchange hedge positions outstanding:

Currency March 31,

All open foreign exchange forward contracts as of June 30, 2023 were entered into as hedges against the U.S.

As of June 30, 2023, the Company had open foreign exchange forward contracts with a notional U.S.

dollar value of the following:

Currency June 30,

Mexican Peso $ 23,600

Japanese Yen 4,250

Open foreign exchange forward contracts as of June 30, 2023 had maturities occurring over a period of one month .

Interest Rate Swaps

In order to manage the Company’s exposure to variable interest rate risk associated with the Credit Facility, such as the Secured Overnight Financing Rate (“SOFR”), in the first quarter of 2023, the Company entered into $ 300.0 million notional amounts of three year interest rate swaps to convert a portion of the Company’s variable rate borrowings into a fixed rate obligation.

See Note 14 of Notes to Condensed Consolidated Financial Statements.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

These interest rate swaps are designated as cash flow hedges and, as such, the contracts are marked-to-market at each reporting date and any unrealized gains or losses are included in AOCI to the extent effective and reclassified to interest expense in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will not occur.

Interest rate swaps are entered into with a limited number of counterparties, each of which allows for net settlement of all contracts through a single payment in a single currency in the event of a default on or termination of any one contract.

Interest rate swaps are entered into with a limited number of counterparties within several tranches, each of which allows for net settlement of all contracts through a single payment to participating counterparties in a single currency in the event of a default on or termination of any one contract.

As such, in accordance with the Company’s accounting policy, these derivative instruments are recorded on a net basis within the Condensed Consolidated Balance Sheets.

1 unchanged sentence

Condensed Consolidated

Balance Sheet Location March 31,

Balance Sheet Location June 30,

2023 December 31,

5 unchanged sentences

Interest rate swaps AOCI $ 4,563 $ —

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Dollars in thousands, except per share amounts, unless otherwise stated)

The following table presents the net gain (loss) reclassified from AOCI to earnings:

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Interest rate swaps Interest expense, net $ 1,061 $ ( 378 ) $ 1,061 $ ( 1,015 )

2 unchanged sentences

Note 18 – Commitments and Contingencies

The Company previously disclosed in its 2022 Form 10-K that two of the Company’s locations suffered property damages as a result of flooding and electrical fire, respectively.

The Company previously disclosed in its 2022 Form 10-K that two of the Company’s locations suffered property damage as a result of flooding and electrical fire, respectively.

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

During the three months ended March 31, 2023, there have been no significant changes to the facts or circumstances of this previously disclosed matter, other than the ongoing work with the Company’s insurance adjuster and insurance carrier regarding the insurance claims submitted.

Through March 31, 2023, the Company has received cumulative payments from its insurers of $ 5.7 million associated with these events.

During the three months ended March 31, 2023, the Company recognized a gain on insurance recoveries of $ 0.8 million.

During the three and six months ended June 30, 2023, there have been no significant changes to the facts or circumstances of this previously disclosed matter, other than ongoing work with the Company’s insurance adjuster and insurance carrier regarding the insurance claims submitted.

Through June 30, 2023, the Company has received cumulative payments from its insurers of $ 5.9 million associated with these events.

During the three and six months ended June 30, 2023, the Company recognized a gain on insurance recoveries of $ 0.2 million and $ 1.0 million, respectively.

See Note 10 of Notes to the Condensed Consolidated Financial Statements.

1 unchanged sentence

See Note 26 of Notes to Consolidated Financial Statements in the Company’s 2022 Form 10-K.

During the three months ended March 31, 2023, there have been no significant changes to the facts or circumstances of any of the previously disclosed matters.

In addition, during the three months ended March 31, 2023, there are no new environmental matters or litigation that the Company believes will have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

During the three and six months ended June 30, 2023, there have been no significant changes to the facts or circumstances of any of the previously disclosed matters.

In addition, during the three and six months ended June 30, 2023, there are no new environmental matters or litigation that the Company believes will have a material adverse effect on the Company’s results of operations, cash flows, or financial condition.

Although there can be no assurance regarding the outcome of any of the ongoing environmental matters or litigation the Company is party to, the Company believes that it has made adequate accruals for costs and liabilities associated with environmental matters or provisions for ongoing litigation for which it is aware.

The Company has accrued approximately $ 6 million as of both March 31, 2023 and December 31, 2022, respectively, for these ongoing matters.

The Company has accrued approximately $ 6 million as of both June 30, 2023 and December 31, 2022, respectively, for these ongoing matters.

Quaker Chemical Corporation

1 unchanged sentence

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-Q

Item 1. Financial Statements