What changed in this filing

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Item 1. Financial Statements

2023-11-02 compared with 2023-08-01 · 151 added, 117 removed, 628 unchanged (30% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

Operating income 59,518 44,609 166,242 105,915

Other expense, net ( 3,606 ) ( 8,399 ) ( 5,845 ) ( 10,605 )

Other (expense) income, net ( 2,713 ) 85 ( 8,558 ) ( 10,520 )

Interest expense, net ( 12,781 ) ( 8,389 ) ( 38,744 ) ( 20,228 )

16 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Current period change in fair value of derivatives 1,241 ( 140 ) 5,804 1,535

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

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

Unrealized (loss) gain on available-for-sale securities ( 637 ) ( 818 ) 938 ( 2,385 )

Other comprehensive loss ( 24,619 ) ( 72,447 ) ( 16,522 ) ( 153,734 )

Comprehensive income (loss) 9,091 ( 46,539 ) 76,122 ( 93,634 )

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

Comprehensive loss attributable to noncontrolling interest ( 36 ) ( 3 ) ( 55 ) ( 5 )

Comprehensive income (loss) attributable to Quaker Chemical Corporation $ 9,055 $ ( 46,542 ) $ 76,067 $ ( 93,639 )

4 unchanged sentences

Dollars in thousands, except par value)

September 30,

2023 December 31,

36 unchanged sentences

issued and outstanding

June 30, 2023 – 17,999,223 shares;

September 30, 2023 – 18,000,855 shares;

December 31, 2022 – 17,950,264 shares

12 unchanged sentences

Dollars in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities

8 unchanged sentences

Combination and other acquisition-related expenses, net of payments — ( 4,265 )

Restructuring and related charges 5,015 819

Restructuring and related charges (credits), net 6,034 ( 604 )

Pension and other postretirement benefits ( 2,000 ) ( 6,556 )

14 unchanged sentences

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 )

Payments on revolving credit facilities, net ( 112,835 ) ( 10,418 )

Borrowings on other debt, net 797 2,131

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

3 unchanged sentences

Effect of foreign exchange rate changes on cash ( 5,746 ) ( 16,967 )

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

Net increase (decrease) in cash and cash equivalents 17,395 ( 26,285 )

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

24 unchanged sentences

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

Net income — — 25,867 — 41 25,908

Amounts reported in other comprehensive loss — — — ( 72,409 ) ( 38 ) ( 72,447 )

Dividends ($ 0.435 per share)

— — ( 7,803 ) — — ( 7,803 )

Share issuance and equity-based compensation plans 11 3,395 — — — 3,406

Balance as of September 30, 2022 $ 17,931 $ 925,037 $ 553,685 $ ( 217,655 ) $ 632 $ 1,279,630

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

11 unchanged sentences

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

Net income — — 33,670 — 40 33,710

Amounts reported in other comprehensive loss — — — ( 24,616 ) ( 3 ) ( 24,619 )

Dividends ($ 0.455 per share)

— — ( 8,190 ) — — ( 8,190 )

Share issuance and equity-based compensation plans 2 3,532 — — — 3,534

Balance as of September 30, 2023 $ 18,001 $ 938,473 $ 538,628 $ ( 154,724 ) $ 723 $ 1,341,101

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 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.

As used in these Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for the period ended September 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.

6 unchanged sentences

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

The results for the nine months ended September 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.

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

9 unchanged sentences

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

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.

As of, and for the three and nine months ended September 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 nine months ended September 30, 2023, the Company recorded $ 1.2 million and $ 2.9 million of remeasurement losses associated with the applicable currency conversions, respectively.

Comparatively, during the three and nine months ended September 30, 2022, the Company recorded $ 1.0 million and $ 1.2 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) income, net, in the Company’s Condensed Consolidated Statements of Operations.

Note 2 – Business Acquisitions

2 unchanged sentences

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 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.

As of September 30, 2023, the allocation of the purchase of this acquisition has been finalized.

Quaker Chemical Corporation

9 unchanged sentences

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

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

As of September 30, 2023, the Company has remaining earn-out liabilities recorded on its Condensed Consolidated Balance Sheet of $ 1.1 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 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.

During the first nine 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

9 unchanged sentences

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 (credits), net, 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.

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

Quaker Chemical Corporation

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

13 unchanged sentences

Operating income 59,518 44,609 166,242 105,915

Other expense, net ( 3,606 ) ( 8,399 ) ( 5,845 ) ( 10,605 )

Other (expense) income, net ( 2,713 ) 85 ( 8,558 ) ( 10,520 )

Interest expense, net ( 12,781 ) ( 8,389 ) ( 38,744 ) ( 20,228 )

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

5 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 $ 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.

The Company transferred third-party products under arrangements recognized on a net reporting basis of $ 21.6 million and $ 63.2 million for the three and nine months ended September 30, 2023, respectively, and $ 21.4 million and $ 61.7 million for the three and nine months ended September 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 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.

As previously disclosed in the Company’s 2022 Form 10-K, 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

2 unchanged sentences

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.

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

The Company had approximately $ 2.8 million and $ 5.7 million of deferred revenue as of September 30, 2023 and December 31, 2022, respectively.

For the nine months ended September 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 June 30, 2023

Three Months Ended September 30, 2023

Americas EMEA Asia/Pacific Consolidated

7 unchanged sentences

$ 245,899 $ 139,620 $ 105,093 $ 490,612

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Americas EMEA Asia/Pacific Consolidated

10 unchanged sentences

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

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Americas EMEA Asia/Pacific Consolidated

7 unchanged sentences

$ 254,678 $ 134,386 $ 103,154 $ 492,218

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Americas EMEA Asia/Pacific Consolidated

11 unchanged sentences

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

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

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Supplemental balance sheet information related to the Company’s leases is as follows:

September 30,

2023 December 31,

6 unchanged sentences

Maturities of operating lease liabilities were as follows:

September 30,

For the remainder of 2023 $ 3,691

9 unchanged sentences

In the third quarter of 2019, the Company’s management approved a global restructuring plan (the “QH Program”) as part of its initial plan to realize certain cost synergies associated with the Combination.

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.

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

As of September 30, 2023, the program included restructuring and associated severance costs to reduce headcount by approximately 100 positions globally.

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

7 unchanged sentences

As described in Note 4 of Notes to Consolidated Financial Statements, Restructuring and related charges are not included in the Company’s calculation of reportable segments’ measure of operating earnings and therefore these costs are not reviewed by or recorded to reportable segments.

In connection with the plans for closure of certain manufacturing and non-manufacturing facilities, the Company has made available for sale certain facilities and property.

During the three months ended September 30, 2023, the Company classified certain properties with aggregate book value of approximately $ 6.9 million as held-for-sale that are recorded in Prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheets.

The Company expects to complete the sale of these properties over the next 12 months.

Changes in the Company’s accruals for its restructuring programs are as follows:

4 unchanged sentences

Currency translation adjustments ( 13 )

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

Accrued restructuring as of September 30, 2023 $ 3,590

Note 8 – Share-Based Compensation

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Total share-based compensation expense $ 3,775 $ 3,200 $ 11,189 $ 8,634

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.

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

Stock Options

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.

As of September 30, 2023, unrecognized compensation expense related to unvested stock options was $ 0.5 million, to be recognized over a weighted average remaining period of 0.9 years.

Restricted Stock Awards and Restricted Stock Units

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 .

During the nine months ended September 30, 2023, the Company granted 38,894 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 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.

As of September 30, 2023, unrecognized compensation expense related to the non-vested restricted shares was $ 8.0 million, to be recognized over a weighted average remaining period of 1.4 years, and unrecognized compensation expense related to non-vested restricted stock units was $ 1.6 million, to be recognized over a weighted average remaining period of 1.5 years.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

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 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.

Based on the conditions of the PSUs and performance to date for each of the outstanding PSU awards as of September 30, 2023, the Company estimates that it will issue 25,613 fully vested shares as of the applicable settlement date for such outstanding PSUs awards.

As of September 30, 2023, there was approximately $ 8.0 million of total unrecognized compensation cost related to PSUs, which the Company expects to recognize over a weighted-average period of 2.2 years.

Note 9 – Pension and Other Postretirement Benefits

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

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

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

Three Months Ended September 30, Nine Months Ended September 30,

Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits

9 unchanged sentences

Employer Contributions

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.

As of September 30, 2023, $ 3.4 million and $ 0.1 million of contributions have been made to the Company’s U.S.

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

4 unchanged sentences

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

Note 10 – Other expense, net

The components of Other expense, net are as follows:

Note 10 – Other (expense) income, net

The components of Other (expense) income, net are as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

1 unchanged sentence

Foreign exchange losses, net ( 2,498 ) ( 1,928 ) ( 10,049 ) ( 5,859 )

(Loss) gain on disposals of property, plant, equipment and other assets, net ( 25 ) 48 ( 91 ) 33

Non-income tax refunds and other related credits (expense) 91 122 1,339 ( 1,617 )

Pension and postretirement benefit (costs) income, non-service components ( 549 ) 452 ( 1,674 ) 1,406

Facility remediation recovery, net 187 — 1,014 —

Facility remediation recoveries, net — 1,104 1,014 1,104

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

Other non-operating income, net 23 34 12 270

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

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.

Total other (expense) income, net $ ( 2,713 ) $ 85 $ ( 8,558 ) $ ( 10,520 )

Non-income tax refunds and other related credits (expense) during the nine months ended September 30, 2023 and nine months ended September 30, 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 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.

Facility remediation recoveries, net, during the nine months ended September 30, 2023 and the three and nine months ended September 30, 2022, reflect gains recorded on the payments received from insurers related to previously incurred costs from the remediation and restoration of property damage incurred during the three months ended September 30, 2021.

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.

Loss on extinguishment of debt during the nine months ended September 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 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.

The Company’s effective tax rates for the three and nine months ended September 30, 2023 were 30.9 % and 31.1 %, respectively, compared to 28.1 % and 19.2 % for the three and nine months ended September 30, 2022, respectively.

The Company’s effective tax rate for the three months ended September 30, 2023 was primarily impacted by foreign tax inclusions, withholding taxes, return to provision adjustments, the impact of U.S.

Department of Treasury guidance on the usage of foreign tax credits, and the mix of earnings.

The effective tax rate for the first nine months of 2023 was further impacted by various other items including changes to the valuation allowance for and the usage of foreign tax credits due to an enacted law change in Brazil, and share-based compensation.

Comparatively, the prior year effective tax rates were largely impacted by foreign tax inclusions, changes in the valuation allowance for foreign tax credits, the impact of audit settlements, a reduction in reserves for uncertain tax positions, withholding taxes, and the impact of forecasted earnings and the mix of such earnings.

In addition, the Company’s effective tax rates for three and nine months ended September 30, 2022 were impacted by the Company recording earnings of one of its subsidiaries 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 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.

The settlement is to be paid via installments through 2026 and, through September 30, 2023, the Company has paid $ 1.5 million of such installments.

Having received approximately $ 1.2 million from escrow during the quarter, the Company has a remaining indemnification receivable of $ 3.2 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.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

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.

2 unchanged sentences

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

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

Note 12 – Earnings Per Share

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

14 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 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.

The calculated amount of anti-diluted shares not included were 11,598 and 10,453 for the three and nine months ended September 30, 2023, respectively, and 25,896 and 24,618 for the three and nine months ended September 30, 2022, respectively.

Note 13 – Goodwill and Other Intangible Assets

1 unchanged sentence

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 second quarter the ongoing financial, economic or geopolitical conditions did not represent a triggering event.

The Company concluded that during the third 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 their respective carrying amounts.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

Changes in the carrying amount of goodwill were as follows.

7 unchanged sentences

Currency translation adjustments 2,561 ( 805 ) ( 12,307 ) — ( 10,551 )

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

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

Balance as of September 30, 2023 $ 282,157 $ 65,473 $ 156,827 $ — $ 504,457

Gross carrying amounts and accumulated amortization for definite-lived intangible assets were as follows:

2 unchanged sentences

Amortization Net Book Value

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

September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

Customer lists and rights to sell $ 824,893 $ 831,600 $ 226,956 $ 191,286 $ 597,937 $ 640,314

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

For the year ended December 31, 2027 55,309

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.

As of September 30, 2023 and December 31, 2022, the Company had indefinite-lived intangible assets for trademarks and tradenames totaling $ 187.6 million and $ 189.1 million, respectively.

Quaker Chemical Corporation

3 unchanged sentences

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

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

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

Rate Outstanding

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

As of September 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 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 %.

The weighted average variable interest rates incurred on the outstanding borrowings under the Credit Facility during the three and nine months ended September 30, 2023 were approximately 6.4 % and 6.1 %, respectively.

As of September 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 $ 364 million, which is net of bank letters of credit of approximately $ 3 million, as of June 30, 2023.

The Company had unused capacity under the Revolver of approximately $ 414 million, which is net of bank letters of credit of approximately $ 3 million, as of September 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 June 30, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.2 %.

As of September 30, 2023, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was 5.3 %.

See Note 17 of Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

Approximately $ 0.7 million of the capitalized costs were attributed to the Euro Term Loan and U.S.

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

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

Approximately $ 1.5 million of the capitalized costs were attributed to the Revolver and recorded within Other assets on the Condensed Consolidated Balance Sheet.

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

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.

As of September 30, 2023, the Company had $ 1.7 million of debt issuance costs recorded as an offset of Long-term debt on the Condensed Consolidated Balance Sheet and $ 3.6 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 an offset 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

2 unchanged sentences

Industrial development bonds

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.

As of September 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.

2 unchanged sentences

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 June 30, 2023 was approximately $ 34 million.

Total unused capacity under these arrangements as of September 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 June 30, 2023 were approximately $ 5 million.

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

Interest expense, net

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

2 unchanged sentences

Total $ 12,951 $ 9,818 $ 41,922 $ 22,928

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.

Based on the variable interest rates associated with the Credit Facility, as of September 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

6 unchanged sentences

Instruments Total

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

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

Other comprehensive (loss) income before Reclassifications ( 25,501 ) 304 ( 802 ) 1,612 ( 24,387 )

1 unchanged sentence

Related tax amounts — ( 94 ) 169 ( 371 ) ( 296 )

Balance at September 30, 2023 $ ( 156,239 ) $ ( 3,743 ) $ ( 546 ) $ 5,804 $ ( 154,724 )

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

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

Other comprehensive (loss) income before Reclassifications ( 71,948 ) 453 ( 1,006 ) ( 182 ) ( 72,683 )

1 unchanged sentence

Related tax amounts — ( 166 ) 218 42 94

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

Balance at September 30, 2022 $ ( 205,058 ) $ ( 10,772 ) $ ( 1,988 ) $ 163 $ ( 217,655 )

Quaker Chemical Corporation

11 unchanged sentences

Related tax amounts — ( 288 ) ( 249 ) ( 1,734 ) ( 2,271 )

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

Balance as of September 30, 2023 $ ( 156,239 ) $ ( 3,743 ) $ ( 546 ) $ 5,804 $ ( 154,724 )

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

2 unchanged sentences

Related tax amounts — ( 792 ) 635 ( 458 ) ( 615 )

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

Balance as of September 30, 2022 $ ( 205,058 ) $ ( 10,772 ) $ ( 1,988 ) $ 163 $ ( 217,655 )

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.

5 unchanged sentences

These assets are subject to fair value measurement as follows:

Fair Value Fair Value Measurements as of June 30, 2023

Fair Value Fair Value Measurements as of September 30, 2023

Using Fair Value Hierarchy

20 unchanged sentences

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 in Other expense, net.

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

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.

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

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

dollar value of the following:

Currency June 30,

Currency September 30,

Mexican Peso $ 41,900

Japanese Yen 4,500

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

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

Interest Rate Swaps

6 unchanged sentences

Condensed Consolidated

Balance Sheet Location June 30,

Balance Sheet Location September 30,

2023 December 31,

1 unchanged sentence

Interest rate swaps Other non-current Assets $ 7,538 $ —

Foreign currency forward contracts Other current liabilities ( 564 ) $ —

The following table presents the net unrealized (gain) loss deferred to AOCI:

September 30,

2023 December 31,

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Interest rate swaps Interest expense, net $ 1,198 $ 134 $ 2,259 $ ( 882 )

Foreign exchange forward contracts Other expense, net 1,843 — 2,135 —

Foreign exchange forward contracts Other (expense) income, net ( 29 ) — 2,107 —

$ 1,169 $ 134 $ 4,366 $ ( 882 )

2 unchanged sentences

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

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.

During the three and nine months ended September 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 September 30, 2023, the Company has received cumulative payments from its insurers of $ 5.9 million associated with these events.

During the nine months ended September 30, 2023, the Company recognized a gain on insurance recoveries of $ 1.0 million.

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 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.

During the three and nine months ended September 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 nine months ended September 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 June 30, 2023 and December 31, 2022, respectively, for these ongoing matters.

The Company has accrued approximately $ 6 million as of both September 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