QUAKER CHEMICAL CORP 10-Q

Item 1. Financial Statements (Unaudited). Quaker Chemical Corporation Condensed Consolidated Statements of Operations (Unaudited; Dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net sales $ 490,612 $ 492,218 $ 1,486,204 $ 1,458,777 Cost of goods sold (excluding amortization expense - See Note 13) 307,265 331,469 951,716 1,002,393 Gross profit 183,347 160,749 534,488 456,384 Selling, general and administrative expenses 122,810 115,456 362,212 343,081 Restructuring and related charges (credits), net 1,019 ( 1,423 ) 6,034 ( 604 ) Combination, integration and other acquisition-related expenses — 2,107 — 7,992 Operating income 59,518 44,609 166,242 105,915 Other (expense) income, net ( 2,713 ) 85 ( 8,558 ) ( 10,520 ) Interest expense, net ( 12,781 ) ( 8,389 ) ( 38,744 ) ( 20,228 ) Income before taxes and equity in net income of associated companies 44,024 36,305 118,940 75,167 Taxes on income before equity in net income of associated companies 13,593 10,185 36,956 14,425 Income before equity in net income of associated companies 30,431 26,120 81,984 60,742 Equity in net income (loss) of associated companies 3,279 ( 212 ) 10,660 ( 642 ) Net income 33,710 25,908 92,644 60,100 Less: Net income attributable to noncontrolling interest 40 41 94 74 Net income attributable to Quaker Chemical Corporation $ 33,670 $ 25,867 $ 92,550 $ 60,026 Per share data: Net income attributable to Quaker Chemical Corporation common shareholders – basic $ 1.87 $ 1.44 $ 5.15 $ 3.35 Net income attributable to Quaker Chemical Corporation common shareholders – diluted $ 1.87 $ 1.44 $ 5.14 $ 3.35 Dividends declared $ 0.455 $ 0.435 $ 1.325 $ 1.265 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 Table of Content Quaker Chemical Corporation Condensed Consolidated Statements of Comprehensive Income (Unaudited; Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net income $ 33,710 $ 25,908 $ 92,644 $ 60,100 Other comprehensive (loss) income, net of tax Currency translation adjustments ( 25,504 ) ( 71,986 ) ( 24,116 ) ( 155,284 ) Defined benefit retirement plans 281 497 852 2,400 Current period change in fair value of derivatives 1,241 ( 140 ) 5,804 1,535 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 ) Less: 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 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Content Quaker Chemical Corporation Condensed Consolidated Balance Sheets (Unaudited; Dollars in thousands, except par value) September 30, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 198,358 $ 180,963 Accounts receivable, net 446,459 472,888 Inventories Raw materials and supplies 129,204 151,105 Work-in-process and finished goods 121,566 133,743 Prepaid expenses and other current assets 70,724 55,438 Total current assets 966,311 994,137 Property, plant and equipment, at cost 431,565 428,190 Less: Accumulated depreciation ( 235,125 ) ( 229,595 ) Property, plant and equipment, net 196,440 198,595 Right of use lease assets 38,595 43,766 Goodwill 504,457 515,008 Other intangible assets, net 890,464 942,925 Investments in associated companies 92,965 88,234 Deferred tax assets 9,569 11,218 Other non-current assets 33,705 27,739 Total assets $ 2,732,506 $ 2,821,622 LIABILITIES AND EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $ 19,246 $ 19,245 Accounts payable 190,067 193,983 Dividends payable 8,190 7,808 Accrued compensation 43,641 39,834 Accrued restructuring 3,590 5,483 Accrued pension and postretirement benefits 1,574 1,560 Other accrued liabilities 85,799 86,873 Total current liabilities 352,107 354,786 Long-term debt 804,973 933,561 Long-term lease liabilities 22,163 26,967 Deferred tax liabilities 151,606 160,294 Non-current accrued pension and postretirement benefits 27,344 28,765 Other non-current liabilities 33,212 38,664 Total liabilities 1,391,405 1,543,037 Commitments and contingencies (Note 18) Equity Common stock $ 1 par value; authorized 30,000,000 shares; issued and outstanding September 30, 2023 – 18,000,855 shares; December 31, 2022 – 17,950,264 shares 18,001 17,950 Capital in excess of par value 938,473 928,288 Retained earnings 538,628 469,920 Accumulated other comprehensive loss ( 154,724 ) ( 138,240 ) Total Quaker shareholders’ equity 1,340,378 1,277,918 Noncontrolling interest 723 667 Total equity 1,341,101 1,278,585 Total liabilities and equity $ 2,732,506 $ 2,821,622 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Content Quaker Chemical Corporation Condensed Consolidated Statements of Cash Flows (Unaudited; Dollars in thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities Net income $ 92,644 $ 60,100 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of debt issuance costs 1,059 2,589 Depreciation and amortization 61,434 60,692 Equity in undistributed earnings of associated companies, net of dividends ( 7,486 ) 3,612 Deferred compensation, deferred taxes and other, net ( 515 ) ( 8,844 ) Share-based compensation 11,189 8,635 Loss on extinguishment of debt — 5,246 Combination and other acquisition-related expenses, net of payments — ( 4,265 ) Restructuring and related charges (credits), net 6,034 ( 604 ) Pension and other postretirement benefits ( 2,000 ) ( 6,556 ) Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable 22,133 ( 65,256 ) Inventories 30,607 ( 72,386 ) Prepaid expenses and other current assets ( 9,771 ) ( 11,081 ) Change in restructuring liabilities ( 7,914 ) ( 1,234 ) Accounts payable and accrued liabilities 2,046 3,059 Net cash provided by (used in) operating activities 199,460 ( 26,293 ) Cash flows from investing activities Investments in property, plant and equipment ( 25,794 ) ( 20,230 ) Payments related to acquisitions, net of cash acquired — ( 9,421 ) Proceeds from disposition of assets — 65 Net cash used in investing activities ( 25,794 ) ( 29,586 ) Cash flows from financing activities Payments of long-term debt ( 14,075 ) ( 668,500 ) Proceeds from long-term debt — 750,000 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 ) Dividends paid ( 23,459 ) ( 22,302 ) Other stock related activity ( 953 ) ( 616 ) Net cash (used in) provided by financing activities ( 150,525 ) 46,561 Effect of foreign exchange rate changes on cash ( 5,746 ) ( 16,967 ) 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 Cash and cash equivalents at the end of the period $ 198,358 $ 138,891 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Content Quaker Chemical Corporation Condensed Consolidated Statements of Changes in Equity (Unaudited; Dollars in thousands, except per share amounts) Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Balance as of December 31, 2021 $ 17,897 $ 917,053 $ 516,334 $ ( 63,990 ) $ 628 $ 1,387,922 Net income — — 19,816 — 5 19,821 Amounts reported in other comprehensive (loss) income — — — ( 6,271 ) 1 ( 6,270 ) Dividends ($ 0.415 per share) — — ( 7,434 ) — — ( 7,434 ) Share issuance and equity-based compensation plans 15 1,646 — — — 1,661 Balance 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 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 Net income — — 29,534 — 7 29,541 Amounts reported in other comprehensive income — — — 15,063 3 15,066 Dividends ($ 0.435 per share) — — ( 7,822 ) — — ( 7,822 ) Share issuance and equity-based compensation plans 32 1,386 — — — 1,418 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 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. 6 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) 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 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. (“Houghton”). Basis of Presentation The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and the United States Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments consisting only of normal recurring adjustments, which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods. The results for the nine months ended September 30, 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”). During the first quarter of 2023, the Company reorganized its executive management team to align with its new business structure. The Company’s new structure includes three reportable segments: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia/Pacific. Prior to the Company’s reorganization, the Company’s historical reportable segments were: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; 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 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. 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. Description of Business The Company was organized in 1918 and incorporated as a Pennsylvania business corporation in 1930. Quaker Houghton is the global leader in industrial process fluids. With a presence around the world, including operations in over 25 countries, the Company’s customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, container, mining, and metalworking companies. Quaker Houghton develops, produces, and markets a broad range of formulated chemical specialty products and offers chemical management services, which the Company refers to as “Fluidcare TM ”, for various heavy industrial and manufacturing applications. Hyper-inflationary economies Argentina’s and Türkiye’s economies were considered hyper-inflationary under U.S. GAAP effective July 1, 2018 and April 1, 2022, respectively. As of, and for the three and nine months ended September 30, 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 Previous Acquisitions In October 2022, the Company acquired a business that provides pickling and rinsing products and services, which is part of the EMEA reportable segment, for approximately 3.5 million EUR or approximately $ 3.5 million. This acquisition, along with the Company’s January 2022 acquisition in the Americas (described below), which had similar specializations and product offerings in pickling inhibitor technologies, strengthens Quaker Houghton’s position in pickling inhibitors and additives, enabling the Company to better support and optimize production processes for customers across the metals industry. As of September 30, 2023, the allocation of the purchase of this acquisition has been finalized. 7 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) In January 2022, the Company acquired a business that provides pickling inhibitor technologies, drawing lubricants and stamping oil, and various other lubrication, rust preventative, and cleaner applications, which is part of the Americas reportable segment, for approximately $ 8.0 million. This business broadens the Company’s product offerings within its existing metals and metalworking business in the Americas region. During the third quarter of 2022 the Company finalized post-closing adjustments that resulted in the Company paying less than $ 0.1 million of additional purchase consideration. Also in January 2022, the Company acquired a business related to the sealing and impregnation of metal castings for the automotive sector, as well as impregnation resin and impregnation systems for metal parts, which is part of the EMEA reportable segment, for approximately 1.2 million EUR or approximately $ 1.4 million. 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 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 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. In December 2020, the Company acquired Coral Chemical Company, LLC (“Coral”), a privately held U.S.-based provider of metal finishing fluid solutions. Subsequent to the acquisition, the Company and the sellers of Coral (the “Sellers”) have worked to finalize certain post-closing adjustments. During the second quarter of 2022, after failing to reach resolution, the Sellers filed suit asserting certain amounts owed related to tax attributes of the acquisition. During the 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 There have been no recently issued accounting standards that will have a material impact on the Company’s condensed consolidated financial statements and related footnote disclosures. Note 4 – Business Segments The Company has three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific. 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. See Note 1 of Notes to Condensed Consolidated Financial Statements. 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 (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) income, net. 8 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) The following table presents information about the performance of the Company’s reportable segments: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net sales Americas $ 245,899 $ 254,678 $ 750,531 $ 702,580 EMEA 139,620 134,386 435,602 426,739 Asia/Pacific 105,093 103,154 300,071 329,458 Total net sales $ 490,612 $ 492,218 $ 1,486,204 $ 1,458,777 Segment operating earnings Americas $ 69,148 $ 66,749 $ 204,280 $ 164,065 EMEA 27,922 15,479 81,076 58,803 Asia/Pacific 30,963 26,723 86,604 76,146 Total segment operating earnings 128,033 108,951 371,960 299,014 Combination, integration and other acquisition-related expenses — ( 2,107 ) — ( 7,992 ) Restructuring and related (charges) credits, net ( 1,019 ) 1,423 ( 6,034 ) 604 Non-operating and administrative expenses ( 52,280 ) ( 47,852 ) ( 154,001 ) ( 139,894 ) Depreciation of corporate assets and amortization ( 15,216 ) ( 15,806 ) ( 45,683 ) ( 45,817 ) Operating income 59,518 44,609 166,242 105,915 Other (expense) income, net ( 2,713 ) 85 ( 8,558 ) ( 10,520 ) Interest expense, net ( 12,781 ) ( 8,389 ) ( 38,744 ) ( 20,228 ) Income before taxes and equity in net income of associated companies $ 44,024 $ 36,305 $ 118,940 $ 75,167 The following table summarizes inter-segment revenues. All inter-segment transactions have been eliminated from each reportable segment’s net sales and earnings for all periods presented in the above tables. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Americas $ 1,772 $ 2,702 $ 6,778 $ 9,200 EMEA 5,161 9,448 18,718 37,259 Asia/Pacific 793 327 1,329 739 Note 5 – Net Sales and Revenue Recognition Arrangements Resulting in Net Reporting As part of the Company’s Fluidcare TM business, certain third-party product sales to customers are managed by the Company. The Company transferred third-party products under arrangements recognized on a net reporting basis of $ 21.6 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, 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. 9 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) Contract Assets and Liabilities 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 The Company sells its various industrial process fluids, its specialty chemicals and its technical expertise as a global product portfolio. The Company generally manages and evaluates its performance by reportable segment first, and then by customer industries. Net sales of each of the Company’s major product lines are generally spread throughout all three of the Company’s geographic regions, and in most cases, are approximately proportionate to the level of total sales in each region. The following tables disaggregate the Company’s net sales by geographic region, customer industries, and timing of revenue recognized. Prior period information has been recast to reflect the Company’s current period customer industry disaggregation. See Note 1 of Notes to Condensed Consolidated Financial Statements. Three Months Ended September 30, 2023 Americas EMEA Asia/Pacific Consolidated Total Customer Industries Metals $ 67,957 $ 32,630 $ 49,320 $ 149,907 Metalworking and other 177,942 106,990 55,773 340,705 $ 245,899 $ 139,620 $ 105,093 $ 490,612 Timing of Revenue Recognized Product sales at a point in time $ 235,209 $ 128,586 $ 102,305 $ 466,100 Services transferred over time 10,690 11,034 2,788 24,512 $ 245,899 $ 139,620 $ 105,093 $ 490,612 Nine Months Ended September 30, 2023 Americas EMEA Asia/Pacific Consolidated Total Customer Industries Metals $ 204,834 $ 104,376 $ 144,109 $ 453,319 Metalworking and other 545,697 331,226 155,962 1,032,885 $ 750,531 $ 435,602 $ 300,071 $ 1,486,204 Timing of Revenue Recognized Product sales at a point in time $ 718,187 $ 402,508 $ 291,740 $ 1,412,435 Services transferred over time 32,344 33,094 8,331 73,769 $ 750,531 $ 435,602 $ 300,071 $ 1,486,204 10 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) Three Months Ended September 30, 2022 Americas EMEA Asia/Pacific Consolidated Total Customer Industries Metals $ 67,943 $ 32,748 $ 51,341 $ 152,032 Metalworking and other 186,735 101,638 51,813 340,186 $ 254,678 $ 134,386 $ 103,154 $ 492,218 Timing of Revenue Recognized Product sales at a point in time $ 243,699 $ 124,566 $ 99,929 $ 468,194 Services transferred over time 10,979 9,820 3,225 24,024 $ 254,678 $ 134,386 $ 103,154 $ 492,218 Nine Months Ended September 30, 2022 Americas EMEA Asia/Pacific Consolidated Total Customer Industries Metals $ 185,784 $ 107,163 $ 163,239 $ 456,186 Metalworking and other 516,796 319,576 166,219 1,002,591 $ 702,580 $ 426,739 $ 329,458 $ 1,458,777 Timing of Revenue Recognized Product sales at a point in time $ 669,945 $ 396,944 $ 321,031 $ 1,387,920 Services transferred over time 32,635 29,795 8,427 70,857 $ 702,580 $ 426,739 $ 329,458 $ 1,458,777 Note 6 - Leases The Company has operating leases for certain facilities, vehicles and machinery and equipment with remaining lease terms up to 8 years. Operating lease expense is recognized on a straight-line basis over the lease term. In addition, the Company has certain land use leases with remaining lease terms up to 92 years. 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease expense $ 3,886 $ 3,664 $ 11,532 $ 10,592 Short-term lease expense 193 201 587 625 11 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,917 $ 3,768 $ 11,547 $ 10,575 Non-cash lease liabilities activity: Leased assets obtained in exchange for new operating lease liabilities 2,910 2,599 6,566 10,672 Supplemental balance sheet information related to the Company’s leases is as follows: September 30, 2023 December 31, 2022 Right of use lease assets $ 38,595 $ 43,766 Other current liabilities 12,113 12,024 Long-term lease liabilities 22,163 26,967 Total operating lease liabilities $ 34,276 $ 38,991 Weighted average remaining lease term (years) 4.82 5.10 Weighted average discount rate 4.67 % 4.36 % Maturities of operating lease liabilities were as follows: September 30, 2023 For the remainder of 2023 $ 3,691 For the year ended December 31, 2024 12,589 For the year ended December 31, 2025 8,417 For the year ended December 31, 2026 6,286 For the year ended December 31, 2027 3,051 For the year ended December 31, 2028 and beyond 5,614 Total lease payments 39,648 Less: imputed interest ( 5,372 ) Present value of lease liabilities $ 34,276 Note 7 – Restructuring and Related Activities 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 has been paid as of September 30, 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 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. The exact timing to complete all actions and final costs associated will depend on a number of factors that are subject to change. 12 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; 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. Restructuring costs include severance costs to reduce headcount, including customary and routine adjustments to initial estimates for employee separation costs, as well as costs to close certain facilities under the QH Program. These costs are recorded in Restructuring and related charges in the Company’s Consolidated Statements of Operations. 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: Restructuring Programs Accrued restructuring as of December 31, 2022 $ 5,483 Restructuring and related charges, net 6,034 Cash payments ( 7,914 ) Currency translation adjustments ( 13 ) Accrued restructuring as of September 30, 2023 $ 3,590 Note 8 – Share-Based Compensation The Company recognized the following share-based compensation expense in its Condensed Consolidated Statements of Operations: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Stock options $ 203 $ 533 $ 837 $ 1,269 Non-vested stock awards and restricted stock units 2,429 1,783 7,192 4,998 Director stock ownership plan 30 9 56 53 Performance stock units 1,113 875 3,104 2,314 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 nine months ended September 30, 2022, respectively, recorded within Combination, integration and other acquisition-related expenses. Stock Options 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 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 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. 13 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) Performance Stock Units As a component of its LTIP, the Company grants performance-based stock unit awards (“PSUs”), which will be settled in a certain number of shares subject to market-based or performance-based and time-based vesting conditions. The number of fully vested shares that may ultimately be issued as settlement for each award may range from 0 % up to 200 % of the target award, subject to the achievement of the Company’s market-based total shareholder return (“TSR”) metric relative to the performance of the Company’s peer group, the S&P Midcap 400 Materials group, and separately the achievement of a performance-based return on invested capital (“ROIC”) measure. 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. 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. The fair value of PSUs granted with a ROIC condition is based on the trading price of the Company’s common stock on the date of grant. PSUs granted with a relative TSR condition are valued using a Monte Carlo simulation on the date of grant. The grant-date fair value of the PSUs valued using a Monte Carlo simulation, which included the following assumptions set forth in the table below: 2023 Grants Number of PSUs granted 16,861 Risk-free interest rate 3.85 % Dividend yield 0.96 % 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 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 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 2023 2022 2023 2022 2023 2022 2023 2022 Service cost $ 109 $ 166 $ — $ 1 $ 320 $ 520 $ — $ 1 Interest cost 2,487 1,272 14 8 7,452 3,949 51 19 Expected return on plan assets ( 2,033 ) ( 1,942 ) — — ( 6,056 ) ( 6,038 ) — — Actuarial loss (gain) amortization 103 238 ( 36 ) ( 23 ) 308 743 ( 95 ) ( 70 ) Prior service cost (income) amortization 18 3 ( 4 ) ( 8 ) 26 8 ( 12 ) ( 17 ) Net periodic benefit cost (income) $ 684 $ ( 263 ) $ ( 26 ) $ ( 22 ) $ 2,050 $ ( 818 ) $ ( 56 ) $ ( 67 ) 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 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. Taking into consideration current minimum cash contribution requirements, the Company currently expects to make full year cash contributions of approximately $ 5.2 million to its U.S. and foreign pension plans and approximately $ 0.2 million to its other postretirement benefit plans in 2023. 14 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) Note 10 – Other (expense) income, net The components of Other (expense) income, net are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Income from third party license fees $ 245 $ 253 $ 891 $ 906 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 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) 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 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 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 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 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. 15 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; 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. 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. Note 12 – Earnings Per Share The following table summarizes earnings per share calculations: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Basic earnings per common share Net income attributable to Quaker Chemical Corporation $ 33,670 $ 25,867 $ 92,550 $ 60,026 Less: income allocated to participating securities ( 164 ) ( 115 ) ( 464 ) ( 250 ) Net income available to common shareholders $ 33,506 $ 25,752 $ 92,086 $ 59,776 Basic weighted average common shares outstanding 17,908,754 17,847,305 17,889,444 17,835,976 Basic earnings per common share $ 1.87 $ 1.44 $ 5.15 $ 3.35 Diluted earnings per common share Net income attributable to Quaker Chemical Corporation $ 33,670 $ 25,867 $ 92,550 $ 60,026 Less: income allocated to participating securities ( 164 ) ( 115 ) ( 464 ) ( 250 ) Net income available to common shareholders $ 33,506 $ 25,752 $ 92,086 $ 59,776 Basic weighted average common shares outstanding 17,908,754 17,847,305 17,889,444 17,835,976 Effect of dilutive securities 12,520 12,566 16,709 15,465 Diluted weighted average common shares outstanding 17,921,274 17,859,871 17,906,153 17,851,441 Diluted earnings per common share $ 1.87 $ 1.44 $ 5.14 $ 3.35 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 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 The Company completes its annual goodwill and indefinite-lived intangible asset impairment test during the fourth quarter of each year, or more frequently if triggering events indicate a possible impairment. The Company continually evaluates financial performance, economic conditions and other recent developments, 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 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. 16 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) Changes in the carrying amount of goodwill were as follows. Prior period information has been recast to reflect the Company’s current period reportable segments. See Note 1 of Notes to Condensed Consolidated Financial Statements. Americas EMEA Asia/Pacific Global Specialty Businesses Total Balance as of December 31, 2022 $ 215,899 $ 34,567 $ 150,375 $ 114,167 $ 515,008 Reallocation of reporting units 63,697 31,711 18,759 ( 114,167 ) — Balance as of January 1, 2023 279,596 66,278 169,134 — 515,008 Currency translation adjustments 2,561 ( 805 ) ( 12,307 ) — ( 10,551 ) 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: Gross Carrying Amount Accumulated Amortization Net Book Value 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 Trademarks, formulations and product technology 157,362 158,564 52,534 46,281 104,828 112,283 Other 5,854 7,576 5,734 6,390 120 1,186 Total definite-lived intangible assets $ 988,109 $ 997,740 $ 285,224 $ 243,957 $ 702,885 $ 753,783 The Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded amortization expense as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Amortization expense $ 14,529 $ 14,102 $ 43,734 $ 43,343 Estimated annual aggregate amortization expense for the current year and subsequent five years and beyond is as follows: For the remainder of 2023 $ 13,455 For the year ended December 31, 2024 56,630 For the year ended December 31, 2025 55,942 For the year ended December 31, 2026 55,650 For the year ended December 31, 2027 55,309 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. 17 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; 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 September 30, 2023 As of December 31, 2022 Interest Rate Outstanding Balance Interest Rate Outstanding Balance Credit Facilities: Revolver 6.0 % $ 82,838 5.2 % $ 195,673 U.S. Term Loan 6.7 % 585,000 5.7 % 596,250 Euro Term Loan 5.0 % 146,918 3.1 % 151,572 Industrial development bonds 5.3 % 10,000 5.3 % 10,000 Bank lines of credit and other debt obligations Various 1,120 Various 1,303 Total debt $ 825,876 $ 954,798 Less: debt issuance costs ( 1,657 ) ( 1,992 ) Less: short-term and current portion of long-term debts ( 19,246 ) ( 19,245 ) Total long-term debt $ 804,973 $ 933,561 Credit facilities During June 2022, the Company, and its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A., as administrative agent, U.S. dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to its primary credit facility. The amended credit facility (the “Credit Facility”) established (A) a $ 150.0 million Euro equivalent senior secured term loan (the “Euro Term Loan”), (B) a $ 600.0 million senior secured term loan (the “U.S. Term Loan”), and (C) a $ 500.0 million senior secured revolving credit facility (the “Revolver”), each maturing in June 2027. 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 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 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 $ 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 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. In connection with executing the original credit facility in 2019 and the amended Credit Facility during the second quarter of 2022, the Company capitalized an aggregate of $ 2.2 million of certain third-party and creditor debt issuance costs. Approximately $ 0.7 million of the capitalized costs were attributed to the Euro Term Loan and U.S. Term Loan. 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 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. 18 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) Industrial development bonds 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. Bank lines of credit and other debt obligations The Company has certain unsecured bank lines of credit and discounting facilities in certain foreign subsidiaries, which are not collateralized. The Company’s other debt obligations primarily consist of certain domestic and foreign low interest rate or interest-free municipality-related loans, local credit facilities of certain foreign subsidiaries, and capital lease obligations. Total unused capacity under these arrangements as of September 30, 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 September 30, 2023 were approximately $ 5 million. Interest expense, net The Company incurred the following debt related expenses included within Interest expense, net, in the Condensed Consolidated Statements of Operations: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Interest expense $ 12,598 $ 9,465 $ 40,863 $ 20,339 Amortization of debt issuance costs 353 353 1,059 2,589 Total $ 12,951 $ 9,818 $ 41,922 $ 22,928 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 The following tables show the reclassifications from and resulting balances of accumulated other comprehensive income (“AOCI”): Currency Translation Adjustments Defined Benefit Pension Plans Unrealized (Loss) Gain in Available-for- Sale Securities Derivative Instruments Total 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 ) Amounts reclassified from AOCI — 71 ( 4 ) 67 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 ) Other comprehensive (loss) income before Reclassifications ( 71,948 ) 453 ( 1,006 ) ( 182 ) ( 72,683 ) Amounts reclassified from AOCI — 210 ( 30 ) — 180 Related tax amounts — ( 166 ) 218 42 94 Balance at September 30, 2022 $ ( 205,058 ) $ ( 10,772 ) $ ( 1,988 ) $ 163 $ ( 217,655 ) 19 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) Currency Translation Adjustments Defined Benefit Pension 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 ) Other comprehensive income (loss) before reclassifications ( 24,078 ) 915 640 7,538 ( 14,985 ) Amounts reclassified from AOCI — 225 547 772 Related tax amounts — ( 288 ) ( 249 ) ( 1,734 ) ( 2,271 ) 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 ) Other comprehensive (loss) income before reclassifications ( 155,215 ) 2,535 ( 3,326 ) 1,993 ( 154,013 ) Amounts reclassified from AOCI — 657 306 — 963 Related tax amounts — ( 792 ) 635 ( 458 ) ( 615 ) Balance 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. The amounts reported in other comprehensive income for noncontrolling interest are related to currency translation adjustments. Note 16 – Fair Value Measurements The Company has valued its company-owned life insurance policies at fair value. 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: Total Fair Value Fair Value Measurements as of September 30, 2023 Using Fair Value Hierarchy Assets Level 1 Level 2 Level 3 Company-owned life insurance $ 285 $ — $ 285 $ — Total $ 285 $ — $ 285 $ — Total Fair Value Fair Value Measurements as of December 31, 2022 Using Fair Value Hierarchy Assets Level 1 Level 2 Level 3 Company-owned life insurance $ 2,114 $ — $ 2,114 $ — Total $ 2,114 $ — $ 2,114 $ — Note 17 – Hedging Activities The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates and interest rate risk. To manage these risks, the Company periodically enters into derivative financial instruments, such as foreign exchange forward contracts and interest rate swap agreements. The Company does not hold or enter into financial instruments for trading or speculative purposes. 20 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) Foreign Exchange Forward Contracts A significant portion of the Company’s revenues and earnings are generated by its foreign operations. 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 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 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 September 30, 2023 were entered into as hedges against the U.S. dollar. As of September 30, 2023, the Company had open foreign exchange forward contracts with a notional U.S. dollar value of the following: Currency September 30, 2023 Mexican Peso $ 41,900 Japanese Yen 4,500 $ 46,400 Open foreign exchange forward contracts as of September 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. 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 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. The balance sheet classification and fair values of the Company’s derivative instruments, which are Level 2 measurements, are as follows: Fair Value Condensed Consolidated Balance Sheet Location September 30, 2023 December 31, 2022 Derivatives designated as cash flow hedges: Interest rate swaps Other non-current Assets $ 7,538 $ — Foreign currency forward contracts Other current liabilities ( 564 ) $ — $ 6,974 $ — The following table presents the net unrealized (gain) loss deferred to AOCI: September 30, 2023 December 31, 2022 Derivatives designated as cash flow hedges: Interest rate swaps AOCI $ 5,804 $ — 21 Table of Contents Quaker Chemical Corporation Notes to Condensed Consolidated Financial Statements - Continued (Unaudited; Dollars in thousands, except per share amounts, unless otherwise stated) The following table presents the net gain (loss) reclassified from AOCI to earnings: Location and Amount of Gain (Loss) Recognized in Statements of Operations Three 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) income, net ( 29 ) — 2,107 — $ 1,169 $ 134 $ 4,366 $ ( 882 ) Note 18 – Commitments and Contingencies 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 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. As previously disclosed in its 2022 Form 10-K, the Company is party to certain environmental matters and other litigation. See Note 26 of Notes to Consolidated Financial Statements in the Company’s 2022 Form 10-K. 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 September 30, 2023 and December 31, 2022, respectively, for these ongoing matters. 22 Table of Contents Quaker Chemical Corporation Management’s Discussion and Analysis