What changed in this filing

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Item 1A. Risk Factors

2024-02-29 compared with 2023-02-23 · 34 added, 41 removed, 309 unchanged (20% of the section changed)

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As the leader in industrial process fluids, the Company is subject to the same business cycles as those experienced by our customers that participate in the steel, automobile, aircraft, industrial equipment, aerospace, aluminum and durable goods industries.

Because demand for our products and services is largely derived from the global demand for their products, we are subject to uncertainties related to downturns in our customers’ businesses and shutdowns or curtailments of our customers’ production, including as a result of adverse changes affecting national, regional and global economies or increased competitive pressure within our customers’ industries.

Because demand for our products and services is largely derived from the global demand for our customers’ products, we are subject to uncertainties related to downturns in our customers’ businesses and shutdowns or curtailments of our customers’ production, including as a result of adverse changes affecting national, regional and global economies or increased competitive pressure within our customers’ industries.

Our customers may experience deterioration of their businesses, cash flow shortages and difficulty obtaining financing, leading them to delay or cancel plans to purchase products, and they may not be able to fulfill their obligations in a timely fashion.

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The specialty chemical industry is highly competitive and there are many companies with significant financial resources and/or customer relationships that compete with us to provide similar products and services.

Some competitors may be able to offer more favorable or flexible pricing and service terms or, due to their larger size or greater access to resources, may be better able to adapt to changes in conditions in our industries, fluctuations in the costs of raw materials or changes in global economic conditions, potentially resulting in reduced profitability and/or a loss of market share for us.

Some competitors may be able to offer more favorable or flexible pricing and service terms or, due to their greater access to resources, may be better able to adapt to changes in conditions in our industries, fluctuations in the costs of raw materials or changes in global economic conditions, potentially resulting in reduced profitability and/or a loss of market share for us.

The pricing decisions of our competitors could lead us to decrease our prices which could negatively affect our margins and profitability.

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We carry, and will continue to carry for the foreseeable future, a substantial amount of debt and other fixed obligations.

Our ability to satisfy these obligations, finance acquisitions and pay dividends rely on our access to capital, which depends in large part on cash flow generated by our business and the availability of debt financing.

Our ability to satisfy these obligations, finance acquisitions, repurchase shares, and pay dividends rely on our access to capital, which depends in large part on cash flow generated by our business and the availability of debt financing.

The Company’s principal credit facility permits interest on certain borrowings to be calculated based on the Term Secured Overnight Financing Rate (“Term SOFR”), which exposes us to interest rate risk.

See Note 19 of Notes to Consolidated Financial Statements included in Item 8 of this Report.

If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same, which would require us to use more of our available cash to service our indebtedness.

In the past, we have entered into certain hedging transactions, such as interest rate swap agreements, to mitigate our exposure to adverse fluctuations in interest rates, and we may do so again in the future.

However, we do not currently utilize any such hedging arrangements with respect to interest rates and may not be able to enter into swap agreements or other hedging arrangements in the future.

Rising interest rates, such as those we have recently been experiencing, not only increase our cost of capital but could also have a dampening effect on overall economic activity and the financial condition of the Company's customers, either or both of which could negatively affect customer demand for the Company's products and customers' ability to repay their obligations.

Rising interest rates could also cause credit market dislocations, which could have an impact on the Company and its customers' cost of capital.

Interest rate increases, which were experienced during 2022 and 2023, increase our debt service obligations on the variable rate indebtedness even though the amount borrowed remains the same, which requires us to use more of our available cash to service our indebtedness.

In order to manage the Company’s exposure to variable interest rate risk associated with the Company’s principal credit facility, in the first quarter of 2023, the Company entered into three year interest rate swaps to convert a portion of the Company’s variable interest rate borrowings to an average fixed rate plus an applicable margin as provided in the Company’s principal credit facility, based on the Company’s consolidated net leverage ratio.

See Note 24 of Notes to Consolidated Financial Statements included in Item 8 of this Report.

Rising interest rates not only increase our cost of capital but could also have a dampening effect on overall economic activity and the financial condition of the Company's customers, either or both of which could negatively affect customer demand for the Company's products and customers' ability to repay their obligations.

Rising interest rates could also cause credit market dislocations, which could have an impact on the Company’s and its customers' cost of capital.

Risks Related to our International Operations

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Risks inherent in our global operations include:

• increased transportation and logistics costs, or restrictions on transportation of materials;

• increased cost or decreased availability of raw materials;

• trade protection measures including import and export controls, trade embargoes, and trade sanctions affecting countries or regions we serve that could result in our losing access to customers and suppliers in those countries or regions;

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may be difficult for us to enforce and related receivables may take longer or be difficult for us to collect;

• difficulties of staffing and managing dispersed international operations;

• less protective foreign intellectual property laws, and more generally, legal systems that may be less developed and predictable than those in the U.S.;

• limitations on ownership or participation in local enterprises as well as the potential for expropriation or nationalization of enterprises;

• the impact of widespread public health crises, such as the COVID-19 pandemic;

• instability in or adverse changes to the economic, political, social, legal or regulatory conditions in a country or region where we do business, including hyperinflationary conditions or as a result of terrorist activities, or as a result of political and/or military conflict;

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If we are unable to successfully manage these and other risks associated with our international businesses, the risks could have a material adverse effect on our business, results of operations and financial condition.

Additionally, on January 31, 2020, the United Kingdom’s (“U.K.”) ended its membership in the European Union (“EU”) (commonly referred to as “Brexit”).

Although the U.K.

and the EU entered into a trade and cooperation agreement, uncertainty remains regarding its implications and implementation, and whether and how any new trade agreements with other countries or territories will be agreed and implemented and how they may impact our business.

Brexit could adversely affect political, regulatory, economic or market conditions and contribute to instability in global political institutions, regulatory agencies, and financial markets.

Any of these risks might have a materially adverse impact on our business operations and our financial position or results of operations.

Similar future trade disruptions or disputes could have a negative impact on our operations within the U.K., EU, and globally.

The scope of our international operations subjects us to risks from currency fluctuations that could adversely affect our liquidity, financial position and results of operations.

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Our financial results are affected by currency fluctuations, particularly between the U.S.

dollar and the euro, the Brazilian real, the Mexican peso, the Chinese renminbi, and the Indian rupee, and the impact of those currency fluctuations on the underlying economies.

dollar and the euro, the British pound sterling, the Brazilian real, the Mexican peso, the Chinese renminbi and the Indian rupee and the impact of those currency fluctuations on the underlying economies.

During the past three years, sales by our non-U.S.

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The price of mineral oils and their derivatives can be affected by the price of crude oil and industry refining capacity.

Animal fat and vegetable oil prices, as well as the prices of other raw materials, are impacted by their own specific supply and demand factors, as well as by biodiesel consumption which is also affected by the price of crude oil.

Accordingly, significant fluctuations in the price of crude oil in the past have had and are expected to continue to have a material impact on the cost of our raw materials.

In addition, many of the raw materials we use are commodity chemicals, which have experienced significant price volatility in 2021 and 2022.

Accordingly, significant fluctuations in the prices of our raw materials in the past have had and are expected to continue to have a material impact on the cost of our raw materials.

In addition, many of the raw materials we use are commodity chemicals, which have experienced significant price volatility in recent years.

We generally attempt to pass through changes in the prices of raw materials to our customers, but we may be unable to do so (or may be delayed in doing so).

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While the Company seeks to mitigate this risk through business continuity and contingency planning and other measures, the loss of production in any one region over an extended period of time could have a material adverse effect on our liquidity, financial position and results of operations.

In addition, the COVID-19 pandemic caused, and may in the future cause, significant travel disruptions, quarantines and/or closures, which could result in disruptions to our manufacturing and production operations at our facilities, as well as those of our suppliers and customers.

In addition, a widespread public health crisis may cause significant travel disruptions, quarantines and/or closures, which could result in disruptions to our manufacturing and production operations at our facilities, as well as those of our suppliers and customers.

Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles.

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The Company relies heavily on railroads, ships, and over-the-road shipping methods to transport raw materials to its manufacturing facilities and to transport finished products to customers.

The costs of transporting our products could be negatively affected by factors outside of our control, including shipping container shortages or global imbalances in shipping capabilities, transportation disruptions or rate increases, increased border controls or closures, extreme weather events, tariffs, rising fuel costs and capacity constraints.

Significant delays or increased costs affecting our supply chain, such as we experienced in 2021, and to a lesser degree in 2022, could materially affect our financial condition and results of operations.

Significant delays or increased costs affecting our supply chain could materially affect our financial condition and results of operations.

Disruptions at our suppliers have recently and could in the future lead to short term or long term increases in raw material or energy costs and/or reduced availability of materials or energy, potentially affecting our financial condition and results of operations.

Risks Relating to Domestic and Foreign Taxation and Government Regulation and Oversight

Changes in tax laws could result in fluctuations in our effective tax rate and have a material effect on our liquidity, financial position and results of operation.

Changes in tax laws could result in fluctuations in our effective tax rate and have a material effect on our liquidity, financial position and results of operations.

We pay income taxes in the U.S.

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In addition, we are regularly under audit by tax authorities, and the final decisions of such audits could materially affect our current tax estimates and tax positions.

See Note 10 and Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report for a discussion of certain income and non-income tax audits and inspections.

See Note 10 and Note 25 of Notes to Consolidated Financial Statements in Item 8 of this Report for a discussion of uncertain tax positions, tax years subject to examination, and audits and inspections.

Any of these factors or similar tax-related risks could cause our effective tax rate and tax-related payments, including any such payments related to tax liabilities of businesses we have acquired, to significantly differ from previous periods and current or future expectations which could have a material effect on our liquidity, financial position and results of operations.

Pending and future legal proceedings including environmental matters could have a material adverse effect on our liquidity, financial position and results of operations, as well as our reputation in the markets it serves.

The Company and its subsidiaries are routinely party to proceedings, cases, and requests for information from, and negotiations with, various claimants and federal and state agencies relating to various legal matters, including tax and environmental matters.

See Note 10 and Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report, which describes uncertain tax positions and tax audits and inspections, as well as certain information concerning pending asbestos-related litigation against an inactive subsidiary, amounts accrued associated with certain environmental, non-capital remediation costs and other potential commitments or contingencies.

See Note 10 and Note 25 of Notes to Consolidated Financial Statements in Item 8 of this Report, which describes uncertain tax positions and audits and inspections, as well as certain information concerning pending asbestos-related litigation against an inactive subsidiary, amounts accrued associated with certain environmental, non-capital remediation costs and other potential commitments or contingencies.

An adverse result in one or more pending or ongoing matters or any potential future matter of a similar nature could materially and adversely affect our liquidity, financial position, and results of operations, as well as our reputation in the markets we serve.

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These concerns and additional requirements could also increase the cost incurred by our customers to use our chemical products and otherwise limit their use which could lead to a decrease in demand for these products.

A decrease in demand due to these issues could have an adverse impact on our business and results of operation.

A decrease in demand due to these issues could have an adverse impact on our business and results of operations.

Further, we are subject to the U.S.

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These regulations could mandate even more restrictive regulatory or industry standards than the voluntary goals that we have established or require changes to be adopted on a more accelerated time frame.

There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty.

New disclosure requirements have been adopted in the EU and California and additional rule making is expected to be adopted by the SEC.

There continues to be a lack of consistent legislation related to disclosure and operational matters, which creates economic and regulatory uncertainty.

Though we are closely following developments in this area and changes in the regulatory landscape in the U.S.

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In the future, we may not be able to obtain coverage at current levels, if at all, and our premiums may increase significantly on coverage that we maintain.

Impairment evaluations of goodwill, intangible assets, investments or other long-lived assets could result in a reduction in our recorded asset values which could have a material adverse effect on our financial position and results of operation.

We perform reviews of goodwill and indefinite-lived intangible assets on an annual basis, or more frequently if triggering events indicate a possible impairment.

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Furthermore, to the extent our business grows or significantly changes, our internal controls may become more complex, and we could require significantly more resources to ensure our internal controls remain effective.

In the past, we have identified certain material weaknesses in our internal control over financial reporting, all of which have been previously remediated as of December 31, 2021.

If we identify material weaknesses in the future, it could negatively impact our operations or the market value of our common stock.

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The CCPA provides for civil penalties for violations, as well as for private rights of action for certain data breaches that result in the loss of personal information.

In addition, the California Consumer Rights Act (“CPRA”) was recently enacted to strengthen elements of the CCPA and becomes effective January 1, 2023.

In addition, the California Consumer Rights Act (“CPRA”) was recently enacted to strengthen elements of the CCPA and became effective January 1, 2023.

A number of other states have considered similar privacy proposals, with states like Virginia and Colorado enacting their own privacy laws.

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Failure to retain key employees, failure to successfully transition key roles, or the inability to hire, train, retain and manage qualified personnel could also adversely affect our business.

Increasing scrutiny and changing expectations from stakeholders with respect to our ESG practices may impose additional costs on us or expose us to new or additional risks.

Increasing scrutiny and changing expectations from stakeholders with respect to our Environmental, Social and Governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks.

Companies across all industries are facing increasing scrutiny from stakeholders related to their ESG practices.

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We have adopted certain practices as highlighted in the Company’s Sustainability Report, including with respect to environmental stewardship.

The Company’s Sustainability Report is published annually and is available on the Company’s corporate website at home.quakerhoughton.com/sustainability.

Further, as we work to align with the recommendations of recognized third-party frameworks, we continue to expand our disclosures in these areas.

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Any long-term material adverse effect on our customers or their industries could have a significant financial and operational adverse impact on our business.

Legislation requiring disclosure related to ESG matters is increasingly being adopted by governments in various jurisdictions, including the EU and California, which requirements are expected to be applicable to us or certain of our operations and which impose varying and differing requirements.

These developing requirements can significantly expand climate and other sustainability related disclosure requirements, which could require substantial time and attention of management and financial resources.

Additionally, we could be subjected to negative responses by governmental actors, such as anti-ESG legislation, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We are closely monitoring these developments.

Terrorist attacks, other acts of violence or war, natural disasters, widespread public health crises or other uncommon global events may affect the markets in which we operate and our profitability which could adversely affect our liquidity, financial position and results of operations.

Terrorist attacks, other acts of armed conflicts or war, including cyber-attacks, natural disasters, widespread public health crises, including the COVID-19 pandemic, or other uncommon global events such as the current war between Russia and Ukraine, may negatively affect our operations.

Terrorist attacks, other acts of armed conflicts or war, including cyber-attacks, natural disasters, widespread public health crises, or other uncommon global events, such as the current military conflicts between Russia and Ukraine and between Israel and Hamas, as well as responses to such events including sanctions, boycotts, protests or other restrictive actions by the United States and/or other countries or its residents, may negatively affect our operations.

There can be no assurance that there will not be terrorist attacks against the U.S.

or other locations where we do business.

Also, other global events such as earthquakes, hurricanes, fires and tsunamis cannot be predicted.

Also, other global events such as earthquakes, tornados, hurricanes, fires, floods, and tsunamis cannot be predicted.

Terrorist attacks, other acts of armed conflicts or war, including cyber-attacks, and natural disasters, which may be amplified by ongoing global climate change and biodiversity loss, may directly impact our physical facilities and/or those of our suppliers or customers.

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The consequences of terrorist attacks, other acts of armed conflicts or war, including cyber-attacks, natural disasters, widespread public health crises or other uncommon global events can be unpredictable, and we may not be able to foresee or effectively plan for these events, resulting in a material adverse effect on our business, results of operations or financial condition.

Epidemic diseases, similar to COVID-19, could negatively affect various aspects of our business, make it more difficult to meet our obligations to our customers, and could result in reduced demand from our customers.

Epidemic diseases could negatively affect various aspects of our business, make it more difficult to meet our obligations to our customers, and could result in reduced demand from our customers.

These could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, similar to COVID-19, which impacted all locations in which the Company does business as well as the Company’s customers and suppliers.

Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, which could impact all or any locations in which the Company does business as well as the Company’s customers and suppliers.

A significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products and likely impact our operating results.

To the extent that the Company’s customers and suppliers are materially and adversely impacted by a widespread outbreak of contagious disease, this could reduce the availability, or result in delays, of materials or supplies to or from the Company, which in turn could materially interrupt the Company’s business operations.

The full extent of the outbreak and business impact of COVID-19 continue to remain uncertain, and the ultimate impact on our business of a widespread outbreak of a contagious disease will depend on, among other things, the extent and duration of the outbreak, the severity of the disease and the number of people infected, the development and continued uncertainty regarding availability, administration and long-term efficacy of a vaccine or other treatments, the longer-term effects on the economy, including market volatility, and the measures taken by governmental authorities and other third parties restricting day-to-day life and the length of time that such measures remain in place, as well as laws and other governmental programs implemented to address the outbreak or assist impacted businesses, such as fiscal stimulus and other legislation designed to deliver monetary aid and other relief.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors