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, 2024 2023 2024 2023 Net sales $ 462,274 $ 490,612 $ 1,395,600 $ 1,486,204 Cost of goods sold (excluding amortization expense - See Note 13) 289,725 307,265 865,770 951,716 Gross profit 172,549 183,347 529,830 534,488 Selling, general and administrative expenses 118,221 122,810 359,350 362,212 Restructuring and related charges, net 2,610 1,019 4,787 6,034 Operating income 51,718 59,518 165,693 166,242 Other income (expense), net 783 ( 2,713 ) 2,285 ( 8,558 ) Interest expense, net ( 10,347 ) ( 12,781 ) ( 31,925 ) ( 38,744 ) Income before taxes and equity in net income of associated companies 42,154 44,024 136,053 118,940 Taxes on income before equity in net income of associated companies 12,167 13,593 40,453 36,956 Income before equity in net income of associated companies 29,987 30,431 95,600 81,984 Equity in net income of associated companies 2,385 3,279 6,940 10,660 Net income 32,372 33,710 102,540 92,644 Less: Net income attributable to noncontrolling interest 26 40 82 94 Net income attributable to Quaker Chemical Corporation $ 32,346 $ 33,670 $ 102,458 $ 92,550 Per share data: Net income attributable to Quaker Chemical Corporation common shareholders – basic $ 1.81 $ 1.87 $ 5.71 $ 5.15 Net income attributable to Quaker Chemical Corporation common shareholders – diluted $ 1.81 $ 1.87 $ 5.70 $ 5.14 Dividends declared $ 0.485 $ 0.455 $ 1.395 $ 1.325 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, 2024 2023 2024 2023 Net income $ 32,372 $ 33,710 $ 102,540 $ 92,644 Other comprehensive income (loss), net of tax Currency translation adjustments 41,529 ( 25,504 ) ( 2,700 ) ( 24,116 ) Defined benefit retirement plans ( 522 ) 281 ( 43 ) 852 Current period change in fair value of derivatives ( 4,024 ) 1,241 ( 1,694 ) 5,804 Unrealized gain (loss) on available-for-sale securities 325 ( 637 ) 326 938 Other comprehensive income (loss) 37,308 ( 24,619 ) ( 4,111 ) ( 16,522 ) Comprehensive income 69,680 9,091 98,429 76,122 Less: Comprehensive income attributable to noncontrolling interest ( 20 ) ( 36 ) ( 4 ) ( 55 ) Comprehensive income attributable to Quaker Chemical Corporation $ 69,660 $ 9,055 $ 98,425 $ 76,067 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, 2024 December 31, 2023 ASSETS Current assets Cash and cash equivalents $ 212,074 $ 194,527 Accounts receivable, net 422,732 444,950 Inventories Raw materials and supplies 118,073 119,047 Work-in-process and finished goods 126,915 114,810 Prepaid expenses and other current assets 62,059 54,555 Total current assets 941,853 927,889 Property, plant and equipment, at cost 474,368 453,419 Less: Accumulated depreciation ( 258,813 ) ( 245,608 ) Property, plant and equipment, net 215,555 207,811 Right-of-use lease assets 35,408 38,614 Goodwill 532,523 512,518 Other intangible assets, net 874,806 896,721 Investments in associated companies 103,444 101,151 Deferred tax assets 12,172 10,737 Other non-current assets 19,920 18,770 Total assets $ 2,735,681 $ 2,714,211 LIABILITIES AND EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $ 38,787 $ 23,444 Accounts payable 191,788 184,813 Dividends payable 8,658 8,186 Accrued compensation 38,741 55,194 Accrued restructuring 1,727 3,350 Accrued pension and postretirement benefits 2,182 2,208 Other accrued liabilities 89,462 90,315 Total current liabilities 371,345 367,510 Long-term debt 700,648 730,623 Long-term lease liabilities 20,610 22,937 Deferred tax liabilities 143,219 146,957 Non-current accrued pension and postretirement benefits 25,752 29,457 Other non-current liabilities 27,837 31,805 Total liabilities 1,289,411 1,329,289 Commitments and contingencies (Note 18) Equity Common stock $ 1 par value; authorized 30,000,000 shares; issued and outstanding September 30, 2024 – 17,852,066 shares; December 31, 2023 – 17,991,988 shares 17,852 17,992 Capital in excess of par value 928,156 940,101 Retained earnings 628,103 550,641 Accumulated other comprehensive loss ( 128,448 ) ( 124,415 ) Total Quaker shareholders’ equity 1,445,663 1,384,319 Noncontrolling interest 607 603 Total equity 1,446,270 1,384,922 Total liabilities and equity $ 2,735,681 $ 2,714,211 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, 2024 2023 Cash flows from operating activities Net income $ 102,540 $ 92,644 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of debt issuance costs 1,059 1,059 Depreciation and amortization 63,159 61,434 Equity in undistributed earnings of associated companies, net of dividends 1,045 ( 7,486 ) Deferred income taxes ( 7,934 ) ( 1,591 ) Deferred compensation and other, net ( 1,428 ) 1,076 Share-based compensation 12,413 11,189 Restructuring and related charges, net 4,787 6,034 Pension and other postretirement benefits ( 3,956 ) ( 2,000 ) (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable 20,625 22,133 Inventories ( 10,875 ) 30,607 Prepaid expenses and other current assets ( 7,912 ) ( 9,771 ) Accrued restructuring ( 6,397 ) ( 7,914 ) Accounts payable and accrued liabilities ( 25,612 ) 2,046 Net cash provided by operating activities 141,514 199,460 Cash flows from investing activities Investments in property, plant and equipment ( 19,337 ) ( 25,794 ) Payments related to acquisitions, net of cash acquired ( 39,302 ) — Proceeds from disposition of assets 2,798 — Net cash used in investing activities ( 55,841 ) ( 25,794 ) Cash flows from financing activities Payments of long-term debt ( 48,600 ) ( 14,075 ) Borrowings (payments) on revolving credit facilities, net 30,500 ( 112,835 ) (Payments) borrowings on other debt, net ( 842 ) 797 Dividends paid ( 24,523 ) ( 23,459 ) Shares purchased under share repurchase programs ( 22,906 ) — Other stock related activity ( 631 ) ( 953 ) Net cash used in financing activities ( 67,002 ) ( 150,525 ) Effect of foreign exchange rate changes on cash ( 1,124 ) ( 5,746 ) Net increase in cash and cash equivalents 17,547 17,395 Cash and cash equivalents at the beginning of the period 194,527 180,963 Cash and cash equivalents at the end of the period $ 212,074 $ 198,358 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, 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 Balance as of December 31, 2023 $ 17,992 $ 940,101 $ 550,641 $ ( 124,415 ) $ 603 $ 1,384,922 Net income — — 35,227 — 31 35,258 Amounts reported in other comprehensive loss — — — ( 22,572 ) ( 73 ) ( 22,645 ) Dividends ($ 0.455 per share) — — ( 8,186 ) — — ( 8,186 ) Share issuance and equity-based compensation plans ( 2 ) 2,445 — — — 2,443 Balance as of March 31, 2024 $ 17,990 $ 942,546 $ 577,682 $ ( 146,987 ) $ 561 $ 1,391,792 Net income — — 34,885 — 25 34,910 Amounts reported in other comprehensive loss — — — ( 18,775 ) 1 ( 18,774 ) Dividends ($ 0.455 per share) — — ( 8,163 ) — — ( 8,163 ) Shares purchased under share repurchase program ( 49 ) ( 8,306 ) — — — ( 8,355 ) Share issuance and equity-based compensation plans — 4,196 — — — 4,196 Balance as of June 30, 2024 $ 17,941 $ 938,436 $ 604,404 $ ( 165,762 ) $ 587 $ 1,395,606 Net income — — 32,346 — 26 32,372 Amounts reported in other comprehensive income — — — 37,314 ( 6 ) 37,308 Dividends ($ 0.485 per share) — — ( 8,647 ) — — ( 8,647 ) Shares purchased under share repurchase program ( 89 ) ( 14,462 ) — — — ( 14,551 ) Excise tax on shares purchased under share repurchase program — ( 162 ) — — — ( 162 ) Share issuance and equity-based compensation plans — 4,344 — — — 4,344 Balance as of September 30, 2024 $ 17,852 $ 928,156 $ 628,103 $ ( 128,448 ) $ 607 $ 1,446,270 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, 2024 (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. 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, which are of a normal recurring nature, 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, 2024 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, 2023 (as amended, the “2023 Form 10-K”). Certain prior year amounts in the Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current year presentation. 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 sold in its three reportable segments: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia/Pacific. 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, 2024, the Company's Argentine and Turkish subsidiaries together represented approximately 1 % and 2 % of the Company’s consolidated total assets and net sales, respectively. During the three and nine months ended September 30, 2024, the Company recorded $ 0.6 million and $ 0.3 million of net remeasurement losses associated with the applicable currency conversions, respectively. Comparatively, 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. These gains and losses were recorded within Other income (expense), net, in the Company’s Condensed Consolidated Statements of Operations. Note 2 – Business Acquisitions In July 2024, the Company acquired the Sutai Group (“Sutai”), for approximately $ 16.2 million, including an initial cash payment of $ 14.6 million, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels, as well as earn-out provisions with an initial estimated payout of $ 1.6 million related to the finalization of 2024 and 2025 earnings. Assets acquired included cash and cash equivalents of $ 5.5 million. The Company recorded incremental income of $ 0.4 million during the three and nine months ended September 30, 2024 relating to adjustments to these earnout provisions in Other income (expense), net on the Condensed Consolidated Statements of Operations. As of September 30, 2024, the Company has remaining earnout liabilities recorded on its Condensed Consolidated Balance Sheet of $ 1.2 million. Sutai is based in Japan and provides impregnation treatment products and services to the automotive and other industries. Sutai is reported as part of the Asia/Pacific reportable segment. This acquisition strengthens Quaker Houghton’s technology portfolio, enabling the Company to better support and optimize production processes for customers across the Japanese, Asia Pacific and global markets. The Company allocated $ 3.1 million of the purchase price to intangible assets and recognized $ 5.5 million of goodwill in the Asia/Pacific segment, none of which is deductible for tax purposes. The goodwill is primarily attributable to expected growth synergies. As of September 30, 2024, the allocation of the purchase price has not 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) During February 2024, the Company acquired I.K.V. Tribologie IKVT and its subsidiaries (“IKV”) for $ 35.2 million, including an initial cash payment of $ 29.7 million, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels as well as earn-out provisions related to the finalization of 2023 earnings. Assets acquired included approximately $ 4.8 million of cash and cash equivalents. IKV, which is part of the Company’s EMEA segment, specializes in high-performance lubricants and greases, including original equipment manufacturer first-fill greases that are primarily used in the automotive, aerospace, electronics, and other industrial markets. The acquisition of IKV strengthens the Company’s position in first-fill greases. The Company allocated $ 15.0 million of the purchase price to intangible assets, comprised of approximately $ 11.1 million of customer relationships to be amortized over 16 years; $ 3.2 million of product technologies to be amortized over 14 years; and $ 0.7 million of trademarks to be amortized over 5 years. In addition, the Company recognized $ 16.4 million of goodwill in the EMEA segment, none of which is deductible for tax purposes. The goodwill is primarily attributable to expected cost and growth synergies. In July 2024, the 2023 earnings were finalized and the Company made a payment of $ 5.5 million in connection with the post-closing adjustments and earn-out provision. As of September 30, 2024, the allocation of the purchase price has been finalized. The results of operations of Sutai and IKV subsequent to the acquisition dates are included in the unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024. Note 3 – Recently Issued Accounting Standards Recently Issued Accounting Standards Not Yet Adopted The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures in November 2023. This ASU expands on reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, defined as those expenses that are regularly provided to the chief operating decision maker (“CODM”) and included in the reported measure of segment profit or loss. ASU 2023-07 is effective for annual reports for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company continues to assess the impact of ASU 2023-07. As part of its preliminary assessment, the Company is in the process of identifying the significant segment expenses and other information regularly provided to the CODM and included in the reported measure of segment profitability. The FASB issued ASU 2023-09, Income Taxes (Topic 740) : Improvements to Income Tax Disclosures in December 2023. This ASU requires public business entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the “rate reconciliation”) for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the disclosure requirements of this standard and the impact on its consolidated financial statements. Note 4 – Business Segments The Company’s operating segments, which are consistent with its reportable segments, reflect the structure of the Company’s internal organization, the method by which the Company’s resources are allocated, and the manner by which the CODM assesses the Company’s performance. The Company has three reportable segments: (i) Americas; (ii) EMEA; and (iii) Asia/Pacific. 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 and Restructuring and related charges, 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 income (expense), 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, Net sales 2024 2023 2024 2023 Americas $ 220,275 $ 245,899 $ 673,546 $ 750,531 EMEA 134,135 139,620 410,558 435,602 Asia/Pacific 107,864 105,093 311,496 300,071 Total net sales $ 462,274 $ 490,612 $ 1,395,600 $ 1,486,204 Segment operating earnings Americas $ 62,121 $ 69,148 $ 193,027 $ 204,280 EMEA 24,644 27,922 80,867 81,076 Asia/Pacific 30,656 30,963 92,033 86,604 Total segment operating earnings 117,421 128,033 365,927 371,960 Restructuring and related charges, net ( 2,610 ) ( 1,019 ) ( 4,787 ) ( 6,034 ) Non-operating and administrative expenses ( 47,778 ) ( 52,280 ) ( 149,538 ) ( 154,001 ) Depreciation of corporate assets and amortization ( 15,315 ) ( 15,216 ) ( 45,909 ) ( 45,683 ) Operating income 51,718 59,518 165,693 166,242 Other income (expense), net 783 ( 2,713 ) 2,285 ( 8,558 ) Interest expense, net ( 10,347 ) ( 12,781 ) ( 31,925 ) ( 38,744 ) Income before taxes and equity in net income of associated companies $ 42,154 $ 44,024 $ 136,053 $ 118,940 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, Inter-segment revenues 2024 2023 2024 2023 Americas $ 2,316 $ 1,772 $ 7,214 $ 6,778 EMEA 4,881 5,161 17,420 18,718 Asia/Pacific 1,504 793 4,580 1,329 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 $ 19.4 million and $ 58.5 million for the three and nine months ended September 30, 2024, respectively, and $ 21.6 million and $ 63.2 million for the three and nine months ended September 30, 2023, 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 2023 Form 10-K, the Company’s five largest customers combined (each composed of multiple subsidiaries or divisions with semiautonomous purchasing authority) accounted for approximately 12 % of consolidated net sales for 2023, with its largest customer accounting for approximately 3 % of consolidated net sales. Contract Assets and Liabilities The Company had no material contract assets recorded on its Condensed Consolidated Balance Sheets as of September 30, 2024 or December 31, 2023. 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) The Company had approximately $ 3.7 million and $ 4.5 million of deferred revenue as of September 30, 2024 and December 31, 2023, respectively. For the nine months ended September 30, 2024, the Company satisfied materially all of the associated performance obligations and recognized into revenue materially all advance payments received and recorded as of December 31, 2023. Disaggregated Revenue The Company sells its industrial process fluids, specialty chemicals and 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 segment and customer industry. Three Months Ended September 30, 2024 Customer Industries Americas EMEA Asia/Pacific Consolidated Total Metals $ 65,393 $ 34,782 $ 52,385 $ 152,560 Metalworking and other 154,882 99,353 55,479 309,714 $ 220,275 $ 134,135 $ 107,864 $ 462,274 Nine Months Ended September 30, 2024 Customer Industries Americas EMEA Asia/Pacific Consolidated Total Metals $ 195,172 $ 102,909 $ 153,446 $ 451,527 Metalworking and other 478,374 307,649 158,050 944,073 $ 673,546 $ 410,558 $ 311,496 $ 1,395,600 Three Months Ended September 30, 2023 Customer Industries Americas EMEA Asia/Pacific Consolidated Total 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 Nine Months Ended September 30, 2023 Customer Industries Americas EMEA Asia/Pacific Consolidated Total 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 Note 6 - Leases The Company has operating leases for certain facilities, vehicles, and machinery and equipment with remaining lease terms up to 10 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 91 years. The Company had no material variable lease costs, sublease income, or finance leases for the three and nine months ended September 30, 2024 and 2023. The components of the Company’s lease expense are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Operating lease expense $ 3,695 $ 3,886 $ 11,165 $ 11,532 Short-term lease expense 198 193 590 587 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) Supplemental cash flow information related to the Company’s leases is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,632 $ 3,917 $ 11,029 $ 11,547 Non-cash lease liabilities activity: Leased assets obtained in exchange for new operating lease liabilities 691 2,910 6,055 6,566 Supplemental balance sheet information related to the Company’s leases is as follows: September 30, 2024 December 31, 2023 Right-of-use lease assets $ 35,408 $ 38,614 Other current liabilities 11,185 11,965 Long-term lease liabilities 20,610 22,937 Total operating lease liabilities $ 31,795 $ 34,902 Weighted average remaining lease term (years) 4.9 5.1 Weighted average discount rate 5.40 % 4.91 % Maturities of operating lease liabilities as of September 30, 2024 were as follows: For the remainder of 2024 $ 3,620 For the year ended December 31, 2025 11,292 For the year ended December 31, 2026 8,540 For the year ended December 31, 2027 4,703 For the year ended December 31, 2028 2,645 For the year ended December 31, 2029 and beyond 5,575 Total lease payments 36,375 Less: imputed interest ( 4,580 ) Present value of lease liabilities $ 31,795 Note 7 – Restructuring and Related Activities In 2022, the Company initiated a global cost and optimization program to improve its cost structure and drive a more profitable and productive organization. As of September 30, 2024, the program included restructuring and associated severance costs to reduce headcount by approximately 175 positions globally. The program is expected to be substantially complete by the end of the first quarter of 2025. Employee separation benefits vary depending on local regulations within certain foreign countries and include severance and other benefits. The exact timing to complete, and final costs associated with, all actions will depend on a number of factors and are subject to change. In addition to the program described above, the Company continues to take actions to optimize its facilities’ footprint. Restructuring costs incurred during the three and nine months ended September 30, 2024 and 2023 include employee severance, asset related and facility closure costs that are recorded in Restructuring and related charges, net in the Company’s Condensed Consolidated Statements of Operations. 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) Changes in the Company’s accruals for its restructuring program and facility closure actions are as follows: Accrued restructuring as of December 31, 2023 $ 3,350 Restructuring and related charges, net 4,787 Cash payments ( 6,397 ) Currency translation adjustments ( 13 ) Accrued restructuring as of September 30, 2024 $ 1,727 In connection with the plans for closure of certain manufacturing and non-manufacturing facilities, the Company has made available for sale certain facilities and properties. As of September 30, 2024, the Company classified properties in the Americas and EMEA segments with an aggregate book value of approximately $ 2.2 million as held-for-sale. These assets 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. During the three and nine months ended September 30, 2024, the Company completed the sale of certain facilities previously classified as held for sale for a net gain of $ 0.5 million, which is recorded in Other income (expenses), net in the Company’s Condensed Consolidated Statements of Operations. 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, 2024 2023 2024 2023 Stock options $ 35 $ 203 $ 249 $ 837 Non-vested stock awards and restricted stock units 2,672 2,429 7,800 7,192 Director stock ownership plan 39 30 99 56 Performance stock units 1,539 1,113 4,265 3,104 Total share-based compensation expense $ 4,285 $ 3,775 $ 12,413 $ 11,189 Stock Options As of September 30, 2024, unrecognized compensation expense related to unvested stock options was $ 0.1 million, to be recognized over a weighted average remaining period of 0.5 year. Restricted Stock Awards During the nine months ended September 30, 2024, the Company granted 872 non-vested restricted share awards under its long-term incentive plan (“LTIP”) , which are subject to time-based vesting, generally over one to three years . As of September 30, 2024, unrecognized compensation expense related to non-vested restricted shares was $ 2.1 million, to be recognized over a weighted average remaining period of 1.0 year. Restricted Stock Units During the nine months ended September 30, 2024, the Company granted 59,678 restricted stock units under its LTIP , which are subject to time-based vesting, generally over one to three years . The fair value of these grants is based on the closing price of the Company’s common stock on the date of grant. As of September 30, 2024, unrecognized compensation expense related to non-vested restricted stock units was $ 7.9 million, to be recognized over a weighted average remaining period of 1.5 years. Performance Stock Units As a component of its LTIP, the Company grants performance-based stock unit awards (“PSUs”). The number of 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 a selected peer group, and separately the achievement of a performance-based return on invested capital (“ROIC”) measure. The service vesting 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. 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) As mentioned above, a portion of the Company’s PSUs are subject to the achievement of the Company’s TSR relative to the performance of a selected peer group. For PSUs granted prior to 2024, the Company’s peer group was the S&P Midcap 400 Materials group. For PSUs subject to relative TSR performance granted in 2024, the Company made an election to change peer groups to the S&P 1500 Chemical group. 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. During the nine months ended September 30, 2024, the Company granted 21,019 PSUs with a ROIC condition at a grant date fair value of $ 200.16 per unit, which was based on the closing trading price of the Company’s common stock on the date of grant. During the nine months ended September 30, 2024, the Company granted 20,883 PSUs with a relative TSR condition. These PSUs are valued using a Monte Carlo simulation on the grant date and had a grant-date fair value of $ 234.19 per unit, which was developed based on the assumptions set forth in the table below: 2024 Grants Risk-free interest rate 4.55 % Dividend yield 0.91 % Expected term (years) 3.0 As of September 30, 2024, there was approximately $ 10.7 million of total unrecognized compensation cost related to PSUs, which the Company expects to recognize over a weighted-average period of 2.1 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 2024 2023 2024 2023 2024 2023 2024 2023 Service cost $ 103 $ 109 $ — $ — $ 319 $ 320 $ — $ — Interest cost 2,393 2,487 15 14 7,131 7,452 46 51 Expected return on plan assets ( 2,056 ) ( 2,033 ) — — ( 6,104 ) ( 6,056 ) — — Actuarial loss (gain) amortization 128 103 ( 17 ) ( 36 ) 380 308 ( 76 ) ( 95 ) Prior service cost (income) amortization 6 18 — ( 4 ) 21 26 — ( 12 ) Net periodic benefit cost (income) $ 574 $ 684 $ ( 2 ) $ ( 26 ) $ 1,747 $ 2,050 $ ( 30 ) $ ( 56 ) Employer Contributions During the nine months ended September 30, 2024, $ 5.3 million of contributions have been made to the Company’s U.S. and foreign pension plans. Contributions to other postretirement benefit plans were $ 0.1 million. Taking into consideration current minimum cash contribution requirements, the Company currently expects to make full year cash contributions of approximately $ 6.5 million to its U.S. and foreign pension plans and approximately $ 0.2 million to its other postretirement benefit plans. 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) Note 10 – Other income (expense), net The components of Other income (expense), net are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Non-income tax refunds and other related credits $ 732 $ 91 3,755 1,339 Income from third party license fees 158 245 $ 553 $ 891 (Loss) gain on disposals of property, plant, equipment and other assets, net ( 56 ) ( 25 ) 861 ( 91 ) Foreign exchange losses, net ( 949 ) ( 2,498 ) ( 2,124 ) ( 10,049 ) Pension and postretirement benefit costs, non-service components ( 469 ) ( 549 ) ( 1,398 ) ( 1,674 ) Facility remediation recoveries, net — — — 1,014 Business interruption insurance proceeds 1,000 — 1,000 — Product liability claim — — ( 896 ) — Earnout liability adjustment 400 — 400 — Other non-operating (expense) income, net ( 33 ) 23 134 12 Total other income (expense), net $ 783 $ ( 2,713 ) $ 2,285 $ ( 8,558 ) (Loss) gain on disposals of property, plant, equipment and other assets, net, includes the net gains recognized for the sale of certain facilities previously classified as held for sale during the three and nine months ended September 30, 2024. See Note 7 of Notes to the Condensed Consolidated Financial Statements. Business interruption insurance proceeds during the three and nine months ended September 30, 2024 reflects an insurance recovery of $ 1.0 million related to production losses due to an electrical fire in 2021 that resulted in temporary shutdown of production at one of the Company’s production facilities. See Note 18 for additional discussion regarding the Company’s business interruption claims. Facility remediation recoveries, net, during the nine months ended September 30, 2023, reflect insurance recoveries of costs for remediation and restoration of property damage. See Note 18 for additional discussion regarding the Company’s insurance recoveries for facility remediation and property damage. Product liability claim costs represents expense related to the payments by the Company in connection with a product liability dispute with a customer during the nine months ended September 30, 2024. Note 11 – Income Taxes The Company’s effective tax rates for the three and nine months ended September 30, 2024 were 28.9 % and 29.7 %, respectively, compared to 30.9 % and 31.1 % for the three and nine months ended September 30, 2023, respectively. The Company’s effective tax rates for the three months ended September 30, 2024 was largely driven by the mix of pre-tax earnings, withholding taxes, and changes in uncertain tax positions offset by return to provision adjustments. The effective tax rate for the nine months ended September 30, 2024 was further impacted by certain one-time charges related to an intercompany intangible asset transfer offset by changes in uncertain tax positions. Comparatively, the effective tax rates for the three and nine months ended September 30, 2023 were largely impacted by the mix of pre-tax earnings, changes to the valuation allowance for and the usage of certain foreign tax credits, return to provision adjustments and withholding taxes, partially offset by changes in uncertain tax positions . 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 12 – Earnings Per Share The following table summarizes earnings per share calculations: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Basic earnings per common share Net income attributable to Quaker Chemical Corporation $ 32,346 $ 33,670 $ 102,458 $ 92,550 Less: income allocated to participating securities ( 85 ) ( 164 ) ( 359 ) ( 464 ) Net income available to common shareholders $ 32,261 $ 33,506 $ 102,099 $ 92,086 Basic weighted average common shares outstanding 17,837,858 17,908,754 17,889,168 17,889,444 Basic earnings per common share $ 1.81 $ 1.87 $ 5.71 $ 5.15 Diluted earnings per common share Net income attributable to Quaker Chemical Corporation $ 32,346 $ 33,670 $ 102,458 $ 92,550 Less: income allocated to participating securities ( 85 ) ( 164 ) ( 358 ) ( 464 ) Net income available to common shareholders $ 32,261 $ 33,506 $ 102,100 $ 92,086 Basic weighted average common shares outstanding 17,837,858 17,908,754 17,889,168 17,889,444 Effect of dilutive securities 26,477 12,520 20,799 16,709 Diluted weighted average common shares outstanding 17,864,335 17,921,274 17,909,967 17,906,153 Diluted earnings per common share $ 1.81 $ 1.87 $ 5.70 $ 5.14 Certain stock options, restricted stock units, and PSUs are not included in the diluted earnings per share calculation when the effect would be anti-dilutive. The number of anti-dilutive shares was 19,374 and 31,377 for the three and nine months ended September 30, 2024, respectively, and 11,598 and 10,453 for the three and nine months ended September 30, 2023, respectively . Note 13 – Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill for the nine months ended September 30, 2024 were as follows: Americas EMEA Asia/Pacific Total Balance as of December 31, 2023 $ 283,103 $ 65,940 $ 163,475 $ 512,518 Goodwill additions — 16,448 5,511 21,959 Currency translation adjustments ( 3,748 ) ( 215 ) 2,009 ( 1,954 ) Balance as of September 30, 2024 $ 279,355 $ 82,173 $ 170,995 $ 532,523 Gross carrying amounts and accumulated amortization for definite-lived intangible assets were as follows: Gross Carrying Amount Accumulated Amortization Net Book Value September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 Customer lists and rights to sell $ 856,919 $ 841,562 $ 281,935 $ 243,872 $ 574,984 $ 597,690 Trademarks, formulations and product technology 167,736 161,613 62,734 55,879 105,002 105,734 Other 5,842 5,892 5,741 5,776 101 116 Total definite-lived intangible assets $ 1,030,497 $ 1,009,067 $ 350,410 $ 305,527 $ 680,087 $ 703,540 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) 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, 2024 2023 2024 2023 Amortization expense $ 14,630 $ 14,529 $ 43,845 $ 43,734 Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows: For the remainder of 2024 $ 15,373 For the year ended December 31, 2025 58,606 For the year ended December 31, 2026 58,308 For the year ended December 31, 2027 57,968 For the year ended December 31, 2028 57,486 For the year ended December 31, 2029 56,397 As of September 30, 2024 and December 31, 2023, the Company had indefinite-lived intangible assets for trademarks and tradenames totaling $ 194.7 million and $ 193.2 million, respectively. Note 14 – Debt The following table sets forth the components of the Company’s debt: As of September 30, 2024 As of December 31, 2023 Interest Rate Outstanding Balance Interest Rate Outstanding Balance Credit Facilities: Revolver 4.50 % $ 61,404 5.13 % $ 30,904 U.S. Term Loan 6.32 % 515,543 6.71 % 561,250 Euro Term Loan 4.50 % 151,137 5.13 % 152,366 Industrial development bonds 5.26 % 10,000 5.26 % 10,000 Bank lines of credit and other debt obligations Various 2,561 Various 1,092 Total debt $ 740,645 $ 755,612 Less: debt issuance costs ( 1,210 ) ( 1,545 ) Less: short-term and current portion of long-term debts ( 38,787 ) ( 23,444 ) Total long-term debt $ 700,648 $ 730,623 Credit facilities In 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, 2024, the Company was in compliance with all of the Credit Facility covenants. See Note 19 of Notes to Consolidated Financial Statements in the Company’s 2023 Form 10-K. 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) The weighted average variable interest rates incurred on the outstanding borrowings under the Credit Facility during the three and nine months ended September 30, 2024 were approximately 6.1 % and 6.2 %, respectively. As of September 30, 2024, the interest rate on the outstanding borrowings under the Credit Facility was approximately 5.8 %. 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 $ 436 million, which is net of bank letters of credit of approximately $ 3 million, as of September 30, 2024. 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, 2024, the aggregate interest rate on the swaps, including the fixed base rate plus the applicable margin, was approximately 4.9 %. See Note 17 of Notes to Condensed Consolidated Financial Statements. The Company capitalized third-party and credit debt issuance costs attributed to the Euro Term Loan, U.S. Term Loan and Revolver in connection to the amended Credit Facility during the second quarter of 2022. Capitalized costs attributed to the Euro Term Loan and U.S. Term Loan are recorded as a direct offset of Long-term debt on the Condensed Consolidated Balance Sheet. Capitalized costs attributed to the Revolver are 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, 2024, the Company had $ 1.2 million of debt issuance costs recorded as an offset of Long-term debt and $ 2.6 million of debt issuance costs recorded within Other assets. Comparatively, as of December 31, 2023, the Company had $ 1.5 million of debt issuance costs recorded as an offset of Long-term debt and $ 3.3 million of debt issuance costs recorded within Other assets. Industrial development bonds As of September 30, 2024 and December 31, 2023, 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 finance lease obligations. Total unused capacity under these arrangements as of September 30, 2024 was approximately $ 35 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, 2024 were approximately $ 7 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, 2024 2023 2024 2023 Interest expense, net $ 10,774 $ 12,598 $ 33,585 $ 40,863 Amortization of debt issuance costs 353 353 1,059 1,059 Total $ 11,127 $ 12,951 $ 34,644 $ 41,922 Based on the variable interest rates associated with the Credit Facility, as of September 30, 2024 and as of December 31, 2023, the amounts at which the Company’s total debt were recorded are not materially different from their fair market value. 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 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 Gain (Loss) in Available-for- Sale Securities Derivative Instruments Total Balance as of June 30, 2024 $ ( 159,574 ) $ ( 10,259 ) $ 334 $ 3,737 $ ( 165,762 ) Other comprehensive income (loss) before Reclassifications 41,535 ( 858 ) 411 ( 5,226 ) 35,862 Amounts reclassified from AOCI — 164 — — 164 Related tax amounts — 172 ( 86 ) 1,202 1,288 Balance as of September 30, 2024 $ ( 118,039 ) $ ( 10,781 ) $ 659 $ ( 287 ) $ ( 128,448 ) Balance as of 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 as of September 30, 2023 $ ( 156,239 ) $ ( 3,743 ) $ ( 546 ) $ 5,804 $ ( 154,724 ) Currency Translation Adjustments Defined Benefit Pension Plans Unrealized Gain (Loss) in Available-for- Sale Securities Derivative Instruments Total Balance as of December 31, 2023 $ ( 115,417 ) $ ( 10,738 ) $ 333 $ 1,407 $ ( 124,415 ) Other comprehensive (loss) income before reclassifications ( 2,622 ) ( 425 ) 416 ( 2,200 ) ( 4,831 ) Amounts reclassified from AOCI — 373 ( 4 ) — 369 Related tax amounts — 9 ( 86 ) 506 429 Balance as of September 30, 2024 $ ( 118,039 ) $ ( 10,781 ) $ 659 $ ( 287 ) $ ( 128,448 ) Balance as of December 31, 2022 $ ( 132,161 ) $ ( 4,595 ) $ ( 1,484 ) $ — $ ( 138,240 ) Other comprehensive (loss) income 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 ) All reclassifications related to unrealized gain (loss) 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. 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) Note 16 – Fair Value Measurements The Company values 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. As a result, the Company owns an immaterial amount of company-owned life insurance policies as of September 30, 2024 and December 31, 2023. See Note 17 for a description of the Company’s derivative instruments. 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 derivative financial instruments for trading or speculative purposes. Foreign Exchange Forward Contracts 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 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 income (expense), net. The fair value of the forward contract is determined from sources independent of the Company, including the financial institutions which are party to the derivative instruments. Open foreign exchange forward contracts as of September 30, 2024 were entered into as hedges of Japanese yen and Mexican peso against the U.S. dollar and had the following notional U.S. dollar values : Currency September 30, 2024 Mexican Peso $ 13,700 Japanese Yen 10,000 $ 23,700 Open foreign exchange forward contracts as of September 30, 2024 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 with any unrealized gains or losses included in AOCI to the extent effective and reclassified to interest expense in the period during which the hedged transactions affect earnings or it becomes probable that the forecasted transaction will not occur. The balance sheet classification and fair values of the Company’s derivative instruments, which are Level 2 measurements, are as follows: Derivatives instruments Condensed Consolidated Balance Sheets Location September 30, 2024 December 31, 2023 Interest rate swaps: Other accrued liabilities $ 373 $ — Other non-current assets — 1,828 Foreign currency forward contracts: Other accrued liabilities 71 159 The following table presents the net unrealized (loss) gain deferred to AOCI: Derivatives designated as cash flow hedges September 30, 2024 December 31, 2023 Interest rate swaps AOCI $ ( 287 ) $ 1,407 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) The following table presents the location and the amount of net gain or loss recognized in the Company’s Condensed Consolidated Statements of Operations related to derivative instruments: Three Months Ended September 30, Nine Months Ended September 30, Derivative instruments Condensed Consolidated Statements of Operations 2024 2023 2024 2023 Interest rate swaps Interest expense, net $ 1,295 $ 1,198 $ 3,854 $ 2,259 Foreign exchange forward contracts Other (expense) income, net ( 1,308 ) ( 29 ) ( 2,040 ) 2,107 Total $ ( 13 ) $ 1,169 $ 1,814 $ 4,366 Note 18 – Commitments and Contingencies As previously disclosed in its 2023 Form 10-K, the Company is party to certain environmental matters and other litigation. See Note 25 of Notes to Consolidated Financial Statements in the Company’s 2023 Form 10-K. During the three and nine months ended September 30, 2024, there have been no significant changes to the facts or circumstances of any of the previously disclosed matters. Although there can be no assurance regarding the outcome of any of the ongoing environmental matters or litigation, the Company believes that it has made adequate accruals for costs and liabilities associated with these matters. The Company has accrued approximately $ 6 million as of September 30, 2024 and December 31, 2023, respectively, for these ongoing matters. The Company previously disclosed in its 2023 Form 10-K that one of its North American production facilities experienced an electrical fire in 2021 that resulted in property damage and the temporary shutdown of production. The Company and its insurance carrier reviewed the impact of the electrical fire on the production facility’s operations as it relates to a potential business interruption insurance claim. In July 2024, the Company and its insurance carrier settled this claim for $ 1.0 million. In December 2021, the Company completed its acquisition of Coral Chemical Company (“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. Since the second quarter of 2022, 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. In addition, during the three and nine months ended September 30, 2024, 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. 20 Table of Contents Quaker Chemical Corporation Management’s Discussion and Analysis