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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM
10-Q
 
 
QUARTERLY
 
REPORT PURSUANT TO SECTION 13
 
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2022
OR
 
TRANSITION REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 
OF 1934
For the transition period from
 
to
 
Commission file number
001-12019
QUAKER CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
 
 
Pennsylvania
 
23-0993790
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
901 E. Hector Street
,
Conshohocken
,
Pennsylvania
 
19428 – 2380
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
610
-
832-4000
Not Applicable
Former name, former address and former fiscal year,
 
if changed since last report.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1 par value
KWR
New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed
 
all reports required to be filed by Section 13 or 15(d)
 
of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
 
was required to file such reports), and (2) has been subject
 
to such filing requirements for the past 90
days.
 
Yes
 
 
No
 
 
Indicate by check mark whether the registrant has submitted
 
electronically, every Interactive Data File required to be submitted pursuant to Rule 405
 
of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for
 
such shorter period that the registrant was required
 
to submit such files) .
 
Yes
 
 
No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
 
filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and
 
“emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
 
Non-accelerated filer
 
 
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use
 
the extended transition period for complying with any new
 
or revised
financial accounting standards provided pursuant to Section 13(a) of
 
the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as
 
defined in Rule 12b-2 of the Exchange Act).
 
Yes
 
 
No
 
Indicate the number of shares outstanding of each of the
 
issuer’s classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock
Outstanding on July 31, 2022
 
17,929,045
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
PART
 
I
FINANCIAL INFORMATION
Item 1.
 
Financial Statements (Unaudited).
Quaker Chemical Corporation
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Net sales
$
492,388
$
435,262
$
966,559
$
865,045
Cost of goods sold (
excluding amortization expense - See Note 13
)
 
342,824
 
280,811
 
670,924
 
554,400
Gross profit
 
149,564
 
154,451
 
295,635
 
310,645
Selling, general and administrative expenses
 
115,830
 
108,679
 
227,625
 
212,989
Restructuring and related (credits) charges, net
(1)
298
819
1,473
Combination, integration and other acquisition-related expenses
1,832
6,658
5,885
12,473
Operating income
 
31,903
38,816
 
61,306
 
83,710
Other (expense) income, net
 
(8,399)
 
14,010
 
(10,605)
 
18,697
Interest expense, net
(6,494)
(5,618)
(11,839)
(11,088)
Income before taxes and equity in net (loss) income of
associated companies
 
17,010
 
47,208
 
38,862
 
91,319
Taxes on income before
 
equity in net (loss) income of associated
companies
 
1,374
 
15,218
 
4,240
 
25,907
Income before equity in net (loss) income of associated
companies
 
15,636
 
31,990
 
34,622
 
65,412
Equity in net (loss) income of associated companies
 
(1,265)
 
1,610
 
(430)
 
6,820
Net income
14,371
33,600
34,192
72,232
Less: Net income attributable to noncontrolling interest
28
30
33
47
Net income attributable to Quaker Chemical Corporation
$
14,343
$
33,570
$
34,159
$
72,185
Per share data:
 
 
 
 
Net income attributable to Quaker Chemical Corporation
common shareholders – basic
$
0.80
$
1.88
$
1.91
$
4.04
Net income attributable to Quaker Chemical Corporation
 
common shareholders – diluted
$
0.80
$
1.88
$
1.91
$
4.03
Dividends declared
$
0.415
$
0.395
$
0.830
$
0.790
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
Quaker Chemical Corporation
Condensed Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Unaudited
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Net income
$
14,371
$
33,600
$
34,192
$
72,232
Other comprehensive (loss) income, net of tax
Currency translation adjustments
(76,433)
16,165
(83,299)
(9,296)
Defined benefit retirement plans
1,407
397
1,903
1,689
Current period change in fair value of derivatives
575
452
1,675
1,014
Unrealized (loss) gain on available-for-sale securities
(567)
279
(1,567)
(2,746)
Other comprehensive (loss) income
(75,018)
17,293
(81,288)
(9,339)
Comprehensive (loss) income
(60,647)
50,893
(47,096)
62,893
Less: Comprehensive
 
income (loss) attributable to
noncontrolling interest
5
(38)
(1)
(53)
Comprehensive (loss) income attributable to Quaker Chemical
Corporation
$
(60,642)
$
50,855
$
(47,097)
$
62,840
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
Unaudited
June 30,
 
December 31,
2022
2021
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
$
202,348
$
165,176
Accounts receivable, net
 
465,352
 
430,676
Inventories
 
 
Raw materials and supplies
163,055
129,382
Work-in-process
 
and finished goods
150,387
135,149
Prepaid expenses and other current assets
 
64,674
 
59,871
Total current
 
assets
 
1,045,816
 
920,254
Property, plant and equipment,
 
at cost
 
432,068
 
434,344
Less: Accumulated depreciation
(239,571)
(236,824)
Property, plant and equipment,
 
net
192,497
197,520
Right of use lease assets
36,317
36,635
Goodwill
 
610,167
 
631,194
Other intangible assets, net
 
962,580
 
1,027,782
Investments in associated companies
 
83,678
 
95,278
Deferred tax assets
 
10,897
 
16,138
Other non-current assets
 
28,804
 
30,959
Total assets
$
2,970,756
$
2,955,760
LIABILITIES AND EQUITY
 
 
Current liabilities
 
 
Short-term borrowings and current portion of long-term debt
$
14,485
$
56,935
Accounts payable
 
246,345
 
226,656
Dividends payable
7,437
7,427
Accrued compensation
 
29,359
 
38,197
Accrued restructuring
3,812
4,087
Accrued pension and postretirement benefits
1,541
1,548
Other accrued liabilities
 
97,746
 
95,617
Total current
 
liabilities
 
400,725
 
430,467
Long-term debt
 
972,369
 
836,412
Long-term lease liabilities
25,695
26,335
Deferred tax liabilities
 
156,468
 
179,025
Non-current accrued pension and postretirement benefits
42,755
45,984
Other non-current liabilities
 
42,178
 
49,615
Total liabilities
 
1,640,190
 
1,567,838
Commitments and contingencies (Note 18)
Equity
 
 
Common stock $
1
 
par value; authorized
30,000,000
 
shares; issued and
 
 
outstanding 2022 –
17,919,750
 
shares; 2021 –
17,897,033
 
shares
17,920
17,897
Capital in excess of par value
 
921,642
 
917,053
Retained earnings
 
535,621
 
516,334
Accumulated other comprehensive loss
 
(145,246)
 
(63,990)
Total Quaker
 
shareholders’ equity
 
1,329,937
 
1,387,294
Noncontrolling interest
 
629
628
Total equity
1,330,566
1,387,922
Total liabilities and equity
$
2,970,756
$
2,955,760
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Unaudited
Six Months Ended
June 30,
 
2022
2021
Cash flows from operating activities
 
 
 
 
 
Net income
$
34,192
$
72,232
Adjustments to reconcile net income to net cash used in operating activities:
 
 
Amortization of debt issuance costs
 
2,236
 
2,375
Depreciation and amortization
 
41,036
 
44,188
Equity in undistributed earnings of associated companies, net of dividends
 
3,400
 
(6,715)
Acquisition-related fair value adjustments related to inventory
801
Deferred compensation, deferred taxes and other,
 
net
 
(10,223)
 
(13,849)
Share-based compensation
 
5,433
 
6,134
Loss on extinguishment of debt
5,246
Loss (gain) on disposal of property,
 
plant, equipment and other assets
 
15
 
(5,356)
Combination and other acquisition-related expenses, net of payments
(3,880)
(2,305)
Restructuring and related charges
819
1,473
Pension and other postretirement benefits
 
(2,269)
 
(2,223)
(Decrease) increase in cash from changes in current assets and current
 
 
liabilities, net of acquisitions:
Accounts receivable
 
(51,944)
 
(47,252)
Inventories
 
(58,427)
 
(57,020)
Prepaid expenses and other current assets
 
(5,558)
 
(20,111)
Change in restructuring liabilities
(797)
(4,214)
Accounts payable and accrued liabilities
 
32,298
 
22,274
 
Net cash used in operating activities
 
(8,423)
 
(9,568)
Cash flows from investing activities
 
 
Investments in property,
 
plant and equipment
 
(15,138)
 
(6,974)
Payments related to acquisitions, net of cash acquired
 
(9,383)
 
(29,424)
Proceeds from disposition of assets
85
14,744
 
Net cash used in investing activities
 
(24,436)
 
(21,654)
Cash flows from financing activities
 
 
Payments of long-term debt
 
(668,500)
 
(19,065)
Proceeds from long-term debt
750,000
Borrowings on revolving credit facilities, net
 
16,703
 
29,433
Repayments on other debt, net
(155)
 
(219)
Financing-related debt issuance costs
(3,734)
Dividends paid
 
(14,862)
 
(14,113)
Stock options exercised, other
 
(821)
 
(416)
 
Net cash provided by (used in) financing activities
 
78,631
 
(4,380)
 
Effect of foreign exchange rate changes on cash
 
(8,600)
 
(683)
Net increase (decrease) in cash and cash equivalents
 
37,172
 
(36,285)
Cash and cash equivalents at the beginning of the period
 
165,176
 
181,895
Cash and cash equivalents at the end of the period
$
202,348
$
145,610
The accompanying notes are an integral part of these unaudited condensed consolidated
 
financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
Quaker Chemical Corporation
Condensed Consolidated Statements of Changes in Equity
 
(Dollars in thousands, except per share amounts)
(Unaudited)
Accumulated
Capital in
Other
Common
Excess of
Retained
Comprehensive
Noncontrolling
Stock
Par Value
Earnings
Loss
Interest
Total
Balance at December 31, 2020
$
17,851
$
905,171
$
423,940
$
(26,598)
$
550
$
1,320,914
Net income
38,615
17
38,632
Amounts reported in other
comprehensive loss
(26,630)
(2)
(26,632)
Dividends ($
0.395
 
per share)
(7,062)
(7,062)
Share issuance and equity-based
compensation plans
24
3,577
3,601
Balance at March 31, 2021
$
17,875
$
908,748
$
455,493
$
(53,228)
$
565
$
1,329,453
Net income
33,570
30
33,600
Amounts reported in other
comprehensive gain
17,285
8
17,293
Dividends ($
0.395
 
per share)
(7,062)
(7,062)
Share issuance and equity-based
compensation plans
3
2,114
2,117
Balance at June 30, 2021
$
17,878
$
910,862
$
482,001
$
(35,943)
$
603
$
1,375,401
Balance at 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
(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 at 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 at June 30, 2022
$
17,920
$
921,642
$
535,621
$
(145,246)
$
629
$
1,330,566
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
7
Note 1 – Basis of Presentation and Description of Business
 
Basis of Presentation
As used in these Notes to Condensed Consolidated Financial Statements of
 
this Quarterly Report on Form 10-Q for the period
ended June 30, 2022 (the “Report”),
 
the terms “Quaker Houghton,”
 
the “Company,”
 
“we,” and “our” refer to Quaker Chemical
Corporation (doing business as Quaker Houghton), its subsidiaries, and
 
associated companies, unless the context otherwise requires.
 
As used in these Notes to Condensed Consolidated Financial Statements,
 
the “Combination” refers to the legacy Quaker combination
with Houghton International, Inc. (“Houghton”).
 
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 six months ended June 30, 2022 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, 2021 (the “2021 Form 10-K”).
 
Description of Business
The Company was organized in 1918, incorporated as a Pennsylvania
 
business corporation in 1930, and in August 2019
completed the Combination with Houghton to form Quaker Houghton.
 
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, can,
 
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 throughout its
four
 
segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; and
 
Global Specialty
Businesses.
Hyper-inflationary economies
Based on various indices or index compilations being used to monitor inflation
 
in Argentina as well as economic instability,
effective July 1, 2018, Argentina’s
 
economy was considered hyper-inflationary under U.S. GAAP.
 
As of, and for the three and six
months ended June 30, 2022, the Company's Argentine
 
subsidiaries represented less than
1
% of the Company’s consolidated
 
total
assets and net sales, respectively.
 
During the three and six months ended June 30, 2022, the Company recorded less than $
0.1
 
million
and $
0.2
 
million, respectively, of remeasurement
 
losses associated with the applicable currency conversions related to Argentina.
 
Comparatively,
 
during the three and six months ended June 30, 2021, the Company recorded
 
$
0.1
 
million and $
0.3
 
million,
respectively, of remeasurement
 
losses associated with the applicable currency conversions
 
related to Argentina.
 
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 Income.
Note 2 – Business Acquisitions
2022 Acquisitions
 
In January 2022, the Company acquired a business that provides pickling
 
inhibitor technologies for the steel industry,
 
drawing
lubricants and stamping oil for metalworking, and various other lubrication,
 
rust preventative, and cleaner applications, for its
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.
 
The Company allocated $
5.6
 
million of the purchase price to
intangible assets, comprised of $
5.1
 
million of customer relationships to be amortized over
14 years
; and $
0.5
 
million of existing
product technologies to be amortized over
14 years
.
 
In addition, the Company recorded $
1.8
 
million of goodwill related to expected
value not allocated to other acquired assets, all of which is expected to be tax deductible
 
in various jurisdictions in which the
Company operates.
 
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, for its Global Specialty Businesses reportable segment
for approximately
1.2
 
million EUR or approximately $
1.4
 
million.
 
This business expands the Company's geographic presence in
Germany as well as broadens its product offerings and
 
service capabilities within its existing impregnation business.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
8
The results of operations of the 2022 acquisitions subsequent to the respective
 
acquisition dates are included in the unaudited
Condensed Consolidated Statements of Income for the six month period ended
 
June 30, 2022.
 
Applicable transaction expenses
associated with these acquisitions are included in Combination,
 
integration and other acquisition-related expenses in the Company’s
unaudited Condensed Consolidated Statements of Income.
 
Certain pro forma and other information is not presented, as the operations
of the acquisitions are not considered material to the overall operations
 
of the Company for the periods presented.
Previous Acquisitions
 
In November 2021, the Company acquired Baron Industries (“Baron”),
 
a privately held Company that provides vacuum
impregnation services of castings, powder metals and electrical components for
 
its Global Specialty Businesses 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 initially estimated at $
3.9
 
million that are payable at different times from 2022 through
 
2025.
 
The earn-out provisions
could total a maximum of $
4.5
 
million.
 
The Company allocated $
8.0
 
million of the purchase price to intangible assets, $
1.1
 
million of
property, plant and
 
equipment and $
1.5
 
million of other assets acquired net of liabilities assumed, which includes $
0.3
 
million of cash
acquired.
 
In addition, the Company recorded $
0.4
 
million of goodwill, all of which is expected to be tax deductible.
 
Intangible assets
comprised $
7.2
 
million of customer relationships to be amortized over
15 years
; and $
0.8
 
million of existing product technology to be
amortized over
13 years
.
 
In November 2021, the Company acquired a business that provides hydraulic
 
fluids, coolants, cleaners, and rust preventative oils
in Turkey for its EMEA reportable segment for
3.2
 
million EUR or approximately $
3.7
 
million.
In September 2021, the Company acquired the remaining interest in Grindaix
 
-GmbH (“Grindaix”), a Germany-based, high-tech
provider of coolant control and delivery systems for its Global Specialty Businesses reportable
 
segment for
2.4
 
million EUR or
approximately $
2.9
 
million, which is gross of approximately $
0.3
 
million of cash acquired.
 
Previously, in February
 
2021, the
Company acquired a
38
% ownership interest in Grindaix for
1.4
 
million EUR or approximately $
1.7
 
million.
 
The Company recorded
its initial investment as an equity method investment within the Condensed Consolidated
 
Financial Statements and accounted for the
purchase of the remaining interest as a step acquisition whereby the Company
 
remeasured the previously held equity method
investment to its fair value.
In June 2021, the Company acquired certain assets for its chemical milling
 
maskants product line in the Global Specialty
Businesses reportable segment for
2.3
 
million EUR or approximately $
2.8
 
million.
In February 2021, the Company acquired a tin-plating solutions business
 
for the steel end market for $
25.0
 
million.
 
This
acquisition is part of each of the Company’s
 
geographic reportable segments.
 
The Company allocated $
19.6
 
million of the purchase
price to intangible assets, comprised of $
18.3
 
million of customer relationships, to be amortized over
19 years
; $
0.9
 
million of existing
product technology to be amortized over
14 years
; and $
0.4
 
million of a licensed trademark to be amortized over
3 years
.
 
In addition,
the Company recorded $
5.0
 
million of goodwill related to expected value not allocated to other acquired
 
assets, all of which is
expected to be tax deductible in various jurisdictions in which we operate.
 
Factors contributing to the purchase price that resulted in
goodwill included the acquisition of business processes and personne
 
l
 
that will allow Quaker Houghton to better serve its customers.
 
As of June 30, 2022, the allocation of the purchase price of all of the Company’s
 
2022 acquisitions, Grindaix, the acquisition in
Turkey,
 
and Baron have not been finalized and the one-year measurement period has not ended.
 
Further adjustments may be
necessary as a result of the Company’s
 
on-going assessment of additional information related to the fair value of
 
assets acquired and
liabilities assumed.
 
In December 2020, the Company acquired Coral Chemical Corporation
 
(“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.
 
Based on the facts and circumstances of the claim asserted by the
Sellers, the Company believes the potential range of exposure for this claim is $
0
 
to $
1.5
 
million.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
9
Note 3 – Recently Issued Accounting Standards
 
Recently Issued Accounting Standards
 
Adopted
The FASB issued ASU 2020
 
-04,
Reference Rate Reform (Topic
 
848): Facilitation of the Effects of Reference Rate Reform
 
on
Financial Reporting
 
in March 2020.
 
The FASB subsequently
 
issued ASU 2021-01,
Reference Rate Reform (Topic
 
848): Scope
 
in
January 2021 which clarified the guidance but did not materially change
 
the guidance or its applicability to the Company.
 
The
amendments provide temporary optional expedients and exceptions
 
for applying U.S. GAAP to contract modifications, hedging
relationships and other transactions to ease the potential accounting
 
and financial reporting burden associated with transitioning away
from reference rates that are expected to be discontinued, including
 
the London Interbank Offered Rate (“LIBOR”).
 
ASU 2020-04 is
effective for the Company as of March 12, 2020 and generally can
 
be applied through December 31, 2022.
 
On June 17, 2022, the
Company entered into an amendment to its primary credit facility which,
 
among other things, provided for the use of a USD currency
LIBOR successor rate (the Secured Overnight Financing Rate (“SOFR”)).
 
See Note 14 of Notes to Condensed 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 chief operating
decision maker assesses the Company’s
 
performance.
 
The Company has
four
 
reportable segments: (i) Americas; (ii) EMEA; (iii)
Asia/Pacific; and (iv) Global Specialty Businesses.
 
The three geographic segments are composed of the net sales and operations in
each respective region, excluding net sales and operations managed globally
 
by the Global Specialty Businesses segment.
 
The Global
Specialty Businesses segment includes the Company’s
 
container, metal finishing,
 
mining, offshore, specialty coatings, specialty
grease and Norman Hay businesses.
Segment operating earnings for each of the Company’s
 
reportable segments are comprised of the segment’s
 
net sales less directly
related cost of goods sold (“COGS”) and selling, general and administrative
 
expenses (“SG&A”).
 
Operating expenses not directly
attributable to the net sales of each respective segment, such as certain corporate
 
and administrative costs, Combination, integration
and other acquisition-related expenses, and Restructuring and related charges,
 
are not included in segment operating earnings.
 
Other
items not specifically identified with the Company’s
 
reportable segments include Interest expense, net and Other (expense) income,
net.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
10
The following table presents information about the performance of
 
the Company’s reportable segments for
 
the three and six
months ended June 30, 2022 and 2021.
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Net sales
 
 
 
 
 
 
 
 
 
 
Americas
$
172,747
$
139,673
$
326,891
$
274,544
EMEA
 
123,053
 
123,436
 
248,740
 
243,250
Asia/Pacific
 
99,828
 
91,559
 
204,062
 
188,265
Global Specialty Businesses
 
96,760
 
80,594
 
186,866
 
158,986
Total net sales
$
492,388
$
435,262
$
966,559
$
865,045
Segment operating earnings
Americas
$
33,785
$
33,648
$
63,005
$
65,882
EMEA
13,283
23,405
30,049
48,649
Asia/Pacific
22,226
23,227
44,133
50,705
Global Specialty Businesses
 
27,841
 
24,209
 
52,876
 
48,378
Total segment operating
 
earnings
 
97,135
 
104,489
 
190,063
 
213,614
Combination, integration and other acquisition-related expenses
(1,832)
(6,658)
(5,885)
(12,473)
Restructuring and related credits (charges), net
1
(298)
(819)
(1,473)
Fair value step up of acquired inventory sold
 
(801)
Non-operating and administrative expenses
(48,579)
(43,077)
(92,042)
(84,069)
Depreciation of corporate assets and amortization
 
(14,822)
 
(15,640)
 
(30,011)
 
(31,088)
Operating income
31,903
38,816
61,306
83,710
Other (expense) income, net
(8,399)
14,010
(10,605)
18,697
Interest expense, net
 
(6,494)
 
(5,618)
 
(11,839)
 
(11,088)
Income before taxes and equity in net (loss) income of
associated companies
$
17,010
$
47,208
$
38,862
$
91,319
Inter-segment revenues for the three and six months ended
 
June 30, 2022, were $
3.3
 
million and $
6.2
 
million for Americas, $
12.4
million and $
21.3
 
million for EMEA, $
0.1
 
million and $
0.4
 
million for Asia/Pacific, and $
2.0
 
million and $
3.7
 
million for Global
Specialty Businesses, respectively.
 
Inter-segment revenues for the three and six months ended
 
June 30, 2021, were $
2.4
 
million and
$
5.7
 
million for Americas, $
6.3
 
million and $
15.1
 
million for EMEA, $
0.4
 
million and $
0.5
 
million for Asia/Pacific, and $
2.1
 
million
and $
4.1
 
million for Global Specialty Businesses, respectively.
 
However, all inter-segment transactions
 
have been eliminated from
each reportable operating segment’s
 
net sales and earnings for all periods presented in the above tables.
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 $
20.5
 
million and $
40.3
 
million
for the three and six months ended June 30, 2022, respectively,
 
and $
16.7
 
million and $
34.5
 
million for the three and six months ended
June 30, 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
11
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 2021 Form 10-K, during
 
the year ended December 31, 2021, the Company’s
 
five largest customers (each composed of
multiple subsidiaries or divisions with semiautonomous purchasing authority)
 
accounted for approximately
10
% of consolidated net
sales, with its largest customer accounting for approximately
3
% of consolidated net sales.
Contract Assets and Liabilities
The Company had no material contract assets recorded on its Condensed
 
Consolidated Balance Sheets as of June 30, 2022 or
December 31, 2021.
The Company had approximately $
6.6
 
million and $
7.0
 
million of deferred revenue as of June 30, 2022 and December 31, 2021,
respectively.
 
For the six months ended June 30, 2022, the Company satisfied all of the associated
 
performance obligations and
recognized into revenue the advance payments received and recorded
 
as of December 31, 2021.
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 segment first, and
 
then by customer industry,
 
rather than
by individual product lines.
 
Also, 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, approximately proportionate to the level of total
 
sales in each region.
The following tables disaggregate the Company’s
 
net sales by segment, geographic region, customer industry,
 
and timing of
revenue recognized for the three and six months ended June 30, 2022
 
and 2021.
Three Months Ended June 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
63,373
$
37,586
$
55,596
$
156,555
Metalworking and other
109,374
85,467
44,232
239,073
172,747
123,053
99,828
395,628
Global Specialty Businesses
62,367
21,324
13,069
96,760
$
235,114
$
144,377
$
112,897
$
492,388
Timing of Revenue Recognized
Product sales at a point in time
$
225,135
$
136,622
$
110,190
$
471,947
Services transferred over time
9,979
7,755
2,707
20,441
$
235,114
$
144,377
$
112,897
$
492,388
Three Months Ended June 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
51,799
$
35,634
$
48,207
$
135,640
Metalworking and other
87,874
87,802
43,352
219,028
139,673
123,436
91,559
354,668
Global Specialty Businesses
46,183
21,678
12,733
80,594
$
185,856
$
145,114
$
104,292
$
435,262
Timing of Revenue Recognized
Product sales at a point in time
$
177,227
$
137,838
$
101,264
$
416,329
Services transferred over time
8,629
7,276
3,028
18,933
$
185,856
$
145,114
$
104,292
$
435,262
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
12
Six Months Ended June 30, 2022
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
119,533
$
74,425
$
110,883
$
304,841
Metalworking and other
207,358
174,315
93,179
474,852
326,891
248,740
204,062
779,693
Global Specialty Businesses
119,631
41,345
25,890
186,866
$
446,522
$
290,085
$
229,952
$
966,559
Timing of Revenue Recognized
Product sales at a point in time
$
426,419
$
273,825
$
224,815
$
925,059
Services transferred over time
20,103
16,260
5,137
41,500
$
446,522
$
290,085
$
229,952
$
966,559
Six Months Ended June 30, 2021
Consolidated
Americas
EMEA
Asia/Pacific
Total
Customer Industries
Metals
$
98,592
$
69,908
$
97,950
$
266,450
Metalworking and other
175,952
173,342
90,315
439,609
274,544
243,250
188,265
706,059
Global Specialty Businesses
91,439
41,950
25,597
158,986
$
365,983
$
285,200
$
213,862
$
865,045
Timing of Revenue Recognized
Product sales at a point in time
$
348,821
$
269,000
$
207,663
$
825,484
Services transferred over time
17,162
16,200
6,199
39,561
$
365,983
$
285,200
$
213,862
$
865,045
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
93 years
.
The Company has
no
 
material variable lease costs, sublease income or finance leases for three and six months ended
 
June 30,
2022 and 2021. The following table sets forth the components of the Company’s
 
lease cost for three and six months ended June 30,
2022 and 2021:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Operating lease expense
$
3,519
$
3,548
$
6,928
$
7,160
Short-term lease expense
205
283
424
534
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
13
Supplemental cash flow information related to the Company’s
 
leases is as follows:
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating leases
$
3,442
$
3,489
$
6,807
$
7,068
Non-cash lease liabilities activity:
Leased assets obtained in exchange for new
operating lease liabilities
3,385
825
8,074
3,875
Supplemental balance sheet information related to the Company’s
 
leases is as follows:
June 30,
December 31,
2022
2021
Right of use lease assets
$
36,317
$
36,635
Other current liabilities
10,452
9,976
Long-term lease liabilities
25,695
26,335
Total operating lease liabilities
$
36,147
$
36,311
Weighted average
 
remaining lease term (years)
5.6
5.6
Weighted average
 
discount rate
4.14%
4.22%
Maturities of operating lease liabilities were as follows:
June 30,
2022
For the remainder of 2022
$
6,201
For the year ended December 31, 2023
10,076
For the year ended December 31, 2024
7,815
For the year ended December 31, 2025
5,749
For the year ended December 31, 2026
4,449
For the year ended December 31, 2027 and beyond
6,678
Total lease payments
40,968
Less: imputed interest
(4,821)
Present value of lease liabilities
$
36,147
Note 7 – Restructuring and Related Activities
The Company’s management approved a global restructuring plan (the “QH Program”) as part of its plan to realize certain cost
synergies associated with the Combination in the third quarter of 2019. The QH Program includes restructuring and associated
severance costs to reduce total headcount by approximately 400 people globally, as well as plans for the closure of certain
manufacturing and non-manufacturing facilities. The exact timing and total costs associated with the QH Program depend on a
number of factors and are subject to change; however, the Company currently expects reduction in headcount and site closures under
the QH Program to continue to occur throughout 2022 and into 2023. Employee separation benefits will vary depending on local
regulations within certain foreign countries and will include severance and other benefits.
All costs incurred to date relate to 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
 
and are recorded in Restructuring and related
charges in the Company’s
 
Condensed Consolidated Statements of Income.
 
As described in Note 4 of Notes to Condensed
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
14
Activity in the Company’s accrual
 
for restructuring under the QH Program for the six months ended June 30, 2022
 
is as follows:
QH Program
Accrued restructuring as of December 31, 2021
$
4,087
Restructuring and related charges
819
Cash payments
(797)
Currency translation adjustments
 
(297)
Accrued restructuring as of June 30, 2022
$
3,812
Note 8 – Share-Based Compensation
The Company recognized the following share-based compensation expense
 
in its Condensed Consolidated Statements of Income
for the three and six months ended June 30, 2022 and 2021:
 
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Stock options
$
469
$
332
$
736
$
640
Non-vested stock awards and restricted stock units
1,667
1,290
3,215
2,686
Non-elective and elective 401(k) matching contribution in stock
1,553
Director stock ownership plan
20
216
44
419
Performance stock units
815
517
1,438
836
Total share-based
 
compensation expense
$
2,971
$
2,355
$
5,433
$
6,134
Share-based compensation expense is recorded in SG&A, except for $
0.1
 
million and $
0.2
 
million for the three and six months
ended June 30, 2022, respectively,
 
and $
0.2
 
million and $
0.5
 
million for the three and six months ended June 30, 2021, respectively,
recorded within Combination, integration and other acquisition-related
 
expenses.
Stock Options
During the first six months of 2022, the Company granted stock options under
 
its long-term incentive plan (“LTIP”)
 
that are
subject only to time vesting over a
three
 
year period.
 
For the purposes of determining the fair value of stock option awards, the
Company used a Black-Scholes option pricing model and the assumptions set forth
 
in the table below:
March 2022
Grant
Number of options granted
27,077
Dividend yield
0.80
%
Expected volatility
38.60
%
Risk-free interest rate
2.07
%
Expected term (years)
4.0
The fair value of these options is amortized on a straight-line basis over the
 
vesting period.
 
As of June 30, 2022, unrecognized
compensation expense related to all stock options granted
 
was $
2.4
 
million, to be recognized over a weighted average remaining
period of
1.6
 
years.
 
Restricted Stock Awards
 
and Restricted Stock Units
During the six months ended June 30, 2022, the Company granted
25,743
 
non-vested restricted shares and
4,490
 
non-vested
restricted stock units under its LTIP,
 
which are subject to time-based vesting, generally over a
three year
 
period.
 
The fair value of
these grants is based on the trading price of the Company’s
 
common stock on the date of grant.
 
The Company adjusts the grant date
fair value of these awards for expected forfeitures based on historical experience.
 
As of June 30, 2022, unrecognized compensation
expense related to the non-vested restricted shares was $
6.2
 
million, to be recognized over a weighted average remaining period
 
of
1.8
years, and unrecognized compensation expense related to non-vested
 
restricted stock units was $
1.2
 
million, to be recognized over a
weighted average remaining period of
2.1
 
years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
15
Performance Stock Units
The Company grants performance-dependent stock awards (“PSUs”) as a component
 
of its LTIP,
 
which will be settled in a
certain number of shares subject to market-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 total shareholder
 
return (“TSR”) relative to the performance of the Company’s
 
peer group, the S&P Midcap 400
Materials group.
 
The service period required for the PSUs is three years and the TSR measurement
 
period for the PSUs is generally
from January 1 of the year of grant through December 31 of the year prior
 
to issuance of the shares upon settlement.
Compensation expense for PSUs is measured based on their grant date fair value
 
and is recognized on a straight-line basis over
the three year vesting period.
 
The grant-date fair value of the PSUs was estimated using a Monte Carlo
 
simulation on the grant date
and using the following assumptions set forth in the table below:
March 2022
Grant
Number of PSUs granted
16,820
Risk-free interest rate
2.11
%
Dividend yield
0.93
%
Expected term (years)
3.0
As of June 30, 2022, based on the conditions of the PSUs and performance to date for
 
each award, the Company estimates that it
will
no
t issue any fully vested shares as of the applicable settlement date of all outstanding PSUs awards.
 
As of June 30, 2022, there
was approximately $
5.5
 
million of total unrecognized compensation cost related to PSUs which the Company
 
expects to recognize
over a weighted-average period of
2.1
 
years.
Defined Contribution Plan
 
The Company has a 401(k) plan with an employer match covering a majority
 
of its U.S. employees.
 
The Company matches
50
%
of the first
6
% of compensation that is contributed to the plan, with a maximum matching contribution of
3
% of compensation.
 
Additionally, the plan
 
provides for non-elective nondiscretionary contributions on behalf of participants
 
who have completed one year
of service equal to
3
% of the eligible participants’ compensation.
 
Beginning in April 2020 and continuing through March 2021, the
Company matched both non-elective and elective 401(k) contributions
 
in fully vested shares of the Company’s common
 
stock rather
than cash.
 
There were
no
 
matching contributions in stock for the three and six months ended June 30, 2022.
 
For the six months ended
June 30, 2021, total contributions were $
1.5
 
million.
 
Note 9 – Pension and Other Postretirement
 
Benefits
The components of net periodic benefit (income) cost for the three and
 
six months ended June 30, 2022 and 2021 are as follows:
Three
 
Months Ended June 30,
 
Six Months Ended June 30,
 
Other
Other
Postretirement
Postretirement
Pension Benefits
Benefits
Pension Benefits
Benefits
2022
2021
2022
2021
2022
2021
2022
2021
Service cost
$
174
$
316
$
8
$
2
$
354
$
632
$
$
3
Interest cost
1,317
1,094
2
10
2,677
2,184
11
21
Expected return on plan assets
(2,012)
(2,093)
(4,097)
(4,175)
Actuarial loss amortization
248
857
(23)
505
1,712
(47)
Prior service cost amortization
2
3
(9)
5
5
(8)
Net periodic benefit (income)
 
cost
$
(271)
$
177
$
(22)
$
12
$
(556)
$
358
$
(44)
$
24
Employer Contributions
As of June 30, 2022, $
1.7
 
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 $
6.6
 
million to its U.S. and
foreign pension plans and approximately $
0.2
 
million to its other postretirement benefit plans in 2022
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
16
Note 10 – Other (Expense) Income, Net
The components of other (expense) income, net, for the three and six months ended June
 
30, 2022 and 2021 are as follows:
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Income from third party license fees
$
249
$
373
$
653
$
712
Foreign exchange losses, net
(2,026)
(838)
(3,931)
(2,316)
(Loss) gain on disposals of property,
 
plant, equipment and other
assets, net
(38)
(54)
(15)
5,356
Non-income tax refunds and other related (expense) credits
(417)
14,295
(1,739)
14,392
Pension and postretirement benefit income,
 
non-service components
475
129
954
253
Loss on extinguishment of debt
(6,763)
(6,763)
Other non-operating income, net
121
105
236
300
Total other (expense)
 
income, net
$
(8,399)
$
14,010
$
(10,605)
$
18,697
Non-income tax refunds and other related (expense) credits during
 
the three and six months ended June 30, 2022, includes
adjustments to Combination-related indemnification assets associated with the
 
settlement of certain income tax audits at certain of the
Company’s Italian and German
 
affiliates for tax periods prior to August 1, 2019.
 
See Note 11 of Notes to Condensed Consolidated
Financial Statements.
 
During the second quarter of 2022, the Company recorded a loss on extinguishment
 
of debt of approximately
$
6.8
 
million which includes the write-off of certain previously unamortized
 
deferred financing costs as well as a portion of the 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 the Condensed Consolidated Financial Statements.
Loss (gain) on disposals of property,
 
plant, equipment and other assets, net, during the six months ended June 30, 2021,
 
includes a
gain on the sale of certain held-for-sale real property assets related
 
to the Combination.
Note 11 – Income Taxes
 
and Uncertain Income Tax
 
Positions
The Company’s effective
 
tax rates for the three and six months ended June 30, 2022 were
8.1
% and
10.9
%, respectively,
compared to
32.2
% and
28.4
% for the three and six months ended June 30, 2021, respectively.
 
The Company’s effective
 
tax rate for
the six months ended June 30, 2022 was largely driven by
 
state tax benefits, changes in the valuation allowance for foreign tax credits
due to recently issued legislative guidance,
 
the impact of audit settlements reached with German and Italian tax authorities, a deferred
tax benefit associated with an intercompany asset transfer,
 
a reduction in reserves for uncertain tax positions relating to management
fees, withholding taxes for increased forecasted dividends and the effects
 
of lower pre-tax earnings and the mix of such earnings.
 
In
addition, the Company incurred higher tax expense during the three and six months ended
 
June 30, 2022 at one of its subsidiaries as it
accrued taxes at a statutory tax rate of
25
% while it awaits recertification of a concessionary
15
% tax rate, which was available to the
Company during all of 2021.
 
Comparatively,
 
the prior year effective tax rates were largely impacted
 
by the sale of a subsidiary which
included certain held-for-sale real property assets related to the Combination
 
,
 
changes in foreign tax credit valuation allowances, tax
law changes in a foreign jurisdiction and the income tax impacts of certain
 
non-income tax credits recorded by the Company’s
Brazilian subsidiaries.
As of December 31, 2021, the Company had a deferred tax liability of $
8.4
 
million on certain undistributed foreign earnings,
which primarily represents the Company’s
 
estimate of non-U.S. income taxes the Company will incur to ultimately remit certain
earnings to the U.S.
 
As of June 30, 2022 this deferred tax liability balance was $
7.4
 
million.
 
As of June 30, 2022, the Company’s
cumulative liability for gross unrecognized tax benefits was $
17.8
 
million, a decrease of approximately $
4.7
 
million from the
cumulative liability accrued as of December 31, 2021.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
17
The Company continues to recognize interest and penalties associated with uncertain
 
tax positions as a component of taxes on
income before equity in net income of associated companies in its Condensed
 
Consolidated Statements of Income.
 
The Company
recognized a benefit for interest of less than $
0.1
 
million and $
0.3
 
million and an expense of less than of $
0.1
 
million and a benefit of
$
1.5
 
million for penalties in its Condensed Consolidated Statement of Income for
 
the three and six months ended June 30, 2022,
respectively, and recognized
 
an expense for interest of approximately $
0.2
 
million and $
0.2
 
million and a benefit of less than $
0.1
million and $
0.2
 
million for penalties in its Condensed Consolidated Statement of Income for
 
the three and six months ended June 30,
2021, respectively.
 
As of June 30, 2022, the Company had accrued $
2.6
 
million for cumulative interest and $
1.5
 
million for
cumulative penalties in its Condensed Consolidated Balance Sheets, compared
 
to $
3.1
 
million for cumulative interest and $
3.1
 
million
for cumulative penalties accrued at December 31, 2021.
During the six months ended June 30, 2022 and 2021, the Company recognized
 
decreases of $
3.5
 
million and $
0.8
 
million,
respectively,
 
in its cumulative liability for gross unrecognized tax benefits due to the settlement
 
of income tax audits with both the
Italian and German tax authorities, as well as the expiration of the applicable
 
statutes of limitations for certain tax years.
The Company estimates that during the year ending December 31, 202
 
2
 
it will reduce its cumulative liability for gross
unrecognized tax benefits by approximately $
4.2
 
million due to the settlement of income tax audits and the expiration of the statute of
limitations with regard to certain tax positions.
 
This estimated reduction in the cumulative liability for unrecognized
 
tax benefits does
not consider any increase in liability for unrecognized tax benefits with regard
 
to existing tax positions or any increase in cumulative
liability for unrecognized tax benefits with regard to new tax positions for
 
the year ending December 31, 2022.
The Company and its subsidiaries are subject to U.S. Federal income tax,
 
as well as the income tax of various state and foreign
tax jurisdictions.
 
Tax years that remain subject
 
to examination by major tax jurisdictions include Italy from
2007
, Brazil from
2011
,
Germany from
2015
, the Netherlands and Mexico from
2016
, Canada, China, Spain and the U.S. from
2017
, the United Kingdom
from
2018
, India from fiscal year beginning April 1, 2017 and ending March 31,
2018
, and various U.S. state tax jurisdictions from
2011
.
 
As previously reported, the Italian tax authorities have assessed additional tax due from the Company’s subsidiary, Quaker Italia
S.r.l., relating to the tax years 2007 through 2015. The Company has filed for competent authority relief from these assessments under
the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except
2007. In 2020, the respective tax authorities in Italy, Spain and the Netherlands reached agreement with respect to the MAP
proceedings which the Company had accepted.
 
As of June 30, 2022, the Company received $
1.6
 
million in refunds from the
Netherlands and Spain.
 
In February 2022, the Company received a settlement notice from the Italian taxing
 
authorities confirming the
amount due of $
2.6
 
million, having granted the Company’s request
 
to utilize its remaining net operating losses to partially offset
 
the
liability.
 
As of June 30, 2022, the Company has paid the full settlement amount, of which approximately
 
$
0.1
 
million may be
refundable.
 
Houghton Italia, S.r.l is also involved
 
in a corporate income tax audit with the Italian tax authorities covering tax years
2014
through
2018
.
 
During the fourth quarter of 2021, the Company settled a portion of the Houghton Italia,
 
S.r.l. corporate income tax
audit with the Italian tax authorities for the tax years 2014 and 2015.
 
During the six months ended June 30, 2022, the Company
settled tax years 2016 through 2018 for a total of $
2.1
 
million.
 
In total, the Company has now settled all years 2014 through 2018 for
$
3.7
 
million.
 
Accordingly, the Company has
 
released all reserves relating to this audit for the settled tax years.
 
As a result of the
settlement and reserve release the Company recognized a net benefit
 
to the tax provision of $
2.0
 
million during the first six months of
2022.
 
The Company has an indemnification receivable of $
3.6
 
million in connection with its claim against the former owners of
Houghton for any pre-Combination tax liabilities arising from this matter.
As previously reported, Houghton Deutschland GmbH is also under
 
audit by the German tax authorities for the tax years
2015
through
2017
.
 
In the second quarter of 2022 the Company settled the corporate tax audit for the
 
tax years 2015-2017 with the German
tax authorities for a total of $
0.1
 
million.
 
The Company has an indemnification receivable of $
0.3
 
million in connection with its claim
against the former owners of Houghton for any pre-Combination tax
 
liabilities arising from this matter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
18
Note 12 – Earnings Per Share
The following table summarizes earnings per share calculations for
 
the three and six months ended June 30, 2022 and 2021:
Three Months Ended
 
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Basic earnings per common share
 
 
 
Net income attributable to Quaker Chemical Corporation
$
14,343
$
33,570
$
34,159
$
72,185
Less: income allocated to participating securities
 
(58)
 
(134)
 
(136)
 
(287)
Net income available to common shareholders
$
14,285
$
33,436
$
34,023
$
71,898
Basic weighted average common shares outstanding
17,834,329
17,802,366
17,830,218
17,793,915
Basic earnings per common share
$
0.80
$
1.88
$
1.91
$
4.04
Diluted earnings per common share
Net income attributable to Quaker Chemical Corporation
$
14,343
$
33,570
$
34,159
$
72,185
Less: income allocated to participating securities
(58)
 
(134)
 
(136)
 
(287)
Net income available to common shareholders
$
14,285
$
33,436
$
34,023
$
71,898
Basic weighted average common shares outstanding
17,834,329
17,802,366
17,830,218
17,793,915
Effect of dilutive securities
7,048
47,155
17,186
52,095
Diluted weighted average common shares outstanding
17,841,377
17,849,521
17,847,404
17,846,010
Diluted earnings per common share
$
0.80
$
1.88
$
1.91
$
4.03
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
33,039
 
and
24,731
 
for the three
and six months ended June 30, 2022, respectively,
 
and
6,793
 
and
2,952
 
for the three and six months ended June 30, 2021, respectively.
Note 13 – Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the six months ended June 30, 2022
 
were as follows:
Global
Specialty
Americas
EMEA
Asia/Pacific
Businesses
Total
Balance as of December 31, 2021
$
214,023
$
135,520
$
162,458
$
119,193
 
$
631,194
Goodwill additions
1,752
32
1,784
Currency translation adjustments
 
237
(9,969)
(8,185)
(4,894)
(22,811)
Balance as of June 30, 2022
$
216,012
$
125,551
$
154,273
$
114,331
 
$
610,167
Gross carrying amounts and accumulated amortization for definite-lived
 
intangible assets as of June 30, 2022 and December 31,
2021 were as follows:
Gross Carrying
Accumulated
Amount
Amortization
2022
2021
2022
2021
Customer lists and rights to sell
$
828,690
 
$
853,122
 
$
167,145
 
$
147,858
Trademarks, formulations and product
 
technology
 
156,262
 
 
163,974
 
 
41,640
 
 
38,747
Other
 
6,269
 
 
6,309
 
 
5,933
 
 
5,900
Total definite-lived
 
intangible assets
$
991,221
 
$
1,023,405
 
$
214,718
 
$
192,505
The Company amortizes definite-lived intangible assets on a straight-line basis over
 
their useful lives.
 
The Company recorded
$
14.7
 
million and $
29.2
 
million of amortization expense for the three and six months ended June
 
30, 2022, respectively.
 
Comparatively,
 
the Company recorded $
15.0
 
million and $
29.8
 
million of amortization expense for the three and six months ended
June 30, 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
19
Estimated annual aggregate amortization expense for the current year
 
and subsequent five years is as follows:
For the year ended December 31, 2022
$
57,515
For the year ended December 31, 2023
57,349
For the year ended December 31, 2024
56,760
For the year ended December 31, 2025
55,970
For the year ended December 31, 2026
55,752
For the year ended December 31, 2027 and beyond
522,946
The Company had four indefinite-lived intangible assets totaling
 
$
186.1
 
million as of June 30, 2022, including $
185.0
 
million of
indefinite-lived intangible assets for trademarks and tradename associated
 
with the Combination.
 
Comparatively, the Company had
four indefinite-lived intangible assets for trademarks and tradename
 
totaling $
196.9
 
million as of December 31, 2021.
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 relevant developments
 
in assessing if a triggering event indicates that it is more likely
than not that the carrying value of any of the Company’s
 
reporting units or indefinite-lived or long-lived assets is not recoverable.
 
The
Company continues to monitor various financial, economic and
 
geopolitical conditions impacting the Company,
 
including the Russia-
Ukraine war and the Company’s decision
 
to cease operations in Russia, raw material, supply chain, and logistics cost escalation,
 
and
rising interest rates and cost of capital among other factors.
 
The Company concluded that these and other factors which have and
continue to impact the Company did not represent a triggering event as of June 30, 2022.
 
The Company continues to take action to
offset these headwinds including, but not limited to, implementing
 
selling price increases aimed at offsetting raw material costs and
ongoing inflationary pressures.
 
However, if the Company is unable to successfully
 
implement these actions and future or projected
financial performance declines, then it is possible any of these financial, economic
 
or geopolitical conditions could represent a
triggering event in the future and could lead to a potential impairment of the
 
Company’s reporting unit goodwill
 
or other indefinite-
lived or long-lived assets.
Note 14 – Debt
 
Debt as of June 30, 2022 and December 31, 2021 includes the following:
As of June 30, 2022
As of December 31, 2021
Interest
Outstanding
 
Interest
Outstanding
 
Rate
Balance
Rate
Balance
Credit Facilities:
Original Revolver
$
1.62%
$
211,955
Original U.S. Term
 
Loan
1.65%
540,000
Original Euro Term
 
Loan
1.50%
137,616
Amended Revolver
3.05%
228,658
Amended U.S. Term
 
Loan
3.08%
600,000
Amended Euro Term
 
Loan
1.50%
148,917
Industrial development bonds
5.26%
10,000
5.26%
10,000
Bank lines of credit and other debt obligations
Various
1,495
Various
1,777
Total debt
$
989,070
$
901,348
Less: debt issuance costs
(2,216)
(8,001)
Less: short-term and current portion of long-term debts
(14,485)
(56,935)
Total long-term debt
$
972,369
$
836,412
Credit facilities
The Company, its wholly
 
owned subsidiary,
 
Quaker Chemical B.V.,
 
as borrowers, Bank of America, N.A., as administrative
agent, U.S. Dollar swing line lender and letter of credit issuer,
 
and the other lenders party thereto, entered into a credit agreement on
August 1, 2019, as amended (the “Original Credit Facility”).
 
The Original Credit Facility was comprised of a $
400.0
 
million
multicurrency revolver (the “Original Revolver”), a $
600.0
 
million term loan (the “Original U.S. Term
 
Loan”), each with the
Company as borrower, and a $
150.0
 
million (as of August 1, 2019) Euro equivalent term loan (the “Original Euro Term
 
Loan”) with
Quaker Chemical B.V.,
 
a Dutch subsidiary of the Company as borrower,
 
each with a five-year term, maturing in
August 2024
.
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
20
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 the Original Credit Facility
(the “Amended Credit Facility”). The Amended Credit Facility established
 
(A) a new $
150.0
 
million Euro equivalent senior secured
term loan (the “Amended Euro Term
 
Loan”), (B) a new $
600.0
 
million senior secured term loan (the “Amended U.S. Term
 
Loan”),
and (C) a new $
500.0
 
million senior secured revolving credit facility (the “Amended Revolver”).
 
The Company has the right to
increase the amount of the Amended 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).
 
In addition, the Amended Credit Facility also:
 
(i) eliminated
 
the requirement that material foreign subsidiaries must guaranty the Original Euro
 
Term Loan;
 
(ii) replaced
 
the U.S. Dollar borrowings reference rate from LIBOR to SOFR;
 
(iii) extended the maturity date of the Original Credit Facility from August 2024 to June 2027;
 
and
(iv) effected certain other changes to the Original Credit
 
Facility as set forth in the Amended Credit Facility.
 
The Company used the proceeds of the Amended Credit Facility to repay
 
all outstanding loans under the Original Credit Facility,
unpaid accrued interest and fees on the closing date under the Original
 
Credit Facility and certain expenses and fees.
 
U.S. Dollar-
denominated borrowings under the Amended Credit Facility bear
 
interest, at the Company’s election, at
 
the base rate or term SOFR
plus an applicable rate ranging from
1.00
% to
1.75
% for term SOFR loans and from
0.00
% to
0.75
% for base rate loans, depending
upon the Company’s consolidated
 
net leverage ratio.
 
Loans based on term SOFR also include a spread adjustment equal to
0.10
% per
annum.
 
Borrowings under the Amended Credit Facility denominated in currencies other
 
than U.S. Dollars bear interest at the
alternative currency term rate plus the applicable rate ranging from
1.00
% to
1.75
%.
The Amended Credit Facility contains affirmative
 
and negative covenants, financial covenants and events of default, including
without limitation restrictions on (a) the incurrence of additional
 
indebtedness;
 
(b) investments in and acquisitions of other businesses,
lines of business and divisions; (c) the making of dividends or capital stock
 
purchases;
 
and (d) dispositions of assets.
 
Dividends and
share repurchases are permitted in annual amounts not exceeding the greater
 
of $
75
 
million annually and
25
% of consolidated
EBITDA if there is no default.
 
All restricted payments may be made if there is no default and if the consolidated
 
net leverage ratio is
less than
2.50
 
to
1.00
.
Financial covenants contained in the Amended Credit Facility include
 
a consolidated interest coverage ratio test and a
consolidated net leverage ratio test.
 
The consolidated net leverage ratio at the end of a quarter may not be
 
greater than
4.00
 
to
1.00
,
subject to a permitted increase during a four-quarter
 
period after certain acquisitions.
 
The Company has the option of replacing the
consolidated net leverage ratio test with a consolidated senior net leverage ratio
 
test if the Company issues certain types of unsecured
notes, subject to certain limitations.
 
Events of default in the Amended Credit Facility include without limitation
 
defaults for non-
payment, breach of representations and warranties, non-performance
 
of covenants, cross-defaults, insolvency,
 
and a change of control
in certain circumstances.
 
The occurrence of an event of default under the Amended Credit Facility could result
 
in all loans and other
obligations becoming immediately due and payable and the Amended
 
Credit Facility being terminated.
 
As of June 30, 2022, the
Company was in compliance with all of the Amended Credit Facility covenants.
The weighted average variable interest rate incurred on the outstanding
 
borrowings under the Original Credit Facility and the
Amended Credit Facility during the six months ended June 30,
 
2022 was approximately
2.0
%. As of June 30, 2022, the interest rate on
the outstanding borrowings under the Amended Credit Facility was approximately
2.8
%.
 
In addition to paying interest on outstanding
principal under the Original Credit Facility,
 
the Company was required to pay a commitment fee ranging from
0.2
% to
0.3
%
depending on the Company’s consolidated
 
net leverage ratio under the Original Revolver in respect of the unutilized commitments
thereunder.
 
As part of the Amended Credit Facility,
 
the Company is required to pay a commitment fee ranging from
0.150
% to
0.275
% related to unutilized commitments under the Amended Revolver,
 
depending on the Company’s
 
consolidated net leverage
ratio.
 
The Company had unused capacity under the Amended Revolver of
 
approximately $
268
 
million, net of bank letters of credit of
approximately $
4
 
million, as of June 30, 2022.
The Company previously capitalized $
23.7
 
million of certain third-party debt issuance costs in connection with executing the
Original Credit Facility.
 
Approximately $
15.5
 
million of the capitalized costs were attributed to the Original Term
 
Loans and
recorded as a direct reduction of Long-term debt on the Condensed
 
Consolidated Balance Sheet.
 
Approximately $
8.3
 
million of the
capitalized costs were attributed to the Original Revolver and recorded
 
within Other assets on the Condensed Consolidated Balance
Sheet.
 
These capitalized costs were being amortized into Interest expense over
 
the
five year
 
term of the Original Credit Facility.
 
As
of December 31, 2021, the Company had $
8.0
 
million of debt issuance costs recorded as a reduction of Long-term debt attributable
 
to
the Original Credit Facility.
 
As of December 31, 2021, the Company had $
4.3
 
million of debt issuance costs recorded within Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
21
assets attributable to the Original Credit Facility.
 
Prior to executing the Amended Credit Facility,
 
the Company had $
6.6
 
million of
debt issuance costs recorded as a reduction of Long-term debt attributable
 
to the Original Credit Facility and $
3.5
 
million of debt
issuance costs recorded within Other assets attributable to the Original
 
Credit Facility.
In connection with executing the Amended Credit Facility,
 
the Company recorded a loss on extinguishment of debt of
approximately $
6.8
 
million which includes the write-off of certain previously
 
unamortized deferred financing costs as well as a
portion of the third-party and creditor debt issuance costs incurred
 
to execute the Amended Credit Facility.
 
Also in connection with
executing the Amended Credit Facility,
 
during the second quarter of 2022, the Company capitalized $
2.2
 
million of certain third-party
and creditor debt issuance costs.
 
Approximately $
0.7
 
million of the capitalized costs were attributed to the Amended Euro Term
 
Loan
and Amended U.S. Term
 
Loan.
 
These costs were recorded as a direct reduction of Long-term debt on the
 
Condensed Consolidated
Balance Sheet.
 
Approximately $
1.5
 
million of the capitalized costs were attributed to the Amended Revolver and
 
recorded within
Other assets on the Condensed Consolidated Balance Sheet.
 
These capitalized costs, as well as the previously capitalized costs that
were not written off will collectively be amortized into Interest expense
 
over the five-year term of the Amended Credit Facility.
 
As of
June 30, 2022, the Company had $
2.2
 
million of debt issuance costs recorded as a reduction of Long-term
 
debt on the Condensed
Consolidated Balance Sheet and $
4.8
 
million of debt issuance costs recorded within Other assets on the Condensed Consolidated
Balance Sheet.
 
The Original Credit Facility required the Company to fix its variable interest
 
rates on at least
20
% of its total Original Term
Loans.
 
In order to satisfy this requirement as well as to manage the Company’s
 
exposure to variable interest rate risk associated with
the Original Credit Facility,
 
in November 2019, the Company entered into $
170.0
 
million notional amounts of three-year interest rate
swaps at a base rate of
1.64
% plus an applicable margin as provided in the Original Credit Facility,
 
based on the Company’s
consolidated net leverage ratio.
 
At the time the Company entered into the swaps, and as of June 30, 2022,
 
the aggregate interest rate
on the swaps, including the fixed base rate plus an applicable margin,
 
was
3.1
%.
 
The Amended Credit Facility does not require the
Company to fix variable interest rates on any portion of its borrowings.
 
As of June 30, 2022, the Company has not amended its
current interest rate swaps.
 
See Note 17 of Notes to Condensed Consolidated Financial Statements.
 
Industrial development bonds
As of June 30, 2022 and December 31, 2021, 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 Amended Credit Facility noted above.
Bank lines of credit and other debt obligations
The Company has certain unsecured bank lines of credit and discount
 
ing 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 June 30, 2022 was approximately
 
$
28
 
million.
In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s other off-balance
sheet arrangements include certain financial and other guarantees. The Company’s total bank letters of credit and guarantees
outstanding as of June 30, 2022 were approximately $5 million.
The Company incurred the following debt related expenses included
 
within Interest expense, net, in the Condensed Consolidated
Statements of Income:
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Interest expense
$
6,134
$
4,813
$
10,880
$
9,463
Amortization of debt issuance costs
1,049
1,188
2,236
2,375
Total
$
7,183
$
6,001
$
13,116
$
11,838
Based on the variable interest rates associated with the Amended
 
Credit Facility, as of June 30,
 
2022 and the Original Credit
Facility as of December 31, 2021, the amounts at which the Company’s
 
total debt were recorded are not materially different from their
fair market value.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
22
On June 30, 2022, annual maturities on the Amended Credit Facility in the next
 
five fiscal years (excluding the reduction to
long-term debt attributed to capitalized and unamortized debt issuance costs)
 
are as follows:
 
`
June 30,
2022
For the remainder of 2022
$
4,681
For the year ended December 31, 2023
18,723
For the year ended December 31, 2024
23,404
For the year ended December 31, 2025
37,446
For the year ended December 31, 2026
37,446
For the year ended December 31, 2027
855,875
Total payments
$
977,575
Note 15 – Accumulated Other Comprehensive Income
The following tables show the reclassifications from and resulting balances
 
of accumulated other comprehensive income
(“AOCI”) for the three and six months ended June 30, 2022 and 2021:
Defined
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at March 31, 2022
$
(56,710)
$
(12,676)
$
(603)
$
(272)
$
(70,261)
Other comprehensive (loss) income before
 
reclassifications
(76,400)
1,650
(1,043)
747
(75,046)
Amounts reclassified from AOCI
218
325
543
Related tax amounts
(461)
151
(172)
(482)
Balance at June 30, 2022
$
(133,110)
$
(11,269)
$
(1,170)
$
303
$
(145,246)
Balance at March 31, 2021
$
(28,334)
$
(22,175)
$
317
$
(3,036)
$
(53,228)
Other comprehensive income (loss) before
reclassifications
16,157
(260)
341
586
16,824
Amounts reclassified from AOCI
852
2
854
Related tax amounts
(195)
(64)
(134)
(393)
Balance at June 30, 2021
$
(12,177)
$
(21,778)
$
596
$
(2,584)
$
(35,943)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
23
Defined
Unrealized
Currency
Benefit
Gain (Loss) in
Translation
Pension
Available-for-
Derivative
Adjustments
Plans
Sale Securities
Instruments
Total
Balance at December 31, 2021
$
(49,843)
$
(13,172)
$
397
$
(1,372)
$
(63,990)
Other comprehensive (loss) income before
reclassifications
(83,267)
2,082
(2,320)
2,175
(81,330)
Amounts reclassified from AOCI
447
336
783
Related tax amounts
(626)
417
(500)
(709)
Balance at June 30, 2022
$
(133,110)
$
(11,269)
$
(1,170)
$
303
$
(145,246)
Balance at December 31, 2020
$
(2,875)
$
(23,467)
$
3,342
$
(3,598)
$
(26,598)
Other comprehensive (loss) income before
 
reclassifications
(9,302)
521
(404)
1,316
(7,869)
Amounts reclassified from AOCI
1,714
(3,083)
(1,369)
Related tax amounts
(546)
741
(302)
(107)
Balance at June 30, 2021
$
(12,177)
$
(21,778)
$
596
$
(2,584)
$
(35,943)
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.
Note 16 – Fair Value
 
Measurements
The Company has valued its company-owned life insurance policies at fair value.
 
These assets are subject to fair value
measurement as follows:
Fair Value
 
Measurements at June 30, 2022
Total
Using Fair Value
 
Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
$
2,112
$
$
2,112
$
Total
$
2,112
$
$
2,112
$
Fair Value
 
Measurements at December 31, 2021
Total
Using Fair Value
 
Hierarchy
Assets
Fair Value
Level 1
Level 2
Level 3
Company-owned life insurance
 
$
2,533
$
$
2,533
$
Total
$
2,533
$
$
2,533
$
The fair values of Company-owned life insurance assets are based on quotes
 
for like instruments with similar credit ratings and
terms.
 
The Company did not hold any Level 3 investments as of June 30, 2022 or
 
December 31, 2021, respectively,
 
so related
disclosures have not been included.
Note 17 – Hedging Activities
In order to satisfy certain requirements of the Original Credit Facility as well as to manage
 
the Company’s exposure to variable
interest rate risk associated with the Original Credit Facility,
 
in November 2019, the Company entered into $
170.0
 
million notional
amounts of
three year
 
interest rate swaps.
 
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.
In June 2022, the Company amended the Original Credit Facility.
 
See Note 14 of Notes to the Condensed Consolidated Financial
Statements.
 
The Amended Credit Facility does not require the Company to fix variable
 
interest rates on any portion of its borrowings.
The balance sheet classification and fair values of the Company’s
 
derivative instruments, which are Level 2 measurements, are as
follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
24
Fair Value
Condensed Consolidated
June 30,
 
December 31,
Balance Sheet Location
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
Prepaid expenses and other current assets
$
394
$
Other accrued liabilities
1,782
$
394
$
1,782
The following table presents the net unrealized (gain) loss deferred to AOCI:
June 30,
 
December 31,
2022
2021
Derivatives designated as cash flow hedges:
Interest rate swaps
AOCI
$
(303)
$
1,372
$
(303)
$
1,372
The following table presents the net loss reclassified from AOCI to earnings:
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Amount and location of expense reclassified
from AOCI into expense (effective portion)
Interest expense, net
$
(378)
$
(659)
$
(1,015)
$
(1,302)
Interest rate swaps are entered into with a limited number of counterparties,
 
each of which allows for net settlement of all
contracts through a single payment in a single currency in the event of a default
 
on or termination of any one contract.
 
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.
Note 18 – Commitments and Contingencies
The Company previously disclosed in its 2021 Form 10-K that AC Products, Inc.
 
(“ACP”), a wholly owned subsidiary,
 
in 2007,
agreed to operate two groundwater treatment systems, so as to hydraulically
 
contain groundwater contamination emanating from
ACP’s site until such time as the concentrations
 
of contaminants are below the current Federal maximum contaminant
 
level for four
consecutive quarterly sampling events. In 2014, ACP ceased operation
 
at one of its two groundwater treatment systems, as it had met
the above condition for closure. As of June 30, 2022, ACP continues to operate
 
the second groundwater treatment system, while the
Company discusses with the relevant authorities whether the second groundwater
 
treatment system meets the conditions for closure.
 
In addition, the Santa Ana Regional Water
 
Quality Control Board requested that ACP conduct additional indoor
 
and outdoor soil
vapor testing on and near the ACP site to confirm that ACP continues to
 
meet the applicable local soil vapor standards.
 
As of June 30,
2022, ACP performed such testing and is awaiting the review of the results from
 
the Santa Ana Regional Water
 
Quality Control
Board.
As of June 30, 2022, the Company believes that the range of potential-known
 
liabilities associated with the balance of the ACP
water remediation program is approximately $
0.1
 
million to $
1.0
 
million.
 
The low and high ends of the range are based on the length
of operation of the treatment system as determined by groundwater modeling.
 
Costs of operation include the operation and
maintenance of the extraction well, groundwater monitoring and
 
program management.
The Company previously disclosed in its 2021 Form 10-K that an inactive
 
subsidiary of the Company that was acquired in 1978
sold certain products containing asbestos, primarily on an installed basis, and
 
is among the defendants in numerous lawsuits alleging
injury due to exposure to asbestos.
 
During the three and six months ended June 30, 2022, there have been no
 
significant changes to
the facts or circumstances of this previously disclosed matter,
 
aside from on-going claims and routine payments associated with this
litigation.
 
Based on a continued analysis of the existing and anticipated future claims against this subsidiary,
 
it is currently projected
that the subsidiary’s total liability over
 
the next 50 years for these claims is approximately $
0.3
 
million (excluding costs of defense).
The Company previously disclosed in its 2021 Form 10-K that it is party to certain environmental
 
matters related to certain
domestic and foreign properties.
 
These environmental matters primarily require the Company
 
to perform long-term monitoring and
maintenance at each of the applicable sites.
 
During the three and six months ended June 30, 2022, there have been no significant
changes to the facts or circumstances of these previously disclosed matters,
 
aside from on-going monitoring and maintenance
activities and routine payments associated with each of the sites.
 
The Company continually evaluates its obligations related to such
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts,
 
unless otherwise stated)
(Unaudited)
25
matters, and based on historical costs incurred and projected costs to be incurred
 
over the next approximately 30 years, has estimated
the range of costs for all of these environmental matters, on a discounted
 
basis, to be between approximately $
5.0
 
million and $
6.0
million as of June 30, 2022, for which $
5.5
 
million was accrued within other accrued liabilities and other non-current
 
liabilities on the
Company’s Condensed Consolidated
 
Balance Sheet as of June 30, 2022.
 
Comparatively, as of December
 
31, 2021, the Company had
$
5.6
 
million accrued for with respect to these matters.
Although there can be no assurance regarding the outcome of other
 
unrelated environmental matters, the Company believes that it
has made adequate accruals for costs associated with other environmental problems
 
for which it is aware, and has accrued $
0.4
 
million
as of both June 30, 2022 and December 31, 2021, respectively,
 
to provide for such anticipated future environmental assessments and
remediation costs.
 
The Company previously disclosed in its 2021 Form 10-K that during the first six months
 
of 2021, one of the Company’s
Brazilian subsidiaries received a notice that it had prevailed on an existing
 
legal claim in regard to certain non-income (indirect) taxes
that had been previously charged and paid.
 
The matter specifically related to companies’ rights to exclude the state tax on goods
circulation (a valued-added-tax or VAT
 
equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect
taxes (specifically the program of social integration (“PIS”) and contribution
 
for the financing of social security (“COFINS”)) levied
by the Brazilian States on the sale of goods.
 
In May 2021, the Brazilian Supreme Court concluded that ICMS should
 
not be included
in the tax base of PIS and COFINS, and confirmed the methodology for calculating the
 
PIS and COFINS tax credit claims to which
taxpayers are entitled.
 
The Company’s Brazilian entities had previously
 
filed legal or administrative disputes on this matter and are
entitled to receive tax credits and interest dating back five years preceding the
 
date of their legal claims.
 
As a result of these court
rulings in the first six months of 2021, the Company recognized non-income
 
tax credits of
67.0
 
million BRL or approximately $
13.3
million, which includes approximately $
8.4
 
million for the PIS and COFINS tax credits as well as interest on these tax credits of $
4.9
million.
 
The tax credits to which the Company’s
 
Brazilian subsidiaries are entitled are claimable once registered with the Brazilian
tax authorities which the Company subsequently completed.
 
These tax credits can be used to offset future Brazilian federal taxes
 
and
the Company currently anticipates using the full amount of credits during the
 
five year period of time permitted.
In connection with obtaining regulatory approvals for the Combination,
 
certain steel and aluminum related product lines of
Houghton were divested in August 2019. The Company previously disclosed
 
in its 2021 Form 10-K that in July 2021, the entity that
acquired these divested product lines submitted an indemnification claim
 
for certain alleged breaches of representation made by
Houghton in the agreement pursuant to which such assets had been divested.
 
The Company responded to the subject matters of the
indemnification claim and during the first quarter of 2022, the
 
matter was resolved consistent with the Company’s
 
expectations and
position that there were no amounts owed by the Company.
 
The Company previously disclosed in its 2021 Form 10-K that two of the Company’s
 
locations suffered property damages as a
result of flooding and fire, respectively.
 
The Company maintains property insurance for all of its facilities globally.
 
During the six
months ended June 30, 2022, there have been no significant changes to
 
the facts or circumstances of these previously disclosed
matters, aside from the on-going restoration of both sites.
 
The Company, its insurance
 
adjuster and insurance carrier are actively
managing the remediation and restoration activities associated with these
 
events and at this time the Company has concluded, based on
all available information and discussions with its insurance adjuster and
 
insurance carrier, that the losses were covered under
 
the
Company’s property insurance
 
coverage, net of an aggregate deductible of $
2.0
 
million.
 
The Company has received payments from
its insurers of $
2.1
 
million and has recorded an insurance receivable associated with these events (and
 
a gain on insurance recoveries
for losses incurred) of $
0.9
 
million as of June 30, 2022.
The Company is party to other litigation which management currently
 
believes will not have a material adverse effect on the
Company’s results of operations,
 
cash flows or financial condition.
 
In addition, the Company has an immaterial amount of contractual
purchase obligations.
Quaker Chemical Corporation
Management’s Discussion and Analysis
26
Item 2.
 
Management’s Discussion and Analysis
 
of Financial Condition and Results of Operations
.
As used in this 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 term the
“Combination” refers to the legacy Quaker combination with Houghton
 
International, Inc. (“Houghton”) on August 1, 2019.
Executive Summary
Quaker Houghton is the global leader in industrial process fluids.
 
With a presence around the world, including operations
 
in over
25 countries, our customers include thousands of the world’s
 
most advanced and specialized steel, aluminum, automotive, aerospace,
offshore, container,
 
mining, and metalworking companies.
 
Our high-performing, innovative and sustainable solutions are backed
 
by
best-in-class technology,
 
deep process knowledge, and customized services.
 
Quaker Houghton is headquartered in Conshohocken,
Pennsylvania, located near Philadelphia in the U.S.
Overall, the Company’s second
 
quarter of 2022 performance reflected continued progress navigating
 
through a myriad of
financial, economic and geopolitical headwinds, including persistent and
 
significant raw material cost escalation and overall
inflationary pressures, supply chain and logistics challenges,
 
production and distribution disruptions due to COVID-19 related actions
in China, the direct and indirect impacts of the ongoing war in Ukraine
 
and foreign currency volatility.
 
Despite these challenges, net
sales in the second quarter of 2022 were a record $492.4 million, representing
 
an increase of approximately 13% compared to $435.3
million in the second quarter of 2021.
 
This was primarily driven by an increase in selling price and product mix of approximately
22% and additional net sales from acquisitions of 1%, partially offset
 
by a decline in organic sales volumes of 4% and the unfavorable
impact from foreign currency translation of 6%.
 
The increase in selling price and product mix is primarily the result of
 
strategic price
increases implemented to help offset the ongoing inflationary
 
pressures that began during 2021 and have continued into 2022.
 
The
decline in organic sales volumes was primarily attributable
 
to COVID-19 related disruptions in China, the wind-down of the tolling
agreement for products previously divested related to the Combination,
 
the impact of the war in Ukraine and the Company’s
 
ongoing
value-based pricing initiatives.
The Company generated net income in the second quarter of 2022 of $14.3
 
million, or $0.80 per diluted share, compared to net
income of $33.6 million, or $1.88 per diluted share in the second quarter of
 
2021.
 
Excluding non-recurring and non-core items in each
period, the Company’s second
 
quarter of 2022 non-GAAP earnings per diluted share were $1.32 compared
 
to $1.82 in the prior year
quarter and the Company’s current
 
quarter adjusted EBITDA was $58.5 million compared to $70.1 million in
 
the second quarter of
2021.
 
These results were primarily driven by lower gross margins in
 
the current quarter due to a significant increase in raw material
and other input costs as well as the direct and indirect impacts of global supply
 
chain disruptions, the unfavorable impact of foreign
currency, and to a lesser extent,
 
by higher selling, general and administrative expenses (“SG&A”).
 
See the Non-GAAP Measures
section of this Item below,
 
as well as other items discussed in the Company’s
 
Consolidated Operations Review in the Operations
section of this Item, below.
The Company’s second quarter
 
of 2022 operating performance in each of its four reportable segments: (i) Americas;
 
(ii) Europe,
Middle East and Africa (“EMEA”); (iii) Asia/Pacific; and (iv) Global Specialty
 
Businesses, reflect similar drivers to that of its
consolidated performance as each of the Company’s
 
reportable segments net sales benefitted year-over-year from double-digit
increases in selling price and product mix and additional net sales from
 
acquisitions, while those increases in net sales for most
segments were partially offset by lower organic
 
sales volumes and the unfavorable impact of foreign currency translation.
 
Organic
volumes for the Global Speciality Businesses increased in the second
 
quarter of 2022 compared to the prior year quarter due to strong
demand for this segment’s products
 
.
 
Operating earnings for the Global Specialty Businesses and Americas
 
increased compared to the
prior year quarter, whereas operating earnings
 
for Asia/Pacific and EMEA declined, due to the persistent and significant
 
inflationary
pressures on raw materials and other costs, the impact of COVID-19 disruptions
 
in China, and the negative impact of foreign currency
translation, partially offset by continued price
 
realization.
 
Sequentially, operating earnings increased
 
in Global Speciality Businesses
and the Americas driven by higher selling prices, and was relatively consistent
 
in Asia/Pacific.
 
Operating margins for the three
aforementioned segments increased sequentially,
 
as price realization was able to help offset the inflationary pressures
 
on each of the
segment’s gross margins.
 
Additional details of each segment’s operating performance
 
are further discussed in the Company’s
Reportable Segments Review,
 
in the Operations section of this Item, below.
Quaker Chemical Corporation
Management’s Discussion and Analysis
27
The Company had a net operating cash outflow of $8.4 million in the first six months
 
of 2022 as compared to a net operating cash
outflow of $9.6 million in the first six months of 2021.
 
The net operating cash outflow in both periods reflects a significant working
capital investment primarily related to higher accounts receivable due to
 
the increase in net sales as well as higher inventory due
primarily to the rising cost of raw materials and to a lesser extent a build in certain
 
inventory stock in response to global supply chain
and logistics challenges.
 
The key drivers of the Company’s operating
 
cash flow and working capital are further discussed in the
Company’s Liquidity and Capital
 
Resources section of this Item, below.
Overall, the Company delivered another quarter of strong net sales growth,
 
driven by strong price realization and above market
growth.
 
The expected decline in earnings was primarily driven by ongoing inflationary
 
pressures, COVID-19 disruptions in China,
unfavorable currency translation, geopolitical issues and other disruptions
 
that impacted our customers and end markets.
Notwithstanding, we delivered double-digit year-over-year
 
increases in selling price and largely stabilized the Company’s
 
gross
margins on a sequential basis despite continued increases
 
in our costs.
 
Looking at the remainder of 2022, the Company’s
 
focus
remains on executing on items within its control.
 
The Company is encouraged by the momentum in its business and resilience of its
end markets, with some regional differences.
 
The Company continues to work with its customers to get the needed pricing to
 
offset
the persistent inflationary pressures on its margin while
 
also exhibiting continued cost controls.
 
Despite significant uncertainty
caused by several macroeconomic factors, the Company
 
continues to expect to deliver sequential gross margin expansion
 
and earnings
growth in the second half of 2022.
On-going impact of COVID-19
The global outbreak of COVID-19 in March of 2020 has negatively impacted
 
all locations where the Company does business.
 
Although the Company has now operated in this COVID-19 environment
 
for more than two years, the full extent of the outbreak and
related business impacts continue to remain uncertain and volatile, and
 
therefore the full extent to which COVID-19 may impact the
Company’s future results of operations
 
or financial condition is uncertain.
 
This outbreak has significantly disrupted the operations of
the Company and those of its suppliers and customers and, at times during
 
the pandemic, the Company has experienced volume
declines as compared to pre-COVID-19 levels.
 
Management continues to monitor the impact that the COVID-19 pandemic is having
on the Company,
 
the overall specialty chemical industry and the economies and markets in which the Company
 
operates.
 
The
prolonged pandemic and resurgences of the outbreak
 
including as new variants continue to emerge, and continued restrictions on
 
day-
to-day life and business operations such as recent restrictions in China as well as border
 
controls or closures and transportation
disruptions may result in volume declines and lower net sales in future periods.
 
To the extent that the Company’s
 
customers and
suppliers are adversely impacted by COVID-19, this could reduce the
 
availability, or result in delays,
 
of materials or supplies to or
from the Company, which
 
in turn could significantly interrupt the Company’s
 
business operations.
 
Given this ongoing uncertainty,
the Company cautions that its future results of operations could be significantly
 
and adversely impacted by COVID-19.
 
While the
circumstances have presented and are expected to continue to present challenges
 
and have necessitated additional time and resources
to be deployed to sufficiently address the challenges
 
brought on by the pandemic at this time, Management does not believe that
COVID-19 has had a material impact on its financial reporting processes, internal
 
controls over financial reporting, or disclosure
controls and procedures.
 
The Company’s top priority
 
is to protect the health and safety of its employees and customers, while working to ensure business
continuity to meet customers’ needs.
 
During the pandemic, the Company has taken incremental steps to protect
 
the health and
wellbeing of its people in affected areas through various actions, including
 
enabling work at home where needed and practicable, and
employing social distancing standards, implementing travel restrictions where
 
applicable, enhancing onsite hygiene practices, and
instituting visitation restrictions at the Company’s
 
facilities.
 
The Company has not and does not expect that it will incur material
expenses implementing these health and safety policies.
 
All of the Company’s more than 30 production
 
facilities worldwide are open
and operating and are deemed as essential businesses in the jurisdictions where
 
they are operating.
 
The Company continues to expect
that the impacts from COVID-19 will gradually decline subject to the effective
 
containment of the virus and its variants and successful
distribution and acceptance of the available vaccines and treatments; however,
 
the incidence of reported cases of COVID-19 or a
variant in several geographies where the Company has significant operations
 
remains relatively high.
 
Differing government responses
to these reported cases continues to evolve and it therefore remains highly uncertain
 
as to how long the global pandemic and related
economic challenges will last in each of the jurisdictions where the Company conducts
 
business and when our customers’ businesses
will recover to pre-COVID-19 levels.
 
Though the Company was able to supply customers with value added solutions,
 
as a result of
the government-imposed quarantine and lockdown measures implemented
 
at the end of March 2022 and continuing in effect until
early June 2022, the Company’s Shanghai,
 
China-based locations were significantly impacted.
 
The negative impact of those measures
on our operations and liquidity was experienced during the second quarter of 2022
 
and the ultimate impact will depend on how
quickly the Chinese economy recovers from the quarantine and lockdown
 
measures that were temporarily implemented.
 
While the
actions the Company has taken to date to protect our workforce, to continue to
 
serve our customers with excellence and to conserve
cash and reduce costs as applicable, have been effective thus far,
 
further actions to respond to the pandemic and its effects may
 
be
necessary as conditions continue to evolve.
Quaker Chemical Corporation
Management’s Discussion and Analysis
28
Impact of Political Conflicts
 
A significant portion of the Company’s
 
revenues and earnings are generated by non-U.S. operations.
 
This subjects the Company
to political and economic risks that could adversely affect the Company’s
 
business, liquidity, financial
 
position and results of
operations.
 
The existence of military conflicts, for example the Russian invasion of Ukraine,
 
bring inherent risks such as the potential
for supply chain disruptions, increased costs of resources including oil, decreased
 
trade activity and other consequences related to
economic or other sanctions.
 
The U.S. government and other nations have imposed significant restrictions
 
on most companies’ ability
to do business in Russia as a result of the military conflict between Russia and Ukraine.
 
It is not possible to predict the broader or
longer-term consequences of this conflict, which could include further sanctions,
 
embargoes, regional instability,
 
geopolitical shifts
and adverse effects on macroeconomic conditions,
 
security conditions, currency exchange rates and financial markets.
 
The military
conflict between Russia and Ukraine has had a negative impact on the Company’s
 
ability to sell to, ship products to collect payments
from, and support customers in certain regions based on trade restrictions,
 
embargoes and export control law restrictions, and
 
logistics
restrictions including closures of air space.
 
If this conflict continues or expands, it could increase the costs, risks and adverse impacts
from these new challenges.
 
The Company and its customers and suppliers may also be the subject of increased cyber-attacks.
 
During the second quarter of 2022, the Company decided to cease its operations
 
in Russia.
 
The Company’s operations
 
in the
conflict areas including Russia, Ukraine and Belarus historically represented
 
less than 2% of the Company’s consolidated net
 
sales
and less than 1% of the Company’s
 
consolidated total assets.
 
The Company’s primary exposure
 
in the conflict areas related to
outstanding customer accounts receivable.
 
The Company is actively monitoring its outstanding Russian receivables for collections
and has recorded incremental allowances
 
for doubtful accounts where warranted.
Liquidity and Capital Resources
At June 30, 2022, the Company had cash and cash equivalents of $202.3
 
million.
 
Total cash and cash equivalents
 
was $165.2
million at December 31, 2021.
 
The $37.2 million increase in cash and cash equivalents was the net result of $78.6
 
million of cash
provided by financing activities partially offset by $8.4 million
 
of cash used in operating activities, $24.4 million of cash used in
investing activities and $8.6 million negative impact due to the effect
 
of foreign currency translation.
Net cash flows used in operating activities were $8.4 million in the first six months
 
of 2022 compared to net cash flows used in
operating activities of $9.6 million in the first six months of 2021.
 
The net operating cash outflow in both periods reflects working
capital investment primarily related to higher accounts receivable due to
 
the increase in net sales and higher inventory due primarily to
the rising cost of raw materials and to a lesser extent a build in certain inventory
 
in response to global supply chain and logistics
challenges.
 
The slight improvement in operating cash flow year-over-year
 
is a result of a lower working capital investment partially
offset by lower earnings in the first six months of 2022 compared
 
to the first six months of 2021.
Net cash flows used in investing activities were $24.4 million in the
 
first six months of 2022 compared to $21.7 million in the first
six months of 2021.
 
This increase in cash outflows was a result of lower cash proceeds from the disposition of
 
assets which included
the sale of certain held-for-sale real property assets related
 
to the Combination in the prior year period, and higher capital expenditures
in the current year largely related to certain infrastructure
 
and sustainability-related spending.
 
These increases in cash used in
investing activities were partially offset by lower cash
 
payments related to acquisitions as a result of the level of acquisition activity in
each year.
 
See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of
 
this Report.
 
Net cash flows provided by financing activities were $78.6 million in the first
 
six months of 2022 compared to net cash flows
used in financing activities of $4.4 million in the first six months of 2021.
 
The increase in net cash flows was primarily related to an
increase in borrowings in the current year under the Company’s
 
credit facility, which was amended
 
and extended, as further described
below, in the second
 
quarter of 2022.
 
In addition, the Company paid $14.9 million of cash dividends during the first six months
 
of
2022, a $0.7 million or 5% increase in cash dividends compared to the prior
 
year.
 
The Company, its wholly
 
owned subsidiary,
 
Quaker Chemical B.V.,
 
as borrowers, Bank of America, N.A., as administrative
agent, U.S. Dollar swing line lender and letter of credit issuer,
 
and the other lenders party thereto, entered into a credit agreement on
August 1, 2019, as amended (the “Original Credit Facility”).
 
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 the Original Credit Facility (the “Amended
 
Credit Facility”).
 
The Company used the proceeds of the
Amended Credit Facility to repay all outstanding loans under the Original
 
Credit Facility, as well as accrued interest
 
and fees, and to
terminate the revolving credit commitments under the Original Credit
 
Facility.
Quaker Chemical Corporation
Management’s Discussion and Analysis
29
The Company’s Amended Credit
 
Facility is comprised of a $500.0 million multicurrency revolver,
 
a $600.0 million term loan and
a $150.0 million (as of June 17, 2022) Euro equivalent term loan (collectively,
 
the “Amended Term Loans”)
 
with the Company and
Quaker Houghton B.V.,
 
as borrowers, each with a five-year term maturing in June 2027.
 
Subject to the consent of the Administrative
Agent and certain other conditions, the Company may designate additional
 
borrowers. The Company has the right to increase the
amount of the Amended Credit Facility by an aggregate amount not
 
to exceed the greater of (i) $300 million and (ii) 100% of
Consolidated EBITDA, subject to certain conditions, including
 
the agreement to provide financing by any Lender providing any such
increase. U.S. Dollar-denominated borrowings
 
under the Amended Credit Facility bear interest, at the Company’s
 
election, at the base
rate or term Secured Overnight Financing Rate (“SOFR”) plus an applicable
 
rate ranging from 1.00% to 1.75% for term SOFR loans
and from 0.00% to 0.75% for base rate loans, depending upon the
 
Company’s consolidated net leverage
 
ratio.
 
Loans based on term
SOFR also include a spread adjustment equal to 0.10% per annum.
 
Borrowings under the Amended Credit Facility denominated in
currencies other than U.S. Dollars bear interest at the alternative currency
 
term rate plus the applicable rate ranging from 1.00% to
1.75%. In addition to paying interest on outstanding principal under
 
the Amended Credit Facility, the Company
 
is required to pay a
commitment fee ranging from 0.15% to 0.275% depending on the
 
Company’s consolidated net leverage
 
ratio to the Lenders under the
Amended Revolver in respect of the unutilized commitments thereunder.
The Amended Credit Facility contains affirmative
 
and negative covenants, financial covenants and events of default that are
customary for agreements of this nature.
 
The Amended Credit Facility contains a number of customary business covenants,
 
including
without limitation restrictions on (a) the incurrence of additional
 
indebtedness by the Company or certain of its subsidiaries, (b)
investments in and acquisitions of other businesses, lines of business and
 
divisions by the Company or certain of its subsidiaries, (c)
the payment of dividends or capital stock purchases by the Company
 
or certain of its subsidiaries and (d) dispositions of assets by the
Company or certain of its subsidiaries.
 
Dividends and share repurchases are permitted in annual amounts
 
not exceeding the greater of
$75 million annually and 25% of Consolidated EBITDA if there is no default.
 
All restricted payments may be made if there is no
default and if the consolidated net leverage ratio is less than 2.50
 
to 1.00.
 
Financial covenants contained in the Amended Credit Facility include
 
a consolidated interest coverage ratio test and a
consolidated net leverage ratio test.
 
The consolidated net leverage ratio at the end of a quarter may not be
 
greater than 4.00 to 1.00,
subject to a permitted increase during a four quarter period
 
after certain acquisitions.
 
The Company has the option of replacing the
consolidated net leverage ratio test with a consolidated senior net leverage ratio
 
test if the Company issues certain types of unsecured
debt, subject to certain customary limitations. Customary events of
 
default in the Amended Credit Facility include without limitation
defaults for non-payment, breach of representations and warranties, non
 
-performance of covenants, cross-defaults, insolvency,
 
and a
change of control of the Company in certain circumstances.
 
The occurrence of an event of default under the Amended Credit Facility
could result in all loans and other obligations becoming immediately
 
due and payable and the Amended Credit Facility being
terminated.
 
The Original Credit Facility required the Company to fix its variable interest
 
rates on at least 20% of its total Original Term
Loans.
 
In order to satisfy this requirement as well as to manage the Company’s
 
exposure to variable interest rate risk associated with
the Original Credit Facility,
 
in November 2019, the Company entered into $170.0 million notional
 
amounts of three year interest rate
swaps at a base rate of 1.64% plus an applicable margin as provided
 
in the Original Credit Facility, based
 
on the Company’s
consolidated net leverage ratio.
 
At the time the Company entered into the swaps, and as of June 30, 2022,
 
the aggregate interest rate
on the swaps, including the fixed base rate plus an applicable margin,
 
was 3.1%.
 
The Amended Credit Facility does not require the
Company to fix variable interest rates on any portion of its borrowings.
The Company previously capitalized $23.7 million of certain third-party
 
debt issuance costs in connection with the Original
Credit Facility.
 
Approximately $15.5 million of the capitalized costs were attributed
 
to the Original Term Loans and recorded
 
as a
direct reduction of Long-term debt on the Condensed Consolidated
 
Balance Sheet.
 
Approximately $8.3 million of the capitalized
costs were attributed to the Original Revolver and recorded within Other
 
assets on the Condensed Consolidated Balance Sheet.
 
These
capitalized costs were being amortized into Interest expense over
 
the five-year term of the Original Credit Facility.
 
As of December
31, 2021, the Company had $8.0 million of debt issuance costs recorded
 
as a reduction of Long-term debt attributable to the Original
Credit Facility.
 
As of December 31, 2021, the Company had $4.3 million of debt issuance
 
costs recorded within Other assets
attributable to the Original Credit Facility.
 
Prior to executing the Amended Credit Facility,
 
the Company had $6.6 million of debt
issuance costs recorded as a reduction of Long-term debt attributable
 
to the Original Credit Facility and $3.5 million of debt issuance
costs recorded within Other assets attributable to the Original Credit Facility.
 
In connection with executing the Amended Credit
Facility, the Company
 
recorded a loss on extinguishment of debt of approximately $6.8 million which
 
includes the write-off of certain
previously unamortized deferred financing costs as well as a portion of
 
the third party and creditor debt issuance costs incurred to
execute the Amended Credit Facility.
 
Also in connection with executing the Amended Credit Facility,
 
during the second quarter of
2022, the Company capitalized $2.2 million of certain third-party
 
debt issuance costs.
 
Approximately $0.7 million of the capitalized
costs were attributed to the Amended Euro Term
 
Loan and Amended U.S. Term
 
Loan. These costs were recorded as a direct reduction
of Long-term debt on the Condensed Consolidated Balance Sheet.
 
Approximately $1.5 million of the capitalized costs were attributed
to the Amended Revolver and recorded within Other assets on the
 
Condensed Consolidated Balance Sheet.
 
These capitalized costs, as
well as the previously capitalized costs that were not written off
 
will collectively be amortized into Interest expense over the five-year
Quaker Chemical Corporation
Management’s Discussion and Analysis
30
term of the Amended Credit Facility.
 
As of June 30, 2022, the Company had $2.2 million of debt issuance
 
costs recorded as a
reduction of Long-term debt on the Condensed Consolidated Balance Sheet
 
and $4.8 million of debt issuance costs recorded within
Other assets on the Condensed Consolidated Balance Sheet.
As of June 30, 2022, the Company had Amended Credit Facility borrowings outstanding
 
of $977.6 million.
 
As of December 31,
2021,
 
the Company had Original Credit Facility borrowings outstanding of
 
$889.6 million.
 
The Company has unused capacity under
the Amended Revolver of approximately $268 million, net of bank letters of
 
credit of approximately $4 million, as June 30, 2022.
 
The Company’s other debt
 
obligations are primarily industrial development bonds, bank lines of credit and municipality
 
-related loans,
which totaled $11.5 million and $11.8
 
million as of June 30, 2022 and December 31, 2021, respectively.
 
Total unused capacity under
these arrangements as of June 30, 2022 was approximately $28 million.
 
The Company’s total net debt as of June
 
30, 2022 was $786.7
million.
The Company incurred $8.3 million of total Combination, integration
 
and other acquisition-related expenses in the first six
months of 2022, which includes $2.4 million of other expenses related to
 
indemnification assets, described in the Non-GAAP
Measures section of this Item below.
 
Comparatively, in the first six months
 
of 2021, the Company incurred $7.6 million of total
Combination, integration and other acquisition-related expenses, which
 
was net of a $5.4 million gain on the sale of certain held-for-
sale real property assets and also included $0.5 million of accelerated depreciation.
 
The Company had aggregate net cash outflows of
approximately $9.2 million related to the Combination, integration and other acquisition
 
-related expenses during the first six months
of 2022 as compared to $14.8 million during the first six months of 2021.
 
During the first six months of 2022, the Company incurred
$6.2 million of strategic planning and transformation expenses.
 
The Company expects that these additional operating costs and
associated cash flows, as well as higher capital expenditures related
 
to strategic planning, process optimization and the next phase of
the Company’s long-term integration
 
to further optimize its footprint, processes and other functions will continue
 
in 2022 and
potentially extend into the next several years.
Quaker Houghton’s Management
 
approved, and the Company initiated, a global restructuring plan (the
 
“QH Program”) in the
third quarter of 2019 as part of its planned cost synergies associated
 
with the Combination.
 
The QH Program includes restructuring
and associated severance costs to reduce total headcount by approximately
 
400 people globally and plans for the closure of certain
manufacturing and non-manufacturing facilities.
 
The exact timing and total costs associated with the QH Program depe
 
nds on a
number of factors and is subject to change; however,
 
reductions in headcount and site closures have occurred, and the Company
currently expects additional headcount reductions and site closures to occur
 
throughout 2022 and into 2023.
 
The Company made cash
payments related to the settlement of restructuring liabilities under
 
the QH Program during the first six months of 2022 of
approximately $0.8 million compared to $4.2 million in the first six months
 
of 2021.
As of June 30, 2022, the Company’s
 
gross liability for uncertain tax positions, including interest and penalties, was $21.9 million.
 
The Company cannot determine a reliable estimate of the timing of cash
 
flows by period
 
related to its uncertain tax position liability.
 
However, should the entire liability be paid,
 
the amount of the payment may be reduced by up to $6.9 million as a result of offsetting
benefits in other tax jurisdictions.
In 2021, two of the Company’s locations
 
suffered significant property damage as a result of flooding
 
and fire.
 
The Company
maintains property insurance for all of its facilities globally.
 
The Company, its insurance
 
adjuster and insurance carrier are actively
managing the remediation and restoration activities associated with both
 
of these events and at this time the Company has concluded,
based on all available information and discussions with its insurance
 
adjuster and insurance carrier, that the losses incurred
 
during
2021 were covered under the Company’s
 
property insurance coverage, net of an aggregate deductible of $2.0
 
million.
 
The Company
has received payments from its insurers of $2.1 million and has recorded
 
an insurance receivable associated with these events of $0.9
million as of June 30, 2022.
 
See Note 18 of Notes to Condensed Consolidated Financial Statements in Item
 
1 of this Report.
 
The Company believes that its existing cash, anticipated cash flows from
 
operations and available additional liquidity will be
sufficient to support its operating requirements and fund
 
its business objectives for at least the next twelve months, including but not
limited to, payments of dividends to shareholders, costs related to ongoing
 
acquisition integration and optimization, pension plan
contributions, capital expenditures, other business opportunities (including
 
potential acquisitions), implementing actions to achieve the
Company’s sustainability
 
goals and other potential known or anticipated contingencies.
 
The Company believes it has sufficient
additional liquidity to support its operating requirements and to fund its business
 
obligations for the period beyond the next twelve
months as well, including the aforementioned items which are expected
 
to recur annually, as well as future principal
 
and interest
payments on the Company’s Amended
 
Credit Facility, tax obligations
 
and other long-term liabilities.
 
The Company’s liquidity
 
is
affected by many factors, some based on normal operations of
 
our business and others related to the impact of the pandemic and other
global events on our business and on global economic conditions as well as industry uncertainties,
 
which we cannot predict.
 
We also
cannot predict economic conditions and industry downturns or the
 
timing, strength or duration of recoveries.
 
We may seek,
 
as we
believe appropriate, additional debt or equity financing which would
 
provide capital for corporate purposes, working capital funding,
additional liquidity needs or to fund future growth opportunities, including
 
possible acquisitions and organic investments.
 
The timing
and amount of potential capital requirements cannot be determined
 
at this time and will depend on a number of factors, including the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
31
actual and projected demand for our products, specialty chemical indust
 
ry conditions, competitive factors, and the condition of
financial markets, among others.
Non-GAAP Measures
The information in this Form 10-Q includes non-GAAP (unaudited)
 
financial information that includes EBITDA, adjusted
EBITDA, adjusted EBITDA margin, non-GAAP operating
 
income, non-GAAP operating margin, non-GAAP
 
net income and non-
GAAP earnings per diluted share.
 
The Company believes these non-GAAP financial measures provide meaningful
 
supplemental
information as they enhance a reader’s understanding
 
of the financial performance of the Company,
 
are indicative of future operating
performance of the Company,
 
and facilitate a comparison among fiscal periods, as the non-GAAP financial
 
measures exclude items
that are not considered indicative of future operating performance or not
 
considered core to the Company’s operations.
 
Non-GAAP
results are presented for supplemental informational purposes only
 
and should not be considered a substitute for the financial
information presented in accordance with GAAP.
 
The Company presents EBITDA which is calculated as net income attributable
 
to the Company before depreciation and
amortization, interest expense, net, and taxes on income before equity
 
in net (loss) income of associated companies.
 
The Company
also presents adjusted EBITDA which is calculated as EBITDA plus or
 
minus certain items that are not considered indicative of future
operating performance or not considered core to the Company’s
 
operations.
 
In addition, the Company presents non-GAAP operating
income which is calculated as operating income plus or minus certain items that
 
are not considered indicative of future operating
performance or not considered core to the Company’s
 
operations.
 
Adjusted EBITDA margin and non-GAAP operating margin
 
are
calculated as the percentage of adjusted EBITDA and non-GAAP operating
 
income to consolidated net sales, respectively.
 
The
Company believes these non-GAAP measures provide transparent
 
and useful information and are widely used by investors, analysts,
and peers in our industry as well as by management in assessing the operating
 
performance of the Company on a consistent basis.
Additionally, the
 
Company presents non-GAAP net income and non-GAAP earnings per diluted share
 
as additional performance
measures.
 
Non-GAAP net income is calculated as adjusted EBITDA, defined above,
 
less depreciation and amortization, interest
expense, net, and taxes on income before equity in net (loss) income
 
of associated companies, in each case adjusted, as applicable, for
any depreciation, amortization, interest or tax impacts resulting from
 
the non-core items identified in the reconciliation of net income
attributable to the Company to adjusted EBITDA.
 
Non-GAAP earnings per diluted share is calculated as non-GAAP net income
 
per
diluted share as accounted for under the “two-class share method.”
 
The Company believes that non-GAAP net income and non-
GAAP earnings per diluted share provide transparent and useful information
 
and are widely used by investors, analysts, and peers in
our industry as well as by management in assessing the operating performance
 
of the Company on a consistent basis.
Certain of the prior period non-GAAP financial measures presented
 
in the following tables have been adjusted to conform with
current period presentation.
 
The following tables reconcile the Company’s
 
non-GAAP financial measures (unaudited) to their most
directly comparable GAAP (unaudited) financial measures
 
(dollars in thousands unless otherwise noted, except per share amounts):
Non-GAAP Operating Income and Margin Reconciliations
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Operating income
$
31,903
$
38,816
$
61,306
$
83,710
Combination, restructuring and other
 
 
acquisition-related expenses (a)
1,831
7,082
6,704
15,288
Strategic planning and transformation expenses (b)
3,112
6,200
Executive transition costs (c)
645
308
1,184
812
Russia-Ukraine conflict related expenses (d)
929
2,095
Other charges (e)
385
242
476
293
Non-GAAP operating income
$
38,805
$
46,448
$
77,965
$
100,103
Non-GAAP operating margin (%) (l)
7.9%
10.7%
8.1%
11.6%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
32
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin
and Non-GAAP Net Income Reconciliations
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
Net income attributable to Quaker Chemical Corporation
$
14,343
$
33,570
$
34,159
$
72,185
Depreciation and amortization (a)(j)
20,856
22,344
41,583
44,792
Interest expense, net
6,494
5,618
11,839
11,088
Taxes on income before
 
equity in net (loss) income
 
of associated companies (k)
1,374
15,218
4,240
25,907
EBITDA
43,067
76,750
91,821
153,972
Equity loss (income) in a captive insurance company (f)
1,781
(883)
2,025
(3,963)
Combination, restructuring and other
 
acquisition-related expenses (a)
2,248
6,956
9,100
9,359
Strategic planning and transformation expenses (b)
3,112
6,200
Executive transition costs (c)
645
308
1,184
812
Russia-Ukraine conflict related expenses (d)
929
2,095
Brazilian non-income tax credits (g)
(13,293)
(13,293)
Loss on extinguishment of debt (h)
6,763
6,763
Other charges (e)
(54)
219
(253)
318
Adjusted EBITDA
$
58,491
$
70,057
$
118,935
$
147,205
Adjusted EBITDA margin (%) (l)
11.9%
16.1%
12.3%
17.0%
Adjusted EBITDA
$
58,491
$
70,057
$
118,935
$
147,205
Less: Depreciation and amortization - adjusted (a)
20,856
22,218
41,583
44,251
Less: Interest expense, net
6,494
5,618
11,839
11,088
Less: Taxes on income
 
before equity in net income
 
of associated companies - adjusted (a)(k)
7,466
9,773
16,368
21,512
Non-GAAP net income
$
23,675
$
32,448
$
49,145
$
70,354
Non-GAAP Earnings per Diluted Share Reconciliations
Three Months Ended
Six Months Ended
June 30,
 
June 30,
 
2022
2021
2022
2021
GAAP earnings per diluted share attributable to
Quaker Chemical Corporation common shareholders
$
0.80
$
1.88
$
1.91
$
4.03
Equity loss (income) in a captive insurance company
 
per diluted share (f)
0.10
(0.05)
0.11
(0.22)
Combination, restructuring and other
 
 
acquisition-related expenses per diluted share (a)
0.13
0.30
0.41
0.42
Strategic planning and transformation expenses per
 
diluted share (b)
0.13
0.27
Executive transition costs per diluted share (c)
0.03
0.02
0.05
0.04
Russia-Ukraine conflict related expenses per diluted share (d)
0.04
0.10
Brazilian non-income tax credits per diluted share (g)
(0.44)
(0.44)
Loss on extinguishment of debt per diluted share (h)
0.29
0.29
Other charges per diluted share (e)
 
(0.00)
0.01
(0.01)
0.02
Impact of certain discrete tax items per diluted share (i)
(0.20)
0.10
(0.39)
0.08
Non-GAAP earnings per diluted share (m)
$
1.32
$
1.82
$
2.74
$
3.93
Quaker Chemical Corporation
Management’s Discussion and Analysis
33
(a)
Combination, restructuring and other acquisition-related expenses include
 
certain legal, financial, and other advisory and
consultant costs incurred in connection with the Combination integration
 
activities including internal control readiness and
remediation as well as costs incurred by the Company associated with the
 
QH restructuring program,
 
which was initiated in the
third quarter of 2019 as part of the Company’s
 
plan to realize cost synergies associated with the Combination
 
.
 
These amounts
also include expense associated with other of the Company’s
 
acquisitions, including cost associated with selling inventory from
acquired businesses which was adjusted to fair value as part of purchase
 
accounting.
 
These costs are not indicative of the future
operating performance of the Company.
 
Approximately $0.1 million and $0.2 million for the three and six months ended
 
June
30, 2022, respectively,
 
and approximately $0.4
 
million and $0.5 million in the three and six months ended June 30, 2021,
respectively, of
 
these pre-tax costs were considered non-deductible for the purpose of determining the Company’s
 
effective tax
rate, and, therefore, taxes on income before equity in net income of associated
 
companies - adjusted reflects the impact of these
items.
 
During the three and six months ended June 30, 2022, the Company recorded
 
$0.4 million and $2.4
 
million, respectively,
of other expense related to an indemnification asset, which is included
 
in the caption “Combination, restructuring and other
acquisition-related expenses” in the reconciliation of GAAP earnings per diluted
 
share attributed to Quaker Chemical Corporation
common shareholders to Non-GAAP earnings per diluted share as well as the reconciliation
 
of net income attributable to Quaker
Chemical Corporation to Adjusted EBITDA and Non-GAAP net income
 
.
 
During the
 
three and six months ended June 30, 2021,
the Company recorded $0.1 million $0.5 million, respectively,
 
of accelerated depreciation related to certain of the Company’s
facilities, which is included in the caption “Combination, restructuring
 
and other acquisition-related expenses” in the
reconciliation of operating income to non-GAAP operating
 
income and included in the caption “Depreciation and amortization”
in the reconciliation of net income attributable to the Company to
 
EBITDA, but excluded from the caption “Depreciation and
amortization - adjusted” in the reconciliation of adjusted EBITDA to non
 
-GAAP net income attributable to the Company.
 
During
the six months ended June 30, 2021, the Company recorded a $5.4 million
 
gain on the sale of certain held-for-sale real property
assets related to the Combination which is included in the caption “Combination,
 
restructuring and other acquisition-related
expenses” in the reconciliation of GAAP earnings per diluted share attributed
 
to Quaker Chemical Corporation common
shareholders to Non-GAAP earnings per diluted share as well as the reconciliation
 
of net income attributable to Quaker Chemical
Corporation to Adjusted EBITDA and Non-GAAP net income.
 
During the three and six months ended June 30, 2022,
respectively,
 
the Company recorded restructuring and related charges
 
of less than $0.1 million and $0.8 million, respectively,
 
and
$0.3 million and $1.5 million during the three and six months ended
 
June 30, 2021, respectively.
 
During the six months ended
June 30, 2021, the Company recorded $0.8 million related to the sale
 
of inventory from acquired businesses which was adjusted
to fair value.
 
See Notes 2, 7, 10 and 11 of Notes to Condensed Consolidated
 
Financial Statements, which appear in Item 1 of this
Report.
(b)
Strategic planning and transformation expenses include certain consultant
 
and advisory expenses for the Company’s
 
long-term
strategic planning, as well as process optimization and the next phase
 
of the Company’s long-term integration
 
to further optimize
its footprint, processes and other functions.
 
These costs are not indicative of the future operating performance of the Company.
(c)
Executive transition costs represent the costs related to the Company’s
 
search, hiring and transition to a new CEO in connection
with the executive transition that took place in 2021 as well as the search,
 
hiring and transition for other officers during the first
six months of 2022.
 
These expenses are one-time in nature and not indicative of the future operating performance
 
of the
Company.
(d)
Russia-Ukraine conflict related expenses represent the direct costs associated
 
with the Company’s
 
exit of operations in Russia
during the second quarter of 2022, primarily for employee separation
 
benefits, as well as costs associated with establishing
specific reserves or changes to existing reserves for trade accounts receivable
 
within the Company’s EMEA reportable segment
due to the economic instability associated with certain customer accounts receivables
 
which have been directly impacted by the
current economic conflict between Russia and Ukraine or the Company’s
 
decision to end operations in Russia.
 
These expenses
are not indicative of the future operating performance of the Company.
(e)
Other charges include charges incurred
 
by an inactive subsidiary of the Company as a result of the termination of restrictions on
insurance settlement reserves, non-service components of the Company’s
 
pension and postretirement net periodic benefit income
and the foreign currency remeasurement impacts associated with the
 
Company’s affiliates whos
 
e
 
local economies are designated
as hyper-inflationary under U.S. GAAP.
 
These expenses are not indicative of the future operating performance
 
of the Company.
 
See Notes 1 and 9 of Notes to Condensed Consolidated Financial Statements,
 
which appear in Item 1 of this Report.
(f)
Equity loss (income) in a captive insurance company represents the after-tax
 
loss (income) attributable to the Company’s
 
interest
in Primex, Ltd. (“Primex”), a captive insurance company.
 
The Company holds a 32% investment in and has significant influence
over Primex, and therefore accounts for this interest under the equity method
 
of accounting.
 
The loss (income) attributable to
Primex is not indicative of the future operating performance of the
 
Company and is not considered core to the Company’s
operations.
Quaker Chemical Corporation
Management’s Discussion and Analysis
34
(g)
Brazilian non-income tax credits represent indirect tax credits related to certain
 
of the Company’s Brazilian subsidiaries
prevailing in a legal claim as well as the Brazilian Supreme Court ruling
 
on these non-income tax matters.
 
The non-income tax
credits arising from the claim and court ruling are non-recurring
 
and not indicative of the future operating performance of the
Company.
 
See Note 18 of Notes to Condensed Consolidated Financial Statements, which appears
 
in Item 1 of this Report.
(h)
In connection with executing the Amended Credit Facility,
 
the Company recorded a loss on extinguishment of debt of
approximately $6.8 million which includes the write-off
 
of certain previously unamortized deferred financing costs as well as a
portion of the third-party and creditor debt issuance costs incurred
 
to execute the Amended Credit Facility.
 
These expenses are
not indicative of the future operating performance of the Company.
 
See Note 14 of Notes to Condensed Consolidated Financial
Statements, which appears
 
in Item 1 of this Report.
(i)
The impacts of certain discrete tax items include changes in valuation
 
allowances recorded on certain Brazilian branch foreign tax
credits and the recording of deferred taxes on Brazilian branch income.
 
Both of these discrete items related to tax law changes in
the U.S. due to the issuance of final foreign tax credit regulations during the
 
period.
 
Additionally, the Company
 
has discrete
items related to the release of the reserves for uncertain tax positions settled during
 
the quarter and certain taxes, penalties, and
interest due as a result of the settlements.
 
See Note 11 of Notes to Condensed Consolidated
 
Financial Statements, which appears
in Item 1 of this Report.
 
(j)
Depreciation and amortization for the three and six months ended June 30,
 
2022 includes approximately $0.2 million and $0.5
million, respectively,
 
and for the three and six months ended June 30, 2021 includes $0.3 million and $0.6 million,
 
respectively,
of amortization expense recorded within equity in net loss (income)
 
of associated companies in the Company’s
 
Condensed
Consolidated Statements of income, which is attributable to the amortization
 
of the fair value step up for the Company’s
 
50%
interest in a joint venture in Korea as a result of required purchase accounting.
 
(k)
Taxes on income
 
before equity in net loss (income) of associated companies – adjusted presents the impact
 
of any current and
deferred income tax expense (benefit), as applicable, of the reconciling
 
items presented in the reconciliation of net income
attributable to Quaker Chemical Corporation to adjusted EBITDA, and
 
was determined utilizing the applicable rates in the taxing
jurisdictions in which these adjustments occurred, subject to deductibility.
 
Combination, restructuring and other acquisition-
related expenses described in (a) resulted in a tax benefit of approximatel
 
y
 
$0.1 million and incremental taxes of $1.6 million for
the three and six months ended June 30, 2022, respectively,
 
compared to $1.6 million and $2.2 million for the three and six
months ended June 30, 2021, respectively.
 
Strategic planning and transformation expenses describes in (b) above resulted in
incremental taxes of $0.7 million and $1.4 million for the three and
 
six months ended June 30, 2022, respectively.
 
Executive
transition costs described in (c) resulted in incremental taxes of $0.2
 
million and $0.3 million for the three and six months ended
June 30, 2022, respectively,
 
compared to $0.1 million and $0.2 million for the three and six months ended
 
June 30, 2021,
respectively.
 
Russia-Ukraine conflict related expenses described in (d) resulted in incremental taxes
 
of $0.2 million and $0.5
million for the three and six months ended June 30, 2022, respectively.
 
Other charges described in (e) resulted in incremental
taxes of less than $0.1 million and a tax benefit of less than $0.1 million for
 
the three and six months ended June 30, 2022,
respectively, compared
 
to $0.1 million during each of the three and six months ended June 30, 2021.
 
Brazilian non-income tax
credits described in (g) resulted in incremental taxes of $5.3 million during
 
the three and six months ended June 30, 2021.
 
Loss
on extinguishment of debt described in (h) resulted in incremental
 
taxes of $1.6 million during the three and six months ended
June 30, 2022.
 
The impact of certain discrete items described in (i) resulted in a tax benefit of
 
$3.5 million and $6.9 million for
the three and six months ended June 30, 2022, respectively,
 
compared to $1.9 million and $1.5 million for the three and six
months ended June 30, 2021, respectively.
 
(l)
The Company calculates adjusted EBITDA margin
 
and non-GAAP operating margin as the percentage of adjusted EBITDA
 
and
non-GAAP operating income to consolidated net sales.
(m)
The Company calculates non-GAAP earnings per diluted share as non
 
-GAAP net income attributable to the Company per
weighted average diluted shares outstanding using the “two-class share method”
 
to calculate such in each given period.
 
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet commitments or
 
obligations as of June 30, 2022.
 
The Company’s off
 
-balance
sheet items outstanding as of June 30, 2022 includes approximately $5
 
million of total bank letters of credit and guarantees.
 
The bank
letters of credit and guarantees are not significant to the Company’s
 
liquidity or capital resources.
 
See Note 14 of Notes to Condensed
Consolidated Financial Statements in Item 1 of this Report.
 
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
35
Operations
Consolidated Operations Review – Comparison of the Second Quarter of 2022
 
with the Second Quarter of 2021
Net sales were $492.4
 
million in the second quarter of 2022 compared to $435.3 million in the second quarter
 
of 2021.
 
The net
sales increase of $57.1 million or 13% quarter-over-quarter reflects increases
 
in selling price and product mix of approximately 22%
and additional net sales from acquisitions of 1% partially offset
 
by the unfavorable impact from foreign currency translation
 
of 6% and
a decline in organic sales volumes of approximately 4%.
 
The increase in selling price and product mix is primarily driven by price
increases implemented to help offset the significant
 
increases in raw material and other input costs that began during 2021 and
continued into 2022.
 
The decline in organic sales volumes was primarily attributable
 
to COVID-19 related production disruptions in
China, the tolling agreement for products previously divested related
 
to the Combination, the ongoing war in Ukraine and the
Company’s ongoing value
 
-based pricing initiatives.
COGS were $342.8 million in the second quarter of 2022 compared
 
to $280.8 million in the second quarter of 2021.
 
The increase
in COGS of $62.0 million or 22% was driven by the continued increases in the
 
Company’s global raw material and
 
supply chain and
logistics costs compared to the prior year.
Gross profit in the second quarter of 2022 decreased $4.9 million or 3%
 
from the second quarter of 2021.
 
The Company’s
reported gross margin in the second quarter of 2022 was 30.4%
 
compared to 35.5% in the second quarter of 2021.
 
The Company’s
current quarter gross margin reflects the continued significant
 
increase in raw material and other input costs experienced throughout
the second quarter of 2022 and the impacts of constraints on the global
 
supply chain, partially offset by the Company’s
 
ongoing value-
based pricing initiatives.
SG&A in the second quarter of 2022 increased $7.2 million or 7% compared
 
to the second quarter of 2021 due primarily to the
impact of sales increases on direct selling costs, inflation driven higher
 
operating costs, costs associated with strategic planning and
transformation initiatives (see the Non-GAAP Measures section of
 
this Item, above), and additional SG&A from recent acquisitions
partially offset by lower SG&A due to foreign currency
 
translation compared to the prior year.
 
During the second quarter of 2022, the Company incurred $1.8 million
 
of Combination, integration and other acquisition-related
operating expenses primarily for professional fees related to the Houghton
 
integration and other acquisition-related activities.
 
Comparatively,
 
the Company incurred $6.7 million of expenses in the prior year second quarter,
 
primarily due to various professional
fees related to legal, financial and other advisory and consultant expenses
 
for integration activities including internal control readiness
and remediation.
 
See the Non-GAAP Measures section of this Item, above.
The Company initiated a restructuring program during the third quarter
 
of 2019 as part of its global plan to realize cost synergies
associated with the Combination.
 
The Company incurred Restructuring and related (credits) charges
 
for reductions in headcount and
site closures under this program, net of adjustments to initial estimates for severance
 
of a credit of less than $0.1 million and a charge
of $0.3 million during the second quarters of 2022 and 2021, respectively.
 
See the Non-GAAP Measures section of this Item, above.
Operating income in the second quarter of 2022 was $31.9 million compared
 
to $38.8 million in the second quarter of 2021.
 
Excluding non-recurring and non-core expenses that are not indicat
 
ive of the future operating performance of the Company described
in the Non-GAAP Measures section of this Item, above, the Company’s
 
current quarter non-GAAP operating income decreased to
$38.8 million compared to $46.4 million in the prior year second quarter primarily
 
due to the lower gross profit and higher SG&A
described above.
 
The Company had other expense, net, of $8.4 million in the second quarter
 
of 2022 compared to other income, net of $14.0
million in the second quarter of 2021.
 
The second quarter of 2022 includes a loss on extinguishment of debt of $6.8 million
 
associated
with the refinancing of the Original Credit Facility while the second quarter
 
of 2021 included $13.3 million of income related to
certain non-income tax credits recorded by the Company’s
 
Brazilian subsidiaries.
 
See the Non-GAAP Measures section of this Item,
above.
 
In addition, the Company incurred higher foreign exchange transaction
 
losses in the second quarter of 2022 compared to the
prior year quarter.
Interest expense, net, increased $0.9 million compared to the second
 
quarter of 2021 as a result of increases in the average
borrowings outstanding in the second quarter of 2022 compared
 
to the second quarter of 2021 coupled with an increase in interest
rates quarter-over-quarter.
The Company’s effective
 
tax rates for the second quarters of 2022 and 2021 were 8.1% and 32.2%, respectively.
 
The Company’s
effective tax rate for the second quarter of 2022 was largely
 
driven by state tax benefits, a reduction in reserves for uncertain tax
positions relating to management fees, a deferred tax benefit associated with
 
an intercompany asset transfer,
 
withholding taxes for
increased forecasted dividends, and the effects of
 
lower pre-tax earnings and the mix of such earnings.
 
In addition, the Company
incurred higher tax expense during the second quarter of 2022 primarily
 
related to the Company recording earnings in one of its
subsidiaries at a statutory tax rate of 25% while it awaits recertification of
 
a concessionary 15% tax rate, which was available to the
Company during all of 2021.
 
Comparatively,
 
the prior year quarter effective tax rate was impacted by changes
 
in foreign tax credit
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
36
valuation allowances, tax law changes in foreign jurisdictions as well as the tax impacts
 
of certain non-income tax credits recorded by
the Company’s Brazilian subsidiaries.
 
Excluding the impact of non-core items in each quarter,
 
described in the Non-GAAP Measures
section of this Item, above, the Company estimates that its effective
 
tax rates for both the second quarters of 2022 and 2021 would
have been approximately 24%.
 
The Company expects continued volatility in its effective tax rates due
 
to several factors, including the
timing and scope of tax audits and the expiration of applicable statutes of limitations
 
as they relate to uncertain tax positions, the
unpredictability of the timing and amount of certain incentives in various
 
tax jurisdictions, including the high technology incentive at
one of our subsidiaries based in China which is currently up for triennial renewal,
 
the treatment of certain acquisition-related costs and
the timing and amount of certain share-based compensation-related
 
tax benefits, among other factors.
Equity in net income of associated companies decreased $2.9 million
 
in the second quarter of 2022 compared to the second
quarter of 2021, primarily due to lower current year income from
 
the Company’s interest in a captive insurance
 
company and from the
Company’s 50% interest in a joint venture
 
in Korea.
 
See the Non-GAAP Measures section of this Item, above.
Net income attributable to noncontrolling interest was less than $0.1 million
 
in both the second quarters of 2022 and 2021.
 
Foreign exchange unfavorably impacted the Company’s
 
second quarter of 2022 results by approximately 11% driven
 
by the
impact from foreign currency translation on earnings as well as higher
 
foreign exchange transaction losses in the current quarter as
compared to the prior year second quarter.
Consolidated Operations Review – Comparison of the First Six Months of 2022
 
with the First Six Months of 2021
Net sales were $966.6 million in the first six months of 2022 compared to
 
$865.0 million in the first six months of 2021.
 
The net
sales increase of $101.5 million or 12% year-over-year reflects increases in selling
 
price and product mix of approximately 19% and
additional net sales from acquisitions of 2% partially offset by a decline
 
in organic sales volumes of approximately 5% and the
unfavorable impact from foreign currency translation of 4%.
 
The increase in selling price and product mix is primarily driven by price
increases implemented to help offset the significant
 
increases in raw material and other input costs that began during 2021 and
continued into 2022.
 
The decline in sales volumes was primarily attributable to the comparison to a very strong
 
first half of 2021, and
primarily the first quarter of 2021, where customers replenished
 
their supply chains, the impact of lower volumes related to the tolling
agreement for products previously divested related to the Combination,
 
the ongoing war in Ukraine, COVID-19 disruptions in China
and the Company’s ongoing
 
value-based pricing initiatives.
COGS were $670.9 million in the first six months of 2022 compared
 
to $554.4 million in the first six months of 2021.
 
The
increase in COGS of $116.5 million or
 
21% was driven by the continued increases in the Company’s
 
global raw material and supply
chain and logistics costs compared to the prior year.
Gross profit in the first six months of 2022 decreased $15.0 million or 5%
 
from the first six months of 2021.
 
The Company’s
reported gross margin in the first six months of 2022 was 30.6% compared
 
to 35.9% in the first six months of 2021.
 
The Company’s
current year gross margin reflects a significant increase in
 
raw material and other input costs and the impacts of constraints on the
global supply chain, partially offset by the Company’s
 
ongoing value-based pricing initiatives.
SG&A in the first six months of 2022 increased $14.6 million or 7% compared
 
to the first six months of 2021 due primarily to the
impact of sales increases on direct selling costs, inflation driven higher
 
operating costs, costs associated with strategic planning and
transformation initiatives (see the Non-GAAP Measures section of
 
this Item, above), and additional SG&A from recent acquisitions
partially offset by lower SG&A due to foreign currency
 
translation compared to the prior year.
 
In addition, SG&A was lower in the
prior year period as a result of continued temporary cost saving measures the
 
Company implemented in response to the onset of
COVID-19.
During the first six months of 2022, the Company incurred $5.9 million of
 
Combination, integration and other acquisition-related
operating expenses primarily for professional fees related to the Houghton
 
integration and other acquisition-related activities.
 
Comparatively,
 
the Company incurred $12.5 million of expenses in the prior year’s
 
first six months, primarily due to various
professional fees related to legal, financial and other advisory and
 
consultant expenses for integration activities including internal
control readiness and remediation.
 
See the Non-GAAP Measures section of this Item, above.
The Company initiated a restructuring program during the third quarter
 
of 2019 as part of its global plan to realize cost synergies
associated with the Combination.
 
The Company incurred Restructuring and related charges for reductions
 
in headcount and site
closures under this program, net of adjustments to initial estimates for severance
 
of $0.8 million and $1.5 million during the first six
months of 2022 and 2021, respectively.
 
See the Non-GAAP Measures section of this Item, above.
Operating income in the first six months of 2022 was $61.3 million compared
 
to $83.7 million in the first six months of 2021.
 
Excluding non-recurring and non-core expenses that are not indicative
 
of the future operating performance of the Company described
in the Non-GAAP Measures section of this Item, above, the Company’s
 
current year non-GAAP operating income decreased to $78.0
million for the first six months of 2022 compared to $100.1 million in
 
the prior year’s first six months primarily due to the lower gross
profit and higher SG&A described above.
 
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
37
The Company had other expense, net, of $10.6 million in the first six months
 
of 2022 compared to other income, net of $18.7
million in the first six months of 2021.
 
The first six months of 2022’s results include
 
$6.8 million loss on extinguishment of debt
related to the Company’s
 
refinancing the Original Credit Facility and other expenses of $2.4 million related
 
to the impact of certain
adjustments to the Company’s
 
Combination related indemnification receivables, while the prior
 
year’s first six months of 2022 other
income includes $13.3 million of income related to certain non-income
 
tax credits recorded by the Company’s
 
Brazilian subsidiary as
well as a $5.4 million gain on the sale of certain held-for-sale
 
real property assets.
 
See the Non-GAAP Measures section of this Item,
above.
 
In addition, the Company incurred higher foreign exchange transaction
 
losses in the first six months of 2022 compared to the
prior year period.
Interest expense, net, increased $0.8 million compared to the first six months
 
of 2021, due to an increase in the average
borrowings outstanding in the first six months of 2022 coupled with an
 
increase in interest rates in the current year as compared to the
prior year.
The Company’s effective
 
tax rates for the first six months of 2022 and 2021 were 10.9% and 28.4%, respectively.
 
The
Company’s eff
 
ective tax rate for the six months ended June 30, 2022 was largely driven
 
by changes in the valuation allowance for
foreign tax credits due to recently issued legislative guidance, impacts due
 
to settlements reached on certain tax audits, state tax
benefits, a reduction in reserves for uncertain tax positions relating to management
 
fees, a deferred tax benefit associated with an
intercompany asset transfer, withholding
 
taxes for increased forecasted dividends and the effects of lower
 
pre-tax earnings and the mix
of such earnings.
 
Comparatively, the prior year six month
 
effective tax rate was impacted by the sale of a subsidiary which included
certain held-for-sale real property assets related to the
 
Combination, certain U.S. tax law changes and the tax impact of certain
 
non-
income tax credits recorded by the Company’s
 
Brazilian subsidiaries.
 
Excluding the impact of all other non-core items in each period,
described in the Non-GAAP Measures section of this Item, above,
 
the Company estimates that its effective
 
tax rates for the first six
months of 2022 and 2021 would have been approximately 26% and 24%,
 
respectively.
 
In addition, the Company incurred higher tax
expense during the six months ended June 30, 2022 primarily related to
 
the Company recording earnings in one of its subsidiaries at a
statutory tax rate of 25% while it awaits recertification of a concessionary
 
15% tax rate, which was available to the Company during
all of 2021.
 
Equity in net income of associated companies decreased $7.3 million
 
in the first six months of 2022 compared to the first six
months of 2021, primarily due to lower current year income from
 
the Company’s interest in a captive insurance
 
company and from the
Company’s 50% interest in a joint venture
 
in Korea.
 
See the Non-GAAP Measures section of this Item, above.
Net income attributable to noncontrolling interest was less than $0.1 million
 
in both the first six months of 2022 and 2021.
 
Foreign exchange unfavorably impacted the Company’s
 
first six months of 2022 results by approximately 7% driven by the
impact from foreign currency translation on earnings as well as higher
 
foreign exchange transaction losses in the current year as
compared to the prior year’s first six months.
Reportable Segments Review - Comparison of the Second Quarter of 202
 
2
 
with the Second Quarter of 2021
The Company’s 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 chief operating decision maker of the Company
 
assesses its
performance.
 
The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii)
 
Asia/Pacific; and (iv) Global Specialty
Businesses.
 
The three geographic segments are composed of the net sales and operations
 
in each respective region, excluding net
sales and operations managed globally by the Global Specialty Businesses
 
segment, which includes the Company’s
 
container, metal
finishing, mining, offshore, specialty coatings, specialty
 
grease and Norman Hay businesses.
 
Segment operating earnings for the Company’s
 
reportable segments are comprised of net sales less COGS and SG&A directly
related to the respective segment’s product
 
sales.
 
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,
Restructuring and related charges, and COGS related
 
to acquired inventory sold, which is adjusted to fair value as part of purchase
accounting,
 
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.
Quaker Chemical Corporation
Management’s Discussion and Analysis
38
Americas
Americas represented approximately 35% of the Company’s
 
consolidated net sales in the second quarter of 2022.
 
The segment’s net
sales were $172.7 million, an increase of $33.1 million or 24% compared
 
to the second quarter of 2021.
 
The increase in net sales was
due to higher selling price and product mix of 28%, additional net sales from
 
acquisitions of 1% and a favorable impact from foreign
currency translation of 1%, partially offset by a 6% decline
 
in organic sales volumes.
 
The increase in selling price and product mix is
primarily driven by price increases implemented to help offset
 
the significant increases in raw material and other input costs that
began during 2021 and continued through the second quarter of 2022.
 
The current quarter decline in organic sales volumes was
primarily driven by the tolling agreement for previously divested products
 
related to the Combination, the Company’s
 
ongoing value-
based pricing initiatives and lower volumes into the automotive industry
 
due to the semiconductor supply constraints, partially offset
by net new business wins.
 
This segment’s operating earnings were
 
$33.8 million, an increase of $0.1 million compared to the second
quarter of 2021.
 
The increase in segment operating earnings was primarily driven by higher net sales which
 
were partially offset by
on-going inflationary pressures on our business.
EMEA
EMEA represented approximately 25% of the Company’s
 
consolidated net sales in the second quarter of 2022.
 
The segment’s
net sales were $123.1 million, a decrease of $0.4 million compared
 
to the second quarter of 2021.
 
This was driven by higher selling
price and product mix of 21% and additional net sales from acquisitions of
 
approximately 1%, partially offset by the unfavorable
impact of foreign currency translation of 15% and a decrease in organic
 
sales volumes of 7%.
 
The increase in selling price and
product mix was primarily driven by price increases implemented
 
to help offset the significant increases in raw material and
 
other
input costs that began during 2021 and continued through the second
 
quarter of 2022.
 
The decline in organic sales volumes was
primarily driven by the current geopolitical and macroeconomic pressures
 
including the direct and indirect impacts of the ongoing war
in Ukraine and the impact of the economic and other sanctions by other
 
nations on Russia in response to the war, as well as lower
volumes associated with the Company’s
 
ongoing value-based pricing initiatives, the tolling agreement for products
 
previously
divested related to the Combination and softer economic conditions in the
 
region.
 
The unfavorable foreign exchange impact was
primarily due to the strengthening of the U.S. dollar against the euro
 
as this exchange rate averaged 1.07 in the second quarter of 2022
compared to 1.20 in the second quarter of 2021.
 
This segment’s operating earnings were
 
$13.3 million, a decrease of $10.1 million or
43% compared to the second quarter of 2021.
 
The decrease in segment operating earnings was primarily a result of higher net sales
which were more than offset by lower gross margins
 
due to inflationary pressures on the Company’s
 
costs exceeding its value-based
pricing actions.
 
Operating earnings were also negatively impacted by foreign currency translation.
Asia/Pacific
Asia/Pacific represented approximately 20% of the Company’s
 
consolidated net sales in the second quarter of 2022.
 
The
segment’s net sales were $99.8
 
million, an increase of $8.3 million or 9% compared to the second quarter
 
of 2021.
 
The increase in net
sales was driven by higher selling price and product mix of 17% partially
 
offset by lower organic sales volumes of 4% and an
unfavorable impact from foreign currency translation of 4%.
 
The increase in selling price and product mix was primarily driven by
price increases implemented to help offset the significant
 
increases in raw material and other input costs that began during 2021
 
and
continued through the second quarter of 2022, partially offset
 
by a net increase in volumes elsewhere in the region.
 
The decline in
organic sales volumes was primarily driven by lower
 
sales volumes in China as a result of the government imposed COVID-19
quarantine and related production disruptions implemented
 
at the end of March 2022 and continued throughout the second quarter of
2022.
 
The unfavorable foreign exchange impact was primarily due to the
 
strengthening of the U.S. dollar against the Chinese
renminbi as this exchange rate averaged 6.61 in the second quarter of 2022
 
compared to 6.46 in the second quarter of 2021.
 
This
segment’s operating earnings were
 
$22.2 million, a decrease of $1.0 million or 4% compared to the second quarter
 
of 2021.
 
The
decrease in segment operating earnings was primarily a result of higher
 
net sales which was more than offset by lower gross margins
due to inflationary pressures and higher costs as a result of the COVID-19 production
 
disruptions in China.
Global Specialty Businesses
Global Specialty Businesses represented approximately 20% of the
 
Company’s consolidated net sales in the
 
second quarter of
2022.
 
The segment’s net sales were $96.8
 
million, an increase of $16.2 million or 20% compared to the second quarter of 2021.
 
The
increase in net sales was driven by higher selling price and product
 
mix of 11%, additional net sales from acquisitions of 3% and
 
an
increase in organic sales volumes of 10%, partially offset
 
by the unfavorable impact from foreign currency translation
 
of 4%.
 
The
increase in selling price and product mix was primarily driven by price
 
increases implemented to help offset the significant increases
in raw material and other input costs that began during 2021 and continued
 
through the second quarter of 2022.
 
The increase in
organic sales volumes was primarily attributable
 
to a continued favorable demand environment for this segment’s
 
products.
 
The
unfavorable foreign exchange impact was primarily due to the strengthening
 
of the U.S. dollar against the euro as described in the
EMEA section above.
 
This segment’s operating earnings
 
were $27.8 million, an increase of $3.6 million or 15% compared to the
second quarter of 2021.
 
The increase in segment operating earnings reflects the higher net sales partially offset
 
by lower gross
margins in the current year and slightly higher operating
 
expenses due to inflationary pressures.
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
39
Reportable Segments Review - Comparison of the First Six months of 2022
 
with the First Six months of 2021
Americas
Americas represented approximately 34% of the Company’s
 
consolidated net sales in the first six months of 2022.
 
The segment’s
net sales were $326.9 million, an increase of $52.4 million or 19% compared
 
to the first six months of 2021.
 
The increase in net sales
was due to higher selling price and product mix of 26%, additional net sales from
 
acquisitions of 1% and the favorable impacts of
foreign currency translation of 1%, partially offset by
 
a decrease in organic sales volumes of 9%.
 
The increase in selling price and
product mix was primarily driven by price increases implemented
 
to help offset the significant increases in raw material and
 
other
input costs that began during 2021 and have continued into 2022.
 
The current year decline in organic sales volumes was primarily
driven by lower sales volumes into the automotive end market, the tolling
 
agreement for previously divested products related to the
Combination, the prior year period comparison which included a
 
strong rebound from COVID-19 impacts and the Company’s
ongoing value-based pricing initiatives, partially offset
 
by net new business wins.
 
This segment’s operating earnings
 
were $63.0
million, a decrease of $2.9 million or 4% compared to the first six months of
 
2021.
 
The decrease in segment operating earnings was
primarily a result of higher net sales which was more than offset by
 
lower gross margins driven by inflationary pressures.
EMEA
EMEA represented approximately 26% of the Company’s
 
consolidated net sales in the first six months of 2022.
 
The segment’s
net sales were $248.7 million, an increase of $5.5 million or 2% compared
 
to the first six months of 2021.
 
The increase in net sales
was due to higher selling price and product mix of 19% and additional
 
net sales from acquisitions of 2%, partially offset by the
unfavorable impact of foreign currency translation of 12% and
 
a decrease in organic sales volumes of 7%.
 
The increase in selling
price and product mix was primarily driven by price increases implemented
 
to help offset the significant increases in raw material and
other input costs that began during 2021 and have continued into 2022.
 
The decline in organic sales volumes was primarily driven by
the current geopolitical and macroeconomic pressures including
 
the direct and indirect impacts of the ongoing war in Ukraine and the
impact of the economic and other sanctions by other nations on Russia in respons
 
e
 
to the war, lower volumes associated with the
Company’s ongoing value
 
-based pricing initiatives, the tolling agreement for products previously divested
 
related to the Combination,
the prior year period comparison which included a strong rebound from
 
COVID-19 impacts,
 
and softer economic conditions in the
region in the current period, partially offset by net new business wins.
 
The unfavorable foreign exchange impact was primarily due
 
to
the strengthening of the U.S. dollar against the euro as this exchange rate
 
averaged 1.09 in the first six months of 2022 compared to
1.21 in first six months of 2021.
 
This segment’s operating earnings were
 
$30.0 million, a decrease of $18.6 million or 38% compared
to the first six months of 2021.
 
The decrease in segment operating earnings was primarily a result of higher
 
net sales which was more
than offset by lower gross margins driven
 
by significant inflationary pressures and the negative impact of foreign
 
currency translation
year-over-year.
Asia/Pacific
Asia/Pacific represented approximately 21% of the Company’s
 
consolidated net sales in the first six months of 2022.
 
The
segment’s net sales were $204.1
 
million, an increase of $15.8 million or 8% compared to the first six months of 2021.
 
The increase in
net sales was driven by higher selling price and product mix of 14% partially
 
offset by lower organic sales volumes of 4% and the
unfavorable impacts of foreign currency translation of 2%.
 
The increase in selling price and product mix was primarily driven by
price increases implemented to help offset the significant
 
increases in raw material and other input costs that began during 2021
 
and
continued into 2022.
 
The current year decline in organic sales volumes was primarily driven by
 
lower sales volumes in China as a
result of the government imposed COVID-19 quarantine and related
 
production disruptions implemented at the end of March 2022
and which continued throughout the second quarter of 2022 and the prior
 
year comparison which included a strong rebound from
COVID-19 impacts as customers replenished their supply chains, partially
 
offset by net new business wins.
 
This segment’s operating
earnings were $44.1 million, a decrease of $6.6 million or 13% compared
 
to the first six months of 2021.
 
The decrease in segment
operating earnings was primarily a result of higher net sales which was more
 
than offset by lower gross margins driven by significant
inflationary pressures and the unfavorable impact of foreign currency
 
translation.
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
40
Global Specialty Businesses
Global Specialty Businesses represented approximately 19% of the
 
Company’s consolidated net sales in the
 
first six months of
2022.
 
The segment’s net sales were $186.9
 
million, an increase of $27.9 million or 18% compared to the first six months of 2021.
 
The increase in net sales was driven by higher selling price and product
 
mix of 11%, an increase in organic sales volumes
 
of 6% and
additional net sales from acquisitions of 4%, partially offset
 
by the unfavorable impact from foreign currency translation of
approximately 3%.
 
The increase in selling price and product mix was primarily driven by price increases
 
implemented to help offset
the significant increases in raw material and other input costs that began during
 
2021 and continued into 2022.
 
The increase in
organic sales volumes was primarily attributable
 
to a continued favorable demand environment for this segment’s
 
products.
 
The
unfavorable foreign exchange impact was primarily
 
due to the strengthening of the U.S. dollar against the euro described in the EMEA
section above.
 
This segment’s operating earnings
 
were $52.9 million, an increase of $4.5 million or 9% compared to the first six
months of 2021.
 
The increase in segment operating earnings reflects higher net sales partially offset
 
by lower gross margins driven by
inflationary pressures and the negative impact of foreign currency
 
translation year-over-year.
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
41
Factors That May Affect Our Future Results
(Cautionary Statements Under the Private Securities Litigation Reform
 
Act of 1995)
Certain information included in this Report and other materials filed or
 
to be filed by Quaker Chemical Corporation with the SEC,
as well as information included in oral statements or other written statements made
 
or to be made by us, contain or may contain
forward-looking statements within the meaning of Section 27A of the
 
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
 
These statements can be identified by the fact that they do not relate strictly to
historical or current facts.
 
We have based
 
these forward-looking statements, including statements regarding the potential
 
effects of the
COVID-19 pandemic and global supply chain constraints on the Company’s
 
business, results of operations, and financial condition,
our expectation that we will maintain sufficient liquidity and
 
remediate any of our material weaknesses in internal control over
financial reporting, and statements regarding the impact of increased
 
raw material costs and pricing initiatives on our current
expectations about future events.
 
These forward-looking statements include statements with respect to
 
our beliefs, plans, objectives, goals, expectations,
anticipations, intentions, financial condition, results of operations, future
 
performance, and business, including:
 
 
the potential benefits of the Combination and other acquisitions;
 
 
the impacts on our business as a result of the COVID-19 pandemic;
the timing and extent of the projected impacts on our business as a result of the Ukrainian
 
and Russian conflict and
actions taken by various governments and governmental organizat
 
ions in response;
 
cost increases and the impacts of constraints and disruptions in the global supply
 
chain;
 
the potential for a variety of macroeconomic events, including the possibility of global
 
or regional recessions, inflation
generally, cost increases in
 
prices of raw materials such as oil and increasing interest rates, to impact the value
 
of our
assets or result in asset impairments;
our current and future results and plans including our sustainability goals;
 
and
 
 
statements that include the words “may,”
 
“could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,”
“intend,” “plan” or similar expressions.
Such statements include information relating to current and future business activities,
 
operational matters, capital spending, and
financing sources.
 
From time to time, forward-looking statements are also included in the Company’s
 
other periodic reports on Forms
10-K, 10-Q and 8-K, press releases, and other materials released to,
 
or statements made to, the public.
Any or all of the forward-looking statements in this Report, in the Company’s
 
Annual Report to Shareholders for 2021 and in any
other public statements we make may turn out to be wrong.
 
This can occur as a result of inaccurate assumptions or as a conseque
 
nce
of known or unknown risks and uncertainties.
 
Many factors discussed in this Report will be important in determining our future
performance.
 
Consequently, actual results may
 
differ materially from those that might be anticipated from our forward-looking
statements.
We undertake
 
no obligation to publicly update any forward-looking statements, whether
 
as a result of new information, future
events or otherwise.
 
However, any further disclosures made on
 
related subjects in the Company’s subsequent
 
reports on Forms 10-K,
10-Q, 8-K and other related filings should be consulted.
 
A major risk is that demand for the Company’s
 
products and services is
largely derived from the demand for our customers’ products,
 
which subjects the Company to uncertainties related to downturns in a
customer’s business and unanticipated customer production
 
slowdowns and shutdowns, including as is currently being experienced by
many automotive industry companies as a result of supply chain disruption.
 
Other major risks and uncertainties include, but are not
limited to, the primary and secondary impacts of the COVID-19 pandemic,
 
including actions taken in response to the pandemic by
various governments, which could exacerbate some or all of the other
 
risks and uncertainties faced by the Company,
 
as well as
inflationary pressures, including the potential for significant increases
 
in raw material costs, supply chain disruptions, customer
financial instability,
 
rising interest rates and the possibility of economic recession, worldwide economic
 
and political disruptions
including the impacts of the military conflict between Russia and Ukraine,
 
the economic and other sanctions imposed by other nations
on Russia, suspensions of activities in Russia by many multinational companies
 
and the potential expansion of military activity,
foreign currency fluctuations, significant changes in applicable tax
 
rates and regulations, future terrorist attacks and other acts of
violence.
 
Furthermore, the Company is subject to the same business cycles as those experienced
 
by our customers in the steel,
automobile, aircraft, industrial equipment, and durable goods industries.
 
The ultimate impact of COVID-19 on our business will
depend on, among other things, the extent and duration of the pandemic,
 
the severity of the disease and the number of people infected
with the virus including new variants, the continued uncertainty regarding
 
global availability, administration,
 
acceptance and long-
term efficacy of vaccines, or other treatments for COVID-19 or
 
its variants, the longer-term effects on the economy of
 
the pandemic,
including the resulting market volatility,
 
and by the measures taken by governmental authorities and other third parties
 
restricting day-
to-day life and business operations and the length of time that such measures
 
remain in place, as well as laws and other governmental
programs implemented to address the pandemic or assist impacted
 
businesses, such as fiscal stimulus and other legislation designed to
deliver monetary aid and other relief.
 
Other factors could also adversely affect us, including those related
 
to acquisitions and the
 
Quaker Chemical Corporation
Management’s Discussion and Analysis
42
integration of acquired businesses.
 
Our forward-looking statements are subject to risks, uncertainties and
 
assumptions about the
Company and its operations that are subject to change based on various important
 
factors, some of which are beyond our control.
 
These risks, uncertainties, and possible inaccurate assumptions relevant
 
to our business could cause our actual results to differ
materially
 
from expected and historical results.
 
Therefore, we caution you not to place undue reliance on our forward-looking
 
statements.
 
For more information regarding these
risks and uncertainties as well as certain additional risks that we face, refer
 
to the Risk Factors section, which appears in Item 1A in
our 2021 Form 10-K and in our quarterly and other reports filed from time to
 
time with the SEC.
 
This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
Quaker Houghton on the Internet
 
Financial results, news and other information about Quaker Houghton
 
can be accessed from the Company’s
 
website at
https://www.quakerhoughton.com.
 
This site includes important information on the Company’s
 
locations, products and services,
financial reports, news releases and career opportunities.
 
The Company’s periodic and current reports
 
on Forms 10-K, 10-Q, 8-K, and
other filings, including exhibits and supplemental schedules filed therewith,
 
and amendments to those reports, filed with the SEC are
available on the Company’s website,
 
free of charge, as soon as reasonably practicable after they
 
are electronically filed with or
furnished to the SEC.
 
Information contained on, or that may be accessed through, the Company’s
 
website is not incorporated by
reference in this Report and, accordingly,
 
you should not consider that information part of this Report.
43
Item 3.
 
Quantitative and Qualitative Disclosures About Market
 
Risk.
We have evaluated
 
the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on
 
Form
10-K for the year ended December 31, 2021, and we believe there has been
 
no material change to that information, except the interest
rate risk noted below.
Interest Rate Risk.
The Company’s exposure
 
to interest rate risk relates primarily to its outstanding borrowings under its credit facility.
 
During June
2022, the Company entered into an amendment to its primary credit facility
 
(the “Original Credit Facility”, or as amended, the
“Amended Credit Facility”).
 
See Note 14 of Notes to Condensed Consolidated Financial Statements, which appears
 
in Item 1 of this
Report.
 
As of June 30, 2022, borrowings under the Amended Credit Facility bear interest at either
 
term SOFR or a base rate, in each
case, plus an applicable margin based upon the Company’s
 
consolidated net leverage ratio, and, in the case of term SOFR, a spread
adjustment equal to 0.10% per annum.
 
As a result of the variable interest rates applicable under the Amended Credit Facility,
 
if
interest rates rise significantly,
 
the cost of debt to the Company will increase.
 
This can have an adverse effect on the Company,
depending on the extent of the Company’s
 
borrowings outstanding throughout a given year.
 
As of June 30, 2022, the Company had outstanding borrowings under the
 
Amended Credit Facility of approximately $977.6
million.
 
The interest rate applicable on outstanding borrowings under the Amended
 
Credit Facility was approximately 2.8% as of
June 30, 2022.
 
As of December 31, 2021, the Company had outstanding borrowings under the
 
Original Credit Facility of
approximately $889.6 million. The variable interest rate incurred on the outstanding
 
borrowings under the Original Credit Facility
during the year ended December 31, 2021 was approximately 1.6%.
 
If interest rates had changed by 10% during 2021, the
Company’s interest expense for
 
the period ended December 31, 2021 on its credit facilities, including the Original
 
Credit Facility
borrowings outstanding post-closing of the Combination, would have correspondingly
 
increased or decreased by approximately $1
million.
 
Likewise, if interest rates had changed by 10% during the six month period ended June
 
30, 2022, the Company’s interest
expense for the six month period ended June 30, 2022 on its credit facilities, including
 
the Amended Credit Facility borrowings
outstanding, would have correspondingly increased or decreased by approximately
 
$2 million.
 
The Original Credit Facility required the Company to fix its variable interest rates on
 
at least 20% of its total term loans.
 
In order
to satisfy this requirement as well as to manage the Company’s
 
exposure to variable interest rate risk associated with the Original
Credit Facility, in November
 
2019, the Company entered into $170.0 million notional amounts of
 
three year interest rate swaps at a
base rate of 1.64% plus an applicable margin as provided in
 
the Original Credit Facility, based on
 
the Company’s consolidated
 
net
leverage ratio.
 
At the time the Company entered into the swaps, and as of June 30, 2022, the aggregate
 
interest rate on the swaps,
including the fixed base rate plus an applicable margin,
 
was 3.1%.
 
The Amended Credit Facility does not require the Company to fix
variable interest rates on any portion of its borrowings.
44
Item 4.
 
Controls and Procedures.
Evaluation of disclosure controls
 
and procedures.
 
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), our management, including our
 
principal executive officer and principal financial officer,
 
has
evaluated the effectiveness of our disclosure controls
 
and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this Report.
 
Based on that evaluation, our principal executive officer and our principal
 
financial officer
have concluded that, as of June 30, 2022, the end of the period covered by this Report, our
 
disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Exchange Act) were effective.
Changes in internal control over financial reporting.
 
As required by Rule 13a-15(d) under the Exchange Act, our
management, including our principal executive officer
 
and principal financial officer, has evaluated
 
our internal control over
financial reporting to determine whether any changes to our internal control
 
over financial reporting occurred during the
quarter ended June 30, 2022 that have materially affected, or are
 
reasonably likely to materially affect, our internal control
over financial reporting.
 
Based on that evaluation, there were no changes that have materially affected,
 
or are reasonably
likely to materially affect, our internal control over financial reporting
 
during the quarter ended June 30, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
PART
 
II.
 
OTHER INFORMATION
Items 3, 4 and 5 of Part II are inapplicable and have been omitted.
Item 1.
 
Legal Proceedings.
Incorporated by reference is the information in Note 18 of the Notes to
 
the Condensed Consolidated Financial Statements in Part
I, Item 1, of this Report.
Item 1A. Risk Factors.
The Company’s business, financial
 
condition, results of operations and cash flows are subject to various risks that
 
could cause
actual results to vary materially from recent results or from anticipated future
 
results.
 
In addition to the other information set forth in
this Report, you should carefully consider the risk factors previously disclosed
 
in Part I, Item 1A of our 2021 Form 10-K.
 
While there
have been no material changes to the risk factors described in our 2021 Form 10-K,
 
reference is made to the developments discussed
under the headings
On-going impact of COVID-19
 
and
Impact of Political Conflicts
 
within Part I, Item 2 of this Report.
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth information concerning shares of
 
the Company’s common stock acquired
 
by the Company during
the period covered by this Report:
(c)
(d)
Total
 
Number of
Approximate Dollar
(a)
(b)
Shares Purchased
 
Value of
 
Shares that
Total
 
Number
Average
as part of
May Yet
 
be
of Shares
Price Paid
Publicly Announced
Purchased Under the
Period
Purchased (1)
Per Share (2)
Plans or Programs
Plans or Programs (3)
April 1 - April 30
280
 
$
162.86
 
$
86,865,026
 
May 1 - May 31
729
 
$
147.04
 
$
86,865,026
 
June 1 - June 30
56
 
$
149.52
 
$
86,865,026
 
Total
1,065
 
$
151.33
 
$
86,865,026
 
(1)
All of these shares were acquired from employees related to the surrender
 
of Quaker Chemical Corporation shares in
payment of the exercise price of employee stock options exercised or
 
for the payment of taxes upon exercise of employee
stock options or the vesting of restricted stock awards or units.
 
(2)
The price paid for shares acquired from employees pursuant to employee
 
benefit and share-based compensation plans is
based on the closing price of the Company’s
 
common stock on the date of exercise or vesting as specified by the plan
pursuant to which the applicable option, restricted stock award, or restricted
 
stock unit was granted.
 
(3)
On May 6, 2015, the Board of Directors of the Company approved, and the
 
Company announced, a share repurchase
program, pursuant to which the Company is authorized to repurchase up to
 
$100,000,000 of Quaker Chemical Corporation
common stock (the “2015 Share Repurchase Program”), and it has no expiration
 
date.
 
There were no shares acquired by the
Company pursuant to the 2015 Share Repurchase Program during the
 
quarter ended June 30, 2022.
Limitation on the Payment of Dividends
The Amended Credit Facility has certain limitations on the payment of
 
dividends and other so-called restricted payments.
 
See
Note 14 of Notes to Condensed Consolidated Financial Statements, in Part
 
I, Item 1, of this Report.
 
 
46
Item 6.
 
Exhibits.
(a) Exhibits
3.1
3.2
10.1
Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form
 
8-K filed on June 21, 2022.
10.2
10.3
10.4
10.5
31.1
31.2
32.1
32.2
101.INS
Inline XBRL Instance Document*
101.SCH
Inline XBRL Taxonomy
 
Schema Document*
101.CAL
Inline XBRL Taxonomy
 
Calculation Linkbase Document*
101.DEF
Inline XBRL Taxonomy
 
Definition Linkbase Document*
101.LAB
Inline XBRL Taxonomy
 
Label Linkbase Document*
101.PRE
Inline XBRL Taxonomy
 
Presentation Linkbase Document*
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained
 
in Exhibit 101.INS)*
*Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan.
*********
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
 
duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
QUAKER CHEMICAL CORPORATION
 
(Registrant)
 
 
 
 
/s/ Shane W. Hostetter
Date: August 4, 2022
 
 
 
Shane W. Hostetter,
 
Senior Vice President, Chief Financial
Officer (officer duly authorized on behalf of, and principal
financial officer of, the Registrant)
exhibit102
https://cdn.kscope.io/8aa57921e3234b0296d125ecefe59d50-exhibit102p1i0.jpg
 
 
 
 
EXHIBIT 10.2
1
EMPLOYMENT AGREEMENT
May 24, 2022
NAME:
Melissa Leneis
[ REDACTED ]
The
 
parties
 
to
 
this
 
Employment
 
Agreement (“Agreement”)
 
are
 
Melissa
 
Leneis
(“You”
 
or
 
the
 
“Executive”) and
Quaker
 
Chemical
 
Corporation,
 
d/b/a
 
Quaker
 
Houghton,
 
a
 
Pennsylvania
 
corporation
 
(“Quaker
 
Houghton”
 
or
 
the
“Company”).
You are hereby appointed
 
as the Company’s Senior
 
Vice President and Chief
 
Human Resources
 
Officer (“CHRO”).
 
 
NOW THEREFORE in consideration
 
of the mutual
 
promises and covenants herein
 
contained and intending to
 
be
legally bound hereby the parties hereto agree as follows:
1.
Duties
 
Quaker Houghton agrees to employ you and you agree
 
to serve as Quaker Houghton’s CHRO.
 
You shall perform
all duties
 
consistent with
 
such position
 
as well
 
as any
 
other duties
 
that are
 
assigned to
 
you from
 
time to
 
time by
 
Quaker
Houghton’s CEO.
 
You
 
agree that during the term
 
of your employment with Quaker
 
Houghton to devote your knowledge,
skill, and working time solely and exclusively to the business and interests
 
of Quaker Houghton and its subsidiaries.
 
2.
 
Compensation
 
Your
 
base salary
 
will be
 
determined from
 
time to
 
time by
 
the Quaker
 
Houghton Board of
 
Directors. In addition,
you will be entitled to
 
participate, to the extent
 
eligible, in any of Quaker
 
Houghton’s annual and long term incentive
 
plans,
retirement savings plan (401k plan),
 
and will be entitled to vacations,
 
paid holidays, and medical, dental,
 
and other benefits
as are
 
made generally
 
available by
 
Quaker Houghton
 
to its
 
full-time U.S.
 
employees.
 
During your
 
employment with
 
Quaker
Houghton,
 
your
 
salary
 
will
 
not
 
be
 
reduced
 
by
 
Quaker
 
Houghton
 
without
 
your
 
prior
 
written
 
consent.
 
Your
 
initial
compensation and benefits are outlined on Addendum 1, which
 
is attached hereto and made a part hereof.
 
3.
 
Term
 
of Employment
.
The Your
 
employment with Quaker may be terminated on ninety (90)
 
days' written notice by either party,
 
with or
without cause or reason whatsoever.
 
Within ninety (90)
 
days after termination of your
 
employment, you will be given
 
an
accounting of all monies due
 
you. Notwithstanding the
 
foregoing, Quaker has the
 
right to terminate your
 
employment upon
less than ninety (90) days’ notice for Cause (as defined below).
4.
 
Covenant Not to Disclose
a.
 
As
 
CHRO,
 
you
 
acknowledge
 
that
 
the
 
identity
 
of
 
Quaker
 
Houghton's
 
(and
 
any
 
of
 
Quaker
 
Houghton's
affiliates’) customers,
 
the requirements
 
of such
 
customers, pricing
 
and payment
 
terms quoted
 
and charged
 
to such
 
customers,
the identity
 
of Quaker
 
Houghton's suppliers and
 
terms of
 
supply (and the
 
suppliers and related
 
terms of
 
supply of
 
any of
Quaker
 
Houghton's
 
customers
 
for
 
which
 
chemical
 
and
 
other
 
management
 
services
 
are
 
being
 
provided),
 
information
concerning
 
the
 
method
 
and
 
conduct
 
of
 
Quaker
 
Houghton's
 
(and
 
any
 
affiliate’s)
 
business
 
such
 
as
 
formulae, formulation
information,
 
application
 
technology,
 
manufacturing
 
information,
 
marketing
 
information,
 
strategic
 
and
 
marketing
 
plans,
financial information, financial
 
statements (audited and
 
unaudited), budgets, corporate
 
practices and procedures,
 
research
and development efforts,
 
and laboratory test
 
methods and
 
all of Quaker
 
Houghton's (and
 
its affiliates’) manuals,
 
documents,
 
2
notes, letters,
 
records, and
 
computer programs
 
are Quaker
 
Houghton's confidential
 
information ("Confidential
 
Information")
and are Quaker Houghton’s (and/or any of
 
its affiliates’, as the case may
 
be) sole and exclusive property.
 
You agree that at
no time
 
during or
 
following your
 
employment with
 
Quaker Houghton
 
will you
 
appropriate for
 
your own
 
use, divulge
 
or
pass
 
on,
 
directly
 
or
 
through
 
any
 
other
 
individual
 
or
 
entity
 
or
 
to
 
any
 
third
 
party,
 
any
 
Quaker
 
Houghton
 
Confidential
Information. Upon termination of your employment with
 
Quaker Houghton and prior to final payment of
 
all monies due to
you under Section 2
 
or at any other
 
time upon Quaker Houghton's request,
 
you agree to
 
surrender immediately to Quaker
Houghton any and all materials in your possession or control which include or contain any Quaker Houghton Confidential
Information.
b.
 
You
 
acknowledge that, by this
 
Section 4(b), you have been
 
notified in accordance with the
 
Defend Trade
Secrets Act that, notwithstanding the foregoing:
(i)
You
 
will not be
 
held criminally or civilly
 
liable under any federal
 
or state trade secret
 
law or this
Agreement for the disclosure
 
of Confidential Information that: (A)
 
you make (1) in
 
confidence to a federal, state,
 
or local
government
 
official,
 
either
 
directly
 
or
 
indirectly,
 
or
 
to
 
your
 
attorney;
 
and
 
(2)
 
solely
 
for
 
the
 
purpose
 
of
 
reporting
 
or
investigating a suspected
 
violation of law;
 
or (B) you
 
make in a
 
complaint or other
 
document that is
 
filed under seal
 
in a
lawsuit or other proceeding.
(ii)
If you file a lawsuit for retaliation by Quaker Houghton for reporting a suspected
 
violation of law,
you may disclose Confidential Information
 
to your attorney and use the
 
Confidential Information in the court
 
proceeding if
you: (A)
 
file any
 
document containing
 
Confidential Information
 
under seal
 
and (B)
 
do not
 
disclose Confidential
 
Information,
except pursuant to court order.
 
c.
 
Additionally, Quaker Houghton confirms that nothing in this Agreement is intended to or shall prevent,
impede or interfere with your right, without prior notice to Quaker Houghton,
 
to provide information to the government,
participate in any government investigations, file a court or administrative
 
complaint, testify in proceedings regarding
Quaker Houghton’s past or future conduct, or engage in any future activities protected under any statute
 
administered by
any government agency.
5.
 
Covenant Not to Compete
In consideration of
 
your position of
 
CHRO for Quaker
 
Houghton and the
 
training and Confidential
 
Information you
are to receive from
 
Quaker Houghton, you agree that during
 
your employment with Quaker Houghton and
 
for a period of
one (1) year thereafter, regardless of the reason for your termination, you will not:
a.
 
directly or
 
indirectly,
 
together or
 
separately or
 
with any
 
third party,
 
whether as
 
an employee,
 
individual
proprietor, partner, stockholder, officer, director, or investor, or in
 
a joint venture
 
or any other
 
capacity whatsoever, actively
engage in
 
business or
 
assist anyone
 
or any
 
firm in
 
business as a
 
manufacturer, seller,
 
or distributor of
 
specialty chemical
products which are the same, like, similar to, or which compete with Quaker Houghton’s (or any of its affiliates’) products
or services; and
 
b.
 
directly or indirectly recruit, solicit or encourage any Quaker Houghton (or any
 
of its affiliates’) employee
or otherwise induce
 
such employee to
 
leave Quaker Houghton’s (or
 
any of its
 
affiliates’) employ, or to
 
become an employee
or otherwise be associated with you
 
or any firm, corporation, business, or
 
other entity with which you
 
are or may become
associated; and
c.
 
solicit or induce any of Quaker Houghton's suppliers of products and/or services (or a supplier of products
and/or services of
 
a customer who
 
is being provided
 
or solicited for
 
the provision of
 
chemical management or
 
other services
by Quaker Houghton) to terminate or alter its contractual relationship with
 
Quaker Houghton (and/or any such customer).
The parties
 
consider these
 
restrictions reasonable,
 
including the
 
period of
 
time during
 
which the
 
restrictions are
effective.
 
However,
 
if
 
any
 
restriction
 
or
 
the
 
period
 
of
 
time
 
specified
 
should
 
be
 
found
 
to
 
be
 
unreasonable
 
in
 
any
 
court
proceeding, then such restriction shall be modified or
 
the period of time shall be shortened as
 
is found to be reasonable so
that the foregoing covenant not to compete may be enforced.
 
You
 
agree that in the event of a breach or
 
threatened breach
by you of
 
the provisions of
 
the restrictive covenants
 
contained in Section
 
4 or in
 
this Section 5,
 
Quaker Houghton
 
will suffer
 
 
 
3
irreparable harm, and monetary
 
damages may not be
 
an adequate remedy.
 
Therefore, if any
 
breach occurs, or is
 
threatened,
in addition to all other remedies available to Quaker Houghton, at law or in equity, Quaker Houghton shall be entitled as a
matter of
 
right to
 
specific performance
 
of the
 
covenants contained
 
herein by
 
way of
 
temporary or
 
permanent injunctive
relief.
 
In the event of any breach of
 
the restrictive covenant contained in
 
this Section 5, the term of
 
the restrictive covenant
shall be extended
 
by a period
 
of time equal
 
to that period
 
beginning on the
 
date such violation
 
commenced and
 
ending when
the activities constituting such violation cease.
6.
 
Contractual Restrictions
 
You
 
represent and warrant to Quaker Houghton that:
 
(a) there are no restrictions, agreements, or understandings
 
to
which
 
you
 
are
 
a
 
party
 
that
 
would
 
prevent
 
or
 
make
 
unlawful
 
your
 
employment
 
with
 
Quaker
 
Houghton
 
and
 
(b)
 
your
employment by Quaker
 
Houghton shall
 
not constitute
 
a breach of
 
any contract,
 
agreement, or
 
understanding, oral
 
or written,
to which you
 
are a party
 
or by which
 
you are bound.
 
You further represent that you
 
will not use
 
any trade secret,
 
proprietary
or otherwise
 
confidential information
 
belonging to
 
a prior
 
employer or
 
other third
 
party in
 
connection with
 
your employment
with Quaker Houghton.
7.
 
Inventions
All improvements, modifications, formulations,
 
processes, discoveries or inventions
 
("Inventions"), whether or not
patentable, which
 
were originated,
 
conceived or
 
developed by
 
you solely
 
or jointly
 
with others
 
(a) during
 
your working
hours or at
 
Quaker Houghton’s
 
expense or at Quaker
 
Houghton's premises or at
 
a customer’s premises
 
or (b) during your
employment with
 
Quaker Houghton
 
and additionally
 
for
 
a period
 
of one
 
year thereafter,
 
and which
 
relate to
 
(i) Quaker
Houghton’s business or (ii)
 
any research, products,
 
processes, devices,
 
or machines
 
under actual or
 
anticipated development
or investigation by Quaker Houghton at the earlier of (i) that
 
time or (ii) as the date of termination of employment, shall be
Quaker Houghton’s
 
sole property.
 
You
 
shall promptly
 
disclose to
 
Quaker Houghton
 
all Inventions
 
that you
 
conceive or
become
 
aware
 
of
 
at
 
any
 
time
 
during
 
your
 
employment
 
with
 
Quaker
 
Houghton
 
and
 
shall
 
keep
 
complete,
 
accurate,
 
and
authentic notes, data and records of all Inventions and of
 
all work done by you solely or jointly with
 
others, in the manner
directed by
 
Quaker Houghton. You
 
hereby transfer and
 
assign to
 
Quaker Houghton all
 
of your right,
 
title, and interest
 
in
and
 
to
 
any
 
and
 
all
 
Inventions
 
which
 
may
 
be
 
conceived
 
or
 
developed
 
by
 
you
 
solely
 
or
 
jointly
 
with
 
others
 
during
 
your
employment with Quaker Houghton.
 
You
 
shall assist Quaker Houghton in applying, obtaining, and
 
enforcing any United
States Letters Patent and Foreign Letters Patent on any such Inventions and to take such other actions as may be necessary
or
 
desirable
 
to
 
protect
 
Quaker
 
Houghton's
 
interests
 
therein.
 
Upon
 
request,
 
you
 
shall
 
execute
 
any
 
and
 
all
 
applications,
assignments,
 
or
 
other
 
documents
 
that
 
Quaker
 
Houghton
 
deems
 
necessary
 
and
 
desirable
 
for
 
such
 
purposes.
 
You
 
have
attached hereto
 
a list
 
of unpatented
 
inventions that
 
you have
 
made or
 
conceived prior
 
to your
 
employment with
 
Quaker
Houghton, and it is agreed that those inventions shall be excluded
 
from the terms of this Agreement.
8.
Termination
.
 
a.
 
Either party may terminate this
 
Agreement per the terms of
 
Section 3 hereof and Quaker
 
Houghton, in its
sole discretion, may terminate your employment at any time for Cause (as defined herein).
 
If you incur a Separation from
Service (as defined
 
below) by decision
 
and action of Quaker
 
Houghton for any
 
reason other than
 
Cause, death, or
 
Disability
(as defined below), Quaker Houghton agrees to:
1.
 
Provide you with reasonable
 
outplacement assistance, either by providing
 
the services in-kind, or
by reimbursing reasonable
 
expenses actually incurred
 
by you in connection
 
with your Separation
 
from Service.
 
The
 
outplacement
 
services
 
must
 
be
 
provided
 
during
 
the
 
one-year
 
period
 
following
 
your
 
Separation
 
from
Service.
 
If any expenses are to be reimbursed, you must request
 
the reimbursement within eighteen months of
your Separation from
 
Service and reimbursement
 
will be made
 
within 30 days
 
of the receipt
 
of your request;
and
2.
 
Pay you twelve
 
months’ severance in
 
bi-weekly installments commencing
 
on the Payment
 
Date (as
defined below) and continuing
 
on Quaker Houghton's
 
normal payroll dates thereafter, each
 
of which is equal
 
to
the total of your bi-weekly base
 
salary at the time of your
 
Separation from Service plus 12
 
months of the target
incentive of the
 
Company’s annual
 
incentive plan, provided
 
you sign a
 
Release within 45
 
days of the
 
later of
the
 
date
 
you
 
receive
 
the
 
Release
 
or
 
your
 
Separation
 
from
 
Service.
 
Continuation
 
of
 
all
 
medical
 
and
 
dental
 
4
coverage’s will also be
 
available for 18
 
months at a
 
level equal to
 
the coverage provided
 
before your Separation
from Service.
b.
 
If the
 
Executive dies
 
during the
 
Term
 
of Employment,
 
the Company
 
shall not
 
thereafter be
 
obligated to
make any further payments under
 
this Agreement except for amounts
 
accrued as of the
 
date of the Executive’s
 
death, and
except that
 
the Company
 
shall pay
 
a single-sum
 
cash death
 
benefit to
 
the Executive’s
 
Beneficiary equal
 
to 200%
 
of the
annual rate
 
of the
 
Executive’s
 
base salary
 
as in
 
effect on
 
the day
 
before the
 
Executive’s
 
death or
 
be entitled
 
to the
 
death
benefit (as
 
a multiple
 
of base
 
salary) to
 
which any
 
other executive
 
officer
 
would be
 
entitled. To
 
that end,
 
the
 
Company
currently has
 
a program
 
in which
 
all executive
 
officers in
 
the Company’s
 
Executive Leadership Team
 
participate, which
entitle each to a death benefit equal to
 
100% of base salary in the year of
 
death and 50% of base salary in each
 
of the four
years thereafter.
 
“Beneficiary” shall mean
 
the person designated by
 
the Executive to receive
 
benefits under this
 
Agreement
in a writing filed by the Executive with the Company’s human resources department before the Executive’s death or, if the
Executive
 
fails
 
to
 
designate
 
a
 
beneficiary
 
or
 
the
 
designated
 
beneficiary
 
predeceases
 
the
 
Executive,
 
the
 
Executive’s
Beneficiary shall be his surviving spouse or, if the Executive has no surviving spouse, his estate.
c.
 
Disability of Executive.
 
If the Executive is unable to perform his
 
duties hereunder by reason of disability
as defined in the Company’s Long-Term Disability Plan (“Disability”), then the Board shall have the right to terminate the
Executive’s
 
employment upon
 
30 days
 
prior written
 
notice to
 
the Executive
 
at any
 
time during
 
the continuation
 
of such
Disability.
 
In
 
the
 
event
 
the
 
Executive
 
is
 
terminated
 
pursuant
 
to
 
this
 
Section
 
8(c),
 
the
 
Company
 
shall
 
not
 
thereafter
 
be
obligated to
 
make any
 
further payments
 
under this
 
Agreement except
 
for amounts
 
accrued as
 
of the
 
date of
 
such termination,
and except that the Executive shall receive
 
supplemental disability payments.
 
Such supplemental disability payments
 
shall
be paid to the Executive after the Executive’s Separation from Service at the same time that disability payments are due to
be paid
 
to the
 
Executive under
 
the
 
Company’s
 
Long-Term
 
Disability Plan
 
and each
 
such payment
 
shall be
 
equal to
 
the
excess
 
of
 
(a)
 
the
 
amount
 
that
 
would
 
be
 
payable
 
under
 
the
 
Company’s
 
Long-Term
 
Disability
 
Plan
 
(disregarding
 
any
withholding) if the
 
Executive elected a
 
benefit of 50%
 
of applicable pay
 
and such plan
 
did not limit
 
the dollar amount
 
of
periodic payments thereunder, over (b) the amount
 
that would be payable under
 
the Company’s Long-Term Disability Plan
(disregarding any withholding)
 
if the
 
Executive elected a
 
benefit of 50%
 
of applicable pay.
 
The “Company’s
 
Long-Term
Disability Plan” shall
 
mean the long-term
 
disability plan maintained
 
by the Company
 
for employees generally;
 
provided,
however, that if the Company does not maintain such a long-term disability plan at the time of the Executive’s termination
under this
 
Section 8(c), or
 
terminates such
 
plan after the
 
Executive’s
 
termination of employment
 
but before
 
all disability
payments
 
have
 
been
 
paid
 
to
 
the
 
Executive
 
under
 
the
 
terms
 
of
 
such
 
plan
 
as
 
in
 
effect
 
prior
 
to
 
its
 
termination,
 
(x)
 
the
“Company’s Long-Term Disability Plan”
 
shall mean
 
the long-term
 
disability plan
 
most recently
 
maintained by
 
the Company
for
 
employees
 
generally,
 
and
 
(y)
 
the
 
amount
 
determined
 
under
 
subsection
 
(b)
 
shall
 
equal
 
zero
 
dollars
 
($0).
 
Such
supplemental disability payments shall be payable from the Company’s general assets or, if the Company so elects, from a
supplemental disability policy purchased by the Company.
 
“Separation from Service”
 
means your separation
 
from service with
 
Quaker Houghton and
 
its affiliates within
 
the
meaning of Treas. Reg. §1.409A-1(h) or any successor thereto.
 
“Cause”
 
means your
 
employment with
 
Quaker Houghton
 
has been
 
terminated by
 
reason of
 
(i) your
 
willful and
material breach of this Agreement (after having received notice thereof and a reasonable opportunity to cure
 
or correct) or
the Company’s
 
policies, (ii)
 
dishonesty,
 
fraud, willful
 
malfeasance, gross
 
negligence, or
 
other gross
 
misconduct, in
 
each
case
 
relating
 
to
 
the
 
performance
 
of
 
your
 
duties
 
hereunder
 
which
 
is
 
materially
 
injurious
 
to
 
Quaker
 
Houghton,
 
or
 
(iii)
conviction of or plea of guilty or nolo contendere to a felony.
“Payment Date”
 
means (x) the 60th day after your Separation from Service
 
or (y) if you are a specified employee
(as defined
 
in
 
Treas.
 
Reg. §1.409A-1(i))
 
as of
 
the date
 
of your
 
Separation from
 
Service, and
 
the severance
 
described in
subsection (b) is
 
deferred compensation subject
 
to section
 
409A of the
 
Code, the
 
first business day
 
of the
 
seventh month
following the
 
month in
 
which your
 
Separation from
 
Service occurs.
 
If the
 
Payment Date
 
is described
 
in clause
 
(y), the
amount paid on
 
the Payment Date
 
shall include all
 
monthly installments that
 
would have been
 
paid earlier had
 
clause (y)
not been applicable, plus interest at
 
the Wall
 
Street Journal Prime Rate published in the
 
Wall
 
Street Journal on the date of
your Separation from Service (or the previous business day if
 
such day is not a business day), for the
 
period from the date
payment would have been made had clause (y) not been applicable through
 
the date payment is made.
 
 
 
 
 
 
 
5
“Release”
 
means
 
a
 
release
 
(in
 
a
 
form
 
satisfactory
 
to
 
Quaker
 
Houghton)
 
of
 
any
 
and
 
all
 
claims
 
against
 
Quaker
Houghton and all related parties
 
with respect to all matters arising
 
out of your employment with Quaker
 
Houghton, or the
termination thereof (other than for claims for any entitlements under the terms of this Agreement or any plans or programs
of Quaker Houghton under which you
 
have accrued a benefit) that Quaker
 
Houghton provides to you no
 
later than ten days
after your Separation from Service.
 
If a release is not provided to
 
you within this time period, the
 
severance shall be paid
even if you do not sign a release.
9.
 
Indemnification
Quaker
 
Houghton
 
shall
 
defend
 
you
 
and
 
hold
 
you
 
harmless
 
to
 
the
 
fullest
 
extent
 
permitted
 
by
 
applicable
 
law
 
in
connection
 
with
 
any claim,
 
action,
 
suit, investigation
 
or
 
proceeding arising
 
out
 
of
 
or
 
relating to
 
performance by
 
you
 
of
services for, or actions of you
 
as a director, officer,
 
or employee of Quaker Houghton or any parent, subsidiary or affiliate
of
 
Quaker Houghton,
 
or
 
of
 
any other
 
person or
 
enterprise at
 
Quaker Houghton’s
 
request.
 
Expenses incurred
 
by you
 
in
defending such a claim, action,
 
suit or investigation or
 
criminal proceeding shall be paid
 
by Quaker Houghton in advance
of
 
the
 
final
 
disposition thereof
 
upon
 
the
 
receipt
 
by
 
the
 
Company
 
of
 
an
 
undertaking
 
by
 
or
 
on
 
your
 
behalf
 
to
 
repay
 
said
amounts unless it shall ultimately be determined that you are
 
entitled to be indemnified hereunder; provided, however, that
this shall not apply to a nonderivative action commenced by Quaker Houghton
 
against you.
 
10.
 
Governing Law.
 
The provisions of this Agreement shall be construed in accordance with
 
the laws of the Commonwealth of
Pennsylvania without reference to principles of conflicts of laws.
11.
 
Miscellaneous
This Agreement
 
and the
 
Change in
 
Control Agreement
 
to which
 
you are
 
a party,
 
constitute the
 
entire integrated
agreement concerning
 
the subjects
 
covered herein.
 
In case
 
any provision
 
of
 
this Agreement
 
shall be
 
invalid, illegal,
 
or
otherwise unenforceable, the validity, legality,
 
and enforceability of the remaining provisions shall not thereby be affected
or impaired.
 
You may not assign any of your rights or obligations under this Agreement without Quaker Houghton’s prior
written consent.
 
Quaker Houghton may assign this Agreement in its discretion, including to any affiliate or upon a sale of
assets
 
or
 
equity,
 
merger
 
or
 
other
 
corporate
 
transaction;
 
provided
 
that
 
Quaker
 
Houghton
 
obtains
 
the
 
assignee’s
 
written
commitment to honor the
 
terms and conditions contained herein.
 
This Agreement shall be
 
governed by,
 
and construed in
accordance with, the laws of the Commonwealth of
 
Pennsylvania without regard to any conflict of laws.
 
This Agreement
shall be binding
 
upon you, your heirs,
 
executors, and administrators and
 
shall inure to the
 
benefit of Quaker Houghton as
well as
 
its successors
 
and assigns.
 
In the
 
event of
 
any overlap
 
in the
 
restrictions contained
 
herein, including
 
Sections 4
and/or 5 above, with similar
 
restrictions contained in any other agreement, such
 
restrictions shall be read together so
 
as to
provide the broadest restriction possible.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.
WITNESS:
QUAKER CHEMICAL CORPORATION
DBA QUAKER HOUGHTON
/s/ Robert T. Traub 05/31/2022
/s/ Andrew E. Tometich 05/24/2022
Robert T. Traub
Andrew E. Tometich
WITNESS:
/s/ Robert T. Traub 05/31/2022
/s/ Melissa Leneis 05/24/2022
Robert T. Traub
Melissa Leneis
6
ADDENDUM 1
Base Salary:
Your
 
salary will be payable on a bi-weekly basis at the rate of
 
$17,500, which is annualized at $455,000.
 
You
 
will be eligible for your
 
next salary increase
in 2023.
Annual and Long-
Term
 
Bonuses:
For your position, you are
 
eligible to participate in the
 
Annual Incentive Plan (“AIP”) with
 
a
target award percentage
 
for 2022 full
 
year of 65%
 
of your base
 
salary, dependent upon Quaker
Houghton’s financial results and personal objectives to be determined.
You
 
will be eligible
 
to participate in
 
the 2022-2024
 
Long-Term
 
Incentive Plan (“LTIP”)
 
for
the full year
 
of 2022.
 
Your award for the 2022-2024
 
performance period
 
includes an
 
even mix
of time-based restricted
 
stock, stock options,
 
and target performance
 
stock units (PSU’s).
 
The
value, at a target level is $600,000.
 
All
 
incentive
 
compensation
 
awards
 
are
 
made
 
at
 
the
 
Company’s
 
discretion,
 
are
 
subject
 
to
change,
 
and
 
require
 
the
 
approval
 
of
 
the
 
Company’s
 
Compensation
 
and
 
Human
 
Resources
Committee.
Special One-time
Grants:
You will be provided a one-time equity award within 7 days of
 
your start date equaling a cash
value at
 
time of
 
grant of
 
$1,000,000 in
 
order to
 
offset the
 
equity that
 
will expire
 
upon your
accepting employment
 
with Quaker
 
Houghton.
 
Such award
 
will be
 
provided as
 
time-based
restricted stock with cliff vesting
 
one year from the date of
 
grant. Such payment is subject to
a claw-back and
 
must be repaid
 
to the Company
 
if you voluntarily
 
terminate your employment
with Quaker Houghton for
 
any reason other
 
than cause within
 
the first two
 
(2) years of
 
your
tenure with Quaker
 
Houghton. Further,
 
if you terminate
 
for cause or
 
if you are
 
involuntarily
 
terminated by Quaker Houghton for any reason other than cause, no clawback
 
will apply.
 
You
 
will be
 
provided a
 
one-time cash
 
award equaling
 
$300,000 in
 
order
 
to offset
 
the cash
bonus opportunity that will
 
expire upon your
 
accepting employment with Quaker Houghton.
 
Such award will be
 
cash and will
 
be paid out
 
in two equal installments
 
of $150,000 upon 90
days
 
of employment
 
and 180
 
days of
 
employment, respectively.
 
Such cash
 
award must
 
be
repaid
 
to
 
the
 
Company
 
if
 
you
 
terminate
 
your
 
employment
 
with
 
Quaker
 
Houghton
 
for
 
any
reason other than
 
cause within the
 
first two (2)
 
years of your
 
tenure with Quaker
 
Houghton.
 
Further, if you terminate
 
for cause or if
 
you are involuntarily
 
terminated by Quaker
 
Houghton
for any reason other than cause, no clawback will apply.
Financial Planning:
You
 
will be eligible to be reimbursed for up to $3,500 per calendar year for
 
expenses
incurred for financial planning and/or tax preparation.
Benefits:
Quaker Houghton offers a
 
Flexible Benefits Program
 
that is subject
 
to change.
 
This gives you
the opportunity
 
to choose
 
from a
 
variety of
 
options creating
 
a customized
 
benefits package.
 
The following
 
benefits are
 
currently part
 
of the
 
program.
 
In each
 
of these
 
areas, you
 
are offered
a range
 
of options
 
so you
 
may choose
 
the ones
 
that make
 
the most
 
sense for
 
your personal
situation.
Medical
 
Dental
 
Life & AD&D Insurance
Long-term Disability
Health Care and Dependent Care Flexible Spending Accounts (FSAs)
The Company is reviewing a non-qualified deferred compensation
 
plan, which if adopted
will be part of your overall benefits package.
7
In
 
addition
 
to
 
these
 
flexible benefits,
 
Quaker
 
Houghton
 
also
 
currently
 
offers
 
the
 
following
benefit plans:
 
Retirement Savings Plan (401K)
Vacation
 
/ Holidays:
You
 
will be eligible for 25 PTO days per calendar year while you are working in the U.S.
You
 
will begin to accrue an additional 5 days of PTO per calendar year when you
 
meet the
next service level as defined in the plan.
 
In addition, you will be eligible to be paid for
regional holidays.
 
Unused vacation days will not roll over from year to year, unless
applicable law requires otherwise.
exhibit103
 
 
1
EXHIBIT 10.3
CHANGE IN CONTROL AGREEMENT
 
THIS AGREEMENT,
 
dated May 24, 2022 between QUAKER CHEMICAL CORPORATION,
 
d/b/a QUAKER
HOUGHTON, a Pennsylvania corporation (the “Company”),
 
and MELISSA LENEIS (the “Manager”),
W I T N E S S E T H
 
T H A T
 
WHEREAS, the Board of Directors of the Company has determined that
 
it is in the best interests of the Company and its
shareholders that the Company and its subsidiaries be able to attract, retain,
 
and motivate highly qualified management personnel and,
in particular, that they be assured of continuity
 
of management in the event of any actual or threatened change in control of
 
the
Company; and
WHEREAS, the Board of Directors of the Company believes that the execution
 
by the Company of change in control
agreements with certain management personnel, including the Manager,
 
is an important factor in achieving this desired end;
 
NOW, THEREFORE,
 
IN CONSIDERATION
 
of the mutual obligations and agreements contained herein
 
and intending to be
legally bound hereby,
 
the Manager and the Company agree that the Change in Control Agreement is amended
 
and restated, as follows:
1.
Term
 
of Agreement.
 
This Agreement shall become effective on your start date
 
with the Company (the “Effective Date”), and shall continue
 
in
effect through December 31, 2022, provided, however,
 
that the term of this Agreement shall automatically be extended for successive
one-year periods thereafter, unless, not later than
 
eighteen (18) months preceding the calendar year for which the term would
otherwise automatically extend, the Company shall have given written
 
notice to the Manager of intention not to extend this Agreement
for an additional year, in which event this Agreement
 
shall continue in effect until December 31 of the calendar year immediately
preceding the calendar year for which the term would have otherwise automatically
 
extended.
 
Notwithstanding any such notice not to
extend, if a Change in Control (as defined in Section 2) occurs during the
 
original or extended term of this Agreement, this Agreement
shall remain in effect after a Change in Control until all obligations of
 
the parties hereto under this Agreement shall have been
satisfied.
2.
Change in Control.
 
As used in this Agreement, a “Change in Control”
 
of the Company shall be deemed to have occurred if:
(a)
Any person (a “Person”), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
 
Act of 1934,
as amended (the “Exchange Act”) (other than (i) the Company and/or
 
its wholly owned subsidiaries; (ii) any ESOP or other employee
benefit plan of the Company and any trustee or other fiduciary in such capacity
 
holding securities under such plan; (iii) any
corporation owned, directly or indirectly,
 
by the shareholders of the Company in substantially the same proportions as their ownership
of stock of the Company; or (iv) any other Person who, within the one year prior
 
to the event which would otherwise be a Change in
Control, is an executive officer of the Company or any
 
group of Persons of which he voluntarily is a part),
 
is or becomes the
“beneficial owner”
 
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
 
of securities of the Company
representing 30% or more of the combined voting power of the Company
 
’s then outstanding securities or
 
such lesser percentage of
voting power, but not less than 15%, as
 
determined by the members of the Board of Directors of the Company
 
who are independent
directors (as defined in the New York
 
Stock Exchange, Inc. Listed Company Manual); provided, however,
 
that a Change in Control
shall not be deemed to have occurred under the provisions of this subsection
 
(a) by reason of the beneficial ownership of voting
securities by members of the Benoliel family (as defined below) unless and
 
until the beneficial ownership of all members of the
Benoliel family (including any other individuals or entities who or
 
which, together with any member or members of the Benoliel
family, are deemed under
 
Sections 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds
 
50% of the combined
voting power of the Company’s then
 
outstanding securities;
(b)
During any two-year period after the Effective Date,
 
Directors of the Company in office at the beginning of such
period plus any new Director (other than a Director designated by a Person
 
who has entered into an agreement with the Company to
effect a transaction within the purview of subsections (a) or
 
(c)) whose election by the Board of Directors of the Company or whose
nomination for election by the Company’s
 
shareholders was approved by a vote of at least two-thirds of the Directors then still in
office who either were Directors at the beginning of the period
 
or whose election or nomination for election was previously so
approved shall cease for any reason to constitute at least a majority of the Board;
 
 
 
 
 
 
 
 
2
(c)
The consummation of (i) any consolidation or merger
 
of the Company in which the Company is not the continuing
or surviving corporation or pursuant to which the Company’s
 
voting common shares (the “Common Shares”) would be converted
 
into
cash, securities, and/or other property,
 
other than a merger of the Company in which holders of Common
 
Shares immediately prior to
the merger have the same proportionate ownership of
 
voting shares of the surviving corporation immediately after the merger as they
had in the Common Shares immediately before; or (ii) any sale, lease, exchange,
 
or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets or earning power of the
 
Company; or
(d)
The Company’s shareholders
 
or the Company’s Board of
 
Directors shall approve the liquidation or dissolution of
the Company.
 
3.
Entitlement to Change in Control Benefits; Certain Definitions
 
.
 
The Manager shall be entitled to the benefits provided in this Agreement in
 
the event the Manager has a Separation from
Service under the circumstances described in (a) below (a “Covered
 
Termination”), provided the
 
Manager executes and does not
revoke a Release (as defined below), if any,
 
provided by the Company.
(a)
A Covered Termination
 
shall have occurred in the event the Manager’s
 
employment with the Company or its
affiliates is terminated within two (2) years following a Change
 
in Control by:
(i)
The Company or its affiliates without Cause (as defined
 
below);
 
or
(ii)
Resignation of the Manager for Good Reason (as defined below).
 
The Manager shall have no rights to any payments or benefits under
 
this Agreement in the event the Manager’s employment
with the Company and its affiliates is terminated
 
(i) as a result of death or Disability (as defined below), or (ii) by the Company
 
or its
affiliates for Cause.
 
In the event the Manager’s employment
 
is terminated for any reason prior to a Change in Control, the Manager
shall have no rights to any payments or benefits under this Agreement and,
 
after any such termination, this Agreement shall be of no
further force or effect.
“Cause” shall mean (i) the Manager’s willful and material breach
 
of the employment agreement,
 
if any, between the Manager
and the Company (after having received notice
 
thereof and a reasonable opportunity to cure or correct), (ii) dishonesty,
 
fraud, willful
malfeasance, gross negligence, or other gross misconduct, in each case relating
 
to the performance of the Manager’s employment
 
with
the Company or its affiliates which is materially injurious to
 
the Company, or (iii) conviction
 
of or plea of guilty to a felony,
 
such
Cause to be determined, in each case, by a resolution approved by at least two-thirds
 
of the Directors of the Company after having
afforded the Manager a reasonable opportunity to appear
 
before the Board of Directors of the Company and present his position.
“Code” shall mean the Internal Revenue Code of 1986, as amended, together with
 
any applicable regulations thereunder.
“Disability” shall mean covered total and permanent disability as defined
 
in the long-term disability plan maintained by the
Company for employees generally or, if the Company
 
does not maintain such a plan, the long-term disability plan most recently
maintained by the Company for employees generally.
“Good Reason” shall mean any of the following actions without the Manager’s
 
consent, other than due to the Manager’s
death or Disability: (i) any reduction in the Manager’s base salary from
 
that provided immediately before the Covered Termination
 
or,
if higher, immediately before the Change
 
in Control; (ii) any reduction in the Manager’s bonus opportunity (including
 
cash and
noncash incentives) or increase in the goals or standards required to
 
accrue that opportunity, as compared
 
to the opportunity and goals
or standards in effect immediately before the Change
 
in Control; (iii) a material adverse change in the nature or scope of the
Manager’s authorities, powers, functions, or duties from
 
those in effect immediately before the Change in Control; (iv) a reduction
 
in
the Manager’s benefits from those provided immediately before
 
the Change in Control, disregarding any reduction under a plan or
program covering employees generally that applies to all employees covered
 
by the plan or program; or (v) the Manager being
required to accept a primary employment location which is more than twenty-five
 
(25) miles from the location at which he primarily
was employed during the ninety (90) day period prior to a Change in Control.
 
 
“Payment Date” shall mean the 60th day after the Manager’s Separation
 
from Service, subject to Section 9.
 
“Release” shall mean a release (in a form satisfactory to the Company) of
 
any and all claims against the Company and all
related parties with respect to all matters arising out of the Manager’s
 
employment by the Company and its affiliates, or the
termination thereof (other than claims for any entitlements under the terms of this Agreement,
 
under any employment agreement
between the Manager and the Company,
 
or under any plans or programs of the Company under which the
 
Manager has accrued a
 
 
 
 
 
 
 
 
3
benefit)
 
that the Company provides to the Manager no later than three days after the date of the Manager’s
 
Covered Termination.
 
Notwithstanding any provision of this Agreement to the contrary,
 
if the Company provides a Release to the Manager,
 
the Manager
shall not be entitled to any payments or benefits under this Agreement unless the
 
Manager executes the Release within 45 days of the
later of the date he receives the Release or the date of his Covered Termination,
 
and the Manager does not revoke the Release.
 
“Separation from Service”
 
shall mean the Manager’s separation from service with the Company
 
and its affiliates within the
meaning of Treas. Reg. §1.409A-1(h) or
 
any successor thereto.
 
“Specified Employee”
 
shall mean the Manager if he is a specified employee as defined in Section 409A
 
of the Code as of the
date of his Separation from Service.
 
4.
Severance Allowance.
(a)
Amount of Severance Allowance.
 
In the event of a Covered Termination,
 
the Company shall pay or cause to be
paid to the Manager in cash a severance allowance (the “Severance Allowance
 
”) equal to 1.5 (one and one-half) times the sum of the
amounts determined in accordance with the following paragraphs
 
(i) and (ii):
(i)
An amount equivalent to the highest annualized base salary which the Manager
 
was entitled to receive from
the Company and its subsidiaries at any time during his employment prior
 
to the Covered Termination
 
;
 
and
(ii)
An amount equal to the average of the aggregate annual amounts paid
 
to the Manager in the Applicable
Three-Year
 
Period under all applicable annual incentive compensation plans maintained by
 
the Company
and its affiliates (other than compensation relating to relocation
 
expense; the grant, exercise, or settlement
of stock options,
 
restricted stock or performance incentive units or the sale or other disposition of
 
shares
received upon exercise or settlement of such awards); provided,
 
however, that (x) in determining the
average amount paid under the annual incentive plan during the Applicable
 
Three-Year
 
Period there shall
be excluded any year in which no amounts were paid to the Manager under
 
that plan; and (y) there shall be
excluded from such calculation any amounts paid to the Manager under any
 
such incentive compensation
plan as a result of the acceleration of such payments under such plan due
 
to termination of the plan, a
Change in Control, or a similar occurrence.
 
The Applicable Three-Year
 
Period shall be (A) if the Manager
has received an annual incentive compensation plan payment in the calendar
 
year of his Covered
Termination,
 
the calendar year in which such Covered Termination
 
occurs and the two preceding calendar
years, or (B) in any other case, the three calendar years preceding the calendar year
 
in which the Manager’s
Covered Termination
 
occurs; provided, however, that the Applicable Three
 
-Year
 
Period shall be
determined by substituting “Change In Control” for “Covered Termination”
 
if such substitution results in a
higher amount under this subsection (ii).
 
In no event shall any retention bonus or change in control or success fee be taken
 
into account when determining the amount of the
Severance Allowance hereunder.
(b)
Payment of Severance Allowance.
 
The Severance Allowance shall be paid to the Manager in a lump sum on the
Payment Date if the applicable Change in Control is also a change in control event
 
as defined in Treas. Reg. §1.409A-3(i)(5) (or any
successor thereto).
 
In any other case, the Severance Allowance shall be paid in eighteen monthly
 
installments commencing on the
Payment Date, each of which is equal to one eighteenth (1/18th) of the
 
amount of the Severance Allowance determined under Section
4(a), which are treated as a right to a series of separate
 
payments for purposes of Section 409A of the Code.
5.
Outplacement and Welfare
 
Benefits.
(a)
Outplacement.
 
Subject to Section 6, for a period of one year following a Covered Termination
 
of the Manager, the
Company shall make or cause to be made available to the Manager,
 
at its expense, outplacement counseling and other outplacement
services comparable to those available for the Company’s
 
senior managers prior to the Change in Control.
(b)
Welfare Benefits.
 
Subject to Section 6, for a period eighteen months following a Covered Termination
 
of the
Manager, the Manager and the Manager’s
 
dependents shall be entitled to participate in the Company’s
 
life, medical, and dental
insurance plans at the Company’s
 
expense, in accordance with the terms of such plans at the time of such Covered Termination
 
as if
the Manager were still employed by the Company or its affiliates under
 
this Agreement.
 
If, however, life, medical, or dental insurance
benefits are not paid or provided under any such plan to the Manager or his dependents
 
because the Manager is no longer an employee
of the Company or its subsidiaries, the Company itself shall, to the extent necessary,
 
pay or otherwise provide for such benefits to the
Manager and his dependents.
 
 
 
 
 
 
4
6.
Effect of Other Employment.
 
In the event the Manager becomes employed (as defined below) during
 
the period with respect to which benefits are
continuing pursuant to Section 5:
 
(a) the Manager shall notify the Company not later than the day such employment
 
commences; and
(b) the benefits provided for in Section 5 shall terminate as of the date of
 
such employment.
 
For the purposes of this Section 6, the
Manager shall be deemed to have become “employed”
 
by another entity or person only if the Manager becomes essentially a full-time
employee of a person or an entity (not more than 30% of which is owned by the Manager
 
and/or members of his family); and the
Manager’s “family”
 
shall mean his parents, his siblings and their spouses, his children and their spouses, and
 
the Manager’s spouse
and her parents and siblings.
 
Nothing herein shall relieve the Company of its obligations for compensation
 
or benefits accrued up to
the time of termination provided for herein.
7.
Other Payments and Benefits.
 
 
On the Payment Date, the Company shall pay or cause to be paid to the Manager
 
the aggregate of:
 
(a) the Manager’s earned
but unpaid base salary through the Covered Termination
 
at the rate in effect on the date of the Covered Termination,
 
or if higher, at
the rate in effect at any time during the 90-day period preceding
 
the Change in Control; (b) any unpaid bonus or annual incentive
payable to the Manager in respect of the calendar year ending prior to the Covered Termination
 
;
 
(c) the pro rata portion of any and all
unpaid bonuses and annual incentive awards for the calendar year in which the
 
Covered Termination
 
occurs, said pro rata portion to be
calculated on the fractional portion (the numerator of said fraction being
 
the number of days between January 1 and the date of the
Covered Termination,
 
and the denominator of which is 365) of the target bonuses or annual incentive
 
awards for such calendar year;
and (d) the pro rata portion of any and all awards under the Company’s
 
long term incentive plan for the performance period(s) in
which the Covered Termination
 
occurs, said pro rata portion to be calculated on the fractional portion (the numerator
 
of said fraction
being the number of days between the first day of the applicable performance
 
period and the date of the Covered Termination,
 
and the
denominator of which is the total number of days in the applicable performance
 
period) of the amount of the award which would have
been payable had (i) the Covered Termination
 
not occurred, and (ii) the target level of performance been
 
achieved for the applicable
performance period.
 
The Manager shall be entitled to receive any other payments or benefits that the Manager
 
is entitled to pursuant
to the express terms of any compensation or benefit plan or arrangement of
 
the Company or any of its affiliates; provided that: (x) the
Severance Allowance (i) shall be in lieu of any severance payments to which
 
the Manager might otherwise be entitled under the terms
of any severance pay plan, policy,
 
or arrangement maintained by the Company or the employment
 
agreement, if any, between the
Manager and the Company,
 
and (ii) shall be credited against any severance payments to which the Manager
 
may be entitled by statute;
(y) any annual incentive described in subsection (b) or (c) shall decrease (or
 
shall be decreased by), but not below zero, the amount of
the annual incentive payable (or paid) with respect to the same calendar year
 
under the Company’s annual incentive plan (currently
 
the
2001 Global Annual Incentive Plan); and (z) any amount described in subsection
 
(d) shall decrease (or shall be decreased by),
 
but not
below zero, the amount of the analogous performance award payable
 
(or paid) with respect to the same performance period(s) under
the Company’s long term incentive
 
plan(s) (currently the 2011 Long-Term
 
Performance Incentive Plan).
 
8.
Death After Covered Termination
 
.
 
In the event the Manager dies after a Covered Termination
 
occurs, (a) any payments due to the Manager under Section 4 and
the first sentence of Section 7 and not paid prior to the Manager’s
 
death shall be made to the person or persons who may be designated
by the Manager in writing or, in the event he
 
fails to so designate, to the Manager’s
 
personal representatives, and (b) the Manager’s
spouse and dependents
 
shall be eligible for the welfare benefits described in Section 5(b).
 
Payments pursuant to subsection (a) shall
be made on the later of (i) the date payment would have been made to the Manager
 
without regard to Section 9, or (ii) the date of the
Manager’s death.
9.
Certain Section 409A Rules.
 
(a)
Specified Employee.
 
Notwithstanding any provision of this Agreement to the contrary,
 
if the Manager is a Specified
Employee, any payment or benefit under this Agreement that constitutes deferred
 
compensation subject to Section 409A of the Code
and for which the payment event is Separation from Service shall not be made or provided
 
before the date that is six months after the
date of the Manager’s Separation from Service.
 
Any payment or benefit that is delayed pursuant to this Section 9 shall be made
 
or
provided on the first business day of the seventh month following the month
 
in which the Manager’s Separation from Service occurs.
 
With respect to any cash payment delayed pursuant
 
to this Section 9, the first payment shall include interest, at the Wall
 
Street Journal
Prime Rate published in the Wall
 
Street Journal on the date of the Manager’s Covered Termination
 
(or the previous business day if
such date is not a business day), for the period from the date the payment would have been
 
made but for this Section 9 through the
date payment is made.
 
The provisions of this Section 9 shall apply only to the extent required to avoid
 
the Manager’s incurrence of
any additional tax or interest under Section 409A of the Code.
(b)
Reimbursement and In-Kind Benefits.
 
Notwithstanding any provision of this Agreement to the contrary,
 
with
respect to in-kind benefits provided or expenses eligible for reimbursement
 
under this Agreement which are subject to Section 409A
of the Code, (i) the benefits provided or the amount of expenses eligible for
 
reimbursement during any calendar year shall not affect
 
 
 
 
 
 
5
the benefits provided or expenses eligible for reimbursement in any other
 
calendar year, except as otherwise provided
 
in Treas. Reg.
§1.409A-3(i)(1)(iv)(B), and (ii) the reimbursement of an eligible expense
 
shall be made as soon as practicable after the Manager
requests such reimbursement (subject to Section 9(a)), but not later than the
 
December 31 following the calendar year in which the
expense was incurred.
(c)
Interpretation and Construction.
 
This Agreement is intended to comply with Section 409A of the Code and
 
shall be
administered, interpreted and construed in accordance therewith to avoid
 
the imposition of additional tax under Section 409A of the
Code.
10.
Confidentiality and Noncompetition.
(a)
Confidential Information. The Manager acknowledges that information
 
concerning the method and conduct of the
Company’s (and any affiliate
 
’s) business, including, without limitation,
 
strategic and marketing plans, budgets, corporate practices and
procedures, financial statements, customer and supplier information,
 
formulae, formulation information, application technology,
manufacturing information, and laboratory test methods and all of the
 
Company’s (and any affiliate
 
’s) manuals, documents, notes,
letters, records, and computer programs (“Proprietary Business Information
 
”), are the sole and exclusive property of the Company
(and/or the Company’s affiliates,
 
as the case may be) and are likely to constitute, contain or reveal trade secrets (“Trade
 
Secrets”) of
the Company (and/or the Company’s
 
affiliate’s, as the case may be).
 
The term “Trade Secrets” as used herein does not include
Proprietary Business Information that is known or becomes known
 
to the public through no act or failure to act on the part of the
Manager, or which can be clearly shown
 
by written records to have been known by the Manager prior to the commencement of
 
his
employment with the Company.
(i)
The Manager agrees that at no time during or following his employment with the Company will he
 
use,
divulge, or pass on, directly or through any other individual or entity,
 
any Trade Secrets.
 
(ii)
Upon termination of the Manager’s employment
 
with the Company regardless of the reason for the
termination of the Manager’s employment hereunder,
 
or at any other time upon the Company’s
 
request, the
Manager agrees to forthwith surrender to the Company any and all materials in
 
his possession or control
which constitute or contain any Proprietary Business Information.
(b)
Noncompetition.
 
The Manager agrees that during his employment and for a period of one (1) year thereafter,
regardless of the reason for the termination of the Manager’s employment,
 
he will not:
(i)
directly or indirectly,
 
together or separately or with any third party,
 
whether as an individual proprietor,
partner, stockholder,
 
officer, director,
 
joint venturer, investor,
 
or in any other capacity whatsoever actively
engage in business or assist anyone or any firm in business as a manufacturer,
 
seller, or distributor of
specialty chemical products or chemical management services which are
 
the same, like, similar to, or which
compete with the products and services offered by the Company
 
(or any of its affiliates);
(ii)
directly or indirectly recruit, solicit or encourage any employee of the Company (or
 
any of its affiliates) or
otherwise induce such employee to leave the employ of the Company (or any of its affiliates)
 
or to become
an employee or otherwise be associated with his or any firm, corporation, business
 
or other entity with
which he is or may become associated; or
(iii)
solicit, directly or indirectly,
 
for himself or as agent or employee of any person, partnership, corporation,
 
or
other entity (other than for the Company),
 
any then or former customer, supplier,
 
or client of the Company
with the intent of actively engaging in business which would cause competitive harm
 
to the Company (or
any of its affiliates).
(c)
Severability.
 
The Manager acknowledges and agrees that all of the foregoing restrictions are
 
reasonable as to the
period of time and scope.
 
However, if any paragraph, sentence, clause, or other provision
 
is held invalid or unenforceable by a court
of competent and relevant jurisdiction, such provision shall be deemed to
 
be modified in a manner consistent with the intent of such
original provision so as to make it valid and enforceable, and this Agreement and the
 
application of such provision to persons and
circumstances other than those with respect to which it would be invalid or unenforceable
 
shall not be affected thereby.
(d)
Remedies.
 
The Manager agrees and recognizes that in the event of a breach or threatened breach
 
of the provisions
of the restrictive covenants contained in this Section 10, the Company
 
may suffer irreparable harm, and monetary damages may not be
an adequate remedy.
 
Therefore, if any breach occurs or is threatened, the Company shall be entitled to seek equitable remedies,
including injunctive relief in any court of applicable jurisdiction notwithsta
 
nding the provisions of Section 12.
 
In the event of any
 
 
 
 
 
 
 
6
breach of the restrictive covenant contained in this Section 10, the term
 
of the restrictive covenant specified herein shall be extended
by a period of time equal to that period beginning on the date such violation
 
commenced and ending when the activities constituting
such violation cease.
 
Furthermore, if a court or arbitration panel determines that the Manager has breached
 
any of the provisions of
this Section 10, the Company’s obligations
 
to pay amounts and continue the benefits under this Agreement
 
to the Manager (and his
dependents) shall immediately terminate.
11.
Set-Off Mitigation.
 
Except as provided in Section 6, the Company’s
 
obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected
 
by any set-off, counterclaim, recoupment, defense, or other
 
claim,
right, or action which the Company may have against the Manager or others.
 
In no event shall the Manager be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
 
to the Manager under any of the provisions of this
Agreement.
12.
Arbitration:
 
Costs and Expenses of Enforcement.
(a)
Arbitration.
 
Except as otherwise provided in Sections 10(d) and 13, any controversy or
 
claim arising out of or
relating to this Agreement or the breach thereof which cannot promptly be
 
resolved by the parties shall be promptly submitted to and
settled exclusively by arbitration in the City of Philadelphia, Pennsylvania
 
,
 
in accordance with the laws of the Commonwealth of
Pennsylvania by three arbitrators, one of whom shall be appointed by the Company,
 
one by the Manager, and the third of whom
 
shall
be appointed by the first two arbitrators.
 
The arbitration shall be conducted in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators which shall be
 
as provided in this Section 12.
 
Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction thereof.
(b)
Costs and Expenses.
 
In the event that it shall be necessary or desirable for the Manager to retain legal counsel
and/or incur other costs and expenses in connection with the enforcement
 
of any and all of his rights under this Agreement at any time
during his lifetime, the Company shall pay (or the Manager shall be entitled
 
to recover from the Company,
 
as the case may be) his
reasonable attorneys’
 
fees and costs and expenses in connection with the enforcement of his said rights (including
 
those incurred in or
related to any arbitration proceedings provided for in subsection (a) and the enforcement
 
of any arbitration award in court), regardless
of the final outcome.
 
13.
Limitation on Payment Obligation.
(a)
Definitions.
 
For purposes of this Section 13, all terms capitalized but not otherwise defined
 
herein shall have the
meanings as set forth in Section 280G of the Code.
 
In addition:
(i)
the term “Parachute Payment” shall mean a payment described in Section
 
280G(b)(2)(A) or Section
280G(b)(2)(B) of the Code (including, but not limited to, any stock option
 
rights, stock grants, and other
cash and noncash compensation amounts that are treated as payments
 
under either such section) and not
excluded under Section 280G(b)(4)(A) or Section 280G(b)(6) of
 
the Code;
(ii)
the term “Reasonable Compensation”
 
shall mean reasonable compensation for prior personal services as
defined in Section 280G(b)(4)(B) of the Code and subject to the requirement
 
that any such reasonable
compensation must be established by clear and convincing evidence; and
(iii)
the portion of the “Base Amount”
 
and the amount of “Reasonable Compensation” allocable to any
“Parachute Payment”
 
shall be determined in accordance with Section 280G(b)(3) and (4) of the Code.
(b)
Limitation.
 
Notwithstanding any other provision of this Agreement, Parachute Payments to be
 
made to or for the
benefit of the Manager but for this subsection (b), whether pursuant to this
 
Agreement or otherwise, shall be reduced if and to the
extent necessary so that the aggregate Present Value
 
of all such Parachute Payments shall be at least one dollar ($1.00) less than the
greater of (i) three times the Manager’s Base Amount and (ii) the aggregate
 
Reasonable Compensation allocable to such Parachute
Payments.
 
Any reduction in Parachute Payments caused by reason of this subsection
 
(b) shall be applied in the manner least
economically detrimental to the Manager.
 
In the event reduction of two or more types of payments would be economically equivalent,
the reduction shall be applied pro-rata to such types of payments.
 
This subsection (b) shall be interpreted and applied to limit the amounts otherwise payable
 
to the Manager under this
Agreement or otherwise only to the extent required to avoid any material
 
risk of the imposition of excise taxes on the Manager under
Section 4999 of the Code or the disallowance of a deduction to the Company
 
under Section 280G(a) of the Code.
 
In the making of
any such interpretation and application, the Manager shall be presumed
 
to be a disqualified individual for purposes of applying the
limitations set forth in this subsection (b) without regard to whether or not
 
the Manager meets the definition of disqualified individual
 
 
 
 
 
 
 
 
7
set forth in Section 280G(c) of the Code.
 
In the event that the Manager and the Company are unable to agree as to the application
 
of
this subsection (b), the Company’s
 
independent auditors shall select independent tax counsel to determine the amount
 
of such limits.
 
Such selection of tax counsel shall be subject to the Manager’s consent,
 
provided that the Manager shall not unreasonably withhold his
consent.
 
The determination of such tax counsel under this Section 13 shall be final and binding
 
upon the Manager and the
 
Company.
(c)
Illegal Payments.
 
Notwithstanding any other provision of this Agreement, no payment shall be made
 
hereunder to
or for the benefit of the Manager if and to the extent that such payments are determined
 
to be illegal.
14.
Notices.
 
Any notices, requests, demands, and other communications provided
 
for by this Agreement shall be sufficient if in writing,
and if hand delivered or if sent by registered or certified mail, if to the Manager,
 
at the last address he had filed in writing with the
Company or if to the Company,
 
at its principal executive offices.
 
Notices, requests, etc. shall be effective when actually received
 
by
the addressee or at such address.
15.
Withholding.
 
Notwithstanding any provision of this Agreement to the contrary,
 
the Company may, to the extent required
 
by law, withhold
applicable Federal, state and local income and other taxes from any payments
 
due to the Manager hereunder.
16.
Assignment and Benefit.
(a)
This Agreement is personal to the Manager and shall not be assignable by the
 
Manager, by operation of law,
 
or
otherwise without the prior written consent of the Company otherwise than
 
by will or the laws of descent and distribution.
 
This
Agreement shall inure to the benefit of and be enforceable by the Manager’s
 
heirs and legal representatives.
(b)
This Agreement shall inure to the benefit of and be binding upon the Company
 
and its successors and assigns,
including,
 
without limitation, any subsidiary of the Company to which the Company
 
may assign any of its rights hereunder; provided,
however, that no assignment of this Agreement
 
by the Company, by operation of law,
 
or otherwise shall relieve it of its obligations
hereunder except an assignment of this Agreement to, and its assumption by,
 
a successor pursuant to subsection (c).
(c)
The Company shall require any successor (whether direct or indirect,
 
by purchase, merger, consolidation
 
,
 
operation
of law, or otherwise)
 
to all or substantially all of the business and/or assets of the Company to assume expressly and
 
agree to perform
this Agreement in the same manner and to the same extent that the Company
 
would be required to perform it if no such succession had
taken place, but, irrespective of any such assignment or assumption, this Agreement
 
shall inure to the benefit of and be binding upon
such a successor.
 
As used in this Agreement, “Company” shall mean the Company as hereinbefore
 
defined and any successor to its
business and/or assets as aforesaid.
17.
Governing Law.
 
The provisions of this Agreement shall be construed in accordance with the laws of
 
the Commonwealth of Pennsylvania
without reference to principles of conflicts of laws.
18.
Entire Agreement;
 
Amendment.
(a)
Except for the change in control provisions
 
set forth in the Company’s annual incentive
 
plan and long term incentive
plans, this Agreement represents the entire agreement and understanding
 
of the parties with respect to the subject matter hereof.
 
The
Manager understands and acknowledges that the Company’s
 
severance plan, annual incentive plan and long term incentive plans
 
are
hereby amended with respect to the Manager to avoid duplication of benefits
 
,
 
as provided in Section 7.
(b)
The Company reserves the right to unilaterally amend this Agreement without the
 
consent of the Manager to the
extent the Compensation/Management Development Committee of
 
the Company’s Board of Directors
 
(in its sole discretion)
determines is necessary or appropriate to avoid the additional tax under Section
 
409A(a)(1)(B) of the Code; otherwise, this Agreement
may not be altered or amended except by an agreement in writing executed
 
by the Company and the Manager.
19.
No Waiver.
 
The failure to insist upon strict compliance with any provision of this Agreement
 
by any party shall not be deemed to be a
waiver of any future noncompliance with such provision or of noncompliance
 
with any other provision.
20.
Severability.
 
8
 
In the event that any provision or portion of this Agreement shall be determined
 
to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
 
thereby and shall remain in full force and effect.
21.
Indemnification.
 
 
The Company shall defend and hold the Manager harmless to the fullest extent permi
 
tted by applicable law in connection
with any claim, action, suit, investigation or proceeding arising out of or relating
 
to performance by the Manager of services for,
 
or
action of the Manager as a director, officer
 
or employee of the Company or any parent, subsidiary or affiliate of
 
the Company, or of
any other person or enterprise at the Company’s
 
request.
 
Expenses incurred by the Manager in defending such a claim, action, suit or
investigation or criminal proceeding shall be paid by the Company in advance
 
of the final disposition thereof upon the receipt by the
Company of an undertaking by or on behalf of the Manager to repay
 
said amount unless it shall ultimately be determined that the
Manager is entitled to be indemnified hereunder; provided, however,
 
that this shall not apply to a nonderivative action commenced by
the Company against the Manager.
 
IN WITNESS WHEREOF,
 
the Manager has hereunto set his hand and, pursuant to the authorization from
 
its Board of
Directors, the Company has caused these presents to be executed in its name
 
and on its behalf and attested by its Secretary or Assistant
Secretary, all as of the day
 
and year first above written.
 
MANAGER
 
/s/ Melissa Leneis
 
05/24/2022
 
QUAKER CHEMICAL CORPORATION
 
By: /s/ Andrew E. Tometich
 
05/24/2022
 
Title: CEO & President
ATTEST:
/s/ Robert T. Traub
05/31/2022
exhibit104
https://cdn.kscope.io/8aa57921e3234b0296d125ecefe59d50-exhibit104p1i0.jpg
 
 
 
EXHIBIT 10.4
1
EMPLOYMENT AGREEMENT
June 23, 2022
NAME:
Dhruwa Rai
[ REDACTED ]
The parties to
 
this Employment Agreement
 
(“Agreement”) are Dhruwa
 
Rai
(“You” or the “Executive”) and Quaker
Chemical Corporation,
 
d/b/a Quaker Houghton, a Pennsylvania corporation (“Quaker Houghton”
 
or the “Company”).
You
 
are
 
hereby
 
appointed
 
as
 
the
 
Company’s
 
Senior
 
Vice
 
President
 
and
 
Chief
 
Information
 
and
 
Digital
 
Officer
(“CIDO”).
 
 
NOW THEREFORE in consideration
 
of the mutual
 
promises and covenants herein
 
contained and intending to
 
be
legally bound hereby the parties hereto agree as follows:
1.
Duties
 
Quaker Houghton agrees to employ you and you agree to serve as
 
Quaker Houghton’s CIDO.
 
You
 
shall perform
all duties
 
consistent with
 
such position
 
as well
 
as any
 
other duties
 
that are
 
assigned to
 
you from
 
time to
 
time by
 
Quaker
Houghton’s CEO.
 
You
 
agree that during the term
 
of your employment with Quaker
 
Houghton to devote your knowledge,
skill, and working time solely and exclusively to the business and interests
 
of Quaker Houghton and its subsidiaries.
 
2.
 
Compensation
 
Your
 
base salary
 
will be
 
determined from
 
time to
 
time by
 
the Quaker
 
Houghton Board of
 
Directors. In addition,
you will be entitled to
 
participate, to the extent
 
eligible, in any of Quaker
 
Houghton’s annual and long term incentive
 
plans,
retirement savings plan (401k plan),
 
and will be entitled to vacations,
 
paid holidays, and medical, dental,
 
and other benefits
as are
 
made generally
 
available by
 
Quaker Houghton
 
to its
 
full-time U.S.
 
employees.
 
During your
 
employment with
 
Quaker
Houghton,
 
your
 
salary
 
will
 
not
 
be
 
reduced
 
by
 
Quaker
 
Houghton
 
without
 
your
 
prior
 
written
 
consent.
 
Your
 
initial
compensation and benefits are outlined on Addendum 1, which
 
is attached hereto and made a part hereof.
 
3.
 
Term
 
of Employment
.
Your employment with
 
Quaker may
 
be terminated
 
on ninety
 
(90) days'
 
written notice
 
by either
 
party, with or
 
without
cause or
 
reason whatsoever.
 
Within ninety (90)
 
days after
 
termination of
 
your employment,
 
you will
 
be given
 
an accounting
of all monies
 
due you. Notwithstanding the
 
foregoing, Quaker has the
 
right to terminate your
 
employment upon less than
ninety (90) days’ notice for Cause (as defined below).
 
 
2
4.
 
Covenant Not to Disclose
a.
 
As
 
CIDO,
 
you
 
acknowledge
 
that
 
the
 
identity
 
of
 
Quaker
 
Houghton's
 
(and
 
any
 
of
 
Quaker
 
Houghton's
affiliates’) customers,
 
the requirements
 
of such
 
customers, pricing
 
and payment
 
terms quoted
 
and charged
 
to such
 
customers,
the identity
 
of Quaker
 
Houghton's suppliers and
 
terms of
 
supply (and the
 
suppliers and related
 
terms of
 
supply of
 
any of
Quaker
 
Houghton's
 
customers
 
for
 
which
 
chemical
 
and
 
other
 
management
 
services
 
are
 
being
 
provided),
 
information
concerning
 
the
 
method
 
and
 
conduct
 
of
 
Quaker
 
Houghton's
 
(and
 
any
 
affiliate’s)
 
business
 
such
 
as
 
formulae, formulation
information,
 
application
 
technology,
 
manufacturing
 
information,
 
marketing
 
information,
 
strategic
 
and
 
marketing
 
plans,
financial information, financial
 
statements (audited and
 
unaudited), budgets, corporate
 
practices and procedures,
 
research
and development efforts,
 
and laboratory test
 
methods and
 
all of Quaker
 
Houghton's (and
 
its affiliates’) manuals,
 
documents,
notes, letters,
 
records, and
 
computer programs
 
are Quaker
 
Houghton's confidential
 
information ("Confidential
 
Information")
and are Quaker Houghton’s (and/or any of
 
its affiliates’, as the case may
 
be) sole and exclusive property.
 
You agree that at
no time
 
during or
 
following your
 
employment with
 
Quaker Houghton
 
will you
 
appropriate for
 
your own
 
use, divulge
 
or
pass
 
on,
 
directly
 
or
 
through
 
any
 
other
 
individual
 
or
 
entity
 
or
 
to
 
any
 
third
 
party,
 
any
 
Quaker
 
Houghton
 
Confidential
Information. Upon termination of your employment with
 
Quaker Houghton and prior to final payment of
 
all monies due to
you under Section 2
 
or at any other
 
time upon Quaker Houghton's request,
 
you agree to surrender
 
immediately to Quaker
Houghton any and all materials in your possession or control which include or contain any Quaker Houghton Confidential
Information.
b.
 
You
 
acknowledge that, by this
 
Section 4(b), you have been
 
notified in accordance with the
 
Defend Trade
Secrets Act that, notwithstanding the foregoing:
(i)
You
 
will not be
 
held criminally or civilly
 
liable under any federal
 
or state trade secret
 
law or this
Agreement for the disclosure
 
of Confidential Information that: (A)
 
you make (1) in
 
confidence to a federal, state,
 
or local
government
 
official,
 
either
 
directly
 
or
 
indirectly,
 
or
 
to
 
your
 
attorney;
 
and
 
(2)
 
solely
 
for
 
the
 
purpose
 
of
 
reporting
 
or
investigating a suspected
 
violation of law;
 
or (B) you
 
make in a
 
complaint or other
 
document that is
 
filed under seal
 
in a
lawsuit or other proceeding.
(ii)
If you file a lawsuit for retaliation by Quaker Houghton for reporting a suspected
 
violation of law,
you may disclose Confidential Information
 
to your attorney and use the Confidential
 
Information in the court proceeding
 
if
you: (A)
 
file any
 
document containing
 
Confidential Information
 
under seal
 
and (B)
 
do not
 
disclose Confidential
 
Information,
except pursuant to court order.
 
c.
 
Additionally, Quaker Houghton confirms that nothing in this Agreement is intended to or shall prevent,
impede or interfere with your right, without prior notice to Quaker Houghton,
 
to provide information to the government,
participate in any government investigations, file a court or administrative
 
complaint, testify in proceedings regarding
Quaker Houghton’s past or future conduct, or engage in any future activities protected under any statute administered
 
by
any government agency.
5.
 
Covenant Not to Compete
In consideration of your position of
 
CIDO for Quaker Houghton and
 
the training and Confidential Information
 
you
are to receive from
 
Quaker Houghton, you agree that during
 
your employment with Quaker Houghton
 
and for a period of
one (1) year thereafter, regardless of the reason for your termination, you will not:
a.
 
directly or
 
indirectly,
 
together or
 
separately or
 
with any
 
third party,
 
whether as
 
an employee,
 
individual
proprietor, partner, stockholder, officer, director, or investor, or in
 
a joint venture
 
or any other
 
capacity whatsoever, actively
engage in
 
business or
 
assist anyone
 
or any
 
firm in
 
business as a
 
manufacturer, seller,
 
or distributor of
 
specialty chemical
products which are the same, like, similar to, or which compete with Quaker Houghton’s (or any of its affiliates’) products
or services; and
 
b.
 
directly or indirectly recruit, solicit or encourage any Quaker Houghton (or
 
any of its affiliates’) employee
or otherwise induce
 
such employee to
 
leave Quaker Houghton’s (or
 
any of its
 
affiliates’) employ, or to
 
become an employee
or otherwise be associated with you
 
or any firm, corporation, business, or
 
other entity with which you
 
are or may become
associated; and
 
 
 
3
c.
 
solicit or induce any of Quaker Houghton's suppliers of products and/or services (or a supplier of products
and/or services of
 
a customer who
 
is being provided
 
or solicited for
 
the provision of
 
chemical management or
 
other services
by Quaker Houghton) to terminate or alter its contractual relationship with Quaker
 
Houghton (and/or any such customer).
The parties
 
consider these
 
restrictions reasonable,
 
including the
 
period of
 
time during
 
which the
 
restrictions are
effective.
 
However,
 
if
 
any
 
restriction
 
or
 
the
 
period
 
of
 
time
 
specified
 
should
 
be
 
found
 
to
 
be
 
unreasonable
 
in
 
any
 
court
proceeding, then such restriction shall be modified or
 
the period of time shall be shortened as
 
is found to be reasonable so
that the foregoing covenant not to compete may be enforced.
 
You
 
agree that in the event of a breach or
 
threatened breach
by you of
 
the provisions of
 
the restrictive covenants
 
contained in Section
 
4 or in
 
this Section 5,
 
Quaker Houghton
 
will suffer
irreparable harm, and monetary
 
damages may not be
 
an adequate remedy.
 
Therefore, if any
 
breach occurs, or is
 
threatened,
in addition to all other remedies available to Quaker Houghton, at law or in equity, Quaker Houghton shall be entitled as a
matter of
 
right to
 
specific performance
 
of the
 
covenants contained
 
herein by
 
way of
 
temporary or
 
permanent injunctive
relief.
 
In the event of any breach of
 
the restrictive covenant contained in
 
this Section 5, the term of
 
the restrictive covenant
shall be extended
 
by a period
 
of time equal
 
to that period
 
beginning on the
 
date such violation
 
commenced and
 
ending when
the activities constituting such violation cease.
6.
 
Contractual Restrictions
 
You
 
represent and warrant to Quaker Houghton that:
 
(a) there are no restrictions, agreements, or understandings
 
to
which
 
you
 
are
 
a
 
party
 
that
 
would
 
prevent
 
or
 
make
 
unlawful
 
your
 
employment
 
with
 
Quaker
 
Houghton
 
and
 
(b)
 
your
employment by Quaker
 
Houghton shall
 
not constitute
 
a breach of
 
any contract,
 
agreement, or
 
understanding, oral
 
or written,
to which you
 
are a party
 
or by which
 
you are bound.
 
You further represent that you
 
will not use
 
any trade secret,
 
proprietary
or otherwise
 
confidential information
 
belonging to
 
a prior
 
employer or
 
other third
 
party in
 
connection with
 
your employment
with Quaker Houghton.
7.
 
Inventions
All improvements, modifications, formulations,
 
processes, discoveries or inventions
 
("Inventions"), whether or not
patentable, which
 
were originated,
 
conceived or
 
developed by
 
you solely
 
or jointly
 
with others
 
(a) during
 
your working
hours or at
 
Quaker Houghton’s
 
expense or at Quaker
 
Houghton's premises or at
 
a customer’s premises
 
or (b) during your
employment with
 
Quaker Houghton
 
and additionally
 
for
 
a period
 
of one
 
year thereafter,
 
and which
 
relate to
 
(i) Quaker
Houghton’s business or (ii)
 
any research, products,
 
processes, devices,
 
or machines
 
under actual or
 
anticipated development
or investigation by Quaker Houghton at the earlier of (i) that
 
time or (ii) as the date of termination of employment, shall be
Quaker Houghton’s
 
sole property.
 
You
 
shall promptly
 
disclose to
 
Quaker Houghton
 
all Inventions
 
that you
 
conceive or
become
 
aware
 
of
 
at
 
any
 
time
 
during
 
your
 
employment
 
with
 
Quaker
 
Houghton
 
and
 
shall
 
keep
 
complete,
 
accurate,
 
and
authentic notes, data and records of all Inventions and of
 
all work done by you solely or jointly with
 
others, in the manner
directed by
 
Quaker Houghton. You
 
hereby transfer and
 
assign to
 
Quaker Houghton all
 
of your right,
 
title, and interest
 
in
and
 
to
 
any
 
and
 
all
 
Inventions
 
which
 
may
 
be
 
conceived
 
or
 
developed
 
by
 
you
 
solely
 
or
 
jointly
 
with
 
others
 
during
 
your
employment with Quaker Houghton.
 
You
 
shall assist Quaker Houghton in applying, obtaining, and
 
enforcing any United
States Letters Patent and Foreign Letters Patent on any such Inventions and to take such other actions as may be necessary
or
 
desirable
 
to
 
protect
 
Quaker
 
Houghton's
 
interests
 
therein.
 
Upon
 
request,
 
you
 
shall
 
execute
 
any
 
and
 
all
 
applications,
assignments,
 
or
 
other
 
documents
 
that
 
Quaker
 
Houghton
 
deems
 
necessary
 
and
 
desirable
 
for
 
such
 
purposes.
 
You
 
have
attached hereto
 
a list
 
of unpatented
 
inventions that
 
you have
 
made or
 
conceived prior
 
to your
 
employment with
 
Quaker
Houghton, and it is agreed that those inventions shall be excluded
 
from the terms of this Agreement.
8.
 
Termination.
a.
 
Either party may terminate this
 
Agreement per the terms of
 
Section 3 hereof and Quaker
 
Houghton, in its
sole discretion, may terminate your employment at any time for Cause (as defined herein).
 
If you incur a Separation from
Service (as defined
 
below) by decision
 
and action of Quaker
 
Houghton for any
 
reason other than
 
Cause, death, or
 
Disability
(as defined below), Quaker Houghton agrees to:
1.
 
Provide you with reasonable
 
outplacement assistance, either by providing
 
the services in-kind, or
by reimbursing reasonable
 
expenses actually incurred
 
by you in connection
 
with your Separation
 
from Service.
 
 
4
The
 
outplacement
 
services
 
must
 
be
 
provided
 
during
 
the
 
one-year
 
period
 
following
 
your
 
Separation
 
from
Service.
 
If any expenses are to be reimbursed, you must request
 
the reimbursement within eighteen months of
your Separation from
 
Service and reimbursement
 
will be made
 
within 30 days
 
of the receipt
 
of your request;
and
2.
 
Pay you twelve
 
months’ severance in
 
bi-weekly installments commencing
 
on the Payment
 
Date (as
defined below) and continuing
 
on Quaker Houghton's
 
normal payroll dates thereafter, each
 
of which is equal
 
to
the total of
 
your bi-weekly base
 
salary at the
 
time of your
 
Separation from Service,
 
provided you sign
 
a Release
within 45 days
 
of the later of
 
the date you
 
receive the Release or
 
your Separation from Service.
 
Continuation
of
 
all
 
medical
 
and
 
dental
 
coverage’s
 
will
 
also
 
be
 
available
 
for
 
18
 
months
 
at
 
a
 
level
 
equal
 
to
 
the
 
coverage
provided before your Separation from Service.
b.
 
If the
 
Executive dies
 
during the
 
Term
 
of Employment,
 
the Company
 
shall not
 
thereafter be
 
obligated to
make any further payments under
 
this Agreement except for amounts
 
accrued as of the
 
date of the Executive’s
 
death, and
except that
 
the Company
 
shall pay
 
a single-sum
 
cash death
 
benefit to
 
the Executive’s
 
Beneficiary equal
 
to 200%
 
of the
annual rate
 
of the
 
Executive’s
 
base salary
 
as in
 
effect on
 
the day
 
before the
 
Executive’s
 
death or
 
be entitled
 
to the
 
death
benefit (as
 
a multiple
 
of base
 
salary) to
 
which any
 
other executive
 
officer
 
would be
 
entitled. To
 
that end,
 
the
 
Company
currently has
 
a program
 
in which
 
all executive
 
officers in
 
the Company’s
 
Executive Leadership Team
 
participate, which
entitle each to a death benefit equal
 
to 100% of base salary in the year
 
of death and 50% of base salary in
 
each of the four
years thereafter.
 
“Beneficiary” shall mean
 
the person designated by
 
the Executive to receive
 
benefits under this
 
Agreement
in a writing filed by the Executive with the Company’s human resources department before the Executive’s death or, if the
Executive
 
fails
 
to
 
designate
 
a
 
beneficiary
 
or
 
the
 
designated
 
beneficiary
 
predeceases
 
the
 
Executive,
 
the
 
Executive’s
Beneficiary shall be his surviving
 
spouse or, if the Executive has no surviving spouse, his estate.
c.
 
Disability of Executive.
 
If the Executive is unable to perform his
 
duties hereunder by reason of disability
as defined in the Company’s Long-Term Disability Plan (“Disability”), then the Board shall have the right to terminate the
Executive’s
 
employment upon
 
30 days
 
prior written
 
notice to
 
the Executive
 
at any
 
time during
 
the continuation
 
of such
Disability.
 
In
 
the
 
event
 
the
 
Executive
 
is
 
terminated
 
pursuant
 
to
 
this
 
Section
 
8(c),
 
the
 
Company
 
shall
 
not
 
thereafter
 
be
obligated to
 
make any
 
further payments
 
under this
 
Agreement except
 
for amounts
 
accrued as
 
of the
 
date of
 
such termination,
and except that the Executive shall receive
 
supplemental disability payments.
 
Such supplemental disability payments
 
shall
be paid to the Executive after the Executive’s Separation from Service at the same time that disability payments are due to
be paid
 
to the
 
Executive under
 
the
 
Company’s
 
Long-Term
 
Disability Plan
 
and each
 
such payment
 
shall be
 
equal to
 
the
excess
 
of
 
(a)
 
the
 
amount
 
that
 
would
 
be
 
payable
 
under
 
the
 
Company’s
 
Long-Term
 
Disability
 
Plan
 
(disregarding
 
any
withholding) if the
 
Executive elected a
 
benefit of 50%
 
of applicable pay
 
and such plan
 
did not limit
 
the dollar amount
 
of
periodic payments thereunder, over (b) the amount
 
that would be payable under
 
the Company’s Long-Term Disability Plan
(disregarding any withholding)
 
if the
 
Executive elected a
 
benefit of 50%
 
of applicable pay.
 
The “Company’s
 
Long-Term
Disability Plan” shall
 
mean the long-term
 
disability plan maintained
 
by the Company
 
for employees generally;
 
provided,
however, that if the Company does not maintain such a long-term disability plan at the time of the Executive’s termination
under this
 
Section 8(c), or
 
terminates such
 
plan after the
 
Executive’s
 
termination of employment
 
but before
 
all disability
payments
 
have
 
been
 
paid
 
to
 
the
 
Executive
 
under
 
the
 
terms
 
of
 
such
 
plan
 
as
 
in
 
effect
 
prior
 
to
 
its
 
termination,
 
(x)
 
the
“Company’s Long-Term Disability Plan”
 
shall mean
 
the long-term
 
disability plan
 
most recently
 
maintained by
 
the Company
for
 
employees
 
generally,
 
and
 
(y)
 
the
 
amount
 
determined
 
under
 
subsection
 
(b)
 
shall
 
equal
 
zero
 
dollars
 
($0).
 
Such
supplemental disability payments shall be payable from the Company’s general assets or, if the Company so elects, from a
supplemental disability policy purchased by the Company.
 
“Separation from Service”
 
means your separation
 
from service with
 
Quaker Houghton and
 
its affiliates within
 
the
meaning of Treas. Reg. §1.409A-1(h) or any successor thereto.
 
“Cause”
 
means your
 
employment with
 
Quaker Houghton
 
has been
 
terminated by
 
reason of
 
(i) your
 
willful and
material breach of this Agreement (after having received notice thereof and a reasonable opportunity to cure
 
or correct) or
the Company’s
 
policies, (ii)
 
dishonesty,
 
fraud, willful
 
malfeasance, gross
 
negligence, or
 
other gross
 
misconduct, in
 
each
case
 
relating
 
to
 
the
 
performance
 
of
 
your
 
duties
 
hereunder
 
which
 
is
 
materially
 
injurious
 
to
 
Quaker
 
Houghton,
 
or
 
(iii)
conviction of or plea of guilty or nolo contendere to a felony.
 
 
 
5
“Payment Date”
 
means (x) the 60th day after your Separation from Service
 
or (y) if you are a specified employee
(as defined
 
in
 
Treas.
 
Reg. §1.409A-1(i))
 
as of
 
the date
 
of your
 
Separation from
 
Service, and
 
the severance
 
described in
subsection (b) is
 
deferred compensation subject
 
to section
 
409A of the
 
Code, the
 
first business day
 
of the
 
seventh month
following the
 
month in
 
which your
 
Separation from
 
Service occurs.
 
If the
 
Payment Date
 
is described
 
in clause
 
(y), the
amount paid on
 
the Payment Date
 
shall include all
 
monthly installments that
 
would have been
 
paid earlier had
 
clause (y)
not been applicable, plus interest at the
 
Wall
 
Street Journal Prime Rate published in the
 
Wall
 
Street Journal on the date
 
of
your Separation from Service (or the previous business day if
 
such day is not a business day), for the
 
period from the date
payment would have been made had clause (y) not been applicable through
 
the date payment is made.
“Release”
 
means
 
a
 
release
 
(in
 
a
 
form
 
satisfactory
 
to
 
Quaker
 
Houghton)
 
of
 
any
 
and
 
all
 
claims
 
against
 
Quaker
Houghton and all related parties
 
with respect to all matters arising
 
out of your employment with Quaker
 
Houghton, or the
termination thereof (other than for claims for any entitlements under the terms of this Agreement or any plans or programs
of Quaker Houghton under which you
 
have accrued a benefit) that Quaker
 
Houghton provides to you no later
 
than ten days
after your Separation from Service.
 
If a release is not provided to
 
you within this time period, the severance shall
 
be paid
even if you do not sign a release.
9.
 
Indemnification
Quaker
 
Houghton
 
shall
 
defend
 
you
 
and
 
hold
 
you
 
harmless
 
to
 
the
 
fullest
 
extent
 
permitted
 
by
 
applicable
 
law
 
in
connection
 
with
 
any claim,
 
action,
 
suit, investigation
 
or
 
proceeding arising
 
out
 
of
 
or
 
relating to
 
performance by
 
you
 
of
services for, or actions of
 
you as a director, officer,
 
or employee of Quaker Houghton or any parent, subsidiary or affiliate
of
 
Quaker Houghton,
 
or
 
of
 
any other
 
person or
 
enterprise at
 
Quaker Houghton’s
 
request.
 
Expenses incurred
 
by you
 
in
defending such a claim, action,
 
suit or investigation or
 
criminal proceeding shall be paid
 
by Quaker Houghton in advance
of
 
the
 
final
 
disposition thereof
 
upon
 
the
 
receipt
 
by
 
the
 
Company
 
of
 
an
 
undertaking
 
by
 
or
 
on
 
your
 
behalf
 
to
 
repay
 
said
amounts unless it shall ultimately be determined that you are entitled
 
to be indemnified hereunder; provided, however, that
this shall not apply to a nonderivative action commenced by Quaker Houghton
 
against you.
 
10.
 
Governing Law.
 
The provisions of this Agreement shall be construed in accordance with
 
the laws of the Commonwealth of
Pennsylvania without reference to principles of conflicts of laws.
11.
 
Miscellaneous
This Agreement
 
and the
 
Change in
 
Control Agreement
 
to which
 
you are
 
a party,
 
constitute the
 
entire integrated
agreement concerning
 
the subjects
 
covered herein.
 
In case
 
any provision
 
of
 
this Agreement
 
shall be
 
invalid, illegal,
 
or
otherwise unenforceable, the validity, legality,
 
and enforceability of the remaining provisions shall not thereby be affected
or impaired.
 
You may not assign any of your rights or obligations under this Agreement without Quaker Houghton’s prior
written consent.
 
Quaker Houghton may assign this Agreement in its discretion, including to any affiliate or upon a sale of
assets
 
or
 
equity,
 
merger
 
or
 
other
 
corporate
 
transaction;
 
provided
 
that
 
Quaker
 
Houghton
 
obtains
 
the
 
assignee’s
 
written
commitment to honor the
 
terms and conditions contained herein.
 
This Agreement shall be
 
governed by,
 
and construed in
accordance with, the laws of the Commonwealth
 
of Pennsylvania without regard to any conflict of laws.
 
This Agreement
shall be binding upon
 
you, your heirs, executors,
 
and administrators and shall
 
inure to the benefit
 
of Quaker Houghton as
well as
 
its successors
 
and assigns.
 
In the
 
event of
 
any overlap
 
in the
 
restrictions contained
 
herein, including
 
Sections 4
and/or 5 above, with similar restrictions
 
contained in any other agreement, such restrictions
 
shall be read together so as
 
to
provide the broadest restriction possible.
 
 
 
 
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.
WITNESS:
QUAKER CHEMICAL CORPORATION
DBA QUAKER HOUGHTON
/s/ Robert T. Traub
Robert T. Traub,
 
SVP,
 
General Counsel and
Corporate Secretary
WITNESS:
/s/ James Myran
/s/ Dhruwa Rai
James Myran
Dhruwa Rai
 
7
ADDENDUM 1
Base Salary:
Your
 
salary will be payable on a bi-weekly basis at the rate of
 
$14,615, which is annualized at $380,000.
 
You
 
will be eligible for your next salary
increase in 2023.
Annual and Long-
Term
 
Bonuses:
For your
 
position, you
 
are eligible
 
to participate
 
in the
 
Annual Incentive
 
Plan (“AIP”)
with
 
a
 
target
 
award
 
percentage
 
for
 
2022
 
full
 
year
 
of
 
55%
 
of
 
your
 
base
 
salary,
dependent upon Quaker
 
Houghton’s financial
 
results and personal
 
objectives to be
determined.
You
 
will
 
be
 
eligible
 
to
 
participate
 
in
 
the
 
2022-2024
 
Long-Term
 
Incentive
 
Plan
(“LTIP”)
 
for
 
the
 
full
 
year
 
of
 
2022.
 
Your
 
award
 
for
 
the
 
2022-2024
 
performance
period includes an even mix of
 
time-based restricted stock, stock options,
 
and target
performance stock units (PSU’s).
 
The value, at a target level is $100,000.
 
All
 
incentive
 
compensation
 
awards
 
are
 
made
 
at
 
the
 
Company’s
 
discretion,
 
are
subject
 
to
 
change,
 
and
 
require
 
the
 
approval of
 
the
 
Company’s
 
Compensation and
Human Resources Committee.
Special One-time Grants:
You
 
will be
 
provided a
 
one-time cash
 
award equaling
 
$100,000 in
 
order
 
to offset
the cash
 
bonus opportunity that
 
will expire
 
upon your
 
accepting employment
 
with
Quaker Houghton.
 
Such award will be cash
 
and will be paid out
 
in October of 2022
assuming a start date
 
prior to then.
 
Such cash award
 
must be repaid to
 
the Company
if you
 
either voluntarily
 
leave your
 
employment or
 
are dismissed
 
for cause
 
within
the first two
 
(2) years of your
 
tenure with Quaker Houghton
 
per the attached Sign-
On Bonus Acknowledgement.
 
Financial Planning:
You
 
will be eligible to be reimbursed for up to $3,500 per calendar year for
expenses incurred for financial planning and/or tax preparation.
Benefits:
Quaker Houghton offers a Flexible
 
Benefits Program that is
 
subject to change.
 
This
gives you the opportunity to choose from a variety of options creating a
 
customized
benefits package.
 
The following benefits are currently part of
 
the program.
 
In each
of these areas,
 
you are offered
 
a range of
 
options so you
 
may choose the
 
ones that
make the most sense for your personal situation.
Medical
 
Dental
 
Life & AD&D Insurance
Long-term Disability
Health Care and Dependent Care Flexible Spending Accounts (FSAs)
In
 
addition
 
to
 
these
 
flexible
 
benefits,
 
Quaker
 
Houghton
 
also
 
currently
 
offers
 
the
following benefit plans:
 
Retirement Savings Plan (401K)
exhibit105
 
 
1
EXHIBIT 10.5
CHANGE IN CONTROL AGREEMENT
 
THIS AGREEMENT, dated
 
June 23, 2022 between QUAKER CHEMICAL CORPORATION,
 
d/b/a QUAKER
HOUGHTON, a Pennsylvania corporation (the “Company”),
 
and DHRUWA
 
RAI (the “Manager”),
W I T N E S S E T H
 
T H A T
 
WHEREAS, the Board of Directors of the Company has determined that
 
it is in the best interests of the Company and its
shareholders that the Company and its subsidiaries be able to attract, retain,
 
and motivate highly qualified management personnel and,
in particular, that they be assured of continuity
 
of management in the event of any actual or threatened change in control of
 
the
Company; and
WHEREAS, the Board of Directors of the Company believes that the execution
 
by the Company of change in control
agreements with certain management personnel, including the Manager,
 
is an important factor in achieving this desired end;
 
NOW, THEREFORE,
 
IN CONSIDERATION
 
of the mutual obligations and agreements contained herein
 
and intending to be
legally bound hereby,
 
the Manager and the Company agree that the Change in Control Agreement is amended
 
and restated, as follows:
1.
Term
 
of Agreement.
 
This Agreement shall become effective on your start date with
 
the Company (the “Effective Date”), and shall continue in
effect through December 31, 2022, provided, however,
 
that the term of this Agreement shall automatically be extended for successive
one-year periods thereafter, unless, not later than
 
eighteen (18) months preceding the calendar year for which the term would
otherwise automatically extend, the Company shall have given written notice
 
to the Manager of intention not to extend this Agreement
for an additional year, in which event this Agreement
 
shall continue in effect until December 31 of the calendar year immediately
preceding the calendar year for which the term would have otherwise automatically
 
extended.
 
Notwithstanding any such notice not to
extend, if a Change in Control (as defined in Section 2) occurs during the original
 
or extended term of this Agreement, this Agreement
shall remain in effect after a Change in Control until all obligations of the parties
 
hereto under this Agreement shall have been
satisfied.
2.
Change in Control.
 
As used in this Agreement, a “Change in Control” of the Company
 
shall be deemed to have occurred if:
(a)
Any person (a “Person”), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
 
Act of 1934,
as amended (the “Exchange Act”) (other than (i) the Company and/or
 
its wholly owned subsidiaries; (ii) any ESOP or other employee
benefit plan of the Company and any trustee or other fiduciary in such capacity
 
holding securities under such plan; (iii) any
corporation owned, directly or indirectly,
 
by the shareholders of the Company in substantially the same proportions as their ownership
of stock of the Company; or (iv) any other Person who, within the one year prior
 
to the event which would otherwise be a Change in
Control, is an executive officer of the Company or any
 
group of Persons of which he voluntarily is a part), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
 
indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company’s
 
then outstanding securities or such lesser percentage of
voting power, but not less than 15%, as determined
 
by the members of the Board of Directors of the Company who are independent
directors (as defined in the New York
 
Stock Exchange, Inc. Listed Company Manual); provided, however,
 
that a Change in Control
shall not be deemed to have occurred under the provisions of this subsection
 
(a) by reason of the beneficial ownership of voting
securities by members of the Benoliel family (as defined below) unless and
 
until the beneficial ownership of all members of the
Benoliel family (including any other individuals or entities who or
 
which, together with any member or members of the Benoliel
family, are deemed under
 
Sections 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds
 
50% of the combined
voting power of the Company’s then
 
outstanding securities;
(b)
During any two-year period after the Effective
 
Date, Directors of the Company in office at the beginning of such
period plus any new Director (other than a Director designated by a Person
 
who has entered into an agreement with the Company to
effect a transaction within the purview of subsections (a) or
 
(c)) whose election by the Board of Directors of the Company or whose
nomination for election by the Company’s
 
shareholders was approved by a vote of at least two-thirds of the Directors then still in
office who either were Directors at the beginning of
 
the period or whose election or nomination for election was previously so
approved shall cease for any reason to constitute at least a majority of the Board;
 
 
 
 
 
 
 
 
2
(c)
The consummation of (i) any consolidation or merger of the Company
 
in which the Company is not the continuing
or surviving corporation or pursuant to which the Company’s
 
voting common shares (the “Common Shares”) would be converted into
cash, securities, and/or other property,
 
other than a merger of the Company in which holders of Common
 
Shares immediately prior to
the merger have the same proportionate ownership of voting shares
 
of the surviving corporation immediately after the merger as
 
they
had in the Common Shares immediately before; or (ii) any sale, lease, exchange,
 
or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets or earning power of the
 
Company; or
(d)
The Company’s shareholders
 
or the Company’s Board of
 
Directors shall approve the liquidation or dissolution of
the Company.
 
3.
Entitlement to Change in Control Benefits; Certain Definitions
 
.
 
The Manager shall be entitled to the benefits provided in this Agreement in
 
the event the Manager has a Separation from
Service under the circumstances described in (a) below (a “Covered Termination”),
 
provided the Manager executes and does not
revoke a Release (as defined below), if any,
 
provided by the Company.
(a)
A Covered Termination
 
shall have occurred in the event the Manager’s employment
 
with the Company or its
affiliates is terminated within two (2) years following a Change
 
in Control by:
(i)
The Company or its affiliates without Cause (as defined below);
 
or
(ii)
Resignation of the Manager for Good Reason (as defined below).
 
The Manager shall have no rights to any payments or benefits under
 
this Agreement in the event the Manager’s employment
with the Company and its affiliates is terminated (i) as a result of death
 
or Disability (as defined below), or (ii) by the Company or its
affiliates for Cause.
 
In the event the Manager’s employment is terminated for any reason prior
 
to a Change in Control, the Manager
shall have no rights to any payments or benefits under this Agreement and, after any
 
such termination, this Agreement shall be of no
further force or effect.
“Cause” shall mean (i) the Manager’s willful and material breach
 
of the employment agreement, if any,
 
between the Manager
and the Company (after having received notice thereof and a reasonable
 
opportunity to cure or correct), (ii) dishonesty,
 
fraud, willful
malfeasance, gross negligence, or other gross misconduct, in each case relating
 
to the performance of the Manager’s employment with
the Company or its affiliates which is materially injurious to
 
the Company, or (iii) conviction
 
of or plea of guilty to a felony,
 
such
Cause to be determined, in each case, by a resolution approved by at least two-thirds
 
of the Directors of the Company after having
afforded the Manager a reasonable opportunity to appear
 
before the Board of Directors of the Company and present his position.
“Code” shall mean the Internal Revenue Code of 1986, as amended, together with
 
any applicable regulations thereunder.
“Disability” shall mean covered total and permanent disability as defined
 
in the long-term disability plan maintained by the
Company for employees generally or, if the
 
Company does not maintain such a plan, the long-term disability plan most recently
maintained by the Company for employees generally.
“Good Reason” shall mean any of the following actions without the Manager’s
 
consent, other than due to the Manager’s
death or Disability: (i) any reduction in the Manager’s base salary from
 
that provided immediately before the Covered Termination
 
or,
if higher, immediately before the Change
 
in Control; (ii) any reduction in the Manager’s bonus opportunity (including
 
cash and
noncash incentives) or increase in the goals or standards required to accrue
 
that opportunity, as compared
 
to the opportunity and goals
or standards in effect immediately before the Change
 
in Control; (iii) a material adverse change in the nature or scope of the
Manager’s authorities, powers, functions, or duties from
 
those in effect immediately before the Change in Control; (iv) a reduction in
the Manager’s benefits from those provided immediately before
 
the Change in Control, disregarding any reduction under a plan or
program covering employees generally that applies to all employees covered
 
by the plan or program; or (v) the Manager being
required to accept a primary employment location which is more than twenty-five
 
(25) miles from the location at which he primarily
was employed during the ninety (90) day period prior to a Change in Control.
 
 
“Payment Date” shall mean the 60th day after the Manager’s Separation
 
from Service, subject to Section 9.
 
“Release” shall mean a release (in a form satisfactory to the Company) of
 
any and all claims against the Company and all
related parties with respect to all matters arising out of the Manager’s
 
employment by the Company and its affiliates, or the
termination thereof (other than claims for any entitlements under the terms of this Agreement,
 
under any employment agreement
between the Manager and the Company,
 
or under any plans or programs of the Company under which the Manager
 
has accrued a
 
 
 
 
 
 
 
 
3
benefit) that the Company provides to the Manager no later than three days after
 
the date of the Manager’s Covered Termination.
 
Notwithstanding any provision of this Agreement to the contrary,
 
if the Company provides a Release to the Manager, the Manager
shall not be entitled to any payments or benefits under this Agreement unless the Manager
 
executes the Release within 45 days of the
later of the date he receives the Release or the date of his Covered Termination,
 
and the Manager does not revoke the Release.
 
“Separation from Service” shall mean the Manager’s separation
 
from service with the Company and its affiliates within the
meaning of Treas. Reg. §1.409A-1(h) or
 
any successor thereto.
 
“Specified Employee” shall mean the Manager if he is a specified employee as defined
 
in Section 409A of the Code as of the
date of his Separation from Service.
 
4.
Severance Allowance.
(a)
Amount of Severance Allowance.
 
In the event of a Covered Termination,
 
the Company shall pay or cause to be
paid to the Manager in cash a severance allowance (the “Severance Allowance”)
 
equal to 1.5 (one and one-half) times the sum of the
amounts determined in accordance with the following paragraphs (i)
 
and (ii):
(i)
An amount equivalent to the highest annualized base salary which the Manager
 
was entitled to receive from
the Company and its subsidiaries at any time during his employment prior
 
to the Covered Termination;
 
and
(ii)
An amount equal to the average of the aggregate annual amounts paid
 
to the Manager in the Applicable
Three-Year
 
Period under all applicable annual incentive compensation plans maintained by the
 
Company
and its affiliates (other than compensation relating to relocation
 
expense; the grant, exercise, or settlement
of stock options, restricted stock or performance incentive units or the sale or other
 
disposition of shares
received upon exercise or settlement of such awards); provided, however,
 
that (x) in determining the
average amount paid under the
 
annual incentive plan during the Applicable Three-Year
 
Period there shall
be excluded any year in which no amounts were paid to the Manager under
 
that plan; and (y) there shall be
excluded from such calculation any amounts paid to the Manager under any
 
such incentive compensation
plan as a result of the acceleration of such payments under such plan due to termination
 
of the plan, a
Change in Control, or a similar occurrence.
 
The Applicable Three-Year
 
Period shall be (A) if the Manager
has received an annual incentive compensation plan payment in the calendar year
 
of his Covered
Termination,
 
the calendar year in which such Covered Termination
 
occurs and the two preceding calendar
years, or (B) in any other case, the three calendar years preceding the calendar
 
year in which the Manager’s
Covered Termination
 
occurs; provided, however, that the Applicable Three
 
-Year
 
Period shall be
determined by substituting “Change In Control” for “Covered Termination”
 
if such substitution results in a
higher amount under this subsection (ii).
 
In no event shall any retention bonus or change in control or success fee be taken
 
into account when determining the amount of the
Severance Allowance hereunder.
(b)
Payment of Severance Allowance.
 
The Severance Allowance shall be paid to the Manager in a lump sum on the
Payment Date if the applicable Change in Control is also a change in control event
 
as defined in Treas. Reg. §1.409A-3(i)(5) (or any
successor thereto).
 
In any other case, the Severance Allowance shall be paid in eighteen monthly installments
 
commencing on the
Payment Date, each of which is equal to one eighteenth (1/18th) of the amount of
 
the Severance Allowance determined under Section
4(a), which are treated as a right to a series of separate payments for purposes of Section
 
409A of the Code.
5.
Outplacement and Welfare
 
Benefits.
(a)
Outplacement.
 
Subject to Section 6, for a period of one year following a Covered Termination
 
of the Manager, the
Company shall make or cause to be made available to the Manager,
 
at its expense, outplacement counseling and other outplacement
services comparable to those available for the Company’s
 
senior managers prior to the Change in Control.
(b)
Welfare Benefits.
 
Subject to Section 6, for a period eighteen months following a Covered Termination
 
of the
Manager, the Manager and the Manager’s
 
dependents shall be entitled to participate in the Company’s
 
life, medical, and dental
insurance plans at the Company’s
 
expense, in accordance with the terms of such plans at the time of such Covered Termination
 
as if
the Manager were still employed by the Company or its affiliates under
 
this Agreement.
 
If, however, life, medical, or dental insurance
benefits are not paid or provided under any such plan to the Manager or his dependents
 
because the Manager is no longer an employee
of the Company or its subsidiaries, the Company itself shall, to the extent
 
necessary, pay or otherwise
 
provide for such benefits to the
Manager and his dependents.
 
 
 
 
 
 
4
6.
Effect of Other Employment.
 
In the event the Manager becomes employed (as defined below) during the period
 
with respect to which benefits are
continuing pursuant to Section 5:
 
(a) the Manager shall notify the Company not later than the day such employment
 
commences; and
(b) the benefits provided for in Section 5 shall terminate as of the date of
 
such employment.
 
For the purposes of this Section 6, the
Manager shall be deemed to have become “employed” by another entity
 
or person only if the Manager becomes essentially a full-time
employee of a person or an entity (not more than 30% of which is owned by the Manager
 
and/or members of his family); and the
Manager’s “family” shall mean his parents, his siblings and their
 
spouses, his children and their spouses, and the Manager’s spouse
and her parents and siblings.
 
Nothing herein shall relieve the Company of its obligations for compensation
 
or benefits accrued up to
the time of termination provided for herein.
7.
Other Payments and Benefits.
 
 
On the Payment Date, the Company shall pay or cause to be paid to the Manager the
 
aggregate of:
 
(a) the Manager’s earned
but unpaid base salary through the Covered Termination
 
at the rate in effect on the date of the Covered Termination,
 
or if higher, at
the rate in effect at any time during the 90-day period preceding
 
the Change in Control; (b) any unpaid bonus or annual incentive
payable to the Manager in respect of the calendar year ending prior to the Covered Termination;
 
(c) the pro rata portion of any and all
unpaid bonuses and annual incentive awards for the calendar year in which the
 
Covered Termination
 
occurs, said pro rata portion to be
calculated on the fractional portion (the numerator of said fraction being
 
the number of days between January 1 and the date of the
Covered Termination,
 
and the denominator of which is 365) of the target bonuses or annual incentive
 
awards for such calendar year;
and (d) the pro rata portion of any and all awards under the Company’s
 
long term incentive plan for the performance period(s) in
which the Covered Termination
 
occurs, said pro rata portion to be calculated on the fractional portion (the numerator
 
of said fraction
being the number of days between the first day of the applicable performance
 
period and the date of the Covered Termination,
 
and the
denominator of which is the total number of days in the applicable performance
 
period) of the amount of the award which would have
been payable had (i) the Covered Termination
 
not occurred, and (ii) the target level of performance been achieved
 
for the applicable
performance period.
 
The Manager shall be entitled to receive any other payments or benefits that the Manager
 
is entitled to pursuant
to the express terms of any compensation or benefit plan or arrangement of
 
the Company or any of its affiliates; provided that: (x) the
Severance Allowance (i) shall be in lieu of any severance payments to which
 
the Manager might otherwise be entitled under the terms
of any severance pay plan, policy,
 
or arrangement maintained by the Company or the employment agreement,
 
if any, between the
Manager and the Company,
 
and (ii) shall be credited against any severance payments to which the Manager
 
may be entitled by statute;
(y) any annual incentive described in subsection (b) or (c) shall decrease (or shall
 
be decreased by), but not below zero, the amount of
the annual incentive payable (or paid) with respect to the same calendar year
 
under the Company’s annual
 
incentive plan (currently the
2001 Global Annual Incentive Plan); and (z) any amount described in subsection (d) shall
 
decrease (or shall be decreased by), but not
below zero, the amount of the analogous performance award payable (or paid)
 
with respect to the same performance period(s) under
the Company’s long term incentive
 
plan(s) (currently the 2011 Long-Term
 
Performance Incentive Plan).
 
8.
Death After Covered Termination
 
.
 
In the event the Manager dies after a Covered Termination
 
occurs, (a) any payments due to the Manager under Section 4 and
the first sentence of Section 7 and not paid prior to the Manager’s
 
death shall be made to the person or persons who may be designated
by the Manager in writing or, in the event he fails to
 
so designate, to the Manager’s personal representatives, and (b) the Manager’s
spouse and dependents shall be eligible for the welfare benefits described in
 
Section 5(b).
 
Payments pursuant to subsection (a) shall
be made on the later of (i) the date payment would have been made to the Manager
 
without regard to Section 9, or (ii) the date of the
Manager’s death.
9.
Certain Section 409A Rules.
 
(a)
Specified Employee.
 
Notwithstanding any provision of this Agreement to the contrary,
 
if the Manager is a Specified
Employee, any payment or benefit under this Agreement that constitutes deferred
 
compensation subject to Section 409A of the Code
and for which the payment event is Separation from Service shall not be made or provided
 
before the date that is six months after the
date of the Manager’s Separation from Service.
 
Any payment or benefit that is delayed pursuant to this Section 9 shall be made
 
or
provided on the first business day of the seventh month following the month in
 
which the Manager’s Separation from Service occurs.
 
With respect to any cash payment delayed pursuant
 
to this Section 9, the first payment shall include interest, at the Wall
 
Street Journal
Prime Rate published in the Wall
 
Street Journal on the date of the Manager’s Covered Termination
 
(or the previous business day if
such date is not a business day), for the period from the date the payment would
 
have been made but for this Section 9 through the
date payment is made.
 
The provisions of this Section 9 shall apply only to the extent required to avoid the
 
Manager’s incurrence of
any additional tax or interest under Section 409A of the Code.
(b)
Reimbursement and In-Kind Benefits.
 
Notwithstanding any provision of this Agreement to the contrary,
 
with
respect to in-kind benefits provided or expenses eligible for reimbursement
 
under this Agreement which are subject to Section 409A
of the Code, (i) the benefits provided or the amount of expenses eligible for
 
reimbursement during any calendar year shall not affect
 
 
 
 
 
 
5
the benefits provided or expenses eligible for reimbursement in any other
 
calendar year, except as otherwise provided
 
in Treas. Reg.
§1.409A-3(i)(1)(iv)(B), and (ii) the reimbursement of an eligible expense
 
shall be made as soon as practicable after the Manager
requests such reimbursement (subject to Section 9(a)), but not later than the
 
December 31 following the calendar year in which the
expense was incurred.
(c)
Interpretation and Construction.
 
This Agreement is intended to comply with Section 409A of the Code and shall be
administered, interpreted and construed in accordance therewith to
 
avoid the imposition of additional tax under Section 409A of the
Code.
(d)
10.
Confidentiality and Noncompetition.
(a)
Confidential Information.
 
The Manager acknowledges that information concerning the method
 
and conduct of the
Company’s (and any affiliate’s)
 
business, including, without limitation, strategic and marketing plans, budgets,
 
corporate practices and
procedures, financial statements, customer and supplier information,
 
formulae, formulation information, application technology,
manufacturing information, and laboratory test methods and all of the
 
Company’s (and any affiliate’s)
 
manuals, documents, notes,
letters, records, and computer programs (“Proprietary Business Information”),
 
are the sole and exclusive property of the Company
(and/or the Company’s affiliates,
 
as the case may be) and are likely to constitute, contain or reveal trade secrets (“Trade
 
Secrets”) of
the Company (and/or the Company’s
 
affiliate’s, as the case may
 
be).
 
The term “Trade Secrets” as used herein does not include
Proprietary Business Information that is known or becomes known
 
to the public through no act or failure to act on the part of the
Manager, or which can be clearly shown
 
by written records to have been known by the Manager prior to the commencement of
 
his
employment with the Company.
(i)
The Manager agrees that at no time during or following his employment with the Company will he
 
use,
divulge, or pass on, directly or through any other individual or entity,
 
any Trade Secrets.
 
(ii)
Upon termination of the Manager’s employment with
 
the Company regardless of the reason for the
termination of the Manager’s employment hereunder,
 
or at any other time upon the Company’s
 
request, the
Manager agrees to forthwith surrender to the Company any and all materials in
 
his possession or control
which constitute or contain any Proprietary Business Information.
(b)
Noncompetition.
 
The Manager agrees that during his employment and for a period of one (1) year thereafter,
regardless of the reason for the termination of the Manager’s employment,
 
he will not:
(i)
directly or indirectly,
 
together or separately or with any third party,
 
whether as an individual proprietor,
partner, stockholder,
 
officer, director,
 
joint venturer, investor,
 
or in any other capacity whatsoever actively
engage in business or assist anyone or any firm in business as a manufacturer,
 
seller, or distributor of
specialty chemical products or chemical management services which are
 
the same, like, similar to, or which
compete with the products and services offered by the Company
 
(or any of its affiliates);
(ii)
directly or indirectly recruit, solicit or encourage any employee of the Company (or
 
any of its affiliates) or
otherwise induce such employee to leave the employ of the Company (or any of its affiliates)
 
or to become
an employee or otherwise be associated with his or any firm, corporation, business
 
or other entity with
which he is or may become associated; or
(iii)
solicit, directly or indirectly,
 
for himself or as agent or employee of any person, partnership, corporation,
 
or
other entity (other than for the Company), any then or former customer,
 
supplier, or client of the Company
with the intent of actively engaging in business which would cause competitive
 
harm to the Company (or
any of its affiliates).
(c)
Severability.
 
The Manager acknowledges and agrees that all of the foregoing restrictions
 
are reasonable as to the
period of time and scope.
 
However, if any paragraph, sentence, clause, or other provision
 
is held invalid or unenforceable by a court
of competent and relevant jurisdiction, such provision shall be deemed to
 
be modified in a manner consistent with the intent of such
original provision so as to make it valid and enforceable, and this Agreement and the
 
application of such provision to persons and
circumstances other than those with respect to which it would be invalid or unenforceable
 
shall not be affected thereby.
(d)
Remedies.
 
The Manager agrees and recognizes that in the event of a breach or threatened breach
 
of the provisions
of the restrictive covenants contained in this Section 10, the Company
 
may suffer irreparable harm, and monetary damages may not be
an adequate remedy.
 
Therefore, if any breach occurs or is threatened, the Company shall be entitled to seek equitable remedies,
 
 
 
 
 
 
 
6
including injunctive relief in any court of applicable jurisdiction notwithstanding
 
the provisions of Section 12.
 
In the event of any
breach of the restrictive covenant contained in this Section 10, the term of
 
the restrictive covenant specified herein shall be extended
by a period of time equal to that period beginning on the date such violation
 
commenced and ending when the activities constituting
such violation cease.
 
Furthermore, if a court or arbitration panel determines that the Manager has breached
 
any of the provisions of
this Section 10, the Company’s obligations
 
to pay amounts and continue the benefits under this Agreement to the Manager (and
 
his
dependents) shall immediately terminate.
11.
Set-Off Mitigation.
 
Except as provided in Section 6, the Company’s
 
obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected
 
by any set-off, counterclaim, recoupment, defense, or other
 
claim,
right, or action which the Company may have against the Manager or others.
 
In no event shall the Manager be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
 
to the Manager under any of the provisions of this
Agreement.
12.
Arbitration:
 
Costs and Expenses of Enforcement.
(a)
Arbitration.
 
Except as otherwise provided in Sections 10(d) and 13, any controversy or claim arising
 
out of or
relating to this Agreement or the breach thereof which cannot promptly be
 
resolved by the parties shall be promptly submitted to and
settled exclusively by arbitration in the City of Philadelphia, Pennsylvania,
 
in accordance with the laws of the Commonwealth of
Pennsylvania by three arbitrators, one of whom shall be appointed by the Company,
 
one by the Manager, and the third of whom
 
shall
be appointed by the first two arbitrators.
 
The arbitration shall be conducted in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators which shall be as provided
 
in this Section 12.
 
Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction thereof.
(b)
Costs and Expenses.
 
In the event that it shall be necessary or desirable for the Manager to retain legal
 
counsel
and/or incur other costs and expenses in connection with the enforcement
 
of any and all of his rights under this Agreement at any time
during his lifetime, the Company shall pay (or the Manager shall be entitled
 
to recover from the Company,
 
as the case may be) his
reasonable attorneys’ fees and costs and expenses in connection with the
 
enforcement of his said rights (including those incurred in or
related to any arbitration proceedings provided for in subsection (a) and the enforcement
 
of any arbitration award in court), regardless
of the final outcome.
 
13.
Limitation on Payment Obligation.
(a)
Definitions.
 
For purposes of this Section 13, all terms capitalized but not otherwise defined
 
herein shall have the
meanings as set forth in Section 280G of the Code.
 
In addition:
(i)
the term “Parachute Payment” shall mean a payment described in Section
 
280G(b)(2)(A) or Section
280G(b)(2)(B) of the Code (including, but not limited to, any stock option rights,
 
stock grants, and other
cash and noncash compensation amounts that are treated as payments
 
under either such section) and not
excluded under Section 280G(b)(4)(A) or Section 280G(b)(6) of
 
the Code;
(ii)
the term “Reasonable Compensation” shall mean reasonable compensation
 
for prior personal services as
defined in Section 280G(b)(4)(B) of the Code and subject to the requirement
 
that any such reasonable
compensation must be established by clear and convincing evidence; and
(iii)
the portion of the “Base Amount” and the amount of “Reasonable Compensation”
 
allocable to any
“Parachute Payment” shall be determined in accordance with Section 280G(b)(3)
 
and (4) of the Code.
(b)
Limitation.
 
Notwithstanding any other provision of this Agreement, Parachute Payments to be
 
made to or for the
benefit of the Manager but for this subsection (b), whether pursuant to
 
this Agreement or otherwise, shall be reduced if and to the
extent necessary so that the aggregate Present Value
 
of all such Parachute Payments shall be at least one dollar ($1.00) less than the
greater of (i) three times the Manager’s Base Amount and (ii) the aggregate
 
Reasonable Compensation allocable to such Parachute
Payments.
 
Any reduction in Parachute Payments caused by reason of this subsection
 
(b) shall be applied in the manner least
economically detrimental to the Manager.
 
In the event reduction of two or more types of payments would be economically
 
equivalent,
the reduction shall be applied pro-rata to such types of payments.
 
This subsection (b) shall be interpreted and applied to limit the amounts otherwise payable
 
to the Manager under this
Agreement or otherwise only to the extent required to avoid any material
 
risk of the imposition of excise taxes on the Manager under
Section 4999 of the Code or the disallowance of a deduction to the Company under
 
Section 280G(a) of the Code.
 
In the making of
any such interpretation and application, the Manager shall be presumed
 
to be a disqualified individual for purposes of applying the
 
 
 
 
 
 
 
 
7
limitations set forth in this subsection (b) without regard to whether or not
 
the Manager meets the definition of disqualified individual
set forth in Section 280G(c) of the Code.
 
In the event that the Manager and the Company are unable to agree as to the application
 
of
this subsection (b), the Company’s
 
independent auditors shall select independent tax counsel to determine
 
the amount of such limits.
 
Such selection of tax counsel shall be subject to the Manager’s consent,
 
provided that the Manager shall not unreasonably withhold his
consent.
 
The determination of such tax counsel under this Section 13 shall be final and binding
 
upon the Manager and the Company.
(c)
Illegal Payments.
 
Notwithstanding any other provision of this Agreement, no payment shall be made
 
hereunder to
or for the benefit of the Manager if and to the extent that such payments are determined
 
to be illegal.
14.
Notices.
 
Any notices, requests, demands, and other communications provided
 
for by this Agreement shall be sufficient if in writing,
and if hand delivered or if sent by registered or certified mail, if to the Manager,
 
at the last address he had filed in writing with the
Company or if to the Company,
 
at its principal executive offices.
 
Notices, requests, etc. shall be effective when actually received
 
by
the addressee or at such address.
15.
Withholding.
 
Notwithstanding any provision of this Agreement to the contrary,
 
the Company may, to the extent required
 
by law, withhold
applicable Federal, state and local income and other taxes from any payments
 
due to the Manager hereunder.
16.
Assignment and Benefit.
(a)
This Agreement is personal to the Manager and shall not be assignable by the
 
Manager, by operation of law,
 
or
otherwise without the prior written consent of the Company otherwise than
 
by will or the laws of descent and distribution.
 
This
Agreement shall inure to the benefit of and be enforceable by the Manager’s
 
heirs and legal representatives.
(b)
This Agreement shall inure to the benefit of and be binding upon the Company
 
and its successors and assigns,
including, without limitation, any subsidiary of the Company to which
 
the Company may assign any of its rights hereunder; provided,
however, that no assignment of this Agreement
 
by the Company, by operation of law,
 
or otherwise shall relieve it of its obligations
hereunder except an assignment of this Agreement to, and its assumption by,
 
a successor pursuant to subsection (c).
(c)
The Company shall require any successor (whether direct or indirect,
 
by purchase, merger, consolidation,
 
operation
of law, or otherwise)
 
to all or substantially all of the business and/or assets of the Company to assume expressly
 
and agree to perform
this Agreement in the same manner and to the same extent that the Company would
 
be required to perform it if no such succession had
taken place, but, irrespective of any such assignment or assumption, this Agreement
 
shall inure to the benefit of and be binding upon
such a successor.
 
As used in this Agreement, “Company” shall mean the Company as hereinbefore defined
 
and any successor to its
business and/or assets as aforesaid.
17.
Governing Law.
 
The provisions of this Agreement shall be construed in accordance with the laws of
 
the Commonwealth of Pennsylvania
without reference to principles of conflicts of laws.
18.
Entire Agreement;
 
Amendment.
(a)
Except for the change in control provisions set forth in the Company’s
 
annual incentive plan and long term incentive
plans, this Agreement represents the entire agreement and understanding of
 
the parties with respect to the subject matter hereof.
 
The
Manager understands and acknowledges that the Company’s
 
severance plan, annual incentive plan and long term incentive plans are
hereby amended with respect to the Manager to avoid duplication of benefits,
 
as provided in Section 7.
(b)
The Company reserves the right to unilaterally amend this Agreement without the
 
consent of the Manager to the
extent the Compensation/Management Development Committee of
 
the Company’s Board of Directors
 
(in its sole discretion)
determines is necessary or appropriate to avoid the additional tax under Section 409A(a)(1)(B)
 
of the Code; otherwise, this Agreement
may not be altered or amended except by an agreement in writing executed by
 
the Company and the Manager.
19.
No Waiver.
 
The failure to insist upon strict compliance with any provision of this Agreement
 
by any party shall not be deemed to be a
waiver of any future noncompliance with such provision or of noncompliance
 
with any other provision.
20.
Severability.
 
8
 
In the event that any provision or portion of this Agreement shall be determined to
 
be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
 
thereby and shall remain in full force and effect.
21.
Indemnification.
 
 
The Company shall defend and hold the Manager harmless to the fullest extent permitted
 
by applicable law in connection
with any claim, action, suit, investigation or proceeding arising out of or relating
 
to performance by the Manager of services for, or
action of the Manager as a director, officer
 
or employee of the Company or any parent, subsidiary or affiliate of
 
the Company, or of
any other person or enterprise at the Company’s
 
request.
 
Expenses incurred by the Manager in defending such a claim, action, suit or
investigation or criminal proceeding shall be paid by the Company in advance
 
of the final disposition thereof upon the receipt by the
Company of an undertaking by or on behalf of the Manager to repay
 
said amount unless it shall ultimately be determined that the
Manager is entitled to be indemnified hereunder; provided, however,
 
that this shall not apply to a nonderivative action commenced by
the Company
 
against the Manager.
 
IN WITNESS WHEREOF,
 
the Manager has hereunto set his hand and, pursuant to the authorization from
 
its Board of
Directors, the Company has caused these presents to be executed in its name and on its behalf
 
and attested by its Secretary or Assistant
Secretary, all as of the day
 
and year first above written.
 
MANAGER
 
/s/ Dhruwa Rai
 
QUAKER CHEMICAL CORPORATION
 
By: /s/ Robert T. Traub
 
Title: SVP,
 
General Counsel and Corporate Secretary
exhibit311
 
1
EXHIBIT 31.1
CERTIFICATION
 
OF CHIEF EXECUTIVE OFFICER OF THE COMPANY
 
PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Andrew E. Tometich
 
,
 
certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Quaker Chemical
 
Corporation;
 
2.
Based on my knowledge, this report does not contain any untrue statement of
 
a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
 
which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
 
included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows
 
of the registrant as of, and for, the periods presented
in this report;
 
4.
The registrant’s other certifying
 
officer and I are responsible for establishing and maintaining
 
disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
 
control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls
 
and procedures to be designed
under our supervision, to ensure that material information relating to the
 
registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
 
during the period in which this report is
being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such
 
internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding
 
the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
 
generally accepted accounting
principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s
 
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures,
 
as of the end of the period covered by
this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s
 
internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter
 
(the registrant’s fourth fiscal quarter in the
 
case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
 
the registrant’s internal control over financial
reporting; and
 
5.
The registrant’s other certifying
 
officer and I have disclosed, based on our most recent evaluation
 
of internal control over financial
reporting, to the registrant’s
 
auditors and the audit committee of the registrant’s
 
board of directors (or persons performing the
equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation
 
of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s
 
ability to record, process, summarize and
report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other
 
employees who have a significant role in the
registrant’s internal control
 
over financial reporting.
Date: August 4, 2022
 
/s/ Andrew E. Tometich
Andrew E. Tometich
Chief Executive Officer
exhibit312
 
1
EXHIBIT 31.2
CERTIFICATION
 
OF CHIEF FINANCIAL OFFICER OF THE COMPANY
 
PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Shane W.
 
Hostetter, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Quaker Chemical
 
Corporation;
 
2.
Based on my knowledge, this report does not contain any untrue statement of
 
a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
 
which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
 
included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows
 
of the registrant as of, and for, the periods presented
in this report;
 
4.
The registrant’s other certifying
 
officer and I are responsible for establishing and maintaining
 
disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
 
control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls
 
and procedures to be designed
under our supervision, to ensure that material information relating to the
 
registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
 
during the period in which this report is
being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such
 
internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding
 
the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
 
generally accepted accounting
principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s
 
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures,
 
as of the end of the period covered by
this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s
 
internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter
 
(the registrant’s fourth fiscal quarter in
 
the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
 
the registrant’s internal control over financial
reporting; and
 
5.
The registrant’s other certifying
 
officer and I have disclosed, based on our most recent evaluation
 
of internal control over financial
reporting, to the registrant’s auditors
 
and the audit committee of the registrant’s
 
board of directors (or persons performing the
equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of
 
internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s
 
ability to record, process, summarize and
report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other
 
employees who have a significant role in the
registrant’s internal control
 
over financial reporting.
Date: August 4, 2022
 
/s/ Shane W. Hostetter
Shane W.
 
Hostetter
Chief Financial Officer
exhibit321
 
1
EXHIBIT 32.1
CERTIFICATION
 
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned hereby certifies that the Form 10-Q Quarterly Report
 
of Quaker Chemical Corporation (the “Company”) for the
quarterly period ended June 30, 2022 filed with the Securities and Exchange
 
Commission (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange
 
Act of 1934 and that the information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations
 
of the Company.
 
Dated: August 4, 2022
 
 
/s/ Andrew E. Tometich
 
 
Andrew E. Tometich
 
 
Chief Executive Officer of Quaker Chemical Corporation
exhibit322
 
1
EXHIBIT 32.2
CERTIFICATION
 
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned hereby certifies that the Form 10-Q Quarterly Report
 
of Quaker Chemical Corporation (the “Company”) for the
quarterly period ended June 30, 2022 filed with the Securities and Exchange
 
Commission (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange
 
Act of 1934 and that the information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations
 
of the Company.
 
Dated: August 4, 2022
 
 
/s/ Shane W. Hostetter
 
 
Shane W.
 
Hostetter
 
 
Chief Financial Officer of Quaker Chemical Corporation