UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨
INFORMATION TO BE INCLUDED IN THE REPORT
| Item 2.02. | Results of Operations and Financial Condition. |
On March 2, 2020, Quaker Chemical Corporation announced its results of operations for the fourth quarter and full year ended December 31, 2019 in a press release, the text of which is included as Exhibit 99.1 hereto. Supplemental information related to the same periods is also included as Exhibit 99.2 hereto.
| Item 9.01. | Financial Statements and Exhibits. |
The following exhibits are included as part of this report:
| Exhibit No. | Description |
| 99.1 | Press Release of Quaker Chemical Corporation dated March 2, 2020 (furnished herewith). |
| 99.2 | Supplemental Information related to the fourth quarter and full year ended December 31, 2019 (furnished herewith). |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURE
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 hereunto duly authorized.
| QUAKER CHEMICAL CORPORATION | |||
| Date: March 2, 2020 | By: | /s/ Mary Dean Hall | |
| Mary Dean Hall | |||
| Senior Vice President, Chief Financial Officer and Treasurer |
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Exhibit 99.1
|
NEWS Contact: Mary Dean Hall Senior Vice President, Chief Financial Officer and Treasurer investor@quakerhoughton.com T. 1.610.832.4000 |
 |
| For Release: Immediate |
QUAKER HOUGHTON ANNOUNCES FOURTH QUARTER
AND FULL YEAR 2019 RESULTS
| · | Net income of $15.2 million and $31.6 million for the fourth quarter and full year 2019 |
| · | Adjusted EBITDA of $60.6 million for the fourth quarter of 2019 up 4% versus prior year pro forma and ahead of previously provided guidance |
| · | Integration going well and synergy achievement on track |
March 2, 2020
CONSHOHOCKEN, PA – Quaker Chemical Corporation (“the Company”, also known as Quaker Houghton) (NYSE: KWR) today announced fourth quarter and full year 2019, results including net sales of $391.3 million and $1,133.5 million, respectively. Fourth quarter net sales increased 85% compared to $211.5 million in the prior year quarter, and full year net sales increased 31% compared to $867.5 million in the prior full year. Each increase was driven by additional net sales attributed to the Company’s August 1, 2019 combination with Houghton International, Inc. (“Houghton”), herein referred to as “the Combination”, as well as its October 1, 2019 acquisition of the operating divisions of Norman Hay plc (“Norman Hay”). Current quarter net sales declined approximately 2% compared to the prior year fourth quarter pro forma net sales of $401 million, which are adjusted to include the results of Houghton and eliminate the effects of the Combination, with the decline primarily driven by lower volume and a negative impact from foreign currency translation, partially offset by additional net sales from Norman Hay. Similarly, full year pro forma 2019 net sales declined approximately 6% to $1,562 million compared to $1,655 million in 2018, driven by the same factors described for the fourth quarter.
The Company’s fourth quarter and full year 2019 net income was $15.2 million and $31.6 million, or $0.86 and $2.08 per diluted share, respectively, compared to fourth quarter and full year 2018 net income of $7.8 million and $59.5 million, or $0.58 and $4.45 per diluted share, respectively. Excluding one-time costs associated with the Combination and certain tax related items impacting results in both periods, as well as all other non-core items in each period, the Company’s fourth quarter and full year 2019 non-GAAP earnings per diluted share were $1.34 and $5.83, respectively, compared to prior year fourth quarter and full year non-GAAP earnings per diluted share of $1.54 and $6.17, respectively. Both GAAP and non-GAAP earnings per diluted share reflect the increase to the Company’s share count resulting from the closing of the Combination on August 1, 2019, as well as earnings attributed to Houghton for the last five months of 2019 and Norman Hay for the fourth quarter of 2019.
The Company’s fourth quarter and full year 2019 adjusted EBITDA was $60.6 million and $173.1 million respectively, compared to $29.7 million and $125.8 million in the fourth quarter and full year of 2018. The Company’s current quarter adjusted EBITDA increased approximately 4% compared to prior year fourth quarter pro forma adjusted EBITDA of approximately $58 million, primarily due to the benefit of Norman Hay in the current quarter and initial benefits of cost savings realized from the Combination. Full year 2019 pro forma adjusted EBITDA was approximately $234 million, a decrease of 1% compared to approximately $236 million in the prior year, primarily due to lower full year pro forma net sales partially offset by the fourth quarter benefits mentioned above.
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Michael F. Barry, Chairman, Chief Executive Officer and President, commented, “The quarter played out generally as we expected, with significant challenges in end market conditions and foreign exchange headwinds. The negative impact on net sales was largely driven by the compounding conditions of a weak global automotive market, a generally weaker industrial environment in most parts of the world, and continued customer inventory corrections and reductions in consumption. However, there were positives as well. We achieved our targeted gross margin and we have made good progress with our integration and are on track to achieve or exceed our targeted integration cost synergies. Our adjusted EBITDA of $60.6 million was above our guidance range of $52 to $59 million mentioned in the third quarter, due partially to higher than expected synergies in the quarter. Despite the decrease in our pro forma net sales, these positive developments all contributed to our pro forma adjusted EBITDA growing 4% in the fourth quarter compared to the prior year.
As we entered into 2020, we expected most of our business segments to show low to moderate growth during the year. Then two negative events happened; the coronavirus and Boeing’s decision to temporarily stop production of the 737 Max. These events have put more uncertainty than usual in our ability to forecast our year. Our current estimate is that the coronavirus and lower 737 Max production may impact adjusted EBITDA by approximately $10 million and $6 million, respectively, for the year. However, I continue to be confident in our ability to deliver strong adjusted EBITDA growth in 2020 despite the market uncertainties we are facing. In 2020, I expect that we will deliver approximately $30 million or more of adjusted EBITDA growth over our 2019 pro forma adjusted EBITDA of $234 million, primarily driven by synergy benefits, a full year of Norman Hay and additional market share gains more than offsetting the expected negative impacts of the coronavirus and lower production of the 737 Max.”
Fourth Quarter 2019 Consolidated Results
Net sales were $391.3 million in the fourth quarter of 2019 compared to $211.5 million in the fourth quarter of 2018. The net sales increase of 85% quarter-over-quarter includes additional net sales from Houghton and Norman Hay of $200.0 million. Excluding Houghton and Norman Hay net sales, current quarter net sales would have declined 10%, primarily driven by a decrease in sales volumes of 9% and a negative impact from foreign currency translation of 1%.
Gross profit in the fourth quarter of 2019 increased $61.3 million compared to the fourth quarter of 2018 due primarily to the Houghton and Norman Hay sales, noted above. The Company’s gross margin in the current quarter was 34.8%, which includes a $1.5 million expense associated with selling Norman Hay’s acquired inventory during the fourth quarter of 2019 which was adjusted to fair value in accordance with purchase accounting. Excluding this one-time increase to cost of goods sold (“COGS”) as well as approximately $0.5 million of accelerated depreciation charges in the current quarter related to the Company’s restructuring program, the Company estimates that its gross margin would have been approximately 35.3% in the current quarter compared to 35.4% in the fourth quarter of 2018. This slight decrease in gross margin quarter-over-quarter was primarily the result of price and product mix largely due to lower gross margins in the legacy Houghton business, partially offset by certain COGS decreases as a result of the Company’s progress on initial Combination-related logistics and procurement cost savings initiatives.
Selling, general and administrative expenses (“SG&A”) in the fourth quarter of 2019 increased $51.0 million compared to the fourth quarter of 2018 due primarily to additional SG&A from Houghton and Norman Hay as well as $1.1 million of charges in the current quarter related to certain customer bankruptcies partially offset by lower SG&A due to foreign currency translation, the impact of the sales decline, noted above, on direct selling costs, and the benefits of realized cost savings associated with the Combination.
During the fourth quarter of 2019, the Company incurred $11.7 million of Combination and other acquisition-related expenses, primarily for legal, financial, and other advisory and consultant expenses for integration activities. Comparatively, the Company incurred $4.3 million of expenses in the prior year, primarily due to various professional fees related to integration planning and regulatory approval.
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 expects reductions in headcount and site closures to occur over the next two years under this program. During the fourth quarter of 2019, the Company recorded additional restructuring expense, net, of $2.6 million related to this program.
Operating income in the fourth quarter of 2019 was $20.3 million compared to $20.1 million in the fourth quarter of 2018. Excluding the Combination and other acquisition-related charges, restructuring expenses and other non-core items, the Company’s current quarter non-GAAP operating income increased to $37.6 million compared to $24.3 million in the prior year, primarily due to additional net sales and operating income from Houghton and Norman Hay. Also, the Company estimates that during the fourth quarter of 2019 it achieved approximately $4 million in cost savings related to the Combination on a combined company pro forma basis as compared to the prior year, increasing its year-to-date synergies realized to approximately $7 million. The Company continues to estimate that total anticipated cost synergies related to the Combination will be at least $60 million once all cost savings actions have been implemented by the second year after close.
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Interest expense, net, increased $8.5 million compared to the prior year period primarily due to additional borrowings under the Company’s new term loans and revolving credit facility to finance the closing of the Combination on August 1, 2019.
The Company’s effective tax rates for the fourth quarters of 2019 and 2018 were a benefit of 18.2% and an expense of 59.8%, respectively. The Company’s current quarter effective tax rate benefit is primarily driven by a one-time $5.3 million deferred tax benefit the Company recorded in the fourth quarter of 2019 related to an intercompany intangible asset transfer. The Company expects to see an offsetting impact and incremental deferred tax expense related to this item in future periods. The Company’s prior year fourth quarter effective tax rate was largely driven by combination-related expenses incurred in that year, certain of which were non-deductible for the purpose of determining the Company’s effective tax rate, as well as an $8.1 million tax charge related to an adjustment to the Company’s initial estimate of the impact from the 2017 U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”). Excluding the impact of these and all other non-core items in each quarter, described in the Non-GAAP and Pro Forma measures section below, the Company estimates that its effective tax rates for the fourth quarters of 2019 and 2018 would have been approximately 24% and 17%, respectively. The higher current quarter effective tax rate was primarily driven by adjustments to uncertain tax positions and changes in the mix of earnings between higher and lower tax jurisdictions, as well as a prior year fourth quarter favorable return to provision adjustment.
Equity in net income of associated companies increased $2.1 million in the fourth quarter of 2019 compared to the fourth quarter of 2018, primarily due to additional earnings from Houghton’s 50% interest in a joint venture in Korea and higher earnings from the Company’s interest in a captive insurance company.
Foreign exchange had minimal impact on the Company’s fourth quarter of 2019 earnings as the negative impact from foreign currency translation of less than 1% due to the slight strengthening of the U.S. dollar in the current quarter was offset by slightly higher current quarter foreign exchange transaction gains.
Full Year 2019 Consolidated Results
Net sales were $1,133.5 million in 2019 compared to $867.5 million in 2018. The net sales increase of 31% year-over-year includes additional net sales from Houghton and Norman Hay of $319.4 million. Excluding Houghton and Norman Hay net sales, current year net sales would have declined 6% compared to the prior year, reflecting a decrease in sales volumes of approximately 3% and a negative impact from foreign currency translation of 3%.
Gross profit in 2019 increased $79.8 million compared to 2018 due primarily to Houghton and Norman Hay sales, noted above. The Company’s gross margin in the current year was 34.6% and includes an aggregate $11.7 million of expense associated with selling Houghton and Norman Hay acquired inventory during 2019, which was adjusted to fair value in accordance with purchase accounting. Excluding these one-time increases to COGS as well as current quarter accelerated depreciation charges, noted above, the Company estimates that its gross margin would have been approximately 35.7% in the current year compared to 36.0% in 2018. This decrease in gross margin year-over-year was primarily the result of price and product mix largely due to lower gross margins in the legacy Houghton business.
SG&A in 2019 increased $76.0 million compared to 2018 due primarily to additional SG&A from Houghton and Norman Hay, partially offset by lower SG&A due to foreign currency translation, the impact of the sales decline noted above on direct selling costs, lower annual incentive compensation costs and the benefits of realized cost savings associated with the Combination.
During 2019, the Company incurred $35.5 million of Combination and other acquisition-related expenses, primarily for legal, financial, and other advisory and consultant expenses for integration planning and regulatory approvals, fees associated with closing the Combination and initial costs associated with integration activities. Comparatively, the Company incurred $16.7 million of expenses in the prior year, primarily due to various professional fees related to integration planning and regulatory approval.
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As noted 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. During 2019, the Company recorded restructuring expense of $26.7 million related to this program.
Operating income in 2019 was $46.1 million compared to operating income of $87.8 million in 2018. Excluding the Combination and other acquisition-related charges, restructuring expenses and other non-core items, the Company’s current year non-GAAP operating income increased to $121.9 million compared to $104.4 million in the prior year, primarily due to additional net sales and operating income from Houghton and Norman Hay.
Other expense, net, was $0.3 million in 2019 compared to $0.6 million in 2018, primarily due to higher foreign exchange transaction losses in the prior year, partially offset by a prior year $0.6 million gain on the sale of a held-for-sale asset.
Interest expense, net, increased $12.9 million compared to the prior year primarily due to additional borrowings under the Company’s new term loans and revolving credit facility to finance the closing of the Combination on August 1, 2019.
The Company’s effective tax rates for 2019 and 2018 were 7.2% and 30.1%, respectively. The Company’s low current year and relatively inflated prior year effective tax rates are primarily driven by the same drivers described in the fourth quarter discussion above, as well as certain other adjustments recorded in both the full year of 2018 and 2019 as a result of changes to the Company’s initial estimates associated with U.S. Tax Reform in December 2017. Excluding the impact of these and all other non-core items in each year, described in the Non-GAAP and Pro Forma measures section below, the Company estimates that its effective tax rates for both 2019 and 2018 would have been approximately 22%.
Equity in net income of associated companies increased $3.3 million in 2019 compared to 2018, primarily due to additional earnings from Houghton’s 50% interest in a joint venture in Korea and higher earnings from the Company’s interest in a captive insurance company.
Foreign exchange negatively impacted the Company’s 2019 earnings by approximately 2% or $0.09 per diluted share, as the negative impact from foreign currency translation of approximately 3% due to the strengthening of the U.S. dollar in the current year was partially offset by higher current year foreign exchange transaction gains.
Balance Sheet and Cash Flow Highlights
The Company had net operating cash flow of $82.4 million in 2019 compared to $78.8 million in 2018. The $3.6 million or 5% increase in net operating cash flow year-over-year was primarily driven by the inclusion of operating cash flow from Houghton and Norman Hay and an increase in cash flow from working capital, primarily due to changes in net sales and inventory due to lower production levels as well as efforts to improve working capital.
As previously disclosed, the Company paid approximately $797.6 million, net of approximately $75.8 million of cash acquired, to close the Combination in the third quarter of 2019, which included $170.8 million in cash and the Company’s refinancing of $702.6 million of Houghton’s indebtedness at closing. The Company also issued an aggregate of approximately 4.3 million shares of its common stock to the selling shareholders of Houghton, comprising approximately 24.5% of the common stock of the Company at closing. Concurrent with closing of the Combination on August 1, 2019, the Company replaced its previous revolving credit facility with a new syndicated and secured credit facility (the “New Credit Facility”) and borrowed $750.0 million in term loans and $180.0 million from the multicurrency revolver available in the New Credit Facility.
On October 1, 2019, the Company closed its acquisition of Norman Hay, a private U.K. company that provides specialty chemicals, operating equipment and services to various industrial end markets. The original purchase price was 80.0 million GBP, on a cash-free and debt-free basis, subject to routine and customary post-closing adjustments related to working capital and net indebtedness levels. The Company expects to finalize its post-closing adjustments in the first half of 2020 and currently estimates it will pay approximately 2.7 million GBP to settle such adjustments. Cash paid in the fourth quarter of 2019 for Norman Hay was approximately $95.3 million, net of cash acquired.
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As of December 31, 2019, the Company had outstanding borrowings under the New Credit Facility of $922.4 million. The Company’s total net indebtedness as of December 31, 2019 was $811.4 million, excluding $14.2 million of financing related fees recorded as a reduction of long-term debt, which represents a total net indebtedness to full year 2019 pro forma adjusted EBITDA ratio of approximately 3.47 to 1 as of December 31, 2019. The Company currently expects its total net indebtedness to adjusted EBITDA to improve to approximately 3.0 to 1 or better by the end of 2020.
The Company paid $21.8 million of cash dividends to its shareholders during 2019, a 13% increase compared to the prior year, primarily driven by the shares issued at closing of the Combination, noted above, as well as the current year cash dividend per share increase in May 2019.
Filing Extension Pursuant to Rule 12b-25
The Company will be filing a Notification of Late Filing on Form 12b-25 with respect to its Annual Report on Form 10-K for its fiscal year ended December 31, 2019 (the “Annual Report”). The Company has determined that it is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense. As mentioned above, the Company completed its combination with Houghton on August 1, 2019. As a result of the Combination, in which the Company acquired a complex global organization and the significant effort required to account for the Combination, the Company requires additional time to finalize its financial statements, assess its disclosure controls and procedures and evaluate the effectiveness of its internal controls over financial reporting for the year ended December 31, 2019. The Company’s Annual Report will be filed no later than March 17, 2020 in compliance with the extension period. Given the delay in filing the Company’s Annual Report, all fourth quarter and full year 2019 figures presented in this press release are preliminary, unaudited and subject to change pending the finalization of the Company’s financial statements for the year ended December 31, 2019 and filing of its Annual Report. However, the Company believes the numbers presented in this press release will not change materially, if at all, as a result of the additional time needed to finalize its financial statements for the year ended December 31, 2019 and complete its Annual Report.
Non-GAAP and Pro Forma Measures
The information included in this public release includes non-GAAP (unaudited) financial information that includes EBITDA, adjusted EBITDA, non-GAAP operating income, non-GAAP net income, non-GAAP earnings per diluted share, and pro forma net sales, net income, EBITDA and adjusted EBITDA. 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 indicative of future operating performance or not considered core to the Company’s operations. Non-GAAP results and pro forma information 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 income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not 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 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 analysts, investors, and competitors 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 - adjusted, and taxes on income before equity in net income of associated companies - 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 analysts, investors, and competitors in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.
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During the first quarter of 2019, the Company updated its calculation methodology to include the use of interest expense net of interest income in the reconciliation of EBITDA and adjusted EBITDA, compared to its historical use of only interest expense, and also to include the non-service component of the Company’s pension and postretirement benefit costs in the reconciliation of adjusted EBITDA, non-GAAP net income attributable to Quaker Chemical Corporation and non-GAAP earnings per diluted share. Prior year amounts have been recast for comparability purposes and the change in calculation methodology does not produce materially different results. The Company believes these updated calculations better reflect its underlying operating performance and better aligns the Company’s calculations to those commonly used by analysts, investors, and competitors in our industry.
As it relates to the full year 2020 expected adjusted EBITDA growth and other forward-looking information described further above, the Company has not provided guidance for comparable GAAP measures or a quantitative reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to determine with reasonable certainty the ultimate outcome of certain significant items necessary to calculate such measures without unreasonable effort. These items include, but are not limited to, certain non-recurring or non-core items the Company may record that could materially impact net income, such as Combination and other acquisition-related expenses and restructuring expenses, as well as income taxes. These items are uncertain, depend on various factors, and could have a material impact on the U.S. GAAP reported results for the guidance period.
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 December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Operating income | $ | 20,276 | $ | 20,068 | $ | 46,134 | $ | 87,781 | ||||||||
| Fair value step up of Houghton and Norman Hay inventory sold | 1,500 | — | 11,714 | — | ||||||||||||
| Houghton combination and other acquisition-related expenses (a)(b) | 12,156 | 4,257 | 35,945 | 16,661 | ||||||||||||
| Restructuring expense | 2,633 | — | 26,678 | — | ||||||||||||
| Customer bankruptcy costs | 1,073 | — | 1,073 | — | ||||||||||||
| Charges related to the settlement of a non-core equipment sale | — | — | 384 | — | ||||||||||||
| Non-GAAP operating income | $ | 37,638 | $ | 24,325 | $ | 121,928 | $ | 104,442 | ||||||||
| Non-GAAP operating margin (%) | 9.6 | % | 11.5 | % | 10.8 | % | 12.0 | % | ||||||||
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Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 15,240 | $ | 7,805 | $ | 31,622 | $ | 59,473 | ||||||||
| Depreciation and amortization (b)(c) | 21,250 | 4,803 | 45,264 | 19,714 | ||||||||||||
| Interest expense, net (d) | 9,365 | 818 | 16,976 | 4,041 | ||||||||||||
| Taxes on income before equity in net income of associated companies (e) | (2,012 | ) | 11,496 | 2,084 | 25,050 | |||||||||||
| EBITDA | $ | 43,843 | $ | 24,922 | $ | 95,946 | $ | 108,278 | ||||||||
| Equity (income) loss in a captive insurance company | (562 | ) | 117 | (1,822 | ) | (966 | ) | |||||||||
| Fair value step up of Houghton and Norman Hay inventory sold | 1,500 | — | 11,714 | — | ||||||||||||
| Houghton combination and other acquisition-related expenses (a) | 11,572 | 4,257 | 35,361 | 16,051 | ||||||||||||
| Restructuring expense | 2,633 | — | 26,678 | — | ||||||||||||
| Pension and postretirement benefit costs, non-service components | 501 | 572 | 2,805 | 2,285 | ||||||||||||
| Customer bankruptcy costs | 1,073 | — | 1,073 | — | ||||||||||||
| Insurance insolvency recovery | (60 | ) | (90 | ) | (60 | ) | (90 | ) | ||||||||
| Charges related to the settlement of a non-core equipment sale | — | — | 384 | — | ||||||||||||
| Gain on liquidation of an inactive legal entity | — | — | — | (446 | ) | |||||||||||
| Currency conversion impacts of hyper- inflationary economies | 142 | (100 | ) | 1,033 | 664 | |||||||||||
| Adjusted EBITDA | $ | 60,642 | $ | 29,678 | $ | 173,112 | $ | 125,776 | ||||||||
| Adjusted EBITDA margin (%) | 15.5 | % | 14.0 | % | 15.3 | % | 14.5 | % | ||||||||
| Adjusted EBITDA | $ | 60,642 | $ | 29,678 | $ | 173,112 | $ | 125,776 | ||||||||
| Less: Depreciation and amortization – adjusted (b)(c) | 20,666 | 4,803 | 44,680 | 19,714 | ||||||||||||
| Less: Interest expense, net - adjusted (d) | 9,365 | (44 | ) | 14,896 | 593 | |||||||||||
| Less: Taxes on income before equity in net income of associated companies – adjusted (e) | 6,912 | 4,328 | 24,825 | 22,978 | ||||||||||||
| Non-GAAP net income | $ | 23,699 | $ | 20,591 | $ | 88,711 | $ | 82,491 | ||||||||
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Non-GAAP Earnings per Diluted Share Reconciliations
| Three Months Ended December 31, |
Twelve Months Ended December 31, |
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| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders (f) | $ | 0.86 | $ | 0.58 | $ | 2.08 | $ | 4.45 | ||||||||
| Equity (income) loss in a captive insurance company per diluted share | (0.03 | ) | 0.01 | (0.12 | ) | (0.07 | ) | |||||||||
| Fair value step up of Houghton and Norman Hay inventory sold per diluted share | 0.07 | — | 0.58 | — | ||||||||||||
| Houghton combination and other acquisition-related expenses per diluted share (a)(b) | 0.56 | 0.32 | 2.05 | 1.21 | ||||||||||||
| Restructuring expense per diluted share | 0.11 | — | 1.34 | — | ||||||||||||
| Transition tax adjustments per diluted share (e) | — | 0.61 | (0.03 | ) | 0.43 | |||||||||||
| Deferred tax benefit on an intercompany intangible asset transfer per diluted share | (0.30 | ) | — | (0.35 | ) | — | ||||||||||
| Pension and postretirement benefit costs, non-service components per diluted share | 0.02 | 0.03 | 0.14 | 0.13 | ||||||||||||
| Customer bankruptcy costs per diluted share | 0.04 | — | 0.05 | — | ||||||||||||
| Insurance insolvency recovery per diluted share | (0.00 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | ||||||||
| Charges related to the settlement of a non-core equipment sale per diluted share | — | — | 0.02 | — | ||||||||||||
| Gain on liquidation of an inactive legal entity per diluted share | — | — | — | (0.03 | ) | |||||||||||
| Currency conversion impacts of hyper-inflationary economies per diluted share | 0.01 | 0.00 | 0.07 | 0.06 | ||||||||||||
| Non-GAAP earnings per diluted share (f) | $ | 1.34 | $ | 1.54 | $ | 5.83 | $ | 6.17 | ||||||||
| (a) | Houghton combination and other acquisition-related expenses during the twelve months ended December 31, 2018 includes a $0.6 million gain on the sale of a held-for-sale asset recorded below operating income, within other income (expense), net. Therefore, this amount is excluded in the reconciliation of Operating income to Non-GAAP operating income but included in the reconciliations of Net income attributable to Quaker Chemical Corporation to Adjusted EBITDA and Non-GAAP net income as well as GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share. |
| (b) | The Company recorded $0.6 million of total accelerated depreciation expense during the three and twelve months ended December 31, 2019. These charges were recorded in COGS and Combination and other acquisition-related expenses. These amounts are included in the caption Houghton combination and other acquisition-related expenses in the reconciliation of Operating income to Non-GAAP operating income and GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share. In addition, this amount is included within the caption Depreciation and amortization in the reconciliation of Net income attributable to Quaker Chemical Corporation to Adjusted EBITDA, however it is excluded in the reconciliation of Adjusted EBITDA to Non-GAAP net income. |
| (c) | Depreciation and amortization for the three and twelve months ended December 31, 2019 includes $0.3 million and $0.4 million of amortization expense, respectively, recorded within equity in net income of associated companies, attributable to the amortization of the fair value step up for Houghton’s 50% interest in a joint venture in Korea as a result of required purchase accounting. |
| (d) | Interest expense, net – adjusted excludes $2.1 million for the twelve months ended December 31, 2019, and $0.9 and $3.5 million for the three and twelve months ended December 31, 2018, respectively, of interest costs the Company incurred to maintain the bank commitment to finance the Combination, prior to executing the Company’s new credit facility and closing the Combination on August 1, 2019. |
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| (e) | Taxes on income before equity in net income of associated companies – adjusted includes the Company’s tax expense adjusted for 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, above, determined utilizing the applicable rates in the taxing jurisdictions in which these adjustments occurred, subject to deductibility. In addition, this caption also includes the impact of certain one-time discrete tax items in each period, including $5.3 million and $5.7 million during the three and twelve months ended December 31, 2019, respectively, as well as $8.1 million and $5.8 million, during the three and twelve months ended December 31, 2018, respectively. |
| (f) | The Company’s calculation of GAAP and non-GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders for the three and twelve months ended December 31, 2019 was impacted by the approximately 4.3 million share issuance in connection with closing the Combination, noted above, as well as the variability of its earnings, which was primarily due to the Combination and other acquisition-related charges and restructuring expenses incurred. Therefore, the per diluted share result for each of the four quarters of 2019, as reflected on a standalone basis, may not add up to the per diluted share result for the twelve months ended December 31, 2019. |
Pro Forma Adjusted Measures and Reconciliations
The Company has provided certain unaudited pro forma financial information in this press release. The unaudited pro forma financial information is based on the historical consolidated financial statements and results of both Quaker and Houghton, and has been prepared to illustrate the effects of the Combination. The unaudited pro forma financial information has been presented for informational purposes only and is not necessarily indicative of Quaker Houghton’s past results of operations, nor is it indicative of the future operating results of Quaker Houghton and should not be considered a substitute for the financial information presented in accordance with GAAP. The Company has not provided pro forma financial information as it relates to the acquired operating divisions of Norman Hay plc based on materiality. The following schedules present the Company’s unaudited pro forma financial information for net sales, as well as net income attributable to Quaker Houghton and the applicable reconciliation to EBITDA and adjusted EBITDA on a pro forma non-GAAP basis (dollars in millions unless otherwise noted):
| Three months ended December 31, 2018 (a) | ||||||||||||||||||||
| Quaker | Houghton | Divestitures(b) | Other (c) | Pro Forma * | ||||||||||||||||
| Net sales | $ | 211 | $ | 208 | $ | (13 | ) | $ | (5 | ) | $ | 401 | ||||||||
| Net income attributable to Quaker Houghton | $ | 8 | $ | (5 | ) | $ | (1 | ) | $ | 5 | $ | 6 | ||||||||
| Depreciation and amortization | 5 | 13 | — | 1 | 19 | |||||||||||||||
| Interest expense, net | 1 | 15 | — | (7 | ) | 9 | ||||||||||||||
| Taxes on income (d) | 11 | 5 | (0 | ) | 1 | 17 | ||||||||||||||
| EBITDA * | 25 | 28 | (2 | ) | 0 | 51 | ||||||||||||||
| Combination and other acquisition-related expenses | 4 | 2 | — | — | 6 | |||||||||||||||
| Other addbacks (e) | 1 | 0 | — | — | 1 | |||||||||||||||
| Adjusted EBITDA * | $ | 30 | $ | 30 | $ | (2 | ) | $ | 0 | $ | 58 | |||||||||
| Adjusted EBITDA margin * (%) | 14 | % | 15 | % | 14 | % | -4 | % | 15 | % | ||||||||||
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| Twelve months ended December 31, 2019 (a) | ||||||||||||||||||||
| Quaker | Houghton | Divestitures(b) | Other (c) | Pro Forma * | ||||||||||||||||
| Net sales | $ | 1,134 | $ | 475 | $ | (34 | ) | $ | (13 | ) | $ | 1,562 | ||||||||
| Net income attributable to Quaker Houghton | $ | 32 | $ | (3 | ) | $ | (6 | ) | $ | 10 | $ | 33 | ||||||||
| Depreciation and amortization | 45 | 31 | — | 3 | 77 | |||||||||||||||
| Interest expense, net | 17 | 33 | — | (15 | ) | 35 | ||||||||||||||
| Taxes on income (d) | 2 | (1 | ) | (2 | ) | 3 | 2 | |||||||||||||
| EBITDA * | 96 | 60 | (8 | ) | 1 | 148 | ||||||||||||||
| Combination and other acquisition-related expenses | 35 | 44 | — | — | 80 | |||||||||||||||
| Gain on the sale of divested assets | — | (35 | ) | — | — | (35 | ) | |||||||||||||
| Fair value step up of Houghton and Norman Hay inventory sold | 12 | — | — | — | 12 | |||||||||||||||
| Restructuring expense | 27 | — | — | — | 27 | |||||||||||||||
| Other addbacks (e) | 3 | (0 | ) | — | — | 3 | ||||||||||||||
| Adjusted EBITDA * | $ | 173 | $ | 68 | $ | (8 | ) | $ | 1 | $ | 234 | |||||||||
| Adjusted EBITDA margin * (%) | 15 | % | 14 | % | 24 | % | -4 | % | 15 | % | ||||||||||
| Twelve months ended December 31, 2018 (a) | ||||||||||||||||||||
| Quaker | Houghton | Divestitures(b) | Other (c) | Pro Forma * | ||||||||||||||||
| Net sales | $ | 868 | $ | 861 | $ | (53 | ) | $ | (22 | ) | $ | 1,655 | ||||||||
| Net income attributable to Quaker Houghton | $ | 59 | $ | (0 | ) | $ | (9 | ) | $ | 17 | $ | 66 | ||||||||
| Depreciation and amortization | 20 | 54 | — | 5 | 79 | |||||||||||||||
| Interest expense, net | 4 | 56 | — | (25 | ) | 35 | ||||||||||||||
| Taxes on income (d) | 25 | 3 | (2 | ) | 5 | 30 | ||||||||||||||
| EBITDA * | 108 | 113 | (12 | ) | 1 | 210 | ||||||||||||||
| Combination and other acquisition-related expenses | 16 | 7 | — | — | 23 | |||||||||||||||
| Other addbacks (e) | 1 | 2 | — | — | 3 | |||||||||||||||
| Adjusted EBITDA * | $ | 126 | $ | 121 | $ | (12 | ) | $ | 1 | $ | 236 | |||||||||
| Adjusted EBITDA margin * (%) | 14 | % | 14 | % | 23 | % | -4 | % | 14 | % | ||||||||||
* Certain amounts may not calculate due to rounding, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results as presented for combined Quaker Houghton
| (a) | Results for the three and twelve months ended December 31, 2018 include Quaker’s historical results, while Houghton reflects its stand-alone results for the three and twelve months ended December 31, 2018. Results for the twelve months ended December 31, 2019 include five months of Houghton’s operations post-closing of the Combination, while Houghton reflects seven months of results for the period from January 1, 2019 through July 31, 2019. Pro forma results for the three months ended December 31, 2019 have not been presented above as the results for Quaker Houghton as presented in this press release are the applicable comparative results. |
| (b) | Divestitures includes the elimination of results associated with the divested product lines. |
| (c) | Other includes: (i) additional depreciation and amortization expense based on the initial estimates of fair value step up and estimated useful lives of depreciable fixed assets, definite-lived intangible assets and investment in associated companies acquired; (ii) adoption of required accounting guidance and alignment of related accounting policies; (iii) elimination of transactions between Quaker and Houghton; and (iv) an adjustment to interest expense, net, to reflect the impact of the new financing and capital structure of the combined Company. |
| (d) | Taxes on income related to the Divestiture and Other reflect each tax effected at the U.S. tax rate of 21%. |
| (e) | Other addbacks includes: (i) Equity income in a captive insurance company; (ii) Pension and postretirement benefit costs, non-service components; (iii) Currency conversion impacts of hyper-inflationary economies; (iv) Gain on liquidation of an inactive legal entity; (v) Affiliate management fees; (vi) insurance insolvency recoveries; (vii) customer bankruptcy costs; (viii) charges related to the settlement of a non-core equipment sale and (vi) other non-recurring miscellaneous charges. |
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Forward-Looking Statements
This press release contains “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 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 but not limited to our current and future results and plans and statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that demand for the Company’s products and services is largely derived from the demand for its customers’ products, which subjects the Company to uncertainties related to downturns in a customer’s business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, the impact of widespread public health crises, including the recent spread of the coronavirus, 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 steel, automobile, aircraft, industrial equipment, and durable goods manufacturers. Other factors could also adversely affect us, including those related to the Combination and other acquisitions and the integration of the combined company as well as other 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 the Company’s business could cause its actual results to differ materially from expected and historical results. All forward-looking statements included in this press release, including expectations about the timing of the completion of the Company’s financial statements and audit for the fiscal year ended December 31, 2019, and the timing, form and content of the Company’s Annual Report are based upon information available to the Company as of the date of this press release, which may change. 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, you should refer to the Risk Factors detailed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as amended, and in our quarterly and other reports filed from time to time with the SEC. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
Conference Call
As previously announced, the Company’s investor conference call to discuss its fourth quarter performance is scheduled for March 3, 2020 at 8:30 a.m. (ET). A live webcast of the conference call, together with supplemental information, can be accessed through the Company’s Investor Relations website at https://investors.quakerhoughton.com. You can also access the conference call by dialing 877-269-7756.
About Quaker Houghton
Quaker Houghton is a 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, can, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best-in-class technology, deep process knowledge and customized services. With approximately 4,500 employees, including chemists, engineers and industry experts, we partner with our customers to improve their operations so they can run even more efficiently, even more effectively, whatever comes next. Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the United States.
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| Quaker Chemical Corporation | ||||||||||||||||
| Condensed Consolidated Statements of Income | ||||||||||||||||
| (Dollars in thousands, except share and per share amounts) | ||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Net sales | $ | 391,294 | $ | 211,481 | $ | 1,133,503 | $ | 867,520 | ||||||||
| Cost of goods sold | 255,162 | 136,643 | 741,386 | 555,206 | ||||||||||||
| Gross profit | 136,132 | 74,838 | 392,117 | 312,314 | ||||||||||||
| % | 34.8 | % | 35.4 | % | 34.6 | % | 36.0 | % | ||||||||
| Selling, general and administrative expenses | 101,535 | 50,513 | 283,828 | 207,872 | ||||||||||||
| Restructuring and related charges | 2,633 | - | 26,678 | - | ||||||||||||
| Combination and other acquisition-related expenses | 11,688 | 4,257 | 35,477 | 16,661 | ||||||||||||
| Operating income | 20,276 | 20,068 | 46,134 | 87,781 | ||||||||||||
| % | 5.2 | % | 9.5 | % | 4.1 | % | 10.1 | % | ||||||||
| Other income (expense), net | 135 | (11 | ) | (254 | ) | (642 | ) | |||||||||
| Interest expense, net | (9,365 | ) | (817 | ) | (16,976 | ) | (4,041 | ) | ||||||||
| Income before taxes and equity in net income of associated companies | 11,046 | 19,240 | 28,904 | 83,098 | ||||||||||||
| Taxes on income before equity in net income of associated companies | (2,012 | ) | 11,496 | 2,084 | 25,050 | |||||||||||
| Income before equity in net income of associated companies | 13,058 | 7,744 | 26,820 | 58,048 | ||||||||||||
| Equity in net income of associated companies | 2,258 | 139 | 5,064 | 1,763 | ||||||||||||
| Net income | 15,316 | 7,883 | 31,884 | 59,811 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | 76 | 78 | 262 | 338 | ||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 15,240 | $ | 7,805 | $ | 31,622 | $ | 59,473 | ||||||||
| % | 3.9 | % | 3.7 | % | 2.8 | % | 6.9 | % | ||||||||
| Share and per share data: | ||||||||||||||||
| Basic weighted average common shares outstanding | 17,666,163 | 13,281,786 | 15,126,928 | 13,268,047 | ||||||||||||
| Diluted weighted average common shares outstanding | 17,684,090 | 13,327,464 | 15,163,171 | 13,304,732 | ||||||||||||
| Net income attributable to Quaker Chemical Corporation common shareholders - basic | $ | 0.86 | $ | 0.59 | $ | 2.08 | $ | 4.46 | ||||||||
| Net income attributable to Quaker Chemical Corporation common shareholders - diluted | $ | 0.86 | $ | 0.58 | $ | 2.08 | $ | 4.45 | ||||||||
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| Quaker Chemical Corporation |
| Condensed Consolidated Balance Sheets |
| (Dollars in thousands, except par value and share amounts) |
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 123,524 | $ | 104,147 | ||||
| Accounts receivable, net | 375,982 | 202,139 | ||||||
| Inventories, net | 174,950 | 94,090 | ||||||
| Prepaid expenses and other current assets | 41,516 | 18,134 | ||||||
| Total current assets | 715,972 | 418,510 | ||||||
| Property, plant and equipment, net | 213,469 | 83,923 | ||||||
| Right of use lease assets | 42,905 | - | ||||||
| Goodwill | 607,205 | 83,333 | ||||||
| Other intangible assets, net | 1,121,765 | 63,582 | ||||||
| Investments in associated companies | 93,822 | 21,316 | ||||||
| Non-current deferred tax assets | 14,745 | 6,946 | ||||||
| Other assets | 40,433 | 32,055 | ||||||
| Total assets | $ | 2,850,316 | $ | 709,665 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities | ||||||||
| Short-term borrowings and current portion of long-term debt | $ | 38,332 | $ | 670 | ||||
| Accounts and other payables | 170,929 | 92,754 | ||||||
| Accrued compensation | 45,620 | 25,727 | ||||||
| Accrued restructuring | 18,043 | - | ||||||
| Other current liabilities | 87,010 | 32,319 | ||||||
| Total current liabilities | 359,934 | 151,470 | ||||||
| Long-term debt | 882,437 | 35,934 | ||||||
| Long-term lease liabilities | 31,273 | - | ||||||
| Non-current deferred tax liabilities | 211,094 | 10,003 | ||||||
| Other non-current liabilities | 123,212 | 75,889 | ||||||
| Total liabilities | 1,607,950 | 273,296 | ||||||
| Equity | ||||||||
| Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2019 - 17,735,162 shares; 2018 - 13,338,026 shares | 17,735 | 13,338 | ||||||
| Capital in excess of par value | 888,218 | 97,304 | ||||||
| Retained earnings | 412,979 | 405,125 | ||||||
| Accumulated other comprehensive loss | (78,170 | ) | (80,715 | ) | ||||
| Total Quaker shareholders’ equity | 1,240,762 | 435,052 | ||||||
| Noncontrolling interest | 1,604 | 1,317 | ||||||
| Total equity | 1,242,366 | 436,369 | ||||||
| Total liabilities and equity | $ | 2,850,316 | $ | 709,665 | ||||
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| Quaker Chemical Corporation | ||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| (Dollars in thousands) | ||||||||
| Twelve Months Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (Unaudited) | ||||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 31,884 | $ | 59,811 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Amortization of deferred issuance costs | 1,979 | 70 | ||||||
| Depreciation and amortization | 44,895 | 19,714 | ||||||
| Equity in undistributed earnings of associated companies, net of dividends | (2,115 | ) | 2,784 | |||||
| Acquisition-related fair value adjustments related to inventory | 11,714 | - | ||||||
| Deferred income taxes | (24,242 | ) | 8,197 | |||||
| Uncertain tax positions (non-deferred portion) | 958 | (89 | ) | |||||
| Non-current income taxes payable | 856 | (8,181 | ) | |||||
| Deferred compensation and other, net | (6,789 | ) | 2,914 | |||||
| Share-based compensation | 4,861 | 3,724 | ||||||
| Gain on disposal of property, plant, equipment and other assets | (58 | ) | (657 | ) | ||||
| Insurance settlement realized | (822 | ) | (1,055 | ) | ||||
| Combination and other acquisition-related expenses, net of payments | (14,414 | ) | 2,727 | |||||
| Restructuring and related charges | 26,678 | - | ||||||
| Pension and other postretirement benefits | 46 | (1,392 | ) | |||||
| Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: | ||||||||
| Accounts receivable | 19,926 | (2,822 | ) | |||||
| Inventories | 10,844 | (10,548 | ) | |||||
| Prepaid expenses and other current assets | (4,640 | ) | (1,540 | ) | ||||
| Change in restructuring liabilities | (8,899 | ) | - | |||||
| Accounts payable and accrued liabilities | (8,915 | ) | 190 | |||||
| Estimated taxes on income | (1,373 | ) | 4,932 | |||||
| Net cash provided by operating activities | 82,374 | 78,779 | ||||||
| Cash flows from investing activities | ||||||||
| Investments in property, plant and equipment | (15,545 | ) | (12,886 | ) | ||||
| Payments related to acquisitions, net of cash acquired | (893,412 | ) | (500 | ) | ||||
| Proceeds from disposition of assets | 103 | 866 | ||||||
| Insurance settlement interest earned | 222 | 162 | ||||||
| Net cash used in investing activities | (908,632 | ) | (12,358 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from term loan debt | 750,000 | - | ||||||
| Borrowings (repayments) on revolving credit facility, net | 147,135 | (21,120 | ) | |||||
| Repayments on other debt, net | (8,798 | ) | (5,671 | ) | ||||
| Financing-related costs | (23,747 | ) | - | |||||
| Dividends paid | (21,830 | ) | (19,319 | ) | ||||
| Stock options exercised, other | 1,370 | 82 | ||||||
| Distributions to noncontrolling affiliate shareholders | - | (877 | ) | |||||
| Net cash provided by (used in) financing activities | 844,130 | (46,905 | ) | |||||
| Effect of foreign exchange rate changes on cash | 1,258 | (6,141 | ) | |||||
| Net increase in cash, cash equivalents and restricted cash | 19,130 | 13,375 | ||||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 124,425 | 111,050 | ||||||
| Cash, cash equivalents and restricted cash at the end of the period | $ | 143,555 | $ | 124,425 | ||||
Exhibit 99.2
Quaker Houghton Fourth Quarter and Full Year 2019 Results Investor Conference Call
On August 1, 2019, Quaker Chemical Corporation (the “Company”, also known as Quaker Houghton) completed its combination with Hou ghton International, Inc. (“Houghton”) (herein referred to as “the Combination”). As a result, five months of operations of Houghton post - closing of the Combination are included in the Company’s results described in this presentation. In addition, the Company acquired the operating divisions of Norman Hay plc (“Norman Hay”) on October 1, 2019, so three months of operations of Norman Hay post - closin g are included in the Company’s results described in this presentation. The Company will be filing a Notification of Late Filing on Form 12b - 25 with respect to its Annual Report on Form 10 - K for its f iscal year ended December 31, 2019 (the “Annual Report”). The Company has determined that it is unable to file its Annual Report within the prescribed time period without unreasonable effort or expen se. As a result of the Combination, in which the Company acquired a complex global organization, and the significant effort required to account for the Combination, the Company requires additional time to fin ali ze its financial statements, assess its disclosure controls and procedures and evaluate the effectiveness of its internal controls over financial reporting for the year ended December 31, 2019. The Compa ny’ s Annual Report will be filed no later than March 17, 2020 in compliance with the extension period. Given the delay in filing the Company’s Annual Report, all fourth quarter and full year 2019 figures prese nte d in this presentation are preliminary, unaudited and subject to change pending the finalization of the Company’s financial statements for the year ended December 31, 2019 and filing of its Annual Report. However, the Company believes the numbers presented in this presentation will not change materially, if at all, as a result of the additional time needed to finalize its financial statements for the year end ed December 31, 2019 and complete its Annual Report. Regulation G The attached charts include Company information that does not conform to generally accepted accounting principles (“GAAP”). Man agement believes that an analysis of this data is meaningful to investors because it provides insight with respect to ongoing operating results of the Company and allows investors to better evaluate the financial results of the Company. These measures should not be viewed as an alternative to GAAP measures of performance. Furthermore, these measures may not be consistent with similar measures provide d b y other companies. This data should be read in conjunction with the fourth quarter and full year earnings news release, dated March 2, 2020, which has been furnished to the Securities and Excha nge Commission (“SEC”) on Form 8 - K. Forward - Looking Statements This presentation contains "forward - looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amen ded, 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 ha ve based these forward - looking statements 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 but not limited to our current and future results and plans and statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan" or similar expressions. These forward - looking statements are subject to certain risks and uncertai nties that could cause actual results to differ materially from those projected in such statements. A major risk is that demand for the Company's products and services is largely derived from the demand for its cust omers' products, which subjects the Company to uncertainties related to downturns in a customer's business and unanticipated customer production shutdowns. Other major risks and uncertainties inclu de, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, the impact of widespread public health crises, including th e r ecent spread of the coronavirus, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence. Furthermore, the Company is subjec t t o the same business cycles as those experienced by steel, automobile, aircraft, industrial equipment, and durable goods manufacturers. Other factors could also adversely affect us, including those related to the Combination and other acquisitions and the integration of the combined company as well as other 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 assumption s relevant to the Company's business could cause its actual results to differ materially from expected and historical results. All forward - looking statements included in this presentation, including expect ations about the timing of the completion of the Company’s financial statements and audit for the fiscal year ended December 31, 2019, and the timing, form and content of the Company’s Annual Report are based upo n information available to the Company as of the date of this presentation, which may change. Therefore, we caution you not to place undue reliance on our forward - looking statements. For more informatio n regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our Annual Report for the year ended December 31, 2018 , as amended, and once filed with the SEC, our Annual Report for the year ended December 31, 2019, and in our quarterly and other reports filed from time to time with the SEC. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward - looking statements to reflect new information or future events or for any other reason. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. ©2019 Quaker Houghton. All Rights Reserved 2 Risks and Uncertainties Statement
Michael F. Barry Chairman of the Board, Chief Executive Officer & President Mary Dean Hall Senior Vice President, Chief Financial Officer & Treasurer Robert T. Traub Senior Vice President, General Counsel & Corporate Secretary Shane W. Hostetter Vice President, Finance & Chief Accounting Officer ©2019 Quaker Houghton. All Rights Reserved 3 Speakers
©2019 Quaker Houghton. All Rights Reserved 4 Fourth Quarter and Full Year 2019 Headlines • Net income of $15.2 million and $31.6 million for the fourth quarter and full year 2019 • Adjusted EBITDA of $60.6 million for the fourth quarter of 2019 up 4% versus prior year pro forma and ahead of previously provided guidance • Integration going well and synergy achievement on track
©2019 Quaker Houghton. All Rights Reserved 5 Chairman Comments Fourth Quarter 2019 • Net sales negatively impacted by the compounding conditions of a weak global automotive market, a generally weaker global industrial environment and continued customer inventory corrections and reductions in consumption • Achieved targeted gross margin and have made good progress with our integration and are on track to achieve or exceed our targeted integration cost synergies • Adjusted EBITDA of $60.6 million was above our guidance range of $52 to $59 million mentioned in the third quarter and 4% higher than pro forma results for the fourth quarter of 2018 2020 Outlook • Increased uncertainty in 2020 performance due to the coronavirus and Boeing’s decision to temporarily stop production of the 737 Max aircraft • Prior to negative impacts from coronavirus and 737 Max production, most of our business segments forecasted to show low to moderate growth in 2020 • Despite market uncertainties, we expect to deliver approximately $30 million or more of adjusted EBITDA growth in 2020 compared to 2019 pro forma adjusted EBITDA of $234 million, primarily driven by synergy benefits, a full year of Norman Hay and additional market share gains
©2019 Quaker Houghton. All Rights Reserved 6 Financial Highlights – Actual Results Fourth quarter of 2019 • Net sales of $391.3 million increased 85% compared to prior year due to the inclusion of Houghton and Norman Hay • Excluding Houghton and Norman Hay, net sales declined 10% due to lower volumes of 9% and negative foreign exchange translation of 1% • Gross profit increased $61.3 million, also due to Houghton and Norman Hay, partially offset by a $1.5 million one - time expense related to selling acquired Norman Hay inventory at fair value • Q4’19 gross margin of 34.8% includes $0.5 million of accelerated depreciation and Norman Hay’s $1.5 million fair value adjustment; excluding these, gross margin would have been ~35.3% compared to 35.4% in the prior year • SG&A increased $51.0 million due to additional Houghton and Norman Hay SG&A, partially offset by lower direct selling costs on the decline in net sales, a benefit from foreign exchange translation and the initial benefits of realized cost savings associated with the Combination • Below operating income performance includes higher interest expense primarily due to additional borrowings under the Company’s new credit facility to finance the closing of the Combination on August 1, 2019, partially offset by h igher equity earnings from Houghton’s Korea joint venture • Effective tax rates of (18.2%) and 59.8% for Q4’19 and Q4’18, respectively, include various one - time impacts; without these items ETRs would have been ~24% and ~17% for Q4’19 and Q4’18, respectively
©2019 Quaker Houghton. All Rights Reserved 7 Financial Highlights – Non - GAAP & Pro Forma Fourth quarter of 2019 Non - GAAP Results • Non - GAAP EPS of $1.34 compared to $1.54 in the prior year impacted by the increase in share count due to the closing of the Combination • Non - GAAP operating income increased to $37.6 million compared to $24.3 million in the prior year, primarily due to additional net sales and operating income from Houghton and Norman Hay • Non - GAAP adjusted EBITDA increased to $60.6 million compared to $29.7 million in the prior year, also primarily due to additional earnings from Houghton and Norman Hay Pro forma Results • Actual net sales of $391.3 million decreased 2% compared to pro forma net sales of approximately $401 million in the prior year, primarily due to lower volume and a negative impact from foreign currency translation, partially offset by additional net sales from Norman Hay • Adjusted EBITDA of $60.6 million increased 4% compared to pro forma adjusted EBITDA of approximately $58 million in the prior year, primarily due to the benefit of Norman Hay in the current quarter and initial benefits of cost savings realized from the Combination
©2019 Quaker Houghton. All Rights Reserved 8 Financial Highlights – Actual Results Full Year of 2019 • Net sales of $1,133.5 million increased 31% compared to prior year due to the inclusion of Houghton and Norman Hay • Excluding Houghton and Norman Hay, net sales declined 6% due to lower volumes of 3% and negative foreign exchange translation of 3% • Gross profit increased $79.8 million, also due to Houghton and Norman Hay • Gross margin of 34.6% includes $11.7 million of Houghton and Norman Hay one - time expenses to sell acquired inventory which had been adjusted to fair value and $0.5 million of accelerated depreciation; excluding these, gross margin would have been ~35.7% compared to 36.0% in the prior year • SG&A increased $76.0 million due to additional Houghton and Norman Hay SG&A, partially offset by foreign exchange translation, lower direct selling costs on the decline in net sales, lower incentive compensation costs and the benefits of realized cost savings associated with the Combination • Below operating income performance driven by higher interest expense primarily due to additional borrowings to finance the Combination partially offset by h igher equity earnings from Houghton’s Korea joint venture • Effective tax rates of 7.2% and 30.1% for FY’19 and FY’18, respectively, include various one - time impacts; without these items ETRs would have been ~22% in both periods
©2019 Quaker Houghton. All Rights Reserved 9 Financial Highlights – Non - GAAP & Pro Forma Full Year of 2019 Non - GAAP Results • Non - GAAP EPS of $5.83 compared to $6.17 in the prior year impacted by the increase to the share count from the Combination partially offset by earnings attributed to Houghton and Norman Hay • Non - GAAP operating income increased to $121.9 million compared to $104.4 million in the prior year, primarily due to additional net sales and operating income from Houghton and Norman Hay • Non - GAAP adjusted EBITDA increased to $173.1 million compared to $125.8 million in the prior year, also due to additional earnings from Houghton and Norman Hay Pro forma Results • Net sales of $1,562 million decreased 6% compared to $1,655 million in the prior year, primarily due to the same factors impacting Q4’19 • Adjusted EBITDA of $234 million decreased 1% compared to $236 million in the prior year, primarily due to lower full year pro forma net sales partially offset by the same benefits impacting Q4’19
©2019 Quaker Houghton. All Rights Reserved 10 Financial Snapshot 2019 (dollars in millions, unless otherwise noted) Q4 2019 Q4 2018 YTD 2019 YTD 2018 GAAP Net Sales $ 391.3 $ 211.5 $ 1,133.5 $ 867.5 Gross Profit 136.1 74.8 392.1 312.3 Operating Income 20.3 20.1 46.1 87.8 Net Income 15.2 7.8 31.6 59.5 Earnings Per Diluted Share 0.86 0.58 2.08 4.45 Non-GAAP Non-GAAP Operating Income $ 37.6 $ 24.3 $ 121.9 $ 104.4 Non-GAAP Operating Margin (%) 9.6% 11.5% 10.8% 12.0% Adjusted EBITDA 60.6 29.7 173.1 125.8 Adjusted EBITDA Margin (%) 15.5% 14.0% 15.3% 14.5% Non-GAAP Earnings Per Diluted Share 1.34 1.54 5.83 6.17 Pro Forma Net Sales $ 391.3 $ 401 $ 1,562 $ 1,655 Adjusted EBITDA 60.6 58 234 236 Adjusted EBITDA Margin (%) 15.5% 15% 15% 14%
©2019 Quaker Houghton. All Rights Reserved 11 Quaker Houghton’s Pro Forma Adjusted EBITDA (dollars in millions) $215 $221 $236 $234 $200 $210 $220 $230 $240 2016 2017 2018 2019 FY’19 pro forma adjusted EBITDA decrease primarily due to lower volumes and FX; but Q4’19 increase due to benefits from Norman Hay and lower SG&A due to Combination benefits $58 $61 $25 $40 $55 $70 $85 Q4 2018 Q4 2019
©2019 Quaker Houghton. All Rights Reserved 12 Leverage and Liquidity Update • At close on August 1, 2019, net debt to TTM adjusted EBITDA of ~3.42x compared to ~3.47x as of December 31, 2019 • Net debt to adjusted EBITDA expected to improve to ~3.0x or better by end of 2020 • Despite Norman Hay acquisition for ~$95 million, capex of ~$5 million and dividends of ~$7 million in Q4’19, net debt up only ~$50 million versus Q3’19, with the difference due to good operating cash flow • Cash and cash equivalents of $124 million and undrawn revolver of $221 million as of December 31, 2019 provide ample liquidity • Cost of debt ~3.1% post closing of the Combination and ~2.9% at December 31, 2019 • Capex still expected to be ~2% of sales in the first two years and 1.5% of sales thereafter
Appendix Actual and Non - GAAP Results
The information included in this presentation includes non - GAAP (unaudited) financial information that includes EBITDA, adjusted EBITDA, non - GAAP operating income, non - GAAP net income, non - GAAP earnings per diluted share, and pro forma net sales, net income, EBITDA and adjusted EBITDA. The Company believes these non - GAAP financial m easures 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 fa cilitate a comparison among fiscal periods, as the non - GAAP financial measures exclude items that are not indicative of future operating performance or not considered core to the Company’s operations. Non - GAAP resu lts and pro forma information 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 amortizatio n, interest expense, net, and taxes on income before equity in net income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not ind icative 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 c ertain items that are not 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 adju sted 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 an alysts, investors, and competitors 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 measure s. Non - GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net - adjusted, and taxes on income before equity in net income of associated c ompanies - 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 e arnings per diluted share provide transparent and useful information and are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating perfo rma nce of the Company on a consistent basis. During the first quarter of 2019, the Company updated its calculation methodology to include the use of interest expense net of interest income in the reconciliation of EBITDA and adjusted EBITDA, compared to its historical use of only interest expense, and also to include the non - service component of the Company’s pension and postretireme nt benefit costs in the reconciliation of adjusted EBITDA, non - GAAP net income attributable to Quaker Chemical Corporation and non - GAAP earnings per diluted share. Prior year amounts have been recast for co mparability purposes and the change in calculation methodology does not produce materially different results. The Company believes these updated calculations better reflect its underlying operating perfor man ce and better aligns the Company’s calculations to those commonly used by analysts, investors, and competitors in our industry. In addition, the Company has provided certain unaudited pro forma financial information in this presentation. The unaudited pro forma financial information is based on the historical consolidated financial statements and results of both Quaker and Houghton, and has been prepared to illustrate the effects of the Combination. The unaudited pro f orm a financial information has been presented for informational purposes only and is not necessarily indicative of Quaker Houghton’s past results of operations, nor is it indicative of the future operating results of Quaker Houghton and should not be considered a substitute for the financial information presented in accordance with GAAP. The Company has not provided pro forma financial information as it relates to the acquire d o perating divisions of Norman Hay plc based on materiality. As it relates to the full year 2020 expected adjusted EBITDA growth described further above, the Company has not provided gui dan ce for comparable GAAP measures or a quantitative reconciliation of forward - looking non - GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to determine with reasonable certainty the ultimate outcome of certain significant items necessary to calculate such measures without unreasonable effort. These items include, but are not limited to, certain non - recurring or non - core items the Company may record that could materially impact net income, such as Combination and other acquisition - related expenses and restructuring expenses, as well as income taxes. These items are uncertain, depend o n various factors, and could have a material impact on the U.S. GAAP reported results for the guidance period. The following charts should be read in conjunction with the Company’s fourth quarter and full year earnings news release dat ed March 2, 2020, which has been furnished to the SEC on Form 8 - K and the Company’s Annual Report for the period ended December 31, 2019, once filed with the SEC, by no later than March 17, 2020. These docume nts may contain additional explanatory language and information regarding certain of the items included in the following reconciliations. ©2019 Quaker Houghton. All Rights Reserved 14 Non - GAAP and Pro Forma Measures
©2019 Quaker Houghton. All Rights Reserved 15 Non - GAAP Operating Income Reconciliation (dollars in thousands unless otherwise noted) Q4 2019 Q4 2018 YTD 2019 YTD 2018 Operating income 20,276$ 20,068$ 46,134$ 87,781$ Fair value step up of Houghton and Norman Hay inventory sold 1,500 - 11,714 - Houghton combination and other acquisition-related expenses 12,156 4,257 35,945 16,661 Restructuring expense 2,633 - 26,678 - Customer bankruptcy costs 1,073 - 1,073 - Charges related to the settlement of a non-core equipment sale - - 384 - Non-GAAP operating income 37,638$ 24,325$ 121,928$ 104,442$ Non-GAAP operating margin (%) 9.6% 11.5% 10.8% 12.0%
©2019 Quaker Houghton. All Rights Reserved 16 Adjusted EBITDA Reconciliation (dollars in thousands unless otherwise noted) Q4 2019 Q4 2018 YTD 2019 YTD 2018 Net income attributable to Quaker Chemical Corporation 15,240$ 7,805$ 31,622$ 59,473$ Depreciation and amortization 21,250 4,803 45,264 19,714 Interest expense, net 9,365 818 16,976 4,041 Taxes on income before equity in net income of associated companies (2,012) 11,496 2,084 25,050 EBITDA 43,843 24,922 95,946 108,278 Equity (income) loss in a captive insurance company (562) 117 (1,822) (966) Fair value step up of Houghton and Norman Hay inventory sold 1,500 - 11,714 - Houghton combination and other acquisition-related expenses 11,572 4,257 35,361 16,051 Restructuring expense 2,633 - 26,678 - Pension and postretirement benefit costs, non-service components 501 572 2,805 2,285 Customer bankruptcy costs 1,073 - 1,073 - Insurance insolvency recovery (60) (90) (60) (90) Charges related to the settlement of a non-core equipment sale - - 384 - Gain on liquidation of an inactive legal entity - - - (446) Currency conversion impacts of hyper-inflationary economies 142 (100) 1,033 664 Adjusted EBITDA 60,642$ 29,678$ 173,112$ 125,776$ Adjusted EBITDA Margin (%) 15.5% 14.0% 15.3% 14.5%
©2019 Quaker Houghton. All Rights Reserved 17 Non - GAAP EPS Reconciliation Q4 2019 Q4 2018 YTD 2019 YTD 2018 GAAP earnings per diluted share 0.86$ 0.58$ 2.08$ 4.45$ Equity (income) loss in a captive insurance company per diluted share (0.03) 0.01 (0.12) (0.07) Fair value step up of Houghton and Norman Hay inventory sold per diluted share 0.07 - 0.58 - Houghton combination and other acquisition-related expenses per diluted share 0.56 0.32 2.05 1.21 Restructuring expense per diluted share 0.11 - 1.34 - Transition tax adjustments per diluted share - 0.61 (0.03) 0.43 Deferred tax benefit on an intercompany intangible asset transfer per diluted share (0.30) - (0.35) - Pension and postretirement benefit costs, non-service components per diluted share 0.02 0.03 0.14 0.13 Customer bankruptcy costs per diluted share 0.04 - 0.05 - Insurance insolvency recovery per diluted share (0.00) (0.01) (0.00) (0.01) Charges related to the settlement of a non-core equipment sale per diluted share - - 0.02 - Gain on liquidation of an inactive legal entity per diluted share - - - (0.03) Currency conversion impacts of hyper-inflationary economies per diluted share 0.01 0.00 0.07 0.06 Non-GAAP earnings per diluted share 1.34$ 1.54$ 5.83$ 6.17$
©2019 Quaker Houghton. All Rights Reserved 18 Segment Performance (dollars in thousands) Q4 2019 Q4 2018 YTD 2019 YTD 2018 Net sales Americas 131,439$ 72,486$ 392,121$ 297,601$ EMEA 101,290 52,231 285,570 216,984 Asia/Pacific 82,605 49,114 247,839 192,502 Global Specialty Businesses 75,960 37,650 207,973 160,433 Total net sales 391,294$ 211,481$ 1,133,503$ 867,520$ Segment operating earnings Americas 26,033$ 14,809$ 78,268$ 62,686$ EMEA 16,156 8,017 47,388 36,119 Asia/Pacific 22,198 14,108 67,573 53,739 Global Specialty Businesses 22,375 9,707 58,475 42,931 Total segment operating earnings 86,762 46,641 251,704 195,475 Combination and other acquisition-related expenses (11,688) (4,257) (35,477) (16,661) Restructuring and related charges (2,633) - (26,678) - Fair value step up of inventory sold (1,500) - (11,714) - Non-operating and administrative expenses (36,306) (20,471) (104,572) (83,515) Depreciation of corporate assets and amortization (14,359) (1,845) (27,129) (7,518) Operating Income 20,276 20,068 46,134 87,781 - - Other income (expense), net 135 (11) (254) (642) Interest expense, net (9,365) (817) (16,976) (4,041) Income before taxes and equity in net income of associated companies 11,046$ 19,240$ 28,904$ 83,098$
Appendix Pro Forma Results
©2019 Quaker Houghton. All Rights Reserved 20 Q4 2018 Pro Forma Reconciliations (dollars in millions) Quaker Houghton Divestitures Other (a) Pro Forma* Net sales 211$ 208$ (13)$ (5)$ 401$ Net Income Attributable to Quaker Houghton 8$ (5)$ (1)$ 5$ 6$ Depreciation and Amortization 5 13 - 1 19 Interest Expense, Net 1 15 - (7) 9 Taxes on Income (b) 11 5 (0) 1 17 EBITDA* 25 28 (2) 0 51 Combination and Other Acquisition-Related Expenses 4 2 - - 6 Other Addbacks (c) 1 0 - - 1 Adjusted EBITDA* 30$ 30$ (2)$ 0$ 58$ Adjusted EBITDA Margin* (%) 14% 15% 14% -4% 15% (b) Taxes on income related to both Divestitures and Other reflect each tax effected at the U.S. federal tax rate of 21%. (a) Other includes estimated increased to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates. (c) Other addbacks include equity income in a captive insurance company, pension and postretirement benefit costs, non-service components, affiliate management fees, insurance insolvency recoveries, currency conversion impacts of hyper-inflationary economies and other non-recurring miscellaneous charges. QTD December 2018 * Certain amounts may not calculate due to round, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton.
©2019 Quaker Houghton. All Rights Reserved 21 Full Year 2019 Pro Forma Reconciliations (dollars in millions) Quaker Houghton Divestitures Other (a) Pro Forma* Net sales 1,134$ 475$ (34)$ (13)$ 1,562$ Net Income Attributable to Quaker Houghton 32$ (3)$ (6)$ 10$ 33$ Depreciation and Amortization 45 31 - 3 77 Interest Expense, Net 17 33 - (15) 35 Taxes on Income (b) 2 (1) (2) 3 2 EBITDA* 96 60 (8) 1 148 Combination and Other Acquisition-Related Expenses 35 44 - - 80 Gain on Sale of Divested Assets - (35) - - (35) Fair Value Step Up of Houghton and Norman Hay Inventory Sold 12 - - - 12 Restructuring Expenses 27 - - - 27 Other Addbacks (c) 3 (0) - - 3 Adjusted EBITDA* 173$ 68$ (8)$ 1$ 234$ Adjusted EBITDA Margin* (%) 15% 14% 24% -4% 15% (b) Taxes on income related to both Divestitures and Other reflect each tax effected at the U.S. federal tax rate of 21%. (c) Other addbacks include equity income in a captive insurance company, pension and postretirement benefit costs, non-service components, customer bankruptcy costs, insurance insolvency recoveries and currency conversion impacts of hyper-inflationary economies. YTD December 2019 * Certain amounts may not calculate due to round, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton. (a) Other includes estimated increased to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates.
22 ©2019 Quaker Houghton. All Rights Reserved Full Year 2018 Pro Forma Reconciliations (dollars in millions) Quaker Houghton Divestitures Other (a) Pro Forma* Net sales 868$ 861$ (53)$ (22)$ 1,655$ Net Income Attributable to Quaker Houghton 59$ (0)$ (9)$ 17$ 66$ Depreciation and Amortization 20 54 - 5 79 Interest Expense, Net 4 56 - (25) 35 Taxes on Income (b) 25 3 (2) 5 30 EBITDA* 108 113 (12) 1 210 Combination and Other Acquisition-Related Expenses 16 7 - - 23 Other Addbacks (c) 1 2 - - 3 Adjusted EBITDA* 126$ 121$ (12)$ 1$ 236$ Adjusted EBITDA Margin* (%) 14% 14% 23% -4% 14% (b) Taxes on income related to both Divestitures and Other reflect each tax effected at the U.S. federal tax rate of 21%. (a) Other includes estimated increased to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates. (c) Other addbacks include currency conversion impacts on hyper-inflationary economies, a gain on the liquidation of an inactive legal entity and charges related to non-recurring non-income tax and VAT charges. YTD December 2018 * Certain amounts may not calculate due to round, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton.
23 ©2019 Quaker Houghton. All Rights Reserved Full Year 2017 Pro Forma Reconciliations (dollars in millions) Quaker Houghton Divestitures Other (a) Pro Forma* Net Income Attributable to Quaker Houghton 20$ (47)$ (9)$ 9$ (26)$ Depreciation and Amortization 20 55 - 5 80 Interest Expense, Net 1 51 - (16) 37 Taxes on Income (b) 42 42 (2) 2 84 EBITDA* 83 102 (11) 0 175 Equity Income in a Captive Insurance Company (3) - - - (3) Combination and Other Acquisition-Related Expenses 30 10 - - 40 Pension and Postretirement Benefit Costs, Non-Service Components 4 (1) - - 4 Cost Reduction Activities 0 2 - - 2 Loss on Disposal of Held-for-Sale Asset 0 - - - 0 Insurance Insolvency Recovery (1) - - - (1) Affiliate Management Fees - 2 - - 2 Non-Income Tax Settlement Expense - 1 - - 1 Other Addbacks (c) 0 0 - - 1 Adjusted EBITDA* 115$ 116$ (11)$ 0$ 221$ Adjusted EBITDA Margin* (%) 14% 15% 20% 0% 14% * Certain amounts may not calculate due to round, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton. 2017 (c) Other Addbacks includes charges related to inventory fair value adjustments in the Wallover acquisition, currency conversion impacts of hyper- inflationary economies and other non-recurring charges. (a) Other includes estimated increases to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates. (b) Taxes on Income related to the Divestitures and Other, as described above, each tax effected at the U.S. tax rate of 21%.
24 ©2019 Quaker Houghton. All Rights Reserved Full Year 2016 Pro Forma Reconciliations (dollars in millions) Quaker Houghton Divestitures Other (a) Pro Forma* Net Income Attributable to Quaker Houghton 61$ (37)$ (8)$ 7$ 23$ Depreciation and Amortization 20 55 - 5 80 Interest Expense, Net 1 51 - (14) 37 Taxes on Income (b) 23 (5) (2) 2 18 EBITDA* 105 64 (10) 0 158 Equity Income in a Captive Insurance Company (2) - - - (2) Combination and Other Acquisition-Related Expenses 2 3 - - 5 Pension and Postretirement Benefit Costs, Non-Service Components 2 (1) - - 1 Cost Reduction Activities - 4 - - 4 Impairment of Goodwill and Intangible Assets - 41 - - 41 Affiliate Management Fees - 2 - - 2 Non-Income Tax Settlement Expense - 2 - - 2 Full-Year Impact of Wallover Acquisition - 3 - - 3 Other Addbacks (c) (0) 1 - - 1 Adjusted EBITDA* 107$ 119$ (10)$ 0$ 215$ Adjusted EBITDA Margin* (%) 14% 16% 22% 0% 15% 2016 (c) Other Addbacks includes a charge related to a legal settlement, a charge related to inventory fair value adjustments in the Wallover acquisition, offset by a gain on the sale of an asset, currency conversion impacts of hyper-inflationary economies and a restructuring credit. (a) Other includes estimated increases to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates. (b) Taxes on Income related to the Divestitures and Other, as described above, each tax effected at the U.S. tax rate of 21%. * Certain amounts may not calculate due to round, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton.