0000081362 false 0000081362 2020-08-05 2020-08-05 iso4217:USD xbrli:shares iso4217:USD xbrli:shares

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

August 5, 2020

Date of Report (Date of earliest event reported)

 

QUAKER CHEMICAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

Commission File Number 001-12019

  

Pennsylvania   No. 23-0993790
(State or other jurisdiction of
incorporation)
  (I.R.S. Employer
Identification No.)

 

901 E. Hector Street

Conshohocken, Pennsylvania 19428

(Address of principal executive offices)

(Zip Code)

 

(610) 832-4000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

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:

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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 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 August 5, 2020, Quaker Chemical Corporation announced its results of operations for the second quarter ended June 30, 2020 in a press release, the text of which is included as Exhibit 99.1 hereto. Supplemental information related to the same period 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 August 5, 2020 (furnished herewith).
     
  99.2 Supplemental Information related to the second quarter ended June 30, 2020 (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:   August 5, 2020   By: /s/ Mary Dean Hall
      Mary Dean Hall
      Senior Vice President, Chief Financial Officer and Treasurer

  

 

 

 

 

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 SECOND QUARTER RESULTS

 

·Net sales of $286.0 million decreased 27% compared to prior year pro forma net sales primarily due to volume declines resulting from the impact of COVID-19

 

·GAAP net loss of $7.7 million or $0.43 per diluted share; non-GAAP earnings of $3.7 million or $0.21 per diluted share

 

·Adjusted EBITDA of $32.1 million in line with guidance

 

·Affirms full year 2020 guidance of more than $200 million of adjusted EBITDA

 

·Solid cash flow from operations of $24.5 million doubles year-to-date operating cash flow to $44.7 million compared to $22.4 million in the prior year

 

August 5, 2020

 

CONSHOHOCKEN, PA – Quaker Chemical Corporation (“the Company”, also known as Quaker Houghton) (NYSE: KWR) today announced second quarter results and provided an update regarding the impact of the COVID-19 pandemic on the Company. Second quarter of 2020 net sales were $286.0 million, an increase of 39% compared to the second quarter of 2019. The increase was driven by additional net sales due to the Company’s August 1, 2019 combination with Houghton International, Inc. (“Houghton”), which we refer 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 27% compared to the prior year second quarter pro forma net sales of $390 million, which are adjusted to include the results of Houghton as well as certain other pro forma adjustments including the elimination of results associated with divested product lines. This quarter-over-quarter decline from pro forma net sales was primarily attributed to lower volumes reflecting the impact from COVID-19 on global industrial production and the negative impact from foreign currency translation which was partially offset by additional net sales from Norman Hay.

 

The Company had a net loss in the second quarter of 2020 of $7.7 million or $0.43 per diluted share, compared to prior year second quarter net income of $15.6 million or $1.17 per diluted share. The Company’s current quarter net loss was primarily driven by the negative impact of COVID-19. Excluding costs associated with the Combination and other non-core items in each period, the Company’s second quarter of 2020 non-GAAP earnings per diluted share were $0.21 compared to $1.56 in the prior year second quarter. The Company’s current quarter adjusted EBITDA of $32.1 million increased slightly compared to $31.4 million in the second quarter of 2019 primarily due to the Combination and inclusion of Norman Hay, largely offset by the impacts of COVID-19. The current quarter adjusted EBITDA of $32.1 million decreased approximately 44% compared to pro forma prior year second quarter adjusted EBITDA of approximately $57 million, primarily due to the negative impacts of COVID-19, partially offset by the benefits of cost synergies realized from the Combination as well as the benefit of Norman Hay in the current quarter.

 

Michael F. Barry, Chairman, Chief Executive Officer and President, commented, “For Quaker Houghton, our top priority is to protect the health and safety of our employees and our customers, while ensuring business continuity to meet our customers’ needs. All of our 34 plants are operating and we have been able to satisfy all of our customers’ requirements. Our current quarter adjusted EBITDA was consistent with our guidance of being down nearly half of our first quarter adjusted EBITDA. We saw a 27% decline in our global revenue from pro forma second quarter 2019 net sales. All four segments showed significant declines in pro forma net sales due to COVID-19, with the Americas being the most impacted and Asia/Pacific being the least impacted. April and May were the worst months of the quarter as many customers globally were shutdown or operating at reduced rates, especially in the automotive sector. In June, we began to see our net sales increase in all business segments. Despite the poor quarter due to COVID-19, we did generate cash as expected and reduced our net debt by $13 million compared to the first quarter. Other positives include integration cost savings of $12 million, expanded product margins of 2%, and market share gains of 2% in the current quarter.”

 

 

 

 

Mr. Barry continued, “Looking forward, we expect gradual sequential improvement as we progress through the second half of the year and we are already seeing this to-date since the low point in April and May. While we are not providing specific guidance given the current economic uncertainty caused by COVID-19, we do continue to expect our full year adjusted EBITDA to be more than $200 million in 2020. Further, we do not expect to have any liquidity or bank covenant issues. Overall, our integration synergies, additional cost savings actions, improvement in product margins, and good cashflows are expected to continue to help us during this challenging time. As we look forward to 2021 and 2022, we expect to achieve significant increases in our adjusted EBITDA as we complete our integration cost synergies, continue to take share in the marketplace, and benefit from a projected gradual rebound in demand in our end markets over this period.”

 

Second Quarter 2020 Consolidated Results

 

Net sales were $286.0 million in the second quarter of 2020 compared to $205.9 million in the second quarter of 2019. The net sales increase of 39% quarter-over-quarter includes additional net sales from Houghton and Norman Hay of $142.5 million. Excluding Houghton and Norman Hay net sales, current quarter net sales would have declined approximately 30%, primarily driven by a decrease in sales volumes of approximately 27% and a negative impact from foreign currency translation of 4% partially offset by an increase from price and product mix of 1%. The primary driver of the volume decline in the current quarter was the negative impact of COVID-19 on global production levels.

 

Gross profit in the second quarter of 2020 increased $22.2 million compared to the second quarter of 2019 primarily due to Houghton and Norman Hay sales, noted above. The Company’s gross margin in the current quarter was 34.0% compared to 36.5% in the second quarter of 2019. This decrease in gross margin quarter-over-quarter was primarily due to significantly lower volumes in the current quarter and the related impact from fixed manufacturing costs, as well as price and product mix largely due to lower gross margins in the legacy Houghton business, partially offset by certain cost of goods sold (“COGS”) decreases as a result of the Company’s progress on Combination-related logistics and procurement cost savings initiatives.

 

Selling, general and administrative expenses (“SG&A”) in the second quarter of 2020 increased $36.6 million compared to the second quarter of 2019 due primarily to additional SG&A from Houghton and Norman Hay. This increase was partially offset by lower SG&A due to foreign currency translation, the impact of the sales decline on direct selling costs, lower incentive compensation on reduced Company performance, the impact of COVID-19 cost savings actions, including lower travel expenses, and the benefits of realized cost savings associated with the Combination.

 

During the second quarter of 2020, the Company incurred $8.0 million of Combination, integration and other acquisition-related expenses, primarily for professional fees related to Houghton integration activities. Comparatively, the Company incurred $4.6 million of expenses in the prior year second quarter, 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 under this program to continue during 2020 and 2021. During the second quarter of 2020, the Company recorded additional restructuring and related charges of $0.5 million related to this program. There were no comparable restructuring charges in the prior year second quarter.

 

Operating income in the second quarter of 2020 was $2.2 million compared to $20.5 million in the second quarter of 2019. Excluding the Combination, integration and other acquisition-related expenses, restructuring and related charges, and other expenses that are not indicative of the Company’s future operating performance, the Company’s current quarter non-GAAP operating income decreased to $11.2 million compared to $25.5 million in the prior year quarter, primarily due to the negative impact of COVID-19, which more than offset the added net sales and operating income from Houghton and Norman Hay and the benefits from cost savings related to the Combination. The Company estimates that it has realized approximately $12 million of cost savings related to the Combination during the second quarter of 2020, increasing its synergies realized in 2020 to $22 million, and its cumulative synergies realized since closing of the Combination to approximately $29 million.

 

 

 

 

Other expense, net, was $1.0 million in the second quarter of 2020 compared to other income, net, of less than $0.1 million in the prior year second quarter. The quarter-over-quarter change to other expense, net, was driven by higher foreign currency transaction losses in the second quarter of 2020 as compared to the prior year second quarter, partially offset by lower expenses from the non-service components of pension and postretirement benefit costs.

 

Interest expense, net, increased $6.1 million compared to the prior year second quarter primarily due to additional borrowings under the Company’s term loans and revolving credit facility to finance the closing of the Combination.

 

The Company’s effective tax rates for the second quarters of 2020 and 2019 were an expense of 57.9% and 24.2%, respectively. The Company’s current quarter effective tax rate was driven by the impact of certain tax charges in the current period relating to changes in the valuation allowance for foreign tax credits acquired with the Combination and additional charges for uncertain tax positions taken resulting from certain foreign tax audits combined with pre-tax losses as a result of the negative impacts of COVID-19. Excluding the impact of all 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 second quarters of 2020 and 2019 would have been approximately 18% and 22%, respectively.

 

Equity in net income of associated companies increased $0.5 million in the second quarter of 2020 compared to the second quarter of 2019, primarily due to additional earnings from Houghton’s 50% interest in a joint venture in Korea and higher earnings in the current quarter from the Company’s interest in a captive insurance company.

 

Foreign exchange negatively impacted the Company’s second quarter results by approximately $0.11 per diluted share, primarily due to approximately $1.9 million of higher foreign exchange transaction losses quarter-over-quarter as well as the negative impact from foreign currency translation on earnings due to the strengthening of the U.S. dollar against certain major foreign currencies in the current quarter.

 

First Six Months 2020 Consolidated Results

 

Net sales were $664.6 million in the first six months of 2020 compared to $417.1 million in the first six months of 2019. The net sales increase of 59% year-over-year includes additional net sales from Houghton and Norman Hay of $332.8 million. Excluding Houghton and Norman Hay net sales, current year net sales would have declined approximately 20%, primarily driven by a decrease in sales volumes of approximately 16%, a negative impact from foreign currency translation of 3% and a decrease from price and product mix of 1%. Consistent with the second quarter of 2020 description above, the primary driver of the volume decline in the current year was the negative impact of COVID-19 on global production levels.

 

Gross profit in the first six months of 2020 increased $80.3 million compared to the first six months of 2019 primarily due to the inclusion of Houghton and Norman Hay sales. The Company’s gross margin in the current year was 34.8% compared to 36.2% in 2019. This decrease in gross margin year-over-year was primarily the result of the same drivers described in the second quarter description noted above.

 

SG&A in the first six months of 2020 increased $83.9 million compared to the first six months of 2019 due primarily to additional SG&A from Houghton and Norman Hay, partially offset by the same drivers described in the second quarter description noted above.

 

During the first six months of 2020, the Company incurred $15.9 million of Combination, integration and other acquisition-related expenses, primarily for professional fees related to Houghton integration activities. Comparatively, the Company incurred $9.1 million of expenses in the prior year, primarily due to various professional fees related to integration planning and regulatory approval for the Combination.

 

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 the first six months of 2020, the Company recorded additional restructuring and related charges of $2.2 million related to this program. There were no comparable restructuring charges in the prior year.

 

 

 

 

During the first quarter of 2020, the Company recorded a $38.0 million non-cash impairment charge to write down the value of certain indefinite-lived intangible assets associated with the Combination. This non-cash impairment charge is related to certain acquired Houghton trademarks and tradenames and is primarily the result of the current year negative impacts of COVID-19 on their estimated fair values. There were no impairment charges in the second quarter of 2020 or in the prior year.

 

Operating loss in the first six months of 2020 was $10.2 million compared to operating income of $40.4 million in the first six months of 2019. Excluding the Combination, integration and other acquisition-related expenses, restructuring and related charges, the non-cash indefinite-lived intangible asset impairment charge, and other expenses that are not indicative of the Company’s future operating performance, the Company’s non-GAAP operating income of $47.2 million for the first six months of 2020 decreased compared to $49.8 million in the prior year period, primarily due to lower volumes from the negative impact of COVID-19, which more than offset the added net sales and operating income from Houghton and Norman Hay and the benefits from cost savings related to the Combination.

 

Other expense, net, was $22.2 million in the first six months of 2020 compared to $0.6 million in the prior year. The year-over-year increase in other expense, net was primarily due to a first quarter of 2020 non-cash pension plan settlement charge of $22.7 million associated with the termination of the legacy Quaker U.S. Pension Plan.

 

Interest expense, net, increased $13.8 million in the first six months of 2020 compared to the prior year primarily due to additional borrowings under the Company’s term loans and revolving credit facility to finance the closing of the Combination.

 

The Company’s effective tax rates for the first six months of 2020 and 2019 were a benefit of 20.7% and expense of 25.4%, respectively. The Company’s current year effective tax rate was impacted by the tax effect of certain one-time pre-tax costs as well as certain one-time tax charges and benefits in the current period, including those related to changes in the valuation allowance for foreign tax credits acquired with the Combination, tax law changes, additional charges for uncertain tax positions taken resulting from certain foreign tax audits, and the tax impact of the Company’s termination of its legacy Quaker U.S. pension plan. Comparatively, the prior year effective tax rate was primarily impacted by certain non-deductible costs associated with the Combination, partially offset by a favorable shift in earnings to entities with lower tax rates. Excluding the impact of all 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 first six months of 2020 and 2019 would have been approximately 21% and 23%, respectively.

 

Equity in net income of associated companies increased $0.7 million in the first six months of 2020 compared to the first six months of 2019, primarily due to additional earnings from Houghton’s 50% interest in a joint venture in Korea partially offset by lower earnings as compared to the prior year period from the Company’s interest in a captive insurance company.

 

Foreign exchange negatively impacted the Company’s first six months of 2020 results by approximately $0.11 per diluted share, primarily due to approximately $0.8 million of higher foreign exchange transaction losses year-over-year as well as the negative impact from foreign currency translation due to the strengthening of the U.S. dollar in the current year period.

 

Cash Flow and Liquidity Highlights

 

The Company had net operating cash flow of approximately $24.5 million during the second quarter of 2020, increasing its year-to-date net operating cash flow to $44.7 million in the first six months of 2020, compared to $22.4 million in the first six months of 2019. The $22.3 million increase in net operating cash flow year-over-year was primarily driven by additional earnings from Houghton and Norman Hay as well as releases in working capital due to the volume declines related to COVID-19.

 

 

 

 

The Company has no material debt maturities until August 1, 2024. As a precautionary measure in response to the current economic uncertainty from COVID-19, the Company drew down most of the available liquidity on its revolving credit facility during the second half of March 2020. As of June 30, 2020, the Company had total gross outstanding borrowings, primarily under its syndicated and secured credit facility, of $1,121.2 million as well as $322.5 million of cash on hand.  The additional borrowings under the revolver did not negatively impact the Company’s leverage ratio (net debt divided by adjusted EBITDA) as the incremental debt is offset by a corresponding increase in available cash.  As of June 30, 2020, the Company’s total net debt was $798.7 million, and its net debt divided by its trailing twelve months pro forma adjusted EBITDA was approximately 3.7 to 1. The Company’s leverage ratio, as defined under its bank agreement, was approximately 3.1 to 1 as of June 30, 2020 compared to a maximum permitted leverage of 4.25 to 1. Based on current projections, including multiple forecasted scenarios of future liquidity and leverage, the Company does not expect any compliance issues with its bank covenants.

 

Non-GAAP and Pro Forma Measures

 

The information included in this press release 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, non-GAAP earnings per diluted share, and pro forma net sales, net (loss) income attributable to Quaker Houghton, EBITDA, adjusted EBITDA, and adjusted EBITDA margin. 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 (loss) income attributable to the Company before depreciation and amortization, interest expense, net, and taxes on (loss) 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 (loss) 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, and taxes on (loss) income before equity in net 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 (loss) 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.

 

As it relates to the full year 2020 expected adjusted EBITDA 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, as well as the impact of COVID-19. 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 June 30,   Six Months Ended June 30, 
   2020   2019   2020   2019 
Operating income (loss)  $2,238   $20,531   $(10,206)  $40,360 
Fair value step up of inventory sold   226        226     
Houghton combination, integration and other acquisition-related expenses (a)   8,253    4,604    16,529    9,087 
Restructuring and related charges   486        2,202     
Customer bankruptcy costs           463     
Charges related to the settlement of a non-core equipment sale       384        384 
Indefinite-lived intangible asset impairment           38,000     
Non-GAAP operating income  $11,203   $25,519   $47,214   $49,831 
Non-GAAP operating margin (%)   3.9%   12.4%   7.1%   11.9%

 

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations        

  

   Three Months Ended June 30,    Six Months Ended June 30,  
   2020   2019   2020   2019 
Net (loss) income attributable to Quaker Chemical Corporation  $(7,735)  $15,591   $(36,116)  $29,435 
Depreciation and amortization (b)   21,158    4,843    42,742    9,702 
Interest expense, net (c)   6,811    733    15,272    1,509 
Taxes on (loss) income before equity in net income of associated companies (d)   3,222    4,800    (9,848)   9,729 
EBITDA  $23,456   $25,967   $12,050   $50,375 
Equity income in a captive insurance company   (482)   (390)   (155)   (736)
Fair value step up of inventory sold   226        226     
Houghton combination, integration and other acquisition-related expenses (a)   7,963    4,604    15,766    9,087 
Restructuring and related charges   486        2,202     
Customer bankruptcy costs           463     
Charges related to the settlement of a non-core equipment sale       384        384 
Indefinite-lived intangible asset impairment           38,000     
Pension and postretirement benefit costs, non-service components   341    895    23,866    1,791 
Currency conversion impacts of hyper-inflationary economies   73    (31)   124    163 
Adjusted EBITDA  $32,063   $31,429   $92,542   $61,064 
Adjusted EBITDA margin (%)   11.2%   15.3%   13.9%   14.6%
                     
Adjusted EBITDA  $32,063   $31,429   $92,542   $61,064 
Less: Depreciation and amortization (b)   20,869    4,843    41,980    9,702 
Less: Interest expense, net - adjusted (c)   6,811    (130)   15,272    (216)
Less: Taxes on (loss) income before equity in net income of associated companies – adjusted (d)   673    5,787    7,136    11,827 
                     
Non-GAAP net income  $3,710   $20,929   $28,154   $39,751 

 

 

 

 

Non-GAAP Earnings per Diluted Share Reconciliations                    

  

   Three Months Ended June 30,    Six Months Ended June 30,  
   2020   2019   2020   2019 
GAAP (loss) earnings per diluted share attributable to Quaker Chemical Corporation common shareholders (e)  $(0.43)  $1.17   $(2.03)  $2.20 
Equity income in a captive insurance company per diluted share   (0.03)   (0.03)   (0.01)   (0.06)
Fair value step up of inventory sold per diluted share   0.01        0.01     
Houghton combination, integration and other acquisition-related expenses per diluted share (a)   0.37    0.34    0.73    0.69 
Restructuring and related charges per diluted share   0.02        0.09     
Customer bankruptcy costs per diluted share           0.02     
Charges related to the settlement of a non-core equipment sale per diluted share       0.02        0.02 
Indefinite-lived intangible asset impairment per diluted share           1.65     
Pension and postretirement benefit costs, non-service components per diluted share   0.01    0.06    0.89    0.11 
Currency conversion impacts of hyper-inflationary economies per diluted share   0.01    (0.00)   0.01    0.01 
Impact of certain discrete tax items per diluted share   0.25        0.23     
Non-GAAP earnings per diluted share (e)  $0.21   $1.56   $1.59   $2.97 

 

(a)The Company recorded $0.3 million and $0.8 million of accelerated depreciation expense during the three and six months ended June 30, 2020, respectively, related to the Combination, of which $0.3 million and $0.7 million was recorded in COGS and less than $0.1 million and $0.1 million was recorded in Combination, integration and other acquisition-related expenses during the three and six months ended June 30, 2020, respectively. The amount recorded within COGS is included in the caption Houghton combination, integration and other acquisition-related expenses in the reconciliation of Operating income (loss) to Non-GAAP operating income and GAAP (loss) earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share. In addition, the total $0.3 million and $0.8 million for the three and six months ended June 30, 2020, respectively, is included within the caption Depreciation and amortization in the reconciliation of Net (loss) income attributable to Quaker Chemical Corporation to Adjusted EBITDA; however, it is excluded in the reconciliation of Adjusted EBITDA to Non-GAAP net income.

 

(b)Depreciation and amortization for the three and six months ended June 30, 2020 includes $0.3 million and $0.7 million, respectively, of amortization expense recorded within equity in net income of associated companies in the Statements of Operations, 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.

 

(c)Interest expense, net – adjusted excludes $0.9 million and $1.7 million for the three and six months ended June 30, 2019, respectively, of interest costs the Company incurred to maintain the bank commitment to finance the Combination, prior to executing the Company’s credit facility and closing the Combination on August 1, 2019.

 

(d)Taxes on (loss) 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 (loss) 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. This caption also includes the impact of certain specific tax charges and benefits in the three and six months ended June 30, 2020 which the Company does not consider core or indicative of future performance.

 

(e)The Company’s calculation of GAAP and non-GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders for the three and six months ended June 30, 2020 was impacted by the 4.3 million share issuance in connection with closing the Combination.

 

 

 

 

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 (loss) 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 June 30, 2019 (a) 
   Quaker   Houghton   Divestitures (b)   Other (c)   Pro Forma * 
Net sales  $206   $204   $(14)  $(5)  $390 
                          
Net income (loss) attributable to Quaker Houghton  $16   $1   $(3)  $4   $18 
Depreciation and amortization   5    13        1    19 
Interest expense, net   1    14        (6)   9 
Taxes on income (d)   5    (1)   (1)   1    4 
EBITDA *   26    28    (3)   0    50 
Combination, integration and other acquisition-related expenses   5    2            6 
Other addbacks (e)   1    (1)           0 
Adjusted EBITDA *  $31   $29   $(3)  $0   $57 
Adjusted EBITDA margin * (%)   15%   14%   24%   0%   15%

 

   Six months ended June 30, 2019 (a) 
   Quaker   Houghton   Divestitures (b)   Other (c)   Pro Forma * 
Net sales  $417   $403   $(29)  $(11)  $781 
                          
Net income (loss) attributable to Quaker Houghton  $29   $4   $(5)  $7   $35 
Depreciation and amortization   10    26        3    39 
Interest expense, net   2    28        (12)   18 
Taxes on income (d)   10    (5)   (1)   2    6 
EBITDA *   50    54    (7)   0    97 
Combination, integration and other acquisition-related expenses   9    4            13 
Other addbacks (e)   2    (0)           1 
Adjusted EBITDA *  $61   $57   $(7)  $0   $111 
Adjusted EBITDA margin * (%)   15%   14%   24%   0%   14%

 

 

 

 

    Trailing twelve months ended June 30, 2020 (a) 
   Quaker   Houghton   Divestitures (b)   Other (c)   Pro Forma * 
Net sales  $1,381   $72   $(5)  $(2)  $1,446 
                          
Net (loss) income attributable to Quaker Houghton  $(34)  $(7)  $(1)  $0   $(42)
Depreciation and amortization   78    4        0    83 
Interest expense, net   31    5        (1)   35 
Taxes on income (d)   (17)   4    (0)   0    (14)
EBITDA *   58    6    (1)   0    62 
Combination, integration and other acquisition-related expenses   42    40            82 
Gain on the sale of divested assets       (35)           (35)
Fair value step up of inventory sold   12                12 
Pension and postretirement benefit costs, non-service components   25    (0)           25 
Indefinite-lived intangible asset impairment   38                38 
Restructuring and related charges   29                29 
Other addbacks (e)   1    0            1 
Adjusted EBITDA *  $205   $11   $(1)  $0   $214 
Adjusted EBITDA margin * (%)   15%   15%   24%   0%   15%

 

* 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 both the three and six months ended June 30, 2019, include Quaker’s historical results, while Houghton reflects its stand-alone results. Results for the trailing twelve months ended June 30, 2020 include eleven months of Houghton’s operations post-closing of the Combination, while Houghton reflects one month of results for the period from July 1, 2019 through July 31, 2019. Pro forma results for the three and six months ended June 30, 2020 have not been presented above because the actual results for Quaker Houghton as presented in this press release are the applicable comparative results.

 

(b)Divestitures includes the elimination of results associated with 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) Currency conversion impacts of hyper-inflationary economies; (iii) affiliate management fees; (iv) insurance insolvency recoveries; (v) customer bankruptcy costs; (vi) charges related to the settlement of a non-core equipment sale; (vii) other non-recurring miscellaneous charges; and (viii) for both the three and six months ended June 30, 2019, pension and postretirement benefit costs, non-service components.

 

 

 

 

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, including statements regarding the potential effects of the COVID-19 pandemic on the Company’s business, results of operations, or financial condition and expectations regarding our liquidity position and our continued compliance with the terms of the Company’s credit facility 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 the potential benefits of the Combination, the impacts on our business as a result of the COVID-19 pandemic and any projected global economic rebound or anticipated positive results due to Company actions taken in response to the pandemic, and 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, 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, including the potential for significant increases in raw material costs, supply chain disruptions, customer financial stability, worldwide economic and political conditions, 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. 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, the effects on the economy by 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, and governmental programs implemented to assist businesses impacted by the COVID-19 pandemic. 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 our business could cause our actual results to differ materially from expected and historical results.  All forward-looking statements included in this press release, including expectations about the improvements in business conditions in the second half of 2020 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, refer to the Risk Factors section, which appears in Item 1A of our Quarterly Report on Form 10-Q for the period ended June 30, 2020, as well as in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2019, and in our other reports filed from time to time with the Securities and Exchange Commission.  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 second quarter performance is scheduled for August 6, 2020 at 7:30 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 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. Visit quakerhoughton.com to learn more.

 

 

 

 

Quaker Chemical Corporation

Condensed Consolidated Statements of Operations

(Dollars in thousands, except share and per share amounts)

 

   (Unaudited) 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2020   2019   2020   2019 
                 
Net sales  $286,040   $205,869   $664,601   $417,079 
                     
Cost of goods sold   188,654    130,708    433,364    266,151 
                     
Gross profit   97,386    75,161    231,237    150,928 
%   34.0%   36.5%   34.8%   36.2%
                     
Selling, general and administrative expenses   86,667    50,026    185,368    101,481 
Indefinite-lived intangible asset impairment   -    -    38,000    - 
Restructuring and related charges   486    -    2,202    - 
Combination, integration and other acquisition-related expenses   7,995    4,604    15,873    9,087 
                     
Operating income (loss)   2,238    20,531    (10,206)   40,360 
%   0.8%   10.0%   -1.5%   9.7%
                     
Other (expense) income, net   (993)   43    (22,168)   (592)
Interest expense, net   (6,811)   (733)   (15,272)   (1,509)
(Loss) income before taxes and equity in net income of associated companies   (5,566)   19,841    (47,646)   38,259 
                     
Taxes on (loss) income before equity in net income of associated companies   3,222    4,800    (9,848)   9,729 
(Loss) income before equity in net income of associated companies   (8,788)   15,041    (37,798)   28,530 
                     
Equity in net income of associated companies   1,066    608    1,732    1,019 
                     
Net (loss) income   (7,722)   15,649    (36,066)   29,549 
                     
Less: Net income attributable to noncontrolling interest   13    58    50    114 
                     
Net (loss) income attributable to Quaker Chemical Corporation  $(7,735)  $15,591   $(36,116)  $29,435 
%   -2.7%   7.6%   -5.4%   7.1%
                     
Share and per share data:                    
Basic weighted average common shares outstanding   17,697,496    13,304,248    17,685,010    13,297,953 
Diluted weighted average common shares outstanding   17,697,496    13,352,255    17,685,010    13,345,315 
                     
Net (loss) income attributable to Quaker Chemical Corporation common shareholders - basic  $(0.43)  $1.17   $(2.03)  $2.21 
Net (loss) income attributable to Quaker Chemical Corporation common shareholders - diluted  $(0.43)  $1.17   $(2.03)  $2.20 

 

 

 

 

 

 

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value and share amounts)

        

   (Unaudited) 
   June 30,   December 31, 
   2020   2019 
ASSETS        
         
Current assets          
Cash and cash equivalents  $322,497   $123,524 
Accounts receivable, net   300,027    375,982 
Inventories, net   173,867    174,950 
Prepaid expenses and other current assets   52,847    41,516 
Total current assets   849,238    715,972 
           
Property, plant and equipment, net   188,413    213,469 
Right of use lease assets   40,517    42,905 
Goodwill   604,649    607,205 
Other intangible assets, net   1,044,516    1,121,765 
Investments in associated companies   87,865    93,822 
Deferred tax assets   12,362    14,745 
Other non-current assets   43,966    40,433 
Total assets  $2,871,526   $2,850,316 
           
LIABILITIES AND EQUITY          
           
Current liabilities          
Short-term borrowings and current portion of long-term debt  $38,217   $38,332 
Accounts and other payables   130,334    170,929 
Accrued compensation   22,689    45,620 
Accrued restructuring   10,432    18,043 
Other current liabilities   81,019    87,010 
Total current liabilities   282,691    359,934 
           
Long-term debt   1,070,306    882,437 
Long-term lease liabilities   28,908    31,273 
Deferred tax liabilities   196,669    211,094 
Other non-current liabilities   125,611    123,212 
Total liabilities   1,704,185    1,607,950 
           
Equity          
Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2020 - 17,799,606 shares; 2019 - 17,735,162 shares   17,800    17,735 
Capital in excess of par value   896,108    888,218 
Retained earnings   362,265    412,979 
Accumulated other comprehensive loss   (109,264)   (78,170)
Total Quaker shareholders' equity   1,166,909    1,240,762 
Noncontrolling interest   432    1,604 
Total equity   1,167,341    1,242,366 
Total liabilities and equity  $2,871,526   $2,850,316 

 

 

 

 

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

        

   (Unaudited) 
   Six Months Ended June 30, 
   2020   2019 
Cash flows from operating activities          
Net (loss) income  $(36,066)  $29,549 
Adjustments to reconcile net income to net cash provided by operating
activities:
          
Amortization of deferred issuance costs   2,375    70 
Depreciation and amortization   42,079    9,702 
Equity in undistributed earnings of associated companies, net of dividends   3,219    1,658 
Acquisition-related fair value adjustments related to inventory   229    - 
Deferred compensation, deferred taxes and other, net   (22,033)   (7,141)
Share-based compensation   7,673    1,672 
Loss (gain) on disposal of property, plant, equipment and other assets   81    (39)
Insurance settlement realized   (542)   (306)
Indefinite-lived intangible asset impairment   38,000    - 
Combination and other acquisition-related expenses, net of payments   1,860    399 
Restructuring and related charges   2,202    - 
Pension and other postretirement benefits   18,784    (21)
Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions:          
Accounts receivable   61,659    (7,893)
Inventories   (3,689)   (257)
Prepaid expenses and other current assets   (2,849)   (2,039)
Change in restructuring liabilities   (9,592)   - 
Accounts payable and accrued liabilities   (58,728)   (2,945)
Net cash provided by operating activities   44,662    22,409 
           
Cash flows from investing activities          
Investments in property, plant and equipment   (7,534)   (5,544)
Payments related to acquisitions, net of cash acquired   (3,132)   (500)
Proceeds from disposition of assets   11    70 
Insurance settlement interest earned   37    131 
Net cash used in investing activities   (10,618)   (5,843)
           
Cash flows from financing activities          
Payments of term loan debt   (18,702)   - 
Borrowings (repayments) on revolving credit facilities, net   205,500    (24,034)
Repayments on other debt, net   (684)   (6)
Dividends paid   (13,662)   (9,868)
Stock options exercised, other   (1,923)   (1,374)
Purchase of noncontrolling interest in affiliates   (1,047)   - 
Distributions to noncontrolling affiliate shareholders   (751)   - 
Net cash provided by (used in) financing activities   168,731    (35,282)
           
Effect of foreign exchange rate changes on cash   (4,575)   749 
           
Net increase (decrease) in cash, cash equivalents and restricted cash   198,200    (17,967)
Cash, cash equivalents and restricted cash at the beginning of the period   143,555    124,425 
Cash, cash equivalents and restricted cash at the end of the period  $341,755   $106,458 

 

 

 

 

 

 

 

Exhibit 99.2

 

Quaker Houghton Second Quarter 2020 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”). In addition, the Company acquired the operating divisions of Norman Hay plc (“Norman Hay”) on October 1, 2019 . Throughout this presentation, all figures presented, unless otherwise stated, reflect the results of operations of the combined company for the three months ended June 30, 2020 and Legacy Quaker for the thr ee months ended June 30, 2019. Further, all year - to - date figures presented throughout the presentation for the years 2019 and 2020 are as of and for the period ending June 30, respectively. 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 first quarter earnings news release, dated August 5, 2020, which has been furnished to the Securities and Exchange 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, including statements regarding the potential effects of the COVID - 19 pandemic on the Company’s business, results of operations, or financial condition and expectat ions regarding our liquidity position and continued compliance with the terms of the Company’s credit facility on our current expectations about future events. These forward - looking statements include stateme nts with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance, and business, including, but not l imi ted to, the potential benefits of the Combination, the impacts on our business as a result of the COVID - 19 pandemic and any projected global economic rebound or anticipated positive results due to Company actions taken in response to the pandemic, and our current and future results and plans and statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "i ntend," "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 statemen ts. 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 cu sto mer's business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, the primary and secondary impacts of the COVID - 19 pandemic, inclu ding 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, including the potential for significa nt increases in raw material costs, supply chain disruptions, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, significant changes in applicable tax rat es 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, an d durable goods manufacturers. 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 num ber of people infected with the virus, the effects on the economy by the pandemic, including the resulting market volatility, and by the measures taken by governmental authorities and other third pa rti es restricting day - to - day life and business operations and the length of time that such measures remain in place, and governmental programs implemented to assist businesses impacted by the COVID - 19 pandemic. 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 forw ard - 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. All forward - looking statements included in this presentation, including expectations about the improvements in business conditions in the second half of 2020, are based upon information available to the Company as of the da te of this presentation, 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, refer to the Risk Factors section, which appears in Item 1A of our Quarterly Report on Form 10 - Q for the period ended June 30, 2020, as well as in Item 1A in our Annual Report on Form 10 - K for the year ended December 31, 2019, and in our 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 Second Quarter 2020 Headlines • Net sales of $286.0 million decreased 27% compared to prior year pro forma net sales primarily due to volume declines resulting from the impact of COVID - 19 • GAAP net loss of $7.7 million or $0.43 per diluted share; non - GAAP earnings of $3.7 million or $0.21 per diluted share • Adjusted EBITDA of $32.1 million in line with guidance • Affirms full year 2020 guidance of more than $200 million of adjusted EBITDA • Solid cash flow from operations of $24.5 million doubles year - to - date operating cash flow to $44.7 million compared to $22.4 million in the prior year

 

 

©2019 Quaker Houghton. All Rights Reserved 5 Chairman Comments Second Quarter of 2020 • Current quarter adjusted EBITDA consistent with our guidance of being down nearly half of the first quarter 2020 • 27% decline in global revenues from pro forma second quarter 2019 driven by significant net sales declines in all four segments due to COVID - 19 • April and May most impacted, especially in the automotive sector, with June starting to show improvement across all segments • Reduced net debt by $13 million, achieved integration cost savings of $12 million, expanded product margins of 2%, and showed market share gains of 2% in the current quarter 2020 Outlook • Expect gradual sequential improvement as we progress through the second half of the year which we are already seeing since the low point in April and May • Our integration synergies, additional cost savings actions, improvement in product margins, and good cash flows are expected to continue to help us during this challenging time • Despite uncertainty caused by COVID - 19, expect more than $200 million of adjusted EBITDA in 2020 • Do not expect any liquidity or bank covenant issues “The Company’s top priority is to protect the health and safety of our employees and our customers, while ensuring business continuity to meet all our customers’ needs” – Michael F. Barry, Chairman, CEO and President

 

 

©2019 Quaker Houghton. All Rights Reserved 6 Financial Highlights – Actual Results Second quarter of 2020 • Net sales of $286.0 million include net sales from Houghton and Norman Hay of $142.5 million; excluding Houghton and Norman Hay, net sales declined approximately 30% driven by lower volumes of 27% due to COVID - 19 and a negative impact from foreign currency translation of 4% • Gross profit increased compared to Q2’19 primarily due to Houghton and Norman Hay net sales; Q2’20 gross margin was 34.0% compared to 36.5% in Q2’19 primarily due to significantly lower volumes in the current quarter and the related impact from fixed manufacturing costs, as well as price and product mix largely due to lower gross margins in the legacy Houghton business, partially offset by the Company’s progress on Combination - related logistics and procurement cost savings initiatives • SG&A increased 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 on direct selling costs, lower incentive compensation on reduced Company performance, the impact of COVID - 19 cost savings actions, including lower travel expenses, and the benefits of realized cost savings associated with the Combination • Non - operating items compared to Q2’19 include higher interest expense due to additional borrowings to finance the Combination and $1.9 million of higher foreign exchange transaction losses • Effective tax rates of 57.9% and 24.2% for Q2’20 and Q2’19, respectively, include various one - time impacts; without these items effective tax rates would have been ~18% and ~22% for Q2’20 and Q2’19, respectively

 

 

©2019 Quaker Houghton. All Rights Reserved 7 Financial Highlights – Non - GAAP & Pro Forma Second quarter of 2020 Non - GAAP Results • Non - GAAP EPS decreased to $0.21 compared to $1.56 in the prior year as the negative impact of COVID - 19 more than offset additional Houghton and Norman Hay earnings and the benefits of costs savings related to the Combination • Non - GAAP operating income decreased to $11.2 million compared to $25.5 million in Q2’19 as the negative impact of COVID - 19 more than offset the added net sales and operating income from Houghton and Norman Hay and the benefits of costs savings related to the Combination • Non - GAAP adjusted EBITDA increased to $32.1 million compared to $31.4 million in the prior year, primarily due to the Combination and inclusion of Norman Hay, largely offset by the negative impact of COVID - 19 Pro forma Results • Actual net sales of $286.0 million decreased 27% compared to pro forma net sales of approximately $390 million in the prior year period, primarily due to significant declines in volumes due to COVID - 19 • Adjusted EBITDA of $32.1 decreased approximately 44% compared to pro forma adjusted EBITDA of approximately $57 million in Q2’19, primarily due to the negative impacts of COVID - 19, partially offset by the benefits of cost synergies realized from the Combination and the inclusion of Norman Hay in the current quarter

 

 

©2019 Quaker Houghton. All Rights Reserved 8 Financial Snapshot ( dollars in millions, unless otherwise noted) (1) Certain amounts may not calculate due to rounding (2) Pro forma results for Q2 2020 and YTD 2020 presented above are the actual results for Quaker Houghton Q2 2020 Q2 2019 YTD 2020 YTD 2019 GAAP Net Sales $ 286.0 $ 205.9 $ 80.2 39% $ 664.6 $ 417.1 $ 247.5 59% Gross Profit 97.4 75.2 22.2 30% 231.2 150.9 80.3 53% Gross Margin (%) 34.0% 36.5% -2.5% -7% 34.8% 36.2% -1.4% -4% Operating Income (Loss) 2.2 20.5 (18.3) -89% (10.2) 40.4 (50.6) -125% Net (Loss) Income (7.7) 15.6 (23.3) -150% (36.1) 29.4 (65.6) -223% (Loss) Earnings Per Diluted Share (0.43) 1.17 (1.60) -137% (2.03) 2.20 (4.23) -192% Non-GAAP Non-GAAP Operating Income $ 11.2 $ 25.5 $ (14.3) -56% $ 47.2 $ 49.8 $ (2.6) -5% Non-GAAP Operating Margin (%) 3.9% 12.4% -8.5% -68% 7.1% 11.9% -4.8% -41% Adjusted EBITDA 32.1 31.4 0.6 2% 92.5 61.1 31.5 52% Adjusted EBITDA Margin (%) 11.2% 15.3% -4.1% -27% 13.9% 14.6% -0.7% -5% Non-GAAP Earnings Per Diluted Share 0.21 1.56 (1.35) -87% 1.59 2.97 (1.38) -46% Pro Forma (2) Net Sales $ 286.0 $ 390 $ (104) -27% $ 664.6 781 $ (116) -15% Adjusted EBITDA 32.1 57 (25) -44% 92.5 111 (18) -17% Adjusted EBITDA Margin (%) 11.2% 15% -3% -23% 13.9% 14% 0% -2% Variance (1) Variance (1)

 

 

©2019 Quaker Houghton. All Rights Reserved 9 Pro Forma Adjusted EBITDA (dollars in millions) $215 $221 $236 $234 $214 $200 $213 $225 $238 $250 2016 2017 2018 2019 TTM Q2 2020 Q2’20 adjusted EBITDA significantly impacted by COVID - 19 but continues to be in line with guidance $57 $32 $20 $33 $45 $58 $70 Q2 2019 Q2 2020

 

 

©2019 Quaker Houghton. All Rights Reserved 10 Leverage and Liquidity Update • As a precautionary measure in response to the current economic uncertainty from COVID - 19, the Company drew down most of the available liquidity on its revolving credit facility during the second half of March 2020 • Total gross outstanding borrowings of $1,121.2 million and cash on hand of $322.5 million result in net debt of $798.7 million as of June 30, 2020, which decreased $12.7 million compared to $811.4 million as of March 31, 2020 • Net debt to TTM adjusted EBITDA of 3.7x as of June 30, 2020 compared to 3.5x as of December 31, 2019; remain in compliance with bank calculated net debt to adjusted EBITDA covenant (3.1x as of June 30, 2020 compared to maximum permitted leverage of 4.25x) and all other bank covenants • Based on current projections, including multiple forecasted scenarios of future liquidity and leverage, the Company does not expect any compliance issues with its bank covenants • Cost of debt ~2.5% during first half 2020 and ~1.9% at June 30, 2020 • Net operating cash flow of $24.5 million in Q2’20 increases net operating cash flow in the first six months of 2020 to $44.7 million compared to $22.4 million in the first six months of 2019, primarily driven by the inclusion of earnings from Houghton and Norman Hay as well as releases in working capital due to volume declines related to COVID - 19

 

 

Appendix Actual and Non - GAAP Results

 

 

The information included in this presentation 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, non - GAAP earnings per diluted share, and pro forma net sales, net (loss) income attributable to Qua ker Houghton, EBITDA, adjusted EBITDA and adjusted EBITDA margin. The Company believes these non - GAAP financial measures provide meaningful supplemental information as they enhance a reader’s unders tanding 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 exclu de items that are not considered 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 informat ional 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 (loss) income attributable to the Company before depreciation and amor tiz ation, interest expense, net, and taxes on (loss) 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 th at 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 incom e (loss) 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 inf ormation 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 measure s. Non - GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net, and taxes on (loss) income before equity in net income of associated co mpa nies, 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 (loss) 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 operati ng performance of the Company on a consistent basis. 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. Pro forma results for the three and six months ended June 30, 2019 include Quaker’s historical results, while Houghton reflects its stand - alone results. Pro forma results for the trailing twelve months ended June 30, 2020 include eleven months of Houghton’s operations post - closing of the Combination, while Houghton reflects one month of results for the period from July 1, 2019 through July 31, 2019. Pro forma results for the year ended December 31, 2019 include five months of Houghton’s operations post - closing of the Combination, while Houghton reflects seven months of results fo r the period from January 1, 2019 through July 31, 2019. Pro forma results for the years ended December 31, 2018, 2017 and 2016, respectively, include Quaker’s historical results, while Houghton reflects its stand - alo ne results. As it relates to the full year 2020 expected adjusted EBITDA and other forward - looking information described in this presentatio n, 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 bec ause 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, as well as the impact of COVID - 19. These items are uncertain, depend on various factors, and could have a ma terial impact on the U.S. GAAP reported results for the guidance period. The following charts should be read in conjunction with the Company’s second quarter earnings news release dated August 5, 20 20, which has been furnished to the SEC on Form 8 - K and the Company’s Form 10 - Q for the period ended June 30, 2020, filed on August 5, 2020 with the SEC. These documents may contain additional explanatory lan gua ge and information regarding certain of the items included in the following reconciliations. ©2019 Quaker Houghton. All Rights Reserved 12 Non - GAAP and Pro Forma Measures

 

 

©2019 Quaker Houghton. All Rights Reserved 13 Non - GAAP Operating Income Reconciliation (dollars in thousands, unless otherwise noted) Q2 2020 Q2 2019 YTD 2020 YTD 2019 Operating income (loss) 2,238$ 20,531$ (10,206)$ 40,360$ Fair value step up of inventory sold 226 - 226 - Houghton combination, integration and other acquisition-related expenses Restructuring and related charges 486 - 2,202 - Customer bankruptcy costs - - 463 - Charges related to the settlement of a non-core equipment sale - 384 - 384 Indefinite-lived intangible asset impairment - - 38,000 - Non-GAAP operating income 11,203$ 25,519$ 47,214$ 49,831$ Non-GAAP operating margin (%) 3.9% 12.4% 7.1% 11.9% 9,087 16,529 4,604 8,253

 

 

©2019 Quaker Houghton. All Rights Reserved 14 Adjusted EBITDA Reconciliation (dollars in thousands, unless otherwise noted) Q2 2020 Q2 2019 YTD 2020 YTD 2019 Net (loss) income attributable to Quaker Chemical Corporation (7,735)$ 15,591$ (36,116)$ 29,435$ Depreciation and amortization 21,158 4,843 42,742 9,702 Interest expense, net 6,811 733 15,272 1,509 Taxes on (loss) income before equity in net income of associated companies EBITDA 23,456$ 25,967$ 12,050$ 50,375$ Equity income in a captive insurance company (482) (390) (155) (736) Fair value step up of inventory sold 226 - 226 - Houghton combination, integration and other acquisition-related expenses Restructuring and related charges 486 - 2,202 - Customer bankruptcy costs - - 463 - Charges related to the settlement of a non-core equipment sale - 384 - 384 Indefinite-lived intangible asset impairment - - 38,000 - Pension and postretirement benefit costs, non-service components 341 895 23,866 1,791 Currency conversion impacts of hyper-inflationary economies 73 (31) 124 163 Adjusted EBITDA 32,063$ 31,429$ 92,542$ 61,064$ Adjusted EBITDA Margin (%) 11.2% 15.3% 13.9% 14.6% 9,729 (9,848) 4,800 3,222 9,087 15,766 4,604 7,963

 

 

©2019 Quaker Houghton. All Rights Reserved 15 Non - GAAP EPS Reconciliation Q2 2020 Q2 2019 YTD 2020 YTD 2019 GAAP (loss) earnings per diluted share attributable to Quaker Chemical Corporation common shareholders Equity income in a captive insurance company per diluted share (0.03) (0.03) (0.01) (0.06) Fair value step up of inventory sold per diluted share 0.01 - 0.01 - Houghton combination, integration and other acquisition-related expenses per diluted share Restructuring and related charges per diluted share 0.02 - 0.09 - Customer bankruptcy costs per diluted share - - 0.02 - Charges related to the settlement of a non-core equipment sale per diluted share - 0.02 - 0.02 Indefinite-lived intangible asset impairment per diluted share - - 1.65 - Pension and postretirement benefit costs, non-service components per diluted share 0.01 0.06 0.89 0.11 Currency conversion impacts of hyper-inflationary economies per diluted share 0.01 (0.00) 0.01 0.01 Impact of certain discrete tax items per diluted share 0.25 - 0.23 - Non-GAAP earnings per diluted share 0.21$ 1.56$ 1.59$ 2.97$ 2.20$ (2.03)$ 1.17$ (0.43)$ 0.69 0.73 0.34 0.37

 

 

©2019 Quaker Houghton. All Rights Reserved 16 Segment Performance (dollars in thousands) Q2 2020 Q2 2019 YTD 2020 YTD 2019 Net sales Americas 80,576$ 71,747$ 210,472$ 143,972$ EMEA 77,702 49,012 182,541 101,437 Asia/Pacific 68,421 44,801 141,973 90,968 Global Specialty Businesses 59,341 40,309 129,615 80,702 Total net sales 286,040$ 205,869$ 664,601$ 417,079$ Segment operating earnings Americas 10,303$ 13,965$ 39,491$ 28,304$ EMEA 10,245 8,938 28,604 17,731 Asia/Pacific 19,261 12,159 38,802 24,971 Global Specialty Businesses 16,393 10,970 36,953 21,574 Total segment operating earnings 56,202 46,032 143,850 92,580 Combination, integration and other acquisition-related expenses (7,995) (4,604) (15,873) (9,087) Restructuring and related charges (486) - (2,202) - Indefinite-lived intangible asset impairment - - (38,000) - Non-operating and administrative expenses (32,045) (19,070) (70,496) (39,418) Depreciation of corporate assets and amortization (13,438) (1,827) (27,485) (3,715) Operating income (loss) 2,238 20,531 (10,206) 40,360 - - Other (expense) income, net (993) 43 (22,168) (592) Interest expense, net (6,811) (733) (15,272) (1,509) (Loss) income before taxes and equity in net income of associated companies 38,259$ (47,646)$ 19,841$ (5,566)$

 

 

Appendix Pro Forma Results

 

 

©2019 Quaker Houghton. All Rights Reserved 18 Q2 2019 Pro Forma Reconciliations (dollars in millions) Quaker Houghton Divestitures Other (a) Pro Forma* Net Sales 206$ 204$ (14)$ (5)$ 390$ Net Income (Loss) Attributable to Quaker Houghton 16$ 1$ (3)$ 4$ 18$ Depreciation and Amortization 5 13 - 1 19 Interest Expense, Net 1 14 - (6) 9 Taxes on Income (b) 5 (1) (1) 1 4 EBITDA* 26 28 (3) 0 50 Combination, Integration and Other Acquisition-Related Expenses 5 2 - - 6 Other Addbacks (c) 1 (1) - - 0 Adjusted EBITDA* 31$ 29$ (3)$ 0$ 57$ Adjusted EBITDA Margin* (%) 15% 14% 24% 0% 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, currency conversion impacts of hyper-inflationary economies, affiliate management fees, pension and postretirement benefit costs, non-service components, charges related to the settlement of a non-core equipment sale and other non- recurring miscellaneous charges. Three months ended June 30, 2019 * Certain amounts may not calculate due to rounding, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton. (a) 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.

 

 

©2019 Quaker Houghton. All Rights Reserved 19 YTD Q2 2019 Pro Forma Reconciliations (dollars in millions) Quaker Houghton Divestitures Other (a) Pro Forma* Net Sales 417$ 403$ (29)$ (11)$ 781$ Net Income (Loss) Attributable to Quaker Houghton 29$ 4$ (5)$ 7$ 35$ Depreciation and Amortization 10 26 - 3 39 Interest Expense, Net 2 28 - (12) 18 Taxes on Income (b) 10 (5) (1) 2 6 EBITDA* 50 54 (7) 0 97 Combination, Integration and Other Acquisition-Related Expenses 9 4 - - 13 Other Addbacks (c) 2 (0) - - 1 Adjusted EBITDA* 61$ 57$ (7)$ 0$ 111$ Adjusted EBITDA Margin* (%) 15% 14% 24% 0% 14% (b) Taxes on income related to both Divestitures and Other reflect each tax effected at the U.S. federal tax rate of 21%. * Certain amounts may not calculate due to rounding, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton. (a) 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. (c) Other addbacks include equity income in a captive insurance company, currency conversion impacts of hyper-inflationary economies, pension and postretirement benefit costs, non-service components, charges related to the settlement of a non-core equipment sale and other non-recurring miscellaneous charges. Six months ended June 30, 2019

 

 

©2019 Quaker Houghton. All Rights Reserved 20 TTM Q2 2020 Pro Forma Reconciliations (dollars in millions) Quaker Houghton Divestitures Other (a) Pro Forma* Net sales 1,381$ 72$ (5)$ (2)$ 1,446$ Net (Loss) Income Attributable to Quaker Houghton (34)$ (7)$ (1)$ 0$ (42)$ Depreciation and Amortization 78 4 - 0 83 Interest Expense, Net 31 5 - (1) 35 Taxes on Income (b) (17) 4 (0) 0 (14) EBITDA* 58 6 (1) 0 62 Combination, Integration and Other Acquisition-Related Expenses 42 40 - - 82 Gain on the Sale of Divested Assets - (35) - - (35) Fair Value Step Up of Inventory Sold 12 - - - 12 Pension and Postretirement Benefit Costs, Non-Service Components 25 (0) - - 25 Indefinite-Lived Intangible Asset Impairment 38 - - - 38 Restructuring and Related Charges 29 - - - 29 Other Addbacks (c) 1 0 - - 1 Adjusted EBITDA* 205$ 11$ (1)$ 0$ 214$ Adjusted EBITDA Margin* (%) 15% 15% 24% 0% 15% (b) Taxes on income related to both Divestitures and Other reflect each tax effected at the U.S. federal tax rate of 21%. Trailing 12 Months Ended June 30, 2020 * Certain amounts may not calculate due to rounding, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton. (a) 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. (c) Other addbacks include equity income in a captive insurance company, currency conversion impacts of hyper-inflationary economies, insurance insolvency recoveries and customer bankruptcy costs.

 

 

©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 (Loss) 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, Integration 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 and Related Charges 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. 2019 * Certain amounts may not calculate due to rounding, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton. (a) 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.

 

 

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 (Loss) 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, Integration 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%. (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. 2018 * Certain amounts may not calculate due to rounding, including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin (%) as well as the total pro forma financial results presented for combined Quaker Houghton. (a) 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.

 

 

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 (Loss) 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, Integration 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% (b) Taxes on income related to both Divestitures and Other reflect each tax effected at the U.S. federal tax rate of 21%. 2017 * Certain amounts may not calculate due to rounding, 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 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. (c) Other addbacks includes charges related to inventory fair value step up adjustments in the Wallover acquisition, currency conversion impacts of hyper- inflationary economies and other non-recurring charges.

 

 

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 (Loss) 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) - 158 Equity Income in a Captive Insurance Company (2) - - - (2) Combination, Integration 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% (b) Taxes on income related to both Divestitures and Other reflect each tax effected at the U.S. federal tax rate of 21%. * Certain amounts may not calculate due to rounding, 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 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. (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. 2016

 

v3.20.2
Cover
Aug. 05, 2020
Cover [Abstract]  
Document Type 8-K
Amendment Flag false
Document Period End Date Aug. 05, 2020
Entity File Number 001-12019
Entity Registrant Name QUAKER CHEMICAL CORPORATION
Entity Central Index Key 0000081362
Entity Tax Identification Number 23-0993790
Entity Incorporation, State or Country Code PA
Entity Address, Address Line One 901 E. Hector Street
Entity Address, City or Town Conshohocken
Entity Address, State or Province PA
Entity Address, Postal Zip Code 19428
City Area Code 610
Local Phone Number 832-4000
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common Stock, $1 par value
Trading Symbol KWR
Security Exchange Name NYSE
Entity Emerging Growth Company false