# QUAKER CHEMICAL CORP (KWR) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from QUAKER CHEMICAL CORP's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/81362/000008136222000003/kwr-20211231.htm Accession: 0000081362-22-000003 Filing date: 2022-03-01 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/KWR/ All MD&A years: /company/KWR/mda/ Next year: /company/KWR/mda/fy2022/ (FY 2022) Item 7. Management’s Discussion and Analysis   of Financial Condition and Results of Operations. As used in this Annual Report on Form 10-K (the “Report”), the terms “Quaker   Houghton,” the “Company,”   “we,” and “our” refer to Quaker Chemical Corporation (doing business as Quaker   Houghton), its subsidiaries, and associated companies, unless the context otherwise requires.   The term Legacy Quaker refers to the Company prior to the closing of its combination   with Houghton International, Inc. (“Houghton”) (herein referred to as the “Combination”)   on August 1, 2019.   Throughout the Report, all figures presented, unless otherwise stated, reflect the results of operations   of the combined company for the years ended December 31, 2020 and 2021; and for the year ended   December 31, 2019, the results of Legacy Quaker plus five months   of Houghton’s operations post- closing of the Combination on August 1, 2019. Executive Summary Quaker Houghton is the global leader in industrial process fluids.   With a presence around the world, including   operations in over 25 countries, our customers include thousands of the world’s   most advanced and specialized steel, aluminum, automotive, aerospace, offshore, 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.   Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the U.S. Overall, the Company’s 2021 performance   was highlighted by the continued recovery from the impacts of COVID-19 in   2020 as well as the ongoing execution of integration activities and synergy   realization, which led to record net sales and adjusted EBITDA in 2021 despite the continued escalation in raw material cost headwinds   and global supply chain pressures.   Specifically, net sales of $1,761.2 million in 2021   increased 24% compared to $1,417.7 million in 2020, primarily   due to higher volumes of approximately 13%, including additional net sales from acquisitions of 4%, increases from   selling price and product mix of approximately 8% and the positive impact from foreign currency translation of 3%.   The increase in sales volumes   compared to 2020 was primarily a result of continued new business wins and the year-over-year   improvement in end market conditions since the beginning of the COVID-19 pandemic in early 2020, partially offset by lower automotive   sales due to semiconductor shortages and delayed shipments due   to supply chain challenges that occurred towards the end of 2021.   The increase in selling price and product mix is primarily the result of the Company’s broad price   increases implemented during 2021 to help offset the unprecedented   increases in raw material costs as well as global supply chain and logistics cost pressures the Company has experienced   throughout 2021. The Company’s net income and   earnings per diluted share of $121.4 million and $6.77 in 2021, respectively,   increased compared to $39.7 million and $2.22 per diluted share, respectively,   in 2020.   Excluding non-recurring items, including costs associated with the Combination and other non-core items in each period, the Company’s   current year non-GAAP net income and non-GAAP earnings per diluted share were $122.8 million and $6.85, respectively,   compared to $85.2 million and $4.78, respectively,   in 2020.   The increase in the Company’s current   year earnings drove a 23% higher adjusted EBITDA to a full year record   of $274.1 million compared to $222.0 million in 2020, primarily due to the significant increase   in net sales year-over-year as well as higher realized cost synergies from the Combination, partially offset   by lower gross margins driven by higher raw material and input costs and the   impacts of disruptions in the global supply chain experienced in 2021 as well as higher selling,   general and administrative expenses (“SG&A”) including the impact of higher sales on direct selling expenses and additional   SG&A from recent acquisitions. The Company’s 2021   operating performance in each of its four reportable segments: (i) Americas; (ii) EMEA;   (iii) Asia/Pacific; and (iv) Global Specialty Businesses, reflect similar drivers to that of   its consolidated performance.   All four segments had higher net sales compared to 2020 reflecting the continued rebound in 2021   from the negative impacts of COVID-19 on the Company’s   end markets as well as continued success of winning new business in each of the   Company’s segments during 2021.   Each of the Company’s geographic segments   benefited from higher organic sales volumes in 2021   while all of the Company’s segments also benefitted from additional net sales from acquisitions, the positive impact   from foreign currency translation due to the strengthening of most major currencies against the U.S. dollar,   and from increases in selling price and product mix.   As reported, each of the Company’s reportable   segment operating earnings were higher compared to 2020 reflecting the increase   in net sales including the benefits of acquisitions and other factors mentioned;   however, all of the Company’s   segment’s operating earnings were negatively impacted by persistent raw material inflation, higher logistics, labor and manufacturing   costs, impacts of disruptions to the global supply chain as well as higher SG&A which were a result of an increase   in direct selling expenses associated with year-over-year inflation increases and increases due to the increase in net sales as well as the lower levels   of prior year SG&A as a result of temporary cost saving measures implemented in response to COVID-19.   Additional details of each segment’s   operating performance are further discussed in the Company’s   reportable segments review, in the   Operations section of this Item 7, below. The Company generated net operating cash flow of $48.9 million in 2021   compared to $178.4 million in 2020.   The decrease in net operating cash flow year-over-year   was primarily driven by a significant change in working capital compared   to the prior year, mainly increases in accounts receivable, due to higher net sales and in inventory,   due to higher costs as well as building inventories in response to global supply chain and logistics pressures.   The key drivers of the Company’s operating   cash flow and overall liquidity are further discussed in the Company’s   Liquidity and Capital Resources section of this Item 7, below. Overall, the Company’s 2021 results   were good and reflected the Company’s   ability to navigate through persistent raw material cost pressures, supply chain challenges and automotive semiconductor   shortages.   Increases in net sales in all segments were driven by the continued year-over-year improvement   in the Company’s end-markets and increased   customer demand from lower levels experienced during 2020 as a result of COVID-19; however,   each segment was negatively impacted by the significant   escalation of 24 raw material costs as well as higher levels of SG&A compared to the prior   year which included certain temporary cost saving measures adopted during the onset of COVID-19.   Continued strong customer demand in 2021 coupled with ongoing new business wins and the execution of integration activities and synergy realization   helped to partially offset the negative impacts from the continued escalation of raw material costs and continued supply chain pressures. As the Company looks toward 2022, the business is well positioned to   continue to outpace market growth rates and deliver value- added solutions and services to its customers.   Demand remains healthy across most of our end markets; however,   the Company expects raw material cost pressures and supply chain disruptions to persist throughout   2022.   To mitigate these headwinds,   the Company continues to implement further price actions and is actively   managing its cost structure.   The Company believes these actions will begin to drive a recovery in margins as it progresses through   2022.   The Company remains committed to advancing its customer intimate strategy and sustainability program and delivering   earnings growth in 2022 and beyond. On-going impact of COVID-19 The global outbreak of COVID-19 has negatively impacted all locations where   the Company does business.   Although the Company has now operated in this COVID-19 environment for almost   two years, the full extent of the outbreak and related business impacts continue to remain uncertain and volatile, and therefore the   full extent to which COVID-19 may impact the Company’s   future results of operations or financial condition is uncertain.   This outbreak has significantly disrupted the operations of the Company   and those of its suppliers and customers.   During the pandemic, the Company initially experienced volume declines   and lower net sales as compared to pre-COVID-19 levels, as further described in this section.   Management continues to monitor the impact that the COVID-19 pandemic is having on the Company,   the overall specialty chemical industry and the economies and markets in which the Company operates.   The prolonged pandemic and resurgences of the outbreak including as new   variants continue to emerge, and continued restrictions on day-to-day life and business   operations as well as increased border controls or closures and transportation disruptions may result in volume declines and lower net sales in future periods.   To the extent that the Company’s   customers and suppliers continue to be significantly and adversely impacted by   COVID-19, this could reduce the availability,   or result in delays, of materials or supplies to or from the Company,   which in turn could significantly interrupt the Company’s   business operations.   Given this ongoing uncertainty,   the Company cautions that its future results of operations could be significantly adversely   impacted by COVID-19.   Further, management continues to evaluate   how COVID-19-related circumstances, such as remote work arrangements, illness or staffing shortages and travel restrictions have affected   financial reporting processes and systems, internal control over financial reporting, and disclosure controls and procedures.   While the circumstances have presented and are expected to continue   to present challenges, and have necessitated additional time and resources   to be deployed to sufficiently address the challenges brought on by the pandemic, at this time, management does not believe that COVID-19   has had a material impact on financial reporting processes, internal controls over financial reporting, or disclosure controls   and procedures. The Company’s top priority,   especially during this pandemic, is to protect the health and safety of its employees   and customers, while working to ensure business continuity to meet customers’ needs.   The Company continues to take steps to protect the health and wellbeing of its people in affected areas through various   actions, including enabling work at home where needed and practicable, and employing social distancing standards, implementing   travel restrictions where applicable, enhancing onsite hygiene practices, and instituting visitation restrictions at the Company’s   facilities.   The Company has not and does not expect that it will incur material expenses implementing these health and safety policies.   All of the Company’s more than 30 production   facilities worldwide are open and operating and are deemed as essential businesses in the jurisdictions where   they are operating.   The Company believes that to date it has been able to meet the needs of all its customers across the globe despite   the current economic challenges.   The Company’s fiscal year 2021 showed year-over-year improvement   from the prior fiscal year and continued a trend of gradual volume improvement which began in the second half of 2020.   The Company continues to expect that the impacts from COVID-19 will gradually   decline subject to the effective containment of the virus and its variants and successful   distribution and acceptance of the available vaccines and treatments.   However, the incidence of reported cases of COVID-19   or a variant in several geographies where the Company has significant operations remains high and continues to evolve and it remains   highly uncertain as to how long the global pandemic and related economic challenges will last and when our customers’ businesses will recover   to pre-COVID-19 levels.   The Company took various actions to temporarily conserve cash and reduce costs since the onset of   the pandemic and these temporary initiatives were designed and implemented so that the Company could successfully manage   through the challenging COVID-19 situation while continuing to protect the health of its employees, meet customers’ needs,   maintain the Company’s long-term competitive   advantages and above-market growth, and enable it to continue to effectively   integrate Houghton.   While the actions taken to date to protect our workforce, to continue to serve our customers with excellence and to conserve   cash and reduce costs, have been effective thus far, further actions to respond to the pandemic and its effects may   be necessary as conditions continue to evolve. Critical Accounting Policies and Estimates Quaker Houghton’s discussion   and analysis of its financial condition and results of operations are based   upon its consolidated financial statements which have been prepared in accordance with accounting   principles generally accepted in the United States (“U.S. GAAP”).   The preparation of these financial statements requires the Company   to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure   of contingent assets and liabilities.   On an ongoing basis, the Company evaluates its estimates, including those related   to customer sales incentives, product returns, bad debts, inventories, property,   plant and equipment (“PP&E”), investments, goodwill, intangible assets, income taxes,   business combinations, restructuring, incentive compensation plans (including equity-based   compensation), pensions and other postretirement benefits, 25 contingencies and litigation.   Quaker Houghton bases its estimates on historical experience and on various   other assumptions that are believed to be reasonable under such circumstances, the results of which   form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.   However, actual results may differ from   these estimates under different assumptions or conditions. Quaker Houghton believes the following critical accounting policies describe   the more significant judgments and estimates used in the preparation of its consolidated financial statements: Accounts receivable and inventory exposures: Quaker Houghton establishes allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required   payments.   If the financial condition of the Company’s   customers were to deteriorate, resulting in an impairment of their ability to make payments,   additional allowances may be required.   As part of our terms of trade, we may custom manufacture products for certain large   customers and/or may ship products on a consignment basis. Further, a significant portion of our revenue   is derived from sales to customers in industries where companies have experienced   past financial difficulties.   If a significant customer bankruptcy occurs, then we must judge the amount of proceeds,   if any, that may ultimately be received through the bankruptcy or liquidation process.   These matters may increase the Company’s   exposure should a bankruptcy occur, and may require   a write down or a disposal of certain inventory as well as the failure to collect receivables. Reserves for customers filing for bankruptcy protection are established   based on a percentage of the amount of receivables outstanding at the bankruptcy filing date.   However, initially establishing this reserve   and the amount thereof is dependent on the Company’s evaluation of likely proceeds to be received from the bankruptcy process, which   could result in the Company recognizing minimal or no reserve at the date of bankruptcy.   We generally reserve   for large and/or financially distressed customers on a specific review   basis, while a general reserve is maintained for other customers based on   historical experience.   The Company’s consolidated   allowance for doubtful accounts was $12.3 million and $13.1 million as of December 31,   2021   and 2020, respectively.   The Company recorded expense to increase its provision for doubtful accounts by $0.7 million,   $3.6 million and $1.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.   Changing the amount of expense recorded to the Company’s   provisions by 10% would have increased or decreased the Company’s   pre-tax earnings by $0.1 million, $0.4   million and $0.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.   See Note 13 of Notes to Consolidated Financial Statements in Item 8 of this Report. Environmental and litigation reserves: Accruals   for environmental and litigation matters are recorded when   it is probable that a liability has been incurred and the amount of the liability can be reasonably   estimated.   Environmental costs and remediation costs are capitalized if the costs extend the life, increase the capacity or improve   the safety or efficiency of the property from the date acquired or constructed, and/or mitigate or prevent contamination in the future.   Estimates for accruals for environmental matters are based on a variety of potential technical solutions, governmental regulations and   other factors, and are subject to a wide range of potential costs for remediation and other actions.   A considerable amount of judgment is required in determining the most likely   estimate within the range of total costs, and the factors determining this judgment may vary   over time.   Similarly, reserves for litigation   and similar matters are based on a range of potential outcomes and require considerable   judgment in determining the most probable outcome.   If no amount within the range is considered more probable than any other   amount, the Company accrues the lowest amount in that range in accordance with generally accepted accounting principles.   See Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report. Realizability of equity investments: The Company holds equity investments in various foreign companies   where it has the ability to influence, but not control, the operations of the entity   and its future results.   The Company would record an impairment charge to an investment if it concluded that a decline in value that was other   than temporary occurred.   Adverse changes in market conditions, poor operating results of underlying investments, devaluation   of foreign currencies or other events or circumstances could result in losses or an inability to recover the carrying value of the investments,   potentially leading to an impairment charge in the future.   The carrying amount of the Company’s   equity investments as of December 31, 2021   was $95.3   million, which included four investments: $21.5 million for a 32% interest in Primex, Ltd. (Barbados);   $7.1 million for a 50% interest in Nippon Quaker Chemical, Ltd. (Japan); $0.3 million for a 50% interest in Kelko Quaker Chemical, S.A.   (Panama); and $66.4 million for a 50% interest in Korea Houghton Corporation (Korea).   The Company also has a 50% interest in a Venezuelan   affiliate, Kelko Quaker Chemical, S.A (Venezuela).   Due to heightened foreign exchange controls, deteriorating economic circumstances   and other restrictions in Venezuela, during 2018 the Company concluded that it no longer had significant   influence over this affiliate.   Prior to this determination, the Company historically accounted for this affiliate under   the equity method.   As of December 31, 2021   and 2020, the Company had no remaining carrying value for its investment in Venezuela.   See Note 17 of Notes to Consolidated Financial Statements in Item 8 of this Report. Tax   exposures, uncertain tax positions and valuation allowances: Quaker Houghton records expenses and liabilities for taxes based on estimates of amounts that will be determined as deductible in tax   returns filed in various jurisdictions.   The filed tax returns are subject to audit, which often occur several years subsequent to   the date of the financial statements.   Disputes or disagreements may arise during audits over the timing or validity of certain items or deductions,   which may not be resolved for extended periods of time. The Company also evaluates uncertain tax positions on all income tax   positions taken on previously filed tax returns or expected to be taken on a future tax return in accordance with FIN 48, which prescribes   the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken   or expected to be taken on a tax return and, also, whether the benefits of tax positions are probable or if they will be more likely than not to be sustained upon   audit based upon the technical merits of the tax position.   For tax positions that are determined to be more likely than not to be sustained upon audit, the   Company 26 recognizes the largest amount of benefit that is greater   than 50% likely of being realized upon ultimate settlement in the financial statements.   For tax positions that are not determined to be more likely than not   sustained upon audit, the Company does not recognize any portion of the benefit in its financial statements.   In addition, the Company’s   continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.   Also, the Company nets its liability for unrecognized tax benefits against deferred tax assets related to net operating losses or other tax credit carryforward   on the basis that the uncertain tax position is settled for the presumed amount at the balance sheet date. Quaker Houghton also records valuation allowances when necessary   to reduce its deferred tax assets to the amount that is more likely than not to be realized.   While the Company has considered future taxable income and assesses the need for   a valuation allowance, in the event Quaker Houghton were to determine that it would   be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred   tax asset would increase income in the period such determination was made.   Likewise, should the Company determine that it would not be able to realize all or part of   its net deferred tax assets in the future, an adjustment to the deferred tax asset would be charged   to income in the period such determination was made.   Both determinations could have a material impact on the Company’s   financial statements. Pursuant to the Tax   Cuts and Jobs Act (“U.S. Tax   Reform”), the Company recorded a $15.5 million transition tax liability   for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries.   As of December 31, 2021, $7.0 million in installment have been paid with the remaining $8.5 million to be paid through installments in future   years.   However, the Company may also be subject to other taxes, such as withholding taxes and dividend distribution taxes,   if these undistributed earnings are ultimately remitted to the U.S.   As of December 31, 2021, the Company has a deferred tax liability of   $8.4 million, which primarily represents the estimate of the non-U.S. taxes the Company will incur to remit certain previously   taxed earnings to the U.S.   It is the Company’s current intention to reinvest its future undistributed earnings of non-U.S. subsidiaries to support   working capital needs and certain other growth initiatives outside of the U.S.   The amount of such undistributed earnings at December 31, 2021   was approximately $377.4 million.   Any tax liability which might result from ultimate remittance of these earnings   is expected to be substantially offset by foreign tax credits (subject to certain limitations).   It is currently impractical to estimate any such incremental tax expense.   See Note 10 of Notes to Consolidated Financial Statements in Item 8 of this Report. Goodwill and other intangible assets: The Company accounts for business combinations under the acquisition   method of accounting.   This method requires the recording of acquired assets, including separately identifiable   intangible assets, at their acquisition date fair values.   Any excess of the purchase price over the estimated fair value of the identifiable   net assets acquired is recorded as goodwill.   The determination of the estimated fair value of assets acquired requires management’s   judgment and often involves the use of significant estimates and assumptions, including   assumptions with respect to future cash inflows and outflows, discount rates, royalty rates, asset lives and market multiples, among other   items.   When necessary, the Company consults with external advisors to help determine fair value.   For non-observable market values, the Company may determine fair value   using acceptable valuation principles, including the excess earnings, relief   from royalty, lost profit or cost   methods. The Company amortizes definite-lived intangible assets on a straight-line   basis over their useful lives.   Goodwill and intangible assets that have indefinite lives are not amortized and are required to be assessed at least annually   for impairment.   The Company completes its annual goodwill and indefinite-lived intangible asset impairment   test during the fourth quarter of each year, or   more frequently if triggering events indicate a possible impairment.   The Company’s consolidated   goodwill at both December 31, 2021 and 2020 was $631.2 million.   The Company completed its annual impairment assessment over goodwill during   the fourth quarter of 2021 by performing a qualitative assessment.   Based on the assessment performed, the Company concluded that there   was no evidence of events or circumstances that would indicate a material change from   the Company’s prior year quantitative   assessment by reporting unit and, therefore, no impairment charges were   warranted.   The Company’s consolidated indefinite   -lived intangible assets at December 31, 2021 and 2020 were $196.9 million and $205.1 million,   respectively, which primarily   consists of Houghton and Fluidcare TM trademarks and tradename.   The Company completed its annual indefinite-lived intangible asset impairment assessment during the fourth quarter of 2021, and determined that no impairment   charge was warranted.   The determination of estimated fair value of these indefinite-lived intangible assets is based on a relief from royalty   valuation method, which requires management’s judgment and often involves the use of significant estimates and assumptions,   including assumptions with respect to royalty rates, as well as revenue growth rates and terminal growth rates.   The Company’s impairment assessment   concluded that the carrying value of acquired Houghton and Fluidcare TM trademarks and tradename intangible assets exceeded fair value by   approximately 61%.   See Note 16 of Notes to Consolidated Financial Statements in Item 8 of this Report. As previously disclosed, as of March 31, 2020, the Company concluded that   the impact of COVID-19 did not represent a triggering   event with regards to any of the Company’s   indefinite-lived and long-lived assets, except for the Company’s   Houghton and Fluidcare TM trademarks and tradename indefinite-lived intangible assets.   In the first quarter of 2020, as a result of the impact of COVID-19 driving a decrease in projected legacy Houghton net sales during   that year and the impact of the sales decline on projected future legacy Houghton net sales as well as an increase in the weighted average   cost of capital assumption utilized in the quantitative impairment assessment, the Company concluded that the estimated fair   values of the Houghton and Fluidcare TM trademarks and tradename intangible assets were less than their carrying values.   As a result, an impairment charge of $38.0 million   was recorded during the first quarter of 2020 to write down the carrying values of these intangible   assets to their estimated fair values. 27 Pension and Postretirement benefits: The Company provides certain defined benefit pension and   other postretirement benefits to current employees, former employees and retirees.   Independent actuaries, in accordance with U.S. GAAP,   perform the required valuations to determine benefit expense and, if necessary,   non-cash charges to equity for additional minimum pension liabilities. Critical assumptions used in the actuarial valuation include the weighted   average discount rate, which is based on applicable yield curve data, including the use of a split discount rate (spot-rate approach)   for the U.S. plans and certain foreign plans, rates of increase in compensation levels, and expected long-term rates of return   on assets.   If different assumptions were used, additional pension expense or charges to equity might be required. The following table highlights the potential impact on the Company’s   pre-tax earnings due to changes in assumptions with respect to the Company’s defined benefit pension   and postretirement benefit plans, based on assets and liabilities as of December 31,   2021: 1/2 Percentage Point Increase 1/2 Percentage Point Decrease (dollars in millions) Foreign U.S. Total Foreign U.S. Total Discount rate (1) $ (0.2) $ 0.2 $ 0.0 $ 0.3 $ (0.2) $ 0.1 Expected rate of return on plan assets (2) 0.5 0.2 0.7 (0.5) (0.2) (0.7) (1) The weighted-average discount rate used to determine net periodic benefit   costs for the year ended December 31, 2021 was 1.4% for Foreign plans and 2.7% for U.S. plans. (2) The weighted average expected rate of return on plan assets used to determine   net periodic benefit costs for the year ended December 31, 2021 was 2.1% for Foreign plans and 5.8% for U.S. plans. Restructuring and other related liabilities: A restructuring related program may consist of charges for   employee severance, rationalization of manufacturing facilities and other related expenses.   To account for such, the   Company applies the Financial Accounting Standards Board’s   guidance regarding exit or disposal cost obligations.   This guidance requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability   is incurred, is estimable, and payment is probable.   See Note 7 of Notes to Consolidated Financial Statements in Item 8 of this Report. Recently Issued Accounting Standards See Note 3 of Notes to the Consolidated Financial Statements in Item 8 of this Report   for a discussion regarding recently issued accounting standards. Liquidity and Capital Resources At December 31, 2021, the Company had cash, cash equivalents and   restricted cash of $165.2 million.   Total cash, cash equivalents and restricted cash was $181.9 million at December   31, 2020.   The $16.7 million decrease in cash, cash equivalents and restricted cash was the net result $49.1 million of cash used in investing   activities, $13.5 million of cash used in financing activities and approximately $3.1 million of negative impacts due to the effect   of foreign currency translation on cash, partially offset by $48.9 million of cash provided by operating activities. Net cash flows provided by operating activities were $48.9 million in   2021 compared to $178.4 million in 2020.   The Company’s current year net operating cash flow decrease was primarily driven by   a significant change in working capital which more than offset the Company’s higher earnings in 2021   .   The significant increase in current year net sales resulted in a large   increase in accounts receivable in 2021 as compared to a significant decrease during   2020 as net sales and the associated accounts receivables significantly declined in 2020   due to the negative impact from COVID-19.   In addition, the Company has experienced an increase in inventory in 2021 as a result of continued rising raw material costs as well as a build in   inventory to ensure the Company has appropriate stock to meet customer demands in response to ongoing stress on the global supply   chain. Net cash flows used in investing activities were $49.1 million in 2021   compared to $71.4 million in 2020.   This $22.3 million decrease in cash outflows used in investing activities was due to lower cash payments   related to acquisitions during 2021 as a result of the level of acquisition activity in each year and higher cash proceeds   from the disposition of assets, which includes the sale of certain held-for-sale real property assets related to the Combination.   Capital expenditures also increased to $21.5 million in 2021 compared to $17.9 million in 2020 due to the continued strategic and integration related   capital investments the Company has and continues to make. Net cash flows used in financing activities were $13.5 million in 2021   compared to $75.3 million in 2020.   The $61.8 million decrease in net cash outflows from financing activities was primarily   driven by an increase in borrowings in the current year under the Company’s revolving credit   facility compared to repayments in the prior year which was driven by significant   working capital investment in the current year described above.   In addition, the Company paid $28.6 million of cash dividend during   2021, a $1.0 million or 4% increase in cash dividends compared to the prior year due to cash dividend   per share increases.   Finally, during 2020, the Company used $1.0 million to purchase the remaining noncontrolling   interest in one of its South African affiliates.   Prior to this buyout, this South African affiliate made a distribution   to the prior noncontrolling affiliate shareholder of approximately $0.8   million in 2020.   There were no similar noncontrolling interest activities in 2021. 28 The Company’s primary credit facility   (the “Credit Facility”) is comprised of a $400.0 million multicurrency   revolver (the “Revolver”), a $600.0 million term loan (the “U.S. Term   Loan”), each with the Company as borrower, and   a $150.0 million (as of August 1, 2019) Euro equivalent term loan (the “Euro Term   Loan” and together with the “U.S. Term   Loan”, the “Term Loans”)   with Quaker Chemical B.V.,   a Dutch subsidiary of the Company as borrower,   each with a five year term maturing in August 2024.   Subject to the consent of the administrative agent and certain other conditions,   the Company may designate additional borrowers.   The maximum amount available under the Credit Facility can be increased by   up to $300.0 million at the Company’s request   if there are lenders who agree to accept additional commitments and the Company has   satisfied certain other conditions.   Borrowings under the Credit Facility bear interest at a base rate or LIBOR plus an applicable margin   based upon the Company’s consolidated   net leverage ratio.   On December 10, 2021, the Company amended the Credit Facility to include an update   to provide for the use of a non-USD currency LIBOR successor rate.   The weighted average interest rate incurred on the outstanding borrowings   under the Credit Facility during the year ended and as of December 31, 2021 was approximately   1.6%.   In addition to paying interest on outstanding principal under the Credit Facility,   the Company is required to pay a commitment fee ranging from 0.2% to 0.3% depending   on the Company’s consolidated net leverage ratio to the lenders under the Revolver in respect of   the unutilized commitments thereunder. The Credit Facility is subject to certain financial and other covenants.   The Company’s initial consolidated net   debt to consolidated adjusted EBITDA ratio could not exceed 4.25 to 1,   with step downs in the permitted ratio over the term of the Credit Facility.   As of December 31, 2021, the consolidated net debt to consolidated   adjusted EBITDA ratio may not exceed 3.75 to 1.   The Company’s consolidated   adjusted EBITDA to interest expense ratio may not be less than 3.0 to 1 over the   term of the agreement.   The Credit Facility also prohibits the payment of cash dividends   if the Company is in default or if the amount of the dividends   paid annually exceeds the greater of $50.0 million and 20% of consolidated adjusted   EBITDA unless the ratio of consolidated net debt to consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no   such limitation on amount.   As of December 31, 2021 and 2020, the Company was in compliance with all of the Credit Facility covenants.   The Term Loans have quarterly   principal amortization during their five year terms, with 5.0% amortization of   the principal balance due in years 1 and 2, 7.5% in year 3, and 10.0% in years 4 and 5, with the remaining principal amount due at maturity.   The Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries   and is secured by first-priority liens on substantially all of the assets of the   Company and the domestic subsidiary guarantors, subject to certain customary exclusions.   The obligations of the Dutch borrower are guaranteed only by certain foreign subsidiaries on an unsecured basis. The Credit Facility required the Company to fix its variable interest rates on at least 20%   of its total Term Loans.   In order to satisfy this requirement as well as to manage the Company’s   exposure to variable interest rate risk associated with the Credit Facility, in November 2019, the Company entered into $170.0   million notional amounts of three year interest rate swaps at a base rate of 1.64% plus an applicable margin as provided in the Credit Facility,   based on the Company’s consolidated   net leverage ratio.   At the time the Company entered into the swaps, and as of December 31, 2021, the   aggregate interest rate on the swaps, including the fixed base rate plus an applicable margin, was 3.1%. The Company capitalized $23.7 million of certain third-party debt issuance   costs in connection with executing the Credit Facility. Approximately $15.5 million of the capitalized costs were attributed to   the Term Loans and recorded   as a direct reduction of long- term debt on the Company’s Consolidated   Balance Sheet.   Approximately $8.3 million of the capitalized costs were attributed   to the Revolver and recorded within other assets on the Company’s   Consolidated Balance Sheet.   These capitalized costs are being amortized into interest expense over the five year term of the Credit Facility. As of December 31, 2021, the Company had Credit Facility borrowings   outstanding of $889.6 million.   As of December 31, 2020, the Company had Credit Facility borrowings outstanding of $887.1   million.   The Company has unused capacity under the Revolver of approximately $184 million, net of bank letters of credit of approximately   $4 million, as of December 31, 2021.   The Company’s other debt obligations are primarily industrial development bonds   ,   bank lines of credit and municipality-related loans, which totaled $11.8 million and $12.1   million as of December 31, 2021   and 2020, respectively.   Total unused capacity under   these arrangements as of December 31, 2021 was approximately $26 million.   The Company’s total net debt   as of December 31, 2021 was $736.2 million. The Company estimates that it realized full year cost synergies related   to the Combination in 2021   of approximately $75 million compared to $58 million in 2020.   The Company has fully achieved its annual target Combination cost synergies   of approximately $80 million going forward.   The Company incurred $18.6 million of total Combination, integration   and other acquisition-related expenses in 2021, which includes $0.7 million of accelerated depreciation   and is net of a $5.4 million gain on the sale of certain held-for-sale real property assets and $0.6 million of other income related to an indemnification   asset, described in the Non-GAAP Measures section of this Item below.   The Company had aggregate net cash outflows of approximately $20.6 million   related to the Combination, integration and other acquisition-related expenses during 2021.   Comparatively, in 2020, the   Company incurred $30.3 million of total Combination, integration and other acquisition-related expenses, including   $0.8 million of accelerated depreciation, a $0.6 million loss on the sale of held-for-sale assets, an $0.8 million of other income related to an indemnification   asset, and aggregate net cash outflows related to these costs were approximately $29.4 million. While the Company has incurred significant integration costs in 2019, 2020 and 2021, the Company expects to incur additional integration and operating   costs as well as higher capital expenditures to further optimize its footprint, processes and other functions over the next several years. 29 Quaker Houghton’s management   approved, and the Company initiated, a global restructuring plan (the   “QH Program”) in the third quarter of 2019 as part of its planned cost synergies associated   with the Combination and recorded $26.7 million in restructuring and related charges in 2019.   The Company recognized an additional $1.4 million and $5.5 million   of restructuring and related charges in 2021 and 2020, respectively,   as a result of the QH Program.   The QH Program includes restructuring and associated severance costs to reduce total headcount by approximately 400 people globally and   plans for the closure of certain manufacturing and non- manufacturing facilities.   In connection with the plans for closure of certain manufacturing and non-manufacturing   facilities, the Company made a decision to make available for sale certain facilities during   the second quarter of 2020.   During the first quarter of 2021 and fourth quarter of 2020, certain of these facilities were sold   and the Company recognized a gain on disposal of $5.4 million and a loss on disposal of $0.6 million, respectively,   included within other income (expense), net on the Consolidated Statement of Income.   The exact timing and total costs associated with the QH Program will depend on a number of   factors and is subject to change; however, reductions in headcount   and site closures have continued,   and the Company currently expects additional headcount reductions and site closures to occur into 2022 and estimates that the anticipated   cost synergies realized under the QH Program will approximate one-times restructuring costs incurred.   The Company made cash payments related to the settlement of restructuring liabilities under the QH Program during 2021 of approximately $5.3 million   compared to $15.7 million in 2020. During the first quarter of 2020, the Company completed the termination   of the Legacy Quaker U.S. Pension Plan and funded the plan on a termination basis with approximately $1.8 million, subject to final   true up adjustments.   In the third quarter of 2020, the Company finalized the amount of liability and related annuity payments and   received a refund in premium of $1.6 million.   In addition, the Company recorded a non-cash pension settlement charge   at plan termination of approximately $22.7 million in the first quarter of 2020. As of December 31, 2021, the Company’s   gross liability for uncertain tax positions, including interest and penalties,   was $28.7 million.   The Company cannot determine a reliable estimate of the timing of cash flows   by period related to its uncertain tax position liability.   However, should the entire liability be   paid, the amount of the payment may be reduced by up to $7.3 million as a result of offsetting benefits in other tax jurisdictions.   During the year ended 2021, the Company recorded $13.1 million of non-income tax credits for certain of its Brazilian subsidiaries.   The Company expects to utilize these credits to offset certain Brazilian   federal tax payments over approximately two years, which began in the fourth quarter   of 2021.   See Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report. During the third quarter of 2021, two of the Company’s   locations suffered property damage as a result of flooding and fire.   The Company maintains property insurance for all of its facilities globally.   The Company, its insurance   adjuster and insurance carrier are actively managing the remediation and restoration activities associated   with both of these events and at this time the Company has concluded, based on all available information and discussions with its insurance   adjuster and insurance carrier, that the losses incurred during 2021 will be covered under the Company’s   property insurance coverage, net of an aggregate deductible of $2.0 million.   The Company has received payments from its insurers of $2.1 million and has   recorded an insurance receivable associated with these events of $0.7 million as of December 31, 2021.   The Company and its insurance carrier continue to review the impact on operations as it relates to a potential business interruption insurance claim; however,   as of the date of this report, the Company cannot reasonably estimate any probable amount of business interruption insurance   claim recoverable, therefore the Company has not recorded a gain contingency for a possible business interruption insurance claim as of December   31, 2021.   See Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report. The Company believes that its existing cash, anticipated cash flows from   operations and available additional liquidity will be sufficient to support its operating requirements and fund   its business objectives for at least the next twelve months and beyond, including but not limited to, payments of dividends to shareholders, costs   related to the Combination and other acquisitions and as well as ongoing integration and optimization,   pension plan contributions, capital expenditures, other business opportunities   (including potential acquisitions),   implementing actions to achieve the Company’s   sustainability goals and other potential contingencies.   The Company’s liquidity is affected   by many factors, some based on normal operations of our business and   others related to the impact of the pandemic on our business and on global economic conditions as well as industry   uncertainties, which we cannot predict.   We also cannot predict economic conditions and industry downturns or the   timing, strength or duration of recoveries.   We may seek,   as we believe appropriate, additional debt or equity financing which would   provide capital for corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including   possible acquisitions and investments.   The timing and amount of potential capital requirements cannot be determined at this time   and will depend on a number of factors, including the actual and projected demand for our products, specialty chemical industry   conditions, competitive factors, and the condition of financial markets, among others. 30 The following table summarizes the Company’s   contractual obligations as of December 31, 2021, and the effect such   obligations are expected to have on its liquidity and cash flows in future periods.   Pension and postretirement plan contributions beyond 2021 are not determinable since the amount of any contribution is heavily dependent   on the future economic environment and investment returns on pension trust assets.   The timing of payments related to other long-term liabilities which consists primarily   of deferred compensation agreements and environmental reserves, also cannot   be readily determined due to their uncertainty.   Interest obligations on the Company’s long-term   debt and capital leases assume the current debt levels will be outstanding for   the entire respective period and apply the interest rates in effect as of December 31, 2021. Payments due by period (dollars in thousands) 2027 and Contractual Obligations Total 2022 2023 2024 2025 2026 Beyond Long-term debt $ 900,633 $ 56,759 $ 75,553 $ 758,045 $ 122 $ 80 $ 10,074 Interest obligations 39,975 14,287 13,184 10,751 526 526 701 Capital lease obligations 868 219 212 196 176 65 - Operating leases 41,395 11,346 9,041 7,017 5,292 4,197 4,502 Purchase obligations 3,652 3,197 416 39 - - - Transition tax 8,500 - 1,529 3,099 3,872 - - Pension and other postretirement plan contributions 13,347 13,347 - - - - - Other long-term liabilities (See Note 22 of Notes to Consolidated Financial Statements) 12,040 - - - - - 12,040 Total contractual   cash obligations $ 1,020,410 $ 99,155 $ 99,935 $ 779,147 $ 9,988 $ 4,868 $ 27,317 Non-GAAP Measures The information in this Form 10-K filing includes non-GAAP (unaudited)   financial information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating   income, non-GAAP operating margin, non-GAAP net   income and non- GAAP earnings per diluted share.   The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader’s understanding   of the financial performance of the Company,   are indicative of future operating performance of the Company,   and facilitate a comparison among fiscal periods, as the non-GAAP financial   measures exclude items that are not indicative of future operating performance or not considered   core to the Company’s operations.   Non-GAAP results are presented for supplemental informational purposes only and should not be   considered a substitute for the financial information presented in accordance with GAAP. The Company presents EBITDA which is calculated as net income attributable   to the Company before depreciation and amortization, interest expense, net, and taxes on income before equity in net income   of associated companies.   The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus   certain items that are not indicative of future operating performance or not considered core to the Company’s   operations.   In addition, the Company presents non-GAAP operating income which is calculated as operating income plus or minus certain items that are   not indicative of future operating performance or not considered core to the Company’s   operations.   Adjusted EBITDA margin and non-GAAP operating margin   are calculated as the percentage of adjusted EBITDA and non-GAAP operating income   to consolidated net sales, respectively.   The Company believes these non-GAAP measures provide transparent and useful information and   are widely used by analysts, investors, and competitors in our industry as well as by management in assessing the operating performance   of the Company on a consistent basis. Additionally, the   Company presents non-GAAP net income and non-GAAP earnings per diluted share   as additional performance measures.   Non-GAAP net income is calculated as adjusted EBITDA, defined above,   less depreciation and amortization, interest expense, net, and taxes on 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 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. 31 The following tables reconcile the Company’s   non-GAAP financial measures (unaudited) to their most directly comparable GAAP financial measures (dollars in thousands, unless otherwise noted,   except per share amounts): Non-GAAP Operating Income and Margin Reconciliations For the years ended December 31, 2021 2020 2019 Operating income $ 150,466 $ 59,360 $ 46,134 Houghton combination, integration and other acquisition-related expenses (a) 24,611 30,446 35,945 Restructuring and related charges (b) 1,433 5,541 26,678 Fair value step up of acquired inventory sold (c) 801 226 11,714 Executive transition costs (d) 2,986 - - Inactive subsidiary's non-operating litigation costs (e) 819 - - Customer bankruptcy costs (f) - 463 1,073 Facility remediation costs, net (g) 1,509 - - Charges related to the settlement of a non-core equipment sale (h) - - 384 Indefinite-lived intangible asset impairment (i) - 38,000 - Non-GAAP operating income $ 182,625 $ 134,036 $ 121,928 Non-GAAP operating margin (%) (r) 10.4% 9.5% 10.8% EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Non-GAAP Net Income Reconciliations For the years ended December 31, 2021 2020 2019 Net income attributable to Quaker Chemical Corporation $ 121,369 $ 39,658 $ 31,622 Depreciation and amortization (a)(p) 87,728 84,494 45,264 Interest expense, net (a) 22,326 26,603 16,976 Taxes on income before   equity in net income of associated companies (q) 34,939 (5,296) 2,084 EBITDA 266,362 145,459 95,946 Equity income in a captive insurance company (j) (4,993) (1,151) (1,822) Houghton combination, integration and other acquisition-related expenses (a) 17,917 29,538 35,361 Restructuring and related charges (b) 1,433 5,541 26,678 Fair value step up of acquired inventory sold (c) 801 226 11,714 Executive transition costs (d) 2,986 - - Inactive subsidiary’s non   -operating litigation cost (e) 819 - - Customer bankruptcy costs (f) - 463 1,073 Facility remediation costs, net (g) 2,066 - - Charges related to the settlement of a non-core equipment sale (h) - - 384 Indefinite-lived intangible asset impairment (i) - 38,000 - Pension and postretirement benefit (income) costs, non-service components (k) (759) 21,592 2,805 Gain on changes in insurance settlement restrictions of an inactive subsidiary and related insurance insolvency recovery (l) - (18,144) (60) Brazilian non-income tax credits (m) (13,087) - - Currency conversion impacts of hyper-inflationary economies (n) 564 450 1,033 Adjusted EBITDA $ 274,109 $ 221,974 $ 173,112 Adjusted EBITDA margin (%) (r) 15.6% 15.7% 15.3% Adjusted EBITDA $ 274,109 $ 221,974 $ 173,112 Less: Depreciation and amortization - adjusted (a) 87,002 83,732 44,680 Less: Interest expense, net - adjusted (a) 22,326 26,603 14,896 Less: Taxes on income   before equity in net income of associated companies - adjusted (o)(q) 41,976 26,488 24,825 Non-GAAP net income $ 122,805 $ 85,151 $ 88,711 32 Non-GAAP Earnings per Diluted Share Reconciliations For the years ending December 31, 2021 2020 2019 GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders $ 6.77 $ 2.22 $ 2.08 Equity income in a captive insurance company per diluted share (j) (0.28) (0.07) (0.12) Houghton combination, integration and other acquisition-related expenses per diluted share (a) 0.79 1.31 2.05 Restructuring and related charges per diluted share (b) 0.07 0.23 1.34 Fair value step up of acquired inventory sold per diluted share (c) 0.03 0.01 0.58 Executive transition costs per diluted share (d) 0.13 - - Inactive subsidiary’s non   -operating litigation costs per diluted share (e) 0.04 - - Customer bankruptcy costs per diluted share (f) - 0.02 0.05 Facility remediation costs, net per diluted share (g) 0.09 - - Charges related to the settlement of a non-core equipment sale per diluted share (h) - - 0.02 Indefinite-lived intangible asset impairment per diluted share (i) - 1.65 - Pension and postretirement benefit costs, non-service components per diluted share (k) (0.04) 0.79 0.14 Gain on changes in insurance settlement restrictions of an inactive subsidiary and related insurance insolvency recovery per diluted share (l) - (0.78) 0.00 Brazilian non-income tax credits per diluted share (m) (0.46) - - Currency conversion impacts of hyper-inflationary economies per diluted share (n) 0.03 0.02 0.07 Impact of certain discrete tax items per diluted share (o) (0.32) (0.62) (0.38) Non-GAAP earnings per diluted share (s) $ 6.85 $ 4.78 $ 5.83 (a) Houghton combination, integration and other acquisition-related   expenses include certain legal, financial, and other advisory and consultant costs incurred in connection with post-closing integration   activities including internal control readiness and remediation, as well as due diligence, regulatory approvals and closing   the Combination.   These costs are not indicative of the future operating performance of the Company.   Approximately $0.6 million, $1.5 million and $9.4 million for the years ended December 31, 2021, 2020 and 2019, respectively,   of these pre-tax costs were considered non-deductible for the purpose of determining the Company’s   effective tax rate, and, therefore, taxes on income before equity in   net income of associated companies - adjusted reflects the impact of these items.   During 2021, 2020 and 2019, the Company recorded $0.7 million, $0.8 million, and $0.6 million, respectively,   of accelerated depreciation related to certain of the Company’s   facilities, which is included in the caption “Houghton combination, integration and other   acquisition-related expenses” in the reconciliation of operating income to non-GAAP operating income and included in the   caption “Depreciation and amortization” in the reconciliation of net income attributable to the Company to EBITDA, but   excluded from the caption “Depreciation and amortization – adjusted” in the reconciliation of adjusted EBITDA to   non-GAAP net income attributable to the Company.   During 2019, the Company incurred $2.1 million of ticking fees to maintain the bank   commitment related to the Combination.   These interest costs are included in the caption “Interest expense, net” in the reconciliation   of net income attributable to the Company to EBITDA, but are excluded from the caption “Interest expense, net   – adjusted” in the reconciliation of adjusted EBITDA to non- GAAP net income.   During 2021 and 2020, the Company recorded $0.6 million and $0.8 million, respectively,   of other income related to an indemnification asset.   During 2021 and 2020, the Company recorded a gain of $5.4 million   and a loss of $0.6 million, respectively,   on the sale of certain held-for-sale real property assets related to   the Combination.   Each of these items are included in the caption “Houghton combination, integration and other   acquisition expenses” in the reconciliation of GAAP earnings per diluted share attributable to Quaker Chemical Corporation   common shareholders to Non-GAAP earnings per diluted share as well as the reconciliation of Net Income attributable to Quaker   Chemical Corporation to Adjusted EBITDA and Non- GAAP net income See Note 2 and Note 9 of Notes to Consolidated Financial   Statements, which appears in Item 8 of this Report. (b) Restructuring and related charges represent the   costs incurred by the Company associated with the QH restructuring program which was initiated in the third quarter of 2019 as part of the Company’s   plan to realize cost synergies associated with the Combination.   These costs are not indicative of the future operating performance of the Company.   See Note 7 of Notes to Consolidated Financial Statements,   which appears in Item 8 of this Report. (c) Fair value step up of inventory sold relates to expense associated with selling   inventory of acquired businesses which was adjusted to fair value as part of purchase accounting.   This increases to costs of goods sold (“COGS”) are not indicative of the future operating performance of the Company. 33 (d) Executive transition costs represent the costs related to the Company’s   search, hiring and transition to a new CEO in connection with the executive transition that look place in 2021.   These expenses are not indicative of the future operating performance of the Company. (e) Inactive subsidiary’s non   -operating litigation costs represents the charges incurred by   an inactive subsidiary of the Company and are a result of the termination of restrictions on insurance settlement reserves.   These charges are not indicative of the future operating performance of the Company.   See Note 26 of Notes to Consolidated Financial Statements, which appears   in Item 8 of this Report. (f) Customer bankruptcy costs represent the cost associated with a specific   reserve for trade accounts receivable related to a customer who filed for bankruptcy protection.   These expenses are not indicative of the future operating performance   of the Company.   See Note 13 of Notes to Consolidated Financial Statements, which appears   in Item 8 of this Report. (g) Facility remediation costs, net, presents the gross costs associated with remediation,   cleaning and subsequent restoration costs associated with the property damage to certain of the Company’s   facilities, net of insurance recoveries received.   These charges are non-recurring and are not indicative of the future operating performance   of the Company.   See Note 26 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report. (h) Charges related to the settlement of a non-core equipment   sale represent the pre-tax charge related to a one-time, uncommon, customer settlement associated with a prior sale of non-core equipment.   These charges are not indicative of the future operating performance of the Company. (i) Indefinite-lived intangible asset impairment represents the non-cash   charge taken to write down the value of certain indefinite- lived intangible assets associated with the Combination.   The Company has no prior history of goodwill or intangible asset impairments and this charge is not indicative of the future operating   performance of the Company.   See Note 16 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report. (j) Equity income in a captive insurance company represents the after-tax   income attributable to the Company’s   interest in Primex, Ltd. (“Primex”), a captive insurance company.   The Company holds a 32% investment in and has significant influence over Primex, and therefore accounts for this investment under the equity method of   accounting.   The income attributable to Primex is not indicative of the future operating performance of the Company   and is not considered core to the Company’s operations. (k) Pension and postretirement benefit (income) costs, non-service components   represent the pre-tax, non-service components of the Company’s pension and postretirement   net periodic benefit cost in each period.   These costs are not indicative of the future operating performance of the Company.   The year ended December 31, 2020 includes a $22.7 million settlement charge   for the Company’s termination   of the Legacy Quaker U.S. Pension Plan.   See Note 21 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report. (l) Gain on changes in insurance settlement restrictions of an inactive subsidiary   and related insurance insolvency recovery represents income associated with the gain on the termination of restrictions   on insurance settlement reserves and the cash receipts from an insolvent insurance carrier for previously submitted   claims by an inactive subsidiary of the Company.   This other income is not indicative of the future operating performance of the Company.   See Notes 9 and 26 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report. (m) Brazilian non-income tax credits represent indirect tax credits related to certain   of the Company’s Brazilian subsidiaries prevailing in a legal claim as well as the Brazil Supreme Court ruling on these non   -income tax matters.   The non-income tax credit is non-recurring and not indicative of the future operating performance   of the Company.   See Note 26 of Note to Consolidated Financial Statements, which appears in Item 8 of this Report. (n) Currency conversion impacts of hyper-inflationary economies represents   the foreign currency remeasurement impacts associated with the Company’s affiliates   whose local economies are designated as hyper-inflationary under   U.S. GAAP.   An entity which operates within an economy deemed to be hyper-inflationary   under U.S. GAAP is required to remeasure its monetary assets and liabilities to the applicable published exchange rates and record the   associated gains or losses resulting from the remeasurement directly to the Consolidated Statements of Income.   Venezuela’s   economy has been considered hyper-inflationary under   U.S. GAAP since 2010, while Argentina’s   economy has been considered hyper-inflationary beginning   July 1, 2018.   In addition, the Company’s Argentine   Houghton subsidiary also applies hyper-inflationary accounting.   During 2021, 2020 and 2019, the Company incurred non-deductible, pre-tax charges   related to the Company’s Argentine   affiliates.   The charges incurred related to the immediate recognition of foreign currency remeasurement in the   Consolidated Statements of Income associated with these entities are not indicative of the future operating performance of the Company.   See Notes 1, 9 and 17 of Notes to Consolidated Financial Statements, which appears in Item 8 of this Report. (o) The impacts of certain discrete tax items includes   the impact of changes in certain valuation allowances   recorded on certain of the Company’s foreign   tax credits, tax law changes in foreign jurisdictions, changes in withholding tax rates, the   tax impacts of non- income tax credits associated with certain of the Company’s   Brazilian subsidiaries and the associated impact on previously accrued for distributions at certain of the Company’s   Asia/Pacific subsidiaries, the one-time deferred tax benefit recorded on the transfer of intangible assets between the Company’s   subsidiaries as well as the offsetting impact and amortization   of a deferred 34 tax benefit the Company recorded during 2020 and 2019 related to   similar intercompany intangible asset transfers.   Additionally, the 2019 amounts include certain transition tax adjustments related to adjustments   to adopt U.S. Tax Reform.   See Note 10 of Notes to Consolidated Financial Statements, which appears in Item   8 of this Report. (p) Depreciation and amortization for the years ended December 31, 2021,   2020 and 2019 includes $1.2 million, $1.2 million and $0.4 million, respectively,   of amortization expense recorded within equity in net income of associated   companies in the Company’s Consolidated   Statements of Income, which is attributable to the amortization of the fair value step up for   the Company’s 50% interest Korea Houghton   Corporation as a result of required purchase accounting. (q) Taxes on income   before equity in net income of associated companies – adjusted presents the impact   of any current and deferred income tax expense (benefit), as applicable, of the reconciling items presented   in the reconciliation of net income attributable to Quaker Chemical Corporation to adjusted EBITDA, and was determined   utilizing the applicable rates in the taxing jurisdictions in which these adjustments occurred, subject to deductibility.   Houghton combination, integration and other acquisition-related expenses described in (a) resulted in incremental taxes of $4.2 million   for 2021, $6.9 million for 2020, and $6.7 million for 2019. Restructuring and related charges described in (b)   resulted in incremental taxes of $0.3 million for 2021, $1.4 million for 2020 and $6.2 million for 2019.   Fair value step up of inventory sold described in (c) resulted in incremental taxes of $0.2 million,   less than $0.1 million and $2.9 million for 2021, 2020 and 2019, respectively.   Executive transition expenses described in (d) resulted in incremental taxes of $0.7 million for 2021.   Inactive subsidiary non-operating litigation costs described in (e) resulted in incremental taxes of $0.2   million for 2021.   Customer bankruptcy costs described in (f) resulted in incremental taxes of $0.1 million in 2020 and $0.3 million in 2019.   Facility remediation costs, net described in (g) results in incremental taxes of $0.5 million for 2021.   Charges related to the settlement of a non-core equipment   sale described in (h) resulted in incremental taxes of $0.1 million for 2019.   Indefinite-lived intangible asset impairment described in (i) resulted in   incremental taxes of $8.7 million for 2020.   Pension and postretirement benefit (income) costs, non-service components   described in (k) resulted in a reduction of taxes of $0.1 million for 2021 and incremental taxes of $7.5 million for 2020,   and $0.7 million for 2019.   Gain on changes in insurance settlement restrictions of an inactive subsidiary   and related insurance insolvency recovery described in (l) resulted in a reduction of taxes of $4.2 million in 2020 and less than $0.1 million in   2019.   Brazilian non-income tax credits described in (m) resulted in a reduction of taxes of $4.8 million for 2021.   The impact of certain discrete items described in (o) resulted in a tax benefit of $5.8 million for 2021, incremental taxes of $11.2   million for 2020, and a reduction of taxes of $5.7 million in 2019. (r) The Company calculates adjusted EBITDA margin   and non-GAAP operating margin as the percentage of adjusted EBITDA   and non-GAAP operating income to consolidated net sales. (s) The Company calculates non-GAAP earnings per diluted share as non   -GAAP net income attributable to the Company per weighted average diluted shares outstanding using the “two-class share method”   to calculate such in each given period. Off-Balance Sheet Arrangements The Company had no material off-balance sheet commitments or   obligations as of December 31, 2021.   The Company’s only off- balance sheet commitments or obligations outstanding as of December 31,   2021 represented approximately $6 million of total bank letters of credit and guarantees.   The bank letters of credit and guarantees are not significant to the Company’s   liquidity or capital resources.   See Note 20 of Notes to Consolidated Financial Statements in Item 8 of this Report. Operations Consolidated Operations Review – Comparison of 2021 with 2020 Net sales were $1,761.2 million in 2021 compared to $1,417.7 million   in 2020.   The net sales increase of approximately $343.5 million or 24% year-over-year was primarily due to higher sales volumes of   13%, which includes additional net sales from recent acquisitions of 4%, increases from selling price and product mix of 8% and   the positive impact of foreign currency translation of 3%. The increase in organic sales volumes compared to 2020   was primarily the result of the continued year-over-year   improvement in end market conditions from the prior year impacts of COVID-19 and continued   market share gains.   Sales from acquisitions is primarily driven by the Company’s acquisition   of Coral Chemical Company (“Coral”) in December 2020 and   the tin-plating solutions business acquired in February 2021.   The increase from selling price and product mix includes the impact of current   year selling price increases implemented in response to the increases in raw material costs experienced   in 2021.   The positive impact from foreign currency translation is primarily the result of the strengthening of the Chinese renminbi,   euro, Mexican peso, the Canadian dollar and the British pound against the U.S. dollar year-over-year. COGS were $1,166.5 million in 2021 compared to $904.2 million in 2020.   The increase in COGS of 29% was driven by the associated COGS on the increase in net sales described above, and   continued increases in the Company’s global   raw material costs compared to the prior year and the impacts of supply constraints in the current year. Gross profit in 2021 of $594.6 million increased $81.2 million or approximately   16% from 2020, due primarily to the increase in net sales noted above.   The Company’s reported gross margin   in 2021 was 33.8% compared to 36.2% in 2020.   The lower current year gross margin is primarily attributable to increased raw materials and   other costs that began in the fourth quarter of 2020 and have continued throughout 2021 and the impacts of constraints on the world’s   global supply chain partially offset by the Company’s ongoing pricing initiatives. 35 SG&A in 2021 increased $38.1 million compared to 2020 due primarily to   the impact of sales increases on direct selling costs, year-over-year inflation increases, additional   SG&A from recent acquisitions and higher SG&A due to foreign currency   translation, partially offset by lower incentive compensation year-over   -year as well as the benefits of additional realized cost synergies associated with the Combination year-over-year.   In addition, SG&A was lower in the prior year period as a result of temporary   cost saving measures the Company implemented in response to COVID-19.   While the Company continues to manage costs during the on-going pandemic, it has incurred higher SG&A year-over-year   as the global economy continues to gradually rebound. During 2021 and 2020, the Company incurred $23.9 million and $29.8   million, respectively, of   Combination, integration and other acquisition-related expenses primarily for professional fees related   to Houghton integration and other acquisition-related activities.   See the Non-GAAP Measures section of this Item, above. The Company initiated a restructuring program during 2019 as part of   its global plan to realize cost synergies associated with the Combination.   The Company incurred restructuring and related charges for reductions   in headcount and site closures under this program, net of adjustments to initial estimates for severance, of   an expense of $1.4 million and $5.5 million during 2021 and 2020, respectively.   See the Non-GAAP Measures section of this Item, above. Operating income in 2021 was $150.5 million compared to $59.4 million   in 2020.   Excluding Combination, integration and other acquisition-related expenses, restructuring and related charges and   other non-core items, the Company’s   current year non-GAAP operating income of $182.6 million increased compared to $134.0   million in the prior year, primarily due   to the increase in net sales described above and the benefits from cost savings related to the Combination   offset by an increase in SG&A as well as the significant increases in raw material costs year-over-year.   The Company estimates that it realized cost synergies associated with the   Combination of approximately $75 million during 2021 compared to approximately   $58 million during 2020. The Company had other income, net, of $18.9 million in 2021 compared   to other expense, net, of $5.6 million in 2020.   The year- over-year change was primarily a result of other income related to certain   non-income tax credits recorded by the Company’s Brazilian subsidiaries, the gain on the sale of certain held-for-sale real property assets and lower   foreign currency transaction losses in 2021 as compared to the prior year.   The Company had non-service components of pension and postretirement   benefit income in the current year compared to an expense in the prior year as a result of the $22.7   million pension settlement charge directly related to the termination of the Legacy Quaker U.S. pension plan partially offset   by a $18.1 million gain related to the lapse of restrictions over certain cash that was previously designated solely for the settlement of   asbestos claims at an inactive subsidiary,   all of which are described in the Non-GAAP Measures section of this Item, above. Interest expense, net, decreased $4.3 million compared to 2020 driven   by lower current year average borrowings outstanding as a result of the additional revolver borrowings drawn during part of 2020   at the onset of the pandemic to add additional liquidity,   coupled with a decline in overall interest rates year-over-year,   as the weighted average interest rate incurred on borrowings under the Company’s credit facility was approximately   1.6% during 2021 compared to approximately 2.2% during 2020. The Company’s effective   tax rates for 2021 and 2020 were an expense of 23.8% and benefit of 19.5%, respectively.   The Company’s higher current year   effective tax rate is driven by a higher level of pre-tax earnings and   mix of earnings, as well as deferred tax expense related to the planned repatriation of non-U.S.   earnings.   In addition, the rate was impacted by certain one-time charges and benefits related to an intercompany intangible   asset transfer and related royalty income recognition offset   by changes in the valuation allowance for foreign tax credits.   Comparatively, the prior   year effective tax rate was impacted by the tax effect of certain one-time tax charges and benefits related to a 2020 intercompany   intangible asset transfer, additional charges   for uncertain tax positions relating to certain foreign tax audits, and the tax impact of the Company’s   termination of its Legacy Quaker U.S. pension plan.   Excluding the impact of these items as well as all other non-core items in   each year, described in the Non-GAAP Measures section of this Item, above, the Company estimates that the 2021 and 2020   effective tax rates would have been approximately 26% and 25%, respectively.   The higher estimated current year tax rate was primarily driven by a higher level of pre   -tax earnings and the impact of changes in mix of earnings,   deferred taxes related to the planned repatriation of non-U.S. earnings, and provision   to return adjustments in the prior period.   The Company may experience continued volatility in its effective tax   rates due to several factors, including the timing of tax audits and the expiration of applicable statutes of   limitations as they relate to uncertain tax positions, the unpredictability of the timing and amount of certain incentives in various   tax jurisdictions, the treatment of certain acquisition-related costs and the timing and amount of certain share-based compensation-related   tax benefits, among other factors.   In addition, the foreign tax credit valuation allowance, or absence thereof, is based on   a number of variables, including forecasted earnings, which may vary. Equity in net income of associated companies increased $2.0 million in   2021 compared to 2020, primarily due to higher current year income from the Company’s interest   in a captive insurance company partially offset by lower earnings   from the Company’s 50% interest in a joint venture in Korea compared to the prior year.   See the Non-GAAP Measures section of this Item, above. Net income attributable to noncontrolling interest was less than $0.1 million   in 2021 compared to $0.1 million in 2020 primarily a result of the first quarter of 2020 acquisition of the remaining ownership   interest in one of the Company’s South   African affiliates . Foreign exchange positively impacted the Company’s   yearly results by approximately 6% driven by the positive impact from foreign currency translation on earnings as well as lower foreign exchange   transaction losses in the current year as compared to the prior year. 36 Consolidated Operations Review – Comparison of 2020 with 2019 Net sales were $1,417.7 million in 2020 compared to $1,133.5 million   in 2019.   The net sales increase of 25% year-over-year includes additional net sales from acquisitions, primarily Houghton   and Norman Hay, of $408.6 million.   Excluding net sales related to acquisitions, the Company’s prior   year net sales would have declined approximately 11%   which reflects a decrease in sales volumes of 9%, a negative impact from foreign currency translation of 1% and   a decrease from selling price and product mix of 1%.   The primary driver of the volume decline in the prior year was the negative   impact of COVID-19 on global production levels. COGS were $904.2 million in 2020 compared to $741.4 million in   2019.   The increase in COGS of 22% was primarily due to the inclusion of a full year of Houghton and Norman Hay COGS and $0.8 million of   accelerated depreciation charges in 2020, partially offset by lower prior year COGS on the decline in net sales due   to COVID-19 and 2019 charges of $11.7   million to increase acquired inventory to its fair value, described in the Non-GAAP Measures section of this Item   above. Gross profit in 2020 increased $121.3 million or 31% from 2019 due primarily   to additional gross profit from Houghton and Norman Hay.   The Company’s reported gross   margin in 2020 was 36.2% compared to 34.6% in 2019, which included   the inventory fair value step up described above.   Excluding one-time increases to COGS in both periods, the Company   estimates that its gross margins for 2020 and 2019 would have been 36.3% and 35.7%,   respectively.   The estimated increase in gross margin year-over-year was primarily due to lower COGS as a result of the Company’s   progress on Combination-related logistics, procurement and manufacturing cost savings initiatives, partially offset   by the lower sales volumes on certain fixed manufacturing costs. SG&A in 2020 increased $96.9 million compared to 2019 due primarily to   additional SG&A from Houghton and Norman Hay, partially offset by the impact of COVID-19 cost savings   actions, including lower travel expenses, and the benefits of realized costs savings associated with the Combination. During 2020, the Company incurred $29.8 million of Combination,   integration and other acquisition-related expenses, primarily for professional fees related to Houghton integration and other acquisition   -related activities.   Comparatively,   the Company incurred $35.5 million of similar expenses in 2019,   primarily due to various professional fees related to integration planning   and regulatory approval as well as professional fees associated with closing the Combination.   See the Non-GAAP Measures section of this Item, above. The Company initiated a restructuring program during the third quarter   of 2019 as part of its global plan to realize cost synergies associated with the Combination.   The Company recorded additional restructuring and related charges   of $5.5 million during 2020 compared   to $26.7 million during 2019 under this program.   See the Non-GAAP Measures section of this Item, above. 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 negative impacts of COVID-19 on their estimated fair values.   There were no additional impairment charges in the remainder of   2020 or in 2019.   See the Critical Accounting Policies and Estimates section as well as the Non-GAAP Measures section, of this Item, above. Operating income in 2020 was $59.4 million compared to $46.1 million   in 2019.   Excluding 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 during 2020 of $134.0 million increased compared to $121.9 million   in 2019, primarily due to additional operating income from Houghton and Norman Hay and the benefits from costs savings initiatives related   to the Combination, partially offset by the current year negative impact due to COVID-19. The Company’s other   expense, net, was $5.6 million in 2020 compared to $0.3 million in 2019.   The year-over-year increase in other expense, net was primarily due to the first quarter of 2020 non-cash   settlement charge of $22.7 million associated with the termination of the Legacy Quaker U.S. Pension Plan, partially offset   by a fourth quarter of 2020 gain of $18.1 million related to the lapsing of restrictions over certain cash that was previously designated   solely for the settlement of asbestos claims at an inactive subsidiary of the Company,   which are both described in the Non-GAAP Measures section of this Item, above.   Additionally, the increase year-over-year in other expense,   net, includes higher foreign currency transaction losses in 2020. Interest expense, net, increased $9.6 million in 2020 compared to 2019 primarily   due to a full year of borrowings under the Company’s Credit Facility to   finance the closing of the Combination on August 1, 2019, partially offset   by lower overall interest rates in the 2020. The Company’s effective   tax rates for 2020 and 2019 were a benefit of 19.5% and an expense of 7.2%, respectively.   The Company’s 2020 effective   tax rate was impacted by the tax effect of certain one-time   tax charges and benefits, including deferred tax benefits related to an intercompany intangible asset transfer,   as well as changes in the valuation allowance for foreign tax credits, additional charges for uncertain tax positions relating to   certain foreign tax audits, and the tax impact of the Company’s   termination of its Legacy Quaker U.S. pension plan.   Comparatively, the 2019 effectiv   e   tax rate was primarily impacted by certain non-deductible costs associated with the Combination as well as a deferred tax benefit related   to a separate intercompany intangible asset transfer. Excluding the impact of all non-core items in each year,   described in the Non-GAAP measures section of this Item, above, the Company estimates that its effective tax rates for 2020   and 2019 were approximately 25% and 22%, respectively.   The year-over-year increase is driven primarily by higher U.S. income taxes resulting from a   change in certain deductions and the taxability of foreign earnings in the U.S., partially offset by a change in the mix of earnings. 37 Equity in net income of associated companies increased $2.3 million in   2020 compared to 2019, primarily due to additional earnings from our 50% interest in a joint venture in Korea partially offset   by lower earnings from the Company’s   interest in a captive insurance company.   See the Non-GAAP Measures section of this Item, above. Net income attributable to noncontrolling interest was $0.1 million in   2020 compared to $0.3 million in 2019 primarily a result of the first quarter of 2020 acquisition of the remaining ownership interest   in one of the Company’s South African   affiliates. Foreign exchange negatively impacted the Company’s   2020 results by approximately $0.38 per diluted share, primarily due   to higher foreign exchange transaction losses year-over-year and, to   a lesser extent, an aggregate negative impact from foreign currency translation on earnings. Reportable Segments Review - Comparison of 2021 with 2020 The Company’s reportable   segments reflect the structure of the Company’s   internal organization, the method by which the Company’s resources are allocated   and the manner by which the chief operating decision maker of the Company   assesses its performance.   The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii)   Asia/Pacific; and (iv) Global Specialty Businesses.   The three geographic segments are composed of the net sales and operations   in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses   segment, which includes the Company’s   container, metal finishing, mining, offshore, specialty coatings, specialty grease and   Norman Hay businesses. Segment operating earnings for the Company’s   reportable segments are comprised of net sales less COGS and SG&A directly related to the respective segment’s product   sales.   Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination,   integration and other acquisition-related expenses, Restructuring and related charges, and COGS related   to acquired inventory sold, which is adjusted to fair value as part of purchase accounting, are not included in segment operating earnings.   Other items not specifically identified with the Company’s   reportable segments include interest expense, net, and other income (expense),   net. Americas Americas represented approximately 33% of the Company’s   consolidated net sales in 2021.   The segment’s net sales were $572.6 million, an increase of $122.5 million or 27% compared to 2020.   The increase in net sales was driven by a benefit in selling price and product mix of 11%, increases in organic   volumes of approximately 10%, additional net sales from acquisitions of 5%, and the positive impact of foreign currency translation of 1%.   The current year organic volume increase was driven by the continued improvement in end market conditions compared to the prior year which   was impacted by COVID-19.   The increase in selling price and product mix is primarily driven by price increases implemented   to help offset the significant increases in raw material and other input costs incurred during 2021.   The foreign exchange impact was primarily driven by the strengthening of   the Mexican peso against the U.S. dollar, as this exchange rate averaged   20.27 in 2021 compared to 21.34 during 2020.   This segment’s operating earnings were $124.9 million, an increase of $28.5 million or 30% compared to 2020.   The increase in segment operating earnings reflects the higher net sales, described above, partially offset by lower gross   margins driven by the continued raw material cost increases and   global supply chain and logistics pressures coupled with higher SG&A including   an increase in direct selling costs associated with higher net sales, SG&A from acquisitions and an increase in SG&A as the prior year   included temporary cost savings measures implemented in response to the onset of the COVID-19 pandemic. EMEA EMEA represented approximately 27% of the Company’s   consolidated net sales in 2021.   The segment’s net sales were $480.1 million, an increase of $96.9 million or 25% compared to 2020.   The increase in net sales was driven by a benefit from selling price and product mix of 10%, increases in organic volumes of   approximately 9%, the positive impact of foreign currency translation of 4%, and additional net sales from acquisitions of 2%.   The increase in selling price and product mix is primarily driven by price increases implemented to offset the significant increase in raw   material and other input costs incurred during 2021.   The current year volume increase was driven by the continued improvement in end market conditions   compared to the prior year which was heavily impacted by COVID-19.   The foreign exchange impact was primarily driven by the strengthening   of the euro against the U.S. dollar as this exchange rate averaged 1.18 in 2021 compared to 1.14 in 2020.   This segment’s operating earnings were   $85.2 million, an increase of $16.0 million or 23% compared to 2020.   The increase in segment operating earnings reflects the higher net sales described   above, partially offset by lower current year gross margins   driven by the continued raw material cost increases and global supply chain and logistics pressures as well as higher SG&A including increases in direct selling   costs associated with higher net sales as well as increases as the prior year included temporary cost savings measures implemented   in response to the onset of the COVID-19 pandemic. Asia/Pacific Asia/Pacific represented approximately 22% of the Company’s   consolidated net sales in 2021.   The segment’s net sales were $388.2 million, an increase of approximately $72.9 million or 23%   compared to 2020.   The increase in net sales year-over-year was driven by increases in volumes of approximately 15%, the positive impact   of foreign currency translation of 5%, increases from selling price and product mix of 2% and additional net sales from   acquisitions of 1%.   The current year volume increase was driven by the continued improvement in end market conditions compared to the prior   year which was impacted by COVID-19.   The foreign 38 exchange impact was primarily due to the strengthening of the Chinese renminbi   against the U.S. dollar as this exchange rate averaged 6.45 in 2021 compared to 6.90 in 2020.   This segment’s operating earnings were   $96.3 million, an increase of $8.0 million or 9% compared to 2020.   The increase in segment operating earnings was driven by the higher net sales described above,   partially offset by lower gross margins driven by the continued raw material cost increases   and global supply chain and logistics pressures as well as higher direct selling costs associated with higher net sales and an increase   in SG&A as the prior year included temporary cost savings measures implemented in response to the onset of the COVID-19 pandemic   . Global Specialty Businesses Global Specialty Businesses represented approximately 18% of the   Company’s consolidated net sales in   2021.   The segment’s net sales were $320.2 million, an increase of $51.2 million or 19% compared   to 2020.   The increase in net sales was driven by increases in selling price and product mix, including Norman Hay,   of 14%, additional net sales from acquisitions of 8%, and the positive impact   of foreign currency translation of 2% partially offset by volume declines   of approximately 5%.   Both the changes in selling price and product mix and sales volumes were primarily driven by higher amounts of   shipments of a lower priced product in the Company’s mining business in the prior year.   The foreign exchange impact was a result of similar strengthening of certain   currencies in EMEA and Americas as described above.   This segment’s   operating earnings were $90.6 million, an increase of $10.9 million or 14% compared to 2020.   The increase in segment operating earnings reflects the higher net sales, described   above, partially offset by lower gross margins in the current year coupled with higher SG&A, including   an increase in direct selling costs associated with higher net sales, SG&A from acquisitions and an increase in SG&A as the prior year   included temporary cost savings measures implemented in response to the onset of the COVID-19 pandemic. Reportable Segments Review – Comparison of 2020 with 2019 Americas Americas represented approximately 32% of the Company’s   consolidated net sales in 2020.   The segment’s net sales were $450.2 million, an increase of $58.0 million or 15% compared to 2019.   The increase in net sales reflects additional net sales from acquisitions of $120.4 million, primarily a result of the inclusion of   seven additional months of Houghton net sales, as the Combination closed on August 1, 2019.   Excluding net sales from acquisitions, the segment’s   net sales decreased by approximately 16% due to lower volumes of 12% and a negative impact of foreign   currency translation of 4%.   The volume decline was driven by the economic slowdown that began in late March and continued throughout   2020 due to the impacts of COVID-19.   The foreign exchange impact was primarily due to the weakening of the Brazilian real   and the Mexican peso against the U.S. dollar,   as these exchange rates averaged 5.10 and 21.34, respectively,   in 2020 compared to 3.94 and 19.24, respectively in 2019.   This segment’s operating earnings were $96.4 million, an increase of $18.1 million or   23% compared to 2019.   The increase in segment operating earnings reflects the inclusion of a full year of Houghton net sales, noted,   above, and the impacts on gross margins and SG&A due to the Combination’s cost synergies   and costs savings actions related to COVID-19 year-over-year,   partially offset by the impact of COVID-19 on sales volumes and higher COGS and SG&A due to seven additional   months of Houghton in 2020. EMEA EMEA represented approximately 27% of the Company’s   consolidated net sales in 2020.   The segment’s net sales were $383.2 million, an increase of $97.6 million or 34% compared to 2019.   The increase in net sales reflects additional net sales from acquisitions of $117.9 million, primarily   a result of the inclusion of seven additional months of Houghton net sales, as the Combination closed on August 1, 2019.   Excluding net sales from acquisitions, the segment’s   net sales decreased year-over-year by approximately 7% due to lower volumes of 10%, partially offset by   a positive impact of foreign currency translation of 2% and increases in selling price and product mix of 1%.   The current year volume decline was driven by the economic slowdown that began in late March and continued throughout 2020 due to the impacts of COVID-19.   The foreign exchange impact was primarily due to the strengthening of the euro against the U.S. dollar as this exchange rate averaged   1.14 in 2020 compared to 1.12 in 2019.   This segment’s operating earnings were   $69.2 million, an increase of $22.1 million or 47% compared to 2019.   The increase in segment operating earnings reflects the inclusion of a full year of Houghton net sales,   noted, above, and the impacts on gross margins and SG&A due to the Combination’s cost synergies   and costs savings actions related to COVID-19 year-over-year,   partially offset by the impact of COVID-19 on sales volumes and higher COGS and SG&A due   to seven additional months of Houghton in 2020. Asia/Pacific Asia/Pacific represented approximately 22% of the Company’s   consolidated net sales in 2020.   The segment’s net sales were $315.3 million, an increase of $67.5 million or 27% compared to 2019.   The increase in net sales reflects the inclusion of seven additional months of Houghton net sales of $79.7 million, as the Combination   closed on August 1, 2019.   Excluding Houghton net sales, the segment’s net sales decreased   by approximately 5% year-over-year was due   to lower volumes of 3% and decreases in selling price and product mix of 3% partially offset by the positive   impact of foreign currency translation of 1%.   The current year volume decline was driven by the economic slowdown that began in the first quarter   of 2020 in China and in late March throughout the rest of the region due to the impacts of COVID-19.   The foreign exchange impact was primarily due to the strengthening of the Chinese renminbi against the U.S. dollar.   While this exchange rate averaged 6.90 in each of 2020 and 2019, respectively,   post the closing of the Combination, this exchange rate strengthened in the last 5 months of 2020   to average 6.72 compared to 7.06 in the last 5 months of 2019, partially offset by the weakening of the Indian rupee against the   U.S. dollar as this exchange rate averaged 73.95 in 2020 compared to 70.35 in 2019.   This segment’s operating earnings were   $88.4 million, an increase of $20.8 million or 31% compared to 39 2019.   The increase in segment operating earnings reflects the inclusion of incremental   Houghton net sales, noted, above, and the impacts on gross margins and SG&A due to the Combination’s   cost synergies and costs savings actions related to COVID-19 year- over-year, partially offset   by the impact of COVID-19 on sales volumes and higher COGS and SG&A due   to seven additional months of Houghton in 2020. Global Specialty Businesses Global Specialty Businesses represented approximately 19% of the   Company’s consolidated net sales in   2020.   The segment’s net sales were $269.0 million, an increase of $61.1 million or 29% compared   to 2019.   The increase in net sales reflects the inclusion of seven additional months of Houghton net sales and nine additional months   of Norman Hay net sales, totaling $90.6 million, as the Combination closed on August 1, 2019 and the Norman Hay acquisition   closed on October 1, 2019.   Excluding Houghton and Norman Hay net sales, the segment’s   net sales decreased by approximately 14% year-over-year   due to lower volumes of 7%, decreases in selling price and product mix of 5% and a negative impact from foreign   currency translation of 2%.   The current year volume decline was primarily due to a decrease in the Company’s   specialty coatings business driven by Boeing’s   decision to temporarily stop production of the 737 Max aircraft and volume declines   due to the economic slowdown resulting from COVID-19. Partially offsetting these volume declines, and   contributing to the decrease in selling price and product mix, were higher shipments of a lower priced product in the Company’s   mining business compared to 2019.   The foreign exchange impact was primarily due to the weakening of the Brazilian real against the U.S. dollar described   in the Americas section, above.   This segment’s operating earnings were $79.7 million, an increase of $20.8 million or 35% compared   to 2019.   The increase in segment operating earnings reflects the inclusion of incremental Houghton and Norman Hay net sales, noted   above, coupled with an increase in gross margin due to the Company’s progress on Combination   -related logistics, procurement and manufacturing cost savings initiatives, partially   offset by higher SG&A, including seven additional months of Houghton   and nine additional months of Norman Hay SG&A in 2020. Environmental Clean-up Activities The Company is involved in environmental clean-up activities in connection   with an existing plant location and former waste disposal sites.   This includes certain soil and groundwater contamination the   Company identified in 1992 at AC Products, Inc. (“ACP”), a wholly owned subsidiary.   In voluntary coordination with the Santa Ana California Regional Water   Quality Board, ACP has been remediating the contamination.   In 2007, ACP agreed to operate two groundwater treatment systems, so as to hydraulically contain groundwater contamination emanating from ACP’s   site until such time as the concentrations of contaminants are below   the current Federal maximum contaminant level for four consecutive   quarterly sampling events.   In 2014, ACP ceased operation at one of its two groundwater treatment systems, as it had met the above condition   for closure.   In 2020, the Santa Ana Regional Water   Quality Control Board asked that ACP conduct some additional indoor   and outdoor soil vapor testing on and near the ACP site to confirm that ACP continues to meet the applicable local standards and ACP has begun the   testing program.   Such testing began in 2020 and continued into 2021.   As of December 31, 2021, ACP believes it is close to meeting the conditions for closure   of the remaining groundwater treatment system but continues to operate this system while in   discussions with the relevant authorities.   As of December 31, 2021, the Company believes that the range of potential-known   liabilities associated with the balance of the ACP water remediation program is approximately $0.1 million to $1.0 million.   The low and high ends of the range are based on the length of operation of the treatment system as determined by groundwater modeling. The Company is party to environmental matters related to certain domestic   and foreign properties.   The Company’s Sao Paulo, Brazil site was required under Brazilian environmental, health and   safety regulations to perform an environmental assessment as part of a permit renewal process.   Initial investigations identified soil and ground water contamination in   select areas of the site.   The site has conducted a multi-year soil and groundwater investigation and   corresponding risk assessments based on the result of the investigations.   In 2017, the site had to submit a new 5-year permit renewal request and was asked to   complete additional investigations to further delineate the site based on review of the technical   data by the local regulatory agency,   Companhia Ambiental do Estado de São Paulo (“CETESB”).   Based on review of the updated investigation data, CETESB issued a Technical   Opinion regarding the investigation and remedial actions taken to date.   The site developed an action plan and submitted it to CETESB in 2018 based on CETESB requirements.   The site intervention plan primarily requires the site, among other actions,   to conduct periodic monitoring for methane in soil vapors, source zone delineation, groundwater   plume delineation, bedrock aquifer assessment, update the human health risk assessment, develop a current site conceptual model   and conduct a remedial feasibility study and provide a revised intervention plan.   In 2019, the site submitted a report on the activities completed including the revised   site conceptual model and results of the remedial feasibility study and recommended remedial   strategy for the site.   Other environmental matters include participation in certain payments in connection with four currently   active environmental consent orders related to certain hazardous waste cleanup activities under the U.S. Federal Superfund statute.   The Company has been designated a potentially responsible party (“PRP”) by the Environmental Protection Agency along with other   PRPs depending on the site, and has other obligations to perform cleanup activities at certain other foreign subsidiaries.   These environmental matters primarily require the Company to perform   long- term monitoring as well as operating and maintenance at each of the applicable   sites. The Company continually evaluates its obligations related to such matters,   and based on historical costs incurred and projected costs to be incurred over the next 27 years, has estimated the present value range   of costs for these environmental matters, on a discounted basis, to be between approximately $5.0 million and $6.0   million as of December 31, 2021, for which $5.6 million is accrued within other accrued liabilities and other non-current liabilities on   the Company’s Consolidated   Balance Sheet as of December 31, 2021.   Comparatively, as of   December 31, 2020, the Company had $6.0 million accrued with respect   to these matters. 40 The Company believes, although there can be no assurance regarding the   outcome of other unrelated environmental matters, that it has made adequate accruals for costs associated with other environmental   problems of which it is aware.   Approximately $0.4 million and $0.1 million were accrued as of December 31, 2021   and 2020, respectively, to provide for   such anticipated future environmental assessments and remediation costs. Notwithstanding the foregoing, the Company cannot be certain that   future liabilities in the form of remediation expenses and damages will not exceed amounts reserved.   See Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report General See Item 7A of this Report, below,   for further discussion of certain quantitative and qualitative disclosures   about market risk.