kwr-20211231
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2021
or
☐
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from
to
Commission file number
001-12019
QUAKER CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
A
Pennsylvania
Corporation
No.
23-0993790
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
901 E. Hector Street
,
Conshohocken
,
Pennsylvania
19428-2380
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (
610
)
832-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1 par value
KWR
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes
☒
No
☐
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐
No
☒
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-
T (
§
232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the Registrant was required
to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the
Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use
the extended transition period for complying with any new
or revised
financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a
report on and attestation to its management’s assessment of the effectiveness of its internal control
over
financial reporting under Section 404(b) of the Sarbanes-Oxley
Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit
report.
Yes
☒
No
☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).
Yes
☐
No
☒
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity
was last sold, or the average bid and asked price of such
common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. (The
aggregate market value is computed by reference to the last
reported sale on the New York Stock Exchange on June 30, 2021): $
4,210,881,271
Indicate the number of shares outstanding of each of the registrant’s classes of
common stock, as of the latest practicable date:
17,899,345
shares of Common Stock,
$1.00 Par Value, as of January 31, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement relating to the 2022 Annual
Meeting of Shareholders are incorporated by reference into Part
III.
1
QUAKER CHEMICAL CORPORATION
Table of
Contents
Page
Part I
Item 1.
Business.
2
Item 1A.
Risk Factors.
7
Item 1B.
Unresolved Staff Comments.
18
Item 2.
Properties.
18
Item 3.
Legal Proceedings.
18
Item 4.
Mine Safety Disclosures.
18
Item 4(a).
Information about our Executive Officers.
19
Part II
Item 5.
Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.
21
Item 6.
Selected Financial Data.
22
Item 7.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
23
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
40
Item 8.
Financial Statements and Supplementary Data.
42
Item 9.
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
93
Item 9A.
Controls and Procedures.
93
Item 9B.
Other Information.
94
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
94
Part III
Item 10.
Directors, Executive Officers and Corporate Governance.
95
Item 11.
Executive Compensation.
95
Item 12.
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
95
Item 13.
Certain Relationships and Related Transactions,
and Director Independence.
95
Item 14.
Principal Accountant Fees and Services.
95
Part IV
Item 15.
Exhibits and Financial Statement Schedules.
96
Item 16.
Form 10-K Summary.
99
2
PART
I
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.
Item 1.
Business.
General Description
The Company was organized in 1918, incorporated as a Pennsylvania
business corporation in 1930, and in August 2019
completed the Combination with Houghton to form Quaker Houghton.
Quaker Houghton is the global leader in industrial process
fluids.
With a presence around the world, includi
ng operations in over 25 countries, the Company’s
customers include thousands of
the world’s most advanced and specialized
steel, aluminum, automotive, aerospace, offshore, can,
mining, and metalworking
companies.
Quaker Houghton develops, produces, and markets a broad range of formulated
chemical specialty products and offers
chemical management services (which we refer to as “Fluidcare
TM
”) for various heavy industrial and manufacturing applications
throughout its four segments: Americas; Europe, Middle East and Africa
(“EMEA”); Asia/Pacific; and Global Specialty Businesses.
The major product lines of Quaker Houghton include metal removal fluids,
cleaning fluids, corrosion inhibitors, metal drawing
and forming fluids, die cast mold releases, heat treatment and quenchants,
metal forging fluids, hydraulic fluids, specialty greases,
offshore sub-sea energy control fluids, rolling
lubricants, rod and wire drawing fluids and surface treatment chemicals.
The following
are the respective contributions to consolidated net sales of each of our principal
product lines representing more than 10% of
consolidated net sales for any of the past three years based on the Company’s
current product line segmentation:
2021
2020
2019
Metal removal fluids
23.4
%
23.9
%
19.9
%
Rolling lubricants
22.2
%
21.8
%
21.9
%
Hydraulic fluids
13.6
%
13.3
%
13.0
%
Sales Revenue
A substantial portion of the Company’s
sales worldwide are made directly through its own employees and its Fluidcare
TM
programs, with the balance sold through distributors and agents.
The Company’s employees typically
visit the plants of customers
regularly, work on
site, and through training and experience, identify production needs which can be resolved
or otherwise addressed
either by utilizing the Company’s existing
products or by applying new formulations developed in its laboratories.
As part of the Company’s Fluidcare
TM
business, certain third-party product sales to customers are managed by the
Company.
Where the Company acts as principal, revenues are recognized on
a gross reporting basis at the selling price negotiated with its
customers.
Where the Company acts as an agent for its customers, revenue is recognized on
a net reporting basis at the amount of the
administrative fee earned by the Company for ordering the goods.
See Note 5 of Notes to Consolidated Financial Statements in Item 8
of this Report.
Competition
The specialty chemical industry comprises a number of companies similar in
size to the Company, as well
as companies larger
and smaller than Quaker Houghton.
The Company cannot readily determine its precise competitive position
in every industry it
serves.
However, the Company estimates it holds a leading
global position in the market for industrial process fluids including
significant global positions in the markets for process fluids in portions of
the automotive and industrial markets, and a leading
position in the market for process fluids to produce sheet steel and aluminum.
The offerings of many of the Company’s
competitors
differ from those of Quaker Houghton; some offer
a broad portfolio of fluids, including general lubricants, while others have more
specialized product ranges.
All competitors provide different levels of technical
services to individual customers.
Competition in the
industry is based primarily on the ability to supply products that meet the needs of
the customer and provide technical services and
laboratory assistance to the customer, and
to a lesser extent, on price.
Major Customers and Markets
In 2021, Quaker Houghton’s
five largest customers (each composed of multiple subsidiaries or divisions
with semi-autonomous
purchasing authority) accounted for approximately 10% of
consolidated net sales, with its largest customer accounting for
approximately 3% of consolidated net sales.
A significant portion of the Company’s
revenues are realized from the sale of process
fluids and services to manufacturers of steel, aluminum, automobiles,
aircraft, industrial equipment, and durable goods and, therefore,
Quaker Houghton is subject to the same business cycles as those experienced
by these manufacturers and their customers.
3
The Company’s financial
performance is generally correlated to the volume of global production within
the industries it serves, rather
than directly related to the financial performance of its customers.
Furthermore, steel and aluminum customers typically have limited
manufacturing locations compared to metalworking customers and
generally use higher volumes of products at a single location.
Raw Materials
Quaker Houghton uses approximately 3,000
raw materials, including animal fats, vegetable oils, mineral oils, oleochemicals,
ethylene, solvents, surfactant agents, various chemical compounds
that act as additives to our base formulations, and a wide variety of
other organic and inorganic compounds and
various derivatives of the foregoing.
The price of mineral oil and its derivatives can be
affected by the price of crude oil and industry refining
capacity.
Animal fat and vegetable oil prices, as well as the prices of other raw
materials, are impacted by their own unique supply and demand factors,
and by biodiesel consumption which is affected by the price
of crude oil.
Accordingly, significant fluctuations
in the price of crude oil can have a material impact on the cost of these raw
materials.
In addition, many of the raw materials used by Quaker Houghton are
commodity chemicals which can experience
significant price volatility.
As experienced during 2021, the Company’s
earnings have been and could continue to be affected by
market changes in raw material prices.
Reference is made to the disclosure contained in Item 7A of this Report.
Patents and Trademarks
Quaker Houghton has a limited number of patents and patent applications including
patents issued, applied for, or acquired in the
U.S. and in various foreign countries, some of which may prove to be material
to its business, with the earliest patent expiry in 2024.
The Company principally relies on its proprietary formulae and its applications
know-how and experience to meet customer needs.
Quaker Houghton products are identified by numerous trademarks that
are registered throughout its marketing area.
Research and Development—Laboratories
The Company maintains approximately thirty separate laboratory
facilities worldwide that are primarily devoted to applied
research and development.
In addition, the Company maintains quality control labs at each of its manufacturing
facilities.
Quaker
Houghton research and development is directed primarily
toward applied technology since the nature of the Company’s
business
requires continual modification and improvement of formulations to provide
specialty chemicals to satisfy customer requirements.
If
problems are encountered which cannot be resolved by local laboratories,
the problem is referred to one of our ten principal
laboratories, located in Conshohocken, Pennsylvania; Valley
Forge, Pennsylvania; Aurora, Illinois; Santa Fe Springs, California;
Uithoorn, the Netherlands; Coventry,
United Kingdom; Dortmund, Germany; Barcelona, Spain; Turin,
Italy or Qingpu, China.
Research and development costs are expensed as incurred.
Research and development expenses during the years ended
December 31, 2021, 2020 and 2019 were $44.9 million, $40.0 million and
$32.1 million, respectively.
Recent Acquisition Activity
The Company has completed several recent acquisitions that expand its strategic product
offerings and increase the Company's
presence in its core industries.
The Company's 2021 and 2022 acquisitions consist of:
●
In January 2022, the Company acquired a business related to the sealing
and impregnation of metal castings for the
automotive sector, as well as impregnation resin
and impregnation systems for metal parts for approximately $1.4 million.
This business expands the Company's geographic presence in Germany
as well as broadens its product offerings and service
capabilities within its existing impregnation business that was initially entered into
as part of its past acquisition of Norman
Hay.
●
In January 2022, the Company acquired a business that provides pickling
inhibitor technologies for the steel industry,
drawing lubricants and stamping oil for metalworking, and various other
lubrication, rust preventative, and cleaner
applications, for approximately $8.0 million.
This business broadens the Company’s
product offerings within its existing
metals and metalworking business in the Americas
region.
●
In November 2021, the Company acquired a business that provides hydraulic
fluids, coolants, cleaners, and rust preventative
oils for approximately $3.7 million.
This business expands the Company’s
geographic presence in Turkey as well as
broadens its product offerings within its existing metalworking
business.
●
In November 2021, the Company acquired Baron Industries ("Baron"),
a U.S. based privately held company that provides
vacuum impregnation services of castings, powder metal and electrical components
for an initial payment of approximately
$7.1 million.
Baron expands the Company's geographic presence as well as broadens its product
offerings and service
capabilities within its existing impregnation business.
●
In September 2021, the Company acquired the remaining interest in Grindaix-GmbH
(“Grindaix”), a Germany-based, high-
tech provider of coolant control and delivery systems for approximately $2.9
million.
Previously, in February 2021,
the
Company acquired a 38% ownership interest in Grindaix for approximately $1.7
million.
Grindaix expands the Company's
geographic presence in Germany and broadens its product offerings
and service capabilities within its equipment solutions
and fluid intelligence business.
4
●
In June 2021, the Company acquired certain assets for the Company’s
chemical milling maskants product line for
approximately $2.8 million.
●
In February 2021, the Company acquired a tin-plating solutions business for
the steel end market for approximately $25.0
million.
This business broadens the Company’s product
offerings within its existing metals business globally.
Impact of COVID-19
The global outbreak of COVID-19, and its variants, 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.
This outbreak has significantly disrupted the operations of the
Company and those of its suppliers and customers.
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.
Regulatory Matters
In order to facilitate compliance
with applicable federal, state, and local statutes and regulations relating
to occupational health
and safety and protection of the environment, the Company has an ongoing
program of site assessment for the purpose of identifying
capital expenditures or other actions that may be necessary to comply with
such requirements.
The program includes periodic
inspections of each facility by the Company and/or independent
experts, as well as ongoing inspections and training by on-site
personnel.
Such inspections address operational matters, record keeping, reporting requirements
and capital improvements.
Capital
expenditures directed solely or primarily to regulatory compliance amounted
to approximately $4.2
million, $3.7 million and $4.4
million during the years ended December 31, 2021, 2020 and 2019,
respectively.
Company Segmentation
The Company’s operating
segments, which are consistent with its reportable segments, reflect the structure of the
Company’s
internal organization, the method by which the Company’s
resources are allocated and the manner by which the chief operating
decision maker assesses the Company’s
performance.
The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii)
Asia/Pacific; and (iv) Global Specialty Businesses.
See Note 4 of Notes to Consolidated Financial Statements in Item 8 of this Report.
Non-U.S. Activities
Since significant revenues and earnings are generated by non-U.S. operations,
the Company’s financial results are
affected by
currency fluctuations, particularly between the U.S. dollar and the
euro, the British pound sterling, the Brazilian real, the Mexican
peso, the Chinese renminbi and the Indian rupee, and the impact of those currency
fluctuations on the underlying economies.
Reference is made to (i) the foreign exchange risk information
contained in Item 7A of this Report, (ii) the geographic information in
Note 4 of Notes to Consolidated Financial Statements included
in Item 8 of this Report, and (iii) information regarding risks attendant
to foreign operations included in Item 1A of this Report.
Number of Employees
On December 31, 2021, Quaker Houghton had approximately 4,700
full-time employees globally of whom approximately 1,200
were employed by the parent company and its U.S. subsidiaries, and approximately
3,500 were employed by its non-U.S. subsidiaries.
Associated companies of Quaker Houghton (in which it owns 50% or less and has
significant influence) employed approximately 600
people on December 31, 2021.
Core Values
Quaker Houghton considers its employees as its greatest strength in differentiating
our business and strengthening our market
positions.
We have established
core values that are inclusive of embracing diversity and creating a culture
where we learn from and
are inspired by the many cultures, backgrounds and knowledge of our
team members.
The Company’s goal is to have
an organization
that is inclusive of all its people and is representative of the communities
in which we operate.
The Company’s core values
are (i) live safe; (ii) act with integrity; (iii) drive results; (iv) exceed customer
expectations; (v)
embrace diversity; and (vi) do great things together.
Our core values embody who we are as a company,
guide our decisions and
inspire us.
Our commitment to these values, in words and actions, builds a safer,
stronger Quaker Houghton, and these values guide
the Company’s internal conduct
and its relationship with the outside world.
By fostering a culture and environment that exemplifies
our core values, we gain, as a company,
unique perspectives, backgrounds and varying experiences to ensure
continued long-term
success.
The Company respects and values all of its employees and believes inclusion,
diversity and equality are essential pillars to
drive the Company’s success.
Sustainability Report
We report our
progress on Environmental, Social, and Governance (“ESG”) milestones in our
sustainability report, which is
published annually and is available free of charge on our corporate
website at home.quakerhoughton.com/sustainability.
The
Company’s 2020 Sustainability
Report reflects the most recent available data on a variety of topics, including
specific information