SEC Info - Quaker Chemical Corp. - ‘10-Q’ for 6/30/22

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		Alternative Formats (Word, et al.) Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and June 30, 2021 Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2022 and June 30, 2021 Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and June 30, 2021 Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and June 30, 2021 Controls and Procedures Exhibits Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Notes to Condensed Consolidated Financial Statements Other Information Quantitative and Qualitative Disclosures about Market Risk Risk Factors Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and June 30, 2021
"	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and June 30, 2021
"	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021
"	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and June 30, 2021
"	Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2022 and June 30, 2021
"	Notes to Condensed Consolidated Financial Statements
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Quantitative and Qualitative Disclosures about Market Risk
"	Controls and Procedures
"	Other Information
"	Legal Proceedings
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Exhibits

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM

i 10-Q

i ☒

QUARTERLY

REPORT PURSUANT TO SECTION 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

i June 30, 2022

OR

i ☐

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

i 001-12019

i QUAKER CHEMICAL CORPORATION

(Exact name of registrant as specified in its charter)

i Pennsylvania

i 23-0993790

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

i 901 E. Hector Street

,

i Conshohocken

,

i Pennsylvania

i 19428 – 2380

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

i 610

-

i 832-4000

Not Applicable

Former name, former address and former fiscal year,

if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

i Common Stock, $1 par value

i KWR

i New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed

all reports required to be filed by Section 13 or 15(d)

of the Securities Exchange Act of 1934 during the

preceding 12 months (or for such shorter period that the registrant

was required to file such reports), and (2) has been subject

to such filing requirements for the past 90

days.

i 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) .

i 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.

i Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

i ☐

Emerging growth company

i ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use

the extended transition period for complying with any new

or revised

financial accounting standards provided pursuant to Section 13(a) of

the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as

defined in Rule 12b-2 of the Exchange Act).

Yes

☐

No

☒

Indicate the number of shares outstanding of each of the

issuer’s classes of common stock, as of the latest practicable date.

Number of Shares of Common Stock

Outstanding on July 31, 2022

i 17,929,045

1

QUAKER CHEMICAL CORPORATION

AND CONSOLIDATED

SUBSIDIARIES

Page

PART

I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and June 30, 2021

2

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and June 30, 2021

3

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and June 30, 2021

5

Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2022 and June 30, 2021

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

43

Item 4.

Controls and Procedures.

44

PART

II

OTHER INFORMATION.

Item 1.

Legal Proceedings.

45

Item 1A.

Risk Factors.

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

45

Item 6.

Exhibits.

46

Signatures

46

2

PART

I

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited).

Quaker Chemical Corporation

Condensed Consolidated Statements of Income

(Dollars in thousands, except per share data)

Unaudited

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Net sales

$

i 492,388

$

i 435,262

$

i 966,559

$

i 865,045

Cost of goods sold (

excluding amortization expense - See Note 13

)

i 342,824

i 280,811

i 670,924

i 554,400

Gross profit

i 149,564

i 154,451

i 295,635

i 310,645

Selling, general and administrative expenses

i 115,830

i 108,679

i 227,625

i 212,989

Restructuring and related (credits) charges, net

( i 1)

i 298

i 819

i 1,473

Combination, integration and other acquisition-related expenses

i 1,832

i 6,658

i 5,885

i 12,473

Operating income

i 31,903

i 38,816

i 61,306

i 83,710

Other (expense) income, net

( i 8,399)

i 14,010

( i 10,605)

i 18,697

Interest expense, net

( i 6,494)

( i 5,618)

( i 11,839)

( i 11,088)

Income before taxes and equity in net (loss) income of

associated companies

i 17,010

i 47,208

i 38,862

i 91,319

Taxes on income before

equity in net (loss) income of associated

companies

i 1,374

i 15,218

i 4,240

i 25,907

Income before equity in net (loss) income of associated

companies

i 15,636

i 31,990

i 34,622

i 65,412

Equity in net (loss) income of associated companies

( i 1,265)

i 1,610

( i 430)

i 6,820

Net income

i 14,371

i 33,600

i 34,192

i 72,232

Less: Net income attributable to noncontrolling interest

i 28

i 30

i 33

i 47

Net income attributable to Quaker Chemical Corporation

$

i 14,343

$

i 33,570

$

i 34,159

$

i 72,185

Per share data:

Net income attributable to Quaker Chemical Corporation

common shareholders – basic

$

i 0.80

$

i 1.88

$

i 1.91

$

i 4.04

Net income attributable to Quaker Chemical Corporation

common shareholders – diluted

$

i 0.80

$

i 1.88

$

i 1.91

$

i 4.03

Dividends declared

$

i 0.415

$

i 0.395

$

i 0.830

$

i 0.790

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive Income

(Dollars in thousands)

Unaudited

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Net income

$

i 14,371

$

i 33,600

$

i 34,192

$

i 72,232

Other comprehensive (loss) income, net of tax

Currency translation adjustments

( i 76,433)

i 16,165

( i 83,299)

( i 9,296)

Defined benefit retirement plans

i 1,407

i 397

i 1,903

i 1,689

Current period change in fair value of derivatives

i 575

i 452

i 1,675

i 1,014

Unrealized (loss) gain on available-for-sale securities

( i 567)

i 279

( i 1,567)

( i 2,746)

Other comprehensive (loss) income

( i 75,018)

i 17,293

( i 81,288)

( i 9,339)

Comprehensive (loss) income

( i 60,647)

i 50,893

( i 47,096)

i 62,893

Less: Comprehensive

income (loss) attributable to

noncontrolling interest

i 5

( i 38)

( i 1)

( i 53)

Comprehensive (loss) income attributable to Quaker Chemical

Corporation

$

( i 60,642)

$

i 50,855

$

( i 47,097)

$

i 62,840

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)

Unaudited

June 30,

December 31,

2022

2021

ASSETS

Current assets

Cash and cash equivalents

$

i 202,348

$

i 165,176

Accounts receivable, net

i 465,352

i 430,676

Inventories

Raw materials and supplies

i 163,055

i 129,382

Work-in-process

and finished goods

i 150,387

i 135,149

Prepaid expenses and other current assets

i 64,674

i 59,871

Total current

assets

i 1,045,816

i 920,254

Property, plant and equipment,

at cost

i 432,068

i 434,344

Less: Accumulated depreciation

( i 239,571)

( i 236,824)

Property, plant and equipment,

net

i 192,497

i 197,520

Right of use lease assets

i 36,317

i 36,635

Goodwill

i 610,167

i 631,194

Other intangible assets, net

i 962,580

i 1,027,782

Investments in associated companies

i 83,678

i 95,278

Deferred tax assets

i 10,897

i 16,138

Other non-current assets

i 28,804

i 30,959

Total assets

$

i 2,970,756

$

i 2,955,760

LIABILITIES AND EQUITY

Current liabilities

Short-term borrowings and current portion of long-term debt

$

i 14,485

$

i 56,935

Accounts payable

i 246,345

i 226,656

Dividends payable

i 7,437

i 7,427

Accrued compensation

i 29,359

i 38,197

Accrued restructuring

i 3,812

i 4,087

Accrued pension and postretirement benefits

i 1,541

i 1,548

Other accrued liabilities

i 97,746

i 95,617

Total current

liabilities

i 400,725

i 430,467

Long-term debt

i 972,369

i 836,412

Long-term lease liabilities

i 25,695

i 26,335

Deferred tax liabilities

i 156,468

i 179,025

Non-current accrued pension and postretirement benefits

i 42,755

i 45,984

Other non-current liabilities

i 42,178

i 49,615

Total liabilities

i 1,640,190

i 1,567,838

Commitments and contingencies (Note 18)

Equity

Common stock $

i 1

par value; authorized

i 30,000,000

shares; issued and

outstanding 2022 –

i 17,919,750

shares; 2021 –

i 17,897,033

shares

i 17,920

i 17,897

Capital in excess of par value

i 921,642

i 917,053

Retained earnings

i 535,621

i 516,334

Accumulated other comprehensive loss

( i 145,246)

( i 63,990)

Total Quaker

shareholders’ equity

i 1,329,937

i 1,387,294

Noncontrolling interest

i 629

i 628

Total equity

i 1,330,566

i 1,387,922

Total liabilities and equity

$

i 2,970,756

$

i 2,955,760

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

Unaudited

Six Months Ended

June 30,

2022

2021

Cash flows from operating activities

Net income

$

i 34,192

$

i 72,232

Adjustments to reconcile net income to net cash used in operating activities:

Amortization of debt issuance costs

i 2,236

i 2,375

Depreciation and amortization

i 41,036

i 44,188

Equity in undistributed earnings of associated companies, net of dividends

i 3,400

( i 6,715)

Acquisition-related fair value adjustments related to inventory

i —

i 801

Deferred compensation, deferred taxes and other,

net

( i 10,223)

( i 13,849)

Share-based compensation

i 5,433

i 6,134

Loss on extinguishment of debt

i 5,246

i —

Loss (gain) on disposal of property,

plant, equipment and other assets

i 15

( i 5,356)

Combination and other acquisition-related expenses, net of payments

( i 3,880)

( i 2,305)

Restructuring and related charges

i 819

i 1,473

Pension and other postretirement benefits

( i 2,269)

( i 2,223)

(Decrease) increase in cash from changes in current assets and current

liabilities, net of acquisitions:

Accounts receivable

( i 51,944)

( i 47,252)

Inventories

( i 58,427)

( i 57,020)

Prepaid expenses and other current assets

( i 5,558)

( i 20,111)

Change in restructuring liabilities

( i 797)

( i 4,214)

Accounts payable and accrued liabilities

i 32,298

i 22,274

Net cash used in operating activities

( i 8,423)

( i 9,568)

Cash flows from investing activities

Investments in property,

plant and equipment

( i 15,138)

( i 6,974)

Payments related to acquisitions, net of cash acquired

( i 9,383)

( i 29,424)

Proceeds from disposition of assets

i 85

i 14,744

Net cash used in investing activities

( i 24,436)

( i 21,654)

Cash flows from financing activities

Payments of long-term debt

( i 668,500)

( i 19,065)

Proceeds from long-term debt

i 750,000

i —

Borrowings on revolving credit facilities, net

i 16,703

i 29,433

Repayments on other debt, net

( i 155)

( i 219)

Financing-related debt issuance costs

( i 3,734)

i —

Dividends paid

( i 14,862)

( i 14,113)

Stock options exercised, other

( i 821)

( i 416)

Net cash provided by (used in) financing activities

i 78,631

( i 4,380)

Effect of foreign exchange rate changes on cash

( i 8,600)

( i 683)

Net increase (decrease) in cash and cash equivalents

i 37,172

( i 36,285)

Cash and cash equivalents at the beginning of the period

i 165,176

i 181,895

Cash and cash equivalents at the end of the period

$

i 202,348

$

i 145,610

The accompanying notes are an integral part of these unaudited condensed consolidated

financial statements.

6

Quaker Chemical Corporation

Condensed Consolidated Statements of Changes in Equity

(Dollars in thousands, except per share amounts)

(Unaudited)

Accumulated

Capital in

Other

Common

Excess of

Retained

Comprehensive

Noncontrolling

Stock

Par Value

Earnings

Loss

Interest

Total

Balance at December 31, 2020

$

i 17,851

$

i 905,171

$

i 423,940

$

( i 26,598)

$

i 550

$

i 1,320,914

Net income

i —

i 38,615

i —

i 17

i 38,632

Amounts reported in other

comprehensive loss

i —

( i 26,630)

( i 2)

( i 26,632)

Dividends ($

i 0.395

per share)

i —

( i 7,062)

i —

( i 7,062)

Share issuance and equity-based

compensation plans

i 24

i 3,577

i —

i 3,601

Balance at March 31, 2021

$

i 17,875

$

i 908,748

$

i 455,493

$

( i 53,228)

$

i 565

$

i 1,329,453

Net income

i —

i 33,570

i —

i 30

i 33,600

Amounts reported in other

comprehensive gain

i —

i 17,285

i 8

i 17,293

Dividends ($

i 0.395

per share)

i —

( i 7,062)

i —

( i 7,062)

Share issuance and equity-based

compensation plans

i 3

i 2,114

i —

i 2,117

Balance at June 30, 2021

$

i 17,878

$

i 910,862

$

i 482,001

$

( i 35,943)

$

i 603

$

i 1,375,401

Balance at December 31, 2021

$

i 17,897

$

i 917,053

$

i 516,334

$

( i 63,990)

$

i 628

$

i 1,387,922

Net income

i —

i 19,816

i —

i 5

i 19,821

Amounts reported in other

comprehensive loss

i —

( i 6,271)

i 1

( i 6,270)

Dividends ($

i 0.415

per share)

i —

( i 7,434)

i —

( i 7,434)

Share issuance and equity-based

compensation plans

i 15

i 1,646

i —

i 1,661

Balance at March 31, 2022

$

i 17,912

$

i 918,699

$

i 528,716

$

( i 70,261)

$

i 634

$

i 1,395,700

Net income

i —

i 14,343

i —

i 28

i 14,371

Amounts reported in other

comprehensive loss

i —

( i 74,985)

( i 33)

( i 75,018)

Dividends ($

i 0.415

per share)

i —

( i 7,438)

i —

( i 7,438)

Share issuance and equity-based

compensation plans

i 8

i 2,943

i —

i 2,951

Balance at June 30, 2022

$

i 17,920

$

i 921,642

$

i 535,621

$

( i 145,246)

$

i 629

$

i 1,330,566

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

7

i

Note 1 – Basis of Presentation and Description of Business

i

Basis of Presentation

As used in these Notes to Condensed Consolidated Financial Statements of

this Quarterly Report on Form 10-Q for the period

ended June 30, 2022 (the “Report”),

the terms “Quaker Houghton,”

the “Company,”

“we,” and “our” refer to Quaker Chemical

Corporation (doing business as Quaker Houghton), its subsidiaries, and

associated companies, unless the context otherwise requires.

As used in these Notes to Condensed Consolidated Financial Statements,

the “Combination” refers to the legacy Quaker combination

with Houghton International, Inc. (“Houghton”).

The condensed consolidated financial statements included herein are unaudited

and

have been prepared in accordance with generally accepted accounting principles

in the United States (“U.S. GAAP”) for interim

financial reporting and the United States Securities and Exchange Commission

(“SEC”) regulations.

Certain information and footnote

disclosures normally included in financial statements prepared in accordance

with U.S. GAAP have been condensed or omitted

pursuant to such rules and regulations.

In the opinion of management, the financial statements reflect all adjustments

consisting only

of normal recurring adjustments which are necessary for a fair statement of

the financial position, results of operations and cash flows

for the interim periods.

The results for the six months ended June 30, 2022 are not necessarily indicative of the

results to be expected

for the full year.

These financial statements should be read in conjunction with the Company’s

Annual Report filed on Form 10-K for

the year ended December 31, 2021 (the “2021 Form 10-K”).

Description of Business

The Company was organized in 1918, incorporated as a Pennsylvania

business corporation in 1930, and in August 2019

completed the Combination with Houghton to form Quaker Houghton.

Quaker Houghton is the global leader in industrial process

fluids.

With a presence around the world, including

operations in over

i 25

countries, the Company’s customers

include thousands of

the world’s most advanced and specialized

steel, aluminum, automotive, aerospace, offshore, can,

mining, and metalworking

companies.

Quaker Houghton develops, produces, and markets a broad range of formulated

chemical specialty products and offers

chemical management services (which the Company refers to as “Fluidcare

TM

”) for various heavy industrial and manufacturing

applications throughout its

i four

segments: Americas; Europe, Middle East and Africa (“EMEA”); Asia/Pacific; and

Global Specialty

Businesses.

i

Hyper-inflationary economies

Based on various indices or index compilations being used to monitor inflation

in Argentina as well as economic instability,

effective July 1, 2018, Argentina’s

economy was considered hyper-inflationary under U.S. GAAP.

As of, and for the three and six

months ended June 30, 2022, the Company's Argentine

subsidiaries represented less than

i i i i 1 / / /

% of the Company’s consolidated

total

assets and net sales, respectively.

During the three and six months ended June 30, 2022, the Company recorded less than $

i 0.1

million

and $

i 0.2

million, respectively, of remeasurement

losses associated with the applicable currency conversions related to Argentina.

Comparatively,

during the three and six months ended June 30, 2021, the Company recorded

$

i 0.1

million and $

i 0.3

million,

respectively, of remeasurement

losses associated with the applicable currency conversions

related to Argentina.

These losses were

recorded within foreign exchange losses, net, which is a component of other

(expense) income, net, in the Company’s Condensed

Consolidated Statements of Income.

/

i

Note 2 – Business Acquisitions

2022 Acquisitions

In January 2022, the Company acquired a business that provides pickling

inhibitor technologies for the steel industry,

drawing

lubricants and stamping oil for metalworking, and various other lubrication,

rust preventative, and cleaner applications, for its

Americas reportable segment for approximately $

i 8.0

million.

This business broadens the Company’s

product offerings within its

existing metals and metalworking business in the Americas region.

The Company allocated $

i 5.6

million of the purchase price to

intangible assets, comprised of $

i 5.1

million of customer relationships to be amortized over

i 14 years

; and $

i 0.5

million of existing

product technologies to be amortized over

i 14 years

.

In addition, the Company recorded $

i 1.8

million of goodwill related to expected

value not allocated to other acquired assets, all of which is expected to be tax deductible

in various jurisdictions in which the

Company operates.

In January 2022, the Company acquired a business related to the sealing and impregnation

of metal castings for the automotive

sector, as well as impregnation resin and

impregnation systems for metal parts, for its Global Specialty Businesses reportable segment

for approximately

i 1.2

million EUR or approximately $

i 1.4

million.

This business expands the Company's geographic presence in

Germany as well as broadens its product offerings and

service capabilities within its existing impregnation business.

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

8

The results of operations of the 2022 acquisitions subsequent to the respective

acquisition dates are included in the unaudited

Condensed Consolidated Statements of Income for the six month period ended

June 30, 2022.

Applicable transaction expenses

associated with these acquisitions are included in Combination,

integration and other acquisition-related expenses in the Company’s

unaudited Condensed Consolidated Statements of Income.

Certain pro forma and other information is not presented, as the operations

of the acquisitions are not considered material to the overall operations

of the Company for the periods presented.

Previous Acquisitions

In November 2021, the Company acquired Baron Industries (“Baron”),

a privately held Company that provides vacuum

impregnation services of castings, powder metals and electrical components for

its Global Specialty Businesses reportable segment for

$

i 11.0

million, including an initial cash payment of $

i 7.1

million, subject to post-closing adjustments as well as certain earn-out

provisions initially estimated at $

i 3.9

million that are payable at different times from 2022 through

2025.

The earn-out provisions

could total a maximum of $

i 4.5

million.

The Company allocated $

i 8.0

million of the purchase price to intangible assets, $

i 1.1

million of

property, plant and

equipment and $

i 1.5

million of other assets acquired net of liabilities assumed, which includes $

i 0.3

million of cash

acquired.

In addition, the Company recorded $

i 0.4

million of goodwill, all of which is expected to be tax deductible.

Intangible assets

comprised $

i 7.2

million of customer relationships to be amortized over

i 15 years

; and $

i 0.8

million of existing product technology to be

amortized over

i 13 years

.

In November 2021, the Company acquired a business that provides hydraulic

fluids, coolants, cleaners, and rust preventative oils

in Turkey for its EMEA reportable segment for

i 3.2

million EUR or approximately $

i 3.7

million.

In September 2021, the Company acquired the remaining interest in Grindaix

-GmbH (“Grindaix”), a Germany-based, high-tech

provider of coolant control and delivery systems for its Global Specialty Businesses reportable

segment for

i 2.4

million EUR or

approximately $

i 2.9

million, which is gross of approximately $

i 0.3

million of cash acquired.

Previously, in February

2021, the

Company acquired a

i 38

% ownership interest in Grindaix for

i 1.4

million EUR or approximately $

i 1.7

million.

The Company recorded

its initial investment as an equity method investment within the Condensed Consolidated

Financial Statements and accounted for the

purchase of the remaining interest as a step acquisition whereby the Company

remeasured the previously held equity method

investment to its fair value.

In June 2021, the Company acquired certain assets for its chemical milling

maskants product line in the Global Specialty

Businesses reportable segment for

i 2.3

million EUR or approximately $

i 2.8

million.

In February 2021, the Company acquired a tin-plating solutions business

for the steel end market for $

i 25.0

million.

This

acquisition is part of each of the Company’s

geographic reportable segments.

The Company allocated $

i 19.6

million of the purchase

price to intangible assets, comprised of $

i 18.3

million of customer relationships, to be amortized over

i 19 years

; $

i 0.9

million of existing

product technology to be amortized over

i 14 years

; and $

i 0.4

million of a licensed trademark to be amortized over

i 3 years

.

In addition,

the Company recorded $

i 5.0

million of goodwill related to expected value not allocated to other acquired

assets, all of which is

expected to be tax deductible in various jurisdictions in which we operate.

Factors contributing to the purchase price that resulted in

goodwill included the acquisition of business processes and personne

l

that will allow Quaker Houghton to better serve its customers.

As of June 30, 2022, the allocation of the purchase price of all of the Company’s

2022 acquisitions, Grindaix, the acquisition in

Turkey,

and Baron have not been finalized and the one-year measurement period has not ended.

Further adjustments may be

necessary as a result of the Company’s

on-going assessment of additional information related to the fair value of

assets acquired and

liabilities assumed.

In December 2020, the Company acquired Coral Chemical Corporation

(“Coral”), a privately held U.S.-based provider of metal

finishing fluid solutions.

Subsequent to the acquisition, the Company and the sellers of Coral (the “Sellers”) have worked

to finalize

certain post-closing adjustments.

During the second quarter of 2022, after failing to reach resolution,

the Sellers filed suit asserting

certain amounts owed related to tax attributes of the acquisition.

Based on the facts and circumstances of the claim asserted by the

Sellers, the Company believes the potential range of exposure for this claim is $

i 0

to $

i 1.5

million.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

9

i

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards

Adopted

The FASB issued ASU 2020

-04,

Reference Rate Reform (Topic

848): Facilitation of the Effects of Reference Rate Reform

on

Financial Reporting

in March 2020.

The FASB subsequently

issued ASU 2021-01,

Reference Rate Reform (Topic

848): Scope

in

January 2021 which clarified the guidance but did not materially change

the guidance or its applicability to the Company.

The

amendments provide temporary optional expedients and exceptions

for applying U.S. GAAP to contract modifications, hedging

relationships and other transactions to ease the potential accounting

and financial reporting burden associated with transitioning away

from reference rates that are expected to be discontinued, including

the London Interbank Offered Rate (“LIBOR”).

ASU 2020-04 is

effective for the Company as of March 12, 2020 and generally can

be applied through December 31, 2022.

On June 17, 2022, the

Company entered into an amendment to its primary credit facility which,

among other things, provided for the use of a USD currency

LIBOR successor rate (the Secured Overnight Financing Rate (“SOFR”)).

See Note 14 of Notes to Condensed Consolidated Financial

Statements.

i

Note 4 – Business Segments

i

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

i four

reportable segments: (i) Americas; (ii) EMEA; (iii)

Asia/Pacific; and (iv) Global Specialty Businesses.

The three geographic segments are composed of the net sales and operations in

each respective region, excluding net sales and operations managed globally

by the Global Specialty Businesses segment.

The Global

Specialty Businesses segment includes the Company’s

container, metal finishing,

mining, offshore, specialty coatings, specialty

grease and Norman Hay businesses.

/

Segment operating earnings for each of the Company’s

reportable segments are comprised of the segment’s

net sales less directly

related cost of goods sold (“COGS”) and selling, general and administrative

expenses (“SG&A”).

Operating expenses not directly

attributable to the net sales of each respective segment, such as certain corporate

and administrative costs, Combination, integration

and other acquisition-related expenses, and Restructuring and related charges,

are not included in segment operating earnings.

Other

items not specifically identified with the Company’s

reportable segments include Interest expense, net and Other (expense) income,

net.

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

10

The following table presents information about the performance of

the Company’s reportable segments for

the three and six

months ended June 30, 2022 and 2021.

i

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Net sales

Americas

$

i 172,747

$

i 139,673

$

i 326,891

$

i 274,544

EMEA

i 123,053

i 123,436

i 248,740

i 243,250

Asia/Pacific

i 99,828

i 91,559

i 204,062

i 188,265

Global Specialty Businesses

i 96,760

i 80,594

i 186,866

i 158,986

Total net sales

$

i 492,388

$

i 435,262

$

i 966,559

$

i 865,045

Segment operating earnings

Americas

$

i 33,785

$

i 33,648

$

i 63,005

$

i 65,882

EMEA

i 13,283

i 23,405

i 30,049

i 48,649

Asia/Pacific

i 22,226

i 23,227

i 44,133

i 50,705

Global Specialty Businesses

i 27,841

i 24,209

i 52,876

i 48,378

Total segment operating

earnings

i 97,135

i 104,489

i 190,063

i 213,614

Combination, integration and other acquisition-related expenses

( i 1,832)

( i 6,658)

( i 5,885)

( i 12,473)

Restructuring and related credits (charges), net

i 1

( i 298)

( i 819)

( i 1,473)

Fair value step up of acquired inventory sold

i —

( i 801)

Non-operating and administrative expenses

( i 48,579)

( i 43,077)

( i 92,042)

( i 84,069)

Depreciation of corporate assets and amortization

( i 14,822)

( i 15,640)

( i 30,011)

( i 31,088)

Operating income

i 31,903

i 38,816

i 61,306

i 83,710

Other (expense) income, net

( i 8,399)

i 14,010

( i 10,605)

i 18,697

Interest expense, net

( i 6,494)

( i 5,618)

( i 11,839)

( i 11,088)

Income before taxes and equity in net (loss) income of

associated companies

$

i 17,010

$

i 47,208

$

i 38,862

$

i 91,319

/

Inter-segment revenues for the three and six months ended

June 30, 2022, were $

i 3.3

million and $

i 6.2

million for Americas, $

i 12.4

million and $

i 21.3

million for EMEA, $

i 0.1

million and $

i 0.4

million for Asia/Pacific, and $

i 2.0

million and $

i 3.7

million for Global

Specialty Businesses, respectively.

Inter-segment revenues for the three and six months ended

June 30, 2021, were $

i 2.4

million and

$

i 5.7

million for Americas, $

i 6.3

million and $

i 15.1

million for EMEA, $

i 0.4

million and $

i 0.5

million for Asia/Pacific, and $

i 2.1

million

and $

i 4.1

million for Global Specialty Businesses, respectively.

However, all inter-segment transactions

have been eliminated from

each reportable operating segment’s

net sales and earnings for all periods presented in the above tables.

i

Note 5 – Net Sales and Revenue Recognition

Arrangements Resulting in Net Reporting

i

As part of the Company’s Fluidcare

TM

business, certain third-party product sales to customers are managed by the

Company.

The

Company transferred third-party products under arrangements recognized

on a net reporting basis of $

i 20.5

million and $

i 40.3

million

for the three and six months ended June 30, 2022, respectively,

and $

i 16.7

million and $

i 34.5

million for the three and six months ended

June 30, 2021, respectively.

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

11

Customer Concentration

A significant portion of the Company’s

revenues are realized from the sale of process fluids and services to manufacturers of

steel, aluminum, automobiles, aerospace,

industrial and agricultural equipment, and durable goods.

As previously disclosed in the

Company’s 2021 Form 10-K, during

the year ended December 31, 2021, the Company’s

five largest customers (each composed of

multiple subsidiaries or divisions with semiautonomous purchasing authority)

accounted for approximately

i 10

% of consolidated net

sales, with its largest customer accounting for approximately

i 3

% of consolidated net sales.

Contract Assets and Liabilities

The Company had no material contract assets recorded on its Condensed

Consolidated Balance Sheets as of June 30, 2022 or

December 31, 2021.

The Company had approximately $

i 6.6

million and $

i 7.0

million of deferred revenue as of June 30, 2022 and December 31, 2021,

respectively.

For the six months ended June 30, 2022, the Company satisfied all of the associated

performance obligations and

recognized into revenue the advance payments received and recorded

as of December 31, 2021.

Disaggregated Revenue

The Company sells its various industrial process fluids, its specialty chemicals

and its technical expertise as a global product

portfolio.

The Company generally manages and evaluates its performance by segment first, and

then by customer industry,

rather than

by individual product lines.

Also, net sales of each of the Company’s major product

lines are generally spread throughout all three of

the Company’s geographic

regions, and in most cases, approximately proportionate to the level of total

sales in each region.

The following tables disaggregate the Company’s

net sales by segment, geographic region, customer industry,

and timing of

revenue recognized for the three and six months ended June 30, 2022

and 2021.

i

Three Months Ended June 30, 2022

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

$

i 63,373

$

i 37,586

$

i 55,596

$

i 156,555

Metalworking and other

i 109,374

i 85,467

i 44,232

i 239,073

i 172,747

i 123,053

i 99,828

i 395,628

Global Specialty Businesses

i 62,367

i 21,324

i 13,069

i 96,760

$

i 235,114

$

i 144,377

$

i 112,897

$

i 492,388

Timing of Revenue Recognized

Product sales at a point in time

$

i 225,135

$

i 136,622

$

i 110,190

$

i 471,947

Services transferred over time

i 9,979

i 7,755

i 2,707

i 20,441

$

i 235,114

$

i 144,377

$

i 112,897

$

i 492,388

/

Three Months Ended June 30, 2021

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

$

i 51,799

$

i 35,634

$

i 48,207

$

i 135,640

Metalworking and other

i 87,874

i 87,802

i 43,352

i 219,028

i 139,673

i 123,436

i 91,559

i 354,668

Global Specialty Businesses

i 46,183

i 21,678

i 12,733

i 80,594

$

i 185,856

$

i 145,114

$

i 104,292

$

i 435,262

Timing of Revenue Recognized

Product sales at a point in time

$

i 177,227

$

i 137,838

$

i 101,264

$

i 416,329

Services transferred over time

i 8,629

i 7,276

i 3,028

i 18,933

$

i 185,856

$

i 145,114

$

i 104,292

$

i 435,262

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

12

Six Months Ended June 30, 2022

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

$

i 119,533

$

i 74,425

$

i 110,883

$

i 304,841

Metalworking and other

i 207,358

i 174,315

i 93,179

i 474,852

i 326,891

i 248,740

i 204,062

i 779,693

Global Specialty Businesses

i 119,631

i 41,345

i 25,890

i 186,866

$

i 446,522

$

i 290,085

$

i 229,952

$

i 966,559

Timing of Revenue Recognized

Product sales at a point in time

$

i 426,419

$

i 273,825

$

i 224,815

$

i 925,059

Services transferred over time

i 20,103

i 16,260

i 5,137

i 41,500

$

i 446,522

$

i 290,085

$

i 229,952

$

i 966,559

Six Months Ended June 30, 2021

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

$

i 98,592

$

i 69,908

$

i 97,950

$

i 266,450

Metalworking and other

i 175,952

i 173,342

i 90,315

i 439,609

i 274,544

i 243,250

i 188,265

i 706,059

Global Specialty Businesses

i 91,439

i 41,950

i 25,597

i 158,986

$

i 365,983

$

i 285,200

$

i 213,862

$

i 865,045

Timing of Revenue Recognized

Product sales at a point in time

$

i 348,821

$

i 269,000

$

i 207,663

$

i 825,484

Services transferred over time

i 17,162

i 16,200

i 6,199

i 39,561

$

i 365,983

$

i 285,200

$

i 213,862

$

i 865,045

i

Note 6 - Leases

The Company has operating leases for certain facilities, vehicles and machinery

and equipment with remaining lease terms up to

i 10 years

.

Operating lease expense is recognized on a straight-line basis over the lease term. In addition,

the Company has certain land

use leases with remaining lease terms up to

i 93 years

.

/

The Company has

i i i i no / / /

material variable lease costs, sublease income or finance leases for three and six months ended

June 30,

2022 and 2021. The following table sets forth the components of the Company’s

lease cost for three and six months ended June 30,

2022 and 2021:

i

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Operating lease expense

$

i 3,519

$

i 3,548

$

i 6,928

$

i 7,160

Short-term lease expense

i 205

i 283

i 424

i 534

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

13

Supplemental cash flow information related to the Company’s

leases is as follows:

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Cash paid for amounts included in the

measurement of lease liabilities:

Operating cash flows from operating leases

$

i 3,442

$

i 3,489

$

i 6,807

$

i 7,068

Non-cash lease liabilities activity:

Leased assets obtained in exchange for new

operating lease liabilities

i 3,385

i 825

i 8,074

i 3,875

Supplemental balance sheet information related to the Company’s

leases is as follows:

June 30,

December 31,

2022

2021

Right of use lease assets

$

i 36,317

$

i 36,635

Other current liabilities

i 10,452

i 9,976

Long-term lease liabilities

i 25,695

i 26,335

Total operating lease liabilities

$

i 36,147

$

i 36,311

Weighted average

remaining lease term (years)

i 5.6

Weighted average

discount rate

i 4.14%

i 4.22%

Maturities of operating lease liabilities were as follows:

i

June 30,

2022

For the remainder of 2022

$

i 6,201

For the year ended December 31, 2023

i 10,076

For the year ended December 31, 2024

i 7,815

For the year ended December 31, 2025

i 5,749

For the year ended December 31, 2026

i 4,449

For the year ended December 31, 2027 and beyond

i 6,678

Total lease payments

i 40,968

Less: imputed interest

( i 4,821)

Present value of lease liabilities

$

i 36,147

/

i

Note 7 – Restructuring and Related Activities

i The Company’s management approved a global restructuring plan (the “QH Program”) as part of its plan to realize certain cost

synergies associated with the Combination in the third quarter of 2019. The QH Program includes restructuring and associated

severance costs to reduce total headcount by approximately i 400 people globally, as well as plans for the closure of certain

manufacturing and non-manufacturing facilities. The exact timing and total costs associated with the QH Program depend on a

number of factors and are subject to change; however, the Company currently expects reduction in headcount and site closures under

the QH Program to continue to occur throughout 2022 and into 2023. Employee separation benefits will vary depending on local

regulations within certain foreign countries and will include severance and other benefits.

All costs incurred to date relate to severance costs to reduce headcount,

including customary and routine adjustments to initial

estimates for employee separation costs, as well as costs to close certain facilities

and are recorded in Restructuring and related

charges in the Company’s

Condensed Consolidated Statements of Income.

As described in Note 4 of Notes to Condensed

Consolidated Financial Statements, restructuring and related charges

are not included in the Company’s

calculation of reportable

segments’ measure of operating earnings and therefore these costs are not reviewed

by or recorded to reportable segments.

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

14

Activity in the Company’s accrual

for restructuring under the QH Program for the six months ended June 30, 2022

is as follows:

i

QH Program

Accrued restructuring as of December 31, 2021

$

i 4,087

Restructuring and related charges

i 819

Cash payments

( i 797)

Currency translation adjustments

( i 297)

Accrued restructuring as of June 30, 2022

$

i 3,812

/

i

Note 8 – Share-Based Compensation

The Company recognized the following share-based compensation expense

in its Condensed Consolidated Statements of Income

for the three and six months ended June 30, 2022 and 2021:

i

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Stock options

$

i 469

$

i 332

$

i 736

$

i 640

Non-vested stock awards and restricted stock units

i 1,667

i 1,290

i 3,215

i 2,686

Non-elective and elective 401(k) matching contribution in stock

i —

i 1,553

Director stock ownership plan

i 20

i 216

i 44

i 419

Performance stock units

i 815

i 517

i 1,438

i 836

Total share-based

compensation expense

$

i 2,971

$

i 2,355

$

i 5,433

$

i 6,134

/

Share-based compensation expense is recorded in SG&A, except for $

i 0.1

million and $

i 0.2

million for the three and six months

ended June 30, 2022, respectively,

and $

i 0.2

million and $

i 0.5

million for the three and six months ended June 30, 2021, respectively,

recorded within Combination, integration and other acquisition-related

expenses.

Stock Options

During the first six months of 2022, the Company granted stock options under

its long-term incentive plan (“LTIP”)

that are

subject only to time vesting over a

three

year period.

For the purposes of determining the fair value of stock option awards, the

Company used a Black-Scholes option pricing model and the assumptions set forth

in the table below:

i

March 2022

Grant

Number of options granted

i 27,077

Dividend yield

i 0.80

%

Expected volatility

i 38.60

%

Risk-free interest rate

i 2.07

%

Expected term (years)

i 4.0

/

The fair value of these options is amortized on a straight-line basis over the

vesting period.

As of June 30, 2022, unrecognized

compensation expense related to all stock options granted

was $

i 2.4

million, to be recognized over a weighted average remaining

period of

i 1.6

years.

Restricted Stock Awards

and Restricted Stock Units

During the six months ended June 30, 2022, the Company granted

i 25,743

non-vested restricted shares and

i 4,490

non-vested

restricted stock units under its LTIP,

which are subject to time-based vesting, generally over a

i three year

period.

The fair value of

these grants is based on the trading price of the Company’s

common stock on the date of grant.

The Company adjusts the grant date

fair value of these awards for expected forfeitures based on historical experience.

As of June 30, 2022, unrecognized compensation

expense related to the non-vested restricted shares was $

i 6.2

million, to be recognized over a weighted average remaining period

of

i 1.8

years, and unrecognized compensation expense related to non-vested

restricted stock units was $

i 1.2

million, to be recognized over a

weighted average remaining period of

i 2.1

years.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

15

Performance Stock Units

The Company grants performance-dependent stock awards (“PSUs”) as a component

of its LTIP,

which will be settled in a

certain number of shares subject to market-based and time-based vesting conditions.

The number of fully vested shares that may

ultimately be issued as settlement for each award may range from

i 0

% up to

i 200

% of the target award, subject to the achievement of

the Company’s total shareholder

return (“TSR”) relative to the performance of the Company’s

peer group, the S&P Midcap 400

Materials group.

The service period required for the PSUs is three years and the TSR measurement

period for the PSUs is generally

from January 1 of the year of grant through December 31 of the year prior

to issuance of the shares upon settlement.

Compensation expense for PSUs is measured based on their grant date fair value

and is recognized on a straight-line basis over

the three year vesting period.

The grant-date fair value of the PSUs was estimated using a Monte Carlo

simulation on the grant date

and using the following assumptions set forth in the table below:

i

March 2022

Grant

Number of PSUs granted

i 16,820

Risk-free interest rate

i 2.11

%

Dividend yield

i 0.93

%

Expected term (years)

i 3.0

/

As of June 30, 2022, based on the conditions of the PSUs and performance to date for

each award, the Company estimates that it

will

i no

t issue any fully vested shares as of the applicable settlement date of all outstanding PSUs awards.

As of June 30, 2022, there

was approximately $

i 5.5

million of total unrecognized compensation cost related to PSUs which the Company

expects to recognize

over a weighted-average period of

i 2.1

years.

Defined Contribution Plan

The Company has a 401(k) plan with an employer match covering a majority

of its U.S. employees.

The Company matches

i 50

%

of the first

i 6

% of compensation that is contributed to the plan, with a maximum matching contribution of

i 3

% of compensation.

Additionally, the plan

provides for non-elective nondiscretionary contributions on behalf of participants

who have completed one year

of service equal to

i 3

% of the eligible participants’ compensation.

Beginning in April 2020 and continuing through March 2021, the

Company matched both non-elective and elective 401(k) contributions

in fully vested shares of the Company’s common

stock rather

than cash.

There were

i i no /

matching contributions in stock for the three and six months ended June 30, 2022.

For the six months ended

June 30, 2021, total contributions were $

i 1.5

million.

i

Note 9 – Pension and Other Postretirement

Benefits

The components of net periodic benefit (income) cost for the three and

six months ended June 30, 2022 and 2021 are as follows:

i

Three

Months Ended June 30,

Six Months Ended June 30,

Other

Postretirement

Pension Benefits

Benefits

Pension Benefits

Benefits

2022

2021

2022

2021

2022

2021

2022

2021

Service cost

$

i 174

$

i 316

$

i 8

$

i 2

$

i 354

$

i 632

$

i —

$

i 3

Interest cost

i 1,317

i 1,094

i 2

i 10

i 2,677

i 2,184

i 11

i 21

Expected return on plan assets

( i 2,012)

( i 2,093)

i —

( i 4,097)

( i 4,175)

i —

Actuarial loss amortization

i 248

i 857

( i 23)

i —

i 505

i 1,712

( i 47)

i —

Prior service cost amortization

i 2

i 3

( i 9)

i —

i 5

( i 8)

i —

Net periodic benefit (income)

cost

$

( i 271)

$

i 177

$

( i 22)

$

i 12

$

( i 556)

$

i 358

$

( i 44)

$

i 24

/

Employer Contributions

As of June 30, 2022, $

i 1.7

million and $

i 0.1

million of contributions have been made to the Company’s

U.S. and foreign pension

plans and its other postretirement benefit plans, respectively.

Taking into consideration

current minimum cash contribution

requirements, the Company currently expects to make full year cash contributions

of approximately $

i 6.6

million to its U.S. and

foreign pension plans and approximately $

i 0.2

million to its other postretirement benefit plans in 2022

.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

16

i

Note 10 – Other (Expense) Income, Net

The components of other (expense) income, net, for the three and six months ended June

30, 2022 and 2021 are as follows:

i

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Income from third party license fees

$

i 249

$

i 373

$

i 653

$

i 712

Foreign exchange losses, net

( i 2,026)

( i 838)

( i 3,931)

( i 2,316)

(Loss) gain on disposals of property,

plant, equipment and other

assets, net

( i 38)

( i 54)

( i 15)

i 5,356

Non-income tax refunds and other related (expense) credits

( i 417)

i 14,295

( i 1,739)

i 14,392

Pension and postretirement benefit income,

non-service components

i 475

i 129

i 954

i 253

Loss on extinguishment of debt

( i 6,763)

i —

( i 6,763)

i —

Other non-operating income, net

i 121

i 105

i 236

i 300

Total other (expense)

income, net

$

( i 8,399)

$

i 14,010

$

( i 10,605)

$

i 18,697

/

Non-income tax refunds and other related (expense) credits during

the three and six months ended June 30, 2022, includes

adjustments to Combination-related indemnification assets associated with the

settlement of certain income tax audits at certain of the

Company’s Italian and German

affiliates for tax periods prior to August 1, 2019.

See Note 11 of Notes to Condensed Consolidated

Financial Statements.

During the second quarter of 2022, the Company recorded a loss on extinguishment

of debt of approximately

$

i 6.8

million which includes the write-off of certain previously unamortized

deferred financing costs as well as a portion of the third

party and creditor debt issuance costs incurred to execute an amendment

to the Company’s primary credit facility.

See Note 14 of

Notes to the Condensed Consolidated Financial Statements.

Loss (gain) on disposals of property,

plant, equipment and other assets, net, during the six months ended June 30, 2021,

includes a

gain on the sale of certain held-for-sale real property assets related

to the Combination.

i

Note 11 – Income Taxes

and Uncertain Income Tax

Positions

The Company’s effective

tax rates for the three and six months ended June 30, 2022 were

i 8.1

% and

i 10.9

%, respectively,

compared to

i 32.2

% and

i 28.4

% for the three and six months ended June 30, 2021, respectively.

The Company’s effective

tax rate for

the six months ended June 30, 2022 was largely driven by

state tax benefits, changes in the valuation allowance for foreign tax credits

due to recently issued legislative guidance,

the impact of audit settlements reached with German and Italian tax authorities, a deferred

tax benefit associated with an intercompany asset transfer,

a reduction in reserves for uncertain tax positions relating to management

fees, withholding taxes for increased forecasted dividends and the effects

of lower pre-tax earnings and the mix of such earnings.

In

addition, the Company incurred higher tax expense during the three and six months ended

June 30, 2022 at one of its subsidiaries as it

accrued taxes at a statutory tax rate of

i 25

% while it awaits recertification of a concessionary

i 15

% tax rate, which was available to the

Company during all of 2021.

Comparatively,

the prior year effective tax rates were largely impacted

by the sale of a subsidiary which

included certain held-for-sale real property assets related to the Combination

,

changes in foreign tax credit valuation allowances, tax

law changes in a foreign jurisdiction and the income tax impacts of certain

non-income tax credits recorded by the Company’s

Brazilian subsidiaries.

As of December 31, 2021, the Company had a deferred tax liability of $

i 8.4

million on certain undistributed foreign earnings,

which primarily represents the Company’s

estimate of non-U.S. income taxes the Company will incur to ultimately remit certain

earnings to the U.S.

As of June 30, 2022 this deferred tax liability balance was $

i 7.4

million.

As of June 30, 2022, the Company’s

cumulative liability for gross unrecognized tax benefits was $

i 17.8

million, a decrease of approximately $

i 4.7

million from the

cumulative liability accrued as of December 31, 2021.

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

17

The Company continues to recognize interest and penalties associated with uncertain

tax positions as a component of taxes on

income before equity in net income of associated companies in its Condensed

Consolidated Statements of Income.

The Company

recognized a benefit for interest of less than $

i 0.1

million and $

i 0.3

million and an expense of less than of $

i 0.1

million and a benefit of

$

i 1.5

million for penalties in its Condensed Consolidated Statement of Income for

the three and six months ended June 30, 2022,

respectively, and recognized

an expense for interest of approximately $

i 0.2

million and $

i 0.2

million and a benefit of less than $

i 0.1

million and $

i 0.2

million for penalties in its Condensed Consolidated Statement of Income for

the three and six months ended June 30,

2021, respectively.

As of June 30, 2022, the Company had accrued $

i 2.6

million for cumulative interest and $

i 1.5

million for

cumulative penalties in its Condensed Consolidated Balance Sheets, compared

to $

i 3.1

million for cumulative interest and $

i 3.1

million

for cumulative penalties accrued at December 31, 2021.

During the six months ended June 30, 2022 and 2021, the Company recognized

decreases of $

i 3.5

million and $

i 0.8

million,

respectively,

in its cumulative liability for gross unrecognized tax benefits due to the settlement

of income tax audits with both the

Italian and German tax authorities, as well as the expiration of the applicable

statutes of limitations for certain tax years.

The Company estimates that during the year ending December 31, 202

2

it will reduce its cumulative liability for gross

unrecognized tax benefits by approximately $

i 4.2

million due to the settlement of income tax audits and the expiration of the statute of

limitations with regard to certain tax positions.

This estimated reduction in the cumulative liability for unrecognized

tax benefits does

not consider any increase in liability for unrecognized tax benefits with regard

to existing tax positions or any increase in cumulative

liability for unrecognized tax benefits with regard to new tax positions for

the year ending December 31, 2022.

The Company and its subsidiaries are subject to U.S. Federal income tax,

as well as the income tax of various state and foreign

tax jurisdictions.

Tax years that remain subject

to examination by major tax jurisdictions include Italy from

i 2007

, Brazil from

i 2011

,

Germany from

i 2015

, the Netherlands and Mexico from

i i 2016 /

, Canada, China, Spain and the U.S. from

i i i i 2017 / / /

, the United Kingdom

from

i 2018

, India from fiscal year beginning April 1, 2017 and ending March 31,

i 2018

, and various U.S. state tax jurisdictions from

i 2011

.

i As previously reported, the Italian tax authorities have assessed additional tax due from the Company’s subsidiary, Quaker Italia

S.r.l., relating to the tax years i 2007 through i 2015. The Company has filed for competent authority relief from these assessments under

the Mutual Agreement Procedures (“MAP”) of the Organization for Economic Co-Operation and Development for all years except

2007. In 2020, the respective tax authorities in Italy, Spain and the Netherlands reached agreement with respect to the MAP

proceedings which the Company had accepted.

As of June 30, 2022, the Company received $

i 1.6

million in refunds from the

Netherlands and Spain.

In February 2022, the Company received a settlement notice from the Italian taxing

authorities confirming the

amount due of $

i 2.6

million, having granted the Company’s request

to utilize its remaining net operating losses to partially offset

the

liability.

As of June 30, 2022, the Company has paid the full settlement amount, of which approximately

$

i 0.1

million may be

refundable.

Houghton Italia, S.r.l is also involved

in a corporate income tax audit with the Italian tax authorities covering tax years

i 2014

through

i 2018

.

During the fourth quarter of 2021, the Company settled a portion of the Houghton Italia,

S.r.l. corporate income tax

audit with the Italian tax authorities for the tax years 2014 and 2015.

During the six months ended June 30, 2022, the Company

settled tax years 2016 through 2018 for a total of $

i 2.1

million.

In total, the Company has now settled all years 2014 through 2018 for

$

i 3.7

million.

Accordingly, the Company has

released all reserves relating to this audit for the settled tax years.

As a result of the

settlement and reserve release the Company recognized a net benefit

to the tax provision of $

i 2.0

million during the first six months of

2022.

The Company has an indemnification receivable of $

i 3.6

million in connection with its claim against the former owners of

Houghton for any pre-Combination tax liabilities arising from this matter.

As previously reported, Houghton Deutschland GmbH is also under

audit by the German tax authorities for the tax years

i 2015

through

i 2017

.

In the second quarter of 2022 the Company settled the corporate tax audit for the

tax years 2015-2017 with the German

tax authorities for a total of $

i 0.1

million.

The Company has an indemnification receivable of $

i 0.3

million in connection with its claim

against the former owners of Houghton for any pre-Combination tax

liabilities arising from this matter.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

18

i

Note 12 – Earnings Per Share

The following table summarizes earnings per share calculations for

the three and six months ended June 30, 2022 and 2021:

i

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Basic earnings per common share

Net income attributable to Quaker Chemical Corporation

$

i 14,343

$

i 33,570

$

i 34,159

$

i 72,185

Less: income allocated to participating securities

( i 58)

( i 134)

( i 136)

( i 287)

Net income available to common shareholders

$

i 14,285

$

i 33,436

$

i 34,023

$

i 71,898

Basic weighted average common shares outstanding

i 17,834,329

i 17,802,366

i 17,830,218

i 17,793,915

Basic earnings per common share

$

i 0.80

$

i 1.88

$

i 1.91

$

i 4.04

Diluted earnings per common share

Net income attributable to Quaker Chemical Corporation

$

i 14,343

$

i 33,570

$

i 34,159

$

i 72,185

Less: income allocated to participating securities

( i 58)

( i 134)

( i 136)

( i 287)

Net income available to common shareholders

$

i 14,285

$

i 33,436

$

i 34,023

$

i 71,898

Basic weighted average common shares outstanding

i 17,834,329

i 17,802,366

i 17,830,218

i 17,793,915

Effect of dilutive securities

i 7,048

i 47,155

i 17,186

i 52,095

Diluted weighted average common shares outstanding

i 17,841,377

i 17,849,521

i 17,847,404

i 17,846,010

Diluted earnings per common share

$

i 0.80

$

i 1.88

$

i 1.91

$

i 4.03

/

Certain stock options, restricted stock units and PSUs are not included

in the diluted earnings per share calculation when the

effect would have been anti-dilutive.

The calculated amount of anti-diluted shares not included were

i 33,039

and

i 24,731

for the three

and six months ended June 30, 2022, respectively,

and

i 6,793

and

i 2,952

for the three and six months ended June 30, 2021, respectively.

i

Note 13 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the six months ended June 30, 2022

were as follows:

i

Global

Specialty

Americas

EMEA

Asia/Pacific

Businesses

Total

Balance as of December 31, 2021

$

i 214,023

$

i 135,520

$

i 162,458

$

i 119,193

$

i 631,194

Goodwill additions

i 1,752

i —

i 32

i 1,784

Currency translation adjustments

i 237

( i 9,969)

( i 8,185)

( i 4,894)

( i 22,811)

Balance as of June 30, 2022

$

i 216,012

$

i 125,551

$

i 154,273

$

i 114,331

$

i 610,167

/

Gross carrying amounts and accumulated amortization for definite-lived

intangible assets as of June 30, 2022 and December 31,

2021 were as follows:

i

Gross Carrying

Accumulated

Amount

Amortization

2022

2021

2022

2021

Customer lists and rights to sell

$

i 828,690

$

i 853,122

$

i 167,145

$

i 147,858

Trademarks, formulations and product

technology

i 156,262

i 163,974

i 41,640

i 38,747

Other

i 6,269

i 6,309

i 5,933

i 5,900

Total definite-lived

intangible assets

$

i 991,221

$

i 1,023,405

$

i 214,718

$

i 192,505

/

The Company amortizes definite-lived intangible assets on a straight-line basis over

their useful lives.

The Company recorded

$

i 14.7

million and $

i 29.2

million of amortization expense for the three and six months ended June

30, 2022, respectively.

Comparatively,

the Company recorded $

i 15.0

million and $

i 29.8

million of amortization expense for the three and six months ended

June 30, 2021, respectively.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

19

Estimated annual aggregate amortization expense for the current year

and subsequent five years is as follows:

i

For the year ended December 31, 2022

$

i 57,515

For the year ended December 31, 2023

i 57,349

For the year ended December 31, 2024

i 56,760

For the year ended December 31, 2025

i 55,970

For the year ended December 31, 2026

i 55,752

For the year ended December 31, 2027 and beyond

i 522,946

/

The Company had four indefinite-lived intangible assets totaling

$

i 186.1

million as of June 30, 2022, including $

i 185.0

million of

indefinite-lived intangible assets for trademarks and tradename associated

with the Combination.

Comparatively, the Company had

four indefinite-lived intangible assets for trademarks and tradename

totaling $

i 196.9

million as of December 31, 2021.

i

The Company completes its annual goodwill and indefinite-lived intangible

asset impairment test during the fourth quarter of

each year, or more frequently if triggering

events indicate a possible impairment.

The Company continually evaluates financial

performance, economic conditions and other relevant developments

in assessing if a triggering event indicates that it is more likely

than not that the carrying value of any of the Company’s

reporting units or indefinite-lived or long-lived assets is not recoverable.

The

Company continues to monitor various financial, economic and

geopolitical conditions impacting the Company,

including the Russia-

Ukraine war and the Company’s decision

to cease operations in Russia, raw material, supply chain, and logistics cost escalation,

and

rising interest rates and cost of capital among other factors.

The Company concluded that these and other factors which have and

continue to impact the Company did not represent a triggering event as of June 30, 2022.

The Company continues to take action to

offset these headwinds including, but not limited to, implementing

selling price increases aimed at offsetting raw material costs and

ongoing inflationary pressures.

However, if the Company is unable to successfully

implement these actions and future or projected

financial performance declines, then it is possible any of these financial, economic

or geopolitical conditions could represent a

triggering event in the future and could lead to a potential impairment of the

Company’s reporting unit goodwill

or other indefinite-

lived or long-lived assets.

i

Note 14 – Debt

Debt as of June 30, 2022 and December 31, 2021 includes the following:

i

As of June 30, 2022

As of December 31, 2021

Interest

Outstanding

Interest

Outstanding

Rate

Balance

Rate

Balance

Credit Facilities:

Original Revolver

i —

$

i —

i 1.62%

$

i 211,955

Original U.S. Term

Loan

i —

i 1.65%

i 540,000

Original Euro Term

Loan

i —

i 1.50%

i 137,616

Amended Revolver

i 3.05%

i 228,658

i —

Amended U.S. Term

Loan

i 3.08%

i 600,000

i —

Amended Euro Term

Loan

i 1.50%

i 148,917

i —

Industrial development bonds

i 5.26%

i 10,000

i 5.26%

i 10,000

Bank lines of credit and other debt obligations

i Various

i 1,495

i Various

i 1,777

Total debt

$

i 989,070

$

i 901,348

Less: debt issuance costs

( i 2,216)

( i 8,001)

Less: short-term and current portion of long-term debts

( i 14,485)

( i 56,935)

Total long-term debt

$

i i 972,369 /

$

i i 836,412 /

/

Credit facilities

The Company, its wholly

owned subsidiary,

Quaker Chemical B.V.,

as borrowers, Bank of America, N.A., as administrative

agent, U.S. Dollar swing line lender and letter of credit issuer,

and the other lenders party thereto, entered into a credit agreement on

August 1, 2019, as amended (the “Original Credit Facility”).

The Original Credit Facility was comprised of a $

i 400.0

million

multicurrency revolver (the “Original Revolver”), a $

i 600.0

million term loan (the “Original U.S. Term

Loan”), each with the

Company as borrower, and a $

i 150.0

million (as of August 1, 2019) Euro equivalent term loan (the “Original Euro Term

Loan”) with

Quaker Chemical B.V.,

a Dutch subsidiary of the Company as borrower,

each with a five-year term, maturing in

i August 2024

.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

20

During June 2022, the Company,

and its wholly owned subsidiary,

Quaker Houghton B.V.,

as borrowers, Bank of America, N.A.,

as administrative agent, U.S. Dollar swing line lender and letter of credit

issuer, Bank of America Europe Designated Active

Company, as Euro

Swing Line Lender, certain guarantors and other lenders

entered into an amendment to the Original Credit Facility

(the “Amended Credit Facility”). The Amended Credit Facility established

(A) a new $

i 150.0

million Euro equivalent senior secured

term loan (the “Amended Euro Term

Loan”), (B) a new $

i 600.0

million senior secured term loan (the “Amended U.S. Term

Loan”),

and (C) a new $

i 500.0

million senior secured revolving credit facility (the “Amended Revolver”).

The Company has the right to

increase the amount of the Amended Credit Facility by an aggregate amount

not to exceed the greater of $

i 300.0

million or

i 100

% of

Consolidated EBITDA, subject to certain conditions including the agreement

to provide financing by any lender providing such

increase).

In addition, the Amended Credit Facility also:

(i) eliminated

the requirement that material foreign subsidiaries must guaranty the Original Euro

Term Loan;

(ii) replaced

the U.S. Dollar borrowings reference rate from LIBOR to SOFR;

(iii) extended the maturity date of the Original Credit Facility from August 2024 to June 2027;

and

(iv) effected certain other changes to the Original Credit

Facility as set forth in the Amended Credit Facility.

The Company used the proceeds of the Amended Credit Facility to repay

all outstanding loans under the Original Credit Facility,

unpaid accrued interest and fees on the closing date under the Original

Credit Facility and certain expenses and fees.

U.S. Dollar-

denominated borrowings under the Amended Credit Facility bear

interest, at the Company’s election, at

the base rate or term SOFR

plus an applicable rate ranging from

i 1.00

% to

i 1.75

% for term SOFR loans and from

i 0.00

% to

i 0.75

% for base rate loans, depending

upon the Company’s consolidated

net leverage ratio.

Loans based on term SOFR also include a spread adjustment equal to

i 0.10

% per

annum.

Borrowings under the Amended Credit Facility denominated in currencies other

than U.S. Dollars bear interest at the

alternative currency term rate plus the applicable rate ranging from

i 1.00

% to

i 1.75

%.

The Amended Credit Facility contains affirmative

and negative covenants, financial covenants and events of default, including

without limitation restrictions on (a) the incurrence of additional

indebtedness;

(b) investments in and acquisitions of other businesses,

lines of business and divisions; (c) the making of dividends or capital stock

purchases;

and (d) dispositions of assets.

Dividends and

share repurchases are permitted in annual amounts not exceeding the greater

of $

i 75

million annually and

i 25

% of consolidated

EBITDA if there is no default.

All restricted payments may be made if there is no default and if the consolidated

net leverage ratio is

less than

i 2.50

to

i 1.00

.

Financial covenants contained in the Amended Credit Facility include

a consolidated interest coverage ratio test and a

consolidated net leverage ratio test.

The consolidated net leverage ratio at the end of a quarter may not be

greater than

i 4.00

to

i 1.00

,

subject to a permitted increase during a four-quarter

period after certain acquisitions.

The Company has the option of replacing the

consolidated net leverage ratio test with a consolidated senior net leverage ratio

test if the Company issues certain types of unsecured

notes, subject to certain limitations.

Events of default in the Amended Credit Facility include without limitation

defaults for non-

payment, breach of representations and warranties, non-performance

of covenants, cross-defaults, insolvency,

and a change of control

in certain circumstances.

The occurrence of an event of default under the Amended Credit Facility could result

in all loans and other

obligations becoming immediately due and payable and the Amended

Credit Facility being terminated.

As of June 30, 2022, the

Company was in compliance with all of the Amended Credit Facility covenants.

The weighted average variable interest rate incurred on the outstanding

borrowings under the Original Credit Facility and the

Amended Credit Facility during the six months ended June 30,

2022 was approximately

i 2.0

%. As of June 30, 2022, the interest rate on

the outstanding borrowings under the Amended Credit Facility was approximately

i 2.8

%.

In addition to paying interest on outstanding

principal under the Original Credit Facility,

the Company was required to pay a commitment fee ranging from

i 0.2

% to

i 0.3

%

depending on the Company’s consolidated

net leverage ratio under the Original Revolver in respect of the unutilized commitments

thereunder.

As part of the Amended Credit Facility,

the Company is required to pay a commitment fee ranging from

i 0.150

% to

i 0.275

% related to unutilized commitments under the Amended Revolver,

depending on the Company’s

consolidated net leverage

ratio.

The Company had unused capacity under the Amended Revolver of

approximately $

i 268

million, net of bank letters of credit of

approximately $

i 4

million, as of June 30, 2022.

The Company previously capitalized $

i 23.7

million of certain third-party debt issuance costs in connection with executing the

Original Credit Facility.

Approximately $

i 15.5

million of the capitalized costs were attributed to the Original Term

Loans and

recorded as a direct reduction of Long-term debt on the Condensed

Consolidated Balance Sheet.

Approximately $

i 8.3

million of the

capitalized costs were attributed to the Original Revolver and recorded

within Other assets on the Condensed Consolidated Balance

Sheet.

These capitalized costs were being amortized into Interest expense over

the

i five year

term of the Original Credit Facility.

As

of December 31, 2021, the Company had $

i 8.0

million of debt issuance costs recorded as a reduction of Long-term debt attributable

to

the Original Credit Facility.

As of December 31, 2021, the Company had $

i 4.3

million of debt issuance costs recorded within Other

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

21

assets attributable to the Original Credit Facility.

Prior to executing the Amended Credit Facility,

the Company had $

i 6.6

million of

debt issuance costs recorded as a reduction of Long-term debt attributable

to the Original Credit Facility and $

i 3.5

million of debt

issuance costs recorded within Other assets attributable to the Original

Credit Facility.

In connection with executing the Amended Credit Facility,

the Company recorded a loss on extinguishment of debt of

approximately $

i 6.8

million which includes the write-off of certain previously

unamortized deferred financing costs as well as a

portion of the third-party and creditor debt issuance costs incurred

to execute the Amended Credit Facility.

Also in connection with

executing the Amended Credit Facility,

during the second quarter of 2022, the Company capitalized $

i 2.2

million of certain third-party

and creditor debt issuance costs.

Approximately $

i i 0.7 /

million of the capitalized costs were attributed to the Amended Euro Term

Loan

and Amended U.S. Term

Loan.

These costs were recorded as a direct reduction of Long-term debt on the

Condensed Consolidated

Balance Sheet.

Approximately $

i 1.5

million of the capitalized costs were attributed to the Amended Revolver and

recorded within

Other assets on the Condensed Consolidated Balance Sheet.

These capitalized costs, as well as the previously capitalized costs that

were not written off will collectively be amortized into Interest expense

over the five-year term of the Amended Credit Facility.

As of

June 30, 2022, the Company had $

i 2.2

million of debt issuance costs recorded as a reduction of Long-term

debt on the Condensed

Consolidated Balance Sheet and $

i 4.8

million of debt issuance costs recorded within Other assets on the Condensed Consolidated

Balance Sheet.

The Original Credit Facility required the Company to fix its variable interest

rates on at least

i 20

% of its total Original Term

Loans.

In order to satisfy this requirement as well as to manage the Company’s

exposure to variable interest rate risk associated with

the Original Credit Facility,

in November 2019, the Company entered into $

i 170.0

million notional amounts of three-year interest rate

swaps at a base rate of

i 1.64

% plus an applicable margin as provided in the Original Credit Facility,

based on the Company’s

consolidated net leverage ratio.

At the time the Company entered into the swaps, and as of June 30, 2022,

the aggregate interest rate

on the swaps, including the fixed base rate plus an applicable margin,

was

i 3.1

%.

The Amended Credit Facility does not require the

Company to fix variable interest rates on any portion of its borrowings.

As of June 30, 2022, the Company has not amended its

current interest rate swaps.

See Note 17 of Notes to Condensed Consolidated Financial Statements.

Industrial development bonds

As of June 30, 2022 and December 31, 2021, the Company had fixed rate,

industrial development authority bonds totaling $

i i 10.0 /

million in principal amount due in

i 2028

.

These bonds have similar covenants to the Amended Credit Facility noted above.

Bank lines of credit and other debt obligations

The Company has certain unsecured bank lines of credit and discount

ing facilities in certain foreign subsidiaries, which are not

collateralized.

The Company’s other debt obligations

primarily consist of certain domestic and foreign low interest rate or interest-

free municipality-related loans, local credit facilities of certain foreign subsidiaries

and capital lease obligations.

Total unused

capacity under these arrangements as of June 30, 2022 was approximately

$

i 28

million.

i In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s other off-balance

sheet arrangements include certain financial and other guarantees. The Company’s total bank letters of credit and guarantees

outstanding as of June 30, 2022 were approximately $ i 5 million.

The Company incurred the following debt related expenses included

within Interest expense, net, in the Condensed Consolidated

Statements of Income:

i

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Interest expense

$

i 6,134

$

i 4,813

$

i 10,880

$

i 9,463

Amortization of debt issuance costs

i 1,049

i 1,188

i 2,236

i 2,375

Total

$

i 7,183

$

i 6,001

$

i 13,116

$

i 11,838

/

Based on the variable interest rates associated with the Amended

Credit Facility, as of June 30,

2022 and the Original Credit

Facility as of December 31, 2021, the amounts at which the Company’s

total debt were recorded are not materially different from their

fair market value.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

22

On June 30, 2022, annual maturities on the Amended Credit Facility in the next

five fiscal years (excluding the reduction to

long-term debt attributed to capitalized and unamortized debt issuance costs)

are as follows:

i

`

June 30,

2022

For the remainder of 2022

$

i 4,681

For the year ended December 31, 2023

i 18,723

For the year ended December 31, 2024

i 23,404

For the year ended December 31, 2025

i 37,446

For the year ended December 31, 2026

i 37,446

For the year ended December 31, 2027

i 855,875

Total payments

$

i 977,575

/

i

Note 15 – Accumulated Other Comprehensive Income

The following tables show the reclassifications from and resulting balances

of accumulated other comprehensive income

(“AOCI”) for the three and six months ended June 30, 2022 and 2021:

i

Defined

Unrealized

Currency

Benefit

Gain (Loss) in

Translation

Pension

Available-for-

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance at March 31, 2022

$

( i 56,710)

$

( i 12,676)

$

( i 603)

$

( i 272)

$

( i 70,261)

Other comprehensive (loss) income before

reclassifications

( i 76,400)

i 1,650

( i 1,043)

i 747

( i 75,046)

Amounts reclassified from AOCI

i —

i 218

i 325

i —

i 543

Related tax amounts

i —

( i 461)

i 151

( i 172)

( i 482)

Balance at June 30, 2022

$

( i 133,110)

$

( i 11,269)

$

( i 1,170)

$

i 303

$

( i 145,246)

Balance at March 31, 2021

$

( i 28,334)

$

( i 22,175)

$

i 317

$

( i 3,036)

$

( i 53,228)

Other comprehensive income (loss) before

reclassifications

i 16,157

( i 260)

i 341

i 586

i 16,824

Amounts reclassified from AOCI

i —

i 852

i 2

i —

i 854

Related tax amounts

i —

( i 195)

( i 64)

( i 134)

( i 393)

Balance at June 30, 2021

$

( i 12,177)

$

( i 21,778)

$

i 596

$

( i 2,584)

$

( i 35,943)

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

23

Defined

Unrealized

Currency

Benefit

Gain (Loss) in

Translation

Pension

Available-for-

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance at December 31, 2021

$

( i 49,843)

$

( i 13,172)

$

i 397

$

( i 1,372)

$

( i 63,990)

Other comprehensive (loss) income before

reclassifications

( i 83,267)

i 2,082

( i 2,320)

i 2,175

( i 81,330)

Amounts reclassified from AOCI

i —

i 447

i 336

i —

i 783

Related tax amounts

i —

( i 626)

i 417

( i 500)

( i 709)

Balance at June 30, 2022

$

( i 133,110)

$

( i 11,269)

$

( i 1,170)

$

i 303

$

( i 145,246)

Balance at December 31, 2020

$

( i 2,875)

$

( i 23,467)

$

i 3,342

$

( i 3,598)

$

( i 26,598)

Other comprehensive (loss) income before

reclassifications

( i 9,302)

i 521

( i 404)

i 1,316

( i 7,869)

Amounts reclassified from AOCI

i —

i 1,714

( i 3,083)

i —

( i 1,369)

Related tax amounts

i —

( i 546)

i 741

( i 302)

( i 107)

Balance at June 30, 2021

$

( i 12,177)

$

( i 21,778)

$

i 596

$

( i 2,584)

$

( i 35,943)

All reclassifications related to unrealized gain (loss) in available-for-sale securities relate

to the Company’s equity

interest in a

captive insurance company and are recorded in equity in net income

of associated companies.

The amounts reported in other

comprehensive income for noncontrolling interest are related to currency

translation adjustments.

i

Note 16 – Fair Value

Measurements

The Company has valued its company-owned life insurance policies at fair value.

These assets are subject to fair value

measurement as follows:

i

Fair Value

Measurements at June 30, 2022

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

$

i 2,112

$

i —

$

i 2,112

$

i —

Total

$

i 2,112

$

i —

$

i 2,112

$

i —

/

Fair Value

Measurements at December 31, 2021

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

$

i 2,533

$

i —

$

i 2,533

$

i —

Total

$

i 2,533

$

i —

$

i 2,533

$

i —

The fair values of Company-owned life insurance assets are based on quotes

for like instruments with similar credit ratings and

terms.

The Company did not hold any Level 3 investments as of June 30, 2022 or

December 31, 2021, respectively,

so related

disclosures have not been included.

i

Note 17 – Hedging Activities

In order to satisfy certain requirements of the Original Credit Facility as well as to manage

the Company’s exposure to variable

interest rate risk associated with the Original Credit Facility,

in November 2019, the Company entered into $

i 170.0

million notional

amounts of

i three year

interest rate swaps.

See Note 14 of Notes to Condensed Consolidated Financial Statements.

These interest rate

swaps are designated as cash flow hedges and, as such, the contracts are marked-to-market

at each reporting date and any unrealized

gains or losses are included in AOCI to the extent effective

and reclassified to interest expense in the period during which the

transaction affects earnings or it becomes probable

that the forecasted transaction will not occur.

In June 2022, the Company amended the Original Credit Facility.

See Note 14 of Notes to the Condensed Consolidated Financial

Statements.

The Amended Credit Facility does not require the Company to fix variable

interest rates on any portion of its borrowings.

The balance sheet classification and fair values of the Company’s

derivative instruments, which are Level 2 measurements, are as

follows:

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

24

i

Fair Value

Condensed Consolidated

June 30,

December 31,

Balance Sheet Location

2022

2021

Derivatives designated as cash flow hedges:

Interest rate swaps

Prepaid expenses and other current assets

$

i i 394 /

$

i —

Other accrued liabilities

i —

i 1,782

$

394

$

i 1,782

/

The following table presents the net unrealized (gain) loss deferred to AOCI:

June 30,

December 31,

2022

2021

Derivatives designated as cash flow hedges:

Interest rate swaps

AOCI

$

( i 303)

$

i 1,372

$

( i 303)

$

i 1,372

The following table presents the net loss reclassified from AOCI to earnings:

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Amount and location of expense reclassified

from AOCI into expense (effective portion)

Interest expense, net

$

( i 378)

$

( i 659)

$

( i 1,015)

$

( i 1,302)

Interest rate swaps are entered into with a limited number of counterparties,

each of which allows for net settlement of all

contracts through a single payment in a single currency in the event of a default

on or termination of any one contract.

As such, in

accordance with the Company’s accounting

policy, these derivative instruments

are recorded on a net basis within the Condensed

Consolidated Balance Sheets.

i

Note 18 – Commitments and Contingencies

The Company previously disclosed in its 2021 Form 10-K that AC Products, Inc.

(“ACP”), a wholly owned subsidiary,

in 2007,

agreed to operate two groundwater treatment systems, so as to hydraulically

contain groundwater contamination emanating from

ACP’s site until such time as the concentrations

of contaminants are below the current Federal maximum contaminant

level for four

consecutive quarterly sampling events. In 2014, ACP ceased operation

at one of its two groundwater treatment systems, as it had met

the above condition for closure. As of June 30, 2022, ACP continues to operate

the second groundwater treatment system, while the

Company discusses with the relevant authorities whether the second groundwater

treatment system meets the conditions for closure.

In addition, the Santa Ana Regional Water

Quality Control Board requested that ACP conduct additional indoor

and outdoor soil

vapor testing on and near the ACP site to confirm that ACP continues to

meet the applicable local soil vapor standards.

As of June 30,

2022, ACP performed such testing and is awaiting the review of the results from

the Santa Ana Regional Water

Quality Control

Board.

As of June 30, 2022, the Company believes that the range of potential-known

liabilities associated with the balance of the ACP

water remediation program is approximately $

i 0.1

million to $

i 1.0

million.

The low and high ends of the range are based on the length

of operation of the treatment system as determined by groundwater modeling.

Costs of operation include the operation and

maintenance of the extraction well, groundwater monitoring and

program management.

The Company previously disclosed in its 2021 Form 10-K that an inactive

subsidiary of the Company that was acquired in 1978

sold certain products containing asbestos, primarily on an installed basis, and

is among the defendants in numerous lawsuits alleging

injury due to exposure to asbestos.

During the three and six months ended June 30, 2022, there have been no

significant changes to

the facts or circumstances of this previously disclosed matter,

aside from on-going claims and routine payments associated with this

litigation.

Based on a continued analysis of the existing and anticipated future claims against this subsidiary,

it is currently projected

that the subsidiary’s total liability over

the next 50 years for these claims is approximately $

i 0.3

million (excluding costs of defense).

The Company previously disclosed in its 2021 Form 10-K that it is party to certain environmental

matters related to certain

domestic and foreign properties.

These environmental matters primarily require the Company

to perform long-term monitoring and

maintenance at each of the applicable sites.

During the three and six months ended June 30, 2022, there have been no significant

changes to the facts or circumstances of these previously disclosed matters,

aside from on-going monitoring and maintenance

activities and routine payments associated with each of the sites.

The Company continually evaluates its obligations related to such

/

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

25

matters, and based on historical costs incurred and projected costs to be incurred

over the next approximately 30 years, has estimated

the range of costs for all of these environmental matters, on a discounted

basis, to be between approximately $

i 5.0

million and $

i 6.0

million as of June 30, 2022, for which $

i 5.5

million was accrued within other accrued liabilities and other non-current

liabilities on the

Company’s Condensed Consolidated

Balance Sheet as of June 30, 2022.

Comparatively, as of December

31, 2021, the Company had

$

i 5.6

million accrued for with respect to these matters.

Although there can be no assurance regarding the outcome of other

unrelated environmental matters, the Company believes that it

has made adequate accruals for costs associated with other environmental problems

for which it is aware, and has accrued $

i i 0.4 /

million

as of both June 30, 2022 and December 31, 2021, respectively,

to provide for such anticipated future environmental assessments and

remediation costs.

The Company previously disclosed in its 2021 Form 10-K that during the first six months

of 2021, one of the Company’s

Brazilian subsidiaries received a notice that it had prevailed on an existing

legal claim in regard to certain non-income (indirect) taxes

that had been previously charged and paid.

The matter specifically related to companies’ rights to exclude the state tax on goods

circulation (a valued-added-tax or VAT

equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect

taxes (specifically the program of social integration (“PIS”) and contribution

for the financing of social security (“COFINS”)) levied

by the Brazilian States on the sale of goods.

In May 2021, the Brazilian Supreme Court concluded that ICMS should

not be included

in the tax base of PIS and COFINS, and confirmed the methodology for calculating the

PIS and COFINS tax credit claims to which

taxpayers are entitled.

The Company’s Brazilian entities had previously

filed legal or administrative disputes on this matter and are

entitled to receive tax credits and interest dating back five years preceding the

date of their legal claims.

As a result of these court

rulings in the first six months of 2021, the Company recognized non-income

tax credits of

i 67.0

million BRL or approximately $

i 13.3

million, which includes approximately $

i 8.4

million for the PIS and COFINS tax credits as well as interest on these tax credits of $

i 4.9

million.

The tax credits to which the Company’s

Brazilian subsidiaries are entitled are claimable once registered with the Brazilian

tax authorities which the Company subsequently completed.

These tax credits can be used to offset future Brazilian federal taxes

and

the Company currently anticipates using the full amount of credits during the

five year period of time permitted.

In connection with obtaining regulatory approvals for the Combination,

certain steel and aluminum related product lines of

Houghton were divested in August 2019. The Company previously disclosed

in its 2021 Form 10-K that in July 2021, the entity that

acquired these divested product lines submitted an indemnification claim

for certain alleged breaches of representation made by

Houghton in the agreement pursuant to which such assets had been divested.

The Company responded to the subject matters of the

indemnification claim and during the first quarter of 2022, the

matter was resolved consistent with the Company’s

expectations and

position that there were no amounts owed by the Company.

The Company previously disclosed in its 2021 Form 10-K that two of the Company’s

locations suffered property damages as a

result of flooding and fire, respectively.

The Company maintains property insurance for all of its facilities globally.

During the six

months ended June 30, 2022, there have been no significant changes to

the facts or circumstances of these previously disclosed

matters, aside from the on-going restoration of both sites.

The Company, its insurance

adjuster and insurance carrier are actively

managing the remediation and restoration activities associated with these

events and at this time the Company has concluded, based on

all available information and discussions with its insurance adjuster and

insurance carrier, that the losses were covered under

the

Company’s property insurance

coverage, net of an aggregate deductible of $

i 2.0

million.

The Company has received payments from

its insurers of $

i 2.1

million and has recorded an insurance receivable associated with these events (and

a gain on insurance recoveries

for losses incurred) of $

i 0.9

million as of June 30, 2022.

The Company is party to other litigation which management currently

believes will not have a material adverse effect on the

Company’s results of operations,

cash flows or financial condition.

In addition, the Company has an immaterial amount of contractual

purchase obligations.

Quaker Chemical Corporation

Management’s Discussion and Analysis

26

Item 2.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

.

As used in this Report, the terms “Quaker Houghton,”

the “Company,”

“we” and “our” refer to Quaker Chemical Corporation

(doing business as Quaker Houghton), its subsidiaries, and associated companies,

unless the context otherwise requires.

The term the

“Combination” refers to the legacy Quaker combination with Houghton

International, Inc. (“Houghton”) on August 1, 2019.

Executive Summary

Quaker Houghton is the global leader in industrial process fluids.

With a presence around the world, including operations

in over

25 countries, our customers include thousands of the world’s

most advanced and specialized steel, aluminum, automotive, aerospace,

offshore, container,

mining, and metalworking companies.

Our high-performing, innovative and sustainable solutions are backed

by

best-in-class technology,

deep process knowledge, and customized services.

Quaker Houghton is headquartered in Conshohocken,

Pennsylvania, located near Philadelphia in the U.S.

Overall, the Company’s second

quarter of 2022 performance reflected continued progress navigating

through a myriad of

financial, economic and geopolitical headwinds, including persistent and

significant raw material cost escalation and overall

inflationary pressures, supply chain and logistics challenges,

production and distribution disruptions due to COVID-19 related actions

in China, the direct and indirect impacts of the ongoing war in Ukraine

and foreign currency volatility.

Despite these challenges, net

sales in the second quarter of 2022 were a record $492.4 million, representing

an increase of approximately 13% compared to $435.3

million in the second quarter of 2021.

This was primarily driven by an increase in selling price and product mix of approximately

22% and additional net sales from acquisitions of 1%, partially offset

by a decline in organic sales volumes of 4% and the unfavorable

impact from foreign currency translation of 6%.

The increase in selling price and product mix is primarily the result of

strategic price

increases implemented to help offset the ongoing inflationary

pressures that began during 2021 and have continued into 2022.

The

decline in organic sales volumes was primarily attributable

to COVID-19 related disruptions in China, the wind-down of the tolling

agreement for products previously divested related to the Combination,

the impact of the war in Ukraine and the Company’s

ongoing

value-based pricing initiatives.

The Company generated net income in the second quarter of 2022 of $14.3

million, or $0.80 per diluted share, compared to net

income of $33.6 million, or $1.88 per diluted share in the second quarter of

2021.

Excluding non-recurring and non-core items in each

period, the Company’s second

quarter of 2022 non-GAAP earnings per diluted share were $1.32 compared

to $1.82 in the prior year

quarter and the Company’s current

quarter adjusted EBITDA was $58.5 million compared to $70.1 million in

the second quarter of

2021.

These results were primarily driven by lower gross margins in

the current quarter due to a significant increase in raw material

and other input costs as well as the direct and indirect impacts of global supply

chain disruptions, the unfavorable impact of foreign

currency, and to a lesser extent,

by higher selling, general and administrative expenses (“SG&A”).

See the Non-GAAP Measures

section of this Item below,

as well as other items discussed in the Company’s

Consolidated Operations Review in the Operations

section of this Item, below.

The Company’s second quarter

of 2022 operating performance in each of its four reportable segments: (i) Americas;

(ii) Europe,

Middle East and Africa (“EMEA”); (iii) Asia/Pacific; and (iv) Global Specialty

Businesses, reflect similar drivers to that of its

consolidated performance as each of the Company’s

reportable segments net sales benefitted year-over-year from double-digit

increases in selling price and product mix and additional net sales from

acquisitions, while those increases in net sales for most

segments were partially offset by lower organic

sales volumes and the unfavorable impact of foreign currency translation.

Organic

volumes for the Global Speciality Businesses increased in the second

quarter of 2022 compared to the prior year quarter due to strong

demand for this segment’s products

.

Operating earnings for the Global Specialty Businesses and Americas

increased compared to the

prior year quarter, whereas operating earnings

for Asia/Pacific and EMEA declined, due to the persistent and significant

inflationary

pressures on raw materials and other costs, the impact of COVID-19 disruptions

in China, and the negative impact of foreign currency

translation, partially offset by continued price

realization.

Sequentially, operating earnings increased

in Global Speciality Businesses

and the Americas driven by higher selling prices, and was relatively consistent

in Asia/Pacific.

Operating margins for the three

aforementioned segments increased sequentially,

as price realization was able to help offset the inflationary pressures

on each of the

segment’s gross margins.

Additional details of each segment’s operating performance

are further discussed in the Company’s

Reportable Segments Review,

in the Operations section of this Item, below.

Quaker Chemical Corporation

Management’s Discussion and Analysis

27

The Company had a net operating cash outflow of $8.4 million in the first six months

of 2022 as compared to a net operating cash

outflow of $9.6 million in the first six months of 2021.

The net operating cash outflow in both periods reflects a significant working

capital investment primarily related to higher accounts receivable due to

the increase in net sales as well as higher inventory due

primarily to the rising cost of raw materials and to a lesser extent a build in certain

inventory stock in response to global supply chain

and logistics challenges.

The key drivers of the Company’s operating

cash flow and working capital are further discussed in the

Company’s Liquidity and Capital

Resources section of this Item, below.

Overall, the Company delivered another quarter of strong net sales growth,

driven by strong price realization and above market

growth.

The expected decline in earnings was primarily driven by ongoing inflationary

pressures, COVID-19 disruptions in China,

unfavorable currency translation, geopolitical issues and other disruptions

that impacted our customers and end markets.

Notwithstanding, we delivered double-digit year-over-year

increases in selling price and largely stabilized the Company’s

gross

margins on a sequential basis despite continued increases

in our costs.

Looking at the remainder of 2022, the Company’s

focus

remains on executing on items within its control.

The Company is encouraged by the momentum in its business and resilience of its

end markets, with some regional differences.

The Company continues to work with its customers to get the needed pricing to

offset

the persistent inflationary pressures on its margin while

also exhibiting continued cost controls.

Despite significant uncertainty

caused by several macroeconomic factors, the Company

continues to expect to deliver sequential gross margin expansion

and earnings

growth in the second half of 2022.

On-going impact of COVID-19

The global outbreak of COVID-19 in March of 2020 has negatively impacted

all locations where the Company does business.

Although the Company has now operated in this COVID-19 environment

for more than two years, the full extent of the outbreak and

related business impacts continue to remain uncertain and volatile, and

therefore the full extent to which COVID-19 may impact the

Company’s future results of operations

or financial condition is uncertain.

This outbreak has significantly disrupted the operations of

the Company and those of its suppliers and customers and, at times during

the pandemic, the Company has experienced volume

declines as compared to pre-COVID-19 levels.

Management continues to monitor the impact that the COVID-19 pandemic is having

on the Company,

the overall specialty chemical industry and the economies and markets in which the Company

operates.

The

prolonged pandemic and resurgences of the outbreak

including as new variants continue to emerge, and continued restrictions on

day-

to-day life and business operations such as recent restrictions in China as well as border

controls or closures and transportation

disruptions may result in volume declines and lower net sales in future periods.

To the extent that the Company’s

customers and

suppliers are adversely impacted by COVID-19, this could reduce the

availability, or result in delays,

of materials or supplies to or

from the Company, which

in turn could significantly interrupt the Company’s

business operations.

Given this ongoing uncertainty,

the Company cautions that its future results of operations could be significantly

and adversely impacted by COVID-19.

While the

circumstances have presented and are expected to continue to present challenges

and have necessitated additional time and resources

to be deployed to sufficiently address the challenges

brought on by the pandemic at this time, Management does not believe that

COVID-19 has had a material impact on its financial reporting processes, internal

controls over financial reporting, or disclosure

controls and procedures.

The Company’s top priority

is to protect the health and safety of its employees and customers, while working to ensure business

continuity to meet customers’ needs.

During the pandemic, the Company has taken incremental steps to protect

the health and

wellbeing of its people in affected areas through various actions, including

enabling work at home where needed and practicable, and

employing social distancing standards, implementing travel restrictions where

applicable, enhancing onsite hygiene practices, and

instituting visitation restrictions at the Company’s

facilities.

The Company has not and does not expect that it will incur material

expenses implementing these health and safety policies.

All of the Company’s more than 30 production

facilities worldwide are open

and operating and are deemed as essential businesses in the jurisdictions where

they are operating.

The Company continues to expect

that the impacts from COVID-19 will gradually decline subject to the effective

containment of the virus and its variants and successful

distribution and acceptance of the available vaccines and treatments; however,

the incidence of reported cases of COVID-19 or a

variant in several geographies where the Company has significant operations

remains relatively high.

Differing government responses

to these reported cases continues to evolve and it therefore remains highly uncertain

as to how long the global pandemic and related

economic challenges will last in each of the jurisdictions where the Company conducts

business and when our customers’ businesses

will recover to pre-COVID-19 levels.

Though the Company was able to supply customers with value added solutions,

as a result of

the government-imposed quarantine and lockdown measures implemented

at the end of March 2022 and continuing in effect until

early June 2022, the Company’s Shanghai,

China-based locations were significantly impacted.

The negative impact of those measures

on our operations and liquidity was experienced during the second quarter of 2022

and the ultimate impact will depend on how

quickly the Chinese economy recovers from the quarantine and lockdown

measures that were temporarily implemented.

While the

actions the Company has taken to date to protect our workforce, to continue to

serve our customers with excellence and to conserve

cash and reduce costs as applicable, have been effective thus far,

further actions to respond to the pandemic and its effects may

be

necessary as conditions continue to evolve.

Quaker Chemical Corporation

Management’s Discussion and Analysis

28

Impact of Political Conflicts

A significant portion of the Company’s

revenues and earnings are generated by non-U.S. operations.

This subjects the Company

to political and economic risks that could adversely affect the Company’s

business, liquidity, financial

position and results of

operations.

The existence of military conflicts, for example the Russian invasion of Ukraine,

bring inherent risks such as the potential

for supply chain disruptions, increased costs of resources including oil, decreased

trade activity and other consequences related to

economic or other sanctions.

The U.S. government and other nations have imposed significant restrictions

on most companies’ ability

to do business in Russia as a result of the military conflict between Russia and Ukraine.

It is not possible to predict the broader or

longer-term consequences of this conflict, which could include further sanctions,

embargoes, regional instability,

geopolitical shifts

and adverse effects on macroeconomic conditions,

security conditions, currency exchange rates and financial markets.

The military

conflict between Russia and Ukraine has had a negative impact on the Company’s

ability to sell to, ship products to collect payments

from, and support customers in certain regions based on trade restrictions,

embargoes and export control law restrictions, and

logistics

restrictions including closures of air space.

If this conflict continues or expands, it could increase the costs, risks and adverse impacts

from these new challenges.

The Company and its customers and suppliers may also be the subject of increased cyber-attacks.

During the second quarter of 2022, the Company decided to cease its operations

in Russia.

The Company’s operations

in the

conflict areas including Russia, Ukraine and Belarus historically represented

less than 2% of the Company’s consolidated net

sales

and less than 1% of the Company’s

consolidated total assets.

The Company’s primary exposure

in the conflict areas related to

outstanding customer accounts receivable.

The Company is actively monitoring its outstanding Russian receivables for collections

and has recorded incremental allowances

for doubtful accounts where warranted.

Liquidity and Capital Resources

At June 30, 2022, the Company had cash and cash equivalents of $202.3

million.

Total cash and cash equivalents

was $165.2

million at December 31, 2021.

The $37.2 million increase in cash and cash equivalents was the net result of $78.6

million of cash

provided by financing activities partially offset by $8.4 million

of cash used in operating activities, $24.4 million of cash used in

investing activities and $8.6 million negative impact due to the effect

of foreign currency translation.

Net cash flows used in operating activities were $8.4 million in the first six months

of 2022 compared to net cash flows used in

operating activities of $9.6 million in the first six months of 2021.

The net operating cash outflow in both periods reflects working

capital investment primarily related to higher accounts receivable due to

the increase in net sales and higher inventory due primarily to

the rising cost of raw materials and to a lesser extent a build in certain inventory

in response to global supply chain and logistics

challenges.

The slight improvement in operating cash flow year-over-year

is a result of a lower working capital investment partially

offset by lower earnings in the first six months of 2022 compared

to the first six months of 2021.

Net cash flows used in investing activities were $24.4 million in the

first six months of 2022 compared to $21.7 million in the first

six months of 2021.

This increase in cash outflows was a result of lower cash proceeds from the disposition of

assets which included

the sale of certain held-for-sale real property assets related

to the Combination in the prior year period, and higher capital expenditures

in the current year largely related to certain infrastructure

and sustainability-related spending.

These increases in cash used in

investing activities were partially offset by lower cash

payments related to acquisitions as a result of the level of acquisition activity in

each year.

See Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of

this Report.

Net cash flows provided by financing activities were $78.6 million in the first

six months of 2022 compared to net cash flows

used in financing activities of $4.4 million in the first six months of 2021.

The increase in net cash flows was primarily related to an

increase in borrowings in the current year under the Company’s

credit facility, which was amended

and extended, as further described

below, in the second

quarter of 2022.

In addition, the Company paid $14.9 million of cash dividends during the first six months

of

2022, a $0.7 million or 5% increase in cash dividends compared to the prior

year.

The Company, its wholly

owned subsidiary,

Quaker Chemical B.V.,

as borrowers, Bank of America, N.A., as administrative

agent, U.S. Dollar swing line lender and letter of credit issuer,

and the other lenders party thereto, entered into a credit agreement on

August 1, 2019, as amended (the “Original Credit Facility”).

During June 2022, the Company,

and its wholly owned subsidiary,

Quaker Houghton B.V.,

as borrowers, Bank of America, N.A., as administrative agent, U.S. Dollar swing

line lender and letter of

credit issuer, Bank of America Europe

Designated Active Company,

as Euro Swing Line Lender, certain guarantors

and other lenders

entered into an amendment to the Original Credit Facility (the “Amended

Credit Facility”).

The Company used the proceeds of the

Amended Credit Facility to repay all outstanding loans under the Original

Credit Facility, as well as accrued interest

and fees, and to

terminate the revolving credit commitments under the Original Credit

Facility.

Quaker Chemical Corporation

Management’s Discussion and Analysis

29

The Company’s Amended Credit

Facility is comprised of a $500.0 million multicurrency revolver,

a $600.0 million term loan and

a $150.0 million (as of June 17, 2022) Euro equivalent term loan (collectively,

the “Amended Term Loans”)

with the Company and

Quaker Houghton B.V.,

as borrowers, each with a five-year term maturing in June 2027.

Subject to the consent of the Administrative

Agent and certain other conditions, the Company may designate additional

borrowers. The Company has the right to increase the

amount of the Amended Credit Facility by an aggregate amount not

to exceed the greater of (i) $300 million and (ii) 100% of

Consolidated EBITDA, subject to certain conditions, including

the agreement to provide financing by any Lender providing any such

increase. U.S. Dollar-denominated borrowings

under the Amended Credit Facility bear interest, at the Company’s

election, at the base

rate or term Secured Overnight Financing Rate (“SOFR”) plus an applicable

rate ranging from 1.00% to 1.75% for term SOFR loans

and from 0.00% to 0.75% for base rate loans, depending upon the

Company’s consolidated net leverage

ratio.

Loans based on term

SOFR also include a spread adjustment equal to 0.10% per annum.

Borrowings under the Amended Credit Facility denominated in

currencies other than U.S. Dollars bear interest at the alternative currency

term rate plus the applicable rate ranging from 1.00% to

1.75%. In addition to paying interest on outstanding principal under

the Amended Credit Facility, the Company

is required to pay a

commitment fee ranging from 0.15% to 0.275% depending on the

Company’s consolidated net leverage

ratio to the Lenders under the

Amended Revolver in respect of the unutilized commitments thereunder.

The Amended Credit Facility contains affirmative

and negative covenants, financial covenants and events of default that are

customary for agreements of this nature.

The Amended Credit Facility contains a number of customary business covenants,

including

without limitation restrictions on (a) the incurrence of additional

indebtedness by the Company or certain of its subsidiaries, (b)

investments in and acquisitions of other businesses, lines of business and

divisions by the Company or certain of its subsidiaries, (c)

the payment of dividends or capital stock purchases by the Company

or certain of its subsidiaries and (d) dispositions of assets by the

Company or certain of its subsidiaries.

Dividends and share repurchases are permitted in annual amounts

not exceeding the greater of

$75 million annually and 25% of Consolidated EBITDA if there is no default.

All restricted payments may be made if there is no

default and if the consolidated net leverage ratio is less than 2.50

to 1.00.

Financial covenants contained in the Amended Credit Facility include

a consolidated interest coverage ratio test and a

consolidated net leverage ratio test.

The consolidated net leverage ratio at the end of a quarter may not be

greater than 4.00 to 1.00,

subject to a permitted increase during a four quarter period

after certain acquisitions.

The Company has the option of replacing the

consolidated net leverage ratio test with a consolidated senior net leverage ratio

test if the Company issues certain types of unsecured

debt, subject to certain customary limitations. Customary events of

default in the Amended Credit Facility include without limitation

defaults for non-payment, breach of representations and warranties, non

-performance of covenants, cross-defaults, insolvency,

and a

change of control of the Company in certain circumstances.

The occurrence of an event of default under the Amended Credit Facility

could result in all loans and other obligations becoming immediately

due and payable and the Amended Credit Facility being

terminated.

The Original Credit Facility required the Company to fix its variable interest

rates on at least 20% of its total Original Term

Loans.

In order to satisfy this requirement as well as to manage the Company’s

exposure to variable interest rate risk associated with

the Original Credit Facility,

in November 2019, the Company entered into $170.0 million notional

amounts of three year interest rate

swaps at a base rate of 1.64% plus an applicable margin as provided

in the Original Credit Facility, based

on the Company’s

consolidated net leverage ratio.

At the time the Company entered into the swaps, and as of June 30, 2022,

the aggregate interest rate

on the swaps, including the fixed base rate plus an applicable margin,

was 3.1%.

The Amended Credit Facility does not require the

Company to fix variable interest rates on any portion of its borrowings.

The Company previously capitalized $23.7 million of certain third-party

debt issuance costs in connection with the Original

Credit Facility.

Approximately $15.5 million of the capitalized costs were attributed

to the Original Term Loans and recorded

as a

direct reduction of Long-term debt on the Condensed Consolidated

Balance Sheet.

Approximately $8.3 million of the capitalized

costs were attributed to the Original Revolver and recorded within Other

assets on the Condensed Consolidated Balance Sheet.

These

capitalized costs were being amortized into Interest expense over

the five-year term of the Original Credit Facility.

As of December

31, 2021, the Company had $8.0 million of debt issuance costs recorded

as a reduction of Long-term debt attributable to the Original

Credit Facility.

As of December 31, 2021, the Company had $4.3 million of debt issuance

costs recorded within Other assets

attributable to the Original Credit Facility.

Prior to executing the Amended Credit Facility,

the Company had $6.6 million of debt

issuance costs recorded as a reduction of Long-term debt attributable

to the Original Credit Facility and $3.5 million of debt issuance

costs recorded within Other assets attributable to the Original Credit Facility.

In connection with executing the Amended Credit

Facility, the Company

recorded a loss on extinguishment of debt of approximately $6.8 million which

includes the write-off of certain

previously unamortized deferred financing costs as well as a portion of

the third party and creditor debt issuance costs incurred to

execute the Amended Credit Facility.

Also in connection with executing the Amended Credit Facility,

during the second quarter of

2022, the Company capitalized $2.2 million of certain third-party

debt issuance costs.

Approximately $0.7 million of the capitalized

costs were attributed to the Amended Euro Term

Loan and Amended U.S. Term

Loan. These costs were recorded as a direct reduction

of Long-term debt on the Condensed Consolidated Balance Sheet.

Approximately $1.5 million of the capitalized costs were attributed

to the Amended Revolver and recorded within Other assets on the

Condensed Consolidated Balance Sheet.

These capitalized costs, as

well as the previously capitalized costs that were not written off

will collectively be amortized into Interest expense over the five-year

Quaker Chemical Corporation

Management’s Discussion and Analysis

30

term of the Amended Credit Facility.

As of June 30, 2022, the Company had $2.2 million of debt issuance

costs recorded as a

reduction of Long-term debt on the Condensed Consolidated Balance Sheet

and $4.8 million of debt issuance costs recorded within

Other assets on the Condensed Consolidated Balance Sheet.

As of June 30, 2022, the Company had Amended Credit Facility borrowings outstanding

of $977.6 million.

As of December 31,

2021,

the Company had Original Credit Facility borrowings outstanding of

$889.6 million.

The Company has unused capacity under

the Amended Revolver of approximately $268 million, net of bank letters of

credit of approximately $4 million, as June 30, 2022.

The Company’s other debt

obligations are primarily industrial development bonds, bank lines of credit and municipality

-related loans,

which totaled $11.5 million and $11.8

million as of June 30, 2022 and December 31, 2021, respectively.

Total unused capacity under

these arrangements as of June 30, 2022 was approximately $28 million.

The Company’s total net debt as of June

30, 2022 was $786.7

million.

The Company incurred $8.3 million of total Combination, integration

and other acquisition-related expenses in the first six

months of 2022, which includes $2.4 million of other expenses related to

indemnification assets, described in the Non-GAAP

Measures section of this Item below.

Comparatively, in the first six months

of 2021, the Company incurred $7.6 million of total

Combination, integration and other acquisition-related expenses, which

was net of a $5.4 million gain on the sale of certain held-for-

sale real property assets and also included $0.5 million of accelerated depreciation.

The Company had aggregate net cash outflows of

approximately $9.2 million related to the Combination, integration and other acquisition

-related expenses during the first six months

of 2022 as compared to $14.8 million during the first six months of 2021.

During the first six months of 2022, the Company incurred

$6.2 million of strategic planning and transformation expenses.

The Company expects that these additional operating costs and

associated cash flows, as well as higher capital expenditures related

to strategic planning, process optimization and the next phase of

the Company’s long-term integration

to further optimize its footprint, processes and other functions will continue

in 2022 and

potentially extend into the next several years.

Quaker Houghton’s Management

approved, and the Company initiated, a global restructuring plan (the

“QH Program”) in the

third quarter of 2019 as part of its planned cost synergies associated

with the Combination.

The QH Program includes restructuring

and associated severance costs to reduce total headcount by approximately

400 people globally and plans for the closure of certain

manufacturing and non-manufacturing facilities.

The exact timing and total costs associated with the QH Program depe

nds on a

number of factors and is subject to change; however,

reductions in headcount and site closures have occurred, and the Company

currently expects additional headcount reductions and site closures to occur

throughout 2022 and into 2023.

The Company made cash

payments related to the settlement of restructuring liabilities under

the QH Program during the first six months of 2022 of

approximately $0.8 million compared to $4.2 million in the first six months

of 2021.

As of June 30, 2022, the Company’s

gross liability for uncertain tax positions, including interest and penalties, was $21.9 million.

The Company cannot determine a reliable estimate of the timing of cash

flows by period

related to its uncertain tax position liability.

However, should the entire liability be paid,

the amount of the payment may be reduced by up to $6.9 million as a result of offsetting

benefits in other tax jurisdictions.

In 2021, two of the Company’s locations

suffered significant property damage as a result of flooding

and fire.

The Company

maintains property insurance for all of its facilities globally.

The Company, its insurance

adjuster and insurance carrier are actively

managing the remediation and restoration activities associated with both

of these events and at this time the Company has concluded,

based on all available information and discussions with its insurance

adjuster and insurance carrier, that the losses incurred

during

2021 were covered under the Company’s

property insurance coverage, net of an aggregate deductible of $2.0

million.

The Company

has received payments from its insurers of $2.1 million and has recorded

an insurance receivable associated with these events of $0.9

million as of June 30, 2022.

See Note 18 of Notes to Condensed Consolidated Financial Statements in Item

1 of this Report.

The Company believes that its existing cash, anticipated cash flows from

operations and available additional liquidity will be

sufficient to support its operating requirements and fund

its business objectives for at least the next twelve months, including but not

limited to, payments of dividends to shareholders, costs related to ongoing

acquisition integration and optimization, pension plan

contributions, capital expenditures, other business opportunities (including

potential acquisitions), implementing actions to achieve the

Company’s sustainability

goals and other potential known or anticipated contingencies.

The Company believes it has sufficient

additional liquidity to support its operating requirements and to fund its business

obligations for the period beyond the next twelve

months as well, including the aforementioned items which are expected

to recur annually, as well as future principal

and interest

payments on the Company’s Amended

Credit Facility, tax obligations

and other long-term liabilities.

The Company’s liquidity

is

affected by many factors, some based on normal operations of

our business and others related to the impact of the pandemic and other

global events on our business and on global economic conditions as well as industry uncertainties,

which we cannot predict.

We also

cannot predict economic conditions and industry downturns or the

timing, strength or duration of recoveries.

We may seek,

as we

believe appropriate, additional debt or equity financing which would

provide capital for corporate purposes, working capital funding,

additional liquidity needs or to fund future growth opportunities, including

possible acquisitions and organic investments.

The timing

and amount of potential capital requirements cannot be determined

at this time and will depend on a number of factors, including the

Quaker Chemical Corporation

Management’s Discussion and Analysis

31

actual and projected demand for our products, specialty chemical indust

ry conditions, competitive factors, and the condition of

financial markets, among others.

Non-GAAP Measures

The information in this Form 10-Q includes non-GAAP (unaudited)

financial information that includes EBITDA, adjusted

EBITDA, adjusted EBITDA margin, non-GAAP operating

income, non-GAAP operating margin, non-GAAP

net income and non-

GAAP earnings per diluted share.

The Company believes these non-GAAP financial measures provide meaningful

supplemental

information as they enhance a reader’s understanding

of the financial performance of the Company,

are indicative of future operating

performance of the Company,

and facilitate a comparison among fiscal periods, as the non-GAAP financial

measures exclude items

that are not considered indicative of future operating performance or not

considered core to the Company’s operations.

Non-GAAP

results are presented for supplemental informational purposes only

and should not be considered a substitute for the financial

information presented in accordance with GAAP.

The Company presents EBITDA which is calculated as net income attributable

to the Company before depreciation and

amortization, interest expense, net, and taxes on income before equity

in net (loss) income of associated companies.

The Company

also presents adjusted EBITDA which is calculated as EBITDA plus or

minus certain items that are not considered indicative of future

operating performance or not considered core to the Company’s

operations.

In addition, the Company presents non-GAAP operating

income which is calculated as operating income plus or minus certain items that

are not considered indicative of future operating

performance or not considered core to the Company’s

operations.

Adjusted EBITDA margin and non-GAAP operating margin

are

calculated as the percentage of adjusted EBITDA and non-GAAP operating

income to consolidated net sales, respectively.

The

Company believes these non-GAAP measures provide transparent

and useful information and are widely used by investors, analysts,

and peers in our industry as well as by management in assessing the operating

performance of the Company on a consistent basis.

Additionally, the

Company presents non-GAAP net income and non-GAAP earnings per diluted share

as additional performance

measures.

Non-GAAP net income is calculated as adjusted EBITDA, defined above,

less depreciation and amortization, interest

expense, net, and taxes on income before equity in net (loss) income

of associated companies, in each case adjusted, as applicable, for

any depreciation, amortization, interest or tax impacts resulting from

the non-core items identified in the reconciliation of net income

attributable to the Company to adjusted EBITDA.

Non-GAAP earnings per diluted share is calculated as non-GAAP net income

per

diluted share as accounted for under the “two-class share method.”

The Company believes that non-GAAP net income and non-

GAAP earnings per diluted share provide transparent and useful information

and are widely used by investors, analysts, and peers in

our industry as well as by management in assessing the operating performance

of the Company on a consistent basis.

Certain of the prior period non-GAAP financial measures presented

in the following tables have been adjusted to conform with

current period presentation.

The following tables reconcile the Company’s

non-GAAP financial measures (unaudited) to their most

directly comparable GAAP (unaudited) financial measures

(dollars in thousands unless otherwise noted, except per share amounts):

Non-GAAP Operating Income and Margin Reconciliations

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Operating income

$

31,903

$

38,816

$

61,306

$

83,710

Combination, restructuring and other

acquisition-related expenses (a)

1,831

7,082

6,704

15,288

Strategic planning and transformation expenses (b)

3,112

—

6,200

—

Executive transition costs (c)

645

308

1,184

812

Russia-Ukraine conflict related expenses (d)

929

—

2,095

—

Other charges (e)

385

242

476

293

Non-GAAP operating income

$

38,805

$

46,448

$

77,965

$

100,103

Non-GAAP operating margin (%) (l)

7.9%

10.7%

8.1%

11.6%

Quaker Chemical Corporation

Management’s Discussion and Analysis

32

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin

and Non-GAAP Net Income Reconciliations

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Net income attributable to Quaker Chemical Corporation

$

14,343

$

33,570

$

34,159

$

72,185

Depreciation and amortization (a)(j)

20,856

22,344

41,583

44,792

Interest expense, net

6,494

5,618

11,839

11,088

Taxes on income before

equity in net (loss) income

of associated companies (k)

1,374

15,218

4,240

25,907

EBITDA

43,067

76,750

91,821

153,972

Equity loss (income) in a captive insurance company (f)

1,781

(883)

2,025

(3,963)

Combination, restructuring and other

acquisition-related expenses (a)

2,248

6,956

9,100

9,359

Strategic planning and transformation expenses (b)

3,112

—

6,200

—

Executive transition costs (c)

645

308

1,184

812

Russia-Ukraine conflict related expenses (d)

929

—

2,095

—

Brazilian non-income tax credits (g)

—

(13,293)

—

(13,293)

Loss on extinguishment of debt (h)

6,763

—

6,763

—

Other charges (e)

(54)

219

(253)

318

Adjusted EBITDA

$

58,491

$

70,057

$

118,935

$

147,205

Adjusted EBITDA margin (%) (l)

11.9%

16.1%

12.3%

17.0%

Adjusted EBITDA

$

58,491

$

70,057

$

118,935

$

147,205

Less: Depreciation and amortization - adjusted (a)

20,856

22,218

41,583

44,251

Less: Interest expense, net

6,494

5,618

11,839

11,088

Less: Taxes on income

before equity in net income

of associated companies - adjusted (a)(k)

7,466

9,773

16,368

21,512

Non-GAAP net income

$

23,675

$

32,448

$

49,145

$

70,354

Non-GAAP Earnings per Diluted Share Reconciliations

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

GAAP earnings per diluted share attributable to

Quaker Chemical Corporation common shareholders

$

0.80

$

1.88

$

1.91

$

4.03

Equity loss (income) in a captive insurance company

per diluted share (f)

0.10

(0.05)

0.11

(0.22)

Combination, restructuring and other

acquisition-related expenses per diluted share (a)

0.13

0.30

0.41

0.42

Strategic planning and transformation expenses per

diluted share (b)

0.13

—

0.27

—

Executive transition costs per diluted share (c)

0.03

0.02

0.05

0.04

Russia-Ukraine conflict related expenses per diluted share (d)

0.04

—

0.10

—

Brazilian non-income tax credits per diluted share (g)

—

(0.44)

—

(0.44)

Loss on extinguishment of debt per diluted share (h)

0.29

—

0.29

—

Other charges per diluted share (e)

(0.00)

0.01

(0.01)

0.02

Impact of certain discrete tax items per diluted share (i)

(0.20)

0.10

(0.39)

0.08

Non-GAAP earnings per diluted share (m)

$

1.32

$

1.82

$

2.74

$

3.93

Quaker Chemical Corporation

Management’s Discussion and Analysis

33

(a)

Combination, restructuring and other acquisition-related expenses include

certain legal, financial, and other advisory and

consultant costs incurred in connection with the Combination integration

activities including internal control readiness and

remediation as well as costs incurred by the Company associated with the

QH restructuring program,

which was initiated in the

third quarter of 2019 as part of the Company’s

plan to realize cost synergies associated with the Combination

.

These amounts

also include expense associated with other of the Company’s

acquisitions, including cost associated with selling inventory from

acquired businesses which was adjusted to fair value as part of purchase

accounting.

These costs are not indicative of the future

operating performance of the Company.

Approximately $0.1 million and $0.2 million for the three and six months ended

June

30, 2022, respectively,

and approximately $0.4

million and $0.5 million in the three and six months ended June 30, 2021,

respectively, of

these pre-tax costs were considered non-deductible for the purpose of determining the Company’s

effective tax

rate, and, therefore, taxes on income before equity in net income of associated

companies - adjusted reflects the impact of these

items.

During the three and six months ended June 30, 2022, the Company recorded

$0.4 million and $2.4

million, respectively,

of other expense related to an indemnification asset, which is included

in the caption “Combination, restructuring and other

acquisition-related expenses” in the reconciliation of GAAP earnings per diluted

share attributed to Quaker Chemical Corporation

common shareholders to Non-GAAP earnings per diluted share as well as the reconciliation

of net income attributable to Quaker

Chemical Corporation to Adjusted EBITDA and Non-GAAP net income

.

During the

three and six months ended June 30, 2021,

the Company recorded $0.1 million $0.5 million, respectively,

of accelerated depreciation related to certain of the Company’s

facilities, which is included in the caption “Combination, restructuring

and other acquisition-related expenses” in the

reconciliation of operating income to non-GAAP operating

income and included in the caption “Depreciation and amortization”

in the reconciliation of net income attributable to the Company to

EBITDA, but excluded from the caption “Depreciation and

amortization - adjusted” in the reconciliation of adjusted EBITDA to non

-GAAP net income attributable to the Company.

During

the six months ended June 30, 2021, the Company recorded a $5.4 million

gain on the sale of certain held-for-sale real property

assets related to the Combination which is included in the caption “Combination,

restructuring and other acquisition-related

expenses” in the reconciliation of GAAP earnings per diluted share attributed

to Quaker Chemical Corporation common

shareholders to Non-GAAP earnings per diluted share as well as the reconciliation

of net income attributable to Quaker Chemical

Corporation to Adjusted EBITDA and Non-GAAP net income.

During the three and six months ended June 30, 2022,

respectively,

the Company recorded restructuring and related charges

of less than $0.1 million and $0.8 million, respectively,

and

$0.3 million and $1.5 million during the three and six months ended

June 30, 2021, respectively.

During the six months ended

June 30, 2021, the Company recorded $0.8 million related to the sale

of inventory from acquired businesses which was adjusted

to fair value.

See Notes 2, 7, 10 and 11 of Notes to Condensed Consolidated

Financial Statements, which appear in Item 1 of this

Report.

(b)

Strategic planning and transformation expenses include certain consultant

and advisory expenses for the Company’s

long-term

strategic planning, as well as process optimization and the next phase

of the Company’s long-term integration

to further optimize

its footprint, processes and other functions.

These costs are not indicative of the future operating performance of the Company.

(c)

Executive transition costs represent the costs related to the Company’s

search, hiring and transition to a new CEO in connection

with the executive transition that took place in 2021 as well as the search,

hiring and transition for other officers during the first

six months of 2022.

These expenses are one-time in nature and not indicative of the future operating performance

of the

Company.

(d)

Russia-Ukraine conflict related expenses represent the direct costs associated

with the Company’s

exit of operations in Russia

during the second quarter of 2022, primarily for employee separation

benefits, as well as costs associated with establishing

specific reserves or changes to existing reserves for trade accounts receivable

within the Company’s EMEA reportable segment

due to the economic instability associated with certain customer accounts receivables

which have been directly impacted by the

current economic conflict between Russia and Ukraine or the Company’s

decision to end operations in Russia.

These expenses

are not indicative of the future operating performance of the Company.

(e)

Other charges include charges incurred

by an inactive subsidiary of the Company as a result of the termination of restrictions on

insurance settlement reserves, non-service components of the Company’s

pension and postretirement net periodic benefit income

and the foreign currency remeasurement impacts associated with the

Company’s affiliates whos

e

local economies are designated

as hyper-inflationary under U.S. GAAP.

These expenses are not indicative of the future operating performance

of the Company.

See Notes 1 and 9 of Notes to Condensed Consolidated Financial Statements,

which appear in Item 1 of this Report.

(f)

Equity loss (income) in a captive insurance company represents the after-tax

loss (income) attributable to the Company’s

interest

in Primex, Ltd. (“Primex”), a captive insurance company.

The Company holds a 32% investment in and has significant influence

over Primex, and therefore accounts for this interest under the equity method

of accounting.

The loss (income) attributable to

Primex is not indicative of the future operating performance of the

Company and is not considered core to the Company’s

operations.

Quaker Chemical Corporation

Management’s Discussion and Analysis

34

(g)

Brazilian non-income tax credits represent indirect tax credits related to certain

of the Company’s Brazilian subsidiaries

prevailing in a legal claim as well as the Brazilian Supreme Court ruling

on these non-income tax matters.

The non-income tax

credits arising from the claim and court ruling are non-recurring

and not indicative of the future operating performance of the

Company.

See Note 18 of Notes to Condensed Consolidated Financial Statements, which appears

in Item 1 of this Report.

(h)

In connection with executing the Amended Credit Facility,

the Company recorded a loss on extinguishment of debt of

approximately $6.8 million which includes the write-off

of certain previously unamortized deferred financing costs as well as a

portion of the third-party and creditor debt issuance costs incurred

to execute the Amended Credit Facility.

These expenses are

not indicative of the future operating performance of the Company.

See Note 14 of Notes to Condensed Consolidated Financial

Statements, which appears

in Item 1 of this Report.

(i)

The impacts of certain discrete tax items include changes in valuation

allowances recorded on certain Brazilian branch foreign tax

credits and the recording of deferred taxes on Brazilian branch income.

Both of these discrete items related to tax law changes in

the U.S. due to the issuance of final foreign tax credit regulations during the

period.

Additionally, the Company

has discrete

items related to the release of the reserves for uncertain tax positions settled during

the quarter and certain taxes, penalties, and

interest due as a result of the settlements.

See Note 11 of Notes to Condensed Consolidated

Financial Statements, which appears

in Item 1 of this Report.

(j)

Depreciation and amortization for the three and six months ended June 30,

2022 includes approximately $0.2 million and $0.5

million, respectively,

and for the three and six months ended June 30, 2021 includes $0.3 million and $0.6 million,

respectively,

of amortization expense recorded within equity in net loss (income)

of associated companies in the Company’s

Condensed

Consolidated Statements of income, which is attributable to the amortization

of the fair value step up for the Company’s

50%

interest in a joint venture in Korea as a result of required purchase accounting.

(k)

Taxes on income

before equity in net loss (income) of associated companies – adjusted presents the impact

of any current and

deferred income tax expense (benefit), as applicable, of the reconciling

items presented in the reconciliation of net income

attributable to Quaker Chemical Corporation to adjusted EBITDA, and

was determined utilizing the applicable rates in the taxing

jurisdictions in which these adjustments occurred, subject to deductibility.

Combination, restructuring and other acquisition-

related expenses described in (a) resulted in a tax benefit of approximatel

y

$0.1 million and incremental taxes of $1.6 million for

the three and six months ended June 30, 2022, respectively,

compared to $1.6 million and $2.2 million for the three and six

months ended June 30, 2021, respectively.

Strategic planning and transformation expenses describes in (b) above resulted in

incremental taxes of $0.7 million and $1.4 million for the three and

six months ended June 30, 2022, respectively.

Executive

transition costs described in (c) resulted in incremental taxes of $0.2

million and $0.3 million for the three and six months ended

June 30, 2022, respectively,

compared to $0.1 million and $0.2 million for the three and six months ended

June 30, 2021,

respectively.

Russia-Ukraine conflict related expenses described in (d) resulted in incremental taxes

of $0.2 million and $0.5

million for the three and six months ended June 30, 2022, respectively.

Other charges described in (e) resulted in incremental

taxes of less than $0.1 million and a tax benefit of less than $0.1 million for

the three and six months ended June 30, 2022,

respectively, compared

to $0.1 million during each of the three and six months ended June 30, 2021.

Brazilian non-income tax

credits described in (g) resulted in incremental taxes of $5.3 million during

the three and six months ended June 30, 2021.

Loss

on extinguishment of debt described in (h) resulted in incremental

taxes of $1.6 million during the three and six months ended

June 30, 2022.

The impact of certain discrete items described in (i) resulted in a tax benefit of

$3.5 million and $6.9 million for

the three and six months ended June 30, 2022, respectively,

compared to $1.9 million and $1.5 million for the three and six

months ended June 30, 2021, respectively.

(l)

The Company calculates adjusted EBITDA margin

and non-GAAP operating margin as the percentage of adjusted EBITDA

and

non-GAAP operating income to consolidated net sales.

(m)

The Company calculates non-GAAP earnings per diluted share as non

-GAAP net income attributable to the Company per

weighted average diluted shares outstanding using the “two-class share method”

to calculate such in each given period.

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet commitments or

obligations as of June 30, 2022.

The Company’s off

-balance

sheet items outstanding as of June 30, 2022 includes approximately $5

million of total bank letters of credit and guarantees.

The bank

letters of credit and guarantees are not significant to the Company’s

liquidity or capital resources.

See Note 14 of Notes to Condensed

Consolidated Financial Statements in Item 1 of this Report.

Quaker Chemical Corporation

Management’s Discussion and Analysis

35

Operations

Consolidated Operations Review – Comparison of the Second Quarter of 2022

with the Second Quarter of 2021

Net sales were $492.4

million in the second quarter of 2022 compared to $435.3 million in the second quarter

of 2021.

The net

sales increase of $57.1 million or 13% quarter-over-quarter reflects increases

in selling price and product mix of approximately 22%

and additional net sales from acquisitions of 1% partially offset

by the unfavorable impact from foreign currency translation

of 6% and

a decline in organic sales volumes of approximately 4%.

The increase in selling price and product mix is primarily driven by price

increases implemented to help offset the significant

increases in raw material and other input costs that began during 2021 and

continued into 2022.

The decline in organic sales volumes was primarily attributable

to COVID-19 related production disruptions in

China, the tolling agreement for products previously divested related

to the Combination, the ongoing war in Ukraine and the

Company’s ongoing value

-based pricing initiatives.

COGS were $342.8 million in the second quarter of 2022 compared

to $280.8 million in the second quarter of 2021.

The increase

in COGS of $62.0 million or 22% was driven by the continued increases in the

Company’s global raw material and

supply chain and

logistics costs compared to the prior year.

Gross profit in the second quarter of 2022 decreased $4.9 million or 3%

from the second quarter of 2021.

The Company’s

reported gross margin in the second quarter of 2022 was 30.4%

compared to 35.5% in the second quarter of 2021.

The Company’s

current quarter gross margin reflects the continued significant

increase in raw material and other input costs experienced throughout

the second quarter of 2022 and the impacts of constraints on the global

supply chain, partially offset by the Company’s

ongoing value-

based pricing initiatives.

SG&A in the second quarter of 2022 increased $7.2 million or 7% compared

to the second quarter of 2021 due primarily to the

impact of sales increases on direct selling costs, inflation driven higher

operating costs, costs associated with strategic planning and

transformation initiatives (see the Non-GAAP Measures section of

this Item, above), and additional SG&A from recent acquisitions

partially offset by lower SG&A due to foreign currency

translation compared to the prior year.

During the second quarter of 2022, the Company incurred $1.8 million

of Combination, integration and other acquisition-related

operating expenses primarily for professional fees related to the Houghton

integration and other acquisition-related activities.

Comparatively,

the Company incurred $6.7 million of expenses in the prior year second quarter,

primarily due to various professional

fees related to legal, financial and other advisory and consultant expenses

for integration activities including internal control readiness

and remediation.

See the Non-GAAP Measures section of this Item, above.

The Company initiated a restructuring program during the third quarter

of 2019 as part of its global plan to realize cost synergies

associated with the Combination.

The Company incurred Restructuring and related (credits) charges

for reductions in headcount and

site closures under this program, net of adjustments to initial estimates for severance

of a credit of less than $0.1 million and a charge

of $0.3 million during the second quarters of 2022 and 2021, respectively.

See the Non-GAAP Measures section of this Item, above.

Operating income in the second quarter of 2022 was $31.9 million compared

to $38.8 million in the second quarter of 2021.

Excluding non-recurring and non-core expenses that are not indicat

ive of the future operating performance of the Company described

in the Non-GAAP Measures section of this Item, above, the Company’s

current quarter non-GAAP operating income decreased to

$38.8 million compared to $46.4 million in the prior year second quarter primarily

due to the lower gross profit and higher SG&A

described above.

The Company had other expense, net, of $8.4 million in the second quarter

of 2022 compared to other income, net of $14.0

million in the second quarter of 2021.

The second quarter of 2022 includes a loss on extinguishment of debt of $6.8 million

associated

with the refinancing of the Original Credit Facility while the second quarter

of 2021 included $13.3 million of income related to

certain non-income tax credits recorded by the Company’s

Brazilian subsidiaries.

See the Non-GAAP Measures section of this Item,

above.

In addition, the Company incurred higher foreign exchange transaction

losses in the second quarter of 2022 compared to the

prior year quarter.

Interest expense, net, increased $0.9 million compared to the second

quarter of 2021 as a result of increases in the average

borrowings outstanding in the second quarter of 2022 compared

to the second quarter of 2021 coupled with an increase in interest

rates quarter-over-quarter.

The Company’s effective

tax rates for the second quarters of 2022 and 2021 were 8.1% and 32.2%, respectively.

The Company’s

effective tax rate for the second quarter of 2022 was largely

driven by state tax benefits, a reduction in reserves for uncertain tax

positions relating to management fees, a deferred tax benefit associated with

an intercompany asset transfer,

withholding taxes for

increased forecasted dividends, and the effects of

lower pre-tax earnings and the mix of such earnings.

In addition, the Company

incurred higher tax expense during the second quarter of 2022 primarily

related to the Company recording earnings in one of its

subsidiaries at a statutory tax rate of 25% while it awaits recertification of

a concessionary 15% tax rate, which was available to the

Company during all of 2021.

Comparatively,

the prior year quarter effective tax rate was impacted by changes

in foreign tax credit

Quaker Chemical Corporation

Management’s Discussion and Analysis

36

valuation allowances, tax law changes in foreign jurisdictions as well as the tax impacts

of certain non-income tax credits recorded by

the Company’s Brazilian subsidiaries.

Excluding the impact of non-core items in each quarter,

described in the Non-GAAP Measures

section of this Item, above, the Company estimates that its effective

tax rates for both the second quarters of 2022 and 2021 would

have been approximately 24%.

The Company expects continued volatility in its effective tax rates due

to several factors, including the

timing and scope of tax audits and the expiration of applicable statutes of limitations

as they relate to uncertain tax positions, the

unpredictability of the timing and amount of certain incentives in various

tax jurisdictions, including the high technology incentive at

one of our subsidiaries based in China which is currently up for triennial renewal,

the treatment of certain acquisition-related costs and

the timing and amount of certain share-based compensation-related

tax benefits, among other factors.

Equity in net income of associated companies decreased $2.9 million

in the second quarter of 2022 compared to the second

quarter of 2021, primarily due to lower current year income from

the Company’s interest in a captive insurance

company and from the

Company’s 50% interest in a joint venture

in Korea.

See the Non-GAAP Measures section of this Item, above.

Net income attributable to noncontrolling interest was less than $0.1 million

in both the second quarters of 2022 and 2021.

Foreign exchange unfavorably impacted the Company’s

second quarter of 2022 results by approximately 11% driven

by the

impact from foreign currency translation on earnings as well as higher

foreign exchange transaction losses in the current quarter as

compared to the prior year second quarter.

Consolidated Operations Review – Comparison of the First Six Months of 2022

with the First Six Months of 2021

Net sales were $966.6 million in the first six months of 2022 compared to

$865.0 million in the first six months of 2021.

The net

sales increase of $101.5 million or 12% year-over-year reflects increases in selling

price and product mix of approximately 19% and

additional net sales from acquisitions of 2% partially offset by a decline

in organic sales volumes of approximately 5% and the

unfavorable impact from foreign currency translation of 4%.

The increase in selling price and product mix is primarily driven by price

increases implemented to help offset the significant

increases in raw material and other input costs that began during 2021 and

continued into 2022.

The decline in sales volumes was primarily attributable to the comparison to a very strong

first half of 2021, and

primarily the first quarter of 2021, where customers replenished

their supply chains, the impact of lower volumes related to the tolling

agreement for products previously divested related to the Combination,

the ongoing war in Ukraine, COVID-19 disruptions in China

and the Company’s ongoing

value-based pricing initiatives.

COGS were $670.9 million in the first six months of 2022 compared

to $554.4 million in the first six months of 2021.

The

increase in COGS of $116.5 million or

21% was driven by the continued increases in the Company’s

global raw material and supply

chain and logistics costs compared to the prior year.

Gross profit in the first six months of 2022 decreased $15.0 million or 5%

from the first six months of 2021.

The Company’s

reported gross margin in the first six months of 2022 was 30.6% compared

to 35.9% in the first six months of 2021.

The Company’s

current year gross margin reflects a significant increase in

raw material and other input costs and the impacts of constraints on the

global supply chain, partially offset by the Company’s

ongoing value-based pricing initiatives.

SG&A in the first six months of 2022 increased $14.6 million or 7% compared

to the first six months of 2021 due primarily to the

impact of sales increases on direct selling costs, inflation driven higher

operating costs, costs associated with strategic planning and

transformation initiatives (see the Non-GAAP Measures section of

this Item, above), and additional SG&A from recent acquisitions

partially offset by lower SG&A due to foreign currency

translation compared to the prior year.

In addition, SG&A was lower in the

prior year period as a result of continued temporary cost saving measures the

Company implemented in response to the onset of

COVID-19.

During the first six months of 2022, the Company incurred $5.9 million of

Combination, integration and other acquisition-related

operating expenses primarily for professional fees related to the Houghton

integration and other acquisition-related activities.

Comparatively,

the Company incurred $12.5 million of expenses in the prior year’s

first six months, primarily due to various

professional fees related to legal, financial and other advisory and

consultant expenses for integration activities including internal

control readiness and remediation.

See the Non-GAAP Measures section of this Item, above.

The Company initiated a restructuring program during the third quarter

of 2019 as part of its global plan to realize cost synergies

associated with the Combination.

The Company incurred Restructuring and related charges for reductions

in headcount and site

closures under this program, net of adjustments to initial estimates for severance

of $0.8 million and $1.5 million during the first six

months of 2022 and 2021, respectively.

See the Non-GAAP Measures section of this Item, above.

Operating income in the first six months of 2022 was $61.3 million compared

to $83.7 million in the first six months of 2021.

Excluding non-recurring and non-core expenses that are not indicative

of the future operating performance of the Company described

in the Non-GAAP Measures section of this Item, above, the Company’s

current year non-GAAP operating income decreased to $78.0

million for the first six months of 2022 compared to $100.1 million in

the prior year’s first six months primarily due to the lower gross

profit and higher SG&A described above.

Quaker Chemical Corporation

Management’s Discussion and Analysis

37

The Company had other expense, net, of $10.6 million in the first six months

of 2022 compared to other income, net of $18.7

million in the first six months of 2021.

The first six months of 2022’s results include

$6.8 million loss on extinguishment of debt

related to the Company’s

refinancing the Original Credit Facility and other expenses of $2.4 million related

to the impact of certain

adjustments to the Company’s

Combination related indemnification receivables, while the prior

year’s first six months of 2022 other

income includes $13.3 million of income related to certain non-income

tax credits recorded by the Company’s

Brazilian subsidiary as

well as a $5.4 million gain on the sale of certain held-for-sale

real property assets.

See the Non-GAAP Measures section of this Item,

above.

In addition, the Company incurred higher foreign exchange transaction

losses in the first six months of 2022 compared to the

prior year period.

Interest expense, net, increased $0.8 million compared to the first six months

of 2021, due to an increase in the average

borrowings outstanding in the first six months of 2022 coupled with an

increase in interest rates in the current year as compared to the

prior year.

The Company’s effective

tax rates for the first six months of 2022 and 2021 were 10.9% and 28.4%, respectively.

The

Company’s eff

ective tax rate for the six months ended June 30, 2022 was largely driven

by changes in the valuation allowance for

foreign tax credits due to recently issued legislative guidance, impacts due

to settlements reached on certain tax audits, state tax

benefits, a reduction in reserves for uncertain tax positions relating to management

fees, a deferred tax benefit associated with an

intercompany asset transfer, withholding

taxes for increased forecasted dividends and the effects of lower

pre-tax earnings and the mix

of such earnings.

Comparatively, the prior year six month

effective tax rate was impacted by the sale of a subsidiary which included

certain held-for-sale real property assets related to the

Combination, certain U.S. tax law changes and the tax impact of certain

non-

income tax credits recorded by the Company’s

Brazilian subsidiaries.

Excluding the impact of all other non-core items in each period,

described in the Non-GAAP Measures section of this Item, above,

the Company estimates that its effective

tax rates for the first six

months of 2022 and 2021 would have been approximately 26% and 24%,

respectively.

In addition, the Company incurred higher tax

expense during the six months ended June 30, 2022 primarily related to

the Company recording earnings in one of its subsidiaries at a

statutory tax rate of 25% while it awaits recertification of a concessionary

15% tax rate, which was available to the Company during

all of 2021.

Equity in net income of associated companies decreased $7.3 million

in the first six months of 2022 compared to the first six

months of 2021, primarily due to lower current year income from

the Company’s interest in a captive insurance

company and from the

Company’s 50% interest in a joint venture

in Korea.

See the Non-GAAP Measures section of this Item, above.

Net income attributable to noncontrolling interest was less than $0.1 million

in both the first six months of 2022 and 2021.

Foreign exchange unfavorably impacted the Company’s

first six months of 2022 results by approximately 7% driven by the

impact from foreign currency translation on earnings as well as higher

foreign exchange transaction losses in the current year as

compared to the prior year’s first six months.

Reportable Segments Review - Comparison of the Second Quarter of 202

2

with the Second Quarter of 2021

The Company’s reportable

segments reflect the structure of the Company’s

internal organization, the method by which the

Company’s resources are allocated

and the manner by which the chief operating decision maker of the Company

assesses its

performance.

The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii)

Asia/Pacific; and (iv) Global Specialty

Businesses.

The three geographic segments are composed of the net sales and operations

in each respective region, excluding net

sales and operations managed globally by the Global Specialty Businesses

segment, which includes the Company’s

container, metal

finishing, mining, offshore, specialty coatings, specialty

grease and Norman Hay businesses.

Segment operating earnings for the Company’s

reportable segments are comprised of net sales less COGS and SG&A directly

related to the respective segment’s product

sales.

Operating expenses not directly attributable to the net sales of each respective

segment,

such as certain corporate and administrative costs, Combination,

integration and other acquisition-related expenses,

Restructuring and related charges, and COGS related

to acquired inventory sold, which is adjusted to fair value as part of purchase

accounting,

are not included in segment operating earnings.

Other items not specifically identified with the Company’s

reportable

segments include interest expense, net, and other (expense) income, net.

Quaker Chemical Corporation

Management’s Discussion and Analysis

38

Americas

Americas represented approximately 35% of the Company’s

consolidated net sales in the second quarter of 2022.

The segment’s net

sales were $172.7 million, an increase of $33.1 million or 24% compared

to the second quarter of 2021.

The increase in net sales was

due to higher selling price and product mix of 28%, additional net sales from

acquisitions of 1% and a favorable impact from foreign

currency translation of 1%, partially offset by a 6% decline

in organic sales volumes.

The increase in selling price and product mix is

primarily driven by price increases implemented to help offset

the significant increases in raw material and other input costs that

began during 2021 and continued through the second quarter of 2022.

The current quarter decline in organic sales volumes was

primarily driven by the tolling agreement for previously divested products

related to the Combination, the Company’s

ongoing value-

based pricing initiatives and lower volumes into the automotive industry

due to the semiconductor supply constraints, partially offset

by net new business wins.

This segment’s operating earnings were

$33.8 million, an increase of $0.1 million compared to the second

quarter of 2021.

The increase in segment operating earnings was primarily driven by higher net sales which

were partially offset by

on-going inflationary pressures on our business.

EMEA

EMEA represented approximately 25% of the Company’s

consolidated net sales in the second quarter of 2022.

The segment’s

net sales were $123.1 million, a decrease of $0.4 million compared

to the second quarter of 2021.

This was driven by higher selling

price and product mix of 21% and additional net sales from acquisitions of

approximately 1%, partially offset by the unfavorable

impact of foreign currency translation of 15% and a decrease in organic

sales volumes of 7%.

The increase in selling price and

product mix was primarily driven by price increases implemented

to help offset the significant increases in raw material and

other

input costs that began during 2021 and continued through the second

quarter of 2022.

The decline in organic sales volumes was

primarily driven by the current geopolitical and macroeconomic pressures

including the direct and indirect impacts of the ongoing war

in Ukraine and the impact of the economic and other sanctions by other

nations on Russia in response to the war, as well as lower

volumes associated with the Company’s

ongoing value-based pricing initiatives, the tolling agreement for products

previously

divested related to the Combination and softer economic conditions in the

region.

The unfavorable foreign exchange impact was

primarily due to the strengthening of the U.S. dollar against the euro

as this exchange rate averaged 1.07 in the second quarter of 2022

compared to 1.20 in the second quarter of 2021.

This segment’s operating earnings were

$13.3 million, a decrease of $10.1 million or

43% compared to the second quarter of 2021.

The decrease in segment operating earnings was primarily a result of higher net sales

which were more than offset by lower gross margins

due to inflationary pressures on the Company’s

costs exceeding its value-based

pricing actions.

Operating earnings were also negatively impacted by foreign currency translation.

Asia/Pacific

Asia/Pacific represented approximately 20% of the Company’s

consolidated net sales in the second quarter of 2022.

The

segment’s net sales were $99.8

million, an increase of $8.3 million or 9% compared to the second quarter

of 2021.

The increase in net

sales was driven by higher selling price and product mix of 17% partially

offset by lower organic sales volumes of 4% and an

unfavorable impact from foreign currency translation of 4%.

The increase in selling price and product mix was primarily driven by

price increases implemented to help offset the significant

increases in raw material and other input costs that began during 2021

and

continued through the second quarter of 2022, partially offset

by a net increase in volumes elsewhere in the region.

The decline in

organic sales volumes was primarily driven by lower

sales volumes in China as a result of the government imposed COVID-19

quarantine and related production disruptions implemented

at the end of March 2022 and continued throughout the second quarter of

2022.

The unfavorable foreign exchange impact was primarily due to the

strengthening of the U.S. dollar against the Chinese

renminbi as this exchange rate averaged 6.61 in the second quarter of 2022

compared to 6.46 in the second quarter of 2021.

This

segment’s operating earnings were

$22.2 million, a decrease of $1.0 million or 4% compared to the second quarter

of 2021.

The

decrease in segment operating earnings was primarily a result of higher

net sales which was more than offset by lower gross margins

due to inflationary pressures and higher costs as a result of the COVID-19 production

disruptions in China.

Global Specialty Businesses

Global Specialty Businesses represented approximately 20% of the

Company’s consolidated net sales in the

second quarter of

2022.

The segment’s net sales were $96.8

million, an increase of $16.2 million or 20% compared to the second quarter of 2021.

The

increase in net sales was driven by higher selling price and product

mix of 11%, additional net sales from acquisitions of 3% and

an

increase in organic sales volumes of 10%, partially offset

by the unfavorable impact from foreign currency translation

of 4%.

The

increase in selling price and product mix was primarily driven by price

increases implemented to help offset the significant increases

in raw material and other input costs that began during 2021 and continued

through the second quarter of 2022.

The increase in

organic sales volumes was primarily attributable

to a continued favorable demand environment for this segment’s

products.

The

unfavorable foreign exchange impact was primarily due to the strengthening

of the U.S. dollar against the euro as described in the

EMEA section above.

This segment’s operating earnings

were $27.8 million, an increase of $3.6 million or 15% compared to the

second quarter of 2021.

The increase in segment operating earnings reflects the higher net sales partially offset

by lower gross

margins in the current year and slightly higher operating

expenses due to inflationary pressures.

Quaker Chemical Corporation

Management’s Discussion and Analysis

39

Reportable Segments Review - Comparison of the First Six months of 2022

with the First Six months of 2021

Americas

Americas represented approximately 34% of the Company’s

consolidated net sales in the first six months of 2022.

The segment’s

net sales were $326.9 million, an increase of $52.4 million or 19% compared

to the first six months of 2021.

The increase in net sales

was due to higher selling price and product mix of 26%, additional net sales from

acquisitions of 1% and the favorable impacts of

foreign currency translation of 1%, partially offset by

a decrease in organic sales volumes of 9%.

The increase in selling price and

product mix was primarily driven by price increases implemented

to help offset the significant increases in raw material and

other

input costs that began during 2021 and have continued into 2022.

The current year decline in organic sales volumes was primarily

driven by lower sales volumes into the automotive end market, the tolling

agreement for previously divested products related to the

Combination, the prior year period comparison which included a

strong rebound from COVID-19 impacts and the Company’s

ongoing value-based pricing initiatives, partially offset

by net new business wins.

This segment’s operating earnings

were $63.0

million, a decrease of $2.9 million or 4% compared to the first six months of

2021.

The decrease in segment operating earnings was

primarily a result of higher net sales which was more than offset by

lower gross margins driven by inflationary pressures.

EMEA

EMEA represented approximately 26% of the Company’s

consolidated net sales in the first six months of 2022.

The segment’s

net sales were $248.7 million, an increase of $5.5 million or 2% compared

to the first six months of 2021.

The increase in net sales

was due to higher selling price and product mix of 19% and additional

net sales from acquisitions of 2%, partially offset by the

unfavorable impact of foreign currency translation of 12% and

a decrease in organic sales volumes of 7%.

The increase in selling

price and product mix was primarily driven by price increases implemented

to help offset the significant increases in raw material and

other input costs that began during 2021 and have continued into 2022.

The decline in organic sales volumes was primarily driven by

the current geopolitical and macroeconomic pressures including

the direct and indirect impacts of the ongoing war in Ukraine and the

impact of the economic and other sanctions by other nations on Russia in respons

e

to the war, lower volumes associated with the

Company’s ongoing value

-based pricing initiatives, the tolling agreement for products previously divested

related to the Combination,

the prior year period comparison which included a strong rebound from

COVID-19 impacts,

and softer economic conditions in the

region in the current period, partially offset by net new business wins.

The unfavorable foreign exchange impact was primarily due

to

the strengthening of the U.S. dollar against the euro as this exchange rate

averaged 1.09 in the first six months of 2022 compared to

1.21 in first six months of 2021.

This segment’s operating earnings were

$30.0 million, a decrease of $18.6 million or 38% compared

to the first six months of 2021.

The decrease in segment operating earnings was primarily a result of higher

net sales which was more

than offset by lower gross margins driven

by significant inflationary pressures and the negative impact of foreign

currency translation

year-over-year.

Asia/Pacific

Asia/Pacific represented approximately 21% of the Company’s

consolidated net sales in the first six months of 2022.

The

segment’s net sales were $204.1

million, an increase of $15.8 million or 8% compared to the first six months of 2021.

The increase in

net sales was driven by higher selling price and product mix of 14% partially

offset by lower organic sales volumes of 4% and the

unfavorable impacts of foreign currency translation of 2%.

The increase in selling price and product mix was primarily driven by

price increases implemented to help offset the significant

increases in raw material and other input costs that began during 2021

and

continued into 2022.

The current year decline in organic sales volumes was primarily driven by

lower sales volumes in China as a

result of the government imposed COVID-19 quarantine and related

production disruptions implemented at the end of March 2022

and which continued throughout the second quarter of 2022 and the prior

year comparison which included a strong rebound from

COVID-19 impacts as customers replenished their supply chains, partially

offset by net new business wins.

This segment’s operating

earnings were $44.1 million, a decrease of $6.6 million or 13% compared

to the first six months of 2021.

The decrease in segment

operating earnings was primarily a result of higher net sales which was more

than offset by lower gross margins driven by significant

inflationary pressures and the unfavorable impact of foreign currency

translation.

Quaker Chemical Corporation

Management’s Discussion and Analysis

40

Global Specialty Businesses

Global Specialty Businesses represented approximately 19% of the

Company’s consolidated net sales in the

first six months of

2022.

The segment’s net sales were $186.9

million, an increase of $27.9 million or 18% compared to the first six months of 2021.

The increase in net sales was driven by higher selling price and product

mix of 11%, an increase in organic sales volumes

of 6% and

additional net sales from acquisitions of 4%, partially offset

by the unfavorable impact from foreign currency translation of

approximately 3%.

The increase in selling price and product mix was primarily driven by price increases

implemented to help offset

the significant increases in raw material and other input costs that began during

2021 and continued into 2022.

The increase in

organic sales volumes was primarily attributable

to a continued favorable demand environment for this segment’s

products.

The

unfavorable foreign exchange impact was primarily

due to the strengthening of the U.S. dollar against the euro described in the EMEA

section above.

This segment’s operating earnings

were $52.9 million, an increase of $4.5 million or 9% compared to the first six

months of 2021.

The increase in segment operating earnings reflects higher net sales partially offset

by lower gross margins driven by

inflationary pressures and the negative impact of foreign currency

translation year-over-year.

Quaker Chemical Corporation

Management’s Discussion and Analysis

41

Factors That May Affect Our Future Results

(Cautionary Statements Under the Private Securities Litigation Reform

Act of 1995)

Certain information included in this Report and other materials filed or

to be filed by Quaker Chemical Corporation with the SEC,

as well as information included in oral statements or other written statements made

or to be made by us, contain or may contain

forward-looking statements within the meaning of Section 27A of the

Securities Act of 1933, as amended, and Section 21E of the

Securities Exchange Act of 1934, as amended.

These statements can be identified by the fact that they do not relate strictly to

historical or current facts.

We have based

these forward-looking statements, including statements regarding the potential

effects of the

COVID-19 pandemic and global supply chain constraints on the Company’s

business, results of operations, and financial condition,

our expectation that we will maintain sufficient liquidity and

remediate any of our material weaknesses in internal control over

financial reporting, and statements regarding the impact of increased

raw material costs and pricing initiatives on our current

expectations about future events.

These forward-looking statements include statements with respect to

our beliefs, plans, objectives, goals, expectations,

anticipations, intentions, financial condition, results of operations, future

performance, and business, including:

•

the potential benefits of the Combination and other acquisitions;

•

the impacts on our business as a result of the COVID-19 pandemic;

•

the timing and extent of the projected impacts on our business as a result of the Ukrainian

and Russian conflict and

actions taken by various governments and governmental organizat

ions in response;

•

cost increases and the impacts of constraints and disruptions in the global supply

chain;

•

the potential for a variety of macroeconomic events, including the possibility of global

or regional recessions, inflation

generally, cost increases in

prices of raw materials such as oil and increasing interest rates, to impact the value

of our

assets or result in asset impairments;

•

our current and future results and plans including our sustainability goals;

and

•

statements that include the words “may,”

“could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,”

“intend,” “plan” or similar expressions.

Such statements include information relating to current and future business activities,

operational matters, capital spending, and

financing sources.

From time to time, forward-looking statements are also included in the Company’s

other periodic reports on Forms

10-K, 10-Q and 8-K, press releases, and other materials released to,

or statements made to, the public.

Any or all of the forward-looking statements in this Report, in the Company’s

Annual Report to Shareholders for 2021 and in any

other public statements we make may turn out to be wrong.

This can occur as a result of inaccurate assumptions or as a conseque

nce

of known or unknown risks and uncertainties.

Many factors discussed in this Report will be important in determining our future

performance.

Consequently, actual results may

differ materially from those that might be anticipated from our forward-looking

statements.

We undertake

no obligation to publicly update any forward-looking statements, whether

as a result of new information, future

events or otherwise.

However, any further disclosures made on

related subjects in the Company’s subsequent

reports on Forms 10-K,

10-Q, 8-K and other related filings should be consulted.

A major risk is that demand for the Company’s

products and services is

largely derived from the demand for our customers’ products,

which subjects the Company to uncertainties related to downturns in a

customer’s business and unanticipated customer production

slowdowns and shutdowns, including as is currently being experienced by

many automotive industry companies as a result of supply chain disruption.

Other major risks and uncertainties include, but are not

limited to, the primary and secondary impacts of the COVID-19 pandemic,

including actions taken in response to the pandemic by

various governments, which could exacerbate some or all of the other

risks and uncertainties faced by the Company,

as well as

inflationary pressures, including the potential for significant increases

in raw material costs, supply chain disruptions, customer

financial instability,

rising interest rates and the possibility of economic recession, worldwide economic

and political disruptions

including the impacts of the military conflict between Russia and Ukraine,

the economic and other sanctions imposed by other nations

on Russia, suspensions of activities in Russia by many multinational companies

and the potential expansion of military activity,

foreign currency fluctuations, significant changes in applicable tax

rates and regulations, future terrorist attacks and other acts of

violence.

Furthermore, the Company is subject to the same business cycles as those experienced

by our customers in the steel,

automobile, aircraft, industrial equipment, and durable goods industries.

The ultimate impact of COVID-19 on our business will

depend on, among other things, the extent and duration of the pandemic,

the severity of the disease and the number of people infected

with the virus including new variants, the continued uncertainty regarding

global availability, administration,

acceptance and long-

term efficacy of vaccines, or other treatments for COVID-19 or

its variants, the longer-term effects on the economy of

the pandemic,

including the resulting market volatility,

and by the measures taken by governmental authorities and other third parties

restricting day-

to-day life and business operations and the length of time that such measures

remain in place, as well as laws and other governmental

programs implemented to address the pandemic or assist impacted

businesses, such as fiscal stimulus and other legislation designed to

deliver monetary aid and other relief.

Other factors could also adversely affect us, including those related

to acquisitions and the

Quaker Chemical Corporation

Management’s Discussion and Analysis

42

integration of acquired businesses.

Our forward-looking statements are subject to risks, uncertainties and

assumptions about the

Company and its operations that are subject to change based on various important

factors, some of which are beyond our control.

These risks, uncertainties, and possible inaccurate assumptions relevant

to our business could cause our actual results to differ

materially

from expected and historical results.

Therefore, we caution you not to place undue reliance on our forward-looking

statements.

For more information regarding these

risks and uncertainties as well as certain additional risks that we face, refer

to the Risk Factors section, which appears in Item 1A in

our 2021 Form 10-K and in our quarterly and other reports filed from time to

time with the SEC.

This discussion is provided as

permitted by the Private Securities Litigation Reform Act of 1995.

Quaker Houghton on the Internet

Financial results, news and other information about Quaker Houghton

can be accessed from the Company’s

website at

https://www.quakerhoughton.com.

This site includes important information on the Company’s

locations, products and services,

financial reports, news releases and career opportunities.

The Company’s periodic and current reports

on Forms 10-K, 10-Q, 8-K, and

other filings, including exhibits and supplemental schedules filed therewith,

and amendments to those reports, filed with the SEC are

available on the Company’s website,

free of charge, as soon as reasonably practicable after they

are electronically filed with or

furnished to the SEC.

Information contained on, or that may be accessed through, the Company’s

website is not incorporated by

reference in this Report and, accordingly,

you should not consider that information part of this Report.

43

Item 3.

Quantitative and Qualitative Disclosures About Market

Risk.

We have evaluated

the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on

Form

10-K for the year ended December 31, 2021, and we believe there has been

no material change to that information, except the interest

rate risk noted below.

Interest Rate Risk.

The Company’s exposure

to interest rate risk relates primarily to its outstanding borrowings under its credit facility.

During June

2022, the Company entered into an amendment to its primary credit facility

(the “Original Credit Facility”, or as amended, the

“Amended Credit Facility”).

See Note 14 of Notes to Condensed Consolidated Financial Statements, which appears

in Item 1 of this

Report.

As of June 30, 2022, borrowings under the Amended Credit Facility bear interest at either

term SOFR or a base rate, in each

case, plus an applicable margin based upon the Company’s

consolidated net leverage ratio, and, in the case of term SOFR, a spread

adjustment equal to 0.10% per annum.

As a result of the variable interest rates applicable under the Amended Credit Facility,

if

interest rates rise significantly,

the cost of debt to the Company will increase.

This can have an adverse effect on the Company,

depending on the extent of the Company’s

borrowings outstanding throughout a given year.

As of June 30, 2022, the Company had outstanding borrowings under the

Amended Credit Facility of approximately $977.6

million.

The interest rate applicable on outstanding borrowings under the Amended

Credit Facility was approximately 2.8% as of

June 30, 2022.

As of December 31, 2021, the Company had outstanding borrowings under the

Original Credit Facility of

approximately $889.6 million. The variable interest rate incurred on the outstanding

borrowings under the Original Credit Facility

during the year ended December 31, 2021 was approximately 1.6%.

If interest rates had changed by 10% during 2021, the

Company’s interest expense for

the period ended December 31, 2021 on its credit facilities, including the Original

Credit Facility

borrowings outstanding post-closing of the Combination, would have correspondingly

increased or decreased by approximately $1

million.

Likewise, if interest rates had changed by 10% during the six month period ended June

30, 2022, the Company’s interest

expense for the six month period ended June 30, 2022 on its credit facilities, including

the Amended Credit Facility borrowings

outstanding, would have correspondingly increased or decreased by approximately

$2 million.

The Original Credit Facility required the Company to fix its variable interest rates on

at least 20% of its total term loans.

In order

to satisfy this requirement as well as to manage the Company’s

exposure to variable interest rate risk associated with the Original

Credit Facility, in November

2019, the Company entered into $170.0 million notional amounts of

three year interest rate swaps at a

base rate of 1.64% plus an applicable margin as provided in

the Original Credit Facility, based on

the Company’s consolidated

net

leverage ratio.

At the time the Company entered into the swaps, and as of June 30, 2022, the aggregate

interest rate on the swaps,

including the fixed base rate plus an applicable margin,

was 3.1%.

The Amended Credit Facility does not require the Company to fix

variable interest rates on any portion of its borrowings.

44

Item 4.

Controls and Procedures.

Evaluation of disclosure controls

and procedures.

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as

amended (the “Exchange Act”), our management, including our

principal executive officer and principal financial officer,

has

evaluated the effectiveness of our disclosure controls

and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the

end of the period covered by this Report.

Based on that evaluation, our principal executive officer and our principal

financial officer

have concluded that, as of June 30, 2022, the end of the period covered by this Report, our

disclosure controls and procedures (as

defined in Rule 13a-15(e) under the Exchange Act) were effective.

Changes in internal control over financial reporting.

As required by Rule 13a-15(d) under the Exchange Act, our

management, including our principal executive officer

and principal financial officer, has evaluated

our internal control over

financial reporting to determine whether any changes to our internal control

over financial reporting occurred during the

quarter ended June 30, 2022 that have materially affected, or are

reasonably likely to materially affect, our internal control

over financial reporting.

Based on that evaluation, there were no changes that have materially affected,

or are reasonably

likely to materially affect, our internal control over financial reporting

during the quarter ended June 30, 2022.

45

PART

II.

OTHER INFORMATION

Items 3, 4 and 5 of Part II are inapplicable and have been omitted.

Item 1.

Legal Proceedings.

Incorporated by reference is the information in Note 18 of the Notes to

the Condensed Consolidated Financial Statements in Part

I, Item 1, of this Report.

Item 1A. Risk Factors.

The Company’s business, financial

condition, results of operations and cash flows are subject to various risks that

could cause

actual results to vary materially from recent results or from anticipated future

results.

In addition to the other information set forth in

this Report, you should carefully consider the risk factors previously disclosed

in Part I, Item 1A of our 2021 Form 10-K.

While there

have been no material changes to the risk factors described in our 2021 Form 10-K,

reference is made to the developments discussed

under the headings

On-going impact of COVID-19

and

Impact of Political Conflicts

within Part I, Item 2 of this Report.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information concerning shares of

the Company’s common stock acquired

by the Company during

the period covered by this Report:

(c)

(d)

Total

Number of

Approximate Dollar

(a)

(b)

Shares Purchased

Value of

Shares that

Total

Number

Average

as part of

May Yet

be

of Shares

Price Paid

Publicly Announced

Purchased Under the

Period

Purchased (1)

Per Share (2)

Plans or Programs

Plans or Programs (3)

April 1 - April 30

280

$

162.86

—

$

86,865,026

May 1 - May 31

729

$

147.04

—

$

86,865,026

June 1 - June 30

56

$

149.52

—

$

86,865,026

Total

1,065

$

151.33

—

$

86,865,026

(1)

All of these shares were acquired from employees related to the surrender

of Quaker Chemical Corporation shares in

payment of the exercise price of employee stock options exercised or

for the payment of taxes upon exercise of employee

stock options or the vesting of restricted stock awards or units.

(2)

The price paid for shares acquired from employees pursuant to employee

benefit and share-based compensation plans is

based on the closing price of the Company’s

common stock on the date of exercise or vesting as specified by the plan

pursuant to which the applicable option, restricted stock award, or restricted

stock unit was granted.

(3)

On May 6, 2015, the Board of Directors of the Company approved, and the

Company announced, a share repurchase

program, pursuant to which the Company is authorized to repurchase up to

$100,000,000 of Quaker Chemical Corporation

common stock (the “2015 Share Repurchase Program”), and it has no expiration

date.

There were no shares acquired by the

Company pursuant to the 2015 Share Repurchase Program during the

quarter ended June 30, 2022.

Limitation on the Payment of Dividends

The Amended Credit Facility has certain limitations on the payment of

dividends and other so-called restricted payments.

See

Note 14 of Notes to Condensed Consolidated Financial Statements, in Part

I, Item 1, of this Report.

46

Item 6.

Exhibits.

(a) Exhibits

3.1

–

Amended and Restated Articles of Incorporation (as amended through July 24, 2019). Incorporated by reference to

Exhibit 3.1 as filed by the Registrant with its quarterly report on Form 10-Q filed on August 1, 2019.

3.2

–

Restated By-laws (effective May 6, 2015, as amended through March 27, 2020). Incorporated by reference to Exhibit

3.2 as filed by the Registrant within its quarterly report on Form 10-Q filed on May 11, 2020.

10.1

–

Amendment No. 3, dated as of June 17, 2022, to the Credit Agreement, dated as of August 1, 2019, as amended.

Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form

8-K filed on June 21, 2022.

10.2

–

Memorandum of Employment by and between the Registrant and Melissa Leneis dated May 24, 2022 and effective

July 5, 2022.*†

10.3

–

Form of Change of Control Agreement by and between the Registrant and certain executive officers (including

Melissa Leneis).*†

10.4

–

Memorandum of Employment by and between the Registrant and Dhruwa Rai dated June 23, 2022 and effective July

6, 2022.*†

10.5

–

Form of Change of Control Agreement by and between the Registrant and certain executive officers (including

Dhruwa Rai).*†

31.1

–

Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of

1934.*

31.2

–

Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of

1934.*

32.1

–

Certification of Chief Executive Officer of the Company Pursuant to 18 U.S. C. Section 1350.**

32.2

–

Certification of Chief Financial Officer of the Company Pursuant to 18 U.S. C. Section 1350.**

101.INS

–

Inline XBRL Instance Document*

101.SCH

–

Inline XBRL Taxonomy

Schema Document*

101.CAL

–

Inline XBRL Taxonomy

Calculation Linkbase Document*

101.DEF

–

Inline XBRL Taxonomy

Definition Linkbase Document*

101.LAB

–

Inline XBRL Taxonomy

Label Linkbase Document*

101.PRE

–

Inline XBRL Taxonomy

Presentation Linkbase Document*

104

–

Cover Page Interactive Data File (formatted as Inline XBRL and contained

in Exhibit 101.INS)*

*Filed herewith.

** Furnished herewith.

† Management contract or compensatory plan.

*********

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has

duly caused this report to be signed

on its behalf by the undersigned thereunto duly authorized.

QUAKER CHEMICAL CORPORATION

(Registrant)

/s/ Shane W. Hostetter

Date: August 4, 2022

Shane W. Hostetter,

Senior Vice President, Chief Financial

Officer (officer duly authorized on behalf of, and principal

financial officer of, the Registrant)

This ‘10-Q’ Filing	Date	Other Filings

	12/31/27
	12/31/26
	12/31/25
	12/31/24
	12/31/23
	12/31/22
Filed on:	8/4/22	8-K
	7/31/22
For Period end:	6/30/22
	6/21/22	8-K
	6/17/22	8-K
	3/31/22	10-Q, DEF 14A
	12/31/21	10-K, 11-K
	6/30/21	10-Q
	3/31/21	10-Q, DEF 14A
	12/31/20	10-K, 11-K, 4
	3/12/20
	8/1/19	10-Q, 3, 4, 8-K, 8-K/A
	7/1/18
	3/31/18	10-Q
	4/1/17
	5/6/15	8-K, DEF 14A
		List all Filings

Quaker Chemical Corp. – ‘10-Q’ for 6/30/22

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