Quaker Houghton - 10-Q quarterly report FY2020 Q2

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM

10-Q

☒

QUARTERLY

REPORT PURSUANT TO SECTION

13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the quarterly period ended

June 30, 2020

☐

TRANSITION REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the transition period from

Commission file number

001-12019

QUAKER CHEMICAL CORPORATION

(Exact name of Registrant as specified in its charter)

Pennsylvania

23-0993790

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

901 E. Hector Street

Conshohocken

Pennsylvania

19428 – 2380

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

610

832-4000

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

Common Stock, $1 par value

KWR

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.

Yes

☒

☐

Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required

to be submitted pursuant to Rule 405 of Regulation S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter

period that the registrant was required to submit such files) .

Yes

☒

☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging

growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”

in Rule 12b-2 of

the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting

company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period

for complying with any new or revised

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

Act.

☐

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

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

Yes

☐

☒

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 June 30, 2020

17,799,606

QUAKER CHEMICAL CORPORATION

AND CONSOLIDATED

SUBSIDIARIES

Page

PART

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and June 30, 2019

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2020 and June

30, 2019

Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and June 30, 2019

Notes to Condensed Consolidated Financial Statements

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

Item 4.

Controls and Procedures.

PART

OTHER INFORMATION.

Item 1.

Legal Proceedings.

Item 1A.

Risk Factors.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Item 6.

Exhibits.

Signatures

PART

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited).

Quaker Chemical Corporation

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)

Unaudited

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Net sales

286,040

205,869

664,601

417,079

Cost of goods sold (

excluding amortization expense - See note 14

)

188,654

130,708

433,364

266,151

Gross profit

97,386

75,161

231,237

150,928

Selling, general and administrative expenses

86,667

50,026

185,368

101,481

Indefinite-lived intangible asset impairment

—

38,000

—

Restructuring and related charges

486

—

2,202

—

Combination, integration and other acquisition-related

expenses

7,995

4,604

15,873

9,087

Operating income (loss)

2,238

20,531

(10,206)

40,360

Other (expense) income, net

(993)

(22,168)

(592)

Interest expense, net

(6,811)

(733)

(15,272)

(1,509)

(Loss) income before taxes and equity in net income of

associated companies

(5,566)

19,841

(47,646)

38,259

Taxes on (loss)

income before equity in net

income of associated

companies

3,222

4,800

(9,848)

9,729

(Loss) income before equity in net income of associated

companies

(8,788)

15,041

(37,798)

28,530

Equity in net income of associated companies

1,066

608

1,732

1,019

Net (loss) income

(7,722)

15,649

(36,066)

29,549

Less: Net income attributable to noncontrolling interest

114

Net (loss) income attributable to Quaker Chemical Corporation

(7,735)

15,591

(36,116)

29,435

Per share data:

Net (loss) income attributable to Quaker Chemical Corporation

common shareholders – basic

(0.43)

1.17

(2.03)

2.21

Net (loss) income attributable to Quaker Chemical Corporation

common shareholders – diluted

(0.43)

1.17

(2.03)

2.20

Dividends declared

0.385

0.770

0.755

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

Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Dollars in thousands)

Unaudited

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Net (loss) income

(7,722)

15,649

(36,066)

29,549

Other comprehensive income (loss), net of tax

Currency translation adjustments

10,551

(519)

(44,200)

(951)

Defined benefit retirement plans

213

522

17,170

1,228

Current period change in fair value of derivatives

(111)

—

(4,092)

—

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

1,608

307

(103)

1,580

Other comprehensive income (loss)

12,261

310

(31,225)

1,857

Comprehensive income (loss)

4,539

15,959

(67,291)

31,406

Less: Comprehensive (income) loss attributable to

noncontrolling interest

(14)

(82)

(137)

Comprehensive income (loss) attributable to Quaker Chemical

Corporation

4,525

15,877

(67,210)

31,269

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

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

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

Unaudited

June 30,

December 31,

2020

2019

ASSETS

Current assets

Cash and cash equivalents

322,497

123,524

Accounts receivable, net

300,027

375,982

Inventories

Raw materials and supplies

80,331

82,058

Work-in-process

and finished goods

93,536

92,892

Prepaid expenses and other current assets

52,847

41,516

Total current

assets

849,238

715,972

Property, plant and

equipment, at cost

384,960

398,834

Less accumulated depreciation

(196,547)

(185,365)

Property, plant and

equipment, net

188,413

213,469

Right of use lease assets

40,517

42,905

Goodwill

604,649

607,205

Other intangible assets, net

1,044,516

1,121,765

Investments in associated companies

87,865

93,822

Deferred tax assets

12,362

14,745

Other non-current assets

43,966

40,433

Total assets

2,871,526

2,850,316

LIABILITIES AND EQUITY

Current liabilities

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

38,217

38,332

Accounts and other payables

130,334

170,929

Accrued compensation

22,689

45,620

Accrued restructuring

10,432

18,043

Other current liabilities

81,019

87,010

Total current

liabilities

282,691

359,934

Long-term debt

1,070,306

882,437

Long-term lease liabilities

28,908

31,273

Deferred tax liabilities

196,669

211,094

Other non-current liabilities

125,611

123,212

Total liabilities

1,704,185

1,607,950

Commitments and contingencies (Note 19)

Equity

Common stock $

par value; authorized

30,000,000

shares; issued and

outstanding 2020 –

17,799,606

shares; 2019 –

17,735,162

17,800

17,735

Capital in excess of par value

896,108

888,218

Retained earnings

362,265

412,979

Accumulated other comprehensive loss

(109,264)

(78,170)

Total Quaker

shareholders’ equity

1,166,909

1,240,762

Noncontrolling interest

432

1,604

Total equity

1,167,341

1,242,366

Total liabilities and

equity

2,871,526

2,850,316

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

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

Unaudited

Six Months Ended

June 30,

2020

2019

Cash flows from operating activities

Net (loss) income

(36,066)

29,549

Adjustments to reconcile net income to net cash provided

by operating activities:

Amortization of debt issuance costs

2,375

Depreciation and amortization

42,079

9,702

Equity in undistributed earnings of associated companies,

net of dividends

3,219

1,658

Acquisition-related fair value adjustments related to inventory

229

—

Deferred compensation, deferred taxes and other,

net

(22,033)

(7,141)

Share-based compensation

7,673

1,672

Loss (gain) on disposal of property,

plant, equipment and other assets

(39)

Insurance settlement realized

(542)

(306)

Indefinite-lived intangible asset impairment

38,000

—

Combination and other acquisition-related expenses, net of

payments

1,860

399

Restructuring and related charges

2,202

—

Pension and other postretirement benefits

18,784

(21)

Increase (decrease) in cash from changes in current assets and current

liabilities, net of acquisitions:

Accounts receivable

61,659

(7,893)

Inventories

(3,689)

(257)

Prepaid expenses and other current assets

(2,849)

(2,039)

Change in restructuring liabilities

(9,592)

—

Accounts payable and accrued liabilities

(58,728)

(2,945)

Net cash provided by operating activities

44,662

22,409

Cash flows from investing activities

Investments in property,

plant and equipment

(7,534)

(5,544)

Payments related to acquisitions, net of cash acquired

(3,132)

(500)

Proceeds from disposition of assets

Insurance settlement interest earned

131

Net cash used in investing activities

(10,618)

(5,843)

Cash flows from financing activities

Payments of long-term debt

(18,702)

—

Borrowings (repayments) on revolving credit facilities, net

205,500

(24,034)

Repayments on other debt, net

(684)

(6)

Dividends paid

(13,662)

(9,868)

Stock options exercised, other

(1,923)

(1,374)

Purchase of noncontrolling interest in affiliates

(1,047)

—

Distributions to noncontrolling affiliate shareholders

(751)

—

Net cash provided by (used in) financing activities

168,731

(35,282)

Effect of foreign exchange rate changes on

cash

(4,575)

749

Net increase (decrease) in cash, cash equivalents and restricted

cash

198,200

(17,967)

Cash, cash equivalents and restricted cash at the beginning

of the period

143,555

124,425

Cash, cash equivalents and restricted cash at the end of

the period

341,755

106,458

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

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 1 – Condensed Financial Information

As used in these Notes to Condensed Consolidated

Financial Statements, the terms “Quaker”, “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 term Legacy Quaker refers to the Company prior

to the closing of its combination with Houghton International,

Inc. (“Houghton”)

(herein referred to as the “Combination”).

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 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

three and six months ended June 30, 2020 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,

2019 (the “2019 Form 10-K”).

Hyper-inflationary economies

Economies that have a cumulative three-year rate of inflation

exceeding

100

% are considered hyper-inflationary in accordance

with U.S. GAAP.

A legal entity that operates within an economy deemed

to be hyper-inflationary is required to remeasure its

monetary assets and liabilities to the applicable published

exchange rates and record the associated gains or losses resulting

from the

remeasurement directly to the Condensed Consolidated

Statements of Operations.

Based on various indices or index compilations currently

being used to monitor inflation in Argentina as well as

recent economic

instability, effective

July 1, 2018, Argentina’s

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

As a result, the

Company began applying hyper-inflationary accounting

with respect to the Company's wholly owned Argentine

subsidiary beginning

July 1, 2018.

In addition, Houghton has an Argentina subsidiary to

which hyper-inflationary accounting also is applied.

As of, and

for the three and six months ended June 30, 2020

and 2019, the Company's Argentine subsidiaries represented

less than

% of the

Company’s consolidated

total assets and net sales, respectively.

During the three and six months ended June 30, 2020, the Company

recorded less than $

0.1

million and $

0.1

million, respectively,

of remeasurement losses associated with the applicable

currency

conversions related to Argentina.

Comparatively, during

the three and six months ended June 30, 2019,

the Company recorded less

than $

0.1

million of remeasurement gains and $

0.2

million of remeasurement losses associated with the applicable

currency

conversion related to Argentina.

These losses were recorded within foreign exchange

(losses) gains, net, which is a component of

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

Condensed Consolidated Statements of Operations.

Note 2 – Business Combinations

Houghton

August 1, 2019

, the Company completed the Combination, whereby the Company

acquired all of the issued and outstanding

shares of

Houghton

from Gulf Houghton Lubricants, Ltd. and certain other selling

shareholders in exchange for a combination of cash

and shares of the Company’s

common stock in accordance with the Share Purchase Agreement,

dated April 4, 2017.

Houghton is a

leading global provider of specialty chemicals and technical

services for metalworking and other industrial applications.

The

Company believes that combining Quaker’s

and Houghton’s products

and service offerings will allow Quaker Houghton to

better

serve its customers in its various end markets.

The Combination was subject to certain regulatory

and shareholder approvals.

At a shareholder meeting held during 2017, the

Company’s shareholders

approved the issuance of new shares of the Company’s

common stock at closing of the Combination.

Also

in 2017, the Company received regulatory approvals for

the Combination from China and Australia.

The Company received

regulatory approvals from the European Commission

(“EC”) during the second quarter of 2019 and the U.S. Federal

Trade

Commission (“FTC”) in July 2019.

The approvals from the FTC and the EC required the concurrent

divestiture of certain steel and

aluminum related product lines of Houghton, which

were sold by Houghton on August 1, 2019 for approximately

million in cash.

The final remedy agreed with the EC and the FTC was consistent

with the Company’s

previous expectation that the total divested

product lines would be approximately

% of the combined company’s

net sales.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

The following table summarizes the fair value of consideration

transferred in the Combination:

Cash transferred to Houghton shareholders (a)

170,829

Cash paid to extinguish Houghton debt obligations

702,556

Fair value of common stock issued as consideration (b)

789,080

Total fair value

of consideration transferred

1,662,465

(

A portion is held in escrow by a third party,

subject to indemnification rights that lapse upon the achievement

of certain

milestones.

(b)

Amount was determined based on approximately

4.3

million shares, comprising

24.5

% of the common stock of the Company

immediately after the closing, and the closing price per

share of Quaker Chemical Corporation common stock

of $

182.27

August 1, 2019.

The Company accounted for the Combination under the

acquisition method of accounting.

This method requires the recording of

acquired assets, including separately identifiable

intangible assets, at their fair value on the acquisition

date.

Any excess of the

purchase price over the estimated fair value of

the identifiable net assets acquired is recorded as goodwill.

The determination of the

estimated fair value of assets acquired,

including indefinite and definite-lived intangible assets,

requires management’s

judgment and

often involves the use of significant estimates and assumptions

including assumptions with respect to future cash inflows and

outflows, discount rates, customer attrition rates, royalty

rates, asset lives and market multiples, among other items.

Fair values were

determined by management using a variety of methodolog

ies and resources, including external independent valuation

experts.

The

valuation methods included physical appraisals, discounted

cash flow analyses, excess earnings, relief from

royalty, and other

appropriate valuation techniques to determine the fair value

of assets acquired and liabilities assumed.

The following table presents the current preliminary estimated

fair values of Houghton net assets acquired:

Measurement

August 1,

Period

August 1, 2019

2019 (1)

Adjustments

(as adjusted)

Cash and cash equivalents

75,821

—

75,821

Accounts receivable, net

178,922

—

178,922

Inventories, net

95,193

—

95,193

Prepaid expenses and other assets

10,652

314

10,966

Property, plant and

equipment

115,529

(66)

115,463

Right of use lease assets

10,673

—

10,673

Investments in associated companies

66,447

—

66,447

Other non-current assets

4,710

1,553

6,263

Intangible assets

1,028,400

—

1,028,400

Goodwill

494,915

7,737

502,652

Total assets purchased

2,081,262

9,538

2,090,800

Short-term borrowings, not refinanced at closing

9,297

—

9,297

Accounts payable, accrued expenses and other accrued

liabilities

150,078

853

150,931

Deferred tax liabilities

205,082

7,132

212,214

Long-term lease liabilities

6,607

—

6,607

Other non-current liabilities

47,733

1,553

49,286

Total liabilities assumed

418,797

9,538

428,335

Total consideration

paid for Houghton

1,662,465

—

1,662,465

Less: cash acquired

75,821

—

75,821

Less: fair value of common stock issued as consideration

789,080

—

789,080

Net cash paid for Houghton

797,564

(1) As

previously disclosed in the Company’s

2019 Form 10-K.

As of June 30, 2020, the allocation of the purchase price

for the Combination has not been finalized and the

one-year

measurement period has not ended.

While not currently expected, 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.

Houghton assets

acquired and liabilities assumed have been assigned

to each of the Company’s reportable

segments on a specific identification or

allocated basis, as applicable.

Measurement period adjustments recorded during the first

six months of 2020 related primarily to

increasing the valuation allowances against the deferred

tax assets associated with foreign tax credits acquired as part

of the

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Combination as a result of additional information available

used to update the Company’s

initial estimates of expenses allocated to

foreign source income and expected creditable foreign

taxes.

In addition, measurement period adjustments include the recognition

additional other non-current assets and other non-current

liabilities based on additional information obtained regarding

certain tax

audits and associated rights to indemnification, and

certain non-income tax liabilities payable upon closing of

the Combination in

certain countries.

Combination, integration and other acquisition-related

expenses have been and are expected to continue to be significant.

The

Company incurred total costs of approximately $

8.3

million and $

16.5

million for the three and six months ended June 30, 2020,

respectively, primarily

for professional fees related to Houghton integration

activities.

Comparatively, the Company

incurred total

costs of $

5.5

million and $

10.8

million during the three and six months ended June 30,

2019, respectively, primarily

for various

professional fees and integration planning and regulatory

approval.

These costs also include $

0.3

million and $

0.8

million of

accelerated depreciation charges during the three

and six months ended June 30, 2020, respectively,

and $

0.9

million and $

1.7

million

of interest costs to maintain the bank commitment

(“ticking fees”) for the Combination during the three and six months

ended June 30,

2019,

respectively.

The Company had current liabilities related to the Combination,

integration and other acquisition-related activities

of $

8.6

million and $

6.6

million as of June 30, 2020, and December 31, 2019, respectively,

primarily recorded within other accrued

liabilities on its Condensed Consolidated Balance Sheets.

Norman Hay

October 1, 2019

, the Company completed its acquisition of the operating divisions

Norman Hay plc

(“Norman Hay”), a

private U.K. company that provides specialty chemicals, operating

equipment, and services to industrial end markets.

The acquisition

adds new technologies in automotive, original equipment

manufacturer (“OEM”), and aerospace, as well as engineering expertise

which is expected to strengthen the Company’s

existing equipment solutions platform.

The acquired Norman Hay assets and

liabilities were assigned to the Global Specialty Businesses reportable

segment.

The original purchase price was

80.0

million GBP,

a cash-free and debt-free basis, subject to routine and customary

post-closing adjustments related to working capital and net

indebtedness levels.

The following table presents the preliminary estimated fair

values of Norman Hay net assets acquired:

Measurement

October 1,

Period

October 1, 2019

2019 (1)

Adjustments

(as adjusted)

Cash and cash equivalents

18,981

—

18,981

Accounts receivable, net

15,471

—

15,471

Inventories, net

8,213

(49)

8,164

Prepaid expenses and other assets

4,203

—

4,203

Property, plant and

equipment

14,981

—

14,981

Right of use lease assets

10,608

—

10,608

Intangible assets

51,088

—

51,088

Goodwill

29,384

102

29,486

Total assets purchased

152,929

152,982

Long-term debt included current portions

485

—

485

Accounts payable, accrued expenses and other accrued liabilities

13,488

(708)

12,780

Deferred tax liabilities

12,746

927

13,673

Long-term lease liabilities

8,594

—

8,594

Total liabilities assumed

35,313

219

35,532

Total consideration

paid for Norman Hay

117,616

(166)

117,450

Less: estimated purchase price settlement (2)

3,287

(3,287)

—

Less: cash acquired

18,981

—

18,981

Net cash paid for Norman Hay

95,348

3,121

98,469

(1)

As previously disclosed in the Company’s

2019 Form 10-K.

(2)

The Company finalized its post-closing adjustments for the

Norman Hay acquisition and paid approximately

2.5

million GBP

during the first quarter of 2020 to settle such adjustments.

As of June 30, 2020, the allocation of the purchase price

for Norman Hay has 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.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Other Acquisitions

In May 2020, the Company acquired Tel

Nordic ApS (“TEL”), a company that specializes in lubricants and engineering

primarily

in high pressure aluminum die casting for its Europe,

Middle East and Africa (“EMEA”) reportable segment.

Consideration paid was

in the form of a convertible promissory note in the amount

20.0

million DKK, or approximately $

2.9

million, which was

subsequently converted into shares of the Company’s

common stock.

An adjustment to the purchase price of approximately

0.4

million DKK, or less than $

0.1

million, was made as a result of finalizing a post-closing

settlement in the second quarter of 2020.

The

Company allocated approximately $

2.4

million of the purchase price to intangible assets to be amortized

over

years.

In addition,

the Company recorded approximately $

0.5

million of goodwill, related to expected value not allocated to

other acquired assets, none

of which will be tax deductible.

The allocation of the purchase price of TEL has 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 March 2020, the Company acquired the remaining

% ownership interest in one of its South African affiliates,

Quaker

Chemical South Africa Limited (“QSA”) for

16.7

million ZAR, or approximately $

1.0

million, from its joint venture partner PQ

Holdings South Africa.

QSA is a part of the Company’s

EMEA reportable segment.

As this acquisition was a change in an existing

controlling ownership, the Company recorded $

0.7

million of excess purchase price over the carrying value of

the non-controlling

interest in Capital in excess of par value.

In 2018 the Company purchased certain formulations and product

technology for the mining

industry for $

1.0

million, with $

0.5

million of the purchase price paid at signing and the remaining

0.5

million of the purchase price

paid during the first quarter of 2019.

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards

Adopted

The Financial Accounting Standards Board (“FASB”)

issued Account Standards Update (“ASU”)

2020-04,

Reference Rate

Reform (Topic

848): Facilitation of the Effects of Reference

Rate Reform on Financial Reporting

in March 2020.

The amendments

provide temporary optional expedients and exceptions for

applying 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.

As of June 30, 2020, the expedients

provided in ASU 2020-04 do not impact the Company;

however, the Company will continue to

monitor for potential impacts on its

consolidated financial statements.

The FASB issued

ASU 2018-15

, Customer’s

Accounting for Implementation Costs Incurred

in a Cloud Computing Arrangement

That

Is a Service Contract

in August 2018 that clarifies the accounting for implementation

costs incurred in a cloud computing

arrangement under a service contract.

This guidance generally aligns the requirements for capitalizing

implementation costs incurred

in a hosting arrangement under a service contract with the

requirements for capitalizing implementation costs related

to internal-use

software.

The guidance within this accounting standard update is effective

for annual periods beginning after December 15, 2019 and

should be applied either retrospectively or prospectively

to all implementation costs incurred after the date of

adoption.

Early

adoption was permitted.

The Company adopted this standard on a prospective basis, effective

January 1, 2020.

There was no

cumulative effect of adoption recorded within

retained earnings on January 1, 2020.

The FASB issued

ASU 2018-14,

Disclosure Framework — Changes to

the Disclosure Requirements

for Defined Benefit Plans

August 2018 that modifies certain disclosure requirements

for fair value measurements.

The guidance removes certain disclosure

requirements regarding transfers between levels of

the fair value hierarchy as well as certain disclosures related

to the valuation

processes for certain fair value measurements.

Further, the guidance added certain disclosure

requirements including unrealized gains

and losses and significant unobservable inputs used to

develop certain fair value measurements.

The guidance within this accounting

standard update is effective for annual and

interim periods beginning after December 15, 2019, and should

be applied prospectively in

the initial year of adoption or prospectively to all periods

presented, depending on the amended disclosure requirement.

Early

adoption was permitted.

The Company adopted this standard on a prospective basis, effective

January 1, 2020.

ASU 2018-14

addresses disclosures only and will not have an impact

on the Company’s consolidated

financial statements.

The FASB issued

ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial

Instruments

in June 2016 related to the accounting for and disclosure of

credit losses.

The FASB subsequently

issued several

additional accounting standard updates which amended

and clarified the guidance, but did not materially change

the guidance or its

applicability to the Company.

This accounting guidance introduces a new model for

recognizing credit losses on financial

instruments, including customer accounts receivable,

based on an estimate of current expected credit losses.

The guidance within this

accounting standard update is effective for annual

and interim periods beginning after December 15, 2019.

Early adoption was

permitted.

The Company did not early adopt, but did adopt the guidance in

this accounting standard update, including all applicable

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

subsequent updates to this accounting guidance, as required

on a modified retrospective basis, effective January

1, 2020.

Adoption

did not have a material impact to the Company’s

financial statements as expected.

However, as a result of this adoption, the Company

recorded a cumulative effect of accounting change

that resulted in an increase to its allowance for doubtful accounts

of approximately

1.1

million, a decrease to deferred tax liabilities of $

0.2

million and a decrease to retained earnings of $

0.9

million.

In accordance with this guidance, the Company recognizes

an allowance for credit losses reflecting the net amount expected to

collected from its financial assets, primarily trade accounts

receivable.

This allowance represents the portion of the receivable that the

Company does not expect to collect over its contractual

life, considering past events and reasonable and supportable forecasts of

future

economic conditions.

The Company’s allowance for

credit losses on its trade accounts receivable is based on

specific collectability

facts and circumstances for each outstanding receivable and

customer, the aging of outstanding

receivables and the associated

collection risk the Company estimates for certain past due

aging categories, and also, the general risk to all outstanding accounts

receivable based on historical amounts determined to

be uncollectible.

Recently Issued Accounting Standards

Not Yet Adopted

The FASB

issued ASU 2020-01,

Investments – Equity Securities (Topic

321), Investments – Equity Method and Joint Ventures

(Topic

323), and Derivatives and Hedging (Topic

815) –Clarifying the Interactions between Topic

321, Topic

323, and Topic

815

January 2020 clarifying the interaction among the

accounting standards related to equity securities, equity method investments,

and

certain derivatives.

The new guidance, among other things, states that a company

should consider observable transactions that require

a company to either apply or discontinue the equity method

of accounting, for the purposes of applying the fair value

measurement

alternative immediately before applying or upon discontinuing

the equity method.

The new guidance also addresses the measurement

of certain purchased options and forward contracts used

to acquire investments.

The guidance within this accounting standard update

is effective for annual and interim periods beginning

after December 15, 2020 and is to be applied prospectively.

Early adoption is

permitted.

The Company has not early adopted the guidance and is currently

evaluating its implementation.

The FASB issued

ASU 2019-12

, Income Taxes

(Topic

740): Simplifying the Accounting for Income Taxes

in December 2019 to

simplify the accounting for income taxes.

The guidance within this accounting standard update removes

certain exceptions, including

the exception to the incremental approach for certain

intra-period tax allocations, to the requirement to recognize or not

recognize

certain deferred tax liabilities for equity method investments

and foreign subsidiaries, and to the general methodology

for calculating

income taxes in an interim period when a year-to-date

loss exceeds the anticipated loss for the year.

Further, the guidance simplifies

the accounting related to franchise taxes, the step up in

tax basis for goodwill, current and deferred tax expense, and codification

improvements for income taxes related to employee

stock ownership plans.

The guidance is effective for annual and interim periods

beginning after December 15, 2020.

Early adoption is permitted.

The Company has not early adopted the guidance and

is currently

evaluating its implementation.

The FASB issued

ASU 2018-13

, Fair Value

Measurement (Topic

820):

Disclosure Framework – Changes to the

Disclosure

Requirements for Fair Value

Measurement

in August 2018 that modifies certain disclosure requirement

for employers that sponsor

defined benefit pension or other postretirement plans.

The amendments in this accounting standard update remove

disclosures that are

no longer considered cost beneficial, clarify the specific

requirements of certain disclosures, and add new disclosure requirements

relevant.

The guidance within this accounting standard update is effective

for annual periods beginning after December 15, 2020, and

should be applied retrospectively to all periods presented.

Early adoption is permitted.

The Company has not early adopted the

guidance and is currently evaluating its implementation.

Note 4 – Business Segments

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 Company and the

chief operating decision maker assess its performance.

During the third quarter of 2019 and in connection with the Combination,

the

Company reorganized its executive management

team to align with its new business structure, which reflects the

method by which the

chief operating decision maker of the Company assesses its performance

and allocates its resources.

The Company’s current

reportable segment structure includes

four

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.

All prior period information for Legacy Quaker

has been recast to reflect these four segments as the Company’s

new reportable segments.

Prior to the Company’s

re-segmentation

during the third quarter of 2019, the Company’s

historical reportable segments were four geographic regions: (i)

North America; (ii)

EMEA; (iii) Asia/Pacific; and (iv) South America.

Though the Company changed its reportable segments in

the third quarter of 2019, the calculation of the reportable segments’

measures of earnings remains otherwise generally

consistent with past practices.

Segment operating earnings for the Company’s

reportable segments are comprised of net sales less cost of goods

sold (“COGS”) and selling, general and administrative expenses

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

(“SG&A”) directly related to the respective segment’s

product sales.

Operating expenses not directly attributable to the

net sales of

each respective segment are not included in segment

operating earnings, such as certain corporate and administrative

costs,

Combination, integration and other acquisition-related

expenses, and restructuring and related charges.

Other items not specifically

identified with the Company’s

reportable segments include interest expense, net and

other (expense) income, net.

The following table presents information about the performance

of the Company’s reportable segments

for the three and six

months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Net sales

Americas

80,576

71,747

210,472

143,972

EMEA

77,702

49,012

182,541

101,437

Asia/Pacific

68,421

44,801

141,973

90,968

Global Specialty Businesses

59,341

40,309

129,615

80,702

Total net sales

286,040

205,869

664,601

417,079

Segment operating earnings

Americas

10,303

13,965

39,491

28,304

EMEA

10,245

8,938

28,604

17,731

Asia/Pacific

19,261

12,159

38,802

24,971

Global Specialty Businesses

16,393

10,970

36,953

21,574

Total segment operating

earnings

56,202

46,032

143,850

92,580

Combination, integration and other acquisition-related

expenses

(7,995)

(4,604)

(15,873)

(9,087)

Restructuring and related charges

(486)

—

(2,202)

—

Indefinite-lived intangible asset impairment

—

(38,000)

—

Non-operating and administrative expenses

(32,045)

(19,070)

(70,496)

(39,418)

Depreciation of corporate assets and amortization

(13,438)

(1,827)

(27,485)

(3,715)

Operating income (loss)

2,238

20,531

(10,206)

40,360

Other (expense) income, net

(993)

(22,168)

(592)

Interest expense, net

(6,811)

(733)

(15,272)

(1,509)

(Loss) income before taxes and equity in net income of

associated companies

(5,566)

19,841

(47,646)

38,259

Inter-segment revenues for the three and six months

ended June 30, 2020 were $

2.4

million and $

5.3

million for Americas, $

5.3

million and $

10.8

million for EMEA, $

0.1

million and $

0.3

million for Asia/Pacific, and $

1.0

million and $

2.3

million for Global

Specialty Businesses, respectively.

Inter-segment revenues for the three and six months

ended June 30, 2019 were $

1.3

million and

2.7

million for Americas, $

4.8

million and $

10.1

million for EMEA, less than $

0.1

million and $

0.1

million for Asia/Pacific, and

1.3

million and $

2.8

million for Global Specialty Businesses, respectively.

However, all inter-segment

transactions have been

eliminated from each reportable segment’s

net sales and earnings for all periods presented in the above

tables.

Note 5 – Net Sales and Revenue Recognition

Business Description

The Company develops, produces, and markets a broad

range of formulated chemical specialty products and offers

chemical

management services (“Fluidcare”) for various heavy

industrial and manufacturing applications throughout its four

segments.

The

Combination increased the Company’s

addressable metalworking, metals and industrial end markets, including

steel, aluminum,

aerospace, defense, transportation-OEM, transportation

-components, offshore sub-sea energy,

architectural aluminum, construction,

tube and pipe, can and container,

mining, specialty coatings and specialty greases.

The Combination also strengthened the product

portfolio of the combined Company.

The major product lines of Quaker Houghton include metal remo

val fluids, cleaning fluids,

corrosion inhibitors, metal drawing and forming fluids, die

cast mold releases, heat treatment and quenchants, metal forging

fluids,

hydraulic fluids, specialty greases, offshore

sub-sea energy control fluids, rolling lubricants, rod

and wire drawing fluids and surface

treatment chemicals.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

A substantial portion of the Company’s

sales worldwide are made directly through its own employees

and its Fluidcare programs,

with the balance being handled through distributors and

agents.

The Company’s employees typically

visit the plants of customers

regularly, work

on site, and, through training and experience, identify production

needs which can be resolved or otherwise addressed

either by adapting the Company’s

existing products or by applying new formulations developed

in its laboratories.

The specialty

chemical industry comprises many companies similar in

size to the Company,

as well as companies larger and smaller than Quaker

Houghton.

The offerings of many of the Company’s

competitors differ from those of Quaker Houghton;

some offer a broad portfolio

of fluids, including general lubricants, while others have

a more specialized product range.

All competitors provide different levels of

technical services to individual customers.

Competition in the industry is based primarily on the ability to

provide products that meet

the needs of the customer, render

technical services and laboratory assistance to the customer and,

to a lesser extent, on price.

As part of the Company’s

Fluidcare business, certain third-party product sales to customers are

managed by the Company.

Where

the Company acts as a principal, revenues are recognized

on a gross reporting basis at the selling price negotiated with

its customers.

Where the Company acts as an agent, revenue is recognized on

a net reporting basis at the amount of the administrative fee earned

the Company for ordering the goods.

In determining whether the Company is acting as a principal

or an agent in each arrangement,

the Company considers whether it is primarily responsible

for the obligation to provide the specified good, has inventory

risk before

the specified good has been transferred to the customer

and has discretion in establishing the prices for the specified

goods.

The

Company transferred third-party products under arrangements

recognized on a net reporting basis of $

6.2

million and $

18.7

million

for the three and six months ended June 30, 2020,

respectively, and $

10.4

million and $

20.8

million for the three and six months ended

June 30, 2019,

respectively.

A significant portion of the Company’s

revenues are realized from the sale of process fluids and services

to manufacturers of

steel, aluminum, automobiles, aircraft, industrial equipment,

and durable goods, and, therefore, the Company is subject

to the same

business cycles as those experienced by these manufacturers and

their customers.

The Company’s financial performance

is generally

correlated to the volume of global production within the

industries it serves, rather than discretely related to the financial performance

of such industries.

Furthermore, steel and aluminum customers typically have

limited manufacturing locations compared to

metalworking customers and generally use higher

volumes of products at a single location.

As previously disclosed in its 2019 Form

10-K, during

2019, the Company’s five

largest customers (each composed of multiple subsidiaries or

divisions with semiautonomous

purchasing authority) accounted for approximately

% of consolidated net sales, with its largest customer

accounting for

approximately

% of consolidated net sales.

Revenue Recognition Model

The Company applies the FASB’s

guidance on revenue recognition which requires the

Company to recognize revenue in an

amount that reflects the consideration to which the Company

expects to be entitled in exchange for goods or services transferred

to its

customers.

To do this, the Company

applies the five-step model in the FASB’s

guidance, which requires the Company to: (i) identify

the contract with a customer; (ii) identify the performance

obligations in the contract; (iii) determine the transaction price;

(iv) allocate

the transaction price to the performance obligations in the

contract; and (v) recognize revenue when, or as, the Company

satisfies a

performance obligation.

The Company identifies a contract with a customer when a

sales agreement indicates approval and commitment of the parties;

identifies the rights of the parties; identifies the payment

terms; has commercial substance; and it is probable

that the Company will

collect the consideration to which it will be entitled in

exchange for the goods or services that will be transferred to

the customer.

most instances, the Company’s

contract with a customer is the customer’s

purchase order.

For certain customers, the Company may

also enter into a sales agreement which outlines a

framework of terms and conditions which apply to all future

and subsequent

purchase orders for that customer.

In these situations, the Company’s

contract with the customer is both the sales agreement as well as

the specific customer purchase order.

Because the Company’s contract

with a customer is typically for a single transaction or

customer purchase order, the duration

of the contract is almost always one year or less.

As a result, the Company has elected to apply

certain practical expedients and omit certain disclosures of

remaining performance obligations for contracts that have an

initial term of

one year or less as permitted by the FASB.

The Company identifies a performance obligation in a

contract for each promised good or service that is separately identifiable

from other obligations in the contract and for which the

customer can benefit from the good or service either on its own or together

with other resources that are readily available to

the customer.

The Company determines the transaction price as the amount

consideration it expects to be entitled to in exchange

for fulfilling the performance obligations, including the

effects of any variable

consideration, significant financing elements, amounts

payable to the customer or noncash consideration.

For any contracts that have

more than one performance obligation, the Company

allocates the transaction price to each performance obligation

in an amount that

depicts the amount of consideration to which the Company

expects to be entitled in exchange for satisfying each performance

obligation.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

In accordance with the last step of the FASB’s

guidance, the Company recognizes revenue when,

or as, it satisfies the

performance obligation in a contract by transferring control

of a promised good or providing the service to the customer.

The

Company recognizes revenue over time as the customer

receives and consumes the benefits provided by the Company’s

performance;

the Company’s performance

creates or enhances an asset that the customer controls as the

asset is created or enhanced; or the

Company’s performance

does not create an asset with an alternative use to the entity,

and the entity has an enforceable right to

payment, including a profit margin, for performance

completed to date.

For performance obligations not satisfied over time, the

Company determines the point in time at which a customer

obtains control of an asset and the Company satisfies a perf

ormance

obligation by considering when the Company has a right

to payment for the asset; the customer has legal title to the

asset; the

Company has transferred physical possession of the asset; the

customer has the significant risks and rewards of ownership

of the asset;

or the customer has accepted the asset.

The Company typically satisfies its performance obligations

and recognizes revenue at a point in time for product

sales, generally

when products are shipped or delivered to the customer,

depending on the terms underlying each arrangement.

In circumstances

where the Company’s

products are on consignment, revenue is generally recognized

upon usage or consumption by the customer.

For

any Fluidcare or other services provided by the Company

to the customer, the Company typically satisfies its

performance obligations

and recognizes revenue over time, as the promised services

are performed.

The Company uses input methods to recognize revenue

over time related to these services, including labor costs

and time incurred.

The Company believes that these input methods represent

the most indicative measure of the Fluidcare or other service

work performed by the Company.

Other Considerations

The Company does not have standard payment terms for

all customers;

however the Company’s general

payment terms require

customers to pay for products or services provided after

the performance obligation is satisfied.

The Company does not have

significant financing arrangements with its customers.

The Company does not have significant amounts of variable

consideration in

its contracts with customers and where applicable,

the Company’s estimates of variable

consideration are not constrained.

The

Company records certain third-party license fees in

other (expense) income, net, in its Condensed Consolidated

Statements of

Operations,

which generally include sales-based royalties in exchange for

the license of intellectual property.

These license fees are

recognized in accordance with their agreed-upon

terms and when performance obligations are satisfied, which

is generally when the

third party has a subsequent sale.

Practical Expedients and Accounting Policy Elections

The Company has made certain accounting policy

elections and elected to use certain practical expedients as permitted

by the

FASB in applying

the guidance on revenue recognition.

It is the Company’s policy

to not adjust the promised amount of

consideration for the effects of a significant

financing component as the Company expects, at contract

inception, that the period

between when the Company transfers a promised good or service

to the customer and when the customer pays for that good

or service

will be one year or less.

In addition, it is the Company’s

policy to expense costs to obtain a contract as incurred

when the expected

period of benefit, and therefore the amortization period,

is one year or less.

It is also the Company’s accounting

policy to exclude

from the measurement of the transaction price all

taxes assessed by a governmental authority that are both imposed

on and concurrent

with a specific revenue-producing transaction and

collected by the entity from a customer, including

sales, use, value added, excise

and various other taxes.

Lastly, the Company

has elected to account for shipping and handling activities that occur

after the customer

has obtained control of a good as a fulfilment cost rather than

an additional promised service.

Contract Assets and Liabilities

The Company recognizes a contract asset or receivable

on its Condensed Consolidated Balance Sheet when the Company

provides a good or service in advance of receiving consideration.

A receivable is the Company’s

right to consideration that is

unconditional and only the passage of time is required

before payment of that consideration is due.

A contract asset is the Company’s

right to consideration in exchange for goods or services

that the Company has transferred to a customer.

The Company had

material contract assets recorded on its Condensed Consolidated

Balance Sheets as of June 30, 2020 or December 31,

2019.

A contract liability is recognized when the Company

receives consideration, or if it has the unconditional right

to receive

consideration, in advance of performance.

A contract liability is the Company’s

obligation to transfer goods or services to a customer

for which the Company has received consideration,

or a specified amount of consideration is due, from the customer.

The Company’s

contract liabilities primarily represent deferred revenue

recorded for customer payments received by the Company

prior to the

Company satisfying the associated performance obligation.

Deferred revenues are presented within other current liabilities

in the

Company’s Condensed

Consolidated Balance Sheets.

The Company had approximately $

3.2

million and $

2.2

million of deferred

revenue as of June 30, 2020 and December 31, 2019,

respectively.

During the six months ended June 30, 2020,

the Company satisfied

all of the associated performance obligations and recognized

into revenue the advanced payments received and recorded

as of

December 31, 2019.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

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.

The Company has provided annual net sales information by

major product lines that represent

approximately 10% or more of consolidated net sales in its 2019

Form 10-K, and those annual percentages are generally consistent

with the current quarter’s net sales by product

line.

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, 2020 and 2019.

The Company has made certain reclassifications of

disaggregated customer industry disclosures for the

three and six months ended June 30, 2020 to conform with

the Company’s current

period customer industry segmentation.

Three Months Ended June 30, 2020

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

32,687

24,924

35,416

93,027

Metalworking and other

47,889

52,778

33,005

133,672

80,576

77,702

68,421

226,699

Global Specialty Businesses

32,294

15,569

11,478

59,341

112,870

93,271

79,899

286,040

Timing of Revenue Recognized

Product sales at a point in time

108,644

87,995

78,195

274,834

Services transferred over time

4,226

5,276

1,704

11,206

112,870

93,271

79,899

286,040

Three Months Ended June 30, 2019

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

39,506

24,485

28,391

92,382

Metalworking and other

32,241

24,527

16,410

73,178

71,747

49,012

44,801

165,560

Global Specialty Businesses

31,145

4,138

5,026

40,309

102,892

53,150

49,827

205,869

Timing of Revenue Recognized

Product sales at a point in time

100,053

53,098

48,406

201,557

Services transferred over time

2,839

1,421

4,312

102,892

53,150

49,827

205,869

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Six Months Ended June 30, 2020

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

79,360

54,812

77,005

211,177

Metalworking and other

131,112

127,729

64,968

323,809

210,472

182,541

141,973

534,986

Global Specialty Businesses

76,525

32,174

20,916

129,615

286,997

214,715

162,889

664,601

Timing of Revenue Recognized

Product sales at a point in time

277,446

206,418

159,351

643,215

Services transferred over time

9,551

8,297

3,538

21,386

286,997

214,715

162,889

664,601

Six Months Ended June 30, 2019

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

80,431

49,201

57,604

187,236

Metalworking and other

63,541

52,236

33,364

149,141

143,972

101,437

90,968

336,377

Global Specialty Businesses

63,315

8,001

9,386

80,702

207,287

109,438

100,354

417,079

Timing of Revenue Recognized

Product sales at a point in time

201,600

109,332

97,057

407,989

Services transferred over time

5,687

106

3,297

9,090

207,287

109,438

100,354

417,079

Note 6 – Leases

The Company determines if an arrangement is a lease

at its inception.

This determination generally depends on whether the

arrangement conveys the right to control the use of an

identified fixed asset explicitly or implicitly for a period of

time in exchange for

consideration.

Control of an underlying asset is conveyed if the Company

obtains the rights to direct the use of, and obtains

substantially all of the economic benefits from the use

of, the underlying asset.

Lease expense for variable leases and short-term

leases is recognized when the obligation is incurred.

The Company has operating leases for certain facilities, vehicles

and machinery and equipment with remaining lease terms up

years.

In addition, the Company has certain land use leases with remaining

lease terms up to

years.

The lease term for all of the

Company’s leases includes

the non-cancellable period of the lease plus any additional periods

covered by an option to extend the lease

that the Company is reasonably

certain it will exercise.

Operating leases are included in right of use lease assets, other current

liabilities and long-term lease liabilities on the Condensed

Consolidated Balance Sheet.

Right of use lease assets and liabilities are

recognized at each lease’s

commencement date based on the present value of its lease payments

over its respective lease term.

The

Company uses the stated borrowing rate for a lease when

readily determinable.

When a stated borrowing rate is not available in a

lease agreement, the Company uses its incremental borrowing

rate based on information available at the lease’s

commencement date

to determine the present value of its lease payments.

In determining the incremental borrowing rate used to present

value each of its

leases, the Company considers certain information

including fully secured borrowing rates readily available to the Company

and its

subsidiaries.

The Company has immaterial finance leases, which are

included in property, plant

and equipment, current portion of

long-term debt and long-term debt on the Condensed Consolidated

Balance Sheet.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Operating lease expense is recognized on a straight-line

basis over the lease term.

Operating lease expense for the three and six

months ended June 30, 2020 was $

3.5

million and $

6.9

million, respectively.

Comparatively, operating

lease expense for the three

and six months ended June 30, 2019 was $

1.7

million and $

3.5

million, respectively.

Short-term lease expense for the three and six

months ended June 30, 2020 was $

0.4

million and $

0.9

million, respectively.

Comparatively, short-term

lease expense for the three

and six months ended June 30, 2019 was $

0.2

million and $

0.3

million, respectively.

The Company has

material variable lease

costs or sublease income for the three or six months ended

June 30, 2020 and 2019.

Cash paid for operating leases during the six months ended

June 30, 2020 and 2019 was $

6.8

million and $

3.4

million,

respectively.

The Company recorded new right of use lease assets and associated lease liabilities

of $

4.1

million during the six

months ended June 30, 2020.

Supplemental balance sheet information related to the Company’s

leases is as follows:

June 30,

December 31,

2020

2019

Right of use lease assets

40,517

42,905

Other current liabilities

11,085

11,177

Long-term lease liabilities

28,908

31,273

Total operating

lease liabilities

39,993

42,450

Weighted average

remaining lease term (years)

6.0

6.2

Weighted average

discount rate

4.21%

Maturities of operating lease liabilities as of June 30,

2020 were as follows:

June 30,

2020

For the remainder of 2020

6,598

For the year ended December 31, 2021

10,978

For the year ended December 31, 2022

7,435

For the year ended December 31, 2023

5,434

For the year ended December 31, 2024

4,232

For the year ended December 31, 2025 and beyond

11,356

Total lease payments

46,033

Less: imputed interest

(6,040)

Present value of lease liabilities

39,993

Note 7 – Restructuring and Related Activities

As previously disclosed in its 2019 Form 10-K, in the third quarter of 2019, 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. The QH

Program includes restructuring and associated severance costs to reduce total headcount by approximately 325 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 will depend on a number of factors and is subject to change; however, the Company currently expects reduction in

headcount and site closures to continue to occur during 2020 and 2021 under the QH Program and estimates that total costs related to

the QH Program will approximate one-times the anticipated cost synergies realized from the QH Program. 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 as well as costs to close certain facilities and are

recorded

in restructuring and related charges in the

Company’s Condensed Statements

of Operations.

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 share and per share amounts

unless otherwise stated)

(Unaudited)

Activity in the Company’s

accrual for restructuring under the QH Program for the six months ended

June 30, 2020 is as follows:

QH Program

Accrued restructuring as of December 31, 2019

18,043

Restructuring and related charges

2,202

Cash payments

(9,592)

Currency translation adjustments

(221)

Accrued restructuring as of June 30, 2020

10,432

In connection with the plans for closure of certain

manufacturing and non-manufacturing facilities, the Company

made a decision

to make available for sale certain facilities during the second

quarter of 2020 resulting in the reclassification of approximately

11.7

million of buildings and land to other current assets as of June

30, 2020.

Note 8 – Share-Based Compensation

The Company recognized the following share-based compensation

expense in its Condensed Consolidated Statements of

Operations for the three and six months ended June 30, 2020

and 2019:

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Stock options

353

173

785

433

Non-vested restricted stock awards and restricted stock

units

1,259

440

2,523

1,138

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

stock

1,162

—

1,162

—

Employee stock purchase plan

—

Director stock ownership plan

Performance stock units

280

—

280

—

Annual incentive plan

(117)

—

2,829

—

Total share-based

compensation expense

2,991

660

7,673

1,672

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

except for approximately $

0.3

million and $

0.8

million for the three

and six months ended June 30, 2020, respectively,

and less than $

0.1

million for the six months ended June 30, 2019, recorded within

Combination, integration and other acquisition-related

expenses.

The increase in total share-based compensation expense for

the six

months ended June 30, 2020 includes performance stock

units, annual incentive plan accruals,

and non-elective and elective 401(k)

matching contributions

in stock as components

of share-based compensation beginning in 2020, described

further below.

Stock Options

During the first quarter of 2020, the Company granted

stock options under its long-term incentive plan (“LTIP”)

that are subject

only to time-based 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:

Number of options granted

49,115

Dividend yield

0.99

Expected volatility

31.57

Risk-free interest rate

0.36

Expected term (years)

4.0

The fair value of these options is amortized on a straight

-line basis over the vesting period.

As of June 30, 2020,

unrecognized

compensation expense related to all stock options

granted was $

2.2

million, to be recognized over a weighted average remaining

period of

2.2

years.

Restricted Stock Awards

and Restricted Stock Units

During the six months ended June 30, 2020, the Company

granted

27,137

non-vested restricted shares and

5,804

non-vested

restricted stock units under its LTIP

subject to time-based vesting, generally over a 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, 2020, unrecognized compensation expense

related to the non-vested restricted shares was $

6.7

million, to be recognized over a weighted average remaining period

1.9

years,

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

and unrecognized compensation expense related to non-vested

restricted stock units was $

1.1

million, to be recognized over a

weighted average remaining period of

2.3

years.

Performance Stock Units

In March 2020, the Company included 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

% up to

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

from January 1, 2020 through December 31, 2022.

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: (i) a risk-free

rate of

0.28

%; (ii) an expected term of

3.0

years; and (iii) a three-year daily

historical volatility for each of the companies in the

peer group, including Quaker Houghton.

As of June 30, 2020, the Company estimates that it will issue

approximately

25,500

fully vested shares as of the settlement date of

the award based on the conditions of the PSUs and

Company’s closing stock price

on June 30, 2020.

As of June 30, 2020, there was

approximately $

3.1

million of total unrecognized compensation cost related to PSUs which

the Company expects to recognize over a

weighted-average period of

2.7

years.

Annual Incentive Plan

The Company maintains an Annual Incentive Plan

(“AIP”), which may be settled in cash or a certain number of

shares subject to

performance-based and time-based vesting conditions.

It is the Company’s current

intention to settle the 2020 AIP in shares, and

therefore, expense associated with the AIP in 2020 will

be recorded as a component of share-based compensation

expense.

The

number of fully vested shares that may ultimately

be issued as settlement for each award is subject to the achievement

of the

Company’s performance

against certain internal financial and non-financial metrics and

approval by the Company’s Compensation

Committee.

Compensation expense for the AIP is measured based on the estimated

total value of the award.

The number of shares that will

ultimately be issued under the AIP award will be equal

to final value of the award converted into a number of shares based

on the

trading price of the Company’s

common stock on the date of settlement.

As of June 30, 2020, the Company estimates that it will issue

approximately

39,000

fully vested shares as of the settlement date of the award

based on the conditions of the AIP,

the Company’s

projected performance against its performance metrics

and Company’s closing

stock price on June 30, 2020.

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

of the first

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

matching contribution of

% of compensation.

Additionally, the

plan provides for non-elective nondiscretionary contributions

on behalf of participants who have completed one year

of service equal to

% of the eligible participant's compensation.

The Company’s matching contributions

and non-elective

contributions may be made in cash or in fully vested shares

of the Company’s common

stock.

Beginning in April 2020,

the Company

began matching both non-elective and elective 401(k)

contributions in fully vested shares of its common stock rather than

cash.

For

the three and six months ended June 30, 2020, total contributions

were $

1.2

million.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Note 9 – Pension and Other Postretirement

Benefits

The components of net periodic benefit cost for the

three and six months ended June 30, 2020 and 2019 are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Other

Postretirement

Pension Benefits

Benefits

Pension Benefits

Benefits

2020

2019

2020

2019

2020

2019

2020

2019

Service cost

1,164

978

2,338

1,963

Interest cost

1,486

1,105

3,255

2,216

Expected return on plan assets

(1,761)

(978)

—

(3,720)

(1,962)

—

Settlement charge

—

22,667

—

Actuarial loss amortization

615

773

—

1,662

1,549

—

Prior service cost amortization

(41)

—

(81)

(83)

—

Net periodic benefit cost

1,463

1,837

26,121

3,683

In the fourth quarter of 2018, the Company began the process of terminating its Legacy Quaker non-contributory U.S. pension

plan (“Legacy Quaker U.S. Pension Plan”). During the third quarter of 2019, the Company received a favorable termination

determination letter from the Internal Revenue Service (“I.R.S.”) and amended the Legacy Quaker U.S. Pension Plan to comply with

final regulations of the Internal Revenue Code. The Company completed the Legacy Quaker U.S. Pension Plan termination during the

first quarter of 2020. In order to terminate the Legacy Quaker U.S. Pension Plan in accordance with I.R.S. and Pension Benefit

Guaranty Corporation requirements, the Company was required to fully fund the Legacy Quaker U.S. Pension Plan on a termination

basis and the amount necessary to do so was approximately $1.8 million, subject to final true up adjustments. In July 2020, the

Company finalized the amount of the liability and related annuity payments and expects to receive a refund in premium of

approximately $2 million in August 2020. In addition, the Company recorded a non-cash pension settlement charge at plan

termination of approximately $22.7 million. This settlement charge included the immediate recognition into expense of the related

unrecognized losses within accumulated other comprehensive (loss) income (“AOCI”) on the balance sheet as of the plan termination

date.

Employer Contributions

The Company previously disclosed in its 2019 Form 10-K

that it expected to make minimum cash contributions of $

10.0

million

to its U.S. and foreign pension plans and approximately

0.4

million to its other postretirement benefit plans in 2020. As a result

certain current year pension plan funding relief provided

by the Coronavirus Aid, Relief, and Economic Security

Act (the “CARES

Act”) enacted into law on March 27, 2020, the Company

now expects to make minimum cash contributions of

8.0

million to its U.S.

and foreign pension plans in 2020.

As of June 30, 2020, $

4.9

million and $

0.2

million of contributions have been made to the

Company’s U.S. and foreign

pension plans and its other postretirement benefit plans, respectively.

This excludes the $

1.8

million of

additional funding made in the first quarter of 2020, as required,

to terminate the Legacy Quaker U.S. Pension Plan, noted above.

Note 10 – Other (Expense) Income, Net

The components of other (expense) income, net, for the

three and six months ended June 30, 2020 and 2019 are as follows:

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Income from third party license fees

208

193

512

413

Foreign exchange losses, net

(2,004)

(144)

(1,183)

(381)

(Loss) gain on fixed asset disposals, net

(83)

(81)

Non-income tax refunds and other related credits

832

813

2,131

965

Pension and postretirement benefit costs,

non-service components

(341)

(895)

(23,866)

(1,791)

Other non-operating income, net

395

319

163

Total other

(expense) income, net

(993)

(22,168)

(592)

Pension and postretirement benefit costs, non-service components

during the six months ended June 30, 2020 includes

22.7

million related to the Legacy Quaker U.S. Pension

Plan non-cash settlement charge described in Note

9 of Notes to Condensed

Consolidated Financial Statements.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Note 11 – Income Taxes

and Uncertain Income Tax

Positions

The Company’s effective

tax rate for the three and six months ended June 30, 2020 was an expense

57.9

% and a benefit of

20.7

%, respectively, compared to

an expense of

24.2

% and

25.4

%, respectively, for the

three and six months ended June 30, 2019.

The Company’s effective

tax rate for the three and six months ended June 30, 2020 was impacted

by the tax effect of certain one-time

pre-tax costs as well as certain tax charges

and benefits in the current period including those related to changes

in foreign tax credit

valuation allowances, discussed below,

tax law changes in foreign jurisdictions, changes in uncertain

tax positions, and the tax impact

of the Company’s termination

of its legacy Quaker U.S. Pension Plan.

Comparatively, the

three and six months ended June 30, 2019

effective tax rates were impacted by certain

non-deductible costs associated with the Combination, partially

offset by a favorable shift

in earnings to entities with lower effective

tax rates.

On March 27, 2020, in response to COVID-19 and its detrimental

impact to the global economy,

the CARES Act was enacted

into law, providing

a stimulus to the U.S. economy in the form of various individual

and business assistance programs as well as

temporary changes to existing tax law.

The changes include a postponement of certain tax payments,

deferral of the employer’s

portion of the social security tax and certain other payroll

-related incentives, and an increase in the interest expense

limitation under

Section 163(j) of the Internal Revenue Code from

% to

% for the 2019 and 2020 tax years.

ASC 740 requires the tax effects of

changes in tax laws or rates to be recorded in the period

of enactment.

Under the CARES Act, the Company has the option to use

its

2019 adjusted taxable income in determining its interest expense

limitation under Section 163(j).

While the Company is still

considering whether to make this election for 2020, the

current year tax provision takes into account this potential election and

associated tax benefit, which offsets an inc

rease to the Company’s foreign

tax credit valuation allowance recognized during the

current quarter primarily driven by changes in current

year projected taxable income due to the negative impacts from

COVID-19.

addition, the Company reviewed its existing deferred tax

assets in light of COVID-19 and determined that, at this time,

no change in

valuation allowance is required except with regard to

its foreign tax credits as noted above.

While the ultimate impact of COVID-19

on the Company’s results

of operations is still uncertain, the Company will continue to

assess future changes in projected taxable

income to determine if they result in additional changes

to any of the Company’s valuation

allowances.

As previously disclosed in its 2019 Form 10-K, the Company

had a deferred tax liability of $

8.2

million at December 31, 2019,

which primarily represents the Company’s

estimate of non-U.S. taxes it will incur to repatriate certain foreign

earnings to the U.S.

During the first six months of 2020, the Company made

certain adjustments to the deferred tax liability to take into

account a tax law

change enacted in the first quarter in a certain foreign

jurisdiction, the inclusion of other earnings to be repatriated,

and the actual

repatriation of earnings, resulting in a deferred tax liability

of $

6.3

million as of June 30, 2020.

As previously disclosed in its 2019 Form 10-K, in conjunction

with the Combination, the Company acquired foreign tax credit

deferred tax assets of $

41.8

million expiring between

2019 and 2028

Foreign tax credits may be carried forward for 10 years.

The

Company analyzes the expected impact of the utilization

of foreign tax credits based on projected U.S. taxable income,

overall

domestic loss recapture, annual limitations due to the

ownership change limitations provided by the Internal

Revenue Code, and

enacted tax law amongst other factors.

As of December 31, 2019, the Company had net realizable foreign

tax credits of $

32.7

million

on its balance sheet expected to be utilized between

2020 and 2026

As of June 30, 2020, the Company had net realizable foreign tax

credits of $

21.9

million on its balance sheet expected to be utilized between

2020 and 2026

The change in net realizable foreign tax

credits during the first six months of 2020 was primarily

driven by the Company's update to its initial opening balance

sheet estimate

with respect to acquired Houghton foreign tax credit deferred

tax assets, described in Note 2 of Notes to Condensed Consolidated

Financial Statements, as well as approximately $

3.7

million of tax expense for the six months ended June 30,

2020 based on revised

taxable income projections and changes to the interest expense

limitation under the CARES Act amongst other factors.

The Company continues to recognize interest and penalties

associated with uncertain tax positions as a component of

taxes on

(loss) income before equity in net income of associated

companies in its Condensed Consolidated Statements of Operations.

The

Company recognized an expense for interest of $

0.6

million and $

0.6

million and an expense for penalties of $

0.6

million and $

0.5

million in its Condensed Consolidated Statement of Operations

for the three and six months ended June 30, 2020, respectively

Comparatively,

the Company recognized an expense for interest of $

0.1

million and $

0.2

million and an expense for penalties of less

than $

0.1

million for both the three and six months ended June 30, 2019,

respectively.

As of June 30, 2020, the Company had accrued

2.8

million for cumulative interest and $

4.0

million for cumulative penalties in its Condensed Consolidated Balance

Sheets,

compared to $

2.3

million for cumulative interest and $

3.1

million for cumulative penalties accrued at December 31, 2019.

As of June 30, 2020, the Company’s

cumulative liability for gross unrecognized tax benefits was $

21.1

million, an increase of

2.0

million from the $

19.1

million cumulative liability accrued as of December 31,

2019.

During the six months ended June 30, 2020 and 2019, the

Company recognized a decrease of $

1.5

million and less than $

0.1

million, respectively,

in its cumulative liability for gross unrecognized tax benefits due

to the expiration of the applicable statutes of

limitations for certain tax years.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

The Company estimates that during the year ending December

31, 2020 it will reduce its cumulative liability for gross

unrecognized tax benefits by approximately $

2.3

million due to 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, 2020.

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 Brazil from

2000

, Italy from

2006

China from

2010

, Canada from

2011

, the Netherlands and the United Kingdom from

2014

, Spain from

2015

, Mexico, Germany,

and

the U.S. from

2016

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

March 31,

2018

, and various U.S. state tax jurisdictions

from

2010

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

2007 through 2015

The Company has filed for competent authority relief related to

these assessments

under the Mutual Agreement Procedures (“MAP”) of the

Organization for Economic Co-Operation and Development

(“OECD”) for

all years except 2007.

During the second quarter of 2020, the Company received notification

that the Italian and Dutch competent

authorities reached an agreement as part of the MAP involving

tax years 2008 through 2015.

The Company has tentatively agreed to

the reduced tax assessments and has recorded $

1.4

million of additional reserves for uncertain tax positions for the

open tax years that

is consistent with the tentative agreement reached involving

tax years 2008 through 2015.

As of June 30, 2020, the Company believes

it has adequate reserves for uncertain tax positions with

respect to this matter.

Houghton Italia, S.r.l

is also currently involved in a corporate income tax audit with the

Italian tax authorities covering tax years

2014 through 2018.

As part of the purchase accounting related to the Combination,

the Company has established a $

5.4

million

reserve for uncertain tax positions relating to this audit.

These amounts relate to the 2014 to 2018 audit periods

as well as the seven-

month period in 2019 prior to the Combination.

Since these amounts relate to tax periods prior to the Combination,

the Company has

submitted an indemnification claim against funds

held in escrow by Houghton’s former

owners for certain tax liabilities arising pre-

Combination.

As a result, a corresponding $

5.4

million indemnification receivable has also been established through

purchase

accounting that would offset the $

5.4

million in tax liabilities booked through purchase accounting.

As of June 30, 2020, the

Company believes it has adequate reserves for uncertain

tax positions.

Note 12 – Earnings Per Share

The following table summarizes earnings per share calculations

for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Basic (loss) earnings per common share

Net (loss) income attributable to Quaker Chemical Corporation

(7,735)

15,591

(36,116)

29,435

Less: loss (income) allocated to participating securities

(34)

146

(81)

Net (loss) income available to common shareholders

(7,698)

15,557

(35,970)

29,354

Basic weighted average common shares outstanding

17,697,496

13,304,248

17,685,010

13,297,953

Basic (loss) earnings per common share

(0.43)

1.17

(2.03)

2.21

Diluted (loss) earnings per common share

Net (loss) income attributable to Quaker Chemical Corporation

(7,735)

15,591

(36,116)

29,435

Less: loss (income) allocated to participating securities

(34)

146

(81)

Net (loss) income available to common shareholders

(7,698)

15,557

(35,970)

29,354

Basic weighted average common shares outstanding

17,697,496

13,304,248

17,685,010

13,297,953

Effect of dilutive securities

—

48,007

—

47,362

Diluted weighted average common shares outstanding

17,697,496

13,352,255

17,685,010

13,345,315

Diluted (loss) earnings per common share

(0.43)

1.17

(2.03)

2.20

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

During the third quarter of 2019, the Company issued

approximately

4.3

million shares of common stock, comprising

24.5

% of

the common stock of the Company immediately after

the closing, as a component of the consideration transferred in the Combination.

Certain stock options and restricted stock units are not included

in the diluted (loss) earnings per share calculation because the effect

would have been anti-dilutive.

All of the Company’s potentially

dilutive shares for the three and six months ended June

30, 2020 are

anti-dilutive and not included in the dilutive (loss) earnings

per share calculation because of the Company’s

net loss for the periods.

Comparatively,

there were

anti-dilutive shares for the three and six months ended

June 30, 2019.

Note 13 – Restricted Cash

The Company has restricted cash recorded in other assets related to proceeds from an inactive subsidiary of the Company which

previously executed separate settlement and release agreements with two of its insurance carriers for an original total value of $35.0

million.

The proceeds of both settlements are restricted and can only be

used to pay claims and costs of defense associated with the

subsidiary’s asbestos litigation.

The proceeds of the settlement and release agreements

have been deposited into interest bearing

accounts that earned less than $

0.1

million in the six months ended June 30, 2020, compared to $

0.1

in the six months ended June 30,

2019.

The interest was offset by $

0.5

million of payments during the six months ended June 30,

2020, compared to $

0.3

million of

payments in the six months ended June 30, 2019.

Due to the restricted nature of the proceeds, a corresponding

deferred credit was

established in other non-current liabilities for an equal

and offsetting amount, and will remain until the restrictions

lapse or the funds

are exhausted via payments of claims and costs of defense.

The following table provides a reconciliation of cash,

cash equivalents and restricted cash as of June 30, 2020 and 2019

and

December 31, 2019 and 2018:

June 30,

December 31,

2020

2019

2018

Cash and cash equivalents

322,497

86,355

123,524

104,147

Restricted cash included in other current assets

—

353

—

Restricted cash included in other assets

19,173

20,103

19,678

20,278

Cash, cash equivalents and restricted cash

341,755

106,458

143,555

124,425

Note 14 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the

six months ended June 30, 2020 were as follows:

Global

Specialty

Americas

EMEA

Asia/Pacific

Businesses

Total

Balance as of December 31, 2019

216,385

133,018

141,727

116,075

607,205

Goodwill acquired

—

531

—

531

Currency translation and other adjustments

(4,569)

(3,256)

5,940

(1,202)

(3,087)

Balance as of June 30, 2020

211,816

130,293

147,667

114,873

604,649

Other adjustments in the table above include updates

to the Company’s allocation

of the Houghton purchase price and associated

goodwill to each of the Company’s

reportable segments during the first six months of 2020.

Gross carrying amounts and accumulated amortization

for definite-lived intangible assets as of June 30, 2020 and December

31,

2019 were as follows:

Gross Carrying

Accumulated

Amount

Amortization

2020

2019

2020

2019

Customer lists and rights to sell

781,188

792,362

72,803

49,932

Trademarks, formulations and product

technology

155,924

157,049

25,475

21,299

Other

6,266

6,261

5,684

5,776

Total definite

-lived intangible assets

943,378

955,672

103,962

77,007

The Company amortizes definite-lived intangible assets on

a straight-line basis over their useful lives.

The Company recorded

13.7

million and $

27.7

million of amortization expense for the three and six months

ended June 30, 2020, respectively.

Comparatively,

the Company recorded $

1.8

million and $

3.6

million of amortization expense for the three and six months

ended June

30, 2019, respectively.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Estimated annual aggregate amortization expense for

the current year and subsequent five years is as follows:

For the year ended December 31, 2020

55,145

For the year ended December 31, 2021

54,885

For the year ended December 31, 2022

54,732

For the year ended December 31, 2023

54,515

For the year ended December 31, 2024

54,089

For the year ended December 31, 2025

53,418

Goodwill and intangible assets that have indefinite lives are

not amortized and are required to be assessed at least annually

for

impairment.

The Company completes its annual goodwill and indefinite-lived

intangible asset impairment test during the fourth

quarter of each year.

The Company continuously evaluates if triggering events indicate

a possible impairment in one or more of its

reporting units or indefinite-lived or long-lived assets.

As of March 31, 2020, the Company evaluated the initial imp

act of COVID-19 on the Company’s

operations, and the volatility

and uncertainty in the economic outlook as a result of

COVID-19 to determine if they indicated it was more likely

than not that the

carrying value of any of the Company’s

reporting units or indefinite-lived or long-lived assets was not

recoverable.

The Company

concluded that the impact of COVID-19 did not represent

a triggering event as of March 31, 2020 with regards to the Company’s

reporting units or indefinite-lived and long-lived assets, except

for the Company’s Houghton

and Fluidcare trademark and tradename

indefinite-lived intangible assets.

The determination of estimated fair value of the Houghton

and Fluidcare trademark and tradename indefinite-lived assets was

based on a relief from royalty valuation method which

requires management’s

judgment and often involves the use of significant

estimates and assumptions, including assumptions with respect

to the weighted average cost of capital (“WACC”)

as well as projected

net sales.

In the first quarter of 2020, as a result of the impact of

COVID-19 driving a decrease in projected legacy Houghton

net sales

in the current year and the impact of the current year

decline on projected future legacy Houghton net sales as well as an increase

the WACC

assumption utilized in the quantitative impairment assessment, the

Company concluded that the estimated fair values of

the Houghton and Fluidcare trademark and tradename

intangible assets were less than their carrying values.

As a result, an

impairment charge of $

38.0

million to write down the carrying values of these intangible

assets to their estimated fair values was

recorded in the first quarter of 2020.

The Company’s estimate of fair

value and the carrying value of these Houghton and Fluidcare

trademark and tradename indefinite-lived intangible assets as of

June 30, 2020 was $

204.0

million.

Comparatively, these indefinite-

lived intangible assets totaled $

242.0

million as of December 31, 2019.

In addition, the Company has other indefinite-lived intangible

assets totaling $

1.1

million as of both June 30, 2020 and December 31, 2019.

As of June 30, 2020, the Company continued to evaluate the on

-going impact of COVID-19 on the Company’s

operations, and

the volatility and uncertainty in the economic outlook as a result of

COVID-19, to determine if this indicated it was more likely

than

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

reporting units or indefinite-lived or long-lived intangible assets were

not

recoverable.

The Company concluded that the impact of COVID-19 did not represent

a triggering event as of June 30, 2020 with

regards to any of the Company’s

reporting units or indefinite-lived and long-lived intangible

assets.

While the Company concluded that the impact of COVID-19

did not represent a triggering event as of June 30, 2020 for any

of its

other long-lived or indefinite-lived assets or reporting

units, the Company will continue to evaluate the impact of COVID-19

on the

Company’s current and

projected results.

If the current economic conditions worsen or projections of the

timeline for recovery are

significantly extended, then the Company may conclude

in the future that the impact from COVID-19 requires the need

to perform

further interim quantitative impairment tests, which could

result in additional impairment charges in the future.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Note 15 – Debt

Debt as of June 30, 2020 and December 31, 2019

includes the following:

As of June 30, 2020

As of December 31, 2019

Interest

Outstanding

Interest

Outstanding

Rate

Balance

Rate

Balance

Credit Facilities:

Revolver

1.67%

376,676

3.20%

171,169

U.S. Term Loan

2.10%

585,000

3.20%

600,000

EURO Term Loan

1.50%

147,584

1.50%

151,188

Industrial development bonds

5.26%

10,000

5.26%

10,000

Bank lines of credit and other debt obligations

Various

1,910

Various

2,608

Total debt

1,121,170

934,965

Less: debt issuance costs

(12,647)

(14,196)

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

(38,217)

(38,332)

Total long

-term debt

1,070,306

882,437

Credit facilities

The Company’s primary

credit facility (as amended, the “New Credit Facility”) is comprised

of a $

400.0

million multicurrency

revolver (the “Revolver”), a $

600.0

million term loan (the “U.S. Term

Loan”), each with the Company as borrower,

and a $

150.0

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

“EURO Term Loan”

and together with the “U.S. Term

Loan”, the

“Term Loans”

)

with Quaker Chemical B.V.,

a Dutch subsidiary of the Company as borrower,

each with a five-year term maturing in

August 2024.

Subject to the consent of the administrative agent and certain

other conditions, the Company may designate additional

borrowers.

The maximum amount available under the New Credit Facility can be

increased by up to $

300.0

million at the Company’s

request if there are lenders who agree to accept additional

commitments and the Company has satisfied certain other

conditions.

Borrowings under the New Credit Facility bear interest at a

base rate or LIBOR plus an applicable margin

based upon the Company’s

consolidated net leverage ratio.

There are LIBOR replacement provisions that contemplate a further

amendment if and when LIBOR

ceases to be reported.

The interest rate incurred on the outstanding borrowings under

the New Credit Facility during the six months

ended June 30, 2020 was approximately

2.5

In addition to paying interest on outstanding principal under

the New Credit Facility,

the Company is required to pay a commitment fee ranging

from

0.2

% to

0.3

% depending on the Company’s

leverage ratio to the

lenders under the Revolver in respect of the unutilized

commitments thereunder.

The Company has unused capacity under the

Revolver of approximately $

million, net of bank letters of credit of approximately

million, as of June 30, 2020, as the Company

drew down most of the available capacity under the Revolver

in the second half of March 2020 as a precautionary measure

due to the

uncertainty of the impact of COVID-19 on the Company

as well as on the U.S. capital markets and bank liquidity,

among other

potential effects.

The New Credit Facility is subject to certain financial

and other covenants.

The Company’s initial consolidated net debt to

consolidated adjusted EBITDA ratio cannot exceed 4.25 to 1, with step downs in the permitted ratio over the course of the New Credit

Facility. The Company’s consolidated adjusted EBITDA to interest expense ratio cannot be less than 3.0 to 1. The New Credit

Facility also prohibits the payment of cash dividends if the Company is in default or if the amount of the dividend paid annually

exceeds the greater of $50.0 million and 20% of consolidated adjusted EBITDA unless the ratio of consolidated net debt to

consolidated adjusted EBITDA is less than 2.0 to 1, in which case there is no such limitation on amount.

As of June 30, 2020 and

December 31, 2019, the Company was in compliance with all of the New Credit Facility covenants.

The Term Loans have

quarterly

principal amortization during their respective five-year

maturities, with

5.0

% amortization of the principal balance due in years 1 and

7.5

% in year 3, and

10.0

% in years 4 and 5, with the remaining principal amount due at maturity.

During the six months ended June

30, 2020, the Company made two quarterly amortization payments

related to the Term

Loans totaling $

18.7

million.

The New Credit

Facility is guaranteed by certain of the Company’s

domestic subsidiaries and is secured by first priority liens

on substantially all of the

assets of the Company and the domestic subsidiary guarantors,

subject to certain customary exclusions.

The obligations of the Dutch

borrower are guaranteed only by certain foreign subsidiaries

on an unsecured basis.

The New Credit Facility requires the Company to deliver to

the administrative

agent and each lender the audited consolidated

financial statements of the Company for each fiscal year

in a prescribed period of time.

On March 17, 2020, the Company,

the

administrative agent, and all parties to the New Credit Facility

entered into an amendment (the “Amendment”) which allowed

the

Company to deliver the annual audited consolidated financial

statements for the year ended December 31, 2019

to the bank group no

later than April 16, 2020 as compared to the initial deadline

of March 17, 2020.

The Company delivered its 2019 audited consolidated

financial statements to the administrative agent and each

lender on March 20, 2020 in compliance with the Amendment.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

The New Credit Facility required the Company to fix its variable

interest rates on at least

% 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 New Credit

Facility, in November

2019, the Company entered into $

170.0

million notional amounts of three-year interest rate swaps at a base

rate

1.64

% plus an applicable margin as provided in the

New 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, 2020, this aggregate rate was

3.1

See Note 18 of Notes to

Condensed Consolidated Financial Statements.

The Company capitalized $

23.7

million of certain third-party debt issuance costs in connection

with executing the New Credit

Facility.

Approximately $

15.5

million of the capitalized costs were attributed to the Term

Loans and recorded as a direct reduction of

long-term debt on the Company’s

Condensed Consolidated Balance Sheet.

Approximately $

8.3

million of the capitalized costs were

attributed to the Revolver and recorded within other assets on

the Company’s Condensed Consolidated

Balance Sheet.

These

capitalized costs are being amortized into interest expense

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

As of June 30, 2020 and

December 31, 2019, the Company had $

12.6

million and $

14.2

million, respectively,

of debt issuance costs recorded as a reduction of

long-term debt.

As of June 30, 2020 and December 31, 2019, the Company

had $

6.7

million and $

7.6

million, respectively, of

debt

issuance costs recorded within other assets.

Industrial development bonds

As of June 30, 2020 and December 31, 2019, the Company

had fixed rate, industrial development authority bonds totaling

10.0

million in principal amount due in 2028.

These bonds have similar covenants to the New Credit Facility noted

above.

Bank lines of credit and other

debt obligations

The Company has certain unsecured bank lines of credit

and discounting facilities in one of its 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, 2020

was approximately $

million.

In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s only 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, 2020 were approximately $14 million.

For the three and six months ended June 30, 2020,

the Company incurred the following debt related expenses included

within

Interest expense, net, in the Condensed Consolidated Statements

of Operations:

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Interest expense

5,951

1,255

13,663

2,427

Amortization of debt issuance costs

1,188

2,375

Total

7,139

1,283

16,038

2,497

Based on the variable interest rates associated with the New

Credit Facility, as of June

30, 2020 and December 31, 2019, 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 share and per share amounts

unless otherwise stated)

(Unaudited)

Note 16 – Equity

The following tables present the changes in equity,

net of tax, for the three and six months ended June 30, 2020

and 2019:

Accumulated

Capital in

Other

Common

Excess of

Retained

Comprehensive

Noncontrolling

Stock

Par Value

Earnings

Loss

Interest

Total

Balance at March 31, 2020

17,752

888,533

376,853

(121,524)

418

1,162,032

Net (loss) income

—

(7,735)

—

(7,722)

Amounts reported in other comprehensive

income

—

12,260

12,261

Dividends ($

0.385

per share)

—

(6,853)

—

(6,853)

Share issuance and equity-based

compensation plans

7,575

—

7,623

Balance at June 30, 2020

17,800

896,108

362,265

(109,264)

432

1,167,341

Balance at March 31, 2019

13,334

96,832

413,992

(79,167)

1,372

446,363

Net income

—

15,591

—

15,649

Amounts reported in other comprehensive

income

—

286

310

Dividends ($

0.385

per share)

—

(5,135)

—

(5,135)

Share issuance and equity-based

compensation plans

770

—

774

Balance at June 30, 2019

13,338

97,602

424,448

(78,881)

1,454

457,961

The retained earnings and total equity amounts included

in the table above as of March 31, 2020 reflect certain immaterial

adjustments made in the second quarter of 2020 to the Company’s

cumulative effect of an accounting change effective

January 1,

2020.

See Note 3 of Notes to Condensed Financial Statements.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Accumulated

Capital in

Other

Common

Excess of

Retained

Comprehensive

Noncontrolling

Stock

Par Value

Earnings

Loss

Interest

Total

Balance at December 31, 2019

17,735

888,218

412,979

(78,170)

1,604

1,242,366

Cumulative effect of an accounting change

—

(911)

—

(911)

Balance at January 1, 2020

17,735

888,218

412,068

(78,170)

1,604

1,241,455

Net (loss) income

—

(36,116)

—

(36,066)

Amounts reported in other comprehensive

loss

—

(31,094)

(131)

(31,225)

Dividends ($

0.770

per share)

—

(13,687)

—

(13,687)

Acquisition of noncontrolling interest

—

(707)

—

(340)

(1,047)

Distribution to noncontrolling interest

affiliate shareholders

—

(751)

Share issuance and equity-based

compensation plans

8,597

—

8,662

Balance at June 30, 2020

17,800

896,108

362,265

(109,264)

432

1,167,341

Balance at December 31, 2018

13,338

97,304

405,125

(80,715)

1,317

436,369

Cumulative effect of an accounting change

—

(44)

—

(44)

Balance at January 1, 2019

13,338

97,304

405,081

(80,715)

1,317

436,325

Net income

—

29,435

—

114

29,549

Amounts reported in other comprehensive

income

—

1,834

1,857

Dividends ($

0.755

per share)

—

(10,068)

—

(10,068)

Share issuance and equity-based

compensation plans

—

298

—

298

Balance at June 30, 2019

13,338

97,602

424,448

(78,881)

1,454

457,961

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

The following tables show the reclassifications from and

resulting balances of AOCI for the three and six months ended

June 30,

2020 and 2019:

Defined

Unrealized

Currency

Benefit

(Loss) Gain in

Translation

Pension

Available-for

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance at March 31, 2020

(99,187)

(17,576)

(460)

(4,301)

(121,524)

Other comprehensive income (loss) before

reclassifications

10,550

(336)

2,128

(144)

12,198

Amounts reclassified from AOCI

—

600

(93)

—

507

Current period other comprehensive income (loss)

10,550

264

2,035

(144)

12,705

Related tax amounts

—

(51)

(427)

(445)

Net current period other comprehensive income (loss)

10,550

213

1,608

(111)

12,260

Balance at June 30, 2020

(88,637)

(17,363)

1,148

(4,412)

(109,264)

Balance at March 31, 2019

(49,753)

(29,845)

431

—

(79,167)

Other comprehensive (loss) income before

reclassifications

(543)

(79)

432

—

(190)

Amounts reclassified from AOCI

—

732

(43)

—

689

Current period other comprehensive (loss) income

(543)

653

389

—

499

Related tax amounts

—

(131)

(82)

—

(213)

Net current period other comprehensive (loss) income

(543)

522

307

—

286

Balance at June 30, 2019

(50,296)

(29,323)

738

—

(78,881)

Defined

Unrealized

Currency

Benefit

Gain (Loss) in

Translation

Pension

Available-for

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance at December 31, 2019

(44,568)

(34,533)

1,251

(320)

(78,170)

Other comprehensive (loss) income before

reclassifications

(44,069)

492

(8)

(5,315)

(48,900)

Amounts reclassified from AOCI

—

24,966

(125)

—

24,841

Current period other comprehensive (loss) income

(44,069)

25,458

(133)

(5,315)

(24,059)

Related tax amounts

—

(8,288)

1,223

(7,035)

Net current period other comprehensive (loss) income

(44,069)

17,170

(103)

(4,092)

(31,094)

Balance at June 30, 2020

(88,637)

(17,363)

1,148

(4,412)

(109,264)

Balance at December 31, 2018

(49,322)

(30,551)

(842)

—

(80,715)

Other comprehensive (loss) income before

reclassifications

(974)

2,139

—

1,246

Amounts reclassified from AOCI

—

1,465

(139)

—

1,326

Current period other comprehensive (loss) income

(974)

1,546

2,000

—

2,572

Related tax amounts

—

(318)

(420)

—

(738)

Net current period other comprehensive (loss) income

(974)

1,228

1,580

—

1,834

Balance at June 30, 2019

(50,296)

(29,323)

738

—

(78,881)

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 non-controlling interest are

related to currency translation adjustments.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Note 17 – 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:

Fair Value

Measurements at June 30, 2020

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

1,711

—

1,711

—

Total

1,711

—

1,711

—

Fair Value

Measurements at December 31, 2019

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

1,782

—

1,782

—

Total

1,782

—

1,782

—

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, 2020 or December 31, 2019, respectively,

so related

disclosures have not been included.

Note 18 – Hedging Activities

As previously disclosed in its 2019 Form 10-K, in order to

satisfy certain requirements of the New Credit Facility as well as to

manage the Company’s exposure

to variable interest rate risk associated with the New Credit Facility,

in November 2019, the

Company entered into $

170.0

million notional amounts of three-year interest rate swaps.

See Note 15 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.

The Company has previously used derivative financial instruments primarily

for the purposes of hedging

exposures to fluctuations in interest rates.

The Company did not utilize derivatives designated as cash flow

hedges during the three

and six months ended June 30, 2019.

The balance sheet classification and fair values of the

Company’s derivative instruments,

which are Level 2 measurements, are as

follows:

Fair Value

Condensed Consolidated

June 30,

December 31,

Balance Sheet Location

2020

2019

Derivatives designated as cash flow hedges:

Interest rate swaps

Other non-current liabilities

5,730

415

5,730

415

The following table presents the net unrealized loss deferred to

AOCI:

June 30,

December 31,

2020

2019

Derivatives designated as cash flow hedges:

Interest rate swaps

AOCI

4,412

320

4,412

320

The following table presents the net gain reclassified from

AOCI to earnings:

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Amount and location of expense reclassified

from AOCI into Expense (Effective Portion)

Interest expense, net

(483)

—

(465)

—

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

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.

Note 19 – Commitments and Contingencies

The Company previously disclosed in its 2019 Form 10-K

that AC Products, Inc. (“ACP”), a wholly owned subsidiary,

has been

operating a groundwater treatment system to hydraulically

contain groundwater contamination emanating from ACP’s

site, the

principal contaminant of which is perchloroethylene.

As of June 30, 2020, ACP believes it is close to meeting the

conditions for

closure of the groundwater treatment system, but continues

to operate this system while in discussions with the relevant

authorities.

As of June 30, 2020, the Company believes that the range

of potential-known liabilities associated with the balance

of the ACP water

remediation program is approximately $

0.1

million to $

1.0

million.

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

operation of the treatment system as determined

by groundwater modeling.

Costs of operation include the operation and maintenance

of the extraction well, groundwater monitoring and progr

am management.

The Company previously disclosed in its 2019 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, 2020,

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

0.5

million (excluding costs of defense).

The Company previously disclosed in its 2019 Form 10-K

that as a result of the closing of the Combination, the Company

is now

party to Houghton environmental matters related to certain

domestic and foreign properties currently or previously

owned.

These

environmental matters primarily require the Company

to perform long-term monitoring as well as operating and maintenance

at each

of the applicable sites.

During the three and six months ended June 30, 2020, 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 matters, and based on historical

costs incurred and projected costs to be incurred over

the next 28 years, has estimated the present value range of costs for

all of the

Houghton environmental matters, on a discounted

basis, to be between approximately $

million and $

million as of June 30, 2020,

for which $

5.8

million was accrued within other accrued liabilities and other

non-current liabilities on the Company’s

Condensed

Consolidated Balance Sheet as of June 30, 2020.

Comparatively, as of

December 31, 2019, the Company had $

6.6

million accrued for

with respect to these matters.

The Company believes, although there can be no assurance

regarding the outcome of other unrelated environmental matters, that

it has made adequate accruals for costs associated with other

environmental problems of which it is aware.

Approximately $

0.1

million and $

0.2

million were accrued as of June 30, 2020 and December

31, 2019, respectively,

to provide for such anticipated future

environmental assessments and remediation costs.

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.

Note 20 – COVID-19 Global Pandemic

In early 2020, a global outbreak of COVID-19 occurred

initially in China and then across all locations where the Company does

business, and which is continuing into the second half of

the year.

In March 2020, the World

Health Organization formally identified

the COVID-19 outbreak as a pandemic.

In an effort to halt the outbreak of COVID-19, the governments

of impacted countries,

including but not limited to the United States, the European

Union, and China, have taken various actions to reduce

its spread,

including travel restrictions, shutdowns of businesses deemed

nonessential, and stay-at-home or similar orders.

This outbreak and

associated measures to reduce its spread have caused

significant disruptions

to the operations of the Company and its suppliers and

customers.

The disruptions and negative impact to the Company

include significant volume declines and lower net sales first at its

China subsidiaries in the first quarter of 2020 and

subsequently, particularly

beginning in the second half of March and into the second

quarter, at many of its other

sites globally as the global economy slowed significantly in response

to the pandemic.

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.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except share and per share amounts

unless otherwise stated)

(Unaudited)

Further, management continues to

evaluate how COVID-19-related circumstances, such as remote

work arrangements, have

affected financial reporting processes, internal control

over financial reporting, and disclosure controls and procedures.

While the

circumstances have presented and are expected to continue

to present challenges, at this time, management does not believe

that

COVID-19 has had a material impact on financial reporting

processes, internal controls over financial reporting, and

disclosure

controls and procedures.

The full extent of the COVID-19 pandemic related

business and travel restrictions and changes to business and

consumer

behavior intended to reduce its spread are uncertain as of

the date of this Report as COVID-19 and the responses of governmental

authorities continue to rapidly evolve globally.

The Company cannot reasonably estimate the magnitude of the effects

these

conditions will have on the Company’s

operations as they are subject to significant uncertainties relating to

the ultimate geographic

spread of the virus, the incidence and severity of

the disease, the duration or recurrence of the outbreak, the

length of the travel

restrictions and business closures imposed by governments

of impacted countries, and the economic response by governments

impacted countries.

To the extent

that the Company’s customers and

suppliers continue to be significantly and adversely impacted by

COVID-19, this

could reduce the availability,

or result in delays, of materials or supplies to or from

the Company, which in

turn could significantly

interrupt the Company’s

business operations.

Such impacts could grow and become more significant to the

Company’s operations

and the Company’s liquidity

or financial position.

Therefore, given the speed and frequency of continuously

evolving developments

with respect to this pandemic, the Company cannot reasonably

estimate the magnitude or the full extent to which COVID-19

may

impact the Company’s results

of operations, liquidity or financial position.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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.

As used in

this Report, the term Legacy Quaker refers to the Company

prior to closing its combination with Houghton International,

Inc.

(“Houghton”) (herein referred to as the “Combination”)

on August 1, 2019.

Throughout this Quarterly Report on Form 10-Q (the

“Report”),

all figures presented, unless otherwise stated, reflect the results of

operations of the combined company for the three and

six months ended June 30, 2020 and Legacy Quaker for the

three and six months ended June 30,

2019.

Executive Summary

Quaker Houghton is a global leader in industrial process

fluids.

With a presence around the world,

including operations in over 25

countries, our customers include thousands of the world’s

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

offshore, can, mining, and metalworking

companies.

Our high-performing, innovative and sustainable solutions are

backed by best-

in-class technology,

deep process knowledge, and customized services. Quaker

Houghton is headquartered in Conshohocken,

Pennsylvania, located near Philadelphia in the United States.

The Company’s second

quarter of 2020 performance was dramatically affected

by the COVID-19 pandemic and its impact on the

global economy,

including most of the Company’s

end customers.

However, the second quarter of 2020

performance was also

relatively consistent with the Company’s

guidance as of the end of the first quarter.

Net sales of $286.0 million in the second quarter

of 2020 increased 39% compared to $205.9 million

in the second quarter of 2019, due primarily to the inclusion of $142.5

million of

Houghton and Norman Hay plc (“Norman Hay”) net

sales.

Excluding Houghton and Norman Hay net sales, the Company’s

net sales

would have declined approximately 30% quarter-over-quarter,

primarily driven by a decrease in sales volumes of approximately

27%

due to the impacts of COVID-19 and a negative impact

from foreign exchange of 4%.

The Company’s gross profit and

selling,

general and administrative expenses (“SG&A”) also increased

due to the inclusion of Houghton and Norman Hay quarter-over-

quarter, but both were also negatively

impacted by foreign exchange and benefited by the realization of

cost savings associated with

the Combination as well as the impact of lower SG&A due

to the sales decline and further cost saving measures put in place to

help

offset the impacts of COVID-19.

The Company reported a second quarter of 2020

net loss of $7.7 million or $0.43 per diluted share compared

to second quarter of

2019 net income of $15.6 million or $1.17 per diluted share.

The second quarter of 2020 net loss was primarily driven

by the negative

impact of COVID-19.

Excluding costs associated with the Combination and other non-core

items in each period, the Company’s

non-

GAAP earnings per diluted share were $0.21 in the

second quarter of 2020 compared to $1.56 in the prior year second

quarter.

Prior

year second quarter earnings per share do not reflect the

additional 4.3 million shares issued as part of the consideration

for the

Combination.

The Company’s adjusted EBITDA increased

to $32.1 million in the second quarter of 2020 compared

to $31.4 million

in the prior year quarter primarily due to the Combination,

the inclusion of Norman Hay and the benefits of cost savings realized

from

the Combination,

which were largely offset

by the current quarter negative impacts of COVID-19 and foreign

exchange.

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.

During the third quarter of 2019 and in connection with the

Combination, the Company established a new reportable

segment

structure that consists of four segments: (i) Americas; (ii)

Europe, Middle East and Africa (“EMEA”); (iii) Asia/Pacific;

and (iv)

Global Specialty Businesses.

The Company’s 2020

operating performance by reportable segment reflected the

positive impact of

Houghton’s performance

in all of its segments and Norman Hay in its Global Specialty

Businesses segment.

Without the inclusion of

Houghton and Norman Hay,

net sales would have been lower in all segments compared

to the prior year, primarily driven by declines

in volume due to the negative impacts of COVID-19 on

the Company’s end markets and

negative foreign currency translation in all

segments due to a stronger U.S. dollar quarter-over-quart

er.

As reported, segment operating earnings were higher

in most segments

compared to 2019 which also reflects the inclusion of Houghton

and Norman Hay partially offset by the negative

impacts of COVID-

19 and the impact of fixed manufacturing

costs on dramatically lower volumes compared to the Company’s

normal production levels.

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.

The Company had net operating cash flow of approximately

$24.5 million in the second quarter of 2020 compared $22.4

million in

the second quarter of 2019, resulting in an 99% increase

in its current year-to-date net operating cash flow

to $44.7 million compared

to $22.4 million in the first six months of 2019.

The increase in net operating cash flow year-over-year

was driven by the inclusion of

Houghton and Norman Hay earnings as well as changes

in cash flows related to working capital.

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’s

second quarter results were significantly impacted by the global

economic slowdown due to COVID-19,

but the performance was largely consistent with

the Company’s expectations

in light of the COVID-19 pandemic.

The Company saw

significant volume declines across the globe due to the impact

of COVID-19, certain domestic volume weakness due

to the declines in

Quaker Chemical Corporation

Management’s Discussion and Analysis

the aerospace industry and foreign exchange headwinds

due to a stronger U.S. dollar.

Despite these impacts, the Company was able to

generate significant cash flow,

continue to pay its regular dividends, pay down its debt and

continue to execute its integration plans for

the Combination.

The current global economic slowdown and other impacts

due to COVID-19 pose an unprecedented challenge, but the

Company

expects to successfully navigate this downturn

as the Company has demonstrated the ability,

now and in the past, to respond quickly

to changing market conditions.

The Company also expects to maintain sufficient

liquidity and compliance with debt covenants

despite these difficult economic times.

The Company expects that its integration synergies

and additional cost savings actions as well

as continuing share gain in the marketplace will help

the Company during these challenging times, and,

coupled with the benefit of a

projected gradual rebound in demand in the Company’s

end markets,

will help drive significant adjusted EBITDA growth in 2021

and

2022.

Impact of COVID-19

In early 2020, the global outbreak of COVID-19

negatively impacted all locations where the Company

does business.

Although

the Company has now experienced a full quarter reflecting

the impacts of COVID-19, the full extent of the outbreak

and related

business impacts still remain uncertain and, therefore,

the full extent to which COVID-19 may impact the Company’s

results of

operations or financial condition is uncertain.

This outbreak has significantly disrupted the operations of the

Company and its

suppliers and customers.

The Company has experienced significant volume declines and

lower net sales as further described in this

section, first at its China subsidiaries in the first quarter

of 2020 and subsequently,

particularly beginning in the second half of March

and into the second quarter, throughout

the rest of the business due to the global economic slowdown brought

on by COVID-19.

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.

Given the speed and frequency of the continuously evolving developments

with respect to this pandemic, the Company cannot, as

of the date of this Report, reasonably estimate the

magnitude or the full extent of the impact to its future results of

operations or to the

ability of it or its customers to resume more normal

operations, even as certain restrictions are lifted.

A prolonged outbreak or

resurgence and period of continued restrictions

on day-to-day life and business operations would likely result

in volume declines and

lower net sales for the later periods of 2020, as compared

to the prior year.

To the extent that the

Company’s customers and suppliers

continue to be significantly and adversely impacted by

COVID-19, this could reduce the availability,

or result in delays, of materials

or supplies to or from the Company,

which in turn could significantly interrupt the Company’s

business operations.

Given this

ongoing uncertainty,

the Company anticipates that its future results of operations, including the

results for the remainder of 2020,

could be significantly adversely impacted by COVID-19.

Further, management continues to

evaluate how COVID-19-related circumstances, such as remote

work arrangements, have

affected financial reporting processes and systems, internal

control over financial reporting, and disclosure controls and

procedures.

While the circumstances have presented and are expected

to continue to present challenges, at this time, management

does not believe

that COVID-19 has had a material impact on financial

reporting processes, internal controls over financial reporting,

and disclosure

controls and procedures.

For additional information regarding the potential impact of COVID-19,

see Item 1A of Part II of this

Report.

The Company’s top

priority is, and especially during this pandemic remains, to protect the health

and safety of its employees and

customers, while working to ensure business continuity

to meet customers’ needs:

●

Our People

– The Company has taken steps to protect the health and wellbeing

of its people in affected areas through various

actions, including enabling work at home where needed and

possible, and employing social distancing standards,

implementing travel restrictions where applicable, enhancing

onsite hygiene practices, and instituting visitation restrictions

the Company’s facilities.

The Company does not expect that it will incur material

expenses implementing health and safety

policies for employees, contractors, and customers.

●

Our Operations

– Currently, all of

the Company’s 34 production

facilities worldwide are open and operating and are deemed

as essential businesses in the jurisdictions where they are

operating.

The Company believes it has been able to meet the

needs of all its customers across the globe despite the

current economic challenges.

●

Our Business Conditions

– The Company’s second

quarter of 2020 results were consistent with expectations.

Demand

decreased as many customers reduced production levels, and in

some cases, temporarily shut down their facilities during the

second quarter of 2020.

All four of the Company’s reportable

segments showed significant declines in volumes and

net sales

due to COVID-19 with the Americas being the most impacted and

Asia/Pacific being the least impacted.

April and May

were the worst months of the quarter as many customers

globally were shut down or operating at reduced rates, especially

the automotive sector.

In June, the Company began to see net sales increase in all reportable

segments.

The Company

currently expects that the impact from COVID-19 in the second

quarter of 2020 will be the most severe and expects a gradual

Quaker Chemical Corporation

Management’s Discussion and Analysis

quarterly improvement sequentially throughout the remainder of

the year, subject to the effective containment

of the virus

and its effects.

However, it remains highly uncertain

as to how long the global pandemic and related economic challenges

will last and when and to what extent our customers’ businesses will recover.

●

Our Actions

– The Company has taken actions to conserve cash and

reduce costs.

Some of the actions taken include

eliminating all discretionary expenditures, delaying or

freezing salary increases where legally permitted, reducing executives’

salaries, lowering targeted capital expenditures

by approximately 30%, and accelerating and fine-tuning the Company’s

integration plan.

These initiatives have been designed and implemented so that

the Company can successfully manage

through this challenging situation while continuing

to protect the health of its employees, meet customers’ needs,

maintain

the Company’s long

-term competitive advantages and above-market growth,

and enable it to continue to effectively integrate

with Houghton.

While the Company has taken a number of actions to protect our

workforce, to continue to serve our

customers with excellence and to conserve cash and

reduce costs, which have been effective thus far,

further actions to

respond to the pandemic and its effects may be

necessary as conditions continue to evolve.

Liquidity and Capital Resources

At June 30, 2020, the Company had cash, cash equivalents and

restricted cash of $341.8 million, including $19.3 million of

restricted cash.

Total cash, cash equivalents

and restricted cash was $143.6 million at December 31, 2019, which

included $20.0

million of restricted cash.

The $198.2 million increase in cash, cash equivalents and

restricted cash was the net result of $168.7

million of cash provided by financing activities and $44.7

million of cash provided by operating activities, partially

offset by $10.6

million of cash used in investing activities and a $4.6

million negative impact due to the effect of

foreign currency translation on cash.

Net cash flows provided by operating activities were $44.7

million in the first six months of 2020 compared to $22.4

million in

the first six months of 2019.

The Company’s current

year operating cash flow increase was largely due to the

inclusion of Houghton

and Norman Hay earnings, which were not included

in the prior year, as well as slightly lower outflows

related to working capital in

the current quarter largely due to the decline

in sales due to the impact of COVID-19 including its impact on working

capital levels.

The Company had higher cash dividends received from

its associated companies year-over-year,

including $5.0 million received from

the Company’s joint venture

in Korea in the first quarter of 2020.

Net cash flows used in investing activities were $10.6

million in the first six months of 2020 compared to $5.8 million

in the first

six months of 2019.

This increase in cash outflows was driven by higher investments in

property, plant and equipment

due to the

inclusion of Houghton and Norman Hay expenditures in

2020 including higher capital expenditures related to integrating

the

companies during the six months ended June 30,

2020.

Also, in the current year, the Company finalized

its post-closing adjustment

related to Norman Hay for approximately $3.2 million,

whereas the Company had a prior year payment of $0.5 million

to finalize the

acquisition of certain formulations and product technology

in the mining industry.

Net cash flows provided by financing activities were $168.7 million

in the first six months of 2020 compared to cash used in

financing activities of $35.3 million in the first six months

of 2019.

The $204.0 million increase in net cash flows was due primarily

to additional borrowings of $205.5 million on the Company’s

revolving credit facility in the current year compared to

payments of

$24.0 million in the prior year.

As a precautionary measure in response to the economic uncertainty

related to COVID-19, the

Company drew down most of the available liquidity

on its revolving credit facility during the second half of March

2020, which drove

the large change in borrowings compared

to the prior year.

This increase in borrowings was partially offset

by $18.7 million of

scheduled repayments under the Company’s

term loan agreement.

In addition, the Company paid $13.7 million of cash dividends

during the first six months of 2020, a $3.8 million or

38% increase in cash dividends compared to the prior year,

primarily due to the

approximately 4.3 million shares issued at closing of

the Combination, as well as the prior year cash dividend per

share increase

initiated in May 2019.

Finally, during the

first six months of 2020, the Company used $1.0 million to

purchase the remaining

noncontrolling interest in its South Africa affiliate.

Prior to this buyout, the Company’s

South Africa affiliate made a distribution to

the prior noncontrolling affiliate shareholder

of approximately $0.8 million in the first six months of

2020.

There were no similar

noncontrolling interest activities in the first six months

of 2019.

As previously disclosed in its Annual Report on Form 10

-K for the year ended December 31, 2019 (the “2019 Form

10-K”), on

August 1, 2019, the Company completed the Combination,

whereby the Company acquired all of the issued

and outstanding shares of

Houghton from Gulf Houghton Lubricants, Ltd. in accordance with

the Share Purchase Agreement dated April 4, 2017.

The final

purchase consideration was comprised of: (i) $170.8 million

in cash; (ii) the issuance of approximately 4.3 million shares of

common

stock of the Company with par value of $1.00, comprising

24.5% of the common stock of the Company at closing; and

(iii) the

Company’s refinancing

of $702.6 million of Houghton’s

indebtedness at closing.

Cash acquired in the Combination was $75.8

million. Prior to the Combination, the Company secured

commitments from certain banks for a new credit facility

(as amended, the

“New Credit Facility”).

Concurrent with the closing of the Combination on August

1, 2019, the New Credit Facility became effective

replacing the Company’s

previous credit facility.

See Note 2 and Note 15 of Notes to Condensed Consolidated

Financial Statements.

Quaker Chemical Corporation

Management’s Discussion and Analysis

As of June 30, 2020, the Company had New Credit Facility borrowings

outstanding of $1,109.3 million.

As of December 31,

2019, the Company had New Credit Facility borrowings

outstanding of $922.4 million.

The Company has unused capacity under the

Revolver of approximately $15 million, net of bank

letters of credit of approximately $8 million, as of June 30

2020.

As mentioned

above, the Company drew down most of the available

capacity on the Revolver in the second half of March 2020

as a precautionary

measure in response to the economic uncertainty

related to COVID-19.

The Company’s other debt obligations

are primarily industrial

development bonds, bank lines of credit and municipality

-related loans, which totaled $11.9 million

as of June 30, 2020 and $12.6

million as of December 31, 2019, respectively.

Total unused capacity

under these arrangements as of June 30, 2020 was

approximately $37 million.

The Company’s total net debt

as of June 30, 2020 was $798.7 million.

As of June 30,

2020 and

December 31, 2019, the Company was in compliance with

all of the New Credit Facility covenants.

The New 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 New 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 New 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, 2020, this aggregate rate was 3.1%.

The Company expects to realize Combination cost

synergies on a pro forma combined company

basis of $53 million in 2020, $65

million in 2021 and $75 million in 2022.

The Company estimates that it realized approximately $22 million

of cost savings during the

first six months of 2020 on a combined company pro

forma basis, increasing its cumulative synergies

realized in the eleven months

since closing of the Combination to approximately $29

million.

The Company expects to incur additional costs and

make associated cash payments to integrate Quaker

and Houghton and

continue realizing the Combination’s

total anticipated cost synergies.

The Company expects cash payments,

including those pursuant

to the QH Program, described below,

but excluding incremental capital expenditures related to the

Combination, will generally

approximate one-times its total anticipated cost synergies.

The Company expects to incur these costs over a three-year

period post-

close, with a significant portion of these costs incurred

or expected to be incurred in 2019 and the current year.

The Company

incurred $16.5 million of total Combination,

integration and other acquisition-related expenses in the first six months

of 2020,

including $0.8 million of accelerated depreciation, described in

the Non-GAAP measures of this Item below.

The Company had

aggregate net cash outflows of approximately $13.8 million

related to the Combination,

integration and other acquisition-related

expenses during the first six months of 2020.

Comparatively, during the

first six months of 2019, the Company incurred $10.8 million

of total Combination,

integration and other acquisition-related expenses, including

$1.7 million of ticking fees, described in the Non-

GAAP Measures of this Item below,

and aggregate net cash outflows related to these costs were $10.4

million.

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 325 people globally and plans for the closure

of certain

manufacturing and non-manufacturing facilities.

In connection with the plans for closure of certain manufacturing

and non-

manufacturing facilities, the Company made a decision

to make available for sale certain facilities during the second

quarter of 2020

resulting in the reclassification of approximately $11.7

million of buildings and land to other current assets as of June 30,

2020.

The

Company expects to receive amounts in excess of

net book value for the properties held for sale.

Additionally, as a result

of the QH

Program, the Company recognized $2.2 million of restructuring

and related charges in the first six months of 2020.

The exact timing

and total costs associated with the QH Program will depend

on a number of factors and is subject to change;

however, the Company

currently expects reduction in headcount and site closures

will continue to occur during 2020 and 2021 under the QH Program

and

estimates that total costs related to the QH Program will approximate

one-times the anticipated cost synergies realized

under this

program.

The Company made cash payments related to the settlement of

restructuring liabilities under the QH Program during the

first six months of 2020 of approximately $9.6 million.

In the fourth quarter of 2018, the Company began the

process of terminating its non-contributory U.S. pension plan (“the Legacy

Quaker U.S. Pension Plan”).

The Company completed the Legacy Quaker U.S. Pension

Plan termination during the first quarter of

2020.

In order to terminate the Legacy Quaker U.S. Pension Plan in accordance

with I.R.S. and Pension Benefit Guaranty

Corporation requirements, the Company was required

to fully fund the Legacy Quaker U.S. Pension Plan on a termination

basis and

the amount necessary to do so was approximately

$1.8 million, subject to final true up adjustments.

In July 2020, the Company

finalized the amount of liability and related annuity

payments and expects to receive a refund in premium of approximately

$2 million

in August 2020.

In addition, the Company recorded a non-cash pension settlement

charge at plan termination of approximately $22.7

million.

As of June 30, 2020, the Company’s

gross liability for uncertain tax positions, including interest and

penalties, was $28.0 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 $8.0 million as a result of offsetting

benefits in other tax jurisdictions.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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 the Combination and integration, pension plan contributions,

capital

expenditures, other business opportunities and other

potential contingencies.

The Company’s liquidity is affected

by many factors,

some based on normal operations of our business and

others related to the impact of the pandemic on our business

and on global

economic conditions as well as industry uncertainties, which we cannot

predict.

We also cannot predict

economic conditions and

industry downturns or the timing, strength or duration

of recoveries.

We may seek,

as we believe appropriate, additional debt or

equity financing which would provide capital for corporate

purposes, working capital funding, additional liquidity needs

or to fund

future growth opportunities, including possible acquisitions

and investments.

The timing and amount of potential capital requirements

cannot be determined at this time and will depend

on a number of factors, including the actual and projected

demand for our products,

specialty chemical industry conditions, competitive factors,

and the condition of financial markets, among others.

Critical Accounting Policies and Estimates

The Company’s critical accounting

policies and estimates, as set forth in its 2019 Form 10-K remain

materially consistent.

However, due to the current impact

as well as the volatility and uncertainty in the economic outlook

as a result of COVID-19, the

Company re-evaluated certain of its estimates, most notably

its estimates and assumptions with regards to goodwill and

other

intangible assets during the first quarter of 2020.

Goodwill and other intangible assets:

The Company accounts for business combinations under

the acquisition method of

accounting.

This method requires the recording of acquired assets, including

separately identifiable intangible assets, at their

acquisition date fair values.

Any excess of the purchase price over the estimated fair value of

the identifiable net assets acquired is

recorded as goodwill.

The determination of the estimated fair value of assets acquired

requires management’s judgment

and often

involves the use of significant estimates and assumptions,

including assumptions with respect to future cash inflows

and outflows,

discount rates, royalty rates, asset lives and market multiples, among

other items.

When necessary, the Company

consults with

external advisors to help determine fair value.

For non-observable market values, the Company may determine

fair value using

acceptable valuation principles, including the excess earnings,

relief from royalty,

lost profit or cost methods.

The Company amortizes definite-lived intangible assets on

a straight-line basis over their useful lives.

Goodwill and intangible

assets that have indefinite lives are not amortized and are

required to be assessed at least annually for impairment.

The Company

completes its annual goodwill and indefinite-lived intangible asset impairment

test during the fourth quarter of each year.

The

Company continuously evaluates if triggering events indicate

a possible impairment in one or more of its indefinite

-lived or long-lived

assets.

As of March 31, 2020, the Company evaluated the initial impact

of COVID-19 on the Company’s

operations, as well as the

volatility and uncertainty in the economic outlook as a

result of COVID-19,

to determine if this indicated it was more likely than not

that the carrying value of any of the Company’s

indefinite-lived or long-lived assets was not recoverable.

While the impact of

COVID-19 has already had a negative effect

on the Company’s operations

and was expected to significantly impact the Company’s

full year 2020 results, in evaluating if a triggering

event was present for one or more of the Company indefinite-lived

or long-lived

assets, the Company also considered the carrying value

and estimated fair value for each asset, as well as the Company’s

expected

impact from COVID-19 on each specific asset.

The Company concluded that the impact of COVID-19

did not represent a triggering

event as of March 31, 2020 with regards to the Company’s

indefinite-lived and long-lived assets, except for the Company’s

Houghton

and Fluidcare trademark and tradename indefinite

-lived intangible assets.

Given the relatively short period of time between the

fair value determination for the acquired Houghton and

Fluidcare trademark

and tradename indefinite-lived intangible assets as of the

closing of the Combination on August 1, 2019, and the 2019 annual

impairment testing date of October 1, the Company’s

2019 annual impairment assessment concluded that the $242.0

million carrying

value of acquired Houghton and Fluidcare indefinite-lived

intangible assets generally approximated fair value, with excess fair value

of less than 5%.

Because of the previously concluded relatively narrow gap

between fair value and carrying value, the Company

concluded in the first quarter of 2020 that the expected

current year impact from COVID-19 on the Company’s

net sales represented a

triggering event.

As a result of the conclusion, the Company completed an interim

quantitative indefinite-lived intangible asset

impairment assessment as of March 31, 2020.

The determination of estimated fair value of the Houghton

and Fluidcare trademark and tradename indefinite-lived assets was

based on a relief from royalty valuation method which

requires management’s

judgment and often involves the use of significant

estimates and assumptions, including assumptions with respect

to the weighted average cost of capital (“WACC”)

as well as projected

net sales.

In completing the interim quantitative impairment

assessment as of March 31, 2020, the Company used a WACC

assumption of approximately 10% as well as current year

forecasted net sales and management’s

estimates with respect to future net

sales growth rates specific to legacy Houghton’s

net sales.

As a result of an increase in the WACC

assumption as of March 31, 2020,

compared to the prior year fourth quarter annual impairment

assessment, and the significant current year decline in projected

legacy

Houghton net sales due to the impact of COVID-19,

the Company concluded that the estimated fair values of these intangib

le assets

were less than their carrying values and that an

impairment charge to write down their carrying values

to their estimated fair values

Quaker Chemical Corporation

Management’s Discussion and Analysis

was warranted.

This resulted in a first quarter of 2020 non-cash impairment

charge of $38.0 million for these indefinite-lived

intangible assets.

The Company performed a qualitative assessment over these

indefinite-lived intangible assets as of June 30, 2020

and concluded that no further impairment indicators existed.

The book value of these assets as of June 30, 2020 was $204.0

million.

As of June 30, 2020, the Company continued to evaluate the on

-going impact of COVID-19 on the Company’s

operations, and

the volatility and uncertainty in the economic outlook as a result of

COVID-19 to determine if again this indicated it was more

likely

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

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

The Company concluded that the impact of COVID-19 did

not represent a triggering event as of June 30, 2020

with regards to any of

the Company’s repor

ting units or indefinite-lived and long-lived assets.

If the current economic conditions worsen or projections of

the timeline for recovery are significantly extended, then

the Company may conclude in the future that the impact from

COVID-19

requires

the need to perform further interim quantitative impairment

tests, which could result in additional impairment charges

in the

future.

Non-GAAP Measures

The information in this Report 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 (loss)

income attributable to the Company before depreciation

and

amortization, interest expense, net, and taxes on (loss) income

before equity in net income of associated companies.

The Company

also presents adjusted EBITDA which is calculated as EBITDA

plus or minus certain items that are not 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 (loss) plus

or minus certain items that are not considered indicative of future operating

performance or not considered core to the Company’s

operations.

Adjusted EBITDA margin and non-GAAP operating

margin are

calculated as the percentage of adjusted EBITDA and

non-GAAP operating income to consolidated net sales, respectively.

The

Company believes these non-GAAP measures provide

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

and competitors in our industry as well as by management

in assessing the operating performance of the Company on

a consistent

basis.

Additionally, the

Company presents non-GAAP net income and non-GAAP earnings

per diluted share as additional performance

measures.

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

above, less depreciation and amortization, interest

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

in net income of associated companies, in each cash adjusted,

as applicable, for

any depreciation, amortization, interest or tax impacts resulting

from the non-core items identified in the reconciliation

of net (loss)

income attributable to the Company to adjusted EBITDA.

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

income per diluted share as accounted for under the

“two-class share method.”

The Company believes that non-GAAP net income

and non-GAAP earnings

per diluted share provide transparent and useful information

and are widely used by analysts, investors, and

competitors in our industry as well as by management in

assessing the operating performance of the Company on a consistent

basis.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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,

2020

2019

2020

2019

Operating income (loss)

2,238

20,531

(10,206)

40,360

Fair value step up of inventory sold (a)

226

—

226

—

Houghton combination, integration and other

acquisition-related expenses (b)

8,253

4,604

16,529

9,087

Restructuring and related charges (c)

486

—

2,202

—

Customer bankruptcy costs (d)

—

463

—

Charges related to the settlement of a non-core

equipment sale (e)

—

384

—

384

Indefinite-lived intangible asset impairment (f)

—

38,000

—

Non-GAAP operating income

11,203

25,519

47,214

49,831

Non-GAAP operating margin (%) (m)

3.9%

12.4%

7.1%

11.9%

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin

and Non-GAAP Net Income Reconciliations

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Net (loss) income attributable to Quaker Chemical Corporation

(7,735)

15,591

(36,116)

29,435

Depreciation and amortization (b)(k)

21,158

4,843

42,742

9,702

Interest expense, net (b)

6,811

733

15,272

1,509

Taxes on (loss)

income before equity in net income

of associated companies (l)

3,222

4,800

(9,848)

9,729

EBITDA

23,456

25,967

12,050

50,375

Equity income in a captive insurance company (g)

(482)

(390)

(155)

(736)

Fair value step up of inventory sold (a)

226

—

226

—

Houghton combination, integration and other

acquisition-related expenses (b)

7,963

4,604

15,766

9,087

Restructuring and related charges (c)

486

—

2,202

—

Customer bankruptcy costs (d)

—

463

—

Charges related to the settlement of a non-core

equipment sale (e)

—

384

—

384

Indefinite-lived intangible asset impairment (f)

—

38,000

—

Pension and postretirement benefit costs,

non-service components (h)

341

895

23,866

1,791

Currency conversion impacts of hyper-inflationary economies (i)

(31)

124

163

Adjusted EBITDA

32,063

31,429

92,542

61,064

Adjusted EBITDA margin (%) (m)

11.2%

15.3%

13.9%

14.6%

Adjusted EBITDA

32,063

31,429

92,542

61,064

Less: Depreciation and amortization (b)

20,869

4,843

41,980

9,702

Less: Interest expense, net - adjusted (b)

6,811

(130)

15,272

(216)

Less: Taxes on (loss)

income before equity in net income

of associated companies - adjusted (j)(l)

673

5,787

7,136

11,827

Non-GAAP net income

3,710

20,929

28,154

39,751

Quaker Chemical Corporation

Management’s Discussion and Analysis

Non-GAAP Earnings per Diluted Share Reconciliations

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

GAAP (loss) earnings per diluted share attributable to

Quaker Chemical Corporation common shareholders

(0.43)

1.17

(2.03)

2.20

Equity income in a captive insurance company

per diluted share (g)

(0.03)

(0.01)

(0.06)

Fair value step up of inventory sold per diluted share (a)

0.01

—

0.01

—

Houghton combination, integration and other

acquisition-related expenses per diluted share (b)

0.37

0.34

0.73

0.69

Restructuring and related charges per diluted

share (c)

0.02

—

0.09

—

Customer bankruptcy costs per diluted share (d)

—

0.02

—

Charges related to the settlement of a non-core

equipment

sale per diluted share (e)

—

0.02

—

0.02

Indefinite-lived intangible asset impairment per diluted

(f)

—

1.65

—

Pension and postretirement benefit costs,

non-service components per diluted share (h)

0.01

0.06

0.89

0.11

Currency conversion impacts of hyper-inflationary

economies per diluted share (i)

0.01

—

0.01

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

0.25

—

0.23

—

Non-GAAP earnings per diluted share (n)

0.21

1.56

1.59

2.97

(a)

Fair value step up of inventory sold relates to an

expense associated with selling inventory of acquired businesses during

the

second quarter of 2020,

which was adjusted to fair value as a part of purchase accounting.

This increase to COGS is not

indicative of the future operating performance of the

Company.

(b)

Houghton combination,

integration and other acquisition-related expenses include certain

legal, financial, and other advisory and

consultant costs incurred in connection with due diligence,

regulatory approvals, integration planning, as well as certain

one-time

labor costs associated with the Company’s

acquisition-related activities.

These costs are not indicative of the future operating

performance of the Company.

Approximately $2.3 million and $3.5 million in the

three and six months ended June 30, 2019,

respectively, of

these pre-tax costs were considered non-deductible for the purpose of

determining the Company’s effective

tax

rate, and, therefore, taxes on (loss) 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, 2020, the Company recorded $0.3 million and

$0.8 million of

accelerated depreciation related to certain of the Company’s

facilities, which is included in the caption “Houghton

combination,

integration and other acquisition-related expenses” in the

reconciliation of operating income (loss) to non-GAAP operating

income and included in the caption “Depreciation and

amortization” in the reconciliation of net (loss) income attributable

to the

Company to EBITDA, but excluded from the caption

“Depreciation and amortization” in the reconciliation of adjusted

EBITDA

to non-GAAP net income attributable to the Company.

During the three and six months ended June 30,

2019, the Company

incurred $0.9 million and $1.7 million, respectively,

of ticking fees to maintain the bank commitment related

to the Combination.

These interest costs are included in the caption “Interest expense,

net” in the reconciliation of net (loss) income attributable

to the

Company to EBITDA, but are excluded from the caption

“Interest expense, net – adjusted” in the reconciliation of adjusted

EBITDA to non-GAAP net income.

See Note 2 of Notes to Condensed Consolidated Financial Statements,

which appears in Item

1 of this Report.

(c)

Restructuring and related charges represent

the costs incurred by the Company associated with the QH restructuring

program

which was initiated in the third quarter of 2019 as part

of the Company’s plan

to realize cost synergies associated with the

Combination.

These costs are not indicative of the future operating performance

of the Company.

See Note 7 of Notes to

Condensed Consolidated Financial Statements, which appears

in Item 1 of this Report.

(d)

Customer bankruptcy costs represent the cost associated

with a specific reserve for trade accounts receivable related

to a customer

who filed for bankruptcy protection.

These expenses are not indicative of the future operating

performance of the Company.

(e)

Charges related to the settlement of a non-core

equipment sale represent the pre-tax charge related to

a one-time, uncommon,

customer settlement associated with a prior sale of non

-core equipment.

These charges are not indicative of the future operating

performance of the Company.

Quaker Chemical Corporation

Management’s Discussion and Analysis

(f)

Indefinite-lived intangible asset impairment represents the

non-cash charge taken to write down the value

of certain indefinite-

lived intangible assets associated with the Houghton

Combination.

The Company has no prior history of goodwill or intangible

asset impairments and this charge is not indicative

of the future operating performance of the Company.

See Note 14 of Notes to

Condensed Consolidated Financial Statements, which app

ears in Item 1 of this Report.

(g)

Equity income in a captive insurance company represents the

after-tax income attributable to the Company’s

interest in Primex,

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

The Company holds a 33% investment in and has significant

influence over

Primex, and therefore accounts for this interest under the

equity method of accounting.

The income attributable to Primex is not

indicative of the future operating performance of the

Company and is not considered core to the Company’s

operations.

(h)

Pension and postretirement benefit costs, non-service components

represent the pre-tax, non-service component of the Company’s

pension and postretirement net periodic benefit cost in

each period.

These costs are not indicative of the future operating

performance of the Company.

The six months ended June 30, 2020 includes the $22.7

million settlement charge for the

Company’s termination

of the Legacy Quaker U.S. Pension Plan.

See Note 9 of Notes to Condensed Consolidated Financial

Statements, which appears in Item 1 of this Report.

(i)

Currency conversion impacts of hyper-inflationary economies represents

the foreign currency remeasurement impacts associated

with the Company’s affiliates

whose local economies are designated as hyper-inflationary

under U.S. GAAP.

During the three

and six months ended June 30, 2020 and 2019, the

Company incurred non-deductible, pre-tax charges related

to the Company’s

Argentine affiliates.

These charges related to the immediate recognition

of foreign currency remeasurement in the Condensed

Consolidated Statements of Operations associated with

these entities are not indicative of the future operating

performance of the

Company.

See Note 1 of Notes to Condensed Consolidated Financial Statements, which

appears in Item 1 of this Report.

(j)

The impacts of certain discrete tax items included the impact of

changes in the valuation allowance for foreign tax credits

acquired with the Combination, changes in withholding

tax rates and the associated impact on previously accrued

for distributions

at certain of the Company’s

Asia/Pacific subsidiaries, additional reserves for uncertain

tax positions related to tax audits at certain

of the Company’s EMEA

subsidiaries, as well as the offsetting impact and

amortization of a deferred tax benefit the Company

recorded in the fourth quarter of 2019 related to an intercompany

intangible asset transfer.

See Note 11 of Notes to Condensed

Consolidated Financial Statements, which appears in Item

1 of this Report.

(k)

Depreciation and amortization for the three and six

months ended June 30, 2020 includes $0.3 million and $0.7

million,

respectively, of

amortization expense recorded within equity in net income of

associated companies in the Company’s

Condensed

Consolidated Statements of Operations, which is attributable

to the amortization of the fair value step up for the Company’s

50%

interest in a Houghton joint venture in Korea as a result

of required purchase accounting.

(l)

Taxes on (loss)

income before equity in net income of associated companies – adjusted

presents the impact of any current and

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

reconciling items presented in the reconciliation of net (loss) 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.

Fair value step up of inventory sold described in (a)

resulted in incremental taxes of less than $0.1 million during

both the three and six months ended June 30, 2020

Houghton

combination,

integration and other acquisition-related expenses described

in (b) resulted in incremental taxes of $1.5 million and

$3.4

million for the three and six months ended June 30, 2020,

respectively, and $0.7 million

and $1.6 million for the three and

six months ended June 30, 2019,

respectively.

Restructuring and related charges described in (c) resulted

in incremental taxes of

$0.1 million and $0.5 million for the three and six months

ended June 30, 2020.

Customer bankruptcy costs described in (d)

resulted in incremental taxes of $0.1 million during the

six months ended June 30, 2020.

Charges related to the settlement of a

non-core equipment sale described in (e)

resulted in incremental taxes of $0.1 million for both the three

and six months ended

June 30, 2019.

Indefinite-lived intangible asset impairment described in (f) resulted

in incremental taxes of $8.7 million during

the six months ended June 30, 2020.

Pension and postretirement benefit costs, non-service components

described in (h) resulted

in incremental taxes of $0.1 million and $8.0 million

for the three and six months ended June 30, 2020, respectively,

and $0.2

million and $0.4 million for the three and six months ended

June 30, 2019, respectively.

Tax impact of certain

discrete items

described in (j) resulted in incremental taxes of $4.4 million

and $4.0 million for the three and six months ended

June 30, 2020.

(m)

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.

(n)

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.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Off-Balance Sheet Arrangements

The Company had no material off-balance

sheet items, as defined under Item 303(a)(4) of Regulation S-K as of

June 30, 2020.

The Company’s only

off-balance sheet items outstanding as of June 30,

2020 represented approximately $14 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 also Note 15 of Notes to Condensed Consolidated Financial

Statements, which appears in Item 1 of this Report.

Operations

Consolidated Operations Review – Comparison of the Second

Quarter of 2020 with the Second Quarter of 2019

Net sales were $286.0 million in the second quarter of

2020 compared to $205.9 million in the second quarter

of 2019.

The net

sales increase of 39%

quarter-over-quarter includes net sales from Houghton

and Norman Hay of $142.5 million.

Without Houghton

and Norman Hay net sales, the Company’s

current quarter net sales would have declined approximately

30%, which reflects a

decrease in sales volumes of approximately 27

and a negative impact from foreign currency translation of 4%

partially offset by an

increase from selling price and product mix of 1%.

The primary driver of the volume decline in the current quarter

was the negative

impact of COVID-19 on global production levels.

COGS were $188.7 million in the second quarter of 2020

compared to $130.7 million in the second quarter of 2019

The increase

in COGS of 44%

was primarily due to the inclusion of Houghton and Norman

Hay sales and associated COGS, as well as $0.3 million

of accelerated depreciation charges and $0.2

million of an inventory fair value step up charge

described in the Non-GAAP Measures

section of this Item above, partially offset by

lower COGS on the decline in legacy Quaker net sales, described

above.

Gross profit in the second quarter of 2020 of $97.4 million

increased $22.2 million or 30% from the second quarter

of 2019,

due

primarily to Houghton and Norman Hay net sales, noted

above.

The Company’s reported gross margin

in the current quarter was

34.0%

compared to 36.5% in the second quarter of 2019.

The decrease in gross margin quarter-over-quarter

was primarily due to the

significantly lower volumes in the current quarter and the

related impact from fixed manufacturing costs, as well as price

and product

mix largely due to lower gross margins

in the legacy Houghton business, partially offset by

certain COGS decreases as a result of the

Company’s progression

on Combination-related logistics and procurement cost savings

initiatives.

SG&A in the second quarter of 2020 increased $36.6 million

compared to the second quarter of 2019 due primarily to

additional

SG&A from Houghton and Norman Hay.

This increase was partially offset by lower SG&A due

to foreign currency translation, the

impact of the sales decline on direct selling costs, lower incentive

compensation on reduced Company performance, the impact

COVID-19 cost savings actions,

including lower travel expenses, and the benefits of realized

cost savings associated with the

Combination.

During the second quarter of 2020,

the Company incurred $8.0 million of Combination,

integration and other acquisition-related

expenses, primarily for professional fees related to Houghton

integration activities.

Comparatively, the Company

incurred $4.6

million of expenses in the prior year second quarter,

primarily for integration planning and regulatory approvals.

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 expects reductions in headcount and site closures under

this program to continue

during 2020 and 2021.

The Company recorded additional restructuring and related

charges of $0.5 million related to this program

during the second quarter of 2020 and there were no similar

restructuring charges recorded during the second

quarter of 2019.

See the

Non-GAAP Measures section of this Item, above.

Operating income in the second quarter of 2020 was $2.2

million compared to $20.5 million in the second quarter of 2019.

Excluding the Combination,

integration and other acquisition-related charges, restructuring

and related charges and other non-core

items, the Company’s

current quarter non-GAAP operating income decreased to $11.2

million compared to $25.5 million in the prior

year quarter, primarily due to

the negative impact of COVID-19, which more than offset

the added net sales and operating income

from Houghton and Norman Hay and the benefits from

cost savings related to the Combination.

The Company had other expense, net, of $1.0 million

in the second quarter of 2020 compared to other income, net, of

less than

$0.1 million in the second quarter of 2019.

The quarter-over-quarter change was primarily driven

by higher foreign currency

transaction losses in the second quarter of 2020 as compared to

the prior year second quarter, partially

offset by lower non-service

components of pension and postretirement benefit costs.

Interest expense,

net, increased $6.1

million compared to

the second quarter

of 2019, as

a result of

additional borrowings

under

the Company’s term loans

and revolving credit facility to finance the closing of the Combination

on August 1, 2019.

Quaker Chemical Corporation

Management’s Discussion and Analysis

The Company’s effective

tax rates for the second quarters of 2020 and 2019 were an expense of

57.9% and 24.2%, respectively.

The Company’s current

quarter effective tax rate was driven by the impact

of certain tax charges in the current period

relating to

changes in the valuation allowance for foreign tax

credits acquired with the Combination and additional charges

for uncertain tax

positions resulting from certain foreign tax audits combined

with pre-tax losses as a result of the negative impacts

of COVID-19.

Excluding the impact of these items as well as all other non-core

items in each quarter, described in

the Non-GAAP Measures section

of this Item, above, the Company estimates that its second

quarters of 2020 and 2019 effective tax rates would

have been

approximately 18% and 22%, respectively.

The Company may experience continued volatility in its effectiv

tax rates due to several

factors, including the timing of tax audits and the expiration

of applicable statutes of limitations as they relate to uncertain

tax

positions, the unpredictability of the timing and

amount of certain incentives in various tax jurisdictions, the treatment

of certain

acquisition-related costs and the timing and amount

of certain share-based compensation-related tax benefits, among

other factors.

addition, the foreign tax credit valuation allowance is based

on a number of variables, including forecasted earnings,

which may vary.

Equity in net income of associated companies increased $0.5 million

in the second quarter of 2020 compared to the second

quarter of 2019, primarily due to additional earnings

from the Company’s 50% interest in

a joint venture in Korea and higher earnings

from the Company’s interest

in a captive insurance company.

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

Net income attributable to non-controlling interest was consistent

at less than $0.1 million in both the second quarters of

2020 and

2019.

Foreign exchange negatively impacted the Company’s

second quarter results by approximately $0.11

per diluted share, primarily

due to approximately $1.9 million of higher foreign

exchange transaction losses quarter-over-quarter as well

as the negative impact

from foreign currency translation on earnings due to the

strengthening of the U.S. dollar against certain major foreign currencies

in the

current quarter.

Consolidated Operations Review – Comparison of the First Six

Months of 2020 with the First Six Months of 2019

Net sales were $664.6 million in the first six months of

2020 compared to $417.1 million in the first six months of

2019.

The net

sales increase of 59% year-over-year includes

net sales from Houghton and Norman Hay of $332.8 million.

Without Houghton and

Norman Hay net sales, the Company’s

current year net sales would have declined approximately 20%,

which reflects a decrease in

sales volumes of approximately 16%, a negative impact

from foreign currency translation of 3% and a decrease from

selling price and

product mix of 1%.

Consistent with the second quarter of 2020 description above,

the primary driver of the volume decline in the

current year was the negative impact of COVID-19 on

global production levels.

COGS were $433.4 million in the first six months of 2020

compared to $266.2 million in the first six months of

2019.

The

increase in COGS of 63% was primarily due to the inclusion

of Houghton and Norman Hay sales and associated COGS, as

well as

$0.8 million of accelerated depreciation charges

and $0.2 million of an inventory fair value step up charge

described in the Non-

GAAP Measures section of this Item above, partially

offset by lower COGS on the decline in legacy Quaker

net sales, described

above.

Gross profit in the first six months of 2020 increased $80.3

million or 53% from the first six months of 2019, due

primarily to the

added Houghton and Norman Hay net sales.

The Company’s reported

gross margin in the current year was 34.8% compared

to 36.2%

in the first six months of 2019.

The decrease in gross margin quarter-over-quarter

was primarily the result of the same drivers

described in the second quarter description above.

SG&A in the first six months of 2020 increased $83.9

million compared to the first six months of 2019 due

primarily to additional

SG&A from Houghton and Norman Hay,

partially offset by the same decreases in SG&A described

in the second quarter description

above.

During the first six months of 2020, the Company incurred

$15.9 million of Combination, integration and other acquisition-

related expenses, primarily for professional fees related

to Houghton integration activities.

Comparatively,

the Company incurred

$9.1 million of expenses in the prior year,

primarily for integration planning and regulatory approval

for the Combination.

See the

Non-GAAP Measures section of this Item, above.

As described above,

the Company initiated

a restructuring program

during the third

quarter of 2019

as part of

its global plan

realize cost synergies

associated with

the Combination.

The Company recorded

additional restructuring

and related charges

of $2.2

million related to this

program during the first

six months of 2020

and there were no similar

restructuring charges recorded

during the

first six months of 2019.

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

During the first quarter of 2020, the Company recorded

a $38.0 million non-cash impairment charge to write

down the value of

certain indefinite-lived intangible assets associated with the

Combination.

This non-cash impairment charge is related to certain

acquired Houghton trademarks and tradenames and

is primarily the result of the current year negative impacts of

COVID-19 on their

estimated fair values.

There were no impairment charges in the second quarter

of 2020 or in the prior year.

See the Critical

Accounting Policies and Estimates section as well as the Non

-GAAP Measures section, of this Item, above.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Operating loss in the first six months of 2020 was $10.2

million compared to operating income of $40.4 million in the

first six

months of 2019.

Excluding the Combination, integration and other acquisition-related

charges, restructuring and related charges, the

non-cash indefinite-lived intangible asset impairment charge

and other non-core items, the Company’s

current year non-GAAP

operating income of $47.2 million decreased compared to

$49.8 million in the prior year, primarily

due to the negative impact on

volumes due to the impact of COVID-19, which more

than offset the added net sales and operating

income from Houghton and

Norman Hay and the benefits from cost savings related

to the Combination.

The Company’s other

expense, net, was $22.2 million in the first six months of 2020 compared

to $0.6 million in the prior year.

The year-over-year increase in other expense,

net was primarily due to the first quarter of 2020 non-cash pension

plan settlement

charge of $22.7 million associated with the

termination of the Legacy Quaker U.S. Pension Plan, described

in the Non-GAAP

Measures section of this Item, above.

Interest expense, net, increased $13.8 million in the first six months

of 2020 compared to the first six months of 2019 primarily

due to additional borrowings under the Company’s

term loans and revolving credit facility to finance the closing

of the Combination

on August 1, 2019.

The Company’s effective

tax rates for the first six months of 2020 and 2019 were a benefit

of 20.7% and an expense of 25.4%,

respectively.

The Company’s current year

effective tax rate was impacted by the tax effect

of certain one-time pre-tax costs as well as

certain one-time tax

charges and benefits in the current period including

those related to changes in foreign tax credit valuation

allowances, tax law changes, additional charges

taken for uncertain tax positions taken resulting from certain

foreign tax audits, and

the impact of the Company’s

termination of its Legacy Quaker U.S. Pension Plan.

Comparatively, the prior

year effective tax rate was

primarily impacted by certain non-deductible costs associated

with the Combination, partially offset by a favorable

shift in earnings to

entities with lower tax rates.

Excluding the impact of these items as well as all other non-core

items in each year, described in the

Non-GAAP Measures section of this Item, above,

the Company estimates that its first six months of 2020 and 2019

effective tax rates

would have been approximately 21% and 23%, respectively.

Equity in net income of associated companies increased $0.7 million

in the first six months of 2020 compared to the first six

months of 2019, primarily due to additional earnings

from Houghton’s 50% interest

in a joint venture in Korea partially offset by

lower earnings as compared to the prior year period from

the Company’s interest in

a captive insurance company.

See the Non-GAAP

Measures section of this Item, above.

Net income attributable to non-controlling interest was consistent

in both the first six months of 2020 and 2019.

Foreign exchange negatively impacted the Company’s

first six months of 2020 results by approximately $0.11

per diluted share,

primarily due to approximately $0.8 million higher foreign

exchange transaction losses year-over-year

as well as the negative impact

from foreign currency translation due to the strengthening

of the U.S. dollar in the current year period.

Reportable Segments Review - Comparison of the Second

Quarter of 2020 with the Second Quarter of 2019

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.

During the third quarter of 2019 and in connection with the Combination,

the Company reorganized its executive

management team to align with its new business structure

which reflects the method by which the Company assesses its

performance

and allocates its resources.

The Company’s current

reportable segment structure includes four 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 are not included in segment operating earnings,

such as certain corporate and administrative costs, Combination, integration

and other acquisition-related expenses, and Restructuring

and related charges.

Other items not specifically identified with the

Company’s reportable

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

net.

All prior period information has been recast to reflect

these four segments as the Company’s

new reportable segments.

See Note

4 of Notes to Condensed Consolidated Financial Statements,

which appears in Item 1 of this Report.

Americas

Americas represented approximately 28%

of the Company’s consolidated

net sales in the second quarter of 2020.

The segment’s

net sales were $80.6 million, an increase of $8.8 million

or 12% compared to the second quarter of 2019.

The increase in net sales

reflects the inclusion of Houghton net sales of $38.5

million.

Excluding Houghton net sales, the segment’s

net sales decrease quarter-

over-quarter of 41% was due to lower volumes of 38

and a negative impact of foreign currency translation of 5%, partially

offset by

increases in selling price and product mix of 2%.

The current quarter volume decline was driven by the economic slowdown

that

Quaker Chemical Corporation

Management’s Discussion and Analysis

began in late March and continued throughout the second

quarter due to the impacts of COVID-19.

The foreign exchange impact was

primarily due to the weakening of the Brazilian real and

the Mexican peso against the U.S. dollar,

as these exchange rates averaged

5.37 and 23.32, respectively,

in the second quarter of 2020 compared to 3.92 and 19.11,

respectively in the second quarter of 2019.

This segment’s operating

earnings were $10.3 million, a decrease of $3.7 million

or 26%

compared to the second quarter of 2019.

The decrease in segment operating earnings reflects the significant

decline in volumes due to the negative impact of COVID-19

which

also resulted in lower gross margins quarter

-over-quarter driven by certain fixed manufacturing

costs coupled with the lower volumes,

which more than offset the operating earnings from

Houghton in the current year quarter.

EMEA

EMEA represented approximately 27%

of the Company’s consolidated

net sales in the second quarter of 2020.

The segment’s

net sales were $77.7 million, an increase of $28.7 million

or 59%

compared to the second quarter of 2019.

The increase in net sales

reflects the inclusion of Houghton net sales of $40.2

million.

Excluding Houghton net sales, the segment’s

net sales decrease quarter-

over-quarter of 23% was due to lower volumes of 25

and a negative impact of foreign currency translation of approximately

1%,

partially offset by increases in selling price and

product mix of 3%.

The current quarter volume decline was driven by the economic

slowdown that began in late March and continued throughout

the second quarter due to the impacts of COVID-19.

The foreign

exchange impact was primarily due to the weakening

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

averaged 1.10 in the

second quarter of 2020 compared to 1.12 in the second

quarter of 2019.

This segment’s operating earnings

were $10.2 million, an

increase of $1.3 million or 15% compared to the second

quarter of 2019,

which reflects the inclusion of Houghton net sales, partially

offset by lower gross margins quarter

-over-quarter as a result of fixed manufacturing costs coupled

with lower volumes, as well as

higher SG&A, including Houghton SG&A.

Asia/Pacific

Asia/Pacific represented approximately 24%

of the Company’s consolidated

net sales in the second quarter of 2020.

The

segment’s net sales were $68.4

million, an increase of $23.6 million or 53%

compared to the second quarter of 2019.

The increase in

net sales reflects the inclusion of Houghton net sales of

$32.9 million.

Excluding Houghton net sales, the segment’s

net sales decrease

of 21%

quarter-over-quarter was driven by lower volumes of 20

and a negative impact of foreign currency translation of 3%,

partially offset by increases in selling price and

product mix of 2%.

The current quarter volume decline was driven by the economic

slowdown that began in the first quarter in China and

in late March throughout the region due to the impacts of COVID-19.

The

foreign exchange impact was primarily due to the weakening

of the Chinese renminbi against the U.S. dollar as this exchange

rate

averaged 7.09 in the second quarter of 2020 compared to

6.82 in the second quarter of 2019.

This segment’s operating earnings

were

$19.3 million, an increase of $7.1 million or 58% compared

to the second quarter of 2019.

The increase in segment operating earnings

reflects the inclusion of Houghton net sales and

relatively consistent gross margins,

partially offset by higher SG&A, including

Houghton SG&A.

Global Specialty Businesses

Global Specialty Businesses represented approximately

21% of the Company’s consolidated

net sales in the second quarter of

2020.

The segment’s net sales were $59.3

million, an increase of $19.0 million or 47%

compared to the second quarter of 2019.

The

increase in net sales reflects the inclusion of Houghton

and Norman Hay net sales of $30.9 million.

Excluding Houghton and Norman

Hay net sales, the segment’s

net sales would have decreased 29%

quarter-over-quarter driven by lower volumes of

21%, decreases in

selling price and product mix of 5% and a negative

impact from foreign currency translation of 3%.

The current quarter volume

decline was primarily due to a decrease in the Company’s

specialty coatings business driven by Boeing’s

decision to temporarily stop

production of the 737 Max aircraft and continued volume

declines due to the economic slowdown that began in

late March

and

continued throughout the second quarter

due to the impacts of COVID-

The foreign exchange impact was primarily due to the

weakening of the Brazilian real against the U.S. dollar

described in the Americas section, above.

This segment’s operating

earnings

were $16.4 million, an increase of $5.4 million or 49%

compared to the second quarter of 2019.

The increase in segment operating

earnings reflects the inclusion of Houghton and Norman

Hay net sales, as well as slightly higher gross margin

due to price and product

mix, including higher Houghton and Norman Hay

gross margin compared to Legacy Quaker,

partially offset by higher SG&A,

including Houghton and Norman Hay.

Reportable Segments Review - Comparison of the First Six

Months of 2020 with the First Six Months of 2019

Americas

Americas represented approximately 32%

of the Company’s consolidated

net sales in the first six months of 2020.

The segment’s

net sales were $210.5 million, an increase of $66.5

million or 46%

compared to the first six months of 2019.

The increase in net sales

reflects the inclusion of Houghton net sales of $101.3

million.

Excluding Houghton net sales, the segment’s

net sales decrease year-

over-year of 24%

was due to lower volumes of 21% and a negative impact of foreign

currency translation of 4%, partially offset by

increases in selling price and product mix of 1%.

The current year volume decline was driven by the economic slowdown

that began

in late March and continued throughout the second

quarter due to the impacts of COVID-19.

The foreign exchange impact was

Quaker Chemical Corporation

Management’s Discussion and Analysis

primarily due to the weakening of the Brazilian real and

the Mexican peso against the U.S. dollar,

as these exchange rates averaged

4.85 and 21.41, respectively,

in the first six months of 2020 compared to 3.84 and 19.16, respectively

in the first six months of 2019.

This segment’s operating

earnings were $39.5 million, an increase of $11.2

million or 40% compared to the first six months of 2019.

The increase in segment operating earnings reflects the

including of Houghton net sales, partially offset by

lower gross margins and

higher SG&A, including Houghton SG&A.

EMEA

EMEA represented approximately 27% of the Company’s

consolidated net sales in the first six months of 2020.

The segment’s

net sales were $182.5 million, an increase of $81.1

million or 80%

compared to the first six months of 2019.

The increase in net sales

reflects the inclusion of Houghton net sales of $98.1

million.

Excluding Houghton net sales, the segment’s

net sales decrease year-

over-year of 17%

was due to lower volumes of 15% and a negative impact of foreign

currency translation of 2%, partially offset by

increases in selling price and product mix of less than

1%.

The current year volume decline was driven by the

economic slowdown

that began in late March due to the impacts of COVID-19

and an overall reduced production in certain EMEA countries that

began in

the second half of 2019 and continued into 2020.

The foreign exchange impact was primarily due to the weakening

of the euro against

the U.S. dollar as this exchange rate averaged 1.10 in the

first six months of 2020 compared to 1.13 in the first six months of

2019.

This segment’s operating

earnings were $28.6 million, an increase of $10.9

million or 61% compared to the first six months of 2019.

The increase in segment operating earnings reflects the

including of Houghton net sales, partially offset by

lower gross margins and

higher SG&A, including Houghton SG&A.

Asia/Pacific

Asia/Pacific represented approximately 21% of the

Company’s consolidated net

sales in the first six months of 2020.

The

segment’s net sales were $142.0

million, an increase of $51 million or 56% compared to

the first six months of 2019.

The increase in

net sales reflects the inclusion of Houghton net sales of

$66.6 million.

Excluding Houghton net sales, the segment’s

net sales decrease

of 17%

year-over-year was driven by lower volumes

of 15%

and a negative impact of foreign currency translation of 3%, partially

offset by increases in selling price and product

mix of 1%.

The current quarter volume decline was driven by

the economic slowdown

that began in the first quarter in China and in late March

throughout the region due to the impacts of COVID-19.

The foreign

exchange impact was primarily due to the weakening

of the Chinese renminbi against the U.S. dollar as this exchange

rate averaged

7.03 in the first six months of 2020 compared to

6.78 in the first six months of 2019.

This segment’s operating earnings

were $38.8

million, an increase of $13.8 million or 55% compared

to the first six months of 2019.

The increase in segment operating earnings

reflects the including of Houghton net sales, partially

offset by lower gross margins and higher SG&A,

including Houghton SG&A.

Global Specialty Businesses

Global Specialty Businesses represented approximately

20% of the Company’s consolidated

net sales in the first six months of

2020.

The segment’s net sales were $129.6

million, an increase of $48.9 million or 61% compared to the

first six months of 2019.

The increase in net sales reflects the inclusion of Houghton

and Norman Hay net sales of $66.8 million.

Excluding Houghton and

Norman Hay net sales, the segment’s

net sales would have decreased 22% year-over-year

driven by lower volumes of 7%, decreases

in selling price and product mix of 12% and a negative

impact from foreign currency translation of 3%.

The current year volume

decline was primarily due to a decrease in the Company’s

specialty coatings business driven by Boeing’s

decision to temporarily stop

production of the 737 Max aircraft and continued volume

declines due to the economic slowdown that began in

late March due to the

impacts of COVID-19.

Partially offsetting these volume declines, and contributing

to the

decrease in selling price and product mix

were higher shipments of a lower priced product in the

Company’s mining business compared

to the prior year.

The foreign exchange

impact was primarily due to the weakening of the

Brazilian real against the U.S. dollar described in the Americas

section, above.

This

segment’s operating earnings

were $37.0 million, an increase of $15.4 million or 71%

compared to the first six months of 2019.

The

increase in segment operating earnings reflects the

inclusion of Houghton and Norman Hay net sales, as well as slightly higher

gross

margin due to price and product mix, including

higher Houghton and Norman Hay gross margin

compared to Legacy Quaker, partially

offset by higher SG&A, including Houghton and

Norman Hay

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

Securities and Exchange Commission (“SEC”) (as well as information

included in oral statements or other written statements made

to be made by us) contain or may contain forward-looking

statements within the meaning of Section 27A of the Securities Act

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

Act of 1934, as amended.

These statements can be identified by the

fact that they do not relate strictly to historical or

current facts.

We have based

these forward-looking statements, including statements

regarding the potential effects of the COVID-19

pandemic on the Company’s

business, results of operations, or financial condition

and our expectations to maintain sufficient

liquidity and remain compliant with the terms of the Company’s

credit facility on our

current expectations about future events.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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;

•

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

pandemic and any projected global economic rebound

anticipated positive results due to Company actions taken

in response to the pandemic;

•

our current and future results and plans; and

•

statements that include the words “may,”

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

“intend,” “plan” or similar expressions.

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 2019

Form 10-K 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 consequence

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 shutdowns.

Other major risks and uncertainties include, but are not

limited to, the primary and secondary impacts of the COVID-19

pandemic, including actions taken in response to the pandemic by

various governments, which could exacerbate some

or all of the other risks and uncertainties faced by the Company,

including the

potential for significant increases in raw material costs, supply

chain disruptions, customer financial stability,

worldwide economic

and political conditions, foreign currency fluctuations,

significant changes in applicable tax rates and regulations, future

terrorist

attacks and other acts of violence.

Furthermore, the Company is subject to the same business cycles as those

experienced by steel,

automobile, aircraft, industrial equipment, and durable

goods manufacturers.

The ultimate significance of COVID-19 on our business

will depend on, among other things, the extent and

duration of the pandemic, the severity of the disease and

the number of people

infected with the virus, the effects on the economy

by the pandemic, including the resulting market volatility,

and by the measures

taken by governmental authorities and other third

parties restricting day-to-day life and business operations and

the length of time that

such measures remain in place, and governmental programs

implemented to assist businesses impacted by the COVID-19 pandemic.

Other factors could also adversely affect us, including

those related to the Combination and other acquisitions and

the integration of

the combined company as well as other acquired businesses.

Our forward-looking statements are subject to risks, uncertainties

and

assumptions about the Company and its operations that

are subject to change based on various important factors, some

of which are

beyond our control.

These risks, uncertainties, and possible inaccurate assumptions relevant

to our business could cause our actual

results to differ materially from expected

and historical results.

Therefore, we caution you not to place undue reliance

on our forward-looking statements.

For more information regarding these

risks and uncertainties as well as certain additional

risks that we face, refer to the Risk Factors section, which appears

in Item 1A of

this Report, as well as Item 1A in our 2019 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.

Item 3.

Quantitative and Qualitative Disclosures About Market

Risk.

Quaker Houghton is exposed to the impact of interest

rates, foreign currency fluctuations, changes in commodity prices

and credit

risk.

The current economic environment associated with COVID-19

has led to significant volatility and uncertainty with each of

these

market risks.

Other than the impact of the COVID-19 pandemic on market

risks generally, we believe

there has been no other

material change to the information disclosed in Part II,

Item 7A, of our 2019 Form 10-K.

See Item 1A, “Risk Factors”, of this Report

for additional discussion of the current and potential risks associated

with the COVID-19 pandemic.

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 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 not effective

as of June 30, 2020 because of the material weaknesses in our

internal control

over financial reporting, as described below.

As previously disclosed in “Item 9A. Controls and Procedures.”

in the Company’s 2019

Form 10-K, through the process of

evaluating risks and corresponding changes to the

design of existing or the implementation of new controls

in light of the significant

non-recurring transactions that occurred during 2019,

including the Combination, the Company identified certain deficiencies in

its

application of the principles associated with the Committee

of Sponsoring Organization of the Treadway

Commission in Internal

Control – Integrated Framework (2013) that management

has concluded in the aggregate constitute a material weakness.

A material

weakness is a deficiency,

or combination of deficiencies, in internal control over financial reporting,

such that there is a reasonable

possibility that a material misstatement of annual or interim

financial statements will not be prevented or detected on

a timely basis.

Specifically, management

concluded that changes to existing controls or the implementation

of new controls were not sufficient to

respond to changes to the risks of material misstatement to

financial reporting.

As a result of this deficiency in the design and

implementation of an effective risk assessment, this material

weakness contributed to certain control deficiencies that

management

concluded result in the following additional material weaknesses: (i)

we did not design and maintain effective

controls over the review

of pricing, quantity and customer data to verify that revenue

recognized at certain locations was complete and

accurate, and (ii) we did

not design and maintain effective controls

over the reliability of data used to support the reasonableness of

certain assumptions in the

accounting for business combinations.

Notwithstanding these material weaknesses, the Company

has concluded that the unaudited condensed consolidated financial

statements included in this Report present fairly,

in all material respects, the financial position of the Company as of

June 30, 2020

and December 31, 2019, and the results of its operations and

its cash flows and changes in equity for both the three and six

month

periods ended June 30, 2020 and 2019, are in conformity

with accounting principles generally accepted in the United States of

America.

However, these control deficiencies

could have resulted in misstatements of interim condensed consolidated

financial

statements and disclosures that could have resulted

in a material misstatement that would

not be prevented or detected.

Remediation Plan Activities.

As previously disclosed in “Item 9A. Controls and Procedures.”

in the Company’s 2019

Form 10-K,

the Company and its Board of Directors are committed

to maintaining a strong internal control environment.

During the first six

months of 2020, management began developing its full remediation

plan and executing what will be a multi-step remediation process

to completely and fully remediate the material weaknesses identified

and described above.

The initial steps the Company has taken

include identifying dedicated internal resources supplemented

with third-party specialists to assist with formalizing a robust and

detailed remediation plan and specifically completing

an updated risk assessment, including identifying and assessing

those risks

attendant to the significant changes within the Company

as a result of becoming a larger,

more complex global organization as a result

of the Combination.

The Company is conducting a comprehensive review,

and, as appropriate, is updating its existing internal control

framework to ensure that it has identified, developed

and deployed the appropriate business process and information

technology

general controls to meet the objectives and address the risks

identified through the updated risk assessment process.

In undertaking

this process, the Company is identifying and will be

implementing further modifications to strengthen its internal

control environment.

It is the Company’s

goal to remediate all of the previously identified material weaknesses as

quickly and effectively as possible,

however, the impact of COVID-19,

including travel restrictions and remote work arrangements has

presented and is expected to

continue to present challenges with regards to the timing

of the Company’s remediation

plan activities.

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, 2020

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,

2020.

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

19 of the Notes to the Condensed Consolidated Financial

Statements in Part

I, Item 1, of this Report.

Item 1A. Risk Factors.

In addition to the other information set forth in this Report,

you should carefully consider the risk set forth below,

which updates

the risk factors previously disclosed in Part I, Item 1A

of our 2019 Form 10-K, as well as the other risk factors

described in the 2019

Form 10-K, which could materially affect

our business, financial condition or future results.

The risk described below,

and the risks

described in our 2019 Form 10-K are not the only risks we

face.

Additional risks and uncertainties not currently known

to us or that

we currently deem to be immaterial also may materially

and adversely affect our business, financial condition

or operating results.

The outbreak of COVID-19 and its impact on business and

economic conditions have negatively affected

our business, results of

operations and financial condition and the extent and

duration of those effects is uncertain.

Beginning in early 2020, there has been an outbreak

of COVID-19, initially in China and which has spread

globally, including

generally all locations where the Company does business.

In March 2020, the World

Health Organization formally identified the

COVID-19 outbreak as a pandemic.

The COVID-19 pandemic, including the fear of exposure

to and the actual effects of the illness,

together with the measures implemented to reduce its spread,

including travel restrictions, shutdowns of businesses deemed

nonessential, and large gatherings and shelter

-in-place or similar orders, have significantly impacted the global

economy.

The

pandemic has disrupted global supply chains, lowered

equity market valuations, created significant volatility and disruption

financial markets, and increased unemployment levels.

In addition, it has resulted in temporary closures of many businesses, and

although many of the businesses have subsequently re-opened,

they may be operating at reduced capacity,

while other closures may be

prolonged or become permanent.

The scale and scope of the COVID-19 outbreak, the resulting

pandemic, and the primary and secondary impacts on

the economy

and financial markets have had a significant disruption

on the operations of the Company and its suppliers and

customers and have

adversely affected the Company’s

results of operations and financial condition during the first six months

of 2020 as further described

in Management’s Discussion and

Analysis of Financial Condition and Results of Operations included

in this Report.

The Company

has experienced disruptions as a result of COVID-19,

first at its China subsidiaries in the first quarter of 2020

and subsequently,

particularly beginning late March and continuing into the

second quarter of 2020, throughout the rest of the business due

to the global

economic slowdown.

We have experienced,

and may experience in the future, temporary site or facility closures

at our own facilities

or those of our customers in response to government mandates

in certain jurisdictions in which we operate.

We may also be required

to close certain of our facilities for the safety of our

employees in response to positive diagnoses for COVID-19.

Even in facilities that

are not closed, we could be affected by reductions

in employee availability and productivity,

changes in operating procedures, and

increased costs

The Company anticipates that its future results of operations,

including the results for the remainder of 2020 may

continue to be adversely impacted by COVID-19.

In particular, the spread of COVID-19

and efforts to contain the virus have had the

following additional effects, which are likely

to increase or become exacerbated the longer the crisis continues:

●

reduced the demand for our products and services as many

customers have reduced production levels;

●

driven declines in volume and net sales across all reportable

segments;

●

required us to adjust certain of our facility operating procedures

and to take steps to reduce costs and preserve liquidity;

and

●

negatively affected the estimated fair value of

certain of the Company’s reporting

units or other indefinite-lived or long-lived

assets, namely the Company’s

Houghton and Fluidcare trademark and tradename indefinite-lived

intangible assets, such that

their estimated fair values were less than their carrying

values and required adjustments.

The spread of COVID-19, a prolonged outbreak,

and efforts to contain the virus in some cases have already

or could in the future

also:

●

limit the availability and reduce the productivity of our

employees;

●

impact our financial reporting systems and processes, internal control

over financial reporting, and disclosure controls and

procedures, including our ability to ensure information

required to be disclosed in our reports under the Exchange Act

recorded, processed, summarized and reported within the

time periods specified in the SEC’s rules

and forms and that such

information is accumulated and communicated to our

management, including our chief executive officer

and chief financial

officer, as appropriate,

to allow for timely decisions regarding required disclosure;

●

present challenges as a result of travel restrictions and remote work

arrangements, including the timing of our ERP system

implementations which are an integral part of our integration

activities; the timing of the Company’s

remediation plan

activities as described in Item 4 Controls and Procedures, of

this Report; and the Company’s

first year assessment of internal

control over financial reporting for Houghton and Norman

Hay, including the

implementation of new or enhanced business

process and information technology general controls,

as necessary, to meet the

objectives and address the risks identified

once the Company completes its initial design assessment;

●

increase our costs as a result of emergency

measures that we may take or that may be imposed on us by regulatory

authorities;

●

cause a delay in customer payments or cause a deterioration

of the credit quality of other counterparties that could

result in

credit losses or force both customer and supplier bankruptcies;

●

cause delays and disruptions in the availability of and timely

delivery of materials and components used in our operations;

●

result in our inability to meet the requirements of the covenants

in our existing credit facility,

including covenants regarding

our consolidated interest coverage ratio and consolidated

net leverage ratio, or increase our cost of capital or make additional

capital, including the refinancing of our credit facility,

more difficult or available only on terms less favorable

to us;

●

impact our liquidity position and cost of and ability to access funds

from financial institutions and capital markets;

●

negatively affect the estimated fair values of the

Company’s reporting units or other

indefinite-lived or long-lived assets; and

●

cause other risks to impact us, including the risks described

in the “Risk Factors” section of the 2019 Form 10-K.

While the Company has implemented business continuity

and emergency response plans to permit it to continue

to provide

services and products to customers and support the

Company’s operations, while also taking

health and safety measures such as

implementing worker distancing measures, enhancing

on-site hygiene measures, and using a remote workforce where

possible, there

can be no assurance that the continued spread of COVID-19 and

efforts to contain the virus (including, but not limited

to, voluntary

and mandatory quarantines, restrictions on travel, limiting

gatherings of people, and reduced operations and extended

closures of

many businesses and institutions) will not further impact

our business, results of operations and financial condition.

However, given

the unprecedented and continually evolving developments

with respect to this pandemic, the Company cannot, as of the

date of this

Report, reasonably estimate the magnitude or full extent

of the impact to its future results of operations or to the

ability of it or its

customers to resume more normal operations.

A further prolonged outbreak or resurgence and period

of continued restrictions on day-

to-day life and business operations would likely result in

volume declines and lower net sales for later periods in 2020

as well, when

compared to the prior year.

The ultimate significance of COVID-19 on our business

will depend on, among other things, the extent and duration

of the

pandemic, the severity of the disease and the number

of people infected with the virus, the ultimate geographic

spread of the virus, the

effects on the economy by the pandemic,

including market volatility, and

by the measures taken by governmental authorities and other

third parties restricting day-to-day life and the length

of time that such measures remain in place, and laws or government

al programs

implemented to assist businesses impacted by the COVID-19

pandemic, such as fiscal stimulus and other legislation designed

deliver monetary aid and other relief.

The likelihood of a further impact on the Company that could

be material increases the longer

the virus impacts economic activity levels in the United

States and across the world.

Item 2.

Unregistered Sales of Equity Securities and Use of

Proceeds.

Recent Sales of Unregistered

Securities

On May 7, 2020, the Company acquired Tel

Nordic ApS (“TEL”), a company that specializes in lubricants and

engineering

primarily in high pressure aluminum die casting for

its EMEA reportable segment.

Consideration paid was in the form of a

convertible promissory note in the amount of 20

.0 million DKK, or approximately $2.9 million, that was subsequently

converted on

May 20, 2020 into 17,894 shares of the Company’s

common stock based on the closing market price of the common

stock on May 19,

2020, as reported on the New York

Stock Exchange, and the conversion rate of Danish Kroner into

U.S. dollars as reported on that

day in the Wall

Street Journal.

The issuance of the convertible promissory note and the

shares issued thereunder were made in a

private placement transaction in reliance upon Regulation

D promulgated under the Securities Act of 1933, as amended,

based on the

written representations from TEL regarding its “accredited

investor” status as defined in Rule 501 of Regulation D.

The Company

subsequently registered the resale by the holder of these

shares under the Securities Act of 1933, as amended.

Purchases of Equity Securities by

the Company

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

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

—

86,865,026

May 1 - May 31

159.15

—

86,865,026

June 1 - June 30

3,858

189.73

—

86,865,026

Total

3,930

189.17

—

86,865,026

(1)

All of these shares were acquired from employees upon

their surrender of Quaker Chemical Corporation shares in payment

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.

(2)

The price paid for shares acquired from employees pursuant

to employee benefit and share-based compensation

plans is, in

each case, 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 or restricted

stock 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 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, 2020.

Limitation on the Payment of Dividends

The New Credit Facility has limitations on the payment

of dividends and other so-called restricted payments.

See Note 15 of

Notes to Condensed Consolidated Financial Statements, in

Part I, Item I, of this Report.

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.

4.1

–

Convertible Note, dated May 7, 2020, by and among Quaker Chemical Corporation, TEL Nordic Holding ApS, and Lars

Skogstad-Jensen. Incorporated by reference to Exhibit 4.3 as filed by Registrant on Form S-3 on May 19. 2020.

10.1

–

Amendment No 2, effective February 10, 2020, to the Quaker Houghton Retirement Savings Plan.*†

10.2

–

Amendment No 3, effective April 17, 2020, to the Quaker Houghton Retirement Savings Plan.*†

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

Extension Schema Document*

101.CAL

–

Inline XBRL Taxonomy

Extension Calculation Linkbase Document*

101.DEF

–

Inline XBRL Taxonomy

Extension Definition Linkbase Document*

101.LAB

–

Inline XBRL Taxonomy

Extension Label Linkbase Document*

101.PRE

–

Inline XBRL Taxonomy

Extension 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/ Mary Dean Hall

Date: August 5, 2020

Mary Dean Hall, Senior Vice President,

Chief Financial

Officer and Treasurer

(officer duly authorized on behalf

of, and principal financial officer of, the Registrant)

Quaker Houghton - 10-Q quarterly report FY2020 Q2

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