Quaker Houghton - 10-Q quarterly report FY2021 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, 2021

☐

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 July 31, 2021

17,878,247

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, 2021 and June 30, 2020

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

30, 2020

Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and June 30, 2020

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,

2021

2020

2021

2020

Net sales

435,262

286,040

865,045

664,601

Cost of goods sold (

excluding amortization expense - See Note 14

)

280,811

188,654

554,400

433,364

Gross profit

154,451

97,386

310,645

231,237

Selling, general and administrative expenses

108,679

86,667

212,989

185,368

Indefinite-lived intangible asset impairment

—

38,000

Restructuring and related charges

298

486

1,473

2,202

Combination, integration and other acquisition-related

expenses

6,658

7,995

12,473

15,873

Operating income (loss)

38,816

2,238

83,710

(10,206)

Other income (expense), net

14,010

(993)

18,697

(22,168)

Interest expense, net

(5,618)

(6,811)

(11,088)

(15,272)

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

associated companies

47,208

(5,566)

91,319

(47,646)

Taxes on income

(loss) before equity in net income of associated

companies

15,218

3,222

25,907

(9,848)

Income (loss) before equity in net income of associated

companies

31,990

(8,788)

65,412

(37,798)

Equity in net income of associated companies

1,610

1,066

6,820

1,732

Net income (loss)

33,600

(7,722)

72,232

(36,066)

Less: Net income attributable to noncontrolling interest

Net income (loss) attributable to Quaker Chemical Corporation

33,570

(7,735)

72,185

(36,116)

Per share data:

Net income (loss) attributable to Quaker Chemical Corporation

common shareholders – basic

1.88

(0.43)

4.04

(2.03)

Net income (loss) attributable to Quaker Chemical Corporation

common shareholders – diluted

1.88

(0.43)

4.03

(2.03)

Dividends declared

0.395

0.385

0.790

0.770

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

Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Dollars in thousands)

Unaudited

Three Months Ended

Six Months Ended

June 30,

2021

2020

2021

2020

Net income (loss)

33,600

(7,722)

72,232

(36,066)

Other comprehensive income (loss), net of tax

Currency translation adjustments

16,165

10,551

(9,296)

(44,200)

Defined benefit retirement plans

397

213

1,689

17,170

Current period change in fair value of derivatives

452

(111)

1,014

(4,092)

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

279

1,608

(2,746)

(103)

Other comprehensive income (loss)

17,293

12,261

(9,339)

(31,225)

Comprehensive income (loss)

50,893

4,539

62,893

(67,291)

Less: Comprehensive (income) loss attributable to

noncontrolling interest

(38)

(14)

(53)

Comprehensive income (loss) attributable to Quaker Chemical

Corporation

50,855

4,525

62,840

(67,210)

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,

2021

2020

ASSETS

Current assets

Cash and cash equivalents

145,610

181,833

Accounts receivable, net

418,642

372,974

Inventories

Raw materials and supplies

116,491

86,148

Work-in-process

and finished goods

126,318

101,616

Prepaid expenses and other current assets

60,844

50,156

Total current

assets

867,905

792,727

Property, plant and

equipment, at cost

424,360

423,253

Less accumulated depreciation

(229,919)

(219,370)

Property, plant and

equipment, net

194,441

203,883

Right of use lease assets

36,160

38,507

Goodwill

633,449

631,212

Other intangible assets, net

1,068,795

1,081,358

Investments in associated companies

98,013

95,785

Deferred tax assets

13,392

16,566

Other non-current assets

32,664

31,796

Total assets

2,944,819

2,891,834

LIABILITIES AND EQUITY

Current liabilities

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

48,079

38,967

Accounts and other payables

219,617

198,872

Accrued compensation

33,399

43,300

Accrued restructuring

5,278

8,248

Other current liabilities

94,061

93,573

Total current

liabilities

400,434

382,960

Long-term debt

847,154

849,068

Long-term lease liabilities

25,668

27,070

Deferred tax liabilities

181,264

192,763

Other non-current liabilities

114,898

119,059

Total liabilities

1,569,418

1,570,920

Commitments and contingencies (Note 19)

Equity

Common stock $

par value; authorized

30,000,000

shares; issued and

outstanding 2021 –

17,878,137

shares; 2020 –

17,850,616

17,878

17,851

Capital in excess of par value

910,862

905,171

Retained earnings

482,001

423,940

Accumulated other comprehensive loss

(35,943)

(26,598)

Total Quaker

shareholders’ equity

1,374,798

1,320,364

Noncontrolling interest

603

550

Total equity

1,375,401

1,320,914

Total liabilities and

equity

2,944,819

2,891,834

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,

2021

2020

Cash flows from operating activities

Net income (loss)

72,232

(36,066)

Adjustments to reconcile net income (loss) to net cash (used

in) provided by operating activities:

Amortization of debt issuance costs

2,375

Depreciation and amortization

44,188

42,079

Equity in undistributed earnings of associated companies,

net of dividends

(6,715)

3,219

Acquisition-related fair value adjustments related to inventory

801

229

Deferred compensation, deferred taxes and other,

net

(13,849)

(22,033)

Share-based compensation

6,134

7,673

(Gain) loss on disposal of property,

plant, equipment and other assets

(5,356)

Insurance settlement realized

—

(542)

Indefinite-lived intangible asset impairment

—

38,000

Combination and other acquisition-related expenses, net of

payments

(2,305)

1,860

Restructuring and related charges

1,473

2,202

Pension and other postretirement benefits

(2,223)

18,784

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

current

liabilities, net of acquisitions:

Accounts receivable

(47,252)

61,659

Inventories

(57,020)

(3,689)

Prepaid expenses and other current assets

(20,111)

(2,849)

Change in restructuring liabilities

(4,214)

(9,592)

Accounts payable and accrued liabilities

22,274

(58,728)

Net cash (used in) provided by operating activities

(9,568)

44,662

Cash flows from investing activities

Investments in property,

plant and equipment

(6,974)

(7,534)

Payments related to acquisitions, net of cash acquired

(29,424)

(3,132)

Proceeds from disposition of assets

14,744

Insurance settlement interest earned

—

Net cash used in investing activities

(21,654)

(10,618)

Cash flows from financing activities

Payments of term loan debt

(19,065)

(18,702)

Borrowings on revolving credit facilities, net

29,433

205,500

Repayments on other debt, net

(219)

(684)

Dividends paid

(14,113)

(13,662)

Stock options exercised, other

(416)

(1,923)

Purchase of noncontrolling interest in affiliates

—

(1,047)

Distributions to noncontrolling affiliate shareholders

—

(751)

Net cash (used in) provided by financing activities

(4,380)

168,731

Effect of foreign exchange rate changes on

cash

(683)

(4,575)

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

cash

(36,285)

198,200

Cash, cash equivalents and restricted cash at the beginning

of the period

181,895

143,555

Cash, cash equivalents and restricted cash at the end of

the period

145,610

341,755

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 – Basis of Presentation and Description of Business

Basis of Presentation

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

six months ended June 30, 2021 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,

2020 (the “2020 Form 10-K”).

Description of Business

The Company was organized in 1918, incorporated

as a Pennsylvania business corporation in 1930, and in August

2019

completed the Combination with Houghton to form

Quaker Houghton.

Quaker Houghton is the global leader in industrial process

fluids.

With a presence around the world,

including operations in over

countries, the Company’s customers

include thousands of

the world’s most advanced

and specialized steel, aluminum, automotive, aerospace,

offshore, can, mining, and metalworking

companies.

Quaker Houghton develops, produces, and markets a broad range

of formulated chemical specialty products and offe

chemical management services (which the Company refers

to as “Fluidcare”) for various heavy industrial and manufacturing

applications throughout its

four

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

Asia/Pacific; and Global Specialty

Businesses.

Hyper-inflationary economies

Based on various indices or index compilations being

used to monitor inflation in Argentina as well as economic

instability,

effective July 1, 2018, Argentina’s

economy was considered hyper-inflationary under U.S.

GAAP.

As of, and for the three and six

months ended June 30, 2021, 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, 2021, the Company

recorded $

0.1

million and $

0.3

million,

respectively, of remeasurement

losses associated with the applicable currency conversions related

to Argentina.

Comparatively,

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.

These losses were

recorded within foreign exchange losses, net, which

is a component of other income (expense), net, in the Company’s

Condensed

Consolidated Statements of Operations.

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.

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 Quarterly Report on Form 10-Q for the

period ended June 30, 2021 (the “Report”) as COVID-19

and the responses of

governmental authorities continue to evolve globally.

Further, management continues to

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

work arrangements, affect

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 control over financial reporting,

and disclosure

controls and procedures.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

The Company cannot reasonably estimate the magnitude

of the effects these conditions will have on the Company’s

operations in

the future as they are subject to significant uncertainties

relating to the ultimate geographic spread of the virus,

the incidence and

severity of the symptoms, the duration or resurgences

of the outbreak including the impact of new variants, the global

availability and

acceptance of vaccines as well as their efficacy,

the length of the travel restrictions and business closures imposed by

governments of

impacted countries, and the economic response by governments

of impacted countries, all of which continue to evolve.

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.

Note 2 – Business Acquisitions

2021 Acquisitions

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

maskants product line in the Global Specialty Businesses

reportable segment for

2.3

million EUR or approximately $

2.8

million.

The Company accounted for the acquisition using the asset

acquisition method under ASC 805,

Business Combinations

In February 2021, the Company acquired a tin-plating

solutions business for the steel end market for approximately $

million.

This acquisition is part of each of the Company’s

geographic reportable segments.

The Company allocated $

19.6

million of the

purchase price to intangible assets, comprised of $

18.3

million of customer relationships, to be amortized over

19 years

; $

0.9

million

of existing product technology to be amortized over

14 years

; and $

0.4

million of a licensed trademark to be amortized over

3 years

In addition, the Company recorded $

5.0

million of goodwill related to expected value not allocated

to other acquired assets, all of

which is expected to be tax deductible.

As of June 30, 2021, the allocation of the purchase price 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.

Additionally, in February

2021, the Company acquired a

% ownership interest in a Germany-based, high-tech

provider of

coolant control and delivery systems for approximately

1.4

million EUR or approximately $

1.7

million.

The Company recorded this

investment as an equity method investment within

the Condensed Consolidated Financial Statements.

The results of operations of the acquired assets and businesses subsequent

to the respective acquisition dates are included in the

Condensed Consolidated Statements of Operations as of June

30, 2021.

Applicable transaction expenses associated with these

acquisitions are included in Combination, integration

and other acquisition-related expenses in the Company’s

Condensed

Consolidated Statements of Operations.

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

operations of the acquired

assets and businesses are not considered material to the

overall operations of the Company for the periods presented.

Previous Acquisitions

In December 2020,

the Company completed its acquisition of Coral Chemical Company

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

provider of metal finishing fluid solutions.

The acquisition provides technical expertise and product solutions

for pre-treatment,

metalworking and wastewater treatment applications

to the beverage cans and general industrial end markets.

The original purchase

price was approximately $

54.1

million, subject to routine and customary post-closing adjustments related

to working capital and net

indebtedness levels.

The Company anticipates finalizing its post-closing adjustments

for the Coral acquisition during 2021 and

currently estimates it will receive approximately $

0.1

million to settle such adjustments.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

The following table presents the preliminary estimated fair

values of Coral net assets acquired:

Measurement

December 22,

Period

2020

2020 (1)

Adjustments

(as adjusted)

Cash and cash equivalents

958

—

958

Accounts receivable

8,473

—

8,473

Inventories

4,527

—

4,527

Prepaid expenses and other assets

181

—

181

Property, plant and

equipment

10,467

652

11,119

Intangible assets

30,300

(500)

29,800

Goodwill

2,814

270

3,084

Total assets purchased

57,720

422

58,142

Long-term debt including current portions and finance leases

183

556

739

Accounts payable, accrued expenses and other accrued

liabilities

3,482

—

3,482

Total liabilities assumed

3,665

556

4,221

Total consideration

paid for Coral

54,055

(134)

53,921

Less: estimated purchase price settlement

—

(134)

Less: cash acquired

958

—

958

Net cash paid for Coral

53,097

—

53,097

(1) As previously disclosed in the Company’s

2020 Form 10-K

Measurement period adjustments recorded during the first

six months of 2021 include certain adjustments related

to refining

original estimates for assets and liabilities for certain

acquired finance leases, as well the adjustment to reflect the expected

settlement

of post-closing working capital and net indebtedness true

ups to the original purchase price.

As of June 30, 2021,

the allocation of the

purchase price for Coral 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 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

17 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.

As of June 30, 2021, the allocation of the purchase price of TEL

was finalized and the

one year

measurement period ended.

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

Europe, Middle East and Africa (“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 noncontrolling interest in Capital in

excess of par value.

In October 2019, the Company completed its acquisition

of the operating divisions of Norman Hay plc (“Norman

Hay”), a private

U.K. company that provides specialty chemicals, operating

equipment, and services to industrial end markets.

The original purchase

price was

80.0

million GBP,

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

and customary post-closing adjustments related to

working capital and net indebtedness levels.

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.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards

Adopted

The Financial Accounting Standards Board (“FASB”)

issued Account Standards Update (“ASU”)

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.

The Company

adopted this standard on a prospective basis, effective

January 1, 2021.

There was no cumulative effect of adoption recorded

within

retained earnings on January 1, 2021.

The FASB issued

ASU 2020-04,

Reference Rate Reform (Topic

848): Facilitation of the Effects of Reference Rate

Reform on

Financial Reporting

in March 2020.

The FASB subsequently

issued ASU 2021-01,

Reference Rate Reform (Topic

848): Scope

January 2021 which clarified the guidance but did

not materially change the guidance or its applicability to

the Company.

The

amendments provide temporary optional expedients and

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

hedging

relationships and other transactions to ease the potential

accounting and financial reporting burden associated with transitioning

away

from reference rates that are expected to be discontinued,

including the London Interbank Offered Rate (“LI

BOR”).

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, 2021, the

expedients provided in ASU 2020-04 do not presently

impact the Company; however, the Company

will continue to monitor for

potential impacts on its consolidated financial statements.

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 chief operating

decision maker assesses the Company’s

performance.

The Company has

four

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

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

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 each of the Company’s

reportable segments are comprised of the segment’s

net sales less directly

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

and administrative expenses (“SG&A”).

Operating expenses not directly

attributable to the net sales of each respective segment,

such as certain corporate and administrative costs, Combination, integration

and other acquisition-related expenses, and Restructuring and related

charges, are not included in segment operating

earnings.

Other

items not specifically identified with the Company’s

reportable segments include interest expense, net and other

income (expense),

net.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

The following table presents information about the performance

of the Company’s reportable segments

for the three and six

months ended June 30, 2021 and 2020.

Certain immaterial reclassifications within the segment disclosures

for the three and six

months ended June 30, 2020 have been made to conform

with the Company’s current customer

industry segmentation.

Three Months Ended

Six Months Ended

June 30,

2021

2020

2021

2020

Net sales

Americas

139,673

80,576

274,544

210,472

EMEA

123,436

77,702

243,250

182,541

Asia/Pacific

91,559

68,421

188,265

141,973

Global Specialty Businesses

80,594

59,341

158,986

129,615

Total net sales

435,262

286,040

865,045

664,601

Segment operating earnings

Americas

33,648

10,303

65,882

39,491

EMEA

23,405

10,471

48,649

28,830

Asia/Pacific

23,227

19,261

50,705

38,802

Global Specialty Businesses

24,209

16,393

48,378

36,953

Total segment operating

earnings

104,489

56,428

213,614

144,076

Combination, integration and other acquisition-related

expenses

(6,658)

(7,995)

(12,473)

(15,873)

Restructuring and related charges

(298)

(486)

(1,473)

(2,202)

Fair value step up of acquired inventory sold

—

(226)

(801)

(226)

Indefinite-lived intangible asset impairment

—

(38,000)

Non-operating and administrative expenses

(43,077)

(32,045)

(84,069)

(70,496)

Depreciation

of corporate assets and amortization

(15,640)

(13,438)

(31,088)

(27,485)

Operating income (loss)

38,816

2,238

83,710

(10,206)

Other income (expense), net

14,010

(993)

18,697

(22,168)

Interest expense, net

(5,618)

(6,811)

(11,088)

(15,272)

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

associated companies

47,208

(5,566)

91,319

(47,646)

Inter-segment revenues for the three and six months

ended June 30, 2021 were $

2.4

million and $

5.7

million for Americas, $

6.3

million and $

15.1

million for EMEA, $

0.4

million and $

0.5

million for Asia/Pacific, and $

2.1

million and $

4.1

million for Global

Specialty Businesses, respectively.

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.

However, all inter-segment

transactions have been eliminated from

each reportable operating segment’s

net sales and earnings for all periods presented in the above

tables.

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.

significant portion of the Company’s

revenues are realized from the sale of process fluids and services

made directly to manufacturers

through its own employees and its Fluidcare programs,

with the balance being handled through distributors and

agents.

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.

The Company transferred third-party products under arrangements recognized

on a net reporting

basis of $

16.7

million and $

34.5

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

and $

6.2

million and $

18.7

million for the three and six months ended June 30,

2020, respectively.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

As previously disclosed in the Company’s

2020 Form 10-K, during 2020, 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 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.

Refer to the Company’s 2020

Form 10-K for additional information on the Company’s

revenue recognition policies,

including its practical expedients and accounting policy

elections.

Allowance for Doubtful Accounts

As previously disclosed in the Company’s

2020 Form 10-K, during 2020, the Company adopted, as required,

an accounting

standard update related to the accounting and disclosure

of credit losses effective January 1, 2020.

The Company recognizes an

allowance for credit losses, which represents the portion

of its trade accounts receivable that the Company does not expect

to collect

over the 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 receivables 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.

The Company does not have any off-balance-sheet

credit exposure related to its customers.

Contract Assets and Liabilities

The Company recognizes a contract asset or receivable

on its Condensed Consolidated Balance Sheet when the Company

performs a service or transfers a good 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 no material contract assets recorded on its Condensed

Consolidated Balance Sheets as of June 30, 2021 or December

31, 2020.

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 $

4.3

million and $

4.0

million of deferred

revenue as of June 30, 2021 and December 31, 2020,

respectively.

For the six months ended June 30, 2021, the Company satisfied

all

of the associated performance obligations and recognized

into revenue the advance payments received and recorded

as of December

31, 2020.

Disaggregated Revenue

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, 2021 and 2020.

Three Months Ended June 30, 2021

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

51,799

35,634

48,207

135,640

Metalworking and other

87,874

87,802

43,352

219,028

139,673

123,436

91,559

354,668

Global Specialty Businesses

46,183

21,678

12,733

80,594

185,856

145,114

104,292

435,262

Timing of Revenue Recognized

Product sales at a point in time

177,227

137,838

101,264

416,329

Services transferred over time

8,629

7,276

3,028

18,933

185,856

145,114

104,292

435,262

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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

Six Months Ended June 30, 2021

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

98,592

69,908

97,950

266,450

Metalworking and other

175,952

173,342

90,315

439,609

274,544

243,250

188,265

706,059

Global Specialty Businesses

91,439

41,950

25,597

158,986

365,983

285,200

213,862

865,045

Timing of Revenue Recognized

Product sales at a point in time

348,821

269,000

207,663

825,484

Services transferred over time

17,162

16,200

6,199

39,561

365,983

285,200

213,862

865,045

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

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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

10 years

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

lease terms up to

94 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.

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, 2021 was $

3.6

million and $

7.2

million, respectively.

Comparatively, operating

lease expense for the three

and six months ended June 30, 2020 was $

3.5

million and $

6.9

million, respectively.

Short-term lease expense for the three and six

months ended June 30, 2021 was $

0.2

million and $

0.5

million, respectively.

Comparatively, short-term

lease expense for the three

and six months ended June 30, 2020 was $

0.4

million and $

0.9

million, respectively.

The Company has

material variable lease

costs or sublease income for the three or six months ended

June 30, 2021 and 2020.

Cash paid for operating leases during the six months ended

June 30, 2021 and 2020 was $

7.1

million and $

6.8

million,

respectively.

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

of $

3.9

million during the six

months ended June 30, 2021.

Supplemental balance sheet information related to the Company’s

leases is as follows:

June 30,

December 31,

2021

2020

Right of use lease assets

36,160

38,507

Other current liabilities

10,064

10,901

Long-term lease liabilities

25,668

27,070

Total operating

lease liabilities

35,732

37,971

Weighted average

remaining lease term (years)

5.8

6.0

Weighted average

discount rate

4.26%

4.20%

Maturities of operating lease liabilities as of June 30,

2021 were as follows:

June 30,

2021

For the remainder of 2021

6,052

For the year ended December 31, 2022

9,400

For the year ended December 31, 2023

7,234

For the year ended December 31, 2024

5,355

For the year ended December 31, 2025

4,260

For the year ended December 31, 2026 and beyond

8,152

Total lease payments

40,453

Less: imputed interest

(4,721)

Present value of lease liabilities

35,732

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 7 – Restructuring and Related Activities

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

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

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

manufacturing and non-manufacturing facilities. The exact timing and total costs associated with the QH Program 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 throughout 2021 and into 2022 under the QH Program and estimates that anticipated cost synergies realized from the

QH Program will approximate one-times the restructuring costs incurred. 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.

Activity in the Company’s

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

June 30, 2021 is as follows:

QH Program

Accrued restructuring as of December 31,

2020

8,248

Restructuring and related charges

1,473

Cash payments

(4,214)

Currency translation adjustments

(229)

Accrued restructuring as of June 30, 2021

5,278

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, 2021

and 2020:

Three Months Ended

Six Months Ended

June 30,

2021

2020

2021

2020

Stock options

332

353

640

785

Non-vested stock awards and restricted stock units

1,290

1,259

2,686

2,523

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

stock

—

1,162

1,553

1,162

Director stock ownership plan

216

419

Performance stock units

517

280

836

280

Annual incentive plan

—

(117)

—

2,829

Total share-based

compensation expense

2,355

2,991

6,134

7,673

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

except for $

0.2

million and $

0.5

million for the three and six months

ended June 30, 2021, respectively,

and $

0.3

million and $

0.8

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

recorded within Combination, integration

and other acquisition-related expenses.

Stock Options

During the first six months of 2021, 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

which primarily used the assumptions set forth in the table below:

Number of options granted

25,250

Dividend yield

0.85

Expected volatility

37.33

Risk-free interest rate

0.60

Expected term (years)

4.0

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

The fair value of these options is amortized on a straight

-line basis over the vesting period.

As of June 30, 2021,

unrecognized

compensation expense related to all stock options

granted was $

2.4

million, to be recognized over a weighted average remaining

period of

2.3

years.

Restricted Stock Awards

and Restricted Stock Units

During the six months ended June 30, 2021, the Company

granted

17,692

non-vested restricted shares and

2,791

non-vested

restricted stock units under its LTIP,

which are 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, 2021, unrecognized compensation

expense related to the non-vested restricted shares was $

6.3

million, to be recognized over a weighted average remaining

period of

1.9

years, 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

2.1

years.

Performance Stock Units

During the first six months of 2021, the Company granted

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 of the year of grant

through December 31 of the year prior to issuance of the shares upon

settlement.

Compensation expense for PSUs is measured based on

their grant date fair value and is recognized on a straight-line basis over

the

three year

vesting period.

The grant-date fair value of the PSUs granted during

the first six months of 2021 was estimated using a

Monte Carlo simulation on the grant date and using the

following assumptions: (i) a risk-free rate of

0.29

%; (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, 2021, the Company estimates that it will issue

approximately

14,698

fully vested shares as of the applicable

settlement date of all outstanding PSUs awards based on

the conditions of the PSUs and performance to date for

each award.

As of

June 30, 2021, there was approximately $

4.2

million of total unrecognized compensation cost related to PSUs, which

the Company

expects to recognize over a weighted-average period

2.3

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.

As of June 30, 2020, it was the Company’s

intention to settle the 2020 AIP in

shares, and therefore, expense associated with the AIP in

2020 was recorded as a component of share-based compensation

expense.

the fourth quarter of 2020, the Company determined that it

would settle the 2020 AIP in cash.

Therefore, the share-based

compensation associated with the AIP during the year

ended December 31, 2020 was reclassified from a component

of share-based

compensation expense to incentive compensation.

This determination and conclusion had no impact on the

classification of AIP

expense within the Company’s

Condensed Consolidated Statement of Operations for

the periods as both are a component of SG&A.

As of June 30, 2021, it is the Company’s

intention to settle the 2021 AIP in cash.

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 participants’ compensation.

Beginning in April 2020 and continuing through March 2021,

the

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

contributions in fully vested shares of the Company’s

common stock rather

than cash.

For the three months ended June 30, 2021, there were

matching contributions in stock.

For the six months ended June

30, 2021, total contributions were $

1.5

million and for both 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 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, 2021 and 2020 are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Other

Postretirement

Pension Benefits

Benefits

Pension Benefits

Benefits

2021

2020

2021

2020

2021

2020

2021

2020

Service cost

316

1,164

632

2,338

Interest cost

1,094

1,486

2,184

3,255

Expected return on plan assets

(2,093)

(1,761)

—

(4,175)

(3,720)

—

Settlement charge

—

22,667

—

Actuarial loss amortization

857

615

—

1,712

1,662

—

Prior service cost amortization

(41)

—

(81)

—

Net periodic benefit cost

177

1,463

358

26,121

As disclosed in the Company’s

2020 Form 10-K, 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 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,

which were completed in the third quarter of 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

As of June 30, 2021, $

2.1

million and $

0.1

million of contributions have been made to the Company’s

U.S. and foreign pension

plans and its other postretirement benefit plans, respectively

Taking into consideration

current minimum cash contribution

requirements, the Company currently expects to make

full year cash contributions of approximately $

million to its U.S. and foreign

pension plans and less than $

million to its other postretirement benefit plans in 2021

Note 10 – Other Income (Expense), Net

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

the three and six months ended June 30, 2021 and 2020 are as follows:

Three Months Ended

Six Months Ended

June 30,

2021

2020

2021

2020

Income from third party license fees

373

208

712

512

Foreign exchange losses, net

(838)

(2,004)

(2,316)

(1,183)

Gain (loss) on disposals of property,

plant, equipment and other

assets, net

(54)

(83)

5,356

(81)

Non-income tax refunds and other related credits

14,295

832

14,392

2,131

Pension and postretirement benefit income (costs),

non-service components

129

(341)

253

(23,866)

Other non-operating income, net

105

395

300

319

Total other

income (expense), net

14,010

(993)

18,697

(22,168)

The Gain (loss) on disposals of property,

plant, equipment and other assets, net, during the six months

ended June 30, 2021,

includes the gain on the sale of certain held-for-sale

real property assets related to the Combination.

Non-income tax refunds and

other related credits during the three and six months ended

June 30, 2021 includes $

13.3

million related to certain non-income tax

credits for the Company’s

Brazilian subsidiaries described in Note 19 of Notes

to Condensed Consolidated Financial Statements.

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 per share amounts,

unless otherwise stated)

(Unaudited)

Note 11 – Income Taxes

and Uncertain Income Tax

Positions

The Company’s effective

tax rates for the three and six months ended June 30, 2021 were

an expense of

32.2

% and

28.4

respectively, compared

to an expense of

57.9

% and a benefit of

20.7

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

The Company’s current

year effective tax rates were largely

impacted by the sale of certain held-for-sale real

property assets related to

the Combination,

changes in foreign tax credit valuation allowances, tax law changes

in a foreign jurisdiction and the income tax

impacts of certain non-income tax credits recorded

by the Company’s Brazilian

subsidiaries described in Note 19 of Notes to

Condensed Consolidated Financial Statements.

Comparatively, the prior

year effective tax rates were impacted by the

tax effect of

certain one-time pre-tax losses as well as certain tax charges

and benefits in the prior year period including those related

to changes in

foreign tax credit valuation allowances, tax law changes in

a foreign jurisdiction, changes in uncertain tax positions and

the tax

impacts of the Company’s

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

As of December 31, 2020, the Company had a deferred

tax liability of $

5.9

million, which primarily represents the Company’s

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

certain foreign earnings to the U.S.

The balance as of June 30, 2021 was $

6.5

million.

As of June 30, 2021, the Company’s

cumulative liability for gross unrecognized tax benefits was $

24.0

million, an increase of

1.8

million from the cumulative liability accrued as of December 31, 2020.

The Company continues to recognize interest and penalties

associated with uncertain tax positions as a component of

taxes on

income (loss) before equity in net income of associated

companies in its Condensed Consolidated Statements of Operations.

The

Company recognized an expense for interest of approximately

0.2

million and $

0.2

million and a benefit of less than $

0.1

million and

0.2

million for penalties in its Condensed Consolidated Statement of

Operations for the three and six months ended June 30, 2021,

respectively, and recognized

an expense of $

0.6

million and $

0.6

million for interest and an expense of $

0.6

million and $

0.5

million

for penalties in its Condensed Consolidated Statement of

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

respectively.

As of June 30, 2021, the Company had accrued $

3.2

million for cumulative interest and $

3.6

million for cumulative penalties in its

Condensed Consolidated Balance Sheets, compared

to $

3.0

million for cumulative interest and $

3.9

million for cumulative penalties

accrued at December 31, 2020.

During the six months ended June 30, 2021 and 2020, the

Company recognized decreases of $

0.8

million and $

1.5

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.

The Company estimates that during the year ending December

31, 2021 it will reduce its cumulative liability for gross

unrecognized tax benefits by approximately $

1.5

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, 2021.

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

tax, as well as the income tax of various state and foreign

tax jurisdictions.

Tax years that remain

subject to examination by major tax jurisdictions include Italy

from

2006

, Brazil from

2011

the Netherlands and China from

2015

, Mexico, Spain, Germany and the United Kingdom from

2016

, Canada and the U.S. from

2017

India from fiscal year beginning April 1, 2018 and ending

March 31,

2019

, and various U.S. state tax jurisdictions from

2011

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 from these assessments under

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

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

proceedings which the Company has accepted.

As of June 30, 2021, the Company has received $

1.6

million in refunds from the

Netherlands and Spain and expects to pay $

2.6

million due to Italy in the second half of 2021.

As of June 30, 2021, the Company

believes it has adequate reserves for the remaining

uncertain tax positions related to 2007.

Houghton Italia, S.r.l

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

authorities covering tax years

2014

through

2018

As of June 30, 2021, the Company has a $

5.6

million reserve for uncertain tax positions relating to matters related

this audit.

Since the reserve relates to the tax periods prior to August

1, 2019, the tax liability was established through purchase

accounting related to the Combination.

The Company has also submitted an indemnification claim against

funds held in escrow by

Houghton’s former owners

and as a result, a corresponding $

5.6

million indemnification receivable has also been established through

purchase accounting.

Houghton Deutschland GmbH is also under audit by

the German tax authorities for the tax years

2015

through

2017

Based on

preliminary audit findings, primarily related to

transfer pricing, the Company has recorded reserves for $

0.9

million as of June 30,

2021.

Of this amount, $

0.8

million relates to tax periods prior to the Combination and

therefore the Company has submitted an

indemnification claim with Houghton’s

former owners for any tax liabilities arising pre-Combination.

As a result, a corresponding

0.8

million indemnification receivable has also been established to

offset the $

0.8

million tax liability.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 12 – Earnings Per Share

The following table summarizes earnings per share calculations

for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

June 30,

2021

2020

2021

2020

Basic earnings (loss) per common share

Net income (loss) attributable to Quaker Chemical Corporation

33,570

(7,735)

72,185

(36,116)

Less: (income) loss allocated to participating securities

(134)

(287)

146

Net income (loss) available to common shareholders

33,436

(7,698)

71,898

(35,970)

Basic weighted average common shares outstanding

17,802,366

17,697,496

17,793,915

17,685,010

Basic earnings (loss) per common share

1.88

(0.43)

4.04

(2.03)

Diluted earnings (loss) per common share

Net income (loss) attributable to Quaker Chemical Corporation

33,570

(7,735)

72,185

(36,116)

Less: (income) loss allocated to participating securities

(134)

(287)

146

Net income (loss) available to common shareholders

33,436

(7,698)

71,898

(35,970)

Basic weighted average common shares outstanding

17,802,366

17,697,496

17,793,915

17,685,010

Effect of dilutive securities

47,155

—

52,095

—

Diluted weighted average common shares outstanding

17,849,521

17,697,496

17,846,010

17,685,010

Diluted earnings (loss) per common share

1.88

(0.43)

4.03

(2.03)

Certain stock options and restricted stock units are not included

in the diluted earnings (loss) per share calculation when

the effect

would have been anti-dilutive.

The calculated amount of anti-diluted shares not included

was

6,793

and

2,952

for the three and six

months ended June 30, 2021,

respectively.

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 per share calculations because of the Company’s

net loss during the

periods.

Note 13 – Restricted Cash

Prior to December 2020, the Company had 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 were restricted and could

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

were deposited

into interest bearing accounts that earned less than

0.1

million offset by $

0.5

million of net payments during the six months ended

June 30, 2020.

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

that continued until the restrictions lapsed.

As disclosed in the Company’s

2020 Form

10-K, during December 2020, the restrictions ended

on these previously received insurance settlements and the

Company transferred

the cash into an operating account.

The following table provides a reconciliation of cash,

cash equivalents and restricted cash as of June 30, 2021 and 2020

as well

as December 31, 2020 and 2019:

June 30,

December 31,

2021

2020

2019

Cash and cash equivalents

145,610

322,497

181,833

123,524

Restricted cash included in other current assets

—

353

Restricted cash included in other assets

—

19,173

—

19,678

Cash, cash equivalents and restricted cash

145,610

341,755

181,895

143,555

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 14 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the

six months ended June 30, 2021 were as follows:

Global

Specialty

Americas

EMEA

Asia/Pacific

Businesses

Total

Balance as of December 31, 2020

213,242

140,162

158,090

119,718

631,212

Goodwill additions

1,208

2,626

1,308

128

5,270

Currency translation and other adjustments

614

(2,633)

1,127

(2,141)

(3,033)

Balance as of June 30, 2021

215,064

140,155

160,525

117,705

633,449

Gross carrying amounts and accumulated amortization

for definite-lived intangible assets as of June 30, 2021 and December

31,

2020 were as follows:

Gross Carrying

Accumulated

Amount

Amortization

2021

2020

2021

2020

Customer lists and rights to sell

858,025

839,551

127,883

99,806

Trademarks, formulations and product

technology

168,004

166,448

34,932

30,483

Other

6,390

6,372

5,909

5,824

Total definite

-lived intangible assets

1,032,419

1,012,371

168,724

136,113

The Company amortizes definite-lived intangible assets on

a straight-line basis over their useful lives.

The Company recorded

15.0

million and $

29.8

million of amortization expense for the three and six months

ended June 30, 2021, respectively.

Comparatively,

the Company recorded $

13.7

million and $

27.7

million of amortization expense for the three and six months ended

June 30, 2020, respectively.

Estimated annual aggregate amortization expense for

the current year and subsequent five years is as follows:

For the year ended December 31, 2021

59,214

For the year ended December 31, 2022

59,564

For the year ended December 31, 2023

59,394

For the year ended December 31, 2024

58,750

For the year ended December 31, 2025

58,037

For the year ended December 31, 2026

57,740

The Company has four indefinite-lived intangible

assets totaling $

205.1

million as of both June 30, 2021 and December 31, 2020,

including $

204.0

million of indefinite-lived intangible assets for trademarks and

tradename associated with the Combination.

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.

The Company previously disclosed in its 2020 Form 10-K

that as of March 31, 2020, the Company concluded that the

impact of

COVID-19 did not represent a triggering event with

regards to the Company’s

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

except for the Company’s

Houghton and Fluidcare trademarks and tradename indefinite

-lived intangible assets.

The determination of

estimated fair value of the Houghton and Fluidcare

trademarks 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”)

and royalty rates, as well as revenue growth

rates and terminal growth rates.

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

COVID-19 driving a decrease in projected

legacy Houghton net sales during that year and the impact

of the sales decline on projected future legacy Houghton

net sales as well as

an increase in the WACC

assumption utilized in the quantitative impairment

assessment, the Company concluded that the estimated

fair values of the Houghton and Fluidcare trademarks

and tradename intangible assets were less than their carrying values.

As a

result, an impairment charge of $

38.0

million was recorded in the first quarter of 2020 to write down

the carrying values of these

intangible assets to their estimated fair values.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

As of June 30, 2021, the Company continued to evaluate all

potential triggering events, including 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, 2021.

While the Company concluded that the impact of COVID-19 did not

represent a triggering event as of June

30, 2021, 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.

Note 15 – Debt

Debt as of June 30, 2021 and December 31, 2020

includes the following:

As of June 30, 2021

As of December 31, 2020

Interest

Outstanding

Interest

Outstanding

Rate

Balance

Rate

Balance

Credit Facilities:

Revolver

1.59%

189,503

1.65%

160,000

U.S. Term Loan

1.59%

555,000

1.65%

570,000

EURO Term Loan

1.50%

148,115

1.50%

157,062

Industrial development bonds

5.26%

10,000

5.26%

10,000

Bank lines of credit and other debt obligations

Various

2,165

Various

2,072

Total debt

904,783

899,134

Less: debt issuance costs

(9,550)

(11,099)

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

(48,079)

(38,967)

Total long

-term debt

847,154

849,068

Credit facilities

The Company’s primary

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

of a $

400.0

million multicurrency

revolver (the “Revolver”), a $

600.0

million term loan (the “U.S. Term

Loan”), each with the Company as borrower,

and a $

150.0

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

“EURO Term Loan”

and together with the “U.S. Term

Loan”, the

“Term Loans”)

with Quaker Chemical B.V.,

a Dutch subsidiary of the Company as borrower,

each with a

five year

term maturing in

August 2024.

Subject to the consent of the administrative

agent and certain other conditions, the Company may designate additional

borrowers.

The maximum amount available under the Credit Facility can be

increased by up to $

300.0

million at the Company’s

request if there are lenders who agree to accept additional

commitments and the Company has satisfied certain other

conditions.

Borrowings under the Credit Facility bear interest at a base

rate or LIBOR plus an applicable margin based upon

the Company’s

consolidated net leverage ratio.

There are LIBOR replacement provisions that contemplate a further

amendment if and when LIBOR

ceases to be reported.

The variable interest rate incurred on the outstanding borrowings under

the Credit Facility as of and during the

six months ended June 30, 2021 was approximately

1.6

In addition to paying interest on outstanding principal under

the Credit

Facility, the Company

is required to pay a commitment fee ranging from

0.2

% to

0.3

% depending on the Company’s

consolidated net

leverage ratio to the lenders under the Revolver in

respect of the unutilized commitments thereunder.

The Company has unused

capacity under the Revolver of approximately $

206

million, net of bank letters of credit of approximately $

million, as of June 30,

2021.

The Credit Facility is subject to certain financial and other covenants. The Company’s initial consolidated net debt to

consolidated adjusted EBITDA ratio could not exceed 4.25 to 1, with step downs in the permitted ratio over the term of the Credit

Facility.

As of June 30, 2021, the consolidated net debt to adjusted

EBITDA may not exceed

4.00

to 1.

The Company’s consolidated

adjusted EBITDA to interest expense ratio cannot

be less than

3.0

to 1 over the term of the agreement.

The Credit Facility also

prohibits the payment of cash dividends if the Company

is in default or if the amount of the dividend paid annually

exceeds the greater

of $

50.0

million and

% 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, 2021 and December 31, 2020, the

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

The Term Loans have

quarterly principal amortization during

their

five year

terms, with

5.0

% amortization of the principal balance due in years

1 and 2,

7.5

% in year 3, and

10.0

% in years 4 and 5,

with the remaining principal amount due at maturity.

During the six months ended June 30, 2021, the Company made

quarterly

amortization payments related to the Term

Loans totaling $

19.1

million.

The Credit Facility is guaranteed by certain of the

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Company’s domestic subsidiaries

and is secured by first priority liens on substantially all of

the assets of the Company and the

domestic subsidiary guarantors, subject to certain customary exclusions.

The obligations of the Dutch borrower are guaranteed only

by certain foreign subsidiaries on an unsecured basis.

The Credit Facility required the Company to fix its variable

interest rates on at least

% of its total Term Loans.

In order to

satisfy this requirement as well as to manage the

Company’s exposure to variable

interest rate risk associated with the Credit Facility,

in November 2019, the Company entered into $

170.0

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

rate of

1.64

plus an applicable margin as provided in the

Credit Facility, based on

the Company’s consolidated net

leverage ratio.

At the time the

Company entered into the swaps, and as of June 30,

2021, the aggregate interest rate on the swaps, including the

fixed base rate plus

an applicable margin, 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 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 Credit Facility.

As of June 30, 2021 and

December 31, 2020, the Company had $

9.6

million and $

11.1

million, respectively,

of debt issuance costs recorded as a reduction of

long-term debt.

As of June 30, 2021 and December 31, 2020, the Company

had $

5.1

million and $

5.9

million, respectively, of

debt

issuance costs recorded within other assets.

Industrial development bonds

As of June 30, 2021 and December 31, 2020, 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 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, 2021

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, 2021 were approximately $7 million.

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,

2021

2020

2021

2020

Interest expense

4,813

5,951

9,463

13,663

Amortization of debt issuance costs

1,188

2,375

Total

6,001

7,139

11,838

16,038

Based on the variable interest rates associated with the Credit

Facility, as of June

30, 2021 and December 31, 2020, the amounts

at which the Company’s

total debt were recorded are not materially different

from their fair market value.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 16 – Equity

The following tables present the changes in equity,

net of tax, for the three and six months ended June 30, 2021

and 2020:

Accumulated

Capital in

Other

Common

Excess of

Retained

Comprehensive

Noncontrolling

Stock

Par Value

Earnings

Loss

Interest

Total

Balance at March 31, 2021

17,875

908,748

455,493

(53,228)

565

1,329,453

Net income

—

33,570

—

33,600

Amounts reported in other comprehensive

income

—

17,285

17,293

Dividends ($

0.395

per share)

—

(7,062)

—

(7,062)

Share issuance and equity-based

compensation plans

2,114

—

2,117

Balance at June 30, 2021

17,878

910,862

482,001

(35,943)

603

1,375,401

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

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except 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, 2020

17,851

905,171

423,940

(26,598)

550

1,320,914

Net income

—

72,185

—

72,232

Amounts reported in other comprehensive

(loss) income

—

(9,345)

(9,339)

Dividends ($

0.790

per share)

—

(14,124)

—

(14,124)

Share issuance and equity-based

compensation plans

5,691

—

5,718

Balance at June 30, 2021

17,878

910,862

482,001

(35,943)

603

1,375,401

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

0 per share)

—

(13,687)

—

(13,687)

Acquisition of noncontrolling interest

—

(707)

—

(340)

(1,047)

Distributions to noncontrolling 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

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except 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,

2021 and 2020:

Defined

Unrealized

Currency

Benefit

Gain (Loss) in

Translation

Pension

Available-for

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance at March 31, 2021

(28,334)

(22,175)

317

(3,036)

(53,228)

Other comprehensive income (loss) before

reclassifications

16,157

(260)

341

586

16,824

Amounts reclassified from AOCI

—

852

—

854

Related tax amounts

—

(195)

(64)

(134)

(393)

Balance at June 30, 2021

(12,177)

(21,778)

596

(2,584)

(35,943)

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

Related tax amounts

—

(51)

(427)

(445)

Balance at June 30, 2020

(88,637)

(17,363)

1,148

(4,412)

(109,264)

Defined

Unrealized

Currency

Benefit

Gain (Loss) in

Translation

Pension

Available-for

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance at December 31, 2020

(2,875)

(23,467)

3,342

(3,598)

(26,598)

Other comprehensive (loss) income before

reclassifications

(9,302)

521

(404)

1,316

(7,869)

Amounts reclassified from AOCI

—

1,714

(3,083)

—

(1,369)

Related tax amounts

—

(546)

741

(302)

(107)

Balance at June 30, 2021

(12,177)

(21,778)

596

(2,584)

(35,943)

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

Related tax amounts

—

(8,288)

1,223

(7,035)

Balance at June 30, 2020

(88,637)

(17,363)

1,148

(4,412)

(109,264)

All reclassifications related to unrealized gain (loss) in

available-for-sale securities relate to the Company’s

equity interest in a

captive insurance company and are recorded in equity

in net income of associated companies.

The amounts reported in other

comprehensive income for noncontrolling interest are

related to currency translation adjustments.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except 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, 2021

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

2,137

—

2,137

—

Total

2,137

—

2,137

—

Fair Value

Measurements at December 31, 2020

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

1,961

—

1,961

—

Total

1,961

—

1,961

—

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, 2021 or December 31, 2020, respectively,

so related

disclosures have not been included.

Note 18 – Hedging Activities

In order to satisfy certain requirements of the Credit

Facility as well as to manage the Company’s

exposure to variable interest

rate risk associated with the Credit Facility,

in November 2019, the Company entered into $

170.0

million notional amounts of

three

year

interest rate swaps.

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

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 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

2021

2020

Derivatives designated as cash flow hedges:

Interest rate swaps

Other non-current liabilities

3,356

4,672

3,356

4,672

The following table presents the net unrealized loss deferred to

AOCI:

June 30,

December 31,

2021

2020

Derivatives designated as cash flow hedges:

Interest rate swaps

AOCI

2,584

3,598

2,584

3,598

The following table presents the net loss reclassified from

AOCI to earnings:

Three Months Ended

Six Months Ended

June 30,

2021

2020

2021

2020

Amount and location of expense reclassified

from AOCI into expense (effective portion)

Interest expense, net

(659)

(483)

(1,302)

(465)

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.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 19 – Commitments and Contingencies

The Company previously disclosed in its 2020 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, 2021, 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, 2021, the Company believes that the range

of potential-known liabilities associated with the balance

of the ACP water

remediation program is approximately $

0.1

million to $

1.0

million.

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

operation of the treatment system as determined

by groundwater modeling.

Costs of operation include the operation and maintenance

of the extraction well, groundwater monitoring and program

management.

The Company previously disclosed in its 2020 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, 2021,

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

0.4

million (excluding costs of defense).

The Company previously disclosed in its 2020 Form 10-K

that it is party to certain environmental matters related to certain

domestic and foreign properties currently or previously

owned by Houghton.

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, 2021, 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 $

5.5

million and $

6.5

million as of June 30, 2021, for which $

6.0

million was accrued

within other accrued liabilities and other non-current

liabilities on the Company’s Condensed

Consolidated Balance Sheet as of June

30, 2021.

Comparatively, as of December

31, 2020, the Company had $

6.0

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 was accrued as of both June 30, 2021 and December

31, 2020,

to provide for such anticipated future environmental

assessments and remediation costs.

The Company previously disclosed in its 2020 Form 10-K

that one of the Company’s subsidiaries

received a notice of inspection

from a taxing authority in a country where certain

of its subsidiaries operate which related to a non-income (indirect)

tax that may be

applicable to certain products the subsidiary sells.

To date, the Company

has not

received any assessment from the authority related to

potential liabilities that may be due from the Company’s

subsidiary.

Consequently, there is substantial uncertainty

with respect to the

Company’s ultimate liability

with respect to this indirect tax, as the application of

this tax in its given market is ambiguous and

interpreted differently among other peer companies

and taxing authorities.

The Company, with assistance

from independent experts,

has performed an evaluation of the applicability of this

indirect tax to the Company’s

subsidiaries in this country.

During the six

months ended June 30, 2021 and through the date of

this Report, there have been no significant changes to

the facts or circumstances

of this previously disclosed matter,

aside from

on-going discussions between the Company and the

taxing authority related to this

notice of inspection and independent testing conducted by

third-party consultants at the direction of the Company and the taxing

authority to determine if the Company’s

products have contents which subject them to this indirect tax.

Based on all of the

information available to the Company at this time, as of

June 30, 2021, the Company has recorded a liability of $

1.8

million in other

accrued liabilities, which reflects the Company’s

current best estimate of probable indirect tax owed, including

interest and taking into

account applicable statutes of limitations.

Because these amounts in part relate to a Houghton entity

acquired in the Combination and

for periods prior to the Combination, the Company

has submitted an indemnification claim with Houghton’s

former owners related to

this potential indirect tax liability.

The Company recorded a receivable in other assets for approximately

1.1

million, which reflects

the amount of the initial recorded liability for which

the Company anticipates being indemnified.

As noted, the Company believes

there is substantial uncertainty with respect to its ultimate liability

given the ambiguous application of this indirect tax.

At this time,

the Company’s current

best estimate of a potential range for possible assessments, including

additional amounts that may be assessed

under these indirect tax laws, would be $

to approximately $

million, which is net of approximately $

million of estimated

income tax deductions and approximately $

million of applicable rights to indemnification from Houghton’s

former owners.

During the first six months of 2021, one of the Company’s

Brazilian subsidiaries received a notice that it had prevailed

on an

existing legal claim in regard to certain non-income

(indirect) taxes that had been previously charged and paid.

The matter

specifically relates to companies’ rights to exclude the

state tax on goods circulation (a valued-added-tax or VAT

equivalent, known in

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

- Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Brazil as “ICMS”) from

the calculation of certain additional indirect taxes (specifically

the program of social integration (“PIS”)

and contribution for the financing of social security (“COFINS”))

levied by the Brazilian States on the sale of goods.

In May 2021,

the Brazilian Supreme Court concluded that ICMS should

not be included in the tax base of PIS and COFINS, and confirmed

the

methodology for calculating the PIS and COFINS tax credit

claims to which taxpayers are entitled.

The Company’s Brazilian entities

had previously filed legal or administrative disputes on

this matter and are entitled to receive tax credits and interest dating

back to

five years preceding the date of their legal claims.

As a result of these court rulings in the first six months of 2021,

the Company

recognized non-income tax credits of

67.0

million BRL or approximately $

13.3

million, which includes approximately $

8.4

million

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

tax credits of $

4.9

million.

The tax credits to which the Company’s

Brazilian subsidiaries are entitled are claimable once registered

with the Brazilian tax authorities and the Company anticipates

completing this step during the second half of 2021.

These tax credits can be used to offset future Brazilian

federal taxes and the

Company currently anticipates using the full amount of

credits during the five year period of time permitted.

In connection with obtaining regulatory approvals for the

Combination, certain steel and aluminum related product lines

Houghton were divested on August 1, 2019.

In July 2021, the entity that acquired these divested product lines

submitted an

indemnification claim for certain alleged losses in accordance with

the terms of the Asset Purchase Agreement (“APA”)

Under the

terms of the APA,

the Company has 45 days to review the claim and respond

and as such, the Company is in the early stages of

evaluating the merits of the alleged losses in the indemnification

claim received.

As of the date of this Report,

the Company does not

believe it is reasonably possible to determine or quantify

any possible exposure.

The Company is party to other litigation which management

currently believes will not have a material adverse

effect on the

Company’s results of

operations, cash flows or financial condition.

In addition, the Company has an immaterial amount of contractual

purchase obligations.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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 the closing of its combination with Houghton International,

Inc.

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

on August 1, 2019.

Throughout the Report, all figures presented, unless

otherwise stated, reflect the results of operations of the

combined company for the three months and six months ended

June 30,

2021

and 2020.

Executive Summary

Quaker Houghton is the global leader in industrial process

fluids.

With a presence around the world,

including operations in over

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

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

offshore, can, mining, and metalworking

companies.

Our high-performing, innovative and sustainable solutions are

backed by best-

in-class technology,

deep process knowledge, and customized services.

Quaker Houghton is headquartered in Conshohocken,

Pennsylvania, located near Philadelphia in the United States.

The Company had solid second quarter results which reflect

the continued COVID-19 recovery in the Company’s

end-markets

and customer demand as well as the on-going execution

of integration activities and synergy realization,

partially offset by raw

material cost headwinds driven by global supply chain pressures.

Specifically, net sales of $435.3

million in the second quarter of

2021 increased 52% compared to $286.0 million in the second

quarter of 2020, primarily due to higher volumes of 40%, including

additional net sales from acquisitions of 5%, the positive

impact from foreign currency translation of 8%, and increases

in selling price

and product mix of approximately 4%.

The significant increase in sales volumes compared to the

second quarter of 2020 was

primarily a result of the prior year second quarter being

the most severely impacted by COVID-19 globally,

while the current quarter

continued to experience end-market improvement and

continued market share gains.

Gross profit increased significantly quarter-over-

quarter as a result of higher net sales.

Despite significant increases in raw material costs, current

quarter gross margin of 35.5%

improved as compared to the prior year second quarter,

as the prior year was impacted by lower volumes due to COVID-19

on fixed

manufacturing costs.

Sequentially, the Company

experienced lower gross margins compared to the

first quarter of 2021 due to

significant raw material cost increases and global supply chain

and logistics pressures.

The Company had net income in the second quarter of 2021

of $33.6 million, or $1.88 per diluted share, compared

to a second

quarter of 2020 net loss of $7.7 million, or $0.43 per

diluted share.

The current quarter result includes $13.3 million of

non-operating

income related to certain non-income tax credits recorded

by the Company’s Brazilian subsidiaries.

The Company’s prior year

second

quarter net loss was dramatically affected

by the COVID-19 pandemic and its impact on the global economy,

including most of the

Company’s end customers.

Excluding non-recurring items including the Brazil non-income

tax credits as well as costs associated

with the Combination and other non-core items in each period,

the Company’s second quarter of

2021 non-GAAP earnings per diluted

share were $1.82 compared to $0.21 in the prior year

second quarter.

The Company’s current quarter

adjusted EBITDA of $70.1

million increased 118% compared

to $32.1 million in the second quarter of 2020 primarily due

to the significant increase in net sales

quarter-over-quarter as well as higher realized cost synergies

from the Combination as compared to the second quarter

of 2020,

partially offset by higher raw material costs.

The Company estimates that it realized cost synergies associated

with the Combination

of approximately $18.5 million during the second quarter

of 2021 compared to approximately $12 million during

the second quarter of

2020.

See the Non-GAAP Measures section of this Item below,

as well as other items discussed in the Company’s

Consolidated

Operations Review in the Operations section of this Item,

below.

The Company’s second

quarter of 2021 operating performance in each of its four reportable

segments: (i) Americas; (ii) Europe,

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

Global Specialty Businesses, reflect similar drivers to that of

its

consolidated performance.

All four segments had higher net sales compared to the second

quarter of 2020 reflecting the negative

impact of COVID-19 on the prior year versus current quarter

improvement in the Company’s

end markets and overall market share

gains in each segment.

All of the Company’s segments

benefited from higher sales volumes as compared to

the prior year quarter,

additional net sales from acquisitions, the positive impact

from foreign currency translation due to the strengthening

of most major

currencies against the U.S. dollar, and

generally from increases in selling price and product mix.

As reported, all of the Company’s

segment operating earnings were higher compared to the

second quarter of 2020 which reflects higher current quarter

net sales

coupled with a higher gross margin in most segments

as compared to the prior year second quarter,

partially offset by higher selling,

general and administrative expenses (“SG&A”), which was the

result of an increase in direct selling expenses associated with

the

significant increase in net sales and, to a lesser extent,

the low levels of prior year period SG&A as a result of COVID-19

temporary

cost savings measures.

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 a net operating cash outflow of $9.6 million

in the first six months of 2021 as compared to net operating cash

inflow of $44.7 million in the first six months of 2020.

The decrease in net operating cash flow year-over-year was primarily

driven

by a significant investment in working capital compared

to the prior year, mainly in accounts receivable,

due to higher net sales and

Quaker Chemical Corporation

Management’s Discussion and Analysis

volumes, and inventory,

due to higher raw material costs and restocking initiatives as a result

of global supply chain and logistics

pressures.

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 strong, despite significant increases

in raw material costs and supply chain

issues.

Significant improvement over the prior year in

all segments was driven by the continued recovery in the

Company’s end-

markets and increased customer demand from lower

levels experienced during 2020 as a result of COVID-19.

While sequential

operating performance as compared to the first quarter

of 2021 was slightly lower, continued

strong customer demand in the second

quarter of 2021 coupled with on-going market share

gains and the execution of integration activities and synergy

realization helped

offset the negative impacts from the continued

escalation of raw material costs and continued supply chain pressures.

As the Company looks forward to the rest of 2021,

it expects raw material costs to continue to increase,

and it is implementing

additional price increases to help offset them

In addition, while the Company expects customer demand and sales volumes

to remain

strong,

we anticipate some near-term headwinds in automotive due

to the semiconductor shortage and some seasonality trends which

the Company typically experiences in the second half

of the year.

Despite these near-term headwinds, the Company

continues to

expect 2021 will result in a step change in its profitability from

2020 as the Company completes its integration cost synergies,

continues to take further share in the marketplace, benefits

from projected gradual rebound in demand, and sees the positive

impact of

its recent acquisitions.

On-going impact of COVID-19

The global outbreak of COVID-19 has negatively impacted

all locations where the Company does business.

Although the

Company has now operated in this COVID-19 environment

for over a year, the full extent

of the outbreak and related business

impacts remain uncertain and volatile, and therefore the

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

future results of

operations or financial condition is uncertain.

This outbreak has significantly disrupted the operations of the

Company and those of its

suppliers and customers.

The Company has experienced volume declines and lower

net sales as compared to pre-COVID-19 levels as

a result of the outbreak, as further described in this section.

Management continues to monitor the impact that the COVID-19

pandemic is having on the Company,

the overall specialty chemical industry and the economies and

markets in which the Company

operates.

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

operations or to the ability of it or its customers to resume

more normal operations, even as certain restrictions are lifted.

The

prolonged pandemic and resurgences

of the outbreak including as new variants emerge

and continued restrictions on day-to-day life

and business operations may result in volume declines

and lower net sales in future periods as compared to pre

-COVID-19 levels.

the extent that the Company’s

customers and suppliers continue to be significantly and

adversely impacted by COVID-19, this could

reduce the availability,

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

which in turn could significantly interrupt

the Company’s business operations.

Given this ongoing uncertainty,

the Company cautions that its future results of operations could

be significantly adversely impacted by COVID-19.

Further, management continues to evaluate how

COVID-19-related

circumstances, such as remote work arrangements, illness or

staffing shortages and travel restrictions have affected

financial reporting

processes and systems, internal control over financial reporting,

and disclosure controls and procedures.

While the circumstances

have presented and are expected to continue to

present challenges, and have necessitated additional time and

resources to be deployed

to sufficiently address the challenges brought

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

COVID-19 has had

a material impact on financial reporting processes, internal

controls over financial reporting, or disclosure controls and

procedures.

The Company’s top

priority, especially during this pandemic,

is to protect the health and safety of its employees and

customers,

while working to ensure business continuity to meet customers’

needs.

The Company continues to take steps to protect the health

and

wellbeing of its people in affected areas through

various actions, including enabling work at home where needed

and possible, and

employing social distancing standards, implementing

travel restrictions where applicable, enhancing onsite hygiene

practices, and

instituting visitation restrictions at the Company’s

facilities.

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

material

expenses implementing these health and safety policies.

All of the Company’s 31

production facilities worldwide are open and

operating and are deemed as essential businesses in the

jurisdictions where they are operating.

The Company believes that to date it

has been able to meet the needs of all its customers across the

globe despite the current economic challenges.

The Company’s second

quarter of 2021 showed substantial year-over-year

improvement from the prior year second quarter,

which was the most severely

impacted by COVID-19, and continued a trend of gradual

improvement which began in the second half of 2020.

The Company

continues to expect that the impact from COVID-19

will gradually improve subject to the effective containment

of the virus and its

variants and successful distribution and acceptance

of the vaccines that have been developed.

However, the incidence of reported

cases of COVID-19 in several geographies where the Company

has significant operations remains high and continues to

evolve and it

remains highly uncertain as to how long the global pandemic

and related economic challenges will last and when our customers’

businesses will recover to pre-COVID-19 levels.

The Company took various actions to temporarily conserve

cash and reduce costs

during and these temporary initiatives were designed and

implemented so that the Company could successfully manage

through the

challenging COVID-19 situation while continuing to protect

the health of its employees, meet customers’ needs,

maintain the

Quaker Chemical Corporation

Management’s Discussion and Analysis

Company’s long-term

competitive advantages

and above-market growth, and enable it to continue to effectively

integrate Houghton.

While the actions taken to date to protect our workforce,

to continue to serve our customers with excellence and to conserve

cash and

reduce costs, have been effective thus far,

further actions to respond to the pandemic and its effects

may be necessary as conditions

continue to evolve.

Liquidity and Capital Resources

At June 30, 2021, the Company had cash, cash equivalents and

restricted cash of $145.6 million.

Total cash, cash

equivalents and

restricted cash was $181.9 million at December 31, 2020.

The $36.3 million decrease in cash, cash equivalents and restricted

cash

was the net result of approximately $21.7 million of cash

used in investing activities, $9.6 million of cash used in operating

activities,

$4.4 million of cash used in financing activities and a

$0.7 million negative impact due to the effect of foreign

currency translation.

Net cash flows used in operating activities were $9.6

million in the first six months of 2021 compared to net cash

flows provided

by operating activities of $44.7 million in the first six

months of 2020.

The decrease in net operating cash flows of $54.2 million was

primarily driven by a significant change in working

capital, partially

offset by higher earnings in the current year.

The significant

increase in current year net sales resulted in a large

increase in accounts receivable in the first six months of 2021 as compared

accounts receivable being a cash inflow in the prior

year as sales significantly declined during the first six months of

2020 due to the

initial negative impact from COVID-19.

In addition, the Company has experienced an increase in inventory

in the first six months of

2021 as a result of rising raw material costs as well as a build

in inventory to ensure the Company has appropriate stock

to meet

customer demands particularly given the current stress on

the global supply chain.

In addition, the Company had higher cash

dividends received from its associated companies in

the first six months of 2020, primarily due to $5.0 million

received from the

Company’s joint venture

in Korea with no similar dividend received in the first six months of

2021 related to the timing of dividends

received.

Net cash flows used in investing activities were $21.7

million in the first six months of 2021 compared to $10.6

million in the first

six months of 2020.

This increase in cash outflows was driven by higher cash payments related

to acquisitions during the first six

months of 2021, including $25.0 million for certain assets related

to tin-plating solutions primarily for steel end markets.

These higher

cash outflows were partially offset by cash proceeds

of approximately $14.7 million from the disposition of assets, which

includes the

sale of certain held-for-sale real property

assets related to the Combination.

Capital expenditures were relatively consistent at $7.0

million in the first six months of 2021 compared to $7.5

million in the first six months of 2020.

Net cash flows used in financing activities were $4.4

million in the first six months of 2021 compared to net cash

flows provided

by financing activities of $168.7 million in the first six months

of 2020.

The decrease of $173.1 million in net cash flows was

primarily related to the prior year borrowings of most of the

available liquidity under the Company’s

revolving credit facility related

to the economic uncertainty brought on by COVID-19.

These additional prior year borrowings were repaid during

the third quarter of

2020.

In addition, the Company paid $14.1 million of cash dividends

during the first six months of 2021, a $0.5 million or 3%

increase in cash dividends compared to the prior year.

Finally, during the first six months

of 2020, the Company used $1.0 million to

purchase the remaining noncontrolling interest in a

South Africa affiliate.

Prior to this buyout, this South Africa affiliate made

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 2021.

The Company’s primary

credit facility (the “Credit Facility”) is comprised of a $400.0

million multicurrency revolver (the

“Revolver”), a $600.0 million term loan (the “U.S. Term

Loan”), each with the Company as borrower,

and a $150.0 million (as of

August 1, 2019) Euro equivalent term loan (the “Euro

Term Loan” and together

with the U.S. Term Loan”,

the “Term Loans”) with

Quaker Chemical B.V.,

a Dutch subsidiary of the Company as borrower,

each with a five year term maturing in August 2024.

Subject

to the consent of the administrative agent and certain other

conditions, the Company may designate additional borrowers.

The

maximum amount available under the Credit Facility

can be increased by up to $300.0 million at the Company’s

request if there are

lenders who agree to accept additional commitments and

the Company has satisfied certain other conditions.

Borrowings under the

Credit Facility bear interest at a base rate or LIBOR plus an

applicable margin based on 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

weighted average interest rate incurred on the outstanding

borrowings under the Credit Facility during both the first six months

2021 and as of June 30, 2021 was approximately 1.6

In addition to paying interest on outstanding principal under

the Credit

Facility, the Company

is required to pay a commitment fee ranging from 0.2% to

0.3% depending on the Company’s

consolidated net

leverage ratio to the lenders under the Revolver in

respect of the unutilized commitments thereunder.

The Credit Facility is subject to certain financial and

other covenants.

The Company’s initial consolidated

net debt to

consolidated adjusted EBITDA ratio could not exceed

4.25 to 1, with step downs in the permitted ratio over the

term of the Credit

Facility.

As of June 30, 2021, the consolidated net debt to consolidated

adjusted EBITDA ratio may not exceed 4.00 to 1.

The

Company’s consolidated

adjusted EBITDA to interest expense ratio may not be less than

3.0 to 1 over the term of the agreement.

The

Credit Facility also prohibits the payment of cash dividends

if the Company is in default or if the amount of the dividen

ds paid

annually exceeds the greater of $50.0 million and

20% of consolidated adjusted EBITDA unless the ratio of

consolidated net debt to

Quaker Chemical Corporation

Management’s Discussion and Analysis

consolidated adjusted EBITDA is less than 2.0 to 1,

in which case there is no such limitation on amount.

As of June 30, 2021, and

December 31, 2020, the Company was in compliance with

all of the Credit Facility covenants.

The Term Loans

have quarterly

principal amortization during their five year terms,

with 5.0% amortization of the principal balance due in years 1 and

2, 7.5% in year

3, and 10.0% in years 4 and 5, with the remaining principal

amount due at maturity.

The Credit Facility is guaranteed by certain of the

Company’s domestic subsidiaries

and is secured by first priority liens on substantially all of

the assets of the Company and the

domestic subsidiary guarantors, subject to certain customary exclusions.

The obligations of the Dutch borrower are guaranteed only

by certain foreign subsidiaries on an unsecured basis.

The Credit Facility required the Company to fix its variable

interest rates on at least 20% of its total Term

Loans.

In order to

satisfy this requirement as well as to manage the

Company’s exposure to variable

interest rate risk associated with the Credit Facility,

in November 2019, the Company entered into $170.0

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

rate of 1.64%

plus an applicable margin as provided in the

Credit Facility, based on

the Company’s consolidated net

leverage ratio.

At the time the

Company entered into the swaps, and as of June 30,

2021, the aggregate interest rate on the swaps, including the

fixed base rate plus

an applicable margin, was 3.1%.

The Company capitalized $23.7 million of certain third-party

debt issuance costs in connection with executing

the Credit Facility.

Approximately $15.5 million of the capitalized costs were attributed

to the Term Loans and

recorded as a direct reduction of long-

term debt on the Company’s

Consolidated Balance Sheet.

Approximately $8.3 million of the capitalized costs were

attributed to the

Revolver and recorded within other assets on the Company’s

Condensed Consolidated Balance Sheet.

These capitalized costs are

being amortized into interest expense over the five year

term of the Credit Facility.

As of June 30, 2021, the Company had Credit Facility borrowings

outstanding of $892.6 million.

As of December 31, 2020, the

Company had Credit Facility borrowings outstanding

of $887.1 million.

The Company has unused capacity under the Revolver of

approximately $206 million, net of bank letters of

credit of approximately $4 million, as of June 30, 2021.

The Company’s other debt

obligations are primarily industrial development bonds,

bank lines of credit and municipality-related loans, which

totaled $12.2

million and $12.1 million as of June 30, 2021 and

December 31, 2020, respectively.

Total unused capacity

under these arrangements

as of June 30, 2021 was approximately $40 million.

The Company’s total net debt

as of June 30, 2021 was $759.2 million.

The Company estimates that it realized cost synergies

in the first six months of 2021 of approximately $36.5 million

compared to

approximately $22 million in the first six months of 2020.

The Company continues to expect to realize Combination

cost synergies of

approximately $75 million in 2021 and $80 million in

2022.

The Company continues to expect 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 total cash payments, including

those pursuant to the QH Program, described below,

but excluding incremental

capital expenditures related to the Combination,

will be approximately 1.3 times its total anticipated 2022 cost

synergies of $80

million.

A significant portion of these costs were already incurred

in 2019, 2020 and the first six months of 2021, but the Company

expects to continue to incur such costs throughout

the remainder of 2021.

The Company incurred $7.6 million of total Combination,

integration and other acquisition-related expenses in the

first six months of 2021, which includes $0.5 million of accelerated

depreciation and is net of a $5.4 million gain on the sale of

certain held-for-sale real property assets, described in the

Non-GAAP

Measures section of this Item below.

Comparatively, in the first six months

of 2020, the Company incurred $16.5 million of total

Combination, integration and other acquisition-related

expenses.

The Company had aggregate net cash outflows of

approximately

$14.8 million related to the Combination, integration and

other acquisition-related expenses during the first six months

of 2021 as

compared to $13.8 million during the first six months of

2020.

Quaker Houghton’s management

approved, and the Company initiated, a global restructuring

plan (the “QH Program”) in the

third quarter of 2019 as part of its planned cost synergies

associated with the Combination.

The QH Program includes restructuring

and associated severance costs to reduce total headcount

by approximately 400 people globally and plans for the closure

of certain

manufacturing and non-manufacturing facilities.

In connection with the plans for closure of certain manufacturing

and non-

manufacturing facilities, the Company made a decision

to make available for sale certain facilities during the second

quarter of 2020.

During the first quarter of 2021, certain of these facilities were

sold and the Company recognized a gain on disposal of $5.4 million

included within other income (expense), net on the Condensed

Consolidated Statement of Operations.

The exact timing and total

costs associated with the QH Program will depend

on a number of factors and is subject to change; however,

reductions in headcount

and site closures have continued into 2021.

The Company currently expects additional headcount reductions and

site closures to occur

into 2022 and estimates that the anticipated cost synergies

realized under the QH Program will approximate one-times restructuring

costs incurred.

The Company made cash payments related to the settlement of

restructuring liabilities under the QH Program during

the first six months of 2021 of approximately $4.2 million

compared to $9.6 million in the first six months of 2020.

As of June 30, 2021, the Company’s

gross liability for uncertain tax positions, including interest and

penalties, was $30.8 million.

The Company cannot determine a reliable estimate of

the timing of cash flows by period related to its uncertain tax

position liability.

However, should the entire liability

be paid, the amount of the payment may be reduced by up

to $7.7 million as a result of offsetting

benefits in other tax jurisdictions.

During the fourth quarter of 2020, one of the Company’s

subsidiaries received a notice of

inspection from a taxing authority in a country where certain

of its subsidiaries operate, which relate to a non-income

(indirect) tax

Quaker Chemical Corporation

Management’s Discussion and Analysis

that may be applicable to certain products the subsidiary

sells.

To date, the Company

has not received any assessment from the

authority related to potential liabilities that may be due

from the Company’s subsidiary.

Consequently, there is substantial

uncertainty

with respect to the Company’s

ultimate liability with respect to this indirect tax.

During the first six months of 2021, the Company

recorded $13.3 million of non-income tax credits for

certain of its Brazilian subsidiaries.

The Company expects to utilize these credits

to offset certain Brazilian federal tax payments over

approximately the following two years beginning in the second half of 2021.

See

Note 19 of Notes to Condensed Consolidated Financial

Statements in Item 1 of this Report.

The Company believes that its existing cash, anticipated

cash flows from operations and available additional liquidity

will be

sufficient to support its operating requirements

and fund its business objectives for at least the next twelve

months, including but not

limited to, payments of dividends to shareholders, costs related

to the Combination and integration, pension plan contributions,

capital

expenditures, other business opportunities (including

potential acquisitions) 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.

Non-GAAP Measures

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

financial information that includes EBITDA, adjusted

EBITDA, adjusted EBITDA margin, non-GAAP operating

income, non-GAAP operating margin, non-GAAP

net income and non-

GAAP earnings per diluted share.

The Company believes these non-GAAP financial measures provide

meaningful supplemental

information as they enhance a reader’s understanding

of the financial performance of the Company,

are indicative of future operating

performance of the Company,

and facilitate a comparison among fiscal periods, as the

non-GAAP financial measures exclude items

that are not considered indicative of future operating performance

or not considered core to the Company’s

operations.

Non-GAAP

results are presented for supplemental informational

purposes only and should not be considered a substitute for the

financial

information presented in accordance with GAAP.

The Company presents EBITDA which is calculated as net income

(loss) attributable to the Company before depreciation and

amortization, interest expense, net, and taxes on income

(loss) 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 income before equity in

net income of associated companies, in each case adjusted,

as applicable, for any

depreciation, amortization, interest or tax impacts resulting

from the non-core items identified in the reconciliation

of net income

attributable to the Company to adjusted EBITDA.

Non-GAAP earnings per diluted share is calculated as non

-GAAP net income per

diluted share as accounted for under the “two-class share

method.”

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

GAAP earnings per diluted share provide transparent

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

and

competitors in our industry as well as by management in

assessing the operating performance of the Company on a consistent

basis.

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,

2021

2020

2021

2020

Operating income (loss)

38,816

2,238

83,710

(10,206)

Houghton combination, integration and other

acquisition-related expenses (a)

6,784

8,253

13,014

16,529

Restructuring and related charges (b)

298

486

1,473

2,202

Fair value step up of acquired inventory sold (c)

—

226

801

226

CEO transition costs (d)

308

—

812

—

Inactive subsidiary's non-operating litigation costs (e)

242

—

293

—

Customer bankruptcy costs (f)

—

463

Indefinite-lived intangible asset impairment (g)

—

38,000

Non-GAAP operating income

46,448

11,203

100,103

47,214

Non-GAAP operating margin (%) (o)

10.7%

3.9%

11.6%

7.1%

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin

and Non-GAAP Net Income Reconciliations

Three Months Ended

Six Months Ended

June 30,

2021

2020

2021

2020

Net income (loss) attributable to Quaker Chemical Corporation

33,570

(7,735)

72,185

(36,116)

Depreciation and amortization (a)(m)

22,344

21,158

44,792

42,742

Interest expense, net

5,618

6,811

11,088

15,272

Taxes on income

(loss) before equity in net income

of associated companies

15,218

3,222

25,907

(9,848)

EBITDA

76,750

23,456

153,972

12,050

Equity income in a captive insurance company (h)

(883)

(482)

(3,963)

(155)

Houghton combination, integration and other

acquisition-related expenses (a)

6,658

7,963

7,085

15,766

Restructuring and related charges (b)

298

486

1,473

2,202

Fair value step up of acquired inventory sold (c)

—

226

801

226

CEO transition costs (d)

308

—

812

—

Inactive subsidiary's non-operating litigation costs (e)

242

—

293

—

Customer bankruptcy costs (f)

—

463

Indefinite-lived intangible asset impairment (g)

—

38,000

Pension and postretirement benefit (income) costs,

non-service components (i)

(129)

341

(253)

23,866

Brazilian non-income tax credits (j)

(13,293)

—

(13,293)

—

Currency conversion impacts of hyper-inflationary economies (k)

106

278

124

Adjusted EBITDA

70,057

32,063

147,205

92,542

Adjusted EBITDA margin (%) (o)

16.1%

11.2%

17.0%

13.9%

Adjusted EBITDA

70,057

32,063

147,205

92,542

Less: Depreciation and amortization - adjusted (a)

22,218

20,869

44,251

41,980

Less: Interest expense, net

5,618

6,811

11,088

15,272

Less: Taxes on income

before equity in net income

of associated companies - adjusted (a)(n)

9,773

673

21,512

7,136

Non-GAAP net income

32,448

3,710

70,354

28,154

Quaker Chemical Corporation

Management’s Discussion and Analysis

Non-GAAP Earnings per Diluted Share Reconciliations

Three Months Ended

Six Months Ended

June 30,

2021

2020

2021

2020

GAAP earnings (loss) per diluted share attributable to

Quaker Chemical Corporation common shareholders

1.88

(0.43)

4.03

(2.03)

Equity income in a captive insurance company

per diluted share (h)

(0.05)

(0.03)

(0.22)

(0.01)

Houghton combination, integration and other

acquisition-related expenses per diluted share (a)

0.28

0.37

0.32

0.73

Restructuring and related charges per diluted

share (b)

0.02

0.07

0.09

Fair value step up of acquired inventory sold per diluted

share (c)

—

0.01

0.03

0.01

CEO transition costs per diluted share (d)

0.02

—

0.04

—

Inactive subsidiary's non-operating litigation costs per

diluted share (e)

0.01

—

0.01

—

Customer bankruptcy costs per diluted share (f)

—

0.02

Indefinite-lived intangible asset impairment per diluted

share (g)

—

1.65

Pension and postretirement benefit (income) costs,

non-service components per diluted share (i)

(0.01)

0.01

(0.01)

0.89

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

(0.44)

—

(0.44)

—

Currency conversion impacts of hyper-inflationary

economies per diluted share (k)

0.01

0.02

0.01

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

0.10

0.25

0.08

0.23

Non-GAAP earnings per diluted share (p)

1.82

0.21

3.93

1.59

(a)

Houghton combination, integration and other acquisition-related

expenses include certain legal, financial, and other advisory

and

consultant costs incurred in connection with post-closing

integration activities including internal control readiness and

remediation.

These costs are not indicative of the future operating performance

of the Company.

Approximately $0.4 million

and $0.5 million in the three and six months ended June

30, 2021,

respectively, of these

pre-tax costs were considered non-

deductible for the purpose of determining the Company’s

effective tax rate, and, therefore, taxes on income before

equity in net

income of associated companies - adjusted reflects the

impact of these items.

During the three and six months ended June 30,

2021, the Company recorded $0.1 million and $0.5 million,

respectively, of

accelerated depreciation related to certain of the

Company’s facilities compared

to $0.3 million and $0.8 million during the three and

six months ended June 30, 2020,

respectively, 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 income

(loss) attributable to the Company to EBITDA, but excluded

from the caption

“Depreciation and amortization - adjusted” in the reconciliation

of adjusted EBITDA to non-GAAP net income attributable

to the

Company.

During the six months ended June 30, 2021, the Company recorded

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

sale real property assets related to the Combination

which is included in the caption “Houghton combination,

integration and

other acquisition-related expenses” in the reconciliation

of GAAP earnings (loss) per diluted share attributed

to Quaker Chemical

Corporation common shareholders to Non-GAAP earnings

per diluted share as well as the reconciliation of net income

(loss)

attributable to Quaker Chemical Corporation to Adjusted

EBITDA and Non-GAAP net income.

See Note 2 of Notes to

Condensed Consolidated Financial Statements, which appears

in Item 1 of this Report.

(b)

Restructuring and related charges represent

the costs incurred by the Company associated with the QH restructuring

program

which was initiated in the third quarter of 2019 as part

of the Company’s plan

to realize cost synergies associated with the

Combination.

These costs are not indicative of the future operating performance

of the Company.

See Note 7 of Notes to

Condensed Consolidated Financial Statements, which appears

in Item 1 of this Report.

(c)

Fair value step up of acquired inventory sold relates

to expense associated with selling inventory of acquired

businesses which

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

This increase to cost of goods sold (“COGS”) is not indicative

of the

future operating performance of the Company.

(d)

CEO transition costs represent the costs related to the

Company’s on-going search

for a new CEO in connection with the

previously announced executive transition planned for

the end of 2021.

These expenses are not indicative of the future operating

performance of the Company.

Quaker Chemical Corporation

Management’s Discussion and Analysis

(e)

Inactive subsidiary’s

non-operating litigation costs represents the charges

incurred by an inactive subsidiary of the Company and

are a result of the termination of restrictions on insurance

settlement reserves as previously disclosed in the Company’s

2020

Form 10-K.

These charges are not indicative of the future operating

performance of the Company.

See Note 9 of Notes to

Condensed Consolidated Financial Statements, which appears

in Item 1 of this Report.

(f)

Customer bankruptcy costs represent the cost associated

with a specific reserve for trade accounts receivable related

to a customer

who filed for bankruptcy protection.

These expenses are not indicative of the future operating

performance of the Company.

(g)

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 appears

in Item 1 of this Report.

(h)

Equity income in a captive insurance company represents the

after-tax income attributable to the Company’s

interest in Primex,

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

The Company holds a 32% investment in and has significant

influence over

Primex, and therefore accounts for this 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.

(i)

Pension and postretirement benefit (income) 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 amount in 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.

(j)

Brazilian non-income tax credits represent indirect tax

credits related to certain of the Company’s

Brazilian subsidiaries

prevailing in a legal claim as well as the Brazilian Supreme

Court ruling on these non-income tax matters.

The non-income tax

credit is non-recurring and not indicative of the future

operating performance of the Company.

See Note 19 of Notes to

Condensed Consolidated Financial Statements, which appears

in Item 1 of this Report.

(k)

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, 2021 and 2020, 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.

(l)

The impact of certain discrete tax items includes the impact

of changes in certain valuation allowance recorded

on certain of the

Company’s foreign

tax credits, tax law changes in a foreign jurisdiction, changes in withholding

rates, the tax impacts of non-

income tax credits associated with certain of the Company’s

Brazilian subsidiaries and the associated impact on previously

accrued for distributions at certain of the Company’s

Asia/Pacific subsidiaries, as well as the offsetting

impact

and amortization

of a deferred tax benefit the Company recorded

in the fourth quarters of 2019 and 2020 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.

(m)

Depreciation and amortization for the three and six

months ended June 30, 2021 includes approximately $0.3

million and $0.6

million, respectively,

and 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.

(n)

Taxes on income

before equity in net income of associated companies – adjusted

presents the impact of any current and deferred

income tax expense (benefit), as applicable, of

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

attributable to Quaker Chemical Corporation to adjusted

EBITDA, and was determined utilizing the applicable rates in the taxing

jurisdictions in which these adjustments occurred, subject

to deductibility.

Houghton combination, integration and other

acquisition-related expenses described in (a) resulted in

incremental taxes of $1.6 million and $1.7 million during the three and

six months ended June 30, 2021,

and $1.5 million and $3.4 million during the three and six months ended

June 30, 2020,

respectively.

Restructuring and related charges described in (b) resulted

in incremental taxes of $0.1 million and $0.3 million

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

respectively, and $0.1 million

and $0.3 million for the three and six months

ended June 30, 2020, respectively.

Fair value step up of acquired inventory sold described in (c) resulted

in incremental taxes of

$0.2 million during the six months ending June 30, 2021

and less than $0.1 million during both the three and six months ended

June 30, 2020.

CEO transition expenses described in (d) resulted in incremental

taxes of $0.1 million and $0.2 million during the

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

Inactive subsidiary litigation described in (e) resulted in incremental

taxes of $0.1 million during each of the three and six

months ended June 30, 2021.

Customer bankruptcy costs described in (f)

Quaker Chemical Corporation

Management’s Discussion and Analysis

resulted in incremental taxes of $0.1 million during the

six months ended June 30, 2020.

Indefinite-lived intangible asset

impairment described in (g) 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 (i) resulted in a tax benefit of less than $0.1 million during each

of the three and six months ended June 30, 2021, and incremental

taxes of $0.1 million and $8.0 million for the three and

six

months ended June 30, 2020, respectively.

Brazilian non-income tax credits described in (j) resulted in

incremental taxes of $5.3

million during the three and six months ended June 30,

2021.

Tax impact of

certain discrete items described in (l) above resulted

in an incremental taxes of $1.9 million and $1.5 million

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

respectively, and

$4.4 million and $4.0 million for the three and six months

ended June 30, 2020, respectively.

(o)

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.

(p)

The Company calculates non-GAAP earnings per diluted share

as non-GAAP net income attributable to the Company

per

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

method” to calculate such in each given period.

Off-Balance Sheet Arrangements

The Company had no material off-balance

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

June 30,

2021.

The Company’s only

off-balance sheet items outstanding as of June 30

2021 represented approximately $7 million of total bank

letters of credit and guarantees.

The bank letters of credit and guarantees are not significant to

the Company’s liquidity

or capital

resources.

See Note 15 of Notes to Condensed Consolidated Financial Statements

in Item 1 of this Report.

Operations

Consolidated Operations Review – Comparison of the Second

Quarter

of 2021 with the Second Quarter of 2020

Net sales were $435.3 million in the second quarter of

2021 compared to $286.0 million in the second quarter

of 2020.

The net

sales increase of approximately $149.2

million or 52% quarter-over-quarter

was driven by higher sales volumes of 40%, which

includes additional net sales from recent acquisitions of

5%, the positive impact of foreign currency translation of

8% as well as

increases from selling price and product mix of approximately

4%.

The significant increase in sales volumes compared to the second

quarter of 2020 was primarily the result of the prior year

quarter being the most severely impacted by COVID-19

globally as well as

the continued improvement in end market conditions and

continued market share gains realized in the current quarter.

Sales from

acquisitions includes notably the Company’s

acquisition of Coral Chemical Company (“Coral”) in December

2020.

The positive

impact from foreign currency translation is primarily the

result of the strengthening of the euro, Chinese renminbi

and Mexican peso

against the U.S. dollar quarter-over-quarter

The increase from selling price and product mix includes

the benefits of current year

selling price increases implemented to date to help offset

the rising raw material costs.

COGS were $280.8 million in the second quarter of 2021

compared to $188.7 million in the second quarter of 2020

The increase

in COGS of 49%

was driven by the associated COGS on the increase in net

sales described above.

Gross profit in the second quarter of 2021 of $154.5

million increased $57.1 million or 59% from the second quarter

of 2020, due

primarily to the increase in net sales noted above.

The Company’s reported

gross margin in the second quarter of 2021 was 35.5%

compared to 34.0% in the second quarter of 2020.

Excluding one-time increases to COGS including accelerated

depreciation in both

periods and the impact of the inventory fair value

step up in the prior year quarter, described

in the Non-GAAP section of this Item

above, the Company estimates that its gross margins

in the second quarters of 2021 and 2020 would have been approximately

35.5%

and 34.2%, respectively.

While the Company has experienced unprecedented raw material

cost increases that began in the fourth

quarter of 2020 and are continuing throughout the first

half of 2021, the higher gross margin as compared

to the prior year quarter was

primarily driven by the Company’s

continued execution of Combination-related logistics, procurement

and manufacturing cost

savings initiatives versus the prior year impact of fixed manufacturing

costs on the abnormally low volumes due to COVID-19.

SG&A in the second quarter of 2021 increased $22.0 million

compared to the second quarter of 2020 due primarily to

the impact

of sales increases on direct selling costs, additional

SG&A from recent acquisitions, higher incentive compensation

on improved

operating performance in the current year,

and higher SG&A due to foreign currency translation.

In addition, SG&A was lower in the

prior year period as a result of certain temporary cost saving measures

the Company implemented in response to the onset of COVID-

19.

While the Company continues to manage costs during the on

-going pandemic, it has incurred higher SG&A as the global

economy continues to gradually rebound.

During the second quarter of 2021, the Company incurred

$6.7 million of Combination, integration and other acquisition-related

expenses primarily for professional fees related to Houghton integration

and other acquisition-related activities.

Comparatively, the

Company incurred $8.0 million of expenses in the prior

year second quarter, primarily due

to various professional fees related to legal,

financial and other advisory and consulting expenses for

integration activities.

See the Non-GAAP Measures section of this Item,

above.

Quaker Chemical Corporation

Management’s Discussion and Analysis

The Company initiated a restructuring program during

the third quarter of 2019 as part of its global

plan to realize cost synergies

associated with the Combination.

The Company incurred restructuring and related charges for

reductions in headcount and site

closures under this program of $0.3 million and $0.5 million

during the second quarters of 2021 and 2020, respectively.

See the Non-

GAAP Measures section of this Item, above.

Operating income in the second quarter of 2021 was $38.8

million compared to $2.2 million in the second quarter of

2020.

Excluding Combination, integration and other acquisition

-related expenses, restructuring and related charges

and other non-core

items, the Company’s

current quarter non-GAAP operating income increased 315% to

$46.4 million compared to $11.2 million in

the

prior year quarter primarily due to the increase in net sales described

above and the benefits from cost savings related to the

Combination offset by increases in raw material

costs.

The Company had other income, net, of $14.0 million

in the second quarter of 2021 compared to other expense,

net, of $1.0

million in the second quarter of 2020.

The second quarter of 2021 includes $13.3 million related to

certain non-income tax credits

recorded by the Company’s

Brazilian subsidiaries as well as lower foreign currency transaction

losses compared to the prior quarter.

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

Interest expense, net, decreased $1.2 million compared

to the second quarter of 2020 driven by lower current quarter

borrowings

outstanding as a result of the additional revolver

borrowings drawn down in March 2020 at the onset of the

pandemic as well as a

decline in overall interest rates quarter-over-quarter.

The Company’s effective

tax rates for the second quarters of 2021 and 2020 were 32.2%

and 57.9%, respectively.

The

Company’s current quarter

effective tax rate was impacted by the changes in foreign

tax credit valuation allowances, tax law changes

in foreign jurisdictions as well as the tax impacts of

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

Brazilian subsidiaries.

Comparatively,

the prior year second quarter effective tax rate was impacted

by the tax effect of certain one-time pre-tax losses.

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 2021 and 2020 effective tax rates would

have been

approximately 24% and 18%, respectively.

The higher estimated current quarter tax rate was driven by the

impact of higher pre-tax

income in the current quarter as compared to the prior

year quarter on certain tax adjustments as well as increased withholding

taxes

on expected current year repatriated earnings.

The Company may experience continued volatility in its effective

tax rates due to

several factors, including the timing of tax audits and

the expiration of applicable statutes of limitations as they relate

to uncertain tax

positions, the unpredictability of the timing and

amount of certain incentives in various tax jurisdictions, the treatment

of certain

acquisition-related costs and the timing and amount

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

other factors.

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 2021 compared to the second

quarter of 2020, primarily due to higher current year

quarter income from the Company’s

interest in a captive insurance company

compared to the prior year quarter.

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

income attributable to

noncontrolling interest was less than $0.1 million

in both the second quarters of 2021 and 2020.

Foreign exchange positively impacted the Company’s

second quarter results by approximately 10% driven by the positive

impact

from foreign currency translation on earnings as well as lower

foreign exchange transaction losses in the current

year quarter as

compared to the prior year second quarter.

Consolidated Operations Review – Comparison of the First Six

Months of 2021 with the First Six Months of 2020

Net sales were $865.0 million in the first six months of

2021 compared to $664.6 million in the first six months of

2020.

The net

sales increase of $200.4 million or 30% period-over-period

reflects a benefit from higher sales volumes of 22%, which includes

additional net sales from recent acquisitions of 4%,

the positive impact from foreign currency translation

of 5%, and increases in

selling price and product mix of 3%.

The increase in sales volumes compared to the first six months

of 2020 was primarily due to

improved end market conditions from the prior year impacts

of COVID-19 and continued market share gains.

Additional net sales

from acquisitions relate primarily to the acquisitions of

a tin-plating solutions business and Coral, acquired in February

2021 and

December 2020, respectively.

The positive impact from foreign currency translation

is primarily the result of the strengthening of the

euro and Chinese Renminbi against the U.S. dollar

year-over-year.

The increase from selling price and product mix includes the

benefits of current year selling price increases implemented

to date to help offset the rising raw material and

input costs.

COGS were $554.4 million in the first six months of 2021

compared to $433.4 million in the first six months of

2020.

The

increase in COGS of 28% was driven by the associated COGS

on the increase in net sales as described above, and to

a lesser extent,

an expense of $0.8 million associated with selling acquired

Coral inventory in the first six months of 2021 at its fair

value described in

the Non-GAAP Measures section of this Item above.

Gross profit in the first six months of 2021 increased $79.4

million or 34% from the first six months of 2020, due

primarily to the

increase in net sales described above.

The Company’s reported gross

margin in the first six months of 2021 was 35.9%

compared to

34.8% in the first six months of 2020.

Excluding one-time increases to COGS including accelerated

depreciation and the impact of

Quaker Chemical Corporation

Management’s Discussion and Analysis

the inventory fair value step up in both periods, described in the

Non-GAAP section of this Item above, the Company estimates that

its

gross margins in the first six months of

2021 and 2020 would have been approximately 36.1% and

34.9%, respectively.

The

Company’s higher current

year gross margin was primarily due to the same

impacts described in the second quarter description above.

SG&A in the first six months of 2021 increased $27.6

million compared to the first six months of 2020 due

primarily to the same

drivers described in the second quarter description above.

During the first six months of 2021,

the Company incurred $12.5 million of Combination, integration

and other acquisition-

related expenses primarily for professional fees related

to Houghton integration and other acquisition-related activities.

Comparatively,

the Company incurred $15.9 million of expenses in the first six

months of 2020,

primarily due to various professional

fees related to integration activities.

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 to

realize cost synergies associated with the Combination.

The Company recorded restructuring and related charges

of $1.5 million

during the first six months of 2021 compared to

$2.2 million during the first six months of 2020 under this

program.

See the Non-

GAAP Measures section of this Item, above.

During the first quarter of 2020, the Company recorded

a $38.0 million non-cash impairment charge to write

down the value of

certain indefinite-lived intangible assets associated with the

Combination.

This non-cash impairment charge is related to certain

acquired Houghton trademarks and tradenames and

was primarily the result of the projected negative impacts of COVID-19

as of

March 31, 2020 on their estimated fair values.

There was no similar impairment charges recorded

during the first six months of 2021.

Operating income in the first six months of 2021 was $83.7

million compared to an operating loss of $10.2 million in

the first six

months of 2020.

Excluding Combination, integration and other acquisition-related

expenses, 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 $100.1 million increased compared

to $47.2 million in the prior year period, primarily due to the

increase in net

sales described above and the continued benefits from

cost savings related to the Combination.

The Company’s other

income, net, was $18.7 million in the first six months of 2021 compared

to other expense, net of $22.2

million in the prior year period.

The year-over-year change was primarily due to other

income related to certain non-income tax

credits recorded by the Company’s

Brazilian subsidiaries during the second quarter of 2021 as well as the

gain on the sale of certain

held-for-sale real property assets during the first

quarter of 2021 compared to a first quarter of 2020 pension plan

settlement charge

associated with the termination of the Legacy Quaker

U.S. Pension Plan.

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

Interest expense, net, decreased $4.2 million in the first

six months of 2021 compared to the first six months of 2020

driven by

lower current year borrowings outstanding as a result of

the additional revolver borrowings drawn down in March 2020

at the onset of

the pandemic as well as a decline in overall interest rates year-over-year,

as the weighted average interest rate incurred on borrow

ings

under the Company’s credit

facility was approximately 1.6% during the first six months of

2021 compared to approximately 2.5%

during the first six months of 2020.

The Company’s effective

tax rates for the first six months of 2021 and 2020 was an expense

of 28.4% compared to a benefit of

20.7%, respectively.

The Company’s effective

tax rate for the six months ended June 30, 2021 was impacted

by the sale of certain

held-for-sale real property assets related to the

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

non-income

tax credits recorded by the Company’s

Brazilian subsidiaries.

Comparatively,

the prior year first six months effective tax rate was

impacted by the tax effect of certain one-time

pre-tax losses as well as certain tax charges and benefits in

the current period including

those related to changes in foreign tax credit valuation allowances,

tax law changes in a foreign jurisdiction, and the tax impacts of

the

Company’s termination

of its Legacy Quaker U.S. Pension Plan and the Houghton

indefinite-lived trademarks and tradename

intangible asset impairment.

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 2021 and 2020

effective tax rates

were relatively consistent at approximately 24% and 21%,

respectively.

The year-over-year increase was largely

driven by the impact

of higher pre-tax income in the current year period as compared

to the prior year period on certain adjustments as well as increased

withholding tax on expense on current year repatriated

earnings.

Equity in net income of associated companies increased $5.1 million

in the first six months of 2021 compared to the first six

months of 2020, primarily due to higher current year earnings from

the Company’s interest in a captive

insurance company.

See the

Non-GAAP Measures section of this Item, above.

In addition, the Company had higher earnings year-over-year

from the Company’s

50% interest in its joint venture in Korea.

Net income attributable to noncontrolling interest was less than

$0.1 million in both the first six months of 2021 and 2020.

Foreign exchange positively impacted the Company’s

first six months of 2021 results by approximately 4% driven by the positive

impact from foreign currency translation on earnings partially

offset by higher foreign exchange transaction losses in

the current year

as compared to the prior year period.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Reportable Segments Review - Comparison of the Second

Quarter of 2021

with the Second Quarter of 2020

The Company’s reportable

segments reflect the structure of the Company’s

internal organization, the method by which the

Company’s resources are

allocated and the manner by which the chief operating decision

maker of the Company assesses its

performance.

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

(ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty

Businesses.

The three geographic segments are composed of the net

sales and operations in each respective region, excluding net

sales and operations managed globally by the Global

Specialty Businesses segment, which includes the Company’s

container, metal

finishing, mining, offshore, specialty coatings,

specialty grease and Norman Hay businesses.

Segment operating earnings for the Company’s

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

related to the respective segment’s

product sales.

Operating expenses not directly attributable to the net

sales of each respective

segment,

such as certain corporate and administrative costs, Combination,

integration and other acquisition-related expenses,

Restructuring and related charges, and COGS related

to acquired inventory sold, which is adjusted to fair value

as part of purchase

accounting,

are not included in segment operating earnings.

Other items not

specifically identified with the Company’s

reportable

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

income, net.

Americas

Americas represented approximately 32% of the Company’s

consolidated net sales in the second quarter of 2021.

The segment’s

net sales were $139.7 million, an increase of $59.1

million or 73% compared to the second quarter of 2020.

The increase in net sales

reflects the inclusion of additional net sales from acquisitions, primarily

Coral.

Excluding sales from acquisitions, the segment’s

net

sales increase quarter-over-quarter of

approximately 65% was driven by higher volumes of 54%,

a benefit in selling price and product

mix of 7% and the positive impact of foreign currency

translation of 4%.

The current quarter volume increase was driven by the

continued economic rebound from the COVID-19

slowdown as the pandemic notably impacted this segment during

the second quarter

of 2020.

The foreign exchange impact was driven by the strengthening

of the Mexican peso against the U.S. dollar,

as this exchange

rate averaged 20.02 in the second quarter of 2021 compared to

23.32 during the second quarter of 2020.

This segment’s operating

earnings were $33.6 million, an increase of $23.3

million or 227% compared to the second quarter of 2020.

The increase in segment

operating earnings reflects the higher net sales describe

above coupled with a higher current quarter gross margin,

partially offset by

higher SG&A, including SG&A from acquisitions and

an increase in SG&A as the prior year second quarter included temporary

cost

savings measures implemented in response to the onset of

the COVID-19 pandemic.

EMEA

EMEA represented approximately 28% of the Company’s

consolidated net sales in the second quarter of 2021.

The segment’s

net sales were $123.4 million, an increase of $45.7

million or 59% compared to the second quarter of 2020.

The increase in net sales

was driven by increases in volumes of 38%, the positive impact

of foreign currency translation of 13%, a benefit from selling

price

and product mix of 5%, and additional net sales from acquisitions

of 3%.

The current quarter volume increase was driven by the

continued economic rebound from the COVID-19

slowdown as the pandemic notably impacted this segment during

the second quarter

of 2020.

The foreign exchange impact was primarily driven by the

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

rate averaged 1.20 in the second quarter of 2021 compared

to 1.10 in the second quarter of 2020.

This segment’s operating earnings

were $23.4 million, an increase of $12.9 million or 124%

compared to the second quarter of 2020.

The increase in segment operating

earnings reflects the higher net sales described above

coupled with a higher current quarter gross margin, partially

offset by higher

SG&A as the prior year second quarter included temporary

cost savings measures implemented in response to the

onset of the

COVID-19 pandemic.

Asia/Pacific

Asia/Pacific represented approximately 21% of the

Company’s consolidated net

sales in the second quarter of 2021.

The

segment’s net sales were $91.6

million, an increase of approximately $23.1 million or 34% compared

to the second quarter of 2020.

The increase in net sales quarter-over-quarter

was driven by increases in volumes of 26% and the positive impact

of foreign currency

translation of 9% and additional net sales from acquisitions

of less than 1%, partially offset by decreases from

selling price and

product mix of 2%.

The current quarter volume increase was driven by the continued economic

rebound from the COVID-19

slowdown.

The foreign exchange impact was primarily due to the strengthening

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

this exchange rate averaged 6.46 in the second quarter

of 2021 compared to 7.09 in the second quarter of 2020.

This segment’s

operating earnings were $23.2 million, an increase of

$4.0 million or 21% compared to the second quarter of 2020.

The increase in

segment operating earnings reflects the higher net sales descr

ibed above partially offset by lower gross margins

on rising raw material

costs as well as higher SG&A which includes an increase in

direct selling costs associated with higher net sales.

Global Specialty Businesses

Global Specialty Businesses represented approximately

19% of the Company’s consolidated

net sales in the second quarter of

2021.

The segment’s net sales were $80.6

million, an increase of $21.3 million or 36% compared to the second

quarter of 2020.

The

Quaker Chemical Corporation

Management’s Discussion and Analysis

increase in net sales reflects the inclusion of additional

net sales from acquisitions, primarily Coral.

Excluding net sales from

acquisitions, the segment’s

net sales would have increased 27% quarter-over-quarter

driven by increases in selling price and product

mix, including Norman Hay,

of 15%, increases in volumes of 7% and the positive impact

of foreign currency translation of

approximately 5%.

The foreign exchange impact was a result of similar strengthening

of certain currencies in EMEA and Americas as

described above.

This segment’s operating earnings

were $24.2 million, an increase of $7.8 million or 48%

compared to the second

quarter of 2020.

The increase in segment operating earnings reflects the higher net

sales described above coupled with higher gross

margins compared to the second quarter of 2020,

partially offset by higher SG&A as the prior

year second quarter included temporary

cost savings measures implemented in response to the

onset of the COVID-19 pandemic.

Reportable Segments Review - Comparison of the First Six

months of 2021 with the First Six months of 2020

Americas

Americas represented approximately 32% of the Company’s

consolidated net sales in the first six months of 2021.

The segment’s

net sales were $274.5 million, an increase of $64.0

million or 30% compared to the first six months of 2020.

The increase in net sales

was due to higher sales volumes of 21%, additional

net sales from acquisitions of 6% primarily resulting from

Coral, and benefits

from selling price and product mix of 3%.

The current year volume increase was driven by the continued

economic rebound from the

COVID-19 slowdown as the pandemic began in late

March and continued throughout the second quarter of 2020.

This segment’s

operating earnings were $65.9 million, an increase of

$26.4 million or 67% compared to the first six months of 2020.

The increase in

segment operating earnings reflects the higher net sales described

above coupled with higher gross margins in the

current year period,

partially offset by higher SG&A.

EMEA

EMEA represented approximately 28% of the Company’s

consolidated net sales in the first six months of 2021.

The segment’s

net sales were $243.3 million, an increase of $60.7

million or 33% compared to the first six months of 2020.

The increase in net sales

was due to higher sales volumes of 17%, the positive impacts

from foreign exchange translation of 10%, increases in

selling price and

product mix of 4% and additional net sales from acquisitions

of 2%.

The current year volume increase was driven by the continued

economic rebound from the COVID-19 slowdown

as the pandemic began in late March and continued throughout the

second quarter

of 2020.

The foreign exchange impact was primarily due to the strengthening

of the euro and British pound against the U.S. dollar as

these exchange rates averaged 1.21 and 1.39, respectively,

during the first six months of 2021 compared to 1.10

and 1.26, respectively,

during the first six months of 2020.

This segment’s operating earnings

were $48.6 million, an increase of $19.8 million or 69%

compared to the first six months of 2020.

The increase in segment operating earnings reflect the higher

net sales described above

coupled with improved gross margins in

the current year period, partially offset by higher SG&A.

Asia/Pacific

Asia/Pacific represented approximately 22% of the

Company’s consolidated net

sales in the first six months of 2021.

The

segment’s net sales were $188.3

million, an increase of $46.3 million or 33% compared to the first

six months of 2020.

The increase

in net sales was driven by higher sales volumes of

approximately 26% and the positive impact of foreign currency

translation of 7%.

The current year volume increase was driven by

the continued gradual economic rebound from the COVID-19 slowdown

as the

pandemic notably impacted China during the first quarter of

2020 and then the rest of the region during the second quarter

of 2020.

The foreign exchange impact was primarily due to the

strengthening of the Chinese renminbi against the U.S. dollar as

this exchange

rate averaged 6.47 during the first six months of 2021 compared

to 7.03 during the first six months of 2020.

This segment’s operating

earnings were $50.7 million, an increase of $11.9

million or 31% compared to the first six months of 2020.

The increase in segment

operating earnings were a result of the higher net sales described

above partially offset by lower gross margins

compared to the first

six months of 2020 driven by increasing raw material

costs in the current year, as well as higher

SG&A.

Global Specialty Businesses

Global Specialty Businesses represented 18% of the

Company’s consolidated net sales in the

first six months of 2021.

The

segment’s net sales were $159.0

million, an increase of $29.4 million or 23% compared to the first

six months of 2020.

The increase

in net sales was driven by benefits from selling price

and product mix, including Norman Hay,

of 18%, additional net sales from

acquisitions of 7% primarily driven by Coral, and the

positive impact of foreign currency transaction of 4%, partially

offset by

decreases in volumes of 6%.

The foreign exchange impact was a result of similar strengthening

of certain currencies in EMEA and

Americas as described above.

Both the changes in selling price and product mix and

sales volumes were primarily driven by higher

shipments of a lower priced product in the Company’s

mining business in the period year period.

This segment’s operating earnings

were $48.4 million, an increase of $11.4

million of 31% compared to the first six months of 2020.

The increase in segment operating

earnings reflects the higher net sales described above

on relatively consistent gross margins period

-over-period, partially offset by

slightly higher SG&A in the current year.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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, and financial condition,

our expectation that we will maintain sufficient

liquidity and remediate any of our material weaknesses in internal

control over

financial reporting, and statements regarding the impact

of increased raw material costs and pricing initiative

on our current

expectations about future events.

These forward-looking statements include statements with respect

to our beliefs, plans, objectives, goals, expectations,

anticipations, intentions, financial condition, results of operations,

future performance, and business, including:

•

the potential benefits of the Combination and other acquisitions;

•

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

pandemic 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 Annual

Report to Shareholders for 2020 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 slowdowns and shutdowns, including as is currently

being experienced by

many automotive industry companies.

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 instability, worldwide

economic and political disruptions, foreign

currency fluctuations, significant changes in applicable

tax rates and regulations, future terrorist attacks and other acts of

violence.

Furthermore, the Company is subject to the same business

cycles as those experienced by our customers in the

steel, automobile,

aircraft, industrial equipment, and durable goods industries.

The ultimate impact of COVID-19 on our business will depend

on,

among other things, the extent and duration of the pandemic, the

severity of the disease and the number of people infected with

the

virus including as new variants emerge, the

continued uncertainty regarding global availability,

administration, acceptance and long-

term efficacy of vaccines, or other treatments for

COVID-19 or its variants, the longer-term effects

on the economy 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, as well as laws and other governmental

programs implemented to address the pandemic

or assist impacted businesses, such as fiscal stimulus and other

legislation designed to

deliver monetary aid and other relief.

Other factors could also adversely affect us, including

those related to the Combination and

other acquisitions and the integration of acquired businesses.

Our forward-looking statements are subject to risks, uncertainties and

assumptions about the Company and its operations that

are subject to change based on various important factors, some

of which are

beyond our control.

These risks, uncertainties, and possible inaccurate assumptions relevant

to our business could cause our actual

results to differ materially from expected

and historical results.

Therefore, we caution you not to place undue reliance

on our forward-looking statements.

For more information regarding these

risks and uncertainties as well as certain additional

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

in Item 1A in

our 2020 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 Chemical Corporation

Management’s Discussion and Analysis

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.

We have evaluated

the information required under this Item that was disclosed in Part II,

Item 7A, of our Annual Report on Form

10-K for the year ended December 31, 2020, and we

believe there has been no material change to that information.

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, 2021 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 2020

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 Organizatio

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.

We did not

design and maintain effective controls in response to the

risks of material misstatement.

Specifically, changes to existing

controls or the implementation of new controls were not

sufficient to respond to changes to the risks of material

misstatement in

financial reporting as a result of becoming a larger,

more complex global organization due to the Combination.

This material

weakness also contributed to an additional material weakness as we did

not design and maintain effective controls

over the review of

pricing, quantity and customer data to verify that revenue

recognized was complete and accurate.

These material weaknesses did not

result in material misstatements to the interim or annual

consolidated financial statements.

However, these material weaknesses could

result in misstatements to our account balances and disclosures

that could result in a material misstatement to the interim

or annual

consolidated financial statements that would not be

prevented or detected.

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, 2021

and December 31, 2020, and that the results of its operations

and its cash flows and changes in equity for both the

three and six month

periods ended June 30, 2021 and 2020, are in conformity

with accounting principles generally accepted in the United States of

America.

Progress on Remediation

of Material Weaknesses

The Company and its Board of Directors, including the

Audit Committee of the Board of Directors, are committed to maintaining

a strong internal control environment.

Since identifying the material weaknesses, the Company

has dedicated a significant amount of

time and resources to remediate all of the previously identified

material weaknesses as quickly and effectively

as possible. During

2020 and into 2021,

the Company dedicated multiple internal resources and supplemented

those internal resources with various third-

party specialists to assist with the formalization of

a robust and detailed remediation plan.

In undertaking remediation activities, the

Company has hired additional personnel dedicated to

financial and information technology compliance to further

supplement its

internal resources.

In addition, the Company has established a global network

of personnel to assist local management in

understanding control performance and documentation

requirements.

In order to sustain this network, the Company conducts periodic

trainings and hosts discussions to address questions on

a current basis.

However, the impact of COVID-19,

including travel

restrictions and remote work arrangements required

the Company to adapt and make changes to its internal controls

integration plans

as well as its remediation plans, and has presented and

is expected to continue to present challenges with regards to the

timing of the

Company’s remediation

and integration plan activities.

Despite the challenges brought on by COVID-19 and

driven by the Company’s

priority of creating a long-term sustainable control

structure to ensure stability for a company that has more

than doubled in size since August 2019, the Company continues

to make

substantial strides towards remediating the underlying

causes of the previously disclosed material weaknesses in our

risk assessment

process and within our revenue process, as further discussed

below.

Risk Assessment –

We previously determined

that our risk assessment process was not designed adequately

to respond to changes

to the risks of material misstatement to financial reporting.

In order to remediate this material weakness, we have designed

and

implemented an improved risk assessment process, 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 due to the

Combination.

During 2020, a full

review was performed of our processes and controls across

significant locations in order to identify and address potential

design gaps.

In addition to individual transactional-level control enhancements,

this review resulted in (i) an enhanced financial statement

risk

assessment, (ii) the standardization of existing legal entity

and newly implemented segment quarterly analytics and

quarterly closing

packages completed by key financial reporting personnel, (iii) a

global account reconciliation review program and (iv)

enhancements

to our quarterly identification and reassessment of new and

existing business and information technology risks that could

affect our

financial reporting.

Monitoring is also performed through our enhanced quarterly

controls certification process, whereby changes in

business or information technology processes or control

owners are identified and addressed timely.

Although we have implemented

and tested the additional controls as noted in our remediation

plan and found them to be effective, this material

weakness will not be

considered remediated due to the Revenue – Price and

Quantity material weakness, discussed below.

Once the Revenue – Price and

Quantity material weakness is remediated, we expect

the Risk Assessment material weakness will also be remediated.

Revenue – Price and Quantity –

We previously

determined that we did not design and maintain effective

controls over the review

of pricing, quantity and customer data to verify that revenue

recognized was complete and accurate.

In order to remediate this

material weakness, the Company made significant progress

in its redesign of certain aspects of its revenue process and related

controls.

The Company has identified and agreed upon design enhancements

and requirements for each revenue sub-process.

The

design includes enhancements to entity-level and transactional

-level manual controls as well as IT general and application

controls.

During July 2021 and through the date of this Form

10-Q filing for the period ended June 30, 2021, the Company has

been in the

process of implementing these design changes both

centrally and locally.

We expect to

complete the implementation in the third

quarter of 2021.

While the Company believes that the enhancements to these

entity-level, transactional and IT general and application

controls will sufficiently address the material weakness

previously identified, because the additional controls

have not been fully

implemented and tested, this material weakness is not yet remediated.

The existing material weakness will not be considered

remediated until the applicable remedial controls have

been fully implemented and operate for a sufficient

period of time and

management has concluded, through testing, that

the controls are operating effectively.

Given the significant resources the Company has dedicated

to remediation of its material weaknesses, the Company is committed

to remediation and expects that in 2021 it will successfully implement

the enhanced design of its revenue processes and have a

sufficient operational effectiveness period

to evidence remediation over its price and quantity material weakness

and, concurrently,

evidence remediation over its risk assessment material weakness

in 2021 as well.

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, 2021 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, 2021.

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.

The Company’s business,

financial conditions, results of operations and cash flows are

subject to various risks that could cause

actual results to vary materially from recent results or from

anticipated future results.

In addition to the other information set forth in

this Report, you should carefully consider the risk factors

previously disclosed in Part I, Item 1A of our 2020 Form 10-K.

There have

been no material changes to the risk factors described therein.

Item 2.

Unregistered Sales of Equity Securities and Use of

Proceeds.

The following table sets forth information concerning

shares of the Company’s

common stock acquired by the Company during

the period covered by this Report:

(c)

(d)

Total

Number of

Approximate Dollar

(a)

(b)

Shares Purchased

Value of

Shares that

Total

Number

Average

as part of

May Yet

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

616

243.71

—

86,865,026

May 1 - May 31

—

86,865,026

June 1 - June 30

—

86,865,026

Total

616

243.71

—

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 it has no expiration date.

There were no shares acquired by the

Company pursuant to the 2015 Share Repurchase Program

during the quarter ended June 30, 2021.

Limitation on the Payment of Dividends

The Credit Facility has certain 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 1, 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.

10.1

–

Form of Restricted Stock Award Agreement for non-employee directors under Registrant’s 2016 Long-Term

Performance Incentive Plan.*†

10.2

–

Form of Restricted Stock Award Agreement for executive officers and other employees under Registrant’s 2016 Long-

Term Performance Incentive Plan.*†

10.3

–

Form of Incentive Stock Option Award Agreement for executive officers and other employees under Registrant’s 2016

Long-Term Performance Incentive Plan.*†

10.4

–

Form of Non-Qualified Stock Option Award Agreement for executive officers and other employees under Registrant’s

2016 Long-Term Performance Incentive Plan.*†

10.5

–

Form of Restricted Stock Unit Award Agreement for executive officers and other employees under Registrant’s 2016

Long-Term Performance Incentive Plan.*†

10.6

–

Form of Performance Stock Unit Award Agreement for executive officers and other employees under Registrant’s

2016 Long-Term Performance Incentive 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/ Shane W.

Hostetter

Date: August 5, 2021

Shane W.

Hostetter,

Senior Vice President, Chief Financial

Officer (officer duly authorized on behalf of,

and principal

financial officer of, the Registrant)

Quaker Houghton - 10-Q quarterly report FY2021 Q2

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