Quaker Houghton - 10-Q quarterly report FY2022 Q1

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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

March 31, 2022

☐

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 April 30, 2022

17,912,086

QUAKER CHEMICAL CORPORATION

AND CONSOLIDATED

SUBSIDIARIES

Page

PART

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021

Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

Condensed Consolidated Statements of Changes in Equity for the Three Months

Ended March 31, 2022 and 2021

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

II.

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 Income

(Dollars in thousands, except per share data)

Unaudited

Three Months Ended March 31,

2022

2021

Net sales

474,171

429,783

Cost of goods sold (excluding amortization expense - See Note 13)

328,100

273,589

Gross profit

146,071

156,194

Selling, general and administrative expenses

111,795

104,310

Restructuring and related charges

820

1,175

Combination, integration and other acquisition-related expenses

4,053

5,815

Operating income

29,403

44,894

Other (expense) income, net

(2,206)

4,687

Interest expense, net

(5,345)

(5,470)

Income before taxes and equity in net income of associated companies

21,852

44,111

Taxes on income before

equity in net income of associated companies

2,866

10,689

Income before equity in net income of associated companies

18,986

33,422

Equity in net income of associated companies

835

5,210

Net income

19,821

38,632

Less: Net income attributable to noncontrolling interest

Net income attributable to Quaker Chemical Corporation

19,816

38,615

Per share data:

Net income attributable to Quaker Chemical Corporation common

shareholders – basic

1.11

2.16

Net income attributable to Quaker Chemical Corporation common

shareholders – diluted

1.11

2.15

Dividends declared

0.415

0.395

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive

Income

(Dollars in thousands)

Unaudited

Three Months Ended March 31,

2022

2021

Net income

19,821

38,632

Other comprehensive (loss) income, net of tax

Currency translation adjustments

(6,866)

(25,461)

Defined benefit retirement plans

496

1,292

Current period change in fair value of derivatives

1,100

562

Unrealized loss on available-for-sale securities

(1,000)

(3,025)

Other comprehensive loss

(6,270)

(26,632)

Comprehensive income

13,551

12,000

Less: Comprehensive income attributable to noncontrolling

interest

(6)

(15)

Comprehensive income attributable to Quaker Chemical Corporation

13,545

11,985

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)

Unaudited

March 31,

December 31,

2022

2021

ASSETS

Current assets

Cash and cash equivalents

161,552

165,176

Accounts receivable, net

458,459

430,676

Inventories

Raw materials and supplies

146,289

129,382

Work-in-process

and finished goods

153,506

135,149

Prepaid expenses and other current assets

67,853

59,871

Total current

assets

987,659

920,254

Property, plant and equipment,

at cost

439,318

434,344

Less accumulated depreciation

(242,203)

(236,824)

Property, plant and equipment,

net

197,115

197,520

Right of use lease assets

38,245

36,635

Goodwill

630,938

631,194

Other intangible assets, net

1,012,068

1,027,782

Investments in associated companies

90,003

95,278

Deferred tax assets

11,496

16,138

Other non-current assets

29,198

30,959

Total assets

2,996,722

2,955,760

LIABILITIES AND EQUITY

Current liabilities

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

61,385

56,935

Accounts payable

253,906

226,656

Dividends payable

7,433

7,427

Accrued compensation

26,396

38,197

Accrued restructuring

4,435

4,087

Accrued pension and postretirement benefits

1,549

1,548

Other accrued liabilities

97,445

95,617

Total current

liabilities

452,549

430,467

Long-term debt

858,287

836,412

Long-term lease liabilities

27,433

26,335

Deferred tax liabilities

170,622

179,025

Non-current accrued pension and postretirement benefits

44,667

45,984

Other non-current liabilities

47,464

49,615

Total liabilities

1,601,022

1,567,838

Commitments and contingencies (Note 18)

Equity

Common stock, $

par value; authorized

outstanding 2022 –

17,911,583

shares; 2021 –

17,897,033 shares

17,912

17,897

Capital in excess of par value

918,699

917,053

Retained earnings

528,716

516,334

Accumulated other comprehensive loss

(70,261)

(63,990)

Total Quaker

shareholders’ equity

1,395,066

1,387,294

Noncontrolling interest

634

628

Total equity

1,395,700

1,387,922

Total liabilities and equity

2,996,722

2,955,760

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

Unaudited

Three Months Ended March 31,

2022

2021

Cash flows from operating activities

Net income

19,821

38,632

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

Amortization of debt issuance costs

1,187

Depreciation and amortization

20,447

22,145

Equity in undistributed earnings of associated companies, net of dividends

2,135

(5,105)

Acquisition-related fair value adjustments related to inventory

—

801

Deferred compensation, deferred taxes and other,

net

(3,778)

(9,888)

Share-based compensation

2,462

3,779

Gain on disposal of property, plant,

equipment and other assets

(23)

(5,410)

Combination and other acquisition-related expenses, net of payments

(4,246)

(2,884)

Restructuring and related charges

820

1,175

Pension and other postretirement benefits

(1,316)

(1,034)

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

liabilities, net of acquisitions:

Accounts receivable

(26,270)

(46,270)

Inventories

(33,873)

(24,994)

Prepaid expenses and other current assets

(6,506)

(8,315)

Change in restructuring liabilities

(408)

(3,034)

Accounts payable and accrued liabilities

23,249

26,597

Net cash used in operating activities

(6,299)

(12,618)

Cash flows from investing activities

Investments in property,

plant and equipment

(8,847)

(3,934)

Payments related to acquisitions, net of cash acquired

(9,383)

(26,655)

Proceeds from disposition of assets

—

14,744

Net cash used in investing activities

(18,230)

(15,845)

Cash flows from financing activities

Payments of long-term debt

(14,112)

(9,551)

Borrowings on revolving credit facilities, net

43,000

30,000

Repayments on other debt, net

(102)

(188)

Dividends paid

(7,428)

(7,052)

Stock options exercised, other

(801)

(178)

Net cash provided by financing activities

20,557

13,031

Effect of foreign exchange rate changes on cash

348

(3,008)

Net decrease in cash and cash equivalents

(3,624)

(18,440)

Cash and cash equivalents at the beginning of the period

165,176

181,895

Cash and cash equivalents at the end of the period

161,552

163,455

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

Quaker Chemical Corporation

Condensed Consolidated Statements of Changes in Equity

(Dollars in thousands, except per share amounts)

(Unaudited)

Accumulated

Capital in

Other

Common

Excess of

Retained

Comprehensive

Noncontrolling

Stock

Par Value

Earnings

Loss

Interest

Total

Balance at December 31, 2020

17,851

905,171

423,940

(26,598)

550

1,320,914

Net income

—

38,615

—

38,632

Amounts reported in other

comprehensive loss

—

(26,630)

(2)

(26,632)

Dividends ($

0.395

per share)

—

(7,062)

—

(7,062)

Share issuance and equity-based

compensation plans

3,577

—

3,601

Balance at March 31, 2021

17,875

908,748

455,493

(53,228)

565

1,329,453

Balance at December 31, 2021

17,897

917,053

516,334

(63,990)

628

1,387,922

Net income

—

19,816

—

19,821

Amounts reported in other

comprehensive loss

—

(6,271)

(6,270)

Dividends ($

0.415

per share)

—

(7,434)

—

(7,434)

Share issuance and equity-based

compensation plans

1,646

—

1,661

Balance at March 31, 2022

17,912

918,699

528,716

(70,261)

634

1,395,700

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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

consisting only

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

the financial position, results of operations and cash flows

for the interim periods.

The results for the three months ended March 31, 2022 are not necessarily indicative

of the results to be

expected for the full year.

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

Annual Report filed on Form

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

Description of Business

The Company was organized in 1918, incorporated as a Pennsylvania

business corporation in 1930, and in August 2019

completed the Combination with Houghton to form Quaker Houghton.

Quaker Houghton is the global leader in industrial process

fluids.

With a presence around the world, including

operations in over

countries, the Company’s customers

include thousands of

the world’s most advanced and specialized

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

mining, and metalworking

companies.

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

specialty products and offers

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

”) 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 months

ended March 31, 2022, the Company's Argentine subsidiaries represented

less than

% of the Company’s consolidated

total assets and

net sales, respectively.

During each of the three months ended March 31, 2022 and 2021, the Company

recorded $

0.2

million of

remeasurement losses associated with the applicable currency conversions

related to Argentina.

These losses were recorded within

foreign exchange losses, net, which is a component of other (expense) income, net,

in the Company’s Condensed Consolidated

Statements of Income.

Note 2 – Business Acquisitions

2022 Acquisitions

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

inhibitor technologies for the steel industry,

drawing

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

rust preventative, and cleaner applications, for its

Americas reportable segment for approximately $

8.0

million.

This business broadens the Company’s

product offerings within its

existing metals and metalworking business in the Americas region.

The Company allocated $

5.6

million of the purchase price to

intangible assets, comprised of $

5.1

million of customer relationships to be amortized over

years; and $

0.5

million of existing

product technologies to be amortized over

years.

In addition, the Company recorded $

1.8

million of goodwill related to expected

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

in various jurisdictions

in which the

Company operates.

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

of metal castings for the automotive

sector, as well as impregnation resin and

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

for approximately

1.2

million EUR or approximately $

1.4

million.

This business expands the Company's geographic presence in

Germany as well as broadens its product offerings and

service capabilities within its existing impregnation business acquired

as part of

the Norman Hay acquisition in 2019.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

The results of operations of the 2022 acquired assets and businesses subsequent

to the respective acquisition dates are included in

the unaudited Condensed Consolidated Statements of Income for the quarter ended

March 31, 2022.

Applicable transaction expenses

associated with these acquisitions are included in Combination,

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

unaudited Condensed Consolidated Statements of Income.

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

of the acquired assets and businesses are not considered material to the overall operations

of the Company for the periods presented.

Previous Acquisitions

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

a privately held Company that provides vacuum

impregnation services of castings, powder metals and electrical components

for its Global Specialty Businesses reportable segment for

11.0

million, including an initial cash payment of $

7.1

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

provisions initially estimated at $

3.9

million that are payable at different times from 2022 through

2025.

The earn-out provisions

could total a maximum of $

4.5

million.

The Company allocated $

8.0

million of the purchase price to intangible assets, $

1.1

million of

property, plant and

equipment and $

1.5

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

0.3

million of cash

acquired.

In addition, the Company recorded $

0.4

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

Intangible assets

comprised $

7.2

million of customer relationships to be amortized over

15 years

; and $

0.8

million of existing product technology to be

amortized over

13 years

In November 2021, the Company acquired a business that provides

hydraulic fluids, coolants, cleaners, and rust preventative oils

in Turkey for its EMEA reportable segment for

3.2

million EUR or approximately $

3.7

million.

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

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

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

segment for

2.4

million EUR or

approximately $

2.9

million, which is gross of approximately $

0.3

million of cash acquired.

Previously, in February

2021, the

Company acquired a

% ownership interest in Grindaix for

1.4

million EUR or approximately $

1.7

million.

The Company recorded

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

Statements and accounted for the purchase of

the remaining interest as a step acquisition whereby the Company remeasured

the previously held equity method investment to its fair

value.

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

product line in the Global Specialty

Businesses reportable segment for

2.3

million EUR or approximately $

2.8

million.

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

the steel end market for $

25.0

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, all of which is expected to be tax deductible in various jurisdictions in which

operate.

Factors contributing to the purchase price that resulted in goodwill included the

acquisition of business processes and

personnel that will allow Quaker Houghton to better serve its customers.

As of March 31, 2022, the allocation of the purchase price of these acquisitions have

not been finalized and the one-year

measurement period has not ended, with the exception of the tin-plating

solutions business acquired in February 2021, the

measurement period for which ended in February 2022.

Further adjustments may be necessary as a result of the Company’s

on-going

assessment of additional information related to the fair value of assets acquired

and liabilities assumed.

In December 2020, the Company acquired Coral Chemical Corporation (“Coral”),

a privately held U.S.-based provider of metal

finishing fluid solutions.

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

worked to finalize

certain post-closing adjustments.

In April 2022, after failing to reach resolution, the Sellers filed suit asserting certain

amounts owed

related to tax attributes of the acquisition.

Based on the facts and circumstances of the claim asserted by the Sellers, the Company

believes the potential range of exposure for this claim is $

to $

1.5

million.

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards

Adopted

The FASB issued ASU 2020

-04

, Reference Rate Reform (Topic

848): Facilitation of the Effects of Reference Rate Reform

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 (“LIBOR”).

ASU 2020-04 is

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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

be applied through December 31, 2022.

On December 10, 2021,

the Company entered into a Second Amendment to Credit Agreement (“Second

Amendment”) with Bank of America N.A., an update

to provide for the use of a non-USD currency LIBOR successor rate.

The Company elected to apply the expedients provided in ASU

2020-04 with respect to the Second Amendment.

The Company will continue to monitor for potential impacts related to its USD-

based LIBOR rates.

See Note 14 of Notes to Condensed 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 (expense) income,

net.

The following table presents information about the performance of the Company’s

reportable operating segments for the three

months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Net sales

Americas

154,144

134,871

EMEA

125,687

119,814

Asia/Pacific

104,234

96,706

Global Specialty Businesses

90,106

78,392

Total

net sales

474,171

429,783

Segment operating earnings

Americas

29,220

32,234

EMEA

16,766

25,244

Asia/Pacific

21,907

27,478

Global Specialty Businesses

25,035

24,169

Total

segment operating earnings

92,928

109,125

Combination, integration and other acquisition-related expenses

(4,053)

(5,815)

Restructuring and related charges

(820)

(1,175)

Fair value step up of acquired inventory sold

—

(801)

Non-operating and administrative expenses

(43,463)

(40,992)

Depreciation of corporate assets and amortization

(15,189)

(15,448)

Operating income

29,403

44,894

Other (expense) income, net

(2,206)

4,687

Interest expense, net

(5,345)

(5,470)

Income before taxes and equity in net income of associated companies

21,852

44,111

Inter-segment revenues for the three months ended March 31,

2022 and 2021 were $

2.9

million and $

3.3

million for Americas,

8.9

million and $

8.8

million for EMEA, $

0.3

million and $

0.1

million for Asia/Pacific and $

1.7

million and $

2.0

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.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 5 – Net Sales and Revenue Recognition

Arrangements Resulting in Net Reporting

As part of the Company’s Fluidcare

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

The

Company transferred third-party products under arrangements recognized

on a net reporting basis of $

19.8

million and $

17.8

million

for the three months ended March 31, 2022 and 2021, respectively.

Customer Concentration

A significant portion of the Company’s

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

steel, aluminum, automobiles, aircraft, industrial equipment, and durable

goods.

As previously disclosed in the 2021 Form 10-K,

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

five largest customers (each composed of multiple subsidiaries or

divisions

with semiautonomous purchasing authority) accounted for approximately

% of consolidated net sales, with its largest customer

accounting for approximately

% of consolidated net sales.

Contract Assets and Liabilities

The Company had no material contract assets recorded on its Condensed

Consolidated Balance Sheets as of March 31, 2022 or

December 31, 2021.

The Company had approximately $

6.9

million and $

7.0

million of deferred revenue as of March 31, 2022 and December 31,

2021, respectively.

For three months ended March 31, 2022, the Company satisfied all of the associated performance

obligations and

recognized into revenue the advance payments received and recorded

as of December 31, 2021.

Disaggregated Revenue

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

and its technical expertise as a global product

portfolio.

The Company generally manages and evaluates its performance by segment

first, and then by customer industry,

rather than

by individual product lines.

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

lines are generally spread throughout all three of

the Company’s geographic

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

region.

The following tables disaggregate the Company’s

net sales by segment, geographic region, customer industry,

and timing of

revenue recognized for the three months ended March 31, 2022 and 2021.

Three Months Ended March 31, 2022

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

56,160

36,839

55,287

148,286

Metalworking and other

97,984

88,848

48,947

235,779

154,144

125,687

104,234

384,065

Global Specialty Businesses

57,264

20,021

12,821

90,106

211,408

145,708

117,055

474,171

Timing of Revenue Recognized

Product sales at a point in time

201,284

137,203

114,625

453,112

Services transferred over time

10,124

8,505

2,430

21,059

211,408

145,708

117,055

474,171

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Three Months Ended March 31, 2021

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

46,793

34,274

49,743

130,810

Metalworking and other

88,078

85,540

46,963

220,581

134,871

119,814

96,706

351,391

Global Specialty Businesses

45,256

20,272

12,864

78,392

180,127

140,086

109,570

429,783

Timing of Revenue Recognized

Product sales at a point in time

171,594

131,162

106,399

409,155

Services transferred over time

8,533

8,924

3,171

20,628

180,127

140,086

109,570

429,783

Note 6 - Leases

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

and equipment with remaining lease terms up to

10 years

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

the Company has certain land

use leases with remaining lease terms up to

93 years

The Company has

material variable lease costs or sublease income for three months ended March

31, 2022 and 2021. The

following table sets forth the components of the Company’s

lease cost for three months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Operating lease expense

3,409

3,612

Short-term lease expense

219

251

Supplemental cash flow information related to the Company’s

leases is as follows

Three Months Ended

March 31,

2022

2021

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

3,365

3,579

Non-cash lease liabilities activity:

Leased assets obtained in exchange for new operating lease liabilities

4,689

3,050

Supplemental balance sheet information related to the Company’s

leases is as follows:

March 31,

December 31,

2022

2021

Right of use lease assets

38,245

36,635

Other current liabilities

10,540

9,976

Long-term lease liabilities

27,433

26,335

Total operating lease liabilities

37,973

36,311

Weighted average

remaining lease term (years)

5.9

5.6

Weighted average

discount rate

4.14%

4.22%

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Maturities of operating lease liabilities as of March 31, 2022 were as follows:

March 31,

2022

For the remainder of 2022

8,990

For the year ended December 31, 2023

9,513

For the year ended December 31, 2024

7,292

For the year ended December 31, 2025

5,375

For the year ended December 31, 2026

4,338

For the year ended December 31, 2027 and beyond

7,046

Total lease payments

42,554

Less: imputed interest

(4,581)

Present value of lease liabilities

37,973

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

number of factors and are subject to change; however,

the Company currently expects reductions in headcount and site closures to

continue to occur throughout 2022 under the QH Program.

Employee separation benefits will vary depending on local regulations

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

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

including customary and routine adjustments to initial

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

facilities and are recorded in Restructuring and related

charges in the Company’s

Condensed Consolidated Statements of Income.

As described in Note 4 of Notes to Condensed

Consolidated Financial Statements, restructuring and related charges

are not included in the Company’s

calculation of reportable

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

reviewed by or recorded to reportable segments.

Activity in the Company’s accrual

for restructuring under the QH Program for the three months ended March 31, 2022

is as

follows:

QH Program

Accrued restructuring as of December 31, 2021

4,087

Restructuring and related charges

820

Cash payments

(408)

Currency translation adjustments

(64)

Accrued restructuring as of March 31, 2022

4,435

Note 8 – Share-Based Compensation

The Company recognized the following share-based compensation expense

in its Condensed Consolidated Statements of Income

for the three months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Stock options

267

308

Non-vested stock awards and restricted stock units

1,548

1,396

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

—

1,553

Director stock ownership plan

203

Performance stock units

623

319

Total share-based

compensation expense

2,462

3,779

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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

0.1

million and $

0.3

million during the three

months ended March 31, 2022 and 2021, respectively,

recorded within Combination, integration and other acquisition-related

expenses.

Stock Options

During the first quarter of 2022, the Company granted stock options under

its long-term incentive plan (“LTIP

”) that are subject

only to time vesting over a

three year

period.

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

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

in the table below:

March 2022

Grant

Number of options granted

27,077

Dividend yield

0.80

Expected volatility

38.60

Risk-free interest rate

2.07

Expected term (years)

4.0

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

As of March 31, 2022, unrecognized

compensation expense related to all stock options granted

was $

2.9

million, to be recognized over a weighted average remaining

period of

1.9

years.

Restricted Stock Awards

and Restricted Stock Units

During the three months ended March 31, 2022, the Company granted

17,425

non-vested restricted shares and

4,490

non-vested

restricted stock units under its LTIP,

subject to time-based vesting, generally over a

three year

period.

The fair value of these grants is

based on the trading price of the Company’s

common stock on the date of grant.

The Company adjusts the grant date fair value of

these awards for expected forfeitures based on historical experience.

As of March 31, 2022, unrecognized compensation expense

related to the nonvested restricted shares was $

6.4

million, to be recognized over a weighted average remaining period of

2.1

years,

and unrecognized compensation expense related to nonvested restricted

stock units was $

1.3

million, to be recognized over a weighted

average remaining period of

2.3

years.

Performance Stock Units

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

of its LTIP,

which will be settled in a

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

The number of fully vested shares that may

ultimately be issued as settlement for each award may range from

% 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 generally

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

to issuances of the shares upon settlement.

Compensation expense for PSUs

is measured based on their grant date fair value and is recognized on

a straight-line basis over

the three year vesting period.

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

simulation on the grant date

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

March 2022

Grant

Number of PSUs granted

16,820

Risk-free interest rate

2.11

Dividend yield

0.93

Expected term (years)

3.0

As of March 31, 2022, the Company estimates that it will issue 0 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 March 31, 2022,

there

was approximately $

6.4

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

expects to recognize

over a weighted-average period of

2.3

years.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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 3% of

compensation.

Additionally, the plan

provides for non-elective nondiscretionary contributions on behalf of participants

who have completed one year

of service equal to

% of the eligible participants’ compensation.

Beginning in April 2020 and continuing through March 2021, the

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

in fully vested shares

of the Company’s common stock

rather

than cash.

There were

matching contributions in stock for the three months ended March 31, 2022. For

the three months ended

March 31, 2021, total contributions were $

1.5

million.

Note 9 – Pension and Other Postretirement

Benefits

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

ended March 31, 2022 and 2021 are as follows:

Three Months Ended March 31,

Other

Pension Benefits

Postretirement Benefits

2022

2021

2022

2021

Service cost

180

316

(8)

Interest cost

1,360

1,090

Expected return on plan assets

(2,084)

(2,082)

—

Actuarial loss (gain) amortization

257

855

(24)

—

Prior service cost (income) amortization

—

Total net periodic benefit

(income) cost

(285)

181

(22)

Employer Contributions

As of March 31, 2022, $

1.0

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 $

6.6

million to its U.S. and

foreign pension plans and approximately $

0.2

million to its other postretirement benefit plans in 2022.

Note 10 – Other (Expense) Income, Net

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

March 31, 2022 and 2021 are as follows:

Three Months Ended

March 31,

2022

2021

Income from third party license fees

404

339

Foreign exchange losses, net

(1,905)

(1,478)

Gain on disposals of property,

plant, equipment and other assets, net

5,410

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

(1,322)

Pension and postretirement benefit income, non-service components

479

124

Other non-operating income, net

115

195

Total other (expense)

income, net

(2,206)

4,687

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

three months ended March 31, 2022 includes other expense

related to an indemnification asset associated with the settlement of certain

income tax audits at one of the Company’s

Italian affiliates

for tax periods prior to August 1, 2019.

See Note 11 of Notes to Condensed Consolidated

Financial Statements.

Gain on disposals of

property, plant, equipment

and other assets, net, during the three months ended March 31, 2021, includes a gain on the

sale of certain

held-for-sale real property assets related to the Combination.

Foreign exchange losses, net, during each of the three months ended

March 31, 2022 and 2021 include foreign currency transaction losses of approximately

0.2

million related to hyper-inflationary

accounting for the Company’s Argentine

subsidiaries.

See Note 1 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 months ended March 31, 2022 and 2021 were

13.1

% and

24.2

%, respectively.

The Company’s effective

tax rate for the three months ended March 31, 2022 was largely driven by changes in

the valuation

allowance for foreign tax credits due to recently issued legislative guidance

and audit settlements reached with Italian tax authorities.

In addition, the Company incurred higher tax expense during the three months

ended March 31, 2022 related to the Company

recording earnings in one of its subsidiaries at a statutory tax rate of

% while it awaits recertification of a concessionary

% tax

rate, which was available to the Company during all of 2021.

Comparatively,

the prior year first quarter effective tax rate was

impacted by the sale of a subsidiary which included certain held-for-sale

real property assets related to the Combination.

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

8.4

million on certain undistributed foreign earnings,

which primarily represents the Company’s

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

earnings to the U.S.

The balance as of March 31, 2022 was $

8.0

million.

As of March 31, 2022, the Company’s

cumulative liability for gross unrecognized tax benefits was $

20.1

million, a decrease of

approximately $

2.4

million from the cumulative liability accrued as of December 31, 2021.

The Company continues to recognize interest and penalties associated with uncertain

tax positions as a component of taxes on

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

Consolidated Statements

of Income.

The Company

recognized a benefit of $

0.3

million for interest and a benefit of $

1.6

million for penalties in its Condensed Consolidated Statements of

Income for the three months ended March 31, 2022, and recognized

an expense of less than $

0.1

million for interest and a benefit of

0.1

million for penalties in its Condensed Consolidated Statements of Income for the

three months ended March 31, 2021.

As of

March 31, 2022, the Company had accrued $

2.7

million for cumulative interest and $

1.6

million for cumulative penalties in its

Condensed Consolidated Balance Sheets, compared to $

3.1

million for cumulative interest and $

3.1

million for cumulative penalties

accrued at December 31, 2021.

During the three months ended March 31, 2022 and 2021, the Company

recognized decreases of $

2.8

million and $

0.3

million,

respectively, in its cumulative

liability for gross unrecognized tax benefits due to the settlement of income

tax audits with the Italian

tax authorities, as well as the expiration of the applicable statutes of

limitations for certain tax years.

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

it will reduce its cumulative liability for gross

unrecognized tax benefits by approximately $

4.2

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

limitations with regard to certain tax positions.

This estimated reduction in the cumulative liability for unrecognized

tax benefits does

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

to existing tax positions or any increase in cumulative

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

the year ending December

31, 2022.

The Company

and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various

state and foreign

tax jurisdictions.

Tax years that remain subject

to examination by major tax jurisdictions include Italy from

2007

, Brazil from

2011

Germany from

2015

, the Netherlands, Mexico and China from

2016

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

2017

, the United Kingdom

from

2018

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

2018

, 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 March 31, 2022, the Company has received $

1.6

million in refunds from the

Netherlands and Spain.

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

authorities confirming the

amount due of $

2.6

million, having granted the Company’s request

to utilize its remaining net operating losses to partially offset

the

liability.

As a result of the settlement the Company recognized tax expense of $

0.8

million for the quarter ended March 31, 2022.

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

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

S.r.l. corporate income tax

audit with the Italian tax authorities for the tax years

2014

and

2015

During the three months ended March 31, 2022 the Company

settled tax years 2016 through 2018 for a total of $

2.1

million.

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

3.7

million.

Accordingly, the Company has

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

As a result of the

settlement and reserve release the Company recognized a net benefit

to the tax provision of $

2.1

million during the first quarter of

2022.

The Company has established an indemnification receivable of $

3.8

million in connection with its claim against the former

owners of Houghton for any pre-Combination tax liabilities arising from

this matter.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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 $

0.3

million as of March 31,

2022.

Of this amount, $

0.3

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

indemnification receivable has also been established.

Note 12 – Earnings Per Share

The following table summarizes earnings per share calculations for

the three months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Basic earnings per common share

Net income attributable to Quaker Chemical Corporation

19,816

38,615

Less: income allocated to participating securities

(78)

(154)

Net income available to common shareholders

19,738

38,461

Basic weighted average common shares outstanding

17,826,061

17,785,370

Basic earnings per common share

1.11

2.16

Diluted earnings per common share

Net income attributable to Quaker Chemical Corporation

19,816

38,615

Less: income allocated to participating securities

(78)

(154)

Net income available to common shareholders

19,738

38,461

Basic weighted average common shares outstanding

17,826,061

17,785,370

Effect of dilutive securities

25,798

70,607

Diluted weighted average common shares outstanding

17,851,859

17,855,977

Diluted earnings per common

1.11

2.15

Certain stock options,

restricted stock units and PSUs are not included in the diluted earnings per share calculation

when the

effect would have been anti-dilutive.

The calculated amount of anti-diluted shares not included were

12,260

and

2,083

for the three

months ended March 31, 2022 and 2021, respectively.

Note 13 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the three months ended

March 31, 2022 were as follows:

Global

Specialty

Americas

EMEA

Asia/Pacific

Businesses

Total

Balance as of December 31, 2021

214,023

135,520

162,458

119,193

631,194

Goodwill additions

1,752

—

1,784

Currency translation adjustments

1,376

(2,569)

(328)

(519)

(2,040)

Balance as of March 31, 2022

217,151

132,951

162,130

118,706

630,938

Gross carrying amounts and accumulated amortization for definite-lived

intangible assets as of March 31, 2022 and December 31,

2021 were as follows:

Gross Carrying

Accumulated

Amount

Amortization

2022

2021

2022

2021

Customer lists and rights to sell

855,309

853,122

159,576

147,858

Trademarks, formulations and product

technology

162,408

163,974

40,565

38,747

Other

6,361

6,309

5,989

5,900

Total definite-lived

intangible assets

1,024,078

1,023,405

206,130

192,505

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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

their useful lives.

The Company recorded

14.6

million and $

14.8

million of amortization expense for the three months ended March

31, 2022 and 2021, respectively.

Estimated annual aggregate amortization expense for the current year

and subsequent five years is as follows:

For the year ended December 31, 2022

59,465

For the year ended December 31, 2023

59,293

For the year ended December 31, 2024

58,701

For the year ended December 31, 2025

57,924

For the year ended December 31, 2026

57,678

For the year ended December 31, 2027 and beyond

532,124

The Company has four indefinite-lived intangible assets totaling $

194.1

million as of March 31, 2022, including $

193.0

million of

indefinite-lived intangible assets for trademarks and tradename associated

with the Combination.

Comparatively, the Company had

four indefinitely-lived intangible assets for trademarks and tradename

totaling $

196.9

million as of December 31, 2021.

Note 14 – Debt

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

As of March 31, 2022

As of December 31, 2021

Interest

Outstanding

Interest

Outstanding

Rate

Balance

Rate

Balance

Credit Facilities:

Revolver

1.68%

254,453

1.62%

211,955

U.S. Term Loan

1.71%

528,750

1.65%

540,000

EURO Term Loan

1.50%

132,037

1.50%

137,616

Industrial development bonds

5.26%

10,000

5.26%

10,000

Bank lines of credit and other debt obligations

Various

1,659

Various

1,777

Total debt

926,899

901,348

Less: debt issuance costs

(7,227)

(8,001)

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

(61,385)

(56,935)

Total long-term debt

858,287

836,412

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.

On December 10, 2021, the Company entered into the Second Amendment with Bank of America

N.A., to include among other things, an update to provide for use of a non-USD

currency LIBOR successor rate.

The variable interest

rate incurred on the outstanding borrowings under the Credit Facility during

the three months ended March 31, 2022 was

approximately

1.6

As of March 31, 2022, the interest rate of the outstanding borrowings under the Credit

Facility was

approximately

1.7

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 $

142

million, net of bank letters of credit of approximately $

million, as of March 31, 2022.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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 March 31, 2021, the consolidated net debt to adjusted EBITDA may not exceed 3.75 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 20% of consolidated adjusted EBITDA unless the ratio of consolidated net debt to

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

As of March 31, 2022 and

December 31, 2021, 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 three months ended March 31, 2022,

the Company made quarterly amortization payments related to

the Term Loans totaling

14.1

million.

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

% 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 March 31, 2022, the aggregate

interest rate on the swaps, including the fixed base rate plus

an applicable margin, was

3.1

See Note 17 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 Consolidated

Balance Sheet.

Approximately $

8.3

million of the capitalized costs were attributed to the

Revolver and recorded within other assets on the Company’s

Consolidated Balance Sheet.

These capitalized costs are being

amortized into interest expense over the

five year

term of the Credit Facility.

As of March 31, 2022 and December 31, 2021, the

Company had $

7.2

million and $

8.0

million, respectively,

of debt issuance costs recorded as a reduction of long-term debt.

As of

March 31, 2022 and December 31, 2021, the Company had $

3.9

million and $

4.3

million, respectively,

of debt issuance costs recorded

within other assets.

Industrial development bonds

As of March 31, 2022 and December 31, 2021, 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 certain foreign subsidiaries, which are not

collateralized.

The Company’s other debt obligations

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

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

and capital lease obligations.

Total unused

capacity under these arrangements as of March 31, 2022 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 March 31, 2022 were approximately $

million.

The Company incurred the following debt related expenses included

within Interest expense, net, in the Condensed Consolidated

Statements of Income:

Three Months Ended

March 31,

2022

2021

Interest expense

4,746

4,650

Amortization of debt issuance costs

1,187

Total

5,933

5,837

Based on the variable interest rates associated with the Credit Facility,

as of March 31, 2022 and December 31, 2021, the amounts

at which the Company’s total debt

were recorded are not materially different from their fair market value.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

Note 15 – Accumulated Other Comprehensive Income

The following tables show the reclassifications from and resulting balances

of accumulated other comprehensive income

(“AOCI”) for the three months ended March 31, 2022 and 2021:

Defined

Unrealized

Currency

Benefit

Gain (Loss) in

Translation

Retirement

Available-for-

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance at December 31, 2021

(49,843)

(13,172)

397

(1,372)

(63,990)

Other comprehensive (loss) income before

reclassifications

(6,867)

432

(1,277)

1,429

(6,283)

Amounts reclassified from AOCI

—

229

—

240

Related tax amounts

—

(165)

266

(329)

(228)

Balance at March 31, 2022

(56,710)

(12,676)

(603)

(272)

(70,261)

Balance at December 31, 2020

(2,875)

(23,467)

3,342

(3,598)

(26,598)

Other comprehensive (loss) income before

reclassifications

(25,459)

781

(745)

730

(24,693)

Amounts reclassified from AOCI

—

862

(3,085)

—

(2,223)

Related tax amounts

—

(351)

805

(168)

286

Balance at March 31, 2021

(28,334)

(22,175)

317

(3,036)

(53,228)

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

relate to the Company’s equity

interest in a

captive insurance company and are recorded in equity in net income

of associated companies.

The amounts reported in other

comprehensive income for non-controlling interest are related to

currency translation adjustments.

Note 16 – Fair Value

Measurements

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

These assets are subject to fair value

measurement as follows:

Fair Value

Measurements at March 31, 2022

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

2,395

—

2,395

—

Total

2,395

—

2,395

—

Fair Value

Measurements at December 31, 2021

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

2,533

—

2,533

—

Total

2,533

—

2,533

—

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 March 31,

2022 or December 31, 2021, respectively,

so related

disclosures have not been included.

Note 17 – 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 14 of Notes to Condensed Consolidated Financial Statements.

These interest rate swaps are

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

at each reporting date and any unrealized gains or

losses are included in AOCI to the extent effective and reclassified to interest

expense in the period during which the transaction

effects earnings or it becomes probable that the forecasted

transaction will not occur.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

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

derivative instruments, which are Level 2 measurements, are as

follows:

Fair Value

Consolidated

March 31,

December 31,

Balance Sheet Location

2022

2021

Derivatives designated as cash flow hedges:

Interest rate swaps

Other accrued liabilities

353

1,782

353

1,782

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

March 31,

December 31,

2022

2021

Derivatives designated as cash flow hedges:

Interest rate swaps

AOCI

272

1,372

272

1,372

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

Three Months Ended

March 31,

2022

2021

Amount and location of expense reclassified

from AOCI into expense (Effective Portion)

Interest expense, net

(637)

(643)

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

each of which allows for net settlement of all

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

or termination of any one contract.

As such, in

accordance with the Company’s accounting

policy, these derivative instruments

are recorded on a net basis within the Condensed

Consolidated Balance Sheets.

Note 18 – Commitments and Contingencies

The Company previously disclosed in its 2021 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 March 31, 2022, 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 March 31, 2022, 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 2021 Form 10-K that an inactive

subsidiary of the Company that was acquired in 1978

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

is among the defendants in numerous lawsuits alleging

injury due to exposure to asbestos.

During the three months ended March 31, 2022, there have been no significant

changes to the facts

or circumstances of this previously disclosed matter,

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

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

this subsidiary, it is currently

projected that the

subsidiary’s total liability over

the next

50 years

for these claims is approximately $

0.3

million (excluding costs of defense).

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

matters related to certain

domestic and foreign properties.

These environmental matters primarily require the Company

to perform long-term monitoring as

well as operating and maintenance at each of the applicable sites.

During the three months ended March 31, 2022, there have been

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

27 years

, has estimated

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

basis, to be between approximately $

million and $

million

as of March 31, 2022, for which $

5.9

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

liabilities on the

Company’s

Condensed Consolidated Balance Sheet as of March 31, 2022.

Comparatively, as of December

31, 2021, the Company

had $

5.6

million accrued for with respect to these matters.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts,

unless otherwise stated)

(Unaudited)

The Company believes, although there can be no assurance regarding the

outcome of other unrelated environmental matters, that

it has made adequate accruals for costs associated with other environmental

problems of which it is aware.

Approximately $

0.4

million were accrued as of both March 31, 2022 and December 31, 2021,

respectively, to provide

for such anticipated future

environmental assessments and remediation costs.

In connection with obtaining regulatory approvals for the Combination,

certain steel and aluminum related product lines of

Houghton were divested in August 2019.

The Company previously disclosed in its 2021 Form 10-K that in July 2021, the entity

that

acquired these divested product lines submitted an indemnification claim

for certain alleged breaches of representation made by

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

The Company responded to the subject matters of the

indemnification claim and during the first quarter of 2022 the matter was resolved

consistent with the Company’s expectations

and

position that there were no amounts owed by the Company.

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

locations suffered property damages as a

result of flooding and fire, respectively.

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

During the three

months ended March 31, 2022, there have been no significant changes to

the facts or circumstances of these previously disclosed

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

The Company, its insurance

adjuster and insurance carrier are actively

managing the remediation and restoration activities associated with these

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

all available information and discussions with its insurance adjuster

and insurance carrier, that the losses were covered

under the

Company’s property insurance

coverage, net of an aggregate deductible of $

2.0

million.

The Company has received payments from

its insurers of $

2.1

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

a gain on insurance recoveries

for losses incurred) of $

0.5

million as of March 31, 2022.

The Company is party to other litigation which management currently

believes will not have a material adverse effect on the

Company’s results of operations,

cash flows or financial condition.

In addition, the Company has an immaterial amount of contractual

purchase obligations.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Item 2.

Management’s Discussion and

Analysis of Financial Condition and Results of Operations

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

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

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

unless the context otherwise requires.

The term

Legacy Quaker refers to the Company prior to the closing of its combination

with Houghton International, Inc. in 2019 (“Houghton”)

(herein referred to as the “Combination”).

Executive Summary

Quaker Houghton is the global leader in industrial process fluids.

With a presence around the world, including operations

in over

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

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

offshore, can, mining, and metalworking companies.

Our high-performing, innovative and sustainable solutions are backed by best-

in-class technology,

deep process knowledge, and customized services.

Quaker Houghton is headquartered in Conshohocken,

Pennsylvania, located near Philadelphia in the U.S.

Overall, the Company’s first quarter

of 2022 performance reflected continued progress navigating through

a very challenging

economic environment, including significant raw material cost escalation, supply

chain and logistics disruptions and the direct,

indirect and global impacts of the war in Ukraine and other global events

that presented headwinds to the Company in the first quarter

of 2022.

Net sales in the first quarter of 2022 were $474.2 million, an increase of 10% compared

to $429.8 million in the first quarter

of 2021, primarily driven by an increase in selling price and product mix

of approximately 17% and additional net sales from

acquisitions of 2%, partially offset by a decline in organic

sales volume of 6% and the unfavorable impact from foreign currency

translation of 3%.

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

continued and strategic price increases

implemented to help offset the unprecedented increase in

raw material costs as well as global supply chain and logistics and labor cost

pressures that began during 2021 and continued through the first quarter

of 2022.

The decline in organic sales volumes was primarily

attributable to the comparison to a very strong first quarter of 2021, where

customers replenished their supply chains due to the

continued economic recovery from COVID-19, the impact of lower

volumes related to the tolling agreement for previously divested

products associated with the Combination and lower sales volumes attributable

to the war in Ukraine.

The Company’s organic

sales

volumes increased approximately 3% sequentially compared to the

fourth quarter of 2021, as continued new business wins were

partially offset by the Company’s

actions to strategically reduce volumes in accordance with its ongoing value

-based pricing

initiatives.

The Company generated net income in the first quarter of 2022 of $19.8 million,

or $1.11 per diluted share, compared to a first

quarter of 2021 net income of $38.6 million, or $2.15 per diluted

share.

Excluding non-recurring and non-core items in each period,

the Company’s first quarter of 2022

non-GAAP earnings per diluted share were $1.42 compared to $2.11

in the prior year first quarter

and the Company’s current quarter

adjusted EBITDA of $60.4 million decreased 22% compared to $77.1

million in the first quarter of

2021.

These results were primarily driven by lower gross margins in

the current quarter due to significantly higher raw material and

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

and to a lesser extent, by higher selling,

general and administrative expenses (“SG&A”).

Sequentially, the Company’s

adjusted EBITDA was relatively flat compared to the

fourth quarter of 2021.

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 first quarter of 2022

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

Americas; (ii) Europe,

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

Businesses, reflect similar drivers to that of its

consolidated performance as each of the Company’s

reportable segments net sales benefitted from double-digit increases in selling

price and product mix and additional net sales from acquisitions, while most

segments were partially offset by lower sales volumes

and the unfavorable impact of foreign currency translation.

Operating earnings from the Global Specialty Businesses increased

compared to the prior year quarter whereas operating earnings from

the Americas, Asia/Pacific, and EMEA segments declined.

This

was a result of lower segment gross margins which

were unfavorably impacted by the lag in price capture compared to the continued

cost pressures on our raw materials, global supply chain and logistics networks,

and manufacturing, labor and other costs.

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 $6.3 million in the first quarter

of 2022 as compared to a net operating cash

outflow of $12.6 million in the first quarter of 2021.

Despite the net operating cash outflow in both periods, the increase in net

operating cash flow quarter-over-quarter

was primarily driven by a modest improvement in working capital compared to the prior

year

first quarter, notably by a lower outflow

related to accounts receivable partially offset by an increase in inventory

due to higher raw

material costs and a build in certain inventory in response to global supply

chain and logistics challenges.

The key drivers of the

Company’s operating

cash flow and working capital are further discussed in the Company’s

Liquidity and Capital Resources section

of this Item, below.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Overall, results in the first quarter of 2022 reflected the Company’s

ability to continue to navigate through persistent raw material

cost pressures, supply chain challenges including those impacting

on semiconductors for the automotive end markets and the impacts

of certain global economic events including the Russia conflict with Ukraine.

Increases in net sales in all segments were primarily

driven by an increase in selling price implemented to offset the ongoing

and significant escalation of raw material costs and a

favorable demand environment across most of the Company’s

markets.

However, raw material cost increases continued

to outpace

the Company’s broad-based

pricing initiatives in the first quarter of 2022, and the Company’s

margins and earnings reflect the

significantly different cost environment in the first

quarter of 2022 compared to the first quarter of 2021.

The Company continues to

implement further aggressive and strategic price increases and is actively

managing its cost structure to mitigate the current and

expected inflationary pressures.

While significant uncertainty exists, notably due to pandemic-related

restrictions in China and the

ongoing war in Ukraine, the Company remains committed to advancing

its customer intimate strategy, recovering

its margins and

investing in value enhancing initiatives to better position the Company

to continue to deliver on its growth potential.

Ongoing 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

two years, the full extent of the outbreak and related business impacts

continue to remain uncertain and volatile, and therefore the full extent

to which COVID-19 may impact the Company’s

future results

of operations or financial condition is uncertain.

This outbreak has significantly disrupted the operations of the Company and those of

its suppliers and customers and at times during the pandemic, the Company

has experienced volume declines and lower net sales as

compared to pre-COVID-19 levels.

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

is having on the

Company, the overall specialty

chemical industry and the economies and markets in which the Company operates.

The prolonged

pandemic and resurgences of the outbreak including

as new variants continue to emerge, and continued restrictions on

day-to-day life

and business operations as well as increased border controls or closures and transportation

disruptions may result in volume declines

and lower net sales in future periods.

To the extent that the Company’s

customers and suppliers continue to be significantly and

adversely impacted by COVID-19, this could reduce the availability,

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

Company, which in

turn could significantly interrupt the Company’s

business operations.

Given this ongoing uncertainty,

the

Company cautions that its future results of operations could be significantly

adversely impacted by COVID-19.

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 has taken steps to protect the health and

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

enabling work at home where needed and practicable, and

employing social distancing standards, implementing travel restrictions where

applicable, enhancing onsite hygiene practices, and

instituting visitation restrictions at the Company’s

facilities.

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

expenses implementing these health and safety policies.

With the exception of its Shanghai-based operations,

which have been and

continue to be significantly impacted since late March 2022 due to government restrictions

currently in place in that province of

China, all of the Company’s more

than 30 other production facilities worldwide are open and operating

and are deemed as essential

businesses in the jurisdictions where they are operating and the Company believes

that to date it has been able to meet the needs of all

its customers across the globe despite the current challenges.

The Company continues to expect that the impacts from COVID-19 will

gradually decline subject to the effective containment

of the virus and its variants and successful distribution and acceptance of the

available vaccines and treatments; however,

the incidence of reported cases of COVID-19 or a variant in several geographies where

the Company has significant operations remains high.

Differing government responses to these reported cases continues to

evolve and

it therefore remains highly uncertain as to how long the global pandemic

and related economic challenges will last in each of the

jurisdictions where the Company does business and when our customers’

businesses will recover to pre-COVID-19 levels.

As a result

of the government-imposed quarantine and lockdown measures implemented

at the end of March 2022, which are currently in effect,

the Company’s Shanghai

-based locations have been and continue to be significantly impacted as of the date of

this Form 10-Q.

The

negative impact of these measures to operations and liquidity has and will be

experienced during the second quarter of 2022, and the

ultimate impact will depend on the duration of the quarantine and lockdown

measures in effect.

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 as applicable, have

been effective thus far, further actions

to respond to the pandemic and its effects may be necessary as conditions

continue to evolve.

Impact of Political Conflicts

A significant portion of the Company’s

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

the Company

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

business, liquidity, financial

position and results of

operations.

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

inherent risks such as the potential

for supply chain disruptions, decreased trade activity and other consequences related

to economic or other sanctions.

The U.S.

Quaker Chemical Corporation

Management’s Discussion and Analysis

government and other nations have imposed significant restrictions on

most companies’ ability to do business in Russia as a result of

the military conflict between Russia and Ukraine.

It is not possible to predict the broader or longer-term consequences

of this conflict,

which could include further sanctions, embargoes,

regional instability, geopolitical

shifts and adverse effects on macroeconomic

conditions, security conditions, currency exchange rates and financial

markets.

Such geo-political instability and uncertainty could

have a negative impact on the Company’s

ability to sell to, ship products to, collect payments from, and support customers in certain

regions based on trade restrictions, embargoes and export

control law restrictions, and logistics restrictions including closures of

air

space, and could increase the costs, risks and adverse impacts from these new

challenges.

The Company may also be the subject of

increased cyber-attacks.

The Company’s operations in the

conflict areas including Russia, Ukraine and Belarus represent less than 2% of

the Company’s

consolidated net sales and less than 1% of the Company’s

consolidated total assets.

The Company’s primary

exposure in the conflict

area relates to outstanding customer accounts receivable.

The Company is actively monitoring the outstanding receivables for

collections and has recorded incremental allowance for doubtful accounts

where warranted.

The Company continues to review the

facts and circumstances of its customers and the impact of the ongoing

sanctions as they relate to its continued business with impacted

customers and the collectability of outstanding accounts receivable.

The Company also has and continues to monitor the impact of the

volatility and uncertainty in the economic outlook as a result of the conflict with respect

to the recoverability of its long-term and

indefinite-lived assets, including assessing potential triggering events for

impairment considerations related to intangible assets and

goodwill.

As of March 31, 2022, the Company concluded that the conflict and its current and projected

impact to the Company did

not represent a triggering event and the Company continues to monitor and evaluate

the evolving situation.

Liquidity and Capital Resources

At March 31, 2022, the Company had cash and cash equivalents of

$161.6 million.

Total cash and cash equivalents

was $165.2

million at December 31, 2021.

The $3.6 million decrease in cash and cash equivalents was the net result

of $18.2 million of cash used

in investing activities and $6.3 million of cash used in operating activities partiall

offset by $20.6 million of cash provided by

financing activities and a $0.3 million positive impact due to the effect

of foreign currency translation.

Net cash flows used in operating activities were $6.3 million in the first three months

of 2022 compared to net cash flows used in

operating activities of $12.6 million in the first three months of 2021.

The increase in net operating cash flows of $6.3 million was

primarily driven by a lower working capital outflow quarter-over-quarter,

as the Company had a smaller increase in accounts

receivable in the first quarter of 2022 due to changes in current quarter net

sales, which was partially offset by a higher outflow from

inventory due to increases in raw material costs and continued build

of stock in response to global supply chain and logistics

challenges and other recent global economic events.

Also, in the first quarter of 2022, the Company received a $2.8 million dividend

from the Company’s Korean

joint venture, with no similar dividend received in the prior year period.

Net cash flows used in investing activities were $18.2 million in the

first three months of 2022 compared to $15.8 million in the

first three months of 2021.

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

of assets which

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

Combination in the prior year period, and higher capital

expenditures in the current year largely related to certain

infrastructure and sustainability-related spending.

These increases in cash

used in investing activities were partially offset by

lower cash payments related to acquisitions as a result of the level of acquisition

activity in each year.

Net cash flows provided by financing activities were $20.6 million in the first

three months of 2022 compared to $13.0 million in

the first three months of 2021.

The increase in net cash flows was primarily related to an increase in borrowings

in the current year

under the Company’s credit

facility as compared to the prior year.

In addition, the Company paid $7.4 million of cash dividends

during the first three months of 2022, a $0.4 million or 5% increase in cash dividends

compared to the prior year.

See Note 2 of Notes

to Condensed Consolidated Financial Statements in Item 1 of this Report.

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 plus an applicable margin

based on the Company’s consolidated

net leverage ratio.

The

weighted average interest rate incurred on the outstanding borrowings

under the Credit Facility during both the first quarter of 2022

and as of March 31, 2022 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.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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 March 31, 2022, the consolidated net debt to consolidated adjusted

EBITDA ratio may not exceed 3.75 to 1.

The

Company’s consolidated

adjusted EBITDA to interest expense ratio may not be less than 3.0 to 1 over the

term of the agreement.

The

Credit Facility also prohibits the payment of cash dividends if the Company

is in default or if the amount of the dividends paid

annually exceeds the greater of $50.0 million and 20% of consolidated adjusted

EBITDA unless the ratio of consolidated net debt to

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

on amount.

As of March 31, 2022 and

December 31, 2021, 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 March 31, 2022, 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 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 March 31, 2022, the Company had Credit Facility borrowings outstanding

of $915.2 million.

As of December 31, 2021, the

Company had Credit Facility borrowings outstanding of $889.6

million.

The Company has unused capacity under the Revolver of

approximately $142 million, net of bank letters of credit of approximately

$4 million, as of March 31, 2022.

The Company’s other

debt obligations are primarily industrial development bonds, bank

lines of credit and municipality-related loans, which totaled $11.7

million and $11.8 million as of March

31, 2022 and December 31, 2021, respectively.

Total unused capacity under

these

arrangements as of March 31, 2022

was approximately $30 million.

The Company’s total net debt as of

March 31, 2022

was $765.3

million.

The Company incurred $6.0 million of total Combination,

integration and other acquisition-related expenses in the first quarter of

2022, which includes $2.0 million of other expenses related to an indemnification

asset, described in the Non-GAAP Measures section

of this Item below.

Comparatively, in the first quarter

of 2021, the Company incurred $0.8 million of total Combination,

integration

and other acquisition-related expenses, which was net of a $5.4 million gain

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

and also $0.4 million of accelerated depreciation.

The Company had aggregate net cash outflows of approximately $8.3 million

related to the Combination,

integration and other acquisition-related expenses during the first three months

of 2022 as compared to

$8.7

million during the first three months of 2021.

During the first quarter of 2022, the Company incurred $3.1 million of strategic

planning and transformation expenses.

The Company expects that these additional operating costs and associated

cash flows, as well

as higher capital expenditures related to strategic planning, process optimization

and the next phase of the Company’s

long-term

integration to further optimize its footprint, processes and other

functions will continue in 2022 and over the next several years.

Quaker Houghton’s management

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

“QH Program”) in the

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

with the Combination.

The QH Program includes restructuring

and associated severance costs to reduce total headcount by approximately

400 people globally and plans for the closure of certain

manufacturing and non-manufacturing facilities.

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

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

reductions in headcount and site closures have occurred, and the

Company currently expects additional headcount reductions and

site closures to occur throughout the year 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 three months of 2022 of

approximately $0.4 million compared to $3.0 million in the first three months

of 2021.

As of March 31, 2022, the Company’s

gross liability for uncertain tax positions, including interest and penalties,

was $24.5

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 $7.2 million as a result of

offsetting benefits in other tax jurisdictions.

Quaker Chemical Corporation

Management’s Discussion and Analysis

In 2021, two of the Company’s locations

suffered significant property damage as a result of flooding

and fire.

The Company

maintains property insurance for all of its facilities globally.

The Company, its insurance

adjuster and insurance carrier are actively

managing the remediation and restoration activities associated with both

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

based on all available information and discussions with its insurance

adjuster and insurance carrier, that the losses incurred

during

2021 were covered under the Company’s

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

million.

The Company

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

an insurance receivable associated with these events of $0.5

million as of March 31, 2022.

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

1 of this Report.

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

operations and available additional liquidity will be

sufficient to support its operating requirements and fund

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

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

acquisition integration and optimization,

pension plan

contributions, capital expenditures, other business opportunities (including

potential acquisitions), implementing actions to achieve the

Company’s sustainability

goals and other potential contingencies.

The Company believes it has sufficient additional liquidity to

support its operating requirements and fund its business obligations for

the period beyond the next twelve months as well, including

the aforementioned items which are expected to recur annually,

as well as future principal payments on the Company’s

Credit Facility,

transition tax obligations and other long-term liabilities.

The Company’s liquidity is affected

by many factors, some based on normal

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

and other global events on our business and on global

economic conditions as well as industry uncertainties, which we cannot predict.

We also cannot predict

economic conditions and

industry downturns or the timing, strength or duration of recoveries.

We may seek,

as we believe appropriate, additional debt or

equity financing which would provide capital for corporate purposes,

working capital funding, additional liquidity needs or to fund

future growth opportunities, including possible acquisitions and

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 filing includes non-GAAP (unaudited)

financial information that includes EBITDA, adjusted

EBITDA, adjusted EBITDA margin, non-GAAP operating

income, non-GAAP operating margin, non-GAAP net

income and non-

GAAP earnings per diluted share.

The Company believes these non-GAAP financial measures provide meaningful supplemental

information as they enhance a reader’s understanding

of the financial performance of the Company,

are indicative of future operating

performance of the Company,

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

measures exclude items

that are not considered indicative of future operating performance or not

considered core to the Company’s operations.

Non-GAAP

results are presented for supplemental informational purposes only and

should not be considered a substitute for the financial

information presented in accordance with GAAP.

The Company presents EBITDA which is calculated as net income attributable

to the Company before depreciation and

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

of associated companies.

The Company also

presents adjusted EBITDA which is calculated as EBITDA plus or minus

certain items that are not indicative of future operating

performance or not considered core to the Company’s

operations.

In addition, the Company presents non-GAAP operating income

which is calculated as operating income plus or minus certain items that are not

indicative of future operating performance or not

considered core to the Company’s

operations.

Adjusted EBITDA margin and non-GAAP operating margin

are calculated as the

percentage of adjusted EBITDA and non-GAAP operating income

to consolidated net sales, respectively.

The Company believes

these non-GAAP measures provide transparent and useful information and

are widely used by analysts, investors, and competitors in

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

of the Company on a consistent basis.

Additionally, the

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

as additional performance

measures.

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

less depreciation and amortization, interest

expense, net, and taxes on income before equity in net income of associated

companies, in each case adjusted, as applicable, for any

depreciation, amortization, interest or tax impacts resulting from the non-core

items identified in the reconciliation of net income

attributable to the Company to adjusted EBITDA.

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

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

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

GAAP earnings per diluted share provide transparent and useful information

and are widely used by analysts, investors, and

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

performance of the Company on a consistent basis.

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

March 31,

2022

2021

Operating income

29,403

44,894

Combination, integration and other acquisition-related expenses (a)

4,053

6,230

Strategic planning and transformation expenses (b)

3,088

Restructuring and related charges (c)

820

1,175

Fair value step up of acquired inventory sold (d)

—

801

Executive transition costs (e)

539

504

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

Customer insolvency costs (g)

1,166

—

Non-GAAP operating income

39,161

53,655

Non-GAAP operating margin (%) (n)

8.3%

12.5%

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and

Non-GAAP Net Income Reconciliations

Three Months Ended

March 31,

2022

2021

Net income attributable to Quaker Chemical Corporation

19,816

38,615

Depreciation and amortization (a) (l)

20,727

22,448

Interest expense, net (a)

5,345

5,470

Taxes on income

before equity in net income of associated companies (m)

2,866

10,689

EBITDA

48,754

77,222

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

244

(3,080)

Combination, integration and other acquisition-related expenses (a)

6,032

427

Strategic planning and transformation expenses (b)

3,088

—

Restructuring and related charges (c)

820

1,175

Fair value step up of acquired inventory sold (d)

—

801

Executive transition costs (e)

539

504

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

Customer insolvency costs (g)

1,166

—

Pension and postretirement benefit income, non-service components

(i)

(479)

(124)

Currency conversion impacts of hyper-inflationary economies (j)

188

172

Adjusted EBITDA

60,444

77,148

Adjusted EBITDA margin (%) (n)

12.7%

18.0%

Adjusted EBITDA

60,444

77,148

Less: Depreciation and amortization - adjusted (a)

20,727

22,033

Less: Interest expense, net

5,345

5,470

Less: Taxes on income

before equity in net income of associated companies - adjusted

(k)(m)

8,902

11,739

Non-GAAP net income

25,470

37,906

Quaker Chemical Corporation

Management’s Discussion and Analysis

Non-GAAP Earnings per Diluted Share Reconciliations

Three Months Ended

March 31,

2022

2021

GAAP earnings per diluted share attributable to Quaker Chemical Corporation

common shareholders

1.11

2.15

Equity loss (income) in a captive insurance company per diluted share (h)

0.01

(0.17)

Combination, integration and other acquisition-related expenses per diluted

share (a)

0.25

0.04

Strategic planning and transformation expenses per diluted share (b)

0.14

—

Restructuring and related charges per diluted share (c)

0.03

0.05

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

—

0.03

Executive transition costs per diluted share (e)

0.02

Inactive subsidiary's non-operating litigation costs per diluted share (f)

0.00

Customer insolvency costs per diluted share (g)

0.06

—

Pension and postretirement benefit costs, non-service components per diluted

share (i)

(0.02)

(0.00)

Currency conversion impacts of hyper-inflationary economies per

diluted share (j)

0.01

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

(0.19)

(0.02)

Non-GAAP earnings per diluted share (o)

1.42

2.11

(a)

Combination,

integration and other acquisition-related expenses include certain legal, financial,

and other advisory and consultant

costs incurred in connection with integration activities including internal

control readiness and remediation.

These costs are not

indicative of the future operating performance of the Company.

Less than $0.1 million and $0.1 million for the three months

ended March 31, 2022 and 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 months ended March 31, 2022, the Company recorded

$2.0 million of other expense related to an indemnification asset.

During the three months ended March 31, 2021, the Company

recorded $0.4 million of accelerated depreciation related to certain of

the Company’s facilities, which is included

in the caption

“Combination, integration and other acquisition-related expenses” in the

reconciliation of operating income to non-GAAP

operating income and included in the caption “Depreciation and amortization”

in the reconciliation of net income attributable to

the Company to EBITDA, but excluded from the caption “Depreciation

and amortization – adjusted” in the reconciliation of

adjusted EBITDA to non-GAAP net income attributable to the Company

During the three months ended March 31, 2021, the

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

real property assets related to the Combination which is

included in the caption “Combination, integration and other acquisition-related

expenses” in the reconciliation of GAAP earnings

per diluted share attributable to Quaker Chemical Corporation common

shareholders to Non-GAAP earnings per diluted share as

well as the reconciliation of net income attributable to Quaker Chemical Corporation

to Adjusted EBITDA and Non-GAAP net

income.

(b)

Strategic planning and transformation expenses include certain consultant

and advisory expenses for the Company’s

long-term

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

of the Company’s long-term integration

to further optimize

its footprint, processes and other functions.

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

(c)

Restructuring and related charges represent the

costs incurred by the Company associated with the QH restructuring program

which was initiated in the third quarter of 2019 as part of the Company’s

plan to realize cost synergies associated with the

Combination.

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

See Note 7 of Notes to

Condensed Consolidated Financial Statements, which appears in Item

1 of this Report.

(d)

Fair value step up of acquired inventory sold relates to expense associated with selling

inventory from acquired businesses which

was adjusted to fair value as part of purchase accounting.

These increases in costs of goods sold (“COGS”) are not indicative of

the future operating performance of the Company.

(e)

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

search, hiring and transition to a new CEO in connection

with the executive transition that took place in 2021 as well as the on-going

search for a new Chief Human Resources Officer

during the first quarter of 2022.

These expenses are not indicative of the future operating performance of the

Company.

(f)

Inactive subsidiary’s non

-operating litigation costs represent the charges incurred by

an inactive subsidiary of the Company and

are a result of the termination of restrictions on insurance settlement reserves

These charges are not indicative of the future

operating performance of the Company.

Quaker Chemical Corporation

Management’s Discussion and Analysis

(g)

Customer insolvency costs represent the costs associated with a specific

reserve or changes to existing reserves for trade accounts

receivable within the Company’s

EMEA reportable segment related to certain customers who filed for

bankruptcy protection as

well as costs related to specific reserves recorded for certain customer accounts

receivables which have been directly impacted by

the current economic conflict between Russia and Ukraine.

These expenses are not indicative of the future operating performance

of the Company.

(h)

Equity loss (income)

in a captive insurance company represents the after-tax

(loss) income attributable to the Company’s

interest

in Primex, Ltd. (“Primex”),

a captive insurance company.

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

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

of accounting.

The loss (income)

attributable to

Primex is not indicative of the future operating performance of the

Company and is not considered core to the Company’s

operations.

(i)

Pension and postretirement benefit income,

non-service components represent the pre-tax, non-service

component of the

Company’s pension and postretirement

net periodic benefit income in each period.

These costs are not indicative of the future

operating performance of the Company.

See Note 9 of Notes to Condensed Consolidated Financial Statements, which appears

Item 1 of this Report.

(j)

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 both the

three months ended March 31, 2022

and 2021, the Company incurred non-deductible, pre-tax charges

related to the Company’s

Argentine affiliates.

The charges incurred related to the immediate recognition of foreign currency

remeasurement in the

Consolidated Statements of Income associated with these entities are not indicative

of the future operating performance of the

Company.

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

in Item 1 of this Report.

(k)

The impacts of certain discrete tax items include changes in valuation

allowances recorded on certain Brazilian branch foreign tax

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

Both of these discrete items related to a result of tax law

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

during the period.

Additionally, the Company has

discrete items related to the release of the reserves for uncertain tax positions

settled during the quarter and certain taxes,

penalties, and interest due as a result of the settlements.

See Note 11 of Notes to Condensed Consolidated

Financial Statements,

which appears in Item 1 of this Report.

(l)

Depreciation and amortization for the three months ended March 31,

2022 and 2021 each included $0.3

million of amortization

expense recorded within equity in net income of associated companies

in the Company’s Condensed Consolidated

Statement of

Income,

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.

(m)

Taxes on income

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

of any current and deferred

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

in the reconciliation of net income attributable to

Quaker Chemical Corporation to adjusted EBITDA, and was determined

utilizing the applicable rates in the taxing jurisdictions in

which these adjustments occurred, subject to deductibility.

Combination, integration and other acquisition-related expenses

described in (a) resulted in incremental taxes of $1.4 million and $0.1

million during the three months ended March 31, 2022 and

2021, respectively.

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

in incremental taxes of $0.7

million during the three months ended March 31, 2022.

Restructuring and related charges described in (c) resulted in incremental

taxes of $0.2 million during each of the three months ended March 31, 2022

and 2021.

Fair value step up of acquired inventory

sold described in (d) resulted in incremental taxes of $0.2 million during

the three months ending March 31, 2021.

Executive

transition expenses described in (e) resulted in incremental taxes of $0.1

million during each of the three months ended March 31,

2022 and 2021.

Inactive subsidiary non-operating litigation costs described in (f) resulted in incremental

taxes of less than $0.1

million for each of the three months ended March 31, 2022 and 2021.

Customer insolvency costs described in (g) resulted in

incremental taxes of $0.3 million during the three months ended

March 31, 2022.

Pension and postretirement benefit income,

non-service components described in (i) resulted in a tax benefit of $0.1

million and less than $0.1 million for the three months

ended March 31, 2022 and 2021, respectively.

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

$3.4 million and $0.4 million for the three months ended March 31, 2022

and 2021, respectively.

(n)

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.

(o)

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

-GAAP net income attributable to the Company per

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

to calculate such in each given period.

Quaker Chemical Corporation

Management’s Discussion and Analysis

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet commitments or

obligations as of March 31, 2022.

The Company’s only off-

balance sheet items outstanding as of March 31, 2022 represented approximately

$6 million of total bank letters of credit and

guarantees.

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

liquidity or capital resources.

See Note 14

of Notes to Condensed Consolidated Financial Statements in Item

1 of this Report.

Operations

Consolidated Operations Review – Comparison of the First Quarter of 2022

with the First Quarter of 2021

Net sales were $474.2 million in the first quarter of 2022 compared to $429.8

million in the first quarter of 2021.

The net sales

increase of $44.4 million or 10% quarter-over-quarter reflects increases in

selling price and product mix of approximately 17% and

additional net sales from acquisitions of 2% partially offset

by a decline in sales volume of approximately 6% and the unfavorable

impact from foreign currency translation of 3%.

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

implemented to help offset the significant increases in raw

material and other input costs that began during 2021.

The decline in sales

volumes was primarily attributable to the comparison to a very strong first quarter

of 2021, where customers replenished their supply

chains, the impact of lower volumes related to the tolling agreement

for previously divested products associated with the Combination

and lower sales volumes attributable to the war in Ukraine.

COGS were $328.1 million in the first quarter of 2022 compared to $273.6

million in the first quarter of 2021.

The increase in

COGS of $54.5 million or 20% was driven by the associated COGS on the

increase in net sales described above as well as continued

increases in the Company’s global

raw material and supply chain and logistics costs compared to the prior year.

Gross profit in the first quarter of 2022 decreased $10.1 million or 6%

from the first quarter of 2021.

The Company’s reported

gross margin in the first quarter of 2022 was 30.8% compared to

36.3% in the first quarter of 2021.

The Company’s current quarter

gross margin reflects a significant increase in raw

material and other input costs experienced throughout the first quarter of

2022 and

the impacts of constraints on the global supply chain, partially offset

by the Company’s ongoing value

-based pricing initiatives.

SG&A in the first quarter of 2022 increased $7.5 million or 7% compared

to the first quarter of 2021 due primarily to the impact

of sales increases on direct selling costs, inflationary impacts on higher

operating costs, costs associated with strategic planning and

transformation initiatives (see the Non-GAAP Measures section of

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

partially offset by lower SG&A due to foreign currency

translation and lower incentive compensation compared to the prior year.

addition, SG&A was lower in the prior year period as a result of continued

temporary cost saving measures the Company

implemented in response to the onset of COVID-19.

During the first quarter of 2022, the Company incurred $4.1 million

of Combination,

integration and other acquisition-related

operating expenses primarily for professional fees related to the Houghton

integration and other acquisition-related activities.

Comparatively,

the Company incurred $5.8 million of expenses in the prior year first quarter,

primarily due to various professional

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

for integration activities including internal control readiness

and remediation.

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

The Company initiated a restructuring program during the third quarter

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

associated with the Combination.

The Company incurred Restructuring and related charges for reductions

in headcount and site

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

of $0.8 million and $1.2 million during the first

quarters of 2022 and 2021, respectively.

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

Operating income in the first quarter of 2022 was $29.4 million compared

to $44.9 million in the first quarter of 2021.

Excluding

non-recurring and non-core expenses that are not indicative of the future operating

performance of the Company described in the Non-

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

current quarter non-GAAP operating income decreased

to $39.2 million

compared to $53.7 million in the prior year first quarter primarily due

to the lower gross profit described above.

The Company had other expense, net, of $2.2 million in the first quarter

of 2022 compared to other income, net of $4.7 million in

the first quarter of 2021.

The first quarter of 2022 includes other expenses related to the impact of certain adjustment

to the

Company’s indemnification

receivables, while the prior year first quarter other income includes a gain on

the sale of certain held-for-

sale real property assets.

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

Interest expense, net, decreased $0.1 million compared to the first quarter

of 2021, due to a slight decrease in the average

borrowings outstanding in the first quarter of 2022 compared to the first

quarter of 2021 on relatively consistent interest rates during

both the first quarter of 2022 and 2021.

The Company’s effective

tax rates for the first quarters of 2022 and 2021 were 13.1% and 24.2%, respectively.

The Company’s

effective tax rate for the three months ended March 31,

2022 was largely driven by changes in the valuation allowance for foreign

tax

credits due to recently issued legislative guidance and impacts due to settlements

reached on certain tax audits.

Comparatively, the

prior year first quarter effective tax rate was impacted by the sale of

a subsidiary which included certain held-for-sale real property

Quaker Chemical Corporation

Management’s Discussion and Analysis

assets related to the Combination.

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 effective tax rates for the first quarter of 2022

and 2021 would have been approximately 27% and 25%, respectively.

The Company incurred higher tax expense during the three

months ended March 31, 2022 primarily related to the Company recording earnings

in one of its subsidiaries at a statutory tax rate of

25% while it awaits recertification of a concessionary 15% tax rate, which

was available to the Company during all of 2021.

The

Company expects continued volatility in its effective tax

rates due to several factors, including the timing and scope of tax audits and

the expiration of applicable statutes of limitations as they relate to uncertain

tax positions, the unpredictability of the timing and

amount of certain incentives in various tax jurisdictions, the treatment of

certain acquisition-related costs and the timing and amount

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

other factors.

Equity in net income of associated companies decreased $4.4 million

in the first quarter of 2022 compared to the first quarter of

2021, primarily due to lower current year income from the Company’s

interest in a captive insurance company and from the

Company’s 50% interest in a joint venture

in Korea.

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

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

in both the first quarters of 2022 and 2021.

Foreign exchange unfavorably impacted the Company’s

first quarter of 2022 results by approximately 4% driven by the impact

from foreign currency translation on earnings as well as higher foreign

exchange transaction losses in the current quarter as compared

to the prior year first quarter.

Reportable Segments Review - Comparison of the First Quarter of 2022

with the First Quarter of 2021

The Company’s reportable

segments reflect the structure of the Company’s

internal organization, the method by which the

Company’s resources are allocated

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

assesses its

performance.

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

Asia/Pacific; and (iv) Global Specialty

Businesses.

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

in each respective region, excluding net

sales and operations managed globally by the Global Specialty Businesses

segment, which includes the Company’s

container, metal

finishing, mining, offshore, specialty coatings, specialty

grease and Norman Hay businesses.

Segment operating earnings for the Company’s

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

related to the respective segment’s product

sales.

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

segment, such as certain corporate and administrative costs, Combination,

integration and other acquisition-related expenses,

Restructuring and related charges, and COGS related

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

accounting, are not included in segment operating earnings.

Other items not specifically identified with the Company’s

reportable

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

Americas

Americas represented approximately 33% of the Company’s

consolidated net sales in the first quarter of 2022.

The segment’s net

sales were $154.1 million, an increase of $19.3 million or 14% compared

to the first quarter of 2021.

The increase in net sales was

due to higher selling price and product mix of 22% and additional net sales from

acquisitions of 2% partially offset by decreases in

organic sales volumes of 10%.

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

increases implemented to

help offset the significant increases in raw material and

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

The

current quarter decline in organic sales volume was largely

driven by the impact of lower volumes related to the tolling agreement for

previously divested products associated with the Combination

and the prior year period comparison,

which included a strong rebound

from COVID-19 impacts.

This segment’s operating earnings were $29.2

million, a decrease of $3.0 million or 9% compared to the

first quarter of 2021.

The decrease in segment operating earnings was primarily a result of lower gross

margins driven by the lag in

price increases as compared to continued raw material cost increases and global

supply chain and logistics pressures, as well as higher

SG&A including an increase in direct selling costs, SG&A from acquisitions

and year-over-year inflationary increases

EMEA

EMEA represented approximately 26% of the Company’s

consolidated net sales in the first quarter of 2022.

The segment’s net

sales were $125.7 million, an increase of $5.9 million or 5% compared

to the first quarter of 2021.

The increase in net sales was due

to higher selling price and product mix of 18% and additional net sales from

acquisitions of 2%, partially offset by the unfavorable

impact of foreign currency translation of 9% and a decrease in organic

sales volumes

of 6%.

The increase in selling price and product

mix is primarily driven by price increases implemented to help offset

the significant increases in raw material and other input costs

that began during 2021 and have continued in 2022.

The current quarter organic volume decline was primarily driven

by the current

economic pressures including the direct and indirect impacts of the

Russia-Ukraine conflict and the impact of economic and other

sanctions by other nations on Russia as well as the prior year period comparison

including a strong rebound from COVID-19 impacts.

The foreign exchange impact was primarily due to the weakening of the

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

1.12 in the first quarter of 2022 compared to 1.21 in the first quarter of

2021.

This segment’s operating earnings

were $16.8 million, a

decrease of $8.5 million or 34% compared to the first quarter of 2021.

The decrease in segment operating earnings was primarily a

Quaker Chemical Corporation

Management’s Discussion and Analysis

result of lower gross margins driven by the lag in price increases as compared

to continued raw material cost increases and global

supply chain and logistics pressures, coupled with higher SG&A including

an increase in direct selling costs, SG&A from acquisitions

and year-over-year inflationary increases

Asia/Pacific

Asia/Pacific represented approximately 22% of the Company’s

consolidated net sales in the first quarter of 2022.

The segment’s

net sales were $104.2 million, an increase of $7.5 million or 8% compared

to the first quarter of 2021.

The increase in net sales was

driven by higher selling price and product mix of 12% partially offset

by lower organic sales volumes of 4%.

The increase in selling

price and product mix is primarily driven by price increases implemented

to help offset the significant increases in raw material and

other input costs that began during 2021 and continued throughout

the first quarter of 2022.

The current quarter decline in organic

sales volume was primarily driven by lower activity primarily in China related

to government mandates regarding the current year

Olympics as well as country restrictions over power and export related

activity compared to a very favorable demand environment in

the prior year period.

This segment’s operating earnings

were $21.9 million, a decrease of $5.6 million or 20% compared to the first

quarter of 2021.

The decrease in segment operating earnings was primarily a result of lower gross margins

driven by the lag in price

increases as compared to continued raw material cost increases and global

supply chain and logistics pressures, coupled with higher

SG&A including an increase in direct selling costs and year-over-year inflationary

increases.

Global Specialty Businesses

Global Specialty Businesses represented approximately 19% of the

Company’s consolidated net sales in the

first quarter of 2022.

The segment’s net sales were $90.1

million, an increase of $11.7 million or 15% compared

to the first quarter of 2021.

The increase

in net sales was driven by higher selling price and product mix of 10%, including

Norman Hay, additional net sales from

acquisitions

of 4% and an increase in organic sales volumes of 2%, partially offset

by the unfavorable impact from foreign currency transaction of

approximately 1%.

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

to help offset the

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

2021 and continued throughout the first quarter of 2022.

The increase in organic sales volumes was primarily attributable

to a favorable demand environment for our products.

The foreign

exchange impact was primarily due to the weakening of the euro

against the U.S. dollar described in the EMEA section above.

This

segment’s operating earnings were

$25.0 million, an increase of $0.9 million or 4% compared to the first quarter

of 2021.

The

increase in segment operating earnings reflects the aforementioned

higher net sales partially offset by slightly lower gross margins

the current year coupled with higher SG&A, including an increase in direct

selling costs, SG&A from acquisitions and year-over-year

inflationary increases.

Factors That May Affect Our Future Results

(Cautionary Statements Under the Private Securities Litigation Reform

Act of 1995)

Certain information included in this Report and other materials filed or

to be filed by Quaker Chemical Corporation with the SEC,

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

or to be made by us, contain or may contain

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

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

Securities Exchange Act of 1934, as amended.

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

historical or current facts.

We have based

these forward-looking statements, including statements regarding the potential

effects of the

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

business, results of operations, and financial condition,

our expectation that we will maintain sufficient liquidity and

remediate any of our material weaknesses in internal control over

financial reporting, and statements regarding the impact of increased

raw material costs and pricing initiatives on our current

expectations about future events.

These forward-looking statements include statements with respect to

our beliefs, plans, objectives, goals, expectations,

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

performance, and business, including:

•

the potential benefits of the Combination and other acquisitions;

•

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

•

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

and Russian conflict;

•

cost increases in prices of raw materials and the impacts of constraints and

disruptions in the global supply chain;

•

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

•

statements that include the words “may,”

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

“intend,” “plan” or similar expressions.

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

operational matters, capital spending, and

financing sources.

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

other periodic reports on Forms

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

or statements made to, the public.

Quaker Chemical Corporation

Management’s Discussion and Analysis

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

Annual Report to Shareholders for 2021 and in any

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

This can occur as a result of inaccurate assumptions or as a 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 as a result of supply chain disruption.

Other major risks and uncertainties include, but are not

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

including actions taken in response to the pandemic by

various governments, which could exacerbate some or all of the other

risks and uncertainties faced by the Company,

as well as the

potential for significant increases in raw material costs, supply chain

disruptions, customer financial instability,

worldwide economic

and political disruptions including the impacts of the military conflict

between Russia and Ukraine, the economic and other sanctions

imposed by other nations on Russia, suspensions of activities in Russia by

many multinational companies and the potential expansion

of military activity, foreign

currency fluctuations, significant changes in applicable tax rates and

regulations, future terrorist attacks

and other acts of violence.

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

our customers in

the steel, automobile, aircraft, industrial equipment, and durable goods industries.

The ultimate impact of COVID-19 on our business

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

pandemic, the severity of the disease and the number of people

infected with the virus including new variants, the continued uncertainty

regarding global availability,

administration, acceptance and

long-term efficacy of vaccines, or other treatments for

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

on the economy of the

pandemic, including the resulting market volatility,

and by the measures taken by governmental authorities and other third parties

restricting day-to-day life and business operations and the length

of time that such measures remain in place, as well as laws and other

governmental programs implemented to address the pandemic or assist impacted

businesses, such as fiscal stimulus and other

legislation designed to deliver monetary aid and other relief.

Other factors could also adversely affect us, including those related

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 2021 Form 10-K and in our quarterly and other reports filed from time to

time with the SEC.

This discussion is provided as

permitted by the Private Securities Litigation Reform Act of 1995.

Quaker Houghton on the Internet

Financial results, news and other information about Quaker Houghton

can be accessed from the Company’s

website at

https://www.quakerhoughton.com

This site includes important information on the Company’s

locations, products and services,

financial reports, news releases and career opportunities.

The Company’s periodic and current reports

on Forms 10-K, 10-Q, 8-K, and

other filings, including exhibits and supplemental schedules filed therewith,

and amendments to those reports, filed with the SEC are

available on the Company’s website,

free of charge, as soon as reasonably practicable after they

are electronically filed with or

furnished to the SEC.

Information contained on, or that may be accessed through, the Company’s

website is not incorporated by

reference in this Report and, accordingly,

you should not consider that information part of this Report.

Item 3.

Quantitative and Qualitative Disclosures About Market

Risk.

We have evaluated

the information required under this Item that was disclosed in Part II, Item 7A, of our Annual

Report on Form

10-K for the year ended December 31, 2021, and we believe there has been no material

change to that information.

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 March 31, 2022, the end of the period covered by

this Report, our disclosure controls and procedures (as

defined in Rule 13a-15(e) under the Exchange Act) were effective.

Changes in internal control over financial reporting.

As required by Rule 13a-15(d) under the Exchange Act, our

management, including our principal executive officer

and principal financial officer, has evaluated

our internal control over

financial reporting to determine whether any changes to our internal control

over financial reporting occurred during the

quarter ended March 31, 2022 that have materially affected, or

are reasonably likely to materially affect, our internal control

over financial reporting.

Based on that evaluation, there were no changes that have materially affected,

or are reasonably

likely to materially affect, our internal control over financial reporting

during the quarter ended March 31, 2022.

PART

II.

OTHER INFORMATION

Items 3, 4 and 5 of Part II are inapplicable and have been omitted.

Item 1.

Legal Proceedings.

Incorporated by reference is the information in Note 18 of the Notes to the

Consolidated Financial Statements in Part I, Item 1, of

this Report.

Item 1A.

Risk Factors.

The Company’s business, financial

condition, results of operations and cash flows are subject to various risks that

could cause

actual results to vary materially from recent results or from anticipated future

results.

In addition to the other information set forth in

this Report, you should carefully consider the risk factors previously disclosed

in Part I, Item 1A of our 2021

Form 10-K.

While there

have been no material changes to the risk factors described in our 2021 Form 10-K,

reference is made to the developments discussed

under the headings

Ongoing impact of COVID-19

and

Impact of Political Conflicts

within Item 2 of this Report.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information concerning shares of

the Company’s common stock acquired

by the Company during

the period covered by this Report:

(c)

(d)

Total

Number of

Approximate Dollar

(a)

(b)

Shares Purchased

Value of

Shares that

Total

Number

Average

as part of

May Yet

of Shares

Price Paid

Publicly Announced

Purchased Under the

Period

Purchased (1)

Per Share (2)

Plans or Programs

Plans or Programs (3)

January 1 - January 31

494

227.19

—

86,865,026

February 1 - February 28

4,717

189.45

—

86,865,026

March 1 - March 31

161

174.07

—

86,865,026

Total

5,372

192.46

—

86,865,026

(1)

All of these shares were acquired from employees related to the surrender

of Quaker Chemical Corporation shares in

payment of the exercise price of employee stock options exercised or

for the payment of taxes upon exercise of employee

stock options or the vesting of restricted stock awards or units.

(2)

The price paid for shares acquired from employees pursuant to employee

benefit and share-based compensation plans is

based on the closing price of the Company’s

common stock on the date of exercise or vesting as specified by the plan

pursuant to which the applicable option, restricted stock award, or restricted

stock unit was granted.

(3)

On May 6, 2015, the Board of Directors of the Company approved, and the

Company announced, a share repurchase

program, pursuant to which the Company is authorized to repurchase up to

$100,000,000 of Quaker Chemical Corporation

common stock (the “2015 Share Repurchase Program”), and it has no expiration

date.

There were no shares acquired by the

Company pursuant to the 2015 Share Repurchase Program during the

quarter ended March 31, 2022.

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 14 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.

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

Calculation Linkbase Document*

101.DEF

–

Inline XBRL Taxonomy

Definition Linkbase Document*

101.LAB

–

Inline XBRL Taxonomy

Label Linkbase Document*

101.PRE

–

Inline XBRL Taxonomy

Presentation Linkbase Document*

104

–

Cover Page Interactive Data File (formatted as Inline XBRL and contained

in Exhibit 101.INS)*

* Filed herewith.

** Furnished herewith.

† Management contract or compensatory plan.

*********

Pursuant to the requirements of the Securities Exchange Act of 1934,

the registrant has duly caused this report to be signed on its

behalf by the undersigned thereunto duly authorized.

QUAKER CHEMICAL CORPORATION

(Registrant)

/s/ Shane W. Hostetter________________________________

Date: May 5, 2022

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 FY2022 Q1

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