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Published: 2022-03-01 00:00:00 ET

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-K

☒

ANNUAL REPORT PURSUANT TO SECTION

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

For the fiscal year ended

December 31, 2021

☐

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

Corporation

No.

23-0993790

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

901 E. Hector Street

Conshohocken

Pennsylvania

19428-2380

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (

610

)

832-4000

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

KWR

New York Stock Exchange

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

None

Indicate by check mark if the registrant is a well-known seasoned

issuer, as defined in Rule 405 of the Securities Act.

Yes

☒

☐

Indicate by check mark if the registrant is not required to file

reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

☐

☒

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 has filed a

report on and attestation to its management’s assessment of the effectiveness of its internal control

over

financial reporting under Section 404(b) of the Sarbanes-Oxley

Act (15 U.S.C. 7262(b)) by the registered public accounting

firm that prepared or issued its audit

report.

Yes

☒

☐

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

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

Yes

☐

☒

State the aggregate market value of the voting and non-voting

common equity held by non-affiliates computed by reference to the

price at which the common equity

was last sold, or the average bid and asked price of such

common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. (The

aggregate market value is computed by reference to the last

reported sale on the New York Stock Exchange on June 30, 2021): $

4,210,881,271

Indicate the number of shares outstanding of each of the registrant’s classes of

common stock, as of the latest practicable date:

17,899,345

shares of Common Stock,

$1.00 Par Value, as of January 31, 2022.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement relating to the 2022 Annual

Meeting of Shareholders are incorporated by reference into Part

III.

QUAKER CHEMICAL CORPORATION

Table of

Contents

Page

Part I

Item 1.

Business.

Item 1A.

Risk Factors.

Item 1B.

Unresolved Staff Comments.

Item 2.

Properties.

Item 3.

Legal Proceedings.

Item 4.

Mine Safety Disclosures.

Item 4(a).

Information about our Executive Officers.

Part II

Item 5.

Market for Registrant's Common Equity,

Related Stockholder Matters and Issuer Purchases of Equity Securities.

Item 6.

Selected Financial Data.

Item 7.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Item 8.

Financial Statements and Supplementary Data.

Item 9.

Changes in and Disagreements With Accountants on

Accounting and Financial Disclosure.

Item 9A.

Controls and Procedures.

Item 9B.

Other Information.

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Part III

Item 10.

Directors, Executive Officers and Corporate Governance.

Item 11.

Executive Compensation.

Item 12.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters.

Item 13.

Certain Relationships and Related Transactions,

and Director Independence.

Item 14.

Principal Accountant Fees and Services.

Part IV

Item 15.

Exhibits and Financial Statement Schedules.

Item 16.

Form 10-K Summary.

PART

As used in this Annual Report on Form 10-K (the “Report”), the terms “Quaker

Houghton,” the “Company,”

“we,” and “our”

refer to Quaker Chemical Corporation (doing business as Quaker

Houghton), its subsidiaries, and associated companies, unless the

context otherwise requires.

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

with Houghton

International, Inc. (“Houghton”) (herein referred to as the “Combination”)

on August 1, 2019.

Throughout the Report, all figures

presented, unless otherwise stated, reflect the results of operations

of the combined company for the years ended December 31, 2020

and 2021; and for the year ended December 31, 2019, the results of Legacy

Quaker plus five months of Houghton’s operations

post-

closing of the Combination on August 1, 2019.

Item 1.

Business.

General Description

The Company was organized in 1918, incorporated as a Pennsylvania

business corporation in 1930, and in August 2019

completed the Combination with Houghton to form Quaker Houghton.

Quaker Houghton is the global leader in industrial process

fluids.

With a presence around the world, includi

ng operations in over 25 countries, the Company’s

customers include thousands of

the world’s most advanced and specialized

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

mining, and metalworking

companies.

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

chemical specialty products and offers

chemical management services (which we refer to as “Fluidcare

”) for various heavy industrial and manufacturing applications

throughout its four segments: Americas; Europe, Middle East and Africa

(“EMEA”); Asia/Pacific; and Global Specialty Businesses.

The major product lines of Quaker Houghton include metal removal fluids,

cleaning fluids, corrosion inhibitors, metal drawing

and forming fluids, die cast mold releases, heat treatment and quenchants,

metal forging fluids, hydraulic fluids, specialty greases,

offshore sub-sea energy control fluids, rolling

lubricants, rod and wire drawing fluids and surface treatment chemicals.

The following

are the respective contributions to consolidated net sales of each of our principal

product lines representing more than 10% of

consolidated net sales for any of the past three years based on the Company’s

current product line segmentation:

2021

2020

2019

Metal removal fluids

23.4

23.9

19.9

Rolling lubricants

22.2

21.8

21.9

Hydraulic fluids

13.6

13.3

13.0

Sales Revenue

A substantial portion of the Company’s

sales worldwide are made directly through its own employees and its Fluidcare

programs, with the balance sold through distributors and agents.

The Company’s employees typically

visit the plants of customers

regularly, work on

site, and through training and experience, identify production needs which can be resolved

or otherwise addressed

either by utilizing the Company’s existing

products or by applying new formulations developed in its laboratories.

As part of the Company’s Fluidcare

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

Company.

Where the Company acts as principal, revenues are recognized on

a gross reporting basis at the selling price negotiated with its

customers.

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

a net reporting basis at the amount of the

administrative fee earned by the Company for ordering the goods.

See Note 5 of Notes to Consolidated Financial Statements in Item 8

of this Report.

Competition

The specialty chemical industry comprises a number of companies similar in

size to the Company, as well

as companies larger

and smaller than Quaker Houghton.

The Company cannot readily determine its precise competitive position

in every industry it

serves.

However, the Company estimates it holds a leading

global position in the market for industrial process fluids including

significant global positions in the markets for process fluids in portions of

the automotive and industrial markets, and a leading

position in the market for process fluids to produce sheet steel and aluminum.

The offerings of many of the Company’s

competitors

differ from those of Quaker Houghton; some offer

a broad portfolio of fluids, including general lubricants, while others have more

specialized product ranges.

All competitors provide different levels of technical

services to individual customers.

Competition in the

industry is based primarily on the ability to supply products that meet the needs of

the customer and provide technical services and

laboratory assistance to the customer, and

to a lesser extent, on price.

Major Customers and Markets

In 2021, Quaker Houghton’s

five largest customers (each composed of multiple subsidiaries or divisions

with semi-autonomous

purchasing authority) accounted for approximately 10% of

consolidated net sales, with its largest customer accounting for

approximately 3% of consolidated net sales.

A significant portion of the Company’s

revenues are realized from the sale of process

fluids and services to manufacturers of steel, aluminum, automobiles,

aircraft, industrial equipment, and durable goods and, therefore,

Quaker Houghton is subject to the same business cycles as those experienced

by these manufacturers and their customers.

The Company’s financial

performance is generally correlated to the volume of global production within

the industries it serves, rather

than directly related to the financial performance of its customers.

Furthermore, steel and aluminum customers typically have limited

manufacturing locations compared to metalworking customers and

generally use higher volumes of products at a single location.

Raw Materials

Quaker Houghton uses approximately 3,000

raw materials, including animal fats, vegetable oils, mineral oils, oleochemicals,

ethylene, solvents, surfactant agents, various chemical compounds

that act as additives to our base formulations, and a wide variety of

other organic and inorganic compounds and

various derivatives of the foregoing.

The price of mineral oil and its derivatives can be

affected by the price of crude oil and industry refining

capacity.

Animal fat and vegetable oil prices, as well as the prices of other raw

materials, are impacted by their own unique supply and demand factors,

and by biodiesel consumption which is affected by the price

of crude oil.

Accordingly, significant fluctuations

in the price of crude oil can have a material impact on the cost of these raw

materials.

In addition, many of the raw materials used by Quaker Houghton are

commodity chemicals which can experience

significant price volatility.

As experienced during 2021, the Company’s

earnings have been and could continue to be affected by

market changes in raw material prices.

Reference is made to the disclosure contained in Item 7A of this Report.

Patents and Trademarks

Quaker Houghton has a limited number of patents and patent applications including

patents issued, applied for, or acquired in the

U.S. and in various foreign countries, some of which may prove to be material

to its business, with the earliest patent expiry in 2024.

The Company principally relies on its proprietary formulae and its applications

know-how and experience to meet customer needs.

Quaker Houghton products are identified by numerous trademarks that

are registered throughout its marketing area.

Research and Development—Laboratories

The Company maintains approximately thirty separate laboratory

facilities worldwide that are primarily devoted to applied

research and development.

In addition, the Company maintains quality control labs at each of its manufacturing

facilities.

Quaker

Houghton research and development is directed primarily

toward applied technology since the nature of the Company’s

business

requires continual modification and improvement of formulations to provide

specialty chemicals to satisfy customer requirements.

problems are encountered which cannot be resolved by local laboratories,

the problem is referred to one of our ten principal

laboratories, located in Conshohocken, Pennsylvania; Valley

Forge, Pennsylvania; Aurora, Illinois; Santa Fe Springs, California;

Uithoorn, the Netherlands; Coventry,

United Kingdom; Dortmund, Germany; Barcelona, Spain; Turin,

Italy or Qingpu, China.

Research and development costs are expensed as incurred.

Research and development expenses during the years ended

December 31, 2021, 2020 and 2019 were $44.9 million, $40.0 million and

$32.1 million, respectively.

Recent Acquisition Activity

The Company has completed several recent acquisitions that expand its strategic product

offerings and increase the Company's

presence in its core industries.

The Company's 2021 and 2022 acquisitions consist of:

●

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

and impregnation of metal castings for the

automotive sector, as well as impregnation resin

and impregnation systems for metal parts for approximately $1.4 million.

This business expands the Company's geographic presence in Germany

as well as broadens its product offerings and service

capabilities within its existing impregnation business that was initially entered into

as part of its past acquisition of Norman

Hay.

●

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

inhibitor technologies for the steel industry,

drawing lubricants and stamping oil for metalworking, and various other

lubrication, rust preventative, and cleaner

applications, for approximately $8.0 million.

This business broadens the Company’s

product offerings within its existing

metals and metalworking business in the Americas

region.

●

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

fluids, coolants, cleaners, and rust preventative

oils for approximately $3.7 million.

This business expands the Company’s

geographic presence in Turkey as well as

broadens its product offerings within its existing metalworking

business.

●

In November 2021, the Company acquired Baron Industries ("Baron"),

a U.S. based privately held company that provides

vacuum impregnation services of castings, powder metal and electrical components

for an initial payment of approximately

$7.1 million.

Baron expands the Company's geographic presence as well as broadens its product

offerings and service

capabilities within its existing impregnation business.

●

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

(“Grindaix”), a Germany-based, high-

tech provider of coolant control and delivery systems for approximately $2.9

million.

Previously, in February 2021,

the

Company acquired a 38% ownership interest in Grindaix for approximately $1.7

million.

Grindaix expands the Company's

geographic presence in Germany and broadens its product offerings

and service capabilities within its equipment solutions

and fluid intelligence business.

●

In June 2021, the Company acquired certain assets for the Company’s

chemical milling maskants product line for

approximately $2.8 million.

●

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

the steel end market for approximately $25.0

million.

This business broadens the Company’s product

offerings within its existing metals business globally.

Impact of COVID-19

The global outbreak of COVID-19, and its variants, has negatively impacted

all locations where the Company does business.

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

for almost two years, the full extent of the outbreak and

related business impacts continue to remain uncertain and volatile.

This outbreak has significantly disrupted the operations of the

Company and those of its suppliers and customers.

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

having on the Company,

the overall specialty chemical industry,

and the economies and markets in which the Company operates.

Regulatory Matters

In order to facilitate compliance

with applicable federal, state, and local statutes and regulations relating

to occupational health

and safety and protection of the environment, the Company has an ongoing

program of site assessment for the purpose of identifying

capital expenditures or other actions that may be necessary to comply with

such requirements.

The program includes periodic

inspections of each facility by the Company and/or independent

experts, as well as ongoing inspections and training by on-site

personnel.

Such inspections address operational matters, record keeping, reporting requirements

and capital improvements.

Capital

expenditures directed solely or primarily to regulatory compliance amounted

to approximately $4.2

million, $3.7 million and $4.4

million during the years ended December 31, 2021, 2020 and 2019,

respectively.

Company Segmentation

The Company’s operating

segments, which are consistent with its reportable segments, reflect the structure of the

Company’s

internal organization, the method by which the Company’s

resources are allocated and the manner by which the chief operating

decision maker assesses the Company’s

performance.

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

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

See Note 4 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Non-U.S. Activities

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

the Company’s financial results are

affected by

currency fluctuations, particularly between the U.S. dollar and the

euro, the British pound sterling, the Brazilian real, the Mexican

peso, the Chinese renminbi and the Indian rupee, and the impact of those currency

fluctuations on the underlying economies.

Reference is made to (i) the foreign exchange risk information

contained in Item 7A of this Report, (ii) the geographic information in

Note 4 of Notes to Consolidated Financial Statements included

in Item 8 of this Report, and (iii) information regarding risks attendant

to foreign operations included in Item 1A of this Report.

Number of Employees

On December 31, 2021, Quaker Houghton had approximately 4,700

full-time employees globally of whom approximately 1,200

were employed by the parent company and its U.S. subsidiaries, and approximately

3,500 were employed by its non-U.S. subsidiaries.

Associated companies of Quaker Houghton (in which it owns 50% or less and has

significant influence) employed approximately 600

people on December 31, 2021.

Core Values

Quaker Houghton considers its employees as its greatest strength in differentiating

our business and strengthening our market

positions.

We have established

core values that are inclusive of embracing diversity and creating a culture

where we learn from and

are inspired by the many cultures, backgrounds and knowledge of our

team members.

The Company’s goal is to have

an organization

that is inclusive of all its people and is representative of the communities

in which we operate.

The Company’s core values

are (i) live safe; (ii) act with integrity; (iii) drive results; (iv) exceed customer

expectations; (v)

embrace diversity; and (vi) do great things together.

Our core values embody who we are as a company,

guide our decisions and

inspire us.

Our commitment to these values, in words and actions, builds a safer,

stronger Quaker Houghton, and these values guide

the Company’s internal conduct

and its relationship with the outside world.

By fostering a culture and environment that exemplifies

our core values, we gain, as a company,

unique perspectives, backgrounds and varying experiences to ensure

continued long-term

success.

The Company respects and values all of its employees and believes inclusion,

diversity and equality are essential pillars to

drive the Company’s success.

Sustainability Report

We report our

progress on Environmental, Social, and Governance (“ESG”) milestones in our

sustainability report, which is

published annually and is available free of charge on our corporate

website at home.quakerhoughton.com/sustainability.

The

Company’s 2020 Sustainability

Report reflects the most recent available data on a variety of topics, including

specific information

relating to the Company’s:

(i) environmental footprint and climate change commitments;

(ii) diversity initiatives; (iii) safety initiatives

and performance;

and (iv) training courses our employees have completed.

Information in these sustainability reports and on our

website are not incorporated by reference in this Report and, accordingly,

should not be considered part of this Report.

Environmental Strategy

In 2020, we established the Board Sustainability Committee, which has specific

responsibility to assist the Board of Directors (the

“Board”) in its assessment, evaluation, and oversight of the Company’s

sustainability programs and initiatives pertaining to the

Company’s business, operations,

and employees.

In formulating our environmental strategy,

our Executive Leadership Team

(“ELT”)

and Board consider certain risks and uncertainties that may materially impact

our financial condition and results of operations.

These

risks and uncertainties are further described in Item 1A of this Report.

In 2021, we set a target to achieve carbon neutrality in our global

operations by 2030 and net zero emissions across our entire

value chain by 2050.

The Company established 15 long-term goals,

based on the results of the Company's 2020 materiality

assessment, which was completed with input from customers, investors, suppliers,

and internal stakeholders.

Our 15 long-term goals

are closely aligned with the United Nations Sustainable Development Goals.

We also identified short

and medium-term milestones

that may help support the achievement of our 2030 targets.

Talent

Management and Retention

Maintaining a robust pipeline of talent is crucial to our continued

success and is a key aspect of succession planning efforts across

the organization.

Our ELT

and human resources teams are responsible for attracting and retaining top talent by facilitating

environment where employees want to show up to work and do great

things together.

To achieve sustained high performance,

management invests in the development, safety,

and wellbeing of our employees.

Among other metrics, we measure training hours,

turnover, time to hire, and diversity hiring

to assess our progress in these areas.

Additionally, we

regularly evaluate our compensation and benefits packages

for our employees, including health and wellness

benefits, paid-time off policies, monetary compensation,

and educational reimbursements, to ensure that our total compensation and

benefits packages are aligned with our business strategy,

organizational culture, and diversity and inclusion philosophy

while ensuring

that we remain competitive in the markets we serve while following

local and statutory wage and benefits laws and guidelines.

Diversity, Equity,

and Inclusion

As a global company,

we want to build an organization that is inclusive of all people and representative of

the communities in

which we operate.

Quaker Houghton provides equal employment opportunities and does not discriminate

based on age, ethnicity,

gender identity,

disability / medical, race, religion, or sexual orientation.

We believe that diversity and

inclusion are embodied by

having working norms and cultural familiarities whereby employees

feel included, engaged, and rewarded, regardless of their

background or where they sit in the organization.

Inclusion and diversity begin with the Board and ELT.

The Board is comprised of twelve individuals with diverse experience and

credentials, selected for their business acumen and ability to challenge and add

value to management.

Our current Board composition

includes two female and four racially diverse directors out of a total of

twelve directors.

For additional information on the Company’s

leadership, refer to Item 4(a) Information about our Executive Officers

and Item 10.

Directors, Executive Officers and Corporate

Governance.

We published

our workforce demographics in our Sustainability Report.

By publicly disclosing our workforce demographics, we

increase transparency in the composition of our workforce as well as facilitate accountability

in achieving progress in our diversity

goals, including ensuring that diverse candidates are actively considered

for roles throughout the organization.

Workplac

Safety

We are committed

to maintaining a strong safety culture and to emphasizing the importance of

our employees’ role in identifying,

mitigating and communicating safety risks.

We maintain policies and

operational practices that communicate a culture where all

levels of employees are responsible for safety.

We believe that

the achievement of superior safety performance is both an important

short-term and long-term strategic goal in managing our operations.

We emphasize ten

“lifesaving” rules which make a significant

difference in preventing serious injuries and fatalities.

We also require

all employees to regularly complete safety training.

Additionally, our

ELT is closely involved

in our safety programs and conducts regular reviews of safety performance

metrics and

reviews the Company’s safety

performance during Company-wide meetings.

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 Securities

and Exchange Commission (“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.

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 and

any projected global economic rebound or

anticipated positive results due to Company actions taken in response;

•

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.

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 such as the current conflict between Russia and Ukraine

foreign currency fluctuations, significant changes in

applicable tax rates and regulations, future terrorist attacks and other acts of violence.

Furthermore, the Company is subject to the

same business cycles as those experienced by our customers in the steel, automobile,

aircraft, industrial equipment, and durable goods

industries.

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

among other things, the extent and duration of the

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

with the virus including new variants, the continued

uncertainty regarding global availability,

administration, acceptance and long-term efficacy

of vaccines, or other treatments for

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

economy of the pandemic, including the resulting market volatility,

and by

the measures taken by governmental authorities and other third parties restricting

day-to-day life and business operations and the

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

governmental programs implemented to address the

pandemic or assist impacted businesses, such as fiscal stimulus and other legislation

designed to deliver monetary aid and other relief.

Other factors could also adversely affect us, including those related

to the Combination and other acquisitions and the integration of

acquired businesses.

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

assumptions about the Company and its

operations that are subject to change based on various important factors,

some of which are beyond our control.

These risks,

uncertainties, and possible inaccurate assumptions relevant to our business

could cause our actual results to differ materially from

expected and historical results.

Therefore, we caution you not to place undue reliance on our forward-looking

statements.

For more information regarding these

risks and uncertainties as well as certain additional risks that we face,

refer to the Risk Factors section, which appears in Item 1A of

this Report 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.

Item 1A.

Risk Factors.

There are many factors that may affect our business and

results of operations, including the following risks relating to: (1) the

demand for our products and services and our ability to grow our

customer base; (2) our business operations, including internal and

external factors that may impact our operational continuity; (3) our international

operations; (4) our supply chain; (5) domestic and

foreign taxation and government regulation and oversight; and (6)

more general risk factors that may impact our business.

Risks Related to the Demand for our Products and Services and our

Customer Base

Changes to the industries and markets that we serve could have a material

adverse effect on our liquidity, financial position

and

results of operations.

As the leader in industrial process fluids, the Company is subject to the same business

cycles as those experienced by our

customers that participate in the steel, automobile, aircraft, industrial

equipment, aerospace, aluminum and durable goods industries.

Because demand for our products and services is largely

derived from the global demand for their products, we are subject to

uncertainties related to downturns in our customers’ businesses and unanticipated

shutdowns or curtailments of our customers’

production, including as a result of adverse changes affecting

national, regional and global economies or increased competitive

pressure within our customers’ industries.

Our customers may experience deterioration of their businesses, cash flow shortages

and

difficulty obtaining financing, leading them

to delay or cancel plans to purchase products, and they may not be able to fulfill their

obligations in a timely fashion.

We have limited

ability to adjust our costs contemporaneously with changes in sales; thus, a

significant sudden downturn in sales due to reductions in global production

within the industries we serve and/or weak end-user

markets could have a material adverse effect on our

liquidity, financial position and results

of operations.

Further, our suppliers and

other business partners may experience similar conditions, which

could impact their ability to fulfill their obligations to us and also

result in material adverse effects on our liquidity,

financial position and results of operations.

Changes in competition in the industries and markets we serve could have

a material adverse effect on our liquidity, financial

position and results of operations.

The specialty chemical industry is highly competitive and there are

many companies with significant financial resources and/or

customer relationships that compete with us to provide similar products

and services.

Some competitors may be able to offer more

favorable or flexible pricing and service terms or,

due to their larger size or greater access to resources, may be better able to adapt

changes in conditions in our industries, fluctuations in the costs of raw materials

or changes in global economic conditions, potentially

resulting in reduced profitability and/or a loss of market share for us.

The pricing decisions of our competitors could lead us to

decrease our prices which could negatively affect our margins

and profitability.

In addition, our competitors could potentially

consolidate their businesses and gain scale or better position their

product offerings, which could have a negative impact on our

profitability and market share.

Competition in our industry historically has also been based on the ability

to provide products that

meet the needs of the customer and render technical services and laboratory

assistance, which our competitors may be able to

accomplish more effectively than we are able to do.

Further, in connection with obtaining regulatory approval

of the Combination, we

divested certain of Houghton’s products

and related assets to a competitor which they may use to compete with us in certain areas

where we continue to sell those products.

If we are unsuccessful with differentiating ourselves, it could

have a material adverse effect

on our liquidity, financial

position and results of operations and we could lose market share to our compe

titors.

Loss of a significant customer, bankruptcy

of a major customer, or the closure of or significant

reduction in production at a

customer site could have a material adverse effect on our liquidity,

financial position and results of operations.

During 2021, the Company’s

top five largest customers (each composed of multiple subsidiaries or divisions

with semi-

autonomous purchasing authority) together accounted for approximately

10% of our consolidated net sales, with the largest customer

accounting for approximately 3% of our consolidated

net sales.

The loss of a significant customer could have a material adverse effect

on our liquidity, financial

position and results of operations.

Also, a significant portion of our revenues is derived from sales to

customers in the cyclical steel, aerospace, aluminum and automotive

industries, where bankruptcies have occurred in the past and

where companies have periodically experienced financial difficulties.

If a significant customer experiences financial difficulties or

files for bankruptcy protection, we may be unable to collect on our receivables,

and customer manufacturing sites may be closed, or

contracts voided.

The bankruptcy of a major customer could therefore have a material adverse effect

on our liquidity, financial

position and results of operations.

Also, some of our customers, primarily in the steel, aluminum and aerospace industries, often

have

fewer manufacturing locations compared to other metalworking customers

and generally use higher volumes of products at a single

location.

The loss, closure,

or significant reduction in production at one or more of these locations or other major sites of

a significant

customer could have a material adverse effect on our

business.

We may not be able

to timely develop, manufacture and gain market acceptance of new and enhanced

products required to

maintain or expand our business, which could adversely affect

our competitive position and our liquidity, financial

position and

results of operations.

We believe that

our continued success depends on our ability to continuously develop and manufacture

new products and product

enhancements on a timely and cost-effective basis in response

to customer demands for higher performance process chemicals and

other product offerings.

Our competitors may develop new products or enhancements to their products

that offer performance,

features and lower prices that may render our products less competitive

or obsolete, and we may lose business and/or significant

market share.

The development and commercialization of new products requires

significant expenditures over an extended period of

time, and some products that we seek to develop may fail to gain traction or never

become profitable.

In any event, ongoing

investments in research and development for the future do not yield an

immediate beneficial impact on our operating results and

therefore could result in higher costs without a proportional increase in revenues.

In addition, our customers use our specialty chemicals for a broad range

of applications.

Changes in our customers’ products or

processes or changes in regulatory,

legislative or industry requirements may lead our customers to reduce consumption

of the specialty

chemicals that we produce or make them unnecessary or less attractive.

Customers may also adopt alternative materials or processes

that do not require our products.

An example of such evolving customer demands and industry trends is the

movement towards light

weighting of materials and electric vehicles.

Should a customer decide to use a different material due to price,

performance or other

considerations, we may not be able to supply a product that meets the customer’s

new requirements.

Consequently, it is important

that

we develop new products to replace the products that mature and decline

in use.

Despite our efforts, we may not be able to develop

and introduce products incorporating new technologies in a timely manner

that will satisfy our customers’ future needs or achieve

market acceptance.

Moreover, new products may have lower margins

than the products they replace.

Our business, results of

operations, cash flows and margins could be materially

adversely affected if we are unable to manage successfully the maturation

obsolescence of our existing products and the introduction of new products.

Risks Related to Business Operations, Including Internal and External Factors

that May Impact Our Operational Continuity

Our ability to profitably operate our consolidated company as anticipated

requires us to effectively identify and consummate the

strategic acquisitions we identify and to successfully integrate

these acquisitions into our consolidated operations.

An inability to

appropriately capitalize on growth, including organic growth and future acquisitions,

could adversely affect our liquidity,

financial

position and results of operations.

We have completed

several acquisitions over the past several years as discussed in Note 2 of the Notes to the Consolidated

Financial Statements included in Item 8 of this Report.

Acquired companies may have significant latent liabilities that may not be

discovered before they are acquired and may not be reflected in the price

we pay.

Acquisitions also could have a dilutive effect on our

financial results and while they generally result in goodwill, goodwill

could be impaired in the future resulting in a charge to earnings.

Our ability to implement our growth strategy may be limited by our

ability to identify appropriate acquisition or joint venture

candidates, our financial resources, including available cash and

borrowing capacity, and our ability

to negotiate and complete suitable

arrangements.

Further, the success of our growth depends on our ability

to navigate risks such as those listed above and successfully

integrate acquisitions, including, but not limited to, our ability to:

●

successfully execute the integration or consolidation of the

acquired or additional business into our existing processes and

operations;

●

develop or modify financial reporting, information systems and other

related financial tools to ensure

overall financial

integrity and adequacy of internal control procedures;

●

identify and take advantage of potential synergies, including

cost reduction opportunities, while retaining legacy business and

other related attributes;

●

adequately address challenges arising from the increased scope, geographic

diversity and complexity of our operations; and

●

further penetrate existing, and expand into new,

markets with the product capabilities acquired in acquisitions.

If we fail to successfully integrate acquisitions into our existing business,

our financial condition and results of operations could

be adversely affected.

We may fail to

obtain the benefits we anticipate from our recently completed or future

acquisitions or joint

ventures and we may not create the appropriate infrastructure to support

such additional growth from organic or acquired businesses,

which could also have a material adverse effect on our liquidity,

financial position and results of operations.

Gulf and its wholly-owned subsidiary, QH Hungary

Holdings Limited, have a significant minority stake in the Company and the

contractual ability to nominate certain directors of the Company,

which may enable them to influence the direction of our business

and significant corporate decisions.

As a result of the Combination, Gulf and its wholly-owned subsidiary,

QH Hungary Holdings Limited (together,

the “Gulf

Affiliates”), have become our largest shareholders.

If they were to make available for sale a portion of their shares, that portion could

represent a significant amount of common stock of the Company being sold

which could have an adverse impact on the Company’s

stock price.

In addition, the Gulf Affiliates currently have the right

to designate three individuals for election to the Board and this right,

together with their share ownership, gives them substantial influence over

our business, including over matters submitted to a vote of

our shareholders, including the election of directors, amendment of our organizational

documents, acquisitions or other business

combinations involving the Company,

and potentially the ability to prevent extraordinary transactions such as a takeover

attempt or

business combination.

The concentration of ownership of our shares held by the Gulf Affiliates may

make some future actions more

difficult without their support.

The Gulf Affiliates, however, among

other provisions in the shareholders agreement, have agreed that

for so long as any of their designees are on the Board, and for six months thereafter,

they will vote all Quaker Houghton shares

consistent with the recommendations of the Board for each director nominee

as reflected in each proxy statement of the Company,

including in support of any Quaker Houghton directors nominated for election

or re-election to the Board (except as would conflict

with their rights to designees on the Board).

Nevertheless, the interests of Gulf may conflict with our interests or the interests of our

other shareholders, though we are not aware of any such existing conflicts of interest at

this time.

Failure to comply with any material provision of our principal credit facility

or other debt agreements could have a material

adverse effect on our liquidity, financial

position and results of operations.

We significantly

increased our level of indebtedness in connection with the closing of

the Combination.

Our principal credit

facility requires the Company to comply with certain provisions

and covenants, and, while we do not currently consider these

provisions and covenants to be overly restrictive, they could become

more difficult to comply with as business or financial conditions

change.

We are also subject to

interest rate risk due to the variable interest rates within the credit facility and if interest rates rise

significantly, these

interest costs would increase as well.

Our principal credit facility contains provisions that are customary

for facilities of its type, including affirmative and negative

covenants, financial covenants and events of default, including

restrictions on (a) the incurrence of additional indebtedness, (b)

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

divisions, (c) the making of dividends or capital stock

purchases and (d) dispositions of assets.

We may declare

dividends and make share repurchases in annual amounts not exceeding

the

greater of $50 million annually and 20% of consolidated EBITDA (earnings

before interest, taxes, depreciation and amortization) if

we are otherwise in compliance with the credit facility and we may also distribute

certain other amounts to our shareholders if we

satisfy a consolidated net leverage ratio.

Other financial covenants contained in our principal credit facility

include a consolidated

interest coverage test and a consolidated net leverage test.

Customary events of default in the credit facility include, among others,

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

-performance of covenants, cross-defaults, insolvency,

and a

change of control of the Company in certain circumstances.

If we are unable to comply with the financial and other provisions of

our

principal facility,

we could become in default.

The occurrence of an event of default under the credit facility could result in all loans

and other obligations becoming immediately due and payable and the facility

being terminated.

In addition, deterioration in the

Company’s results of operations

or financial position could significantly increase borrowing costs.

Changes to the LIBOR calculation method or the replacement of LIBOR may have adverse

consequences for the Company that

cannot yet reasonably be predicted.

The Company’s principal

credit facility permits interest on certain borrowings to be calculated based on the

London Interbank

Offered Rate (“LIBOR”).

The LIBOR benchmark has been subject of national, international, and other regulatory

guidance and

proposals for reform and will cease to be provided with certain rates as of December

31, 2021 through June 30, 2023.

In December

2021, the Company entered into the Second Amendment to Credit Agreement

(“Second Amendment”) with Bank of America N.A., to

provide an update for the use of a non-U.S. dollar (“non-USD”) currency LIBOR successor

rate.

The transition away from LIBOR

presents various risks and challenges, including with respect to our borrowings

and hedging arrangements that rely on the LIBOR

benchmark.

Further, the overall financial market may be disrupted as a result

of the phase-out or replacement of LIBOR.

Various

parties are working on industry wide and company specific transition plans

related to derivatives and cash markets exposed to LIBOR.

The U.S. Federal Reserve, in conjunction with the Alternative Reference

Rates Committee, a steering committee comprised of large

U.S. financial institutions, is considering replacing LIBOR with the Secured

Overnight Financing Rate (“SOFR”), a new index

calculated using short-term repurchase agreements,

backed by Treasury securities.

At this time, it remains uncertain what rate will

succeed LIBOR.

It is not possible to predict whether SOFR will attain market traction as a LIBOR replacement

or to predict any other

reforms to LIBOR that may be enacted.

The potential effect of the phase-out or replacement of LIBOR on the Company’s

financial

position or results of operations cannot yet be predicted but may affect

the level of interest payments on our portion of indebtedness

that bear interest at variable rates.

Risks Related to our International Operations

Our global presence subjects us to political and economic risks that could adversely affect

our business, liquidity, financial

position and results of operations.

A significant portion of our revenues and earnings are generated by our non

-U.S. operations.

Our success as a global business

depends, in part, upon our ability to succeed across different legal,

regulatory, economic,

social and political conditions by developing,

implementing and maintaining policies and strategies that are effective

in all of the locations where we do business.

Risks inherent in

our global operations include:

●

increased transportation and logistics costs, or restrictions on transportation

of materials;

●

increased cost or decreased availability of raw materials;

●

trade protection measures including import and export controls, trade embargoes,

and trade sanctions between countries or

regions we serve that could result in our losing access to customers and suppliers

in those countries or regions;

●

unexpected adverse changes in export duties, quotas and tariffs and

difficulties in obtaining export licenses;

●

termination or substantial modification of international trade agreements

that may adversely affect our access to raw

materials and to markets for our products;

●

our agreements with counterparties in countries outside the U.S. may

be difficult for us to enforce and related receivables

may take longer or be difficult for us to collect;

●

difficulties of staffing and managing dispersed

international operations;

●

less protective foreign intellectual property laws, and more generally,

legal systems that may be less developed and

predictable than those in the U.S.;

●

limitations on ownership or participation in local enterprises as well as the potential

for expropriation or nationalization of

enterprises;

●

the impact of widespread public health crises, such as the COVID-19 pandemic;

●

instability in or adverse changes to the economic, political, social, legal or regulatory

conditions in a country or region where

we do business, including hyperinflationary conditions or as a result of

terrorist activities, or as a result of political and/or

military conflict; and

●

complex and dynamic local tax regulations, including changes in foreign

laws and tax rates or U.S. laws and tax rates with

respect to foreign income that may unexpectedly increase the rate at which

our income is taxed, impose new and additional

taxes on remittances, repatriation or other payments by subsidiaries, or

cause the loss of previously recorded tax benefits.

The current global geopolitical and trade environment creates the potential

for increased escalation of domestic and international

tariffs and retaliatory trade policies.

Further changes in U.S. trade policy and additional retaliatory

actions by U.S. trade partners

could result in a worsening of economic conditions.

If we are unable to successfully manage these and other risks associated with

our

international businesses, the risks could have a material adverse effect

on our business, results of operations and financial condition.

Additionally, on January

31, 2020, the United Kingdom’s

(“U.K.”) ended its membership in the European Union (“EU”)

(commonly referred to as “Brexit”).

The U.K. and the EU entered into a trade and cooperation agreement effective

January 1, 2021,

but uncertainty remains regarding its implications and implementation

and whether any new trade agreements with other countries or

territories will be agreed upon and implemented and how any such agreements

may impact our business.

The long-term economic,

legal, political and social implications of Brexit, including regarding

data protection in the U.K. and the free movement of goods,

services, and people between the U.K., the EU, and elsewhere, also remains

unclear,

and the precise impact of the Brexit decision will

only become clearer as Brexit progresses.

Brexit has caused and could cause further disruptions to, and create unce

rtainty

surrounding, our business in the U.K. and EU, including affecting our

relationships with our existing and future customers, suppliers

and employees.

Brexit could lead to legal uncertainty and potentially divergent national laws and

regulations as the U.K. determines

which EU laws to replace or replicate.

Brexit could also lead to calls for similar referendums in other European jurisdictions

which

could cause increased economic volatility in the European and global markets.

Uncertainty around these and related issues could lead

to adverse effects on the economy of the U.K. or in the other economies

in which we operate.

There can be no assurance that any or

all of these events will not have a material adverse effect on our business operations,

results of operations and financial condition.

The scope of our international operations subjects us to risks from currency fluctuations

that could adversely affect our liquidity,

financial position and results of operations.

Our non-U.S. operations generate significant revenues and

earnings.

Fluctuations in foreign currency exchange rates may affect

product demand and may adversely affect the profitability

in U.S. dollars of the products and services we provide in international

markets where payment for our products and services is made in the local

currency.

Our financial results are affected by currency

fluctuations, particularly between the U.S. dollar and the euro, the Brazilian

real, the Mexican peso, the Chinese renminbi, and the

Indian rupee, and the impact of those currency fluctuations on the

underlying economies.

During the past three years, sales by our

non-U.S. subsidiaries, which use their local currencies as their functional currency,

accounted for approximately 60% to 70% of our

consolidated net sales.

We generally do not use

financial instruments that expose us to significant risk involving foreign curren

transactions; however, the relative size of our non-U.S.

activities has a significant impact on reported operating results and our net

assets.

Therefore, as exchange rates change, our results can be materially

affected.

Incorporated by reference is the foreign exchange

risk information contained in Item 7A of this Report and the geographic information

in Note 4 of Notes to Consolidated Financial

Statements included in Item 8 of this Report.

Also, we occasionally source inventory in a different country

than that of the intended sale.

This practice can give rise to foreign

exchange risk.

We seek to mitigate this risk through

local sourcing of raw materials in the majority of our locations.

Risks Relating to Our Supply Chain

If we are unable to obtain price increases or contract concessions sufficient to

offset increases in the costs of raw materials, this

can continue to result in a loss of sales, gross profit, and/or market share and can

have a material adverse effect on our liquidity,

financial position and results of operations.

Conversely, if we fail to adjust prices in a declining raw material cost environment,

could lose sales, gross profit, and/or market share which could have a material

adverse effect on our liquidity, financial position

and results of operations.

Quaker Houghton uses approximately 3,000 different

raw materials, including animal fats, vegetable oils, mineral oils,

oleochemicals, ethylene, solvents, surfactant agents, various chemical

compounds that act as additives to our base formulations, and a

wide variety of other organic and inorganic

compounds, and various derivatives of the foregoing.

The price of mineral oils and their

derivatives can be affected by the price of crude oil

and industry refining capacity.

Animal fat and vegetable oil prices, as well as the

prices of other

raw materials, are impacted by their own specific supply and demand factors, as well as by

biodiesel consumption

which is also affected by the price of crude oil.

Accordingly, significant

fluctuations in the price of crude oil in the past have had and

are expected to continue to have a material impact on the cost of our raw materials.

In addition, many of the raw materials we use are

commodity chemicals, which can experience significant price volatility.

We generally

attempt to pass through changes in the prices of raw materials to our customers, but we

may be unable to do so (or

may be delayed in doing so).

In addition, raising prices we charge to our customers

in order to offset increases in the prices we pay

for raw materials could cause us to suffer a loss of sales volumes.

Although we have been successful in recovering a substantial

amount of raw material cost increases while retaining our customers as experienced

in 2021, there can be no assurance that we will be

able to continue to offset higher raw material costs or

retain customers in the future.

A significant change in margin or the loss of

customers due to pricing actions could result in a material adverse effect

on our liquidity, financial position

and results of operations

as described within Item 7 of this Report.

Lack of availability of raw materials and issues associated with sourcing from single suppliers

and suppliers in volatile economic

environments could have a material adverse effect on our liquidity,

financial position and results of operations.

The specialty chemical industry periodically experiences supply shortages

for certain raw materials.

In addition, we source some

materials from a single supplier or from suppliers in jurisdictions that have

experienced political or economic instability.

Even if we

have multiple suppliers of a particular raw material, there are occasionally

shortages.

Any significant disruption in supply could affect

our ability to obtain raw materials or satisfactory substitutes or could

increase the cost of such raw materials or substitutes, which

could have a material adverse effect on our liquidity,

financial position and results of operations.

In addition, certain raw materials

that we use are subject to various regulatory laws, and a change in our ability to legally

use such raw materials may impact the

products or services we are able to offer which could negatively

affect our ability to compete and could adversely affect

our liquidity,

financial position and results of operations.

Loss of a significant manufacturing facility or disruptions within our supply

chain or in transportation could have a material

adverse effect on our liquidity, financial

position and results of operations.

Our manufacturing facilities are located throughout the world.

While we have some redundant capabilities, if one of our facilities

is forced to shut down or curtail operations because of damage or other factors,

including natural disasters, labor difficulties or

widespread public health crises, such as the ongoing COVID-19 pandemic,

we may not be able to timely supply our customers.

This

could result in a loss of sales over an extended period or permanently.

While the Company seeks to mitigate this risk through business

continuity and contingency planning and other measures, the loss of production

in any one region over an extended period of time

could have a material adverse effect on our liquidity,

financial position and results of operations.

In addition, the coronavirus

pandemic has caused, and may in the future cause, significant travel disruptions,

quarantines and/or closures, which could result in

disruptions to our manufacturing and production operations at our facilities,

as well as those of our suppliers and customers.

Any

losses due to these events may not be covered by our existing insurance policies

or may be subject to certain deductibles.

We could be

similarly adversely affected by other disruptions to our supply

chain and transportation network.

The Company

relies heavily on railroads, ships, and over-the-road shipping

methods to transport raw materials to its manufacturing facilities and to

transport finished products to customers.

The costs of transporting our products could be negatively affected

by factors outside of our

control, including shipping container shortages or global imbalances in

shipping capabilities, transportation disruptions or rate

increases, increased border controls or closures, extreme weather events,

tariffs, rising fuel costs and capacity constraints.

Significant

delays or increased costs affecting our supply chain, such as we experienced

in 2021 could materially affect our financial condition

and results of operations.

Disruptions at our suppliers have recently and could in the future lead to short term or longer

term increases

in raw material or energy costs and/or reduced availability of materials

or energy,

potentially affecting our financial condition and

results of operations.

Risks Relating to Domestic and Foreign Taxation

and Government Regulation and Oversight

Changes in tax laws could result in fluctuations in our effective tax

rate and have a material effect on our liquidity,

financial

position and results of operation.

We pay income

taxes in the U.S. and various foreign jurisdictions.

Our effective tax rate is derived from a combination of local

tax rates and tax attributes applicable to our operations in the various countries,

states and other jurisdictions in which we operate.

Our effective tax rate and respective tax liabilities could therefore

be materially affected by changes in the mix of earnings in countries

with differing statutory tax rates, changes in tax rates, expiration

or lapses of tax credits or incentives, changes in uncertain tax

positions, changes in the valuation of deferred tax assets and liabilities, or changes

in tax laws or in how they are interpreted or

enforced, including matters such as transfer pricing.

In addition, we are regularly under audit by tax authorities, and the final

decisions of such audits could materially affect our current

tax estimates and tax positions.

See Note 10 and Note 26 of Notes to

Consolidated Financial Statements in Item 8 of this Report for a discussion

of certain income and non-income tax audits and

inspections.

Any of these factors or similar tax-related risks could cause our effective

tax rate and tax-related payments, including any

such payments related to tax liabilities of businesses we have acquired, to

significantly differ from previous periods and current or

future expectations which could have a material effect on our liquidity,

financial position and results of operations.

Pending and future legal proceedings including environmental

matters could have a material adverse effect on our liquidity,

financial position and results of operations, as well as our reputation in the markets it serves.

The Company and its subsidiaries are routinely party to proceedings, cases, and

requests for information from, and negotiations

with, various claimants and federal and state agencies relating to various

legal matters, including tax and environmental matters.

See

Note 10 and Note 26 of Notes to Consolidated Financial Statements in Item

8 of this Report, which describes uncertain tax positions

and tax audits and inspections, as well as certain information concerning

pending asbestos-related litigation against an inactive

subsidiary, amounts

accrued associated with certain environmental, non-capital remediation costs and

other potential commitments or

contingencies.

An adverse result in one or more pending or ongoing matters or any potential future

matter of a similar nature could

materially and adversely affect our liquidity,

financial position, and results of operations, as well as our reputation in the markets

serve.

Failure to comply with the complex global regulatory environment in which we operate

could have an adverse impact on our

reputation and/or a material adverse effect on our liquidity,

financial position and results of operations.

We are subject to

government regulation in all of the jurisdictions in which we conduct our business.

Changes in the regulatory

environments

in which we operate, particularly,

but not limited to, the U.S., Mexico, Brazil, China, India, Thailand, Australia, the

U.K. and the EU, could lead to heightened regulatory compliance costs and

scrutiny, could adversely

impact our ability to continue

selling certain products in the U.S. or foreign markets, and/or could otherwise

increase the cost of doing business.

While we seek to

mitigate these risks through a variety of actions,

including receiving Responsible Care Certification, ongoing employee

training, and

employing a comprehensive environmental, health and safety program,

there is no guarantee these actions will prevent all potential

regulatory compliance issues.

For instance, failure to comply with the EU’s

Registration, Evaluation, Authorization and Restriction of

Chemicals (“REACH”) regulations or other similar laws and regulations

could result in our inability to sell certain products or we

could incur fines, ongoing monitoring obligations or other future business consequences,

which could have a material adverse effect

on our liquidity, financial

position and results of operations.

In addition, the U.S. Toxic

Substances Control Act (“TSCA”) requires

chemicals to be assessed against a risk-based safety standard and

that unreasonable risks identified during risk evaluation be

eliminated.

This regulation and other pending initiatives at the U.S. state level, as well as initiatives

in Canada, Asia and other

regions, could potentially require toxicological testing and risk assessments of

a wide variety of chemicals, including chemicals used

or produced by us.

These assessments may result in heightened concerns about the chemicals involved

and additional requirements

being placed on their production, handling, labeling or use.

These concerns and additional requirements could also increase the cost

incurred by our customers to use our chemical products and otherwise

limit their use which could lead to a decrease in demand for

these products.

A decrease in demand due to these issues could have an adverse impact on our business

and results of operation.

Further, we are subject to the U.S. Foreign

Corrupt Practices Act (the “FCPA”),

the U.K. Bribery Act and other anti-bribery,

anti-

corruption and anti-money laundering laws in jurisdictions around

the world.

These and similar laws generally prohibit companies

and their officers, directors, employees and third-party

intermediaries, business partners and agents, from making improper payments

or providing other improper items of value to government officials

or other persons.

While we have policies and procedures and

internal controls designed to address compliance with such laws, including

employee training programs, we cannot guarantee that our

employees and third-party intermediaries, business partners

and agents will not take, or be alleged to have taken, actions in violation

of such policies and laws for which we may be ultimately held responsible.

Detecting, investigating and resolving actual or alleged

violations can be extensive and require a significant diversion of time, resources

and attention from senior management.

Any

violation of these or other applicable anti-bribery,

anti-corruption and anti-money laundering laws could result in whistleblower

complaints, adverse media coverage, investigations, loss of export privileges,

and criminal or civil sanctions, penalties and fines, any

of which could adversely affect our business and financial

condition.

The shipment of goods, services and technology across international

borders subjects us to extensive trade laws and regulations.

Our import activities are governed by the unique customs laws and

regulations in each of the countries where we operate.

Moreover,

many countries, including the U.S., control the export and re-export of

certain goods, services and technology and impose related

export record-keeping and reporting obligations.

Governments may also impose economic sanctions against certain countries, persons

and entities that may restrict or prohibit transactions involving such

countries, persons and entities, which may limit or prevent our

conduct of business in certain jurisdictions.

The laws and regulations concerning import activity,

export record-keeping and reporting, export control and economic

sanctions

are complex and constantly changing.

These laws and regulations can cause delays in shipments and unscheduled operational

downtime.

Moreover, any failure to comply with applicable legal and

regulatory trading obligations could result in criminal and civil

penalties and sanctions such as fines, imprisonment, debarment from governmental

contracts, seizure of shipments and loss of import

and export privileges.

In addition, investigations by governmental authorities as well as legal, social, economic

and political issues in

these countries could have a material adverse effect on our

business, results of operations and financial condition.

We are also subject

to the risks that our employees, joint venture partners and agents outside of

the U.S. may fail to comply with other applicable laws.

Uncertainty related to environmental regulation and industry standards relating

to, as well as physical risks of, climate change and

biodiversity loss, could impact our results of operations and financial position

Increased public and stakeholder awareness and concern regarding global

climate change, biodiversity loss, and other

environmental risks may result in more extensive international, regional

and/or federal requirements or industry standards to reduce or

mitigate the effects of these changes.

These regulations could mandate even more restrictive standards or industry

standards than the

voluntary goals that we have established or require changes to be adopted

on a more accelerated time frame.

There continues to be a

lack of consistent climate legislation, which creates economic and regulatory

uncertainty.

Though we are closely following

developments in this area and changes in the regulatory landscape in the U.S.,

we cannot predict how or when those challenges may

ultimately impact our business.

While certain climate change initiatives may result in new business opportunities

for us in the area of

alternative fuel technologies and emissions control, compliance with

these initiatives may also result in additional costs to us

including, among other things, increased production costs, additional

taxes, reduced emission allowances or additional restrictions on

production or operations.

In addition, the potential physical impacts of climate change and biodiversity

loss are highly uncertain and will be particular to the

circumstances developing in various geographical regions.

These may include extreme weather events and long-term changes

temperature levels and water availability as well as damaged ecosystems.

The physical risks of climate change and biodiversity loss

may impact our facilities, our customers and suppliers, and the availability

and costs of materials and natural resources, sources and

supply of energy,

product demand and manufacturing.

In particular, climate change serves as a risk multiplier

increasing both the

frequency and severity of natural disasters that may affect

our business operations.

If environmental laws or regulations or industry standards are either

changed or adopted and impose significant operational

restrictions and compliance requirements upon us or our products, or

our operations are disrupted due to physical impacts of climate

change or biodiversity loss, our business, capital expenditures, results of

operations, financial condition and competitive position could

be negatively impacted.

We are subject to stringent labor

and employment laws in many jurisdictions in which we operate, and

our relationship with our

employees could deteriorate which could adversely impact our operations.

A majority of our full-time employees are employed outside the U.S.

In many jurisdictions where we operate, labor and

employment laws grant significant job protection to certain employees including

rights on termination of employment.

In addition, in

certain countries our employees are represented by works councils or are governed

by collective bargaining agreements and we are

often required to consult with and seek the consent or advice of such representatives

These regulations and laws, together with our

obligations to seek consent or consult with the relevant unions or works councils,

could have a significant impact on our flexibility in

managing costs and responding to market changes.

While the Company believes it has generally positive relations with its labor

unions and employees, there is no guarantee the Company will be able to successfully

negotiate new or renew labor agreements

without work stoppages, labor difficulties or unfavorable

terms.

If we were to experience any extended interruption of operations at

any of our facilities because of strikes or other work stoppages, our results of operations

and financial condition could be materially

and adversely affected.

We may be

unable to adequately protect our proprietary rights and trade brands, which may

limit our ability to compete in our

markets and could adversely affect our liquidity,

financial position and results of operations.

We have a limited

number of patents and patent applications, including patents issued, applied

for, or acquired in the U.S. and in

various foreign countries, some of which are material to our business.

However, we rely principally on our proprietary

formulae and

the applications know-how and experience to meet customer needs.

Also, our products are identified by trademarks that are registered

throughout our marketing area.

Despite our efforts to protect our proprietary information through

patent and trademark filings, and

the use of appropriate trade secret protections, it is possible that competitors

or other unauthorized third parties may obtain, copy,

use,

disclose or replicate our formulae, products, and processes.

Similarly, third parties

may assert claims against us and our customers

and distributors alleging our products infringe upon third-party intellectual

property rights.

In addition, the laws and/or judicial

systems of foreign countries in which we design, manufacture, market

and sell our products may afford little or no effective protection

of our proprietary technology or trade brands.

Also, security over our global information technology structure

is subject to increasing

risks associated with cyber-crime and other related cyber-security

threats.

These potential risks to our proprietary information, trade

brands and other intellectual property could subject us to increased competition

and a failure to protect, defend or enforce our

intellectual property rights could negatively impact our liquidity,

financial position and results of operations.

General Risk Factors

Our business could be adversely affected by environmental,

health and safety laws and regulations or by potential product, service

or other related liability claims.

The development, manufacture and sale of specialty chemical products and

other related services involve inherent exposure to

potential product liability claims, service level claims, product recalls and

related adverse publicity.

Some customers have and may in

the future require us to represent that our products conform to certain product

specifications provided by them.

Any failure to comply

with such specifications could result in claims or legal action against us.

Any of the foregoing potential product or service risks could

also result in substantial and unexpected expenditures and affect

customer confidence in our products and services, which could have

material adverse effect on our liquidity,

financial position and results of operations.

In addition, our business is subject to hazards associated with the manufacturing,

handling, use, storage, and transportation of

chemical materials and products, including historical operations at our

current and former facilities.

These potential hazards could

cause personal injury and loss of life, severe damage to, or destruction of,

property or equipment and environmental contamination or

other environmental damage, which could have an adverse effect

on our business, financial condition or results of operations.

In the

jurisdictions in which we operate, we are subject to numerous U.S. and non-U.S.

national, federal, state and local environmental,

health and safety laws and regulations, including those governing

the discharge of pollutants into the air and water,

the management

and disposal of hazardous substances and wastes and the cleanup

of contaminated properties.

We currently

use, and in the past have

used, hazardous substances at many of our facilities, and we have in the past been,

and may in the future be, subject to claims relating

to exposure to hazardous materials.

We also have

generated, and continue to generate, hazardous wastes at a number of our

facilities.

Liabilities associated with the investigation and cleanup of hazardous

substances, as well as personal injury,

property damages or

natural resource damages arising from the release of, or exposure to, such hazardous

substances, may be imposed in many situations

without regard to violations of laws or regulations or other fault, and

may also be imposed jointly and severally (so that a responsible

party may be held liable for more than its share of the losses involved, or

even the entire loss).

These liabilities may also be imposed

on many different entities, including, for example,

current and prior property owners or operators, as well as entities that arranged for

the disposal of the hazardous substances.

The liabilities may be material and can be difficult to identify or quantify.

In addition, the

occurrence of disruptions, shutdowns or other material operating problems

at our facilities or those of our customers due to any of

these risks could adversely affect our reputation and have

a material adverse effect on our operations as a whole, including

our results

of operations and cash flows, both during and after the period of operational

difficulties.

Further, some of the raw materials we handle

are subject to government regulation that affect the manufacturing

processes,

handling, uses and applications of our products. In addition, our production

facilities and a number of our distribution centers require

numerous operating permits.

Due to the nature of these requirements and changes in our operations, our

operations may exceed limits

under permits or we may not have the proper permits to conduct our operations.

Ongoing compliance with environmental laws, regulations and permits that

impact registration/approval requirements,

transportation and storage of raw materials and finished products, and

storage and disposal of wastes could require us to make changes

in manufacturing processes or product formulations and could have

a material adverse effect on our results of operations.

We may

incur substantial costs, including fines, damages, criminal or civil sanctions

and remediation costs, or experience interruptions in our

operations, including as a result of revocation, non-renewal or modification

of the Company’s operating permits and

revocation of the

Company’s product registrations,

for violations arising under these laws or permit requirements.

Any such revocation, modification or

non-renewal may require the Company to cease or limit the manufacture

and sale of its products at one or more of its facilities, which

may limit or prevent the Company’s

ability to meet product demand or build new facilities and may have a material

adverse effect on

the Company’s business, financial position,

results of operations and cash flows.

Additional information may arise in the future

concerning the nature or extent of our liability with respect to identified

sites, and additional sites may be identified for which we are

alleged to be liable, that could cause us to materially increase our environmental

accrual or the upper range of the costs we believe we

could reasonably incur for such matters.

Increased compliance costs may not affect competitors in the

same way that they affect us

due to differences in product formulations, manufacturing

locations or other factors, and we could be at a competitive disadvantage,

which might adversely affect our financial performance.

We could be subject

to indemnity claims and liable for other payments relating to properties or businesses

we have divested.

In connection with the sale of certain properties and businesses, we agreed

to indemnify the purchasers for certain types of

matters, including certain breaches of representations and

warranties, taxes and certain environmental matters.

With respect to

environmental matters, the discovery of contamination arising

from properties that we have divested may expose us to indemnity

obligations under the sale agreements with the buyers of such properties or

cleanup obligations and other damages under applicable

environmental laws, even if we were not aware of the contamination.

We may not have insurance

coverage for such indemnity

obligations.

Further, we cannot predict the nature or amount of

any indemnity or other obligations we may have to pay the applicable

purchaser.

These payments may be costly and may adversely affect our financial

condition and results of operations.

Our insurance may not fully cover all potential exposures.

We maintain product,

property, business interruption,

casualty, and other general

liability insurance, but this may not cover all

risks associated with the hazards of our business and these coverages

are subject to limitations, including deductibles and coverage

limits.

We may incur

losses beyond the limits, or outside the coverage, of our insurance policies, including

liabilities for

environmental remediation.

In addition, from time to time, various types of insurance for companies in

the specialty chemical

industry have not been available on commercially acceptable terms and,

in some cases, have not been available at all.

We are

potentially at additional risk if one or more of our insurance carriers fail.

Additionally, severe disruptions

in the domestic and global

financial markets could adversely impact the ratings and survival

of some of our insurers.

Future downgrades in the ratings of enough

insurers could adversely impact both the availability of appropriate insurance

coverage and its cost.

In the future, we may not be able

to obtain coverage at current levels, if at all, and our premiums may increase

significantly on coverage that we maintain.

Impairment evaluations of goodwill, intangible assets, investments or other long-lived

assets could result in a reduction in our

recorded asset values which could have a material adverse effect

on our financial position and results of operation.

We perform

reviews of goodwill and indefinite-lived intangible assets on an annual

basis, or more frequently if triggering events

indicate a possible impairment.

We test goodwill

at the reporting unit level by comparing the carrying value of the net assets of the

reporting unit, including goodwill, to the reporting unit's fair value.

Similarly, we test indefinite-lived

intangible assets by comparing

the fair value of the assets to their carrying values.

If the carrying values of goodwill or indefinite-lived intangible assets exceed

their

fair value, the goodwill or indefinite-lived intangible assets would be considered

impaired.

In addition, we perform a review of a

definite-lived intangible asset or other long-lived asset when changes

in circumstances or events indicate a possible impairment.

any impairment or related charge is warranted, then our

financial position and results of operations could be materially affected.

See

Note 16 of Notes to Consolidated Financial Statements included in Item 8

of this Report.

Disruption of critical information systems or material breaches in the security

of our systems could adversely affect our business

and our customer relationships and subject us to fines or other regulatory actions.

We rely on

information technology systems to obtain, process, analyze, manage, transmit, and

store electronic information in our

day-to-day operations.

We also rely

on our technology infrastructure in all aspects of our business, including to interact with

customers and suppliers, fulfill orders and bill, collect and make payments,

ship products, provide support to customers, and fulfill

contractual obligations.

Our information technology systems are subject to potential disruptions,

including significant network or

power outages, cyberattacks, computer viruses, other malicious codes,

and/or unauthorized access attempts, any of which, if

successful, could result in data leaks or otherwise compromise our

confidential or proprietary information and disrupt our operations.

Security breaches could result in unauthorized disclosure of confidential

information or personal data belonging to our employees,

partners, customers or suppliers for which we may incur liability.

Cybersecurity threats, attempted intrusions and other incidents, such

as these, are becoming more sophisticated and frequent.

Security breaches and cyber incidents have, from time to time, occurred and

may occur in the future.

Although the breaches and cyber incidents experienced

to date have not had a material impact, there can be

no assurance that our protective measures will prevent security breaches

that could have a significant impact on our business,

reputation and financial results.

We are subject to

the data privacy and protection laws and regulations adopted by federal, state and

foreign legislatures and

governmental agencies in various countries in which we operate, including

the EU General Data Protection Regulation.

Implementing

and complying with these laws and regulations may be more costly or

take longer than we anticipate or could otherwise affect our

business operations.

Breaches, cyber incidents and disruptions, or failure to comply with

laws and regulations related to information security or

privacy could result in legal claims or proceedings against us by governmental

entities or individuals, significant fines, penalties or

judgements, disruption of our operations, remediation requirements,

changes to our business practices, and damage to our reputation.

Therefore, a failure to monitor, maintain

or protect our information technology systems and data integrity effectively

or to anticipate,

plan for and recover from significant disruptions to these systems could have a material

adverse effect on our business, results of

operations or financial condition.

Our business depends on attracting and retaining qualified management

and other key personnel.

Due to the specialized and technical nature of our business, our future performance

is dependent on our ability to attract, develop

and retain qualified management, commercial, technical, and

other key personnel.

Competition for such personnel is intense, and we

may be unable to continue to attract or retain such personnel.

In an effort to mitigate such risks, the Company utilizes retention

bonuses, offers competitive pay and maintains continuous

succession planning, including for our senior executive officers.

However,

there can be no assurance that these mitigating factors will be adequate to attract

or retain qualified management or other key

personnel.

Failure to retain key employees,

failure to successfully transition key roles, or the inability to hire, train, retain and

manage

qualified personnel could also adversely affect our business

Increasing scrutiny and changing expectations from stakeholders with respect

to our ESG practices may impose additional costs

on us or expose us to new or additional risks.

Companies across all industries are facing increasing scrutiny from

stakeholders related to their ESG practices.

Investor

advocacy groups, institutional investors, investment funds, and

other influential investors are also increasingly focused on ESG

practices and in recent years have placed increasing importance on

the implications and social cost of their investments.

Regardless of

the industry, investors’

increased focus and activism related to ESG and similar matters may impact access to

capital, as investors may

decide to reallocate capital or to not commit capital as a result of their assessment of

a company’s ESG practices.

We face pressures

from certain stakeholders to prioritize and promote sustainable

practices and reduce our carbon footprint.

Our

stakeholders may pressure us to implement ESG procedures or standards

beyond those we have in place in order to continue engaging

with us, to remain invested in us, or before they will make further investments

in us.

Additionally, we may

face reputational

challenges in the event our ESG procedures or standards do not meet the standards set by

certain constituencies.

We have adopted

certain practices as highlighted in the Company’s

Sustainability Report, including with respect to environmental stewardship.

Further, as we work to align with the recommendations

of the Financial Stability Board’s Task

Force on Climate-related Financial

Disclosures and the Sustainability Accounting Standards Board, we

continue to expand our disclosures in these areas.

This is

consistent with our commitment to executing on a strategy that reflects the

economic, social, and environmental impact we have on

the world while advancing and complementing our business strategy.

Our disclosures on these matters and standards we set for

ourselves or a failure to meet these standards, may influence our

reputation and the value of our brand.

It is possible that our

stakeholders might not be satisfied with our ESG efforts or

the speed of their adoption.

If we do not meet our stakeholders’

expectations, our business and/or our ability to access capital could be

harmed.

Any harm to our reputation resulting from setting

these standards or our failure or perceived failure to meet such standards

could adversely affect our business, financial performance,

and growth.

Additionally, adverse

effects upon our customers’ industries related to the worldwide social and

political environment, including

uncertainty or instability resulting from climate change or biodiversity

loss, changes in political leadership and environmental policies,

changes in geopolitical-social views toward fossil fuels and renewable

energy,

concern about the environmental impact of climate

change or biodiversity loss, and investors’ expectations regarding

ESG matters, may also adversely affect demand for our services.

Any long-term material adverse effect on our customers

or their industries could have a significant financial and operational adverse

impact on our business.

Terrorist

attacks, other acts of violence or war,

natural disasters, widespread public health crises or other uncommon

global events

may affect the markets in which we operate and our profitability which could

adversely affect our liquidity, financial

position and

results of operations.

Terrorist attacks,

other acts of violence or war, natural disasters, widespread

public health crises, including the ongoing COVID-

19 pandemic, or other uncommon global events such as the current conflict

between Russia and Ukraine, may negatively affect our

operations.

There can be no assurance that there will not be terrorist attacks against the U.S. or other locations

where we do business.

Also, other uncommon global events such as earthquakes, hurricanes,

fires and tsunamis cannot be predicted.

Terrorist attacks,

other acts of violence

or armed conflicts, and natural disasters, which may be amplified by ongoing global

climate change and biodiversity loss, may directly impact our physical

facilities and/or those of our suppliers or customers.

addition, terrorist attacks or natural disasters may disrupt the global

insurance and reinsurance industries with the result that we may

not be able to obtain insurance at historical terms and levels, if at all, for

all of our facilities.

In addition, available insurance coverage

may not be sufficient to cover all of the damage incurred or,

if available, may be prohibitively expensive.

Widespread public health

crises could also disrupt operations of the Company,

its suppliers and customers which could have a material adverse impact on our

results of operations.

The consequences of terrorist attacks, other acts of violence or armed

conflicts, natural disasters, widespread public health crises

or other uncommon global events can be unpredictable, and we may not be

able to foresee or effectively plan for these events,

resulting in a material adverse effect on our business, results of

operations or financial condition.

The COVID-19 pandemic and its impact on business and economic conditions

have negatively affected our business, results of

operations and financial condition and the extent and duration of

those effects is uncertain.

The COVID-19 pandemic that began in the first quarter of 2020 and the resulting

impacts significantly disrupted the global

economy and financial markets and adversely affected

the Company’s operations as well as those of

its suppliers and customers.

The

Company experienced material disruptions as a result of COVID-19 globally

which negatively impacted all locations where the

Company does business.

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

for almost two years, the full extent of the outbreak and

related business impacts continue to remain uncertain and volatile.

This outbreak has significantly disrupted the operations of the

Company and those of its suppliers and customers.

During the pandemic, the Company initially experienced volume declines and

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

In addition, the COVID-19 pandemic and responses to the pandemic have at

times significantly disrupted the global supply chain and have had

a significant impact on raw material prices.

These impacts may

continue to occur and may become more significant and could continue

to result in disruptions in our supply chain and our difficulty

in procuring or inability to procure raw materials necessary for the manufacturing

of our products.

The impact of the COVID-19

pandemic and responses to it has increased and could continue to increase

the costs of making and distributing our products or result

in delays in delivering, or an inability to deliver,

them to our customers.

Given the continuously evolving developments with respect to this pandemic,

the Company cannot, as of the date of this Report,

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

operations or to the ability of it or its

customers to resume more normal operations, even as certain restrictions are

lifted.

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.

Further, management continued to evaluate how

COVID-19

related circumstances, such as remote work arrangements, illness or staffing

shortages and travel restrictions have affected financial

reporting processes and systems, internal control over financial reporting,

and disclosure controls and procedures.

While the

circumstances have presented and are expected to continue to present challenges,

and have necessitated additional time and resources

to be deployed to sufficiently address the challenges

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

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

controls over financial reporting, or disclosure controls

and procedures.

Although we have implemented business continuity and emergency

response plans as well as health and safety measures to

permit us to continue to provide services and products to customers and support

our operations, there can be no assurance that the

continued spread of COVID-19 and its variants and efforts to

contain the virus (including, but not limited to, vaccines and treatments,

voluntary and mandatory quarantines, restrictions on travel, limiting

gatherings of people, reduced operations and extended closures of

many businesses and institutions) will not further impact our business, results of

operations and financial condition.

However, given

the unprecedented and continually evolving developments

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

Report, reasonably estimate with certainty the full extent of the impact to

its future results of operations or to the ability of it or its

customers to resume more normal operations.

A further prolonged outbreak or resurgence and period of continued

restrictions on day-

to-day life and business operations would likely result in volume declines

and lower net sales in future periods as well.

The ultimate significance of COVID-19 impacts on our business will depend

on, among other things, the extent and duration of

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

with the virus, the development and continued uncertainty

regarding availability,

continued administration and long-term efficacy of vaccines or

other treatments, including on new strains or

mutations of the virus, the longer-term effects

on the economy, including

market volatility, and the measures

taken by governmental

authorities and other third parties restricting day-to-day life and

the length of time that such measures remain in place, 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.

Epidemic diseases could negatively affect various aspects of

our business, make it more difficult to meet our obligations to our

customers, and could result in reduced demand from our customers.

These could have a material adverse effect on our business,

financial condition, results of operations, or cash flows.

Our business could be adversely affected by the effects

of a widespread outbreak of contagious disease, similar to the COVID-19

pandemic.

A significant outbreak of contagious diseases in the human population could result in a widespread

health crisis that could

adversely affect the economies and financial markets of many

countries, resulting in an economic downturn that could affect demand

for our products and likely impact our operating results.

To the extent that

the Company’s customers and

suppliers are materially and

adversely impacted by a widespread outbreak of contagious disease, this could

reduce the availability, or

result in delays, of materials

or supplies to or from the Company,

which in turn could materially interrupt the Company’s

business operations.

The ultimate impact on our business of a widespread outbreak of a contagious disease will depend

on, among other things, the

extent and duration of the outbreak,

the severity of the disease and the number of people infected, the development

and continued

uncertainty regarding availability,

administration and long-term efficacy of a vaccine or other

treatments, the longer-term effects on

the economy, including

market volatility, and

the measures taken by governmental authorities and other third parties restricting day-

to-day life and the length of time that such measures remain in place, as well as laws and

other governmental programs implemented

to address the outbreak or assist impacted businesses, such as fiscal stimulus and

other legislation designed to deliver monetary aid

and other relief.

We have previously identified

material weaknesses in our internal control over financial reporting that could have

resulted in

material misstatements in our financial statements and in the inability of our independent

registered public accounting firm to

provide an unqualified audit opinion which could have a material adverse effect

on us.

As a public company,

we are required to comply with the SEC’s rules implementing

Sections 302 and 404 of the Sarbanes-Oxley

Act of 2002, or the Sarbanes-Oxley Act, which require management to certify

financial and other information in our quarterly and

annual reports and provide an annual management report on the effectiveness

of controls over financial reporting.

As disclosed under “Item 9A. Controls and Procedures” of this Report, during

the course of preparing our audited financial

statements for the Company’s annual

report on Form 10-K for 2019 and 2020, we, in conjunction with our independent registered

public accounting firm, identified certain material weaknesses.

A material weakness is a deficiency,

or combination of deficiencies, in

internal control over financial reporting, such that there is a reasonable possibility

that a material misstatement of annual or interim

financial statements will not be prevented or detected on a timely basis.

During 2020 and 2021, the Company dedicated multiple internal resources

and supplemented those internal resources with

various third-party specialists to assist with the formalization of

a robust and detailed remediation plan.

In undertaking remediation

activities, the Company has established a global network of personnel

to assist local management in understanding control

performance and documentation requirements.

In order to sustain this network, the Company conducts periodic trainings and hosts

discussions to address questions on a current basis.

As of December 31, 2021, the Company has remediated all of the previously

identified material weaknesses and concluded that the Company’s

internal control over financial reporting is effective.

Our Management, including our chief executive officer

and chief financial officer, does not expect

that our internal control over

financial reporting will prevent all errors and all fraud.

A control system, no matter how well designed and operated, can provide

only

reasonable, not absolute, assurance that the control system’s

objectives will be met.

Further, the design of a control system must

reflect the fact that there are resource constraints, and the benefits of

controls must be considered relative to their costs.

Controls can

be circumvented by the individual acts of some persons, by collusion of two or

more people, or by management override of the

controls.

Over time, controls may become inadequate because of changes in circumstances or deterioration

in the degree of

compliance with policies or procedures may occur.

Because of the inherent limitations in a cost-effective control

system,

misstatements due to error or fraud may occur and may not be detected.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Quaker Houghton’s corporate

headquarters and a laboratory facility are located in its Americas segment’s

Conshohocken,

Pennsylvania location.

The Company’s other principal facilities in

its America’s segment are located

in Carrollton, Georgia; Zion,

Illinois;

Detroit, Michigan; Dayton, Ohio; Middletown, Ohio; Strongsville,

Ohio; Waterloo, Ontario;

Monterrey, N.L., Mexico;

Rio

de Janeiro, Brazil and Sao Paulo, Brazil.

The Company’s EMEA segment has

principal facilities in Uithoorn, The Netherlands;

Dortmund, Germany; Barcelona, Spain; Navarra, Spain; Karlshamn, Sweden;

Tradate, Italy; and Turin, Italy.

The Company’s

Asia/Pacific segment operates out of its principal facilities located in

Qingpu, China; Songjiang, China; Kolkata, India; Rayong,

Thailand; and Moorabbin, Australia.

The Company’s Global Specialty Businesses

segment operates out of its principal facilities in

Aurora, Illinois; Santa Fe Springs, California; Batavia, New York;

Waukegan, Illinois;

Zion, Illinois; Madison Heights, Michigan;

Lewisburg, Tennessee;

and Coventry, U.K.

With the exception of the Conshohocken, Santa Fe Springs,

Madison Heights, Lewisburg,

Aurora, Karlshamn, Rayong, Coventry,

and Sydney sites, which are leased, the remaining principal facilities are owned by the

Company and, as of December 31, 2021, were mortgage free.

Quaker Houghton also leases sales, laboratory,

manufacturing, and

warehouse facilities in other locations.

Quaker Houghton’s principal

facilities consist of various manufacturing, administrative, warehouse,

and laboratory buildings.

Most of the buildings are of fire-resistant construction and are equipped

with sprinkler systems.

The Company has a program to

identify needed capital improvements that are implemented as management

considers necessary or desirable.

Most locations have raw

material storage tanks, ranging from 1 to 155 at each location with capacities

ranging from 1,000 to 82,000 gallons, and processing or

manufacturing vessels ranging in capacity from 2 to 29,000 gallons.

Each of Quaker Houghton’s

non-U.S. associated companies (in which it owns a 50% or less interest and has significant

influence)

owns or leases a plant and/or sales facilities in various locations,

with the exception of Primex, Ltd.

Item 3.

Legal Proceedings.

The Company is a party to proceedings, cases, and requests for information from,

and negotiations with, various claimants and

Federal and state agencies relating to various matters, including environmental

matters.

For information concerning pending asbestos-

related litigation against an inactive subsidiary,

certain environmental non-capital remediation costs and other legal-related

matters,

reference is made to Note 26 of Notes to Consolidated Financial Statements, included

in Item 8 of this Report, which is incorporated

herein by this reference.

The Company is a party to other litigation which management currently believes will not have

a material

adverse effect on the Company’s

results of operations, cash flow or financial condition.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 4(a).

Information about our

Executive Officers.

Set forth below is information regarding the executive officers

of the Company,

each of whom (with the exception of Andrew E.

Tometich) have

been employed by the Company or by Houghton for at least five years, including the respective

positions and offices

with the Company (or Houghton) held by each over the respective periods

indicated.

Each of the executive officers, with the

exception of David A. Will,

is appointed annually to a one year term.

Mr. Will is considered

an executive officer in his capacity as

principal accounting officer for purposes of this Item

4(a).

Name, Age, and Present

Position with the Company

Business Experience During the Past Five

Years

and Period Served as an Officer

Andrew E. Tometich,

Chief Executive Officer and President

Mr. Tometich,

who has been employed by the Company since October 13, 2021, has

served as Chief Executive Officer and President since December

1, 2021.

Prior to

joining the Company, Mr.

Tometich served as Executive Vice

President, Hygiene,

Health and Consumable Adhesives at H.B. Fuller from August 2019 until

September 17, 2021.

Before that, Mr. Tometich

was Senior Vice President,

Specialty Materials Business at Corning Incorporated from September

2017 until

August 2019 and President, Performance Silicones Business Unit at The Dow

Chemical Company from June 2016 until February 2017 after having positions

increasing responsibility at Dow Corning Corporation and its subsidiaries

from 1989

through 2016.

Joseph A. Berquist, 50

Executive Vice President,

Chief Strategy

Officer, and Managing Director,

Global

Specialty Businesses

Mr. Berquist, who has been employed

by the Company since 1997, has served as

Executive Vice President,

Chief Strategy Officer, and Managing

Director, Global

Specialty Businesses since September 9, 2021.

Prior to that role, he served as

Senior Vice President, Global Specialty

Businesses and Chief Strategy Officer from

August 2019 to September 8, 2021.

Mr. Berquist served as Vice

President and

Managing Director – North America from April 2010 until July 2019.

Jeewat Bijlani, 45

Senior Vice President,

Managing Director - Americas

Mr. Bijlani has served as Senior

Vice President, Managing Director

- Americas

since he joined the Company in August 2019.

Prior to joining the Company,

Mr.

Bijlani served as President, Americas and Global Strategic Businesses of Houghton

from March 2015 until July 2019.

Shane W.

Hostetter, 40

Senior Vice President,

Chief Financial

Officer

Mr. Hostetter,

who has been employed by the Company since July 2011,

has served

as Senior Vice President, Chief

Financial Officer since April 19, 2021.

Prior to that

role, he served as Vice President,

Finance and Chief Accounting Officer from

August 2019 until April 18, 2021.

He served as Global Controller and Principal

Accounting Officer from September 2014 until July 2019.

Dieter Laininger, 58

Senior Vice President, Managing

Director - Asia / Pacific

Mr. Laininger,

who has been employed by the Company since 1991, has served as

Senior Vice President, Managing

Director – Asia / Pacific since August 2019.

served as Vice President and Managing

Director – Asia / Pacific from April 2018

until July 2019, in addition to his role as Vice

President and Managing Director -

South America, a position he assumed in January 2013 and held until

July 2019.

Mr. Laininger also served

as Vice President and Global Leader

– Primary Metals, a

position which he assumed in June 2011 and

held until July 2019.

Wilbert Platzer, 60

Senior Vice President, Global

Operations,

Environmental Health & Safety (“EHS”) and

Procurement

Mr. Platzer,

who has been employed by the Company since 1995, has served as

Senior Vice President, Global Operations,

EHS and Procurement since August

2019.

He previously served as Vice President, Global

Operations, EHS and

Procurement from April 2018 until July 2019.

Prior to that role, Mr. Platzer served

as Vice President and Managing

Director – EMEA from January 2006 through

March 2018.

Name, Age, and Present

Position with the Company

Business Experience During the Past Five

Years

and Period Served as an Officer

Dr. David Slinkman, 57

Senior Vice President, Chief Technology

Officer

Dr.

Slinkman has

served as

Senior Vice

President,

Chief Technology

Officer

since

he joined

the Company

in August 2019.

Prior to

joining the

Company,

Dr.

Slinkman

served as

Vice President

of Technology

of Houghton

from March

2012 until

July 2019.

Adrian Steeples, 61

Senior Vice President, Managing

Director – EMEA

Mr. Steeples, who has been employed

by the Company since 2010, has served as

Senior Vice President, Managing

Director – EMEA since August 2019.

previously served as Vice President

and Managing Director – EMEA from April

2018 until July 2019.

Prior to that role, he served as Vice President and

Managing

Director - Asia/Pacific from July 2013 through March 2018.

Robert T. Traub,

Senior Vice President, General

Counsel and

Corporate Secretary

Mr. Traub,

who has been employed by the Company since 2000, has served as

Senior Vice President, General Counsel

and Corporate Secretary since August 2019.

He previously served as Vice President,

General Counsel and Corporate Secretary

from April 2015 until July 2019.

David A. Will, 37

Vice President, Global Controller

and

Principal Accounting Officer

Mr. Will,

who has been employed by the Company since 2014, has served as Vice

President, Global Controller, and Principal

Accounting Officer since April 19, 2021.

Prior to that role, Mr. Will

served as the Corporate Controller from August 2019

until April 18, 2021.

Before that, he served as the Global Assistant Controller from

December 2014 to August 2019.

PART

Item 5.

Market for Registrant’s Common

Equity, Related Stockholder Matters and Issuer Purchases

of Equity Securities.

The Company’s common

stock is listed on the New York

Stock Exchange (“NYSE”) under the trading symbol KWR.

Our Board

declared cash dividends that totaled $1.62 per share of outstanding

common stock or $29.0 million during the year ended December

31, 2021 and $1.56 per share of outstanding common stock or $27.8 million

during the year ended December 31, 2020.

In February

and May 2021, our Board declared quarterly cash dividends of

$0.395 per share of outstanding common stock, payable to shareholders

of record in April 2021 and July 2021, respectively.

Subsequently, our Board declared

quarterly dividends of $0.415 per share of

outstanding common stock in August and November 2021, respectively,

payable to shareholders of record in October 2021 and

January 2022, respectively.

We currently

expect to continue to pay comparable cash dividends on a quarterly basis in the future.

Future declaration of dividends

and the establishment of future record dates and payment dates are subject

to the final determination of

our Board, and will be based on our future financial condition, results of

operations, capital requirements, capital expenditure

requirements, contractual restrictions, anticipated cash needs, business

prospects, provisions of applicable law and other factors our

Board may deem relevant.

There are no restrictions that the Company believes are likely to materially

limit the payment of future dividends.

However,

under the Credit Facility there are certain restrictions, including a limit on dividends

paid not to exceed the greater of $50.0 million

annually and 20% of consolidated EBITDA so long as there is no default under

the Credit Facility.

Reference is made to the

“Liquidity and Capital Resources” disclosure contained in Item 7 of this Report.

As of January 17, 2022, 17,899,286 shares of Quaker common stock

were issued and outstanding and were held by 649

shareholders of record.

Each share of common stock is entitled to one vote per share.

Reference is made to the information in Item 12 of this Report under the

caption “Equity Compensation Plans,” which is

incorporated herein by this reference.

The following table sets forth information concerning shares of

the Company’s common stock acquired

by the Company during

the fourth quarter of 2021 for the period covered by this report:

Issuer Purchases of Equity Securities

(c)

(d)

Total

Number of

Approximate Dollar

(a)

(b)

Shares Purchased

Value of

Shares that

Total

Number

Average

as part of Publicly

May Yet

of Shares

Price Paid

Announced Plans

Purchased Under the

Period

Purchased (1)

Per Share (2)

or Programs

Plans or Programs (3)

October 1 - October 31, 2021

86,865,026

November 1 - November 30, 2021

86,865,026

December

1 - December 31, 2021

86,865,026

Total

86,865,026

(1)

The Company did not acquire any shares of the Company’s

common stock from employees during the fourth quarter of 2021.

All shares that would be acquired from employees are 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.

(2)

The Company did not acquire any shares of the Company’s

common stock from employees during the fourth quarter of 2021.

The price that would be 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 December 31, 2021.

Stock Performance

Graph:

The following

graph compares

the cumulative

total return (assuming

reinvestment of

dividends) from

December 31, 2016 to December

31, 2021 for (i) Quaker’s

common stock, (ii) the S&P MidCap

400 Index (the “MidCap Index”),

and

(iii) the S&P 400

Materials Group Index

(the “Materials Group

Index”).

The graph assumes the

investment of $100 on

December 31,

2016 in each of Quaker’s common stock, the stocks comprising

the MidCap Index and the Materials Group Index, respectively.

12/31/2016

12/31/2017

12/31/2018

12/31/2019

12/31/2020

12/31/2021

Quaker

100.00

119.03

141.53

132.11

205.30

188.21

MidCap Index

100.00

116.24

103.36

130.44

148.26

184.97

Materials Group Index

100.00

121.55

96.79

116.99

129.45

171.17

Item 6.

Selected Financial Data.

Reserved.

Item 7.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations.

As used in this Annual Report on Form 10-K (the “Report”), the terms “Quaker

Houghton,” the “Company,”

“we,” and “our”

refer to Quaker Chemical Corporation (doing business as Quaker

Houghton), its subsidiaries, and associated companies, unless the

context otherwise requires.

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

with Houghton

International, Inc. (“Houghton”) (herein referred to as the “Combination”)

on August 1, 2019.

Throughout the Report, all figures

presented, unless otherwise stated, reflect the results of operations

of the combined company for the years ended December 31, 2020

and 2021; and for the year ended

December 31, 2019, the results of Legacy Quaker plus five months

of Houghton’s operations post-

closing of the Combination on August 1, 2019.

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 2021 performance

was highlighted by the continued recovery from the impacts of COVID-19 in

2020 as

well as the ongoing execution of integration activities and synergy

realization, which led to record net sales and adjusted EBITDA in

2021 despite the continued escalation in raw material cost headwinds

and global supply chain pressures.

Specifically, net sales of

$1,761.2 million in 2021

increased 24% compared to $1,417.7 million in 2020, primarily

due to higher volumes of approximately

13%, including additional net sales from acquisitions of 4%, increases from

selling price and product mix of approximately 8% and

the positive impact from foreign currency translation of 3%.

The increase in sales volumes

compared to 2020 was primarily a result

of continued new business wins and the year-over-year

improvement in end market conditions since the beginning of the COVID-19

pandemic in early 2020, partially offset by lower automotive

sales due to semiconductor shortages and delayed shipments due

supply chain challenges that occurred towards the end of 2021.

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

the Company’s broad price

increases implemented during 2021 to help offset the unprecedented

increases in raw material costs as well

as global supply chain and logistics cost pressures the Company has experienced

throughout 2021.

The Company’s net income and

earnings per diluted share of $121.4 million and $6.77 in 2021, respectively,

increased compared

to $39.7 million and $2.22 per diluted share, respectively,

in 2020.

Excluding non-recurring items, including costs associated with the

Combination and other non-core items in each period, the Company’s

current year non-GAAP net income and non-GAAP earnings

per diluted share were $122.8 million and $6.85, respectively,

compared to $85.2 million and $4.78, respectively,

in 2020.

The

increase in the Company’s current

year earnings drove a 23% higher adjusted EBITDA to a full year record

of $274.1 million

compared to $222.0 million in 2020, primarily due to the significant increase

in net sales year-over-year as well as higher realized cost

synergies from the Combination, partially offset

by lower gross margins driven by higher raw material and input costs and the

impacts

of disruptions in the global supply chain experienced in 2021 as well as higher selling,

general and administrative expenses (“SG&A”)

including the impact of higher sales on direct selling expenses and additional

SG&A from recent acquisitions.

The Company’s 2021

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

(iii) Asia/Pacific;

and (iv) Global Specialty Businesses, reflect similar drivers to that of

its consolidated performance.

All four segments had higher net

sales compared to 2020 reflecting the continued rebound in 2021

from the negative impacts of COVID-19 on the Company’s

end

markets as well as continued success of winning new business in each of the

Company’s segments during 2021.

Each of the

Company’s geographic segments

benefited from higher organic sales volumes in 2021

while all of the Company’s segments also

benefitted from additional net sales from acquisitions, the positive impact

from foreign currency translation due to the strengthening of

most major currencies against the U.S. dollar,

and from increases in selling price and product mix.

As reported, each of the

Company’s reportable

segment operating earnings were higher compared to 2020 reflecting the increase

in net sales including the

benefits of acquisitions and other factors mentioned;

however, all of the Company’s

segment’s operating earnings were negatively

impacted by persistent raw material inflation, higher logistics, labor and manufacturing

costs, impacts of disruptions to the global

supply chain as well as higher SG&A which were a result of an increase

in direct selling expenses associated with year-over-year

inflation increases and increases due to the increase in net sales as well as the lower levels

of prior year SG&A as a result of

temporary cost saving measures implemented in response to COVID-19.

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 7, below.

The Company generated net operating cash flow of $48.9 million in 2021

compared to $178.4 million in 2020.

The decrease in

net operating cash flow year-over-year

was primarily driven by a significant change in working capital compared

to the prior year,

mainly increases in accounts receivable, due to higher net sales and in inventory,

due to higher costs as well as building inventories in

response to global supply chain and logistics pressures.

The key drivers of the Company’s operating

cash flow and overall liquidity

are further discussed in the Company’s

Liquidity and Capital Resources section of this Item 7, below.

Overall, the Company’s 2021 results

were good and reflected the Company’s

ability to navigate through persistent raw material

cost pressures, supply chain challenges and automotive semiconductor

shortages.

Increases in net sales in all segments were driven by

the continued year-over-year improvement

in the Company’s end-markets and increased

customer demand from lower levels

experienced during 2020 as a result of COVID-19; however,

each segment was negatively impacted by the significant

escalation of

raw material costs as well as higher levels of SG&A compared to the prior

year which included certain temporary cost saving

measures adopted during the onset of COVID-19.

Continued strong customer demand in 2021 coupled with ongoing new business

wins and the execution of integration activities and synergy realization

helped to partially offset the negative impacts from the

continued escalation of raw material costs and continued supply chain pressures.

As the Company looks toward 2022, the business is well positioned to

continue to outpace market growth rates and deliver value-

added solutions and services to its customers.

Demand remains healthy across most of our end markets; however,

the Company

expects raw material cost pressures and supply chain disruptions to persist throughout

2022.

To mitigate these headwinds,

the

Company continues to implement further price actions and is actively

managing its cost structure.

The Company believes these

actions will begin to drive a recovery in margins as it progresses through

2022.

The Company remains committed to advancing its

customer intimate strategy and sustainability program and delivering

earnings growth in 2022 and beyond.

On-going impact of COVID-19

The global outbreak of COVID-19 has negatively impacted all locations where

the Company does business.

Although the

Company has now operated in this COVID-19 environment for almost

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.

During the pandemic, the Company initially experienced volume declines

and lower net sales as

compared to pre-COVID-19 levels, as further described in this section.

Management continues to monitor the impact that the

COVID-19 pandemic is having on the Company,

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

Company operates.

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.

Further, management continues to evaluate

how COVID-19-related circumstances, such as remote work arrangements,

illness or staffing shortages and travel restrictions have affected

financial reporting processes and systems, internal control over

financial reporting, and disclosure controls and procedures.

While the circumstances have presented and are expected to continue

present challenges, and have necessitated additional time and resources

to be deployed to sufficiently address the challenges brought

on by the pandemic, at this time, management does not believe that COVID-19

has had a material impact on financial reporting

processes, internal controls over financial reporting, or disclosure controls

and procedures.

The Company’s top priority,

especially during this pandemic, is to protect the health and safety of its employees

and customers,

while working to ensure business continuity to meet customers’ needs.

The Company continues to take steps to protect the health and

wellbeing of its people in affected areas through various

actions, including enabling work at home where needed and practicable, and

employing social distancing standards, implementing

travel restrictions where applicable, enhancing onsite hygiene practices, and

instituting visitation restrictions at the Company’s

facilities.

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

expenses implementing these health and safety policies.

All of the Company’s more than 30 production

facilities worldwide are open

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

they are operating.

The Company believes that to date

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

the current economic challenges.

The Company’s fiscal

year 2021 showed year-over-year improvement

from the prior fiscal year and continued a trend of gradual volume improvement which

began in the second half of 2020.

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 and continues to evolve and it remains

highly uncertain as to how long the global pandemic and

related economic challenges will last and when our customers’ businesses will recover

to pre-COVID-19 levels.

The Company took

various actions to temporarily conserve cash and reduce costs since the onset of

the pandemic and these temporary initiatives were

designed and implemented so that the Company could successfully manage

through the challenging COVID-19 situation while

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

maintain the Company’s long-term competitive

advantages

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

integrate Houghton.

While the actions taken to date to protect our

workforce, to continue to serve our customers with excellence and to conserve

cash and reduce costs, have been effective thus far,

further actions to respond to the pandemic and its effects may

be necessary as conditions continue to evolve.

Critical Accounting Policies and Estimates

Quaker Houghton’s discussion

and analysis of its financial condition and results of operations are based

upon its consolidated

financial statements which have been prepared in accordance with accounting

principles generally accepted in the United States (“U.S.

GAAP”).

The preparation of these financial statements requires the Company

to make estimates and judgments that affect the

reported amounts of assets, liabilities, revenues and expenses, and related disclosure

of contingent assets and liabilities.

On an

ongoing basis, the Company evaluates its estimates, including those related

to customer sales incentives, product returns, bad debts,

inventories, property,

plant and equipment (“PP&E”), investments, goodwill, intangible assets, income taxes,

business combinations,

restructuring, incentive compensation plans (including equity-based

compensation), pensions and other postretirement benefits,

contingencies and litigation.

Quaker Houghton bases its estimates on historical experience and on various

other assumptions that are

believed to be reasonable under such circumstances, the results of which

form the basis for making judgments about the carrying

values of assets and liabilities that are not readily apparent from other sources.

However, actual results may differ from

these

estimates under different assumptions or conditions.

Quaker Houghton believes the following critical accounting policies describe

the more significant judgments and estimates used

in the preparation of its consolidated financial statements:

Accounts receivable and inventory exposures:

Quaker Houghton establishes allowances for doubtful accounts for estimated

losses resulting from the inability of its customers to make required

payments.

If the financial condition of the Company’s

customers

were to deteriorate, resulting in an impairment of their ability to make payments,

additional allowances may be required.

As part of

our terms of trade, we may custom manufacture products for certain large

customers and/or may ship products on a consignment basis.

Further, a significant portion of our revenue

is derived from sales to customers in industries where companies have experienced

past

financial difficulties.

If a significant customer bankruptcy occurs, then we must judge the amount of proceeds,

if any, that may

ultimately be received through the bankruptcy or liquidation process.

These matters may increase the Company’s

exposure should a

bankruptcy occur, and may require

a write down or a disposal of certain inventory as well as the failure to collect receivables.

Reserves for customers filing for bankruptcy protection are established

based on a percentage of the amount of receivables outstanding

at the bankruptcy filing date.

However, initially establishing this reserve

and the amount thereof is dependent on the Company’s

evaluation of likely proceeds to be received from the bankruptcy process, which

could result in the Company recognizing minimal or

no reserve at the date of bankruptcy.

We generally reserve

for large and/or financially distressed customers on a specific review

basis,

while a general reserve is maintained for other customers based on

historical experience.

The Company’s consolidated

allowance for

doubtful accounts was $12.3 million and $13.1 million as of December 31,

2021

and 2020, respectively.

The Company recorded

expense to increase its provision for doubtful accounts by $0.7 million,

$3.6 million and $1.9 million for the years ended December

31, 2021, 2020 and 2019, respectively.

Changing the amount of expense recorded to the Company’s

provisions by 10% would have

increased or decreased the Company’s

pre-tax earnings by $0.1 million, $0.4

million and $0.2 million for the years ended December

31, 2021, 2020 and 2019, respectively.

See Note 13 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Environmental and litigation reserves:

Accruals

for environmental and litigation matters are recorded when

it is probable that a

liability has been incurred and the amount of the liability can be reasonably

estimated.

Environmental costs and remediation costs are

capitalized if the costs extend the life, increase the capacity or improve

the safety or efficiency of the property from the date acquired

or constructed, and/or mitigate or prevent contamination in the future.

Estimates for accruals for environmental matters are based on a

variety of potential technical solutions, governmental regulations and

other factors, and are subject to a wide range of potential costs

for remediation and other actions.

A considerable amount of judgment is required in determining the most likely

estimate within the

range of total costs, and the factors determining this judgment may vary

over time.

Similarly, reserves for litigation

and similar

matters are based on a range of potential outcomes and require considerable

judgment in determining the most probable outcome.

no amount within the range is considered more probable than any other

amount, the Company accrues the lowest amount in that range

in accordance with generally accepted accounting principles.

See Note 26 of Notes to Consolidated Financial Statements in Item 8 of

this Report.

Realizability of equity investments:

The Company holds equity investments in various foreign companies

where it has the

ability to influence, but not control, the operations of the entity

and its future results.

The Company would record an impairment

charge to an investment if it concluded that a decline in value that was other

than temporary occurred.

Adverse changes in market

conditions, poor operating results of underlying investments, devaluation

of foreign currencies or other events or circumstances could

result in losses or an inability to recover the carrying value of the investments,

potentially leading to an impairment charge in the

future.

The carrying amount of the Company’s

equity investments as of December 31, 2021

was $95.3

million, which included four

investments: $21.5 million for a 32% interest in Primex, Ltd. (Barbados);

$7.1 million for a 50% interest in Nippon Quaker Chemical,

Ltd. (Japan); $0.3 million for a 50% interest in Kelko Quaker Chemical, S.A.

(Panama); and $66.4 million for a 50% interest in Korea

Houghton Corporation (Korea).

The Company also has a 50% interest in a Venezuelan

affiliate, Kelko Quaker Chemical, S.A

(Venezuela).

Due to heightened foreign exchange controls, deteriorating economic circumstances

and other restrictions in Venezuela,

during 2018 the Company concluded that it no longer had significant

influence over this affiliate.

Prior to this determination, the

Company historically accounted for this affiliate under

the equity method.

As of December 31, 2021

and 2020, the Company had no

remaining carrying value for its investment in Venezuela.

See Note 17 of Notes to Consolidated Financial Statements in Item 8 of this

Report.

Tax

exposures, uncertain tax positions and valuation allowances:

Quaker Houghton records expenses and liabilities for taxes

based on estimates of amounts that will be determined as deductible in tax

returns filed in various jurisdictions.

The filed tax returns

are subject to audit, which often occur several years subsequent to

the date of the financial statements.

Disputes or disagreements may

arise during audits over the timing or validity of certain items or deductions,

which may not be resolved for extended periods of time.

The Company also evaluates uncertain tax positions on all income tax

positions taken on previously filed tax returns or expected to be

taken on a future tax return in accordance with FIN 48, which prescribes

the recognition threshold and measurement attributes for

financial statement recognition and measurement of tax positions taken

or expected to be taken on a tax return and, also, whether the

benefits of tax positions are probable or if they will be more likely than not to be sustained upon

audit based upon the technical merits

of the tax position.

For tax positions that are determined to be more likely than not to be sustained upon audit, the

Company

recognizes the largest amount of benefit that is greater

than 50% likely of being realized upon ultimate settlement in the financial

statements.

For tax positions that are not determined to be more likely than not

sustained upon audit, the Company does not recognize

any portion of the benefit in its financial statements.

In addition, the Company’s

continuing practice is to recognize interest and/or

penalties related to income tax matters in income tax expense.

Also, the Company nets its liability for unrecognized tax benefits

against deferred tax assets related to net operating losses or other tax credit carryforward

on the basis that the uncertain tax position is

settled for the presumed amount at the balance sheet date.

Quaker Houghton also records valuation allowances when necessary

to reduce its deferred tax assets to the amount that is more

likely than not to be realized.

While the Company has considered future taxable income and assesses the need for

a valuation

allowance, in the event Quaker Houghton were to determine that it would

be able to realize its deferred tax assets in the future in

excess of its net recorded amount, an adjustment to the deferred

tax asset would increase income in the period such determination was

made.

Likewise, should the Company determine that it would not be able to realize all or part of

its net deferred tax assets in the

future, an adjustment to the deferred tax asset would be charged

to income in the period such determination was made.

Both

determinations could have a material impact on the Company’s

financial statements.

Pursuant to the Tax

Cuts and Jobs Act (“U.S. Tax

Reform”), the Company recorded a $15.5 million transition tax liability

for

U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries.

As of December 31, 2021, $7.0 million in installment have

been paid with the remaining $8.5 million to be paid through installments in future

years.

However, the Company may also be subject

to other taxes, such as withholding taxes and dividend distribution taxes,

if these undistributed earnings are ultimately remitted to the

U.S.

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

$8.4 million, which primarily represents the estimate of

the non-U.S. taxes the Company will incur to remit certain previously

taxed earnings to the U.S.

It is the Company’s current intention

to reinvest its future undistributed earnings of non-U.S. subsidiaries to support

working capital needs and certain other growth

initiatives outside of the U.S.

The amount of such undistributed earnings at December 31, 2021

was approximately $377.4

million.

Any tax liability which might result from ultimate remittance of these earnings

is expected to be substantially offset by

foreign tax credits (subject to certain limitations).

It is currently impractical to estimate any such incremental tax expense.

See Note

10 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Goodwill and other intangible assets:

The Company accounts for business combinations under the acquisition

method of

accounting.

This method requires the recording of acquired assets, including separately identifiable

intangible assets, at their

acquisition date fair values.

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

net assets acquired is

recorded as goodwill.

The determination of the estimated fair value of assets acquired requires management’s

judgment and often

involves the use of significant estimates and assumptions, including

assumptions with respect to future cash inflows and outflows,

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

items.

When necessary, the Company consults with

external advisors to help determine fair value.

For non-observable market values, the Company may determine fair value

using

acceptable valuation principles, including the excess earnings, relief

from royalty, lost profit or cost

methods.

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

basis over their useful lives.

Goodwill and intangible

assets that have indefinite lives are not amortized and are required to be assessed at least annually

for impairment.

The Company

completes its annual goodwill and indefinite-lived intangible asset impairment

test during the fourth quarter of each year, or

frequently if triggering events indicate a possible impairment.

The Company’s consolidated

goodwill at both December 31, 2021 and

2020 was $631.2 million.

The Company completed its annual impairment assessment over goodwill during

the fourth quarter of 2021

by performing a qualitative assessment.

Based on the assessment performed, the Company concluded that there

was no evidence of

events or circumstances that would indicate a material change from

the Company’s prior year quantitative

assessment by reporting

unit and, therefore, no impairment charges were

warranted.

The Company’s consolidated indefinite

-lived intangible assets at

December 31, 2021 and 2020 were $196.9 million and $205.1 million,

respectively, which primarily

consists of Houghton and

Fluidcare

trademarks and tradename.

The Company completed its annual indefinite-lived intangible asset impairment assessment

during the fourth quarter of 2021, and determined that no impairment

charge was warranted.

The determination of estimated fair

value of these indefinite-lived intangible assets is based on a relief from royalty

valuation method, which requires management’s

judgment and often involves the use of significant estimates and assumptions,

including assumptions with respect to royalty rates, as

well as revenue growth rates and terminal growth rates.

The Company’s impairment assessment

concluded that the carrying value of

acquired Houghton and Fluidcare

trademarks and tradename intangible assets exceeded fair value by

approximately 61%.

See Note

16 of Notes to Consolidated Financial Statements in Item 8 of this Report.

As previously disclosed, as of March 31, 2020, the Company concluded that

the impact of COVID-19 did not represent a

triggering

event with regards to any of the Company’s

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

Houghton and

Fluidcare

trademarks and tradename indefinite-lived intangible assets.

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

COVID-19 driving a decrease in projected legacy Houghton net sales during

that year and the impact of the sales decline on projected

future legacy Houghton net sales as well as an increase in the weighted average

cost of capital assumption utilized in the quantitative

impairment assessment, the Company concluded that the estimated fair

values of the Houghton and Fluidcare

trademarks and

tradename intangible assets were less than their carrying values.

As a result, an impairment charge of $38.0 million

was recorded

during the first quarter of 2020 to write down the carrying values of these intangible

assets to their estimated fair values.

Pension and Postretirement benefits:

The Company provides certain defined benefit pension and

other postretirement benefits

to current employees, former employees and retirees.

Independent actuaries, in accordance with U.S. GAAP,

perform the required

valuations to determine benefit expense and, if necessary,

non-cash charges to equity for additional minimum pension liabilities.

Critical assumptions used in the actuarial valuation include the weighted

average discount rate, which is based on applicable yield

curve data, including the use of a split discount rate (spot-rate approach)

for the U.S. plans and certain foreign plans, rates of increase

in compensation levels, and expected long-term rates of return

on assets.

If different assumptions were used, additional pension

expense or charges to equity might be required.

The following table highlights the potential impact on the Company’s

pre-tax earnings due to changes in assumptions with respect

to the Company’s defined benefit pension

and postretirement benefit plans, based on assets and liabilities as of December 31,

2021:

1/2 Percentage Point Increase

1/2 Percentage Point Decrease

(dollars in millions)

Foreign

U.S.

Total

Foreign

U.S.

Total

Discount rate (1)

(0.2)

0.2

0.0

0.3

(0.2)

0.1

Expected rate of return on plan

assets (2)

0.5

0.2

0.7

(0.5)

(0.2)

(0.7)

(1)

The weighted-average discount rate used to determine net periodic benefit

costs for the year ended December 31, 2021 was

1.4% for Foreign plans and 2.7% for U.S. plans.

(2)

The weighted average expected rate of return on plan assets used to determine

net periodic benefit costs for the year ended

December 31, 2021 was 2.1% for Foreign plans and 5.8% for U.S. plans.

Restructuring and other related liabilities:

A restructuring related program may consist of charges for

employee severance,

rationalization of manufacturing facilities and other related expenses.

To account for such, the

Company applies the Financial

Accounting Standards Board’s

guidance regarding exit or disposal cost obligations.

This guidance requires that a liability for a cost

associated with an exit or disposal activity be recognized when the liability

is incurred, is estimable, and payment is probable.

See

Note 7 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Recently Issued Accounting Standards

See Note 3 of Notes to the Consolidated Financial Statements in Item 8 of this Report

for a discussion regarding recently issued

accounting standards.

Liquidity and Capital Resources

At December 31, 2021, the Company had cash, cash equivalents and

restricted cash of $165.2 million.

Total cash, cash

equivalents and restricted cash was $181.9 million at December

31, 2020.

The $16.7 million decrease in cash, cash equivalents and

restricted cash was the net result $49.1 million of cash used in investing

activities, $13.5 million of cash used in financing activities

and approximately $3.1 million of negative impacts due to the effect

of foreign currency translation on cash, partially offset by $48.9

million of cash provided by operating activities.

Net cash flows provided by operating activities were $48.9 million in

2021 compared to $178.4 million in 2020.

The Company’s

current year net operating cash flow decrease was primarily driven by

a significant change in working capital which more than offset

the Company’s higher earnings in 2021

The significant increase in current year net sales resulted in a large

increase in accounts

receivable in 2021 as compared to a significant decrease during

2020 as net sales and the associated accounts receivables significantly

declined in 2020

due to the negative impact from COVID-19.

In addition, the Company has experienced an increase in inventory in

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

inventory to ensure the Company has appropriate stock to

meet customer demands in response to ongoing stress on the global supply

chain.

Net cash flows used in investing activities were $49.1 million in 2021

compared to $71.4 million in 2020.

This $22.3 million

decrease in cash outflows used in investing activities was due to lower cash payments

related to acquisitions during 2021 as a result of

the level of acquisition activity in each year and higher cash proceeds

from the disposition of assets, which includes the sale of certain

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

Capital expenditures also increased to $21.5 million in 2021 compared

to $17.9 million in 2020 due to the continued strategic and integration related

capital investments the Company has and continues to

make.

Net cash flows used in financing activities were $13.5 million in 2021

compared to $75.3 million in 2020.

The $61.8 million

decrease in net cash outflows from financing activities was primarily

driven by an increase in borrowings in the current year under the

Company’s revolving credit

facility compared to repayments in the prior year which was driven by significant

working capital

investment in the current year described above.

In addition, the Company paid $28.6 million of cash dividend during

2021, a $1.0

million or 4% increase in cash dividends compared to the prior year due to cash dividend

per share increases.

Finally, during 2020,

the Company used $1.0 million to purchase the remaining noncontrolling

interest in one of its South African affiliates.

Prior to this

buyout, this South African affiliate made a distribution

to the prior noncontrolling affiliate shareholder of approximately $0.8

million

in 2020.

There were no similar noncontrolling interest activities in 2021.

The Company’s primary credit facility

(the “Credit Facility”) is comprised of a $400.0 million multicurrency

revolver (the

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

Loan”), each with the Company as borrower, and

a $150.0 million (as of

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

Loan” and together with the “U.S. Term

Loan”, the “Term Loans”)

with

Quaker Chemical B.V.,

a Dutch subsidiary of the Company as borrower,

each with a five year term maturing in August 2024.

Subject

to the consent of the administrative agent and certain other conditions,

the Company may designate additional borrowers.

The

maximum amount available under the Credit Facility can be increased by

up to $300.0 million at the Company’s request

if there are

lenders who agree to accept additional commitments and the Company has

satisfied certain other conditions.

Borrowings under the

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

based upon the Company’s consolidated

net leverage

ratio.

On December 10, 2021, the Company amended the Credit Facility to include an update

to provide for the use of a non-USD

currency LIBOR successor rate.

The weighted average interest rate incurred on the outstanding borrowings

under the Credit Facility

during the year ended and as of December 31, 2021 was approximately

1.6%.

In addition to paying interest on outstanding principal

under the Credit Facility,

the Company is required to pay a commitment fee ranging from 0.2% to 0.3% depending

on the Company’s

consolidated net leverage ratio to the lenders under the Revolver in respect of

the unutilized commitments thereunder.

The Credit Facility is subject to certain financial and other covenants.

The Company’s initial consolidated net

debt to

consolidated adjusted EBITDA ratio could not exceed 4.25 to 1,

with step downs in the permitted ratio over the term of the Credit

Facility.

As of December 31, 2021, 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 December 31, 2021

and 2020, the Company was in compliance with all of the Credit Facility covenants.

The Term Loans have quarterly

principal

amortization during their five year terms, with 5.0% amortization of

the principal balance due in years 1 and 2, 7.5% in year 3, and

10.0% in years 4 and 5, with the remaining principal amount due at maturity.

The Credit Facility is guaranteed by certain of the

Company’s domestic subsidiaries

and is secured by first-priority liens on substantially all of the assets of the

Company and the

domestic subsidiary guarantors, subject to certain customary exclusions.

The obligations of the Dutch borrower are guaranteed only

by certain foreign subsidiaries on an unsecured basis.

The Credit Facility required the Company to fix its variable interest rates on at least 20%

of its total Term Loans.

In order to

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

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

in November 2019, the Company entered into $170.0

million notional amounts of three year interest rate swaps at a base rate of 1.64%

plus an applicable margin as provided in the Credit Facility,

based on the Company’s consolidated

net leverage ratio.

At the time the

Company entered into the swaps, and as of December 31, 2021, the

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

plus an applicable margin, was 3.1%.

The Company capitalized $23.7 million of certain third-party debt issuance

costs in connection with executing the Credit Facility.

Approximately $15.5 million of the capitalized costs were attributed to

the Term Loans and recorded

as a direct reduction of long-

term debt on the Company’s Consolidated

Balance Sheet.

Approximately $8.3 million of the capitalized costs were attributed

to the

Revolver and recorded within other assets on the Company’s

Consolidated Balance Sheet.

These capitalized costs are being

amortized into interest expense over the five year term of the Credit Facility.

As of December 31, 2021, the Company had Credit Facility borrowings

outstanding of $889.6 million.

As of December 31, 2020,

the Company had Credit Facility borrowings outstanding of $887.1

million.

The Company has unused capacity under the Revolver of

approximately $184 million, net of bank letters of credit of approximately

$4 million, as of December 31, 2021.

The Company’s other

debt obligations are primarily industrial development bonds

bank lines of credit and municipality-related loans, which totaled $11.8

million and $12.1

million as of December 31, 2021

and 2020, respectively.

Total unused capacity under

these arrangements as of

December 31, 2021 was approximately $26 million.

The Company’s total net debt

as of December 31, 2021 was $736.2 million.

The Company estimates that it realized full year cost synergies related

to the Combination in 2021

of approximately $75 million

compared to $58 million in 2020.

The Company has fully achieved its annual target Combination cost synergies

of approximately $80

million going forward.

The Company incurred $18.6 million of total Combination, integration

and other acquisition-related expenses

in 2021, which includes $0.7 million of accelerated depreciation

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

real property assets and $0.6 million of other income related to an indemnification

asset, described in the Non-GAAP Measures

section of this Item below.

The Company had aggregate net cash outflows of approximately $20.6 million

related to the Combination,

integration and other acquisition-related expenses during 2021.

Comparatively, in 2020, the

Company incurred $30.3 million of total

Combination, integration and other acquisition-related expenses, including

$0.8 million of accelerated depreciation, a $0.6 million loss

on the sale of held-for-sale assets, an $0.8 million of other income related to an indemnification

asset, and aggregate net cash outflows

related to these costs were approximately $29.4 million.

While the Company has incurred significant integration costs in 2019, 2020

and 2021, the Company expects to incur additional integration and operating

costs as well as higher capital expenditures to further

optimize its footprint, processes and other functions 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 and recorded $26.7 million in restructuring

and related charges in 2019.

The Company recognized an additional $1.4 million and $5.5 million

of restructuring and related charges

in 2021 and 2020, respectively,

as a result of the QH Program.

The QH Program includes restructuring and associated severance costs

to reduce total headcount by approximately 400 people globally and

plans for the closure of certain manufacturing and non-

manufacturing facilities.

In connection with the plans for closure of certain manufacturing and non-manufacturing

facilities, the

Company made a decision to make available for sale certain facilities during

the second quarter of 2020.

During the first quarter of

2021 and fourth quarter of 2020, certain of these facilities were sold

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

and a loss on disposal of $0.6 million, respectively,

included within other income (expense), net on the Consolidated Statement of

Income.

The exact timing and total costs associated with the QH Program will depend on a number of

factors and is subject to

change; however, reductions in headcount

and site closures have continued,

and the Company currently expects additional headcount

reductions and site closures to occur into 2022 and estimates that the anticipated

cost synergies realized under the QH Program will

approximate one-times restructuring costs incurred.

The Company made cash payments related to the settlement of restructuring

liabilities under the QH Program during 2021 of approximately $5.3 million

compared to $15.7 million in 2020.

During the first quarter of 2020, the Company completed the termination

of the Legacy Quaker U.S. Pension Plan and funded the

plan on a termination basis with approximately $1.8 million, subject to final

true up adjustments.

In the third quarter of 2020, the

Company finalized the amount of liability and related annuity payments and

received a refund in premium of $1.6 million.

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

at plan termination of approximately $22.7 million in the first

quarter of 2020.

As of December 31, 2021, the Company’s

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

was $28.7

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 $7.3 million as a result of

offsetting benefits in other tax jurisdictions.

During the year ended 2021, the Company recorded $13.1 million of non-income tax

credits for certain of its Brazilian subsidiaries.

The Company expects to utilize these credits to offset certain Brazilian

federal tax

payments over approximately two years, which began in the fourth quarter

of 2021.

See Note 26 of Notes to Consolidated Financial

Statements in Item 8 of this Report.

During the third quarter of 2021, two of the Company’s

locations suffered 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 will be 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 $0.7 million as of December 31, 2021.

The Company and its insurance carrier continue to review the impact on operations

as it relates to a potential business interruption insurance claim; however,

as of the date of this report, the Company cannot reasonably

estimate any probable amount of business interruption insurance

claim recoverable, therefore the Company has not recorded a gain

contingency for a possible business interruption insurance claim as of December

31, 2021.

See Note 26 of Notes to Consolidated

Financial Statements in Item 8 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 and beyond,

including but not limited to, payments of dividends to shareholders, costs

related to the Combination and other acquisitions and as

well as ongoing 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’s liquidity is affected

by many factors, some based on normal operations of our business and

others related to the impact of

the pandemic on our business and on global economic conditions as well as industry

uncertainties, which we cannot predict.

We also

cannot predict economic conditions and industry downturns or the

timing, strength or duration of recoveries.

We may seek,

as we

believe appropriate, additional debt or equity financing which would

provide capital for corporate purposes, working capital funding,

additional liquidity needs or to fund future growth opportunities, including

possible acquisitions and investments.

The timing and

amount of potential capital requirements cannot be determined at this time

and will depend on a number of factors, including the

actual and projected demand for our products, specialty chemical industry

conditions, competitive factors, and the condition of

financial markets, among others.

The following table summarizes the Company’s

contractual obligations as of December 31, 2021, and the effect such

obligations

are expected to have on its liquidity and cash flows in future periods.

Pension and postretirement plan contributions beyond 2021 are

not determinable since the amount of any contribution is heavily dependent

on the future economic environment and investment

returns on pension trust assets.

The timing of payments related to other long-term liabilities which consists primarily

of deferred

compensation agreements and environmental reserves, also cannot

be readily determined due to their uncertainty.

Interest obligations

on the Company’s long-term

debt and capital leases assume the current debt levels will be outstanding for

the entire respective period

and apply the interest rates in effect as of December 31, 2021.

Payments due by period

(dollars in thousands)

2027 and

Contractual Obligations

Total

2022

2023

2024

2025

2026

Beyond

Long-term debt

900,633

56,759

75,553

758,045

122

10,074

Interest obligations

39,975

14,287

13,184

10,751

526

701

Capital lease obligations

868

219

212

196

176

Operating leases

41,395

11,346

9,041

7,017

5,292

4,197

4,502

Purchase obligations

3,652

3,197

416

Transition tax

8,500

1,529

3,099

3,872

Pension and other postretirement plan

contributions

13,347

Other long-term liabilities (See Note 22 of

Notes to Consolidated Financial Statements)

12,040

Total contractual

cash obligations

1,020,410

99,155

99,935

779,147

9,988

4,868

27,317

Non-GAAP Measures

The information in this Form 10-K 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 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.

The following tables reconcile the Company’s

non-GAAP financial measures (unaudited) to their most directly comparable

GAAP financial measures (dollars in thousands, unless otherwise noted,

except per share amounts):

Non-GAAP Operating Income and Margin Reconciliations

For the years ended December 31,

2021

2020

2019

Operating income

150,466

59,360

46,134

Houghton combination, integration and other

acquisition-related expenses (a)

24,611

30,446

35,945

Restructuring and related charges (b)

1,433

5,541

26,678

Fair value step up of acquired inventory sold (c)

801

226

11,714

Executive transition costs (d)

2,986

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

819

Customer bankruptcy costs (f)

463

1,073

Facility remediation costs, net (g)

1,509

Charges related to the settlement of a non-core equipment sale (h)

384

Indefinite-lived intangible asset impairment (i)

38,000

Non-GAAP operating income

182,625

134,036

121,928

Non-GAAP operating margin (%) (r)

10.4%

9.5%

10.8%

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and

Non-GAAP Net Income Reconciliations

For the years ended December 31,

2021

2020

2019

Net income attributable to Quaker Chemical Corporation

121,369

39,658

31,622

Depreciation and amortization (a)(p)

87,728

84,494

45,264

Interest expense, net (a)

22,326

26,603

16,976

Taxes on income before

equity in net income of associated companies (q)

34,939

(5,296)

2,084

EBITDA

266,362

145,459

95,946

Equity income in a captive insurance company (j)

(4,993)

(1,151)

(1,822)

Houghton combination, integration and other

acquisition-related expenses (a)

17,917

29,538

35,361

Restructuring and related charges (b)

1,433

5,541

26,678

Fair value step up of acquired inventory sold (c)

801

226

11,714

Executive transition costs (d)

2,986

Inactive subsidiary’s non

-operating litigation cost (e)

819

Customer bankruptcy costs (f)

463

1,073

Facility remediation costs, net (g)

2,066

Charges related to the settlement of a non-core equipment sale (h)

384

Indefinite-lived intangible asset impairment (i)

38,000

Pension and postretirement benefit (income) costs,

non-service components (k)

(759)

21,592

2,805

Gain on changes in insurance settlement restrictions of an inactive

subsidiary and related insurance insolvency recovery (l)

(18,144)

(60)

Brazilian non-income tax credits (m)

(13,087)

Currency conversion impacts of hyper-inflationary economies (n)

564

450

1,033

Adjusted EBITDA

274,109

221,974

173,112

Adjusted EBITDA margin (%) (r)

15.6%

15.7%

15.3%

Adjusted EBITDA

274,109

221,974

173,112

Less: Depreciation and amortization - adjusted (a)

87,002

83,732

44,680

Less: Interest expense, net - adjusted (a)

22,326

26,603

14,896

Less: Taxes on income

before equity in net income

of associated companies - adjusted (o)(q)

41,976

26,488

24,825

Non-GAAP net income

122,805

85,151

88,711

Non-GAAP Earnings per Diluted Share Reconciliations

For the years ending December 31,

2021

2020

2019

GAAP earnings per diluted share attributable to

Quaker Chemical Corporation common shareholders

6.77

2.22

2.08

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

(0.28)

(0.07)

(0.12)

Houghton combination, integration and other

acquisition-related expenses per diluted share (a)

0.79

1.31

2.05

Restructuring and related charges per diluted share (b)

0.07

0.23

1.34

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

0.03

0.01

0.58

Executive transition costs per diluted share (d)

0.13

Inactive subsidiary’s non

-operating litigation costs per diluted share (e)

0.04

Customer bankruptcy costs per diluted share (f)

0.02

0.05

Facility remediation costs, net per diluted share (g)

0.09

Charges related to the settlement of a non-core equipment

sale per diluted share (h)

0.02

Indefinite-lived intangible asset impairment per diluted share (i)

1.65

Pension and postretirement benefit costs, non-service

components per diluted share (k)

(0.04)

0.79

0.14

Gain on changes in insurance settlement restrictions of an inactive

subsidiary and related insurance insolvency recovery per diluted share (l)

(0.78)

0.00

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

(0.46)

Currency conversion impacts of hyper-inflationary economies

per diluted share (n)

0.03

0.02

0.07

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

(0.32)

(0.62)

(0.38)

Non-GAAP earnings per diluted share (s)

6.85

4.78

5.83

(a)

Houghton combination, integration and other acquisition-related

expenses include certain legal, financial, and other advisory and

consultant costs incurred in connection with post-closing integration

activities including internal control readiness and

remediation, as well as due diligence, regulatory approvals and closing

the Combination.

These costs are not indicative of the

future operating performance of the Company.

Approximately $0.6 million, $1.5 million and $9.4 million for the years ended

December 31, 2021, 2020 and 2019, respectively,

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

determining the Company’s

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

net income of associated

companies - adjusted reflects the impact of these items.

During 2021, 2020 and 2019, the Company recorded $0.7 million, $0.8

million, and $0.6 million, respectively,

of accelerated depreciation related to certain of the Company’s

facilities, which is

included in the caption “Houghton combination, integration and other

acquisition-related expenses” in the reconciliation of

operating income 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

2019, the Company incurred $2.1 million of ticking fees to maintain the bank

commitment related to the Combination.

These

interest costs are included in the caption “Interest expense, net” in the reconciliation

of net income attributable to the Company to

EBITDA, but are excluded from the caption “Interest expense, net

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

GAAP net income.

During 2021 and 2020, the Company recorded $0.6 million and $0.8 million, respectively,

of other income

related to an indemnification asset.

During 2021 and 2020, the Company recorded a gain of $5.4 million

and a loss of $0.6

million, respectively,

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

the Combination.

Each of these items are

included in the caption “Houghton combination, integration and other

acquisition 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 See Note 2 and Note 9 of Notes to Consolidated Financial

Statements, which appears in Item 8 of this Report.

(b)

Restructuring and related charges represent the

costs incurred by the Company associated with the QH restructuring program

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

plan to realize cost synergies associated with the

Combination.

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

See Note 7 of Notes to

Consolidated Financial Statements,

which appears in Item 8 of this Report.

(c)

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

inventory of acquired businesses which was

adjusted to fair value as part of purchase accounting.

This increases to costs of goods sold (“COGS”) are not indicative of the

future operating performance of the Company.

(d)

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 look place in 2021.

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

Company.

(e)

Inactive subsidiary’s non

-operating litigation costs represents the charges incurred by

an inactive subsidiary of the Company and

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

These charges are not indicative of the future

operating performance of the Company.

See Note 26 of Notes to Consolidated Financial Statements, which appears

in Item 8 of

this Report.

(f)

Customer bankruptcy costs represent the cost associated with a specific

reserve for trade accounts receivable related to a customer

who filed for bankruptcy protection.

These expenses are not indicative of the future operating performance

of the Company.

See

Note 13 of Notes to Consolidated Financial Statements, which appears

in Item 8 of this Report.

(g)

Facility remediation costs, net, presents the gross costs associated with remediation,

cleaning and subsequent restoration costs

associated with the property damage to certain of the Company’s

facilities, net of insurance recoveries received.

These charges

are non-recurring and are not indicative of the future operating performance

of the Company.

See Note 26 of Notes to

Consolidated Financial Statements, which appears in Item 8 of this Report.

(h)

Charges related to the settlement of a non-core equipment

sale represent the pre-tax charge related to a one-time, uncommon,

customer settlement associated with a prior sale of non-core equipment.

These charges are not indicative of the future operating

performance of the Company.

(i)

Indefinite-lived intangible asset impairment represents the non-cash

charge taken to write down the value of certain indefinite-

lived intangible assets associated with the Combination.

The Company has no prior history of goodwill or intangible asset

impairments and this charge is not indicative of the future operating

performance of the Company.

See Note 16 of Notes to

Consolidated Financial Statements, which appears in Item 8 of this Report.

(j)

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

income attributable to the Company’s

interest in Primex,

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

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

Primex, and therefore accounts for this investment under the equity method of

accounting.

The income attributable to Primex is

not indicative of the future operating performance of the Company

and is not considered core to the Company’s operations.

(k)

Pension and postretirement benefit (income) costs, non-service components

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

Company’s pension and postretirement

net periodic benefit cost in each period.

These costs are not indicative of the future

operating performance of the Company.

The year ended December 31, 2020 includes a $22.7 million settlement charge

for the

Company’s termination

of the Legacy Quaker U.S. Pension Plan.

See Note 21 of Notes to Consolidated Financial Statements,

which appears in Item 8 of this Report.

(l)

Gain on changes in insurance settlement restrictions of an inactive subsidiary

and related insurance insolvency recovery

represents income associated with the gain on the termination of restrictions

on insurance settlement reserves and the cash

receipts from an insolvent insurance carrier for previously submitted

claims by an inactive subsidiary of the Company.

This other

income is not indicative of the future operating performance of the Company.

See Notes 9 and 26 of Notes to Consolidated

Financial Statements, which appears in Item 8 of this Report.

(m)

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

of the Company’s Brazilian subsidiaries

prevailing in a legal claim as well as the Brazil Supreme Court ruling on these non

-income tax matters.

The non-income tax

credit is non-recurring and not indicative of the future operating performance

of the Company.

See Note 26 of Note to

Consolidated Financial Statements, which appears in Item 8 of this Report.

(n)

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.

An entity which

operates within an economy deemed to be hyper-inflationary

under U.S. GAAP is required to remeasure its monetary assets and

liabilities to the applicable published exchange rates and record the

associated gains or losses resulting from the remeasurement

directly to the Consolidated Statements of Income.

Venezuela’s

economy has been considered hyper-inflationary under

U.S.

GAAP since 2010, while Argentina’s

economy has been considered hyper-inflationary beginning

July 1, 2018.

In addition, the

Company’s Argentine

Houghton subsidiary also applies hyper-inflationary accounting.

During 2021, 2020 and 2019, 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 Notes 1, 9 and 17 of Notes to Consolidated

Financial Statements, which appears in Item 8 of this Report.

(o)

The impacts of certain discrete tax items includes

the impact of changes in certain valuation allowances

recorded on certain of the

Company’s foreign

tax credits, tax law changes in foreign jurisdictions, changes in withholding tax rates, the

tax impacts of non-

income tax credits associated with certain of the Company’s

Brazilian subsidiaries and the associated impact on previously

accrued for distributions at certain of the Company’s

Asia/Pacific subsidiaries, the one-time deferred tax benefit recorded on the

transfer of intangible assets between the Company’s

subsidiaries as well as the offsetting impact and amortization

of a deferred

tax benefit the Company recorded during 2020 and 2019 related to

similar intercompany intangible asset transfers.

Additionally,

the 2019 amounts include certain transition tax adjustments related to adjustments

to adopt U.S. Tax Reform.

See Note 10 of

Notes to Consolidated Financial Statements, which appears in Item

8 of this Report.

(p)

Depreciation and amortization for the years ended December 31, 2021,

2020 and 2019 includes $1.2 million, $1.2 million and

$0.4 million, respectively,

of amortization expense recorded within equity in net income of associated

companies in the

Company’s Consolidated

Statements of Income, which is attributable to the amortization of the fair value step up for

the

Company’s 50% interest Korea Houghton

Corporation as a result of required purchase accounting.

(q)

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.

Houghton combination, integration and other acquisition-related

expenses described in (a) resulted in incremental taxes of $4.2 million

for 2021, $6.9 million for 2020, and $6.7 million for 2019.

Restructuring and related charges described in (b)

resulted in incremental taxes of $0.3 million for 2021, $1.4 million for 2020

and $6.2 million for 2019.

Fair value step up of inventory sold described in (c) resulted in incremental taxes of $0.2 million,

less

than $0.1 million and $2.9 million for 2021, 2020 and 2019, respectively.

Executive transition expenses described in (d) resulted

in incremental taxes of $0.7 million for 2021.

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

incremental taxes of $0.2

million for 2021.

Customer bankruptcy costs described in (f) resulted in incremental taxes of $0.1

million in 2020 and $0.3 million in 2019.

Facility remediation costs, net described in (g) results in incremental taxes of $0.5

million for 2021.

Charges related to the settlement of a non-core equipment

sale described in (h) resulted in incremental taxes of

$0.1 million for 2019.

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

incremental taxes of $8.7 million

for 2020.

Pension and postretirement benefit (income) costs, non-service components

described in (k) resulted in a reduction of

taxes of $0.1 million for 2021 and incremental taxes of $7.5 million for 2020,

and $0.7 million for 2019.

Gain on changes in

insurance settlement restrictions of an inactive subsidiary

and related insurance insolvency recovery described in (l) resulted in a

reduction of taxes of $4.2 million in 2020 and less than $0.1 million in

2019.

Brazilian non-income tax credits described in (m)

resulted in a reduction of taxes of $4.8 million for 2021.

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

benefit of $5.8 million for 2021, incremental taxes of $11.2

million for 2020, and a reduction of taxes of $5.7 million in 2019.

(r)

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.

(s)

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

-GAAP net income attributable to the Company per

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

to calculate such in each given period.

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet commitments or

obligations as of December 31, 2021.

The Company’s only off-

balance sheet commitments or obligations outstanding as of December 31,

2021 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 20 of Notes to Consolidated Financial Statements in Item 8 of this Report.

Operations

Consolidated Operations Review – Comparison of 2021 with 2020

Net sales were $1,761.2 million in 2021 compared to $1,417.7 million

in 2020.

The net sales increase of approximately $343.5

million or 24% year-over-year was primarily due to higher sales volumes of

13%, which includes additional net sales from recent

acquisitions of 4%, increases from selling price and product mix of 8% and

the positive impact of foreign currency translation of 3%.

The increase in organic sales volumes compared to 2020

was primarily the result of the continued year-over-year

improvement in end

market conditions from the prior year impacts of COVID-19 and continued

market share gains.

Sales from acquisitions is primarily

driven by the Company’s acquisition

of Coral Chemical Company (“Coral”) in December 2020 and

the tin-plating solutions business

acquired in February 2021.

The increase from selling price and product mix includes the impact of current

year selling price increases

implemented in response to the increases in raw material costs experienced

in 2021.

The positive impact from foreign currency

translation is primarily the result of the strengthening of the Chinese renminbi,

euro, Mexican peso, the Canadian dollar and the

British pound against the U.S. dollar year-over-year.

COGS were $1,166.5 million in 2021 compared to $904.2 million in 2020.

The increase in COGS of 29% was driven by the

associated COGS on the increase in net sales described above, and

continued increases in the Company’s global

raw material costs

compared to the prior year and the impacts of supply constraints in the current year.

Gross profit in 2021 of $594.6 million increased $81.2 million or approximately

16% from 2020, due primarily to the increase in

net sales noted above.

The Company’s reported gross margin

in 2021 was 33.8% compared to 36.2% in 2020.

The lower current year

gross margin is primarily attributable to increased raw materials and

other costs that began in the fourth quarter of 2020 and have

continued throughout 2021 and the impacts of constraints on the world’s

global supply chain partially offset by the Company’s

ongoing pricing initiatives.

SG&A in 2021 increased $38.1 million compared to 2020 due primarily to

the impact of sales increases on direct selling costs,

year-over-year inflation increases, additional

SG&A from recent acquisitions and higher SG&A due to foreign currency

translation,

partially offset by lower incentive compensation year-over

-year as well as the benefits of additional realized cost synergies associated

with the Combination year-over-year.

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

cost saving

measures the Company implemented in response to COVID-19.

While the Company continues to manage costs during the on-going

pandemic, it has incurred higher SG&A year-over-year

as the global economy continues to gradually rebound.

During 2021 and 2020, the Company incurred $23.9 million and $29.8

million, respectively, of

Combination, integration and

other acquisition-related expenses primarily for professional fees related

to Houghton integration and other acquisition-related

activities.

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

The Company initiated a restructuring program during 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

an expense of $1.4 million and $5.5 million during 2021 and 2020,

respectively.

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

Operating income in 2021 was $150.5 million compared to $59.4 million

in 2020.

Excluding Combination, integration and other

acquisition-related expenses, restructuring and related charges and

other non-core items, the Company’s

current year non-GAAP

operating income of $182.6 million increased compared to $134.0

million in the prior year, primarily due

to the increase in net sales

described above and the benefits from cost savings related to the Combination

offset by an increase in SG&A as well as the significant

increases in raw material costs year-over-year.

The Company estimates that it realized cost synergies associated with the

Combination

of approximately $75 million during 2021 compared to approximately

$58 million during 2020.

The Company had other income, net, of $18.9 million in 2021 compared

to other expense, net, of $5.6 million in 2020.

The year-

over-year change was primarily a result of other income related to certain

non-income tax credits recorded by the Company’s

Brazilian subsidiaries, the gain on the sale of certain held-for-sale real property assets and lower

foreign currency transaction losses in

2021 as compared to the prior year.

The Company had non-service components of pension and postretirement

benefit income in the

current year compared to an expense in the prior year as a result of the $22.7

million pension settlement charge directly related to the

termination of the Legacy Quaker U.S. pension plan partially offset

by a $18.1 million gain related to the lapse of restrictions over

certain cash that was previously designated solely for the settlement of

asbestos claims at an inactive subsidiary,

all of which are

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

Interest expense, net, decreased $4.3 million compared to 2020 driven

by lower current year average borrowings outstanding as a

result of the additional revolver borrowings drawn during part of 2020

at the onset of the pandemic to add additional liquidity,

coupled

with a decline in overall interest rates year-over-year,

as the weighted average interest rate incurred on borrowings under the

Company’s credit facility was approximately

1.6% during 2021 compared to approximately 2.2% during 2020.

The Company’s effective

tax rates for 2021 and 2020 were an expense of 23.8% and benefit of 19.5%, respectively.

The

Company’s higher current year

effective tax rate is driven by a higher level of pre-tax earnings and

mix of earnings, as well as

deferred tax expense related to the planned repatriation of non-U.S.

earnings.

In addition, the rate was impacted by certain one-time

charges and benefits related to an intercompany intangible

asset transfer and related royalty income recognition offset

by changes in

the valuation allowance for foreign tax credits.

Comparatively, the prior

year effective tax rate was impacted by the tax effect of

certain one-time tax charges and benefits related to a 2020 intercompany

intangible asset transfer, additional charges

for uncertain tax

positions relating to certain foreign tax audits, and the tax impact of the Company’s

termination of its Legacy Quaker U.S. pension

plan.

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

each year, described in the Non-GAAP Measures

section of this Item, above, the Company estimates that the 2021 and 2020

effective tax rates would have been approximately 26%

and 25%, respectively.

The higher estimated current year tax rate was primarily driven by a higher level of pre

-tax earnings and the

impact of changes in mix of earnings,

deferred taxes related to the planned repatriation of non-U.S. earnings, and provision

to return

adjustments in the prior period.

The Company may experience continued volatility in its effective tax

rates due to several factors,

including the timing of tax audits and the expiration of applicable statutes of

limitations as they relate to uncertain tax positions, the

unpredictability of the timing and amount of certain incentives in various

tax jurisdictions, the treatment of certain acquisition-related

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

tax benefits, among other factors.

In addition, the

foreign tax credit valuation allowance, or absence thereof, is based on

a number of variables, including forecasted earnings, which

may vary.

Equity in net income of associated companies increased $2.0 million in

2021 compared to 2020, primarily due to higher current

year income from the Company’s interest

in a captive insurance company partially offset by lower earnings

from the Company’s 50%

interest in a joint venture in Korea compared to the prior year.

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

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

in 2021 compared to $0.1 million in 2020

primarily a

result of the first quarter of 2020 acquisition of the remaining ownership

interest in one of the Company’s South

African affiliates

Foreign exchange positively impacted the Company’s

yearly results by approximately 6% driven by the positive impact from

foreign currency translation on earnings as well as lower foreign exchange

transaction losses in the current year as compared to the

prior year.

Consolidated Operations Review – Comparison of 2020 with 2019

Net sales were $1,417.7 million in 2020 compared to $1,133.5 million

in 2019.

The net sales increase of 25% year-over-year

includes additional net sales from acquisitions, primarily Houghton

and Norman Hay, of $408.6 million.

Excluding net sales related

to acquisitions, the Company’s prior

year net sales would have declined approximately 11%

which reflects a decrease in sales volumes

of 9%, a negative impact from foreign currency translation of 1% and

a decrease from selling price and product mix of 1%.

The

primary driver of the volume decline in the prior year was the negative

impact of COVID-19 on global production levels.

COGS were $904.2 million in 2020 compared to $741.4 million in

2019.

The increase in COGS of 22% was primarily due to the

inclusion of a full year of Houghton and Norman Hay COGS and $0.8 million of

accelerated depreciation charges in 2020, partially

offset by lower prior year COGS on the decline in net sales due

to COVID-19 and 2019 charges of $11.7

million to increase acquired

inventory to its fair value, described in the Non-GAAP Measures section of this Item

above.

Gross profit in 2020 increased $121.3 million or 31% from 2019 due primarily

to additional gross profit from Houghton and

Norman Hay.

The Company’s reported gross

margin in 2020 was 36.2% compared to 34.6% in 2019, which included

the inventory

fair value step up described above.

Excluding one-time increases to COGS in both periods, the Company

estimates that its gross

margins for 2020 and 2019 would have been 36.3% and 35.7%,

respectively.

The estimated increase in gross margin year-over-year

was primarily due to lower COGS as a result of the Company’s

progress on Combination-related logistics, procurement and

manufacturing cost savings initiatives, partially offset

by the lower sales volumes on certain fixed manufacturing costs.

SG&A in 2020 increased $96.9 million compared to 2019 due primarily to

additional SG&A from Houghton and Norman Hay,

partially offset by the impact of COVID-19 cost savings

actions, including lower travel expenses, and the benefits of realized costs

savings associated with the Combination.

During 2020, the Company incurred $29.8 million of Combination,

integration and other acquisition-related expenses, primarily

for professional fees related to Houghton integration and other acquisition

-related activities.

Comparatively,

the Company incurred

$35.5 million of similar expenses in 2019,

primarily due to various professional fees related to integration planning

and regulatory

approval as well as professional fees associated with closing the Combination.

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 recorded additional restructuring and related charges

of $5.5 million during 2020

compared

to $26.7 million during 2019 under this program.

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

During the first quarter of 2020, the Company recorded a $38.0 million

non-cash impairment charge to write down the value of

certain indefinite-lived intangible assets associated with the Combination.

This non-cash impairment charge is related to certain

acquired Houghton trademarks and tradenames and is primarily the

result of the negative impacts of COVID-19 on their estimated fair

values.

There were no additional impairment charges in the remainder of

2020 or in 2019.

See the Critical Accounting Policies and

Estimates section as well as the Non-GAAP Measures section, of this Item, above.

Operating income in 2020 was $59.4 million compared to $46.1 million

in 2019.

Excluding Combination, integration and other

acquisition-related expenses, restructuring and related charges, the

non-cash indefinite-lived intangible asset impairment charge,

and

other expenses that are not indicative of the Company’s

future operating performance, the Company’s

non-GAAP operating income

during 2020 of $134.0 million increased compared to $121.9 million

in 2019, primarily due to additional operating income from

Houghton and Norman Hay and the benefits from costs savings initiatives related

to the Combination, partially offset by the current

year negative impact due to COVID-19.

The Company’s other

expense, net, was $5.6 million in 2020 compared to $0.3 million in 2019.

The year-over-year increase in

other expense, net was primarily due to the first quarter of 2020 non-cash

settlement charge of $22.7 million associated with the

termination of the Legacy Quaker U.S. Pension Plan, partially offset

by a fourth quarter of 2020 gain of $18.1 million related to the

lapsing of restrictions over certain cash that was previously designated

solely for the settlement of asbestos claims at an inactive

subsidiary of the Company,

which are both described in the Non-GAAP Measures section of this Item, above.

Additionally, the

increase year-over-year in other expense,

net, includes higher foreign currency transaction losses in 2020.

Interest expense, net, increased $9.6 million in 2020 compared to 2019 primarily

due to a full year of borrowings under the

Company’s Credit Facility to

finance the closing of the Combination on August 1, 2019, partially offset

by lower overall interest rates

in the 2020.

The Company’s effective

tax rates for 2020 and 2019 were a benefit of 19.5% and an expense of 7.2%, respectively.

The

Company’s 2020 effective

tax rate was impacted by the tax effect of certain one-time

tax charges and benefits, including deferred tax

benefits related to an intercompany intangible asset transfer,

as well as changes in the valuation allowance for foreign tax credits,

additional charges for uncertain tax positions relating to

certain foreign tax audits, and the tax impact of the Company’s

termination of

its Legacy Quaker U.S. pension plan.

Comparatively, the 2019 effectiv

tax rate was primarily impacted by certain non-deductible

costs associated with the Combination as well as a deferred tax benefit related

to a separate intercompany intangible asset transfer.

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

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

Company estimates that its effective tax rates for 2020

and 2019 were approximately 25% and 22%, respectively.

The year-over-year

increase is driven primarily by higher U.S. income taxes resulting from a

change in certain deductions and the taxability of foreign

earnings in the U.S., partially offset by a change in the mix of earnings.

Equity in net income of associated companies increased $2.3 million in

2020 compared to 2019, primarily due to additional

earnings from our 50% interest in a joint venture in Korea partially offset

by lower earnings from the Company’s

interest in a captive

insurance company.

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

Net income attributable to noncontrolling interest was $0.1 million in

2020 compared to $0.3 million in 2019 primarily a result of

the first quarter of 2020 acquisition of the remaining ownership interest

in one of the Company’s South African

affiliates.

Foreign exchange negatively impacted the Company’s

2020 results by approximately $0.38 per diluted share, primarily due

higher foreign exchange transaction losses year-over-year and, to

a lesser extent, an aggregate negative impact from foreign currency

translation on earnings.

Reportable Segments Review - Comparison of 2021 with 2020

The Company’s reportable

segments reflect the structure of the Company’s

internal organization, the method by which the

Company’s resources are allocated

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

assesses its

performance.

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

Asia/Pacific; and (iv) Global Specialty

Businesses.

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

in each respective region, excluding net

sales and operations managed globally by the Global Specialty Businesses

segment, which includes the Company’s

container, metal

finishing, mining, offshore, specialty coatings, specialty grease and

Norman Hay businesses.

Segment operating earnings for the Company’s

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

related to the respective segment’s product

sales.

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

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

integration and other acquisition-related expenses,

Restructuring and related charges, and COGS related

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

accounting, are not included in segment operating earnings.

Other items not specifically identified with the Company’s

reportable

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

net.

Americas

Americas represented approximately 33% of the Company’s

consolidated net sales in 2021.

The segment’s net sales were $572.6

million, an increase of $122.5 million or 27% compared to 2020.

The increase in net sales was driven by a benefit in selling price and

product mix of 11%, increases in organic

volumes of approximately 10%, additional net sales from acquisitions of 5%, and the

positive impact of foreign currency translation of 1%.

The current year organic volume increase was driven by the continued

improvement in end market conditions compared to the prior year which

was impacted by COVID-19.

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 incurred during 2021.

The foreign exchange impact was primarily driven by the strengthening of

the Mexican peso against

the U.S. dollar, as this exchange rate averaged

20.27 in 2021 compared to 21.34 during 2020.

This segment’s operating earnings were

$124.9 million, an increase of $28.5 million or 30% compared to 2020.

The increase in segment operating earnings reflects the higher

net sales, described above, partially offset by lower gross

margins driven by the continued raw material cost increases and

global

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

an increase in direct selling costs associated with higher net

sales, SG&A from acquisitions and an increase in SG&A as the prior year

included temporary cost savings measures implemented in

response to the onset of the COVID-19 pandemic.

EMEA

EMEA represented approximately 27% of the Company’s

consolidated net sales in 2021.

The segment’s net sales were $480.1

million, an increase of $96.9 million or 25% compared to 2020.

The increase in net sales was driven by a benefit from selling price

and product mix of 10%, increases in organic volumes of

approximately 9%, the positive impact of foreign currency translation of 4%,

and additional net sales from acquisitions of 2%.

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

implemented to offset the significant increase in raw

material and other input costs incurred during 2021.

The current year volume

increase was driven by the continued improvement in end market conditions

compared to the prior year which was heavily impacted

by COVID-19.

The foreign exchange impact was primarily driven by the strengthening

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

exchange rate averaged 1.18 in 2021 compared to 1.14 in 2020.

This segment’s operating earnings were

$85.2 million, an increase of

$16.0 million or 23% compared to 2020.

The increase in segment operating earnings reflects the higher net sales described

above,

partially offset by lower current year gross margins

driven by the continued raw material cost increases and global supply chain and

logistics pressures as well as higher SG&A including increases in direct selling

costs associated with higher net sales as well as

increases as the prior year included temporary cost savings measures implemented

in response to the onset of the COVID-19

pandemic.

Asia/Pacific

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

consolidated net sales in 2021.

The segment’s net sales were

$388.2 million, an increase of approximately $72.9 million or 23%

compared to 2020.

The increase in net sales year-over-year was

driven by increases in volumes of approximately 15%, the positive impact

of foreign currency translation of 5%, increases from

selling price and product mix of 2% and additional net sales from

acquisitions of 1%.

The current year volume increase was driven by

the continued improvement in end market conditions compared to the prior

year which was impacted by COVID-19.

The foreign

exchange impact was primarily due to the strengthening of the Chinese renminbi

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

6.45 in 2021 compared to 6.90 in 2020.

This segment’s operating earnings were

$96.3 million, an increase of $8.0 million or 9%

compared to 2020.

The increase in segment operating earnings was driven by the higher net sales described above,

partially offset by

lower gross margins driven by the continued raw material cost increases

and global supply chain and logistics pressures as well as

higher direct selling costs associated with higher net sales and an increase

in SG&A as the prior year included temporary cost savings

measures implemented in response to the onset of the COVID-19 pandemic

Global Specialty Businesses

Global Specialty Businesses represented approximately 18% of the

Company’s consolidated net sales in

2021.

The segment’s net

sales were $320.2 million, an increase of $51.2 million or 19% compared

to 2020.

The increase in net sales was driven by increases in

selling price and product mix, including Norman Hay,

of 14%, additional net sales from acquisitions of 8%, and the positive impact

foreign currency translation of 2% partially offset by volume declines

of approximately 5%.

Both the changes in selling price and

product mix and sales volumes were primarily driven by higher amounts of

shipments of a lower priced product in the Company’s

mining business in the prior year.

The foreign exchange impact was a result of similar strengthening of certain

currencies in EMEA

and Americas as described above.

This segment’s

operating earnings were $90.6 million, an increase of $10.9 million or 14%

compared to 2020.

The increase in segment operating earnings reflects the higher net sales, described

above, partially offset by lower

gross margins in the current year coupled with higher SG&A, including

an increase in direct selling costs associated with higher net

sales, SG&A from acquisitions and an increase in SG&A as the prior year

included temporary cost savings measures implemented in

response to the onset of the COVID-19 pandemic.

Reportable Segments Review – Comparison of 2020 with 2019

Americas

Americas represented approximately 32% of the Company’s

consolidated net sales in 2020.

The segment’s net sales were $450.2

million, an increase of $58.0 million or 15% compared to 2019.

The increase in net sales reflects additional net sales from

acquisitions of $120.4 million, primarily a result of the inclusion of

seven additional months of Houghton net sales, as the

Combination closed on August 1, 2019.

Excluding net sales from acquisitions, the segment’s

net sales decreased by approximately

16% due to lower volumes of 12% and a negative impact of foreign

currency translation of 4%.

The volume decline was driven by

the economic slowdown that began in late March and continued throughout

2020 due to the impacts of COVID-19.

The foreign

exchange impact was primarily due to the weakening of the Brazilian real

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

as these

exchange rates averaged 5.10 and 21.34, respectively,

in 2020 compared to 3.94 and 19.24, respectively in 2019.

This segment’s

operating earnings were $96.4 million, an increase of $18.1 million or

23% compared to 2019.

The increase in segment operating

earnings reflects the inclusion of a full year of Houghton net sales, noted,

above, and the impacts on gross margins and SG&A due to

the Combination’s cost synergies

and costs savings actions related to COVID-19 year-over-year,

partially offset by the impact of

COVID-19 on sales volumes and higher COGS and SG&A due to seven additional

months of Houghton in 2020.

EMEA

EMEA represented approximately 27% of the Company’s

consolidated net sales in 2020.

The segment’s net sales were $383.2

million, an increase of $97.6 million or 34% compared to 2019.

The increase in net sales reflects additional net sales from

acquisitions of $117.9 million, primarily

a result of the inclusion of seven additional months of Houghton net sales, as the

Combination closed on August 1, 2019.

Excluding net sales from acquisitions, the segment’s

net sales decreased year-over-year by

approximately 7% due to lower volumes of 10%, partially offset by

a positive impact of foreign currency translation of 2% and

increases in selling price and product mix of 1%.

The current year volume decline was driven by the economic slowdown that began

in late March and continued throughout 2020 due to the impacts of COVID-19.

The foreign exchange impact was primarily due to the

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

1.14 in 2020 compared to 1.12 in 2019.

This

segment’s operating earnings were

$69.2 million, an increase of $22.1 million or 47% compared to 2019.

The increase in segment

operating earnings reflects the inclusion of a full year of Houghton net sales,

noted, above, and the impacts on gross margins and

SG&A due to the Combination’s cost synergies

and costs savings actions related to COVID-19 year-over-year,

partially offset by the

impact of COVID-19 on sales volumes and higher COGS and SG&A due

to seven additional months of Houghton in 2020.

Asia/Pacific

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

consolidated net sales in 2020.

The segment’s net sales were

$315.3 million, an increase of $67.5 million or 27% compared to 2019.

The increase in net sales reflects the inclusion of seven

additional months of Houghton net sales of $79.7 million, as the Combination

closed on August 1, 2019.

Excluding Houghton net

sales, the segment’s net sales decreased

by approximately 5% year-over-year was due

to lower volumes of 3% and decreases in selling

price and product mix of 3% partially offset by the positive

impact of foreign currency translation of 1%.

The current year volume

decline was driven by the economic slowdown that began in the first quarter

of 2020 in China and in late March throughout the rest of

the region due to the impacts of COVID-19.

The foreign exchange impact was primarily due to the strengthening of the Chinese

renminbi against the U.S. dollar.

While this exchange rate averaged 6.90 in each of 2020 and 2019, respectively,

post the closing of

the Combination, this exchange rate strengthened in the last 5 months of 2020

to average 6.72 compared to 7.06 in the last 5 months of

2019, partially offset by the weakening of the Indian rupee against the

U.S. dollar as this exchange rate averaged 73.95 in 2020

compared to 70.35 in 2019.

This segment’s operating earnings were

$88.4 million, an increase of $20.8 million or 31% compared to

2019.

The increase in segment operating earnings reflects the inclusion of incremental

Houghton net sales, noted, above, and the

impacts on gross margins and SG&A due to the Combination’s

cost synergies and costs savings actions related to COVID-19 year-

over-year, partially offset

by the impact of COVID-19 on sales volumes and higher COGS and SG&A due

to seven additional months

of Houghton in 2020.

Global Specialty Businesses

Global Specialty Businesses represented approximately 19% of the

Company’s consolidated net sales in

2020.

The segment’s net

sales were $269.0 million, an increase of $61.1 million or 29% compared

to 2019.

The increase in net sales reflects the inclusion of

seven additional months of Houghton net sales and nine additional months

of Norman Hay net sales, totaling $90.6 million, as the

Combination closed on August 1, 2019 and the Norman Hay acquisition

closed on October 1, 2019.

Excluding Houghton and

Norman Hay net sales, the segment’s

net sales decreased by approximately 14% year-over-year

due to lower volumes of 7%,

decreases in selling price and product mix of 5% and a negative impact from foreign

currency translation of 2%.

The current year

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

specialty coatings business driven by Boeing’s

decision to

temporarily stop production of the 737 Max aircraft and volume declines

due to the economic slowdown resulting from COVID-19.

Partially offsetting these volume declines, and

contributing to the decrease in selling price and product mix, were higher shipments of

a lower priced product in the Company’s

mining business compared to 2019.

The foreign exchange impact was primarily due to the

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

in the Americas section, above.

This segment’s operating earnings

were $79.7 million, an increase of $20.8 million or 35% compared

to 2019.

The increase in segment operating earnings reflects the

inclusion of incremental Houghton and Norman Hay net sales, noted

above, coupled with an increase in gross margin due to the

Company’s progress on Combination

-related logistics, procurement and manufacturing cost savings initiatives, partially

offset by

higher SG&A, including seven additional months of Houghton

and nine additional months of Norman Hay SG&A in 2020.

Environmental Clean-up Activities

The Company is involved in environmental clean-up activities in connection

with an existing plant location and former waste

disposal sites.

This includes certain soil and groundwater contamination the

Company identified in 1992 at AC Products, Inc.

(“ACP”), a wholly owned subsidiary.

In voluntary coordination with the Santa Ana California Regional Water

Quality Board, ACP

has been remediating the contamination.

In 2007, ACP agreed to operate two groundwater treatment systems, so as to hydraulically

contain groundwater contamination emanating from ACP’s

site until such time as the concentrations of contaminants are below

the

current Federal maximum contaminant level for four consecutive

quarterly sampling events.

In 2014, ACP ceased operation at one of

its two groundwater treatment systems, as it had met the above condition

for closure.

In 2020, the Santa Ana Regional Water

Quality

Control Board asked that ACP conduct some additional indoor

and outdoor soil vapor testing on and near the ACP site to confirm that

ACP continues to meet the applicable local standards and ACP has begun the

testing program.

Such testing began in 2020 and

continued into 2021.

As of December 31, 2021, ACP believes it is close to meeting the conditions for closure

of the remaining

groundwater treatment system but continues to operate this system while in

discussions with the relevant authorities.

As of December

31, 2021, the Company believes that the range of potential-known

liabilities associated with the balance of the ACP water remediation

program is approximately $0.1 million to $1.0 million.

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

treatment system as determined by groundwater modeling.

The Company is party to environmental matters related to certain domestic

and foreign properties.

The Company’s Sao Paulo,

Brazil site was required under Brazilian environmental, health and

safety regulations to perform an environmental assessment as part

of a permit renewal process.

Initial investigations identified soil and ground water contamination in

select areas of the site.

The site

has conducted a multi-year soil and groundwater investigation and

corresponding risk assessments based on the result of the

investigations.

In 2017, the site had to submit a new 5-year permit renewal request and was asked to

complete additional

investigations to further delineate the site based on review of the technical

data by the local regulatory agency,

Companhia Ambiental

do Estado de São Paulo (“CETESB”).

Based on review of the updated investigation data, CETESB issued a Technical

Opinion

regarding the investigation and remedial actions taken to date.

The site developed an action plan and submitted it to CETESB in 2018

based on CETESB requirements.

The site intervention plan primarily requires the site, among other actions,

to conduct periodic

monitoring for methane in soil vapors, source zone delineation, groundwater

plume delineation, bedrock aquifer assessment, update

the human health risk assessment, develop a current site conceptual model

and conduct a remedial feasibility study and provide a

revised intervention plan.

In 2019, the site submitted a report on the activities completed including the revised

site conceptual model

and results of the remedial feasibility study and recommended remedial

strategy for the site.

Other environmental matters include

participation in certain payments in connection with four currently

active environmental consent orders related to certain hazardous

waste cleanup activities under the U.S. Federal Superfund statute.

The Company has been designated a potentially responsible party

(“PRP”) by the Environmental Protection Agency along with other

PRPs depending on the site, and has other obligations to perform

cleanup activities at certain other foreign subsidiaries.

These environmental matters primarily require the Company to perform

long-

term monitoring as well as operating and maintenance at each of the applicable

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 present value range

of costs for these environmental matters, on a

discounted basis, to be between approximately $5.0 million and $6.0

million as of December 31, 2021, for which $5.6 million is

accrued within other accrued liabilities and other non-current liabilities on

the Company’s Consolidated

Balance Sheet as of

December 31, 2021.

Comparatively, as of

December 31, 2020, the Company had $6.0 million accrued with respect

to these matters.

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

outcome of other unrelated environmental matters, that

it has made adequate accruals for costs associated with other environmental

problems of which it is aware.

Approximately $0.4

million and $0.1 million were accrued as of December 31, 2021

and 2020, respectively, to provide for

such anticipated future

environmental assessments and remediation costs.

Notwithstanding the foregoing, the Company cannot be certain that

future liabilities in the form of remediation expenses and

damages will not exceed amounts reserved.

See Note 26 of Notes to Consolidated Financial Statements in Item 8 of this Report

General

See Item 7A of this Report, below,

for further discussion of certain quantitative and qualitative disclosures

about market risk.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Quaker Houghton is exposed to the impact of interest rates, foreign

currency fluctuations, changes in commodity prices, and

credit risk.

The current economic environment associated with COVID-19 has led to significant volatility

and uncertainty with each

of these market risks.

See Item 1A. “Risk Factors.” of this Report for additional discussions of

the current and potential risks

associated with the COVID-19 pandemic.

Except as otherwise disclosed below,

the market risks discussed below did not change

materially from December 31, 2020.

Interest Rate Risk.

The Company’s exposure

to changes in interest rates relates primarily to its borrowings under the Credit

Facility.

Borrowings under the Credit Facility bear interest at a specified benchmark

plus an applicable margin based upon the

Company’s consolidated

net leverage ratio and the currency of the borrowing.

In December 2021, the Company entered into the

Second Amendment to provide an update for the use of a non-USD currency LIBOR successor

rate.

At this time, it remains uncertain

what rate will succeed LIBOR for loans denominated in U.S. dollars.

As a result of the variable interest rates applicable under the

Credit Facility, including

with respect to any future successor rate if interest rates rise significantly,

the cost of debt to the Company

could increase as well.

This could have an adverse effect on the Company,

depending on the extent of the Company’s

borrowings

outstanding throughout a given year.

As of December 31, 2021, the Company had outstanding borrowings under

the Credit Facility of

approximately $889.6 million.

The variable interest rate incurred on the outstanding borrowings under

the Credit Facility during the

year ended December 31, 2021 was approximately 1.6%.

If interest rates had changed by 10% during 2021, the Company’s

interest

expense for the period ended December 31, 2021 on its credit facilities, including

the Credit Facility borrowings outstanding post-

closing of the Combination, would have correspondingly

increased or decreased by approximately $0.8 million.

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 December 31, 2021, the aggregate

interest rate on the swaps, including the fixed base rate

plus an applicable margin, was 3.1%.

These interest rate swaps are designated and qualify as cash flow hedges.

The Company has

previously used derivative financial instruments primarily for the

purpose of hedging exposures to fluctuations in interest rates.

Foreign Exchange

Risk

A significant portion of the Company’s

revenues and earnings are generated by its foreign operations.

These foreign operations also represent a significant portion of Quake

Houghton’s assets and liabilities.

Generally, all of these

foreign operations use the local currency as their functional currency.

Accordingly, Quaker Houghton’s

financial results are affected

by foreign currency fluctuations, particularly between the U.S. dollar

and the euro, the British pound sterling, the Brazilian real, the

Mexican peso, the Chinese renminbi and the Indian rupee.

Quaker Houghton’s results can

be materially affected depending on the

volatility and magnitude of foreign exchange rate changes.

If the euro, the British pound sterling, the Brazilian real, the Mexican

peso, the Chinese renminbi and the Indian rupee had all weakened or strengthened

by 10% against the U.S. dollar, the Company’s

2021 revenues and pre-tax earnings would have correspondingly

decreased or increased by approximately $98.8 million and $11.7

million, respectively.

The Company generally does not use financial instruments that expose

it to significant risk involving foreign currency

transactions.

However, the size of its non-U.S. activities has a significant

impact on reported operating results and the attendant net

assets.

During the past three years, sales by its non-U.S. subsidiaries accounted

for approximately 60% to 70% of its consolidated net

sales.

In addition, the Company occasionally sources inventory among

its worldwide operations.

This practice can give rise to

foreign exchange risk resulting from the varying cost of inventory to the receiving

location, as well as from the revaluation of

intercompany balances.

The Company primarily mitigates this risk through local sourcing efforts.

Commodity Price Risk

Many of the raw materials used by Quaker Houghton are

derivatives of commodity chemicals, which can

experience significant price volatility,

and therefore Quaker Houghton’s

earnings can be materially affected by market changes in raw

material prices.

At times, the Company has entered into fixed-price purchase contracts to manage

this risk.

These contracts provide

protection to Quaker Houghton if the prices for the contracted raw materials

rise; however, in certain circumstances, the Company

may not realize the benefit if such prices decline.

A gross margin change of one percentage point, would correspondingly

have

increased or decreased the Company’s

pre-tax earnings by approximately $17.6 million.

Credit Risk

Quaker Houghton establishes allowances for doubtful

accounts for estimated losses resulting from the inability of its

customers to make required payments.

If the financial condition of Quaker Houghton’s

customers were to deteriorate, resulting in an

impairment of their ability to make payments, additional allowances might

be required.

Downturns in the overall economic climate

may also exacerbate specific customer financial issues.

A significant portion of the Company’s

revenues are derived from sales to

customers in the steel and automotive industries, including some of

our larger customers, where bankruptcies have occurred

in the past

and where companies have experienced past financial difficulties.

Though infrequent, when a bankruptcy occurs, Quaker Houghton

must judge the amount of proceeds, if any,

that may ultimately be received through the bankruptcy or liquidation process.

In addition, as part of its terms of trade, Quaker Houghton may custom

manufacture products for certain large customers and/or

may ship product on a consignment basis.

These practices may increase the Company’s

exposure should a bankruptcy occur and may

require a write-down or disposal of certain inventory due to its estimated obsolescence

or limited marketability as well as of accounts

receivable.

Customer returns of products or disputes may also result in similar issues related to

the realizability of recorded accounts

receivable or returned inventory.

The Company recorded expense to its provision for doubtful accounts by $0.7

million, $3.6 million

and $1.9 million for the years ended December 31, 2021, 2020 and 2019,

respectively.

A change of 10% to the expense recorded to

the Company’s provision would

have increased or decreased the Company’s

pre-tax earnings by $0.1 million, $0.4 million and $0.2

million for the years ended December 31, 2021, 2020 and 2019, respectively.

Item 8.

Financial Statements and Supplementary Data.

QUAKER CHEMICAL CORPORATION

INDEX TO CONSOLIDATED

FINANCIAL STATEMENTS

Page

Financial Statements:

Report of Independent Registered Public Accounting Firm

(PCAOB ID

238

)

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Equity

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of

Directors and Shareholders of Quaker Chemical Corporation

Opinions on the Financial Statements and Internal Control over

Financial Reporting

We have audited

the accompanying consolidated balance sheets of Quaker Chemical Corporation

and its subsidiaries (the

“Company”) as of December 31, 2021 and 2020, and the related consolidated

statements of income, of comprehensive income, of

changes in equity and of cash flows for each of the three years in the period ended December

31, 2021, including the related notes

(collectively referred to as the “consolidated financial statements”).

We also have audited

the Company's internal control over

financial reporting as of December 31, 2021, based on criteria established in Internal

Control - Integrated Framework (2013) issued by

the Committee of Sponsoring Organizations of

the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present

fairly, in all material respects, the financial

position of

the Company as of December 31, 2021 and 2020, and the results of its operations

and its cash flows for each of the three years in the

period ended December 31, 2021 in conformity with accounting principles

generally accepted in the United States of America.

Also

in our opinion, the Company maintained, in all material respects, effective

internal control over financial reporting as of December 31,

2021, based on criteria established in Internal Control - Integrated Framework

(2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated

financial statements, for maintaining effective internal control

over

financial reporting, and for its assessment of the effectiveness of

internal control over financial reporting, included in Management's

Report on Internal Control over Financial Reporting appearing under

Item 9A.

Our responsibility is to express opinions on the

Company’s consolidated

financial statements and on the Company's internal control over financial reporting based

on our audits.

are a public accounting firm registered with the Public Company Accounting Oversight

Board (United States) (PCAOB) and are

required to be independent with respect to the Company in accordance with

the U.S. federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted

our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the

audits to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether

due to error or fraud, and whether effective

internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures

to assess the risks of material misstatement of the

consolidated financial statements, whether due to error or fraud, and

performing procedures that respond to those risks.

Such

procedures included examining, on a test basis, evidence regarding the amounts

and disclosures in the consolidated financial

statements.

Our audits also included evaluating the accounting principles used

and significant estimates made by management, as well

as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting

included obtaining an understanding of internal control over financial reporting,

assessing the risk that a material weakness exists, and

testing and evaluating the design and operating effectiveness of

internal control based on the assessed risk.

Our audits also included

performing such other procedures as we considered necessary in the circumstances.

We believe that our

audits provide a reasonable

basis for our opinions.

As described in Management’s Report

on Internal Control over Financial Reporting, management has excluded

Baron Industries and

Grindaix GmbH from its assessment of internal control over financial reporting

as of December 31, 2021 because they were acquired

by the Company in purchase business combinations during 2021.

We have also excluded Baron

Industries and Grindaix from our

audit of internal control over financial reporting.

Baron Industries and Grindaix are wholly-owned subsidiaries whose total assets and

total revenues excluded from management’s

assessment and our audit of internal control over financial reporting for each entity

represent less than 1% of the related consolidated financial statement amounts

as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over

financial reporting is a process designed to provide reasonable assurance regarding

the reliability of

financial reporting and the preparation of financial statements for external

purposes in accordance with generally accepted accounting

principles.

A company’s internal control over financial

reporting includes those policies and procedures that (i) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reflect

the transactions and dispositions of the assets of the

company; (ii) provide reasonable assurance that transactions are recorded

as necessary to permit preparation of financial statements in

accordance with generally accepted accounting principles, and that receipts

and expenditures of the company are being made only in

accordance with authorizations of management and directors of the

company; and (iii) provide reasonable assurance regarding

prevention or timely detection of unauthorized acquisition, use, or disposition

of the company’s assets that could have

a material effect

on the financial statements.

Because of its inherent limitations, internal control over financial reporting

may not prevent or detect misstatements.

Also, projections

of any evaluation of effectiveness to future periods are subject

to the risk that controls may become inadequate because of changes

conditions, or that the degree of compliance with the policies or procedures

may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period

audit of the consolidated financial statements

that was communicated or required to be communicated to the audit committee and

that (i) relates to accounts or disclosures that are

material to the consolidated financial statements and (ii) involved our especially

challenging, subjective, or complex judgments.

The

communication of critical audit matters does not alter in any way our opinion

on the consolidated financial statements, taken as a

whole, and we are not, by communicating the critical audit matter below,

providing a separate opinion on the critical audit matter or

on the accounts or disclosures to which it relates.

Houghton Trademarks and

Tradename – Annual Impairment Assessment

As described in Note 16 to the consolidated financial statements, the Company’s

consolidated other intangible assets, net balance was

$1,027.8 million as of December 31, 2021, and the indefinite-lived

intangible asset was $196.9 million, which substantially relates to

the Houghton trademarks and tradename.

Management completes its annual indefinite-lived intangible asset impairment test during

the fourth quarter of each year, or more frequently

if triggering events indicate a possible impairment.

Management completed its

annual impairment assessment during the fourth quarter of 2021 for the Houghton

trademarks and tradename and concluded no

impairment charge was warranted.

The determination of estimated fair value of the Houghton trademarks and

tradename is based on a

relief from royalty valuation method, which requires management’s

judgment and often involves the use of significant estimates and

assumptions with respect to the weighted average cost of capital and royalty rates,

as well as revenue growth rates and terminal growth

rates.

The principal considerations for our determination that performing procedures

relating to the Houghton trademarks and tradename

annual impairment assessment is a critical audit matter are (i) the significant

judgment by management when determining the fair

value of the Houghton trademarks and tradename; (ii) a high degree of

auditor judgment, subjectivity,

and effort in performing

procedures and evaluating management’s

significant assumptions related to the royalty rate, revenue growth rates, and terminal

growth rates; and (iii) the audit effort involved the use of professionals with specialized

skill and knowledge.

Addressing the matter involved performing procedures and evaluating

audit evidence in connection with forming our overall opinion

on the consolidated financial statements.

These procedures included testing the effectiveness of controls

relating to management’s

indefinite-lived intangible assets annual impairment assessment, including

controls over the valuation of the Houghton trademarks and

tradename.

These procedures also included, among others (i) testing management’s

process for determining the fair value estimate;

(ii) evaluating the appropriateness of the relief from royalty valuation

method; (iii) testing the completeness and accuracy of

underlying data used in the method; and (iv) evaluating the reasonableness

of significant assumptions related to the royalty rate,

revenue growth rates and terminal growth rates.

Evaluating management’s assumptions

related to the royalty rate, revenue growth

rates, and terminal growth rates involved evaluating whether the

assumptions used by management were reasonable considering (i) the

current and past performance of the legacy Houghton business; (ii) the consistency

with external market and industry data; and (iii)

whether these assumptions were consistent with evidence obtained in other

areas of the audit.

Professionals with specialized skill and

knowledge were used to assist in the evaluation of the relief from royalty valuation

method and the royalty rate assumption.

/s/

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

March 1, 2022

We have served

as the Company’s auditor since at least 1972.

We have not been able

to determine the specific year we began serving

as auditor of the Company.

QUAKER CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS

OF INCOME

(

Dollars in thousands, except per share data

)

Year

Ended December 31,

2021

2020

2019

Net sales

1,761,158

1,417,677

1,133,503

Cost of goods sold (excluding amortization expense - See Note 16)

1,166,518

904,234

741,386

Gross profit

594,640

513,443

392,117

Selling, general and administrative expenses

418,856

380,752

283,828

Indefinite-lived intangible asset impairment

38,000

Restructuring and related charges

1,433

5,541

26,678

Combination, integration and other acquisition-related expenses

23,885

29,790

35,477

Operating income

150,466

59,360

46,134

Other income (expense), net

18,851

(5,618)

(254)

Interest expense, net

(22,326)

(26,603)

(16,976)

Income before taxes and equity in net income of associated companies

146,991

27,139

28,904

Taxes on income

before equity in net income of associated companies

34,939

(5,296)

2,084

Income before equity in net income of associated companies

112,052

32,435

26,820

Equity in net income of associated companies

9,379

7,352

5,064

Net income

121,431

39,787

31,884

Less: Net income attributable to noncontrolling interest

129

262

Net income attributable to Quaker Chemical Corporation

121,369

39,658

31,622

Per share data:

Net income attributable to Quaker Chemical Corporation

common

shareholders – basic

6.79

2.23

2.08

Net income attributable to Quaker Chemical Corporation common

shareholders – diluted

6.77

2.22

2.08

The accompanying notes are an integral part

of these consolidated financial statements.

QUAKER CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(

Dollars in thousands

)

Year

Ended December 31,

2021

2020

2019

Net income

121,431

39,787

31,884

Other comprehensive (loss) income, net of tax

Currency translation adjustments

(46,952)

41,601

4,779

Defined benefit retirement plans

Net gain (loss) arising during the period, other

9,210

8,827

(6,289)

Amortization of actuarial loss

1,078

2,308

2,458

Amortization of prior service gain

(69)

(151)

Current period change in fair value of derivatives

2,226

(3,278)

(320)

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

(2,945)

2,091

2,093

Other comprehensive (loss) income

(37,376)

51,480

2,570

Comprehensive income

84,055

91,267

34,454

Less: Comprehensive income attributable to noncontrolling

interest

(78)

(37)

(287)

Comprehensive income attributable to Quaker Chemical Corporation

83,977

91,230

34,167

The accompanying notes are an integral part

of these consolidated financial statements.

QUAKER CHEMICAL CORPORATION

CONSOLIDATED

BALANCE SHEETS

(

Dollars in thousands, except par value

)

December 31,

2021

2020

ASSETS

Current assets

Cash and cash equivalents

165,176

181,833

Accounts receivable, net

430,676

372,974

Inventories, net

264,531

187,764

Prepaid expenses and other current assets

59,871

50,156

Total current

assets

920,254

792,727

Property, plant and equipment,

net

197,520

203,883

Right of use lease assets

36,635

38,507

Goodwill

631,194

631,212

Other intangible assets, net

1,027,782

1,081,358

Investments in associated companies

95,278

95,785

Deferred tax assets

16,138

16,566

Other non-current assets

30,959

31,796

Total assets

2,955,760

2,891,834

LIABILITIES AND EQUITY

Current liabilities

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

56,935

38,967

Accounts payable

226,656

191,821

Dividends payable

7,427

7,051

Accrued compensation

38,197

43,300

Accrued restructuring

4,087

8,248

Accrued pension and postretirement benefits

1,548

1,466

Other accrued liabilities

95,617

92,107

Total current

liabilities

430,467

382,960

Long-term debt

836,412

849,068

Long-term lease liabilities

26,335

27,070

Deferred tax liabilities

179,025

192,763

Non-current accrued pension and postretirement benefits

45,984

63,890

Other non-current liabilities

49,615

55,169

Total liabilities

1,567,838

1,570,920

Commitments and contingencies (Note 26)

Equity

Common stock, $

par value; authorized

30,000,000

shares; issued and outstanding

2021 –

17,897,033

shares; 2020 –

17,850,616

17,897

17,851

Capital in excess of par value

917,053

905,171

Retained earnings

516,334

423,940

Accumulated other comprehensive loss

(63,990)

(26,598)

Total Quaker

shareholders’ equity

1,387,294

1,320,364

Noncontrolling interest

628

550

Total equity

1,387,922

1,320,914

Total liabilities and equity

2,955,760

2,891,834

The accompanying notes are an integral part

of these consolidated financial statements.

QUAKER CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS

OF CASH FLOWS

(

Dollars in thousands

)

Year Ended

December 31,

2021

2020

2019

Cash flows from operating activities

Net income

121,431

39,787

31,884

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of debt issuance costs

4,749

1,979

Depreciation and amortization

86,550

83,246

44,895

Equity in undistributed earnings of associated companies, net of dividends

(8,971)

4,862

(2,115)

Acquisition-related fair value adjustments related to inventory

801

229

11,714

Deferred income taxes

(12,506)

(38,281)

(24,242)

Uncertain tax positions (non-deferred portion)

(922)

1,075

958

Non-current income taxes payable

856

Deferred compensation and other, net

(5,325)

(471)

(6,789)

Share-based compensation

11,038

10,996

4,861

(Gain) loss on disposal of property, plant, equipment and other assets

(4,695)

871

(58)

Insurance settlement realized

(1,035)

(822)

Indefinite-lived intangible asset impairment

38,000

Gain on inactive subsidiary litigation and settlement reserve

(18,144)

Combination and other acquisition-related expenses, net of payments

(1,974)

860

(14,414)

Restructuring and related charges

1,433

5,541

26,678

Pension and other postretirement benefits

(6,330)

16,535

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

liabilities, net of acquisitions:

Accounts receivable

(67,473)

17,170

19,926

Inventories

(84,428)

(3,854)

10,844

Prepaid expenses and other current assets

(21,174)

927

(4,640)

Change in restructuring liabilities

(5,266)

(15,745)

(8,899)

Accounts payable and accrued liabilities

37,998

22,308

(8,915)

Estimated taxes on income

3,997

8,763

(1,373)

Net cash provided by operating activities

48,933

178,389

82,374

Cash flows from investing activities

Investments in property, plant and equipment

(21,457)

(17,901)

(15,545)

Payments related to acquisitions, net of cash acquired

(42,417)

(56,230)

(893,412)

Proceeds from disposition of assets

14,744

2,702

103

Insurance settlement interest earned

222

Net cash used in investing activities

(49,130)

(71,385)

(908,632)

Cash flows from financing activities

Payments of long-term debt

(38,011)

(37,615)

Proceeds from term loan debt

750,000

Borrowings (repayments) on revolving credit facilities, net

53,031

(11,485)

147,135

Repayments on other debt, net

(776)

(661)

(8,798)

Financing-related debt issuance costs

(23,747)

Dividends paid

(28,599)

(27,563)

(21,830)

Stock options exercised, other

890

3,867

1,370

Purchase of noncontrolling interest in affiliates

(1,047)

Distributions to noncontrolling affiliate shareholders

(751)

Net cash (used in) provided by financing activities

(13,465)

(75,255)

844,130

Effect of foreign exchange rate changes on cash

(3,057)

6,591

1,258

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

(16,719)

38,340

19,130

Cash, cash equivalents and restricted cash at the beginning of the period

181,895

143,555

124,425

Cash, cash equivalents and restricted cash at the end of the period

165,176

181,895

143,555

Supplemental cash flow disclosures:

Cash paid during the year for:

Income taxes, net of refunds

34,775

20,253

15,499

Interest

19,298

23,653

19,553

Non-cash activities:

Change in accrued purchases of property, plant and equipment, net

2,132

(1,376)

1,978

The accompanying notes are an integral part

of these consolidated financial statements.

QUAKER CHEMICAL CORPORATION

CONSOLIDATED STATEMENTS

OF CHANGES IN EQUITY

(

Dollars in thousands, except per share amounts

)

Accumulated

Capital in

other

Common

excess of

Retained

comprehensive

Noncontrollin

stock

par value

earnings

loss

interest

Total

Balance as of December 31, 2018

13,338

97,304

405,125

(80,715)

1,317

436,369

Cumulative effect of an accounting change

(44)

Balance as of January 1, 2019

13,338

97,304

405,081

(80,715)

1,317

436,325

Net income

31,622

262

31,884

Amounts reported in other comprehensive

income

2,545

2,570

Dividends declared ($

1.525

per share)

(23,724)

Shares issued related to the Combination

4,329

784,751

789,080

Shares issued upon exercise of stock options

and other

871

894

Shares issued for employee stock purchase plan

473

476

Share-based compensation plans

4,819

4,861

Balance as of December 31, 2019

17,735

888,218

412,979

(78,170)

1,604

1,242,366

Cumulative effect of an accounting change

(911)

Balance as of January 1, 2020

17,735

888,218

412,068

(78,170)

1,604

1,241,455

Net income

39,658

129

39,787

Amounts reported in other comprehensive

income (loss)

51,572

(92)

51,480

Dividends declared ($

1.56

per share)

(27,786)

Acquisition of noncontrolling interest

(707)

(340)

(1,047)

Distributions to noncontrolling affiliate

shareholders

(751)

Shares issued upon exercise of stock options

and other

6,714

6,780

Share-based compensation plans

10,946

10,996

Balance as of December 31, 2020

17,851

905,171

423,940

(26,598)

550

1,320,914

Net income

121,369

121,431

Amounts reported in other comprehensive

(loss) income

(37,392)

(37,376)

Dividends declared ($

1.62

per share)

(28,975)

Shares issued upon exercise of stock options

and other

1,677

1,694

Share-based compensation plans

10,205

10,234

Balance as of December 31, 2021

17,897

917,053

516,334

(63,990)

628

1,387,922

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

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Note 1 – Significant Accounting Policies

As used in these Notes to 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 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”).

Principles of consolidation:

All majority-owned subsidiaries are included in the Company’s

consolidated financial statements,

with appropriate elimination of intercompany balances and transactions.

Investments in associated companies (less than majority-

owned and in which the Company has significant influence) are accounted

for under the equity method.

The Company’s share of net

income or losses in these investments in associated companies is included in

the Consolidated Statements of Income.

The Company

periodically reviews these investments for impairments and, if necessary,

would adjust these investments to their fair value when a

decline in market value or other impairment indicators are deemed to be other

than temporary.

See Note 17 of Notes to Consolidated

Financial Statements.

The Company is not the primary beneficiary of any variable interest entities (“VIEs”)

and therefore the

Company’s consolidated

financial statements do not include the accounts of any VIEs.

Translation of foreign

currency:

Assets and liabilities of non-U.S. subsidiaries and associated companies are translated into

U.S. dollars at the respective rates of exchange prevailing at the end of the year.

Income and expense accounts are translated at

average exchange rates prevailing during the year.

Translation adjustments resulting from this process are

recorded directly in equity

as accumulated other comprehensive (loss) income (“AOCI”) and

will be included as income or expense only upon sale or liquidation

of the underlying entity or asset.

Generally, all of the Company’s

non-U.S. subsidiaries use their local currency as their functional

currency.

Cash and cash equivalents:

The Company invests temporary and excess funds in money market securities and financial

instruments having maturities within 90 days. The Company considers all highly liquid investments with original maturities of three

months or less to be cash equivalents.

The Company has not experienced losses from the aforementioned

investments.

Accounts receivable and allowance for doubtful accounts:

Trade accounts receivable subject the Company to credit risk.

Trade accounts receivable are recorded at the

invoiced amount and generally do not bear interest.

The allowance for doubtful

accounts is the Company’s best estimate of

the amount of expected credit losses with its existing accounts receivable.

The Company

adopted ASU 2016-13,

Financial Instruments - Credit Losses (Topic

326): Measurement of Credit

Losses on Financial Instruments

a modified retrospective basis, effective January 1, 2020.

The Company recognizes an allowance for credit losses, which represents

the portion of the receivable that the Company does not

expect to collect over its contractual life, considering past events and reasonable

and supportable forecasts of future economic

conditions.

The Company’s allowance for credit losses on

its trade accounts receivable is based on specific collectability facts and

circumstances for each outstanding receivable and customer,

the aging of outstanding receivables, and the associated collection risk

the Company estimates for certain past due aging categories, and also,

the general risk to all outstanding accounts receivable based on

historical amounts determined to be uncollectible.

The Company does not have any off-balance-sheet credit exposure related

to its

customers.

See Note 13 of Notes to Consolidated Financial Statements.

Inventories:

Inventories are valued at the lower of cost or net realizable value,

and are valued using the first-in, first-out method.

See Note 14 of Notes to Consolidated Financial Statements.

Right of use lease assets and lease liabilities:

The Company determines if an arrangement is a lease at its inception.

This

determination generally depends on whether the arrangement conveys

the right to control the use of an identified fixed asset explicitly

or implicitly for a period of time in exchange for consideration.

Control of an underlying asset is conveyed if the Company obtains

the rights to direct the use of, and obtains substantially all of the economic benefits from

the use of, the underlying asset.

Lease

expense for variable leases and short-term leases is recognized when

the obligation is incurred.

The lease term for all of the Company’s

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

covered by an option to extend the lease that the Company is reasonably certain

it will exercise.

Operating leases are included in right

of use lease assets, other accrued liabilities and long-term lease liabilities on the Consolidated

Balance Sheet.

Right of use lease assets

and liabilities are recognized at each lease’s

commencement date based on the present value of its lease payments over its respective

lease term.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

The Company uses the stated borrowing rate for a lease when readily determinable.

When a stated borrowing rate is not available

in a lease agreement, the Company uses its incremental borrowing rate

based on information available at the lease’s

commencement

date to determine the present value of its lease payments.

In determining the incremental borrowing rate used to present value each

its leases, the Company considers certain information including fully

secured borrowing rates readily available to the Company and its

subsidiaries.

The Company has immaterial finance leases, which are included in

Property, plant and equipment (“PP&E”)

current

portion of long-term debt and long-term debt on the Consolidated Balance

Sheet.

Long-lived assets:

PP&E is stated at gross cost, less accumulated depreciation.

Depreciation is computed using the straight-

line method on an individual asset basis over the following estimated useful lives: buildings

and improvements,

years; and

machinery and equipment,

years.

The carrying values of long-lived assets are evaluated whenever changes in circumstances

current events indicate the carrying amount of such assets may not be

recoverable.

An estimate of undiscounted cash flows produced

by the asset, or the appropriate group of assets, is compared with the carrying value to

determine whether an impairment exists.

necessary, the Company

recognizes an impairment loss for the difference between the carrying

amount of the assets and their

estimated fair value.

Fair value is based on current and anticipated future cash flows.

Upon sale or other dispositions of long-lived

assets, the applicable amounts of asset cost and accumulated depreciation

are removed from the accounts and the net amount, less

proceeds from disposals, is recorded in the Consolidated Statements of Income.

Expenditures for renewals or improvements that

increase the estimated useful life or capacity of the assets are capitalized, whereas

expenditures for repairs and maintenance are

expensed when incurred.

See Notes 9 and 15 of Notes to Consolidated Financial Statements.

Capitalized software:

The Company capitalizes certain costs in connection with developing or obtaining

software for internal

use, depending on the associated project.

These costs are amortized over a period of

years once the assets are ready for their

intended use.

In connection with the implementations and upgrades to the Company’s

global transaction, consolidation and other

related systems, approximately $

3.6

million and $

2.3

million of net costs were capitalized in PP&E on the Company’s

Consolidated

Balance Sheets at December 31, 2021 and 2020, respectively.

Goodwill and other intangible assets:

The Company records goodwill, definite-lived intangible

assets and indefinite-lived

intangible assets at fair value at the date of acquisition.

Goodwill and indefinite-lived intangible assets are not amortized but

tested for

impairment at least annually.

These tests will be performed more frequently if triggering events indicate

potential impairment.

Definite-lived intangible assets are amortized on a straight-line basis over their estimated

useful lives, generally for periods ranging

from

years.

The Company continually evaluates the reasonableness of the useful lives of these assets, consistent

with the

discussion of long-lived assets, above.

See Note 16 of Notes to Consolidated Financial Statements.

Revenue recognition:

The Company applies the Financial Accounting Standards Board’s

(“FASB’s”)

guidance on revenue

recognition which requires the Company to recognize revenue in an amount

that reflects the consideration to which the Company

expects to be entitled in exchange for goods or services transferred

to its customers.

To do this, the Company

applies the five-step

model in the FASB’s

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

with a customer; (ii) identify the performance

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

the transaction price to the performance obligations in the

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

obligation.

The Company identifies a contract with a customer when a sales agreement indicates

approval and commitment of the parties;

identifies the rights of the parties; identifies the payment terms; has commercial

substance; and it is probable that the Company will

collect the consideration to which it will be entitled in exchange for the goods

or services that will be transferred to the customer.

The Company identifies a performance obligation in a contract for each promised

good or service that is separately identifiable

from other obligations in the contract and for which the customer can benefit

from the good or service either on its own or together

with other resources that are readily available to the customer.

The Company determines the transaction price as the amount of

consideration it expects to be entitled to in exchange for fulfilling the performance

obligations, including the effects of any variable

consideration, significant financing elements, amounts payable to the customer

or noncash consideration.

For any contracts that have

more than one performance obligation, the Company allocates the transaction

price to each performance obligation in an amount that

depicts the amount of consideration to which the Company expects to be entitled

in exchange for satisfying each performance

obligation.

In accordance with the last step of the FASB’s

guidance, the Company recognizes revenue when, or as, it satisfies the

performance obligation in a contract by transferring control of a promised

good or providing the service to the customer.

The

Company typically satisfies its performance obligations and recognizes

revenue at a point in time for product sales, generally when

products are shipped or delivered to the customer,

depending on the terms underlying each arrangement.

In circumstances where the

Company’s products are on

consignment, revenue is generally recognized upon usage or consumption by the customer.

For any

Fluidcare

or other services provided by the Company to the customer,

the Company typically satisfies its performance obligations

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

and recognizes revenue over time, as the promised services are performed.

The Company uses input methods to recognize revenue

over time related to these services, including labor costs and time incurred.

The Company believes that these input methods represent

the most indicative measure of the Fluidcare

or other service work performed by the Company.

The Company does not have standard payment terms for all customers,

however the Company’s general

payment terms require

customers to pay for products or services provided after the performance

obligation is satisfied.

The Company does not have

significant financing arrangements with its customers.

Therefore, the Company does not adjust the promised amount of consideration

for the effects of a significant financing component as the Company

expects, at contract inception, that the period between when the

Company transfers a promised good or service to the customer and when the

customer pays for that good or service will be one year or

less.

In addition, the Company expenses costs to obtain a contract as incurred

when the expected period of benefit, and therefore the

amortization period, is one year or less.

In addition, the Company excludes from the measurement of the transaction price all taxes

assessed by a governmental authority that are both imposed on and concurrent

with a specific revenue-producing transaction and

collected by the entity from a customer,

including sales, use, value added, excise and various other taxes.

Lastly, the Company has

elected to account for shipping and handling activities that occur after the

customer has obtained control of a good as a fulfilment cost,

rather than an additional promised service.

The Company does not have significant amounts of variable consideration in

its contracts

with customers and where applicable, the Company’s

estimates of variable consideration are not constrained.

The Company records certain third-party license fees in other income

(expense), net, in its Consolidated Statement of Income,

which generally include sales-based royalties in exchange for the license of

intellectual property.

These license fees are recognized in

accordance with their agreed-upon terms and when performance obligations are

satisfied, which is generally when the third party has a

subsequent sale.

The Company recognizes a contract asset or receivable on its Consolidated Balance Sheet

when the Company performs a service

or transfers a good in advance of receiving consideration.

A receivable is the Company’s right to consideration

that is unconditional

and only the passage of time is required before payment of that consideration

is due.

A contract asset is the Company’s right

consideration in exchange for goods or services that the Company has transferred

to a customer.

A contract liability is recognized when the Company receives consideration,

or if it has the unconditional right to receive

consideration, in advance of performance.

A contract liability is the Company’s

obligation to transfer goods or services to a customer

for which the Company has received consideration, or a specified amount

of consideration is due, from the customer.

See Note 5 of Notes to Consolidated Financial Statements.

Research and development costs:

Research and development costs are expensed as incurred and are included

in selling, general

and administrative expenses (“SG&A”).

Research and development expenses were $

44.9

million, $

40.0

million and $

32.1

million for

the years ended December 31, 2021, 2020 and 2019, respectively.

Environmental liabilities and expenditures:

Accruals for environmental matters are recorded when it is probable

that a liability

has been incurred and the amount of the liability can be reasonably estimated.

If there is a range of estimated liability and no amount

in that range is considered more probable than another,

then the Company records the lowest amount in the range in accordance with

generally accepted accounting principles in the United States (“U.S. GAAP”).

Environmental costs and remediation costs are

capitalized if the costs extend the life, increase the capacity or improve

safety or efficiency of the property from the date acquired or

constructed, and/or mitigate or prevent contamination in the future.

See Note 26 of Notes to Consolidated Financial Statements.

Asset retirement obligations:

The Company follows the FASB’s

guidance regarding asset retirement obligations, which

addresses the accounting and reporting for obligations associated with the

retirement of tangible long-lived assets and the associated

retirement costs.

Also, the Company follows the FASB’s

guidance for conditional asset retirement obligations (“CARO”),

which

relates to legal obligations to perform an asset retirement activity in which

the timing and (or) method of settlement are conditional on

a future event that may or may not be within the control of the entity.

In accordance with this guidance, the Company records a

liability when there is enough information regarding the timing of the CARO to perform

a probability-weighted discounted cash flow

analysis.

As of December 31, 2021 and 2020, the Company had limited exposure

to such obligations and had immaterial liabilities

recorded for such on its Consolidated Balance Sheets.

Pension and other postretirement benefits:

The Company maintains various noncontributory retirement plans,

covering a

portion of its employees in the U.S. and certain other countries, including

the Netherlands, the United Kingdom (“U.K.”), Mexico,

Sweden, Germany and France.

These retirement plans are subject to the provisions of FASB’s

guidance regarding employers’

accounting for defined benefit pension plans.

The plans of the remaining non-U.S. subsidiaries are, for the most part, either

fully

insured or integrated with the local governments’ plans and are not subject

to the provisions of the guidance.

The guidance requires

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

that employers recognize on a prospective basis the funded status of their

defined benefit pension and other postretirement plans on

their consolidated balance sheet and, also, recognize as a component of AOCI,

net of tax, the gains or losses and prior service costs or

credits that arise during the period but are not recognized as components of

net periodic benefit cost.

In addition, the guidance

requires that an employer recognize a settlement charge in

their consolidated statement of income when certain events occur,

including plan termination or the settlement of certain plan liabilities.

A settlement charge represents the immediate recognition

into

expense of a portion of the unrecognized loss within AOCI on the balance sheet in

proportion to the share of the projected benefit

obligation that was settled.

The measurement date for the Company’s

postretirement benefits plan is December 31.

The Company’s global pension

investment policies are designed to ensure that pension assets are invested in a manner

consistent

with meeting the future benefit obligations of the pension plans and maintaining

compliance with various laws and regulations

including the Employee Retirement Income Security Act of 1974.

The Company establishes strategic asset allocation percentage

targets and benchmarks for significant asset classes with the aim of

achieving a prudent balance between return and risk.

The

Company’s investment horizon

is generally long term, and, accordingly,

the target asset allocations encompass a long-term

perspective of capital markets, expected risk and return and perceived future

economic conditions while also considering the profile of

plan liabilities.

To the extent feasible,

the short-term investment portfolio is managed to match the short

-term obligations, the

intermediate portfolio duration is matched to reduce the risk of volatility in

intermediate plan distributions, and the total return

portfolio is managed to maximize the long-term real growth of plan

assets.

The critical investment principles of diversification,

assessment of risk and targeting the optimal expected returns for

given levels of risk are applied.

The Company’s investment

guidelines prohibit the use of securities such as letter stock and other unregistered

securities, commodities or commodity contracts,

short sales, margin transactions, private placements

(unless specifically addressed by addendum), or any derivatives, options or futures

for the purpose of portfolio leveraging.

The target asset allocation is reviewed periodically and is determined

based on a long-term projection of capital market outcomes,

inflation rates, fixed income yields, returns, volatilities and correlation

relationships.

The interaction between plan assets and benefit

obligations is periodically studied to assist in establishing such strategic asset allocation

targets.

Asset performance is monitored with

an overall expectation that plan assets will meet or exceed benchmark performance

over rolling five year periods.

The Company’s

pension committee, as authorized by the Company’s

Board of Directors (the “Board”), has discretion to manage the assets within

established asset allocation ranges approved by senior management

of the Company.

See Note 21 of Notes to Consolidated Financial

Statements.

Comprehensive income (loss):

The Company presents other comprehensive income (loss) in its Statements of Comprehensive

Income.

The Company follows the FASB’s

guidance regarding the disclosure of reclassifications from AOCI

which requires the

disclosure of significant amounts reclassified from each component of

AOCI, the related tax amounts and the income statement line

items affected by such reclassifications.

See Note 23 of Notes to Consolidated Financial Statements.

Income taxes and uncertain tax positions:

The provision for income taxes is determined using the asset and liability approach

of accounting for income taxes.

Under this approach, deferred taxes represent the future tax consequences expected

to occur when the

reported amounts of assets and liabilities are recovered or paid.

The provision for income taxes represents income taxes paid or

payable for the current year and the change in deferred taxes during the year.

Deferred taxes result from differences between the

financial and tax bases of the Company’s

assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are

enacted.

Valuation

allowances are recorded to reduce deferred tax assets when it is more likely than not

that a tax benefit will not be

realized.

The FASB’s

guidance regarding accounting for uncertainty in income taxes prescribes the

recognition threshold and

measurement attributes for financial statement recognition and measurement

of tax positions taken or expected to be taken on a tax

return.

The guidance further requires the determination of whether the benefits

of tax positions are probable or more likely than not

sustained upon audit based upon the technical merits of the tax position.

For tax positions that are determined to be more likely than

not sustained upon audit, a company recognizes the largest amount

of benefit that is greater than

% likely of being realized upon

ultimate settlement in the financial statements.

For tax positions that are not determined to be more likely than not sustained upon

audit, a company does not recognize any portion of the benefit in the financial statements.

Additionally, the

Company monitors and

adjusts for derecognition, classification, and penalties and interest in interim

periods, with appropriate disclosure and transition

thereto.

Also, the amount of interest expense and income related to uncertain tax positions is computed

by applying the applicable

statutory rate of interest to the difference between the

tax position recognized, including timing differences, and the amount previously

taken or expected to be taken in a tax return.

The Company recognizes

interest and/or penalties related to income tax matters in

income tax expense.

Finally, when applicable, the

Company nets its liability for unrecognized tax benefits against deferred

tax assets

related to net operating losses or other tax credit carryforwards that would apply

if the uncertain tax position were settled for the

presumed amount at the balance sheet date.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Pursuant to the Tax Cuts and

Jobs Act (“U.S. Tax

Reform”),

specifically the one-time tax on deemed repatriation (the “Transition

Tax”),

the Company has provided for U.S. income tax on its undistributed earnings of non-U.S.

subsidiaries, however, the Company

subject to and will incur other taxes, such as withholding taxes and dividend

distribution taxes, if these undistributed earnings were

ultimately remitted to the U.S.

The Company currently intends to reinvest its future undistributed

earnings of non-U.S. subsidiaries to

support working capital needs and certain other growth initiatives of

those subsidiaries.

However, in certain cases the Company has

and may in the future change its indefinite reinvestment assertion for any or

all of these undistributed earnings.

In this case, the

Company would estimate and record a tax liability and corresponding

tax expense for the amount of non-U.S. income taxes it would

incur to ultimately remit these earnings to the U.S.

See Note 10 of Notes to Consolidated Financial Statements.

Derivatives:

The Company is exposed to the impact of changes in interest rates, foreign currency fluctuations,

changes in

commodity prices and credit risk.

The Company utilizes interest rate swap agreements to enhance its ability to manage

risk, including

exposure to variability in interest payments associated with its variable rate debt.

Derivative instruments are entered into for periods

consistent with the related underlying exposures and do not constitute positions

independent of those exposures.

As of December 31,

2021 and 2020, the Company had certain interest rate swap agreements

that were designated as cash flow hedges.

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.

The Company records these instruments

on a net basis within the Consolidated Balance Sheets.

The effective portion of the change in fair value of the agreement is recorded

in AOCI and will be recognized in the Consolidated Statements of Income when the

hedge item affects earnings or losses or it

becomes probable that the forecasted transaction will not occur.

See Note 25 of Notes to Consolidated Financial Statements.

Fair value measurements:

The Company utilizes the FASB’s

guidance regarding fair value measurements, which establishes a

common definition for fair value to be applied to guidance requiring use

of fair value, establishes a framework for measuring fair

value and expands disclosure about such fair value measurements.

Specifically, the guidance utilizes

a fair value hierarchy that

prioritizes the inputs to valuation techniques used to measure fair value

into three broad levels.

See Notes 21 and 24 of Notes to

Consolidated Financial Statements.

The following is a brief description of those three levels:

•

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical

assets or liabilities.

•

Level 2: Inputs other than quoted prices that are observable for the asset or liability,

either directly or indirectly.

These

include quoted prices for similar assets or liabilities in active markets and quoted

prices for identical or similar assets or

liabilities in markets that are not active.

•

Level 3: Unobservable inputs that reflect the reporting entity's own assumptions.

Share-based compensation:

The Company applies the FASB’s

guidance regarding share-based payments, which

requires the

recognition of the fair value of share-based compensation as a component

of expense.

The Company has a long-term incentive

program (“LTIP”)

for key employees which provides for the granting of options to purchase stock at prices not

less than its market

value on the date of the grant.

Most options become exercisable within

three years

after the date of the grant for a period of time

determined by the Company,

but not to exceed

seven years

from the date of grant.

Restricted stock awards and restricted stock units

issued under the LTIP

program are subject to time vesting generally over a

one

three year

period.

In addition, as part of the

Company’s Annual Incentive Plan,

nonvested shares may be issued to key employees, which generally would

vest over a

two

five

year period.

In addition, while the FASB’s

guidance permits the Company to make an accounting policy election

to account for forfeitures as

they occur for service condition aspects of certain share-based awards, the

Company has decided not to elect this accounting policy

and instead has elected to continue utilizing a forfeiture rate assumption.

Based on historical experience, the Company has assumed a

forfeiture rate of

% on certain of its nonvested stock awards.

The Company will record additional expense if the actual forfeiture

rate is lower than estimated and will record a recovery of prior expense if the

actual forfeiture is higher than estimated.

The Company also issues performance-dependent stock awards as a component

of its LTIP.

The fair value of the performance-

dependent stock awards is based on their grant-date market value adjusted

for the likelihood of attaining certain pre-determined

performance goals and is calculated by utilizing a Monte Carlo simulation

model.

Compensation expense is recognized on a straight-

line basis over the vesting period, generally

three years

See Note 8 of the Notes to Consolidated Financial Statements.

Earnings per share:

The Company follows the FASB’s

guidance regarding the calculation of earnings per share for nonvested

stock awards with rights to non-forfeitable dividends.

The guidance requires nonvested stock awards with rights to non-forfeitable

dividends to be included as part of the basic weighted average share calculation

under the two-class method.

See Note 11 of Notes to

Consolidated Financial Statements.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

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

See Note 4 of Notes to Consolidated Financial Statements.

Hyper-inflationary accounting:

Economies that have a cumulative three year rate of inflation exceeding

100

% are considered

hyper-inflationary in accordance with U.S. GAAP.

A legal entity that operates within an economy deemed to be hyper-inflationary

required to remeasure its monetary assets and liabilities to the applicable published

exchange rates and record the associated gains or

losses resulting from the remeasurement directly to the Consolidated Statements of

Income.

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

in Argentina as well as recent economic

instability, effective

July 1, 2018, Argentina’s

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

As of, and for the year

ended December 31, 2021, the Company's Argentine subsidiaries represented

less than

% of the Company’s consolidated total assets

and net sales, respectively.

During the years ended December 31, 2021, 2020 and 2019, the Company recorded

0.6

million, $

0.4

million, and $

1.0

million, respectively, of remeasurement

losses associated with the applicable currency conversions related to

Argentina.

Business combinations:

The Company accounts for business combinations under the acquisition method

of accounting.

This

method requires the recording of acquired assets, including separately

identifiable intangible assets, and assumed liabilities at their

respective acquisition date estimated fair values.

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

net

assets acquired is recorded as goodwill.

The determination of the estimated fair value of assets acquired and liabilities assumed

requires significant estimates and assumptions.

Based on the assessment of additional information during the measurement period,

which may be up to one year from the acquisition date, the Company may record

adjustments to the estimated fair value of assets

acquired and liabilities assumed.

See Note 2 of Notes to Consolidated Financial Statements.

Restructuring activities:

Restructuring programs consist of employee severance, rationalization of

manufacturing or other

facilities and other related items.

To account for such programs,

the Company applies FASB’s

guidance regarding exit or disposal

cost obligations.

This guidance requires that a liability for a cost associated with an exit or disposal activity

be recognized when the

liability is incurred, is estimable, and payment is probable.

See Note 7 of Notes to Consolidated Financial Statements.

Reclassifications:

Certain information has been reclassified to conform to the current year presentation.

Accounting estimates:

The preparation of financial statements in conformity with generally accepted

accounting principles

requires management to make estimates and assumptions that affect

the reported amounts of assets, liabilities and disclosure of

contingencies at the date of the financial statements and the reported amounts

of net sales and expenses during the reporting period.

Actual results could differ from such estimates.

Note 2 – Business Combinations

2021 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 currently 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, none 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 Condensed Consolidated

Financial Statements and accounted for the

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

remeasured the previously held equity method

investment to its fair value.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

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 we

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 December 31, 2021, the allocation of the purchase price of the 2021

acquisitions has not been finalized and the one year

measurement period has not ended for any of these acquisitions.

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.

The results of operations of the 2021 acquired assets and businesses subsequent

to the respective acquisition dates are included in

the Consolidated Statements of Income for the year ended December

31, 2021.

Applicable transaction expenses associated with these

acquisitions are included in Combination, integration and other acquisition

-related expenses in the Company’s 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.

2022 Acquisitions

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 reporting 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 that was initially

entered into as part of its past acquisition of Norman Hay.

Also in 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 results of operations of these two January 2022 acquisitions are not included

in the Consolidated Statements of Income

because the date of closing for each was subsequent to December 31, 2021.

Preliminary purchase price allocation of assets acquired

and liabilities assumed have not been presented as that information is not

available as of the date of these Consolidated Financial

Statements.

Houghton

In August 2019, the Company completed the Combination, whereby

the Company acquired all of the issued and outstanding

shares of Houghton from Gulf Houghton Lubricants, Ltd. and certain

other selling shareholders in exchange for a combination of cash

and shares of the Company’s common

stock in accordance with the Share Purchase Agreement dated April 4,

2017.

Commencing August 1, 2019, the Company’s

Consolidated Statements of Income included the results of Houghton.

Net sales of

Houghton subsequent to closing of the Combination and included in the Company’s

Consolidated Statements of Income for the year

ended December 31, 2019 were $

299.8

million.

The following unaudited pro forma consolidated financial information

has been

prepared as if the Combination had taken place on January 1, 2018.

The unaudited pro forma results include certain adjustments to

each company’s historical

actual results, including: (i) additional depreciation and amortization expense based

on the initial estimates

of fair value step up and estimated useful lives of depreciable fixed

assets, definite-lived intangible assets and investment in associated

companies acquired; (ii) adoption of required accounting

guidance and alignment of related accounting policies, (iii) elimination

transactions between Legacy Quaker and Houghton; (iv) elimination

of results associated with the divested product lines; (v)

adjustment to interest expense, net, to reflect the impact of the financing

and capital structure of the combined Company; and (vi)

adjustment for certain Combination,

integration and other acquisition-related costs to reflect such costs as if they were

incurred in the

period immediately following the pro-forma closing of the

Combination on January 1, 2018.

The adjustments described in (vi)

include an expense recorded in costs of goods sold (“COGS”) associated with selling

inventory acquired in the Combination which

was adjusted to fair value as part of purchase accounting, restructuring expense incurred

associated with the Company’s global

restructuring program initiated post-closing of the Combination

and certain other integration costs incurred post-closing included in

combination and other acquisition-related expenses.

These costs have been presented in the unaudited pro forma table below

as these

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

costs on a pro forma basis were incurred during the year ended December 31,

2018.

Unaudited pro forma results are not necessarily

indicative of the results that would have occurred if the acquisition had occurred

on the date indicated, or that may result in the future

for various reasons, including the potential impact of revenue and cost

synergies on the business.

For the

year ending

Unaudited Pro Forma

December 31,

(as if the Combination occurred on January 1,

2018)

2019

Net sales

1,562,427

Net income attributable to Quaker Chemical Corporation

94,537

Combination,

integration and other acquisition-related expenses have been and are expected to

continue to be significant.

The

Company incurred total costs of $

18.6

million, $

30.3

million and $

38.0

million for the years ended December 31, 2021, 2020 and

2019, respectively, related

to the Combination,

integration and other acquisition-related activities.

These costs included certain legal,

financial and other advisory and consultant costs incurred in connection with

post-closing integration activities including internal

control readiness and remediation,

as well as due diligence, regulatory approvals and closing the Combination.

These costs also

included

interest costs to maintain the bank commitment (“ticking fees”) for the Combination

during the year ended December 31,

2019,

accelerated depreciation charges during the years ended December

31, 2021, 2020 and 2019, a gain on the sale of a held-for-sale

real property during the year ended December 31, 2021, a loss on the sale of a held-for-sale

asset during the year ended December 31,

2020, and recorded income related to indemnification rights during the

years ended December 31, 2021 and 2020.

As of December

31, 2021 and 2020, the Company had current liabilities related to the Combination

and other acquisition-related activities of $

5.5

million and $

7.5

million, respectively, primarily

recorded within other accrued liabilities on its Consolidated Balance Sheets.

Other Previous Acquisitions

In December 2020, the Company completed its acquisition of Coral Chemical

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

provider of metal finishing fluid solutions.

The acquisition provides technical expertise and product solutions for pre-treatment,

metalworking and wastewater treatment applications to the beverage

cans and general industrial end markets.

The acquired Coral

assets and liabilities were assigned to the Americas and Global Specialty Businesses reportable

segments.

The original purchase price

was approximately $

54.1

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

capital and net

indebtedness levels.

The following table presents the final estimated fair values of Coral net assets acquired:

Measurement

December 22,

Period

2020

2020 (1)

Adjustments

(as adjusted)

Cash and cash equivalents

958

Accounts receivable

8,473

Inventories

4,527

Prepaid expenses and other assets

181

Property, plant and equipment

10,467

652

11,119

Intangible assets

30,300

(500)

29,800

Goodwill

2,814

804

3,618

Total assets purchased

57,720

956

58,676

Long-term debt including current portions and finance leases

183

556

739

Accounts payable, accrued expenses and other accrued liabilities

3,482

Total liabilities assumed

3,665

556

4,221

Total consideration

paid for Coral

54,055

400

54,455

Less: estimated purchase price settlement

400

Less: cash acquired

958

Net cash paid for Coral

53,097

(1)

As previously disclosed in the Company’s

2020 Form 10-K.

Measurement period adjustments recorded during the year ended December

31, 2021 include certain adjustments related to

refining original estimates for assets and liabilities for certain acquired finance

leases, as well as an adjustment to reflect the expected

settlement of post-closing working capital and net indebtedness true ups to the initial

purchase price.

The Company continues to work

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

with the seller to finalize certain post-closing adjustments and the above

table includes the Company’s best estimate

as of December

31, 2021.

As of December 31, 2021, the allocation of the purchase price for Coral has been finalized

and the

one year

measurement

period has ended.

In May 2020, the Company acquired Tel

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

in high pressure aluminum die casting for its EMEA reportable segment.

Consideration paid was in the form of a convertible

promissory note in the amount of

20.0

million DKK, or approximately $

2.9

million, which was subsequently converted into shares of

the Company’s common stock.

An adjustment to the purchase price of approximately

0.4

million DKK, or less than $

0.1

million, was

made as a result of finalizing a post-closing settlement in the second

quarter of 2020.

The Company allocated approximately $

2.4

million of the purchase price to intangible assets to be amortized over

17 years

In addition, the Company recorded approximately

0.5

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

assets, none of which will be tax deductible.

As of

December 31, 2021, the allocation of the purchase price of TEL was finalized

and the one year measurement period ended.

In March 2020, the Company acquired the remaining

% ownership interest in one of its South African affiliates, Quaker

Chemical South Africa Limited (“QSA”) for

16.7

million ZAR, or approximately $

1.0

million, from its joint venture partner PQ

Holdings South Africa.

QSA is a part of the Company’s EMEA reportable

segment.

As this acquisition was a change in an existing

controlling ownership, the Company recorded $

0.7

million of excess purchase price over the carrying value of the noncontrolling

interest in Capital in excess of par value.

In October 2019, the Company completed its acquisition of the operating

divisions of Norman Hay plc (“Norman Hay”), a private

U.K. company that provides specialty chemicals, operating equipment, and

services to industrial end markets.

The original purchase

price was

80.0

million GBP,

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

post-closing adjustments related to

working capital and net indebtedness levels.

The Company finalized its post-closing adjustments for the

Norman Hay acquisition and

paid approximately

2.5

million GBP during the first quarter of 2020 to settle such adjustments.

Note 3 – Recently Issued Accounting Standards

Recently Issued Accounting Standards

Adopted

The Financial Accounting Standards Board (“FASB”)

issued Account Standards Update (“ASU”)

ASU 2019-12

, Income Taxes

(Topic

740): Simplifying the Accounting for Income Taxes

in December 2019 to simplify the accounting for income taxes.

The

guidance within this accounting standard update removes

certain exceptions, including the exception to the incremental approach for

certain intra-period tax allocations, to the requirement to recognize

or not recognize certain deferred tax liabilities for equity method

investments and foreign subsidiaries, and to the general methodology for

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

date loss exceeds the anticipated loss for the year.

Further, the guidance simplifies the accounting related

to franchise taxes, the step

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

improvements for income taxes related to employee

stock ownership plans.

The guidance is effective for annual and interim periods beginning

after December 15, 2020.

The Company

adopted this standard,

as required, effective January 1, 2021.

There was no cumulative effect of adoption recorded within retained

earnings on January 1, 2021.

The FASB issued ASU 2020

-04

, Reference Rate Reform (Topic

848): Facilitation of the Effects of Reference Rate Reform

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

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 20 of Notes to 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.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Segment operating earnings for each of the Company’s

reportable segments are comprised of the segment’s

net sales less directly

related COGS and SG&A.

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

segment, such as certain

corporate and administrative costs, Combination, integration and other

acquisition-related expenses, and Restructuring and related

charges, are not included in segment operating earnings.

Other items not specifically identified with the Company’s

reportable

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

net.

The following tables present information about the performance of the Company’s

reportable segments for the years ended

December 31, 2021, 2020 and 2019.

2021

2020

2019

Net sales

Americas

572,643

450,161

392,121

EMEA

480,126

383,187

285,570

Asia/Pacific

388,160

315,299

247,839

Global Specialty Businesses

320,229

269,030

207,973

Total

net sales

1,761,158

1,417,677

1,133,503

2021

2020

2019

Segment operating earnings

Americas

124,863

96,379

78,297

EMEA

85,209

69,163

47,014

Asia/Pacific

96,318

88,356

67,512

Global Specialty Businesses

90,632

79,690

58,881

Total

segment operating earnings

397,022

333,588

251,704

Combination, integration and other acquisition-related expenses

(23,885)

(29,790)

(35,477)

Restructuring and related charges

(1,433)

(5,541)

(26,678)

Fair value step up of acquired inventory sold

(801)

(226)

(11,714)

Indefinite-lived intangible asset impairment

(38,000)

Non-operating and administrative expenses

(157,864)

(143,202)

(104,572)

Depreciation of corporate assets and amortization

(62,573)

(57,469)

(27,129)

Operating income

150,466

59,360

46,134

Other income (expense), net

18,851

(5,618)

(254)

Interest expense, net

(22,326)

(26,603)

(16,976)

Income before taxes and equity in net income of

associated companies

146,991

27,139

28,904

The following tables present information regarding the Company’s

reportable segments’ assets and long-lived assets, including

certain identifiable assets as well as an allocation of shared assets, as of December

31, 2021, 2020 and 2019:

2021

2020

2019

Segment assets

Americas

983,521

969,551

926,122

EMEA

714,659

697,821

688,663

Asia/Pacific

750,970

713,004

685,476

Global Specialty Businesses

506,610

511,458

550,055

Total segment assets

2,955,760

2,891,834

2,850,316

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

2021

2020

2019

Segment long-lived assets

Americas

129,321

122,302

139,170

EMEA

69,990

69,344

56,108

Asia/Pacific

123,130

119,233

126,166

Global Specialty Businesses

37,951

59,091

69,184

Total segment long-lived

assets

360,392

369,970

390,628

The following tables present information regarding the Company’s

reportable segments’ capital expenditures and depreciation for

identifiable assets for the years ended December 31, 2021, 2020 and 2019:

2021

2020

2019

Capital expenditures

Americas

9,678

6,451

6,404

EMEA

6,767

3,844

3,263

Asia/Pacific

2,264

5,688

3,857

Global Specialty Businesses

2,748

1,918

2,021

Total segment capital

expenditures

21,457

17,901

15,545

2021

2020

2019

Depreciation

Americas

12,074

12,322

7,500

EMEA

6,936

6,813

4,560

Asia/Pacific

4,596

4,672

3,458

Global Specialty Businesses

3,043

3,544

2,248

Total segment depreciation

26,649

27,351

17,766

During the years ended December 31, 2021, 2020 and 2019, the Company

had approximately $

1,198.4

million, $

963.2

million

and $

719.8

million of net sales, respectively,

attributable to non-U.S. operations.

As of December 31, 2021, 2020 and 2019, the

Company had approximately $

155.2

million, $

176.6

million and $

174.4

million of long-lived assets, respectively,

attributable to non-

U.S. operations.

Inter-segment revenue for the years ended December

31, 2021, 2020 and 2019 was $

12.2

million, $

9.1

million and $

7.3

million

for Americas, $

29.0

million, $

22.0

million and $

20.3

million for EMEA, $

1.6

million, $

0.6

million and $

0.2

million for Asia/Pacific

and $

7.4

million, $

4.7

million and $

5.4

million for Global Specialty Businesses, respectively.

However, all inter-segment transactions

have been eliminated from each reportable operating segment’s

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

Note 5 – Net Sales and Revenue Recognition

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 resulting

in net reporting of $

71.7

million, $

42.5

million and $

48.0

million for the years ended December 31, 2021, 2020 and 2019, 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.

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 Consolidated

Balance Sheets as of December 31, 2021 and 2020.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

The Company had approximately $

7.0

million and $

4.0

million of deferred revenue as of December 31, 2021 and 2020,

respectively.

During the years ended December 31, 2021 and 2020, respectively,

the Company satisfied all of the associated

performance obligations and recognized into revenue the advance payments

received and recorded as of December 31, 2020 and 2019,

respectively.

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 present disaggregated information regarding

the Company’s net sales, first by major product

lines that

represent more than

% of the Company’s consolidated net sales for any

of the years ended December 31, 2021, 2020 and 2019, and

followed then by a disaggregation of the Company’s

net sales by segment, geographic region, customer industry,

and timing of

revenue recognized for the years ended December 31, 2021, 2020 and

2019.

2021

2020

2019

Metal removal fluids

23.4

23.9

19.9

Rolling lubricants

22.2

21.8

21.9

Hydraulic fluids

13.6

13.3

13.0

Net sales for the year ending December 31, 2021

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

210,340

141,950

207,160

559,450

Metalworking and other

362,303

338,176

181,000

881,479

572,643

480,126

388,160

1,440,929

Global Specialty Businesses

186,859

80,541

52,829

320,229

759,502

560,667

440,989

1,761,158

Timing of Revenue Recognized

Product sales at a point in time

724,357

527,083

429,130

1,680,570

Services transferred over time

35,145

33,584

11,859

80,588

759,502

560,667

440,989

1,761,158

Net sales for the year ending December 31, 2020

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

163,135

107,880

168,096

439,111

Metalworking and other

287,026

275,307

147,203

709,536

450,161

383,187

315,299

1,148,647

Global Specialty Businesses

154,796

68,164

46,070

269,030

604,957

451,351

361,369

1,417,677

Timing of Revenue Recognized

Product sales at a point in time

580,663

434,549

352,917

1,368,129

Services transferred over time

24,294

16,802

8,452

49,548

604,957

451,351

361,369

1,417,677

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Net sales for the year ending December 31, 2019

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

171,784

100,605

141,870

414,259

Metalworking and other

220,337

184,965

105,969

511,271

392,121

285,570

247,839

925,530

Global Specialty Businesses

149,428

30,115

28,430

207,973

541,549

315,685

276,269

1,133,503

Timing of Revenue Recognized

Product sales at a point in time

525,802

310,274

269,228

1,105,304

Services transferred over time

15,747

5,411

7,041

28,199

541,549

315,685

276,269

1,133,503

Note 6 – Leases

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

and equipment with remaining lease terms up to

years.

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

years.

Operating lease expense is recognized on a straight-line basis over the

lease term.

Operating lease expense for the years ended

December 31, 2021, 2020 and 2019 was $

14.1

million, $

14.2

million, and $

9.4

million, respectively.

Short-term lease expense for the

years ended December 31, 2021, 2020 and 2019 was $

0.9

million, $

1.3

million and $

1.5

million, respectively.

The Company has

material variable lease costs or sublease income for the years ended

December 31, 2021, 2020 and 2019.

Cash paid for operating leases during the years ended December 31, 2021, 2020

and 2019 was $

13.9

million, $

14.1

million and

9.2

million, respectively.

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

11.1

million during

the year ended December 31, 2021.

Supplemental balance sheet information related to the Company’s

leases is as follows:

December 31,

2021

2020

Right of use lease assets

36,635

38,507

Other accrued liabilities

9,976

10,901

Long-term lease liabilities

26,335

27,070

Total operating lease liabilities

36,311

37,971

Weighted average

remaining lease term (years)

5.6

6.0

Weighted average

discount rate

4.22%

4.20%

Maturities of operating lease liabilities as of December 31, 2021 were

as follows:

December 31,

2021

For the year ended December 31, 2022

11,346

For the year ended December 31, 2023

9,041

For the year ended December 31, 2024

7,017

For the year ended December 31, 2025

5,292

For the year ended December 31, 2026

4,197

For the year ended December 31, 2027 and beyond

4,502

Total lease payments

41,395

Less: imputed interest

(5,084)

Present value of lease liabilities

36,311

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

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 is subject to change; however,

the Company currently expects reduction in headcount and site closures to

continue to occur into 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

Consolidated Statements of Income.

As described in Note 4 of Notes to 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 years ended December 31, 2021 and 2020

is as

follows:

QH Program

Accrued restructuring as of December 31, 2019

18,043

Restructuring and related charges

5,541

Cash payments

(15,745)

Currency translation adjustments

409

Accrued restructuring as of December 31, 2020

8,248

Restructuring and related charges

1,433

Cash payments

(5,266)

Currency translation adjustments

(328)

Accrued restructuring as of December 31, 2021

4,087

In connection with the plans for closure of certain manufacturing

and non-manufacturing facilities, the Company has made a

decision to make available for sale certain facilities.

During the years ended December 31, 2021 and 2020, certain of these facilities

were sold and the Company recognized a gain of $

5.4

million in 2021 and a loss of approximately $

0.6

million in 2020 which is

included within other income (expense), net on the Consolidated Statement of

Income.

Additionally, certain buildings

and land with

an aggregate book value of approximately $

0.7

million continues to be held-for-sale as of December 31, 2021

and are recorded in

prepaid expenses and other current assets on the Company’s

Consolidated Balance Sheet.

The Company will continue to evaluate for

future decisions about making certain other facilities available for

sale.

Note 8 – Share-Based Compensation

The Company recognized the following share-based compensation expense

in its Consolidated Statements

of Income for the years

ended December 31, 2021, 2020 and 2019:

2021

2020

2019

Stock options

1,235

1,491

1,448

Non-vested stock awards and restricted stock units

5,438

5,012

3,206

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

1,553

3,112

Employee stock purchase plan

Director stock ownership plan

901

541

123

Performance stock units

1,911

840

Total share-based

compensation expense

11,038

10,996

4,861

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

0.9

million, $

1.5

million and $

0.9

million during the years

ended December 31, 2021, 2020 and 2019, respectively,

recorded within Combination,

integration and other acquisition-related

expenses.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Stock Options

Stock option activity under all plans is as follows:

Weighted

Average

Exercise

Remaining

Aggregate

Number of

Price

Contractual

Intrinsic

Options

(per option)

Term

(years)

Value

Options outstanding as of January 1, 2021

110,336

143.51

Options granted

25,250

245.17

Options exercised

(22,540)

143.49

Options forfeited

(3,362)

190.65

Options outstanding as of December 31, 2021

109,684

165.47

4.8

7,550

Options expected to vest after December 31, 2021

67,680

178.10

5.4

3,929

Options exercisable as of December 31, 2021

42,004

145.12

3.9

3,621

The total intrinsic value of options exercised during the years ended December

31, 2021, 2020 and 2019 was approximately $

2.7

million, $

6.5

million and $

2.5

million, respectively.

Intrinsic value is calculated as the difference between the current

market price of

the underlying security and the strike price of a related option.

A summary of the Company’s outstanding

stock options as of December 31, 2021 is as follows:

Weighted

Average

Weighted

Number

Remaining

Average

Number

Average

Range of

of Options

Contractual

Exercise Price

of Options

Exercise Price

Exercise Prices

Outstanding

Term

(years)

(per option)

Exercisable

(per option)

49.01

80.00

711

72.12

711

72.12

80.01

100.00

1,309

87.30

1,309

87.30

120.01

150.00

43,482

5.2

136.62

12,873

136.59

150.01

180.00

40,593

3.7

154.23

27,111

153.88

220.01

250.00

23,589

6.2

245.15

109,684

4.8

165.47

42,004

145.12

As of December 31, 2021, unrecognized compensation expense related

to options granted in 2021, 2020 and 2019 was $

1.8

million, $

1.2

million and $

0.3

million, respectively,

to be recognized over a weighted average period of

1.9

years.

The Company granted stock options under its LTIP

plan that are subject only to time vesting generally over a

three year

period

during 2021, 2020, 2019 and 2018.

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

used a Black-

Scholes option pricing model

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

2021

2020

2019

2018

Number of stock options granted

25,250

49,115

51,610

35,842

Dividend yield

0.85

0.99

1.12

1.37

Expected volatility

37.33

31.57

26.29

24.73

Risk-free interest rate

0.60

0.36

1.52

2.54

Expected term (years)

4.0

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

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

the respective vesting period of each award.

The

compensation expense recorded on each award during the years ended

December 31, 2021, 2020 and 2019, respectively,

is as follows:

2021

2020

2019

2021 Stock option awards

429

2020 Stock option awards

516

385

2019 Stock option awards

234

698

665

2018 Stock option awards

357

364

2017 Stock option awards

369

Restricted Stock Awards

Activity of non-vested restricted stock awards granted under the Company’s

LTIP

plan is shown below:

Number of

Weighted Average

Grant

Date Fair Value

(per share)

Nonvested awards, December 31, 2020

71,768

151.17

Granted

23,536

242.29

Vested

(23,638)

157.63

Forfeited

(2,973)

172.15

Nonvested awards, December 31, 2021

68,693

179.26

The fair value of the non-vested stock 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 for expected forfeitures based

on historical experience for similar awards.

As of December

31, 2021, unrecognized compensation expense related to these awards was $

5.1

million, to be recognized over a weighted average

remaining period of

1.5

years.

Restricted Stock Units

Activity of non-vested restricted stock units granted under the Company’s

LTIP

plan is shown below:

Number of

Weighted Average

Grant

Units

Date Fair Value

(per unit)

Nonvested awards, December 31, 2020

10,845

147.70

Granted

2,791

245.49

Vested

(2,570)

155.34

Forfeited

(89)

141.77

Nonvested awards, December 31, 2021

10,977

170.82

The fair value of the non-vested restricted stock units 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 for expected forfeitures based on

historical experience for similar awards.

As of

December 31, 2021, unrecognized compensation expense related

to these awards was $

0.8

million, to be recognized over a weighted

average remaining period of

1.8

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.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

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:

CEO Grant

2021 (1)

2021

2020

Fully vested shares

3,775

12,103

18,485

Risk-free interest rate

0.65

0.29

0.28

Dividend yield

0.72

0.64

1.13

Expected term (years)

3.0

(1)

On September 2, 2021, the Board appointed Andrew Tometich

to serve as CEO and entered into an Employment Agreement,

and granted an equity award consisting of a mix of time-based restricted

stock and PSUs.

As of December 31, 2021, there was approximately $

4.3

million of total unrecognized compensation cost related to PSUs which

the Company expects to recognize over a weighted-average period

1.4

years.

Defined Contribution Plan

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

of its U.S. employees.

The Company matches

of the first

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

% of compensation.

Additionally, the plan

provides for non-elective nondiscretionary contributions on behalf of participants

who have completed one year

of service equal to

% of the eligible participant's compensation.

Beginning in April 2020 and continuing through March 2021, the

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

in fully vested shares of the Company’s

common stock rather

than cash.

For the years ended December 31, 2021, and 2020, total contributions were $

1.5

million and $

3.1

million, respectively.

Employee Stock Purchase Plan

In 2000, the Board adopted an Employee Stock Purchase Plan (“ESPP”) whereby

employees may purchase Company stock

through a payroll deduction plan.

Purchases were made from the plan and credited to each participant’s

account on the last day of

each calendar month in which the organized securities

trading markets in the U.S. were open for business (the “Investment

Date”).

The purchase price of the stock was

% of the fair market value on the Investment Date.

The plan was compensatory, and

the

discount was expensed on the Investment Date.

All employees, including officers, were eligible to participate

in this plan.

participant could withdraw all uninvested payment balances credited

to a participant’s account at any time.

An employee whose stock

ownership of the Company exceeds

five percent

of the outstanding common stock was not eligible to participate in this plan.

Effective January 1, 2020, the Company discontinued

the ESPP.

2013 Director Stock Ownership Plan

In 2013, the Company adopted the 2013 Director Stock Ownership Plan (the

“Plan”), to encourage the Directors to increase their

investment in the Company,

which was approved at the Company’s May 2013

shareholders’ meeting.

The Plan authorizes the

issuance of up to

75,000

shares of Quaker common stock in accordance with the terms of the Plan in payment

of all or a portion of the

annual cash retainer payable to each of the Company’s

non-employee directors in 2013 and subsequent years during the term of the

Plan.

Under the Plan, each director who, on May 1

of the applicable calendar year, owns less than

400

% of the annual cash retainer

for the applicable calendar year, divided

by the average of the closing price of a share of Quaker Common Stock as reported by

the

composite tape of the New York

Stock Exchange for the previous calendar year (the “Threshold Amount”), is required

to receive

of the annual cash retainer in Quaker common stock and

% of the retainer in cash, unless the director elects to receive a greater

percentage of Quaker common stock, up to

100

% of the annual cash retainer for the applicable year.

Each director who owns more

than the Threshold Amount may elect to receive common stock in payment

of a percentage (up to

100

%) of the annual cash retainer.

The annual retainer is $

0.1

million and the retainer payment date is June 1.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Note 9 – Other Income (Expense), net

Other income (expense), net, for the years ended December 31,

2021, 2020 and 2019 are as follows:

2021

2020

2019

Income from third party license fees

1,367

999

1,035

Foreign exchange (losses) gains, net

(3,821)

(6,082)

223

Gain (loss) on disposals of property,

plant, equipment and other

assets, net

4,695

(871)

Non-income

tax refunds and other related credits

15,155

3,345

1,118

Pension and postretirement benefit income (costs), non-service

components

759

(21,592)

(2,805)

Gain on changes in insurance settlement restrictions of an inactive

subsidiary and related insurance insolvency recovery

18,144

Other non-operating income, net

696

439

Total other income

(expense), net

18,851

(5,618)

(254)

Gain (loss) on disposals of property,

plant, equipment and other assets, net, includes losses related to certain fixed

assets disposals

resulting from the property damage caused by flooding of the Company’s

Conshohocken, Pennsylvania headquarters in 2021,

described in Note 26 of Notes to Consolidated Financial Statements, as well as a gain

in 2021 and a loss in 2020 on the sale of certain

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

described in Note 7 of Notes to Consolidated Financial Statements.

Non-

income tax refunds and other related credits during the year ended

December 31, 2021 includes certain non-income tax credits for the

Company’s Brazilian subsidiaries

described in Note 26 of Notes to Consolidated Financial Statements.

Pension and postretirement

benefit income (costs), non-service components during the year ended December

31, 2020 include a $

1.6

million refund in premium

and a $

22.7

million non-cash settlement charge related to the Legacy Quaker

U.S. Pension Plan, as described in Note 21 of Notes to

Consolidated Financial Statements.

Gain on changes in insurance settlement restrictions of an inactive subsidiary

and related

insurance insolvency recovery relate to the termination of restrictions over

certain cash that was previously designated solely to be

used for settlement of asbestos claims at an inactive subsidiary of the Company

and cash proceeds from an insolvent insurance carrier

with respect to previously filed recovery claims.

See Note 12, Note 19 and Note 26 of Notes to Consolidated Financial Statements.

Foreign exchange (losses) gains, net, during the years ended December

31, 2021, 2020 and 2019, include foreign currency transaction

losses of approximately $

0.6

million, $

0.4

million and $

1.0

million, respectively,

related to hyper-inflationary accounting for the

Company’s Argentine

subsidiaries.

See Note 1 of Notes to Consolidated Financial Statements.

Note 10 – Taxes

on Income

On December 22, 2017, the U.S. government enacted comprehensive

tax legislation commonly referred to as U.S. Tax

Reform.

U.S. Tax Reform

implemented a new system of taxation for non-U.S. earnings which eliminated U.S. federal

income taxes on

dividends from certain foreign subsidiaries and imposed a one-time transition

tax on the deemed repatriation of undistributed earnings

of certain foreign subsidiaries that is payable over eight years.

Following numerous regulations, notices, and other formal guidance

published by the Internal Revenue Service (“I.R.S.”), U.S.

Department of Treasury,

and various state taxing authorities, the Company completed its accounting

for the transition tax and has

elected to pay its $

15.5

million transition tax in installments over eight years as permitted under

U.S. Tax Reform.

As of December

31, 2021, $

7.0

million in installments have been paid with the remaining $

8.5

million to be paid through installments in future years.

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

8.4

million on certain undistributed foreign earnings,

which primarily represents the Company’s

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

earnings to the U.S.

The Company’s reinvestment

assertions are further explained below.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Taxes on income

before equity in net income of associated companies for the years ended December

31, 2021, 2020 and 2019 are

as follows:

2021

2020

2019

Current:

Federal

955

(1,359)

(239)

State

2,115

1,171

352

Foreign

44,375

33,173

26,213

47,445

32,985

26,326

Deferred:

Federal

(3,863)

(28,437)

(9,267)

State

(3,117)

(3,087)

(396)

Foreign

(5,526)

(6,757)

(14,579)

Total

34,939

(5,296)

2,084

The components of earnings before income taxes for the years ended December

31, 2021, 2020 and 2019 are as follows:

2021

2020

2019

U.S.

7,263

(66,585)

(46,697)

Foreign

139,728

93,724

75,601

Total

146,991

27,139

28,904

Total deferred

tax assets and liabilities are composed of the following as of December

31, 2021 and 2020:

2021

2020

Retirement benefits

11,860

15,237

Allowance for doubtful accounts

2,155

2,316

Insurance and litigation reserves

675

842

Performance incentives

2,881

5,914

Equity-based compensation

1,920

1,282

Prepaid expense

460

756

Operating loss carryforward

18,544

16,693

Foreign tax credit and other credits

16,285

24,873

Interest

9,940

16,812

Restructuring reserves

631

1,121

Right of use lease assets

8,322

9,346

Inventory reserves

2,941

2,225

Research and development

8,832

7,974

Other

2,846

3,005

88,292

108,396

Valuation

allowance

(17,400)

(21,511)

Total deferred tax

assets, net

70,892

86,885

Depreciation

11,580

15,473

Foreign pension and other

2,332

1,807

Intangibles

197,066

222,794

Lease liabilities

8,421

9,151

Outside basis in equity investment

5,999

7,938

Unremitted Earnings

8,381

5,919

Total deferred tax

liabilities

233,779

263,082

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

The Company has $

10.6

million of deferred tax assets related to state net operating losses.

A partial valuation allowance of $

8.0

million has been established against this amount resulting in a net $

2.6

million expected future benefit.

Management analyzed the

expected impact of the reversal of existing taxable temporary differences,

considered expiration dates, analyzed current state tax laws,

and determined that $

2.6

million of state net operating loss carryforwards will be realized based on

the reversal of deferred tax

liabilities.

These state net operating losses are subject to various carryforward

periods of

years to

years or an indefinite

carryforward period.

An additional $

0.5

million of valuation allowance was established for other net state deferred tax assets.

The Company has $

8.0

million of deferred tax assets related to foreign net operating loss carryforwards.

A partial valuation

allowance of $

2.5

million has been established against the $

8.0

million due to the expected expiration of these losses before they are

able to be utilized.

These foreign net operating losses are subject to various carryforward periods with the

majority having an

indefinite carryforward period.

An additional partial valuation allowance of $

0.6

million has been established against certain other

foreign deferred tax assets.

In conjunction with the Combination, the Company acquired foreign tax

credit deferred tax assets of $

41.8

million expiring

between 2019 and 2028.

Foreign tax credits may be carried forward for

years.

Management analyzed the expected impact of the

utilization of foreign tax credits based on certain assumptions such as projected

U.S. taxable income, overall domestic loss recapture,

and annual limitations due to the ownership change under the Internal Revenue

Code.

The Company had a foreign tax credit carry

forward of $15.9 million and $

24.9

million as of December 31, 2021 and 2020, respectively,

with a $5.8 million and $

10.2

million

valuation allowance as of December 31, 2021 and 2020, respectively,

reflecting the amount of credits that are not expected to be

utilized before expiration.

The Company also acquired disallowed interest deferred tax assets of $

14.0

million as part of the Combination.

Disallowed

interest may be carried forward indefinitely.

Management analyzed the expected impact of the utilization of disallowed interest

carryforwards based on projected US taxable income and determined

that the Company will utilize all expected future benefits by

2022.

As of December 31, 2021, the Company had a net realizable disallowed interest carryforward

of $

9.4

million on its balance

sheet.

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

178.0

million primarily related to the step-up in

intangibles resulting from the Combination and Norman Hay acquisition.

As part of the Combination, the Company acquired a

% interest in the Korea Houghton Corporation joint venture and has

recorded a $

6.0

million deferred tax liability for its outside basis difference.

The following are the changes in the Company’s

deferred tax asset valuation allowance for the years ended December 31, 2021,

2020 and 2019:

Effect of

Balance at

Purchase

Additional

Allowance

Exchange

Balance

Beginning

Accounting

Valuation

Utilization

Rate

at End

of Period

Adjustments

Allowance

and Other

Changes

of Period

Valuation

Allowance

Year

ended December 31, 2021

21,511

(4,470)

330

17,400

Year

ended December 31, 2020

13,834

7,148

2,738

(2,153)

(56)

21,511

Year

ended December 31, 2019

7,520

13,752

832

(8,227)

(43)

13,834

The Company’s net deferred

tax assets and liabilities are classified in the Consolidated Balance Sheets as of December

31, 2021

and 2020 as follows:

2021

2020

Non-current deferred tax assets

16,138

16,566

Non-current deferred tax liabilities

179,025

192,763

Net deferred tax liability

(162,887)

(176,197)

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

The following is a reconciliation of income taxes at the Federal statutory rate with income taxes

recorded by the Company for the

years ended December 31, 2021, 2020 and 2019.

Certain immaterial reclassifications within the presentation of the reconciliation

income taxes have been made to the years ended December 31, 2020

and 2019:

2021

2020

2019

Income tax provision at the Federal statutory tax rate

30,868

5,699

6,070

Unremitted earnings

1,841

(2,308)

(4,383)

Tax law changes

/ reform

1,955

(1,059)

(416)

U.S. tax on foreign operations

10,479

5,140

574

Pension settlement

(2,247)

Foreign derived intangible income

(8,698)

(7,339)

(1,699)

Non-deductible acquisition expenses

129

131

1,743

Withholding taxes

6,584

7,809

8,621

Foreign tax credits

(14,725)

(4,699)

(3,787)

Share-based compensation

600

335

(540)

Foreign tax rate differential

3,090

1,139

1,444

Research and development credit

(1,685)

(1,018)

(830)

Uncertain tax positions

519

1,990

899

State income tax provisions, net

(1,446)

(2,245)

(117)

Non-deductible meals and entertainment

426

290

318

Intercompany transfer of intangible assets

4,347

(4,384)

(5,318)

Miscellaneous items, net

655

(2,530)

(495)

Taxes on income before

equity in net income of associated companies

34,939

(5,296)

2,084

Pursuant to U.S. Tax

Reform, the Company recorded a $

15.5

million transition tax liability for U.S. income taxes on the

undistributed earnings of non-U.S. subsidiaries.

However, the Company may also be subject to other

taxes, such as withholding taxes

and dividend distribution taxes, if these undistributed earnings are

ultimately remitted to the U.S.

As a result of the Combination,

additional third-party debt was incurred resulting in the Company re-evaluating

its global cash strategy in order to meet its goal of

reducing leverage in upcoming years.

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

8.4

million, which

primarily represents the estimate of the non-U.S. taxes the Company

will incur to ultimately remit these earnings to the U.S.

It is the

Company’s current intention

to reinvest its additional undistributed earnings of non-U.S. subsidiaries to support

working capital needs

and certain other growth initiatives outside of the U.S.

The amount of such undistributed earnings at December 31, 2021 was

approximately $

377.4

million.

Any tax liability which might result from ultimate remittance of these earnings

is expected to be

substantially offset by foreign tax credits (subject to certain limitations).

It is currently impractical to estimate any such incremental

tax expense.

As of December 31, 2021, the Company’s

cumulative liability for gross unrecognized tax benefits was $

22.5

million. The

Company had accrued approximately $

3.1

million for cumulative penalties and $

3.1

million for cumulative interest as of December

31, 2021.

As of December 31, 2020, the Company’s

cumulative liability for gross unrecognized tax benefits was $

22.2

million. The

Company had accrued approximately $

3.9

million for cumulative penalties and $

3.0

million for cumulative interest as of December

31, 2020.

The Company continues to recognize interest and penalties associated with uncertain

tax positions as a component of tax expense

on income before equity in net income of associated companies in its Consolidated

Statements of Income.

The Company recognized a

benefit of $

0.5

million for penalties and an expense of $

0.3

million for interest (net of expirations and settlements) in its Consolidated

Statement of Income for the year ended December 31, 2021, an expense of

less than $

0.1

million for penalties and $

0.6

million for

interest (net of expirations and settlements) in its Consolidated Statement

of Income for the year ended December 31, 2020, and a

credit of $

0.2

million for penalties and an expense of $

0.2

million for interest (net of expirations and settlements) in its Consolidated

Statement of Income for the year ended December 31, 201

The Company estimates that during the year ending December 31, 2022,

it will reduce its cumulative liability for gross

unrecognized tax benefits by approximately $

2.3

million due to the expiration of the statute of limitations with regard to certain tax

positions.

This estimated reduction in the cumulative liability for unrecognized tax

benefits does not consider any increase in liability

for unrecognized tax benefits with regard to existing tax positions or any increase

in cumulative liability for unrecognized tax benefits

with regard to new tax positions for the year ending December 31, 2022.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

A reconciliation of the beginning and ending amounts of unrecognized

tax benefits for the years ended December 31, 2021, 2020

and 2019, respectively,

is as follows:

2021

2020

2019

Unrecognized tax benefits as of January 1

22,152

19,097

7,050

Increase (decrease) in unrecognized tax benefits taken in prior periods

1,002

2,025

(28)

Increase in unrecognized tax benefits taken in current period

2,915

3,095

1,935

Decrease in unrecognized tax benefits due to lapse of statute of limitations

(2,631)

(3,659)

(1,029)

Increase in unrecognized tax benefits due to acquisition

597

11,301

(Decrease) increase due to foreign exchange rates

(974)

997

(132)

Unrecognized tax benefits as of December 31

22,464

22,152

19,097

The amount of net unrecognized tax benefits above that, if recognized, would

impact the Company’s tax expense

and effective tax

rate is $

15.2

million, $

14.7

million and $

13.3

million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

the Netherlands, Mexico and China from

2016

, Mexico, Canada, Germany,

Spain, U.S. and the United Kingdom from

2017

, India

from fiscal year beginning April 1,

2019

and ending March 31, 2020, 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 Netherland reached agreement with respect to the MAP proceedings,

which the Company has accepted.

As of December 31, 2021, the Company has received $

1.6

million in refunds from the Netherlands

and Spain and has an accrual for $

2.4

million due to Italy.

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.

This amendment to the tax assessment is expected to result in the Company

recognizing tax expense of $

0.6

million in Q1 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.

As of December 31, 2021, the Company has a $

5.0

million reserve for uncertain tax positions relating to matters

related to this audit.

Because the reserve relates to the tax periods prior to August 1, 2019, the tax liability

was established through

purchase accounting related to the Combination.

The Company has also submitted an indemnification claim against funds held in

escrow by Houghton’s former owners

and as a result, a corresponding $

5.9

million indemnification receivable has also been

established through purchase accounting.

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.

The Company remains under audit

for tax years 2016 through 2018 and believes it has adequate reverses

for the remaining uncertain tax positions.

Houghton Deutschland GmbH is also under audit by the German tax authorities for

tax years 2015 through 2017.

Based on

preliminary audit findings, primarily related to transfer pricing,

the Company has recorded a reserve for $

0.4

million as of December

31, 2021.

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.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Note 11 – Earnings Per Share

The following table summarizes earnings per share calculations for

the years ended December 31, 2021, 2020 and 2019:

2021

2020

2019

Basic earnings per common share

Net income attributable to Quaker Chemical Corporation

121,369

39,658

31,622

Less: income allocated to participating securities

(480)

(148)

(90)

Net income available to common shareholders

120,889

39,510

31,532

Basic weighted average common shares outstanding

17,805,034

17,719,792

15,126,928

Basic earnings per common share

6.79

2.23

2.08

Diluted earnings per common share

Net income attributable to Quaker Chemical Corporation

121,369

39,658

31,622

Less: income allocated to participating securities

(479)

(148)

(90)

Net income available to common shareholders

120,890

39,510

31,532

Basic weighted average common shares outstanding

17,805,034

17,719,792

15,126,928

Effect of dilutive securities

50,090

31,087

36,243

Diluted weighted average common shares outstanding

17,855,124

17,750,879

15,163,171

Diluted earnings per common share

6.77

2.22

2.08

The Company’s calculation

of earnings per diluted share attributable to Quaker Chemical Corporation common

shareholders for

the year ended December 31, 2019 was impacted by the variability of

its reported earnings during the year and the approximately

4.3

million shares issued as a component of the consideration transferred in

the Combination, comprising

24.5

% of the common stock of

the Company immediately after the closing.

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

4,070

in 2021,

945

in 2020 and

108

in 2019.

Note 12 – Restricted Cash

Prior to December 2020, the Company had restricted cash recorded in other assets related to proceeds from an inactive subsidiary

of the Company which previously executed separate settlement and release agreements with two of its insurance carriers for an

original total value of $35.0 million.

The proceeds of both settlements were restricted and could only be used

to pay claims and costs

of defense associated with the subsidiary’s

asbestos litigation.

The proceeds of the settlement and release agreements were deposited

into interest bearing accounts which earned less then $

0.1

million and $

0.2

million in the years ended December 31, 2020, and 2019,

respectively, offset

by $

1.0

million and $

0.8

million of net payments during 2020 and 2019, respectively.

Due to the restricted nature

of the proceeds, a corresponding deferred credit was established in other

non-current liabilities for an equal and offsetting amount that

continued until the restrictions lapsed.

During December 2020, the restrictions ended on these previously received

insurance

settlements and the Company transferred

the cash into an operating account.

In connection with the termination in restrictions, the Company recognized

an $

18.1

million gain

on its Consolidated Statement of Income in Other income (expense

), net, for the amount of previously restricted cash, net of the

estimated liability to pay claims and associated with the inactive subsidiary’s

asbestos litigation as of December 31, 2020.

Therefore,

due to these restrictions ending, there is

restricted cash for the year ended December 31, 2021.

See Notes 18, 22 and 26 of Notes to

Consolidated Financial Statements.

The following table provides a reconciliation of cash, cash equivalents

and restricted cash as December 31, 2021, 2020, 2019 and

2018:

2021

2020

2019

2018

Cash and cash equivalents

165,176

181,833

123,524

104,147

Restricted cash included in other current assets

353

Restricted cash included in other assets

19,678

20,278

Cash, cash equivalents and restricted cash

165,176

181,895

143,555

124,425

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Note 13 – Accounts Receivable and Allowance for Doubtful Accounts

As of December 31, 2021 and 2020, the Company had gross trade accounts receivable

totaling $

443.0

million and $

386.1

million,

respectively.

The following are changes in the allowance for doubtful accounts during the years

ended December 31, 2021, 2020 and 2019:

Exchange Rate

Balance at

Changes

Write-Offs

Changes

Balance

Beginning

to Costs and

Charged to

and Other

at End

of Period

Expenses

Allowance

Adjustments

of Period

Allowance for Doubtful Accounts

Year

ended December 31, 2021

13,145

653

(946)

(518)

12,334

Year

ended December 31, 2020

11,716

3,582

(2,187)

13,145

Year

ended December 31, 2019

5,187

1,925

(322)

4,926

11,716

Included in exchange rate changes and other adjustments for the year

ended December 31, 2019 are the allowance for doubtful

accounts of $

5.0

million related to the acquired receivables in connection with the Combination and

Norman Hay acquisition.

Note 14 – Inventories

Inventories, net, as of December 31, 2021 and 2020 were as follows:

2021

2020

Raw materials and supplies

129,382

86,148

Work in process,

finished goods and reserves

135,149

101,616

Total inventories, net

264,531

187,764

Note 15 – Property,

Plant and Equipment

Property, plant and equipment

as of December 31, 2021 and 2020 were as follows:

2021

2020

Land

30,793

33,009

Building and improvements

134,313

135,595

Machinery and equipment

252,779

246,242

Construction in progress

16,459

8,407

Property, plant and equipment,

at cost

434,344

423,253

Less: accumulated depreciation

(236,824)

(219,370)

Total property,

plant and equipment, net

197,520

203,883

As of December 31, 2021, PP&E includes $

0.8

million of finance lease assets and future minimum lease payments.

In connection

with the plans for closure of certain facilities, certain buildings and land with an aggregate book value of approximately $0.7 million

continue to be held-for-sale as of December 31, 2021 and are recorded in prepaid expenses and other current assets on the Company’s

Consolidated Balance Sheet.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Note 16 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the years ended December 31,

2021 and 2020 were as follows:

Global

Specialty

Americas

EMEA

Asia/Pacific

Businesses

Total

Balance as of December 31, 2019

216,385

133,018

141,727

116,075

607,205

Goodwill additions

1,485

531

1,329

3,345

Currency translation and other

adjustments

(4,628)

6,613

16,363

2,314

20,662

Balance as of December 31, 2020

213,242

140,162

158,090

119,718

631,212

Goodwill additions

1,490

3,380

1,308

2,624

8,802

Currency translation and other

adjustments

(709)

(8,022)

3,060

(3,149)

(8,820)

Balance as of December 31, 2021

214,023

135,520

162,458

119,193

631,194

Other adjustments in the table above includes updates to the Company’s

allocation of the Houghton purchase price and associated

goodwill to each of the Company’s

reportable segments during the year ended December 31, 2020, including

a $

2.6

million decrease

in the Americas, a $

1.4

million decrease in EMEA, a $

8.0

million increase in Asia/Pacific and a $

0.5

million increase in Global

Specialty Businesses.

Gross carrying amounts and accumulated amortization for definite-lived

intangible assets as of December 31, 2021 and 2020 were

as follows:

Gross Carrying

Accumulated

Amount

Amortization

2021

2020

2021

2020

Customer lists and rights to sell

853,122

839,551

147,858

99,806

Trademarks, formulations and product

technology

163,974

166,448

38,747

30,483

Other

6,309

6,372

5,900

5,824

Total definite-lived

intangible assets

1,023,405

1,012,371

192,505

136,113

The Company recorded $

59.9

million, $

55.9

million and $

26.7

million of amortization expense during the years ended December

31, 2021, 2020 and 2019, respectively.

Amortization is recorded within SG&A in the Company’s

Consolidated Statements of Income.

Estimated annual aggregate amortization expense for the subsequent

five years is as follows:

For the year ended December 31, 2022

59,900

For the year ended December 31, 2023

59,727

For the year ended December 31, 2024

59,138

For the year ended December 31, 2025

58,383

For the year ended December 31, 2026

58,108

The Company has four indefinite-lived intangible assets totaling $

196.9

million as of December 31, 2021, including $

195.8

million of indefinite-lived intangible assets for trademarks and tradename associated

with the Combination.

Comparatively, the

Company had four indefinite-lived intangible assets for trademarks and

tradename totaling $

205.1

million as of December 31, 2020.

The Company completes its annual goodwill and indefinite-lived intangible

asset impairment test during the fourth quarter of

each year, or more frequently if triggering

events indicate a possible impairment in one or more of its reporting units.

The Company

completed its annual impairment assessment during the fourth quarter

of 2021 and concluded

impairment charge was warranted.

The Company continually evaluates financial performance, economic

conditions and other relevant developments in assessing if an

interim period impairment test for one or more of its reporting units is necessary.

As of March 31, 2020, the Company evaluated the initial impact of COVID-19

on the Company’s operations,

and the volatility

and uncertainty in the economic outlook as a result of COVID-19 to determine

if they indicated it was more likely than not that the

carrying value of any of the Company’s

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

The Company

concluded that the impact of COVID-19 did not represent a triggering

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

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

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

Houghton and Fluidcare

trademarks

and

tradename indefinite-lived intangible assets.

The determination of estimated fair value of the Houghton and Fluidcare

trademarks and tradename indefinite-lived assets was

based on a relief from royalty valuation method which requires management’s

judgment and often involves the use of significant

estimates and assumptions, including assumptions with respect to the

weighted average cost of capital (“WACC”)

and royalty rates, as

well as revenue growth rates and terminal growth rates.

In the first quarter of 2020, as a result of the impact of COVID-19 driving

decrease in projected legacy Houghton net sales in the current year

and the impact of the current year decline on projected future

legacy Houghton net sales as well as an increase in the WACC

assumption utilized in the quantitative impairment assessment,

the

Company concluded that the estimated fair values of the Houghton and

Fluidcare

trademarks and tradename intangible assets were

less than their carrying values.

As a result, an impairment charge of $

38.0

million, primarily related to the Houghton trademarks and

tradename, to write down the carrying values of these intangible assets to their estimated

fair values was recorded in the first quarter

of 2020.

Note 17 – Investments in Associated Companies

As of December 31, 2021, the Company held a

% investment in and had significant influence over Nippon Quaker Chemical,

Ltd. (“Nippon Japan”), Kelko Quaker Chemical, S.A. (“Kelko Panama”)

and Houghton Korea acquired in 2019 in connection with the

Combination, and held a

% investment in and had significant influence over Primex, Ltd. (“Primex”).

The carrying amount of the Company’s

equity investments as of December 31, 2021 was $

95.3

million, which includes

investments of $

66.4

million in Houghton Korea; $

21.5

million in Primex; $

7.1

million in Nippon Japan; and $

0.3

million in Kelko

Panama.

The Company also has a

% equity interest in Kelko Venezuela.

Due to heightened foreign exchange controls, deteriorating

economic circumstances and other restrictions in Venezuela,

during 2018 the Company concluded that it no longer had significant

influence over this affiliate.

Prior to this determination, the Company historically accounted for this affiliate

under the equity method.

As of December 31, 2021 and 2020, the Company had

remaining carrying value for its investment in Kelko Venezuela.

The following table is a summary of equity income in associated companies by

investment for the years ending December 31,

2021, 2020 and 2019:

Year

Ended December 31,

2021

2020

2019

Houghton Korea

3,808

5,241

2,337

Nippon Japan

461

853

850

Kelko Panama

154

107

Grindaix (1)

(37)

Primex

4,993

1,151

1,822

Total equity in net

income of associated companies

9,379

7,352

5,064

(1) In February 2021, the Company acquired a

% ownership interest in Grindaix.

From that date through September 2021

when the Company purchased the remaining interest of Grindaix, the

Company accounted for its

% interest under the

equity method of accounting and recorded equity in net income of associated

companies.

See Note 2 of Notes to

Consolidated Financial Statements.

As the Combination closed on August 1, 2019, the Company included five

months of equity income from Houghton Korea in its

December 31, 2019 Consolidated Statement of Income.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Note 18 – Other Non-Current Assets

Other non-current assets as of December 31, 2021 and 2020 were as follows:

2021

2020

Pension assets

7,916

6,748

Uncertain tax positions

6,931

7,209

Indemnification assets

6,630

7,615

Debt issuance costs

4,267

5,919

Supplemental retirement income program

2,269

1,961

Other

2,946

2,344

Total other non

-current assets

30,959

31,796

As of December 31, 2021 and 2020, indemnification assets relates to certain

Houghton foreign subsidiaries for which the

Company expects it will incur additional tax amounts which are subject

to indemnification under the terms of the Combination share

and purchase agreement.

These indemnification assets have a corresponding uncertain tax position recorded

in other non-current

liabilities.

As of December 31, 2021 and 2020, one of the Company’s

foreign pension plan’s fair value of

plan assets exceeded its

gross benefit obligation and was therefore over-funded,

which is represented by the line Pension assets in the table above.

See Notes

10, 12, 21 and 22 of Notes to Consolidated Financial Statements.

Note 19 – Other Accrued Liabilities

Other accrued liabilities as of December 31, 2021 and 2020 were as follows:

2021

2020

Non-income taxes

23,725

26,080

Current income taxes payable

16,642

13,124

Professional fees, legal, and acquisition-related accruals

12,264

11,437

Selling expenses and freight accruals

11,695

10,475

Short-term lease liabilities

9,976

10,901

Customer advances and sales return reserves

7,965

6,380

Interest rate swap

1,782

Other

11,568

13,710

Total other accrued

liabilities

95,617

92,107

Note 20 – Debt

Debt as of December 31, 2021 and 2020 includes the following:

As of December 31, 2021

As of December 31, 2020

Interest

Outstanding

Interest

Outstanding

Rate

Balance

Rate

Balance

Credit Facilities:

Revolver

1.62%

211,955

1.65%

160,000

U.S. Term Loan

1.65%

540,000

1.65%

570,000

EURO Term Loan

1.50%

137,616

1.50%

157,062

Industrial development bonds

5.26%

10,000

5.26%

10,000

Bank lines of credit and other debt obligations

Various

1,777

Various

2,072

Total debt

901,348

899,134

Less: debt issuance costs

(8,001)

(11,099)

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

(56,935)

(38,967)

Total long-term debt

836,412

849,068

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

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 as of and

during the year ended December 31, 2021 was

approximately

1.6

In addition to paying interest on outstanding principal under the Credit Facility,

the Company is required to pay

a commitment fee ranging from

0.2

% to

0.3

% depending on the Company’s consolidated

net leverage ratio to the lenders under the

Revolver in respect of the unutilized commitments thereunder.

The Company has unused capacity under the Revolver of

approximately $

184

million, net of bank letters of credit of approximately $

million, as of December 31, 2021.

The Credit Facility is subject to certain financial and other covenants

The Company’s initial consolidated net

debt to

consolidated adjusted EBITDA ratio could not exceed

4.25

to 1, with step downs in the permitted ratio over the term of the Credit

Facility.

As of December 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

% of consolidated adjusted EBITDA unless the ratio of consolidated net debt

consolidated adjusted EBITDA is less than

2.0

to 1, in which case there is no such limitation on amount.

As of December 31, 2021

and December 31, 2020, the Company was in compliance with all of the Credit Facility covenants.

The Term Loans have quarterly

principal amortization during their five year terms, with

5.0

% amortization of the principal balance due in years 1 and 2,

7.5

% in year

3, and

10.0

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

During the year ended December 31, 2021, the

Company made four quarterly amortization payments related to the

Term Loans totaling $

38.0

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 December 31, 2021,

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

plus an applicable margin, was

3.1

See Note 25 of Notes to 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 December 31, 2021 and 2020, the Company had

8.0

million and $

11.1

million, respectively, of debt

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

As of December 31,

2021 and 2020, the Company had $

4.3

million and $

5.9

million, respectively, of

debt issuance costs recorded within other non-current

assets.

Industrial development bonds

As of December 31, 2021 and 2020, the Company had fixed rate, industrial

development authority bonds totaling $

10.0

million in

principal amount due in

2028

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

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

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 December 31, 2021, was approximately

million.

In addition to the bank letters of credit described in the “Credit facilities” subsection

above, the Company’s only other

off-balance

sheet arrangements include certain financial and other guarantees.

The Company’s total bank letters

of credit and guarantees

outstanding as of December 31, 2021 were approximately $

million.

The Company incurred the following debt related expenses included

within Interest expense, net, in the Consolidated Statements

of Income:

Year

Ended December 31,

2021

2020

2019

Interest expense

19,089

23,552

16,788

Amortization of debt issuance costs

4,749

1,979

Total

23,838

28,301

18,767

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

as of December 31, 2021 and 2020, the amounts at which

the Company’s total debt were recorded

are not materially different from their fair market value.

At December 31, 2021, annual maturities on long-term borrowings maturing

in the next five fiscal years (excluding the reduction

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

are as follows:

2022

56,978

2023

75,765

2024

758,241

2025

298

2026

145

Note 21 – Pension and Other Postretirement

Benefits

The following table shows the funded status of the Company’s

plans’ reconciled

with amounts reported in the Consolidated

Balance Sheets as of December 31, 2021 and 2020:

Other Post-

Pension Benefits

Retirement Benefits

2021

2020

2021

2020

Foreign

U.S.

Total

Foreign

U.S.

Total

U.S.

Change in plan assets

Fair value of plan assets at

beginning of year

228,789

73,481

302,270

195,099

120,550

315,649

Actual return on plan assets

915

7,201

8,116

20,367

10,759

31,126

Employer contributions

4,289

2,063

6,352

6,912

2,302

9,214

182

250

Employee contributions

Plan settlements

(541)

(2,316)

(53,494)

(55,810)

Benefits paid

(6,869)

(5,065)

(11,934)

(5,087)

(6,138)

(11,225)

(182)

(250)

Plan expenses and premiums paid

(74)

(135)

(498)

(633)

Translation differences

(9,694)

13,876

Fair value of plan assets at end of year

216,886

77,680

294,566

228,789

73,481

302,270

Net benefit obligation recognized

(11,866)

(25,740)

(37,606)

(18,886)

(36,488)

(55,374)

(2,010)

(3,234)

Amounts recognized in the balance

sheet consist of:

Non-current assets

7,916

6,748

Current liabilities

(191)

(1,137)

(1,328)

(568)

(612)

(1,180)

(220)

(286)

Non-current liabilities

(19,591)

(24,603)

(44,194)

(25,066)

(35,876)

(60,942)

(1,790)

(2,948)

Net benefit obligation recognized

(11,866)

(25,740)

(37,606)

(18,886)

(36,488)

(55,374)

(2,010)

(3,234)

Amounts not yet reflected in net

periodic benefit costs and included in

accumulated other comprehensive loss:

Prior service (cost) credit

(22)

(26)

Accumulated (loss) gain

(19,163)

(9,763)

(28,926)

(21,976)

(5,532)

(27,508)

1,034

124

AOCI

(19,185)

(9,720)

(28,905)

(22,002)

(5,482)

(27,484)

1,080

124

Cumulative employer contributions

in excess of or (below) net

periodic benefit cost

7,319

(16,020)

(8,701)

3,116

(31,006)

(27,890)

(3,090)

(3,358)

Net benefit obligation recognized

(11,866)

(25,740)

(37,606)

(18,886)

(36,488)

(55,374)

(2,010)

(3,234)

The accumulated benefit obligation for all defined benefit pension plans was

321.5

million ($

103.4

million U.S. and $

218.1

million Foreign) and $

344.4

million ($

109.5

million U.S. and approximately $

234.9

million Foreign) as of December 31, 2021 and

2020, respectively.

Information for pension plans with an accumulated benefit obligation

in excess of plan assets:

2021

2020

Foreign

U.S.

Total

Foreign

U.S.

Total

Projected benefit obligation

138,963

103,420

242,383

32,373

109,969

142,342

Accumulated benefit obligation

128,268

103,420

231,688

30,892

109,540

140,432

Fair value of plan assets

119,181

77,680

196,861

18,074

73,481

91,555

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Information for pension plans with a projected benefit obligation

in excess of plan assets:

2021

2020

Foreign

U.S.

Total

Foreign

U.S.

Total

Projected benefit obligation

138,963

103,420

242,383

32,373

109,969

142,342

Fair value of plan assets

119,181

77,680

196,861

18,074

73,481

91,555

Components of net periodic benefit costs – pension plans:

2021

2020

Foreign

U.S.

Total

Foreign

U.S.

Total

Service cost

698

547

1,245

4,340

491

4,831

Interest cost

2,594

1,737

4,331

3,416

2,923

6,339

Expected return on plan assets

(4,686)

(3,611)

(8,297)

(4,262)

(4,810)

(9,072)

Settlement loss (gain)

(88)

22,667

22,579

Curtailment charge

(1,155)

Actuarial loss amortization

996

2,252

3,248

886

2,110

2,996

Prior service cost (credit)

amortization

(167)

Net periodic benefit (income) cost

(360)

932

572

2,970

23,381

26,351

2019

Foreign

U.S.

Total

Service cost

3,507

434

3,941

Interest cost

3,046

3,313

6,359

Expected return on plan assets

(3,668)

(3,227)

(6,895)

Settlement loss

258

Actuarial loss amortization

757

2,348

3,105

Prior service credit amortization

(165)

Net periodic benefit cost

3,735

2,868

6,603

Other changes recognized in other comprehensive

income – pension plans:

2021

2020

Foreign

U.S.

Total

Foreign

U.S.

Total

Net (gain) loss arising during

the period

(388)

(448)

(836)

(1,594)

1,536

(58)

Effect of plan amendment

Recognition of amortization in net

periodic benefit cost

Settlement loss

(83)

(2,252)

(2,335)

(39)

(22,667)

(22,706)

Prior service (cost) credit

(7)

1,325

1,375

Actuarial (loss) gain

(954)

(6,925)

(7,879)

(758)

3,967

3,209

Curtailment Recognition

(3)

Effect of exchange rates on amounts

included in AOCI

(1,390)

1,535

Total recognized

in other

comprehensive (income) loss

(2,818)

(9,632)

(12,450)

466

(17,114)

(16,648)

Total recognized

in net periodic

benefit cost and other

comprehensive (income) loss

(3,178)

(8,700)

(11,878)

3,436

6,267

9,703

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

2019

Foreign

U.S.

Total

Net loss arising during period

3,826

3,926

7,752

Recognition of amortization in net periodic benefit

cost

Prior service credit

196

Actuarial loss

(1,015)

(2,347)

(3,362)

Effect of exchange rates on amounts included

in AOCI

(61)

Total recognized

in other comprehensive loss

2,946

1,579

4,525

Total recognized

in net periodic benefit cost and

other comprehensive loss

6,681

4,447

11,128

Components of net periodic benefit costs – other postretirement

plan:

2021

2020

2019

Service cost

Interest cost

143

Actuarial loss amortization

(82)

(5)

Prior service credit amortization

(31)

Net periodic benefit costs

(85)

149

Other changes recognized in other comprehensive

income – other postretirement benefit plans:

2021

2020

2019

Net (gain) loss arising during period

(992)

(864)

395

Recognition of amortizations in net periodic

benefit cost

(78)

Prior service credit

Actuarial gain amortization

Total recognized

in other comprehensive (income)

loss

(957)

(859)

395

Total recognized

in net periodic benefit cost and

other comprehensive (income) loss

(1,042)

(782)

544

Weighted-average

assumptions used to determine benefit obligations as of December 31, 2021 and 2020:

Other Postretirement

Pension Benefits

Benefits

2021

2020

2021

2020

U.S. Plans:

Discount rate

2.67

3.11

1.90

2.99

Expected long-term return on

plan assets

5.75

6.50

N/A

Rate of compensation increase

6.00

N/A

Foreign Plans:

Discount rate

1.38

2.30

N/A

Expected long-term return on

plan assets

2.06

2.20

N/A

Rate of compensation increase

2.52

2.79

N/A

The long-term rates of return on assets were selected from within the reasonable

range of rates determined by (a) historical real

returns for the asset classes covered by the investment policy and (b) projections

of inflation over the long-term period during which

benefits are payable to plan participants.

See Note 1 of Notes to Consolidated Financial Statements for further

information.

Assumed health care cost trend rates as of December

31, 2021 and 2020:

2021

2020

Health care cost trend rate for next year

5.65

5.70

Rate to which the cost trend rate is assumed to decline (the

ultimate trend rate)

4.00

4.50

Year

that the rate reaches the ultimate trend rate

2046

2037

Plan Assets and Fair Value

The Company’s pension plan

target asset allocation and the weighted-average asset allocations as of December

31, 2021 and 2020

by asset category were as follows:

Asset Category

Target

2021

2020

U.S. Plans

Equity securities

Debt securities

Other

Total

100

Foreign Plans

Equity securities

Debt securities

Other

Total

100

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

As of December 31, 2021 and 2020, “Other” consisted principally of cash

and cash equivalents, and investments in real estate

funds.

The following is a description of the valuation methodologies used for

the investments measured at fair value, including the

general classification of such instruments pursuant to the valuation

hierarchy,

where applicable:

Cash and

Cash Equivalents

Cash and

cash equivalents

consist

of cash and

money market

funds and

are classified

as Level

1 investments.

Commingled Funds

Investments

in the U.S.

pension

plan and

foreign

pension

plan commingled

funds represent

pooled institutional

investments,

including

primarily

collective

investment

trusts.

These commingled funds are not available on an exchange or in an active market

and these investments are valued using

their net

asset value

(“NAV”), which is

generally

based on

the underlying

asset values

of the

investments

held in the

trusts.

As of December 31, 2021, the foreign pension plan commingled funds

included approximately

percent of investments in

equity securities,

percent of investments in fixed income securities, and

percent of other non-related investments, primarily

real estate.

Pooled Separate

Accounts

Investments

in the U.S.

pension

plan pooled

separate

accounts

consist of

annuity

contracts

and are

valued based

on the reported

unit value

at year

end.

Units of

the pooled

separate

account

are not traded

on an exchange

or in an

active market;

however, valuation

based on

the underlying

investments

of each

pooled separate

account

and are

classified

as Level

2 investments.

As of December 31,

2021, the U.S. pension plan pooled separate accounts included approximately 49 percent of investments in equity securities and 51

percent of investments in fixed income securities.

Fixed Income

Government

Securities

Investments in foreign pension plans fixed income government securities were

valued using third party pricing services

which are based on a combination of quoted market prices on an exchange

in an active market as well as proprietary pricing

models and

inputs

using observable

market data

and are

classified

as Level

2 investments.

Insurance

Contract

Investments in the foreign pension plan insurance contract are valued at

the highest value available for the Company at year

end, either the reported cash surrender value of the contract or the vested benefit

obligation.

Both the cash surrender value and

the vested benefit obligation are determined based on unobservable inputs, which

are contractually or actuarially determined,

regarding returns, fees, the present value of the future cash flows of the contract

and benefit obligations.

The contract is classified

as a Level 3 investment.

Diversified

Equity

Securities

- Registered

Investment

Companies

Investments

in the foreign

pension

plans diversified

equity securities

of registered

investment

companies

are based

upon the

quoted redemption

value of

shares in

the fund

owned by

the plan

at year end.

The shares

of the fund

are not

available

on an exchange

or in an

active market;

however, the

fair value

is determined

based on

the underlying

investments

in the

fund as

traded on

an exchange

in an active

market and

are classified

as Level

2 investments.

Fixed Income

– Foreign Registered

Investment

Companies

Investments

in the foreign

pension

plans fixed

income securities

of foreign

registered

investment

companies

are based

upon the

quoted redemption

value of

shares in

the fund

owned by

the plan

at year end.

The shares

of the fund

are not

available

on an exchange

or in an

active market;

however, the

fair value

is determined

based on

the underlying

investments

in the

fund as

traded on

an exchange

in an active

market and

are classified

as Level

2 investments.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Diversified Investment Fund - Registered Investment

Companies

Investments

in the foreign

pension

plan diversified

investment

fund of

registered

investment

companies

are based

upon the

quoted

redemption

value of

shares in

the fund

owned by

the plan

at year

end.

This fund

is not available

on an exchange

or in an

active market

and this

investment

is valued

using its

NAV,

which is

generally

based on

the underlying

asset values

of the investments

held.

As of

December

31, 2021,

the diversified

investment

funds included

approximately

percent

of investments

in equity

securities,

percent

of investments

in fixed

income

securities,

and

percent

of other

alternative

investments.

Other – Alternative Investments

Investments

in the foreign

pension

plans include

certain other

alternative

investments

such as

inflation

and interest

rate swaps.

These investments

are valued

based on

unobservable

inputs,

which are

contractually

or actuarially

determined,

regarding

returns,

fees,

the present

value of

future cash

flows of

the contract

and benefit

obligations.

These alternative

investments

are classified

as Level

investments.

Real Estate

The U.S. and foreign pension plans’

investment in real estate consists of investments

in property funds.

The funds’

underlying investments consist of real property which are valued using unobservable

inputs.

These property

funds are classified

as a Level 3 investment.

As of December 31, 2021 and 2020, the U.S. and foreign plans’ investments

measured at fair value on a recurring basis were as

follows:

Fair Value

Measurements at December 31, 2021

Total

Using Fair Value

Hierarchy

U.S. Pension Assets

Fair Value

Level 1

Level 2

Level 3

Pooled separate accounts

72,721

Real estate

4,959

Subtotal U.S. pension plan assets in fair value hierarchy

77,680

72,721

4,959

Total U.S. pension

plan assets

77,680

Foreign Pension Assets

Cash and cash equivalents

1,989

Insurance contract

99,527

Diversified equity securities - registered investment companies

10,999

Fixed income – foreign registered investment companies

3,593

Fixed income government securities

35,339

Real estate

6,588

Other - alternative investments

6,979

Sub-total of foreign pension assets in fair value hierarchy

165,014

1,989

49,931

113,094

Commingled funds measured at NAV

2,300

Diversified investment fund -

registered investment

companies measured at NAV

49,572

Total foreign pension

assets

216,886

Total pension

assets in fair value hierarchy

242,694

1,989

122,652

118,053

Total pension

assets measured at NAV

51,872

Total pension

assets

294,566

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Fair Value

Measurements at December 31, 2020

Total

Using Fair Value

Hierarchy

U.S. Pension Assets

Fair Value

Level 1

Level 2

Level 3

Pooled separate accounts

69,385

Real estate

4,096

Subtotal U.S. pension plan assets in fair value hierarchy

73,481

69,385

4,096

Total U.S. pension

plan assets

73,481

Foreign Pension Assets

Cash and cash equivalents

634

Insurance contract

112,920

Diversified equity securities - registered investment companies

8,851

Fixed income – foreign registered investment companies

3,711

Fixed income government securities

37,579

Real estate

5,679

Other - alternative investments

10,638

Sub-total of foreign pension assets in fair value hierarchy

180,012

634

50,141

129,237

Commingled funds measured at NAV

2,368

Diversified investment fund -

registered investment

companies measured at NAV

46,409

Total foreign pension

assets

228,789

Total pension

assets in fair value hierarchy

253,493

634

119,526

133,333

Total pension

assets measured at NAV

48,777

Total pension

assets

302,270

Certain investments that are measured at fair value using the NAV

per share (or its equivalent) have not been classified in the fair

value hierarchy.

The fair value amounts presented for these investments in the preceding

tables are intended to permit reconciliation

of the fair value hierarchies to the line items presented in the statements of net assets available

for benefits.

Changes in the fair value of the plans’ Level 3 investments during the years

ended December 31, 2021 and 2020 were as follows:

Insurance

Alternative

Contract

Real Estate

Investments

Total

Balance as of December 31, 2019

92,657

9,581

9,436

111,674

Purchases

3,902

989

4,909

Settlements

(2,027)

Unrealized gains (losses)

8,917

(16)

(171)

8,730

Currency translation adjustment

9,471

192

384

10,047

Balance as of December 31, 2020

112,920

9,775

10,638

133,333

Purchases

1,722

(78)

(334)

1,310

Settlements

(1,812)

Unrealized (losses) gains

(5,031)

1,926

(3,282)

(6,387)

Currency translation adjustment

(8,272)

(76)

(43)

(8,391)

Balance as of December

31, 2021

99,527

11,547

6,979

118,053

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

In the fourth quarter of 2018, the Company began the process of terminating

its Legacy Quaker noncontributory U.S. pension

plan (“Legacy Quaker U.S. Pension Plan”).

During the third quarter of 2019, the Company received a favorable termination

determination letter from the I.R.S. and completed the Legacy Quaker

U.S. Pension Plan termination during the first quarter of 2020.

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

with I.R.S. and Pension Benefit Guaranty Corporation

requirements, the Company was required to fully fund the Legacy Quaker

U.S. Pension Plan on a termination basis and the amount

necessary to do so was approximately $

1.8

million, subject to final true up adjustments.

In the third quarter of 2020, the Company

finalized the amount of the liability and related annuity payments and

received a refund in premium of approximately $

1.6

million.

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

at plan termination of approximately $

22.7

million.

This

settlement charge included the immediate recognition

into expense of the related unrecognized losses within AOCI on the balance

sheet as of the plan termination date.

In connection with the Combination, the Company indirectly acquired all of

Houghton’s defined benefit pension

plans, which are

included in the tables set forth above.

The pension plans cover certain U.S. salaried and hourly employees

as well as certain

employees in the U.K., France and Germany.

The Houghton U.S. plans provide benefits based on an employee’s

years of service and

compensation received for the highest five consecutive years of

earnings.

The foreign plans provide benefits based on a formula of

years and service and a percentage of compensation which varies among

the various countries.

The Company contributes to a multiemployer defined benefit pension

plan under terms of a collective bargaining union contract

(the Cleveland Bakers and Teamsters

Pension Fund, Employer Identification Number: 34-0904419-001).

The expiration date of the

collective bargaining contract is

May 1, 2022

As of January 1, 2020, the last valuation date available for the multiemployer plan,

total plan liabilities were approximately $

587

million.

As of December 31, 2020, the multiemployer pension plan had total plan assets

of approximately $

387

million.

The Company’s contribution

rate to the multiemployer pension plan is specified in the collective

bargaining union contract and contributions are made

to the plan based on its union employee payroll.

The Company contributed $

0.2

million during the year ended December 31, 2021.

The Employee Retirement Income Security Act of 1974, as amended by

the Multi-

Employer Pension Plan Amendments Act of 1980, imposes certain contingent

liabilities upon an employer who is a contributor to a

multiemployer pension plan if the employer withdraws from the plan

or the plan is terminated or experiences a mass withdrawal.

While the Company may also have additional liabilities imposed by

law as a result of its participation in the multiemployer defined

benefit pension plan, there is

liability as of December 31, 2021.

The Pension Protection Act of 2006 (the “PPA”)

also added special funding and operational rules generally applicable to plan

years beginning after 2007 for multiemployer plans with certain classifications based

on a multitude of factors (including, for

example, the plan’s funded

percentage, cash flow position and whether the plan is projected to experience

a minimum funding

deficiency).

The plan to which the Company contributes is in “critical” status.

Plans in the “critical” status classification must adopt

measures to improve their funded status through a funding improvement

or rehabilitation plan which may require additional

contributions from employers (which may take the form of a surcharge

on benefit contributions) and/or modifications to retiree

benefits.

The amount of additional funds that the Company may be obligated to contribute to the

plan in the future cannot be

estimated as such amounts will be likely based on future levels of work

that require the specific use of those union employees covered

by the plan, and the amount of that future work and the number of affected

employees that may be needed is not reasonably estimable.

Cash Flows

Contributions

The Company expects to make minimum cash contributions of approximately$

10.6

million to its pension plans (approximately

6.6

million U.S. and $

4.0

million Foreign) and approximately $

0.2

million to its other postretirement benefit plan in 2022.

Estimated Future Benefit Payments

Excluding any impact related to the PPA

noted above, the following benefit payments, which reflect expected

future service, as

appropriate, are expected to be paid:

Other Post-

Pension Benefits

Retirement

Foreign

U.S.

Total

Benefits

2022

6,678

6,627

13,305

220

2023

6,661

6,043

12,704

209

2024

6,475

6,205

12,680

187

2025

6,984

6,199

13,183

174

2026

7,702

6,213

13,915

157

2027 to 2031

42,577

30,169

72,746

625

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

The Company maintains a plan under which supplemental retirement benefits

are provided to certain officers.

Benefits payable

under the plan are based on a combination of years of service and existing

postretirement benefits.

Included in total pension costs are

charges of $

3.0

million, $

2.5

million and $

1.8

million for the years ended December 31, 2021, 2020 and 2019, respectively,

representing the annual accrued benefits under this plan.

Defined Contribution Plan

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

a majority of its U.S. employees.

The plan allows for and the

Company previously paid a nonelective contribution on behalf of participants

who have completed one year of service equal to 3% of

the eligible participants’ compensation in the form of Company common

stock.

During 2019 and 2018, the Company made both non-

elective and elective 401(k) matching contributions in cash, rather than stock.

Beginning in April 2020 and continuing through March

2021,

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

in fully vested shared of the Company’s common

stock rather than cash.

See Note 8 of Notes to Consolidated Financial Statements.

Total Company

contributions were $

4.8

million,

5.7

million and $

4.0

million for the years ended December 31, 2021, 2020 and 2019, respectively.

Note 22 – Other Non-Current Liabilities

Other non-current liabilities as of December 31, 2021 and 2020 were

as follows:

2021

2020

Uncertain tax positions (includes interest and penalties)

28,665

28,961

Non-current income taxes payable

8,500

Deferred and other long-term compensation

6,388

6,257

Environmental reserves

4,424

4,610

Inactive subsidiary litigation and settlement reserve

410

542

Fair value of interest rate swaps

4,672

Other

1,228

1,627

Total other non

-current liabilities

49,615

55,169

The Fair value of interest rate swaps as of December 31, 2021 has been reclassified to

other accrued liabilities in connection with

the expiration of the swap contract in November 2022.

See Notes 19 and 25 of Notes to Consolidated Financial Statements.

Note 23 – Equity and Accumulated Other Comprehensive Loss

The Company has

30,000,000

shares of common stock authorized with a par value of $

, and

17,897,033

and

17,850,616

issued and outstanding as of December 31, 2021 and 2020, respectively.

The change in shares issued and outstanding during 2021

was primarily related to

29,415

shares issued for share-based compensation plans and

17,002

shares issued for the exercise of stock

options and other share activity.

The Company is authorized to issue

10,000,000

shares of preferred stock with $

par value, subject to approval by the Board.

The Board may designate one or more series of preferred stock and

the number of shares, rights, preferences, and limitations of each

series.

As of December 31, 2021,

preferred stock had been issued.

The Company has a share repurchase program that was approved by its Board

in 2015 for the repurchase of up to $

100.0

million

of Quaker Chemical Corporation common stock.

The Company has

t repurchased any shares under the program for the years ended

December 31, 2021, 2020 and 2019.

As of December 31, 2021, there was approximately $

86.9

million of common stock remaining to

be purchased under this share repurchase program.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

The following table shows the reclassifications from and resulting balances

of AOCI for the years ended December 31, 2021,

2020 and 2019:

Defined

Unrealized

Gain (Loss) in

Currency

Benefit

Translation

Pension

Available-for-

Derivative

Adjustments

Plans

Sale Securities

Instruments

Total

Balance as of December 31, 2018

(49,322)

(30,551)

(842)

(80,715)

Other comprehensive income (loss) before

reclassifications

4,754

(8,088)

2,951

(415)

(798)

Amounts reclassified from AOCI

3,169

(301)

2,868

Related tax amounts

937

(557)

475

Balance as of December 31, 2019

(44,568)

(34,533)

1,251

(320)

(78,170)

Other comprehensive income (loss) before

reclassifications

41,693

(6,617)

2,848

(4,257)

33,667

Amounts reclassified from AOCI

24,141

(202)

23,939

Related tax amounts

(6,458)

(555)

979

(6,034)

Balance as of December 31, 2020

(2,875)

(23,467)

3,342

(3,598)

(26,598)

Other comprehensive (loss) income before

reclassifications

(46,968)

11,948

(531)

2,890

(32,661)

Amounts reclassified from AOCI

1,459

(3,197)

(1,738)

Related tax amounts

(3,112)

783

(664)

(2,993)

Balance as of December 31, 2021

(49,843)

(13,172)

397

(1,372)

(63,990)

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 24 – Fair Value

Measures

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 December 31, 2021

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

2,533

Total

2,533

Fair Value

Measurements at December 31, 2020

Total

Using Fair Value

Hierarchy

Assets

Fair Value

Level 1

Level 2

Level 3

Company-owned life insurance

1,961

Total

1,961

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

for like instruments with similar credit ratings and

terms.

The Company did not hold any Level 3 investments as of December 31,

2021 or 2020, respectively,

so related disclosures have

not been included.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

Note 25 – 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 20 of Notes to 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

becomes probable that the forecasted transaction will not occur.

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

derivative instruments, which are Level 2 measurements, are as

follows:

Fair Value

Consolidated Balance Sheet

December 31,

Location

2021

2020

Derivatives designated as cash flow hedges:

Interest rate swaps

Other accrued liabilities

1,782

Other non-current liabilities

4,672

1,782

4,672

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

December 31,

2021

2020

Derivatives designated as cash flow hedges:

Interest rate swaps

AOCI

1,372

3,598

1,372

3,598

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

For the Years

Ended

December 31,

2021

2020

2019

Amount and location of (expense) income reclassified

from AOCI into (expense) income (Effective Portion)

Interest expense, net

(2,649)

(1,754)

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 Consolidated

Balance Sheets.

Note 26 – Commitments and Contingencies

In 1992, the Company identified certain soil and groundwater contamination

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

subsidiary.

In voluntary coordination with the Santa Ana California Regional Water

Quality Board, ACP has been remediating the

contamination, the principal contaminant of which is perchloroethylene

(“PERC”).

In 2004, the Orange County Water

District

(“OCWD”) filed a civil complaint against ACP and other parties seeking

to recover compensatory and other damages related to the

investigation and remediation of the contamination in the groundwater.

Pursuant to a settlement agreement with OCWD, ACP agreed,

among other things, to operate the two groundwater treatment systems to hydraulically

contain groundwater contamination emanating

from ACP’s site until the concentrations

of PERC released by ACP fell below the current Federal maximum contaminant level for

four consecutive quarterly sampling events.

In 2014, ACP ceased operation at one of its two groundwater treatment systems,

as it had

met the above condition for closure.

In 2020, the Santa Ana Regional Water

Quality Control Board asked that ACP conduct some

additional indoor and outdoor soil vapor testing on and near the ACP site to confirm

that ACP continues to meet the applicable local

standards and ACP performed such testing program

work in 2021 and will continue into 2022.

As of December 31, 2021, ACP

believes it is close to meeting the conditions for closure of the remaining groundwater

treatment system but continues to operate this

system while in discussions with the relevant authorities.

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

As of December 31, 2021, the Company believes that the range of potential

-known liabilities associated with the balance of 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.

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.

The subsidiary

discontinued operations in 1991 and has no remaining assets other than

proceeds received from insurance settlements.

To date, the

overwhelming majority of these claims have been disposed of without

payment and there have been no adverse judgments against the

subsidiary.

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

it is currently projected

that the subsidiary’s total liability over

the next 50 years for these claims is approximately $

0.4

million (excluding costs of defense).

Although the Company has also been named as a defendant in certain of these

cases, no claims have been actively pursued against the

Company, and the

Company has not contributed to the defense or settlement of any of these cases pursued against

the subsidiary.

These cases were originally handled by the subsidiary’s

primary and excess insurers who had agreed in 1997 to pay all defense

costs and be responsible for all damages assessed against the subsidiary arising

out of existing and future asbestos claims up to the

aggregate limits of their policies.

A significant portion of this primary insurance coverage was provided

by an insurer that is

insolvent, and the other primary insurers asserted that the aggregate limits

of their policies had been exhausted.

The subsidiary

challenged the applicability of these limits to the claims being brought

against the subsidiary.

In response, two of the three carriers

entered into separate settlement and release agreements with the subsidiary

in 2005 and 2007 for $

15.0

million and $

20.0

million,

respectively.

In 2007, the subsidiary and the remaining primary insurance carrier

entered into a Claim Handling and Funding Agreement, under

which the carrier is paying

% of defense and indemnity costs incurred by or on behalf of the subsidiary

in connection with asbestos

bodily injury claims.

The agreement continues until terminated and can only be terminated by either party

by providing a minimum of

two years prior written notice.

As of December 31, 2021, no notice of termination has been given under

this agreement.

At the end of the term of the agreement, the subsidiary

may choose to again pursue its claim against this insurer regarding the

application of the policy limits.

The Company believes that, if the coverage issues under the primary policies with

the remaining

carrier are resolved adversely to the subsidiary and

all settlement proceeds were used, the subsidiary may have limited additional

coverage from a state guarantee fund established following the insolvency

of one of the subsidiary’s primary

insurers.

Nevertheless,

liabilities in respect of claims may exceed

the assets and coverage available to the subsidiary.

If the subsidiary’s assets and insurance

coverage were to be exhausted, claimants of the subsidiary may actively pursue claims

against the Company because of the parent-subsidiary relationship.

The Company does not believe that such claims would have merit

or that the Company would be held to have liability for any unsatisfied obligations

of the subsidiary as a result of such claims.

After

evaluating the nature of the claims filed against the subsidiary

and the small number of such claims that have resulted in any payment,

the potential availability of additional insurance coverage at the subsidiary

level, the additional availability of the Company’s

own

insurance and the Company’s strong

defenses to claims that it should be held responsible for the subsidiary’s

obligations because of

the parent-subsidiary relationship, the Company believes it is not probable

that the Company will incur losses.

The Company has

been successful to date having claims naming it dismissed during

initial proceedings.

Since the Company may be in this stage of

litigation for some time, it is not possible to estimate additional losses or range of

loss, if any.

The Company is party to 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 year ended December 31, 2021, there have been no significant

changes to the facts or circumstances of these matters, aside

from ongoing monitoring and maintenance activities and routine payments

associated with each of these 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 present value range of costs for

all of these environmental matters, on a discounted basis, to

be between approximately $

5.0

million and $

6.0

million as of December 31, 2021, for which $

5.6

million is accrued within other

accrued liabilities and other non-current liabilities on the Company’s

Consolidated Balance Sheet as of December 31, 2021.

Comparatively,

as of December 31, 2020, the Company had $

6.0

million accrued for with respect to these matters.

The Company’s Sao Paulo,

Brazil site was required under Brazilian environmental, health and safety regulations

to perform an

environmental assessment as part of a permit renewal process.

Initial investigations identified soil and ground water contamination

select areas of the site.

The site has conducted a multi-year soil and groundwater investigation and corresponding

risk assessments

based on the result of the investigations.

In 2017, the site had to submit a new 5-year permit renewal request and was asked to

complete additional investigations to further delineate the site based on review

of the technical data by the local regulatory agency,

Companhia Ambiental do Estado de São Paulo (“CETESB”).

Based on review of the updated investigation data, CETESB issued a

Technical Opinion

regarding the investigation and remedial actions taken to date.

The site developed an action plan and submitted it

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

to CETESB in 2018 based on CETESB requirements.

The site intervention plan primarily requires the site, amongst other actions,

conduct periodic monitoring for methane in soil vapors, source zone

delineation, groundwater plume delineation, bedrock aquifer

assessment, update the human health risk assessment, develop a current

site conceptual model and conduct a remedial feasibility study

and provide a revised intervention plan.

In 2019, the site submitted a report on the activities completed including the revised site

conceptual model and results of the remedial feasibility study and recommended

remedial strategy for the site.

Other environmental matters include participation in certain payments

in connection with four currently active environmental

consent orders related to certain hazardous waste cleanup activities under

the U.S. Federal Superfund statute.

The Company has been

designated a potentially responsible party (“PRP”) by the Environmental

Protection Agency along with other PRPs depending on the

site, and has other obligations to perform cleanup activities at certain

other foreign subsidiaries.

These environmental matters

primarily require the Company to perform long-term monitoring

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

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 and $

0.1

million were accrued as of December 31, 2021 and 2020, respectively,

to provide for such anticipated future

environmental assessments and remediation costs.

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

subsidiaries received a notice of inspection from a taxing authority in a

country where certain of its subsidiaries operate which related to a non-income

(indirect) tax that may be applicable to certain products

the subsidiary sells.

During the third quarter of 2021, the Company’s

subsidiary received notice from the

taxing authority that the

inspection was closed, with no tax assessment issued.

Based on this development, during the third quarter of 2021, the Company

reversed its previously recorded $

1.8

million liability related to this matter.

The Company also reversed the associated $

1.1

million

indemnification receivable, as the asserted tax liability in part related

to a Houghton entity acquired in the Combination and for the

periods prior to the Combination, for which the Company would have rights to indemnification

from Houghton’s former owners.

Based on all available information as of the date of this report, the Company

does not anticipate further tax liabilities related to this

matter to be asserted by the taxing authority.

During 2021, one of the Company’s

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

legal claim in

regard to certain non-income (indirect) taxes that had been previously

charged and paid.

The matter specifically relates to companies’

rights to exclude the state tax on goods circulation

(a valued-added-tax or

VAT

equivalent, known in Brazil as “ICMS”) from the

calculation of certain additional indirect taxes (specifically the program of

social integration (“PIS”) and contribution for the financing

of social security (“COFINS”)) levied by the Brazilian States on the sale of goods.

In May 2021, the Brazilian Supreme Court

concluded that ICMS should not be included in the tax base of PIS and

COFINS, and confirmed the methodology for calculating the

PIS and COFINS tax credit claims to which taxpayers are entitled.

The Company’s Brazilian entities had

previously filed legal or

administrative disputes on this matter and are entitled to receive tax credits and

interest dating back to five years preceding the date of

their legal claims.

As a result of these court rulings, during the second quarter of 2021,

the Company recognized non-income tax

credits of

67.0

million BRL or approximately $

13.3

million, which included approximately $

8.4

million for the PIS and COFINS tax

credits as well as interest on these tax credits of $

4.9

million, and is recorded within prepaid and other current assets on the

Company’s Consolidated

Balance Sheet.

The tax credits to which the Company’s

Brazilian subsidiaries are entitled are claimable

once registered with the Brazilian tax authorities.

The Company submitted its formal claim for tax credits in October 2021.

These tax

credits can be used to offset future Brazilian federal taxes and

the Company currently anticipates using the full amount of credits

during the five year period of time permitted.

During the third quarter of 2021, the Brazilian Supreme Court ruled that interest income

to which companies are entitled for matters such as this claim should not be

taxable, which resulted in a reduction to the estimated

income tax expense associated with the tax credits recorded.

In connection with obtaining regulatory approvals for the Combination,

certain steel and aluminum related product lines of

Houghton were divested in August 2019.

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 and the acquirer have agreed to extend the period for

a possible negotiated resolution of this claim

through March 31, 2022 so that both parties can evaluate the other’s

positions with respect to the subject matters of the claim.

The

Company is evaluating the merits of the alleged losses in the indemnification

claim received.

As of the date of this Report, the

Company does not believe it is reasonably possible to determine or quantify

any possible exposure.

During the third quarter of 2021, 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.

In Conshohocken, Pennsylvania, the

Company’s global headquarters

as well as its laboratory experienced property damages as a result of flooding from

Hurricane Ida.

Also, one of the Company’s North

American production facilities in its Global Specialty Businesses segment experienced an

electrical

fire that resulted in damage and the temporary shutdown of production,

and also required remediation, cleaning and subsequent

restoration.

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

QUAKER CHEMICAL CORPORATION

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

- Continued

(

Dollars in thousands, except per share amounts, unless otherwise stated

)

insurance adjuster and insurance carrier,

that the losses incurred during the third quarter of 2021 will be 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 $

0.7

million as of December 31, 2021.

The Company and its insurance carrier are in early stages of reviewing the impact

of the electrical fire on the production facility’s

operations as it relates to a potential business interruption insurance claim; however,

as of the date of this Report, the Company cannot reasonably estimate any probable

amount of business interruption insurance claim

recoverable, therefore the Company has not recorded a gain contingency

for a possible business interruption insurance claim as of

December 31, 2021.

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.

Item 9.

Changes in and Disagreements With Accountants on

Accounting and Financial Disclosure.

Not Applicable.

Item 9A.

Controls and Procedures.

Conclusion Regarding the Effectiveness 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 December

31, 2021, 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.

Management’s Report on Internal Control

over Financial Reporting

Management is responsible for establishing and maintaining adequate

internal control over financial reporting as such term is

defined in Rule 13a-15(f) under the Exchange Act.

Internal control over financial reporting is a process designed to provide

reasonable assurance regarding the reliability of financial reporting

and the preparation of financial statements for external purposes in

accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting

may not prevent or detect misstatements.

Also,

projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because

changes in conditions or that the degree of compliance with the policies or

procedures may deteriorate.

Our management, with the participation of our principal executive officer

and principal financial officer,

assessed the

effectiveness of the Company’s

internal control over financial reporting as of December 31, 2021.

In making this assessment, our

management used the criteria set forth by the Committee of Sponsoring

Organizations of the Treadway Commission in

Internal

Control—Integrated Framework

(2013) (the “COSO framework”).

Based on its assessment, management has concluded that as of

December 31, 2021, the Company’s

internal control over financial reporting is effective based on those

criteria.

Management has excluded the internal controls of Grindaix GmbH and

Baron Industries from our assessment of internal control

over financial reporting as of December 31, 2021, because these entities were acquired

by the Company in purchase business

combinations in September and November 2021, respectively.

Grindaix GmbH and Baron Industries are wholly owned subsidiaries

whose total assets and total revenues excluded from our assessment of internal

control over financial reporting each represent less than

1% of the related consolidated financial statement amounts as of and for

the year ended December 31, 2021.

The effectiveness of the Company’s

internal control over financial reporting as of December 31, 2021 has been

audited by

PricewaterhouseCoopers LLP,

an independent registered public accounting firm, as stated in its report which is included

in “Item 8.

Financial Statements and Supplementary Data.”

Remediation of the Previously Identified Material Weaknesses

As disclosed in “Item 9A. Controls and Procedures.” in the Company’s

2020 Form 10-K, we previously identified certain

deficiencies in our application of the principles associated with the COSO framework

that management concluded constituted material

weaknesses.

We did not

design and maintain effective controls in response to the risks of material

misstatement.

Specifically,

changes to existing controls or the implementation of new controls were not

sufficient to respond to changes to the risks of material

misstatement in financial reporting as a result of becoming a larger,

more complex global organization due to the Combination.

This

material weakness also contributed to an additional material weakness as we did

not design and maintain effective controls over

the

review of pricing, quantity and customer data to verify that revenue

recognized was complete and accurate.

The Company and its Board of Directors are committed to maintaining a strong

internal control environment.

Since identifying

the material weaknesses, the Company has dedicated a significant amount

of time and resources to remediate all of the previously

identified material weaknesses as quickly and effectively

as possible.

During 2020 and 2021, the Company dedicated multiple

internal resources and supplemented those internal resources with various

third-party specialists to assist with the formalization of a

robust and detailed remediation plan.

In undertaking remediation activities, the Company has hired

additional personnel dedicated to

financial and information technology compliance to further supplement

its internal resources. In addition, the Company has

established a global network of personnel to assist local management

in understanding control performance and documentation

requirements.

In order to sustain this network, the Company conducts periodic trainings

and hosts discussions to address questions on

a current basis.

Risk Assessment –

Specific to the material weakness in our risk assessment process that was previously

disclosed in

“Item 9A.

Controls and Procedures.”

in the Company’s 2020 Form

10-K, we previously determined that our risk assessment process was not

designed adequately to respond to changes to the risks of material misstatement to

financial reporting.

In order to remediate this

material weakness, we have designed and implemented an improved

risk assessment process, including identifying and assessing

those risks attendant to the significant changes within the Company as a result of

becoming a larger, more

complex global

organization due to the Combination.

During 2020 and in 2021, a full review was performed of our processes and

controls across

significant and other locations in order to identify and address potential design

gaps.

In addition to individual transactional-level

control enhancements, this review resulted in (i) an enhanced financial statement

risk assessment, (ii) the standardization of existing

legal entity and newly implemented segment quarterly analytics and quarterly

closing packages completed by key financial reporting

personnel, (iii) a global account reconciliation review program and

(iv) enhancements to our quarterly identification and reassessment

of new and existing business and information technology risks that could

affect our financial reporting.

Monitoring is also performed

through our enhanced quarterly controls certification process, whereby

changes in business or information technology processes

control owners are identified and addressed timely.

As previously disclosed in the 2020 Form 10-K, this material weakness

remediation was also dependent on the remediation of the Revenue –

Price and Quantity material weakness. During the fourth quarter

of 2021, we completed testing of the operating effectiveness of

the controls (including Revenue-

Price and Quantity) and have

concluded that the material weakness has been remediated as of

December 31, 2021.

Revenue – Price and Quantity –

Specific to the material weakness in our revenue process that was previously

disclosed in

“Item 9A.

Controls and Procedures.”

in the Company’s 2020 Form 10-K,

we did not design and maintain effective controls over the review of

pricing, quantity and customer data to verify that revenue recognized was complete

and accurate.

In order to remediate this material

weakness, the Company redesigned certain aspects of its revenue process and

related controls.

The design included enhancements to

entity-level and transactional-level manual controls as well as IT general

and application controls, which were substantially

implemented during the third quarter of 2021.

During the fourth quarter of 2021, we completed testing of the operating effectiveness

of the controls and have concluded that the material weakness has been remediated

as of December 31, 2021.

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 fourth quarter of the year ended

December 31, 2021, that have materially affected, or are

reasonably likely to materially affect, our internal control over

financial reporting.

Based on that evaluation, there were no changes

that have materially affected, or are reasonably likely to

materially affect, our internal control over financial reporting

during the

fourth quarter of the year ended December 31, 2021.

Item 9B.

Other Information.

Not applicable.

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

PART

III

Item 10.

Directors, Executive Officers and Corporate Governance.

Incorporated by reference is (i) the information beginning

with and including the caption “Proposal 1—Election of Directors and

Nominee Biographies” in Quaker Houghton’s

definitive Proxy Statement relating to the 2022 Annual Meeting of

Shareholders, to be

filed with the Securities and Exchange Commission no later than

120 days after the close of its fiscal year ended December 31, 2021

(the “2022 Proxy Statement”) to, but not including, the sub-caption

“Governance Committee Procedures for Selecting Director

Nominees,” (ii) the information appearing in Item 4(a) of this Report, (iii)

the information in the 2022 Proxy Statement beginning with

and including the sub-caption “Code of Conduct” to, but not including,

the caption “Compensation Committee Interlocks and Insider

Participation,” and (iv) the information in the 2022 Proxy Statement beginning

with and including the sub-caption “Shareholder

Nominations and Recommendations” to, but not including,

the sub-caption “Board Oversight of Risk.”

Information about our

Executive Officers is included in Item 4(a) of this Report.

Item 11.

Executive Compensation.

Incorporated by reference is (i) the information in the 2022 Proxy

Statement beginning with and including the caption

“Compensation Committee Interlocks and Insider Participation” to, but

not including the caption “Stock Ownership of Certain

Beneficial Owners and Management.”

Item 12.

Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters.

Incorporated by reference is the information in the 2022 Proxy Statement

beginning with and including the caption “Stock

Ownership of Certain Beneficial Owners and Management” to, but not including,

the caption “Certain Relationships and Related

Transactions.”

Equity Compensation Plans

The following table sets forth certain information relating to the Company’s

equity compensation plans as of December 31, 2021.

Each number of securities reflected in the table is a reference to shares of Quaker

common stock.

Equity Compensation Plan Information

Number of securities

remaining available for

to be issued upon

Weighted-average

future issuance under

exercise of

exercise price of

equity compensation plans

outstanding options,

(excluding securities

Plan Category

warrants and rights

reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved

by security holders

109,684

165.47

606,155

(1)

Equity compensation plans not approved

by security holders

Total

109,684

165.47

606,155

(1)

As of December 31, 2021, 304,900 of these shares were available for issuance

as restricted stock awards under the Company’s

2001 Global Annual Incentive Plan, 240,004 shares were available for

issuance upon the exercise of stock options and/or as

restricted stock awards and/or restricted stock unit awards under the Company’s

2016 Long-Term Performance

Incentive Plan, and

61,251 shares were available for issuance under the 2013 Director Stock

Ownership Plan.

Item 13.

Certain Relationships and Related Transactions, and

Director Independence.

Incorporated by reference is (i) the information in the 2022 Proxy

Statement beginning with and including the caption “Certain

Relationships and Related Party Transactions”

to, but not including, the caption “Proposal 2 — Ratification of Appointment of

Independent Registered Public Accounting Firm,” (ii) the

information in the 2022 Proxy Statement beginning with and including the

sub-caption “Director Independence” to, but not including, the

sub-caption “Governance Committee Procedures for Selecting Director

Nominees,” and (iii) the information in the 2022 Proxy Statement beginning

with and including the caption “Meetings and

Committees of the Board” to, but not including, the caption “Compensation

Committee Interlocks and Insider Participation.”

Item 14.

Principal Accountant Fees and Services.

Incorporated by reference is the information in the 2022 Proxy Statement

beginning with and including the sub-caption “Audit

Fees” to, but not including, the statement recommending a vote for ratification

of the appointment of PricewaterhouseCoopers LLP as

the Company’s independent

registered public accounting firm for the year ending December 31, 2022.

PART

Item 15.

Exhibits and Financial Statement Schedules.

(a)

Exhibits and Financial Statement Schedules

Financial Statements and Supplementary Data

Page

Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Equity

Notes to Consolidated Financial Statements

Financial Statement Schedules

All schedules are omitted because they are not applicable or the required

information is shown in the financial statements or notes

thereto.

Financial statements of 50% or less owned companies have been omitted because none

of the companies meets the criteria

requiring inclusion of such statements.

Exhibits - filed pursuant to, and numbered in accordance

with Item 601 of Regulation S-K (all of which are under

Commission File number 001-12019, except as otherwise noted):

2.1 —

Share Purchase Agreement, dated April 4, 2017, by and among Quaker Chemical Corporation, a Pennsylvania

corporation, Gulf Houghton Lubricants, Ltd., an exempted company incorporated under the laws of the Cayman Islands,

Global Houghton Ltd., an exempted company incorporated under the laws of the Cayman Islands, and certain members

of the management of Global Houghton Ltd. and Gulf Houghton Lubricants, Ltd., as agent for the Sellers. Incorporated

by reference to Exhibit 10.1 as filed by the Registrant with Form 8-K, filed on April 5, 2017. ***

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 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 Registrant within its quarterly report on Form 10-Q on May 11, 2020.

4.1 —

Registration Rights, dated August 1, 2019, issued to certain members of the management of Global Houghton Ltd. and

Gulf Houghton Lubricants, Ltd. by Quaker Chemical Corporation. Incorporated by reference to Exhibit 4.5 as filed by

Registrant on Form S-3 on August 29, 2019

4.2 —

Description of Quaker Houghton common stock. Incorporated by reference to Exhibit 4.2 as filed by the Registrant with

Form 10-K for the year ended 2019.

10.1

—

Claim Handling and Funding Agreement between SB Decking, Inc., an inactive subsidiary of Registrant, and

Employers Insurance Company of Wausau dated September 25, 2007. Incorporated by reference to Exhibit 10(ffff) as

filed by the Registrant with Form 10-Q for the quarter ended September 30, 2007.

10.2

—

Settlement Agreement and Mutual Release entered into between AC Products, Inc., wholly owned subsidiary of

Registrant, and Orange County Water District, effective November 8, 2007. Incorporated by reference to Exhibit

10.47 as filed by the Registrant with Form 10-K for the year ended 2007.

10.3

—

Employment Agreement by and between Registrant and Michael F. Barry dated July 1, 2008. Incorporated by

reference to Exhibit 10.5 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2008. †

10.4

—

Change in Control Agreement by and between Registrant and Michael F. Barry dated July 1, 2008. Incorporated by

reference to Exhibit 10.6 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2008. †

10.5

—

Employment Agreement by and between L. Willem Platzer and Quaker Chemical B.V., a Netherlands corporation

and a subsidiary of Registrant, dated August 21, 2006. Incorporated by reference to Exhibit 10 as filed by the

Registrant with Form 8-K filed on August 22, 2006. †

10.6

—

Change in Control Agreement by and between Registrant and L. Willem Platzer dated April 2, 2007, effective

January 1, 2007. Incorporated by reference to Exhibit 10(aaaa) as filed by the Registrant with Form 10-Q for the

quarter ended March 31, 2007. †

10.7

—

Memorandum of Employment by and between Registrant and Joseph Berquist dated April 1, 2010. Incorporated by

reference to Exhibit 10.2 as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2010. †

10.8

—

Change in Control Agreement by and between Registrant and Joseph Berquist dated April 1, 2010. Incorporated by

reference to Exhibit 10.3 as filed by the Registrant with Form 10-Q for the quarter ended March 31, 2010.

†

10.9 —

Employment Agreement by and between Registrant and Joseph Berquist dated August 18 2021, effective on

September 9, 2021. Incorporated by reference to Exhibit 10.3 as filed by the registrant with Form 10-Q for the quarter

ended September 30, 2021.

†

10.10 —

Employment Agreement by and between Dieter Laininger and Quaker Chemical B.V., a subsidiary of the registrant,

dated June 1, 2011, effective June 15, 2011. Incorporated by reference to Exhibit 10.1 as filed by the Registrant with

Form 10-Q for the quarter ended June 30, 2011

. †

10.11 —

Change in Control Agreement by and between Registrant and Dieter Laininger dated May 31, 2011, effective June 15,

2011. Incorporated by reference to Exhibit 10.2 as filed by the Registrant with Form 10-Q for the quarter ended June

30, 2011

. †

10.12 —

Employment Agreement by and between Registrant and Andrew Tometich dated September 2, 2021, effective on

October 11, 2021. Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the quarter

ended September 30, 2021.

. †

10.13 —

hange in Control Agreement by and between Registrant and Andrew Tometich dated September 2, 2021, effective on

October 11, 2021. Incorporated by reference to Exhibit 10.2 as filed by the Registrant with Form 10-Q for the quarter

ended on September 30, 2021

†

10.14 —

Expatriate Agreement by and between the Registrant and Dieter Laininger, dated September 27, 2017, effective

August 1, 2019. Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q, filed on

November 12, 2019.†

10.15 —

Expatriate Agreement by and between the Registrant and Adrian Steeples, dated October 12, 2017, effective August 1,

2019. Incorporated by reference to Exhibit 10.2 as filed by the Registrant with Form 10-Q, filed on November 12,

2019

.†

10.16 —

Form of Memorandum of Employment by and between the Registrant and certain executive officers (including Robert

Traub, Jeewat Bijlani, Kym Johnson and David Slinkman). Incorporated by reference to Exhibit 10.3 as filed by the

Registrant with Form 10-Q, filed on November 12, 2019

.†

10.17 —

Form of Change of Control Agreement by and between the Registrant and certain executive officers (including Robert

Traub, Jeewat Bijlani, Kym Johnson and David Slinkman). Incorporated by reference to Exhibit 10.4 as filed by the

Registrant with Form 10-Q, filed on November 12, 2019

.†

10.18 —

Memorandum of Employment by and between Registrant and Mary Dean Hall, dated and effective November 30,

2015. Incorporated by reference to Exhibit 10.60 as filed by the Registrant with Form 10-K for the year ended 2015

.†

10.19 —

Memorandum of Employment by and between the Registrant and Shane Hostetter dated and effective April 19, 2021.

Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the quarter ended on March

31, 2021. †

10.20 —

Form of Change of Control Agreement by and between the Registrant and Shane Hostetter dated and effective April

19, 2021. Incorporated by reference to Exhibit 10.2 as filed by the Registrant with Form 10-Q for the quarter that

ended on March 31, 2021.

†

10.21 —

Memorandum of Employment by and between the Registrant and David Will dated March 22, 2021 and effective

April 19, 2021. Incorporated by reference to Exhibit 10.3 as filed by the Registrant with Form 10-Q for the quarter

ended on March 31, 2021.

†

10.22 —

Terms and Conditions of Employment by and between Quaker Chemical Ltd and Adrian Steeples, dated December 7,

2010. Incorporated by reference to Exhibit 10.19 as filed by the Registrant with Form 10-K for the year ended 2019.†

10.23

—

Amendment to Terms and Conditions of Employment by and between Quaker Chemical Ltd and Adrian Steeples,

dated June 15, 2011. Incorporated by reference to Exhibit 10.20 as filed by the Registrant with Form 10-K for the year

ended 2019. †

10.24

—

Supplemental Retirement Income Program (as amended and restated effective January 1, 2008), approved November

19, 2008. Incorporated by reference to Exhibit 10.58 as filed by the Registrant with Form 10-K for the year ended

2008. †

10.25

—

2013 Director Stock Ownership Plan as approved May 8, 2013. Incorporated by reference to Appendix B to the

Registrant’s definitive proxy statement filed on March 28, 2013. †

10.26

—

Retirement Savings Plan, as amended and restated effective January 22, 2021, approved November 1, 2021. *†

10.27 —

Quaker Houghton Annual Incentive Plan (as amended and restated effective November 17, 2021). *†

10.28

—

2011 Long-Term Performance Incentive Plan. Incorporated by reference to Appendix C to the Registrant’s definitive

proxy statement filed on March 31, 2011

†

10.29 —

Form of Restricted Stock Unit Agreement for executive officers and other employees under Registrant’s 2011 Long-

Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-

Q for the quarter ended March 31, 2012

†

10.30 —

2016 Long-Term Performance Incentive Plan. Incorporated by reference to Appendix C to the Registrant’s definitive

proxy statement filed on March 28, 2016. †

10.31 —

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

Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.3 as filed by Registrant with Form 8-K

filed on May 6, 2016. †

10.32 —

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

Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.4 as filed by Registrant with Form 8-K

filed on May 6, 2016. †

10.33

—

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

Performance Incentive Plan. Incorporated by reference to Exhibit 10.30 as filed by the Registrant with Form 10-K for

the year ended 2019. †

10.34

—

Chief Executive Officer Transition Agreement dated April 22, 2021, effective December 31, 2021. Incorporated by

reference to Exhibit 10.4 as filed by the Registrant with Form 10-Q for the quarter ended on March 31, 2021

. †

10.35

—

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

Performance Incentive Plan.

Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for

the quarter ended on June 30, 2021

. †

10.36

—

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

Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.2 as filed by the Registrant with Form 10-

Q for the quarter ended on June 30, 2021.

†

10.37

—

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

Long-Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.3 as filed by the Registrant with

Form 10-Q for the quarter ended on June 30, 2021

. †

10.38

—

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

2016 Long-Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.4 as filed by the Registrant

with Form 10-Q for the quarter ended on June 30, 2021.

†

10.39 —

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

Long-Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.5 as filed by the Registrant with

Form 10-Q for the quarter ended on June 30, 2021.

†

10.40 —

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

2016 Long-Term Performance Incentive Plan. Incorporated by reference to Exhibit 10.6 as filed by the Registrant

with Form 10-Q for the quarter ended on June 30, 2021.

†

10.41 —

Financing Agreement by and among Butler County Port Authority and Registrant and Brown Brothers Harriman &

Co. dated May 15, 2008. Incorporated by reference to Exhibit 10.1 as filed by the Registrant with Form 10-Q for the

quarter ended June 30, 2008.

10.42 —

Butler County Port Authority Industrial Development Revenue Bond dated May 15, 2008. Incorporated by reference

to Exhibit 10.7 as filed by the Registrant with Form 10-Q for the quarter ended June 30, 2008.

10.43 —

Senior Secured Credit Facilities Commitment Letter, dated April 4, 2017, by and among Quaker Chemical

Corporation, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank AG New

Yor k Branch and Deutsche Bank Securities Inc. Incorporated by reference to Exhibit 10.1 as filed by the Registrant

with Form 8-K, filed on April 7, 2017.

10.44 —

Credit Agreement, dated as of August 1, 2019, among Quaker Chemical Corporation and certain of its subsidiaries,

Banks of America, N.A. and each of the lenders from time to time party thereto. Incorporated by reference to Exhibit

10.3 as filed by Registrant with Form 8-K filed on August 2, 2019.

***

10.45 —

Amendment No. 1, dated as of March 17, 2020, to the Credit Agreement, dated as of August 1, 2019. Incorporated by

reference to Exhibit 10.1 as filed by the Registrant with Form 8-K filed on March 17, 2020.

10.46 —

Amendment No. 2, dated as of December 10, 2021, to the Credit Agreement, dated as of August 1, 2019.*

10.47 —

Shareholder Agreement, dated August 1, 2019, among Quaker Chemical Corporation, Gulf Hungary Holding Korlátolt

Felelősségű Társaság, Gulf Oil International, Ltd. and GOCL Corporation Limited. Inc. Incorporated by reference to

Exhibit 10.1 as filed by Registrant with Form 8-K filed on August 2, 2019

10.48 —

Non-Competition and Non-Solicitation Agreement, dated as of August 1, 2019, among Quaker Chemical Corporation,

Gulf Houghton Lubricants Ltd., Gulf Oil International, Ltd., GOCL Corporation Limited and Gulf Oil Lubricants

India, Ltd. Incorporated by reference to Exhibit 10.2 as filed by Registrant with Form 8-K filed on August 2, 2019.***

10.49 —

Escrow Agreement, dated August 1, 2019, among Quaker Chemical Corporation, Gulf Houghton Lubricants, Ltd. and

Citibank N.A. Incorporated by reference to Exhibit 4.4 as filed by Registrant on Form S-3 on August 29, 2019.***

10.50 —

Amendment No 1, effective March 1, 2020, to the Quaker Houghton Retirement Savings Plan. Incorporated by

reference to Exhibit 10.2 as filed by the Registrant with its quarterly report on Form 10-Q on May 11, 2020. †

10.51 —

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

reference to Exhibit 10.1 as filed by the Registrant with its quarterly report on Form 10-Q on August 5, 2020. †

10.52 —

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

reference to Exhibit 10.2 as filed by the Registrant with its quarterly report on Form 10-Q on August 5, 2020. †

21 —

Subsidiaries and Affiliates of the Registrant.*

23 —

Consent of Independent Registered Public Accounting Firm.*

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 Andrew E. Tometich pursuant to 18 U.S.C. Section 1350.**

32.2 —

Certification of Shane W. Hostetter 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.

*** Certain exhibits and schedules have been omitted, and the Company

agrees to furnish supplementally to the Securities and

Exchange commission a copy of any omitted exhibits and schedules upon

request.

† Management contract or compensatory plan

Item 16.

Form 10-K Summary.

The Company has elected not to include a Form 10-K summary under this Item 16.

100

SIGNATURES

Pursuant to the requirements of Section 13 or

15(d) 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

By:

/s/

ANDREW E. TOMETICH

Andrew E. Tometich

Director,

Chief Executive Officer and President

Date: March 1, 2022

Pursuant to the requirements of the Securities Exchange

Act of 1934, this Report has been signed below by the following

persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures

Capacity

Date

/s/

ANDREW E. TOMETICH

Principal Executive Officer and

March 1, 2022

Andrew E. Tometich

Director

Chief Executive Officer and President

/s/

SHANE W. HOSTETTER

Principal Financial Officer

March 1, 2022

Shane W. Hostetter

Senior Vice President, Chief Financial

Officer and Chief Accounting Officer

/s/

DAVID A. WILL

Principal Accounting Officer

March 1, 2022

David A. Will

Vice President, Global Controller

/s/

MICHAEL F. BARRY

Director

March 1, 2022

Michael F. Barry

Chairman of the Board

/s/

DONALD R. CALDWELL

Director

March 1, 2022

Donald R. Caldwell

/s/

CHARLOTTE C. DECKER

Director

March 1, 2022

Charlotte C. Decker

/s/

MARK A. DOUGLAS

Director

March 1, 2022

Mark A. Douglas

/s/

JEFFRY D. FRISBY

Director

March 1, 2022

Jeffry D. Frisby

/s/

WILLIAM H. OSBORNE

Director

March 1, 2022

William H. Osborne

/s/

ROBERT H. ROCK

Director

March 1, 2022

Robert H. Rock

/s/

FAY

WEST

Director

March 1, 2022

Fay West

/s/

SANJAY HINDUJA

Director

March 1, 2022

Sanjay Hinduja

/s/

RAMASWAMI SESHASAYEE

Director

March 1, 2022

Ramaswami Seshasayee

/s/

MICHAEL SHANNON

Director

March 1, 2022

Michael Shannon