Quaker(KWR) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements and related notes Condensed Consolidated Statements of Income Reports a year-over-year decline in net income and diluted EPS despite an increase in net sales Condensed Consolidated Statements of Income (Dollars in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $492,388 | $435,262 | $966,559 | $865,045 | | Gross profit | $149,564 | $154,451 | $295,635 | $310,645 | | Operating income | $31,903 | $38,816 | $61,306 | $83,710 | | Net income attributable to Quaker Chemical Corporation | $14,343 | $33,570 | $34,159 | $72,185 | | Diluted EPS | $0.80 | $1.88 | $1.91 | $4.03 | | Dividends declared | $0.415 | $0.395 | $0.830 | $0.790 | Condensed Consolidated Statements of Comprehensive Income Details net income and other comprehensive income changes, highlighting a significant comprehensive loss Condensed Consolidated Statements of Comprehensive Income (Dollars in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $14,371 | $33,600 | $34,192 | $72,232 | | Other comprehensive (loss) income | $(75,018) | $17,293 | $(81,288) | $(9,339) | | Comprehensive (loss) income attributable to Quaker Chemical Corporation | $(60,642) | $50,855 | $(47,097) | $62,840 | Condensed Consolidated Balance Sheets Summarizes the company's assets, liabilities, and equity, showing slight growth in total assets Condensed Consolidated Balance Sheets (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,045,816 | $920,254 | | Total assets | $2,970,756 | $2,955,760 | | Total current liabilities | $400,725 | $430,467 | | Total liabilities | $1,640,190 | $1,567,838 | | Total equity | $1,330,566 | $1,387,922 | Condensed Consolidated Statements of Cash Flows Outlines cash movements from operating, investing, and financing activities, resulting in a net cash increase Condensed Consolidated Statements of Cash Flows (Dollars in thousands) for Six Months Ended June 30 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,423) | $(9,568) | | Net cash used in investing activities | $(24,436) | $(21,654) | | Net cash provided by (used in) financing activities | $78,631 | $(4,380) | | Net increase (decrease) in cash and cash equivalents | $37,172 | $(36,285) | | Cash and cash equivalents at end of period | $202,348 | $145,610 | Condensed Consolidated Statements of Changes in Equity Details the changes in shareholders' equity, reflecting a decrease primarily due to comprehensive loss Condensed Consolidated Statements of Changes in Equity (Dollars in thousands) | Metric | Balance at December 31, 2021 | Balance at June 30, 2022 | | :--- | :--- | :--- | | Common Stock | $17,897 | $17,920 | | Capital in Excess of Par Value | $917,053 | $921,642 | | Retained Earnings | $516,334 | $535,621 | | Accumulated Other Comprehensive Loss | $(63,990) | $(145,246) | | Total Quaker Shareholders' Equity | $1,387,294 | $1,329,937 | | Total Equity | $1,387,922 | $1,330,566 | Notes to Condensed Consolidated Financial Statements Note 1 – Basis of Presentation and Description of Business Outlines the company's global business in industrial process fluids and the basis of financial reporting - Quaker Houghton is the global leader in industrial process fluids, operating in over 25 countries[25] - The Company's Argentine subsidiaries represented less than 1% of consolidated total assets and net sales, with minimal remeasurement losses[26] Note 2 – Business Acquisitions Details two small acquisitions in 2022 to expand product offerings and geographic presence - Acquired a pickling inhibitor technologies business for the Americas segment for approximately $8.0 million in January 2022[27] - Acquired a metal casting sealing and impregnation business for the Global Specialty Businesses segment for approximately $1.4 million[28] - The purchase price allocations for all 2022 acquisitions and several 2021 acquisitions are not yet finalized as of June 30, 2022[36] Note 3 – Recently Issued Accounting Standards Discusses the adoption of ASU 2020-04 for reference rate reform and the transition from LIBOR to SOFR - Adopted ASU 2020-04, Reference Rate Reform, providing temporary optional expedients for the transition from LIBOR[40] - Amended its primary credit facility on June 17, 2022, to provide for the use of SOFR as a USD currency LIBOR successor rate[40] Note 4 – Business Segments Provides a breakdown of net sales and operating earnings across the company's four reportable segments - The Company has four reportable segments: Americas, EMEA, Asia/Pacific, and Global Specialty Businesses[41] - Segment operating earnings are defined as net sales less directly related COGS and SG&A, excluding certain corporate costs[42] Net Sales by Segment (Dollars in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Americas | $172,747 | $139,673 | $326,891 | $274,544 | | EMEA | $123,053 | $123,436 | $248,740 | $243,250 | | Asia/Pacific | $99,828 | $91,559 | $204,062 | $188,265 | | Global Specialty Businesses | $96,760 | $80,594 | $186,866 | $158,986 | | Total net sales | $492,388 | $435,262 | $966,559 | $865,045 | Segment Operating Earnings (Dollars in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Americas | $33,785 | $33,648 | $63,005 | $65,882 | | EMEA | $13,283 | $23,405 | $30,049 | $48,649 | | Asia/Pacific | $22,226 | $23,227 | $44,133 | $50,705 | | Global Specialty Businesses | $27,841 | $24,209 | $52,876 | $48,378 | | Total segment operating earnings | $97,135 | $104,489 | $190,063 | $213,614 | Note 5 – Net Sales and Revenue Recognition Disaggregates revenue by customer industry and timing of recognition, detailing sources of net sales - Fluidcare™ business generated $40.3 million in net reported third-party product sales for the first six months of 2022[47] - The Company's five largest customers accounted for approximately 10% of consolidated net sales in FY2021[49] Disaggregated Net Sales by Customer Industry (Dollars in thousands) | Customer Industry | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Metals | $156,555 | $135,640 | $304,841 | $266,450 | | Metalworking and other | $239,073 | $219,028 | $474,852 | $439,609 | | Global Specialty Businesses | $96,760 | $80,594 | $186,866 | $158,986 | | Consolidated Total | $492,388 | $435,262 | $966,559 | $865,045 | Disaggregated Net Sales by Timing of Revenue Recognized (Dollars in thousands) | Timing of Revenue Recognized | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Product sales at a point in time | $471,947 | $416,329 | $925,059 | $825,484 | | Services transferred over time | $20,441 | $18,933 | $41,500 | $39,561 | | Consolidated Total | $492,388 | $435,262 | $966,559 | $865,045 | Note 6 - Leases Details the company's operating lease costs, liabilities, and related balance sheet information Lease Costs (Dollars in thousands) | Lease Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Operating lease expense | $3,519 | $3,548 | $6,928 | $7,160 | | Short-term lease expense | $205 | $283 | $424 | $534 | Supplemental Balance Sheet Information Related to Leases (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Right of use lease assets | $36,317 | $36,635 | | Total operating lease liabilities | $36,147 | $36,311 | | Weighted average remaining lease term (years) | 5.6 | 5.6 | | Weighted average discount rate | 4.14% | 4.22% | Note 7 – Restructuring and Related Activities Summarizes the status of the global restructuring plan, including headcount reductions and facility closures - The QH Program aims to reduce headcount by approximately 400 people globally and close certain facilities[60] Restructuring Accrual Activity (Dollars in thousands) for Six Months Ended June 30, 2022 | Metric | Amount | | :--- | :--- | | Accrued restructuring as of Dec 31, 2021 | $4,087 | | Restructuring and related charges | $819 | | Cash payments | $(797) | | Currency translation adjustments | $(297) | | Accrued restructuring as of June 30, 2022 | $3,812 | Note 8 – Share-Based Compensation Details expenses related to stock options, restricted stock units, and performance stock units - As of June 30, 2022, unrecognized compensation expense for all stock options was $2.4 million, for non-vested restricted shares was $6.2 million, and for non-vested restricted stock units was $1.2 million[64][65] - As of June 30, 2022, there was approximately $5.5 million of total unrecognized compensation cost related to PSUs[68] Share-Based Compensation Expense (Dollars in thousands) | Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Stock options | $469 | $332 | $736 | $640 | | Non-vested stock awards and restricted stock units | $1,667 | $1,290 | $3,215 | $2,686 | | Performance stock units | $815 | $517 | $1,438 | $836 | | Total share-based compensation expense | $2,971 | $2,355 | $5,433 | $6,134 | Note 9 – Pension and Other Postretirement Benefits Reports the net periodic benefit income and costs for pension and other postretirement benefit plans - Expected full-year cash contributions for 2022 are approximately $6.6 million for pension plans and $0.2 million for other postretirement benefit plans[71] Net Periodic Benefit (Income) Cost (Dollars in thousands) for Six Months Ended June 30 | Component | Pension Benefits 2022 | Pension Benefits 2021 | Other Postretirement Benefits 2022 | Other Postretirement Benefits 2021 | | :--- | :--- | :--- | :--- | :--- | | Service cost | $354 | $632 | $0 | $3 | | Interest cost | $2,677 | $2,184 | $11 | $21 | | Expected return on plan assets | $(4,097) | $(4,175) | $0 | $0 | | Actuarial loss amortization | $505 | $1,712 | $(47) | $0 | | Prior service cost amortization | $5 | $5 | $(8) | $0 | | Net periodic benefit (income) cost | $(556) | $358 | $(44) | $24 | Note 10 – Other (Expense) Income, Net Breaks down other income and expenses, highlighting a significant loss on debt extinguishment - The $6.8 million loss on extinguishment of debt in Q2 2022 was due to the write-off of financing costs related to the Amended Credit Facility[73] - The six months ended June 30, 2021, included a gain on the sale of certain held-for-sale real property assets[74] Components of Other (Expense) Income, Net (Dollars in thousands) | Component | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Income from third party license fees | $249 | $373 | $653 | $712 | | Foreign exchange losses, net | $(2,026) | $(838) | $(3,931) | $(2,316) | | Non-income tax refunds and other related (expense) credits | $(417) | $14,295 | $(1,739) | $14,392 | | Loss on extinguishment of debt | $(6,763) | $0 | $(6,763) | $0 | | Total other (expense) income, net | $(8,399) | $14,010 | $(10,605) | $18,697 | Note 11 – Income Taxes and Uncertain Income Tax Positions Explains the significant decrease in the effective tax rate and changes in unrecognized tax benefits - The effective tax rate for the six months ended June 30, 2022, was influenced by state tax benefits, audit settlements, and a deferred tax benefit[75] - Cumulative liability for gross unrecognized tax benefits decreased by approximately $4.7 million to $17.8 million as of June 30, 2022[76] Effective Tax Rates | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended June 30 | 8.1% | 32.2% | | Six Months Ended June 30 | 10.9% | 28.4% | Note 12 – Earnings Per Share Provides the calculation for basic and diluted earnings per share, showing a significant year-over-year decrease - Anti-dilutive shares not included in diluted EPS calculation were 33,039 and 24,731 for the three and six months ended June 30, 2022, respectively[87] Earnings Per Share Calculations | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income attributable to Quaker Chemical Corporation | $14,343 | $33,570 | $34,159 | $72,185 | | Basic earnings per common share | $0.80 | $1.88 | $1.91 | $4.04 | | Diluted earnings per common share | $0.80 | $1.88 | $1.91 | $4.03 | | Basic weighted average common shares outstanding | 17,834,329 | 17,802,366 | 17,830,218 | 17,793,915 | | Diluted weighted average common shares outstanding | 17,841,377 | 17,849,521 | 17,847,404 | 17,846,010 | Note 13 – Goodwill and Other Intangible Assets Details changes in goodwill and the carrying amounts of definite and indefinite-lived intangible assets - The Company had four indefinite-lived intangible assets totaling $186.1 million as of June 30, 2022[89] Changes in Goodwill (Dollars in thousands) | Segment | Balance as of Dec 31, 2021 | Goodwill Additions | Currency Translation Adjustments | Balance as of June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Americas | $214,023 | $1,752 | $237 | $216,012 | | EMEA | $135,520 | $0 | $(9,969) | $125,551 | | Asia/Pacific | $162,458 | $0 | $(8,185) | $154,273 | | Global Specialty Businesses | $119,193 | $32 | $(4,894) | $114,331 | | Total | $631,194 | $1,784 | $(22,811) | $610,167 | Definite-Lived Intangible Assets (Dollars in thousands) | Asset Type | Gross Carrying Amount June 30, 2022 | Gross Carrying Amount Dec 31, 2021 | Accumulated Amortization June 30, 2022 | Accumulated Amortization Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Customer lists and rights to sell | $828,690 | $853,122 | $167,145 | $147,858 | | Trademarks, formulations and product technology | $156,262 | $163,974 | $41,640 | $38,747 | | Other | $6,269 | $6,309 | $5,933 | $5,900 | | Total definite-lived intangible assets | $991,221 | $1,023,405 | $214,718 | $192,505 | Note 14 – Debt Outlines the company's debt structure, including a major credit facility refinancing in June 2022 - In June 2022, the Company entered into an Amended Credit Facility, comprising a $500.0 million revolver and $750.0 million in term loans[94] - The Amended Credit Facility resulted in a $6.8 million loss on extinguishment of debt[101] Debt (Dollars in thousands) | Metric | As of June 30, 2022 | As of December 31, 2021 | | :--- | :--- | :--- | | Total debt | $989,070 | $901,348 | | Less: debt issuance costs | $(2,216) | $(8,001) | | Less: short-term and current portion of long-term debts | $(14,485) | $(56,935) | | Total long-term debt | $972,369 | $836,412 | Note 15 – Accumulated Other Comprehensive Income Details the components of accumulated other comprehensive income, showing a significant increase in loss Accumulated Other Comprehensive Income (Loss) (Dollars in thousands) | Component | Balance at Dec 31, 2021 | Other Comprehensive (Loss) Income before Reclassifications (6 months ended June 30, 2022) | Amounts Reclassified from AOCI (6 months ended June 30, 2022) | Related Tax Amounts (6 months ended June 30, 2022) | Balance at June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Currency Translation Adjustments | $(49,843) | $(83,267) | $0 | $0 | $(133,110) | | Defined Benefit Pension Plans | $(13,172) | $2,082 | $447 | $(626) | $(11,269) | | Unrealized Gain (Loss) in Available-for-Sale Securities | $397 | $(2,320) | $336 | $417 | $(1,170) | | Derivative Instruments | $(1,372) | $2,175 | $0 | $(500) | $303 | | Total | $(63,990) | $(81,330) | $783 | $(709) | $(145,246) | Note 16 – Fair Value Measurements Presents fair value measurements for assets, primarily consisting of company-owned life insurance policies - The fair values of company-owned life insurance assets are based on quotes for like instruments, classified as Level 2 measurements[112] Fair Value Measurements of Company-Owned Life Insurance (Dollars in thousands) | Asset Type | Total Fair Value June 30, 2022 | Level 1 | Level 2 June 30, 2022 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Company-owned life insurance | $2,112 | $0 | $2,112 | $0 | | Total | $2,112 | $0 | $2,112 | $0 | | Asset Type | Total Fair Value Dec 31, 2021 | Level 1 | Level 2 Dec 31, 2021 | Level 3 | | Company-owned life insurance | $2,533 | $0 | $2,533 | $0 | | Total | $2,533 | $0 | $2,533 | $0 | Note 17 – Hedging Activities Describes the use of interest rate swaps to manage variable interest rate risk on debt - The Company entered into $170.0 million notional amounts of three-year interest rate swaps in November 2019[113] - The Amended Credit Facility does not require the Company to fix variable interest rates on any portion of its borrowings[114] Fair Value of Derivative Instruments (Dollars in thousands) | Balance Sheet Location | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Prepaid expenses and other current assets | $394 | $0 | | Other accrued liabilities | $0 | $1,782 | | Total | $394 | $1,782 | Net Unrealized (Gain) Loss Deferred to AOCI (Dollars in thousands) | Derivative Type | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Interest rate swaps AOCI | $(303) | $1,372 | Note 18 – Commitments and Contingencies Discloses various commitments and contingencies, including environmental remediation and asbestos-related litigation - Estimated range of potential liabilities for ACP water remediation program is $0.1 million to $1.0 million[118] - Projected total liability for asbestos-related claims over the next 50 years is approximately $0.3 million[119] - Accrued $5.5 million for long-term environmental monitoring and maintenance costs as of June 30, 2022[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Provides management's perspective on financial performance, highlighting record sales amid significant global headwinds Executive Summary Reports record Q2 2022 net sales driven by pricing, despite lower volumes and compressed margins - Q2 2022 net sales reached a record $492.4 million, a 13% increase from Q2 2021[132] - Net sales increase was driven by a 22% increase in selling price and product mix, offset by a 4% volume decline and 6% unfavorable currency impact[132] Key Financial Performance (Q2 2022 vs. Q2 2021) | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Net Income | $14.3 million | $33.6 million | Down $19.3M | | Diluted EPS | $0.80 | $1.88 | Down $1.08 | | Non-GAAP Diluted EPS | $1.32 | $1.82 | Down $0.50 | | Adjusted EBITDA | $58.5 million | $70.1 million | Down $11.6M | On-going impact of COVID-19 Discusses the operational and financial impacts of the COVID-19 pandemic, particularly lockdowns in China - COVID-19 related restrictions in China significantly impacted the Company's operations and liquidity in Q2 2022[140] - All of the Company's more than 30 production facilities worldwide are open and operating as essential businesses[140] Impact of Political Conflicts Details the effects of the Russia-Ukraine conflict, including the cessation of operations in Russia - The Company ceased operations in Russia during the second quarter of 2022 due to the Russia-Ukraine conflict[143] - Operations in Russia, Ukraine, and Belarus historically represented less than 2% of consolidated net sales[143] - Incremental allowances for doubtful accounts have been recorded for outstanding Russian receivables[143] Liquidity and Capital Resources Analyzes the company's cash flows, debt structure, and overall financial position - The Company's Amended Credit Facility, maturing in June 2027, includes a $500.0 million revolver and $750.0 million in term loans[150] - Total net debt as of June 30, 2022, was $786.7 million, with unused revolver capacity of approximately $268 million[157] Cash and Cash Equivalents (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $202,348 | $165,176 | | Net increase (decrease) in cash and cash equivalents (Six Months) | $37,172 | $(36,285) | Net Cash Flows (Six Months Ended June 30, Dollars in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating activities | $(8,423) | $(9,568) | | Investing activities | $(24,436) | $(21,654) | | Financing activities | $78,631 | $(4,380) | Non-GAAP Measures Defines and reconciles non-GAAP financial measures to provide a clearer view of underlying business performance Non-GAAP Operating Income and Margin Reconciliations (Dollars in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Operating income | $31,903 | $38,816 | $61,306 | $83,710 | | Combination, restructuring and other acquisition-related expenses | $1,831 | $7,082 | $6,704 | $15,288 | | Strategic planning and transformation expenses | $3,112 | $0 | $6,200 | $0 | | Russia-Ukraine conflict related expenses | $929 | $0 | $2,095 | $0 | | Non-GAAP operating income | $38,805 | $46,448 | $77,965 | $100,103 | | Non-GAAP operating margin (%) | 7.9% | 10.7% | 8.1% | 11.6% | Adjusted EBITDA and Non-GAAP Net Income Reconciliations (Dollars in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income attributable to Quaker Chemical Corporation | $14,343 | $33,570 | $34,159 | $72,185 | | EBITDA | $43,067 | $76,750 | $91,821 | $153,972 | | Combination, restructuring and other acquisition-related expenses | $2,248 | $6,956 | $9,100 | $9,359 | | Strategic planning and transformation expenses | $3,112 | $0 | $6,200 | $0 | | Russia-Ukraine conflict related expenses | $929 | $0 | $2,095 | $0 | | Loss on extinguishment of debt | $6,763 | $0 | $6,763 | $0 | | Adjusted EBITDA | $58,491 | $70,057 | $118,935 | $147,205 | | Adjusted EBITDA margin (%) | 11.9% | 16.1% | 12.3% | 17.0% | | Non-GAAP net income | $23,675 | $32,448 | $49,145 | $70,354 | Non-GAAP Earnings per Diluted Share Reconciliations | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | GAAP earnings per diluted share | $0.80 | $1.88 | $1.91 | $4.03 | | Combination, restructuring and other acquisition-related expenses per diluted share | $0.13 | $0.30 | $0.41 | $0.42 | | Strategic planning and transformation expenses per diluted share | $0.13 | $0 | $0.27 | $0 | | Russia-Ukraine conflict related expenses per diluted share | $0.04 | $0 | $0.10 | $0 | | Loss on extinguishment of debt per diluted share | $0.29 | $0 | $0.29 | $0 | | Non-GAAP earnings per diluted share | $1.32 | $1.82 | $2.74 | $3.93 | Operations Reviews consolidated and segment-level operational performance, detailing drivers of financial results Consolidated Operations Review – Comparison of the Second Quarter of 2022 with the Second Quarter of 2021 Analyzes Q2 2022 results, where higher sales were offset by compressed gross margins and lower operating income - Net sales increased by $57.1 million (13%) to $492.4 million in Q2 2022, driven by price/mix increases[177] - Gross profit decreased by $4.9 million (3%) in Q2 2022, with gross margin falling to 30.4% from 35.5% due to higher raw material costs[179] - Operating income was $31.9 million in Q2 2022, down from $38.8 million, impacted by lower gross profit and a $6.8 million loss on debt extinguishment[183][184] Consolidated Operations Review – Comparison of the First Six Months of 2022 with the First Six Months of 2021 Reviews H1 2022 results, showing sales growth from pricing actions but reduced profitability due to cost pressures - Net sales increased by $101.5 million (12%) to $966.6 million in H1 2022, driven by price/mix increases[191] - Gross profit decreased by $15.0 million (5%) in H1 2022, with gross margin at 30.6% due to significant raw material costs[193] - Operating income was $61.3 million in H1 2022, down from $83.7 million, due to lower gross profit and a $6.8 million loss on debt extinguishment[197][199] Reportable Segments Review - Comparison of the Second Quarter of 2022 with the Second Quarter of 2021 Details Q2 2022 performance across all four business segments, highlighting regional variations Americas - Americas net sales increased 24% to $172.7 million in Q2 2022, driven by higher selling prices[208] - Operating earnings for Americas increased slightly by $0.1 million to $33.8 million[208] EMEA - EMEA net sales decreased slightly, with price increases offset by unfavorable currency and lower volumes[209] - Operating earnings for EMEA decreased 43% to $13.3 million, primarily due to lower gross margins and negative currency translation[209] Asia/Pacific - Asia/Pacific net sales increased 9% to $99.8 million in Q2 2022, driven by higher selling prices[210] - Operating earnings for Asia/Pacific decreased 4% to $22.2 million, due to lower gross margins and COVID-19 disruptions in China[210] Global Specialty Businesses - Global Specialty Businesses net sales increased 20% to $96.8 million in Q2 2022, driven by price increases and higher volumes[211] - Operating earnings for Global Specialty Businesses increased 15% to $27.8 million, reflecting higher net sales[211] Reportable Segments Review - Comparison of the First Six months of 2022 with the First Six months of 2021 Details H1 2022 performance across all four business segments, showing widespread margin pressure Americas - Americas net sales increased 19% to $326.9 million in H1 2022, driven by higher selling prices[213] - Operating earnings for Americas decreased 4% to $63.0 million, due to lower gross margins from inflationary pressures[213] EMEA - EMEA net sales increased 2% to $248.7 million in H1 2022, with price increases largely offset by unfavorable currency and lower volumes[214] - Operating earnings for EMEA decreased 38% to $30.0 million, due to significant inflationary pressures and negative currency translation[214] Asia/Pacific - Asia/Pacific net sales increased 8% to $204.1 million in H1 2022, driven by higher selling prices[215] - Operating earnings for Asia/Pacific decreased 13% to $44.1 million, due to lower gross margins and unfavorable currency translation[215] Global Specialty Businesses - Global Specialty Businesses net sales increased 18% to $186.9 million in H1 2022, driven by price increases and volume growth[218] - Operating earnings for Global Specialty Businesses increased 9% to $52.9 million, reflecting higher net sales[218] Factors That May Affect Our Future Results Outlines forward-looking statements and associated risks, including supply chain, inflation, and geopolitical disruptions - Forward-looking statements are subject to risks including COVID-19 impacts, supply chain constraints, inflation, and geopolitical disruptions[221][224] - Demand for the Company's products is largely derived from customer demand in industries like steel and automotive[224] Item 3. Quantitative and Qualitative Disclosures about Market Risk. Outlines the company's primary market risk exposure from variable-rate debt and its mitigation strategies - The Company's primary market risk is interest rate risk from variable-rate borrowings under its credit facility[231] - As of June 30, 2022, outstanding borrowings were approximately $977.6 million at an interest rate of approximately 2.8%[232] - A 10% change in interest rates would have impacted interest expense by approximately $2 million for the first six months of 2022[232] Item 4. Controls and Procedures. Confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls - Disclosure controls and procedures were effective as of June 30, 2022[235] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2022[236] PART II. OTHER INFORMATION Item 1. Legal Proceedings. Incorporates by reference the legal proceedings information detailed in the financial statement notes - Legal proceedings information is incorporated by reference from Note 18 of the Notes to the Condensed Consolidated Financial Statements[240] Item 1A. Risk Factors. Highlights ongoing risks from the COVID-19 pandemic and geopolitical conflicts, with no material changes from the 2021 10-K - No material changes to the risk factors described in the 2021 Form 10-K, but reference is made to ongoing impacts of COVID-19 and political conflicts[241] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Details common stock acquired from employees for tax purposes and the status of the share repurchase program - All shares acquired were from employees for payment of exercise price of stock options or taxes upon exercise/vesting of awards[242] - No shares were acquired under the $100 million 2015 Share Repurchase Program during the quarter ended June 30, 2022[244] Shares of Common Stock Acquired by the Company (Quarter Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1 - April 30 | 280 | $162.86 | | May 1 - May 31 | 729 | $147.04 | | June 1 - June 30 | 56 | $149.52 | | Total | 1,065 | $151.33 | Item 6. Exhibits. Lists all exhibits filed with the Form 10-Q, including agreements, certifications, and XBRL data - Exhibits include Amended Articles of Incorporation, By-laws, Credit Agreement amendments, executive agreements, CEO/CFO certifications, and Inline XBRL documents[247]