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Business Combinations
3 Months Ended 6 Months Ended
Jun. 30, 2020
Dec. 31, 2019
Jun. 30, 2020
Business Combination Separately Recognized Transaction [Abstract]      
Business Combination Disclosure [Text Block]
Other Acquisitions
In May 2020, the Company acquired Tel
 
Nordic ApS (“TEL”), a company that specializes in lubricants and engineering
 
primarily
in high pressure aluminum die casting for its Europe,
 
Middle East and Africa (“EMEA”) reportable segment.
 
Consideration paid was
in the form of a convertible promissory note in the amount
 
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.
 
The allocation of the purchase price of TEL has not been
 
finalized and the
one-year
 
measurement
period has not ended.
 
Further adjustments may be necessary as a result of the
 
Company’s on-going assessment of
 
additional
information related to the fair value of assets acquired
 
and liabilities assumed.
In March 2020, the Company acquired the remaining
49
% ownership interest in one of its South African affiliates,
 
Quaker
Chemical South Africa Limited (“QSA”) for
16.7
 
million ZAR, or approximately $
1.0
 
million, from its joint venture partner PQ
Holdings South Africa.
 
QSA is a part of the Company’s
 
EMEA reportable segment.
 
As this acquisition was a change in an existing
controlling ownership, the Company recorded $
0.7
 
million of excess purchase price over the carrying value of
 
the non-controlling
interest in Capital in excess of par value.
 
In 2018 the Company purchased certain formulations and product
 
technology for the mining
industry for $
1.0
 
million, with $
0.5
 
million of the purchase price paid at signing and the remaining
 
$
0.5
 
million of the purchase price
paid during the first quarter of 2019.
Norman Hay
On
October 1, 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 acquisition
adds new technologies in automotive, original equipment
 
manufacturer (“OEM”), and aerospace, as well as engineering expertise
which is expected to strengthen the Company’s
 
existing equipment solutions platform.
 
The acquired Norman Hay assets and
liabilities were assigned to the Global Specialty Businesses reportable
 
segment.
 
The original purchase price was
80.0
 
million GBP,
 
on
a cash-free and debt-free basis, subject to routine and customary
 
post-closing adjustments related to working capital and net
indebtedness levels.
Note 2 – Business Combinations
 
Houghton
On
August 1, 2019
, the Company completed the Combination, whereby the Company
 
acquired all of the issued and outstanding
shares of
Houghton
 
from Gulf Houghton Lubricants, Ltd. and certain other selling
 
shareholders in exchange for a combination of cash
and shares of the Company’s
 
common stock in accordance with the Share Purchase Agreement,
 
dated April 4, 2017.
 
Houghton is a
leading global provider of specialty chemicals and technical
 
services for metalworking and other industrial applications.
 
The
Company believes that combining Quaker’s
 
and Houghton’s products
 
and service offerings will allow Quaker Houghton to
 
better
serve its customers in its various end markets.
 
The Combination was subject to certain regulatory
 
and shareholder approvals.
 
At a shareholder meeting held during 2017, the
Company’s shareholders
 
approved the issuance of new shares of the Company’s
 
common stock at closing of the Combination.
 
Also
in 2017, the Company received regulatory approvals for
 
the Combination from China and Australia.
 
The Company received
regulatory approvals from the European Commission
 
(“EC”) during the second quarter of 2019 and the U.S. Federal
 
Trade
Commission (“FTC”) in July 2019.
 
The approvals from the FTC and the EC required the concurrent
 
divestiture of certain steel and
aluminum related product lines of Houghton, which
 
were sold by Houghton on August 1, 2019 for approximately
 
$
37
 
million in cash.
 
The final remedy agreed with the EC and the FTC was consistent
 
with the Company’s
 
previous expectation that the total divested
product lines would be approximately
3
% of the combined company’s
 
net sales.
The following table summarizes the fair value of consideration
 
transferred in the Combination:
Cash transferred to Houghton shareholders (a)
$
170,829
Cash paid to extinguish Houghton debt obligations
702,556
Fair value of common stock issued as consideration (b)
789,080
Total fair value
 
of consideration transferred
$
1,662,465
a)
 
A portion is held in escrow by a third party,
 
subject to indemnification rights that lapse upon the achievement
 
of certain
milestones.
(b)
 
Amount was determined based on approximately
4.3
 
million shares, comprising
24.5
% of the common stock of the Company
immediately after the closing, and the closing price per
 
share of Quaker Chemical Corporation common stock
 
of $
182.27
 
on
August 1, 2019.
The Company accounted for the Combination under the
 
acquisition method of accounting.
 
This method requires the recording of
acquired assets, including separately identifiable
 
intangible assets, at their fair value on the acquisition
 
date.
 
Any excess of the
purchase price over the estimated fair value of
 
the identifiable net assets acquired is recorded as goodwill.
 
The determination of the
estimated fair value of assets acquired,
 
including indefinite and definite-lived intangible assets,
 
requires management’s
 
judgment and
often involves the use of significant estimates and assumptions
 
,
 
including assumptions with respect to future cash inflows and
outflows, discount rates, customer attrition rates, royalty
 
rates, asset lives and market multiples, among other items.
 
Fair values were
determined by management using a variety of methodolog
 
ies and resources, including external independent valuation
 
experts.
 
The
valuation methods included physical appraisals, discounted
 
cash flow analyses, excess earnings, relief from
 
royalty, and other
appropriate valuation techniques to determine the fair value
 
of assets acquired and liabilities assumed.
The following table presents the current preliminary estimated
 
fair values of Houghton net assets acquired:
Measurement
August 1,
Period
August 1, 2019
2019 (1)
Adjustments
(as adjusted)
Cash and cash equivalents
$
75,821
$
$
75,821
Accounts receivable, net
178,922
178,922
Inventories, net
95,193
95,193
Prepaid expenses and other assets
10,652
314
10,966
Property, plant and
 
equipment
115,529
(66)
115,463
Right of use lease assets
10,673
10,673
Investments in associated companies
66,447
66,447
Other non-current assets
4,710
1,553
6,263
Intangible assets
1,028,400
1,028,400
Goodwill
494,915
7,737
502,652
Total assets purchased
2,081,262
9,538
2,090,800
Short-term borrowings, not refinanced at closing
9,297
9,297
Accounts payable, accrued expenses and other accrued
 
liabilities
150,078
853
150,931
Deferred tax liabilities
205,082
7,132
212,214
Long-term lease liabilities
6,607
6,607
Other non-current liabilities
47,733
1,553
49,286
Total liabilities assumed
418,797
9,538
428,335
Total consideration
 
paid for Houghton
1,662,465
1,662,465
Less: cash acquired
75,821
75,821
Less: fair value of common stock issued as consideration
789,080
789,080
Net cash paid for Houghton
$
797,564
$
-
$
797,564
(1) As
 
previously disclosed in the Company’s
 
2019 Form 10-K.
As of June 30, 2020, the allocation of the purchase price
 
for the Combination has not been finalized and the
one-year
measurement period has not ended.
 
While not currently expected, further adjustments may be necessary
 
as a result of the Company’s
on-going assessment of additional information related
 
to the fair value of assets acquired and liabilities assumed.
 
Houghton assets
acquired and liabilities assumed have been assigned
 
to each of the Company’s reportable
 
segments on a specific identification or
allocated basis, as applicable.
 
Measurement period adjustments recorded during the first
 
six months of 2020 related primarily to
increasing the valuation allowances against the deferred
 
tax assets associated with foreign tax credits acquired as part
 
of the
Combination as a result of additional information available
 
used to update the Company’s
 
initial estimates of expenses allocated to
foreign source income and expected creditable foreign
 
taxes.
 
In addition, measurement period adjustments include the recognition
 
of
additional other non-current assets and other non-current
 
liabilities based on additional information obtained regarding
 
certain tax
audits and associated rights to indemnification, and
 
certain non-income tax liabilities payable upon closing of
 
the Combination in
certain countries.
 
Combination, integration and other acquisition-related
 
expenses have been and are expected to continue to be significant.
 
The
Company incurred total costs of approximately $
8.3
 
million and $
16.5
 
million for the three and six months ended June 30, 2020,
respectively, primarily
 
for professional fees related to Houghton integration
 
activities.
 
Comparatively, the Company
 
incurred total
costs of $
5.5
 
million and $
10.8
 
million during the three and six months ended June 30,
 
2019, respectively, primarily
 
for various
professional fees and integration planning and regulatory
 
approval.
 
These costs also include $
0.3
 
million and $
0.8
 
million of
accelerated depreciation charges during the three
 
and six months ended June 30, 2020, respectively,
 
and $
0.9
 
million and $
1.7
 
million
of interest costs to maintain the bank commitment
 
(“ticking fees”) for the Combination during the three and six months
 
ended June 30,
2019,
 
respectively.
 
The Company had current liabilities related to the Combination,
 
integration and other acquisition-related activities
of $
8.6
 
million and $
6.6
 
million as of June 30, 2020, and December 31, 2019, respectively,
 
primarily recorded within other accrued
liabilities on its Condensed Consolidated Balance Sheets.
The following table presents the preliminary estimated fair
 
values of Norman Hay net assets acquired:
Measurement
October 1,
Period
October 1, 2019
2019 (1)
Adjustments
(as adjusted)
Cash and cash equivalents
$
18,981
$
$
18,981
Accounts receivable, net
15,471
15,471
Inventories, net
8,213
(49)
8,164
Prepaid expenses and other assets
4,203
4,203
Property, plant and
 
equipment
14,981
14,981
Right of use lease assets
10,608
10,608
Intangible assets
51,088
51,088
Goodwill
29,384
102
29,486
Total assets purchased
152,929
53
152,982
Long-term debt included current portions
485
485
Accounts payable, accrued expenses and other accrued liabilities
13,488
(708)
12,780
Deferred tax liabilities
12,746
927
13,673
Long-term lease liabilities
8,594
8,594
Total liabilities assumed
35,313
219
35,532
Total consideration
 
paid for Norman Hay
117,616
(166)
117,450
Less: estimated purchase price settlement (2)
3,287
(3,287)
Less: cash acquired
18,981
18,981
Net cash paid for Norman Hay
$
95,348
$
3,121
$
98,469
As previously disclosed in the Company’s
 
2019 Form 10-K.
(2)
 
The Company finalized its post-closing adjustments for the
 
Norman Hay acquisition and paid approximately
2.5
 
million GBP
during the first quarter of 2020 to settle such adjustments.
As of June 30, 2020, the allocation of the purchase price
 
for Norman Hay has not been finalized and the
one-year
 
measurement
period has not ended.
 
Further adjustments may be necessary as a result of the
 
Company’s on-going assessment of
 
additional
information related to the fair value of assets acquired
 
and liabilities assumed.