Net Sales and Revenue Recognition

12 Months Ended

Dec. 31, 2020

Revenue From Contract With Customer [Abstract]

Revenue From Contract With Customer [TextBlock]

Note 5 – Net Sales and Revenue Recognition

Business Description

The Company develops, produces, and markets a broad range of formulated chemical specialty products and offers chemical

management services (“Fluidcare”) for various heavy industrial and manufacturing applications throughout its four segments. The

Combination increased the Company’s addressable metalworking, metals and industrial end markets, including steel, aluminum,

aerospace, defense, transportation-OEM, transportation-components, offshore sub-sea energy, architectural aluminum, construction,

tube and pipe, can and container, mining, specialty coatings and specialty greases. The Combination also strengthened the product

portfolio of the combined Company. 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.

A substantial portion of the Company’s sales worldwide are made directly through its own employees and its Fluidcare programs,

with the balance being handled through distributors and agents. The Company’s employees typic ally 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 adapting the Company’s existing products or by applying new formulations developed in its laboratories. The specialty

chemical industry comprises many companies similar in size to the Company, as well as companies larger and smaller than Quaker

Houghton. 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 a more specialized product range. All competitors provide different levels of

technical services to individual customers. Competition in the industry is based primarily on the ability to provide products that meet

the needs of the customer, render technical services and laboratory assistance to the customer and, to a lesser extent, on price.

As part of the Company’s Fluidcare business, certain third-party product sales to customers are managed by the Company. Where

the Company acts as a principal, revenues are recognized on a gross reporting basis at the selling price negotiated with its customers. 

Where the Company acts as an agent, revenue is recognized on a net reporting basis at the amount of the administrative fee earned by

the Company for ordering the goods. In determining whether the Company is acting as a principal or an agent in each arrangement,

the Company considers whether it is primarily responsible for the obligation to provide the specified good, has inventory risk before

the specified good has been transferred to the customer and has discretion in establishing the prices for the specified goods. The

Company transferred third-party products under arrangements resulting in net reporting of $

42.5

 million, $

48.0

 million and $

47.1

million for the years ended December 31, 2020, 2019 and 2018, respectively.

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, the Company 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 discretely related to the financial performance

of such industries. 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. During the year ended December 31,

2020, the Company’s five largest customers (each composed of multiple subsidiaries or divisions with semiautonomous purchasing

authority) accounted for approximately

10

% of consolidated net sales, with its largest customer accounting for approximately

3

% of

consolidated net sales.

Revenue Recognition Model

The Company applies the 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 transferr ed to the customer. In

most instances, the Company’s contract with a customer is the customer’s purchase order. For certain customers, the Company may

also enter into a sales agreement which outlines a framework of terms and conditions which apply to all future and subsequent

purchase orders for that customer. In these situations, the Company’s contract with the customer is both the sales agreement as well as

the specific customer purchase order. Because the Company’s contract with a customer is typically for a single transaction or

customer purchase order, the duration of the contract is almost always one year or less. As a result, the Company has elected to apply

certain practical expedients and omit certain disclosures of remaining performance obligations for contracts that have an initial term of

one year or less as permitted by the FASB.

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 recognizes revenue over time as the customer receives and consumes the benefits provided by the Company’s performance;

the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or the

Company’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to

payment, including a profit margin, for performance completed to date. For performance obligations not satisfied over time, the

Company determines the point in time at which a customer obtains control of an asset and the Company satisfies a performance

obligation by considering when the Company has a right to payment for the asset; the customer has legal title to the asset; the

Company has transferred physical possession of the asset; the customer has the significant risks and rewards of ownership of the asset;

or the customer has accepted the asset.

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

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.

Other Considerations

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. 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.

Practical Expedients and Accounting Policy Elections

The Company has made certain accounting policy elections and elected to use certain practical expedients as permitted by the

FASB in applying the guidance on revenue recognition. The Company does not adjust the promised amount of consideration for the

effects of a significant financing compon ent 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.

Contract Assets and Liabilities

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 to

consideration in exchange for goods or services that the Company has transferred to a customer. The Company had no material

contract assets recorded on its Consolidated Balance Sheets as of December 31, 2020 and 2019. 

A contract liability is recognized when the Company receives consideration, or if it has the unconditional right to receive

consideration, in advance of performance. A contract liability is the Company’s obligation to transfer goods or services to a customer

for which the Company has received consideration, or a specified amount of consideration is due, from the customer. The Company’s

contract liabilities primarily represent deferred revenue recorded for customer payments received by the Company prior to the

Company satisfying the associated performance obligation. The Company acquired and recorded an immaterial amount of deferred

revenue as of the respective opening balance sheet dates related to the Combination and Norman Hay acquisition. Deferred revenues

are presented within other accrued liabilities in the Company’s Consolidated Balance Sheets. The Company had approximately $

4.0

million and $

2.2

 million of deferred revenue as of December 31, 2020 and 2019, respectively. During the years ended December 31,

2020 and 2019, 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, 2019 and 2018, 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 10% of the Company’s consolidated net sales for any of the years ended December 31, 2020, 2019 and 2018, 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, 2020, 2019 and 2018.

2020

2019

2018

Metal removal fluids

23.9

%

19.9

%

15.4

%

Rolling lubricants

21.8

%

21.9

%

25.5

%

Hydraulic fluids

13.3

%

13.0

%

13.0

%

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

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

Net sales for the year ending December 31, 2018

Consolidated

Americas

EMEA

Asia/Pacific

Total

Customer Industries

Metals

$

164,263

$

101,028

$

120,627

$

385,918

Metalworking and other

133,338

115,956

71,875

321,169

297,601

216,984

192,502

707,087

Global Specialty Businesses

122,165

16,613

21,655

160,433

$

419,766

$

233,597

$

214,157

$

867,520

Timing of Revenue Recognized

Product sales at a point in time

$

408,402

$

233,372

$

206,112

$

847,886

Services transferred over time

11,364

225

8,045

19,634

$

419,766

$

233,597

$

214,157

$

867,520