UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
October
26, 2010
Date
of Report (Date of earliest event reported)
QUAKER
CHEMICAL CORPORATION
(Exact
name of Registrant as specified in its charter)
Commission
File Number 001-12019
|
PENNSYLVANIA
|
No.
23-0993790
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
One
Quaker Park
901
E. Hector Street
Conshohocken,
Pennsylvania 19428
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
(610)
832-4000
|
|
(Registrant’s
telephone number, including area code)
|
Not
Applicable
|
(Former
name or former address, if changed since last
report)
|
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
INFORMATION
TO BE INCLUDED IN THE REPORT
Item
2.02. Results
of Operations and Financial Condition.
On October 26, 2010, Quaker Chemical
Corporation announced its results of operations for the third quarter ended
September 30, 2010 in a press release, the text of which is included as Exhibit
99.1 hereto. Supplemental information related to the same period is
also included as Exhibit 99.2 hereto.
Item
9.01. Financial
Statements and Exhibits.
The following exhibits are included as
part of this report:
|
Exhibit No.
|
|
|
99.1
|
Press
Release of Quaker Chemical Corporation dated September 30,
2010.
|
| 99.2 | Supplemental Information related to third quarter ended September 30, 2010. |
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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QUAKER
CHEMICAL CORPORATION
Registrant
|
|||
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Date: October
26, 2010
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By:
|
/s/
Mark A. Featherstone
|
|
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Mark
A. Featherstone
Vice
President and
Chief
Financial
Officer
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|||
 |
||
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NEWS
|
||
|
For
Release:
Immediate
|
Contact:
Mark
A. Featherstone
Vice President
and
Chief
Financial Officer
610-832-4160
|
|
QUAKER
CHEMICAL ANNOUNCES THIRD QUARTER 2010 RESULTS
|
·
|
Q3
2010 EPS of $0.55, up 22% vs. $0.45 in Q3
2009
|
|
·
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First
nine months 2010 EPS of $2.19, up 192% vs. $0.75 in
2009
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|
·
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Net
debt-to-total-capital ratio at 15%
|
|
·
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$9.2
million of operating cash flow generated in Q3
2010
|
October
26, 2010
CONSHOHOCKEN,
PA - Quaker Chemical Corporation (NYSE:KWR) today announced third quarter 2010
net sales of $137.7 million and earnings per diluted share of $0.55, compared to
net sales of $118.9 million and earnings per diluted share of $0.45 for the
third quarter of 2009. For the first nine months of 2010, the Company
reported net sales of $402.0 million and earnings per diluted share of $2.19,
compared to net sales of $319.8 million and earnings per diluted share of $0.75
for the first nine months of 2009. The third quarter 2010 results
include a net $3.6 million, or $0.21 per diluted share, charge related to a
non-income tax contingency.
Michael
F. Barry, Chairman, Chief Executive Officer and President, commented, “Our third
quarter results remained strong with volumes close to second quarter levels
despite seasonal slowdowns in Europe and increasing raw material
costs. Also, our solid cash flow generation allowed us to fund the
aluminum business acquisition and make a significant pension payment while still
reducing our debt by 8%.”
Further,
Mr. Barry stated, “With economic activity plateauing in certain markets, we
anticipate somewhat lower fourth quarter demand due in part to seasonal and
other economic factors. We also continue to experience pressure on
our margins as raw material costs have continued to increase, notwithstanding
the pricing actions taken in the third quarter. Nevertheless, we
expect fourth quarter results to remain strong but below the levels we
experienced in the first half of this year.”
Mr. Barry
continued, “Our earnings for the first nine months of 2010 have already
surpassed the earnings for any full year in our history. Besides our
strong results, we are pleased with the progress we have made in other
areas. We have raised our dividend, made a small but strategic
acquisition, and enhanced our financial flexibility for future growth by
reducing our debt and amending our credit facility. Over the next few
years, we believe Quaker is well positioned for solid growth. Our
leadership positions in the faster growing countries like China, Brazil and
India, as well as the gradual rebound in the more mature markets such as the
U.S. and Europe, are expected to provide us with broad-based organic growth in
all regions and businesses. In addition, our strong balance sheet
will allow us to invest in our key growth initiatives, including potential
acquisitions.”
Third Quarter 2010
Summary
Net sales
for the third quarter were $137.7 million, up 16% from $118.9 million for the
third quarter of 2009. The increase in net sales was primarily the
result of a 15% increase in volume, which was experienced across the
globe. Selling prices and mix increased revenues by approximately 5%,
as the Company implemented price increases to help offset higher raw material
costs. These increases were partially offset by lower automotive
chemical management services (“CMS”) revenue reported on a gross basis and lower
foreign exchange rates, each of which decreased revenues by approximately
2%.
Gross
profit increased $4.6 million, or 10%, compared to the third quarter of 2009 as
a result of increased volumes. However, gross margin decreased to
35.6% from 37.4% in the third quarter of 2009, primarily driven by increased raw
material costs, and is consistent with the second quarter 2010 gross margin
percentage.
Selling,
general and administrative expenses (“SG&A”) were flat compared to the third
quarter of 2009. Higher selling costs with increased business
activity, as well as inflationary increases, were offset by decreases in
incentive compensation.
As
previously disclosed in the Company’s second quarter 2010 Form 10-Q, one of the
Company’s subsidiaries discovered that it may have paid certain
value-added-taxes (“VAT”) to an incorrect jurisdiction and, in certain cases,
may not have collected sufficient VAT from certain customers. The VAT
regulations and circumstances surrounding this issue are extremely
complex. As a result, it is difficult to estimate both the
probability and the amount of any potential exposure. Included in the
third quarter 2010 results is a net charge of $3.6 million, or approximately
$0.21 per diluted share, consisting of a tax dispute settlement entered into by
the subsidiary and the Company’s estimate of the net amount that may be
ultimately paid to the other jurisdictions that have made inquiries of the
subsidiary. Please refer to the Company’s third quarter 2010 Form
10-Q for further discussion of this matter.
The
Company incurred a final charge related to the former CEO’s supplemental
retirement plan of approximately $1.3 million, or $0.08 per diluted share, in
the third quarter of 2010, compared to a charge of $1.3 million, or $0.07 per
diluted share, in the third quarter of 2009.
The
decrease in other income is due to higher exchange rate losses compared to the
third quarter of 2009.
The third
quarter 2010 and 2009 effective tax rates include benefits of approximately
$0.04 per diluted share and $0.02 per diluted share, respectively, due to the
expirations of applicable statutes of limitations for uncertain tax
positions. In addition, the 2010 effective tax rate also reflects
increased utilization of foreign tax credits and net operating losses, which
were previously not benefited.
Year-to-Date
Summary
Net sales
for the first nine months of 2010 were $402.0 million, up 26% from $319.8
million for the first nine months of 2009. The increase in sales was
driven by significant increases in volume across the globe, as the comparisons
to the prior year continue to reflect recovery from the global economic
downturn. The volume increases were partially offset by lower
automotive chemical management services (“CMS”) revenue reported on a gross
basis, which decreased revenues by approximately 5%.
Gross
profit increased $35.7 million, or 33%, compared to the first nine months of
2009, largely as a result of increased volumes. The year-to-date
gross margin increased to 36.0% from 34.2% during the first nine months of 2009,
as raw material costs did not begin to significantly increase until the middle
of the second quarter of 2010. In addition, reduced automotive CMS
revenues reported on a gross basis contributed to the gross margin percentage
increase.
SG&A
increased $13.1 million, or 14%, compared to the first nine months of
2009. Higher selling costs with increased business activity,
inflationary costs, as well as increased incentive compensation were the primary
drivers, representing 85% of the increase. Differences in foreign
exchange rates and other costs accounted for the remainder of the
increase.
In the
first quarter of 2009, the Company implemented a restructuring program totaling
$2.3 million, or approximately $0.14 per diluted share, while 2010 includes a
net charge of $3.6 million, or $0.21 per diluted share, for the contingency
noted above.
Other
income for the 2010 period includes higher license fees from increased business
activities as well as foreign exchange rate gains versus losses in the 2009
period, which partially offset a gain related to the disposition of land in
Europe of approximately $0.11 per diluted share in 2009. Net interest
expense decreased due to lower average debt balances as well as higher interest
income.
Equity in
net income of associated companies includes a charge of approximately $0.03 per
diluted share related to the first quarter 2010 devaluation of the Venezuelan
Bolivar Fuerte.
-more-
Balance Sheet and Cash Flow
Items
With
operating cash flow of $9.2 million generated during the quarter, the Company’s
net debt-to-total-capital ratio decreased to 15% as of September 30, 2010
compared to 19% at June 30, 2010.
During
the third quarter of 2010, the Company completed the acquisition of the assets
of D.A. Stuart’s U.S. aluminum hot rolling oil business from Houghton
International. With this acquisition, Quaker becomes a leading player
in the U.S. aluminum hot rolling market, serving some of the largest reversing
mills, single and multi-stand tandem finishing mills, and combination mill
systems in the country. The acquired business had net sales in 2009
of approximately $6.9 million.
Forward-Looking
Statements
This
release contains forward-looking statements that are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those projected in such statements. A major risk is that the
Company’s demand is largely derived from the demand for its customers’ products,
which subjects the Company to downturns in a customer’s business and
unanticipated customer production shutdowns. Other major risks and
uncertainties include, but are not limited to, significant increases in raw
material costs, customer financial stability, worldwide economic and political
conditions, foreign currency fluctuations, and future terrorist attacks such as
those that occurred on September 11, 2001. Other factors could also
adversely affect us. Therefore, we caution you not to place undue
reliance on our forward-looking statements. This discussion is
provided as permitted by the Private Securities Litigation Reform Act of
1995.
Conference
Call
As
previously announced, Quaker Chemical's investor conference call to discuss
third quarter results is scheduled for October 27, 2010 at 8:30 a.m.
(ET). A live webcast of the conference call, together with
supplemental information, can be accessed through the Company's Investor
Relations Web site at http://www.quakerchem.com. You
can also access the conference call by dialing 877-269-7756.
About
Quaker
Quaker
Chemical Corporation is a leading global provider of process chemicals, chemical
specialties, services, and technical expertise to a wide range of industries –
including steel, automotive, mining, aerospace, tube and pipe, coatings and
construction materials. Our products, technical solutions and
chemical management services enhance our customers’ processes, improve their
product quality and lower their costs. Quaker’s headquarters is
located near Philadelphia in Conshohocken, Pennsylvania.
-more-
|
Quaker Chemical
Corporation
|
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Condensed Consolidated Statement of
Income
|
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(Dollars in thousands, except per share
data)
|
|
(Unaudited)
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||||||||||||||||
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Three
Months Ended September 30,
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Nine
Months Ended September 30,
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|||||||||||||||
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2010
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2009
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2010
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2009
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|||||||||||||
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Net
sales
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$ | 137,669 | $ | 118,922 | $ | 401,980 | $ | 319,764 | ||||||||
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Cost
of goods sold
|
88,641 | 74,450 | 257,081 | 210,541 | ||||||||||||
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Gross
profit
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49,028 | 44,472 | 144,899 | 109,223 | ||||||||||||
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%
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35.6 | % | 37.4 | % | 36.0 | % | 34.2 | % | ||||||||
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Selling,
general and administrative expenses
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34,699 | 34,646 | 103,486 | 90,393 | ||||||||||||
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Contingencies
charge
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3,581 | - | 3,581 | - | ||||||||||||
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CEO
transition costs
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1,317 | 1,250 | 1,317 | 2,443 | ||||||||||||
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Restructuring
and related charges
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- | - | - | 2,289 | ||||||||||||
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Operating
income
|
9,431 | 8,576 | 36,515 | 14,098 | ||||||||||||
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%
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6.9 | % | 7.2 | % | 9.1 | % | 4.4 | % | ||||||||
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Other
(expense) income, net
|
(320 | ) | 217 | 1,566 | 2,027 | |||||||||||
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Interest
expense, net
|
(1,032 | ) | (1,178 | ) | (3,202 | ) | (3,585 | ) | ||||||||
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Income
before taxes and equity in net income of associated
companies
|
8,079 | 7,615 | 34,879 | 12,540 | ||||||||||||
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Taxes
on income before equity in net income of associated
companies
|
1,661 | 2,747 | 8,985 | 4,063 | ||||||||||||
| 6,418 | 4,868 | 25,894 | 8,477 | |||||||||||||
|
Equity
in net income of associated companies
|
439 | 555 | 734 | 640 | ||||||||||||
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Net
income
|
6,857 | 5,423 | 26,628 | 9,117 | ||||||||||||
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Less:
Net income attributable to noncontrolling interest
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517 | 371 | 1,716 | 829 | ||||||||||||
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Net
income attributable to Quaker Chemical Corporation
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$ | 6,340 | $ | 5,052 | $ | 24,912 | $ | 8,288 | ||||||||
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%
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4.6 | % | 4.2 | % | 6.2 | % | 2.6 | % | ||||||||
|
Per share data:
|
||||||||||||||||
|
Net
income attributable to Quaker Chemical Corporation Common Shareholders -
basic
|
$ | 0.56 | $ | 0.46 | $ | 2.22 | $ | 0.76 | ||||||||
|
Net
income attributable to Quaker Chemical Corporation Common Shareholders -
diluted
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$ | 0.55 | $ | 0.45 | $ | 2.19 | $ | 0.75 | ||||||||
-more-
|
Quaker Chemical
Corporation
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||||
|
Condensed Consolidated Balance
Sheet
|
||||
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(Dollars in thousands, except par value and share
amounts)
|
|
(Unaudited)
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||||||||
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September
30,
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December
31,
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|||||||
|
2010
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2009
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|||||||
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ASSETS
|
||||||||
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Current
assets
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||||||||
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Cash
and cash equivalents
|
$ | 27,149 | $ | 25,051 | ||||
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Construction
fund (restricted cash)
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- | 2,358 | ||||||
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Accounts
receivable, net
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117,238 | 108,793 | ||||||
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Inventories,
net
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58,807 | 50,040 | ||||||
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Prepaid
expenses and other current assets
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13,831 | 12,656 | ||||||
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Total
current assets
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217,025 | 198,898 | ||||||
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Property,
plant and equipment, net
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65,586 | 67,426 | ||||||
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Goodwill
|
49,493 | 46,515 | ||||||
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Other
intangible assets, net
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7,175 | 5,579 | ||||||
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Investments
in associated companies
|
9,995 | 8,824 | ||||||
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Deferred
income taxes
|
31,953 | 31,692 | ||||||
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Other
assets
|
47,288 | 39,537 | ||||||
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Total
assets
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$ | 428,515 | $ | 398,471 | ||||
|
LIABILITIES
AND EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Short-term
borrowings and current portion of long-term debt
|
$ | 939 | $ | 2,431 | ||||
|
Accounts
and other payables
|
59,854 | 60,939 | ||||||
|
Accrued
compensation
|
16,939 | 16,656 | ||||||
|
Accrued
pension and postretirement benefits
|
1,628 | 4,717 | ||||||
|
Other
current liabilities
|
19,865 | 15,224 | ||||||
|
Total
current liabilities
|
99,225 | 99,967 | ||||||
|
Long-term
debt
|
58,445 | 63,685 | ||||||
|
Deferred
income taxes
|
9,268 | 8,605 | ||||||
|
Accrued
pension and postretirement benefits
|
26,678 | 27,602 | ||||||
|
Other
non-current liabilities
|
48,477 | 42,317 | ||||||
|
Total
liabilities
|
242,093 | 242,176 | ||||||
|
Equity
|
||||||||
|
Common
stock, $1 par value; authorized 30,000,000 shares; issued 11,376,232
shares
|
11,376 | 11,086 | ||||||
|
Capital
in excess of par value
|
35,731 | 27,527 | ||||||
|
Retained
earnings
|
140,161 | 123,140 | ||||||
|
Accumulated
other comprehensive loss
|
(7,919 | ) | (10,439 | ) | ||||
|
Total
Quaker shareholders' equity
|
179,349 | 151,314 | ||||||
|
Noncontrolling
interest
|
7,073 | 4,981 | ||||||
|
Total
shareholders' equity
|
186,422 | 156,295 | ||||||
|
Total
liabilities and equity
|
$ | 428,515 | $ | 398,471 | ||||
-more-
|
Quaker Chemical
Corporation
|
|
Condensed Consolidated Statement of Cash
Flows
|
|
For the nine months ended September
30,
|
|
(Dollars in
thousands)
|
|
(Unaudited)
|
||||||||
|
2010
|
2009
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
income
|
$ | 26,628 | $ | 9,117 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
|
Depreciation
|
7,448 | 6,948 | ||||||
|
Amortization
|
736 | 797 | ||||||
|
Equity
in net income of associated companies, net of dividends
|
(523 | ) | (610 | ) | ||||
|
Deferred
compensation and other, net
|
1,559 | (30 | ) | |||||
|
Stock-based
compensation
|
2,371 | 1,585 | ||||||
|
Restructuring
and related charges
|
- | 2,289 | ||||||
|
Gain
on disposal of property, plant and equipment
|
(24 | ) | (1,194 | ) | ||||
|
Insurance
settlement realized
|
(1,225 | ) | (1,104 | ) | ||||
|
Pension
and other postretirement benefits
|
(3,184 | ) | (5,877 | ) | ||||
|
Increase
(decrease) in cash from changes in current assets and current liabilities,
net of acquisitions:
|
||||||||
|
Accounts
receivable
|
(7,982 | ) | 951 | |||||
|
Inventories
|
(8,645 | ) | 12,547 | |||||
|
Prepaid
expenses and other current assets
|
(2,656 | ) | 3,283 | |||||
|
Accounts
payable and accrued liabilities
|
5,007 | 10,273 | ||||||
|
Change
in restructuring liabilities
|
- | (4,240 | ) | |||||
|
Net
cash provided by operating activities
|
19,510 | 34,735 | ||||||
|
Cash
flows from investing activities
|
||||||||
|
Capital
expenditures
|
(6,259 | ) | (9,811 | ) | ||||
|
Payments
related to acquisitions
|
(6,862 | ) | (1,000 | ) | ||||
|
Proceeds
from disposition of assets
|
147 | 1,640 | ||||||
|
Insurance
settlement received and interest earned
|
5,099 | 5,164 | ||||||
|
Change
in restricted cash, net
|
(1,516 | ) | 416 | |||||
|
Net
cash used in investing activities
|
(9,391 | ) | (3,591 | ) | ||||
|
Cash
flows from financing activities
|
||||||||
|
Net
decrease in short-term borrowings
|
(1,394 | ) | (1,796 | ) | ||||
|
Proceeds
from long-term debt
|
29 | 3,500 | ||||||
|
Repayments
of long-term debt
|
(5,367 | ) | (22,875 | ) | ||||
|
Dividends
paid
|
(7,768 | ) | (7,565 | ) | ||||
|
Stock
options exercised, other
|
3,829 | 353 | ||||||
|
Excess
tax benefit related to stock option exercises
|
2,294 | - | ||||||
|
Distributions
to noncontrolling shareholders
|
- | (274 | ) | |||||
|
Net
cash used in financing activities
|
(8,377 | ) | (28,657 | ) | ||||
|
Effect
of exchange rate changes on cash
|
356 | 1,990 | ||||||
|
Net
increase in cash and cash equivalents
|
2,098 | 4,477 | ||||||
|
Cash
and cash equivalents at the beginning of the period
|
25,051 | 20,892 | ||||||
|
Cash
and cash equivalents at the end of the period
|
$ | 27,149 | $ | 25,369 | ||||
