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
28, 2008
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
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 28, 2008, Quaker Chemical Corporation announced its results of
operations for the third quarter ended September 30, 2008 in a press release,
the text of which is included as Exhibit 99.1 hereto.
Item
9.01. Financial
Statements and Exhibits.
The
following exhibit is included as part of this report:
|
Exhibit
No.
|
|
|
99.1
|
Press
Release of Quaker Chemical Corporation dated October 28, 2008.
|
-2-
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 thereunto
duly authorized.
|
QUAKER
CHEMICAL CORPORATION
Registrant
|
||
|
Date:
October 29, 2008
|
By:
|
/s/
Mark A. Featherstone
|
|
Mark
A. Featherstone
Vice
President and
Chief
Financial Officer
|
||
-3-
|
NEWS
|
||
|
For
Release:
Immediate
|
Contact:
Mark
A. Featherstone
Vice
President and
Chief
Financial Officer
610-832-4160
|
|
|
|
QUAKER
CHEMICAL ANNOUNCES RECORD QUARTERLY SALES
AND
HIGHER EARNINGS
October
28, 2008
CONSHOHOCKEN,
PA – Quaker Chemical Corporation (NYSE:KWR) today
announced net sales for the third quarter 2008 of $159.5 million, a quarterly
record, and net income of $4.4 million, increases of 13% and 40%, respectively,
compared to the third quarter of 2007. Earnings per diluted share were $0.41
for
the third quarter of 2008, an increase of $0.10 per diluted share, compared
to
the third quarter of 2007. Included in third quarter 2008 results is a charge
of
approximately $1.6 million of incremental expense, or approximately $0.10
per
diluted share, related to the retirement of the Company's former chief executive
officer. Included in third quarter 2007 results is a charge of $3.3 million
related to an environmental litigation settlement, or approximately $0.21
per
diluted share.
Michael
F. Barry, Chief Executive Officer and President, commented, “We had a strong
third quarter in sales and profits, despite lower volume. Raw material costs
were higher in the quarter as many of our raw material suppliers put in place
large price increases. While crude prices declined throughout the third quarter,
our raw material costs did not show a significant improvement due to lag
effects
and other factors. Despite the increase in our raw material costs, we did
make
progress with margin recovery during the quarter and we expect this improvement
to continue into the fourth quarter.”
Mr.
Barry
continued, “We are certainly mindful of the challenges of the current economic
environment as many of our steel and automotive customers in the U.S. and
Europe
have announced significant production reductions for the fourth quarter.
Given
what we know today, our fourth quarter results are expected to be the lowest
quarterly earnings of the year. However, we
will
continue to manage Quaker for the long term, while managing the short-term
realities that we are facing. Nothing that has happened over the past few
weeks has changed our commitment to our key growth initiatives, and we continue
to be confident in our future.”
Third
Quarter Summary
Net
sales
for the third quarter were $159.5 million, up 13% compared to $140.7 million
for
the third quarter of 2007. The increase in net sales was primarily due to
higher
sales prices and foreign exchange rate translation. Volume growth in
Asia/Pacific and South America was more than offset by volume declines in
the
Company's other regions. Foreign exchange rate translation increased revenues
by
approximately 5%. Selling price increases were realized, in part, as a result
of
an ongoing effort to offset higher raw material costs.
Gross
margin dollars were up by approximately $3.4 million or 8% over the third
quarter of 2007. The gross margin percentage of 29.2% was lower than the
third
quarter of 2007 at 30.7% but represented an improvement versus the 28.3%
in the
second quarter of 2008. The Company's larger mix of CMS contracts reported
on a
gross versus pass-through basis and lower Quaker product sales due to lower
customer production levels resulted in a gross margin percentage decline
of
approximately 0.6 percentage points. The remaining decline in the gross margin
percentage is due to increased raw material costs partially offset by price
increases, as well as product and regional sales mix.
Selling,
general and administrative expenses ("SG&A") increased $1.7 million,
compared to the third quarter of 2007, due to foreign exchange rate translation.
Investments in higher growth areas, as well as inflationary increases, were
offset by lower legal, environmental and other costs. SG&A as a percentage
of sales was 24% versus 26% in the third quarter of 2007.
-
more
-
Effective
October 3, 2008, Ronald J. Naples, Chairman, retired as Quaker's Chief Executive
Officer. As further discussed in the Company's 8-K filed on May 13, 2008,
the
Company is recognizing certain accelerated and other costs, in accordance
with
Mr. Naples' Employment, Transition and Consulting Agreement, which are expected
to total $5.8 million over the 2008-2010 period. Of the $3.5 million, or
approximately $0.22 per diluted share, in incremental costs incurred in 2008,
$1.6 million, or approximately $0.10 per diluted share, was recognized in
the
third quarter of 2008.
In
the
third quarter of 2007, the Company recorded environmental charges of $3.3
million. The charges consisted of $2.0 million related to the settlement
of
environmental litigation involving AC Products, Inc., a wholly owned subsidiary,
as well as an additional $1.3 million charge for the estimated remaining
remediation costs. The third quarter and year-to-date 2007 results also include
an out of period non-cash tax benefit adjustment of $1.0 million related
to the
deferred tax accounting for the Company’s foreign pension plans and intangible
assets regarding one of the Company’s acquisitions.
Year-to-Date
Summary
Net
sales
for the first nine months of 2008 were $465.4 million, up 15% from $403.2
million for the first nine months of 2007. The increase in net sales was
attributable to higher selling prices, higher revenue related to the Company’s
CMS channel and foreign exchange rate translation. Volume growth in Asia/Pacific
and South America was more than offset by volume declines in the Company's
other
regions. Foreign exchange rate translation increased revenues by approximately
7%. Selling price increases were realized, in part, as a result of an ongoing
effort to offset higher raw material costs. CMS revenues were higher due
to the
impact of additional CMS accounts gained in 2007, as well as the renewal
and
restructuring of several of the Company's CMS contracts.
Gross
margin dollars were up $10.6 million, almost 9% for the first nine months
of
2008, compared to the first nine months of 2007. However, the gross margin
percentage was 29.0% for the first nine months of 2008, compared to 30.8%
in the
first nine months of 2007. The Company's larger mix of CMS contracts reported
on
a gross versus pass-through basis and lower Quaker product sales due to lower
customer production levels resulted in a gross margin percentage decline
of
approximately 0.5 percentage points. The remaining decline in the gross margin
percentage is due to increased raw material costs partially offset by price
increases, as well as product and regional sales mix.
SG&A
for the first nine months of 2008 increased $6.0 million, compared to the
first
nine months of 2007, due to foreign exchange rate translation. Investments
in
higher growth areas, as well as inflationary increases, were offset by lower
legal and environmental costs and lower incentive compensation expense.
Other
income for 2008 includes a net arbitration award of approximately $1.0 million,
or approximately $0.04 per diluted share, related to litigation with one
of the
former owners of the Company's Italian subsidiary.
The
decrease in interest expense is due to lower average debt balances and interest
rates, as well as higher interest income.
Balance
Sheet and Cash Flow Items
The
Company's net debt-to-total-capital ratio has decreased to 27% from 32% at
December 31, 2007, primarily on strong 2008 operating cash flow.
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.
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.
As
previously announced, Quaker Chemical’s investor conference call to discuss
third quarter results is scheduled for October 29, 2008 at 2:30 p.m. (ET).
Access the conference by calling 877-269-7756 or visit Quaker’s Web site at
www.quakerchem.com
for
a live webcast.
-
more
-
Quaker
Chemical Corporation
Condensed
Consolidated Statement of Income
(Dollars
in thousands, except per share data and share amounts)
|
(Unaudited)
|
|||||||||||||
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$
|
159,506
|
$
|
140,715
|
$
|
465,412
|
$
|
403,204
|
|||||
|
Cost
of goods sold
|
112,981
|
97,547
|
330,466
|
278,878
|
|||||||||
|
Gross
margin
|
46,525
|
43,168
|
134,946
|
124,326
|
|||||||||
|
%
|
29.2
|
%
|
30.7
|
%
|
29.0
|
%
|
30.8
|
%
|
|||||
|
Selling,
general and administrative expenses
|
38,278
|
36,602
|
109,935
|
103,930
|
|||||||||
|
CEO
transition costs
|
1,625
|
-
|
3,505
|
-
|
|||||||||
|
Environmental
charges
|
-
|
3,300
|
-
|
3,300
|
|||||||||
|
Operating
income
|
6,622
|
3,266
|
21,506
|
17,096
|
|||||||||
|
%
|
4.2
|
%
|
2.3
|
%
|
4.6
|
%
|
4.2
|
%
|
|||||
|
Other
income, net
|
(96
|
)
|
382
|
1,752
|
1,618
|
||||||||
|
Interest
expense, net
|
(1,044
|
)
|
(1,370
|
)
|
(3,205
|
)
|
(4,221
|
)
|
|||||
|
Income
before taxes
|
5,482
|
2,278
|
20,053
|
14,493
|
|||||||||
|
Taxes
on income
|
967
|
(1,066
|
)
|
5,848
|
3,076
|
||||||||
|
4,515
|
3,344
|
14,205
|
11,417
|
||||||||||
|
Equity
in net income of associated companies
|
191
|
166
|
490
|
557
|
|||||||||
|
Minority
interest in net income of subsidiaries
|
(266
|
)
|
(350
|
)
|
(841
|
)
|
(1,126
|
)
|
|||||
|
Net
income
|
$
|
4,440
|
$
|
3,160
|
$
|
13,854
|
$
|
10,848
|
|||||
|
%
|
2.8
|
%
|
2.2
|
%
|
3.0
|
%
|
2.7
|
%
|
|||||
|
Per
share data:
|
|||||||||||||
|
Net
income - basic
|
$
|
0.42
|
$
|
0.32
|
$
|
1.34
|
$
|
1.09
|
|||||
|
Net
income - diluted
|
$
|
0.41
|
$
|
0.31
|
$
|
1.31
|
$
|
1.07
|
|||||
|
Shares
Outstanding:
|
|||||||||||||
|
Basic
|
10,573,497
|
10,016,801
|
10,315,769
|
9,969,739
|
|||||||||
|
Diluted
|
10,796,716
|
10,134,909
|
10,544,070
|
10,095,945
|
|||||||||
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more
-
Condensed
Consolidated Balance Sheet
(Dollars
in thousands, except par value and share amounts)
|
(Unaudited)
|
|||||||
|
September 30,
|
December 31,
|
||||||
|
2008
|
2007
|
||||||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
24,066
|
$
|
20,195
|
|||
|
Construction
fund (restricted cash)
|
9,325
|
-
|
|||||
|
Accounts
receivable, net
|
119,538
|
118,135
|
|||||
|
Inventories,
net
|
67,577
|
60,738
|
|||||
|
Prepaid
expenses and other current assets
|
14,562
|
14,433
|
|||||
|
Deferred
compensation
|
2,795
|
-
|
|||||
|
Total
current assets
|
237,863
|
213,501
|
|||||
|
Property,
plant and equipment, net
|
62,349
|
62,287
|
|||||
|
Goodwill
|
43,300
|
43,789
|
|||||
|
Other
intangible assets, net
|
6,873
|
7,873
|
|||||
|
Investments
in associated companies
|
8,027
|
7,323
|
|||||
|
Deferred
income taxes
|
31,542
|
30,257
|
|||||
|
Other
assets
|
35,275
|
34,019
|
|||||
|
Total
assets
|
$
|
425,229
|
$
|
399,049
|
|||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Short-term
borrowings and current portion of long-term debt
|
$
|
2,635
|
$
|
4,288
|
|||
|
Accounts
and other payables
|
71,196
|
67,380
|
|||||
|
Accrued
compensation
|
14,034
|
17,287
|
|||||
|
Deferred
compensation
|
3,006
|
-
|
|||||
|
Other
current liabilities
|
17,501
|
17,396
|
|||||
|
Total
current liabilities
|
108,372
|
106,351
|
|||||
|
Long-term
debt
|
85,364
|
78,487
|
|||||
|
Deferred
income taxes
|
8,217
|
7,583
|
|||||
|
Other
non-current liabilities
|
68,294
|
71,722
|
|||||
|
Total
liabilities
|
270,247
|
264,143
|
|||||
|
Minority
interest in equity of subsidiaries
|
4,339
|
4,513
|
|||||
|
Shareholders'
equity
|
|||||||
|
Common
stock, $1 par value; authorized 30,000,000 shares; issued 10,832,828
shares
|
10,833
|
10,147
|
|||||
|
Capital
in excess of par value
|
27,034
|
10,104
|
|||||
|
Retained
earnings
|
122,320
|
115,767
|
|||||
|
Accumulated
other comprehensive loss
|
(9,544
|
)
|
(5,625
|
)
|
|||
|
Total
shareholders' equity
|
150,643
|
130,393
|
|||||
|
Total
liabilities and shareholders' equity
|
$
|
425,229
|
$
|
399,049
|
|||
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more
-
Quaker
Chemical Corporation
Condensed
Consolidated Statement of Cash Flows
For
the nine months ended September 30,
(Dollars
in thousands)
|
(Unaudited)
|
|||||||
|
2008
|
2007
|
||||||
|
Cash
flows from operating activities
|
|||||||
|
Net
income
|
$
|
13,854
|
$
|
10,848
|
|||
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|||||||
|
Depreciation
|
8,279
|
8,579
|
|||||
|
Amortization
|
906
|
900
|
|||||
|
Equity
in net income of associated companies, net of dividends
|
(490
|
)
|
(83
|
)
|
|||
|
Minority
interest in earnings of subsidiaries
|
841
|
1,126
|
|||||
|
Deferred
compensation and other, net
|
840
|
(620
|
)
|
||||
|
Stock-based
compensation
|
3,642
|
863
|
|||||
|
Environmental
charges
|
-
|
3,300
|
|||||
|
(Gain)
loss on disposal of property, plant and equipment
|
(3
|
)
|
33
|
||||
|
Insurance
settlement realized
|
(981
|
)
|
(1,266
|
)
|
|||
|
Pension
and other postretirement benefits
|
(3,541
|
)
|
(2,532
|
)
|
|||
|
Increase
(decrease) in cash from changes in current assets and current liabilities,
net of acquisitions:
|
|||||||
|
Accounts
receivable
|
(3,723
|
)
|
(5,795
|
)
|
|||
|
Inventories
|
(8,550
|
)
|
(3,227
|
)
|
|||
|
Prepaid
expenses and other current assets
|
(863
|
)
|
(1,750
|
)
|
|||
|
Accounts
payable and accrued liabilities
|
788
|
6,009
|
|||||
|
Net
cash provided by operating activities
|
10,999
|
16,385
|
|||||
|
Cash
flows from investing activities
|
|||||||
|
Capital
expenditures
|
(9,198
|
)
|
(5,431
|
)
|
|||
|
Payments
related to acquisitions
|
(1,000
|
)
|
(1,543
|
)
|
|||
|
Proceeds
from disposition of assets
|
139
|
176
|
|||||
|
Insurance
settlement received and interest earned
|
5,234
|
5,534
|
|||||
|
Change
in restricted cash, net
|
(13,578
|
)
|
(4,268
|
)
|
|||
|
Net
cash used in investing activities
|
(18,403
|
)
|
(5,532
|
)
|
|||
|
Cash
flows from financing activities
|
|||||||
|
Short-term
debt borrowings
|
-
|
1,305
|
|||||
|
Net
decrease in short-term borrowings
|
(1,389
|
)
|
(3,267
|
)
|
|||
|
Proceeds
from long-term debt
|
10,000
|
3,132
|
|||||
|
Repayments
of long-term debt
|
(3,165
|
)
|
(674
|
)
|
|||
|
Dividends
paid
|
(6,994
|
)
|
(6,484
|
)
|
|||
|
Stock
options exercised, other
|
13,974
|
2,935
|
|||||
|
Distributions
to minority shareholders
|
(252
|
)
|
(864
|
)
|
|||
|
Net
cash provided by (used in) financing activities
|
12,174
|
(3,917
|
)
|
||||
|
Effect
of exchange rate changes on cash
|
(899
|
)
|
1,226
|
||||
|
Net
increase in cash and cash equivalents
|
3,871
|
8,162
|
|||||
|
Cash
and cash equivalents at the beginning of the period
|
20,195
|
16,062
|
|||||
|
Cash
and cash equivalents at the end of the period
|
$
|
24,066
|
$
|
24,224
|
|||