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
February
25, 2009
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)
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|
(Zip
Code)
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(610)
832-4000
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|
(Registrant’s
telephone number, including area code)
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Not
Applicable
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(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
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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|
o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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INFORMATION
TO BE INCLUDED IN THE REPORT
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Item
2.02.
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Results
of Operations and Financial
Condition.
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On February 25, 2009, Quaker Chemical
Corporation announced its results of operations for the fourth quarter and full
year ended December 31, 2008 in a press release, the text of which is included
as Exhibit 99.1 hereto.
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Item
9.01.
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Financial
Statements and Exhibits.
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The following exhibit is included as
part of this report:
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Exhibit No.
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99.1
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Press
Release of Quaker Chemical Corporation dated February 25,
2009.
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-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 hereunto
duly authorized.
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QUAKER
CHEMICAL CORPORATION
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|||
| Registrant | |||
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Date: February
26, 2009
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By:
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/s/
Mark A. Featherstone
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|
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Mark
A. Featherstone
Vice
President and
Chief
Financial Officer
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|||
-3-
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For
Release:
Immediate
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NEWS
|
Contact:
Mark
A. Featherstone
Vice President
and
Chief
Financial Officer
610-832-4160
|
QUAKER
CHEMICAL ANNOUNCES FOURTH QUARTER AND FULL YEAR RESULTS
February
25, 2009
CONSHOHOCKEN,
PA – Quaker Chemical Corporation (NYSE:KWR) today announced net sales for the
fourth quarter 2008 of $116.2 million, and a net loss of $2.7 million, or $0.25
per diluted share. Included in fourth quarter 2008 results is a
pre-tax restructuring charge of $2.9 million, or approximately $0.18 per diluted
share.
Michael
F. Barry, Chief Executive Officer and President, commented, “After starting the
year with three strong quarters of sales and profits, 2008 finished with
disappointing results due to a dramatic falloff in customer demand around the
globe and continued raw material price escalation in certain
regions. However, we have taken aggressive actions to reduce our cost
structure given the market realities we are facing. In addition, we
have recently amended our credit facility to provide more financial flexibility
during this uncertain period.”
Mr. Barry
continued, “We expect our overall demand for products to be lower in 2009 as a
result of the global recession with gradual improvement in our volumes as the
year progresses. Fortunately, we entered this significant downturn at
the end of the third quarter with a strong balance sheet position as our net
debt level was at the lowest point since 2005. While 2009 will be a
challenging year for Quaker and our customers, we remain confident that our
business model, strong associate base, key growth initiatives and solid balance
sheet will get us through this difficult period in a profitable manner and
position us well for the future.”
Fourth Quarter
Summary
Net sales
for the fourth quarter were $116.2 million, down 18% compared to $142.4 million
for the fourth quarter of 2007. The decrease in net sales was
primarily due to volume declines in all of the Company’s regions, as the global
economic downturn began to impact the Company. Volumes were down
approximately 25%, which were partially offset by a favorable 11% in selling
price and mix. Selling price increases were realized, in part, as a
result of an ongoing effort to offset higher raw material
costs. Foreign exchange rate translation also decreased revenues by
approximately 4%.
Gross
margins were down approximately $15.5 million, or 36%, compared to the fourth
quarter of 2007, reflective of the above- noted volume declines. The
gross margin percentage of 24.2% was also lower than the fourth quarter 2007
gross margin percentage of 30.6%. The decline in gross margin was
primarily related to continued high raw material costs which were only partially
offset by higher selling prices. The remaining decline in gross
margin percentage was due to the impact of manufacturing and other costs being
spread over reduced volumes, as well as product and regional sales
mix.
Selling,
general and administrative expenses (“SG&A”) decreased $8.7 million,
compared to the fourth quarter of 2007. Investments in higher growth
areas were more than offset by significantly lower incentive compensation, lower
commissions on lower sales, as well as favorable foreign exchange rate
translation. SG&A as a percentage of sales decreased to 23%
compared to 25% in the fourth quarter of 2007.
In
response to the significant volume declines, Quaker implemented a restructuring
program in the fourth quarter of 2008, which eliminated more than 80 positions
and included provisions for severance for 57 employees totaling $2.9
million. In a further effort to
reduce operating costs, as volume declines continued in the U.S. and Europe and
extended to other regions, Quaker implemented an additional restructuring
program in the first quarter of 2009, which is expected to include provisions
for severance for approximately 50 employees totaling approximately $2.5 to $3
million.
-more-
The
decrease in other income was primarily the result of foreign exchange losses
recorded in the fourth quarter of 2008, compared to gains in the same period of
the prior year. The higher net interest expense was due to higher
average borrowings and lower interest income.
Full Year
Summary
Net sales
for 2008 were $581.6 million, up 7% from $545.6 million for
2007. Foreign exchange rate translation increased revenues by
approximately 4%. Selling price increases realized across all regions
and market segments were partially offset by the fourth quarter volume declines
noted above.
Gross
margins were down approximately $4.9 million, or 3%, compared to
2007. The gross margin percentage of 28% was also lower than the 2007
gross margin percentage 30.8%. The decline in gross margin percentage
was due to increased raw material costs partially offset by price increases, as
well as product and regional sales mix.
SG&A
for 2008 decreased $2.7 million compared to 2007. Investments in
higher growth areas, inflationary increases and unfavorable foreign exchange
rate translation were more than offset by lower incentive compensation and lower
legal and environmental costs.
Effective
October 3, 2008, Ronald J. Naples, Chairman, retired as Quaker’s Chief Executive
Officer. As further discussed in the Company’s Form 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. Incremental costs incurred in 2008 totaled $3.5 million, or
approximately $0.22 per diluted share.
In 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
decrease in other income was primarily the result of foreign exchange losses
recorded in 2008, compared to gains in the prior year. Other income
for 2008 also 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
Company’s effective tax rate was 29.9% for 2008, compared to 29.3% in the prior
year. The 2008 effective tax rate was affected by a changing mix of
income among jurisdictions, as well as the derecognition of several uncertain
tax positions due to the expiration of applicable statutes of limitations for
certain tax years. The effective tax rate for 2007 includes 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.
Balance Sheet and Cash Flow
Items
The
Company’s net debt-to-total-capital ratio remained strong at 32% at both
December 31, 2008 and 2007, respectively. As discussed in the Form
8-K filed on February 20, 2009, the Company has also amended its credit facility
to provide covenant relief related to the 2008 and 2009 restructuring programs
and the CEO transition costs. In addition, the amendment temporarily
increases the maximum permitted leverage ratio from 3.5 to 4.0 from June 30,
2009 to September 30, 2009, and to 3.75 from December 31, 2009 to March 31,
2010. In February 2009, the Company also amended two Industrial
Revenue Bonds totaling $15.0 million to allow for the same changes in terms as
the credit facility. On a pro-forma basis, the estimated consolidated
leverage ratio as of December 31, 2008 is approximately 2.2.
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
quality, and lower their costs. Quaker’s headquarters is located near
Philadelphia in Conshohocken, Pennsylvania.
-more-
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
fourth quarter and full year results is scheduled for February 26, 2009 at 3:30
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 Operations
(Dollars in thousands,
except per share data and share amounts)
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(Unaudited)
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||||||||||||||||
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Three Months Ended December 31,
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Twelve Months Ended December 31,
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|||||||||||||||
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2008
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2007
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2008
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2007
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|||||||||||||
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Net
sales
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$ | 116,229 | $ | 142,393 | $ | 581,641 | $ | 545,597 | ||||||||
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Cost
of goods sold
|
88,114 | 98,783 | 418,580 | 377,661 | ||||||||||||
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Gross
margin
|
28,115 | 43,610 | 163,061 | 167,936 | ||||||||||||
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%
|
24.2 | % | 30.6 | % | 28.0 | % | 30.8 | % | ||||||||
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Selling,
general and administrative expenses
|
26,762 | 35,499 | 136,697 | 139,429 | ||||||||||||
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Restructuring
and related charges
|
2,916 | - | 2,916 | - | ||||||||||||
|
CEO
transition costs
|
- | - | 3,505 | - | ||||||||||||
|
Environmental
charges
|
- | - | - | 3,300 | ||||||||||||
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Operating
(loss) income
|
(1,563 | ) | 8,111 | 19,943 | 25,207 | |||||||||||
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%
|
-1.3 | % | 5.7 | % | 3.4 | % | 4.6 | % | ||||||||
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Other
income, net
|
(657 | ) | 960 | 1,095 | 2,578 | |||||||||||
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Interest
expense, net
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(1,204 | ) | (829 | ) | (4,409 | ) | (5,050 | ) | ||||||||
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(Loss)
income before taxes
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(3,424 | ) | 8,242 | 16,629 | 22,735 | |||||||||||
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Taxes
on income
|
(871 | ) | 3,592 | 4,977 | 6,668 | |||||||||||
| (2,553 | ) | 4,650 | 11,652 | 16,067 | ||||||||||||
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Equity
in net (loss) income of associated companies
|
(102 | ) | 226 | 388 | 783 | |||||||||||
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Minority
interest in net income of subsidiaries
|
(67 | ) | (253 | ) | (908 | ) | (1,379 | ) | ||||||||
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Net
(loss) income
|
$ | (2,722 | ) | $ | 4,623 | $ | 11,132 | $ | 15,471 | |||||||
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%
|
-2.3 | % | 3.2 | % | 1.9 | % | 2.8 | % | ||||||||
|
Per share data:
|
||||||||||||||||
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Net
(loss) income - basic
|
$ | (0.25 | ) | $ | 0.46 | $ | 1.07 | $ | 1.55 | |||||||
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Net
(loss) income - diluted
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$ | (0.25 | ) | $ | 0.46 | $ | 1.05 | $ | 1.53 | |||||||
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Shares Outstanding:
|
||||||||||||||||
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Basic
|
10,729,049 | 10,035,630 | 10,419,654 | 9,986,347 | ||||||||||||
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Diluted
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10,729,049 | 10,154,388 | 10,553,325 | 10,106,918 | ||||||||||||
-more-
Condensed Consolidated
Balance Sheet
(Dollars in thousands,
except par value and share amounts)
|
(Unaudited)
|
||||||||
|
December 31,
|
December 31,
|
|||||||
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2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 20,892 | $ | 20,195 | ||||
|
Construction
fund (restricted cash)
|
8,281 | - | ||||||
|
Accounts
receivable, net
|
98,702 | 118,135 | ||||||
|
Inventories,
net
|
57,419 | 60,738 | ||||||
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Deferred
income taxes
|
4,948 | 4,042 | ||||||
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Prepaid
expenses and other current assets
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10,584 | 10,391 | ||||||
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Total
current assets
|
200,826 | 213,501 | ||||||
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Property,
plant and equipment, net
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60,945 | 62,287 | ||||||
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Goodwill
|
40,997 | 43,789 | ||||||
|
Other
intangible assets, net
|
6,417 | 7,873 | ||||||
|
Investments
in associated companies
|
7,987 | 7,323 | ||||||
|
Deferred
income taxes
|
34,179 | 30,257 | ||||||
|
Other
assets
|
34,088 | 34,019 | ||||||
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Total
assets
|
$ | 385,439 | $ | 399,049 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Short-term
borrowings and current portion of long-term debt
|
$ | 4,631 | $ | 4,288 | ||||
|
Accounts
payable
|
48,849 | 65,202 | ||||||
|
Dividends
payable
|
2,492 | 2,178 | ||||||
|
Accrued
compensation
|
7,741 | 17,287 | ||||||
|
Accrued
pension and postretirement benefits
|
7,380 | 1,726 | ||||||
|
Other
current liabilities
|
12,771 | 15,670 | ||||||
|
Total
current liabilities
|
83,864 | 106,351 | ||||||
|
Long-term
debt
|
84,236 | 78,487 | ||||||
|
Deferred
income taxes
|
7,156 | 7,583 | ||||||
|
Accrued
pension and postretirement benefits
|
37,638 | 30,699 | ||||||
|
Other
non-current liabilities
|
42,670 | 41,023 | ||||||
|
Total
liabilities
|
255,564 | 264,143 | ||||||
|
Minority
interest in equity of subsidiaries
|
3,952 | 4,513 | ||||||
|
Shareholders'
equity
|
||||||||
|
Common
stock, $1 par value; authorized 30,000,000 shares; issued
2008 - 10,833,325 shares
|
10,833 | 10,147 | ||||||
|
Capital
in excess of par value
|
25,238 | 10,104 | ||||||
|
Retained
earnings
|
117,089 | 115,767 | ||||||
|
Accumulated
other comprehensive loss
|
(27,237 | ) | (5,625 | ) | ||||
|
Total
shareholders' equity
|
125,923 | 130,393 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 385,439 | $ | 399,049 | ||||
-more-
Quaker Chemical
Corporation
Condensed Consolidated
Statement of Cash Flows
For the twelve months ended
December 31,
(Dollars in
thousands)
|
(Unaudited)
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
income
|
$ | 11,132 | $ | 15,471 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
|
Depreciation
|
10,879 | 11,686 | ||||||
|
Amortization
|
1,177 | 1,197 | ||||||
|
Equity
in net income of associated companies, net of dividends
|
(275 | ) | (219 | ) | ||||
|
Minority
interest in earnings of subsidiaries
|
908 | 1,379 | ||||||
|
Deferred
income tax
|
1,014 | (354 | ) | |||||
|
Uncertain
tax positions (non-deferred portion)
|
211 | 1,577 | ||||||
|
Deferred
compensation and other, net
|
819 | (85 | ) | |||||
|
Stock-based
compensation
|
3,901 | 1,550 | ||||||
|
Restructuring
and related charges
|
2,916 | - | ||||||
|
Environmental
charges
|
- | 3,300 | ||||||
|
(Gain)
loss on disposal of property, plant and equipment
|
(10 | ) | (40 | ) | ||||
|
Insurance
settlement realized
|
(1,556 | ) | (1,854 | ) | ||||
|
Pension
and other postretirement benefits
|
(3,527 | ) | (3,596 | ) | ||||
|
Increase
(decrease) in cash from changes in current assets and current liabilities,
net of acquisitions:
|
||||||||
|
Accounts
receivable
|
15,582 | (4,093 | ) | |||||
|
Inventories
|
(73 | ) | (5,182 | ) | ||||
|
Prepaid
expenses and other current assets
|
(181 | ) | 122 | |||||
|
Accounts
payable and accrued liabilities
|
(27,892 | ) | 7,612 | |||||
|
Change
in restructuring liabilities
|
(749 | ) | - | |||||
|
Estimated
taxes on income
|
(885 | ) | (970 | ) | ||||
|
Net
cash provided by operating activities
|
13,391 | 27,501 | ||||||
|
Cash
flows from investing activities
|
||||||||
|
Capital
expenditures
|
(11,742 | ) | (9,165 | ) | ||||
|
Payments
related to acquisitions
|
(1,859 | ) | (2,373 | ) | ||||
|
Proceeds
from disposition of assets
|
177 | 259 | ||||||
|
Insurance
settlement received and interest earned
|
5,306 | 5,705 | ||||||
|
Change
in restricted cash, net
|
(12,031 | ) | (3,851 | ) | ||||
|
Net
cash used in investing activities
|
(20,149 | ) | (9,425 | ) | ||||
|
Cash
flows from financing activities
|
||||||||
|
Proceeds
from short-term debt
|
- | 2,250 | ||||||
|
Net
increase (decrease) in short-term borrowings
|
743 | (3,198 | ) | |||||
|
Proceeds
from long-term debt
|
10,000 | - | ||||||
|
Repayments
of long-term debt
|
(3,401 | ) | (8,345 | ) | ||||
|
Dividends
paid
|
(9,503 | ) | (8,654 | ) | ||||
|
Stock
options exercised, other
|
11,919 | 3,309 | ||||||
|
Distributions
to minority shareholders
|
(404 | ) | (1,265 | ) | ||||
|
Net
cash provided by (used in) financing activities
|
9,354 | (15,903 | ) | |||||
|
Effect
of exchange rate changes on cash
|
(1,899 | ) | 1,960 | |||||
|
Net
increase in cash and cash equivalents
|
697 | 4,133 | ||||||
|
Cash
and cash equivalents at the beginning of the period
|
20,195 | 16,062 | ||||||
|
Cash
and cash equivalents at the end of the period
|
$ | 20,892 | $ | 20,195 | ||||