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
August
1, 2007
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
August
1, 2007, Quaker Chemical Corporation announced its results of operations for
the
second quarter ended June 30, 2007, 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 August 1, 2007.
|
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: August 1, 2007 | By: | /s/ Mark A. Featherstone |
|
Mark
A. Featherstone
Vice
President and
Chief
Financial Officer
|
||
|
For
Release:
Immediate
|
NEWS
|
Contact:
Mark
A. Featherstone
Vice
President and
Chief
Financial Officer
610-832-4160
|
QUAKER
CHEMICAL ANNOUNCES RECORD QUARTERLY SALES
AND
39% EARNINGS IMPROVEMENT FOR THE SECOND QUARTER 2007
August
1,
2007
CONSHOHOCKEN,
PA - Quaker Chemical Corporation (NYSE:KWR) today announced record quarterly
sales for the second quarter of $137.6 million and net income of $4.2 million,
increases of 15.9%, and 38.7%, respectively, compared to the second quarter
of
2006. Earnings per diluted share increased to $0.41 from $0.30 for the second
quarter of 2006.
Second
Quarter 2007 Summary
Net
sales
for the second quarter were $137.6 million, compared to $118.7 million for
the
second quarter of 2006. The increase in net sales was primarily attributable
to
a combination of volume growth and higher sales prices. Volume growth was mainly
attributable to strong sales growth in Asia/Pacific, South America and Europe,
as well as higher revenue related to the Company’s CMS channel. Foreign exchange
rate translation also increased revenues by approximately 4% for the second
quarter of 2007, compared to the same period in 2006. Selling price increases
were realized across all regions and market segments, in part as an ongoing
effort to offset higher raw material costs. CMS revenues were higher due to
additional CMS accounts and the first quarter 2007 renewal and restructuring
of
several of the Company’s CMS contracts.
Gross
margin as a percentage of sales was 31.0% for the second quarter of 2007,
compared to 30.4% for the second quarter of 2006. Higher selling prices and
additional contribution from the Company’s CMS channel helped improve margins.
On a sequential basis, the second quarter 2007 gross margin percentage was
in
line with the first quarter 2007 gross margin percentage of 30.9%.
Selling,
general and administrative expenses (“SG&A”) for the quarter increased $5.6
million, compared to the second quarter of 2006. Foreign exchange rate
translation accounted for approximately $1.1 million of the increase. The
remainder of the increase was due to continued planned spending in higher growth
areas, primarily China, higher legal and environmental costs, increased
incentive compensation as a result of higher earnings, as well as higher
commissions as a result of higher sales.
The
increase in other income was the result of foreign exchange gains recorded
in
the current year. The increase in net interest expense was attributable to
higher average borrowings and higher interest rates. The increase in equity
income was due to improved financial performance from the Company’s Mexican and
Venezuelan affiliates.
Year-to-Date
Summary
Net
sales
for the first half of 2007 were $262.5 million, up 14.9% from $228.5 million
for
the first half of 2006. Double-digit volume increases in China and selling
price
increases realized across all regions and market segments were the primary
reasons for the increase in net sales. Foreign exchange rate translation also
increased revenues by approximately 4% for the first half of 2007, compared
to
the same period in 2006.
-
more
-
Gross
margin as a percentage of sales was 30.9% for the first half of 2007, compared
to 30.0% for the first half of 2006. Higher selling prices and a stronger
performance from the Company’s CMS business helped improve margin percentage
despite continued increases in raw material prices.
Selling,
general and administrative expenses for the first half of 2007 increased $10.2
million, compared to the first half of 2006. Foreign exchange rate translation
accounted for approximately $2.0 million of the increases over the first half
of
2006. Also negatively affecting the comparison with the prior year was a pension
gain of $0.9 million recorded in the first quarter of 2006 due to a legislative
change. The remainder of the increase was due to continued planned spending
in
higher growth areas, primarily China, higher incentive compensation as a result
of higher earnings, higher commissions as a result of higher sales, higher
legal
and environmental costs, as well as inflationary increases.
The
increase in other income was due to foreign exchange gains recorded in the
first
half of 2007, compared to losses in 2006. The increase in net interest expense
was attributable to higher average borrowings and higher interest rates.
The
Company’s effective tax rate was 33.9% for the first half of 2007, compared to
37.9% for the first half of 2006. The decrease in the effective tax rate was
primarily attributable to a changing mix of income among tax jurisdictions,
which was offset, in part, by the Company’s first quarter 2007 adoption of FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).
The
increase in equity income was due to improved financial performance from all
of
the Company’s equity affiliates.
Balance
Sheet and Cash Flow Items
The
Company’s net debt has increased from December 31, 2006, primarily to fund
working capital needs driven by higher business volume, as well as the start-up
of a new operation in China. The Company’s net debt-to-total-capital ratio was
42% at June 30, 2007, compared to 40% at December 31, 2006. Operating cash
flow
improved $2.2 million during the second quarter of 2007, compared to the first
quarter of 2007.
In
connection with the first quarter 2007 adoption of FIN 48, the Company recorded
a non-cash charge to shareholders’ equity of $5.5 million, which negatively
impacted the Company’s net debt-to-total-capital ratio by approximately 1
percentage point.
Ronald
J.
Naples, Chairman and Chief Executive Officer, commented, “We had a strong second
quarter that showed not only impressive performance improvement over last year’s
second quarter, but also progress up and down the income statement compared
to
the first quarter. Particularly encouraging was the volume growth we achieved
in
a number of geographies and markets, not just China where we’ve seen strong real
growth for some time. The quarter was led by this growth combined with our
efforts to improve gross margins even in the face of raw material prices that
have continued to escalate. Indeed, raw material costs impose an ongoing
challenge, as vegetable oils and animal fats demand grows with bio-diesel
activity, even as mineral oil prices have been largely stable. But demand
appears solid in most of our markets, and we continue to invest where we see
opportunity, both of which suggest promise for our long-term future.”
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
second quarter results is scheduled for August 2, 2007 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 June 30,
|
Six
Months Ended June 30,
|
||||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||||
|
Net
sales
|
$
|
137,598
|
$
|
118,683
|
$
|
262,489
|
$
|
228,499
|
|||||
|
Cost
of goods sold
|
94,986
|
82,618
|
181,331
|
159,949
|
|||||||||
|
Gross
margin
|
42,612
|
36,065
|
81,158
|
68,550
|
|||||||||
|
%
|
31.0
|
%
|
30.4
|
%
|
30.9
|
%
|
30.0
|
%
|
|||||
|
Selling,
general and administrative expenses
|
35,409
|
29,789
|
67,328
|
57,151
|
|||||||||
|
Operating
income
|
7,203
|
6,276
|
13,830
|
11,399
|
|||||||||
|
%
|
5.2
|
%
|
5.3
|
%
|
5.3
|
%
|
5.0
|
%
|
|||||
|
Other
income, net
|
909
|
387
|
1,236
|
515
|
|||||||||
|
Interest
expense, net
|
(1,501
|
)
|
(1,252
|
)
|
(2,851
|
)
|
(2,217
|
)
|
|||||
|
Income
before taxes
|
6,611
|
5,411
|
12,215
|
9,697
|
|||||||||
|
Taxes
on income
|
2,298
|
2,127
|
4,142
|
3,680
|
|||||||||
|
4,313
|
3,284
|
8,073
|
6,017
|
||||||||||
|
Equity
in net income of associated companies
|
266
|
125
|
391
|
238
|
|||||||||
|
Minority
interest in net income of subsidiaries
|
(428
|
)
|
(417
|
)
|
(776
|
)
|
(721
|
)
|
|||||
|
Net
income
|
$
|
4,151
|
$
|
2,992
|
$
|
7,688
|
$
|
5,534
|
|||||
|
%
|
3.0
|
%
|
2.5
|
%
|
2.9
|
%
|
2.4
|
%
|
|||||
|
Per
share data:
|
|||||||||||||
|
Net
income - basic
|
$
|
0.42
|
$
|
0.31
|
$
|
0.77
|
$
|
0.57
|
|||||
|
Net
income - diluted
|
$
|
0.41
|
$
|
0.30
|
$
|
0.76
|
$
|
0.56
|
|||||
|
Shares
Outstanding:
|
|||||||||||||
|
Basic
|
9,983,535
|
9,769,682
|
9,945,819
|
9,746,685
|
|||||||||
|
Diluted
|
10,118,653
|
9,833,117
|
10,074,060
|
9,824,968
|
|||||||||
-
more -
|
Quaker
Chemical Corporation
|
|||||||
|
Condensed
Consolidated Balance Sheet
|
|||||||
|
(Dollars
in thousands, except par value and share
amounts)
|
|||||||
|
(Unaudited)
|
|||||||
|
June
30,
|
December
31,
|
||||||
|
2007
|
2006
|
||||||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
14,517
|
$
|
16,062
|
|||
|
Accounts
receivable, net
|
124,652
|
107,340
|
|||||
|
Inventories,
net
|
57,379
|
51,984
|
|||||
|
Prepaid
expenses and other current assets
|
13,204
|
10,855
|
|||||
|
Total
current assets
|
209,752
|
186,241
|
|||||
|
Property,
plant and equipment, net
|
60,890
|
60,927
|
|||||
|
Goodwill
|
41,108
|
38,740
|
|||||
|
Other
intangible assets, net
|
8,270
|
8,330
|
|||||
|
Investments
in associated companies
|
6,786
|
7,044
|
|||||
|
Deferred
income taxes
|
32,517
|
28,573
|
|||||
|
Other
assets
|
31,941
|
27,527
|
|||||
|
Total
assets
|
$
|
391,264
|
$
|
357,382
|
|||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Short-term
borrowings and current portion of long-term debt
|
$
|
2,147
|
$
|
4,950
|
|||
|
Accounts
and other payables
|
64,159
|
56,345
|
|||||
|
Accrued
compensation
|
11,661
|
15,225
|
|||||
|
Other
current liabilities
|
15,212
|
13,659
|
|||||
|
Total
current liabilities
|
93,179
|
90,179
|
|||||
|
Long-term
debt
|
96,247
|
85,237
|
|||||
|
Deferred
income taxes
|
5,761
|
5,317
|
|||||
|
Other
non-current liabilities
|
74,409
|
61,783
|
|||||
|
Total
liabilities
|
269,596
|
242,516
|
|||||
|
Minority
interest in equity of subsidiaries
|
4,807
|
4,035
|
|||||
|
Shareholders'
equity
|
|||||||
|
Common
stock, $1 par value; authorized 30,000,000 shares; issued
10,106,214
shares
|
10,106
|
9,926
|
|||||
|
Capital
in excess of par value
|
8,452
|
5,466
|
|||||
|
Retained
earnings
|
112,342
|
114,498
|
|||||
|
Accumulated
other comprehensive loss
|
(14,039
|
)
|
(19,059
|
)
|
|||
|
Total
shareholders' equity
|
116,861
|
110,831
|
|||||
|
Total
liabilities and shareholders' equity
|
$
|
391,264
|
$
|
357,382
|
|||
-
more -
|
Quaker
Chemical Corporation
|
|||||||
|
Condensed
Consolidated Statement of Cash Flows
|
|||||||
|
For
the Six Months Ended June 30,
|
|||||||
|
(Dollars
in thousands)
|
|||||||
|
(Unaudited)
|
|||||||
|
2007
|
2006
|
||||||
|
Cash
flows from operating activities
|
|||||||
|
Net
income
|
$
|
7,688
|
$
|
5,534
|
|||
|
Adjustments
to reconcile net income to net cash used in operating
activities:
|
|||||||
|
Depreciation
|
5,500
|
4,893
|
|||||
|
Amortization
|
611
|
708
|
|||||
|
Equity
in net income of associated companies, net of dividends
|
(26
|
)
|
(33
|
)
|
|||
|
Minority
interest in earnings of subsidiaries
|
776
|
721
|
|||||
|
Deferred
income tax
|
452
|
334
|
|||||
|
Deferred
compensation and other, net
|
824
|
61
|
|||||
|
Stock-based
compensation
|
561
|
385
|
|||||
|
(Gain)
loss on disposal of property, plant and equipment
|
6
|
(8
|
)
|
||||
|
Insurance
settlement realized
|
(913
|
)
|
(157
|
)
|
|||
|
Pension
and other postretirement benefits
|
(1,773
|
)
|
(2,752
|
)
|
|||
|
Increase
(decrease) in cash from changes in current assets and
current liabilities,
net of acquisitions:
|
|||||||
|
Accounts
receivable
|
(14,785
|
)
|
(8,746
|
)
|
|||
|
Inventories
|
(3,921
|
)
|
(2,011
|
)
|
|||
|
Prepaid
expenses and other current assets
|
(989
|
)
|
(2,449
|
)
|
|||
|
Accounts
payable and accrued liabilities
|
3,123
|
1,475
|
|||||
|
Change
in restructuring liabilities
|
-
|
(3,411
|
)
|
||||
|
Net
cash used in operating activities
|
(2,866
|
)
|
(5,456
|
)
|
|||
|
Cash
flows from investing activities
|
|||||||
|
Capital
expenditures
|
(4,180
|
)
|
(4,863
|
)
|
|||
|
Payments
related to acquisitions
|
(1,527
|
)
|
(1,069
|
)
|
|||
|
Proceeds
from disposition of assets
|
106
|
46
|
|||||
|
Insurance
settlement received and interest earned
|
5,326
|
154
|
|||||
|
Change
in restricted cash, net
|
(4,413
|
)
|
3
|
||||
|
Net
cash used in investing activities
|
(4,688
|
)
|
(5,729
|
)
|
|||
|
|
|||||||
|
Cash
flows from financing activities
|
|||||||
|
Net
decrease in short-term borrowings
|
(2,841
|
)
|
(2,813
|
)
|
|||
|
Proceeds
from long-term debt
|
10,921
|
14,340
|
|||||
|
Repayments
of long-term debt
|
(448
|
)
|
(474
|
)
|
|||
|
Dividends
paid
|
(4,304
|
)
|
(4,199
|
)
|
|||
|
Stock
options exercised, other
|
2,605
|
335
|
|||||
|
Distributions
to minority shareholders
|
(270
|
)
|
(350
|
)
|
|||
|
Net
cash provided by financing activities
|
5,663
|
6,839
|
|||||
|
Effect
of exchange rate changes on cash
|
346
|
336
|
|||||
|
Net
decrease in cash and cash equivalents
|
(1,545
|
)
|
(4,010
|
)
|
|||
|
Cash
and cash equivalents at the beginning of the period
|
16,062
|
16,121
|
|||||
|
Cash
and cash equivalents at the end of the period
|
$
|
14,517
|
$
|
12,111
|
|||