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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______________________
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to____________
Commission file number 0-7154
QUAKER CHEMICAL CORPORATION
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-0993790
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Elm and Lee Streets, Conshohocken, Pennsylvania 19428 - 0809
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-832-4000
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Not Applicable
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Number of Shares of Common Stock
Outstanding on August 12, 1996 8,558,242
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PART I. FINANCIAL INFORMATION
QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
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CONDENSED FINANCIAL INFORMATION
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The following condensed financial statements are filed as part of this
quarterly report on Form 10-Q:
Consolidated Balance Sheet at June 30, 1996 and
December 31, 1995
Consolidated Statement of Income for the six months
ended June 30, 1996 and 1995
Consolidated Statement of Income for the three months
ended June 30, 1996 and 1995
Consolidated Statement of Cash Flows for the six months
ended June 30, 1996 and 1995.
* * * * * * * * * *
NOTE TO CONDENSED FINANCIAL INFORMATION
---------------------------------------
The attached condensed financial information has been prepared in
accordance with instructions for Form 10-Q and, therefore, does not include
all financial note information which might be necessary for a fair
presentation in accordance with generally accepted accounting principles. Such
condensed financial information is unaudited, but in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments and accruals, necessary for a fair presentation of results for the
periods indicated. The net income reported for the periods should not
necessarily be regarded as indicative of net income on an annualized basis
(see accompanying Management's Discussion and Analysis-Other Significant Items);
however, significant variations from the results for the same period of the
previous year, if any, have been disclosed in the accompanying Management's
Discussion and Analysis. Certain reclassifications of prior years' data have
been made to improve comparability.
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Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
----------------------
June 30, December 31,
1996 1995
---- ----
(Unaudited) *
Assets
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Current assets
Cash and cash equivalents $ 10,438 $ 7,230
Accounts receivable 50,202 46,965
Inventories
Raw materials and supplies 7,581 10,964
Work in process and finished goods 11,573 10,669
Deferred income taxes 1,885 1,415
Prepaid expenses and other current assets 8,155 10,132
-------- --------
89,834 87,375
-------- --------
Investments in and advances to associated
companies 8,389 10,058
-------- --------
Property, plant and equipment, at cost
Land 6,776 7,279
Buildings and improvements 38,331 40,232
Machinery and equipment 69,258 70,010
Construction in progress 1,867 1,068
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116,232 118,589
Less accumulated depreciation 61,472 62,280
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54,760 56,309
-------- --------
Excess of cost over net assets
of acquired companies 18,092 18,973
Deferred income taxes 5,226 5,349
Other noncurrent assets 6,811 7,344
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30,129 31,666
-------- --------
$183,112 $185,408
======== ========
* Condensed from audited financial statements.
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Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
----------------------
June 30 December 31,
1996 1995
---- ----
(Unaudited) *
Liabilities
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Current liabilities
Short-term borrowings, current
portion of long-term debt,
notes payable and capital leases $ 23,790 $ 25,548
Accounts payable 20,528 20,969
Dividends payable 1,473
Accrued liabilities 14,276 12,392
Estimated taxes on income 3,533 486
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Total current liabilities 62,127 60,868
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Long-term debt, notes payable and capital leases 7,592 9,300
Deferred income taxes 3,175 2,977
Accrued postretirement benefits 8,815 8,809
Other noncurrent liabilities 6,236 6,432
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Total noncurrent liabilities 25,818 27,518
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87,945 88,386
-------- --------
Minority interest in equity of subsidiaries 3,992 3,030
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Shareholders' equity
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Common stock, $1 par value; authorized
30,000,000 shares; issued (including
treasury shares) 9,664,009 shares 9,664 9,664
Capital in excess of par value 768 780
Retained earnings 90,702 87,852
Unearned compensation (591) (722)
Foreign currency translation adjustments 7,913 12,333
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108,456 109,907
Treasury stock, shares held at cost;
1996 - 1,109,123, 1995 - 853,809 (17,281) (15,915)
-------- --------
91,175 93,992
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$183,112 $185,408
======== ========
* Condensed from audited financial statements
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Quaker Chemical Corporation
Consolidated Statement of Income
Six Months Ended June 30,
Unaudited
(dollars in thousands
except per share data)
-------------------------
1996 1995
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Income
Net sales $117,989 $113,562
Other income, net 820 900
-------- --------
118,809 114,462
-------- --------
Costs and expenses
Cost of goods sold 68,190 67,835
Selling, administrative and
general expenses 42,504 38,675
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110,694 106,510
-------- --------
Income from operations 8,115 7,952
Interest expense (1,008) (735)
Interest income 196 150
-------- --------
Income before taxes 7,303 7,367
Taxes on income 2,921 2,925
-------- --------
4,382 4,442
Equity in net income of associated
companies 102 197
Minority interest in net income of
subsidiaries (160) (253)
-------- --------
Net income $ 4,324 $ 4,386
======== ========
Per share data:
Net income $0.50 $0.50
Dividends declared $0.17 $0.31
Based on weighted average number
of shares outstanding 8,666,161 8,812,602
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Quaker Chemical Corporation
Consolidated Statement of Income
Three Months Ended June 30,
Unaudited
(dollars in thousands
except per share data)
----------------------
1996 1995
---- ----
Income
Net sales $ 59,786 $ 59,035
Other income, net 536 746
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60,322 59,781
-------- --------
Costs and expenses
Cost of goods sold 34,235 35,111
Selling, administrative and
general expenses 21,419 20,154
-------- --------
55,654 55,265
-------- --------
Income from operations 4,668 4,516
Interest expense (508) (403)
Interest income 104 61
-------- --------
Income before taxes 4,264 4,174
Taxes on income 1,705 1,664
-------- --------
2,559 2,510
Equity in net income of associated
companies 145 107
Minority interest in net income of
subsidiaries (56) (146)
-------- --------
Net income $ 2,648 $ 2,471
======== ========
Per share data:
Net income $0.31 $0.28
Dividends declared * $0.17
Based on weighted average number
of shares outstanding 8,665,575 8,804,016
* Dividends for the second quarter of 1996 were declared and paid in
July 1996 at a rate of $0.17 per share.
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Quaker Chemical Corporation
Consolidated Statement of Cash Flows
For the Six Months Ended June 30,
Unaudited
(dollars in thousands)
1996 1995
---- ----
Cash flows from operating activities
Net income $ 4,324 $ 4,386
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 3,151 3,346
Amortization 1,080 1,094
Equity in net income of associated companies (102) (197)
Minority interest in earnings of subsidiaries 160 253
Deferred income taxes 103 31
Deferred compensation and other postretirement benefits 668 455
Net change in repositioning liability (618) (564)
Other, net 393 (28)
Increase (decrease) in cash from changes in current assets
and liabilities net of acquisitions and divestitures:
Accounts receivable (4,170) (5,622)
Inventories 2,060 (1,573)
Prepaid expenses and other current assets 1,317 (3,174)
Accounts payable and accrued liabilities 725 (92)
Estimated taxes on income 3,065 90
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Net cash provided by (used in) operating activities 12,156 (1,595)
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Cash flows from investing activities
Dividends from associated companies 1,078 50
Investments in property, plant, equipment and
other assets (2,937) (4,942)
Companies acquired excluding cash (6,404)
Investments in and advances to associated companies (720) (623)
Proceeds from the sale of patent, production technology
and other assets 683 2,000
Other, net (75)
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Net cash used in investing activities (1,896) (9,994)
------- -------
Cash flows from financing activities
Net (decrease) increase in short-term borrowings (1,034) 13,545
Repayment of long-term debt, notes payable and
capital leases (2,408) (1,692)
Dividends paid (1,474) (3,003)
Treasury stock issued 209 340
Treasury stock acquired (1,587) (516)
Other, net (141)
------- -------
Net cash (used in) provided by financing activities (6,294) 8,533
------- -------
Effect of exchange rate changes on cash (758) (174)
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Net increase (decrease) in cash and cash equivalents 3,208 (3,230)
Cash and cash equivalents at beginning of period 7,230 11,345
------- -------
Cash and cash equivalents at end of period $10,438 $ 8,115
======= =======
Supplemental cash flow information
Cash paid during the year for:
Income taxes $ 2,050 $ 2,285
Interest 1,087 751
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Management's Discussion and Analysis of
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Financial Condition and Results of Operations
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Liquidity and Capital Resources
- -------------------------------
Net cash flow provided by (used in) operating activities amounted to
$12.2 million in the first half of 1996 compared to ($1.6) million in the
same period of 1995. The improvement was principally due to better
management of operating working capital and the timing of a tax refund
in Europe.
The Company's net cash position (cash and cash equivalents plus
short-term investments less short-term borrowings and current portion of
long-term debt and capital leases) increased $5.0 million primarily as a
result of decreases in short-term borrowings and operating working capital.
The current ratio was 1.4 to 1 at June 30, 1996, unchanged from
December 31, 1995.
Operations
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Comparison of Six Months 1996 with Six Months 1995
- --------------------------------------------------
Consolidated net sales for the first half of 1996 increased
approximately 4% over the first half of 1995, mainly due to the effects
of improved pricing and product sales mix. The increase in sales was the
net result of a 5% increase in pricing and product sales mix; a 3% increase
due to business acquisitions; a 3% decrease in volume; and a 1% decrease
due to translation rates.
Income from operations was 2% higher than the first half of 1995.
The Company's gross profit margin as a percentage of sales increased 2%
mainly as a result of the aforementioned benefits of improved pricing,
particularly in Europe, a more profitable sales mix and stable raw material
costs. Selling, administrative and general expenses as a percent of sales
were 1.7% higher than 1995 primarily as a result of planned increases in
operating expenses related to geographic and product growth areas and
strategic initiatives.
Net interest costs rose due to increased financing costs associated with
higher debt levels carried into 1996 related to the financing of a 1995
acquisition and other operating needs. Other income decreased primarily
because of decreased license fee income. The decrease in equity in net
income from associated companies was due to losses incurred by the Company's
FRS joint venture related to increased costs of new business development and
staff reorganization along with delays in new business startups. Earnings
per share of $.50 were even with those of the prior year despite a negative
currency translation impact of approximately $.03 per share due to the
strengthening of the dollar against the major European currencies.
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Comparison of Second Quarter 1996 with Second Quarter 1995
- ----------------------------------------------------------
Consolidated net sales for the second quarter of 1996 increased 1% while
comparative income from operations improved 3% versus the second quarter of
1995. The increase in sales was the net result of a 4% increase in price and
sales mix; a 2% increase due to acquisitions offset by a 2% decrease in volume;
and a 3% decrease due to currency translation.
The reasons for changes in operating margin percentages and net interest
costs in the second quarter 1996 versus the second quarter 1995 are basically
the same as those previously mentioned for the comparative six-month periods.
Other income decreased in the quarter mainly as a result of the absence of
positive exchange impacts recorded in 1995. The increase in equity in net
income from associated companies was primarily due to solid performances from
joint ventures in Mexico and Venezuela offset in part by losses incurred by
the Company's FRS joint venture.
Other Significant Items
- -----------------------
The Company remains cautiously optimistic about customer production
levels and raw material inflation over the balance of the year. However, the
principal challenges still facing the Company are the highly competitive
nature of the pricing environment in the Company's major markets and the
effective management of the Company's FRS joint venture.
Given these factors, the Company announced its intention to implement a
series of measures that should improve manufacturing capacity utilization,
customer responsiveness, operating efficiencies, and financial results.
These measures include the consolidation of manufacturing operations in the
United States into one facility, and the consolidation of certain
manufacturing, research and other functional activities in Europe. These
actions should result in a pretax charge in the second half of 1996 in the
range of $23 million (approximately $15 million after tax or $1.75 per
share), about two-thirds of which will consist of non-cash items. If these
measures are completed as planned, the Company expects annualized pretax cost
savings of approximately $4 million, a substantial portion of which the
Company now believes it will be able to realize in 1997.
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PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are inapplicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 27-Financial Data Schedule
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the quarter for
which this report is filed.
* * * * * * * * *
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)
/s/ THOMAS F. KIRK
--------------------------------
Thomas F. Kirk, officer duly
authorized to sign this report,
Vice President and Chief Financial
Officer
Date: August 14, 1996
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