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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 March 31, 1997
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
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
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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 April 30, 1997 8,645,122
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PART I. FINANCIAL INFORMATION
QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION
The following condensed financial statements are filed as part
of this quarterly report on Form 10-Q:
Consolidated Balance Sheet at March 31, 1997 and
December 31, 1996
Consolidated Statement of Income for the three months
ended March 31, 1997 and 1996
Consolidated Statement of Cash Flows for the three months
ended March 31, 1997 and 1996.
* * * * * * * * * *
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 adjust
ments, 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)
March 31, December 31,
1997 1996
---- ----
(Unaudited) *
Assets
Current assets
Cash and cash equivalents $ 9,864 $ 8,525
Accounts receivable 45,035 45,564
Inventories
Raw materials and supplies 8,580 9,094
Work in process and finished goods 11,416 11,947
Deferred income taxes 4,446 4,840
Prepaid expenses and other current assets 8,553 6,582
-------- --------
Total current assets 87,894 86,552
-------- --------
Investments in and advances to associated companies 4,334 3,941
-------- --------
Property, plant and equipment, at cost
Land 6,336 6,586
Buildings and improvements 31,841 32,680
Machinery and equipment 56,701 58,220
Construction in progress 1,727 1,476
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96,605 98,962
Less accumulated depreciation 54,272 55,002
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Total property, plant and equipment 42,333 43,960
-------- --------
Goodwill, net 15,225 16,222
Deferred income taxes 9,556 9,278
Other noncurrent assets 5,475 5,655
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Total noncurrent assets 30,256 31,155
-------- --------
$164,817 $165,608
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* Condensed from audited financial statements.
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Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
March 31, December 31,
1997 1996
---- ----
(Unaudited) *
Liabilities
Current liabilities
Short-term borrowings, current
portion of long-term debt,
notes payable and capital leases $21,148 $17,404
Accounts payable 22,350 23,386
Dividends payable 1,520 1,508
Accrued liabilities 18,540 19,843
Estimated taxes on income 3,889 1,893
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Total current liabilities 67,447 64,034
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Long-term debt, notes payable and capital leases 5,218 5,182
Deferred income taxes 3,232 3,222
Accrued postretirement benefits 8,930 8,898
Other noncurrent liabilities 6,047 6,255
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Total noncurrent liabilities 23,427 23,557
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Total liabilities 90,874 87,591
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Minority interest in equity of subsidiaries 4,027 3,763
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Shareholders' equity
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 647 634
Retained earnings 75,364 74,317
Unearned compensation (394) (459)
Foreign currency translation adjustments 903 6,475
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86,184 90,631
Treasury stock, shares held at cost;
1997 - 1,021,706, 1996 - 1,044,452 (16,268) (16,377)
-------- --------
Total shareholders' equity 69,916 74,254
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$164,817 $165,608
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* Condensed from audited financial statements
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Quaker Chemical Corporation
Consolidated Statement of Income
Three Months Ended March 31,
Unaudited
(dollars in thousands
except per share data)
----------------------
1997 1996
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Net sales $ 58,543 $ 58,203
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Costs and expenses
Cost of goods sold 33,176 33,955
Selling, administrative and general expenses 21,495 21,085
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54,671 55,040
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Income from operations 3,872 3,163
Other income, net 352 284
Interest expense (425) (500)
Interest income 60 92
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Income before taxes 3,859 3,039
Taxes on income 1,544 1,216
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2,315 1,823
Equity in net income of associated companies 287 (43)
Minority interest in net income of subsidiaries (35) (104)
-------- --------
Net income $ 2,567 $ 1,676
======== ========
Per share data:
Net income $0.30 $0.19
Dividends declared $0.175 $0.17
Based on weighted average number
of shares outstanding 8,622,064 8,666,747
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Quaker Chemical Corporation
Consolidated Statement of Cash Flows
For the Three Months Ended March 31,
Unaudited
(dollars in thousands)
1997 1996
---- ----
Cash flows from operating activities
Net income $2,567 $1,676
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,189 1,525
Amortization 508 546
Equity in net (income) loss of associated companies (287) 43
Minority interest in earnings of subsidiaries 35 104
Deferred income taxes (228) (214)
Deferred compensation and other postretirement benefits 262 202
Net change in repositioning liability (1,923) (265)
Other, net (17) 269
Increase (decrease) in cash from changes in current
assets and liabilities net of acquisitions
and divestitures:
Accounts receivable (1,260) (3,613)
Inventories 415 545
Prepaid expenses and other current assets (1,790) (266)
Accounts payable and accrued liabilities 593 1,002
Estimated taxes on income 2,154 47
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Net cash provided by operating activities 2,218 1,601
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Cash flows from investing activities
Dividends from associated companies 735
Investments in property, plant, equipment
and other assets (1,221) (1,111)
Investments in and advances to associated companies (120) (330)
Proceeds from the sale of assets 339
------ ------
Net cash used in investing activities (1,341) (367)
------ ------
Cash flows from financing activities
Net increase in short-term borrowings and
notes payable 5,541 5,268
Repayment of long-term debt, notes payable
and capital leases (1,729) (1,892)
Dividends paid (1,520) (1,474)
Treasury stock issued 122 105
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Net cash provided by financing activities 2,414 2,007
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Effect of exchange rate changes on cash (1,952) (923)
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Net increase in cash and cash equivalents 1,339 2,318
Cash and cash equivalents at beginning of period 8,525 7,230
------ ------
Cash and cash equivalents at end of period $9,864 $9,548
====== ======
Supplemental cash flow information
Cash paid during the quarter for:
Income taxes $ 171 $ 981
Interest 431 617
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Net cash flow provided by operating activities amounted to $2.2
million in the first quarter of 1997 compared to $1.6 million in the
same period of 1996. The improvement was principally due to a better
operating performance offset by payments related to the 1996
repositioning program.
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) decreased $2.4 million
primarily as a result of increased short-term borrowings associated
with the replacement of maturing long-term debt and seasonal cash
needs. The current ratio at March 31, 1997 was 1.3 to 1 as compared
to 1.4 to 1 at December 31, 1996, down slightly due to the increased
short-term borrowings.
Operations
Comparison of First Quarter 1997 with First Quarter 1996
Consolidated net sales for the first quarter of 1997 increased
by 1% over the first quarter of 1996. The increase in sales was the
net result of a 3% increase due to pricing initiatives and product
sales mix; a 3% increase in volume; and a 5% decrease due to
foreign currency translation rates.
Operating income improved 22% to $3.9 million as compared to
$3.2 million in the same period of 1996. The 22% improvement was
mainly attributable to better European results, which benefited from
strong demand from European steel customers and improved pricing, and
early benefits associated with the 1996 repositioning of operations.
The Company's gross profit margin as a percentage of sales increased
1.6% mainly as a result of benefits associated with the consolidation
of manufacturing operations in the United States, improved pricing,
particularly in Europe, stable raw material costs and changes in
sales mix. Selling, administrative and general expenses increased 2%
over 1996.
Net interest costs decreased slightly due to decreased financing
costs associated with lower overall debt levels. Other income increased
due to higher license fee income. The increase in equity in net income
from associated companies was primarily due to reduced losses incurred
by the Company's Fluid Recycling Services joint venture. Earnings per
share of $.30 were 58% higher than the prior year despite a negative
foreign currency translation impact of approximately $.05 per share due
to the strengthening of the dollar, primarily against the Dutch guilder.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On or about October 24, 1996, Petrolite Corporation
and its subsidiary, Petrolite Holdings, Inc.
(collectively, "Petrolite") filed a Demand for
Arbitration with the American Arbitration Association
and a Petition with the Circuit Court for the County
of St. Louis, State of Missouri, against the
Registrant and certain of its subsidiaries
(collectively, the "Company"). The actions arise out
of a Technology Purchase Agreement (the "Agreement")
between Petrolite and the Company dated April 13,
1993, as amended, pursuant to which the Company sold
various assets, including a patent (the "Patent"), to
Petrolite for a purchase price of approximately $8.5
million plus an obligation to pay royalties. In a
suit brought by Petrolite against Baker Hughes, Inc.,
et al. for infringement of the Patent, the United
States District Court for the Western District of
Oklahoma (No. CIV-94-311-M) affirmed by the United
States Court of Appeals for the Federal Circuit (No.
95-1447) declared all of the claims of the Patent
invalid as a result of sales allegedly made by the
Company more than one year prior to the filing of the
Patent application. In its actions against the
Company, Petrolite seeks damages in an unspecified
amount, rescission of the Agreement, costs, and other
relief. The Company believes that it has complete and
meritorious defenses to the Petrolite actions and
intends to vigorously defend the actions and deny
liability and to pursue a claim against Petrolite for
royalties. The bases for the Company's position
include, but are not limited to, the Company
specifically made no representations or warranties
with respect to the validity of the Patent, all sales
made by the Company prior to filing the Patent
application were disclosed to Petrolite prior to
closing under the Agreement and the findings made by
the Court in Petrolite's suit with Baker Hughes, Inc.
were the result of the failure of Petrolite's counsel
to take certain required actions in the handling of
the case.
Items 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
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(b) Reports on Form 8-K.
A report on Form 8-K was filed on February 20, 1997.
No other reports on Form 8-K were 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/ Richard J. Fagan
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Richard J. Fagan, officer duly
authorized to sign this report,
Controller, Treasurer and Principal
Financial and Chief Accounting Officer
Date: May 14, 1997
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