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
26, 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
February 26, 2008, Quaker Chemical Corporation announced its results of
operations for the fourth quarter and full year ended December 31, 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 February 26, 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:
February 27, 2008
|
By:
|
/s/
Mark A. Featherstone
|
|
|
|
Mark
A. Featherstone
Vice
President and
Chief
Financial Officer
|
-3-
|
For
Release:
Immediate
|
NEWS
|
Contact:
Mark
A. Featherstone
Vice
President and
Chief
Financial Officer
610-832-4160
|
QUAKER
CHEMICAL ANNOUNCES RECORD SALES FOR 2007 AND
54%
INCREASE IN FOURTH QUARTER EARNINGS
February
26, 2008
CONSHOHOCKEN,
PA - Quaker Chemical Corporation (NYSE:KWR) today announced record sales for
the
full year 2007 of $545.6 million and net income of $15.5 million, or $1.53
per
diluted share, compared to sales of $460.5 million and net income of $11.7
million, or $1.18 per diluted share, for 2006.
The
Company also reported record sales in the fourth quarter 2007 of $142.4 million
and net income of $4.6 million, or $0.46 per diluted share, compared to fourth
quarter 2006 sales of $115.5 million and net income of $3.0 million, or $0.30
per diluted share.
“Our
strong fourth quarter caps an outstanding year for Quaker in both earnings
and
cash generation,” observed Ronald J. Naples, Chairman and Chief Executive
Officer. “Strong volume growth, continued work with our customers on the pricing
front in the face of continued escalation in raw material costs, and improved
SG&A leverage were important parts of our profit growth this year. Beyond
just the financials, we made considerable progress this year on a number of
strategic initiatives, from customer penetration to new business
development.”
Fourth
Quarter 2007 Summary
Net
sales
for the fourth quarter were $142.4 million, up 23.3% from $115.5 million for
the
fourth quarter 2006. The increase in net sales was primarily attributable to
a
combination of volume growth and higher sales prices. Volume growth was realized
across all the Company’s regions, including higher revenue related to the
Company’s CMS channel. Foreign exchange rate translation increased revenues by
approximately 8% for the fourth quarter of 2007, compared to the same period
in
2006. Selling price increases were realized across the Company’s regions and
market segments, in part as a result of an ongoing effort to offset higher
raw
material costs. CMS revenues were higher due to additional CMS accounts, as
well
as the renewal and restructuring of several of the Company’s CMS contracts.
Higher
selling prices and additional contribution from the Company’s CMS channel helped
drive a 17% increase in gross margin in dollar terms. Gross margin as a
percentage of sales was 30.6% for the fourth quarter of 2007, compared to 32.3%
for the fourth quarter of 2006, due to higher raw material costs and sales
mix
from the restructured CMS contracts that were partially offset by price
increases.
Selling,
general and administrative expenses for the quarter increased $3.2 million,
compared to the fourth quarter of 2006. Foreign exchange rate translation
accounted for approximately two-thirds of the increase. Other major contributors
were planned spending in higher growth areas, such as China, and higher
commissions as a result of higher sales. These were offset in part by lower
legal and environmental and incentive compensation costs.
The
increase in other income was primarily the result of foreign exchange gains
recorded in the fourth quarter of 2007, compared to losses in the same period
of
the prior year. The lower net interest expense is due to lower average
borrowings and higher interest income during the fourth quarter of 2007,
compared to the prior year period.
-
more
-
The
effective tax rate was 43.6% in the fourth quarter of 2007 versus 28.2% in
the
prior year quarter. The higher tax rate was due in part to a tax law change,
resulting in a revaluation of previously established deferred tax assets, as
well as a change in the mix of earnings from lower to higher tax rate
jurisdictions.
Full
Year Summary
Net
sales
for 2007 were $545.6 million, up 18.5% from $460.5 million for 2006. The
increase in net sales was attributable to a combination of higher sales prices
and volume growth. Volume growth in Asia/Pacific and Europe, higher CMS
revenues, 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 increased revenues by approximately 5% for 2007
compared to 2006.
Gross
margin in dollar terms was higher by more than $25.0 million, or 18%, consistent
with the increased sales. Gross margin as a percentage of sales was 30.8% for
2007, as compared to 31% for 2006. Higher selling prices and a stronger
performance from the Company’s CMS channel helped improve margins in dollar
terms, while higher raw material costs and sales mix resulted in a slightly
lower gross margin percentage.
Selling,
general and administrative expenses for 2007 increased $18.5 million compared
to
2006. Foreign exchange rate translation accounted for approximately $5.6 million
of the increase over the prior year. 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, and
inflationary increases. In addition, during the third quarter of 2007, the
Company recorded two charges totaling $1.2 million related to certain customer
bankruptcies and a discontinued strategic initiative.
In
the
third quarter of 2007, the Company also recorded environmental charges of $3.3
million as disclosed in its press release dated October 23, 2007. The charges
consist 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 future remediation costs.
The
increase in other income was primarily due to foreign exchange gains recorded
in
2007, compared to losses in the prior year. The increase in net interest expense
was attributable to higher average borrowings and higher interest rates.
The
Company’s effective tax rate was 29.3% for 2007, compared to 33.8% in the prior
year. The lower effective tax rate includes a higher refund of taxes in China
as
a result of the Company’s increased investment with $0.7 million received in
2007 versus $0.4 million received in 2006. In addition, the lower effective
tax
rate includes a non-cash out-of-period tax benefit adjustment of $1.0 million
related to certain deferred tax items. The effective tax rate was also affected
by a changing mix of income among tax jurisdictions, as well as the Company’s
first quarter 2007 adoption of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”).
Balance
Sheet and Cash Flow Items
The
Company’s net debt decreased from December 31, 2006, primarily as a result of
reduced working capital investments during 2007, with operations generating
positive cash flow of $27.5 million. The $27.5 million of cash provided by
operating activities is the highest level the Company has achieved in the past
11 years. The Company’s net debt-to-total-capital ratio was 32% at December 31,
2007, compared to 40% at December 31, 2006. 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.
Mr.
Naples further commented, “We had a great year in 2007, not only because of our
earnings improvement, but because of our progress on other fronts as well.
We
crossed the half a billion dollar sales mark and strengthened our position
in a
number of faster-growing markets. With the environmental settlement reached
by
our AC Products subsidiary in the third quarter of 2007, we removed a
significant uncertainty and financial exposure. In addition, our operating
cash
flow reached its highest level in more than 10 years, providing more resources
for growth. We are optimistic about our long-term future and about prospects
for
continued earnings growth in 2008.”
-
more
-
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
fourth quarter and year-end results is scheduled for February 27, 2008 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 Income
(Dollars
in thousands, except per share data and share amounts)
|
(Unaudited)
|
|||||||||||||
|
Three
Months Ended December 31,
|
Twelve
Months Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||||
|
Net
sales
|
$
|
142,393
|
$
|
115,527
|
$
|
545,597
|
$
|
460,451
|
|||||
|
Cost
of goods sold
|
98,783
|
78,251
|
377,661
|
317,850
|
|||||||||
|
Gross
margin
|
43,610
|
37,276
|
167,936
|
142,601
|
|||||||||
|
%
|
30.6
|
%
|
32.3
|
%
|
30.8
|
%
|
31.0
|
%
|
|||||
|
Selling,
general and administrative expenses
|
35,499
|
32,333
|
139,429
|
120,969
|
|||||||||
|
Environmental
charges
|
-
|
-
|
3,300
|
-
|
|||||||||
|
Operating
income
|
8,111
|
4,943
|
25,207
|
21,632
|
|||||||||
|
%
|
5.7
|
%
|
4.3
|
%
|
4.6
|
%
|
4.7
|
%
|
|||||
|
Other
income, net
|
960
|
205
|
2,578
|
1,259
|
|||||||||
|
Interest
expense, net
|
(829
|
)
|
(1,016
|
)
|
(5,050
|
)
|
(4,451
|
)
|
|||||
|
Income
before taxes
|
8,242
|
4,132
|
22,735
|
18,440
|
|||||||||
|
Taxes
on income
|
3,592
|
1,166
|
6,668
|
6,224
|
|||||||||
|
4,650
|
2,966
|
16,067
|
12,216
|
||||||||||
|
Equity
in net income of associated companies
|
226
|
317
|
783
|
773
|
|||||||||
|
Minority
interest in net income of subsidiaries
|
(253
|
)
|
(289
|
)
|
(1,379
|
)
|
(1,322
|
)
|
|||||
|
Net
income
|
$
|
4,623
|
$
|
2,994
|
$
|
15,471
|
$
|
11,667
|
|||||
|
%
|
3.2
|
%
|
2.6
|
%
|
2.8
|
%
|
2.5
|
%
|
|||||
|
Per
share data:
|
|||||||||||||
|
Net
income - basic
|
$
|
0.46
|
$
|
0.30
|
$
|
1.55
|
$
|
1.19
|
|||||
|
Net
income - diluted
|
$
|
0.46
|
$
|
0.30
|
$
|
1.53
|
$
|
1.18
|
|||||
|
Shares
Outstanding:
|
|||||||||||||
|
Basic
|
10,035,630
|
9,828,377
|
9,986,347
|
9,778,745
|
|||||||||
|
Diluted
|
10,154,388
|
9,902,451
|
10,106,918
|
9,854,100
|
|||||||||
-
more
-
Condensed
Consolidated Balance Sheet
(Dollars
in thousands, except par value and share amounts)
|
(Unaudited)
|
|||||||
|
December
31,
|
December
31,
|
||||||
|
2007
|
2006
|
||||||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
20,195
|
$
|
16,062
|
|||
|
Accounts
receivable, net
|
118,135
|
107,340
|
|||||
|
Inventories,
net
|
60,738
|
51,984
|
|||||
|
Prepaid
expenses and other current assets
|
14,433
|
10,855
|
|||||
|
Total
current assets
|
213,501
|
186,241
|
|||||
|
Property,
plant and equipment, net
|
62,287
|
60,927
|
|||||
|
Goodwill
|
43,789
|
38,740
|
|||||
|
Other
intangible assets, net
|
7,873
|
8,330
|
|||||
|
Investments
in associated companies
|
7,323
|
7,044
|
|||||
|
Other
assets
|
64,276
|
56,100
|
|||||
|
Total
assets
|
$
|
399,049
|
$
|
357,382
|
|||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Short-term
borrowings and current portion of long-term debt
|
$
|
4,288
|
$
|
4,950
|
|||
|
Accounts
payable
|
65,202
|
54,212
|
|||||
|
Dividends
payable
|
2,178
|
2,133
|
|||||
|
Accrued
compensation
|
17,287
|
15,225
|
|||||
|
Other
current liabilities
|
17,396
|
13,659
|
|||||
|
Total
current liabilities
|
106,351
|
90,179
|
|||||
|
Long-term
debt
|
78,487
|
85,237
|
|||||
|
Deferred
income taxes
|
7,583
|
5,317
|
|||||
|
Accrued
pension and postretirement benefits
|
30,699
|
38,430
|
|||||
|
Other
non-current liabilities
|
41,023
|
23,353
|
|||||
|
Total
liabilities
|
264,143
|
242,516
|
|||||
|
Minority
interest in equity of subsidiaries
|
4,513
|
4,035
|
|||||
|
Shareholders'
equity
|
|||||||
|
Common
stock, $1 par value; authorized 30,000,000 shares; issued 10,147,239
shares
|
10,147
|
9,926
|
|||||
|
Capital
in excess of par value
|
10,104
|
5,466
|
|||||
|
Retained
earnings
|
115,767
|
114,498
|
|||||
|
Accumulated
other comprehensive loss
|
(5,625
|
)
|
(19,059
|
)
|
|||
|
Total
shareholders' equity
|
130,393
|
110,831
|
|||||
|
Total
liabilities and shareholders' equity
|
$
|
399,049
|
$
|
357,382
|
|||
-
more
-
Quaker
Chemical Corporation
Condensed
Consolidated Statement of Cash Flows
For
the twelve months ended December 31,
(Dollars
in thousands)
|
(Unaudited)
|
|||||||
|
2007
|
2006
|
||||||
|
Cash
flows from operating activities
|
|||||||
|
Net
income
|
$
|
15,471
|
$
|
11,667
|
|||
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|||||||
|
Depreciation
|
11,686
|
10,136
|
|||||
|
Amortization
|
1,197
|
1,427
|
|||||
|
Equity
in net income of associated companies, net of dividends
|
(219
|
)
|
(348
|
)
|
|||
|
Minority
interest in earnings of subsidiaries
|
1,379
|
1,322
|
|||||
|
Deferred
income tax and FIN 48
|
1,223
|
404
|
|||||
|
Deferred
compensation and other, net
|
(85
|
)
|
(507
|
)
|
|||
|
Stock-based
compensation
|
1,550
|
857
|
|||||
|
Environmental
charges
|
3,300
|
-
|
|||||
|
(Gain)
loss on disposal of property, plant and equipment
|
(40
|
)
|
34
|
||||
|
Insurance
settlement realized
|
(1,854
|
)
|
(544
|
)
|
|||
|
Pension
and other postretirement benefits
|
(3,596
|
)
|
(4,247
|
)
|
|||
|
Increase
(decrease) in cash from changes in current assets and current liabilities,
net of acquisitions:
|
|||||||
|
Accounts
receivable
|
(4,093
|
)
|
(8,947
|
)
|
|||
|
Inventories
|
(5,182
|
)
|
(4,146
|
)
|
|||
|
Prepaid
expenses and other current assets
|
122
|
(140
|
)
|
||||
|
Accounts
payable and accrued liabilities
|
7,612
|
5,440
|
|||||
|
Change
in restructuring liabilities
|
-
|
(4,033
|
)
|
||||
|
Estimated
taxes on income
|
(970
|
)
|
(192
|
)
|
|||
|
Net
cash provided by operating activities
|
27,501
|
8,183
|
|||||
|
Cash
flows from investing activities
|
|||||||
|
Capital
expenditures
|
(9,165
|
)
|
(12,379
|
)
|
|||
|
Payments
related to acquisitions
|
(2,373
|
)
|
(1,684
|
)
|
|||
|
Proceeds
from disposition of assets
|
259
|
64
|
|||||
|
Insurance
settlement received and interest earned
|
5,705
|
7,836
|
|||||
|
Change
in restricted cash, net
|
(3,851
|
)
|
(7,292
|
)
|
|||
|
Net
cash used in investing activities
|
(9,425
|
)
|
(13,455
|
)
|
|||
|
Cash
flows from financing activities
|
|||||||
|
Proceeds
from short-term debt
|
2,250
|
1,897
|
|||||
|
Net
decrease in short-term borrowings
|
(3,198
|
)
|
(3,384
|
)
|
|||
|
Proceeds
from long-term debt
|
-
|
15,283
|
|||||
|
Repayments
of long-term debt
|
(8,345
|
)
|
(940
|
)
|
|||
|
Dividends
paid
|
(8,654
|
)
|
(8,444
|
)
|
|||
|
Stock
options exercised, other
|
3,309
|
1,235
|
|||||
|
Distributions
to minority shareholders
|
(1,265
|
)
|
(1,490
|
)
|
|||
|
Net
cash (used in) provided by financing activities
|
(15,903
|
)
|
4,157
|
||||
|
Effect
of exchange rate changes on cash
|
1,960
|
1,056
|
|||||
|
Net
increase (decrease) in cash and cash equivalents
|
4,133
|
(59
|
)
|
||||
|
Cash
and cash equivalents at the beginning of the period
|
16,062
|
16,121
|
|||||
|
Cash
and cash equivalents at the end of the period
|
$
|
20,195
|
$
|
16,062
|
|||