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
October
31, 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
October 31, 2007, Quaker Chemical Corporation announced its results of
operations for the third quarter ended September 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 October 31, 2007.
|
-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:
October 31, 2007
|
By:
|
/s/
Mark A. Featherstone
|
|
|
Mark A. Featherstone
Vice President and
Chief Financial Officer
|
|||
-3-
|
NEWS
|
||
|
For
Release:
Immediate
|
Contact:
Mark
A. Featherstone
Vice
President and
Chief
Financial Officer
610-832-4160
|
|
QUAKER
CHEMICAL ANNOUNCES RECORD QUARTERLY SALES
IN
THE THIRD QUARTER 2007
October
31, 2007
CONSHOHOCKEN,
PA - Quaker Chemical Corporation (NYSE:KWR) today announced that in the third
quarter it achieved record quarterly sales of $140.7 million, an increase of
20.9% over the third quarter 2006, and net income of $3.2 million. Earnings
per
diluted share were $0.31 versus $0.32 for the third quarter 2006. Third quarter
2007 operating expenses include a pre-tax charge of $3.3 million related to
an
environmental litigation settlement.
“We
had
an outstanding quarter,” observed Ronald J. Naples, Chairman and Chief Executive
Officer. “As is apparent in our income statement, without the one-time
environmental charge, we would have had very strong operating income growth.
Indeed, the third quarter continued our success this year in revenue and net
income growth, which included a tax adjustment benefit in the quarter, and
generated significant cash. I should point out we announced the environmental
charge last week and noted it represents a very favorable resolution for us
that
removes significant uncertainty and financial exposure that sprang from a
long-ago problem. Further, it recognizes our voluntary work over the past 12
years to address the problem before any litigation.”
Third
Quarter 2007 Summary
Net
sales
for the third quarter were $140.7 million, up 20.9% from $116.4 million for
the
third quarter 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, Europe and North America,
as well as higher revenue related to the Company’s CMS channel. Foreign exchange
rate translation increased revenues by approximately 5% for the third quarter
2007, compared to the same period in 2006. Selling price increases were realized
across all 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 and the first quarter 2007 renewal and renegotiation of several
of
the Company’s CMS contracts.
Gross
margin as a percentage of sales was 30.7% for the third quarter of 2007,
compared to 31.6% for the third quarter 2006. Higher selling prices and
additional contribution from the Company’s CMS channel helped improve margins in
dollar terms, while higher raw material costs and sales mix resulted in a lower
gross margin percentage. On a sequential basis, the third quarter gross margin
percentage was in line with first quarter 2007 and second quarter 2007 gross
margin percentages of 30.9% and 31.0%, respectively.
Selling,
general and administrative expenses for the quarter increased $5.1 million,
compared to the third quarter 2006. Foreign exchange rate translation accounted
for approximately $1.3 million 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, as well as two charges totaling $1.2 million
relating to certain customer bankruptcies and a discontinued strategic
initiative.
-
more
-
In
the
third quarter 2007, the Company 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 remaining remediation costs.
The
decrease in other income was the result of a distribution received from the
Company’s former real estate joint venture in the prior year quarter, as well as
lower license fee income in the third quarter 2007. The increase in net interest
expense was attributable to higher average borrowings and higher interest rates.
The
tax
benefit recorded in the third quarter 2007 includes a $0.7 million refund of
taxes in China as a result of the Company’s increased investment. The third
quarter 2006 included a similar tax rebate of $0.4 million. In addition, the
third quarter 2007 includes a non-cash out-of-period 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.
Year-to-Date
Summary
Net
sales
for the first nine months of 2007 were $403.2 million, up 16.9% from $344.9
million for the first nine months of 2006. Double-digit volume increases in
China, 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
4.4% for the first nine months of 2007, compared to the same period in 2006.
Gross
margin as a percentage of sales was 30.8% for the first nine months of 2007,
compared to 30.5% in the prior year period. Higher selling prices and a stronger
performance from the Company’s CMS channel helped maintain the gross margin
percentage despite continued increases in raw material prices.
Selling,
general and administrative expenses for the first nine months of 2007 increased
$15.3 million, compared to the first nine months of 2006. Foreign exchange
rate
translation accounted for approximately $3.3 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 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, the third quarter charges noted
previously, as well as inflationary increases.
The
increase in other income was primarily due to foreign exchange gains recorded
in
the first nine months of 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 21.2% for the first nine months of 2007,
compared to 35.4% in the prior year. The decrease in the effective tax rate
was
primarily due to a changing mix of income among tax jurisdictions, as well
as
the non-cash out-of-period adjustment noted above, offset, in part, by 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 balances during the third quarter 2007, with operations
generating positive cash flow during the quarter of $19.3 million. The Company’s
net debt-to-total-capital ratio was 36% at September 30, 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.
Ronald
J.
Naples, Chairman and Chief Executive Officer, commented, “We are certainly
pleased with our business results and strong cash flow in the quarter, which
continue the progress we have seen so far this year. We are encouraged by the
volume growth we continue to see. We remain vigilant to the ongoing challenge
of
escalating raw material costs and have increased our gross margin dollars even
as raw material costs ran considerably ahead of last year. I am also encouraged
by real working capital improvements achieved during the quarter. With the
settlement of the AC Products environmental litigation, we feel good about
our
long-term future and prospects of continued earnings improvement.”
-
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
third quarter results is scheduled for November 1, 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 September 30,
|
|
Nine
Months Ended September 30,
|
|
||||||||
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|||||
|
Net
sales
|
$
|
140,715
|
$
|
116,425
|
$
|
403,204
|
$
|
344,924
|
|||||
|
Cost
of goods sold
|
97,547
|
79,650
|
278,878
|
239,599
|
|||||||||
|
Gross
margin
|
43,168
|
36,775
|
124,326
|
105,325
|
|||||||||
|
%
|
30.7
|
%
|
31.6
|
%
|
30.8
|
%
|
30.5
|
%
|
|||||
|
Selling,
general and administrative expenses
|
36,602
|
31,485
|
103,930
|
88,636
|
|||||||||
|
Environmental
charges
|
3,300
|
-
|
3,300
|
-
|
|||||||||
|
Operating
income
|
3,266
|
5,290
|
17,096
|
16,689
|
|||||||||
|
%
|
2.3
|
%
|
4.5
|
%
|
4.2
|
%
|
4.8
|
%
|
|||||
|
Other
income, net
|
382
|
539
|
1,618
|
1,054
|
|||||||||
|
Interest
expense, net
|
(1,370
|
)
|
(1,218
|
)
|
(4,221
|
)
|
(3,435
|
)
|
|||||
|
Income
before taxes
|
2,278
|
4,611
|
14,493
|
14,308
|
|||||||||
|
Taxes
on income
|
(1,066
|
)
|
1,378
|
3,076
|
5,058
|
||||||||
|
3,344
|
3,233
|
11,417
|
9,250
|
||||||||||
|
Equity
in net income of associated companies
|
166
|
218
|
557
|
456
|
|||||||||
|
Minority
interest in net income of subsidiaries
|
(350
|
)
|
(312
|
)
|
(1,126
|
)
|
(1,033
|
)
|
|||||
|
Net
income (loss)
|
$
|
3,160
|
$
|
3,139
|
$
|
10,848
|
$
|
8,673
|
|||||
|
%
|
2.2
|
%
|
2.7
|
%
|
2.7
|
%
|
2.5
|
%
|
|||||
|
Per
share data:
|
|||||||||||||
|
Net
income - basic
|
$
|
0.32
|
$
|
0.32
|
$
|
1.09
|
$
|
0.89
|
|||||
|
Net
income - diluted
|
$
|
0.31
|
$
|
0.32
|
$
|
1.07
|
$
|
0.88
|
|||||
|
Shares
Outstanding:
|
|||||||||||||
|
Basic
|
10,016,801
|
9,792,187
|
9,969,739
|
9,762,019
|
|||||||||
|
Diluted
|
10,134,909
|
9,854,625
|
10,095,945
|
9,833,903
|
|||||||||
-
more
-
Quaker
Chemical Corporation
Condensed
Consolidated Balance Sheet
(Dollars
in thousands, except par value and share amounts)
|
(Unaudited)
|
|
||||||
|
|
|
September
30,
|
|
December
31,
|
|
||
|
|
|
2007
|
|
2006
|
|||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
24,224
|
$
|
16,062
|
|||
|
Accounts
receivable, net
|
118,217
|
107,340
|
|||||
|
Inventories,
net
|
57,908
|
51,984
|
|||||
|
Prepaid
expenses and other current assets
|
15,229
|
10,855
|
|||||
|
Total
current assets
|
215,578
|
186,241
|
|||||
|
Property,
plant and equipment, net
|
60,491
|
60,927
|
|||||
|
Goodwill
|
43,067
|
38,740
|
|||||
|
Other
intangible assets, net
|
8,097
|
8,330
|
|||||
|
Investments
in associated companies
|
7,123
|
7,044
|
|||||
|
Deferred
income taxes
|
33,037
|
28,573
|
|||||
|
Other
assets
|
31,196
|
27,527
|
|||||
|
Total
assets
|
$
|
398,589
|
$
|
357,382
|
|||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Short-term
borrowings and current portion of long-term debt
|
$
|
3,098
|
$
|
4,950
|
|||
|
Accounts
and other payables
|
63,279
|
56,345
|
|||||
|
Accrued
compensation
|
15,704
|
15,225
|
|||||
|
Other
current liabilities
|
19,076
|
13,659
|
|||||
|
Total
current liabilities
|
101,157
|
90,179
|
|||||
|
Long-term
debt
|
89,364
|
85,237
|
|||||
|
Deferred
income taxes
|
6,838
|
5,317
|
|||||
|
Other
non-current liabilities
|
75,477
|
61,783
|
|||||
|
Total
liabilities
|
272,836
|
242,516
|
|||||
|
Minority
interest in equity of subsidiaries
|
4,679
|
4,035
|
|||||
|
Shareholders'
equity
|
|||||||
|
Common
stock, $1 par value; authorized 30,000,000 shares; issued 10,125,249
shares
|
10,125
|
9,926
|
|||||
|
Capital
in excess of par value
|
9,065
|
5,466
|
|||||
|
Retained
earnings
|
113,326
|
114,498
|
|||||
|
Accumulated
other comprehensive loss
|
(11,442
|
)
|
(19,059
|
)
|
|||
|
Total
shareholders' equity
|
121,074
|
110,831
|
|||||
|
Total
liabilities and shareholders' equity
|
$
|
398,589
|
$
|
357,382
|
|||
-
more
-
Quaker
Chemical Corporation
Condensed
Consolidated Statement of Cash Flows
For
the Nine Months Ended September 30,
(Dollars
in thousands)
|
(Unaudited)
|
|
||||||
|
|
|
2007
|
|
2006
|
|||
|
Cash
flows from operating activities
|
|||||||
|
Net
income
|
$
|
10,848
|
$
|
8,673
|
|||
|
Adjustments
to reconcile net income to net cash used in operating activities:
|
|||||||
|
Depreciation
|
8,579
|
7,406
|
|||||
|
Amortization
|
900
|
1,058
|
|||||
|
Equity
in net income of associated companies, net of dividends
|
(83
|
)
|
(251
|
)
|
|||
|
Minority
interest in earnings of subsidiaries
|
1,126
|
1,033
|
|||||
|
Deferred
income tax
|
(1,498
|
)
|
834
|
||||
|
Deferred
compensation and other, net
|
878
|
387
|
|||||
|
Stock-based
compensation
|
863
|
601
|
|||||
|
Environmental charges
|
3,300
|
-
|
|||||
|
Loss
on disposal of property, plant and equipment
|
33
|
19
|
|||||
|
Insurance
settlement realized
|
(1,266
|
)
|
(252
|
)
|
|||
|
Pension
and other postretirement benefits
|
(2,532
|
)
|
(3,108
|
)
|
|||
|
Increase
(decrease) in cash from changes in current assets and current liabilities,
net of acquisitions:
|
|||||||
|
Accounts
receivable
|
(5,795
|
)
|
(10,077
|
)
|
|||
|
Inventories
|
(3,227
|
)
|
(4,561
|
)
|
|||
|
Prepaid
expenses and other current assets
|
(1,750
|
)
|
(3,022
|
)
|
|||
|
Accounts
payable and accrued liabilities
|
6,009
|
8,351
|
|||||
|
Change
in restructuring liabilities
|
-
|
(3,731
|
)
|
||||
|
Net
cash provided by operating activities
|
16,385
|
3,360
|
|||||
|
Cash
flows from investing activities
|
|||||||
|
Capital
expenditures
|
(5,431
|
)
|
(8,513
|
)
|
|||
|
Payments
related to acquisitions
|
(1,543
|
)
|
(1,069
|
)
|
|||
|
Proceeds
from disposition of assets
|
176
|
64
|
|||||
|
Insurance
settlement received and interest earned
|
5,534
|
240
|
|||||
|
Change
in restricted cash, net
|
(4,268
|
)
|
12
|
||||
|
Net
cash used in investing activities
|
(5,532
|
)
|
(9,266
|
)
|
|||
|
Cash
flows from financing activities
|
|||||||
|
Short-term
borrowings
|
1,305
|
1,873
|
|||||
|
Repayments
of short-term debt
|
(3,267
|
)
|
(4,519
|
)
|
|||
|
Proceeds
from long-term debt
|
3,132
|
15,680
|
|||||
|
Repayments
of long-term debt
|
(674
|
)
|
(704
|
)
|
|||
|
Dividends
paid
|
(6,484
|
)
|
(6,320
|
)
|
|||
|
Stock
options exercised, other
|
2,935
|
429
|
|||||
|
Distributions
to minority shareholders
|
(864
|
)
|
(1,464
|
)
|
|||
|
Net
cash (used in) provided by financing activities
|
(3,917
|
)
|
4,975
|
||||
|
Effect
of exchange rate changes on cash
|
1,226
|
595
|
|||||
|
Net
increase (decrease) in cash and cash equivalents
|
8,162
|
(336
|
)
|
||||
|
Cash
and cash equivalents at the beginning of the period
|
16,062
|
16,121
|
|||||
|
Cash
and cash equivalents at the end of the period
|
$
|
24,224
|
$
|
15,785
|
|||