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 2, 2006
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:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | 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 2, 2006, Quaker Chemical Corporation announced its results of operations for the second quarter ended June 30, 2006 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 2, 2006. |
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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 3, 2006 |
By: | /s/ NEAL E. MURPHY | ||
| Neal E. Murphy Vice President and Chief Financial Officer | ||||
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Exhibit 99.1
| For Release: Immediate |
NEWS | Contact: Neal E. Murphy Vice President and Chief Financial Officer 610-832-4189
| ||||
QUAKER CHEMICAL ANNOUNCES RECORD QUARTERLY REVENUES
AND A 67% INCREASE IN NET INCOME
August 2, 2006
CONSHOHOCKEN, PA – Quaker Chemical Corporation (NYSE:KWR) today announced record quarterly sales of $118.7 million in the second quarter of 2006 and a 67% improvement in net income to $3.0 million, compared to second quarter 2005 sales of $107.0 million and net income of $1.8 million. Diluted earnings per share increased to $0.30 for the second quarter of 2006 versus $0.18 in the second quarter of last year.
Second Quarter 2006 Summary
Net sales for the second quarter of 2006 were $118.7 million, up 10.9% from $107.0 million for the second quarter of 2005. The increase in net sales was driven by a combination of higher selling prices and volume growth. Volume growth was mainly attributable to market share growth and increased demand in both the U.S. and China. Selling price increases continue to be broadly implemented across all regions and market segments to offset significantly higher raw material costs.
Gross margin as a percentage of sales was 30.4% for the second quarter of 2006 compared to 30.6% for the second quarter of 2005. Higher selling prices and a stronger performance from the Company’s CMS business helped maintain margins notwithstanding continued increases in raw material prices, as crude oil prices have spiked from the low fifty dollar per barrel range in the second quarter of 2005 to the low seventy dollar per barrel range in the second quarter of 2006. Sequentially, the second quarter 2006 gross margin as a percentage of sales represents an improvement over the first quarter 2006 gross margin percentage of 29.6%.
Selling, general and administrative expenses for the quarter increased $0.7 million compared to the second quarter of 2005. Cost savings from restructuring efforts completed in 2005 substantially offset increased spending in higher growth areas, higher variable compensation, higher professional fees and inflationary increases.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease in minority interest expense is due to lower financial performance from the Company’s minority affiliates.
Year-to-Date Summary
Net sales for the first half of 2006 were $228.5 million, up 8.2% from $211.2 million for the first half of 2005. The same factors discussed above, volume growth in U.S. and China and selling price increases implemented across all regions and market segments, were the primary reasons for the increase in net sales.
Net income for the first half of 2006 was $5.5 million compared to $4.9 million for the first half of 2005, which included a $4.2 million pre-tax gain from the Company’s real estate joint venture, partially offset by a $1.2 million pre-tax restructuring charge.
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Gross margin as a percentage of sales was 30.0% for the first half of 2006 compared to 30.1% for the first half of 2005. Higher selling prices and a stronger performance from the Company’s CMS business helped maintain margin percentage despite continued increases in raw material prices, particularly crude oil derivatives.
Selling, general and administrative expenses for the first half of 2006 decreased $0.2 million compared to the first half of 2005. Cost savings from restructuring efforts completed in 2005 substantially offset increased spending in higher growth areas, higher variable compensation, higher professional fees and inflationary increases. The Company recorded a pension gain in the first quarter of 2006 of $0.9 million relating to legislative changes to one of its European pension plans. During the first quarter of 2005, the Company took a net pre-tax charge of $1.2 million related to a reduction in its workforce.
The decrease in other income is largely due to $4.2 million of pre-tax gain relating to the Company’s real estate joint venture recorded in 2005. The remainder of the decrease was the result of foreign exchange losses in the first half of 2006 compared to gains in the first half of 2005.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decease in minority interest expense for the year is due to the acquisition of the remaining 40% interest in the Company’s Brazilian affiliate in March of 2005 and lower financial performance from the Company’s minority affiliates.
Balance Sheet and Cash Flow Items
The Company’s net debt increased from December 2005, primarily to fund working capital needs, as well as the restructuring actions taken in the fourth quarter of 2005. The Company’s net debt-to-total capital ratio was 39% at June 30, 2006, compared to 40% at March 31, 2006 and 35% at December 31, 2005.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, “We continue to make solid progress towards restoring our profitability to historical levels. On sequential and prior year comparisons, we had a fine second quarter. Our earnings momentum is driven by persistent pricing actions, firming of steel demand, and strong progress in such key initiatives as Asia/ Pacific growth and chemical management services. While gross margin percentage improvement remains elusive due to higher raw material costs, higher revenues are driving absolute dollar improvement in gross margin. Further, the restructuring actions taken in 2005 have enabled this gross margin improvement to substantially flow to net income while allowing for continued investment in business building initiatives. For the remainder of 2006, we are cautiously optimistic that we will continue to generate year-over-year improvement in core earnings, although, of course, we are concerned about the recent events in the Middle East and the unpredictable impact they may have on our business environment and costs.”
Quaker Chemical Corporation, headquartered in Conshohocken, Pennsylvania, is a worldwide developer, producer, and marketer of custom-formulated chemical specialty products and a provider of chemical management services for manufacturers around the globe, primarily in the steel and automotive industries.
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 3, 2006 at 2:30 p.m. (EDT). Access the conference by calling 877-269-7756 or visit Quaker’s Web site at www.quakerchem.com for a live webcast.
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Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data and share amounts)
| (Unaudited) | (Unaudited) | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Net sales |
$ | 118,683 | $ | 107,042 | $ | 228,499 | $ | 211,203 | ||||||||
| Cost of goods sold |
82,618 | 74,333 | 159,949 | 147,567 | ||||||||||||
| Gross margin |
36,065 | 32,709 | 68,550 | 63,636 | ||||||||||||
| % |
30.4 | % | 30.6 | % | 30.0 | % | 30.1 | % | ||||||||
| Selling, general and administrative |
29,789 | 29,120 | 57,151 | 57,337 | ||||||||||||
| Restructuring and related activities, net |
— | — | — | 1,232 | ||||||||||||
| Operating income |
6,276 | 3,589 | 11,399 | 5,067 | ||||||||||||
| % |
5.3 | % | 3.4 | % | 5.0 | % | 2.4 | % | ||||||||
| Other income, net |
387 | 648 | 515 | 5,516 | ||||||||||||
| Interest expense, net |
(1,252 | ) | (740 | ) | (2,217 | ) | (1,174 | ) | ||||||||
| Income before taxes |
5,411 | 3,497 | 9,697 | 9,409 | ||||||||||||
| Taxes on income |
2,127 | 1,136 | 3,680 | 3,057 | ||||||||||||
| 3,284 | 2,361 | 6,017 | 6,352 | |||||||||||||
| Equity in net income of associated companies |
125 | 153 | 238 | 206 | ||||||||||||
| Minority interest in net income of subsidiaries |
(417 | ) | (719 | ) | (721 | ) | (1,637 | ) | ||||||||
| Net income |
$ | 2,992 | $ | 1,795 | $ | 5,534 | $ | 4,921 | ||||||||
| % |
2.5 | % | 1.7 | % | 2.4 | % | 2.3 | % | ||||||||
| Per share data: |
||||||||||||||||
| Net income - basic |
$ | 0.31 | $ | 0.19 | $ | 0.57 | $ | 0.51 | ||||||||
| Net income- diluted |
$ | 0.30 | $ | 0.18 | $ | 0.56 | $ | 0.50 | ||||||||
| Shares Outstanding: |
||||||||||||||||
| Basic |
9,769,682 | 9,676,463 | 9,746,685 | 9,660,163 | ||||||||||||
| Diluted |
9,833,117 | 9,795,798 | 9,824,968 | 9,826,166 | ||||||||||||
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Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
| (Unaudited) | ||||||||
| June 30, 2006 |
December 31, 2005* |
|||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 12,111 | $ | 16,121 | ||||
| Accounts receivable, net |
105,341 | 93,943 | ||||||
| Inventories, net |
48,934 | 45,818 | ||||||
| Prepaid expenses and other current assets |
12,775 | 10,111 | ||||||
| Total current assets |
179,161 | 165,993 | ||||||
| Property, plant and equipment |
150,400 | 140,903 | ||||||
| Less accumulated depreciation |
91,623 | 84,006 | ||||||
| Net property, plant and equipment |
58,777 | 56,897 | ||||||
| Goodwill |
37,999 | 35,418 | ||||||
| Other intangible assets, net |
8,192 | 8,703 | ||||||
| Investments in associated companies |
6,607 | 6,624 | ||||||
| Deferred income taxes |
24,284 | 24,385 | ||||||
| Other assets |
35,564 | 33,975 | ||||||
| Total assets |
$ | 350,584 | $ | 331,995 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Short-term borrowings and current portion of long-term debt |
$ | 2,393 | $ | 5,094 | ||||
| Accounts and other payables |
55,917 | 52,923 | ||||||
| Accrued compensation |
8,964 | 9,818 | ||||||
| Other current liabilities |
16,944 | 19,053 | ||||||
| Total current liabilities |
84,218 | 86,888 | ||||||
| Long-term debt |
82,684 | 67,410 | ||||||
| Deferred income taxes |
4,930 | 4,608 | ||||||
| Other non-current liabilities |
58,274 | 60,573 | ||||||
| Total liabilities |
230,106 | 219,479 | ||||||
| Minority interest in equity of subsidiaries |
7,201 | 6,609 | ||||||
| Shareholders’ equity |
||||||||
| Common stock, $1 par value; authorized 30,000,000 shares; issued 2006 - 9,866,005, 2005 - 9,726,385 shares |
9,866 | 9,726 | ||||||
| Capital in excess of par value |
4,154 | 3,574 | ||||||
| Retained earnings |
112,622 | 111,317 | ||||||
| Accumulated other comprehensive loss |
(13,365 | ) | (18,710 | ) | ||||
| Total shareholders’ equity |
113,277 | 105,907 | ||||||
| Total liabilities and shareholders’ equity |
$ | 350,584 | $ | 331,995 | ||||
| * | Condensed from audited financial statements. |
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Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30,
(Dollars in thousands)
| (Unaudited) | ||||||||
| 2006 | 2005* | |||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 5,534 | $ | 4,921 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||
| Depreciation |
4,893 | 4,548 | ||||||
| Amortization |
708 | 646 | ||||||
| Equity in undistributed earnings of associated companies, net of dividends |
(33 | ) | 28 | |||||
| Minority interest in earnings of subsidiaries |
721 | 1,637 | ||||||
| Deferred income taxes |
334 | — | ||||||
| Deferred compensation and other, net |
61 | 27 | ||||||
| Stock-based compensation |
385 | 271 | ||||||
| Restructuring and related activities, net |
— | 1,232 | ||||||
| Gain on sale of partnership assets |
— | (2,989 | ) | |||||
| Gain on disposal of property, plant and equipment |
(8 | ) | — | |||||
| Insurance settlement realized |
(157 | ) | — | |||||
| Pension and other postretirement benefits |
(2,752 | ) | (368 | ) | ||||
| Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: |
||||||||
| Accounts receivable |
(8,746 | ) | (2,481 | ) | ||||
| Inventories |
(2,011 | ) | (721 | ) | ||||
| Prepaid expenses and other current assets |
(2,449 | ) | (171 | ) | ||||
| Accounts payable and accrued liabilities |
1,475 | 2,718 | ||||||
| Change in restructuring liabilities |
(3,411 | ) | (1,382 | ) | ||||
| Net cash (used in) provided by operating activities |
(5,456 | ) | 7,916 | |||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(4,863 | ) | (3,196 | ) | ||||
| Payments related to acquisitions |
(1,069 | ) | (6,700 | ) | ||||
| Proceeds from partnership disposition of assets |
— | 2,989 | ||||||
| Proceeds from disposition of assets |
46 | 670 | ||||||
| Interest received on insurance settlement |
154 | — | ||||||
| Change in restricted cash, net |
3 | — | ||||||
| Net cash used in investing activities |
(5,729 | ) | (6,237 | ) | ||||
| Cash flows from financing activities |
||||||||
| Net decrease in short-term borrowings |
(2,813 | ) | (5,217 | ) | ||||
| Long-term debt borrowings |
14,340 | — | ||||||
| Repayments of long-term debt |
(474 | ) | (518 | ) | ||||
| Dividends paid |
(4,199 | ) | (4,163 | ) | ||||
| Issuance of common stock |
335 | 181 | ||||||
| Distributions to minority shareholders |
(350 | ) | (2,205 | ) | ||||
| Net cash provided by (used in) financing activities |
6,839 | (11,922 | ) | |||||
| Effect of exchange rate changes on cash |
336 | (1,728 | ) | |||||
| Net decrease in cash and cash equivalents |
(4,010 | ) | (11,971 | ) | ||||
| Cash and cash equivalents at the beginning of the period |
16,121 | 29,078 | ||||||
| Cash and cash equivalents at the end of the period |
$ | 12,111 | $ | 17,107 | ||||
| * | Certain reclassifications of prior year data have been made to improve comparability. |