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
July
30, 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
July
30, 2008, Quaker Chemical Corporation announced its results of operations for
the second quarter ended June 30, 2008 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 July 30, 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:
July 31, 2008
|
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
AND
HIGHER EARNINGS
July
30,
2008
CONSHOHOCKEN,
PA – Quaker Chemical Corporation (NYSE:KWR) today announced net sales for
the second quarter 2008 of $158.2 million, a quarterly record, and net income
of
$4.3 million, increases of 15% and 4%, respectively, compared to the second
quarter of 2007. Earnings per diluted share were $0.41 for the second quarter
of
2008, the same as the second quarter of 2007. Included in second quarter 2008
results is a charge of approximately $1.9 million of incremental expense, or
approximately $0.12 per diluted share, related to the upcoming retirement of
the
Company’s chief executive officer.
“We
had a
fine second quarter in sales and profits, particularly in consideration of
the
much quickened escalation of raw material costs in the quarter and the CEO
transition cost charged. Our raw material experience in the quarter dramatically
outstripped even the unprecedented levels of the last couple of years,”
commented Ronald J. Naples, Chairman and Chief Executive Officer. “Our second
quarter profit was helped by considerable leverage in SG&A expenses. And,
beyond the P&L, the second quarter showed excellent cash flow improvement,
leading to about a $14 million reduction in net debt, our lowest level since
the
end of 2005. We are certainly mindful of the challenges and limited visibility
of the current economic environment, but we remain committed to investing in
key
growth initiatives and continuing to work with our customers to recognize the
value we deliver and our cost realities. We’re on our way to a solid growth
year, even in the face of today’s well-known negatives, and are confident of our
long-term future and the prospects for continued growth.”
Second
Quarter Summary
Net
sales
for the second quarter were $158.2 million, up 15% compared to $137.6 million
for the second quarter of 2007. The increase in net sales was primarily due
to
higher sales prices and foreign exchange rate translation. Volume growth in
Asia/Pacific and South America, as well as higher revenue from Chemical
Management Services (“CMS”), was largely offset by volume declines in the
Company’s other regions. Foreign exchange rate translation increased revenues by
approximately 8%. Selling price increases were realized, in part, as a result
of
an ongoing effort to offset higher raw material costs. CMS revenue was higher
due to the impact of additional CMS accounts gained in 2007, as well as the
renewal and restructuring of several of the Company’s CMS contracts.
Gross
margin dollars were up by approximately $2.2 million, or 5% over the second
quarter of 2007. However, the gross margin percentage was 28.3%, compared to
31.0% in the second quarter of 2007. The Company’s larger mix of CMS contracts
reported on a gross versus pass-through basis decreased the gross margin
percentage by approximately 0.5 percentage points. The remaining decline in
the
gross margin percentage is due to increased raw material costs in excess of
price increases, as well as product and regional sales mix. The Company has
announced and implemented a number of further price increases to aid in
offsetting the significant rise in the Company’s key raw material
costs.
Selling,
general and administrative expenses (“SG&A”) increased $1.7 million,
compared to the second quarter of 2007. Foreign exchange rate translation
increased SG&A by $2.5 million. Investments in higher growth areas, as well
as inflationary increases, were more than offset by lower legal and
environmental costs and lower incentive compensation expense. SG&A as a
percent of sales was 23.5% versus 25.7% in last year’s second
quarter.
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more
-
As
previously announced on May 7, 2008, Ronald J. Naples, Chairman and Chief
Executive Officer of Quaker Chemical Corporation, announced his plan to retire
as Quaker’s Chief Executive Officer, effective October 3, 2008. As further
discussed in the Company’s 8-K filed on May 13, 2008, the Company is recognizing
certain accelerated and other costs, in accordance with Mr. Naples’ Employment,
Transition and Consulting Agreement, which are expected to total $5.8 million
over the 2008-2010 period. Of the $3.5 million in incremental costs estimated
to
be incurred in 2008, approximately $1.9 million, or approximately $0.12 per
diluted share, was recognized in the second quarter of 2008.
Other
income includes a net arbitration award of approximately $1.0 million, or
approximately $0.04 per diluted share, related to litigation with one of the
former owners of the Company’s Italian subsidiary. The decrease in interest
expense is due to lower average debt balances and interest rates, as well as
higher interest income.
Year-to-Date
Summary
Net
sales
for the first half of 2008 were $305.9 million, up 16.5% from $262.5 million
for
the first half of 2007. The increase in net sales was attributable to volume
growth, higher sales prices and foreign exchange rate translation. Volume growth
was realized in virtually all the Company’s regions, including higher revenue
related to the Company’s CMS channel. Foreign exchange rate translation
increased revenues by approximately 8%. Selling price increases were realized,
in part, as a result of an ongoing effort to offset higher raw material costs.
CMS revenues were higher due to the impact of additional CMS accounts gained
in
2007, as well as the renewal and restructuring of several of the Company’s CMS
contracts.
Gross
margin dollars were up $7.3 million, or 9% for the first half of 2008, compared
to the first half of 2007. However, gross margin percentage was 28.9% for the
first half of 2008, compared to 30.9% in the first half of 2007. The Company’s
larger mix of CMS contracts reported on a gross versus pass-through basis
decreased the gross margin percentage by approximately 0.5 percentage points.
The remaining decline in the gross margin percentage is due to increased raw
material costs in excess of price increases, as well as product and regional
sales mix.
SG&A
for the first half of 2008 increased $4.3 million, compared to the first half
of
2007. Foreign exchange rate translation increased SG&A by $4.8 million.
Investments in higher growth areas, as well as inflationary increases, were
more
than offset by lower legal and environmental costs and lower incentive
compensation expense.
Other
income includes the net arbitration award noted above. The decrease in interest
expense is due to lower average debt balances and interest rates, as well as
higher interest income.
Balance
Sheet and Cash Flow Items
The
Company’s net debt-to-total-capital ratio has decreased to 28% from 32% at
December 31, 2007, primarily on strong second quarter 2008 operating cash flow.
Compared to the first quarter of 2008, operating cash flow improved $14.3
million.
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
second quarter results is scheduled for July 31, 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.
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more
-
Quaker
Chemical Corporation
Condensed
Consolidated Statement of Income
(Dollars
in thousands, except per share data and share amounts)
|
(Unaudited)
|
|||||||||||||
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$
|
158,188
|
$
|
137,598
|
$
|
305,906
|
$
|
262,489
|
|||||
|
Cost
of goods sold
|
113,402
|
94,986
|
217,485
|
181,331
|
|||||||||
|
Gross
margin
|
44,786
|
42,612
|
88,421
|
81,158
|
|||||||||
|
%
|
28.3
|
%
|
31.0
|
%
|
28.9
|
%
|
30.9
|
%
|
|||||
|
Selling,
general and administrative expenses
|
37,153
|
35,409
|
71,657
|
67,328
|
|||||||||
|
CEO
Transition Costs
|
1,880
|
-
|
1,880
|
-
|
|||||||||
|
Operating
income
|
5,753
|
7,203
|
14,884
|
13,830
|
|||||||||
|
%
|
3.6
|
%
|
5.2
|
%
|
4.9
|
%
|
5.3
|
%
|
|||||
|
Other
income, net
|
1,687
|
909
|
1,848
|
1,236
|
|||||||||
|
Interest
expense, net
|
(979
|
)
|
(1,501
|
)
|
(2,161
|
)
|
(2,851
|
)
|
|||||
|
Income
before taxes
|
6,461
|
6,611
|
14,571
|
12,215
|
|||||||||
|
Taxes
on income
|
2,116
|
2,298
|
4,881
|
4,142
|
|||||||||
|
4,345
|
4,313
|
9,690
|
8,073
|
||||||||||
|
Equity
in net income of associated companies
|
187
|
266
|
299
|
391
|
|||||||||
|
Minority
interest in net income of subsidiaries
|
(211
|
)
|
(428
|
)
|
(575
|
)
|
(776
|
)
|
|||||
|
Net
income
|
$
|
4,321
|
$
|
4,151
|
$
|
9,414
|
$
|
7,688
|
|||||
|
%
|
2.7
|
%
|
3.0
|
%
|
3.1
|
%
|
2.9
|
%
|
|||||
|
Per
share data:
|
|||||||||||||
|
Net
income - basic
|
$
|
0.42
|
$
|
0.42
|
$
|
0.92
|
$
|
0.77
|
|||||
|
Net
income - diluted
|
$
|
0.41
|
$
|
0.41
|
$
|
0.91
|
$
|
0.76
|
|||||
|
Shares
Outstanding:
|
|||||||||||||
|
Basic
|
10,285,121
|
9,983,535
|
10,185,490
|
9,945,819
|
|||||||||
|
Diluted
|
10,559,449
|
10,118,653
|
10,366,569
|
10,074,060
|
|||||||||
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more
-
Quaker
Chemical Corporation
Condensed
Consolidated Balance Sheet
(Dollars
in thousands, except par value and share amounts)
|
(Unaudited)
|
|||||||
|
June
30,
|
December
31,
|
||||||
|
2008
|
2007
|
||||||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
22,170
|
$
|
20,195
|
|||
|
Construction
fund (restricted cash)
|
9,325
|
-
|
|||||
|
Accounts
receivable, net
|
121,599
|
118,135
|
|||||
|
Inventories,
net
|
66,560
|
60,738
|
|||||
|
Prepaid
expenses and other current assets
|
14,516
|
14,433
|
|||||
|
Total
current assets
|
234,170
|
213,501
|
|||||
|
Property,
plant and equipment, net
|
66,760
|
62,287
|
|||||
|
Goodwill
|
47,129
|
43,789
|
|||||
|
Other
intangible assets, net
|
7,480
|
7,873
|
|||||
|
Investments
in associated companies
|
7,972
|
7,323
|
|||||
|
Deferred
income taxes
|
30,480
|
30,257
|
|||||
|
Other
assets
|
40,315
|
34,019
|
|||||
|
Total
assets
|
$
|
434,306
|
$
|
399,049
|
|||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Short-term
borrowings and current portion of long-term debt
|
$
|
2,818
|
$
|
4,288
|
|||
|
Accounts
and other payables
|
73,718
|
67,380
|
|||||
|
Accrued
compensation
|
11,403
|
17,287
|
|||||
|
Other
current liabilities
|
17,280
|
17,396
|
|||||
|
Total
current liabilities
|
105,219
|
106,351
|
|||||
|
Long-term
debt
|
87,405
|
78,487
|
|||||
|
Deferred
income taxes
|
8,784
|
7,583
|
|||||
|
Other
non-current liabilities
|
75,118
|
71,722
|
|||||
|
Total
liabilities
|
276,526
|
264,143
|
|||||
|
Minority
interest in equity of subsidiaries
|
4,883
|
4,513
|
|||||
|
Shareholders'
equity
|
|||||||
|
Common
stock, $1 par value; authorized 30,000,000 shares; issued 10,612,269
shares
|
10,612
|
10,147
|
|||||
|
Capital
in excess of par value
|
19,029
|
10,104
|
|||||
|
Retained
earnings
|
120,375
|
115,767
|
|||||
|
Accumulated
other comprehensive income (loss)
|
2,881
|
(5,625
|
)
|
||||
|
Total
shareholders' equity
|
152,897
|
130,393
|
|||||
|
Total
liabilities and shareholders' equity
|
$
|
434,306
|
$
|
399,049
|
|||
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more
-
Quaker
Chemical Corporation
Condensed
Consolidated Statement of Cash Flows
For
the six months ended June 30,
(Dollars
in thousands)
|
(Unaudited)
|
|||||||
|
2008
|
2007
|
||||||
|
Cash
flows from operating activities
|
|||||||
|
Net
income
|
$
|
9,414
|
$
|
7,688
|
|||
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|||||||
|
Depreciation
|
5,457
|
5,500
|
|||||
|
Amortization
|
606
|
611
|
|||||
|
Equity
in net income of associated companies, net of dividends
|
(299
|
)
|
(26
|
)
|
|||
|
Minority
interest in earnings of subsidiaries
|
575
|
776
|
|||||
|
Deferred
compensation and other, net
|
2,498
|
1,276
|
|||||
|
Stock-based
compensation
|
1,762
|
561
|
|||||
|
(Gain)
loss on disposal of property, plant and equipment
|
(76
|
)
|
6
|
||||
|
Insurance
settlement realized
|
(685
|
)
|
(913
|
)
|
|||
|
Pension
and other postretirement benefits
|
(3,311
|
)
|
(1,773
|
)
|
|||
|
Increase
(decrease) in cash from changes in current assets and current liabilities,
net of acquisitions:
|
|||||||
|
Accounts
receivable
|
1,013
|
(14,785
|
)
|
||||
|
Inventories
|
(3,806
|
)
|
(3,921
|
)
|
|||
|
Prepaid
expenses and other current assets
|
(885
|
)
|
(989
|
)
|
|||
|
Accounts
payable and accrued liabilities
|
(4,146
|
)
|
3,123
|
||||
|
Net
cash provided by (used in) operating activities
|
8,117
|
(2,866
|
)
|
||||
|
Cash
flows from investing activities
|
|||||||
|
Capital
expenditures
|
(7,038
|
)
|
(4,180
|
)
|
|||
|
Payments
related to acquisitions
|
(1,000
|
)
|
(1,527
|
)
|
|||
|
Proceeds
from disposition of assets
|
117
|
106
|
|||||
|
Insurance
settlement received and interest earned
|
5,178
|
5,326
|
|||||
|
Change
in restricted cash, net
|
(13,818
|
)
|
(4,413
|
)
|
|||
|
Net
cash used in investing activities
|
(16,561
|
)
|
(4,688
|
)
|
|||
|
Cash
flows from financing activities
|
|||||||
|
Net
decrease in short-term borrowings
|
(1,488
|
)
|
(2,841
|
)
|
|||
|
Proceeds
from long-term debt
|
10,000
|
10,921
|
|||||
|
Repayments
of long-term debt
|
(2,120
|
)
|
(448
|
)
|
|||
|
Dividends
paid
|
(4,550
|
)
|
(4,304
|
)
|
|||
|
Stock
options exercised, other
|
7,628
|
2,605
|
|||||
|
Distributions
to minority shareholders
|
-
|
(270
|
)
|
||||
|
Net
cash provided by financing activities
|
9,470
|
5,663
|
|||||
|
Effect
of exchange rate changes on cash
|
949
|
346
|
|||||
|
Net
increase (decrease) in cash and cash equivalents
|
1,975
|
(1,545
|
)
|
||||
|
Cash
and cash equivalents at the beginning of the period
|
20,195
|
16,062
|
|||||
|
Cash
and cash equivalents at the end of the period
|
$
|
22,170
|
$
|
14,517
|
|||