SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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 September 30, 1995
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
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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 October 31, 1995 8,852,929
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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 September 30, 1995 and
December 31, 1994
Consolidated statement of income for the nine months
ended September 30, 1995 and 1994
Consolidated statement of income for the three months
ended September 30, 1995 and 1994
Consolidated statement of cash flows for the nine months
ended September 30, 1995 and 1994
* * * * * * * * * *
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;
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 year's data have
been made to improve comparability.
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Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
September 30, December 31,
1995 1994
(Unaudited) *
Assets
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Current assets
Cash and cash equivalents $ 6,766 $ 11,345
Accounts receivable 50,275 43,841
Inventories
Raw materials and supplies 9,905 8,795
Work in process and finished goods 11,177 9,042
Deferred income taxes 1,878 1,473
Prepaid expenses and other current assets 9,369 8,904
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89,370 83,400
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Investments in and advances to associated
companies 10,869 9,885
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Property, plant and equipment, at cost
Land 6,986 6,702
Buildings and improvements 38,370 34,529
Machinery and equipment 68,347 63,403
Construction in progress 4,013 1,015
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117,716 105,649
Less accumulated depreciation 60,647 53,955
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57,069 51,694
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Excess of cost over net assets
of acquired companies 17,684 12,262
Deferred income taxes 5,052 4,971
Other noncurrent assets 8,117 7,960
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30,853 25,193
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$188,161 $170,172
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2
* Condensed from audited financial statements.
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Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
September 30, December 31,
1995 1994
(Unaudited) *
Liabilities and shareholders' equity
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Current liabilities
Short-term borrowings and current
portion of notes payable, long-term debt
and capital leases $ 24,015 $ 8,062
Accounts payable 18,175 20,575
Dividends payable 1,498 1,500
Accrued liabilities 12,863 12,231
Estimated taxes on income 680 440
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Total current liabilities 57,231 42,808
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Long-term debt, notes payable and capital leases 10,189 12,207
Deferred income taxes 3,201 3,081
Accrued postretirement benefits 8,920 8,767
Other noncurrent liabilities 7,118 7,029
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Total noncurrent liabilities 29,428 31,084
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86,659 73,892
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Minority interest in equity of subsidiaries 2,766 2,603
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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 499 649
Retained earnings 89,117 87,137
Foreign currency translation adjustments 13,307 9,856
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112,587 107,306
Treasury stock, shares held at cost;
1995 - 848,046, 1994 - 844,691 (13,851) (13,629)
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98,736 93,677
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$188,161 $170,172
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* Condensed from audited financial statements
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Quaker Chemical Corporation
Consolidated Statement of Income
Nine Months Ended September 30,
Unaudited
(dollars in thousands
except per share data)
1995 1994
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Income
Net sales $171,434 $142,557
Other income, net 1,485 1,294
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172,919 143,851
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Costs and expenses
Cost of goods sold 102,269 80,352
Selling, administrative and general expenses 58,705 51,882
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160,974 132,234
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Income from operations 11,945 11,617
Interest expense (1,207) (1,107)
Interest income 202 346
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Income before taxes 10,940 10,856
Taxes on income 4,354 4,332
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6,586 6,524
Equity in net income of associated companies 220 555
Minority interest in net income of subsidiaries (321) (286)
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Net income $ 6,485 $ 6,793
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Per share data:
Net income $0.74 $0.74
Dividends declared $0.51 $0.46
Based on weighted average number
of shares outstanding 8,813,387 9,229,236
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Quaker Chemical Corporation
Consolidated Statement of Income
Three Months Ended September 30,
Unaudited
(dollars in thousands
except per share data)
1995 1994
Income
Net sales $57,872 $50,117
Other income, net 585 355
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58,457 50,472
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Costs and expenses
Cost of goods sold 34,434 28,220
Selling, administrative and general expenses 20,030 18,143
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54,464 46,363
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Income from operations 3,993 4,109
Interest expense (472) (373)
Interest income 52 50
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Income before taxes 3,573 3,786
Taxes on income 1,429 1,539
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2,144 2,247
Equity in net income of associated companies 23 231
Minority interest in net income of subsidiaries (68) (125)
Net income $ 2,099 $ 2,353
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Per share data:
Net income $0.24 $0.26
Dividends declared $0.17 $0.17
Based on weighted average number
of shares outstanding 8,812,074 9,182,098
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Quaker Chemical Corporation
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30,
Unaudited
(dollars in thousands)
1995 1994
Cash flows from operating activities:
Net income $6,485 $6,793
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 4,722 5,113
Amortization 1,205 795
Equity in net income of associated companies (220) (555)
Minority interest in earnings of subsidiaries 321 286
Deferred income taxes 15 110
Deferred compensation and other
postretirement benefits 358 (156)
Net change in repositioning liability (859) (3,436)
Other, net (260) (98)
Increase (decrease) in cash from changes in current
assets and liabilities net of acquisitions
and divestitures:
Accounts receivable (5,055) (4,995)
Inventories (2,181) (2,618)
Prepaid expenses (including taxes) and other
current assets (2,618) (756)
Accounts payable and accrued liabilities (2,325) 1,771
Estimated taxes on income 252 128
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Net cash (used in) provided by operating activities (160) 2,382
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Cash flows from investing activities:
Short-term investments 1,000
Dividends from associated companies 59 927
Investments in property, plant, equipment and
other assets (7,794) (5,134)
Companies/businesses acquired excluding cash (6,628)
Investments in and advances to associated companies (1,076) (4,325)
Proceeds from the sale of patent, production technology
and other related assets 2,000
Proceeds from the sale of subsidiary 8,446
Other 776
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Net cash (used in) provided by investing activities (13,439) 1,690
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Cash flows from financing activities:
Net increase in other short-term borrowings 14,544 6,995
Net increase in notes payable 2,836
Repayment of long-term debt and capital leases (3,501) (8,718)
Dividends paid (4,505) (4,305)
Treasury stock issued (acquired), net (373) (4,926)
Other (141)
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Net cash provided by (used in) financing activities 8,860 (10,954)
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Effect of exchange rate changes on cash 160 (55)
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Net decrease in cash and cash equivalents (4,579) (6,937)
Cash and cash equivalents at beginning of year 11,345 19,293
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Cash and cash equivalents at end of period $6,766 $12,356
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Supplemental cash flow information
Cash paid for income taxes and interest was as follows:
Income taxes $4,991 $4,937
Interest 1,404 1,350
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Quaker Chemical Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Despite a decrease of $17.2 million in 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 lease) during
the first nine months of 1995, the company remains strong in its ability to
generate adequate cash to meet the needs of current operations and to fund
strategic initiatives. The decline in the net cash position is due largely
to increased short-term borrowings associated with financing (i) the purchase
on May 31, 1995 of a 90% interest in Celumi Ltda., a Brazilian metalworking
business, for approximately $6.6 million in cash and notes (ii) increases in
operating working capital (primarily increases in accounts receivable
generated from higher sales) and (iii) the replacement of maturing long-term
obligations with short-term debt. Operating working capital increased
approximately $11.8 million as a result of higher sales activity,
particularly in Europe. Other major sources and uses of cash during the first
nine months of 1995 included: a receipt of $2.0 million related to the 1993
sale of the SULFA-SCRUB (registered trademark) patents and technology; $7.8
million in expenditures for additions to property, plant and equipment and
other assets, and dividend payments of $4.5 million. The current ratio at
September 30, 1995 was 1.6/1 as compared to 1.9/1 at December 31, 1994
essentially reflecting the impact of the aforementioned change in short-term
debt.
Comparison of Nine Months 1995 with Nine Months 1994
Through nine months, consolidated net sales increased $28.9 million
(20%) due mainly to increased sales volume, particularly in Europe, and the
appreciation of European currencies versus the U.S. dollar. Income from
operations improved $.3 million as higher sales volume offset lower gross
margins resulting from raw material cost inflation. The increase in sales
was due to a 9% increase in volume; a 6% improvement associated with currency
translation; and increases from price/mix and business acquisitions in Europe
and South America of 2% and 3%, respectively.
Operating margins as a percentage of sales declined due to the negative
effect of rising raw material costs. Other income rose primarily because of
increased license fee income. Net interest costs rose due to the above-noted
decline in the company's net cash position. The decrease in equity in net
income from associated companies was due to business development investment
costs in the company's Fluid Recycling Services joint venture. Net income
was impacted favorably by approximately $.07 per share due to currency
translation.
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The company continues to be encouraged by sales trends, particularly in
Europe. However, pricing conditions in the company's major markets remain
highly competitive, and will make it difficult to restore gross margins to
more desirable levels in the coming months.
Comparison of Third Quarter 1995 with Third Quarter 1994
Consolidated net sales for the third quarter of 1995 increased $7.8
million (15%) due mainly to increased sales volume, particularly in Europe,
and the appreciation of European currencies versus the U.S. dollar. Income
from operations was down $.2 million due to lower gross margins resulting
from raw material cost inflation and a one-time charge for a recently
declared bankruptcy of one of the company's U.S. steel customers. The
increase in sales was due to a 7% increase in volume; a 3% improvement
associated with currency translation; and increases from price/mix and
business acquisitions in Europe and South America of 1% and 4%, respectively.
The one-time charge noted above had an adverse impact on net income of
approximately $.02 per share.
The reasons for the changes in operating margin percentages, other
income and net interest costs in the third quarter 1995 versus third quarter
1994 are basically the same as those previously mentioned for the comparative
nine-month periods. The decrease in equity in net income from associated
companies was primarily due to lower earnings from the company's Japanese
affiliate, which is being hampered by sluggish demand in the Japanese steel
industry, and business development investment costs in the company's Fluid
Recycling Services joint venture.
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PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are inapplicable and have been omitted.
Item 6. (a) Exhibits
10(i)--Employment Agreement between the Registrant and
Ronald J. Naples dated August 14, 1995.
10(j)--Amendment to the Stock Option Agreement between
the Registrant and Ronald J. Naples dated October 2, 1995.
27--Financial Data Schedule.
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the quarter for
which this report is filed.
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* * * * * * * * *
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
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(Registrant)
/s/ RICHARD J. FAGAN
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Richard J. Fagan, officer duly
authorized to sign this report,
Corporate Controller, Acting
Corporate Treasurer and Principal
Financial and Chief Accounting
Officer
Date: November 13, 1995
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