SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______________________
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, 1996
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
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-0993790
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Elm and Lee Streets, Conshohocken, Pennsylvania 19428 - 0809
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-832-4000
------------
Not Applicable
---------------------------------------------------------
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
---- ---
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 November 7, 1996 8,566,401
---------
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, 1996 and
December 31, 1995
Consolidated Statement of Operations for the nine months
ended September 30, 1996 and 1995
Consolidated Statement of Operations for the three months
ended September 30, 1996 and 1995
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1996 and 1995.
* * * * * * * * * *
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 adjustments, 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
(see accompanying Management's Discussion and Analysis-Consolidation Charges);
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 years' data have been made to improve comparability.
- 2 -
Quaker Chemical Corporation
---------------------------
Consolidated Balance Sheet
--------------------------
(dollars in thousands)
----------------------
September 30, December 31,
1996 1995
---- ----
(Unaudited) *
Assets
- ------
Current assets
Cash and cash equivalents $ 15,719 $ 7,230
Accounts receivable 51,384 46,965
Inventories
Raw materials and supplies 8,039 10,964
Work in process and finished goods 11,993 10,669
Deferred income taxes 3,740 1,415
Prepaid expenses and other current assets 6,152 10,132
-------- --------
Total current assets 97,027 87,375
-------- --------
Investments in and advances to associated companies 8,732 10,058
-------- --------
Property, plant and equipment, at cost
Land 6,899 7,279
Buildings and improvements 34,854 40,232
Machinery and equipment 56,798 70,010
Construction in progress 2,314 1,068
-------- --------
100,865 118,589
Less accumulated depreciation 54,175 62,280
-------- --------
Total property, plant and equipment 46,690 56,309
-------- --------
Excess of cost over net assets
of acquired companies 17,849 18,973
Deferred income taxes 8,483 5,349
Other noncurrent assets 6,617 7,344
-------- --------
Total noncurrent assets 32,949 31,666
-------- --------
$185,398 $185,408
======== ========
* Condensed from audited financial statements.
- 3 -
Quaker Chemical Corporation
---------------------------
Consolidated Balance Sheet
--------------------------
(dollars in thousands)
----------------------
September 30, December 31,
1996 1995
---- ----
(Unaudited) *
Liabilities
- -----------
Current liabilities
Short-term borrowings, current
portion of long-term debt,
notes payable and capital leases $ 25,680 $ 25,548
Accounts payable 22,354 20,969
Dividends payable 1,499 1,473
Accrued liabilities 21,176 12,392
Estimated taxes on income 3,356 486
-------- --------
Total current liabilities 74,065 60,868
-------- --------
Long-term debt, notes payable and capital leases 6,082 9,300
Deferred income taxes 3,274 2,977
Accrued postretirement benefits 8,818 8,809
Other noncurrent liabilities 6,898 6,432
-------- --------
Total noncurrent liabilities 25,072 27,518
-------- --------
Total liabilities 99,137 88,386
-------- --------
Minority interest in equity of subsidiaries 3,914 3,030
-------- --------
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 766 780
Retained earnings 81,868 87,852
Unearned compensation (525) (722)
Foreign currency translation adjustments 7,739 12,333
-------- --------
99,512 109,907
Treasury stock, shares held at cost;
1996 - 1,100,365, 1995 - 853,809 (17,165) (15,915)
-------- --------
Total shareholders' equity 82,347 93,992
-------- --------
$185,398 $185,408
======== ========
* Condensed from audited financial statements
- 4 -
Quaker Chemical Corporation
---------------------------
Consolidated Statement of Operations
Nine Months Ended September 30,
------------------------------------
Unaudited
(dollars in thousands
except per share data)
----------------------
1996 1995
---- ----
Net sales $179,802 $171,434
Other income, net 1,154 1,485
-------- --------
180,956 172,919
-------- --------
Costs and expenses
Cost of goods sold 103,862 102,269
Selling, administrative and
general expenses 64,264 58,705
Consolidation charges 13,100
-------- --------
181,226 160,974
-------- --------
(Loss) income from operations (270) 11,945
Interest expense (1,476) (1,207)
Interest income 275 202
-------- --------
(Loss) income before taxes (1,471) 10,940
Taxes on income 197 4,354
-------- --------
(1,668) 6,586
Equity in net income of associated
companies 287 220
Minority interest in net income of
subsidiaries (176) (321)
-------- --------
Net (loss) income $ (1,557) $ 6,485
======== ========
Per share data:
Net (loss) income ($0.18) $0.74
Dividends declared $0.515 $0.51
Based on weighted average number
of shares outstanding 8,588,918 8,813,387
- 5 -
Quaker Chemical Corporation
---------------------------
Consolidated Statement of Operations
Three Months Ended September 30,
------------------------------------
Unaudited
(dollars in thousands
except per share data)
----------------------
1996 1995
---- ----
Net sales $ 61,813 $ 57,872
Other income, net 334 585
-------- --------
62,147 58,457
-------- --------
Costs and expenses
Cost of goods sold 35,672 34,434
Selling, administrative and
general expenses 21,760 20,030
Consolidation charges 13,100
-------- --------
70,532 54,464
-------- --------
(Loss) income from operations (8,385) 3,993
Interest expense (468) (472)
Interest income 79 52
-------- --------
(Loss) income before taxes (8,774) 3,573
Taxes on income (2,724) 1,429
-------- --------
(6,050) 2,144
Equity in net income of associated
companies 185 23
Minority interest in net income of
subsidiaries (16) (68)
-------- --------
Net (loss) income $ (5,881) $ 2,099
======== ========
Per share data:
Net (loss) income ($0.68) $0.24
Dividends declared 0.345 $0.17
Based on weighted average number
of shares outstanding 8,558,223 8,812,074
- 6-
Quaker Chemical Corporation
---------------------------
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30,
--------------------------------------
Unaudited
(dollars in thousands)
1996 1995
---- ----
Cash flows from operating activities
Net (loss) income $ (1,557) $ 6,485
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation 4,632 4,722
Amortization 1,633 1,205
Equity in net income of associated companies (287) (220)
Minority interest in earnings of subsidiaries 176 321
Deferred income taxes (2,672) 15
Deferred compensation and other
postretirement benefits 583 358
Consolidation charges, net 12,600
Net change in repositioning liability (764) (859)
Other, net (263) (260)
Increase (decrease) in cash from changes in current
assets and liabilities net of acquisitions
and divestitures:
Accounts receivable (5,415) (5,055)
Inventories 1,153 (2,181)
Prepaid expenses and other current assets 1,454 (2,618)
Accounts payable and accrued liabilities 7,199 (2,325)
Estimated taxes on income 2,893 252
------- -------
Net cash provided by (used in)
operating activities 21,365 (160)
------- -------
Cash flows from investing activities
Dividends from associated companies 1,158 59
Investments in property, plant, equipment
and other assets (4,076) (7,794)
Companies acquired excluding cash (6,628)
Investments in and advances to associated companies (1,073) (1,076)
Proceeds from the sale of assets 683 2,000
Other, net
------- -------
Net cash used in investing activities (3,308) (13,439)
------- -------
Cash flows from financing activities
Net (decrease) increase in short-term borrowings
and notes payable 1,032 17,380
Repayment of long-term debt, notes payable and
capital leases (4,091) (3,501)
Dividends paid (4,427) (4,505)
Treasury stock issued 323 143
Treasury stock acquired (1,587) (516)
Other, net (141)
------- -------
Net cash (used in) provided by financing
activities (8,750) 8,860
------- -------
Effect of exchange rate changes on cash (818) 160
------- -------
Net increase (decrease) in cash and cash equivalents 8,489 (4,579)
Cash and cash equivalents at beginning of period 7,230 11,345
------- -------
Cash and cash equivalents at end of period $15,719 $ 6,766
======= =======
Supplemental cash flow information
Cash paid during the year for:
Income taxes $ 5,125 $ 4,991
Interest 1,645 1,404
- 7-
Management's Discussion and Analysis of
-----------------------------------------------
Financial Condition and Results of Operations
-------------------------------------------------
Consolidation Charges
- ---------------------
On July 24, 1996, the Company announced its intention to implement a
series of consolidation measures intended to improve manufacturing capacity
utilization, responsiveness to customer needs, operating efficiencies, and
financial results. The Company estimated that the actions would result in a
pretax charge in the second half of 1996 in the range of $23 million
(approximately $15 million after tax or $1.75 per share), about two-thirds of
which would consist of non-cash items. In the third quarter of 1996, the
Company recorded a pretax consolidation charge of $13.1 million (approximately
$8.6 million after tax), which represents a portion of the aforementioned
charge. The third quarter charge includes $8.4 million for the write-down
of property, plant and equipment associated with the closure of the Company's
Conshohocken, Pennsylvania plant and $4.7 million for employee termination
and other costs of the program. The charges for the remaining series of
consolidation actions, which are not yet finalized, are expected to be recorded
in the fourth quarter. As of September 30, 1996, approximately $3.7 million and
$.5 million remained in accrued liabilities and other noncurrent liabilities,
respectively, relating to the $13.1 million consolidation charge.
Liquidity and Capital Resources
- -------------------------------
Net cash flow provided by (used in) operating activities amounted to
$21.4 million for the nine months of 1996 compared to ($.2) million in the
same period of 1995. The improvement was principally due to better operating
performance, controlled growth in the required amount of working capital, and
the timing of a tax refund in Europe.
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 leases) increased $8.5 million primarily as a
result of improved operating performance. The current ratio at September 30,
1996, was 1.3 to 1 as compared to 1.4 to 1 at December 31, 1995. The slight
decline mainly resulted from an increase in current liabilities of
approximately $5.3 million related to the Company's consolidation charge and
accruals for strategic initiatives.
- 8 -
Operations
- ----------
Comparison of Nine Months 1996 with Nine Months 1995
- ----------------------------------------------------
Through nine months, consolidated net sales increased by 5% to $179.8
million, mainly due to the effects of improved pricing and product sales mix.
The increase in sales was the net result of a 4% increase in pricing and
product sales mix; a 2% increase due to business acquisitions; a 1% increase
in volume; and a 2% decrease due to currency translation rates.
Excluding the effect of the third quarter consolidation charge, income
from operations was 7% higher than the same period of 1995. The increase was
a result of the benefits of pricing initiatives, particularly in Europe,
stable raw material costs, improved performance from the Company's U.S.
operations, and an increased contribution from the Company's growing
Asia/Pacific operations. The Company's gross profit margin as a percentage
of sales increased 1.8% mainly as a result of the aforementioned benefits
of improved pricing, particularly in Europe, a more profitable sales mix and
stable raw material costs. Selling, administrative and general expenses as
a percent of sales were 1.5% higher than 1995 primarily as a result of
expected increases in operating expenses related to geographic and product
growth areas and strategic initiatives.
Net interest costs rose due to increased financing costs associated with
higher debt levels carried into 1996 related to the financing of a 1995
acquisition and other operating needs. Other income decreased because of a
decline in royalty and license fee income. In 1996, the combination of lower
operating results (including the consolidation charge), foreign taxes on
earnings at rates different than the U.S. federal tax rate, and the influence
of non-deductible expenses required a tax expense on a loss before taxes.
Earnings per share of $.83, excluding the aforementioned consolidation charge
(approximately $1.01 per share), were 12% higher than the prior year despite
a negative currency translation impact of approximately $.05 per share due to
the strengthening of the dollar against the major European currencies.
Comparison of Third Quarter 1996 with Third Quarter 1995
- --------------------------------------------------------
Consolidated net sales for the third quarter of 1996 were $61.8 million,
an all-time record, and 7% higher than the third quarter of 1995. The
increase in sales was the net result of a 2% increase in pricing and sales
mix; an 8% increase in volume; and a 3% decrease due to currency translation.
Income from operations, excluding the consolidation charge, increased 18% due
to the benefits of pricing initiatives, particularly in Europe, stable raw
material costs, and changes in sales mix.
- 9 -
The reasons for changes in operating margin percentages, other income,
net interest costs, and taxes on income in the third quarter 1996 versus the
third quarter 1995 are basically the same as those previously mentioned for
the comparative nine-month periods. The increase in equity in net income
from associated companies resulted from solid performances from joint ventures
in Mexico and Venezuela. Earnings per share, excluding the effect of the
third quarter 1996 consolidation charge ($1.01 per share), improved 38%, to
$.33 from $.24. Currency translation had a negative impact of approximately
$.01 per share due to the strengthening of the dollar against the major
European currencies.
- 10 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
On or about October 24, 1996, Petrolite Corporation and its
subsidiary, Petrolite Holdings, Inc. (collectively,
"Petrolite") filed a Demand for Arbitration with the American
Arbitration Association and a Petition with the Circuit Court
for the County of St. Louis, State of Missouri, against the
Registrant and certain of its subsidiaries (collectively, the
"Company"). The actions arise out of a Technology Purchase
Agreement (the "Agreement") between Petrolite and the Company
dated April 13, 1993, as amended, pursuant to which the
Company sold various assets, including a patent (the
"Patent"), to Petrolite for a purchase price of approximately
$8.5 million plus an obligation to pay royalties. In a suit
brought by Petrolite against Baker Hughes, Inc., et al. for
infringement of the Patent, the United States District Court
for the Western District of Oklahoma (No. CIV-94-311-M)
affirmed by the United States Court of Appeals for the Federal
Circuit (No. 95-1447) declared all of the claims of the Patent
invalid as a result of sales allegedly made by the Company
more than one year prior to the filing of the Patent
application. In its actions against the Company, Petrolite
seeks damages in an unspecified amount, rescission of the
Agreement, costs, and other relief. The Company believes that
it has complete and meritorious defenses to the Petrolite
actions and intends to vigorously defend the actions and deny
liability and to pursue a claim against Petrolite for
royalties. The bases for the Company's position include, but
are not limited to, the Company specifically made no
representations or warranties with respect to the validity of
the Patent in the agreement, all sales made by the Company
prior to filing the Patent application were disclosed to
Petrolite prior to closing under the Agreement and the
findings made by the Court in Petrolite's suit with Baker
Hughes, Inc. were the result of the failure of Petrolite's
counsel to take certain required actions in the handling of
the case.
Items 2, 3, 4 and 5 are inapplicable and have been omitted.
- 11 -
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 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.
* * * * * * * * *
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)
/s/ THOMAS F. KIRK
-----------------------------------
Thomas F. Kirk, officer duly
authorized to sign this report,
Vice President and Chief Financial
Officer
Date: November 14, 1996
------------------
- 12 -