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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, 1997
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
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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 ___
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 10, 1997 8,712,695
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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, 1997 and
December 31, 1996
Consolidated Statement of Operations for the nine months
ended September 30, 1997 and 1996
Consolidated Statement of Operations for the three months
ended September 30, 1997 and 1996
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1997 and 1996.
* * * * * * * * * *
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-Other Significant
Items); 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.
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Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
September 30, December 31,
1997 1996
(Unaudited) *
Assets
Current assets
Cash and cash equivalents $ 9,854 $ 8,525
Accounts receivable 47,153 45,564
Inventories
Raw materials and supplies 9,398 9,094
Work in process and finished goods 11,641 11,947
Deferred income taxes 4,404 4,840
Prepaid expenses and other current assets 7,548 6,582
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Total current assets 89,998 86,552
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Investments in and advances to associated companies 4,679 3,941
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Property, plant and equipment, at cost
Land 5,904 6,586
Buildings and improvements 31,349 32,680
Machinery and equipment 57,657 58,220
Construction in progress 1,439 1,476
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96,349 98,962
Less accumulated depreciation 55,405 55,002
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Total property, plant and equipment 40,944 43,960
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Goodwill, net 14,585 16,222
Deferred income taxes 9,504 9,278
Other noncurrent assets 4,486 5,655
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Total noncurrent assets 28,575 31,155
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$164,196 $165,608
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* Condensed from audited financial statements.
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Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
September 30, December 31,
1997 1996
(Unaudited) *
Liabilities
Current liabilities
Short-term borrowings, current
portion of long-term debt,
notes payable and capital leases $ 14,071 $ 17,404
Accounts payable 22,077 23,386
Dividends payable 1,560 1,508
Accrued liabilities 21,137 19,843
Estimated taxes on income 3,505 1,893
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Total current liabilities 62,350 64,034
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Long-term debt, notes payable and capital leases 5,205 5,182
Deferred income taxes 3,230 3,222
Accrued postretirement benefits 8,979 8,898
Other noncurrent liabilities 5,447 6,255
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Total noncurrent liabilities 22,861 23,557
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Total liabilities 85,211 87,591
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Minority interest in equity of subsidiaries 3,583 3,763
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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 869 634
Retained earnings 80,252 74,317
Unearned compensation (892) (459)
Foreign currency translation adjustments 615 6,475
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90,508 90,631
Treasury stock, shares held at cost;
1997 - 953,516; 1996 - 1,044,452 (15,106) (16,377)
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Total shareholders' equity 75,402 74,254
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$164,196 $165,608
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* Condensed from audited financial statements
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Quaker Chemical Corporation
Consolidated Statement of Operations
Nine Months Ended September 30,
Unaudited
(dollars in thousands
except per share data)
1997 1996
Net sales $177,542 $179,802
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Costs and expenses
Cost of goods sold 99,519 103,862
Selling, administrative and
general expenses 64,908 64,264
Repositioning charges 13,100
Gain on sale of European pulp
and paper business 2,621 -
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161,806 181,226
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Income (loss) from operations 15,736 (1,424)
Other income, net 1,414 1,154
Interest expense (1,168) (1,476)
Interest income 200 275
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Income (loss) before taxes 16,182 (1,471)
Taxes on income 6,342 197
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9,840 (1,668)
Equity in net income of associated
companies 941 287
Minority interest in net income of
subsidiaries (238) (176)
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Net income (loss) $ 10,543 $ (1,557)
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Per share data:
Net income (loss) $1.22 ($0.18)
Dividends declared $0.53 $0.515
Based on weighted average number
of shares outstanding 8,661,836 8,588,918
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Quaker Chemical Corporation
Consolidated Statement of Operations
Three Months Ended September 30,
Unaudited
(dollars in thousands
except per share data)
1997 1996
Net sales $ 58,687 $ 61,813
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Costs and expenses
Cost of goods sold 32,362 35,672
Selling, administrative and
general expenses 21,260 21,760
Repositioning charges 13,100
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53,622 70,532
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Income (loss) from operations 5,065 (8,719)
Other income, net 432 334
Interest expense (374) (468)
Interest income 95 79
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Income (loss) before taxes 5,218 (8,774)
Taxes on income 2,081 (2,724)
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3137 (6,050)
Equity in net income of associated
companies 321 185
Minority interest in net income of
subsidiaries (139) (16)
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Net income (loss) $ 3,319 $ (5,881)
======== ========
Per share data:
Net income (loss) $0.38 ($0.68)
Dividends declared $0.18 $0.34
Based on weighted average number
of shares outstanding 8,704,525 8,558,223
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Quaker Chemical Corporation
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30,
<CAPITON>
Unaudited
(dollars in thousands)
1997 1996
Cash flows from operating activities
Net income
$10,543 $(1,557)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,630 4,632
Amortization 1,435 1,633
Equity in net income of associated companies (941) (287)
Minority interest in earnings of subsidiaries 210 176
Deferred income taxes 33 (2,672)
Deferred compensation and other postretirement benefits 592 583
Repositioning charges, net 12,600
Net change in repositioning liability (2,767) (764)
Gain on sale of European pulp and paper business (2,621) -
Other, net 428 (263)
Increase (decrease) in cash from changes in current assets
and liabilities net of acquisitions and divestitures:
Accounts receivable (4,547) (5,415)
Inventories (577) 1,153
Prepaid expenses and other current assets (3,904) 1,454
Accounts payable and accrued liabilities 4,519 7,199
Estimated taxes on income 2,758 2,893
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Net cash provided by operating activities 8,791 21,365
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Cash flows from investing activities
Dividends from associated companies 603 1,158
Investments in property, plant, equipment and other assets (3,753) (4,076)
Investments in and advances to associated companies (318) (1,073)
Proceeds from the sale of assets - 683
Preceeds from sale of European pulp and paper business 3,053 -
Other, net (146) -
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Net cash used in investing activities (561) (3,308)
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Cash flows from financing activities
Net increase in short-term borrowings and notes payable 821 1,032
Repayment of long-term debt, notes payable and capital leases (4,090) (4,091)
Dividends paid (4,608) (4,427)
Treasury stock issued 1,506 323
Treasury stock acquired - (1,587)
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Net cash used in financing activities (6,371) (8,750)
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Effect of exchange rate changes on cash (530) (818)
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Net increase in cash and cash equivalents 1,329 8,489
Cash and cash equivalents at beginning of period 8,525 7,230
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Cash and cash equivalents at end of period $ 9,854 $15,719
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Supplemental cash flow information
Cash paid for income taxes and interest was as follows:
Income taxes $5,802 $ 5,125
Interest 1,265 1,645
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Net cash flow provided by operating activities amounted to $8.8 million
in the first nine months of 1997 compared to $21.3 million in the same period
of 1996. The decrease was principally due to the timing of a tax refund in
1996, the timing of payments related to the 1996 repositioning program and
other operating working capital changes.
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 $4.7 million from December 31,
1996 primarily as a result of decreased short-term borrowings, proceeds
received from the sale of the European pulp and paper business and improved
operating performance. The current ratio at September 30, 1997 was 1.4 to 1,
unchanged from December 31, 1996.
Operations
Comparison of Nine Months 1997 with Nine Months 1996
Through nine months, consolidated net sales decreased by 1% as compared
to the same period of 1996. The decrease in sales was the net result of a 1%
increase due to pricing initiatives and product sales mix and a 4% increase in
volume offset by a 6% decrease due to foreign currency translation rates.
Operating income was $15.7 million as compared to a loss of ($1.6)
million in 1996 The loss in 1996 was due to a pretax repositioning charge
of $13.1 million (approximately $8.6 million after tax) taken in the third
quarter of 1996. Excluding the repositioning charge, 1997 operating income
was 16% higher than 1996. The improvement was mainly attributable to a
one-time gain of $2.6 million from the sale of the European pulp and paper
business, higher gross margins resulting from an improved sales mix, benefits
associated with the 1996 repositioning of operations and lower overall
selling, general and administrative expenses. The Company's gross profit
margin as a percentage of sales increased 2% mainly due to the benefits
associated with the consolidation of manufacturing operations in the United
States, a generally improved sales mix in the United States and Europe, stable
raw material costs and pricing initiatives implemented over the past year,
primarily in Europe. Selling, administrative and general expenses as a
percentage of sales increased 1% over 1996 due mainly to planned spending
to support strategic initiatives.
Net interest costs decreased slightly due to reduced financing costs
associated with lower overall debt levels. Other income increased due to
higher license fee income and gains from foreign exchange transactions. The
increase in equity in net income from associated companies was primarily due
to reduced losses incurred by the Company's Fluid Recycling Services joint
venture. Earnings per share were $1.22 as compared to ($0.18) in 1996.
Excluding the 1997 gain on the sale of the European pulp and paper business
and the 1996 repositioning charge earnings per share increased 23% to $1.02
from $0.83. Excluding a negative foreign currency translation impact of
approximately $.16 per share due to the strengthening of the dollar, primarily
against the Dutch guilder earnings per share improved 42% over last year.
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Comparison of Third Quarter 1997 with Third Quarter 1996
Consolidated net sales for the third quarter of 1997 decreased 5% versus
the third quarter of 1996. The decrease was the net result of a 1% increase
in price and sales mix and a 1% volume increase offset by a 7% decrease from
currency translation. Operating income, excluding the aforementioned
third quarter 1996 repositioning charge of $13.1 million, increased 16%. The
increase was due mainly to higher gross margins resulting from an improved
sales mix, manufacturing consolidation savings and lower overall selling,
general and administrative expenses.
The reasons for changes in operating margin percentages, net interest
costs, and equity in net income of associated companies in the third quarter
1997 versus the third quarter 1996 are basically the same as those previously
mentioned for the comparative nine-month periods. Other income increased in
the quarter mainly as a result of gains from foreign exchange transactions.
Excluding the 1996 repositioning charge earnings per share for the three
months ended September 30, 1997 and 1996 were $0.38 and $0.33, respectively.
The represents a 15% increase over the prior year despite a negative foreign
currency translation impact of approximately $0.06 (33% increase excluding the
negative impact) per share due to the strengthening of the dollar, primarily
against the Dutch guilder.
Other Significant Items:
In February 1997, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards (SFAS) No. 128 - Earnings Per
Share." This Standard becomes effective for the Company in the fourth quarter
of 1997 and requires two presentations of earnings per share, "basic" and
"diluted". Had this standard been in effect for the third quarter of 1997,
earnings per share on a pro forma basis would have been:
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
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Basic (same as reported) $0.38 $1.22
Diluted $0.38 $1.21
"Diluted Earnings Per Share" is less than "Basic Earnings Per Share" ,
principally due to the assumed increase in the number of average shares
outstanding resulting from outstanding options where the average market price
of the company's stock was in excess of the related option prices.
During 1997 the Financial Accounting Standards Board issued SFAS No. 130 -
Reporting Comprehensive Income and SFAS No. 131 - Disclosures about Segments
of an Enterprose and Related Information. SFAS No. 130 and SFAS No. 131 are
effective in 1998. The Company is currently assessing the impact these new
standards will have on its financial statements. SFAS No. 130 requires that
the components of comprehensive income be reported in the financial
statements. SFAS No. 131 requires the disclosure of segment information
utilizing the approach that the Company uses to manage its internal
organization. Also, SFAS No. 131 requires the reporting of segment
information on a condensed basis for interim periods beginning in 1999.
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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, 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 10(o)-Amendment to Employment Agreement by and
between Registrant and Ronald J. Naples. Incorporated by
reference to Exhibit 10(I) as filed by Registrant with
Form 10-Q for the quarter ended September 30, 1995.*
Exhibit 10(p)-Employment Agreement by and between
Registrant and Joseph F. Virdone.*
Exhibit 27-Financial Data Schedule
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(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
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(Registrant)
/s/ Richard J. Fagan
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Richard J. Fagan, officer duly
authorized to sign this report,
Controller, Treasurer and Chief
Accounting Officer.
Date: November 14, 1997
* A copy of Exhibit will be furnished upon request to:
Quaker Chemical Corporation
ATTENTION: Irene M. Kisleiko
Assistant Corporate Secretary
Elm and Lee Streets
Conshohocken, PA 19428
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