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, 2001
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 ___
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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, 2001 9,129,080
QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheet at September 30, 2001 and
December 31, 2000
Condensed Consolidated Statement of Income for the Three and Nine
Months ended September 30, 2001 and 2000
Condensed Consolidated Statement of Cash Flows for the Nine Months
ended September 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements
* * * * * * * * * *
Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
Unaudited
(dollars in thousands)
September 30, December 31,
2001 2000 *
--------------- ----------------
ASSETS
Current assets
Cash and cash equivalents $ 20,043 $ 16,552
Accounts receivable 52,988 54,401
Inventories
Raw materials and supplies 9,968 11,872
Work-in-process and finished goods 10,117 10,844
Prepaid expenses and other current assets 9,723 9,512
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Total current assets 102,839 103,181
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Property, plant and equipment, at cost 96,461 108,034
Less accumulated depreciation 58,774 65,575
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Total property, plant and equipment 37,687 42,459
Goodwill and other intangible assets 15,926 18,014
Investments in associated companies 10,615 5,925
Deferred income taxes 9,916 9,914
Other assets 8,313 8,668
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$ 185,296 $ 188,161
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt $ 2,860 $ 2,914
Accounts and other payables 21,480 23,573
Accrued compensation 7,161 11,854
Other current liabilities 16,197 11,859
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Total current liabilities 47,698 50,200
Long-term debt 22,225 22,295
Deferred income taxes 3,642 3,633
Other noncurrent liabilities 18,636 18,749
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Total liabilities 92,201 94,877
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Minority interest in equity of subsidiaries 7,451 8,377
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Shareholders' Equity
Common stock $1 par value; authorized
30,000,000 shares; issued (including
treasury shares) 9,664,009 shares 9,664 9,664
Capital in excess of par value 379 746
Retained earnings 107,404 103,760
Unearned compensation (1,331) --
Accumulated other comprehensive (loss) (22,809) (16,714)
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93,307 97,456
Treasury stock, shares held at cost;
2001-541,214, 2000-812,646 (7,663) (12,549)
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Total shareholders' equity 85,644 84,907
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$ 185,296 $ 188,161
=============== ===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
* Condensed from audited financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statement of Income
Unaudited
(dollars in thousands, except per share data)
Three Months ended September 30, Nine Months ended September 30,
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2001 2000 2001 2000
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Net sales $ 63,514 $ 68,478 $ 192,802 $ 204,827
Cost of goods sold 38,371 40,349 114,752 119,582
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Gross margin 25,143 28,129 78,050 85,245
Selling, general and administrative expenses 19,065 21,731 58,914 65,575
Restructuring and nonrecurring expenses 3,225 - 3,225 27
-------------- -------------- -------------- --------------
Operating income 2,853 6,398 15,911 19,643
Other income, net (469) 885 690 2,252
Interest expense (427) (496) (1,418) (1,529)
Interest income 222 220 699 641
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Income before taxes 2,179 7,007 15,882 21,007
Taxes on income 675 2,172 4,923 6,512
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1,504 4,835 10,959 14,495
Equity in net income of associated
companies 244 364 740 1,035
Minority interest in net income of
subsidiaries (632) (516) (2,456) (1,805)
-------------- -------------- -------------- --------------
Net income $ 1,116 $ 4,683 $ 9,243 $ 13,725
============== ============== ============== ==============
Per share data:
Net income - basic $ 0.12 $ 0.53 $ 1.02 $ 1.55
Net income - diluted $ 0.12 $ 0.53 $ 1.02 $ 1.54
Dividends declared $ 0.205 $ 0.205 $ 0.615 $ 0.595
Based on weighted average number of
shares outstanding:
Basic 9,115,591 8,821,017 9,028,096 8,830,609
Diluted 9,174,754 8,886,501 9,088,547 8,896,199
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the Nine Months ended September 30,
Unaudited
(dollars in thousands)
2001 2000
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Cash flows from operating activities
Net income $ 9,243 $ 13,725
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,549 3,682
Amortization 1,091 1,048
Equity in net income of associated companies (740) (1,035)
Minority interest in earnings of subsidiaries 2,456 1,805
Deferred compensation and other postretirement benefits 690 1,354
Restructuring and nonrecurring expenses 3,225 27
Other, net 867 2,094
Increase (decrease) in cash from changes in current assets and
current liabilities:
Accounts receivable, net (230) (5,848)
Inventories 1,460 (1,060)
Prepaid expenses and other current assets (1,540) (2,352)
Accounts payable and accrued liabilities (4,093) 3,330
Change in repositioning liabilities (443) (308)
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Net cash provided by operating activities 15,535 16,462
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Cash flows from investing activities
Investments in property, plant and equipment (4,980) (2,988)
Proceeds from sale of business - 5,200
Payments related to acquisitons (1,532) (3,500)
Dividends from associated companies 902 72
Other, net 261 (50)
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Net cash (used in) investing activities (5,349) (1,266)
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Cash flows from financing activities
Net increase in short-term borrowings (54) 1,016
Dividends paid (5,215) (5,179)
Treasury stock repurchased - (1,961)
Treasury stock issued 2,664 377
Distributions to minority shareholders (2,175) (1,533)
Other, net 28 49
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Net cash (used in) financing activities (4,752) (7,231)
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Effect of exchange rate changes on cash (1,943) (1,350)
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Net increase in cash and cash equivalents 3,491 6,615
Cash and cash equivalents at beginning of period 16,552 8,677
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Cash and cash equivalents at end of period $ 20,043 $ 15,292
========== ==========
Noncash investing activities:
Contribution of property, plant & equipment to real estate joint venture $ 4,358 $ -
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands)
(Unaudited)
Note 1 - Condensed Financial Information
The condensed consolidated financial statements included herein are unaudited
and have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and Securities and Exchange
Commission regulations. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Certain prior year amounts have been reclassified to conform to
the 2001 presentation. In the opinion of management, the financial statements
reflect all adjustments (consisting only of normal recurring adjustments) which
are necessary for a fair statement of the financial position, results of
operations and cash flows for the interim periods. The results for the three
and nine months ended September 30, 2001 are not necessarily indicative of the
results to be expected for the full year. These financial statements should be
read in conjunction with the Annual Report filed on Form 10-K for the year ended
December 31, 2000.
Note 2 - Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets."
SFAS 141 supersedes Accounting Principles Board Opinion No. 16, "Business
Combinations." SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. In addition, SFAS
141 establishes specific criteria for identifying intangible assets that must be
recognized separately from goodwill and establishes disclosure requirements for
the primary reasons for a business combination and the allocation of the
purchase price paid to the assets acquired and liabilities assumed.
SFAS 142 supersedes APB 17, "Intangible Assets." SFAS 142 eliminates the current
requirement to amortize goodwill and indefinite-lived intangible assets.
Instead, goodwill and intangible assets with indefinite lives will be tested for
impairment on at least an annual basis. The SFAS 142 impairment test begins with
an estimate of the fair value of the reporting unit or intangible asset. The
Company will adopt SFAS 142 on January 1, 2002. Impairment losses that arise due
to the initial application of this statement are to be reported as a change in
accounting principle. Management is currently assessing the provisions of this
statement to determine their impact on the Company's consolidated results of
operations and financial position. Annual goodwill amortization in 2001 is
estimated to be $1.0 million.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations (AROs)." This statement requires
that an obligation associated with the retirement of a tangible long-lived asset
be recorded as a liability when the obligation is incurred, with the amount of
the liability initially measured at fair value. Upon initially recognizing a
liability for an ARO, an entity must capitalize the cost by recognizing an
increase in the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of
the liability, an entity either settles the obligation for its recorded amount
or incurs a gain or loss upon settlement. SFAS No. 143 is effective for
financial statements for fiscal years beginning after June 15, 2002. Management
is currently assessing the provisions of this statement to determine their
impact on the Company's consolidated results of operations and financial
position.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." This
statement addresses significant issues related to the implementation of SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Assets to be
Disposed Of", and develops a single accounting model for long-lived assets to be
disposed of by sale. SFAS No. 144 is effective for financial statements for
fiscal years beginning after December 31, 2001. Management is currently
assessing the provisions of this statement to determine their impact on the
Company's consolidated results of operations and financial position.
Note 3 - Weighted Average Shares Outstanding
Three Months Ended Nine Months Ended
September 30 September 30
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Basic Diluted Basic Diluted
----- ------- ----- -------
2001 9,115,591 9,174,754 9,028,096 9,088,547
2000 8,821,017 8,886,501 8,830,609 8,896,199
The difference between basic and diluted weighted average shares outstanding
results from the assumption that dilutive stock options outstanding were
exercised.
Note 4 - Business Segments
The Company's reportable segments are as follows:
(1) Metalworking process chemicals - products used as lubricants for various
heavy industrial and manufacturing applications.
(2) Coatings - temporary and permanent coatings for metal products and chemical
milling maskants.
(3) Other chemical products - primarily chemicals used in the manufacturing of
paper in 2000, as well as other various chemical products.
Segment data includes direct segment costs as well as general operating costs,
including depreciation, allocated to each segment based on net sales.
The table below presents information about the reported segments for the nine
months ending September 30:
Metalworking Other
Process Chemical
Chemicals Coatings Products Total
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2001
Net sales $174,821 $14,731 $3,250 $192,802
Operating income 37,208 4,159 1,033 42,400
2000
Net sales $187,419 $13,189 $4,219 $204,827
Operating income (loss) 43,866 3,297 (659) 46,504
Operating income comprises revenue less related costs and expenses. Non-
operating expenses primarily consist of general corporate expenses identified as
not being a cost of operation, interest expense, interest income, and license
fees from non-consolidated associates.
A reconciliation of total segment operating income to total consolidated income
before taxes, for the nine months ended September 30 is as follows:
2001 2000
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Total operating income for
reportable segments $ 42,400 $ 46,504
Non-operating expenses (18,624) (22,104)
Restructuring and nonrecurring expenses (3,225) (27)
Depreciation and amortization (4,640) (4,730)
Interest expense (1,418) (1,529)
Interest income 699 641
Other income, net 690 2,252
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Consolidated income before taxes $ 15,882 $ 21,007
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Note 5 - Comprehensive Income
The following table summarizes comprehensive income for the three months ended
September 30:
2001 2000
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Net income $ 1,116 $ 4,683
Unrealized (loss) on
available-for-sale securities (269) -
Foreign currency translation adjustments 1,397 (3,812)
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Comprehensive income $ 2,244 $ 871
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The following table summarizes comprehensive income for the nine months ended
September 30:
2001 2000
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Net income $ 9,243 $ 13,725
Unrealized (loss) on
available-for-sale securities (269) -
Foreign currency translation adjustments (5,826) (7,419)
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Comprehensive income $ 3,148 $ 6,306
======= ========
Note 6 - Restricted Stock Bonus
As part of the Company's 2001 Global Annual Incentive Plan (Annual Plan),
approved by shareholders on May 9, 2001, a restricted stock bonus of 100,000
shares of the Company's stock was granted to an executive of the Company. The
shares were issued in April 2001, in accordance with the terms of the Annual
Plan, and registered in the executive's name. The shares are subject to
forfeiture if the Company fails to achieve a target level of earnings per share
for the year 2001, and will vest over a four year period, subject to the
executive's continued employment by the Company.
Note 7 - Restructuring and Nonrecurring Expenses
In the fourth quarter of 1998, the Company announced and implemented a
repositioning and integration plan to better align its organizational structure
with market demands, improve operational performance and reduce costs.
The components of the 1998 pre-tax repositioning and integration charge included
severance and other benefit costs, and early pension and other postretirement
benefits. The liabilities for early pension and other postretirement benefits
are included in the Company's pension and postretirement benefits obligations.
The repositioning accrual had a balance of $244 at December 31, 2000. That
liability was paid in the first quarter of 2001.
In the third quarter of 2001, the Company incurred restructuring charges of
approximately $3.0 million, including $1.9 million related to plans to close its
manufacturing facility in the U.K. and to sell its manufacturing facility in
France, $0.7 million related to severance of 16 employees and $0.4 million
related to acquisitions that were not completed.
The components of pre-tax charges incurred in the third quarter of 2001, as well
as the balance remaining at September 30, 2001 were as follows:
2001 restructuring charges $ 2,958
Payments in 2001 (199)
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Remaining liability at September 30, 2001 $ 2,759
=========
Additionally, in the third quarter of 2001, the Company recorded nonrecurring
organizational consulting expenses of approximately $0.2 million, as well as an
additional reserve for doubtful accounts of $0.5 million related to the poor
financial condition of certain U.S. customers, which is included in selling,
general and administrative expenses.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
Net cash flows provided by operating activities were $15.5 million in the
first nine months of 2001 compared to cash flows provided by operating
activities of $16.5 million in the same period of 2000. The decrease was
primarily due to the timing of payments related to certain year-end 2000 accrued
expenses, as well as a decrease in the change in accounts payable, partially
offset by a decrease in the change in net accounts receivable.
Net cash flows used in investing activities were $5.3 million in the first
nine months of 2001 compared to net cash flows used in investing activities of
$1.3 million in the same period of 2000. The increase was primarily related to
the acquisition from the Company's Canadian licensee of rights to market to,
sell to, and service certain Canadian customers, compared with proceeds from the
sale of the Company's pulp and paper business in 2000.
Expenditures for property, plant, and equipment totaled $5.0 million in the
first nine months of 2001 compared to $3.0 million in the same period of 2000.
The increase in capital expenditures is primarily related to the implementation
of a global transaction system. In January 2001, the Company contributed the
entire Conshohocken site, the location of its corporate headquarters, to an
unconsolidated real estate partnership.
Net cash flows used in financing activities were $4.8 million for the first
nine months of 2001 compared with net cash flows used in financing activities of
$7.2 million for the same period of the prior year. The net change was primarily
due to approximately $2.7 million of proceeds from shares issued upon exercise
of stock options and $2.1 million distributed to minority shareholders in 2001,
versus payments in 2000 of approximately $2.0 million to purchase shares of
stock under the Company's stock repurchase program, and $1.5 million distributed
to minority shareholders, offset by short-term borrowings of $1.0 million.
Operations
- ----------
Comparison of Nine Months 2001 with Nine Months 2000
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Consolidated net sales for the first nine months of 2001 were $192.8
million, a six percent decrease compared to the first nine months of 2000. The
sales comparison was negatively impacted by a decline in U.S sales due to a
softening U.S. economy, as well as unfavorable foreign currency translations and
the divestiture of the U.S. pulp and paper business in May 2000. Without the
impacts of the stronger dollar and excluding the net sales of the U.S. pulp and
paper business during the relevant period, consolidated net sales would have
been flat compared to 2000.
Cost of sales increased as a percentage of sales from 58.4 percent in 2000
to 59.5 percent in 2001 primarily as a result of increases in raw material and
freight costs, product mix changes, and lower sales which resulted in higher
fixed manufacturing costs as a percentage of sales.
Overall selling, general and administrative expenses were approximately 10
percent lower in the first nine months of 2001 compared to the same period in
2000. This was primarily due to continued cost containment efforts, the
divestiture of the U.S. pulp and paper business in 2000, as well as positive
foreign exchange impacts. In addition, the Company recorded an additional
reserve for doubtful accounts of $0.5 million related to the poor financial
condition of certain U.S. customers.
In the third quarter of 2001, the Company recorded restructuring and
nonrecurring charges totaling $3.2 million on a pre-tax basis. These charges
consist of restructuring charges of $3.0 million, primarily related to plans to
close its manufacturing facility in the U.K. and to sell its manufacturing
facility in France, as well as other cost reduction efforts. Nonrecurring
organizational consulting expenses of $0.2 million were also incurred. The
Company continues to explore ways to reduce its manufacturing, operating, and
administrative expenses to maintain and increase earnings in a challenging
business environment, and expects total restructuring and nonrecurring expenses
for 2001 to be approximately $6.0 million.
Operating income was $15.9 million for the first nine months of 2001
compared to $21.0 million in the first nine months of 2000. Excluding
restructuring and nonrecurring charges and accounts receivable reserve totaling
$3.7 million, operating income in the first nine months of 2001 would have been
essentially flat compared to the prior year.
Other income variance primarily reflects lower license revenue in 2001, as
well as foreign exchange losses in 2001 versus foreign exchange gains in 2000.
Net interest expense is more favorable in 2001 compared to the prior year due to
lower borrowing rates in 2001. Equity income is lower in 2001 compared to 2000
primarily as a result of weaker performance by the joint venture in Mexico.
Minority interest was significantly higher in the first nine months of 2001
compared with the same period last year, primarily due to higher net income from
the joint ventures in China and Australia, and the results from a new joint
venture in the United States.
The effective tax rate for 2001 is currently 31%, which is consistent with
the prior year. The Company has been assessed approximately $2 million of
additional taxes based on an audit of certain of its subsidiaries for prior
years. The Company has initiated an appeal process related to this assessment
and currently believes its reserves are adequate.
Net income was $9.2 million in the first nine months of 2001 compared to
$13.7 million in the first nine months of 2000. Excluding restructuring and
nonrecurring charges and accounts receivable reserve totaling $3.7 million pre-
tax, net income would have been $11.8 million in the first nine months of 2001
compared to $13.7 million in the first nine months of 2000.
Diluted earnings per share was $1.02 in the first nine months of 2001
compared to $1.54 in the first nine months of 2000. Excluding restructuring and
nonrecurring charges and accounts receivable reserve totaling $3.7 million pre-
tax, or $0.28 per share, diluted earnings per share would have been $1.30 in the
first nine months of 2001 compared to $1.54 in the first nine months of 2000.
Comparison of Third Quarter 2001 with Third Quarter 2000
- --------------------------------------------------------
Consolidated net sales for the third quarter of 2001 were $63.5 million, a
seven percent decrease compared to the third quarter of 2000. The sales
comparison was negatively impacted due to a softening global economy, as well as
unfavorable foreign currency translations. Excluding the impact of the stronger
dollar, consolidated net sales would have declined three percent.
Cost of sales as a percentage of sales increased 1.5 percent in the third
quarter of 2001 compared to the third quarter of 2000. This increase is
primarily due to slightly higher raw material costs as well as product and
service mix changes. Overall selling, general and administrative expenses
decreased approximately 12 percent in the third quarter of 2001 compared to the
same period in 2000, and as a percentage of sales declined from 32 percent to 30
percent. This was primarily due to continued cost containment efforts, as well
as favorable foreign exchange impacts. In addition, the Company recorded an
additional reserve for doubtful accounts of $0.5 million related to the poor
financial condition of certain U.S. customers.
In the third quarter of 2001, the Company recorded restructuring and
nonrecurring expenses totaling $3.2 million on a pre-tax basis. These charges
consist of restructuring charges of $3.0 million, primarily related to plans to
close its manufacturing facility in the U.K. and to sell its manufacturing
facility in France, as well as other cost reduction efforts. Nonrecurring
organizational consulting expenses of $0.2 million were also incurred. The
Company continues to explore ways to reduce its manufacturing, operating, and
administrative expenses to maintain and increase earnings in a challenging
business environment. Excluding restructuring and nonrecurring expenses,
operating income as a percentage of sales was 9.6 percent in the third quarter
of 2001 compared to 9.3 percent in the same period of 2000.
Operating income was $2.9 million for the third quarter of 2001 compared to
$6.4 million in the third quarter of 2000. Excluding restructuring and
nonrecurring charges and accounts receivable reserve totaling $3.7 million,
operating income in the third quarter of 2001 would have exceeded the prior
year.
Other income variance primarily reflects foreign exchange losses in 2001
versus foreign exchange gains in 2000. Net interest expense is more favorable in
2001 compared to the prior year due to lower borrowing rates in 2001. Equity
income is lower in 2001 compared to 2000 primarily as a result of weaker
performance by the joint venture in Mexico. Minority interest was higher in the
third quarter of 2001 compared with the same period last year, primarily due to
the results of a new joint venture in the United States, as higher net income
from the joint venture in China was offset by declines in Brazil.
The effective tax rate for 2001 is currently 31%, which is consistent with
the prior year.
Net income was $1.1 million in the third quarter of 2001 compared to $4.7
million in the third quarter of 2000. Excluding restructuring and nonrecurring
charges and accounts receivable reserve totaling $3.7 million pre-tax, net
income would have been $3.7 million in the third quarter 2001 compared to $4.7
million in the third quarter 2000.
Diluted earnings per share was $0.12 in the third quarter of 2001 compared
to $0.53 in the third quarter of 2000. Excluding restructuring and nonrecurring
charges and accounts receivable reserve totaling $3.7 million pre-tax, or $0.28
per share, diluted earnings per share would have been $0.40 in the third quarter
of 2001 compared to $0.53 in the third quarter of 2000.
Other Significant Items
On March 30, 2001, the Company acquired from its Canadian licensee, H. L.
Blachford, Ltd., rights to market to, sell to, and service all Canadian
integrated steel makers and certain accounts in the Canadian metalworking
market. The purchase price totaling approximately $1.4 million, together with a
five-year earn-out provision of five percent on net sales to certain accounts
purchased, resulted in intangible assets of $1.4 million, which are being
amortized over their expected useful lives of up to 20 years.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency - the euro. The euro trades on currency
exchanges and may be used in business transactions. Beginning in January 2002,
new euro-denominated bills and coins will be issued, and legacy currencies will
be withdrawn from circulation. The Company's operating subsidiaries affected by
the euro conversion have established plans to address the systems and business
issues raised by the euro currency. The Company anticipates that the euro
conversion will not have a material adverse impact on its financial condition or
results of operations.
Forward-Looking and Cautionary Statements
Except for historical information and discussions, statements contained in
this Form 10-Q may constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements involve a
number of risks, uncertainties and other factors that could cause actual results
to differ materially from those projected in such statements.
Such risks and uncertainties include, but are not limited to, significant
increases in raw material costs, worldwide economic and political conditions
(which could be impacted by future terrorist attacks such as those that occurred
on September 11th), and foreign currency fluctuations that may affect worldwide
results of operations. Furthermore, the Company is subject to the same business
cycles as those experienced by steel, automobile, aircraft, appliance or durable
goods manufacturers.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
Quaker is exposed to the impact of changes in interest rates, foreign
currency fluctuations, and changes in commodity prices.
Interest Rate Risk. Quaker's exposure to market rate risk for changes in
interest rates relates primarily to its short and long-term debt. Most of
Quaker's long-term debt has a fixed interest rate, while its short-term debt is
negotiated at market rates which can be either fixed or variable. Incorporated
by reference is the information in "Liquidity and Capital Resources" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 8 of the Notes to Consolidated Financial Statements on pages
7 and 24, respectively, of the Registrant's 2000 Annual Report filed on Form 10-
K. Accordingly, if interest rates rise significantly, the cost of short-term
debt to Quaker will increase. This can have a material adverse effect on Quaker
depending on the extent of Quaker's short-term borrowings. As of September 30,
2001, Quaker had no short-term borrowings.
Foreign Exchange Risk. A significant portion of Quaker's revenues and
earnings is generated by its foreign subsidiaries. Incorporated by reference is
the information concerning Quaker's non-U.S. activities appearing in Note 11 of
the Notes to Consolidated Financial Statements on pages 27 through 29 of the
Registrant's 2000 Annual Report filed on Form 10-K. All such subsidiaries use
the local currency as their functional currency. Accordingly, Quaker's
financial results are affected by risks typical of international business such
as currency fluctuations, particularly between the U.S. dollar, the Brazilian
real and the E.U. euro. As exchange rates vary, Quaker's results can be
materially adversely affected.
In the past, Quaker has used, on a limited basis, forward exchange
contracts to hedge foreign currency transactions and foreign exchange options to
reduce exposure to changes in foreign exchange rates. The amount of any gain or
loss on these derivative financial instruments was immaterial. Quaker is not
currently a party to any derivative financial instruments. Therefore, adoption
of SFAS No. 133, as amended by SFAS No. 138, did not have a material impact on
Quaker's operating results or financial position as of September 30, 2001.
Incorporated by reference is the information concerning Quaker's Significant
Accounting Policies appearing in Note 1 of the Notes to Consolidated Financial
Statements on page 17 of the Registrant's 2000 Annual Report filed on Form 10-K.
Commodity Price Risk. Many of the raw materials used by Quaker are
commodity chemicals, and, therefore, Quaker's earnings can be materially
adversely affected by market changes in raw material prices. In certain cases,
Quaker has entered into fixed-price purchase contracts having a term of up to
one year. These contracts provide for protection to Quaker if the price for the
contracted raw materials rises, however, in certain limited circumstances,
Quaker will not realize the benefit if such prices decline. Quaker has not
been, nor is it currently a party to, any derivative financial instrument
relative to commodities.
PART II. OTHER INFORMATION
Items 1,2,3,4 and 5 of Part II are inapplicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K.
No reports on Form 8-K were 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/ Michael F. Barry
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Michael F. Barry, officer duly
authorized to sign this report,
Vice President and Chief Financial Officer
Date: November 13, 2001
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