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 March 31, 2002
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.)
One Quaker Park, 901 Hector Street, 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 April 30, 2002 9,190,004
QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheet at March 31, 2002 and
December 31, 2001
Condensed Consolidated Statement of Income for the Three Months
ended March 31, 2002 and 2001
Condensed Consolidated Statement of Cash Flows for the Three
Months ended March 31, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
* * * * * * * * * *
Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
Unaudited
(dollars in thousands)
March 31, December 31,
2002 2001 (*)
----------- --------------
ASSETS
Current assets
Cash and cash equivalents $ 15,918 $ 20,549
Accounts receivable, net 50,834 44,787
Inventories
Raw materials and supplies 9,506 9,673
Work-in-process and finished goods 8,608 9,112
Prepaid expenses and other current assets 10,446 8,809
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Total current assets 95,312 92,930
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Property, plant and equipment, at cost 101,999 97,367
Less accumulated depreciation 59,706 59,123
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Total property, plant and equipment 42,293 38,244
Goodwill 19,783 15,085
Other intangible assets 3,509 1,317
Investments in associated companies 9,614 9,839
Deferred income taxes 8,996 9,085
Other assets 13,199 13,166
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$ 192,706 $ 179,666
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt $ 14,889 $ 2,858
Accounts and other payables 23,110 20,196
Accrued compensation 6,669 8,109
Other current liabilities 14,375 14,343
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Total current liabilities 59,043 45,506
Long-term debt 19,439 19,380
Deferred income taxes 1,141 1,233
Other noncurrent liabilities 24,607 24,212
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Total liabilities 104,230 90,331
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Minority interest in equity of subsidiaries 8,630 8,436
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Shareholders' Equity
Common stock $1 par value; authorized
30,000,000 shares; issued (including
treasury shares) 9,664,009 shares 9,664 9,664
Capital in excess of par value 274 357
Retained earnings 104,383 103,953
Unearned compensation (1,508) (1,597)
Accumulated other comprehensive (loss) (26,378) (24,075)
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86,435 88,302
Treasury stock, shares held at cost;
2002-479,121, 2001-526,865 (6,589) (7,403)
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Total shareholders' equity 79,846 80,899
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$ 192,706 $ 179,666
============= ============
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 March 31,
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2002 2001
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Net sales $ 59,927 $ 64,215
Cost of goods sold 35,570 38,393
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Gross margin 24,357 25,822
Selling, general and administrative expenses 20,024 19,723
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Operating income 4,333 6,099
Other income, net 280 780
Interest expense (419) (492)
Interest income 253 271
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Income before taxes 4,447 6,658
Taxes on income 1,423 2,064
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3,024 4,594
Equity in net (loss) income of associated
companies (17) 280
Minority interest in net income of
subsidiaries (649) (861)
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Net income $ 2,358 $ 4,013
=================== ===================
Per share data:
Net income - basic and diluted $0.26 $0.45
Dividends declared $0.21 $0.205
Based on weighted average number of
shares outstanding:
Basic 9,154,303 8,901,667
Diluted 9,212,700 8,963,929
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the Three Months ended March 31,
Unaudited
(dollars in thousands)
2002 2001
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Cash flows from operating activities
Net income $ 2,358 $ 4,013
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,229 1,162
Amortization 82 362
Equity in net (loss) income of associated companies 17 (280)
Minority interest in earnings of subsidiaries 649 861
Deferred compensation and other postretirement benefits (260) 638
Other, net 1,286 2,073
Increase (decrease) in cash from changes in current assets and current
liabilities:
Accounts receivable, net (2,471) (734)
Inventories 981 1,068
Prepaid expenses and other current assets (2,816) (1,320)
Accounts payable and accrued liabilities 391 (6,370)
Change in restructuring liabilities (865) (244)
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Net cash provided by operating activities 581 1,229
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Cash flows from investing activities
Investments in property, plant and equipment (1,527) (1,419)
Payments related to acquisitions (13,676) (1,450)
Other, net 66 (190)
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Net cash (used in) investing activities (15,137) (3,059)
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Cash flows from financing activities
Net increase in short-term borrowings 11,994 4,000
Repayment of long-term debt (30) (38)
Dividends paid (1,872) (1,816)
Treasury stock issued 442 1,461
Distributions to minority shareholders (497) -
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Net cash provided by financing activities 10,037 3,607
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Effect of exchange rate changes on cash (112) (1,325)
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Net (decrease) increase in cash and cash equivalents (4,631) 452
Cash and cash equivalents at beginning of period 20,549 16,552
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Cash and cash equivalents at end of period $ 15,918 $ 17,004
=============== ===============
Noncash investing activities:
Contribution of property, plant & equipment to real estate joint venture $ - $ 4,239
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
2002 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
months ended March 31, 2002 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, 2001.
As part of the Company's chemical management services, certain third party
products are transferred to customers at no gross profit and accordingly, these
transactions have no effect on net sales. Third party products transferred under
these arrangements totaled $6,186 and $4,745 for the three months ended March
31, 2002 and 2001, respectively.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No 143 addresses
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs. This statement
is effective for fiscal years beginning after June 15, 2002. The Company is
currently assessing the impact of this new standard.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets." The provisions of this statement provide a single accounting
model for impairment of long-lived assets. The statement is effective for fiscal
years beginning after December 15, 2001. The Company adopted this standard on
January 1, 2002. Management has assessed the impact of the new standard and
determined there to be no material impact to the financial statements.
NOTE 3 - EARNINGS PER SHARE
The following table summarizes earnings per share (EPS) calculations for the
three months ended March 31, 2002 and 2001:
2002 2001
---- ----
Numerator for basic EPS and diluted EPS--
net income ............................. $ 2,358 $4,013
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Denominator for basic EPS--weighted
average shares ......................... 9,154 8,902
Effect of dilutive securities, primarily
employee stock options ................. 59 62
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Denominator for diluted EPS--weighted
average shares and assumed
conversions ........................... 9,213 8,964
======= ======
Basic EPS................................. $ .26 $ .45
Diluted EPS............................... $ .26 $ .45
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 - 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 three
months ending March 31:
Metalworking Other
Process Chemical
Chemicals Coatings Products Total
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2002
Net sales $ 55,574 $ 3,552 $ 801 $ 59,927
Operating income 11,479 829 209 12,517
2001
Net sales $ 59,432 $ 4,071 $ 712 $ 64,215
Operating income 12,676 1,087 328 14,091
Operating income comprises revenue less related costs and expenses.
Non-operating items 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 three months ended March 31 is as follows:
2002 2001
---- ----
Total operating income for
reportable segments $ 12,517 $ 14,091
Non-operating expenses (6,873) (6,468)
Depreciation and amortization (1,311) (1,524)
Interest expense (419) (492)
Interest income 253 271
Other income, net 280 780
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Consolidated income before taxes $ 4,447 $ 6,658
========= =========
NOTE 5 - COMPREHENSIVE INCOME (LOSS)
The following table summarizes comprehensive income (loss) for the three
months ended March 31:
2002 2001
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Net income $ 2,358 $ 4,013
Foreign currency translation adjustments (2,303) (5,131)
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Comprehensive income (loss) $ 55 $(1,118)
======== =========
NOTE 6 - RESTRUCTURING AND NONRECURRING EXPENSES
In the third and fourth quarters of 2001, Quaker's management approved
restructuring plans to realign its organization and reduce operating costs.
Quaker's restructuring plans include the closure and sale of its manufacturing
facilities in the U.K. and France. In addition, Quaker consolidated certain
functions within its global business units and reduced administrative functions,
as well as expensed costs related to abandoned acquisitions. Included in the
third and fourth quarter restructuring charges are provisions for the severance
of 16 and 37 employees, respectively.
Restructuring and related charges of $2,958 and $2,896 were expensed during the
third and fourth quarters of 2001, respectively. The third quarter charge
comprised $520 related to employee separations, $2,038 related to facility
rationalization charges and $400 related to abandoned acquisitions. The fourth
quarter charge comprised $2,124 related to employee separations, $575 related to
facility rationalization charges and $197 related to abandoned acquisitions.
Employee separation benefits under each plan varied depending on local
regulations within certain foreign countries and included severance and other
benefits. As of March 31, 2002, Quaker completed 44 of the planned 53 employee
separations under the 2001 plans. Quaker expects to substantially complete the
initiatives contemplated under the restructuring plans by September 30, 2002.
Accrued restructuring balances as of March 31, 2002 are as follows:
Balance Currency Balance
December translation March
31,2001 Payments and other 31,2002
------- -------- --------- -------
Employee separations $ 2,534 $ (682) $ 6 $ 1,858
Facility rationalization 1,439 (183) 4 1,260
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Total $ 3,973 $ (865) $ 10 $ 3,118
========= ========= ====== ========
NOTE 7 - BUSINESS ACQUISITION
On March 1, 2002, the Company acquired certain assets and liabilities of United
Lubricants Corporation ("ULC"), a North American manufacturer and distributor of
specialty lubricant products and chemical management services, for approximately
$13,676. The acquisition of ULC strategically strengthens the Company's global
leadership supply position to the steel industry.
The following table shows the fair value of assets and liabilities recorded for
the acquisition, subject to post-closing adjustments:
Receivables $ 4,513
Inventories 868
Property, plant and equipment 4,166
Goodwill 4,930
Intangible assets 2,300
Other assets 74
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16,851
-------
Accounts payable 2,148
Accrued expenses and other current liabilities 261
Other noncurrent liabilities 766
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3,175
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Cash paid for acquisition $13,676
=======
The $4,930 of goodwill was assigned to the Metalworking process chemicals
segment, and the entire amount is expected to be deductible for income tax
purposes.
The $2,300 of intangible assets comprised $1,400 of branded customer lists, $700
of formulations, and $200 of trademarks. These intangibles are being amortized
over a five-year period.
The results of operations of ULC are included in the consolidated statement of
income beginning March 1, 2002. Pro-forma results of operations have not been
provided because the effects are not material.
NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 established new guidelines for accounting for goodwill
and other intangible assets. Upon adoption, goodwill is no longer amortized,
but instead assessed for impairment at least on an annual basis. Accordingly,
on January 1, 2002, the Company ceased amortizing its goodwill. The Company
completed impairment assessment of its goodwill and did not incur an impairment
charge related to the adoption of SFAS No. 142.
The following is a reconciliation of previously reported financial information
to pro-forma amounts exclusive of goodwill amortization for the three months
ended March 31, 2001:
Net income $4,013
Goodwill amortization expense, net of tax 181
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Pro-forma net income $4,194
=======
Earnings per share, basic and diluted $0.45
Goodwill amortization expense, net of tax 0.02
-------
Pro-forma earnings per share, basic and diluted $0.47
=======
The changes in carrying amount of goodwill for the quarter ended March 31, 2002
are as follows:
Metalworking
process chemicals Coatings Total
----------------------------------------
Balance as of
January 1, 2002 $11,206 $3,879 $ 15,085
Goodwill acquired 4,930 -- 4,930
Currency translation
adjustments (232) -- (232)
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Balance as of
March 31, 2002 $15,904 $3,879 $ 19,783
======= ====== ========
Gross carrying amounts and accumulated amortization for intangibles assets as of
March 31, 2002, are as follows:
Gross carrying Accumulated
Amount Amortization
-----------------------------
Amortized intangible assets
Customer lists and rights to sell $2,250 $ 63
Trademarks and patents 1,700 1,500
Formulations 700 12
Other 1,388 954
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Total $6,038 $2,529
====== ======
Estimated annual aggregate amortization expense for the current year and
subsequent five years is as follows:
For the year ended December 31, 2002 $627
For the year ended December 31, 2003 $648
For the year ended December 31, 2004 $511
For the year ended December 31, 2005 $509
For the year ended December 31, 2006 $509
For the year ended December 31, 2007 $156
NOTE 9 - SUBSEQUENT EVENT
On April 22, 2002, the Company acquired all of the outstanding stock of
Epmar Corporation ("Epmar") for $7,900, which includes the assumption of $400 of
debt, subject to post-closing adjustments. The Company is currently assessing
the allocation of the purchase price. Pro-forma results of operations have not
been presented because the effects were not material.
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 $0.6 million in
the first quarter of 2002 compared to $1.2 million in the same period of 2001.
The decrease was primarily due to lower net income in 2002 and increases in the
changes in accounts receivable and prepaid expenses and other current assets,
offset by an increase in accounts payable and accrued liabilities.
Net cash flows used in investing activities were $15.1 million in the
first quarter of 2002 compared to $3.1 million in the same period of 2001. The
increase was primarily related to $13.7 million used in 2002 for the acquisition
of certain assets and liabilities of United Lubricants Corporation ("ULC"),
compared to a payment of $1.4 million related to an acquisition in 2001.
Expenditures for property, plant, and equipment totaled $1.5 million in
the first quarter of 2002 compared to $1.4 million in the same period of 2001.
Net cash flows provided by financing activities were $10.0 million for the
first quarter of 2002 compared with $3.6 million for the same period of the
prior year. The net change was primarily due to approximately $12.0 million of
short-term borrowings in 2002, primarily used to finance the ULC acquisition,
compared with $4.0 million of short-term borrowings in 2001, offset by $0.4
million of proceeds from shares issued upon exercise of stock options in 2002
compared to $1.5 million of similar proceeds in 2001.
Operations
- ----------
Comparison of First Quarter 2002 with First Quarter 2001
- --------------------------------------------------------
Consolidated net sales for the first quarter of 2002 were $59.9
million, a seven percent decrease compared to the first quarter of 2001. The
sales comparison was negatively impacted by unfavorable foreign currency
translations, partially offset by March 2002 ULC revenues. Excluding the impact
of the stronger dollar, consolidated net sales would have been down
approximately two percent compared to 2001.
Cost of sales decreased as a percentage of sales from 59.8 percent in
2001 to 59.4 percent in 2002. The improvement is primarily a result of favorable
raw material costs, partially offset by lower sales volumes and the lower gross
margins of ULC products.
Reported selling, general and administrative (SG&A) expenses of $20.0
million in the first quarter of 2002 are approximately one and one-half percent
higher than the $19.7 million reported in the first quarter of 2001. Included in
the first quarter of 2002 is an additional reserve for doubtful accounts related
to the bankruptcy of a major steel customer. Also included in 2002 are
non-capital costs related to the implementation of a global transaction system,
as well as SG&A expenses of ULC for March 2002. The first quarter of 2002 was
also favorably impacted by adoption of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Upon
adoption of SFAS No. 142, the Company no longer amortizes goodwill. The Company
reported approximately $0.3 million of goodwill amortization in the first
quarter of 2001. Adjusted for the aforementioned items, overall SG&A expenses in
the first quarter of 2002 were approximately three percent lower than the first
quarter of 2001.
Other income variance primarily reflects lower foreign exchange gains in
the first quarter of 2002 compared with those in the first quarter of 2001, as
well as lower license fee revenue in 2002 compared with 2001. Net interest
expense is favorable in the first quarter of 2002 compared to the prior year due
to lower borrowing rates, the impact of December 2001 principal payments on the
Company's long-term debt, and the timing of short-term borrowings related to the
ULC acquisition. Equity loss in the first quarter of 2002 compared to equity
income in the first quarter 2001 reflects lower income year over year for the
joint venture in Mexico, as well as the start up of the real estate joint
venture. Minority interest was lower in the first quarter of 2002 compared with
the same period last year, primarily due to lower net income from the joint
ventures in Brazil.
The effective tax rate for 2002 is currently 32%, compared to 31% in
the prior year. The effective tax rate is dependent on many internal and
external factors, and is assessed by the Company on a regular basis. 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.
Other Significant Items
On March 1, 2002, The Company acquired certain assets and liabilities of United
Lubricants Corporation for approximately $13.7 million, subject to post-closing
adjustments. The acquisition resulted in the recognition of approximately $4.9
million of goodwill and $2.3 million of intangible assets. Pro-forma results of
operations have not been presented because the effects were not material.
On April 22, 2002, the Company acquired all of the outstanding stock of Epmar
Corporation for $7.9 million, which includes the assumption of $0.4 million of
debt, subject to post-closing adjustments. The Company is currently assessing
the allocation of the purchase price. Pro-forma results of operations have not
been presented because the effects were not material.
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. In January 2002, new
euro-denominated bills and coins were issued, and legacy currencies were
withdrawn from circulation. The Company's operating subsidiaries affected by the
euro conversion executed plans to address the systems and business issues raised
by the euro currency. The euro conversion did not have a material adverse impact
on the Company's 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, further
downturns in our customers' businesses, significant increases in raw material
costs, worldwide economic and political conditions, foreign currency
fluctuations and future terrorist attacks such as those that occurred on
September 11, 2001. 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 interest rates, foreign currency
fluctuations, changes in commodity prices, and credit risk.
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
beginning on pages 10 and 31, respectively, of the Registrant's 2001 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 March 31, 2002, Quaker had $12.0 million of 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 beginning on page 35 of the
Registrant's 2001 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 global 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 March 31, 2002.
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.
Credit Risk. Quaker establishes allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. If the financial condition of Quaker's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. Downturns in the overall economic climate may also
tend to exacerbate specific customer financial issues. A significant portion of
Quaker's revenues is derived from sales to customers in the U.S. steel industry
where a number of bankruptcies occurred during recent years. In the first
quarter 2002, Quaker recorded additional provisions for doubtful accounts
primarily related to bankruptcies in the U.S. steel industry. When a bankruptcy
occurs, Quaker must judge the amount of proceeds, if any, that may ultimately be
received through the bankruptcy or liquidation process. As part of its terms of
trade, Quaker may custom manufacture products for certain large customers and/or
may ship product on a consignment basis. These practices may increase the
Company's exposure should a bankruptcy occur, and may require writedown or
disposal of certain inventory due to its estimated obsolescence or limited
marketability. Customer returns of products or disputes may also result in
similar issues related to the realizability of recorded accounts receivable or
returned inventory. Incorporated by reference is the information in "Critical
Accounting Policies and Estimates" and "Liquidity and Capital Resources" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations beginning on pages 8 and 10 respectively, of the Registrant's 2001
Annual Report filed on Form 10-K.
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
---------------------------------
Michael F. Barry, officer duly
authorized to sign this report,
Vice President and Chief Financial Officer
Date: May 15, 2002
---------------