UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
February 27, 2007
Date of Report (Date of earliest event reported)
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QUAKER CHEMICAL CORPORATION |
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(Exact name of Registrant as specified in its charter) |
Commission File Number 001-12019
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PENNSYLVANIA |
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No. 23-0993790 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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One Quaker Park |
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901 Hector Street |
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Conshohocken, Pennsylvania 19428 |
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(Address of principal executive offices) |
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(Zip Code) |
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(610) 832-4000 |
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(Registrant’s telephone number, including area code) |
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Not Applicable |
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(Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 2.02. Results of Operations and Financial Condition.
On February 27, 2007, Quaker Chemical Corporation announced its results of operations for the fourth quarter and full year ended December 31, 2006 in a press release, the text of which is included as Exhibit 99.1 hereto.
Item 9.01. Financial Statements and Exhibits.
The following exhibit is included as part of this report:
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Exhibit No. |
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99.1 |
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Press Release of Quaker Chemical Corporation dated February 27, 2007. |
-2-
SIGNATURE
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.
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QUAKER CHEMICAL CORPORATION |
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Registrant |
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Date: February 28, 2007 |
By: |
/s/ NEAL E. MURPHY |
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Neal E. Murphy |
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Vice President and |
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Chief Financial Officer |
-3-
Exhibit 99.1
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For Release: |
NEWS |
Contact: |
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Immediate |
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Neal E. Murphy |
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Vice President and |
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Chief Financial Officer |
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610-832-4189 |
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QUAKER CHEMICAL ANNOUNCES RECORD SALES FOR 2006 AND SUBSTANTIAL
IMPROVEMENT IN FOURTH QUARTER AND FULL YEAR EARNINGS
February 27, 2007
CONSHOHOCKEN, PA – Quaker Chemical Corporation (NYSE:KWR) today announced record sales for the full year 2006 of $460.5 million and net income of $11.7 million, or $1.18 per diluted share, compared to $424.0 million and net income of $1.7 million, or $0.17 per diluted share for 2005.
The Company also reported fourth quarter 2006 sales of $115.5 million and net income of $3.0 million, or $0.30 per diluted share, compared to fourth quarter 2005 sales of $107.1 million and a net loss of $5.4 million, or a $0.56 loss per diluted share.
Prior year results included a $10.3 million pre-tax charge for restructuring and related activities, $4.2 million of pre-tax income from the sale of property by the Company’s real estate joint venture, and a $1.0 million tax charge associated with foreign earnings repatriation. All but $1.2 million of these prior year charges were reported in the fourth quarter of last year.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, “Our strong 2006 performance continued through the fourth quarter to yield solid revenue and profit gains for both the quarter and the full year. Strong global steel demand, pricing persistency, an expanded presence in China and our commitment to CMS all contributed nicely to a significant improvement in fourth quarter and full year financial performance. I’m pleased to note that our gross margin expanded each quarter through the year despite upward raw material pressure. We also saw benefits from the restructuring actions of 2005 that enabled the redeployment of resources towards higher growth regions and strategic initiatives.”
Fourth Quarter 2006 Summary
Net sales for the fourth quarter of 2006 were $115.5 million, up 8% from $107.1 million for the fourth quarter of 2005. Foreign exchange rate translation increased revenues by approximately 3% for the fourth quarter of 2006, compared to the same period in 2005. The remaining increase in net sales was attributable to a combination of higher sales prices and volume growth. Volume growth was mainly attributable to market share growth and increased demand in China partially offset by some softness in our other markets. Selling price increases were broadly implemented across all regions and market segments to offset significantly higher raw material costs.
Gross margin as a percentage of sales was 32.3% for the fourth quarter of 2006, compared to 30.2% for the fourth quarter of 2005. Higher selling prices and a stronger performance from the Company’s CMS channel helped improve margins, as mineral oil prices stabilized during the fourth quarter. Sequentially, the fourth quarter 2006 gross margin as a percentage of sales represents an improvement over the first, second and third quarter 2006 gross margin percentages of 29.6%, 30.4% and 31.6%, respectively.
- more -
Quaker Chemical
Corporation
One Quaker Park, 901 Hector Street, Conshohocken,
PA 19428-0809 USA www.quakerchem.com
T 610.832.4000 F 610.832.8682
Selling, general and administrative expenses for the quarter increased $3.3 million compared to the fourth quarter of 2005. Planned new spending in higher growth areas was funded by savings from the Company’s restructuring program in the fourth quarter of 2005. Higher variable compensation in the fourth quarter of 2006, compared to the prior year fourth quarter, was the result of increased earnings. Foreign exchange rates also contributed to an increase in SG&A, compared to the prior year quarter. In addition, during the fourth quarter of 2005, the Company implemented a restructuring plan to significantly reduce operating costs in the U.S. and Europe that resulted in a net pre-tax charge of $9.1 million.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The increase in minority interest expense is due to a stronger financial performance from the Company’s minority affiliates offset in part by the fourth quarter acquisition of the remaining interest in the Company’s China affiliate.
Full Year Summary
Net sales for 2006 were $460.5 million, up 8.6% from $424.0 million for 2005. The increase in net sales was attributable to higher sales prices and volume growth. Volume growth was mainly attributable to market share growth and increased demand in the U.S. and China offset by softening demand in Europe. Selling price increases were broadly implemented across all regions and market segments to offset significantly higher raw material costs.
Gross margin as a percentage of sales was 31.0% for 2006, as compared to 30.6% for 2005. Higher selling prices and a stronger performance from the Company’s CMS channel helped maintain margins notwithstanding continued increases in raw material prices, particularly crude oil derivatives.
Selling, general and administrative expenses for 2006 increased $4.6 million compared to 2005. Cost savings from restructuring efforts completed in 2005 enabled increased spending in higher growth areas, higher variable compensation and higher professional fees. In addition, due to a legislative change, effective January 1, 2006, the Company recorded a pension gain in the first quarter of 2006 of $0.9 million relating to one of its European pension plans. SG&A as a percentage of sales decreased from 27.4% to 26.3%.
Restructuring and other related activities for the full year 2005 included the aforementioned $9.1 million fourth quarter charges, as well as a $1.2 million charge associated with a reduction in workforce in the first quarter of 2005.
The decrease in other income is largely due to $4.2 million of pre-tax gain relating to the Company’s real estate joint venture recorded in 2005. The remainder of the decrease was the result of foreign exchange losses in 2006 compared to gains in 2005.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates.
The effective tax rate was 33.8% for 2006 compared to 50.4% in 2005, with the decrease primarily due to the aforementioned tax charge taken in 2005 associated with the repatriation of accumulated foreign earnings.
Minority interest expense decreased due to the acquisition of the remaining 40% interest in the Company’s Brazilian affiliate in March of 2005 and the fourth quarter 2006 acquisition of the remaining interest in the Company’s China affiliate. Several of the Company’s minority affiliates also reported lower earnings.
Balance Sheet and Cash Flow Items
The Company’s net debt has increased from December 31, 2005, primarily to fund working capital needs, construction of a new manufacturing and research facility in China, and the fourth quarter 2006 acquisition of the remaining interest in the Company’s China affiliate. In addition, fourth quarter 2005 restructuring actions were funded during 2006. The Company’s net debt-to-total capital ratio was 40% at December 31, 2006, compared to 35% at December 31, 2005.
In connection with the adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” the Company recorded a non-cash charge to shareholders’ equity of $9.3 million, which negatively impacted the Company’s net debt-to-total capital ratio by approximately two percentage points.
- more -
Mr. Naples further commented, “We had a great year in 2006, not only because of our earnings improvement, but also, importantly, because we believe we made strides in strengthening our competitive position. Our investments in manufacturing and research facilities in China, as well as successful recruiting efforts and a buyout of our Chinese joint venture partner, have further solidified our growth platform in this exciting part of the world. We have made substantial in-roads into market adjacencies, such as products for the tube and pipe and the mining industries, and have formed alliances which will enable a broader product slate to complement our strong position in traditional markets. We feel good about our long-term future and about the prospects of continuing solid earnings improvement in 2007.”
Quaker Chemical Corporation, headquartered in Conshohocken, Pennsylvania, is a worldwide developer, producer, and marketer of custom-formulated chemical specialty products and a provider of chemical management services for manufacturers around the globe, primarily in the steel and automotive industries.
This release contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that the Company’s demand is largely derived from the demand for its customers’ products, which subjects the Company to downturns in a customer’s business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, and future terrorist attacks such as those that occurred on September 11, 2001. Other factors could also adversely affect us. Therefore, we caution you not to place undue reliance on our forward-looking statements. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
As previously announced, Quaker Chemical’s investor conference call to discuss fourth quarter and year-end results is scheduled for February 28, 2007 at 2:30 p.m. (ET). Access the conference by calling 877-269-7756 or visit Quaker’s Web site at www.quakerchem.com for a live webcast.
- more -
Quaker Chemical Corporation
Condensed Consolidated Statement of Operations
(Dollars in thousands, except per share data and share amounts)
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Three Months Ended |
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Twelve Months Ended |
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2006 |
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2005 |
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2006 |
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2005 |
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(Unaudited) |
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Net sales |
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$ |
115,527 |
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$ |
107,079 |
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$ |
460,451 |
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$ |
424,033 |
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Cost of goods sold |
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78,251 |
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74,778 |
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317,850 |
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294,219 |
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Gross margin |
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37,276 |
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32,301 |
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142,601 |
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129,814 |
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% |
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32.3 |
% |
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30.2 |
% |
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31.0 |
% |
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30.6 |
% |
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Selling, general and administrative |
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32,333 |
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29,066 |
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120,969 |
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116,340 |
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Restructuring and related activities, net |
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— |
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9,088 |
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— |
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10,320 |
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Operating income |
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4,943 |
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(5,853 |
) |
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21,632 |
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3,154 |
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% |
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4.3 |
% |
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-5.5 |
% |
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4.7 |
% |
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0.7 |
% |
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Other income, net |
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205 |
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251 |
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1,259 |
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6,120 |
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Interest expense, net |
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(1,016 |
) |
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(815 |
) |
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(4,451 |
) |
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(2,659 |
) |
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Income before taxes |
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4,132 |
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(6,417 |
) |
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18,440 |
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6,615 |
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Taxes on income |
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1,166 |
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(899 |
) |
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6,224 |
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3,336 |
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2,966 |
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(5,518 |
) |
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12,216 |
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3,279 |
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Equity in net income of associated companies |
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317 |
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204 |
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773 |
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618 |
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Minority interest in net income of subsidiaries |
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(289 |
) |
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(131 |
) |
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(1,322 |
) |
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(2,209 |
) |
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Net income (loss) |
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$ |
2,994 |
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$ |
(5,445 |
) |
$ |
11,667 |
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$ |
1,688 |
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% |
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2.6 |
% |
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-5.1 |
% |
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2.5 |
% |
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0.4 |
% |
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Per share data: |
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Net income (loss) - basic |
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$ |
0.30 |
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$ |
(0.56 |
) |
$ |
1.19 |
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$ |
0.17 |
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Net income (loss) - diluted |
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$ |
0.30 |
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$ |
(0.56 |
) |
$ |
1.18 |
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$ |
0.17 |
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Shares Outstanding: |
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Basic |
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9,828,377 |
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9,701,259 |
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9,778,745 |
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9,679,013 |
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Diluted |
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9,902,451 |
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9,701,259 |
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9,854,100 |
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9,815,585 |
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- more -
Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
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December 31, |
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December 31, |
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(Unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
16,062 |
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$ |
16,121 |
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Accounts receivable, net |
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107,340 |
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93,943 |
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Inventories, net |
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51,984 |
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45,818 |
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Deferred income taxes |
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|
4,379 |
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|
4,439 |
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Prepaid expenses and other current assets |
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|
6,476 |
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|
5,672 |
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Total current assets |
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186,241 |
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|
165,993 |
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Property, plant and equipment, net |
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60,927 |
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|
56,897 |
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Goodwill |
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38,740 |
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35,418 |
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Other intangible assets, net |
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8,330 |
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|
8,703 |
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Investments in associated companies |
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7,044 |
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6,624 |
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Deferred income taxes |
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|
28,573 |
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|
24,385 |
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Other assets |
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27,527 |
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|
33,975 |
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Total assets |
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$ |
357,382 |
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$ |
331,995 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities |
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Short-term borrowings and current portion of long-term debt |
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$ |
4,950 |
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$ |
5,094 |
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Accounts payable |
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|
54,212 |
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|
50,832 |
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Dividends payable |
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|
2,133 |
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|
2,091 |
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Accrued compensation |
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|
15,225 |
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|
9,818 |
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Other current liabilities |
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|
13,659 |
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|
19,053 |
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Total current liabilities |
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90,179 |
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|
86,888 |
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Long-term debt |
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85,237 |
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67,410 |
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Deferred income taxes |
|
|
5,317 |
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|
4,608 |
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Accrued pension and postretirement benefits |
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|
38,430 |
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|
38,210 |
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Other non-current liabilities |
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|
23,353 |
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22,363 |
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Total liabilities |
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242,516 |
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|
219,479 |
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Minority interest in equity of subsidiaries |
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|
4,035 |
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|
6,609 |
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Shareholders’ equity |
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Common stock, $1 par value; authorized 30,000,000 shares; issued 9,925,976 shares |
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|
9,926 |
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|
9,726 |
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Capital in excess of par value |
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|
5,466 |
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|
3,574 |
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Retained earnings |
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|
114,498 |
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|
111,317 |
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Accumulated other comprehensive loss |
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|
(19,059 |
) |
|
(18,710 |
) |
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|
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|
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|
|
Total shareholders’ equity |
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|
110,831 |
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|
105,907 |
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|
|
|
|
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Total liabilities and shareholders’ equity |
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$ |
357,382 |
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$ |
331,995 |
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- more -
Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the twelve months ended December 31,
(Dollars in thousands)
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2006 |
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2005* |
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(Unaudited) |
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Cash flows from operating activities |
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|
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Net income |
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$ |
11,667 |
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|
1,688 |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation |
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|
10,136 |
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|
9,163 |
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Amortization |
|
|
1,427 |
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|
1,368 |
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Equity in net income of associated companies, net of dividends |
|
|
(348 |
) |
|
(384 |
) |
|
Minority interest in earnings of subsidiaries |
|
|
1,322 |
|
|
2,209 |
|
|
Deferred income tax |
|
|
404 |
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|
(4,476 |
) |
|
Deferred compensation and other, net |
|
|
(507 |
) |
|
(747 |
) |
|
Stock-based compensation |
|
|
857 |
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|
771 |
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|
Restructuring and related activities |
|
|
— |
|
|
6,018 |
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|
Gain on sale of partnership assets |
|
|
— |
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|
(2,989 |
) |
|
(Gain) Loss on disposal of property, plant and equipment |
|
|
34 |
|
|
— |
|
|
Insurance settlement realized |
|
|
(544 |
) |
|
— |
|
|
Pension and other postretirement benefits |
|
|
(4,247 |
) |
|
(439 |
) |
|
Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(8,947 |
) |
|
(9,600 |
) |
|
Inventories |
|
|
(4,146 |
) |
|
(5,821 |
) |
|
Prepaid expenses and other current assets |
|
|
(140 |
) |
|
161 |
|
|
Accounts payable and accrued liabilities |
|
|
5,440 |
|
|
15,726 |
|
|
Change in restructuring liabilities |
|
|
(4,033 |
) |
|
(2,798 |
) |
|
Estimated taxes on income |
|
|
(192 |
) |
|
1,722 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
8,183 |
|
|
11,572 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(12,379 |
) |
|
(6,989 |
) |
|
Payments related to acquisitions |
|
|
(1,684 |
) |
|
(6,700 |
) |
|
Proceeds from partnership disposition of assets |
|
|
— |
|
|
2,989 |
|
|
Proceeds from disposition of assets |
|
|
64 |
|
|
1,918 |
|
|
Insurance settlement received and interest earned |
|
|
7,836 |
|
|
7,508 |
|
|
Change in restricted cash, net |
|
|
(7,292 |
) |
|
(7,508 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(13,455 |
) |
|
(8,782 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from short-term debt |
|
|
1,897 |
|
|
— |
|
|
Net (decrease) increase in short-term borrowings |
|
|
(3,384 |
) |
|
(52,703 |
) |
|
Proceeds from long-term debt |
|
|
15,283 |
|
|
59,525 |
|
|
Repayments of long-term debt |
|
|
(940 |
) |
|
(9,566 |
) |
|
Dividends paid |
|
|
(8,444 |
) |
|
(8,340 |
) |
|
Stock options exercised, other |
|
|
1,235 |
|
|
387 |
|
|
Distributions to minority shareholders |
|
|
(1,490 |
) |
|
(4,198 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
4,157 |
|
|
(14,895 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
1,056 |
|
|
(852 |
) |
|
Net (decrease) increase in cash and cash equivalents |
|
|
(59 |
) |
|
(12,957 |
) |
|
Cash and cash equivalents at the beginning of the period |
|
|
16,121 |
|
|
29,078 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
$ |
16,062 |
|
$ |
16,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*Certain reclassifications of prior year data have been made to improve comparability |