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
May 1, 2006
Date of Report (Date of earliest event reported)
QUAKER CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Commission File Number 001-12019
| PENNSYLVANIA | No. 23-0993790 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
One Quaker Park
901 Hector Street
Conshohocken, Pennsylvania 19428
(Address of principal executive offices)
(Zip Code)
(610) 832-4000
(Registrant’s telephone number, including area code)
Not Applicable
(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:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2.02. Results of Operations and Financial Condition.
On May 1, 2006, Quaker Chemical Corporation announced its results of operations for the first quarter ended March 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:
| Exhibit No. | ||
| 99.1 | Press Release of Quaker Chemical Corporation dated May 1, 2006. |
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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.
| QUAKER CHEMICAL CORPORATION Registrant | ||||
| Date: May 2, 2006 | By: | /s/ NEAL E. MURPHY | ||
| Neal E. Murphy Vice President and Chief Financial Officer | ||||
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Exhibit 99.1
| For Release: Immediate |
NEWS | Contact: Neal E. Murphy Vice President and Chief Financial Officer |
QUAKER CHEMICAL ANNOUNCES RECORD REVENUES FOR THE FIRST QUARTER 2006
AND SIGNIFICANT IMPROVEMENT IN CORE EARNINGS
May 1, 2006
CONSHOHOCKEN, PA – Quaker Chemical Corporation (NYSE:KWR) today announced record first quarter 2006 sales of $109.8 million and net income of $2.5 million, compared to first quarter 2005 sales of $104.2 million and net income of $3.1 million. Core earnings improved significantly, as the prior year quarter included a $4.2 million pre-tax gain from the sale of property by the Company’s real estate joint venture, as well as $1.2 million of charges for restructuring and related activities, contributing $3.0 million pre-tax to the result in the first quarter, 2005. The first quarter of 2006 included a pension gain of $0.9 million. Diluted earnings per share for the first quarter were $0.26, as compared to $0.32 for the first quarter of last year with those aforementioned non-recurring items included.
First Quarter 2006 Summary
Net sales for the first quarter of 2006 were $109.8 million, up 5.4% from $104.2 million for the first quarter of 2005. The increase in net sales was attributable to higher sales prices and volume growth of 6.6% offset by foreign exchange rate translation, which negatively impacted net sales by approximately 1.2%. Volume growth was mainly attributable to market share growth and increased demand in China. Selling price increases were implemented across all regions and market segments to offset significantly higher raw material costs.
Gross margin as a percentage of sales was 29.6% for the first quarter of 2006, as compared to 29.7% for the first quarter of 2005, and 30.2% for the fourth quarter of 2005. Higher selling prices and a stronger performance from the Company’s CMS business helped maintain margins notwithstanding continued increases in raw material prices, particularly crude oil derivatives.
Selling, general and administrative expenses for the quarter decreased $0.9 million. Cost savings from restructuring efforts completed in 2005 were partially offset by increased spending in higher growth areas, higher variable compensation, and inflationary and other increases. In addition, due to a legislative change, effective January 1, 2006, the Company recorded a pension gain of $0.9 million relating to one of its European pension plans.
The decrease in other income is largely due to $4.2 million of pre-tax gain in the first quarter of 2005 received from the Company’s real estate joint venture. The remainder of the decrease was the result of foreign exchange losses in the first quarter of 2006 compared to gains in the first quarter of 2005.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease in minority interest expense from the first quarter of 2005 is primarily due to the acquisition of the remaining 40% interest in the Company’s Brazilian affiliate in March of 2005.
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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
Balance Sheet and Cash Flow Items
The Company’s net debt has increased from December 2005, primarily to fund working capital needs, as well as the restructuring actions taken in the fourth quarter of 2005. The Company’s net debt-to-total capital ratio was 40% at March 31, 2006, compared to 35% at December 31, 2005.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, “We are pleased with continued solid revenue growth flowing from our pricing actions and business building initiatives. Our core earnings, before considering such prior year items as real estate gains and restructuring costs, show a marked improvement over our last several quarters. Our restructuring efforts of 2005 are positively impacting bottom line results in accordance with expectations. While we have achieved some gross margin improvement in dollar terms, our significant efforts to improve gross margin percentage have been mitigated by yet another spike in our raw material costs. With crude prices recently moving past $70 a barrel, we will necessarily continue the pricing dialog with our customers. We are shooting for gross margin percentage recovery upon a sustained period of stable or, better yet, declining raw material costs.”
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 to discuss first quarter results is scheduled for May 2, 2006 at 2:30 p.m. (EDT). Access the conference by calling 877-269-7756 (toll free) or visit Quaker’s Web site at http://www.quakerchem.com for a live webcast.
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Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data and share amounts)
| (Unaudited) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2006 | 2005 | |||||||
| Net sales |
$ | 109,816 | $ | 104,161 | ||||
| Cost of goods sold |
77,331 | 73,234 | ||||||
| Gross margin |
32,485 | 30,927 | ||||||
| % |
29.6 | % | 29.7 | % | ||||
| Selling, general and administrative |
27,362 | 28,217 | ||||||
| Restructuring and related activities, net |
— | 1,232 | ||||||
| Operating income |
5,123 | 1,478 | ||||||
| % |
4.7 | % | 1.4 | % | ||||
| Other income, net |
128 | 4,868 | ||||||
| Interest expense, net |
(965 | ) | (434 | ) | ||||
| Income before taxes |
4,286 | 5,912 | ||||||
| Taxes on income |
1,553 | 1,921 | ||||||
| 2,733 | 3,991 | |||||||
| Equity in net income of associated companies |
113 | 53 | ||||||
| Minority interest in net income of subsidiaries |
(304 | ) | (918 | ) | ||||
| Net income |
$ | 2,542 | $ | 3,126 | ||||
| % |
2.3 | % | 3.0 | % | ||||
| Per share data: |
||||||||
| Net income - basic |
$ | 0.26 | $ | 0.32 | ||||
| Net income - diluted |
$ | 0.26 | $ | 0.32 | ||||
| Shares Outstanding: |
||||||||
| Basic |
9,723,432 | 9,643,681 | ||||||
| Diluted |
9,816,149 | 9,883,727 | ||||||
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Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
| (Unaudited) | ||||||||
| March 31, 2006 |
December 31, 2005* |
|||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 9,605 | $ | 16,121 | ||||
| Accounts receivable, net |
101,524 | 93,943 | ||||||
| Inventories, net |
50,185 | 45,818 | ||||||
| Prepaid expenses and other current assets |
12,541 | 10,111 | ||||||
| Total current assets |
173,855 | 165,993 | ||||||
| Property, plant and equipment |
144,367 | 140,903 | ||||||
| Less accumulated depreciation |
87,414 | 84,006 | ||||||
| Net property, plant and equipment |
56,953 | 56,897 | ||||||
| Goodwill |
37,237 | 35,418 | ||||||
| Other intangible assets, net |
8,494 | 8,703 | ||||||
| Investments in associated companies |
6,472 | 6,624 | ||||||
| Deferred income taxes |
24,856 | 24,385 | ||||||
| Other assets |
34,588 | 33,975 | ||||||
| Total assets |
$ | 342,455 | $ | 331,995 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Short-term borrowings and current portion of long-term debt |
$ | 2,643 | $ | 5,094 | ||||
| Accounts and other payables |
53,546 | 52,923 | ||||||
| Accrued compensation |
9,068 | 9,818 | ||||||
| Other current liabilities |
17,332 | 19,053 | ||||||
| Total current liabilities |
82,589 | 86,888 | ||||||
| Long-term debt |
79,989 | 67,410 | ||||||
| Deferred income taxes |
4,792 | 4,608 | ||||||
| Other non-current liabilities |
58,740 | 60,573 | ||||||
| Total liabilities |
226,110 | 219,479 | ||||||
| Minority interest in equity of subsidiaries |
6,636 | 6,609 | ||||||
| Shareholders’ equity |
||||||||
| Common stock, $1 par value; authorized 30,000,000 shares; issued 2006 - 9,804,154, 2005 - 9,726,385 |
9,804 | 9,726 | ||||||
| Capital in excess of par value |
3,768 | 3,574 | ||||||
| Retained earnings |
111,752 | 111,317 | ||||||
| Accumulated other comprehensive loss |
(15,615 | ) | (18,710 | ) | ||||
| Total shareholders’ equity |
109,709 | 105,907 | ||||||
| Total liabilities and shareholders’ equity |
$ | 342,455 | $ | 331,995 | ||||
| * | Condensed from audited financial statements. |
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Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the three months ended March 31,
(Dollars in thousands)
| (Unaudited) | ||||||||
| 2006 | 2005 | |||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 2,542 | $ | 3,126 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation |
2,495 | 2,268 | ||||||
| Amortization |
351 | 306 | ||||||
| Equity in net income of associated companies |
(113 | ) | (53 | ) | ||||
| Minority interest in earnings of subsidiaries |
304 | 918 | ||||||
| Deferred income taxes |
(361 | ) | — | |||||
| Deferred compensation and other, net |
(184 | ) | 388 | |||||
| Restructuring and related activities |
— | 1,232 | ||||||
| Gain on sale of partnership assets |
— | (2,989 | ) | |||||
| Insurance settlement realized |
(72 | ) | — | |||||
| Pension and other postretirement benefits |
(1,865 | ) | (207 | ) | ||||
| Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: |
||||||||
| Accounts receivable |
(6,425 | ) | (3,751 | ) | ||||
| Inventories |
(3,696 | ) | 1,599 | |||||
| Prepaid expenses and other current assets |
(2,330 | ) | 391 | |||||
| Accounts payable and accrued liabilities |
245 | (5,395 | ) | |||||
| Change in restructuring liabilities |
(2,912 | ) | (640 | ) | ||||
| Net cash used in operating activities |
(12,021 | ) | (2,807 | ) | ||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(1,655 | ) | (1,628 | ) | ||||
| Dividends and distributions from associated companies |
205 | — | ||||||
| Payments related to acquisitions |
(1,000 | ) | (6,700 | ) | ||||
| Proceeds from partnership disposition of assets |
— | 2,989 | ||||||
| Proceeds from disposition of assets |
— | 647 | ||||||
| Interest earned on insurance settlement |
75 | — | ||||||
| Change in restricted cash, net |
(3 | ) | — | |||||
| Net cash used in investing activities |
(2,378 | ) | (4,692 | ) | ||||
| Cash flows from financing activities |
||||||||
| Net (decrease) increase in short-term borrowings |
(2,504 | ) | 2,064 | |||||
| Long-term debt borrowings |
12,340 | — | ||||||
| Repayments of long-term debt |
(233 | ) | (282 | ) | ||||
| Dividends paid |
(2,090 | ) | (2,079 | ) | ||||
| Stock options exercised, other |
272 | — | ||||||
| Distributions to minority shareholders |
(350 | ) | (2,204 | ) | ||||
| Other, net |
— | (9 | ) | |||||
| Net cash provided by (used in) financing activities |
7,435 | (2,510 | ) | |||||
| Effect of exchange rate changes on cash |
448 | (971 | ) | |||||
| Net decrease in cash and cash equivalents |
(6,516 | ) | (10,980 | ) | ||||
| Cash and cash equivalents at the beginning of the period |
16,121 | 29,078 | ||||||
| Cash and cash equivalents at the end of the period |
$ | 9,605 | $ | 18,098 | ||||