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
July 30, 2012
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 E. 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 July 30, 2012, Quaker Chemical Corporation announced its results of operations for the second quarter ended June 30, 2012 in a press release, the text of which is included as Exhibit 99.1 hereto. Supplemental information related to the same period is also included as Exhibit 99.2 hereto.
Item 9.01. Financial Statements and Exhibits.
The following exhibits are included as part of this report:
| Exhibit No. | |
| 99.1 | Press Release of Quaker Chemical Corporation dated July 30, 2012. |
| 99.2 | Supplemental Information related to second quarter ended June 30, 2012. |
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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 hereunto duly authorized.
|
QUAKER CHEMICAL CORPORATION Registrant | |||
| Date: July 30, 2012 | By: | /s/ MARGARET M. LOEBL | |
|
Margaret M. Loebl Vice President, Chief Financial Officer and Treasurer
|
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| NEWS | ||
For Release: Immediate |
Contact: Margaret M. Loebl Vice President, CFO & Treasurer 610-832-4160 | |
QUAKER CHEMICAL CORPORATION ANNOUNCES SECOND QUARTER 2012 RESULTS
| · | Net sales up 5% from the second quarter of 2011 |
| · | Net income up 7% from the second quarter of 2011 |
| · | Quarterly operating cash flow of $15.2 million |
July 30, 2012
CONSHOHOCKEN, PA – Quaker Chemical Corporation (NYSE:KWR) today announced net sales of $176.8 million for the second quarter of 2012, up 5% compared to second quarter 2011 net sales of $167.8 million. Net income of $10.5 million and earnings per diluted share of $0.81 for the second quarter of 2012 were up 7% and 3%, respectively, compared to $9.8 million and $0.79 earnings per diluted share for the second quarter of 2011. For the first six months of 2012, the Company reported net sales of $354.4 million, up 8% compared to net sales of $327.7 million for the first six months of 2011. Net income of $22.5 million and earnings per diluted share of $1.72 for the first six months of 2012 were up 10% and 2%, respectively, compared to net income of $20.4 million and earnings per diluted share of $1.69 for the first six months of 2011. The second quarter of 2012 includes charges of approximately $0.06 per diluted share for certain customer bankruptcies in the U.S. and $0.03 per diluted share related to CFO transition costs. The second quarter and first half of 2012 earnings per diluted share include an approximate $0.03 and $0.11 dilutive effect as a result of the Company’s equity offering in May 2011, respectively.
Michael F. Barry, Chairman, Chief Executive Officer and President, commented, “We are pleased with the second quarter results, especially in light of the bankruptcy and CFO transition charges. We are being negatively impacted by a stronger dollar and weaker demand in several geographical areas such as Europe, China, Brazil and India. However, these negatives have been offset by additional new business and our recent acquisitions as well as the continuing manufacturing recovery of North America. Looking forward to the second half, we expect the global economic environment to remain challenging, with continued weakness in most regions. However, I remain confident that 2012 will be another good year for Quaker. In addition, our strong balance sheet and cash flow generation continues to provide us the financial flexibility to invest in our strategic growth initiatives, pay dividends to our shareholders, and grow our Company further via acquisition.”
Second Quarter 2012 Summary
Net sales for the second quarter of 2012 were $176.8 million, an increase of 5% from $167.8 million in the second quarter of 2011. Product volumes, including acquisitions, were higher by 6%, selling price and mix increased revenues by 5%, while foreign exchange rates decreased revenues by 6%.
Gross profit increased by $6.9 million, or 13%, from the second quarter of 2011. The second quarter of 2012 gross margin increased to 34.3% from 32.0% for the second quarter of 2011 and 33.7% for the first quarter of 2012. The increase in gross margin reflects the Company’s ongoing initiative of restoring margins to more acceptable levels through price increases, as well as mix effects experienced in the quarter.
Selling, general and administrative expenses (“SG&A”) increased approximately $4.8 million compared to the second quarter of 2011, primarily related to acquisitions and higher selling, inflationary and other costs on increased business activity, which were partially offset by decreases due to foreign exchange rate translation. The second quarter of 2012 SG&A includes charges of approximately $0.06 per diluted share for certain customer bankruptcies in the U.S. and $0.03 per diluted share related to CFO transition costs. As a result, the second quarter of 2012 SG&A, as a percentage of sales, increased to 24.7% compared to 23.1% for the second quarter of 2011 and 24.3% for the first quarter of 2012.
Other income decreased in the second quarter of 2012 primarily due to foreign exchange losses compared to foreign exchange gains in the second quarter of 2011. Interest expense in the second quarter of 2012 was comparable to the second quarter of 2011, however, decreases in interest expense due to lower average borrowings were partially offset by increases related to the accretion of certain acquisition-related liabilities.
The second quarter of 2012 earnings per diluted share of $0.81 reflects an approximate $0.03 dilutive effect as a result of the Company’s equity offering in May of 2011.
Year-to-Date Summary
Net sales for the first half of 2012 were $354.4 million, an increase of 8% from $327.7 million in the first half of 2011. Product volumes, including acquisitions, were higher by 5%, selling price and mix increased revenues by 7%, while foreign exchange rates decreased revenues by 4%.
Gross profit increased by $13.9 million, or 13%, from the first half of 2011 with gross margin increasing to 34.0% from 32.5% for the first half of 2011, reflecting the Company’s ongoing initiative of restoring margins and mix effects noted above.
SG&A increased approximately $9.3 million compared to the first half of 2011, primarily related to acquisitions and higher selling, inflationary and other costs on increased business activity, which were partially offset by decreases due to foreign exchange rate translation. The first half of 2012 SG&A includes the bankruptcy charges and CFO transition costs, as discussed above. SG&A, as a percentage of sales, increased to 24.5% from 23.6% for the first half of 2011.
Other income decreased in the first half of 2012 primarily due to higher foreign exchange losses and lower third party license fees as compared to the first half of 2011. Interest expense was relatively flat compared to the first half of 2011, however, decreases in interest expense due to lower average borrowings were offset by increases related to the accretion of certain acquisition-related liabilities.
The Company’s low year-to-date 2012 and 2011 effective tax rates of 26.1% and 25.7%, respectively, reflect decreases in reserves for uncertain tax positions due to the expiration of applicable statutes of limitations for certain tax years of approximately $0.12 and $0.11 per diluted share, respectively. The Company has experienced and expects to further experience volatility in its effective tax rates due to the varying timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, among other factors.
Equity in net income of associated companies decreased in the first half of 2012 as compared to the first half of 2011, primarily due to the Company’s July 2011 purchase of the remaining ownership interest in its Mexican affiliate.
The first half of 2012 earnings per diluted share of $1.72 reflect an approximate $0.11 dilutive effect as a result of the Company’s equity offering in May of 2011.
Balance Sheet and Cash Flow Items
Net operating cash flow of $15.2 million was generated in the second quarter of 2012, primarily led by the Company’s second quarter net income. The Company’s consolidated leverage ratio remained strong at less than one times EBITDA.
Subsequent Events
In July 2012, the Company acquired NP Coil Dexter Industries, S.r.l., a European manufacturer and supplier of metal surface treatment products. The acquired business has annual net sales of approximately $11.0 million.
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Forward-Looking Statements
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.
Conference Call
As previously announced, Quaker Chemical’s investor conference call to discuss second quarter results is scheduled for July 31, 2012 at 8:30 a.m. (ET). A live webcast of the conference call, together with supplemental information, can be accessed through the Company’s Investor Relations Web site at http://www.quakerchem.com. You can also access the conference call by dialing 877-269-7756.
About Quaker
Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services, and technical expertise to a wide range of industries – including steel, aluminum, automotive, mining, aerospace, tube and pipe, coatings, and construction materials. Our products, technical solutions, and chemical management services enhance our customers’ processes, improve their product quality, and lower their costs. Quaker’s headquarters is located near Philadelphia in Conshohocken, Pennsylvania.
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Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data)
| (Unaudited) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net sales | $ | 176,797 | $ | 167,792 | $ | 354,435 | $ | 327,657 | ||||||||
| Cost of goods sold | 116,161 | 114,026 | 234,004 | 221,157 | ||||||||||||
| Gross profit | 60,636 | 53,766 | 120,431 | 106,500 | ||||||||||||
| % | 34.3 | % | 32.0 | % | 34.0 | % | 32.5 | % | ||||||||
| Selling, general and administrative expenses | 43,653 | 38,825 | 86,746 | 77,459 | ||||||||||||
| Operating income | 16,983 | 14,941 | 33,685 | 29,041 | ||||||||||||
| % | 9.6 | % | 8.9 | % | 9.5 | % | 8.9 | % | ||||||||
| Other (expense) income, net | (134 | ) | 791 | 207 | 1,330 | |||||||||||
| Interest expense | (1,151 | ) | (1,200 | ) | (2,325 | ) | (2,418 | ) | ||||||||
| Interest income | 137 | 271 | 260 | 543 | ||||||||||||
| Income before taxes and equity in net income of associated companies | 15,835 | 14,803 | 31,827 | 28,496 | ||||||||||||
| Taxes on income before equity in net income of associated companies | 4,874 | 4,499 | 8,319 | 7,321 | ||||||||||||
| Income before equity in net income of associated companies | 10,961 | 10,304 | 23,508 | 21,175 | ||||||||||||
| Equity in net income of associated companies | 209 | 251 | 355 | 610 | ||||||||||||
| Net income | 11,170 | 10,555 | 23,863 | 21,785 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | 630 | 714 | 1,377 | 1,344 | ||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 10,540 | $ | 9,841 | $ | 22,486 | $ | 20,441 | ||||||||
| % | 6.0 | % | 5.9 | % | 6.3 | % | 6.2 | % | ||||||||
| Per share data: | ||||||||||||||||
| Net income attributable to Quaker Chemical Corporation Common Shareholders - basic | $ | 0.81 | $ | 0.80 | $ | 1.74 | $ | 1.72 | ||||||||
| Net income attributable to Quaker Chemical Corporation Common Shareholders- diluted | $ | 0.81 | $ | 0.79 | $ | 1.72 | $ | 1.69 | ||||||||
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Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
| (Unaudited) | ||||||||
| June 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 25,252 | $ | 16,909 | ||||
| Accounts receivable, net | 156,424 | 150,676 | ||||||
| Inventories, net | 77,678 | 74,758 | ||||||
| Prepaid expenses and other current assets | 18,009 | 17,206 | ||||||
| Total current assets | 277,363 | 259,549 | ||||||
| Property, plant and equipment, net | 82,655 | 82,916 | ||||||
| Goodwill | 57,033 | 58,152 | ||||||
| Other intangible assets, net | 30,397 | 31,783 | ||||||
| Investments in associated companies | 7,891 | 7,942 | ||||||
| Deferred income taxes | 27,644 | 29,823 | ||||||
| Other assets | 36,370 | 35,356 | ||||||
| Total assets | $ | 519,353 | $ | 505,521 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities | ||||||||
| Short-term borrowings and current portion of long-term debt | $ | 563 | $ | 636 | ||||
| Accounts and other payables | 74,679 | 68,125 | ||||||
| Accrued compensation | 10,610 | 16,987 | ||||||
| Other current liabilities | 22,334 | 20,901 | ||||||
| Total current liabilities | 108,186 | 106,649 | ||||||
| Long-term debt | 45,004 | 46,701 | ||||||
| Deferred income taxes | 6,622 | 7,094 | ||||||
| Other non-current liabilities | 86,116 | 89,351 | ||||||
| Total liabilities | 245,928 | 249,795 | ||||||
| Equity | ||||||||
| Common stock, $1 par value; authorized 30,000,000 shares; issued 13,010,639 shares | 13,011 | 12,912 | ||||||
| Capital in excess of par value | 92,199 | 89,725 | ||||||
| Retained earnings | 192,116 | 175,932 | ||||||
| Accumulated other comprehensive loss | (32,091 | ) | (29,820 | ) | ||||
| Total Quaker shareholders' equity | 265,235 | 248,749 | ||||||
| Noncontrolling interest | 8,190 | 6,977 | ||||||
| Total equity | 273,425 | 255,726 | ||||||
| Total liabilities and equity | $ | 519,353 | $ | 505,521 | ||||
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Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30,
(Dollars in thousands)
| (Unaudited) | ||||||||
| 2012 | 2011 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 23,863 | $ | 21,785 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 5,969 | 5,405 | ||||||
| Amortization | 1,465 | 973 | ||||||
| Equity in undistributed earnings of associated companies, net of dividends | (171 | ) | (32 | ) | ||||
| Deferred compensation and other, net | 1,332 | 4,162 | ||||||
| Stock-based compensation | 2,078 | 1,854 | ||||||
| Gain on disposal of property, plant and equipment | (13 | ) | (78 | ) | ||||
| Insurance settlement realized | (808 | ) | (864 | ) | ||||
| Pension and other postretirement benefits | (1,951 | ) | (4,168 | ) | ||||
| (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: | ||||||||
| Accounts receivable | (7,031 | ) | (17,392 | ) | ||||
| Inventories | (3,871 | ) | (13,986 | ) | ||||
| Prepaid expenses and other current assets | (1,946 | ) | (4,029 | ) | ||||
| Accounts payable and accrued liabilities | 3,025 | 6,537 | ||||||
| Net cash provided by operating activities | 21,941 | 167 | ||||||
| Cash flows from investing activities | ||||||||
| Capital expenditures | (6,423 | ) | (6,641 | ) | ||||
| Payments related to acquisitions | - | (717 | ) | |||||
| Proceeds from disposition of assets | 84 | 221 | ||||||
| Insurance settlement received and interest earned | 35 | 42 | ||||||
| Change in restricted cash, net | 773 | 822 | ||||||
| Net cash used in investing activities | (5,531 | ) | (6,273 | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayments of long-term debt | (1,754 | ) | (40,402 | ) | ||||
| Dividends paid | (6,213 | ) | (5,413 | ) | ||||
| Stock options exercised, other | (925 | ) | 146 | |||||
| Proceeds from sale of common stock, net of related expenses | - | 48,143 | ||||||
| Excess tax benefit related to stock option exercises | 1,420 | 162 | ||||||
| Distributions to noncontrolling shareholders | (30 | ) | - | |||||
| Net cash (used in) provided by financing activities | (7,502 | ) | 2,636 | |||||
| Effect of exchange rate changes on cash | (565 | ) | 1,245 | |||||
| Net increase (decrease) in cash and cash equivalents | 8,343 | (2,225 | ) | |||||
| Cash and cash equivalents at the beginning of the period | 16,909 | 25,766 | ||||||
| Cash and cash equivalents at the end of the period | $ | 25,252 | $ | 23,541 | ||||
