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, 2015
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, 2015, Quaker Chemical Corporation announced its results of operations for the second quarter ended June 30, 2015, 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, 2015. | |
| 99.2 | Supplemental Information related to second quarter ended June 30, 2015. |
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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, 2015 | By: | /s/ Margaret m. loebl | |
|
Margaret M. Loebl Vice President, Chief Financial Officer and Treasurer |
| -3- |
Exhibit 99.1
NEWS
Contact: Margaret M. Loebl Vice President, Chief Financial Officer and Treasurer loeblm@quakerchem.com |
 |
| For Release: Immediate |
QUAKER CHEMICAL ANNOUNCES SECOND QUARTER 2015 RESULTS
| · | Solid operating results drive 4% increase in non-GAAP earnings per diluted share, despite a negative impact of 8% from foreign exchange |
| · | Market share gains and acquisitions offset difficult market conditions and foreign exchange |
| · | Strong quarterly operating cash flow generation of $19 million |
July 30, 2015
CONSHOHOCKEN, PA – Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $183.7 million for the second quarter of 2015 compared to $191.3 million for the second quarter of 2014, and earnings per diluted share of $1.13 for the second quarter of 2015 compared to $1.16 for the second quarter of 2014.
Foreign currency translation continued to have a significant impact on the Company’s reported and non-GAAP results. Specifically, net sales for the second quarter of 2015 decreased by 7% due to foreign currency translation while earnings were also negatively impacted by $0.09 per diluted share, or 8%. Despite these impacts from foreign exchange, the Company’s non-GAAP earnings per diluted share increased 4% to $1.15 for the second quarter of 2015 from $1.11 for the second quarter of 2014. Adjusted EBITDA increased 2% to $26.2 million for the second quarter of 2015 from $25.8 million in the second quarter of 2014, despite the impact from changes in foreign exchange rates on the Company’s earnings of 8%, as mentioned above.
Michael F. Barry, Chairman, Chief Executive Officer and President commented, “We are pleased to have delivered another quarter of consistent earnings and strong cash flow despite a variety of market challenges. Foreign exchange headwinds continue to have the most significant impact on our earnings while we were also challenged by global steel industry production being down by approximately 2%. In addition, we are seeing continued weak economic conditions in several regional areas, especially in South America. Our sales have also seen some impact of price adjustments due to lower raw material costs. Despite these headwinds, we have been able to increase our non-GAAP earnings through margin expansion, market share gains and our recent acquisitions.”
Mr. Barry added, “We continue to pursue our key strategic initiatives and acquisitions. Today’s acquisition of Verkol in Spain, a market leader in specialty grease and lubricants, is our eleventh acquisition in the last five years. This is a continuation of our strategy to create shareholder value by using our strong cash flow and balance sheet to grow the Company through acquisitions. Looking forward to the remainder of 2015, while we anticipate a continued strong U.S. Dollar and generally weak market conditions in most countries, we believe market share gains and acquisitions will continue to compensate for these challenges. Overall, I remain confident in Quaker’s future and expect our full year 2015 non-GAAP earnings to increase modestly over 2014, leading to our sixth consecutive year of earnings improvement.”
Quaker Chemical Corporation
One Quaker Park, 901 E. Hector Street, Conshohocken, PA 19428-2380 USA
P: 610.832.4000 F: 610.832.8682
quakerchem.com
Second Quarter of 2015 Summary
Net sales for the second quarter of 2015 were $183.7 million compared to net sales of $191.3 million for the second quarter of 2014. Increases of 4% in product volume, including additional sales from acquisitions, were more than offset by a decrease of $14.2 million, or 7%, due to the impacts of foreign currency translation.
Gross profit for the second quarter of 2015 increased $2.4 million, or 4%, from the second quarter of 2014, driven by increased product volume on higher gross margin of 38.4% for the second quarter of 2015 compared to 35.7% for the second quarter of 2014. The current quarter’s expansion in gross margin was mainly due to the timing of certain raw material cost decreases compared to the prior year quarter.
The increase in selling, general and administrative expenses (“SG&A”) for the second quarter of 2015 of $1.9 million from the second quarter of 2014 was due to the net impact of several factors. Notably, included in SG&A were incremental costs associated with the Company’s prior year acquisitions and higher labor-related costs, partially offset by decreases from foreign currency translation.
Interest expense was slightly higher in the second quarter of 2015 compared to the second quarter of 2014. The Company had higher average borrowings outstanding in the current quarter to fund the Company’s recent acquisition activity.
Interest income was $0.5 million lower in the second quarter of 2015 compared to the second quarter of 2014, primarily due to interest received on several non-income tax-related credits in the second quarter of 2014.
The Company’s effective tax rates for the second quarters of 2015 and 2014 were 27.1% and 30.6%, respectively. The primary contributor to the decrease in the current quarter’s effective tax rate was lower changes to reserves for uncertain tax positions in the second quarter of 2015.
Equity in net income of associated companies (“equity income”) decreased $1.1 million in the second quarter of 2015 compared to the second quarter of 2014 primarily due to lower equity income from the Company’s interest in a captive insurance company. The Company’s equity income for the second quarter of 2014 also includes a currency conversion charge at the Company’s Venezuelan affiliate.
The $0.1 million decrease in net income attributable to noncontrolling interest in the second quarter of 2015 compared to the second quarter of 2014 was primarily due to the Company’s June 2014 acquisition of the noncontrolling interest in its Australian affiliate.
Changes in foreign exchange rates negatively impacted the second quarter of 2015 net income by $1.2 million, or $0.09 per diluted share.
Year-to-Date 2015 Summary
Net sales for the first six months of 2015 were $365.1 million compared to net sales of $373.0 million for the first six months of 2014. Increases of 6% in product volume, including additional sales from acquisitions, were more than offset by a decrease of $26.3 million, or 7%, due to the impacts of foreign currency translation.
Gross profit for the first six months of 2015 increased $3.6 million, or 3%, compared to the first six months of 2014 driven by increased product volume on higher gross margin of 37.5% for the first six months of 2015 compared to 35.7% for the first six months of 2014. The Company’s expansion in gross margin was mainly due to the timing of certain raw material cost decreases compared to the prior year period.
The increase in SG&A for the first six months of 2015 of $4.6 million from the first six months of 2014 was due to the net impact of several factors. Notably, included in SG&A were incremental costs associated with the Company’s prior year acquisitions and higher labor-related costs, partially offset by decreases from foreign currency translation and a first quarter of 2014 cost related to an amendment to the Company’s pension plan in the United Kingdom (“U.K.”).
Other expense was $0.3 million in the first six months of 2015 compared to $0.4 million in the first six months of 2014. In both periods, the Company’s other expense was driven by foreign exchange transactional losses, net of third party license fee income, with lower net foreign exchange transactional losses in the first six months of 2015 compared to the first six months of 2014.
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Interest expense was $0.1 million higher in the first six months of 2015 compared to the first six months of 2014, primarily due to higher average borrowings outstanding in the current period.
Interest income was $0.7 million lower in the first six months of 2015 compared to the first six months of 2014 due to interest received on several non-income tax-related credits in the first six months of 2014.
The Company’s effective tax rates for the first six months of 2015 and 2014 were 28.8% and 32.5%, respectively. The primary contributors to the decrease in the current year’s effective tax rate were lower changes in reserves related to uncertain tax positions in the first six months of 2015 and certain one-time items that increased the first six months of 2014’s effective tax rate. We currently estimate the full year 2015 effective tax rate will approximate 29%.
Equity income decreased $3.6 million in the first six months of 2015 compared to the first six months of 2014. The decrease was primarily due to a current year currency conversion charge recorded at the Company’s Venezuelan affiliate. Due to changes in Venezuela’s foreign exchange markets and controls, the Company re-assessed its Venezuelan affiliate’s access to U.S. Dollars and its ability to import or trade under the existing exchange markets in the first quarter of 2015, which resulted in the current year charge. This was partially offset by a similar currency charge related to the conversion of Venezuelan Bolivar Fuerte to the U.S. Dollar recorded during the first six months of 2014. In addition, there was lower equity income from the Company’s interest in a captive insurance company during the first six months of 2015 compared to the first six months of 2014.
The $0.5 million decrease in net income attributable to noncontrolling interest in the first six months of 2015 compared to the first six months of 2014 was primarily due to the Company’s June 2014 acquisition of the noncontrolling interest in its Australian affiliate.
Changes in foreign exchange rates, excluding the currency conversion impacts of the Venezuelan Bolivar Fuerte, noted above, negatively impacted the first six months of 2015 net income by $2.2 million, or $0.17 per diluted share.
Balance Sheet and Cash Flow Items
The Company’s net operating cash flow of $19.2 million for the second quarter of 2015 increased its year-to-date net operating cash flow to $27.3 million compared to $8.3 million for the first six months of 2014. The increase of $19.0 million in net operating cash flows was driven by higher operating performance and lower cash invested in the Company’s working capital during the first six months of 2015 due to continued improvement in working capital management. Most notably, cash outflows from accounts receivables decreased significantly in the first six months of 2015, primarily due to the timing of sales around quarter end and improvements in timing of cash receipts. Also, included in the Company’s second quarter of 2015 net cash flow were repurchases of 18,854 shares of its common stock for $1.6 million, pursuant to the share repurchase program announced in May, 2015. Overall, the Company’s liquidity remains strong, as its cash position exceeded its debt at June 30, 2015, and the Company’s consolidated leverage ratio continued to be less than one times EBITDA.
Non-GAAP Measures
Included in this public release are non-GAAP (unaudited) financial measures of non-GAAP earnings per diluted share and adjusted EBITDA. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader’s understanding of the financial performance of the Company, are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not considered core to the Company’s operations. Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.
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The following are reconciliations between the non-GAAP (unaudited) financial measures of non-GAAP earnings per diluted share and adjusted EBITDA to their most directly comparable GAAP (unaudited) financial measures:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders | $ | 1.13 | $ | 1.16 | $ | 1.90 | $ | 2.13 | ||||||||
| Equity loss (income) in a captive insurance company per diluted share | 0.01 | (0.09 | ) | (0.05 | ) | (0.15 | ) | |||||||||
| U.K. pension plan amendment per diluted share | — | — | — | 0.05 | ||||||||||||
| U.S. customer bankruptcy per diluted share | 0.01 | — | 0.01 | — | ||||||||||||
| Cost streamlining initiatives per diluted share | — | 0.02 | 0.01 | 0.02 | ||||||||||||
| Currency conversion impact of the Venezuelan Bolivar Fuerte per diluted share | — | 0.02 | 0.21 | 0.02 | ||||||||||||
| Non-GAAP earnings per diluted share | $ | 1.15 | $ | 1.11 | $ | 2.08 | $ | 2.07 | ||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 15,038 | $ | 15,427 | $ | 25,416 | $ | 28,157 | ||||||||
| Depreciation and amortization | 4,666 | 3,824 | 9,364 | 7,712 | ||||||||||||
| Interest expense | 607 | 581 | 1,194 | 1,106 | ||||||||||||
| Taxes on income before equity in net income of associated companies | 5,724 | 6,538 | 11,083 | 13,084 | ||||||||||||
| Equity loss (income) in a captive insurance company | 100 | (1,225 | ) | (695 | ) | (2,071 | ) | |||||||||
| U.K. pension plan amendment | — | — | — | 902 | ||||||||||||
| U.S. customer bankruptcy | 111 | — | 111 | — | ||||||||||||
| Cost streamlining initiatives | — | 348 | 173 | 348 | ||||||||||||
| Currency conversion impact of the Venezuelan Bolivar Fuerte | — | 321 | 2,806 | 321 | ||||||||||||
| Adjusted EBITDA | $ | 26,246 | $ | 25,814 | $ | 49,452 | $ | 49,559 | ||||||||
Forward-Looking Statements
This release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements 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, future terrorist attacks and other acts of violence. 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.
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Conference Call
As previously announced, Quaker Chemical’s investor conference call to discuss the second quarter of 2015 results is scheduled for July 31, 2015 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 website at http://www.quakerchem.com. You can also access the conference call by dialing 877-269-7756.
About Quaker
Quaker Chemical is a leading global provider of process fluids, chemical specialties, and technical expertise to a wide range of industries, including steel, aluminum, automotive, mining, aerospace, tube and pipe, cans, and others. For nearly 100 years, Quaker has helped customers around the world achieve production efficiency, improve product quality, and lower costs through a combination of innovative technology, process knowledge, and customized services. Headquartered in Conshohocken, Pennsylvania USA, Quaker serves businesses worldwide with a network of dedicated and experienced professionals whose mission is to make a difference.
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Quaker Chemical Corporation
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
| (Unaudited) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Net sales | $ | 183,726 | $ | 191,286 | $ | 365,056 | $ | 372,960 | ||||||||
| Cost of goods sold | 113,109 | 123,070 | 228,111 | 239,630 | ||||||||||||
| Gross profit | 70,617 | 68,216 | 136,945 | 133,330 | ||||||||||||
| % | 38.4 | % | 35.7 | % | 37.5 | % | 35.7 | % | ||||||||
| Selling, general and administrative expenses | 49,172 | 47,271 | 97,636 | 93,012 | ||||||||||||
| Operating income | 21,445 | 20,945 | 39,309 | 40,318 | ||||||||||||
| % | 11.7 | % | 10.9 | % | 10.8 | % | 10.8 | % | ||||||||
| Other (expense) income, net | (88 | ) | 117 | (282 | ) | (356 | ) | |||||||||
| Interest expense | (607 | ) | (581 | ) | (1,194 | ) | (1,106 | ) | ||||||||
| Interest income | 375 | 895 | 695 | 1,348 | ||||||||||||
| Income before taxes and equity in net income of associated companies | 21,125 | 21,376 | 38,528 | 40,204 | ||||||||||||
| Taxes on income before equity in net income of associated companies | 5,724 | 6,538 | 11,083 | 13,084 | ||||||||||||
| Income before equity in net income of associated companies | 15,401 | 14,838 | 27,445 | 27,120 | ||||||||||||
| Equity in net income (loss) of associated companies | 11 | 1,104 | (1,426 | ) | 2,131 | |||||||||||
| Net income | 15,412 | 15,942 | 26,019 | 29,251 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | 374 | 515 | 603 | 1,094 | ||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 15,038 | $ | 15,427 | $ | 25,416 | $ | 28,157 | ||||||||
| % | 8.2 | % | 8.1 | % | 7.0 | % | 7.5 | % | ||||||||
| Per share data: | ||||||||||||||||
| Net income attributable to Quaker Chemical Corporation Common Shareholders - basic | $ | 1.13 | $ | 1.17 | $ | 1.91 | $ | 2.13 | ||||||||
| Net income attributable to Quaker Chemical Corporation Common Shareholders - diluted | $ | 1.13 | $ | 1.16 | $ | 1.90 | $ | 2.13 | ||||||||
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Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value and share amounts)
| (Unaudited) | ||||||||
| June 30, | December 31, | |||||||
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 65,784 | $ | 64,731 | ||||
| Accounts receivable, net | 187,415 | 189,484 | ||||||
| Inventories, net | 77,041 | 77,708 | ||||||
| Prepaid expenses and other current assets | 20,614 | 19,595 | ||||||
| Total current assets | 350,854 | 351,518 | ||||||
| Property, plant and equipment, net | 81,370 | 85,763 | ||||||
| Goodwill | 76,017 | 77,933 | ||||||
| Other intangible assets, net | 66,034 | 70,408 | ||||||
| Investments in associated companies | 20,078 | 21,751 | ||||||
| Deferred income taxes | 20,740 | 24,411 | ||||||
| Other assets | 32,971 | 33,742 | ||||||
| Total assets | $ | 648,064 | $ | 665,526 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities | ||||||||
| Short-term borrowings and current portion of long-term debt | $ | 397 | $ | 403 | ||||
| Accounts and other payables | 74,762 | 78,977 | ||||||
| Accrued compensation | 13,784 | 19,853 | ||||||
| Other current liabilities | 24,997 | 25,668 | ||||||
| Total current liabilities | 113,940 | 124,901 | ||||||
| Long-term debt | 61,694 | 75,328 | ||||||
| Deferred income taxes | 7,454 | 8,584 | ||||||
| Other non-current liabilities | 86,450 | 91,578 | ||||||
| Total liabilities | 269,538 | 300,391 | ||||||
| Equity | ||||||||
| Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2015 - 13,336,918 shares; 2014 - 13,300,891 shares | 13,337 | 13,301 | ||||||
| Capital in excess of par value | 103,082 | 99,056 | ||||||
| Retained earnings | 315,060 | 299,524 | ||||||
| Accumulated other comprehensive loss | (60,771 | ) | (54,406 | ) | ||||
| Total Quaker shareholders' equity | 370,708 | 357,475 | ||||||
| Noncontrolling interest | 7,818 | 7,660 | ||||||
| Total equity | 378,526 | 365,135 | ||||||
| Total liabilities and equity | $ | 648,064 | $ | 665,526 | ||||
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Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
| (Unaudited) | ||||||||
| Six Months Ended June 30, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 26,019 | $ | 29,251 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 6,117 | 6,084 | ||||||
| Amortization | 3,247 | 1,628 | ||||||
| Equity in undistributed earnings of associated companies, net of dividends | 1,487 | (1,931 | ) | |||||
| Deferred compensation and other, net | 1,325 | 3,340 | ||||||
| Stock-based compensation | 3,169 | 2,732 | ||||||
| Gain on disposal of property, plant and equipment and other assets | (69 | ) | (97 | ) | ||||
| Insurance settlements realized | (301 | ) | (980 | ) | ||||
| Pension and other postretirement benefits | 1,019 | (926 | ) | |||||
| (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: | ||||||||
| Accounts receivable | (2,344 | ) | (20,563 | ) | ||||
| Inventories | (1,993 | ) | (7,568 | ) | ||||
| Prepaid expenses and other current assets | (4,057 | ) | 1,157 | |||||
| Accounts payable and accrued liabilities | (6,301 | ) | (3,873 | ) | ||||
| Net cash provided by operating activities | 27,318 | 8,254 | ||||||
| Cash flows from investing activities | ||||||||
| Investments in property, plant and equipment | (4,277 | ) | (5,521 | ) | ||||
| Payments related to acquisitions, net of cash acquired | 528 | - | ||||||
| Proceeds from disposition of assets | 102 | 128 | ||||||
| Insurance settlement interest earned | 20 | 23 | ||||||
| Change in restricted cash, net | 281 | 957 | ||||||
| Net cash used in investing activities | (3,346 | ) | (4,413 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from long-term debt | - | 7,500 | ||||||
| Repayment of long-term debt | (12,699 | ) | (248 | ) | ||||
| Dividends paid | (7,991 | ) | (6,607 | ) | ||||
| Stock options exercised, other | 534 | (33 | ) | |||||
| Payments for repurchase of common stock | (1,630 | ) | - | |||||
| Excess tax benefit related to stock option exercises | 378 | 267 | ||||||
| Purchase of a noncontrolling interest in an affiliate | - | (7,532 | ) | |||||
| Payment of acquisition-related earnout liability | - | (4,709 | ) | |||||
| Distributions to noncontrolling affiliate shareholders | - | (657 | ) | |||||
| Net cash used in financing activities | (21,408 | ) | (12,019 | ) | ||||
| Effect of exchange rate changes on cash | (1,511 | ) | (82 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 1,053 | (8,260 | ) | |||||
| Cash and cash equivalents at the beginning of the period | 64,731 | 68,492 | ||||||
| Cash and cash equivalents at the end of the period | $ | 65,784 | $ | 60,232 | ||||
Exhibit 99.2
1 Second Quarter 2015 Results Investor Conference Call July 31, 2015 Quaker Chemical Corporation
Regulation G The attached charts include Company information that does not conform to generally accepted accounting principles ( “GAAP”). Management believes that an analysis of this data is meaningful to investors because it provides insight with respect to ongoing operating results of the Company and allows investors to better evaluate the financial results of the Company. These measures should not be viewed as an alternative to GAAP measures of performance. Furthermore, these measures may not be consis tent with similar measures provided by other companies. This data should b e read in conjunction with the C ompany’s second quarter earnings news release dated July 30, 2015, which has been furnished to the SEC on Form 8-K and the Company’s Form 10-Q for the quarterly period ended June 30, 2015, which has been filed with the SEC. Forward-Looking Statements This presentation may contain 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, future terrorist attacks and other acts of violence. 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. Risks and Uncertainties Statement
Speakers Michael F. Barry Chairman of the Board, Chief Executive Officer & President Margaret M. Loebl Vice President, Chief Financial Officer & Treasurer Robert T. Traub Vice President, General Counsel & Corporate Secretary Chart #1
Second Quarter 2015 Headlines ▪ Solid operating results drive 4% increase in non - GAAP earnings per diluted share, despite a negative impact of 8% from foreign exchange ▪ Market share gains and acquisitions offset difficult market conditions and foreign exchange ▪ Strong quarterly operating cash flow generation of $19 million Chart #2
Chairman Comments Second Quarter 2015 ▪ Second Quarter 2015 x Foreign exchange headwinds continue to have the most significant impact on earnings x Market share gains, margin expansion, and acquisitions offset difficult market conditions and foreign exchange impact x Consistent earnings despite challenges from a global steel decline of 2% and price adjustments on lower raw material costs x Strong operating cash flow and balance sheet enable key strategic initiatives and acquisitions, including today’s acquisition of Verkol S.A. ▪ 2015 Outlook x Continued foreign exchange impacts expected from strong U.S. Dollar x Global market challenges on weak economic conditions x Anticipate market share gains and acquisition leverage will continue to compensate various market challenges “Overall, we remain confident in our future and expect our full year 2015 non - GAAP earnings to increase modestly over 2014, leading to our sixth consecutive year of earnings improvement.” -- Michael F. Barry, Chairman, CEO & President Chart #3
1) Solid operating results drive quarterly non - GAAP earnings per diluted share of $1.15, up 4% from $1.11 in prior year quarter – Negative impact of $0.09 per diluted share, or 8%, due to foreign exchange 2) Quarterly sales up 4% on volumes, including recent acquisitions, offset by 7% decline from foreign currency translation 3) Increased gross margin in the current quarter driven by timing of certain raw material cost decreases 4) Lower year - over - year effective tax rate 5) Strong quarterly operating cash flow generation of $19.2 million 6) Continued strength in balance sheet for future acquisitions Chief Financial Officer – Highlights Second Quarter 2015 Chart #4
Product Volume by Quarter Thousand Kilograms 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 4Q08 YTD Avg. 1Q092Q093Q094Q091Q102Q103Q104Q101Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q131Q142Q143Q144Q141Q152Q15 Chart #5
Financial Snapshot Q2 2015 Q2 2014 YTD 2015 YTD 2014 Net Sales ($Mils.) 183.7 191.3 365.1 373.0 Gross Margin (%) 38.4 35.7 37.5 35.7 Operating Margin (%) 11.7 10.9 10.8 10.8 Net Income attributable to Quaker Chemical Corporation ($Mils.) 15.0 15.4 25.4 28.2 Adjusted EBITDA ($Mils.) – Trailing Twelve Months 99.7 93.4 -- -- Adjusted EBITDA Margin (%) 13.2 12.6 -- -- Earnings Per Diluted Share 1.13 1.16 1.90 2.13 Non - GAAP Earnings Per Diluted Share 1.15 1.11 2.08 2.07 Debt ($Mils.) 62.1 26.0 -- -- Equity ($Mils.) 378.5 364.7 -- -- Net Operating Cash Flow ($Mils.) 19.2 10.1 27.3 8.3 Chart #6
Gross Margin Percentage 28.0% 34.7% 35.4% 32.6% 33.7% 35.8% 35.7% 37.5% 20.0% 25.0% 30.0% 35.0% 40.0% 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Gross Margin Percentage 35.7% 35.4% 35.9% 36.6% 38.4% 20.0% 25.0% 30.0% 35.0% 40.0% Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Gross Margin Percentage Chart #7
Adjusted EBITDA Baseline Historical Performance $40.1 $66.8 $73.0 $80.9 $89.6 $99.8 $99.7 $44.2 9.8% 12.3% 10.7% 11.4% 12.3% 13.0% 13.2% 6.9% 2008 2009 2010 2011 2012 2013 2014 Trailing Twelve Months Q2 2015 Adjusted EBITDA ($ Mils.) Adjusted EBITDA Margin (%) 2008 – 2015 CAGR: 13.9% +630 Margin bps Chart #8
Balance Sheet Net Cash / (Debt) -$100 -$80 -$60 -$40 -$20 $0 $20 $40 $60 $80 2008 2009 2010 2011 2012 2013 2014 Q2 2015 $ Millions Cash ST/LT Debt Net Debt Chart #9
APPENDIX
Non - GAAP Earnings Per Diluted Share Reconciliation Chart #10 Q2 2015 Q2 2014 YTD 2015 YTD 2014 GAAP earnings per diluted share 1.13$ 1.16$ 1.90$ 2.13$ Equity loss (income) in a captive insurance company per diluted share 0.01$ (0.09)$ (0.05)$ (0.15)$ U.K. pension plan amendment per diluted share -$ -$ -$ 0.05$ U.S. customer bankruptcy per diluted share 0.01$ -$ 0.01$ -$ Cost streamlining initiatives per diluted share -$ 0.02$ 0.01$ 0.02$ Currency conversion impact of the Venezuelan Bolivar Fuerte per diluted share -$ 0.02$ 0.21$ 0.02$ Non-GAAP earnings per diluted share 1.15$ 1.11$ 2.08$ 2.07$
Adjusted EBITDA Reconciliation 2008 2009 2010 2011 2012 2013 2014 Net income 9,833 16,058 32,120 45,892 47,405 56,339 56,492 Depreciation 10,879 9,525 9,867 11,455 12,252 12,339 12,306 Amortization 1,177 1,078 988 2,338 3,106 3,445 4,325 Interest expense 5,509 5,533 5,225 4,666 4,283 2,922 2,371 Taxes on income 4,977 7,065 12,616 14,256 15,575 20,489 23,539 Restructuring and related activities 2,916 2,289 - - - - - Non-income tax contingency charge - - 4,132 - - 796 - Equity affiliate out of period charge - - 564 - - - - Mineral oil excise tax refund - - - - - (2,540) - Transition costs related to key employees 3,505 2,443 1,317 - 609 - - Non-cash gain from the purchase of an equity affiliate - - - (2,718) - - - Change in acquisition-related earnout liability - - - (595) (1,737) (497) - Equity loss (income) from a captive insurance company 1,299 162 (313) (2,323) (1,812) (5,451) (2,412) Currency conversion impacts of the Venezuelan Bolivar - - 322 - - 357 321 Customer Bankruptcies - - - - 1,254 - 825 Cost streamlining initiatives - - - - - 1,419 1,166 U.K. pension plan amendment - - - - - - 902 Adjusted EBITDA 40,095 44,153 66,838 72,971 80,935 89,618 99,835 Adjusted EBITDA Margin 6.9% 9.8% 12.3% 10.7% 11.4% 12.3% 13.0% Chart #11
Trailing Twelve Months Adjusted EBITDA Reconciliation I = G + H H G = F - D F E = C + D D C = B - A B A Trailing Twelve Months Q2 2015 YTD Q2 2015 Last Six Months 2014 YTD 2014 Trailing Twelve Months Q2 2014 YTD Q2 2014 Last Six Months 2013 YTD 2013 YTD Q2 2013 Net income 53,751 25,416 28,335 56,492 54,794 28,157 26,637 56,339 29,702 Depreciation 12,339 6,117 6,222 12,306 12,298 6,084 6,214 12,339 6,125 Amortization 5,944 3,247 2,697 4,325 3,310 1,628 1,682 3,445 1,763 Interest expense 2,459 1,194 1,265 2,371 2,522 1,106 1,416 2,922 1,506 Taxes on income 21,538 11,083 10,455 23,539 22,612 13,084 9,528 20,489 10,961 Non-income tax contingency - - - - 796 - 796 796 - Mineral oil excise tax refund - - - - - - - (2,540) (2,540) Change in acquisition-related earnout liability - - - - (1,172) - (1,172) (497) 675 Equity income from a captive insurance company (1,036) (695) (341) (2,412) (4,391) (2,071) (2,320) (5,451) (3,131) Currency conversion impacts of the Venezuelan Bolivar 2,806 2,806 - 321 321 321 - 357 357 Customer bankruptcies 936 111 825 825 - - - - - Cost streamlining initiatives 991 173 818 1,166 1,365 348 1,017 1,419 402 U.K. pension plan amendment - - - 902 902 902 - - - Adjusted EBITDA 99,728 49,452 50,276 99,835 93,357 49,559 43,798 89,618 45,820 Adjusted EBITDA Margin 13.2% 13.5% 12.8% 13.0% 12.6% 13.3% 11.9% 12.3% 12.7% Chart #12