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
October 26, 2016
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 | (I.R.S. Employer | |
| incorporation or organization) | 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 October 26, 2016, Quaker Chemical Corporation announced its results of operations for the third quarter ended September 30, 2016 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 October 26, 2016. | |
| 99.2 | Supplemental Information related to third quarter ended September 30, 2016. |
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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: October 26, 2016 | By: | /s/ Mary Dean Hall |
| Mary Dean Hall | ||
| Vice President, Chief Financial Officer and Treasurer |
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Exhibit 99.1
|
NEWS Contact: Mary Dean Hall Vice President, Chief Financial Officer and Treasurer Hallm@quakerchem.com T. 610.832.4160
For Release: Immediate |
 |
QUAKER CHEMICAL ANNOUNCES THIRD QUARTER 2016 RESULTS
| · | Strong operating income of $21.3 million drives 6% increase in adjusted EBITDA |
| · | Volume growth drives an increase in net sales despite FX headwinds |
| · | Year-to-date operating cash flow of $53.0 million increases 4% from the prior year |
October 26, 2016
CONSHOHOCKEN, PA – Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $190.4 million in the third quarter of 2016, a 1% increase compared to $189.2 million in the third quarter of 2015, as a 2% growth from organic volume and a 2% increase from acquisitions outpaced a 2% negative impact from foreign currency translation and an approximate 1% decline in selling price and product mix. While gross margins declined somewhat quarter-over-quarter, the Company was able to grow its operating income by 14% to $21.3 million in the third quarter of 2016 compared to $18.7 million in the third quarter of 2015. The Company achieved this operating income growth due to continued discipline in managing labor-related costs in its selling, general and administrative expenses (“SG&A”) and lower impacts from certain uncommon transaction-related expenses quarter-over-quarter. Excluding these transaction-related costs, the Company’s operating income drove a 6% increase in its adjusted EBITDA to $28.3 million in the third quarter of 2016 compared to $26.8 million in the prior year quarter.
The Company’s earnings per diluted share increased 12% to $1.21 for the current quarter compared to $1.08 in the third quarter of 2015, with non-GAAP earnings per diluted share increasing 5% to $1.25 in the current quarter compared to $1.19 in the third quarter of 2015. This growth in both reported and non-GAAP earnings per diluted share was achieved despite a negative impact from foreign exchange of approximately 3%, or $0.04 per diluted share, and a higher effective tax rate of 28.3% compared to 24.4% in the prior year quarter. The increase in the Company’s effective tax rate is due to the timing of the recertification of a concessionary tax rate in one of its subsidiaries, which was available to the Company throughout 2015 and which is expected to be received in the fourth quarter of 2016, resulting in a full year cumulative adjustment. The Company’s strong operating earnings drove net operating cash flow of $17.0 million in the third quarter of 2016 and $53.0 million year-to-date, a 4% increase compared to $50.8 million in the first nine months of 2015.
Michael F. Barry, Chairman, Chief Executive Officer and President commented, “We are pleased with our third quarter results, despite a challenging environment and continued foreign exchange headwinds. We were able to grow our revenue both organically by 2% and from acquisitions by 2%. While our gross margins declined somewhat as raw material prices increased, we were more than able to offset the decline with savings realized from our previously announced restructuring and other cost streamlining initiatives which enabled our adjusted EBITDA margin to increase to nearly 15%. This performance was achieved despite foreign exchange headwinds, which negatively impacted our top and bottom lines by 2% and 3%, respectively. For the fourth quarter, we expect our gross margin to remain at a similar level as the third quarter and we believe our ability to take market share and leverage past acquisitions, as well as our cost saving efforts, will continue to help offset market and foreign exchange challenges. In summary, our fourth quarter and full year 2016 forecast continues to indicate growth in both the top and bottom lines and we still expect to increase non-GAAP earnings and adjusted EBITDA for the seventh consecutive year.”
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
Third Quarter of 2016 Summary
Net sales in the third quarter of 2016 were $190.4 million compared to $189.2 million in the third quarter of 2015. The $1.2 million, or 1%, increase in net sales was primarily due to a 2% increase in organic volumes and a 2% increase from acquisitions, partially offset by the negative impact of foreign currency translation of $3.7 million, or 2% and an approximate 1% decline in selling price and product mix quarter-over-quarter.
Gross profit in the third quarter of 2016 decreased approximately $0.6 million, or 1%, from the third quarter of 2015, primarily due to slightly lower gross margin of 37.2% in the third quarter of 2016 compared to 37.7% in the prior year quarter on changes in raw material costs and product mix, partially offset by the increase in sales volumes, noted above.
SG&A decreased $3.2 million during the third quarter of 2016, primarily due to the impact of cost savings efforts, including the 2015 global restructuring program, and a decrease in transaction-related expenses. During the third quarters of 2016 and 2015, the Company incurred $1.2 million and $2.8 million, respectively, for certain uncommon transaction-related costs in connection with the execution of, and diligence on, acquisition candidates. In addition, overall labor–related costs were relatively flat quarter-over-quarter as annual compensation increases and incremental costs associated with the Company’s July 2015 Verkol acquisition were offset by certain cost savings efforts, noted above. Related to the restructuring program, the Company did not incur any additional restructuring expenses in the third quarter of 2016 and continues to execute the program as planned. The Company continues to project pre-tax cost savings as a result of this program to approximate $3 million for 2016, realized mainly over the second half of the year, and $6 million annually in subsequent years. In addition, the Company still expects to substantially complete this program during 2016.
Operating income in the third quarter of 2016 was $21.3 million, which increased 14% compared to $18.7 million in the third quarter of 2015. The increase in operating income was primarily due to the increase in sales volumes and the decrease in SG&A quarter-over-quarter, partially offset by the decline in gross margin, noted above.
Other income was $0.5 million in the third quarter of 2016 compared to $0.2 million in the third quarter of 2015. The increase in other income was primarily driven by foreign currency transaction gains realized in the third quarter of 2016 compared to foreign currency transaction losses in the third quarter of 2015.
Interest expense was relatively consistent on comparable average borrowings outstanding in the third quarter of 2016 compared to the third quarter of 2015. Interest income was $0.1 million higher in the third quarter of 2016 compared to the third quarter of 2015, primarily due to an increase in the level of the Company’s invested cash.
The Company’s effective tax rates for the third quarters of 2016 and 2015 were 28.3% and 24.4%, respectively. The increase in the third quarter of 2016 effective tax rate was primarily due to the Company recording earnings in one of its subsidiaries at a statutory tax rate of 25% while it awaits the recertification of a concessionary 15% tax rate, which was available to the Company during the third quarter of 2015. The Company still expects to receive this recertification and to record the full year cumulative benefit of the reduced rate in the fourth quarter of 2016.
Equity in net income of associated companies (“equity income”) increased $0.1 million in the third quarter of 2016 compared to the third quarter of 2015, primarily due to higher earnings from the Company’s interest in a captive insurance company in the third quarter of 2016 compared to the prior year quarter.
Net income attributable to noncontrolling interest decreased $0.1 million in the third quarter of 2016 compared to the prior year quarter, primarily due to lower earnings attributable to the Company’s India affiliate.
Changes in foreign exchange rates negatively impacted the Company’s third quarter of 2016 net income by approximately 3%, or $0.04 per diluted share.
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Year-to-Date 2016 Summary
Net sales in the first nine months of 2016 were $555.4 million compared to $554.3 million in the first nine months of 2015. The slight increase in net sales was primarily the result of a 5% increase in volumes, including acquisitions, largely offset by the negative impact of foreign currency translation of $17.0 million, or 3%, and declines in selling price and product mix of 1%.
Gross profit in the first nine months of 2016 increased $1.6 million, or 1%, from the first nine months of 2015, primarily driven by the increase in sales volumes, noted above, on relatively consistent gross margins of 37.8% in the first nine months of 2016 compared to 37.6% in the first nine months of 2015.
SG&A decreased $3.0 million during the first nine months of 2016, primarily due to a decrease from foreign currency translation, lower uncommon transaction-related expenses and the cost savings efforts, noted above, which more than offset higher overall labor-related costs, including incremental costs associated with the Company’s acquisition of Verkol.
Operating income in the first nine months of 2016 was $62.7 million, which increased 8% compared to $58.0 million in the first nine months of 2015. The increase in operating income during the first nine months of 2016 was primarily driven by higher sales volumes on consistent gross margin levels and the decrease in SG&A year-over-year, noted above.
Other income was $1.5 million in the first nine months of 2016 compared to other expense of $0.1 million in the first nine months of 2015. The increase in other income was primarily driven by foreign currency transaction gains realized in the first nine months of 2016 compared to foreign currency transaction losses in the first nine months of 2015.
Interest expense was $0.3 million higher in the first nine months of 2016 compared to the first nine months of 2015, primarily due to increased average borrowings outstanding during the first nine months of 2016 as a result of the Verkol acquisition. Interest income was $0.3 million higher in the first nine months of 2016 compared to the first nine months of 2015, primarily due to an increase in the level of the Company’s invested cash and increased interest received on certain tax-related credits during the first nine months of 2016.
The Company’s effective tax rates for the first nine months of 2016 and 2015 were 31.0% and 27.3%, respectively. The increase in the first nine months of 2016 effective tax rate was primarily due to the Company recording earnings in one of its subsidiaries at a statutory tax rate of 25% while it awaits the recertification of a concessionary 15% tax rate, which was available to the Company during the first nine months of 2015. However, the Company still expects to receive its recertification during the fourth quarter of 2016, as noted above, and estimates its full year 2016 effective tax rate will decrease to approximately 28% to 30%.
Equity income increased $2.1 million in the first nine months of 2016 compared to the first nine months of 2015. The increase in equity income was primarily due to a smaller currency conversion charge recorded at the Company’s Venezuela affiliate during the first nine months of 2016 compared to the first nine months of 2015, related to changes in Venezuela’s foreign exchange markets and currency controls in both periods. In addition, equity income includes earnings from the Company’s interest in a captive insurance company, which was lower in the first nine months of 2016 compared to the first nine months of 2015.
The Company had a $0.1 million increase in net income attributable to noncontrolling interest in the first nine months of 2016 compared to the first nine months of 2015, primarily due to stronger performance at its India affiliate.
Changes in foreign exchange rates, excluding the currency conversion impacts of the Venezuelan bolivar fuerte, noted above, negatively impacted the Company’s first nine months of 2016 net income by approximately 3%, or $0.11 per diluted share.
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Balance Sheet and Cash Flow Items
The Company’s net operating cash flow of $17.0 million in the third quarter of 2016 increased its year-to-date net operating cash flow to $53.0 million, a 4% increase compared to $50.8 million in the first nine months of 2015. The increase was driven by the Company’s solid operating performance and lower cash invested in its working capital. In addition, the Company paid approximately $4.6 million in cash dividends during the third quarter of 2016, increasing its total dividends paid to $13.1 million in the first nine months of 2016. The Company also repurchased approximately 84,000 shares of its common stock for $5.9 million in the first nine months of 2016. Overall, the Company’s liquidity and balance sheet remain strong, as its cash position exceeded its debt at September 30, 2016 and the Company’s consolidated leverage ratio continued to be less than one times EBITDA.
Non-GAAP Measures
Included in this public release are two non-GAAP (unaudited) financial measures: 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. The following tables reconcile non-GAAP earnings per diluted share (unaudited) and adjusted EBITDA (unaudited) to their most directly comparable GAAP (unaudited) financial measures:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders | $ | 1.21 | $ | 1.08 | $ | 3.32 | $ | 2.98 | ||||||||
| Equity income in a captive insurance company per diluted share | (0.04 | ) | (0.04 | ) | (0.07 | ) | (0.09 | ) | ||||||||
| Certain uncommon transaction-related expenses per diluted share | 0.08 | 0.15 | 0.08 | 0.15 | ||||||||||||
| U.S. customer bankruptcies per diluted share | — | 0.00 | — | 0.01 | ||||||||||||
| Cost streamlining initiatives per diluted share | — | — | — | 0.01 | ||||||||||||
| Currency conversion impact of the Venezuelan bolivar fuerte per diluted share | — | — | 0.01 | 0.21 | ||||||||||||
| Non-GAAP earnings per diluted share | $ | 1.25 | $ | 1.19 | $ | 3.34 | $ | 3.27 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 16,008 | $ | 14,371 | $ | 43,969 | $ | 39,787 | ||||||||
| Depreciation and amortization | 4,868 | 4,863 | 14,788 | 14,227 | ||||||||||||
| Interest expense | 758 | 697 | 2,226 | 1,891 | ||||||||||||
| Taxes on income before equity in net income of associated companies | 6,121 | 4,541 | 19,664 | 15,624 | ||||||||||||
| Equity income in a captive insurance company | (597 | ) | (526 | ) | (952 | ) | (1,221 | ) | ||||||||
| Certain uncommon transaction-related expenses | 1,157 | 2,813 | 1,157 | 2,813 | ||||||||||||
| U.S. customer bankruptcies | — | 68 | — | 179 | ||||||||||||
| Cost streamlining initiatives | — | — | — | 173 | ||||||||||||
| Currency conversion impact of the Venezuelan bolivar fuerte | — | — | 88 | 2,806 | ||||||||||||
| Adjusted EBITDA | $ | 28,315 | $ | 26,827 | $ | 80,940 | $ | 76,279 | ||||||||
| Adjusted EBITDA margin (%) | 14.9 | % | 14.2 | % | 14.6 | % | 13.8 | % | ||||||||
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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 demand for the Company’s products and services is largely derived from the demand for its customers’ products, which subjects the Company to uncertainties related 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, significant changes in applicable tax rates and regulations, 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.
Conference Call
As previously announced, Quaker Chemical’s investor conference call to discuss the third quarter of 2016 results is scheduled for October 27, 2016 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 share and per share data)
| (Unaudited) | ||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net sales | $ | 190,428 | $ | 189,224 | $ | 555,420 | $ | 554,280 | ||||||||
| Cost of goods sold | 119,649 | 117,895 | 345,531 | 346,006 | ||||||||||||
| Gross profit | 70,779 | 71,329 | 209,889 | 208,274 | ||||||||||||
| % | 37.2 | % | 37.7 | % | 37.8 | % | 37.6 | % | ||||||||
| Selling, general and administrative expenses | 49,440 | 52,601 | 147,223 | 150,237 | ||||||||||||
| Operating income | 21,339 | 18,728 | 62,666 | 58,037 | ||||||||||||
| % | 11.2 | % | 9.9 | % | 11.3 | % | 10.5 | % | ||||||||
| Other income (expense), net | 514 | 185 | 1,491 | (97 | ) | |||||||||||
| Interest expense | (758 | ) | (697 | ) | (2,226 | ) | (1,891 | ) | ||||||||
| Interest income | 551 | 422 | 1,444 | 1,117 | ||||||||||||
| Income before taxes and equity in net income of associated companies | 21,646 | 18,638 | 63,375 | 57,166 | ||||||||||||
| Taxes on income before equity in net income of associated companies | 6,121 | 4,541 | 19,664 | 15,624 | ||||||||||||
| Income before equity in net income of associated companies | 15,525 | 14,097 | 43,711 | 41,542 | ||||||||||||
| Equity in net income (loss) of associated companies | 826 | 738 | 1,389 | (688 | ) | |||||||||||
| Net income | 16,351 | 14,835 | 45,100 | 40,854 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | 343 | 464 | 1,131 | 1,067 | ||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 16,008 | $ | 14,371 | $ | 43,969 | $ | 39,787 | ||||||||
| % | 8.4 | % | 7.6 | % | 7.9 | % | 7.2 | % | ||||||||
| Share and per share data: | ||||||||||||||||
| Basic weighted average common shares outstanding | 13,143,884 | 13,209,119 | 13,128,996 | 13,206,122 | ||||||||||||
| Diluted weighted average common shares outstanding | 13,173,844 | 13,222,452 | 13,147,825 | 13,222,303 | ||||||||||||
| Net income attributable to Quaker Chemical Corporation Common Shareholders - basic | $ | 1.21 | $ | 1.08 | $ | 3.32 | $ | 2.99 | ||||||||
| Net income attributable to Quaker Chemical Corporation Common Shareholders - diluted | $ | 1.21 | $ | 1.08 | $ | 3.32 | $ | 2.98 | ||||||||
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Quaker Chemical Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value and share amounts)
| (Unaudited) | ||||||||
| September 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 99,024 | $ | 81,053 | ||||
| Accounts receivable, net | 193,805 | 188,297 | ||||||
| Inventories, net | 79,660 | 75,099 | ||||||
| Prepaid expenses and other current assets | 21,624 | 21,404 | ||||||
| Total current assets | 394,113 | 365,853 | ||||||
| Property, plant and equipment, net | 83,865 | 87,619 | ||||||
| Goodwill | 79,324 | 79,111 | ||||||
| Other intangible assets, net | 69,789 | 73,287 | ||||||
| Investments in associated companies | 23,448 | 20,354 | ||||||
| Non-current deferred tax assets | 17,621 | 23,468 | ||||||
| Other assets | 29,311 | 32,218 | ||||||
| Total assets | $ | 697,471 | $ | 681,910 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities | ||||||||
| Short-term borrowings and current portion of long-term debt | $ | 730 | $ | 662 | ||||
| Accounts and other payables | 78,579 | 71,543 | ||||||
| Accrued compensation | 17,687 | 19,166 | ||||||
| Accrued restructuring | 2,233 | 6,303 | ||||||
| Other current liabilities | 25,532 | 26,881 | ||||||
| Total current liabilities | 124,761 | 124,555 | ||||||
| Long-term debt | 75,607 | 81,439 | ||||||
| Non-current deferred tax liabilities | 11,776 | 11,400 | ||||||
| Other non-current liabilities | 71,629 | 83,273 | ||||||
| Total liabilities | 283,773 | 300,667 | ||||||
| Equity | ||||||||
| Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2016 - 13,257,066 shares; 2015 - 13,288,113 shares | 13,257 | 13,288 | ||||||
| Capital in excess of par value | 111,453 | 106,333 | ||||||
| Retained earnings | 351,560 | 326,740 | ||||||
| Accumulated other comprehensive loss | (72,027 | ) | (73,316 | ) | ||||
| Total Quaker shareholders' equity | 404,243 | 373,045 | ||||||
| Noncontrolling interest | 9,455 | 8,198 | ||||||
| Total equity | 413,698 | 381,243 | ||||||
| Total liabilities and equity | $ | 697,471 | $ | 681,910 | ||||
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Quaker Chemical Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
| (Unaudited) | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 45,100 | $ | 40,854 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 9,469 | 9,229 | ||||||
| Amortization | 5,319 | 4,998 | ||||||
| Equity in undistributed (earnings) losses of associated companies, net of dividends | (1,314 | ) | 1,362 | |||||
| Deferred compensation and other, net | 3,083 | (551 | ) | |||||
| Stock-based compensation | 4,942 | 4,500 | ||||||
| Loss (gain) on disposal of property, plant, equipment and other assets | 44 | (95 | ) | |||||
| Insurance settlement realized | (809 | ) | (549 | ) | ||||
| Pension and other postretirement benefits | (3,373 | ) | 2,204 | |||||
| (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: | ||||||||
| Accounts receivable | (5,926 | ) | (4,039 | ) | ||||
| Inventories | (3,741 | ) | (1,028 | ) | ||||
| Prepaid expenses and other current assets | (868 | ) | (3,545 | ) | ||||
| Accounts payable and accrued liabilities | 5,245 | (2,521 | ) | |||||
| Change in restructuring liabilities | (4,194 | ) | - | |||||
| Net cash provided by operating activities | 52,977 | 50,819 | ||||||
| Cash flows from investing activities | ||||||||
| Investments in property, plant and equipment | (6,311 | ) | (6,115 | ) | ||||
| Payments related to acquisitions, net of cash acquired | (3,244 | ) | (23,990 | ) | ||||
| Proceeds from disposition of assets | 54 | 130 | ||||||
| Insurance settlement interest earned | 24 | 28 | ||||||
| Change in restricted cash, net | 785 | 521 | ||||||
| Net cash used in investing activities | (8,692 | ) | (29,426 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from long-term debt | - | 30,668 | ||||||
| Repayments of long-term debt | (6,842 | ) | (304 | ) | ||||
| Dividends paid | (13,052 | ) | (12,257 | ) | ||||
| Stock options exercised, other | 64 | 947 | ||||||
| Payments for repurchase of common stock | (5,859 | ) | (4,989 | ) | ||||
| Excess tax benefit related to stock option exercises | 167 | 400 | ||||||
| Net cash (used in) provided by financing activities | (25,522 | ) | 14,465 | |||||
| Effect of foreign exchange rate changes on cash | (792 | ) | (4,434 | ) | ||||
| Net increase in cash and cash equivalents | 17,971 | 31,424 | ||||||
| Cash and cash equivalents at the beginning of the period | 81,053 | 64,731 | ||||||
| Cash and cash equivalents at the end of the period | $ | 99,024 | $ | 96,155 | ||||
Exhibit 99.2
1 Third Quarter 2016 Results Investor Conference Call October 27, 2016 Quaker Chemical Corporation
Regulation G The attached charts include C ompany 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 cons istent with similar measures provided by other companies. This data should be read in conjunction with the C ompany’s third quarter earnings news release dated October 26, 2016, which has been furnished to the SEC on Form 8-K and the Company’s Form 10 -Q for the quarterly period ended September 30, 2016, 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 t o differ materially from those projected in such statements. A major risk is that demand for the Company’s products and services is largely derived from the demand for its customers’ products, which subjects the Company to uncertainties related 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 co nditions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, 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 Mary Dean Hall Vice President, Chief Financial Officer & Treasurer Robert T. Traub Vice President, General Counsel & Corporate Secretary Chart #1
Third Quarter 2016 Headlines ▪ Strong operating income of $21.3 million drives 6% increase in adjusted EBITDA ▪ Volume growth drives an increase in net sales despite FX headwinds ▪ Year - to - date operating cash flow of $53.0 million increases 4% from the prior year Chart #2
Chairman Comments ▪ Third Quarter of 2016 x Revenue growth both organically by 2% and from acquisitions by 2%, despite challenging environment and foreign exchange headwinds x Strong operating income drives adjusted EBITDA increase of 6%, despite foreign exchange headwinds to sales and earnings of 2% and 3%, respectively x Adjusted EBITDA margin increased to nearly 15% on savings realized from previously announced restructuring and other cost streamlining initiatives, partially offset by some decline in gross margin on higher raw material costs ▪ Fourth Quarter of 2016 Outlook x Market share gains, leveraging of past acquisitions and cost savings efforts will continue to help the Company offset market and foreign exchange challenges x Expect gross margin to remain at a similar level compared to the third quarter of 2016 x Fourth quarter and full year 2016 forecast continues to indicate growth in both our top and bottom lines Third Quarter of 2016 Chart #3
Financial Highlights ▪ Non - GAAP earnings per diluted share up 5% to $1.25 despite higher effective tax rate and negative impact of 4 cents per diluted share from foreign exchange ▪ Adjusted EBITDA up 6% with Adjusted EBITDA margin nearly 15% ▪ Net sales increase driven by 2% growth from organic volume and 2% growth from acquisitions despite negative FX of 2% and continued pricing pressure ▪ Strong operating income up 14% driven by continued discipline in managing costs and lower costs related to certain uncommon expenses; global restructuring program on target for $3 million savings by year end ▪ Strong year - to - date net operating cash flow up 4% to $53.0 million from the prior year on solid operating performance and lower cash invested in working capital Chart #4 Third Quarter of 2016
Financial Snapshot ($ Millions unless otherwise noted) Q3 2016 Q3 2015 YTD 2016 YTD 2015 Net Sales 190.4 189.2 555.4 554.3 Gross Margin 37.2% 37.7 % 37.8% 37.6% Operating Income 21.3 18.7 62.7 58.0 Operating Margin 11.2% 9.9 % 11.3% 10.5% Net Income Attributable to Quaker Chemical Corporation 16.0 14.4 44.0 39.8 Earnings Per Diluted Share 1.21 1.08 3.32 2.98 Non - GAAP Earnings Per Diluted Share 1.25 1.19 3.34 3.27 Adjusted EBITDA 28.3 26.8 80.9 76.3 Adjusted EBITDA Margin 14.9% 14.2 % 14.6% 13.8% Net (Cash) Debt (22.7) 12.2 --- --- Net Operating Cash Flow 17.0 23.5 53.0 50.8 Effective Tax Rate 28.3% 24.4 % 31.0% 27.3% Chart #5
Product Volume by Quarter and Year In Thousands of Kilograms Chart #6 Organic and acquisition - related volume growth despite continued challenges in end - markets 115,000 135,000 155,000 175,000 195,000 215,000 235,000 255,000 25,000 31,000 37,000 43,000 49,000 55,000 61,000 67,000 Full Year Volume Quarter Volume Quarter Volume Full Year Volume
Gross Margin Percentage Trends 28.0% 34.7% 35.4% 32.6% 33.7% 35.8% 35.7% 37.6% 20.0% 25.0% 30.0% 35.0% 40.0% 2008 2009 2010 2011 2012 2013 2014 2015 Gross Margin Percentage 37.7% 37.5% 38.1% 38.1% 37.2% 20.0% 25.0% 30.0% 35.0% 40.0% Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Gross Margin Percentage Chart #7 Slight decline in gross margin quarter - over - quarter in line with management’s expectation
Adjusted EBITDA Baseline Historical Performance $40.1 $66.8 $73.0 $80.9 $89.6 $99.8 $101.6 $106.3 $100.1 $44.2 13.0% 14.4% 11.4% 13.8% 6.9% 12.3% 10.7% 9.8% 12.3% 13.4% 2008 2009 2010 2011 2012 2013 2014 2015 Trailing Twelve Months Q3 2015 Trailing Twelve Months Q3 2016 Adjusted EBITDA ($ Mils.) Adjusted EBITDA Margin (%) FY 2008 – Q3 2016 CAGR: 13.4% +750 Margin bps Chart #8
Balance Sheet Cash and Debt -$120 -$80 -$40 $0 $40 $80 $120 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 $ Millions Cash ST/LT Debt Net Debt Chart #9 Strong cash flow generation and balance sheet continue to support future growth
APPENDIX
Non - GAAP Earnings Per Diluted Share Reconciliation Chart #10 Q3 2016 Q3 2015 YTD 2016 YTD 2015 GAAP earnings per diluted share 1.21$ 1.08$ 3.32$ 2.98$ Equity income in a captive insurance company per diluted share (0.04) (0.04) (0.07) (0.09) Certain uncommon transaction-related expenses per diluted share 0.08 0.15 0.08 0.15 U.S Customer bankruptcies per diluted share - 0.00 - 0.01 Cost streamlining initiatives per diluted share - - - 0.01 Currency conversion impact of the Venezuelan bolivar fuerte per diluted share - - 0.01 0.21 Non-GAAP earnings per diluted share 1.25$ 1.19$ 3.34$ 3.27$
Adjusted EBITDA Reconciliation Chart #11 2008 2009 2010 2011 2012 2013 2014 2015 Net income 9,833 16,058 32,120 45,892 47,405 56,339 56,492 51,180 Depreciation 10,879 9,525 9,867 11,455 12,252 12,339 12,306 12,395 Amortization 1,177 1,078 988 2,338 3,106 3,445 4,325 6,811 Interest expense 5,509 5,533 5,225 4,666 4,283 2,922 2,371 2,585 Taxes on income 4,977 7,065 12,616 14,256 15,575 20,489 23,539 17,785 Equity loss (income) from a captive insurance company 1,299 162 (313) (2,323) (1,812) (5,451) (2,412) (2,078) Non-cash gain from the purchase of an equity affiliate - - - (2,718) - - - - Equity affiliate out of period charge - - 564 - - - - - Restructuring expenses 2,916 2,289 - - - - - 6,790 Transition costs related to key employees 3,505 2,443 1,317 - 609 - - - Certain uncommon transaction-related expenses - - - - - - - 2,813 U.K. pension plan amendment - - - - - - 902 - Customer bankruptcies - - - - 1,254 - 825 328 Cost streamlining initiatives - - - - - 1,419 1,166 173 Non-income tax contingency charges - - 4,132 - - 796 - - Change in acquisition-related earnout liability - - - (595) (1,737) (497) - - Mineral oil excise tax refund - - - - - (2,540) - - Currency conversion impacts of the Venezuelan bolivar fuerte - - 322 - - 357 321 2,806 Adjusted EBITDA 40,095 44,153 66,838 72,971 80,935 89,618 99,835 101,588 Adjusted EBITDA Margin 6.9% 9.8% 12.3% 10.7% 11.4% 12.3% 13.0% 13.8%
Trailing Twelve Months Adjusted EBITDA Reconciliation Chart #12 I = G + H H G = F - D F E = C + D D C = B - A B A Trailing Twelve Months Q3 2016 YTD Q3 2016 Last Three Months 2015 FY 2015 Trailing Twelve Months Q3 2015 YTD Q3 2015 Last Three Months 2014 FY 2014 YTD Q3 2014 Net income 55,362 43,969 11,393 51,180 52,426 39,787 12,639 56,492 43,853 Depreciation 12,635 9,469 3,166 12,395 12,381 9,229 3,152 12,306 9,154 Amortization 7,132 5,319 1,813 6,811 6,569 4,998 1,571 4,325 2,754 Interest expense 2,920 2,226 694 2,585 2,515 1,891 624 2,371 1,747 Taxes on income 21,825 19,664 2,161 17,785 20,355 15,624 4,731 23,539 18,808 Equity income from a captive insurance company (1,809) (952) (857) (2,078) (1,491) (1,221) (270) (2,412) (2,142) Restructuring expenses 6,790 - 6,790 6,790 - - - - - Certain uncommon transaction-related expenses 1,157 1,157 - 2,813 2,813 2,813 - - - U.K. pension plan amendment - - - - - - - 902 902 Customer bankruptcies 149 - 149 328 694 179 515 825 310 Cost streamlining initiatives - - - 173 991 173 818 1,166 348 Currency conversion impacts of the Venezuelan bolivar fuerte 88 88 - 2,806 2,806 2,806 - 321 321 Adjusted EBITDA 106,249 80,940 25,309 101,588 100,059 76,279 23,780 99,835 76,055 Adjusted EBITDA Margin 14.4% 14.6% 13.8% 13.8% 13.4% 13.8% 12.3% 13.0% 13.3%