UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
February 25, 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
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 February 25, 2016, Quaker Chemical Corporation announced its results of operations for the fourth quarter and full year ended December 31, 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 February 25, 2016.	
 	 	 	
99.2	 	Supplemental Information related to fourth quarter and full year ended December 31, 2015.	
 
 	-2-	 	

 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 	 	QUAKER CHEMICAL CORPORATION	
 	 	Registrant	
 	 	 	 	
Date: February 25, 2016	 	By:	/S/ MARY DEAN HALL	
 	 	 	Mary Dean Hall	
 	 	 	Vice President, Chief Financial	
 	 	 	Officer and Treasurer	
 
 	-3-	 	

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 FOURTH QUARTER AND FULL YEAR 2015 RESULTS
 
 	·	Operating results drive quarterly increase of 6% in adjusted EBITDA despite negative impacts of foreign exchange and lower global steel production	

 	·	Fourth quarter restructuring program expected to deliver meaningful savings beginning in 2016	

 	·	Strong quarterly cash flow leads to a 34% increase in full year operating cash flow to $73 million	
 
February 25, 2016
 
CONSHOHOCKEN, PA - Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $183.3 million for the fourth quarter of 2015 compared to $194.0 million for the fourth quarter of 2014 and full year net sales of $737.6 million for 2015 compared to $765.9 million for 2014. The decreases in net sales for the fourth quarter and full year 2015 were both driven by the negative impact of foreign currency translation of $12.4 million, or approximately 7%, and $53.6 million, or 7%, respectively, which more than offset volume and acquisition-related growth that the Company achieved despite challenging market conditions.
 
Earnings per diluted share decreased from $0.95 in the fourth quarter of 2014 to $0.86 for the fourth quarter of 2015, primarily due to restructuring expenses of $6.8 million, or $0.36 per diluted share, related to a global restructuring program that the Company initiated in the fourth quarter of 2015. Excluding these restructuring expenses and other uncommon items, the Company’s non-GAAP earnings per diluted share increased 16% to $1.16 for the fourth quarter of 2015 compared to $1.00 for the fourth quarter of 2014, despite the negative impact of foreign exchange of $0.05 per diluted share, or 5%, and lower global steel production. The Company’s adjusted EBITDA increased 6% to $25.3 million for the fourth quarter of 2015 from $23.8 million in the fourth quarter of 2014. Full year 2015 earnings per diluted share were $3.84 compared to $4.26 for 2014, with non-GAAP earnings per diluted share increasing 4% to $4.43 for 2015 compared to $4.26 for 2014. The Company was able to achieve this full year non-GAAP earnings growth despite the negative impact of foreign exchange of $0.31 per diluted share, or 7%, and a decline in full year global steel production. As a result of this non-GAAP earnings growth, the Company’s adjusted EBITDA increased 2% to $101.6 million for 2015 compared to $99.8 million in 2014.
 
Michael F. Barry, Chairman, Chief Executive Officer and President commented, “We are pleased to have delivered another quarter of solid earnings and strong cash flow despite a variety of market challenges. Foreign exchange headwinds continued to have the most significant negative impact on our sales and earnings and we were also challenged by global steel industry production being down over 4%. In addition, we are seeing continued weak economic conditions in several regions, especially in South America. Our sales also continued to be impacted by downward price adjustments due to lower raw material costs. Despite these market challenges, we were able to increase our non-GAAP earnings and adjusted EBITDA through additional market share gains and margin expansion.”
 
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

 
 
Mr. Barry continued, “2015 was the sixth consecutive year of non-GAAP earnings and adjusted EBITDA growth. Looking forward, we see various headwinds that include continued uncertain economic conditions in South America and China, a strong U.S. dollar and further pricing impacts to adjust to a lower raw material cost environment. However, we remain committed to our strategy and believe our ability to continue to take market share and leverage our acquisitions will help offset these market challenges. In addition, the restructuring program we implemented in late 2015 stands to improve our SG&A leverage and yield meaningful savings, as early as the middle of 2016. Our 2016 plans indicate growth in both the top and bottom lines despite currency headwinds. Overall, I continue to remain confident in our future and expect 2016 to be another good year for Quaker, as we expect to increase non-GAAP earnings and adjusted EBITDA for the seventh consecutive year.”
 
Fourth Quarter of 2015 Summary
 
Net sales for the fourth quarter of 2015 were $183.3 million compared to net sales of $194.0 million for the fourth quarter of 2014. The decrease in net sales was primarily due to the negative impact of foreign currency translation of $12.4 million, or approximately 7%, and declines in selling price and product mix of 3%, which collectively offset a 4% increase in product volume, including sales from acquisitions.
 
Gross profit for the fourth quarter of 2015 decreased $0.8 million from the fourth quarter of 2014 due to the decrease in net sales noted above. This decrease was partially offset by an expansion of gross margin to 37.5% for the fourth quarter of 2015 compared to 35.9% for the fourth quarter of 2014, mainly due to the timing of certain raw material cost decreases in the fourth quarter of 2015 compared to the fourth quarter of 2014.
 
Selling, general and administrative expenses (“SG&A”) decreased $4.3 million in the fourth quarter of 2015 as compared to the fourth quarter of 2014 due to the net impact of several factors, including the impact of foreign currency translation, lower labor-related costs, a decrease in professional fees, and a fourth quarter of 2014 charge for a cost streamlining initiative in South America. These decreases to SG&A were partially offset by incremental costs associated with the Company’s recent acquisitions.
 
The Company had restructuring expenses of $6.8 million related to a global restructuring program initiated during the fourth quarter of 2015. Specifically, this program includes restructuring and associated costs to reduce total headcount by approximately 65 people globally and to close certain non-manufacturing locations. The Company expects to substantially complete this program in 2016, and currently projects pre-tax cost savings as a result of this program to be approximately $3 million in 2016 and approximately $6 million annually in subsequent years.
 
Other income, interest expense and interest income were relatively flat in the fourth quarter of 2015 compared to the fourth quarter of 2014. The Company had slightly higher interest expense on increased average borrowings outstanding and slightly lower third party license fees in the fourth quarter of 2015 as compared to the fourth quarter of 2014.
 
The Company’s effective tax rates for the fourth quarters of 2015 and 2014 were 16.5% and 28.5%, respectively. The primary contributors to the decrease in the fourth quarter of 2015 effective tax rate were accelerated recognition of certain tax-related credits in 2015 due to changes in local tax regulations, adjustments in the fourth quarter of 2015 related to previous years’ tax estimates, and the mix of earnings between higher and lower tax jurisdictions.
 
Equity in net income of associated companies (“equity income”) was relatively consistent in the fourth quarter of 2015 compared to the fourth quarter of 2014. The Company had lower equity income from its Venezuela affiliate in the fourth quarter of 2015 due to a first quarter of 2015 currency devaluation, which was partially offset by higher equity income from the Company’s interest in a captive insurance company.
 
The Company had a $0.2 million increase in net income attributable to noncontrolling interest in the fourth quarter of 2015 compared to the fourth quarter of 2014, primarily due to improved performance at its India affiliate.
 
During the fourth quarter of 2015, the Company recognized $0.2 million of earnings, or $0.02 per diluted share, related to its July 2015 acquisition of Verkol S.A. (“Verkol”), which was net of initial adjustments related to fair value accounting and diligence-related costs.
 
Changes in foreign exchange rates negatively impacted the Company’s fourth quarter of 2015 net income by approximately 5%, or $0.05 per diluted share.
 
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Year-to-Date 2015 Summary
 
Net sales for 2015 were $737.6 million compared to net sales of $765.9 million for 2014. The decrease in net sales was primarily due to the negative impact of foreign currency translation of $53.6 million, or 7%, and declines in selling price and product mix of 1%, which collectively offset a 4% increase in product volume, including sales from acquisitions.
 
Gross profit for 2015 increased $3.8 million, or 1%, compared to 2014, driven by an expansion of gross margin to 37.6% for 2015 compared to 35.7% for 2014, partially offset by the negative impact of foreign currency translation. The increase in gross margin was mainly due to the timing of certain raw material cost decreases in 2015 compared to 2014.
 
The increase in SG&A for 2015 of $3.1 million from 2014 was due to the net impact of several factors, including higher overall labor-related costs and incremental costs associated with the Company’s recent acquisitions, including $2.8 million of one-time transaction-related expenses incurred with the Company’s third quarter of 2015 Verkol acquisition. These increases to SG&A were partially offset by decreases from foreign currency translation, a first quarter of 2014 cost related to an amendment to the Company’s pension plan in the United Kingdom (“U.K.”), and lower year-over-year charges related to cost streamlining initiatives in South America.
 
The Company had restructuring expenses of $6.8 million in 2015, noted above, related to a global restructuring program initiated in the fourth quarter of 2015. There were no analogous restructuring expenses incurred in the prior year.
 
Other income for 2015 decreased $0.8 million compared to 2014. The decrease was primarily due to lower receipts of annual government-related grants in one of the Company’s regions, higher foreign exchange transaction losses, and lower third party license fees during 2015 compared to 2014.
 
Interest expense was $0.2 million higher in 2015 compared to 2014, primarily due to higher average borrowings outstanding during 2015 due to the Company’s recent acquisition activity. Interest income was $0.9 million lower in 2015 compared to 2014, primarily due to a decrease in the level of the Company’s invested cash in certain regions with higher returns and interest received on certain tax-related credits in 2014.
 
The Company’s effective tax rates for 2015 and 2014 were 25.3% and 30.1%, respectively. The primary contributors to the decrease in the 2015 effective tax rate were the mix of earnings between higher and lower tax jurisdictions in 2015, accelerated recognition of certain tax-related credits in 2015 due to changes in local tax regulations, adjustments in 2015 related to previous years’ tax estimates, and certain one-time items that inflated the 2014 effective tax rate. Going into 2016, we expect the full year effective tax rate will increase to between 28% and 30%. In addition, the Company expects its quarterly effective tax rates will be higher in the first three quarters of 2016, similar to the 2013 quarterly effective tax rate trend, as the Company will book earnings in one of its subsidiaries at the statutory tax rate of 25% while it awaits recertification of a concessionary 15% tax rate. We currently estimate our first quarter of 2016 effective tax rate will be between 31% and 33%.
 
Equity income for 2015 decreased $3.3 million compared to 2014. The decrease was primarily due to a first quarter of 2015 currency conversion charge recorded at the Company’s Venezuela affiliate. Due to changes in Venezuela’s foreign exchange markets and currency controls, the Company re-assessed its Venezuela affiliate’s access to U.S. dollars and its ability to import or trade under the existing foreign exchange markets in the first quarter of 2015, which resulted in the 2015 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 second quarter of 2014. In addition, the Company had lower equity income from its interest in a captive insurance company during 2015 compared to 2014.
 
The $0.3 million decrease in net income attributable to noncontrolling interest in 2015 compared to 2014 was primarily due to the Company’s June 2014 acquisition of the noncontrolling interest in its Australia affiliate.
 
Excluding the one-time transaction-related expenses mentioned above, the Company recognized a minimal impact to net income from its 2015 Verkol acquisition, as its operating results were offset by normal acquisition-related costs and initial adjustments related to fair value accounting.
 
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Changes in foreign exchange rates, excluding the currency conversion impacts of the Venezuelan bolivar fuerte noted above, negatively impacted the Company’s 2015 net income by approximately 7%, or $0.31 per diluted share.
 
Balance Sheet and Cash Flow Items
 
The Company’s net operating cash flow of $22.6 million for the fourth quarter of 2015 increased its full year net operating cash flow to $73.4 million compared to $54.7 million for 2014. The full year increase of $18.7 million, or 34%, in net operating cash flow was driven by strong operating performance and lower cash invested in the Company’s working capital during 2015. Most notably, changes in accounts receivables improved year-over-year due to the levels of sales at each year-end and improvements in timing of cash receipts. During 2015, the Company repurchased approximately 87,000 shares of its common stock for $7.3 million, pursuant to the share repurchase program announced in May of 2015. The Company has continued these share repurchases during the first quarter of 2016, with repurchases of approximately 84,000 shares at an average price of $69.8 per share for approximately $5.9 million to date. Overall, the Company’s liquidity remains strong, with net debt of $1.0 million and a consolidated leverage ratio of 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. 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 financial measures:
 
 	 	Three Months Ended
December 31,	 	 	Twelve Months Ended
December 31,	 	
 	 	2015	 	 	2014	 	 	2015	 	 	2014	 	
GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders	 	$	0.86	 	 	$	0.95	 	 	$	3.84	 	 	$	4.26	 	
Equity income in a captive insurance company per diluted share	 	 	(0.07	)	 	 	(0.02	)	 	 	(0.16	)	 	 	(0.18	)	
Restructuring expenses per diluted share	 	 	0.36	 	 	 	-	 	 	 	0.36	 	 	 	-	 	
Verkol transaction-related expenses per diluted share	 	 	-	 	 	 	-	 	 	 	0.15	 	 	 	-	 	
U.K. pension plan amendment per diluted share	 	 	-	 	 	 	-	 	 	 	-	 	 	 	0.05	 	
Customer bankruptcy costs per diluted share	 	 	0.01	 	 	 	0.03	 	 	 	0.02	 	 	 	0.05	 	
Cost streamlining initiatives per diluted share	 	 	-	 	 	 	0.04	 	 	 	0.01	 	 	 	0.06	 	
Currency conversion impact of the Venezuelan bolivar fuerte per diluted share	 	 	-	 	 	 	-	 	 	 	0.21	 	 	 	0.02	 	
Non-GAAP earnings per diluted share	 	$	1.16	 	 	$	1.00	 	 	$	4.43	 	 	$	4.26	 	
 
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 	 	Three Months Ended
December 31,	 	 	Twelve Months Ended
December 31,	 	
 	 	2015	 	 	2014	 	 	2015	 	 	2014	 	
Net income attributable to Quaker Chemical Corporation	 	$	11,393	 	 	$	12,639	 	 	$	51,180	 	 	$	56,492	 	
Depreciation and amortization	 	 	4,979	 	 	 	4,723	 	 	 	19,206	 	 	 	16,631	 	
Interest expense	 	 	694	 	 	 	624	 	 	 	2,585	 	 	 	2,371	 	
Taxes on income before equity in net income of associated companies	 	 	2,161	 	 	 	4,731	 	 	 	17,785	 	 	 	23,539	 	
Equity income in a captive insurance company	 	 	(857	)	 	 	(270	)	 	 	(2,078	)	 	 	(2,412	)	
Restructuring expenses	 	 	6,790	 	 	 	-	 	 	 	6,790	 	 	 	-	 	
Verkol transaction-related expenses	 	 	-	 	 	 	-	 	 	 	2,813	 	 	 	-	 	
U.K. pension plan amendment	 	 	-	 	 	 	-	 	 	 	-	 	 	 	902	 	
Customer bankruptcy costs	 	 	149	 	 	 	515	 	 	 	328	 	 	 	825	 	
Cost streamlining initiatives	 	 	-	 	 	 	818	 	 	 	173	 	 	 	1,166	 	
Currency conversion impact of the Venezuelan bolivar fuerte	 	 	-	 	 	 	-	 	 	 	2,806	 	 	 	321	 	
Adjusted EBITDA	 	$	25,309	 	 	$	23,780	 	 	$	101,588	 	 	$	99,835	 	
 
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, 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 fourth quarter and full year 2015 results is scheduled for February 26, 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
Consolidated Statements of Income
(Dollars in thousands, except per share data)
 
 	 	Three Months Ended December 31,	 	 	Twelve Months Ended December 31,	 	
 	 	2015	 	 	2014	 	 	2015	 	 	2014	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	183,275	 	 	$	194,033	 	 	$	737,555	 	 	$	765,860	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of goods sold	 	 	114,509	 	 	 	124,457	 	 	 	460,515	 	 	 	492,654	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	68,766	 	 	 	69,576	 	 	 	277,040	 	 	 	273,206	 	
%	 	 	37.5	%	 	 	35.9	%	 	 	37.6	%	 	 	35.7	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	48,753	 	 	 	53,091	 	 	 	198,990	 	 	 	195,850	 	
Restructuring and related activities	 	 	6,790	 	 	 	-	 	 	 	6,790	 	 	 	-	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	13,223	 	 	 	16,485	 	 	 	71,260	 	 	 	77,356	 	
%	 	 	7.2	%	 	 	8.5	%	 	 	9.7	%	 	 	10.1	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense), net	 	 	28	 	 	 	209	 	 	 	(69	)	 	 	767	 	
Interest expense	 	 	(694	)	 	 	(624	)	 	 	(2,585	)	 	 	(2,371	)	
Interest income	 	 	507	 	 	 	551	 	 	 	1,624	 	 	 	2,541	 	
Income before taxes and equity in net income of associated companies	 	 	13,064	 	 	 	16,621	 	 	 	70,230	 	 	 	78,293	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxes on income before equity in net income of associated companies	 	 	2,161	 	 	 	4,731	 	 	 	17,785	 	 	 	23,539	 	
Income before equity in net income of associated companies	 	 	10,903	 	 	 	11,890	 	 	 	52,445	 	 	 	54,754	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in net income of associated companies	 	 	949	 	 	 	1,037	 	 	 	261	 	 	 	3,543	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	11,852	 	 	 	12,927	 	 	 	52,706	 	 	 	58,297	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interest	 	 	459	 	 	 	288	 	 	 	1,526	 	 	 	1,805	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Quaker Chemical Corporation	 	$	11,393	 	 	$	12,639	 	 	$	51,180	 	 	$	56,492	 	
%	 	 	6.2	%	 	 	6.5	%	 	 	6.9	%	 	 	7.4	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Per share data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Quaker Chemical Corporation Common Shareholders - basic	 	$	0.86	 	 	$	0.95	 	 	$	3.84	 	 	$	4.27	 	
Net income attributable to Quaker Chemical Corporation Common Shareholders - diluted	 	$	0.86	 	 	$	0.95	 	 	$	3.84	 	 	$	4.26	 	
 
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Quaker Chemical Corporation
Consolidated Balance Sheets
(Dollars in thousands, except par value and share amounts)
 
 	 	December 31,	 	
 	 	2015	 	 	2014	 	
ASSETS	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	81,053	 	 	$	64,731	 	
Accounts receivable, net	 	 	188,297	 	 	 	189,484	 	
Inventories, net	 	 	75,099	 	 	 	77,708	 	
Current deferred tax assets	 	 	7,822	 	 	 	8,367	 	
Prepaid expenses and other current assets	 	 	13,582	 	 	 	11,228	 	
Total current assets	 	 	365,853	 	 	 	351,518	 	
 	 	 	 	 	 	 	 	 	
Property, plant and equipment, net	 	 	87,619	 	 	 	85,763	 	
Goodwill	 	 	79,111	 	 	 	77,933	 	
Other intangible assets, net	 	 	73,287	 	 	 	70,408	 	
Investments in associated companies	 	 	20,354	 	 	 	21,751	 	
Non-current deferred tax assets	 	 	27,071	 	 	 	24,411	 	
Other assets	 	 	32,218	 	 	 	33,742	 	
Total assets	 	$	685,513	 	 	$	665,526	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES AND EQUITY	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Short-term borrowings and current portion of long-term debt	 	$	662	 	 	$	403	 	
Accounts payable	 	 	67,291	 	 	 	74,987	 	
Dividends payable	 	 	4,252	 	 	 	3,990	 	
Accrued compensation	 	 	19,166	 	 	 	19,853	 	
Accrued restructuring	 	 	6,303	 	 	 	-	 	
Accrued pension and postretirement benefits	 	 	1,144	 	 	 	1,239	 	
Current deferred tax liabilities	 	 	41	 	 	 	732	 	
Other current liabilities	 	 	25,696	 	 	 	23,697	 	
Total current liabilities	 	 	124,555	 	 	 	124,901	 	
Long-term debt	 	 	81,439	 	 	 	75,328	 	
Non-current deferred tax liabilities	 	 	15,003	 	 	 	8,584	 	
Non-current accrued pension and postretirement benefits	 	 	40,689	 	 	 	46,088	 	
Other non-current liabilities	 	 	42,584	 	 	 	45,490	 	
Total liabilities	 	 	304,270	 	 	 	300,391	 	
 	 	 	 	 	 	 	 	 	
Equity	 	 	 	 	 	 	 	 	
Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2015 - 13,288,113 shares; 2014 - 13,300,891 shares	 	 	13,288	 	 	 	13,301	 	
Capital in excess of par value	 	 	106,333	 	 	 	99,056	 	
Retained earnings	 	 	326,740	 	 	 	299,524	 	
Accumulated other comprehensive loss	 	 	(73,316	)	 	 	(54,406	)	
Total Quaker shareholders' equity	 	 	373,045	 	 	 	357,475	 	
Noncontrolling interest	 	 	8,198	 	 	 	7,660	 	
Total equity	 	 	381,243	 	 	 	365,135	 	
Total liabilities and equity	 	$	685,513	 	 	$	665,526	 	
 
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Quaker Chemical Corporation
Consolidated Statements of Cash Flows
(Dollars in thousands)
 
 	 	Twelve Months Ended December 31,	 	
 	 	2015	 	 	2014	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	
Net income	 	$	52,706	 	 	$	58,297	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation	 	 	12,395	 	 	 	12,306	 	
Amortization	 	 	6,811	 	 	 	4,325	 	
Equity in undistributed earnings of associated companies, net of dividends	 	 	578	 	 	 	(3,180	)	
Deferred income taxes	 	 	(2,401	)	 	 	1,007	 	
Uncertain tax positions (non-deferred portion)	 	 	(1,122	)	 	 	(1,256	)	
Deferred compensation and other, net	 	 	14	 	 	 	3,174	 	
Stock-based compensation	 	 	5,919	 	 	 	5,309	 	
Restructuring and related activities	 	 	6,790	 	 	 	-	 	
Gain on disposal of property, plant and equipment and other assets	 	 	(12	)	 	 	(86	)	
Insurance settlement realized	 	 	(760	)	 	 	(1,907	)	
Pension and other postretirement benefits	 	 	2,591	 	 	 	1,265	 	
(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(188	)	 	 	(24,944	)	
Inventories	 	 	1,292	 	 	 	(5,484	)	
Prepaid expenses and other current assets	 	 	(721	)	 	 	2,003	 	
Accounts payable and accrued liabilities	 	 	(9,040	)	 	 	2,999	 	
Change in restructuring liabilities	 	 	(490	)	 	 	-	 	
Estimated taxes on income	 	 	(930	)	 	 	862	 	
Net cash provided by operating activities	 	 	73,432	 	 	 	54,690	 	
 	 	 	 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	
Investments in property, plant and equipment	 	 	(11,033	)	 	 	(13,052	)	
Payments related to acquisitions, net of cash acquired	 	 	(24,058	)	 	 	(73,527	)	
Proceeds from disposition of assets	 	 	135	 	 	 	201	 	
Insurance settlement interest earned	 	 	35	 	 	 	44	 	
Change in restricted cash, net	 	 	725	 	 	 	1,863	 	
Net cash used in investing activities	 	 	(34,196	)	 	 	(84,471	)	
 	 	 	 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	 	
Proceeds from long-term debt	 	 	6,163	 	 	 	58,771	 	
Repayment of long-term debt	 	 	(477	)	 	 	(1,368	)	
Dividends paid	 	 	(16,513	)	 	 	(14,562	)	
Stock options exercised, other	 	 	1,048	 	 	 	804	 	
Payments for repurchase of common stock	 	 	(7,276	)	 	 	-	 	
Excess tax benefit related to stock option exercises	 	 	384	 	 	 	453	 	
Purchase of noncontrolling interest in affiliates, net	 	 	-	 	 	 	(7,422	)	
Payment of acquisition-related liabilities	 	 	(226	)	 	 	(4,709	)	
Distributions to noncontrolling affiliate shareholders	 	 	-	 	 	 	(1,806	)	
Net cash (used in) provided by financing activities	 	 	(16,897	)	 	 	30,161	 	
 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	 	 	(6,017	)	 	 	(4,141	)	
Net increase (decrease) in cash and cash equivalents	 	 	16,322	 	 	 	(3,761	)	
Cash and cash equivalents at the beginning of the period	 	 	64,731	 	 	 	68,492	 	
Cash and cash equivalents at the end of the period	 	$	81,053	 	 	$	64,731	 	
 
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Exhibit 99.2

Fourth Quarter and Full Year 2015 Results Investor Conference Call February 26, 2016 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 consistent with similar measures provided by other companies. This data should be read in conjunction with the Company’s fourth quarter and full year earnings news release dated February 25, 2016, which has been furnished to the SEC on Form 8-K and the Company’s Form 10-K for the year ended December 31, 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 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, 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

 

Fourth Quarter 2015 Headlines Operating results drive quarterly increase of 6% in adjusted EBITDA despite negative impacts of foreign exchange and lower global steel production Fourth quarter restructuring program expected to deliver meaningful savings beginning in 2016 Strong quarterly cash flow leads to a 34% increase in full year operating cash flow to $73 million Chart #2

 

Chairman Comments Fourth Quarter and Full Year 2015 Fourth Quarter / Full Year 2015 Strong margins and market share gains drive earnings and cash flow growth in the fourth quarter and full year 2015 Fourth quarter and full year results impacted by various market challenges, including foreign exchange, a decline in global steel production and weak global economic conditions, especially in South America Fourth quarter restructuring program initiated to enhance future SG&A leverage 2016 Outlook Anticipate continued uncertain economic conditions, especially in South America and China, a strong U.S. dollar, and further pricing impacts to adjust to a lower raw material cost environment Ability to take market share and leverage our acquisitions will continue to help offset these market challenges Restructuring program to yield meaningful savings as early as middle of 2016 Expect growth in both the top and bottom lines despite currency headwinds Overall, we remain confident in our future and expect 2016 to be another good year for Quaker, as we expect to increase non-GAAP earnings and adjusted EBITDA for the seventh consecutive year. Chart #3

 

1) Solid operating results, coupled with a low tax rate, drive fourth quarter and fullyear 2015 non-GAAP earnings per diluted share of $1.16 and $4.43 2) Fourth quarter 2015 includes restructuring expenses of $6.8 million, or $0.36 per diluted share, related to a global program to enhance SG&A leverage 3) Fourth quarter and full year 2015 net sales decreased year-over-year on negative impacts from foreign currency translation and declines in selling price and product mix, offset by volume and acquisition-related growth 4) Expansion of gross margin in the fourth quarter and full year 2015 drive improved operating performance 5) Lower fourth quarter and year-over year effective tax rates 6) Strong quarterly operating cash flows of $22.6 million drives $73.4 million for full year 2015 on operating performance and lower cash invested in working capital 7) Strong balance sheet will continue to support future growth, including acquisitions Chart #4 Financial Highlights Fourth Quarter and Full Year 2015

 

Financial Snapshot ($ Millions unless otherwise noted) Q4 2015 Q4 2014 FY 2015 FY 2014 Net Sales 183.3 194.0 737.6 765.9 Gross Margin 37.5 % 35.9 % 37.6 % 35.7 % Operating Margin 7.2 % 8.5 % 9.7 % 10.1 % Net Income attributable to Quaker Chemical Corporation 11.4 12.6 51.2 56.5 Earnings Per Diluted Share 0.86 0.95 3.84 4.26 Non-GAAP Earnings Per Diluted Share 1.16 1.00 4.43 4.26 Adjusted EBITDA 25.3 23.8 101.6 99.8 Adjusted EBITDA Margin 13.8 % 12.3 % 13.8 % 13.0 % Net Debt 1.0 11.0 -- -- Net Operating Cash Flow 22.6 16.7 73.4 54.7 Effective Tax Rate 16.5 % 28.5 % 25.3 % 30.1 % Chart #5

 

Product Volume by Quarter and Year Thousand Kilograms Chart #6 Six consecutive years of organic and acquisition-related volume growth 115,000 135,000 155,000 175,000 195,000 215,000 235,000 25,000 31,000 37,000 43,000 49,000 55,000 61,000 Full Year Volume Quarter Volume Quarter Volume Full Year Volume

 

Gross Margin Percentage 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 35.9% 36.6% 38.4% 37.7% 37.5% 20.0% 25.0% 30.0% 35.0% 40.0% Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Gross Margin Percentage Chart #7 Improvement in 2015 driven by timing of raw material cost decreases

 

Adjusted EBITDA Baseline Historical Performance $40.1 $66.8 $73.0 $80.9 $89.6 $99.8 $101.6 $44.2 11. 4% 13 . 0% 12 . 3% 9 . 8% 10 . 7% 12 . 3% 6 . 9% 13 . 8% 2008 2009 2010 2011 2012 2013 2014 2015 Adjusted EBITDA ($ Mi l s. ) Adjusted EBITDA Margin (%) 2008 - 2015 CAGR: 14.2% +690 Margin bps Chart #8

 

Balance Sheet Cash and Debt -$120 -$80 -$40 $0 $40 $80 $120 2008 2009 2010 2011 2012 2013 2014 2015 $ Millions Cash ST/LT Debt Net Debt Chart #9 Strong cash flow improves Net Debt to $1 million. Balance Sheet strength supports growth.

 

APPENDIX

 

Non-GAAP Earnings Per Diluted Share Reconciliation Chart #10 Q4 2015 Q4 2014 Full Year 2015 Full Year 2014 GAAP earnings per diluted share $ 0.86 $ 0.95 $ 3.84 $ 4.26 Equity income in a captive insurance company per diluted share $ (0.07) $ (0.02) $ (0.16) $ (0.18) Restructuring expenses per diluted share $ 0.36 $ - $ 0.36 $ - Verkol transaction-related expenses per diluted share $ - $ - $ 0.15 $ - U.K. pension plan amendment per diluted share $ - $ - $ - $ 0.05 Customer bankruptcy costs per diluted share $ 0.01 $ 0.03 $ 0.02 $ 0.05 Cost streamlining initiatives per diluted share $ - $ 0.04 $ 0.01 $ 0.06 Currency conversion impact of the Venezuelan bolivar fuerte per diluted share $ - $ - $ 0.21 $ 0.02 Non-GAAP earnings per diluted share $ 1.16 $ 1.00 $ 4.43 $ 4.26

 

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 1 62 (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 - - 5 64 - - - - - Restructuring expenses 2,916 2,289 - - - - - 6,790 Transition costs related to key employees 3,505 2,443 1,317 - 6 09 - - - Verkol transaction-related expenses - - - - - - - 2,813 U.K. pension plan amendment - - - - - - 902 - Customer bankruptcy costs - - - - 1,254 - 825 328 Cost streamlining initiatives - - - - - 1,419 1,166 1 73 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 - - 3 22 - - 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%