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 28, 2010
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 28, 2010, Quaker Chemical Corporation announced its results of operations for the second quarter ended June 30, 2010 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 28, 2010.	
 	 	 	
99.2	 	Supplemental Information related to second quarter ended June 30, 2010.	

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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 29, 2010	By:	/S/ MARK A. FEATHERSTONE	
 	 	Mark A. Featherstone
Vice President and
Chief Financial Officer	

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For Release:
Immediate	NEWS	Contact:
Mark A. Featherstone
Vice President and
Chief Financial Officer
610-832-4160	

QUAKER CHEMICAL ANNOUNCES SECOND QUARTER 2010 RESULTS

 	·	Q2 2010 EPS of $0.80 vs. $0.29 in Q2 2009	

 	·	First half 2010 EPS of $1.64 vs. $0.29 in the first half of 2009	

 	·	Net debt-to-total capital ratio under 20%	

 	·	$15.1 million of operating cash flow generated in Q2 2010	

July 28, 2010

CONSHOHOCKEN, PA - Quaker Chemical Corporation (NYSE:KWR) today announced second quarter 2010 net sales of $136.0 million and earnings per diluted share of $0.80, compared to net sales of $102.3 million and earnings per diluted share of $0.29 for the second quarter of 2009.  For the first half of 2010, the Company reported net sales of $264.3 million and earnings per diluted share of $1.64, compared to net sales of $200.8 million and earnings per diluted share of $0.29 for the first half of 2009.

Michael F. Barry, Chairman, Chief Executive Officer and President, commented, “Our strong second quarter earnings and EBITDA generation were driven by high steel industry shipments in China, Brazil, India and Russia and continued recovery of industrial demand in North America and Europe.  Our balance sheet was also strengthened as we reduced our net debt-to-capital ratio to its lowest point since 2003.”

Mr. Barry added, “We are on track to generate record earnings for 2010.  Our expectations for the second half are that our earnings will continue to be strong but will be below the first half due to a softening in demand and the lag effect on margins as we recover higher raw material costs.”

Mr. Barry continued, “We are pleased with our progress in 2010 in a number of ways.  Besides our strong results, we lowered our debt, raised our dividend, made a small, but strategic, acquisition, and amended our credit facility for lower interest costs, an extended maturity date and greater borrowing capacity.  Over the next few years, we believe Quaker is positioned well for solid growth.  Our strong positions in the fastest growing countries like China, Brazil and India, as well as the gradual rebound in the more mature markets such as the U.S. and Europe, is expected to provide us with broad-based organic growth in all regions and businesses.  In addition, our strong balance sheet will allow us to invest in our key growth initiatives and grow via acquisition for the right opportunities.”

Second Quarter 2010 Summary

Net sales for the second quarter were $136.0 million, up 33% from $102.3 million for the second quarter of 2009.  The increase in net sales was a result of double-digit volume increases across the globe as the Company continues to recover from the economic downturn.  Product volumes increased 42%, partially offset by a 5% decline in selling price and mix, as well as lower automotive chemical management services (“CMS”) revenue due to lower revenue reported on a gross basis.  On a sequential quarterly basis, product volumes increased by approximately 7%.

 

 

Gross margin was up $12.5 million, or 35%, compared to the second quarter of 2009 as a result of increased volumes.  The gross margin percentage increased slightly compared to the second quarter of 2009, but decreased 1.2 percentage points from the first quarter of 2010.  The Company is implementing price increases to help offset higher raw material costs where necessary.

Selling, general and administrative expenses (“SG&A”) increased $6.1 million, or 21%, compared to the second quarter of 2009.  Higher selling costs with increased business activity, as well as increased incentive compensation and professional fees, were the primary drivers, representing 70% of the increase.  Inflationary and other costs accounted for the remainder of the increase.

The Company incurred charges related to the former CEO’s supplemental retirement plan of approximately $1.2 million in the second quarter of 2009 and expects to incur a final charge of $1.3 million later in 2010.

The increase in other income is due to higher license fees from increased business activities, as well as foreign exchange rate gains in the second quarter of 2010 versus losses in the second quarter of 2009.  The decrease in net interest expense is due to lower average debt balances as well as higher interest income.

Year-to-Date Summary

Net sales for the first half of 2010 were $264.3 million, up 32% from $200.8 million for the first half of 2009.  As with the quarterly comparison, the increase in net sales was a result of higher volumes across the globe as the Company continues to recover from the economic downturn.  Product volumes increased 39%, partially offset by a 5% decline in selling price and mix.  Foreign exchange rates increased revenues by approximately 4%, which were more than offset by lower automotive CMS revenue due to lower revenue reported on a gross basis.

Gross margin increased $31.1 million, or 48%, compared to the first half of 2009 largely as a result of increased volumes.  The gross margin percentage of 36.3% represents considerable improvement over the first half of 2009 percentage of 32.2%.  The margin expansion was the result of cost reduction actions taken, a more favorable year-to-date raw material cost environment and reduced automotive CMS revenues reported on a gross basis.

SG&A increased $13.0 million, or 23%, compared to the first half of 2009.  Higher selling costs with increased business activity, as well as increased incentive compensation and professional fees, were the primary drivers, representing 74% of the increase.  Inflationary and other costs as well as foreign exchange rates accounted for the remainder of the increase.

In the first quarter of 2009, the Company implemented a restructuring program totaling $2.3 million or approximately $0.14 per diluted share.  The Company completed the initiatives under this program during 2009.

Other income for the 2010 period includes higher license fees from increased business activities as well as foreign exchange rate gains versus losses in the 2009 period, which offset a gain related to the disposition of land in Europe of approximately $0.11 per diluted share in 2009.  The decrease in net interest expense is due to lower average debt balances as well as higher interest income.

Equity in net income of associated companies includes a charge of approximately $0.03 per diluted share related to the first quarter 2010 devaluation of the Venezuelan Bolivar Fuerte.

Balance Sheet and Cash Flow Items

The Company’s net debt-to-total-capital ratio decreased to 19% as of June 30, 2010, compared to 24% at March 31, 2010.  Operating cash flow improved $15.1 million from the first quarter of 2010, as a result of strong earnings which in turn allowed the Company to reduce its debt levels during the second quarter.
 
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Forward-Looking Statements

This release contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements.  A major risk is that the Company’s demand is largely derived from the demand for its customers’ products, which subjects the Company to downturns in a customer’s business and unanticipated customer production shutdowns.  Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, and future terrorist attacks such as those that occurred on September 11, 2001.  Other factors could also adversely affect us. Therefore, we caution you not to place undue reliance on our forward-looking statements.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
 
Conference Call

As previously announced, Quaker Chemical's investor conference call to discuss second quarter results is scheduled for July 29, 2010 at 8:30 a.m. (ET).  A live webcast of the conference call, together with supplemental information, can be accessed through the Company's Investor Relations Web site at  http://www.quakerchem.com .  You can also access the conference call by dialing 877-269-7756.
 
About Quaker

Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services, and technical expertise to a wide range of industries – including steel, automotive, mining, aerospace, tube and pipe, coatings and construction materials.  Our products, technical solutions and chemical management services enhance our customers’ processes, improve their product quality and lower their costs.  Quaker’s headquarters is located near Philadelphia in Conshohocken, Pennsylvania.

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Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data)
 
 	 	(Unaudited)	 	
 	 	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	135,991	 	 	$	102,335	 	 	$	264,311	 	 	$	200,842	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of goods sold	 	 	87,460	 	 	 	66,298	 	 	 	168,440	 	 	 	136,091	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross margin	 	 	48,531	 	 	 	36,037	 	 	 	95,871	 	 	 	64,751	 	
%	 	 	35.7	%	 	 	35.2	%	 	 	36.3	%	 	 	32.2	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	35,118	 	 	 	29,050	 	 	 	68,787	 	 	 	55,747	 	
Restructuring and related charges	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,289	 	
CEO transition costs	 	 	-	 	 	 	1,193	 	 	 	-	 	 	 	1,193	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	13,413	 	 	 	5,794	 	 	 	27,084	 	 	 	5,522	 	
%	 	 	9.9	%	 	 	5.7	%	 	 	10.2	%	 	 	2.7	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income, net	 	 	1,123	 	 	 	356	 	 	 	1,886	 	 	 	1,810	 	
Interest expense, net	 	 	(1,043	)	 	 	(1,318	)	 	 	(2,170	)	 	 	(2,407	)	
Income before taxes and equity in net income of associated companies	 	 	13,493	 	 	 	4,832	 	 	 	26,800	 	 	 	4,925	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxes on income before equity in net income of associated companies	 	 	4,143	 	 	 	1,567	 	 	 	7,324	 	 	 	1,316	 	
Income before equity in net income of associated companies	 	 	9,350	 	 	 	3,265	 	 	 	19,476	 	 	 	3,609	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in net income of associated companies	 	 	384	 	 	 	227	 	 	 	295	 	 	 	85	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	9,734	 	 	 	3,492	 	 	 	19,771	 	 	 	3,694	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interest	 	 	581	 	 	 	258	 	 	 	1,199	 	 	 	458	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Quaker Chemical Corporation	 	$	9,153	 	 	$	3,234	 	 	$	18,572	 	 	$	3,236	 	
%	 	 	6.7	%	 	 	3.2	%	 	 	7.0	%	 	 	1.6	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Per share data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Quaker Chemical Corporation Common Shareholders - basic	 	$	0.82	 	 	$	0.29	 	 	$	1.66	 	 	$	0.29	 	
Net income attributable to Quaker Chemical Corporation Common Shareholders- diluted	 	$	0.80	 	 	$	0.29	 	 	$	1.64	 	 	$	0.29	 	
 
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Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)

 	 	(Unaudited)	 	
 	 	 	 	 	 	 	
 	 	June 30,	 	 	December 31,	 	
 	 	2010	 	 	2009	 	
ASSETS	 	 	 	 	 	 	
 	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	
Cash and cash equivalents	 	$	27,606	 	 	$	25,051	 	
Construction fund (restricted cash)	 	 	-	 	 	 	2,358	 	
Accounts receivable, net	 	 	114,595	 	 	 	108,793	 	
Inventories, net	 	 	54,844	 	 	 	50,040	 	
Prepaid expenses and other current assets	 	 	13,149	 	 	 	12,656	 	
Total current assets	 	 	210,194	 	 	 	198,898	 	
 	 	 	 	 	 	 	 	 	
Property, plant and equipment, net	 	 	62,859	 	 	 	67,426	 	
Goodwill	 	 	44,452	 	 	 	46,515	 	
Other intangible assets, net	 	 	5,012	 	 	 	5,579	 	
Investments in associated companies	 	 	9,317	 	 	 	8,824	 	
Deferred income taxes	 	 	31,210	 	 	 	31,692	 	
Other assets	 	 	46,282	 	 	 	39,537	 	
Total assets	 	$	409,326	 	 	$	398,471	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES AND EQUITY	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Short-term borrowings and current portion of long-term debt	 	$	3,596	 	 	$	2,431	 	
Accounts and other payables	 	 	62,200	 	 	 	60,939	 	
Accrued compensation	 	 	13,012	 	 	 	16,656	 	
Accrued pension and postretirement benefits	 	 	4,682	 	 	 	4,717	 	
Other current liabilities	 	 	18,174	 	 	 	15,224	 	
Total current liabilities	 	 	101,664	 	 	 	99,967	 	
Long-term debt	 	 	60,975	 	 	 	63,685	 	
Deferred income taxes	 	 	8,443	 	 	 	8,605	 	
Accrued pension and postretirement benefits	 	 	26,235	 	 	 	27,602	 	
Other non-current liabilities	 	 	45,462	 	 	 	42,317	 	
Total liabilities	 	 	242,779	 	 	 	242,176	 	
 	 	 	 	 	 	 	 	 	
Equity	 	 	 	 	 	 	 	 	
Common stock, $1 par value; authorized 30,000,000 shares; issued 11,258,582 shares	 	 	11,259	 	 	 	11,086	 	
Capital in excess of par value	 	 	32,798	 	 	 	27,527	 	
Retained earnings	 	 	136,497	 	 	 	123,140	 	
Accumulated other comprehensive loss	 	 	(20,070	)	 	 	(10,439	)	
Total Quaker shareholders' equity	 	 	160,484	 	 	 	151,314	 	
Noncontrolling interest	 	 	6,063	 	 	 	4,981	 	
Total equity	 	 	166,547	 	 	 	156,295	 	
Total liabilities and equity	 	$	409,326	 	 	$	398,471	 	
 
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Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30,
(Dollars in thousands)

 	 	(Unaudited)	 	
 	 	2010	 	 	2009	 	
Cash flows from operating activities	 	 	 	 	 	 	
Net income	 	$	19,771	 	 	$	3,694	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation	 	 	5,068	 	 	 	4,801	 	
Amortization	 	 	462	 	 	 	522	 	
Equity in net income of associated companies, net of dividends	 	 	(233	)	 	 	(85	)	
Deferred compensation and other, net	 	 	(357	)	 	 	(1,521	)	
Stock-based compensation	 	 	1,663	 	 	 	927	 	
Restructuring and related charges	 	 	-	 	 	 	2,289	 	
Gain on disposal of property, plant and equipment	 	 	(22	)	 	 	(1,193	)	
Insurance settlement realized	 	 	(772	)	 	 	(610	)	
Pension and other postretirement benefits	 	 	(2,227	)	 	 	(3,799	)	
Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(10,645	)	 	 	13,498	 	
Inventories	 	 	(7,181	)	 	 	15,022	 	
Prepaid expenses and other current assets	 	 	(1,641	)	 	 	3,481	 	
Accounts payable and accrued liabilities	 	 	6,409	 	 	 	(6,354	)	
Change in restructuring liabilities	 	 	-	 	 	 	(3,885	)	
Net cash provided by operating activities	 	 	10,295	 	 	 	26,787	 	
 	 	 	 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(3,468	)	 	 	(5,078	)	
Payments related to acquisitions	 	 	-	 	 	 	(1,000	)	
Proceeds from disposition of assets	 	 	59	 	 	 	1,617	 	
Insurance settlement received and interest earned	 	 	5,070	 	 	 	5,100	 	
Change in restricted cash, net	 	 	(1,940	)	 	 	(2,593	)	
Net cash used in investing activities	 	 	(279	)	 	 	(1,954	)	
 	 	 	 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	 	
Net increase (decrease) in short-term borrowings	 	 	1,263	 	 	 	(1,716	)	
Proceeds from long-term debt	 	 	-	 	 	 	1,584	 	
Repayments of long-term debt	 	 	(2,614	)	 	 	(17,252	)	
Dividends paid	 	 	(5,119	)	 	 	(5,022	)	
Stock options exercised, other	 	 	1,663	 	 	 	262	 	
Excess tax benefit related to stock option exercises	 	 	1,236	 	 	 	-	 	
Distributions to noncontrolling shareholders	 	 	-	 	 	 	(90	)	
Net cash used in financing activities	 	 	(3,571	)	 	 	(22,234	)	
 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	 	 	(3,890	)	 	 	1,114	 	
Net increase in cash and cash equivalents	 	 	2,555	 	 	 	3,713	 	
Cash and cash equivalents at the beginning of the period	 	 	25,051	 	 	 	20,892	 	
Cash and cash equivalents at the end of the period	 	$	27,606	 	 	$	24,605