UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
July 30, 2012
Date of Report (Date of earliest event reported)

QUAKER CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)

Commission File Number 001-12019

PENNSYLVANIA	 	No. 23-0993790	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
Identification No.)	

 
One Quaker Park
901 E. Hector Street
Conshohocken, Pennsylvania 19428	
(Address of principal executive offices)	
(Zip Code)	

(610) 832-4000	
(Registrant’s telephone number, including area code)	

Not Applicable
(Former name or former address, if changed since last report)	

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
£ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
£ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
£ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
£ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 	

 	 	

INFORMATION TO BE INCLUDED IN THE REPORT

 
Item 2.02.    Results of Operations and Financial Condition.
 
On July 30, 2012, Quaker Chemical Corporation announced its results of operations for the second quarter ended June 30, 2012 in a press release, the text of which is included as Exhibit 99.1 hereto. Supplemental information related to the same period is also included as Exhibit 99.2 hereto.

 
Item 9.01.    Financial Statements and Exhibits.
 
The following exhibits are included as part of this report:
 
Exhibit No.	 	
99.1	Press Release of Quaker Chemical Corporation dated July 30, 2012. 	
 	 	
99.2	Supplemental Information related to second quarter ended June 30, 2012.	

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 	 	 	QUAKER CHEMICAL CORPORATION
Registrant	
 	 	 	 	
Date:  July 30, 2012	 	By:	/s/ MARGARET M. LOEBL	
 	 	 	Margaret M. Loebl
Vice President, Chief Financial
Officer and Treasurer

 
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 	 NEWS	 	 	
For Release:
Immediate	 	Contact:

Margaret M. Loebl
Vice President, CFO &
Treasurer
610-832-4160	 	

QUAKER CHEMICAL CORPORATION ANNOUNCES SECOND QUARTER 2012 RESULTS
 
 	·	Net sales up 5% from the second quarter of 2011	
 	·	Net income up 7% from the second quarter of 2011	
 	·	Quarterly operating cash flow of $15.2 million	
 
July 30, 2012
 
CONSHOHOCKEN, PA - Quaker Chemical Corporation (NYSE:KWR) today announced net sales of $176.8 million for the second quarter of 2012, up 5% compared to second quarter 2011 net sales of $167.8 million. Net income of $10.5 million and earnings per diluted share of $0.81 for the second quarter of 2012 were up 7% and 3%, respectively, compared to $9.8 million and $0.79 earnings per diluted share for the second quarter of 2011. For the first six months of 2012, the Company reported net sales of $354.4 million, up 8% compared to net sales of $327.7 million for the first six months of 2011. Net income of $22.5 million and earnings per diluted share of $1.72 for the first six months of 2012 were up 10% and 2%, respectively, compared to net income of $20.4 million and earnings per diluted share of $1.69 for the first six months of 2011. The second quarter of 2012 includes charges of approximately $0.06 per diluted share for certain customer bankruptcies in the U.S. and $0.03 per diluted share related to CFO transition costs. The second quarter and first half of 2012 earnings per diluted share include an approximate $0.03 and $0.11 dilutive effect as a result of the Company’s equity offering in May 2011, respectively.
 
Michael F. Barry, Chairman, Chief Executive Officer and President, commented, “We are pleased with the second quarter results, especially in light of the bankruptcy and CFO transition charges. We are being negatively impacted by a stronger dollar and weaker demand in several geographical areas such as Europe, China, Brazil and India. However, these negatives have been offset by additional new business and our recent acquisitions as well as the continuing manufacturing recovery of North America. Looking forward to the second half, we expect the global economic environment to remain challenging, with continued weakness in most regions. However, I remain confident that 2012 will be another good year for Quaker. In addition, our strong balance sheet and cash flow generation continues to provide us the financial flexibility to invest in our strategic growth initiatives, pay dividends to our shareholders, and grow our Company further via acquisition.”
 
Second Quarter 2012 Summary
 
Net sales for the second quarter of 2012 were $176.8 million, an increase of 5% from $167.8 million in the second quarter of 2011. Product volumes, including acquisitions, were higher by 6%, selling price and mix increased revenues by 5%, while foreign exchange rates decreased revenues by 6%.
 
Gross profit increased by $6.9 million, or 13%, from the second quarter of 2011. The second quarter of 2012 gross margin increased to 34.3% from 32.0% for the second quarter of 2011 and 33.7% for the first quarter of 2012. The increase in gross margin reflects the Company’s ongoing initiative of restoring margins to more acceptable levels through price increases, as well as mix effects experienced in the quarter.

 

 	
Selling, general and administrative expenses (“SG&A”) increased approximately $4.8 million compared to the second quarter of 2011, primarily related to acquisitions and higher selling, inflationary and other costs on increased business activity, which were partially offset by decreases due to foreign exchange rate translation. The second quarter of 2012 SG&A includes charges of approximately $0.06 per diluted share for certain customer bankruptcies in the U.S. and $0.03 per diluted share related to CFO transition costs. As a result, the second quarter of 2012 SG&A, as a percentage of sales, increased to 24.7% compared to 23.1% for the second quarter of 2011 and 24.3% for the first quarter of 2012.
 
Other income decreased in the second quarter of 2012 primarily due to foreign exchange losses compared to foreign exchange gains in the second quarter of 2011. Interest expense in the second quarter of 2012 was comparable to the second quarter of 2011, however, decreases in interest expense due to lower average borrowings were partially offset by increases related to the accretion of certain acquisition-related liabilities.
 
The second quarter of 2012 earnings per diluted share of $0.81 reflects an approximate $0.03 dilutive effect as a result of the Company’s equity offering in May of 2011.
 
Year-to-Date Summary
 
Net sales for the first half of 2012 were $354.4 million, an increase of 8% from $327.7 million in the first half of 2011. Product volumes, including acquisitions, were higher by 5%, selling price and mix increased revenues by 7%, while foreign exchange rates decreased revenues by 4%.
 
Gross profit increased by $13.9 million, or 13%, from the first half of 2011 with gross margin increasing to 34.0% from 32.5% for the first half of 2011, reflecting the Company’s ongoing initiative of restoring margins and mix effects noted above.
 
SG&A increased approximately $9.3 million compared to the first half of 2011, primarily related to acquisitions and higher selling, inflationary and other costs on increased business activity, which were partially offset by decreases due to foreign exchange rate translation. The first half of 2012 SG&A includes the bankruptcy charges and CFO transition costs, as discussed above. SG&A, as a percentage of sales, increased to 24.5% from 23.6% for the first half of 2011.
 
Other income decreased in the first half of 2012 primarily due to higher foreign exchange losses and lower third party license fees as compared to the first half of 2011. Interest expense was relatively flat compared to the first half of 2011, however, decreases in interest expense due to lower average borrowings were offset by increases related to the accretion of certain acquisition-related liabilities.
 
The Company’s low year-to-date 2012 and 2011 effective tax rates of 26.1% and 25.7%, respectively, reflect decreases in reserves for uncertain tax positions due to the expiration of applicable statutes of limitations for certain tax years of approximately $0.12 and $0.11 per diluted share, respectively. The Company has experienced and expects to further experience volatility in its effective tax rates due to the varying timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, among other factors.
 
Equity in net income of associated companies decreased in the first half of 2012 as compared to the first half of 2011, primarily due to the Company’s July 2011 purchase of the remaining ownership interest in its Mexican affiliate.
 
The first half of 2012 earnings per diluted share of $1.72 reflect an approximate $0.11 dilutive effect as a result of the Company’s equity offering in May of 2011.
 
Balance Sheet and Cash Flow Items
 
Net operating cash flow of $15.2 million was generated in the second quarter of 2012, primarily led by the Company’s second quarter net income. The Company’s consolidated leverage ratio remained strong at less than one times EBITDA.
 
Subsequent Events
 
In July 2012, the Company acquired NP Coil Dexter Industries, S.r.l., a European manufacturer and supplier of metal surface treatment products. The acquired business has annual net sales of approximately $11.0 million.

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Forward-Looking Statements
 
This release contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that the Company’s demand is largely derived from the demand for its customers’ products, which subjects the Company to downturns in a customer’s business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, and future terrorist attacks such as those that occurred on September 11, 2001. Other factors could also adversely affect us. Therefore, we caution you not to place undue reliance on our forward-looking statements. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
 
Conference Call
 
As previously announced, Quaker Chemical’s investor conference call to discuss second quarter results is scheduled for July 31, 2012 at 8:30 a.m. (ET). A live webcast of the conference call, together with supplemental information, can be accessed through the Company’s Investor Relations Web site at http://www.quakerchem.com. You can also access the conference call by dialing 877-269-7756.
 
About Quaker
 
Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services, and technical expertise to a wide range of industries - including steel, aluminum, automotive, mining, aerospace, tube and pipe, coatings, and construction materials. Our products, technical solutions, and chemical management services enhance our customers’ processes, improve their product quality, and lower their costs. Quaker’s headquarters is located near Philadelphia in Conshohocken, Pennsylvania.
 
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Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data)

 	 	(Unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended June 30,	 	 	Six Months Ended June 30,	 	
 	 	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	176,797	 	 	$	167,792	 	 	$	354,435	 	 	$	327,657	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of goods sold	 	 	116,161	 	 	 	114,026	 	 	 	234,004	 	 	 	221,157	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	60,636	 	 	 	53,766	 	 	 	120,431	 	 	 	106,500	 	
%	 	 	34.3	%	 	 	32.0	%	 	 	34.0	%	 	 	32.5	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	43,653	 	 	 	38,825	 	 	 	86,746	 	 	 	77,459	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	16,983	 	 	 	14,941	 	 	 	33,685	 	 	 	29,041	 	
%	 	 	9.6	%	 	 	8.9	%	 	 	9.5	%	 	 	8.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other (expense) income, net	 	 	(134	)	 	 	791	 	 	 	207	 	 	 	1,330	 	
Interest expense	 	 	(1,151	)	 	 	(1,200	)	 	 	(2,325	)	 	 	(2,418	)	
Interest income	 	 	137	 	 	 	271	 	 	 	260	 	 	 	543	 	
Income before taxes and equity in net income of associated companies	 	 	15,835	 	 	 	14,803	 	 	 	31,827	 	 	 	28,496	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxes on income before equity in net income of associated companies	 	 	4,874	 	 	 	4,499	 	 	 	8,319	 	 	 	7,321	 	
Income before equity in net income of associated companies	 	 	10,961	 	 	 	10,304	 	 	 	23,508	 	 	 	21,175	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in net income of associated companies	 	 	209	 	 	 	251	 	 	 	355	 	 	 	610	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	11,170	 	 	 	10,555	 	 	 	23,863	 	 	 	21,785	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interest	 	 	630	 	 	 	714	 	 	 	1,377	 	 	 	1,344	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Quaker Chemical Corporation	 	$	10,540	 	 	$	9,841	 	 	$	22,486	 	 	$	20,441	 	
%	 	 	6.0	%	 	 	5.9	%	 	 	6.3	%	 	 	6.2	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Per share data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Quaker Chemical Corporation Common Shareholders - basic	 	$	0.81	 	 	$	0.80	 	 	$	1.74	 	 	$	1.72	 	
Net income attributable to Quaker Chemical Corporation Common Shareholders- diluted	 	$	0.81	 	 	$	0.79	 	 	$	1.72	 	 	$	1.69	 	

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Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)

 	 	(Unaudited)	 	
 	 	 	 	 	 	 	
 	 	June 30,	 	 	December 31,	 	
 	 	2012	 	 	2011	 	
ASSETS	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	25,252	 	 	$	16,909	 	
Accounts receivable, net	 	 	156,424	 	 	 	150,676	 	
Inventories, net	 	 	77,678	 	 	 	74,758	 	
Prepaid expenses and other current assets	 	 	18,009	 	 	 	17,206	 	
Total current assets	 	 	277,363	 	 	 	259,549	 	
 	 	 	 	 	 	 	 	 	
Property, plant and equipment, net	 	 	82,655	 	 	 	82,916	 	
Goodwill	 	 	57,033	 	 	 	58,152	 	
Other intangible assets, net	 	 	30,397	 	 	 	31,783	 	
Investments in associated companies	 	 	7,891	 	 	 	7,942	 	
Deferred income taxes	 	 	27,644	 	 	 	29,823	 	
Other assets	 	 	36,370	 	 	 	35,356	 	
Total assets	 	$	519,353	 	 	$	505,521	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES AND EQUITY	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Short-term borrowings and current portion of long-term debt	 	$	563	 	 	$	636	 	
Accounts and other payables	 	 	74,679	 	 	 	68,125	 	
Accrued compensation	 	 	10,610	 	 	 	16,987	 	
Other current liabilities	 	 	22,334	 	 	 	20,901	 	
Total current liabilities	 	 	108,186	 	 	 	106,649	 	
Long-term debt	 	 	45,004	 	 	 	46,701	 	
Deferred income taxes	 	 	6,622	 	 	 	7,094	 	
Other non-current liabilities	 	 	86,116	 	 	 	89,351	 	
Total liabilities	 	 	245,928	 	 	 	249,795	 	
 	 	 	 	 	 	 	 	 	
Equity	 	 	 	 	 	 	 	 	
Common stock, $1 par value; authorized 30,000,000 shares; issued 13,010,639 shares	 	 	13,011	 	 	 	12,912	 	
Capital in excess of par value	 	 	92,199	 	 	 	89,725	 	
Retained earnings	 	 	192,116	 	 	 	175,932	 	
Accumulated other comprehensive loss	 	 	(32,091	)	 	 	(29,820	)	
Total Quaker shareholders' equity	 	 	265,235	 	 	 	248,749	 	
Noncontrolling interest	 	 	8,190	 	 	 	6,977	 	
Total equity	 	 	273,425	 	 	 	255,726	 	
Total liabilities and equity	 	$	519,353	 	 	$	505,521	 	

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Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30,
(Dollars in thousands)

 	 	(Unaudited)	 	
 	 	2012	 	 	2011	 	
Cash flows from operating activities	 	 	 	 	 	 	 	 	
Net income	 	$	23,863	 	 	$	21,785	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation	 	 	5,969	 	 	 	5,405	 	
Amortization	 	 	1,465	 	 	 	973	 	
Equity in undistributed earnings of associated companies, net of dividends	 	 	(171	)	 	 	(32	)	
Deferred compensation and other, net	 	 	1,332	 	 	 	4,162	 	
Stock-based compensation	 	 	2,078	 	 	 	1,854	 	
Gain on disposal of property, plant and equipment	 	 	(13	)	 	 	(78	)	
Insurance settlement realized	 	 	(808	)	 	 	(864	)	
Pension and other postretirement benefits	 	 	(1,951	)	 	 	(4,168	)	
(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(7,031	)	 	 	(17,392	)	
Inventories	 	 	(3,871	)	 	 	(13,986	)	
Prepaid expenses and other current assets	 	 	(1,946	)	 	 	(4,029	)	
Accounts payable and accrued liabilities	 	 	3,025	 	 	 	6,537	 	
Net cash provided by operating activities	 	 	21,941	 	 	 	167	 	
 	 	 	 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(6,423	)	 	 	(6,641	)	
Payments related to acquisitions	 	 	-	 	 	 	(717	)	
Proceeds from disposition of assets	 	 	84	 	 	 	221	 	
Insurance settlement received and interest earned	 	 	35	 	 	 	42	 	
Change in restricted cash, net	 	 	773	 	 	 	822	 	
Net cash used in investing activities	 	 	(5,531	)	 	 	(6,273	)	
 	 	 	 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	 	
Repayments of long-term debt	 	 	(1,754	)	 	 	(40,402	)	
Dividends paid	 	 	(6,213	)	 	 	(5,413	)	
Stock options exercised, other	 	 	(925	)	 	 	146	 	
Proceeds from sale of common stock, net of related expenses	 	 	-	 	 	 	48,143	 	
Excess tax benefit related to stock option exercises	 	 	1,420	 	 	 	162	 	
Distributions to noncontrolling shareholders	 	 	(30	)	 	 	-	 	
Net cash (used in) provided by financing activities	 	 	(7,502	)	 	 	2,636	 	
 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	 	 	(565	)	 	 	1,245	 	
Net increase (decrease) in cash and cash equivalents	 	 	8,343	 	 	 	(2,225	)	
Cash and cash equivalents at the beginning of the period	 	 	16,909	 	 	 	25,766	 	
Cash and cash equivalents at the end of the period	 	$	25,252	 	 	$	23,541