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

March 2, 2011
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:

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     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 March 2, 2011, Quaker Chemical Corporation announced its results of operations for the fourth quarter and full year ended December 31, 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 exhibit is included as part of this report:

Exhibit No.	 	
99.1	Press Release of Quaker Chemical Corporation dated March 2, 2011.	
99.2	Supplemental Information related to fourth quarter ended December 31, 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:  March 2, 2011	 	By:	/S/ MARK A. FEATHERSTONE	
 	 	 	Mark A. Featherstone
Vice President and
Chief Financial Officer	

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

QUAKER CHEMICAL ANNOUNCES FOURTH QUARTER AND FULL YEAR RESULTS

·  	All-time record full year earnings	

·  	Full year diluted EPS of $2.77, up 88% from 2009 Diluted EPS of $1.47	

·  	$18.0 million of operating cash flow generated in Q4, $37.5 million YTD	

March 2, 2011

CONSHOHOCKEN, PA – Quaker Chemical Corporation (NYSE:KWR) today announced net sales of $142.1 million and earnings per diluted share of $0.59 for the fourth quarter of 2010, compared to net sales of $131.7 and earnings per diluted share of $0.71 for the fourth quarter of 2009.  Included in the fourth quarter results were a $0.05 per diluted share charge related to a non-income tax contingency and a $0.05 per diluted share charge related to an out-of-period charge at one of the Company’s affiliates.  Both items are described below.

Full year 2010 sales were $544.1 million and earnings per diluted share were $2.77, compared to full year 2009 sales of $451.5 million and earnings per diluted share of $1.47.

Michael F. Barry, Chairman, Chief Executive Officer and President, commented, “2010 was a record year in earnings for Quaker.  We are now considerably more profitable than before the global economic crisis.  While our revenue has continued to recover, it is still down 6% from our highpoint in 2008.  However, our earnings are at an all-time high and more than double from 2008.  Besides our strong results, we are pleased with the progress we made in other areas.  We made two small but strategic acquisitions, increased our dividend, and enhanced our financial flexibility by extending and increasing our revolving credit line.  As we exited 2010, our financial condition was strong and we are strategically well positioned for future growth.”

Further, Mr. Barry stated, “As expected, continued raw material cost escalation in the fourth quarter resulted in a lag effect on margins, causing our gross margins to be at their lowest level of the year.  In the first quarter of 2011, we have implemented significant price increases in order to restore our margins to more acceptable levels.  Despite the negative impact on margins, our volumes remained strong and we were still able to achieve the fourth highest quarterly profit in the Company’s history.”

Mr. Barry continued, “In 2011, we expect to have good growth due to our leadership positions in faster growing economies like China, Brazil and India, as well as continued recovery in the more mature markets such as the U.S. and Europe.  We will also be investing in additional resources to support that growth, especially in the emerging markets.  While the current Middle East tensions put greater uncertainty on raw material pricing, our goal is to continue our profit growth and build upon the record profits we achieved in 2010.  In addition, we expect to continue to make strategic acquisitions and are currently evaluating several opportunities.  In summary, I am confident in our future and I am encouraged by our prospects for 2011 and beyond.”

Fourth Quarter Summary

Net sales for the fourth quarter were $142.1 million, up 8% from $131.7 million for the fourth quarter of 2009.  The increase in net sales was primarily the result of an 8% increase in volume which was experienced across the globe.

 
 
Selling prices and mix increased revenues by approximately 5%, as the Company implemented price increases to help offset higher raw material costs.  These increases were partially offset by lower automotive chemical management services (“CMS”) revenue reported on a gross basis and lower foreign exchange rates which decreased revenues by approximately 3% and 1%, respectively.

Gross profit increased slightly compared to the fourth quarter of 2010, as the Company’s gross margin decreased to 33.7% compared to 36.1% in the fourth quarter of 2009.  The decrease in gross margin was primarily driven by increased raw material costs.  The Company is in the process of implementing additional price increases, in part, to recover these higher raw material costs and its margins.

Selling, general and administrative expenses (“SG&A”) were flat compared to the fourth quarter of 2009.  Higher selling costs on increased business activity, as well as higher professional fees related to the Company’s acquisition activity, were offset by lower incentive compensation costs as well as reductions from foreign exchange rate translation.  SG&A as a percentage of sales decreased from 27% in the fourth quarter of 2009 to 25% in the fourth quarter of 2010.

Included in the fourth quarter of 2010 is a $0.6 million or approximately $0.05 per diluted share charge related to a non-income tax contingency discussed below in the Full Year Summary.

Net interest expense decreased due to lower interest rates, lower average debt balances as well as higher interest income.
 
Equity in net income of associated companies includes an out-of-period charge of approximately $0.05 per diluted share.  In the fourth quarter of 2010, the Company identified shortfalls in reserves related to pension and other items at one of the Company’s affiliates.  The affiliate adjusted these shortfalls in the fourth quarter of 2010, and the Company does not believe these adjustments are material to the Company’s consolidated financial statements.

Full Year Summary

Net sales for 2010 were $544.1 million, an increase of $92.6 million, or approximately 21%, compared to $451.5 million for 2009.  The increase in sales was driven by significant increases in volume across the globe, as the comparisons to the prior year continue to reflect recovery from the global economic downturn.  The volume increases were partially offset by lower CMS revenue reported on a gross basis, which decreased revenues by approximately 4%.  Changes in price/mix and foreign exchange rate translation each increased revenues by approximately 1%.

Gross profit increased $36.0 million, or 23%, compared to 2009, largely as a result of increased volumes.  The gross margin increased to 35.4% in 2010 from 34.7% in 2009.  Raw material costs did not begin to significantly increase until the middle of the second quarter of 2010 and continued through the end of 2010.  Only a portion of these higher costs were recovered through price increases in 2010.  Additional price increases are being implemented in early 2011 as part of the Company’s effort to recover margins.  However, the reduction in gross margin from higher raw material costs was tempered by reduced automotive CMS revenues reported on a gross basis which increased the gross margin by approximately 1 percentage point.

SG&A increased $13.2 million, or 10%, compared to 2009.  Higher selling costs with increased business activity, inflationary costs, as well as increased incentive compensation were the primary drivers of the increase, representing 66% of the increase.  Differences in foreign exchange rates, higher professional fees related to acquisitions and other costs accounted for the remainder of the increase.  SG&A as percentage of sales decreased from 28% in 2009 to 26% in 2010.

As initially disclosed in the Company’s second quarter 2010 Form 10-Q, one of the Company’s subsidiaries may have paid certain value-added-taxes (“VAT”) to an incorrect jurisdiction and, in certain cases, may not have collected sufficient VAT from certain customers.  The VAT regulations and circumstances surrounding this issue are extremely complex.  As a result, it is difficult to estimate both the probability and the amount of any potential exposure.  Included in the 2010 results is a charge of $4.1 million or approximately $0.26 per diluted share, consisting of two tax dispute settlements entered into by the subsidiary and the Company’s estimate of the net amount that may be ultimately paid to the other jurisdiction that has made inquiries of the subsidiary.  Please refer to the Company’s 2010 Annual Report on Form 10-K for further discussion of this matter.

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In 2009, the Company implemented and completed a restructuring program totaling $2.3 million or approximately $0.14 per diluted share.  The Company incurred a final charge related to the former CEO’s supplemental retirement plan of approximately $1.3 million, or $0.08 per diluted share, in 2010, compared to a charge of $2.4 million, or $0.14 per diluted share, in 2009.

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

Equity in net income of associated companies includes charges totaling approximately $0.08 per diluted share related to the first quarter 2010 devaluation of the Venezuelan Bolivar Fuerte and the out-of-period charge discussed above.

The increase in net income attributable to noncontrolling interests reflects improved profitability from these affiliates, as the prior year comparisons are affected by the global economic downturn.

Balance Sheet and Cash Flow Items

Operating cash flow increased by $18.0 million in the fourth quarter of 2010 on strong earnings and improvements in working capital.  Additionally, during the fourth quarter of 2010, the Company completed the acquisition of Summit Lubricants Inc., a leading specialty grease manufacturer, for a purchase price of $29.1 million.

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 fourth quarter results is scheduled for March 3, 2011 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 and share amounts)	 	

 	 	(Unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended December 31,	 	 	Twelve Months Ended December 31,	 	
 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	142,083	 	 	$	131,726	 	 	$	544,063	 	 	$	451,490	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of goods sold	 	 	94,193	 	 	 	84,111	 	 	 	351,274	 	 	 	294,652	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	 	47,890	 	 	 	47,615	 	 	 	192,789	 	 	 	156,838	 	
     %	 	 	33.7	%	 	 	36.1	%	 	 	35.4	%	 	 	34.7	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	35,723	 	 	 	35,625	 	 	 	139,209	 	 	 	126,018	 	
Non-income tax contingency charge	 	 	551	 	 	 	-	 	 	 	4,132	 	 	 	-	 	
Restructuring and related charges	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,289	 	
CEO transition costs	 	 	-	 	 	 	-	 	 	 	1,317	 	 	 	2,443	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	11,616	 	 	 	11,990	 	 	 	48,131	 	 	 	26,088	 	
     %	 	 	8.2	%	 	 	9.1	%	 	 	8.8	%	 	 	5.8	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income, net	 	 	540	 	 	 	382	 	 	 	2,106	 	 	 	2,409	 	
Interest expense, net	 	 	(822	)	 	 	(1,220	)	 	 	(4,024	)	 	 	(4,805	)	
Income before taxes and equity in net income of associated companies	 	 	11,334	 	 	 	11,152	 	 	 	46,213	 	 	 	23,692	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Taxes on income before equity in net income of associated companies	 	 	3,631	 	 	 	3,002	 	 	 	12,616	 	 	 	7,065	 	
Income before equity in net income of associated companies	 	 	7,703	 	 	 	8,150	 	 	 	33,597	 	 	 	16,627	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in net (loss) income of associated companies	 	 	(240	)	 	 	223	 	 	 	494	 	 	 	863	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	7,463	 	 	 	8,373	 	 	 	34,091	 	 	 	17,490	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interest	 	 	568	 	 	 	441	 	 	 	2,284	 	 	 	1,270	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Quaker Chemical Corporation	 	$	6,895	 	 	$	7,932	 	 	$	31,807	 	 	$	16,220	 	
     %	 	 	4.9	%	 	 	6.0	%	 	 	5.8	%	 	 	3.6	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Per share data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Quaker Chemical Corporation Common Shareholders - basic	 	$	0.60	 	 	$	0.72	 	 	$	2.82	 	 	$	1.48	 	
Net income attributable to Quaker Chemical Corporation Common Shareholders - diluted	 	$	0.59	 	 	$	0.71	 	 	$	2.77	 	 	$	1.47	 	

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Quaker Chemical Corporation	 	
Condensed Consolidated Balance Sheet	 	
(Dollars in thousands, except par value and share amounts)	 	
 	 	 	 	 	 	 	
 	 	(Unaudited)	 	
 	 	 	 	 	 	 	
 	 	December 31,	 	 	December 31,	 	
 	 	2010	 	 	2009	 	
ASSETS	 	 	 	 	 	 	
 	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	
Cash and cash equivalents	 	$	25,766	 	 	$	25,051	 	
Construction fund (restricted cash)	 	 	-	 	 	 	2,358	 	
Accounts receivable, net	 	 	116,266	 	 	 	108,793	 	
Inventories	 	 	60,841	 	 	 	50,040	 	
Current deferred tax assets	 	 	4,624	 	 	 	5,523	 	
Prepaid expenses and other current assets	 	 	7,985	 	 	 	7,409	 	
Total current assets	 	 	215,482	 	 	 	199,174	 	
 	 	 	 	 	 	 	 	 	
Property, plant and equipment, net	 	 	76,535	 	 	 	67,426	 	
Goodwill	 	 	52,758	 	 	 	46,515	 	
Other intangible assets, net	 	 	24,030	 	 	 	5,579	 	
Investments in associated companies	 	 	9,218	 	 	 	8,824	 	
Non-current deferred tax assets	 	 	28,846	 	 	 	28,237	 	
Other assets	 	 	42,561	 	 	 	39,537	 	
Total assets	 	$	449,430	 	 	$	395,292	 	
 	 	 	 	 	 	 	 	 	
LIABILITIES AND EQUITY	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Short-term borrowings and current portion of long-term debt	 	$	890	 	 	$	2,431	 	
Accounts payable	 	 	61,192	 	 	 	58,389	 	
Dividends payable	 	 	2,701	 	 	 	2,550	 	
Accrued compensation	 	 	17,140	 	 	 	16,656	 	
Accrued pension and postretirement benefits	 	 	1,672	 	 	 	4,717	 	
Current deferred tax liabilities	 	 	181	 	 	 	213	 	
Other current liabilities	 	 	17,415	 	 	 	15,224	 	
Total current liabilities	 	 	101,191	 	 	 	100,180	 	
Long-term debt	 	 	73,855	 	 	 	63,685	 	
Non-current deferred tax liabilities	 	 	6,108	 	 	 	5,213	 	
Accrued pension and postretirement benefits	 	 	30,016	 	 	 	27,602	 	
Other non-current liabilities	 	 	51,161	 	 	 	42,317	 	
Total liabilities	 	 	262,331	 	 	 	238,997	 	
 	 	 	 	 	 	 	 	 	
Equity	 	 	 	 	 	 	 	 	
Common stock, $1 par value; authorized 30,000,000 shares;
issued 2010 - 11,492,142 shares	 	 	11,492	 	 	 	11,086	 	
Capital in excess of par value	 	 	38,275	 	 	 	27,527	 	
Retained earnings	 	 	144,347	 	 	 	123,140	 	
Accumulated other comprehensive loss	 	 	(13,736	)	 	 	(10,439	)	
Total Quaker shareholders' equity	 	 	180,378	 	 	 	151,314	 	
Noncontrolling interest	 	 	6,721	 	 	 	4,981	 	
Total equity	 	 	187,099	 	 	 	156,295	 	
Total liabilities and equity	 	$	449,430	 	 	$	395,292	 	

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Quaker Chemical Corporation	 	
Condensed Consolidated Statement of Cash Flows	 	
For the twelve months ended December 31,	 	
(Dollars in thousands)	 	

 	 	(Unaudited)	 	
 	 	2010	 	 	2009	 	
Cash flows from operating activities	 	 	 	 	 	 	
Net income	 	$	34,091	 	 	$	17,490	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation	 	 	9,867	 	 	 	9,525	 	
Amortization	 	 	988	 	 	 	1,078	 	
Equity in net income of associated companies, net of dividends	 	 	19	 	 	 	(833	)	
Deferred income tax	 	 	1,849	 	 	 	(505	)	
Uncertain tax positions (non-deferred portion)	 	 	(1,130	)	 	 	1,266	 	
Deferred compensation and other, net	 	 	(628	)	 	 	652	 	
Stock-based compensation	 	 	3,096	 	 	 	2,130	 	
Restructuring and related charges, net	 	 	-	 	 	 	2,289	 	
Loss (gain) on disposal of property, plant and equipment	 	 	32	 	 	 	(1,202	)	
Insurance settlement realized	 	 	(1,640	)	 	 	(1,608	)	
Pension and other postretirement benefits	 	 	(2,636	)	 	 	(7,929	)	
 	 	 	 	 	 	 	 	 	
Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(4,469	)	 	 	(6,816	)	
Inventories	 	 	(7,153	)	 	 	9,765	 	
Prepaid expenses and other current assets	 	 	(814	)	 	 	(129	)	
Accounts payable and accrued liabilities	 	 	5,511	 	 	 	16,540	 	
Change in restructuring liabilities	 	 	-	 	 	 	(4,473	)	
Estimated taxes on income	 	 	564	 	 	 	4,363	 	
Net cash provided by operating activities	 	 	37,547	 	 	 	41,603	 	
 	 	 	 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(9,354	)	 	 	(13,834	)	
Payments related to acquisitions, net of cash acquired	 	 	(35,909	)	 	 	(1,975	)	
Proceeds from disposition of assets	 	 	229	 	 	 	1,666	 	
Insurance settlement received and interest earned	 	 	5,122	 	 	 	5,204	 	
Change in restricted cash, net	 	 	(1,124	)	 	 	2,327	 	
Net cash used in investing activities	 	 	(41,036	)	 	 	(6,612	)	
 	 	 	 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	 	
Net decrease in short-term borrowings	 	 	(1,456	)	 	 	(1,755	)	
Proceeds from long-term debt	 	 	9,841	 	 	 	3,500	 	
Repayments of long-term debt	 	 	(636	)	 	 	(23,973	)	
Dividends paid	 	 	(10,449	)	 	 	(10,111	)	
Stock options exercised, other	 	 	5,500	 	 	 	412	 	
Excess tax benefit related to stock option exercises	 	 	2,558	 	 	 	-	 	
Distributions to minority shareholders	 	 	(1,021	)	 	 	(890	)	
Net cash provided by (used in) financing activities	 	 	4,337	 	 	 	(32,817	)	
 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash	 	 	(133	)	 	 	1,985	 	
Net increase in cash and cash equivalents	 	 	715	 	 	 	4,159	 	
Cash and cash equivalents at the beginning of the period	 	 	25,051	 	 	 	20,892	 	
Cash and cash equivalents at the end of the period	 	$	25,766	 	 	$	25,051