-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BR3JBnVQr87NkmE5nM9ckq4D6fQA3YPOrMJeBJMkgz4S7Z4cXs/XQIUe3bMWWQ6W BxYeAksyRxg+lhS9z0/2lA== 0000920049-98-000045.txt : 19981123 0000920049-98-000045.hdr.sgml : 19981123 ACCESSION NUMBER: 0000920049-98-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUAKER CHEMICAL CORP CENTRAL INDEX KEY: 0000081362 STANDARD INDUSTRIAL CLASSIFICATION: 2990 IRS NUMBER: 230993790 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12019 FILM NUMBER: 98753467 BUSINESS ADDRESS: STREET 1: ELM AND LEE STS CITY: CONSHOHOCKEN STATE: PA ZIP: 19428 BUSINESS PHONE: 2158324011 MAIL ADDRESS: STREET 1: ELM & LEE STS CITY: CONSHOHOCKEN STATE: PA ZIP: 19428 10-Q 1 QUARTERLY REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ----------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to____________ Commission file number 0-7154 QUAKER CHEMICAL CORPORATION --------------------------- (Exact name of Registrant as specified in its charter) Pennsylvania 23-0993790 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Elm and Lee Streets, Conshohocken, Pennsylvania 19428 - 0809 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 610-832-4000 ------------ Not Applicable -------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of Shares of Common Stock Outstanding on October 31, 1998 8,807,413 ================================================================================ PART I. FINANCIAL INFORMATION QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED FINANCIAL INFORMATION The following condensed financial statements are filed as part of this quarterly report on Form 10-Q: Consolidated Balance Sheet at September 30, 1998 and December 31, 1997 Consolidated Statement of Income for the nine months ended September 30, 1998 and 1997 Consolidated Statement of Income for the three months ended September 30, 1998 and 1997 Consolidated Statement of Cash Flows for the nine months ended September 30, 1998 and 1997. * * * * * * * * * * NOTE TO CONDENSED FINANCIAL INFORMATION The attached condensed financial information has been prepared in accordance with instructions for Form 10-Q and, therefore, does not include all financial note information which might be necessary for a fair presentation in accordance with generally accepted accounting principles. Such condensed financial information is unaudited, but in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments and accruals, necessary for a fair presentation of results for the periods indicated. The net income reported for the periods should not necessarily be regarded as indicative of net income on an annualized basis (see accompanying Management's Discussion and Analysis-Other Significant Items); however, significant variations from the results for the same period of the previous year, if any, have been disclosed in the accompanying Management's Discussion and Analysis. 2 Quaker Chemical Corporation Consolidated Balance Sheet (dollars in thousands) September 30, December 31, 1998 1997 (Unaudited) * Assets Current assets Cash and cash equivalents $ 11,789 $ 18,416 Accounts receivable 56,120 48,625 Inventories Raw materials and supplies 13,092 10,316 Work in process and finished goods 13,368 11,365 Deferred income taxes 6,952 5,729 Prepaid expenses and other current assets 6,459 3,675 --------- --------- Total current assets 107,780 98,126 --------- --------- Investments in and advances to associated companies 4,681 4,925 --------- --------- Property, plant and equipment, at cost Land 5,842 5,751 Buildings and improvements 37,310 31,523 Machinery and equipment 62,991 58,532 Construction in progress 4,660 1,213 --------- --------- 110,803 97,019 Less accumulated depreciation 61,257 56,365 --------- --------- Total property, plant and equipment 49,546 40,654 Goodwill, net 21,413 14,500 Deferred income taxes 9,143 9,090 Other noncurrent assets 2,912 3,345 --------- --------- Total noncurrent assets 83,014 67,589 --------- --------- $195,475 $170,640 ========= ========= * Condensed from audited financial statements. 3 Quaker Chemical Corporation Consolidated Balance Sheet (dollars in thousands) September 30, December 31, 1998 1997 (Unaudited) * Liabilities Current liabilities Short-term borrowings $ 7,646 $ - Accounts payable 22,274 22,871 Dividends payable 1,673 1,570 Accrued liabilities 22,944 20,824 Estimated taxes on income 3,585 2,494 --------- -------- Total current liabilities 58,122 47,759 --------- -------- Long-term debt 25,394 25,203 Deferred income taxes 3,644 3,752 Accrued postretirement benefits 8,965 8,934 Other noncurrent liabilities 5,938 5,825 --------- -------- Total noncurrent liabilities 43,941 43,714 --------- -------- Total liabilities 102,063 91,473 --------- -------- Minority interest in equity of subsidiaries 8,710 3,525 --------- -------- Shareholders' equity Common stock, $1 par value; authorized 30,000,000 shares; issued (including treasury shares) 9,664,009 shares 9,664 9,664 Capital in excess of par value 1,303 928 Retained earnings 85,832 80,749 Unearned compensation (331) (528) Foreign currency translation adjustments 2,034 (208) --------- -------- 98,502 90,605 Treasury stock, shares held at cost; 1998 - 860,344, 1997 - 943,552 (13,800) (14,963) --------- -------- Total shareholders' equity 84,702 75,642 --------- -------- $195,475 $170,640 ========= ======== * Condensed from audited financial statements 4 Quaker Chemical Corporation Consolidated Statement of Income Nine Months Ended September 30, Unaudited (dollars in thousands except per share data) 1998 1997 Net sales $193,581 $ 177,542 -------- --------- Costs and expenses Cost of goods sold 107,114 99,519 Selling, administrative and general expenses 69,917 64,908 Gain on sale of European pulp and paper business (2,621) -------- --------- 177,031 161,806 -------- --------- Income from operations 16,550 15,736 Other income, net 1,023 1,414 Interest expense (1,531) (1,168) Interest income 430 200 -------- --------- Income before taxes 16,472 16,182 Taxes on income 6,589 6,342 -------- --------- 9,883 9,840 Equity in net income of associated companies 781 941 Minority interest in net income of subsidiaries (745) (238) -------- --------- Net income $ 9,919 $ 10,543 ======== ========= Per share data: Net income - basic $1.13 $1.22 Net income - diluted $1.12 $1.22 Dividends declared $0.55 $0.53 Based on weighted average number of shares outstanding: Basic 8,773,478 8,661,836 Diluted 8,848,304 8,667,797 5 Quaker Chemical Corporation Consolidated Statement of Income Three Months Ended September 30, Unaudited (dollars in thousands except per share data) 1998 1997 Net sales $ 65,991 $ 58,687 ---------- ---------- Costs and expenses Cost of goods sold 36,439 32,362 Selling, administrative and general expenses 23,729 21,260 ---------- ---------- 60,168 53,622 ---------- ---------- Income from operations 5,823 5,065 Other income, net 484 432 Interest expense (614) (374) Interest income 75 95 ---------- ---------- Income before taxes 5,768 5,218 Taxes on income 2,307 2,081 ---------- ---------- 3,461 3,137 Equity in net income of associated companies 279 321 Minority interest in net income of subsidiaries (185) (139) ---------- ---------- Net income $ 3,555 $ 3,319 ========== ========== Per share data: Net income - basic $0.40 $0.38 Net income - diluted $0.40 $0.38 Dividends declared $0.19 $0.18 Based on weighted average number of shares outstanding: Basic 8,798,561 8,704,525 Diluted 8,861,941 8,735,811 6
Quaker Chemical Corporation Consolidated Statement of Cash Flows For the Nine Months Ended September 30, Unaudited (dollars in thousands) 1998 1997 Cash flows from operating activities Net income $ 9,919 $10,543 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,847 3,630 Amortization 1,612 1,435 Equity in net income of associated companies (780) (941) Minority interest in earnings of subsidiaries 751 210 Deferred income taxes (22) 33 Deferred compensation and other postretirement benefits 1,013 592 Gain on sale of European pulp and paper business (2,621) Net change in repositioning liabilities (1,077) (2,767) Other, net (567) 428 Increase (decrease) in cash from changes in current assets and liabilities net of acquisitions and divestitures: Accounts receivable (6,246) (4,547) Inventories (3,073) (577) Prepaid expenses and other current assets (4,159) (3,904) Accounts payable and accrued liabilities 2,473 4,519 Estimated taxes on income 1,097 2,758 -------- ------- Net cash provided by operating activities 4,788 8,791 -------- ------- Cash flows from investing activities Dividends from associated companies 837 603 Investments in property, plant, equipment and other assets (6,401) (3,753) Investments in and advances to associated companies (516) (318) Companies acquired (9,350) - Proceeds from the sale of European pulp and paper business - 3,053 Other, net 8 (146) -------- ------- Net cash used in investing activities (15,422) (561) -------- ------- Cash flows from financing activities Net increase in short-term borrowings and notes payable 7,673 821 Repayment of long-term debt - (4,090) Dividends paid (4,836) (4,608) Treasury stock issued 590 1,506 -------- ------- Net cash provided by (used in) financing activities 3,427 (6,371) -------- ------- Effect of exchange rate changes on cash 580 (530) -------- ------- Net (decrease) increase in cash and cash equivalents (6,627) 1,329 Cash and cash equivalents at beginning of period 18,416 8,525 -------- ------- Cash and cash equivalents at end of period $ 11,789 $ 9,854 ======== ======= Supplemental cash flow information Cash paid during the year for: Income taxes $ 8,579 $ 5,802 Interest 1,877 1,265
7 Quaker Chemical Corporation Notes to Consolidated Financial Statements (Amounts in Thousands) (Unaudited) Note 1 - Weighted Average Shares Outstanding Nine Months Ended Three Months Ended September 30 September 30 ------------ ------------ Basic Diluted Basic Diluted ----- ------- ----- ------- 1998 8,773,478 8,848,304 8,798,561 8,861,941 1997 8,661,836 8,667,797 8,704,525 8,735,811 The difference between basic and diluted weighted average shares outstanding results from the assumption that dilutive stock options outstanding were exercised. Note 2 - Comprehensive Income Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130 - Reporting Comprehensive Income. SFAS No. 130 requires that the components of comprehensive income be reported in the financial statements. The following table summarizes comprehensive income for the nine months ended September 30, 1998 and 1997: 1998 1997 ---- ---- Net income $9,919 $10,543 Foreign currency translation adjustments (net of tax) 2,242 (5,859) ------- ------ Comprehensive income $12,161 $4,684 ======= ====== 8 Quaker Chemical Corporation Notes to Consolidated Financial Statements (Amounts in Thousands) (Unaudited) The following table summarizes comprehensive income for the three months ended September 30, 1998 and 1997: 1998 1997 ---- ---- Net income $3,555 $ 3,319 Foreign currency translation adjustments (net of tax) 3,212 1,161 ------ ------- Comprehensive income $6,767 $ 4,480 ====== ======= 9 Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Net cash flow provided by operating activities amounted to $4.8 million in the first nine months of 1998 compared to $8.8 million in the same period of 1997. The decrease was principally due to changes in working capital offset in part by a reduction in the amount of payments in 1998 related to the repositioning programs. The Company's net cash position (cash and cash equivalents plus short-term investments less short-term borrowings and current portion of long-term debt) decreased $14.3 million primarily as a result of cash required as part of the formation of a majority owned joint venture in Brazil, the acquisition of a small business in Italy, and changes in working capital. This acquisition also accounts for the majority of the increase in the Company's total assets. The current ratio decreased to 1.9 to 1 at September 30, 1998 as compared to 2.1 to 1 at December 31, 1997 due principally to the decrease in the Company's net cash position. Operations Comparison of Nine Months 1998 with Nine Months 1997 Consolidated net sales for the first nine months of 1998 increased by 9% over the first nine months of 1997. The increase in sales was the net result of an 8% increase in volume (steel, metalworking, and aircraft producer markets), a 1% increase due to pricing initiatives and an improved sales mix, a 2% net increase due to acquisition and divestiture activity, offset by a 2% decrease due to foreign currency translation rates. Operating income improved 26% to $16.6 million as compared to $13.1 million (excluding the $2.6 million gain on the European pulp and paper business) in the same period of 1997. The improvement was mainly attributable to the higher level of sales and expanded gross margins. The Company's gross profit margin as a percentage of sales increased 0.8% primarily as a result of an improved sales mix and generally stable raw material costs. Selling, administrative and general expenses as a percentage of sales decreased 0.4% as compared to 1997 due to the upside operating leverage provided at the higher sales level. The decrease in other income was due to the absence of unusually high favorable transactional exchange gains in 1997. Minority interest increased as a result of improved performances by the Company's consolidated joint ventures in China and Australia and earnings from the Company's consolidated joint venture in India which was formed in the fourth quarter of 1997. Basic earnings per share of $1.13 were 11% higher than the prior year (excluding the gain on the sale of the European pulp and paper business) despite a negative foreign currency translation impact of approximately $.05 per share due to the strengthening of the dollar, primarily against the Dutch guilder. Comparison of Third Quarter 1998 with Third Quarter 1997 Consolidated net sales for the third quarter of 1998 increased by 12% over the third quarter of 1997. The increase in sales was the net result of a 7% increase related to the recent acquisition in Brazil, a 3% increase in volume (steel, metalworking, and aircraft producer markets), a 1% increase due to service revenues and a 1% increase due to pricing initiatives. 10 The reasons for changes in operating margin percentages, other income, and equity in net income of associated companies in the third quarter 1998 versus the third quarter 1997 are basically the same as those previously mentioned for the comparative nine-month periods. Basic earnings per share of $.40 were 5% higher than the prior year. Other Significant Items: The Company is actively engaged in assessing and solving its Year 2000 problem. The Company completed a comprehensive assessment of all key systems (both IT and non-IT systems). As to systems found to be non-Year 2000 compliant, the Company initiated a program of systems replacements and updates. The Company plans to complete the majority of this program before year end 1998 and the remaining work in the first quarter 1999. The systems work includes the appropriate level of testing to ensure Year 2000 compliance. Expenditures (historical and future) to be incurred in addressing any Year 2000 problems in the Company's systems are not expected to be material and are currently estimated to be no more than $750 thousand, including amounts which may be capitalized as long-term assets. In addition to this effort, the Company, with the assistance of an outside consultant, is undertaking a second complete assessment of all its IT and non-IT systems. This assessment will be completed in early 1999. The Company is also actively seeking from its third-party providers written assurances that each will be Year 2000 compliant on a timely basis. To date, the Company has received affirmative responses from a majority of its third-party providers and will continue to pursue responses from its material third-party providers who have failed to respond to the initial inquiry. In addition, the Company will seek assurances as to Year 2000 compliance from its key customers and will be contacting these customers in 1999. There can be no assurance, however, that (i) the systems of the Company's material third party providers or key customers will be Year 2000 compliant and (ii) such non-compliance will not have an adverse effect on the Company. The Company believes it is taking reasonable steps to prevent major interruptions in its business resulting from Year 2000 related issues. However, potential sources of risk specific to the Company are mainly external (third party providers and customers) and include, but are not limited to, the inability of principal suppliers to be Year 2000 compliant. This could result in delays in product deliveries from such suppliers. The Company is still developing a reasonable worst case scenario as it relates to the Year 2000 problem and therefore, has not developed a contingency plan to cover any unforeseen problems. The Company plans to complete the worst case analysis and its contingency plan in the first quarter 1999. During the fourth quarter of 1998 the Company expects to finalize integration plans and related charges for its recent acquisition in Brazil, currently estimated to be approximately one million dollars and is evaluating various operational improvement plans in its U.S. and foreign operations, the cost of which may impact future earnings. During 1997 the Financial Accounting Standards Board ("FASB") issued SFAS No. 131 - Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 is effective in 1998. The Company is currently assessing the impact this new standard will have on its financial statements. SFAS No. 131 requires the disclosure of segment information utilizing the approach that the Company uses to manage its internal organization. Also, SFAS No. 131 requires the reporting of segment information on a condensed basis for interim periods beginning in 1999. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments and hedging activities. The standard is effective January 1, 2000. It is not expected that the adoption of this standard will have a material impact on the Company's financial condition. 11 Forward Looking and Cautionary Statements Except for the historical information and discussions contained herein, statements contained in this Form 10-Q may constitute forward looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those projected in such statements. Such risks and uncertainties include, but are not limited to, significant increase in raw material costs, worldwide economic and political conditions, and foreign currency fluctuations that may affect worldwide results of operations. Furthermore, the Company is subject to the same business cycles as those experienced by those manufacturers and their customers (the majority of which are automobile, appliance, or durable good manufacturers or in the construction industry). PART II. OTHER INFORMATION Items 1, 2, 3, 4, and 5 are inapplicable and have been omitted. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit 27-Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report is filed. * * * * * * * * * 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 thereunto duly authorized. QUAKER CHEMICAL CORPORATION ------------------------------------------- (Registrant) /s/ Neil E. Daniels ------------------------------------------- Neil E. Daniels, officer duly authorized to sign this report, acting Treasurer. Date: November 16, 1998 12 EX-27 2 ART.5 FDS FOR THIRD QUARTER 10-Q
5 1,000 3-MOS DEC-31-1998 SEP-30-1998 11,789 0 57,959 1,839 26,460 107,780 110,803 61,257 195,475 58,122 5,000 9,664 0 0 75,038 195,475 193,581 193,581 107,114 177,031 0 0 1,531 16,472 6,589 9,919 0 0 0 9,919 1.13 1.12
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