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, 1995 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, 1995 8,852,929 ----------------- - 1 - 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, 1995 and December 31, 1994 Consolidated statement of income for the nine months ended September 30, 1995 and 1994 Consolidated statement of income for the three months ended September 30, 1995 and 1994 Consolidated statement of cash flows for the nine months ended September 30, 1995 and 1994 * * * * * * * * * * 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 adjust ments, 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; 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. Certain reclassifications of prior year's data have been made to improve comparability. - 2 - Quaker Chemical Corporation Consolidated Balance Sheet (dollars in thousands) September 30, December 31, 1995 1994 (Unaudited) * Assets - ------------------------------------------------------------------------------ Current assets Cash and cash equivalents $ 6,766 $ 11,345 Accounts receivable 50,275 43,841 Inventories Raw materials and supplies 9,905 8,795 Work in process and finished goods 11,177 9,042 Deferred income taxes 1,878 1,473 Prepaid expenses and other current assets 9,369 8,904 -------- -------- 89,370 83,400 -------- -------- Investments in and advances to associated companies 10,869 9,885 -------- -------- Property, plant and equipment, at cost Land 6,986 6,702 Buildings and improvements 38,370 34,529 Machinery and equipment 68,347 63,403 Construction in progress 4,013 1,015 -------- -------- 117,716 105,649 Less accumulated depreciation 60,647 53,955 -------- -------- 57,069 51,694 -------- -------- Excess of cost over net assets of acquired companies 17,684 12,262 Deferred income taxes 5,052 4,971 Other noncurrent assets 8,117 7,960 -------- -------- 30,853 25,193 -------- -------- $188,161 $170,172 ======== ======== 2 * Condensed from audited financial statements. - 3 - Quaker Chemical Corporation Consolidated Balance Sheet (dollars in thousands) September 30, December 31, 1995 1994 (Unaudited) * Liabilities and shareholders' equity - ------------------------------------------------------------------------------ Current liabilities Short-term borrowings and current portion of notes payable, long-term debt and capital leases $ 24,015 $ 8,062 Accounts payable 18,175 20,575 Dividends payable 1,498 1,500 Accrued liabilities 12,863 12,231 Estimated taxes on income 680 440 -------- -------- Total current liabilities 57,231 42,808 -------- -------- Long-term debt, notes payable and capital leases 10,189 12,207 Deferred income taxes 3,201 3,081 Accrued postretirement benefits 8,920 8,767 Other noncurrent liabilities 7,118 7,029 -------- -------- Total noncurrent liabilities 29,428 31,084 -------- -------- 86,659 73,892 -------- -------- Minority interest in equity of subsidiaries 2,766 2,603 -------- -------- 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 499 649 Retained earnings 89,117 87,137 Foreign currency translation adjustments 13,307 9,856 -------- -------- 112,587 107,306 Treasury stock, shares held at cost; 1995 - 848,046, 1994 - 844,691 (13,851) (13,629) -------- -------- 98,736 93,677 -------- -------- $188,161 $170,172 ======== ======== * 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) 1995 1994 ------ ------ Income Net sales $171,434 $142,557 Other income, net 1,485 1,294 -------- -------- 172,919 143,851 -------- -------- Costs and expenses Cost of goods sold 102,269 80,352 Selling, administrative and general expenses 58,705 51,882 -------- -------- 160,974 132,234 -------- -------- Income from operations 11,945 11,617 Interest expense (1,207) (1,107) Interest income 202 346 -------- -------- Income before taxes 10,940 10,856 Taxes on income 4,354 4,332 -------- -------- 6,586 6,524 Equity in net income of associated companies 220 555 Minority interest in net income of subsidiaries (321) (286) -------- -------- Net income $ 6,485 $ 6,793 ======== ======== Per share data: Net income $0.74 $0.74 Dividends declared $0.51 $0.46 Based on weighted average number of shares outstanding 8,813,387 9,229,236 - 5 - Quaker Chemical Corporation Consolidated Statement of Income Three Months Ended September 30, Unaudited (dollars in thousands except per share data) 1995 1994 Income Net sales $57,872 $50,117 Other income, net 585 355 -------- -------- 58,457 50,472 -------- -------- Costs and expenses Cost of goods sold 34,434 28,220 Selling, administrative and general expenses 20,030 18,143 -------- -------- 54,464 46,363 -------- -------- Income from operations 3,993 4,109 Interest expense (472) (373) Interest income 52 50 -------- -------- Income before taxes 3,573 3,786 Taxes on income 1,429 1,539 -------- -------- 2,144 2,247 Equity in net income of associated companies 23 231 Minority interest in net income of subsidiaries (68) (125) Net income $ 2,099 $ 2,353 ======== ======== Per share data: Net income $0.24 $0.26 Dividends declared $0.17 $0.17 Based on weighted average number of shares outstanding 8,812,074 9,182,098 - 6 - Quaker Chemical Corporation Consolidated Statement of Cash Flows For the Nine Months Ended September 30, Unaudited (dollars in thousands) 1995 1994 Cash flows from operating activities: Net income $6,485 $6,793 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 4,722 5,113 Amortization 1,205 795 Equity in net income of associated companies (220) (555) Minority interest in earnings of subsidiaries 321 286 Deferred income taxes 15 110 Deferred compensation and other postretirement benefits 358 (156) Net change in repositioning liability (859) (3,436) Other, net (260) (98) Increase (decrease) in cash from changes in current assets and liabilities net of acquisitions and divestitures: Accounts receivable (5,055) (4,995) Inventories (2,181) (2,618) Prepaid expenses (including taxes) and other current assets (2,618) (756) Accounts payable and accrued liabilities (2,325) 1,771 Estimated taxes on income 252 128 ------- ------ Net cash (used in) provided by operating activities (160) 2,382 ------- ------ Cash flows from investing activities: Short-term investments 1,000 Dividends from associated companies 59 927 Investments in property, plant, equipment and other assets (7,794) (5,134) Companies/businesses acquired excluding cash (6,628) Investments in and advances to associated companies (1,076) (4,325) Proceeds from the sale of patent, production technology and other related assets 2,000 Proceeds from the sale of subsidiary 8,446 Other 776 ------- ------ Net cash (used in) provided by investing activities (13,439) 1,690 ------- ------ Cash flows from financing activities: Net increase in other short-term borrowings 14,544 6,995 Net increase in notes payable 2,836 Repayment of long-term debt and capital leases (3,501) (8,718) Dividends paid (4,505) (4,305) Treasury stock issued (acquired), net (373) (4,926) Other (141) ------- ------ Net cash provided by (used in) financing activities 8,860 (10,954) ------- ------ Effect of exchange rate changes on cash 160 (55) ------- ------ Net decrease in cash and cash equivalents (4,579) (6,937) Cash and cash equivalents at beginning of year 11,345 19,293 ------- ------ Cash and cash equivalents at end of period $6,766 $12,356 ====== ======= Supplemental cash flow information Cash paid for income taxes and interest was as follows: Income taxes $4,991 $4,937 Interest 1,404 1,350 -7- Quaker Chemical Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Despite a decrease of $17.2 million in 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 and capital lease) during the first nine months of 1995, the company remains strong in its ability to generate adequate cash to meet the needs of current operations and to fund strategic initiatives. The decline in the net cash position is due largely to increased short-term borrowings associated with financing (i) the purchase on May 31, 1995 of a 90% interest in Celumi Ltda., a Brazilian metalworking business, for approximately $6.6 million in cash and notes (ii) increases in operating working capital (primarily increases in accounts receivable generated from higher sales) and (iii) the replacement of maturing long-term obligations with short-term debt. Operating working capital increased approximately $11.8 million as a result of higher sales activity, particularly in Europe. Other major sources and uses of cash during the first nine months of 1995 included: a receipt of $2.0 million related to the 1993 sale of the SULFA-SCRUB (registered trademark) patents and technology; $7.8 million in expenditures for additions to property, plant and equipment and other assets, and dividend payments of $4.5 million. The current ratio at September 30, 1995 was 1.6/1 as compared to 1.9/1 at December 31, 1994 essentially reflecting the impact of the aforementioned change in short-term debt. Comparison of Nine Months 1995 with Nine Months 1994 Through nine months, consolidated net sales increased $28.9 million (20%) due mainly to increased sales volume, particularly in Europe, and the appreciation of European currencies versus the U.S. dollar. Income from operations improved $.3 million as higher sales volume offset lower gross margins resulting from raw material cost inflation. The increase in sales was due to a 9% increase in volume; a 6% improvement associated with currency translation; and increases from price/mix and business acquisitions in Europe and South America of 2% and 3%, respectively. Operating margins as a percentage of sales declined due to the negative effect of rising raw material costs. Other income rose primarily because of increased license fee income. Net interest costs rose due to the above-noted decline in the company's net cash position. The decrease in equity in net income from associated companies was due to business development investment costs in the company's Fluid Recycling Services joint venture. Net income was impacted favorably by approximately $.07 per share due to currency translation. - 8 - The company continues to be encouraged by sales trends, particularly in Europe. However, pricing conditions in the company's major markets remain highly competitive, and will make it difficult to restore gross margins to more desirable levels in the coming months. Comparison of Third Quarter 1995 with Third Quarter 1994 Consolidated net sales for the third quarter of 1995 increased $7.8 million (15%) due mainly to increased sales volume, particularly in Europe, and the appreciation of European currencies versus the U.S. dollar. Income from operations was down $.2 million due to lower gross margins resulting from raw material cost inflation and a one-time charge for a recently declared bankruptcy of one of the company's U.S. steel customers. The increase in sales was due to a 7% increase in volume; a 3% improvement associated with currency translation; and increases from price/mix and business acquisitions in Europe and South America of 1% and 4%, respectively. The one-time charge noted above had an adverse impact on net income of approximately $.02 per share. The reasons for the changes in operating margin percentages, other income and net interest costs in the third quarter 1995 versus third quarter 1994 are basically the same as those previously mentioned for the comparative nine-month periods. The decrease in equity in net income from associated companies was primarily due to lower earnings from the company's Japanese affiliate, which is being hampered by sluggish demand in the Japanese steel industry, and business development investment costs in the company's Fluid Recycling Services joint venture. - 9 - PART II. OTHER INFORMATION Items 1, 2, 3, 4 and 5 are inapplicable and have been omitted. Item 6. (a) Exhibits 10(i)--Employment Agreement between the Registrant and Ronald J. Naples dated August 14, 1995. 10(j)--Amendment to the Stock Option Agreement between the Registrant and Ronald J. Naples dated October 2, 1995. 27--Financial Data Schedule. (b) Reports on Form 8-K. No report on Form 8-K was filed during the quarter for which this report is filed. - 10 - * * * * * * * * * 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/ RICHARD J. FAGAN ---------------------------------- Richard J. Fagan, officer duly authorized to sign this report, Corporate Controller, Acting Corporate Treasurer and Principal Financial and Chief Accounting Officer Date: November 13, 1995 ----------------------- - 11 -