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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 March 31, 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
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QUAKER CHEMICAL CORPORATION
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-0993790
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Elm and Lee Streets, Conshohocken, Pennsylvania 19428 - 0809
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-832-4000
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Not Applicable
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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 April 30, 1998 8,780,331
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<PAGE>
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 March 31, 1998 and December 31, 1997
Consolidated Statement of Income for the three months
ended March 31, 1998 and 1997
Consolidated Statement of Cash Flows for the three months
ended March 31, 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.
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<PAGE>
Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
March 31, December 31,
1998 1997
(Unaudited) *
Assets
Current assets
Cash and cash equivalents $ 14,126 $ 18,416
Accounts receivable 49,669 48,625
Inventories
Raw materials and supplies 12,583 10,316
Work in process and finished goods 11,950 11,365
Deferred income taxes 5,823 5,729
Prepaid expenses and other current assets 4,752 3,675
-------- --------
Total current assets 98,903 98,126
-------- --------
Investments in and advances to associated companies 4,767 4,925
-------- --------
Property, plant and equipment, at cost
Land 5,676 5,751
Buildings and improvements 31,272 31,523
Machinery and equipment 58,503 58,532
Construction in progress 1,789 1,213
-------- --------
97,240 97,019
Less accumulated depreciation 56,770 56,365
-------- --------
Total property, plant and equipment 40,470 40,654
-------- --------
Goodwill, net 14,179 14,500
Deferred income taxes 9,078 9,090
Other noncurrent assets 2,977 3,345
-------- --------
Total noncurrent assets 26,234 26,935
-------- --------
$170,374 $170,640
======== ========
* Condensed from audited financial statements.
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<PAGE>
Quaker Chemical Corporation
Consolidated Balance Sheet
(dollars in thousands)
March 31, December 31,
1998 1997
(Unaudited) *
Liabilities
Current liabilities
Short-term borrowings, current
portion of long-term debt,
notes payable and capital leases $ 549 $ -
Accounts payable 22,109 22,871
Dividends payable 1,580 1,570
Accrued liabilities 17,241 20,824
Estimated taxes on income 5,165 2,494
-------- --------
Total current liabilities 46,644 47,759
-------- --------
Long-term debt 25,215 25,203
Deferred income taxes 3,611 3,752
Accrued postretirement benefits 8,942 8,934
Other noncurrent liabilities 5,604 5,825
-------- --------
Total noncurrent liabilities 43,372 43,714
-------- --------
Total liabilities 90,016 91,473
-------- --------
Minority interest in equity of subsidiaries 3,804 3,525
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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 1,202 928
Retained earnings 82,063 80,749
Unearned compensation (463) (528)
Foreign currency translation adjustments (1,747) (208)
-------- --------
90,719 90,605
Treasury stock, shares held at cost;
1998 - 885,485, 1997 - 943,552 (14,165) (14,963)
-------- --------
Total shareholders' equity 76,554 75,642
-------- --------
$170,374 $170,640
======== ========
* Condensed from audited financial statements
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Quaker Chemical Corporation
Consolidated Statement of Income
Three Months Ended March 31,
Unaudited
(dollars in thousands
except per share data)
1998 1997
Net sales $ 62,235 $ 58,543
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Costs and expenses
Cost of goods sold 34,498 33,176
Selling, administrative and
general expenses 22,769 21,495
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57,267 54,671
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Income from operations 4,968 3,872
Other income, net 291 352
Interest expense (447) (425)
Interest income 197 60
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Income before taxes 5,009 3,859
Taxes on income 2,004 1,544
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3,005 2,315
Equity in net income of associated
companies 229 287
Minority interest in net income of
subsidiaries (340) (35)
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Net income $ 2,894 $ 2,567
========== ==========
Per share data:
Net income (basic and diluted) $0.33 $0.30
Dividends declared $0.18 $0.175
Based on weighted average number
of shares outstanding:
Basic 8,735,875 8,622,064
Diluted 8,833,700 8,656,541
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<TABLE>
<CAPTION>
Quaker Chemical Corporation
Consolidated Statement of Cash Flows
For the Three Months Ended March 31,
Unaudited
(dollars in thousands)
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,894 $ 2,567
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,295 1,189
Amortization 583 508
Equity in net (income) loss of associated companies (229) (287)
Minority interest in earnings of subsidiaries 328 35
Deferred income taxes (114) (228)
Deferred compensation and other postretirement benefits 338 262
Net change in repositioning liabilities (959) (1,923)
Other, net 192 (17)
Increase (decrease) in cash from changes in current assets
and liabilities net of acquisitions and divestitures:
Accounts receivable (1,619) (1,260)
Inventories (3,054) 415
Prepaid expenses and other current assets (1,171) (1,790)
Accounts payable and accrued liabilities (2,719) 593
Estimated taxes on income 2,915 2,154
-------- --------
Net cash (used in) provided by operating activities (1,320) 2,218
-------- --------
Cash flows from investing activities
Dividends from associated companies 207 --
Investments in property, plant, equipment and other assets (1,473) (1,221)
Investments in and advances to associated companies (70) (120)
Other, net (66) --
-------- --------
Net cash used in investing activities (1,402) (1,341)
-------- --------
Cash flows from financing activities
Net increase in short-term borrowings and notes payable 561 5,541
Repayment of long-term debt -- (1,729)
Dividends paid (1,581) (1,520)
Treasury stock issued 122 122
-------- --------
Net cash (used in) provided by financing activities (898) 2,414
-------- --------
Effect of exchange rate changes on cash (670) (1,952)
-------- --------
Net (decrease) increase in cash and cash equivalents (4,290) 1,339
Cash and cash equivalents at beginning of period 18,416 8,525
-------- --------
Cash and cash equivalents at end of period $ 14,126 $ 9,864
======== ========
Supplemental cash flow information
Cash paid during the quarter for:
Income taxes $ 175 $ 171
Interest 98 431
</TABLE>
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Quaker Chemical Corporation
Quaker Chemical Corporation
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Weighted Average Shares Outstanding
The following table reconciles basic and diluted weighted average shares
outstanding at March 31, 1998 and 1997:
1998 1997
---- ----
Weighted average shares outstanding - basic 8,735,875 8,622,064
Effect of dilutive securities:
Employee stock options 60,480 34,477
Executive stock bonus 37,777
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Weighted average shares outstanding - diluted 8,833,700 8,656,541
========= =========
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 three months ended March 31, 1998 and 1997:
1998 1997
---- ----
Net income $2,894 $ 2,567
Foreign currency translation adjustments (1,539) (5,572)
------ -------
Comprehensive income (loss) $1,355 $(3,005)
====== =======
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<PAGE>
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 $(1.3) million
in the first quarter of 1998 compared to $2.2 million in the same period of
1997. The decrease was principally due to changes in working capital.
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 $4.8 million primarily as a result of changes in working capital. The
current ratio at March 31, 1998 was 2.1 to 1 unchanged from December 31, 1997.
Operations
Comparison of First Quarter 1998 with First Quarter 1997
Consolidated net sales for the first quarter of 1998 increased by 6% over
the first quarter of 1997. The increase in sales was the net result of an 10%
increase in volume offset by a 4% decrease due to foreign currency translation
rates.
Operating income improved 28% to $5.0 million as compared to $3.9 million
in the same period of 1997. The 28% 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 1.3% primarily as a result of improved
sales mix and stable raw material costs. Selling, administrative and general
expenses as a percentage of sales decreased 0.1% as compared to 1997.
Net interest costs declined as an improved cash position versus March 31,
1997 led to higher interest income. 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. Earnings per share of $.33 were
10% higher than the prior year despite a negative foreign currency translation
impact of approximately $.03 per share due to the strengthening of the dollar,
primarily against the Dutch guilder.
Other Significant Items:
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date sensitive information by the Company's
computerized information system. Historically, certain computer programs have
been written using two digits rather than four digits to define the applicable
year. Any of the Company's programs that have time sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures. The costs of addressing
poetential problems are not currently expected to have a material adverse impact
on the Company's financial position, results of operations, or cash flows in
future periods. The Company expects that all necessary modifications or
replacements to key systems will occur on a timely basis.
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.
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<PAGE>
During 1998 the FASB issued SFAS No. 132 - Employers' Disclosure about
Pensions and Other Postretirement Benefits. This statement standardizes the
disclosures for pensions and other postretirement benefits. SFAS No.132 is
effective in 1998 and is not expected to have a material impact on the Company's
financial statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On or about October 24, 1996, Petrolite Corporation and its
subsidiary, Petrolite Holdings, Inc. (collectively, "Petrolite")
filed a Demand for Arbitration with the American Arbitration
Association in St. Louis, Missouri, against the Company and
certain of its subsidiaries. Petrolite asserted claims for
negligent misrepresentation and breach of contract arising out of
a Technology Purchase Agreement (the "Agreement") between
Petrolite and the Company (and certain of its subsidiaries) dated
April 13, 1993, as amended, pursuant to which the Company sold
various assets, including patent rights, to Petrolite for a
purchase price of approximately $8.5 million plus an obligation
to pay royalties. Petrolite sought damages in an unspecified
amount, rescission of the Agreement, costs, and other relief. On
May 11, 1998, the Company and Petrolite agreed in principle to
resolve all disputes between them and terminate the arbitration
proceeding. In connection therewith, the Company agreed to pay
Petrolite an undisclosed amount not to exceed the reserve
previously taken on this matter.
Items 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.
* * * * * * * * *
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<PAGE>
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
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(Registrant)
/s/ Richard J. Fagen
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Richard J. Fagan, officer duly
authorized to sign this report,
Controller, Treasurer and Principal
Financial and Chief Accounting Officer
Date: May 15, 1998
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,126
<SECURITIES> 0
<RECEIVABLES> 50,749
<ALLOWANCES> 1,080
<INVENTORY> 24,533
<CURRENT-ASSETS> 98,903
<PP&E> 97,240
<DEPRECIATION> 56,770
<TOTAL-ASSETS> 170,374
<CURRENT-LIABILITIES> 46,644
<BONDS> 5,000
<COMMON> 9,664
0
0
<OTHER-SE> 66,890
<TOTAL-LIABILITY-AND-EQUITY> 170,374
<SALES> 62,235
<TOTAL-REVENUES> 62,235
<CGS> 34,498
<TOTAL-COSTS> 57,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 447
<INCOME-PRETAX> 5,009
<INCOME-TAX> 2,004
<INCOME-CONTINUING> 2,894
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,894
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
