UNITED STATES

 

 

 

 

UNITED STATES

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, 2016

 

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 001-12019

 

 

 

 

 

 

QUAKER CHEMICAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

 

 

 

 

 

 

 

Pennsylvania

 

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 – 2380

(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   [  ]     

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).            Yes    [X]     No  [  ]     

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer [X]      

 

Accelerated filer  [  ]

 

 

Non-accelerated filer  [  ] (Do not check if smaller reporting company)

Smaller reporting company [  ]

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [  ]    No  [X] 

 

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 March 31, 2016

 

 

13,236,040

  

 

 


 

QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES

 

 

 

 

 

 

  

 

Page

PART I.

  

FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements (unaudited)

 

 

 

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2016 and March 31, 2015

2

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and March 31, 2015

3

 

 

Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015

4

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and March 31, 2015

5

 

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

26

Item 4.

  

Controls and Procedures

27

PART II.

  

OTHER INFORMATION

28

Item 1.

 

Legal Proceedings

28

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 6.

  

Exhibits

29

Signatures

29

  

1


 

PART I

FINANCIAL INFORMATION

 

Item 1.                        Financial Statements (Unaudited).

 

Quaker Chemical Corporation

Condensed Consolidated Statements of Income

(Dollars in thousands, except per share data)

 

 

 

Unaudited

 

 

Three Months Ended March 31,

 

 

2016

 

2015

Net sales

$

178,077

 

$

181,330

Cost of goods sold

  

110,202

 

  

115,002

Gross profit

  

67,875

 

  

66,328

Selling, general and administrative expenses

  

48,641

 

  

48,464

Operating income

  

19,234

 

  

17,864

Other income (expense), net

  

706

 

  

(194)

Interest expense

  

(741)

 

  

(587)

Interest income

  

348

 

  

320

Income before taxes and equity in net income of associated companies

  

19,547

 

  

17,403

Taxes on income before equity in net income of associated companies

  

6,305

 

  

5,359

Income before equity in net income of associated companies

  

13,242

 

  

12,044

Equity in net income (loss) of associated companies

  

102

 

  

(1,437)

Net income

 

13,344

 

 

10,607

Less: Net income attributable to noncontrolling interest

 

398

 

 

229

Net income attributable to Quaker Chemical Corporation

$

12,946

 

$

10,378

Per share data:

  

 

 

  

 

 

Net income attributable to Quaker Chemical Corporation common shareholders – basic

$

0.98

 

$

0.78

 

Net income attributable to Quaker Chemical Corporation common shareholders – diluted

$

0.98

 

$

0.78

 

Dividends declared

$

0.32

 

$

0.30

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

Quaker Chemical Corporation

Condensed Consolidated Statements of Comprehensive Income

(Dollars in thousands)

  

 

 

 

 

Unaudited

 

 

 

Three Months Ended March 31,

 

 

 

 

2016

 

 

2015

Net income

$

13,344

 

$

10,607

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

Currency translation adjustments

 

4,733

 

 

(11,083)

 

Defined benefit retirement plans

 

187

 

 

2,478

 

Unrealized gain on available-for-sale securities

 

456

 

 

70

 

 

Other comprehensive income (loss)

 

5,376

 

 

(8,535)

 

 

 

 

 

 

 

 

Comprehensive income

 

18,720

 

 

2,072

Less: Comprehensive income attributable to noncontrolling interest

 

(460)

 

 

(259)

Comprehensive income attributable to Quaker Chemical Corporation

$

18,260

 

$

1,813

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

Quaker Chemical Corporation

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value and share amounts)

  

 

 

 

 

Unaudited

 

 

 

March 31,  2016

 

December 31, 2015

ASSETS

  

  

 

  

  

Current assets

  

  

 

  

  

 

Cash and cash equivalents

$

94,374

 

$

81,053

 

Accounts receivable, net

  

188,218

 

  

188,297

 

Inventories

  

 

 

  

 

 

 

Raw materials and supplies

  

37,322

 

  

36,876

 

 

Work-in-process and finished goods

  

40,898

 

  

38,223

 

Prepaid expenses and other current assets

  

20,537

 

  

21,404

 

 

Total current assets

  

381,349

 

  

365,853

Property, plant and equipment, at cost

  

236,811

 

  

231,164

 

Less accumulated depreciation

  

(149,576)

 

  

(143,545)

 

 

Net property, plant and equipment

  

87,235

 

  

87,619

Goodwill

  

80,003

 

  

79,111

Other intangible assets, net

  

72,464

 

  

73,287

Investments in associated companies

  

21,194

 

  

20,354

Non-current deferred tax assets

  

19,916

 

  

23,468

Other assets

  

32,405

 

  

32,218

 

 

Total assets

$

694,566

 

$

681,910

  

 

 

  

 

 

  

 

LIABILITIES AND EQUITY

  

 

 

  

 

Current liabilities

  

 

 

  

 

 

Short-term borrowings and current portion of long-term debt

$

645

 

$

662

 

Accounts and other payables

  

69,748

 

  

71,543

 

Accrued compensation

  

13,626

 

  

19,166

 

Accrued restructuring

 

5,969

 

 

6,303

 

Other current liabilities

  

25,397

 

  

26,881

 

 

Total current liabilities

  

115,385

 

  

124,555

Long-term debt

  

97,620

 

  

81,439

Non-current deferred tax liabilities

  

11,071

 

  

11,400

Other non-current liabilities

  

78,964

 

  

83,273

 

 

Total liabilities

  

303,040

 

  

300,667

Commitments and contingencies (Note 15)

 

 

 

 

 

Equity

  

 

 

  

 

 

Common stock $1 par value; authorized 30,000,000 shares; issued and

  

 

 

  

 

 

 

outstanding 2016 – 13,236,040 shares; 2015 – 13,288,113 shares

 

13,236

 

 

13,288

 

Capital in excess of par value

  

107,950

 

  

106,333

 

Retained earnings

  

329,684

 

  

326,740

 

Accumulated other comprehensive loss

  

(68,002)

 

  

(73,316)

 

 

Total Quaker shareholders’ equity

  

382,868

 

  

373,045

Noncontrolling interest

 

8,658

 

 

8,198

Total equity

 

391,526

 

 

381,243

 

 

Total liabilities and equity

$

694,566

 

$

681,910

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

Quaker Chemical Corporation

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

 

 

 

 

 

Unaudited

 

 

 

 

For the Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2016

 

2015

Cash flows from operating activities

  

  

  

  

  

 

Net income

$

13,344

 

$

10,607

 

Adjustments to reconcile net income to net cash provided by operating activities:

  

 

 

  

 

 

 

Depreciation

  

3,157

 

  

3,071

 

 

Amortization

  

1,777

 

  

1,627

 

 

Equity in undistributed earnings of associated companies, net of dividends

  

(27)

 

  

1,437

 

 

Deferred compensation and other, net

  

980

 

  

1,091

 

 

Stock-based compensation

  

1,798

 

  

1,685

 

 

Gain on disposal of property, plant and equipment and other assets

  

(20)

 

  

(21)

 

 

Insurance settlement realized

  

(279)

 

  

(115)

 

 

Pension and other postretirement benefits

  

(2,685)

 

  

10

 

Increase (decrease) in cash from changes in current assets and current

 

 

  

 

 

 

 

liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

  

2,602

 

  

3,428

 

 

Inventories

  

(1,800)

 

  

(2,584)

 

 

Prepaid expenses and other current assets

  

1,183

 

  

(2,634)

 

 

Accounts payable and accrued liabilities

  

(8,647)

 

  

(9,516)

 

 

Change in restructuring liabilities

 

(509)

 

 

 

 

   

Net cash provided by operating activities

  

10,874

 

  

8,086

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

  

 

 

  

 

 

 

Investments in property, plant and equipment

  

(2,172)

 

  

(2,414)

 

 

Payments related to acquisitions, net of cash acquired

  

(1,384)

 

  

528

 

 

Proceeds from disposition of assets

 

26

 

 

80

 

 

Insurance settlement interest earned

  

8

 

  

10

 

 

Change in restricted cash, net

  

271

 

  

105

 

 

   

Net cash used in investing activities

  

(3,251)

 

  

(1,691)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

  

 

 

  

 

 

 

Proceeds from long-term debt

  

14,687

 

  

 

 

Repayment of long-term debt

  

(159)

 

  

(1,327)

 

 

Dividends paid

  

(4,243)

 

  

(3,990)

 

 

Stock options exercised, other

  

(253)

 

  

(50)

 

 

Payments for repurchase of common stock

 

(5,859)

 

 

 

 

Excess tax benefit related to stock option exercises

 

104

 

 

287

 

 

   

Net cash provided by (used in) financing activities

  

4,277

 

  

(5,080)

Effect of exchange rate changes on cash

  

1,421

 

  

(1,708)

 

 

Net increase (decrease) in cash and cash equivalents

  

13,321

 

  

(393)

 

 

Cash and cash equivalents at beginning of period

  

81,053

 

  

64,731

 

 

Cash and cash equivalents at end of period

$

94,374

 

$

64,338

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements 

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

Note 1 – Condensed Financial Information

The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial reporting and the United States Securities and Exchange Commission (“SEC”) regulations.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the financial statements reflect all adjustments (consisting only of normal recurring adjustments, except certain material adjustments, as discussed below) which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods.  The results for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year.  These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2015.  During the first quarter of 2016, the Company revised its Condensed Consolidated Balance Sheet for December 31, 2015, reducing non-current deferred tax assets and non-current deferred tax liabilities by $3.6 million each, to correct for offsetting deferred tax balances within related taxing jurisdictions.  The Company considers such revision to be immaterial and the revision had no impact on reported equity, net income or net cash provided by operating activities. 

Venezuela’s economy has been considered hyper inflationary under U.S. GAAP since 2010, at which time the Company’s Venezuela equity affiliate, Kelko Quaker Chemical, S.A. (“Kelko Venezuela”), changed its functional currency from the bolivar fuerte (“BsF”) to the U.S. dollar.  Accordingly, all gains and losses resulting from the remeasurement of Kelko Venezuela’s monetary assets and liabilities to published exchange rates are required to be recorded directly to the Condensed Consolidated Statement of Income.  As of December 31, 2014, there were three legally available exchange rates in Venezuela, the CADIVI (or the official rate, 6.3 BsF per U.S. dollar), the SICAD I and the SICAD II.  Kelko Venezuela had access to the CADIVI for imported goods, had not been invited to participate in any SICAD I auctions and had limited access to the SICAD II mechanism.  Accordingly, the Company measured its equity investment and other related assets with Kelko Venezuela at the CADIVI exchange rate at December 31, 2014.  During the three months ended March 31, 2015, the Venezuela government announced changes to its foreign exchange controls.  There continued to be three exchange mechanisms, however, they consisted of the CADIVI, a combined SICAD I and SICAD II auction mechanism (the “SICAD”) and a newly created, marginal currency system (the “SIMADI”).  In light of the first quarter of 2015 changes to Venezuela’s foreign exchange controls and the on-going economic challenges in Venezuela, the Company re-assessed Kelko Venezuela’s access to U.S. dollars, the impact on the operations of Kelko Venezuela, and the impact on the Company’s equity investment and other related assets, which resulted in revaluing its equity investment in Kelko Venezuela and other related assets to the SIMADI exchange rate of approximately 193 BsF per U.S. dollar as of March 31, 2015.  This resulted in a charge of $2.8 million, or $0.21 per diluted share, recorded in the three months ended March 31, 2015.  As of December 31, 2015, the Company’s equity investment in Kelko Venezuela was $0.2 million, and continued to be valued at the SIMADI exchange rate, which was approximately 198 BsF per U.S. dollar.

During the three months ended March 31, 2016, the Venezuela government announced further changes to its foreign exchange controls, including eliminating the CADIVI, SICAD and SIMADI exchange rate mechanisms and replacing them with a new dual foreign exchange rate system.  The Company understands that the new dual foreign exchange rate system now consists of a protected “DIPRO” exchange rate, with a rate fixed at 10 Bsf per U.S. dollar and, also, a floating supplementary market exchange rate known as the “DICOM.”  The DIPRO rate will only be available for payment of certain imports of essential goods in the food and health sectors while the DICOM will govern all other transactions not covered by DIPRO.  As of March 31, 2016, the published rate for the DICOM was approximately 273 BsF per U.S. dollar.  In light of these changes to the foreign exchange controls during the three months ended March 31, 2016, the Company again re-assessed Kelko Venezuela’s access to U.S. dollars, the impact on the operations of Kelko Venezuela, and the impact on the Company’s equity investment and other related assets.  The Company does not believe it currently has access to the DIPRO and, therefore, believes the DICOM is currently the exchange rate system available to Kelko Venezuela, which resulted in a currency conversion charge of $0.1 million, or $0.01 per diluted share, during the three months ended March 31, 2016.  As of March 31, 2016, the Company’s equity investment in Kelko Venezuela was $0.2 million, valued at the DICOM exchange rate. 

As part of the Company’s chemical management services, certain third-party product sales to customers are managed by the Company.  Where the Company acts as the principal, revenue is recognized on a gross reporting basis at the selling price negotiated with customers.  Where the Company acts as an agent, such revenue is recorded using net reporting of service revenue, at the amount of the administrative fee earned by the Company for ordering the goods.  Third-party products transferred under arrangements resulting in net reporting totaled $11.1 million and $11.9 million for the three months ended March 31, 2016 and 2015, respectively.

 

6


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

Note 2 – Recently Issued Accounting Standards

The Financial Accounting Standards Board ("FASB") issued an accounting standard update in March 2016 involving several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, use of a forfeiture rate, and classification on the statement of cash flows.  The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2016.  Early adoption is permitted, however, if early adoption is elected, all amendments in the update must be adopted in the same period.  When adopted, application of the guidance will vary based on each aspect of the update; including on a retrospective, modified retrospective or prospective basis.  The Company has not early adopted and is currently evaluating the potential impact of this guidance and considering the appropriate implementation strategy. 

The FASB issued an accounting standard update in February 2016 regarding the accounting and disclosure for leases.  Specifically, the update will require entities that lease assets to recognize the assets and liabilities for the rights and obligations created by those leases on the balance sheet, in most instances.  The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2018, and should be applied on a modified retrospective basis for the reporting periods presented.  Early adoption is permitted.  The Company has not early adopted and is currently evaluating the potential impact of this guidance and considering the appropriate implementation strategy.

The FASB issued an accounting standard update in November 2015 regarding the classification of deferred taxes on the balance sheet.  The update requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet.  The update does not change the existing requirement that only permits offsetting within a jurisdiction.  The guidance within this accounting standard update is effective for annual and interim periods beginning after December 15, 2016, and may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively.  Early adoption is permitted.  The Company has not early adopted.  Adoption of the guidance will not have an impact on the Company’s earnings or cash flow but will result in a balance sheet reclassification between current and long-term assets and liabilities.

The FASB issued an accounting standard update in July 2015 regarding simplifying the measurement of inventory.  The guidance is applicable for entities that measure inventory using the FIFO or average cost methods.  Specifically, the update requires that inventory be measured at lower of cost or net realizable value.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  This guidance should be applied prospectively with early adoption permitted.  As of March 31, 2016, the Company has elected to early adopt this guidance without a material impact.

The FASB issued an accounting standard update in May 2015 regarding the required disclosures for entities that elect to measure the fair value of certain investments using the net asset value per share (or its equivalent) practical expedient in accordance with the fair value measurement authoritative guidance.  The update removes the requirement to categorize within the fair value hierarchy, and also limits the requirement to make certain other disclosures, for all such investments.  The amendments in this update are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and should be applied on a retrospective basis for the periods presented.  Early adoption was permitted.  As of March 31, 2016, the Company has adopted this guidance without a material impact.

The FASB issued an accounting standard update in April 2015 regarding the presentation of debt issuance costs on the balance sheet.  The update requires capitalized debt issuance costs be presented on the balance sheet as a reduction to debt, rather than recorded as a separate asset.  The amendments in this update are effective for annual and interim periods beginning after December 15, 2015 and should be applied on a retrospective basis for the periods presented.  Early adoption was permitted.  Also, in June 2015, the SEC staff announced that the guidance within this accounting standard update was not applicable to revolving debt arrangements or credit facilities.  As of March 31, 2016, the Company has adopted this guidance without a material impact.

The FASB issued an accounting standard update in May 2014 regarding the accounting for and disclosure of revenue recognition.  Specifically, the update outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which will be common to both U.S. GAAP and International Financial Reporting Standards (“IFRS”).  The guidance was effective for annual and interim periods beginning after December 15, 2016, and allowed for full retrospective adoption of prior period data or a modified retrospective adoption.  Early adoption was not permitted.  In August 2015, the FASB issued an accounting standard update to delay the effective date of the new revenue standard by one year, or, in other words, to be effective for annual and interim periods beginning after December 15, 2017.  Entities will be permitted to adopt the new revenue standard early but not before the original effective date.  In March 2016, the FASB issued an accounting standard update to clarify the implementation guidance on principal versus agent considerations.  In April 2016, the FASB issued an accounting standard update to clarify the identification of performance obligations and the licensing implementation guidance, while retaining the related principles for those

7


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

areas.  The amendments in these 2016 updates do not change the core principle of the previously issued guidance in May 2014.  The Company is currently evaluating the potential impact of the new revenue recognition guidance and considering the appropriate implementation strategy.

Note 3 – Restructuring and Related Activities

In response to continued weak economic conditions and market declines in many regions, Quaker’s management approved a global restructuring plan (the “2015 Program”) in the fourth quarter of 2015 to reduce its operating costs.  The 2015 Program includes the re-organization of certain commercial functions, the closure of certain distribution, lab and administrative offices, and other related severance charges.  In addition to these actions, the Company made a decision to make available for sale certain technology of one of its existing businesses, which also resulted in employee severance and $0.3 million of intangible assets being reclassified to other current assets as of December 31, 2015.  During the three months ended March 31, 2016, there has been no further update and the intangible assets continue to be available for sale and included in other current assets.

The 2015 Program includes provisions for the reduction of total headcount by approximately 65 employees globally.  Employee separation benefits varied depending on local regulations within certain foreign countries and included severance and other benefits.  The Company continues to expect to substantially complete all of the initiatives under the 2015 Program during 2016 and expects settlement of these charges to occur primarily in 2016 as well.  The Company did not incur additional restructuring expenses in connection with the 2015 Program during the first quarter of 2016, and, at this time, the Company does not expect material, additional restructuring expenses beyond customary and routine adjustments to initial estimates for employee separation benefits.   

Restructuring activity recognized in connection with the 2015 Program is as follows:

 

 

North

 

 

 

 

 

 

 

South

 

 

 

 

 

America

 

EMEA

 

Asia/Pacific

 

America

 

Total

Accrued restructuring as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

$

1,867

   

$

4,265

 

$

135

 

$

36

   

$

6,303

 

Cash payments

 

(284)

 

 

(54)

 

 

(132)

 

 

(39)

 

 

(509)

 

Currency translation adjustments

  

 

 

175

 

 

(3)

 

 

3

   

 

175

Accrued restructuring as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

$

1,583

 

$

4,386

 

$

 

$

   

$

5,969

Note 4 – Business Segments

The Company’s reportable operating segments are organized by geography as follows: (i) North America, (ii) Europe, Middle East and Africa (“EMEA”), (iii) Asia/Pacific and (iv) South America.  Operating earnings, excluding indirect operating expenses, for the Company’s reportable operating segments are comprised of revenues less costs of goods sold and selling, general and administrative expenses (“SG&A”) directly related to the respective region’s product sales.  The indirect operating expenses consist of SG&A related expenses that are not directly attributable to the product sales of each respective reportable operating segment.  Other items not specifically identified with the Company’s reportable operating segments include interest expense, interest income, license fees from non-consolidated affiliates and other income (expense).

8


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

The following table presents information about the performance of the Company’s reportable operating segments for the three months ended March 31, 2016 and 2015:

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2016

 

2015

 

 

Net sales

  

  

  

  

  

  

 

 

North America

$

82,372

 

$

83,002

 

 

 

EMEA

  

47,649

 

  

43,185

 

 

 

Asia/Pacific

  

41,512

 

  

45,000

 

 

 

South America

  

6,544

 

  

10,143

 

 

Total net sales

$

178,077

 

$

181,330

 

 

 

 

 

 

 

 

 

 

 

Operating earnings, excluding indirect operating expenses

 

 

 

 

 

 

 

 

North America

$

18,632

 

$

17,825

 

 

 

EMEA

 

8,053

 

 

6,571

 

 

 

Asia/Pacific

 

11,048

 

 

10,434

 

 

 

South America

  

(315)

 

  

1,252

 

 

Total operating earnings, excluding indirect operating expenses

  

37,418

 

  

36,082

 

 

Indirect operating expenses

  

(16,407)

 

  

(16,591)

 

 

Amortization expense

  

(1,777)

 

  

(1,627)

 

 

Consolidated operating income

 

19,234

 

 

17,864

 

 

Other income (expense), net

 

706

 

 

(194)

 

 

Interest expense

  

(741)

 

  

(587)

 

 

Interest income

  

348

 

  

320

 

 

Consolidated income before taxes and equity in net income of associated companies

$

19,547

 

$

17,403

 

Inter-segment revenues for the three months ended March 31, 2016 and 2015 were $1.8 million and $2.0 million for North America, $3.9 million and $4.8 million for EMEA, $0.3 million and $0.1 million for Asia/Pacific, respectively, and less than $0.1 million for South America in both periods.  However, all inter-segment transactions have been eliminated from each reportable operating segment’s net sales and earnings for all periods presented above.

Note 5 – Stock-Based Compensation

The Company recognized the following stock-based compensation expense in SG&A in its Condensed Consolidated Statements of Income for the three months ended March 31, 2016 and 2015:

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

Stock options

$

201

 

$

185

 

 

Nonvested stock awards and restricted stock units

 

848

 

 

752

 

 

Employee stock purchase plan

 

23

 

 

18

 

 

Non-elective and elective 401(k) matching contribution in stock

 

689

 

 

699

 

 

Director stock ownership plan

 

37

 

 

31

 

 

Total stock-based compensation expense

$

1,798

 

$

1,685

 

The Company’s estimated taxes payable as of March 31, 2016 and 2015, respectively, were sufficient to fully recognize $0.1 million and $0.3 million of excess tax benefits related to stock option exercises as cash inflows from financing activities in its Condensed Consolidated Statements of Cash Flows, for the three months ended March 31, 2016 and 2015, respectively.

9


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

Stock option activity under all plans is as follows:

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

 

Number of

 

Exercise Price

 

Contractual

 

Intrinsic

 

 

 

 

Options

 

(per option)

 

Term (years)   

 

Value

 

 

Options outstanding at December 31, 2015

99,671

 

$

71.73

 

 

 

 

 

 

 

 

Options granted

67,444

 

 

72.12

 

 

 

 

 

 

 

Options outstanding at March 31, 2016

167,115

 

$

71.89

 

5.7

 

$

2,317

 

 

Options expected to vest at March 31, 2016

103,040

 

$

75.82

 

6.4

 

$

1,027

 

 

Options exercisable at March 31, 2016

64,075

 

$

65.57

 

4.4

 

$

1,290

 

There were no options exercised during the three months ended March 31, 2016.  The total intrinsic value of options exercised during the three months ended March 31, 2015 was $0.2 million.  Intrinsic value is calculated as the difference between the current market price of the underlying security and the strike price of a related option.

A summary of the Company’s outstanding stock options at March 31, 2016 is as follows: 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Weighted

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Number

 

Remaining

 

Average

 

Number

 

Average

 

 

Range of

 

of Options

 

Contractual

 

Exercise Price

 

of Options

 

Exercise Price

 

 

Exercise Prices

 

Outstanding

 

Term (years)

 

(per option)

 

Exercisable

 

(per option)

 

 

$

 

-

 

$

10.00

 

 

 

$

 

 

$

 

 

$

10.01

 

-

 

$

20.00

 

2,367

 

0.8

 

 

18.82

 

2,367

 

 

18.82

 

 

$

20.01

 

-

 

$

30.00

 

 

 

 

 

 

 

 

 

$

30.01

 

-

 

$

40.00

 

6,317

 

2.9

 

 

38.13

 

6,317

 

 

38.13

 

 

$

40.01

 

-

 

$

50.00

 

 

 

 

 

 

 

 

 

$

50.01

 

-

 

$

60.00

 

21,055

 

3.9

 

 

58.26

 

21,055

 

 

58.26

 

 

$

60.01

 

-

 

$

70.00

 

 

 

 

 

 

 

 

 

$

70.01

 

-

 

$

80.00

 

101,230

 

6.2

 

 

72.57

 

22,281

 

 

73.47

 

 

$

80.01

 

-

 

$

90.00

 

36,146

 

5.9

 

 

87.30

 

12,055

 

 

87.30

 

 

 

 

 

 

 

 

 

 

167,115

 

5.7

 

 

71.89

 

64,075

 

 

65.57

 

As of March 31, 2016, unrecognized compensation expense related to options granted during 2014, 2015, and 2016 was $0.2 million, $0.5 million, and $1.0 million, respectively.

During the first quarter of 2016, the Company granted stock options under its LTIP plan that are subject only to time vesting over a three-year period.  For the purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes option pricing model and the assumptions set forth in the table below:

 

 

2016

 

 

Number of options granted

67,444

 

 

 

Dividend yield

1.49

%

 

 

Expected volatility

28.39

%

 

 

Risk-free interest rate

1.08

%

 

 

Expected term (years)

4.0

 

 

Less than $0.1 million of expense was recorded on these options during the three months ended March 31, 2016.  The fair value of these awards is amortized on a straight-line basis over the vesting period of the awards.

10


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

Activity of nonvested shares granted under the Company’s LTIP plan is shown below:

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average Grant

 

 

 

 

Number of

 

Date Fair Value

 

 

 

 

Shares

 

(per share)

 

 

Nonvested awards, December 31, 2015

113,910

 

$

72.91

 

 

 

Granted

23,661

 

$

72.22

 

 

 

Vested

(17,785)

 

$

58.97

 

 

Nonvested awards, March 31, 2016

119,786

 

$

74.84

 

The fair value of the nonvested stock is based on the trading price of the Company’s common stock on the date of grant.  The Company adjusts the grant date fair value for expected forfeitures based on historical experience for similar awards.  As of March 31, 2016, unrecognized compensation expense related to these awards was $4.5 million to be recognized over a weighted average remaining period of 2.0 years.

Activity of nonvested restricted stock units granted under the Company’s LTIP plan is shown below:

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average Grant

 

 

 

 

Number of

 

Date Fair Value

 

 

 

 

Units

 

(per unit)

 

 

Nonvested awards, December 31, 2015

6,174

 

$

74.14

 

 

 

Granted

1,841

 

$

72.12

 

 

 

Vested

(1,418)

 

$

58.26

 

 

Nonvested awards, March 31, 2016

6,597

 

$

76.99

 

The fair value of the nonvested restricted stock units is based on the trading price of the Company’s common stock on the date of grant.  The Company adjusts the grant date fair value for expected forfeitures based on historical experience for similar awards.  As of March 31, 2016, unrecognized compensation expense related to these awards was $0.2 million to be recognized over a weighted average remaining period of 2.1 years.

Employee Stock Purchase Plan

In 2000, the Board adopted an Employee Stock Purchase Plan (“ESPP”) whereby employees may purchase Company stock through a payroll deduction plan.  Purchases are made from the plan and credited to each participant’s account at the end of each month (the “Investment Date”).  The purchase price of the stock is 85% of the fair market value on the Investment Date.  The plan is compensatory and the 15% discount is expensed on the Investment Date.  All employees, including officers, are eligible to participate in this plan.  A participant may withdraw all uninvested payment balances credited to a participant’s account at any time.  An employee whose stock ownership of the Company exceeds five percent of the outstanding common stock is not eligible to participate in this plan.

2013 Director Stock Ownership Plan

In 2013, the Company adopted the 2013 Director Stock Ownership Plan (the “Plan”), to encourage the Directors to increase their investment in the Company, which was approved at the Company’s May 2013 shareholders’ meeting.  The Plan authorizes the issuance of up to 75,000 shares of Quaker common stock in accordance with the terms of the Plan in payment of all or a portion of the annual cash retainer payable to each of the Company’s non-employee directors in 2013 and subsequent years during the term of the Plan.  Under the Plan, each director who, on May 1 of the applicable calendar year, owns less than 400% of the annual cash retainer for the applicable calendar year, divided by the average of the closing price of a share of Quaker Common Stock as reported by the composite tape of the New York Stock Exchange for the previous calendar year (the “Threshold Amount”), is required to receive 75% of the annual cash retainer in Quaker common stock and 25% of the retainer in cash, unless the director elects to receive a greater percentage of Quaker common stock (up to 100%) of the annual cash retainer for the applicable year.  Each director who owns more than the Threshold Amount may elect to receive common stock in payment of a percentage (up to 100%) of the annual cash retainer.  The annual retainer is $0.1 million and the retainer payment date is June 1.

11


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

Note 6 – Pension and Other Postretirement Benefits

The components of net periodic benefit cost for the three months ended March 31, 2016 and 2015 are as follows:

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

Other

 

 

 

Pension Benefits

 

Postretirement Benefits

 

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

Service cost

$

670

 

$

773

 

$

4

 

$

5

 

 

Interest cost

 

1,111

 

 

1,262

 

 

39

 

 

50

 

 

Expected return on plan assets

 

(1,344)

 

 

(1,402)

 

 

 

 

 

 

Actuarial loss amortization

 

808

 

 

881

 

 

15

 

 

26

 

 

Prior service cost amortization

 

(25)

 

 

(26)

 

 

 

 

 

 

Net periodic benefit cost

$

1,220

 

$

1,488

 

$

58

 

$

81

 

As of December 31, 2015, the Company elected to use a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans, which includes the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits beginning in the three months ended March 31, 2016.  This change resulted in a decrease in the service and interest components for pension cost in the three months ended March 31, 2016 compared to the three months ended March 31, 2015.  Historically, the Company estimated service and interest cost components utilizing a single weighted-average discount rate derived from a specific yield curve used to measure the benefit obligation at the beginning of the period.  Under the spot-rate approach, service and interest cost components have been estimated based on the application of the spot rates on a given yield curve at each future year to each plan's projected cash flows to measure the benefit obligation at the beginning of the period.  We have made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates.  We have accounted for this as a change in accounting estimate and, accordingly, have accounted for it prospectively.

Employer Contributions

The Company previously disclosed in its financial statements for the year ended December 31, 2015, that it expected to make minimum cash contributions of $7.5 million to its pension plans and $0.5 million to its other postretirement benefit plan in 2016.  As of March 31, 2016, $3.6 million and $0.2 million of contributions have been made to the Company’s pension plans and its postretirement benefit plans, respectively.

Note 7 – Other Income (Expense), Net

The components of other income (expense), net for the three months ended March 31, 2016 and 2015 are as follows:

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

2016

 

2015

 

 

Income from third party license fees

$

272

 

$

254

 

 

Foreign exchange gains (losses), net

 

312

 

 

(594)

 

 

Gain on fixed asset disposals, net

 

5

 

 

52

 

 

Non-income tax refunds and other related credits

 

21

 

 

69

 

 

Other non-operating income

 

124

 

 

72

 

 

Other non-operating expense

 

(28)

 

 

(47)

 

 

Total other income (expense), net

$

706

 

$

(194)

 

Note 8 – Income Taxes and Uncertain Income Tax Positions

The Company’s three months ended March 31, 2016 effective tax rate was 32.3% compared to three months ended March 31, 2015 effective tax rate of 30.8%.  The increase in the first quarter of 2016 effective tax rate was primarily due to the Company recording earnings in one of its subsidiaries at a statutory tax rate of 25% during the first quarter of 2016, while it awaits recertification of a concessionary 15% tax rate, which was available to the Company during the first quarter of 2015.  

As of March 31, 2016, the Company’s cumulative liability for gross unrecognized tax benefits was $11.4 million.  At December 31, 2015, the Company’s cumulative liability for gross unrecognized tax benefits was $11.0 million.

12


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on income before equity in net income of associated companies in its Condensed Consolidated Statements of Income.  The Company recognized ($0.1) million for interest and less than ($0.1) million for penalties in its Condensed Consolidated Statement of Income for the three months ended March 31, 2016, and recognized ($0.2) million for interest and $0.1 million for penalties in its Condensed Consolidated Statement of Income during the three months ended March 31, 2015.  As of March 31, 2016, the Company had accrued $1.5 million for cumulative interest and $1.9 million for cumulative penalties in its Condensed Consolidated Balance Sheets, compared to $1.5 million for cumulative interest and $1.9 million for cumulative penalties accrued at December 31, 2015.

During the three months ended March 31, 2016 and 2015, the Company recognized a decrease of $0.8 million and $0.7 million, respectively, in its cumulative liability for gross unrecognized tax benefits due to the expiration of the applicable statutes of limitations for certain tax years.

The Company estimates that during the year ending December 31, 2016 it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $1.9 million to $2.0 million due to the expiration of the statute of limitations with regard to certain tax positions.  This estimated reduction in the cumulative liability for unrecognized tax benefits does not consider any increase in liability for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative liability for unrecognized tax benefits with regard to new tax positions for the year ending December 31, 2016.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign tax jurisdictions.  Tax years that remain subject to examination by major tax jurisdictions include Brazil from 2000, Italy from 2007, France from 2008, the Netherlands and the United Kingdom from 2010, Spain from 2011, China and the United States from 2012, and various domestic state tax jurisdictions from 1993.

The Italian tax authorities have assessed additional tax due from the Company’s subsidiary, Quaker Italia S.r.l., relating to the tax years 2007, 2008, 2009 and 2010.  In the first quarter of 2016, the Italian tax authorities delivered an audit report to Quaker Italia S.r.l. for the tax years 2011, 2012 and 2013 alleging additional tax due.   In the fourth quarter of 2015, the Dutch tax authorities assessed the Company’s subsidiary, Quaker Chemical B.V., for additional income taxes related to the 2011 tax year and Quaker Chemical B.V. filed a protest of such assessment.  In the first quarter of 2016, the French tax authorities gave notice that they were auditing the Company’s subsidiary, Quaker Chemical S.A.  As of March 31, 2016, the Company believes it has adequate reserves, where merited, for uncertain tax positions with respect to all of these audits.     

Note 9 – Earnings Per Share

The following table summarizes earnings per share calculations for the three months ended March 31, 2016 and 2015:

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2016

 

2015

 

 

Basic earnings per common share

 

   

 

 

 

 

 

 

Net income attributable to Quaker Chemical Corporation

$

12,946

 

$

10,378

 

 

 

Less: income allocated to participating securities

  

(113)

 

  

(96)

 

 

 

Net income available to common shareholders

$

12,833

 

$

10,282

 

 

 

Basic weighted average common shares outstanding

 

13,116,807

 

 

13,188,761

 

 

Basic earnings per common share

$

0.98

 

$

0.78

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

 

 

 

 

 

 

 

Net income attributable to Quaker Chemical Corporation

$

12,946

 

$

10,378

 

 

 

Less: income allocated to participating securities

 

(113)

 

 

(96)

 

 

 

Net income available to common shareholders

$

12,833

 

$

10,282

 

 

 

Basic weighted average common shares outstanding

 

13,116,807

 

 

13,188,761

 

 

 

Effect of dilutive securities

 

12,587

 

 

19,896

 

 

 

Diluted weighted average common shares outstanding

 

13,129,394

 

 

13,208,657

 

 

Diluted earnings per common share

$

0.98

 

$

0.78

 

The following aggregate numbers of stock options and restricted stock units are not included in the diluted earnings per share calculation since the effect would have been anti-dilutive: 11,742 and 4,497 for the three months ended March 31, 2016 and 2015, respectively.

13


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

Note 10 – Goodwill and Other Intangible Assets

The Company completes its annual impairment test as of the end of the third quarter of each year, or more frequently if triggering events indicate a possible impairment in one or more of its reporting units.  The Company continually evaluates financial performance, economic conditions and other relevant developments in assessing if an interim period impairment test for one or more of its reporting units is necessary.  The Company has recorded no impairment charges in its past.  Changes in the carrying amount of goodwill for the three months ended March 31, 2016 were as follows:

 

 

North

 

 

 

 

 

 

 

South

 

 

 

 

 

America

 

EMEA

 

Asia/Pacific

 

America

 

Total

Balance as of December 31, 2015

$

42,443

   

$

19,280

 

$

15,244

 

$

2,144

   

$

79,111

 

Goodwill additions (reductions)

 

 

 

(153)

 

 

 

 

 

 

(153)

 

Currency translation adjustments

  

9

 

 

678

 

 

165

 

 

193

   

 

1,045

Balance as of March 31, 2016

$

42,452

 

$

19,805

 

$

15,409

 

$

2,337

   

$

80,003

Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of March 31, 2016 and December 31, 2015 were as follows:

 

 

Gross Carrying

 

Accumulated

 

 

Amount

 

Amortization

 

 

2016

 

2015

 

2016

 

2015

Customer lists and rights to sell

$

68,180

   

$

67,435

   

$

17,030

   

$

15,806

Trademarks and patents

  

23,533

   

  

23,147

   

  

6,087

   

  

5,538

Formulations and product technology

  

5,808

   

  

5,808

   

  

4,128

   

  

4,082

Other

  

5,869

   

  

5,788

   

  

4,781

   

  

4,565

Total definite-lived intangible assets

$

103,390

   

$

102,178

   

$

32,026

   

$

29,991

The Company recorded $1.8 million and $1.6 million of amortization expense for the three months ended March 31, 2016 and 2015, respectively.  Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows:

 

For the year ended December 31, 2016

$

6,895

 

 

For the year ended December 31, 2017

 

6,523

 

 

For the year ended December 31, 2018

 

6,303

 

 

For the year ended December 31, 2019

 

6,201

 

 

For the year ended December 31, 2020

 

5,924

 

 

For the year ended December 31, 2021

 

5,557

 

The Company has two indefinite-lived intangible assets totaling $1.1 million for trademarks at March 31, 2016 and December 31, 2015.

Note 11 – Debt

The Company’s primary credit facility is a $300.0 million syndicated multicurrency credit agreement with a group of lenders, which matures in June 2018.  The maximum amount available under this credit facility can be increased to $400.0 million at the Company’s option if the lenders agree and the Company satisfies certain conditions.  Borrowings under this credit facility generally bear interest at a base rate or LIBOR rate plus a margin.  Access to this credit facility is dependent on meeting certain financial and other covenants, but primarily depends on the Company’s consolidated leverage ratio calculation, which cannot exceed 3.50 to 1.  At March 31, 2016 and December 31, 2015, the Company’s consolidated leverage ratio was below 1.0 to 1, and the Company was also in compliance with all of the other covenants.  At March 31, 2016 and December 31, 2015, the Company had $79.1 million and $62.9 million outstanding, respectively, under its credit facilities.  The Company’s other debt obligations were primarily industrial development bonds and municipality-related loans as of March 31, 2016 and December 31, 2015.    

14


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

Note 12 – Equity

In May 2015, the Company’s Board of Directors authorized a share repurchase program for the repurchase of up to $100.0 million of Quaker Chemical Corporation common stock (the “2015 Share Repurchase Program”).  The 2015 Share Repurchase Program has no expiration date.  The 2015 Share Repurchase Program provides a framework of conditions under which management can repurchase shares of the Company’s common stock.  The Company intends to repurchase shares to at least offset the dilutive impact of shares issued each year as part of its employee benefit and share based compensation plans, and could repurchase more if the Company considers the share price to be at an amount that it considers an advantageous return for its shareholders.  The purchases may be made in the open market or in private and negotiated transactions, in accordance with applicable laws, rules and regulations.  In connection with the 2015 Share Repurchase Program, the remaining unutilized 1995 and 2005 Board of Directors authorized share repurchase programs were terminated.

In connection with the 2015 Share Repurchase Program, the Company acquired 83,879 shares of common stock, for $5.9 million, during the three months ended March 31, 2016, and had no repurchases during the three months ended March 31, 2015.  The Company has elected not to hold treasury shares, and, therefore, has retired the shares as they are repurchased.  It is the Company’s accounting policy to record the excess paid over par value as a reduction in retained earnings for all shares repurchased.

The following tables present the changes in equity, net of tax, for the three months ended March 31, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common

 

Excess of

 

Retained

 

Comprehensive

 

Noncontrolling

 

 

 

 

 

 

Stock

 

Par Value

 

Earnings

 

Loss

 

Interest

 

Total

Balance at December 31, 2015

$

13,288

 

$

106,333

 

$

326,740

 

$

(73,316)

 

$

8,198

 

$

381,243

 

Net income

 

 

 

 

 

12,946

 

 

 

 

398

 

 

13,344

 

Amounts reported in other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income

 

 

 

 

 

 

 

5,314

 

 

62

 

 

5,376

 

Repurchases of common stock

 

(84)

 

 

 

 

(5,775)

 

 

 

 

 

 

(5,859)

 

Dividends ($0.32 per share)

 

 

 

 

 

(4,227)

 

 

 

 

 

 

(4,227)

 

Share issuance and equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

plans

 

32

 

 

1,513

 

 

 

 

 

 

 

 

1,545

 

Excess tax benefit from stock option exercises

 

 

 

104

 

 

 

 

 

 

 

 

104

Balance at March 31, 2016

$

13,236

 

$

107,950

 

$

329,684

 

$

(68,002)

 

$

8,658

 

$

391,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

$

13,301

 

$

99,056

 

$

299,524

 

$

(54,406)

 

$

7,660

 

$

365,135

 

Net income

 

 

 

 

 

10,378

 

 

 

 

229

 

 

10,607

 

Amounts reported in other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(loss) income

 

 

 

 

 

 

 

(8,565)

 

 

30

 

 

(8,535)

 

Dividends ($0.30 per share)

 

 

 

 

 

(4,000)

 

 

 

 

 

 

(4,000)

 

Share issuance and equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

plans

 

31

 

 

1,604

 

 

 

 

 

 

 

 

1,635

 

Excess tax benefit from stock option exercises

 

 

 

287

 

 

 

 

 

 

 

 

287

Balance at March 31, 2015

$

13,332

 

$

100,947

 

$

305,902

 

$

(62,971)

 

$

7,919

 

$

365,129

15


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

The following tables show the reclassifications from and resulting balances of accumulated other comprehensive loss (“AOCI”) for the three months ended March 31, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Currency

 

Defined

 

Gain (Loss) in

 

 

 

 

 

 

 

Translation

 

Benefit

 

Available-for-

 

 

 

 

 

 

 

Adjustments

 

Pension Plans

 

Sale Securities

 

Total

Balance at December 31, 2015

 

$

(38,544)

 

$

(35,251)

 

$

479

 

$

(73,316)

 

Other comprehensive income (loss) before

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassifications

 

 

4,671

 

 

(477)

 

 

192

 

 

4,386

 

Amounts reclassified from AOCI

 

 

 

 

798

 

 

498

 

 

1,296

 

Current period other comprehensive income

 

 

4,671

 

 

321

 

 

690

 

 

5,682

 

Related tax amounts

 

 

 

 

(134)

 

 

(234)

 

 

(368)

 

Net current period other comprehensive income

 

 

4,671

 

 

187

 

 

456

 

 

5,314

Balance at March 31, 2016

 

$

(33,873)

 

$

(35,064)

 

$

935

 

$

(68,002)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

$

(14,312)

 

$

(41,551)

 

$

1,457

 

$

(54,406)

 

Other comprehensive (loss) income before

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassifications

 

 

(11,113)

 

 

2,498

 

 

270

 

 

(8,345)

 

Amounts reclassified from AOCI

 

 

 

 

881

 

 

(164)

 

 

717

 

Current period other comprehensive (loss) income

 

 

(11,113)

 

 

3,379

 

 

106

 

 

(7,628)

 

Related tax amounts

 

 

 

 

(901)

 

 

(36)

 

 

(937)

 

Net current period other comprehensive (loss) income

 

 

(11,113)

 

 

2,478

 

 

70

 

 

(8,565)

Balance at March 31, 2015

 

$

(25,425)

 

$

(39,073)

 

$

1,527

 

$

(62,971)

Approximately 70% and 30% of the amounts reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statement of Income for defined benefit retirement plans during the three months ended March 31, 2016 and 2015 were recorded in SG&A and cost of goods sold, respectively.  See Note 6 of Notes to Condensed Consolidated Financial Statements for further information.  All reclassifications related to unrealized gain (loss) in available-for-sale securities relate to the Company’s equity interest in a captive insurance company and are recorded in equity in net income of associated companies.  The amounts reported in other comprehensive income for non-controlling interest are related to currency translation adjustments.

Note 13 – Business Acquisitions

In July 2015, the Company acquired Verkol, S.A. (“Verkol”), a leading specialty grease and other lubricants manufacturer based in northern Spain, included in its EMEA reportable operating segment, for 37.7 million EUR, or approximately $41.4 million.  This includes a post-closing adjustment of 1.3 million EUR, or approximately $1.4 million that was accrued as of December 31, 2015 and paid during the first quarter of 2016.  The purchase included cash acquired of 14.1 million EUR, or approximately $15.4 million, and assumed long-term debt of 2.2 million EUR, or approximately $2.4 million.

16


Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except share and per share amounts, unless otherwise stated)

(Unaudited)

 

During the first quarter of 2016, the Company identified and recorded an adjustment to the allocation of the purchase price for the Verkol acquisition.  The adjustment was the result of the Company assessing additional information related to assets acquired during the one-year measurement period following the acquisition.  As of March 31, 2016, the allocation of the purchase price for the Verkol acquisition has not been finalized and the one-year measurement period has not ended.  Further adjustments may be necessary as a result of the Company’s on-going assessment of additional information related to the fair value of assets acquired and liabilities assumed.  The following table presents the current allocation of the purchase price of the assets acquired and liabilities assumed:

 

Verkol Acquisition

 

 

 

 

Current assets (includes cash acquired)

$

31,151

 

 

Property, plant and equipment

 

7,941