Item 1. Business. General Description Quaker develops, produces, and markets a broad range of formulated chemical specialty products and services for various heavy industrial, institutional, and manufacturing applications. Quaker's principal products and services include: (i) rolling lubricants (used by manufacturers of steel in the hot and cold rolling of steel); (ii) corrosion preventives (used by steel and metalworking customers to protect metal during manufacture, storage, and shipment); (iii) metal finishing compounds (used to prepare metal surfaces for special treatments such as galvanizing and tin plating and to prepare metal for further processing); (iv) machining and grinding compounds (used by metalworking customers in cutting, shaping, and grinding metal parts which require special treatment to enable them to tolerate the manufacturing process); (v) forming compounds (used to facilitate the drawing and extrusion of metal products); (vi) paper production products (used as defoamers, release agents, softeners, debonders, and dispersants); (vii) hydraulic fluids (used by steel, metalworking, and other customers to operate hydraulically activated equipment); (viii) products for the removal of hydrogen sulfide in various industrial applications; and (ix) programs to provide recycling and chemical management services. AC Products, Inc., a United States subsidiary, is a producer of products primarily for the aerospace industry. Businesses previously conducted by Quaker Construction Products, Inc., QSC Products, Ltd., Multi- Chemical Products, Inc., and Selby, Battersby & Co. were sold in 1994. Collectively, these businesses made and/or sold sealants, coatings, and flooring systems for construction, industrial use, and/or maritime use. In 1995, the Company entered into agreements to (i) acquire 90% of the common stock of a chemical specialty business in Brazil, and (ii) create a manufacturing joint venture in the People's Republic of China. If consummated, these acquisitions will require cash investments in 1995 of approximately $5.4 million. Additionally, the acquisition in Brazil will require additional outlays in 1996 and 1997 totalling up to approximately $2.6 million. For additional information regarding the aforementioned acquisitions and divestitures, see Note 10 of Notes to Consolidated Financial Statements which appears on page 24 of the Registrant's 1994 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report.
Substantially all of Quaker's sales worldwide are made directly through its own sales forces. Quaker salesmen and saleswomen visit the plants of customers regularly, and through training and experience, identify production needs which can be resolved or alleviated either by adapting Quaker's existing products or by applying new formulations developed in Quaker's laboratories. Sales personnel may call upon Quaker's regional managers, product managers, and members of its laboratory staff for assistance in obtaining and setting up product tests and evaluating the results of such tests. In 1994, certain products were also sold in Canada, Korea, and India by exclusive licensees under long-term royalty agreements. Generally, separate manufacturing facilities of a single customer are served by different sales personnel.
Competition The chemical specialty industry is composed of a number of companies of similar size as well as companies larger and smaller than Quaker. Quaker cannot readily determine its precise position in the industry. Many competitors are in fewer and more specialized product classifications or provide different levels of technical services in terms of specific formulations for individual customers. Competition in the industry is based primarily on the ability to provide products which meet the needs of the customer and render technical services and laboratory assistance to customers and, to a lesser extent, on price.
Major Customers During 1994, Quaker's five largest customers (each composed of multiple subsidiaries or divisions with semi-autonomous purchasing authority) accounted for approximately 15% of its consolidated net sales with the largest of these customers accounting for approximately 4% of consolidated net sales. No one subsidiary or division of these five customers accounted for more than 3% of consolidated net sales. During the same period, approximately 46% of consolidated net sales were made to customers in the steel industry.
Raw Materials Quaker uses over 500 raw materials, including mineral oils, fats and fat derivatives, ethylene derivatives, solvents, surface active agents, chlorinated paraffinic compounds, and a wide variety of organic and inorganic compounds. In 1994, only one raw material accounted for as much as 10% of the total cost of Quaker's raw material purchases. Quaker has multiple sources of supply for most materials, and Management believes that the failure of any single supplier would not have a material adverse effect upon its business.
Patents and Trademarks Quaker has a limited number of patents and patent applications, including patents issued, applied for, or acquired in the United States and in various foreign countries, some of which may prove to be material to its business. Principal reliance is placed upon Quaker's proprietary formulae and the application of its skills and experience to meet customer needs. Quaker's products are identified by trademarks which are registered throughout its marketing area. Quaker makes little use of advertising but relies heavily upon its reputation in the markets which it serves.
Research and Development--Laboratories Quaker's research and development laboratories are directed primarily toward applied research and development since the nature of Quaker's business requires continuing modification and improvement of formulations to provide chemical specialties to satisfy customer requirements. Quaker maintains quality control laboratory facilities in each of its manufacturing locations. In addition, Quaker maintains in Conshohocken, Pennsylvania, laboratory facilities which are devoted primarily to applied research and development. Most of Quaker's subsidiaries and associates also have laboratory facilities. Although not as complete as the Conshohocken laboratories, these facilities are generally sufficient for the requirements of the customers being served. If problems are encountered which cannot be resolved by local laboratories, such problems may be referred to the corporate laboratory staff, which also defines and supervises corporate research projects. Approximately 181 persons, of whom 105 have B. S. degrees and 28 have B.S. and advanced degrees, are employed in Quaker's laboratories.
Number of Employees On December 31, 1994, Quaker had 955 full-time employees, of whom 334 were employed by the parent company, 529 were employed by its non-U.S. subsidiaries and associates, and 92 were employed by all U.S. subsidiaries.
Product Classification Incorporated by reference is the information concerning product classification by markets served appearing under the caption "Supplemental Financial Information" on page 26 of the Registrant's 1994 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report.
Non-U.S. Activities Incorporated by reference is the information concerning non-U.S. activities appearing in Note 9 to Notes to Consolidated Financial Statements on page 23 of the Registrant's 1994 Annual Report to Shareholders and under the caption "General" of the Operations section of Management's Discussion and Analysis of Financial Condition and Results of Operations which appear on pages 28 and 29, respectively, of the aforementioned Report, the incorporated portions of which are included as Exhibit 13 to this Report.
Item 2.
Item 2. Properties. Quaker's principal facilities in the United States are located in Conshohocken, Pennsylvania and Detroit, Michigan. Quaker's non-U.S. subsidiaries own facilities in Woodchester, England; Uithoorn, The Netherlands; Villeneuve, France; and Santa Perpetua de Mogoda, Spain. All of these facilities are owned mortgage free. Financing for the Corporate Technical Center in Conshohocken, Pennsylvania was arranged through the use of industrial revenue and development bonds with an outstanding balance at December 31, 1994 of $5,000,000. A non-operating facility in Pomona, California and operating facilities in Verona, Italy and Sapulpa, Oklahoma were sold in 1994. Quaker's aforementioned facilities consist of various manufacturing, administrative, warehouse, and laboratory buildings. Substantially all of the buildings are of fire-resistant construction and are equipped with sprinkler systems. All facilities are primarily of masonry and/or steel construction and are adequate and suitable for Quaker's present operations. The Company has a program to identify needed capital improvements which will be implemented as Management considers necessary or desirable. Most locations have various numbers of raw material storage tanks ranging from 6 to 63 having a capacity from 500 to 80,000 gallons each and processing or manufacturing vessels ranging in capacity from 50 to 12,000 gallons each. In order to facilitate compliance with applicable federal, state, and local statutes and regulations relating to occupational health and safety and protection of the environment, the Company has an ongoing program of site assessment, currently directed primarily to facilities in the United States for the purpose of identifying capital expenditures or other actions that may be necessary to comply with such requirements. The program includes periodic inspections of each facility in the United States by Quaker and/or independent environmental experts, as well as ongoing inspections by on-site personnel. Such inspections are addressed to operational matters, recordkeeping, reporting requirements, and capital improvements. In 1994, capital expenditures directed solely or primarily to regulatory compliance amounted to approximately $700,000.
Quaker's executive offices are located in a four-story building containing a total of approximately 47,000 square feet. A corporate technical center containing approximately 28,700 square feet houses the laboratory facility. Both of these facilities are adjacent to Quaker's manufacturing facility in Conshohocken. Quaker's Mexican associate (40% owned) owns a plant in Monterrey, Mexico.
Item 3.
Item 3. Legal Proceedings. The Company is a party to proceedings, cases, and requests for information from, and negotiations with, various claimants and federal and state agencies relating to various matters including environmental matters, none of which is expected to result in monetary sanctions in an amount or in an award that would have a material adverse effect on the Company's financial condition. For information concerning pending asbestos-related cases against a subsidiary and amounts accrued associated with certain environmental investigatory and noncapital remediation costs, refer to Note 11 to Notes to Consolidated Financial Statements which appears on page 24 in the Registrant's 1994 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the last quarter of the period covered by this Report.
Item 4(a). Executive Officers of the Registrant. Year First Elected as an Executive Name Office (since) Age Officer --------------------------------------------------------------------------- Peter A. Benoliel Chairman of the Board (1980) 63 1963 S. W. W. Lubsen President (1988) and Chief 51 1988 Executive Officer (1993) Jose Luiz Bregolato Vice President-South America 49 1993 (1993) John E. Burrows, Jr. Vice President-North America 48 1990 (1992) Daniel S. Ma Vice President-Asia/Pacific 54 1995 (1995) Marcus C. J. Meijer Vice President-Europe (1990) 47 1990 Clifford E. Montgomery Vice President-Human Resources 47 1990 (1990) Karl H. Spaeth Vice President (1981) and 66 1972 Corporate Secretary (1972)
All of the Executive Officers with the exception of Messrs. Bregolato, Burrows, Ma, Meijer, and Montgomery have served as officers of the Registrant for more than the past five years. Prior to being elected Chief Executive Officer of the Registrant, Mr. Lubsen served as President and Chief Operating Officer, a position to which he was elected in 1988. Prior to his election as an officer of the Registrant, Mr. Bregolato served as Financial Consultant and Administrative Director of Fabrica Carioca de Catalisadores, S.A. to which he was appointed in 1985. Prior to his election as an officer of the Registrant, Mr. Meijer served as Managing Director of Quaker Chemical B.V. to which he was appointed in 1988. Prior to his election as an officer of the Registrant, Mr. Burrows served as Division Manager, Marine Colloids Division of FMC Corporation, a position to which he was appointed in 1986. Prior to being elected Vice President- Human Resources, Mr. Montgomery served as Manager of Human Resources, General Electric's Worldwide Marketing and Product Management Organization. Mr. Ma was appointed Managing Director, Asia/Pacific Region, in 1993. Prior to that he served as Business Manager, PPG Industries, Inc., a position to which he was appointed in 1991. Prior to that, he served in various capacities with Ciba-Geigy Corporation, its subsidiaries and affiliated companies. There is no family relationship between any of the Registrant's Executive Officers. Each Officer is elected for a term of one year.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Incorporated by reference is the information appearing under the caption "Stock Market and Related Security Holder Matters" on page 26 of the Registrant's 1994 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report.
Item 6.
Item 6. Selected Financial Data. Incorporated by reference is the information appearing under the caption "Selected Financial Information" on page 27 of the Registrant's 1994 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Incorporated by reference is the information appearing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 28 and 29 of the Registrant's 1994 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report.
Item 8.
Item 8. Financial Statements and Supplementary Data. Incorporated by reference is the information appearing on pages 14 through 26 of the Registrant's 1994 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant. Incorporated by reference is the information beginning immediately following the caption "Election of Directors" to, but not including, the caption "Executive Compensation" contained in the Registrant's definitive Proxy Statement to be filed no later than 120 days after the close of its fiscal year ended December 31, 1994 (the "1995 Proxy Statement") and the information appearing in Item 4(a) on page 5 of this Report. Based solely on the Company's review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act"), as amended, and written representations of the Company's officers and directors, the Company believes that all reports required to be filed pursuant to the 1934 Act with respect to transactions in the Company's Common Stock through December 31, 1994 were filed on a timely basis, except for one filing on Form 4 covering one transaction each for Mr. Benoliel and for Mr. Black.
Item 11.
Item 11. Executive Compensation. Incorporated by reference is the information beginning immediately following the caption "Executive Compensation" to, but not including, the caption "Compensation/Management Development Committee Report on Executive Compensation" contained in the Registrant's 1995 Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference is the information beginning immediately following the caption "Security Ownership of Certain Beneficial Owners and Management" to, but not including, the caption "Election of Directors" contained in the Registrant's 1995 Proxy Statement.
Item 13.
Item 13. Certain Relationships and Related Transactions. No information is required to be provided in response to this Item 13.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Exhibits and Financial Statement Schedules 1. Financial Statements The following is a list of the Financial Statements which have been incorporated by reference from the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1994, as set forth in Item 8: Consolidated Statement of Operations Consolidated Statement of Cash Flows Consolidated Balance Sheet Notes to Consolidated Financial Statements Report of Independent Accountants
2. Financial Statement Schedules All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of 50% or less owned companies have been omitted because none of the companies meets the criteria requiring inclusion of such statements. 3. Exhibits (numbered in accordance with Item 601 of Regulation S-K)
3(a) --Articles of Incorporation. Incorporated by reference to Exhibit 3(a) to Form 10-Q as filed by the Registrant for the Quarter ended March 31, 1987. 3(b) --By Laws. Incorporated by reference to Exhibit 3(b) to Form 10-Q as filed by the Registrant for the Quarter ended June 30, 1993. 4 --Shareholder Rights Plan. Incorporated by reference to Form 8-K as filed by the Registrant on February 20, 1990. 10(a)--Long-Term Performance Incentive Plan as approved May 5, 1993. Incorporated by reference to Exhibit 10(a) as filed by the Registrant with Form 10-K for the year 1993. 10(b)--Employment Agreement by and between Registrant and Peter A. Benoliel. Incorporated by reference to Exhibit 10(b) as filed by Registrant with Form 10-K for the year 1989.* 10(c)--Employment Agreement by and between the Registrant and S. W. W. Lubsen. Incorporated by reference to Exhibit 10(c) as filed by Registrant with Form 10-K for the year 1989.* 10(d)--Restricted Stock and Cash Bonus Plan and Agreement by and between the Registrant and S. W. W. Lubsen. Incorporated by reference to Exhibit 10(d) as filed by Registrant with Form 10-K for the year 1989.* 10(e)--Employment Agreement by and between Registrant and John E. Burrows, Jr. Incorporated by reference to Exhibit 10(h) as filed by Registrant with Form 10-K for the year 1990.*
10(f)--Employment Agreement by and between Registrant and Clifford E. Montgomery. Incorporated by reference to Exhibit 10(i) as filed by Registrant with Form 10-K for the year 1990.* 10(h)--Documents constituting employment contract by and between Quaker Chemical Europe B.V. and M. C. J. Meijer. Incorporated by reference to Exhibit 10(b) as filed by Registrant with Form 10-K for the year 1993.* 13 --Portions of the 1994 Annual Report to Shareholders incorporated by reference. 21 --Subsidiaries and Affiliates of the Registrant. 23 --Consent of Independent Accountants. 27 --Financial Data Schedule.
* A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this Report. (c) The exhibits required by Item 601 of Regulation S-K filed as part of this Report or incorporated herein by reference are listed in subparagraph (a)(3) of this Item 14. (d) The financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 30, 1995 By: SIGISMUNDUS W. W. LUBSEN ------------------------------------- Sigismundus W. W. Lubsen President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Capacity Date
SIGISMUNDUS W. W. LUBSEN ------------------------- Sigismundus W. W. Lubsen Principal Executive Officer March 30, 1995 President and Chief and Director Executive Officer
RICHARD J. FAGAN ------------------------- Richard J. Fagan Principal Accounting Officer March 30, 1995 Corporate Controller and Acting Treasurer
PETER A. BENOLIEL ------------------------- Peter A. Benoliel, Director March 30, 1995 Chairman of the Board
JOSEPH B. ANDERSON, JR. ------------------------ Joseph B. Anderson, Jr. Director March 30, 1995
PATRICIA C. BARRON ------------------------ Patricia C. Barron Director March 30, 1995
WILLIAM L. BATCHELOR ------------------------ William L. Batchelor Director March 30, 1995
LENNOX K. BLACK ------------------------ Lennox K. Black Director March 30, 1995
EDWIN J. DELATTRE ------------------------ Edwin J. Delattre Director March 30, 1995
FRANCIS J. DUNLEAVY ------------------------ Francis J. Dunleavy Director March 30, 1995
ROBERT P. HAUPTFUHRER ------------------------ Robert P. Hauptfuhrer Director March 30, 1995
FREDERICK HELDRING ------------------------ Frederick Heldring Director March 30, 1995
RONALD J. NAPLES ------------------------ Ronald J. Naples Director March 30, 1995
ALEX SATINSKY ------------------------ Alex Satinsky Director March 30, 1995
D. ROBERT YARNALL, JR. ------------------------ D. Robert Yarnall, Jr. Director March 30, 1995