Greetings, and welcome to the Quaker Chemical Corporation second quarter 2014 results conference call. (Operator Instructions) It is now my pleasure to introduce your host, Michael Barry, Chairman, CEO and President of Quaker Chemical. Thank you. Sir, you may begin.

Good morning, everyone. Joining me today are Margo Loebl, our CFO; and Robert Traub, our General Counsel. After my comments, Margo will provide the details around the financials, and then we'll address any questions that you may have. We also have slides for our conference call. You can find them in the Investor Relations part of our website at www.quakerchem.com. I'll start off now with some remarks about the second quarter. I am pleased to report that we had a good quarter and solid operating performance led to a double-digit growth in non-GAAP earnings. Let me now try to give you a sense of what we experienced in the quarter, and I'll start with sales. Our overall sales were up 3.5% for the quarter versus 2013, with growth primarily driven by higher volumes. Going region by region, South America was our most challenging region. Our revenues were down 18% due to both foreign exchange impacts and the poor economy, with both steel and vehicle production markets declining. In our Europe or EMEA region, we saw 2% growth as the steel and automotive industries continue to modestly rebound from the very depressed levels of a year ago. In our Asia-Pacific region, we had 6% growth, with China being the main driver. And in our North America region, we had growth of approximately 8% with very strong growth coming from Mexico and our Greece business. Overall, we continue to do well in gaining share in the marketplace throughout the world. We believe this is due to our commitment to our customer intimacy model, which puts the customer's needs as our top priority, and provides them with strong service and business solutions. We believe this approach continues to differentiate us in the marketplace. As I mentioned in the past, using a baseball analogy,…

Thank you, Mike. Good morning, everyone. I reiterate that we are pleased with our results in the second quarter of 2014, despite the difficult challenges of uneven market and foreign exchange, especially in South America. Before launching into my recap for the quarter, please note that Quaker provide a non-GAAP earnings per diluted share table in an effort to provide shareholders with visibility into our Quaker operations, excluding certain items, which we believe do not reflect our core operations, including, but not limited to earnings related to Primex, our investment in a captive insurance company. This table is outlined in Chart 10 of the Investor slide as well, yesterday's earnings release and our Form 10-Q of yesterday. As referenced in Chart 4, a recap of Quaker's performance for the second quarter of 2014 includes the following highlights. With respect to highlight number one on Chart 4, it reads, solid volumes increases net sales. This sales increase by 3.5% to $191.3 million in the second quarter of 2014 compared to $184.8 million in the second quarter of 2013, primarily due to increased product volumes mainly in Asia-Pacific and North America. Base volume, including acquisitions and increased organic sales, are up 3% over the prior-year quarter. In addition, price and selling mix increased by 1%, which was partially offset by a foreign exchange translation decrease of less than 1%. The foreign exchange rate translation decrease was led by the Brazilian real, Argentina peso, and the Indian rupee, partially offset by increases to the Europe. Turning from the topline story to margins. With respect to highlight number two on Chart 4, it reads, stable margins continue to drive strong operating results. Turning to Chart 7. Gross profit was higher by $900,000 in the second quarter of 2014 compared to prior-year quarter, primarily due…

Thanks Margo. At this stage, we would like to address any questions from any participants on this conference call.

(Operator Instructions) Our first question comes from the line of Michael Harrison with First Analysis.

Mike, the results were pretty good in the North American market, but you saw some margin declines in all three of your other regions. Can you maybe give us a little bit more color on some of the margin headwinds you're seeing in each of those regions and whether we might see some improvement in the second half?

Sure. No problem at all. With South America, because that was really the most challenging region that we had and that's really just primarily being driven by much lower steel production and auto production, especially in auto. We really saw significant declines. Some of the industry information I've seen like in the second quarter showed like a 20% decline year-over-year in like auto production over that and maybe a 5% decline in steel. So the industry numbers I've seen have been kind of highlight that. And part of that's due just to the overall economic conditions we've seen there as well as even there is a World Cup impact to this as well. So we're continuing to take actions down there to manage that situation. I was just down there recently and I think that will continue to get better for us as we go forward. In EMEA Europe, yes, we showed kind of a decline quarter-over-quarter, but I think there's really two aspects to that. One is we had a cost streaming that we completed this year, that we started last year and we completed in the first quarter of this year, where we consolidated some operations in Italy. And now, we'll see some cost savings from those going forward. And there were some cost associated with that. If you take that into account then the operating incomes come pretty close. The other aspect I'll mention is, if you look at what happened in Europe last year, it was actually very strong second quarter for them. And I think there was like a time -- to me, I view this as a timing issue, because you always have kind of issues around, when shipments go first quarter versus second quarter or third quarter. And I think this quarter in Europe, we had a little bit lighter than we expected, but the first quarter was stronger. So you can actually look at the first half of the year. And it was actually much higher overall in the first half than the last year's first half. So Europe, I feel very good. The people are going to continue to see modest improvement. Our cost streaming activity will start to kick in, so I feel good about that. Asia-Pacific. Asia Pacific, I think what we're seeing there is slight decline. As we are continuing to gain share, we're continuing to grow our volumes. We had some slight decrease in our gross margin, due to some product mix issues, and maybe slightly higher raw materials. But the real driver is SG&A. And we are investing heavily in China and in India, because of the growth aspects of those countries. And we're investing, in particular into new initiatives there, Mike, like grease, passivation, those kind of things, that we haven't seen the results yet, but now we have these technologies and we have been able to hire some people, so I think we're doing some pre-investing there. So I hope that helps.

And then on the SG&A, Margaret, you mentioned lower incentive comp, higher merit increases. Maybe just give us a little bit of help on kind of how the incentive comp structure works. What portion of SG&A is fixed and how much is variable based on the sales level. I think I'm just trying to see if I can get a little better triangulation on what the second half outlook would be for SG&A versus the Q2 level?

I think what you hit on is correct, that in the current period we're seeing lower incentive comp impacting your administrative costs. And I believe that however, it is heavier loaded in the backend of our year. So I would keep that in mind as you consider run rate. That's kind of the information I have for you right now. I think you'd see the amount, what we have given you as the amount of administrative costs as allocated directly to the product and then we've given you that which is not allocated directly to the product. And so that's what we've given you to work with at this point in time.

Our next question comes from the line of Laurence Alexander with Jefferies.

Couple of questions. First can you walk us through any regions of end-markets where you're seeing noticeable acceleration in demand or pickup in share gains? Secondly, as you look at the growth initiatives in the M&A that you've done this year, how much of a tailwind do you see going into 2015 as we're thinking about the bridge? And then thirdly, can you update your thinking on the balance sheet and I guess a question that's been coming up more recently, so just frame as is, given those strength of the balance sheet, what would be the obstacles to adding either an adjacency, I mean cultural obstacles adding in adjacency outside your core areas?

Good questions, Larry. I'll start with the first question that you had upon the, are there any particular areas that we see stronger than others and especially in share gain and things like that. So I would say, Mexico in particular is an area that we're seeing a lot of strength and there's lot of investment going in the Mexico. We've made an acquisition of our joint venture partner, few years ago, which was great timing for us. So our Mexico business is booming. We're also seeing good growth in Southeast Asia. So from a regional perspective, it's that way. And is there any particular product line or any market share in an area, I would say, we're pretty much seeing good market share gains around the world. Again, I'll go back to my baseball analogy of hitting singles. So I think we're working on our strategic initiatives in our base business and these new technologies everywhere around the world and we're continuing to gain shares. So I see these kind of singles happening everywhere, but the geographic area is going to be more like Mexico at this point. On the M&A front, and going into 2015, we'll certainly see benefit getting the full year of the Australian JV, having a 100% of the EBITDA. There's no sales impact to that, but there will be certainly an EBITDA impact on that. And then you have -- but really what I see happening from a 2015 perspective is just we're another year into trying to sell, for example, grease or passivation globally. And we've done a lot of investment over the past 12 months in these areas and as these things start to bear fruit, we'll see more sales and earnings from these going into 2015. And on the balance sheet question, Lawrence, I think we tend not to look at businesses that are adjacent and in similar type of, and either in the core of our business or just adjacent to us, with the same kind of customer base and so forth. And we feel we have a lot of opportunities in there. So we don't feel we're necessarily short of opportunities, we just got to get these opportunities to fruition. We've mentioned in the past that Greece is an area, for example invested in a few years ago. We made our first acquisition there. And that's a place in particular we would like to grow and make acquisition as well into aspects of Greece. And it's a pretty large category. So we feel good about the acquisition that we're working on and hopefully they'll just come and we have always make the right decisions on those, so we put a lot of work and due diligence on that.

Our next question comes from the line of Liam Burke with Janney Capital Markets.

Mike, you've laid out the strategy of share gains with the maintaining of the high-level service and customer care. I guess customer intimacy is what you call it now. But have you seen any competitive response, I mean once you're just beginning to pick share, it becomes a slippery slope for your competitors. Has there been any response to that?

Well, competition is always a key thing. I never want to underestimate our competition. It's a good -- I think our mission, our approach is to continue to have a business model that provides a lot of service to the customers, that the customer is very happy with. We continue to try to have programs in which we save the customer, we call it TCO programs, total cost of ownership programs, and we save their money. And you get into those modes and the customers' very happy, then there is no need for them to look elsewhere. And we have generally a very high retention rate of our customers. So I think we'll always have competitors. They'll always try to get back in or if they lose these business, but we're hoping this approach to us creates such a, hopefully a barrier, where our customers just want to stay with us. And because we're not in a business that's generally driven just by price, because it's not just the price of our product and who can supply it at the lowest price, its really, we can make a big difference for our customers' overall profitability. And so I think we just want to continue to maintain that approach and hopefully continue to take share.

And Margo, you pretty much itemized the different accounts on the working capital. And as you went through the networking capital change for the first half of the year, for the quarter, was there anything in there that was unusual or it was a just timing issues on all these accounts?

That's a good question. We're very comfortable. We have a strong handle on the pieces. And I would only add one more thing to mention there is that we saw some of our customers had some very understandable items happening so much, putting an ERP system. So we saw some delays in AR due to that. Otherwise, we look at the AR as a larger up, because there was larger shipments at the end of the quarter. We saw that going on and we attributed some to growth. So that's the color I would give you in addition to what you read is that, yes, some of our customers have ERP systems implementation.

But you'd expect the full cash flow of those accounts to reverse and the cash flows to normalize for the full year?

I would expect some of that to come back, yes.

Our next question comes from the line of Scott Blumenthal with Emerald Advisers.

Margo, to follow-up on Liam's question, could you or would you be able to provide us with maybe some DSO information?

Yes. I think I can give you some DSO information. Let me grab. If you have any other questions, while I grab that.

And you mentioned you had some customers with understandable situations. You don't see anybody out there struggling to pay or anything like that, right?

No. Absolutely not. That's not the case. No.

And could you maybe give us an end of the quarter number of shares outstanding too?

Shares outstanding at the end of the quarter that should be on our press release here, right on the face page of the Q. Can you go to the face page of the Q?

I can look that up.

Scott, it's 13,242,167.

And Mike, there were a couple of references made to raw materials. Any meaningful issues with any raw materials pricing or availability, I know that you use a broad spectrum of raw materials?

No. I would say, in general, not. And it's not like broad categories are going up. It's really kind of different types and different parts of the world. So like just to give you a kind of an example, we buy oleo chemicals in Brazil. It's coming up in other places as relatively stable. Vegetable oil are going up for us in Europe. Ethylene derivatives are going up for us in North America. And you have some additives that are going up really everywhere. But generally, the bulk of our stuff is steady, it's just that they've got some pockets or some places where things are going up.

Scott, on the DSO, we ended this period with approximately 90 days.

Is that normal?

That was up 9 days versus the prior year.

Mr. Barry, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you, Christine. Given that there are no other questions, we'll end our conference call now, and I want to thank all of you for your interest today. We are pleased with our results for the second quarter and we continue to be confident in the future of Quaker Chemical. Our next conference call for the third quarter results will be in late October or early November, and if you have any questions in the meantime, please feel free to contact Margaret Loebl or myself. Thanks again for your interest in Quaker Chemical.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.