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News Release

Quaker Chemical Announces First Quarter 2005 Results

CONSHOHOCKEN, Pa., May 2 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced first quarter 2005 sales of $104.2 million and diluted earnings per share of $0.32, compared to first quarter 2004 sales of $98.1 million and diluted earnings per share of $0.33. The first quarter results include a gain from the sale of property by the Company's real estate joint venture as well as charges for restructuring and related activities.

First Quarter 2005 Summary

Net sales for the first quarter of 2005 were $104.2 million, up 6% from $98.1 million for the first quarter of 2004. Foreign exchange rate translation favorably impacted net sales by approximately $2.8 million, with the remaining net sales increase of approximately 3% primarily attributable to higher sales prices. The higher sales prices are a reflection of the Company's actions throughout 2004 and in the first quarter of 2005 to partially mitigate higher raw material costs. Volume growth in the North American and Asia/Pacific regions were offset by lower sales in Europe.

Gross margin as a percentage of sales declined from 33.1% for the first quarter of 2004 to 29.7% for the first quarter of 2005. Higher prices for the Company's raw materials, particularly crude oil derivatives, outpaced the Company's price increases. The Company has also experienced significantly higher third-party product purchase costs with respect to its CMS contracts. Unfavorable product and regional sales mix also contributed to the decline in the gross margin percentage. Gross margin as a percentage of sales declined in all of the Company's regions as compared to the first quarter of 2004, with the North American region suffering the greatest decline.

Selling, general and administrative expenses for the quarter increased $1.6 million compared to the first quarter of 2004. Unfavorable foreign exchange accounted for approximately $0.7 million of the increase. The remaining increase of $0.9 million is attributable to inflationary increases, higher professional fees, and depreciation expense associated with the Company's global ERP system implementation, offset by lower incentive compensation costs. During the first quarter of 2005, the Company furthered its restructuring efforts that began in the fourth quarter of 2004 resulting in a net pretax charge of $1.2 million related to a reduction in its workforce. The Company expects to realize $1.4 to $1.6 million in annual savings as a result of the charge. These savings will be reinvested in higher growth areas such as Asia/Pacific and in the continuing development of new complementary businesses.

The increase in other income is reflective of the $4.2 million of proceeds received from the Company's real estate joint venture, previously announced on February 17, 2005. The proceeds include a $3.0 million gain relating to the sale by the venture of its real estate holdings as well as $1.2 million of preferred return distributions. Preferred distributions in 2004 totaled $0.9 million, including $0.2 million in the first quarter of 2004.

The decrease in minority interest expense from the first quarter of 2004 is reflective of the Company's acquisition of the remaining 40% interest in its Brazilian affiliate in March of 2005, as previously announced on March 7, 2005.

Net income for the first quarter decreased to $3.1 million versus $3.3 million for the first quarter of 2004. Significantly higher raw material, selling, general and administrative and restructuring costs were offset by the $4.2 million of proceeds received from the Company's real estate joint venture as well as higher selling prices.

Balance Sheet and Cash Flow Items

The Company's net debt has increased from December 2004, primarily to fund the acquisition noted above, as well as to fund working capital needs associated with the Company's growth initiatives. The Company's net debt-to- total capital ratio was 33% at March 31, 2005 compared to 28% at the end of 2004. The Company's credit lines total $95.0 million, $40.0 million committed and $55.0 million uncommitted. At March 31, 2005, the Company had approximately $59.0 million outstanding on its credit lines.

Ronald J. Naples, Chairman and Chief Executive Officer, commented, "First quarter operating results were considerably below our expectations. With crude oil prices escalating above $55 per barrel in the first quarter and with shortages in key raw materials resulting in further upward price pressure, our costs ran well ahead of our plans, which were based on more stable raw material prices than we've seen. We've been very active on the price front with our customers, and while we've had significant price recovery, we're still running behind the pace and size of cost increases. Volume growth stalled in the first quarter as steel and auto producers scaled back production to reduce high year-end inventory levels and to respond to their own demand softening. Looking ahead, we've not changed our expectation that operating earnings for the year will improve over 2004, but there are a lot of moving parts without a completely clear direction, especially demand strength and raw material price stability. We're cautiously optimistic about improvement in our volumes and product mix, primarily through share and penetration, and will continue to pursue price increases to improve our margins. We took steps at the end of 2004 and in the first quarter to shift resources to growth areas and to help restore our margins and improve our profitability. Profitability should also be helped by the recent acquisition of our minority partner's interest in Brazil."

Quaker Chemical Corporation, headquartered in Conshohocken, Pennsylvania, is a worldwide developer, producer, and marketer of custom-formulated chemical specialty products and a provider of chemical management services for manufacturers around the globe, primarily in the steel and automotive industries.

This release contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that the Company's demand is largely derived from the demand for its customers' products, which subjects the Company to downturns in a customer's business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, and future terrorist attacks such as those that occurred on September 11, 2001. Other factors could also adversely affect us. Therefore, we caution you not to place undue reliance on our forward-looking statements. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

As previously announced, Quaker Chemical's investor conference to discuss first quarter results is scheduled for May 3, 2005 at 2:30 p.m. (ET). Access the conference by calling 877-269-7756 (toll free) or visit Quaker's Web site at for a live webcast.

                          Quaker Chemical Corporation
                   Condensed Consolidated Statement of Income
         (Dollars in thousands, except per share data and share amounts)


                                                Three Months Ended March 31,
                                                   2005              2004

    Net sales                                     $104,161           $98,131

    Cost of goods sold                              73,234            65,676

    Gross margin                                    30,927            32,455
       %                                             29.7%             33.1%

    Selling, general and administrative             28,217            26,598

    Restructuring and related activities,
     net                                             1,232               -

    Operating income                                 1,478             5,857
      %                                               1.4%              6.0%

    Other income, net                                4,868               559
    Interest expense, net                             (434)             (315)
    Income before taxes                              5,912             6,101

    Taxes on income                                  1,921             1,922
                                                     3,991             4,179

    Equity in net income of associated
     companies                                          53               149
    Minority interest in net income of
     subsidiaries                                     (918)           (1,019)

    Net income                                      $3,126            $3,309
       %                                              3.0%              3.4%

    Per share data:
        Net income - basic                           $0.32             $0.35
        Net income- diluted                          $0.32             $0.33

    Shares Outstanding:
        Basic                                    9,643,681         9,570,664
        Diluted                                  9,883,727         9,977,713

                           Quaker Chemical Corporation
                      Condensed Consolidated Balance Sheet
            (Dollars in thousands, except par value and share amounts)


                                                  March 31,       December 31,
                                                     2005             2004*

    Current assets
       Cash and cash equivalents                    $18,098           $29,078
       Accounts receivable, net                      89,728            87,527
       Inventories, net                              39,034            41,298
       Prepaid expenses and other current
        assets                                       12,608            13,284
          Total current assets                      159,468           171,187

    Property, plant and equipment                   145,116           146,900
       Less accumulated depreciation                 83,872            84,012
          Net property, plant and
           equipment                                 61,244            62,888
    Goodwill                                         35,086            34,853
    Other intangible assets, net                      9,667             8,574
    Investments in associated companies               6,597             6,718
    Deferred income taxes                            18,852            18,825
    Other assets                                     21,489            21,848
          Total assets                             $312,403          $324,893


    Current liabilities
       Short-term borrowings and current
        portion of long-term debt                   $62,634           $60,695
       Accounts and other payables                   37,733            42,262
       Accrued compensation                           6,198             8,692
       Other current liabilities                     15,340            13,969
          Total current liabilities                 121,905           125,618
    Long-term debt                                   14,483            14,848
    Deferred income taxes                             5,592             5,588
    Other non-current liabilities                    43,802            43,828
          Total liabilities                         185,782           189,882

    Minority interest in equity of
     subsidiaries                                     6,943            12,424

    Shareholders' equity
       Common stock, $1 par value;
        authorized 30,000,000 shares;

        issued 9,668,617 shares                       9,669             9,669
       Capital in excess of par value                 2,623             2,632
       Retained earnings                            119,029           117,981
       Unearned compensation                           (266)             (355)
       Accumulated other comprehensive
        loss                                        (11,377)           (7,340)
          Total shareholders' equity                119,678           122,587
             Total liabilities and
              shareholders' equity                 $312,403          $324,893

    *  Condensed from audited financial statements.

                           Quaker Chemical Corporation
                 Condensed Consolidated Statement of Cash Flows
                       For the three months ended March 31,
                              (Dollars in thousands)


                                                      2005              2004
    Cash flows from operating activities
      Net income                                     $3,126            $3,309
      Adjustments to reconcile net income
       to net cash used in operating
        Depreciation                                  2,268             1,981
        Amortization                                    306               284
        Equity in net income of associated
         companies                                      (53)             (149)
        Minority interest in earnings of
         subsidiaries                                   918             1,019
        Deferred compensation and other,
         net                                            388               208
        Restructuring and related
         activities                                   1,232               -
        Gain on sale of partnership assets           (2,989)              -
        Pension and other postretirement
         benefits                                      (207)              313
      Increase (decrease) in cash from
       changes in current assets and
       current liabilities, net of
        Accounts receivable                          (3,751)           (4,316)
        Inventories                                   1,599            (1,867)
        Prepaid expenses and other current
         assets                                         391            (2,768)
        Accounts payable and accrued
         liabilities                                 (5,395)              329
        Change in restructuring
         liabilities                                   (640)             (290)
          Net cash used in operating
           activities                                (2,807)           (1,947)

    Cash flows from investing activities
      Capital expenditures                           (1,628)           (2,347)
      Dividends and distributions from
       associated companies                             -                 233
      Payments related to acquisitions               (6,700)              -
      Proceeds from partnership
       disposition of assets                          2,989               -
      Proceeds from disposition of assets               647               -
      Other, net                                        -                 (57)
          Net cash used in investing
           activities                                (4,692)           (2,171)

    Cash flows from financing activities
      Net increase in short-term
       borrowings                                     2,064             7,617
      Repayments of long-term debt                     (282)             (160)
      Dividends paid                                 (2,079)           (2,020)
      Stock options exercised, other                    -                 232
      Distributions to minority
       shareholders                                  (2,204)             (245)
      Other, net                                         (9)              -
          Net cash (used in) provided by
           financing activities                      (2,510)            5,424

      Effect of exchange rate changes on
       cash                                            (971)             (327)
        Net (decrease) increase in cash
         and cash equivalents                       (10,980)              979
        Cash and cash equivalents at the
         beginning of the period                     29,078            21,915
        Cash and cash equivalents at the
         end of the period                          $18,098           $22,894
SOURCE  Quaker Chemical Corporation
    -0-                             05/02/2005
    /CONTACT:  Neal E. Murphy, Vice President and Chief Financial Officer,
Quaker Chemical Corporation, +1-610-832-4189/
    /Web site: /

CO:  Quaker Chemical Corporation
ST:  Pennsylvania

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1700 05/02/2005 17:33 EDT