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CONSHOHOCKEN, Pa., Feb. 17 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record quarterly and annual sales of $104.2 million and $400.7 million, respectively, and diluted earnings per share of $0.17 for the fourth quarter and $0.90 for the full year, inclusive of a $0.5 million pre-tax charge for restructuring and other related activities in the fourth quarter.
Fourth Quarter Summary
Net sales for the fourth quarter of 2004 were $104.2 million, up 11% from $93.7 million for the fourth quarter of 2003. Foreign exchange rate translation favorably impacted net sales by $3.4 million or 3%, with the remaining net sales increase of approximately 8% attributable to volume growth and higher prices. Sales in the North American, South American and Asia/Pacific regions increased, tempered by lower sales in Europe, while price increases implemented across all regions helped to partially offset higher raw material costs.
Net income for the fourth quarter decreased to $1.7 million versus $4.1 million for the fourth quarter of 2003. Significantly higher raw material costs and higher selling, general and administrative costs were largely responsible for the shortfall in earnings compared to the prior year period. Fourth quarter net income also included a pre-tax restructuring and related activity charge of $0.5 million. Compared to the third quarter of 2004, the Company's net income increased approximately 44% despite this charge.
Gross margin as a percentage of sales declined from 35.5% for the fourth quarter of 2003 to 32.8% for the fourth quarter of 2004. The continued high prices for the Company's raw materials, particularly crude oil, as well as unfavorable product and regional sales mix, were responsible for the decline in gross margin percentage. However, the gross margin as a percentage of sales recovered one full percentage point from the 31.8% reported for the third quarter of 2004, as the Company began to benefit from recent pricing actions.
Selling, general and administrative expenses for the quarter increased $3.6 million compared to the fourth quarter of 2003. Foreign exchange rate translation and the Company's 2003 acquisitions accounted for approximately one-third of the increase. The majority of the remaining increase was due to costs associated with key strategic initiatives, as well as a range of administrative costs such as Sarbanes-Oxley compliance. During the fourth quarter of 2004, the Company began efforts to realign the organization and reduce costs by announcing the consolidation of its administrative facilities in Hong Kong with its Shanghai headquarters, resulting in a $0.5 million pre- tax charge for restructuring and related activities.
The increase in other income for the fourth quarter of 2004 primarily reflects a gain on the sale of real estate by the Company's majority owned Australian subsidiary, which also resulted in an increase in minority interest expense.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "While earnings for the quarter are below historical levels due primarily to the dramatic increase in raw material costs, our fourth quarter represents a positive first step on the road to recovery after a very disappointing third quarter. We continue to generate strong revenue growth, and the pricing actions we have taken in the latter part of 2004 are starting to move our gross margins in the right direction."
Full Year Summary
Net sales for 2004 increased to $400.7 million, up 18% from $340.2 million for 2003. Foreign exchange rate translation, the full year impact of the Company's 2003 acquisitions, and the Company's new Chemical Management Services (CMS) contracts favorably impacted net sales by approximately $14.7 million, $16.2 million and $17.2 million, respectively. The remaining net sales increase of approximately 3.6% was attributable to growth in the Asia/Pacific and North and South American regions partially offset by lower sales in Europe.
Net income was $9.0 million in 2004 versus $14.8 million in 2003 due to significantly higher raw material costs, and higher selling, general and administrative costs. Earnings per diluted share decreased from $1.52 to $0.90, inclusive of a $0.5 million pre-tax charge for restructuring and other related activities.
Gross margin as a percentage of sales declined from 35.7% for 2003 to 32.7% for 2004 due to a number of factors. The Company's new CMS contracts have caused different relationships between margins and revenue than in the past. At the majority of CMS sites, the Company effectively acts as an agent and records revenue and costs from these sales on a net sales or "pass- through" basis. The new CMS contracts have a different structure, which results in the Company recognizing in reported revenue the gross revenue received from the CMS site customer, and in cost of goods sold the third party product purchases. The negative impact to gross margin percentage for 2004 versus the prior year related to the new CMS contracts is approximately 1.3 percentage points. The remaining decline in gross margin as a percentage of sales is primarily due to increased raw material costs. Unfavorable product and regional mix also contributed to the decline in margin percentage.
Selling, general and administrative expenses for 2004 increased $16.3 million from 2003. Foreign exchange rate translation and the Company's 2003 acquisitions accounted for approximately 40% of the increase. The majority of the remaining increase was due to costs associated with strategic initiatives, as well as a range of administrative costs such as Sarbanes-Oxley compliance, pension, incentive compensation, and higher sales commissions.
Balance Sheet and Cash Flow Items
The Company's net debt has increased since 2003 primarily to fund the working capital needs associated with its growth initiatives. The Company's net debt-to-total capital was 28% at the end of 2004 compared to 25% at the end of 2003. In the fourth quarter of 2004, the Company took action in the U.S. and Europe to increase its credit facilities by $25.0 million. Therefore, the Company's credit lines now total $95.0 million, $40.0 million committed and $55.0 million uncommitted. At December 31, 2004, the Company had approximately $57.0 million outstanding on its credit lines.
Mr. Naples stated, "We expect earnings to improve after a disappointing 2004. Our plans call for high single-digit revenue growth, and we expect margins to improve over 2004, assuming raw material costs stabilize. We would certainly benefit from downward movement in the cost of key raw materials but are not seeing indications of such movement at this time. In the fourth quarter, we began to take steps that reduce costs, but still allow us to maintain the high customer service, global approach to our customers that sets us apart from our competitors. Further cost reduction steps are being taken in the first quarter, while we redirect resources to business building initiatives such as market development in a growing Asian market, continued market penetration and product conversions in chemical management services, and development of new complementary businesses."
Mr. Naples continued, "We remain convinced that we are on the right strategic track of selling value rather than simply fluids, operating as a globally integrated whole, and harnessing our global knowledge. Our commitment to these imperatives has enabled us to maintain our strong market position in a difficult operating environment and will serve us well given the increasing global nature of our customer base."
Mr. Naples also added, "We anticipate that our strong financial position and cash flow generation will enable continued pursuit of acquisitions, including the possible acquisition of JV partner interests. The roughly $4.2 million cash proceeds related to today's earlier announced sale of the assets of our real estate joint venture is a plus for us this year. We also expect to continue to maintain our record of annual dividend increases."
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 fourth quarter results is scheduled for February 18, 2005 at 2:30 p.m. (ET). Access the conference by calling 877-269-7756 (toll-free) or visit Quaker's Web site at http://www.quakerchem.com for a live webcast.
Quaker Chemical Corporation Condensed Consolidated Statement of Income (Dollars in thousands, except per share data and share amounts) (Unaudited) Three Months Ended Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Net sales $104,214 $93,689 $400,695 $340,192 Cost of goods sold 70,027 60,413 269,818 218,818 Gross margin 34,187 33,276 130,877 121,374 % 32.8% 35.5% 32.7% 35.7% Selling, general and administrative 30,480 26,835 113,536 97,202 Restructuring and related activities, net 450 57 450 57 Operating income 3,257 6,384 16,891 24,115 % 3.1% 6.8% 4.2% 7.1% Other income, net 629 (66) 1,818 764 Interest expense, net (286) (147) (1,252) (761) Income before taxes 3,600 6,171 17,457 24,118 Taxes on income 1,134 2,104 5,499 7,488 2,466 4,067 11,958 16,630 Equity in net income of associated companies 291 774 890 1,244 Minority interest in net income of subsidiaries (1,093) (726) (3,874) (3,041) Net income $1,664 $4,115 $8,974 $14,833 % 1.6% 4.4% 2.2% 4.4% Per share data: Net income - basic $0.17 $0.43 $0.93 $1.58 Net income- diluted $0.17 $0.41 $0.90 $1.52 Shares Outstanding: Basic 9,627,360 9,516,698 9,606,074 9,381,267 Diluted 9,929,474 9,954,500 9,969,044 9,761,261 Quaker Chemical Corporation Condensed Consolidated Balance Sheet (Dollars in thousands, except par value and share amounts) (Unaudited) December 31, December 31, 2004 2003 ASSETS Current assets Cash and cash equivalents $29,078 $21,915 Accounts receivable, net 87,527 78,121 Inventories, net 41,298 32,211 Deferred income taxes 4,373 4,278 Prepaid expenses and other current assets 8,911 6,417 Total current assets 171,187 142,942 Property, plant, and equipment, net 62,888 62,391 Goodwill 34,853 33,301 Other intangible assets, net 8,574 9,616 Investments in associated companies 6,718 6,005 Deferred income taxes 18,825 15,548 Other assets 21,848 19,664 Total assets $324,893 $289,467 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $60,695 $42,992 Accounts payable 40,183 39,240 Dividends payable 2,079 2,019 Accrued compensation 8,692 6,816 Other current liabilities 13,969 14,738 Total current liabilities 125,618 105,805 Long-term debt 14,848 15,827 Deferred income taxes 5,588 4,808 Accrued pension and postretirement benefits 36,456 34,165 Other non-current liabilities 7,372 6,802 Total liabilities 189,882 167,407 Minority interest in equity of subsidiaries 12,424 9,708 Shareholders' equity Common stock, $1 par value; authorized 30,000,000 shares; issued 9,668,751 shares 9,669 9,664 Capital in excess of par value 2,632 2,181 Retained earnings 117,981 117,308 Unearned compensation (355) (621) Accumulated other comprehensive loss (7,340) (15,406) 122,587 113,126 Treasury stock, shares held at cost; 2004 - 0, 2003 54,178 - (774) Total shareholders' equity 122,587 112,352 Total liabilities and shareholders' equity $324,893 $289,467 Quaker Chemical Corporation Condensed Consolidated Statement of Cash Flows For the twelve months ended December 31, (Dollars in thousands) (Unaudited) 2004 2003 Cash flows from operating activities Net income $8,974 $14,833 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 8,610 6,677 Amortization 1,157 960 Equity in net income of associated companies (890) (844) Minority interest in earnings of subsidiaries 3,874 3,041 Deferred income taxes (1,872) 402 Deferred compensation and other, net (39) (418) Restructuring and related activities 450 57 Gain on sale of property plant and equipment (509) - Pension and other postretirement benefits (172) 428 Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable (6,361) (14,604) Inventories (7,559) (4,692) Prepaid expenses and other current assets (281) (648) Accounts payable and accrued liabilities 129 478 Change in restructuring liabilities (558) (1,083) Estimated taxes on income (1,596) 3,790 Net cash provided by operating activities $3,357 $8,377 Cash flows from investing activities Capital expenditures (8,643) (12,608) Dividends and distributions from associated companies 288 4,080 Payments related to acquisitions - (15,983) Proceeds from disposition of assets 1,880 232 Other, net (75) (87) Net cash (used in) investing activities (6,550) (24,366) Cash flows from financing activities Net increase in short-term borrowings 17,683 30,581 Proceeds from long-term debt 2,564 - Repayments of long-term debt (3,679) (2,570) Dividends paid (8,241) (7,916) Stock options exercised, other 1,009 4,328 Distributions to minority shareholders (1,956) (2,391) Net cash provided by financing activities 7,380 22,032 Effect of exchange rate changes on cash 2,976 2,015 Net increase in cash and cash equivalents 7,163 8,058 Cash and cash equivalents at the beginning of the period 21,915 13,857 Cash and cash equivalents at the end of the period $29,078 $21,915
SOURCE Quaker Chemical Corporation -0- 02/17/2005 /CONTACT: Neal E. Murphy, Vice President and Chief Financial Officer, Quaker Chemical Corporation, +1-610-832-4189/ /Web site: http://www.quakerchem.com / (KWR) CO: Quaker Chemical Corporation ST: Pennsylvania IN: CHM SU: ERN MAV CCA JS -- PHTH041 -- 6668 02/17/2005 17:46 EST http://www.prnewswire.com