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News Release


Quaker Chemical Announces Fourth Quarter and Full Year 2004 Results

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.

2005 Outlook

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