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News Release


Quaker Chemical Announces Fourth Quarter and Full Year Results

  • Diluted EPS of $0.71 in Q4 09, compared to a loss of $0.26 in Q4 08, and up 58% compared to Q3 09
  • Debt levels reduced 26% from December 2008
  • $41.6 million record operating cash flow in 2009

CONSHOHOCKEN, Pa., March 3, 2010 /PRNewswire via COMTEX/ -- Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $131.7 million and earnings per diluted share of $0.71 for the fourth quarter of 2009, compared to sales of $116.2 million and a loss of $0.26 per diluted share for the fourth quarter of 2008. Full year 2009 sales were $451.5 million and earnings per diluted share were $1.47, compared to full year 2008 sales of $581.6 million and earnings per diluted share of $1.05.

Michael F. Barry, Chairman, Chief Executive Officer and President, stated, "We posted strong fourth quarter results, especially in light of a continued challenging global economic environment. A large driver of the sequential improvement in our profitability was the strong steel industry demand in China, Brazil and India. Steel and auto volumes, while gradually recovering, remain depressed in North America and Europe, and profitability, while improved from the prior year loss, is not where we need it to be longer term. We also benefited from a low tax rate and volume increases related to our customers' inventory restocking which we do not expect to be repeated to the same degree going forward. In 2010, we expect year-over-year earnings growth as volumes gradually increase, but this will be tempered by our continued investment in the BRIC countries and other key growth initiatives."

Mr. Barry added, "While 2009 was a challenging year given the severe decline in volumes, we were able to exit the year in a stronger financial and competitive position. During 2009, we generated record operating cash flows and paid down more than one-quarter of our debt. In addition, due to the aggressive actions taken over the past year, our current EBITDA run rate now exceeds pre-crisis levels. We also continued to invest in our business as demonstrated by our Middletown, Ohio plant expansion and an upgrade to our global ERP system. In summary, we are a financially stronger company today than when we entered into the global crisis, and we believe we are in a better competitive position as well."

Fourth Quarter Summary

Net sales for the fourth quarter were $131.7 million, an increase of approximately 13% compared to $116.2 million for the fourth quarter of 2008. The increase in net sales was primarily due to volume increases in all of the Company's regions, as the Company began to recover from the global economic downturn. Volumes increased 12%, partially offset by a 7% decline in selling price and mix. Foreign exchange rates increased revenues by approximately 8%. Volumes also continued to increase on a sequential quarter basis by approximately 7% compared to the third quarter of 2009.

Gross margins increased approximately $19.5 million, or 69%, compared to the fourth quarter of 2008. The gross margin percentage of 36.1% represents considerable improvement over the 24.2% reported in the fourth quarter of 2008. This margin expansion was primarily the result of higher volumes, cost reduction actions taken, a more favorable raw material cost environment and reduced automotive chemical management services revenue reported on a gross basis. Gross margin as a percentage of sales declined 1.3 percentage points from the third quarter 2009 level due to higher costs related to the start-up of the Middletown, Ohio plant expansion, increasing raw material prices and mix.

Selling, general and administrative expenses ("SG&A") increased $8.9 million, or 33%, compared to the fourth quarter of 2008. The increase was primarily due to incentive compensation accruals in 2009 compared to reversals in incentive compensation accruals in the prior year quarter related to the fourth quarter 2008 loss, and accounted for approximately 75% of the increase. Changes in foreign exchange rates accounted for the majority of the remainder.

The increase in other income is primarily due to larger foreign exchange losses in the fourth quarter of 2008. The increase in equity in net income of associated companies and net income attributable to noncontrolling interests was due to stronger financial performances from those affiliates as they began to recover from the global economic downturn.

Full Year Summary

Net sales for 2009 were $451.5 million, a decline of $130.2 million, or approximately 22%, compared to $581.6 million for 2008. Volumes declined approximately 20%, reflective of the global economic downturn. Changes in foreign exchange rates also decreased revenue by approximately 2%.

Gross margin decreased by $6.2 million, or 4%, compared to 2008, reflective of the above-noted volume declines which were tempered by gross margin percentage expansion. The gross margin percentage increased to 34.7% in 2009, compared to 28.0% in 2008, primarily due to cost reduction actions taken, a more favorable raw material cost environment and reduced automotive chemical management services revenue reported on a gross basis.

SG&A decreased $10.7 million, or 8%, compared to 2008. Savings from cost reduction programs, lower travel and entertainment expenses and lower commissions, partially offset by higher incentive compensation accruals, accounted for 64% of the decline. Changes in foreign exchange rates accounted for the remainder.

In response to the global economic downturn, the Company initiated restructuring programs and incurred charges of approximately $2.3 million, or approximately $0.14 per diluted share, in 2009 and $2.9 million, or approximately $0.18 per diluted share, in 2008. The Company completed both initiatives in 2009.

The Company incurred charges related to the former CEO's supplemental retirement plan of approximately $2.4 million in 2009, or approximately $0.14 per diluted share, and expects to incur a final charge of approximately $1.3 million, or approximately $0.07 per diluted share, in 2010. The CEO transition costs incurred in 2008 were approximately $3.5 million, or approximately $0.22 per diluted share.

Other income for 2009 includes a $1.2 million gain related to the disposition of excess land in Europe, while other income for 2008 includes a net arbitration award of approximately $1.0 million related to litigation with one of the former owners of the Company's Italian subsidiary. Lower foreign exchange rate losses in 2009, compared to 2008, also contributed to the change in other income in 2009. The increase in net interest expense was primarily due to lower interest income, as lower average debt balances were offset by higher interest rates.

The Company's effective tax rate for 2009 was 29.8%, compared to 29.9% in 2008. The 2009 effective tax rate reflects no tax expense being provided for the land sale gain due to the utilization of net operating losses, which were previously not benefited, while the 2008 effective tax rate includes a tax refund of $0.5 million related to the Company's increased investment in China. The Company has experienced and expects to experience further volatility in its quarterly effective tax rates due to the varying timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions.

Balance Sheet and Cash Flow Items

The Company's net debt-to-total-capital ratio at December 31, 2009 was 20%, compared to 32% as of December 31, 2008. The improvement in the Company's net debt-to-total-capital ratio was primarily due to record cash flows from operations of $41.6 million. Operating cash flow continued to improve by $6.9 million in the fourth quarter of 2009 compared to the prior quarter, primarily due to higher net income.

Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services, and technical expertise to a wide range of industries - including steel, automotive, mining, aerospace, tube and pipe, coatings and construction materials. Our products, technical solutions and chemical management services enhance our customers' processes, improve their product quality and lower their costs. Quaker's headquarters is located near Philadelphia in Conshohocken, Pennsylvania.

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 call to discuss fourth quarter results is scheduled for March 4, 2010 at 2:30 p.m. (ET). Access the conference by calling 877-269-7756 or visit Quaker's Web site at www.quakerchem.com for a live webcast.



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


                                             (Unaudited)
                          Three Months Ended           Twelve Months Ended
                               December 31,                 December 31,
                           2009           2008           2009            2008
                           ----           ----           ----            ----
    Net sales           $131,726      $116,229       $451,490        $581,641

    Cost of goods sold    84,111        88,114        294,652         418,580


    Gross margin          47,615        28,115        156,838         163,061
         %                  36.1%         24.2%          34.7%           28.0%

    Selling, general and
     administrative
     expenses             35,625        26,762        126,018         136,697
    Restructuring and
     related charges           -         2,916          2,289           2,916
    CEO transition costs       -             -          2,443           3,505


    Operating income
     (loss)               11,990        (1,563)        26,088          19,943
         %                   9.1%         -1.3%           5.8%            3.4%

    Other income
     (expense), net          382          (657)         2,409           1,095
    Interest expense,
     net                  (1,220)       (1,204)        (4,805)         (4,409)
                          ------        ------         ------          ------
    Income (loss) before
     taxes and equity in
     net income of
     associated
     companies            11,152        (3,424)        23,692          16,629

    Taxes (tax benefit)
     on income (loss)      3,002          (871)         7,065           4,977
                           -----          ----          -----           -----
    Income (loss) before
     Equity in net income
     of associated
     companies             8,150        (2,553)        16,627          11,652

    Equity in net
     income (loss) of
     associated
     companies               223          (102)           863             388
                             ---          ----            ---             ---

    Net income (loss)      8,373        (2,655)        17,490          12,040

    Less: Net income
     attributable to
     noncontrolling
     interest                441            67          1,270             908
                             ---           ---          -----             ---

    Net income (loss)
     attributable to Quaker
     Chemical Corporation $7,932       $(2,722)       $16,220         $11,132
                          ======       =======        =======         =======
         %                   6.0%         -2.3%           3.6%            1.9%

    Per share data:
    ---------------
      Net income (loss)
       attributable to Quaker
       Chemical Corporation
       Common Shareholders -
       basic               $0.72        $(0.26)         $1.48           $1.06
      Net income (loss)
       attributable to Quaker
       Chemical Corporation
       Common Shareholders -
       diluted             $0.71        $(0.26)         $1.47           $1.05






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

                                                         (Unaudited)

                                                  December 31, December 31,
                                                      2009        2008
                                                      ----        ----

    ASSETS

    Current assets
        Cash and cash equivalents                     $25,051   $20,892
        Construction fund (restricted cash)             2,358     8,281
        Accounts receivable, net                      108,793    98,702
        Inventories, net                               50,040    57,419
        Deferred income taxes                           5,247     4,948
        Prepaid expenses and other current assets       7,409    10,584

         Total current assets                         198,898   200,826

    Property, plant and equipment, net                 67,426    60,945
    Goodwill                                           46,515    40,997
    Other intangible assets, net                        5,579     6,417
    Investments in associated companies                 8,824     7,987
    Deferred income taxes                              31,692    34,179
    Other assets                                       39,537    34,088

         Total assets                                $398,471  $385,439
                                                     ========  ========

    LIABILITIES AND EQUITY

    Current liabilities
        Short-term borrowings and current portion of
         long-term debt                                $2,431    $4,631
        Accounts payable                               58,389    48,849
        Dividends payable                               2,550     2,492
        Accrued compensation                           16,656     7,741
        Accrued pension and postretirement benefits     4,717     7,380
        Other current liabilities                      15,224    12,771

         Total current liabilities                     99,967    83,864
    Long-term debt                                     63,685    84,236
    Deferred income taxes                               8,605     7,156
    Accrued pension and postretirement benefits        27,602    37,638
    Other non-current liabilities                      42,317    42,670

         Total liabilities                            242,176   255,564


    Equity
        Common stock, $1 par value; authorized
         30,000,000 shares; issued 2009
         - 11,085,549 shares                           11,086    10,833
        Capital in excess of par value                 27,527    25,238
        Retained earnings                             123,140   117,089
        Accumulated other comprehensive loss          (10,439)  (27,237)
                                                      -------   -------
         Total Quaker shareholders' equity            151,314   125,923
         Noncontrolling interest                        4,981     3,952

         Total equity                                 156,295   129,875

           Total liabilities and equity              $398,471  $385,439
                                                     ========  ========






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


                                                              (Unaudited)
                                                             2009      2008
                                                             ----      ----


    Cash flows from operating activities
         Net income                                         $17,490  $12,040
         Adjustments to reconcile net income to net cash
          provided by operating activities:
             Depreciation                                     9,525   10,879
             Amortization                                     1,078    1,177
             Equity in net income of associated companies,
              net of dividends                                 (833)    (275)
             Deferred income tax                               (505)   1,014
             Uncertain tax positions (non-deferred portion)   1,266      211
             Deferred compensation and other, net               652      819
             Stock-based compensation                         2,130    3,901
             Restructuring and related charges, net           2,289    2,916
             Gain on disposal of property, plant and
              equipment                                      (1,202)     (10)
             Insurance settlement realized                   (1,608)  (1,556)
             Pension and other postretirement benefits       (7,929)  (3,527)
         Increase (decrease) in cash from changes in
          current assets and current liabilities, net of
          acquisitions:
             Accounts receivable                             (6,816)  15,582
             Inventories                                      9,765      (73)
             Prepaid expenses and other current assets         (129)    (181)
             Accounts payable and accrued liabilities        16,540  (27,892)
             Change in restructuring liabilities             (4,473)    (749)
             Estimated taxes on income                        4,363     (885)
                                                              -----     ----
                Net cash provided by operating activities    41,603   13,391
                                                             ------   ------



    Cash flows from investing activities
         Capital expenditures                               (13,834) (11,742)
         Payments related to acquisitions                    (1,975)  (1,859)
         Proceeds from disposition of assets                  1,666      177
         Insurance settlement received and interest
          earned                                              5,204    5,306
         Change in restricted cash, net                       2,327  (12,031)
                                                              -----  -------
                Net cash used in investing activities        (6,612) (20,149)
                                                             ------  -------

    Cash flows from financing activities
         Net (decrease) increase in short-term
          borrowings                                         (1,755)     743
         Proceeds from long-term debt                         3,500   10,000
         Repayments of long-term debt                       (23,973)  (3,401)
         Dividends paid                                     (10,111)  (9,503)
         Stock options exercised, other                         412   11,919
         Distributions to minority shareholders                (890)    (404)
                                                               ----     ----
                Net cash (used in) provided by financing
                 activities                                 (32,817)   9,354
                                                            -------    -----

         Effect of exchange rate changes on cash              1,985   (1,899)
           Net increase in cash and cash equivalents          4,159      697
           Cash and cash equivalents at the beginning of
            the period                                       20,892   20,195
                                                             ------   ------
           Cash and cash equivalents at the end of the
            period                                          $25,051  $20,892
                                                            =======  =======



SOURCE: Quaker Chemical Corporation