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News Release


Quaker Chemical Announces Higher Third Quarter Earnings

  • Diluted EPS of $0.45, up 55% compared to 2Q 09, and up 10% compared to 3Q 08
  • Debt levels reduced 24% from December 2008
  • $34.7 million year-to-date operating cash flow

CONSHOHOCKEN, Pa., Oct. 27 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $118.9 million and diluted earnings per share of $0.45 for the third quarter of 2009.

Michael F. Barry, Chairman, Chief Executive Officer and President, stated, "We had a strong quarter in a very challenging global environment as our volumes continue to be well below prior periods. Our aggressive actions over the past year have enabled our profitability despite the lower volumes caused by the global recession. In the third quarter, we experienced a modest recovery in most end markets as our volumes improved from the second quarter. Over the longer term, we expect our volumes to continue to increase but it will take time to get back to historical levels as there is still a great deal of uncertainty in our end markets, especially over the next several quarters. While I am pleased with the sequential improvement in our quarterly earnings over the past year, our profitability is still not at the level where we need it to be over the longer term."

Mr. Barry added, "The third quarter was also another strong quarter in 2009 for cash flow generation. Since the beginning of the year, we generated nearly $35 million of operating cash flow and have now paid down our debt by 24%. Over this challenging period, we have also maintained our dividend and are near completion of the largest capital expenditure in our history -- our Middletown, Ohio plant expansion. We remain committed to investing in our key growth initiatives for our customers and continue to be confident in our future."

Third Quarter Summary

Net sales for the third quarter were $118.9 million, down 25% from $159.5 million for the third quarter of 2008. The decrease in net sales was primarily due to volume declines in all of the Company's regions and market segments, with the exception of modest growth in Asia/Pacific, as the global economic downturn continued to impact the Company. Volumes were down approximately 22% and foreign exchange rate translation decreased net sales by approximately 3%. However, third quarter 2009 volumes were approximately 18% higher than the second quarter of 2009.

Gross margins were down approximately $2.1 million, or 4%, compared to the third quarter of 2008. The gross margin percentage of 37.4% represents considerable improvement over the 29.2% reported for the third quarter of 2008. This margin percentage expansion was primarily the result of cost reduction actions taken, a more favorable raw material cost environment, and reduced automotive chemical management services revenue reported on a gross basis.

Selling, general and administrative expenses ("SG&A") decreased $3.6 million, or 9%, compared to the third quarter of 2008. Savings from the Company's restructuring programs, lower commissions, lower travel and entertainment expenses, and other cost savings measures, partially offset by the timing of incentive compensation accruals, accounted for more than 70% of the decline. Changes in foreign exchange rates accounted for the remainder.

The Company incurred charges related to the former CEO's supplemental retirement plan of approximately $2.4 million for the first nine months of 2009, which represents the total amount for 2009, and expects to incur a final charge of $1.0 million in 2010. The CEO transition costs incurred in the third quarter of 2009 totaled approximately $1.3 million, or approximately $0.07 per diluted share, compared to $1.6 million, or approximately $0.10 per diluted share, for the third quarter of 2008.

The increase in equity income is due to stronger financial performance from all the Company's associated companies.

Year-to-Date Summary

Net sales for the first nine months of 2009 were $319.8 million, down 31% from $465.4 million for the first nine months of 2008. The decrease in net sales was primarily due to volume declines in all of the Company's regions and market segments. Volumes were down approximately 30%, which were partially offset by a favorable 3% increase in selling price and mix. Foreign exchange rate translation also decreased revenues by approximately 4%.

Gross margins were down approximately $25.7 million, or 19%, compared to the first nine months of 2008, reflective of the above-noted volume declines. The gross margin percentage improved to 34.2% for the first nine months of 2009 from 29.0% for the first nine months of 2008. This gross margin percentage expansion from the first nine months of 2008 was primarily the result of 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 $19.5 million, or 18%, compared to the first nine months of 2008. Savings from the Company's restructuring programs, lower commissions, lower travel and entertainment expenses, and other cost savings measures accounted for more than 70% of the decline. Changes in foreign exchange rates accounted for the remainder.

Other income for the first nine months of 2009 includes a $1.2 million gain related to the disposition of excess land in Europe, while other income for the first nine months of 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. The increase in net interest expense was primarily due to lower interest income, as lower average debt balances were offset by higher interest rates.

Balance Sheet and Cash Flow Items

The Company's net debt-to-total-capital ratio at September 30, 2009 was 21%, compared to 32% as of December 31, 2008. The improvement in the Company's net debt-to-total-capital ratio was primarily due to year-to-date cash flows from operations of $34.7 million. Operating cash flow improved $7.9 million, compared to the second quarter of 2009, largely due to higher net income and further improvements in working capital.

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 third quarter results is scheduled for October 28, 2009 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 Income
                    ------------------------------------------
                  (Dollars in thousands, except per share data)
                  ---------------------------------------------


                                                   (Unaudited)
                                                   ------------

                                           Three Months        Nine Months
                                              Ended               Ended
                                           September 30,       September 30,
                                          --------------      --------------
                                          2009      2008      2009      2008
                                          ----      ----      ----      ----

    Net sales                         $118,922  $159,506  $319,764  $465,412

    Cost of goods sold                  74,450   112,981   210,541   330,466
                                        ------   -------   -------   -------

    Gross margin                        44,472    46,525   109,223   134,946
      %                                   37.4%     29.2%     34.2%     29.0%

    Selling, general and
     administrative expenses            34,646    38,278    90,393   109,935
    Restructuring and related charges        -         -     2,289         -
    CEO Transition Costs                 1,250     1,625     2,443     3,505
                                         -----     -----     -----     -----

    Operating income                     8,576     6,622    14,098    21,506
      %                                    7.2%      4.2%      4.4%      4.6%

    Other income (expense), net            217       (96)    2,027     1,752
    Interest expense, net               (1,178)   (1,044)   (3,585)   (3,205)
                                        ------    ------    ------    ------
    Income before taxes and equity
     in net income of associated
     companies                           7,615     5,482    12,540    20,053

    Taxes on income                      2,747       967     4,063     5,848
                                         -----       ---     -----     -----
    Income before equity in net
     income of associated companies      4,868     4,515     8,477    14,205

    Equity in net income of
     associated companies                  555       191       640       490
                                           ---       ---       ---       ---

    Net income                           5,423     4,706     9,117    14,695

    Less: Net income attributable to
     noncontrolling interest               371       266       829       841
                                           ---       ---       ---       ---

    Net income attributable to
     Quaker Chemical Corporation        $5,052    $4,440    $8,288   $13,854
                                        ======    ======    ======   =======
      %                                    4.2%      2.8%      2.6%      3.0%

    Per share data:
    ---------------
        Net income attributable to
         Quaker Chemical
         Corporation, Common
         Shareholders - basic            $0.46     $0.41     $0.76     $1.33
        Net income attributable to
         Quaker Chemical
         Corporation, Common
         Shareholders - diluted          $0.45     $0.41     $0.75     $1.31



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

                                                         (Unaudited)
                                                         -----------

                                                 September 30,   December 31,
                                                         2009           2008
                                                         ----           ----
    ASSETS

    Current assets
      Cash and cash equivalents                       $25,369        $20,892
      Construction fund (restricted cash)               3,805          8,281
      Accounts receivable, net                        100,926         98,702
      Inventories, net                                 47,163         57,419
      Prepaid expenses and other current assets        11,229         15,532
                                                       ------         ------
        Total current assets                          188,492        200,826

    Property, plant and equipment, net                 66,504         60,945
    Goodwill                                           46,362         40,997
    Other intangible assets, net                        5,852          6,417
    Investments in associated companies                 8,676          7,987
    Deferred income taxes                              36,456         34,179
    Other assets                                       38,776         34,088
                                                       ------         ------
        Total assets                                 $391,118       $385,439
                                                     ========       ========

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Short-term borrowings and current
       portion of long-term debt                       $2,835         $4,631
      Accounts and other payables                      55,495         51,341
      Accrued restructuring and related activities        232          2,198
      Accrued compensation                             13,652          7,741
      Accrued pension and postretirement benefits       1,869          7,380
      Other current liabilities                        16,114         10,573
                                                       ------         ------
        Total current liabilities                      90,197         83,864
    Long-term debt                                     64,875         84,236
    Deferred income taxes                               9,055          7,156
    Accrued pension and postretirement benefits        35,946         37,638
    Other non-current liabilities                      44,746         42,670
                                                       ------         ------
        Total liabilities                             244,819        255,564
                                                      -------        -------

    Quaker shareholders' equity
      Common stock, $1 par value; authorized
       30,000,000 shares; issued 11,072,352
       shares                                          11,072         10,833
      Capital in excess of par value                   26,937         25,238
      Retained earnings                               117,757        117,089
      Accumulated other comprehensive loss            (14,515)       (27,237)
                                                      -------        -------
        Total Quaker shareholders' equity             141,251        125,923
                                                      -------        -------
        Noncontrolling interest                         5,048          3,952
                                                        -----          -----
        Total shareholders' equity                    146,299        129,875
                                                      -------        -------
          Total liabilities and shareholders'
           equity                                    $391,118       $385,439
                                                     ========       ========



                           Quaker Chemical Corporation
                           ----------------------------
                 Condensed Consolidated Statement of Cash Flows
                 -----------------------------------------------
                     For the nine months ended September 30,
                     ---------------------------------------
                              (Dollars in thousands)
                              ----------------------


                                                               (Unaudited)
                                                               -----------
                                                               2009     2008
                                                               ----     ----
    Cash flows from operating activities
      Net income                                             $9,117  $14,695
      Adjustments to reconcile net income to net cash
       provided by operating activities:
        Depreciation                                          6,948    8,279
        Amortization                                            797      906
        Equity in net income of associated companies, net
         of dividends                                          (610)    (490)
        Deferred compensation and other, net                    (30)     840
        Stock-based compensation                              1,585    3,642
        Restructuring and related charges                     2,289        -
        Gain on disposal of property, plant and equipment    (1,194)      (3)
        Insurance settlement realized                        (1,104)    (981)
        Pension and other postretirement benefits            (5,877)  (3,541)
      Increase (decrease) in cash from changes in current
       assets and current liabilities, net of
       acquisitions:
        Accounts receivable                                     951   (3,723)
        Inventories                                          12,547   (8,550)
        Prepaid expenses and other current assets             3,283     (863)
        Accounts payable and accrued liabilities             10,273      788
        Change in restructuring liabilities                  (4,240)       -
                                                             ------      ---
          Net cash provided by operating activities          34,735   10,999
                                                             ------   ------

    Cash flows from investing activities
      Capital expenditures                                   (9,811)  (9,198)
      Payments related to acquisitions                       (1,000)  (1,000)
      Proceeds from disposition of assets                     1,640      139
      Insurance settlement received and interest earned       5,164    5,234
      Change in restricted cash, net                            416  (13,578)
          Net cash used in investing activities              (3,591) (18,403)
                                                             ------  -------

    Cash flows from financing activities
      Net decrease in short-term borrowings                  (1,796)  (1,389)
      Proceeds from long-term debt                            3,500   10,000
      Repayments of long-term debt                          (22,875)  (3,165)
      Dividends paid                                         (7,565)  (6,994)
      Stock options exercised, other                            353   13,974
      Distributions to noncontrolling shareholders             (274)    (252)
                                                               ----     ----
          Net cash (used in) provided by financing
           activities                                       (28,657)  12,174
                                                            -------   ------

      Effect of exchange rate changes on cash                 1,990     (899)
        Net increase in cash and cash equivalents             4,477    3,871
        Cash and cash equivalents at the beginning of the
         period                                              20,892   20,195
                                                             ------   ------
        Cash and cash equivalents at the end of the period  $25,369$24,066
                                                            =======  =======



SOURCE Quaker Chemical Corporation

Mark A. Featherstone Vice President and Chief Financial Officer, +1-610-832-4160