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CONSHOHOCKEN, Pa., May 1 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record quarterly sales for the first quarter 2007 of $124.9 million and net income of $3.5 million, a sales increase of 13.7%, and a net income increase of 39%, compared to the first quarter 2006. Earnings per share increased to $0.35 per diluted share from $0.26 per diluted share for the first quarter 2006.
First Quarter 2007 Summary
Net sales for the first quarter were $124.9 million, compared to $109.8 for the first quarter of 2006. The increase in net sales was primarily attributable to a combination of higher sales prices and volume growth. Volume growth was mainly attributable to double digit sales growth in China and higher revenue related to the Company's CMS channel. Foreign exchange rate translation also increased revenues by approximately 4% for the first quarter of 2007, compared to the same period in 2006. Selling price increases were realized across all regions and market segments, in part, as an ongoing effort to offset higher raw material costs. CMS revenues were higher due to additional CMS accounts and the renewal and restructuring of several of the Company's CMS contracts.
Gross margin as a percentage of sales was 30.9% for the first quarter of 2007, compared to 29.6% for the first quarter of 2006. Higher selling prices and additional contribution from the Company's CMS channel helped improve margins. On a sequential basis, however, the first quarter 2007 gross margin percentage was below the fourth quarter 2006 gross margin percentage of 32.3%, as higher CMS service revenues, which include revenues from third-party product sales to CMS accounts, have lower gross margin percentages than traditional product sales. This change in sales mix decreased gross margin as a percentage of sales by approximately 1.5 percentage points compared to the fourth quarter of 2006.
Selling, general and administrative expenses for the quarter increased $4.6 million, as compared to the first quarter of 2006. Foreign exchange rate translation accounted for approximately $1.0 million of the increase over the first quarter of 2006. Also negatively affecting the comparison with the prior year is a pension gain of $0.9 million recorded in the first quarter of 2006 due to a legislative change. The remainder of the increase was due to continued planned spending in higher growth areas, primarily China, higher commissions as a result of higher sales, and increased incentive compensation as a result of higher earnings.
The increase in other income was the result of higher foreign exchange rate losses recorded in the prior year. The increase in net interest expense is attributable to higher average borrowings and higher interest rates.
The Company's effective tax rate was 32.9% for the first quarter of 2007, compared to 36.2% for the first quarter of 2006. The decrease in the effective tax rate was primarily attributable to a shifting of income to lower rate tax jurisdictions, which was offset in part by the Company's first quarter 2007 adoption of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48").
Balance Sheet and Cash Flow Items
The Company's net debt has increased from December 31, 2006, primarily to fund working capital needs driven by higher sales late in the quarter and the start-up of a new operation in China. The Company's net debt-to-total capital ratio was 43% at March 31, 2007, compared to 40% at December 31, 2006.
In connection with the adoption of FIN 48, the Company recorded a non-cash charge to shareholders' equity of $5.5 million, which negatively impacted the Company's net debt-to-total capital ratio by approximately 1 percentage point.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "We had a fine first quarter resulting from increased contributions from strategic initiatives such as Asia/Pacific growth and CMS, as well as our continued actions on the pricing front. Virtually worldwide, we had solid results in the first quarter. Even though sequential quarterly gross margin percentage slipped a bit, due primarily to sales mix, we were able to achieve higher gross margin in dollar terms even as raw material costs ran considerably ahead of last year. This flowed from business expansion efforts and, importantly, from our work with customers to recognize the value we deliver as well as our cost realities. We continue to invest where we think we can get growth and feel good about our long-term future and the prospects of continuing earnings improvement in 2007."
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 first quarter results is scheduled for May 2, 2007 at 2:30 p.m. (ET). Access the conference by calling 877-269-7756 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 March 31, 2007 2006 Net sales $124,891 $109,816 Cost of goods sold 86,345 77,331 Gross margin 38,546 32,485 % 30.9% 29.6% Selling, general and administrative 31,919 27,362 Operating income 6,627 5,123 % 5.3% 4.7% Other income, net 327 128 Interest expense, net (1,350) (965) Income before taxes 5,604 4,286 Taxes on income 1,844 1,553 3,760 2,733 Equity in net income of associated companies 125 113 Minority interest in net income of subsidiaries (348) (304) Net income (loss) $3,537 $2,542 % 2.8% 2.3% Per share data: Net income - basic $0.36 $0.26 Net income - diluted $0.35 $0.26 Shares Outstanding: Basic 9,907,683 9,723,432 Diluted 10,024,905 9,816,149 Quaker Chemical Corporation Condensed Consolidated Balance Sheet (Dollars in thousands, except par value and share amounts) (Unaudited) March 31, December 31, 2007 2006 ASSETS Current assets Cash and cash equivalents $10,787 $16,062 Accounts receivable, net 118,834 107,340 Inventories, net 55,420 51,984 Prepaid expenses and other current assets 12,213 10,855 Total current assets 197,254 186,241 Property, plant and equipment, net 61,464 60,927 Goodwill 40,235 38,740 Other intangible assets, net 8,046 8,330 Investments in associated companies 6,840 7,044 Deferred income taxes 33,197 28,573 Other assets 27,083 27,527 Total assets $374,119 $357,382 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $3,702 $4,950 Accounts and other payables 64,404 56,345 Accrued compensation 8,987 15,225 Other current liabilities 15,480 13,659 Total current liabilities 92,573 90,179 Long-term debt 90,535 85,237 Deferred income taxes 5,493 5,317 Other non-current liabilities 71,139 61,783 Total liabilities 259,740 242,516 Minority interest in equity of subsidiaries 4,154 4,035 Shareholders' equity Common stock, $1 par value; authorized 30,000,000 shares; issued 10,083,434 shares 10,083 9,926 Capital in excess of par value 7,380 5,466 Retained earnings 110,365 114,498 Accumulated other comprehensive loss (17,603) (19,059) Total shareholders' equity 110,225 110,831 Total liabilities and shareholders' equity $374,119 $357,382 Quaker Chemical Corporation Condensed Consolidated Statement of Cash Flows For the Three Months ended March 31, (Dollars in thousands) (Unaudited) 2007 2006 Cash flows from operating activities Net income $3,537 2,542 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 2,719 2,495 Amortization 339 351 Equity in net income of associated companies, net of dividends 44 92 Minority interest in earnings of subsidiaries 348 304 Deferred income tax 361 (361) Deferred compensation and other, net 267 (184) Stock-based compensation 262 171 (Gain) Loss on disposal of property, plant and equipment 5 - Insurance settlement realized (265) (72) Pension and other postretirement benefits (869) (1,865) Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable (10,633) (6,425) Inventories (3,019) (3,696) Prepaid expenses and other current assets (873) (2,330) Accounts payable and accrued liabilities 2,749 245 Change in restructuring liabilities - (2,912) Net cash used in operating activities (5,028) (11,645) Cash flows from investing activities Capital expenditures (2,721) (1,655) Payments related to acquisitions (1,000) (1,000) Insurance settlement received and interest earned 143 75 Change in restricted cash, net 122 (3) Net cash used in investing activities (3,456) (2,583) Cash flows from financing activities Net (decrease) increase in short-term borrowings (1,262) (2,504) Proceeds from long-term debt 5,277 12,340 Repayments of long-term debt (225) (233) Dividends paid (2,137) (2,090) Stock options exercised, other 1,809 101 Distributions to minority shareholders (270) (350) Net cash provided by financing activities 3,192 7,264 Effect of exchange rate changes on cash 17 448 Net decrease in cash and cash equivalents (5,275) (6,516) Cash and cash equivalents at the beginning of the period 16,062 16,121 Cash and cash equivalents at the end of the period $10,787 $9,605
SOURCE Quaker Chemical Corporation -0- 05/01/2007 /CONTACT: Mark A. Featherstone, Vice President and Chief Financial Officer of Quaker Chemical Corporation, +1-610-832-4160/ /Web site: www.quakerchem.com/ (KWR) CO: Quaker Chemical Corporation ST: Pennsylvania IN: CHM SU: ERN CCA CS -- NETU157 -- 9718 05/01/2007 17:04 EDT http://www.prnewswire.com