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News Release

Quaker Chemical Announces Record Quarterly Sales and Increased Earnings

CONSHOHOCKEN, Pa., May 5 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR - News) today announced record quarterly sales of $73.3 million and net income growth of 32% for the first quarter ended March 31, 2003.

1st Quarter 2003 Summary

Net income for the first quarter was $3.1 million versus $2.4 million for the first quarter 2002. The earnings per diluted share of $0.33 was a 27% improvement over the first quarter 2002 result of $0.26 per diluted share.

Net sales for the first quarter were a record $73.3 million versus $59.9 million for the first quarter 2002. Foreign exchange rate translation and the timing of the Company's 2002 acquisitions favorably impacted net sales for the quarter by approximately $2.0 million and $5.6 million, respectively. Excluding the impact of foreign exchange rate translation and the timing of the Company's 2002 acquisitions, net sales would have been $65.7 million or 9.6% above the prior year. Net sales in all regions except Europe increased on a local currency basis, showing improvements in both volume and price/mix.

Gross margin as a percentage of sales declined from 40.6% for the first quarter 2002 to 38.7% for the first quarter 2003 primarily due to increased raw material costs and product mix. As previously disclosed, the Company expects raw material prices to be higher in 2003, especially in the first half, due to higher oil prices experienced earlier in the year.

Selling, general and administrative expenses increased $2.7 million over the first quarter 2002. Timing of the Company's 2002 acquisitions and foreign exchange rate translation accounted for approximately two-thirds of the increase. As previously disclosed, increased costs related to pension, insurance, and the Company's ERP implementation, accounted for the remaining increase.


Ronald J. Naples, Chairman and Chief Executive Officer, commented, "This first quarter gets us off to a good start in 2003, a year that still looks to us as one that will be characterized by shifting and uncertain manufacturing demand. We have seen some recent softness in key markets that could negatively affect our volumes, and higher raw material costs will continue to be a factor. We expect the stronger euro will help us out, though, as will cost control. On balance, we continue to expect year-over-year earnings growth in 2003. We expect that the second quarter will contribute to this improvement over prior year, if only slightly given the CMS contract start-up costs expected in the quarter that are linked to our recently announced GM award."

New CMS Contracts

As previously announced in the Company's April 11, 2003 press release, Quaker has been awarded a series of multi-year contracts to provide chemical management services (CMS) for General Motors Powertrain manufacturing sites. These contracts will be implemented during the second quarter of 2003. In addition, DaimlerChrysler has also recently awarded the Company a CMS contract for its Trenton Engine plant.

Mr. Naples stated that, "This new business is an important step in building the Company's share and leadership position in the automotive process fluids market and will position the Company well for penetration of CMS opportunities in other metalworking manufacturing markets. Over the next few months, we may have to absorb the transition and start-up costs of these contracts, which will hurt a bit, but the long-term prospects of creating value for our customers and us is very real."

For 2003, the earnings impact due to the new CMS sites is expected to be immaterial due to transition and start-up costs, largely in the second quarter. Future profitability of the contracts will be based on Quaker's ability to identify and implement cost reduction programs and product conversions. In addition, the new contracts will result in an increased investment of working capital estimated to be $4 million, although this amount will be dependent on the final terms negotiated with suppliers.

These new contracts will cause future income statements to show different relationships between margins and revenue than in the past. At the majority of current CMS sites, the Company effectively acts as an agent for the customer whereby it purchases chemicals from other companies and resells the product to the customer at little or no margin. The revenue and costs from these sales are reported on a net sales or "pass-through" basis. The structure of the new GM Powertrain site contracts is different in that the Company's revenue received from the customer will be in the nature of a fee for products and services provided to the customer, which are indirectly related to the actual costs incurred. As a result, the Company will recognize in reported revenues the gross revenue received from the CMS site customer, and in cost of goods sold, the third party product purchases, which will substantially offset each other. This will result in a significant increase in the Company's reported revenue, estimated to be approximately $35-$40 million on an annualized basis, the profitability of which will be dependent upon Quaker's ability to identify and implement cost reduction programs and product conversions.

In addition, the Company is currently negotiating similar contract structures for some of its existing CMS sites. It is possible that this will also require the Company to recognize an additional $10-$15 million in annualized sales starting in the second quarter.

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. Such risks and uncertainties include, but are not limited to, further downturns in our customers' businesses, significant increases in raw material costs, worldwide economic and political conditions, the impact of SARS, foreign currency fluctuations, and future terrorist attacks such as those that occurred on September 11, 2001.

As previously announced, Quaker Chemical's investor conference to discuss first quarter earnings results is scheduled for May 6, 2003, at 2:30 p.m. (ET). Access the conference by calling 800-922-0755 or visit Quaker's Web site at for a live webcast.

                         Quaker Chemical Corporation
                  Condensed Consolidated Statement of Income
                        For the period ended March 31,

                                  Dollars in thousands, except per share data
                                                          First Quarter
                                                      2003           2002

    Net sales                                        $73,337        $59,927

    Cost of goods sold                                44,971         35,570

    Gross margin                                      28,366         24,357
     %                                                 38.7%          40.6%

    Selling, general and administrative               22,685         20,024

    Operating income                                   5,681          4,333
     %                                                  7.7%           7.2%

    Other income, net                                     88            280
    Interest expense, net                               (139)          (166)
    Income before taxes                                5,630          4,447

    Taxes on income                                    1,858          1,423
                                                       3,772          3,024

    Equity in net income (loss) of
     associated companies                                 86            (17)
    Minority interest in net income of
     subsidiaries                                       (751)          (649)

    Net income                                        $3,107         $2,358
     %                                                  4.2%           3.9%

    Per share data:
      Net income - basic                               $0.34          $0.26
      Net income - diluted                             $0.33          $0.26

    Shares Outstanding:
      Basic                                        9,270,775      9,154,303
      Diluted                                      9,508,593      9,212,700

                         Quaker Chemical Corporation
                     Condensed Consolidated Balance Sheet

                                                    (Dollars in thousands)
                                                    March 31,    December 31,
                                                      2003           2002

    Current assets
      Cash and cash equivalents                      $12,044        $13,857
      Accounts receivable, net                        54,911         53,353
        Raw materials and supplies                    12,996         11,342
        Work-in-process and finished goods            12,673         12,294
      Prepaid expenses and other current assets       14,529         12,827
        Total current assets                         107,153        103,673

    Property, plant and equipment, at cost           117,569        113,207
      Less accumulated depreciation                   67,594         64,695
        Net property, plant and equipment             49,975         48,512
    Goodwill                                          22,308         21,927
    Other intangible assets                            5,639          5,852
    Investments in associated companies                7,247          9,060
    Deferred income taxes                             10,545         10,609
    Other assets                                      14,457         14,225
        Total assets                                $217,324       $213,858


    Current liabilities
      Short-term borrowings and current portion
       of long-term debt                             $16,015        $12,205
      Accounts and other payables                     29,340         29,423
      Accrued compensation                             6,283         10,254
      Other current liabilities                       12,711         14,262
        Total current liabilities                     64,349         66,144
    Long-term debt                                    16,590         16,590
    Deferred income taxes                              1,529          1,518
    Other noncurrent liabilities                      34,145         33,889
        Total liabilities                            116,613        118,141

    Minority interest in equity of subsidiaries        8,489          7,662

    Shareholders' Equity
      Common stock $1 par value; authorized
       30,000,000 shares; issued (including
       treasury shares) 9,664,009 shares               9,664          9,664
      Capital in excess of par value                     720            626
      Retained earnings                              111,591        110,448
      Unearned compensation                           (1,087)        (1,245)
      Accumulated other comprehensive (loss)         (24,483)       (27,078)
                                                      96,405         92,415
    Treasury stock, shares held at cost;
      2003 - 310,720, 2002 - 324,109                  (4,183)        (4,360)
      Total shareholders' equity                      92,222         88,055
                                                    $217,324       $213,858

                         Quaker Chemical Corporation
                Condensed Consolidated Statement of Cash Flows
                     For the Three Months ended March 31,

                                                      (Dollars in thousands)
                                                        2003          2002*

    Cash flows from operating activities
      Net income                                      $3,107         $2,358
      Adjustments to reconcile net income to
       net cash provided by operating activities:
        Depreciation                                   1,646          1,229
        Amortization                                     215             82
        Equity in net income of associated companies     (86)            17
        Minority interest in earnings of subsidiaries    751            649
        Deferred compensation and other
         postretirement benefits                          77           (260)
        Other, net                                       481            388
      Increase (decrease) in cash from changes in
       current assets and current liabilities:
        Accounts receivable, net                        (399)        (2,471)
        Inventories                                   (1,389)           981
        Prepaid expenses and other current assets     (1,342)        (1,918)
        Accounts payable and accrued liabilities      (5,927)           391
        Change in restructuring liabilities             (699)          (865)
          Net cash (used in) provided by operating
           activities                                 (3,565)           581

    Cash flows from investing activities
      Investments in property, plant and equipment    (2,113)        (1,527)
      Dividends and distributions from associated
       companies                                       1,800              -
      Payments related to acquisitions                     -        (13,676)
      Other, net                                         (40)            66
        Net cash (used in) investing activities         (353)       (15,137)

    Cash flows from financing activities
      Net increase in short-term borrowings            3,791         11,994
      Repayment of long-term debt                         (7)           (30)
      Dividends paid                                  (1,961)        (1,872)
      Treasury stock issued                               86            442
      Distributions to minority shareholders            (213)          (497)
        Net cash provided by financing activities      1,696         10,037

    Effect of exchange rate changes on cash              409           (112)

      Net (decrease) in cash and cash equivalents     (1,813)        (4,631)
      Cash and cash equivalents at beginning
       of period                                      13,857         20,549
      Cash and cash equivalents at end of period     $12,044        $15,918

Certain reclassifications of prior year data have been made to improve comparability.