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CONSHOHOCKEN, Pa., Feb 17, 2004 /PRNewswire-FirstCall via COMTEX/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record annual and fourth quarter sales and improved annual earnings for 2003.
Net sales for 2003 were $340.2 million, up 24% from the prior year, and for the fourth quarter were $93.7 million, up 30% from the fourth quarter of 2002. For the full year 2003, net income was up 4% with earnings per diluted share at $1.52 compared to $1.51 per diluted share in 2002. Earnings for the fourth quarter of 2003 were $0.41 per diluted share compared to $0.46 per diluted share in the fourth quarter of 2002. The 2003 full year and fourth quarter earnings were consistent with previous Company guidance.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "2003 was a mixed year with a great top line, but earnings that never came up to our initial expectations. Our sales growth considerably outstripped earnings growth because a significant part of our sales growth was in acquisitions and new chemical management services (CMS) revenues that have different margin characteristics. We were negatively impacted by softness in a number of our core steel markets. In addition, we estimate raw material price increases raised our costs by approximately $2.5 million as our key raw material market prices are at four-year highs. Higher pension and insurance costs also hurt the bottom line. Despite these negatives, we managed a 4% increase in net income and stayed committed to important strategic actions. We completed three tight-fit acquisitions and advanced customer penetration through major new CMS contracts, all of which we expect to contribute to future growth. Our balance sheet remains strong, and we extended our dividend record to 31 consecutive years of increases."
Fourth Quarter Summary
Net income for the fourth quarter was $4.1 million versus $4.4 million for the fourth quarter of 2002, or $0.41 per diluted share versus $0.46 per diluted share in the prior year period.
Net sales for the fourth quarter were a record $93.7 million, up 30% from $71.9 million for the fourth quarter of 2002. Foreign exchange rate translation and the Company's 2003 acquisitions favorably impacted net sales by $7.1 million and $4.5 million, respectively. Fourth quarter sales also included approximately $10.0 million from the Company's recently awarded CMS contracts, which were effective May 1, 2003. The remaining part of the net sales increase is primarily due to growth in the Asia/Pacific and South America regions offset by a decline in business in the U.S. and Europe. Gross margin as a percentage of sales declined from 40.2% for the fourth quarter of 2002 to 35.5% for the fourth quarter of 2003. As previously disclosed, the Company's new CMS contracts have caused different relationships between margins and revenue than in the past. At the majority of current 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, which substantially offset each other. The negative impact to gross margin for the fourth quarter related to the new CMS contracts is approximately 4 percentage points. The remaining decline in gross margin as a percentage of sales is primarily due to increased raw material costs.
Selling, general and administrative expenses for the quarter increased $5.2 million compared to the fourth quarter of 2002. Approximately half of the increase is due to foreign exchange rate translation and the Company's 2003 acquisitions. Increases in other expenses, including pension, insurance and the Company's continued rollout of its global ERP system, contributed to the remainder of the increase. Included in the fourth quarter results is a $0.1 million net restructuring charge for the fourth quarter. 2003 severance program costs of approximately $0.3 million were partially offset by the release of $0.2 million of unused restructuring accruals related to the Company's 2001 restructuring program.
The 2003 effective tax rate was reduced to 31% from 32% in 2002 primarily due to the Company's favorable settlement of several outstanding tax audits and appeal issues.
The increase in equity income for the fourth quarter of 2003 primarily reflects a priority distribution received from the Company's real estate joint venture as well as improved performance from this joint venture.
Full Year Summary
Net income for 2003 increased to $14.8 million from $14.3 million in 2002. Earnings per diluted share increased to $1.52 from $1.51 in 2002.
Net sales for 2003 increased to $340.2 million, up 24% from $274.5 million for 2002. Foreign exchange rate translation and timing of the Company's 2002 and 2003 acquisitions favorably impacted net sales by $18.2 million and $14.0 million, respectively. Net sales for 2003 also included approximately $27.0 million from the Company's new CMS contracts. The remaining part of the net sales increase of approximately 2% is primarily due to double-digit growth in the Asia/Pacific and South America regions offset by a decline in business in the U.S. and Europe.
Gross margin as a percentage of sales declined from 40.6% for 2002 to 35.7% for 2003. The Company's new CMS contracts negatively impacted gross margin for 2003 by approximately 3 percentage points with the remaining decline primarily due to increased raw material costs and product mix.
Selling, general and administrative expenses for 2003 increased $9.6 million from 2002. Approximately three quarters of the increase is due to foreign exchange rate translation and the Company's acquisitions. Increases in other expenses, including pension, insurance, and the Company's continued rollout of its global ERP system, accounted for the remainder of the increase, offset in part by lower incentive compensation.
Balance Sheet and Cash Flow Items
The Company's debt-to-total capital ratio remains strong at 34% at the end of 2003 versus 25% at the end of 2002. The increase in debt by $30 million in 2003 is primarily due to the three acquisitions and the new CMS contracts in 2003. The Company's cash position also increased by $8.1 million.
As previously disclosed, the Company received $4.6 million of priority cash distributions from its real estate joint venture during 2003. In addition, the higher accounts receivable and inventory at the end of 2003 is primarily due to the Company's new CMS contracts and foreign exchange rate changes.
In 2003, capital expenditures were $12.6 million, primarily related to the Company's global ERP implementation and the Company's U.S. laboratory renovation. Payments related to acquisitions were $16.0 million in 2003 versus $21.3 million in 2002.
Mr. Naples stated, "We believe 2004 will be a year of solid revenue growth, and we will again have to manage through higher costs, especially raw materials. As we exited 2003, we experienced a four-year high in the pricing of our key raw material markets: crude oil-based, animal fats, and vegetable oils. We think these markets will get better, but there is obviously uncertainty out there, particularly with respect to crude. In addition, we again expect to see higher expenses related to administrative areas such as pension, insurance and Sarbanes-Oxley compliance, as well as our strategic ERP implementation and the restoration of performance-based incentive compensation. On the positive side, we expect to see solid revenue growth in all business segments and regions due to our initiatives as well as improved economic conditions. Balancing these divergent factors, our plans call for a slight improvement in earnings in 2004. For the first quarter, we expect that earnings will be around the first quarter of 2003."
Mr. Naples continued, "More than ever, we are convinced that we are on the right strategic track with our key imperatives of selling value rather than simply fluids, operating as a globally-integrated whole, and harnessing our global knowledge. We're confident that dedication to these imperatives will result in long-term financial performance more in line with our goals. They have kept us in a strong market position during the recent difficult operating environment, focusing us on bringing unique value to our customers, as well as increasing our differentiation from competitors through our global organization. We believe the five tight-fit acquisitions completed over the past two years and the new CMS contracts will be more significant contributors to our revenue and earnings. It is our expectation that our strong balance sheet and good cash flow generation will enable us to continue to grow the Company through acquisitions as well as maintain our record of annual dividend increases."
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 uncertainties related to downturns in a customer's business and unanticipated customer production curtailments. 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.
As previously announced, Quaker Chemical's investor conference call to discuss fourth quarter and full year results is scheduled for February 18, 2004 at 2:30 p.m. (ET). Access the conference by calling 800-922-0755 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 ended Twelve Months ended December 31, December 31, 2003 2002 2003 2002 Net sales $93,689 $71,869 $340,192 $274,521 Cost of goods sold 60,413 43,010 218,818 162,944 Gross margin 33,276 28,859 121,374 111,577 % 35.5% 40.2% 35.7% 40.6% Selling, general and administrative 26,835 21,604 97,202 87,604 Restructuring, net 57 - 57 - Operating income 6,384 7,255 24,115 23,973 % 6.8% 10.1% 7.1% 8.7% Other income (expense), net (66) (59) 764 1,135 Interest expense, net (147) (43) (761) (790) Income before taxes 6,171 7,153 24,118 24,318 Taxes on income 2,104 2,289 7,488 7,782 4,067 4,864 16,630 16,536 Equity in net income of associated companies 774 (19) 1,244 295 Minority interest in net income of subsidiaries (726) (431) (3,041) (2,534) Net income $4,115 $4,414 $14,833 $14,297 % 4.4% 6.1% 4.4% 5.2% Per share data: Net income - basic $0.43 $0.48 $1.58 $1.56 Net income - diluted $0.41 $0.46 $1.52 $1.51 Shares Outstanding: Basic 9,516,698 9,238,138 9,381,267 9,171,720 Diluted 9,954,500 9,503,266 9,761,261 9,473,917 Quaker Chemical Corporation Consolidated Balance Sheet (Dollars in thousands, except par value) December 31, 2003 2002 Assets Current Assets Cash and cash equivalents $21,915 $13,857 Accounts receivable, net 78,121 53,353 Inventories, net 32,211 23,636 Deferred income taxes 4,550 5,874 Prepaid expenses and other current assets 6,727 6,953 Total current assets 143,524 103,673 Property, plant, and equipment, net 62,391 48,512 Goodwill 33,301 21,927 Other intangible assets, net 9,616 5,852 Investments in associated companies 6,005 9,060 Deferred income taxes 12,846 10,609 Other assets 19,664 14,225 Total assets $287,347 $213,858 Liabilities and Shareholders' Equity Current liabilities Short-term borrowings and current portion of long-term debt $42,992 $12,205 Accounts payable 39,240 27,461 Dividends payable 2,019 1,962 Accrued compensation 6,816 10,254 Other current liabilities 14,738 14,262 Total current liabilities 105,805 66,144 Long-term debt 15,827 16,590 Deferred income taxes 2,688 1,518 Accrued pension and postretirement benefits 34,165 28,723 Other non-current liabilities 6,802 5,166 Total liabilities 165,287 118,141 Minority interest in equity of subsidiaries 9,708 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 2,181 626 Retained earnings 117,308 110,448 Unearned compensation (621) (1,245) Accumulated other comprehensive loss (15,406) (27,078) 113,126 92,415 Treasury stock, shares held at cost; 2003 - 54,178, 2002 - 324,109 (774) (4,360) Total shareholders' equity 112,352 88,055 Total liabilities and shareholders' equity $287,347 $213,858 Quaker Chemical Corporation Consolidated Statement of Cash Flows For the twelve months ended December 31, (Dollars in thousands) 2003 2002 Cash Flows from operating activities Net income $14,833 $14,297 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,677 5,432 Amortization 960 805 Equity in net income of associated companies (844) (295) Minority interest in earnings of subsidiaries 3,041 2,534 Deferred income taxes 1,389 328 Deferred compensation and other, net (418) 107 Pension and other postretirement benefits 428 1,452 Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions and divestitures: Accounts receivable, net (14,604) (657) Inventories (4,692) (3,101) Prepaid expenses and other current assets (648) (194) Accounts payable and accrued liabilities 478 7,107 Change in restructuring liabilities (1,026) (2,156) Estimated taxes on income 2,803 (1,261) Net cash provided by operating activities 8,377 24,398 Cash flows from investing activities Capital expenditures (12,608) (10,837) Dividends and distributions from associated companies 4,080 515 Payments related to acquisitions (15,983) (21,285) Proceeds from disposition of assets 232 1,682 Other, net (87) (326) Net cash used in investing activities (24,366) (30,251) Cash flows from financing activities Dividends paid (7,916) (7,714) Net increase in short-term borrowings 30,581 9,026 Repayment of long-term debt (2,570) (2,853) Treasury stock issued 4,328 2,951 Distributions to minority shareholders (2,391) (2,673) Net cash provided by (used in) financing activities 22,032 (1,263) Effect of exchange rate changes on cash 2,015 424 Net increase (decrease) in cash and cash equivalents 8,058 (6,692) Cash and cash equivalents at beginning of year 13,857 20,549 Cash and cash equivalents at the end of year $21,915 $13,857
SOURCE Quaker Chemical Corporation
Michael F. Barry, Vice President and Chief Financial Officer, Quaker Chemical Corporation, +1-610-832-8500