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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
July 31, 2003
Date of Report (Date of earliest event reported)
QUAKER CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Commission File Number 0-7154
PENNSYLVANIA No. 23-0993790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Quaker Park
901 Hector Street
Conshohocken, Pennsylvania 19428
(Address of principal executive offices)
(Zip Code)
(610) 832-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 7. Financial Statements and Exhibits.
The following exhibit is filed as part of this report:
Exhibit No.
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99.1 Press Release of Quaker Chemical Corporation dated July 31, 2003
Item 12. Results of Operations and Financial Condition.
On July 31, 2003, Quaker Chemical Corporation announced its results of
operations for the second quarter ended June 30, 2003 in a press release, the
text of which is included as Exhibit 99.1 hereto.
-2-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUAKER CHEMICAL CORPORATION
Registrant
Date: July 31, 2003 By: /s/ Michael F. Barry
---------------------------------
Vice President and
Chief Financial Officer
-3-
Exhibit 99.1
[LOGO] Quaker
For Release: NEWS Contact:
Immediate Michael F. Barry
Vice President and
Chief Financial Officer
610/832-8500
- --------------------------------------------------------------------------------
Quaker Chemical Announces Record Quarterly Sales and Increased Earnings
JULY 31, 2003
CONSHOHOCKEN, PA -- Quaker Chemical Corporation (NYSE: KWR) today announced
record quarterly sales of $83.5 million and net income growth of 7% for the
second quarter ended June 30, 2003 versus the comparable period in 2002.
Second Quarter 2003 Summary
- ---------------------------
Net income for the second quarter was $3.5 million versus $3.2 million for the
second quarter of 2002. The earnings per diluted share of $0.36 were a 3%
improvement over the second quarter of 2002 of $0.35 per diluted share.
Net sales for the second quarter were a record $83.5 million, up 20% from $69.5
million for the second quarter 2002. Foreign exchange rate translation and the
timing of the Company's 2002 acquisitions favorably impacted net sales by $4.2
million and $2.5 million, respectively. Second quarter sales also include $6.7
million from the Company's recently awarded chemical management services (CMS)
contracts, which were effective May 1, 2003.
Gross margin as a percentage of sales declined from 41.7% for the second quarter
of 2002 to 34.7% for the second quarter of 2003. As previously disclosed, the
Company's new CMS contracts, which were effective May 1, cause a different
relationship between margins and revenue than has applied in the past for the
Company's traditional product business. 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 that 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 on the gross margin for the second quarter related to the new
CMS contracts is approximately 3 percentage points. The remaining decline in
gross margin as a percentage of sales was due to increased raw material costs,
as well as product and regional sales mix. The Company continues to expect raw
material prices to be higher in 2003 primarily due to continued high oil prices.
Selling, general and administrative expenses for the quarter were essentially
flat with the second quarter of 2002. Increases due to foreign exchange rates
and the timing of the Company's 2002 acquisitions were offset by reduced
incentive compensation expense and cost containment efforts of the Company.
In the second quarter, the Company received a $2.4 million priority cash
distribution from its real estate joint venture. This favorably impacted other
income by $0.3 million.
Ronald J. Naples, Chairman and Chief Executive Officer, stated, "While our
second quarter earnings were up consistent with our previous guidance, through
the quarter we did see an increasingly difficult demand environment in
comparison to the course of the business last year. Our sales to the steel
industry were below our expectations in both the U.S. and Europe due to lower
steel production. In addition, we saw higher raw material costs, which we expect
to remain higher than last year -- and higher than we expected -- primarily due
to continued strength in crude oil prices."
Mr. Naples continued, "Even as we keep a sharp eye on current performance, we
continue our emphasis on building for the long-term with initiatives that expand
our market reach and strengthen our competitive positioning. In the second
quarter, we won a number of new CMS contracts and began operations at seven new
sites in May. Also, we completed two tight-fit acquisitions in May and July,
which broaden our product lines for both our steel and metalworking businesses
and our geographic market presence. We'll see only minimal profit contribution
from these initiatives in 2003, but we expect these to be meaningful long-term
contributors."
Year-to-Date Summary
- --------------------
Net income for the first half of the year was $6.6 million versus $5.6 million
in the first half of 2002. Earnings per diluted share increased 15% to $0.69
versus $0.60 in the first half of 2002.
Net sales for the first half of the year increased to $156.8 million, up 21%
from $129.4 million for the first half of 2002. Net sales were favorably
impacted by foreign exchange rate translation and the timing of the Company's
2002 acquisitions in the respective amounts of $6.3 million and $8.1 million. As
noted above, net sales for the first half of the year also include $6.7 million
from the Company's new CMS contracts.
Gross margin as a percentage of sales declined from 41.2% for the first half of
2002 to 36.6% for the first half of 2003. The Company's new CMS contracts
negatively impacted gross margin for the first half of 2003 by approximately 2
percentage points with the remaining decline due to increased raw material
costs, as well as product and regional sales mix.
Selling, general and administrative expenses for the first half of 2003
increased $2.6 million from the first half of 2002. Increases due to foreign
exchange rates and the timing of the Company's 2002 acquisitions were partially
offset by reduced incentive compensation expense and cost containment efforts of
the Company.
Balance Sheet and Cash Flow Items
- ---------------------------------
The Company's debt to total capital ratio remains strong at 27% at the end of
June, 2003 compared to 25% at the end of 2002 and 34% at the end of June, 2002.
In addition, the Company has increased its credit lines from $25 million at the
end of March to its current position of $30 million committed and $20 million
uncommitted. As of the end of June, the Company had approximately $17 million
outstanding on its credit lines.
The Company also received $4.2 million of priority cash distributions from its
real estate joint venture in the first half of 2003. In addition, the Company
had higher accounts receivable at the end of the second quarter primarily due to
the $6.7 million of sales attributable to the start-up of the new CMS contracts
as well as increased sales volume quarter-over-quarter.
Outlook
- -------
Mr. Naples stated, "As we look ahead, we expect that the demand uncertainties
noted in the second quarter will continue, particularly in steel. We've seen
weakness as steel producers in some markets lower their production to maintain
pricing. We do expect some improvement in raw material costs as compared to the
first half, but not to the extent we had expected earlier in the year, and, we
expect to get some benefit from a strong euro. The net of all this is to make
second half prior-year comparisons tougher against the relatively strong second
half of 2002. Nevertheless, as we see the world today, we continue to expect to
have 2003 full-year earnings slightly ahead of last year, with the third and
fourth quarter earnings level being approximately equal. Whatever the precise
course of the second half, though, we're pleased with the long-term building
steps we've already taken in 2003."
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, 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 second
quarter results is scheduled for August 1, 2003 at 10:30 a.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
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Condensed Consolidated Statement of Income
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For the period ended June 30,
-----------------------------
Unaudited
---------
(Dollars in thousands, except per share data)
---------------------------------------------
Second Quarter Six Months
------------------------ ------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $ 83,453 $ 69,457 $ 156,790 $ 129,384
Cost of goods sold 54,506 40,495 99,477 76,065
--------- --------- --------- ---------
Gross margin 28,947 28,962 57,313 53,319
% 34.7% 41.7% 36.6% 41.2%
Selling, general and
administrative 23,223 23,279 45,908 43,303
--------- --------- --------- ---------
Operating income 5,724 5,683 11,405 10,016
% 6.9% 8.2% 7.3% 7.7%
Other income, net 447 (28) 535 252
Interest expense, net (235) (112) (374) (278)
--------- --------- --------- ---------
Income before taxes 5,936 5,543 11,566 9,990
Taxes on income 1,843 1,774 3,701 3,197
--------- --------- --------- ---------
4,093 3,769 7,865 6,793
Equity in net income of
associated companies 169 201 255 184
Minority interest in net
income of subsidiaries (787) (734) (1,538) (1,383)
--------- --------- --------- ---------
Net income $ 3,475 $ 3,236 $ 6,582 $ 5,594
========= ========= ========= =========
% 4.2% 4.7% 4.2% 4.3%
Per share data:
- ---------------
Net income - basic $ 0.37 $ 0.35 $ 0.71 $ 0.61
Net income - diluted $ 0.36 $ 0.35 $ 0.69 $ 0.60
Shares Outstanding:
- -------------------
Basic 9,323,895 9,249,925 9,297,482 9,202,378
Diluted 9,671,578 9,308,678 9,593,466 9,262,025
Quaker Chemical Corporation
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Condensed Consolidated Balance Sheet
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Unaudited
---------
(Dollars in thousands)
----------------------
June 30, December 31,
2003 2002
--------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 15,098 $ 13,857
Accounts receivable, net 67,964 53,353
Inventories
Raw materials and supplies 13,352 11,342
Work-in-process and finished goods 14,739 12,294
Prepaid expenses and other current assets 12,298 12,827
--------- ---------
Total current assets 123,451 103,673
Property, plant and equipment, at cost 123,125 113,207
Less accumulated depreciation 70,540 64,695
--------- ---------
Net property, plant and equipment 52,585 48,512
Goodwill 24,155 21,927
Other intangible assets 5,771 5,852
Investments in associated companies 5,420 9,060
Deferred income taxes 10,566 10,609
Other assets 15,093 14,225
--------- ---------
Total assets $ 237,041 $ 213,858
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and current portion
of long-term debt $ 19,987 $ 12,205
Accounts and other payables 33,828 29,423
Accrued compensation 6,192 10,254
Other current liabilities 13,471 14,262
--------- ---------
Total current liabilities 73,478 66,144
Long-term debt 16,620 16,590
Deferred income taxes 1,700 1,518
Other noncurrent liabilities 36,006 33,889
--------- ---------
Total liabilities 127,804 118,141
--------- ---------
Minority interest in equity of subsidiaries 9,585 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 1,174 626
Retained earnings 113,083 110,448
Unearned compensation (931) (1,245)
Accumulated other comprehensive (loss) (20,410) (27,078)
--------- ---------
102,580 92,415
Treasury stock, shares held at cost;
2003 - 213,566, 2002 - 324,109 (2,928) (4,360)
--------- ---------
Total shareholders' equity 99,652 88,055
--------- ---------
$ 237,041 $ 213,858
========= =========
Quaker Chemical Corporation
---------------------------
Condensed Consolidated Statement of Cash Flows
----------------------------------------------
For the Six months ended June 30,
---------------------------------
Unaudited
---------
(Dollars in thousands)
----------------------
2003 2002*
-------- --------
Cash flows from operating activities
Net income $ 6,582 $ 5,594
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 3,394 2,327
Amortization 438 325
Equity in net income of associated companies (255) (184)
Minority interest in earnings of
subsidiaries 1,538 1,383
Deferred compensation and other postretirement
benefits (382) (329)
Pension and other, net 2,798 1,096
Increase (decrease) in cash from changes in
current assets and current liabilities:
Accounts receivable, net (11,380) (4,532)
Inventories (2,789) (798)
Prepaid expenses and other current assets 1,204 (2,293)
Accounts payable and accrued liabilities (2,467) 2,750
Change in restructuring liabilities (866) (1,167)
-------- --------
Net cash (used in) provided by operating
activities (2,185) 4,172
-------- --------
Cash flows from investing activities
Investments in property, plant and equipment (4,859) (5,060)
Dividends and distributions from associated
companies 3,890 307
Payments related to acquisitions (1,105) (21,576)
Other, net 53 (9)
-------- --------
Net cash (used in) investing activities (2,021) (26,338)
-------- --------
Cash flows from financing activities
Net increase in short-term borrowings 7,747 22,009
Dividends paid (3,924) (3,802)
Treasury stock issued 1,697 2,404
Distributions to minority shareholders (609) (1,335)
Other, net 3 85
-------- --------
Net cash provided by financing activities 4,914 19,361
-------- --------
Effect of exchange rate changes on cash 533 572
-------- --------
Net increase (decrease) in cash and cash
equivalents 1,241 (2,233)
Cash and cash equivalents at beginning
of period 13,857 20,549
-------- --------
Cash and cash equivalents at end of period $ 15,098 $ 18,316
======== ========
* Certain reclassification of prior year data have been made to improve
comparability.