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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
October 30, 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, Pro Forma Financial Information 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
October 30, 2003
Item 12. Results of Operations and Financial Condition.
On October 30, 2003, Quaker Chemical Corporation announced its results of
operations for the third quarter ended September 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: October 30, 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
October 30, 2003
CONSHOHOCKEN, PA -- For its third quarter, Quaker Chemical Corporation (NYSE:
KWR) today announced record quarterly sales of $89.7 million and earnings per
diluted share of $0.42, a 17% increase over the second quarter of 2003 earnings
per diluted share.
Third Quarter Summary
- ---------------------
Net income for the third quarter was $4.1 million versus $4.3 million for the
third quarter of 2002, or $0.42 per diluted share versus $0.45 per diluted share
in the prior year period. On a sequential basis, third quarter net income
increased 19% over the second quarter's net income of $3.5 million.
Net sales for the third quarter were a record $89.7 million, up 22% from $73.3
million for the third quarter 2002. Foreign exchange rate translation and the
Company's 2003 acquisitions favorably impacted net sales by $4.8 million and
$1.3 million, respectively. Third quarter sales also include approximately $9.7
million from the Company's recently awarded chemical management services (CMS)
contracts, which were effective May 1, 2003. The remaining part of the net sales
increase of approximately 1% 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.
Gross margin as a percentage of sales declined from 40.1% for the third quarter
of 2002 to 34.3% for the third 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 third quarter related to the new CMS
contracts is approximately 4 percentage points. The remaining decline in gross
margin as a percentage of sales is due to increased raw material costs, as well
as product and regional sales mix. The Company continues to expect raw material
prices to remain at these levels in the near term due to sustained high oil
prices.
Selling, general and administrative expenses for the quarter increased $1.8
million or 8% compared to the third quarter of 2002. Approximately $1.4 million
of the increase is due to foreign exchange rates and the Company's 2003
acquisitions. Increases in other expenses, including pension and the Company's
continued rollout of its global ERP system, were largely offset by reduced
incentive compensation expense.
Other income was lower primarily due to foreign exchange gains in 2002 as a
result of the weakening of the Brazilian real and its impact on the U.S. dollar
denominated cash balances in Brazil.
The year-to-date effective tax rate was reduced to 30% in the third quarter
primarily due to the Company's favorable settlement of several outstanding tax
audits and appeal issues.
Ronald J. Naples, Chairman and Chief Executive Officer, stated, "Though our
overall earnings level is consistent with our previous guidance, we continue to
see softer than expected demand for our products and services to the steel
industry in the U.S. and Europe. In the third quarter, this was somewhat offset
by significant growth in our Brazilian and South American markets, lower overall
tax rates, and lower incentive compensation. In addition, we continue to be
negatively impacted by higher raw material prices primarily due to continued
high crude oil prices."
Mr. Naples continued, "While we continue to see short-term challenges in front
of us, we are also making significant strides with our key strategic
initiatives. In 2003, we have now made three tight-fit acquisitions, including
the recently announced acquisition of the Cincinnati-Vulcan steel business. All
of these acquisitions bring key customer relationships and product technology,
enabling us to enhance our already strong market positions. In addition, all
three are expected to be slightly accretive to earnings in the short term and
more significant profit contributors longer term. Also, we continue to grow our
CMS business and have recently been awarded another two major auto CMS sites
that are in addition to the seven new sites we started up in May. And finally,
during the last 12 months we have implemented our global ERP system at four of
our largest sites in Holland, Spain, and the U.S. We believe all of the above
initiatives are key steps in helping us achieve our longer-term business
strategies."
Year-to-Date Summary
- --------------------
Net income for the first nine months of the year was $10.7 million versus $9.9
million in the first nine months of 2002. Earnings per diluted share increased
6% to $1.11 versus $1.05 in the first nine months of 2002.
Net sales for the first nine months of the year increased to $246.5 million, up
22% from $202.7 million for the first nine months of 2002. Foreign exchange rate
translation and timing of the Company's 2002 and 2003 acquisitions favorably
impacted net sales by $11.1 million and $9.5 million, respectively. Net sales
for the first nine months of the year also include approximately $17.1 million
from the Company's new CMS contracts. The remaining part of the net sales
increase of approximately 3% 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.
Gross margin as a percentage of sales declined from 40.8% for the first nine
months of 2002 to 35.7% for the first nine months of 2003. The Company's new CMS
contracts negatively impacted gross margin for the first nine months of 2003 by
approximately 3 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 nine months of 2003
increased $4.4 million from the first nine months of 2002. $4.3 million of the
increase is due to foreign exchange rates and the Company's acquisitions. The
remainder of the increase is primarily due to higher pension costs and the
Company's continued implementation of its global ERP system partially offset by
reduced incentive compensation expense.
Balance Sheet and Cash Flow items
- ---------------------------------
The Company's debt to total capital ratio remains strong at 31% at the end of
September, 2003 compared to 25% at the end of 2002 and 35% at the end of
September, 2002. As of the end of September 2003, the Company had approximately
$26 million outstanding on its credit lines, which have a maximum borrowing
capacity of $50 million.
As previously disclosed, the Company received $4.2 million of priority cash
distributions from its real estate joint venture in the first half of 2003. In
addition, the higher accounts receivable at the end of September 2003 is
primarily due to the increased sales attributable to the Company's new CMS
contracts, foreign exchange rate changes and higher sales volumes.
Outlook
- -------
Mr. Naples stated, "We do expect to see some pickup in business volumes in the
fourth quarter primarily due to market share gains. However, this expectation is
tempered by what we still see as significant demand uncertainty in many of our
key markets for the fourth quarter as well as into next year. For example, we
are getting signals that some of our customers may take longer than normal
shutdowns in December. While our visibility is not clear, the net of all this is
that we continue to estimate that our fourth quarter earnings will be similar to
the third quarter. Despite the near-term struggles for earnings growth, we are
confident that the strategic steps we have taken this year, as well as our
strong balance sheet and dividend yield, put us in an excellent long-term
position to continue to build our business, and hence, enable us to continue to
create significant long-term value for both our customers and shareholders."
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. 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 planning 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
third quarter results is scheduled for October 31, 2003 at 10:00 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
------------------------------------------
For the period ended September 30,
----------------------------------
Unaudited
---------
(Dollars in thousands, except per share data)
---------------------------------------------
Third Quarter Nine Months
------------------------ ------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net Sales $89,713 $73,268 $246,503 $202,652
Cost of goods sold 58,928 43,869 158,405 119,934
------- ------- -------- --------
Gross margin 30,785 29,399 88,098 82,718
% 34.3% 40.1% 35.7% 40.8%
Selling, general
and administrative 24,459 22,697 70,367 66,000
------- ------- -------- --------
Operating income 6,326 6,702 17,731 16,718
% 7.1% 9.1% 7.2% 8.2%
Other income, net 295 942 830 1,194
Interest expense, net (240) (469) (614) (747)
------- ------- -------- --------
Income before taxes 6,381 7,175 17,947 17,165
Taxes on income 1,683 2,296 5,384 5,493
------- ------- -------- --------
4,698 4,879 12,563 11,672
Equity in net income
of associated
companies 215 130 470 314
Minority interest in
net income of
subsidiaries (777) (720) (2,315) (2,103)
------- ------- -------- --------
Net income $ 4,136 $ 4,289 $ 10,718 $ 9,883
======= ======= ======== ========
% 4.6% 5.9% 4.3% 4.9%
Per share data:
---------------
Net income
- basic $0.44 $0.47 $1.15 $1.08
Net income
- diluted $0.42 $0.45 $1.11 $1.05
Shares Outstanding:
-------------------
Basic 9,410,675 9,222,050 9,335,628 9,149,337
Diluted 9,856,783 9,453,208 9,687,346 9,433,279
Quaker Chemical Corporation
---------------------------
Condensed Consolidated Balance Sheet
------------------------------------
Unaudited
---------
(Dollars in thousands)
----------------------
September 30, December 31,
2003 2002
------------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 17,981 $ 13,857
Accounts receivable, net 73,953 53,353
Inventories
Raw materials and supplies 14,619 11,342
Work-in-process and finished goods 15,742 12,294
Prepaid expenses and other
current assets 12,214 12,827
-------- --------
Total current assets 134,509 103,673
Property, plant and
equipment, at cost 129,739 113,207
Less accumulated depreciation 72,650 64,695
-------- --------
Net property, plant
and equipment 57,089 48,512
Goodwill 28,890 21,927
Other intangible assets 6,290 5,852
Investments in associated companies 5,736 9,060
Deferred income taxes 10,571 10,609
Other assets 15,734 14,225
-------- --------
Total assets $258,819 $213,858
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and
current portion of long-term debt $ 28,991 $ 12,205
Accounts and other payables 35,420 29,423
Accrued compensation 7,317 10,254
Other current liabilities 15,326 14,262
-------- --------
Total current liabilities 87,054 66,144
Long-term debt 18,222 16,590
Deferred income taxes 1,744 1,518
Other noncurrent liabilities 37,004 33,889
-------- --------
Total liabilities 144,024 118,141
-------- --------
Minority interest in equity
of subsidiaries 10,054 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 1,404 626
Retained earnings 115,216 110,448
Unearned compensation (776) (1,245)
Accumulated other
comprehensive (loss) (19,018) (27,078)
-------- --------
106,490 92,415
Treasury stock, shares held
at cost; 2003 - 122,369,
2002 - 324,109 (1,749) (4,360)
-------- --------
Total shareholders' equity 104,741 88,055
-------- --------
$258,819 $213,858
======== ========
Quaker Chemical Corporation
---------------------------
Condensed Consolidated Statement of Cash Flows
----------------------------------------------
For the nine months ended September 30,
---------------------------------------
Unaudited
---------
(Dollars in thousands)
----------------------
2003 2002
------ ------
Cash flows from operating activities
Net Income $ 10,718 $ 9,883
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation 5,246 3,571
Amortization 620 576
Equity in net income of
associated companies (470) (314)
Minority interest in
earnings of subsidiaries 2,315 2,103
Deferred compensation and
other postretirement benefits 257 290
Pension and other, net 2,995 1,885
Increase (decrease) in cash
from changes in current assets
and current liabilities:
Accounts receivable, net (14,460) (3,375)
Inventories (4,362) (2,543)
Prepaid expenses and other
current assets 1,587 (1,326)
Accounts payable and accrued
liabilities (2,235) 4,288
Change in restructuring liabilities (908) (1,763)
-------- --------
Net cash provided by
operating activities 1,303 13,275
-------- --------
Cash flows from investing activities
Investments in property,
plant and equipment (7,820) (7,642)
Dividends and distributions
from associated companies 3,890 307
Payments related to acquisitions (6,737) (21,285)
Other, net (117) (443)
-------- --------
Net cash (used in) investing
activities (10,784) (29,063)
-------- --------
Cash flows from financing activities
Net increase in short-term borrowings 16,686 23,121
Dividends paid (5,909) (5,756)
Treasury stock issued 3,106 2,618
Distributions to minority
shareholders (1,018) (1,514)
-------- --------
Net cash provided by
financing activities 12,865 18,469
-------- --------
Effect of exchange rate
changes on cash 740 (186)
-------- --------
Net increase (decrease) in cash
and cash equivalents 4,124 2,495
Cash and cash equivalents
at beginning of period 13,857 20,549
-------- --------
Cash and cash equivalents
at end of period $ 17,981 $ 23,044
======== ========