View:
================================================================================
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 29, 2004
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)
================================================================================
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.
- -----------
99.1 Press Release of Quaker Chemical Corporation dated July 29, 2004.
Item 12. Results of Operations and Financial Condition.
On July 29, 2004, Quaker Chemical Corporation announced its results of
operations for the quarter ended June 30, 2004 in a press release, the text of
which is included as Exhibit 99.1 hereto.
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 29, 2004 By: /s/ Michael F. Barry
--------------------------
Michael F. Barry
Vice President and
Chief Financial Officer
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 Second Quarter Results
CONSHOHOCKEN, Pa., July 29 /PRNewswire-FirstCall/ -- Quaker Chemical
Corporation (NYSE: KWR) today announced record quarterly sales of $98.7
million and diluted earnings per share of $0.29 for the second quarter of
2004. The earnings level is consistent with the public announcement made on
July 23, 2004.
Second Quarter Summary
----------------------
Net sales for the second quarter of 2004 were a record $98.7 million, up
18% from $83.5 million for the second quarter of 2003. Foreign exchange rate
translation, the Company's 2003 acquisitions, and the Company's new chemical
management services (CMS) contracts favorably impacted net sales by
$1.9 million, $5.6 million and $4.0 million, respectively. The remaining net
sales increase of approximately 4% was primarily due to double-digit growth in
the Asia/Pacific and South American regions with lower sales in Europe
tempering increases in the U.S.
Net income for the second quarter was $2.8 million versus $3.5 million for
the second quarter of 2003. Despite record sales in the quarter, higher raw
material prices and lower than expected performance in the Company's new CMS
business were largely responsible for the shortfall in earnings compared to
our expectations. Earnings per diluted share were $0.29 per diluted share
versus $0.36 per diluted share for the second quarter of 2003.
Gross margins as a percentage of sales declined from 34.7% for the second
quarter of 2003 to 33.0% for the second quarter of 2004. Approximately
one-half of the decline in the gross margin percentage was due to higher raw
material costs. The Company has announced and implemented a number of price
increases and surcharges to help offset increases in raw material costs, and
the positive impact from these actions is expected to be realized in the
second half of 2004.
Selling, general and administrative expenses for the quarter increased
$4.0 million compared to the second quarter of 2003. Foreign exchange rate
translation and the Company's 2003 acquisitions accounted for approximately
one-third of the increase. The majority of the remaining increase was due to
higher expenses associated with the Company's ERP implementation, Sarbanes-
Oxley compliance, as well as inflationary increases. In addition, the Company
added infrastructure to support its growth initiatives in CMS and the
Asia/Pacific region.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "The
story of our second quarter really revolves around strong sales growth, high
raw material prices, and our new CMS contracts. We have seen good growth this
year especially in Asia and South America. In addition, our acquisitions
continue to perform as expected. However, continued high raw material costs
have negatively impacted our bottom line relative to the prior year. Over the
past few months, we have taken steps to implement price increases which should
positively affect our margins in the second half of the year."
Mr. Naples continued, "Another factor in our deviation from our
expectations was due to the performance in our new CMS contracts. While the
new contracts made a profit contribution, they were behind our expectations in
both product conversions and product usage reduction. Though we've been
delayed, we did make considerable progress in both areas and expect to see the
benefits in the second half."
Year-to-Date Summary
--------------------
Net sales for the first half of the year increased to $196.8 million, up
26% from $156.8 million for the first half of 2003. Foreign exchange rate
translation, the Company's 2003 acquisitions, and the Company's new CMS
contracts favorably impacted net sales by $8.4 million, $11.3 million and
$13.7 million, respectively. The remaining net sales increase of
approximately 4% was due to double-digit growth in the Asia/Pacific and South
American regions with lower sales in Europe offsetting increases in the U.S.
Net income for the first half of the year was $6.2 million versus
$6.6 million for the first half of 2003. Earnings per diluted share decreased
from $0.69 per diluted share to $0.62 per diluted share as a result of the
items discussed in the second quarter summary.
Gross margin as a percentage of sales declined from 36.6% in 2003 to 33.0%
in 2004. As previously disclosed, the Company's new CMS contracts, which
commenced in the second quarter of 2003, 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. The negative impact
to gross margin for the first half of the year related to the new CMS
contracts is approximately 2.6 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 first half of the
year increased $7.9 million compared to the first half of 2003. Foreign
exchange rate translation and the Company's 2003 acquisitions accounted for
approximately half of the increase. The majority of the remaining increase
was due to higher expenses associated with the Company's ERP implementation,
Sarbanes-Oxley compliance, as well as inflationary increases. In addition,
the Company added infrastructure to support its growth initiatives in CMS and
the Asia/Pacific region.
Balance Sheet and Cash Flow Items
---------------------------------
The Company's net debt has increased since year-end primarily to fund the
working capital needs associated with our growth initiatives. The Company's
net debt-to-total capital ratio remains strong at 30% at the end of second
quarter compared to 25% at the end of 2003.
In the first half of 2004, capital expenditures were $4.9 million. Major
projects included the Company's U.S. lab renovation, global ERP implementation
and a capital expansion project related to our Vulcan acquisition. The
Company is near completion on the U.S. lab renovation. The capital expansion
project related to the Vulcan acquisition is completed. The Vulcan expansion
project has allowed the Company to move essentially all of the production from
Vulcan to other facilities and reduce external manufacturing costs. Capital
spending related to the Company's ERP implementation has been considerably
less in 2004 than in the past. Overall, we are expecting our total 2004
capital expenditures to be slightly under $10 million, or a more than 20%
reduction from the 2003 capital expenditure levels.
Outlook
-------
Mr. Naples commented, "We're really pleased with our revenue growth so far
this year. Second quarter profitability was a disappointment, but we're on
top of the reasons for the shortfall and have solid plans in place to get back
on track. We look forward to an improved second half and are still optimistic
that for 2004 we will achieve earnings around our prior year level, even
though we don't anticipate raw material cost relief. Critical to making this
happen are the continued economic recovery in our key markets, the
contribution of announced price increases that take effect in the second half,
and strong follow-through on our progress in product conversion and product
usage reduction programs in our CMS business."
Mr. Naples continued, "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
and learning. These imperatives 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. We also believe the five tight-fit acquisitions completed over
the past two years and the new CMS contracts will be significant contributors
to our revenue and earnings going forward. It is our expectation that our
strong financial position will enable us to continue to grow the Company
through acquisitions as well as maintain our record of annual dividend
increases."
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 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.
As previously announced, Quaker Chemical's investor conference to discuss
second quarter results is scheduled for July 30, 2004 at 10:30 a.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 Six Months ended
------------------------ -------------------------
June 30, June 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net sales $ 98,683 $ 83,453 $ 196,814 $ 156,790
Cost of goods sold 66,139 54,506 131,815 99,477
---------- ---------- ---------- ----------
Gross margin 32,544 28,947 64,999 57,313
% 33.0% 34.7% 33.0% 36.6%
Selling, general and
administrative 27,209 23,223 53,807 45,908
---------- ---------- ---------- ----------
Operating income 5,335 5,724 11,192 11,405
% 5.4% 6.9% 5.7% 7.3%
Other income, net 208 447 767 535
Interest expense, net (349) (235) (664) (374)
---------- ---------- ---------- ----------
Income before taxes 5,194 5,936 11,295 11,566
Taxes on income 1,636 1,843 3,558 3,701
---------- ---------- ---------- ----------
3,558 4,093 7,737 7,865
Equity in net income of
associated companies 186 169 335 255
Minority interest in net
income of subsidiaries (897) (787) (1,916) (1,538)
---------- ---------- ---------- ----------
Net income $ 2,847 $ 3,475 $ 6,156 $ 6,582
========== ========== ========== ==========
% 2.9% 4.2% 3.1% 4.2%
Per share data:
Net income - basic $ 0.30 $ 0.37 $ 0.64 $ 0.71
Net income - diluted $ 0.29 $ 0.36 $ 0.62 $ 0.69
Shares Outstanding:
Basic 9,604,142 9,323,895 9,587,393 9,297,482
Diluted 9,983,809 9,671,578 9,981,999 9,593,466
Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
(Unaudited)
-----------------------
June 30, December 31,
2004 2003
--------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 24,470 $ 21,915
Accounts receivable, net 81,791 78,121
Inventories, net 37,850 32,211
Prepaid expenses and other current assets 14,442 11,277
--------- ---------
Total current assets 158,553 143,524
Property, plant, and equipment 138,565 136,448
Less accumulated depreciation 76,619 74,057
--------- ---------
Net property, plant, and equipment 61,946 62,391
Goodwill 32,906 33,301
Other intangible assets, net 8,996 9,616
Investments in associated companies 5,923 6,005
Deferred income taxes 12,839 12,846
Other assets 19,718 19,664
--------- ---------
Total assets $ 300,881 $ 287,347
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
portion of long-term debt $ 54,164 $ 42,992
Accounts and other payables 42,017 41,259
Accrued compensation 6,138 6,816
Other current liabilities 13,305 14,738
--------- ---------
Total current liabilities 115,624 105,805
Long-term debt 17,946 15,827
Deferred income taxes 2,764 2,688
Other non-current liabilities 41,564 40,967
--------- ---------
Total liabilities 177,898 165,287
--------- ---------
Minority interest in equity of subsidiaries 11,021 9,708
--------- ---------
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 2,489 2,181
Retained earnings 119,316 117,308
Unearned compensation (488) (621)
Accumulated other comprehensive loss (18,790) (15,406)
--------- ---------
112,191 113,126
Treasury stock, shares held at
cost; 2004 - 8,832, 2003 - 54,178 (229) (774)
--------- ---------
Total shareholders' equity 111,962 112,352
--------- ---------
Total liabilities and
shareholders' equity $ 300,881 $ 287,347
========= =========
Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30,
(Dollars in thousands)
(Unaudited)
---------------------
2004 2003
-------- --------
Cash flows from operating activities
Net income $ 6,156 $ 6,582
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 4,098 3,394
Amortization 575 438
Equity in net income of associated companies (335) (255)
Minority interest in earnings of
subsidiaries 1,916 1,538
Deferred compensation and other, net 245 226
Pension and other postretirement benefits 411 2,190
Increase (decrease) in cash from changes in
current assets and current liabilities, net of
acquisitions:
Accounts receivable (4,824) (11,380)
Inventories (6,110) (2,789)
Prepaid expenses and other current assets (3,318) 1,204
Accounts payable and accrued liabilities (213) (2,467)
Change in restructuring liabilities (327) (866)
-------- --------
Net cash used in operating activities $ (1,726) $ (2,185)
-------- --------
Cash flows from investing activities
Capital expenditures (4,915) (4,859)
Dividends and distributions from
associated companies 233 3,890
Payments related to acquisitions -- (1,105)
Other, net 28 53
-------- --------
Net cash used in investing activities (4,654) (2,021)
-------- --------
Cash flows from financing activities
Net increase in short-term borrowings 11,165 7,747
Proceeds from long-term debt 2,208 --
Dividends paid (4,091) (3,924)
Treasury stock issued 716 1,697
Distributions to minority shareholders (245) (609)
Other, net -- 3
-------- --------
Net cash provided by financing activities 9,753 4,914
-------- --------
Effect of exchange rate changes on cash (818) 533
Net (decrease) increase in cash
and cash equivalents 2,555 1,241
Cash and cash equivalents at
beginning of period 21,915 13,857
-------- --------
Cash and cash equivalents at end
of period $ 24,470 $ 15,098
======== ========
Quaker Chemical Corporation
One Quaker Park, 901 Hector Street, Conshohocken, PA 19428-0809 USA
www.quakerchem.com
T 610.832.4000 F 610.832.8682
SOURCE Quaker Chemical Corporation
-0- 07/29/2004
/CONTACT: Michael F. Barry, Vice President and Chief Financial Officer,
Quaker Chemical Corporation, +1-610-832-8500/
/Web site: http://www.quakerchem.com /
(KWR)
CO: Quaker Chemical Corporation
ST: Pennsylvania
IN: CHM
SU: ERN MAV CCA ERP