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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
February 17, 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)
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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 February 17,
2004.
Item 12. Results of Operations and Financial Condition.
On February 17, 2004, Quaker Chemical Corporation announced its results of
operations for the fourth quarter and full year ended December 31, 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: February 17, 2004 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
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Quaker Chemical Announces Record Sales and Annual Earnings Growth
CONSHOHOCKEN, Pa., February 17, 2004 /PRNewswire-FirstCall/ -- 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.
2004 Outlook
- ------------
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
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Condensed Consolidated Statement of Income
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(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
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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
======== ========