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 28, 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)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2.02. Results of Operations and Financial Condition.
On October 28, 2004, Quaker Chemical Corporation announced its results of
operations for the quarter ended September 30, 2004 in a press release, the text
of which is included as Exhibit 99.1 hereto.
Item 9.01. Financial Statements and Exhibits.
The following exhibit is included as part of this report:
Exhibit No.
-----------
99.1 Press Release of Quaker Chemical Corporation dated October 28, 2004.
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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 28, 2004 By: /s/ Neal E. Murphy
---------------------------------
Neal E. Murphy
Vice President and
Chief Financial Officer
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Exhibit 99.1
[LOGO] Quaker
For Release: NEWS Contact:
Immediate Neal E. Murphy
Vice President and
Chief Financial Officer
610-832-4189
- --------------------------------------------------------------------------------
QUAKER CHEMICAL ANNOUNCES THIRD QUARTER RESULTS
October 28, 2004
CONSHOHOCKEN, PA - Quaker Chemical Corporation (NYSE:KWR) today announced record
quarterly sales of $99.7 million and diluted earnings per share of $0.12 for the
third quarter of 2004.
Third Quarter Summary
Net sales for the third quarter of 2004 were $99.7 million, up 11% from $89.7
million for the third quarter of 2003. Foreign exchange rate translation and the
Company's 2003 acquisitions favorably impacted net sales by $2.4 million and
$3.9 million, respectively. The remaining net sales increase of approximately 4%
was attributable to growth in the North and South American regions, tempered by
lower sales in Europe.
Net income for the third quarter decreased to $1.2 million versus $4.1 million
for the third quarter of 2003. Significantly higher raw material cost, which was
the single most important factor, and higher selling, general and administrative
costs were largely responsible for the shortfall in earnings compared to the
prior year.
Gross margin as a percentage of sales declined from 34.3% for the third quarter
of 2003 to 31.8% for the third quarter of 2004. While the Company benefited from
the implementation of price increases during the quarter, these gains were more
than offset by the continued escalation of raw material prices, particularly
crude oil. Unfavorable product and regional sales mix also contributed to the
decline in gross margin percentage.
Selling, general and administrative expenses for the quarter increased $4.8
million compared to the third quarter of 2003. The third quarter of 2003 is
unusually low as a comparison period due to a reduction in incentive
compensation in that quarter. The incentive compensation adjustment, foreign
exchange rate translation, and the Company's 2003 acquisitions accounted for
approximately two-thirds of the increase. The majority of the remaining increase
was due to costs associated with important strategic initiatives, as well as a
range of administrative costs such as insurance and Sarbanes-Oxley compliance.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "Needless to
say, our third quarter earnings are very disappointing. We did a fine job on the
revenue line, even in the face of weakening demand in some of our steel markets,
but were unable to turn that into the earnings progress we had expected. The
size and speed of raw material cost increases accelerated considerably in the
third quarter, particularly crude oil, and outpaced the effect of the pricing
actions we had underway. But we're not letting these factors distract us from
our focus on the value of strong market positions, and we continue to push
important business-building initiatives, from CMS product conversions to market
development in China, as well as pricing imperatives driven by our extraordinary
raw material experience."
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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
Year-to-Date Summary
Net sales for the first nine months of the year increased to $296.5 million, up
20% from $246.5 million for the first nine months 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 $10.8
million, $15.1 million and $17.1 million, respectively. The remaining net sales
increase of approximately 3% was attributable to growth in the Asia/Pacific and
North and South American regions, partially offset by lower sales in Europe.
Net income was $7.3 million versus $10.7 million for the first nine months of
2003 due to significantly higher raw material costs, and higher selling, general
and administrative costs. Earnings per diluted share decreased from $1.11 per
diluted share to $0.73 per diluted share.
Gross margin as a percentage of sales declined from 35.7% in 2003 to 32.6% in
2004. The Company's new CMS contracts have caused different relationships
between margins and revenue than in the past. At the majority of 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 nine months of 2004 versus the prior year related to the
new CMS contracts is approximately 1.6 percentage points. The remaining decline
in gross margin as a percentage of sales is primarily due to increased raw
material costs. Unfavorable product and regional mix also contributed to the
decline.
Selling, general and administrative expenses for the first nine months of the
year increased $12.7 million compared to the first nine months of 2003. Foreign
exchange rate translation and the Company's 2003 acquisitions accounted for
approximately 40% of the increase. The majority of the remaining increase was
due to the same expense factors noted in the third quarter summary, as well as
higher commissions related to higher sales.
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 its growth initiatives. The Company's net
debt-to-total capital ratio is 29% at the end of third quarter compared to 25%
at the end of 2003. The Company's credit lines total $70.0 million, $40.0
committed and $30.0 uncommitted. At September 30, 2004, the Company had
approximately $55.0 million outstanding on its credit lines.
Outlook
Mr. Naples observed, "We're very pleased with our strong revenue growth and
firmly believe that the customer expansion and penetration it represents are the
real keys to continuing the long record of solid financial performance we've put
together over the past eight years. We're in a very tough period right now, as
evidenced by the third quarter, driven by a number of factors already mentioned,
but especially by dramatic price behavior in crude oil markets, as well as
volatility in other important raw material markets, such as vegetable oils and
animal fats. Further, the demand for the consumer durables that drive much of
the demand for our products and services shows some softness in parts of the
world due to economic uncertainties. While we expect the fourth quarter to be
better than the third quarter, we've concluded that right now with these factors
in mind, quarter-to-quarter financial results cannot be forecasted reliably with
a high degree of precision, especially with virtually unprecedented raw material
behavior."
Mr. Naples added, "We continue to work with our customers to implement pricing
actions that would mitigate continually increasing raw material costs. We are
building our position in growth areas such as China and investing in new
business development. We believe that CMS will be an increasingly significant
contributor to our earnings. We are challenging many aspects of our cost base.
Most important for the future, we're convinced we're on the right strategic
track that calls for us to create a unique competitive position with our
customers through our focus on value, and to maintain that differentiation
through operating around the world as a globally integrated whole and harnessing
our global knowledge and learning for the benefit of our customers. Our current
strong market positions flow from these strategic imperatives, and it is these
that will allow us to emerge from this difficult period stronger than ever."
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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. Other factors could also adversely affect us. Therefore,
we caution you not to place undue reliance on our forward-looking statements.
This discussion is provided as permitted by the Private Securities Litigation
Reform Act of 1995.
As previously announced, Quaker Chemical's investor conference to discuss third
quarter results is scheduled for October 29, 2004 at 2:30 p.m. (ET). Access the
conference by calling 877-269-7756 or visit Quaker's Web site at
www.quakerchem.com for a live webcast.
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Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data and share amounts)
(Unaudited)
----------------------------------------------------------------------
Three Months ended September 30, Nine Months ended September 30,
-------------------------------- -------------------------------
2004 2003 2004 2003
------------ ------------- ----------- ------------
Net sales $ 99,667 $ 89,713 $ 296,481 $ 246,503
Cost of goods sold 67,976 58,928 199,791 158,405
----------- ----------- ----------- -----------
Gross margin 31,691 30,785 96,690 88,098
% 31.8% 34.3% 32.6% 35.7%
Selling, general and administrative 29,249 24,459 83,056 70,367
----------- ----------- ----------- -----------
Operating income 2,442 6,326 13,634 17,731
% 2.5% 7.1% 4.6% 7.2%
Other income, net 422 295 1,189 830
Interest expense, net (302) (240) (966) (614)
----------- ----------- ----------- -----------
Income before taxes 2,562 6,381 13,857 17,947
Taxes on income 807 1,683 4,365 5,384
----------- ----------- ----------- -----------
1,755 4,698 9,492 12,563
Equity in net income of associated companies 264 215 599 470
Minority interest in net income of subsidiaries (865) (777) (2,781) (2,315)
----------- ----------- ----------- -----------
Net income $ 1,154 $ 4,136 $ 7,310 $ 10,718
=========== =========== =========== ===========
% 1.2% 4.6% 2.5% 4.3%
Per share data:
Net income - basic $ 0.12 $ 0.44 $ 0.76 $ 1.15
Net income- diluted $ 0.12 $ 0.42 $ 0.73 $ 1.11
Shares Outstanding:
Basic 9,621,746 9,410,675 9,598,928 9,335,628
Diluted 9,973,920 9,856,783 9,978,583 9,687,346
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Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
(Unaudited)
--------------------------
September 30, December 31,
2004 2003
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 29,948 $ 21,915
Accounts receivable, net 85,098 78,121
Inventories, net 37,548 32,211
Prepaid expenses and other current assets 15,332 11,277
--------- ---------
Total current assets 167,926 143,524
Property, plant, and equipment 141,610 136,448
Less accumulated depreciation 79,399 74,057
--------- ---------
Net property, plant and equipment 62,211 62,391
Goodwill 33,495 33,301
Other intangible assets, net 8,736 9,616
Investments in associated companies 6,123 6,005
Deferred income taxes 12,852 12,846
Other assets 19,841 19,664
--------- ---------
Total assets $ 311,184 $ 287,347
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current
portion of long-term debt $ 58,611 $ 42,992
Accounts and other payables 41,576 41,259
Accrued compensation 7,724 6,816
Other current liabilities 14,725 14,738
--------- ---------
Total current liabilities 122,636 105,805
Long-term debt 17,966 15,827
Deferred income taxes 2,861 2,688
Other non-current liabilities 42,241 40,967
--------- ---------
Total liabilities 185,704 165,287
--------- ---------
Minority interest in equity of subsidiaries 11,976 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 2,486 2,181
Retained earnings 118,390 117,308
Unearned compensation (421) (621)
Accumulated other comprehensive loss (16,491) (15,406)
--------- ---------
113,628 113,126
Treasury stock, shares held at cost;
2004 - 4,518, 2003 - 54,178 (124) (774)
--------- ---------
Total shareholders' equity 113,504 112,352
--------- ---------
Total liabilities and
shareholders' equity $ 311,184 $ 287,347
========= =========
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Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30,
(Dollars in thousands)
(Unaudited)
--------------------
2004 2003
-------- --------
Cash flows from operating activities
Net income $ 7,310 $ 10,718
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,272 5,246
Amortization 863 620
Equity in net income of associated companies (599) (470)
Minority interest in earnings of subsidiaries 2,781 2,315
Deferred compensation and other, net 1,003 1,002
Pension and other postretirement benefits 653 2,250
Increase (decrease) in cash from changes in
current assets and current liabilities,
net of acquisitions:
Accounts receivable (7,315) (14,460)
Inventories (5,390) (4,362)
Prepaid expenses and other current assets (4,059) 1,587
Accounts payable and accrued liabilities 1,796 (2,235)
Change in restructuring liabilities (480) (908)
-------- --------
Net cash provided by operating
activities $ 2,835 $ 1,303
-------- --------
Cash flows from investing activities
Capital expenditures (6,810) (7,820)
Dividends and distributions from associated
companies 288 3,890
Payments related to acquisitions -- (6,737)
Other, net 38 (117)
-------- --------
Net cash (used in) investing
activities (6,484) (10,784)
-------- --------
Cash flows from financing activities
Net increase in short-term borrowings 15,616 16,686
Proceeds from long-term debt 2,463 --
Repayments of long-term debt (299) --
Dividends paid (6,170) (5,909)
Stock options exercised, other 818 3,106
Distributions to minority shareholders (245) (1,018)
-------- --------
Net cash provided by financing
activities 12,183 12,865
-------- --------
Effect of exchange rate changes on cash (501) 740
Net increase in cash and cash equivalents 8,033 4,124
Cash and cash equivalents at the
beginning of the period 21,915 13,857
-------- --------
Cash and cash equivalents at the end
of the period $ 29,948 $ 17,981
======== ========