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
May 2, 2005
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 incorporation or organization) |
(I.R.S. Employer 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 May 2, 2005, Quaker Chemical Corporation announced its results of operations for the first quarter ended March 31, 2005 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 May 2, 2005. |
-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: May 2, 2005 |
By: |
/S/ NEAL E. MURPHY | ||
| Neal E. Murphy Vice President and Chief Financial Officer | ||||
-3-
Exhibit 99.1
| For Release: Immediate |
NEWS | Contact: Neal E. Murphy Vice President and Chief Financial Officer 610-832-4189 |
QUAKER CHEMICAL ANNOUNCES FIRST QUARTER 2005 RESULTS
May 2, 2005
CONSHOHOCKEN, PA - Quaker Chemical Corporation (NYSE:KWR) today announced first quarter 2005 sales of $104.2 million and diluted earnings per share of $0.32, compared to first quarter 2004 sales of $98.1 million and diluted earnings per share of $0.33. The first quarter results include a gain from the sale of property by the Company’s real estate joint venture as well as charges for restructuring and related activities.
First Quarter 2005 Summary
Net sales for the first quarter of 2005 were $104.2 million, up 6% from $98.1 million for the first quarter of 2004. Foreign exchange rate translation favorably impacted net sales by approximately $2.8 million, with the remaining net sales increase of approximately 3% primarily attributable to higher sales prices. The higher sales prices are a reflection of the Company’s actions throughout 2004 and in the first quarter of 2005 to partially mitigate higher raw material costs. Volume growth in the North American and Asia/Pacific regions were offset by lower sales in Europe.
Gross margin as a percentage of sales declined from 33.1% for the first quarter of 2004 to 29.7% for the first quarter of 2005. Higher prices for the Company’s raw materials, particularly crude oil derivatives, outpaced the Company’s price increases. The Company has also experienced significantly higher third-party product purchase costs with respect to its CMS contracts. Unfavorable product and regional sales mix also contributed to the decline in the gross margin percentage. Gross margin as a percentage of sales declined in all of the Company’s regions as compared to the first quarter of 2004, with the North American region suffering the greatest decline.
Selling, general and administrative expenses for the quarter increased $1.6 million compared to the first quarter of 2004. Unfavorable foreign exchange accounted for approximately $0.7 million of the increase. The remaining increase of $0.9 million is attributable to inflationary increases, higher professional fees, and depreciation expense associated with the Company’s global ERP system implementation, offset by lower incentive compensation costs. During the first quarter of 2005, the Company furthered its restructuring efforts that began in the fourth quarter of 2004 resulting in a net pretax charge of $1.2 million related to a reduction in its workforce. The Company expects to realize $1.4 to $1.6 million in annual savings as a result of the charge. These savings will be reinvested in higher growth areas such as Asia/Pacific and in the continuing development of new complementary businesses.
The increase in other income is reflective of the $4.2 million of proceeds received from the Company’s real estate joint venture, previously announced on February 17, 2005. The proceeds include a $3.0 million gain relating to the sale by the venture of its real estate holdings as well as $1.2 million of preferred return distributions. Preferred distributions in 2004 totaled $0.9 million, including $0.2 million in the first quarter of 2004.
The decrease in minority interest expense from the first quarter of 2004 is reflective of the Company’s acquisition of the remaining 40% interest in its Brazilian affiliate in March of 2005, as previously announced on March 7, 2005.
- more -
Net income for the first quarter decreased to $3.1 million versus $3.3 million for the first quarter of 2004. Significantly higher raw material, selling, general and administrative and restructuring costs were offset by the $4.2 million of proceeds received from the Company’s real estate joint venture as well as higher selling prices.
Balance Sheet and Cash Flow Items
The Company’s net debt has increased from December 2004, primarily to fund the acquisition noted above, as well as to fund working capital needs associated with the Company’s growth initiatives. The Company’s net debt-to-total capital ratio was 33% at March 31, 2005 compared to 28% at the end of 2004. The Company’s credit lines total $95.0 million, $40.0 million committed and $55.0 million uncommitted. At March 31, 2005, the Company had approximately $59.0 million outstanding on its credit lines.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, “First quarter operating results were considerably below our expectations. With crude oil prices escalating above $55 per barrel in the first quarter and with shortages in key raw materials resulting in further upward price pressure, our costs ran well ahead of our plans, which were based on more stable raw material prices than we’ve seen. We’ve been very active on the price front with our customers, and while we’ve had significant price recovery, we’re still running behind the pace and size of cost increases. Volume growth stalled in the first quarter as steel and auto producers scaled back production to reduce high year-end inventory levels and to respond to their own demand softening. Looking ahead, we’ve not changed our expectation that operating earnings for the year will improve over 2004, but there are a lot of moving parts without a completely clear direction, especially demand strength and raw material price stability. We’re cautiously optimistic about improvement in our volumes and product mix, primarily through share and penetration, and will continue to pursue price increases to improve our margins. We took steps at the end of 2004 and in the first quarter to shift resources to growth areas and to help restore our margins and improve our profitability. Profitability should also be helped by the recent acquisition of our minority partner’s interest in Brazil.”
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 first quarter results is scheduled for May 3, 2005 at 2:30 p.m. (ET). Access the conference by calling 877-269-7756 (toll free) or visit Quaker’s Web site at http://www.quakerchem.com for a live webcast.
- more -
Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data and share amounts)
| (Unaudited) |
||||||||
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Net sales |
$ | 104,161 | $ | 98,131 | ||||
| Cost of goods sold |
73,234 | 65,676 | ||||||
| Gross margin |
30,927 | 32,455 | ||||||
| % |
29.7 | % | 33.1 | % | ||||
| Selling, general and administrative |
28,217 | 26,598 | ||||||
| Restructuring and related activities, net |
1,232 | — | ||||||
| Operating income |
1,478 | 5,857 | ||||||
| % |
1.4 | % | 6.0 | % | ||||
| Other income, net |
4,868 | 559 | ||||||
| Interest expense, net |
(434 | ) | (315 | ) | ||||
| Income before taxes |
5,912 | 6,101 | ||||||
| Taxes on income |
1,921 | 1,922 | ||||||
| 3,991 | 4,179 | |||||||
| Equity in net income of associated companies |
53 | 149 | ||||||
| Minority interest in net income of subsidiaries |
(918 | ) | (1,019 | ) | ||||
| Net income |
$ | 3,126 | $ | 3,309 | ||||
| % |
3.0 | % | 3.4 | % | ||||
| Per share data: |
||||||||
| Net income - basic |
$ | 0.32 | $ | 0.35 | ||||
| Net income- diluted |
$ | 0.32 | $ | 0.33 | ||||
| Shares Outstanding: |
||||||||
| Basic |
9,643,681 | 9,570,664 | ||||||
| Diluted |
9,883,727 | 9,977,713 | ||||||
- more -
Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
| (Unaudited) |
||||||||
| March 31, 2005 |
December 31, 2004* |
|||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 18,098 | $ | 29,078 | ||||
| Accounts receivable, net |
89,728 | 87,527 | ||||||
| Inventories, net |
39,034 | 41,298 | ||||||
| Prepaid expenses and other current assets |
12,608 | 13,284 | ||||||
| Total current assets |
159,468 | 171,187 | ||||||
| Property, plant and equipment |
145,116 | 146,900 | ||||||
| Less accumulated depreciation |
83,872 | 84,012 | ||||||
| Net property, plant and equipment |
61,244 | 62,888 | ||||||
| Goodwill |
35,086 | 34,853 | ||||||
| Other intangible assets, net |
9,667 | 8,574 | ||||||
| Investments in associated companies |
6,597 | 6,718 | ||||||
| Deferred income taxes |
18,852 | 18,825 | ||||||
| Other assets |
21,489 | 21,848 | ||||||
| Total assets |
$ | 312,403 | $ | 324,893 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
| Current liabilities |
||||||||
| Short-term borrowings and current portion of long-term debt |
$ | 62,634 | $ | 60,695 | ||||
| Accounts and other payables |
37,733 | 42,262 | ||||||
| Accrued compensation |
6,198 | 8,692 | ||||||
| Other current liabilities |
15,340 | 13,969 | ||||||
| Total current liabilities |
121,905 | 125,618 | ||||||
| Long-term debt |
14,483 | 14,848 | ||||||
| Deferred income taxes |
5,592 | 5,588 | ||||||
| Other non-current liabilities |
43,802 | 43,828 | ||||||
| Total liabilities |
185,782 | 189,882 | ||||||
| Minority interest in equity of subsidiaries |
6,943 | 12,424 | ||||||
| Shareholders' equity |
||||||||
| Common stock, $1 par value; authorized 30,000,000 shares; issued 9,668,617 shares |
9,669 | 9,669 | ||||||
| Capital in excess of par value |
2,623 | 2,632 | ||||||
| Retained earnings |
119,029 | 117,981 | ||||||
| Unearned compensation |
(266 | ) | (355 | ) | ||||
| Accumulated other comprehensive loss |
(11,377 | ) | (7,340 | ) | ||||
| Total shareholders' equity |
119,678 | 122,587 | ||||||
| Total liabilities and shareholders' equity |
$ | 312,403 | $ | 324,893 | ||||
| * | Condensed from audited financial statements. |
- more -
Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the three months ended March 31,
(Dollars in thousands)
| (Unaudited) |
||||||||
| 2005 |
2004 |
|||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 3,126 | $ | 3,309 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation |
2,268 | 1,981 | ||||||
| Amortization |
306 | 284 | ||||||
| Equity in net income of associated companies |
(53 | ) | (149 | ) | ||||
| Minority interest in earnings of subsidiaries |
918 | 1,019 | ||||||
| Deferred compensation and other, net |
388 | 208 | ||||||
| Restructuring and related activities |
1,232 | — | ||||||
| Gain on sale of partnership assets |
(2,989 | ) | — | |||||
| Pension and other postretirement benefits |
(207 | ) | 313 | |||||
| Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: |
||||||||
| Accounts receivable |
(3,751 | ) | (4,316 | ) | ||||
| Inventories |
1,599 | (1,867 | ) | |||||
| Prepaid expenses and other current assets |
391 | (2,768 | ) | |||||
| Accounts payable and accrued liabilities |
(5,395 | ) | 329 | |||||
| Change in restructuring liabilities |
(640 | ) | (290 | ) | ||||
| Net cash used in operating activities |
(2,807 | ) | (1,947 | ) | ||||
| Cash flows from investing activities |
||||||||
| Capital expenditures |
(1,628 | ) | (2,347 | ) | ||||
| Dividends and distributions from associated companies |
— | 233 | ||||||
| Payments related to acquisitions |
(6,700 | ) | — | |||||
| Proceeds from partnership disposition of assets |
2,989 | — | ||||||
| Proceeds from disposition of assets |
647 | — | ||||||
| Other, net |
— | (57 | ) | |||||
| Net cash used in investing activities |
(4,692 | ) | (2,171 | ) | ||||
| Cash flows from financing activities |
||||||||
| Net increase in short-term borrowings |
2,064 | 7,617 | ||||||
| Repayments of long-term debt |
(282 | ) | (160 | ) | ||||
| Dividends paid |
(2,079 | ) | (2,020 | ) | ||||
| Stock options exercised, other |
— | 232 | ||||||
| Distributions to minority shareholders |
(2,204 | ) | (245 | ) | ||||
| Other, net |
(9 | ) | — | |||||
| Net cash (used in) provided by financing activities |
(2,510 | ) | 5,424 | |||||
| Effect of exchange rate changes on cash |
(971 | ) | (327 | ) | ||||
| Net (decrease) increase in cash and cash equivalents |
(10,980 | ) | 979 | |||||
| Cash and cash equivalents at the beginning of the period |
29,078 | 21,915 | ||||||
| Cash and cash equivalents at the end of the period |
$ | 18,098 | $ | 22,894 | ||||