CONSHOHOCKEN, Pa., Feb. 21 /PRNewswire-FirstCall/ -- Quaker
Chemical Corporation (NYSE:KWR) today announced record quarterly
sales of $107.1 million and a net loss of $5.4 million. Net loss
for the fourth quarter included a $9.1 million pre-tax charge for
restructuring and related activities and a $1.0 million tax charge
attributable to the repatriation of accumulated earnings of its
foreign subsidiaries. Diluted loss per share for the quarter,
inclusive of these charges, was $0.56. The Company reported record
sales for the full year of $424.0 million and net income of $1.7
million. Net income included a $10.3 million pre-tax charge for
restructuring and related activities, $4.2 million of pre-tax
income from the sale of property by the Company's real estate joint
venture, and a $1.0 million tax charge associated with the
aforementioned foreign earnings repatriation. Diluted earnings per
share for the full year, inclusive of these items, was $0.17 per
share. Ronald J. Naples, Chairman and Chief Executive Officer
commented, "We took dramatic steps in 2005 to reposition our cost
base and prepare ourselves for future improved financial
performance. Despite unprecedented increased raw material prices,
we managed through most of the year to show sequential quarterly
gross margin percent improvements. A good example of how dramatic
were the raw material cost changes is mineral oil, a very important
input for us, that ended the year up 70% from where the year
started. As much as we've made major changes in 2005 in recognition
of major business shifts, what hasn't changed is our focus on
serving our customers in a unique way. We've maintained our
globally integrated approach to our business with the emphasis on
the advantages we can deliver to our customers through our global
customer reach, value and service commitment, and global knowledge.
It's gratifying to see our sales growing solidly, our progress in
pricing, and our market share building in important markets such as
China. These are indicative of the strengths that will take us into
the future." Fourth Quarter Summary Net sales for the fourth
quarter of 2005 were $107.1 million, up 3% from $104.2 million for
the fourth quarter of 2004. The majority of the sales increase was
due to higher selling prices, as volume increases in Asia/Pacific
were offset by weaker demand in North America and Europe. Foreign
exchange rate translation negatively impacted sales by
approximately $0.8 million or 1%. The Company experienced a net
loss of $5.4 million for the fourth quarter of 2005 compared to net
income of $1.7 million for the fourth quarter of 2004. The loss for
the quarter was driven by a net $9.1 million pre-tax charge for
restructuring and related activities noted in the third quarter
press release and a $1.0 million tax charge associated with the
repatriation of accumulated foreign earnings. Gross margin as a
percentage of sales declined from 32.8% for the fourth quarter of
2004 to 30.2% for the fourth quarter of 2005. Continued raw
material price escalations in the quarter, particularly crude oil
derivatives, exceeded the effect of implemented price increases.
Unfavorable product and regional sales mix also contributed to the
decline in the gross margin percentage. Selling, general and
administrative expenses decreased $1.4 million compared to the
fourth quarter of 2004. Foreign exchange rate translation accounted
for approximately one-third of the decrease. The remaining decrease
was primarily due to cost reduction efforts partially offset by
inflation and growth initiatives. As a percentage of sales,
SG&A decreased from 29.3% to 27.1%. During the fourth quarter
of 2005, the Company implemented a restructuring plan to
significantly reduce operating costs in the U.S. and Europe. The
restructuring plan included involuntary terminations, a freeze of
the Company's U.S. pension plan, and a voluntary early retirement
offering to eligible U.S. employees. These actions resulted in a
net pre-tax charge of $9.1 million and the Company estimates 2006
savings of a similar magnitude, which will substantially mitigate
the increased cost of continued operating expense investments and
key growth initiatives. Other income was lower than the fourth
quarter of 2004 which included distributions from the Company's
real estate joint venture as well as a gain on the sale of real
estate by the Company's majority-owned Australian subsidiary.
Interest expense for the quarter was $0.5 million higher than the
fourth quarter of 2004 primarily due to higher interest rates. The
Company's fourth quarter effective tax rate was 14.0%, resulting in
a credit of $0.9 million on a pre-tax loss of $6.4 million,
compared to a 31.5% effective tax rate on pre-tax income of $3.6
million for the fourth quarter of 2004. In the fourth quarter of
2005, the Company elected to repatriate substantial accumulated
foreign earnings which resulted in a $1.0 million increase in tax
expense. The decrease in minority interest was primarily due to the
Company's first quarter 2005 acquisition of the remaining 40%
interest in its Brazilian affiliate, as well as the sale of real
estate by the Company's Australian subsidiary in the fourth quarter
of 2004. Full Year Summary Net sales for 2005 increased to $424.0
million, up 6% from $400.7 million for 2004. Approximately 4% of
the sales increase was attributable to higher sales prices, while
foreign exchange rate translation favorably impacted net sales by
approximately 2%. Volume increases in Asia/Pacific were offset by
softer demand in North America and Europe. Gross margin as a
percentage of sales declined from 32.7% in 2004 to 30.6% in 2005.
Higher prices for the Company's raw materials, particularly crude
oil derivatives, and higher third-party product purchase costs with
respect to its CMS contracts, exceeded the pace at which price
increases could be implemented through the year. Unfavorable
product and regional mix also contributed to the decline in the
gross margin percentage. Selling, general and administrative
expenses for 2005 increased $2.8 million or approximately 3% from
2004. Foreign exchange rate translation accounted for approximately
half of the increase with the remainder attributable to inflation,
investments in growth initiatives and higher pension costs offset
by other cost reduction efforts. SG&A as a percentage of sales
decreased from 28.3% to 27.4%. Restructuring and other related
activities for the full year included the aforementioned $9.1
million fourth quarter charge, as well as a $1.2 million charge
associated with a reduction in workforce in the first quarter of
2005. Repositioning of the Company's cost base was necessary to
better align resources and investments with regions and businesses
with the highest growth potential. The increase in other income is
largely due to the $4.2 million of proceeds received from the sale
by the Company's real estate joint venture of its holdings as
previously announced on February 17, 2005. The proceeds included 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. Foreign exchange gains in 2005 also contributed to the
increase in other income. The increase is net interest expense is
due to higher average borrowings and higher interest rates on the
Company's debt. The effective tax rate was 50.4% versus 31.5% in
2004 with the increase primarily due to the aforementioned tax
expense associated with repatriation of accumulated foreign
earnings. The decrease in minority interest is primarily due to the
Company's first quarter 2005 acquisition of the remaining 40%
interest in its Brazilian affiliate. Balance Sheet and Cash Flow
Items The Company's net debt has increased to $56.4 million from
$46.5 million as of December 2004, due to a reduced income level
and the funding of the Brazilian acquisition noted above. The
Company's net debt-to-total-capital ratio was 35% at December 2005
compared to 28% at the end of 2004. In September 2005, the Company
prepaid its senior unsecured notes due in 2007. On October 19,
2005, the Company entered into a $100 million, five-year,
unsecured, syndicated multi-currency revolving credit facility.
This facility enabled the Company to consolidate the majority of
its short-term debt into a longer-term facility and ensure
liquidity to support future growth. 2006 Outlook Mr. Naples further
commented, "We aggressively took on the challenges of 2005 --
sluggish demands in some areas of the world and the continued
upward spiral in our key raw material costs. We have been and
continue working with our customers to implement price increases
that reflect the value we bring them and to begin to offset the
lower gross margins we've seen due to sharp raw material cost
rises, particularly in refined products. We continue our business
building initiatives, such as tube and pipe, chemical management
services, and market development in Asia/Pacific, particularly
China, and anticipate that these initiatives in combination with
continued pricing efforts with our customers will enable
substantial gross margin improvement in 2006, assuming a stable raw
material cost situation. While 2006 markets will likely feature
many of the same dynamics as 2005, we go into the year better
prepared. In part, that flows from significant SG&A cost
reduction measures taken in 2005, that will fund continued
operating expense investments and key growth initiatives and are
expected to enable gross margin improvement to flow to operating
income." 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 fourth quarter and
full year results is scheduled for February 22, 2006 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. Quaker Chemical Corporation Condensed Consolidated
Statement of Operations (In thousands, except per share data and
share amounts) (Unaudited) Three Months Ended Twelve Months Ended
December 31, December 31, 2005 2004 2005 2004 Net sales $107,079
$104,214 $424,033 $400,695 Cost of goods sold 74,778 70,027 294,219
269,818 Gross margin 32,301 34,187 129,814 130,877 % 30.2% 32.8%
30.6% 32.7% Selling, general and administrative 29,066 30,480
116,340 113,536 Restructuring and related activities, net 9,088 450
10,320 450 Operating income (5,853) 3,257 3,154 16,891 % -5.5% 3.1%
0.7% 4.2% Other income, net 251 629 6,120 1,818 Interest expense,
net (815) (286) (2,659) (1,252) Income before taxes (6,417) 3,600
6,615 17,457 Taxes on income (899) 1,134 3,336 5,499 (5,518) 2,466
3,279 11,958 Equity in net income of associated companies 204 291
618 890 Minority interest in net income of subsidiaries (131)
(1,093) (2,209) (3,874) Net income (loss) $(5,445) $1,664 $1,688
$8,974 % -5.1% 1.6% 0.4% 2.2% Per share data: Net income (loss) -
basic $(0.56) $0.17 $0.17 $0.93 Net income (loss)- diluted $(0.56)
$0.17 $0.17 $0.90 Shares Outstanding: Basic 9,701,259 9,627,360
9,679,013 9,606,074 Diluted 9,701,259 9,929,474 9,815,585 9,969,044
Quaker Chemical Corporation Condensed Consolidated Balance Sheet
(In thousands, except par value and share amounts) (Unaudited)
December 31, December 31, 2005 2004* ASSETS Current assets Cash and
cash equivalents $16,121 $29,078 Accounts receivable, net 93,943
88,249 Inventories, net 45,818 41,298 Deferred income taxes 4,439
4,373 Prepaid expenses and other current assets 5,672 8,189 Total
current assets 165,993 171,187 Property, plant and equipment, net
56,897 62,888 Goodwill 35,418 34,853 Other intangible assets, net
8,703 8,574 Investments in associated companies 6,624 6,718
Deferred income taxes 24,385 18,825 Other assets 33,975 21,848
Total assets $331,995 $324,893 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities Short-term borrowings and current portion of
long-term debt $5,094 $60,695 Accounts payable 50,832 39,562
Dividends payable 2,091 2,079 Accrued compensation 9,818 9,313
Other current liabilities 19,053 13,969 Total current liabilities
86,888 125,618 Long-term debt 67,410 14,848 Deferred income taxes
4,608 5,588 Accrued pension and postretirement benefits 38,210
36,456 Other non-current liabilities 22,363 7,372 Total liabilities
219,479 189,882 Minority interest in equity of subsidiaries 6,609
12,424 Shareholders' equity Common stock, $1 par value; authorized
30,000,000 shares; issued 2005 - 9,726,385, 2004 - 9,668,751 9,726
9,669 Capital in excess of par value 3,574 2,632 Retained earnings
111,317 117,981 Unearned compensation - (355) Accumulated other
comprehensive loss (18,710) (7,340) Total shareholders' equity
105,907 122,587 Total liabilities and shareholders' equity $331,995
$324,893 *Certain reclassifications of prior year data have been
made to improve comparability. Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows For the twelve
months ended December 31, (Dollars in thousands) (Unaudited) 2005
2004* Cash flows from operating activities Net income $1,688 $8,974
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation 9,163 8,610 Amortization 1,368
1,157 Equity in net income of associated companies (618) (890)
Minority interest in earnings of subsidiaries 2,209 3,874 Deferred
income taxes (4,476) (1,872) Deferred compensation and other, net
(25) (39) Restructuring and related activities, net 6,018 450 Gain
on sale of partnership assets (2,989) - Gain on sale of property,
plant and equipment - (509) Pension and other postretirement
benefits (439) (172) Increase (decrease) in cash from changes in
current assets and current liabilities, net of acquisitions:
Accounts receivable (9,600) (6,254) Inventories (5,821) (7,559)
Prepaid expenses and other current assets 161 (388) Accounts
payable and accrued liabilities 15,726 129 Change in restructuring
liabilities (2,798) (558) Estimated taxes on income 1,722 (1,596)
Net cash provided by operating activities $11,289 $3,357 Cash flows
from investing activities Capital expenditures (6,989) (8,643)
Dividends and distributions from associated companies 234 288
Payments related to acquisitions (6,700) - Proceeds from
disposition of assets 1,918 1,880 Proceeds from partnership
disposition of assets 2,989 - Other, net - (75) Net cash (used in)
investing activities (8,548) (6,550) Cash flows from financing
activities Net decrease in short-term borrowings (52,703) 17,683
Proceeds from long-term debt 59,525 2,564 Repayments of long-term
debt (9,566) (3,679) Dividends paid (8,340) (8,241) Stock options
exercised, other 436 1,009 Distributions to minority shareholders
(4,198) (1,956) Net cash (used in) provided by financing activities
(14,846) 7,380 Effect of exchange rate changes on cash (852) 2,976
Net (decrease) increase in cash and cash equivalents (12,957) 7,163
Cash and cash equivalents at the beginning of the period 29,078
21,915 Cash and cash equivalents at the end of the period $16,121
$29,078 *Certain reclassifications of prior year data have been
made to improve comparability. First Call Analyst: FCMN Contact:
DATASOURCE: Quaker Chemical Corporation CONTACT: Neal E. Murphy,
Vice President and Chief Financial Officer, Quaker Chemical
Corporation, +1-610-832-4189 Web site: http://www.quakerchem.com/
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