KWR Quaker Houghton

CONSHOHOCKEN, Pa., Oct. 31 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE:KWR) today announced record third quarter sales of $116.4 million and a 42% net income improvement to $3.1 million, compared to third quarter 2005 sales of $105.8 million and net income of $2.2 million. Diluted earnings per share increased to $0.32 for the third quarter of 2006 versus $0.23 in the third quarter of last year. Third Quarter 2006 Summary Net sales for the third quarter of 2006 were $116.4 million, up 10.1% from the third quarter of 2005 due to higher selling prices across all regions and volume growth in the U.S. and China. Gross margin as a percentage of sales was 31.6% for the third quarter of 2006, as compared to 32.0% for the third quarter of 2005. Higher selling prices and stronger performance from the Company's CMS channel helped restore margins to prior year third quarter levels despite continued significant escalations in raw material costs. The third quarter 2006 gross margin percentage of 31.6% shows sequential improvement over the first two quarters of the year in which the Company reported gross margins of 29.6% and 30.4%, respectively. Selling, general and administrative expenses for the quarter increased $1.5 million, but decreased as a percentage of sales to 27% from 28.3% in the prior year third quarter. Planned new spending in higher growth areas was funded by savings from the Company's restructuring program in the fourth quarter of 2005. Higher variable compensation in the third quarter of 2006 as compared to the prior year third quarter was the result of increased earnings. The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease in minority interest expense is due to lower financial performance from the Company's minority affiliates. Year-to-Date Summary Net sales for the first nine months of 2006 were $344.9 million, up 8.8% from $317.0 million for the first nine months of 2005. The increase in net sales was attributable to higher sales prices and volume growth. Volume growth was mainly attributable to market share growth and increased demand in the U.S. and China. Selling price increases continue to be broadly implemented across all regions and market segments to offset significantly higher raw material costs. Net income for the first nine months of 2006 was $8.7 million compared to $7.1 million for the first nine months of 2005, which included a $4.2 million pre-tax gain from the Company's real estate joint venture, partially offset by a $1.2 million pre-tax restructuring charge. Gross margin as a percentage of sales was 30.5% for the first nine months of 2006, as compared to 30.8% for the first nine months of 2005. Higher selling prices and a stronger performance from the Company's CMS channel helped maintain margins notwithstanding continued increases in raw material prices, particularly crude oil derivatives. Selling, general and administrative expenses for the first nine months of 2006 increased $1.4 million compared to the first nine months of 2005. As was the case in the third quarter, cost savings from the Company's restructuring efforts in 2005 enabled increased spending in higher growth areas, restoration of variable compensation and higher professional fees with only minor cost increases. In addition, due to a legislative change, effective January 1, 2006, the Company recorded a pension gain in the first quarter of 2006 for $0.9 million relating to one of its European pension plans. As a percentage of sales, selling, general and administrative expenses were 25.7% for the first nine months of 2006, as compared to 27.5% in the first nine months of 2005. The decrease in other income is largely due to $4.2 million of pre-tax gain relating to the Company's real estate joint venture recorded in 2005. The remainder of the decrease was the result of foreign exchange losses in the first nine months of 2006, compared to gains in the first nine months of 2005. The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease in minority interest expense for the year is due to the acquisition of the remaining 40% interest in the Company's Brazilian affiliate in March of 2005 and lower financial performance from the Company's minority affiliates. Balance Sheet and Cash Flow Items The Company's net debt has increased from December 2005, primarily to fund working capital needs, as well as the restructuring actions taken in the fourth quarter of 2005. The Company's net debt-to-total capital ratio was 38% at September 30, 2006, compared to 39% at June 30, 2006, 40% at March 31, 2006 and 35% at December 31, 2005. Ronald J. Naples, Chairman and Chief Executive Officer, commented, "We had a great third quarter that flowed from increasing contributions from strategic initiatives such as Asia/Pacific growth and CMS, persistent pricing attention, and the fourth quarter 2005 repositioning of our cost base. We have also benefited from strong global steel demand in 2006. We're pleased with our continued earnings progress and to have been able to generate sequential quarter-over-quarter improvement in gross margin percentage in the face of continued increases in raw material costs. The recent easing of crude oil prices may help mineral oil in the long term, but this year so far we're still facing increases in mineral oil prices. Further, we have observed that global steel and automotive production has been outpacing demand in some markets over the past few months. We've had a fine profit rebound this year, and this is one of the challenges we'll be dealing with in keeping up our sequential quarterly progress as the year comes to a close. Still, we're performing significantly better than prior year, and longer term, we have a number of initiatives underway in both new markets and new products that provide new promise for the future." 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 by the Private Securities Litigation Reform Act of 1995. As previously announced, Quaker Chemical's investor conference call to discuss third quarter results is scheduled for November 1, 2006 at 2:30 p.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) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Net sales $116,425 $105,751 $344,924 $316,954 Cost of goods sold 79,650 71,874 239,599 219,441 Gross margin 36,775 33,877 105,325 97,513 % 31.6% 32.0% 30.5% 30.8% Selling, general and administrative 31,485 29,937 88,636 87,274 Restructuring and related activities, net - - - 1,232 Operating income 5,290 3,940 16,689 9,007 % 4.5% 3.7% 4.8% 2.8% Other income, net 539 353 1,054 5,869 Interest expense, net (1,218) (670) (3,435) (1,844) Income before taxes 4,611 3,623 14,308 13,032 Taxes on income 1,378 1,178 5,058 4,235 3,233 2,445 9,250 8,797 Equity in net income of associated companies 218 208 456 414 Minority interest in net income of subsidiaries (312) (441) (1,033) (2,078) Net income $3,139 $2,212 $8,673 $7,133 % 2.7% 2.1% 2.5% 2.3% Per share data: Net income - basic $0.32 $0.23 $0.89 $0.74 Net income - diluted $0.32 $0.23 $0.88 $0.73 Shares Outstanding: Basic 9,792,187 9,693,851 9,762,019 9,671,516 Diluted 9,854,625 9,801,893 9,833,903 9,816,006 Quaker Chemical Corporation Condensed Consolidated Balance Sheet (Dollars in thousands, except par value and share amounts) (Unaudited) September 30, December 31, 2006 2005* ASSETS Current assets Cash and cash equivalents $15,785 $16,121 Accounts receivable, net 106,657 93,943 Inventories, net 51,533 45,818 Prepaid expenses and other current assets 13,324 10,111 Total current assets 187,299 165,993 Property, plant and equipment 153,591 140,903 Less accumulated depreciation 93,773 84,006 Net property, plant and equipment 59,818 56,897 Goodwill 37,966 35,418 Other intangible assets, net 7,839 8,703 Investments in associated companies 6,780 6,624 Deferred income taxes 24,031 24,385 Other assets 34,294 33,975 Total assets $358,027 $331,995 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $2,862 $5,094 Accounts and other payables 58,314 52,923 Accrued compensation 12,642 9,818 Other current liabilities 17,481 19,053 Total current liabilities 91,299 86,888 Long-term debt 83,550 67,410 Deferred income taxes 5,035 4,608 Other non-current liabilities 57,889 60,573 Total liabilities 237,773 219,479 Minority interest in equity of subsidiaries 6,452 6,609 Shareholders' equity Common stock, $1 par value; authorized 30,000,000 shares; issued 2006 - 9,873,744, 2005 - 9,726,385 shares 9,874 9,726 Capital in excess of par value 4,456 3,574 Retained earnings 113,640 111,317 Accumulated other comprehensive loss (14,168) (18,710) Total shareholders' equity 113,802 105,907 Total liabilities and shareholders' equity $358,027 $331,995 * Condensed from audited financial statements. Quaker Chemical Corporation Condensed Consolidated Statement of Cash Flows For the nine months ended September 30, (Dollars in thousands) (Unaudited) 2006 2005* Cash flows from operating activities Net income $8,673 $7,133 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 7,406 6,731 Amortization 1,058 1,014 Equity in undistributed earnings of associated companies, net of dividends (251) (180) Minority interest in earnings of subsidiaries 1,033 2,078 Deferred income taxes 834 419 Deferred compensation and other, net 387 145 Stock-based compensation 601 563 Restructuring and related activities, net - 1,232 Gain on sale of partnership assets - (2,989) (Gain) Loss on disposal of property, plant and equipment 19 - Insurance settlement realized (252) - Pension and other postretirement benefits (3,108) (3,905) Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable (10,077) (8,635) Inventories (4,561) (2,920) Prepaid expenses and other current assets (3,022) (2,063) Accounts payable and accrued liabilities 8,351 5,349 Change in restructuring liabilities (3,731) (1,636) Net cash provided by operating activities 3,360 2,336 Cash flows from investing activities Capital expenditures (8,513) (5,142) Payments related to acquisitions (1,069) (6,700) Proceeds from partnership disposition of assets - 2,989 Proceeds from disposition of assets 64 1,894 Interest received on insurance settlement 240 - Change in restricted cash, net 12 - Net cash used in investing activities (9,266) (6,959) Cash flows from financing activities Short-term debt borrowings 1,873 7,815 Repayments of short-term debt (4,519) - Long-term debt borrowings 15,680 - Repayments of long-term debt (704) (9,328) Dividends paid (6,320) (6,251) Issuance of common stock 429 256 Distributions to minority shareholders (1,464) (3,163) Net cash provided by (used in) financing activities 4,975 (10,671) Effect of exchange rate changes on cash 595 (675) Net decrease in cash and cash equivalents (336) (15,969) Cash and cash equivalents at the beginning of the period 16,121 29,078 Cash and cash equivalents at the end of the period $15,785 $13,109 * Certain reclassifications of prior year data have been made to improve comparability. 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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