CONSHOHOCKEN, Pa., Oct. 31 /PRNewswire-FirstCall/ -- Quaker
Chemical Corporation (NYSE:KWR) today announced that in the third
quarter it achieved record quarterly sales of $140.7 million, an
increase of 20.9% over the third quarter 2006, and net income of
$3.2 million. Earnings per diluted share were $0.31 versus $0.32
for the third quarter 2006. Third quarter 2007 operating expenses
include a pre-tax charge of $3.3 million related to an
environmental litigation settlement. "We had an outstanding
quarter," observed Ronald J. Naples, Chairman and Chief Executive
Officer. "As is apparent in our income statement, without the
one-time environmental charge, we would have had very strong
operating income growth. Indeed, the third quarter continued our
success this year in revenue and net income growth, which included
a tax adjustment benefit in the quarter, and generated significant
cash. I should point out we announced the environmental charge last
week and noted it represents a very favorable resolution for us
that removes significant uncertainty and financial exposure that
sprang from a long-ago problem. Further, it recognizes our
voluntary work over the past 12 years to address the problem before
any litigation." Third Quarter 2007 Summary Net sales for the third
quarter were $140.7 million, up 20.9% from $116.4 million for the
third quarter 2006. The increase in net sales was primarily
attributable to a combination of volume growth and higher sales
prices. Volume growth was mainly attributable to strong sales
growth in Asia/Pacific, Europe and North America, as well as higher
revenue related to the Company's CMS channel. Foreign exchange rate
translation increased revenues by approximately 5% for the third
quarter 2007, compared to the same period in 2006. Selling price
increases were realized across all regions and market segments, in
part as a result of an ongoing effort to offset higher raw material
costs. CMS revenues were higher due to additional CMS accounts and
the first quarter 2007 renewal and renegotiation of several of the
Company's CMS contracts. Gross margin as a percentage of sales was
30.7% for the third quarter of 2007, compared to 31.6% for the
third quarter 2006. Higher selling prices and additional
contribution from the Company's CMS channel helped improve margins
in dollar terms, while higher raw material costs and sales mix
resulted in a lower gross margin percentage. On a sequential basis,
the third quarter gross margin percentage was in line with first
quarter 2007 and second quarter 2007 gross margin percentages of
30.9% and 31.0%, respectively. Selling, general and administrative
expenses for the quarter increased $5.1 million, compared to the
third quarter 2006. Foreign exchange rate translation accounted for
approximately $1.3 million of the increase. Other major
contributors were planned spending in higher growth areas, such as
China, and higher commissions as a result of higher sales, as well
as two charges totaling $1.2 million relating to certain customer
bankruptcies and a discontinued strategic initiative. In the third
quarter 2007, the Company recorded environmental charges of $3.3
million, as disclosed in its press release dated October 23, 2007.
The charges consist of $2.0 million related to the settlement of
environmental litigation involving AC Products, Inc., a wholly
owned subsidiary, as well as an additional $1.3 million charge for
the estimated remaining remediation costs. The decrease in other
income was the result of a distribution received from the Company's
former real estate joint venture in the prior year quarter, as well
as lower license fee income in the third quarter 2007. The increase
in net interest expense was attributable to higher average
borrowings and higher interest rates. The tax benefit recorded in
the third quarter 2007 includes a $0.7 million refund of taxes in
China as a result of the Company's increased investment. The third
quarter 2006 included a similar tax rebate of $0.4 million. In
addition, the third quarter 2007 includes a non-cash out-of-period
tax benefit adjustment of $1.0 million related to the deferred tax
accounting for the Company's foreign pension plans and intangible
assets regarding one of the Company's acquisitions. Year-to-Date
Summary Net sales for the first nine months of 2007 were $403.2
million, up 16.9% from $344.9 million for the first nine months of
2006. Double-digit volume increases in China, higher CMS revenues,
and selling price increases realized across all regions and market
segments were the primary reasons for the increase in net sales.
Foreign exchange rate translation increased revenues by
approximately 4.4% for the first nine months of 2007, compared to
the same period in 2006. Gross margin as a percentage of sales was
30.8% for the first nine months of 2007, compared to 30.5% in the
prior year period. Higher selling prices and a stronger performance
from the Company's CMS channel helped maintain the gross margin
percentage despite continued increases in raw material prices.
Selling, general and administrative expenses for the first nine
months of 2007 increased $15.3 million, compared to the first nine
months of 2006. Foreign exchange rate translation accounted for
approximately $3.3 million of the increase over the prior year.
Also negatively affecting the comparison with the prior year was a
pension gain of $0.9 million recorded in the first quarter 2006 due
to a legislative change. The remainder of the increase was due to
continued planned spending in higher growth areas, primarily China,
higher incentive compensation as a result of higher earnings,
higher commissions as a result of higher sales, higher legal and
environmental costs, the third quarter charges noted previously, as
well as inflationary increases. The increase in other income was
primarily due to foreign exchange gains recorded in the first nine
months of 2007, compared to losses in the prior year. The increase
in net interest expense was attributable to higher average
borrowings and higher interest rates. The Company's effective tax
rate was 21.2% for the first nine months of 2007, compared to 35.4%
in the prior year. The decrease in the effective tax rate was
primarily due to a changing mix of income among tax jurisdictions,
as well as the non-cash out-of-period adjustment noted above,
offset, in part, by the Company's first quarter 2007 adoption of
FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes" ("FIN 48"). Balance Sheet and Cash Flow Items The Company's
net debt decreased from December 31, 2006, primarily as a result of
reduced working capital balances during the third quarter 2007,
with operations generating positive cash flow during the quarter of
$19.3 million. The Company's net debt-to-total-capital ratio was
36% at September 30, 2007, compared to 40% at December 31, 2006. In
connection with the first quarter 2007 adoption of FIN 48, the
Company recorded a non-cash charge to shareholders' equity of $5.5
million, which negatively impacted the Company's net
debt-to-total-capital ratio by approximately 1 percentage point.
Ronald J. Naples, Chairman and Chief Executive Officer, commented,
"We are certainly pleased with our business results and strong cash
flow in the quarter, which continue the progress we have seen so
far this year. We are encouraged by the volume growth we continue
to see. We remain vigilant to the ongoing challenge of escalating
raw material costs and have increased our gross margin dollars even
as raw material costs ran considerably ahead of last year. I am
also encouraged by real working capital improvements achieved
during the quarter. With the settlement of the AC Products
environmental litigation, we feel good about our long-term future
and prospects of continued earnings improvement." Quaker Chemical
Corporation is a leading global provider of process chemicals,
chemical specialties, services, and technical expertise to a wide
range of industries - including steel, automotive, mining,
aerospace, tube and pipe, coatings, and construction materials. Our
products, technical solutions, and chemical management services
enhance our customers' processes, improve their product quality,
and lower their costs. Quaker's headquarters is located near
Philadelphia in Conshohocken, Pennsylvania. 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 call to discuss third quarter results is scheduled for
November 1, 2007 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)
Three Months Ended Nine Months Ended September 30, September 30,
2007 2006 2007 2006 Net sales $140,715 $116,425 $403,204 $344,924
Cost of goods sold 97,547 79,650 278,878 239,599 Gross margin
43,168 36,775 124,326 105,325 % 30.7% 31.6% 30.8% 30.5% Selling,
general and administrative expenses 36,602 31,485 103,930 88,636
Environmental charges 3,300 - 3,300 - Operating income 3,266 5,290
17,096 16,689 % 2.3% 4.5% 4.2% 4.8% Other income, net 382 539 1,618
1,054 Interest expense, net (1,370) (1,218) (4,221) (3,435) Income
before taxes 2,278 4,611 14,493 14,308 Taxes on income (1,066)
1,378 3,076 5,058 3,344 3,233 11,417 9,250 Equity in net income of
associated companies 166 218 557 456 Minority interest in net
income of subsidiaries (350) (312) (1,126) (1,033) Net income
(loss) $3,160 $3,139 $10,848 $8,673 % 2.2% 2.7% 2.7% 2.5% Per share
data: Net income - basic $0.32 $0.32 $1.09 $0.89 Net income -
diluted $0.31 $0.32 $1.07 $0.88 Shares Outstanding: Basic
10,016,801 9,792,187 9,969,739 9,762,019 Diluted 10,134,909
9,854,625 10,095,945 9,833,903 Quaker Chemical Corporation
Condensed Consolidated Balance Sheet (Dollars in thousands, except
par value and share amounts) (Unaudited) September 30, December 31,
2007 2006 ASSETS Current assets Cash and cash equivalents $24,224
$16,062 Accounts receivable, net 118,217 107,340 Inventories, net
57,908 51,984 Prepaid expenses and other current assets 15,229
10,855 Total current assets 215,578 186,241 Property, plant and
equipment, net 60,491 60,927 Goodwill 43,067 38,740 Other
intangible assets, net 8,097 8,330 Investments in associated
companies 7,123 7,044 Deferred income taxes 33,037 28,573 Other
assets 31,196 27,527 Total assets $398,589 $357,382 LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings and
current portion of long-term debt $3,098 $4,950 Accounts and other
payables 63,279 56,345 Accrued compensation 15,704 15,225 Other
current liabilities 19,076 13,659 Total current liabilities 101,157
90,179 Long-term debt 89,364 85,237 Deferred income taxes 6,838
5,317 Other non-current liabilities 75,477 61,783 Total liabilities
272,836 242,516 Minority interest in equity of subsidiaries 4,679
4,035 Shareholders' equity Common stock, $1 par value; authorized
30,000,000 shares; issued 10,125,249 shares 10,125 9,926 Capital in
excess of par value 9,065 5,466 Retained earnings 113,326 114,498
Accumulated other comprehensive loss (11,442) (19,059) Total
shareholders' equity 121,074 110,831 Total liabilities and
shareholders' equity $398,589 $357,382 Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows For the Nine Months
Ended September 30, (Dollars in thousands) (Unaudited) 2007 2006
Cash flows from operating activities Net income $10,848 $8,673
Adjustments to reconcile net income to net cash used in operating
activities: Depreciation 8,579 7,406 Amortization 900 1,058 Equity
in net income of associated companies, net of dividends (83) (251)
Minority interest in earnings of subsidiaries 1,126 1,033 Deferred
income tax (1,498) 834 Deferred compensation and other, net 878 387
Stock-based compensation 863 601 Environmental charges 3,300 - Loss
on disposal of property, plant and equipment 33 19 Insurance
settlement realized (1,266) (252) Pension and other postretirement
benefits (2,532) (3,108) Increase (decrease) in cash from changes
in current assets and current liabilities, net of acquisitions:
Accounts receivable (5,795) (10,077) Inventories (3,227) (4,561)
Prepaid expenses and other current assets (1,750) (3,022) Accounts
payable and accrued liabilities 6,009 8,351 Change in restructuring
liabilities - (3,731) Net cash provided by operating activities
16,385 3,360 Cash flows from investing activities Capital
expenditures (5,431) (8,513) Payments related to acquisitions
(1,543) (1,069) Proceeds from disposition of assets 176 64
Insurance settlement received and interest earned 5,534 240 Change
in restricted cash, net (4,268) 12 Net cash used in investing
activities (5,532) (9,266) Cash flows from financing activities
Short-term borrowings 1,305 1,873 Repayments of short-term debt
(3,267) (4,519) Proceeds from long-term debt 3,132 15,680
Repayments of long-term debt (674) (704) Dividends paid (6,484)
(6,320) Stock options exercised, other 2,935 429 Distributions to
minority shareholders (864) (1,464) Net cash (used in) provided by
financing activities (3,917) 4,975 Effect of exchange rate changes
on cash 1,226 595 Net increase (decrease) in cash and cash
equivalents 8,162 (336) Cash and cash equivalents at the beginning
of the period 16,062 16,121 Cash and cash equivalents at the end of
the period $24,224 $15,785 DATASOURCE: Quaker Chemical Corporation
CONTACT: Mark A. Featherstone, Vice President and Chief Financial
Officer of Quaker Chemical Corporation, +1-610-832-4160 Web site:
http://www.quakerchem.com/
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