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Q4 results tilt full year financials of Quaker Chemicals
26 Feb '09
6 min read
In response to the significant volume declines, Quaker implemented a restructuring program in the fourth quarter of 2008, which eliminated more than 80 positions and included provisions for severance for 57 employees totaling $2.9 million. In a further effort to reduce operating costs, as volume declines continued in the U.S. and Europe and extended to other regions, Quaker implemented an additional restructuring program in the first quarter of 2009, which is expected to include provisions for severance for approximately 50 employees totaling approximately $2.5 to $3 million.
The decrease in other income was primarily the result of foreign exchange losses recorded in the fourth quarter of 2008, compared to gains in the same period of the prior year. The higher net interest expense was due to higher average borrowings and lower interest income.
Full Year Summary:
Net sales for 2008 were $581.6 million, up 7% from $545.6 million for 2007. Foreign exchange rate translation increased revenues by approximately 4%. Selling price increases realized across all regions and market segments were partially offset by the fourth quarter volume declines noted above.
Gross margins were down approximately $4.9 million, or 3%, compared to 2007. The gross margin percentage of 28% was also lower than the 2007 gross margin percentage 30.8%. The decline in gross margin percentage was due to increased raw material costs partially offset by price increases, as well as product and regional sales mix.
SG&A for 2008 decreased $2.7 million compared to 2007. Investments in higher growth areas, inflationary increases and unfavorable foreign exchange rate translation were more than offset by lower incentive compensation and lower legal and environmental costs.
Effective October 3, 2008, Ronald J. Naples, Chairman, retired as Quaker's Chief Executive Officer. As further discussed in the Company's Form 8-K filed on May 13, 2008, the Company is recognizing certain accelerated and other costs, in accordance with Mr. Naples' Employment, Transition and Consulting Agreement, which are expected to total $5.8 million over the 2008-2010 period. Incremental costs incurred in 2008 totaled $3.5 million, or approximately $0.22 per diluted share.
In 2007, the Company recorded environmental charges of $3.3 million. The charges consisted 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 primarily the result of foreign exchange losses recorded in 2008, compared to gains in the prior year. Other income for 2008 also includes a net arbitration award of approximately $1.0 million, or approximately $0.04 per diluted share, related to litigation with one of the former owners of the Company's Italian subsidiary.
The Company's effective tax rate was 29.9% for 2008, compared to 29.3% in the prior year. The 2008 effective tax rate was affected by a changing mix of income among jurisdictions, as well as the derecognition of several uncertain tax positions due to the expiration of applicable statutes of limitations for certain tax years. The effective tax rate for 2007 includes an out of period non-cash 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.
Balance Sheet and Cash Flow Items:
The Company's net debt-to-total-capital ratio remained strong at 32% at both December 31, 2008 and 2007, respectively. As discussed in the Form 8-K filed on February 20, 2009, the Company has also amended its credit facility to provide covenant relief related to the 2008 and 2009 restructuring programs and the CEO transition costs. In addition, the amendment temporarily increases the maximum permitted leverage ratio from 3.5 to 4.0 from June 30, 2009 to September 30, 2009, and to 3.75 from December 31, 2009 to March 31, 2010. In February 2009, the Company also amended two Industrial Revenue Bonds totaling $15.0 million to allow for the same changes in terms as the credit facility. On a pro-forma basis, the estimated consolidated leverage ratio as of December 31, 2008 is approximately 2.2.
The decrease in other income was primarily the result of foreign exchange losses recorded in the fourth quarter of 2008, compared to gains in the same period of the prior year. The higher net interest expense was due to higher average borrowings and lower interest income.
Full Year Summary:
Net sales for 2008 were $581.6 million, up 7% from $545.6 million for 2007. Foreign exchange rate translation increased revenues by approximately 4%. Selling price increases realized across all regions and market segments were partially offset by the fourth quarter volume declines noted above.
Gross margins were down approximately $4.9 million, or 3%, compared to 2007. The gross margin percentage of 28% was also lower than the 2007 gross margin percentage 30.8%. The decline in gross margin percentage was due to increased raw material costs partially offset by price increases, as well as product and regional sales mix.
SG&A for 2008 decreased $2.7 million compared to 2007. Investments in higher growth areas, inflationary increases and unfavorable foreign exchange rate translation were more than offset by lower incentive compensation and lower legal and environmental costs.
Effective October 3, 2008, Ronald J. Naples, Chairman, retired as Quaker's Chief Executive Officer. As further discussed in the Company's Form 8-K filed on May 13, 2008, the Company is recognizing certain accelerated and other costs, in accordance with Mr. Naples' Employment, Transition and Consulting Agreement, which are expected to total $5.8 million over the 2008-2010 period. Incremental costs incurred in 2008 totaled $3.5 million, or approximately $0.22 per diluted share.
In 2007, the Company recorded environmental charges of $3.3 million. The charges consisted 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 primarily the result of foreign exchange losses recorded in 2008, compared to gains in the prior year. Other income for 2008 also includes a net arbitration award of approximately $1.0 million, or approximately $0.04 per diluted share, related to litigation with one of the former owners of the Company's Italian subsidiary.
The Company's effective tax rate was 29.9% for 2008, compared to 29.3% in the prior year. The 2008 effective tax rate was affected by a changing mix of income among jurisdictions, as well as the derecognition of several uncertain tax positions due to the expiration of applicable statutes of limitations for certain tax years. The effective tax rate for 2007 includes an out of period non-cash 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.
Balance Sheet and Cash Flow Items:
The Company's net debt-to-total-capital ratio remained strong at 32% at both December 31, 2008 and 2007, respectively. As discussed in the Form 8-K filed on February 20, 2009, the Company has also amended its credit facility to provide covenant relief related to the 2008 and 2009 restructuring programs and the CEO transition costs. In addition, the amendment temporarily increases the maximum permitted leverage ratio from 3.5 to 4.0 from June 30, 2009 to September 30, 2009, and to 3.75 from December 31, 2009 to March 31, 2010. In February 2009, the Company also amended two Industrial Revenue Bonds totaling $15.0 million to allow for the same changes in terms as the credit facility. On a pro-forma basis, the estimated consolidated leverage ratio as of December 31, 2008 is approximately 2.2.
Quaker Chemical Corporation
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