Greetings, and welcome to the Quaker Chemical Corporation Fourth Quarter and Full Year 2011 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Barry, Chairman, Chief Executive Officer and President for Quaker Chemical Corporation. Thank you, Mr. Barry. You may begin.

Thank you, Rob. Good morning, everyone. Joining me today is Mark Featherstone, our CFO; and Jeffry Benoliel, our General Counsel and Head of Global Metalworking and Fluid Power. As usual, after my comments, Mark will provide the details around the financials, and then we will address any questions that you may have. We also have slides for our conference call. You can find them in the Investor Relations part of our website at www.quakerchem.com. I will start it off now with some remarks about the fourth quarter and the full year and then follow with some comments about 2012. The fourth quarter net income was consistent with our expectations. However, we saw some meaningful swings in a few of the P&L lines. In short, relative to the third quarter, our sales declined, our SG&A was up, and our tax rate was down. Let me now say a few words about each of these. Sales were down 5% from the third quarter. In fact, we saw a sequential quarterly decline in each of our 4 regions with Europe having the most impact. The decline was expected due to seasonality effects, as well as some adjustments of inventory levels in our customer supply chain. Our gross margins increased slightly during the quarter, but the full impact of our price increases were amassed by other factors such as a decline in our volume, as well as regional and product mix effects and the purchase accounting related to the G.W. Smith acquisition. On the SG&A side, we did have some timing-related swings relative to incentive compensation and higher acquisition-related costs. And we also had a lower-than-typical tax rate. Mark will provide more details around each of these in his remarks. So overall, as I think about the fourth quarter and try to strip out…

Thanks, Mike. Good morning, everyone. Yesterday, we announced earnings of $9.8 million or $0.75 per diluted share for the fourth quarter of 2011. This compares to $6.9 million or $0.59 per share in the fourth quarter of 2010. While the bottom line results for the quarter were in line with our expectations, there are some pluses and minuses that I will discuss further. Both last year's and this year's fourth quarters included some unusual items. Last year's fourth quarter included charges of only $0.10 per share related to a non-income tax contingency and an out-of-period charge, while the fourth quarter 2011 results were impacted by the timing of several items related to incentive compensation. Fourth quarter 2011 EPS also reflects a $0.07-per-share diluted impact from the 2011 equity offering. I will now go through the fourth quarter P&L, and then we will go on to questions. Revenues for the fourth quarter, compared with the same period last year, were up 22% to $173 million. As expected, compared to the third quarter of 2011, sales were down about 5% due to seasonal factors and some sluggishness in Europe, Asia and Brazil. And you can see that on Chart 1. Compared to the last year's fourth quarter, overall product volumes were up about 14% including acquisitions, while exchange rates decreased revenues by about 1%. Price and mix accounted for the remaining 9% increase in sales. Acquisitions represented about 11% of the overall 14% increase in volume for the quarter. Now if you look at Chart 2, North American steel industry production levels were fairly steady for most of 2011, as capacity utilization rates generally hovered between 70% and 75%. For 2012, we expect a little improvement with capacity utilization rates generally in the 75% to 80% range. And so far in 2012,…

Thanks, Mark. At this stage, we would like to address any questions from any participant on this conference.

[Operator Instructions] Our first question is from the line of Laurence Alexander with Jefferies & Company. Gentlemen, we'll move on to our next question. It's from the line of Peter Cozzone of KeyBanc Capital Markets.

On the SG&A front, if we kind of back out the higher compensation costs during the fourth quarter and take into consideration escalating emerging market costs, what's kind of like the normalized absolute range we should be thinking on a quarterly basis for 2012?

Yes, I think -- yes, as you correctly pointed out that the SG&A expense for the -- of $45 million for the fourth quarter was on the high side for the factors I explained. I think we generally expect SG&A expense to increase from the -- through the year but start off a couple of million dollars lower than we were for the fourth quarter and then gradually build. We are planning in 2012 to be adding additional resources, particularly in the emerging markets, as we continue to grow our business.

Okay. And then in terms of the first quarter, can you talk about normal seasonality on a sequential basis from a sales standpoint? And it doesn't sound like you've seen a meaningful impact from rising oil prices so far. But maybe what are the kind of the puts and takes on the gross margin front near term?

Well, in the first quarter, historically, it tends to be one of our weakest quarters from a volume perspective. And generally, you start out slow because sometimes people over the Christmas holidays extend into the New Year, that's one factor. For example, this year, Chinese New Year, which -- of course, a good part of our business is in China, and that happened in January. In Brazil, you have Carnival. So you have some of these major holidays, so generally, you kind of start first 2 months a little weaker than normal. And then by the time you hit March, it tends to be a much better month, a much more typical month that we could expect to see. And that's kind of how we're seeing things. We start to see a slowdown as we went through the fourth quarter and it's kind of almost the reverse effect of that in the first quarter, where the first part of the first quarter is slow, but the last part is -- should be better.

And then kind of looking at the gross margins and on a sequential basis, I mean, just given the seasonality on the volume front, I mean, is there any way you can continue to improve gross margins in the first quarter? I mean, would that just be done on the lower volumes?

Well, it would depend overall. One of the impacts is certainly how is the volumes overall versus the fourth quarter. We don't expect it to be materially lower or anything like that -- than the fourth quarter. The -- then the other aspect is what's happened to our raw materials. And raw materials -- and as we said, we've been -- if you go back to the third quarter of last year, that's kind of when we hit the height of raw materials in general. And since that time, they stabilized. Some have come down. So we've had some expansion in our gross margin. Some of that was masked for the reasons we've talked about in the fourth quarter. So we would expect to see some uptick in our gross margin in the first quarter.

Okay. And then lastly, can you provide some color on the market share gains you're achieving? What are you doing particularly well? Or maybe where are the areas that you're seeing the most traction? And then how much of recent acquisitions played a part in these gains?

Yes. I kind of think of them in 3 buckets, maybe. I think one part of our gains is because when -- as we -- the whole industry went through this downturn 3 years ago. Some of our competition has cut back on their service levels. And so over the past few years, we've gotten opportunities at different places around the world that we historically weren't able to get, and because people were unhappy with the competition, and they went to us. So that's one part of things. And usually, in our type of business, it takes a while to get a new piece of business. Usually, trials and things like that. So over time, over the past few years, we've been picking up some pieces of business that way. Another aspect is that we've really focused in on key areas in our -- both for our steel business and our metalworking areas that -- really drive kind of double-digit growth. And we focused on key areas, and through that kind of focus, like tube and pipe market, if I use an example, we continue to see double-digit growth associated with our initiatives around tube and pipe. And we have a whole series of these kind of items. And then the other aspect, the third bucket would be, like you mentioned, the acquisitions. And again, the acquisitions, we see promising on a couple of different fronts. One is we bought these technologies in one part of the world in the United States, and we're in the process in different stages of rolling that out globally. The initial one of the 4 acquisitions is farther along than the other ones just because we've been in it for 20 months now. And we are picking up new pieces of business around the world, and the other ones are more, the ones that are closer in, we're just in the beginning part of that. And plus, the other aspect of the acquisitions is we are able to start selling some of our Quaker products into their customer base as well, and that helps as well.

[Operator Instructions] Our next question is from Liam Burke of Janney Montgomery Scott.

Mike, Mark, you both touched on the gross margins where they are being negatively affected by new products through acquisition, but operating margins are positively affected because they carry less SG&A? You must have -- you have stated goals in -- hopefully in gross margin and operating margins. Do these acquisitions sort of change things in terms of your gross margin or operating margin objectives?

Yes. I think we've talked before about a target gross margin percentage of 35% in the longer term. Certainly, the raw material environment made that a little challenging but -- and also the kind of law of large numbers that as our sales increase, that the number increases. But that is still our goal. We've also talked about an operating income, our operating margin percentage goal of 10%. That's still our goal, in fact we like to go beyond that as well because a lot of times, as you've mentioned, while an acquisition may have a little bit lower gross margin percentage, there may be less service needed once the product is in place so that the overall operating margin can be -- still can be similar.

Okay. And Mark, on the working capital line, you had a big step-up in accounts receivable and on inventory. Is there anything in there that's different from the year before?

Well, I think working capital has increased throughout the year. I think with these higher raw material prices we've been experiencing, the same amount in inventory at today's prices is obviously carrying a higher value in terms of dollars. Similarly, as we go out to our customers and charge them higher prices, that's going to increase the accounts receivable level. And we do have programs in place to try and reduce inventory levels. We expect to get some benefits out of that in 2012, we saw the initial benefits of that in the fourth quarter. But in terms of receivables, aging or potential bad debts, the situation is really no different from where it was a year ago.

Okay. Because if I look at the cash flow statement for the year, I mean, typically you guys are very strong generators of free cash. It was lower than normal. Obviously, you had the capital programs and the expansion programs, but it looked like working capital was a drag on cash flows.

Yes. Certainly, working capital levels were a little higher than we expected, and that's why at least I was encouraged by the $15 million of operating cash flow we generated in the fourth quarter that we're kind of getting our way back to where we should be.

Gentlemen, there are no further questions at this time. I'd like to turn the floor back to management for closing comments.

Okay. Given there are no other questions, we'll end the conference call now, and I want to thank all of you for your interest today. We are pleased with our results for 2011, and we continue to be confident in the future of Quaker Chemical. Our next conference call for the first quarter results will be in late April or early May. And if you have any questions in the meantime, please feel free to contact Mark Featherstone or myself. Thanks again for your interest in Quaker Chemical.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.