We had called together about 70 of our top executives and managers from around the world. It was August, 1999, and we had decided to remake the Company’s entire organizational structure and approach to the world. We saw the world changing around us and decided that to create the unique competitive differentiation we wanted and to serve our customers uniquely, we needed to globally integrate all of our worldwide knowledge and customer service capability to be delivered without borders as a constraint.

Character is destiny. This meeting had far-reaching and dramatic effects on our Company. Out of it came the Destination Statement that is still our faithful compass and constant touchstone today. In the years since, we’ve been working consistently to perfect what this calls on us to be, because we know our destiny is directly tied to how we face our world as a single worldwide company.

I note this piece of history because in the course of my charge to the Company that day, in order to make clear to people the profoundly transformative nature of our undertaking, I went through the following litany (adapted from and with apologies to the “Sayings of Buddha”): Thoughts become words; words become actions; actions become habit; habit becomes character; and character is destiny. I particularly focused on the end of this—character is destiny—because that day was precisely about changing our corporate character, that is, who we are and how we behave in the Company and as a Company. Changing our character was essential to operating in a truly global way as we were determined to do, so that we operated in many places as if we were in one place with common purpose and common destiny. All that we have done since has been focused on building and reinforcing that corporate character.

By character I mean our impulse to action, to make live what we think is important in the Company. Indeed, this report takes a closer look at elements of our character today. This is not just about what we think or believe, but about how we actually operate in the Company. Our Quaker Code articulates values to state clearly what we stand for. But these have no meaning unless translated into action. 2007 demonstrates the power of that.

Choices reveal character. So what kind of year was 2007? It was a year that saw us exceed half a billion dollars in sales for the first time, by a lot. The year included both the highest sales month and highest sales quarter in the Company’s history; close to the highest net income ever; the highest EBITDA by a considerable margin. Operations generated almost $28 million in cash, partly driven by dramatic improvement in working capital even in the face of an $85 million sales increase. Our balance sheet benefited from about $12 million less net debt with a much improved net debt-to-total-capital ratio and an adjusted EBITDA leverage ratio below two times. Our sales were up over 18% and reported profit was up almost 33%. Quite a year financially, and yet...

And yet, the real story of the year for me, and the promise for you, is what this dramatically demonstrates about the strength of Company character we’ve been working hard to build. That’s all important because character will prevail long after the specifics of 2007 are forgotten, and it’s character that will take us where we want to go and allow us to create our future.

This is particularly worthy of note as we look back on 2007 and the few years that preceded it. It was character that enabled us to weather the tough years of 2004 and 2005 and to achieve as we did in 2006 and 2007. The unhappiness of these former two years was largely driven by external events—particularly the unprecedented price volatility of crude oil, derivatives of which are among our largest raw material inputs. There will always be things over which one has no control. But how one reacts is always in one’s power and control, and it is in these choices that character is revealed.

The constant quandary of the wish. The success of 2006 and 2007 was created out of the troubles of 2004 and 2005 by: being willing to take a cold, clear-eyed look at realities; being unafraid to make the changes required and having the tenacity to assure that these created progress; having the courage to stick to fundamental principles, even when it would have served short-term interests to walk away; being willing to challenge ourselves with high expectations and demanding goals; holding ourselves accountable; being pragmatic enough to deal with harsh facts as we found them, but not surrendering the dream of what we had chosen to be as a company.

For me, the heart of this Company character is captured in something I call the Quandary of the Wish. It’s been my unspoken guide for a long time, and what we’ve become as a company flows from it and the belief, hard work, and commitment of Quaker people all over the world. It’s a quandary because it speaks of an inherent contradiction that all organizations must grapple with to create long-term success. To succeed, we must deal with the world as we find it, not as we wish it were. But to know what is progress, we also must be unafraid to say what we wish for, unconstrained by the limitations of current reality. In this quandary lies the root of our ability to act today in a way that will create the tomorrow we want.

At Quaker we talk every day about the wish that’s embodied in our Destination and about the realities we have to deal with to have this wish turn into the future we choose. We’ve come a long way in the size and global reach of our Company, in how we relate to the world of our customers, in how we collaborate and share common cause in the Company around the globe. This is what has made us the Company we’ve become, and this is what will sustain us in the future. And that future is brighter than ever. We are poised today to create a future of new opportunity, new promise, and lives filled with new growth.

On behalf of Quaker, I send thanks to all of you, shareholders and associates alike, for your support and loyalty to our Company on its journey. It is the Company character we’ve built on this journey that is the rock on which our future stands.

Best regards,

Ronald J. Naples
Chairman of the Board
and Chief Executive Officer