form10q.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 



FORM 10-Q
 

 

 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012

OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 001-12019
 

 


QUAKER CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
 


 
     
Pennsylvania
 
23-0993790
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
     
One Quaker Park, 901 E. Hector Street,
Conshohocken, Pennsylvania
 
19428 – 2380
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: 610-832-4000

Not Applicable
Former name, former address and former fiscal year, if changed since last report.
 



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes   x     No   ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


 
Large accelerated filer  ¨    
 
Accelerated filer  x
 
 
Non-accelerated filer  ¨ (Do not check if smaller reporting company)
Smaller reporting Company ¨
 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
     
Number of Shares of Common Stock
Outstanding on September 30, 2012
 
 
13,081,917
 
 


 
 

 

QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
         
 
  
 
  
Page
PART I.
  
FINANCIAL INFORMATION
  
 
Item 1.
  
Financial Statements (unaudited)
  
 
 
  
  
3
 
  
  
4
     
5
 
  
  
6
 
  
  
7
Item 2.
  
  
24
Item 3.
  
  
30
Item 4.
  
  
31
PART II.
  
  
32
Item 1.
   
32
Item 2.
   
32
Item 6.
  
  
33
Signatures
  
33

 
2

 
Table of Contents

PART I
FINANCIAL INFORMATION

Item 1.                                Financial Statements (Unaudited).

Quaker Chemical Corporation
 
Condensed Consolidated Balance Sheet



   
Unaudited
 
   
(Dollars in thousands,
 
   
except par value
 
   
and share amounts)
 
   
September 30, 2012
   
December 31, 2011*
 
 
 
ASSETS
               
Current assets
               
        Cash and cash equivalents
 
$
30,172 
   
$
16,909 
 
        Accounts receivable, net
   
155,878 
     
150,676 
 
        Inventories
               
                Raw materials and supplies
   
42,733 
     
41,771 
 
                Work-in-process and finished goods
   
33,701 
     
32,987 
 
        Prepaid expenses and other current assets
   
18,576 
     
17,206 
 
                Total current assets
   
281,060 
     
259,549 
 
Property, plant and equipment, at cost
   
219,513 
     
214,695 
 
        Less accumulated depreciation
   
(135,204
   
(131,779
                Net property, plant and equipment
   
84,309 
     
82,916 
 
Goodwill
   
59,461 
     
58,152 
 
Other intangible assets, net
   
33,563 
     
31,783 
 
Investments in associated companies
   
8,302 
     
7,942 
 
Deferred income taxes
   
27,855 
     
29,823 
 
Other assets
   
36,191 
     
35,356 
 
                Total assets
 
$
530,741 
   
$
505,521 
 
                 
LIABILITIES AND EQUITY
               
Current liabilities
               
        Short-term borrowings and current portion of long-term debt
 
$
576 
   
$
636 
 
        Accounts and other payables
   
74,277 
     
68,125 
 
        Accrued compensation
   
14,390 
     
16,987 
 
        Other current liabilities
   
22,812 
     
20,901 
 
               Total current liabilities
   
112,055 
     
106,649 
 
Long-term debt
   
37,980 
     
46,701 
 
Deferred income taxes
   
9,319 
     
7,094 
 
Other non-current liabilities
   
86,162 
     
89,351 
 
               Total liabilities
   
245,516 
     
249,795 
 
Equity
               
         Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding
               
            2012 – 13,081,917 shares; 2011 – 12,911,508 shares
   
13,082 
     
12,912 
 
         Capital in excess of par value
   
93,845 
     
89,725 
 
         Retained earnings
   
199,388 
     
175,932 
 
         Accumulated other comprehensive loss
   
(30,206
   
(29,820
               Total Quaker shareholders’ equity
   
276,109 
     
248,749 
 
Noncontrolling interest
   
9,116 
     
6,977 
 
Total equity
   
285,225 
     
255,726 
 
         Total liabilities and equity
 
$
530,741 
   
$
505,521 
 

*
Condensed from audited financial statements

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
3

 
Table of Contents

Quaker Chemical Corporation
 
Condensed Consolidated Statement of Income

   
Unaudited
 
   
(Dollars in thousands, except per share amounts)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Net sales
  $ 180,923     $ 182,313     $ 535,358     $ 509,970  
Cost of goods sold
    121,797       122,827       355,801       343,984  
Gross profit
    59,126       59,486       179,557       165,986  
Selling, general and administrative expenses
    43,263       41,982       130,009       119,441  
Operating income
    15,863       17,504       49,548       46,545  
Other income, net
    322       2,740       529       4,070  
Interest expense
    (1,034 )     (1,166 )     (3,359 )     (3,584 )
Interest income
    149       262       409       805  
Income before taxes and equity in net income of associated companies
    15,300       19,340       47,127       47,836  
Taxes on income before equity in net income of associated companies
    4,373       5,640       12,692       12,961  
Income before equity in net income of associated companies
    10,927       13,700       34,435       34,875  
Equity in net income of associated companies
    257       105       612       715  
Net income
    11,184       13,805       35,047       35,590  
Less: Net income attributable to noncontrolling interest
    698       447       2,075       1,791  
Net income attributable to Quaker Chemical Corporation
  $ 10,486     $ 13,358     $ 32,972     $ 33,799  
Per share data:
                               
Net income attributable to Quaker Chemical Corporation Common
                               
Shareholders – basic
  $ 0.80     $ 1.04     $ 2.54     $ 2.77  
Net income attributable to Quaker Chemical Corporation Common
                               
Shareholders – diluted
  $ 0.80     $ 1.03     $ 2.52     $ 2.73  
Dividends declared
  $ 0.245     $ 0.24     $ 0.73     $ 0.715  
                                 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

 
Table of Contents

Quaker Chemical Corporation
 
Condensed Consolidated Statement of Comprehensive Income (Loss)
 

               
               
 
Unaudited
 
 
(Dollars in thousands, except per share amounts)
 
 
Three Months Ended
   
Nine Months Ended
 
 
September 30,
   
September 30,
 
 
2012
 
2011
   
2012
 
2011
 
Net income
$ 11,184   $ 13,805     $ 35,047   $ 35,590  
                           
Other comprehensive income (loss), net of tax
                         
Currency translation adjustments
  1,600     (13,936 )     (1,976 )   (6,459 )
Defined benefit retirement plans
  436     (637 )     1,405     12  
Current period change in fair value of derivatives
  73     112       272     286  
Unrealized gain (loss) on available-for-sale securities
  4     (23 )     7     (17 )
Other comprehensive income (loss)
  2,113     (14,484 )     (292 )   (6,178 )
                           
Comprehensive income (loss)
  13,297     (679 )     34,755     29,412  
Less: comprehensive (income) loss attributable to noncontrolling interest
  (926 )   447       (2,169 )   (974 )
Comprehensive income (loss) attributable to Quaker Chemical Corporation
$ 12,371   $ (232 )   $ 32,586   $ 28,438  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
5

 
Table of Contents


Quaker Chemical Corporation
 
Condensed Consolidated Statement of Cash Flows

   
Unaudited
 
   
(Dollars in thousands)
 
   
For the Nine Months Ended
 
   
September 30,
 
   
2012
   
2011
 
Cash flows from operating activities
           
Net income
  $ 35,047     $ 35,590  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    9,001       8,527  
Amortization
    2,283       1,596  
Equity in undistributed earnings of associated companies, net of dividends
    (428 )     (136 )
Deferred compensation and other, net
    1,848       6,987  
Stock-based compensation
    2,954       2,675  
Non-cash gain from purchase of equity affiliate
          (2,718 )
Gain on disposal of property, plant and equipment
    (75 )     (61 )
Insurance settlement realized
    (1,074 )     (1,242 )
Pension and other postretirement benefits
    (1,823 )     (4,099 )
(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:
               
Accounts receivable
    (1,381 )     (29,390 )
Inventories
    (875 )     (16,334 )
Prepaid expenses and other current assets
    (1,976 )     (3,061 )
Accounts payable and accrued liabilities
    (1,731 )     6,196  
Net cash provided by operating activities
    41,770       4,530  
                 
Cash flows from investing activities
               
Investments in property, plant and equipment
    (8,757 )     (8,914 )
Payments related to acquisitions, net of cash acquired
    (2,635 )     (10,981 )
Proceeds from disposition of assets
    193       221  
Insurance settlement received and interest earned
    53       61  
Change in restricted cash, net
    1,021       1,181  
Net cash used in investing activities
    (10,125 )     (18,432 )
                 
Cash flows from financing activities
               
Net decrease in short-term borrowings
          (185 )
Repayment of long-term debt
    (9,672 )     (30,613 )
Dividends paid
    (9,410 )     (8,492 )
Stock options exercised, other
    (828 )     629  
Excess tax benefit related to stock option exercises
    2,164       153  
Proceeds from sale of common stock, net of related expenses
          48,143  
Distributions to noncontrolling shareholders
    (30 )      
Net cash (used in) provided by financing activities
    (17,776 )     9,635  
Effect of exchange rate changes on cash
    (606 )     (920 )
Net increase (decrease) in cash and cash equivalents
    13,263       (5,187 )
Cash and cash equivalents at beginning of period
    16,909       25,766  
Cash and cash equivalents at end of period
  $ 30,172     $ 20,579  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
6

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)


Note 1 – Condensed Financial Information

The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States for interim financial reporting and the United States Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (consisting only of normal recurring adjustments, except as discussed below) which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods. The results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2011.

During the first quarter of 2012, the Company adopted the Financial Accounting Standards Board’s (“FASB’s”) guidance regarding presentation of comprehensive income.  The guidance requires that comprehensive income be presented with the Condensed Consolidated Statement of Income or as a separate statement immediately following the Condensed Consolidated Statement of Income, and can no longer be presented as part of the Consolidated Statement of Changes in Equity.  The Company adopted the guidance using the two statement approach, and the adoption of this guidance did not have a material impact on the Company’s results or financial condition.
 
During the second quarter of 2012, the Company recorded charges of $1,156 to its allowance for doubtful accounts and selling, general and administrative expenses due to the bankruptcies of two U.S. customers.
 
As part of the Company’s chemical management services, certain third-party product sales to customers are managed by the Company. Where the Company acts as the principal, revenue is recognized on a gross reporting basis at the selling price negotiated with customers. Where the Company acts as an agent, such revenue is recorded using net reporting as service revenues, at the amount of the administrative fee earned by the Company for ordering the goods. Third-party products transferred under arrangements resulting in net reporting totaled $30,878 and $37,787 for the nine months ended September 30, 2012 and September 30, 2011, respectively.

Note 2 – Recently Issued Accounting Standards

The FASB updated its guidance in July 2012 regarding indefinite-lived intangible asset impairment testing.  The updated guidance permits a Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value.  If the Company determines that the fair value is more likely than not above its carrying value, no further impairment testing is required.  However, if the Company concludes otherwise, then the first step of the traditional two-step impairment test is required to be performed.  The guidance is effective for annual and interim fiscal periods beginning after September 15, 2012, with early adoption permitted if an entity’s financial statements have not been issued as of the date of the entity’s interim or annual impairment test.  The Company elected to test its indefinite-lived intangible assets for impairment under the traditional two-step method during the current year but is currently evaluating the effect of this guidance for future applicability.

The FASB updated its guidance in December 2011 regarding disclosures pertaining to the netting and offsetting of derivatives and financial instruments on an entity’s Consolidated Balance Sheet.  Disclosures required under the updated guidance include presenting gross amounts of assets and liabilities related to financial instruments that may have been historically offset on the Consolidated Balance Sheet.  The guidance is effective for annual and interim fiscal periods beginning on or after January 1, 2013.   The Company is currently evaluating the effect of this guidance.

Note 3 – Income Taxes and Uncertain Income Tax Positions

The Company's year-to-date 2012 effective tax rate of 26.9% was lower than the year-to-date 2011 effective tax rate of 27.1%.  Both year-to-date effective tax rates reflect decreases in reserves for uncertain tax positions due to the expiration of applicable statutes of limitations for certain tax years of approximately $0.15 and $0.14 per diluted share for the nine months ended September 30, 2012 and September 30, 2011, respectively.
 
The FASB’s guidance regarding accounting for uncertainty in income taxes prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. The guidance further requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit
 
 
7

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)

 
based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. Additionally, the guidance provides for derecognition, classification, penalties and interest, accounting in interim periods, disclosure and transition.
 
As of September 30, 2012, the Company’s cumulative liability for gross unrecognized tax benefits was $12,043.  At December 31, 2011, the Company’s cumulative liability for gross unrecognized tax benefits was $12,719.
 
The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on income before equity in net income of associated companies in its Condensed Consolidated Statement of Income. The Company recognized $57 and $6 for interest and $70 and $264 for penalties on its Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2012, respectively, and recognized $63 and $122 for interest and $110 and $535 for penalties on its Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2011, respectively. As of September 30, 2012, the Company had accrued $2,266 for cumulative interest and $1,555 for cumulative penalties, and $2,268 for cumulative interest and $1,298 for cumulative penalties at December 31, 2011.
 
During the three and nine months ended September 30, 2012, the Company recognized decreases of approximately $426 and $1,498, respectively, in its cumulative liability for gross unrecognized tax benefits due to the expiration of the applicable statutes of limitations for certain tax years.  During the three and nine months ended September 30, 2011, the Company recognized decreases of approximately $424 and $1,382, respectively, in its cumulative liability for gross unrecognized tax benefits due to the expiration of the applicable statutes of limitations for certain tax years.
 
The Company estimates that during the year ending December 31, 2012 it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $1,700 to $1,800 due to the expiration of the statute of limitations with regard to certain tax positions. This estimated reduction in the cumulative liability for unrecognized tax benefits does not consider any increase in liability for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative liability for unrecognized tax benefits with regard to new tax positions for the year ending December 31, 2012.
 
The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions include the Netherlands and the United Kingdom from 2006, Brazil from 2007, Spain from 2008, the United States and China from 2009, Italy from 2010, and various domestic state tax jurisdictions from 1993.
 
In the second quarter of 2012, the Internal Revenue Service (“IRS”) initiated a limited scope audit of the Company’s 2009 Federal income tax return.  By letter dated October 15, 2012, the IRS notified the Company that it had completed the review of the Company’s 2009 Federal income tax return without any changes to the reported information, completing the audit.  Also, during the second quarter of 2012, the Italian tax authorities initiated a transfer pricing audit of the Company’s Italian subsidiary.  On July 7, 2012, the Company received a preliminary tax report related to this transfer pricing audit, which proposed several adjustments to the taxable income of the subsidiary.  In conjunction with outside counsel, the Company reviewed the report and believes it should prevail on its merits.  As a result, the Company does not believe it has any exposures warranting an uncertain tax position reserve.  There has been no change in this matter during the third quarter of 2012.
 

Note 4 – Fair Value Measurements
 
The FASB’s guidance regarding fair value measurements establishes a common definition for fair value to be applied to guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements.  The guidance does not require any new fair value measurements, but rather applies to all other accounting guidance that requires or permits fair value measurements.
 

 
8

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)


The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
 

 
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
     
 
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that not active.
     
 
Level 3: Unobservable inputs that reflect the reporting entity's own assumptions.

The Company values its company-owned life insurance policies, various deferred compensation assets and liabilities, acquisition-related consideration and an obligation related to a non-competition agreement at fair value, and valued its interest rate swaps at fair value prior to their maturity in the third quarter of 2012.  The Company’s assets and liabilities subject to fair value measurement are as follows:

         
Fair Value Measurements at September 30, 2012
 
   
Fair Value
   
Using Fair Value Hierarchy
 
   
as of
                   
Assets
 
September 30, 2012
   
Level 1
   
Level 2
   
Level 3
 
Company-owned life insurance
  $ 1,650     $     $ 1,650     $  
Company-owned life insurance - Deferred compensation assets
    444             444        
Other deferred compensation assets
                               
Large capitalization registered investment companies
    63       63              
Mid capitalization registered investment companies
    5       5              
Small capitalization registered investment companies
    9       9              
International developed and emerging markets registered investment
                               
                companies
    34       34              
Fixed income registered investment companies
    9       9              
                                 
Total
  $ 2,214     $ 120     $ 2,094     $  

         
Fair Value Measurements at September 30, 2012
 
   
Fair Value
   
Using Fair Value Hierarchy
 
   
as of
                   
Liabilities
 
September 30, 2012
   
Level 1
   
Level 2
   
Level 3
 
Deferred compensation liabilities
                       
Large capitalization registered investment companies
  $ 334     $ 334     $     $  
Mid capitalization registered investment companies
    85       85              
Small capitalization registered investment companies
    71       71              
International developed and emerging markets registered investment
                               
                  companies
    174       174              
Fixed income registered investment companies
    49       49              
Fixed general account
    171             171        
Acquisition-related consideration
    8,471                   8,471  
                                 
Total
  $ 9,355     $ 713     $ 171     $ 8,471  


 
9

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)



         
Fair Value Measurements at December 31, 2011
 
   
Fair Value
   
Using Fair Value Hierarchy
 
   
as of
                   
Assets
 
December 31, 2011
   
Level 1
   
Level 2
   
Level 3
 
Company-owned life insurance
  $ 1,508     $     $ 1,508     $  
Company-owned life insurance - Deferred compensation assets
    487             487        
Other deferred compensation assets
                               
Large capitalization registered investment companies
    64       64              
Mid capitalization registered investment companies
    4       4              
Small capitalization registered investment companies
    7       7              
International developed and emerging markets registered investment
                               
                 companies
    32       32              
Fixed income registered investment companies
    8       8              
                                 
Total
  $ 2,110     $ 115     $ 1,995     $  

         
Fair Value Measurements at December 31, 2011
 
   
Fair Value
   
Using Fair Value Hierarchy
 
   
as of
                   
Liabilities
 
December 31, 2011
   
Level 1
   
Level 2
   
Level 3
 
Deferred compensation liabilities
                       
Large capitalization registered investment companies
  $ 318     $ 318     $     $  
Mid capitalization registered investment companies
    83       83              
Small capitalization registered investment companies
    68       68              
International developed and emerging markets registered investment
                               
                 companies
    168       168              
Fixed income registered investment companies
    50       50              
Fixed general account
    177             177        
Interest rate derivatives
    418             418        
Acquisition-related consideration
    8,898                   8,898  
                                 
Total
  $ 10,180     $ 687     $ 595     $ 8,898  

The fair values of Company-owned life insurance (“COLI”) and COLI deferred compensation assets are based on quotes for like instruments with similar credit ratings and terms.  The fair values of other deferred compensation assets and liabilities are based on quoted prices in active markets.  The fair values of interest rate derivatives were based on quoted market prices from various banks for similar instruments.  The fair value of the earnout is based on unobservable inputs and is classified as Level 3.  Significant inputs and assumptions are management’s estimate of the probability of the earnout ultimately being met/paid and the discount rate used to present value the liability.  The fair value of the holdbacks and the obligation related to a non-competition agreement are also based on unobservable inputs and are classified as Level 3.  The significant input or assumption for both the obligation related to the non-competition agreement and the holdbacks is management’s estimate of the discount rate used to present value the liabilities.  Significant changes in any Level 3 input or assumption in isolation would result in increases or decreases to the fair value measurements for the holdbacks, the earnout and the obligation related to the non-competition agreement.
 

 
10

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)


Changes in the fair value of the Level 3 liabilities during the nine months ended September 30, 2012 were as follows:

               
Non-competition
                   
   
Earnout
   
Hold-back
   
Agreement
   
Hold-back
   
Hold-back
       
   
Summit
   
Tecniquimia
   
Obligation
   
GW Smith
   
NP Coil Dexter
   
Total
 
Balance at December 31, 2011
  $ 5,444     $ 1,877     $ 675     $ 902     $     $ 8,898  
Acquisitions
                            927       927  
Interest accretion
    592       123       33       98       35       881  
Payments
          (2,000 )     (250 )                 (2,250 )
Currency exchange adjustment
                            15       15  
Balance at September 30, 2012
  $ 6,036     $     $ 458     $ 1,000     $ 977     $ 8,471  

Quantitative information about the Company’s Level 3 fair value measurements at September 30, 2012 were as follows:

   
Fair value at September 30, 2012
 
Valuation technique
 
Unobservable input
 
Input value
Summit earnout
 
 6,036 
 
Discounted cash flow
 
Discount rate
 
14.5%
NP Coil Dexter hold-back
 
 977 
 
Discounted cash flow
 
Discount rate
 
14.8%
Non-competition agreement obligation
 
 458 
 
Discounted cash flow
 
Discount rate
 
14.0%
G.W. Smith hold-back
 
 1,000 
 
Discounted cash flow
 
Discount rate
 
15.0%

The fair value of the Summit earnout is based on the weighted average probability of the outcome of different payout scenarios.  As of September 30, 2012, the probabilities applied to the payout scenarios ranged from 15% to 50%, depending on the Company’s estimate of the likelihood of each payout scenario.

Note 5 – Hedging Activities
 
The Company is exposed to the impact of changes in interest rates, foreign currency fluctuations, changes in commodity prices and credit risk.  The Company does not use derivative instruments to mitigate the risks associated with foreign currency fluctuations, changes in commodity prices or credit risk.  Quaker had interest rate swaps with a combined notional amount of $15,000 as of December 31, 2011, which matured during the third quarter of 2012.  These interest rate swaps were used to mitigate the impact of changes in interest rates, by converting a portion of the Company’s variable interest rate debt to fixed interest rate debt.  These instruments were designated as cash flow hedges and were reported on the balance sheet at fair value.  The effective portions of the hedges were reported in Other Comprehensive Income (“OCI”) until reclassified to earnings during the same period the hedged item affected earnings.  The Company has no derivatives designated as fair value hedges or derivatives designated as hedging instruments under the FASB’s guidance as of September 30, 2012, and only had the interest rate swaps, discussed above, as of December 31, 2011 which were designated as hedging instruments.
 
Information about the Company’s interest rate derivatives is as follows:

     
Fair Value
 
     
September 30,
 
December 31,
 
 
Balance Sheet Location
 
2012
 
2011
 
Derivatives designated as cash flow hedges:
           
Interest rate swaps
Other current liabilities
  $   $ 418  
      $   $ 418  
 
 
11

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)

 
Cash Flow Hedges
 
Interest Rate Swaps
 
                   
   
Three Months Ended
 
Nine Months Ended
 
   
September 30,
 
September 30,
 
   
2012
 
2011
 
2012
 
2011
 
Amount of Gain Recognized in Accumulated OCI on Derivative
                 
(Effective Portion)
  $ 73   $ 112   $ 272   $ 286  
                           
Amount and Location of Gain Reclassified from Accumulated OCI into
                         
Income (Effective Portion)
Interest Expense
$ (74 ) $ (168 ) $ (392 ) $ (496 )
                           
Amount and Location of Gain Recognized in Income on Derivative
                         
(Ineffective Portion and Amount Excluded from Effectiveness Testing)
Other Income
$   $   $   $  

Note 6 – Stock-Based Compensation
 
The Company recognized share-based compensation expense in selling, general and administrative expenses in its Condensed Consolidated Statement of Income as follows:
 

   
For the Nine Months Ended September 30,
 
   
2012
   
2011
 
Stock options
  $ 403     $ 360  
Nonvested stock awards and restricted stock units
    1,120       1,031  
Employee stock purchase plan
    35       33  
Non-elective and elective 401(k) matching contribution in stock
    1,351       1,206  
Director stock ownership plan
    45       45  
Total share-based compensation expense
  $ 2,954     $ 2,675  

Based on historical experience, the Company has assumed a forfeiture rate of 13% on the nonvested stock. The Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture is higher than estimated.
 
The Company has a long-term incentive program (“LTIP”) for key employees which provides for the granting of options to purchase stock at prices not less than market value on the date of the grant. Most options become exercisable between one and three years after the date of the grant for a period of time determined by the Company not to exceed seven years from the date of grant.  Common stock awards issued under the LTIP program are subject only to time vesting over a three to five-year period. In addition, as part of the Company’s Global Annual Incentive Plan (“GAIP”), nonvested shares may be issued to key employees, which generally vest over a two to five-year period.
 
As of September 30, 2012 and September 30, 2011, the Company recorded $2,164 and $153, respectively, of excess tax benefits in capital in excess of par value on its Condensed Consolidated Balance Sheets, related to stock option exercises. The Company’s estimated taxes payable was sufficient to fully recognize these benefits as cash inflows from financing activities in its Condensed Consolidated Statement of Cash Flows, which represented the Company’s estimate of cash savings through September 30, 2012 and September 30, 2011, respectively.
 

 
12

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)


Stock option activity under all plans is as follows:

     
Weighted Average
Weighted Average
 
Number of
 
Exercise Price
Remaining Contractual
 
Shares
 
Per Share
Term (years)
Balance at December 31, 2011
253,342 
 
$
16.43 
   
Options granted
40,157 
   
38.57 
   
Options exercised
(167,025)
   
12.00 
   
Options forfeited
(8,470)
   
29.32 
   
Balance at September 30, 2012
118,004 
 
$
29.31 
 
5.2 
Exercisable at September 30, 2012
27,909 
 
$
21.63 
 
4.3 

As of September 30, 2012, the total intrinsic value of options outstanding was approximately $2,051, and the total intrinsic value of exercisable options was $699.  Intrinsic value is calculated as the difference between the current market price of the underlying security and the strike price of a related option.
 
A summary of the Company’s outstanding stock options at September 30, 2012 is as follows: 

           
Number
             
 
Range of
 
Outstanding
 
Weighted Average
 
Weighted Average
 
Number Exercisable
 
Weighted Average
Exercise Prices
 
at 9/30/2012
 
 Contractual Life
 
 Exercise Price
 
 at 9/30/2012
 
 Exercise Price
$
0.00
-
$
10.00 
 
9,551 
 
3.4 
 
$
6.93 
 
9,551 
 
$
6.93 
$
10.01 
-
$
20.00 
 
38,139 
 
4.2 
   
18.85 
 
8,073 
   
18.97 
$
20.01 
-
$
30.00 
 
— 
 
— 
   
— 
 
— 
   
— 
$
30.01 
-
$
40.00 
 
68,122 
 
5.9 
   
37.76 
 
10,285 
   
37.37 
$
40.01 
-
$
50.00 
 
2,192 
 
6.8 
   
46.21 
 
— 
   
— 
           
118,004 
 
5.2 
   
29.31 
 
27,909 
   
21.63 

As of September 30, 2012, unrecognized compensation expense related to options granted during 2010 was $64, for options granted during 2011 was $223 and for options granted in 2012 was $516.
 
During the first quarter of 2012, the Company granted stock options under the Company’s LTIP plan that are subject only to time vesting over a three-year period.  In connection with a transition of key employees in the Company during the second quarter of 2012, stock options were granted under the Company’s LTIP plan that are also subject only to time vesting over a three-year period.  For the purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes option pricing model and the assumptions set forth in the table below:


 
March 31,
 
June 30,
 
 
2012 
 
2012 
 
Number of options granted
37,965 
 
2,192 
 
Dividend Yield
3.09 
%
2.69 
%
Expected Volatility
69.90 
%
69.09 
%
Risk-free interest rate
0.61 
%
0.58 
%
Expected term (years)
4.0 
 
4.0 
 

Approximately $115 of expense was recorded on these options during the first nine months of 2012.  The fair value of these awards is amortized on a straight-line basis over the vesting period of the awards.


 
13

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)


Activity of shares granted under the Company’s LTIP plan is shown below:

     
Weighted
 
     
Average Grant
 
 
Number of
 
Date Fair Value
 
 
Shares
 
(per share)
 
Nonvested awards, December 31, 2011
169,863 
 
$
20.66 
 
Granted
42,754 
 
$
39.43 
 
Vested
(83,019)
 
$
12.99 
 
Forfeited
(6,154)
 
$
28.39 
 
Nonvested awards, September 30, 2012
123,444 
 
$
31.93 
 

The fair value of the nonvested stock is based on the trading price of the Company’s common stock on the date of grant. The Company adjusts the grant date fair value for expected forfeitures based on historical experience for similar awards.  As of September 30, 2012, unrecognized compensation expense related to these awards was $2,078 to be recognized over a weighted average remaining period of 1.93 years.
 
In 2012, the Company granted restricted stock units under the Company’s LTIP plan.  Activity of restricted stock units granted is shown below:
 

     
Weighted
 
     
Average Grant
 
 
Number of
 
Date Fair Value
 
 
units
 
(per unit)
 
Nonvested awards, December 31, 2011
— 
 
$
— 
 
Granted
2,100 
 
$
38.13 
 
Vested
— 
 
$
— 
 
Forfeited
— 
 
$
— 
 
Nonvested awards, September 30, 2012
2,100 
 
$
38.13 
 

The fair value of the nonvested restricted stock units is based on the trading price of the Company’s common stock on the date of grant.  The Company adjusts the grant date fair value for expected forfeitures based on historical experience for similar awards. As of September 30, 2012, unrecognized compensation expense related to these awards was $56 to be recognized over a weighted average remaining period of 2.50 years.

Activity of shares granted under the Company’s GAIP plan is shown below:

     
Weighted
 
     
Average Grant
 
 
Number of
 
Date Fair Value
 
 
Shares
 
(per share)
 
Nonvested awards, December 31, 2011
62,250 
 
$
7.72 
 
Granted
— 
 
$
— 
 
Vested
(59,850)
 
$
7.72 
 
Forfeited
(2,400)
 
$
7.72 
 
Nonvested awards, September 30, 2012
— 
 
$
— 
 

As of September 30, 2012, these shares were fully vested and all related compensation expense was recognized.
 

 
14

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)


Employee Stock Purchase Plan
 
In 2000, the Board adopted an Employee Stock Purchase Plan (“ESPP”) whereby employees may purchase Company stock through a payroll deduction plan. Purchases are made from the plan and credited to each participant’s account at the end of each month, the “Investment Date.” The purchase price of the stock is 85% of the fair market value on the Investment Date. The plan is compensatory and the 15% discount is expensed on the Investment Date. All employees, including officers, are eligible to participate in this plan. A participant may withdraw all uninvested payment balances credited to a participant’s account at any time. An employee whose stock ownership of the Company exceeds five percent of the outstanding common stock is not eligible to participate in this plan.
 
2003 Director Stock Ownership Plan
 
In March 2003, the Company’s Board of Directors approved a stock ownership plan for each member of the Company’s Board to encourage the Directors to increase their investment in the Company. The Plan was effective on the date it was approved and remains in effect for a term of ten years or until it is earlier terminated by the Board. The maximum number of shares of Common Stock which may be issued under the Plan is 75,000, subject to certain conditions that the Compensation/Management Development Committee (the “Committee”) may elect to adjust the number of shares. As of September 30, 2012, the Committee has not made any elections to adjust the shares under this plan. Each Director is eligible to receive an annual retainer for services rendered as a member of the Board of Directors. Currently, each Director who owns less than 7,500 shares of Company Common Stock is required to receive 75% of the annual retainer in Common Stock and 25% of the annual retainer in cash. Each Director who owns 7,500 or more shares of Company Common Stock may elect to receive payment of a percentage (up to 100%) of the annual retainer in shares of common stock. Currently, the annual retainer is $40.  The number of shares issued in payment of the fees is calculated based on an amount equal to the average of the closing prices per share of Common Stock as reported on the composite tape of the New York Stock Exchange for the two trading days immediately preceding the retainer payment date. The retainer payment date is June 1.

Note 7 – Earnings Per Share
 
The Company follows FASB’s guidance regarding the calculation of earnings per share (“EPS”) for nonvested stock awards with rights to non-forfeitable dividends.  The guidance requires nonvested stock awards with rights to non-forfeitable dividends to be included as part of the basic weighted average share calculation under the two-class method.
 
The following table summarizes the EPS calculations:

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Basic earnings per common share
                       
Net income attributable to Quaker Chemical Corporation
  $ 10,486     $ 13,358     $ 32,972     $ 33,799  
Less: income allocated to participating securities
    (99 )     (224 )     (386 )     (611 )
Net income available to common shareholders
  $ 10,387     $ 13,134     $ 32,586     $ 33,188  
Basic weighted average common shares outstanding
    12,937,417       12,621,459       12,840,029       11,989,748  
Basic earnings per common share
  $ 0.80     $ 1.04     $ 2.54     $ 2.77  
                                 
Diluted earnings per common share
                               
Net income attributable to Quaker Chemical Corporation
  $ 10,486     $ 13,358     $ 32,972     $ 33,799  
Less: income allocated to participating securities
    (99 )     (222 )     (384 )     (604 )
Net income available to common shareholders
  $ 10,387     $ 13,136     $ 32,588     $ 33,195  
Basic weighted average common shares outstanding
    12,937,417       12,621,459       12,840,029       11,989,748  
Effect of dilutive securities
    33,892       148,919       70,265       166,787  
Diluted weighted average common shares outstanding
    12,971,309       12,770,378       12,910,294       12,156,535  
Diluted earnings per common share
  $ 0.80     $ 1.03     $ 2.52     $ 2.73  

The following number of stock options are not included in diluted earnings per share since the effect would have been anti-dilutive: 4,537 and 15,740 for the three months ended September 30, 2012 and September 30, 2011, and 6,386 and 11,356 for the nine months ended September 30, 2012 and September 30, 2011, respectively.


 
15

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)


Note 8 – Business Segments
 
The Company organizes its segments by the nature of the products sold.  The Company’s reportable segments are as follows:
 

 
Metalworking process chemicals—generally includes industrial process fluids for various heavy industrial and manufacturing applications.
     
 
Coatings—generally includes temporary and permanent coatings for metal and concrete products and chemical milling maskants.
     
 
Other chemical products—other various chemical products.

Segment data includes direct segment costs as well as general operating costs.  Any inter-segment transactions are immaterial for each period presented.

The table below presents information about the Company’s reported segments:

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Metalworking Process Chemicals
                       
Net sales
  $ 168,732     $ 171,222     $ 499,718     $ 478,727  
Operating income for reportable segments
    26,772       30,443       88,396       83,527  
Coatings
                               
Net sales
    11,222       10,378       32,695       29,347  
Operating income for reportable segments
    3,016       2,452       8,328       6,861  
Other Chemical Products
                               
Net sales
    969       713       2,945       1,896  
Operating income for reportable segments
    78       32       273       71  
Total
                               
Net sales
    180,923       182,313       535,358       509,970  
Operating income for reportable segments
    29,866       32,927       96,997       90,459  
Non-operating expenses
    (13,185 )     (14,800 )     (45,166 )     (42,318 )
Amortization
    (818 )     (623 )     (2,283 )     (1,596 )
Consolidated operating income
    15,863       17,504       49,548       46,545  
Interest expense
    (1,034 )     (1,166 )     (3,359 )     (3,584 )
Interest income
    149       262       409       805  
Other income, net
    322       2,740       529       4,070  
Consolidated income before taxes and equity in net income of associated companies
  $ 15,300     $ 19,340     $ 47,127     $ 47,836  

Operating income comprises revenue less related costs and expenses. Non-operating items primarily consist of general corporate expenses identified as not being a cost of operation, interest expense, interest income, and license fees from non-consolidated affiliates.


 
16

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)


Note 9 – Equity and Noncontrolling Interest
 
The following table presents the changes in equity and noncontrolling interest for the three and nine months ended September 30, 2012 and September 30, 2011:
 

                     
Accumulated
             
         
Capital in
         
Other
             
   
Common
   
Excess of
   
Retained
   
Comprehensive
   
Noncontrolling
       
   
Stock
   
Par Value
   
Earnings
   
Loss
   
Interest
   
Total
 
Balance at June 30, 2012
  $ 13,011     $ 92,199     $ 192,116     $ (32,091 )   $ 8,190     $ 273,425  
Net income
                10,486             698       11,184  
Currency translation adjustments
                      1,372       228       1,600  
Defined benefit retirement plans
                      436             436  
Current period changes in fair value of derivatives
                      73             73  
Unrealized gain on available-for-sale securities
                      4             4  
Dividends ($0.245 per share)
                (3,214 )                 (3,214 )
Share issuance and equity-based compensation plans
    71       902                         973  
Excess tax benefit from stock option exercises
          744                         744  
Balance at September 30, 2012
  $ 13,082     $ 93,845     $ 199,388     $ (30,206 )   $ 9,116     $ 285,225  
                                                 
Balance at June 30, 2011
  $ 12,823     $ 87,249     $ 158,998     $ (5,507 )   $ 8,142     $ 261,705  
Net income
                13,358             447       13,805  
Currency translation adjustments
                      (13,042 )     (894 )     (13,936 )
Defined benefit retirement plans
                      (637 )           (637 )
Current period changes in fair value of derivatives
                      112             112  
Unrealized loss on available-for-sale securities
                      (23 )           (23 )
Dividends ($0.24 per share)
                (3,091 )                 (3,091 )
Share issuance and equity-based compensation plans
    52       1,252                         1,304  
Excess tax benefit from stock option exercises
          (9 )                       (9 )
Balance at September 30, 2011
  $ 12,875     $ 88,492     $ 169,265     $ (19,097 )   $ 7,695     $ 259,230  


 
17

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)



                     
Accumulated
             
         
Capital in
         
Other
             
   
Common
   
Excess of
   
Retained
   
Comprehensive
   
Noncontrolling
       
   
Stock
   
Par Value
   
Earnings
   
Loss
   
Interest
   
Total
 
Balance at December 31, 2011
  $ 12,912     $ 89,725     $ 175,932     $ (29,820 )   $ 6,977     $ 255,726  
Net income
                32,972             2,075       35,047  
Currency translation adjustments
                      (2,070 )     94       (1,976 )
Defined benefit retirement plans
                      1,405             1,405  
Current period changes in fair value of derivatives
                      272             272  
Unrealized gain on available-for-sale securities
                      7             7  
Dividends ($0.73 per share)
                (9,516 )                 (9,516 )
Dividends paid to noncontrolling interests
                            (30 )     (30 )
Share issuance and equity-based compensation plans
    170       1,956                         2,126  
Excess tax benefit from stock option exercises
          2,164                         2,164  
Balance at September 30, 2012
  $ 13,082     $ 93,845     $ 199,388     $ (30,206 )   $ 9,116     $ 285,225  
                                                 
Balance at December 31, 2010
  $ 11,492     $ 38,275     $ 144,347     $ (13,736 )   $ 6,721     $ 187,099  
Net income
                33,799             1,791       35,590  
Currency translation adjustments
                      (5,642 )     (817 )     (6,459 )
Defined benefit retirement plans
                      12             12  
Current period changes in fair value of derivatives
                      286             286  
Unrealized loss on available-for-sale securities
                      (17 )           (17 )
Dividends ($0.715 per share)
                (8,881 )                 (8,881 )
Stock offering, net of related expenses
    1,265       46,878                         48,143  
Share issuance and equity-based compensation plans
    118       3,186                         3,304  
Excess tax benefit from stock option exercises
          153                         153  
Balance at September 30, 2011
  $ 12,875     $ 88,492     $ 169,265     $ (19,097 )   $ 7,695     $ 259,230  

The items in Accumulated Other Comprehensive Loss are net of tax benefits of $311 and $143 for defined benefit retirement plans and $39 and $61 for current period changes in fair value for derivatives for the three months ended September 30, 2012 and September 30, 2011, respectively.  The items in Accumulated Other Comprehensive Loss are net of tax benefits of $838 and $478 for defined benefit retirement plans and $146 and $154 for current period changes in fair value for derivatives for the nine months ended September 30, 2012 and September 30, 2011, respectively.
 
The Company sold 1,265,000 shares of its common stock during the second quarter of 2011.  The Company received proceeds of $48,143, net of related offering expenses, commissions and underwriting fees.  The Company used the proceeds to repay a portion of its revolving credit line during the second quarter of 2011.

 
18

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)



Note 10 – Business Acquisitions
 
In July 2012, the Company acquired NP Coil Dexter Industries, S.r.l. for approximately $2,748, including short-term debt and long-term debt of approximately $44 and $854, respectively.  NP Coil Dexter is a European manufacturer and supplier of metal surface treatment products.  The Company allocated $3,825 of intangible assets, comprised of trademarks and formulations, to be amortized over 10 years; two customer lists to be amortized over 8 and 4 years, respectively; and a non-competition agreement to be amortized over 5 years.  In addition, the Company recorded $2,180 of goodwill, none of which will be tax deductible and was assigned to the metalworking process chemical segment.  Liabilities assumed include a hold-back of consideration to be paid to the former shareholders at eighteen months from the acquisition date, absent the occurrence of unforeseen obligations.
 
In October 2011, the Company acquired G.W. Smith & Sons, Inc. for approximately $14,518. G.W Smith manufactures and distributes high quality die casting lubricants, and also distributes metalworking fluids.  The Company allocated $6,260 of intangible assets, comprised of trade names and formulations, to be amortized over 15 years; a trademark to be amortized over 5 years; a non-competition agreement to be amortized over 5 years; and customer lists to be amortized over 16 years.  In addition, the Company recorded $1,120 of goodwill, all of which will be tax deductible and was assigned to the metalworking process chemical segment.   Liabilities assumed include a hold-back of consideration of $1,000 to be paid to the former shareholder at one year from the acquisition date, which was paid subsequent to September 30, 2012.
 
In July 2011, the Company acquired the remaining 60% ownership interest in Tecniquimia Mexicana, S.A. de C.V., the Company’s Mexican equity affiliate, for approximately $10,500.  As part of the acquisition, the Company recorded a one-time non-cash gain in other income of approximately $2,718 to revalue the previously held ownership interest in Tecniquimia to its fair value.  The acquisition strengthened the Company’s position in the growing Mexican market. The Company allocated $3,556 of intangible assets, comprised of trade names and trademarks, to be amortized over 5 years; and customer lists, to be amortized over 20 years.  In addition, the Company recorded $6,773 of goodwill, none of which will be tax deductible, and was assigned to the metalworking process chemicals segment.  Liabilities assumed included a hold-back of consideration to be paid to the former shareholders at one year from the purchase date, which was settled during the third quarter of 2012 with a payment of approximately $2,000 to Tecniquimia’s former shareholders.
 
In December 2010, the Company completed the acquisition of Summit Lubricants, Inc., which manufactures and distributes specialty greases and lubricants, for approximately $29,116, which was subject to certain post closing adjustments.  During 2011, the Company paid an additional $717 to finalize the post closing adjustments and recorded non-cash adjustments to fixed assets and goodwill to finalize its valuation of the assets acquired and liabilities assumed at the acquisition date. The Company allocated $17,100 to intangible assets, comprised of formulations, to be amortized over 15 years; customer lists, to be amortized over 20 years; a non-competition agreement, to be amortized over 5 years; and a trademark, which was assigned an indefinite life.  In addition, the Company recorded $3,423 of goodwill, all of which will be tax deductible, and was assigned to the metalworking process chemicals segment.  Liabilities assumed include an earnout to be paid to the former shareholders if certain earnings targets are met by the end of 2013.
 
The following table shows the allocation of the purchase price of the assets and liabilities acquired during 2012 and 2011.  The pro forma results of operations have not been provided because the effects were not material:

   
NP Coil Dexter
 
2012
 
Industries, S.r.l.
 
Current assets
  $ 5,536  
Fixed assets
    1,211  
Intangibles
    3,825  
Goodwill
    2,180  
Other long-term assets
    389  
Total assets purchased
    13,141  
Short-term debt
    (44 )
Other current liabilities
    (7,310 )
Long-term debt
    (854 )
Other long-term liabilities
    (1,258 )
Present value of hold-back
    (927 )
Total liabilities assumed
    (10,393 )
Cash paid for an acquisition
  $ 2,748  
 
 
19

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(Dollars in thousands, except per share amounts)
(Unaudited)

 
   
Quaker
   
GW Smith
 
2011 Acquisitions
 
Tecniquimia
   
& Sons, Inc.
 
Current assets
  $ 8,946     $ 6,138  
Fixed assets
    4,308       2,869  
Intangibles
    3,556       6,260  
Goodwill
    6,773       1,120  
Other long-term assets
    1,355       1  
Total assets purchased