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, 2013

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, 2013
 
 
13,187,320

 
 

 

QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
         
 
  
 
  
Page
 PART I.
  
FINANCIAL INFORMATION
  
 
 Item 1.
  
Financial Statements (unaudited)
  
 
 
  
  
3
 
  
  
4
     
5
 
  
  
6
 
  
  
7
 Item 2.
  
  
23
 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 Statement of Income

 
 
Unaudited
 
 
 
(Dollars in thousands, except per share amounts)
 
 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Net sales
  $ 184,059     $ 180,923     $ 545,098     $ 535,358  
Cost of goods sold
    118,069       121,797       349,186       355,801  
Gross profit
    65,990       59,126       195,912       179,557  
Selling, general and administrative expenses
    47,183       43,263       139,901       130,009  
Operating income
    18,807       15,863       56,011       49,548  
Other (expense) income, net
    (685 )     322       1,962       529  
Interest expense
    (717 )     (1,034 )     (2,223 )     (3,359 )
Interest income
    267       149       665       409  
Income before taxes and equity in net income of associated companies
    17,672       15,300       56,415       47,127  
Taxes on income before equity in net income of associated companies
    5,972       4,373       16,933       12,692  
Income before equity in net income of associated companies
    11,700       10,927       39,482       34,435  
Equity in net income of associated companies
    1,605       696       4,689       2,038  
Net income
    13,305       11,623       44,171       36,473  
Less: Net income attributable to noncontrolling interest
    754       698       1,918       2,075  
Net income attributable to Quaker Chemical Corporation
  $ 12,551     $ 10,925     $ 42,253     $ 34,398  
Per share data:
                               
Net income attributable to Quaker Chemical Corporation Common
                               
Shareholders – basic
  $ 0.95     $ 0.84     $ 3.21     $ 2.65  
Net income attributable to Quaker Chemical Corporation Common
                               
Shareholders – diluted
  $ 0.95     $ 0.83     $ 3.21     $ 2.63  
Dividends declared
  $ 0.25     $ 0.245     $ 0.745     $ 0.73  
 
                               

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

 
3

 
Table of Contents

Quaker Chemical Corporation
 
Condensed Consolidated Statement of Comprehensive Income


 
 
Unaudited
 
 
 
(Dollars in thousands, except per share amounts)
 
 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Net income
  $ 13,305     $ 11,623     $ 44,171     $ 36,473  
 
                               
Other comprehensive income (loss), net of tax
                               
Currency translation adjustments
    2,272       1,832       (3,674 )     (1,829 )
Defined benefit retirement plans
    (180 )     204       1,688       1,258  
Current period change in fair value of derivatives
          73             272  
Unrealized (loss) gain on available-for-sale securities
    (333 )     430       (616 )     1,135  
Other comprehensive income (loss)
    1,759       2,539       (2,602 )     836  
 
                               
Comprehensive income
    15,064       14,162       41,569       37,309  
Less: comprehensive income attributable to noncontrolling interest
    (499 )     (926 )     (699 )     (2,169 )
Comprehensive income attributable to Quaker Chemical Corporation
  $ 14,565     $ 13,236     $ 40,870     $ 35,140  

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

 
4

 
Table of Contents

Quaker Chemical Corporation
 
Condensed Consolidated Balance Sheet



 
 
Unaudited
 
 
 
(Dollars in thousands,
 
 
 
except par value
 
 
 
and share amounts)
 
 
 
September 30, 2013
 
 
December 31, 2012
 
 
 
ASSETS
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
        Cash and cash equivalents
 
$
53,945 
 
 
$
32,547 
 
        Accounts receivable, net
 
 
166,584 
 
 
 
154,197 
 
        Inventories
 
 
 
 
 
 
 
 
                Raw materials and supplies
 
 
40,599 
 
 
 
40,417 
 
                Work-in-process and finished goods
 
 
36,071 
 
 
 
32,054 
 
        Prepaid expenses and other current assets
 
 
16,870 
 
 
 
18,595 
 
                Total current assets
 
 
314,069 
 
 
 
277,810 
 
Property, plant and equipment, at cost
 
 
229,384 
 
 
 
225,177 
 
        Less accumulated depreciation
 
 
(145,116)
 
 
 
(140,065)
 
                Net property, plant and equipment
 
 
84,268 
 
 
 
85,112 
 
Goodwill
 
 
58,511 
 
 
 
59,169 
 
Other intangible assets, net
 
 
32,028 
 
 
 
32,809 
 
Investments in associated companies
 
 
17,789 
 
 
 
16,603 
 
Deferred income taxes
 
 
27,284 
 
 
 
30,673 
 
Other assets
 
 
36,038 
 
 
 
34,458 
 
                Total assets
 
$
569,987 
 
 
$
536,634 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
        Short-term borrowings and current portion of long-term debt
 
$
1,432 
 
 
$
1,468 
 
        Accounts and other payables
 
 
81,289 
 
 
 
70,794 
 
        Accrued compensation
 
 
17,027 
 
 
 
16,842 
 
        Other current liabilities
 
 
27,399 
 
 
 
18,688 
 
               Total current liabilities
 
 
127,147 
 
 
 
107,792 
 
Long-term debt
 
 
17,765 
 
 
 
30,000 
 
Deferred income taxes
 
 
6,127 
 
 
 
6,383 
 
Other non-current liabilities
 
 
94,105 
 
 
 
102,783 
 
               Total liabilities
 
 
245,144 
 
 
 
246,958 
 
Equity
 
 
 
 
 
 
 
 
         Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding
 
 
 
 
 
 
 
 
            2013 – 13,187,320 shares; 2012 – 13,094,901 shares
 
 
13,187 
 
 
 
13,095 
 
         Capital in excess of par value
 
 
97,816 
 
 
 
94,470 
 
         Retained earnings
 
 
247,833 
 
 
 
215,390 
 
         Accumulated other comprehensive loss
 
 
(43,238)
 
 
 
(41,855)
 
               Total Quaker shareholders’ equity
 
 
315,598 
 
 
 
281,100 
 
Noncontrolling interest
 
 
9,245 
 
 
 
8,576 
 
Total equity
 
 
324,843 
 
 
 
289,676 
 
         Total liabilities and equity
 
$
569,987 
 
 
$
536,634 
 

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,
 
 
 
2013
   
2012
 
Cash flows from operating activities
 
 
   
 
 
Net income
  $ 44,171     $ 36,473  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    9,219       9,001  
Amortization
    2,621       2,283  
Equity in undistributed earnings of associated companies, net of dividends
    (2,525 )     (1,854 )
Deferred compensation and other, net
    (50 )     1,848  
Stock-based compensation
    3,133       2,954  
Loss (gain) on disposal of property, plant and equipment
    193       (75 )
Insurance settlement realized
    (731 )     (1,074 )
Pension and other postretirement benefits
    (561 )     (1,823 )
(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:
               
Accounts receivable
    (13,222 )     (1,381 )
Inventories
    (4,569 )     (875 )
Prepaid expenses and other current assets
    1,017       (1,976 )
Accounts payable and accrued liabilities
    13,256       (1,731 )
Net cash provided by operating activities
    51,952       41,770  
 
               
Cash flows from investing activities
               
Investments in property, plant and equipment
    (7,330 )     (8,757 )
Proceeds from disposition of assets
    391       193  
Payments related to acquisitions, net of cash acquired
    (2,478 )     (2,635 )
Insurance settlement interest earned
    40       53  
Change in restricted cash, net
    691       1,021  
Net cash used in investing activities
    (8,686 )     (10,125 )
 
               
Cash flows from financing activities
               
Repayment of long-term debt
    (12,289 )     (9,672 )
Dividends paid
    (9,721 )     (9,410 )
Stock options exercised, other
    (510 )     (828 )
Excess tax benefit related to stock option exercises
    815       2,164  
Distributions to noncontrolling shareholders
    (30 )     (30 )
Net cash used in financing activities
    (21,735 )     (17,776 )
Effect of exchange rate changes on cash
    (133 )     (606 )
Net increase in cash and cash equivalents
    21,398       13,263  
Cash and cash equivalents at beginning of period
    32,547       16,909  
Cash and cash equivalents at end of period
  $ 53,945     $ 30,172  
 
               
Supplemental cash flow disclosures:
               
Non-cash activities:
               
Accrued property, plant and equipment purchases
  $ 1,178     $  

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

 
6

Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements - Continued
(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. Certain reclassifications of prior year data have been made to improve comparability.  The results for the three and nine months ended September 30, 2013 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, 2012.
 
The Company’s reportable operating segments evidence the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the Company assesses its performance.  In the third quarter of 2013, certain internal shifts in the Company’s management and changes to the structure of internally reported information occurred.  The Company currently believes its structure, its resource allocation and its performance assessment are now more closely aligned with its four geographical regions: the North America region, the Europe, Middle East and Africa (“EMEA”) region, the Asia Pacific region and the South America region.  Therefore, the Company changed its reportable operating segments from ones categorized by product nature to ones organized by geography.  All prior period information has been recast to reflect these four regions as the Company’s new reportable operating segments.  See Note 3 of Notes to Condensed Consolidated Financial Statements for further information.
 
During the first quarter of 2013, the Company adopted the Financial Accounting Standards Board’s (“FASB’s”) guidance regarding the disclosure of reclassifications from Accumulated Other Comprehensive Income (Loss) (“AOCI”).  The guidance requires the disclosure of significant amounts reclassified from each component of AOCI, the related tax amounts and the income statement line items affected by the reclassifications, either parenthetically on the Condensed Consolidated Statement of Comprehensive Income or in the Notes to the Condensed Consolidated Financial Statements.  The Company elected to present the information in the Notes to the Condensed Consolidated Financial Statements, and the adoption of this guidance did not have a material impact on the Company’s results or financial condition.  See Note 10 of Notes to Condensed Consolidated Financial Statements for further information.
 
Effective January 1, 2010, Venezuela’s economy was considered to be hyperinflationary under generally accepted accounting principles in the United States, as it had experienced a rate of general inflation in excess of 100% over the latest three-year period, based upon the blended Consumer Price Index and National Consumer Price Index.  Accordingly, all gains and losses resulting from the remeasurement of the Company’s Venezuelan 50% owned equity affiliate (Kelko Quaker Chemical, S.A.) were required to be recorded directly to the Condensed Consolidated Statement of Income.  On January 8, 2010, the Venezuelan government announced the devaluation of the Bolivar Fuerte and the establishment of a two-tiered exchange structure.  In February 2013, the Venezuelan Government announced a further devaluation of the Bolivar Fuerte.  Accordingly, the Company recorded a charge of approximately $357, or $0.03 per diluted share, in equity in net income of associated companies on the Company’s Condensed Consolidated Statement of Income during the first quarter of 2013.
 
During 2002 and 2003, the Company’s Netherlands and Italian subsidiaries paid excise taxes on mineral oil sales in Italy in the total amount of approximately $2,000.  Alleging that the mineral oil excise tax was contrary to European Union directives, the subsidiaries filed with the Customs’ Authority of Milan (“Customs Office” or “Office”) requests to obtain a refund of the above-mentioned amount.  The parties appealed rulings to various levels of tax courts up through the Supreme Court of Italy.  In March 2012, the Supreme Court rejected the appeal of the Customs Office, ruling in favor of the subsidiaries and granting a refund for the amounts requested.  After filing an enforcement action, the Company collected approximately $2,057, along with approximately $483 of interest, in the second quarter of 2013.  This amount was recorded as other income on the Company’s Condensed Consolidated Statement of Income in the second quarter of 2013.
 
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 (“SG&A”) due to the bankruptcies of two U.S. customers.  In addition, during the second quarter of 2012, the Company incurred a total charge of approximately $609 related to CFO transition costs, which were also recorded in SG&A.
 
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 $30,288 and $30,878 for the nine months ended September 30, 2013 and September 30, 2012, respectively.
 
 
7

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

 
Note 2 – Out of Period Adjustment
 
As previously disclosed in the Company’s 2012 Annual Report on Form 10-K, the Company had reassessed its ability to significantly influence the operating and financial policies of its captive insurance equity affiliate, Primex.  Based on its ownership percentage and other factors, the Company determined that, during 2012, the Company obtained the ability to significantly influence Primex and, as a result, changed its method of accounting from the cost to equity method.   During the first quarter of 2013, the Company identified errors in Primex’s estimated 2012 financial statements, which primarily related to a reinsurance contract held by Primex.  The identified errors resulted in a cumulative $1,038 understatement of the Company’s equity in net income from associated companies for the year ended December 31, 2012.  The Company corrected the errors related to Primex in the first quarter of 2013, which had the net effect of increasing equity in net income from associated companies by $1,038 for the three months ended March 31, 2013 and the nine months ended September 30, 2013.  The Company does not believe this adjustment is material to the consolidated financial statements for the year ended December 31, 2012 or to the Company’s projected results for the current year and, therefore, has not restated any prior period amounts.  As the Company’s assessment was based on projected full year 2013 results, the Company will update its assessment at year-end based upon actual 2013 results.
 
Note 3 – Business Segments
 
The Company’s reportable operating segments evidence the structure of the Company’s internal organization, the method by which the Company’s resources are allocated and the manner by which the Company assesses its performance.  In the third quarter of 2013, certain internal shifts in the Company’s management and changes to the structure of internally reported information occurred.  The Company currently believes its structure, its resource allocation and its performance assessment are now more closely aligned with its four geographical regions: North America, EMEA, Asia Pacific and South America.  Therefore, the Company changed its reportable operating segments from ones categorized by product nature to ones organized by geography.  All prior period information has been recast to reflect these four regions as the Company’s new reportable operating segments.
 
Though the Company changed its reportable operating segments in the third quarter of 2013, the calculation of the reportable segment’s measure of earnings remains relatively consistent with past practices.  Operating earnings, excluding indirect operating expenses, for the Company’s reportable segments are comprised of revenues less costs of goods sold and SG&A directly related to the respective regions’ product sales.  The indirect operating expenses consist of SG&A related expenses that are not directly attributable to the product sales of each respective reporting segment.  Other items not specifically identified with the Company’s reportable operating segments include interest expense, interest income, license fees from non-consolidated affiliates and other income (expense).
 
The following table presents information about the Company’s reportable operating segments for the three and nine months ended September 30, 2013 and September 30, 2012:
 
 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Net sales
 
 
   
 
   
 
   
 
 
  North America
  $ 79,602     $ 78,690     $ 231,111     $ 236,079  
    EMEA
    44,452       43,376       140,314       131,353  
    Asia Pacific
    44,063       42,503       124,593       117,379  
    South America
    15,942       16,354       49,080       50,547  
Total net sales
  $ 184,059     $ 180,923     $ 545,098     $ 535,358  
 
                               
Operating earnings, excluding indirect operating expenses
                               
  North America
  $ 15,203     $ 13,650     $ 46,238     $ 44,959  
  EMEA
    6,781       5,554       22,332       19,604  
  Asia Pacific
    11,214       10,078       31,612       27,413  
  South America
    2,598       584       7,830       5,021  
Total operating earnings, excluding indirect operating expenses
    35,796       29,866       108,012       96,997  
Indirect operating expenses
    (16,131 )     (13,185 )     (49,380 )     (45,166 )
Amortization expense
    (858 )     (818 )     (2,621 )     (2,283 )
Consolidated operating income
    18,807       15,863       56,011       49,548  
Other (expense) income, net
    (685 )     322       1,962       529  
Interest expense
    (717 )     (1,034 )     (2,223 )     (3,359 )
Interest income
    267       149       665       409  
Consolidated income before taxes and equity in net income of associated companies
  $ 17,672     $ 15,300     $ 56,415     $ 47,127  


 
8

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


Inter-segment revenue for the three and nine months ended September 30, 2013 were $2,413 and $7,704 for North America, $5,771 and $15,427 for EMEA, $745 and $2,423 for Asia Pacific and zero for South America, respectively.  Inter-segment revenue for the three and nine months ended September 30, 2012 were $3,063 and $8,596 for North America, $4,726 and $11,895 for EMEA, $862 and $1,738 for Asia Pacific and zero for South America, respectively.  However, all inter-segment transactions have been eliminated from each reportable operating segment’s net sales and earnings for all periods presented above.
 
Note 4 – Stock-Based Compensation
 
The Company recognized the following share-based compensation expense in SG&A in its Condensed Consolidated Statement of Income for the nine months ended September 30, 2013 and the nine months ended September 30, 2012:
 

 
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2013
   
2012
 
Stock options
  $ 378     $ 403  
Nonvested stock awards and restricted stock units
    1,372       1,120  
Employee stock purchase plan
    43       35  
Non-elective and elective 401(k) matching contribution in stock
    1,283       1,351  
Director stock ownership plan
    57       45  
Total share-based compensation expense
  $ 3,133     $ 2,954  

As of September 30, 2013 and September 30, 2012, the Company recorded $815 and $2,164, 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 the nine months ended September 30, 2013 and September 30, 2012, respectively.
 
Stock option activity under all plans is as follows:

 
 
 
 
 
 
Weighted
 
 
 
 
 
 
Average
 
 
 
Weighted Average
Remaining
 
Number of
 
Exercise Price per
Contractual
 
Shares
 
Share
Term (years)
Options outstanding at December 31, 2012
107,455 
 
$
31.23 
 
 
    Options granted
29,302 
 
 
58.26 
 
 
    Options exercised
(54,245)
 
 
26.56 
 
 
    Options forfeited
(3,601)
 
 
37.81 
 
 
    Options expired
(768)
 
 
37.37 
 
 
Options outstanding at September 30, 2013
78,143 
 
$
44.24 
 
5.5 
Options exercisable at September 30, 2013
14,732 
 
$
30.23 
 
4.3 

As of September 30, 2013, the total intrinsic value of options outstanding was approximately $2,189, and the total intrinsic value of exercisable options was $619.  Intrinsic value is calculated as the difference between the current market price of the underlying security and the strike price of a related option.
 

 
9

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


A summary of the Company’s outstanding stock options at September 30, 2013 is as follows: 

 
 
 
 
 
 
 
Weighted
 
Weighted
 
Number
 
Weighted
 
 
 
 
 
Number
 
Average
 
Average
 
Exercisable
 
Average
Range of
Outstanding
 
Contractual
 
Exercise
 
at
 
Exercise
Exercise Prices
at 9/30/2013
 
Life
 
Price
 
9/30/2013
 
Price
$
0.00
-
$
10.00 
— 
 
— 
 
$
— 
 
— 
 
$
— 
$
10.01 
-
$
20.00 
6,155 
 
3.3 
 
 
18.82 
 
6,155 
 
 
18.82 
$
20.01 
-
$
30.00 
— 
 
— 
 
 
— 
 
— 
 
 
— 
$
30.01 
-
$
40.00 
40,494 
 
5.1 
 
 
37.85 
 
7,846 
 
 
37.68 
$
40.01 
-
$
50.00 
2,192 
 
5.7 
 
 
46.21 
 
731 
 
 
46.21 
$
50.01 
-
$
60.00 
29,302 
 
6.4 
 
 
58.26 
 
— 
 
 
— 
 
 
 
 
 
78,143 
 
5.5 
 
 
44.24 
 
14,732 
 
 
30.23 

As of September 30, 2013, unrecognized compensation expense related to options granted during 2011 was $61, for options granted during 2012 was $289 and for options granted in 2013 was $517.
 
During the first quarter of 2013, the Company granted stock options under the Company’s LTIP plan that are 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:

 
2013 
 
Number of options granted
 29,302 
 
Dividend yield
2.49 
%
Expected volatility
57.28 
%
Risk-free interest rate
0.63 
%
Expected term (years)
4.0 
 

Approximately $121 of expense was recorded on these options during the first nine months of 2013.  The fair value of these awards is amortized on a straight-line basis over the vesting period of the awards.
 
Activity of nonvested 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, 2012
122,944 
 
$
31.98 
 
    Granted
51,659 
 
$
61.56 
 
    Vested
(51,981)
 
$
26.02 
 
    Forfeited
(6,638)
 
$
41.70 
 
Nonvested awards, September 30, 2013
115,984 
 
$
47.27 
 

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, 2013, unrecognized compensation expense related to these awards was $3,285 to be recognized over a weighted average remaining period of 2.43 years.
 
Activity of nonvested restricted stock units granted under the Company’s LTIP plan is shown below:
 

 
 
 
Weighted
 
 
 
 
Average Grant
 
 
Number of
 
Date Fair Value
 
 
units
 
(per unit)
 
Nonvested awards, December 31, 2012
2,100 
 
$
38.13 
 
    Granted
1,418 
 
$
58.26 
 
Nonvested awards, September 30, 2013
3,518 
 
$
46.24 
 


 
10

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


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, 2013, unrecognized compensation expense related to these awards was $91 to be recognized over a weighted average remaining period of 2.14 years.
 
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.
 
2013 Director Stock Ownership Plan
 
In March 2013, the Company adopted the 2013 Director Stock Ownership Plan (the “Plan”), subject to the approval by the Company’s shareholders at the annual meeting, to encourage the Directors to increase their investment in the Company.  The Plan was approved at the Company’s May 2013 shareholders’ meeting.  The Plan authorizes the issuance of up to 75,000 shares of Quaker common stock in accordance with the terms of the Plan in payment of all or a portion of the annual cash retainer payable to each of the Company’s non-employee directors in 2013 and subsequent years during the term of the Plan.  Under the Plan, each director who, on May 1st of the applicable calendar year, owns less than 400% of the annual cash retainer for the applicable calendar year, divided by the average of the closing price of a share of Quaker Common Stock as reported by the composite tape of the New York Stock Exchange for the previous calendar year (the “Threshold Amount”), is required to receive 75% of the annual cash retainer in Quaker common stock and 25% of the retainer in cash, unless the director elects to receive a greater percentage of Quaker common stock (up to 100%) of the annual cash retainer for the applicable year.  Each director who owns more than the Threshold Amount may elect to receive common stock in payment of a percentage (up to 100%) of the annual cash retainer.  The annual retainer is $50 and the retainer payment date is June 1.  The Plan was adopted in order to replace the 2003 Director Stock Ownership Plan, which expired in May 2013.
 
Note 5 – Pension and Other Postretirement Benefits
 
The components of net periodic benefit cost for the three and nine months ended September 30, 2013 and September 30, 2012 are as follows:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
   
 
 
Other
   
 
   
 
 
Other
 
 
 
 
   
 
 
Postretirement
   
 
   
 
 
Postretirement
 
 
Pension Benefits
 
Benefits
 
Pension Benefits
 
Benefits
 
 
 
2013
   
2012
   
2013
   
2012
   
2013
   
2012
   
2013
   
2012
 
Service cost
  $ 789     $ 605     $ 9     $ 5     $ 2,355     $ 1,843     $ 26     $ 14  
Interest cost and other
    1,394       1,442       46       71       4,172       4,369       138       213  
Expected return on plan assets
    (1,476 )     (1,358 )                 (4,417 )     (4,101 )            
Actuarial loss amortization
    989       687       8       31       2,961       2,067       24       92  
Prior service cost amortization
    23       28                   155       84              
Net periodic benefit cost
  $ 1,719     $ 1,404     $ 63     $ 107     $ 5,226     $ 4,262     $ 188     $ 319  

Employer Contributions:
 
The Company previously disclosed in its financial statements for the year ended December 31, 2012, that it expected to make minimum cash contributions of $6,610 to its pension plans and $719 to its other postretirement benefit plan in 2013.  However, the Company exercised its option under the provisions of the Moving Ahead for Progress in the 21st Century Act (“MAP-21”) to reduce its current contributions.  As of September 30, 2013, $5,556 and $461 of contributions had been made to the Company’s pension plans and its other postretirement benefit plans, respectively.  The Company does not expect to make any further material contributions to its pension plans or other postretirement benefit plans for the duration of 2013.
 

 
11

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


Note 6 – Income Taxes and Uncertain Income Tax Positions
 
The Company's effective tax rate for the first nine months of 2013 of 30.0% was higher than the first nine months of 2012 effective tax rate of 26.9%.  Both 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 $0.13 and $0.15 per diluted share for the nine months ended September 30, 2013 and September 30, 2012, respectively.  Also, contributing to the higher effective tax rate was an increase in an Asia Pacific subsidiary’s effective tax rate from 15%, in 2012, to 25%, in 2013, which is further discussed below.
 
As of September 30, 2013, the Company’s cumulative liability for gross unrecognized tax benefits was $12,352.  At December 31, 2012, the Company’s cumulative liability for gross unrecognized tax benefits was $12,410.
 
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 $39 and $(294) for interest and $101 and $342 for penalties on its Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2013, respectively, and 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. As of September 30, 2013, the Company had accrued $2,036 for cumulative interest and $2,015 for cumulative penalties compared to $2,288 for cumulative interest and $1,630 for cumulative penalties at December 31, 2012.
 
During the three months ended September 30, 2013, the Company recognized a decrease in its cumulative liability for gross unrecognized tax benefits of approximately $472 due to the expiration of the applicable statutes of limitations for certain tax years. During the three months ended September 30, 2012, the Company recognized a decrease in its cumulative liability for gross unrecognized tax benefits of approximately $426 due to the expiration of the applicable statutes of limitations for certain tax years.
 
During the nine months ended September 30, 2013, the Company recognized a $2,167 decrease 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 nine months ended September 30, 2012, the Company recognized a $1,498 decrease 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, 2013 it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $2,400 to $2,500 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, 2013.
 
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 2007, Brazil from 2008, Spain from 2009, the United States, China and Italy from 2010, and various domestic state tax jurisdictions from 1993.
 
In the first quarter of 2013, the Internal Revenue Service (“IRS”) initiated a limited scope audit of the Company’s 2010 Federal Income Tax Return.  By letter dated March 25, 2013, the IRS notified the Company that it had completed the review of the Company’s 2010 Federal Income Tax Return without any changes to the reported tax.
 
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.  During the fourth quarter of 2012, the Company’s Italian subsidiary received an assessment for the tax year 2007, which the Company appealed during the first quarter of 2013.  On June 24, 2013, a hearing was held before the Provincial Tax Court of Varese, Italy.  On September 16, 2013, the Provincial Tax Court of Varese delivered a decision confirming the Italian tax authorities’ proposed adjustment to the taxable income of the subsidiary, but denying the proposed assessment of penalties.  The Company will appeal the decision of the Provincial Tax Court to the Regional Tax Court.  The Company and outside counsel believe the Company should prevail on the merits of its case.  The Company does not believe it has any exposures warranting an uncertain tax position reserve as of September 30, 2013.
 
In March of 2013, certain tax authorities in Asia Pacific announced they would review the original applications of all companies that received a certain concessionary tax rate.  If the tax authorities had found issues with the application, they could disallow the benefits of such tax rate retroactively.  The Company currently understands that a retroactive disallowance of this concessionary tax rate would affect only 2012.  Currently, no appointment with the tax auditor has been scheduled.  The Company does not believe that its past status is at risk and, as a result, no uncertain tax position has been recorded.
 

 
12

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


In June 2013, a subsidiary in the Company’s Asia Pacific region applied for recertification of a prior concessionary tax rate with its respective tax authorities, which would renew the subsidiary’s tax rate at 15% compared to its statutory tax rate of 25%.  In September 2013, the Company’s subsidiary was listed as one of the companies which received approval for the tax rate by its government’s respective administrating agency for tax years 2013, 2014, and 2015.  This publication marks the commencement of a 15 business day period of public notice and comment, which ended during October 2013.  The Company recorded tax expense at the current statutory rate of 25% through the third quarter of 2013, as the Company’s recertification of its concessionary tax rate remained contingent on receiving no adverse public comment during the comment period.  If the Company had recognized the renewal of this tax rate in the third quarter of 2013, then the reduced effective tax rate would have yielded an estimated $0.08 per diluted share of additional earnings in the quarter.  As of the filing of this Report on Form 10-Q, the period for comment has expired and the Company has not received a public notice or comment challenging the approval status.  Assuming there are no other significant developments related to this event, the Company will recognize the change to its effective tax rate in its financial statements in the fourth quarter of 2013.
 
Note 7 – Earnings Per Share
 
The following table summarizes earnings per share calculations for the three and nine months ended September 30, 2013 and September 30, 2012:

 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Basic earnings per common share
 
 
   
 
   
 
   
 
 
Net income attributable to Quaker Chemical Corporation
  $ 12,551     $ 10,925     $ 42,253     $ 34,398  
Less: income allocated to participating securities
    (109 )     (103 )     (358 )     (402 )
Net income available to common shareholders
  $ 12,442     $ 10,822     $ 41,895     $ 33,996  
Basic weighted average common shares outstanding
    13,062,417       12,937,417       13,034,289       12,840,029  
Basic earnings per common share
  $ 0.95     $ 0.84     $ 3.21     $ 2.65  
 
                               
Diluted earnings per common share
                               
Net income attributable to Quaker Chemical Corporation
  $ 12,551     $ 10,925     $ 42,253     $ 34,398  
Less: income allocated to participating securities
    (109 )     (102 )     (357 )     (401 )
Net income available to common shareholders
  $ 12,442     $ 10,823     $ 41,896     $ 33,997  
Basic weighted average common shares outstanding
    13,062,417       12,937,417       13,034,289       12,840,029  
Effect of dilutive securities and employee stock options
    22,488       33,892       25,909       70,265  
Diluted weighted average common shares outstanding
    13,084,905       12,971,309       13,060,198       12,910,294  
Diluted earnings per common share
  $ 0.95     $ 0.83     $ 3.21     $ 2.63  

The following number of stock options are not included in diluted earnings per share since the effect would have been anti-dilutive: 2,858 and 4,537 for the three months ended September 30, 2013 and September 30, 2012, respectively, and 4,118 and 6,386 for the nine months ended September 30, 2013 and September 30, 2012, respectively.
 
Note 8 – Goodwill and Other Intangible Assets
 
In the third quarter of 2013, certain internal shifts in the Company’s management and changes to the structure of internally reported information occurred.  The Company currently believes its structure, its resource allocation and its performance assessment are now more closely aligned with its four geographical regions: North America, EMEA, Asia Pacific and South America.  See Note 3 of Notes to Condensed Consolidated Financial Statements for further information.  Similarly, the Company reassessed and changed its reporting units for goodwill testing purposes during the third quarter of 2013 to adhere to its geographical orientation.  Based on its revised reporting units, the Company completed its annual impairment test as of the end of the third quarter of 2013 and no impairment charge was warranted.  The estimated fair value of each of the Company’s reporting units substantially exceeded its carrying value, with none of the Company’s reporting units at risk for failing step one of the goodwill impairment test.  In addition, the Company has recorded no impairment charges in the past.
 

 
13

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


The changes in carrying amount of goodwill for the nine months ended September 30, 2013 are as follows:
 

 
 
North
   
 
   
 
   
South
   
 
 
 
 
America
   
EMEA
   
Asia Pacific
   
America
   
Total
 
Balance as of December 31, 2012
  $ 28,535     $ 11,411     $ 15,323     $ 3,900     $ 59,169  
Goodwill additions
    277                         277  
Currency translation adjustments
    (541 )     (147 )     (197 )     (50 )     (935 )
Balance as of September 30, 2013
  $ 28,271     $ 11,264     $ 15,126     $ 3,850     $ 58,511  

Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of September 30, 2013 and December 31, 2012 are as follows:

 
 
Gross Carrying
   
Accumulated
 
 
 
Amount
   
Amortization
 
 
 
2013
   
2012
   
2013
   
2012
 
Definite-lived intangible assets
 
 
   
 
   
 
   
 
 
     Customer lists and rights to sell
  $ 33,543     $ 32,356     $ 9,733     $ 8,192  
     Trademarks and patents
    6,785       6,760       3,029       2,548  
     Formulations and product technology
    5,808       5,278       3,655       3,423  
     Other
    5,541       5,467       4,332       3,989  
     Total
  $ 51,677     $ 49,861     $ 20,749     $ 18,152  

The Company recorded $2,621 and $2,283 of amortization expense in the nine months ended September 30, 2013 and September 30, 2012, respectively. Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows:

For the year ended December 31, 2013
  $ 3,445  
For the year ended December 31, 2014
  $ 3,253  
For the year ended December 31, 2015
  $ 3,253  
For the year ended December 31, 2016
  $ 2,774  
For the year ended December 31, 2017
  $ 2,110  
For the year ended December 31, 2018
  $ 2,087  

The Company has two indefinite-lived intangible assets totaling $1,100 for trademarks at September 30, 2013.
 
Note 9 – Debt
 
As discussed in the Current Report on Form 8-K filed on June 17, 2013, the Company entered into a revised syndicated multicurrency credit facility on June 14, 2013, which amended and replaced the Company’s previous credit facility with Bank of America, N.A. and certain other major financial institutions.  The revised facility increased the maximum principal amount available for revolving credit borrowings under this facility from $175,000 to $300,000, which can be increased to $400,000 at the Company’s option if the lenders agree and the Company satisfies certain conditions.  This facility matures in June 2018.  In addition, the revised facility amended certain financial, acquisition and other covenants, but the consolidated leverage ratio calculation, for which access to credit under the former facility largely depended upon, remains relatively consistent and cannot exceed 3.50 to 1.  At September 30, 2013 and December 31, 2012, the consolidated leverage ratio was below 1.0 to 1 and the Company was also in compliance with all of the current and former facilities' other covenants, respectively.  At September 30, 2013, the Company had no amounts outstanding under this revised facility. At December 31, 2012, the Company had approximately $12,200 outstanding under its former facility.
 

 
14

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


Note 10 – Equity and Noncontrolling Interest
 
The following table presents the changes in equity and noncontrolling interest for the three and nine months ended September 30, 2013 and September 30, 2012:
 

 
 
 
   
 
   
 
   
Accumulated
   
 
   
 
 
 
 
 
   
Capital in
   
 
   
Other
   
 
   
 
 
 
 
Common
   
Excess of
   
Retained
   
Comprehensive
   
Noncontrolling
   
 
 
 
 
Stock
   
Par Value
   
Earnings
   
Loss
   
Interest
   
Total
 
Balance at June 30, 2013
  $ 13,168     $ 97,085     $ 238,580     $ (45,252 )   $ 8,776     $ 312,357  
Net income
                12,551             754       13,305  
Amounts reported in other comprehensive income
                      2,014       (255 )     1,759  
Dividends ($0.25 per share)
                (3,298 )                 (3,298 )
Dvidends paid to noncontrolling shareholders
                            (30 )     (30 )
Share issuance and equity-based compensation plans
    19       368                         387  
Excess tax benefit from stock option exercises
          363                         363  
Balance at September 30, 2013
  $ 13,187     $ 97,816     $ 247,833     $ (43,238 )   $ 9,245     $ 324,843  
 
                                               
Balance at June 30, 2012
  $ 13,011     $ 92,199     $ 197,881     $ (30,536 )   $ 8,190     $ 280,745  
Net income
                10,925             698       11,623  
Amounts reported in other comprehensive income
                      2,311       228       2,539  
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     $ 205,592     $ (28,225 )   $ 9,116     $ 293,410  

 
 
 
   
 
   
 
   
Accumulated
   
 
   
 
 
 
 
 
   
Capital in
   
 
   
Other
   
 
   
 
 
 
 
Common
   
Excess of
   
Retained
   
Comprehensive
   
Noncontrolling
   
 
 
 
 
Stock
   
Par Value
   
Earnings
   
Loss
   
Interest
   
Total
 
Balance at December 31, 2012
  $ 13,095     $ 94,470     $ 215,390     $ (41,855 )   $ 8,576     $ 289,676  
Net income
                42,253             1,918       44,171  
Amounts reported in other comprehensive loss
                      (1,383 )     (1,219 )     (2,602 )
Dividends ($0.745 per share)
                (9,810 )                 (9,810 )
Dividends paid to noncontrolling interests
                            (30 )     (30 )
Share issuance and equity-based compensation plans
    92       2,531                         2,623  
Excess tax benefit from stock option exercises
          815                         815  
Balance at September 30, 2013
  $ 13,187     $ 97,816     $ 247,833     $ (43,238 )   $ 9,245     $ 324,843  
 
                                               
Balance at December 31, 2011
  $ 12,912     $ 89,725     $ 180,710     $ (28,967 )   $ 6,977     $ 261,357  
Net income
                34,398             2,075       36,473  
Amounts reported in other comprehensive income
                      742       94       836  
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     $ 205,592     $ (28,225 )   $ 9,116     $ 293,410  

 
15

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


The following tables show the reclassifications from and resulting balances of accumulated other comprehensive loss for the three and nine months ended September 30, 2013 and September 30, 2012:
 

 
 
 
   
 
   
 
   
Unrealized
   
 
 
 
 
Currency
   
Defined
   
Change in
   
gain (loss) in
   
 
 
 
 
translation
   
benefit
   
fair value of
   
available-for-
   
 
 
 
 
adjustments
   
pension plans
   
derivatives
   
sale securities
   
Total
 
Balance at June 30, 2013
  $ (1,646 )   $ (45,046 )   $     $ 1,440     $ (45,252 )
Other comprehensive income (loss) before reclassifications
    2,527       (1,016 )           494       2,005  
Amounts reclassified from accumulated other comprehensive loss
          1,019             (998 )     21  
Current period other comprehensive income (loss)
    2,527       3             (504 )     2,026  
Related tax amounts
          (183 )           171       (12 )
Net current period other comprehensive income (loss)
    2,527       (180 )           (333 )     2,014  
 
                                       
Balance at September 30, 2013
  $ 881     $ (45,226 )   $     $ 1,107     $ (43,238 )
 
                                       
Balance at June 30, 2012
  $ 1,182     $ (33,206 )   $ (73 )   $ 1,561     $ (30,536 )
Other comprehensive income (loss) before reclassifications
    1,604       (312 )     38       774       2,104  
Amounts reclassified from accumulated other comprehensive loss
          746       74       (122 )     698  
Current period other comprehensive income
    1,604       434       112       652       2,802  
Related tax amounts
          (230 )     (39 )     (222 )     (491 )
Net current period other comprehensive income
    1,604       204       73       430       2,311  
 
                                       
Balance at September 30, 2012
  $ 2,786     $ (33,002 )   $     $ 1,991     $ (28,225 )

 
 
 
   
 
   
 
   
Unrealized
   
 
 
 
 
Currency
   
Defined
   
Change in
   
gain (loss) in
   
 
 
 
 
translation
   
benefit
   
fair value of
   
available-for-
   
 
 
 
 
adjustments
   
pension plans
   
derivatives
   
sale securities
   
Total
 
Balance at December 31, 2012
  $ 3,336     $ (46,914 )   $     $ 1,723     $ (41,855 )
Other comprehensive (loss) income before reclassifications
    (2,455 )     (468 )           1,353       (1,570 )
Amounts reclassified from accumulated other comprehensive loss
          3,140             (2,286 )     854  
Current period other comprehensive (loss) income
    (2,455 )     2,672             (933 )     (716 )
Related tax amounts
          (984 )           317       (667 )
Net current period other comprehensive (loss) income
    (2,455 )     1,688             (616 )     (1,383 )
 
                                       
Balance at September 30, 2013
  $ 881     $ (45,226 )   $     $ 1,107     $ (43,238 )
 
                                       
Balance at December 31, 2011
  $ 4,709     $ (34,260 )   $ (272 )   $ 856     $ (28,967 )
Other comprehensive (loss) income before reclassifications
    (1,923 )     (204 )     26       2,363       262  
Amounts reclassified from accumulated other comprehensive loss
          2,243       392       (644 )     1,991  
Current period other comprehensive (loss) income
    (1,923 )     2,039       418       1,719       2,253  
Related tax amounts
          (781 )     (146 )     (584 )     (1,511 )
Net current period other comprehensive (loss) income
    (1,923 )     1,258       272       1,135       742  
 
                                       
Balance at September 30, 2012
  $ 2,786     $ (33,002 )   $     $ 1,991     $ (28,225 )

Approximately 27% and 73% of the amounts reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statement of Income for defined benefit retirement plans during the three and nine months ended September 30, 2013 and September 30, 2012 were recorded in cost of goods sold and SG&A, respectively.  See Note 5 of Notes to Condensed Consolidated Financial Statements for further information.  All reclassifications are recorded in interest expense for changes in fair value of derivatives and, also, reclassifications related to unrealized gain (loss) in available-for-sale securities relate to the Company’s equity interest in a captive insurance company and, therefore, are recorded in equity in net income of associated companies.  The amounts reported in other comprehensive income for the Company’s non-controlling interests are related to currency translation adjustments.
 
 
16

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

 
Note 11 – Business Acquisitions
 
In May 2013, the Company acquired a business that primarily related to tin plating for its North America reportable operating segment for net consideration of approximately $1,831.  The Company allocated $830 of intangible assets, comprised of formulations, to be amortized over 10 years; a non-competition agreement, to be amortized over 4 years; and a customer list, to be amortized over 10 years.  In addition, the Company recorded $277 of goodwill, all of which will be tax deductible.  The remaining purchase price was allocated between the acquisition date fair value of inventory purchased of $454 and fixed assets purchased of $270.
 
In January 2013, the Company acquired a chemical milling maskants distribution network for net consideration of approximately $647, which was assigned to the North American reportable operating segment.  The Company also assumed an additional $100 hold-back of consideration liability to be paid to the former owners at one year from the acquisition date.  The acquired intangible was included with the Company’s customer lists and rights to sell intangible assets and will be amortized over 5 years.
 
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 $1,186 and $854, respectively.  NP Coil Dexter is a 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 $1,786 of goodwill, none of which will be tax deductible and was assigned to the European reportable operating segment.  At June 30, 2013, the valuation of the assets acquired and the liabilities assumed at the acquisition date was finalized.  Liabilities assumed include a hold-back of consideration to be paid to the former shareholders at eighteen months from the acquisition date.   During the fourth quarter of 2012, the Company recorded an increase to other income of approximately $1,033 on its Consolidated Statement of Income related to a change in the fair value of this hold-back of consideration liability.
 
The following table shows the allocation of the purchase price of the assets and liabilities:

   
NP Coil Dexter
 
2012 Acquisition
 
Industries S.r.l.
 
Current assets
  $ 5,536  
Fixed assets
    1,211  
Intangibles
    3,825  
Goodwill
    1,786  
Other long-term assets
    783