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 June 30, 2014

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  x    
 
Accelerated filer  ¨
 
 
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 June 30, 2014
 
 
13,242,167
 


 
 

 

QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
 
       
 
  
 
Page
PART I.
  
FINANCIAL INFORMATION
 
Item 1.
  
Financial Statements (unaudited)
 
   
3
 
  
4
 
  
5
 
  
6
 
  
7
Item 2.
  
21
Item 3.
  
28
Item 4.
  
29
PART II.
  
30
Item 1.
 
30
Item 2.
 
30
Item 6.
  
31
Signatures
31


 
2

 
Table of Contents

PART I
FINANCIAL INFORMATION

Item 1.                                Financial Statements (Unaudited).
 

 
Quaker Chemical Corporation
 
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share amounts)

 
 
Unaudited
 
 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
Net sales
  $ 191,286     $ 184,846     $ 372,960     $ 361,039  
Cost of goods sold
    123,070       117,532       239,630       231,117  
Gross profit
    68,216       67,314       133,330       129,922  
Selling, general and administrative expenses
    47,271       47,521       93,012       92,718  
Operating income
    20,945       19,793       40,318       37,204  
Other income (expense), net
    117       2,301       (356 )     2,647  
Interest expense
    (581 )     (762 )     (1,106 )     (1,506 )
Interest income
    895       229       1,348       398  
Income before taxes and equity in net income of associated companies
    21,376       21,561       40,204       38,743  
Taxes on income before equity in net income of associated companies
    6,538       6,828       13,084       10,961  
Income before equity in net income of associated companies
    14,838       14,733       27,120       27,782  
Equity in net income of associated companies
    1,104       1,942       2,131       3,084  
Net income
    15,942       16,675       29,251       30,866  
Less: Net income attributable to noncontrolling interest
    515       592       1,094       1,164  
Net income attributable to Quaker Chemical Corporation
  $ 15,427     $ 16,083     $ 28,157     $ 29,702  
Per share data:
                               
Net income attributable to Quaker Chemical Corporation Common
                               
Shareholders – basic
  $ 1.17     $ 1.22     $ 2.13     $ 2.26  
Net income attributable to Quaker Chemical Corporation Common
                               
Shareholders – diluted
  $ 1.16     $ 1.22     $ 2.13     $ 2.26  
Dividends declared
  $ 0.300     $ 0.250     $ 0.550     $ 0.495  
 
                               

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
(Dollars in thousands)

 
 
 
 
   
 
   
 
 
 
 
 
   
 
   
 
 
 
 
Unaudited
 
 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
Net income
  $ 15,942     $ 16,675     $ 29,251     $ 30,866  
 
                               
Other comprehensive income (loss), net of tax
                               
Currency translation adjustments
    981       (4,183 )     2,255       (5,946 )
Defined benefit retirement plans
    613       562       1,159       1,868  
Unrealized loss on available-for-sale securities
    (171 )     (715 )     (102 )     (283 )
Other comprehensive income (loss)
    1,423       (4,336 )     3,312       (4,361 )
 
                               
Comprehensive income
    17,365       12,339       32,563       26,505  
Less: comprehensive (income) loss  attributable to noncontrolling interest
    (510 )     239       (1,293 )     (200 )
Comprehensive income attributable to Quaker Chemical Corporation
  $ 16,855     $ 12,578     $ 31,270     $ 26,305  



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

 
4

 
Table of Contents

Quaker Chemical Corporation
 
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)


 
 
Unaudited
 
 
June 30,
2014
 
 
December 31,
2013
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
        Cash and cash equivalents
 
$
60,232 
 
 
$
68,492 
 
        Accounts receivable, net
 
 
186,323 
 
 
 
165,629 
 
        Inventories
 
 
 
 
 
 
 
 
                Raw materials and supplies
 
 
39,586 
 
 
 
37,063 
 
                Work-in-process and finished goods
 
 
39,686 
 
 
 
34,494 
 
        Prepaid expenses and other current assets
 
 
20,133 
 
 
 
23,169 
 
                Total current assets
 
 
345,960 
 
 
 
328,847 
 
Property, plant and equipment, at cost
 
 
236,942 
 
 
 
233,865 
 
        Less accumulated depreciation
 
 
(153,600)
 
 
 
(148,377)
 
                Net property, plant and equipment
 
 
83,342 
 
 
 
85,488 
 
Goodwill
 
 
58,921 
 
 
 
58,151 
 
Other intangible assets, net
 
 
29,657 
 
 
 
31,272 
 
Investments in associated companies
 
 
21,416 
 
 
 
19,397 
 
Deferred income taxes
 
 
22,158 
 
 
 
24,724 
 
Other assets
 
 
35,183 
 
 
 
36,267 
 
                Total assets
 
$
596,637 
 
 
$
584,146 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
        Short-term borrowings and current portion of long-term debt
 
$
1,348 
 
 
$
1,395 
 
        Accounts and other payables
 
 
80,033 
 
 
 
75,580 
 
        Accrued compensation
 
 
12,516 
 
 
 
20,801 
 
        Other current liabilities
 
 
26,806 
 
 
 
33,080 
 
               Total current liabilities
 
 
120,703 
 
 
 
130,856 
 
Long-term debt
 
 
24,611 
 
 
 
17,321 
 
Deferred income taxes
 
 
6,500 
 
 
 
6,729 
 
Other non-current liabilities
 
 
80,113 
 
 
 
84,544 
 
               Total liabilities
 
 
231,927 
 
 
 
239,450 
 
Equity
 
 
 
 
 
 
 
 
         Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding
 
 
 
 
 
 
 
 
            2014 – 13,242,167 shares; 2013 – 13,196,140 shares
 
 
13,242 
 
 
 
13,196 
 
         Capital in excess of par value
 
 
95,508 
 
 
 
99,038 
 
         Retained earnings
 
 
279,161 
 
 
 
258,285 
 
         Accumulated other comprehensive loss
 
 
(31,587)
 
 
 
(34,700)
 
               Total Quaker shareholders’ equity
 
 
356,324 
 
 
 
335,819 
 
Noncontrolling interest
 
 
8,386 
 
 
 
8,877 
 
Total equity
 
 
364,710 
 
 
 
344,696 
 
         Total liabilities and equity
 
$
596,637 
 
 
$
584,146 
 



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
(Dollars in thousands)

   
Unaudited
 
   
For the Six Months Ended
 
   
June 30,
 
   
2014
   
2013
 
Cash flows from operating activities
           
Net income
  $ 29,251     $ 30,866  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    6,084       6,125  
Amortization
    1,628       1,763  
Equity in undistributed earnings of associated companies, net of dividends
    (1,931 )     (1,021 )
Deferred compensation and other, net
    3,340       (1,080 )
Stock-based compensation
    2,732       2,152  
Gain on disposal of property, plant and equipment
    (97 )     (224 )
Insurance settlements realized
    (980 )     (384 )
Pension and other postretirement benefits
    (926 )     (1,884 )
(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:
               
Accounts receivable
    (20,563 )     (9,913 )
Inventories
    (7,568 )     (2,269 )
Prepaid expenses and other current assets
    1,157       (286 )
Accounts payable and accrued liabilities
    (3,873 )     3,650  
Net cash provided by operating activities
    8,254       27,495  
                 
Cash flows from investing activities
               
Investments in property, plant and equipment
    (5,521 )     (5,202 )
Payments related to acquisitions, net of cash acquired
          (2,478 )
Proceeds from disposition of assets
    128       345  
Interest earned on insurance settlements
    23       28  
Change in restricted cash, net
    957       356  
Net cash used in investing activities
    (4,413 )     (6,951 )
                 
Cash flows from financing activities
               
Proceeds from long-term debt
    7,500        
Repayment of long-term debt
    (248 )     (7,563 )
Dividends paid
    (6,607 )     (6,428 )
Stock options exercised, other
    (33 )     84  
Excess tax benefit related to stock option exercises
    267       452  
Purchase of a noncontrolling interest in an affiliate
    (7,532 )      
Payment of acquisition-related earnout liability
    (4,709 )      
Distributions to noncontrolling affiliate shareholders
    (657 )      
Net cash used in financing activities
    (12,019 )     (13,455 )
Effect of exchange rate changes on cash
    (82 )     (1,090 )
Net (decrease) increase in cash and cash equivalents
    (8,260 )     5,999  
Cash and cash equivalents at beginning of period
    68,492       32,547  
Cash and cash equivalents at end of period
  $ 60,232     $ 38,546  

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 share and 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 (“GAAP”) 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. During the first quarter of 2014, the Company revised its Consolidated Balance Sheet for December 31, 2013 with a $335 reduction to retained earnings and a corresponding increase to its long-term deferred tax liability, relating to an adjustment that would have occurred when the Company adopted the equity method of accounting for its interest in a captive insurance equity affiliate. Certain other reclassifications of prior year data have been made to improve comparability.  The results for the three and six months ended June 30, 2014 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, 2013.
 
Venezuela currently operates three local exchange markets to obtain U.S. Dollars:  the CADIVI, SICAD I and SICAD II.   Under generally accepted principles in the United States, Venezuela’s economy is considered to be hyper inflationary, so, accordingly, all gains and losses resulting from the remeasurement of the Company’s Venezuelan equity affiliate Kelko Quaker Chemical, S.A. (“Kelko”) to the CADIVI published exchange are required to be recorded directly to the Condensed Consolidated Statement of Income.   As of June 30, 2014, the Company has a $1,433 investment in Kelko, which is currently valued at the CADIVI exchange rate.  The Company currently does not have access to trade on the SICAD I exchange rate.  During the second quarter of 2014, the Company recorded a charge of $321, or $0.02 per diluted share, related to the conversion of certain Venezuelan Bolivar Fuerte to U.S. Dollars on the SICAD II exchange.  During the first quarter of 2013, the Venezuelan Government announced a devaluation of the Bolivar Fuerte, which resulted in a charge of $357, or $0.03 per diluted share.
 
During 2002 and 2003, the Company’s Netherlands and Italian subsidiaries paid excise taxes on mineral oil sales in Italy for a 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.
 
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 $10,926 and $21,499 for the three and six months ended June 30, 2014, respectively. Third-party products transferred under arrangements resulting in net reporting totaled $10,560 and $19,338 for the three and six months ended June 30, 2013, respectively.
 

Note 2 – Recently Issued Accounting Standards
 
The FASB issued an accounting standard update in May 2014 regarding the accounting for and disclosures of revenue recognition.  Specifically, the update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which will be common to both US GAAP and International Financial Reporting Standards (“IFRS”).  The model focuses revenue recognition to reflect the actual consideration to which the entity expects to be entitled in exchange for the goods or services defined in the contract, including multiple performance obligations.  The guidance is effective for annual and interim periods beginning after December 15, 2016, which allows for full retrospective adoption of prior period data or a modified retrospective adoption whereby the cumulative past effects are recorded and disclosed in the current period.  Early adoption is not permitted.  Currently, the Company is evaluating the effect that this guidance may have on its financial statements.
 

 
7

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


Note 3 – Out-of-Period Adjustment
 
During 2012, the Company 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.  The Company did not believe this adjustment was material to its consolidated financial statements for the years ended December 31, 2012 or December 31, 2013 and, therefore, did not restate any prior period amounts.
 
Note 4 – Business Segments
 
The Company’s reportable operating segments are organized by geography as follows: (i) North America, (ii) Europe, Middle East and Africa (“EMEA”), (iii) Asia/Pacific and (iv) South America.  Operating earnings, excluding indirect operating expenses, for the Company’s reportable operating 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 reportable operating 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 reported segments for the three and six months ended June 30, 2014 and June 30, 2013:
 

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
Net sales
                       
North America
  $ 82,512     $ 76,751     $ 159,228     $ 151,509  
EMEA
    50,228       49,155       99,417       95,862  
Asia/Pacific
    45,123       42,542       87,060       80,530  
South America
    13,423       16,398       27,255       33,138  
Total net sales
  $ 191,286     $ 184,846     $ 372,960     $ 361,039  
                                 
Operating earnings, excluding indirect operating expenses
                               
North America
  $ 17,868     $ 15,996     $ 33,579     $ 31,035  
EMEA
    8,109       8,581       16,205       15,551  
Asia/Pacific
    10,221       10,770       20,139       20,398  
South America
    889       2,357       2,398       5,232  
Total operating earnings, excluding indirect operating expenses
    37,087       37,704       72,321       72,216  
Indirect operating expenses
    (15,327 )     (17,027 )     (30,375 )     (33,249 )
Amortization expense
    (815 )     (884 )     (1,628 )     (1,763 )
Consolidated operating income
    20,945       19,793       40,318       37,204  
Other income (expense), net
    117       2,301       (356 )     2,647  
Interest expense
    (581 )     (762 )     (1,106 )     (1,506 )
Interest income
    895       229       1,348       398  
Consolidated income before taxes and equity in net income of associated companies
  $ 21,376     $ 21,561     $ 40,204     $ 38,743  

Inter-segment revenue for the three and six months ended June 30, 2014 was $1,856 and $3,806 for North America, $5,455 and $10,781 for EMEA, $95 and $202 for Asia/Pacific and zero for South America, respectively.  Inter-segment revenue for the three and six months ended June 30, 2013 was $2,741 and $4,847 for North America, $4,651 and $9,656 for EMEA, $247 and $305 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.
 
 
8

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


Note 5 – Stock-Based Compensation
 
The Company recognized the following share-based compensation expense in selling, general and administrative expenses in its Condensed Consolidated Statement of Income for the three and six months ended June 30, 2014 and the three and six months ended June 30, 2013:
 

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
Stock options
  $ 171     $ 138     $ 321     $ 238  
Nonvested stock awards and restricted stock units
    609       528       1,165       911  
Employee stock purchase plan
    19       14       36       26  
Non-elective and elective 401(k) matching contribution in stock
    499       411       1,148       936  
Director stock ownership plan
    46       21       62       41  
Total share-based compensation expense
  $ 1,344     $ 1,112     $ 2,732     $ 2,152  

As of June 30, 2014 and June 30, 2013, the Company recorded $267 and $452, 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 six months ended June 30, 2014 and June 30, 2013, 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, 2013
75,251 
 
$
44.49 
   
Options granted
37,048 
   
73.47 
   
Options exercised
(3,292)
   
42.24 
   
Options outstanding at June 30, 2014
109,007 
 
$
54.41 
 
5.4 
Options exercisable at June 30, 2014
40,628 
 
$
39.76 
 
4.3 

As of June 30, 2014, the total intrinsic value of options outstanding was approximately $2,378, and the total intrinsic value of exercisable options was $1,482.  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 June 30, 2014 is as follows: 

               
Weighted
 
Weighted
 
Number
   
Weighted
           
Number
 
Average
 
Average
 
Exercisable
   
Average
Range of
 
Outstanding
 
Contractual
 
Exercise
 
at
   
Exercise
Exercise Prices
 
at 6/30/2014
 
Life
 
Price
 
6/30/2014
   
Price
$
0.00
-
$
10.00 
 
— 
 
— 
 
$
— 
 
— 
   
$
— 
$
10.01 
-
$
20.00 
 
6,155 
 
2.6 
   
18.82 
 
6,155 
     
18.82 
$
20.01 
-
$
30.00 
 
— 
 
— 
   
— 
 
— 
     
— 
$
30.01 
-
$
40.00 
 
35,020 
 
4.3 
   
37.87 
 
23,954 
     
37.75 
$
40.01 
-
$
50.00 
 
2,192 
 
5.0 
   
46.21 
 
1,462 
     
46.21 
$
50.01 
-
$
60.00 
 
28,592 
 
5.7 
   
58.26 
 
9,057 
     
58.26 
$
60.01 
-
$
70.00 
 
— 
 
— 
   
— 
 
— 
     
— 
$
70.01 
-
$
80.00 
 
37,048 
 
6.7 
   
73.47 
 
— 
     
— 
           
109,007 
 
5.4 
   
54.41 
 
40,628 
     
39.76 


 
9

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


As of June 30, 2014, unrecognized compensation expense related to options granted during 2012 was $140, for options granted during 2013 was $358 and for options granted in 2014 was $726.
 
During the first quarter of 2014, the Company granted stock options under its 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:

 
2014 
 
Number of options granted
 37,048 
 
Dividend yield
2.00 
%
Expected volatility
43.34 
%
Risk-free interest rate
1.22 
%
Expected term (years)
4.0 
 

Approximately $68 and $91 of expense was recorded on these options during the three and six months ended June 30, 2014, respectively.  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, 2013
115,984 
 
$
47.27 
 
Granted
28,344 
 
$
73.32 
 
Vested
(29,973)
 
$
44.32 
 
Nonvested awards, June 30, 2014
114,355 
 
$
54.50 
 

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 June 30, 2014, unrecognized compensation expense related to these awards was $3,552 to be recognized over a weighted average remaining period of 2.17 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, 2013
4,018 
 
$
49.71 
 
Granted
3,140 
 
$
75.52 
 
Nonvested awards, June 30, 2014
7,158 
 
$
61.03 
 

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 June 30, 2014, unrecognized compensation expense related to these awards was $281 to be recognized over a weighted average remaining period of 2.20 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.
 
 
10

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


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 6 – Pension and Other Postretirement Benefits
 
The components of net periodic benefit cost for the three and six months ended June 30, 2014 and June 30, 2013 are as follows:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
             
Other
             
Other
 
             
Postretirement
             
Postretirement
 
 
Pension Benefits
 
Benefits
 
Pension Benefits
 
Benefits
 
   
2014
   
2013
   
2014
   
2013
   
2014
   
2013
   
2014
   
2013
 
Service cost
  $ 736     $ 728     $ 2     $ 4     $ 1,470     $ 1,566     $ 10     $ 17  
Interest cost and other
    1,519       1,398       62       36       3,061       2,778       116       92  
Expected return on plan assets
    (1,601 )     (1,463 )                 (3,208 )     (2,941 )            
Actuarial loss amortization
    759       991       26       (31 )     1,548       1,972       32       16  
Prior service cost amortization
    (15 )     104                   851       132              
Net periodic benefit cost
  $ 1,398     $ 1,758     $ 90     $ 9     $ 3,722     $ 3,507     $ 158     $ 125  

During 2013, it was discovered that the Company’s subsidiary in the United Kingdom did not appropriately amend a trust for a legacy change in its pension scheme, as it related to a past retirement age equalization law.  Given the lack of an official deed to the pension trust, the effective date of the change to the Subsidiary’s pension scheme differed from the Company’s historical beliefs, but the extent of the potential exposure was not estimable.  In the first quarter of 2014, the Company recorded costs of $902, or $0.05 per diluted share, related to prior service cost and interest cost, to appropriately reflect the past plan amendment related to the retirement age equalization law.
 
Employer Contributions:
 
The Company previously disclosed in its financial statements for the year ended December 31, 2013, that it expected to make minimum cash contributions of $6,172 to its pension plans and $607 to its other postretirement benefit plan in 2014. As of June 30, 2014, $4,506 and $328 of contributions had been made to the Company’s pension plans and its other postretirement benefit plans, respectively.
 
 
11

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


Note 7 – Other income (expense)
 
Other income (expense) includes:
 

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
Change in fair value of acquisition-related earnout liability
  $     $ (675 )   $     $ (675 )
Income from third party license fees
    257       283       555       548  
Net foreign exchange losses
    (185 )     (238 )     (984 )     (205 )
Net gain on fixed asset disposals
    60       214       105       238  
Non-income tax refunds
          2,656             2,669  
Other non-operating income
    32       123       69       180  
Other non-operating expense
    (47 )     (62 )     (101 )     (108 )
                                 
Total other income (expense), net
  $ 117     $ 2,301     $ (356 )   $ 2,647  

 
Note 8 – Income Taxes and Uncertain Income Tax Positions
 
The Company's effective tax rate for the first six months of 2014 of 32.5% was higher than the first six months of 2013 effective tax rate of 28.3%.  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 $0.02 and $0.10 per diluted share for the six months ended June 30, 2014 and June 30, 2013, respectively.  Also, contributing to the difference in the effective tax rate from the prior year is the recognition of certain one-time items that increased the current year’s effective tax rate.
 
As of June 30, 2014, the Company’s cumulative liability for gross unrecognized tax benefits was $12,791.  At December 31, 2013, the Company’s cumulative liability for gross unrecognized tax benefits was $12,596.
 
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 $154 and $(58) for interest and $108 and $98 for penalties on its Condensed Consolidated Statement of Income for the three and six months ended June 30, 2014, respectively, and recognized $144 and $(333) for interest and $148 and $241 for penalties on its Condensed Consolidated Statement of Income for the three and six months ended June 30, 2013, respectively. As of June 30, 2014, the Company had accrued $2,039 for cumulative interest and $2,181 for cumulative penalties, compared to $2,108 for cumulative interest and $2,100 for cumulative penalties at December 31, 2013.
 
During the three months ended June 30, 2014, there were no expirations of statutes of limitations for uncertain tax positions.  During the three months ended June 30, 2013, the Company recognized a decrease in its cumulative liability for gross unrecognized tax benefits of approximately $8 due to the expiration of the applicable statutes of limitations for certain tax years.
 
During the six months ended June 30, 2014, the Company recognized a $1,075 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 six months ended June 30, 2013, the Company recognized a $1,695 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, 2014 it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $1,800 to $1,900 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, 2014.
 
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 Brazil from 2000, the Netherlands and the United Kingdom from 2008, Spain from 2009, the United States, China and Italy from 2010, and various domestic state tax jurisdictions from 1993.
 
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
 

 
12

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


for the tax year 2007, which the Company appealed during the first quarter of 2013.  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.  On January 24, 2014, the Company’s Italian subsidiary appealed the decision of the Provincial Tax Court of Varese.  On March 7, 2014, the Italian tax authorities appealed the decision of the Provincial Tax Court denying the assessment of penalties.
 
On November 29, 2013, the Italian tax authorities issued a tax assessment for the tax year 2008, raising identical issues as the assessment for 2007, noted above.  On March 28, 2014, the Company filed an appeal with the Provincial Tax Court of Varese.  The Company filed a request for competent authority relief between the Italian and Dutch tax authorities and intends to file a similar request with the Spanish authorities.
 
Related to each of the above events, the Company and outside counsel believe we should prevail on the merits of each case.  Therefore, the Company does not believe it has any exposures warranting an uncertain tax position reserve as of June 30, 2014.
 
Note 9 – Earnings Per Share
 
The following table summarizes earnings per share calculations for the three and six months ended June 30, 2014 and June 30, 2013:

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
Basic earnings per common share
                       
Net income attributable to Quaker Chemical Corporation
  $ 15,427     $ 16,083     $ 28,157     $ 29,702  
Less: income allocated to participating securities
    (134 )     (139 )     (245 )     (249 )
Net income available to common shareholders
  $ 15,293     $ 15,944     $ 27,912     $ 29,453  
Basic weighted average common shares outstanding
    13,118,025       13,037,822       13,104,837       13,019,991  
Basic earnings per common share
  $ 1.17     $ 1.22     $ 2.13     $ 2.26  
                                 
Diluted earnings per common share
                               
Net income attributable to Quaker Chemical Corporation
  $ 15,427     $ 16,083     $ 28,157     $ 29,702  
Less: income allocated to participating securities
    (133 )     (138 )     (245 )     (248 )
Net income available to common shareholders
  $ 15,294     $ 15,945     $ 27,912     $ 29,454  
Basic weighted average common shares outstanding
    13,118,025       13,037,822       13,104,837       13,019,991  
Effect of dilutive securities
    21,388       24,918       20,449       27,314  
Diluted weighted average common shares outstanding
    13,139,413       13,062,740       13,125,286       13,047,305  
Diluted earnings per common share
  $ 1.16     $ 1.22     $ 2.13     $ 2.26  

The following number of stock options and restricted stock units are not included in diluted earnings per share since the effect would have been anti-dilutive: 6,579 and 6,170 for the three months ended June 30, 2014 and June 30, 2013, respectively, and 4,824 and 4,520 for the six months ended June 30, 2014 and June 30, 2013, respectively.
 
Note 10 – Goodwill and Other Intangible Assets
 
The changes in carrying amount of goodwill for the six months ended June 30, 2014 are as follows and the Company has recorded no impairment charges in the past:

 
North
             
South
       
 
America
 
EMEA
 
Asia/Pacific
 
America
 
Total
 
Balance as of December 31, 2013
  $ 28,127     $ 11,184     $ 15,018     $ 3,822     $ 58,151  
Currency translation adjustments
    308       172       231       59       770  
Balance as of June 30, 2014
  $ 28,435     $ 11,356     $ 15,249     $ 3,881     $ 58,921  

 
13

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


Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of June 30, 2014 and December 31, 2013 are as follows:

   
Gross Carrying
   
Accumulated
 
   
Amount
   
Amortization
 
 Definite-lived intangible assets  
2014
   
2013
   
2014
   
2013
 
Customer lists and rights to sell
  $ 33,607     $ 33,559     $ 11,234     $ 10,221  
Trademarks and patents
    6,830       6,838       3,532       3,202  
Formulations and product technology
    5,808       5,808       3,802       3,709  
Other
    5,543       5,544       4,663       4,445  
Total
  $ 51,788     $ 51,749     $ 23,231     $ 21,577  

The Company recorded $1,628 and $1,763 of amortization expense in the six months ended June 30, 2014 and June 30, 2013, respectively. Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows:

For the year ended December 31, 2014
  $ 3,257  
For the year ended December 31, 2015
  $ 3,257  
For the year ended December 31, 2016
  $ 2,781  
For the year ended December 31, 2017
  $ 2,121  
For the year ended December 31, 2018
  $ 2,097  
For the year ended December 31, 2019
  $ 2,097  

The Company has two indefinite-lived intangible assets totaling $1,100 for trademarks at June 30, 2014.
 
Note 11 – Debt
 
The Company’s primary credit line is a $300,000 syndicated multicurrency credit agreement with Bank of America, N.A. (administrative agent) and certain other major financial institutions, which matures in June 2018.  The maximum amount available under this facility can be increased to $400,000 at the Company’s option if the lenders agree and the Company satisfies certain conditions.  Access to this facility is dependent on meeting certain financial, acquisition and other covenants, but primarily depends on the Company’s consolidated leverage ratio calculation, which cannot exceed 3.50 to 1.  At June 30, 2014 and December 31, 2013, the consolidated leverage ratio was below 1.0 to 1 and the Company was also in compliance with all of the facility's other covenants.  At June 30, 2014, the Company had approximately $7,500 outstanding under this facility.  At December 31, 2013, the Company had no borrowings outstanding under this facility.
 
 
14

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


Note 12 – Equity and Noncontrolling Interest
 
The following table presents the changes in equity and noncontrolling interest for the three and six months ended June 30, 2014 and June 30, 2013:
 

 
 
 
   
 
   
 
   
Accumulated
   
 
   
 
 
 
 
 
   
Capital in
   
 
   
Other
   
 
   
 
 
 
 
Common
   
Excess of
   
Retained
   
Comprehensive
   
Noncontrolling
   
 
 
 
 
Stock
   
Par Value
   
Earnings
   
Loss
   
Interest
   
Total
 
Balance at March 31, 2014
  $ 13,227     $ 100,429     $ 267,707     $ (33,015 )   $ 9,660     $ 358,008  
Net income
                15,427             515       15,942  
Amounts reported in other comprehensive income
                      1,428       (5 )     1,423  
Dividends ($0.30 per share)
                (3,973 )                 (3,973 )
Distributions to noncontrolling affiliate shareholders
                            (657 )     (657 )
Acquisition of noncontrolling interest
          (6,450 )                 (1,127 )     (7,577 )
Share issuance and equity-based compensation plans
    15       1,501                         1,516  
Excess tax benefit from stock option exercises
          28                         28  
Balance at June 30, 2014
  $ 13,242     $ 95,508     $ 279,161     $ (31,587 )   $ 8,386     $ 364,710  
 
                                               
Balance at March 31, 2013
  $ 13,140     $ 95,775     $ 225,790     $ (41,747 )   $ 9,015     $ 301,973  
Net income
                16,083             592       16,675  
Amounts reported in other comprehensive income
                      (3,505 )     (831 )     (4,336 )
Dividends ($0.25 per share)
                (3,293 )                 (3,293 )
Share issuance and equity-based compensation plans
    28       1,227                         1,255  
Excess tax benefit from stock option exercises
          83                         83  
Balance at June 30, 2013
  $ 13,168     $ 97,085     $ 238,580     $ (45,252 )   $ 8,776     $ 312,357  

 
 
 
   
 
   
 
   
Accumulated
   
 
   
 
 
 
 
 
   
Capital in
   
 
   
Other
   
 
   
 
 
 
 
Common
   
Excess of
   
Retained
   
Comprehensive
   
Noncontrolling
   
 
 
 
 
Stock
   
Par Value
   
Earnings
   
Loss
   
Interest
   
Total
 
Balance at December 31, 2013
  $ 13,196     $ 99,038     $ 258,285     $ (34,700 )   $ 8,877     $ 344,696  
Net income
                28,157             1,094       29,251  
Amounts reported in other comprehensive income
                      3,113       199       3,312  
Dividends ($0.55 per share)
                (7,281 )                 (7,281 )
Distributions to noncontrolling affiliate shareholders
                            (657 )     (657 )
Acquisition of noncontrolling interest
          (6,450 )                 (1,127 )     (7,577 )
Share issuance and equity-based compensation plans
    46       2,653                         2,699  
Excess tax benefit from stock option exercises
          267                         267  
Balance at June 30, 2014
  $ 13,242     $ 95,508     $ 279,161     $ (31,587 )   $ 8,386     $ 364,710  
 
                                               
Balance at December 31, 2012
  $ 13,095     $ 94,470     $ 215,390     $ (41,855 )   $ 8,576     $ 289,676  
Net income
                29,702             1,164       30,866  
Amounts reported in other comprehensive income
                      (3,397 )     (964 )     (4,361 )
Dividends ($0.495 per share)
                (6,512 )                 (6,512 )
Share issuance and equity-based compensation plans
    73       2,163                         2,236  
Excess tax benefit from stock option exercises
          452                         452  
Balance at June 30, 2013
  $ 13,168     $ 97,085     $ 238,580     $ (45,252 )   $ 8,776     $ 312,357  

 
15

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


The following tables show the reclassifications from and resulting balances of accumulated other comprehensive loss for the three and six months ended June 30, 2014 and June 30, 2013:
 

 
 
 
   
 
   
Unrealized
   
 
 
 
 
Currency
   
Defined
   
gain (loss) in
   
 
 
 
 
translation
   
benefit
   
available-for-
   
 
 
 
 
adjustments
   
pension plans
   
sale securities
   
Total
 
Balance at March 31, 2014
  $ 2,222     $ (36,887 )   $ 1,650     $ (33,015 )
Other comprehensive income before reclassifications
    986       120       842       1,948  
Amounts reclassified from accumulated other comprehensive loss
          762       (1,101 )     (339 )
Current period other comprehensive income (loss)
    986       882       (259 )     1,609  
Related tax amounts
          (269 )     88       (181 )
Net current period other comprehensive income (loss)
    986       613       (171 )     1,428  
 
                               
Balance at June 30, 2014
  $ 3,208     $ (36,274 )   $ 1,479     $ (31,587 )
 
                               
Balance at March 31, 2013
  $ 1,706     $ (45,608 )   $ 2,155     $ (41,747 )
Other comprehensive loss before reclassifications
    (3,352 )     (214 )     (289 )     (3,855 )
Amounts reclassified from accumulated other comprehensive loss
          1,065       (795 )     270  
Current period other comprehensive (loss) income
    (3,352 )     851       (1,084 )     (3,585 )
Related tax amounts
          (289 )     369       80  
Net current period other comprehensive (loss) income
    (3,352 )     562       (715 )     (3,505 )
 
                               
Balance at June 30, 2013
  $ (1,646 )   $ (45,046 )   $ 1,440     $ (45,252 )

 
 
 
   
 
   
Unrealized
   
 
 
 
 
Currency
   
Defined
   
gain (loss) in
   
 
 
 
 
translation
   
benefit
   
available-for-
   
 
 
 
 
adjustments
   
pension plans
   
sale securities
   
Total
 
Balance at December 31, 2013
  $ 1,152     $ (37,433 )   $ 1,581     $ (34,700 )
Other comprehensive income before reclassifications
    2,056       144       1,505       3,705  
Amounts reclassified from accumulated other comprehensive loss
          1,531       (1,659 )     (128 )
Current period other comprehensive income (loss)
    2,056       1,675       (154 )     3,577  
Related tax amounts
          (516 )     52       (464 )
Net current period other comprehensive income (loss)
    2,056       1,159       (102 )     3,113  
 
                               
Balance at June 30, 2014
  $ 3,208     $ (36,274 )   $ 1,479     $ (31,587 )
 
                               
Balance at December 31, 2012
  $ 3,336     $ (46,914 )   $ 1,723     $ (41,855 )
Other comprehensive (loss) income before reclassifications
    (4,982 )     549       859       (3,574 )
Amounts reclassified from accumulated other comprehensive loss
          2,120       (1,288 )     832  
Current period other comprehensive (loss) income
    (4,982 )     2,669       (429 )     (2,742 )
Related tax amounts
          (801 )     146       (655 )
Net current period other comprehensive (loss) income
    (4,982 )     1,868       (283 )     (3,397 )
 
                               
Balance at June 30, 2013
  $ (1,646 )   $ (45,046 )   $ 1,440     $ (45,252 )

Approximately 30% and 70% 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 six months ended June 30, 2014 and June 30, 2013 were recorded in cost of goods sold and SG&A, respectively.  See Note 6 of Notes to Condensed Consolidated Financial Statements for further information.  All reclassifications related to unrealized gain (loss) in available-for-sale securities relate to the Company’s equity interest in a captive insurance company and are recorded in equity in net income of associated companies.  The amounts reported in other comprehensive income for noncontrolling interest are related to currency translation adjustments.
 
 
16

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

 
Note 13 – Business Acquisitions
 
In June 2014, the Company acquired the remaining 49% ownership interest in its Australian affiliate, Quaker Chemical (Australasia) Pty. Limited ("QCA") for A$8,000, or approximately $7,577, from its joint venture partner, Nuplex Industries.  QCA is a part of the Asia/Pacific reportable operating segment.  As this acquisition was a change in an existing controlling ownership, the Company recorded $6,450 of excess of purchase price over the carrying value of its noncontrolling interest in Additional Paid in Capital.
 
In May 2013, the Company acquired a business that primarily related to tin plating for its North American reportable operating segment for net consideration of approximately $1,831.  The Company allocated the purchase price to $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 America reportable operating segment.  The Company also assumed an additional $100 hold-back of consideration for potential indemnity obligations, which was paid to the former shareholders during the first quarter of 2014.  The acquired intangible was allocated to the Company’s customer lists and rights to sell intangible assets and will be amortized over 5 years.
 
Certain pro forma and other disclosures have not been provided for these acquisitions because the effects were not material.

 
Note 14 – Fair Value Measurements
 
The Company values its company-owned life insurance policies, various deferred compensation assets and liabilities, and certain acquisition related consideration at fair value.  The Company’s assets and liabilities subject to fair value measurement are as follows:

 
 
 
   
Fair Value Measurements at June 30, 2014
 
 
 
Fair Value
   
Using Fair Value Hierarchy
 
 
 
as of
   
 
   
 
   
 
 
Assets
 
June 30, 2014
   
Level 1
   
Level 2
   
Level 3
 
Company-owned life insurance
  $ 1,338     $     $ 1,338     $  
Company-owned life insurance - Deferred compensation assets
    331             331        
Other deferred compensation assets
                               
Large capitalization registered investment companies
    67       67              
Mid capitalization registered investment companies
    7       7              
Small capitalization registered investment companies
    13       13              
International developed and emerging markets registered investment
                               
                companies
    40       40              
Fixed income registered investment companies
    7       7              
 
                               
Total
  $ 1,803     $ 134     $ 1,669     $