SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

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

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

QUAKER CHEMICAL CORPORATION


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)

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, 2011~~March 31, 2012		~~12,875,113~~12,950,752

Item 1. Financial Statements (Unaudited).

Quaker Chemical Corporation

Condensed Consolidated Balance Sheet

Unaudited
(Dollars in thousands,
except par value
and share amounts)
September 30, 2011 December 31, 2010*

ASSETS
Current assets
        Cash and cash equivalents $ 20,579 $ 25,766
        Accounts receivable, net 147,414 116,266
        Inventories
                Raw materials and supplies 44,718 31,909
                Work-in-process and finished goods 34,150 28,932
        Prepaid expenses and other current assets 15,744 12,609
                Total current assets 262,605 215,482
Property, plant and equipment, at cost 215,257 205,359
        Less accumulated depreciation (135,066) (128,824)
                Net property, plant and equipment 80,191 76,535
Goodwill 57,764 52,758
Other intangible assets, net 26,315 24,030
Investments in associated companies 7,937 9,218
Deferred income taxes 22,862 28,846
Other assets 42,159 42,561
                Total assets $ 499,833 $ 449,430

LIABILITIES AND EQUITY
Current liabilities
        Short-term borrowings and current portion of long-term debt $ 754 $ 890
        Accounts and other payables 73,616 63,893
        Accrued compensation 13,997 17,140
        Other current liabilities 23,314 19,268
               Total current liabilities 111,681 101,191
Long-term debt 43,397 73,855
Deferred income taxes 7,492 6,108
Other non-current liabilities 78,033 81,177
               Total liabilities 240,603 262,331
Equity
         Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding
            2011 – 12,875,113 shares; 2010 – 11,492,142 shares 12,875 11,492
         Capital in excess of par value 88,492 38,275
         Retained earnings 169,265 144,347
         Accumulated other comprehensive loss (19,097) (13,736)
               Total Quaker shareholders’ equity 251,535 180,378
Noncontrolling interest 7,695 6,721
Total equity 259,230 187,099
         Total liabilities and equity $ 499,833 $ 449,430

		Unaudited
		(Dollars in thousands,
		except par value
		and share amounts)
		March 31, 2012			December 31, 2011*

ASSETS
Current assets
Cash and cash equivalents	$	18,964	$	16,909
Accounts receivable, net		162,464		150,676
Inventories
Raw materials and supplies		44,711		41,771
Work-in-process and finished goods		30,877		32,987
Prepaid expenses and other current assets		17,024		17,206
Total current assets		274,040		259,549
Property, plant and equipment, at cost		217,580		214,695
Less accumulated depreciation		(133,589)		(131,779)
Net property, plant and equipment		83,991		82,916
Goodwill		59,064		58,152
Other intangible assets, net		31,303		31,783
Investments in associated companies		7,458		7,942
Deferred income taxes		29,368		29,823
Other assets		37,181		35,356
Total assets	$	522,405	$	505,521

LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt	$	607	$	636
Accounts and other payables		76,257		68,125
Accrued compensation		9,906		16,987
Other current liabilities		22,889		20,901
Total current liabilities		109,659		106,649
Long-term debt		47,900		46,701
Deferred income taxes		7,236		7,094
Other non-current liabilities		86,946		89,351
Total liabilities		251,741		249,795
Equity
Common stock $1 par value; authorized 30,000,000 shares; issued and outstanding
2012 – 12,950,752 shares; 2011 – 12,911,508 shares		12,951		12,912
Capital in excess of par value		90,836		89,725
Retained earnings		184,764		175,932
Accumulated other comprehensive loss		(25,902)		(29,820)
Total Quaker shareholders’ equity		262,649		248,749
Noncontrolling interest		8,015		6,977
Total equity		270,664		255,726
Total liabilities and equity	$	522,405	$	505,521

*	Condensed from audited financial statements

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

Table of Contents

Condensed Consolidated Statement of Income

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

Condensed Consolidated Statement of ~~Cash Flows~~Comprehensive Income

Unaudited
(Dollars in thousands)
For the Nine Months Ended
September 30,
2011 2010
Cash flows from operating activities
Net income $ 35,590 $ 26,628
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 8,527 7,448
Amortization 1,596 736
Equity in undistributed earnings of associated companies, net of dividends (136) (523)
Deferred compensation and other, net 6,987 1,559
Stock-based compensation 2,675 2,371
Non-cash gain from purchase of equity affiliate (2,718) —
Gain on disposal of property, plant and equipment (61) (24)
Insurance settlement realized (1,242) (1,225)
Pension and other postretirement benefits (4,099) (3,184)
(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:
Accounts receivable (29,390) (7,982)
Inventories (16,334) (8,645)
Prepaid expenses and other current assets (3,061) (2,656)
Accounts payable and accrued liabilities 6,196 5,007
Net cash provided by operating activities 4,530 19,510

Cash flows from investing activities
Investments in property, plant and equipment (8,914) (6,259)
Payments related to acquisitions, net of cash acquired (10,981) (6,862)
Proceeds from disposition of assets 221 147
Insurance settlement received and interest earned 61 5,099
Change in restricted cash, net 1,181 (1,516)
Net cash used in investing activities (18,432) (9,391)

Cash flows from financing activities
Net decrease in short-term borrowings (185) (1,394)
Proceeds from long-term debt — 29
Repayment of long-term debt (30,613) (5,367)
Dividends paid (8,492) (7,768)
Stock options exercised, other 629 3,829
Excess tax benefit related to stock option exercises 153 2,294
Proceeds from sale of common stock, net of related expenses 48,143 —
Net cash provided by (used in) financing activities 9,635 (8,377)
Effect of exchange rate changes on cash (920) 356
Net (decrease) increase in cash and cash equivalents (5,187) 2,098
Cash and cash equivalents at beginning of period 25,766 25,051
Cash and cash equivalents at end of period $ 20,579 $ 27,149

Supplemental cash flow disclosures:
Non-cash activities:
Restricted insurance receivable (See also Note 13 of Notes to Condensed Consolidated Financial Statements) $ — $ 5,000

	Unaudited
	(Dollars in thousands
	except per
	share and and share amounts)
	Three Months Ended March 31,
	2012			2011
Net income	$	12,693		$	11,230

Other compreshensive income, net of tax
Currency translation adjustments		3,635			3,821
Defined benefit retirement plans		470			324
Current period change in fair value of derivatives		96			96
Unrealized gain on available-for-sale securities		8			6
Other comprehensive income		4,209			4,247

Comprehensive income		16,902			15,477
Less: comprehensive income attributable to noncontrolling interest		(1,038	)		(638	)
Comprehensive income attributable to Quaker Chemical Corporation	$	15,864		$	14,839

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

Table of Contents

Quaker Chemical Corporation

Condensed Consolidated Statement of Cash Flows

	Unaudited
	(Dollars in thousands)
	For the Three Months Ended
	March 31,
	2012			2011
Cash flows from operating activities
Net income	$	12,693		$	11,230
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		3,057			2,656
Amortization		746			486
Equity in undistributed earnings of associated companies, net of dividends		38			(262	)
Deferred compensation and other, net		(103	)		1,967
Stock-based compensation		1,186			868
Gain on disposal of property, plant and equipment		(14	)		(40	)
Insurance settlement realized		(483	)		(365	)
Pension and other postretirement benefits		(2,357	)		(4,910	)
Decrease in cash from changes in current assets and current liabilities, net of acquisitions:
Accounts receivable		(9,764	)		(12,478	)
Inventories		352			(8,309	)
Prepaid expenses and other current assets		(557	)		(2,397	)
Accounts payable and accrued liabilities		1,938			4,455
Net cash provided by (used in) operating activities		6,732			(7,099	)

Cash flows from investing activities
Investments in property, plant and equipment		(3,178	)		(3,475	)
Proceeds from disposition of assets		64			170
Insurance settlement received and interest earned		18			22
Change in restricted cash, net		465			343
Net cash used in investing activities		(2,631	)		(2,940	)

Cash flows from financing activities
Proceeds from long-term debt		1,350			10,000
Repayment of long-term debt		(189	)		(231	)
Dividends paid		(3,105	)		(2,701	)
Stock options exercised, other		(1,288	)		(50	)
Excess tax benefit related to stock option exercises		546			78
Net cash (used in) provided by financing activities		(2,686	)		7,096
Effect of exchange rate changes on cash		640			741
Net increase (decrease) in cash and cash equivalents		2,055			(2,202	)
Cash and cash equivalents at beginning of period		16,909			25,766
Cash and cash equivalents at end of period	$	18,964		$	23,564

Supplemental cash flow disclosures:
Non-cash activities:
Excess tax benefit related to stock option exercises	$	706		$	—

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

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

(Unaudited)

Note 1 – Condensed Financial Information

The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States for interim financial reporting and the United States Securities and Exchange Commission regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments (consisting only of normal recurring ~~adjustments, except as discussed below)~~adjustments) which are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods. The results for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s Annual Report filed on Form 10-K for the year ended December 31, ~~2010.~~2011.

During the third quarter of 2011, the Company purchased the remaining ownership interest in its Mexican equity affiliate. In connection with this purchase, the Company revalued its previously held ownership interest to its fair value, resulting in a one-time, non-cash gain of approximately $2,718 or approximately $0.22 per diluted share.

During the third quarter of 2010, the Company incurred a net charge of approximately $3,581, or approximately $0.21 per diluted share, related to a non-income tax contingency. Refer to Note 13 for further information.

The Company recognized certain costs related to the retirement of the Company’s former CEO. Included in these costs was a final charge of $1,317, or approximately $0.08 per diluted share, recorded in the third quarter of 2010 related to the former CEO’s supplemental retirement plan.

Effective January 1, 2010, the Venezuelan economy was considered to be hyperinflationary under generally accepted accounting principles in the United States, since it has 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% equity affiliate (Kelko Quaker Chemical, S.A.) are required to be recorded directly in the statement of operations. On January 8, 2010, the Venezuelan government announced the devaluation of the Bolivar Fuerte. As a result of the devaluation, the Company recorded a charge of approximately $0.03 per diluted share in the first quarter of ~~2010.~~2012, the Company adopted the Financial Accounting Standards Board’s (“FASB’s”) guidance regarding presentation of comprehensive income. The guidance requires that comprehensive income be presented with the Condensed Consolidated Statement of Income or as a separate statement immediately following the Condensed Consolidated Statement of Income, and can no longer be presented as part of the Consolidated Statement of Changes in Equity. The Company adopted the guidance using the two statement approach, and the adoption of this guidance did not have a material impact on the Company’s results or financial condition.

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 ~~$37,787~~$11,229 and ~~$42,560~~$11,964 for the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ respectively.

Note 2 – Recently Issued Accounting Standards

The FASB updated its guidance in ~~June~~December 2011 regarding ~~presentation~~disclosures pertaining to the netting and offsetting of ~~comprehensive income. Comprehensive income will be~~derivatives and financial instruments on an entity’s Consolidated Balance Sheet. Disclosures required under the updated guidance include presenting gross amounts of assets and liabilities related to ~~be presented with~~financial instruments that may have been historically offset on the Consolidated Statement of Income or as a separate financial statement immediately following the Consolidated Statement of Income. Presentation of comprehensive income will no longer be presented as part of the Statement of Shareholders’ Equity.Balance Sheet. The guidance is effective for annual and interim fiscal periods beginning on or after ~~December 15, 2011.~~January 1, 2013. The Company is currently evaluating the effect of this guidance.

The FASB updated its guidance in May 2011 regarding disclosures pertaining to assets and liabilities measured at fair value. The guidance requires quantitative measures regarding unobservable inputs for Level 3 assets and liabilities. Additionally, the guidance requires a sensitivity analysis regarding those inputs. The guidance is effective for annual and interim fiscal periods beginning after December 15, 2011. The Company is currently evaluating the effect of this guidance.

The FASB updated its guidance in September 2011 regarding goodwill impairment testing. The updated guidance permits a Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company determines that their reporting units’ fair value is more than likely above its carrying value, no further impairment testing would be required. However, if the Company concludes otherwise, then the first step of the traditional two-step goodwill impairment test is required to be performed. The guidance is effective for annual and interim fiscal periods beginning after December 15, 2011, with early adoption permitted if an entity’s financial statements have not been issued as of the date of the entity’s interim or annual impairment test. The Company elected to test goodwill for impairment under the traditional two-step method during the current year but is currently evaluating the effect of this guidance for future applicability.

~~Table of Contents~~

~~Quaker Chemical Corporation~~

~~Notes to Condensed Consolidated Financial Statements - Continued~~

~~(Dollars in thousands, except per share amounts)~~

~~(Unaudited)~~

Note 3 – Income Taxes and Uncertain Income Tax Positions

The ~~Company's year-to-date 2011~~Company’s first quarter of 2012 effective tax rate was 21.5%, as compared to an effective tax rate of ~~27.1% was higher than~~20.6% for the ~~year-to-date 2010 effective tax rate~~first quarter of ~~25.8%.~~2011. Both ~~year-to-date~~quarters’ effective tax rates reflect ~~the derecognition of uncertain tax positions due to~~ the expiration of applicable statutes of limitations for ~~certain~~uncertain tax ~~years~~positions of approximately ~~$0.14~~$0.12 and ~~$0.15~~$0.11 per diluted share for 2012 and 2011, ~~and 2010,~~ respectively. ~~The most significant other item affecting the comparison of year-to-date effective tax rates is a change in the mix of income among tax jurisdictions.~~

The FASB’s guidance regarding accounting for uncertainty in income taxes prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. The guidance further requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. Additionally, the guidance provides for derecognition, classification, penalties and interest, accounting in interim periods, disclosure and transition.

~~At December~~As of March 31, ~~2010,~~2012, the Company’s cumulative liability for gross unrecognized tax benefits was ~~$10,464. As of September 30,~~$12,482. At December 31, 2011, the Company’s cumulative liability for gross unrecognized tax benefits was ~~$10,548.~~$12,719.

The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of taxes on income before equity in net income of associated companies in its Condensed Consolidated Statement of Income. The Company ~~had accrued $1,824 for cumulative interest and $857 for cumulative penalties at December 31, 2010. The Company has~~ recognized ~~$63 and $122~~($215) for interest and ~~$110 and $535~~$95 for penalties on its Condensed Consolidated Statement of Income for the three ~~and nine~~ months ended ~~September 30, 2011, respectively,~~March 31, 2012, and as($125) for interest and $279 for penalties during the three months ended March 31, 2011. As of ~~September 30, 2011,~~March 31, 2012, the Company had accrued ~~$1,954~~$2,109 for cumulative interest and ~~$1,378~~$1,428 for cumulative ~~penalties.~~penalties, and $2,268 for cumulative interest and $1,298 for cumulative penalties at December 31, 2011.

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

During the ~~three and nine months ended September 30, 2011,~~first quarter of 2012, the Company derecognized uncertain tax positions due to the expiration of the applicable statutes of limitations for certain tax years of approximately ~~$424 and $1,382, respectively.~~$1,072.

The Company estimates that during the year ~~ending~~ended December 31, ~~2011~~2012 it will reduce its cumulative liability for gross unrecognized tax benefits by approximately ~~$1,600~~$1,700 to $1,800 due to the expiration of the statute of limitations with regard to certain tax positions. This estimated reduction in the cumulative liability for unrecognized tax benefits does not consider any increase in liability for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative liability for unrecognized tax benefits with regard to new tax positions for the year ~~ending~~ended December 31, ~~2011.~~2012.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions include the Netherlands ~~from 2005,~~and the United Kingdom ~~Italy and Brazil,~~ from 2006, Brazil and Spain from 2007, the United States from 2008, China from 2009, Italy from 2010, and various domestic state tax jurisdictions from 1993.

Note 4 – Fair Value Measurements

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

~~Table of Contents~~

~~Quaker Chemical Corporation~~

~~Notes to Condensed Consolidated Financial Statements - Continued~~

~~(Dollars in thousands, except per share amounts)~~

~~(Unaudited)~~

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

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The Company values its interest rate swaps, company-owned life insurance policies, ~~and~~ various deferred compensation assets and liabilities, acquisition-related consideration and an obligation related to a non-competition agreement at fair value. The Company’s assets and liabilities subject to fair value measurement are as follows (in thousands):

Fair Value Measurements at September 30, 2011
Fair Value Using Fair Value Hierarchy
as of
Assets September 30, 2011 Level 1 Level 2 Level 3
Company-owned life insurance $ 1,408 $ — $ 1,408 $ —
Company-owned life insurance - Deferred compensation assets 471 — 471 —
Other deferred compensation assets
Large capitalization registered investment companies 57 57 — —
Mid capitalization registered investment companies 4 4 — —
Small capitalization registered investment companies 6 6 — —
International developed and emerging markets registered investment
companies 31 31 — —
Fixed income registered investment companies 8 8 — —

Total $ 1,985 $ 106 $ 1,879 $ —

Fair Value Measurements at September 30, 2011
Fair Value Using Fair Value Hierarchy
as of
Liabilities September 30, 2011 Level 1 Level 2 Level 3
Deferred compensation liabilities
Large capitalization registered investment companies $ 288 $ 288 $ — $ —
Mid capitalization registered investment companies 74 74 — —
Small capitalization registered investment companies 60 60 — —
International developed and emerging markets registered investment
companies 162 162 — —
Fixed income registered investment companies 50 50 — —
Fixed general account 175 — 175 —
Interest rate derivatives 586 — 586 —
Acquisition-related consideration 7,748 — — 7,748
Obligation related to a non-competition agreement 663 — — 663

Total $ 9,806 $ 634 $ 761 $ 8,411

			Fair Value Measurements at March 31, 2012
	Fair Value		Using Fair Value Hierarchy
	as of
Assets	March 31, 2012		Level 1		Level 2		Level 3
Company-owned life insurance	$	1,620	$	—	$	1,620	$	—
Company-owned life insurance - Deferred compensation assets		469		—		469		—
Other deferred compensation assets
Large capitalization registered investment companies		62		62		—		—
Mid capitalization registered investment companies		5		5		—		—
Small capitalization registered investment companies		9		9		—		—
International developed and emerging markets registered investment				��
companies		35		35		—		—
Fixed income registered investment companies		9		9		—		—

Total	$	2,209	$	120	$	2,089	$	—

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

Fair Value Measurements at December 31, 2010
Fair Value Using Fair Value Hierarchy
as of
Assets December 31, 2010 Level 1 Level 2 Level 3
Company-owned life insurance $ 2,033 $ — $ 2,033 $ —
Company-owned life insurance - Deferred compensation assets 593 — 593 —
Other deferred compensation assets
Large capitalization registered investment companies 69 69 — —
Mid capitalization registered investment companies 4 4 — —
Small capitalization registered investment companies 8 8 — —
International developed and emerging markets registered investment
companies 40 40 — —
Fixed income registered investment companies 10 10 — —

Total $ 2,757 $ 131 $ 2,626 $ —

			Fair Value Measurements at March 31, 2012
	Fair Value		Using Fair Value Hierarchy
	as of
Liabilities	March 31, 2012		Level 1		Level 2		Level 3
Deferred compensation liabilities
Large capitalization registered investment companies	$	327	$	327	$	—	$	—
Mid capitalization registered investment companies		87		87		—		—
Small capitalization registered investment companies		71		71		—		—
International developed and emerging markets registered investment
companies		177		177		—		—
Fixed income registered investment companies		48		48		—		—
Fixed general account		167		—		167		—
Interest rate derivatives		270		—		270		—
Acquisition-related consideration		9,204		—		—		9,204

Total	$	10,351	$	710	$	437	$	9,204

Fair Value Measurements at December 31, 2010
Fair Value Using Fair Value Hierarchy
as of
Liabilities December 31, 2010 Level 1 Level 2 Level 3
Deferred compensation liabilities
Large capitalization registered investment companies $ 347 $ 347 $ — $ —
Mid capitalization registered investment companies 88 88 — —
Small capitalization registered investment companies 71 71 — —
International developed and emerging markets registered investment
companies 213 213 — —
Fixed income registered investment companies 52 52 — —
Fixed general account 182 — 182 —
Interest rate derivatives 1,026 — 1,026 —
Acquisition-related consideration 5,350 — — 5,350

Total $ 7,329 $ 771 $ 1,208 $ 5,350

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

Total	$	2,110	$	115	$	1,995	$	—

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

Total	$	10,180	$	687	$	595	$	8,898

The fair values of Company-owned life insurance (“COLI”) and COLI deferred compensation assets are based on quotes for like instruments with similar credit ratings and terms. The fair values of other deferred compensation assets and liabilities are based on quoted prices in active ~~markets, with the exception of the fixed general account, which is based on quotes for like instruments with similar credit ratings and terms.~~markets. The fair values of interest rate derivatives are based on quoted market prices from various banks for similar instruments. The fair value of ~~acquisition-related consideration~~the earnout is based on unobservable inputs and is classified as Level 3. Significant inputs and assumptions are management’s estimate of the probability of the ~~earnouts~~earnout ultimately being met/paid and the discount rate used to present value the ~~liabilities.~~liability. The fair value of the holdbacks and the obligation related to a non-competition agreement isare also based on unobservable inputs and isare classified as Level 3. Significant inputs and assumptions for both the obligation related to the non-competition agreement and the holdbacks are management’s estimate of the discount rate used to present value the ~~liability.~~liabilities.

~~Changes in the fair value of the Level 3 liabilities during the nine months ended September 30, 2011 was as follows:~~

Non-competition
Earnout Hold-back Agreement
Summit Tecniquimia Obligation Total
Balance at December 31, 2010 $ 5,350 $ — $ — $ 5,350
Purchases, sales, acquisitions and settlements, net — 1,754 900 2,654
Interest accretion 582 62 13 657
Payments — — (250) (250)
Balance at September 30, 2011 $ 5,932 $ 1,816 $ 663 $ 8,411

Table of Contents

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

Significant changes in any of those Level 3 inputs and assumptions in isolation would result in increases or decreases to the fair value measurements for the holdbacks, the earnout and the non-competition agreement.

Changes in the fair value of the Level 3 liabilities during the three months ended March 31, 2012 were as follows:

					Non-competition
	Earnout		Hold-back		Agreement		Hold-back
	Summit		Tecniquimia		Obligation		GW Smith		Total
Balance at December 31 2011	$	5,444	$	1,877	$	675	$	902	$	8,898
Interest accretion		198		62		13		33		306
Balance at March 31, 2012	$	5,642	$	1,939	$	688	$	935	$	9,204

Quantitative information about the Company’s Level 3 fair value measurements at March 31, 2012 were as follows:

	Fair value at March 31, 2012	Valuation technique	Unobservable input	Input value
Summit earnout	5,642	Discounted cash flow	Discount rate	14.5%
Tecniquimia holdback	1,939	Discounted cash flow	Discount rate	14.0%
Non-competition agreement obligation	688	Discounted cash flow	Discount rate	14.0%
G.W. Smith holdback	935	Discounted cash flow	Discount rate	15.0%

The fair value of the Summit earnout is based on the weighted average probability of the outcome of different payout scenarios. As March 31, 2012, the weighted average probabilities applied to the payout scenarios ranged from 15% to 50%, depending on the Company's estimate of the likelihood of each payout.

Note 5 – Hedging Activities

The Company is exposed to the impact of changes in interest rates, foreign currency fluctuations, changes in commodity prices and credit risk. The Company does not use derivative instruments to mitigate the risks associated with foreign currency fluctuations, changes in commodity prices or credit risk. Quaker uses interest rate swaps to mitigate the impact of changes in interest rates. The swaps convert a portion of the Company’s variable interest rate debt to fixed interest rate debt and are designated as cash flow hedges and reported on the balance sheet at fair value. The effective portions of the hedges are reported in Other Comprehensive Income (“OCI”) until reclassified to earnings during the same period the hedged item affects earnings. The Company has no derivatives designated as fair value hedges and only has derivatives designated as hedging instruments under the FASB’s guidance. The notional amount of the Company’s interest rate swaps was $15,000 as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011.

Information about the Company’s interest rate derivatives is as ~~follows (in thousands of dollars):~~follows:

Fair Value
September 30, December 31,
Balance Sheet Location 2011 2010
Derivatives designated as cash flow hedges:
Interest rate swaps Other current liabilities $ 586 $ —
Interest rate swaps Other non-current liabilities — 1,026
$ 586 $ 1,026

		Fair Value
		March 31,		December 31,
	Balance Sheet Location	2012		2011
Derivatives designated as cash flow hedges:
Interest rate swaps	Other current liabilities	$	270	$	418
		$	270	$	418

Cash Flow Hedges	Cash Flow Hedges									Cash Flow Hedges
Interest Rate Swaps	Interest Rate Swaps									Interest Rate Swaps

		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2011		2010		2011		2010			2012			2011
Amount of Gain Recognized in Accumulated OCI on Derivative

Amount of Gain Recognized in Accumulated OCI on Derivative (Effective Portion)											$	96		$	96

Amount and Location of Loss Reclassified from Accumulated OCI into Income
(Effective Portion)		$	112	$	191	$	286	$	487	Interest Expense	$	(158	)	$	(163	)

Amount and Location of Loss Reclassified from Accumulated OCI into
Income (Effective Portion)	Interest Expense	$	(168)	$	(444)	$	(496)	$	(1,352)

Amount and Location of Loss Recognized in Income on Derivative (Ineffective
Portion and Amount Excluded from Effectiveness Testing)										Other Income	$	—		$	—

Table of Contents

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

Note 6 – Stock-Based Compensation

The Company recognized ~~approximately $2,675 of share-based~~share based compensation expense ~~for the nine months ended September 30, 2011. The compensation expense was comprised~~in selling, general and administrative expenses in its Condensed Consolidated Statement of $360 related to stock options, $1,031 related to nonvested stock awards, $33 related to the Company’s Employee Stock Purchase Plan, $1,206 related to the Company’s non elective 401(k) matching contribution and a portion of its elective 401(k) matching contribution in stock, and $45 related to the Company’s Director Stock Ownership Plan.Income as follows:

	March 31,
	2012		2011
Stock options	$	128	$	105
Nonvested stock awards		380		312
Employee stock purchase plan		11		12
Non-elective and elective 401(k) matching contribution in stock		652		407
Director stock ownership plan		15		32
Total share-based compensation expense	$	1,186	$	868

Based on historical experience, the Company has assumed a forfeiture rate of 13% on the nonvested stock. The Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture is higher than estimated.

The Company has a long-term incentive program (“LTIP”) for key employees which provides for the granting of options to purchase stock at prices not less than market value on the date of the grant. Most options become exercisable between one and three years after the date of the grant for a period of time as determined by the Company ~~but~~ not to exceed seven years from the date of grant. Common stock awards issued under the LTIP program are subject only to time vesting over a three to five-year period. In addition, as part of the Company’s Global Annual Incentive Plan (“GAIP”), nonvested shares may be issued to key employees, which generally vest over a two to five-year period.

~~Table~~As of ~~Contents~~

~~Quaker Chemical Corporation~~

~~Notes to~~March 31, 2012 and March 31, 2011, the Company recorded $1,252 and $78, respectively, of excess tax benefits in capital in excess of par value on its Condensed Consolidated ~~Financial Statements - Continued~~

~~(Dollars~~Balance Sheets, related to stock option exercises. Based on estimated taxes payable, the Company recognized $546 and $78 of these benefits as cash inflows from financing activities in ~~thousands, except per share amounts)~~

~~(Unaudited)~~

its Condensed Consolidated Statement of Cash Flows, which represented the Company’s estimate of cash savings through March 31, 2012 and March 31, 2011, 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)
Balance at December 31, 2010 303,444 $ 14.19
Options granted 36,835 37.37
Options exercised (36,748) 16.85
Options forfeited (11,018) 13.67
Balance at September 30, 2011 292,513 $ 16.79 4.5
Exercisable at September 30, 2011 137,410 $ 13.91 3.7

		Weighted Average		Weighted Average
	Number of	Exercise Price per		Remaining Contractual
	Shares	Share		Term (years)
Balance at December 31, 2011	253,342	$	16.43
Options granted	37,965		38.13
Options exercised	(34,380)		6.93
Options forfeited	—		—
Balance at March 31, 2012	256,927	$	20.91	4.9
Exercisable at March 31, 2012	160,554	$	14.76	4.3

As of ~~September 30, 2011,~~March 31, 2012, the total intrinsic value of options outstanding was approximately ~~$3,306,~~$4,750, and the total intrinsic value of exercisable options was ~~$1,766.~~$3,955. Intrinsic value is calculated as the difference between the current market price of the underlying security and the strike price of a related option.

Table of Contents

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, 2011~~March 31, 2012 is as follows:

						Weighted	Weighted		Number	Weighted							Weighted	Weighted		Number	Weighted
					Number	Average	Average		Exercisable	Average						Number	Average	Average		Exercisable	Average
Range of	Range of				Outstanding	Contractual	Exercise		at	Exercise		Range of				Outstanding	Contractual	Exercise		at	Exercise
Exercise Prices	Exercise Prices				at 9/30/2011	Life	Price		9/30/2011	Price		Exercise Prices				at 3/31/2012	Life	Price		3/31/2012	Price
$	3.74	-	$	7.47	117,157	4.4	$	6.93	66,597	$	6.93	3.81	-	$	7.63	74,646	3.9	$	6.93	74,646	$	6.93
$	7.48	-	$	18.69	—	—		—	—		—	7.64	-	$	15.25	—	—		—	—		—
$	18.70	-	$	22.42	113,677	5.0		18.91	45,969		19.04	15.26	-	$	19.07	93,988	4.8		18.82	60,134		18.82
$	22.43	-	$	26.16	24,844	0.01		23.13	24,844		23.13	19.08	-	$	22.88	13,493	2.8		19.45	13,493		19.45
$	26.17	-	$	33.63	—	—		—	—		—	22.89	-	$	34.32	—	—		—	—		—
$	33.64	-	$	37.37	36,835	6.4		37.37	—		—	34.33	-	$	38.13	74,800	6.4		37.76	12,281		37.37
					292,513	4.5		16.79	137,410		13.91					256,927	4.9		20.91	160,554		14.76

As of ~~September 30, 2011,~~March 31, 2012, unrecognized compensation expense related to options granted during ~~2009~~2010 was ~~$44,~~$179, for options granted during ~~2010~~2011 was ~~$287~~$319 and for options granted in ~~2011~~2012 was ~~$402.~~$616.

During the first quarter of ~~2011,~~2012, the Company granted ~~36,835~~37,965 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:

	~~2011~~	2012
Dividend Yield	~~5.00~~3.09	%
Expected Volatility	~~62.13~~69.90	%
Risk-free interest rate	~~1.99~~0.61	%
Expected term (years)	~~5.0~~
~~Expected forfeiture rate~~	~~3.00~~	%4.0

Approximately ~~$97~~$14 of expense was recorded on these options during the first ~~nine~~three months of ~~2011.~~2012. The fair value of these awards is amortized on a straight-line basis over the vesting period of the awards.

~~Table~~Activity of ~~Contents~~

~~Quaker Chemical Corporation~~

~~Notes to Condensed Consolidated Financial Statements - Continued~~

~~(Dollars in thousands, except per share amounts)~~

~~(Unaudited)~~

~~Nonvested~~ shares granted under the Company’s LTIP ~~plans are~~plan is shown below:


		Weighted			Weighted
		Average Grant			Average Grant
	Number of	Date Fair Value		Number of	Date Fair Value
	Shares	(per share)		Shares	(per share)
Nonvested awards, December 31, 2010	163,076	$	14.89
Nonvested awards, December 31, 2011				169,863	$	20.66
Granted	58,350	$	36.53	27,340	$	38.13
Vested	(42,412)	$	22.25	(68,741)	$	8.01
Forfeited	(9,151)	$	11.65	—	$	—
Nonvested awards, September 30, 2011	169,863	$	20.66
Nonvested awards, March 31, 2012				128,462	$	31.14

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, 2011,~~March 31, 2012, unrecognized compensation expense related to these awards was ~~$2,010~~$2,203 to be recognized over a weighted average remaining period of ~~2.00~~2.28 years.

~~Nonvested shares~~

Table of Contents

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

During the first quarter of 2012, the Company granted restricted stock units under the Company’s ~~GAIP plan are~~LTIP plan. Activity of restricted stock units granted is shown below:

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 fair value for expected forfeitures based on historical experience for similar awards. As of ~~September 30, 2011,~~March 31, 2012, unrecognized compensation expense related to these awards was ~~$81,~~$68 to be recognized over a weighted average remaining period of ~~0.50~~3.0 years.

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

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

As of March 31, 2012, these shares were fully vested and all related compensation expense was realized.

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 by giving written notice to the Company.~~time. An employee whose stock ownership of the Company exceeds five percent of the outstanding common stock is not eligible to participate in this plan.

2003 Director Stock Ownership Plan

In March 2003, the Company’s Board of Directors approved a stock ownership plan for each member of the Company’s Board to encourage the Directors to increase their investment in the Company. The Plan was effective on the date it was approved and remains in effect for a term of ten years or until it is earlier terminated by the Board. The maximum number of shares of Common Stock which may be issued under the Plan is 75,000, subject to certain conditions that the Compensation/Management Development Committee (the “Committee”) may elect ~~which would~~to adjust the number of shares. As of ~~September 30, 2011,~~March 31, 2012, the Committee has not made any elections to adjust the shares under this plan. Each Director is eligible to receive an annual retainer for services rendered as a member of the Board of Directors. Currently, each Director who owns less than 7,500 shares of Company Common Stock is required to receive 75% of the annual retainer in Common Stock and 25% of the annual retainer in cash. Each Director who owns 7,500 or more shares of Company Common Stock may elect to receive payment of a percentage (up to 100%) of the annual retainer in shares of common stock. Currently, the annual retainer is $40. The number of shares issued in payment of the fees is calculated based on an amount equal to the average of the closing prices per share of Common Stock as reported on the composite tape of the New York Stock Exchange for the two trading days immediately preceding the retainer payment date. The retainer payment date is June 1.

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Table of Contents

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

Note 7 – Earnings Per Share

The Company ~~applies~~follows FASB’s guidance regarding the calculation of earnings per share ~~using the two-class method.~~(“EPS”) for nonvested stock awards with rights to non-forfeitable dividends. The ~~Company includes~~guidance requires nonvested stock awards with rights to non-forfeitable dividends to be included as part of ~~its~~the basic weighted average share ~~calculation.~~calculation under the two-class method.

The following table summarizes ~~earnings per share (EPS)~~EPS calculations:

The following number of stock options and restricted stock units are not included in the diluted earnings per share calculation since the effect would have been anti-dilutive: ~~15,740~~20,178 and 012,165 for the three months ended ~~September 30,~~March 31, 2012 and March 31, 2011, ~~and 2010, and 11,356 and 0 for the nine months ended September 30, 2011 and 2010,~~ respectively.

~~The Company organizes its segments by type of product sold. The Company’s reportable segments are as follows:~~

~~(1) Metalworking process chemicals – industrial process fluids for various heavy industrial and manufacturing applications.~~

~~(2) Coatings – temporary and permanent coatings for metal and concrete products and chemical milling maskants.~~

~~(3) Other chemical products – other various chemical products.~~

~~Segment data includes direct segment costs as well as general operating costs.~~

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Table of Contents

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

The table below presents information about the reported segments:

Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Metalworking Process Chemicals
Net sales $ 171,222 $ 128,764 $ 478,727 $ 376,931
Operating income for reportable segments 30,443 25,290 83,527 75,926
Coatings
Net sales 10,378 8,424 29,347 23,698
Operating income for reportable segments 2,452 1,980 6,861 5,306
Other Chemical Products
Net sales 713 481 1,896 1,351
Operating income (loss) for reportable segments 32 (6) 71 (40)
Total
Net sales 182,313 137,669 509,970 401,980
Operating income for reportable segments 32,927 27,264 90,459 81,192
Non-operating expenses (14,800) (12,661) (42,318) (39,043)
Non-income tax related contingency charge — (3,581) — (3,581)
CEO transition costs — (1,317) — (1,317)
Amortization (623) (274) (1,596) (736)
Interest expense (1,166) (1,345) (3,584) (4,042)
Interest income 262 313 805 840
Other income (loss), net 2,740 (320) 4,070 1,566
Consolidated income before taxes and equity in net income of associated companies $ 19,340 $ 8,079 $ 47,836 $ 34,879
Note 8 – Business Segments

The Company organizes its segments by type of product sold. The Company’s reportable segments are as follows:

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

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

The table below presents information about the reported segments:

	Three Months Ended
	March 31,
	2012			2011
Metalworking Process Chemicals
Net sales	$	165,975		$	150,733
Operating income for reportable segments		30,975			26,935
Coatings
Net sales		10,523			8,482
Operating income for reportable segments		2,513			1,963
Other Chemical Products
Net sales		1,140			650
Operating income for reportable segments		142			35
Total
Net sales		177,638			159,865
Operating income for reportable segments		33,630			28,933
Non-operating charges		(16,182	)		(14,347	)
Amortization		(746	)		(486	)
Consolidated operating income		16,702			14,100
Interest expense		(1,174	)		(1,218	)
Interest income		123			272
Other income, net		341			539
Consolidated income before taxes and equity in net income of associated companies	$	15,992		$	13,693

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

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Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

Note 9 – Equity and Noncontrolling Interest ~~and Comprehensive Income~~

The following table presents the changes in equity and noncontrolling interest, ~~and comprehensive income~~net of tax, for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010:~~March 31, 2011:

Accumulated
Capital in Other
Common Excess of Retained Comprehensive Noncontrolling Comprehensive
Stock Par Value Earnings Income (Loss) Interest Income Total
Balance at June 30, 2011 $ 12,823 $ 87,249 $ 158,998 $ (5,507) $ 8,142 $ 261,705
Net income — — 13,358 447 $ 13,805
Currency translation adjustments — — — (13,042) (894) (13,936)
Defined benefit retirement plans — — — (637) — (637)
Current period changes in fair value of derivatives — — — 112 — 112
Unrealized loss on available-for-sale securities — — — (23) — (23)
Comprehensive loss (679) (679)
Comprehensive income attributable to
  noncontrolling interest 447
Comprehensive loss attributable to
  Quaker Chemical Corporation $ (232)
Dividends ($0.24 per share) — — (3,091) — — (3,091)
Share issuance and equity-based compensation plans 52 1,252 — — — 1,304
Excess tax benefit from stock option exercises — (9) — — — (9)
Balance at September 30, 2011 $ 12,875 $ 88,492 $ 169,265 $ (19,097) $ 7,695 $ 259,230

Balance at June 30, 2010 $ 11,259 $ 32,798 $ 136,497 $ (20,070) $ 6,063 $ 166,547
Net income — — 6,340 517 $ 6,857
Currency translation adjustments — — — 11,085 493 11,578
Defined benefit retirement plans — — — 862 — 862
Current period changes in fair value of derivatives — — — 191 — 191
Unrealized loss on available-for-sale securities — — — 13 — 13
Comprehensive income 19,501 19,501
Comprehensive loss attributable to
  noncontrolling interest (1,010)
Comprehensive income attributable to
  Quaker Chemical Corporation $ 18,491
Dividends ($0.235 per share) — — (2,676) — — (2,676)
Share issuance and equity-based compensation plans 117 2,757 — — — 2,874
Excess tax benefit from stock option exercises — 176 — — — 176
Balance at September 30, 2010 $ 11,376 $ 35,731 $ 140,161 $ (7,919) $ 7,073 $ 186,422

~~Table of Contents~~

~~Quaker Chemical Corporation~~

~~Notes to Condensed Consolidated Financial Statements - Continued~~

~~(Dollars in thousands, except per share amounts)~~

~~(Unaudited)~~

Accumulated
Capital in Other
Common Excess of Retained Comprehensive Noncontrolling Comprehensive
Stock Par Value Earnings Income (Loss) Interest Income Total
Balance at December 31, 2010 $ 11,492 $ 38,275 $ 144,347 $ (13,736) $ 6,721 $ 187,099
Net income — — 33,799 — 1,791 $ 35,590
Currency translation adjustments — — — (5,642) (817) (6,459)
Defined benefit retirement plans — — — 12 — 12
Current period changes in fair value of derivatives — — — 286 — 286
Unrealized gain on available-for-sale securities — — — (17) — (17)
Comprehensive income 29,412 29,412
Comprehensive loss attributable to
  noncontrolling interest (974)
Comprehensive income attributable to
  Quaker Chemical Corporation $ 28,438
Dividends ($0.71 per share) — — (8,881) — — (8,881)
Stock offering, net of related expenses 1,265 46,878 — — — 48,143
Share issuance and equity-based compensation plans 118 3,186 — — — 3,304
Excess tax benefit from stock option exercises — 153 — — — 153
Balance at September 30, 2011 $ 12,875 $ 88,492 $ 169,265 $ (19,097) $ 7,695 $ 259,230

Balance at December 31, 2009 $ 11,086 $ 27,527 $ 123,140 $ (10,439) $ 4,981 $ 156,295
Net income — — 24,912 1,716 $ 26,628
Currency translation adjustments — — — 629 376 1,005
Defined benefit retirement plans — — — 1,400 — 1,400
Current period changes in fair value of derivatives — — — 487 — 487
Unrealized loss on available-for-sale securities — — — 4 — 4
Comprehensive income 29,524 29,524
Comprehensive loss attributable to
  noncontrolling interest (2,092)
Comprehensive income attributable to
  Quaker Chemical Corporation $ 27,432
Dividends ($0.70 per share) — — (7,891) — — (7,891)
Share issuance and equity-based compensation plans 290 5,910 — — — 6,200
Excess tax benefit from stock option exercises — 2,294 — — — 2,294
Balance at September 30, 2010 $ 11,376 $ 35,731 $ 140,161 $ (7,919) $ 7,073 $ 186,422

									Accumulated
			Capital in						Other
	Common		excess of			Retained			Comprehensive			Noncontrolling
	stock		par value			earnings			Loss			interest		Total
Balance at December 31, 2011	$	12,912	$	89,725		$	175,932		$	(29,820	)	$	6,977	$	255,726
Net income		—		—			11,946			—			747		12,693
Currency translation adjustments		—		—			—			3,344			291		3,635
Defined benefit retirement plans		—		—			—			470			—		470
Current period changes in fair value of derivatives		—		—			—			96			—		96
Unrealized gain on available-for-sale securities		—		—			—			8			—		8
Dividends ($0.24 per share)		—		—			(3,114	)		—			—		(3,114	)
Share issuance and equity-based compensation plans		39		(141	)		—			—			—		(102	)
Excess tax benefit from stock option exercises		—		1,252			—			—			—		1,252
Balance at March 31, 2012	$	12,951	$	90,836		$	184,764		$	(25,902	)	$	8,015	$	270,664

Balance at December 31, 2010	$	11,492	$	38,275		$	144,347		$	(13,736	)	$	6,721	$	187,099
Net income		—		—			10,600			—			630		11,230
Currency translation adjustments		—		—			—			3,813			8		3,821
Defined benefit retirement plans		—		—			—			324			—		324
Current period changes in fair value of derivatives		—		—			—			96			—		96
Unrealized gain on available-for-sale securities		—		—			—			6			—		6
Dividends ($0.235 per share)		—		—			(2,710	)		—			—		(2,710	)
Share issuance and equity-based compensation plans		39		779			—			—			—		818
Excess tax benefit from stock option exercises		—		78			—			—			—		78
Balance at March 31, 2011	$	11,531	$	39,132		$	152,237		$	(9,497	)	$	7,359	$	200,762

~~During the first nine months~~The items in Accumulated Other Comprehensive Loss are net of ~~2011, the Company recorded $153 of excess~~ tax benefits of $280 and $167 for defined benefit retirement plans and $52 and $51 for current period changes in ~~capital in excess~~fair value of ~~par value on its Condensed Consolidated Balance Sheet, related to stock option exercises. During~~derivatives for the ~~first nine~~three months of 2010, the Company recorded $2,294 of these benefits. Prior to the first quarter of 2010, the Company’s actual taxable income in affected jurisdictions was not sufficient to recognize these benefits, while the Company’s full-year 2010 taxable income was sufficient to recognize these benefits. As a result, the Company recognized these benefits as a cash inflow from financing activities in its Condensed Consolidated Statement of Cash Flows which represents the Company’s estimate of cash savings through September 30,ended March 31, 2012 and March 31, 2011, ~~and 2010,~~ respectively.

The Company sold 1,265,000 shares of its common stock during the second quarter of 2011. The Company received proceeds of $48,143, net of related offering expenses, commissions and underwriting fees. The Company used the proceeds to repay a portion of its revolving credit line during the second quarter of 2011.

~~Table of Contents~~

~~Quaker Chemical Corporation~~

~~Notes to Condensed Consolidated Financial Statements - Continued~~

~~(Dollars in thousands, except per share amounts)~~

~~(Unaudited)~~

In ~~July 2010,~~October 2011, the Company ~~completed the acquisition of the assets of D.A. Stuart’s U.S. aluminum hot rolling oil business from Houghton International~~acquired G.W. Smith & Sons, Inc. for ~~$6,793. This acquisition strategically strengthens the Company’s position in the non-ferrous industry, as the acquired product portfolio is complementary to its existing business.~~approximately $14,518. G.W Smith manufactures and distributes high quality die casting lubricants, and also distributes metalworking fluids. The Company allocated ~~$2,351 to~~$6,260 of intangible assets, ~~comprised of customer lists, to be amortized over 15 years;~~comprising trade names ~~to be amortized over 10 years;~~ and a trademark, to be amortized over one year. In addition, the Company recorded $3,133 of goodwill, all of which will be tax-deductible, and was assigned to the metalworking process chemicals segment.

In December 2010, the Company completed the acquisition of Summit Lubricants, Inc. for approximately $29,116, subject to certain post closing adjustments. The Company paid an additional $717 in the second quarter of 2011 to complete post closing adjustments. Summit Lubricants manufactures and distributes specialty greases and lubricants and is complementary to the Company’s existing business. The Company allocated $17,100 to intangible assets, comprised of formulations, to be amortized over 15 years; ~~customer lists,~~a trademark to be amortized over 205 years; a non-competition agreement to be amortized over 5 years; and ~~a trademark, which was assigned an indefinite life.~~customer lists to be amortized over 16 years. In addition, the Company recorded ~~$3,804~~$1,120 of goodwill, all of which will be tax deductible and was assigned to the metalworking process ~~chemicals~~chemical segment. Liabilities assumed include ~~an earnout~~a hold-back of consideration to be paid to the former ~~shareholders if certain earnings targets are met by~~shareholder at one year from the ~~end~~acquisition date, absent the occurrence of ~~2013.~~unforeseen obligations.

In July 2011, the Company ~~purchased~~acquired the remaining 60% ownership interest in ~~TecniQuimia~~Tecniquimia Mexicana, S.A. de C.V., the Company’s Mexican equity affiliate, for approximately $10,500. ~~As part of the acquisition, the Company recorded a one-time non-cash gain in other income of approximately $2,718 to revalue the previously held ownership interest in TecniQuimia to its fair value.~~ The acquisition ~~strengthens~~strengthened the Company’s position in the growing Mexican market. The Company allocated $3,556 of intangible assets, ~~comprised of~~comprising trade names and trademarks, to be amortized over 5 years; and customer lists, to be amortized over 20 years. In addition, the Company recorded $6,773 of goodwill, none of which will be tax deductible, and was assigned to the metalworking process chemicals segment. Liabilities assumed include a hold-back of consideration to be paid to the former shareholders at one year from the purchase date, absent the occurrence of unforeseen obligations.

~~The following tables show~~In December 2010, the ~~allocation~~Company completed the acquisition of Summit Lubricants, Inc., which manufactures and distributes specialty greases and lubricants, for approximately $29,116, which was subject to certain post closing adjustments. During 2011, the ~~purchase price~~Company paid an additional $717 to finalize the post closing adjustments and recorded non-cash adjustments to fixed assets and goodwill to finalize its valuation of the assets acquired and liabilities ~~acquired as~~assumed at the acquisition date. The Company allocated $17,100 to intangible assets, comprising formulations, to be amortized over 15 years; customer lists, to be amortized over 20 years; a non-competition agreement, to be amortized over 5 years; and a trademark, which was assigned an indefinite life. In addition, the Company recorded $3,423 of ~~September 30, 2011~~goodwill, all of which will be tax deductible, and ~~December 31, 2010. The pro forma results of operations and certain other items related~~was assigned to the ~~acquisitions have not been provided because~~metalworking process chemicals segment. Liabilities assumed include an earnout to be paid to the ~~effects were not material:~~former shareholders if certain earnings targets are met by the end of 2013.

Quaker
2011 Tecniquimia
Current assets $ 8,946
Fixed assets 4,308
Intangibles 3,556
Goodwill 6,773
Other long-term assets 1,355
Total assets purchased 24,938
Current liabilities (2,224)
Long-term liabilities (6,869)
Present value of hold-back (1,754)
Total liabilities assumed (10,847)
Additional minimum pension liability 987
Total equity assumed 987
Fair value of previously held equity interest (4,578)
Cash paid for acquisitions $ 10,500

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

D.A. Summit
2010 Stuart Lubricants Total
Current assets $ 1,176 $ 6,198 $ 7,374
Fixed assets 133 9,430 9,563
Intangibles 2,351 17,100 19,451
Goodwill 3,133 3,804 * 6,937
Total assets purchased 6,793 36,532 43,325
Current liabilities — (1,349) (1,349)
Earnout — (5,350) (5,350)
Total liabilities assumed — (6,699) (6,699)
Cash paid for acquisitions $ 6,793 $ 29,833 * $ 36,626
The following table shows the allocation of the purchase price of the assets and liabilities acquired during 2011. The pro forma results of operations have not been provided because the effects were not material:

* -

	Quaker			GW Smith
2011 Acquisitions	Tecniquimia			& Sons, Inc.
Current assets	$	8,946		$	6,138
Fixed assets		4,308			2,869
Intangibles		3,556			6,260
Goodwill		6,773			1,120
Other long-term assets		1,355			1
Total assets purchased		24,938			16,388
Current liabilities		(2,224	)		(1,001	)
Long-term liabilities		(6,869	)		—
Present value of hold-back		(1,754	)		(869	)
Total liabilities assumed		(10,847	)		(1,870	)
Additional minimum pension liability		987			—
Total equity assumed		987			—
Fair value of previously held equity interest		(4,578	)		—
Cash paid for acquisitions	$	10,500		$	14,518

Included in the ~~2010 acquisition~~2011 acquisitions of ~~Summit is a $717 post closing adjustment paid in the second quarter of 2011.~~

~~Subsequent to September 30, 2011, the Company acquired~~Quaker Tecniquimia and G.W. Smith & Sons, Inc. ~~for~~was approximately ~~$13,324 in~~$258 of cash subject to a post-closing working capital adjustment and a $1,000 hold-back of consideration. G.W. Smith manufactures and distributes high quality die casting lubricants and metalworking fluids and is complementary to the Company’s existing business.acquired.

Note 11 – Goodwill and Other Intangible Assets

The ~~Company completed its annual impairment assessment~~changes in carrying amount of goodwill for the three months ended March 31, 2012 are as ~~of the end of third quarter of 2011 and no impairment charge was warranted.~~follows. The Company has recorded no impairment charges in the ~~past. The changes in carrying amount of goodwill for the nine months ended September 30, 2011 are as follows:~~past:

Metalworking
Process
Chemicals Coatings Total
Balance as of December 31, 2010 $ 44,677 $ 8,081 $ 52,758
Goodwill additions 7,490 — 7,490
Currency translation adjustments (2,484) — (2,484)
Balance as of September 30, 2011 $ 49,683 $ 8,081 $ 57,764

	Metalworking
	Process
	Chemicals		Coatings		Total
Balance as of December 31, 2011	$	50,071	$	8,081	$	58,152
Currency translation adjustments		912		—		912
Balance as of March 31, 2012	$	50,983	$	8,081	$	59,064

Gross carrying amounts and accumulated amortization for definite-lived intangible assets as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 are as follows:

The Company recorded $746 and $486 of amortization expense in the three months ended March 31, 2012 and 2011, respectively.

1817

Table of Contents

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

~~The Company recorded $1,596 and $736 of amortization expense in the nine months ended September 30, 2011 and 2010, respectively.~~ Estimated annual aggregate amortization expense for the current year and subsequent five years is as follows:

The Company has two indefinite-lived intangible assets totaling $1,100 for trademarks ~~recorded in connection with the Company’s 2002 acquisition of Epmar and its 2010 acquisition of Summit Lubricants.~~at March 31, 2012.

Note 12 – Pension and Other Postretirement Benefits

The components of net periodic benefit cost for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and March 31, 2011 ~~and 2010~~ are as follows:

	Three Months Ended March 31,
							Other
							Postretirement
	Pension Benefits						Benefits
	2012			2011			2012		2011
Service cost	$	624		$	571		$	4	$	5
Interest cost and other		1,470			1,522			71		89
Expected return on plan assets		(1,375	)		(1,424	)		—		—
Other amortization, net		719			460			31		31
Net periodic benefit cost	$	1,438		$	1,129		$	106	$	125

Three Months Ended September 30, Nine Months Ended September 30,
Other Other
Postretirement Postretirement
Pension Benefits Benefits Pension Benefits Benefits
2011 2010 2011 2010 2011 2010 2011 2010
Service cost $ 606 $ 487 $ 4 $ 5 $ 1,770 $ 1,478 $ 14 $ 14
Interest cost and other 1,579 1,495 88 99 4,657 4,507 266 296
Expected return on plan assets (1,440 ) (1,354 ) — — (4,313 ) (4,082 ) — —
Settlement charge — 1,317 — — — 1,317 — —
Other amortization, net 529 402 33 12 1,450 1,206 95 38
Net periodic benefit cost $ 1,274 $ 2,347 $ 125 $ 116 $ 3,564 $ 4,426 $ 375 $ 348

The Company previously disclosed in its financial statements for the year ended December 31, ~~2010,~~2011, that it expected to make minimum cash contributions of ~~$8,397~~$6,826 to its pension plans and ~~$823~~$747 to its other postretirement benefit plan in ~~2011.~~2012. As of ~~September 30, 2011, $7,371~~March 31, 2012, $3,555 and ~~$606~~$335 of contributions have been made to the Company’s pension plans and its other postretirement benefit plans, respectively.

~~During the nine months ended September 30, 2010, the Company recorded a final settlement charge of $1,317 in connection with the retirement of the Company’s former CEO in the third quarter of 2008.~~

Note 13 – Commitments and Contingencies

In April of 1992, the Company identified certain soil and groundwater contamination at AC Products, Inc. (“ACP”), a wholly owned subsidiary. In voluntary coordination with the Santa Ana California Regional Water Quality Board, ACP has been remediating the contamination, the principal contaminant of which is perchloroethylene (“PERC”). On or about December 18, 2004, the Orange County Water District (“OCWD”) filed a civil complaint in Superior Court in Orange County, California against ACP and other parties potentially responsible for groundwater contamination. OCWD was seeking to recover compensatory and other damages related to the investigation and remediation of the contamination in the groundwater. Effective October 17, 2007, ACP and OCWD settled all claims related to this litigation. Pursuant to the settlement agreement with OCWD, ACP agreed to pay $2,000. In addition to the $2,000 payment, ACP agreed to operate the two existing groundwater treatment systems associated with its extraction wells P-2 and P-3 so as to hydraulically contain groundwater contamination emanating from ACP’s site until such time as the concentrations of PERC are below the current Federal maximum contaminant level for four consecutive quarterly sampling events. As of ~~September 30, 2011~~March 31, 2012, the Company believes that the range of potential-known liabilities associated with ACP contamination, including the water and soil remediation program, is approximately ~~$1,100~~$1,200 to ~~$2,100,~~$2,400, for which the Company has sufficient reserves.

~~Table of Contents~~

~~Quaker Chemical Corporation~~

~~Notes to Condensed Consolidated Financial Statements - Continued~~

~~(Dollars in thousands, except per share amounts)~~

~~(Unaudited)~~

The low and high ends of the range are based on the length of operation of the two extraction wells as determined by groundwater modeling with planned higher maintenance costs in later years if a longer treatment period is required. Costs of operation include the operation and maintenance of the extraction wells, groundwater monitoring and program management. The duration of the well operation was estimated based on historical trends in concentrations in the monitoring wells within the proximity of the applicable extraction wells. Also factored into the model was the impact of water injected into the underground aquifer from a planned ~~recharge basin~~water treatment system to be installed by OCWD adjacent to ~~ACP.~~P-2. Based on the modeling, it is estimated that P-2 will operate for another ~~three~~two to five years and P-3 will operate for ~~one year~~another two to ~~up to two~~five years. Operation and maintenance costs were based on historical expenditures and estimated inflation. As mentioned above, a significantly higher maintenance expense was factored into the range if the system operates for the longer period. ~~Also included~~

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in ~~the reserve are anticipated expenditures to operate an on-site soil vapor extraction system.~~thousands, except per share amounts)

(Unaudited)

The Company believes, although there can be no assurance regarding the outcome of other unrelated environmental matters, that it has made adequate accruals for costs associated with other environmental problems of which it is aware. Approximately $257 and $493 ~~and $374 were~~was accrued at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively, to provide for such anticipated future environmental assessments and remediation costs.

An inactive subsidiary of the Company that was acquired in 1978 sold certain products containing asbestos, primarily on an installed basis, and is among the defendants in numerous lawsuits alleging injury due to exposure to asbestos. The subsidiary discontinued operations in 1991 and has no remaining assets other than the proceeds from insurance settlements received. To date, the overwhelming majority of these claims have been disposed of without payment and there have been no adverse judgments against the subsidiary. Based on a continued analysis of the existing and anticipated future claims against this subsidiary, it is currently projected that the subsidiary’s total liability over the next 50 years for these claims is approximately ~~$7,700~~$4,900 (excluding costs of defense). Although the Company has also been named as a defendant in certain of these cases, no claims have been actively pursued against the Company, and the Company has not contributed to the defense or settlement of any of these cases pursued against the subsidiary. These cases were handled by the subsidiary’s primary and excess insurers who had agreed in 1997 to pay all defense costs and be responsible for all damages assessed against the subsidiary arising out of existing and future asbestos claims up to the aggregate limits of the policies. A significant portion of this primary insurance coverage was provided by an insurer that is now insolvent, and the other primary insurers have asserted that the aggregate limits of their policies have been exhausted. The subsidiary challenged the applicability of these limits to the claims being brought against the subsidiary. In response, two of the three carriers entered into separate settlement and release agreements with the subsidiary in late 2005 and in the first quarter of 2007 for $15,000 and $20,000, respectively. The payments under the latest settlement and release agreement were structured to be received over a four-year period with annual installments of $5,000, the final installment of which was received in the first quarter of 2010. The proceeds of both settlements are restricted and can only be used to pay claims and costs of defense associated with the subsidiary’s asbestos litigation. During the third quarter of 2007, the subsidiary and the remaining primary insurance carrier entered into a Claim Handling and Funding Agreement, under which the carrier will pay 27% of defense and indemnity costs incurred by or on behalf of the subsidiary in connection with asbestos bodily injury claims for a minimum of five years beginning July 1, 2007. The agreement continues until terminated and can only be terminated by either party by providing the other party with a minimum of two years prior written notice. At the end of the term of the agreement, the subsidiary may choose to again pursue its claim against this insurer regarding the application of the policy limits. The Company also believes that, if the coverage issues under the primary policies with the remaining carrier are resolved adversely to the subsidiary and all settlement proceeds ~~are~~were used, the subsidiary may have limited additional coverage from a state guarantee fund established following the insolvency of one of the subsidiary’s primary insurers. Nevertheless, liabilities in respect of claims may exceed the assets and coverage available to the subsidiary.

If the subsidiary’s assets and insurance coverage were to be exhausted, claimants of the subsidiary may actively pursue claims against the Company because of the parent-subsidiary relationship. Although asbestos litigation is particularly difficult to predict, especially with respect to claims that are currently not being actively pursued against the Company, the Company does not believe that such claims would have merit or that the Company would be held to have liability for any unsatisfied obligations of the subsidiary as a result of such claims. After evaluating the nature of the claims filed against the subsidiary and the small number of such claims that have resulted in any payment, the potential availability of additional insurance coverage at the subsidiary level, the additional availability of the Company’s own insurance and the Company’s strong defenses to claims that it should be held responsible for the subsidiary’s obligations because of the parent-subsidiary relationship, the Company believes it is not probable that the Company will incur any material losses. All of the ~~active~~ asbestos cases pursued against the Company challenging the parent-subsidiary relationship are in the early stages of litigation. The Company has been successful ~~in the past~~to date having claims naming it dismissed during initial proceedings. Since the Company may be in this early stage of litigation for some time, it is not possible to estimate additional losses or range of loss, if any.

As initially disclosed in the Company’s second quarter 2010 Form 10-Q, one of the Company’s subsidiaries may have paid certain value-added-taxes (“VAT”) incorrectly and, in certain cases, may not have collected sufficient VAT from certain customers. The VAT rules and regulations at issue are complex, vary among the jurisdictions and can be contradictory, in particular as to how they relate to the subsidiary’s products and to sales between jurisdictions.

~~Table of Contents~~

~~Quaker Chemical Corporation~~

~~Notes to Condensed Consolidated Financial Statements - Continued~~

~~(Dollars in thousands, except per share amounts)~~

~~(Unaudited)~~

Since its inception, the subsidiary had been consistent in its VAT collection and remittance practices and had never been contacted by any tax authority relative to VAT. Now the subsidiary has determined that for certain products, a portion of the VAT was incorrectly paid and that the total VAT due exceeds the amount originally collected and remitted by the subsidiary. In 2010, three jurisdictions contacted the subsidiary and since then, the subsidiary has either participated in an amnesty program or entered into a settlement whereby it paid a reduced portion of the amounts owed in resolution of those jurisdictions’ claims. The subsidiary has modified its VAT invoicing and payment procedures to eliminate or mitigate future exposure.

Quaker Chemical Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(Dollars in thousands, except per share amounts)

(Unaudited)

In analyzing the subsidiary’s exposure, it is difficult to estimate both the probability and the amount of any potential liabilities due to a number of factors, including: the decrease in exposure over time due to applicable statutes of limitations and actions taken by the subsidiary, the joint liability of customers and suppliers for a portion of the VAT, the availability of a VAT refund for VAT incorrectly paid through an administrative process, any amounts which may have been or will be paid by customers, as well as the timing and structure of any tax amnesties or settlements. In addition, interest and penalties on any VAT due can be a multiple of the base tax. The subsidiary may contest any tax assessment administratively and/or judicially for an extended period of time, but may ultimately resolve its disputes through participation in tax amnesty programs, which are a common practice for settling tax disputes in the jurisdictions in question and which have historically occurred on a regular basis, resulting in significant reductions of interest and penalties. Also, the timing of payments and refunds of VAT may not be contemporaneous, and, if additional VAT is owed, it may not be fully recoverable from customers. As a result, this matter has the potential to have a material adverse impact on the Company’s financial position, liquidity and capital resources and the results of operations.

In 2010, the Company recorded a net charge of $4,132, which consisted of a net $3,901 charge related to two tax dispute settlements entered into by the subsidiary, as well as a net $231 charge representing management’s best estimate based on the information available to it, including the factors noted above, of the amount that ultimately may be paid related to the other jurisdiction that has made inquiries. At ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, the Company had ~~$302 and $1,805, respectively, accrued~~no accrual for remaining payments to be made under tax dispute settlements entered into by the subsidiary. ~~The change in the accrual from December 31, 2010 reflects year-to-date payments made in accordance with the Company’s tax dispute settlements.~~

The charges taken by the Company in 2010 assume a successful recovery of the VAT incorrectly paid, as well as reductions in interest and penalties from anticipated future amnesty programs or settlements. On a similar basis, if all other potentially impacted jurisdictions were to initiate audits and issue assessments, the remaining exposure, net of refunds, could be from $0 to ~~$28,000~~$17,000 with one jurisdiction representing approximately 8481 percent of this additional exposure, assuming the continued availability of future amnesty programs or settlements to reduce the interest and penalties. If there are future assessments but no such future amnesty programs or settlements, the potential exposure could be higher.

The Company is party to other litigation which management currently believes will not have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services, and technical expertise to a wide range of industries—including steel, aluminum, automotive, mining, aerospace, tube and pipe, coatings and construction materials. Our products, technical solutions, and chemical management services (“CMS”) enhance our customers’ processes, improve their product quality, and lower their costs.

The Company’s ~~32%~~11% revenue growth in the ~~third~~first quarter of 2012 compared to the first quarter of 2011 ~~as compared to the third quarter of 2010~~ was due to ~~a 16% increase in volumes, including acquisitions,~~ an ~~11%~~8% increase in price and selling mix and a 5% increase in volume, including acquisitions, partially offset by decreases related to foreign exchange rate translation. Gross profit increased approximately $7.1 million, or 13%, compared to the first quarter of 2011, with gross margin increasing from 33.0% to 33.7%. The Company ~~has~~ implemented price increases in 2011 to help restore ~~margins. Sequentially, gross margin increased over the prior quarter.~~ margins that were affected by escalating raw material costs.

Selling, general and administrative expenses (“SG&A”) increased approximately $4.5 million from the first quarter of 2011 primarily ~~due~~related to acquisitions and higher selling, inflationary and other costs on increased business activity, ~~acquisition-related activity,~~which were partially offset by decreases due to foreign exchange rate translation and lower incentive compensation costs. SG&A as ~~well as investments in key growth initiatives.~~

The results for the ~~remaining 60% ownership interest in its Mexican equity affiliate, resulting in a one-time, non-cash gain~~first quarter 2012 and the first quarter 2011 include tax benefits of ~~approximately $2.7 million, or $0.22~~$0.12 and $0.11 per diluted share, respectively, related to the ~~revaluation~~expiration of ~~the Company’s previously held ownership interest to its fair value. During the second quarter~~applicable statutes of 2011, the Company completed an equity offering of approximately 1.3 million shares, raising approximately $48.1 million of net cash proceeds, which were used to repay a portion of its revolving credit line. The third quarter 2011 earnings per diluted share of $1.03 reflects an approximate $0.09 dilutive effect as a result of this offering. The third quarter 2010 earnings per diluted share of $0.55 includes a $0.21 per diluted share charge related to a non-incomelimitations for uncertain tax ~~contingency and an $0.08 per diluted share final charge related to the Company’s former CEO’s supplemental retirement plan.~~positions.

The net result was earnings per diluted share of $0.91, including dilution of $0.08 per share related to the Company’s second quarter 2011 equity offering, as compared to earnings per diluted share of $0.91 for the ~~third~~first quarter of ~~2011 of $1.03 compared to $0.55 in the third quarter of 2010. These results were achieved despite a challenging global environment.~~2011. The Company has benefited from the ongoing recovery of manufacturing in North America, additional new business and from its recent acquisitions, but it has also experienced ~~record product volumes even excluding~~a slow down in its ~~2011 acquisitions. While demand~~markets in ~~some countries has softened,~~Europe and China. Looking forward, the ~~Company’s overall volumes have grown through increased market share. The~~ Company ~~implemented additional price increases~~expects the global economic environment to remain mixed, with continued softness in many regions. In addition, the ~~third quarter of 2011, as~~Company is experiencing higher raw material costs, ~~remain at, or near, record levels. As a result,~~which began to escalate toward the ~~Company’s gross margin is beginning to see sequential quarterly improvement for~~end of the first ~~time this year. For the fourth~~ quarter of ~~2011,~~2012. To address the rising raw material costs, the Company ~~expects good volumes, although it typically experiences~~will be implementing price increases over the next several months, but anticipates a ~~seasonal~~lag impact ~~around the holidays. The Company sees an increase~~ in ~~the amount of uncertainty in global economies, especially in Europe, however~~recovering its margins. Despite these factors, the Company has thus far not been significantly impacted. While the Company’s base business continues to expand, it has been supplemented with four strategic acquisitions in the past 16 months. In addition, the Company’s balance sheet remains strong which provides the financial flexibility to take advantage of other growth opportunities as they arise.still expects that 2012 will be another good year.

The Company currently has numerous CMS contracts ~~across~~around the world. Under its traditional CMS approach, the Company effectively acts as an agent, and the revenues and costs from these sales are reported on a net sales or “pass-through” basis. Under an alternative structure for certain ~~of its CMS~~ contracts, the contracts are structured differently in that the Company’s revenue received from the customer is a fee for products and services provided to the customer, which are indirectly related to the actual costs incurred. Profit is dependent on how well the Company controls product costs and achieves product conversions from other third-party suppliers’ products to its own products. As a result, under the alternative structure, the Company recognizes in reported revenue the gross revenue received from the CMS site customer and in cost of goods sold the third-party product purchases, which substantially offset each other until the Company achieves significant product ~~conversions, which~~conversions. This may result in a decrease in reported gross margin as a percentage of sales.

~~In 2009, the~~The Company ~~had~~has maintained a mix of CMS contracts with both the traditional product pass-through structure and the alternative structure including fixed price contracts ~~covering~~that cover all services and products. ~~As a result of~~Since the global economic downturn and its impact inon the automotive sector, ~~during 2009 and early 2010,~~ the Company has experienced ~~a shift~~shifts in customer requirements and business circumstances, ~~where almost all CMS contracts have reverted to the traditional product pass-through structure. However,~~but the Company’s offerings will continue to include both approaches to CMS.

Liquidity and Capital Resources

Quaker’s cash and cash equivalents ~~decreased~~increased to ~~$20.6~~$19.0 million at ~~September 30, 2011~~March 31, 2012 from ~~$25.8~~$16.9 million at December 31, ~~2010.~~2011. The ~~decrease~~$2.1 million increase was the net result of ~~$5.2 million resulted from $4.5~~$6.7 million of cash provided by operating activities, ~~$18.4~~$2.6 million of cash used in investing activities, ~~$9.6~~$2.7 million of cash ~~provided by~~used in financing activities and a ~~$0.9~~$0.7 million ~~decrease~~increase from the effect of exchange rates on cash.

Net cash flows used in investing activities were ~~$18.4~~$2.6 million in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~$9.4~~$2.9 million used in investing activities in the first ~~nine months~~quarter of ~~2010. Increased investments in the Company’s Ohio, New York and China plants, as well as the Company’s global ERP system, were the primary drivers of the increased investments~~2011. Investments in property, plant and ~~equipment. Payments related to acquisitions for~~equipment were the ~~first nine months of 2011 include $10.3 million (net~~primary uses of cash ~~acquired) paid related~~in each quarter. During 2012, the Company continued to ~~the purchase of the remaining ownership interest~~invest in ~~the Company’s Mexican equity affiliate~~its Asia/Pacific facilities and $0.7 million paid related to post closing adjustments for the Company’s Summit Lubricants, Inc. acquisition. Cash paid for acquisitions in the first nine months of 2010 include $6.9 million paid for the acquisition of the assets of D.A. Stuarts’s U.S. aluminum hot rolling oil business. In addition, the receipt of the final paymentinformation technology infrastructure, whereas, in the first quarter of ~~2010 from~~2011, the ~~Company’s insurance settlement (discussed below) and decreases~~Company had increased investments in the Company’s ~~construction fund related to~~Middletown, OH and Batavia, NY plants and the Company’s ~~expansion of its Middletown, Ohio manufacturing facility in the prior year, also affected the investing cash flow comparisons.~~global ERP system.

In the first quarter of 2007, an inactive subsidiary of the Company reached a settlement agreement and release with one of its insurance carriers for $20.0 million. The proceeds of the settlement are restricted and can only beNet cash flows used ~~to pay claims and costs of defense associated with this subsidiary’s asbestos litigation. The payments~~in financing activities were ~~structured to be received over a four-year period with annual installments of $5.0~~$2.7 million ~~the final installment of which was received~~ in the first quarter of 2010. During the third quarter of 2007, the same inactive subsidiary and one of its insurance carriers entered into a Claim Handling and Funding Agreement, under which the carrier will pay 27% of the defense and indemnity costs incurred by or on behalf of the subsidiary in connection with asbestos bodily injury claims for a minimum of five years beginning July 1, 2007.

~~Net cash flows provided by financing activities were $9.6 million in the first nine months of 2011~~2012 compared to ~~$8.4~~$7.1 million ~~used in~~of cash provided by financing activities in the first ~~nine months~~quarter of 2010. The Company’s second quarter 2011 offering of approximately 1.3 million shares of its common stock resulted in net cash proceeds of approximately $48.1 million, which was used to repay a portion of the Company’s revolving credit line.2011. During the first ~~nine months~~quarter of ~~2011,~~2012, the Company was able to fund its working capital requirements as a result of its strong net operating cash flow, which decreased the Company’s need for long-term borrowings as compared to the first quarter of 2011. During the first quarter of 2012, the Company recorded ~~$0.2~~approximately $1.3 million of excess tax benefits ~~related to stock options exercises~~ in capital in excess of par on its Condensed Consolidated Balance Sheet, ~~and~~of which $0.5 million was recognized as a cash flow from financing activities in its Condensed Consolidated Statement of Cash ~~Flows.~~Flows, representing the Company’s estimate of cash savings through March 31, 2012. During the first ~~nine months~~quarter of ~~2010,~~2011, the Company recorded approximately ~~$2.3~~$0.1 million of these benefits on its Condensed Consolidated Balance Sheet and as a cash inflow from financing activities in its Condensed Consolidated Statement of Cash Flows, related to stock option exercises which occurred over prior years. Prior to 2010, the Company’s actual taxable income in affected jurisdictions was not sufficient to recognize these benefits, while the Company’s 2010 taxable income was sufficient to recognize the benefits. HigherFlows. Also, higher stock option exercise activity ~~in the prior year also~~and higher dividend payments affected the financing cash flow comparisons.

The Company’s primary credit line is a $175.0 million syndicated multicurrency credit agreement with Bank of America, N.A. (administrative agent) and certain other major financial institutions, which expires in June 2014. At ~~September 30, 2011~~the Company’s option, the principal amount available can be increased to $225.0 million if the lenders agree to increase their commitments and the Company satisfies certain conditions. At March 31, 2012 and December 31, ~~2010,~~2011, the Company had approximately ~~$25.0~~$29.9 million and ~~$55.0~~$28.5 million, respectively, outstanding ~~respectively.~~under this facility. The Company’s access to this credit is largely dependent on its consolidated leverage ratio covenant, which cannot exceed 3.50 to 1,1. At March 31, 2012 and ~~at September 30,~~December 31, 2011, the consolidated leverage ratio was below 1.0 to 1. The Company has entered into interest rate swaps with a combined notional value of $15.0 million as of ~~September 30, 2011,~~March 31, 2012, in order to fix the interest rate on that amount of its variable rate debt. Outstanding financial derivative instruments may expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. To manage credit risk, the Company limits its exposure to any single counterparty. However, the Company does not expect any of the counterparties to fail to meet their obligations.

At ~~September 30, 2011,~~March 31, 2012, the Company’s gross liability for uncertain tax positions, including ~~accrued~~ interest and penalties, was ~~$13.9~~$16.0 million. The Company cannot determine a reliable estimate of the timing of cash flows by period related to its uncertain tax position liability. However, should the entire liability be paid, the amount of the payment may be reduced by up to ~~$8.1~~$10.2 million as a result of offsetting benefits in other tax jurisdictions.

The Company believes it is capable of supporting its operating requirements, including pension plan contributions, payments of dividends to shareholders, possible acquisitions and business opportunities, capital expenditures and possible resolution of contingencies, through internally generated funds supplemented with debt or equity as needed.

Comparison of the ~~Third~~First Quarter of ~~2011~~2012 with the ~~Third~~First Quarter of ~~2010~~2011

Net sales for the ~~third~~first quarter of ~~2011~~2012 were ~~$182.3~~$177.6 million, an increase of ~~32%~~11% from $159.9 million in the ~~third~~first quarter of ~~2010. Product volumes were higher by approximately 16%, including acquisitions.~~2011. Selling prices and mix increased revenues by approximately ~~11%~~8%, asreflecting the ~~Company implemented~~Company’s price increases ~~across the globe~~implemented in 2011 to help offset ~~higher~~rising raw material costs. Product volumes were higher by approximately 5%, including acquisitions. Foreign exchange rates ~~also increased~~decreased revenues by approximately 5%2%.

Gross profit increased by ~~$10.5~~approximately $7.1 million, or ~~21%~~13%, from the ~~third~~first quarter of ~~2010, but~~2011, with gross margin ~~decreased~~increasing to 33.7% from ~~35.6% to 32.6%~~33.0%. ~~Overall raw material costs were significantly higher than~~The increase in gross margin from the ~~previous year, and the Company has implemented selling~~first quarter of 2011 reflects price increases implemented in 2011 to help restore ~~margins. On a sequential quarterly basis, the Company’s gross~~margins that were affected by escalating raw material costs. Gross margin also increased one percentage point from the ~~second~~fourth quarter of ~~2011.~~2011 percentage of 32.7%.

SG&A increased approximately ~~$7.3~~$4.5 million compared to the ~~third~~first quarter of ~~2010. Higher~~2011 primarily related to acquisitions and higher selling, inflationary and other costs on increased business activity, ~~acquisition-related activity and~~which were partially offset by decreases due to foreign exchange rate translation ~~accounted for the majority of the increase. In addition, higher inflationary~~ and ~~other costs were partially offset by~~ lower incentive ~~compensation.~~compensation costs. SG&A as a percentage of sales ~~decreased to 23.0% in~~was 24.3% for the ~~third~~first quarter of ~~2011 from 25.2% in the third quarter of 2010, and~~2012, which was consistent with the ~~second~~first quarter of ~~2011.~~2011 but lower than the fourth quarter of 2011 percentage of 26.1%.

~~Net interest expense decreased due to lower interest rates and lower average borrowings.~~ Other income ~~includes a $2.7~~was $0.2 million ~~or $0.22 per diluted share, non-cash gain representing~~lower in the revaluation of the Company’s previously held ownership interest in its Mexican equity affiliate to its fair value related to the July 2011 purchase of this entity. Equity in net income of associated companies decreased compared to the thirdfirst quarter of ~~2010,~~2012 primarily as a result of lower third party license fees. Interest expense was flat from the ~~Company’s acquisition~~first quarter of 2011 to the ~~remaining ownership~~first quarter of 2012, however, decreases in interest ~~in its Mexican equity affiliate.~~expense due to lower average borrowings were offset by increases related to the accretion of certain acquisition-related liabilities.

The Company’s effective tax rate ~~was 29.2% in~~for the ~~third~~first quarter of ~~2011,~~2012 was approximately 22%, compared to ~~20.6% in~~approximately 21% for the ~~third~~first quarter of ~~2010.~~2011. The ~~third quarter 2011 and 2010~~Company’s low effective tax rates ~~reflect a decrease in reserves~~ for ~~uncertain tax positions due to~~the first quarters of 2012 and 2011 include the expiration of applicable statutes of limitations for ~~certain~~uncertain tax ~~years~~positions of approximately ~~$0.03~~$0.12 per diluted share and ~~$0.04~~$0.11 per diluted share, respectively. The third quarter 2011 effective tax rate also reflects a lower utilization of foreign tax credits which were previously not benefited, compared to the third quarter of 2010, as well as a change in the mix of income from lower tax rate jurisdictions to higher tax rate jurisdictions.

~~Segment Reviews—Comparison of the Third Quarter of 2011 with the Third Quarter of 2010~~

~~Metalworking Process Chemicals~~

Metalworking Process Chemicals consists of industrial process fluids for various heavy industrial and manufacturing applications and represented approximately 94% of the Company’s net sales in the third quarter of 2011. Net sales were up $42.5 million, or 33%. Foreign exchange translation positively impacted net sales by approximately 6%, primarily driven by the E.U. Euro and Brazilian Real to U.S. Dollar exchange rates. The average U.S. Dollar to E.U. Euro exchange rate was 1.41 in the third quarter of 2011 compared to 1.29 in the third quarter of 2010. The U.S. Dollar to Brazilian Real exchange rate was 0.61 in the third quarter of 2011 compared to 0.57 in the third quarter of 2010. Net sales were positively impacted by increases of 20% in North America (excluding acquisitions), 21% in Europe and 24% in Asia/Pacific, slightly offset by a 1% decrease in South America, all on a constant currency basis. The Company’s 2011 and 2010 acquisition activity accounted for approximately 10% of the increased net sales in this segment. The remainder of the increase in this segment’s net sales was due to both volume and selling price increases and mix changes. The Company implemented price increases to help offset higher raw material costs. This segment’s operating income increased $5.2 million, reflecting the sales price increases noted above and the Company’s acquisitions, which were partially offset by higher raw material costs and higher SG&A costs as the Company is investing in additional resources to support its growth initiatives.

~~Other Chemical Products~~

Other Chemical Products, which represented less than 1% of the Company’s net sales in the third quarter of 2011, consists of sulfur removal products for industrial gas streams sold by the Company’s Q2 Technologies joint venture. Net sales were $0.2 million higher than the prior year period and operating income was slightly above break-even, compared to a slight loss in the third quarter of 2010.

~~Comparison of the First Nine Months of 2011 with the First Nine Months of 2010~~

Net sales for the first nine months of 2011 were $510.0 million, an increase of 27% from $402.0 million in the first nine months of 2010. Product volumes were higher by approximately 12%, including the effects of acquisitions. Selling prices and mix increased revenues by approximately 10%, as the Company implemented price increases across the globe to help offset higher raw material costs. Foreign exchange rates also increased revenues by approximately 5%.

Gross profit increased by approximately $21.1 million, or 15%, from the first nine months of 2010, but gross margin decreased from 36.0% in the first nine months of 2010 to 32.5% in the first nine months of 2011, as raw material costs continued to escalate.

SG&A increased approximately $16.0 million compared to the first nine months of 2010. Higher selling costs on increased business activity, acquisition-related activity and foreign exchange rate translation accounted for approximately 62% of the increase. Higher inflationary and other costs, partially offset by lower incentive compensation, accounted for the remainder of the increase. SG&A as a percentage of sales decreased to 23.4% in the first nine months of 2011 from 25.7% in the first nine months of 2010.

Net interest expense decreased due to lower interest rates and lower average borrowings. Other income reflects the revaluation to fair value of the Company’s previously held interest in its Mexican equity affiliate to fits fair value, as discussed above. Equity in net income of associated companies for 2010 includes a charge of approximately $0.03 per diluted share related to the first quarter 2010 devaluation of the Venezuelan Bolivar Fuerte, while the 2011 results reflect a reduction due to the purchase of the remaining ownership interest in the Company’s Mexican equity affiliate.

The Company’s year-to-date 2011 effective tax rate of 27.1% was higher than the year-to-date 2010 effective tax rate of 25.8%. The year-to-date effective tax rates for 2011 and 2010 reflect a decrease in reserves for uncertain tax positions due to the expiration of applicable statutes of limitations for certain tax years of approximately $0.14 and $0.15 per diluted share, respectively. The most significant other item affecting the comparison in the year-to-date effective tax rates is a change in the mix of income from lower tax rate jurisdictions to higher tax rate jurisdictions from 2010 to 2011, respectively. The Company has experienced and expects to further experience volatility in its quarterly effective tax rates due to the varying timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions. However, the Company expects a higher effective tax rate for the full year of 2012 as compared to the first quarter of 2012 rate. At the end of ~~2010,~~2011, the Company had net U.S. deferred tax assets totaling ~~$14.8~~$17.7 million, excluding deferred tax assets related to additional minimum pension liabilities. The Company records valuation allowances when necessary to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. However, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be a non-cash charge to income in the period such determination was made, which could have a material adverse impact on the Company’s financial statements. The Company continues to closely monitor the factors affecting its net deferred tax assets and the assessment of ~~its~~ valuation allowances.

Equity in net income of associated companies decreased in the first quarter of 2012 as compared to the first quarter of 2011 primarily due to the Company’s July 2011 purchase of the remaining ownership interest in its Mexican affiliate.

Segment Reviews—Comparison of the First ~~Nine Months~~Quarter of ~~2011~~2012 with the First ~~Nine Months~~Quarter of ~~2010~~2011

Metalworking Process Chemicals

Metalworking Process Chemicals consists of industrial process fluids for various heavy industrial and manufacturing applications and represented approximately ~~94%~~93% of the Company’s net sales in the first ~~nine months~~quarter of ~~2011.~~2012. Net sales ~~increased $101.8~~were up $15.2 million, or ~~27%~~10%, compared to the first ~~nine months~~quarter of ~~2010.~~2011. Foreign currency translation ~~positively~~negatively impacted net sales by approximately 5%2%, primarily driven by the E.U. Euro to U.S. Dollar and Brazilian Real to U.S. Dollar exchange rates. The average E.U. Euro to U.S. Dollar ~~to E.U. Euro~~ exchange rate was ~~1.41~~1.31 in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~1.32~~1.37 in the first ~~nine months~~quarter of ~~2010, and the~~2011. The average Brazilian Real to U.S. Dollar ~~to Brazilian Real~~ exchange rate was ~~0.61~~0.57 in the first ~~nine months~~quarter of ~~2011~~2012 compared to ~~0.56~~0.60 in the first ~~nine months~~quarter of ~~2010.~~2011. Net sales were positively impacted by increases of ~~16%~~20% in North America (excluding acquisitions), ~~17%~~1% in Europe ~~20%~~and 3% in Asia/Pacific, ~~and 3%~~partially offset by a 10% decrease in South America, all on a constant currency basis. The Company’s 2011 ~~and 2010~~ acquisition activity accounted for 7%approximately 60% of this segment’s sales increase in the ~~increased sales in this segment. The remainder~~first quarter of 2012, as compared to the first quarter of 2011, with the remaining increase in this segment’s net sales ~~was~~ due to ~~both volume increases~~selling and ~~selling~~ price ~~and~~ mix changes. ~~The Company implemented price increases to help offset higher raw material costs.~~ This segment’s operating income increased ~~$7.6~~approximately $4.0 million in the first quarter of 2012, as compared to the first quarter of 2011, reflecting the ~~volume~~Company’s acquisition activity and the sales price increases noted above and the Company’s acquisitions, which were partially offset by higher raw material costs and higher SG&A as the Company is investing in additional resources to support its growth initiatives.above.

The Company’s coatings segment, which represented approximately 6% of the Company’s net sales in the first ~~nine months~~quarter of ~~2011, consists of~~2012, contains products that provide temporary and permanent coatings for metal and concrete products and chemical milling maskants. Net sales for this segment were ~~higher by $5.6~~up approximately $2.0 million, or 24%, in the first quarter of 2012, as compared to the first quarter of 2011, which was primarily due to increased sales in chemical milling maskants sold to the aerospace industry. This segment’s operating income increased by ~~$1.6~~$0.6 million over the first quarter of 2011, consistent with the ~~volume increases~~sales increase noted above.

Other Chemical Products

Other Chemical Products, which represented ~~less than~~approximately 1% of the Company’s net sales in the first ~~nine months~~quarter of ~~2011,~~2012, consists of sulfur removal products for industrial gas streams sold by the Company’s Q2 Technologies joint venture. Net sales increased approximately $0.5 million and operating income increased approximately $0.1 million in the first quarter of 2012, as compared to the first quarter of 2011, due to increased activity in the oil and gas market. ~~Operating income increased $0.1 million, consistent with the above noted sales increase.~~

Factors That May Affect Our Future Results

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

Certain information included in this ~~report~~Report and other materials filed or to be filed by Quaker with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contain or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance and business, including:

statements relating to our business strategy;

our current and future results and plans; and

statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or similar expressions.

Such statements include information relating to current and future business activities, operational matters, capital spending, and financing sources. From time to time, forward-looking statements are also included in Quaker’s other periodic reports on Forms 10-K, 10-Q and 8-K, as well as in press releases and other materials released to, or statements made to, the public.

Any or all of the forward-looking statements in this ~~report~~Report and in any other public statements we make may turn out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this ~~report~~Report will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in Quaker’s subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. ~~Our~~These forward-looking statements are subject to risks, uncertainties and assumptions about us and our operations that are subject to change based on various important factors, some of which are beyond our control. A major risk is that the ~~demand for the~~ Company’s ~~products and services~~demand is largely derived from the demand for its customers’ products, which subjects the Company to uncertainties related to downturns in a customer’s business and unanticipated customer production planning shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, worldwide economic and political conditions, foreign currency fluctuations, and terrorist attacks such as those that occurred on September 11, 2001. Furthermore, the Company is subject to the same business cycles as those experienced by steel, automobile, aircraft, appliance, and durable goods manufacturers. These risks, uncertainties, and possible inaccurate assumptions relevant to our business could cause our actual results to differ materially from expected and historical results. Other factors beyond those discussed could also adversely affect us. Therefore, we caution you not to place undue reliance on our forward-looking statements. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

We have evaluated the information required under this item that was disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2010,~~2011, and we believe there has been no material change to that information.

Item 4.4.

Controls and Procedures.

Items 1, 1A, 3, 4 and 5 of Part II are inapplicable and have been omitted.

Item 1. Legal Proceedings

Incorporated by reference is the information in Note 13 of the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information concerning shares of the Company’s common stock acquired by the Company during the period covered by this report, all of which were acquired from employees in payment of the exercise price of employee stock options exercised, or for the payment of taxes upon the vesting of restricted stock, during the period.

(c) (d)
Total Number of Maximum
Shares Purchased as Number of Shares that
(a) (b) Part of May Yet
Total Number Average Publicly Announced Be Purchased Under the
of Shares Price Paid Plans Plans or
Period Purchased (1) Per Share (2) or Programs (3) Programs (3)
July 1 - July 31 1,218 $ 43.48 — 252,600
August 1 - August 31 — $ — — 252,600
September 1 - September 30 — $ — — 252,600

Total 1,218 $ 43.48 — 252,600

					(c)		(d)
					Total Number of		Maximum
					Shares Purchased as		Number of Shares that
	(a)		(b)		Part of		May Yet
	Total Number		Average		Publicly Announced		Be Purchased Under the
	of Shares		Price Paid		Plans		Plans or
Period	Purchased (1)		Per Share (2)		or Programs (3)		Programs (3)
January 1 - January 31		7,323	$	40.29		—		252,600
February 1 - February 29		21,380	$	42.80		—		252,600
March 1 - March 31		9,680	$	39.40		—		252,600

Total		38,383	$	41.46		—		252,600

(1)	All of the ~~1,218~~38,383 shares acquired by the Company during the period covered by this report were acquired from employees upon their surrender of previously owned shares in payment of the exercise price of employee stock options or for the payment of taxes upon vesting of restricted stock.

(2)	The price per share, in each case, represented the closing price of the Company’s common stock on the date of exercise or vesting, as specified by the plan pursuant to which the applicable option or restricted stock was granted.

(3)

On February 15, 1995, the Board of Directors of the Company authorized a share repurchase program authorizing the repurchase of up to 500,000 shares of Quaker common stock, and, on January 26, 2005, the Board authorized the repurchase of up to an additional 225,000 shares. Under the 1995 action of the Board, 27,600 shares may yet be purchased. Under the 2005 action of the Board, none of the shares authorized ~~have~~has been purchased and, accordingly, all of those shares may yet be purchased. Neither of the share repurchase authorizations has an expiration date.

*	This exhibit is a management contract or compensation plan or arrangement required to be filed as an exhibit.

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these Sections.

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				QUAKER CHEMICAL CORPORATION (Registrant)

				/s/ Mark A. Featherstone
Date: ~~October 25, 2011~~April 30, 2012				Mark A. Featherstone, officer duly authorized to sign this report, Vice President, Chief Financial Officer and Treasurer


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheet at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011	3
	Condensed Consolidated Statement of Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~	4
	Condensed Consolidated Statement of ~~Cash Flows~~Comprehensive Income for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~	5
	Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2012 and 2011	6
	Notes to Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2221
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2725
Item 4.	Controls and Procedures	2826
PART II.	OTHER INFORMATION	2927
Item 1.	Legal Proceedings	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2927
Item 6.	Exhibits	3028
Signatures		3028

		Three Months Ended				Nine Months Ended
			September 30,				September 30,
		2011		2010		2011		2010
Basic Earnings per Common Share
	Net income attributable to Quaker Chemical Corporation	$	13,358	$	6,340	$	33,799	$	24,912
	Less: income allocated to participating securities		(224)		(126)		(611)		(522)
	Net income available to common shareholders	$	13,134	$	6,214	$	33,188	$	24,390	Three Months Ended March 31,
	Basic weighted average common shares outstanding		12,621,459		11,088,830		11,989,748		10,981,302	2012			2011
Basic earnings per common share	Basic earnings per common share	$	1.04	$	0.56	$	2.77	$	2.22

Diluted Earnings per Common Share
	Net income attributable to Quaker Chemical Corporation	$	13,358	$	6,340	$	33,799	$	24,912
	Less: income allocated to participating securities		(222)		(125)		(604)		(516)
	Net income available to common shareholders	$	13,136	$	6,215	$	33,195	$	24,396
	Basic weighted average common shares outstanding		12,621,459		11,088,830		11,989,748		10,981,302
	Effect of dilutive securities, employee stock options		148,919		209,624		166,787		181,620
Net income attributable to Quaker Chemical Corporation										$	11,946		$	10,600
Less: income allocated to participating securities											(193	)		(203	)
Net income available to common shareholders										$	11,753		$	10,397
Basic weighted average common shares outstanding											12,730,682			11,289,286
Basic earnings per common share										$	0.92		$	0.92
	Diluted weighted average common shares outstanding		12,770,378		11,298,454		12,156,535		11,162,922
Diluted earnings per common share	Diluted earnings per common share	$	1.03	$	0.55	$	2.73	$	2.19
Net income attributable to Quaker Chemical Corporation										$	11,946		$	10,600
Less: income allocated to participating securities											(192	)		(200	)
Net income available to common shareholders										$	11,754		$	10,400
Basic weighted average common shares outstanding											12,730,682			11,289,286
Effect of dilutive securities, common shares outstanding											121,210			177,349
Diluted weighted average common shares outstanding											12,851,892			11,466,635
Diluted earnings per common share										$	0.91		$	0.91

	Gross Carrying				Accumulated				Gross Carrying				Accumulated
	Amount				Amortization				Amount				Amortization
	2011		2010		2011		2010		2012		2011		2012		2011
Amortized intangible assets
Customer lists and rights to sell	$	26,027	$	24,379	$	6,007	$	4,974	$	30,645	$	30,435	$	6,866	$	6,386
Trademarks and patents		3,341		2,035		1,885		1,800		4,799		4,685		2,116		1,991
Formulations and product technology		5,278		5,278		2,994		2,708		5,278		5,278		3,185		3,090
Other		4,909		4,004		3,454		3,284		5,309		5,309		3,661		3,557
Total	$	39,555	$	35,696	$	14,340	$	12,766	$	46,031	$	45,707	$	15,828	$	15,024

For the year ended December 31, 2011	$	2,234
For the year ended December 31, 2012	$	2,425	$	2,889
For the year ended December 31, 2013	$	2,244	$	2,712
For the year ended December 31, 2014	$	2,007	$	2,482
For the year ended December 31, 2015	$	2,007	$	2,482
For the year ended December 31, 2016	$	1,578	$	2,022
For the year ended December 31, 2017			$	1,604

				Unaudited
				(Dollars in thousands)
				For the Nine Months Ended
				September 30,
				2011		2010
Cash flows from operating activities
	Net income			$	35,590	$	26,628
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation			8,527		7,448
		Amortization			1,596		736
		Equity in undistributed earnings of associated companies, net of dividends			(136)		(523)
		Deferred compensation and other, net			6,987		1,559
		Stock-based compensation			2,675		2,371
		Non-cash gain from purchase of equity affiliate			(2,718)		—
		Gain on disposal of property, plant and equipment			(61)		(24)
		Insurance settlement realized			(1,242)		(1,225)
		Pension and other postretirement benefits			(4,099)		(3,184)
	(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions:
		Accounts receivable			(29,390)		(7,982)
		Inventories			(16,334)		(8,645)
		Prepaid expenses and other current assets			(3,061)		(2,656)
		Accounts payable and accrued liabilities			6,196		5,007
			Net cash provided by operating activities		4,530		19,510

Cash flows from investing activities
		Investments in property, plant and equipment			(8,914)		(6,259)
		Payments related to acquisitions, net of cash acquired			(10,981)		(6,862)
		Proceeds from disposition of assets			221		147
		Insurance settlement received and interest earned			61		5,099
		Change in restricted cash, net			1,181		(1,516)
			Net cash used in investing activities		(18,432)		(9,391)

Cash flows from financing activities
		Net decrease in short-term borrowings			(185)		(1,394)
		Proceeds from long-term debt			—		29
		Repayment of long-term debt			(30,613)		(5,367)
		Dividends paid			(8,492)		(7,768)
		Stock options exercised, other			629		3,829
		Excess tax benefit related to stock option exercises			153		2,294
		Proceeds from sale of common stock, net of related expenses			48,143		—
			Net cash provided by (used in) financing activities		9,635		(8,377)
Effect of exchange rate changes on cash					(920)		356
		Net (decrease) increase in cash and cash equivalents			(5,187)		2,098
		Cash and cash equivalents at beginning of period			25,766		25,051
		Cash and cash equivalents at end of period		$	20,579	$	27,149

Supplemental cash flow disclosures:
Non-cash activities:
		Restricted insurance receivable (See also Note 13 of Notes to Condensed Consolidated Financial Statements)		$	—	$	5,000

		D.A.		Summit
2010		Stuart		Lubricants			Total
Current assets		$	1,176	$	6,198		$	7,374
Fixed assets			133		9,430			9,563
Intangibles			2,351		17,100			19,451
Goodwill			3,133		3,804	*		6,937
	Total assets purchased		6,793		36,532			43,325
Current liabilities			—		(1,349)			(1,349)
Earnout			—		(5,350)			(5,350)
	Total liabilities assumed		—		(6,699)			(6,699)
Cash paid for acquisitions		$	6,793	$	29,833	*	$	36,626

	Three Months Ended September 30,												Nine Months Ended September 30,
								Other												Other
								Postretirement												Postretirement
	Pension Benefits							Benefits					Pension Benefits							Benefits
		2011			2010				2011		2010			2011			2010				2011		2010
Service cost		$	606		$	487			$	4	$	5		$	1,770		$	1,478			$	14	$	14
Interest cost and other			1,579			1,495				88		99			4,657			4,507				266		296
Expected return on plan assets			(1,440	)		(1,354	)			—		—			(4,313	)		(4,082	)			—		—
Settlement charge			—			1,317				—		—			—			1,317				—		—
Other amortization, net			529			402				33		12			1,450			1,206				95		38
Net periodic benefit cost		$	1,274		$	2,347			$	125	$	116		$	3,564		$	4,426			$	375	$	348

(a) Exhibits	(a) Exhibits			(a) Exhibits

10.1					–	Form of Restricted Stock Unit Agreement for executive officers and other employees under Registrant’s 2011 Long-Term Performance Incentive Plan. *
31.1		–	Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934		–	Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2		–	Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934		–	Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1		–	Certification of Michael F. Barry Pursuant to 18 U.S. C. Section 1350		–	Certification of Michael F. Barry Pursuant to 18 U.S. C. Section 1350
32.2		–	Certification of Mark A. Featherstone Pursuant to 18 U.S. C. Section 1350		–	Certification of Mark A. Featherstone Pursuant to 18 U.S. C. Section 1350
101.INS **		–	XBRL Instance Document
101.SCH **		–	XBRL Extension Schema Document
101.CAL **		–	XBRL Calculation Linkbase Document
101.LAB **		–	XBRL Label Linkbase Document
101.PRE **		–	XBRL Presentation Linkbase Document
101.INS					–	XBRL Instance Document **
101.SCH					–	XBRL Extension Schema Document **
101.CAL					–	XBRL Calculation Linkbase Document **
101.LAB					–	XBRL Label Linkbase Document **
101.PRE					–	XBRL Presentation Linkbase Document **