UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20212022
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-32190
NEWMARKET CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Virginia | | 20-0812170 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
330 South Fourth Street | | 23219-4350 |
Richmond, | Virginia | |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code - (804) 788-5000
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, with no par value | NEU | New York Stock Exchange |
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | x | | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
Number of shares of common stock, with no par value, outstanding as of March 31, 2021: 10,928,1542022: 10,254,703
NEWMARKET CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| (in thousands, except per-share amounts) | (in thousands, except per-share amounts) | | | Three Months Ended March 31, | (in thousands, except per-share amounts) | | | Three Months Ended March 31, |
| | | | 2021 | | 2020 | | | | 2022 | | 2021 |
Net sales | Net sales | | | $ | 566,615 | | | $ | 559,417 | | Net sales | | | $ | 662,552 | | | $ | 566,615 | |
Cost of goods sold | Cost of goods sold | | | 404,862 | | | 378,510 | | Cost of goods sold | | | 507,389 | | | 404,862 | |
Gross profit | Gross profit | | | 161,753 | | | 180,907 | | Gross profit | | | 155,163 | | | 161,753 | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | | | 36,915 | | | 35,715 | | Selling, general, and administrative expenses | | | 35,622 | | | 36,915 | |
Research, development, and testing expenses | Research, development, and testing expenses | | | 36,337 | | | 35,506 | | Research, development, and testing expenses | | | 36,251 | | | 36,337 | |
Operating profit | Operating profit | | | 88,501 | | | 109,686 | | Operating profit | | | 83,290 | | | 88,501 | |
Interest and financing expenses, net | Interest and financing expenses, net | | | 6,343 | | | 7,104 | | Interest and financing expenses, net | | | 9,406 | | | 6,343 | |
| Loss on early extinguishment of debt | | Loss on early extinguishment of debt | | | 7,545 | | | 0 | |
Other income (expense), net | Other income (expense), net | | | 7,212 | | | 7,496 | | Other income (expense), net | | | 7,168 | | | 7,212 | |
Income before income tax expense | Income before income tax expense | | | 89,370 | | | 110,078 | | Income before income tax expense | | | 73,507 | | | 89,370 | |
Income tax expense | Income tax expense | | | 19,658 | | | 24,537 | | Income tax expense | | | 14,189 | | | 19,658 | |
Net income | Net income | | | $ | 69,712 | | | $ | 85,541 | | Net income | | | $ | 59,318 | | | $ | 69,712 | |
Earnings per share - basic and diluted | Earnings per share - basic and diluted | | | $ | 6.38 | | | $ | 7.67 | | Earnings per share - basic and diluted | | | $ | 5.75 | | | $ | 6.38 | |
Cash dividends declared per share | Cash dividends declared per share | | | $ | 1.90 | | | $ | 1.90 | | Cash dividends declared per share | | | $ | 2.10 | | | $ | 1.90 | |
See accompanying Notes to Condensed Consolidated Financial Statements
4
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| (in thousands) | (in thousands) | | | Three Months Ended March 31, | (in thousands) | | | Three Months Ended March 31, |
| | | | 2021 | | 2020 | | | | 2022 | | 2021 |
Net income | Net income | | | $ | 69,712 | | | $ | 85,541 | | Net income | | | $ | 59,318 | | | $ | 69,712 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | Other comprehensive income (loss): | | | | | |
Pension plans and other postretirement benefits: | Pension plans and other postretirement benefits: | | | | Pension plans and other postretirement benefits: | | |
| Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(159) in 2021 and $(170) in 2020 | | | (491) | | | (531) | | |
Actuarial net gain (loss) arising during the period, net of income tax expense (benefit) of $(219) in 2021 and $0 in 2020 | | | (657) | | | 0 | | |
Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $529 in 2021 and $397 in 2020 | | | 1,790 | | | 1,267 | | |
Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(156) in 2022, and $(159) in 2021 | | Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(156) in 2022, and $(159) in 2021 | | | (496) | | | (491) | |
Actuarial net gain (loss) arising during the period, net of income tax expense (benefit) of $7 in 2022, and $(219) in 2021 | | Actuarial net gain (loss) arising during the period, net of income tax expense (benefit) of $7 in 2022, and $(219) in 2021 | | | 16 | | | (657) | |
Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $175 in 2022, and $529 in 2021 | | Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $175 in 2022, and $529 in 2021 | | | 539 | | | 1,790 | |
Total pension plans and other postretirement benefits | Total pension plans and other postretirement benefits | | | 642 | | | 736 | | Total pension plans and other postretirement benefits | | | 59 | | | 642 | |
| Foreign currency translation adjustments, net of income tax expense (benefit) of $(464) in 2021 and $(841) in 2020 | | | 467 | | | (14,331) | | |
Foreign currency translation adjustments, net of income tax expense (benefit) of $1,131 in 2022, and $(464) in 2021 | | Foreign currency translation adjustments, net of income tax expense (benefit) of $1,131 in 2022, and $(464) in 2021 | | | (3,102) | | | 467 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | | 1,109 | | | (13,595) | | Other comprehensive income (loss) | | | (3,043) | | | 1,109 | |
Comprehensive income | Comprehensive income | | | $ | 70,821 | | | $ | 71,946 | | Comprehensive income | | | $ | 56,275 | | | $ | 70,821 | |
See accompanying Notes to Condensed Consolidated Financial Statements
5
NEWMARKET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (in thousands, except share amounts) | (in thousands, except share amounts) | | March 31, 2021 | | December 31, 2020 | (in thousands, except share amounts) | | March 31, 2022 | | December 31, 2021 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 522,405 | | | $ | 125,172 | | Cash and cash equivalents | | $ | 84,550 | | | $ | 83,304 | |
Marketable securities | | Marketable securities | | 0 | | | 375,918 | |
Trade and other accounts receivable, less allowance for credit losses | Trade and other accounts receivable, less allowance for credit losses | | 373,655 | | | 336,395 | | Trade and other accounts receivable, less allowance for credit losses | | 464,510 | | | 391,779 | |
Inventories | Inventories | | 414,737 | | | 401,031 | | Inventories | | 524,091 | | | 498,539 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 41,670 | | | 35,480 | | Prepaid expenses and other current assets | | 41,183 | | | 38,633 | |
Total current assets | Total current assets | | 1,352,467 | | | 898,078 | | Total current assets | | 1,114,334 | | | 1,388,173 | |
Property, plant, and equipment, net | Property, plant, and equipment, net | | 671,955 | | | 665,147 | | Property, plant, and equipment, net | | 671,327 | | | 676,770 | |
Intangibles (net of amortization) and goodwill | Intangibles (net of amortization) and goodwill | | 129,248 | | | 129,944 | | Intangibles (net of amortization) and goodwill | | 127,356 | | | 127,752 | |
Prepaid pension cost | Prepaid pension cost | | 139,104 | | | 137,069 | | Prepaid pension cost | | 245,751 | | | 242,604 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | | 65,307 | | | 61,329 | | Operating lease right-of-use assets | | 69,294 | | | 68,402 | |
| Deferred charges and other assets | Deferred charges and other assets | | 41,308 | | | 42,308 | | Deferred charges and other assets | | 53,491 | | | 54,735 | |
Total assets | Total assets | | $ | 2,399,389 | | | $ | 1,933,875 | | Total assets | | $ | 2,281,553 | | | $ | 2,558,436 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | | $ | 218,211 | | | $ | 189,937 | | Accounts payable | | $ | 290,846 | | | $ | 246,097 | |
Accrued expenses | Accrued expenses | | 73,264 | | | 78,422 | | Accrued expenses | | 73,401 | | | 85,103 | |
Dividends payable | Dividends payable | | 18,612 | | | 15,184 | | Dividends payable | | 16,418 | | | 16,648 | |
Income taxes payable | Income taxes payable | | 5,949 | | | 3,760 | | Income taxes payable | | 7,781 | | | 4,442 | |
Operating lease liabilities | Operating lease liabilities | | 14,307 | | | 13,410 | | Operating lease liabilities | | 16,174 | | | 15,709 | |
Current portion of long-term debt | | Current portion of long-term debt | | 0 | | | 349,434 | |
Other current liabilities | Other current liabilities | | 5,510 | | | 11,742 | | Other current liabilities | | 7,079 | | | 7,654 | |
Total current liabilities | Total current liabilities | | 335,853 | | | 312,455 | | Total current liabilities | | 411,699 | | | 725,087 | |
Long-term debt | Long-term debt | | 990,189 | | | 598,848 | | Long-term debt | | 841,074 | | | 789,853 | |
Operating lease liabilities-noncurrent | Operating lease liabilities-noncurrent | | 50,928 | | | 48,324 | | Operating lease liabilities-noncurrent | | 53,096 | | | 52,591 | |
Other noncurrent liabilities | Other noncurrent liabilities | | 212,064 | | | 214,424 | | Other noncurrent liabilities | | 215,594 | | | 228,776 | |
Total liabilities | Total liabilities | | 1,589,034 | | | 1,174,051 | | Total liabilities | | 1,521,463 | | | 1,796,307 | |
Commitments and contingencies (Note 9) | | 0 | | 0 | |
Commitments and contingencies (Note 10) | | Commitments and contingencies (Note 10) | | 0 | | 0 |
Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
Common stock and paid-in capital (with 0 par value; authorized shares - 80,000,000; issued and outstanding shares - 10,928,154 at March 31, 2021 and 10,921,377 at December 31, 2020) | | 1,190 | | | 717 | | |
Common stock and paid-in capital (with no par value; authorized shares - 80,000,000; issued and outstanding shares - 10,254,703 at March 31, 2022 and 10,362,722 at December 31, 2021) | | Common stock and paid-in capital (with no par value; authorized shares - 80,000,000; issued and outstanding shares - 10,254,703 at March 31, 2022 and 10,362,722 at December 31, 2021) | | 0 | | | 0 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (172,055) | | | (173,164) | | Accumulated other comprehensive loss | | (85,270) | | | (82,227) | |
Retained earnings | Retained earnings | | 981,220 | | | 932,271 | | Retained earnings | | 845,360 | | | 844,356 | |
Total shareholders' equity | Total shareholders' equity | | 810,355 | | | 759,824 | | Total shareholders' equity | | 760,090 | | | 762,129 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 2,399,389 | | | $ | 1,933,875 | | Total liabilities and shareholders’ equity | | $ | 2,281,553 | | | $ | 2,558,436 | |
See accompanying Notes to Condensed Consolidated Financial Statements
6
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| (in thousands, except share and per-share amounts) | (in thousands, except share and per-share amounts) | | Common Stock and Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total Shareholders’ Equity | (in thousands, except share and per-share amounts) | | Common Stock and Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total Shareholders’ Equity |
| Shares | | Amount | | | Shares | | Amount | |
| Balance at December 31, 2019 | | 11,188,549 | | | $ | 1,965 | | | $ | (162,748) | | | $ | 843,881 | | | $ | 683,098 | | |
Net income | | 85,541 | | | 85,541 | | |
Other comprehensive income (loss) | | (13,595) | | | (13,595) | | |
Cash dividends ($1.90 per share) | | (21,160) | | | (21,160) | | |
Repurchases of common stock | | (252,383) | | | (1,627) | | | (92,711) | | | (94,338) | | |
| Tax withholdings related to stock-based compensation | | (1,547) | | | (633) | | | (633) | | |
Stock-based compensation | | 4,125 | | | 295 | | | 41 | | | 336 | | |
Balance at March 31, 2020 | | 10,938,744 | | | $ | 0 | | | $ | (176,343) | | | $ | 815,592 | | | $ | 639,249 | | |
| Balance at December 31, 2020 | Balance at December 31, 2020 | | 10,921,377 | | | $ | 717 | | | $ | (173,164) | | | $ | 932,271 | | | $ | 759,824 | | Balance at December 31, 2020 | | 10,921,377 | | | $ | 717 | | | $ | (173,164) | | | $ | 932,271 | | | $ | 759,824 | |
Net income | Net income | | 69,712 | | | 69,712 | | Net income | | 69,712 | | | 69,712 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | | 1,109 | | | 1,109 | | Other comprehensive income (loss) | | 1,109 | | | 1,109 | |
Cash dividends ($1.90 per share) | Cash dividends ($1.90 per share) | | (20,763) | | | (20,763) | | Cash dividends ($1.90 per share) | | (20,763) | | | (20,763) | |
| Stock-based compensation | Stock-based compensation | | 6,777 | | | 473 | | | 0 | | 473 | | Stock-based compensation | | 6,777 | | | 473 | | | 473 | |
Balance at March 31, 2021 | Balance at March 31, 2021 | | 10,928,154 | | | $ | 1,190 | | | $ | (172,055) | | | $ | 981,220 | | | $ | 810,355 | | Balance at March 31, 2021 | | 10,928,154 | | | $ | 1,190 | | | $ | (172,055) | | | $ | 981,220 | | | $ | 810,355 | |
| Balance at December 31, 2021 | | Balance at December 31, 2021 | | 10,362,722 | | | $ | 0 | | | $ | (82,227) | | | $ | 844,356 | | | $ | 762,129 | |
Net income | | Net income | | 59,318 | | | 59,318 | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | | (3,043) | | | (3,043) | |
Cash dividends ($2.10 per share) | | Cash dividends ($2.10 per share) | | (21,570) | | | (21,570) | |
Repurchases of common stock | | Repurchases of common stock | | (115,796) | | | (597) | | | (36,750) | | | (37,347) | |
| Stock-based compensation | | Stock-based compensation | | 7,777 | | | 597 | | | 6 | | | 603 | |
Balance at March 31, 2022 | | Balance at March 31, 2022 | | 10,254,703 | | | $ | 0 | | | $ | (85,270) | | | $ | 845,360 | | | $ | 760,090 | |
|
See accompanying Notes to Condensed Consolidated Financial Statements
7
NEWMARKET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| (in thousands) | (in thousands) | | Three Months Ended March 31, | (in thousands) | | Three Months Ended March 31, |
| | | 2021 | | 2020 | | | 2022 | | 2021 |
Cash and cash equivalents at beginning of year | Cash and cash equivalents at beginning of year | | $ | 125,172 | | | $ | 144,397 | | Cash and cash equivalents at beginning of year | | $ | 83,304 | | | $ | 125,172 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net income | Net income | | 69,712 | | | 85,541 | | Net income | | 59,318 | | | 69,712 | |
Adjustments to reconcile net income to cash flows from operating activities: | Adjustments to reconcile net income to cash flows from operating activities: | | Adjustments to reconcile net income to cash flows from operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 20,631 | | | 21,369 | | Depreciation and amortization | | 21,072 | | | 20,631 | |
Deferred income tax expense | | 2,455 | | | 3,379 | | |
Deferred income tax (benefit) expense | | Deferred income tax (benefit) expense | | (12,135) | | | 2,455 | |
Loss on early extinguishment of debt | | Loss on early extinguishment of debt | | 7,545 | | | 0 | |
| Working capital changes | Working capital changes | | (41,421) | | | (42,058) | | Working capital changes | | (66,987) | | | (41,421) | |
Loss on marketable securities | | Loss on marketable securities | | 2,977 | | | 0 | |
Cash pension and postretirement contributions | Cash pension and postretirement contributions | | (2,577) | | | (2,557) | | Cash pension and postretirement contributions | | (2,099) | | | (2,577) | |
Other, net | Other, net | | 571 | | | (1,213) | | Other, net | | (2,910) | | | 571 | |
Cash provided from (used in) operating activities | Cash provided from (used in) operating activities | | 49,371 | | | 64,461 | | Cash provided from (used in) operating activities | | 6,781 | | | 49,371 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Capital expenditures | Capital expenditures | | (20,524) | | | (20,106) | | Capital expenditures | | (12,612) | | | (20,524) | |
| Purchases of marketable securities | | Purchases of marketable securities | | (787) | | | 0 | |
Proceeds from sales and maturities of marketable securities | | Proceeds from sales and maturities of marketable securities | | 372,846 | | | 0 | |
| Cash provided from (used in) investing activities | Cash provided from (used in) investing activities | | (20,524) | | | (20,106) | | Cash provided from (used in) investing activities | | 359,447 | | | (20,524) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
Redemption of 4.10% senior notes | | Redemption of 4.10% senior notes | | (350,000) | | | 0 | |
Net borrowings under revolving credit facility | Net borrowings under revolving credit facility | | 0 | | | 97,424 | | Net borrowings under revolving credit facility | | 51,000 | | | 0 | |
Issuance of 2.70% senior notes | Issuance of 2.70% senior notes | | 395,052 | | | 0 | | Issuance of 2.70% senior notes | | 0 | | | 395,052 | |
Dividends paid | Dividends paid | | (20,763) | | | (21,160) | | Dividends paid | | (21,570) | | | (20,763) | |
Repurchases of common stock | Repurchases of common stock | | 0 | | | (79,473) | | Repurchases of common stock | | (37,347) | | | 0 | |
Cash costs of 4.10% senior notes redemption | | Cash costs of 4.10% senior notes redemption | | (7,099) | | | 0 | |
Debt issuance costs | Debt issuance costs | | (2,932) | | | (1,308) | | Debt issuance costs | | 0 | | | (2,932) | |
Other, net | Other, net | | (1,915) | | | (1,377) | | Other, net | | (833) | | | (1,915) | |
Cash provided from (used in) financing activities | Cash provided from (used in) financing activities | | 369,442 | | | (5,894) | | Cash provided from (used in) financing activities | | (365,849) | | | 369,442 | |
Effect of foreign exchange on cash and cash equivalents | Effect of foreign exchange on cash and cash equivalents | | (1,056) | | | (4,196) | | Effect of foreign exchange on cash and cash equivalents | | 867 | | | (1,056) | |
Increase in cash and cash equivalents | Increase in cash and cash equivalents | | 397,233 | | | 34,265 | | Increase in cash and cash equivalents | | 1,246 | | | 397,233 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 522,405 | | | $ | 178,662 | | Cash and cash equivalents at end of period | | $ | 84,550 | | | $ | 522,405 | |
|
See accompanying Notes to Condensed Consolidated Financial Statements
8
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statement Presentation
In the opinion of management, the accompanying consolidated financial statements of NewMarket Corporation and its subsidiaries contain all necessary adjustments for the fair presentation of, in all material respects, our consolidated financial position as of March 31, 20212022 and December 31, 2020,2021, and our consolidated results of operations, comprehensive income, and changes in shareholders' equity for the three months ended March 31, 20212022 and March 31, 2020,2021, and our cash flows for the three months ended March 31, 20212022 and March 31, 2020.2021. All adjustments are of a normal, recurring nature, unless otherwise disclosed. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the NewMarket Corporation Annual Report on Form 10-K for the year ended December 31, 2020 (20202021 (2021 Annual Report), as filed with the Securities and Exchange Commission (SEC). The results of operations for the three month period ended March 31, 20212022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.2022. The December 31, 20202021 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Unless the context otherwise indicates, all references to “we,” “us,” “our,” the “company,” and “NewMarket” are to NewMarket Corporation and its consolidated subsidiaries.
2. Net Sales
Our revenues are primarily derived from the manufacture and sale of petroleum additives products. We sell petroleum additives products across the world to customers located in the North America, Latin America, Asia Pacific, and Europe/Middle East/Africa/India (EMEAI) regions. Our customers primarily consist of global, national, and independent oil companies. Our contracts generally include one performance obligation, which is providing petroleum additives products. The performance obligation is satisfied at a point in time when products are shipped, delivered, or consumed by the customer, depending on the underlying contracts.
In limited cases, we collect funds in advance of shipping product to our customers and recognizing the related revenue. These prepayments from customers are recorded as a contract liability to our customer until we recognize the revenue. Some of our contracts include variable consideration in the form of rebates or business development funds. We regularly review both rebates and business development funds and make adjustments when necessary, recognizing the full amount of any adjustment in the period identified.
The following table provides information on our net sales by geographic area. Information on net sales by segment is in Note 3.
| | | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | | 2021 | | 2020 | (in thousands) | | | 2022 | | 2021 |
Net sales | Net sales | | | | | | Net sales | | | | | |
United States | United States | | | $ | 170,324 | | | $ | 181,844 | | United States | | | $ | 224,688 | | | $ | 170,324 | |
China | China | | | 73,988 | | | 45,798 | | China | | | 52,703 | | | 73,988 | |
Europe, Middle East, Africa, India | Europe, Middle East, Africa, India | | | 176,650 | | | 190,623 | | Europe, Middle East, Africa, India | | | 195,987 | | | 176,650 | |
Asia Pacific, except China | Asia Pacific, except China | | | 82,597 | | | 79,413 | | Asia Pacific, except China | | | 104,841 | | | 82,597 | |
Other foreign | Other foreign | | | 63,056 | | | 61,739 | | Other foreign | | | 84,333 | | | 63,056 | |
Net sales | Net sales | | | $ | 566,615 | | | $ | 559,417 | | Net sales | | | $ | 662,552 | | | $ | 566,615 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Segment Information
The tables below show our consolidated segment results. The “All other” category includes the operations of the antiknock compounds business, as well as certain contracted manufacturing and services associated with Ethyl Corporation (Ethyl).
Net Sales by Segment
| | | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | | 2021 | | 2020 | (in thousands) | | | 2022 | | 2021 |
Petroleum additives | Petroleum additives | | | | | | Petroleum additives | | | | | |
Lubricant additives | Lubricant additives | | | $ | 494,556 | | | $ | 463,686 | | Lubricant additives | | | $ | 570,042 | | | $ | 494,556 | |
Fuel additives | Fuel additives | | | 70,342 | | | 93,686 | | Fuel additives | | | 90,262 | | | 70,342 | |
Total | Total | | | 564,898 | | | 557,372 | | Total | | | 660,304 | | | 564,898 | |
All other | All other | | | 1,717 | | | 2,045 | | All other | | | 2,248 | | | 1,717 | |
Net sales | Net sales | | | $ | 566,615 | | | $ | 559,417 | | Net sales | | | $ | 662,552 | | | $ | 566,615 | |
Segment Operating Profit
| | | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | | 2021 | | 2020 | (in thousands) | | | 2022 | | 2021 |
Petroleum additives | Petroleum additives | | | $ | 94,071 | | | $ | 113,671 | | Petroleum additives | | | $ | 86,922 | | | $ | 94,071 | |
All other | All other | | | (664) | | | 335 | | All other | | | 98 | | | (664) | |
Segment operating profit | Segment operating profit | | | 93,407 | | | 114,006 | | Segment operating profit | | | 87,020 | | | 93,407 | |
Corporate, general, and administrative expenses | Corporate, general, and administrative expenses | | | (4,312) | | | (4,231) | | Corporate, general, and administrative expenses | | | (3,890) | | | (4,312) | |
Interest and financing expenses, net | Interest and financing expenses, net | | | (6,343) | | | (7,104) | | Interest and financing expenses, net | | | (9,406) | | | (6,343) | |
| Loss on early extinguishment of debt | | Loss on early extinguishment of debt | | | (7,545) | | | 0 | |
Other income (expense), net | Other income (expense), net | | | 6,618 | | | 7,407 | | Other income (expense), net | | | 7,328 | | | 6,618 | |
Income before income tax expense | Income before income tax expense | | | $ | 89,370 | | | $ | 110,078 | | Income before income tax expense | | | $ | 73,507 | | | $ | 89,370 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Pension Plans and Other Postretirement Benefits
The table below shows cash contributions made during the three months ended March 31, 2021,2022, as well as the remaining cash contributions we expect to make during the year ending December 31, 2021,2022, for our domestic and foreign pension plans and domestic postretirement benefit plan.
| (in thousands) | (in thousands) | | Actual Cash Contributions for Three Months Ended March 31, 2021 | | Expected Remaining Cash Contributions for Year Ending December 31, 2021 | (in thousands) | | Actual Cash Contributions for Three Months Ended March 31, 2022 | | Expected Remaining Cash Contributions for Year Ending December 31, 2022 |
Domestic plans | Domestic plans | | | | | Domestic plans | | | | |
Pension benefits | Pension benefits | | $ | 716 | | | $ | 2,148 | | Pension benefits | | $ | 620 | | | $ | 1,859 | |
Postretirement benefits | Postretirement benefits | | 287 | | | 861 | | Postretirement benefits | | 365 | | | 1,094 | |
Foreign plans | Foreign plans | | Foreign plans | |
Pension benefits | Pension benefits | | 1,574 | | | 4,797 | | Pension benefits | | 1,114 | | | 5,123 | |
The tables below present information on net periodic benefit cost (income) for our domestic and foreign pension plans and domestic postretirement benefit plan. The service cost component of net periodic benefit cost (income) is reflected in cost of goods sold; selling, general, and administrative expenses; or research, development, and testing expenses, according to where other compensation costs arising from services rendered by the pertinent employee are recorded on the Consolidated Statements of Income. The remaining components of net periodic benefit cost (income) are recorded in other income (expense), net on the Consolidated Statements of Income.
| | | | Domestic | | | Domestic |
| | | Pension Benefits | | Postretirement Benefits | | | Pension Benefits | | Postretirement Benefits |
| | Three Months Ended March 31, | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Service cost | Service cost | | $ | 4,814 | | | $ | 4,197 | | | $ | 250 | | | $ | 217 | | Service cost | | $ | 4,856 | | | $ | 4,814 | | | $ | 260 | | | $ | 250 | |
Interest cost | Interest cost | | 3,241 | | | 3,508 | | | 292 | | | 345 | | Interest cost | | 3,389 | | | 3,241 | | | 289 | | | 292 | |
Expected return on plan assets | Expected return on plan assets | | (9,670) | | | (9,305) | | | (233) | | | (241) | | Expected return on plan assets | | (10,940) | | | (9,670) | | | (204) | | | (233) | |
Amortization of prior service cost (credit) | Amortization of prior service cost (credit) | | 68 | | | 66 | | | (757) | | | (757) | | Amortization of prior service cost (credit) | | 68 | | | 68 | | | (757) | | | (757) | |
Amortization of actuarial net (gain) loss | Amortization of actuarial net (gain) loss | | 1,390 | | | 1,316 | | | 12 | | | 0 | | Amortization of actuarial net (gain) loss | | 536 | | | 1,390 | | | 8 | | | 12 | |
Net periodic benefit cost (income) | Net periodic benefit cost (income) | | $ | (157) | | | $ | (218) | | | $ | (436) | | | $ | (436) | | Net periodic benefit cost (income) | | $ | (2,091) | | | $ | (157) | | | $ | (404) | | | $ | (436) | |
| | | | Foreign | | | Foreign |
| | | Pension Benefits | | | Pension Benefits |
| | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | | 2021 | | 2020 | (in thousands) | | | 2022 | | 2021 |
Service cost | Service cost | | | $ | 2,757 | | | $ | 2,146 | | Service cost | | | $ | 2,360 | | | $ | 2,757 | |
Interest cost | Interest cost | | | 827 | | | 984 | | Interest cost | | | 1,098 | | | 827 | |
Expected return on plan assets | Expected return on plan assets | | | (2,666) | | | (2,461) | | Expected return on plan assets | | | (2,635) | | | (2,666) | |
Amortization of prior service cost (credit) | Amortization of prior service cost (credit) | | | 38 | | | (11) | | Amortization of prior service cost (credit) | | | 37 | | | 38 | |
Amortization of actuarial net (gain) loss | Amortization of actuarial net (gain) loss | | | 901 | | | 353 | | Amortization of actuarial net (gain) loss | | | 169 | | | 901 | |
Net periodic benefit cost (income) | Net periodic benefit cost (income) | | | $ | 1,857 | | | $ | 1,011 | | Net periodic benefit cost (income) | | | $ | 1,029 | | | $ | 1,857 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Earnings Per Share
We had 34,349 shares of nonvested restricted stock at March 31, 2022 and 26,728 shares of nonvested restricted stock at March 31, 2021 and 19,858 shares of nonvested restricted stock at March 31, 2020 that were excluded from the calculation of diluted earnings per share, as their effect on earnings per share would be anti-dilutive.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The nonvested restricted stock is considered a participating security since the restricted stock contains nonforfeitable rights to dividends. As such, we use the two-class method to compute basic and diluted earnings per share for all periods presented since this method yields the most dilutive result. The following table illustrates the earnings allocation method utilized in the calculation of basic and diluted earnings per share.
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
(in thousands, except per-share amounts) | | | | | | 2021 | | 2020 |
Earnings per share numerator: | | | | | | | | |
Net income attributable to common shareholders before allocation of earnings to participating securities | | | | | | $ | 69,712 | | | $ | 85,541 | |
Earnings allocated to participating securities | | | | | | 153 | | | 112 | |
Net income attributable to common shareholders after allocation of earnings to participating securities | | | | | | $ | 69,559 | | | $ | 85,429 | |
Earnings per share denominator: | | | | | | | | |
Weighted-average number of shares of common stock outstanding - basic and diluted | | | | | | 10,901 | | | 11,136 | |
| | | | | | | | |
| | | | | | | | |
Earnings per share - basic and diluted | | | | | | $ | 6.38 | | | $ | 7.67 | |
6. Inventories
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2021 | | 2020 |
Finished goods and work-in-process | | $ | 333,192 | | | $ | 325,588 | |
Raw materials | | 65,080 | | | 59,413 | |
Stores, supplies, and other | | 16,465 | | | 16,030 | |
| | $ | 414,737 | | | $ | 401,031 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
(in thousands, except per-share amounts) | | | | | | 2022 | | 2021 |
Earnings per share numerator: | | | | | | | | |
Net income attributable to common shareholders before allocation of earnings to participating securities | | | | | | $ | 59,318 | | | $ | 69,712 | |
Earnings allocated to participating securities | | | | | | 175 | | | 153 | |
Net income attributable to common shareholders after allocation of earnings to participating securities | | | | | | $ | 59,143 | | | $ | 69,559 | |
Earnings per share denominator: | | | | | | | | |
Weighted-average number of shares of common stock outstanding - basic and diluted | | | | | | 10,290 | | | 10,901 | |
| | | | | | | | |
| | | | | | | | |
Earnings per share - basic and diluted | | | | | | $ | 5.75 | | | $ | 6.38 | |
6. Marketable Securities
During 2021, NewMarket invested in both debt, which was designated as trading, and equity marketable securities. Subsequently, during the first three months of 2022, we sold all of the marketable securities. While held, the marketable securities were recorded on a settlement date basis at estimated fair value and were classified as current assets in the Consolidated Balance Sheets. Gains and losses, as well as the investment income attributable to the debt and equity securities, are reported in Other income (expense), net in the Consolidated Statements of Income. The debt securities had a cost basis of $50 million and the equity securities had a cost basis of $334 million at December 31, 2021. At March 31, 2022 the cost basis for all marketable securities was zero.
The following table provides information on the fair value of the marketable securities, as well as the related level within the fair value hierarchy. The estimated fair value of debt securities was based on reported trades of the debt security adjusted for other observable market data including, but not limited to, benchmark yield curves, market-based quotes of similar assets, and other market-corroborated inputs. The estimated fair value of equity securities was based on actively quoted market prices.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | | | Fair Value Measurements Using |
(in thousands) | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Debt securities | | | | | | | | |
Corporate bonds | | $ | 48,727 | | | $ | 0 | | | $ | 48,727 | | | $ | 0 | |
| | | | | | | | |
Equity securities | | | | | | | | |
U.S. government income mutual fund | | 327,191 | | | 327,191 | | | 0 | | | 0 | |
Total marketable securities | | $ | 375,918 | | | $ | 327,191 | | | $ | 48,727 | | | $ | 0 | |
| | | | | | | | |
| | | | | | | | |
7. Inventories
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
(in thousands) | | 2022 | | 2021 |
Finished goods and work-in-process | | $ | 420,356 | | | $ | 393,778 | |
Raw materials | | 85,357 | | | 86,856 | |
Stores, supplies, and other | | 18,378 | | | 17,905 | |
| | $ | 524,091 | | | $ | 498,539 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.8. Intangibles (Net of Amortization) and Goodwill
The net carrying amount of intangibles and goodwill was $129$127 million at March 31, 20212022 and $130$128 million at December 31, 2020.2021. The gross carrying amount and accumulated amortization of each type of intangible asset and goodwill are presented in the table below.
| | | | March 31, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
(in thousands) | (in thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | (in thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Amortizing intangible assets | Amortizing intangible assets | | | | | | | | | Amortizing intangible assets | | | | | | | | |
Formulas and technology | Formulas and technology | | $ | 6,200 | | | $ | 3,875 | | | $ | 6,200 | | | $ | 3,617 | | Formulas and technology | | $ | 6,200 | | | $ | 4,908 | | | $ | 6,200 | | | $ | 4,650 | |
Contract | Contract | | 2,000 | | | 850 | | | 2,000 | | | 800 | | Contract | | 2,000 | | | 1,050 | | | 2,000 | | | 1,000 | |
Customer bases | Customer bases | | 14,240 | | | 12,450 | | | 14,240 | | | 12,037 | | Customer bases | | 5,440 | | | 4,207 | | | 5,440 | | | 4,160 | |
| Goodwill | Goodwill | | 123,983 | | | 123,958 | | | Goodwill | | 123,881 | | | 123,922 | | |
| | $ | 146,423 | | | $ | 17,175 | | | $ | 146,398 | | | $ | 16,454 | | | $ | 137,521 | | | $ | 10,165 | | | $ | 137,562 | | | $ | 9,810 | |
All of the intangibles relate to the petroleum additives segment. The change in the gross carrying amount between December 31, 20202021 and March 31, 20212022 is due to foreign currency fluctuation. There is 0no accumulated goodwill impairment.
Amortization expense was (in thousands):
| | | | | |
| |
Three months ended March 31, 20212022 | $ | 721355 | |
| |
Three months ended March 31, 20202021 | 727721 | |
Estimated amortization expense for the remainder of 2021,2022, as well as estimated annual amortization expense related to our intangible assets for the next five years, is expected to be (in thousands):
| 2021 | $ | 1,435 | | |
2022 | 2022 | 1,423 | | 2022 | $ | 1,068 | |
2023 | 2023 | 907 | | 2023 | 907 | |
2024 | 2024 | 390 | | 2024 | 390 | |
2025 | 2025 | 390 | | 2025 | 390 | |
2026 | 2026 | 390 | | 2026 | 390 | |
2027 | | 2027 | 190 | |
We amortize the contract over 10 years; the customer basesbase over 4 to 20 years; and formulas and technology over 6 years.
9. Long-term Debt
| | | | | | | | | | | | | | |
(in thousands) | | March 31, 2022 | | December 31, 2021 |
Senior notes - 2.70% due 2031 (net of related deferred financing costs) | | $ | 392,074 | | | $ | 391,853 | |
Senior notes - 3.78% due 2029 | | 250,000 | | | 250,000 | |
Senior notes - 4.10% due 2022 (net of related deferred financing costs) | | 0 | | | 349,434 | |
Revolving credit facility | | 199,000 | | | 148,000 | |
| | 841,074 | | | 1,139,287 | |
Less: Current maturity of 4.10% senior notes | | 0 | | | 349,434 | |
| | $ | 841,074 | | | $ | 789,853 | |
Senior Notes
- The outstanding 2.70% senior notes, which were issued in 2021, are unsecured with an aggregate principal amount of $400 million. The offer and sale of the notes were registered under the Securities Act of 1933, as amended.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Long-term Debt
| | | | | | | | | | | | | | |
(in thousands) | | March 31, 2021 | | December 31, 2020 |
Senior notes - 2.70% due 2031 (net of related deferred financing costs) | | $ | 391,194 | | | $ | 0 | |
Senior notes - 4.10% due 2022 (net of related deferred financing costs) | | 348,995 | | | 348,848 | |
Senior notes - 3.78% due 2029 | | 250,000 | | | 250,000 | |
| | | | |
| | $ | 990,189 | | | $ | 598,848 | |
Senior Notes - On March 18, 2021, we issued $400 million aggregate principal amount of 2.70% senior notes due 2031. The 2.70% senior notes are general unsecured senior obligations and rank equally with our other unsecured senior indebtedness. The offer and sale of the notes were registered under the Securities Act of 1933, as amended. We incurred financing costs in the first three months of 2021 of approximately $4 million related to the 2.70% senior notes, which are being amortized over the term of the notes.
The indenture governing the 2.70% senior notes includes certain customary covenants that, among other things and subject to certain qualifications and exceptions, limit our ability and the ability of our subsidiaries to:
•grant liens to secure indebtedness;
•engage in sale and lease back transactions;
•merge or consolidate with, or convey, transfer or lease all or substantially all of our assets to a third party.
The outstanding 4.10% senior notes are unsecured, with an aggregate principal amount of $350 million and are registered under the Securities Act of 1933, as amended. The outstanding 3.78% senior notes are unsecured and were issued in a 2017 private placement with The Prudential Insurance Company of America and certain other purchasers.
On March 15, 2022 we redeemed the 4.10% senior notes at a redemption price of 100% of the principal amount of $350 million plus the accrued and unpaid interest on the notes and the applicable premium as outlined in the Indenture dated December 20, 2012. The 4.10% senior notes were due December 2022. We recognized a loss of $7.5 million on the early extinguishment including cash paid of $7.1 million for the premium on the early redemption and a write-off of $0.4 million of unamortized deferred financing costs.
We were in compliance with all covenants under all issuances of outstanding senior notes as of March 31, 20212022 and December 31, 2020.2021.
Revolving Credit Facility - The revolving credit facility has a borrowing capacity of $900 million, a term of five years, and matures on March 5, 2025. The obligations under the revolving credit facility are unsecured and are fully and unconditionally guaranteed by NewMarket.
The average interest rate for borrowings under the credit agreement was 1.8% during the first three months of 2022 and 1.6% during the full year of 2021. We were in compliance with all covenants under the revolving credit facility as of March 31, 20212022 and December 31, 2020.2021.
There were 0 outstandingOutstanding borrowings under the revolving credit facility amounted to $199 million at March 31, 2021 or2022 and $148 million at December 31, 2020. As of March 31, 2021 and December 31, 2020 outstanding2021. Outstanding letters of credit wereamounted to approximately $2 million resulting in theat March 31, 2022 and at December 31, 2021. The unused portion of the credit facility amountingamounted to $898 million.$699 million as of March 31, 2022 and $750 million at December 31, 2021.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.10. Commitments and Contingencies
Legal Matters
We are involved in legal proceedings that are incidental to our business and may include administrative or judicial actions. Some of these legal proceedings involve governmental authorities and relate to environmental matters. For further information, see Environmental below.
While it is not possible to predict or determine with certainty the outcome of any legal proceeding, we believe the outcome of any of these proceedings, or all of them combined, will not result in a material adverse effect on our consolidated results of operations, financial condition, or cash flows.
Environmental
We are involved in environmental proceedings and potential proceedings relating to soil and groundwater contamination, disposal of hazardous waste, and other environmental matters at several of our current or former facilities, or at third-party sites where we have been designated as a potentially responsible party (PRP). While we believe we are currently adequately accrued for known environmental issues, it is possible that unexpected future costs could have a significant impact on our consolidated financial position, results of operations, and cash flows. Our total accruals for environmental remediation, dismantling, and decontamination were approximately $10 million at both March 31, 20212022 and $11 million at December 31, 2020.2021. Of the total accrual, the current portion is included in accrued expenses and the noncurrent portion is included in other noncurrent liabilities on the Condensed Consolidated Balance Sheets.
Our more significant environmental sites include a former plant site in Louisiana (the Louisiana site) and a Houston, Texas plant site (the Texas site).site. Together, the amounts accrued on a discounted basis related to these sites represented approximately $7$8 million of the total accrual above at both March 31, 20212022 and $8 million at December 31, 2020,2021, using discount rates ranging from 3% to 9% for both periods. The aggregate undiscounted amount for these sites was $9$10 million at both March 31, 20212022 and December 31, 2020.2021.
10.NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
The balances of, and changes in, the components of accumulated other comprehensive loss, net of tax, consist of the following:
| (in thousands) | (in thousands) | | Pension Plans and Other Postretirement Benefits | | | Foreign Currency Translation Adjustments | | | Accumulated Other Comprehensive (Loss) Income | (in thousands) | | Pension Plans and Other Postretirement Benefits | | | Foreign Currency Translation Adjustments | | | Accumulated Other Comprehensive (Loss) Income |
Balance at December 31, 2019 | | $ | (69,795) | | | | $ | (92,953) | | | | $ | (162,748) | | |
Other comprehensive income (loss) before reclassifications | | 0 | | | | (14,331) | | | | (14,331) | | |
Amounts reclassified from accumulated other comprehensive loss (a) | | 736 | | | | 0 | | | | 736 | | |
Other comprehensive income (loss) | | 736 | | | | (14,331) | | | | (13,595) | | |
Balance at March 31, 2020 | | $ | (69,059) | | | | $ | (107,284) | | | | $ | (176,343) | | |
| Balance at December 31, 2020 | Balance at December 31, 2020 | | $ | (92,771) | | | | $ | (80,393) | | | | $ | (173,164) | | Balance at December 31, 2020 | | $ | (92,771) | | | | $ | (80,393) | | | | $ | (173,164) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (657) | | | | 467 | | | | (190) | | Other comprehensive income (loss) before reclassifications | | (657) | | | | 467 | | | | (190) | |
Amounts reclassified from accumulated other comprehensive loss (a) | Amounts reclassified from accumulated other comprehensive loss (a) | | 1,299 | | | | 0 | | | | 1,299 | | Amounts reclassified from accumulated other comprehensive loss (a) | | 1,299 | | | | 0 | | | | 1,299 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | | 642 | | | | 467 | | | | 1,109 | | Other comprehensive income (loss) | | 642 | | | | 467 | | | | 1,109 | |
Balance at March 31, 2021 | Balance at March 31, 2021 | | $ | (92,129) | | | | $ | (79,926) | | | | $ | (172,055) | | Balance at March 31, 2021 | | $ | (92,129) | | | | $ | (79,926) | | | | $ | (172,055) | |
| Balance at December 31, 2021 | | Balance at December 31, 2021 | | $ | 1,522 | | | | $ | (83,749) | | | | $ | (82,227) | |
Other comprehensive income (loss) before reclassifications | | Other comprehensive income (loss) before reclassifications | | 16 | | | | (3,102) | | | | (3,086) | |
Amounts reclassified from accumulated other comprehensive loss (a) | | Amounts reclassified from accumulated other comprehensive loss (a) | | 43 | | | | 0 | | | | 43 | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | | 59 | | | | (3,102) | | | | (3,043) | |
Balance at March 31, 2022 | | Balance at March 31, 2022 | | $ | 1,581 | | | | $ | (86,851) | | | | $ | (85,270) | |
(a) The pension plan and other postretirement benefit components of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income). See Note 4 in this Quarterly Report on Form 10-Q and Note 1718 in our 20202021 Annual Report for further information.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11.12. Fair Value Measurements
The carrying amount of cash and cash equivalents in the Condensed Consolidated Balance Sheets, as well as the fair value, was $522$85 million at March 31, 20212022 and $125$83 million at December 31, 2020.2021. The fair value is classified as Level 1 in the fair value hierarchy.
No material events occurred during the three months ended March 31, 20212022 requiring adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.
Long-term debt – We record the carrying amount of our long-term debt at historical cost, less deferred financing costs related to our publicly traded senior notes. The estimated fair value of our long-term debt is shown in the table below and is based primarily on estimated current rates available to us for debt of the same remaining duration and adjusted for nonperformance risk and credit risk. The estimated fair value of our publicly-traded senior notes included in the table below is based on the last quoted price closest to March 31, 2021.2022. The fair value of our debt instruments are classified as Level 2.
| | | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
(in thousands) | (in thousands) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | (in thousands) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Long-term debt | | $ | 990,189 | | | $ | 1,036,673 | | | $ | 598,848 | | | $ | 648,671 | | |
Long-term debt, including current maturities | | Long-term debt, including current maturities | | $ | 841,074 | | | $ | 817,137 | | | $ | 1,139,287 | | | $ | 1,178,066 | |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements about future events and expectations within the meaning of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future results. When we use words in this document such as “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “expects,” “should,” “could,” “may,” “will,” and similar expressions, we do so to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding future prospects of growth in the petroleum additives market, other trends in the petroleum additives market, our ability to maintain or increase our market share, and our future capital expenditure levels.
We believe our forward-looking statements are based on reasonable expectations and assumptions, within the bounds of what we know about our business and operations. However, we offer no assurance that actual results will not differ materially from our expectations due to uncertainties and factors that are difficult to predict and beyond our control.
Factors that could cause actual results to differ materially from expectations include, but are not limited to, the availability of raw materials and distribution systems; disruptions at production facilities, including single-sourced facilities; hazards common to chemical businesses; the ability to respond effectively to technological changes in our industry; failure to protect our intellectual property rights; sudden, sharp, or sharpprolonged raw material price increases; competition from other manufacturers; current and future governmental regulations; the gain or loss of significant customers; failure to attract and retain a highly-qualified workforce; an information technology system failure or security breach; the occurrence or threat of extraordinary events, including natural disasters, terrorist attacks, wars, and health-related epidemics such as the COVID-19 pandemic; risks related to operating outside of the United States; political, economic, and regulatory factors concerning our products; the impact of substantial indebtedness on our operational and financial flexibility; the impact of fluctuations in foreign exchange rates; resolution of environmental liabilities or legal proceedings; limitation of our insurance coverage; our inability to realize expected benefits from investment in our infrastructure or from recent or future acquisitions, or our inability to successfully integrate recent or future acquisitions into our business; the underperformance of our pension assets resulting in additional cash contributions to our pension plans; and other factors detailed from time to time in the reports that NewMarket files with the SEC, including the risk factors in Item 1A. “Risk Factors” of our 20202021 Annual Report, which is available to shareholders upon request.
You should keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, any forward-looking statement made in this report or elsewhere, might not occur.
Overview
When comparing the results of the petroleum additives segment for the first three months of 20212022 with the first three months of 2020,2021, net sales increased 1.4%16.9% primarily due to higher lubricant additivesselling prices, as well as higher product shipments, and a favorable foreign currency impact,which were partially offset by decreased selling prices and lower fuel additives product shipments.an unfavorable foreign currency impact. Petroleum additives operating profit was 17.2%7.6% lower when comparing the first three months of 20212022 with the first three months of 2020,2021, reflecting lower selling prices andsignificantly higher conversion and raw material costs, as well as higher operating costs, partially offset by increasedhigher selling prices and improved product shipments.
On March 18, 2021,During the first three months of 2022, we issued $400 million aggregate principal amountrepurchased 115,796 shares of 2.70%our common stock for a total of $37.3 million. We also redeemed our 4.10% senior notes due 2031.and sold all of our marketable securities.
Our operations generate cash that is in excess of the needs of the business. We continue to invest in and manage theour business for the long-term with the intentgoal of helping our customers succeed in their marketplaces. Our investments continue to be in organizational talent, technology development and processes, and global infrastructure, consisting of technical centers, production capability, and geographic expansion.
Impact of the COVID-19 Pandemic and Current Economic Environment
WhileThe current economic environment in which we operate is characterized by steadily rising costs, including raw material costs, limitations on certain supply availability, and a challenging supply chain network and transportation system. Because of our active business continuity process and global network, we have continued to a lesser extent than during 2020, petroleum additives operating results for the first three months of 2021 include an unfavorable impact from the economic uncertainty resulting from the ongoing effects of the COVID-19 pandemic and the related restrictions on the movement of people, goods and services resulting in fewer miles driven thansubstantially manage through these factors during the first three months of 2020. The pacethe year and stability of improvementhave delivered product to our customers. We do not currently expect the supply chain network disruptions to be long-term in demand for our products will continue to depend heavily onnature, but we cannot predict how the current economic recovery andenvironment may evolve over the rate at which government restrictions are lifted and remain lifted.coming months or how long the supply chain network disruptions may last. We will continue working with our customers to monitordeliver product, but at the government restrictions,same time, we also expect to be challenged by these ongoing economic factors as well aswe manage our business throughout the statusrest of the vaccination programs that are being implemented globally. We expect successful vaccination efforts will help provide more stability in the global economy in 2021.year.
With only a very few government-ordered, short-term exceptions, all of our locations aroundIn addition to the world, including our manufacturing and research and development facilities, have continued togeneral inflationary environment in which we operate, safely and without interruption during the pandemic, and we expect them to continue to do so. Raw material sourcingRussia-Ukraine war has not been significantly impacted and we do not expect that to change over the coming months. The transportation industry continues to operate and our products are currently being deliveredintroduced additional challenges to our customers.business. While this conflict did not have a material impact on our financial results for the first three months of 2022, numerous countries have imposed sanctions against Russia. We are complying with these sanctions and are evaluating this evolving situation to assess its impact on our business.
OurDespite the challenging economic environment, our financial position remains strong. We have sufficient access to capital, if needed, and do not anticipate any issues with meeting the covenants for all our debt agreements. Our major capital projects are continuing to progress substantially as planned.
As we operate in the chemical industry, we continue to be focused on protecting the health and safety of our employees and have procedures in place at each of our operating facilities to help ensure their well-being.
The chemical industry and our products are recognized as essential for transportation of goods and services. Our business continuity planning process focuses our efforts on managing through this challenging time and helping our customers do the same. As we are a global company and can leverage the knowledge and experience of our personnel in facilities across the world, we do not expect to experience negative impacts related to short-term travel and border restrictions.
Results of Operations
Net Sales
Consolidated net sales for the first three months of 20212022 totaled $566.6$662.6 million, representing an increase of $7.2$95.9 million, or 1.3%16.9%, from the first three months of 2020.2021. The following table shows net sales by segment and product line.
| | | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
(in millions) | (in millions) | | | 2021 | | 2020 | (in millions) | | | 2022 | | 2021 |
Petroleum additives | Petroleum additives | | | | | | Petroleum additives | | | | | |
Lubricant additives | Lubricant additives | | | $ | 494.6 | | | $ | 463.7 | | Lubricant additives | | | $ | 570.0 | | | $ | 494.6 | |
Fuel additives | Fuel additives | | | 70.3 | | | 93.7 | | Fuel additives | | | 90.3 | | | 70.3 | |
Total | Total | | | 564.9 | | | 557.4 | | Total | | | 660.3 | | | 564.9 | |
All other | All other | | | 1.7 | | | 2.0 | | All other | | | 2.3 | | | 1.7 | |
Net sales | Net sales | | | $ | 566.6 | | | $ | 559.4 | | Net sales | | | $ | 662.6 | | | $ | 566.6 | |
Petroleum Additives Segment
The regions in which we operate include North America (the United States and Canada), Latin America (Mexico, Central America, and South America), Asia Pacific, and the EMEAI region. While there is some fluctuation, the percentage of net sales generated in the regions remained fairly consistent when comparing the first three months of 20212022 with the same period in 2020,2021, as well as with the full year in 2020.2021.
Petroleum additives net sales for the first three months of 20212022 were $564.9$660.3 million compared to $557.4$564.9 million for the first three months of 2020,2021, an increase of 1.4%16.9%. BothThe increase was across all regions with North America representing around 60% of the Asia Pacificincrease, both the EMEAI and Latin America regions reflected increases in petroleum additivesrepresenting about 20%, and net sales which were mostly offset by decreases infor the EMEAI and North America regions. The reductions in the EMEAIAsia Pacific region reflects some continuing impact as a result of the economic disruption due to the COVID-19 pandemic, including lower demand for petroleum additives products reflecting the restrictions on the movement of people, goods, and services. In addition to some impact from the COVID-19 pandemicnearly unchanged when comparing the first three months periods of 20212022 and 2020, the North America region also reflected the impact of weather-related reductions in net sales.2021.
The following table details the approximate components of the increase in petroleum additives net sales between the first three months of 20212022 and 2020.2021.
| | | | | | | | | | |
(in millions) | | | | Three Months |
Period ended March 31, 20202021 | | | | $ | 557.4564.9 | |
Lubricant additives shipments | | | | 39.7 (0.4) | |
Fuel additives shipments | | | | (21.1)2.6 | |
Selling prices | | | | (22.7)102.3 | |
Foreign currency impact, net | | | | 11.6 (9.1) | |
Period ended March 31, 20212022 | | | | $ | 564.9660.3 | |
When comparing the first three months periods of 20212022 and 2020,2021, petroleum additives shipments accounted for an $18.6a $2.2 million increase in net sales. Selling prices improved during the first three months of 2022 over the same period in 2021 contributing a favorable impact to net sales of $102.3 million. The favorable impact from shipments and improved shipmentsselling prices was partially offset by lower selling prices, net of a favorablean unfavorable impact from foreign currency exchange rates. The United States Dollar weakenedstrengthened against most of the major currencies in which we transact when comparing the first three months of 20212022 and 20202021 resulting in a favorablean unfavorable impact to petroleum additives net sales for the three months comparative periods. The favorableunfavorable impact was predominantly due to changes in the Euro and Japanese Yen exchange rate.rates.
On a worldwide basis, the volume of product shipments for petroleum additives increased 2.6%2.3% when comparing the first three months of 20212022 and 2020. Shipments of2021. The increases in product shipments for both lubricant additives increased mostly in the Asia Pacific region, with smaller increases in the North America and Latin America regions and a decrease in the EMEAI region. Fuelfuel additives shipment volumes decreased for the three months comparative periodwas across all regions except for the Asia Pacific region. The decreaseRegion, which experienced decreases in fuel additives shipments was predominantly in theboth product lines. North America contributed most of the increase in product shipments for both lubricant additives and EMEAI regions, substantiallyfuel additives. While there was an increase in lubricant additives product shipments on a global basis, due to the mix of products sold within the product line, lubricant additives had a small unfavorable impact ofon net sales as shown in the restrictions on movement of people, goods, and services, as well as weather-related impacts in North America.table above.
All Other
The “All other” category includes the operations of the antiknock compounds business and certain contracted manufacturing and services.
Segment Operating Profit
NewMarket evaluates the performance of the petroleum additives business based on segment operating profit. NewMarket Services Corporation expenses are charged to NewMarket and each subsidiary pursuant to services agreements between the companies. Depreciation on segment property, plant, and equipment, as well as amortization of segment intangible assets and lease right-of-use assets, is included in segment operating profit.
The following table reports segment operating profit for the three months ended March 31, 20212022 and March 31, 2020.2021.
| | | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
(in millions) | (in millions) | | | 2021 | | 2020 | (in millions) | | | 2022 | | 2021 |
Petroleum additives | Petroleum additives | | | $ | 94.1 | | | $ | 113.7 | | Petroleum additives | | | $ | 86.9 | | | $ | 94.1 | |
All other | All other | | | $ | (0.7) | | | $ | 0.3 | | All other | | | $ | 0.1 | | | $ | (0.7) | |
Petroleum Additives Segment
The petroleumPetroleum additives segment gross profit decreased $7.6 million and operating profit decreased $19.6$7.2 million when comparing the first three months of 20212022 to the first three months of 2020. Both comparative periods included2021. Cost of goods sold as a percentage of net sales was 76.6% for the impactfirst three months of 2022 and 71.3% for the same factors that affected gross profit (see discussion below).
first three months of 2021. The operating profit margin was 13.2% for the first three months of 2022 as compared to 16.7% for the first three months of 2021 as compared to 20.4% for the first three months of 2020.2021. For the rolling four quarters ended March 31, 2021,2022, the operating profit margin for petroleum additives was 15.6%11.2%. The economic disruption from COVID-19 impacted
When comparing the rolling four quarterfirst three months of 2022 and 2021, both gross profit and operating profit included the impact of significantly higher raw material costs, as well as an unfavorable impact from conversion costs. These were partially offset by the impact of improved selling prices and product shipments as discussed above, as well as a favorable foreign currency transaction and translation impact.
Throughout most of 2021, we experienced declining operating margins due mainly to the prolonged period of escalating raw material costs. While raw material costs, along with other operating costs, have continued to increase in 2022, we have been able to make adjustments to selling prices to offset some of the raw material and continuesoperating cost increases. We continue to haveexperience a more limited impact on our results during 2021. Operatinglag between when price increases go into effect and when margin recovery begins. This lag will continue until raw material costs and other operating costs, including higher costs resulting from the worldwide supply chain disruptions, stabilize.
In this uncertain economic environment of continuing increasing costs, operating profit margins remain a priority for us. Margin recovery and while theycost control will be priorities throughout this year with the goal of returning to our historical profit margin range. While operating margins will fluctuate from quarter to quarter due to multiple factors, we believe the fundamentals of our business and industry as a whole are unchanged.
Petroleum additives gross profit decreased $18.2 million when comparing the first three months of 2021 and 2020. Cost of goods sold as a percentage of net sales was 71.3% for the first three months of 2021, increasing from 67.7% for the first three months of 2020.
When comparing the first three months of 2021 and 2020, the decrease in gross profit resulted from unfavorable impacts from lower selling prices (as discussed in the Net Sales section above) and higher raw material costs, as well as unfavorable conversion costs, including an unfavorable foreign currency translation impact, which together contributed over 100% of the change in the three months comparative period. These unfavorable factors for the three months comparison were partially offset by improved product shipments (also as discussed in the Net Sales section above).
Petroleum additives selling, general, and administrative expenses (SG&A) increased $0.6 million when comparingfor the first three months of 20212022 were $0.5 million lower as compared to the same 2020 period.first three months of 2021. SG&A as a percentage of net sales was 4.7% for the first three months of 2022 and 5.6% for the first three months of 2021 and 5.5% for the first three months of 2020.2021. Our SG&A costs are primarily personnel-related and include salaries, benefits, and other costs associated with our workforce, including traveltravel-related expenses. While personnel-related costs fluctuate from period to period, there were no significant changes in the drivers of these costs when comparing the periods.
Our investment in petroleum additives research, development, and testing (R&D) increased $0.8 millionwas substantially unchanged when comparing the first three months periods of 20212022 and 2020.2021. As a percentage of net sales, R&D was 6.4%5.5% for both the first three months of 2021,2022, and 6.4% for the first three months of 2020.2021. Our R&D investments reflect our efforts to support the development of solutions that meet our customers' needs, meet new and evolving standards, and support our expansion into new product areas. Our approach to R&D investment,investments, as it is with SG&A, is one of purposeful spending on programs to support our current
product base and to ensure that we develop products to support our customers' programs in the future. R&D investments include personnel-related costs, as well as costs for internal and external testing of our products.
The following discussion references certain captions on the Consolidated Statements of Income.
Interest and Financing Expenses, Net
Interest and financing expenses were $9.4 million for the first three months of 2022 and $6.3 million for the first three months of 2021 and $7.1 million for the first three months of 2020.2021. The decrease for the three months comparisonincrease resulted primarily from lowerhigher outstanding debt during the 2022 period, along with higher amortization and fees, as well as higherlower capitalized interest duringwhen comparing the 2021 period.first three months of 2022 and the first three months of 2021. A lower average interest rate partially offset these unfavorable impacts.
Other Income (Expense), Net
Other income (expense), net was income of $7.2 million for both the first three months of 20212022 and $7.5 million for the first three months of 2020.2021. The amounts for both of the 20212022 and 20202021 periods primarily reflect the components of net periodic benefit cost (income), except for service cost, from defined benefit pension and postretirement plans. See Note 4 for further information on total periodic benefit cost (income). The 2022 period also included investment income of $1.1 million, as well as a loss on marketable securities of $3.0 million.
Income Tax Expense
Income tax expense was $14.2 million for the first three months of 2022 and $19.7 million for the first three months of 2021 and $24.5 million2021. The effective tax rate was 19.3% for the first three months of 2020. The effective tax rate was2022 and 22.0% for the first three months of 2021 and 22.3%2021. Income tax expense decreased $3.5 million due to lower income before income tax expense with the remaining $2.0 million of the difference caused by the lower effective tax rate.
The decrease in the effective tax rate for the first three months comparison was primarily driven by the impact of 2020. Income taxresearch and development expense decreased $4.6 million duecapitalization in 2022 on the foreign derived intangible income deduction and the impact of having less projected United States interest expense in 2022 as compared to 2021 on the lower income before income tax expense. The lower effective tax rate resulted in a $0.2 million decrease in income tax.
There were no significant driverscalculation of the change in the effectiveallowable global intangible low-taxed income foreign tax rates between the first three months of 2021 and 2020.credits.
Cash Flows, Financial Condition, and Liquidity
Cash and cash equivalents at March 31, 20212022 were $522.4$84.6 million, which was an increase of $397.2$1.2 million since December 31, 2020.2021.
Cash and cash equivalents held by our foreign subsidiaries amounted to $116.3$81.5 million at March 31, 20212022 and $97.3$81.1 million at December 31, 2020.2021. Periodically, we repatriate cash from our foreign subsidiaries to the United States through intercompany dividends and loans. We do not anticipate significant tax consequences from future distributions of foreign earnings.
A portion of our foreign cash balances is associated with earnings that we have asserted are indefinitely reinvested. We plan to use these indefinitely reinvested earnings to support growth outside of the United States through funding of operating expenses, research and development expenses, capital expenditures, and other cash needs of our foreign subsidiaries.
We expect that cash from operations, together with borrowing available under our revolving credit facility, will continue to be sufficient to cover our operating needs and planned capital expenditures for at least the next twelve months.both a short-term and long-term horizon.
Cash Flows – Operating Activities
Cash flows provided from operating activities for the first three months of 20212022 were $49.4$6.8 million, includingadjusted for the use of $41.4$67.0 million to fund higher working capital requirements. The $41.4$67.0 million used for working capital excluded a small unfavorable foreign currency impact to the components of working capital on the balance sheet.
The most significant changes in working capital included a decrease in marketable securities, as well as increases in accounts receivable, inventory, and accounts payable. During the first three months of 2022, we sold all of our marketable securities. See Note 6 for further information. The increase in accounts receivable balances when comparing March 31, 20212022 with the end of 20202021 was primarily the result of increased shipment volumes along with higher sales in certain regions, as well as slightly slower customer payments due to the impacts of COVID-19.prices. The increase in inventory was primarily caused by higher raw material costs, as well as an increase in responsequantities to higher demand in some regions, and themeet customer demand. The increase in accounts payable reflected higher raw material and operating costs and normal fluctuations across the regions due to timing and increased purchases of raw materials to meet customer demand.timing.
Including cash and cash equivalents, as well as the impact of changes in foreign currency exchange rates on the balance sheet, we had total working capital of $1.0 billion$702.6 million at March 31, 20212022 and $585.6$663.1 million at December 31, 2020.2021. The current ratio was 4.032.71 to 1 at March 31, 20212022 and 2.871.91 to 1 at December 31, 2020.2021.
Cash Flows – Investing Activities
Cash used inprovided from investing activities totaled $20.5$359.4 million during the first three months of 2021 and represented capital expenditures.2022 primarily representing the proceeds from the sale of marketable securities of $372.8 million. See Note 6 for further information. Capital expenditures for the first three months of 2022 were $12.6 million. We currently expect that our total capital spending during 20212022 will be in the $75$65 million to $85$75 million range and will include several improvements to our manufacturing and R&D infrastructure around the world. We expect to continue to finance capital spending through cash on hand and cash provided from operations, together with borrowing available under our revolving credit facility.
Cash Flows – Financing Activities
Cash provided fromused in financing activities during the first three months of 20212022 amounted to $369.4$365.8 million. These cash flows included $395.1$350.0 million for the redemption of the 4.10% senior notes along with $7.1 million of proceeds fromcosts related to the issuanceredemption (see Debt discussion below), $37.3 million for repurchases of our $400common stock, and cash dividends of $21.6 million. We also borrowed an additional $51.0 million 2.70% senior notes. Cash flows from financing activities also included cash dividend payments of $20.8 million.on the revolving credit facility.
Debt
Our long-term debt was $990.2$841.1 million at March 31, 20212022 compared to $598.8 million$1.1 billion at December 31, 2020.2021.
On March 18, 2021,15, 2022, we issued $400 million aggregateredeemed the 4.10% senior notes at a redemption price of 100% of the principal amount of 2.70% senior$350 million plus the accrued and unpaid interest on the notes due 2031 at an issue price of 98.763%. We intend to useand the net proceeds fromapplicable premium as outlined in the offering for the repayment or redemption of ourIndenture dated December 20, 2012. The 4.10% senior notes were due December 2022. We recognized a loss of $7.5 million on the early extinguishment including cash paid of $7.1 million for the premium on the early redemption and for general corporate purposes. We incurreda write-off of $0.4 million of unamortized deferred financing costs in 2021 of approximately $4 million related to the 2.70% senior notes, which are being amortized over the term of the notes.costs.
See Note 89 for additional information on the 2.70% senior notes, 4.10%3.78% senior notes, 3.78%4.10% senior notes, and revolving credit facility, including the unused portion of our revolving credit facility.
All of our senior notes and the revolving credit facility contain covenants, representations, and events of default that management considers typical of credit arrangements of this nature. The covenants under the 3.78% senior notes include negative covenants, certain financial covenants, and events of default which are substantially similar to the covenants and events of default in our revolving credit facility.
The revolving credit facility contains financial covenants that require NewMarket to maintain a consolidated Leverage Ratio (as defined in the agreement) of no more than 3.75 to 1.00, except during an Increased Leverage Period (as defined in the agreement) at the end of each quarter. At March 31, 2021,2022, the Leverage Ratio was 2.512.57 under the revolving credit facility.
At March 31, 2021,2022, we were in compliance with all covenants under the 4.10% senior notes, 3.78% senior notes, 2.70% senior notes, and revolving credit facility.
As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt percentage increaseddecreased from 44.1%59.9% at December 31, 20202021 to 55.0%52.5% at March 31, 2021.2022. The change in the percentage resulted primarily from the issuancerepayment of the 2.70%4.10% senior notes, partially offset by the increase in outstanding revolving credit facility borrowings and the decrease in shareholders' equity. The change in shareholders’ equity primarily reflects our earnings offset by dividend payments, the repurchases of our common stock, and the impact of foreign currency translation adjustments along with the changes in the funded position of our defined benefit plans. Generally, we repay any outstanding long-term debt with cash from operations or refinancing activities.
Critical Accounting Policies and Estimates
This Form 10-Q and our 20202021 Annual Report include discussions of our accounting policies, as well as methods and estimates used in the preparation of our financial statements. We also provided a discussion of Critical Accounting Policies and Estimates in our 20202021 Annual Report.
There have been no significant changes in our critical accounting policies and estimates from those reported in our 20202021 Annual Report.
Recent Accounting Pronouncements
There are no new significant recent accounting pronouncements which may materially impact our financial statements.
Outlook
Our stated goal is to provide a 10% compounded return per year for our shareholders over any five-year period (defined by earnings per share growth plus dividend yield), although we may not necessarily achieve a 10% return each year. We continue to have confidence in our customer-focused strategy and approach to the market. We believe the fundamentals of how we run our business - a long-term view, safety-first culture, customer-focused solutions, technology-driven product offerings, and world-class supply chain capability - will continue to be beneficial for all of our stakeholders over the long term.
We expect our petroleum additives segment will continue to experience impacts to its operating performance due to the current economic environment. Ourenvironment, as we continue to see challenges with the global business will see varying effects on demand that will differ by region based on our product portfoliosupply network, inflationary trends, and geographic coverage. The global market should stabilize when government restrictions on the movement of people, goods,raw material price escalation and services are lifted, as modern transportation and machinery cannot function without our products.volatility. We expect that the petroleum additives market will grow in the 1% to 2% range annually for the foreseeable future. We plan to exceed that growth rate over the long-term.
Over the past several years we have made significant investments in our business as the industry fundamentals remain positive. These investments have been and will continue to be in organizational talent, technology development and processes, and global infrastructure, consisting of technical centers, production capability and geographic expansion. We intend to utilize these investments to improve our ability to deliver the solutions that our customers value, expand our global reach, and enhance our operating results. We will continue to invest in our capabilities to provide even better value, service, technology, and customer solutions.
Our business generates significant amounts of cash beyond its operational needs. We regularly review our many internal opportunities to utilize excess cash from technological, geographic, production capability, and product line perspectives. We believe our capital spending is creating the capability we need to grow and support our customers worldwide, and our research and development investments are positioning us well to provide added value to our customers. Our primary focus in the acquisition area remains on the petroleum additives industry. It is our view that this industry segment will provide the greatest opportunity for solid returns on our investments while minimizing risk. We remain focused on this strategy and will evaluate any future opportunities. We will continue to evaluate all alternative uses of cash to enhance shareholder value, including stock repurchases and dividends.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 2021,2022, there were no material changes in our market risk from the information provided in the 20202021 Annual Report except for a change in marketable securities price risk due to the sale of all outstanding securities and interest rate risk due to higher outstanding borrowings on the issuancerevolving credit facility.
At March 31, 2022, we had $199 million outstanding variable rate debt under the revolving credit facility. Holding all other variables constant, if the variable portion of the $400interest rates hypothetically increased 10%, the effect on our earnings and cash flow would be approximately $1.2 million 2.70% senior notes.higher than at December 31, 2021.
A hypothetical 100 basis point decrease in interest rates, holding all other variables constant, would have resulted in a change of $59$47 million in the fair value of our debt at March 31, 2021.2022.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of internal control over financial reporting to provide reasonable, but not absolute, assurance of the reliability of the financial records and the protection of assets. Under Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), we carried out an evaluation, with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
There has been no change in our internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act, that occurred during the quarter ended March 31, 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no material changes to our legal proceedings as disclosed in "Legal Proceedings" in Item 3 of Part I of the 20202021 Annual Report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 28, 2021, our Board of Directors approved a share repurchase program authorizing management to repurchase up to $500 million of NewMarket's outstanding common stock until December 31, 2024, as market conditions warrant and covenants under our existing debt agreements permit. We may conduct the share repurchases in the open market, in privately negotiated transactions, through block trades, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The repurchase program does not require the Company to acquire any specific number of shares and may be terminated or suspended at any time. At March 31, 2022, approximately $444 million remained available under the 2021 authorization.
The following table outlines the purchases during the first quarter of 2022 under these authorizations.
Issuer Purchases of Equity Securities | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
January 1 to January 31 | | 15,359 | | $ | 333.89 | | | 15,359 | | $ | 476,686,367 | |
February 1 to February 28 | | 44,214 | | 317.31 | | | 44,214 | | 462,656,920 | |
March 1 to March 31 | | 56,223 | | 323.52 | | | 56,223 | | 444,467,566 | |
Total | | 115,796 | | $ | 322.52 | | | 115,796 | | $ | 444,467,566 | |
ITEM 6. Exhibits
| | | | | |
| Articles of Incorporation Amended and Restated effective April 27, 2012 (incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 1-32190) filed April 30, 2012) |
| NewMarket Corporation Bylaws Amended and Restated effective August 6, 2015 (incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 1- 32190) filed August 6, 2015) |
| Indenture, dated as of March 18, 2021, between NewMarket Corporation and Wells Fargo Bank, National Association, as trustee (incorporated by reference to exhibit 4.1 to Form 8-K (File No. 1- 32190) filed March 18, 2021) |
| First Supplemental Indenture, dated as of March 18, 2021, between NewMarket Corporation and Wells Fargo Bank, National Association, as trustee (incorporated by reference to exhibit 4.2 to Form 8-K (File No. 1- 32190) filed March 18, 2021) |
| Form of 2.70% Senior Notes due 2031 (form included as Exhibit A to the First Supplemental Indenture (incorporated by reference to exhibit 4.3 to Form 8-K (File No. 1- 32190) filed March 18, 2021) |
| Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Thomas E. Gottwald |
| Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Brian D. Paliotti |
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Thomas E. Gottwald |
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Brian D. Paliotti |
Exhibit 101 | Inline XBRL Instance Document and Related Items (the instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document) |
Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
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.
| | | | | |
| NEWMARKET CORPORATION |
| (Registrant) |
| |
Date: April 22, 202128, 2022 | By: /s/ Brian D. Paliotti |
| Brian D. Paliotti |
| Vice President and |
| Chief Financial Officer |
| (Principal Financial Officer) |
| |
Date: April 22, 202128, 2022 | By: /s/ William J. Skrobacz |
| William J. Skrobacz |
| Controller |
| (Principal Accounting Officer) |