NEU 10-Q
Newmarket Corp (NEU)
10-Q
2022-10-25
For: 2022-09-30
View Original
Added on
April 08, 2026
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 September 30, 2022
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (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 | ||||||
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.
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 September 30, 2022: 9,871,440
| Page Number | |||||
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| (in thousands, except per-share amounts) | Third Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Selling, general, and administrative expenses | ||||||||||||||||||||||||||
| Research, development, and testing expenses | ||||||||||||||||||||||||||
| Operating profit | ||||||||||||||||||||||||||
| Interest and financing expenses, net | ||||||||||||||||||||||||||
| Loss on early extinguishment of debt | ||||||||||||||||||||||||||
| Other income (expense), net | ||||||||||||||||||||||||||
| Income before income tax expense | ||||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings per share - basic and diluted | $ | $ | $ | $ | ||||||||||||||||||||||
| Cash dividends declared per share | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
4
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| (in thousands) | Third Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Pension plans and other postretirement benefits: | ||||||||||||||||||||||||||
Prior service credit (cost) arising during the period, net of income tax expense (benefit) of $ | ||||||||||||||||||||||||||
Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $( | ( | ( | ( | ( | ||||||||||||||||||||||
Actuarial net gain (loss) arising during the period, net of income tax expense (benefit) of $ | ( | ( | ||||||||||||||||||||||||
Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $ | ||||||||||||||||||||||||||
Total pension plans and other postretirement benefits | ( | |||||||||||||||||||||||||
Foreign currency translation adjustments, net of income tax expense (benefit) of $( | ( | ( | ( | ( | ||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | |||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
5
NEWMARKET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (in thousands, except share amounts) | September 30, 2022 | December 31, 2021 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Marketable securities | ||||||||||||||
Trade and other accounts receivable, less allowance for credit losses | ||||||||||||||
| Inventories | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property, plant, and equipment, net | ||||||||||||||
| Intangibles (net of amortization) and goodwill | ||||||||||||||
| Prepaid pension cost | ||||||||||||||
| Operating lease right-of-use assets, net | ||||||||||||||
| Deferred charges and other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued expenses | ||||||||||||||
| Dividends payable | ||||||||||||||
| Income taxes payable | ||||||||||||||
| Operating lease liabilities | ||||||||||||||
| Current portion of long-term debt | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Operating lease liabilities-noncurrent | ||||||||||||||
| Other noncurrent liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
Commitments and contingencies (Note 9) | ||||||||||||||
| Shareholders’ equity: | ||||||||||||||
Common stock and paid-in capital (with | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Total shareholders' equity | ||||||||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||||||||
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) | Common Stock and Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Shareholders’ Equity | ||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | ||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | ||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | ||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ||||||||||||||||||||||||||||||
Cash dividends ($ | ( | ( | ||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
7
NEWMARKET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| (in thousands) | Nine Months Ended September 30, | |||||||||||||
| 2022 | 2021 | |||||||||||||
| Cash and cash equivalents at beginning of year | $ | $ | ||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | ||||||||||||||
| Adjustments to reconcile net income to cash flows from operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Deferred income tax (benefit) expense | ( | |||||||||||||
| Loss on early extinguishment of debt | ||||||||||||||
| Working capital changes | ( | ( | ||||||||||||
| Loss on marketable securities | ||||||||||||||
| Cash pension and postretirement contributions | ( | ( | ||||||||||||
| Other, net | ( | |||||||||||||
| Cash provided from (used in) operating activities | ||||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Purchases of marketable securities | ( | ( | ||||||||||||
| Proceeds from sales and maturities of marketable securities | ||||||||||||||
| Cash provided from (used in) investing activities | ( | |||||||||||||
| Cash flows from financing activities: | ||||||||||||||
Redemption of | ( | |||||||||||||
| Net borrowings under revolving credit facility | ||||||||||||||
Issuance of | ||||||||||||||
| Dividends paid | ( | ( | ||||||||||||
| Repurchases of common stock | ( | ( | ||||||||||||
Cash costs of | ( | |||||||||||||
| Debt issuance costs | ( | |||||||||||||
| Other, net | ( | ( | ||||||||||||
| Cash provided from (used in) financing activities | ( | |||||||||||||
| Effect of foreign exchange on cash and cash equivalents | ( | ( | ||||||||||||
| (Decrease) increase in cash and cash equivalents | ( | ( | ||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
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 September 30, 2022 and December 31, 2021, and our consolidated results of operations, comprehensive income, and changes in shareholders' equity for the third quarter and nine months ended September 30, 2022 and September 30, 2021, and our cash flows for the nine months ended September 30, 2022 and September 30, 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, 2021 (2021 Annual Report), as filed with the Securities and Exchange Commission (SEC). The results of operations for the nine month period ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022. The December 31, 2021 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 (the United States and Canada), Latin America (Mexico, Central America, and South America), Asia Pacific, and EMEAI (Europe/Middle East/Africa/India) 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.
| Third Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||||||||||||
| China | ||||||||||||||||||||||||||
| Europe, Middle East, Africa, India | ||||||||||||||||||||||||||
| Asia Pacific, except China | ||||||||||||||||||||||||||
| Other foreign | ||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
9
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 contract manufacturing and services associated with Ethyl Corporation (Ethyl).
Net Sales by Segment
| Third Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Petroleum additives | ||||||||||||||||||||||||||
| Lubricant additives | $ | $ | $ | $ | ||||||||||||||||||||||
| Fuel additives | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
| All other | ||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
Segment Operating Profit
| Third Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Petroleum additives | $ | $ | $ | $ | ||||||||||||||||||||||
| All other | ( | ( | ( | ( | ||||||||||||||||||||||
| Segment operating profit | ||||||||||||||||||||||||||
| Corporate, general, and administrative expenses | ( | ( | ( | ( | ||||||||||||||||||||||
| Interest and financing expenses, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Loss on early extinguishment of debt | ( | |||||||||||||||||||||||||
| Other income (expense), net | ||||||||||||||||||||||||||
Income before income tax expense | $ | $ | $ | $ | ||||||||||||||||||||||
10
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 nine months ended September 30, 2022, as well as the remaining cash contributions we expect to make during the year ending December 31, 2022, for our domestic and foreign pension plans and domestic postretirement benefit plan.
| (in thousands) | Actual Cash Contributions for Nine Months Ended September 30, 2022 | Expected Remaining Cash Contributions for Year Ending December 31, 2022 | ||||||||||||
| Domestic plans | ||||||||||||||
| Pension benefits | $ | $ | ||||||||||||
| Postretirement benefits | ||||||||||||||
| Foreign plans | ||||||||||||||
| Pension benefits | ||||||||||||||
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 | ||||||||||||||||||||||||||
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||
| Third Quarter Ended September 30, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of prior service cost (credit) | ( | ( | ||||||||||||||||||||||||
| Amortization of actuarial net (gain) loss | ||||||||||||||||||||||||||
| Net periodic benefit cost (income) | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Domestic | ||||||||||||||||||||||||||
| Pension Benefits | Postretirement Benefits | |||||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of prior service cost (credit) | ( | ( | ||||||||||||||||||||||||
| Amortization of actuarial net (gain) loss | ||||||||||||||||||||||||||
| Net periodic benefit cost (income) | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
11
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Foreign | ||||||||||||||||||||||||||
| Pension Benefits | ||||||||||||||||||||||||||
| Third Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of prior service cost (credit) | ||||||||||||||||||||||||||
| Amortization of actuarial net (gain) loss | ||||||||||||||||||||||||||
| Net periodic benefit cost (income) | $ | $ | $ | $ | ||||||||||||||||||||||
5. Earnings Per Share
We had 33,070 shares of nonvested restricted stock at September 30, 2022 and 26,618 shares of nonvested restricted stock at September 30, 2021 that were excluded from the calculation of diluted earnings per share, as their effect on earnings per share would be anti-dilutive.
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.
| Third Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands, except per-share amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
Earnings per share numerator: | ||||||||||||||||||||||||||
Net income attributable to common shareholders before allocation of earnings to participating securities | $ | $ | $ | $ | ||||||||||||||||||||||
Earnings allocated to participating securities | ||||||||||||||||||||||||||
Net income attributable to common shareholders after allocation of earnings to participating securities | $ | $ | $ | $ | ||||||||||||||||||||||
Earnings per share denominator: | ||||||||||||||||||||||||||
Weighted-average number of shares of common stock outstanding - basic and diluted | ||||||||||||||||||||||||||
| Earnings per share - basic and diluted | $ | $ | $ | $ | ||||||||||||||||||||||
6. Inventories
| September 30, | December 31, | |||||||||||||
(in thousands) | 2022 | 2021 | ||||||||||||
| Finished goods and work-in-process | $ | $ | ||||||||||||
| Raw materials | ||||||||||||||
| Stores, supplies, and other | ||||||||||||||
| $ | $ | |||||||||||||
12
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Intangibles (Net of Amortization) and Goodwill
The net carrying amount of intangibles and goodwill was $126 million at September 30, 2022 and $128 million at December 31, 2021. The gross carrying amount and accumulated amortization of each type of intangible asset and goodwill are presented in the table below.
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||||
| Amortizing intangible assets | ||||||||||||||||||||||||||
| Formulas and technology | $ | $ | $ | $ | ||||||||||||||||||||||
| Contract | ||||||||||||||||||||||||||
| Customer base | ||||||||||||||||||||||||||
| Goodwill | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
All of the intangibles relate to the petroleum additives segment. The change in the gross carrying amount between December 31, 2021 and September 30, 2022 is due to foreign currency fluctuation. There is no
Amortization expense was (in thousands):
| Third quarter ended September 30, 2022 | $ | ||||
| Nine months ended September 30, 2022 | |||||
| Third quarter ended September 30, 2021 | |||||
| Nine months ended September 30, 2021 | |||||
Estimated amortization expense for the remainder of 2022, as well as estimated annual amortization expense related to our intangible assets for the next five years, is expected to be (in thousands):
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
8. Long-term Debt
| (in thousands) | September 30, 2022 | December 31, 2021 | ||||||||||||
Senior notes - | $ | $ | ||||||||||||
Senior notes - | ||||||||||||||
Senior notes - | ||||||||||||||
| Revolving credit facility | ||||||||||||||
Less: Current maturity of | ||||||||||||||
| $ | $ | |||||||||||||
Senior Notes - The outstanding 2.70 400 million. The offer and sale of the notes were registered under the Securities Act of 1933, as amended.
13
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The outstanding 3.78
On March 15, 2022, we redeemed the 4.10 100 % 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 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 September 30, 2022 and December 31, 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.
The average interest rate for borrowings under the credit agreement was 2.7 % during the first nine 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 September 30, 2022 and December 31, 2021.
9. 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. 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 September 30, 2022 and $11 million at December 31, 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 and a Houston, Texas plant site. Together, the amounts accrued on a discounted basis related to these sites represented approximately $7 million of the total accrual above at September 30, 2022 and $8 million at December 31, 2021, using discount rates ranging from 3 9 9 million at September 30, 2022 and $10 million at December 31, 2021.
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NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. 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) | Pension Plans and Other Postretirement Benefits | Foreign Currency Translation Adjustments | Accumulated Other Comprehensive (Loss) Income | |||||||||||||||||
| Balance at December 31, 2020 | $ | ( | $ | ( | $ | ( | ||||||||||||||
Other comprehensive income (loss) before reclassifications | ( | ( | ( | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss (a) | ||||||||||||||||||||
Other comprehensive income (loss) | ( | |||||||||||||||||||
| Balance at September 30, 2021 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Balance at December 31, 2021 | $ | $ | ( | $ | ( | |||||||||||||||
Other comprehensive income (loss) before reclassifications | ( | ( | ||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss (a) | ||||||||||||||||||||
Other comprehensive income (loss) | ( | ( | ||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | ( | $ | ( | |||||||||||||||
11. Fair Value Measurements
The carrying amount of cash and cash equivalents in the Consolidated Balance Sheets, as well as the fair value, was $72 83
No material events occurred during the nine months ended September 30, 2022 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 registered 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 registered senior notes included in the table below is based on the last quoted price closest to September 30, 2022. The fair value of our debt instruments are classified as Level 2.
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| (in thousands) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||
| Long-term debt, including current maturities | $ | $ | $ | $ | ||||||||||||||||||||||
12. Recent Accounting Pronouncements
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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 prolonged 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 future acquisitions, or our inability to successfully integrate 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 2021 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 nine months of 2022 with the first nine months of 2021, net sales increased 17.1% primarily due to higher selling prices, partially offset by decreases in product shipments and an unfavorable foreign currency impact. Petroleum additives operating profit was 8.6% higher when comparing the first nine months of 2022 with the first nine months of 2021, reflecting the higher selling prices that favorably impacted net sales, mostly offset by significantly higher raw material costs and higher operating and conversion costs.
During the first nine months of 2022, we repurchased 499,275 shares of our common stock for a total of $155.2 million. We also redeemed our 4.10% senior notes 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 our business for the long-term with the goal 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 Current Economic Environment
The current economic environment in which we operate is characterized by steadily rising costs, including raw material costs, limitations on certain supply availability, a challenging transportation system, and an equally challenging global supply chain network. Because of our active business continuity process and global network, we have continued to substantially manage through these factors during the first nine months of the year. We will continue working with our customers to deliver product, but at the same time, we also expect to be challenged by these ongoing economic factors as we manage our business throughout the rest of the year.
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In addition to the general inflationary environment in which we operate, the Russia-Ukraine war has introduced additional challenges to our business. While this conflict has not had a material impact on our financial results for the first nine 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.
Despite 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.
The chemical industry and our products are 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.
Results of Operations
Net Sales
Consolidated net sales for the third quarter of 2022 totaled $696.0 million, representing an increase of $73.8 million, or 11.9% from the third quarter of 2021. Consolidated net sales for the first nine months of 2022 totaled $2.1 billion, representing an increase of $302.7 million, or 17.0%, from the first nine months of 2021. The following table shows net sales by segment and product line.
| Third Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Petroleum additives | ||||||||||||||||||||||||||
| Lubricant additives | $ | 582.6 | $ | 527.2 | $ | 1,775.6 | $ | 1,520.5 | ||||||||||||||||||
| Fuel additives | 110.1 | 91.9 | 298.4 | 250.1 | ||||||||||||||||||||||
| Total | 692.7 | 619.1 | 2,074.0 | 1,770.6 | ||||||||||||||||||||||
| All other | 3.3 | 3.1 | 8.2 | 8.9 | ||||||||||||||||||||||
| Net sales | $ | 696.0 | $ | 622.2 | $ | 2,082.2 | $ | 1,779.5 | ||||||||||||||||||
Petroleum Additives Segment
The regions in which we operate include North America, Latin America, Asia Pacific, and the EMEAI region. While there is some fluctuation, the percentage of net sales generated by region remained fairly consistent when comparing the nine months of 2022 with the same period in 2021, as well as with the full year in 2021.
Petroleum additives net sales for the third quarter of 2022 were $692.7 million compared to $619.1 for the third quarter of 2021, an increase of 11.9%. Petroleum additives net sales for the first nine months of 2022 were $2.1 billion compared to $1.8 billion for the first nine months of 2021, an increase of 17.1%. For both the third quarter and nine months comparative periods, the increases were across all regions. North America represented around 35% of the increase for the third quarter comparison, while EMEAI represented about 30%. For the nine months comparison, North America contributed about 50% of the increase and EMEAI contributed approximately 25%. The Asia Pacific region contributed about 25% of the increase for the third quarter comparison and about 10% of the increase for the nine months comparison. Latin America contributed the remaining increases for both comparative periods.
The following table details the approximate components of the increase in petroleum additives net sales between the third quarter and first nine months of 2022 and 2021.
| (in millions) | Third Quarter | Nine Months | ||||||||||||
| Period ended September 30, 2021 | $ | 619.1 | $ | 1,770.6 | ||||||||||
| Lubricant additives shipments | (42.1) | (18.8) | ||||||||||||
| Fuel additives shipments | (6.3) | (14.2) | ||||||||||||
| Selling prices | 140.9 | 375.9 | ||||||||||||
| Foreign currency impact, net | (18.9) | (39.5) | ||||||||||||
| Period ended September 30, 2022 | $ | 692.7 | $ | 2,074.0 | ||||||||||
When comparing both the third quarter and the first nine months periods of 2022 and 2021, higher selling prices were the predominant factor in the increase in petroleum additives net sales. Higher selling prices were partially offset by lower shipments for both lubricant additives and fuel additives products, as well as an unfavorable impact from foreign currency
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exchange rates for both the third quarter and nine months comparative periods. The United States Dollar strengthened against all of the major currencies in which we transact when comparing both the third quarter and first nine months periods of 2022 and 2021, resulting in an unfavorable impact to petroleum additives net sales for the comparative periods. The unfavorable foreign currency impacts for both the third quarter and nine months comparison were predominantly due to changes in the Euro and Japanese Yen exchange rates.
On a worldwide basis, the volume of product shipments for petroleum additives decreased 8.5% when comparing the two third quarter periods and 1.3% when comparing the first nine months of 2022 and 2021. The worldwide decrease in petroleum additives shipments for both the third quarter and nine months comparative periods included lower lubricant additives shipments, as well as lower fuel additives shipments. The decrease in lubricant additives shipments when comparing the 2022 third quarter with the 2021 third quarter was across all regions with most of the decrease from the North America region. The lubricant additives decrease in shipments for the first nine months 2022 and first nine months 2021 comparison was across all regions except EMEAI with the decrease almost comparable across the other regions. The decrease in fuel additives shipments for the third quarter comparison was in the North America and EMEAI regions with a small increase in the Latin America region. The Asia Pacific region, while down very slightly, was substantially unchanged for the third quarter comparison. The nine months comparison for fuel additives shipments reflected decreases in the EMEAI and Asia Pacific regions which were partially offset by increases in the North America and Latin America regions.
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 third quarter and nine months ended September 30, 2022 and September 30, 2021.
| Third Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Petroleum additives | $ | 83.0 | $ | 72.1 | $ | 261.1 | $ | 240.4 | ||||||||||||||||||
| All other | $ | 0.0 | $ | (0.1) | $ | (0.2) | $ | (0.8) | ||||||||||||||||||
Petroleum Additives Segment
Petroleum additives segment gross profit increased $9.9 million and operating profit increased $10.9 million when comparing the third quarter of 2022 to the third quarter of 2021. For the first nine months of 2022 compared to the first nine months of 2021, gross profit increased $19.4 million and operating profit increased $20.7 million. Cost of goods sold as a percentage of net sales was 78.7% for the third quarter of 2022, 77.7% for the third quarter of 2021, 77.9% for the first nine months of 2022, and 75.2% for the first nine months of 2021. The operating profit margin was 12.0% for the third quarter of 2022, 11.7% for the third quarter of 2021, 12.6% for the first nine months of 2022, and 13.6% for the first nine months of 2021. For the rolling four quarters ended September 30, 2022, the operating profit margin for petroleum additives was 11.4%.
When comparing the third quarter and first nine months of 2022 and 2021, both gross profit and operating profit included the favorable impact of significantly higher selling prices, which were partially offset by significantly higher raw material costs for the third quarter and nine months comparison periods. Operating and conversion costs for both the third quarter and nine months comparison periods were unfavorable, as was the impact from shipments for the third quarter comparison. The impact from shipments for the nine months comparison had a small favorable impact on both gross profit and operating profit. While shipments volumes were slightly lower when comparing the first nine months of 2022 to the first nine months of 2021, the mix of products sold during the 2022 period resulted in the small favorable 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. Nonetheless, we remain challenged by the ongoing inflationary environment and continue to experience a lag between when price increases go into effect and when margin recovery is realized. This lag will
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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 are a priority for us. Margin recovery and cost control will remain 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 selling, general, and administrative expenses (SG&A) for the third quarter of 2022 were substantially unchanged from the third quarter of 2021 and were $0.4 million lower when comparing the first nine months of 2022 and first nine months of 2021. SG&A as a percentage of net sales was 4.4% for the third quarter of 2022, 4.9% for the third quarter of 2021, 4.4% for the first nine months of 2022, and 5.2% for the first nine months of 2021. Our SG&A costs are primarily personnel-related and include salaries, benefits, and other costs associated with our workforce, including travel-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) decreased approximately $1 million when comparing the third quarter periods, as well as the first nine months periods of 2022 and 2021. As a percentage of net sales, R&D was 5.0% for the third quarter of 2022, 5.7% for the third quarter of 2021, 5.1% for the first nine months of 2022, and 6.1% for the first nine months of 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 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 $8.4 million for the third quarter of 2022, $9.3 million for the third quarter of 2021, $24.9 million for the first nine months of 2022, and $24.6 million for the first nine months of 2021.
The decrease for the third quarter comparison resulted from a lower average interest rate, as well as lower average outstanding debt, along with lower amortization and fees. A decrease in capitalized interest during the 2022 period partially offset these favorable impacts.
The increase for the nine months comparison resulted primarily from higher outstanding debt during the 2022 period, as well as lower capitalized interest. A lower average interest rate partially offset these unfavorable impacts.
Other Income (Expense), Net
Other income (expense), net was income of $10.0 million for the third quarter of 2022, $7.4 million for the third quarter of 2021, $26.2 million for the first nine months of 2022, and $19.8 million for the first nine months of 2021. The amounts for both the 2022 and 2021 third quarter and first nine months 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 first nine months of 2022 also included a loss on marketable securities of $3.0 million.
Income Tax Expense
Income tax expense was $17.1 million for the third quarter of 2022 and $9.1 million for the third quarter of 2021. The effective tax rate was 21.3% for the third quarter of 2022 and 14.9% for the third quarter of 2021. Income tax expense increased $5.1 million due to a higher effective tax rate and $2.9 million due to higher income before income tax expense.
Income tax expense was $50.4 million for the first nine months of 2022 and $43.9 million for the first nine months of 2021. The effective tax rate was 21.1% for the first nine months of 2022 and 20.2% for the first nine months of 2021. Income tax expense increased $4.4 million due to higher income before income tax expense with the remaining $2.1 million of the difference caused by the higher effective tax rate.
The increase in the effective tax rate for both the third quarter and nine months comparisons was primarily driven by the impact from our foreign operations.
Cash Flows, Financial Condition, and Liquidity
Cash and cash equivalents at September 30, 2022 were $72.0 million, a decrease of $11.3 million since December 31, 2021.
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Cash and cash equivalents held by our foreign subsidiaries amounted to $69.3 million at September 30, 2022 and $81.1 million at December 31, 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 both a short-term and long-term horizon.
Cash Flows – Operating Activities
Cash flows provided from operating activities for the first nine months of 2022 were $16.0 million, adjusted for the use of $198.6 million to fund higher working capital requirements. The $198.6 million used for working capital excluded an 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 2022, we sold all of our marketable securities. The increase in accounts receivable balances when comparing September 30, 2022 with the end of 2021 was primarily the result of higher sales prices during 2022. The increase in inventory was primarily caused by higher raw material costs, as well as an increase in quantities. The increase in accounts payable reflected higher raw material and operating costs and normal fluctuations across the regions due to 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 $748.0 million at September 30, 2022 and $663.1 million at December 31, 2021. The current ratio was 2.76 at September 30, 2022 and 1.91 at December 31, 2021.
Cash Flows – Investing Activities
Cash provided from investing activities totaled $331.7 million during the first nine months of 2022 primarily representing the proceeds from the sale of marketable securities of $372.8 million. Capital expenditures for the first nine months of 2022 were $40.4 million. We expect that our total capital spending during 2022 will be in the $55 million to $65 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 used in financing activities during the first nine months of 2022 amounted to $356.1 million. These cash flows included $350.0 million for the redemption of the 4.10% senior notes along with $7.1 million of costs related to the redemption (see Debt discussion below), $150.8 million for repurchases of our common stock, and cash dividends of $63.8 million. We also borrowed an additional $218.0 million on the revolving credit facility.
Debt
Our long-term debt was $1.0 billion at September 30, 2022 compared to $1.1 billion at December 31, 2021.
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.
See Note 8 for additional information on the 2.70% senior notes, 3.78% 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 September 30, 2022, the Leverage Ratio was 2.71 under the revolving credit facility.
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At September 30, 2022, we were in compliance with all covenants under the 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 increased from 59.9% at December 31, 2021 to 60.2% at September 30, 2022. The change resulted primarily from the increase in outstanding revolving credit facility borrowings and the decrease in shareholders' equity, partially offset by the repayment of the 4.10% senior notes. 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 2021 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 2021 Annual Report.
There have been no significant changes in our critical accounting policies and estimates from those reported in our 2021 Annual Report.
Recent Accounting Pronouncements
See Note 12, Recent Accounting Pronouncements for a discussion of recent accounting pronouncements which may 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 to experience impacts to its operating performance due to the current economic environment, as we continue to see challenges with the global supply network, inflationary trends, and raw material price escalation and 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 September 30, 2022, there were no material changes in our market risk from the information provided in the 2021 Annual Report except for a change in marketable securities price risk due to the sale of all outstanding securities and a change in interest rate risk due to higher outstanding borrowings on the revolving credit facility.
At September 30, 2022, we had $366.0 million outstanding variable rate debt under the revolving credit facility. Holding all other variables constant, if the variable portion of the interest rates hypothetically increased 10%, the effect on our earnings and cash flow would be approximately $1.3 million.
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A hypothetical 100 basis point decrease in interest rates, holding all other variables constant, would have resulted in a change of $47 million in the fair value of our debt at September 30, 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 September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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 2021 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 September 30, 2022, approximately $327 million remained available under the 2021 authorization.
The following table outlines the purchases during the third quarter of 2022 under the authorization.
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 | ||||||||||||||||||||||
| July 1 to July 31 | 68,058 | $ | 303.05 | 68,058 | $ | 368,344,778 | ||||||||||||||||||||
| August 1 to August 31 | 16,013 | 287.34 | 16,013 | 363,743,619 | ||||||||||||||||||||||
| September 1 to September 30 | 125,467 | 295.80 | 125,467 | 326,630,200 | ||||||||||||||||||||||
| Total | 209,538 | $ | 297.51 | 209,538 | $ | 326,630,200 | ||||||||||||||||||||
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) | |||||
| 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) | ||||
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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: October 25, 2022 | By: /s/ Brian D. Paliotti | ||||
| Brian D. Paliotti | |||||
| Vice President and | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
| Date: October 25, 2022 | By: /s/ William J. Skrobacz | ||||
| William J. Skrobacz | |||||
| Controller | |||||
| (Principal Accounting Officer) | |||||
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