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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021
OR
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☐ |
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)
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Virginia |
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20-0812170 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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330 South Fourth Street |
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23219-4350 |
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Richmond, |
Virginia |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code - (804)
788-5000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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Large accelerated filer |
x
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Accelerated filer |
¨
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Non-accelerated filer |
¨
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Smaller reporting company |
☐
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Emerging growth company |
☐
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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: 10,928,154
NEWMARKET CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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(in thousands, except per-share amounts) |
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Three Months Ended
March 31, |
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2021 |
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2020 |
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Net sales |
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$ |
566,615 |
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$ |
559,417 |
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Cost of goods sold |
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404,862 |
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378,510 |
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Gross profit |
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161,753 |
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180,907 |
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Selling, general, and administrative expenses |
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36,915 |
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35,715 |
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Research, development, and testing expenses |
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36,337 |
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35,506 |
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Operating profit |
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88,501 |
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109,686 |
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Interest and financing expenses, net |
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6,343 |
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7,104 |
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Other income (expense), net |
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7,212 |
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7,496 |
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Income before income tax expense |
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89,370 |
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110,078 |
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Income tax expense |
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19,658 |
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24,537 |
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Net income |
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$ |
69,712 |
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$ |
85,541 |
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Earnings per share - basic and diluted |
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$ |
6.38 |
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$ |
7.67 |
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Cash dividends declared per share |
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$ |
1.90 |
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$ |
1.90 |
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See accompanying Notes to Condensed Consolidated Financial
Statements
4
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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(in thousands) |
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Three Months Ended
March 31, |
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2021 |
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2020 |
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Net income |
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$ |
69,712 |
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$ |
85,541 |
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Other comprehensive income (loss): |
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Pension plans and other postretirement benefits: |
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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
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(491) |
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(531) |
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Actuarial net gain (loss) arising during the period, net of income
tax expense (benefit) of $(219) in 2021 and $0 in 2020
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(657) |
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0 |
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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
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1,790 |
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1,267 |
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Total pension plans and other postretirement benefits
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642 |
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736 |
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Foreign currency translation adjustments, net of income tax expense
(benefit) of $(464) in 2021 and $(841) in 2020
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467 |
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(14,331) |
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Other comprehensive income (loss) |
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1,109 |
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(13,595) |
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Comprehensive income |
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$ |
70,821 |
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$ |
71,946 |
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See accompanying Notes to Condensed Consolidated Financial
Statements
5
NEWMARKET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(in thousands, except share amounts) |
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March 31,
2021 |
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December 31,
2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
522,405 |
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$ |
125,172 |
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Trade and other accounts receivable, less allowance for credit
losses
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373,655 |
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336,395 |
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Inventories |
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414,737 |
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401,031 |
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Prepaid expenses and other current assets |
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41,670 |
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35,480 |
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Total current assets |
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1,352,467 |
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898,078 |
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Property, plant, and equipment, net |
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671,955 |
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665,147 |
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Intangibles (net of amortization) and goodwill |
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129,248 |
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129,944 |
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Prepaid pension cost |
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139,104 |
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137,069 |
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Operating lease right-of-use assets |
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65,307 |
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61,329 |
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Deferred charges and other assets |
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41,308 |
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42,308 |
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Total assets |
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$ |
2,399,389 |
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$ |
1,933,875 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
218,211 |
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$ |
189,937 |
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Accrued expenses |
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73,264 |
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78,422 |
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Dividends payable |
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18,612 |
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15,184 |
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Income taxes payable |
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5,949 |
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3,760 |
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Operating lease liabilities |
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14,307 |
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13,410 |
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Other current liabilities |
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5,510 |
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11,742 |
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Total current liabilities |
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335,853 |
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312,455 |
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Long-term debt |
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990,189 |
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598,848 |
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Operating lease liabilities-noncurrent |
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50,928 |
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48,324 |
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Other noncurrent liabilities |
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212,064 |
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214,424 |
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Total liabilities |
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1,589,034 |
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1,174,051 |
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Commitments and contingencies (Note 9) |
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Shareholders’ equity: |
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Common stock and paid-in capital (with no 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)
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1,190 |
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717 |
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Accumulated other comprehensive loss |
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(172,055) |
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(173,164) |
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Retained earnings |
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981,220 |
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932,271 |
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Total shareholders' equity |
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810,355 |
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759,824 |
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Total liabilities and shareholders’ equity |
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$ |
2,399,389 |
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$ |
1,933,875 |
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See accompanying Notes to Condensed Consolidated Financial
Statements
6
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
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(in thousands, except share and per-share amounts) |
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Common Stock and
Paid-in Capital |
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Accumulated Other Comprehensive Loss |
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Retained Earnings |
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Total
Shareholders’ Equity |
|
Shares |
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Amount |
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|
Balance at December 31, 2019 |
|
11,188,549 |
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$ |
1,965 |
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$ |
(162,748) |
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$ |
843,881 |
|
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$ |
683,098 |
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Net income |
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|
|
|
|
|
|
85,541 |
|
|
85,541 |
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Other comprehensive income (loss) |
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|
(13,595) |
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|
(13,595) |
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|
Cash dividends ($1.90 per share)
|
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(21,160) |
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|
(21,160) |
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Repurchases of common stock |
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(252,383) |
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(1,627) |
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(92,711) |
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(94,338) |
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Tax withholdings related to stock-based compensation
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|
(1,547) |
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(633) |
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(633) |
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Stock-based compensation |
|
4,125 |
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|
295 |
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41 |
|
|
336 |
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Balance at March 31, 2020 |
|
10,938,744 |
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$ |
0 |
|
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$ |
(176,343) |
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$ |
815,592 |
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$ |
639,249 |
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Balance at December 31, 2020 |
|
10,921,377 |
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|
$ |
717 |
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|
$ |
(173,164) |
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$ |
932,271 |
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$ |
759,824 |
|
|
Net income |
|
|
|
|
|
|
|
69,712 |
|
|
69,712 |
|
|
Other comprehensive income (loss) |
|
|
|
|
|
1,109 |
|
|
|
|
1,109 |
|
|
Cash dividends ($1.90 per share)
|
|
|
|
|
|
|
|
(20,763) |
|
|
(20,763) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
6,777 |
|
|
473 |
|
|
|
|
|
|
473 |
|
|
Balance at March 31, 2021 |
|
10,928,154 |
|
|
$ |
1,190 |
|
|
$ |
(172,055) |
|
|
$ |
981,220 |
|
|
$ |
810,355 |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements
7
NEWMARKET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Three Months Ended
March 31, |
|
|
|
2021 |
|
2020 |
|
Cash and cash equivalents at beginning of year |
|
$ |
125,172 |
|
|
$ |
144,397 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
Net income |
|
69,712 |
|
|
85,541 |
|
|
Adjustments to reconcile net income to cash flows from operating
activities: |
|
|
|
|
|
Depreciation and amortization |
|
20,631 |
|
|
21,369 |
|
|
Deferred income tax expense |
|
2,455 |
|
|
3,379 |
|
|
|
|
|
|
|
Working capital changes |
|
(41,421) |
|
|
(42,058) |
|
|
Cash pension and postretirement contributions |
|
(2,577) |
|
|
(2,557) |
|
|
Other, net |
|
571 |
|
|
(1,213) |
|
|
Cash provided from (used in) operating activities |
|
49,371 |
|
|
64,461 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
Capital expenditures |
|
(20,524) |
|
|
(20,106) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from (used in) investing activities |
|
(20,524) |
|
|
(20,106) |
|
|
Cash flows from financing activities: |
|
|
|
|
|
Net borrowings under revolving credit facility |
|
0 |
|
|
97,424 |
|
|
Issuance of 2.70% senior notes
|
|
395,052 |
|
|
0 |
|
|
Dividends paid |
|
(20,763) |
|
|
(21,160) |
|
|
Repurchases of common stock |
|
0 |
|
|
(79,473) |
|
|
Debt issuance costs |
|
(2,932) |
|
|
(1,308) |
|
|
Other, net |
|
(1,915) |
|
|
(1,377) |
|
|
Cash provided from (used in) financing activities |
|
369,442 |
|
|
(5,894) |
|
|
Effect of foreign exchange on cash and cash equivalents |
|
(1,056) |
|
|
(4,196) |
|
|
Increase in cash and cash equivalents |
|
397,233 |
|
|
34,265 |
|
|
Cash and cash equivalents at end of period |
|
$ |
522,405 |
|
|
$ |
178,662 |
|
|
|
|
|
|
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, 2021 and December 31, 2020, and our
consolidated results of operations, comprehensive income, and
changes in shareholders' equity for the three months ended
March 31, 2021 and March 31, 2020, and our cash flows for
the three months ended March 31, 2021 and March 31, 2020.
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 (2020 Annual Report), as
filed with the Securities and Exchange Commission (SEC). The
results of operations for the three month period ended
March 31, 2021 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2021. The
December 31, 2020 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, |
|
(in thousands) |
|
|
|
|
|
2021 |
|
2020 |
|
Net sales |
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
$ |
170,324 |
|
|
$ |
181,844 |
|
|
China |
|
|
|
|
|
73,988 |
|
|
45,798 |
|
|
Europe, Middle East, Africa, India |
|
|
|
|
|
176,650 |
|
|
190,623 |
|
|
Asia Pacific, except China |
|
|
|
|
|
82,597 |
|
|
79,413 |
|
|
Other foreign |
|
|
|
|
|
63,056 |
|
|
61,739 |
|
|
Net sales |
|
|
|
|
|
$ |
566,615 |
|
|
$ |
559,417 |
|
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, |
|
(in thousands) |
|
|
|
|
|
2021 |
|
2020 |
|
Petroleum additives |
|
|
|
|
|
|
|
|
|
Lubricant additives |
|
|
|
|
|
$ |
494,556 |
|
|
$ |
463,686 |
|
|
Fuel additives |
|
|
|
|
|
70,342 |
|
|
93,686 |
|
|
Total |
|
|
|
|
|
564,898 |
|
|
557,372 |
|
|
All other |
|
|
|
|
|
1,717 |
|
|
2,045 |
|
|
Net sales |
|
|
|
|
|
$ |
566,615 |
|
|
$ |
559,417 |
|
Segment Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
(in thousands) |
|
|
|
|
|
2021 |
|
2020 |
|
Petroleum additives |
|
|
|
|
|
$ |
94,071 |
|
|
$ |
113,671 |
|
|
All other |
|
|
|
|
|
(664) |
|
|
335 |
|
|
Segment operating profit |
|
|
|
|
|
93,407 |
|
|
114,006 |
|
|
Corporate, general, and administrative expenses |
|
|
|
|
|
(4,312) |
|
|
(4,231) |
|
|
Interest and financing expenses, net |
|
|
|
|
|
(6,343) |
|
|
(7,104) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
|
|
|
6,618 |
|
|
7,407 |
|
|
Income before income tax expense
|
|
|
|
|
|
$ |
89,370 |
|
|
$ |
110,078 |
|
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, as well as the remaining cash
contributions we expect to make during the year ending
December 31, 2021, for our domestic and foreign pension plans
and domestic postretirement benefit plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Actual Cash Contributions for Three Months Ended March 31,
2021 |
|
Expected Remaining Cash Contributions for Year Ending December 31,
2021 |
|
Domestic plans |
|
|
|
|
|
Pension benefits |
|
$ |
716 |
|
|
$ |
2,148 |
|
|
Postretirement benefits |
|
287 |
|
|
861 |
|
|
Foreign plans |
|
|
|
|
|
Pension benefits |
|
1,574 |
|
|
4,797 |
|
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 |
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Service cost |
|
$ |
4,814 |
|
|
$ |
4,197 |
|
|
$ |
250 |
|
|
$ |
217 |
|
|
Interest cost |
|
3,241 |
|
|
3,508 |
|
|
292 |
|
|
345 |
|
|
Expected return on plan assets |
|
(9,670) |
|
|
(9,305) |
|
|
(233) |
|
|
(241) |
|
|
Amortization of prior service cost (credit) |
|
68 |
|
|
66 |
|
|
(757) |
|
|
(757) |
|
|
Amortization of actuarial net (gain) loss |
|
1,390 |
|
|
1,316 |
|
|
12 |
|
|
0 |
|
|
Net periodic benefit cost (income) |
|
$ |
(157) |
|
|
$ |
(218) |
|
|
$ |
(436) |
|
|
$ |
(436) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
Pension Benefits |
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
|
|
|
|
2021 |
|
2020 |
|
Service cost |
|
|
|
|
|
$ |
2,757 |
|
|
$ |
2,146 |
|
|
Interest cost |
|
|
|
|
|
827 |
|
|
984 |
|
|
Expected return on plan assets |
|
|
|
|
|
(2,666) |
|
|
(2,461) |
|
|
Amortization of prior service cost (credit) |
|
|
|
|
|
38 |
|
|
(11) |
|
|
Amortization of actuarial net (gain) loss |
|
|
|
|
|
901 |
|
|
353 |
|
|
Net periodic benefit cost (income) |
|
|
|
|
|
$ |
1,857 |
|
|
$ |
1,011 |
|
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Earnings Per Share
We had 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.
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 |
|
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 $129
million at March 31, 2021 and $130 million at
December 31, 2020. 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 |
|
(in thousands) |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Amortizing intangible assets |
|
|
|
|
|
|
|
|
|
Formulas and technology |
|
$ |
6,200 |
|
|
$ |
3,875 |
|
|
$ |
6,200 |
|
|
$ |
3,617 |
|
|
Contract |
|
2,000 |
|
|
850 |
|
|
2,000 |
|
|
800 |
|
|
Customer bases |
|
14,240 |
|
|
12,450 |
|
|
14,240 |
|
|
12,037 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
123,983 |
|
|
|
|
123,958 |
|
|
|
|
|
|
$ |
146,423 |
|
|
$ |
17,175 |
|
|
$ |
146,398 |
|
|
$ |
16,454 |
|
All of the intangibles relate to the petroleum additives segment.
The change in the gross carrying amount between December 31,
2020 and March 31, 2021 is due to foreign currency
fluctuation. There is no accumulated goodwill
impairment.
Amortization expense was (in thousands):
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021 |
$ |
721 |
|
|
|
|
Three months ended March 31, 2020 |
727 |
|
Estimated amortization expense for the remainder of 2021, 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 |
1,423 |
|
|
2023 |
907 |
|
|
2024 |
390 |
|
|
2025 |
390 |
|
|
2026 |
390 |
|
We amortize the contract over 10 years; customer bases over 4 to 20
years; and formulas and technology over 6 years.
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.
We were in compliance with all covenants under all issuances of
outstanding senior notes as of March 31, 2021 and
December 31, 2020.
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. We were
in compliance with all covenants under the credit facility as of
March 31, 2021 and December 31, 2020.
There were no outstanding borrowings under the revolving credit
facility at March 31, 2021 or December 31, 2020. As of
March 31, 2021 and December 31, 2020 outstanding letters
of credit were approximately $2 million resulting in the unused
portion of the credit facility amounting to $898
million.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 (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, 2021 and December 31, 2020. 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). Together, the amounts accrued on a
discounted basis related to these sites represented approximately
$7 million of the total accrual above at March 31, 2021 and $8
million at December 31, 2020, using discount rates ranging
from 3% to 9% for both periods. The aggregate undiscounted amount
for these sites was $9 million at both March 31, 2021 and
December 31, 2020.
10. Other Comprehensive Income (Loss) and
Accumulated Other Comprehensive Loss
The balances of, and changes in, the components of accumulated
other comprehensive loss, net of tax, consist of the
following:
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(in thousands) |
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Pension Plans
and Other Postretirement Benefits |
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|
Foreign Currency Translation Adjustments |
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Accumulated Other
Comprehensive (Loss) Income |
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Balance at December 31, 2019 |
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$ |
(69,795) |
|
|
|
|
$ |
(92,953) |
|
|
|
|
$ |
(162,748) |
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|
Other comprehensive income (loss) before
reclassifications
|
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0 |
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|
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(14,331) |
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|
|
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(14,331) |
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Amounts reclassified from accumulated other comprehensive loss
(a)
|
|
736 |
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0 |
|
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|
|
736 |
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Other comprehensive income (loss)
|
|
736 |
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|
|
(14,331) |
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|
|
|
(13,595) |
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Balance at March 31, 2020 |
|
$ |
(69,059) |
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|
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$ |
(107,284) |
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$ |
(176,343) |
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Balance at December 31, 2020 |
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$ |
(92,771) |
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$ |
(80,393) |
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$ |
(173,164) |
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Other comprehensive income (loss) before
reclassifications
|
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(657) |
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467 |
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(190) |
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Amounts reclassified from accumulated other comprehensive loss
(a)
|
|
1,299 |
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|
|
|
0 |
|
|
|
|
1,299 |
|
|
Other comprehensive income (loss)
|
|
642 |
|
|
|
|
467 |
|
|
|
|
1,109 |
|
|
Balance at March 31, 2021 |
|
$ |
(92,129) |
|
|
|
|
$ |
(79,926) |
|
|
|
|
$ |
(172,055) |
|
(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 17
in our 2020 Annual Report for further information.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. 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
million at March 31, 2021 and $125 million at
December 31, 2020. The fair value is classified as Level 1 in
the fair value hierarchy.
No material events occurred during the three months ended
March 31, 2021 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. The fair value of our debt instruments are
classified as Level 2.
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March 31, 2021 |
|
December 31, 2020 |
|
(in thousands) |
|
Carrying
Amount |
|
Fair
Value |
|
Carrying
Amount |
|
Fair
Value |
|
Long-term debt |
|
$ |
990,189 |
|
|
$ |
1,036,673 |
|
|
$ |
598,848 |
|
|
$ |
648,671 |
|
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 or sharp 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, 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 2020 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 2021 with the first three months of 2020,
net sales increased 1.4% primarily due to higher lubricant
additives product shipments and a favorable foreign currency
impact, partially offset by decreased selling prices and lower fuel
additives product shipments. Petroleum additives operating profit
was 17.2% lower when comparing the first three months of 2021 with
the first three months of 2020, reflecting lower selling prices and
higher conversion and raw material costs, partially offset by
increased product shipments.
On March 18, 2021, we issued $400 million aggregate principal
amount of 2.70% senior notes due 2031.
Our operations generate cash that is in excess of the needs of the
business. We continue to invest in and manage the business for the
long-term with the intent 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
While 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 than during the first three months
of 2020. The pace and stability of improvement in demand for our
products will continue to depend heavily on economic recovery and
the rate at which government restrictions are lifted and remain
lifted. We will continue to monitor the government restrictions, as
well as the status 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.
With only a very few government-ordered, short-term exceptions, all
of our locations around the world, including our manufacturing and
research and development facilities, have continued to operate
safely and without interruption during the pandemic, and we expect
them to continue to do so. Raw material sourcing 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 delivered to our
customers.
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 2021 totaled
$566.6 million, representing an increase of $7.2 million, or 1.3%,
from the first three months of 2020. The following table shows net
sales by segment and product line.
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Three Months Ended
March 31, |
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(in millions) |
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2021 |
|
2020 |
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Petroleum additives |
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Lubricant additives |
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$ |
494.6 |
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$ |
463.7 |
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Fuel additives |
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|
70.3 |
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|
93.7 |
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Total |
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|
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564.9 |
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|
557.4 |
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All other |
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|
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|
|
1.7 |
|
|
2.0 |
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|
Net sales |
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|
|
|
|
$ |
566.6 |
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|
$ |
559.4 |
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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 2021 with the same period in 2020, as well as with the full year
in 2020.
Petroleum additives net sales for the first three months of 2021
were $564.9 million compared to $557.4 million for the first three
months of 2020, an increase of 1.4%. Both the Asia Pacific and
Latin America regions reflected increases in petroleum additives
net sales, which were mostly offset by decreases in the EMEAI and
North America regions. The reductions in the EMEAI 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 pandemic when comparing the first three months of 2021 and
2020, the North America region also reflected the impact of
weather-related reductions in net sales.
The following table details the approximate components of the
increase in petroleum additives net sales between the first three
months of 2021 and 2020.
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(in millions) |
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Three Months |
|
Period ended March 31, 2020 |
|
|
|
$ |
557.4 |
|
|
Lubricant additives shipments |
|
|
|
39.7 |
|
|
Fuel additives shipments |
|
|
|
(21.1) |
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|
Selling prices |
|
|
|
(22.7) |
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|
Foreign currency impact, net |
|
|
|
11.6 |
|
|
Period ended March 31, 2021 |
|
|
|
$ |
564.9 |
|
When comparing the first three months of 2021 and 2020, petroleum
additives shipments accounted for an $18.6 million increase in net
sales. The impact from improved shipments was partially offset by
lower selling prices, net of a favorable impact from foreign
currency exchange rates. The United States Dollar weakened against
most of the major currencies in which we transact when comparing
the first three months of 2021 and 2020 resulting in a favorable
impact to petroleum additives net sales for the three months
comparative periods. The favorable impact was predominantly due to
changes in the Euro exchange rate.
On a worldwide basis, the volume of product shipments for petroleum
additives increased 2.6% when comparing the first three months of
2021 and 2020. Shipments of 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. Fuel additives shipment volumes decreased for the three
months comparative period across all regions except the Asia
Pacific region. The decrease in fuel additives shipments was
predominantly in the North America and EMEAI regions, substantially
due to the impact of the restrictions on movement of people, goods,
and services, as well as weather-related impacts in North
America.
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, 2021 and March 31,
2020.
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|
Three Months Ended
March 31, |
|
(in millions) |
|
|
|
|
|
2021 |
|
2020 |
|
Petroleum additives |
|
|
|
|
|
$ |
94.1 |
|
|
$ |
113.7 |
|
|
All other |
|
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|
$ |
(0.7) |
|
|
$ |
0.3 |
|
Petroleum Additives Segment
The petroleum additives segment operating profit decreased $19.6
million when comparing the first three months of 2021 to the first
three months of 2020. Both comparative periods included the impact
of the same factors that affected gross profit (see discussion
below).
The operating profit margin was 16.7% for the first three months of
2021 as compared to 20.4% for the first three months of 2020. For
the rolling four quarters ended March 31, 2021, the operating
profit margin for petroleum additives was 15.6%. The economic
disruption from COVID-19 impacted the rolling four quarter
operating profit margins and continues to have a more limited
impact on our results during 2021. Operating profit margins remain
a priority, and while they 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 comparing the first three
months of 2021 to the same 2020 period. SG&A as a percentage of
net sales was 5.6% for the first three months of 2021 and 5.5% for
the first three months of 2020. Our SG&A costs are primarily
personnel-related and include salaries, benefits, and other costs
associated with our workforce, including travel 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 million when comparing the first
three months periods of 2021 and 2020. As a percentage of net
sales, R&D was 6.4% for both the first three months of 2021,
and first three months of 2020. 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, 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
Interest and financing expenses were $6.3 million for the first
three months of 2021 and $7.1 million for the first three months of
2020. The decrease for the three months comparison resulted
primarily from lower amortization and fees, as well as higher
capitalized interest during the 2021 period.
Other Income (Expense), Net
Other income (expense), net was income of $7.2 million for the
first three months of 2021 and $7.5 million for the first three
months of 2020. The amounts for both of the 2021 and 2020 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).
Income Tax Expense
Income tax expense was $19.7 million for the first three months of
2021 and $24.5 million for the first three months of 2020. The
effective tax rate was 22.0% for the first three months of 2021 and
22.3% for the first three months of 2020. Income tax expense
decreased $4.6 million due to 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 drivers of the change in the effective
tax rates between the first three months of 2021 and
2020.
Cash Flows, Financial Condition, and Liquidity
Cash and cash equivalents at March 31, 2021 were $522.4
million, which was an increase of $397.2 million since
December 31, 2020.
Cash and cash equivalents held by our foreign subsidiaries amounted
to $116.3 million at March 31, 2021 and $97.3 million at
December 31, 2020. 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.
Cash Flows – Operating Activities
Cash flows provided from operating activities for the first three
months of 2021 were $49.4 million, including the use of $41.4
million to fund higher working capital requirements. The $41.4
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 increases
in accounts receivable, inventory, and accounts payable. The
increase in accounts receivable balances when comparing March 31,
2021 with the end of 2020 was primarily the result of higher sales
in certain regions, as well as slightly slower customer payments
due to the impacts of COVID-19. The increase in inventory was
primarily in response to higher demand in some regions, and the
increase in accounts payable reflected normal fluctuations across
the regions due to timing and increased purchases of raw materials
to meet customer demand.
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 at March 31, 2021
and $585.6 million at December 31, 2020. The current ratio was
4.03 to 1 at March 31, 2021 and 2.87 to 1 at December 31,
2020.
Cash Flows – Investing Activities
Cash used in investing activities totaled $20.5 million during the
first three months of 2021 and represented capital expenditures. We
currently expect that our total capital spending during 2021 will
be in the $75 million to $85 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 from financing activities during the first three
months of 2021 amounted to $369.4 million. These cash flows
included $395.1 million of proceeds from the issuance of our $400
million 2.70% senior notes. Cash flows from financing activities
also included cash dividend payments of $20.8 million.
Debt
Our long-term debt was $990.2 million at March 31, 2021
compared to $598.8 million at December 31, 2020.
On March 18, 2021, we issued $400 million aggregate principal
amount of 2.70% senior notes due 2031 at an issue price of 98.763%.
We intend to use the net proceeds from the offering for the
repayment or redemption of our 4.10% senior notes and for general
corporate purposes. We incurred 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.
See Note 8 for additional information on the 2.70% senior notes,
4.10% 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 March 31, 2021, the Leverage
Ratio was 2.51 under the revolving credit facility.
At March 31, 2021, 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
increased from 44.1% at December 31, 2020 to 55.0% at
March 31, 2021. The change in the percentage resulted
primarily from the issuance of the 2.70% senior notes, partially
offset by the increase in shareholders' equity. The change in
shareholders’ equity primarily reflects our earnings offset by
dividend payments, 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 2020 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
2020 Annual Report.
There have been no significant changes in our critical accounting
policies and estimates from those reported in our 2020 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. Our global business will see varying effects
on demand that will differ by region based on our product portfolio
and geographic coverage. The global market should stabilize when
government restrictions on the movement of people, goods, and
services are lifted, as modern transportation and machinery cannot
function without our products. 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, there were no material changes in our
market risk from the information provided in the 2020 Annual Report
except for a change in interest rate risk due to the issuance of
the $400 million 2.70% senior notes.
A hypothetical 100 basis point decrease in interest rates, holding
all other variables constant, would have resulted in a change of
$59 million in the fair value of our debt at March 31,
2021.
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,
2021 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 2020
Annual Report.
ITEM 6. Exhibits
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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) |
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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) |
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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) |
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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) |
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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) |
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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 |
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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 |
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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 |
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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 |
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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) |
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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.
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NEWMARKET CORPORATION |
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(Registrant) |
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Date: April 22, 2021 |
By: /s/ Brian D. Paliotti |
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Brian D. Paliotti |
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Vice President and |
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Chief Financial Officer |
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(Principal Financial Officer) |
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Date: April 22, 2021 |
By: /s/ William J. Skrobacz |
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William J. Skrobacz |
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Controller |
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(Principal Accounting Officer) |
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