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, 20232024
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)
| | | | | | | | | | | |
| Virginia | | 20-0812170 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | | |
| 330 South Fourth Street | | 23219-4350 |
| Richmond, | Virginia | |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code - (804) 788-5000
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, with no par value | NEU | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | x | | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
Number of shares of common stock, with no par value, outstanding as of March 31, 2023: 9,625,9592024: 9,594,250
NEWMARKET CORPORATION
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | (in thousands, except per-share amounts) | |
| (in thousands, except per-share amounts) | |
| (in thousands, except per-share amounts) | (in thousands, except per-share amounts) | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 | | | | | | | 2024 | | 2023 |
| Net sales | Net sales | | | $ | 702,789 | | | $ | 662,552 | |
| Cost of goods sold | Cost of goods sold | | | 504,745 | | | 507,389 | |
| Gross profit | Gross profit | | | 198,044 | | | 155,163 | |
| Selling, general, and administrative expenses | Selling, general, and administrative expenses | | | 39,847 | | | 35,622 | |
| Research, development, and testing expenses | Research, development, and testing expenses | | | 33,156 | | | 36,251 | |
| Operating profit | Operating profit | | | 125,041 | | | 83,290 | |
| Interest and financing expenses, net | Interest and financing expenses, net | | | 10,773 | | | 9,406 | |
| Loss on early extinguishment of debt | | | 0 | | | 7,545 | |
| | Other income (expense), net | |
| Other income (expense), net | |
| Other income (expense), net | Other income (expense), net | | | 10,880 | | | 7,168 | |
| Income before income tax expense | Income before income tax expense | | | 125,148 | | | 73,507 | |
| Income tax expense | Income tax expense | | | 27,565 | | | 14,189 | |
| Net income | Net income | | | $ | 97,583 | | | $ | 59,318 | |
| Earnings per share - basic and diluted | Earnings per share - basic and diluted | | | $ | 10.09 | | | $ | 5.75 | |
| Cash dividends declared per share | Cash dividends declared per share | | | $ | 2.10 | | | $ | 2.10 | |
See accompanying Notes to Condensed Consolidated Financial Statements
4
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | (in thousands) | |
| (in thousands) | |
| (in thousands) | (in thousands) | | | Three Months Ended March 31, | | | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 | | | | | | | 2024 | | 2023 |
| Net income | Net income | | | $ | 97,583 | | | $ | 59,318 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | |
| Pension plans and other postretirement benefits: | Pension plans and other postretirement benefits: | | | |
| Pension plans and other postretirement benefits: | |
| Pension plans and other postretirement benefits: | |
| | Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(171) in 2023 and $(156) in 2022 | | | (547) | | | (496) | |
| Actuarial net gain (loss) arising during the period, net of income tax expense (benefit) of $0 in 2023 and $7 in 2022 | | | 0 | | | 16 | |
| Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(118) in 2023 and $175 in 2022 | | | (375) | | | 539 | |
| Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(174) in 2024 and $(171) in 2023 | |
| | Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(174) in 2024 and $(171) in 2023 | |
| | Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(174) in 2024 and $(171) in 2023 | |
| | Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(122) in 2024 and $(118) in 2023 | |
| Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(122) in 2024 and $(118) in 2023 | |
| Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(122) in 2024 and $(118) in 2023 | |
| Total pension plans and other postretirement benefits | Total pension plans and other postretirement benefits | | | (922) | | | 59 | |
| | Foreign currency translation adjustments, net of income tax expense (benefit) of $207 in 2023 and $1,131 in 2022 | | | 11,366 | | | (3,102) | |
| Foreign currency translation adjustments, net of income tax expense (benefit) of $(238) in 2024 and $207 in 2023 | |
| | Foreign currency translation adjustments, net of income tax expense (benefit) of $(238) in 2024 and $207 in 2023 | |
| | Foreign currency translation adjustments, net of income tax expense (benefit) of $(238) in 2024 and $207 in 2023 | |
| | Other comprehensive income (loss) | Other comprehensive income (loss) | | | 10,444 | | | (3,043) | |
| | Other comprehensive income (loss) | |
| | Other comprehensive income (loss) | |
| Comprehensive income | Comprehensive income | | | $ | 108,027 | | | $ | 56,275 | |
See accompanying Notes to Condensed Consolidated Financial Statements
5
NEWMARKET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | (in thousands, except share amounts) | (in thousands, except share amounts) | | March 31,
2023 | | December 31,
2022 | (in thousands, except share amounts) | | March 31,
2024 | | December 31,
2023 |
| ASSETS | ASSETS | | | | |
| Current assets: | Current assets: | |
| Current assets: | |
| Current assets: | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 70,115 | | | $ | 68,712 | |
| | Trade and other accounts receivable, less allowance for credit losses | |
| Trade and other accounts receivable, less allowance for credit losses | |
| Trade and other accounts receivable, less allowance for credit losses | Trade and other accounts receivable, less allowance for credit losses | | 457,203 | | | 453,692 | |
| Inventories | Inventories | | 566,136 | | | 631,383 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 38,107 | | | 38,338 | |
| Total current assets | Total current assets | | 1,131,561 | | | 1,192,125 | |
| Property, plant, and equipment, net | Property, plant, and equipment, net | | 658,092 | | | 659,998 | |
| Intangibles (net of amortization) and goodwill | Intangibles (net of amortization) and goodwill | | 125,754 | | | 126,069 | |
| Prepaid pension cost | Prepaid pension cost | | 310,753 | | | 302,584 | |
| Operating lease right-of-use assets, net | Operating lease right-of-use assets, net | | 60,350 | | | 62,417 | |
| | Deferred charges and other assets | Deferred charges and other assets | | 64,261 | | | 63,625 | |
| Deferred charges and other assets | |
| Deferred charges and other assets | |
| Total assets | Total assets | | $ | 2,350,771 | | | $ | 2,406,818 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
| Current liabilities: | Current liabilities: | |
| Current liabilities: | |
| Current liabilities: | |
| Accounts payable | |
| Accounts payable | |
| Accounts payable | Accounts payable | | $ | 212,277 | | | $ | 273,289 | |
| Accrued expenses | Accrued expenses | | 72,336 | | | 89,508 | |
| Dividends payable | Dividends payable | | 17,861 | | | 17,850 | |
| Income taxes payable | Income taxes payable | | 35,248 | | | 16,109 | |
| Operating lease liabilities | Operating lease liabilities | | 14,948 | | | 15,569 | |
| | Other current liabilities | Other current liabilities | | 5,826 | | | 11,562 | |
| Other current liabilities | |
| Other current liabilities | |
| Total current liabilities | Total current liabilities | | 358,496 | | | 423,887 | |
| Long-term debt | Long-term debt | | 957,958 | | | 1,003,737 | |
| Operating lease liabilities-noncurrent | Operating lease liabilities-noncurrent | | 45,588 | | | 46,968 | |
| Other noncurrent liabilities | Other noncurrent liabilities | | 166,929 | | | 169,819 | |
| Total liabilities | Total liabilities | | 1,528,971 | | | 1,644,411 | |
| Commitments and contingencies (Note 9) | | | | |
| Commitments and contingencies (Note 10) | | Commitments and contingencies (Note 10) | | |
| Shareholders’ equity: | Shareholders’ equity: | |
| Common stock and paid-in capital (with no par value; authorized shares - 80,000,000; issued and outstanding shares - 9,625,959 at March 31, 2023 and 9,702,147 at December 31, 2022) | | 0 | | | 0 | |
| Common stock and paid-in capital (with no par value; authorized shares - 80,000,000; issued and outstanding shares - 9,594,250 at March 31, 2024 and 9,590,086 at December 31, 2023) | |
| Common stock and paid-in capital (with no par value; authorized shares - 80,000,000; issued and outstanding shares - 9,594,250 at March 31, 2024 and 9,590,086 at December 31, 2023) | |
| Common stock and paid-in capital (with no par value; authorized shares - 80,000,000; issued and outstanding shares - 9,594,250 at March 31, 2024 and 9,590,086 at December 31, 2023) | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (61,551) | | | (71,995) | |
| Retained earnings | Retained earnings | | 883,351 | | | 834,402 | |
| Total shareholders' equity | Total shareholders' equity | | 821,800 | | | 762,407 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 2,350,771 | | | $ | 2,406,818 | |
See accompanying Notes to Condensed Consolidated Financial Statements
6
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| | (in thousands, except share and per-share amounts) | (in thousands, except share and per-share amounts) | | Common Stock and
Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total
Shareholders’ Equity | (in thousands, except share and per-share amounts) | | Common Stock and
Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total
Shareholders’ Equity |
| Shares | | Amount | |
| | Balance at December 31, 2021 | | 10,362,722 | | | $ | 0 | | | $ | (82,227) | | | $ | 844,356 | | | $ | 762,129 | |
| Net income | | 59,318 | | | 59,318 | |
| Other comprehensive income (loss) | | (3,043) | | | (3,043) | |
| Cash dividends ($2.10 per share) | | (21,570) | | | (21,570) | |
| Repurchases of common stock | | (115,796) | | | (597) | | | (36,750) | | | (37,347) | |
| Balance at December 31, 2022 | |
| | Stock-based compensation | | 7,777 | | | 597 | | | 6 | | | 603 | |
| Balance at March 31, 2022 | | 10,254,703 | | | $ | 0 | | | $ | (85,270) | | | $ | 845,360 | | | $ | 760,090 | |
| | Balance at December 31, 2022 | |
| | | Balance at December 31, 2022 | Balance at December 31, 2022 | | 9,702,147 | | | $ | 0 | | | $ | (71,995) | | | $ | 834,402 | | | $ | 762,407 | |
| Net income | Net income | | 97,583 | | | 97,583 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | 10,444 | | | 10,444 | |
| Cash dividends ($2.10 per share) | Cash dividends ($2.10 per share) | | (20,292) | | | (20,292) | |
| Repurchases of common stock | Repurchases of common stock | | (82,486) | | | (1,223) | | | (27,525) | | | (28,748) | |
| | Tax withholdings related to stock-based compensation | Tax withholdings related to stock-based compensation | | (2,417) | | | 0 | | | (803) | | | (803) | |
| Tax withholdings related to stock-based compensation | |
| Tax withholdings related to stock-based compensation | |
| Stock-based compensation | Stock-based compensation | | 8,715 | | | 1,223 | | | (14) | | | 1,209 | |
| Balance at March 31, 2023 | Balance at March 31, 2023 | | 9,625,959 | | | $ | 0 | | | $ | (61,551) | | | $ | 883,351 | | | $ | 821,800 | |
| | Balance at December 31, 2023 | |
| Balance at December 31, 2023 | |
| Balance at December 31, 2023 | |
| Net income | |
| Other comprehensive income (loss) | |
| Cash dividends ($2.50 per share) | |
| | Tax withholdings related to stock-based compensation | |
| | Tax withholdings related to stock-based compensation | |
| | Tax withholdings related to stock-based compensation | |
| Stock-based compensation | |
| Balance at March 31, 2024 | |
|
See accompanying Notes to Condensed Consolidated Financial Statements
7
NEWMARKET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | (in thousands) | (in thousands) | | Three Months Ended March 31, | (in thousands) | | Three Months Ended March 31, |
| | | | 2023 | | 2022 | | | 2024 | | 2023 |
| Cash and cash equivalents at beginning of year | Cash and cash equivalents at beginning of year | | $ | 68,712 | | | $ | 83,304 | |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | |
| Net income | Net income | | 97,583 | | | 59,318 | |
| Net income | |
| Net income | |
| Adjustments to reconcile net income to cash flows from operating activities: | Adjustments to reconcile net income to cash flows from operating activities: | |
| Depreciation and amortization | Depreciation and amortization | | 20,313 | | | 21,072 | |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Deferred income tax benefit | Deferred income tax benefit | | (4,932) | | | (12,135) | |
| Loss on early extinguishment of debt | | 0 | | | 7,545 | |
| | | Working capital changes | Working capital changes | | 9,795 | | | (66,987) | |
| Loss on marketable securities | | 0 | | | 2,977 | |
| | Working capital changes | |
| | Working capital changes | |
| | Cash pension and postretirement contributions | |
| Cash pension and postretirement contributions | |
| Cash pension and postretirement contributions | Cash pension and postretirement contributions | | (2,290) | | | (2,099) | |
| Other, net | Other, net | | (10,554) | | | (2,910) | |
| Cash provided from (used in) operating activities | Cash provided from (used in) operating activities | | 109,915 | | | 6,781 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | |
| Capital expenditures | Capital expenditures | | (11,881) | | | (12,612) | |
| Purchases of marketable securities | | 0 | | | (787) | |
| Proceeds from sales and maturities of marketable securities | | 0 | | | 372,846 | |
| Capital expenditures | |
| Capital expenditures | |
| Acquisition of business (net of $15,580 of cash acquired) | |
| | Cash provided from (used in) investing activities | |
| | Cash provided from (used in) investing activities | |
| | | Cash provided from (used in) investing activities | Cash provided from (used in) investing activities | | (11,881) | | | 359,447 | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | |
| Net (repayments) borrowings under revolving credit facility | | (46,000) | | | 51,000 | |
| Net borrowings (repayments) under revolving credit facility | |
| Net borrowings (repayments) under revolving credit facility | |
| Net borrowings (repayments) under revolving credit facility | |
| Proceeds from term loan | |
| Dividends paid | |
| Debt issuance costs | |
| Repurchases of common stock | |
| | Dividends paid | | (20,292) | | | (21,570) | |
| Repurchases of common stock | | (28,479) | | | (37,347) | |
| Redemption of 4.10% senior notes | | 0 | | | (350,000) | |
| Cash costs of 4.10% senior notes redemption | | 0 | | | (7,099) | |
| | Other, net | |
| | Other, net | |
| | Other, net | Other, net | | (2,280) | | | (833) | |
| Cash provided from (used in) financing activities | Cash provided from (used in) financing activities | | (97,051) | | | (365,849) | |
| Effect of foreign exchange on cash and cash equivalents | Effect of foreign exchange on cash and cash equivalents | | 420 | | | 867 | |
| Increase in cash and cash equivalents | Increase in cash and cash equivalents | | 1,403 | | | 1,246 | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 70,115 | | | $ | 84,550 | |
|
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, 20232024 and December 31, 2022, and2023, our consolidated results of operations, comprehensive income, and changes in shareholders' equity for the three months ended March 31, 20232024 and March 31, 2022,2023, and our cash flows for the three months ended March 31, 20232024 and March 31, 2022.2023. 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, 2022 (20222023 (2023 Annual Report), as filed with the Securities and Exchange Commission (SEC). The results of operations for the three month period ended March 31, 20232024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.2024. The December 31, 20222023 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.
Supplier Finance Program
We offer our vendors a supplier finance program, which allows our vendors to receive payment from a third-party finance provider earlier than our normal payment terms would provide. NewMarket and its subsidiaries are not a party to theany arrangement between our vendorvendors and the finance provider, and there are no assets pledged as security or other forms of guarantees provided by NewMarket to the finance provider. For those vendors who opt to participate in the program, we pay the finance provider the full amount of the invoices on the normal due date. At both March 31, 2024 and December 31, 2023, the amount of confirmed invoices under the supplier finance program was not material.
2. Acquisition of Business
On January 16, 2024, we completed the acquisition of all issued and outstanding ownership units of AMPAC Intermediate Holdings, LLC, the ultimate parent company of American Pacific Corporation (AMPAC), for approximately $700 million. Based in Cedar City, Utah, AMPAC has one operating facility from which it manufactures and sells critical specialty materials primarily used in solid rocket motors for space launch and military defense applications. AMPAC is qualified on many NASA and Department of Defense programs and has been serving space launch and national defense programs for more than 60 years. The acquisition of AMPAC expands our presence in mission-critical, resilient sectors. It was funded by cash on hand and borrowings under our then existing revolving credit facility. The purchase consideration is subject to a customary post-closing adjustment for working capital, which is expected to be finalized during the second quarter of 2024.
The preliminary fair values of the assets acquired and the liabilities assumed in the AMPAC acquisition are as follows (in millions):
| | | | | | | | |
| Cash and cash equivalents | | $ | 16 | |
| Trade and other accounts receivable, net | | 6 | |
| Inventories | | 28 | |
| Prepaid expenses and other current assets | | 3 | |
| Property, plant, and equipment, net | | 111 | |
| Intangibles and goodwill | | 650 | |
| Deferred charges and other assets | | 5 | |
| Accounts payable | | (3) | |
| Accrued expenses | | (5) | |
| Other noncurrent liabilities | | (111) | |
| Fair value of net assets acquired | | $ | 700 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Identified intangible assets acquired consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | Fair Value | | Estimated Useful Lives (in years) |
| Customer base | | $ | 272 | | | 17.5 |
| Formulas and technology | | 60 | | | 8 |
| Trademarks and trade names | | 30 | | | 15 |
| Water rights | | 30 | | | indefinite |
| | $ | 392 | | | |
As part of the acquisition, we recorded $258 million of goodwill. The goodwill recognized is attributable to increased access to mission-critical, resilient sectors with a role in global safety, security, and space exploration, as well as the value of the skilled assembled workforce of AMPAC. All of the goodwill recognized is part of the specialty materials segment, and none of the goodwill is deductible for income tax purposes.
The allocation of the purchase price of AMPAC to the tangible and intangible assets acquired and liabilities assumed was developed using preliminary estimates of fair value and based on information currently available. We are continuing to finalize the valuation of certain assets and liabilities and expect to complete our valuations within one year of the date of acquisition. Acquisition-related charges of $1 million consisted primarily of legal and professional fees and are included in selling, general, and administrative expenses in our Consolidated Statements of Income.
We are accounting for this acquisition using the acquisition method of accounting for business combinations under the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 805, Business Combinations (ASC 805) and have included the results of operations of the acquired business in our Consolidated Statement of Income from the date of acquisition, as well as in the specialty materials segment in Note 4. These results include a charge related to the sale of finished goods inventory acquired, which was recorded at fair market value on the acquisition date and sold to customers from the date of acquisition through March 31, 2024. The following table presents the financial results for AMPAC from the date of acquisition through March 31, 2024.
| | | | | | | | |
| Supplemental Information (in thousands) | | January 16 to |
| AMPAC | | March 31, 2024 |
| Net sales | | $ | 17,047 | |
| Loss before income taxes | | (5,001) | |
The following table presents our estimated unaudited pro forma consolidated results for the three months ended March 31, 2024 and March 31, 2023, assuming the acquisition of AMPAC had occurred on January 1, 2023. The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been realized if the acquisition had been completed at the beginning of 2023, nor is it indicative of expected results for any future period. In addition, no effect is given to any future synergistic benefits that could result from the integration of AMPAC into the NewMarket companies.
Unaudited pro forma information for the three months ended March 31, 2024 and March 31, 2023 include adjustments to depreciation and amortization based upon the fair value allocation of the purchase price to AMPAC's tangible and intangible assets acquired and liabilities assumed as though the acquisition had occurred on January 1, 2023, as well as adjustments for debt-related costs and management fees. The acquisition-related costs and the charge related to the fair value adjustment to acquisition-date inventory were recognized in actual results during the three months ended March 31, 2024, but for the presentation below, these costs are excluded from 2024 unaudited pro forma income before income taxes and are instead reflected in 2023 pro forma income before income taxes as though they were incurred during the three months ended March 31, 2023. | | | | | | | | | | | | | | |
| Pro Forma Supplemental Information (unaudited) (in thousands) | | Three Months Ended |
| Consolidated | | March 31, 2024 | | March 31, 2023 |
| Net sales | | $ | 701,836 | | | $ | 718,983 | |
| Income before income taxes | | 140,004 | | | 105,984 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Net Sales
Our revenues are primarilypredominantly 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 petroleum additives customers primarily consist of global, national, and independent oil companies. Our petroleum additives 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.
Additionally, we have revenue from the manufacture and sale of critical specialty materials products used primarily in solid rocket motors for space launch and military defense applications. The sale of specialty materials products is predominantly to customers located in the United States, with limited amounts to customers in other countries. Our specialty materials customers are primarily contractors or subcontractors of the U.S. government. Specialty materials contracts generally include one performance obligation, which is typically satisfied at a point in time when the products are shipped from the plant site.
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 ship the product and recognize the revenue. Some of our contracts include variable consideration in the form of rebates, tiered pricing, and/or business development funds. We regularly review both rebates and business development fundsthese and make adjustments to estimated amounts 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 presented in Note 3.4.
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| (in thousands) | | | | | | 2023 | | 2022 |
| Net sales | | | | | | | | |
| United States | | | | | | $ | 256,398 | | | $ | 224,688 | |
| Europe, Middle East, Africa, India | | | | | | 204,210 | | | 195,987 | |
| Asia Pacific | | | | | | 151,949 | | | 157,544 | |
| Other foreign | | | | | | 90,232 | | | 84,333 | |
| Net sales | | | | | | $ | 702,789 | | | $ | 662,552 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| (in thousands) | | | | | | 2024 | | 2023 |
| Net sales | | | | | | | | |
| United States | | | | | | $ | 248,236 | | | $ | 256,398 | |
| Europe, Middle East, Africa, India | | | | | | 208,939 | | | 204,210 | |
| Asia Pacific | | | | | | 156,099 | | | 151,949 | |
| Other foreign | | | | | | 83,462 | | | 90,232 | |
| Net sales | | | | | | $ | 696,736 | | | $ | 702,789 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3.4. 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 related services associated with Ethyl Corporation (Ethyl).
Net Sales by Segment
| | | Three Months Ended March 31, |
| | | | Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| (in thousands) | (in thousands) | | | 2023 | | 2022 | (in thousands) | | | | | | 2024 | | 2023 |
| Petroleum additives | Petroleum additives | | | | | |
| Lubricant additives | Lubricant additives | | | $ | 602,574 | | | $ | 570,042 | |
| Lubricant additives | |
| Lubricant additives | |
| Fuel additives | Fuel additives | | | 97,417 | | | 90,262 | |
| Total | Total | | | 699,991 | | | 660,304 | |
| Specialty materials | |
| All other | All other | | | 2,798 | | | 2,248 | |
| Net sales | Net sales | | | $ | 702,789 | | | $ | 662,552 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segment Operating Profit
| | | Three Months Ended March 31, |
| | | | Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| (in thousands) | (in thousands) | | | 2023 | | 2022 | (in thousands) | | | | | | 2024 | | 2023 |
| Petroleum additives | Petroleum additives | | | $ | 132,068 | | | $ | 86,922 | |
| Specialty materials | |
| All other | All other | | | (975) | | | 98 | |
| Segment operating profit | Segment operating profit | | | 131,093 | | | 87,020 | |
| Corporate, general, and administrative expenses | Corporate, general, and administrative expenses | | | (6,491) | | | (3,890) | |
| Interest and financing expenses, net | Interest and financing expenses, net | | | (10,773) | | | (9,406) | |
| | Loss on early extinguishment of debt | | | 0 | | | (7,545) | |
| Other income (expense), net | |
| Other income (expense), net | |
| Other income (expense), net | Other income (expense), net | | | 11,319 | | | 7,328 | |
| Income before income tax expense | Income before income tax expense | | | $ | 125,148 | | | $ | 73,507 | |
4.5. Pension Plans and Other Postretirement Benefits
The table below shows cash contributions made during the three months ended March 31, 2023,2024, as well as the remaining cash contributions we expect to make during the year ending December 31, 2023,2024, for our domestic and foreign pension plans and domestic postretirement benefit plan.
| | (in thousands) | (in thousands) | | Actual Cash Contributions for Three Months Ended March 31, 2023 | | Expected Remaining Cash Contributions for Year Ending December 31, 2023 | (in thousands) | | Actual Cash Contributions for Three Months Ended March 31, 2024 | | Expected Remaining Cash Contributions for Year Ending December 31, 2024 |
| Domestic plans | Domestic plans | | | | |
| Pension benefits | Pension benefits | | $ | 603 | | | $ | 1,808 | |
| Pension benefits | |
| Pension benefits | |
| Postretirement benefits | Postretirement benefits | | 314 | | | 943 | |
| Foreign plans | Foreign plans | |
| Pension benefits | Pension benefits | | 1,373 | | | 4,543 | |
| Pension benefits | |
| Pension benefits | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The tables below present information on net periodic benefit cost (income) for our domestic and foreign pension plans and domestic postretirement benefit plan. The service cost component of net periodic benefit cost (income) is reflected in cost of goods sold; selling, general, and administrative expenses; or research, development, and testing expenses, according to where other compensation costs arising from services rendered by the pertinent employee are recorded on the Consolidated Statements of Income. The remaining components of net periodic benefit cost (income) are recorded in other income (expense), net on the Consolidated Statements of Income. | | | | | Domestic | | | Domestic |
| | | | Pension Benefits | | Postretirement Benefits | | | Pension Benefits | | Postretirement Benefits |
| Three Months Ended March 31, |
| | Three Months Ended March 31, | | | | Three Months Ended March 31, |
| (in thousands) | (in thousands) | | 2023 | | 2022 | | 2023 | | 2022 | (in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
| Service cost | Service cost | | $ | 2,658 | | | $ | 4,856 | | | $ | 130 | | | $ | 260 | |
| Interest cost | Interest cost | | 4,536 | | | 3,389 | | | 391 | | | 289 | |
| Expected return on plan assets | Expected return on plan assets | | (11,509) | | | (10,940) | | | (202) | | | (204) | |
| Amortization of prior service cost (credit) | Amortization of prior service cost (credit) | | 6 | | | 68 | | | (757) | | | (757) | |
| Amortization of actuarial net (gain) loss | Amortization of actuarial net (gain) loss | | (411) | | | 536 | | | (76) | | | 8 | |
| Net periodic benefit cost (income) | Net periodic benefit cost (income) | | $ | (4,720) | | | $ | (2,091) | | | $ | (514) | | | $ | (404) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | Foreign |
| | | | | | | Pension Benefits |
| | | | Three Months Ended March 31, |
| (in thousands) | | | | | | 2023 | | 2022 |
| Service cost | | | | | | $ | 1,054 | | | $ | 2,360 | |
| Interest cost | | | | | | 1,544 | | | 1,098 | |
| Expected return on plan assets | | | | | | (2,841) | | | (2,635) | |
| Amortization of prior service cost (credit) | | | | | | 34 | | | 37 | |
| Amortization of actuarial net (gain) loss | | | | | | (6) | | | 169 | |
| Net periodic benefit cost (income) | | | | | | $ | (215) | | | $ | 1,029 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | | | | Foreign |
| | | | | | | Pension Benefits |
| | | | Three Months Ended March 31, |
| (in thousands) | | | | | | 2024 | | 2023 |
| Service cost | | | | | | $ | 1,087 | | | $ | 1,054 | |
| Interest cost | | | | | | 1,618 | | | 1,544 | |
| Expected return on plan assets | | | | | | (3,333) | | | (2,841) | |
| Amortization of prior service cost (credit) | | | | | | 35 | | | 34 | |
| Amortization of actuarial net (gain) loss | | | | | | (7) | | | (6) | |
| Net periodic benefit cost (income) | | | | | | $ | (600) | | | $ | (215) | |
5.6. Earnings Per Share
We had 34,678 shares of nonvested restricted stock at March 31, 2024 and 34,579 shares of nonvested restricted stock at March 31, 2023 and 34,349 shares of nonvested restricted stock at March 31, 2022 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) | | | | | | 2024 | | 2023 |
| Earnings per share numerator: | | | | | | | | |
| Net income attributable to common shareholders before allocation of earnings to participating securities | | | | | | $ | 107,732 | | | $ | 97,583 | |
| Earnings allocated to participating securities | | | | | | (373) | | | (306) | |
| Net income attributable to common shareholders after allocation of earnings to participating securities | | | | | | $ | 107,359 | | | $ | 97,277 | |
| Earnings per share denominator: | | | | | | | | |
| Weighted-average number of shares of common stock outstanding - basic and diluted | | | | | | 9,557 | | | 9,643 | |
| | | | | | | | |
| | | | | | | | |
| Earnings per share - basic and diluted | | | | | | $ | 11.23 | | | $ | 10.09 | |
7. Inventories
| | | | | | | | | | | | | | |
| (in thousands) | | March 31,
2024 | | December 31,
2023 |
| Finished goods and work-in-process | | $ | 386,068 | | | $ | 351,746 | |
| Raw materials | | 83,606 | | | 82,441 | |
| Stores, supplies, and other | | 23,880 | | | 22,047 | |
| | $ | 493,554 | | | $ | 456,234 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| (in thousands, except per-share amounts) | | | | | | 2023 | | 2022 |
| Earnings per share numerator: | | | | | | | | |
| Net income attributable to common shareholders before allocation of earnings to participating securities | | | | | | $ | 97,583 | | | $ | 59,318 | |
| Earnings allocated to participating securities | | | | | | (306) | | | (175) | |
| Net income attributable to common shareholders after allocation of earnings to participating securities | | | | | | $ | 97,277 | | | $ | 59,143 | |
| Earnings per share denominator: | | | | | | | | |
| Weighted-average number of shares of common stock outstanding - basic and diluted | | | | | | 9,643 | | | 10,290 | |
| | | | | | | | |
| | | | | | | | |
| Earnings per share - basic and diluted | | | | | | $ | 10.09 | | | $ | 5.75 | |
6. Inventories
| | | | | | | | | | | | | | |
| | | March 31, | | December 31, |
| (in thousands) | | 2023 | | 2022 |
| Finished goods and work-in-process | | $ | 455,168 | | | $ | 497,652 | |
| Raw materials | | 89,873 | | | 113,484 | |
| Stores, supplies, and other | | 21,095 | | | 20,247 | |
| | $ | 566,136 | | | $ | 631,383 | |
7.8. Intangibles (Net of Amortization) and Goodwill
The net carrying amount of intangibles and goodwill was $126$769 million at both March 31, 20232024 and $125 million at December 31, 2022.2023. The gross carrying amount and accumulated amortization of each type of intangible asset and goodwill are presented in the table below.
| | | | | March 31, 2023 | | December 31, 2022 | | | March 31, 2024 | | December 31, 2023 |
| (in thousands) | (in thousands) | | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization | (in thousands) | | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization |
| Amortizing intangible assets | Amortizing intangible assets | | | | | | | | |
| Formulas and technology | Formulas and technology | | $ | 6,200 | | | $ | 5,942 | | | $ | 6,200 | | | $ | 5,683 | |
| Formulas and technology | |
| Formulas and technology | |
| Contract | Contract | | 2,000 | | | 1,250 | | | 2,000 | | | 1,200 | |
| Customer base | Customer base | | 5,440 | | | 4,397 | | | 5,440 | | | 4,350 | |
| | Trademarks and trade names | |
| Water rights | |
| Goodwill | Goodwill | | 123,703 | | | 123,662 | | |
| $ | 137,343 | | | $ | 11,589 | | | $ | 137,302 | | | $ | 11,233 | |
| Goodwill | |
| Goodwill | |
| | $ | |
| | $ | |
| | $ | |
All ofOf the total intangibles relateand goodwill, $125 million is attributable to the petroleum additives segment and $644 million is attributable to the specialty materialssegment. The change in the gross carrying amount between December 31, 20222023 and March 31, 20232024 is due to the identifiable intangible assets and goodwill from the acquisition of AMPAC, as well as the write-off of fully amortized identifiable intangible assets and the foreign currency fluctuation.fluctuation on goodwill in the petroleum additives segment. See Note 2 for further information on the intangibles and goodwill obtained with the AMPAC acquisition. There is no accumulated goodwill impairment.
Amortization expense was (in thousands):
| | | | | |
| |
| Three months ended March 31, 2024 | $ | 5,372 | |
| |
| Three months ended March 31, 2023 | 356 | |
| |
Three months ended March 31, 2022 | 355 | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Estimated amortization expense for the remainder of 2023,2024, as well as estimated annual amortization expense related to our intangible assets for the next five years, is expected to be (in thousands):
| | 2023 | $ | 551 | |
| 2024 | 2024 | 390 | |
| 2025 | 2025 | 390 | |
| 2026 | 2026 | 390 | |
| 2027 | 2027 | 190 | |
| 2028 | 2028 | 140 | |
| 2029 | |
We amortize the formulas and technology over 68 years, the contract over 10 years, and the customer base over 17.5 to 20 years, and the trademarks and trade names over 15 years.
8.9. Long-term Debt
| | (in thousands) | (in thousands) | | March 31,
2023 | | December 31,
2022 | (in thousands) | | March 31,
2024 | | December 31,
2023 |
| Senior notes - 2.70% due 2031 (net of related deferred financing costs) | Senior notes - 2.70% due 2031 (net of related deferred financing costs) | | $ | 392,958 | | | $ | 392,737 | |
| Senior notes - 3.78% due 2029 | Senior notes - 3.78% due 2029 | | 250,000 | | | 250,000 | |
| Term loan (net of related deferred financing costs) | |
| Revolving credit facility | Revolving credit facility | | 315,000 | | | 361,000 | |
| $ | 957,958 | | | $ | 1,003,737 | |
| | $ | |
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Senior Notes - The 2.70% senior notes, which were issued in 2021, are unsecured with an aggregate principal amount of $400 million. The offer and sale of the notes were registered under the Securities Act of 1933, as amended.
The 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 senior notes as of March 31, 20232024 and December 31, 2022.2023.
Term Loan - On January 22, 2024, NewMarket entered into an unsecured credit agreement for a $250 million term loan (the Term Loan Credit Agreement), which matures on January 22, 2026. We borrowed the entire $250 million available under the Term Loan Credit Agreement and paid financing costs of $0.4 million, which are being amortized over the term of the agreement. NewMarket is required to repay the principal amount borrowed under the term loan in full at maturity. We may, in our sole discretion and subject to the conditions set forth in the Term Loan Credit Agreement, prepay amounts borrowed under the term loan, together with any accrued and unpaid interest, prior to maturity. Any amounts prepaid prior to maturity are not available for additional borrowings by NewMarket.
The principal amount borrowed under the term loan initially bears interest at a variable rate equal to Term SOFR plus the Applicable Rate. We may, at our option, elect for outstanding portions of the principal amount to instead bear interest at a variable rate equal to the Base Rate or Weekly Adjusted Term SOFR, plus, in each case, the Applicable Rate, subject to the conditions set forth in the Term Loan Credit Agreement. The Applicable Rate is based, at our option, on either our Leverage Ratio or Ratings Level. All capitalized terms are as defined in the Term Loan Credit Agreement.
The Term Loan Credit Agreement contains certain customary covenants, including financial covenants, which require NewMarket to maintain a consolidated Leverage Ratio (as defined in the Term Loan Credit Agreement) of no more than 3.75 to 1.00 except during an Increased Leverage Period (as defined in the Term Loan Credit Agreement). We were in compliance with all covenants under the term loan as of March 31, 2024.
Revolving Credit Facility - On January 22, 2024, NewMarket entered into a credit agreement for a new $900 million revolving credit facility (the Revolving Credit Agreement). The revolving credit facility has a borrowing capacity of $900 million, a term of five years, and matures on January 22, 2029 and includes a $500 million sublimit for multicurrency borrowings, an initial letter of credit sublimit of $25 million, and a $20 million sublimit for swingline loans. The Revolving Credit Agreement includes an expansion feature allowing us, subject to certain conditions, to request an increase in the aggregate amount of the revolving credit facility or obtain incremental term loans in an amount up to $450 million. We may also request an extension of the maturity date as provided for in the Revolving Credit Agreement. Certain of NewMarket's foreign subsidiaries may, from time to time, become borrowers under the Revolving Credit Agreement. The obligations under the Revolving Credit Agreement are unsecured and are fully and unconditionally guaranteed by NewMarket.
Concurrently with entering into the Revolving Credit Agreement, we terminated our former revolving credit facility dated as of March 5, 2025. The obligations2020. Upon termination, we repaid the amount then outstanding under the former revolving credit facility, plus accrued and unpaid interest.
Borrowings made under the revolving credit facility bear interest at a variable rate determined, at our option, at an annual rate equal to (i) the Base Rate, (ii) Term SOFR, (iii) the Weekly Adjusted Term SOFR, (iv) the Alternative Currency Term Rate, or (v) the Alternative Currency Daily Rate, each plus the Applicable Rate and all as defined in the Revolving Credit Agreement. The Applicable Rate is based, at our option, on either our Leverage Ratio or Ratings Level. All capitalized terms are unsecured. as defined in the Revolving Credit Agreement.
The average interest rate for borrowings underRevolving Credit Agreement contains certain customary covenants, including financial covenants, which require NewMarket to maintain a consolidated Leverage Ratio (as defined in the credit agreement was 5.8%Revolving Credit Agreement) of no more than 3.75 to 1.00 except during an Increased Leverage Period (as defined in the first three months of 2023 and 3.5% during the full year of 2022.
Revolving Credit Agreement). We were in compliance with all covenants under the revolving credit facility in effect as of March 31, 20232024 and December 31, 2022.2023.
We paid financing costs in 2024 of approximately $1.8 million related to this revolving credit facility and carried over deferred financing costs from the former revolving credit facility of approximately $0.4 million, resulting in total deferred financing costs of $2.2 million as of March 31, 2024, which we are amortizing over the term of the Revolving Credit Agreement.
The average interest rate for borrowings under the revolving credit agreements in place during a given period was 6.6% during the first three months of 2024 and 6.2% during the full year of 2023.
Outstanding borrowings under the applicable revolving credit facility amounted to $315$386 million at March 31, 20232024 and $361 millionnone at December 31, 2022.2023. Outstanding letters of credit amounted to approximately $2 million at both March 31, 20232024 and
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2022.2023. The unused portion of the applicable revolving credit facility amounted to $583$512 million at March 31, 20232024 and $537$898 million at December 31, 2022.2023.
9.10. Commitments and Contingencies
Legal Matters
We are involved in legal proceedings that are incidental to our business and may include administrative or judicial actions. Some of these legal proceedings involve governmental authorities and relate to environmental matters. For further information, see Environmental below.
While it is not possible to predict or determine with certainty the outcome of any legal proceeding, we believe the outcome of any of these proceedings, or all of them combined, will not result in a material adverse effect on our consolidated results of operations, financial condition, or cash flows.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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$11 million at both March 31, 20232024 and December 31, 2022.2023. 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$8 million of the total accrual above at March 31, 20232024 and $8$9 million at December 31, 2022,2023, using discount rates ranging from 3% to 9% for both periods. The aggregate undiscounted amount for these sites werewas $10 million at both March 31, 20232024 and $11 million at December 31, 2022.2023.
Leases
At March 31, 2024, we had commitments of approximately $4 million for leases that have not yet commenced.
10.11. Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
The balances of, and changes in, the components of accumulated other comprehensive loss, net of tax, consist of the following:
| | (in thousands) | (in thousands) | | Pension Plans
and Other Postretirement Benefits | | | Foreign Currency Translation Adjustments | | | Accumulated Other
Comprehensive (Loss) Income |
| Balance at December 31, 2021 | | $ | 1,522 | | | | $ | (83,749) | | | | $ | (82,227) | |
| Other comprehensive income (loss) before reclassifications | | 16 | | | | (3,102) | | | | (3,086) | |
| Amounts reclassified from accumulated other comprehensive loss (a) | | 43 | | | | 0 | | | | 43 | |
| Other comprehensive income (loss) | | 59 | | | | (3,102) | | | | (3,043) | |
| Balance at March 31, 2022 | | $ | 1,581 | | | | $ | (86,851) | | | | $ | (85,270) | |
| | (in thousands) | |
| (in thousands) | | | Pension Plans
and Other Postretirement Benefits | | | | Foreign Currency Translation Adjustments | | | | Accumulated Other
Comprehensive (Loss) Income |
| Balance at December 31, 2022 | Balance at December 31, 2022 | | $ | 54,562 | | | | $ | (126,557) | | | | $ | (71,995) | |
| Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | 0 | | | | 11,366 | | | | 11,366 | |
| Amounts reclassified from accumulated other comprehensive loss (a) | Amounts reclassified from accumulated other comprehensive loss (a) | | (922) | | | | 0 | | | | (922) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | (922) | | | | 11,366 | | | | 10,444 | |
| Balance at March 31, 2023 | Balance at March 31, 2023 | | $ | 53,640 | | | | $ | (115,191) | | | | $ | (61,551) | |
| | Balance at December 31, 2023 | |
| Balance at December 31, 2023 | |
| Balance at December 31, 2023 | |
| Other comprehensive income (loss) before reclassifications | |
| Amounts reclassified from accumulated other comprehensive loss (a) | |
| Other comprehensive income (loss) | |
| Balance at March 31, 2024 | |
45 in this Quarterly Report on Form 10-Q and Note 1817 in our 20222023 Annual Report for further information.11.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. Fair Value Measurements
The carrying amount of cash and cash equivalents in the Consolidated Balance Sheets, as well as the fair value, was $70$117 million at March 31, 20232024 and $69$112 million at December 31, 2022.2023. The fair value is classified as Level 1 in the fair value hierarchy.
No material events occurred during the three months ended March 31, 20232024 requiring adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.
NEWMARKET CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-term debt – We record the carrying amount of our long-term debt at historical cost, less deferred financing costs related to our 2.70%outstanding senior notes.notes and term loan. 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 2.70%publicly traded outstanding senior notes included in the table below is based on the last quoted price closest to March 31, 2023.2024. The fair value of our debt instruments is classified as Level 2.
| | March 31, 2023 | | December 31, 2022 |
| | March 31, 2024 | | | | March 31, 2024 | | December 31, 2023 |
| (in thousands) | (in thousands) | | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value | (in thousands) | | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| Long-term debt | Long-term debt | | $ | 957,958 | | | $ | 882,023 | | | $ | 1,003,737 | | | $ | 906,891 | |
13. Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" (ASU 2023-07). ASU 2023-07 requires expanded disclosures about reportable segments including additional information on segment expenses, expanded interim period disclosures, and an explanation of how the chief operating decision maker utilizes segment information in evaluating segment performance. ASU 2023-07 was effective for our reporting period beginning January 1, 2024 with the interim period requirements effective for our reporting period beginning January 1, 2025. ASU 2023-07 only currently impacts the disclosures in our annual consolidated financial statements, which will be included in our 2024 Annual Report on Form 10-K. We are currently assessing the impact that the adoption of ASU 2023-07 will have on the disclosures in our consolidated financial statements.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" (ASU 2023-09). The FASB issued ASU 2023-09 to enhance the transparency and decision-making usefulness of income tax disclosures by requiring additional information on an entity's tax rate reconciliation, as well as income taxes paid. ASU 2023-09 is effective for our reporting period beginning January 1, 2025. We are currently assessing the impact that the adoption of ASU 2023-09 will have on the disclosures in our consolidated financial statements.
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,or specialty materials markets, other trends in the petroleum additives market,these markets, 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;industries; 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 loss of significant customers; termination or changes to contracts with contractors and subcontractors of the U.S. government or directly with the U.S. government; 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;epidemics; 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 2023 Annual Report on Form 10-K, for the year ended December 31, 2022, which is available to shareholders upon request.at www.newmarket.com, as well as Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q.
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 20232024 with the first three months of 2022,2023, net sales increased 6.0%were 3.2% lower resulting primarily due to significantly higherfrom lower selling prices, which were partially offset by decreasesan increase in product shipments and an unfavorable foreign currency impact.of 4.7%. Petroleum additives operating profit was 51.9%14.3% higher when comparing the first2024 and 2023 three months of 2023 with the first three months of 2022,periods, primarily reflecting the higher selling prices that favorably impacted net sales,favorable impact of lower raw material and operating costs, partially offset by significantly higher raw material costs,the lower selling prices and product mix.
We completed the acquisition of AMPAC for approximately $700 million on January 16, 2024. See Note 2 for further information on the acquisition. The operations of AMPAC since the date of acquisition are reflected in the specialty materials segment in the Results of Operations section below.
On January 22, 2024, we entered into a new $900 million revolving credit facility, as well as higher operating and conversion costs and lower product shipments. Shipments have been lower thana $250 million unsecured term loan. Concurrently with the entry into the new revolving credit facility, we terminated our expectations over the last few quarters due primarily to a general economic slowdown and customer destocking.former revolving credit facility. See Note 9 for further information on our debt agreements.
We remain challenged by the uncertain global economic environment, but continue to operate in a general inflationary environment. While we have experienced some improvement in the supply chain disruptions which have impacted the petrochemicals industryfocus on managing our operating costs, our inventory levels, and our company over the past several years, we expect to continue to be challenged by high costs during 2023. portfolio profitability, while continuing our investment in technology.
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 for the foreseeable future. Our major capital projects are continuing to progress substantially as planned.
Our operations generatebusiness typically generates significant amounts of cash that is in excess of the needs of the business.beyond its operational needs. 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.
During the first three months of 2023, we repurchased 82,486 shares of our common stock for a total of $28.5 million.
The chemical industry and our products are essential for transportation of people, goods and services. Our business continuity planning process focuses our efforts on managing through this challenging time and helping our customers do the same.infrastructure.
Results of Operations
Net Sales
Consolidated net sales for the first three months of 20232024 totaled $702.8$696.7 million, representing an increasea slight decrease of $40.2$6.1 million, or 6.1%0.9%, from the first three months of 2022.2023. The following table shows net sales by segment and product line. The net sales in the table below for the specialty materials segment only include those since the acquisition of AMPAC on January 16, 2024.
| | | Three Months Ended March 31, |
| | | | Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| (in millions) | (in millions) | | | 2023 | | 2022 | (in millions) | | | | | | 2024 | | 2023 |
| Petroleum additives | Petroleum additives | | | | | |
| Lubricant additives | Lubricant additives | | | $ | 602.6 | | | $ | 570.0 | |
| Lubricant additives | |
| Lubricant additives | |
| Fuel additives | Fuel additives | | | 97.4 | | | 90.3 | |
| Total | Total | | | 700.0 | | | 660.3 | |
| Specialty materials | |
| All other | All other | | | 2.8 | | | 2.3 | |
| Net sales | Net sales | | | $ | 702.8 | | | $ | 662.6 | |
Petroleum Additives Segment
The regions in which we operate include North America, Latin America, Asia Pacific, and the EMEAI region.EMEAI. While there is some fluctuation, the percentage of net sales generated by region remained fairly consistent when comparing the three months of 20232024 with the same period in 2022,2023, as well as with the full year 2022.of 2023.
Petroleum additives net sales for the first three months of 2024 were $677.3 million, while the first three months of 2023 were $700.0 million, compared to $660.3 millionrepresenting a decrease of 3.2%. The North America and Latin America regions reported decreases for the first three months of 2022, an increase of 6.0%. The increase2024 compared to the same 2023 period, which was across all regions except for the Asia Pacific region, which reported a decrease in petroleum additives net sales when comparing the first three months periods of 2023 and 2022. The North America region represented around 80% of the increase for the three months comparison, while the EMEAI region represented about 20%. The increase in the Latin America region waspartially offset by the decreasesmaller increases in the Asia Pacific region.and EMEAI regions.
The following table details the approximate components of the increasechanges in petroleum additives net sales between the first three months of 20232024 and 2022.2023.
| | | | | | | | | | |
| (in millions) | | | | Three Months |
Period ended March 31, 20222023 | | | | $ | 660.3700.0 | |
| Lubricant additives shipments | | | | (82.8)4.8 | |
| Fuel additives shipments | | | | (9.9)12.3 | |
| Selling prices | | | | 142.1 (39.3) | |
| Foreign currency impact, net | | | | (9.7)(0.5) | |
Period ended March 31, 20232024 | | | | $ | 700.0677.3 | |
When comparing the first three months of 2024 and 2023, and 2022, higher selling prices drove the increasedecrease in petroleum additives net sales. Highersales was primarily due to lower selling prices, were partially offset by lower shipments, as well as an unfavorable impact from foreignincreases in both lubricant additives and fuel additives shipments. Foreign currency exchange rates for the three months comparative periods.had a small unfavorable impact on net sales. The United States Dollar strengthened against all of the major currencies in which we transact when comparing the first three months periods of 2023Indian Rupee, Chinese Renminbi, and 2022,Japanese Yen resulting in an unfavorable impact to petroleum additives net sales for the comparative periods. The unfavorable foreign currency impactsperiods but weakened against both the Euro and the Pound Sterling for the three monthssame comparison, were predominantly due to changeswhich substantially offset the unfavorable impact on net sales from the change in the Euro, Japanese Yen,exchange rates of the Rupee, Renminbi, and Chinese Renminbi exchange rates.Yen.
On a worldwide basis, the volume of product shipments for petroleum additives decreased 15.4%increased 4.7% when comparing the first three months of 20232024 and 2022.2023. The worldwide decreaseincrease was in petroleum additives shipments for the three months comparative periods included lowerboth lubricant additives shipments, as well as lower fueland fuels additives shipments. Theacross all regions except Latin America, which reported a decrease in lubricant additives product shipments, when comparingand North America, which reported a decrease in fuel additives product shipments.
Specialty Materials Segment
The specialty materials segment includes the operations of AMPAC, which operates predominantly in the North America region. Total net sales were $17.0 million for the period that we owned AMPAC during the first three months of 2023 with the same period2024.
All Other
The “All other” category includes the operations of the antiknock compounds business, andas well as certain contracted manufacturing and related services.
services associated with Ethyl.
Segment Operating Profit
NewMarket evaluates the performance of the petroleum additives businessand specialty materials businesses 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, 20232024 and March 31, 2022.2023. The amount reported for specialty materials is for the period from January 16, 2024 to March 31, 2024.
| | | Three Months Ended March 31, |
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| (in millions) | (in millions) | | | 2023 | | 2022 | (in millions) | | | | | | 2024 | | 2023 |
| Petroleum additives | Petroleum additives | | | $ | 132.1 | | | $ | 86.9 | |
| Specialty materials | |
| All other | All other | | | $ | (1.0) | | | $ | 0.1 | |
Petroleum Additives Segment
Petroleum additives segment gross profit increased $36.2$16.4 million and operating profit increased $45.2$18.8 million when comparing the first three months of 20232024 to the first three months of 2022. Cost2023.
The following table presents petroleum additives cost of goods sold as a percentage of net sales was 71.7% forand the first three months of 2023 and 76.6% for the first three months of 2022. The operating profit margin was 18.9% for the first three months of 2023 and 13.2% for the first three months of 2022. margin.
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2024 | | 2023 |
| Cost of goods sold as a percentage of net sales | | | | | | 68.4 | % | | 71.7 | % |
| Operating profit margin | | | | | | 22.3 | % | | 18.9 | % |
For the rolling four quarters ended March 31, 2023,2024, the operating profit margin for petroleum additives was 15.2%.
When comparing the first three months20.0%, which is within our historical range of 2023 and 2022, both gross profit and operating profit included the favorable impact of significantly higher selling prices. The favorable impact from higher selling prices was partially offset by significantly higher raw material costs, as well as higher operating and conversion costs and lower product shipments.
While raw material costs, along with other operating costs, increased throughout 2022, we were able to make adjustments to selling prices, which are reflected in our results for the first three months comparisons between 2023 and 2022. We have experienced some stabilization of raw material costs during the first quarter of 2023, but nonetheless remain challenged by the ongoing inflationary environment impacting raw material and other operating costs, along with a decrease in demand on a global basis.
In this uncertain economic environment of increased costs and lower demand, operating profit margins remain a priority for us. The operating profit margin of 15.2% for the rolling four quarters ended March 31, 2023 is at the lower end of the range of our long-term expectations. As a result, we intend to continue to focus on cost control and margin recovery throughout this year.margin. 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.
When comparing the first three months of 2024 and 2023, the increase in both gross profit and operating profit primarily included the favorable impact of lower raw material and operating costs, partially offset by lower selling prices and product mix. We remain challenged by the ongoing inflationary environment impacting us. Cost control and margin management remain high priorities for us.
Petroleum additives selling, general, and administrative expenses (SG&A) for the first three months of 20232024 were $1.6$0.4 million higherlower than the first three months of 2022.2023. SG&A as a percentage of net sales was 4.7%4.8% for both the first three months of 20232024, and 2022.4.7% for the first three months of 2023. 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 $3.2$2.0 million when comparing the first three months periods of 20232024 and 2022.2023. As a percentage of net sales, R&D was 4.6% for the first three months of 2024 and 4.7% for the first three months of 2023 and 5.5% for the first three months of 2022.2023. 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.
Specialty Materials Segment
The specialty materials segment reported an operating loss of $5.0 million for the period from the AMPAC acquisition date of January 16, 2024 to March 31, 2024. The loss is primarily due to the sale of AMPAC finished goods inventory that we
acquired, which was recorded at fair market value on the acquisition date and sold to customers from the date of acquisition through March 31, 2024.
The following discussion references certain captions on the Consolidated Statements of Income.
Interest and Financing Expenses, Net
Interest and financing expenses were $15.7 million for the first three months of 2024 and $10.8 million for the first three months of 2023 and $9.4 million for the first three months of 2022.2023. The increase for the three months comparison resulted primarily from both higher average debt outstanding and a higher average interest rate during the 2023 period, which was partially offset by lower average outstanding debt, along with lowerrate. Capitalized interest, as well as amortization and fees.fees were also unfavorable.
Other Income (Expense), Net
Other income (expense), net was income of $12.5 million for the first three months of 2024 and $10.9 million for the first three months of 2023 and $7.2 million for the first three months of 2022.2023. The amounts for both the 2024 and 2023 and 2022three 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 45 for further information on total periodic benefit cost (income). The first three months of 2022 also included a loss on marketable securities of $3.0 million.
Income Tax Expense
Income tax expense was $30.0 million for the first three months of 2024 and $27.6 million for the first three months of 2023 and $14.2 million2023. The effective tax rate was 21.8% for the first three months of 2022. The effective tax rate was2024 and 22.0% for the first three months of 2023 and 19.3% for the first three months of 2022.2023. Income tax expense increased $10.0$2.8 million due to higher income before income tax expense, with the remaining $3.4which was partially offset by a $0.4 million of the differencedecrease caused by the higherlower effective tax rate.
The increaseOn October 8, 2021, almost all members of the Organisation for Economic Co-operation and Development (OECD) reached an agreement on a two-pillar approach to international tax reform, including the establishment of a 15% global minimum tax for large multinational entities. Several jurisdictions in which we operate have adopted or are in the process of adopting this global minimum tax, with effective dates in 2024 or 2025. We are continuing to monitor the legislation in these jurisdictions and have recognized an immaterial impact to our effective tax rate and income tax liabilities related to the enactment of these rules for the first three months comparison was primarily the result of an increase in the U.S. tax on foreign earnings and a decreased benefit of the research and development tax credit.2024.
Cash Flows, Financial Condition, and Liquidity
Cash and cash equivalents at March 31, 20232024 were $70.1$117.1 million, an increase of $1.4$5.1 million since December 31, 2022.2023.
Cash and cash equivalents held by our foreign subsidiaries amounted to $67.9$103.1 million at March 31, 20232024 and $65.3$86.5 million at December 31, 2022.2023. 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 andincluding planned capital expenditures for both a short-term and long-term horizon.capital expenditures.
Cash Flows – Operating Activities
Cash flows provided from operating activities for the first three months of 2023 were $109.92024 was $102.8 million, including $9.8$21.4 million to reflect lowerof higher working capital requirements. The $9.8$21.4 million excluded an unfavorablea favorable foreign currency impact to the components of working capital on the balance sheet.
The working capital of AMPAC is included in our consolidated balance sheet at March 31, 2024. Excluding the impact of AMPAC working capital, when comparing the March 31, 2024 balances with those at December 31, 2023, the most significant changes in working capital included decreasesincreases in inventories,trade and other accounts receivable and accounts payable, and a decrease in accrued expenses, as well as anexpenses. The increase in income taxes payable.trade and other accounts receivable primarily reflects higher sales during the first three months of 2024 compared to the fourth quarter of 2023. The decrease in inventories reflects our planned destocking in response to lower demand and destocking by our customers. The decreaseincrease in accounts payable is primarily the result of destockingincreased purchases during the first three months of 2024 and lower production levels.normal invoice payment timing. The change in accrued expenses primarily reflects normal payments related to rebate payments to customers, as well asinterest payments of accrued interest on our long-term debt agreements. The increase in income taxes payable is primarily caused by the timingand personnel payments.
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 $773.1$728.5 million at March 31, 20232024 and $768.2$675.4 million at December 31, 2022.2023. The current ratio was 3.162.86 at March 31, 20232024 and 2.812.85 at December 31, 2022.2023.
Cash Flows – Investing Activities
Cash used in investing activities totaled $11.9$697.5 million during the first three months of 20232024, comprised of the acquisition of AMPAC for $683.9 million (net of cash acquired) and capital expenditures.expenditures of $13.6 million. We expect that our total capital spending during 20232024 will be in the $60$50 million to $70 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 inprovided from financing activities during the first three months of 20232024 amounted to $97.1$601.4 million. These cash flows primarily included net paymentsborrowings of $46.0$386.0 million on the revolving credit facility $28.5and proceeds of $250 million for repurchases of our common stock, andfrom the term loan, partially offset by cash dividends of $20.3$24.0 million.
Debt
Our long-term debt was $958.0 million$1.3 billion at March 31, 20232024 compared to $1.0 billion$643.6 million at December 31, 2022.2023.
On January 22, 2024, we entered into a new $900 million revolving credit facility, as well as a $250 million unsecured term loan. Concurrently with the entry into the new revolving credit facility, we terminated our former revolving credit facility. See Note 89 for additional information on the 2.70% senior notes, 3.78% senior notes, term loan, and revolving credit facility, including the unused portion of our revolving credit facility.
All of our senior notes, the term loan, 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, as well as the term loan, 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, 2023,2024, the Leverage Ratio was 1.911.92 under the revolving credit facility.
At March 31, 2023,2024, we were in compliance with all covenants under the 3.78% senior notes, 2.70% senior notes, term loan, and revolving credit facility.
As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt decreasedincreased from 56.8%37.4% at December 31, 20222023 to 53.8%52.6% at March 31, 2023.2024. The change resulted primarily from the decreaseincrease in outstanding revolving credit facility and term loan borrowings, along withpartially offset by the increase in shareholders' equity. The increase in shareholders’ equity primarily reflects our earnings, partially offset by dividend payments, the repurchases of our common stock, and the impact of foreign currency translation adjustments.adjustments and dividend payments. 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 20222023 Annual Report on Form 10-K 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 20222023 Annual Report on Form 10-K. The following provides an update to the information related to intangibles, net of amortization, and goodwill provided in the Critical Accounting Policies and Estimates section of our 2023 Annual Report on Form 10-K.
ThereWe have beencertain identifiable intangibles amounting to $386.9 million and goodwill amounting to $382.0 million at March 31, 2024 that are discussed in Note 8. Of these identifiable intangibles and goodwill, $124.6 million relate to our petroleum additives business and $644.3 million relate to the specialty materials business. The amortizable identifiable intangibles have remaining lives of up to approximately 17 years. We continue to assess the markets related to the intangibles and goodwill, as well as their specific values and evaluate the intangibles and goodwill for any potential impairment when significant events or circumstances occur that might impair the value of these assets. We have concluded the values are appropriate, as are the amortization periods for the intangibles. However, if conditions were to substantially deteriorate in the petroleum additives or specialty materials markets, it could possibly cause a decrease in the estimated useful lives of the intangible assets or result in a noncash write-off of all or a portion of the intangibles and goodwill carrying amounts. A reduction in the amortization period of the intangibles would have no significant changeseffect on cash flows. We do not anticipate such a change in our critical accounting policies and estimates from those reportedmarket conditions in our 2022 Annual Report on Form 10-K.the near term.
Recent Accounting Pronouncements
There have been no recentFor a full discussion of the more significant recently issued accounting pronouncements which have not been adopted and may have a significant impact our financial statements.standards, see Note 13.
Outlook
Our stated goal is to provide a 10% compounded return per year for our shareholders over any five-yearten-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 during 20232024 due to the uncertain global economic environment in which we operate, as we continue to see challenges with inflationary trends impacting our operating costs and raw material price volatility.prices. As a result, we will continue to focus on cost control and operating profit margin recovery throughout the year. We expect over the long-term that the petroleum additives market will grow annually in the 1%up to 2% range.. We plan to exceed that growth rate.rate in our petroleum additives segment.
Over the past several years we have made significant investments in our petroleum additives 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.
We anticipate continued strength in our petroleum additives segment in 2024 and also look forward to the ongoing integration of AMPAC into our business during the year. While we may see substantial variation in quarterly results for AMPAC on an ongoing basis due to the nature of its business, we anticipate full year results to be consistent with our pre-acquisition expectations.
Our business typically 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
While our recent AMPAC acquisition is outside of our core petroleum additives business, we believe it is an excellent opportunity to provide long-term value for our shareholders. Nonetheless, our primary focus in the acquisition area remains on the petroleum additives industry. It is our view that thisthe petroleum additives 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, 2023,2024, there were no material changes in our market risk from the information provided in the 20222023 Annual Report .except for a change in interest rate risk for our variable rate debt.
At December 31, 2023, we had no outstanding variable rate debt under our revolving credit facility. As such, we had no interest rate risk on variable rate debt at December 31, 2023. At March 31, 2024, we had $386 million outstanding under our revolving credit facility and $250 million outstanding under the term loan. Holding all other variables constant at March 31, 2024, if the variable portion of the interest rates hypothetically increased 10%, the effect on our earnings and cash flow would be $3.8 million.
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. As permitted by SEC guidance, the scope of this evaluation did not include the disclosure controls and procedures of AMPAC related to our internal controls over financial reporting. See Note 2 for further information on this acquisition.
ThereOther than the changes arising from the ongoing integration activities associated with the AMPAC acquisition, 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, which occurred during the quarter ended March 31, 20232024 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 20222023 Annual Report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds1A. Risk Factors
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 DecemberExcept as highlighted below, there were no material changes during the three months ended March 31, 2024 as market conditions warrant and covenantsto the risk factors disclosed in Item 1A - Risk Factors in our 2023 Annual Report on Form 10-K.
A significant portion of our specialty materials business conducted through AMPAC is under our existing debt agreements permit. We may conduct the share repurchases in the open market, in privately negotiated transactions, through block trades,contracts with contractors or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 and/or Rule 10b-18subcontractors of the Securities Exchange ActU.S. government. These contracts are impacted by governmental priorities and are subject to potential fluctuations in funding or early termination, including for convenience, any of 1934. The repurchase program does not requirewhich could have a material adverse effect on our results of operations, financial condition, or cash flows.
Sales to U.S. government contractors and subcontractors, as well as directly to the CompanyU.S. government, represent a significant portion of our specialty materials business conducted through AMPAC. Funding of U.S. governmental programs is generally subject to acquire anyannual congressional appropriations, which are subject to change. In the case of major programs, U.S. government contracts are usually incrementally funded. In addition, U.S. government expenditures for defense and space programs may fluctuate from year to year, and specific number of shares andprograms may be terminated or suspended at any time. At March 31, 2023curtailed. The U.S. government often has the ability to terminate contracts, in whole or in part, for convenience. If this were to occur, the full profit anticipated under a given contract is unlikely to be realized., approximately $246 million remained available underA shift in governmental priorities, programs, strategies, or funding levels impacting the 2021 authorization.
The following table outlinesdefense and space industries more generally or the purchases during the first quarterspecific areas of 2023 under the authorization.
Issuer Purchasesthose industries in which we operate could negatively affect our results of Equity Securitiesoperations, financial condition, or cash flows. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| January 1 to January 31 | | 15,264 | | $ | 322.04 | | | 15,264 | | $ | 269,428,875 | |
| February 1 to February 28 | | 4,118 | | 345.50 | | | 4,118 | | 268,006,086 | |
| March 1 to March 31 | | 63,104 | | 350.85 | | | 63,104 | | 245,865,944 | |
| Total | | 82,486 | | $ | 345.25 | | | 82,486 | | $ | 245,865,944 | |
ITEM 5. Other Information
During the quarter ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of NewMarket Corporation adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) or Regulation S-K.
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 William J. Skrobacz |
| 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 William J. Skrobacz |
| Exhibit 101 | Inline XBRL Instance Document and Related Items (the instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document) |
| Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| NEWMARKET CORPORATION |
| (Registrant) |
| |
Date: April 27, 202325, 2024 | By: /s/ William J. Skrobacz |
| William J. Skrobacz |
| Vice President and |
| Chief Financial Officer |
| (Principal Financial Officer) |
| |
Date: April 27, 202325, 2024 | By: /s/ Gail C. Ridgeway |
| Gail C. Ridgeway |
| Controller |
| (Principal Accounting Officer) |