What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-26 · 96 added, 107 removed, 106 unchanged (66% of the section changed)

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failure to protect our intellectual property rights;

sudden or sharp raw material price increases;

sudden, sharp, or prolonged raw material price increases;

competition from other manufacturers;

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an information technology system failure or security breach;

the occurrence or threat of extraordinary events, including natural disasters, terrorist attacks, and health-related epidemics such as the COVID-19 pandemic;

the occurrence or threat of extraordinary events, including natural disasters, terrorist attacks, wars, and health-related epidemics such as the COVID-19 pandemic;

risks related to operating outside of the United States;

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limitation of our insurance coverage;

our inability to realize expected benefits from investment in our infrastructure or from recent or future acquisitions, or our inability to successfully integrate recent or future acquisitions into our business;

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;

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In light of these risks and uncertainties, any forward-looking statement made in this report or elsewhere, might not occur.

When comparing the results of the petroleum additives segment for the first nine months of 2021 with the first nine months of 2020, net sales increased 19.9% primarily due to higher lubricant additives product shipments, higher selling prices, and a favorable foreign currency impact.

Petroleum additives operating profit was 3.4% lower when comparing the first nine months of 2021 with the first nine months of 2020, reflecting significantly higher raw material costs partially offset by improved product shipments and higher selling prices.

During the third quarter of 2021, we increased our quarterly dividend to $2.10 per share, and we repurchased 292,392 shares of our common stock for a total of $99.5 million.

When comparing the results of the petroleum additives segment for the first three months of 2022 with the first three months of 2021, net sales increased 16.9% primarily due to higher selling prices, as well as higher product shipments, which were partially offset by an unfavorable foreign currency impact.

Petroleum additives operating profit was 7.6% lower when comparing the first three months of 2022 with the first three months of 2021, reflecting significantly higher raw material costs, as well as higher operating costs, partially offset by higher selling prices and improved product shipments.

During the first three months of 2022, we repurchased 115,796 shares of our common stock for a total of $37.3 million.

We also redeemed our 4.10% senior notes and sold all of our marketable securities.

Our operations generate cash that is in excess of the needs of the business.

We continue to invest in and manage the business for the long-term with the intent of helping our customers succeed in their marketplaces.

We continue to invest in and manage our business for the long-term with the goal of helping our customers succeed in their marketplaces.

Our investments continue to be in organizational talent, technology development and processes, and global infrastructure, consisting of technical centers, production capability, and geographic expansion.

Impact of the Current Economic Environment and the COVID-19 Pandemic

Impact of the Current Economic Environment

The current economic environment in which we operate is characterized by steadily rising costs, including raw material costs, limitations on certain supply availability, and a challenging supply chain network and transportation system.

Because of our active business continuity process and global network, we have substantially managed through these factors during the first nine months of the year and have delivered product to our customers.

We do not currently expect the supply chain network disruptions to be long-term in nature, but we cannot predict how the current economic environment may evolve over the coming months.

Because of our active business continuity process and global network, we have continued to substantially manage through these factors during the first three months of the year and have delivered product to our customers.

We do not currently expect the supply chain network disruptions to be long-term in nature, but we cannot predict how the current economic environment may evolve over the coming months or how long the supply chain network disruptions may last.

We will continue working with our customers to deliver product, but at the same time, we also expect to be challenged by these ongoing economic factors as we manage our business throughout the rest of the year.

In addition, but to a lesser extent than during 2020, petroleum additives operating results for the first nine months of 2021 include an unfavorable impact from the economic uncertainty resulting from the ongoing effects of the COVID-19 pandemic and the related restrictions on the movement of people, goods and services.

The pace and stability of improvement in demand for our products will continue to depend heavily on economic recovery.

All of our locations around the world, including our manufacturing and research and development facilities, have continued to operate safely and without interruption during the pandemic, with only a very few government-ordered, short-term exceptions, and we expect them to continue to do so.

Our financial position remains strong.

In addition to the general inflationary environment in which we operate, the Russia-Ukraine war has introduced additional challenges to our business.

While this conflict did not have a material impact on our financial results for the first three months of 2022, numerous countries have imposed sanctions against Russia.

We are complying with these sanctions and are evaluating this evolving situation to assess its impact on our business.

Despite the challenging economic environment, our financial position remains strong.

We have sufficient access to capital, if needed, and do not anticipate any issues with meeting the covenants for all our debt agreements.

Our major capital projects are continuing to progress substantially as planned.

As we operate in the chemical industry, we continue to be focused on protecting the health and safety of our employees and have procedures in place at each of our operating facilities to help ensure their well-being.

The chemical industry and our products are recognized as essential for transportation of goods and services.

The chemical industry and our products are essential for transportation of goods and services.

Our business continuity planning process focuses our efforts on managing through this challenging time and helping our customers do the same.

As we are a global company and can leverage the knowledge and experience of our personnel in facilities across the world, we do not expect to experience negative impacts related to short-term travel and border restrictions.

Results of Operations

Consolidated net sales for the third quarter of 2021 totaled $622.2 million, representing an increase of $109.3 million, or 21.3% from the third quarter of 2020.

Consolidated net sales for the first nine months of 2021 totaled $1.8 billion, representing an increase of $296.4 million, or 20.0%, from the first nine months of 2020.

Consolidated net sales for the first three months of 2022 totaled $662.6 million, representing an increase of $95.9 million, or 16.9%, from the first three months of 2021.

The following table shows net sales by segment and product line.

Third Quarter Ended

September 30, Nine Months Ended

September 30,

Three Months Ended

(in millions) 2022 2021

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The regions in which we operate include North America (the United States and Canada), Latin America (Mexico, Central America, and South America), Asia Pacific, and the EMEAI region.

While there is some fluctuation, the percentage of net sales generated in the regions remained fairly consistent when comparing the first nine months of 2021 with the same period in 2020, as well as with the full year in 2020.

Petroleum additives net sales for the third quarter of 2021 were $619.1 million compared to $510.3 million for the third quarter of 2020, an increase of 21.3%.

Petroleum additives net sales for the first nine months of 2021 were $1.8 billion compared to $1.5 billion for the first nine months of 2020, an increase of 19.9%.

For both the third quarter and nine months comparative periods, the increases were across all regions with North America representing around 40% of the increase in both comparative periods.

The EMEAI region contributed an approximate 25% increase in the third quarter comparison with the Latin America and Asia Pacific regions each contributing approximately equally for the remaining increase.

For the nine month comparison, the Asia Pacific region reflected an approximate 25% increase with the EMEAI and Latin America regions reflecting the remaining increases in petroleum additives net sales.

While 2021 results continue to include the economic impact of the COVID-19 pandemic to a lesser extent, the third quarter and nine months 2020 periods include a more significant economic impact from the pandemic.

The following table details the approximate components of the increase in petroleum additives net sales between the third quarter and first nine months of 2021 and 2020.

(in millions) Third Quarter Nine Months

Period ended September 30, 2020 $ 510.3 $ 1,476.4

While there is some fluctuation, the percentage of net sales generated in the regions remained fairly consistent when comparing the first three months of 2022 with the same period in 2021, as well as with the full year in 2021.

Petroleum additives net sales for the first three months of 2022 were $660.3 million compared to $564.9 million for the first three months of 2021, an increase of 16.9%.

The increase was across all regions with North America representing around 60% of the increase, both the EMEAI and Latin America regions representing about 20%, and net sales for the Asia Pacific region nearly unchanged when comparing the three months periods of 2022 and 2021.

The following table details the approximate components of the increase in petroleum additives net sales between the first three months of 2022 and 2021.

(in millions) Three Months

Period ended March 31, 2021 $ 564.9

Lubricant additives shipments (0.4)

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Foreign currency impact, net (9.1)

Period ended September 30, 2021 $ 619.1 $ 1,770.6

When comparing both the third quarter and the nine months periods of 2021 and 2020, petroleum additives shipments accounted for a $58.0 million increase in net sales for the third quarter comparison and a $239.9 million increase in net sales for the nine month comparison.

Selling prices improved during both the third quarter and nine months comparison periods.

The impact from selling prices was net of a favorable impact from foreign currency exchange rates in both comparative periods.

The United States Dollar weakened against most of the major currencies in which we transact when comparing both the third quarter and nine months of 2021 and 2020 resulting in a favorable impact to petroleum additives net sales for both the third quarter and nine months comparative periods.

The favorable impact was predominantly due to changes in the Euro and Chinese Renminbi exchange rates.

On a worldwide basis, the volume of product shipments for petroleum additives increased 11.9% when comparing the two third quarter periods and 16.6% when comparing the nine months of 2021 and 2020.

For the third quarter comparison, lubricant additives improved across all regions by similar amounts and fuel additives increased across all regions except the EMEAI region.

For the nine months comparison, the North America and Asia Pacific regions each contributed approximately one-third of the improvement in lubricant additives shipments, with the EMEAI and Latin America regions also improving.

Fuel additives shipments for the nine months comparison improved across all regions, except for the EMEAI region.

Similar to the discussion on net sales above, the volume of product shipments in the third quarter and nine months of 2020 include the impact from unusually low shipments due to the COVID-19 pandemic.

Period ended March 31, 2022 $ 660.3

When comparing the first three months periods of 2022 and 2021, petroleum additives shipments accounted for a $2.2 million increase in net sales.

Selling prices improved during the first three months of 2022 over the same period in 2021 contributing a favorable impact to net sales of $102.3 million.

The favorable impact from shipments and improved selling prices was partially offset by an unfavorable impact from foreign currency exchange rates.

The United States Dollar strengthened against most of the major currencies in which we transact when comparing the first three months of 2022 and 2021 resulting in an unfavorable impact to petroleum additives net sales for the three months comparative periods.

The unfavorable impact was predominantly due to changes in the Euro and Japanese Yen exchange rates.

On a worldwide basis, the volume of product shipments for petroleum additives increased 2.3% when comparing the first three months of 2022 and 2021.

The increases in product shipments for both lubricant additives and fuel additives was across all regions except for the Asia Pacific Region, which experienced decreases in both product lines.

North America contributed most of the increase in product shipments for both lubricant additives and fuel additives.

While there was an increase in lubricant additives product shipments on a global basis, due to the mix of products sold within the product line, lubricant additives had a small unfavorable impact on net sales as shown in the table above.

The “All other” category includes the operations of the antiknock compounds business and certain contracted manufacturing and services.

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Depreciation on segment property, plant, and equipment, as well as amortization of segment intangible assets and lease right-of-use assets, is included in segment operating profit.

The following table reports segment operating profit for the third quarter and nine months ended September 30, 2021 and September 30, 2020.

Third Quarter Ended

September 30, Nine Months Ended

September 30,

The following table reports segment operating profit for the three months ended March 31, 2022 and March 31, 2021.

Three Months Ended

(in millions) 2022 2021

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Petroleum Additives Segment

The petroleum additives segment operating profit decreased $30.1 million when comparing the third quarter of 2021 to the third quarter of 2020 and $8.5 million when comparing the first nine months of 2021 to the first nine months of 2020.

Both comparative periods included the impact of the same factors that affected gross profit (see discussion below).

The operating profit margin was 11.7% for the third quarter of 2021 as compared to 20.0% for the third quarter of 2020 and was 13.6% for the first nine months of 2021 as compared to 16.9% for the first nine months of 2020.

For the rolling four quarters ended September 30, 2021, the operating profit margin for petroleum additives was 14.1%.

Increasing costs during 2021, including primarily raw material costs, are having a negative impact on our operating profit margins.

While we have made some progress in adjusting our selling prices, our costs have continued to rise.

Operating profit margins remain a priority, and while they will fluctuate from quarter to quarter due to multiple factors, we believe the fundamentals of our business and industry as a whole are unchanged.

Petroleum additives gross profit decreased $25.9 million when comparing the two third quarter periods and was substantially unchanged when comparing the first nine months of 2021 and 2020 .

Cost of goods sold as a percentage of net sales was 77.7% for the third quarter of 2021, increasing from 67.9% for the third quarter of 2020, and 75.2% for the first nine months of 2021, increasing from 70.2% for the first nine months of 2020.

When comparing the third quarters of 2021 and 2020, the decrease in gross profit primarily resulted from significantly higher raw material costs, as well as a small unfavorable impact from conversion costs, which were partially offset by improved selling prices and product shipments.

The same unfavorable effect from higher raw material costs impacted the nine months comparison, but was offset primarily by improved product shipments and improved selling prices.

Petroleum additives selling, general, and administrative expenses (SG&A) for the third quarter of 2021 were $1.9 million higher as compared to the third quarter of 2020, and $3.7 million higher when comparing the first nine months of 2021 to the same 2020 period.

SG&A as a percentage of net sales was 4.9% for the third quarter of 2021, 5.6% for the third quarter of 2020, 5.2% for the first nine months of 2021, and 6.0% for the first nine months of 2020.

Our SG&A costs are primarily personnel-related and include salaries, benefits, and other costs associated with our workforce, including travel expenses.

Petroleum additives segment gross profit decreased $7.6 million and operating profit decreased $7.2 million when comparing the first three months of 2022 to the first three months of 2021.

Cost of goods sold as a percentage of net sales was 76.6% for the first three months of 2022 and 71.3% for the first three months of 2021.

The operating profit margin was 13.2% for the first three months of 2022 as compared to 16.7% for the first three months of 2021.

For the rolling four quarters ended March 31, 2022, the operating profit margin for petroleum additives was 11.2%.

When comparing the first three months of 2022 and 2021, both gross profit and operating profit included the impact of significantly higher raw material costs, as well as an unfavorable impact from conversion costs.

These were partially offset by the impact of improved selling prices and product shipments as discussed above, as well as a favorable foreign currency transaction and translation impact.

Throughout most of 2021, we experienced declining operating margins due mainly to the prolonged period of escalating raw material costs.

While raw material costs, along with other operating costs, have continued to increase in 2022, we have been able to make adjustments to selling prices to offset some of the raw material and operating cost increases.

We continue to experience a lag between when price increases go into effect and when margin recovery begins.

This lag will continue until raw material costs and other operating costs, including higher costs resulting from the worldwide supply chain disruptions, stabilize.

In this uncertain economic environment of continuing increasing costs, operating profit margins remain a priority for us.

Margin recovery and cost control will be priorities throughout this year with the goal of returning to our historical profit margin range.

While operating margins will fluctuate from quarter to quarter due to multiple factors, we believe the fundamentals of our business and industry as a whole are unchanged.

Petroleum additives selling, general, and administrative expenses (SG&A) for the first three months of 2022 were $0.5 million lower as compared to the first three months of 2021.

SG&A as a percentage of net sales was 4.7% for the first three months of 2022 and 5.6% for the first three months of 2021.

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) increased $2.3 million when comparing the third quarter of 2021 with the third quarter of 2020 and $5.1 million when comparing the first nine months periods of 2021 and 2020.

As a percentage of net sales, R&D was 5.7% for the third quarter of 2021, 6.5% for the third quarter of 2020, 6.1% for the first nine months of 2021, and 6.9% for the first nine months of 2020.

Our investment in petroleum additives research, development, and testing (R&D) was substantially unchanged when comparing the first three months periods of 2022 and 2021.

As a percentage of net sales, R&D was 5.5% for the first three months of 2022, and 6.4% for the first three months of 2021.

Our R&D investments reflect our efforts to support the development of solutions that meet our customers' needs, meet new and evolving standards, and support our expansion into new product areas.

Our approach to R&D investments, as it is with SG&A, is one of purposeful spending on programs to support our current product base and to ensure that we develop products to support our customers' programs in the future.

Our approach to R&D investments, as it is with SG&A, is one of purposeful spending on programs to support our current

product base and to ensure that we develop products to support our customers' programs in the future.

R&D investments include personnel-related costs, as well as costs for internal and external testing of our products.

The following discussion references certain captions on the Consolidated Statements of Income.

Interest and Financing Expenses

Interest and financing expenses were $9.3 million for the third quarter of 2021, $6.5 million for the third quarter of 2020, $24.6 million for the first nine months of 2021 and $20.6 million for the first nine months of 2020.

The increase for both the third quarter and the nine months comparison resulted primarily from higher outstanding debt during the 2021 periods.

A slightly lower average interest rate resulted in a small favorable impact for the third quarter comparison, while a higher average interest rate resulted in a small unfavorable impact for the nine months comparison.

Higher capitalized interest during the 2021 periods partially offset the average debt impact.

Interest and Financing Expenses, Net

Interest and financing expenses were $9.4 million for the first three months of 2022 and $6.3 million for the first three months of 2021.

The increase resulted primarily from higher outstanding debt during the 2022 period, along with higher amortization and fees, as well as lower capitalized interest when comparing the first three months of 2022 and the first three months of 2021.

A lower average interest rate partially offset these unfavorable impacts.

Other Income (Expense), Net

Other income (expense), net was income of $7.4 million for the third quarter of 2021, $25.3 million for the third quarter of 2020, $19.8 million for the first nine months of 2021 and $39.3 million for the first nine months of 2020.

The amounts for both of the 2021 and 2020 periods primarily reflect the components of net periodic benefit cost (income), except for service cost, from defined benefit pension and postretirement plans.

Other income (expense), net was income of $7.2 million for both the first three months of 2022 and 2021.

The amounts for both the 2022 and 2021 periods primarily reflect the components of net periodic benefit cost (income), except for service cost, from defined benefit pension and postretirement plans.

See Note 4 for further information on total periodic benefit cost (income).

Both of the 2020 periods also included a gain of $16.5 million related to the sale of a non-operating parcel of real estate and both of the 2021 periods included the gains and losses on marketable securities.

The 2022 period also included investment income of $1.1 million, as well as a loss on marketable securities of $3.0 million.

Income Tax Expense

Income tax expense was $9.1 million for the third quarter of 2021 and $21.8 million for the third quarter of 2020.

The effective income tax rate was 14.9% for the third quarter of 2021 and 18.6% for the third quarter of 2020.

Income tax expense decreased $10.5 million due to lower income before income tax expense and $2.2 million resulting from the lower effective income tax rate.

Income tax expense was $43.9 million for the first nine months of 2021 and $51.3 million for the first nine months of 2020.

The effective tax rate was 20.2% for the first nine months of 2021 and 20.1% for the first nine months of 2020.

Income tax expense decreased $7.5 million due to lower income before income tax expense with the remainder of the difference caused by the slightly higher effective tax rate.

The decrease in the tax rate for the third quarter comparison period is primarily driven by the impact from our foreign operations.

Income tax expense was $14.2 million for the first three months of 2022 and $19.7 million for the first three months of 2021.

The effective tax rate was 19.3% for the first three months of 2022 and 22.0% for the first three months of 2021.

Income tax expense decreased $3.5 million due to lower income before income tax expense with the remaining $2.0 million of the difference caused by the lower effective tax rate.

The decrease in the effective tax rate for the first three months comparison was primarily driven by the impact of research and development expense capitalization in 2022 on the foreign derived intangible income deduction and the impact of having less projected United States interest expense in 2022 as compared to 2021 on the calculation of the allowable global intangible low-taxed income foreign tax credits.

Cash Flows, Financial Condition, and Liquidity

Cash and cash equivalents at September 30, 2021 were $59.6 million, which was a decrease of $65.6 million since December 31, 2020.

Cash and cash equivalents held by our foreign subsidiaries amounted to $57.8 million at September 30, 2021 and $97.3 million at December 31, 2020.

Cash and cash equivalents at March 31, 2022 were $84.6 million, which was an increase of $1.2 million since December 31, 2021.

Cash and cash equivalents held by our foreign subsidiaries amounted to $81.5 million at March 31, 2022 and $81.1 million at December 31, 2021.

Periodically, we repatriate cash from our foreign subsidiaries to the United States through intercompany dividends and loans.

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We plan to use these indefinitely reinvested earnings to support growth outside of the United States through funding of operating expenses, research and development expenses, capital expenditures, and other cash needs of our foreign subsidiaries.

We expect that cash from operations, together with borrowing available under our revolving credit facility, will continue to be sufficient to cover our operating needs and planned capital expenditures for at least the next twelve months.

Cash Flows – Operating Activities

Cash flows provided from operating activities for the first nine months of 2021 were $145.0 million, adjusted for the use of $98.4 million to fund higher working capital requirements.

The $98.4 million used for working capital excluded a favorable foreign currency impact to the components of working capital on the balance sheet.

The most significant changes in working capital included increases in accounts receivable, inventory, and accounts payable.

The increase in accounts receivable balances when comparing September 30, 2021 with the end of 2020 was primarily the result of increased shipment volumes along with higher sales prices.

The increase in inventory was primarily in response to higher forecasted demand in some regions, as well as increased raw material costs.

The increase in accounts payable reflected higher raw material costs, increased purchases of raw materials to meet customer demand, and normal fluctuations across the regions due to timing.

Including cash and cash equivalents, as well as the impact of changes in foreign currency exchange rates on the balance sheet, we had total working capital of $975.5 million at September 30, 2021 and $585.6 million at December 31, 2020.

The current ratio was 3.49 to 1 at September 30, 2021 and 2.87 to 1 at December 31, 2020.

Cash flows provided from operating activities for the first three months of 2022 were $6.8 million, adjusted for the use of $67.0 million to fund higher working capital requirements.

The $67.0 million used for working capital excluded a small unfavorable foreign currency impact to the components of working capital on the balance sheet.

The most significant changes in working capital included a decrease in marketable securities, as well as increases in accounts receivable, inventory, and accounts payable.

During the first three months of 2022, we sold all of our marketable securities.

See Note 6 for further information.

The increase in accounts receivable balances when comparing March 31, 2022 with the end of 2021 was primarily the result of increased shipment volumes along with higher sales prices.

The increase in inventory was primarily caused by higher raw material costs, as well as an increase in quantities to meet customer demand.

The increase in accounts payable reflected higher raw material and operating costs and normal fluctuations across the regions due to timing.

Including cash and cash equivalents, as well as the impact of changes in foreign currency exchange rates on the balance sheet, we had total working capital of $702.6 million at March 31, 2022 and $663.1 million at December 31, 2021.

The current ratio was 2.71 to 1 at March 31, 2022 and 1.91 to 1 at December 31, 2021.

Cash Flows – Investing Activities

Cash used in investing activities totaled $445.6 million during the first nine months of 2021 and represented the purchases (net of proceeds from sales and maturities) of marketable securities of $381.5 million and capital expenditures of $64.0 million.

Cash provided from investing activities totaled $359.4 million during the first three months of 2022 primarily representing the proceeds from the sale of marketable securities of $372.8 million.

See Note 6 for further information.

Capital expenditures for the first three months of 2022 were $12.6 million.

We currently expect that our total capital spending during 2022 will be in the $65 million to $75 million range and will include several improvements to our manufacturing and R&D infrastructure around the world.

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Cash Flows – Financing Activities

Cash provided from financing activities during the first nine months of 2021 amounted to $235.7 million.

These cash flows included $395.1 million of proceeds from the issuance of our $400 million 2.70% senior notes, which were subsequently mostly invested in marketable securities.

Cash flows from financing activities also included $91.7 million for repurchase of our common stock and cash dividend payments of $64.1 million.

Our long-term debt was $991.9 million at September 30, 2021 compared to $598.8 million at December 31, 2020.

On March 18, 2021, we issued $400 million aggregate principal amount of 2.70% senior notes due 2031 at an issue price of 98.763%.

We intend to use the net proceeds from the offering for the repayment or redemption of our 4.10% senior notes and for general corporate purposes.

We incurred financing costs in 2021 of approximately $4 million related to the 2.70% senior notes, which are being amortized over the term of the notes.

Cash used in financing activities during the first three months of 2022 amounted to $365.8 million.

These cash flows included $350.0 million for the redemption of the 4.10% senior notes along with $7.1 million of costs related to the redemption (see Debt discussion below), $37.3 million for repurchases of our common stock, and cash dividends of $21.6 million.

We also borrowed an additional $51.0 million on the revolving credit facility.

Our long-term debt was $841.1 million at March 31, 2022 compared to $1.1 billion at December 31, 2021.

On March 15, 2022, we redeemed the 4.10% senior notes at a redemption price of 100% of the principal amount of $350 million plus the accrued and unpaid interest on the notes and the applicable premium as outlined in the Indenture dated December 20, 2012.

The 4.10% senior notes were due December 2022.

We recognized a loss of $7.5 million on the early extinguishment including cash paid of $7.1 million for the premium on the early redemption and a write-off of $0.4 million of unamortized deferred financing costs.

See Note 9 for additional information on the 2.70% senior notes, 3.78% senior notes, 4.10% senior notes, and revolving credit facility, including the unused portion of our revolving credit facility.

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The revolving credit facility contains financial covenants that require NewMarket to maintain a consolidated Leverage Ratio (as defined in the agreement) of no more than 3.75 to 1.00, except during an Increased Leverage Period (as defined in the agreement) at the end of each quarter.

At September 30, 2021, the Leverage Ratio was 2.66 under the revolving credit facility.

At September 30, 2021, we were in compliance with all covenants under the 4.10% senior notes, 3.78% senior notes, 2.70% senior notes, and revolving credit facility.

As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt percentage increased from 44.1% at December 31, 2020 to 56.2% at September 30, 2021.

The change in the percentage resulted primarily from the issuance of the 2.70% senior notes, partially offset by the increase in shareholders' equity.

At March 31, 2022, the Leverage Ratio was 2.57 under the revolving credit facility.

At March 31, 2022, we were in compliance with all covenants under the 3.78% senior notes, 2.70% senior notes, and revolving credit facility.

As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt percentage decreased from 59.9% at December 31, 2021 to 52.5% at March 31, 2022.

The change in the percentage resulted primarily from the repayment of the 4.10% senior notes, partially offset by the increase in outstanding revolving credit facility borrowings and the decrease in shareholders' equity.

The change in shareholders’ equity primarily reflects our earnings offset by dividend payments, the repurchases of our common stock, and the impact of foreign currency translation adjustments along with the changes in the funded position of our defined benefit plans.

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We believe the fundamentals of how we run our business - a long-term view, safety-first culture, customer-focused solutions, technology-driven product offerings, and world-class supply chain capability - will continue to be beneficial for all of our stakeholders over the long term.

We expect our petroleum additives segment will continue to experience impacts to its operating performance due to the current economic environment.

Our global business will see varying effects on demand that will differ by region based on our product portfolio and geographic coverage.

The global market for our products should continue to stabilize as government restrictions on the movement of people, goods, and services are lifted, as modern transportation and machinery cannot function without our products.

We expect our petroleum additives segment to experience impacts to its operating performance due to the current economic environment, as we continue to see challenges with the global supply network, inflationary trends, and raw material price escalation and volatility.

We expect that the petroleum additives market will grow in the 1% to 2% range annually for the foreseeable future.

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It is our view that this industry segment will provide the greatest opportunity for solid returns on our investments while minimizing risk.

We remain focused on this strategy and will evaluate

any future opportunities.

We 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis