What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-15 compared with 2022-02-15 · 110 added, 129 removed, 1108 unchanged (18% of the section changed)

3 unchanged sentences

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of NewMarket Corporation and its subsidiaries (the “Company”) as of December 31, 2021 and December 31, 2020, and the related consolidated statements of income, of comprehensive income, of shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of NewMarket Corporation and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

52 unchanged sentences

Interest and financing expenses, net 35,202 34,218 26,328

Loss on early extinguishment of debt 7,545 0 0

Other income (expense), net 35,342 23,987 45,813

75 unchanged sentences

( 83,417 ) ( 83,417 )

Repurchases of common stock ( 270,963 ) ( 2,630 ) ( 98,804 ) ( 101,434 )

Tax withholdings related to stock-based compensation

7 unchanged sentences

Repurchases of common stock ( 566,671 ) ( 3,305 ) ( 192,915 ) ( 196,220 )

Tax withholdings related to stock-based compensation

( 1,547 ) ( 641 ) ( 641 )

Stock-based compensation 8,016 2,588 2 2,590

17 unchanged sentences

Depreciation and amortization 82,285 84,320 84,002

Deferred income tax expense 1,978 7,554 7,384

Unrealized (gain) loss on marketable securities 7,440 0 0

Deferred income tax (benefit) expense ( 42,645 ) 1,978 7,554

Loss on early extinguishment of debt 7,545 0 0

Gain on sale of land 0 0 ( 16,483 )

7 unchanged sentences

Income taxes payable 11,586 562 ( 6,935 )

Loss on marketable securities 2,977 7,440 0

Cash pension and postretirement contributions ( 9,748 ) ( 10,342 ) ( 10,655 )

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Cash flows from financing activities:

Redemption of 4.10 % senior notes

( 350,000 ) 0 0

Net borrowings (repayments) under revolving credit facility 213,000 148,000 ( 44,678 )

1 unchanged sentence

Dividends paid ( 84,263 ) ( 85,910 ) ( 83,417 )

Debt issuance costs ( 3,897 ) ( 1,349 ) 0

Repurchases of common stock ( 207,470 ) ( 196,220 ) ( 101,434 )

Cash costs of 4.10 % senior notes redemption

( 7,099 ) 0 0

Debt issuance costs 0 ( 3,897 ) ( 1,349 )

Other, net ( 3,525 ) ( 1,892 ) ( 585 )

Cash provided from (used in) financing activities ( 439,357 ) 255,133 ( 231,463 )

See accompanying Notes to Consolidated Financial Statements

Effect of foreign exchange on cash and cash equivalents 255 ( 926 ) 2,327

9 unchanged sentences

Those companies are Afton, which focuses on petroleum additive products;

Ethyl, representing certain contracted manufacturing and services, as well as the antiknock compounds business;

Ethyl, representing certain contracted manufacturing and related services, as well as the antiknock compounds business;

and NewMarket Development, which manages the real property and improvements that we own in Virginia.

NewMarket is also the parent company of NewMarket Services, which provides various administrative services to NewMarket, Afton, Ethyl, and NewMarket Development.

Certain reclassifications have been made to the accompanying consolidated financial statements and the related notes to conform to the current presentation.

Certain reclassifications have been made to the accompanying consolidated financial statements and/or the related notes to conform to the current presentation.

Foreign Currency Translation - We translate the balance sheets of our foreign subsidiaries into U.S.

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NewMarket includes translation adjustments in the Consolidated Balance Sheets as part of accumulated other comprehensive loss and transaction adjustments in the Consolidated Statements of Income as part of cost of goods sold.

Foreign currency transaction adjustments resulted in a net loss of $ 6 million in 2021, $ 3 million in 2020, and $ 4 million 2019 .

Foreign currency transaction adjustments resulted in a net loss of $ 4 million in 2022, $ 6 million in 2021, and $ 3 million in 2020.

Revenue Recognition - We recognize revenue when control of the product is transferred to our customer and for an amount that reflects the consideration we expect to collect from the customer.

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Employees, as well as NewMarket, contribute to the plans.

We made contributions of $ 7 million in 2021, $ 7 million in 2020, and $ 6 million in 2019 related to these plans.

We made contributions of $ 7 million in each of 2022, 2021, and 2020 related to these plans.

Research, Development, and Testing Expenses - NewMarket expenses all research, development, and testing costs as incurred.

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Prepayments from our customers totaled $ 1 million at both December 31, 2022 and December 31, 2021.

Revenue recognized from funds collected in advance from customers in an earlier period was $ 2 million in 2021 and $ 1 million in both 2020 and 2019.

Revenue recognized from funds collected in advance from customers in an earlier period was $ 1 million in 2022, $ 2 million in 2021, and $ 1 million in 2020.

We recognize revenue when control of the product is transferred to our customer and for an amount that reflects the consideration we expect to collect from the customer.

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At December 31, 2021, accrued rebates were $ 26 million and accrued business development funds were $ 2 million.

Notes to Consolidated Financial Statements

The following table provides information on our net sales by geographic area.

Information on net sales by segment is in Note 4.

Notes to Consolidated Financial Statements

Years Ended December 31,

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Earnings allocated to participating securities

( 876 ) ( 462 ) ( 448 )

Net income attributable to common shareholders after allocation of earnings to participating securities

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Segment Information - The tables below show our consolidated segment results.

The “All other” category includes the operations of the antiknock compounds business, as well as certain contracted manufacturing and services associated with Ethyl.

The “All other” category includes the operations of the antiknock compounds business, as well as certain contracted manufacturing and related services associated with Ethyl.

The segment accounting policies are the same as those described in Note 1.

We evaluate the performance of the petroleum additives business based on segment operating profit.

NewMarket Services departments and other expenses are billed to Afton and Ethyl based on the services provided under the holding company structure.

NewMarket Services departmental and other expenses are billed to Afton and Ethyl based on the services provided under the holding company structure.

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

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Interest and financing expenses, net ( 35,202 ) ( 34,218 ) ( 26,328 )

Loss on early extinguishment of debt ( 7,545 ) 0 0

Other income (expense), net 35,598 23,453 46,218

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Marketable securities 0 375,918

Other accounts receivable 11,884 13,566

Non-segment other accounts receivable 2,220 11,884

Prepaid expenses and other current assets 38,338 38,633

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Prepaid pension cost 302,584 242,604

Lease right-of-use assets 105 198

Deferred charges and other assets 10,567 14,334

Non-segment lease right-of-use assets 26 105

Non-segment deferred charges and other assets 14,669 10,567

Total assets $ 2,406,818 $ 2,558,436

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Marketable Securities

During May 2021, NewMarket invested in both debt and equity marketable securities.

The debt securities are designated as trading.

The marketable securities are recorded on a settlement date basis at estimated fair value and are classified as current assets in the Consolidated Balance Sheets.

Unrealized gains and losses, as well as the investment income attributable to the debt and equity securities, are reported in Other income (expense), net in the Consolidated Statements of Income.

The debt securities have a cost basis of $ 50 million and the equity securities have a cost basis of $ 334 million at December 31, 2021.

The fair value of both the debt and equity securities are shown in the second table below.

The portion of unrealized gains and losses for the period related to both the debt and equity securities still held at the reporting date are as follows:

(in thousands) December 31, 2021

Unrealized gains and (losses) recognized during the reporting period on debt securities still held at the reporting date $ ( 976 )

Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting date $ ( 6,464 )

During 2021, NewMarket invested in both debt, which was designated as trading, and equity marketable securities.

Subsequently, during the first three months of 2022, we sold all of the marketable securities.

While held, the marketable securities were recorded on a settlement date basis at estimated fair value and were classified as current assets in the Consolidated Balance Sheets.

Gains and losses, as well as the investment income attributable to the debt and equity securities, are reported in Other income (expense), net in the Consolidated Statements of Income.

The debt securities had a cost basis of $ 50 million and the equity securities had a cost basis of $ 334 million at December 31, 2021.

At December 31, 2022, the cost basis for all marketable securities was zero .

The following table provides information on the fair value of the marketable securities, as well as the related level within the fair value hierarchy.

The estimated fair value of debt securities is based on reported trades of the debt security adjusted for other observable market data including, but not limited to, benchmark yield curves, market-based quotes of similar assets, and other market-corroborated inputs.

The estimated fair value of equity securities is based on actively quoted market prices.

The estimated fair value of debt securities was based on reported trades of the debt security adjusted for other observable market data including, but not limited to, benchmark yield curves, market-based quotes of similar assets, and other market-corroborated inputs.

The estimated fair value of equity securities was based on actively quoted market prices.

December 31, 2021

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Total marketable securities $ 375,918 $ 327,191 $ 48,727 $ 0

Notes to Consolidated Financial Statements

Trade and Other Accounts Receivable, Net

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$ 453,692 $ 391,779

Notes to Consolidated Financial Statements

(in thousands)

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$ 38,338 $ 38,633

Notes to Consolidated Financial Statements

Property, Plant, and Equipment, at Cost

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1,596,352 1,589,186

Less accumulated depreciation and amortization 912,416 878,305

accumulated depreciation and amortization 936,354 912,416

Net property, plant, and equipment $ 659,998 $ 676,770

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Depreciation expense was $ 60 million in 2022, $ 61 million in 2021, and $ 61 million in 2020.

Notes to Consolidated Financial Statements

Intangibles (Net of Amortization) and Goodwill

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Contract 2,000 1,200 2,000 1,000

Customer bases 5,440 4,160 14,240 12,037

Customer base 5,440 4,350 5,440 4,160

Goodwill 123,662 123,922

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All of the intangibles relate to the petroleum additives segment.

The change in the gross carrying amount between 2020 and 2021 was due to a customer base becoming fully amortized and foreign currency fluctuations.

The change in the gross carrying amount between 2021 and 2022 was due to foreign currency fluctuations.

There is no accumulated goodwill impairment.

Notes to Consolidated Financial Statements

Estimated annual amortization expense related to our intangible assets for the next five years is expected to be (in thousands):

We amortize the contract over 10 years;

the customer base over 20 years;

and formulas and technology over 6 years.

We amortize formulas and technology over 6 years, the contract over 10 years, and the customer base over 20 years.

Deferred Charges and Other Assets

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Deferred financing costs, net of amortization, in the table above include only those costs associated with the revolving credit facility.

The amount of deferred financing costs, net of amortization related to the 4.10 % senior notes and the 2.70 % senior notes is reported as components of long-term debt.

The amount of deferred financing costs, net of amortization related to the 4.10 % senior notes in 2021 and the 2.70 % senior notes in both 2022 and 2021 is reported as components of long-term debt.

See Note 14 for further information on our long-term debt.

Notes to Consolidated Financial Statements

Accrued Expenses

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$ 89,508 $ 85,103

Notes to Consolidated Financial Statements

Long-term Debt

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$ 392,737 $ 391,853

Senior notes - 4.10 % due 2022 (net of related deferred financing costs)

349,434 348,848

Senior notes - 3.78 % due 2029

250,000 250,000

Senior notes - 4.10 % due 2022 (net of related deferred financing costs)

Revolving credit facility 361,000 148,000

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• merge or consolidate with, or convey, transfer or lease all or substantially all of our assets to a third party.

We were in compliance with all covenants under the indenture governing the 2.70 % senior notes as of December 31, 2021.

4.10% Senior Notes – In 2012, we issued $ 350 million aggregate principal amount of 4.10 % senior notes due 2022 at an issue price of 99.83 %.

The notes are senior unsecured obligations.

We incurred financing costs totaling approximately $ 5 million related to the 4.10 % senior notes, which are being amortized over the term of the agreement.

Interest is payable semiannually.

The 4.10 % senior notes rank:

• equal in right of payment with all of our existing and future senior unsecured indebtedness;

• senior in right of payment to any of our future subordinated indebtedness.

The indenture governing the 4.10 % senior notes contains covenants that, among other things, limit our ability and the ability of our subsidiaries to:

• create or permit to exist liens;

• enter into sale-leaseback transactions;

• incur additional guarantees;

• sell all or substantially all of our assets or consolidate or merge with or into other companies.

We were in compliance with all covenants under the indenture governing the 2.70 % senior notes as of December 31, 2022 and December 31, 2021.

In February 2022, we announced the redemption of the entire outstanding principal amount of the 4.10 % senior notes.

See Note 24 for further information.

Notes to Consolidated Financial Statements

3.78% Senior Notes - On January 4, 2017, we issued $ 250 million in senior unsecured notes in a private placement with The Prudential Insurance Company of America and certain other purchasers.

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We were in compliance with all covenants under the 3.78 % senior notes as of December 31, 2022 and December 31, 2021.

Notes to Consolidated Financial Statements

4.10% Senior Notes - In 2012, we issued $ 350 million aggregate principal amount of 4.10 % senior notes due 2022 at an issue price of 99.83 %.

The notes were senior unsecured obligations.

We incurred financing costs totaling approximately $ 5 million related to the 4.10 % senior notes, which were being amortized over the term of the agreement.

Interest was payable semiannually.

The 4.10 % senior notes ranked:

• equal in right of payment with all of our existing and future senior unsecured indebtedness;

• senior in right of payment to any of our future subordinated indebtedness.

The indenture governing the 4.10 % senior notes contained covenants that, among other things, limited our ability and the ability of our subsidiaries to:

• create or permit to exist liens;

• enter into sale-leaseback transactions;

• incur additional guarantees;

• sell all or substantially all of our assets or consolidate or merge with or into other companies.

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.

Revolving Credit Facility - On March 5, 2020, NewMarket and certain foreign subsidiary borrowers entered into a Credit Agreement (the Credit Agreement) with a term of five years .

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The revolving credit facility is available on a revolving basis until March 5, 2025.

Borrowings made under the revolving credit facility bear interest, at our option, at an annual rate equal to (1) the Alternate Base Rate (ABR) plus the Applicable Rate (as defined in the Credit Agreement) solely in the case of loans denominated in U.S.

dollars to NewMarket, (2) the Adjusted LIBO Rate plus the Applicable Rate, or (3) the Adjusted EURIBO Rate plus the Applicable Rate.

ABR is the greatest of (i) the rate of interest publicly announced by the Administrative Agent as its prime rate, (ii) the NYFRB Rate (as defined in the Credit Agreement) from time to time plus 0.5 %, and (iii) the Adjusted LIBO Rate for a one month interest period plus 1 %.

The Adjusted LIBO Rate means the rate at which Eurocurrency deposits in the London interbank market for certain periods (as selected by NewMarket) are quoted, as adjusted for statutory reserve requirements for Eurocurrency liabilities and other applicable mandatory costs.

The Adjusted EURIBO Rate means the rate at which Eurocurrency deposits denominated in euro in the euro interbank markets for certain periods (as selected by NewMarket) are quoted, as adjusted for statutory reserve requirements for Eurocurrency liabilities and other mandatory costs.

The Applicable Rate ranges from 0.000 % to 0.375 % (depending on our Leverage Ratio or Credit Ratings) for loans bearing interest based on the ABR.

The Applicable Rate ranges from 0.875 % to 1.375 % (depending on our Leverage Ratio or Credit Ratings) for loans bearing interest based on the Adjusted LIBO Rate or the Adjusted EURIBO rate.

The Credit Agreement contains the Administrative Agent's customary LIBOR successor rate provisions, which apply in the event LIBOR ceases to be available or is generally replaced as a benchmark interest rate in the market.

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 Alternate Base Rate (ABR), (ii) the Adjusted Term SOFR Rate (SOFR), or (iii) the Adjusted EURIBO Rate (EURIBO), each plus the Applicable Rate and all as defined in the Credit Agreement.

The Applicable Rate is based, at our option, on our Leverage Ratio (as defined in the Credit Agreement) or credit rating.

Prior to January 11, 2023, when we amended our revolving credit facility, LIBOR was utilized instead of SOFR as an option to establish interest rates on the revolving credit facility.

We paid financing costs in 2020 of approximately $ 1.3 million related to this revolving credit facility and carried over deferred financing costs from our previous revolving credit facility of approximately $ 1.2 million, resulting in total deferred financing costs of $ 2.5 million, which we are amortizing over the term of the Credit Agreement.

There were outstanding borrowings amounting to $ 148 million under the revolving credit facility at December 31, 2021 compared to no outstanding borrowings at December 31, 2020.

There were outstanding borrowings amounting to $ 361 million under the revolving credit facility at December 31, 2022 compared to $ 148 million outstanding borrowings at December 31, 2021.

Outstanding letters of credit amounted to $ 2 million at both December 31, 2022 and December 31, 2021, resulting in the unused portion of the applicable credit facility amounting to $ 537 million at December 31, 2022 and $ 750 million at December 31, 2021.

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The weighted average grant-date fair value was $ 392.63 for stock awards granted in 2021 and $ 414.33 for stock awards granted in 2020.

The fair value of shares vested was $ 2 million in 2020 and $ 1 million in 2019.

We recognized compensation expense of $ 2 million in 2021, 2020, and 2019 related to stock awards.

The fair value of shares vested was $ 2 million in 2020.

No shares vested in 2021.

We recognized compensation expense of $ 2 million in each of 2022, 2021, and 2020 related to stock awards.

At December 31, 2022, total unrecognized compensation expense related to stock awards was $ 5 million, which is expected to be recognized over a period of 2.3 years.

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Our leases are for land, real estate, railcars, vehicles, pipelines, plant equipment, and office equipment.

We have both operating and finance leases with remaining terms ranging from less than one year to 49 years.

We have leases with remaining terms ranging from less than one year to 48 years.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease expense were as follows:

The components of lease cost were as follows:

Years Ended December 31,

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Operating leases

Operating lease right-of-use assets Operating lease right-of-use assets $ 68,402 $ 61,329

Right-of-use assets Operating lease right-of-use assets $ 62,417 $ 68,402

Current liability Operating lease liabilities $ 15,569 $ 15,709

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Finance leases

Finance lease right-of-use assets Deferred charges and other assets $ 39,590 $ 10,774

Right-of-use assets Deferred charges and other assets $ 36,893 $ 39,590

Current liability Other current liabilities $ 2,706 $ 2,828

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Operating lease payments in the table above include approximately $ 16 million related to options to extend lease terms that are reasonably certain of being exercised.

At December 31, 2021, we had commitments of approximately $ 8 million related to leases that have not yet commenced and are not included in the above table.

At December 31, 2022, we have entered into leases that have not yet commenced but provide for right-of-use assets of approximately $ 30 million with remaining related lease obligations of approximately $ 18 million, which are not included in the above table.

Most of the commitments relate to plant and equipment that is being constructed or procured by the future lessors.

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A portion of the accrued benefit cost for the nonqualified plan is included in current liabilities at both December 31, 2022 and December 31, 2021.

As the nonqualified plan is unfunded, the amount reflected in current liabilities represents the expected benefit payments related to the nonqualified plan during 2022.

As the nonqualified plan is unfunded, the amount reflected in current liabilities represents the expected benefit payments related to the nonqualified plan during the following year.

Notes to Consolidated Financial Statements

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The postretirement healthcare benefits are also unfunded and paid with cash from operations.

The benefits from the postretirement life insurance are funded through an insurance contract.

The benefits from the postretirement life insurance plan are funded through an insurance contract.

Assumptions - We used the following assumptions to calculate the results of our retirement plans:

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3.50 % 3.50 % 3.50 %

Notes to Consolidated Financial Statements

For pension plans, we base the assumed expected long-term rate of return for plan assets on an analysis of our actual investments, including our asset allocation, as well as an analysis of expected returns.

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For the postretirement plan, we based the assumed expected long-term rate of return for plan assets on an evaluation of projected interest rates, as well as the guaranteed interest rate for our insurance contract.

As a result of that evaluation, we have reduced the expected long-term rate of return to 4.0 % for the year beginning January 1, 2022.

As a result of that evaluation, we have maintained the expected long-term rate of return to 4.0 % for the year beginning January 1, 2023.

Notes to Consolidated Financial Statements

Plan Assets - Pension plan assets are held and distributed by trusts and consist principally of equity securities and investment-grade fixed income securities.

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No NewMarket common stock is included in these assets.

Notes to Consolidated Financial Statements

The following table provides information on the fair value of our pension and postretirement benefit plans assets, as well as the related level within the fair value hierarchy.

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• Cash and cash equivalents are valued at cost.

Notes to Consolidated Financial Statements

• The mutual funds in pooled investment funds are valued at the closing price reported on a national exchange.

• The common collective trusts (the trusts) are valued at the net asset value of units held based on the quoted market value of the underlying investments held by the funds.

One of the trusts invests primarily in a diversified portfolio of equity securities of companies located outside of the United States and Canada, as determined by a company's jurisdiction of incorporation.

We may make withdrawals from this trust on the first business day of each month with at least 10 days notice.

Another trust invests primarily in a diversified portfolio of equity securities included in the S&P 500 index and a third trust invests primarily in a diversified portfolio of equity securities included in the Russell 1000 Value index.

One of the trusts invests primarily in a diversified portfolio of equity securities included in the S&P 500 index and the other trust invests primarily in a diversified portfolio of equity securities included in the Russell 1000 Value index.

There are no restrictions on redemption for the index trusts and there were no unfunded commitments.

In 2021, there was a third common collective trust that invested primarily in a diversified portfolio of equity securities of companies located outside of the United States and Canada, as determined by a company's jurisdiction of incorporation.

We could make withdrawals from this trust on the first business day of each month with notice of at least 10 days.

We sold our interest in this trust during 2022.

• The insurance contracts are unallocated funds deposited with an insurance company and are stated at an amount equal to the sum of all amounts deposited less the sum of all amounts withdrawn, adjusted for investment return.

Notes to Consolidated Financial Statements

Cash Flows - For U.S.

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NewMarket generally contributes to investment trusts and insurance accounts to provide for these plans.

Notes to Consolidated Financial Statements

The components of net periodic pension cost (income), as well as other amounts recognized in other comprehensive income (loss), for these foreign defined benefit pension plans are shown below.

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The accumulated benefit obligation for all foreign defined benefit pension plans was $ 122 million at December 31, 2022 and $ 204 million at December 31, 2021.

The fair market value of plan assets exceeded both the accumulated benefit obligation and projected benefit obligation for the Canada plan at both year-end 2021 and 2020.

The net asset position of the Canada plan is included in prepaid pension cost on the Consolidated Balance Sheets at December 31, 2021 and December 31, 2020.

The fair market value of plan assets for the U.K.

plan exceeded both the accumulated benefit obligation and the projected benefit obligation at year-end 2021.

For year-end 2020, the fair market value of plan assets of the U.K.

plan exceeded the accumulated benefit obligation but not the projected benefit obligation.

The net asset position of the U.K.

plan is included in prepaid pension cost on the Consolidated Balance Sheets at December 31, 2021 and the accrued benefit cost is included in other noncurrent liabilities on the Consolidated Balance Sheets at December 31, 2020.

The fair market value of plan assets exceeded both the accumulated benefit obligation and projected benefit obligation for the Canada and U.K.

plans at both year-end 2022 and 2021.

The net asset position of the Canada and U.K.

plans are included in prepaid pension cost on the Consolidated Balance Sheets at December 31, 2022 and December 31, 2021.

The accumulated benefit obligation and projected benefit obligation exceeded the fair market value of plan assets for the Germany, Belgium, and Mexico plans at December 31, 2022 and December 31, 2021.

The accrued benefit cost of these plans is included in other noncurrent liabilities on the Consolidated Balance Sheets for both years.

Notes to Consolidated Financial Statements

As the Germany plan is unfunded, a portion of the accrued benefit cost is included in current liabilities at year-end 2022 and 2021, reflecting the expected benefit payments related to the plan for the following year.

Notes to Consolidated Financial Statements

The table below shows selected information on foreign pension plans.

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The Belgium plan is invested in an insurance contract.

The Mexico plans are invested in various mutual funds, equities, and debt securities.

The Mexico plans are invested in mutual funds, equities, and debt securities.

The Germany plan has no assets.

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Equity securities—U.S.

16,596 13,062

Equity securities—international companies

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$ 68,196 $ 56,643 $ 60,719

The classification of domestic and foreign income before income tax expense in the table above has been adjusted from the previous presentation by $ 54 million in 2020 and $ 2 million in 2019.

The adjustments did not impact the amount of total income before income tax expense presented in the Consolidated Statements of Income.

Notes to Consolidated Financial Statements

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Foreign-derived intangible tax benefit ( 3.0 ) ( 0.7 ) ( 0.4 )

minimum tax on foreign income 0.5 0.5 1.0

Uncertain tax positions 0.3 ( 0.1 ) ( 1.7 )

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Capitalized research expenses $ 53,249 $ 15,708

Leasing liabilities 12,775 12,563

Lease liabilities 11,868 12,775

Operating loss and credit carryforwards 15,336 12,746

Trademark expenses 3,508 3,678

Foreign currency translation adjustments 5,261 4,054

Environmental reserves 2,617 2,526

Other 14,159 11,027

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Future employee benefits 52,446 32,253

Leasing assets 12,790 12,773

Lease assets 12,174 12,790

Other 2,601 4,145

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Deferred income tax liabilities are included in other noncurrent liabilities.

Notes to Consolidated Financial Statements

Our deferred taxes are in a net liability position at December 31, 2022.

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The operating loss carryforwards expire in 2028 through 2040 and certain tax credits expire in 2026 through 2027.

The largest change during 2021 on the carryforward items related to the usage of foreign tax credit carryforwards generated in 2019.

Based on current forecasted operating plans and historical profitability, we believe that we will recover the full benefit of our deferred tax assets with the exception of $ 13 million of the aforementioned operating loss, capital loss, and tax credit carryforwards.

Therefore, as of December 31, 2022, we have recorded an offsetting valuation allowance in this amount.

During 2020, we released the valuation allowance on $ 1 million of net operating losses that we utilized during the year.

During 2021, this amount was negligible.

During 2021, we released the valuation allowance on a negligible amount of net operating losses that we utilized during the year.

During 2022, we did not release any valuation allowances.

Notes to Consolidated Financial Statements

We do not expect to distribute earnings from our foreign subsidiaries in a manner that would result in significant U.S.

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or meet the requirements for a dividends received deduction.

However, we have recorded a $ 2 million deferred tax liability for the currency impact and for the withholding taxes that will not be creditable upon distribution.

However, at December 31, 2021, we had a $ 2 million deferred tax liability for the currency impact and for the withholding taxes that will not be creditable upon distribution.

As of December 31, 2022, we have an immaterial deferred tax liability for withholding taxes that will not be creditable upon distribution.

We have not provided a deferred tax liability on approximately $ 268 million of temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration, as these earnings are considered to be indefinitely reinvested.

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We are no longer subject to U.S.

federal income examination for years before 2017.

federal income examination for years before 2019, with the exception of 2017.

Foreign and U.S.

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and Mexico (2017 and forward).

Notes to Consolidated Financial Statements

Fair Value Measurements

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No material events occurred during 2022 requiring adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.

Long-term debt - We record the carrying amount of our long-term debt at historical cost, less deferred financing costs related to the 2.70 % and 4.10 % senior notes.

Long-term debt - We record the carrying amount of our long-term debt at historical cost, less deferred financing costs related to our outstanding senior notes.

The estimated fair value of our long-term debt is shown in the table below and is based primarily on estimated current rates available to us for debt of the same remaining duration and adjusted for nonperformance risk and credit risk.

The estimated fair value of our publicly traded 2.70 % and 4.10 % senior notes included in long-term debt in the table below is based on the last quoted price closest to December 31, 2021.

The estimated fair value of our publicly traded outstanding senior notes included in long-term debt in the table below is based on the last quoted price closest to December 31 of each year.

The fair value of our debt instruments is categorized as Level 2.

Notes to Consolidated Financial Statements

December 31, 2022 December 31, 2021

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Commitments and Contingencies

Contractual Commitments —We have contractual obligations for the construction of assets, as well as purchases of property and equipment, of approximately $ 15 million at December 31, 2021, all of which are due within five years .

Contractual Commitments - We have non-lease contractual obligations for the construction of assets, as well as purchases of property and equipment, of approximately $ 18 million at December 31, 2022, all of which are due within five years .

We also have commitments for leases which have not yet commenced.

See Note 17 for further information.

Purchase Obligations - We have purchase obligations for goods or services that are enforceable, legally binding, and specify all significant terms, including:

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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 effect on our financial statements.

Notes to Consolidated Financial Statements

We are a defendant in personal injury lawsuits involving exposure to asbestos.

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We also include an estimated inflation factor in the calculation.

Notes to Consolidated Financial Statements

• No estimate is made for unasserted claims.

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Certain of these costs are recoverable through the settlement agreements with The Travelers Indemnity Company and with Albemarle Corporation.

The receivable for these recoveries related to premises asbestos liabilities was $ 4 million at December 31, 2021 and $ 4 million at December 31, 2020.

The receivable for these recoveries related to premises asbestos liabilities was $ 4 million at both December 31, 2022 and December 31, 2021.

These receivables are included in trade and other accounts receivable, net on the Consolidated Balance Sheets for the current portion.

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Our more significant environmental sites include a former plant site in Louisiana (the Louisiana site) and a Houston, Texas plant site (the Texas site).

Together, the amounts accrued on a discounted basis related to these sites represented approximately $ 8 million of the total accrual above at both December 31, 2021 and December 31, 2020, using discount rates ranging from 3 % to 9 %.

The aggregate undiscounted amount for these sites was $ 10 million at December 31, 2021 and $ 9 million at December 31, 2020.

Of the total accrued for these two sites, the amount related to remediation of groundwater and soil was $ 3 million for the Louisiana site and $ 4 million for the Texas site at December 31, 2021 and $ 4 million for both the Louisiana and Texas sites at December 31, 2020.

Together, the amounts accrued on a discounted basis related to these sites represented approximately $ 8 million of the total accrual at both December 31, 2022 and December 31, 2021, using discount rates ranging from 3 % to 9 %.

The aggregate undiscounted amount for these sites was $ 10 million at both December 31, 2022 and December 31, 2021.

Of the total accrued for these two sites, the amount related to remediation of groundwater and soil was $ 3 million for the Louisiana site and $ 4 million for the Texas site at both December 31, 2022 and December 31, 2021.

Notes to Consolidated Financial Statements

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Amounts reclassified from accumulated other comprehensive loss (a)

2,514 0 2,514

Other comprehensive income (loss) ( 22,976 ) 12,560 ( 10,416 )

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Amounts reclassified from accumulated other comprehensive loss (a)

5,099 0 5,099

Other comprehensive income (loss) 53,040 ( 42,808 ) 10,232

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Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No.

2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-04), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform.

The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

Adoption of the provisions of ASU 2020-04 is optional and is currently effective through December 31, 2022.

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No.

2022-04, "Liabilities - Supplier Finance Programs - Disclosure of Supplier Finance Program Obligations" (ASU 2022-04).

FASB issued ASU 2022-04 to enhance the transparency of supplier finance programs by requiring disclosures surrounding the programs be included in the financial statements.

ASU 2022-04 is effective for our reporting period beginning January 1, 2023.

We continue to evaluate the impact of ASU 2022-04 on our consolidated financial statements, but do not currently expect a significant impact.

Subsequent Event

In February 2022, we announced the redemption of the entire outstanding principal amount of our 4.10 % senior notes due 2022.

The redemption date is March 15, 2022.

The aggregate principal amount of the 4.10 % senior notes outstanding is $ 350 million.

The redemption price will include 100% of the principal amount outstanding, accrued and unpaid interest on the notes, and the applicable premium as outlined in the Indenture dated December 20, 2012.

The accrued and unpaid interest, as well as the applicable premium, will be calculated up to, but not including, the redemption date.

We intend to use the net proceeds from the issuance of the 2.70 % senior notes to fund the redemption of the 4.10 % notes.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data