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Item 7. Management’s Discussion and Analysis

2024-02-15 compared with 2023-02-15 · 124 added, 131 removed, 248 unchanged (51% of the section changed)

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When we use words in this document such as “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “expects,” “should,” “could,” “may,” “will,” and similar expressions, we do so to identify forward-looking statements.

Examples of forward-looking statements include, but are not limited to, statements we make regarding future prospects of growth in the petroleum additives market, other trends in the petroleum additives market, our ability to maintain or increase our market share, and our future capital expenditure levels.

We believe our forward-looking statements are based on reasonable expectations and assumptions, within the bounds of what we know about our business and operations.

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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;

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

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 future acquisitions, or our inability to successfully integrate future acquisitions into our business;

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

and 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 discussion or elsewhere, might not occur.

When comparing the results of the petroleum additives segment for 2022 with 2021, net sales increased 17.5% primarily due to higher selling prices, partially offset by decreases in product shipments and an unfavorable foreign currency impact.

Petroleum additives operating profit was 34.6% higher when comparing 2022 with 2021, reflecting the higher selling prices that favorably impacted net sales, partially offset by significantly higher raw material costs and higher operating costs during 2022, including costs for utilities, logistics, insurance, and third-party manufacturing services.

A full discussion and comparison of our 2022 and 2021 results follows this overview.

We also believe that it is useful to consider our 2022 results versus those of 2019, as the last three years have been characterized by unprecedented factors, including the impact of the COVID-19 pandemic, worldwide supply chain disruptions, inflation, and war.

The 2019 results were the last full year before these factors impacted our operating results.

Petroleum additives net sales in 2022 were $578 million higher than in 2019, an increase of 26%.

Petroleum additives operating profit in 2022 was $19 million higher, an increase of 5% over 2019, and shipments were 2.8% higher in 2022 than in 2019.

The petroleum additives operating margin for 2022 was 13.7% versus 16.5% for 2019.

During 2022, we also repurchased 668,553 shares of our common stock for a total of $207 million, redeemed our 4.10% senior notes, and sold all of our marketable securities.

When comparing the results of the petroleum additives segment for 2023 with 2022, net sales were 2.4% lower resulting from a decrease in product shipments and an unfavorable foreign currency impact, which were mostly offset by higher selling prices.

Petroleum additives operating profit was 36.0% higher when comparing 2023 with 2022, primarily reflecting the selling prices, including favorable product mix, partially offset by lower product shipments and higher raw material and operating costs.

During 2023, our shipments were impacted by the overall global economic weakness and inventory rationalization which persists in the chemical industry.

While we have experienced improvement in the supply chain disruptions which impacted the chemicals industry over the past several years, we remain challenged by the ongoing inflationary environment impacting us, including increased raw material and operating costs.

During this period, we have remained focused on managing our operating costs, our inventory levels, and our 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 operations generate cash that is in excess of the needs of the business.

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

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

IMPACT OF THE CURRENT ECONOMIC ENVIRONMENT

As mentioned above, the economic environment in which we operated during 2022 was characterized by steadily rising costs, including raw material costs, limitations on certain supply availability, and a challenging global supply chain network.

Because of our active business continuity process and global network, we were able to substantially manage through these factors during the year.

We made good progress during the year towards resolving our supply chain issues in order to better meet our customers' growing needs, and we will continue working with our customers to deliver products.

At the same time, while we are beginning to see some stabilization in the marketplace, we also expect to be challenged by these economic factors as we manage our business in 2023.

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

While this conflict has not had a material impact on our financial results for 2022, numerous countries have imposed sanctions against Russia.

We are complying with these sanctions.

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

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

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

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

Our investments continue to be in organizational talent, technology development and processes, and global infrastructure.

RESULTS OF OPERATIONS

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The discussion and analysis of our results of operations for 2022 compared to 2021 is available in Item 7 of our 2022 Annual Report on Form 10-K.

Our consolidated net sales for 2022 amounted to $2.8 billion, an increase of $409 million, or 17.3% from 2021.

Our consolidated net sales for 2023 amounted to $2.7 billion, a decrease of $66 million, or 2.4% from 2022.

No single customer accounted for 10% or more of our total net sales in 2023, 2022, or 2021.

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The percentage of net sales being generated in the regions has remained fairly consistent over the past three years, with some limited fluctuation due to various factors, including the impact of regional economic trends.

North America represents around 35% of our petroleum additives net sales, while EMEAI contributes about 30%, Asia Pacific about 25%, and Latin America the remaining amount.

In 2023, North America represented approximately 40% of our petroleum additives net sales, while EMEAI contributed approximately 30%, Asia Pacific approximately 20%, and Latin America the remaining amount.

As shown in the table above, lubricant additives net sales and fuel additives net sales compared to total petroleum additives net sales has remained substantially consistent over the past three years.

Petroleum additives net sales for 2022 of $2.8 billion were approximately 17.5% higher than 2021 levels.

The increase was across all regions.

The North America region represented approximately 54% of the petroleum additives increase in net sales, EMEAI represented approximately 23%, the Latin America region represented approximately 13%, and the Asia Pacific region represented approximately 10%.

The approximate components of the petroleum additives increase in net sales of $410 million when comparing 2022 to 2021 are shown below in millions.

Net sales for year ended December 31, 2021 $ 2,344

Petroleum additives net sales for 2023 of $2.7 billion were approximately 2.4% lower than 2022 levels.

The decrease was across all regions.

The Asia Pacific region represented approximately 62% of the petroleum additives decrease in net sales, EMEAI represented approximately 15%, the Latin America region represented approximately 13%, and the North America region represented approximately 10%.

The approximate components of the petroleum additives decrease in net sales of $64 million when comparing 2023 to 2022 are shown below in millions.

Net sales for the year ended December 31, 2022 $ 2,754

Lubricant additives shipments (272)

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Foreign currency impact, net (8)

Net sales for year ended December 31, 2022 $ 2,754

When comparing 2022 with 2021, higher selling prices were the predominant factor in the increase in petroleum additives net sales.

The higher selling prices were partially offset by lower shipments for both lubricant additives and fuel additives products, as well as an unfavorable impact from foreign currency exchange rates.

The United States Dollar strengthened against all of the major currencies in which we transact with the majority of the unfavorable impact arising from net sales denominated in the Euro and the Japanese Yen.

On a worldwide basis, the volume of product shipments for petroleum additives decreased 2.9% when comparing 2022 with 2021.

The worldwide decrease in petroleum additives shipments primarily resulted from lower lubricant additives shipments, with a small decrease in fuel additives shipments.

The primary contributors to the decline in shipments were due to supply chain disruptions and new sanctions introduced during 2022 as a result of the Russia-Ukraine war.

The decrease in lubricant additives shipments when comparing 2022 with 2021 was across all regions except for EMEAI, which was substantially unchanged between the two years.

Most of the decrease in lubricant additives shipments was in the Asia Pacific region with smaller decreases in North America and Latin America.

The decrease in fuel additives shipments when comparing 2022 and 2021 was in the EMEAI and Asia Pacific regions, which was partially offset by shipment increases in North America and Latin America.

All Other - The “All other” category includes the operations of the antiknock compounds business, and certain contracted manufacturing and services performed by Ethyl.

Net sales for the year ended December 31, 2023 $ 2,690

When comparing petroleum additives net sales for 2023 with 2022, both lubricant additives and fuel additives shipments were lower, along with an unfavorable foreign currency impact, which were mostly offset by higher selling prices.

The United States Dollar strengthened against all of the major currencies in which we transact, except for the Euro, resulting in the unfavorable impact to net sales for the 2023 and 2022 comparison.

On a worldwide basis, the volume of product shipments for petroleum additives decreased 10.7% when comparing 2023 with 2022, with decreases in both lubricant additives and fuel additives shipments.

Lubricant additives represented most of the decrease in petroleum additives shipments and was across all regions with North America, EMEAI, and Asia Pacific each contributing about 30% of the decrease, and Latin America contributing the remaining amount.

The decrease in fuel additives shipments was across all regions except for EMEAI, which had a small increase.

Most of the decrease in fuel additives shipments was in the North America region.

During 2023, our shipments were impacted by the overall global economic weakness and inventory rationalization which persists in the chemical industry.

All Other - The “All other” category includes the operations of the antiknock compounds business, as well as certain contracted manufacturing and related services associated with Ethyl and did not have a material impact to consolidated net sales when comparing 2023 and 2022.

Segment Operating Profit

NewMarket evaluates the performance of the petroleum additives business based on segment operating profit.

NewMarket Services expenses are charged to each subsidiary pursuant to services agreements between the companies.

NewMarket Services 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.

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All other $ (5) $ (2) $ (1)

Petroleum Additives - Petroleum additives segment operating profit increased $97 million and gross profit increased $86 million when comparing 2022 to 2021.

Petroleum Additives - Petroleum additives segment gross profit, as well as segment operating profit, increased $136 million when comparing 2023 to 2022.

Cost of goods sold as a percentage of net sales was 71.2% in 2023 and 76.8% in 2022.

The operating profit margin was 19.1% in 2023 and 13.7% in 2022.

When comparing 2022 and 2021, both operating profit and gross profit included the favorable impact of significantly higher selling prices, which were partially offset by significantly higher raw material costs.

Operating and conversion costs were also unfavorable.

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, increased in 2022, we were able to make adjustments to selling prices resulting in some improvement in margins.

Nonetheless, we remain challenged by the ongoing inflationary environment and continue to experience a lag between when price increases go into effect and when margin recovery is realized.

This lag will continue until raw material costs, as well as other operating costs, stabilize.

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

Margin recovery and cost control will remain priorities throughout 2023.

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) were $0.4 million, or 0.3% lower in 2022 compared to 2021.

When comparing 2023 and 2022, both gross profit and operating profit included the favorable impact of significantly higher selling prices, including favorable product mix, which were partially offset by lower shipments, higher raw material costs, and higher operating costs.

We remain challenged by the ongoing inflationary environment impacting us, including higher raw material and operating costs in the market compared to 2022.

We are maintaining our focus on managing our operating costs, our inventory levels, and our portfolio profitability while continuing our investment in technology.

Petroleum additives selling, general, and administrative expenses (SG&A) increased by $2 million, or 1.6%, in 2023 compared to 2022.

SG&A as a percentage of net sales was 4.6% in 2023 and 4.4% in 2022.

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Our investment in petroleum additives research, development, and testing (R&D) decreased approximately $2 million when comparing 2023 with 2022.

As a percentage of net sales, R&D was 5.1% in 2022 and 6.1% in 2021.

As a percentage of net sales, R&D was 5.1% in both 2023 and 2022.

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.

Substantially all investments in new product development are incurred in the United States and the U.K., with approximately 70% of total R&D being attributable to the North America and EMEAI regions.

Substantially all investments in new product development are incurred in the United States and the United Kingdom (U.K.), with approximately 70% of total R&D attributable to the North America and EMEAI regions.

The remaining R&D is attributable to the Asia Pacific and Latin America regions and represents customer technology support services in those regions.

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Interest and financing expenses were $37 million in 2023 and $35 million in 2022.

The increase in interest and financing expense between 2022 and 2021 resulted primarily from lower capitalized interest.

The average interest rate was lower in 2022 resulting in a favorable impact to interest and financing expenses but was substantially offset by an unfavorable impact from higher outstanding debt in 2022 than in 2021.

The increase in interest and financing expense between 2023 and 2022 resulted primarily from a higher average interest rate, which was partially offset by lower average outstanding debt.

Other Income (Expense), Net

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See Note 17 for further information on total periodic benefit cost (income).

The 2022 amount included a loss on marketable securities of $3 million compared to a loss of $7 million on marketable securities in 2021.

The 2022 amount also included a loss on marketable securities of $3 million.

Income Tax Expense

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The effective tax rate was 20.5% in 2023 and 19.6% in 2022.

When comparing 2022 and 2021, income tax expense increased $23 million due to the higher income before income taxes, partially offset by a lower effective tax rate, which resulted in a decrease of $12 million in income tax expense.

The decrease in the effective tax rate was primarily the result of the impact from our foreign operations.

When comparing 2023 and 2022, income tax expense increased $28 million due to the higher income before income taxes and $4 million from the higher effective tax rate.

The increase in the effective tax rate for the year was primarily the result of an increase in our state tax expense.

On 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 planned effective dates in 2024 or 2025.

We are continuing to monitor the legislation in these jurisdictions and any potential impact to our effective tax rate and related income tax liabilities in future years.

CASH FLOWS DISCUSSION

We generated cash from operating activities of $577 million in 2023 and $109 million in 2022.

During 2022, we used the $109 million of cash generated from operations along with the proceeds of $373 million from the sale of marketable securities, $213 million of borrowings under the revolving credit facility, and $15 million of cash on hand to redeem $350 million of our 4.10% senior notes, repurchase $207 million of our common stock, pay $84 million of dividends on our common stock, and fund $56 million of capital expenditures.

Cash flows from operating activities included a decrease of $205 million from higher working capital requirements, which is further discussed in the Working Capital section below, and cash contributions of $10 million to our pension and postretirement plans.

During 2021, we used the $165 million cash generated from operations along with proceeds of $395 million from the issuance of 2.70% senior notes, $148 million of borrowings under the revolving credit facility, and cash on hand of $42 million to invest $382 million in marketable securities, repurchase $196 million of our common stock, pay $86 million of dividends on our common stock, and fund capital expenditures of $79 million.

Cash flows from operating activities included cash contributions of $10 million to our pension and postretirement plans, as well as a decrease of $116 million from higher working capital requirements.

During 2023, we used the $577 million of cash generated from operating activities to make net payments of $361 million on our revolving credit facility, pay dividends of $85 million, fund capital expenditures of $48 million, and repurchase 119,075 shares of our common stock for $43 million.

Cash flows from operating activities included an increase of $134 million from lower working capital requirements, which is further discussed in the Working Capital section below, and a decrease of $10 million for cash contributions to our pension and postretirement plans.

During 2022, we used the $109 million of cash generated from operations along with the proceeds of $373 million from the sale of marketable securities, $213 million of borrowings under the revolving credit facility, and $15 million of cash on hand to redeem $350 million of our 4.10% senior notes, repurchase $207 million of our common stock, pay dividends of $84 million, and fund $56 million of capital expenditures.

Cash flows from operating activities included a decrease of $205 million from higher working capital requirements and a decrease of $10 million for cash contributions to our pension and postretirement plans.

FINANCIAL POSITION AND LIQUIDITY

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We were in compliance with all covenants under the indenture governing the 2.70% senior notes as of December 31, 2023 and December 31, 2022.

4.10% Senior Notes - At December 31, 2021, we had $350 million of 4.10% senior notes due 2022 with interest payable semiannually and which were senior unsecured obligations.

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.

We were in compliance with all covenants under the indenture governing the 4.10% senior notes as of December 31, 2021.

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

The Credit Agreement provides for a $900 million, multicurrency revolving credit facility with a $500 million sublimit for foreign currency borrowings, a $50 million sublimit for letters of credit, and a $20 million sublimit for swingline loans.

The Credit Agreement includes an expansion feature which allows 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 $425 million.

NewMarket's obligations under the Credit Agreement are unsecured and the obligations of foreign subsidiary borrowers are fully and unconditionally guaranteed by NewMarket.

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

The Credit Agreement provided for a $900 million, multicurrency revolving credit facility with a $500 million sublimit for foreign currency borrowings, a $50 million sublimit for letters of credit, and a $20 million sublimit for swingline loans.

The Credit Agreement included an expansion feature which allowed 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 $425 million.

NewMarket's obligations under the Credit Agreement were unsecured and the obligations of foreign subsidiary borrowers were fully and unconditionally guaranteed by NewMarket.

The revolving credit facility was scheduled to mature on March 5, 2025.

Effective January 11, 2023, the revolving credit facility was amended to eliminate the use of LIBOR on borrowings, replacing it with SOFR.

There was $361 million outstanding borrowings 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.

The average interest rate for borrowings under the credit facilities was 3.5% during 2022 and 1.6% during 2021.

The Credit Agreement contains financial covenants that require NewMarket to maintain a consolidated Leverage Ratio (as defined in the Credit Agreement) of no more than 3.75 to 1.00 except during an Increased Leverage Period (as defined in the Credit Agreement).

There were no outstanding borrowings under the revolving credit facility at December 31, 2023, compared to $361 million outstanding borrowings at December 31, 2022.

Outstanding letters of credit amounted to $2 million at both December 31, 2023 and December 31, 2022, resulting in the unused portion of the credit facility amounting to $898 million at December 31, 2023 and $537 million at December 31, 2022.

The average interest rate for borrowings under the credit facility was 6.2% during 2023 and 3.5% during 2022.

The Credit Agreement contained financial covenants that required NewMarket to maintain a consolidated Leverage Ratio (as defined in the Credit Agreement) of no more than 3.75 to 1.00 except during an Increased Leverage Period (as defined in the Credit Agreement).

At December 31, 2023, the Leverage Ratio was 1.13.

We were in compliance with all covenants under the revolving credit facility at December 31, 2023 and at December 31, 2022.

Other Borrowings - Two of our subsidiaries in Singapore and China each have access to separate short-term lines of credit of $10 million.

One of our subsidiaries in the U.K.

has access to a short-term line of credit of 10 million Euro.

On January 22, 2024, we entered into a new five-year, $900 million revolving credit facility that replaced the facility discussed above and also entered into a two-year, $250 million unsecured term loan.

This term loan gave us additional flexibility to repay borrowings under our revolving credit facility and support our business needs.

See Note 23 for additional information.

Other Borrowings - Three of our subsidiaries, one each in the U.K., Singapore, and China, have access to separate short-term lines of credit of $10 million.

There was no activity on these lines of credit in 2023 or 2022.

We had long-term debt of $1.0 billion at December 31, 2022 and $1.1 billion at December 31, 2021.

The small decrease in debt resulted from the redemption of the 4.10% senior notes which was mostly offset by additional borrowings on the revolving credit facility during 2022.

We had long-term debt of $644 million at December 31, 2023 and $1.0 billion at December 31, 2022.

The decrease resulted from the net repayments of $361 million on the revolving credit facility during 2023.

As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt percentage decreased from 56.8% at the end of 2022 to 37.4% at the end of 2023.

The change in the percentage was primarily the result of the decrease in long-term debt, along with a small increase in shareholders' equity.

The change in shareholders’ equity primarily reflects our earnings and an increase in the funded position of our defined benefit plans mostly offset by stock repurchases, dividend payments, and the impact of the foreign currency translation adjustment.

The change in the percentage was primarily the result of the decrease in outstanding revolving credit facility borrowings, along with an increase in shareholders' equity.

The change in shareholders’ equity primarily reflects our earnings, an increase in the funded position of our defined benefit plans, and the impact of the foreign currency translation adjustment partially offset by stock repurchases and dividend payments.

Normally, we repay any outstanding long-term debt with cash from operations or refinancing activities.

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Our working capital at December 31, 2022 on the same basis was $768 million, resulting in a current ratio of 2.81 to 1.

The most significant change in working capital since December 31, 2021 included a decrease in marketable securities, which was mostly offset by the decrease in the current portion of long-term debt due to the redemption of the 4.10% senior notes in March 2022.

In addition to these items, cash and cash equivalents decreased as outlined in the cash flows discussion above, while accounts receivable, inventories, and accounts payable all increased.

Trade accounts receivable balances increased when compared to December 31, 2021 resulting primarily from higher selling prices this year.

The increase in inventories was primarily caused by higher raw material costs, as well as an increase in quantities.

The increase in accounts payable reflected higher costs, including raw material costs, as well as normal fluctuations across the regions.

The most significant change in working capital since December 31, 2022 included decreases in trade and other accounts receivable, inventories, accounts payable, and accrued expenses.

In addition to these items, cash and cash equivalents increased as outlined in the cash flows discussion above.

The decrease in trade and other accounts receivable primarily represents lower sales levels along with the refund of value added taxes at some of our foreign subsidiaries.

The decrease in inventories reflects our planned inventory rationalization in response to lower demand and inventory rationalization by our customers.

The decrease in accounts payable is primarily the result of the same inventory rationalization and lower production levels.

The change in accrued expenses reflects normal adjustments for rebate payments to customers.

Capital Expenditures

Capital expenditures were $48 million for 2023 and $56 million for 2022.

We currently estimate capital expenditures in 2023 will be in the range of $70 million to $80 million as we anticipate spending on several improvements to our manufacturing and R&D infrastructure around the world.

We estimate capital expenditures in 2024 will be in the range of $50 million to $60 million as we anticipate spending on several improvements to our manufacturing and R&D infrastructure around the world.

We expect to continue to finance capital spending through cash provided from operations, as well as with borrowing available under our revolving credit facility.

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The maturity dates and interest rates, as well as information on the repayment of the principal on our long-term debt is detailed above in the Debt section, as well as in Note 13.

At December 31, 2022, all of our long-term debt was at fixed rates, except for the revolving credit facility.

At December 31, 2023, all of our long-term debt was at fixed rates, except for the revolving credit facility which had no outstanding borrowings.

Interest is paid semi-annually on our fixed rate long-term debt agreements.

LIBOR will be completely eliminated in the market by June 2023.

Until January 11, 2023 when we amended our revolving credit facility, LIBOR was utilized in establishing interest rates on the revolving credit facility.

With new borrowings after January 11, 2023, our revolving credit facility uses SOFR in place of LIBOR to establish interest rates on borrowings under the revolving credit facility.

Note 17 provides information by year on our lease obligations which have commenced, as well as lease commitments which have not yet commenced.

See Note 23 for additional information on our debt structure in 2024.

Note 16 provides information by year on our lease obligations which have commenced, as well as any lease commitments which have not yet commenced.

Note 17 includes information on contributions to pension and postretirement benefit plans, as well as benefit payments to participants.

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In addition to these costs, there are expected cash flows for dismantling and decontamination of environmental sites.

At December 31, 2022, these costs were estimated at $1 million in each of 2023 through 2027, and $9 million thereafter.

At December 31, 2023, these costs were estimated at approximately $1 million in each of 2024 through 2028 and $9 million thereafter.

We expect that cash from operations, together with borrowing available under our credit facilities, will continue to be sufficient for our operating needs and planned capital expenditures for both a short-term and long-term horizon.

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Our foreign plans are quite diverse, and the actuarial assumptions used by the various foreign plans are based upon the circumstances of each particular country and retirement plan.

We use a December 31 measurement date to determine our pension and postretirement expenses and related financial disclosure information.

We use a December 31 measurement date to determine our net periodic benefit cost (income) for our pension and postretirement benefit plans and related financial disclosure information.

Additional information on our pension and postretirement plans is in Note 17 .

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pension plans at 8.0% at December 31, 2023.

An actuarial gain on the assets occurred during 2023 as the actual investment return for all of our U.S.

qualified pension plans exceeded the expected return by approximately $47 million in 2023.

An actuarial loss on the assets occurred during 2022 as the actual investment return for all of our U.S.

qualified pension plans was less than the expected return by $149 million.

An actuarial gain on the assets occurred during 2021 as the actual investment return for all of our U.S.

qualified pension plans exceeded the expected return by approximately $83 million.

Investment gains and losses are recognized in earnings on an amortized basis over a period of 5 years.

The amortization of the actuarial net gain is expected to be approximately $2 million in 2023 resulting primarily from the actuarial gain related to the increase in discount rate, which was only partially offset by actuarial losses on plan assets.

We expect that there will be continued volatility in pension expense as actual investment returns vary from the expected return, but we continue to believe the potential long-term benefits justify the risk premium for equity investments.

The amortization of the actuarial net gain is expected to be approximately $2 million in 2024 resulting primarily from the actuarial gain related to the investment gains on plan assets, which was partially offset by actuarial losses associated with the decrease in the discount rate.

We expect that there will be continued volatility in net periodic benefit cost (income) for our pension plans as actual investment returns vary from the expected return, but we continue to believe the potential long-term benefits justify the risk premium for equity investments.

At December 31, 2023, our expected long-term rate of return on our postretirement plans was 4.0%.

This rate varies from the pension rate of 8.0% primarily because of the difference in investment of assets.

This rate varies from the pension rate of 8.0% primarily because of the difference in investment of plan assets.

The assets of the postretirement plan are held in an insurance contract, which results in a lower assumed rate of investment return.

Pension expense and the life insurance portion of postretirement expense are sensitive to changes in the expected return on assets.

For example, decreasing the expected rate of return by 100 basis points to 7.0% for pension assets and 3.0% for postretirement benefit assets (while holding other assumptions constant) would increase the forecasted 2023 expense for our U.S.

We expect to have net periodic benefit income for our pension and postretirement plans during 2024, as the expected return on assets and amortization is higher than the offsetting pension costs.

Net periodic benefit cost (income) for the pension and the life insurance portion of postretirement plans are sensitive to changes in the expected return on assets.

pension and postretirement plans by approximately $7 million.

Similarly, a 100 basis point increase in the expected rate of return to 9.0% for pension assets and 5.0% for postretirement benefit assets (while holding other assumptions constant) would reduce forecasted 2023 pension and postretirement expense by $6 million.

Similarly, a 100 basis point increase in the expected rate of return to 9.0% for pension assets and 5.0% for postretirement benefit assets (while holding other assumptions constant) would increase forecasted 2024 pension and postretirement income by $7 million.

Discount Rate Assumption - We develop the discount rate assumption by determining the single effective discount rate for a unique hypothetical portfolio constructed from investment-grade bonds that, in the aggregate, match the projected cash flows of each of our retirement plans.

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The discount rate at December 31, 2023 was 5.375% for all plans.

Pension and postretirement benefit expense is also sensitive to changes in the discount rate.

For example, decreasing the discount rate by 100 basis points to 4.625% (while holding other assumptions constant) would increase the forecasted 2023 expense for our U.S.

Net periodic benefit cost (income) for pension and postretirement benefit plans is also sensitive to changes in the discount rate.

For example, decreasing the discount rate by 100 basis points to 4.375% (while holding other assumptions constant) would reduce the forecasted 2024 income for our U.S.

pension and postretirement benefit plans by approximately $4 million.

A 100 basis point increase in the discount rate to 6.625% (while holding other assumptions constant) would reduce forecasted 2023 pension and postretirement benefit expense by approximately $4 million.

A 100 basis point increase in the discount rate to 6.375% (while holding other assumptions constant) would increase forecasted 2024 pension and postretirement benefit income by approximately $4 million.

Rate of Projected Compensation Increase - We have maintained our rate of projected compensation increase at December 31, 2023 at 3.5%.

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In determining the impact of the U.K.

pension plans on our financial statements, we utilize the S3P (Light) mortality tables weighted by 103% for males and 106% for females and allow for future projected improvements in life expectancy in line with the CMI 2021 model with the core smoothing parameter, an initial addition to mortality improvements of 0.3% per year, and an experience weighting of 7.5% on 2020 and 2021 data, with a long-term rate of improvement of 1% per year based on the membership of the plan.

pension plans on our financial statements, we utilize the S3PxA (Light) mortality tables weighted by 103% for males and 106% for females and allow for future projected improvements in life expectancy in line with the CMI 2022 model with the core smoothing parameter, an initial addition to mortality improvements of 0.3% per year, and an experience weighting of 0% on 2020 and 2021 data and 20% on 2022 data, with a long-term rate of improvement of 1.25% per year for males and 1.00% per year for females based on the membership of the plan.

Investment Return Assumptions and Asset Allocation - We periodically review our assumptions for the long-term expected return on the U.K.

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is 40% in pooled equities funds, 40% in pooled government bonds, and 20% in pooled diversified growth funds.

The actual allocation at the end of 2022 was 47% in pooled equities funds, 32% in pooled government bonds, and 21% in pooled diversified growth funds.

The actual allocation at the end of 2023 was 49% in pooled equities funds, 29% in pooled government bonds, 21% in pooled diversified growth funds, and 1% in cash.

Based on the actual asset allocation and the expected yields available in the U.K.

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pension plan was 6.9% at December 31, 2023.

An actuarial loss on the assets occurred during 2022 as the actual investment return was less than the expected investment return by approximately $44 million.

An actuarial gain on the assets occurred during 2023 as the actual investment return exceeded the expected investment return by approximately $4 million.

Investment gains and losses are recognized in earnings on an amortized basis over a period of years.

The combined investment loss and actuarial gain on plan liabilities results in no expected amortization in 2023.

We expect that there will be continued volatility in pension expense as actual investment returns vary from the expected return, but we continue to believe the potential benefits justify the risk premium for the target asset allocation.

Pension expense is sensitive to changes in the expected return on assets.

For example, decreasing the expected rate of return by 100 basis points to 5.7% (while holding other assumptions constant) would increase the forecasted 2023 expense for our U.K.

An actuarial loss on the assets occurred during 2022 as the actual investment return was less than the expected investment return by approximately $44 million.

An actuarial loss of $3 million occurred during 2023 and an actuarial gain of $81 million occurred during 2022 on plan liabilities primarily due to changes in the assumptions.

Investment and liability gains and losses are recognized in earnings on an amortized basis over a period of years.

The combined investment gain and actuarial loss on plan liabilities results in no expected amortization in 2024 We expect that there will be continued volatility in the net periodic benefit cost (income) for our U.K.

pension plan as

actual investment returns vary from the expected return, but we continue to believe the potential benefits justify the risk premium for the target asset allocation.

We expect to have pension income during 2024 related to our U.K.

plan, as the expected return on assets is higher than the offsetting pension costs.

Net periodic benefit cost (income) for the U.K.

pension plan is sensitive to changes in the expected return on assets.

For example, decreasing the expected rate of return by 100 basis points to 5.9% (while holding other assumptions constant) would decrease the forecasted 2024 income for our U.K.

pension plan by approximately $2 million.

Similarly, a 100 basis point increase in the expected rate of return to 7.7% (while holding other assumptions constant) would reduce forecasted 2023 pension expense by approximately $2 million.

Similarly, a 100 basis point increase in the expected rate of return to 7.9% (while holding other assumptions constant) would increase forecasted 2024 pension income by approximately $2 million.

Discount Rate Assumption - We utilize a yield curve based on AA-rated corporate bond yields in developing a discount rate assumption.

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The discount rate at December 31, 2023 was 4.55%.

Pension expense is also sensitive to changes in the discount rate.

For example, decreasing the discount rate by 100 basis points to 3.8% (while holding other assumptions constant) would increase the forecasted 2023 expense for our U.K.

pension plans by approximately $0.5 million.

A 100 basis point increase in the discount rate to 5.8% (while holding other assumptions constant) would reduce forecasted 2023 pension expense by approximately $0.4 million.

Net periodic benefit cost (income) for the U.K.

pension plan is also sensitive to changes in the discount rate.

For example, decreasing the discount rate by 100 basis points to 3.55% (while holding other assumptions constant) would decrease the forecasted 2024 income for our U.K.

pension plans by approximately $500 thousand.

A 100 basis point increase in the discount rate to 5.55% (while holding other assumptions constant) would increase forecasted 2024 pension income by approximately $400 thousand.

Rate of Projected Compensation Increase - Our rate of projected compensation increase at December 31, 2023 is 3.5%.

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cash contributions will be approximately $4 million in 2024.

Our stated goal is to provide a 10% compounded return per year for our shareholders over any five-year period (defined by earnings per share growth plus dividend yield), although we may not necessarily achieve a 10% return each year.

OTHER MATTERS

On January 16, 2024, we completed the acquisition of AMPAC Intermediate Holdings, LLC, the ultimate parent company of American Pacific Corporation (AMPAC), for approximately $700 million.

AMPAC manufactures and sells critical performance additives used in solid rocket motors for space launch and military defense applications.

The acquisition was funded by cash on hand and borrowings under our 2020 revolving credit facility.

The additional borrowing associated with the AMPAC acquisition increased our leverage, but we anticipate that will be reduced by the end of 2024.

See Note 23 for additional information.

Our goal is to provide a 10% compounded return per year for our shareholders over any ten-year period (defined by earnings per share growth plus dividend yield), although we may not necessarily achieve a 10% return each year.

We continue to have confidence in our customer-focused strategy and approach to the market.

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

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

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

We plan to exceed that growth rate over the long-term.

We expect our petroleum additives segment to experience impacts to its operating performance during 2024 due to the uncertain economic environment in which we operate, as we continue to see challenges with inflationary trends impacting our operating costs and raw material 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 up to 2%.

We plan to exceed that growth rate.

Over the past several years we have made significant investments in our business as the industry fundamentals remain positive.

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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 integration of AMPAC into our business in the coming year.

We expect AMPAC will be accretive to our net income in 2024.

Our business generates significant amounts of cash beyond its operational needs.

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We believe our capital spending is creating the capability we need to grow and support our customers worldwide, and our research and development investments are positioning us well to provide added value to our customers.

Our primary focus in the acquisition area remains on the petroleum additives industry.

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

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 the petroleum additives industry 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.

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The economic benefit associated with a tax position will be recognized only if we determine it is more likely than not to be upheld on audit.

believe our estimates and judgments are reasonable, actual results could differ, resulting in gains or losses that may be material to our results of operations and financial position.

Although we believe our estimates and judgments are reasonable, actual results could differ, resulting in gains or losses that may be material to our results of operations and financial position.

At each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year.

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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 7. Management’s Discussion and Analysis