What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-26 · 114 added, 120 removed, 96 unchanged (71% 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.

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

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

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hazards common to chemical businesses;

the ability to respond effectively to technological changes in our industry;

the ability to respond effectively to technological changes in our industries;

failure to protect our intellectual property rights;

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the loss of significant customers;

termination or changes to contracts with contractors and subcontractors of the U.S.

government or directly with the U.S.

failure to attract and retain a highly-qualified workforce;

an information technology system failure or security breach;

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

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;

the underperformance of our pension assets resulting in additional cash contributions to our pension plans;

and other factors detailed from time to time in the reports that NewMarket files with the SEC, including the risk factors in Item 1A.

“Risk Factors” of our 2022 Annual Report, which is available to shareholders upon request.

“Risk Factors” of our 2023 Annual Report on Form 10-K, which is available to shareholders at www.newmarket.com, as well as Item 1A.

"Risk Factors" of this Quarterly Report on Form 10-Q.

You should keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as of the date on which we make it.

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

When comparing the results of the petroleum additives segment for the first nine months of 2023 with the first nine months of 2022, net sales were 1.3% lower resulting from a decrease in product shipments and an unfavorable foreign currency impact, which was partially offset by higher selling prices, including favorable mix.

Petroleum additives operating profit was 54.7% higher when comparing the first nine months of 2023 with the first nine months of 2022, reflecting the selling prices, including favorable mix, partially offset by lower product shipments and higher operating costs.

Raw material costs were stable when comparing the two nine months periods.

Our shipments have been impacted over the last several quarters by the overall global economic weakness and inventory rationalization that is affecting the chemical industry.

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

During this period, we have remained focused on controlling operating costs, continuing our investment in technology, and managing our inventory levels, as well as our customer portfolio.

When comparing the results of the petroleum additives segment for the first three months of 2024 with the first three months of 2023, net sales were 3.2% lower resulting primarily from lower selling prices, which were partially offset by an increase in product shipments of 4.7%.

Petroleum additives operating profit was 14.3% higher when comparing the 2024 and 2023 three months periods, primarily reflecting the favorable impact of lower raw material and operating costs, partially offset by the lower selling prices and product mix.

We completed the acquisition of AMPAC for approximately $700 million on January 16, 2024.

See Note 2 for further information on the acquisition.

The operations of AMPAC since the date of acquisition are reflected in the specialty materials segment in the Results of Operations section below.

On January 22, 2024, we entered into a new $900 million revolving credit facility, as well as a $250 million unsecured term loan.

Concurrently with the entry into the new revolving credit facility, we terminated our former revolving credit facility.

See Note 9 for further information on our debt agreements.

We remain challenged by the uncertain global economic environment, but continue to focus 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.

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

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

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

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.

Results of Operations

Consolidated net sales for the third quarter of 2023 totaled $667.2 million, representing a decrease of $28.9 million, or 4.2%, from the third quarter of 2022.

Consolidated net sales for the first nine months of both 2023 and 2022 totaled $2.1 billion.

Consolidated net sales for the first three months of 2024 totaled $696.7 million, representing a slight decrease of $6.1 million, or 0.9%, from the first three months of 2023.

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

Third Quarter Ended

September 30, Nine Months Ended

September 30,

The net sales in the table below for the specialty materials segment only include those since the acquisition of AMPAC on January 16, 2024.

Three Months Ended March 31,

(in millions) 2024 2023

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Total 677.3 700.0

Specialty materials 17.0 0

All other 2.4 2.8

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The regions in which we operate include North America, Latin America, Asia Pacific, and EMEAI.

While there is some fluctuation, the percentage of net sales generated by region remained fairly consistent when comparing the first nine months of 2023 with the same period in 2022, as well as with the full year 2022.

Petroleum additives net sales for the third quarter of 2023 were $663.7 million compared to $692.7 million for the third quarter of 2022, a decrease of 4.2%.

The decrease for the third quarter comparison was in both the Asia Pacific and EMEAI regions, with the Asia Pacific region representing about 70% of the decrease in those two regions.

Small increases in the North America and Latin America regions partially offset the decreases in Asia Pacific and EMEAI.

Petroleum additives net sales for the first nine months of 2023 were $2.0 billion, while the first nine months of 2022 were $2.1 billion, representing a decrease of 1.3%.

Similar to the third quarter, the Asia Pacific and EMEAI regions reported decreases for the first nine months of 2023 compared to the same 2022 period, with the Asia Pacific region representing almost all of the decrease.

A substantial increase in the North America region, along with a small increase in the Latin America region, partially offset the decreases in the other regions.

The following table details the approximate components of the changes in petroleum additives net sales between the third quarter and first nine months of 2023 and 2022.

(in millions) Third Quarter Nine Months

Period ended September 30, 2022 $ 692.7 $ 2,074.0

While there is some fluctuation, the percentage of net sales generated by region remained fairly consistent when comparing the three months of 2024 with the same period in 2023, as well as with the full year of 2023.

Petroleum additives net sales for the first three months of 2024 were $677.3 million, while the first three months of 2023 were $700.0 million, representing a decrease of 3.2%.

The North America and Latin America regions reported decreases for the first three months of 2024 compared to the same 2023 period, which was partially offset by smaller increases in the Asia Pacific and EMEAI regions.

The following table details the approximate components of the changes in petroleum additives net sales between the first three months of 2024 and 2023.

(in millions) Three Months

Period ended March 31, 2023 $ 700.0

Lubricant additives shipments 4.8

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Foreign currency impact, net (0.5)

Period ended September 30, 2023 $ 663.7 $ 2,047.7

When comparing the third quarter of 2023 and 2022, the decrease in petroleum additives net sales was primarily due to lower lubricant additives shipments, along with a smaller impact from lower fuel additives shipments.

The lower shipments were partially offset by increased selling prices, including favorable mix, in the third quarter comparison, as well as a small favorable foreign currency impact.

When comparing petroleum additives net sales for the first nine months of 2023 and 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, including favorable mix.

Comparing the third quarter of 2023 and 2022, the United States Dollar weakened against both the Euro and the Pound Sterling resulting in a favorable impact to net sales for the comparative periods.

The United States Dollar strengthened against the Indian Rupee, Chinese Renminbi, and Japanese Yen for the same third quarter comparison, which partially offset the favorable impact on net sales from the Euro and Pound Sterling.

For the nine months 2023 versus 2022 comparison, 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 comparative periods.

On a worldwide basis, the volume of product shipments for petroleum additives decreased 7.7% when comparing the two third quarter periods and 13.5% when comparing the first nine months of 2023 and 2022.

Petroleum additives shipments for the third quarter comparison reflected decreases in both lubricant additives and fuel additives with the Asia Pacific and EMEAI regions contributing to the decrease in lubricant additives shipments, which was partially offset by an increase in the North America region.

The decrease in fuel additives shipments for the third quarter comparison was primarily in the North America region, with smaller decreases in the Latin America and Asia Pacific regions, which were partially offset by an increase in the EMEAI region.

For the nine months comparison, both lubricant additives and fuel additives shipments were lower in 2023 than in 2022.

The decrease in lubricant additives shipments when comparing the first nine months of 2023 with the same period of 2022 was across all regions with about 40% of the decrease in the Asia Pacific Region, 30% in the EMEAI region, 25% in the North America region, and the remaining decrease in the Latin America region.

The nine months comparison for fuel additives shipments reflected decreases in the North America, Asia Pacific and Latin America regions.

The North America region reflected about 70% of the decrease with the remaining decrease split about evenly between the Asia Pacific and Latin America regions.

The EMEAI region had a small increase in fuel additives shipments for the nine months comparison.

Period ended March 31, 2024 $ 677.3

When comparing the first three months of 2024 and 2023, the decrease in petroleum additives net sales was primarily due to lower selling prices, partially offset by increases in both lubricant additives and fuel additives shipments.

Foreign currency exchange rates had a small unfavorable impact on net sales.

The United States Dollar strengthened against the Indian Rupee, Chinese Renminbi, and Japanese Yen resulting in an unfavorable impact to petroleum additives net sales for the comparative periods but weakened against both the Euro and the Pound Sterling for the same comparison, which substantially offset the unfavorable impact on net sales from the change in the exchange rates of the Rupee, Renminbi, and Yen.

On a worldwide basis, the volume of product shipments for petroleum additives increased 4.7% when comparing the first three months of 2024 and 2023.

The increase was in both lubricant additives and fuels additives across all regions except Latin America, which reported a decrease in lubricant additives product shipments, and North America, which reported a decrease in fuel additives product shipments.

Specialty Materials Segment

The specialty materials segment includes the operations of AMPAC, which operates predominantly in the North America region.

Total net sales were $17.0 million for the period that we owned AMPAC during the first three months of 2024.

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

Segment Operating Profit

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

NewMarket evaluates the performance of the petroleum additives and specialty materials businesses based on segment operating profit.

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

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

The following table reports segment operating profit for the third quarter and nine months ended September 30, 2023 and September 30, 2022.

Third Quarter Ended

September 30, Nine Months Ended

September 30,

The following table reports segment operating profit for the three months ended March 31, 2024 and March 31, 2023.

The amount reported for specialty materials is for the period from January 16, 2024 to March 31, 2024.

Three Months Ended March 31,

(in millions) 2024 2023

Petroleum additives $ 150.9 $ 132.1

Specialty materials $ (5.0) $ 0

All other $ (0.1) $ (1.0)

Petroleum Additives Segment

Petroleum additives segment gross profit increased $54.3 million and operating profit increased $56.8 million when comparing the third quarter of 2023 to the third quarter of 2022.

For the first nine months of 2023 compared to the first nine months of 2022, petroleum additives segment gross profit increased $136.8 million and operating profit increased $142.9 million.

Petroleum additives segment gross profit increased $16.4 million and operating profit increased $18.8 million when comparing the first three months of 2024 to the first three months of 2023.

The following table presents petroleum additives cost of goods sold as a percentage of net sales and the operating profit margin.

Third Quarter Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Cost of goods sold as a percentage of net sales 68.4 % 71.7 %

Operating profit margin 22.3 % 18.9 %

For the rolling four quarters ended September 30, 2023, the operating profit margin for petroleum additives was 19.1%, which is within our historical range of operating profit margin.

For the rolling four quarters ended March 31, 2024, the operating profit margin for petroleum additives was 20.0%, which is within our historical range of operating profit margin.

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

When comparing both the third quarter and first nine months of 2023 and 2022, both gross profit and operating profit included the favorable impact of higher selling prices, including favorable mix, partially offset by lower shipments and higher operating costs.

The comparison for both the third quarter and nine months periods also included the impact of raw material costs, which were favorable for the third quarter comparison and were stable for the nine months comparison.

Nonetheless, we remain challenged by the ongoing inflationary environment impacting us, including raw material and operating costs.

When comparing the first three months of 2024 and 2023, the increase in both gross profit and operating profit primarily included the favorable impact of lower raw material and operating costs, partially offset by lower selling prices and product mix.

We remain challenged by the ongoing inflationary environment impacting us.

Cost control and margin management remain high priorities for us.

Petroleum additives selling, general, and administrative expenses (SG&A) for the third quarter of 2023 were substantially unchanged from the third quarter of 2022.

SG&A expenses for the first nine months of 2023 were $1.0 million higher than the first nine months of 2022.

SG&A as a percentage of net sales was 4.6% for the third quarter of 2023, 4.4% for the third quarter of 2022, 4.5% for the first nine months of 2023, and 4.4% for the first nine months of 2022.

Petroleum additives selling, general, and administrative expenses (SG&A) for the first three months of 2024 were $0.4 million lower than the first three months of 2023.

SG&A as a percentage of net sales was 4.8% for the first three months of 2024, and 4.7% for the first three months of 2023.

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

While personnel-related costs fluctuate from period to period, there were no significant changes in the drivers of these costs when comparing the periods.

Our investment in petroleum additives research, development, and testing (R&D) decreased approximately $2.5 million when comparing the third quarter periods of 2023 and 2022 and $7.0 million when comparing the first nine months periods of 2023 and 2022.

As a percentage of net sales, R&D was 4.8% for the third quarter of 2023, 5.0% for the third quarter of 2022, 4.8% for the first nine months of 2023, and 5.1% for the first nine months of 2022.

Our investment in petroleum additives research, development, and testing (R&D) decreased approximately $2.0 million when comparing the first three months periods of 2024 and 2023.

As a percentage of net sales, R&D was 4.6% for the first three months of 2024 and 4.7% for the first three months of 2023.

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.

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

Specialty Materials Segment

The specialty materials segment reported an operating loss of $5.0 million for the period from the AMPAC acquisition date of January 16, 2024 to March 31, 2024.

The loss is primarily due to the sale of AMPAC finished goods inventory that we

acquired, which was recorded at fair market value on the acquisition date and sold to customers from the date of acquisition through March 31, 2024.

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

Interest and Financing Expenses, Net

Interest and financing expenses were $9.2 million for the third quarter of 2023, $8.4 million for the third quarter of 2022, $30.2 million for the first nine months of 2023, and $24.9 million for the first nine months of 2022.

The increase for both the third quarter and nine months comparisons resulted primarily from a higher average interest rate, which was partially offset by lower average debt.

Both comparison periods included a favorable impact from lower amortization and fees.

Capitalized interest had a favorable impact on the nine months comparison and was substantially unchanged for the third quarter comparison.

Interest and financing expenses were $15.7 million for the first three months of 2024 and $10.8 million for the first three months of 2023.

The increase for the three months comparison resulted from both higher average debt outstanding and a higher average interest rate.

Capitalized interest, as well as amortization and fees were also unfavorable.

Other Income (Expense), Net

Other income (expense), net was income of $11.3 million for the third quarter of 2023, $10.0 million for the third quarter of 2022, $32.9 million for the first nine months of 2023, and $26.2 million for the first nine months of 2022.

The amounts for both the 2023 and 2022 third quarter and nine months periods primarily reflect the components of net periodic benefit cost (income), except for service cost, from defined benefit pension and postretirement plans.

Other income (expense), net was income of $12.5 million for the first three months of 2024 and $10.9 million for the first three months of 2023.

The amounts for both the 2024 and 2023 three months periods primarily reflect the components of net periodic benefit cost (income), except for service cost, from defined benefit pension and postretirement plans.

See Note 5 for further information on total periodic benefit cost (income).

The first nine months of 2022 also included a loss on marketable securities of $3.0 million.

Income Tax Expense

Income tax expense was $23.2 million for the third quarter of 2023 and $17.1 million for the third quarter of 2022.

The effective tax rate was 17.3% for the third quarter of 2023 and 21.3% for the third quarter of 2022.

Income tax expense increased $11.5 million due to higher income before income tax expense and decreased $5.4 million due to the lower effective tax rate.

Income tax expense was $75.9 million for the first nine months of 2023 and $50.4 million for the first nine months of 2022.

The effective tax rate was 19.7% for the first nine months of 2023 and 21.1% for the first nine months of 2022.

Income tax expense increased $30.5 million due to higher income before income tax expense, which was offset by a $5.0 million decrease caused by the lower effective tax rate.

The decrease in the effective tax rate for both the third quarter and nine months comparisons was primarily caused by a retroactive delay by the U.S.

Treasury in the effective date of more stringent foreign tax credit rules, which had been considered in determining the tax rates in prior periods, along with other favorable prior year tax items.

Income tax expense was $30.0 million for the first three months of 2024 and $27.6 million for the first three months of 2023.

The effective tax rate was 21.8% for the first three months of 2024 and 22.0% for the first three months of 2023.

Income tax expense increased $2.8 million due to higher income before income tax expense, which was partially offset by a $0.4 million decrease caused by the lower effective tax rate.

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.

Several jurisdictions in which we operate have adopted or are in the process of adopting this global minimum tax, with effective dates in 2024 or 2025.

We are continuing to monitor the legislation in these jurisdictions and have recognized an immaterial impact to our effective tax rate and income tax liabilities related to the enactment of these rules for the first three months of 2024.

Cash Flows, Financial Condition, and Liquidity

Cash and cash equivalents at September 30, 2023 were $102.6 million, an increase of $33.8 million since December 31, 2022.

Cash and cash equivalents held by our foreign subsidiaries amounted to $100.1 million at September 30, 2023 and $65.3 million at December 31, 2022.

Cash and cash equivalents at March 31, 2024 were $117.1 million, an increase of $5.1 million since December 31, 2023.

Cash and cash equivalents held by our foreign subsidiaries amounted to $103.1 million at March 31, 2024 and $86.5 million at December 31, 2023.

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

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

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

We expect that cash from operations, together with borrowing available under our revolving credit facility, will continue to be sufficient to cover our operating needs including planned short-term and long-term capital expenditures.

Cash Flows – Operating Activities

Cash provided from operating activities for the first nine months of 2023 was $405.2 million, including $71.9 million of lower working capital requirements.

The $71.9 million excluded an unfavorable foreign currency impact to the components of working capital on the balance sheet.

The most significant changes in working capital included decreases in trade and other accounts receivable, inventories, accounts payable, accrued expenses, and income taxes payable.

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

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 rebate payments to customers, as well as normal timing of interest payments on our long-term debt.

The change in income taxes payable is primarily the result of timing of payments.

Including cash and cash equivalents, as well as the impact of changes in foreign currency exchange rates on the balance sheet, we had total working capital of $733.4 million at September 30, 2023 and $768.2 million at December 31, 2022.

The current ratio was 3.21 at September 30, 2023 and 2.81 at December 31, 2022.

Cash provided from operating activities for the first three months of 2024 was $102.8 million, including $21.4 million of higher working capital requirements.

The $21.4 million excluded a favorable foreign currency impact to the components of working capital on the balance sheet.

The working capital of AMPAC is included in our consolidated balance sheet at March 31, 2024.

Excluding the impact of AMPAC working capital, when comparing the March 31, 2024 balances with those at December 31, 2023, the most significant changes in working capital included increases in trade and other accounts receivable and accounts payable, and a decrease in accrued expenses.

The increase in trade and other accounts receivable primarily reflects higher sales during the first three months of 2024 compared to the fourth quarter of 2023.

The increase in accounts payable is primarily the result of increased purchases during the first three months of 2024 and normal invoice payment timing.

The change in accrued expenses primarily reflects normal payments related to rebate payments to customers, interest payments on our long-term debt and personnel payments.

Including cash and cash equivalents, as well as the impact of changes in foreign currency exchange rates on the balance sheet, we had total working capital of $728.5 million at March 31, 2024 and $675.4 million at December 31, 2023.

The current ratio was 2.86 at March 31, 2024 and 2.85 at December 31, 2023.

Cash Flows – Investing Activities

Cash used in investing activities totaled $34.8 million during the first nine months of 2023 for capital expenditures.

Cash used in investing activities totaled $697.5 million during the first three months of 2024, comprised of the acquisition of AMPAC for $683.9 million (net of cash acquired) and capital expenditures of $13.6 million.

We expect that our total capital spending during 2024 will be in the $50 million to $70 million range and will include several improvements to our manufacturing and R&D infrastructure around the world.

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Cash Flows – Financing Activities

Cash used in financing activities during the first nine months of 2023 amounted to $335.5 million.

These cash flows included net payments of $225.0 million on the revolving credit facility, cash dividends of $63.5 million, and $42.9 million for repurchases of 119,075 shares of our common stock.

Our long-term debt was $779.4 million at September 30, 2023 compared to $1.0 billion at December 31, 2022.

See Note 8 for additional information on the 2.70% senior notes, 3.78% senior notes, and revolving credit facility, including the unused portion of our revolving credit facility.

All of our senior notes and the revolving credit facility contain covenants, representations, and events of default that management considers typical of credit arrangements of this nature.

The covenants under the 3.78% senior notes include negative covenants, certain financial covenants, and events of default which are substantially similar to the covenants and events of default in our revolving credit facility.

Cash provided from financing activities during the first three months of 2024 amounted to $601.4 million.

These cash flows primarily included net borrowings of $386.0 million on the revolving credit facility and proceeds of $250 million from the term loan, partially offset by cash dividends of $24.0 million.

Our long-term debt was $1.3 billion at March 31, 2024 compared to $643.6 million at December 31, 2023.

On January 22, 2024, we entered into a new $900 million revolving credit facility, as well as a $250 million unsecured term loan.

Concurrently with the entry into the new revolving credit facility, we terminated our former revolving credit facility.

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

All of our senior notes, the term loan, and the revolving credit facility contain covenants, representations, and events of default that management considers typical of credit arrangements of this nature.

The covenants under the 3.78% senior notes, as well as the term loan, include negative covenants, certain financial covenants, and events of default which are substantially similar to the covenants and events of default in our revolving credit facility.

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

At September 30, 2023, the Leverage Ratio was 1.33 under the revolving credit facility.

At September 30, 2023, we were in compliance with all covenants under the 3.78% senior notes, 2.70% senior notes, and revolving credit facility.

As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt decreased from 56.8% at December 31, 2022 to 44.5% at September 30, 2023.

The change resulted primarily from the decrease in outstanding revolving credit facility borrowings, along with the increase in shareholders' equity.

The increase in shareholders’ equity primarily reflects our earnings and the impact of foreign currency translation adjustments, partially offset by dividend payments and the repurchases of our common stock.

At March 31, 2024, the Leverage Ratio was 1.92 under the revolving credit facility.

At March 31, 2024, we were in compliance with all covenants under the 3.78% senior notes, 2.70% senior notes, term loan, and revolving credit facility.

As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt increased from 37.4% at December 31, 2023 to 52.6% at March 31, 2024.

The change resulted primarily from the increase in outstanding revolving credit facility and term loan borrowings, partially offset by the increase in shareholders' equity.

The increase in shareholders’ equity primarily reflects our earnings, partially offset by the impact of foreign currency translation adjustments and dividend payments.

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

Critical Accounting Policies and Estimates

This Form 10-Q and our 2022 Annual Report include discussions of our accounting policies, as well as methods and estimates used in the preparation of our financial statements.

We also provided a discussion of Critical Accounting Policies and Estimates in our 2022 Annual Report.

There have been no significant changes in our critical accounting policies and estimates from those reported in our 2022 Annual Report.

This Form 10-Q and our 2023 Annual Report on Form 10-K include discussions of our accounting policies, as well as methods and estimates used in the preparation of our financial statements.

We also provided a discussion of Critical Accounting Policies and Estimates in our 2023 Annual Report on Form 10-K.

The following provides an update to the information related to intangibles, net of amortization, and goodwill provided in the Critical Accounting Policies and Estimates section of our 2023 Annual Report on Form 10-K.

We have certain identifiable intangibles amounting to $386.9 million and goodwill amounting to $382.0 million at March 31, 2024 that are discussed in Note 8.

Of these identifiable intangibles and goodwill, $124.6 million relate to our petroleum additives business and $644.3 million relate to the specialty materials business.

The amortizable identifiable intangibles have remaining lives of up to approximately 17 years.

We continue to assess the markets related to the intangibles and goodwill, as well as their specific values and evaluate the intangibles and goodwill for any potential impairment when significant events or circumstances occur that might impair the value of these assets.

We have concluded the values are appropriate, as are the amortization periods for the intangibles.

However, if conditions were to substantially deteriorate in the petroleum additives or specialty materials markets, it could possibly cause a decrease in the estimated useful lives of the intangible assets or result in a noncash write-off of all or a portion of the intangibles and goodwill carrying amounts.

A reduction in the amortization period of the intangibles would have no effect on cash flows.

We do not anticipate such a change in market conditions in the near term.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements which have not been adopted and may have a significant impact our financial statements.

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.

For a full discussion of the more significant recently issued accounting standards, see Note 13.

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 during 2023 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.

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

As a result, we will continue to focus on cost control and operating profit margin recovery throughout the year.

We expect over the long-term that the petroleum additives market will grow annually in the 1% to 2% range.

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.

We expect over the long-term that the petroleum additives market will grow annually up to 2%.

We plan to exceed that growth rate in our petroleum additives segment.

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

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

1 unchanged sentence

We will continue to invest in our capabilities to provide even better value, service, technology, and customer solutions.

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

We anticipate continued strength in our petroleum additives segment in 2024 and also look forward to the ongoing integration of AMPAC into our business during the year.

While we may see substantial variation in quarterly results for AMPAC on an ongoing basis due to the nature of its business, we anticipate full year results to be consistent with our pre-acquisition expectations.

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

We regularly review our many internal opportunities to utilize excess cash from technological, geographic, production capability, and product line perspectives.

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

Our 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.

We will continue to evaluate all alternative uses of cash to enhance shareholder value, including stock repurchases and dividends.

Quantitative and Qualitative Disclosures About Market Risk

At September 30, 2023, there were no material changes in our market risk from the information provided in the 2022 Annual Report.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis