NewMarket Corporation (NYSE:NEU) Q2 2020 Earnings Conference Call July 30, 2020 3:00 PM ET Company Participants Brian Paliotti - Chief Financial Officer Conference Call Participants Operator Good day, ladies and gentlemen, and welcome to the NewMarket Corporation Conference Call and Webcast to review second quarter 2020 financial results. All lines have been placed on a listen-only mode for the duration of today???s call. At this time, it is my pleasure to turn the floor over to your host to Mr. Brian Palio ...

Financial Performance - Consolidated net sales for Q2 2020 totaled $410.9 million, a decrease of $152.6 million, or 27.1%, from Q2 2019[84]. - Petroleum additives net sales for the first six months of 2020 were $966.1 million, down 11.7% from $1.1 billion in the same period of 2019[87]. - Shipments to customers in Q2 2020 were down 25.1% from Q1 2020, with North America and EMEAI regions experiencing the most significant decreases[77]. - The operating profit margin for petroleum additives was 8.1% in Q2 2020, compared to 18.4% in Q2 2019[99]. - Petroleum additives operating profit decreased by $69.9 million in Q2 2020 compared to Q2 2019, and by $44.1 million in the first six months of 2020 compared to the same period in 2019[96]. - The volume of product shipments for petroleum additives decreased 24.4% in Q2 2020 compared to Q2 2019, and 9.6% for the first six months of 2020 compared to the same period in 2019[91]. - Cost of goods sold as a percentage of net sales was 76.5% for Q2 2020, up from 69.5% in Q2 2019[100]. - The impact of COVID-19 has led to lower demand for petroleum additives products, significantly affecting net sales and operating profit margins[88]. Expenses and Investments - SG&A expenses for Q2 2020 were $1.3 million, or 4.4% lower than Q2 2019, and represented 7.2% of net sales compared to 5.5% in Q2 2019[102]. - R&D investment decreased by $3.6 million in Q2 2020 compared to Q2 2019, accounting for 8.2% of net sales versus 6.6% in Q2 2019[103]. - Interest and financing expenses were $7.0 million in Q2 2020, down from $7.7 million in Q2 2019, primarily due to lower average interest rates[105]. - Other income for Q2 2020 was $6.5 million, an increase from $5.8 million in Q2 2019, reflecting components of net periodic benefit cost[106]. - Income tax expense for Q2 2020 was $4.9 million, significantly lower than $22.5 million in Q2 2019, with an effective tax rate of 18.0% compared to 23.3%[107]. Cash Flow and Debt - Cash and cash equivalents decreased by $42.3 million to $102.1 million as of June 30, 2020, compared to December 31, 2019[110]. - Cash flows from operating activities for the first six months of 2020 were $94.3 million, with $60.1 million used for higher working capital requirements[114]. - Total long-term debt increased to $690.3 million as of June 30, 2020, from $642.9 million at December 31, 2019[119]. Future Outlook - The company expects the petroleum additives market to grow at 1% to 2% annually, with plans to exceed this growth rate in the long term[127]. - The company aims to provide a 10% compounded return per year for shareholders over any five-year period, focusing on customer-centric strategies and technology-driven solutions[126]. Strategic Initiatives - The company has a strong financial position with access to a $900 million revolving credit facility established in March 2020[81]. - The company continues to invest in organizational talent, technology development, and global infrastructure despite the current economic challenges[76].

Financial Data and Key Metrics Changes - Net income for Q1 2020 was $85.5 million, or $7.67 per share, compared to $62.2 million, or $5.57 per share in Q1 2019, representing a significant increase [5] - The effective income tax rate decreased to 22.3% from 23% year-over-year [8] - Capital expenditures for the quarter were $20.1 million, with dividends paid amounting to $21.2 million and share repurchases totaling $94.3 million [8] - The company maintained a low leverage with a net debt-to-EBITDA ratio of 1.2 times [9] Business Line Data and Key Metrics Changes - Petroleum additives net sales increased to $557.4 million in Q1 2020 from $532.7 million in Q1 2019, marking a 4.6% increase [6] - Operating profit for petroleum additives rose to $113.7 million from $87.9 million year-over-year, driven by higher shipments and lower conversion costs [7] Market Data and Key Metrics Changes - The increase in lubricant additive shipments was primarily driven by Europe, North America, and Latin America, while Asia Pacific experienced a decrease [6] - The company anticipates a significant decline in shipments for passenger vehicle lubricants and fuels, particularly in Europe and the Americas, due to COVID-19 impacts [13] Company Strategy and Development Direction - The company is focused on maintaining operations and meeting customer needs during the COVID-19 crisis, ensuring supply chain continuity and product availability [12] - Management emphasized long-term planning and resilience in navigating short-term challenges, with a positive outlook for recovery as restrictions ease [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's performance despite expecting a downturn in Q2 2020 due to social distancing measures affecting business operations [13] - The company is encouraged by early recovery signs in its China business and remains optimistic about global market recovery [14] Other Important Information - The company has taken steps to support local communities by providing protective equipment to hospitals and fire departments during the pandemic [16] - Management highlighted the essential role of the chemical and oil industries in combating COVID-19 and ensuring the supply of critical products [16] Q&A Session Summary - The Q&A session concluded without specific questions being documented, indicating a focus on the company's remarks and future outlook [21]

Table of Contents WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to UNITED STATES SECURITIES AND EXCHANGE COMMISSION Commission File Number 1-32190 NEWMARKET CORPORATION (Exact name of registrant as specified in its charter) Virginia 20-0812170 (State or other juri ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-32190 NEWMARKET CORPORATION Incorporated pursuant to the Laws of the Commonwealth of Virginia Internal Revenue Service Employer ...

NewMarket Corporation (NYSE:NEU) Q4 2019 Earnings Conference Call February 4, 2020 3:00 PM ET Company Participants Brian Paliotti - Chief Financial Officer Conference Call Participants Operator Ladies and gentlemen, hello, and thank you all for joining today's NewMarket Corporation Fourth Quarter 2019 and Year-End Financial Results Conference Call. We'll jump right in. And I'm pleased to turn the floor over to your host Mr. Brian Paliotti. Please go ahead sir. Brian Paliotti Thank you, Jim and thanks to eve ...

NewMarket Corporation (NYSE:NEU) Q3 2019 Earnings Conference Call October 24, 2019 3:00 PM ET Company Participants Brian Paliotti - Chief Financial Officer Conference Call Participants Dmitry Silversteyn - Buckingham Research Operator Ladies and gentlemen, good day, and thank you all for joining this NewMarket Corporation Conference Call and Webcast to review Third Quarter 2019 Financial Results. [Operator Instructions] And now for opening remarks and introductions, I'm pleased to turn the floor over to you ...

Financial Performance - Consolidated net sales for Q3 2019 totaled $555.8 million, a decrease of $7.3 million, or 1.3%, from Q3 2018[83] - Petroleum additives net sales for the first nine months of 2019 were $1.6 billion, down 5.7% from $1.7 billion in the same period of 2018[86] - Operating profit for petroleum additives increased by $19.0 million in Q3 2019 compared to Q3 2018, and by $54.1 million for the first nine months of 2019 compared to the same period in 2018[95] - The operating profit margin for petroleum additives was 17.2% in Q3 2019, up from 13.5% in Q3 2018, and 17.4% for the first nine months of 2019, compared to 13.3% in the same period of 2018[96] - The decrease in petroleum additives net sales for the first nine months of 2019 was attributed to lower product shipments across all regions, with the most significant decline in the EMEAI region[86] Expenses and Taxation - Research and development (R&D) expenses as a percentage of net sales were 6.6% for Q3 2019, compared to 6.3% for Q3 2018[100] - Selling, general, and administrative expenses (SG&A) decreased by $0.6 million, or 1.9%, in Q3 2019 compared to Q3 2018, and by $10.2 million, or 9.9%, for the first nine months of 2019 compared to the same period in 2018[99] - Interest and financing expenses were $7.0 million for Q3 2019, down from $7.8 million in Q3 2018, primarily due to lower average debt outstanding[101] - Income tax expense for Q3 2019 was $19.7 million, with an effective tax rate of 22.5%, compared to $9.8 million and 14.4% in Q3 2018[103] - Income tax expense for the first nine months of 2019 was $60.8 million, up from $47.3 million in the same period of 2018, with an effective tax rate increase from 21.6% to 22.9%[104] Cash Flow and Capital Structure - Cash and cash equivalents increased to $80.0 million as of September 30, 2019, a rise of $6.9 million since December 31, 2018[106] - Cash flows from operating activities for the first nine months of 2019 were $233.2 million, which included $36.0 million used for higher working capital requirements[110] - Total working capital was $546.5 million at September 30, 2019, compared to $542.1 million at December 31, 2018, with a current ratio of 2.95 to 1[113] - Cash used in investing activities totaled $37.1 million during the first nine months of 2019, with total capital spending expected to be in the range of $60 million to $70 million for the year[114] - Long-term debt decreased from $771.0 million at December 31, 2018, to $640.0 million at September 30, 2019, resulting in a long-term debt percentage of total capitalization dropping from 61.1% to 50.4%[116][119] Strategic Outlook - The company expects the petroleum additives market to grow at an annual rate of 1% to 2%, with plans to exceed this growth rate over the long term[124] - Significant investments have been made in organizational talent, technology development, and global infrastructure to enhance operating results and customer solutions[125] - The company remains focused on the petroleum additives industry for future acquisitions, viewing it as a segment with solid return opportunities while minimizing risk[126] - The company aims to provide a 10% compounded return per year for shareholders over any five-year period, emphasizing a long-term view and customer-focused strategy[123]

Financial Data and Key Metrics Changes - Net income for Q2 2019 was $74.2 million or $6.63 per share, compared to $52.9 million or $4.53 per share in Q2 2018 [4] - Petroleum additive net sales decreased to $560.8 million from $596.2 million year-over-year, primarily due to lower shipments [4] - Operating profit for petroleum additives increased to $103 million from $71.5 million in the same quarter last year [5] - The effective income tax rate decreased to 23.3% from 24% year-over-year [7] - The rolling operating profit margin for the four quarters ended June 30, 2019, was 15.8%, the highest since 2017 [6][7] Business Line Data and Key Metrics Changes - Shipments of petroleum additives were down 8.4% year-over-year, mainly due to decreases in lubricant additive shipments in Europe and Latin America, and fuel additive shipments in Europe, North America, and Latin America [4] - The decline in shipments was attributed to the decision not to renew certain low-margin business and softening global demand [5] Market Data and Key Metrics Changes - The petroleum additives market is expected to grow at an annual rate of 1% to 2% for the foreseeable future [8] - The company anticipates exceeding this growth rate over the long term [8] Company Strategy and Development Direction - The company is focused on managing its business to meet customer needs while generating solid operating profit [7] - The strategy includes shedding low-margin business to promote long-term value for shareholders [5][8] Management's Comments on Operating Environment and Future Outlook - Management noted signs of a turnaround from the challenging economic environment faced over the past two years, characterized by rising raw material prices and softening global demand [6] - The company does not provide specific guidance but believes the business will operate in the mid- to high-teens margin range over the long term [18][25] Other Important Information - Capital expenditures for 2019 are expected to be in the range of $60 million to $70 million, slightly revised downward due to the timing of larger capital projects [7] Q&A Session Summary Question: Impact of foreign exchange on margins - Management confirmed that the positive impact on margins was a translation effect related to manufacturing and sales locations [11][12] Question: Volume loss in petroleum additives - The volume loss was attributed to a combination of market slowdown and the decision to divest low-margin business, with approximately 3% of the 8% decline due to divestitures [14][15] Question: Sustainability of EBIT margins - Management indicated that there was nothing in the current quarter's margin drivers that would not be repeatable in the second half of the year [19]

```markdown [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents the unaudited consolidated financial statements and management's discussion for the period [ITEM 1. Financial Statements (Unaudited)](index=4&type=section&id=ITEM%201.%20Financial%20Statements) Presents unaudited consolidated financial statements including income, comprehensive income, balance sheets, equity, and cash flows, with detailed notes [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Presents the company's consolidated statements of income for the reported quarterly and six-month periods Consolidated Statements of Income (in thousands, except per-share) | Metric (in thousands, except per-share) | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :-------------------------------------- | :------ | :------ | :------------ | :------------ | | Net sales | $563,417 | $598,952 | $1,100,033 | $1,188,197 | | Gross profit | $170,833 | $145,859 | $323,702 | $302,642 | | Operating profit | $98,675 | $67,131 | $181,547 | $148,706 | | Net income | $74,174 | $52,885 | $136,379 | $113,450 | | Earnings per share - basic and diluted | $6.63 | $4.53 | $12.20 | $9.67 | | Cash dividends declared per share | $1.75 | $1.75 | $3.50 | $3.50 | - Net sales decreased by **5.9%** in Q2 2019 and **7.4%** for the six months ended June 30, 2019, compared to the prior year periods. Despite lower sales, gross profit increased by **17.1%** in Q2 2019 and **7.0%** for the six months, while operating profit saw significant increases of **47.0%** and **22.1%** respectively, driven by improved margins[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Details the consolidated statements of comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Net income | $74,174 | $52,885 | $136,379 | $113,450 | | Other comprehensive income (loss) | | | | | | Pension plans and other postretirement benefits | $233 | $540 | $473 | $1,085 | | Foreign currency translation adjustments | $(4,366) | $(12,791) | $580 | $(33) | | Total other comprehensive income (loss) | $(4,133) | $(12,251) | $1,053 | $1,052 | | Comprehensive income | $70,041 | $40,634 | $137,432 | $114,502 | - Comprehensive income increased significantly in Q2 2019 by **72.4%** and by **20.0%** for the six months ended June 30, 2019, primarily due to higher net income and a reduced negative impact from foreign currency translation adjustments compared to the prior year[12](index=12&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Provides condensed consolidated balance sheets, outlining assets, liabilities, and equity at period-end Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2019 | December 31, 2018 | | :-------------------- | :------------ | :---------------- | | Total current assets | $829,434 | $813,420 | | Total assets | $1,766,985 | $1,697,274 | | Total current liabilities | $283,479 | $271,301 | | Long-term debt | $678,803 | $770,999 | | Total liabilities | $1,177,809 | $1,207,367 | | Total shareholders' equity | $589,176 | $489,907 | - Total assets increased by **$69.7 million**, or **4.1%**, from December 31, 2018, to June 30, 2019. Long-term debt decreased by **$92.2 million**, while total shareholders' equity increased by **$99.3 million**, or **20.3%**, over the same period[14](index=14&type=chunk) [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Outlines changes in shareholders' equity, including net income, dividends, and other comprehensive income Consolidated Statements of Shareholders' Equity (in thousands, except shares) | Metric (in thousands, except shares) | Balance at Dec 31, 2018 | Net Income | Other Comprehensive Income (Loss) | Cash Dividends | Stock-based Compensation | Balance at Jun 30, 2019 | | :----------------------------------- | :---------------------- | :--------- | :-------------------------------- | :------------- | :----------------------- | :---------------------- | | Shares | 11,184,482 | - | - | - | 3,644 | 11,188,126 | | Common Stock and Paid-in Capital | $0 | - | - | - | $949 | $949 | | Accumulated Other Comprehensive Loss | $(181,316) | - | $1,053 | - | - | $(180,263) | | Retained Earnings | $671,223 | $136,379 | - | $(39,158) | $46 | $768,490 | | Total Shareholders' Equity | $489,907 | $136,379 | $1,053 | $(39,158) | $995 | $589,176 | - Shareholders' equity increased by **$99.3 million** from December 31, 2018, to June 30, 2019, primarily driven by net income of **$136.4 million** and positive other comprehensive income, partially offset by **$39.2 million** in cash dividends[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash flows from operating, investing, and financing activities for the six-month periods Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :-------------------- | :--------------------------- | :--------------------------- | | Cash from operating activities | $150,616 | $65,780 | | Cash from investing activities | $(23,219) | $(30,451) | | Cash from financing activities | $(127,687) | $(7,307) | | Increase in cash and cash equivalents | $179 | $25,623 | | Cash and cash equivalents at end of period | $73,219 | $109,789 | - Cash provided by operating activities more than doubled to **$150.6 million** for the first six months of 2019 compared to the same period in 2018. Cash used in financing activities significantly increased to **$127.7 million**, primarily due to net repayments under the revolving credit facility[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Financial Statement Presentation](index=9&type=section&id=Financial%20Statement%20Presentation) Details the basis of financial statement presentation and recent accounting standard adoptions - The company adopted Accounting Standard Update No. **2018-02** (ASU **2018-02**) on January 1, 2019, but elected not to reclassify stranded tax effects from accumulated other comprehensive income to retained earnings[22](index=22&type=chunk) [Net Sales](index=9&type=section&id=Net%20Sales) Analyzes net sales by geographic area and product segment, detailing revenue recognition policies - Revenues are primarily derived from the manufacture and sale of petroleum additives products globally, with performance obligations generally satisfied at the point of shipment, delivery, or customer consumption[23](index=23&type=chunk) Net Sales (in thousands) | Geographic Area (in thousands) | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :----------------------------- | :------ | :------ | :------------ | :------------ | | United States | $188,031 | $185,225 | $360,045 | $366,863 | | China | $62,115 | $61,878 | $121,408 | $126,089 | | Europe, Middle East, Africa, India | $178,593 | $208,738 | $346,912 | $407,398 | | Asia Pacific, except China | $80,301 | $84,183 | $162,830 | $166,689 | | Other foreign | $54,377 | $58,928 | $108,838 | $121,158 | | Total Net Sales | $563,417 | $598,952 | $1,100,033 | $1,188,197 | [Segment Information](index=10&type=section&id=Segment%20Information) Provides financial data broken down by business segments, including net sales and operating profit Segment Information (in thousands) | Net Sales by Segment (in thousands) | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :---------------------------------- | :------ | :------ | :------------ | :------------ | | Petroleum additives | $560,824 | $596,202 | $1,093,503 | $1,183,110 | | Lubricant additives | $462,659 | $492,313 | $899,879 | $977,362 | | Fuel additives | $98,165 | $103,889 | $193,624 | $205,748 | | All other | $2,593 | $2,750 | $6,530 | $5,087 | | Total Net Sales | $563,417 | $598,952 | $1,100,033 | $1,188,197 | Segment Operating Profit (in thousands) | Segment Operating Profit (in thousands) | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :-------------------------------------- | :------ | :------ | :------------ | :------------ | | Petroleum additives | $102,992 | $71,530 | $190,855 | $155,670 | | All other | $(342) | $406 | $169 | $329 | | Segment operating profit | $102,650 | $71,936 | $191,024 | $155,999 | [Pension Plans and Other Postretirement Benefits](index=11&type=section&id=Pension%20Plans%20and%20Other%20Postretirement%20Benefits) Details cash contributions and accounting treatment for pension and other postretirement benefit plans Pension Plans and Other Postretirement Benefits (in thousands) | Cash Contributions (in thousands) | Six Months Ended June 30, 2019 | Expected Remaining for Year Ending Dec 31, 2019 | | :-------------------------------- | :----------------------------- | :---------------------------------------------- | | Domestic Pension benefits | $1,495 | $1,495 | | Domestic Postretirement benefits | $571 | $571 | | Foreign Pension benefits | $2,803 | $2,564 | - The service cost component of net periodic benefit cost is allocated to cost of goods sold, SG&A, or R&D, while other components are recorded in other income (expense), net[36](index=36&type=chunk) [Earnings Per Share](index=12&type=section&id=Earnings%20Per%20Share) Explains the calculation of basic and diluted earnings per share using the two-class method - The company uses the two-class method to compute basic and diluted earnings per share due to nonvested restricted stock being considered participating securities with nonforfeitable dividend rights[41](index=41&type=chunk) Earnings Per Share (in thousands, except per-share) | Metric (in thousands, except per-share) | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :-------------------------------------- | :------ | :------ | :------------ | :------------ | | Net income attributable to common shareholders after allocation | $74,027 | $52,769 | $136,168 | $113,231 | | Weighted-average shares outstanding | 11,166 | 11,647 | 11,166 | 11,705 | | Earnings per share - basic and diluted | $6.63 | $4.53 | $12.20 | $9.67 | [Inventories](index=12&type=section&id=Inventories) Presents the breakdown of inventory types and changes in inventory values over the period Inventories (in thousands) | Inventory Type (in thousands) | June 30, 2019 | December 31, 2018 | | :---------------------------- | :------------ | :---------------- | | Finished goods and work-in-process | $305,749 | $319,120 | | Raw materials | $56,339 | $63,403 | | Stores, supplies, and other | $14,393 | $13,818 | | Total Inventories | $376,481 | $396,341 | - Total inventories decreased by **$19.9 million** from December 31, 2018, to June 30, 2019, primarily due to a reduction in finished goods and work-in-process and raw materials[43](index=43&type=chunk) [Intangibles (Net of Amortization) and Goodwill](index=13&type=section&id=Intangibles%20%28Net%20of%20Amortization%29%20and%20Goodwill) Details the net carrying amount and amortization expense of intangible assets and goodwill - The net carrying amount of intangibles and goodwill decreased slightly from **$136 million** at December 31, 2018, to **$134 million** at June 30, 2019, with all intangibles related to the petroleum additives segment[45](index=45&type=chunk)[46](index=46&type=chunk) Intangibles (Net of Amortization) and Goodwill (in thousands) | Amortization Expense (in thousands) | Q2 2019 | 6 Months 2019 | Q2 2018 | 6 Months 2018 | | :---------------------------------- | :------ | :------------ | :------ | :------------ | | Amortization expense | $1,052 | $2,103 | $1,568 | $4,474 | Intangibles (Net of Amortization) and Goodwill (in thousands) | Estimated Amortization Expense (in thousands) | | :-------------------------------------------- | | 2019 (remainder) | $2,103 | | 2020 | $2,907 | | 2021 | $2,156 | | 2022 | $1,423 | | 2023 | $907 | | 2024 | $390 | [Leases](index=13&type=section&id=Leases) Discusses the adoption of new lease accounting standards and presents lease cost components and liabilities - On January 1, 2019, the company adopted ASU **2016-02**, 'Leases (Topic **842**),' using the modified retrospective transition method, resulting in the recognition of approximately **$70 million** in right-of-use assets and lease liabilities[50](index=50&type=chunk)[53](index=53&type=chunk) Leases (in thousands) | Lease Cost Components (in thousands) | Q2 2019 | 6 Months 2019 | | :----------------------------------- | :------ | :------------ | | Operating lease cost | $4,299 | $8,528 | | Finance lease cost (amortization) | $636 | $1,269 | | Finance lease cost (interest) | $94 | $192 | | Short-term lease cost | $789 | $1,964 | | Variable lease cost | $650 | $1,042 | | Total lease cost | $6,468 | $12,995 | Leases (in thousands) | Lease Liabilities Maturities (in thousands) as of June 30, 2019 | | :------------------------------------------------------------ | | **Operating Leases** | | 2019 (remainder) | $7,742 | | 2020 | $13,993 | | 2021 | $9,661 | | 2022 | $7,122 | | 2023 | $5,678 | | Thereafter | $32,388 | | Total lease payments | $76,584 | | Less: imputed interest | $20,890 | | Total operating lease obligations | $55,694 | | **Finance Leases** | | 2019 (remainder) | $1,428 | | 2020 | $2,855 | | 2021 | $1,835 | | 2022 | $804 | | 2023 | $599 | | Thereafter | $3,784 | | Total lease payments | $11,305 | | Less: imputed interest | $1,285 | | Total finance lease obligations | $10,020 | [Long-term Debt](index=16&type=section&id=Long-term%20Debt) Provides details on the company's long-term debt, including senior notes and revolving credit facility Long-term Debt (in thousands) | Long-term Debt (in thousands) | June 30, 2019 | December 31, 2018 | | :---------------------------- | :------------ | :---------------- | | Senior notes - 4.10% due 2022 | $347,970 | $347,677 | | Senior notes - 3.78% due 2029 | $250,000 | $250,000 | | Revolving credit facility | $80,833 | $168,129 | | Capital lease obligations | $0 | $5,193 | | Total Long-term Debt | $678,803 | $770,999 | - Long-term debt decreased by **$92.2 million** from December 31, 2018, to June 30, 2019, primarily due to repayments under the revolving credit facility. The company was in compliance with all debt covenants[60](index=60&type=chunk)[61](index=61&type=chunk) - The revolving credit facility has a borrowing capacity of **$850 million**, with **$766 million** unused at June 30, 2019[61](index=61&type=chunk)[62](index=62&type=chunk) [Commitments and Contingencies](index=17&type=section&id=Commitments%20and%20Contingencies) Outlines the company's legal and environmental commitments and contingent liabilities - The company is involved in legal and environmental proceedings, including those related to soil and groundwater contamination. Total accruals for environmental remediation were approximately **$11 million** at June 30, 2019[64](index=64&type=chunk)[66](index=66&type=chunk) - Management believes the outcome of these proceedings will not have a material adverse effect on consolidated results, financial condition, or cash flows[65](index=65&type=chunk) [Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss](index=19&type=section&id=Other%20Comprehensive%20Income%20%28Loss%29%20and%20Accumulated%20Other%20Comprehensive%20Loss) Details the components and changes in other comprehensive income and accumulated other comprehensive loss Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss (in thousands) | (in thousands) | Balance at Dec 31, 2018 | Other comprehensive income (loss) before reclassifications | Amounts reclassified from accumulated other comprehensive loss | Other comprehensive income (loss) | Balance at Jun 30, 2019 | | :------------- | :---------------------- | :--------------------------------------------------------- | :----------------------------------------------------------- | :-------------------------------- | :---------------------- | | Pension Plans and Other Postretirement Benefits | $(86,555) | $0 | $473 | $473 | $(86,082) | | Foreign Currency Translation Adjustments | $(94,761) | $580 | $0 | $580 | $(94,181) | | Accumulated Other Comprehensive Loss | $(181,316) | $580 | $473 | $1,053 | $(180,263) | - Accumulated other comprehensive loss decreased by **$1.053 million** from December 31, 2018, to June 30, 2019, primarily due to positive foreign currency translation adjustments and reclassifications from pension and postretirement benefits[69](index=69&type=chunk) [Fair Value Measurements](index=19&type=section&id=Fair%20Value%20Measurements) Presents fair value measurements for financial instruments, including cash and long-term debt - The fair value of cash and cash equivalents was **$73 million** at June 30, 2019, categorized as Level **1**. The estimated fair value of long-term debt was **$706.1 million** at June 30, 2019, compared to its carrying amount of **$678.8 million**, categorized as Level **2**[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) [Recent Accounting Pronouncements](index=19&type=section&id=Recent%20Accounting%20Pronouncements) Summarizes the adoption of recent accounting pronouncements and their impact on financial reporting - The company adopted ASU **2016-02**, 'Leases,' and ASU **2018-02**, 'Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,' on January 1, 2019[73](index=73&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, condition, and liquidity, analyzing sales, profit drivers, cash flows, and the company's strategic outlook [Forward-Looking Statements](index=20&type=section&id=Forward-Looking%20Statements) Highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements based on current expectations and projections, but actual results may differ due to various uncertainties and factors, including raw material availability, production disruptions, competition, and regulatory changes[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) [Overview](index=20&type=section&id=Overview) Provides a high-level summary of the company's financial performance and strategic focus for the period - For the first six months of 2019, petroleum additives net sales decreased by **7.6%** due to lower product shipments and unfavorable foreign currency, but operating profit increased by **22.6%** due to improved selling prices and lower raw material costs[78](index=78&type=chunk) - The company generates cash in excess of business needs and continues to invest in organizational talent, technology development, and global infrastructure for long-term growth[79](index=79&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Analyzes the company's operational performance, focusing on net sales, segment profit, and expense trends [Net Sales](index=21&type=section&id=Net%20Sales_MD%26A) Analyzes consolidated net sales and petroleum additives shipments by segment and region Net Sales (in millions) | Net Sales by Segment (in millions) | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :--------------------------------- | :------ | :------ | :------------ | :------------ | | Petroleum additives | $560.8 | $596.2 | $1,093.5 | $1,183.1 | | All other | $2.6 | $2.8 | $6.5 | $5.1 | | Consolidated Net Sales | $563.4 | $599.0 | $1,100.0 | $1,188.2 | - Consolidated net sales decreased by **5.9%** in Q2 2019 and **7.4%** for the first six months of 2019, primarily driven by a **$126.1 million** decrease in petroleum additives shipments for the six-month period, partially offset by improved selling prices[81](index=81&type=chunk)[86](index=86&type=chunk) - Petroleum additives shipments decreased by **8.4%** in Q2 and **10.4%** for the six months, with most of the decrease in the EMEAI region for lubricant additives and across all regions except Asia Pacific for fuel additives. This was attributed to non-renewal of low-margin business and softening global demand, though a reversal of this trend is starting[87](index=87&type=chunk)[88](index=88&type=chunk) [Segment Operating Profit](index=22&type=section&id=Segment%20Operating%20Profit_MD%26A) Examines segment operating profit, focusing on petroleum additives, margins, and expense trends Segment Operating Profit (in millions) | Segment Operating Profit (in millions) | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :------------------------------------- | :------ | :------ | :------------ | :------------ | | Petroleum additives | $103.0 | $71.5 | $190.9 | $155.7 | | All other | $(0.3) | $0.4 | $0.1 | $0.3 | - Petroleum additives segment operating profit increased by **$31.5 million** in Q2 2019 and **$35.2 million** for the first six months of 2019, driven by improved selling prices and lower raw material costs. The operating profit margin for petroleum additives improved to **18.4%** in Q2 2019 from **12.0%** in Q2 2018[93](index=93&type=chunk)[94](index=94&type=chunk) - Cost of goods sold as a percentage of net sales decreased to **69.5%** in Q2 2019 from **75.7%** in Q2 2018, indicating improved gross profit margins[95](index=95&type=chunk) - Selling, general, and administrative expenses (SG&A) decreased by **15.9%** in Q2 2019 and **13.5%** for the first six months of 2019, while research, development, and testing (R&D) expenses remained substantially unchanged[97](index=97&type=chunk)[98](index=98&type=chunk) [Interest and Financing Expenses](index=23&type=section&id=Interest%20and%20Financing%20Expenses) Details the changes in interest and financing expenses, including factors like debt levels and interest rates - Interest and financing expenses increased to **$7.7 million** in Q2 2019 and **$15.8 million** for the first six months of 2019, primarily due to higher average debt and lower capitalized interest, partially offset by a favorable interest rate[99](index=99&type=chunk) [Other Income (Expense), Net](index=23&type=section&id=Other%20Income%20%28Expense%29%2C%20Net) Explains the components of other income (expense), net, primarily related to benefit costs - Other income (expense), net, was **$5.8 million** income in Q2 2019 and **$11.7 million** income for the first six months of 2019, primarily reflecting components of net periodic benefit cost (income)[100](index=100&type=chunk) [Income Tax Expense](index=23&type=section&id=Income%20Tax%20Expense) Discusses income tax expense and the effective tax rate, including the impact of tax reform - Income tax expense increased due to higher income before income tax, but the effective tax rate decreased to **23.3%** in Q2 2019 and **23.2%** for the first six months of 2019, primarily due to provisions of the Tax Reform Act[101](index=101&type=chunk)[102](index=102&type=chunk) [Cash Flows, Financial Condition, and Liquidity](index=23&type=section&id=Cash%20Flows%2C%20Financial%20Condition%2C%20and%20Liquidity) Examines the company's cash generation, financial position, and ability to meet short-term and long-term obligations - Cash and cash equivalents increased slightly to **$73.2 million** at June 30, 2019. The company expects cash from operations and its revolving credit facility to cover operating needs and capital expenditures for at least the next twelve months[103](index=103&type=chunk)[106](index=106&type=chunk) - Foreign subsidiaries held **$71.2 million** in cash, with no significant tax consequences anticipated from future repatriations of foreign earnings due to the U.S. tax reform act[104](index=104&type=chunk) [Cash Flows – Operating Activities](index=23&type=section&id=Cash%20Flows%20%E2%80%93%20Operating%20Activities) Analyzes cash generated from operating activities, including working capital changes - Cash flows from operating activities were **$150.6 million** for the first six months of 2019, including a **$27.1 million** use of cash for higher working capital requirements[107](index=107&type=chunk) - Significant working capital changes included increases in accounts receivable, accounts payable, and operating lease liabilities, and decreases in inventory and accrued expenses[108](index=108&type=chunk)[109](index=109&type=chunk) [Cash Flows – Investing Activities](index=24&type=section&id=Cash%20Flows%20%E2%80%93%20Investing%20Activities) Details cash used in investing activities, primarily for capital expenditures - Cash used in investing activities totaled **$23.2 million** for capital expenditures in the first six months of 2019. Total capital spending for 2019 is projected to be **$60 million to $70 million** for manufacturing and R&D infrastructure improvements[111](index=111&type=chunk) [Cash Flows – Financing Activities](index=24&type=section&id=Cash%20Flows%20%E2%80%93%20Financing%20Activities) Examines cash flows from financing activities, including dividends and debt repayments - Cash used in financing activities was **$127.7 million**, including **$39.2 million** in dividends paid and **$87.3 million** in repayments on the revolving credit facility[112](index=112&type=chunk) - Long-term debt decreased to **$678.8 million** at June 30, 2019, from **$771.0 million** at December 31, 2018. The Leverage Ratio was **1.65** and the Interest Coverage Ratio was **10.99** at June 30, 2019, both in compliance with covenants[112](index=112&type=chunk)[114](index=114&type=chunk) - Total long-term debt as a percentage of total capitalization decreased from **61.1%** at December 31, 2018, to **53.5%** at June 30, 2019, due to increased shareholders' equity and decreased debt[115](index=115&type=chunk) [Critical Accounting Policies and Estimates](index=24&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) States that there were no significant changes to critical accounting policies and estimates - There have been no significant changes in critical accounting policies and estimates from those reported in the 2018 Annual Report[116](index=116&type=chunk) [Recent Accounting Pronouncements](index=24&type=section&id=Recent%20Accounting%20Pronouncements_MD%26A) Refers to detailed discussions of recent accounting pronouncements in the financial statement notes - Refer to Note **13** for a full discussion of significant recent accounting pronouncements impacting financial statements[117](index=117&type=chunk) [Other Matters](index=25&type=section&id=Other%20Matters) Discusses other relevant matters, including the potential impacts of Brexit on European operations - Brexit continues to create uncertainty for European operations, but the company's key manufacturing facilities are predominantly within the EU, mitigating some immediate trade agreement impacts. The company is monitoring and evaluating changes to mitigate potential risks[118](index=118&type=chunk) [Outlook](index=25&type=section&id=Outlook) Presents the company's strategic objectives and expectations for market growth and future investments - The company aims for a **10%** compounded annual return for shareholders over any five-year period and expects the petroleum additives market to grow **1% to 2%** annually, with plans to exceed this growth rate[119](index=119&type=chunk)[120](index=120&type=chunk) - Investments continue in organizational talent, technology, and global infrastructure to enhance customer solutions, expand global reach, and improve operating results. The primary acquisition focus remains on the petroleum additives industry[121](index=121&type=chunk)[122](index=122&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Confirms no material changes in market risk as of June 30, 2019, compared to the prior annual report - No material changes in market risk were reported at June 30, 2019, compared to the 2018 Annual Report[124](index=124&type=chunk) [ITEM 4. Controls and Procedures](index=25&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management assessed disclosure controls as effective and reported no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2019[125](index=125&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2019[126](index=126&type=chunk) [PART II. OTHER INFORMATION](index=26&type=section&id=PART%20II.%20OTHER%20INFORMATION) Details legal proceedings, exhibits, and required corporate signatures [ITEM 1. Legal Proceedings](index=26&type=section&id=ITEM%201.%20Legal%20Proceedings) Confirms no material changes to legal proceedings since the 2018 Annual Report disclosure - No material changes to legal proceedings were reported since the 2018 Annual Report[127](index=127&type=chunk) [ITEM 6. Exhibits](index=27&type=section&id=ITEM%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including corporate governance documents and executive certifications - Exhibits include Articles of Incorporation, Bylaws, and certifications from the principal executive and financial officers as required by the Sarbanes-Oxley Act[128](index=128&type=chunk) [SIGNATURES](index=28&type=section&id=SIGNATURES) Contains required signatures from authorized officers for the Form 10-Q submission - The report is signed by Brian D. Paliotti, Vice President and Chief Financial Officer, and William J. Skrobacz, Controller, on August 1, 2019[131](index=131&type=chunk) ```