```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) ```

Financial Data and Key Metrics Changes - Net income for Q1 2019 was $62.2 million or $5.57 per share, an increase of 2.7% in net income and 8.4% in EPS compared to Q1 2018 [5] - Petroleum additives net sales decreased to $532.7 million, down 9.2% from $586.9 million in the same period last year, attributed to a 12.5% decrease in shipments [5][6] - Operating profit for petroleum additives was $87.9 million, a 4.4% increase from $84.1 million in Q1 2018, driven by changes in selling prices and raw materials [6] - The effective income tax rate decreased to 23% from 25.5% year-over-year [7] Business Line Data and Key Metrics Changes - Shipments of lubricant and fuel additives decreased across all regions except for Asia Pacific, which saw an increase in fuel additive shipments [6] - The operating margin for the rolling four quarters, including Q1 2019, was 14.1%, with a focus on improving margins throughout 2019 [6][25] Market Data and Key Metrics Changes - The company experienced mid- to high single-digit declines in revenues in the United States and China, while EMEA and other foreign markets saw low teens declines [17] - Approximately 25% of the shipment decline can be attributed to identifiable one-off issues, particularly in regions with larger declines [18][20] Company Strategy and Development Direction - The company plans to continue focusing on margin improvement and expects capital expenditures in the range of $75 million to $85 million for 2019, consistent with 2018 levels [8][9] - Investments have been made in people, technology, technical centers, and production capacities to enhance capabilities and shareholder value [8][9] Management's Comments on Operating Environment and Future Outlook - Management views the current softness in demand as a short-term issue, with confidence in a recovery based on stable industry demand [12][13] - The company does not anticipate significant inventory trimming by customers, as demand is not highly sensitive to small economic changes [15] Other Important Information - Higher conversion costs were noted, attributed to general manufacturing costs across the network [28][29] - The tax rate for 2019 is expected to remain in the 23% to 24% range, similar to the first quarter [30] Q&A Session Summary Question: What is the reason for the double-digit declines in volumes in a growing market? - Management acknowledged the unusual nature of the declines and attributed it to short-term issues, with no significant loss of business [12][13] Question: What gives confidence in a reversal of the current trend? - Confidence stems from the stable nature of industry demand, which does not typically vary greatly year-to-year [13] Question: Can you provide details on the geographic revenue declines? - Larger declines in certain regions were attributed to identifiable one-off issues, with 25% of the change in shipments linked to these factors [18][20] Question: What is driving the positive performance in Asia Pacific? - The positive performance is attributed to a combination of economic growth and increased transportation modes driving fuel consumption [22] Question: How should margins be expected to progress sequentially? - Management is focused on margin recovery and aims to return to mid- to high-teens margins [25] Question: What are the factors behind higher conversion costs? - Higher conversion costs are due to a combination of factors, including general increases in production costs across the network [29] Question: What is the expected tax rate for 2019? - The tax rate is expected to be in the 23% to 24% range for the full year, consistent with Q1 [30]

Financial Performance - Consolidated net sales for Q1 2019 were $536.6 million, a decrease of $52.6 million or 8.9% from Q1 2018[71] - Petroleum additives net sales decreased 9.2% to $532.7 million in Q1 2019 compared to $586.9 million in Q1 2018, with the largest decline in the EMEAI region[75] - Operating profit for petroleum additives increased by $3.8 million to $87.9 million in Q1 2019, with an operating profit margin of 16.5% compared to 14.3% in Q1 2018[81][83] - The volume of product shipments for petroleum additives decreased by 12.5% in Q1 2019 compared to Q1 2018, with lubricant additives shipments declining across all regions[77] Research and Development - Research and development (R&D) investment decreased by $1.1 million in Q1 2019, representing 6.2% of net sales compared to 5.8% in Q1 2018[86] Cash Flow and Working Capital - Cash and cash equivalents increased by $5.2 million to $78.2 million as of March 31, 2019[92] - Cash flows from operating activities for Q1 2019 were $19.1 million, with $63.4 million used to fund higher working capital requirements[96] - Total working capital increased to $596.2 million at March 31, 2019, with a current ratio of 3.29 to 1[98] - Cash used in financing activities during Q1 2019 amounted to $4.1 million, with dividends paid of $19.6 million partially offset by borrowings of $16.1 million[100] Capital Expenditures and Debt - Capital expenditures for Q1 2019 totaled $10.4 million, with total capital spending expected to be in the range of $75 million to $85 million for the year[99] - Long-term debt increased to $782.0 million at March 31, 2019, up from $771.0 million at December 31, 2018[100] - The total long-term debt as a percentage of total capitalization decreased from 61.1% at December 31, 2018 to 59.2% at March 31, 2019, primarily due to an increase in shareholders' equity[107] Future Outlook - The company expects petroleum additives industry shipment demand to grow in the 1% to 2% range over the long term, with plans to exceed this growth rate[113] - Significant investments have been made in organizational talent, technology development, and global infrastructure to enhance operating results and customer solutions[114] - The company generates excess cash beyond current offerings and regularly reviews internal opportunities for utilizing this cash, focusing on the petroleum additives industry for future acquisitions[115] Shareholder Returns and Compliance - The company aims to provide a 10% compounded return per year for shareholders over any five-year period, although this may not be achieved each year[112] - The company remains in compliance with all covenants under its debt agreements as of March 31, 2019[106] Market Risk - There have been no material changes in market risk as of March 31, 2019, compared to the 2018 Annual Report[117]

Financial Performance - Consolidated net sales for 2018 amounted to $2.3 billion, an increase of $91 million, or 4.2% from 2017 [151]. - Net sales for 2018 were $2,289,675 thousand, an increase of 4.1% from $2,198,404 thousand in 2017 [266]. - Gross profit decreased to $585,363 thousand in 2018, down 8.0% from $636,387 thousand in 2017 [266]. - Operating profit for 2018 was $292,674 thousand, a decline of 9.3% compared to $322,734 thousand in 2017 [266]. - Net income increased to $234,734 thousand in 2018, up 23.2% from $190,509 thousand in 2017 [266]. - Comprehensive income decreased to $199,412,000 in 2018 from $227,025,000 in 2017, reflecting a decline of 12.2% [268]. - Basic and diluted earnings per share rose to $20.34 in 2018, compared to $16.08 in 2017, reflecting a 26.0% increase [266]. Expenses and Costs - Petroleum additives operating profit for 2018 was $311 million, a decrease of $34 million, or 9.8% from 2017 [160]. - The operating profit margin was 13.6% in 2018, down from 15.8% in 2017 and 18.4% in 2016, primarily due to increased raw material costs [161]. - Selling, general, and administrative expenses (SG&A) were $9 million, or 6.1% lower in 2018 than in 2017, with SG&A as a percentage of net sales at 5.7% [167]. - The cost of goods sold as a percentage of net sales increased to 74.5% in 2018 from 71.6% in 2017 and 67.1% in 2016 [163]. - Interest and financing expenses rose to $27 million in 2018 from $22 million in 2017, primarily due to higher average debt [170]. - Cash paid for interest and financing expenses in 2018 was $28.92 million, up from $20.38 million in 2017, indicating a rise of 42.2% [322]. Cash Flow and Capital Management - Cash generated from operating activities was $198 million in 2018, down from $243 million in 2017 and $353 million in 2016 [176]. - The company repurchased 603,449 shares of common stock at a total cost of $232 million during 2018 [148]. - The company repurchased $232 million of common stock and paid $80 million in dividends in 2018 [177]. - Cash and cash equivalents decreased from $84 million at the end of 2017 to $73 million at the end of 2018 [181]. - Cash provided from operating activities was $197,911,000 in 2018, down from $242,795,000 in 2017, a decrease of 18.5% [275]. - The company paid dividends of $80,448,000 in 2018, slightly lower than $82,885,000 in 2017 [275]. Debt and Financial Ratios - Long-term debt increased from $603 million at the end of 2017 to $771 million at the end of 2018, representing 61.1% of total capitalization [196][197]. - The Leverage Ratio was 2.00 and the Interest Coverage Ratio was 11.89 as of December 31, 2018, indicating strong financial health [194]. - Total long-term debt as of December 31, 2018, was $771 million, with $600 million at fixed rates, indicating no interest rate risk for fixed debt [248]. - Variable rate debt under the revolving credit facility was $168 million, with a hypothetical 10% increase in interest rates resulting in an additional interest expense of approximately $0.3 million [249]. - Long-term debt increased significantly to $770,999,000 in 2018 from $602,900,000 in 2017, an increase of 28% [271]. Investments and Growth Strategy - Significant investments have been made in organizational talent, technology development, and global infrastructure, including a new manufacturing facility in Singapore and an acquired facility in Mexico [231]. - The company expects to utilize excess cash for technological, geographic, capability, and product line opportunities, focusing on the petroleum additives industry for future acquisitions [232]. - The petroleum additives segment is expected to grow at a rate of 1% to 2% over the long term, with plans to exceed this industry growth rate [230]. Pension and Employee Benefits - The average remaining service period of active participants for U.S. pension plans is 12.8 years, while the average remaining life expectancy of inactive participants is 22.9 years [209]. - The expected long-term rate of return for U.S. pension plans is maintained at 8.5% as of December 31, 2018 [211]. - An actuarial loss of approximately $56 million occurred in 2018 due to actual investment returns being less than expected for U.S. pension plans [212]. - The expected long-term rate of return for the U.K. pension plan is 5.7% as of December 31, 2018, based on actual asset allocation [222]. - The aggregate cash contributions to U.S. pension plans are expected to be approximately $2 million to $4 million in 2019, while contributions to postretirement benefit plans are expected to be around $1 million [218]. Market Risks - The company is exposed to market risks including fluctuations in interest rates, foreign currency rates, and raw material prices, which could impact operations and cash flows [245]. - The company recorded a net loss of $8 million from foreign currency transaction adjustments in 2018, contrasting with a net gain of $5 million in both 2017 and 2016 [279].

Financial Data and Key Metrics Changes - Profit before tax for Q4 2018 was $71.1 million, a 9.5% increase compared to $64.9 million in Q4 2017 [4] - Net income for Q4 2018 was $62.8 million, or $5.58 per share, compared to $4.1 million, or $0.35 per share in Q4 2017 [5] - Income tax expense decreased to $8.3 million in Q4 2018 from $60.9 million in Q4 2017 [5] Business Line Data and Key Metrics Changes - Petroleum additives operating profit for Q4 2018 was $79.5 million, up 7.2% from Q4 2017, while sales decreased by 3.5% to $537 million due to lower shipments [7] - Full-year 2018 petroleum additive operating profit was $311 million, down 9.9% compared to the previous year, with shipments down 2.8% [10][11] Market Data and Key Metrics Changes - Shipments decreased across both lubricant additives and fuel additives, with Latin America being the only region reporting an increase in fuel additive shipments [8][11] - The company experienced a decrease in lubricant additive shipments in all regions except Asia-Pacific [11] Company Strategy and Development Direction - The company aims for margin recovery throughout 2019, focusing on research and development to bring higher value products to customers [18] - The company plans to maintain capital investments in the range of $75 million to $85 million for 2019 [13] Management Comments on Operating Environment and Future Outlook - Management noted that rising raw material costs led to margin compression, overshadowing progress made in the fourth quarter [15] - The company is committed to providing a 10% compounded return per year for shareholders over any five-year period, despite not achieving this goal in 2018 [16] Other Important Information - The company returned $312 million to shareholders through dividends and stock repurchases in 2018 [12] - The company ended the year with a net debt to EBITDA ratio of 1.8 times, comfortable within the 1.5 to 2 times range [13] Q&A Session Summary Question: Long-term shipment trends for lubricant additives in North America - The company does not disclose shipments in the 10-K but aims to grow a few percentage points greater than the market [22] - Shipments were down 10% in the quarter, but the company does not see any fundamental change in the marketplace [31] Question: Difference in profitability between lube and fuel additives - Margins improved due to pricing catching up with raw materials, with no significant disruptions noted [30] Question: Inventory position and pricing expectations - The company has not seen any relief in raw material costs and does not carry higher than normal inventory [34][35] - Management indicated that pricing adjustments are ongoing to reach historical margin levels [37]