NewMarket (NEU) - 2018 Q4 - Annual Report

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].