NewMarket (US:NEU)2019-08-01 13:35markdown [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)