NewMarket (NEU) - 2021 Q4 - Annual Report

PART I Business NewMarket Corporation is a global petroleum additives manufacturer operating through its subsidiary, Afton Chemical Corporation - NewMarket Corporation is a holding company whose primary business is the manufacturing and sale of petroleum additives through its subsidiary, Afton Chemical Corporation[12][13][15] - The company's business consists of one primary segment: petroleum additives, which are used in lubricating oils and fuels to enhance performance[21][22][24] - Afton is developing new technologies to meet evolving OEM requirements, including for hybrid and electric vehicles, focusing on improved fuel efficiency and reduced emissions[53][54] - The company holds approximately 1,500 issued or pending patents and actively protects its intellectual property[60] - In 2021, the company employed 2,104 people globally, with approximately 1,100 in the United States, and the resignation rate from 2019-2021 was approximately 3.7%[45][47] Environmental and Safety Expenditures | Expense Type | 2021 ($ in millions) | 2020 ($ in millions) | 2019 ($ in millions) | | :--- | :--- | :--- | :--- | | Ongoing Environmental Operating & Clean-up Costs | 35 | 29 | 29 | | Capital Expenditures for Pollution Prevention & Safety | 17 | 17 | 8 | Risk Factors The company faces material risks from raw material volatility, competition, operational disruptions, and regulatory changes - Market & Supply Chain Risks: Profitability is sensitive to raw material price changes and supply availability, and the company faces significant competition while relying on a small number of large customers[78][79][80] - Operational Risks: Disruption at a production facility could significantly impact profitability, alongside risks from R&D failures, IT system failures, and extraordinary events like the COVID-19 pandemic[81][83][94] - Legislative & Regulatory Risks: The business is subject to extensive governmental regulations, including environmental laws, which could lead to substantial compliance costs and liabilities[99][102][104] - Financial & Economic Risks: Substantial indebtedness could limit financial flexibility, and the company is exposed to foreign currency fluctuations, with over 65% of 2021 net sales outside the U.S[96][110][116] Unresolved Staff Comments The company reports no unresolved staff comments - None[119] Properties The company owns its principal global research, manufacturing, and distribution facilities and believes capacity is sufficient - The company owns most of its principal operating properties, which include R&D, manufacturing, and distribution facilities globally[120] Key Operating Properties | Type | Locations | | :--- | :--- | | Research, Development, and Testing | Richmond, VA; Bracknell, England; Tsukuba, Japan; Ashland, VA; Suzhou, China | | Manufacturing and Distribution | Feluy, Belgium; Houston, TX; Jurong Island, Singapore; Sauget, IL; San Juan del Rio, Mexico | - Management believes that current plants and supply agreements are sufficient to meet expected sales levels[123] Legal Proceedings The company is involved in various legal proceedings not expected to have a material adverse financial effect - The company is involved in incidental legal proceedings, including environmental matters, but does not expect them to have a material adverse effect on its financial condition[125][126] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[127] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, with an active share repurchase program and a history of paying cash dividends - The company's common stock trades on the New York Stock Exchange (NYSE) under the symbol 'NEU'[129] - A new share repurchase program was authorized on October 28, 2021, allowing for the repurchase of up to $500 million of common stock, with approximately $482 million remaining available at year-end[131] Q4 2021 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 to Oct 31 | 231,754 | $356.37 | | Nov 1 to Nov 30 | 5,055 | $333.44 | | Dec 1 to Dec 31 | 37,470 | $333.20 | | Total | 274,279 | $352.78 | - Cash dividends declared and paid totaled $8.00 per share for 2021 and $7.60 per share for 2020[135] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Sales increased due to higher prices and volume, but operating profit declined due to rising raw material and energy costs - Petroleum additives net sales increased 17.1% in 2021, but operating profit for the segment decreased by 15.7% due to rising raw material and other costs[144] Net Sales by Segment (in millions) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Petroleum additives | | | | | Lubricant additives | $1,999 | $1,687 | $1,779 | | Fuel additives | $345 | $315 | $397 | | Total Petroleum additives | $2,344 | $2,002 | $2,176 | | All other | $12 | $9 | $14 | | Total Net sales | $2,356 | $2,011 | $2,190 | Segment Operating Profit (in millions) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Petroleum additives | $281 | $333 | $359 | | All other | $(1) | $0 | $(2) | - Cash from operating activities was $165 million in 2021, a decrease from $284 million in 2020, primarily due to a $116 million increase in working capital requirements[170][171] - The company issued $400 million of 2.70% senior notes in March 2021 and repurchased 566,671 shares of common stock for $196 million during the year[145][178] - The company's outlook anticipates the petroleum additives market will grow 1-2% annually, and it plans to exceed that rate over the long term[219] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from securities prices, interest rates, foreign currency, and raw material costs - The company is exposed to market risks including prices of marketable securities, interest and foreign currency rates, and raw material costs[234] - Marketable Securities Risk: At year-end 2021, the company held $376 million in marketable securities, where a hypothetical 10% price decrease would result in a $38 million decrease in fair value[237] - Interest Rate Risk: Most long-term debt is fixed-rate, with $148 million of variable-rate debt outstanding at year-end 2021[238][239] - Foreign Currency Risk: The company has significant exposure to foreign currency fluctuations, primarily with the Euro, British Pound, Japanese Yen, and Chinese Renminbi[240] - Raw Material Price Risk: Profitability is sensitive to changes in the cost and availability of key raw materials, and the company may not be able to pass all cost increases to customers[241] Financial Statements and Supplementary Data This section presents the independent auditor's report and the company's consolidated financial statements for the past three years - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the financial statements and internal controls over financial reporting as of December 31, 2021[246] - The auditor identified the valuation of the pension benefit obligation as a critical audit matter due to significant management judgment in determining the discount rate assumption[254][255] Consolidated Income Statement Highlights (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net Sales | $2,356,110 | $2,010,931 | $2,190,295 | | Gross Profit | $547,707 | $595,032 | $629,869 | | Operating Profit | $257,782 | $311,802 | $337,321 | | Net Income | $190,908 | $270,568 | $254,286 | | EPS - basic and diluted | $17.71 | $24.64 | $22.73 | Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $1,388,173 | $898,078 | | Total Assets | $2,558,436 | $1,933,875 | | Total Current Liabilities | $725,087 | $312,455 | | Long-term Debt | $789,853 | $598,848 | | Total Shareholders' Equity | $762,129 | $759,824 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[445] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level as of December 31, 2021[446] - Based on an evaluation using the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2021[450] Other Information The company reports no other information for this item - None[451] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable[452] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and governance is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement[454] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement[456] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference, with details on equity compensation plans provided - Information regarding security ownership is incorporated by reference from the company's 2022 Proxy Statement[456] Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by shareholders | 0 | $0 | 946,012 | | Not approved by shareholders | 0 | $0 | 0 | | Total | 0 | $0 | 946,012 | Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement[459] Principal Accounting Fees and Services Information on accounting fees and services is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement[460] PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section lists all exhibits filed with the Form 10-K, including corporate governance documents, debt agreements, compensation plans, and Sarbanes-Oxley certifications[461][463][465] - No financial statement schedules were required to be filed[461] Form 10-K Summary The company has not provided a summary for this item - None[467]