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ITEM 7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Forward-Looking Statements
The following discussion, as well as other discussions in this Annual Report on Form 10-K, contains forward-looking statements about future events and expectations within the meaning of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future results. When we use words in this document such as “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “expects,” “should,” “could,” “may,” “will,” and similar expressions, we do so to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding future prospects of growth in the petroleum additives market, other trends in the petroleum additives market, our ability to maintain or increase our market share, and our future capital expenditure levels.
We believe our forward-looking statements are based on reasonable expectations and assumptions, within the bounds of what we know about our business and operations. However, we offer no assurance that actual results will not differ materially from our expectations due to uncertainties and factors that are difficult to predict and beyond our control.
Factors that could cause actual results to differ materially from expectations include, but are not limited to, the availability of raw materials and distribution systems; disruptions at production facilities, including single-sourced facilities; hazards common to chemical businesses; the ability to respond effectively to technological changes in our industry; failure to protect our intellectual property rights; sudden or sharp raw material price increases; competition from other manufacturers; current and future governmental regulations; the gain or loss of significant customers; failure to attract and retain a highly-qualified workforce; an information technology system failure or security breach; the occurrence or threat of extraordinary events, including natural disasters, terrorist attacks, and health-related epidemics; risks related to operating outside of the United States; political, economic, and regulatory factors concerning our products; the impact of substantial indebtedness on our operational and financial flexibility; the impact of fluctuations in foreign exchange rates; resolution of environmental liabilities or legal proceedings; limitation of our insurance coverage; our inability to realize expected benefits from investment in our infrastructure or from recent or future acquisitions, or our inability to successfully integrate recent or future acquisitions into our business; and the underperformance of our pension assets resulting in additional cash contributions to our pension plans. Risk factors are discussed in Item 1A. “Risk Factors.”
You should keep in mind that any forward-looking statement made by us in this discussion or elsewhere speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, any forward-looking statement made in this discussion or elsewhere, might not occur.
OVERVIEW
When comparing the results of the petroleum additives segment for 2019 with 2018, net sales decreased 4.6% primarily due to lower product shipments and an unfavorable foreign currency impact, which was partially offset by higher selling prices. Petroleum additives operating profit for 2019 was 15.5% higher than 2018 primarily reflecting lower raw material costs and improved selling prices, partially offset by the impact from lower product shipments.
Our operations generate cash that is in excess of the needs of the business. We continue to invest and manage our business for the long-term with the goal of helping our customers succeed in their marketplaces. Our investments continue to be in organizational talent, technology development and processes, and global infrastructure, consisting of technical centers, production capability, and geographic expansion.
RESULTS OF OPERATIONS
Management's discussion and analysis of our results of operations is presented below for the comparative periods of 2019 versus 2018. The discussion and analysis of our results of operations for 2018 compared to 2017 is available in Item 7 of our 2018 Annual Report on Form 10-K.
Net Sales
Our consolidated net sales for 2019 amounted to $2.2 billion, a decrease of $99 million, or 4.3% from 2018.
No single customer accounted for 10% or more of our total net sales in 2019, 2018, or 2017.
The following table shows net sales by segment and product line for each of the last three years.
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Years Ended December 31,
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(in millions)
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2019
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2018
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2017
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Petroleum additives
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|
|
|
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Lubricant additives
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|
$
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1,779
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|
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$
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1,871
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$
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1,790
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Fuel additives
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397
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410
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397
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Total
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2,176
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|
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2,281
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|
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2,187
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All other
|
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14
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|
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9
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|
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11
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|
Net sales
|
|
$
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2,190
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|
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$
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2,290
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|
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$
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2,198
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Petroleum Additives - The regions in which we operate include North America (the United States and Canada), Latin America (Mexico, Central America, and South America), Asia Pacific, and the Europe/Middle East/Africa/India (EMEAI) region. The percentage of net sales being generated in the regions has remained fairly consistent over the past three years, with some limited fluctuation due to various factors, including the impact of regional economic trends. North America and EMEAI both represent around 35% of our petroleum additives net sales, while Asia Pacific contributes about 25% and Latin America represents the remaining amount. As shown in the table above, lubricant additives net sales and fuel additives net sales compared to total petroleum additives net sales has remained substantially consistent over the past three years.
The approximate components of the petroleum additives decrease in net sales of $105 million when comparing 2019 to 2018 are shown below in millions.
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Net sales for year ended December 31, 2018
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$
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2,281
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Lubricant additives shipments
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(114
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)
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Fuel additives shipments
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(24
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)
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Selling prices
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60
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Foreign currency impact, net
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(27
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)
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Net sales for year ended December 31, 2019
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$
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2,176
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Petroleum additives net sales for 2019 of $2.2 billion were approximately 4.6% lower than 2018 levels. The decrease was across all regions except North America, with decreases ranging from about 7% to 12% in the other three regions. The North America region increased slightly when comparing the two years. Petroleum additives shipments accounted for a $138 million decrease in net sales between 2018 and 2019. Improved selling prices, net of an unfavorable foreign currency impact, resulted in an increase in net sales of $33 million when comparing the two years, partially offsetting the impact from lower product shipments. The United States Dollar strengthened against most of the major currencies in which we transact, resulting in an unfavorable impact to net sales in 2019. The unfavorable impact was predominantly from the Euro.
On a worldwide basis, the volume of product shipments for petroleum additives decreased 5.5% when comparing 2019 with 2018. Shipments of lubricant additives decreased in the EMEAI, Asia Pacific, and Latin America regions, with a small increase in the North America region. Fuel additives shipments decreased across all regions except for the Asia Pacific region, which recorded an increase in fuel additives shipments.
All Other - The “All other” category includes the operations of the antiknock compounds business, and certain contracted manufacturing and services performed by Ethyl.
Segment Operating Profit
NewMarket evaluates the performance of the petroleum additives business based on segment operating profit. NewMarket Services expenses are charged to each subsidiary pursuant to services agreements between the companies. Depreciation on segment property, plant, and equipment, as well as amortization of segment intangible assets and lease right-of-use assets, is included in segment operating profit.
The table below reports segment operating profit for the last three years. A reconciliation of segment operating profit to income before income tax expense is in Note 4.
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Years Ended December 31,
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(in millions)
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2019
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2018
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2017
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Petroleum additives
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$
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359
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$
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311
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$
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345
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All other
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$
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(2
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)
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$
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(3
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)
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$
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4
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Petroleum Additives - Petroleum additives segment operating profit increased $48 million when comparing 2019 to 2018. Both periods included the impact of the same factors that affected gross profit (see discussion below).
The operating profit margin was 16.5% in 2019 and 13.6% in 2018. In 2019, we began to see a turnaround in the operating performance of petroleum additives as compared to 2018. In the two years prior to 2019, our operations experienced a challenging economic environment caused mainly by increases in raw material costs. While we have seen evidence that this trend improved in 2019, we continue to make operating margin stability a priority. While operating profit margins will fluctuate from quarter to quarter due to multiple factors, we believe the fundamentals of our business and industry are unchanged.
Petroleum additives gross profit increased $47 million when comparing 2019 and 2018. Cost of goods sold as a percentage of net sales was 71.1% in 2019 and 74.5% in 2018.
When comparing 2019 and 2018, the increase in gross profit resulted from an improvement in selling prices, as well as favorable raw material and conversion costs (including a favorable foreign currency translation impact), which together contributed over 100% of the change between the two years. These favorable factors were partially offset by an unfavorable impact from product shipments, as discussed in the Net Sales section above. The sales price variance for both years included the impact from foreign currency rates as discussed in the Net Sales section above.
Petroleum additives selling, general, and administrative expenses (SG&A) were $5 million, or 4.1% lower in 2019 than 2018. SG&A as a percentage of net sales was 5.8% in 2019 and 5.7% in 2018. Our SG&A costs are mainly personnel-related and include salaries, benefits and other costs associated with our workforce. There were no significant changes in the individual components of SG&A costs when comparing the years.
Our investment in petroleum additives research, development, and testing (R&D) increased approximately $4 million when comparing 2019 with 2018. As a percentage of net sales, R&D was 6.6% in 2019 and 6.2% in 2018. Our R&D investments reflect our efforts to support the development of solutions that meet our customers' needs, meet new and evolving standards, and support our expansion into new product areas. Our approach to R&D investment, as it is with SG&A, is one of purposeful spending on programs to support our current product base and to ensure that we develop products to support our customers' programs in the future. R&D investments include personnel-related costs, as well as costs for internal and external testing of our products. Most R&D is incurred in the United States and the U.K., with approximately 70% of total R&D being attributable to the North America and EMEAI regions. Substantially all
investments in new product development are incurred in the United States and the U.K. The remaining R&D is attributable to the Asia Pacific and Latin America regions and represents customer technology support services in those regions. All of our R&D is related to the petroleum additives segment.
The following discussion references certain captions on the Consolidated Statements of Income.
Interest and Financing Expenses
Interest and financing expenses were $29 million in 2019 and $27 million in 2018. The increase in interest and financing expense between 2019 and 2018 resulted primarily from lower capitalized interest, which was partially offset by lower average debt.
Other Income (Expense), Net
Other income (expense), net was income of $24 million in both 2019 and 2018. The amounts for both periods primarily reflect the components of net periodic benefit cost (income), except for service costs. See Note 17 for further information on total periodic benefit cost (income).
Income Tax Expense
Income tax expense was $77 million in 2019 and $56 million in 2018. The effective tax rate was 23.3% in 2019 and 19.1% in 2018. When comparing 2019 and 2018, income tax increased $13 million due to the higher effective tax rate and $8 million due to higher income before income tax expense. The change in the effective tax rates is primarily due to one-time benefits recorded in 2018 associated with the Tax Cuts and Jobs Act (Tax Reform Act). See Note 18 for further details on income taxes.
CASH FLOWS DISCUSSION
We generated cash from operating activities of $337 million in 2019 and $198 million in 2018.
During 2019, we used the $337 million cash generated from operations to repay $123 million on our revolving credit facility, pay $82 million of dividends on our common stock, and fund capital expenditures of $59 million. Cash flows from operating activities included an increase of $5 million from lower working capital requirements, as well as cash contributions of $10 million to our pension and postretirement plans.
During 2018, we used the $198 million cash generated from operations, $168 million of borrowings on our revolving credit facility and $11 million cash on hand to repurchase $232 million of our common stock, pay dividends of $80 million on our common stock, and fund capital expenditures of $75 million. Cash flows from operating activities included a decrease of $54 million from higher working capital requirements, as well as cash contributions of $65 million to our pension and postretirement plans.
We expect that cash from operations, together with borrowing available under our credit facilities, will continue to be sufficient for our operating needs and planned capital expenditures for at least the next twelve months.
FINANCIAL POSITION AND LIQUIDITY
Cash
At December 31, 2019, we had cash and cash equivalents of $144 million as compared to $73 million at the end of 2018.
Our cash and cash equivalents held by our foreign subsidiaries amounted to approximately $99 million at December 31, 2019 and $71 million at December 31, 2018. Periodically, we repatriate cash from our foreign subsidiaries to the United States through intercompany dividends and loans. Under the Tax Reform Act enacted in 2017, previously deferred foreign earnings were subjected to U.S. tax in 2017. The Tax Reform Act also includes a 100% dividends received deduction for most future distributions from our foreign subsidiaries. As a result of these two provisions, we do not anticipate significant tax consequences of future distributions of foreign earnings.
A portion of our foreign cash balances is associated with earnings that we have asserted are indefinitely reinvested. We plan to use these indefinitely reinvested earnings to support growth outside of the United States through funding of operating expenses, research and development expenses, capital expenditures, and other cash needs of our foreign subsidiaries.
Debt
4.10% Senior Notes - At both December 31, 2019 and December 31, 2018, we had $350 million of 4.10% senior notes due 2022 which are senior unsecured obligations. The senior notes are registered under the Securities Act of 1933. We incurred financing costs totaling approximately $5 million related to the 4.10% senior notes, which are being amortized over the term of the agreement.
The 4.10% senior notes rank:
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•
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equal in right of payment with all of our existing and future senior unsecured indebtedness; and
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•
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senior in right of payment to any of our future subordinated indebtedness.
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The indenture governing the 4.10% senior notes contains covenants that, among other things, limit our ability and the ability of our subsidiaries to:
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•
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create or permit to exist liens;
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•
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enter into sale-leaseback transactions;
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•
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incur additional guarantees; and
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•
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sell all or substantially all of our assets or consolidate or merge with or into other companies.
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We were in compliance with all covenants under the indenture governing the 4.10% senior notes as of December 31, 2019 and December 31, 2018.
3.78% Senior Notes - On January 4, 2017, we issued $250 million in senior unsecured notes in a private placement with The Prudential Insurance Company of America and certain other purchasers. These notes bear interest at 3.78% and mature on January 4, 2029. Interest is payable semiannually. Principal payments of $50 million are payable annually beginning on January 4, 2025. We have the right to make optional prepayments on the notes at any time, subject to certain limitations. The note purchase agreement contains representations, warranties, terms and conditions customary for transactions of this type. These include negative covenants, certain financial covenants, and events of default which are substantially similar to the covenants and events of default in our revolving credit facility.
We were in compliance with all covenants under the 3.78% senior notes as of December 31, 2019 and December 31, 2018.
Revolving Credit Facility – On September 22, 2017, we entered into a Credit Agreement (Credit Agreement) with a term of five years. The Credit Agreement provides for an $850 million, multicurrency revolving credit facility, with a $150 million sublimit for multicurrency borrowings, a $75 million sublimit for letters of credit, and a $20 million sublimit for swingline loans. The Credit Agreement includes an expansion feature which allows us, subject to certain conditions, to request an increase in the aggregate amount of the revolving credit facility or obtain incremental term loans in an amount up to $425 million. In addition, the Credit Agreement includes provisions that allow certain of our foreign subsidiaries to borrow under the agreement. The obligations under the Credit Agreement are unsecured and are fully and unconditionally guaranteed by NewMarket. The revolving credit facility matures on September 22, 2022. We incurred financing costs totaling $3 million related to the Credit Agreement, which are being amortized over the term of the agreement.
The outstanding borrowings under the Credit Agreement amounted to $45 million at December 31, 2019 and $168 million at December 31, 2018. Outstanding letters of credit amounted to $3 million at both December 31, 2019 and December 31, 2018 resulting in the unused portion of the credit facility amounting to $803 million at December 31, 2019 and $679 million at December 31, 2018.
Borrowings made under the revolving credit facility bear interest, at our option, at an annual rate equal to either (1) the Alternate Base Rate (ABR) plus the Applicable Rate (as defined in the Credit Agreement) (solely in the case of loans denominated in U.S. Dollars to NewMarket) or (2) the Adjusted LIBO Rate plus the Applicable Rate. ABR is the greater of (i) the rate of interest publicly announced by the Administrative Agent as its prime rate, (ii) the NYFRB Rate (as defined in the Credit Agreement) from time to time plus 0.5%, and (iii) the Adjusted LIBO Rate for a one month interest period plus 1%. The Adjusted LIBO Rate means the rate at which Eurocurrency deposits in the London interbank market for certain periods (as selected by NewMarket) are quoted, as adjusted for statutory reserve requirements for Eurocurrency liabilities and other applicable mandatory costs. The Applicable Rate ranges from 0.0% to 0.625%(depending on our consolidated Leverage Ratio or Credit Ratings) for loans bearing interest based on the ABR. The Applicable Rate ranges from 1.00% to 1.625% (depending on our Leverage Ratio or Credit Ratings) for loans bearing interest based on the Adjusted LIBO Rate. At December 31, 2019, the Applicable Rate was 0.125% for loans bearing interest based on the ABR and 1.125% for loans bearing interest based on the Adjusted LIBO Rate.
The average interest rate for borrowings under our revolving credit facilities was 3.0% during both 2019 and 2018.
The Credit Agreement contains financial covenants that require NewMarket to maintain a consolidated Leverage Ratio (as defined in the Credit Agreement) of no more than 3.50 to 1.00 except during an Increased Leverage Period (as defined in the Credit Agreement) at the end of each quarter, and a consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of no less than 3.00 to 1.00, calculated on a rolling four quarter basis, as of the end of each fiscal quarter.
At December 31, 2019, the Leverage Ratio was 1.53 and the Interest Coverage Ratio was 12.37.
We were in compliance with all covenants under the current revolving credit facility at December 31, 2019 and December 31, 2018.
Other Borrowings - Three of our subsidiaries in the U.K., Singapore, and China each have access to separate short-term lines of credit of $10 million. There was no activity on these lines of credit in 2019, nor was there an outstanding balance on any of these lines of credit at December 31, 2018. There was no activity on these lines of credit during 2018 except for in the U.K. The average interest rate of this Euro facility during 2018 was 1%.
***
We had long-term debt of $643 million at December 31, 2019 and $771 million at December 31, 2018. The decrease in debt resulted from repaying borrowings outstanding under the revolving credit facility during 2019.
As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt decreased from 61.1% at the end of 2018 to 48.5% at the end of 2019. The change in the percentage was primarily the result of the decrease in long-term debt, as well as the increase in shareholders' equity. The change in shareholders’ equity primarily reflects our earnings offset by dividend payments, along with the improvement in the funded position of our defined benefit plans. Normally, we repay any outstanding long-term debt with cash from operations or refinancing activities.
Working Capital
Including cash and cash equivalents and the impact of foreign currency on the balance sheet, at December 31, 2019, we had working capital of $571 million, resulting in a current ratio of 2.85 to 1. Our working capital at December 31, 2018 on the same basis was $542 million, resulting in a current ratio of 3.00 to 1.
Other than the increase in cash and cash equivalents, the most significant changes in working capital since December 31, 2018 resulted from an increase in accounts receivable and a decrease in accrued expenses, which were partially offset by a decrease in inventories and an increase in accounts payable and lease liabilities. The increase in accounts receivable reflects higher sales levels in EMEAI and North America as compared to the fourth quarter of 2018 along with increases in value added and income tax refunds due. The decrease in inventories was primarily due to maintenance plant turnarounds, as well as the increased sales in the EMEAI and North America regions when comparing the fourth quarter of 2019 with the fourth quarter of 2018. The increase in lease liabilities reflects the adoption of Accounting Standard Codification 842, "Leases". See Note 16 for additional information on our leases. The changes in accounts payable and accrued expenses reflect initiatives to better manage accounts payable balances and normal timing differences.
Capital Expenditures
Capital expenditures were $59 million for 2019 and $75 million for 2018. We currently estimate capital expenditures in 2020 will be in the range of $75 million to $85 million as we anticipate spending on several improvements to our manufacturing and R&D infrastructure around the world. We expect to continue to finance capital spending through cash on hand and cash provided from operations, together with borrowing available under our $850 million revolving credit facility.
Environmental Expenses
We spent approximately $29 million in 2019 and $30 million in 2018 for ongoing environmental operating and clean-up costs, excluding depreciation of previously capitalized expenditures. These environmental operating and clean-up expenses are included in cost of goods sold. We expect to continue to fund these costs through cash provided by operations.
Contractual Obligations
The table below shows our year-end contractual obligations by year due.
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Payments Due by Period
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(in millions)
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Total
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Less than
1 Year
|
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1 - 3
Years
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3 - 5
Years
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More than
5 Years
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Debt obligations (a)
|
|
$
|
645
|
|
|
$
|
0
|
|
|
$
|
395
|
|
|
$
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0
|
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|
$
|
250
|
|
Interest payable on long-term debt
|
|
111
|
|
|
24
|
|
|
49
|
|
|
19
|
|
|
19
|
|
Letters of credit (b)
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|
3
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
3
|
|
Finance lease obligations (c)
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|
16
|
|
|
3
|
|
|
4
|
|
|
2
|
|
|
7
|
|
Operating lease obligations (c)
|
|
82
|
|
|
16
|
|
|
21
|
|
|
12
|
|
|
33
|
|
Leases not yet commenced
|
|
23
|
|
|
3
|
|
|
4
|
|
|
4
|
|
|
12
|
|
Property, plant, and equipment purchase obligations
|
|
32
|
|
|
32
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|
|
0
|
|
|
0
|
|
|
0
|
|
Purchase obligations (d)
|
|
550
|
|
|
171
|
|
|
284
|
|
|
81
|
|
|
14
|
|
Other long-term liabilities (e)
|
|
26
|
|
|
11
|
|
|
2
|
|
|
2
|
|
|
11
|
|
Reserves for uncertain tax positions
|
|
13
|
|
|
8
|
|
|
1
|
|
|
4
|
|
|
0
|
|
Total
|
|
$
|
1,501
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|
|
$
|
268
|
|
|
$
|
760
|
|
|
$
|
124
|
|
|
$
|
349
|
|
|
|
(a)
|
Amounts represent contractual payments due on the 4.10% senior notes, revolving credit facility, and the Prudential senior unsecured notes as of December 31, 2019. See Note 13 for more information on long-term debt obligations.
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(b)
|
We intend to renew letters of credit when necessary as they mature; therefore, the obligations do not have a definitive maturity date.
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(c)
|
Amounts represent the undiscounted obligation for lease payments for leases having an initial lease term of at least one year.
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(d)
|
Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. Purchase orders made in the ordinary course of business are excluded from the above table. Any amounts for which we are liable under purchase orders are reflected in our Consolidated Balance Sheets as accounts payable or accrued expenses.
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(e)
|
These represent other long-term liability amounts reflected in our Consolidated Balance Sheets that have known payment streams. Amounts include environmental liabilities, contributions associated with pension and postretirement benefit plans, and tax payments related to the deemed repatriation of foreign earnings resulting from the Tax Reform Act. Amounts accrued for potential exposure with respect to litigation, claims, and assessments are not included in the table above.
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Pension and Postretirement Benefit Plans
Our U.S. and foreign benefit plans are discussed separately below. The information applies to all of our U.S. benefit plans. Our foreign plans are quite diverse, and the actuarial assumptions used by the various foreign plans are based upon the circumstances of each particular country and retirement plan. We use a December 31 measurement date to determine our pension and postretirement expenses and related financial disclosure information. Additional information on our pension and postretirement plans is in Note 17.
U.S. Pension and Postretirement Benefit Plans—The average remaining service period of active participants for our U.S. plans is 13 years, while the average remaining life expectancy of inactive participants is 23 years. We utilize the sex distinct Pri-2012 table with separate rates for annuitants, non-annuitants, and contingent annuitants, projected generationally using Scale MP-2019 in determining the impact of the U.S. benefit plans on our financial statements.
Investment Return Assumptions and Asset Allocation—We periodically review our assumptions for the long-term expected return on pension plan assets. As part of the review and to develop expected rates of return, we considered an analysis of expected returns based on the U.S. plans’ asset allocation as of both January 1, 2020 and January 1, 2019. This analysis reflects our expected long-term rates of return for each significant asset class or economic indicator. As of January 1, 2020, the expected rates were 8.5% for U.S. large cap stocks, 3.6% for fixed income, and 2.6% for inflation. The range of returns developed relies both on forecasts and on broad-market historical benchmarks for expected return, correlation, and volatility for each asset class.
The asset allocation for our U.S. pension plans is predominantly weighted toward equities. Through the ongoing monitoring of our investments and review of market data, we have determined that we should maintain the expected long-term rate of return for our U.S. pension plans at 8.5% at December 31, 2019.
An actuarial gain on the assets occurred during 2019 as the actual investment return for all of our U.S. pension plans exceeded the expected return by approximately $75 million in 2019. An actuarial loss on the assets occurred during 2018 as the actual investment return for all of our U.S. pension plans was less than the expected return by approximately $56 million. Investment gains and losses are recognized in earnings on an amortized basis over a period of years, resulting in increased expense of approximately $2 million in 2020. We expect that there will be continued volatility in pension expense as actual investment returns vary from the expected return, but we continue to believe the potential long-term benefits justify the risk premium for equity investments.
At December 31, 2019, our expected long-term rate of return on our postretirement plans was 4.5%. This rate varies from the pension rate of 8.5% primarily because of the difference in investment of assets. The assets of the postretirement plan are held in an insurance contract, which results in a lower assumed rate of investment return.
Pension expense and the life insurance portion of postretirement expense are sensitive to changes in the expected return on assets. For example, decreasing the expected rate of return by 100 basis points to 7.5% for pension assets and 3.5% for postretirement benefit assets (while holding other assumptions constant) would increase the forecasted 2020 expense for our U.S. pension and postretirement plans by approximately $5 million. Similarly, a 100 basis point increase in the expected rate of return to 9.5% for pension assets and 5.5% for postretirement benefit assets (while holding other assumptions constant) would reduce forecasted 2020 pension and postretirement expense by $5 million.
Discount Rate Assumption—We develop the discount rate assumption by determining the single effective discount rate for a unique hypothetical portfolio constructed from investment-grade bonds that, in the aggregate, match the projected cash flows of each of our retirement plans. The discount rate is developed based on the hypothetical portfolio on the last day of December. The discount rate at December 31, 2019 was 3.5% for all plans.
Pension and postretirement benefit expense is also sensitive to changes in the discount rate. For example, decreasing the discount rate by 100 basis points to 2.5% (while holding other assumptions constant) would increase the forecasted 2020 expense for our U.S. pension and postretirement benefit plans by approximately $8 million. A 100 basis point increase in the discount rate to 4.5% would reduce forecasted 2020 pension and postretirement benefit expense by $6 million.
Rate of Projected Compensation Increase—We have maintained our rate of projected compensation increase at December 31, 2019 at 3.5%. The rate assumption was based on an analysis of our projected compensation increases for the foreseeable future.
Liquidity—Cash contribution requirements to the pension plan are sensitive to changes in assumed interest rates and investment gains or losses in the same manner as pension expense. We expect our aggregate cash contributions, before income taxes, to the U.S. pension plans will be approximately $3 million in 2020. We expect our contributions to the postretirement benefit plans will be approximately $1 million in 2020.
Foreign Pension Benefit Plans—Our foreign pension plans are quite diverse. The following information applies only to our U.K. pension plan, which represents the majority of the amounts recorded in our financial statements for our foreign pension plans. The average remaining service period of active participants for our U.K. plan is 13 years, while the average remaining life expectancy of inactive participants is 23 years. We utilize the S2P (Light) mortality tables and allow for future projected improvements in life expectancy in line with the CMI 2018 model (with the core parameters), with a long-term rate of improvement of 1% per year based on the membership of the plan, in determining the impact of the U.K. pension plans on our financial statements.
Investment Return Assumptions and Asset Allocation—We periodically review our assumptions for the long-term expected return on the U.K. pension plan assets. The expected long-term rate of return is based on both the asset allocation, as well as yields available in the U.K. markets.
The target asset allocation in the U.K. is to be invested 40% in pooled equities funds, 40% in pooled government bonds, and 20% in pooled diversified growth funds. The actual allocation at the end of 2019 was 41% in pooled equities funds, 39% in pooled government bonds, and 20% in pooled diversified growth funds. Based on the actual asset allocation and the expected yields available in the U.K. markets, the expected long-term rate of return for the U.K. pension plan was 5.3% at December 31, 2019.
An actuarial gain on the assets occurred during 2019 as the actual investment return exceeded the expected investment return by approximately $10 million in 2019. An actuarial loss on the assets occurred during 2018 as the actual investment return was less than the expected investment return by approximately $16 million. Investment gains and losses are recognized in earnings on an amortized basis over a period of years. The amortization of the actuarial net loss is expected to be approximately $1 million in 2020 resulting primarily from the actuarial loss on the plan liabilities, which has only partially been offset by investment gains on the plan assets. We expect that there will be continued volatility in pension expense as actual investment returns vary from the expected return, but we continue to believe the potential benefits justify the risk premium for the target asset allocation.
Pension expense is sensitive to changes in the expected return on assets. For example, decreasing the expected rate of return by 100 basis points to 4.3% (while holding other assumptions constant) would increase the forecasted 2020 expense for our U.K. pension plan by approximately $2 million. Similarly, a 100 basis point increase in the expected rate of return to 6.3% (while holding other assumptions constant) would reduce forecasted 2020 pension expense by approximately $2 million.
Discount Rate Assumption—We utilize a yield curve based on AA-rated corporate bond yields in developing a discount rate assumption. The yield appropriate to the duration of the U.K. plan liabilities is then used. The discount rate at December 31, 2019 was 2.1%.
Pension expense is also sensitive to changes in the discount rate. For example, decreasing the discount rate by 100 basis points to 1.1% (while holding other assumptions constant) would increase the forecasted 2020 expense for our U.K. pension plans by approximately $1 million. A 100 basis point increase in the discount rate to 3.1% would reduce forecasted 2020 pension expense by approximately $1 million.
Rate of Projected Compensation Increase—Our rate of projected compensation increase at December 31, 2019 is 4.1%. The rate assumption was based on an analysis of our projected compensation increases for the foreseeable future.
Liquidity—Cash contribution requirements to the U.K. pension plan are sensitive to changes in assumed interest rates and investment gains or losses. We expect our aggregate U.K. cash contributions, before income taxes, will be approximately $4 million in 2020.
OUTLOOK
Our stated goal is to provide a 10% compounded return per year for our shareholders over any five-year period (defined by earnings per share growth plus dividend yield), although we may not necessarily achieve a 10% return each year. We continue to have confidence in our customer-focused strategy and approach to the market. We believe the fundamentals of how we run our business - a long-term view, safety-first culture, customer-focused solutions, technology-driven product offerings, and world-class supply chain capability - will continue to be beneficial for all of our stakeholders over the long term.
We expect our petroleum additives segment to deliver another year of solid performance in 2020. We expect that the petroleum additives market will grow in the 1% to 2% range annually for the foreseeable future, and we plan to exceed that growth rate over the long-term.
In the past several years we have made significant investments in our business as the industry fundamentals remain positive. These investments have been and will continue to be in organizational talent, technology development and processes, and global infrastructure, consisting of technical centers, production capability, and geographic expansion. We intend to utilize these investments to improve our ability to deliver the solutions that our customers value, expand our global reach, and enhance our operating results. We will continue to invest in our capabilities to provide even better value, service, technology, and customer solutions.
Our business generates significant amounts of cash beyond what is necessary for the expansion and growth of our current offerings. We regularly review our many internal opportunities to utilize excess cash from technological, geographic, production capability, and product line perspectives. We believe our capital spending is creating the capability we need to grow and support our customers worldwide, and our research and development investments are positioning us well to provide added value to our customers. Our primary focus in the acquisition area remains on the petroleum additives industry. It is our view that this industry segment will provide the greatest opportunity for solid returns on our investments while minimizing risk. We remain focused on this strategy and will evaluate any future opportunities. We will continue to evaluate all alternative uses of cash to enhance shareholder value, including stock repurchases and dividends.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussion highlights some of the more critical areas where a significant change in facts and circumstances in our operating and financial environment could cause a change in future reported financial results.
Income Taxes
We file United States, foreign, state, and local income tax returns. Significant judgment is required in determining our worldwide provision for income taxes and recording the related tax assets and liabilities. Any significant impact as a result of changes in underlying facts, law, tax rates, or tax audits could lead to adjustments to our income tax expense, effective tax rate, financial position, or cash flow.
Deferred income taxes are provided for the estimated income tax effect of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities, as well as for net operating losses and tax credit carryforwards. When recording these deferred tax assets and liabilities, we must estimate the tax rates we expect will apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized. In addition, we may record valuation allowances to reduce deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. Judgment is required as we consider the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this assessment. If our estimates and assumptions change from those used when we recorded deferred tax assets and liabilities, the effect on our results of operations and financial position could be material.
The income tax returns for our entities in the United States and in foreign jurisdictions are open for examination by tax authorities. We assess our income tax positions and record a liability for all years open for examination based upon our evaluation of the facts, circumstances, and information available at the reporting date. The economic benefit associated with a tax position will be recognized only if we determine it is more likely than not to be upheld on audit. Although we
believe our estimates and judgments are reasonable, actual results could differ, resulting in gains or losses that may be material to our results of operations and financial position.
At each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Our provision for income taxes is impacted by the income tax rates of the countries where we operate. A change in the geographical source of our income can affect the effective tax rate. Significant judgment is involved regarding the application of global income tax laws and regulations when projecting the jurisdictional mix of income. Additionally, interpretations of tax laws, court decisions, or other guidance provided by taxing authorities influence our estimate of the effective income tax rate. As a result, our actual effective income tax rate and related income tax liabilities may differ materially from our estimated effective tax rate and related income tax liabilities.
Intangibles (net of amortization) and Goodwill
We have certain identifiable intangibles amounting to $9 million and goodwill amounting to $123 million at December 31, 2019 that are discussed in Note 10. These intangibles and goodwill relate to our petroleum additives business. The intangibles are being amortized over periods with up to approximately 9 years of remaining life. We continue to assess the market related to the intangibles and goodwill, as well as their specific values and evaluate the intangibles and goodwill for any potential impairment when significant events or circumstances occur that might impair the value of these assets. We have concluded the values are appropriate, as are the amortization periods for the intangibles. However, if conditions were to substantially deteriorate in the petroleum additives market, it could possibly cause a decrease in the estimated useful lives of the intangible assets or result in a noncash write-off of all or a portion of the intangibles and goodwill carrying amounts. A reduction in the amortization period of the intangibles would have no effect on cash flows. We do not anticipate such a change in the market conditions in the near term.
Pension Plans and Other Postretirement Benefits
We use assumptions to record the impact of the pension and postretirement benefit plans in the financial statements. These assumptions include the discount rate and the expected long-term rate of return on plan assets. A change in any of these assumptions could cause different results for the plans and therefore, impact our results of operations, cash flows, and financial condition. We develop these assumptions after considering available information that we deem relevant. Information is provided on the pension and postretirement plans in Note 17. In addition, further disclosure of the effect of changes in these assumptions is provided in the “Financial Position and Liquidity” section of Item 7.
Environmental and Legal Proceedings
We have disclosed our environmental matters in Item 1 of this Annual Report on Form 10-K, as well as in Note 20. Our estimates for costs that will be incurred to satisfy our obligations related to environmental matters are affected by many variables, including our judgment regarding the extent of remediation that will be required, future changes in and enforcement and interpretation of laws and regulations, current and future technology available, and timing of remediation activities. While we currently do not anticipate significant changes to the many factors that could impact our environmental requirements, we continue to keep our accruals consistent with these requirements as they change.
Also, as noted in the discussion of “Legal Proceedings” in Item 3 of this Annual Report on Form 10-K, while it is not possible to predict or determine with certainty the outcome of any legal proceeding, it is our opinion, based on our current knowledge, that we will not experience any material adverse effects on our results of operations, cash flows, or financial condition as a result of any pending or threatened proceeding.
RECENTLY ISSUED ACCOUNTING STANDARDS
For a full discussion of the more significant recently issued accounting standards, see Note 23.
|
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of NewMarket Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of NewMarket Corporation and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 23 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Pension Benefit Obligation
As described in Note 17 to the consolidated financial statements, the Company’s consolidated pension benefit obligation, excluding other postretirement benefits, was $609 million as of December 31, 2019. Management develops the actuarial assumptions used by various US and foreign plans based upon the circumstances of each particular country and pension plan. As disclosed by management, the determination of the pension benefit obligation requires the use of estimates and assumptions. Management’s significant assumption in the determination of the pension benefit obligation is the discount rate.
The principal considerations for our determination that performing procedures relating to the valuation of the pension benefit obligation is a critical audit matter are there was significant judgment by management to determine the pension benefit obligation. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s significant assumption used in the valuation of the pension benefit obligation, specifically the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of the pension benefit obligation, including controls over the Company’s methods, significant assumption, and data. These procedures also included, among others, testing the completeness, accuracy, and relevance
of underlying data used in the valuation of the pension benefit obligation. With the involvement of professionals with specialized skill and knowledge to assist, these procedures also included testing management’s process for determining the pension benefit obligation, evaluating the appropriateness of the methods, and evaluating the reasonableness of the significant assumption, specifically the discount rate.
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
February 18, 2020
We have served as the Company’s or its predecessor’s auditor since 1947.
NewMarket Corporation and Subsidiaries
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands, except per-share amounts)
|
|
2019
|
|
2018
|
|
2017
|
Net sales
|
|
$
|
2,190,295
|
|
|
$
|
2,289,675
|
|
|
$
|
2,198,404
|
|
Cost of goods sold
|
|
1,560,426
|
|
|
1,704,312
|
|
|
1,562,017
|
|
Gross profit
|
|
629,869
|
|
|
585,363
|
|
|
636,387
|
|
Selling, general, and administrative expenses
|
|
148,083
|
|
|
152,400
|
|
|
167,651
|
|
Research, development, and testing expenses
|
|
144,465
|
|
|
140,289
|
|
|
146,002
|
|
Operating profit
|
|
337,321
|
|
|
292,674
|
|
|
322,734
|
|
Interest and financing expenses, net
|
|
29,241
|
|
|
26,723
|
|
|
21,856
|
|
Other income (expense), net
|
|
23,510
|
|
|
24,334
|
|
|
14,564
|
|
Income before income tax expense
|
|
331,590
|
|
|
290,285
|
|
|
315,442
|
|
Income tax expense
|
|
77,304
|
|
|
55,551
|
|
|
124,933
|
|
Net income
|
|
$
|
254,286
|
|
|
$
|
234,734
|
|
|
$
|
190,509
|
|
Earnings per share - basic and diluted
|
|
$
|
22.73
|
|
|
$
|
20.34
|
|
|
$
|
16.08
|
|
See accompanying Notes to Consolidated Financial Statements
38
NewMarket Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Net income
|
|
$
|
254,286
|
|
|
$
|
234,734
|
|
|
$
|
190,509
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Pension plans and other postretirement benefits:
|
|
|
|
|
|
|
Prior service credit (cost) arising during the period, net of income tax expense (benefit) of $(257) in 2019 and $(91) in 2018
|
|
(756
|
)
|
|
(446
|
)
|
|
0
|
|
Amortization of prior service cost (credit) included in net periodic benefit cost (income), net of income tax expense (benefit) of $(681) in 2019, $(720) in 2018 and $(1,127) in 2017
|
|
(2,211
|
)
|
|
(2,363
|
)
|
|
(1,955
|
)
|
Actuarial net gain (loss) arising during the period, net of income tax expense (benefit) of $5,952 in 2019, $(6,976) in 2018 and $2,814 in 2017
|
|
16,739
|
|
|
(24,581
|
)
|
|
10,966
|
|
Amortization of actuarial net loss (gain) included in net periodic benefit cost (income), net of income tax expense (benefit) of $901 in 2019, $1,381 in 2018 and $2,028 in 2017
|
|
2,988
|
|
|
4,355
|
|
|
3,656
|
|
Total pension plans and other postretirement benefits
|
|
16,760
|
|
|
(23,035
|
)
|
|
12,667
|
|
Foreign currency translation adjustments, net of income tax expense (benefit) of $(181) in 2019, $(535)in 2018 and $703 in 2017
|
|
1,808
|
|
|
(12,287
|
)
|
|
23,849
|
|
Other comprehensive income (loss)
|
|
18,568
|
|
|
(35,322
|
)
|
|
36,516
|
|
Comprehensive income
|
|
$
|
272,854
|
|
|
$
|
199,412
|
|
|
$
|
227,025
|
|
See accompanying Notes to Consolidated Financial Statements
39
NewMarket Corporation and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands, except share amounts)
|
|
2019
|
|
2018
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
144,397
|
|
|
$
|
73,040
|
|
Trade and other accounts receivable, net
|
|
335,826
|
|
|
314,860
|
|
Inventories
|
|
365,938
|
|
|
396,341
|
|
Prepaid expenses and other current assets
|
|
33,237
|
|
|
29,179
|
|
Total current assets
|
|
879,398
|
|
|
813,420
|
|
Property, plant, and equipment, net
|
|
635,439
|
|
|
644,138
|
|
Intangibles (net of amortization) and goodwill
|
|
131,880
|
|
|
136,039
|
|
Prepaid pension cost
|
|
133,848
|
|
|
88,705
|
|
Operating lease right-of-use assets
|
|
60,505
|
|
|
0
|
|
Deferred income taxes
|
|
6,327
|
|
|
5,094
|
|
Deferred charges and other assets
|
|
37,735
|
|
|
9,878
|
|
Total assets
|
|
$
|
1,885,132
|
|
|
$
|
1,697,274
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
178,773
|
|
|
$
|
151,631
|
|
Accrued expenses
|
|
77,350
|
|
|
91,202
|
|
Dividends payable
|
|
19,217
|
|
|
17,923
|
|
Income taxes payable
|
|
10,632
|
|
|
6,431
|
|
Operating lease liabilities
|
|
14,036
|
|
|
0
|
|
Other current liabilities
|
|
8,887
|
|
|
4,114
|
|
Total current liabilities
|
|
308,895
|
|
|
271,301
|
|
Long-term debt
|
|
642,941
|
|
|
770,999
|
|
Operating lease liabilities - noncurrent
|
|
46,792
|
|
|
0
|
|
Other noncurrent liabilities
|
|
203,406
|
|
|
165,067
|
|
Total liabilities
|
|
1,202,034
|
|
|
1,207,367
|
|
Commitments and contingencies (Note 20)
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
Common stock and paid-in capital (without par value; authorized shares - 80,000,000; issued and outstanding - 11,188,549 at December 31, 2019 and 11,184,482 at December 31, 2018)
|
|
1,965
|
|
|
0
|
|
Accumulated other comprehensive loss
|
|
(162,748
|
)
|
|
(181,316
|
)
|
Retained earnings
|
|
843,881
|
|
|
671,223
|
|
Total shareholders' equity
|
|
683,098
|
|
|
489,907
|
|
Total liabilities and shareholders' equity
|
|
$
|
1,885,132
|
|
|
$
|
1,697,274
|
|
See accompanying Notes to Consolidated Financial Statements
40
NewMarket Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock and
Paid-in Capital
|
|
Accumulated Other Comprehensive Loss
|
|
Retained Earnings
|
|
Total Shareholders’ Equity
|
(in thousands, except share and per-share amounts)
|
|
Shares
|
|
Amount
|
|
|
|
Balance at December 31, 2016
|
|
11,845,972
|
|
|
$
|
1,603
|
|
|
$
|
(182,510
|
)
|
|
$
|
664,158
|
|
|
$
|
483,251
|
|
Net income
|
|
|
|
|
|
|
|
190,509
|
|
|
190,509
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
36,516
|
|
|
|
|
36,516
|
|
Cash dividends ($7.00 per share)
|
|
|
|
|
|
|
|
(82,885
|
)
|
|
(82,885
|
)
|
Repurchases of common stock
|
|
(70,689
|
)
|
|
(3,607
|
)
|
|
|
|
(24,150
|
)
|
|
(27,757
|
)
|
Tax withholdings related to stock-based compensation
|
|
(2,328
|
)
|
|
(915
|
)
|
|
|
|
|
|
(915
|
)
|
Stock-based compensation
|
|
7,023
|
|
|
2,919
|
|
|
|
|
11
|
|
|
2,930
|
|
Balance at December 31, 2017
|
|
11,779,978
|
|
|
0
|
|
|
(145,994
|
)
|
|
747,643
|
|
|
601,649
|
|
Net income
|
|
|
|
|
|
|
|
234,734
|
|
|
234,734
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
(35,322
|
)
|
|
|
|
(35,322
|
)
|
Cash dividends ($7.00 per share)
|
|
|
|
|
|
|
|
(80,448
|
)
|
|
(80,448
|
)
|
Repurchases of common stock
|
|
(603,449
|
)
|
|
(2,038
|
)
|
|
|
|
(229,978
|
)
|
|
(232,016
|
)
|
Tax withholdings related to stock-based compensation
|
|
(2,055
|
)
|
|
|
|
|
|
|
(740
|
)
|
|
(740
|
)
|
Stock-based compensation
|
|
10,008
|
|
|
2,038
|
|
|
|
|
12
|
|
|
2,050
|
|
Balance at December 31, 2018
|
|
11,184,482
|
|
|
0
|
|
|
(181,316
|
)
|
|
671,223
|
|
|
489,907
|
|
Net income
|
|
|
|
|
|
|
|
254,286
|
|
|
254,286
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
18,568
|
|
|
|
|
18,568
|
|
Cash dividends ($7.30 per share)
|
|
|
|
|
|
|
|
(81,676
|
)
|
|
(81,676
|
)
|
Tax withholdings related to stock-based compensation
|
|
(603
|
)
|
|
(304
|
)
|
|
|
|
|
|
|
(304
|
)
|
Stock-based compensation
|
|
4,670
|
|
|
2,269
|
|
|
|
|
48
|
|
|
2,317
|
|
Balance at December 31, 2019
|
|
11,188,549
|
|
|
$
|
1,965
|
|
|
$
|
(162,748
|
)
|
|
$
|
843,881
|
|
|
$
|
683,098
|
|
See accompanying Notes to Consolidated Financial Statements
41
NewMarket Corporation and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Cash and cash equivalents at beginning of year
|
|
$
|
73,040
|
|
|
$
|
84,166
|
|
|
$
|
192,154
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
254,286
|
|
|
234,734
|
|
|
190,509
|
|
Adjustments to reconcile net income to cash flows from operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
87,560
|
|
|
71,759
|
|
|
55,340
|
|
Deferred income tax expense
|
|
7,384
|
|
|
14,527
|
|
|
27,375
|
|
Tax Reform Act expense
|
|
0
|
|
|
0
|
|
|
31,375
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
Trade and other accounts receivable, net
|
|
(22,587
|
)
|
|
14,096
|
|
|
250
|
|
Inventories
|
|
31,884
|
|
|
(29,672
|
)
|
|
(44,936
|
)
|
Prepaid expenses and other current assets
|
|
(2,742
|
)
|
|
702
|
|
|
(2,715
|
)
|
Accounts payable and accrued expenses
|
|
8,859
|
|
|
(19,638
|
)
|
|
17,955
|
|
Operating lease liabilities
|
|
(16,496
|
)
|
|
0
|
|
|
0
|
|
Other current liabilities
|
|
1,866
|
|
|
(10,169
|
)
|
|
1,595
|
|
Income taxes payable
|
|
3,979
|
|
|
(9,731
|
)
|
|
(8,475
|
)
|
Cash pension and postretirement contributions
|
|
(9,932
|
)
|
|
(64,756
|
)
|
|
(26,264
|
)
|
Other, net
|
|
(6,849
|
)
|
|
(3,941
|
)
|
|
786
|
|
Cash provided from (used in) operating activities
|
|
337,212
|
|
|
197,911
|
|
|
242,795
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Capital expenditures
|
|
(59,434
|
)
|
|
(74,638
|
)
|
|
(148,713
|
)
|
Acquisition of business (net of $1,131 cash acquired)
|
|
0
|
|
|
0
|
|
|
(183,930
|
)
|
Other, net
|
|
0
|
|
|
14,607
|
|
|
(2,000
|
)
|
Cash provided from (used in) investing activities
|
|
(59,434
|
)
|
|
(60,031
|
)
|
|
(334,643
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Net (repayments) borrowings under revolving credit facility
|
|
(123,451
|
)
|
|
168,129
|
|
|
(156,000
|
)
|
Issuance of 3.78% senior notes
|
|
0
|
|
|
0
|
|
|
250,000
|
|
Dividends paid
|
|
(81,676
|
)
|
|
(80,448
|
)
|
|
(82,885
|
)
|
Repurchases of common stock
|
|
0
|
|
|
(232,016
|
)
|
|
(25,998
|
)
|
Other, net
|
|
(2,952
|
)
|
|
(1,092
|
)
|
|
(4,093
|
)
|
Cash provided from (used in) financing activities
|
|
(208,079
|
)
|
|
(145,427
|
)
|
|
(18,976
|
)
|
Effect of foreign exchange on cash and cash equivalents
|
|
1,658
|
|
|
(3,579
|
)
|
|
2,836
|
|
Increase (decrease) in cash and cash equivalents
|
|
71,357
|
|
|
(11,126
|
)
|
|
(107,988
|
)
|
Cash and cash equivalents at end of year
|
|
$
|
144,397
|
|
|
$
|
73,040
|
|
|
$
|
84,166
|
|
See accompanying Notes to Consolidated Financial Statements
42
Notes to Consolidated Financial Statements
|
|
1.
|
Summary of Significant Accounting Policies
|
Consolidation—Our consolidated financial statements include the accounts of NewMarket Corporation and its subsidiaries. All intercompany transactions are eliminated upon consolidation. References to "we," "us," "our," the "company," and "NewMarket" are to NewMarket Corporation and its consolidated subsidiaries, unless the context indicates otherwise.
NewMarket is the parent company of three operating companies, each managing its own assets and liabilities. Those companies are Afton, which focuses on petroleum additive products; Ethyl, representing certain contracted manufacturing and services, as well as the antiknock compounds business; and NewMarket Development, which manages the property and improvements that we own in Virginia. NewMarket is also the parent company of NewMarket Services, which provides various administrative services to NewMarket, Afton, Ethyl, and NewMarket Development.
Certain reclassifications have been made to the accompanying consolidated financial statements and the related notes to conform to the current presentation.
Foreign Currency Translation—We translate the balance sheets of our foreign subsidiaries into U.S. Dollars based on the current exchange rate at the end of each period. We translate the statements of income using the weighted-average exchange rates for the period. NewMarket includes translation adjustments in the Consolidated Balance Sheets as part of accumulated other comprehensive loss and transaction adjustments in the Consolidated Statements of Income as part of cost of goods sold. Foreign currency transaction adjustments resulted in a net loss of $4 million in 2019, a net loss of $8 million in 2018, and a net gain of $5 million 2017.
Revenue Recognition—We recognize revenue when control of the product is transferred to our customer and for an amount that reflects the consideration we expect to collect from the customer. Net sales (revenues) are reported at the gross amount billed, including amounts related to shipping that are charged to the customer. Provisions for rebates to customers are recorded in the same period that the related sales are recorded. Freight costs incurred on the delivery of products are included in the Consolidated Statements of Income in cost of goods sold. Our standard terms of delivery are included in our contracts, sales order confirmation documents, and invoices. Taxes assessed by a governmental authority concurrent with sales to our customers, including sales, use, value-added, and revenue-related excise taxes, are not included as net sales, but are reflected in accrued expenses until remitted to the appropriate governmental authority.
Cash and Cash Equivalents—Our cash equivalents consist of government obligations and commercial paper with original maturities of 90 days or less. Throughout the year, we have cash balances in excess of federally insured amounts on deposit with various financial institutions. We state cash and cash equivalents at cost, which approximates fair value.
Accounts Receivable—We record our accounts receivable at net realizable value. We maintain an allowance for doubtful accounts for estimated losses resulting from our customers not making required payments. We determine the adequacy of the allowance by periodically evaluating each customer’s receivable balance, considering their financial condition and credit history, and considering current economic conditions. The allowance for doubtful accounts was not material at December 31, 2019 or December 31, 2018.
Inventories—NewMarket values its inventories at the lower of cost or net realizable value. In the United States, cost is determined on the last-in, first-out (LIFO) basis. In all other countries, we determine cost using a weighted-average method. Inventory cost includes raw materials, direct labor, and manufacturing overhead.
Property, Plant, and Equipment—We state property, plant, and equipment at cost and compute depreciation by the straight-line method based on the estimated useful lives of the assets. We capitalize expenditures for significant improvements that extend the useful life of the related property. We expense repairs and maintenance, including plant turnaround costs, as incurred. When property is sold or retired, we remove the cost and accumulated depreciation from the accounts and any related gain or loss is included in earnings.
Intangibles (Net of Amortization) and Goodwill—Identifiable intangibles include the cost of acquired contracts, formulas and technology, trademarks and trade names, and customer bases. We assign a value to identifiable intangibles based on independent third-party appraisals and management's assessment at the time of acquisition. NewMarket amortizes the cost of the customer bases by an accelerated method and the cost of the remaining identifiable intangibles by the straight-line method over the estimated economic life of the intangible.
Notes to Consolidated Financial Statements
Goodwill arises from the excess of cost over the net assets of businesses acquired. Goodwill represents the residual purchase price after allocation to all identifiable net assets. We test goodwill for impairment each year, as well as whenever a significant event or circumstance occurs which could reduce the fair value of the reporting unit to which the goodwill applies below the carrying amount of the reporting unit.
Impairment of Long-Lived Assets—When significant events or circumstances occur that might impair the value of long-lived assets, we evaluate recoverability of the recorded cost of these assets. Assets are considered to be impaired if their carrying amount is not recoverable from the estimated undiscounted future cash flows associated with the assets. If we determine an asset is impaired and its recorded cost is higher than estimated fair market value based on the estimated present value of future cash flows, we adjust the asset to estimated fair market value.
Environmental Costs—NewMarket capitalizes environmental compliance costs if they extend the useful life of the related property or prevent future contamination. Environmental compliance costs also include maintenance and operation of pollution prevention and control facilities. We expense these compliance costs in cost of goods sold as incurred.
Accrued environmental remediation and monitoring costs relate to an existing condition caused by past operations. NewMarket accrues these costs in current operations within cost of goods sold in the Consolidated Statements of Income when it is probable that we have incurred a liability and the amount can be reasonably estimated. These estimates are based on an assessment of the site, available clean-up methods, and prior experience in handling remediation.
When we can reliably determine the amount and timing of future cash flows, we discount these liabilities, incorporating an inflation factor.
Legal Costs—We expense legal costs in the period incurred.
Employee Savings Plan—Most of our full-time salaried and hourly employees may participate in defined contribution savings plans. Employees who are covered by collective bargaining agreements may also participate in a savings plan according to the terms of their bargaining agreements. Employees, as well as NewMarket, contribute to the plans. We made contributions of $6 million in 2019, $6 million in 2018, and $6 million in 2017 related to these plans.
Research, Development, and Testing Expenses—NewMarket expenses all research, development, and testing costs as incurred. R&D costs include personnel-related costs, as well as internal and external testing of our products.
Income Taxes—We recognize deferred income taxes for temporary differences between the financial reporting basis and the income tax basis of assets and liabilities. We also adjust for changes in tax rates and laws at the time the changes are enacted. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. We typically remove a tax impact from accumulated other comprehensive loss when the underlying circumstance which gave rise to the tax impact no longer exists. We recognize accrued interest and penalties associated with uncertain tax positions as part of income tax expense on our Consolidated Statements of Income.
Leases—We determine if an arrangement includes a lease at the inception of the agreement. The right-of-use asset and lease liability is determined at the lease commencement date and is based on the present value of estimated lease payments.
Our lease agreements contain both fixed and variable lease payments. In some cases, variable lease payments are based on a rate or an index. Fixed lease payments, as well as variable lease payments which are based on a rate or index, are included in the determination of the right-of-use asset and lease liability. Variable lease payments that are not based on a rate or index are expensed when incurred.
The present value of estimated lease payments is determined utilizing the rate implicit in the lease agreement, if that rate can be determined. If the implicit rate cannot be determined, the present value of estimated lease payments is determined utilizing our incremental borrowing rate. The incremental borrowing rate is determined at the lease commencement date and is developed utilizing a readily available market interest rate curve adjusted for our credit quality.
Notes to Consolidated Financial Statements
Some of our leases include an option to renew that can extend the lease term. For those leases which are reasonably certain to be renewed, we include the renewal in the lease term.
We do not recognize leases with terms of 12 months or less on the balance sheet for any lease class, except the railcar lease class. For the short-term leases not recorded on the balance sheet, the lease payments are recognized in the consolidated statements of income on a straight-line basis over the lease term.
We account for the lease and nonlease components as a single lease component in determining the right-of-use assets and lease liabilities for all lease classes.
Derivative Financial Instruments and Hedging Activities—We are exposed to certain risks arising from both our business operations and economic conditions. We manage our exposures to a wide variety of business and operational risks through management of our core business activities.
We manage certain economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding, as well as through the use of derivative financial instruments. We sometimes enter into interest rate swaps to manage our exposure to interest rate movements.
In addition, our foreign operations expose us to fluctuations of foreign exchange rates. These fluctuations may impact our results of operations, financial position, and cash flows. To manage this exposure, we sometimes enter into foreign currency forward contracts to minimize currency exposure due to cash flows from foreign operations.
We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting. We do not enter into derivative instruments for speculative purposes. We had no derivative financial instruments outstanding at December 31, 2019 or December 31, 2018.
Stock-based Compensation—We calculate the fair value of restricted stock and restricted stock units based on the closing price of our common stock on the date of grant. If award recipients are entitled to receive dividends during the vesting period, we make no adjustment to the fair value of the award for dividends. If the award does not entitle recipients to dividends during the vesting period, we reduce the grant-date price of our common stock by the present value of the dividends expected to be paid on the underlying shares during the vesting period, discounted at the risk-free interest rate.
We recognize stock-based compensation expense for the number of awards expected to vest on a straight-line basis over the requisite service period.
Estimates and Risks Due to Concentration of Business—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
In addition, our financial results can be influenced by certain risk factors. Some of our significant concentrations of risk include the following:
|
|
•
|
reliance on a small number of significant customers;
|
|
|
•
|
customers concentrated in the fuel and lubricant industries; and
|
|
|
•
|
production of several of our products solely at one facility.
|
Notes to Consolidated Financial Statements
2. Net Sales
On January 1, 2018, we adopted Accounting Standards Codification 606 (ASC 606), "Revenue from Contracts with Customers" using the modified retrospective method and applying the standard only to uncompleted contracts at the date of adoption. The impact of adopting ASC 606 did not result in a change to income, and therefore we did not reflect a cumulative effect to the opening balance of retained earnings due to the adoption of ASC 606. The comparative period of 2018 has been presented using this standard, while 2017 is reported under the accounting standard in effect at that time.
Our revenues are primarily derived from the manufacture and sale of petroleum additives products. We sell petroleum additives products across the world including to customers located in the North America, Latin America, Asia Pacific, and EMEAI regions. Our customers primarily consist of global, national, and independent oil companies. While some of our customers have payment terms beyond 30 days, we do not provide extended payment terms of a year or more, nor do our contracts include a financing component. Our allowance for doubtful accounts is immaterial, as are any bad debts we incur. In limited cases, we collect funds in advance of shipping product to our customers and recognizing the related revenue. These prepayments from customers are recorded as a contract liability to our customer until we recognize the revenue. Prepayments from our customers totaled $1 million in December 31, 2019 and $1 million in December 31, 2018. Revenue recognized from funds collected in advance from customers in an earlier period was $1 million in 2019 and $3 million in December 31, 2018.
We recognize revenue when control of the product is transferred to our customer and for an amount that reflects the consideration we expect to collect from the customer. Control is generally transferred to the customer when title transfers (which may include physical possession by the customer), we have a right to payment from the customer, the customer has accepted the product, and the customer has assumed the risks and rewards of ownership. We have supplier managed inventory arrangements with some of our customers to facilitate on-demand product availability. In some cases, the inventory resides at a customer site, although title has not transferred, we are not entitled to payment, and we have not invoiced for the product. We have evaluated the contract terms under these arrangements and have determined that control transfers when the customer uses the product, at which time revenue is recognized. Our contracts generally include one performance obligation, which is providing petroleum additives products. The performance obligation is satisfied at a point in time when products are shipped, delivered, or consumed by the customer, depending on the underlying contracts.
Taxes assessed by a governmental authority which are concurrent with sales to our customers, including sales, use, value-added, and revenue-related excise taxes, are collected by us from the customer and are not included in net sales, but are reflected in accrued expenses until remitted to the appropriate governmental authority. When we are responsible for shipping and handling costs after title has transferred, we account for those as fulfillment costs and include them in cost of goods sold.
Some of our contracts include variable consideration in the form of rebates or business development funds. We record rebates at the point of sale as contra-revenue when we can reasonably estimate the amount of the rebate. The estimates are based on our best judgment at the time of sale, which includes anticipated as well as historical performance. Depending upon the specific terms of a business development fund, amounts are accrued as contra-revenue at the point of sale or are expensed when costs are incurred by us. We regularly review both rebates and business development funds and make adjustments when necessary, recognizing the full amount of any adjustment in the period identified. We recognized an increase to net sales of $1 million for 2019 and $3 million for 2018 related to adjustments to rebates or business development funds which were recognized in revenue in a prior period. At December 31, 2019, accrued rebates were $23 million and accrued business development funds were $2 million. At December 31, 2018, accrued rebates were $25 million and accrued business developments funds were $2 million.
Notes to Consolidated Financial Statements
The following table provides information on our net sales by geographic area. Information on net sales by segment is in Note 4.
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Net sales
|
|
|
|
|
United States
|
|
$
|
728,125
|
|
|
$
|
722,576
|
|
China
|
|
225,498
|
|
|
239,406
|
|
Europe, Middle East, Africa, India
|
|
700,081
|
|
|
756,258
|
|
Asia Pacific, except China
|
|
311,469
|
|
|
335,119
|
|
Other foreign
|
|
225,122
|
|
|
236,316
|
|
Net sales
|
|
$
|
2,190,295
|
|
|
$
|
2,289,675
|
|
3. Earnings Per Share
We had 20,441 shares in 2019, 18,892 shares in 2018, and 16,708 shares in 2017 of nonvested restricted stock that were excluded from the calculation of diluted earnings per share, as their effect on earnings per share would be anti-dilutive.
The nonvested restricted stock is considered a participating security since the restricted stock contains nonforfeitable rights to dividends. As such, we use the two-class method to compute basic and diluted earnings per share for all periods presented. The following table illustrates the earnings allocation method utilized in the calculation of basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands, except per-share amounts)
|
|
2019
|
|
2018
|
|
2017
|
Earnings per share numerator:
|
|
|
|
|
|
|
Net income attributable to common shareholders before allocation of earnings to participating securities
|
|
$
|
254,286
|
|
|
$
|
234,734
|
|
|
$
|
190,509
|
|
Earnings allocated to participating securities
|
|
441
|
|
|
474
|
|
|
356
|
|
Net income attributable to common shareholders after allocation of earnings to participating securities
|
|
$
|
253,845
|
|
|
$
|
234,260
|
|
|
$
|
190,153
|
|
Earnings per share denominator:
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstanding - basic and diluted
|
|
11,166
|
|
|
11,515
|
|
|
11,824
|
|
Earnings per share - basic and diluted
|
|
$
|
22.73
|
|
|
$
|
20.34
|
|
|
$
|
16.08
|
|
|
|
4.
|
Segment and Geographic Area Information
|
Segment Information—The tables below show our consolidated segment results. The “All other” category includes the operations of the antiknock compounds business, as well as certain contracted manufacturing and services associated with Ethyl.
The segment accounting policies are the same as those described in Note 1. We evaluate the performance of the petroleum additives business based on segment operating profit. NewMarket Services departments and other expenses are billed to Afton and Ethyl based on the services provided under the holding company structure. Depreciation on segment property, plant, and equipment, as well as amortization of segment intangible assets and lease right-of-use assets for 2019, are included in segment operating profit. No transfers occurred between the petroleum additives segment and the “All other” category during the periods presented. The table below reports net sales and operating profit by segment, as well as a reconciliation to income before income tax expense, for the last three years.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Net sales
|
|
|
|
|
|
|
Petroleum additives
|
|
|
|
|
|
|
Lubricant additives
|
|
$
|
1,778,473
|
|
|
$
|
1,870,803
|
|
|
$
|
1,790,254
|
|
Fuel additives
|
|
397,431
|
|
|
410,000
|
|
|
397,029
|
|
Total
|
|
2,175,904
|
|
|
2,280,803
|
|
|
2,187,283
|
|
All other
|
|
14,391
|
|
|
8,872
|
|
|
11,121
|
|
Net sales (a)
|
|
$
|
2,190,295
|
|
|
$
|
2,289,675
|
|
|
$
|
2,198,404
|
|
Segment operating profit
|
|
|
|
|
|
|
Petroleum additives
|
|
$
|
359,228
|
|
|
$
|
311,019
|
|
|
$
|
345,017
|
|
All other
|
|
(1,562
|
)
|
|
(3,256
|
)
|
|
4,135
|
|
Segment operating profit
|
|
357,666
|
|
|
307,763
|
|
|
349,152
|
|
Corporate, general, and administrative expenses
|
|
(20,345
|
)
|
|
(19,651
|
)
|
|
(26,641
|
)
|
Interest and financing expenses, net
|
|
(29,241
|
)
|
|
(26,723
|
)
|
|
(21,856
|
)
|
Other income (expense), net
|
|
23,510
|
|
|
28,896
|
|
|
14,787
|
|
Income before income tax expense
|
|
$
|
331,590
|
|
|
$
|
290,285
|
|
|
$
|
315,442
|
|
|
|
(a)
|
No single customer accounted for 10% or more of our total net sales in 2019, 2018, or 2017.
|
The following tables show asset information by segment and the reconciliation to consolidated assets. Segment assets consist of accounts receivable, inventory, and long-lived assets. Long-lived assets included in the petroleum additives segment amounts in the table below include property, plant, and equipment, net of depreciation and intangibles (net of amortization) and goodwill, as well as lease right-of-use assets for 2019. The additions to long-lived assets include only property, plant, and equipment for each year presented and lease right-of-use assets for 2019.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Segment assets
|
|
|
|
|
Petroleum additives
|
|
$
|
1,506,690
|
|
|
$
|
1,448,737
|
|
All other
|
|
14,519
|
|
|
12,200
|
|
|
|
1,521,209
|
|
|
1,460,937
|
|
Cash and cash equivalents
|
|
144,397
|
|
|
73,040
|
|
Other accounts receivable
|
|
6,068
|
|
|
1,310
|
|
Deferred income taxes
|
|
6,327
|
|
|
5,094
|
|
Prepaid expenses and other current assets
|
|
33,237
|
|
|
29,179
|
|
Non-segment property, plant, and equipment, net
|
|
34,648
|
|
|
33,134
|
|
Prepaid pension cost
|
|
133,848
|
|
|
88,705
|
|
Lease right-of-use assets
|
|
302
|
|
|
0
|
|
Deferred charges and other assets
|
|
5,096
|
|
|
5,875
|
|
Total assets
|
|
$
|
1,885,132
|
|
|
$
|
1,697,274
|
|
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Additions to long-lived assets
|
|
|
|
|
|
|
Petroleum additives
|
|
$
|
85,711
|
|
|
$
|
72,829
|
|
|
$
|
196,951
|
|
All other
|
|
28
|
|
|
0
|
|
|
0
|
|
Corporate
|
|
3,076
|
|
|
1,809
|
|
|
6,266
|
|
Total additions to long-lived assets
|
|
$
|
88,815
|
|
|
$
|
74,638
|
|
|
$
|
203,217
|
|
Depreciation and amortization
|
|
|
|
|
|
|
Petroleum additives
|
|
$
|
84,872
|
|
|
$
|
69,029
|
|
|
$
|
52,266
|
|
All other
|
|
52
|
|
|
11
|
|
|
13
|
|
Corporate
|
|
2,636
|
|
|
2,719
|
|
|
3,061
|
|
Total depreciation and amortization
|
|
$
|
87,560
|
|
|
$
|
71,759
|
|
|
$
|
55,340
|
|
Geographic Area Information - We have operations in the North America, Latin America, Asia Pacific, and EMEAI regions. Our foreign customers consist primarily of global, national, and independent oil companies.
The tables below report net sales, total assets, and long-lived assets by geographic area, as well as by country for those countries with significant net sales or long-lived assets. Since our foreign operations are significant to our overall business, we are also presenting net sales in the table below by the major regions in which we operate. NewMarket assigns net sales to geographic areas based on the location to which the product was shipped to a third party. Long-lived assets in the table below include property, plant, and equipment, net of depreciation, and lease right-of-use assets for 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Net sales
|
|
|
|
|
|
|
United States
|
|
$
|
728,125
|
|
|
$
|
722,576
|
|
|
$
|
696,138
|
|
China
|
|
225,498
|
|
|
239,406
|
|
|
224,409
|
|
Europe, Middle East, Africa, India
|
|
700,081
|
|
|
756,258
|
|
|
742,337
|
|
Asia Pacific, except China
|
|
311,469
|
|
|
335,119
|
|
|
293,137
|
|
Other foreign
|
|
225,122
|
|
|
236,316
|
|
|
242,383
|
|
Net sales
|
|
$
|
2,190,295
|
|
|
$
|
2,289,675
|
|
|
$
|
2,198,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Total assets
|
|
|
|
|
United States
|
|
$
|
728,571
|
|
|
$
|
586,339
|
|
Foreign
|
|
1,156,561
|
|
|
1,110,935
|
|
Total assets
|
|
$
|
1,885,132
|
|
|
$
|
1,697,274
|
|
Long-lived assets
|
|
|
|
|
United States
|
|
$
|
275,646
|
|
|
$
|
226,191
|
|
Singapore
|
|
287,276
|
|
|
280,340
|
|
Other foreign
|
|
145,862
|
|
|
137,607
|
|
Total long-lived assets
|
|
$
|
708,784
|
|
|
$
|
644,138
|
|
Notes to Consolidated Financial Statements
|
|
5.
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Cash paid during the year for
|
|
|
|
|
|
|
Interest and financing expenses (net of capitalization)
|
|
$
|
28,523
|
|
|
$
|
28,915
|
|
|
$
|
20,376
|
|
Income taxes
|
|
64,899
|
|
|
76,859
|
|
|
59,010
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash transactions:
|
|
|
|
|
|
|
Non-cash additions to property, plant, and equipment
|
|
$
|
6,025
|
|
|
$
|
3,076
|
|
|
$
|
11,209
|
|
Non-cash obligation under capital lease
|
|
0
|
|
|
0
|
|
|
1,341
|
|
|
|
6.
|
Trade and Other Accounts Receivable, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Trade receivables
|
|
$
|
289,737
|
|
|
$
|
276,667
|
|
Income tax receivables
|
|
16,021
|
|
|
12,210
|
|
Other
|
|
30,068
|
|
|
25,983
|
|
|
|
$
|
335,826
|
|
|
$
|
314,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Finished goods and work-in-process
|
|
$
|
295,997
|
|
|
$
|
319,120
|
|
Raw materials
|
|
55,702
|
|
|
63,403
|
|
Stores, supplies, and other
|
|
14,239
|
|
|
13,818
|
|
|
|
$
|
365,938
|
|
|
$
|
396,341
|
|
Our U.S. finished goods, work-in-process, and raw materials inventories, which are stated on the LIFO basis, amounted to $116 million at December 31, 2019, which was below replacement cost by approximately $50 million. At December 31, 2018, LIFO basis inventories were $137 million, which was approximately $56 million below replacement cost.
Our foreign inventories amounted to $238 million at December 31, 2019 and $248 million at December 31, 2018.
Reserves for obsolete and slow-moving inventory included in the table above were not material at December 31, 2019 or December 31, 2018.
Notes to Consolidated Financial Statements
|
|
8.
|
Prepaid Expenses and Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Dividend funding
|
|
$
|
19,217
|
|
|
$
|
17,923
|
|
Income taxes on intercompany profit
|
|
5,756
|
|
|
6,431
|
|
Other
|
|
8,264
|
|
|
4,825
|
|
|
|
$
|
33,237
|
|
|
$
|
29,179
|
|
9. Property, Plant, and Equipment, at Cost
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Land
|
|
$
|
40,938
|
|
|
$
|
39,396
|
|
Land improvements
|
|
57,635
|
|
|
54,937
|
|
Leasehold improvements
|
|
2,122
|
|
|
1,968
|
|
Buildings
|
|
174,600
|
|
|
166,566
|
|
Machinery and equipment
|
|
1,161,409
|
|
|
1,143,106
|
|
Construction in progress
|
|
29,228
|
|
|
20,140
|
|
|
|
1,465,932
|
|
|
1,426,113
|
|
Less accumulated depreciation and amortization
|
|
830,493
|
|
|
781,975
|
|
Net property, plant, and equipment
|
|
$
|
635,439
|
|
|
$
|
644,138
|
|
We depreciate the cost of property, plant, and equipment by the straight-line method over the following estimated useful lives:
|
|
|
Land improvements
|
9 - 25 years
|
Buildings
|
10 - 46 years
|
Machinery and equipment
|
3 - 30 years
|
Depreciation expense was $64 million in 2019, $63 million in 2018, and $51 million in 2017.
|
|
10.
|
Intangibles (Net of Amortization) and Goodwill
|
The net carrying amount of intangibles and goodwill was $132 million at December 31, 2019 and $136 million at December 31, 2018. The gross carrying amount and accumulated amortization of each type of intangible asset and goodwill are presented in the table below.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2019
|
|
2018
|
(in thousands)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Amortizing intangible assets
|
|
|
|
|
|
|
|
|
Formulas and technology
|
|
$
|
9,600
|
|
|
$
|
5,416
|
|
|
$
|
9,600
|
|
|
$
|
3,250
|
|
Contract
|
|
2,000
|
|
|
600
|
|
|
2,000
|
|
|
400
|
|
Customer bases
|
|
14,240
|
|
|
10,931
|
|
|
14,240
|
|
|
9,091
|
|
Goodwill
|
|
122,987
|
|
|
|
|
122,940
|
|
|
|
|
|
$
|
148,827
|
|
|
$
|
16,947
|
|
|
$
|
148,780
|
|
|
$
|
12,741
|
|
Aggregate amortization expense
|
|
|
|
$
|
4,206
|
|
|
|
|
$
|
7,413
|
|
Aggregate amortization expense was $3 million in 2017. All of the intangibles relate to the petroleum additives segment. The change in the gross carrying amount between 2018 and 2019 is due to foreign currency fluctuations.
There is no accumulated goodwill impairment.
Estimated annual amortization expense related to our intangible assets for the next five years is expected to be (in thousands):
|
|
|
|
|
2020
|
$
|
2,907
|
|
2021
|
2,156
|
|
2022
|
1,423
|
|
2023
|
907
|
|
2024
|
390
|
|
We amortize the contract over 10 years; customer bases over 4 years to 20 years; and formulas and technology over 3 years to 6 years.
|
|
11.
|
Deferred Charges and Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Deposit on future leased plant and equipment
|
|
$
|
12,958
|
|
|
$
|
0
|
|
Finance lease right-of-use assets
|
|
12,840
|
|
|
0
|
|
Asbestos insurance receivables
|
|
5,528
|
|
|
3,727
|
|
Deferred financing costs, net of amortization
|
|
1,507
|
|
|
2,060
|
|
Other
|
|
4,902
|
|
|
4,091
|
|
|
|
$
|
37,735
|
|
|
$
|
9,878
|
|
Deferred financing costs, net of amortization, in the table above include only those costs associated with the revolving credit facility. The amount of deferred financing costs, net of amortization related to the 4.10% senior notes is reported as a component of long-term debt. See Note 13 for further information on our long-term debt.
Notes to Consolidated Financial Statements
12. Accrued Expenses
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Employee benefits, payroll, and related taxes
|
|
$
|
33,806
|
|
|
$
|
30,824
|
|
Customer rebates
|
|
22,682
|
|
|
24,822
|
|
Interest on long-term debt
|
|
5,290
|
|
|
5,388
|
|
Taxes other than income and payroll
|
|
3,631
|
|
|
5,778
|
|
Other
|
|
11,941
|
|
|
24,390
|
|
|
|
$
|
77,350
|
|
|
$
|
91,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Senior notes - 4.10% due 2022 (net of related deferred financing costs)
|
|
$
|
348,263
|
|
|
$
|
347,677
|
|
Senior notes - 3.78% due 2029
|
|
250,000
|
|
|
250,000
|
|
Revolving credit facility
|
|
44,678
|
|
|
168,129
|
|
Capital lease obligations
|
|
0
|
|
|
5,193
|
|
|
|
$
|
642,941
|
|
|
$
|
770,999
|
|
4.10% Senior Notes – In 2012, we issued $350 million aggregate principal amount of 4.10% senior notes due 2022 at an issue price of 99.83%. The notes are senior unsecured obligations and are registered under the Securities Act of 1933. We incurred financing costs totaling approximately $5 million related to the 4.10% senior notes, which are being amortized over the term of the agreement.
The 4.10% senior notes rank:
|
|
•
|
equal in right of payment with all of our existing and future senior unsecured indebtedness; and
|
|
|
•
|
senior in right of payment to any of our future subordinated indebtedness.
|
The indenture governing the 4.10% senior notes contains covenants that, among other things, limit our ability and the ability of our subsidiaries to:
|
|
•
|
create or permit to exist liens;
|
|
|
•
|
enter into sale-leaseback transactions;
|
|
|
•
|
incur additional guarantees; and
|
|
|
•
|
sell all or substantially all of our assets or consolidate or merge with or into other companies.
|
We were in compliance with all covenants under the indenture governing the 4.10% senior notes as of December 31, 2019 and December 31, 2018.
Notes to Consolidated Financial Statements
3.78% Senior Notes – On January 4, 2017, we issued $250 million in senior unsecured notes in a private placement with The Prudential Insurance Company of America and certain other purchasers. These notes bear interest at 3.78% and mature on January 4, 2029. Interest is payable semiannually. Principal payments of $50 million are payable annually beginning on January 4, 2025. We have the right to make optional prepayments on the notes at any time, subject to certain limitations. The note purchase agreement contains representations, warranties, terms and conditions customary for transactions of this type. These include negative covenants, certain financial covenants and events of default which are substantially similar to the covenants and events of default in our revolving credit facility.
We were in compliance with all covenants under the 3.78% senior notes as of December 31, 2019 and December 31, 2018.
Revolving Credit Facility – On September 22, 2017, we entered into a Credit Agreement (Credit Agreement) with a term of five years. The Credit Agreement provides for an $850 million, multicurrency revolving credit facility, with a $150 million sublimit for multicurrency borrowings, a $75 million sublimit for letters of credit, and a $20 million sublimit for swingline loans. The Credit Agreement includes an expansion feature which allows us, subject to certain conditions, to request an increase to the aggregate amount of the revolving credit facility or obtain incremental term loans in an amount up to $425 million. In addition, the Credit Agreement includes provisions that allow certain of our foreign subsidiaries to borrow under the agreement. The obligations under the Credit Agreement are unsecured and are fully and unconditionally guaranteed by NewMarket. The revolving credit facility matures on September 22, 2022. We incurred financing costs totaling $2.8 million related to the Credit Agreement, which are being amortized over the term of the agreement.
The outstanding borrowings under the Credit Agreement amounted to $45 million at December 31, 2019 and $168 million at December 31, 2018. Outstanding letters of credit amounted to $3 million at both December 31, 2019 and December 31, 2018 resulting in the unused portion of the credit facility amounting to $803 million at December 31, 2019 and $679 million at December 31, 2018.
Borrowings made under the revolving credit facility bear interest, at our option, at an annual rate equal to either (1) the Alternate Base Rate (ABR) plus the Applicable Rate (as defined in the Credit Agreement) (solely in the case of loans denominated in U.S. Dollars to NewMarket) or (2) the Adjusted LIBO Rate plus the Applicable Rate. The ABR is the greater of (i) the rate of interest publicly announced by the Administrative Agent as its prime rate, (ii) the NYFRB Rate (as defined in the Credit Agreement) from time to time plus 0.5%, and (iii) the Adjusted LIBO Rate for a one month interest period plus 1%. The Adjusted LIBO Rate means the rate at which Eurocurrency deposits in the London interbank market for certain periods (as selected by NewMarket) are quoted, as adjusted for statutory reserve requirements for Eurocurrency liabilities and other applicable mandatory costs. The Applicable Rate ranges from 0.0% to 0.625% (depending on our consolidated Leverage Ratio or Credit Ratings) for loans bearing interest based on the ABR. The Applicable Rate ranges from 1.00% to 1.625% (depending on our Leverage Ratio or Credit Ratings) for loans bearing interest based on the Adjusted LIBO Rate. At December 31, 2019, the Applicable Rate was 0.125% for loans bearing interest based on the ABR and 1.125% for loans bearing interest based on the Adjusted LIBO Rate.
The average interest rate for borrowings under our revolving credit facilities was 3.0% during 2019 and 3.0% during 2018.
We were in compliance with all covenants under the revolving credit facility at December 31, 2019 and at December 31, 2018.
Capital Lease Obligations – The 2018 capital lease obligations presented above are related to the Singapore manufacturing facility and were reclassified to finance lease liabilities in other noncurrent liabilities on the Consolidated Balance Sheets with the adoption of Accounting Standards Update 2016-02 on January 1, 2019. See Note 16 for further information.
Notes to Consolidated Financial Statements
|
|
14.
|
Other Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Employee benefits
|
|
$
|
92,711
|
|
|
$
|
81,473
|
|
Deferred income taxes
|
|
57,196
|
|
|
43,071
|
|
Finance lease liabilities
|
|
11,119
|
|
|
0
|
|
Asbestos litigation reserve
|
|
10,534
|
|
|
8,296
|
|
Environmental remediation
|
|
9,204
|
|
|
9,854
|
|
Deemed repatriation of earnings
|
|
2,956
|
|
|
2,956
|
|
Other
|
|
19,686
|
|
|
19,417
|
|
|
|
$
|
203,406
|
|
|
$
|
165,067
|
|
|
|
15.
|
Stock-based Compensation
|
The 2014 Incentive Compensation and Stock Plan (the Plan) was approved on April 24, 2014. Any employee of our company or an affiliate or a person who is a member of our Board of Directors or the board of directors of an affiliate is eligible to participate in the Plan if the Compensation Committee of the Board of Directors (the Administrator), in its sole discretion, determines that such person has contributed or can be expected to contribute to the profits or growth of our company or its affiliates (each, a participant). Under the terms of the Plan, we may grant participants stock awards, incentive awards, stock units, or options (which may be either incentive stock options or nonqualified stock options), or stock appreciation rights (SARs), which may be granted with a related option. Stock options entitle the participant to purchase a specified number of shares of our common stock at a price that is fixed by the Administrator at the time the option is granted; provided, however, that the price cannot be less than the shares’ fair market value on the date of grant. The maximum period in which an option may be exercised is fixed by the Administrator at the time the option is granted but, in the case of an incentive stock option, cannot exceed 10 years. No participant may be granted or awarded, in any calendar year, shares, options, SARs, or stock units covering more than 200,000 shares of our common stock in the aggregate. For purposes of this limitation and the individual limitation on the grant of options, an option and corresponding SAR are treated as a single award.
The maximum aggregate number of shares of our common stock that may be issued under the Plan is 1,000,000. At December 31, 2019, 959,366 shares were available for grant. During 2019, we granted 1,120 shares to five of our non-employee directors, which vested immediately.
A summary of activity during 2019 related to NewMarket’s restricted stock and restricted stock units (stock awards) is presented below in whole shares:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant-Date Fair Value
|
Unvested stock awards at January 1, 2019
|
|
19,328
|
|
|
$
|
414.52
|
|
Granted in 2019
|
|
6,326
|
|
|
440.42
|
|
Vested in 2019
|
|
2,001
|
|
|
381.99
|
|
Forfeited in 2019
|
|
2,542
|
|
|
399.78
|
|
Unvested stock awards at December 31, 2019
|
|
21,111
|
|
|
427.14
|
|
The weighted average grant-date fair value was $415.98 for stock awards granted in 2018 and $428.61 for stock awards granted in 2017. The fair value of shares vested was $1 million in 2019, $3 million in 2018, and $3 million in 2017. We recognized compensation expense of $2 million in 2019, $2 million in 2018, and $3 million in 2017 related to stock
Notes to Consolidated Financial Statements
awards. At December 31, 2019, total unrecognized compensation expense related to stock awards was $4 million, which is expected to be recognized over a period of 2.5 years.
16. Leases
Our leases are for land, real estate, railcars, vehicles, pipelines, plant equipment, and office equipment. We have both operating and finance leases with remaining terms ranging from less than one year to 51 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
|
2019
|
Operating lease cost
|
|
$
|
17,414
|
|
Finance lease cost:
|
|
|
Amortization of assets
|
|
2,723
|
|
Interest on lease liabilities
|
|
426
|
|
Short-term lease cost
|
|
3,459
|
|
Variable lease cost
|
|
3,206
|
|
Total lease cost
|
|
$
|
27,228
|
|
Variable lease costs also include leases that do not have a right-of-use asset or lease liability, but are capitalized as part of inventory. Rental expense was $23 million in 2018 and $33 million in 2017 under the authoritative accounting guidance in effect during those years.
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
(in thousands)
|
Balance Sheet Classification
|
|
December 31,
2019
|
Operating leases:
|
|
|
|
Operating lease right-of-use assets
|
Operating lease right-of-use assets
|
|
$
|
60,505
|
|
|
|
|
|
Current liability
|
Operating lease liabilities
|
|
$
|
14,036
|
|
Noncurrent liability
|
Operating lease liabilities-noncurrent
|
|
46,792
|
|
|
|
|
$
|
60,828
|
|
|
|
|
|
Finance leases:
|
|
|
|
Finance lease right-of-use assets
|
Deferred charges and other assets
|
|
$
|
12,840
|
|
|
|
|
|
Current liability
|
Other current liabilities
|
|
$
|
3,019
|
|
Noncurrent liability
|
Other noncurrent liabilities
|
|
11,119
|
|
|
|
|
$
|
14,138
|
|
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
December 31,
2019
|
Weighted average remaining lease term (in years):
|
|
|
Operating leases
|
|
14
|
|
Finance leases
|
|
9
|
|
|
|
|
Weighted average incremental borrowing rate:
|
|
|
Operating leases
|
|
3.88
|
%
|
Finance leases
|
|
3.41
|
%
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in thousands)
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
|
$
|
16,765
|
|
Operating cash flows from finance leases
|
|
426
|
|
Financing cash flows from finance leases
|
|
2,649
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
Operating leases
|
|
$
|
18,826
|
|
Finance leases
|
|
10,555
|
|
Maturities of lease liabilities as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Operating Leases
|
|
Finance Leases
|
2020
|
|
$
|
16,019
|
|
|
$
|
3,443
|
|
2021
|
|
11,791
|
|
|
2,423
|
|
2022
|
|
9,105
|
|
|
1,390
|
|
2023
|
|
7,516
|
|
|
1,172
|
|
2024
|
|
4,244
|
|
|
1,127
|
|
Thereafter
|
|
33,155
|
|
|
6,745
|
|
Total lease payments
|
|
81,830
|
|
|
16,300
|
|
Less: imputed interest
|
|
21,002
|
|
|
2,162
|
|
Total lease obligations
|
|
$
|
60,828
|
|
|
$
|
14,138
|
|
Operating lease payments in the table above include approximately $16 million related to options to extend lease terms that are reasonably certain of being exercised. At December 31, 2019, we had commitments of approximately $36 million related to leases that have not yet commenced and are not included in the above table. Most of the commitments relate to plant and equipment that is being constructed or procured by the future lessors. These leases are expected to commence in 2020 and 2021.
Notes to Consolidated Financial Statements
Under the authoritative accounting guidance in effect at December 31, 2018, future lease payments for all noncancelable operating leases as of December 31, 2018 were (in thousands):
|
|
|
|
|
2019
|
$
|
17,223
|
|
2020
|
15,035
|
|
2021
|
10,502
|
|
2022
|
7,957
|
|
2023
|
6,810
|
|
After 2023
|
24,490
|
|
|
|
17.
|
Pension Plans and Other Postretirement Benefits
|
NewMarket uses a December 31 measurement date for all of our plans.
U.S. Retirement Plans
NewMarket sponsors four pension plans for all full-time U.S. employees that offer a benefit based primarily on years of service and compensation. Employees do not contribute to these pension plans. The plans are as follows:
|
|
•
|
Salaried employees pension plan;
|
|
|
•
|
Afton pension plan for union employees (the Sauget plan);
|
|
|
•
|
NewMarket retirement income plan for union employees in Houston, Texas (the Houston plan); and
|
|
|
•
|
Afton Chemical Additives pension plan for union employees in Port Arthur, Texas (the Port Arthur plan).
|
In addition, we offer an unfunded, nonqualified supplemental pension plan. This plan restores the pension benefits from our regular pension plans that would have been payable to designated participants if it were not for limitations imposed by U.S. federal income tax regulations. We also provide postretirement health care benefits and life insurance to eligible retired employees.
The service cost component of net periodic benefit cost (income) is included in cost of goods sold; selling, general, and administrative expenses; or research, development, and testing expenses, to reflect where other compensation costs arising from services rendered by the pertinent employee are recorded on the Consolidated Statements of Income. The remaining components of net periodic benefit cost (income) are recorded in other income (expense), net on the Consolidated Statements of Income.
Notes to Consolidated Financial Statements
The components of net periodic pension and postretirement benefit cost (income), as well as other amounts recognized in other comprehensive income (loss), are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Net periodic benefit cost (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
13,471
|
|
|
$
|
15,391
|
|
|
$
|
13,679
|
|
|
$
|
718
|
|
|
$
|
896
|
|
|
$
|
774
|
|
Interest cost
|
|
14,509
|
|
|
13,256
|
|
|
13,289
|
|
|
1,514
|
|
|
1,458
|
|
|
1,582
|
|
Expected return on plan assets
|
|
(34,632
|
)
|
|
(29,883
|
)
|
|
(26,146
|
)
|
|
(947
|
)
|
|
(969
|
)
|
|
(1,197
|
)
|
Amortization of prior service cost (credit)
|
|
178
|
|
|
25
|
|
|
26
|
|
|
(3,028
|
)
|
|
(3,028
|
)
|
|
(3,029
|
)
|
Amortization of actuarial net (gain) loss
|
|
2,951
|
|
|
5,139
|
|
|
4,725
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Net periodic benefit cost (income)
|
|
(3,523
|
)
|
|
3,928
|
|
|
5,573
|
|
|
(1,743
|
)
|
|
(1,643
|
)
|
|
(1,870
|
)
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial net (gain) loss
|
|
(36,814
|
)
|
|
29,215
|
|
|
(13,386
|
)
|
|
3,049
|
|
|
(2,190
|
)
|
|
2,635
|
|
Prior service cost (credit)
|
|
1,013
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Amortization of actuarial net gain (loss)
|
|
(2,951
|
)
|
|
(5,139
|
)
|
|
(4,725
|
)
|
|
0
|
|
|
0
|
|
|
0
|
|
Amortization of prior service (cost) credit
|
|
(178
|
)
|
|
(25
|
)
|
|
(26
|
)
|
|
3,028
|
|
|
3,028
|
|
|
3,029
|
|
Total recognized in other comprehensive income (loss)
|
|
(38,930
|
)
|
|
24,051
|
|
|
(18,137
|
)
|
|
6,077
|
|
|
838
|
|
|
5,664
|
|
Total recognized in net periodic benefit cost (income) and other comprehensive income (loss)
|
|
$
|
(42,453
|
)
|
|
$
|
27,979
|
|
|
$
|
(12,564
|
)
|
|
$
|
4,334
|
|
|
$
|
(805
|
)
|
|
$
|
3,794
|
|
The estimated actuarial net loss to be amortized from accumulated other comprehensive loss into net periodic benefit cost (income) during 2020 is expected to be $5 million for pension plans. The estimated prior service credit to be amortized from accumulated other comprehensive loss into net periodic benefit cost (income) during 2020 is not expected to be material for pension plans. The estimated prior service credit to be amortized from accumulated other comprehensive loss into net periodic benefit cost (income) during 2020 related to postretirement benefits is expected to be $3 million.
Notes to Consolidated Financial Statements
Changes in the plans’ benefit obligations and assets follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
349,212
|
|
|
$
|
358,812
|
|
|
$
|
37,512
|
|
|
$
|
40,438
|
|
Service cost
|
|
13,471
|
|
|
15,391
|
|
|
718
|
|
|
896
|
|
Interest cost
|
|
14,509
|
|
|
13,256
|
|
|
1,514
|
|
|
1,458
|
|
Actuarial net (gain) loss
|
|
38,045
|
|
|
(26,957
|
)
|
|
3,165
|
|
|
(2,355
|
)
|
Plan amendment
|
|
1,014
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Benefits paid
|
|
(13,195
|
)
|
|
(11,290
|
)
|
|
(2,589
|
)
|
|
(2,925
|
)
|
Benefit obligation at end of year
|
|
403,056
|
|
|
349,212
|
|
|
40,320
|
|
|
37,512
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
384,552
|
|
|
365,421
|
|
|
22,378
|
|
|
22,904
|
|
Actual return on plan assets
|
|
109,493
|
|
|
(26,289
|
)
|
|
1,063
|
|
|
803
|
|
Employer contributions
|
|
2,973
|
|
|
56,710
|
|
|
1,240
|
|
|
1,596
|
|
Benefits paid
|
|
(13,195
|
)
|
|
(11,290
|
)
|
|
(2,589
|
)
|
|
(2,925
|
)
|
Fair value of plan assets at end of year
|
|
483,823
|
|
|
384,552
|
|
|
22,092
|
|
|
22,378
|
|
Funded status
|
|
$
|
80,767
|
|
|
$
|
35,340
|
|
|
$
|
(18,228
|
)
|
|
$
|
(15,134
|
)
|
Amounts recognized in the Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
121,968
|
|
|
$
|
75,206
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Current liabilities
|
|
(2,920
|
)
|
|
(2,788
|
)
|
|
(1,164
|
)
|
|
(1,215
|
)
|
Noncurrent liabilities
|
|
(38,281
|
)
|
|
(37,078
|
)
|
|
(17,064
|
)
|
|
(13,919
|
)
|
|
|
$
|
80,767
|
|
|
$
|
35,340
|
|
|
$
|
(18,228
|
)
|
|
$
|
(15,134
|
)
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
Actuarial net (gain) loss
|
|
$
|
73,261
|
|
|
$
|
113,026
|
|
|
$
|
2,569
|
|
|
$
|
(480
|
)
|
Prior service cost (credit)
|
|
842
|
|
|
7
|
|
|
(22,647
|
)
|
|
(25,675
|
)
|
|
|
$
|
74,103
|
|
|
$
|
113,033
|
|
|
$
|
(20,078
|
)
|
|
$
|
(26,155
|
)
|
The accumulated benefit obligation for all domestic defined benefit pension plans was $346 million at December 31, 2019 and $303 million at December 31, 2018.
The fair market value of plan assets exceeded the accumulated benefit obligation for all domestic plans, except the nonqualified plan, at December 31, 2019 and December 31, 2018. The fair market value of plan assets exceeded the projected benefit obligation for all domestic plans, except the nonqualified plan, at December 31, 2019 and December 31, 2018.
The net asset position for plans in which assets exceeded the projected benefit obligation is included in prepaid pension cost on the Consolidated Balance Sheets. The net liability position of plans in which the projected benefit obligation exceeded assets is included in other noncurrent liabilities on the Consolidated Balance Sheets.
A portion of the accrued benefit cost for the nonqualified plan is included in current liabilities at both December 31, 2019 and December 31, 2018. As the nonqualified plan is unfunded, the amount reflected in current liabilities represents the expected benefit payments related to the nonqualified plan during 2020.
Notes to Consolidated Financial Statements
The first table below shows information on domestic pension plans with the accumulated benefit obligation in excess of plan assets. The second table presents information on domestic pension plans with the projected benefit obligation in excess of plan assets.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Plans with the accumulated benefit obligation in excess of the fair market value of plan assets
|
|
|
|
|
Projected benefit obligation
|
|
$
|
41,201
|
|
|
$
|
39,866
|
|
Accumulated benefit obligation
|
|
38,167
|
|
|
36,586
|
|
Fair market value of plan assets
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Plans with the projected benefit obligation in excess of the fair market value of plan assets
|
|
|
|
|
Projected benefit obligation
|
|
$
|
41,201
|
|
|
$
|
39,866
|
|
Fair market value of plan assets
|
|
0
|
|
|
0
|
|
There are no assets held by the trustee for the retired beneficiaries of the nonqualified plan. Payments to retired beneficiaries of the nonqualified plan are made with cash from operations.
Assumptions—We used the following assumptions to calculate the results of our retirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Weighted-average assumptions used to determine net periodic benefit cost (income) for years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
4.25
|
%
|
|
3.75
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
|
3.75
|
%
|
|
4.25
|
%
|
Expected long-term rate of return on plan assets
|
|
8.50
|
%
|
|
8.50
|
%
|
|
8.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
|
5.50
|
%
|
Rate of projected compensation increase
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit obligations at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.50
|
%
|
|
4.25
|
%
|
|
3.75
|
%
|
|
3.50
|
%
|
|
4.25
|
%
|
|
3.75
|
%
|
Rate of projected compensation increase
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
|
|
|
|
|
For pension plans, we base the assumed expected long-term rate of return for plan assets on an analysis of our actual investments, including our asset allocation, as well as an analysis of expected returns. This analysis reflects the expected long-term rates of return for each significant asset class and economic indicator. As of January 1, 2020, the expected rates were 8.5% for U.S. large cap stocks, 3.6% for fixed income, and 2.6% for inflation. The range of returns relies both on forecasts and on broad-market historical benchmarks for expected return, correlation, and volatility for each asset class. Our asset allocation is predominantly weighted toward equities. Through our ongoing monitoring of our investments and review of market data, we have determined that we should maintain the expected long-term rate of return for our U.S. plans at 8.5% at December 31, 2019. For the postretirement plan, we based the assumed expected long-term rate of return for plan assets on an evaluation of projected interest rates, as well as the guaranteed interest rate for our insurance contract.
Plan Assets—Pension plan assets are held and distributed by trusts and consist principally of equity securities and investment-grade fixed income securities. We invest directly in equity securities, as well as in funds which primarily hold
Notes to Consolidated Financial Statements
equity and debt securities. Our target allocation is 90% to 97% in equities, 3% to 10% in debt securities and 1% to 5% in cash.
The pension obligation is long-term in nature and the investment philosophy followed by the Pension Investment Committee is likewise long-term in its approach. The majority of the pension funds are invested in equity securities as historically, equity securities have outperformed debt securities and cash investments, resulting in a higher investment return over the long-term. While in the short-term, equity securities may underperform other investment classes, we are less concerned with short-term results and more concerned with long-term improvement. The pension funds are managed by several different investment companies who predominantly invest in U.S. and international equities. Each investment company’s performance is reviewed quarterly. A small portion of the funds is in investments such as cash or short-term bonds, which historically has been less vulnerable to short-term market swings. These funds are used to provide the cash needed to meet our monthly obligations.
There are no significant concentrations of risk within plan assets, nor do the equity securities include any NewMarket common stock for any year presented.
The assets of the postretirement benefit plan are invested completely in an insurance contract held by Metropolitan Life. No NewMarket common stock is included in these assets.
The following table provides information on the fair value of our pension and postretirement benefit plans assets, as well as the related level within the fair value hierarchy. Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified by level in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair Value Measurements Using
|
(in thousands)
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. companies
|
|
$
|
338,564
|
|
|
$
|
338,564
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
280,717
|
|
|
$
|
280,717
|
|
|
$
|
0
|
|
|
$
|
0
|
|
International companies
|
|
20,751
|
|
|
20,751
|
|
|
0
|
|
|
0
|
|
|
4,223
|
|
|
4,223
|
|
|
0
|
|
|
0
|
|
Money market instruments
|
|
17,618
|
|
|
17,618
|
|
|
0
|
|
|
0
|
|
|
13,099
|
|
|
13,099
|
|
|
0
|
|
|
0
|
|
Pooled investment funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities—mutual funds
|
|
9,576
|
|
|
9,576
|
|
|
0
|
|
|
0
|
|
|
9,039
|
|
|
9,039
|
|
|
0
|
|
|
0
|
|
International equities—mutual fund
|
|
17,378
|
|
|
17,378
|
|
|
0
|
|
|
0
|
|
|
14,302
|
|
|
14,302
|
|
|
0
|
|
|
0
|
|
Common collective trusts measured at net asset value
|
|
78,256
|
|
|
|
|
|
|
|
|
61,254
|
|
|
|
|
|
|
|
Insurance contract
|
|
1,680
|
|
|
0
|
|
|
1,680
|
|
|
0
|
|
|
1,918
|
|
|
0
|
|
|
1,918
|
|
|
0
|
|
|
|
$
|
483,823
|
|
|
$
|
403,887
|
|
|
$
|
1,680
|
|
|
$
|
0
|
|
|
$
|
384,552
|
|
|
$
|
321,380
|
|
|
$
|
1,918
|
|
|
$
|
0
|
|
Postretirement Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contract
|
|
$
|
22,092
|
|
|
$
|
0
|
|
|
$
|
22,092
|
|
|
$
|
0
|
|
|
$
|
22,378
|
|
|
$
|
0
|
|
|
$
|
22,378
|
|
|
$
|
0
|
|
The valuation methodologies used to develop the fair value measurements for the investments in the table above is outlined below. There have been no changes in the valuation techniques used to value the investments.
Notes to Consolidated Financial Statements
|
|
•
|
Equity securities, including common stock and real estate investment trusts, are valued at the closing price reported on a national exchange.
|
|
|
•
|
Money market instruments are valued at cost, which approximates fair value.
|
|
|
•
|
Pooled investment funds—Mutual funds are valued at the closing price reported on a national exchange.
|
|
|
•
|
The common collective trusts (the trusts) are valued at the net asset value of units held based on the quoted market value of the underlying investments held by the funds. One of the trusts invests primarily in a diversified portfolio of equity securities of companies located outside of the United States and Canada, as determined by a company's jurisdiction of incorporation. We may make withdrawals from this trust on the first business day of each month with at least 10 days notice. Another trust invests primarily in a diversified portfolio of equity securities included in the S&P 500 index and a third trust invests primarily in a diversified portfolio of equity securities included in the Russell 1000 Value index. There are no restrictions on redemption for the index trusts and there were no unfunded commitments.
|
|
|
•
|
Cash and cash equivalents are valued at cost.
|
|
|
•
|
The insurance contracts are unallocated funds deposited with an insurance company and are stated at an amount equal to the sum of all amounts deposited less the sum of all amounts withdrawn, adjusted for investment return.
|
Cash Flows—For U.S. plans, NewMarket expects to contribute $3 million to our pension plans and $1 million to our postretirement benefit plan in 2020. The expected benefit payments for the next ten years are as follows.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Expected Pension
Benefit Payments
|
|
Expected
Postretirement
Benefit Payments
|
2020
|
|
$
|
13,011
|
|
|
$
|
2,553
|
|
2021
|
|
13,809
|
|
|
2,420
|
|
2022
|
|
14,687
|
|
|
2,296
|
|
2023
|
|
15,659
|
|
|
2,194
|
|
2024
|
|
16,689
|
|
|
2,094
|
|
2025 through 2029
|
|
98,827
|
|
|
9,906
|
|
Foreign Retirement Plans
For most employees of our foreign subsidiaries, NewMarket has defined benefit pension plans that offer benefits based primarily on years of service and compensation. These defined benefit plans provide benefits for employees of our foreign subsidiaries located in Belgium, the U.K., Germany, Canada, and Mexico. NewMarket generally contributes to investment trusts and insurance accounts to provide for these plans.
Notes to Consolidated Financial Statements
The components of net periodic pension cost (income), as well as other amounts recognized in other comprehensive income (loss), for these foreign defined benefit pension plans are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Net periodic benefit cost (income)
|
|
|
|
|
|
|
Service cost
|
|
$
|
6,430
|
|
|
$
|
7,271
|
|
|
$
|
7,437
|
|
Interest cost
|
|
4,768
|
|
|
4,514
|
|
|
4,314
|
|
Expected return on plan assets
|
|
(9,084
|
)
|
|
(9,918
|
)
|
|
(8,479
|
)
|
Amortization of prior service cost (credit)
|
|
(42
|
)
|
|
(81
|
)
|
|
(79
|
)
|
Amortization of actuarial net (gain) loss
|
|
938
|
|
|
597
|
|
|
959
|
|
Net periodic benefit cost (income)
|
|
3,010
|
|
|
2,383
|
|
|
4,152
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss)
|
|
|
|
|
|
|
Actuarial net (gain) loss
|
|
11,074
|
|
|
4,532
|
|
|
(3,029
|
)
|
Prior service cost (credit)
|
|
0
|
|
|
537
|
|
|
0
|
|
Amortization of actuarial net gain (loss)
|
|
(938
|
)
|
|
(597
|
)
|
|
(959
|
)
|
Amortization of prior service (cost) credit
|
|
42
|
|
|
81
|
|
|
79
|
|
Total recognized in other comprehensive income (loss)
|
|
10,178
|
|
|
4,553
|
|
|
(3,909
|
)
|
Total recognized in net periodic benefit cost (income) and other comprehensive income (loss)
|
|
$
|
13,188
|
|
|
$
|
6,936
|
|
|
$
|
243
|
|
The estimated actuarial net loss to be amortized from accumulated other comprehensive loss into net periodic benefit cost (income) during 2020 is expected to be $1 million. The estimated prior service credit to be amortized from accumulated other comprehensive loss into net periodic benefit cost (income) during 2020 is not expected to be material.
Notes to Consolidated Financial Statements
Changes in the benefit obligations and assets of the foreign defined benefit pension plans follow.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Change in benefit obligation
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
173,620
|
|
|
$
|
185,815
|
|
Service cost
|
|
6,430
|
|
|
7,271
|
|
Interest cost
|
|
4,768
|
|
|
4,514
|
|
Employee contributions
|
|
680
|
|
|
737
|
|
Actuarial net (gain) loss
|
|
21,558
|
|
|
(10,976
|
)
|
Benefits paid
|
|
(5,977
|
)
|
|
(4,144
|
)
|
Foreign currency translation
|
|
4,979
|
|
|
(9,597
|
)
|
Benefit obligation at end of year
|
|
206,058
|
|
|
173,620
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
163,746
|
|
|
176,968
|
|
Actual return on plan assets
|
|
19,591
|
|
|
(6,357
|
)
|
Employer contributions
|
|
5,586
|
|
|
5,968
|
|
Employee contributions
|
|
680
|
|
|
737
|
|
Benefits paid
|
|
(5,977
|
)
|
|
(4,144
|
)
|
Foreign currency translation
|
|
5,829
|
|
|
(9,426
|
)
|
Fair value of plan assets at end of year
|
|
189,455
|
|
|
163,746
|
|
Funded status
|
|
$
|
(16,603
|
)
|
|
$
|
(9,874
|
)
|
Amounts recognized in the Consolidated Balance Sheets
|
|
|
|
|
Noncurrent assets
|
|
$
|
11,880
|
|
|
$
|
13,499
|
|
Current liabilities
|
|
(297
|
)
|
|
(301
|
)
|
Noncurrent liabilities
|
|
(28,186
|
)
|
|
(23,072
|
)
|
|
|
$
|
(16,603
|
)
|
|
$
|
(9,874
|
)
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
Actuarial net (gain) loss
|
|
$
|
52,902
|
|
|
$
|
42,766
|
|
Prior service cost (credit)
|
|
778
|
|
|
736
|
|
|
|
$
|
53,680
|
|
|
$
|
43,502
|
|
The accumulated benefit obligation for all foreign defined benefit pension plans was $171 million at December 31, 2019 and $146 million at December 31, 2018.
The fair market value of plan assets exceeded both the accumulated benefit obligation and projected benefit obligation for the U.K. and the Canada plans at both year-end 2019 and 2018. The net asset position of the U.K. and Canada plans are included in prepaid pension cost on the Consolidated Balance Sheets at December 31, 2019 and December 31, 2018. The accumulated benefit obligation and projected benefit obligation exceeded the fair market value of plan assets for the Germany and Belgium plans at December 31, 2019 and December 31, 2018. For the two Mexico plans, the accumulated benefit obligation and projected benefit obligation exceeded the fair market value of plan assets at December 31, 2019. At December 31, 2018 the fair market value of plan assets exceeded the accumulated benefit obligation but not the projected benefit obligation. The accrued benefit cost of these plans is included in other noncurrent liabilities on the Consolidated Balance Sheets.
Notes to Consolidated Financial Statements
As the Germany plan is unfunded, a portion of the accrued benefit cost is included in current liabilities at year-end 2019 and 2018, reflecting the expected benefit payments related to the plan for the following year.
The first table below shows information on foreign pension plans with the accumulated benefit obligation in excess of plan assets. The second table shows information on foreign pension plans with the projected benefit obligation in excess of plan assets.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Plans with the accumulated benefit obligation in excess of the fair market value of plan assets
|
|
|
|
|
Projected benefit obligation
|
|
$
|
41,126
|
|
|
$
|
33,730
|
|
Accumulated benefit obligation
|
|
27,879
|
|
|
22,803
|
|
Fair market value of plan assets
|
|
12,642
|
|
|
10,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Plans with the projected benefit obligation in excess of the fair market value of plan assets
|
|
|
|
|
Projected benefit obligation
|
|
$
|
41,126
|
|
|
$
|
35,970
|
|
Fair market value of plan assets
|
|
12,642
|
|
|
12,597
|
|
Assumptions—The information in the table below provides the weighted-average assumptions used to calculate the results of our foreign defined benefit pension plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Weighted-average assumptions used to determine net periodic benefit cost (income) for the years ended December 31,
|
|
|
|
|
|
|
Discount rate
|
|
2.67
|
%
|
|
2.36
|
%
|
|
2.53
|
%
|
Expected long-term rate of return on plan assets
|
|
5.58
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
Rate of projected compensation increase
|
|
4.10
|
%
|
|
4.14
|
%
|
|
4.20
|
%
|
Weighted-average assumptions used to determine benefit obligations at December 31,
|
|
|
|
|
|
|
Discount rate
|
|
1.81
|
%
|
|
2.67
|
%
|
|
2.36
|
%
|
Rate of projected compensation increase
|
|
3.96
|
%
|
|
4.10
|
%
|
|
4.14
|
%
|
The actuarial assumptions used by the various foreign locations are based upon the circumstances of each particular country and pension plan. The factors impacting the determination of the long-term rate of return for a particular foreign pension plan include the market conditions within a particular country, as well as the investment strategy and asset allocation of the specific plan.
Plan Assets—Pension plan assets vary by foreign location and plan. Assets are held and distributed by trusts and, depending upon the foreign location and plan, consist primarily of pooled equity funds, pooled debt securities funds, pooled diversified funds, equity securities, debt securities, cash, and insurance contracts. The combined weighted-average target allocation of our foreign pension plans is 38% in equities (including pooled funds), 37% in debt securities (including pooled funds), 6% in insurance contracts, and 19% in pooled diversified funds.
Notes to Consolidated Financial Statements
While the pension obligation is long-term in nature for each of our foreign plans, the investment strategies followed by each plan vary to some degree based upon the laws of a particular country, as well as the provisions of the specific pension trust. The U.K. and Canada plans are invested predominantly in equity securities funds, diversified funds, and debt securities funds. The funds of these plans are managed by various trustees and investment companies whose performance is reviewed throughout the year. The Belgium plan is invested in an insurance contract. The Mexico plans are invested in various mutual funds, equities, and debt securities. The Germany plan has no assets.
There are no significant concentrations of risk within plan assets, nor do the equity securities include any NewMarket common stock for any year presented.
The following table provides information on the fair value of our foreign pension plans assets, as well as the related level within the fair value hierarchy. Investments that are measured at fair value using net asset value per share (or its equivalent) have not been classified by level in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair Value Measurements Using
|
(in thousands)
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Insurance contract
|
|
$
|
10,706
|
|
|
$
|
0
|
|
|
$
|
10,706
|
|
|
$
|
0
|
|
|
$
|
10,618
|
|
|
$
|
0
|
|
|
$
|
10,618
|
|
|
$
|
0
|
|
Equity securities—international companies
|
|
691
|
|
|
691
|
|
|
0
|
|
|
0
|
|
|
684
|
|
|
684
|
|
|
0
|
|
|
0
|
|
Debt securities
|
|
663
|
|
|
646
|
|
|
17
|
|
|
0
|
|
|
756
|
|
|
698
|
|
|
58
|
|
|
0
|
|
Pooled investment funds—mutual funds
|
|
582
|
|
|
582
|
|
|
0
|
|
|
0
|
|
|
538
|
|
|
538
|
|
|
0
|
|
|
0
|
|
Cash and cash equivalents
|
|
131
|
|
|
131
|
|
|
0
|
|
|
0
|
|
|
66
|
|
|
66
|
|
|
0
|
|
|
0
|
|
Pooled investment funds (measured at net asset value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities—U.S. companies
|
|
13,074
|
|
|
|
|
|
|
|
|
10,294
|
|
|
|
|
|
|
|
Equity securities—international companies
|
|
60,945
|
|
|
|
|
|
|
|
|
49,610
|
|
|
|
|
|
|
|
Debt securities
|
|
67,094
|
|
|
|
|
|
|
|
|
60,480
|
|
|
|
|
|
|
|
Diversified growth funds
|
|
35,569
|
|
|
|
|
|
|
|
|
30,700
|
|
|
|
|
|
|
|
|
|
$
|
189,455
|
|
|
$
|
2,050
|
|
|
$
|
10,723
|
|
|
$
|
0
|
|
|
$
|
163,746
|
|
|
$
|
1,986
|
|
|
$
|
10,676
|
|
|
$
|
0
|
|
The valuation methodologies used to develop the fair value measurements for the investments in the table above are outlined below. There have been no changes in the valuation techniques used to value the investments.
|
|
•
|
The insurance contract represents funds deposited with an insurance company and is stated at an amount equal to the sum of all amounts deposited less the sum of all amounts withdrawn, adjusted for investment return.
|
|
|
•
|
Equity securities are valued at the closing price reported on a national exchange.
|
|
|
•
|
Debt securities are valued by quoted market prices or valued based on yields currently available on comparable securities of issuers with similar credit ratings.
|
|
|
•
|
Pooled investment funds that are mutual funds are valued at the closing price reported on a national exchange.
|
|
|
•
|
Cash and cash equivalents are valued at cost.
|
Notes to Consolidated Financial Statements
|
|
•
|
The pooled investment funds are valued at the net asset value of units held by the plans based on the quoted market value of the underlying investments held by the fund. The U.K. pension plan is invested in units of life insurance policies that are linked to equity securities funds, government bond funds and diversified growth funds. The underlying assets of the equity funds, bond funds, and diversified growth funds are traded on a national exchange and are based on tracking various indices of the London Stock Exchange. There are no redemption restrictions on these funds. There were no unfunded commitments for the U.K. pension plan funds. The Canada pension plan is invested in a pooled Canadian equity fund and a pooled diversified fund. The Canadian equity fund invests in a diversification (sector and industry) of equities listed on a recognized Canadian exchange. The diversified fund invests in a diversified mix of equities, fixed income securities, cash, and cash equivalent securities. There are no redemption restrictions on the pooled Canadian funds and there were no unfunded commitments.
|
Cash Flows—For foreign pension plans, NewMarket expects to contribute $6 million to the plans in 2020. The expected benefit payments for the next ten years for our foreign pension plans are shown in the table below.
|
|
|
|
|
|
(in thousands)
|
|
Expected Pension
Benefit Payments
|
2020
|
|
$
|
5,662
|
|
2021
|
|
5,830
|
|
2022
|
|
4,390
|
|
2023
|
|
6,187
|
|
2024
|
|
8,186
|
|
2025 through 2029
|
|
33,050
|
|
On December 22, 2017, the U.S. enacted tax legislation commonly known as the Tax Cuts and Jobs Act (Tax Reform Act), which required a one-time transition tax in 2017 on the deemed repatriation of previously deferred foreign earnings and reduced the U.S. corporate tax rate to 21% beginning in 2018. In addition, the Tax Reform Act included several provisions effective beginning in 2018 which impact NewMarket, including the global intangible low-taxed income (GILTI) inclusion from foreign subsidiaries and the foreign-derived intangible income deduction. We elected to account for the impact of the tax on GILTI in the period in which it is incurred.
We recognized $31 million of income tax expense in the fourth quarter of 2017, as a result of the Tax Reform Act. This provisional expense included $32 million relating to the one-time tax on deferred foreign earnings, which we elected to pay over an eight-year period, partially offset by $1 million of reductions to deferred tax liabilities.
During the fourth quarter of 2018, we completed the accounting for the impact of the Tax Reform Act. We recorded $1 million of additional tax on previously deferred foreign earnings, which was offset by $8 million of reductions to deferred tax liabilities, as a result of the decrease in the U.S. corporate tax rate. These changes were the result of additional analysis, changes in previous interpretations and assumptions, additional regulatory guidance issued during 2018, and actions we took as a result of the Tax Reform Act. As of December 31, 2019, we have a remaining liability of $3 million associated with the one-time tax on the deemed repatriation of foreign earnings, which is recorded in other noncurrent liabilities.
Notes to Consolidated Financial Statements
Our income before income tax expense, as well as our provision for income taxes is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Income before income tax expense
|
|
|
|
|
|
|
Domestic
|
|
$
|
183,907
|
|
|
$
|
157,459
|
|
|
$
|
140,779
|
|
Foreign
|
|
147,683
|
|
|
132,826
|
|
|
174,663
|
|
|
|
$
|
331,590
|
|
|
$
|
290,285
|
|
|
$
|
315,442
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
Current income taxes
|
|
|
|
|
|
|
Federal
|
|
$
|
29,955
|
|
|
$
|
9,153
|
|
|
$
|
61,188
|
|
State
|
|
9,551
|
|
|
4,679
|
|
|
3,942
|
|
Foreign
|
|
30,414
|
|
|
27,192
|
|
|
32,428
|
|
|
|
69,920
|
|
|
41,024
|
|
|
97,558
|
|
Deferred income taxes
|
|
|
|
|
|
|
Federal
|
|
1,671
|
|
|
16,545
|
|
|
15,901
|
|
State
|
|
630
|
|
|
2,888
|
|
|
3,633
|
|
Foreign
|
|
5,083
|
|
|
(4,906
|
)
|
|
7,841
|
|
|
|
7,384
|
|
|
14,527
|
|
|
27,375
|
|
Total income tax expense
|
|
$
|
77,304
|
|
|
$
|
55,551
|
|
|
$
|
124,933
|
|
The reconciliation of the U.S. federal statutory rate to the effective income tax rate follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Income Before Income Tax Expense
|
|
|
2019
|
|
2018
|
|
2017
|
Federal statutory rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
State taxes, net of federal tax
|
|
2.4
|
|
|
2.1
|
|
|
1.6
|
|
Foreign operations
|
|
1.7
|
|
|
(0.9
|
)
|
|
(4.4
|
)
|
Research tax credit
|
|
(1.7
|
)
|
|
(1.5
|
)
|
|
(1.1
|
)
|
Foreign-derived intangible tax benefit
|
|
(2.1
|
)
|
|
(2.4
|
)
|
|
0.0
|
|
U.S. minimum tax on foreign income
|
|
1.0
|
|
|
1.5
|
|
|
0.0
|
|
Domestic manufacturing tax benefit
|
|
0.0
|
|
|
0.0
|
|
|
(0.8
|
)
|
Deemed repatriation of foreign earnings
|
|
0.0
|
|
|
0.5
|
|
|
10.1
|
|
Change in U.S. tax rate
|
|
0.0
|
|
|
(2.0
|
)
|
|
0.2
|
|
Other items and adjustments
|
|
1.0
|
|
|
0.8
|
|
|
(1.0
|
)
|
Effective income tax rate
|
|
23.3
|
%
|
|
19.1
|
%
|
|
39.6
|
%
|
Notes to Consolidated Financial Statements
Our deferred income tax assets and liabilities follow.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Deferred income tax assets
|
|
|
|
|
Future employee benefits
|
|
$
|
0
|
|
|
$
|
4,550
|
|
Operating loss and credit carryforwards
|
|
13,375
|
|
|
16,578
|
|
Trademark expenses
|
|
3,892
|
|
|
3,833
|
|
Foreign currency translation adjustments
|
|
4,772
|
|
|
4,708
|
|
Other
|
|
7,015
|
|
|
5,925
|
|
Gross deferred income tax assets
|
|
29,054
|
|
|
35,594
|
|
Valuation allowance
|
|
(13,152
|
)
|
|
(13,059
|
)
|
Total deferred income tax assets
|
|
15,902
|
|
|
22,535
|
|
Deferred income tax liabilities
|
|
|
|
|
Depreciation and amortization
|
|
56,618
|
|
|
51,601
|
|
Future employee benefits
|
|
4,064
|
|
|
0
|
|
Inventory
|
|
266
|
|
|
3,973
|
|
Other
|
|
5,823
|
|
|
4,938
|
|
Total deferred income tax liabilities
|
|
66,771
|
|
|
60,512
|
|
Net deferred income tax (liabilities) assets
|
|
$
|
(50,869
|
)
|
|
$
|
(37,977
|
)
|
Reconciliation to financial statements
|
|
|
|
|
Deferred income tax assets
|
|
$
|
6,327
|
|
|
$
|
5,094
|
|
Deferred income tax liabilities
|
|
57,196
|
|
|
43,071
|
|
Net deferred income tax (liabilities) assets
|
|
$
|
(50,869
|
)
|
|
$
|
(37,977
|
)
|
Deferred income tax liabilities are included in other noncurrent liabilities in our Consolidated Balance Sheets. Our deferred taxes are in a net liability position at December 31, 2019. Our deferred tax assets include $13 million of foreign operating loss carryforwards, foreign capital loss carryforwards, and foreign and state tax credits. The operating loss carryforwards expire in 2020 through 2036 and certain tax credits expire in 2026 through 2027. Based on current forecasted operating plans and historical profitability, we believe that we will recover the full benefit of our deferred tax assets with the exception of the aforementioned operating loss, capital loss, and tax credit carryforwards. Therefore, as of December 31, 2019, we have recorded a $13 million valuation allowance substantially offsetting the full amount of these items.
As a result of the Tax Reform Act, we do not expect to distribute earnings from our foreign subsidiaries in a manner that would result in significant U.S. tax, as these earnings have been previously taxed in the U.S. or meet the requirements for a dividends received deduction. Therefore, we have only recorded an immaterial deferred tax liability for the currency impact and for the withholding taxes that will not be creditable upon distribution.
We have not provided a deferred tax liability on approximately $123 million of temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration, as these earnings are considered to be indefinitely reinvested. If we were to repatriate these earnings, we could be subject to income taxes and withholding taxes in various countries. Determination of the amount of unrecognized deferred income tax liability is not practicable due to the complexity associated with the hypothetical calculation.
A reconciliation of the beginning and ending balances of the unrecognized tax benefits from uncertain positions is as follows:
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of year
|
|
$
|
10,660
|
|
|
$
|
9,102
|
|
|
$
|
8,810
|
|
Increases for tax positions of prior years
|
|
3,176
|
|
|
2,123
|
|
|
865
|
|
Increases for tax positions of the current year
|
|
703
|
|
|
614
|
|
|
453
|
|
Settlements
|
|
(440
|
)
|
|
(252
|
)
|
|
(260
|
)
|
Lapses of statutes
|
|
(556
|
)
|
|
(927
|
)
|
|
(766
|
)
|
Balance at end of year
|
|
$
|
13,543
|
|
|
$
|
10,660
|
|
|
$
|
9,102
|
|
At December 31, 2019, $12 million of the amount of unrecognized tax benefits, if recognized, would affect our effective tax rate.
We expect the amount of unrecognized tax benefits to change in the next twelve months; however, we do not expect the change to have a material impact on our financial statements.
Our U.S. subsidiaries file a U.S. federal consolidated income tax return. We are currently under examination by various U.S. state and foreign jurisdictions and remain subject to examination until the statute of limitations expires for the respective tax jurisdiction. We are no longer subject to U.S. federal income examination for years before 2016. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from 3 years to 5 years. Years still open to examination by foreign tax authorities in major jurisdictions include: the U.K. (2018 and forward); Singapore (2015 and forward); Belgium (2017 and forward); and Mexico (2014 and forward).
|
|
19.
|
Fair Value Measurements
|
The carrying amount of cash and cash equivalents in the Consolidated Balance Sheets, as well as the fair value, was $144 million at December 31, 2019 and $73 million at December 31, 2018. The fair value is categorized in Level 1 of the fair value hierarchy.
No material events occurred during 2019 requiring adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.
Long-term debt - We record the carrying amount of our long-term debt at historical cost, less deferred financing costs related to the 4.10% senior notes. The estimated fair value of our long-term debt is shown in the table below and is based primarily on estimated current rates available to us for debt of the same remaining duration and adjusted for nonperformance risk and credit risk. The estimated fair value of our publicly traded 4.10% senior notes included in long-term debt in the table below is based on the last quoted price closest to December 31, 2019. The fair value of our debt instruments is categorized as Level 2.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
(in thousands)
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Long-term debt (excluding capital lease obligations in 2018)
|
|
$
|
642,941
|
|
|
$
|
677,253
|
|
|
$
|
765,806
|
|
|
$
|
757,414
|
|
|
|
20.
|
Commitments and Contingencies
|
Contractual Commitments—We have contractual obligations for the construction of assets, as well as purchases of property and equipment, of approximately $32 million at December 31, 2019, all of which are due within five years.
Notes to Consolidated Financial Statements
Purchase Obligations—We have purchase obligations for goods or services that are enforceable, legally binding, and specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. Purchase orders made in the ordinary course of business are excluded from this amount. Any amounts for which we are liable under purchase orders are reflected in our Consolidated Balance Sheets as accounts payable or accrued expenses.
Future payments for purchase obligations as of December 31, 2019 are (in thousands):
|
|
|
|
|
2020
|
$
|
171,444
|
|
2021
|
148,173
|
|
2022
|
135,415
|
|
2023
|
78,232
|
|
2024
|
2,485
|
|
After 2024
|
14,270
|
|
Litigation— We are involved in legal proceedings that are incidental to our business and may include administrative or judicial actions. Some of these legal proceedings involve governmental authorities and relate to environmental matters. For further information, see Environmental below and Item 1 of this Form 10-K.
While it is not possible to predict or determine with certainty the outcome of any legal proceeding, we believe the outcome of any of these proceedings, or all of them combined, will not result in a material adverse effect on our consolidated results of operations, financial condition, or cash flows.
Asbestos
We are a defendant in personal injury lawsuits involving exposure to asbestos. These cases involve exposure to asbestos in premises owned or operated, or formerly owned or operated, by subsidiaries of NewMarket. We have never manufactured, sold, or distributed products that contain asbestos. Nearly all of these cases are pending in Texas, Louisiana, or Illinois and involve multiple defendants. We maintain an accrual for these proceedings, as well as a receivable for expected insurance recoveries.
The accrual for our premises asbestos liability related to currently asserted claims is based on the following assumptions and factors:
|
|
•
|
We are often one of many defendants. This factor influences both the number of claims settled against us and the indemnity cost associated with such resolutions.
|
|
|
•
|
The estimated percent of claimants in each case that, after discovery, will actually make a claim against us, out of the total number of claimants in a case, is based on a level consistent with past experience and current trends.
|
|
|
•
|
We utilize average comparable plaintiff cost history as the basis for estimating pending premises asbestos related claims. These claims are filed by both former contractors and former employees who worked at past and present company locations. We also include an estimated inflation factor in the calculation.
|
|
|
•
|
No estimate is made for unasserted claims.
|
|
|
•
|
The estimated recoveries from insurance and Albemarle Corporation (a former operation of our company) for these cases are based on, and are consistent with, the 2005 settlement agreements with Travelers Indemnity Company.
|
Notes to Consolidated Financial Statements
Based on the above assumptions, we have provided an undiscounted liability related to premises asbestos claims of $12 million at December 31, 2019 and $10 million at December 31, 2018. The liabilities related to asbestos claims are included in accrued expenses (current portion) and other noncurrent liabilities on the Consolidated Balance Sheets. Certain of these costs are recoverable through the settlement agreement with The Travelers Indemnity Company, as well as an agreement with Albemarle Corporation. The receivable for these recoveries related to premises asbestos liabilities was $6 million at December 31, 2019 and $5 million at December 31, 2018. These receivables are included in trade and other accounts receivable, net on the Consolidated Balance Sheets for the current portion. The noncurrent portion is included in deferred charges and other assets.
Environmental—We are involved in environmental proceedings and potential proceedings relating to soil and groundwater contamination, disposal of hazardous waste, and other environmental matters at several of our current or former facilities, or at third-party sites where we have been designated as a PRP. While we believe we are currently adequately accrued for known environmental issues, it is possible that unexpected future costs could have a significant impact on our financial position, results of operations, and cash flows. Our total accruals for environmental remediation, dismantling, and decontamination were approximately $11 million at December 31, 2019 and $12 million at December 31, 2018. Of the total accrual, the current portion is included in accrued expenses and the noncurrent portion is included in other noncurrent liabilities on the Consolidated Balance Sheets.
Our more significant environmental sites include a former plant site in Louisiana (the Louisiana site) and a Houston, Texas plant site (the Texas site). Together, the amounts accrued on a discounted basis related to these sites represented approximately $8 million of the total accrual above at December 31, 2019, using discount rates ranging from 3% to 9%, and $8 million of the total accrual above at December 31, 2018, using discount rates ranging from 3% to 9%. The aggregate undiscounted amount for these sites was $10 million at December 31, 2019 and $11 million at December 31, 2018. Of the total accrued for these two sites, the amount related to remediation of groundwater and soil was $4 million for the Louisiana site and $3 million for the Texas site at December 31, 2019 and $4 million for the Louisiana site and $4 million for the Texas site at December 31, 2018.
Notes to Consolidated Financial Statements
|
|
21.
|
Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
|
The balances of, and changes in, the components of accumulated other comprehensive loss, net of tax, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pension Plans
and Other Postretirement Benefits
|
|
Foreign Currency Translation Adjustments
|
|
Accumulated Other
Comprehensive (Loss) Income
|
Balance at December 31, 2016
|
|
$
|
(76,187
|
)
|
|
$
|
(106,323
|
)
|
|
$
|
(182,510
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
10,966
|
|
|
23,849
|
|
|
34,815
|
|
Amounts reclassified from accumulated other comprehensive loss (a)
|
|
1,701
|
|
|
0
|
|
|
1,701
|
|
Other comprehensive income (loss)
|
|
12,667
|
|
|
23,849
|
|
|
36,516
|
|
Balance at December 31, 2017
|
|
(63,520
|
)
|
|
(82,474
|
)
|
|
(145,994
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(25,027
|
)
|
|
(12,287
|
)
|
|
(37,314
|
)
|
Amounts reclassified from accumulated other comprehensive loss (a)
|
|
1,992
|
|
|
0
|
|
|
1,992
|
|
Other comprehensive income (loss)
|
|
(23,035
|
)
|
|
(12,287
|
)
|
|
(35,322
|
)
|
Balance at December 31, 2018
|
|
(86,555
|
)
|
|
(94,761
|
)
|
|
(181,316
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
15,983
|
|
|
1,808
|
|
|
17,791
|
|
Amounts reclassified from accumulated other comprehensive loss (a)
|
|
777
|
|
|
0
|
|
|
777
|
|
Other comprehensive income (loss)
|
|
16,760
|
|
|
1,808
|
|
|
18,568
|
|
Balance at December 31, 2019
|
|
$
|
(69,795
|
)
|
|
$
|
(92,953
|
)
|
|
$
|
(162,748
|
)
|
(a) The pension plan and other postretirement benefit components of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (income). See Note 17 for further information.
|
|
22.
|
Selected Quarterly Consolidated Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share amounts)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2019
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
536,616
|
|
|
$
|
563,417
|
|
|
$
|
555,817
|
|
|
$
|
534,445
|
|
Gross profit
|
|
152,869
|
|
|
170,833
|
|
|
162,727
|
|
|
143,440
|
|
Net income
|
|
62,205
|
|
|
74,174
|
|
|
67,805
|
|
|
50,102
|
|
Earnings per share - basic and diluted
|
|
5.57
|
|
|
6.63
|
|
|
6.06
|
|
|
4.48
|
|
2018
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Net sales
|
|
$
|
589,245
|
|
|
$
|
598,952
|
|
|
$
|
563,166
|
|
|
$
|
538,312
|
|
Gross profit
|
|
156,783
|
|
|
145,859
|
|
|
140,883
|
|
|
141,838
|
|
Net income
|
|
60,565
|
|
|
52,885
|
|
|
58,481
|
|
|
62,803
|
|
Earnings per share - basic and diluted
|
|
5.14
|
|
|
4.53
|
|
|
5.12
|
|
|
5.58
|
|
Notes to Consolidated Financial Statements
23. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
On January 1, 2019, we adopted Accounting Standards Update No. 2016-02, "Leases (Topic 842)" (ASU 2016-02) using the modified retrospective transition method allowing us to apply the new standard at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
Under this transition method, the prior comparative period continues to be reported under the accounting standards in effect for that period. We elected the package of practical expedients permitted under the transition guidance which, among other things, allowed us to carry forward the historical lease classification of existing leases. In addition, we elected the hindsight practical expedient to determine the lease term for existing leases and also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. Adoption of the new standard resulted in recognition of both right-of-use assets and lease liabilities of approximately $70 million as of January 1, 2019. As the right-of-use assets and lease liabilities were substantially the same at adoption, we did not record a cumulative effect adjustment to the opening balance of retained earnings.
On January 1, 2019, we adopted Accounting Standards Update No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" (ASU 2018-02). ASU 2018-02 allows, but does not require, reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects that resulted from the enactment of the Tax Reform Act at the end of 2017. We elected to not reclassify those tax effects from accumulated other comprehensive income to retained earnings upon the adoption of ASU 2018-02.