NewMarket Corporation Reports Improved Third Quarter and First Nine Months 2012 Results
NewMarket Corporation Reports Improved Third Quarter and First Nine Months
2012 Results
* Earnings Improve 19 Percent for the Third Quarter and 23 Percent for the
First Nine Months Excluding Special Items
* Petroleum Additives Operating Profit Improves 15 Percent for the Third
Quarter and 20 Percent for the First Nine Months of 2012 Excluding the
2011 Gain on a Legal Settlement
* Debt Reduction of $99.3 Million in First Nine Months of 2012
Business Wire
RICHMOND, Va. -- October 25, 2012
NewMarket Corporation (NYSE:NEU) President and Chief Executive Officer, Thomas
E. Gottwald, released the following earnings report of the Company’s
operations for the third quarter and first nine months of 2012.
Net income for the third quarter of 2012 amounted to $64.7 million, or $4.83
per share, compared to net income of $71.4 million, or $5.22 per share, for
the third quarter of last year. For the first nine months of this year, net
income was $186.5, or $13.91 per share, compared to net income of $173.2
million, or $12.54 per share, for the same period last year.
As reflected on the following Summary of Earnings, results for the third
quarter and first nine months periods of both this year and last year include
certain special items. These items are presented individually on the following
Summary of Earnings and discussed more fully on the financial statements and
footnotes that are a part of this earnings release.
Summary of Earnings
(In millions, except per-share amounts)
Third Quarter Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Net Income:
Net income $ 64.7 $ 71.4 $ 186.5 $ 173.2
Loss on interest rate swap 1.1 7.9 3.5 9.9
agreement
Loss on early extinguishment of - - 6.1 -
debt
(Gain) on legal settlement, net - (23.9 ) - (23.9 )
Income excluding the above $ 65.8 $ 55.4 $ 196.1 $ 159.2
special items
Diluted Earnings Per Share:
Net income $ 4.83 $ 5.22 $ 13.91 $ 12.54
Loss on interest rate swap 0.08 0.58 0.26 0.71
agreement
Loss on early extinguishment of - - 0.45 -
debt
(Gain) on legal settlement, net - (1.74 ) - (1.73 )
Income excluding the above $ 4.91 $ 4.06 $ 14.62 $ 11.52
special items
Excluding these special items from all periods, earnings for the third quarter
of 2012 of $65.8 million, or $4.91 per share, increased 19 percent over
earnings for the third quarter of last year of $55.4 million, or $4.06 per
share. On the same basis, earnings for the first nine months of 2012 were
$196.1 million, or $14.62 per share, an improvement of 23 percent compared to
last year’s results of $159.2 million, or $11.52 per share. Earnings per share
for the third quarter and first nine months of this year on this basis
increased 21 percent and 27 percent, respectively.
For the third quarter of this year, petroleum additives operating profit was
$96.3 million, an improvement of 15 percent over third quarter last year,
excluding the 2011 gain on legal settlement. Petroleum additives operating
profit of $122.8 million and $288.9 million for last year’s third quarter and
first nine months, respectively, included a $38.7 million before-tax gain on a
legal settlement. Sales of petroleum additives for the third quarter of this
year were $547.7 million, down slightly compared to sales for the third
quarter of last year of $552.0 million while shipments for this third quarter
were essentially flat with last year’s period. For the first nine months of
this year, petroleum additives operating profit increased to $300.4 million,
an improvement of 20 percent over the same period last year, excluding the
2011 gain on legal settlement. For the first nine months of this year, sales
increased to $1,689.6 million, an improvement of approximately 4 percent over
sales of $1,627.4 million for nine months 2011 while shipments were down
approximately 3 percent for the period.
Our business continues to generate strong cash flows enabling us to reduce
debt $99.3 million since the beginning of this year. In the same period, cash
has increased $29.3 million and other working capital is up $41.6 million.
Our petroleum additives business continues its strong performance. Our
customer focused solutions and technology-driven product offerings are two of
the key fundamentals of our continued success. We continue to increase our
investment in research and development as evidence of our commitment to these
goals. Our financial condition continues to grow stronger, enhancing our
position for future growth and ability to improve shareholder value.
Please read our third quarter Form 10-Q for more details on the operations of
the Company.
Sincerely,
Thomas E. Gottwald
The earnings for both the third quarter and first nine months of this year and
last year include an expense from an interest rate swap related to the
financing on Foundry Park resulting from the Company valuing the swap
agreement at fair value at the end of each reporting period. The first nine
months of this year also include a loss on the early extinguishment of debt.
The third quarter and first nine months of last year include a gain on a legal
settlement. The Company is reporting net income including these special items,
as well as income excluding them, and related per share amounts in the Summary
of Earnings included in the earnings release. The Company has also included
the non-GAAP financial measure EBITDA in this earnings release. A schedule
following the financial statements included in this earnings release is
provided reflecting the calculation of EBITDA, defined as Net income, before
the deduction of interest and financing expenses, income taxes, depreciation
and amortization. EBITDA is shown on the schedule both including and excluding
the items noted above. The Company believes that even though these special
items are not required by or presented in accordance with United States
generally accepted accounting principles (GAAP), these additional measures
enhance understanding of the Company’s performance and period to period
comparability. The Company believes that these items should not be considered
an alternative to net income determined under GAAP.
As a reminder, a conference call and Internet webcast is scheduled for 10:00
a.m. EDT on Friday, October 26, 2012, to review third quarter and first nine
months 2012 financial results. You can access the conference call live by
dialing 1-877-407-9210 (domestic) or 1-201-689-8049 (international) and
requesting the NewMarket conference call. To avoid delays, callers should dial
in five minutes early. The call will also be broadcast via the Internet and
can be accessed through the Company’s website at www.NewMarket.com or
www.investorcalendar.com. A teleconference replay of the call will be
available until November 2, 2012 at 11:59 p.m. EDT by dialing 1-877-660-6853
(domestic) and 1-201-612-7415 (international). The conference ID number is
401293. A webcast replay will be available for 30 days.
NewMarket Corporation through its subsidiaries, Afton Chemical Corporation and
Ethyl Corporation, develops, manufactures, blends, and delivers chemical
additives that enhance the performance of petroleum products. From
custom-formulated chemical blends to market-general additive components, the
NewMarket family of companies provides the world with the technology to make
fuels burn cleaner, engines run smoother and machines last longer.
Some of the information contained in this press release constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although NewMarket’s management believes its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that
actual results will not differ materially from expectations.
Factors that could cause actual results to differ materially from expectations
include, but are not limited to: availability of raw materials and
transportation systems; supply disruptions at single sourced facilities;
ability to respond effectively to technological changes in our industry;
failure to protect our intellectual property rights; hazards common to
chemical businesses; occurrence or threat of extraordinary events, including
natural disasters and terrorist attacks; competition from other manufacturers;
sudden or sharp raw materials price increases; gain or loss of significant
customers; risks related to operating outside of the United States; the impact
of fluctuations in foreign exchange rates; political, economic, and regulatory
factors concerning our products; future governmental regulation; resolution of
environmental liabilities or legal proceedings; inability to complete future
acquisitions or successfully integrate future acquisitions into our business
and other factors detailed from time to time in the reports that NewMarket
files with the Securities and Exchange Commission, including the risk factors
in Item 1A, “Risk Factors” of our 2011 Annual Report on Form 10-K, which is
available to shareholders upon request.
You should keep in mind that any forward-looking statement made by NewMarket
in the foregoing discussion speaks only as of the date on which such
forward-looking statement is made. New risks and uncertainties come up from
time to time, and it is impossible for us to predict these events or how they
may affect the company. 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, you should keep in mind that the events described in any
forward-looking statement made in this discussion, or elsewhere, might not
occur.
NEWMARKET CORPORATION AND SUBSIDIARIES
SEGMENT RESULTS AND OTHER FINANCIAL INFORMATION
(In millions, except per-share amounts, unaudited)
Third Quarter Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Revenue:
Petroleum additives $ 547.7 $ 552.0 $ 1,689.6 $ 1,627.4
Real estate development 2.9 2.8 8.6 8.6
All other (a) 3.4 2.6 8.9 8.0
Total $ 554.0 $ 557.4 $ 1,707.1 $ 1,644.0
Segment operating profit:
Petroleum additives
Petroleum additives before
gain on legal settlement, $ 96.3 $ 84.1 $ 300.4 $ 250.2
net
Gain on legal settlement, 0.0 38.7 0.0 38.7
net (b)
Total petroleum additives 96.3 122.8 300.4 288.9
Real estate development 1.8 1.8 5.4 5.4
All other (a) 1.8 0.1 5.1 1.5
Segment operating profit 99.9 124.7 310.9 295.8
Corporate unallocated (5.0 ) (3.8 ) (16.0 ) (11.5 )
expense
Interest and financing (1.6 ) (4.8 ) (8.5 ) (14.1 )
expenses
Loss on an interest rate (1.7 ) (13.0 ) (5.7 ) (16.2 )
swap agreement (c)
Loss on early 0.0 0.0 (9.9 ) 0.0
extinguishment of debt (d)
Other income (expense), 1.6 0.2 2.8 (0.9 )
net
Income before income tax $ 93.2 $ 103.3 $ 273.6 $ 253.1
expense
Net income $ 64.7 $ 71.4 $ 186.5 $ 173.2
Basic earnings per share $ 4.83 $ 5.22 $ 13.91 $ 12.54
Diluted earnings per share $ 4.83 $ 5.22 $ 13.91 $ 12.54
Notes to Segment Results and Other Financial Information
"All other" includes the results of our tetraethyl lead (TEL) business,
(a) as well as certain contract manufacturing performed by Ethyl
Corporation.
On September 13, 2011, we signed a settlement agreement with Innospec
Inc. and its subsidiaries Alcor Chemie Vertriebs GmbH and Innospec Ltd.
(collectively, Innospec) which provided for mutual releases of the
parties and dismissal of the actions with prejudice. Under the
settlement agreement, Innospec will pay NewMarket an aggregate amount of
approximately $45 million in a combination of cash, a promissory note,
(b) and stock, of which $25 million was paid in cash on September 20, 2011
and $5 million was paid in the form of 195,313 shares of unregistered
Innospec Inc. common stock. Fifteen million dollars is payable in three
equal annual installments of $5 million under the promissory note, which
bears simple interest at 1% per year. The first installment was paid in
September 2012. The gain is net of expenses related to the settlement of
the lawsuit.
The loss on an interest rate swap agreement represents the change, since
the beginning of the reporting period, in the fair value of an interest
(c) rate swap which we entered into on June 25, 2009. We are not using hedge
accounting to record the interest rate swap, and accordingly, any change
in the fair value is immediately recognized in earnings.
In March 2012, we entered into a $650 million five-year unsecured
revolving credit facility which replaced our previous $300 million
unsecured revolving credit facility. In April 2012, we used a portion of
this new credit facility to fund the early redemption of all of our
outstanding 7.125% senior notes due 2016 (senior notes), representing an
aggregate principal amount of $150 million. In May 2012, we used a
(d) portion of the new credit facility to repay the outstanding principal
amount on the Foundry Park I, LLC mortgage loan agreement (mortgage
loan). As a result, we recognized a loss on early extinguishment of debt
of $9.9 million during the nine months ended September 30, 2012 from
accelerated amortization of financing fees associated with the prior
revolving credit facility, the senior notes, and the mortgage loan, as
well as from costs associated with redeeming the senior notes prior to
maturity.
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share amounts, unaudited)
Third Quarter Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Revenue:
Net sales - $ 551,187 $ 554,539 $ 1,698,556 $ 1,635,429
product
Rental revenue 2,857 2,857 8,573 8,573
554,044 557,396 1,707,129 1,644,002
Costs:
Cost of goods sold 390,918 411,133 1,206,932 1,206,843
- product
Cost of rental 1,067 1,067 3,203 3,203
391,985 412,200 1,210,135 1,210,046
Gross profit 162,059 145,196 496,994 433,956
Selling, general,
and administrative 37,096 36,075 114,703 111,818
expenses
Research,
development, and 30,208 26,888 86,569 76,728
testing expenses
Gain on legal
settlement, net 0 38,656 0 38,656
(a)
Operating profit 94,755 120,889 295,722 284,066
Interest and 1,632 4,797 8,498 14,135
financing expenses
Loss on early
extinguishment of 0 0 9,932 0
debt (b)
Other income 81 (12,825 ) (3,740 ) (16,879 )
(expense), net (c)
Income before 93,204 103,267 273,552 253,052
income tax expense
Income tax expense 28,489 31,906 87,022 79,843
Net income $ 64,715 $ 71,361 $ 186,530 $ 173,209
Basic earnings per $ 4.83 $ 5.22 $ 13.91 $ 12.54
share
Diluted earnings $ 4.83 $ 5.22 $ 13.91 $ 12.54
per share
Shares used to
compute basic 13,406 13,680 13,405 13,807
earnings per share
Shares used to
compute diluted 13,406 13,680 13,405 13,814
earnings per share
Cash dividends $ 0.75 $ 0.60 $ 2.25 $ 1.64
declared per share
Notes to Consolidated Statements of Income
On September 13, 2011, we signed a settlement agreement with Innospec
Inc. and its subsidiaries Alcor Chemie Vertriebs GmbH and Innospec Ltd.
(collectively, Innospec) which provided for mutual releases of the
parties and dismissal of the actions with prejudice. Under the
settlement agreement, Innospec will pay NewMarket an aggregate amount of
approximately $45 million in a combination of cash, a promissory note,
(a) and stock, of which $25 million was paid in cash on September 20, 2011
and $5 million was paid in the form of 195,313 shares of unregistered
Innospec Inc. common stock. Fifteen million dollars is payable in three
equal annual installments of $5 million under the promissory note, which
bears simple interest at 1% per year. The first installment was paid in
September 2012. The gain is net of expenses related to the settlement of
the lawsuit.
In March 2012, we entered into a $650 million five-year unsecured
revolving credit facility which replaced our previous $300 million
unsecured revolving credit facility. In April 2012, we used a portion of
this new credit facility to fund the early redemption of all of our
outstanding 7.125% senior notes due 2016 (senior notes), representing an
aggregate principal amount of $150 million. In May 2012, we used a
(b) portion of the new credit facility to repay the outstanding principal
amount on the Foundry Park I, LLC mortgage loan agreement (mortgage
loan). As a result, we recognized a loss on early extinguishment of debt
of $9.9 million during the nine months ended September 30, 2012 from
accelerated amortization of financing fees associated with the prior
revolving credit facility, the senior notes, and the mortgage loan, as
well as from costs associated with redeeming the senior notes prior to
maturity.
On June 25, 2009 we entered into an interest rate swap. The loss on the
interest rate swap was $1.7 million for the third quarter ended
September 30, 2012 and $5.7 million for the nine months ended September
(c) 30, 2012. The loss on the interest rate swap was $13.0 million for the
third quarter ended September 30, 2011 and $16.2 million for the nine
months ended September 30, 2011. We are not using hedge accounting to
record the interest rate swap, and accordingly, any change in the fair
value is immediately recognized in earnings.
NEWMARKET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
September 30 December 31
2012 2011
ASSETS
Current assets:
Cash and cash equivalents $ 79,707 $ 50,370
Trade and other accounts receivable, less
allowance for doubtful accounts ($604 - 2012; 307,448 278,332
$516 - 2011)
Inventories 334,721 306,785
Deferred income taxes 6,346 7,261
Prepaid expenses and other current assets 34,307 36,983
Total current assets 762,529 679,731
Property, plant and equipment, at cost 1,057,266 1,034,472
Less accumulated depreciation and amortization 703,732 681,506
Net property, plant and equipment 353,534 352,966
Prepaid pension cost 14,538 11,494
Deferred income taxes 37,066 35,805
Other assets and deferred charges 67,124 73,619
Intangibles (net of amortization) and goodwill 32,423 38,047
Total assets $ 1,267,214 $ 1,191,662
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 116,494 $ 103,217
Accrued expenses 71,652 78,546
Dividends payable 8,580 8,529
Book overdraft 6,633 1,680
Long-term debt, current portion 6,242 10,966
Income taxes payable 15,845 13,086
Total current liabilities 225,446 216,024
Long-term debt 138,000 232,601
Other noncurrent liabilities 186,481 193,444
Shareholders' equity
Common stock and paid in capital (without par
value) Issued and Outstanding - 13,417,877 in 404 64
2012 and 13,404,831 in 2011
Accumulated other comprehensive loss (87,737 ) (98,732 )
Retained earnings 804,620 648,261
717,287 549,593
Total liabilities and shareholders' equity $ 1,267,214 $ 1,191,662
NEWMARKET CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED CASH FLOW DATA
(In thousands, unaudited)
Nine Months Ended
September 30
2012 2011
Net income $ 186,530 $ 173,209
Depreciation and amortization 32,449 32,344
Loss on early extinguishment of debt 9,932 0
Cash payment for 7.125% senior notes redemption (5,345 ) 0
Cash pension and postretirement contributions (24,090 ) (23,479 )
Noncash pension and post retirement expense 14,146 11,907
Gain on legal settlement, net 0 (38,656 )
Proceeds from legal settlement 5,050 25,000
Proceeds from sale of equity securities 6,303 0
Working capital changes (41,566 ) (88,411 )
Capital expenditures (25,444 ) (42,771 )
Repayment of senior notes and mortgage loan (213,544 ) 0
Net borrowings under revolving credit agreements 116,000 51,000
Repurchases of common stock 0 (85,892 )
Dividends paid (30,171 ) (22,534 )
All other (913 ) 13,553
Increase in cash and cash equivalents $ 29,337 $ 5,270
NEWMARKET CORPORATION AND SUBSIDIARIES
NON-GAAP FINANCIAL INFORMATION
(In thousands, unaudited)
Third Quarter Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Net Income $ 64,715 $ 71,361 $ 186,530 $ 173,209
Add:
Interest and financing 1,632 4,797 8,498 14,135
expenses
Income tax expense 28,489 31,906 87,022 79,843
Depreciation and 10,273 10,378 30,950 31,149
amortization
EBITDA 105,109 118,442 313,000 298,336
Less: Gain on legal 0 (38,656 ) 0 (38,656 )
settlement
Plus: Loss on interest 1,659 12,978 5,650 16,153
rate swap agreement
Plus: Loss on early 0 0 9,932 0
extinguishment of debt
EBITDA, as adjusted $ 106,768 $ 92,764 $ 328,582 $ 275,833
Contact:
NewMarket Corporation
David A. Fiorenza
Investor Relations
804-788-5555
Fax: 804-788-5688
investorrelations@newmarket.com
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