NewMarket Corporation Reports Record Second Quarter and First Half 2012 Results

  • Net Income Increases 6 Percent for the Second Quarter and 20 Percent for the First Half of 2012
  • Earnings Per Share Increases 9 Percent for the Second Quarter and 24 Percent for the First Half of 2012
  • Petroleum Additives Operating Profit Improves 13 Percent for the Second Quarter and 23 Percent for the First Half of 2012
  • Planned Asia Pacific Expansion with New Manufacturing Facility

RICHMOND, Va.--()--NewMarket Corporation (NYSE:NEU) President and Chief Executive Officer, Thomas E. Gottwald, released the following earnings report of the Company’s operations for the second quarter and first half of 2012.

Net income for the second quarter of 2012 improved to $55.3 million, or $4.12 per share, an increase of 6 percent over net income for the second quarter of last year of $52.3 million, or $3.77 per share. For the first half of 2012, net income increased to $121.8 million, or $9.09 per share, an improvement of 20 percent compared to net income of $101.8 million, or $7.34 per share for the first half of 2011. Earnings per share for the second quarter and first half of this year increased 9 percent and 24 percent respectively.

Earnings for both the second quarter and first half of this year and last year include a charge for an interest rate swap while both periods this year include a charge for the early extinguishment of debt. Excluding these items from all periods, earnings for the second quarter of 2012 improved to $62.9 million, or $4.69 per share, an increase of 15 percent over earnings for the second quarter of last year of $54.8 million, or $3.95 per share. On the same basis, earnings for the first half of this year increased to $130.3 million, or $9.72 per share, an improvement of 26 percent compared to net income of $103.7 million, or $7.48 per share, for the first half of 2011. On this basis, earnings per share for the second quarter and first half of this year increased 19 percent and 30 percent, respectively. The following Summary of Earnings reflects net income and earnings per share with and without these two items.

 
Summary of Earnings
(In millions, except per-share amounts)
Second Quarter Ended   Six Months Ended
June 30 June 30
2012   2011 2012   2011
Net Income:
Net income $ 55.3 $ 52.3 $ 121.8 $ 101.8
Loss on interest rate swap agreement 3.5 2.5 2.4 1.9
Loss on early extinguishment of debt 4.1 - 6.1 -
Income excluding the effects of the extinguishment of debt and swap $ 62.9 $ 54.8 $ 130.3 $ 103.7
 
Diluted Earnings Per Share:
Net income $ 4.12 $ 3.77 $ 9.09 $ 7.34
Loss on interest rate swap agreement 0.26 0.18 0.18 0.14
Loss on early extinguishment of debt

 

0.31 - 0.45 -
Income excluding the effects of the extinguishment of debt and swap

$

4.69 $ 3.95 $ 9.72 $ 7.48
 

Petroleum additives segment operating profit for the second quarter of this year increased to $96.9 million, an improvement of 13 percent over operating profit for the second quarter of last year of $85.6 million. Sales of petroleum additives for the second quarter of this year reached $584.2 million, which was up 2 percent over sales for last year’s second quarter of $572.8 million. Shipments this second quarter increased about 5 percent compared to the first quarter of this year, but were approximately 7 percent lower than last year’s record second quarter shipments. For the first half of this year, petroleum additives operating profit increased to $204.1 million, an improvement of 23 percent over operating profit in the first half of last year of $166.2 million. Sales of petroleum additives for the first half of this year reached $1,141.9 million, an improvement, of 6 percent over sales in the first half of last year of $1,075.5 million, while shipments for the first half were down about 5 percent.

Petroleum additive results for both the second quarter and first half of this year reflect improved results in most of our major product lines. The results for both periods this year reflect higher operating profit margins and improved earnings in most major geographic areas in which we operate. Our business is performing well, and we continue to increase our investment in research and development to enable the continuing flow of innovative products and solutions for our customers. We continue to expect the full year 2012 to show better financial results than 2011 with shipments in the second half somewhat lower than the first half due to general worldwide economic conditions.

During the second quarter of this year, we utilized our new $650 million five-year unsecured revolving credit facility to fund the early redemption of all of our 7.125% senior notes due 2016, representing an aggregate principal amount of $150 million. In May 2012, we also used a portion of this credit facility to repay the outstanding principal amount on the Foundry Park I, LLC mortgage loan agreement. Our cash flow from operations remains strong as evidenced by our $54 million reduction in debt and funding approximately $50 million higher working capital during the first half of this year while maintaining the same approximate cash level from the beginning of the year.

On July 18, we announced the planned construction of a new chemical additive manufacturing facility on Jurong Island, Singapore. The multiyear investment will be fully owned and operated by Afton, emphasizing the Company’s strong commitment to the expanding Asia Pacific market. This addition will provide a strong combination of research and development and manufacturing in the region while improving security of supply and reducing lead-times for delivery of product. We anticipate an initial investment in excess of $100 million by start up in mid-2015. We also announced Dr. Warren Huang’s intention to retire on April 1, 2013 and the appointment of Robert A. Shama to replace Warren as President of Afton Chemical on January 1, 2013.

We are pleased with the performance of our business for the first half of this year . We are making the investments necessary to support our customers around the world, both now and in the future, and we expect these investments to allow us to continue to provide solid returns for our shareholders.

Please read our second quarter Form 10-Q for more details on the operations of the Company.

Sincerely,

Thomas E. Gottwald

The earnings for both the second quarter and first half of this year and last year include an expense from an interest rate swap related to financing on Foundry Park resulting from the Company valuing the swap agreement at fair value at the end of each reporting period. The second quarter and first half of this year also include a loss on the early extinguishment of debt. The Company is reporting net income including these 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 expense of valuing the swap agreement and the loss on the early extinguishment of debt. The Company believes that even though these 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 3:00 p.m. EDT on Tuesday, July 31, 2012, to review second quarter and first half 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 August 7, 2012 at 11:59 p.m. EDT by dialing 1-877-660-6853 (domestic) and 1-201-612-7415 (international). The account number is 286. The conference ID number is 397379. 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 recent or 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)
 
 
 
Second Quarter Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
 
Revenue:
Petroleum additives $ 584.2 $ 572.8 $ 1,141.9 $ 1,075.5
Real estate development 2.8 2.8 5.7 5.7
All other (a)   3.4     2.9     5.5     5.4  
Total $ 590.4   $ 578.5   $ 1,153.1   $ 1,086.6  
 
Segment operating profit:
Petroleum additives $ 96.9 $ 85.6 $ 204.1 $ 166.2
Real estate development 1.8 1.8 3.6 3.6
All other (a)   2.8     1.0     3.3     1.3  
 
Segment operating profit 101.5 88.4 211.0 171.1
 
Corporate unallocated expense (5.5 ) (3.6 ) (11.0 ) (7.7 )
Interest and financing expenses (2.4 ) (4.7 ) (6.9 ) (9.3 )
Loss on an interest rate swap agreement (b) (5.7 ) (4.1 ) (4.0 ) (3.2 )
Loss on early extinguishment of debt (c) (6.7 ) 0.0 (9.9 ) 0.0
Other income (expense), net   0.3     0.4     1.1     (1.1 )
 
Income before income tax expense $ 81.5   $ 76.4   $ 180.3   $ 149.8  
 
Net income $ 55.3   $ 52.3   $ 121.8   $ 101.8  
 
Basic earnings per share $ 4.12   $ 3.77   $ 9.09   $ 7.34  
 
Diluted earnings per share $ 4.12   $ 3.77   $ 9.09   $ 7.34  
 
Notes to Segment Results and Other Financial Information
   
(a) "All other" includes the results of our tetraethyl lead (TEL) business, as well as certain contract manufacturing performed by Ethyl Corporation.
 
(b) The loss on interest rate swap agreement represents the change, since the beginning of the reporting period, in the fair value of an interest 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.
 
(c) 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 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 $6.7 million during the second quarter ended June 30, 2012 and $9.9 million during the six months ended June 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)
 
 
 
Second Quarter Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
Revenue:
Net sales - product $ 587,548 $ 575,665 $ 1,147,369 $ 1,080,890
Rental revenue   2,858     2,858     5,716     5,716  
  590,406     578,523     1,153,085     1,086,606  
 
Costs:
Cost of goods sold - product 423,939 429,659 816,014 795,710
Cost of rental   1,068     1,068     2,136     2,136  
  425,007     430,727     818,150     797,846  
 
Gross profit 165,399 147,796 334,935 288,760
 
Selling, general, and administrative expenses 40,699 37,319 77,607 75,743
Research, development, and testing expenses   28,466     25,379     56,361     49,840  
 
Operating profit 96,234 85,098 200,967 163,177
 
Interest and financing expenses 2,384 4,693 6,866 9,338
Loss on early extinguishment of debt (a) 6,711 0 9,932 0
Other expense, net (b)   (5,594 )   (3,987 )   (3,821 )   (4,054 )
 
Income before income tax expense

81,545

76,418

180,348

149,785

 
Income tax expense   26,277     24,159     58,533     47,937  
 
Net income $ 55,268   $ 52,259   $ 121,815   $ 101,848  
 
 
 
Basic earnings per share $ 4.12   $ 3.77   $ 9.09   $ 7.34  
 
Diluted earnings per share $ 4.12   $ 3.77   $ 9.09   $ 7.34  
 
Shares used to compute basic earnings per share   13,405     13,852     13,405     13,871  
 
Shares used to compute diluted earnings per share   13,405     13,856     13,405     13,881  
 
Cash dividends declared per share $ 0.75   $ 0.60   $ 1.50   $ 1.04  
 
Notes to Consolidated Statements of Income
 
(a) 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 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 $6.7 million during the second quarter ended June 30, 2012 and $9.9 million during the six months ended June 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.
 
(b) On June 25, 2009 we entered into an interest rate swap. The loss on the interest rate swap was $5.7 million for the second quarter ended June 30, 2012 and $4.0 million for the six months ended June 30, 2012. The loss on the interest rate swap was $4.1 million for the second quarter ended June 30, 2011 and $3.2 million for the six months ended June 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)
 
 
 
June 30 December 31
2012 2011
ASSETS
 
Current assets:
Cash and cash equivalents $ 49,355 $ 50,370

Trade and other accounts receivable, less allowance for doubtful accounts ($450 - 2012; $516 - 2011)

320,582 278,332
Inventories 317,564 306,785
Deferred income taxes 7,125 7,261
Prepaid expenses and other current assets   39,667     36,983  
Total current assets   734,293     679,731  
 
Property, plant and equipment, at cost 1,041,669 1,034,472
Less accumulated depreciation and amortization   690,922     681,506  
Net property, plant and equipment   350,747     352,966  
 
Prepaid pension cost 13,002 11,494
Deferred income taxes 35,354 35,805
Other assets and deferred charges 72,790 73,619
Intangibles (net of amortization) and goodwill   34,031     38,047  
Total assets $ 1,240,217   $ 1,191,662  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 119,525 $ 103,217
Accrued expenses 69,309 78,546
Dividends payable 8,563 8,529
Book overdraft 2,990 1,680
Long-term debt, current portion 1,598 10,966
Income taxes payable   13,428     13,086  
Total current liabilities   215,413     216,024  
 
Long-term debt 188,000 232,601
Other noncurrent liabilities 186,514 193,444
 
Shareholders' equity

Common stock and paid in capital (without par value) Issued and Outstanding - 13,404,831 in 2012 and 2011

64 64
Accumulated other comprehensive loss (99,743 ) (98,732 )
Retained earnings   749,969     648,261  
  650,290     549,593  
Total liabilities and shareholders' equity $ 1,240,217   $ 1,191,662  
 
   
NEWMARKET CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED CASH FLOW DATA
(In thousands, unaudited)
 
 
 
Six Months Ended
June 30
2012 2011
 
Net income $ 121,815 $ 101,848
Depreciation and amortization 20,677 20,771
Loss on early extinguishment of debt 9,932 -
Cash payment for 7.125% senior notes redemption (5,345 ) -
Cash pension and postretirement contributions (16,134 ) (15,613 )
Noncash pension and post retirement expense 9,613 7,983
Working capital changes (49,565 ) (84,660 )
Capital expenditures (16,967 ) (34,790 )
Repayment of senior notes and mortgage loan (213,544 ) (1,340 )

Net borrowings under revolving credit agreements

166,000 44,000
Repurchases of common stock - (31,512 )
Dividends paid (20,107 ) (7,301 )
All other   (7,390 )   12,310  
 
(Decrease) increase in cash and cash equivalents $ (1,015 ) $ 11,696  
 
       
NEWMARKET CORPORATION AND SUBSIDIARIES
NON-GAAP FINANCIAL INFORMATION
(In thousands, unaudited)
 
 
 
Second Quarter Ended Six Months Ended
June 30 June 30
2012 2011 2012 2011
 
Net Income $ 55,268 $ 52,259 $ 121,815 $ 101,848
 
Add:
Interest and financing expenses 2,384 4,693 6,866 9,338
Income tax expense 26,277 24,159 58,533 47,937
Depreciation and amortization   10,612   10,604   20,677   20,771
 
EBITDA 94,541 91,715 207,891 179,894
 
Plus Loss: Interest rate swap agreement 5,726 4,042 3,991 3,176
Plus Loss: Early extinguishment of debt   6,711   0   9,932   0
 
EBITDA, as adjusted $ 106,978 $ 95,757 $ 221,814 $ 183,070

Contacts

NewMarket Corporation
David A. Fiorenza
Investor Relations
804-788-5555
Fax: 804-788-5688
investorrelations@newmarket.com

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Contacts

NewMarket Corporation
David A. Fiorenza
Investor Relations
804-788-5555
Fax: 804-788-5688
investorrelations@newmarket.com