NewMarket Corporation 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also reports fourth-quarter results. NewMarket is principally a global petroleum-additives company, with smaller real-estate development and TEL/contract-manufacturing operations.
Financial performance
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Revenue | $1,797.4 million | $1,530.1 million | +17% |
| Gross profit / margin | $515.5 million / 28.7% | $463.3 million / 30.3% | Profit +11%; margin lower |
| Operating profit | $287.3 million | $262.3 million | +10% |
| Net income | $177.1 million | $162.3 million | +9% |
| Diluted EPS | $12.09 | $10.65 | +14% |
| Cash provided by operations | $165.2 million | $224.4 million | Down $59.2 million |
| Cash and cash equivalents at year-end | $49.2 million | $151.8 million | Down $102.6 million |
| Total debt | $221.9 million | $250.1 million | Down $28.2 million |
| Working capital / current ratio | $396.4 million / 2.92 | $405.1 million / 3.05 | Liquidity ratios modestly lower |
Petroleum additives generated $1,774.4 million of revenue and $299.1 million of segment operating profit; its operating margin was 16.9%, versus 18.4% in 2009. Revenue growth reflected 12% higher shipments, including Polartech, and higher selling prices; currency reduced sales by $6 million. Rising raw-material costs and a less favorable mix compressed margins. Shell accounted for 12% of consolidated revenue, down from 15% in 2009.
Fourth-quarter revenue was $460.6 million versus $404.2 million a year earlier; net income was $49.4 million versus $46.3 million, and diluted EPS was $3.47 versus $3.03.
Material changes and financing
- NewMarket acquired Polartech, a metalworking-additives business, in March for $43.1 million cash. The acquisition expanded the industrial-additives offering.
- Operating cash flow was reduced by higher working-capital requirements, including increased inventories and receivables. Cash was also used for the acquisition, capital spending, share repurchases, dividends, and swap-related deposits and payments.
- The company repurchased approximately $122 million of stock for cash and paid $22.6 million in dividends. Dividends declared per share rose to $1.565 from $1.075.
- A new unsecured $300 million revolving facility, maturing in 2015, replaced the prior facility. At year-end, $290.9 million was unused, after $4 million of borrowings and $5.1 million of letters of credit.
- Debt included $150 million of 7.125% senior notes due 2016 and a $66.3 million Foundry Park mortgage loan. Debt was 31.1% of total capitalization, down from 35.3%. The company reported compliance with debt covenants.
Outlook, risks, and unusual items
- Management expected 2011 revenue and net income to exceed 2010 levels, describing 2010 as a record year. Planned 2011 capital expenditures were approximately $45–$50 million, and R&D spending was expected to grow.
- Management cited improving global demand, continued investment in technology and capacity, and potential acquisitions as priorities. Future capital allocation could include acquisitions, repurchases, or dividends; no specific acquisition timeline was provided.
- A $10.3 million loss on the Goldman Sachs interest-rate swap contributed to 2010 other expense; the swap liability was approximately $19.5 million at year-end, and $23 million of cash collateral was posted. The Foundry Park mortgage swap had a separate year-end fair-value liability of approximately $2.7 million.
- Environmental remediation accruals were $22.5 million, plus $0.5 million for dismantling and decommissioning; management cautioned that unexpected costs could materially affect results. The company also carried a $13.6 million liability for asserted premises-asbestos claims, partly offset by insurance and other recovery receivables.
- Key risks include raw-material price and supply volatility, single-facility production exposure, intense competition, international and currency risks, customer concentration, chemical-plant hazards, pension funding, and evolving regulation. EU limits and labeling requirements for MMT remain a risk; Afton’s challenge was rejected in 2010.
- NewMarket and Afton sued Innospec, seeking treble damages and costs over alleged bribery-related exclusion of their products in Iraq and Indonesia. The filing states that the outcome of pending proceedings cannot be predicted; the amount of any recovery is not clear.
PricewaterhouseCoopers issued an unqualified audit opinion and reported effective internal control over financial reporting as of December 31, 2010.
Investor verification priorities
- Track whether announced 2011 revenue and net-income growth materialized, and whether pricing offsets raw-material inflation and restores margins.
- Assess operating cash conversion, especially inventory and receivables growth, against earnings and capital spending.
- Review swap valuations, collateral requirements, and the terms and covenant headroom of the credit facilities and senior notes.
- Monitor environmental and asbestos exposures, including changes in remediation estimates, insurance recoveries, and site liabilities.
- Evaluate Polartech’s contribution and integration, and the sustainability of capital returns following substantial 2010 repurchases and higher dividends.