Greetings, and welcome to the NewMarket Corporation Fourth Quarter 2011 and Year-End Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Fiorenza. Thank you. Mr. Fiorenza, you may begin.

Thanks, Kevin, and thanks, to each of you for joining us to discuss fourth quarter and year-end performance. With me today is our CEO, Teddy Gottwald. I have a few planned comments, after which we'll open the lines for your questions. As a reminder, some of the comments we will make today are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We believe we base our statements 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. A full discussion of these factors can be found in our 2010 10-K. We plan to file our 2011 10-K in late February. That document will contain significant details on the operations of our company and as the result of a long work by our team to publish it from tagging data from XPRL, to mindnumbing details required in the footnotes. Thanks to each of you for doing that. Please take the time to read through it to get a better understanding of our performance. I'm going to cover the first -- the quarter first and then move on to the year. Net income for the fourth quarter was $33.7 million, or $2.51 a share, compared to net income of $49.4 million, or $3.47 per share for the same period last year. The interest rate swap that we mark-to-market had an adverse impact of $0.37 per share in the quarterly comparisons. Without the swap, our earnings per share were $2.57 compared to $3.16 for last year's fourth quarter. Our net income without the swap was $34.5 million compared to $45 million…

[Operator Instructions] And our first question is coming from Todd Vencil from Sterne Agee.

David, on the $8 million to $10 million of items that you mentioned, you noted a write-down in the raw -- position in certain raw material, can you just give us a little color on -- a little more color on what that was and what else was that in that $8 million to $10 million?

The inventory was about half of that, and the other ones were really associated with managing our inventory and how we ran our plants, as I've said in our prepared comments, and then I think that covers that.

So that was the -- that was sort of under-absorbed overheads with the other half of that?

Yes, and some other one-time items that just come and go, that we usually don't call out, but yes.

That's fine. So the under-absorbed overheads had been in the $8 million to $10 million?

Correct. Correct.

And then you mentioned a couple of million dollars in the corporate S&A, was that on top of the $8 million to $10 million, that you...

Yes, that was on top of the $8 million to $10 million. The $8 million and $10 million was directed at the Petroleum Additives segment discussion, yes.

Got it. Got it. And then, just looking forward, I mean, I appreciate the comments on the -- on your outlook, on the sustainability of the margins, I'm sure you shortcut a lot of questions with that, so thanks for that. Looking at the first quarter in my recollection is we've got a tough comp coming up. I mean, do you guys -- you have a feel for how we all think about the first quarter relative to last year and how the year maybe plays out in terms of that growth rate that you said you expect.

Yes, that's a good question. We obviously know how January turned out and we just told you we anticipate continued 2% growth in the industry and we're going to beat that. It's our plans to beat that and January is consistent with that. I got to be honest with you, as far as the comp on, 1Q to 1Q, I haven't looked at that because we look at it more on a long-term basis than we do on a 1Q to 1Q kind of basis. But our first quarter is developing as we expected.

Okay. So and -- have you so fair to say that based on what you said, I think you said that, that it was sort of consistent with your growth expectations, so I assume that would mean that you feel like the destocking is sort of that run the course of your customer deliver, whoever is depressing your customer demand?

Yes, that's correct. And as you know, because you followed us for a while, there's destocking events can only last for some period of time. So that's what we believe, yes.

Our next question is coming from Ivan Marcuse from KeyBanc Capital Markets.

Real quick, at SG&A, so with the $2 million gone do you expect that run rate to go back to sort of as you track it in the $37 million to $38 million per quarter rate, or would you expect it would be higher with the growth of next year?

Ivan, S&A always kind of goes up with inflation because dollars and so forth and then it typically goes up a little bit more because of increased efforts and that run rate is, when you take out the $2 million and compare it to the previous year, that's probably a good gauge.

I got you, and then same sort of question for R&D, I mean, your continuing to increase spending there, so what kind of you expect to spend on $5 million.

Yes, inflation plus some couple percentage points, pick a number, but R&D is never going backwards.

Okay, so 5-ish or 7%, however, sounds about right?

Yes.

Got you. And then and -- and the next -- another question for raw material. So have you seen -- our material costs as it leveled out for you and you would expect that sort of the lower end on a sequential basis next and the following quarters or is it some material costs that will continue to rise for you?

I talked to our purchasing team before this call and they still see tightness in our key materials, and I guess, yesterday, I looked and oil was in the $100 a barrel mark and that's kind of what their view is for the year. So I guess the leveling off would be an accurate description that you used.

Got you. And then, Teddy, sort of the growth strategy in 2012, are you working to -- I mean, is there any opportunity to acquire some assets out there or is most of your strategy just going to be focused on growing in and some underpenetrated markets such as diesel or whatever the various sub sectors are, how do you look at 2012 or what you think most of the growth is going to come from?

Yes, it's mostly the latter. We see 2012 -- our approach to 2012 is very similar to the approach that has allowed us to see the success over the last 5 years. It's continued geographic expansion and continued product line expansion. Currently we put a lot of investment into the Asia-Pacific region and we're looking for growth in that region in particular in 2012. But our plans call for growth just in one region. We're looking for growth really around the world. The only area that we've called out for concern is really Western Europe was the issue there. But in general, our industry and what we see were not that dependent on the economy. These are essential products. When an economy weakens we do see some reduction in miles driven particularly in the heavy-duty segment, the trucking business, and that impacts demand, but only somewhat. So all in all, we're working to grow volumes in most regions around the world.

Got you. And then real quick, David, could you give me the -- you may have, I might have missed it, but could you give me the revenue range for petroleum adds, I know shipments dropped 2%, what was the breakdown for pricing and currency?

For the quarter?

Yes, 4Q to 4Q.

Yes, I've got shipment, $8 million negative, price $49 million positive and currency $4 million positive. If those don't add up, so just nip off one number somewhere.

Got you. And then CapEx next year?

60 to 70.

[Operator Instructions] Our next question is coming from Dmitry Silversteyn from Longbow Research.

Couple of questions. If you look at the $8 million to $10 million, one-time impact or unusual items that you talked about, the 4 items that impacted the quarter plus the $2 million in corporate overhead, you're still kind of flattish year-over-year --or would've been flatish year-over-year in terms of performance on the operating profit line. Given that your revenue that your pricing was very strong and revenues overall despite the 2% decline in volumes were certainly decent. What's accounting for the perceived at least margin weaknesses. Is that the timing of base oil and other raw material costs versus your own price increases or was it a mix issue? I mean, can you talk a little bit about just the overall pattern of margins if you -- even if you normalize the fourth quarter margin over the course of 2011. I guess I'm trying to tie this into your comment about margin stability for 2012, and trying to gain some confidence in that statement.

I'll comment on that and then ask David to add his thoughts. I don't see the story in the fourth quarter being cost or pricing or related to a spread between the 2. It was really a volume story when you take the one-times out. I -- we don't adjust spending in the quarter when we see volumes going down. We're spending for the future. And many of our R&D programs take a long time. We're not going to disrupt them in the short-term for a quarter. And so I think that the spending probably played into that, but mostly we see it's just a real weakness on the volume in the quarter that we don't believe it's indicative of the year to come. David, any...

No, I don't have anything to add. I mean, the vision [ph], a couple of variables are always going on when we drive all the way down to margin. If a margin at gross level which is impacted big time by volume and our ongoing plans, and then as Teddy said, we continue to spend our plan rate on SG&A and R&D which exacerbates that margin a lot. So really I don't have anything other than that to add.

I guess if I can follow-up on that, if you forget about the R&D and the SG&A costs which is, as you said whatever the volumes do you continue to spend on longer term programs I understand that, but even in the gross margin line, I mean, you're down as the level we haven't seen since 2008 and down over a point sequentially. And then if I look at your inventory, it's only down $5 million, $6 million or $7 million, sequentially. So it sounds like you've made your plans a lot lighter than would be suggested by the inventory going down.

We did. Because unfortunately, you see as the end point and we see all along the way, so we did run it a lot lighter towards the end of the year to get that number that you post-- you talked about. But unlike in gross margins, I may not see the same thing you see if I add $10 million across the back end to the gross profit, we posted 125 gross profit as a company, change that to 135 divided by revenue, I don't see the big disrupt you're talking about. But once again, quarters give you scoop on the arithmetic’s and we run this business on an annual basis.

I understand that and I appreciate there and I certainly look at the company even I would say it multiyear basis rather than a year basis but when there's such a big discrepancy between the expectations and results, I just feel like I need to dig into it. Okay. Moving on, if you look at the raw materials story you talked about kind of flattening out in terms of pressures on costs. We did see declines in base oil pricing, group 1 has been out there for over a quarter. Is it starting to impact your P&L in the first quarter or are customers using that the declines in base oil to pressure you for some price relief as well?

We did not see any change in raw materials in the fourth quarter, I stated that already. There were, as you know, some base oil changes, those were small, they'll flow through in the first and second quarter. I think the bigger item from our view is that our purchasing team expects that, that was temporary in nature and that raw material is going to start their climb back again sometime in February.

Okay. Okay. So you're kind of in the both and there seems to be some argument about that. That the price declines which seem across the pressure petrochemical space including base oil was more seasonal in the fourth quarter than cyclical.

Yes. Yes. More seasonal.

And then just a couple of bookkeeping questions, what's the tax rate or what should my tax rate assumption should be for your company in 2012?

32.

Okay, and that the 2% growth that you talked about the industry, the 1% to 2% growth that includes pricing or is that just volume shift?

Volume. Volume only.

You're next question is coming from Saul Ludwig from Northcoast Research.

Teddy, last year your volume was up 6% that probably was better than the industry was a great, great performance. But it came very erratically with 17% growth in the first quarter, then 11%, then 0% then minus 2%, so there was really no consistency in the rate of volume change. Increasing industry is going to be up 1 or 2 and you might be up 3 or 4, but do you think of the erratic performance requirement because the comps that you have to compare with our very distorted as you go through the year.

Yes, Saul. We -- I think we stated over the last year or so, maybe a bit of frustration on our part. It is getting harder to predict demand on a quarterly basis in this business. And we used to say second quarter -- second and third quarters are the strongest with first and fourth, maybe 5% to 10% weaker. We just -- we don't hold to that anymore other than generally that fourth quarter is weak. But it's just gotten a lot harder to predict. So, yes, I think we will continue to see some difficult quarter-to-quarter comparisons on the volume.

Do you think the first 2 quarters of the year might actually have down volume and then back at the end of the year you had much easier comps up volume, you come in then with this whether it be 2, 3, 4 or whatever it is. But do you think that's the way we should sort of look at it from a sequential pattern?

Well, we're just looking at the year, but apparently the way the math worked on 2011, the first half was really strong and the second half was weaker, yes.

Okay. Are you seeing any pressure to get back a little on prices as the raws have come down?

Yes, we're in kind of a wait-and-see mode on what raw materials are doing in the business. As David mentioned, the oil is back around $100 a barrel and eventually that impacts our broad basket of purchasing. And we just have to see how things pan out longer than just over a month or 2.

So, so far you're able to hold your prices, although it sounds like maybe some of your customers are starting to approach that topic?

Saul, I just want to look at in a broader sense. We don't see that the industry fundamentals have changed any as it relates to demand and as it relates to supply and demand. You know how it works when cost go up, we adjust, when cost come down, we adjust. And where we are at a given point in time is just difficult to say.

Got you. Are there any real specs that come into play in 2012 that could influence the competitive dynamics or the product mix influence or is 2012 specs kind of the same as 2011?

In a very broad sense, we don't see any major spec changes in 2012. There's some point of horizon, there's always some in the horizon. And our spending reflects that in preparation for the future. Our products change in years when they're not spec changes as well. When we get breakthroughs in particular areas, we don't wait for spec changes to adjust in the market and sometimes we see the benefits of that. Hopefully 2012 will be no exception where we'll see the results of the investments we've been making that will hopefully drive our profits higher than those volumes that we're talking about.

David, you mentioned there were no share buybacks in the fourth quarter. In the 9 months here you said you spent $85 million for share buybacks, and in the 12 months report you said you spent $98 million for share buybacks. So that implies there was another $13 million spent for the fourth quarter, is there something I'm missing?

No, there's not and you get the prize. What that was, Saul, is cash flow was on the cash flow basis. Obviously those shares were purchased in the last 2 days of the third quarter, they settled in the fourth quarter, but from an accrual basis, they happened in the third quarter. That makes sense?

Got you. Send me the prize.

Got it.

In a broad expense, as I look at your revenues and how do they split between let's say, U.S., Europe, Asia, Latin America, what's sort of is the geographic break down?

We only publish out the U.S., which is like, 36%, 37%. And the rest of the world, Asia, the Western Europe's from a market standpoint, about 15% of the market and our numbers wouldn't be radically different than that. And we'd like to tell we're growing all the other ones, so we can't answer you.

You're not thinking South America, are you.

We have a good presence in South America, sure we'd like to expand. We have a good presence in South America.

So look, if U.S. is 37%, and Europe 15%, roughly 52%, we have another 48% to talk about, how would that in rough terms please, what?

Canada is in there, Asia is in there, active Western Europe Russia and India, and all that we really don't dig it out.

Got you. And then the final question I had, share buyback, specs, the volume declines, 2%. Was that equally split between lube and fuel.

No, it was not. And I neglected to emphasize that in my comment. Like '08 fuels actually held up fine, I don't have that number in front of me, but it went up a couple of percentage points and the drop was in the lubricant side. And that gives us a little confidence and some of this was on the inventory effect.

[Operator Instructions] Our next question is coming from Jim Rubber, a private investor.

Just want to give you a really quick question about plant utilization, how are those running?

Our plants are running well. We're pleased with the progress that we're making. We ran them later in the fourth quarter, as we mentioned. But all in all, we're pleased with how they're running. We have expanded them some mainly by debottlenecking and gotten a little more breathing room there. They're running hard in general, on a yearly basis and we're pleased with them.

How is your storage capacity looking? Do you have the capability when you have that big surge of seasonal orders or maybe the market changes a little bit and you have pretty good opportunity on sales.

That depends entirely on how big that surge is. It does concern us. We much rather see a smoother flow and a more predictable flow.

Wouldn't we all?

Yes. That's part of the reason why our inventories are where they are, is to help us manage through those surges.

Our next question is coming from Ivan Marcuse from Keybanc Capital Markets.

Real quick question. Do you -- what's the revenue break out deployment for fuel and additives, is it 80/20?

No, the market is about 80/20, our revenue wouldn't be much different than that.

[Operator Instructions] Our next question is coming from Robert Barger from FBR.

There's been a lot of play in the media lately about switching to natural gas, retrofitting trucks, et cetera. I'm just kind of curious how that would impact you or how you're thinking about that?

That's one of many potential technologies that play into the future car and truck fleet. Natural gas engines will certainly have some applications particularly in trucks and buses. I don't see that having a significant impact on our business anytime soon.

Is there a place for you in that area of natural gas, there's something you can do there as a business?

I'm not sure I understand your question. Our additive business will continue to produce additives that go into those applications.

It appears there are no further questions. I'd like to turn the call back over to management for any further closing comments.

Thanks for everyone for joining. We look forward to our next meeting. Have a good week.

Thanks, everyone. This does conclude today's teleconference. You may disconnect your lines at this time. And have a wonderful day. We thank you for your participation.