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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-08 · 399 added, 164 removed, 242 unchanged (70% of the section changed)

38 unchanged sentences

The overall business is comprised of three reportable segments:

Surfactants – Surfactants, which accounted for 71 percent of consolidated net sales for the first three months of 2024, are principal ingredients in consumer and industrial cleaning and disinfection products such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes.

Surfactants – Surfactants, which accounted for 69 percent of consolidated net sales for the first six months of 2024, are principal ingredients in consumer and industrial cleaning and disinfection products such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes.

Other applications include fabric softeners, germicidal quaternary compounds, disinfectants, lubricating ingredients, emulsifiers for spreading agricultural products and industrial applications such as latex systems, plastics and composites.

Surfactants are manufactured at five sites in the United States, two European sites (United Kingdom and France), five Latin American sites (one site in Colombia and two sites in each of Mexico and Brazil) and two Asian sites (Philippines and Singapore).

Polymers – Polymers, which accounted for 26 percent of consolidated net sales for the first three months of 2024, include polyurethane polyols, polyester resins and phthalic anhydride.

Polymers – Polymers, which accounted for 28 percent of consolidated net sales for the first six months of 2024, include polyurethane polyols, polyester resins and phthalic anhydride.

Polyurethane polyols are used in the manufacture of rigid foam for thermal insulation in the construction industry and are also a base raw material for coatings, adhesives, sealants and elastomers (collectively, CASE products).

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In Asia, polyurethane polyols and specialty polyols are manufactured at the Company’s China plant.

Specialty Products – Specialty products, which accounted for three percent of consolidated net sales for the first three months of 2024, include flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications.

Specialty products are primarily manufactured at the Company’s Maywood, New Jersey, site and, in some instances, by third-party contractors.

Specialty Products – Specialty products, which accounted for three percent of consolidated net sales for the first six months of 2024, include flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications.

Specialty products are primarily manufactured at the Company’s Maywood, New Jersey, site.

Deferred Compensation Plans

4 unchanged sentences

For the Three Months

Ended March 31,

Ended June 30,

(In millions)

3 unchanged sentences

Pretax Income Effect

Income (Expense)

For the Six Months

Ended June 30,

(In millions)

Deferred Compensation (Administrative expenses)

Realized/Unrealized Gains on Investments (Other, net)

Investment Income (Other, net)

Pretax Income Effect

(1) See the Segment Results-Corporate Expenses section of this MD&A for details regarding the period-over-period changes in deferred compensation.

6 unchanged sentences

dollar results).

The following table presents the effects that foreign currency translation had on the period-over-period changes in consolidated net sales and various income statement line items for the three months ended March 31, 2024 and 2023:

For the Three Months

Ended March 31,

Ended June 30,

(In millions)

Increase (Decrease)

Due to Foreign

1 unchanged sentence

Pretax Income

For the Six Months

Ended June 30,

(In millions)

Due to Foreign

Operating Income

Pretax Income

RESULTS OF OPERATIONS

Three Months Ended March 31, 2024 and 2023

Net income in the first quarter of 2024 was $13.9 million, or $0.61 per diluted share, versus $16.1 million, or $0.70 per diluted share, in the first quarter of 2023.

Adjusted net income was $14.7 million, or $0.64 per diluted share, versus $16.4 million, or $0.71 per diluted share in the first quarter of 2023 (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for a reconciliation between reported net income and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share).

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $50.2 million in the first quarter of 2024 versus $48.3 million in the first quarter of 2023.

Adjusted EBITDA was $51.2 million, up five percent, versus $48.7 million in the first quarter of 2023 (see the "Reconciliation of non-GAAP EBITDA and Adjusted EBITDA" section of this MD&A for a reconciliation between reported operating income and non-GAAP EBITDA and adjusted EBITDA).

Below is a summary discussion of the major factors leading to the changes in net sales, expenses and income in the first quarter of 2024 compared to the first quarter of 2023.

A detailed discussion of segment operating performance for the first quarter of 2024 compared to the first quarter of 2023 follows the summary.

Consolidated net sales decreased $100.0 million, or 15 percent, versus the prior year quarter.

Three Months Ended June 30, 2024 and 2023

Net income in the second quarter of 2024 was $9.5 million, or $0.42 per diluted share, versus $12.7 million, or $0.55 per diluted share, in the second quarter of 2023.

Adjusted net income was $9.4 million, or $0.41 per diluted share, versus $12.1 million, or $0.53 per diluted share in the second quarter of 2023 (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for a reconciliation between reported net income and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share).

Earnings before interest, taxes, depreciation and amortization (EBITDA) were $47.9 million in the second quarter of 2024, up three percent, versus $46.7 million in the second quarter of 2023.

Adjusted EBITDA was $47.7 million, up four percent, versus $45.8 million in the second quarter of 2023 (see the "Reconciliation of non-GAAP EBITDA and Adjusted EBITDA" section of this MD&A for a reconciliation between reported operating income and non-GAAP EBITDA and adjusted EBITDA).

Below is a summary discussion of the major factors leading to the changes in net sales, expenses and income in the second quarter of 2024 compared to the second quarter of 2023.

A detailed discussion of segment operating performance for the second quarter of 2024 compared to the second quarter of 2023 follows the summary.

Consolidated net sales decreased $23.6 million, or four percent, versus the prior year quarter.

Lower average selling prices negatively impacted the year-over-year change in net sales by $49.7 million.

The decrease in average selling prices was mainly attributable to the pass-through of lower raw material costs, less favorable product mix and increased competitive activity primarily within the European and Latin American end-markets.

Consolidated sales volume increased one percent, which favorably impacted the change in net sales by $3.7 million.

Surfactant sales volume was flat year-over-year while sales volume in the Polymer and Specialty Products segments increased one percent and 11 percent, respectively.

Foreign currency translation favorably impacted the year-over-year change in net sales by $11.8 million due to a weaker U.S.

dollar against most currencies in foreign locations where the Company has operations.

Operating income in the first quarter of 2024 decreased $0.9 million, or four percent, versus operating income in the first quarter of 2023.

Surfactant and Polymer operating income decreased $1.0 million and $1.6 million, respectively, versus the first quarter of 2023.

Specialty Products operating income increased $1.7 million versus the first quarter of 2023.

Corporate expenses, including business restructuring, environmental remediation and deferred compensation expenses were flat year-over-year.

Corporate expenses, excluding business restructuring, environmental remediation and deferred compensation expenses, decreased $1.2 million, or seven percent year-over-year.

Foreign currency translation had a $0.7 million favorable impact on operating income in the first quarter of 2024 versus the prior year.

Operating expenses (including deferred compensation and business restructuring) decreased $2.4 million, or five percent, versus the prior year quarter.

The decrease in average selling prices was mainly attributable to the pass-through of lower raw material costs, less favorable product mix and increased competitive activity within Latin American end-markets.

Consolidated sales volume increased four percent, which favorably impacted the change in net sales by $25.3 million.

Surfactant and Polymer sales volume increased five and two percent, respectively, while sales volume in the Specialty Products segment declined two percent.

Foreign currency translation favorably impacted the year-over-year change in net sales by $0.8 million.

Operating income in the second quarter of 2024 increased $0.9 million, or five percent, versus operating income in the second quarter of 2023.

Surfactant and Specialty Products operating income increased $1.9 million and $3.6 million, respectively, versus the second quarter of 2023.

Polymer operating income decreased $2.7 million versus the second quarter of 2023.

Corporate expenses, including business restructuring, environmental remediation, deferred compensation and a $3.5 million expense recognized as a result of a criminal social engineering scheme impacting one the Company's subsidiaries in Asia, increased $1.9 million, or 11 percent, year-over-year.

See Note 17, Other Matter , of the notes to the Company's consolidated financial statements (included in Item 1 of the Form 10-Q) for additional details regarding the criminal social engineering scheme.

Operating expenses (including deferred compensation and business restructuring) increased $2.3 million, or five percent, versus the prior year quarter.

Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:

• Selling expenses decreased $1.7 million, or 13 percent, primarily due to lower salaries, travel-related and bad debt expenses.

• Administrative expenses were flat year-over-year.

Lower salaries and hiring-related expenses were offset by higher environmental reserve expenses.

The higher environmental expense reflects a reserve adjustment for environmental costs related to property formerly owned and operated by the Company in Wilmington, Massachusetts.

• Research, development and technical service (R&D) expenses decreased $0.9 million, or six percent, primarily due to lower salaries.

• Deferred compensation was $1.8 million of expense in the first quarter of 2024 versus $1.5 million of expense in the prior year quarter.

The $0.3 million increase in deferred compensation expense was primarily due to a larger increase in the market value of mutual fund investment assets held for the plans during the first quarter of 2024 versus the first quarter of 2023.

• Selling expenses increased $0.7 million, or six percent, year-over-year.

• Administrative expenses increased $2.0 million, or nine percent year-over-year, primarily due to a $3.5 million expense recognized as a result of the criminal social engineering scheme impacting one of the Company's subsidiaries in Asia that was partially offset by lower salaries.

• Research, development and technical service (R&D) expenses were flat between quarters.

• Deferred compensation was $0.4 million of expense in the second quarter of 2024 versus $0.7 million of expense in the prior year quarter.

The $0.3 million decrease in deferred compensation expense was primarily due to a smaller appreciation in the market value of mutual fund investment assets held for the plans during the second quarter of 2024 versus the second quarter of 2023.

See the Overview and Segment Results-Corporate Expenses section of this MD&A for further details.

Net interest expense for the first quarter of 2024 increased $0.2 million, or nine percent, versus the first quarter of 2023.

This increase was primarily attributable to higher interest rates on borrowings under the Company's revolving credit facility during the first quarter of 2024 versus 2023, partially offset by higher capitalized interest and non-U.S.

interest income.

Other, net was $2.4 million of income in the first quarter of 2024 versus $1.7 million of income in the first quarter of 2023.

The Company recognized $2.3 million of investment income (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the first quarter of 2024 compared to $1.7 million of investment income in the first quarter of 2023.

The Company's net periodic pension income was $0.4 million in the first quarter of 2024 versus $0.3 million of income in the first quarter of 2023.

In addition, the Company reported $0.4 million of foreign exchange losses in the first quarter of 2024 versus $0.3 million of foreign exchange losses in the first quarter of 2023.

The Company’s effective tax rate was 28.6 percent in the first quarter of 2024 versus 18.9 percent in the first quarter of 2023.

The increase was primarily attributable to the Company’s intention to elect “Bonus Depreciation” for its new alkoxylation facility that is being built in Pasadena, Texas and expected to start up in the fourth quarter of 2024.

As a result of this election, the Company is expected to lose its ability to use its global intangible low-taxed income (GILTI) deduction and related GILTI foreign tax credits for 2024, resulting in a higher effective tax rate.

Net interest expense for the second quarter of 2024 decreased $1.2 million, or 31 percent, versus the second quarter of 2023.

This decrease was primarily attributable to higher non-US interest income recognition.

Other, net was $1.2 million of income in the second quarter of 2024 versus $2.4 million of income in the second quarter of 2023.

The Company recognized $0.8 million of investment income (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the second quarter of 2024 compared to $1.6 million of investment income in the second quarter of 2023.

The Company's net periodic pension income was $0.4 million in the second quarter of 2024 versus $0.3 million of income in the second quarter of 2023.

In addition, the Company reported less than $0.1 million of foreign exchange losses in the second quarter of 2024 versus $0.4 million of foreign exchange gains in the second quarter of 2023.

The Company’s effective tax rate was 44.7 percent in the second quarter of 2024 versus 22.3 percent in the second quarter of 2023.

The increase was primarily attributable to the Company’s intention to elect “Bonus Depreciation” for its new alkoxylation facility that is being built in Pasadena, Texas and is expected to start up in the fourth quarter of 2024.

As a result of this election, the Company is expected to lose its ability to use its global intangible low-taxed income (GILTI) deduction, related GILTI foreign tax credits, and its foreign-derived intangible income (FDII) deduction for 2024, resulting in a higher effective tax rate.

In addition, the Company’s current

and forecasted geographic mix of income has driven the effective tax rate higher.

The Organisation for Economic Co-operation and Development (OECD) has proposed a global minimum tax of 15 percent on reported profits (entitled "Pillar Two").

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For the Three Months

Ended March 31,

Ended June 30,

Specialty Products

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For the Three Months

Ended March 31,

Ended June 30,

Operating Income

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Total Operating Income

Surfactant net sales for the first quarter of 2024 decreased $77.0 million versus net sales for the first quarter of 2023.

Surfactant net sales for the second quarter of 2024 decreased $11.9 million versus net sales for the second quarter of 2023.

Lower average selling prices negatively impacted the change in net sales by $31.8 million.

The lower average selling prices were mainly attributable to declining raw material costs, less favorable product mix and increased competitive activity within the European and Latin American end-markets.

Sales volume was relatively flat year-over-year and positively impacted the change in net sales by $0.9 million.

Foreign currency translation had a $7.7 million favorable impact on the year-over-year change in net sales.

The lower average selling prices were mainly attributable to declining raw material costs, less favorable product mix and increased competitive activity within Latin American end-markets.

Sales volume increased five percent year-over-year and positively impacted the change in net sales by $20.8 million.

Foreign currency translation had a $0.9 million unfavorable impact on the year-over-year change in net sales.

A comparison of net sales by region follows:

1 unchanged sentence

For the Three Months

Ended March 31,

Ended June 30,

North America

1 unchanged sentence

Total Surfactants Segment

Net sales for North American operations decreased $47.5 million, or 17 percent, year-over-year.

Net sales for North American operations decreased $11.0 million, or five percent, year-over-year.

Lower average selling prices had a $5.5 million unfavorable impact on the change in net sales and were primarily due to the pass-through of lower raw material costs and less favorable product mix.

Sales volume declined five percent and negatively impacted the change in net sales by $15.0 million.

The lower sales volume was primarily due to lower demand for products sold into the agricultural end market due to continued customer and channel inventory destocking.

Higher demand for products sold into the personal care end markets, driven by prior year investments in low 1,4 dioxane, along with higher demand in the industrial cleaning and oil field end markets partially offset the lower agricultural demand.

Net sales for European operations decreased $20.3 million, or 22 percent, primarily due to lower average selling prices that negatively impacted the change in net sales by $22.2 million.

The lower average selling prices were primarily due to the pass-through of lower raw material costs, less favorable product mix and increased competitive activity within certain end-use markets.

Foreign currency translation positively impacted the change in net sales by $1.5 million.

A weaker U.S.

dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect.

Sales volume was up slightly year-over-year and positively impacted the change in net sales by $0.4 million.

Higher demand for products sold to our distribution partners and into the industrial cleaning and personal care end markets was mostly offset by lower demand for products sold into the agricultural and the laundry and cleaning end markets.

Net sales for Latin American operations decreased $3.2 million, or four percent, primarily due to lower average selling prices that negatively impacted the change in net sales by $22.9 million.

The lower average selling prices primarily reflect less favorable product mix, the pass-through of lower raw material costs and increased competitive pressures from imports.

Sales volume increased 16 percent and positively impacted the change in net sales by $13.3 million.

The sales volume improvement was primarily due to higher demand for products sold into the consumer products end markets and to our distribution customers, partially offset by lower demand for products sold into the agricultural and industrial cleaning end markets.

A weaker U.S.

dollar relative to all currencies within the region led to an $6.4 million positive foreign currency translation effect.

Net sales for Asian operations decreased $5.9 million, or 32 percent, versus the prior year quarter.

A 17 percent decline in sales volume and lower average selling prices negatively impacted the change in net sales by $3.1 million and $2.6 million, respectively.

Sales volume declined two percent and negatively impacted the change in net sales by $5.3 million.

The lower sales volume was primarily due to lower demand for products sold into the industrial cleaning and agricultural end markets.

In addition, sales volume into the personal care end markets was negatively impacted by operational disruptions, primarily related to a flood event at the Millsdale, Illinois plant site, during the second quarter of 2024.

Higher demand for products sold into the laundry and cleaning end markets, the oil field end markets and to our distribution partners, partially offset the above.

Foreign currency translation negatively impacted the change in net sales by $0.2 million.

Surfactant operating income for the first quarter of 2024 decreased $1.0 million, or four percent, versus operating income for the first quarter of 2023.

Gross profit decreased $2.4 million, or five percent, and operating expenses decreased $1.5 million, or six percent.

Net sales for European operations decreased $5.3 million, or eight percent, primarily due to lower average selling prices that negatively impacted the change in net sales by $14.9 million.

The lower average selling prices were primarily due to the pass-through

of lower raw material costs, less favorable product mix and increased competitive activity within certain end-use markets.

Foreign currency translation negatively impacted the change in net sales by $0.3 million.

Sales volume was up 14 percent year-over-year and positively impacted the change in net sales by $9.9 million.

The sales volume improvement was primarily due to higher demand for products sold into the consumer products end markets and to our distribution partners, partially offset by lower demand for products sold into the agricultural end markets.

Net sales for Latin American operations increased $5.4 million, or seven percent, largely due to a 15 percent increase in sales volume that positively impacted the change in net sales by $11.7 million.

The sales volume improvement was primarily due to higher demand for products sold into the consumer products and agricultural end markets and to our distribution partners.

Lower average selling prices negatively impacted the change in net sales by $6.3 million.

The lower average selling prices primarily reflect the pass-through of lower raw material costs and increased competitive pressures from imports.

Net sales for Asian operations decreased $1.0 million, or eight percent, versus the prior year quarter.

Lower average selling prices and the unfavorable impact of foreign currency translation negatively impacted the change in net sales by $1.6 million and $0.5 million, respectively.

An eight percent increase in sales volume positively impacted the change in net sales by $1.1 million.

The sales volume improvement was mainly due to higher demand for products sold to our distribution partners and into the agricultural end markets.

Surfactant operating income for the second quarter of 2024 increased $1.9 million, or 13 percent, versus operating income for the second quarter of 2023.

Gross profit increased $2.3 million, or six percent, and operating expenses increased $0.4 million, or two percent.

Comparisons of gross profit by region and total segment operating expenses and operating income follow:

1 unchanged sentence

For the Three Months

Ended March 31,

Ended June 30,

Gross Profit and Operating Income

4 unchanged sentences

Surfactants Segment Operating Income

Gross profit for North American operations decreased $3.8 million, or 11 percent, versus the prior year primarily due to lower average unit margins and a five percent decline in sales volume.

These items negatively impacted the year-over-year change in gross profit by $1.9 million each.

The lower average unit margins were primarily attributable to less favorable product mix, higher pre-operating expenses associated with the alkoxylation production facility that is being built in Pasadena, Texas and higher expenses incurred at the Company's Millsdale, Illinois plant site, inclusive of waste water disposal costs, due to operational interruptions during the first quarter of 2024.

Gross profit for European operations decreased $1.9 million, or 19 percent, primarily due to lower average unit margins that negatively impacted the year-over-year change in gross profit by $2.0 million.

The lower average unit margins primarily reflect less favorable product mix and increased competitive activity within certain end-use markets.

Foreign currency translation positively impacted the change in gross profit by $0.1 million.

Gross profit for Latin American operations increased $1.6 million, or 22 percent, primarily due to the 16 percent increase in sales volume and the favorable impact of foreign currency translation.

Gross profit for North American operations decreased $3.9 million, or 16 percent, versus the prior year primarily due to lower average unit margins and a two percent decline in sales volume.

These items negatively impacted the year-over-year change in gross profit by $3.3 million and $0.6 million, respectively.

The lower average unit margins were primarily attributable to less favorable product mix, higher pre-operating expenses associated with the alkoxylation production facility that is being built in Pasadena, Texas and higher expenses incurred at the Company's Millsdale, Illinois plant site due to operational issues, primarily related to a flood event, during the second quarter of 2024.

Gross profit for European operations increased $1.4 million, or 28 percent, due to higher average unit margins and a 14 percent increase in sales volume.

These factors positively affected the change in net sales by $0.7 million each.

Gross profit for Latin American operations increased $3.9 million, or 54 percent, primarily due to improved average margins and a 15 percent increase in sales volume.

These items positively impacted the year-over-year change in gross profit by $3.0 million and $1.1 million, respectively.

Lower average unit margins negatively impacted the change in gross profit by $0.3 million and primarily reflect a less favorable product mix and competitive pricing pressures from imports.

Gross profit for Asia operations increased $1.7 million year-over-year due to higher average unit margins.

The higher average unit margins were primarily due to a more favorable product mix.

Foreign currency translation negatively impacted the change in gross profit by $0.2 million.

Gross profit for Asia operations increased $0.9 million, or 43 percent, year-over-year primarily due to higher average unit margins and an eight percent increase in sales volume.

These items positively impacted the year-over-year change in gross profit by $0.7 million and $0.2 million, respectively.

The higher average unit margins reflect a more favorable product mix and lower overhead costs due to the timing of production runs.

Operating expenses for the Surfactants segment decreased $1.5 million, or six percent, in the first quarter of 2024 versus the first quarter of 2023.

This decrease was mostly attributable to lower salaries, travel-related and bad debt expenses.

Polymers net sales for the first quarter of 2024 decreased $15.6 million, or 10 percent, versus net sales for the same period of 2023.

Operating expenses for the Surfactants segment increased $0.4 million, or two percent, in the second quarter of 2024 versus the second quarter of 2023.

Polymer net sales for the second quarter of 2024 decreased $4.8 million, or three percent, versus net sales for the same period of 2023.

Lower average selling prices negatively impacted the change in net sales by $9.6 million.

Foreign currency translation and a one percent increase in sales volume positively impacted the change in net sales by $4.1 million and $2.3 million, respectively.

A two percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the change in net sales by $3.1 million and $1.7 million, respectively.

A comparison of net sales by region follows:

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For the Three Months

Ended March 31,

Ended June 30,

North America

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Total Polymers Segment

Net sales for North American operations decreased $11.4 million, or 14 percent, due to lower average selling prices and a five percent decrease in sales volume.

Net sales for North American operations decreased $8.3 million, or nine percent, due to lower average selling prices and a four percent decrease in sales volume.

These items negatively impacted the year-over-year change in net sales by $4.9 million and $3.4 million, respectively.

The lower average selling prices primarily reflect the pass-through of lower raw material costs.

Sales volume of polyols used in rigid foam applications increased five percent year-over-year but was more than offset by a 43 percent decline within the commodity phthalic anhydride business due largely to operational interruptions at the Millsdale, Illinois plant during the first quarter of 2024.

Net sales for European operations decreased $5.2 million, or eight percent, versus the first three months of 2023.

This decrease was primarily due to lower average selling prices that negatively impacted the year-over-year change in net sales by $12.8 million.

The lower average selling prices were primarily due to the pass-through of lower raw material costs and increased competitive activity.

Foreign currency translation and a four percent increase in sales volume positively impacted the change in net sales by $4.7 million and $2.9 million, respectively.

The decline in sales volume is mostly attributable to a 50 percent decrease within the commodity phthalic anhydride business due to operational issues at the Millsdale, Illinois plant site during the second quarter of 2024.

Sales volume of specialty polyols increased 25 percent year-over year while sales volume of polyols used in rigid foam applications declined one percent.

Net sales for European operations increased $1.5 million, or two percent, versus the second quarter of 2023.

This increase was primarily due to the favorable impact of foreign currency translation and a three percent increase in sales volume.

These items positively impacted the year-over-year change in net sales by $2.1 million and $2.0 million, respectively.

A weaker U.S.

dollar relative to the Polish zloty and British pound sterling led to the favorable foreign currency translation effect.

Net sales for Asia and Other operations increased $0.9 million, or eight percent, primarily due to a 16 percent increase in sales volume which positively impacted the year-over-year change in net sales by $1.7 million.

The higher sales volume was largely driven by the non-recurrence of COVID lock downs and restrictions that were in place in China during the first quarter of 2023 and higher demand in specialty polyols resulting from the Company's product diversification efforts.

The unfavorable impact of foreign currency translation and lower average selling prices negatively impacted the year-over-year change in net sales by $0.6 million and $0.2 million, respectively.

Polymer operating income in the first quarter of 2024 decreased $1.6 million, or 16 percent, versus operating income in the first quarter of 2023.

Gross profit decreased $2.2 million, or 13 percent and operating expenses decreased $0.6 million or nine percent between years.

Lower average selling prices negatively impacted the year-over-year change in net sales by $2.6 million.

The lower average selling prices were primarily due to the pass-through of lower raw material costs and increased competitive activity.

Net sales for Asia and Other operations increased $2.1 million, or 20 percent, primarily due to a 28 percent increase in sales volume which positively impacted the year-over-year change in net sales by $2.9 million.

The higher sales volume was largely driven by the non-recurrence of COVID lock downs and restrictions that were partially in place during the second quarter of 2023 and higher specialty polyols demand resulting from the Company's product diversification efforts.

The unfavorable impact of foreign currency translation and lower average selling prices negatively impacted the year-over-year change in net sales by $0.4 million each.

Polymer operating income in the second quarter of 2024 decreased $2.7 million, or 17 percent, versus operating income in the second quarter of 2023.

Gross profit decreased $2.2 million, or 10 percent and operating expenses increased $0.5 million or eight percent between years.

Comparisons of gross profit by region and total segment operating expenses and operating income follow:

1 unchanged sentence

For the Three Months

Ended March 31,

Ended June 30,

Gross Profit and Operating Income

4 unchanged sentences

Polymers Segment Operating Income

Gross profit for North American operations decreased $1.5 million, or 24 percent, due to lower average unit margins and the five percent decline in sales volume.

Gross profit for North American operations decreased $1.1 million, or nine percent, due to lower average unit margins and a four percent decline in sales volume.

These items negatively impacted the change in gross profit by $0.6 million and $0.5 million, respectively.

The lower average unit margins largely reflect higher maintenance, tolling fees and waste water disposal costs incurred at the Company's Millsdale, Illinois plant site due to operational interruptions during the first quarter of 2024.

Gross profit for European operations decreased $1.3 million, or 13 percent, versus the first quarter of 2023.

The decrease was primarily due to lower average unit margins that negatively impacted the change in gross profit by $2.2 million.

Foreign currency translation and a four percent increase in sales volume positively impacted the year-over-year change in gross profit by $0.5 million and $0.4 million, respectively.

Gross profit for Asia and Other operations increased $0.5 million, or 63 percent, primarily due to higher average unit margins and a 16 percent increase in sales volume.

The lower average unit margins were primarily due to a non-cash phthalic anhydride related catalyst write-off ($2.1 million) and higher expenses incurred at the Company's Millsdale, Illinois plant site due to operational issues in the second quarter of 2024.

Gross profit for European operations decreased $2.3 million, or 24 percent, versus the second quarter of 2023.

This decrease was primarily due to lower average unit margins that negatively impacted the change in gross profit by $2.7 million.

A three percent increase in sales volume and the favorable effect of foreign currency translation positively impacted the year-over-year change in gross profit by $0.3 million and $0.1 million, respectively.

Gross profit for Asia and Other operations increased $1.3 million primarily due to higher average unit margins and a 28 percent increase in sales volume.

These items positively impacted the change in gross profit by $1.2 million and $0.2 million, respectively.

The unfavorable impact of foreign currency translation negatively impacted the year-over-year change in gross profit by $0.1 million.

Operating expenses for the Polymer segment decreased $0.6 million, or nine percent, in the first quarter of 2024 versus the first quarter of 2023.

This decrease was mainly attributable to lower salary expenses.

Foreign currency translation negatively impacted the year-over-year change in gross profit by $0.1 million.

Operating expenses for the Polymer segment increased $0.5 million, or eight percent, in the second quarter of 2024 compared to the second quarter of 2023.

Specialty Products

Specialty Products net sales for the first quarter of 2024 decreased $7.4 million, or 33 percent, versus net sales for the first quarter of 2023.

The decrease was due to lower average selling prices that more than offset an 11 percent increase in sales volume.

Specialty Products net sales for the second quarter of 2024 decreased $6.9 million, or 29 percent, versus net sales for the second quarter of 2023.

The decrease was due to lower average selling prices and a two percent decrease in sales volume.

Gross profit and operating income increased by $3.4 million and $3.5 million, respectively, year-over-year.

The year-over-year increases in gross profit and operating income were mostly attributable to higher unit margins and sales volume within the medium chain triglycerides (MCT) product line.

The year-over-year increases in gross profit and operating income were mostly attributable to higher average unit margins within the medium chain triglycerides (MCT) product line.

The higher unit margins reflect the non-recurrence of high-cost inventory carryover experienced in the prior year.

Corporate Expenses

Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, were relatively flat year-over-year.

Corporate expenses were $18.6 million in the first quarter of 2024 versus $18.5 million in the first quarter of 2023.

Deferred compensation and environmental reserve expenses were up $0.3 million and $1.1 million, respectively, year-over-year.

The higher environmental reserve expense reflects a reserve adjustment for environmental costs related to property formerly owned and operated by the Company in Wilmington, Massachusetts.

These higher expenses were mostly offset by lower salaries and hiring-related expenses due to productivity efforts implemented in late 2023.

The $0.3 million increase in deferred compensation expense was primarily due to a larger increase in the market value of mutual fund investment assets held for the plans in the first quarter of 2024 versus the first quarter of 2023.

This increase was partially offset by a $4.51 per share decrease in the market price of the Company's common stock in the first quarter of 2024 compared to a $3.43 per share decrease in the first quarter of 2023.

The following table presents the quarter-end Company common stock market prices used in the computation of deferred compensation income/expense for the three months ended March 31, 2024 and 2023:

Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, increased $1.9 million, or 11 percent, year-over-year.

Corporate expenses were $19.3 million in the second quarter of 2024 versus $17.4 million in the second quarter of 2023.

This increase was primarily due to a $3.5 million expense related to a criminal social engineering scheme that impacted the Company's subsidiary in Asia, that was partially offset by lower deferred compensation expense and productivity measures implemented in late 2023.

See Note 17, Other Matter, of the notes to the Company's consolidated financial statements for additional details regarding the criminal social engineering scheme.

The $0.3 million decrease in deferred compensation expense was primarily due to a smaller increase in the market value of mutual fund investment assets held for the plans in the second quarter of 2024 versus the second quarter of 2023.

This decrease was partially offset by a $6.08 per share decrease in the market price of the Company's common stock in the second quarter of 2024 compared to a $7.47 per share decrease in the second quarter of 2023.

The following table presents the quarter-end Company common stock market prices used in the computation of deferred compensation income/expense for the three months ended June 30, 2024 and 2023:

Company Common Stock Price

Six Months Ended June 30, 2024 and 2023

Net income in the first half of 2024 was $23.4 million, or $1.02 per diluted share, versus $28.8 million, or $1.25 per diluted share, in the first half of 2023.

Adjusted net income was $24.1 million, or $1.05 per diluted share, versus $28.5 million, or $1.24 per diluted share in the prior year (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for a reconciliation between reported net income and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share).

Earnings before interest, taxes, depreciation and amortization (EBITDA) were $98.0 million in for the first half of 2024 versus $94.9 million in the first half of 2023.

Adjusted EBITDA was $98.9 million, up five percent, versus $94.5 million in the first half of 2023 (see the "Reconciliation of non-GAAP EBITDA and Adjusted EBITDA" section of this MD&A for a reconciliation between reported operating income and non-GAAP EBITDA and adjusted EBITDA).

Below is a summary discussion of the major factors leading to the year-over-year changes in net sales, expenses and income in the first half of 2024 compared to the first half of 2023.

A detailed discussion of segment operating performance for the first half of 2024 compared to the first half of 2023 follows the summary.

Consolidated net sales decreased $123.6 million, or 10 percent, year-over-year.

Lower average selling prices negatively impacted the year-over-year change in net sales by $166.1 million.

The decrease in average selling prices was mainly due to the pass-through of lower raw material costs, less favorable product mix and increased competitive activity primarily within the European and Latin American end markets.

Consolidated sales volume increased two percent and favorably impacted the year-over-year change in net sales by $29.9 million.

Sales volume in the Surfactant, Polymer and Specialty Products segments increased three percent, two percent and four percent, respectively.

Foreign currency translation favorably impacted the year-over-year change in net sales by $12.6 million mainly due to a weaker U.S.

dollar against the British pound, Mexican peso, Colombian peso and Polish zloty.

Operating income for the first half of 2024 was flat versus operating income for the first half of 2023.

Surfactant and Specialty Products operating income increased $0.9 million and $5.3 million, respectively, versus the first half of 2023.

Polymer operating income decreased $4.3 million year-over-year.

Corporate expenses, including business restructuring, environmental remediation, deferred compensation and a $3.5 million expense recognized for a criminal social engineering scheme at one of the Company's subsidiaries in

Asia, increased $1.9 million, or five percent, year-over-year.

Foreign currency translation had a $0.6 million favorable impact on operating income in the first half of 2024 versus the first half of 2023.

Operating expenses (including deferred compensation and business restructuring expenses) were flat between years.

Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:

• Selling expenses decreased $1.0 million, or four percent, year-over-year primarily due to lower salaries.

• Administrative expenses increased $2.0 million, or four percent, year-over-year.

The increase was primarily driven by a $3.5 million expense recognized for a criminal social engineering scheme impacting one of the Company's subsidiaries in Asia and higher environmental reserve expenses.

The higher environmental expense reflects a reserve adjustment for environmental costs related to property formerly owned and operated by the Company in Wilmington, Massachusetts.

Lower salaries, resulting from productivity measures implemented in late 2023, partially offset the above.

• R&D expenses decreased $0.9 million, or three percent, year-over-year primarily due to lower salaries.

• Deferred compensation expenses were flat year-over-year.

See the Overview and Segment Results-Corporate Expenses section of this MD&A for further details.

Net interest expense for the first half of 2024 decreased $1.0 million, or 14 percent, versus the first half of 2023.

This decrease was primarily attributable to higher non-U.S.

interest income recognition and higher capitalized interest income, partially offset by higher U.S.

interest expense.

Other, net was $3.6 million of income for the first half of 2024 compared to $4.0 million of income for the first half of 2023.

The Company recognized $3.1 million of investment income (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the first half of 2024 compared to $3.3 million of investment income in the first half of 2023.

In addition, the Company reported foreign exchange losses of $0.4 million in the first half of 2024 versus $0.1 million of foreign exchange gains in the first half of 2023.

The Company also reported $0.2 million of higher net periodic pension income in the first half of 2024 versus the first half of 2023.

The Company’s effective tax rate was 36.1 percent in the first half of 2024 versus 20.4 percent in the first half of 2023.

As a result of this election, the Company is expected to lose its ability to use its global intangible low-taxed income (GILTI) deduction, related GILTI foreign tax credits, and its income deduction (FDII) for 2024, resulting in a higher effective tax rate.

In addition, the Company’s current and forecasted geographic mix of income has driven the effective tax rate higher.

The Organisation for Economic Co-operation and Development (OECD) has proposed a global minimum tax of 15 percent on reported profits (entitled "Pillar Two").

The Company does not expect Pillar Two to have a material impact on its financial position, results of operations, cash flow and effective tax rate.

(In thousands)

For the Six Months

Ended June 30,

Specialty Products

Total Net Sales

(In thousands)

For the Six Months

Ended June 30,

Operating Income

Specialty Products

Segment Operating Income

Corporate Expenses, Excluding Deferred Compensation

and Restructuring

Deferred Compensation Expense

Business Restructuring

Total Operating Income

Segment Results

Surfactants net sales for the first half of 2024 decreased $88.9 million, or 10 percent, versus net sales for the first half of 2023.

Lower average selling prices negatively impacted the change in net sales by $118.7 million.

The lower average selling prices were mainly due to declining raw material costs, less favorable product mix and increased competitive activity within the European and Latin American end-markets.

Sales volume increased three percent and positively impacted the change in net sales by $23.0 million.

Foreign currency translation had a $6.8 million favorable impact on the year-over-year change in net sales.

A year-over-year comparison of net sales by region follows:

(In thousands)

For the Six Months

Ended June 30,

North America

Latin America

Total Surfactants Segment

Net sales for North American operations decreased $58.5 million, or 12 percent, year-over-year.

Lower average selling prices had a $38.4 million unfavorable impact on the change in net sales and were primarily attributable to the pass-through of lower raw material costs and less favorable product mix.

Sales volume declined four percent and negatively impacted the change in net sales by $19.9 million.

The decrease in sales volume primarily reflects lower demand for products sold into the agricultural end markets due to customer and channel inventory destocking.

In addition, sales volume into the personal care end markets was negatively impacted by operational issues, partially related to a flood event at the Millsdale, Illinois plant site, during the first half of 2024.

Higher demand for products sold into the oil field, construction and industrial solutions, and to our distribution partners partially offset the aforementioned decline.

Foreign currency translation negatively impacted the year-over-year change in net sales by $0.2 million.

Net sales for European operations decreased $25.6 million, or 16 percent, primarily due to lower average selling prices that negatively impacted the change in net sales by $37.9 million.

The lower average selling prices were primarily due to the pass-through of lower raw material costs, less favorable product mix and increased competitive activity within certain end-use markets.

Sales volume was up 7 percent and positively impacted the change in net sales by $11.1 million.

The higher sales volume was primarily due to higher demand for products sold into the consumer products end markets and to our distribution partners.

Foreign currency translation positively impacted the change in net sales by $1.2 million.

A weaker U.S.

dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect.

Net sales for Latin American operations increased $2.1 million, or one percent, primarily due to a 16 percent increase in sales volume and the favorable impact of foreign currency translation.

These items positively impacted the change in net sales by $25.0 million and $6.4 million, respectively.

The higher sales volume was primarily due to higher demand for products sold into the consumer products end markets and to our distribution partners.

A weaker U.S.

dollar relative to the Mexican and Colombian pesos led to the favorable foreign currency translation effect.

Lower average selling prices negatively impacted the change in net sales by $29.3 million and primarily reflect less favorable product mix, lower raw material costs and increased competitive activity within certain end-use markets.

Net sales for Asian operations decreased $6.9 million, or 22 percent, year-over-year.

Lower average selling prices, a five percent decline in sales volume, and the unfavorable impact of foreign currency translation negatively impacted the year-over-year change in net sales by $4.5 million, $1.7 million and $0.7 million, respectively.

The decline in average selling prices primarily reflects the pass-through of lower raw material costs and the decline in volume primarily reflects less demand for products sold into the commodity laundry and cleaning end markets.

Surfactant operating income for the first half of 2024 increased $0.9 million, or two percent, versus operating income for the first half of 2023.

Gross profit decreased $0.1 million, and operating expenses decreased $1.0 million, or two percent.

Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:

(In thousands)

For the Six Months

Ended June 30,

Gross Profit and Operating Income

North America

Latin America

Surfactants Segment Gross Profit

Operating Expenses

Surfactants Segment Operating Income

Gross profit for North American operations decreased $7.7 million, or 13 percent, versus the prior year primarily due to lower average unit margins and a four percent decline in sales volume.

These items negatively impacted the year-over-year change in gross profit by $5.4 million and $2.3 million, respectively.

The lower average unit margins were mostly attributable to less favorable product mix, higher pre-operating expenses associated with the alkoxylation production facility that is being built in Pasadena, Texas and higher expenses incurred at the Company's Millsdale, Illinois plant site due to operational issues, partially related to a flood event, during the first half of 2024.

Gross profit for European operations decreased $0.5 million, or three percent, primarily due to lower average unit margins that negatively impacted the change in gross profit by $1.6 million.

Sales volume growth of seven percent and the favorable impact of foreign currency translation positively impacted the year-over-year change in gross profit by $1.0 million and $0.1 million, respectively.

Gross profit for Latin American operations increased $5.5 million, or 38 percent, due to improved average unit margins, sales volume growth of 16 percent and the favorable impact of foreign currency translation.

These items positively impacted the year-over-year change in gross profit by $2.7 million, $2.3 million and $0.5 million, respectively.

The higher average unit margins were primarily due to a more favorable product mix.

Gross profit for Asian operations increased $2.6 million, primarily due to higher average unit margins that positively impacted the year-over-year change in gross profit by $2.7 million.

The higher average unit margins were primarily due to lower overhead costs due to the timing of production runs.

The five percent decline in sales volume negatively impacted the year-over-year change in gross profit by $0.1 million.

Operating expenses for the Surfactant segment decreased $1.0 million, or two percent, year-over-year.

This decrease was mainly attributable to lower salaries and bad debt provision expenses.

Polymer net sales for the first half of 2024 decreased $20.4 million, or six percent, versus net sales for the same period of 2023.

Lower average selling prices negatively impacted the change in net sales by $31.7 million.

A two percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the change in net sales by $5.4 million and $5.9 million, respectively.

A year-over-year comparison of net sales by region follows:

(In thousands)

For the Six Months

Ended June 30,

North America

Asia and Other

Total Polymers Segment

Net sales for North American operations decreased $19.7 million, or 12 percent, due to lower average selling prices and a four percent decrease in sales volume.

These items negatively impacted the year-over-year change in net sales by $12.5 million and $7.2 million, respectively.

The lower average selling prices primarily reflect the pass-through of lower raw material costs.

Sales volume of polyols used in rigid foam applications and specialty polyols increased one percent and nine percent, respectively year-over-year.

increases were more than offset by a 47 percent decrease within the commodity phthalic anhydride business due to operational issues at the Millsdale, Illinois plant during the first half of 2024.

Net sales for European operations decreased $3.7 million, or three percent, year-over-year.

Lower average selling prices negatively impacted the year-over-year change in net sales by $15.3 million.

The lower average selling prices were primarily due to the pass-through of lower raw material costs and increased competitive activity.

Foreign currency translation and a four percent increase in sales volume positively impacted the change in net sales by $6.8 million and $4.8 million, respectively.

A weaker U.S.

dollar relative to the Polish zloty and British pound sterling led to the favorable foreign currency translation effect.

Net sales for Asia and Other operations increased $3.0 million, or 14 percent, primarily due to a 22 percent increase in sales volume which positively impacted the year-over-year change in net sales by $4.6 million.

The higher sales volume was driven by the non-recurrence of COVID lock downs and restrictions that were in place in China during the first half of 2023 and higher demand for specialty polyols resulting from the Company's product diversification efforts.

The unfavorable impact of foreign currency translation and lower average selling prices negatively impacted the year-over-year change in net sales by $1.0 and $0.6 million, respectively.

Polymer operating income for the first half of 2024 decreased $4.3 million, or 17 percent, versus operating income for the first half of 2023.

Gross profit decreased $4.5 million, or 11 percent, and operating expenses decreased $0.1 million, or one percent.

Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:

(In thousands)

For the Six Months

Ended June 30,

Gross Profit and Operating Income

North America

Asia and Other

Polymers Segment Gross Profit

Operating Expenses

Polymers Segment Operating Income

Gross profit for North American operations decreased $2.6 million, or 14 percent, due to lower average unit margins and a four percent decline in sales volume.

These items negatively impacted the change in gross profit by $1.8 million and $0.8 million, respectively.

The lower average unit margins largely reflect a non-cash phthalic anhydride related catalyst write-off ($2.1 million) and higher expenses incurred at the Company's Millsdale, Illinois plant due to operational issues during the first half of 2024.

Gross profit for European operations decreased $3.6 million, or 18 percent, versus the first half of 2023.

This decrease was primarily due to lower average unit margins that negatively impacted the change in gross profit by $4.9 million.

A four percent increase in sales volume and the favorable effect of foreign currency translation positively impacted the year-over-year change in gross profit by $0.7 million and $0.6 million, respectively.

Gross profit for Asia and Other operations increased $1.8 million, primarily due to higher average unit margins and a 22 percent increase in sales volume.

These items positively impacted the change in gross profit by $1.6 million and $0.3 million, respectively.

Foreign currency translation had a $0.1 million unfavorable impact on the change in gross profit year-over-year.

Operating expenses for the Polymers segment decreased $0.1 million, or one percent, year-over-year.

Specialty Products

Specialty Products net sales for the first half of 2024 decreased $14.3 million, or 31 percent, versus net sales for the first half of 2023.

This decrease was primarily due to lower average selling prices that were partially offset by a four percent increase in sales volume.

Gross profit and operating income increased $5.0 million and $5.3 million, respectively, year-over-year.

The year-over-year increases in gross profit and operating income were mostly attributable to higher unit margins within the medium chain triglycerides (MCT) product line The higher average unit margins reflect the non-recurrence of high-cost inventory carryover experienced in the prior year.

Corporate Expenses

Corporate expenses, which include deferred compensation, business restructuring, and other operating expenses that are not allocated to the reportable segments, increased $1.9 million, or five percent, between years.

The year-over-year increase was primarily attributable to $3.5 million of expenses associated with a criminal social engineering scheme impacting one of the Company's subsidiaries in Asia.

See Note 17, Other Matter, of the notes to the Company's consolidated financial statements for additional details regarding the criminal social engineering scheme.

Higher environmental reserve expenses also contributed to the year-over-year increase.

Environmental reserve expenses were $1.8 million in the first half of 2024 versus $0.5 million in the first half of 2023.

The higher environmental

expenses in 2024 reflect a reserve adjustment for environmental costs related to property formerly owned and operated by the Company in Wilmington, Massachusetts.

These increases were partially offset by lower salaries, related to productivity measures implemented in late 2023, and lower insurance and legal expenses.

Deferred compensation expense was $2.2 million in the first six months of both 2024 and 2023.

A $10.59 per share decrease in the market price of Company common stock in the first half of 2024 is comparable to a $10.90 per share decrease in the second half of 2023.

The following table presents the period-end Company common stock market prices used in the computation of deferred compensation expense/income for the six months ended June 30, 2024 and 2023:

Company Common Stock Price

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, 2024, operating activities were a cash source of $41.6 million versus a cash use of $72.1 million for the comparable period in 2023.

For the first three months of 2024, investing cash outflows totaled $24.4 million versus cash outflows of $90.3 million in the prior year period.

For the six months ended June 30, 2024, operating activities were a cash source of $71.1 million versus a cash source of $35.8 million for the comparable period in 2023.

For the first six months of 2024, investing cash outflows totaled $54.0 million versus cash outflows of $158.2 million in the prior year period.

Financing activities were a cash use of $16.0 million versus a cash source of $78.0 million in the prior year period.

Cash and cash equivalents decreased $5.1 million compared to December 31, 2023, inclusive of a $6.1 million unfavorable foreign exchange rate impact.

On March 31, 2024, the Company's cash and cash equivalents totaled $125.8 million.

demand deposit accounts totaled $2.7 million.

The Company’s non-U.S.

subsidiaries held $123.1 million of cash as of March 31, 2024.

On June 30, 2024, the Company's cash and cash equivalents totaled $124.7 million including $11.3 million in money market funds, which were rated AAAm by Standard and Poor’s and Aaa-mf by Moody’s.

demand deposit accounts totaled $2.2 million, and cash and cash equivalents of the Company’s non-U.S.

subsidiaries totaled $122.5 million (including UK money market funds of $11.3 million) as of June 30, 2024.

Operating Activities

Net income during the first three months of 2024 decreased $2.2 million versus the comparable period in 2023.

Working capital was a cash use of $2.8 million during the first three months of 2024 versus a cash use of $109.9 million in the comparable period in 2023.

Accounts receivable were a cash use of $26.0 million during the first three months of 2024 compared to a cash use of $40.4 million for the comparable period in 2023.

Inventories were a cash source of $3.2 million in 2024 versus a cash source of $38.3 million in 2023.

Net income during the first six months of 2024 decreased $5.4 million versus the comparable period in 2023.

Working capital was a cash use of $15.5 million during the first six months of 2024 versus a cash use of $33.2 million in the comparable period in 2023.

Accounts receivable was a cash use of $27.3 million during the first six months of 2024 compared to a cash source of $22.8 million for the comparable period in 2023.

Inventories were a cash use of $9.7 million in 2024 versus a cash source of $70.1 million in 2023.

Accounts payable and accrued liabilities were a cash source of $26.6 million in 2024 compared to a cash use of $116.5 million for the same period in 2023.

Working capital requirements were lower in the first three months of 2024 compared to 2023 primarily due to the changes noted above.

The change in accounts receivable working capital primarily reflects lower selling prices due to the pass through of lower raw material costs.

The change in inventories reflects unit costs dropping less significantly during the first quarter of 2024 versus 2023.

The change in accounts payable and accrued liabilities was due in large part to lower first quarter 2024 cash outlays required to meet lower incentive-based compensation, tax and other year-end obligations closely linked to lower 2023 earnings.

Working capital requirements were lower in the first six months of 2024 compared to 2023 primarily due to the changes noted above.

The change in inventories working capital primarily reflects the extensive efforts to reduce inventory levels in 2023 (source of cash) versus targeted 2024 inventory builds in advance of the hurricane season and planned plant maintenance turnarounds during the second half of the 2024 (use of cash).

The change in accounts payable and accrued liabilities was due in large part to lower 2024 cash outlays required to meet lower incentive-based compensation, tax and other year-end obligations closely linked to lower 2023 earnings.

It is management’s opinion that the Company’s liquidity is sufficient to provide for potential increases in working capital requirements during 2024.

1 unchanged sentence

Cash used for investing activities decreased $104.2 million year-over-year.

Cash used for capital expenditures was $30.2 million in the first three months of 2024 versus $92.2 million in the same period of 2023.

Cash used for capital expenditures was $59.9 million in the first six months of 2024 versus $159.9 million in the same period of 2023.

The lower capital spending in 2024 was largely attributable to reduced spending required to complete construction of the alkoxylation plant the Company is building at its Pasadena, Texas site.

5 unchanged sentences

The Company purchases shares of its common stock in the open market or from its benefit plans from time to time to fund its own benefit plans and to mitigate the dilutive effect of new shares issued under its compensation plans.

The Company may, from time to time, seek to purchase additional amounts of its outstanding equity and/or retire debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise, including pursuant to plans meeting the requirements of Rule 10b5-1 promulgated by the SEC.

The Company may, from time to time, seek to purchase additional amounts of its outstanding equity and/or retire debt securities through cash purchases and/or exchanges

for other securities, in open market purchases, privately negotiated transactions or otherwise, including pursuant to plans meeting the requirements of Rule 10b5-1 promulgated by the SEC.

Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors.

The amounts involved may be material.

The Company did not purchase any shares of its common stock on the open market during the three months ended March 31, 2024.

At March 31, 2024, the Company had $125.1 million remaining under the share repurchase program authorized by its Board of Directors.

The Company did not purchase any shares of its common stock on the open market during the six months ended June 30, 2024.

At June 30, 2024, the Company had $125.1 million remaining under the share repurchase program authorized by its Board of Directors.

Debt and Credit Facilities

Consolidated balance sheet debt decreased from $654.1 million on December 31, 2023 to $646.0 million on March 31, 2024, primarily due to lower domestic borrowings from the Company’s revolving credit facility and lower foreign credit line borrowings.

Net debt (which is defined as total debt minus cash – see the “Reconciliation of Non-GAAP Net Debt” section of this MD&A) decreased $4.1 million, from $524.3 million at December 31, 2023 to $520.2 million at March 31, 2024.

This change reflects a debt decrease of $8.1 million and a cash decrease of $4.0 million.

As of March 31, 2024, the ratio of net debt to net debt plus shareholders’ equity was 30.0 percent versus 30.1 percent at December 31, 2023 (see the “Reconciliation of Non-GAAP Net Debt” section in this MD&A for further details).

On March 31, 2024, the Company’s debt included $359.9 million of unsecured notes, with maturities ranging from 2024 through 2032, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements (the “Note Purchase Agreements”), a $93.8 million delayed draw term loan borrowed pursuant to the Company's credit agreement, $186.2 million of short term loans borrowed under the Company's revolving credit facility and $6.0 million of foreign credit line borrowings.

Consolidated balance sheet debt increased from $654.1 million on December 31, 2023 to $657.1 million on June 30, 2024, primarily due to domestic borrowings from the Company’s revolving credit facility partially offset by scheduled debt repayments.

Net debt (which is defined as total debt minus cash – see the “Reconciliation of Non-GAAP Net Debt” section of this MD&A) increased $8.1 million, from $524.3 million at December 31, 2023 to $532.4 million at June 30, 2024.

This change reflects a cash decrease of $5.1 million and a total debt increase of $3.0 million.

As of June 30, 2024, the ratio of net debt to net debt plus shareholders’ equity was 31.0 percent versus 30.0 percent at December 31, 2023 (see the “Reconciliation of Non-GAAP Net Debt” section in this MD&A for further details).

On June 30, 2024, the Company’s debt included $335.8 million of unsecured notes, with maturities ranging from 2024 through 2032, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements (the “Note Purchase Agreements”), a $92.5 million delayed draw term loan borrowed pursuant to the Company's credit agreement, $220.8 million of short term loans borrowed under the Company's revolving credit facility and $8.0 million of foreign credit line borrowings.

The proceeds from the note issuances have been the Company’s primary source of long-term debt financing and are supplemented by borrowings under bank credit facilities to meet short and medium-term liquidity needs.

The Company's credit agreement with a syndicate of banks provides for credit facilities in an initial aggregate principal amount of $450.0 million, consisting of (a) a $350.0 million multi-currency revolving credit facility and (b) a $100.0 million delayed draw term loan credit facility, each of which matures on June 24, 2027.

The Company maintains import letters of credit, and standby letters of credit under its workers’ compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the revolving credit agreement.

As of March 31, 2024, the Company had outstanding loans totaling $280.0 million, inclusive of a $93.8 million delayed draw term loan, and letters of credit totaling $11.0 million under the credit agreement, with $152.8 million remaining available.

The Company's credit agreement (the Credit Agreement) with a syndicate of banks provides for credit facilities in an initial aggregate principal amount of $450.0 million, consisting of (a) a $350.0 million multi-currency revolving credit facility and (b) a $100.0 million delayed draw term loan credit facility, each of which matures on June 24, 2027.

The Company's credit agreement with Credit Industriel et Commercial NY (the CIC Credit Agreement) provides for a credit facility in an aggregate principal amount of $8.7 million.

The facility is for the sole purpose of the issuance of standby letters of credit.

The Company also maintains import and export letters of credit, and standby letters of credit under its workers’ compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the Credit Agreement and under the CIC Credit Agreement.

As of June 30, 2024, the Company had outstanding borrowings totaling $313.3 million, inclusive of a $92.5 million delayed draw term loan, and letters of credit totaling $11.7 million under the Credit Agreement, with $117.5 million remaining available.

As of June 30, 2024, the Company also had an outstanding letter of credit of $8.7 million under the CIC Credit Agreement.

The Company anticipates that cash from operations, committed credit facilities and cash on hand will be sufficient to fund anticipated capital expenditures, working capital, dividends and other planned financial commitments for the foreseeable future.

Certain foreign subsidiaries of the Company maintain short-term bank lines of credit in their respective local currencies to meet working capital requirements as well as to fund capital expenditures and acquisitions.

At March 31, 2024, the Company’s foreign subsidiaries had $6.0 million of outstanding debt.

At June 30, 2024, the Company’s foreign subsidiaries had $8.0 million of outstanding debt.

The Company is subject to covenants under its material debt agreements that require the maintenance of minimum interest coverage and minimum net worth.

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The maximum amount of dividends that could have been paid within this limitation is disclosed as unrestricted retained earnings in Note 14, Debt , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q).

The Company believes it was in compliance with the covenants under its material debt agreements as of March 31, 2024.

The Company believes it was in compliance with the covenants under its material debt agreements as of June 30, 2024.

ENVIRONMENTAL AND LEGAL MATTERS

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The Company will continue to invest in the equipment and facilities necessary to comply with existing and future regulations.

During the first three months of 2024 and 2023, the Company’s expenditures for capital projects related to environmental matters were $1.5 million for both years.

During the first six months of 2024 and 2023, the Company’s expenditures for capital projects related to environmental matters were $3.6 million and $4.4 million, respectively.

These projects are capitalized and depreciated over their estimated useful lives, which are typically 10 years.

Recurring costs associated with the operation and maintenance of facilities for waste treatment and disposal and managing environmental compliance in ongoing operations at the Company’s manufacturing locations were $10.8 million and $8.9 million for the three months ended March 31, 2024 and 2023, respectively.

Recurring costs associated with the operation and maintenance of facilities for waste treatment and disposal and managing environmental compliance in ongoing operations at the Company’s manufacturing locations were $28.6 million and $18.0 million for the six months ended June 30, 2024 and 2023, respectively.

Over the years, the Company has received requests for information related to or has been named by the government as a potentially responsible party at a number of waste disposal sites where cleanup costs have been or may be incurred under CERCLA and similar state or foreign statutes.

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Some of the factors on which the Company bases its estimates include information provided by decisions rendered by State and Federal environmental regulatory agencies, information provided by feasibility studies, and remedial action plans developed.

After partial remediation payments at certain sites, the Company has estimated a range of possible environmental and legal losses of $20.8 million to $49.8 million at March 31, 2024 and $20.6 million to $49.4 million at December 31, 2023.

After partial remediation payments at certain sites, the Company has estimated a range of possible environmental and legal losses of $20.8 million to $48.1 million at June 30, 2024 and $20.6 million to $49.4 million at December 31, 2023.

Within the range of possible environmental and legal losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the range and, thus, has accrued at the lower end of the range.

The Company's environmental and legal accruals totaled $20.8 million at March 31, 2024 and $20.6 million at December 31, 2023.

The Company's environmental and legal accruals totaled $20.8 million at June 30, 2024 and $20.6 million at December 31, 2023.

Because the liabilities accrued are estimates, actual amounts could differ materially from the amounts reported.

Cash expenditures related to environmental remediation and certain other legal matters approximated $1.6 million for the three months ended March 31, 2024, compared to $3.5 million for the same period in 2023.

Cash expenditures related to environmental remediation and certain other legal matters approximated $2.0 million for the six months ended June 30, 2024, compared to $8.9 million for the same period in 2023.

For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions.

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Certain of these matters are discussed in Item 1, Part 2, of the Company’s Annual Report on Form 10-K, Legal Proceedings, in this report and in other filings of the Company with the SEC, which are available upon request from the Company.

See also Note 8, Contingencies , in the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for a summary of the significant environmental proceedings related to certain environmental sites.

Management believes sales volumes will continue to gradually improve due to ongoing recovery in Rigid Polyols demand and growth in Surfactant sales volumes, inclusive of the expected recovery of the agricultural business in the second half of the year.

Management remains focused on delivering $50.0 million in pre-tax savings from its previously shared cost reduction program to help offset inflationary pressures, increased expenses associated with the commissioning of the Company's new Pasadena, Texas alkoxylation assets, higher incentive-based compensation expenses and expenses associated with operational issues at the Company's Millsdale site.

Management believes free cash flow should continue to improve versus prior year as the Company finishes construction on its Pasadena investment and benefits from higher anticipated agricultural sales volumes in the second half of the year.

Management believes continued gradual sales volume growth, improved operational performance and its continued focus on cost reduction should position the Company to deliver full year adjusted EBITDA growth and positive free cash flow in 2024.

Management remains confident in the Company's long-term growth and innovation initiatives.

Management expects second half EBITDA to improve versus the prior year based on continued volume growth and a significant reduction in second half operational expenses at the Company's Millsdale, Illinois site, which caused the majority of the significant variance in second quarter expenses.

The on-going recovery in Rigid Polyols and the expected second half of the year recovery of the Agricultural Chemicals business should drive improved earnings.

Free cash flow should continue to improve versus the prior year driven by the completion of the Company's Pasadena investment, the growth in market volumes, and the Company's continued focus on cost reduction.

Management believes the Company is positioned to deliver full year Adjusted EBITDA growth and positive free cash flow.

For explanations of non-GAAP measures (EBITDA, Adjusted EBITDA and Free Cash Flow), see NON-GAAP reconciliations discussion below.

CRITICAL ACCOUNTING POLICIES

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Management uses these non-GAAP financial measures to assist in analyzing what management views as the Company’s core operating performance for purposes of business decision making.

Management believes that presenting these non-GAAP financial measures provides investors with useful supplemental information because they (i) provide meaningful supplemental information regarding financial performance by excluding items affective comparability between periods, (ii) permit investors to view performance using the same tools that management uses to budget, make operating and strategic decisions and evaluate the Company’s core operating performance across periods, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating the Company’s financial results.

In addition, the Company believes that the presentation of these non-GAAP financial measures, when considered together with the most directly comparable GAAP financial measures and the reconciliations to those GAAP financial measures, provides investors with additional tools to understand the factors and trends affective the Company’s underlying business than could be obtained absent these disclosures.

Management believes that presenting these non-GAAP financial measures provides investors with useful supplemental information because they (i) provide meaningful supplemental information regarding financial performance by excluding items affecting comparability between periods, (ii) permit investors to view performance using the same tools that management uses to budget, make operating and strategic decisions and evaluate the Company’s core operating performance across periods, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating the Company’s financial results.

In addition, the Company believes that the presentation of these non-GAAP financial measures, when considered together with the most directly comparable GAAP financial measures and the reconciliations to those GAAP financial measures, provides investors with additional tools to understand the factors and trends affecting the Company’s underlying business than could be obtained absent these disclosures.

These measures should be considered in addition to, not as substitutes for or superior to, measures of financial performance prepared in accordance with GAAP and there are limitations to using non-GAAP financial measures.

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(In millions, except per share amounts)

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

Net Income Attributable to the Company as Reported

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Business Restructuring Expense

Cash Settled Stock Appreciation Rights (Income)

Environmental Remediation Expense

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Adjusted Net Income

Six Months Ended

(In millions, except per share amounts)

June 30, 2024

June 30, 2023

Net Income Attributable to the Company as Reported

Deferred Compensation (Income)(including

related investment activity)

Business Restructuring Expense

Cash Settled Stock Appreciation Rights (Income)

Environmental Remediation Expense

Cumulative Tax Effect on Above Adjustment Items

Adjusted Net Income

Reconciliation of Non-GAAP EBITDA and Adjusted EBITDA

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Three Months Ended

March 31, 2024

June 30, 2024

($ in millions)

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Three Months Ended

March 31, 2023

June 30, 2023

($ in millions)

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Cash Settled SARs

Environmental Remediation

Adjusted EBITDA

Six Months Ended

June 30, 2024

($ in millions)

Operating Income

Depreciation and Amortization

Other, Net Income

Deferred Compensation

Cash Settled SARs

Business Restructuring

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Adjusted EBITDA

Six Months Ended

June 30, 2023

($ in millions)

Operating Income

Depreciation and Amortization

Other, Net Income

Deferred Compensation

Cash Settled SARs

Business Restructuring

Environmental Remediation

Adjusted EBITDA

Reconciliation of Non-GAAP Net Debt

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis