Stepan S | --- | --- | --- | --- | --- | |---------------------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | Earnings Call | | | | | | | | | | | | Presentation | | | | | | Fourth Quarter 2021 | | | | | | February 17, 2022 | | | | | | | | | | | | | | | | | | | | | | | Cautionary Statement Certain information in this presentation consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 ...

Financial Data and Key Metrics Changes - The reported net income for 2021 reached a record $138 million or $5.92 per diluted share, while adjusted net income was also a record at $143.5 million or $6.16 per diluted share, representing a 9% increase from the previous year [3][12] - Adjusted net income for Q4 2021 was $22.5 million or $0.97 per diluted share, a 32% decrease from $33.1 million or $1.42 per diluted share in Q4 2020 [6][12] - The effective tax rate decreased to 20% in 2021 from 25% in 2020, primarily due to favorable one-time tax benefits [8][13] Business Segment Data and Key Metrics Changes - Surfactants segment net sales were $420 million, a 17% increase year-over-year, with selling prices up 27% but volume down 9% due to decreased demand for cleaning and personal wash products [8][9] - Polymer segment net sales were $174 million, up 49% from the prior year, with selling prices increasing 39% and volume growing 12% driven by the INVISTA acquisition [10][12] - Specialty Products operating income was $14.2 million, basically flat compared to the prior year, with the overall estimated negative impact of supply chain disruptions on operating income totaling $21 million for 2021 [12][13] Market Data and Key Metrics Changes - Global demand for cleaning, disinfection, and personal wash products decreased compared to the pandemic peak in 2020, while demand for institutional cleaning and functional products increased [3][12] - The agricultural segment saw strong double-digit growth in 2021, driven by high commodity prices and increased planted acreage [15][16] Company Strategy and Development Direction - The company is focused on diversifying into functional products and increasing capacity in biocides and other product lines to meet customer demand [15][17] - Investments are being made to enhance production capabilities, particularly in sulfates to meet new regulatory requirements [17][19] - The company aims to pursue strategic M&A opportunities to broaden its portfolio of sustainable offerings [20] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for 2022, expecting strong demand for products but acknowledging ongoing challenges from supply chain disruptions [21][22] - The company anticipates improvements in raw material availability and transportation issues throughout the year [67] - Management highlighted the importance of sustainability initiatives and the positive market interest in bio-based materials [19] Other Important Information - The company declared a quarterly cash dividend of $0.335 per share, marking 54 consecutive years of dividend increases [4] - The company plans to increase capital expenditures to $350 million to $375 million in 2022, focusing on capacity expansion and regulatory compliance [17][19] Q&A Session Summary Question: Can you provide more details on the inflationary and supply chain disruption impacts? - Management indicated that supply chain disruptions had a total impact of approximately $21 million on operating income for 2021, with significant inflation in raw materials and logistics costs [29][30] Question: What is the current status of the Millsdale facility? - The Millsdale facility is currently operating at about half capacity due to a power disruption, with plans to return to full production by early March [34][35] Question: What are the expectations for the tax rate in 2022? - The expected tax rate for 2022 is between 24% and 26%, higher than the 20% seen in 2021 due to the absence of one-time tax benefits [36][37] Question: How did the INVISTA acquisition perform in Q4? - The INVISTA business contributed approximately $120 million in revenue for the full year, with Q4 performance below average due to seasonality [38][40] Question: What are the expectations for cleaning and disinfecting products in 2022? - Management expects growth in consumer cleaning and disinfecting products, although volumes may not return to the pandemic peak levels [66][67]

Part I [Part I - Financial Information](index=2&type=section&id=Part%20I%20FINANCIAL%20INFORMATION) This section details the company's financial statements, including income, balance sheet, and cash flow data, alongside management's operational and liquidity analysis [Item 1 - Financial Statements](index=2&type=section&id=Item%201%20-%20Financial%20Statements) This section presents Stepan Company's unaudited condensed consolidated financial statements, including income, balance sheets, and cash flows, with detailed notes for the periods ended September 30, 2021 [Condensed Consolidated Statements of Income](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The statements show increased net sales and net income for both the third quarter and nine-month periods ended September 30, 2021, despite a slight decrease in Q3 gross profit Q3 and Nine Months Financial Performance (2021 vs. 2020) | (In thousands, except per share amounts) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $602,688 | $464,480 | $1,735,939 | $1,375,016 | | **Gross Profit** | $91,896 | $97,057 | $312,557 | $274,821 | | **Operating Income** | $40,213 | $42,395 | $150,784 | $127,022 | | **Net Income Attributable to Stepan Company** | $36,920 | $33,168 | $120,809 | $96,420 | | **Diluted EPS** | $1.59 | $1.43 | $5.19 | $4.15 | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets and liabilities increased, with total equity also rising, reflecting changes in property, goodwill, receivables, and debt Balance Sheet Summary | (In thousands) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $839,213 | $905,651 | | **Total Assets** | $1,955,939 | $1,752,336 | | **Total Current Liabilities** | $491,065 | $416,554 | | **Total Liabilities** | $896,922 | $763,971 | | **Total Equity** | $1,059,017 | $988,365 | - Cash and cash equivalents significantly decreased from **$349.9 million** at the end of 2020 to **$105.3 million** as of September 30, 2021, largely due to acquisition activities[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly decreased for the nine months ended September 30, 2021, while cash used in investing activities increased due to acquisitions, and financing activities provided cash Cash Flow Summary (Nine Months Ended Sep 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | **Net Cash Provided By Operating Activities** | $21,402 | $141,678 | | **Net Cash Used In Investing Activities** | ($306,037) | ($98,130) | | **Net Cash (Used In) Provided By Financing Activities** | $42,972 | ($44,640) | | **Net Decrease in Cash and Cash Equivalents** | ($244,670) | ($4,991) | - The company spent **$184.5 million** on a business acquisition, net of cash acquired, and **$119.5 million** on capital expenditures during the first nine months of 2021[15](index=15&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the financial statements, covering segment performance, acquisitions, debt, and contingencies, highlighting the impact of the INVISTA acquisition and environmental liabilities - The company has accrued **$22.9 million** for a range of possible environmental and legal losses estimated between **$22.9 million** and **$41.3 million** as of September 30, 2021[38](index=38&type=chunk)[173](index=173&type=chunk) Segment Net Sales (Nine Months Ended Sep 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | **Surfactants** | $1,142,672 | $993,245 | | **Polymers** | $539,764 | $335,582 | | **Specialty Products** | $53,503 | $46,189 | | **Total** | $1,735,939 | $1,375,016 | Segment Operating Income (Nine Months Ended Sep 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | **Surfactants** | $133,558 | $125,810 | | **Polymers** | $60,729 | $45,430 | | **Specialty Products** | $12,052 | $8,803 | - In Q2 and Q3 2021, the company issued two series of senior notes totaling **$100 million** to be used for capital expenditures and paying down existing debt[63](index=63&type=chunk) - On January 29, 2021, the company acquired INVISTA's aromatic polyester polyol business for a purchase price of **$165 million**, plus working capital, included in the Polymers segment[71](index=71&type=chunk) - On February 2, 2021, the company acquired a fermentation plant in Lake Providence, Louisiana for **$3.5 million** to support its bio-surfactant technology platform[76](index=76&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=24&type=section&id=Item%202%20-%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting sales growth driven by pricing and acquisitions, operating income pressures from supply chain issues, and a significant decrease in operating cash flow [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Consolidated net sales increased significantly in Q3 and the nine-month period, driven by higher selling prices and the INVISTA acquisition, while operating income grew despite supply chain and cost pressures - Net sales increased **30%** (**$138.2 million**), primarily due to higher average selling prices (**$126.0 million**)[96](index=96&type=chunk) - Consolidated sales volume increased **1%**, with Polymers up **27%** (driven by INVISTA acquisition) and Surfactants down **6%**[97](index=97&type=chunk) - Operating income decreased **5%** (**$2.2 million**), impacted by lower Surfactant and Polymer operating income and the non-recurrence of a prior-year insurance recovery[98](index=98&type=chunk) - Net sales increased **26%** (**$360.9 million**), driven by higher selling prices (**$273.1 million**) and a **4%** volume increase[126](index=126&type=chunk) - Polymer sales volume grew **34%**, while Surfactant volume declined **4%**[127](index=127&type=chunk) - Operating income increased **19%** (**$23.8 million**), with growth across all three segments[128](index=128&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity significantly decreased due to the INVISTA acquisition and working capital use, leading to a sharp decline in operating cash flow and an increase in total debt - Operating cash flow for the first nine months of 2021 was **$21.4 million**, a significant decrease from **$141.7 million** in the same period of 2020, primarily due to a **$98.5 million** greater use of cash for working capital[155](index=155&type=chunk)[157](index=157&type=chunk) - Investing activities used **$306.0 million**, including **$183.7 million** for the INVISTA acquisition and **$119.5 million** for capital expenditures[155](index=155&type=chunk)[160](index=160&type=chunk) - Total debt increased to **$279.8 million** from **$198.7 million** at year-end 2020, shifting net debt from a negative **$151.2 million** to a positive **$174.6 million**[164](index=164&type=chunk) - The company raised its full-year 2021 capital expenditure forecast to a range of **$200 million** to **$220 million**, primarily for a new alkoxylation plant in Pasadena, Texas[161](index=161&type=chunk) [Outlook](index=43&type=section&id=Outlook) Management anticipates continued demand recovery in Polymers and improving industrial Surfactant markets, remaining optimistic about full-year earnings growth despite ongoing supply chain challenges - The Polymer segment is expected to deliver growth, driven by the INVISTA acquisition and recovery in construction projects[176](index=176&type=chunk) - In Surfactants, higher demand in industrial markets is not expected to fully compensate for lower consumer demand for cleaning and disinfection products compared to the 2020 peak[176](index=176&type=chunk) - Management remains optimistic about delivering full-year earnings growth despite continuing supply chain challenges[176](index=176&type=chunk) Part II [Part II - Other Information](index=46&type=section&id=Part%20II%20OTHER%20INFORMATION) This section covers other required disclosures, including legal proceedings, risk factors, and details on equity security sales and repurchases [Item 1 – Legal Proceedings](index=46&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) The company reports no new environmental proceedings meeting its $1.0 million disclosure threshold and no material changes to previously disclosed legal matters - The company has adopted a **$1.0 million** threshold for disclosing environmental proceedings and reports no new proceedings meeting this criterion for the period[189](index=189&type=chunk) [Item 1A – Risk Factors](index=46&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K were reported - No material changes to risk factors were reported for the quarter[191](index=191&type=chunk) [Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202%20%E2%80%93%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2021, the company repurchased 53,202 shares at an average price of $114.48 per share, primarily through its publicly announced program Q3 2021 Share Repurchases | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | 144 | $117.09 | | August 2021 | 16,750 | $118.12 | | September 2021 | 36,308 | $112.79 | | **Total** | **53,202** | **$114.48** | - On October 19, 2021, the Board of Directors authorized a new share repurchase program for up to **$150.0 million** and terminated the prior authorization[163](index=163&type=chunk)

Financial Performance - Q3 2021 net income was $36.9 million, or $1.59 per diluted share, an 11% increase compared to $33.2 million, or $1.43 per diluted share, in Q3 2020[8] - Q3 2021 adjusted net income was $36.4 million, or $1.57 per diluted share, flat compared to $36.4 million, or $1.56 per diluted share, in Q3 2020[8] - Surfactant net sales increased by 16% to $387.7 million, driven by a 20% increase in selling prices, but volume decreased by 6%[10] - Polymer net sales increased by 70% to $198.8 million, with selling prices up 44% and sales volume up 27%[11] - Specialty Product net sales increased by 15% to $16.1 million, with sales volume up 9%[12] Factors Affecting Performance - Surfactant operating income decreased by 16% or $6.7 million due to supply chain disruptions, lower sales volume, and the non-recurrence of a $2.2 million insurance recovery[10] - Polymer operating income decreased by 12% or $2.6 million, primarily due to supply chain disruptions and the non-recurrence of $4 million in one-time benefits[11] - Supply chain disruptions had an estimated impact of approximately $4 million on Surfactant operating income and $3 million on Polymer operating income[23, 30] Balance Sheet and Debt - Net debt increased by $62.7 million compared to the second quarter of 2021, with the net debt ratio increasing from 10% to 14%[13] - Net debt stood at $174.5 million, with a net debt to TTM adjusted EBITDA ratio of 0.60[66] Strategic Investments - Stepan acquired INVISTA's aromatic polyester polyol business in January 2021, expecting it to be accretive to EPS and EBITDA margins in 2021[45, 46] - The company is investing in alkoxylation capacity at its Pasadena, Texas facility, with an expected start-up in late 2023, adding approximately 75KTA of annual alkoxylation capacity[47]

Financial Data and Key Metrics Changes - Adjusted third quarter net income was $36.4 million, flat compared to the prior year, with year-to-date adjusted net income at $121 million or $5.20 per diluted share, up 22% versus the first nine months of 2020 [5][9][10] - The effective tax rate for the first nine months of 2021 was 20%, down from 24% in the same period last year, primarily due to a favorable tax benefit recognized in Q3 2021 [10] Business Segment Data and Key Metrics Changes - Surfactants segment net sales were $388 million, a 16% increase year-over-year, with selling prices up 20% but volume down 6% due to lower consumer demand [11][12] - Polymer segment net sales were $199 million, up 70% from the prior year, with selling prices increasing 44% and volume growing 27%, largely driven by the INVISTA acquisition [13][15] - Specialty Products net sales increased by 15%, with operating income rising 53% due to order timing differences and improved margins [15] Market Data and Key Metrics Changes - Global supply chain disruptions and raw material price inflation negatively impacted all business segments, with estimated supply chain disruption costs of approximately $7 million in Q3 [6][12][54] - Institutional cleaning and disinfection volumes are growing as economies reopen, while consumer product demand is stabilizing but lower than peak pandemic levels [18][64] Company Strategy and Development Direction - The company is focusing on diversifying into functional markets, with double-digit growth in global agricultural volume and strong demand in oilfield products due to higher oil prices [19][23] - A $220 million investment is planned for a new alkoxylation production facility in Pasadena, Texas, aimed at meeting long-term growth expectations in both Surfactant and Polymer businesses [20][30] - The company aims to improve operational productivity and product mix to enhance Surfactant operating income and margins [19][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future opportunities despite ongoing supply chain challenges, with expectations for gradual improvement in raw material availability [36][47] - The company anticipates growth in the Polymer business due to recovery from pandemic-related delays and the successful integration of the INVISTA acquisition [25][67] Other Important Information - The Board declared a quarterly cash dividend of $0.335 per share, marking a 9.8% increase, and authorized a $150 million stock repurchase program [7] - The company executed a $50 million private placement note at a fixed interest rate of around 2% to fund growth opportunities [16][43] Q&A Session Summary Question: Can you walk through the decision to invest in the Texas capacity? - The investment of $220 million at the Pasadena site is to meet long-term growth expectations in Surfactant and Polymer businesses, leveraging existing infrastructure [30] Question: Is the new facility replacing old assets or restarting idled assets? - The existing assets at the site were dismantled to make way for new alkoxylation capabilities, utilizing existing storage and logistics infrastructure [31] Question: What is the expected impact of raw material costs on margins? - Additional inflation is expected in Q4, but the slope of inflation is believed to be reducing, with plans to recover margins gradually through price increases [34] Question: How is the institutional growth demand characterized? - Institutional demand is real and driven by the reopening of economies, while consumer demand is more complex due to potential destocking [64] Question: What is the outlook for the Polymer business regarding isocyanate shortages? - There is pent-up demand in the polyol customer base, and supply chain issues are expected to improve, leading to growth in 2022 [67]

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 1-4462 STEPAN COMPANY (Exact name of registrant as specified in its charter) (State or other jurisdiction (I.R.S. Employer of incorporat ...

Stepan S | --- | --- | --- | --- | --- | |-----------------------------------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | Earnings Call | | | | | | Presentation | | | | | | | | | | | | Second Quarter 2021 July 28, 2021 | | | | | | | | | | | | | | | | | | | | | | | Cautionary Statement Certain information in this presentation consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, ...

Financial Data and Key Metrics Changes - Adjusted net income for Q2 2021 was $42.2 million or $1.81 per diluted share, a 10% increase from $38.3 million or $1.65 per diluted share in Q2 2020 [12][18] - Adjusted net income for the first half of 2021 was $84.6 million or $3.62 per diluted share, up 35% compared to the first half of 2020 [7][10] - The effective tax rate for the first half of 2021 was 24.4%, up from 23.9% in the prior year, primarily due to a less favorable geographical mix of income [17] Business Line Data and Key Metrics Changes - Surfactant segment net sales were $384 million, a 16% increase year-over-year, with selling prices up 17% but volume decreased 6% [18][20] - Polymer segment net sales were $191 million, up 70% from the prior year, with sales volume increasing 44% [21][22] - Specialty Products net sales were $21 million, a 33% increase from the prior year, with operating income up 116% [24] Market Data and Key Metrics Changes - North American surfactant volumes decreased due to lower demand for consumer cleaning products compared to pandemic peaks [19][41] - Latin America benefitted from a $2.1 million VAT tax recovery project, while Europe saw slight decreases in consumer product demand [20] - Agricultural volumes increased due to higher commodity prices, with corn and soybean prices doubling from the previous year [93] Company Strategy and Development Direction - The company is focusing on increasing capacity in product lines such as biocides and amphoterics to meet higher customer demand [32] - A strategic priority includes enhancing the product portfolio through acquisitions, with a focus on North America [39][70] - The company plans to continue investing in capacity improvements and productivity enhancements, particularly in the polymer business [36][92] Management's Comments on Operating Environment and Future Outlook - Management noted that while consumer demand for cleaning products has decreased from pandemic peaks, institutional cleaning volumes are expected to grow [30][41] - The company anticipates continued demand growth in agricultural and oilfield markets due to rising commodity prices [31][42] - Management expressed cautious optimism for the remainder of the year despite ongoing raw material price increases and maintenance costs [44] Other Important Information - The company declared a quarterly cash dividend of $0.305 per share, marking 53 consecutive years of dividend increases [10] - The company executed agreements for $100 million of new private placement debt at a fixed interest rate of around 2% [26] Q&A Session Summary Question: Pricing and raw material cost dynamics in surfactants and polymers - Management indicated that price increases implemented on July 1 are progressing well in surfactants, while more work is needed in polymers to restore margins [47][48] Question: Consumer surfactant demand compared to pre-pandemic levels - Management noted that while business is up versus pre-pandemic levels, it remains below peak levels from last year [50][52] Question: Impact of supply chain issues on construction activity - Management acknowledged supply shortages, particularly in MDI, affecting demand but remains optimistic about future growth [56][57] Question: Underlying earnings growth comparison - Management clarified that adjusted net income growth of 35% translates to approximately 12% growth on an apples-to-apples basis when excluding prior year impacts [61][62] Question: Revenue impact from raw material and logistics shortages - Management stated that shortages primarily impacted ethylene oxide and propylene oxide derivative businesses, estimating a couple of million dollars below expected operating income [66] Question: M&A strategy and pipeline - Management confirmed ongoing interest in acquisitions, particularly in enhancing the product portfolio, with a focus on North America [69][70] Question: CapEx expansion and its continuation into 2022 - Management confirmed that the low 1,4-dioxane project will continue into 2022, contributing to higher CapEx this year [75] Question: Customer feedback on price increases - Management indicated that customers are generally accepting of price increases due to widespread inflation across the industry [78][81] Question: Agricultural business growth drivers - Management attributed growth in agricultural volumes to rising commodity prices and successful product initiatives [93] Question: KMCO business relaunch timing and revenue potential - Management noted delays in relaunching the KMCO business due to R&D and supply chain challenges, with no incremental revenue expected in 2021 [95]

[Part I - Financial Information](index=2&type=section&id=Part%20I%20FINANCIAL%20INFORMATION) [Item 1 - Financial Statements](index=2&type=section&id=Item%201%20-%20Financial%20Statements) Unaudited Q1 2021 consolidated financial statements detail significant revenue and net income growth, asset increases from acquisitions, and a net cash decrease from investment activities [Condensed Consolidated Statements of Income](index=2&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) Q1 2021 Net Sales increased 19.5% to $537.7 million, Net Income Attributable to Stepan Company rose 47.4% to $40.6 million, and Diluted EPS grew to $1.74 Q1 2021 vs Q1 2020 Income Statement Highlights | Metric | Three Months Ended March 31, 2021 (Millions) | Three Months Ended March 31, 2020 (Millions) | Change (%) | | :--- | :--- | :--- | :--- | | **Net Sales** | $537.7 | $450.0 | 19.5% | | **Gross Profit** | $109.0 | $79.3 | 37.5% | | **Operating Income** | $53.9 | $40.0 | 34.8% | | **Net Income Attributable to Stepan Company** | $40.6 | $27.5 | 47.4% | | **Diluted EPS** | $1.74 | $1.18 | 47.5% | [Condensed Consolidated Balance Sheets](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) Total assets increased to $1.83 billion as of March 31, 2021, primarily due to acquisitions, while cash and cash equivalents decreased to $150.7 million from acquisition-related cash usage Balance Sheet Highlights | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Cash and cash equivalents (Millions)** | $150.7 | $349.9 | | **Total current assets (Millions)** | $797.7 | $905.7 | | **Goodwill, net (Millions)** | $96.3 | $28.0 | | **Total assets (Billions)** | $1.83 | $1.75 | | **Total current liabilities (Millions)** | $464.1 | $416.6 | | **Total liabilities (Millions)** | $824.0 | $764.0 | | **Total equity (Billions)** | $1.00 | $0.99 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Q1 2021 cash flows show a net use of $11.7 million from operations, $223.8 million used in investing (mainly acquisitions), and $39.9 million provided by financing, leading to a $199.2 million net cash decrease Q1 2021 vs Q1 2020 Cash Flow Summary | Metric | Three Months Ended March 31, 2021 (Millions) | Three Months Ended March 31, 2020 (Millions) | | :--- | :--- | :--- | | **Net Cash Used In Operating Activities** | ($11.7) | ($6.5) | | **Net Cash Used In Investing Activities** | ($223.8) | ($32.9) | | **Net Cash (Used In) Provided By Financing Activities** | $39.9 | ($14.4) | | **Net Decrease in Cash and Cash Equivalents** | ($199.2) | ($61.0) | [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail key financial events, including 2021 acquisitions of INVISTA's polyester polyol business for $165 million and a fermentation plant for $3.5 million, strong segment performance, and increased debt to $248.4 million - On January 29, 2021, the company acquired INVISTA's aromatic polyester polyol business for a purchase price of **$165 million**, plus working capital, including **two manufacturing sites** and expanding capabilities in the **U.S. and Europe**[69](index=69&type=chunk) - On February 2, 2021, the company acquired a **fermentation plant** in Lake Providence, Louisiana for **$3.5 million** to support its **bio-surfactant technology platform**[73](index=73&type=chunk) Q1 2021 Segment Performance | Segment | Net Sales (Millions) | Operating Income (Millions) | | :--- | :--- | :--- | | **Surfactants** | $370.9 | $53.2 | | **Polymers** | $150.4 | $18.0 | | **Specialty Products** | $16.4 | $2.6 | - Total debt increased to **$248.4 million** as of March 31, 2021, up from **$198.7 million** at year-end 2020, primarily due to borrowings under the revolving credit facility, with **$298.2 million** available under its **$350 million revolving credit agreement**[63](index=63&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=21&type=section&id=Item%202%20-%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q1 performance, with net income up 47% driven by segment growth, attributing it to market recovery and acquisitions, while affirming sufficient liquidity despite cash used for investments [Overview](index=22&type=section&id=Overview) The company operates in Surfactants (69% of Q1 2021 sales), Polymers (28%), and Specialty Products (3%), with recent acquisitions expanding Polymers and advancing Surfactants' bio-surfactant capabilities - The **Surfactants segment** produces ingredients for **consumer and industrial cleaning and disinfection products**[83](index=83&type=chunk) - The **Polymers segment** includes **polyurethane polyols** for **thermal insulation** and **specialty polyols** for **coatings, adhesives, sealants, and elastomers (CASE)**[88](index=88&type=chunk) - In January 2021, the company acquired **INVISTA's aromatic polyester polyol business**, including **two manufacturing sites**, expanding its capabilities in the **U.S. and Europe**[86](index=86&type=chunk)[88](index=88&type=chunk) - In February 2021, the company acquired a **fermentation plant** in Louisiana to complement its **rhamnolipid-based bio-surfactant technology** acquired in 2020[84](index=84&type=chunk)[87](index=87&type=chunk) [Results of Operations](index=25&type=section&id=RESULTS%20OF%20OPERATIONS) Q1 2021 net income increased 47% to $40.6 million, with consolidated net sales up 20% to $537.7 million, driven by higher prices and volume, while Polymer sales volume surged 32% and Surfactant sales volume remained flat due to regional variations Q1 2021 vs Q1 2020 Performance Summary | Metric | Q1 2021 (Millions) | Q1 2020 (Millions) | Change (%) | | :--- | :--- | :--- | :--- | | **Net Income Attributable to Company** | $40.6 | $27.5 | 47% | | **Adjusted Net Income (Non-GAAP)** | $42.4 | $24.2 | 75% | | **Consolidated Net Sales** | $537.7 | $450.0 | 20% | - Polymer segment sales volume increased **32%**, reflecting **recovery from COVID-19 project delays**, the **INVISTA acquisition**, and **non-recurrence of a 2020 plant outage**[92](index=92&type=chunk)[108](index=108&type=chunk) - Surfactant segment sales volume was **flat**, with **higher volumes in Europe, Latin America, and Asia** offset by **lower North American volume** due to **supply chain disruptions** from **severe weather in Texas**[92](index=92&type=chunk)[99](index=99&type=chunk) - Specialty Products operating income **decreased by $1.4 million** due to **lower unit margins** from **raw material shortages** and **manufacturing challenges**[116](index=116&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Q1 2021 cash and cash equivalents decreased by $199.2 million to $150.7 million, mainly due to $223.8 million in investing activities, including the $184.0 million INVISTA acquisition, but liquidity remains sufficient with $298.2 million available credit Q1 2021 Cash Flow Summary | Metric | Q1 2021 (Millions) | | :--- | :--- | | **Cash Used In Operating Activities** | ($11.7) | | **Cash Used In Investing Activities** | ($223.8) | | **Cash Provided By Financing Activities** | $39.9 | | **Net Decrease in Cash** | ($199.2) | - The primary use of cash in investing activities was the **$184.0 million** (net of cash received) for the **INVISTA business acquisition**[124](index=124&type=chunk) - The company estimates total capital expenditures for 2021 will range from **$150 million to $170 million**[125](index=125&type=chunk) - As of March 31, 2021, the company had **$298.2 million** available under its **$350 million revolving credit facility**[131](index=131&type=chunk) [Outlook](index=33&type=section&id=OUTLOOK) Management expects Surfactant volumes to recover and global demand for cleaning products to remain strong, while the Polymer segment is poised for growth from construction recovery and the INVISTA acquisition, with attractive long-term prospects driven by energy conservation and building codes - Management believes Surfactant volumes in North American consumer markets will **recover** from **Q1 supply chain disruptions**[140](index=140&type=chunk) - The Polymer segment is expected to **deliver growth**, benefiting from the **recovery of construction projects** and the **INVISTA acquisition**[140](index=140&type=chunk) - Long-term prospects for Polymers are viewed as **attractive**, supported by trends in **energy conservation** and **building codes**[140](index=140&type=chunk) [Item 4 – Controls and Procedures](index=35&type=section&id=Item%204%20%E2%80%93%20Controls%20and%20Procedures) As of March 31, 2021, the CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, evaluated disclosure controls and procedures and found them to be **effective** as of **March 31, 2021**[151](index=151&type=chunk) - **No changes** occurred during the quarter that **materially affected**, or are reasonably likely to materially affect, the company's **internal control over financial reporting**[151](index=151&type=chunk) [Part II - Other Information](index=35&type=section&id=Part%20II%20OTHER%20INFORMATION) [Item 1 & 1A – Legal Proceedings & Risk Factors](index=35&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings%20%26%20Item%201A%20%E2%80%93%20Risk%20Factors) The company reports no material changes to legal proceedings or risk factors since its 2020 Annual Report on Form 10-K - There have been **no material changes** to **legal proceedings** since the 2020 Annual Report on Form 10-K[152](index=152&type=chunk) - There have been **no material changes** to **risk factors** since the 2020 Annual Report on Form 10-K[153](index=153&type=chunk) [Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202%20%E2%80%93%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2021, the company repurchased **30,116 shares** at an average price of **$120.52** per share, with **167,574 shares** remaining authorized under the repurchase program Q1 2021 Share Repurchases | Month | Total Shares Purchased | Average Price Paid per Share | Shares Purchased on Open Market | | :--- | :--- | :--- | :--- | | January 2021 | 381 | $129.03 | 0 | | February 2021 | 17,418 | $119.18 | 8,300 | | March 2021 | 12,317 | $122.16 | 0 | | **Total** | **30,116** | **$120.52** | **8,300** | - As of March 31, 2021, **167,574 shares** may yet be purchased under the company's **authorized share repurchase program**[128](index=128&type=chunk)[154](index=154&type=chunk)

Financial Data and Key Metrics Changes - The company reported record quarterly income with adjusted net income of $42.4 million, or $1.82 per diluted share, representing a 75% increase from $24.2 million, or $1.04 per diluted share in the same quarter last year [7][12] - The effective tax rate for the quarter was 23.6%, up from 22.5% in the prior year, primarily due to a less favorable geographical mix of income [16] Business Line Data and Key Metrics Changes - Surfactant operating income increased by 47%, driven by an improved customer and product mix, with net sales reaching $371 million, a 13% increase year-over-year [17][19] - Polymer business saw a 140% increase in operating income, with net sales of $150 million, up 41% from the prior year, and a 32% growth in global sales volume [21][23] - Specialty product business net sales remained at $16 million, with a slight decline in operating income due to lower margins in the MCT product line [24] Market Data and Key Metrics Changes - North America surfactant results improved due to a better product mix, while Brazil and Mexico also saw volume increases [20] - Global agricultural volumes increased significantly, with strong growth in the post-patent pesticide segment [36] Company Strategy and Development Direction - The company is focusing on increasing capacity in specific product lines, including biocides and amphoterics, to meet anticipated higher customer requirements [31] - The integration of the INVISTA acquisition is progressing well, with expectations of it being accretive to EPS and EBITDA margins in 2021 [39][102] - The company is committed to enhancing its digital customer engagement strategy and optimizing fermentation process technology for next-generation surfactants [91][40] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the continued strong demand for surfactants in consumer product markets due to changing consumer habits and heightened cleaning standards [30][68] - The company anticipates improvements in the Specialty Product business and expects to see benefits from productivity gains in the future [43][37] Other Important Information - The company declared a quarterly cash dividend of $0.305 per share, marking 53 consecutive years of dividend increases [9] - The total cash reduction from $350 million to $151 million was primarily due to the INVISTA acquisition [25] Q&A Session Summary Question: Polymer margins and seasonality - Management noted that polymer margins are down in 2021 due to significant raw material price increases, and they are implementing price increases to recover costs [48] Question: Surfactant margins and pricing initiatives - Management indicated that surfactant margins improved due to a better product mix and that they have already initiated price increases to address raw material inflation [53][54] Question: Fermentation business ramp-up - The company is in the R&D phase for fermentation technology and has staff trained in fermentation processes [56] Question: Capacity changes and sustainable demand - Management highlighted that they have increased capacity for amphoteric products and biocides, and they believe that enhanced cleaning standards will sustain demand [64][68] Question: Agricultural business outlook - The agricultural business is expected to see strong growth due to rising commodity prices and increased planting [76] Question: Integration of INVISTA - The integration of INVISTA is progressing well, with sufficient capacity to support market growth for the next decade [85] Question: Passing through higher raw material prices - Management stated that they are better positioned in surfactants to pass through price increases compared to polymers, where they are lagging [93]