INTRODUCTION


You should read the following discussion of our financial condition and results
of operations together with our audited consolidated financial statements and
related notes thereto included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019. This discussion contains forward-looking
statements and involves numerous risks, uncertainties, assumptions and other
important factors that could cause the actual results, performance, or industry
results, to differ materially from historical results, any future results, or
performance, or industry results expressed or implied by such forward-looking
statements. See "Cautionary Statement Regarding Forward-Looking Information."
OVERVIEW
We are a leading global sustainable producer of  specialty polymers and
high-value biobased products derived from pine wood pulping co-products. Our
operations are managed through two operating segments: (i) Polymer segment; and
(ii) Chemical segment.
Polymer Segment
SBCs are highly-engineered synthetic elastomers, which we invented and
commercialized over 50 years ago. We developed the first unhydrogenated styrenic
block copolymers ("USBC") in 1964 and the first hydrogenated styrenic block
copolymers ("HSBC") in the late 1960s. Our SBCs enhance the performance of
numerous products by imparting greater flexibility, resilience, strength,
durability, and processability, and are used in a wide range of applications,
including adhesives, coatings, consumer and personal care products, sealants,
lubricants, medical, packaging, automotive, paving, roofing, and footwear
products.
Our polymers are typically formulated or compounded with other products to
achieve improved, customer-specific performance characteristics in a variety of
applications. We seek to maximize the value of our product portfolio by
emphasizing complex or specialized polymers and innovations that yield higher
margins than more commoditized products. We sometimes refer to these complex or
specialized polymers or innovations as being more "differentiated."
Our paving and roofing applications provide durability, extending road and roof
life. Our products are also found in medical applications, personal care
products such as disposable diapers, oil additives, gels, and various other
consumer goods. Our products are also used to impart tack and shear properties
in a wide variety of adhesive products and to impart characteristics such as
flexibility and durability in sealants and corrosion resistance in coatings.
Prior to the sale of our CariflexTM business, we produced Cariflex isoprene
rubber and isoprene rubber latex. Our Cariflex products are based on synthetic
polyisoprene polymer and do not contain natural rubber latex or other natural
rubber products, making them an ideal substitute for natural rubber latex,
particularly in applications with high purity requirements such as medical,
healthcare, personal care, and food contact. Cariflex is included in the results
of operations through March 6, 2020.
On March 6, 2020, we completed the sale of our Cariflex business to Daelim
Industrial Co, Ltd. ("Daelim"). As part of the sale, we entered into a
multi-year Isoprene Rubber Supply Agreement ("IRSA") with Daelim. In accordance
with the IRSA, we will supply Isoprene Rubber to Daelim for a period of five
years, with an optional extension for an additional five years. See Note 4
Disposition and Exit of Business Activities for further discussion of the IRSA.
Chemical Segment
We manufacture and sell high value products primarily derived from pine wood
pulping co-products. We refine and further upgrade two primary feedstocks, crude
tall oil ("CTO") and crude sulfate turpentine ("CST"), both of which are
co-products of the wood pulping process, into value-added specialty chemicals.
We refine CTO through a distillation process into four primary constituent
fractions: tall oil fatty acids ("TOFA"); tall oil rosin ("TOR"); distilled tall
oil ("DTO"); and tall oil pitch. We further upgrade TOFA, TOR, and DTO into
derivatives such as dimer acids, polyamide resins, rosin resins, dispersions,
and disproportionated resins. We refine CST into terpene fractions, which can be
further upgraded into terpene resins. The various fractions and derivatives
resulting from our CTO and CST refining process provide for distinct
functionalities and properties, determining their respective applications and
end markets.
We focus our resources on three product groups: Adhesives, Performance
Chemicals, and Tires. Within our product groups, our products are sold into a
diverse range of submarkets, including packaging, tapes and labels, pavement
marking, high performance tires, fuel additives, oilfield and mining, coatings,
metalworking fluids and lubricants, inks, and flavor and fragrances, among
others.
While this business is based predominantly on the refining and upgrading of CTO
and CST, we have the capacity to use both hydrocarbon-based raw materials, such
as alpha-methyl-styrene, rosins, and gum rosins where appropriate and,
accordingly, are able to offer tailored solutions for our customers.
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Factors Affecting Our Results of Operations
International Operations and Currency Fluctuations. We operate a geographically
diverse business, serving customers in numerous countries from fourteen
manufacturing facilities on four continents. Our sales and production costs are
mainly denominated in U.S. dollars, Euro, Japanese Yen, and Swedish Krona. From
time to time, we use hedging strategies to reduce our exposure to currency
fluctuations.
We generated our revenue from customers located in the following regions:
                                                                                                          Six Months Ended June
                                                Three Months Ended June 30,                                        30,
                                                  2020                  2019               2020                 2019
Revenue by Geography:                                                       (In thousands)
Americas                                    $     160,557           $ 211,456          $ 346,715          $   401,729
Europe, Middle East, and Africa                   128,912             160,394            266,944              319,775
Asia Pacific                                       66,210             123,430            169,289              230,187
Total revenue                               $     355,679           $ 495,280          $ 782,948          $   951,691


Raw Materials. We use butadiene, styrene, and isoprene (collectively referred to
as "monomers") as our primary raw materials in our Polymer segment and CTO and
CST in our Chemical segment. The cost of these raw materials has generally
correlated with changes in energy prices and is generally influenced by supply
and demand factors, and for our isoprene monomers, the prices of natural and
synthetic rubber. Average purchase prices of our raw materials decreased for the
Polymer and Chemical segments during the three and six months ended June 30,
2020 compared to the three and six months ended June 30, 2019.
Seasonality. Seasonal changes and weather conditions typically affect our sales
of products in our paving, pavement marking, roofing, and construction
applications, which generally results in higher sales volumes in the second and
third quarters of the calendar year compared to the first and fourth quarters of
the calendar year. Sales for our other product applications tend to show
relatively little seasonality.
Recent Developments and Certain Known Trends
Our business is subject to a number of known risks and uncertainties, some of
which are a result of recent developments.
COVID-19 Pandemic. The continued global impact of COVID-19 has resulted in
various emergency measures to combat the spread of the virus. We continue to
monitor the progression of the COVID-19 pandemic on a daily basis and we have a
dedicated COVID-19 management team that meets regularly. The safety and
well-being of our employees, stakeholders, and the communities in which we
operate remain our primary concern. While our essential manufacturing plant and
research and development laboratory personnel remain on-site, many of our other
employees around the world are working remotely. We are continuing to follow the
orders and guidance of federal, regional, and local governmental agencies, as we
maintain our own stringent protocols in an effort to mitigate the spread of the
virus and protect the health of our employees, customers, and suppliers as well
as the communities in which we operate.
To date, our plants have continued to operate at normal capacities, and our
supply chain has remained largely intact, with adequate availability of key raw
materials. Importantly, under the U.S. Department of Homeland Security guidance
issued on April 17, 2020, as well as many related regional and local
governmental orders, chemical manufacturing sites are considered essential
critical infrastructure, and as such, are not currently subject to closure in
the locations where we operate. While the members of the European Union issue
critical infrastructure orders on a country-by-country basis, thus far they have
taken a similar approach to the U.S. Department of Homeland Security guidance.
Although there has been some disruption in global logistics channels, we have
not experienced significant delays in fulfillment of customer orders.
During the second quarter 2020, the COVID-19 pandemic began to materially affect
sales volumes, particularly in our Chemical segment's market sectors such as
tires, automotive, road markings, and oilfield. While we see positive trends for
the Chemical segment in Asia and Europe, we may experience continued impacts to
sales volumes in the Chemical segment during the second half of 2020, primarily
in North America.
The impact to COVID-19 was also noted within our Polymer segment during the
second quarter 2020, particularly for the demand of consumer durables, oilfield,
and automotive applications, and to a lesser extent, paving applications. These
COVID-19 impacts were partially mitigated by demand within Europe and Asia of
medical and hygiene applications. We currently expect the Polymer specialty
polymers North America market pressure to continue into the second half of the
year.
We are unable to accurately predict the impact that the pandemic will have on
our business and results of operations for the remainder of 2020 and beyond
(including how the impact of the pandemic on our business and results of
operations may
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change from quarter to quarter) due to numerous uncertainties, including the
severity of the disease, the duration of the pandemic, additional actions that
may be taken by governmental authorities, and other unintended consequences.
Furthermore, the pandemic has adversely impacted, and may further adversely
impact, the national and global economy, particularly in less essential end
markets. There can also be no assurance that demand for our products generally
(regardless of end market) won't be adversely effected by the continued impact
of the COVID-19 pandemic on the national and global economy. Moreover, we are
unable to predict actions that may be taken by our competitors, some of which
may be less diversified, that could negatively impact pricing or demand for our
products.
While the future remains uncertain, our geographic and end market
diversification, such as medical, adhesives, and food packaging, may partially
mitigate this financial exposure, as we serve many customers whose products
remain vital in the current environment. We will continue to monitor the impacts
of COVID-19 and implement operational, cost reductions, and logistics
initiatives as needed. We do not currently anticipate any material impairments,
with respect to goodwill, intangible assets, long-lived assets, or right of use
assets, increases in allowances for credit losses from our customers,
restructuring charges, other expenses, or changes in accounting judgments to
have a material impact on our financial statements, however at this point we are
continuing to assess the impact, if any.
Market Conditions. Certain fundamental market conditions that affected our
business and financial results prior to the COVID-19 pandemic continue to have
an impact on us.
Our Chemical segment has been impacted by the decline in oilfield demand and
continues to see pressure on pricing from 2019 levels in the rosin market,
driven by adverse market fundamentals and excess hydrocarbon supply. While rosin
prices remain under pressure compared to historical levels, they have stabilized
and are not expected to improve through the remainder of 2020. The CST refining
product prices in our Chemical segment remain at a consistent level relative to
the second half of 2019.
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