STEPAN CO 10-Q

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations The following is management’s discussion and analysis (MD&A) of certain significant factors that have affected the Company’s financial condition and results of operations during the interim periods included in the accompanying condensed consolidated financial statements. Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements include statements about Stepan Company’s and its subsidiaries’ (the Company) plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, the Company’s actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, forward-looking statements can be identified by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “guidance,” “predict,” “potential,” “continue,” “likely,” “will,” “would,” “should,” “illustrative” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond the Company’s control, that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors, include, among others, the risks, uncertainties and factors set forth under “Part II-Item IA - Risk Factors” of this Quarterly Report on Form 10-Q and under “Part I-Item IA. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, including the risks and uncertainties related to the following: • accidents, unplanned production shutdowns or disruptions in any of the Company’s manufacturing facilities; • reduced demand for Company products due to customer product reformulations or new technologies; • the Company’s inability to successfully develop or introduce new products; • compliance with environmental, health and safety, product registration and anti-corruption laws; • the Company’s ability to make acquisitions of suitable candidates and successfully integrate acquisitions; • global competition and the Company’s ability to successfully compete; • volatility of raw material, natural gas and electricity costs as well as any disruption in their supply; • disruptions in transportation or significant changes in transportation costs; • downturns in certain industries and general economic downturns; • international business risks, including changes in global trade policy, including tariffs, retaliatory measures and countermeasures, currency exchange controls, fluctuations in currency exchange rates, legal restrictions and taxes; • unfavorable resolution of litigation against the Company; • the Company’s ability to keep and protect its intellectual property rights; • potentially adverse tax consequences due to the international scope of the Company’s operations; • downgrades to the Company’s credit ratings or disruptions to the Company’s ability to access well-functioning capital markets; • conflicts, military actions, terrorist attacks and general instability, particularly in certain energy-producing nations, along with increased security regulations; • cost overruns, delays and miscalculations in capacity needs with respect to the Company’s expansion or other capital projects; • interruption of, damage to or compromise of the Company’s IT systems and failure to maintain the integrity of customer, colleague or Company data; • the Company’s ability to retain its executive management and other key personnel; • the Company’s ability to operate within the limitations of debt covenants; and • the other factors set forth under “Risk Factors.” 20 These factors are not necessarily all of the important factors that could cause the Company’s actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of the Company's forward-looking statements. Other unknown or unpredictable factors could also impact the Company’s results. All forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and the Company does not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements. The “Company,” “we,” “our” or “us” means Stepan Company and one or more of its subsidiaries only. Overview The Company produces and sells intermediate chemicals that are used in a wide variety of applications worldwide. The overall business is comprised of three reportable segments: Surfactants – Surfactants, which accounted for 72 percent of consolidated net sales for the first three months of 2025, 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 25 percent of consolidated net sales for the first three months of 2025, 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). Powdered polyester resins are used in coating applications. CASE and powdered polyester resins are collectively referred to as specialty polyols. Phthalic anhydride is used in unsaturated polyester resins, alkyd resins and plasticizers for applications in construction materials and components of automotive, boating and other consumer products. In addition, the Company uses phthalic anhydride internally in the production of polyols. In the United States, polyurethane polyols are manufactured at the Company’s Elwood, Illinois (Millsdale) and Wilmington, North Carolina sites. Phthalic anhydride is manufactured at the Company’s Millsdale site and specialty polyols are manufactured at the Company’s Columbus, Georgia, site. In Europe, polyurethane polyols are manufactured at the Company’s plants in Germany and the Netherlands and specialty polyols are manufactured at the Company’s Poland site. 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 2025, 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 The accounting for the Company’s deferred compensation plans can cause period-to-period fluctuations in Company income and expenses. Compensation expense is recognized when the value of the Company's common stock and mutual fund investment assets held for the plans increase, and compensation income is recognized when the value of the Company's common stock and mutual fund investment assets decline. The pretax effect of all deferred compensation-related activities (including realized and unrealized gains and losses on the mutual fund assets held to fund the deferred compensation obligations) and the income statement line items in which the effects of the activities were recorded are displayed in the following table: Income (Expense) For the Three Months Ended March 31, (In millions) 2025 2024 Change Deferred Compensation (Administrative expenses) $ 1.0 $ (1.8 ) $ 2.8 (1) Realized/Unrealized Gains (Losses) on Investments (Other, net) (0.5 ) 2.2 (2.7 ) Investment Income (Other, net) 0.1 0.1 — Pretax Income Effect $ 0.6 $ 0.5 $ 0.1 (1) See the Segment Results-Corporate Expenses section of this MD&A for details regarding the period-over-period changes in deferred compensation. 21 Effects of Foreign Currency Translation The Company’s foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects period-to-period comparisons of financial statement items (i.e., because foreign exchange rates fluctuate, similar period-to-period local currency results for a foreign subsidiary may translate into different U.S. 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, 2025 and 2024: For the Three Months Ended March 31, (In millions) 2025 2024 Increase Decrease Due to Foreign Translation Net Sales $ 593.3 $ 551.4 $ 41.9 $ (18.5 ) Gross Profit 75.5 70.3 5.2 (2.7 ) Operating Income 28.3 20.2 8.1 (1.8 ) Pretax Income 24.7 19.5 5.2 (1.9 ) RESULTS OF OPERATIONS Three Months Ended March 31, 2025 and 2024 Summary Net income in the first quarter of 2025 was $19.7 million, or $0.86 per diluted share, versus $13.9 million, or $0.61 per diluted share, in the first quarter of 2024. Adjusted net income was $19.3 million, or $0.84 per diluted share, versus $14.7 million, or $0.64 per diluted share in the first quarter of 2024 (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 $58.0 million in the first quarter of 2025, up 16 percent, versus $50.2 million in the first quarter of 2024. Adjusted EBITDA was $57.5 million, up 12 percent, versus $51.2 million in the first quarter of 2024 (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 2025 compared to the first quarter of 2024. A detailed discussion of segment operating performance for the first quarter of 2025, compared to the first quarter of 2024, follows the summary. Consolidated net sales increased $41.8 million, or eight percent, versus the prior year quarter. Higher average selling prices favorably impacted the year-over-year change in net sales by $40.4 million. The increase in average selling prices was mainly attributable to the pass-through of higher raw material costs and more favorable product mix. Consolidated sales volume increased four percent, which favorably impacted the change in net sales by $19.9 million. Surfactant and Polymer sales volumes increased three and seven percent, respectively, year-over-year. Specialty Products sales volume decreased 13 percent. Foreign currency translation negatively impacted the year-over-year change in net sales by $18.5 million, primarily due to a stronger U.S. dollar against the Brazilian real and Mexican peso. Operating income in the first quarter of 2025 increased $8.1 million, or 40 percent, versus operating income in the first quarter of 2024. Surfactant and Specialty Products operating income increased $2.9 million and $1.2 million, respectively, year-over-year. Polymer operating income decreased $0.3 million versus the first quarter of 2024. Corporate expenses, including environmental remediation and deferred compensation expenses decreased $4.4 million, or 24 percent, year-over-year. Corporate expenses, excluding environmental remediation and deferred compensation expenses decreased $0.2 million, or one percent, year-over-year. Foreign currency translation had a $1.8 million unfavorable impact on operating income year-over-year. Operating expenses (including deferred compensation) decreased $2.9 million, or six percent, year-over-year. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows: • Selling expenses increased $0.7 million, or six percent, primarily due to higher bad debt provision expenses in 2025. • Administrative expenses decreased $1.3 million, or six percent, year-over-year primarily due to lower environmental reserve expenses. • Research, development and technical service (R&D) expenses increased $0.4 million, or three percent. 22 • Deferred compensation was $1.0 million of income in the first quarter of 2025 versus $1.8 million of expense in the prior year quarter. The $2.8 million year-over-year decrease in deferred compensation expense reflects a decline in the market value of mutual fund investment assets during the first quarter of 2025 versus an increase during the first quarter of 2024. Additionally, the market price of the Company's common stock decreased $9.66 per share in the first quarter of 2025 versus a $4.51 per share decrease in the first quarter of 2024. See the Overview and Segment Results-Corporate Expenses section of this MD&A for further details. Net interest expense for the first quarter of 2025 increased $1.1 million, or 34 percent, versus the first quarter of 2024. This increase was primarily attributable to lower U.S. capitalized interest income recognized in 2025 as the Company's new specialty alkoxylation facility in Pasadena, Texas neared completion. Following the quarter end, in early April, the Company started production at the new facility. Other, net was $0.5 million of income in the first quarter of 2025 versus $2.4 million of income in the first quarter of 2024. The Company recognized $0.4 million of investment losses (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 2025 compared to $2.3 million of investment gains in the first quarter of 2024. In addition, the Company reported $0.6 million of foreign exchange gains in the first quarter of 2025 versus $0.4 million of foreign exchange losses in the first quarter of 2024. The Company's net periodic pension income was $0.3 million in the first quarter of 2025 versus $0.4 million of income in the first quarter of 2024. The Company’s effective tax rate was 20.1 percent in the first quarter of 2025 versus 28.6 percent in the first quarter of 2024. The decrease was primarily attributable to the Company effectively settling an audit in one jurisdiction combined with the non-recurrence of an unfavorable event, related to GILTI, in the first quarter of 2024. These items were partially offset by the expected tax impact of certain cash repatriations to the US. Segment Results (Dollars in thousands) For the Three Months Ended March 31, Net Sales 2025 2024 Increase Percent Change Surfactants $ 430,337 $ 390,820 $ 39,517 10 Polymers 146,116 145,508 608 0 Specialty Products 16,802 15,090 1,712 11 Total Net Sales $ 593,255 $ 551,418 $ 41,837 8 (Dollars in thousands) For the Three Months Ended March 31, Operating Income 2025 2024 Increase (Decrease) Percent Change Surfactants $ 28,930 $ 26,079 $ 2,851 11 Polymers 8,018 8,382 (364 ) -4 Specialty Products 5,508 4,268 1,240 29 Segment Operating Income $ 42,456 $ 38,729 $ 3,727 10 Corporate Expenses, Excluding Deferred Compensation and Restructuring $ 15,164 $ 16,782 $ (1,618 ) -10 Deferred Compensation Expense (996 ) 1,778 (2,774 ) -156 Total Operating Income $ 28,288 $ 20,169 $ 8,119 40 23 Surfactants Surfactant net sales for the first quarter of 2025 increased $39.5 million versus net sales for the first quarter of 2024. Higher average selling prices favorably impacted the change in net sales by $47.0 million. The higher average selling prices were mainly attributable to the pass through of higher raw material costs and a more favorable product mix. Sales volume increased three percent and had a $10.6 million favorable impact on the change in net sales. Foreign currency translation had an $18.1 million unfavorable impact on the year-over-year change in net sales. A comparison of net sales by region follows: (Dollars in thousands) For the Three Months Ended March 31, Net Sales 2025 2024 Increase Percent Change North America $ 251,735 $ 229,590 $ 22,145 10 Europe 81,598 70,778 10,820 15 Latin America 82,764 77,868 4,896 6 Asia 14,240 12,584 1,656 13 Total Surfactants Segment $ 430,337 $ 390,820 $ 39,517 10 Net sales for North American operations increased $22.1 million, or 10 percent, year-over-year. Higher average selling prices had a $14.8 million favorable impact on the change in net sales and were primarily due to the pass-through of higher raw material costs and more favorable product mix. Sales volume increased three percent and positively impacted the change in net sales by $8.0 million. The higher sales volume was primarily due to higher demand for products sold into the agricultural end markets and to our distribution partners. Foreign currency translation negatively impacted the change in net sales by $0.7 million. Net sales for European operations increased $10.8 million, or 15 percent, primarily due to higher average selling prices and a five percent increase in sales volume. These items positively impacted the change in net sales by $9.3 million and $3.4 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs and more favorable product mix. The higher sales volume was primarily due to higher demand for products sold into the agricultural end markets and to our distribution partners. Foreign currency translation negatively impacted the change in net sales by $1.9 million. A stronger U.S. dollar relative to the European euro and British pound sterling led to the unfavorable foreign currency translation effect. Net sales for Latin American operations increased $4.9 million, or six percent, primarily due to higher average selling prices that positively impacted the change in net sales by $21.3 million. The higher average selling prices primarily reflect more favorable product mix and the pass-through of higher raw material costs. Sales volume decreased two percent and negatively impacted the change in net sales by $1.3 million. The decrease in sales volume was primarily due to lower demand for products sold into the commodity consumer end markets. A stronger U.S. dollar relative to all currencies within the region led to a $15.1 million unfavorable foreign currency translation effect. Net sales for Asian operations increased $1.7 million, or 13 percent, versus the prior year quarter. A 14 percent increase in sales volume and higher average selling prices favorably impacted the change in net sales by $1.7 million and $0.4 million, respectively. The sales volume growth primarily reflects higher demand for products sold into the commodity laundry and cleaning end markets. Foreign currency translation negatively impacted the year-over-year change in net sales by $0.4 million. Surfactant operating income for the first quarter of 2025 increased $2.9 million, or 11 percent, versus operating income for the first quarter of 2024. Gross profit increased $3.2 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: (Dollars in thousands) For the Three Months Ended March 31, Gross Profit and Operating Income 2025 2024 Increase (Decrease) Percent Change North America $ 26,351 $ 31,368 $ (5,017 ) -16 Europe 10,706 8,322 2,384 29 Latin America 11,648 8,766 2,882 33 Asia 4,966 1,986 2,980 150 Surfactants Segment Gross Profit $ 53,671 $ 50,442 $ 3,229 6 Operating Expenses 24,741 24,363 378 2 Surfactants Segment Operating Income $ 28,930 $ 26,079 $ 2,851 11 Gross profit for North American operations decreased $5.0 million, or 16 percent, versus the prior year primarily due to lower average unit margins. The lower average unit margins negatively impacted the year-over-year change in gross profit by $6.1 million 24 and were primarily attributable to higher expenses associated with the Company's new alkoxylation facility in Pasadena, Texas. The three percent increase in sales volume positively impacted the year-over-year change in gross profit by $1.1 million. Gross profit for European operations increased $2.4 million, or 29 percent, primarily due to higher average unit margins and a five percent increase in sales volume. These items positively impacted the year-over-year change in gross profit by $2.3 million and $0.4 million, respectively. The higher average unit margins primarily reflect more favorable product mix. Foreign currency translation negatively impacted the year-over-year change in gross profit by $0.3 million. Gross profit for Latin American operations increased $2.9 million, or 33 percent, primarily due to higher average unit margins. The higher average unit margins positively impacted the year-over-year change in gross profit by $5.2 million and primarily reflect a more favorable product mix. The two percent decrease in sales volume negatively impacted the change in gross profit by $0.1 million. A stronger U.S. dollar relative to all currencies within the region led to a $2.2 million negative foreign currency translation effect. Gross profit for Asia operations increased $3.0 million year-over-year primarily due to higher average unit margins and a 14 percent increase in sales volume. These items positively impacted the year-over-year change in gross profit by $2.7 million and $0.3 million, respectively. The higher average unit margins largely reflect lower overhead costs due to the timing of production runs. Operating expenses for the Surfactants segment increased $0.4 million, or two percent, in the first quarter of 2025 versus the first quarter of 2024. Polymers Polymers net sales for the first quarter of 2025 increased $0.6 million versus net sales for the same period of 2024. A seven percent increase in sales volume positively impacted the change in net sales by $10.1 million. Lower average selling prices and the unfavorable impact of foreign currency translation negatively impacted the year-over-year change in net sales by $9.2 million and $0.3 million, respectively. A comparison of net sales by region follows: (Dollars in thousands) For the Three Months Ended March 31, Net Sales 2025 2024 Increase (Decrease) Percent Change North America $ 72,793 $ 69,809 $ 2,984 4 Europe 61,142 63,877 (2,735 ) -4 Asia and Other 12,181 11,822 359 3 Total Polymers Segment $ 146,116 $ 145,508 $ 608 0 Net sales for North American operations increased $3.0 million, or four percent, primarily due to a 13 percent increase in sales volume that positively impacted the year-over-year change in net sales by $9.0 million. Sales volume of polyols used in rigid foam applications and within the commodity phthalic anhydride business increased two percent and 136 percent, respectively. The higher phthalic anhydride volume is mainly attributable to the non-recurrence of operational interruptions at the Millsdale, Illinois plant during the first quarter of 2024 and market share gain in 2025. Specialty Polyols sales volume declined five percent during the quarter. Lower average selling prices negatively impacted the year-over-year change in net sales by $6.0 million. The lower average selling prices primarily reflect the pass-through of lower raw material costs and less favorable product mix. Net sales for European operations decreased $2.7 million, or four percent, year-over-year. This decrease was mainly due to lower average selling prices that negatively impacted the year-over-year change in net sales by $4.3 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 negatively impacted the change in net sales by $0.1 million. A three percent increase in sales volume, driven by a four percent increase in rigid polyols, positively impacted the change in net sales by $1.7 million. Net sales for Asia and Other operations increased $0.4 million, or three percent, primarily due to a three percent increase in average selling prices and a two percent increase in sales volume. These items positively impacted the year-over-year change in net sales by $0.3 million each. The higher sales volume reflects higher demand for specialty polyols resulting from the Company's product diversification efforts. Foreign currency translation negatively impacted the year-over-year change in net sales by $0.2 million. 25 Polymer operating income in the first quarter of 2025 decreased $0.4 million, or four percent, versus operating income in the first quarter of 2024. Gross profit increased $0.1 million, or one percent and operating expenses increased $0.5 million or eight percent year-over-year. Comparisons of gross profit by region and total segment operating expenses and operating income follow: (Dollars in thousands) For the Three Months Ended March 31, Gross Profit and Operating Income 2025 2024 Increase (Decrease) Percent Change North America $ 4,636 $ 4,643 $ (7 ) 0 Europe 7,982 9,022 (1,040 ) -12 Asia and Other 2,602 1,411 1,191 84 Polymers Segment Gross Profit $ 15,220 $ 15,076 $ 144 1 Operating Expenses 7,202 6,694 508 8 Polymers Segment Operating Income $ 8,018 $ 8,382 $ (364 ) -4 Gross profit for North American operations was flat year-over-year. The 13 percent increase in sales volume positively impacted the year-over-year change in gross profit by $0.6 million. Lower average unit margins negatively impacted the change in gross profit by $0.6 million. The lower average unit margins largely reflected less favorable product mix and high cost inventory carryover. Gross profit for European operations decreased $1.0 million, or 12 percent, versus the first quarter of 2024. The decrease was primarily due to lower average unit margins that negatively impacted the year-over-year change in gross profit by $1.2 million. The three percent increase in sales volume positively impacted the change in gross profit by $0.2 million. Gross profit for Asia and Other operations increased $1.2 million, or 84 percent, primarily due to higher average unit margins that positively impacted the change in gross profit by $1.2 million. The higher average unit margins mostly reflect better product mix resulting from the Company's diversification efforts. Operating expenses for the Polymer segment increased $0.5 million, or eight percent, in the first quarter of 2025 versus the first quarter of 2024. The increase was attributable to numerous small items. Specialty Products Specialty Products net sales for the first quarter of 2025 increased $1.7 million, or 11 percent, versus net sales for the first quarter of 2024. The increase was primarily due to higher average selling prices. Gross profit and operating income increased $1.3 million and $1.2 million, respectively, year-over-year. The year-over-year increases in gross profit and operating income were mostly attributable to margin recovery within the medium chain triglycerides (MCT) product line. Corporate Expenses Corporate expenses, which include deferred compensation and other operating expenses that are not allocated to the reportable segments, decreased $4.4 million, or 24 percent, year-over-year. Corporate expenses were $14.2 million in the first quarter of 2025 versus $18.6 million in the first quarter of 2024. Deferred Compensation and environmental reserve expenses were down $2.8 million and $1.4 million, respectively, year-over-year. The lower environmental reserve expenses are due to the non-recurrence of an environmental reserve adjustment made in the first quarter of 2024 related to property formerly owned and operated by the Company in Wilmington, Massachusetts. The $2.8 million decrease in deferred compensation expense was primarily due to a decline in the market value of mutual fund investment assets during the first quarter of 2025 versus an increase during the first quarter of 2024. In addition, the market price of the Company's common stock decreased $9.66 per share in the first quarter of 2025 versus a $4.51 per share decrease in the first quarter of 2024. 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, 2025 and 2024: 2025 2024 2023 March 31 December 31 March 31 December 31 Company Common Stock Price $ 55.04 $ 64.70 $ 90.04 $ 94.55 26 LIQUIDITY AND CAPITAL RESOURCES Overview For the three months ended March 31, 2025, operating activities were a cash source of $6.9 million versus a cash source of $41.6 million for the comparable period in 2024. For the first three months of 2025, investing cash outflows totaled $26.4 million versus cash outflows of $24.4 million in the prior year period. Financing activities were a cash source of $22.8 million versus a cash use of $20.0 million in the prior year period. Cash and cash equivalents increased $7.8 million compared to December 31, 2024, inclusive of a $4.5 million favorable foreign exchange rate impact. On March 31, 2025, the Company's cash and cash equivalents totaled $107.5 million. Cash in U.S. money market funds, which were rated AAAm by Standard and Poor’s, and Aaa-mf by Moody’s, totaled $1.9 million and cash in U.S. demand deposit accounts totaled $2.2 million. The Company’s non-U.S. subsidiaries held $103.4 million of cash and cash equivalents as of March 31, 2025. Operating Activities Net income during the first three months of 2025 increased $5.8 million versus the comparable period in 2024. Working capital was a cash use of $40.9 million during the first three months of 2025 versus a cash use of $2.8 million in the comparable period in 2024. Accounts receivable were a cash use of $40.3 million during the first three months of 2025 compared to a cash use of $26.0 million for the comparable period in 2024. Inventories were a cash use of $16.9 million in 2025 versus a cash source of $3.2 million in 2024. Accounts payable and accrued liabilities were a cash source of $27.4 million in 2025 compared to a cash source of $26.0 million for the same period in 2024. Working capital requirements were higher in the first three months of 2025 compared to 2024 primarily due to the changes noted above. The change in accounts receivable working capital primarily reflects higher sales volume and higher selling prices due to the pass through of higher raw material costs. The change in inventories primarily reflects higher quantities, primarily to support business growth and in anticipation of tariffs, and higher unit costs during the first quarter of 2025 versus a year ago. It is management’s opinion that the Company’s liquidity is sufficient to provide for potential increases in working capital requirements during 2025. Investing Activities Cash used for investing activities increased slightly year-over-year. Cash used for capital expenditures was $32.7 million in the first three months of 2025 versus $30.2 million in the same period of 2024. For 2025, the Company estimates that total capital expenditures will be in the range of $125.0 million to $135.0 million. Financing Activities Cash flow from financing activities was a source of $22.8 million in 2024 versus a use of $20.0 million in 2024. The year-over-year change was primarily due to a higher level of borrowings against the Company's revolving credit facility during the first quarter of 2025. 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. 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, 2025. At March 31, 2025, 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 increased $33.9 million, from $625.4 million on December 31, 2024 to $659.3 million on March 31, 2025, primarily due to higher domestic borrowings from the Company's revolving credit facility. Net debt (which is defined as total debt minus cash – see the “Reconciliation of Non-GAAP Net Debt” section of this MD&A) was $551.8 million on March 31, 2025 versus $525.7 million at December 31, 2024. As of March 31, 2025, the ratio of net debt to net debt plus shareholders’ equity was 31.5 percent versus 31.0 percent at December 31, 2024 (see the “Reconciliation of Non-GAAP Net Debt” section in this MD&A for further details). On March 31, 2025, the Company’s debt included $311.8 million of unsecured notes, with maturities ranging from 2025 through 2032, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements (the “Note Purchase Agreements”), a $88.7 million delayed-draw term loan borrowed pursuant to the Company’s credit agreement, $257.8 million of short-term loans borrowed under the Company’s revolving credit facility and $1.0 million of foreign credit line borrowings. As of March 31, 2025, the Company 27 had outstanding letters of credit of $14.0 million, inclusive of $5.3 million issued under the Company’s revolving credit facility. 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. On August 27, 2024, the Company entered into amendments to two of its note purchase agreements to increase the available facility amounts and extend the end date of the issuance period to August 27, 2027. 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 ($11.3 million of the term loan principal has been permanently repaid as scheduled), 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. As of March 31, 2025, the Company had outstanding letters of credit totaling $8.7 million under the CIC Credit Agreement. 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. These outstanding letters of credit totaled $5.3 million at March 31, 2025. 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, 2025, the Company’s foreign subsidiaries had $1.0 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. These debt covenants also limit the incurrence of additional debt as well as the payment of dividends and repurchase of shares. Under the most restrictive of these debt covenants: 1. The Company is required to maintain a minimum interest coverage ratio, as defined within the agreements, of 3.50 to 1.00, for the preceding four calendar quarters. 2. The Company is required to maintain an existing maximum net leverage ratio, as defined within the agreements, not to exceed 3.50 to 1.00. 3. The Company is required to maintain net worth of at least $750.0 million. 4. The Company is permitted to pay dividends and purchase treasury shares after June 24, 2022, in amounts of up to $100.0 million plus 100 percent of net income and cash proceeds of stock option exercises, measured cumulatively beginning January 1, 2022. 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, 2025. ENVIRONMENTAL AND LEGAL MATTERS The Company’s operations are subject to extensive federal, state and local environmental laws and regulations and similar laws in the other countries in which the Company does business. Although the Company's environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent environmental regulation may require the Company to make additional unforeseen environmental expenditures. 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 2025 and 2024, the Company’s expenditures for capital projects related to environmental matters were $2.4 million and $1.5 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 $10.0 million and $10.8 million for the three months ended March 31, 2025 and 2024, 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. In addition, the Company is from time to time involved in routine legal proceedings incidental to the conduct of its business, including personal injury, property damage, tax, trade and labor matters. The Company believes that it has made adequate provisions for the costs it is likely to incur with respect to these claims. It is the Company’s accounting policy to record liabilities when environmental assessments, remediation expenses or legal proceeding losses are probable, and the cost or range of possible costs can be 28 reasonably estimated. When no amount within the range is a better estimate than any other amount, the minimum is accrued. Estimating the possible costs of environmental remediation requires making assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. 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 $17.9 million to $42.4 million at March 31, 2025 and $20.0 million to $44.5 million at December 31, 2024. 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 $17.9 million at March 31, 2025 and $20.0 million at December 31, 2024. 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 $2.6 million for the three months ended March 31, 2025, compared to $1.6 million for the same period in 2024. 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. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based on the Company’s present knowledge with respect to its involvement at these sites, the possibility of other viable entities’ responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the aggregate, will not have a material effect on the Company’s financial position. 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 sites. CRITICAL ACCOUNTING POLICIES There have been no material changes to the critical accounting policies disclosed in the Company’s 2024 Annual Report on Form 10-K. NON-GAAP RECONCILIATIONS The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company’s performance and financial condition. Internally, the Company uses this non-GAAP information as an indicator of business performance and evaluates management’s effectiveness with specific reference to these indicators. 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 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. For example, the non-GAAP financial measures presented in this Form 10-Q may differ from similarly titled non-GAAP financial measures presented by other companies and other companies may not define these non-GAAP financial measures the same way as the Company does. 29 Reconciliations of Non-GAAP Adjusted Net Income and Diluted Earnings per Share Management uses the non-GAAP adjusted net income metric to evaluate the Company’s operating performance. Management excludes the items listed in the table below because they are non-operational items. The cumulative tax effect was calculated using the statutory tax rates for the jurisdictions in which the transactions occurred. Three Months Ended (In millions, except per share amounts) March 31, 2025 March 31, 2024 Net Income Diluted EPS Net Income Diluted EPS Net Income Attributable to the Company as Reported $ 19.7 $ 0.86 $ 13.9 $ 0.61 Deferred Compensation Income (including related investment activity) (0.6 ) (0.03 ) (0.5 ) (0.02 ) Environmental Remediation Expense 0.1 — 1.5 0.06 Cumulative Tax Effect on Above Adjustment Items 0.1 0.01 (0.2 ) (0.01 ) Adjusted Net Income $ 19.3 $ 0.84 $ 14.7 $ 0.64 Reconciliations of Non-GAAP EBITDA and Adjusted EBITDA Management uses the non-GAAP EBITDA and adjusted EBITDA metric to evaluate the Company's operating performance. Management excludes the items listed in the table below because they are non-operational items. Refer to the Company's Condensed Consolidated Statements of Income for a bridge between Operating Income and Net Income. For the Three Months Ended March 31, ($ in millions) 2025 2024 Operating Income $ 28.2 $ 20.2 Depreciation and Amortization 29.3 27.6 Other, Net Income 0.5 2.4 EBITDA $ 58.0 $ 50.2 Deferred Compensation (0.6 ) (0.5 ) Environmental Remediation 0.1 1.5 Adjusted EBITDA $ 57.5 $ 51.2 Reconciliations of Non-GAAP Net Debt Management uses the non-GAAP net debt metric to show a more complete picture of the Company’s overall liquidity, financial flexibility and leverage level. (In millions) March 31, 2025 December 31, 2024 Current Maturities of Long-Term Debt as Reported $ 328.5 $ 292.8 Long-Term Debt as Reported 330.8 332.6 Total Debt as Reported 659.3 625.4 Less Cash and Cash Equivalents as Reported (107.5 ) (99.7 ) Net Debt $ 551.8 $ 525.7 Equity $ 1,200.5 $ 1,169.9 Net Debt plus Equity $ 1,752.3 $ 1,695.6 Net Debt/Net Debt plus Equity 31 % 31 % 30 Item 3 – Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the market risks described in the Company’s 2024 Annual Report on Form 10-K.