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.” 23 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 71 percent of consolidated net sales for the first six 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 26 percent of consolidated net sales for the first six 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 six 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. 24 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 June 30, (In millions) 2025 2024 Change Deferred Compensation (Administrative expenses) $ (1.8 ) $ (0.4 ) $ (1.4 ) (1) Realized/Unrealized Gains on Investments (Other, net) 1.6 0.7 0.9 Investment Income (Other, net) 0.1 0.1 — Pretax Income Effect $ (0.1 ) $ 0.4 $ (0.5 ) Income (Expense) For the Six Months Ended June 30, (In millions) 2025 2024 Change Deferred Compensation (Administrative expenses) $ (0.8 ) $ (2.2 ) $ 1.4 (1) Realized/Unrealized Gains on Investments (Other, net) 1.1 2.9 (1.8 ) Investment Income (Other, net) 0.2 0.2 - Pretax Income Effect $ 0.5 $ 0.9 $ (0.4 ) (1) See the Segment Results-Corporate Expenses section of this MD&A for details regarding the period-over-period changes in deferred compensation. 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 and six months ended June 30, 2025 and 2024: For the Three Months Ended June 30, (In millions) 2025 2024 Increase (Decrease) Decrease Due to Foreign Translation Net Sales $ 594.7 $ 556.4 $ 38.3 $ (1.7 ) Gross Profit 71.9 69.6 2.3 (0.2 ) Operating Income 18.0 18.7 (0.7 ) (0.2 ) Pretax Income 13.8 17.2 (3.4 ) (0.2 ) For the Six Months Ended June 30, (In millions) 2025 2024 Increase Decrease Due to Foreign Translation Net Sales $ 1,187.9 $ 1,107.8 $ 80.1 $ (20.2 ) Gross Profit 147.3 139.8 7.5 (2.8 ) Operating Income 46.3 38.8 7.5 (2.0 ) Pretax Income 38.5 36.7 1.8 (2.1 ) 25 RESULTS OF OPERATIONS Three Months Ended June 30, 2025 and 2024 Summary Net income in the second quarter of 2025 was $11.3 million, or $0.50 per diluted share, versus $9.5 million, or $0.42 per diluted share, in the second quarter of 2024. Adjusted net income was $12.0 million, or $0.52 per diluted share, versus $9.4 million, or $0.41 per diluted share in the second 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 $50.6 million in the second quarter of 2025, up six percent, versus $47.9 million in the second quarter of 2024. Adjusted EBITDA was $51.4 million, up eight percent, versus $47.7 million in the second 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 second quarter of 2025 compared to the second quarter of 2024. A detailed discussion of segment operating performance for the second quarter of 2025, compared to the second quarter of 2024, follows the summary. Consolidated net sales increased $38.3 million, or seven percent, versus the prior year quarter. Higher average selling prices favorably impacted the year-over-year change in net sales by $32.5 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 one percent, which favorably impacted the change in net sales by $7.5 million. Polymer and Specialty Products sales volumes increased seven and 33 percent, respectively, year-over-year. Surfactant sales volume decreased one percent. Foreign currency translation negatively impacted the year-over-year change in net sales by $1.7 million, primarily due to a stronger U.S. dollar against the Brazilian real and Mexican peso. Operating income in the second quarter of 2025 decreased $0.7 million, or four percent, versus operating income in the second quarter of 2024. Polymer operating income increased $3.6 million versus the second quarter of 2024. Surfactant and Specialty Products operating income decreased $3.7 million and $2.1 million, respectively, year-over-year. Corporate expenses, including environmental remediation and deferred compensation expenses, decreased $1.5 million, or eight percent, year-over-year. Corporate expenses, excluding environmental remediation and deferred compensation expenses, decreased $3.3 million, or 18 percent, year-over-year. Foreign currency translation had a $0.2 million unfavorable impact on operating income year-over-year. Operating expenses (including deferred compensation) increased $3.0 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 $2.8 million, or 24 percent, largely due to a $1.1 million USEPA penalty associated with certain of the Company's biocide products sold by a licensed distributor. Higher incentive-based compensation and bad debt provision expenses also contributed to this increase. • Administrative expenses decreased $1.8 million, or seven percent, year-over-year primarily due to the non-recurrence of a $3.5 million charge, related to a criminal social engineering scheme, in the second quarter of 2024. This decrease was partially offset by higher legacy-related environmental reserve expenses in 2025. • Research, development and technical service (R&D) expenses increased $0.6 million, or four percent. • Deferred compensation was $1.8 million of expense in the second quarter of 2025 versus $0.4 million of expense in the prior year quarter. The $1.4 million year-over-year increase in deferred compensation expense primarily reflects a larger increase in the market value of mutual fund investment assets during the second quarter of 2025 versus the second quarter of 2024. Additionally, the market price of the Company's common stock decreased $0.46 per share in the second quarter of 2025 versus a $6.08 per share decrease in the second quarter of 2024. See the Overview and Segment Results-Corporate Expenses section of this MD&A for further details. Net interest expense for the second quarter of 2025 increased $2.8 million versus the second 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 started up in April 2025. Other, net was $1.3 million of income in the second quarter of 2025 versus $1.2 million of income in the second quarter of 2024. The Company recognized $1.7 million of investment gains (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the second quarter of 2025 compared to $0.8 million of investment gains in the second quarter of 2024. In addition, the Company reported $0.6 million of foreign exchange losses in the second quarter of 2025 versus less than $0.1 million of foreign exchange losses in the second quarter of 2024. The Company's net periodic pension income was $0.3 million in the second quarter of 2025 versus $0.4 million of income in the second quarter of 2024. 26 The Company’s effective tax rate was 17.7 percent in the second quarter of 2025 versus 44.7 percent in the second quarter of 2024. This decrease was primarily attributable to the non-recurrence of an unfavorable event, related to a global intangible low-taxed income (GILTI) deduction and a foreign tax credit, in the second quarter of 2024, along with a favorable tax audit settlement and a more favorable geographical mix of income in 2025. In the second quarter of 2024, the Company intended to elect bonus depreciation for its new alkoxylation facility in Pasadena, Texas. The Company expected that, as a result of this election, it would lose its ability to use GILTI deduction and related GILTI foreign tax credits for 2024, resulting in a higher effective tax rate than in the second quarter of 2025, when the Company did not expect to lose such deduction and foreign tax credits. Segment Results (Dollars in thousands) For the Three Months Ended June 30, Net Sales 2025 2024 Increase Percent Change Surfactants $ 411,456 $ 379,795 $ 31,661 8 Polymers 162,751 159,757 2,994 2 Specialty Products 20,482 16,853 3,629 22 Total Net Sales $ 594,689 $ 556,405 $ 38,284 7 (Dollars in thousands) For the Three Months Ended June 30, Operating Income 2025 2024 Increase (Decrease) Percent Change Surfactants $ 13,367 $ 17,062 $ (3,695 ) -22 Polymers 17,159 13,597 3,562 26 Specialty Products 5,258 7,319 (2,061 ) -28 Segment Operating Income $ 35,784 $ 37,978 $ (2,194 ) -6 Corporate Expenses, Excluding Deferred Compensation and Restructuring $ 16,058 $ 18,916 $ (2,858 ) -15 Deferred Compensation Expense 1,761 395 1,366 346 Total Operating Income $ 17,965 $ 18,667 $ (702 ) -4 Surfactants Surfactant net sales for the second quarter of 2025 increased $31.7 million versus net sales for the second quarter of 2024. Higher average selling prices favorably impacted the change in net sales by $40.9 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 decreased one percent and had a $3.7 million unfavorable impact on the change in net sales. Foreign currency translation had an $5.5 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 June 30, Net Sales 2025 2024 Increase (Decrease) Percent Change North America $ 234,364 $ 220,520 $ 13,844 6 Europe 74,605 63,460 11,145 18 Latin America 90,527 83,569 6,958 8 Asia 11,960 12,246 (286 ) -2 Total Surfactants Segment $ 411,456 $ 379,795 $ 31,661 8 Net sales for North American operations increased $13.8 million, or six percent, year-over-year. Higher average selling prices had an $8.9 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 two percent and positively impacted the change in net sales by $5.0 million. The higher sales volume was primarily due to higher demand for products sold into the agricultural and oilfield end markets and to our distribution partners. Lower demand for products sold into the consumer products end markets partially offset the above. Foreign currency translation negatively impacted the change in net sales by $0.1 million. Net sales for European operations increased $11.1 million, or 18 percent, due to higher average selling prices and the favorable impact of foreign currency translation. These items positively impacted the change in net sales by $9.8 million and $3.9 million, 27 respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs and more favorable product mix. A weaker U.S. dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect. Sales volume declined four percent and negatively impacted the change in net sales by $2.6 million. The lower sales volume was primarily due to lower demand for products sold into the commodity laundry and cleaning end markets that was partially offset by the higher demand for products sold into agricultural end markets. Net sales for Latin American operations increased $7.0 million, or eight percent, primarily due to higher average selling prices that positively impacted the change in net sales by $19.7 million. The higher average selling prices primarily reflect more favorable product mix and the pass-through of higher raw material costs. The unfavorable impact of foreign currency translation and a four percent decrease in sales volume negatively impacted the change in net sales by $9.6 million and $3.2 million, respectively. A stronger U.S. dollar relative to all currencies within the region led to the unfavorable foreign currency translation effect. The lower sales volume was primarily due to lower demand for products sold into the commodity laundry and cleaning end markets that was partially offset by higher demand for products sold into the personal care and agricultural end markets. Net sales for Asian operations decreased $0.3 million, or two percent, versus the prior year quarter. A seven percent decrease in sales volume negatively impacted the change in net sales by $0.9 million. The lower sales volume was primarily due to lower demand for products sold into the commodity laundry and cleaning end markets that was partially offset by higher sales to our distribution partners. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the year-over-year change in net sales by $0.3 million, each. Surfactant operating income for the second quarter of 2025 decreased $3.7 million, or 22 percent, versus operating income for the second quarter of 2024. Gross profit was flat year-over-year and operating expenses increased $3.6 million, or 15 percent. Comparisons of gross profit by region and total segment operating expenses and operating income follow: (Dollars in thousands) For the Three Months Ended June 30, Gross Profit and Operating Income 2025 2024 Increase (Decrease) Percent Change North America $ 19,311 $ 20,378 $ (1,067 ) -5 Europe 8,138 6,480 1,658 26 Latin America 10,986 11,145 (159 ) -1 Asia 2,361 2,884 (523 ) -18 Surfactants Segment Gross Profit $ 40,796 $ 40,887 $ (91 ) 0 Operating Expenses 27,429 23,825 3,604 15 Surfactants Segment Operating Income $ 13,367 $ 17,062 $ (3,695 ) -22 Gross profit for North American operations decreased $1.1 million, or five percent, versus the prior year primarily due to lower average unit margins. The lower average unit margins negatively impacted the year-over change in gross profit by $1.5 million and were primarily attributable to higher expenses associated with the start-up of the Company's new alkoxylation facility in Pasadena, Texas, higher Oleochemical raw material costs that the Company plans to recover in the second half of the year, and an environmental remediation reserve adjustment related to the Company's Elwood, Illinois site. A two percent increase in sales volume positively impacted the year-over-year change in gross profit by $0.4 million. Gross profit for European operations increased $1.7 million, or 26 percent, primarily due to higher average unit margins and the favorable impact of foreign currency translation. These items positively impacted the year-over-year change in gross profit by $1.5 million and $0.4 million, respectively. The higher average unit margins primarily reflect more favorable product mix. A four percent decrease in sales volume negatively impacted the year-over-year change in gross profit by $0.2 million. Gross profit for Latin American operations decreased $0.2 million, or one percent. Higher average unit margins positively impacted the year-over-year change in gross profit by $1.3 million and reflect a more favorable product mix. The unfavorable impact of foreign currency translation and a four percent decrease in sales volume negatively impacted the change in gross profit by $1.1 million and $0.4 million, respectively. Gross profit for Asia operations decreased $0.5 million year-over-year due to lower average unit margins and the seven percent decrease in sales volume. These items negatively impacted the year-over-year change in gross profit by $0.3 million and $0.2 million, respectively. Operating expenses for the Surfactant segment increased $3.6 million, or 15 percent, in the second quarter of 2025 versus the second quarter of 2024. The increase was largely due to a $1.1 million USEPA penalty associated with certain of the Company's biocide products sold by a licensed distributor. The Company is pursuing indemnification claims against two third parties to recover the cost of the penalty. Higher incentive-based compensation and bad debt provision expenses also contributed to this increase. 28 Polymers Polymers net sales for the second quarter of 2025 increased $3.0 million versus net sales for the same period of 2024. A seven percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the change in net sales by $11.6 million and $3.6 million, respectively. Lower average selling prices negatively impacted the year-over-year change in net sales by $12.2 million. A comparison of net sales by region follows: (Dollars in thousands) For the Three Months Ended June 30, Net Sales 2025 2024 Increase (Decrease) Percent Change North America $ 88,251 $ 79,828 $ 8,423 11 Europe 63,296 67,401 (4,105 ) -6 Asia and Other 11,204 12,528 (1,324 ) -11 Total Polymers Segment $ 162,751 $ 159,757 $ 2,994 2 Net sales for North American operations increased $8.4 million, or 11 percent, primarily due to an 18 percent increase in sales volume that positively impacted the year-over-year change in net sales by $14.2 million. Sales volume of polyols used in rigid foam applications increased three percent year-over-year. Sales volume of commodity phthalic anhydride grew more than double digits primarily due to the market exit of a competitor. Specialty Polyols sales volume declined nine percent year-over-year. Lower average selling prices negatively impacted the year-over-year change in net sales by $5.8 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 $4.1 million, or six percent, year-over-year. This decrease was primarily due to lower average selling prices that negatively impacted the year-over-year change in net sales by $8.2 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 favorably impacted the change in net sales by $3.6 million. A one percent increase in sales volume positively impacted the change in net sales by $0.5 million. Net sales for Asia and Other operations decreased $1.3 million, or 11 percent, primarily due to an 11 percent decrease in sales volume that negatively impacted the change in net sales by $1.3 million. The lower sales volume reflects lower demand for polyols used in rigid foam applications that was partially offset by a higher demand for specialty polyols resulting from the Company's product diversification efforts. Polymer operating income in the second quarter of 2025 increased $3.6 million, or 26 percent, versus operating income in the second quarter of 2024. Gross profit increased $4.0 million, or 19 percent and operating expenses increased 0.4 million or six 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 June 30, Gross Profit and Operating Income 2025 2024 Increase Percent Change North America $ 13,799 $ 11,285 $ 2,514 22 Europe 8,773 7,556 1,217 16 Asia and Other 2,055 1,805 250 14 Polymers Segment Gross Profit $ 24,627 $ 20,646 $ 3,981 19 Operating Expenses 7,468 7,049 419 6 Polymers Segment Operating Income $ 17,159 $ 13,597 $ 3,562 26 Gross profit for North American operations increased $2.5 million, or 22 percent, year-over-year. The 18 percent increase in sales volume positively impacted the year-over-year change in gross profit by $2.0 million. Higher average unit margins positively impacted the change in gross profit by $0.5 million. The higher average unit margins were primarily due to the non-recurrence of a phthalic anhydride related catalyst write-off charge and higher expenses incurred at the Company's Millsdale, Illinois site due to operational issues during the second quarter of 2024. Gross profit for European operations increased $1.2 million, or 16 percent, versus the second quarter of 2024. This increase was primarily due to higher average unit margins and the favorable impact of foreign currency translation. These two items positively impacted the year-over-year change in gross profit by $0.7 million and $0.5 million, respectively. Gross profit for Asia and Other operations increased $0.3 million, or 14 percent, primarily due to higher average unit margins that positively impacted the change in gross profit by $0.5 million. The higher average unit margins primarily reflect better product mix 29 resulting from the Company's recent diversification efforts. Foreign currency translation negatively impacted the year-over-year change in gross profit by $0.2 million. Operating expenses for the Polymer segment increased $0.4 million, or six percent, in the second quarter of 2025 versus the second quarter of 2024. Specialty Products Specialty Products net sales for the second quarter of 2025 increased $3.6 million, or 22 percent, versus net sales for the second quarter of 2024. This increase was primarily due to higher sales volume. Gross profit and operating income decreased $1.9 million and $2.1 million, respectively, year-over-year. The decrease in gross profit and operating income primarily reflects order timing differences within the pharmaceutical business as typical second quarter sales orders were moved to the second half of the year. Corporate Expenses Corporate expenses, which include deferred compensation and other operating expenses that are not allocated to the reportable segments, decreased $1.5 million, or eight percent, year-over-year. Corporate expenses were $17.8 million in the second quarter of 2025 versus $19.3 million in the second quarter of 2024. This decrease was primarily due to the non-recurrence of a $3.5 million expense, related to a criminal social engineering scheme, during the second quarter of 2024. Higher deferred compensation and legacy environmental reserve expenses, which were up $1.4 million and $0.5 million, respectively, partially offset the above. The $1.4 million year-over-year increase in deferred compensation expense primarily reflects a larger increase in the market value of mutual fund investment assets during the second quarter of 2025 versus the second quarter of 2024. Additionally, the market price of the Company's common stock decreased $0.46 per share in the second quarter of 2025 versus a $6.08 per share decrease in the second 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 June 30, 2025 and 2024: 2025 2024 June 30 March 31 June 30 March 31 Company Common Stock Price $ 54.58 $ 55.04 $ 83.96 $ 90.04 Six Months Ended June 30, 2025 and 2024 Summary Net income in the first half of 2025 was $31.1 million, or $1.36 per diluted share, versus $23.4 million, or $1.02 per diluted share, in the first half of 2024. Adjusted net income was $31.3 million, or $1.37 per diluted share, versus $24.1 million, or $1.05 per diluted share in the first half 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 $108.6 million in the first half of 2025, up 11 percent, versus $98.0 million in the first half of 2024. Adjusted EBITDA was $108.9 million, up 10 percent, versus $98.9 million in the first half 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 half of 2025 compared to the first half of 2024. A detailed discussion of segment operating performance for the first half of 2025, compared to the first half of 2024, follows the summary. Consolidated net sales increased $80.1 million, or seven percent, year-over-year. Higher average selling prices favorably impacted the year-over-year change in net sales by $72.9 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 two percent, which positively impacted the change in net sales by $27.4 million. Surfactant, Polymer and Specialty Products sales volumes increased one percent, seven percent and eight percent, respectively, year-over-year. Foreign currency translation negatively impacted the year-over-year change in net sales by $20.2 million, primarily due to a stronger U.S. dollar against the Mexican peso and Brazilian real. Operating income in the first half of 2025 increased $7.4 million, or 19 percent, versus operating income in the first half of 2024. Polymer operating income increased $3.2 million year-over-year. Surfactant and Specialty Products operating income decreased $0.8 million each, year-over-year. Corporate expenses, including environmental remediation and deferred compensation expenses decreased $5.9 million, or 16 percent, year-over-year. Corporate expenses, excluding environmental remediation and deferred compensation expenses, decreased $3.5 million, or 10 percent, year-over-year. Foreign currency translation had a $2.0 million unfavorable impact on operating income year-over-year. 30 Operating expenses (including deferred compensation) were essentially flat between years. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows: • Selling expenses increased $3.5 million, or 15 percent, largely due to a $1.1 million USEPA penalty associated with certain of the Company's biocide products sold by a licensed distributor. Higher incentive-based compensation and bad debt provision expenses also contributed to this increase. • Administrative expenses decreased $3.0 million, or six percent, year-over-year primarily due to the non-recurrence of a $3.5 million charge, related to a criminal social engineering scheme, in the second quarter of 2024. • Research, development and technical service (R&D) expenses increased $1.0 million, or four percent primarily due to higher salaries and incentive-based compensation expenses. • Deferred compensation was $0.8 million of expense in the first half of 2025 versus $2.2 million of expense in the first half of 2024. The $1.4 million year-over-year decrease in deferred compensation expense primarily reflects a smaller increase in the market value of mutual fund investment assets during the first half of 2025 versus the prior year. See the Overview and Segment Results-Corporate Expenses section of this MD&A for further details. Net interest expense for the first half of 2025 increased $3.9 million, or 68 percent, versus the first half 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 started up in April 2025. Other, net was $1.8 million of income in the first half of 2025 versus $3.6 million of income in the first half of 2024. The Company recognized $1.3 million of investment gains (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the first half of 2025 compared to $3.1 million of investment gains in the first half of 2024. In addition, the Company reported less than $0.1 million of foreign exchange losses in the first half of 2025 versus $0.4 million of foreign exchange losses in the first half of 2024. The Company's net periodic pension income was $0.5 million in the first half of 2025 versus $0.8 million of income in the first half of 2024. The Company’s effective tax rate was 19.2 percent in the first half of 2025 versus 36.1 percent in the first half of 2024. This decrease was primarily attributable to a favorable tax audit settlement in 2025 combined with the non-recurrence of an unfavorable GILTI-related event in the first half of 2024. These items were partially offset by the expected tax impact of certain cash repatriations to the U.S. In the first six months of 2024, the Company intended to elect bonus depreciation for its new alkoxylation facility in Pasadena, Texas. The Company expected that, as a result of this election, it would lose its ability to use GILTI deduction and related GILTI foreign tax credits for 2024, resulting in a higher effective tax rate than in the first six months of 2025, when the Company did not expect to lose such deduction and foreign tax credits. Segment Results (In thousands) For the Six Months Ended June 30, Net Sales 2025 2024 Increase Percent Change Surfactants $ 841,793 $ 770,615 $ 71,178 9 Polymers 308,867 305,265 3,602 1 Specialty Products 37,284 31,943 5,341 17 Total Net Sales 1,187,944 1,107,823 80,121 7 (In thousands) For the Six Months Ended June 30, Operating Income 2025 2024 Increase (Decrease) Percent Change Surfactants $ 42,297 $ 43,142 $ (845 ) -2 Polymers 25,177 21,979 3,198 15 Specialty Products 10,766 11,587 (821 ) -7 Segment Operating Income $ 78,240 $ 76,708 $ 1,532 2 Corporate Expenses, Excluding Deferred Compensation and Restructuring $ 31,222 $ 35,699 $ (4,477 ) -13 Deferred Compensation 765 2,173 (1,408 ) 65 Total Operating Income $ 46,253 $ 38,836 $ 7,417 19 31 Surfactants Surfactant net sales for the first half of 2025 increased $71.2 million versus net sales for the first half of 2024. Higher average selling prices favorably impacted the change in net sales by $88.1 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 one percent and had a $6.7 million favorable impact on the change in net sales. Foreign currency translation had a $23.6 million unfavorable impact on the year-over-year change in net sales. A comparison of net sales by region follows: (In thousands) For the Six Months Ended June 30, Net Sales 2025 2024 Increase Percent Change North America $ 486,099 $ 450,110 $ 35,989 8 Europe 156,203 134,238 21,965 16 Latin America 173,291 161,437 11,854 7 Asia 26,200 24,830 1,370 6 Total Surfactants Segment $ 841,793 $ 770,615 $ 71,178 9 Net sales for North American operations increased $36.0 million, or eight percent, year-over-year. Higher average selling prices had a $23.8 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 $13.0 million. The higher sales volume was primarily due to higher demand for products sold into the agricultural and oilfield end markets and to our distribution partners. Lower demand for products sold into the consumer products end markets partially offset the above. Foreign currency translation negatively impacted the change in net sales by $0.8 million. Net sales for European operations increased $22.0 million, or 16 percent, primarily due to higher average selling prices which had a $19.5 million positive impact on the change in net sales The higher average selling prices were primarily due to the pass-through of higher raw material costs and more favorable product mix. Slightly higher sales volume had a $0.5 million favorable impact on the year-over-year change in net sales. Higher demand for products sold into the agricultural end markets was largely offset by lower demand for the products sold into the commodity laundry and cleaning end markets. Foreign currency translation favorably impacted the change in net sales by $2.0 million. A weaker U.S. dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect. Net sales for Latin American operations increased $11.9 million, or seven percent, primarily due to higher average selling prices that positively impacted the change in net sales by $41.0 million. The higher average selling prices primarily reflect more favorable product mix and the pass-through of higher raw material costs. Sales volume decreased three percent and negatively impacted the change in net sales by $4.4 million. The decrease in sales volume was primarily due to lower demand for products sold into the commodity laundry and cleaning end markets that was partially offset by higher demand for products sold into the agricultural, industrial cleaning and personal care end markets. A stronger U.S. dollar relative to all currencies within the region led to a $24.7 million unfavorable foreign currency translation effect. Net sales for Asian operations increased $1.4 million, or six percent, year-over-year. Higher average selling prices and a three percent increase in sales volume positively impacted the change in net sales by $0.8 million and $0.7 million, respectively. The higher sales volume primarily reflects higher demand for products sold to our distribution partners. Foreign currency translation negatively impacted the year-over-year change in net sales by $0.1 million. Surfactant operating income for the first half of 2025 decreased $0.8 million, or two percent, versus operating income for the first half of 2024. Gross profit increased $3.1 million, or three percent, and operating expenses increased $4.0 million, or eight percent. Comparisons of gross profit by region and total segment operating expenses and operating income follow: (In thousands) For the Six Months Ended June 30, Gross Profit and Operating Income 2025 2024 Increase (Decrease) Percent Change North America $ 45,662 $ 51,746 $ (6,084 ) -12 Europe 18,844 14,802 4,042 27 Latin America 22,634 19,911 2,723 14 Asia 7,327 4,870 2,457 50 Surfactants Segment Gross Profit $ 94,467 $ 91,329 $ 3,138 3 Operating Expenses 52,170 48,187 3,983 8 Surfactants Segment Operating Income $ 42,297 $ 43,142 $ (845 ) -2 32 Gross profit for North American operations decreased $6.1 million, or 12 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 $7.5 million and were primarily attributable to higher expenses associated with the start-up of the Company's new alkoxylation facility in Pasadena, Texas, higher Oleochemical raw material costs that the Company plans to recover in the second half of the year, and an environmental reserve adjustment related to the Company's Elwood, Illinois site. A three percent increase in sales volume positively impacted the year-over-year change in gross profit by $1.5 million. Foreign currency translation negatively impacted the year-over-year change in gross profit by $0.1 million. Gross profit for European operations increased $4.0 million, or 27 percent, primarily due to higher average unit margins that had a $3.9 million favorable impact on the year-over-year change in gross profit. The higher average unit margins primarily reflect more favorable product mix. Foreign currency translation favorably impacted the year-over-year change in gross profit by $0.1 million. Gross profit for Latin American operations increased $2.7 million, or 14 percent, primarily due to higher average unit margins. The higher average unit margins positively impacted the year-over-year change in gross profit by $6.5 million and primarily reflect a more favorable product mix. A three percent decrease in sales volume and the unfavorable impact of foreign currency translation negatively impacted the change in gross profit by $0.5 million and $3.3 million, respectively. A stronger U.S. dollar relative to all currencies within the region led to the foreign currency translation effect. Gross profit for Asia operations increased $2.5 million year-over-year primarily due to higher average unit margins and a three percent increase in sales volume. These items positively impacted the year-over-year change in gross profit by $2.3 million and $0.2 million, respectively. Operating expenses for the Surfactant segment increased $4.0 million, or eight percent, in the first half of 2025 versus the first half of 2024. The increase was largely due to a $1.1 million EPA penalty associated with the Company's biocide products sold to a licensed distributor along with higher salaries, incentive-based compensation and bad debt provision expenses. The Company is pursuing indemnification claims against two third parties to recover the cost of the EPA penalty. Polymers Polymers net sales for the first half of 2025 increased $3.6 million versus net sales for the same period of 2024. A seven percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the change in net sales by $21.7 million and $3.3 million, respectively. Lower average selling prices negatively impacted the year-over-year change in net sales by $21.4 million. A comparison of net sales by region follows: (In thousands) For the Six Months Ended June 30, Net Sales 2025 2024 Increase (Decrease) Percent Change North America $ 161,044 $ 149,637 $ 11,407 8 Europe 124,438 131,278 (6,840 ) -5 Asia and Other 23,385 24,350 (965 ) -4 Total Polymers Segment $ 308,867 $ 305,265 $ 3,602 1 Net sales for North American operations increased $11.4 million, or eight percent, primarily due to a 16 percent increase in sales volume that positively impacted the year-over-year change in net sales by $23.3 million. Sales volume of polyols used in rigid foam applications increased two percent year-over-year. Sales volume of commodity phthalic anhydride grew more than double digits primarily due to the market exit of a competitor. Specialty Polyols sales volume declined seven percent year-over-year. Lower average selling prices negatively impacted the year-over-year change in net sales by $11.9 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 $6.8 million, or five 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 $12.6 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 positively impacted the change in net sales by $3.5 million. A two percent increase in sales volume, driven by a two percent increase in rigid polyols, positively impacted the change in net sales by $2.3 million. Net sales for Asia and Other operations decreased $1.0 million, or four percent, primarily due to a five percent decrease in sales volume that negatively impacted the year-over-year change in net sales by $1.1 million. The lower sales volume reflects lower demand for polyols used in rigid foam applications that was partially offset by a higher demand for specialty polyols resulting from the Company's product diversification efforts. Higher average selling prices positively impacted the year-over-year change in net sales by $0.3 million. Foreign currency translation negatively impacted the change in net sales by $0.2 million. 33 Polymer operating income in the first half of 2025 increased $3.2 million, or 15 percent, versus operating income in the first half of 2024. Gross profit increased $4.1 million, or 12 percent and operating expenses increased $0.9 million or seven percent year-over-year. Comparisons of gross profit by region and total segment operating expenses and operating income follow: (In thousands) For the Six Months Ended June 30, Gross Profit and Operating Income 2025 2024 Increase Percent Change North America $ 18,435 $ 15,928 $ 2,507 16 Europe 16,755 16,578 177 1 Asia and Other 4,657 3,216 1,441 45 Polymers Segment Gross Profit $ 39,847 $ 35,722 $ 4,125 12 Operating Expenses 14,670 13,743 927 7 Polymers Segment Operating Income $ 25,177 $ 21,979 $ 3,198 15 Gross profit for North American operations increased $2.5 million, or 16 percent, year-over-year. The 16 percent increase in sales volume positively impacted the year-over-year change in gross profit by $2.5 million. Average unit margins were flat year-over-year. Gross profit for European operations increased $0.2 million, or one percent, versus the first half of 2024. This increase was primarily due to the favorable impact of foreign currency translation and a two percent increase in sales volume. These items positively impacted the year-over-year change in gross profit by $0.4 million and $0.3 million, respectively. Lower average unit margins negatively impacted the year-over-year change in gross profit by $0.5 million. Gross profit for Asia and Other operations increased $1.4 million, or 45 percent, primarily due to higher average unit margins that positively impacted the change in gross profit by $1.6 million. The higher average unit margins mostly reflect better product mix resulting from the Company's diversification efforts. A five percent decrease in sales volume and the unfavorable impact of foreign currency translation negatively impacted the year-over-year change in gross profit by $0.1 million each. Operating expenses for the Polymer segment increased $0.9 million, or seven percent, year-over-year. Specialty Products Specialty Products net sales for the first half of 2025 increased $5.3 million, or 17 percent, versus net sales for the first half of 2024. The increase was primarily due to higher average selling prices and an eight percent increase in sales volume. Gross profit and operating income decreased $0.6 million and $0.8 million, respectively, year-over-year. The decrease in gross profit and operating income was primarily due to order timing differences within the pharmaceutical business. Corporate Expenses Corporate expenses, which include deferred compensation and other operating expenses that are not allocated to the reportable segments, decreased $5.9 million, or 16 percent, year-over-year. Corporate expenses were $32.0 million in the first half of 2025 versus $37.9 million in the first half of 2024. This decrease was primarily due to the non-recurrence of a $3.5 million expense related to a criminal social engineering scheme during the second quarter of 2024. In addition, deferred compensation and legacy environmental reserve expenses were down $1.4 million and $1.0 million, respectively, year-over-year. The $1.4 million decrease in deferred compensation expense primarily reflects a smaller increase in the market value of mutual fund investment assets during the first half of 2025 versus the prior year. The following table presents the period-end Company common stock market prices used in the computation of deferred compensation income/expense for the six months ended June 30, 2025 and 2024: 2025 2024 2023 June 30 December 31 June 30 December 31 Company Common Stock Price $ 54.58 $ 64.70 $ 83.96 $ 94.55 34 LIQUIDITY AND CAPITAL RESOURCES Overview For the six months ended June 30, 2025, operating activities were a cash source of $18.1 million versus a cash source of $71.1 million for the comparable period in 2024. For the first six months of 2025, investing cash outflows totaled $51.5 million versus cash outflows of $54.0 million in the prior year period. Financing activities were a cash source of $13.3 million versus a cash use of $16.0 million in the prior year period. Cash and cash equivalents decreased $10.8 million compared to December 31, 2024, inclusive of a $9.3 million favorable foreign exchange rate impact. On June 30, 2025, the Company's cash and cash equivalents totaled $88.9 million. Cash in U.S. money market funds, which were rated AAAm by Standard and Poor’s, and Aaa-mf by Moody’s, totaled $2.0 million and cash in U.S. demand deposit accounts totaled $2.2 million. The Company’s non-U.S. subsidiaries held $84.7 million of cash and cash equivalents as of June 30, 2025. Operating Activities Net income during the first six months of 2025 increased $7.6 million versus the comparable period in 2024. Working capital was a cash use of $74.7 million during the first six months of 2025 versus a cash use of $15.5 million in the comparable period in 2024. Accounts receivable were a cash use of $31.8 million during the first six months of 2025 compared to a cash use of $27.3 million for the comparable period in 2024. Inventories were a cash use of $30.7 million in 2025 versus a cash use of $9.7 million in 2024. Accounts payable and accrued liabilities were a cash use of $1.6 million in 2025 compared to a cash source of $26.6 million for the same period in 2024. Working capital requirements were higher in the first six 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 to support business growth and in anticipation of tariffs. The Company also built inventory to provide safety stock in advance of the hurricane season and in preparation for negotiating a new collective bargaining agreement at the Millsdale, Illinois site. The change in inventories was also impacted by higher unit costs during the first six months of 2025 versus the prior year. The change in accounts payable and accrued liabilities reflects lower cash outlays in 2024 due to lower incentive-based compensation, tax and other year-end obligations linked to lower 2023 earnings. It is management’s opinion that the Company’s liquidity is sufficient to provide for potential increases in working capital requirements during 2025. Investing Activities Cash used for investing activities decreased $2.6 million year-over-year. Cash used for capital expenditures was $58.3 million in the first six months of 2025 versus $59.9 million in the same period of 2024. For 2025, the Company estimates that total capital expenditures will be in the range of $120.0 million to $125.0 million. Financing Activities Cash flow from financing activities was a source of $13.3 million in 2025 versus a use of $16.0 million in 2024. The year-over-year change was primarily due to the issuance of $75.0 million of senior unsecured notes in the first half of 2025, the proceeds of which were partially used to pay scheduled principal debt repayments and repay borrowings against the Company's revolving credit facility. 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 six months ended June 30, 2025. At June 30, 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 $32.6 million, from $625.4 million on December 31, 2024 to $658.0 million on June 30, 2025, primarily due to the issuance of $75.0 million of senior unsecured notes. On May 21, 2025, pursuant to a note purchase and private shelf agreement dated as of June 10, 2021, Stepan issued and sold $37.5 million in aggregate principal amount of its 6.17% Senior Notes, Series 2025-A, due May 21, 2033 (the Series 2025-A Notes). On May 21, 2025, pursuant to a note purchase and master note agreement dated as of June 10, 2021, Stepan issued and sold $37.5 million in aggregate principal amount of its 6.17% Senior Notes, Series 2025-B, due May 21, 2033 (together with the Series 2025-A Notes, the Notes). The Notes will bear interest at a fixed rate of 35 6.17% with interest to be paid semi-annually. Principal amortization for the Notes is contractually scheduled with equal annual payments beginning on May 21, 2029 and on each May 21 thereafter to and including May 21, 2032, with the final outstanding principal balance due at maturity on May 21, 2033. Net debt (which is defined as total debt minus cash – see the “Reconciliation of Non-GAAP Net Debt” section of this MD&A) was $569.1 million on June 30, 2025 versus $525.7 million at December 31, 2024. As of June 30, 2025, the ratio of net debt to net debt plus shareholders’ equity was 31.4 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 June 30, 2025, the Company’s debt included $362.5 million of unsecured notes, with maturities ranging from 2025 through 2033, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements, an $87.5 million delayed-draw term loan borrowed pursuant to the Company’s credit agreement, $205.5 million of short-term loans borrowed under the Company’s revolving credit facility and $2.5 million of foreign credit line borrowings. As of June 30, 2025, the Company had outstanding letters of credit of $13.6 million, inclusive of $4.9 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. 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 ($12.5 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 June 30, 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 $4.9 million at June 30, 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 June 30, 2025, the Company’s foreign subsidiaries had $2.5 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 June 30, 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 six months of 2025 and 2024, the Company’s expenditures for capital projects related to environmental matters were $4.4 million and $3.6 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 36 Company’s manufacturing locations were $21.1 million and $28.6 million for the six months ended June 30, 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 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 $19.5 million to $44.9 million at June 30, 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. In the second quarter of 2025, the Company accrued an additional $1.8 million for remediation expenses at the Company's Elwood, Illinois (Millsdale) facility due to a change in the scope of planned remediation activities. The Company's environmental and legal accruals totaled $19.5 million at June 30, 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 $3.4 million for the six months ended June 30, 2025, compared to $2.0 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. 37 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) June 30, 2025 June 30, 2024 Net Income Diluted EPS Net Income Diluted EPS Net Income Attributable to the Company as Reported $ 11.3 $ 0.50 $ 9.5 $ 0.42 Deferred Compensation (Income) Expense (including related investment activity) 0.1 — (0.4 ) (0.01 ) Environmental Remediation Expense 0.7 0.02 0.2 — Cumulative Tax Effect on Above Adjustment Items (0.1 ) — 0.1 — Adjusted Net Income $ 12.0 $ 0.52 $ 9.4 $ 0.41 Six Months Ended (In millions, except per share amounts) June 30, 2025 June 30, 2024 Net Income Diluted EPS Net Income Diluted EPS Net Income Attributable to the Company as Reported $ 31.1 $ 1.36 $ 23.4 $ 1.02 Deferred Compensation (Income) Expense (including related investment activity) (0.5 ) (0.02 ) (0.9 ) (0.04 ) Environmental Remediation Expense 0.8 0.03 1.8 0.08 Cumulative Tax Effect on Above Adjustment Items (0.1 ) — (0.2 ) (0.01 ) Adjusted Net Income $ 31.3 $ 1.37 $ 24.1 $ 1.05 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 June 30, ($ in millions) 2025 2024 Operating Income $ 18.0 $ 18.7 Depreciation and Amortization 31.3 28.0 Other, Net Income 1.3 1.2 EBITDA $ 50.6 $ 47.9 Deferred Compensation 0.1 (0.4 ) Environmental Remediation 0.7 0.2 Adjusted EBITDA $ 51.4 $ 47.7 For the Six Months Ended June 30, ($ in millions) 2025 2024 Operating Income $ 46.3 $ 38.8 Depreciation and Amortization 60.5 55.6 Other, Net Income 1.8 3.6 EBITDA $ 108.6 $ 98.0 Deferred Compensation (0.5 ) (0.9 ) Environmental Remediation 0.8 1.8 Adjusted EBITDA $ 108.9 $ 98.9 38 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) June 30, 2025 December 31, 2024 Current Maturities of Long-Term Debt as Reported $ 274.8 $ 292.8 Long-Term Debt as Reported 383.2 332.6 Total Debt as Reported 658.0 625.4 Less Cash and Cash Equivalents as Reported (88.9 ) (99.7 ) Net Debt $ 569.1 $ 525.7 Equity $ 1,241.7 $ 1,169.9 Net Debt plus Equity $ 1,810.8 $ 1,695.6 Net Debt/Net Debt plus Equity 31 % 31 % 39 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.