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 1A - Risk Factors” of this Quarterly Report on Form 10-Q and under “Part I-Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, including the risks and uncertainties related to the following:
•the Company's ability to realize the anticipated cost savings or operating efficiencies associated with strategic initiatives, including Project Catalyst;
•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 ability to successfully develop or introduce new products;
•compliance with laws and other legal restrictions, including those relating to the international scope of our business;
•the Company’s ability to make acquisitions of suitable candidates and successfully integrate acquisitions;
•domestic and 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 policies, 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;
•changes in tax policy and 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 credit or 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 or illegal or fraudulent activities committed against the Company;
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•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.”
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 73 percent of consolidated net sales for the first six months of 2026, 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 one Asian site (Singapore).
•In February 2026, the Company announced Project Catalyst, a comprehensive operational and efficiency plan. As part of Project Catalyst, the Board of Directors approved plans to shut down the Company's Fieldsboro, New Jersey site and decommission select assets at its Elwood, Illinois (Millsdale) and Stalybridge, U.K. facilities during the first half of 2026. The Company is mostly consolidating impacted operations into its existing network, improving its asset utilization and reducing its fixed cost basis, while maintaining ongoing supply for its customers. The Company recognized $5.1 million and $70.5 million of pre-tax business restructuring expense related to these asset shutdowns during the second quarter and the first six months of 2026, respectively. This restructuring expense is captured on a separate Business Restructuring line item on the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2026. See Note 16, Business Restructuring, of the notes to the Company's consolidated financial statements for more details.
Polymers – Polymers, which accounted for 24 percent of consolidated net sales for the first six months of 2026, 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 2026, 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.
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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) 2026 2025 Change
Deferred Compensation (Operating expenses) $ (1.4 ) $ (1.8 ) $ 0.4 (1)
Realized/Unrealized Gains on Investments (Other, net) 1.2 1.6 (0.4 )
Investment Income (Other, net) 0.1 0.1 —
Pretax Income Effect $ (0.1 ) $ (0.1 ) $ —
Income (Expense)
For the Six Months Ended June 30,
(In millions) 2026 2025 Change
Deferred Compensation (Operating expenses) $ (2.0 ) $ (0.8 ) $ (1.2 ) (1)
Realized/Unrealized Gains on Investments (Other, net) 1.1 1.1 —
Investment Income (Other, net) 0.2 0.2 —
Pretax Income Effect $ (0.7 ) $ 0.5 $ (1.2 )
(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, 2026 and 2025:
For the Three Months Ended June 30,
(In millions) 2026 2025 Increase Increase Due to Foreign Translation
Net Sales $ 684.1 $ 594.7 $ 89.4 $ 17.1
Gross Profit 100.0 71.9 28.1 2.9
Operating Income 37.2 18.0 19.2 2.1
Pretax Income 32.5 13.8 18.7 2.1
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For the Six Months Ended June 30,
(In millions) 2026 2025 Increase (Decrease) Increase Due to Foreign Translation
Net Sales $ 1,288.6 $ 1,187.9 $ 100.7 $ 42.4
Gross Profit 164.8 147.3 17.5 5.4
Operating Income (Loss) (12.4 ) 46.3 (58.7 ) 3.4
Pretax Income (Loss) (21.9 ) 38.5 (60.4 ) 3.5
RESULTS OF OPERATIONS
Three Months Ended June 30, 2026 and 2025
Summary
Net income in the second quarter of 2026 was $22.9 million, or $1.00 per diluted share, versus $11.3 million, or $0.50 per diluted share, in the second quarter of 2025. Adjusted net income was $27.1 million, or $1.18 per diluted share, versus $12.0 million, or $0.52 per diluted share in the second quarter of 2025 (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 (loss) and reported earnings (loss) per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Earnings before interest, taxes, depreciation and amortization (EBITDA) were $69.1 million in the second quarter of 2026, up 37 percent, versus $50.6 million in the second quarter of 2025. Adjusted EBITDA was $74.4 million, up 45 percent, versus $51.4 million in the second quarter of 2025 (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 2026 compared to the second quarter of 2025. A detailed discussion of segment operating performance for the second quarter of 2026, compared to the second quarter of 2025, follows the summary.
Consolidated net sales increased $89.4 million, or 15 percent, year-over-year. Higher average selling prices favorably impacted the year-over-year change in net sales by $54.4 million. The increase in average selling prices was mostly attributable to the pass-through of higher raw material costs, more favorable product mix, and pricing actions. Consolidated sales volume increased three percent and positively impacted the change in net sales by $17.9 million. Surfactant, Polymer and Specialty Products sales volume increased two, five and four percent, respectively, year-over-year. Organic sales volume (excluding the divestiture of assets in the Philippines and the exit of a product line in the UK) increased six percent year-over-year. Foreign currency translation positively impacted the year-over-year change in net sales by $17.1 million, primarily due to a weaker U.S. dollar against most of the currencies in locations where the Company conducts its business.
Operating income in the second quarter of 2026 increased $19.2 million, or 107 percent, versus operating income in the second quarter of 2025. Surfactant and Polymer operating income increased $21.0 million and $5.3 million, respectively, year-over-year. Specialty Products operating income decreased $0.3 million versus the second quarter of 2025. Corporate expenses, including business restructuring, environmental remediation and deferred compensation expenses increased $6.8 million, year-over-year. Business restructuring expenses were $5.1 million in the second quarter of 2026 versus no restructuring expenses recognized during the second quarter of 2025. Foreign currency translation had a $2.1 million positive impact on operating income year-over-year.
Operating expenses (including deferred compensation) increased $3.7 million, or seven percent, year-over-year. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:
•Selling expenses were up one percent year-over-year. Higher incentive-based compensation expenses were mostly offset by the non-recurrence of a USEPA penalty recognized in 2025.
•Administrative expenses were up $1.4 million, or six percent, primarily due to higher incentive-based compensation expenses.
•Research, development and technical service (R&D) expenses increased $2.5 million, or 17 percent primarily due to higher incentive-based compensation expenses.
•Deferred compensation was $1.4 million of expense in the second quarter of 2026 versus $1.8 million of expense in the prior year quarter. The $0.4 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 second quarter of 2026 versus the second quarter of 2025. See the Overview and Segment Results-Corporate Expenses section of this MD&A for further details.
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Net interest expense for the second quarter of 2026 increased $0.2 million, or four percent, versus the second quarter of 2025.
Other, net was $1.0 million of income in the second quarter of 2026 versus $1.3 million of income in the second quarter of 2025. The Company recognized $1.4 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 2026 compared to $1.7 million of investment gains in the second quarter of 2025. In addition, the Company reported $0.4 million of foreign exchange losses in the second quarter of 2026 versus $0.6 million of foreign exchange losses in the second quarter of 2025. The Company's net periodic pension income was less than $0.1 million of income in the second quarter of 2026 versus $0.3 million of income in the second quarter of 2025.
The Company’s effective tax rate was 29.6 percent in the second quarter of 2026 versus 17.7 percent in the second quarter of 2025. The increase was primarily driven by a decrease in tax credit due to lower qualifying expenses associated with certain start-up costs which did not recur in 2026, and the non-recurrence of interest income recorded in Q2 2025 related to an audit settlement.
Segment Results
(Dollars in thousands) For the Three Months Ended June 30,
Net Sales 2026 2025 Increase Percent Change
Surfactants $ 483,902 $ 411,456 $ 72,446 18
Polymers 178,007 162,751 15,256 9
Specialty Products 22,200 20,482 1,718 8
Total Net Sales $ 684,109 $ 594,689 $ 89,420 15
(Dollars in thousands) For the Three Months Ended June 30,
Operating Income 2026 2025 Increase (Decrease) Percent Change
Surfactants $ 34,362 $ 13,367 $ 20,995 157
Polymers 22,469 17,159 5,310 31
Specialty Products 5,007 5,258 (251 ) -5
Segment Operating Income $ 61,838 $ 35,784 $ 26,054 73
Corporate Expenses, Excluding Deferred Compensation Expense $ 23,226 $ 16,058 $ 7,168 45
Deferred Compensation Expense $ 1,402 $ 1,761 $ (359 ) -20
Total Operating Income $ 37,210 $ 17,965 $ 19,245 107
Surfactants
Surfactant net sales for the second quarter of 2026 increased $72.4 million, or 18 percent, versus net sales for the second quarter of 2025. Higher average selling prices had a $47.3 million favorable impact on the change in net sales. The higher average selling prices were mainly attributable to the pass through of higher raw material costs, more favorable product mix and pricing actions. Sales volume increased two percent and had a $9.9 million favorable impact on the change in net sales. Organic sales volume increased seven percent year-over-year. The Company believes a portion of the volume growth reflects customer pre-buying in response to geopolitical and product supply uncertainty. Foreign currency translation had a $15.2 million favorable 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 2026 2025 Increase (Decrease) Percent Change
North America $ 273,715 $ 234,364 $ 39,351 17
Europe 81,965 74,605 7,360 10
Latin America 123,508 90,527 32,981 36
Asia 4,714 11,960 (7,246 ) -61
Total Surfactants Segment $ 483,902 $ 411,456 $ 72,446 18
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Net sales for North American operations increased $39.4 million, or 17 percent, year-over-year. Higher average selling prices positively impacted the change in net sales by $30.9 million and were primarily due to the pass-through of higher raw material costs, more favorable product mix and pricing actions. Sales volume increased four percent and positively impacted the change in net sales by $8.5 million. The higher sales volume was primarily due to higher demand for products sold into the industrial cleaning and oilfield end markets.
Net sales for European operations increased $7.4 million, or 10 percent, due to higher average selling prices, the favorable impact of foreign currency translation, and a one percent increase in sales volume. These items positively impacted the change in net sales by $5.2 million, $1.4 million and $0.8 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs and pricing actions. A weaker U.S. dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect. The higher sales volume was primarily due to higher demand for products sold into the consumer products end markets, partially offset by lower demand for products sold into the crop productivity end markets.
Net sales for Latin American operations increased $33.0 million, or 36 percent, primarily due to the favorable impact of foreign currency translation, a 13 percent increase in sales volume, and higher average selling prices. These items positively impacted the change in net sales by $13.7 million, $11.8 million, and $7.5 million, respectively. A weaker U.S. dollar relative to all currencies within the region led to the favorable foreign currency translation effect. The increase in sales volume was primarily due to higher demand for products sold into the commodity laundry and cleaning, industrial cleaning, and crop productivity end markets and to our distribution partners. The higher average selling prices were primarily due to the pass-through of higher raw material costs, more favorable product mix and pricing actions.
Net sales for Asian operations decreased $7.2 million, or 61 percent, versus the prior year quarter. A 76 percent decrease in sales volume negatively impacted the year-over-year change in net sales by $9.1 million. The lower sales volume was mainly due to the divestiture of assets in the Philippines during the fourth quarter of 2025. Higher average selling prices positively impacted the change in net sales by $1.8 million. Foreign currency translation had a $0.1 million favorable impact on the change in net sales year-over-year.
Surfactant operating income for the second quarter of 2026 increased $21.0 million, or 157 percent, versus operating income for the second quarter of 2025. Gross profit increased $22.8 million, or 56 percent, and operating expenses increased $1.8 million, or seven 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 2026 2025 Increase (Decrease) Percent Change
North America $ 30,305 $ 19,311 $ 10,994 57
Europe 9,967 8,138 1,829 22
Latin America 21,134 10,986 10,148 92
Asia 2,201 2,361 (160 ) -7
Surfactants Segment Gross Profit $ 63,607 $ 40,796 $ 22,811 56
Operating Expenses $ 29,245 $ 27,429 $ 1,816 7
Surfactants Segment Operating Income $ 34,362 $ 13,367 $ 20,995 157
Gross profit for North American operations increased $11.0 million, or 57 percent, versus the prior year primarily due to higher average unit margins. The higher average unit margins favorably impacted the change in gross profit by $10.3 million and were attributable to more favorable product mix, pricing actions, the initial benefits from Project Catalyst actions and the non-recurrence of an environmental remediation reserve adjustment recognized in the second quarter of 2025. The four percent increase in sales volume positively impacted the year-over-year change in gross profit by $0.7 million.
Gross profit for European operations increased $1.8 million, or 22 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 $0.2 million, respectively. The one percent increase in sales volume positively impacted the change in gross profit by $0.1 million.
Gross profit for Latin American operations increased $10.1 million, or 92 percent. Higher average unit margins, the favorable impact of foreign currency translation and the 13 percent increase in sales volume favorably impacted the year-over-year change in gross profit by $6.3 million, $2.4 million and $1.4 million, respectively. The higher average unit margins largely reflect more favorable product mix.
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Gross profit for Asia operations decreased $0.2 million year-over-year primarily due to the double-digit decrease in sales volume resulting from the asset divestiture in the Philippines during the fourth quarter of 2025. The decline in sales volume negatively impacted the year-over-year change in gross profit by $1.8 million but was largely offset by higher average unit margins. The higher average unit margins positively impacted the change in gross profit by $1.6 million and largely reflect lower overhead expenses resulting from production timing differences.
Operating expenses for the Surfactants segment increased $1.8 million, or seven percent, in the second quarter of 2026 versus the second quarter of 2025. This increase was largely due to higher incentive-based compensation expenses that were partially offset by the non-recurrence of a $1.1 million USEPA penalty recognized in the second quarter of 2025. In addition, foreign currency translation had a $0.7 million unfavorable impact on the year-over-year change in operating expenses.
Polymers
Polymer net sales for the second quarter of 2026 increased $15.3 million, or nine percent, versus net sales for the same period of 2025. A five percent increase in sales volume, higher average selling prices and the favorable impact of foreign currency translation positively impacted the year-over-year change in net sales by $7.4 million, $6.0 million and $1.9 million, respectively. A comparison of net sales by region follows:
(Dollars in thousands) For the Three Months Ended June 30,
Net Sales 2026 2025 Increase Percent Change
North America $ 99,245 $ 88,251 $ 10,994 12
Europe 67,307 63,296 4,011 6
Asia and Other 11,455 11,204 251 2
Total Polymers Segment $ 178,007 $ 162,751 $ 15,256 9
Net sales for North American operations increased $11.0 million, or 12 percent, year-over-year. Sales volume increased 15 percent and positively impacted the year-over-year change in net sales by $13.0 million. Sales volume of polyols used in rigid foam applications and within the commodity phthalic anhydride business increased 19 percent and 12 percent, respectively. Within rigid applications, spray foam sales increased triple digits. Lower average selling prices negatively impacted the change in net sales by $2.0 million.
Net sales for European operations increased $4.0 million, or six percent, year-over-year. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the year-over-year change in net sales by $5.0 million and $1.2 million, respectively. The higher average selling prices were mainly attributable to the pass through of higher raw material costs. A weaker U.S. dollar relative to the Polish zloty and British pound sterling led to the favorable foreign currency translation effect. A three percent decrease in sales volume negatively impacted the year-over-year change in net sales by $2.2 million. The lower sales volume reflects lower construction demand related to the macroeconomic environment and economic uncertainties.
Net sales for Asia and Other operations increased $0.3 million, or two percent, primarily due to higher average selling prices and the favorable impact of foreign currency translation. These items positively impacted the change in net sales by $1.4 million and $0.7 million, respectively. A 16 percent decrease in sales volume negatively impacted the year-over-year change in net sales by $1.8 million.
Polymer operating income in the second quarter of 2026 increased $5.3 million, or 31 percent, versus operating income in the second quarter of 2025. Gross profit increased $6.2 million, or 25 percent, and operating expenses increased $0.8 million, or 11 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 2026 2025 Increase (Decrease) Percent Change
North America $ 19,280 $ 13,799 $ 5,481 40
Europe 9,658 8,773 885 10
Asia and Other 1,841 2,055 (214 ) -10
Polymers Segment Gross Profit $ 30,779 $ 24,627 $ 6,152 25
Operating Expenses $ 8,310 $ 7,468 $ 842 11
Polymers Segment Operating Income $ 22,469 $ 17,159 $ 5,310 31
Gross profit for North American operations increased $5.5 million year-over-year. Higher average unit margins and the 15 percent increase in sales volume positively impacted the change in gross profit by $3.5 million and $2.0 million, respectively.
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Gross profit for European operations increased $0.9 million, or 10 percent, versus the second quarter of 2025. This increase was primarily due to higher average unit margins and the favorable impact of the foreign currency translation. These two factors positively impacted the change in gross profit by $1.0 million and $0.2 million, respectively. The three percent decrease in sales volume negatively impacted the year-over-year change in net sales by $0.3 million.
Gross profit for Asia and Other operations decreased $0.2 million, or 10 percent, primarily due to the 16 percent decrease in sales volume. The decrease in sales volume negatively impacted the year-over-year change in gross profit by $0.3 million. Foreign currency translation positively impacted the change in gross profit by $0.1 million.
Operating expenses for the Polymer segment increased $0.8 million, or 11 percent, in the second quarter of 2026 versus the second quarter of 2025 primarily due to higher incentive-based compensation expenses.
Specialty Products
Specialty Products net sales for the second quarter of 2026 increased $1.7 million, or eight percent, versus net sales for the second quarter of 2025. Gross profit and operating income decreased $0.2 million and $0.3 million, respectively, year-over-year. The year-over-year decreases in gross profit and operating income were primarily due to less favorable product mix within the medium chain triglycerides (MCT) product line that was mostly offset by higher earnings in the food and flavor business.
Corporate Expenses
Corporate expenses, which include business restructuring, deferred compensation and other operating expenses that are not allocated to the reportable segments, increased $6.8 million year-over-year. Corporate expenses were $24.6 million in the second quarter of 2026 versus $17.8 million in the second quarter of 2025. This increase was primarily due to a $5.1 million restructuring charge recognized in the second quarter of 2026 and higher year-over-year incentive-based compensation expenses. See Note 16, Business Restructuring, of the notes to the Company's consolidated financial statements for more details regarding the restructuring charge. These items were partially offset by a $0.4 million year-over-year decrease in deferred compensation expenses and a $0.6 million decrease in legacy environmental reserve expenses.
The $0.4 million decrease in deferred compensation expense was primarily due to a smaller increase in the market value of mutual fund investment assets during the second quarter of 2026 versus the second quarter of 2025. Partially offsetting the above, the market price of the Company's common stock increased $5.74 per share in the second quarter of 2026 versus a $0.46 per share decrease in the second quarter of 2025.
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, 2026 and 2025:
2026 2025
June 30 March 31 June 30 March 31
Company Common Stock Price $ 55.72 $ 49.98 $ 54.58 $ 55.04
Six Months Ended June 30, 2026 and 2025
Summary
The Company incurred an $18.5 million net loss in the first half of 2026, or a loss of $0.81 per diluted share, versus net income of $31.1 million, or $1.36 income per diluted share, in the first half of 2025. The current year loss resulted from $55.2 million of after-tax restructuring charges recognized in 2026. Adjusted net income was $37.4 million, or $1.63 per diluted share, versus $31.3 million, or $1.37 per diluted share in the first half of 2025 (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 (loss) and reported earnings (loss) per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Earnings before interest, taxes, depreciation and amortization (EBITDA) were $52.7 million in the first half of 2026, down 51 percent from $108.6 million in the first half of 2025. Adjusted EBITDA was $124.1 million, up 14 percent, from $108.9 million in the first half of 2025 (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 2026 compared to the first half of 2025. A detailed discussion of segment operating performance for the first half of 2026, compared to the first half of 2025, follows the summary.
Consolidated net sales increased $100.7 million, or eight percent, year-over-year. Higher average selling prices favorably impacted the year-over-year change in net sales by $56.1 million. The increase in average selling prices was mainly attributable to the pass-through of higher raw material costs, more favorable product mix and pricing actions. Foreign currency translation positively impacted the year-over-year change in net sales by $42.4 million, due to a weaker U.S. dollar against all currencies in the
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locations that the Company conducts its business. Consolidated sales volume increased less than one percent and positively impacted the change in net sales by $2.2 million. Organic sales volume was up three percent year-over-year.
The Company incurred a $12.4 million operating loss in the first half of 2026 versus $46.3 million of operating income in the first half of 2025. Surfactant and Polymer operating income increased $10.6 million and $6.1 million, respectively, year-over-year. Specialty Products operating income decreased $1.0 million between years. Corporate expenses, including business restructuring, environmental remediation and deferred compensation expenses increased $74.3 million, year-over-year. Business restructuring expenses were $70.5 million in the first six months of 2026 versus no restructuring expenses recognized in the first six months of 2025. Foreign currency translation had a $3.4 million favorable impact on operating income year-over-year.
Operating expenses (including deferred compensation) increased $5.6 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 $0.3 million, or one percent, year-over-year.
•Administrative expenses increased $1.3 million, or three percent, year-over-year primarily due to higher incentive-based compensation expenses.
•Research, development and technical service (R&D) expenses increased $2.8 million, or 10 percent primarily due to higher incentive-based compensation expenses.
•Deferred compensation was $2.0 million of expense in the first half of 2026 versus $0.8 million of expense in the first half of 2025. The $1.2 million year-over-year increase in deferred compensation expense primarily reflects an $8.36 per share increase in the market price of the Company's common stock during the first six months of 2026 versus a $10.12 per share decrease in the market price during the first six months of 2025. See the Overview and Segment Results-Corporate Expenses section of this MD&A for further details.
Net interest expense for the first half of 2026 increased $1.1 million, or 11 percent, versus the first half of 2025. This increase was primarily attributable to lower U.S. capitalized interest income recognized in 2026 as the Company's new specialty alkoxylation facility in Pasadena, Texas started up in April 2025.
Other, net was $1.2 million of income in the first half of 2026 versus $1.8 million of income in the first half of 2025. 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 both the first half of 2026 and 2025. In addition, the Company reported $0.2 million of foreign exchange losses in the first half of 2026 versus less than $0.1 million of foreign exchange losses in the first half of 2025. The Company's net periodic pension income was less than $0.1 million in the first half of 2026 versus $0.5 million in the first half of 2025.
The Company’s effective tax rate was 15.7 percent in the first half of 2026 versus 19.2 percent in the first half of 2025. The decrease was primarily attributable to the geographical mix of income partially offset by select uncertain tax positions that did not recur in the first half of 2026. These amounts had a more pronounced impact on the effective tax rate due to the pre-tax loss in the first half of 2026 versus pre-tax income in the first half of 2025.
Segment Results
(In thousands) For the Six Months Ended June 30,
Net Sales 2026 2025 Increase (Decrease) Percent Change
Surfactants $ 937,589 $ 841,793 $ 95,796 11
Polymers 308,036 308,867 (831 ) 0
Specialty Products 42,993 37,284 5,709 15
Total Net Sales 1,288,618 1,187,944 100,674 8
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(In thousands) For the Six Months Ended June 30,
Operating Income 2026 2025 Increase (Decrease) Percent Change
Surfactants $ 52,910 $ 42,297 $ 10,613 25
Polymers 31,291 25,177 6,114 24
Specialty Products 9,722 10,766 (1,044 ) -10
Segment Operating Income $ 93,923 $ 78,240 $ 15,683 20
Corporate Expenses, Excluding Deferred Compensation Expense $ 104,371 $ 31,222 $ 73,149 234
Deferred Compensation Expense $ 1,964 $ 765 $ 1,199 157
Total Operating Income $ (12,412 ) $ 46,253 $ (58,665 ) NM
Surfactants
Surfactant net sales for the first half of 2026 increased $95.8 million, or 11 percent, versus net sales for the first half of 2025. Higher average selling prices favorably impacted the change in net sales by $56.8 million. The higher average selling prices were mainly attributable to the pass through of higher raw material costs, more favorable product mix and pricing actions. Sales volume increased less than one percent and positively impacted the year-over-year change in net sales by $3.2 million. Organic sales volume increased four percent year-over-year. The Company believes a portion of the volume growth reflects customer pre-buying in response to geopolitical and product supply uncertainty. Foreign currency translation positively impacted the year-over-year change in net sales by $35.8 million. A comparison of net sales by region follows:
(In thousands) For the Six Months Ended June 30,
Net Sales 2026 2025 Increase (Decrease) Percent Change
North America $ 532,810 $ 486,099 $ 46,711 10
Europe 176,126 156,203 19,923 13
Latin America 220,118 173,291 46,827 27
Asia 8,535 26,200 (17,665 ) -67
Total Surfactants Segment $ 937,589 $ 841,793 $ 95,796 11
Net sales for North American operations increased $46.7 million, or 10 percent, year-over-year. Higher average selling prices had a $36.3 million favorable impact on the change in net sales and were primarily due to the pass-through of higher raw material costs, more favorable product mix and pricing actions. Sales volume increased two percent and positively impacted the change in net sales by $10.0 million. The higher sales volume was primarily due to higher demand for products sold into the industrial cleaning, crop productivity, and oilfield end markets, partially offset by lower demand for products sold into the commodity laundry and cleaning end markets. Foreign currency translation favorably impacted the change in net sales by $0.4 million.
Net sales for European operations increased $19.9 million, or 13 percent, due to the favorable impact of foreign currency translation, higher average selling prices and a three percent increase in sales volume. These items positively impacted the change in net sales by $10.1 million, $5.6 million and $4.2 million, respectively. A weaker U.S. dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect. The higher average selling prices were primarily due to the pass-through of higher raw material costs and pricing actions. The higher sales volume was primarily due to higher demand for products sold into the commodity laundry and cleaning end markets.
Net sales for Latin American operations increased $46.8 million, or 27 percent, due to the favorable impact of foreign currency translation, a nine percent increase in sales volume and higher average selling prices. These items positively impacted the change in net sales by $25.2 million, $15.6 million and $6.0 million, respectively. A weaker U.S. dollar relative to all currencies within the region led to the favorable foreign currency translation effect. The increase in sales volume was primarily due to higher demand for products sold into the commodity laundry and cleaning, industrial cleaning and crop productivity end markets and to our distribution partners. The higher average selling prices were primarily due to the pass-through of higher raw material costs, more favorable product mix and pricing actions.
Net sales for Asian operations decreased $17.7 million, or 67 percent, year-over-year. An 81 percent decrease in sales volume negatively impacted the year-over-year change in net sales by $21.1 million. The lower sales volume was mainly due to the divestiture of assets in the Philippines during the fourth quarter of 2025. Higher average selling prices positively impacted the change in net sales by $3.4 million. Foreign currency translation had a negligible impact year-over-year.
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Surfactant operating income for the first half of 2026 increased $10.6 million, or 25 percent, versus operating income for the first half of 2025. Gross profit increased $12.8 million, or 14 percent, and operating expenses increased $2.2 million, or four 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 2026 2025 Increase (Decrease) Percent Change
North America $ 54,187 $ 45,662 $ 8,525 19
Europe 21,408 18,844 2,564 14
Latin America 29,966 22,634 7,332 32
Asia 1,716 7,327 (5,611 ) -77
Surfactants Segment Gross Profit $ 107,277 $ 94,467 $ 12,810 14
Operating Expenses $ 54,367 $ 52,170 $ 2,197 4
Surfactants Segment Operating Income $ 52,910 $ 42,297 $ 10,613 25
Gross profit for North American operations increased $8.5 million, or 19 percent, versus the prior year primarily due to higher average unit margins. The higher average unit margins positively impacted the year-over-year change in gross profit by $7.6 million and were primarily attributable to more favorable product mix, pricing actions, the initial benefits from Project Catalyst actions and the non-recurrence of an environmental reserve adjustment recognized in the second quarter of 2025. A two percent increase in sales volume positively impacted the year-over-year change in gross profit by $0.9 million.
Gross profit for European operations increased $2.6 million, or 14 percent, due to the favorable impact of foreign currency translation, higher average unit margins and the three percent increase in sales volume. These items positively impacted the year-over-year change in gross profit by $1.4 million, $0.7 million and $0.5 million, respectively.
Gross profit for Latin American operations increased $7.3 million, or 32 percent, due to the favorable impact of the foreign currency translation, higher average unit margins and the nine percent increase in sales volume. These items positively impacted the year-over-year change in gross profit by $3.3 million, $2.0 million and $2.0 million, respectively. The higher average unit margins were primarily due to a more favorable product mix.
Gross profit for Asia operations decreased $5.6 million year-over-year primarily due to the double-digit decrease in sales volume resulting from the asset divestiture in the Philippines during the fourth quarter of 2025. The decline in sales volume negatively impacted the year-over-year change in gross profit by $5.9 million. Higher average unit margins positively impacted the change in gross profit by $0.3 million.
Operating expenses for the Surfactants segment increased $2.2 million, or four percent, in the first half of 2026 versus the first half of 2025. This increase reflects higher incentive-based compensation expenses that were partially offset by the non-recurrence of a $1.1 million USEPA penalty recognized in the second quarter of 2025. In addition, foreign currency translation had a $1.6 million unfavorable impact on the change in operating expenses year-over-year.
Polymers
Polymers net sales for the first half of 2026 decreased $0.8 million, or less than one percent, versus net sales for the same period of 2025. Lower average selling prices negatively impacted the year-over-year change in net sales by $4.7 million. A one percent decrease in sales volume negatively impacted the change in net sales by $2.4 million. Foreign currency translation positively impacted the change in net sales by $6.3 million. A comparison of net sales by region follows:
(In thousands) For the Six Months Ended June 30,
Net Sales 2026 2025 Increase (Decrease) Percent Change
North America $ 171,047 $ 161,044 $ 10,003 6
Europe 114,841 124,438 (9,597 ) -8
Asia and Other 22,148 23,385 (1,237 ) -5
Total Polymers Segment $ 308,036 $ 308,867 $ (831 ) 0
Net sales for North American operations increased $10.0 million, or six percent, year-over-year. Sales volume increased 10 percent and positively impacted the year-over-year change in net sales by $16.5 million. Sales volume of polyols used in rigid foam applications and commodity phthalic anhydride increased 13 percent and 11 percent, respectively, year-over-year. Within rigid
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applications, spray foam sales volume increased triple digits. Sales volume of specialty polyols decreased four percent. Lower average selling prices negatively impacted the year-over-year change in net sales by $6.5 million.
Net sales for European operations decreased $9.6 million, or eight percent, year-over-year. An 11 percent decrease in sales volume and lower average selling prices negatively impacted the year-over-year change in net sales by $13.9 million and $0.8 million, respectively. The lower sales volume is due to lower construction demand related to the macroeconomic environment and economic uncertainties. Foreign currency translation positively impacted the change in net sales by $5.1 million. A weaker U.S. dollar relative to the Polish zloty and British pound sterling led to the favorable foreign currency translation effect.
Net sales for Asia and Other operations decreased $1.2 million, or five percent, primarily due to a nine percent decrease in sales volume and lower average selling prices. These items negatively impacted the year-over-year change in net sales by $2.1 million and $0.3 million, respectively. Foreign currency translation favorably impacted the change in net sales by $1.2 million.
Polymer operating income in the first half of 2026 increased $6.1 million, or 24 percent, versus operating income in the first half of 2025. Gross profit increased $6.9 million, or 17 percent and operating expenses increased $0.8 million or five 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 2026 2025 Increase (Decrease) Percent Change
North America $ 28,931 $ 18,435 $ 10,496 57
Europe 13,700 16,755 (3,055 ) -18
Asia and Other 4,132 4,657 (525 ) -11
Polymers Segment Gross Profit $ 46,763 $ 39,847 $ 6,916 17
Operating Expenses $ 15,472 $ 14,670 $ 802 5
Polymers Segment Operating Income $ 31,291 $ 25,177 $ 6,114 24
Gross profit for North American operations increased $10.5 million, or 57 percent, year-over-year. This increase was primarily due to higher average unit margins and the 10 percent increase in sales volume. These items positively impacted the year-over-year change in gross profit by $8.6 million and $1.9 million, respectively. The higher average unit margins largely reflect the non-recurrence of high cost of inventory carryover incurred in the prior year.
Gross profit for European operations decreased $3.1 million, or 18 percent, versus the first half of 2025. This decrease was primarily due to the 11 percent decrease in sales volume and lower average unit margins. These items negatively impacted the year-over-year change in gross profit by $1.9 million and $1.7 million, respectively. Foreign currency translation positively impacted the change in gross profit by $0.5 million.
Gross profit for Asia and Other operations decreased $0.5 million, or 11 percent, year-over year. This decrease was primarily due to the nine percent decrease in sales volume and lower average unit margins. These items negatively impacted the change in gross profit by $0.4 million and $0.3 million, respectively. Foreign currency translation positively impacted the change in gross profit by $0.2 million.
Operating expenses for the Polymer segment increased $0.8 million, or five percent, year-over-year.
Specialty Products
Specialty Products net sales for the first half of 2026 increased $5.7 million, or 15 percent, versus net sales for the first half of 2025. The increase was primarily due to a 15 percent increase in sales volume. Gross profit and operating income both decreased by $1.0 million. The year-over year decrease in both gross profit and operating income was primarily due to less favorable product mix within the MCT product line that was partially offset by higher earnings in the food and flavor business.
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Corporate Expenses
Corporate expenses, which include business restructuring, deferred compensation, and other operating expenses that are not allocated to the reportable segments, increased $74.3 million, year-over-year. Corporate expenses were $106.3 million in the first half of 2026 versus $32.0 million in the first half of 2025. The increase was primarily due to a $70.5 million restructuring charge recognized in the first half of 2026. See Note 16, Business Restructuring, of the notes to the Company's consolidated financial statements for more details regarding the restructuring charge.
Deferred compensation expense increased $1.2 million year-over-year and was primarily due to an $8.36 per share increase in the market price of the Company's common stock during the first six months of 2026 versus a $10.12 per share decrease in the market price during the first six months of 2025.
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, 2026 and 2025:
2026 2025 2024
June 30 December 31 June 30 December 31
Company Common Stock Price $ 55.72 $ 47.36 $ 54.58 $ 64.70
LIQUIDITY AND CAPITAL RESOURCES
Overview
For the six months ended June 30, 2026, operating activities were a cash source of $25.3 million versus a cash source of $18.1 million for the comparable period in 2025. For the first six months of 2026, investing cash outflows totaled $46.3 million versus cash outflows of $51.5 million in the prior year period. Financing activities were a cash source of $1.2 million versus a cash source of $13.3 million in the prior year period.
Cash and cash equivalents decreased $19.0 million compared to December 31, 2025, inclusive of an $0.8 million favorable foreign exchange rate impact. On June 30, 2026, the Company's cash and cash equivalents totaled $113.7 million. Cash in non-U.S. money market funds, which were rated AAAm by Standard and Poor’s, Aaa-mf by Moody’s and AAAmmf by Fitch, totaled $10.5 million and cash in U.S. demand deposit accounts totaled $1.4 million. The Company’s non-U.S. subsidiaries held $101.8 million of cash and cash equivalents as of June 30, 2026.
Operating Activities
Net income during the first six months of 2026 decreased $49.5 million versus the comparable period in 2025. Working capital was a cash use of $77.2 million during the first six months of 2026 versus a cash use of $74.7 million in the comparable period in 2025.
Accounts receivable were a cash use of $104.3 million during the first six months of 2026 compared to a cash use of $31.8 million for the comparable period in 2025. Inventories were a cash use of $24.2 million in 2026 versus a cash use of $30.7 million in 2025. Accounts payable and accrued liabilities were a cash source of $56.4 million in 2026 compared to a cash use of $1.6 million for the same period in 2025.
Working capital requirements were higher in the first six months of 2026 compared to 2025 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 accounts payable and accrued liabilities primarily reflects higher trade payables due to escalating raw material costs. It is management’s opinion that the Company’s liquidity is sufficient to provide for potential increases in working capital requirements during 2026.
Investing Activities
Cash used for investing activities decreased $5.2 million year-over-year primarily due to lower capital expenditures in the first six months of 2026 versus the same period of 2025.
For 2026, the Company estimates that total capital expenditures will be in the range of $100.0 million to $110.0 million.
Financing Activities
Cash flow from financing activities was a source of $1.2 million in 2026 versus a source of $13.3 million in 2025. The year-over-year change reflects higher borrowings from the Company's revolving credit agreement during the first six months of 2026 versus the prior year period. These higher credit facility borrowings were more than offset by the non-recurrence of $75.0 million of senior unsecured notes issued in the second quarter of 2025.
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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, 2026. At June 30, 2026, 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 $20.7 million, from $626.7 million on December 31, 2025 to $647.4 million on June 30, 2026, 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 $533.7 million on June 30, 2026 versus $494.0 million at December 31, 2025.
As of June 30, 2026, the ratio of net debt to net debt plus shareholders’ equity was 31.0 percent versus 28.0 percent at December 31, 2025 (see the “Reconciliation of Non-GAAP Net Debt” section in this MD&A for further details). On June 30, 2026, the Company’s debt included $303.4 million of unsecured notes, with maturities ranging from 2026 through 2033, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements (the “Note Purchase Agreements”), an $80.0 million delayed-draw term loan borrowed pursuant to the Company’s credit agreement, $264.0 million of short-term loans borrowed under the Company’s revolving credit facility and no foreign credit line borrowings. As of June 30, 2026, the Company had outstanding letters of credit of $13.3 million, inclusive of $4.6 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 ($20.0 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, 2026, 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 $4.6 million at June 30, 2026.
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, 2026, the Company’s foreign subsidiaries had no 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).
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The Company believes it was in compliance with the covenants under its material debt agreements as of June 30, 2026.
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 2026 and 2025, the Company’s expenditures for capital projects related to environmental matters were $1.5 million and $4.4 million, respectively. These projects are capitalized and depreciated over their estimated useful lives, which are typically 10 years. Recurring costs associated with the operation and maintenance of facilities for waste treatment and disposal and managing environmental compliance in ongoing operations at the Company’s manufacturing locations were $22.1 million and $21.1 million for the six months ended June 30, 2026 and 2025, 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 $19.6 million to $46.5 million at June 30, 2026 and $19.3 million to $46.0 million at December 31, 2025. 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 $19.6 million at June 30, 2026 and $19.3 million at December 31, 2025. 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 $0.7 million for the six months ended June 30, 2026, compared to $2.6 million for the same period in 2025.
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 2025 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
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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.
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 is typically 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, 2026 June 30, 2025
Net Income Diluted EPS Net Income Diluted EPS
Net Income Attributable to the Company as Reported $ 22.9 $ 1.00 $ 11.3 $ 0.50
Deferred Compensation (Income)/Expense (including related investment activity) 0.1 — 0.1 —
Environmental Remediation Expense 0.1 — 0.7 0.02
Business Restructuring 5.1 0.22 — —
Total Pre-tax Adjustments $ 5.3 $ 0.22 $ 0.8 $ 0.02
Cumulative Tax Effect on Above Adjustment Items (1.1 ) (0.04 ) (0.1 ) —
Adjusted Net Income $ 27.1 $ 1.18 $ 12.0 $ 0.52
Six Months Ended
(In millions, except per share amounts) June 30, 2026 June 30, 2025
Net Income (Loss) Diluted EPS Net Income Diluted EPS
Net Income (Loss) Attributable to the Company as Reported $ (18.5 ) $ (0.81 ) $ 31.1 $ 1.36
Deferred Compensation (Income)/Expense (including related investment activity) 0.7 0.03 (0.5 ) (0.02 )
Environmental Remediation Expense 0.2 — 0.8 0.03
Business Restructuring 70.6 3.08 — —
Total Pre-tax Adjustments $ 71.5 $ 3.11 $ 0.3 $ 0.01
Cumulative Tax Effect on Above Adjustment Items (15.6 ) (0.67 ) (0.1 ) —
Adjusted Net Income $ 37.4 $ 1.63 $ 31.3 $ 1.37
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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) 2026 2025
Operating Income (Loss) $ 37.2 $ 18.0
Depreciation and Amortization 30.9 31.3
Other, Net Income 1.0 1.3
EBITDA $ 69.1 $ 50.6
Deferred Compensation 0.1 0.1
Environmental Remediation 0.1 0.7
Business Restructuring 5.1 —
Adjusted EBITDA $ 74.4 $ 51.4
For the Six Months Ended June 30,
($ in millions) 2026 2025
Operating Income (Loss) $ (12.4 ) $ 46.3
Depreciation and Amortization 63.9 60.5
Other, Net Income 1.2 1.8
EBITDA $ 52.7 $ 108.6
Deferred Compensation Expense (Income) 0.7 (0.5 )
Environmental Remediation 0.2 0.8
Business Restructuring 70.5 —
Adjusted EBITDA $ 124.1 $ 108.9
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, 2026 December 31, 2025
Current Maturities of Long-Term Debt as Reported $ 403.3 $ 285.7
Long-Term Debt as Reported 244.1 341.0
Total Debt as Reported 647.4 626.7
Less Cash and Cash Equivalents as Reported (113.7 ) (132.7 )
Net Debt $ 533.7 $ 494.0
Equity $ 1,212.0 $ 1,244.0
Net Debt plus Equity $ 1,745.7 $ 1,738.0
Net Debt/Net Debt plus Equity 31 % 28 %
40