ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide information that is supplemental to, and should be read together with, our consolidated financial statements and the accompanying notes contained in this Annual Report on Form 10-K. Information in this Item 7 is intended to assist the reader in obtaining an understanding of our consolidated financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that accounted for those changes, and any known trends or uncertainties that we are aware of that may have a material effect on our future performance, as well as how certain accounting principles affect our consolidated financial statements. Unless otherwise noted, the discussion that follows includes a comparison of our results of operations, liquidity and capital resources, and cash flows for fiscal years 2025 and 2024. For a discussion of changes from fiscal year 2024 to fiscal year 2023, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 18, 2025.
The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “ Cautionary Note on Forward-Looking Statements ” and Item 1A, “ Risk Factors .”
Our Business
We are an innovator of materials solutions to help our customers succeed, while enabling a sustainable world. Our products include specialty engineered materials, performance fibers, advanced composites, and color and additive solutions. We are also a highly specialized developer and manufacturer of performance enhancing additives, liquid colorants and silicone colorants. Headquartered in Avon Lake, Ohio, with 2025 sales of $3.3 billion, we have manufacturing and warehouses around the globe, with 61% of our sales to customers outside the United States. We provide value to our customers through our ability to link our knowledge of polymers and materials science with our manufacturing and supply chain capabilities to provide value-added solutions to designers, assemblers and processors of materials.
Strategy and Key Trends
In 2024, we unveiled Avient's new strategic direction guided by our purpose: to be an innovator of materials solutions to help our customers succeed, while enabling a sustainable world. We seek to achieve this with a two-pronged strategic approach: 1) building new platforms of scale, to play bigger and bolder in high-growth markets, and 2) catalyzing our core business, to maximize the impact of our existing portfolio. We have identified growth vectors — specific markets and applications targeted for above-market growth — in both accelerating markets and in our core business, by intersecting secular trends with our technologies.
We seek to operationalize our strategy using four strategic drivers: Portfolio Prioritization; Amplify Innovation; Digital for Operational Excellence and Growth; and Leadership, Talent, and Culture for the Avient of the Future. Our strategy builds upon Avient's foundational strengths refined over our history: unwavering customer focus; global reach with a local touch; diverse technology portfolio; commercial excellence; financial rigor and prudence; and a culture of safety and sustainability. The safety and health of our employees remain top priorities, and our ultimate goal is to operate injury-free.
In 2025, we made significant progress implementing our new strategy. Our growth vector sales are outpacing the rest of the Company, with defense and healthcare leading the way. Internal R&D collaboration has increased, resulting in technology sharing across businesses and geographies. We have bolstered digital capabilities with a focus on pilot projects designed to improve speed and efficiency. We continued to foster the culture needed to execute our strategy, and to build our talent pipeline by promoting leaders from within while bringing in external expertise as needed.
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Results of Operations
Variances — Favorable (Unfavorable)
2025 versus 2024
(Dollars in millions, except per share data)
Change
Change
Sales
Cost of sales
Gross margin
Selling and administrative expense
Operating income
Interest expense, net
Other income, net
Income from continuing operations before income taxes
Income tax expense
Net income from continuing operations
Loss from discontinued operations, net of income taxes
Net income
Net income attributable to noncontrolling interests
Net income attributable to Avient common shareholders
Earnings per share attributable to Avient common shareholders - basic:
Earnings per share attributable to Avient common shareholders - diluted:
Gross margin as a percentage of sales
nm - not meaningful
Sales
Sales increased $19.8 million, or 0.6%, in 2025 compared to 2024. Favorable foreign currency impacts were 0.9%, while sales, excluding the impacts of foreign exchange, decreased 0.3%. The sales decline was primarily within the consumer, industrial and energy end markets, partially offset by sales increases in the healthcare, defense and telecommunications end markets.
Gross Margin
Gross margin decreased to 31.2% from 32.6% in 2025 compared to 2024, primarily driven by higher restructuring charges of $22.2 million and higher operating costs, which included planned maintenance in the second quarter of 2025. Further, in 2024, Avient recognized a gain from insurance recoveries associated with previously incurred environmental remediation costs of $34.7 million as compared to a gain of $2.0 million in 2025. This was partially offset by lower environmental remediation charges of $11.6 million.
Selling and administrative expense
These costs include selling, technology, administrative functions, amortization of intangible assets, corporate and general expenses. Selling and administrative expense in 2025 increased $84.7 million compared to 2024, primarily driven by an impairment charge of $71.6 million associated with the Company's decision to cease development of the cloud-based enterprise resource planning system, S/4HANA, charges of $14.7 million associated with unpaid contractual obligations for hosting fees, and higher restructuring charges of $21.7 million. These charges were partially offset by productivity initiatives and lower incentive compensation cost.
Interest expense, net
Interest expense, net decreased $7.0 million in 2025 as compared to 2024, primarily driven by the benefit of reduced interest rates resulting from previous refinancing activity, in addition to prepayments totaling $150.0 million made on our senior secured term loan throughout 2025.
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Other income, net
Other income, net increased $5.7 million in 2025 as compared to 2024, primarily associated to a $5.4 million increase in mark-to-market income associated with pension and post-retirement plans.
Income taxes
The 2025 consolidated effective tax rate was 25.2% compared to 24.1% in 2024. The higher tax rate was primarily attributable to higher Global Intangible Low-tax Income (GILTI) and Subpart F income and increases in valuation allowances. These increases were partially offset by the tax effects of intercompany transactions, including statutory impairments and the intercompany sale of intellectual property. Refer to Note 11 - Income Taxes for further detail, including a rate reconciliation.
Segment Information
Operating income is the primary segment performance measure that is reported to our chief operating decision maker (CODM), which is the Company's chief executive officer. Our CODM utilizes this measure to determine appropriate resource allocations to our segments in the annual planning process and to periodically assess segment performance, primarily by evaluating actual results in comparison to the annual operating plan and forecast. Operating income at the segment level does not include corporate general and administrative expenses that are not allocated to segments, restructuring charges, share-based compensation costs, environmental remediation costs and associated recoveries, asset impairments, acquisition-related charges, mark-to-market adjustments on pension and other post-retirement obligations, and certain other items that are not included in the measure of segment profit or loss that is reported to and reviewed by our CODM. These costs are included in Corporate .
Avient has two reportable segments: (1) Color, Additives and Inks and (2) Specialty Engineered Materials. Our segments are further discussed in Note 13, Segment Information , to the accompanying consolidated financial statements.
Sales and Operating Income
2025 versus 2024
(Dollars in millions)
Change
% Change
Sales:
Color, Additives and Inks
Specialty Engineered Materials
Corporate
Total sales
Operating income:
Color, Additives and Inks
Specialty Engineered Materials
Corporate
Total operating income
Color, Additives and Inks
Sales decreased $12.3 million, or 0.6%, in 2025 compared to 2024. Favorable foreign currency impacts were 1.0%, while sales, excluding the impacts of foreign exchange, decreased 1.6%. The sales decrease was primarily within the consumer, building and construction, industrial and transportation end markets, partially offset by growth in the healthcare end market.
Operating income increased $5.1 million, or 1.7%, in 2025 compared to 2024. The increase was primarily driven by improved mix and cost savings from productivity and restructuring actions, in addition to lower incentive compensation cost.
Specialty Engineered Materials
Sales increased $34.5 million, or 2.9%, in 2025 compared to 2024. Favorable foreign currency impacts were 0.9%, while sales, excluding the impacts of foreign exchange, increased 2.0%. The sales increase was primarily within the healthcare, defense and telecommunications end markets, partially offset by declines in the industrial, consumer and energy end markets.
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Operating income decreased by $3.6 million, or 2.2%, in 2025 compared to 2024. The increase in sales was more than offset by higher operating costs, including costs associated with planned maintenance in the second quarter of 2025, raw material inflation, and investments in the Company's growth vectors.
Corporate
Corporate costs increased $127.3 million in 2025 compared to 2024, primarily driven by an impairment charge of $71.6 million associated with the Company's decision to cease development of the cloud-based enterprise resource planning system, S/4HANA, charges of $14.7 million associated with unpaid contractual obligations for hosting fees, and higher restructuring costs of $43.9 million. Further, in 2024, Avient recognized a gain from insurance recoveries associated with previously incurred environmental remediation costs of $34.7 million as compared to a gain of $2.0 million in 2025. This was partially offset by lower environmental remediation charges of $11.6 million in 2025, lower incentive compensation cost, and benefits from productivity initiatives.
Liquidity and Capital Resources
Our objective is to finance our business through operating cash flow and an appropriate mix of debt and equity. By laddering the maturity structure, we avoid concentrations of debt maturities, reducing liquidity risk. We may from time to time seek to retire or purchase our outstanding debt with cash on hand and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. We may also seek to repurchase our outstanding common shares. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved have been and may continue to be material.
The following table summarizes our liquidity as of December 31, 2025:
(In millions)
Cash and cash equivalents
Revolving credit availability
Liquidity
As of December 31, 2025, 76% of the Company’s cash and cash equivalents resided outside the United States.
Based on current projections, we believe that we will be able to continue to manage and control working capital, discretionary spending and capital expenditures and that cash provided by operating activities, along with available borrowing capacity under our revolving credit facilities, will allow us to maintain adequate levels of available capital to fund our operations, meet debt service obligations, continue paying dividends, and pay down debt and/or opportunistically repurchase outstanding common shares for at least twelve months and the foreseeable future thereafter.
Expected sources of cash needed to satisfy cash requirements in 2026 include our cash on hand, cash from operations and available liquidity under our revolving credit facility, if necessary. Expected uses of cash in 2026 include interest payments, cash taxes, dividend payments, debt repayment, share repurchases, environmental remediation payments and capital expenditures. Capital expenditures are currently estimated to be approximately $140 million in 2026, primarily to support organic sales growth and other strategic investments.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities:
(In millions)
Cash provided by (used by):
Operating Activities
Investing Activities
Financing Activities
Effect of exchange rate on cash
Net decrease in cash and cash equivalents
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Operating Activities
Net cash provided by operating activities increased to $301.6 million in 2025, as compared to $256.8 million in 2024, driven primarily by insurance proceeds of $34.0 million for previously incurred losses at the Calvert City site, a $23.0 million reduction in pension, retirement benefits and deferred compensation plan obligations, primarily associated with 2024 benefit payments for executive retirements, and a $17.9 million decrease in environmental remediation payments. This was partially offset by higher incentive payments in 2025 associated with 2024 performance and increased working capital.
Investing Activities
Net cash used by investing activities during 2025 of $97.0 million primarily reflects the impact of capital expenditures of $106.6 million, which were partially offset by proceeds from plant closures of $12.9 million.
Financing Activities
Net cash used by financing activities of $257.1 million in 2025 primarily reflects repayment on long-term borrowings of $150.3 million and $98.8 million of dividends paid.
Total Debt
The following table summarizes debt as of December 31, 2025 and 2024.
(In millions)
Senior secured revolving credit facility
Senior secured term loan due 2029
7.125% senior notes due 2030
6.250% senior notes due 2031
Other Debt
Total Debt
Less short-term debt
Total long-term debt, net of current portion
On March 12, 2025, the Company refinanced its senior secured term loan by amending the credit agreement governing such term loan (the Term Loan Amendment). The Term Loan Amendment reduced the interest rate per annum by 25 basis points, which now is either (i) Adjusted Term SOFR (as defined in the Term Loan Amendment) plus 1.75%, or (ii) a Base Rate (as defined in the Term Loan Amendment) plus 0.75%. The maturity date and other terms and conditions are substantially the same as the terms and conditions under the credit agreement immediately prior to the Term Loan Amendment.
During 2025, the Company made voluntary prepayments of $150.0 million on its senior secured term loan, which were applied to the principal installments in direct order of maturity. These prepayments were made without penalty or premium.
On June 12, 2025, the Company entered into a revolving credit agreement (the Revolving Credit Agreement) with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as administrative agent, which replaced our previous credit agreement set to mature in 2026. The Revolving Credit Agreement provides for a senior secured revolving credit facility of up to $500.0 million, which may be increased by up to $250.0 million, subject to certain conditions. Loans under the Revolving Credit Agreement will mature on June 12, 2030. The Revolving Credit Agreement contains representations and warranties, affirmative covenants, negative covenants and events of default that are substantially similar to those contained in the Company's existing term loan credit agreement.
As of December 31, 2025 and 2024, we had no borrowings outstanding under our Revolving Credit Facility. As of December 31, 2025, remaining availability under our Revolving Credit Facility was $490.3 million.
As of December 31, 2025, we were in compliance with all customary financial and restrictive covenants pertaining to our debt. For additional information regarding our debt, please see Note 4, Financing Arrangements to the accompanying consolidated financial statements .
Letters of Credit
Our Revolving Credit Facility provides up to $50.0 million for the issuance of letters of credit, $9.7 million of which was used at December 31, 2025. These letters of credit are issued by the bank in favor of third parties and are mainly related to required insurance programs.
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Material Cash Requirements
We have future obligations under various contracts relating to debt and interest payments, operating leases, pension and post-retirement benefit plans, purchase obligations and environmental remediation obligations. The following table summarizes our obligations as of December 31, 2025 that are expected to impact liquidity and cash flow in future periods. See Liquidity and Capital Resources for additional discussion of our ability to generate and access cash to meet requirements as well as plans for use of cash in both the short-term and long-term.
Payment Due by Period
(In millions)
Total
Less than 1 Year
1-3 Years
3-5 Years
More Than 5 Years
Total debt
Operating leases
Interest on debt obligations (1)
Pension and post-retirement obligations (2)
Purchase obligations (3)
Environmental remediation obligations
Total
(1) Represents estimated contractual interest payments for all outstanding debt. Excludes cash receipts from cross-currency swaps as described in Note 14, Derivatives and Hedging .
(2) This represents estimates related to the funding obligations of our pension and other post retirement plans. These contributions are based on actuarial estimates of future assumed payments based upon retirement and payment patterns for a 10-year period. The estimates in the table may differ materially from actual future payments due to uncertainties regarding the assumptions involved in estimating future required contributions to our pension and non-pension post retirement benefit plans, including (i) interest rate levels (ii) the amount and timing of asset returns and (iii) what, if any, changes may occur in pension funding legislation.
(3) Purchase obligations are primarily comprised of service agreements related to telecommunication, information technology, utilities and other manufacturing plant services and certain capital commitments.
Critical Accounting Policies and Estimates
Significant accounting policies are described more fully in Note 1, Description of Business and Summary of Significant Accounting Policies , to the accompanying consolidated financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and assumptions that we believe are reasonable considering the related facts and circumstances. The application of these critical accounting policies involves the exercise of judgment and use of assumptions for future uncertainties. Accordingly, actual results could differ significantly from these estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are the most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments.
Revenue Recognition
Sales are recognized when control of promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services, which is typically when products are shipped from our facilities. The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when control is transferred to the customer. Avient records reductions to sales for customer incentives, primarily comprised of rebates, at the time of the initial sale. Rebates are estimated based on sales terms, historical experience along with annual sales projections. Rebate programs offered are typically credited to customers for achieving defined volume levels.
Environmental Liabilities
We are a party to a Consent Decree related to remedial actions at the former Goodrich Corporation Calvert City site and will incur environmental remediation costs related to this matter. We recognize an estimate of environmental liabilities on an undiscounted basis for probable future environmental expenditures. Any such provision is recognized using the Company's best estimate of the amount of loss incurred, or at the lower end of an estimated range, when a single best estimate is not determinable. In some cases, the Company recovers a portion of the costs relating to these obligations from insurers or other third parties, and the recovery is recognized when realization of the proceeds is deemed as probable.
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Environmental liabilities represents our best estimate of the remaining probable costs based upon information and technology currently available. Depending upon the results of future testing, the ultimate remediation alternatives undertaken, changes in regulations, new information, newly discovered conditions and other factors, it is reasonably possible that we could incur additional costs in excess of the amount accrued. However, such additional costs, if any, cannot currently be estimated. Our estimate of this liability may be revised as new regulations or technologies are developed or additional information is obtained. As we progress through remedial design and remedial action related to the Goodrich Corporation Calvert City site, additional information will become available that may require an adjustment to our existing accrual. Adjustments have been material to our financial statements in the past and it is reasonably possible that they could be in the future.
Additional information related to the accounting for environmental liabilities is found in Note 10, Commitments and Contingencies .
Pension Benefit Plans
The measurement of liabilities related to pension benefit plans is based on assumptions related to future events including interest rates, return on plan assets, and mortality assumptions. We immediately recognize actuarial gains and losses in our operating results in the year in which the gains or losses occur.
Asset returns and interest rates significantly affect the value of assets and liabilities related to our pension plans and therefore the funded status of our plans. It is difficult to predict these factors due to the volatility of market conditions. To develop our discount rate, we consider the yields of high-quality corporate bonds with maturities that correspond to the timing of our benefit obligations, referred to as the bond matching approach. To develop our expected long-term return on plan assets, we consider forward looking long-term asset returns and the expected investment portfolio mix of plan assets. Life expectancy is another significant assumption that impacts our pension obligation, which is based on mortality data and improvement scales issued by the Society of Actuaries.
Additional information related to the accounting for pension and other post-retirement benefits is found in Note 9, Employee Benefit Plans .
Income Taxes
We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when realization of the benefit of deferred tax assets is not deemed to be more likely than not. The utilization of certain deferred tax assets is dependent on the amount and timing of taxable income that we will ultimately generate in the future and other factors, such as changes in tax laws.
We recognize net tax benefits under the recognition and measurement criteria, which prescribes requirements and other guidance for financial statement recognition and measurement of positions taken or expected to be taken on tax returns. We recognize an income tax benefit from an uncertain tax position only if it is more likely than not that the benefit would be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company evaluates and adjusts the amount of unrecognized income tax benefits based on changes in law, facts and circumstances. We record interest and penalties related to uncertain tax positions as a component of income tax expense. The ultimate resolution of unrecognized income tax benefits is often dependent upon uncontrollable factors such as the timing of finalizing resolutions of audit disputes through reaching settlement agreements, or changes in law.
Additional information related to the accounting for income taxes is found in Note 11, Income Taxes .
Goodwill
Goodwill is evaluated annually for impairment as of October 1 using either a quantitative or qualitative analysis. Goodwill is tested for impairment at the reporting unit level and is based on the net assets for each reporting unit, including goodwill and intangible assets. The Company’s reporting units are at a level below the Company’s reportable operating segments. Goodwill is assigned to each reporting unit, as this represents the lowest level that constitutes a business and is the level at which management regularly reviews the operating results.
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Additionally, goodwill is evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Events or circumstances that may result in an impairment review include changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price.
Quantitative analyses are performed by estimating the fair value for each reporting unit using a discounted cash flow model. These analyses include estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount estimated cash flows. The future cash flows are based on the Company's long-term strategic plan, and a terminal value is used to estimate the reporting unit's cash flows beyond the period covered by the strategic plan. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, revenue growth, operating margins, and long-term growth rates.
A qualitative analysis is performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative analysis performed for each reporting unit.
In 2025, the annual goodwill impairment test was performed using a qualitative analysis with the exception of certain reporting units where management elected to bypass the qualitative analysis and perform a quantitative analysis. Based on the analyses performed in 2025, the fair value of the Company's reporting units continues to exceed their respective carrying amounts, and accordingly, no impairment charges were recognized.
Indefinite-lived Trade Names
Indefinite-lived trade names are evaluated annually for impairment as of October 1 using either a quantitative or qualitative analysis to determine whether their fair values exceed their respective carrying amounts. Additionally, indefinite-lived trade names are evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely than not that the asset is impaired. Events or circumstances that may result in an impairment review include changes in industry and market considerations, cost factors, financial performance, and other relevant entity-specific events that could affect inputs used to determine the respective fair values of the indefinite-lived trade names.
Quantitative analyses are performed by estimating the fair value for each indefinite-lived trade name using a royalty relief methodology. These analyses include estimates of future cash flows that are based on the Company's long-term strategic plan and the applicable weighted-average cost of capital used to discount estimated cash flows. The primary inputs to these estimates require the exercise of judgments, including judgments about appropriate discount rates, revenue growth, royalty rates, and long-term growth rates.
A qualitative analysis is performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales, discount rates, industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative analysis performed for each indefinite-lived trade name.
In 2025, the indefinite-lived trade names impairment tests were performed using a qualitative approach. Based on this qualitative assessment, management concluded that the fair values of the Company's indefinite-lived trade names continued to exceed their carrying values, and accordingly, no impairment charges were recognized.
For additional information about goodwill and intangible assets see Note 2, Goodwill and Intangible Assets .
Recent and Future Adoption of Accounting Standards
Information regarding recent and future adoption of accounting standards can be found in Note 1, Description of Business and Summary of Significant Accounting Policies, to the accompanying consolidated financial statements and is incorporated by reference herein.
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