ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Management's discussion and analysis of Ingevity's financial condition and results of operations ("MD&A") should be read in conjunction with Item 8. Financial Statements and Supplementary Data . Investors are cautioned that the forward-looking statements contained in this section and other parts of this Annual Report on Form 10-K involve both risk and
uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See "Cautionary Statements about Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K for further discussion.
All references to notes (herein referred to as "Note") in this section refer to the notes accompanying the Consolidated Financial Statements included in Part II. Item 8 within this Form 10-K.
Unless otherwise noted, discussion within Part II relates to continuing operations. Refer to Note 20 of the Notes to the Consolidated Financial Statements included in Part II. Item 8 within this Form 10-K for further information regarding discontinued operations.
Overview
Ingevity Corporation ("Ingevity," the "Company," "we," "us," or "our") provides products and technologies that purify, protect, and enhance the world around us. Through a diverse team of talented and experienced people, we develop, manufacture, and bring to market solutions that are largely renewably sourced and help customers solve complex problems while making the world more sustainable. Our products are used in a variety of demanding applications, including automotive gasoline vapor emissions control systems, food, water and chemical filtration, asphalt paving, agrochemical dispersants, bioplastics, coatings, elastomers, and paint for road markings. We operate in three reportable segments: Performance Materials, Performance Chemicals, and Advanced Polymer Technologies.
Recent Developments
Performance Chemicals Repositioning and Industrial Specialties Divestiture
Beginning in 2023, following a sharp decline in volumes in the industrial end markets served by our Performance Chemicals industrial specialties product line, we announced a series of strategic initiatives designed to right-size our cost structure, streamline our footprint, and strengthen the overall resilience of the Company. Collectively, these initiatives are referred to as the Performance Chemicals ("PC") Repositioning Actions.
The PC Repositioning Actions were designed to:
• Prioritize growth in our higher-margin Performance Chemicals product lines, such as pavement technologies;
• Improve the financial performance of the industrial specialties product line; and
• Reduce exposure to lower-margin, more cyclical end-use markets, including adhesives, publication inks, and oilfield applications, which historically represented approximately 45 percent of our industrial specialties product line's pre-2023 annualized net sales.
The actions completed through fiscal year 2024 successfully enhanced the financial performance of the industrial specialties product line and positioned that business for strategic alternatives. As a result, on January 16, 2025, we announced our intention to pursue a potential sale of the product line. On September 3, 2025, Ingevity entered into a sales agreement to sell substantially all of the assets, rights, and liabilities associated with the industrial specialties product line and the CTO refinery, (collectively, the "Divestiture"). Upon execution of the sales agreement, the industrial specialties product line and the CTO refinery included in the Divestiture met the criteria for classification as discontinued operations. As such, the results of operations of the Divestiture have been reclassified and presented as discontinued operations for all periods presented. The sale was completed on January 1, 2026.
PC Repositioning Status and Charges To Date
We have substantially completed all activities associated with the restructuring program and expect the plan to be completed in 2026. The PC Repositioning Actions restructuring program is expected to result in total charges of approximately $370 million, consisting primarily of:
• ~$255 million in non-cash asset-related charges; and
• ~$115 million in cash charges, including:
▪ ~$25 million in severance and other employee-related costs, and
▪ ~$90 million in other restructuring costs, including decommissioning, dismantling, and removal charges, and contract termination costs.
We expect to incur approximately $10 million of additional cash charges during 2026.
Through December 31, 2025, we have incurred $353.7 million in total charges, including $248.3 million of non-cash asset-related charges and $105.4 million in cash charges. As of December 31, 2025, we have paid $91.3 million of the cash charges.
The charges expected in connection with these actions are subject to several assumptions and risks, and actual results may differ materially. Additional charges may arise from events related to or resulting from these actions.
Savings and Impact
The combined PC Repositioning Actions were expected to generate realized savings of approximately $95 million to $110 million. As of December 31, 2025, we have captured substantially all of the anticipated savings. Inclusive of continuing and discontinued operations, since November of 2023, we have realized approximately $105 million in cash savings. These savings were recognized in the following financial statement captions:
• ~75 percent in Cost of sales,
• ~20 percent in Selling, general, and administrative expenses, and
• ~5 percent in Research and technical expenses
The savings also included approximately $15 million of annualized run-rate savings from corporate and shared service model changes that will continue to benefit New Ingevity, following the Divestiture.
In addition to the cash savings, we realized approximately $12 million in lower full year depreciation and intangible amortization expenses.
Long Lived Asset Impairment Charge - Performance Chemicals' Road Markings Asset Group
We periodically evaluate whether current events or circumstances indicate that the carrying value of our long-lived assets, including intangible assets, to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to carrying value to determine whether impairment exists.
As a result of the advanced diligence completed in the fourth quarter of 2025 as part of our pursuit of a sale of the Performance Chemicals' road markings asset group, we concluded that a triggering event occurred. The triggering event required us to conduct an impairment analysis of the Performance Chemicals road markings long-lived assets, which included significant assumptions such as the revenue growth rates, earnings before interest, taxes, depreciation, and amortization ("EBITDA") margins, and discount rate, which are judgmental. Variations in any assumptions could result in materially different calculations of fair value.
Based on the results of the quantitative analysis, which was based on both quoted market prices in active markets and a discounted value of estimated future cash flows, we concluded that the carrying value of the Performance Chemicals road markings asset group exceeded its fair value. As a result, we recorded a non-cash impairment charge of $109.3 million. The charge is included within "Long lived asset impairment charge" on the consolidated statements of operations for the twelve months ended December 31, 2025, and was allocated between "Property, plant, and equipment, net" and "Other intangibles, net" on the consolidated balance sheets in the amount of $25.2 million, and $84.1 million, respectively.
Interim Goodwill Impairment Charge - Advanced Polymer Technologies
During the second quarter of 2025, the announcements and subsequent modifications of international tariffs escalated global trade tensions and contributed to increased consumer uncertainty, which negatively impacted parts of our businesses, particularly Advanced Polymer Technologies ("APT"). As a result, we conducted an analysis of the APT reporting unit's goodwill and long-lived assets. This analysis incorporated revised expectations regarding the pace and strength of industrial demand recovery in key markets. In addition, the macroeconomic changes experienced during the quarter contributed to unfavorable movements in key valuation inputs, including an increase in the risk-free rate used in calculating the discount rate.
Our analysis included significant assumptions such as the revenue growth rates, EBITDA margins, and discount rate, which are judgmental. Variations in any assumptions could result in materially different calculations of fair value.
Based on the results of the quantitative analysis, we concluded that the carrying value of the APT reporting unit exceeded its fair value. As a result, we recorded a non-cash goodwill impairment charge of $183.8 million, representing all of the goodwill associated with the APT reporting unit. The charge is included within "Goodwill impairment charge" on the consolidated statements of operations for the twelve months ended December 31, 2025. Specific to our long-lived assets, we determined that the undiscounted cash flows were in excess of the carrying values and therefore concluded that no impairment existed. Our analysis included significant assumptions such as the revenue growth rates, EBITDA margins, and EBITDA exit multiple, which are judgmental. Variations in any assumptions could result in materially different calculations of undiscounted cash flows.
Strategic Investments
Equity Method Investments
During the year ended December 31, 2025, we sold a strategic equity method investment for $6.8 million, resulting in a $7.1 million loss, recorded within "Other (income) expense, net" on the consolidated statement of operations for the twelve months ended December 31, 2025. We recognized an additional $0.1 million gain associated with an equity method investment sale during the year ended December 31, 2025.
Measurement Alternative Investments
During the year ended December 31, 2025, the Company identified triggering events indicating that investments being accounted for under the measurement alternative may be impaired, and recognized impairment charges of $11.9 million, recorded in "Other (income) expense, net" on the consolidated statement of operations for the twelve months ended December 31, 2025.
Proxy Contest
On March 30, 2025, the Company entered into a cooperation agreement (the "Cooperation Agreement") with Vision One Fund, L.P. and its affiliates ("Vision One"), a stockholder of the company. Pursuant to the Cooperation Agreement, our Board of Directors ("Board") agreed to appoint a new member to the Company's Board within one day of the 2025 annual meeting of stockholders ("Annual Meeting"), and Vision One agreed to withdraw its nominees for election at the Annual Meeting and to abide by certain customary standstill restrictions, mutual non-disparagement provisions, voting commitments and other obligations until the opening of the nomination window for the company's 2026 annual meeting of stockholders. In connection with the Cooperation Agreement, Vision One was entitled to the reimbursement of certain of its reasonable and documented out-of-pocket fees and expenses. During the year ended December 31, 2025, we incurred costs of approximately $8.2 million in connection with our response to the proxy contest. These costs, which were included within "Other (income) expense, net" on the consolidated statements of operations, include legal and other professional service fees as well as incremental proxy solicitation costs related to the Annual Meeting.
2025 U.S. Tax Reform
On July 4, 2025, the United States enacted into law the legislation formally titled "An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14," and commonly referred to as the One Big Beautiful Bill ("OBBB"), which provides for the permanent extension of several expiring provisions of the 2017 Tax Cuts and Jobs Act and includes a comprehensive tax reform package that significantly modifies U.S. federal tax policy and the international tax framework. Based on the analysis performed by the Company, the OBBB will have an impact on cash taxes as a result of the ability to accelerate deductions. This increase to the one-time deductibility of previously amortizable expenses is driving down our benefit from the foreign-derived intangible income deduction, thus negatively impacting the effective tax rate for the year ended December 31, 2025.
Results of Operations
Years Ended December 31,
In millions
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Research and technical expenses
Restructuring and other (income) charges, net
Goodwill impairment charge
Long lived asset impairment charge
Acquisition-related costs
Other (income) expense, net
Interest expense
Interest income
Income (loss) from continuing operations before income taxes
Provision (benefit) for income taxes on continuing operations
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income (loss)
Net sales
The table below shows 2025 and 2024 Net sales and variances from 2024 and 2023, respectively.
Change vs. prior year
In millions
Prior year Net sales
Volume
Price/Mix
Currency effect
Current year Net sales
Year Ended December 31, 2025 vs. 2024
Year Ended December 31, 2024 vs. 2023
2025 Performance Summary
The Net sales decrease of $32.5 million was driven primarily by the APT reportable segment as continued weak industrial demand, indirect tariff impacts negatively impacted customer end markets demand and increased China competition pressured sales. The decrease was partially offset by slight growth (less than one percent) in the pavement technologies product line. Performance Materials maintained sales year over year despite supply chain disruptions in the automobile industry.
Year Ended December 31, 2025 vs. 2024
The Net sales decrease in 2025 was driven by a volume decline of $41.2 million (three percent), partially offset by favorable pricing and sales mix of $6.9 million (one percent) and favorable foreign exchange impacts of $1.8 million (zero percent).
Year Ended December 31, 2024 vs. 2023
The Net sales decrease in 2024 was driven by a volume decline of $8.7 million (one percent), and unfavorable foreign exchange impacts of $9.0 million (one percent), partially offset by favorable pricing and sales mix of $2.3 million (zero percent).
Gross profit
Year Ended December 31, 2025 vs. 2024
Gross profit decrease of $3.3 million was driven by improved operating efficiencies of $23.4 million, favorable pricing and sales mix of $6.8 million, and favorable foreign exchange impacts of $2.8 million, offset by unfavorable sales volume of $20.0 million and LIFO impact of $16.3 million. Refer to the Segment Operating Results section included within this MD&A for more information on the drivers of the changes in gross profit period over period for all segments.
Year Ended December 31, 2024 vs. 2023
Gross profit increase of $19.8 million was driven by decreased manufacturing costs of $46.6 million and favorable sales volume of $0.5 million, partially offset by LIFO impact of $16.4 million, unfavorable pricing and sales mix of $3.2 million, and unfavorable foreign currency exchange impacts of $7.7 million. Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for all segments.
Selling, general, and administrative expenses
Year Ended December 31, 2025 vs. 2024
Selling, general, and administrative ("SG&A") expenses were $171.2 million (15 percent of Net sales) and $157.8 million (13 percent of Net sales) for the years ended December 31, 2025 and 2024, respectively. Overall, SG&A increased by approximately $13.4 million or eight percent. The higher SG&A was driven by improved business performance that drove increased variable incentive compensation expense of $12.9 million, and increased amortization expense of $0.5 million.
Year Ended December 31, 2024 vs. 2023
SG&A expenses were $157.8 million (13 percent of Net sales) and $161.8 million (13 percent of Net sales) for the years ended December 31, 2024 and 2023, respectively. The decrease in SG&A expenses is primarily due decreased travel and other miscellaneous costs of $8.6 million, and decreased amortization expense of $1.6 million, partially offset by increased employee-related costs of $6.2 million.
Research and technical expenses
Years Ended December 31, 2025, 2024, and 2023
Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, totaling 2.4 percent of sales in the year ended December 31, 2025, compared to 2.0 percent in the year ended December 31, 2024, and 2.1 percent in the year ended December 31, 2023. Research and technical expenses as a percentage of Net sales increased due to lower sales. Overall, Research and technical expense increased by $3.9 million in 2025, compared to 2024, primarily driven by an increase within our Performance Materials reportable segment.
Restructuring and other (income) charges, net
Years Ended December 31, 2025, 2024, and 2023
Years Ended December 31,
In millions
Workforce reductions and other
Performance Chemicals' repositioning
Restructuring charges
North Charleston plant transition
Business transformation costs
Other (income) charges, net
Restructuring and other (income) charges, net (1)
(1) See Note 15 for more information.
Goodwill impairment charge
Years Ended December 31, 2025, 2024, and 2023
The goodwill impairment charge of $183.8 million for the year ended December 31, 2025 was recognized within our Advanced Polymer Technologies reporting unit. The goodwill impairment charge of $306.6 million for the year ended December 31, 2024 was recognized within our Performance Chemicals reporting unit. See Note 8 for more information.
Long lived asset impairment charge
Years Ended December 31, 2025, 2024, and 2023
The long lived asset impairment charge of $109.3 million for the year ended December 31, 2025 was driven by the road markings asset group within our Performance Chemicals segment. See Note 7 and Note 8 for more information.
Acquisition-related costs
Years Ended December 31, 2025, 2024, and 2023
Acquisition costs were zero, $0.3 million, and $3.6 million for the years ended December 31, 2025, 2024, and 2023, respectively. For the twelve months ended December 31, 2024, and 2023, all charges related to the integration of Ozark Materials into our Performance Chemicals reportable segment.
Other (income) expense, net
Years Ended December 31, 2025, 2024, and 2023
Years Ended December 31,
In millions
(Gain) loss on strategic investments (1)
Foreign currency transaction (gain) loss
CEO severance charges
Proxy contest charges (2)
Portfolio realignment costs (2)
Other (income) expense, net
Total Other (income) expense, net
(1) See Note 5 for more information.
(2) See Note 18 for more information.
Interest expense
Years Ended December 31, 2025, 2024, and 2023
Years Ended December 31,
In millions
Finance lease obligations (1)
Revolving credit facility and term loan (2)
Senior Notes (2)
Accounts receivable securitization (2)
Litigation related interest expense (3)
Other
Total Interest expense
(1) See Note 13 for more information.
(2) See Note 10 for more information.
(3) See Note 17 for more information.
Interest income
Years Ended December 31 2025, 2024, and 2023
Years Ended December 31,
In millions
Restricted investment (1)
Floating-to-fixed interest rate swaps (2)
Other (3)
Total Interest income
(1) See Note 5 for more information.
(2) See Note 9 for more information.
(3) Primarily consists of bank interest.
Provision (benefit) for income taxes
Years Ended December 31, 2025, 2024, and 2023
For the years ended December 31, 2025, 2024, and 2023, our effective tax rate was (5.7) percent, 13.6 percent, and 18.5 percent respectively. The decrease in our effective tax rate from 2024 to 2025 was mainly driven by the mix of earnings, with U.K. losses, due to the APT goodwill impairment (see Note 8), driving an overall global loss with net tax expense creating a negative effective tax rate in 2025. Additionally, the foreign-derived intangible income deduction decreased in 2025 compared to 2024 as a result of the OBBB signed into law on July 4, 2025, which allowed immediate deductibility of previously amortizable expenses. Additionally, a significant decrease in the Federal Research and Development credit in 2025, further increased total tax expense as compared to 2024.
Segment Operating Results
In addition to the information discussed above, the following sections discuss the results of operations for each of Ingevity's segments. Our segments are (i) Performance Materials, (ii) Performance Chemicals, and (iii) Advanced Polymer Technologies. Segment Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") is the primary measure used by the Company's chief operating decision maker to evaluate the performance of and allocate resources among our operating segments. Segment EBITDA is defined as segment net sales less segment operating expenses (segment operating expenses consist of costs of sales, selling, general and administrative expenses, research and technical expenses, other (income) expense, net, excluding depreciation and amortization). We have excluded the following items from segment EBITDA: interest expense associated with corporate debt facilities, interest income, income taxes, depreciation, amortization, restructuring and other income (charges), net, goodwill impairment charges, long lived asset impairment charges, acquisition and other-related income (costs), gain (loss) on strategic investments, proxy contest charges, portfolio realignment costs, pension and postretirement settlement and curtailment income (charges), net, indirect costs allocated to Divestiture, and Corporate and other costs. In general, the accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 2.
Performance Materials
2025 Performance Summary
Sales of $606.9 million dollars were in line with the prior year, which is a strong result given that 2024 was a record year for the business. Throughout 2025, the automotive industry faced significant disruption from tariff uncertainty, fires, and chip shortages. Against that backdrop, the resilience of our Performance Materials business becomes more evident. While these dynamics led to slightly lower volumes, disciplined pricing actions helped to offset the impact, allowing us to hold year-over-year sales essentially flat. Segment EBITDA declined 2% year over year due to lower volume and higher SG&A. Despite this, Segment EBITDA margin remained strong at 53.8 percent.
In millions
Years Ended December 31,
Total Performance Materials - Net sales
Segment EBITDA
Net Sales Comparison of Years Ended December 31, 2025, 2024, and 2023
Change vs. prior year
In millions
Prior year Net sales
Volume
Price/Mix
Currency effect
Current year Net sales
Year Ended December 31, 2025 vs 2024
Year Ended December 31, 2024 vs 2023
Year Ended December 31, 2025 vs. 2024
Segment net sales. The decrease of $2.7 million in 2025 was driven by a volume decline of $3.7 million (one percent), partially offset by favorable pricing and sales mix of $0.8 million (zero percent), and favorable foreign currency exchange impacts of $0.2 million (zero percent).
Segment EBITDA. The decrease of $6.9 million in 2025 was driven by increased SG&A expenses and research and technical costs of $6.0 million, volume decline of $5.6 million, and LIFO impact of $3.4 million, partially offset by favorable foreign currency exchange and other charges of $3.7 million, decreased manufacturing costs of $3.6 million, and favorable pricing and sales mix of $0.8 million.
Year Ended December 31, 2024 vs. 2023
Segment net sales. The increase of $23.6 million in 2024 was driven by favorable pricing and sales mix of $17.3 million (three percent), and a volume increase of $11.2 million (two percent), partially offset by unfavorable foreign currency exchange impacts of $4.9 million (one percent).
Segment EBITDA. The increase of $30.1 million in 2024 was driven by decreased manufacturing costs of $23.9, favorable pricing and sales mix of $11.9 million, favorable volume of $6.3 million, and a LIFO impact of $2.1 million. The increase was partially offset by higher SG&A expenses and research and technical costs of $13.2 million, and unfavorable foreign currency exchange and other charges of $0.9 million.
Performance Chemicals
2025 Performance Summary
Performance Chemicals net sales of $400.5 million were flat versus the prior year. Pavement Technologies product line 2025 sales remained flat to 2024 as volume growth in the NAFTA region was largely offset by lower infrastructure investment in South America. The product line also benefited from pricing and favorable mix shift. While adverse wet weather impacted results in the first half of 2025, demand shifted into the second half, and most projects were ultimately completed within the year. Road Markings product line continued to experience price pressure from competition, although volumes grew slightly. The reportable segment generated Segment EBITDA of $60.3 million for the year was supported by improved pricing, favorable mix, and lower raw material costs, partially offset by volume declines and higher SG&A.
Years Ended December 31,
In millions
Performance Chemicals - Net sales
Pavement Technologies product line
Road Markings product line
Segment EBITDA
Net Sales Comparison of Years Ended December 31, 2025, 2024, and 2023
Change vs. prior year
In millions
Prior year Net sales
Volume
Price/Mix
Currency effect
Current year Net sales
Year Ended December 31, 2025 vs 2024
Pavement Technologies product line
Road Markings product line
Year Ended December 31, 2024 vs 2023
Pavement Technologies product line
Road Markings product line
Year Ended December 31, 2025 vs. 2024
Segment net sales. The decrease of $1.4 million in 2025 was driven by a volume decline of $9.1 million (two percent), as a result of a decrease in pavement technologies ($10.8 million), partially offset by growth in road markings ($1.7 million), and unfavorable foreign currency exchange of $0.1 million (zero percent), partially offset by favorable pricing and sales mix of $7.8 million (two percent), comprised of pavement technologies ($12.6 million), offset by road markings ($4.8 million).
Segment EBITDA. The increase of $6.6 million in 2025 was driven by decreased manufacturing costs of $18.3 million, favorable pricing and sales mix of $7.8 million, primarily due to higher cost CTO in the prior year, and favorable foreign currency exchange and other charges of $1.9 million. The decrease was partially offset by LIFO impact of $12.9 million, higher SG&A expenses of $4.5 million, and a volume decline of $4.0 million.
Year Ended December 31, 2024 vs. 2023
Segment net sales. The decrease of $23.6 million in 2024 was driven by a volume decline of $26.9 million (six percent), as a result of a decrease in pavement technologies ($17.8 million) and road markings ($9.1 million), and unfavorable
foreign currency exchange of $0.4 million (zero percent), partially offset by favorable pricing and sales mix of $3.7 million (one percent), comprised of pavement technologies ($7.0 million), offset by road markings ($3.3 million).
Segment EBITDA. The decrease of $17.4 million in 2024 was driven by LIFO impact of $18.5 million, a volume decline of $8.7 million, and unfavorable foreign currency exchange and other charges of $2.6 million. The decrease was partially offset by decreased manufacturing costs of $8.5 million, favorable pricing and sales mix of $3.7 million, and decreased SG&A expenses of $0.2 million.
Advanced Polymer Technologies
2025 Performance Summary
Advance d Polymer Technologies ("APT") sales of $160.2 million declined 15 percent year over year. During 2025 APT faced headwinds from the indirect impact of tariffs, combined with the continued weak demand, particularly across the automotive, footwear and industrial end markets. In addition, competitive dynamics in China continued to pressure sales, most notably in the paint protective film markets. As a result, sales declined 15% and segment EBITDA was 18% lower year over year due to lower volumes that more than offset improved operating efficiency. Despite these pressures, we held pricing and maintained a stable mix. The team remained focused on operational discipline, which drove more reliable plant production and reduced operating expenses. Favorable foreign exchange also supported results, enabling strong EBITDA margins at 20.0%.
In millions
Years Ended December 31,
Advanced Polymer Technologies - Net sales
Segment EBITDA
Net Sales Comparison of Years Ended December 31, 2025, 2024, and 2023
Change vs. prior year
In millions
Prior year Net sales
Volume
Price/Mix
Currency effect
Current year Net sales
Year Ended December 31, 2025 vs 2024
Year Ended December 31, 2024 vs 2023
Year Ended December 31, 2025 vs. 2024
Segment net sales. The decrease of $28.4 million in 2025 was driven by a volume decline of $28.5 million (fifteen percent), and unfavorable pricing and sales mix of $1.7 million (one percent), partially offset by favorable foreign currency exchange and other charges $1.8 million (one percent).
Segment EBITDA. The decrease of $6.9 million in 2025 was driven by a volume decline of $10.4 million, unfavorable pricing and sales mix of $1.8 million, and higher SG&A expenses of $1.5 million. The decrease was partially offset by lower manufacturing costs of $3.7 million, and favorable foreign currency exchange impacts and other charges of $3.1 million.
Year Ended December 31, 2024 vs. 2023
Segment net sales. The decrease of $15.4 million in 2024 was driven by unfavorable pricing and sales mix of $18.7 million (nine percent) and unfavorable foreign currency exchange of $3.7 million (two percent), partially offset by volume growth of $7.0 million (3 percent).
Segment EBITDA. The decrease of $10.0 million in 2024, was driven by unfavorable pricing and sales mix of $18.8 million, and unfavorable foreign currency exchange impacts and other charges of $2.9 million. The decrease was partially offset by decreased manufacturing costs of $8.8 million, and volume growth of $2.9 million.
Discontinued Operations
Reconciliation of Net Income (Loss) from discontinued operations to EBITDA from discontinued operations (Non-GAAP)
Years Ended December 31,
In millions
Net income (loss) from discontinued operations (GAAP)
Provision (benefit) for income taxes on discontinued operations
Depreciation and amortization
Restructuring and other (income) charges, net (2)
Goodwill impairment charge (3)
Loss on CTO resales (4)
CTO supply contract termination charges (5)
(Gain) loss on strategic investments (6)
Inventory charges (7)
Indirect costs allocated to Divestiture (8)
EBITDA from discontinued operations (Non-GAAP) (1)(9)
(1) EBITDA from discontinued operations is defined as net sales from discontinued operations less operating expenses from discontinued operations (operating expenses from discontinued operations consist of costs of sales, selling, general and administrative expenses, research and technical expenses, other (income) expense, net, excluding depreciation and amortization). We have excluded the following items from EBITDA from discontinued operations: income taxes, depreciation, amortization, restructuring and other income (charges), net, inventory lower of cost or market charges associated with restructuring actions, goodwill impairment charges, gain (loss) on sale of strategic investments, loss on CTO resales, CTO supply contract termination charges, indirect costs allocated to Divestiture.
(2) We regularly perform strategic reviews and assess the return on our operations, which sometimes results in a plan to restructure the business. These costs are excluded from our EBITDA from discontinued operations.
(3) During the second quarter of 2024, the company concluded that the carrying value of the Performance Chemicals reporting unit exceeded its fair value, resulting in a non-cash goodwill impairment charge.
(4) Due to the DeRidder Plant closure and the corresponding reduced CTO refining capacity, we were obligated, under an existing CTO supply contract, to purchase CTO through 2025 at amounts in excess of required CTO volumes. On July 1, 2024, the CTO supply contract that resulted in these excess CTO volumes was terminated. As a result of the termination, the purchases under the CTO supply contract ended effective June 30, 2024. The CTO resale activity described above ended in 2024.
(5) As consideration for the termination of the CTO supply contract, we made a cash payment in the amount of $50.0 million on July 1, 2024 and an additional cash payment in the amount of $50.0 million on October 8, 2024. Since this contract termination is directly attributable to the Performance Chemicals' repositioning, that is, it does not represent normal, recurring expenses necessary to operate our business, we have excluded the CTO supply contract termination charges for the purposes of calculating our non-GAAP financial performance measures.
(6) We exclude gains and losses from strategic investments from our segment results, as well as our non-GAAP financial measures, because we do not consider such gains or losses to be directly associated with the operational performance of the segment. We believe that the inclusion of such gains or losses, would impair the factors and trends affecting the historical financial performance of our reportable segments. We continue to include undistributed earnings or loss, distributions, amortization or accretion of basis differences, and other-than-temporary impairments for equity method investments that we believe are directly attributable to the operational performance of such investments, in our EBITDA from discontinued operations.
(7) For the twelve months ended December 31, 2024 and 2023, respectively, inventory charges represent lower of cost or market charges associated with the Performance Chemicals' repositioning and restructuring actions. These charges were not allocated in the measurement of profitability used by our CODM and are therefore excluded from EBITDA from discontinued operations. Amounts are included in Cost of sales from discontinued operations. See Note 20 for more information.
(8) EBITDA from discontinued operations includes indirect costs that were previously allocated to the Divestiture but not eligible for discontinued operations accounting treatment.
(9) We believe this non-GAAP financial measure provides management as well as investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business, because such measure, when viewed together with our financial results computed in accordance with GAAP, provides a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. We believe this measure is useful because it excludes the effects of financing and investment activities as well as non-operating activities.
Years Ended December 31,
In millions
Net sales from discontinued operations
Income (loss) from discontinued operations, net of income taxes
EBITDA from discontinued operations
Net Sales Comparison of Years Ended December 31, 2025, 2024, and 2023
Change vs. prior year
In millions
Prior year Net sales
Volume
Price/Mix
Currency effect
Current year Net sales
Year Ended December 31, 2025 vs 2024
Year Ended December 31, 2024 vs 2023
Year Ended December 31, 2025 vs. 2024
Net sales from discontinued operations. The decrease of $84.7 million in 2025 was driven by volume decline of $81.5 million (40 percent), unfavorable pricing and sales mix of $3.0 million (one percent), and unfavorable foreign currency exchange of $0.2 million (zero percent).
EBITDA from discontinued operations. The increase of $39.5 million in 2025 was driven by lower manufacturing costs of $25.2 million and LIFO liquidation benefit of $20.7 million, favorable foreign currency exchange and other charges of $4.1 million, which included a one time insurance settlement of $1.0 million in 2025, and lower SG&A costs of $3.7 million. The increase was partially offset by a volume decline of $11.2 million, and unfavorable pricing and sales mix of $3.0 million.
Year Ended December 31, 2024 vs. 2023
Net sales from discontinued operations. The decrease of $270.3 million in 2024 was driven by a volume decline of $266.3 million (56 percent), unfavorable pricing and sales mix of $3.2 million (one percent), and unfavorable foreign currency exchange of $0.8 million (zero percent).
EBITDA from discontinued operation. The decrease of $35.5 million in 2024 was driven by a volume decline of $36.3 million, increased manufacturing costs of $17.8 million, unfavorable price and sales mix of $3.2 million, and unfavorable foreign currency exchange and other charges of $2.7 million. The decrease was partially offset by lower SG&A costs of $18.1 million, and a LIFO liquidation benefit of $6.4 million.
Use of Non-GAAP Financial Measures
Ingevity has presented the financial measures, Total Adjusted EBITDA, Adjusted EBITDA from continuing operations, and Adjusted EBITDA from discontinued operations, defined below, which have not been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and has provided a reconciliation to net income, the most directly comparable financial measure calculated in accordance with GAAP. These measures are not meant to be considered in isolation nor as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. Total Adjusted EBITDA, Adjusted EBITDA from continuing operations, and Adjusted EBITDA from discontinued operations are utilized by management as a measure of profitability.
We believe these non-GAAP financial measures provide management as well as investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business, because such measure, when viewed together with our financial results computed in accordance with GAAP, provides a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. We believe these measures are useful because they exclude the effects of financing and investment activities as well as non-operating activities.
Adjusted EBITDA from continuing operations is defined as net income (loss) from continuing operations plus interest expense, interest income, provision (benefit) for income taxes, depreciation, amortization, restructuring and other (income) charges, net, goodwill impairment charges, long lived asset impairment charge, acquisition and other-related (income) costs, litigation verdict charges, (gain) loss on strategic investments, proxy contest charges, portfolio realignment costs, and pension and postretirement settlement and curtailment (income) charges, net.
Adjusted EBITDA from discontinued operations is defined as net income (loss) from discontinued operations plus interest expense, interest income, provision (benefit) for income taxes, depreciation, amortization, restructuring and other (income) charges, net, goodwill impairment charges, acquisition and other-related (income) costs, (gain) loss on strategic investments, loss on CTO resales, and CTO supply contract termination charges.
Total adjusted EBITDA is defined as Adjusted EBITDA from continuing operations and Adjusted EBITDA from discontinued operations.
These non-GAAP measures are not intended to replace the presentation of financial results in accordance with GAAP and investors should consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another. Reconciliations are set forth within this section.
Reconciliation of Net Income (Loss) from Continuing Operations (GAAP) and Net Income (Loss) from Discontinued Operations (GAAP) to Adjusted EBITDA from Continuing Operations (Non-GAAP), Adjusted EBITDA from Discontinued Operations (Non-GAAP), and Total Adjusted EBITDA (Non-GAAP)
Years Ended December 31,
In millions
Net income (loss) from continuing operations (GAAP)
Interest expense
Interest income
Provision (benefit) for income taxes on continuing operations
Depreciation and amortization (1)
Restructuring and other (income) charges, net (2)
Goodwill impairment charge (3)
Acquisition and other-related costs (4)
(Gain) loss on strategic investments (5)
Long lived assets impairment charge (6)
Proxy contest charges (7)
Portfolio realignment costs (8)
Pension and postretirement settlement and curtailment charges (income), net (9)
Adjusted EBITDA from continuing operations (Non-GAAP)
Net income (loss) from discontinued operations (GAAP)
Provision (benefit) for income taxes on discontinued operations
Interest expense, net
Depreciation and amortization (1)
Restructuring and other (income) charges, net (2)
Goodwill impairment charge (3)
Loss on CTO resales (10)
CTO supply contract termination charges (11)
(Gain) loss on strategic investments (5)
Adjusted EBITDA from discontinued operations (Non-GAAP)
Total Adjusted EBITDA (Non-GAAP)
(1) Refer to Note 18 and Note 20 for more information.
(2) We regularly perform strategic reviews and assess the return on our operations, which sometimes results in a plan to restructure the business. These costs are excluded from our reportable segment results and for the purposes of calculating our non-GAAP financial performance measures. Refer to Note 15 and Note 20 for more information.
(3) Refer to Note 8 and Note 20 for more information.
(4) Charges represent costs incurred to complete and integrate acquisitions and other strategic investments, and include the expensing of the inventory fair value step-up resulting from the application of purchase accounting for acquisitions, and certain legal and professional fees associated with the completion of acquisitions and strategic investments.
(5) We exclude gains and losses from strategic investments from our segment results, as well as our non-GAAP financial measures, because we do not consider such gains or losses to be directly associated with the operational performance of the segment. We believe that the inclusion of such gains or losses, would impair the factors and trends affecting the historical financial performance of our reportable segments. We continue to include undistributed earnings or loss, distributions, amortization or accretion of basis differences, and other-than-temporary impairments for equity method investments that we believe are directly attributable to the operational performance of such investments, in our reportable segment results. Refer to Note 5 for more information.
(6) For the year ended December 31, 2025, charge relates to the Performance Chemicals reportable segment. Refer to Note 7 and Note 8 for more information.
(7) Charges represent legal and other professional service fees as well as incremental proxy solicitation costs related to a proxy contest.
(8) Charges represent professional service fees related to a review of the company's portfolio.
(9) Our pension and postretirement settlement and curtailment charges (income) are related to the acceleration of prior service costs, as a result of a reduction in the number of participants within the Union Hourly defined benefit pension plan. These are excluded from our segment results because we consider these costs to be outside our operational performance. We continue to include the service cost, amortization of prior service cost, interest costs, expected return on plan assets, and amortized actual gains and losses in our segment EBITDA. Refer to Note 14 for more information.
(10) Due to the DeRidder Plant closure, and the corresponding reduced CTO refining capacity, we were obligated, under an existing CTO supply contract, to purchase CTO at amounts in excess of required CTO volumes. As of July 1, 2024, we terminated the CTO supply contract that resulted in these excess CTO volumes. As a result of the termination of this contract the purchases under the CTO supply contract ended, effective June 30, 2024, and we ended our CTO resale activity as of December 31, 2024. Since these CTO resale activities are directly attributable to the Performance Chemicals' repositioning, that is, they do not represent normal, recurring expenses necessary to operate our business, we have excluded the CTO resale (income) charges for the purposes of calculating our non-GAAP financial performance measures. For the years ended December 31, 2024 and 2023, the loss on CTO resales relates to the Performance Chemicals segment. Refer to Note 20 for more information.
(11) As consideration for the termination of the CTO supply contract, we made cash payments totaling $100.0 million during 2024. Since this contract termination is directly attributable to the Performance Chemicals' repositioning, that is, it does not represent normal, recurring expenses necessary to operate our business, we have excluded the CTO supply contract termination charges for the purposes of calculating our non-GAAP financial performance measures. Refer to Note 20 for more information.
Adjusted EBITDA
Years Ended December 31, 2025, 2024, and 2023
The factors that impacted Adjusted EBITDA period to period are the same factors that affected earnings discussed in the sections entitled "Results of Operations" and "Segment Operating Results" within MD&A.
Current Full Year Company Outlook vs. Prior Year
Our outlook includes a full year of operating results for the Advanced Polymer Technologies reportable segment and the Performance Chemicals road markings product line. Our outlook excludes the divested industrial specialties product line, as the sale closed on January 1, 2026.
Net sales are expected to be between $1.1 billion and $1.2 billion for 2026. We expect Net sales in our Performance Materials reportable segment to grow low-single digits as increased pricing on select products partially offsets forecasted decline in global automotive production for ICE powertrains compared to the prior year. We expect Net sales in our Performance Chemicals reportable segment, inclusive of the road markings product line, to grow mid-single digits through continued adoption of our warm mix asphalt products in our pavement technologies product line. For our Advanced Polymer Technologies reportable segment, we expect Net sales to grow low-single digits, reflecting a mild recovery in industrial end markets.
Adjusted EBITDA is expected to be between $380 million and $400 million for 2026. We expect our Performance Materials reportable segment to maintain segment EBITDA margins consistent with 2025, as revenue growth is partially offset by selective growth opportunities. In our Performance Chemicals reportable segment, we expect segment EBITDA margins in the mid-teens. The segment is expected to benefit from revenue growth in our pavement technologies product line but will be burdened by stranded costs from the divested industrial specialties product line. We anticipate that our Advanced Polymer Technologies segment EBITDA will improve versus prior year as volume growth is partially offset by defensive pricing actions to maintain segment EBITDA margins of around 20 percent. Corporate and Other costs are expected to be consistent 2025. Additionally, we expect to fully eliminate the $15 million of stranded costs, resulting from the divested industrial specialties product line over the course of 2026. As we accumulate the savings, we expect around $8 million to $12 million to burden the Company in 2026, the majority of which will be absorbed by our Performance Chemicals reportable segment. We expect that the full run rate from these savings will be in 2027.
Our effective tax rate is expected to be between 22 to 24 percent. Adjusted Earnings Per Share is expected to be between $4.80 and $5.20.
A reconciliation of net income from continuing operations, to adjusted EBITDA from continuing operations, as projected for 2026 is not provided. Ingevity does not forecast net income as it cannot, without unreasonable effort, estimate or predict with certainty various components of net income. These components, net of tax, include further restructuring and other
income (charges), net; additional acquisition and other-related income (costs); additional pension and postretirement settlement and curtailment (income) charges; and revisions due to legislative tax rate changes. Additionally, discrete tax items could drive variability in our projected effective tax rate. All of these components could significantly impact such financial measures. Further, in the future, other items with similar characteristics to those currently included in adjusted EBITDA from continuing operations, that have a similar impact on comparability of periods, and which are not known at this time, may exist and impact adjusted EBITDA from continuing operations.
Liquidity and Capital Resources
The primary source of liquidity for our business is the cash flow provided by operating activities. We expect our cash flow provided by operations combined with cash on hand and available capacity under our revolving credit facility and revolving accounts receivable securitization to be sufficient to fund our planned operations and meet our interest and other contractual obligations for at least the next twelve months. As of December 31, 2025, our undrawn capacity under our revolving credit facility was $474.0 million. Over the next twelve months, we expect to fund the following: interest payments, capital expenditures, income tax payments, purchases pursuant to our stock repurchase program (and related excise tax payments), BASF litigation verdict, including post-judgment interest and potentially legal fees and costs, and restructuring activities as further described within Note 15. In addition, we may also evaluate and consider strategic investments, divestitures, joint ventures, or other transactions to create stockholder value and enhance financial performance. In connection with such transactions, or to fund other anticipated uses of cash, we may modify our existing revolving credit facility, redeem all or part of our outstanding senior notes, seek additional debt financing, issue equity securities, or some combination thereof.
Cash and cash equivalents totaled $78.1 million at December 31, 2025. We continuously monitor deposit concentrations and the credit quality of the financial institutions that hold our cash and cash equivalents, as well as the credit quality of our insurance providers, customers, and key suppliers.
Due to the global nature of our operations, a portion of our cash is held outside the U.S. The cash and cash equivalents balance at December 31, 2025, includ ed $74.2 million held by our foreign subsidiaries. Cash and earnings of our foreign subsidiaries are generally used to finance our foreign operations and their capital expenditures. As of December 31, 2025, we determined that the earnings of some of our subsidiaries are no longer permanently reinvested due to global volatility. We believe that our foreign holdings of cash will not have a material adverse impact on our U.S. liquidity. If these earnings were distributed, such amounts could be subject to U.S. federal income tax at the statutory rate less the available foreign tax credits, if any, and could potentially be subject to withholding taxes in the various jurisdictions. The potential tax implications of the repatriation of unremitted earnings are driven by facts at the time of distribution, therefore, it is not practicable to estimate the income tax liabilities that might be incurred if such cash and earnings were repatriated to the U.S. Refer to Note 16 for more information.
Debt and Finance Lease Obligations
Refer to Note 10 for a summary of our outstanding debt obligations and revolving credit facility, and Note 13 for details of our lease obligations.
We are in the beginning stages of amending and extending our existing revolving credit facility, which we expect to execute before the end of the second quarter of 2026. The amendment and extension is expected to have materially consistent provisions to that of the existing credit agreement but with an extended maturity beyond June 23, 2027.
Other Potential Liquidity Needs
Share Repurchases
On July 25, 2022, our Board of Directors authorized the repurchase of up to $500.0 million of our common stock (the "2022 Authorization"), and rescinded the prior outstanding repurchase authorization with respect to the shares that remained unused under the prior authorization. Shares under the 2022 Authorization may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market prevailing conditions and other factors, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
During the year ended December 31, 2025, we repurchased $56.3 million (inclusive of $0.4 million in excise tax) common stock, representing 1,061,460 shares of our common stock at a weighted average cost per share of $52.67. At December 31, 2025, $297.5 million remained unused under our Board-authorized repurchase program.
Capital Expenditures
Projected 2026 capital expenditures are expected to be $40 million to $60 million, the majority of which will be spent on maintenance and safety, health and environment projects. We have no material commitments associated with these projected capital expenditures as of December 31, 2025.
Cash flow comparison of Years Ended December 31, 2025, 2024, and 2023
Years Ended December 31,
In millions
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Cash flows provided by (used in) operating activities
Cash provided by operating activities, inclusive of continuing and discontinued operations, consists of net income (loss) adjusted for non-cash items including the cash impact from changes in operating assets and liabilities (i.e., working capital), totaled $331.2 million for the year ended December 31, 2025.
Cash provided by operating activities for 2025, when compared to 2024, increased by $202.6 million. This increase was driven by a decrease in CTO supply contract termination cash outflows of $100.0 million, reduced CTO resale cash outflows of $52.3 million, a reduction in tax payments of $18.2 million, a decrease in cash interest paid of $15.1 million due primarily to lower interest rates and debt levels when compared to 2024, reduced spending on restructuring initiatives of $13.2 million, increased cash earnings of $3.2 million, and an increase in trade working capital (accounts receivable, inventory, and accounts payable) of $1.7 million. Partially offsetting these cash inflows was increased employee variable compensation of $1.1 million.
Cash provided by operating activities for 2024, when compared to 2023, decreased by $76.5 million. This decrease was driven by a payment to terminate a Performance Chemicals CTO contract of $100.0 million, CTO resale cash outflows of $35.5 million, increased spending on restructuring initiatives of $15.3 million, a net reduction in trade working capital (accounts receivable, inventory, and accounts payable) of $5.8 million, and an increase in cash interest paid of $2.7 million due primarily to rising interest rates when compared to 2023. Partially offsetting these cash outflows was increased cash earnings of $38.5 million, reduced employee variable compensation of $41.5 million, and a reduction in tax payments of $2.8 million.
Cash flows provided by (used in) investing activities
Cash used in investing activities for 2025 was primarily driven by capital spending and strategic investment charges (refer to Note 5 for more information). Capital spending included the base maintenance capital supporting ongoing operations and cost improvement and growth spending.
Cash used in investing activities for 2024 was driven by capital spending. Capital spending included the base maintenance capital supporting ongoing operations and cost improvement and growth spending in our Advanced Polymer Technologies segment.
Capital expenditure categories
Years Ended December 31,
In millions
Maintenance
Safety, health and environment
Growth and cost improvement
Total capital expenditures
Cash flows provided by (used in) financing activities
Cash used in financing activities for the year ended December 31, 2025, was $252.2 million and was primarily driven by net payments on the revolving credit facility and other borrowings of $192.3 million, and share repurchases of $56.3 million.
Cash used in financing activities for the year ended December 31, 2024, was $70.2 million and was primarily driven by net payments on the revolving credit facility and other borrowings of $66.1 million.
New Accounting Guidance
Refer to Note 3 for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on our Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Our principal accounting policies are described in Note 2. Our Consolidated Financial Statements are prepared in conformity with GAAP. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. We have reviewed these accounting policies, identifying those that we believe to be critical to the preparation and understanding of our financial statements. Critical accounting policies are central to our presentation of results of operations and financial condition and require management to make estimates and judgments on certain matters. We base our estimates and judgments on historical experience, current conditions, and other reasonable factors.
The following is a list of those accounting policies that we have deemed most critical to the presentation and understanding of our results of operations and financial condition:
Revenue recognition
Our revenue is derived from contracts with customers, and substantially all our revenue is recognized when products are either shipped from our manufacturing and warehousing facilities or delivered to the customer. Revenue, net of returns and customer incentives, is based on the sale of manufactured products. Revenues are recognized when performance obligations under the terms of a contract with our customer are satisfied; generally, this occurs with the transfer of control of our products. For certain limited contracts, where we are producing goods with no alternative use and for which we have an enforceable right to payment for performance completed to date, we are recognizing revenue as goods are manufactured, rather than when they are shipped. Revenues are presented as Net sales on the consolidated statements of operations.
Since Net sales are derived from product sales only, we have disaggregated our Net sales by our product lines within each reportable segment. Net sales are measured as the amount of consideration we expect to receive in exchange for transferring goods. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Sales returns and allowances are not a normal practice in the industry and are not significant. Certain customers may receive cash-based incentives, including discounts and volume rebates, which are accounted for as variable consideration and included within Net sales. Shipping and handling fees billed to customers are included in Net sales. If we pay for the freight and shipping, we recognize the cost when control of the product has transferred to the customer as an expense within Cost of sales on the consolidated statements of operations. Payment terms with our customers are typically in the range of zero to sixty days. Because the period between when we transfer a promised good to a customer and when the customer pays for that good will be one year or less, we elect not to adjust the promised amount of consideration for the effects of any financing component, as it is not significant.
Valuation of tangible and intangible long-lived assets and goodwill
Our long-lived assets primarily include property, plant, and equipment, and other intangible assets. We periodically evaluate whether current events or circumstances indicate that the carrying value of long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to carrying value to determine whether an impairment exists.
If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. We report an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.
As part of our broader strategic portfolio review, we are evaluating strategic alternatives for our APT reportable segment, including a potential sale. We commenced a marketing process for APT in January 2026, subsequent to the December 31, 2025, balance sheet date. As of December 31, 2025, we had not engaged with prospective buyers, distributed marketing materials, received third-party indications of interest, or otherwise obtained market based information. Since the APT asset group continued to be classified as held and used at December 31, 2025, the Company assessed whether any indicators of
impairment existed under ASC 360. Management determined that no such indicators were present as of year-end. We continue to evaluate strategic alternatives for APT, and the outcome of a potential sale remains uncertain. Depending on the final terms of any potential transaction or changes in market conditions, we may be required to recognize an impairment charge or loss on sale in future periods.
Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. We conduct a required annual review of goodwill for potential impairment at October 1, or sooner if events or changes in circumstances indicate that the fair value of a reporting unit is below its carrying value. Our reporting units are our operating segments, i.e., Performance Materials, Performance Chemicals and Advanced Polymer Technologies. If the carrying value of a reporting unit that includes goodwill exceeds its fair value, which is determined using both the income approach and market approach, goodwill is considered impaired. The income approach determines fair value based on discounted cash flow model derived from a reporting unit's long-term forecasted cash flows. The market approach determines fair value based on the application of earnings multiples of comparable companies to the projected earnings of the reporting unit. The amount of impairment loss is measured as the difference between the carrying value and the fair value of a reporting unit but is limited to the total amount of goodwill allocated to the reporting unit. In performing the fair value analysis, management makes various judgments, estimates, and assumptions, the most significant of which are the assumptions related to revenue growth rates, Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") margins, and discount rate.
The factors we considered in developing our estimates and projections for cash flows include, but are not limited to, the following: (i) macroeconomic conditions; (ii) industry and market considerations; (iii) costs, such as increases in raw materials, labor, or other costs; (iv) our overall financial performance; and (v) other relevant entity-specific events that impact our reporting units.
The determination of whether goodwill is impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the estimated fair values of our reporting units. We believe that the estimates and assumptions used in our impairment assessment are reasonable; however, these assumptions are judgmental and variations in any assumptions could result in materially different calculations of fair value. We will continue to evaluate goodwill on an annual basis as of October 1, and whenever events or changes in circumstances, such as significant adverse changes in operating results, market conditions, or changes in management's business strategy indicate that there may be a probable indicator of impairment. It is possible that the assumptions used by management related to the evaluation may change or that actual results may vary significantly from management's estimates.
Income taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions, including China and the United Kingdom. The provision for income taxes includes income taxes paid, currently payable or receivable, and deferred taxes. We follow the liability method of accounting for income taxes in accordance with current accounting standards regarding the accounting for income taxes. Under this method, deferred income taxes are recorded based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled. The ability to realize deferred tax assets is evaluated through the forecasting of taxable income, historical and projected future operating results, the reversal of existing temporary differences, and the availability of tax planning strategies. Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. During the year ended December 31, 2025, we determined that the earnings of some of our subsidiaries are no longer permanently reinvested due to global trade volatility. As a result of this change, we recorded $1.3 million of deferred taxes associated with our unremitted China earnings. The remainder of our subsidiaries remain permanently reinvested.
We recognize income tax positions that are more likely than not to be realized and accrue interest related to unrecognized income tax positions, which is included as a component of the income tax provision, on the consolidated statements of operations.
