Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis (MD&A) of certain significant factors that have affected the Company’s financial condition and results of operations during the annual periods included in the accompanying consolidated financial statements.
Presentation of Information
The discussion that follows includes a comparison of the Company’s results of operations and liquidity and capital resources for the fiscal years ended December 31, 2024 and 2025. For a discussion of changes from the fiscal year ended December 31, 2023 to the fiscal year ended December 31, 2024, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (filed February 27, 2025).
Overview
The Company produces and sells intermediate chemicals that are used in a wide variety of applications worldwide. The overall business is comprised of three reportable segments:
Surfactants - Surfactants, which accounted for 71 percent of the Company’s consolidated net sales in 2025, are principal ingredients in consumer and industrial cleaning and disinfection products such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes. Other applications include fabric softeners, germicidal quaternary compounds, disinfectants, lubricating ingredients, emulsifiers for spreading agricultural products and industrial applications such as latex systems, plastics and composites. Surfactants are manufactured at five sites in the United States, two European sites (United Kingdom and France), five Latin American sites (one site in Colombia and two sites in each of Brazil and Mexico) and one Asian site (Singapore).
During the fourth quarter of 2025, the Company completed the sale of its Stepan Philippines Quaternaries, Inc. (SPQI) manufacturing assets located in Bauan, Batangas, Philippines to Masurf, Inc, a subsidiary of Musim Mas Holdings Pte. Ltd. As part of the transaction, SPQI entered into a tolling agreement with Masurf, Inc. for the continued service of SPQI customers in Southeast Asia. See Note 20, Sales of Assets, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for more details.
During the fourth quarter of 2025, the Company successfully closed on the sale of its manufacturing assets located in Lake Providence, Louisiana. This transaction followed the Company’s sale of its SPQI manufacturing assets in the Philippines, representing the Company's ongoing footprint optimization efforts and focus on core growth opportunities. See Note 20, Sales of Assets, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for more details.
Polymers - Polymers, which accounted for 25 percent of consolidated net sales in 2025, include polyurethane polyols, polyester resins and phthalic anhydride. Polyurethane polyols are used in the manufacture of rigid foam for thermal insulation in the construction industry and are also a base raw material for coatings, adhesives, sealants and elastomers (collectively, CASE products). Powdered polyester resins are used in coating applications. CASE and powdered polyester resins are collectively referred to as specialty polyols. Phthalic anhydride is used in unsaturated polyester resins, alkyd resins and plasticizers for applications in construction materials and components of automotive, boating and other consumer products. In addition, the Company uses phthalic anhydride internally in the production of polyols. In the United States, polyurethane polyols are manufactured at the Company’s Elwood, Illinois (Millsdale) and Wilmington, North Carolina sites. Phthalic anhydride is manufactured at the Company’s Millsdale site and specialty polyols are manufactured at the Company’s Columbus, Georgia, site. In Europe, polyurethane polyols are manufactured at the Company’s plants in Germany and the Netherlands and specialty polyols are manufactured at the Company’s Poland site. In Asia, polyurethane polyols and specialty polyols are manufactured at the Company’s Nanjing, China, plant.
Specialty Products – Specialty products, which accounted for four percent of consolidated net sales in 2025, include flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications. Specialty products are primarily manufactured at the Company’s Maywood, New Jersey site.
Deferred Compensation Plans
The accounting for the Company’s deferred compensation plans can cause period-to-period fluctuations in Company income and expenses. Compensation expense is recognized when the value of the Company’s common stock and mutual fund investment assets held for the plans increase, and compensation income is recognized when the value of the Company’s common stock and mutual fund investment assets decline. The pretax effect of all deferred compensation-related activities (including realized and unrealized gains and losses on the mutual fund assets held to fund deferred compensation obligations) and the income statement line items in which the effects of the activities were recorded are displayed in the following tables:
Income (Expense)
For the Year
Ended December 31,
(In millions)
Change
Deferred Compensation (Operating expenses)
Investment Income (Other, net)
Realized/Unrealized Gains on Investments
(Other, net)
Pretax Income Effect
Income (Expense)
For the Year
Ended December 31,
(In millions)
Change
Deferred Compensation (Operating expenses)
Investment Income (Other, net)
Realized/Unrealized Gains on Investments
(Other, net)
Pretax Income Effect
See the Segment Results – Corporate Expenses section of this MD&A for details regarding the period-over-period changes in deferred compensation.
Below are the year-end Company common stock market prices used in the computation of deferred compensation income and expense:
December 31
Company Stock Price
Effects of Foreign Currency Translation
The Company’s foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects year-over-year comparisons of financial statement items (i.e., because foreign exchange rates fluctuate, similar year-over-year local currency results for a foreign subsidiary may translate into different U.S. dollar results). The following tables present the effects that foreign currency translation had on the year-over-year changes in consolidated net sales and various income statement line items for 2025 compared to 2024 and 2024 compared to 2023:
For the Year
Ended December 31,
Increase
(Decrease) Due
to Foreign
(In millions)
Increase
(Decrease)
Currency
Translation
Net Sales
Gross Profit
Operating Income
Pretax Income
For the Year
Ended December 31,
Increase
(Decrease) Due
to Foreign
(In millions)
Increase
(Decrease)
Currency
Translation
Net Sales
Gross Profit
Operating Income
Pretax Income
Results of Operations
2025 Compared with 2024
Summary
Net income in 2025 decreased $3.5 million, or seven percent, to $46.9 million, or $2.05 per diluted share, from $50.4 million, or $2.20 per diluted share in 2024. Adjusted net income was $41.7 million, or $1.82 per diluted share in 2025 versus $50.5 million, or $2.20 per diluted share in 2024 (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for a reconciliation between reported net income and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Earnings before interest, taxes, depreciation and amortization (EBITDA) were $208.0 million in 2025, up 11 percent, versus $186.9 million in 2024. Adjusted EBITDA was $198.9 million in 2025, up six percent, versus $187.0 million in 2024. (See the “Reconciliation of non-GAAP EBITDA and Adjusted EBITDA” section of this MD&A for a reconciliation between reported operating income and non-GAAP EBITDA and Adjusted EBITDA). Below is a summary discussion of the major factors leading to the changes in net sales, expenses and income in 2025 compared to 2024. A detailed discussion of segment operating performance for 2025, compared to 2024, follows the summary.
Consolidated net sales increased $151.8 million, or seven percent, between years. Higher average selling prices positively impacted the year-over-year change in net sales by $130.7 million. The increase in average selling prices was mainly attributable to the pass-through of higher raw material costs and more favorable product mix. Consolidated sales volume increased one percent and positively impacted the year-over-year change in net sales by $16.5 million. Consolidated sales volume, excluding the impact of the Philippines asset divestiture, increased two percent. Polymer and Specialty Products sales volume increased eight percent and 15 percent, respectively. Surfactant sales volume decreased two percent. Foreign currency translation favorably impacted the year-over-year change in net sales by $4.6 million, primarily due to a weaker U.S. dollar against the European euro, British pound sterling and Polish zloty, partially offset by a stronger U.S. dollar against the Mexican peso and Brazilian real.
Operating income in 2025 increased $8.1 million, or 11 percent, versus operating income in 2024. Polymer and Specialty Products operating income increased $2.6 million and $4.7 million, respectively, year-over-year. Surfactant operating income decreased $18.2 million in 2025 versus 2024. Corporate expenses, including deferred compensation, environmental remediation, a $6.2 million goodwill impairment charge and $15.9 million of gains recognized on the sale of assets, decreased $19.0 million, or 25 percent, year-over-year. Prior year corporate expenses included a $6.8 million charge associated with an external criminal social engineering fraud scheme. Foreign currency translation had a $0.8 million negative impact on operating income year-over-year.
Operating expenses (including deferred compensation, a goodwill impairment charge and gains on the sale of assets) decreased $10.4 million, or five percent, year-over-year. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:
Selling expenses increased $3.1 million, or seven percent, between years primarily due to higher salaries, fringe benefits and bad debt provision expense in 2025 versus 2024.
Administrative expenses decreased $7.5 million, or eight percent, year-over-year primarily due to the non-recurrence of a $6.8 million charge related to an external criminal social engineering fraud scheme and the non-recurrence of CEO transition expenses incurred in 2024.
Research, development and technical service (R&D) expenses increased $3.6 million, or six percent, year-over-year primarily due to higher salaries and fringe benefits.
Deferred compensation was $2.2 million of expense in both 2025 and 2024. See the Overview and Segment Results - Corporate Expenses sections of this MD&A for further details.
The Company recorded a $6.2 million goodwill impairment expense, related to its Mexican reporting unit, in 2025. The Company did not incur any goodwill impairment expense in 2024. See Note 4, Goodwill and Other Intangible Assets , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional details.
During the fourth quarter of 2025, the Company completed the sale of its Stepan Philippines Quaternaries, Inc. (SPQI) manufacturing assets located in Bauan, Batangas, Philippines to Masurf, Inc, a subsidiary of Musim Mas Holdings Pte. Ltd. As part of the transaction, SPQI entered into a tolling agreement with Masurf, Inc. for the continued service of SPQI customers in Southeast Asia. The gain recognized on the sale of the assets was $5.1 million. See Note 20, Sales of Assets, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for more details.
During the fourth quarter 2025, the Company successfully closed on the sale of its manufacturing assets located in Lake Providence, Louisiana. This transaction followed the Company’s divestiture of its plant in the Philippines, representing the Company's ongoing footprint optimization efforts and focus on core growth opportunities. The gain recognized on the sale was $10.8 million. See Note 20, Sales of Assets, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for more details.
Net interest expense in 2025 increased $7.9 million, or 56 percent, versus the prior year. This increase was primarily attributable to lower U.S. capitalized interest income recognized in 2025 as the Company’s new specialty alkoxylation facility in Pasadena, Texas started up in April 2025.
Other, net was $3.5 million of income in 2025 versus $4.1 million of income in 2024. The Company recognized $2.8 million of investment gains (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in 2025 compared to $4.6 million of investment gains in 2024. In addition, the Company recognized $0.2 million of foreign exchange gains in 2025 versus $1.4 million of foreign exchange losses in 2024. The Company also recognized $0.5 million of net periodic pension and other retirement obligations income in 2025 versus $1.0 million of income in 2024.
The Company’s effective tax rate was 21.7 percent in 2025 versus 16.7 percent in 2024. The increase of the 2025 effective tax rate was primarily attributable to a favorable non-recurring deferred tax adjustment in 2024 related to two of the Company’s Latin America subsidiaries and a decrease in the amount of qualified tax credits year-over-year. These two items were partially offset by the Company settling an audit in one jurisdiction earlier in 2025. See Note 9, Income Taxes , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for a reconciliation of the statutory U.S. federal income tax rate to the effective tax rate.
Segment Results
(In thousands)
For the Year
Ended December 31,
Net Sales
Increase
(Decrease)
Percent
Change
Surfactants
Polymers
Specialty Products
Total Net Sales
(In thousands)
For the Year
Ended December 31,
Operating Income
Increase
(Decrease)
Percent
Change
Surfactants
Polymers
Specialty Products
Segment Operating Income
Corporate Expenses, Excluding Deferred
Compensation
Deferred Compensation Expense
Total Operating Income
Surfactants
Surfactant net sales in 2025 increased $133.9 million, or nine percent, versus the prior year. Higher average selling prices favorably impacted the change in net sales by $167.2 million. The higher average selling prices were primarily due to the pass-through of higher raw material costs and more favorable product mix. Sales volume decreased two percent and unfavorably impacted the change in net sales by $27.7 million. Sales volume, excluding the impact of the Philippines asset divestiture, decreased one percent. Foreign currency translation had a $5.6 million unfavorable impact on the year-over-year change in net sales. A year-over-year comparison of net sales by region follows:
For the Year
Ended December 31,
(In thousands)
Increase
(Decrease)
Percent
Change
North America
Europe
Latin America
Asia
Total Surfactants Segment
Net sales for North American operations increased $60.0 million, or seven percent, between years. Higher average selling prices had a $62.4 million favorable impact on the year-over-year change in net sales. The higher average selling prices were primarily due to the pass-through of higher raw material costs and more favorable product mix. Sales volume declined less than one percent and negatively impacted the change in net sales by $1.6 million. Lower demand for products sold into the consumer products end markets was largely offset by higher demand for products sold into the agricultural and oilfield end markets and to our distribution partners. Foreign currency translation negatively impacted the change in net sales by $0.8 million.
Net sales for European operations increased $43.2 million, or 16 percent, primarily due to higher average selling prices, which had a $34.7 million positive impact on the change in net sales. The higher average selling prices were primarily due to the pass-through of higher raw material costs and more favorable product mix. Sales volume decreased one percent and negatively impacted the change in net sales by $2.6 million. Lower demand for products sold into the consumer products end markets and to our distribution partners was largely offset by higher demand for products sold into the agricultural and oilfield end markets. Foreign currency translation positively impacted the year-over-year change in net sales by $11.1 million. A weaker U.S. dollar relative to the British pound sterling and European euro led to the favorable foreign currency translation effect.
Net sales for Latin American operations increased $37.6 million, or 12 percent, primarily due to higher average selling prices that positively impacted the year-over-year change in net sales by $61.5 million. The higher average selling prices primarily reflect more favorable product mix and the pass-through of higher raw material costs. Sales volume decreased three percent and negatively impacted the change in net sales by $8.1 million. The decrease in sales volume was primarily due to lower demand for products sold into the commodity laundry and cleaning end markets that was partially offset by higher demand for products sold into the industrial cleaning and personal care end markets. A stronger U.S. dollar relative to all currencies within the region led to a $15.8 million unfavorable foreign currency translation effect.
Net sales for Asian operations decreased $6.9 million, or 13 percent, year-over-year. An 18 percent decline in sales volume had a $9.8 million unfavorable impact on the year-over-year change in net sales. The lower sales volume was mainly due to the SPQI asset divestiture in the Philippines. Higher average selling prices had a $3.0 million favorable impact on the year-over-year change in net sales and foreign currency translation negatively impacted the change in net sales by $0.1 million.
Surfactant operating income for 2025 decreased $18.3 million, or 21 percent, between years. Gross profit decreased $11.4 million, or six percent, and operating expenses increased $6.8 million, or seven percent. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:
For the Year
Ended December 31,
(In thousands)
Increase
(Decrease)
Percent
Change
Gross Profit and Operating Income
North America
Europe
Latin America
Asia
Surfactants Segment Gross Profit
Operating Expenses
Surfactants Segment Operating Income
Gross profit for North American operations decreased $20.0 million, or 20 percent, versus the prior year primarily due to lower average unit margins. The lower average unit margins negatively impacted the year-over-year change in gross profit by $19.8 million and were primarily attributable to higher expenses associated with the start-up of the Company’s new alkoxylation facility in Pasadena, Texas, higher oleochemical raw material costs and an environmental reserve adjustment related to the Company’s Elwood, Illinois site. A slight decline in sales volume negatively impacted the year-over-year change in gross profit by $0.2 million.
Gross profit for European operations increased $4.5 million, or 14 percent, primarily due to higher average unit margins and the favorable impact of foreign currency translation. These items positively impacted the year-over-year change in gross profit by $3.4 million and $1.4 million, respectively. The higher average unit margins primarily reflect a more favorable product mix. A one percent decrease in sales volume negatively impacted the year-over-year change in gross profit by $0.3 million.
Gross profit for Latin American operations increased $0.9 million, or two percent, primarily due to higher average unit margins. The higher average unit margins positively impacted the year-over-year change in gross profit by $4.5 million and primarily reflect a more favorable product mix. A three percent decrease in sales volume and the unfavorable impact of foreign currency translation negatively impacted the change in gross profit by $1.0 million and $2.6 million, respectively.
Gross profit for Asian operations increased $3.2 million or 45 percent, year-over-year primarily due to higher average unit margins. The higher average unit margins favorably impacted the year-over-year change in gross profit by $4.5 million. An 18 percent decline in sales volume negatively impacted the year-over-year change in gross profit by $1.3 million.
Operating expenses for the Surfactant segment increased $6.8 million, or seven percent, year-over-year. Most of this increase was attributable to higher salaries, fringe benefits and bad debt provision expense in 2025 versus 2024.
Polymers
Polymer net sales in 2025 decreased $0.4 million versus the prior year. An eight percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the change in net sales by $48.7 million and a $9.7 million, respectively. Lower average selling prices negatively impacted the year-over-year change in net sales by $58.8 million. A comparison of net sales by region follows:
For the Year
Ended December 31,
(In thousands)
Increase
(Decrease)
Percent
Change
North America
Europe
Asia and Other
Total Polymers Segment
Net sales for North American operations increased $24.7 million, or nine percent, primarily due to a 20 percent increase in sales volume which positively impacted the year-over-year change in net sales by $57.6 million. Sales volume within the commodity phthalic anhydride business more than doubled mainly due to the market exit of a competitor and the non-recurrence of operational issues at the Company’s Elwood, Illinois (Millsdale) site during 2024. Sales volume of polyols used in rigid foam applications and specialty polyols
increased one and four percent, respectively, year-over-year. Lower average selling prices negatively impacted the year-over-year change in net sales by $32.9 million. The lower average selling prices primarily reflect the pass-through of lower raw material costs and less favorable product mix.
Net sales for European Polymer operations decreased $23.2 million, or nine percent, year-over-year. Lower average selling prices and a one percent decline in sales volume negatively impacted the year-over-year change in net sales by $30.2 million and $2.7 million, respectively. The lower average selling prices were mainly due to pass-through of lower raw material costs and increased competitive activity. Foreign currency translation positively impacted the change in net sales by $9.7 million. A weaker U.S. dollar relative to the Polish zloty and British pound sterling led to the favorable foreign currency translation effect.
Net sales for Asian and Other operations decreased $1.9 million, or four percent, primarily due to lower average selling prices. Lower average selling prices negatively impacted the year-over-year change in net sales by $1.7 million. Sales volume was down less than one percent and negatively impacted the change in net sales by $0.2 million. The slight decrease in sales volume reflects lower demand for polyols used in rigid foam applications that was mostly offset by higher demand for specialty polyols resulting from the Company’s product diversification efforts.
Polymer operating income for 2025 increased $2.6 million, or seven percent, versus operating income for 2024. Gross profit increased $3.6 million, or five percent, and operating expenses were up $1.0 million, or four percent, year-over-year. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:
For the Year
Ended December 31,
(In thousands)
Increase
(Decrease)
Percent
Change
Gross Profit and Operating Income
North America
Europe
Asia and Other
Polymers Segment Gross Profit
Operating Expenses
Polymers Segment Operating Income
Gross profit for North American operations increased $5.8 million, or 20 percent, year-over-year. The 20 percent increase in sales volume accounted for the year-over-year gross profit change. Average unit margins were constant between years.
Gross profit for European operations decreased $4.8 million, or 15 percent, year-over-year. This decrease was primarily due to lower average unit margins and a one percent decrease in sales volume. These items negatively impacted the change in gross profit by $5.4 million and $0.4 million, respectively. The lower average unit margins primarily reflect increased competitive activity in the region. Foreign currency translation positively impacted the year-over-year change in gross profit by $1.0 million.
Gross profit for Asia and Other operations increased $2.6 million, or 38 percent, primarily due to higher average unit margins that positively impacted the change in gross profit by $2.7 million. The higher average unit margins reflect more favorable product mix resulting from the Company’s diversification efforts.
Operating expenses for the Polymers segment increased $1.0 million, or four percent, year-over-year primarily due to higher salaries.
Specialty Products
Specialty Products net sales in 2025 increased $18.4 million, or 29 percent, versus net sales in 2024. The year-over-year increase in net sales was due to higher average selling prices and a 15 percent increase in sales volume. Gross profit and operating income increased $5.0 million and $4.7 million, respectively. The year-over-year increases in gross profit and operating income were mostly attributable to higher sales volume within the medium chain triglycerides (MCT) product line.
Corporate Expenses
Corporate expenses, which include deferred compensation and other operating expenses that are not allocated to the reportable segments, decreased $19.0 million, or 25 percent, between years. This decrease was mainly due to the non-recurrence of a $6.8 million pre-tax charge, related to a criminal social engineering fraud scheme, recognized in 2024 (see Note 24, Other Matter , of the notes to the
Company’s consolidated financial statements included in Item 8 of this Form 10-K). In addition, during the fourth quarter of 2025, the Company recorded $15.9 million of gains on the sale of assets that were not attributed to any segments (see Note 20, Sales of Assets , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K). Partially offsetting the above, the Company recorded a $6.2 million goodwill impairment charge during the fourth quarter 2025 (see Note 4, Goodwill and Other Intangibles , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K). Deferred compensation expenses were $2.2 million in both 2025 and in 2024. The following table presents the period-end Company common stock market prices used in the computation of deferred compensation income/expense in 2025, 2024 and 2023:
December 31
Company Stock Price
Liquidity and Capital Resources
Overview
Historically, the Company’s principal sources of liquidity have included cash flows from operating activities, available cash and cash equivalents and the proceeds from debt issuance and borrowings under credit facilities. The Company’s principal uses of cash have included funding operating activities, capital investments and acquisitions. The Company’s generation of cash from operations, cash on hand, committed credit facilities and ability to access capital markets are expected to meet the Company’s short-term and long-term cash requirements for working capital, capital expenditures, debt maturities, contributions to pension plans, dividend distributions to stockholders, share repurchases and other needs.
For 2025, cash generated from operating activities was a cash source of $147.9 million versus a source of $162.1 million in 2024. For 2025, investing cash outflows were $89.0 million versus cash outflows of $116.9 million in 2024. Financing activities were a cash use of $35.4 million in 2025 versus a cash use of $64.5 million in 2024. Cash and cash equivalents increased by $33.0 million compared to December 31, 2024, inclusive of a $9.6 million favorable foreign exchange rate impact.
As of December 31, 2025, the Company’s cash and cash equivalents totaled $132.7 million including $13.8 million in money market funds and $2.4 million in U.S. demand deposit accounts. Cash and cash equivalents of the Company’s non-U.S. subsidiaries held outside the U.S. totaled $116.5 million as of December 31, 2025. As of December 31, 2024, the Company’s cash and cash equivalents totaled $99.7 million. Cash in U.S. demand deposit accounts and money market funds totaled $1.2 million and $12.6 million, respectively. The Company’s non-U.S. subsidiaries held $85.9 million of cash outside the United States as of December 31, 2024.
Operating Activities
Net income decreased $3.5 million, or seven percent, in 2025 versus the prior year. Working capital was a cash use of $15.8 million in 2025 versus a cash source of $5.8 million in 2024.
Accounts receivable were a cash source of $23.7 million in 2025 compared to a cash source of $9.0 million in 2024. Inventories were a cash source of $0.5 million in 2025 versus a cash use of $37.2 million in 2024. Accounts payable and accrued liabilities were a cash use of $32.7 million in 2025 compared to a cash source of $34.0 million in 2024.
Working capital requirements were higher in 2025 compared to 2024 primarily due to the changes noted above. The change in inventories working capital primarily reflects the Company’s efforts to reduce inventory levels during 2025. The change in accounts payable and accrued liabilities largely reflects a reduction in raw material purchases due to the Company’s inventory reduction efforts in 2025. It is management’s opinion that the Company’s liquidity is sufficient to provide for working capital requirements during 2026.
Investing Activities
Cash used for investing activities decreased $27.9 million year-over-year and was primarily due to $26.6 million of cash proceeds from the sales of assets in 2025. Cash used for capital expenditures was $122.5 million in 2025 versus $122.8 million in 2024.
For 2026, the Company estimates that total capital expenditures will be in the range of $100.0 million to $110.0 million.
Financing Activities
Cash flow from financing activities was a use of $35.4 million in 2025 versus a use of $64.5 million in 2024. The year-over-year change was primarily due to the issuance of $75.0 million aggregate principal amount of senior unsecured notes in 2025, partially offset by lower borrowings against the Company’s revolving credit facility in 2025 versus 2024.
The Company purchases shares of its common stock in the open market or from its benefit plans from time to time to fund its own benefit plans and to mitigate the dilutive effect of new shares issued under its compensation plans. The Company may, from time to time, seek to purchase additional amounts of its outstanding equity and/or retire debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise, including pursuant to plans meeting the requirements of Rule 10b5-1 promulgated by the SEC. While the amounts involved may be material, such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. During the twelve months ended December 31, 2025, the Company did not purchase any shares of its common stock on the open market. At December 31, 2025, the Company had $125.1 million remaining under the share repurchase program authorized by its Board of Directors.
Debt and Credit Facilities
Consolidated balance sheet debt increased $1.3 million, from $625.4 million on December 31, 2024 to $626.7 million on December 31, 2025, primarily due to the issuance of $75.0 million aggregate principal amount of senior unsecured notes during the second quarter of 2025, mostly offset by scheduled debt repayments and lower borrowings against the Company’s revolving credit facility. On May 21, 2025, pursuant to a note purchase and private shelf agreement dated as of June 10, 2021, Stepan issued and sold $37.5 million in aggregate principal amount of its 6.17% Senior Notes, Series 2025-A, due May 21, 2033 (the Series 2025-A Notes). On May 21, 2025, pursuant to a note purchase and master note agreement dated as of June 10, 2021, Stepan issued and sold $37.5 million in aggregate principal amount of its 6.17% Senior Notes, Series 2025-B, due May 21, 2033 (together with the Series 2025-A Notes, the Notes). The Notes will bear interest at a fixed rate of 6.17% with interest to be paid semi-annually. Principal amortization for the Notes is contractually scheduled with equal annual payments beginning on May 21, 2029 and on each May 21 thereafter to and including May 21, 2032, with the final outstanding principal balance due at maturity on May 21, 2033.
Net debt (which is defined as total debt minus cash – see the “Reconciliation of Non-GAAP Net Debt” section of this MD&A) was $494.0 million on December 31, 2025 versus $525.7 million at December 31, 2024. As of December 31, 2025, the ratio of net debt to net debt plus shareholders’ equity was 28.0 percent versus 31.0 percent at December 31, 2024 (see the “Reconciliation of Non-GAAP Net Debt” section in this MD&A for further details). On December 31, 2025, the Company’s debt included $324.0 million of unsecured notes, with maturities ranging from 2026 through 2033, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements, an $83.8 million delayed-draw term loan borrowed pursuant to the Company’s credit agreement and $218.9 million of short-term loans borrowed under the Company’s revolving credit facility. As of December 31, 2025, the Company had outstanding letters of credit of $12.8 million, inclusive of $4.1 million issued under the Company’s revolving credit facility. The proceeds from the note issuances have been the Company’s primary source of long-term debt financing and are supplemented by borrowings under bank credit facilities to meet short and medium-term liquidity needs.
The Company’s credit agreement (the Credit Agreement) with a syndicate of banks provides for credit facilities in an initial aggregate principal amount of $450.0 million, consisting of (a) a $350.0 million multi-currency revolving credit facility and (b) a $100.0 million delayed draw term loan credit facility ($16.2 million of the term loan principal has been permanently repaid as scheduled), each of which matures on June 24, 2027. The Company's credit agreement with Credit Industriel et Commercial NY (the CIC Credit Agreement) provides for a credit facility in an aggregate principal amount of $8.7 million. The facility is for the sole purpose of the issuance of standby letters of credit. As of December 31, 2025, the Company had outstanding letters of credit totaling $8.7 million under the CIC Credit Agreement. The Company also maintains import and export letters of credit and standby letters of credit under its workers’ compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the Credit Agreement. These outstanding letters of credit totaled $4.1 million at December 31, 2025.
The Company anticipates that cash from operations, committed credit facilities and cash on hand will be sufficient to fund anticipated capital expenditures, working capital, dividends and other planned financial commitments for the foreseeable future.
Certain foreign subsidiaries of the Company maintain short-term bank lines of credit in their respective local currencies to meet working capital requirements as well as to fund capital expenditures and acquisitions. At December 31, 2025, the Company’s foreign subsidiaries did not have any outstanding debt.
The Company is subject to covenants under its material debt agreements that require the maintenance of minimum interest coverage and minimum net worth. These debt covenants also limit the incurrence of additional debt as well as the payment of dividends and repurchase of shares. Under the most restrictive of these debt covenants:
The Company is required to maintain a minimum interest coverage ratio, as defined within the agreements, of 3.50 to 1.00, for the preceding four calendar quarters.
The Company is required to maintain an existing maximum net leverage ratio, as defined within the agreements, not to exceed 3.50 to 1.00.
The Company is required to maintain net worth of at least $750.0 million.
The Company is permitted to pay dividends and purchase treasury shares after June 24, 2022, in amounts of up to $100.0 million plus 100 percent of net income and cash proceeds of stock option exercises, measured cumulatively beginning January 1, 2022. The maximum amount of dividends that could have been paid within this limitation is disclosed as unrestricted retained earnings in Note 6, Debt , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K).
The Company believes it was in compliance with the covenants under its material debt agreements as of December 31, 2025.
Material Cash Requirements
At December 31, 2025, the Company’s material cash requirements included the following contractual obligations (including estimated payments by period):
Payments Due by Period
(In thousands)
Total
Less than
1 year
1-3 years
3 – 5 years
More than
5 years
Total debt obligations (1)
Interest payments on debt obligations (2)
Operating lease obligations (3)
Purchase obligations (4)
Other (5)
Total
Excludes unamortized debt issuance costs of $0.3 million.
Interest payments on debt obligations represent interest on all Company debt at December 31, 2025. Future interest rates may change, and, therefore, actual interest payments could differ from those disclosed in the above table.
The majority of operating lease obligations consist of railcar and real estate leases.
Purchase obligations consist of raw material, utility and telecommunication service purchases made in the normal course of business.
The “Other” category comprises deferred revenues that represent commitments to deliver products, estimated payments related to the Company’s unfunded defined benefit supplemental executive and outside director pension plans, estimated payments (undiscounted) related to the Company’s asset retirement obligations, environmental remediation payments for which amounts and periods can be reasonably estimated and income tax liabilities for which payments and periods can be reasonably estimated and payments related to the Company’s voluntary early retirement plan.
The above table does not include $17.4 million of other non-current liabilities recorded on the balance sheet at December 31, 2025, as summarized in Note 15, Other Non-Current Liabilities, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K). The significant non-current liabilities excluded from the table are defined benefit pension, deferred compensation, environmental and legal liabilities for which payment periods cannot be reasonably determined. In addition, deferred income tax liabilities are excluded from the table due to the uncertainty of their timing.
During the periods covered by this Form 10-K, the Company was not party to any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
Pension Plans
The Company sponsors a number of defined benefit pension plans, the most significant of which cover employees in the Company’s U.S. and U.K. locations. The U.S. and U.K. plans are frozen, and service benefit accruals are no longer being made. The overfunded status (pretax) of the Company’s U.S and U.K. defined benefit pension plans was $2.7 million at December 31, 2025, versus overfunded status (pretax) of $2.3 million at December 31, 2024. See Note 13, Postretirement Benefit Plans , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional details.
The Company contributed $0.2 million to its U.S. defined benefit plans in 2025. U.K. did not make any defined benefit contributions to its plan in 2025. In 2026, the Company is planning to make $0.9 million contribution to the U.S. qualified defined benefit plans. In addition, the company expects to contribute $0.1 million to the unfunded non-qualified U.S. pension plans.
Letters of Credit
The Company maintains standby letters of credit under its workers’ compensation insurance agreements and for other purposes as needed. The insurance letters of credit are renewed annually and amended to the amounts required by the insurance agreements. As of December 31, 2025, the Company had a total of $4.1 million of outstanding standby letters of credit from the Credit Agreement with the syndicate of banks and $8.7 million under CIC Credit Agreement.
Environmental and Legal Matters
The Company’s operations are subject to extensive federal, state and local environmental laws and regulations and similar laws in the other countries in which the Company does business. Although the Company’s environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent environmental regulation may require the Company to make additional unforeseen environmental expenditures. The Company will continue to invest in the equipment and facilities necessary to comply with existing and future regulations. During 2025, the Company’s expenditures for capital projects related to environmental matters were $9.8 million. These projects are capitalized and depreciated over their estimated useful lives, which are typically 10 years. Recurring costs associated with the operation and maintenance of facilities for waste treatment and disposal and managing environmental compliance in ongoing operations at the Company’s manufacturing locations were $44.9 million for 2025, $51.3 million for 2024 and $38.3 million for 2023.
Over the years, the Company has received requests for information related to or has been named by the government authorities as a potentially responsible party at a number of sites where cleanup costs have been or may be incurred by the Company under CERCLA and similar state statutes. In addition, the Company is from time to time involved in routine legal proceedings incidental to the conduct of its business, including personal injury, property damage, tax, trade and labor matters. The Company believes that it has made adequate provisions for the costs it is likely to incur with respect to these claims. It is the Company’s accounting policy to record liabilities when environmental assessments, remediation expenses or legal proceeding losses are probable, and the cost or range of possible costs can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the minimum is accrued. Estimating the possible costs of environmental remediation requires making assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. Some of the factors on which the Company bases its estimates include information provided by decisions rendered by State and Federal environmental regulatory agencies, information provided by feasibility studies, and remedial action plans developed. After partial remediation payments at certain sites, the Company has estimated a range of possible environmental and legal losses of $19.3 million to $46.0 million at December 31, 2025, and $20.0 million to $44.5 million at December 31, 2024. Within the range of possible environmental and legal losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the range and, thus, has accrued at the lower end of the range. The Company’s environmental and legal accruals totaled $19.3 million at December 31, 2025 as compared to $20.0 million at December 31, 2024. During 2025, cash expenditures related to environmental remediation and certain other legal matters approximated $4.6 million compared to $7.0 million in 2024.
For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based on the Company’s present knowledge with respect to its involvement at these sites, the possibility of other viable entities’ responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the aggregate, will not have a material effect on the Company’s financial position.
See Item 3. Legal Proceedings , in this Form 10-K and Note 16, Contingencies , in the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for a summary of the significant environmental proceedings related to certain sites.
Critical Accounting Estimates and Policies
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles or GAAP). Preparation of financial statements in accordance with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses at the date of the financial statements and to provide disclosures of contingent assets, liabilities and related amounts of revenues and expenses during the reporting period. The following is a summary of the accounting policies the Company believes are the most important to aid in understanding its financial results:
Environmental Liabilities
It is the Company’s accounting policy to record environmental liabilities when environmental assessments and/or remedial efforts are probable, and the cost or range of possible costs can be reasonably estimated. When no amount within a range of possible costs is a better estimate than any other amount, the minimum amount in the range is accrued. Estimating the possible costs of remediation requires making assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. Some of the factors on which the Company bases its estimates include information provided by discussions with and decisions rendered by State and Federal environmental regulatory agencies, information provided by feasibility studies, and remedial action plans developed.
Estimates for environmental liabilities are subject to potentially significant fluctuations as new facts emerge related to the various sites where the Company is exposed to liability for the remediation of environmental contamination. See the Environmental and Legal Matters section of this MD&A for discussion of the Company’s recorded liabilities and range of cost estimates.
Goodwill
The Company’s intangible assets include goodwill acquired as part of business or product line acquisitions. Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment on a reporting unit level. The Company’s reporting units are typically defined as one level below operating segments and highly correlated to geographic regions. The Company tests goodwill for impairment annually (the Company conducts its goodwill impairment testing during the second quarter of each calendar year), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of the reporting unit to which goodwill relates has declined below its carrying value. In this case, the Company would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. Goodwill is evaluated for impairment using qualitative and/or quantitative testing procedures. The Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company chooses not to complete a qualitative assessment for a given reporting unit, or if the initial assessment indicates that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying value, additional quantitative testing is performed.
When estimating a reporting unit’s fair value as part of the quantitative assessment, the Company uses a combination of market and income-based methodologies. The market approach uses a combination of EBITDA and EBITDA multiples to estimate a reporting unit’s fair value. EBITDA multiples typically mirror similar businesses or comparative companies whose securities are actively traded in public markets. Significant degradation of either EBITDA or EBITDA multiples could result in a triggering event, requiring goodwill to be tested for impairment during an interim period. The income approach takes into consideration multiple variables, including forecasted sales volume and operating income, current industry and economic conditions, historical results and other elements to calculate the present value of future cash flows. The income approach fair value calculations include estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units. The Company reported goodwill and other intangible assets impairment expenses during 2023 and goodwill impairment expenses in 2025. See Note 4, Goodwill and Other Intangible Assets , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional information.
At December 31, 2025, the Company conducted additional sensitivity analysis on certain assumptions used in the valuation of its European polymers reporting unit due to a decline in earnings. The decline in earnings was primarily due to slightly lower sales volume and unit margins. At December 31, 2025, the goodwill related to the European polymers reporting unit was $47.8 million. The Company used both market and income-based methodologies to assess the fair value of its European polymers reporting unit. Both approaches required the Company to make significant economic-related assumptions. Based on the Company’s analysis, the fair value of the European polymers reporting unit was greater than its carrying value, and as a result, the Company did not record any impairment charge
as of December 31, 2025. Holding all other assumptions constant, a 100 basis point increase in the discount rate would not result in impairment nor would a 1.5 decrease in the multiple used in the market-based computation result in an impairment.
Net Operating Loss Carryforwards
As of December 31, 2025, the Company had approximately $32.0 million in net Deferred Tax Assets (DTAs). These DTAs include approximately $60.0 million related to U.S. Federal net operating loss (NOL) carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. One of the primary drivers of the 2025 NOL was the Pasadena, Texas facility assets being placed in service in 2025 which qualified for Bonus depreciation. While these U.S. Federal NOL carryforwards have an indefinite carryforward period with certain annual limitations, a valuation allowance is needed if projected future income is insufficient to utilize the NOLs. At this time, the Company considers it more likely than not that it will have sufficient taxable income in the future that will allow the Company to realize these DTAs. However, it is possible that some or all of these NOL carryforwards could ultimately remain unused. This could require a substantial valuation allowance which would materially increase the Company’s income tax expense in the period the valuation allowance is recognized and materially adversely affect our results of operations and statement of financial condition.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for information on recent accounting pronouncements which affect the Company.
Non-GAAP Reconciliations
The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company’s performance and financial condition. Internally, the Company uses this non-GAAP information as an indicator of business performance and evaluates management’s effectiveness with specific reference to these indicators. Management uses these non-GAAP financial measures to assist in analyzing what management views as the Company’s core operating performance for purposes of business decision making. Management believes that presenting these non-GAAP financial measures provides investors with useful supplemental information because they (i) provide meaningful supplemental information regarding financial performance by excluding items affecting comparability between periods, (ii) permit investors to view performance using the same tools that management uses to budget, make operating and strategic decisions and evaluate the Company’s core operating performance across periods, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating the Company’s financial results. In addition, the Company believes that the presentation of these non-GAAP financial measures, when considered together with the most directly comparable GAAP financial measures and the reconciliations to those GAAP financial measures, provides investors with additional tools to understand the factors and trends affecting the Company’s underlying business than could be obtained absent these disclosures. These measures should be considered in addition to, not as substitutes for or superior to, measures of financial performance prepared in accordance with GAAP and there are limitations to using non-GAAP financial measures. For example, the non-GAAP financial measures presented in this Form 10-K may differ from similarly titled non-GAAP financial measures presented by other companies and other companies may not define these non-GAAP financial measures the same way as the Company does.
Reconciliations of Non-GAAP Adjusted Net Income and Diluted Earnings per Share
Management uses the non-GAAP adjusted net income metric to evaluate the Company’s operating performance. Management excludes the items listed in the table below because they are non-operational items. The cumulative tax effect was calculated using the statutory tax rates for the jurisdictions in which the transactions occurred.
Twelve Months Ended December 31
(In millions, except per share amounts)
Net Income
Diluted EPS
Net Income
Diluted EPS
Net Income
Diluted EPS
Net Income Attributable to the Company
as Reported
Deferred Compensation (Income)
(including related investment activity)
Business Restructuring/Asset Impairment
Expense and Loss on Asset Disposition
Goodwill and Other Intangibles Impairment
Expense
Cash Settled Stock Appreciation Rights
(Income)
Environmental Remediation Expenses
Gain on Sales of Assets
Cumulative Tax Effect on Above Adjustment
Items
Adjusted Net Income
Reconciliations of Non-GAAP EBITDA and Adjusted EBITDA
Management uses the non-GAAP EBITDA and adjusted EBITDA metric to evaluate the Company’s operating performance. Management excludes the items listed in the table below because they are non-operational items. Refer to the Company’s Consolidated Statements of Income for a bridge between Operating Income and Net Income.
For the Year
Ended December 31,
($ in millions)
Operating Income
Depreciation and Amortization
Other, Net Income
EBITDA
Deferred Compensation
Environmental Remediation
Goodwill Impairment
Gain on Sales of Assets
Adjusted EBITDA
Reconciliations of Non-GAAP Net Debt
Management uses the non-GAAP net debt metric to show a more complete picture of the Company’s overall liquidity, financial flexibility and leverage level.
December 31
(In millions)
Current Maturities of Long-Term Debt as Reported
Long-Term Debt as Reported
Total Debt as Reported
Less Cash and Cash Equivalents as Reported
Net Debt
Equity
Net Debt plus Equity
Net Debt/Net Debt plus Equity
It em 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk
Because the Company operates globally, its cash flows and operating results are subject to movements in foreign currency exchange rates. Except for the financial transactions, balances and forward contracts referred to below, most of the Company’s foreign subsidiaries’ financial instruments are denominated in their respective functional currencies.
The Company uses forward contracts to mitigate the exposure of certain foreign currency transactions and balances to fluctuating exchange rates. At December 31, 2025, the Company had forward contracts with an aggregated notional amount of $57.8 million. Except for the Company’s subsidiaries in Argentina, Brazil, China and Colombia, foreign currency exposures are substantially hedged by forward contracts. The fair value of all forward contracts as of December 31, 2025, was a net asset of $0.1 million. As of December 31, 2025, the potential reduction in the Company’s earnings resulting from the impact of hypothetical adverse changes in exchange rates on the fair value of its outstanding foreign currency contracts of 10 percent for all currencies would have been $4.2 million.
Interest Rates
The Company’s debt was comprised of $324.0 million fixed-rate borrowings and $302.7 million variable-rate borrowings. Foreign subsidiaries did not have any debt as of December 31, 2025. A hypothetical 10 percent average change to short-term interest rates would result in a $1.6 million (assuming the same debt level as December 31, 2025) increase or decrease to interest expense for 2026.
The fair value of the Company’s long term fixed-rate debt, including current maturities, was estimated to be $316.3 million as of December 31, 2025, which was approximately $8.0 million below the carrying value. Market risk was estimated as the potential increase to the fair value that would result from a hypothetical 10 percent decrease in the Company’s weighted average long-term borrowing rates as of December 31, 2025, or $4.8 million.
Commodity Price Risk
Certain raw materials used in the manufacture of the Company’s products are subject to price volatility caused by weather, petroleum price fluctuations, general economic demand and other unpredictable factors. Increased raw material costs are recovered from customers as quickly as the marketplace allows; however, certain contractual arrangements allow for price changes only on a quarterly basis, and competitive pressures sometimes prevent the recovery of cost increases from customers, particularly in periods where there is excess industry capacity. As a result, for some product lines or market segments it may take time to recover raw material price increases. Periodically, firm purchase commitments are entered into which fix the price of a specific commodity that will be delivered at a future time. Forward purchase contracts are used to aid in managing the Company’s natural gas costs. At December 31, 2025, the Company had open forward contracts for the purchase of 0.6 million dekatherms of natural gas at a cost of $2.3 million. Because the Company has agreed to fixed prices for the noted quantity of natural gas, a hypothetical 10 percent fluctuation in the price of natural gas would cause the Company’s actual natural gas cost to be $0.2 million higher or lower than the cost at market price.
It em 8. Financial Statements and Supplementary Data
The following statements and data are included in this item:
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 34 )
Consolidated Statements of Income (For years ended December 31, 2025, 2024 and 2023)
Consolidated Statements of Comprehensive Income (For years ended December 31, 2025, 2024 and 2023)
Consolidated Balance Sheets (December 31, 2025 and 2024)
Consolidated Statements of Cash Flow (For years ended December 31, 2025, 2024 and 2023)
Consolidated Statements of Stockholders’ Equity (For years ended December 31, 2025, 2024 and 2023)
Notes to Consolidated Financial Statements
Report of Independent Regist ered Public Accounting Firm
To the stockholders and the Board of Directors of Stepan Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Stepan Company and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2026 , expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill — European Polymers— Refer to Notes 1 and Note 4 to the Financial Statements
Critical Audit Matter Description
The Company's goodwill for its reporting units is tested annually for impairment during the second quarter of each year, and more frequently if events and circumstances indicate that the assets might be impaired. The Company's evaluation of its goodwill for impairment involves the comparison of the fair value of the reporting units to its carrying value.
The Company elected to use a quantitative approach to determine the fair value of the Stepan European Polymers reporting unit based upon the income method and the market-based method based on EBITDA multiples to determine the fair value of its reporting unit. The fair value determination using the discounted cash flow method requires management to make significant estimates and assumptions related to forecasts of future revenues and earnings before interest, taxes, depreciation, and amortization (EBITDA) and the discount rate. The determination of the fair value using the market-based method requires management to make assumptions related to marketplace EBITDA multiples from within a peer public company group. The goodwill balance allocated to the European Polymers reporting unit was $47.0 million at December 31, 2025. The European Polymers reporting unit goodwill is included in the Company’s goodwill balance of $92.8 million at December 31, 2025. The fair value of the European Polymers reporting unit was greater than its carrying value as of the measurement date, and as a result, management did not record an impairment charge related to the reporting unit goodwill.
Given the significant judgments made by management to estimate the fair value of the European Polymers reporting unit, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions related to forecasts of future EBITDA, as well as the calculation of the discount rate and the selection of multiples applied to management's forecasted EBITDA estimates for the European Polymers reporting unit, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the fair value of the goodwill discussed above included the following, among others:
We tested the effectiveness of controls over the goodwill impairment evaluations, including those over the appropriateness of the valuation methodology, forecast of EBITDA, and selection of the discount rate for the reporting unit.
We performed a sensitivity analysis of the business and valuation assumptions which included their impact on the income and market approach.
With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation methodology, and discount rate:
Testing the mathematical accuracy of the calculations.
Testing the source information underlying the determination of the discount rate and EBITDA multiples.
Developing ranges of independent estimates and comparing those to the rates selected by management.
We assessed the reasonableness of management’s forecast of future EBITDA by comparing the projections to historical results, forecasted information included in macroeconomic benchmarking reports and certain peer companies. We also evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 26, 2026
We have served as the Company’s auditor since 2002.
Stepan Company
Consol idated Statements of Income
For the years ended December 31, 2025, 2024 and 2023
(In thousands, except per share amounts)
Net Sales (Note 1)
Cost of Sales
Gross Profit
Operating Expenses:
Selling (Note 1)
Administrative (Note 1)
Research, development and technical services (Note 1)
Deferred compensation expense (Note 12)
Goodwill and other intangibles impairment (Note 4)
Business restructuring and assets impairment (Note 22)
Gain on sales of assets (Note 20)
Operating Income
Other Income (Expense):
Interest, net (Note 6)
Other, net (Note 8)
Income Before Provision for Income Taxes
Provision for Income Taxes (Note 9) \
Net Income
Net Income Per Common Share (Note 18):
Basic
Diluted
Shares Used to Compute Net Income Per Common Share (Note 18):
Basic
Diluted
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Stepan Company
Cons olidated Statements of Comprehensive Income
For the years ended December 31, 2025, 2024 and 2023
(In thousands)
Net Income
Other Comprehensive Income (Loss):
Foreign currency translation adjustments (Note 19)
Defined benefit pension plans:
Net actuarial (loss) arising in period
(net of tax benefit of $ 438 , tax benefit of $ 2,044
and tax benefit of $ 508 for 2025, 2024 and 2023, respectively)
Amortization of prior service cost included in pension expense
(net of tax expense of $ 3 , $ 2 and $ 2 for 2025, 2024 and 2023, respectively)
Amortization of actuarial loss included in pension expense
(net of tax expense of $ 89 , $ 104 and $ 99 for 2025, 2024
and 2023, respectively)
Net defined benefit pension plan activity (Note 19)
Cash flow hedges:
Cash flow hedge activity
Reclassifications to income in period
Net cash flow hedge activity (Note 19)
Other Comprehensive Income (Loss)
Comprehensive Income (Loss)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Stepan Company
Co nsolidated Balance Sheets
December 31, 2025 and 2024
(Dollars in thousands)
Assets
Current Assets:
Cash and cash equivalents
Receivables, less allowances of $ 10,533 in 2025 and $ 10,827 in 2024
Inventories (Note 5)
Other current assets
Total current assets
Property, Plant and Equipment:
Land
Buildings and improvements
Machinery and equipment
Construction in progress
Less: Accumulated depreciation
Property, plant and equipment, net
Goodwill, net (Note 4)
Other intangible assets, net (Note 4)
Long-term investments (Note 2)
Operating lease assets (Note 7)
Other non-current assets
Total Assets
Liabilities and Equity
Current Liabilities:
Current maturities of debt (Note 6)
Accounts payable
Accrued liabilities (Note 14)
Total current liabilities
Deferred income taxes (Note 9)
Long-term debt, less current maturities (Note 6)
Non-current operating lease liability (Note 7)
Other non-current liabilities (Note 15)
Commitments and Contingencies (Note 16)
Equity (Note 10):
Common stock, $ 1 par value; 60,000,000 authorized shares;
27,301,177 issued shares in 2025 and 27,156,436 issued shares in 2024
Additional paid-in capital
Accumulated other comprehensive loss (Note 19)
Retained earnings
Less: Common treasury stock, at cost, 4,676,739 shares in 2025
and 4,655,798 shares in 2024
Total Stepan Company stockholders’ equity
Total Liabilities and Equity
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Stepan Company
Con solidated Statements of Cash Flows
For the years ended December 31, 2025, 2024 and 2023
(In thousands)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Deferred compensation
Realized and unrealized (gains) on long-term investments
Stock-based compensation
Deferred income taxes
Goodwill and other intangibles impairment (Note 4)
Other non-cash items
Changes in assets and liabilities, excluding effects of
acquisitions:
Receivables, net
Inventories
Other current assets
Accounts payable and accrued liabilities
Pension liabilities
Environmental and legal liabilities
Deferred revenues
Net Cash Provided By Operating Activities
Cash Flows From Investing Activities
Expenditures for property, plant and equipment
Proceeds from sales of assets (Note 20)
Other, net
Net Cash Used In Investing Activities
Cash Flows From Financing Activities
Revolving debt and bank overdrafts, net (Note 6)
Other debt borrowings (Note 6)
Other debt repayments (Note 6)
Dividends paid
Stock option exercises
Other, net
Net Cash Provided By (Used In) Financing Activities
Effect of Exchange Rate Changes on Cash
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
Supplemental Cash Flow Information
Cash payments of income taxes, net of refunds (Note 9)
Cash payments of interest
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Stepan Company
C onsolidated Statements of Equity
For the year ended December 31, 2023
STEPAN COMPANY STOCKHOLDERS
(In thousands, except share and per share amounts)
Total
Common
Stock
Additional
Paid-in
Capital
Common
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Balance, December 31, 2022
Issuance of 52,999 shares of common
stock under stock option plan
Stock-based and deferred compensation
Net income
Other comprehensive income
Cash dividends paid:
Common stock ($ 1.470 per share)
Balance, December 31, 2023
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Stepan Company
Consolidated Statements of Equity
For the year ended December 31, 2024
STEPAN COMPANY STOCKHOLDERS
(In thousands, except share and per share amounts)
Total
Common
Stock
Additional
Paid-in
Capital
Common
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Balance, December 31, 2023
Issuance of 26,735 shares of common
stock under stock option plan
Stock-based and deferred compensation
Net income
Other comprehensive income
Cash dividends paid:
Common stock ($ 1.510 per share)
Balance, December 31, 2024
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Stepan Company
Consolidated Statements of Equity
For the year ended December 31, 2025
STEPAN COMPANY STOCKHOLDERS
(In thousands, except share and per share amounts)
Total
Common
Stock
Additional
Paid-in
Capital
Common
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Balance, December 31, 2024
Issuance of 2,473 shares of common stock
under stock option plan
Stock-based and deferred compensation
Net income
Other comprehensive income
Cash dividends paid:
Common stock ($ 1.550 per share)
Balance, December 31, 2025
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Not es to Consolidated Financial Statements
For the years ended December 31, 2025, 2024 and 2023
1. Summary of Significant Accounting Policies
Nature of Operations
Stepan Company’s (the Company) operations consist predominantly of the production and sale of specialty and intermediate chemicals, which are sold to other manufacturers for use in a variety of end products. Principal markets for all products are manufacturers of cleaning and washing compounds (including detergents, shampoos, fabric softeners, toothpastes and household cleaners), paints, cosmetics, food, beverages, nutritional supplements, agricultural products, plastics, furniture, automotive equipment, insulation and refrigeration.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires Company management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses at the date of the financial statements and to provide disclosures of contingent assets, liabilities and related amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries in which the Company exercises controlling influence. The equity method is used to account for investments in which the Company exercises significant but noncontrolling influence. Intercompany balances and transactions are eliminated in consolidation.
Business Combinations
The Company makes acquisitions from time to time. When such acquisitions occur, the Company applies the accounting guidance per FASB ASC Topic 805, Business Combinations (ASC 805), to determine whether the acquisition should be treated as an asset acquisition or a business combination. When the acquisition meets the criteria of a business combination the Company recognizes the identifiable assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. The Company recognizes goodwill for any portion of the purchase price that exceeds the sum of the net fair value of all the assets purchased in the acquisition and the liabilities assumed. Considerable estimates, complex judgments and assumptions are typically required to arrive at the fair value of elements acquired in a business combination, inclusive of discount rates, customer attrition rates, royalty rates, economic lives, and estimated future cash flows expected to be generated from the assets acquired. These items are typically most relevant to the fair valuation of identifiable intangible assets and property, plant and equipment.
In some instances, the purchase price allocation of an acquisition is not complete by the end of a reporting period. This situation most typically arises when an acquisition is complex and/or completed very close to the end of a reporting period and all necessary information is not available by the end of the reporting period in which the acquisition occurs. In these instances, the Company reports provisional amounts for any incomplete items and makes subsequent adjustments as necessary information becomes available or determines that additional information is not obtainable. Any subsequent adjustments could have a material impact on the Company’s financial position or results of operations as they could impact the initial fair values assigned to intangible assets and property, plant and equipment and/or their estimated economic lives. ASC 805 requires purchase price allocations to be finalized within one year from the acquisition date.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.
At December 31, 2025 , the Company’s cash and cash equivalents totaled $ 132,688,000 including $ 13,807,000 in money market funds each rated AAAm by Standard and Poor’s, Aaa-mf by Moody’s and AAAmmf by Fitch. Cash in U.S. demand deposit accounts totaled $ 2,351,000 and cash and cash equivalents of the Company’s non-U.S. subsidiaries held outside the U.S. totaled $ 116,530,000 as of December 31, 2025. At December 31, 2024 , the Company’s cash and cash equivalents totaled $ 99,665,000 including $ 12,589,000 in money market funds, each rated AAAm by Standard and Poor’s, Aaa-mf by Moody’s and AAAmmf by Fitch. Cash in U.S. demand deposit accounts totaled $ 1,219,000 and cash of the Company’s non-U.S. subsidiaries held outside the U.S. totaled $ 85,857,000 as of December 31, 2024 .
Receivables and Credit Risk/Losses
Receivables are stated net of allowances for doubtful accounts and other allowances and primarily include trade receivables from customers, as well as non-trade receivables from suppliers, governmental tax agencies and others.
The Company is exposed to both credit risk and losses on accounts receivable balances. The Company’s credit risk and loss exposure predominately relates to the sale of products to its customers. When extending credit to customers the Company evaluates a customer’s credit worthiness based on a combination of qualitative and quantitative factors, inclusive of, but not limited to, a customer’s credit rating from external providers, financial condition and past payment experience. The Company performs credit reviews on all customers at inception and on a scheduled basis thereafter dependent on customer risk and the level of credit extended. Payment terms extended are short term in duration, typically ranging from 30 to 60 days . The majority of the Company’s sales are made to large companies that are able to weather periodic changes in economic conditions. This risk of losses is further mitigated by the Company’s diverse customer base, which is dispersed over various geographic regions and industrial sectors. No single customer comprised more than 10 percent of the Company’s consolidated net sales in 2025, 2024 or 2023.
The Company maintains allowances for potential credit losses. With the adoption of ASU No. 2016-13, Financial Instruments – Credit Losses, the Company assesses the likelihood of default based on various factors, including the length of time receivables are past due, historical experience, current economic conditions and forward-looking economic forecasts. The Company also evaluates expected losses based on portfolios of data inclusive of geographical areas, specific end market uses of its products, etc. Although the Company’s historical credit loss experience has not been significant, its exposure to credit losses may increase if customers are adversely affected by economic challenges and/or uncertainty due to domestic or global recessions, disruptions due to pandemics, or other adverse global/regional events and customer specific factors. Specific customer allowances are recorded when a review of customer creditworthiness and current economic conditions indicate that collection is doubtful. General allowances are also maintained based on historical averages and trade receivable levels and incorporate existing economic conditions and forecast assumptions, when warranted. The Company reviews its reserves for credit losses on a quarterly basis. The Company also maintains other customer allowances that occur in the normal course of business.
The Company has accounts receivable financing programs under which the Company has the ability to sell eligible receivables for select customers to select banking institutions. For the twelve months ended December 31, 2025 and December 31, 2024 , the Company’s cash proceeds from the sale of receivables were $ 96,305,000 and $ 87,711,000 , respectively. Financing charges incurred from the sale of accounts receivable qualifying as sales for the twelve months ended December 31, 2024 and December 31, 2025 were immaterial.
The following is an analysis of the allowance for doubtful accounts and other accounts receivable allowances for the years ended December 31, 2025, 2024 and 2023:
(In thousands)
Balance at January 1
Provision
Accounts written off, net of recoveries
Balance at December 31
Inventories
Inventories are valued at cost, which is not in excess of net realizable value, and include material, labor and plant overhead costs. The first in, first out (FIFO) method is used to determine the cost of the Company’s inventory.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided on a straight-line basis over the estimated useful lives of the assets. Lives used for calculating depreciation are generally 30 to 40 years for buildings and 15 years for building improvements. For assets classified as machinery and equipment, lives generally used for calculating depreciation expense range from 10 to 30 years for manufacturing equipment, five to 10 years for furniture and fixtures, three to five years for vehicles and three to 10 years for computer equipment and software. The manufacturing of chemicals is capital intensive and a large majority of the assets included within machinery and equipment represent manufacturing equipment. Major renewals and betterments are capitalized, while maintenance and repairs ($ 92,955,000 , $ 90,422,000 , and $ 80,226,000 in 2025, 2024 and 2023, respectively), which do not renew or extend the life of the respective assets, are charged to operations as incurred. Land is not depreciated. The cost of property retired or sold, and the related accumulated depreciation, are removed from the accounts and any resulting gain or loss is reflected in income. Long-lived assets are reviewed for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. Such
conditions could include significant adverse changes in the business environment, significant declines in forecasted operations or an approved plan to discontinue an asset or an asset group before the end of its useful life.
Included in the computer equipment and software component of machinery and equipment are costs related to the acquisition and development of internal-use software. Capitalized costs for internal-use software include external direct costs of materials and services consumed in obtaining and developing the software. For development projects where major internal resources are committed, payroll and payroll-related costs incurred during the application development phase of the project are also capitalized. The capitalized costs are amortized over the useful lives of the software, which are generally three to 10 years . Costs incurred in the preliminary project phase are expensed. Deferred implementation costs for hosted cloud computing service arrangements are stated at historical cost and amortized on a straight-line basis over the term of the hosting arrangement.
Interest charges on borrowings applicable to major construction projects are capitalized.
Deferred Compensation
The Company sponsors deferred compensation plans that allow management employees to defer receipt of their annual cash incentive compensation and performance shares and non-employee directors to defer receipt of their fees and stock awards until retirement, departure from the Company or as elected by the participant. The plans allow for the deferred compensation to grow or decline based on the results of investment options chosen by the participants. The investment options include Company common stock and a limited selection of mutual funds. The Company funds the obligations associated with these plans by purchasing investment assets that match the investment choices made by the plan participants. A sufficient number of shares of treasury stock are maintained on hand to cover the equivalent number of shares that result from participants electing the Company common stock investment option. As a result, the Company must periodically purchase its common shares in the open market or in private transactions. Upon retirement or departure from the Company or at the elected time, participants receive cash amounts equivalent to the payment date value of the investment choices they have made or shares of Company common stock equal to the number of share equivalents held in the accounts.
Some plan distributions may be made in cash or Company common stock at the option of the participant. Other plan distributions can only be made in Company common stock. For deferred compensation obligations that may be settled in cash, the Company must record appreciation in the market value of the investment choices made by participants as additional compensation expense. Conversely, declines in the value of Company stock or the mutual funds result in a reduction of compensation expense since such declines reduce the cash obligation of the Company as of the date of the financial statements. These market price movements may result in significant period-to-period fluctuations in the Company’s income. The increases or decreases in compensation expenses attributable to market price movements are reported in the operating expenses section of the consolidated statements of income. Because the obligations that must be settled only in Company common stock are treated as equity instruments, fluctuations in the market price of the underlying Company stock do not affect earnings.
At December 31, 2025 and December 31, 2024 , the Company’s deferred compensation liability was $ 23,166,000 and $ 31,171,000 , respectively. In 2025 and 2024 , approximately nine percent and 20 percent, respectively, of the deferred compensation liability represented deferred compensation tied to the performance of the Company’s common stock. The remainder of the deferred compensation liability was tied to the chosen mutual fund investment assets. A $ 1.00 increase in the market price of the Company’s common stock will result in approximately $ 46,000 of additional compensation expense. A $ 1.00 reduction in the market price of the common stock will reduce compensation expense by a like amount. The expense or income associated with the mutual fund component will generally fluctuate in line with the overall percentage increase or decrease of the U.S. stock markets.
The mutual fund assets related to the deferred compensation plans are recorded on the Company’s balance sheet at cost when acquired and adjusted to their market values at the end of each reporting period. As allowed by generally accepted accounting principles, the Company elected the fair value option for recording the mutual fund investment assets. Therefore, market value changes for the mutual fund investment assets are recorded in the income statement in the same periods that the offsetting changes in the deferred compensation liabilities are recorded. Dividends, capital gains distributed by the mutual funds and realized and unrealized gains and losses related to mutual fund shares are recognized as investment income or loss in the other, net line of the consolidated statements of income.
Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Furthermore, GAAP establishes a framework, in the form of a three-level hierarchy, for measuring fair value that prioritizes the inputs to valuation techniques used to measure fair value. The following describes the hierarchy levels:
Level 1 - quoted prices in active markets for identical assets and liabilities.
Level 2 - inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 - unobservable inputs which reflect the entity’s own assumptions about the assumptions market participants use in pricing the assets and liabilities.
The Company applies the fair value measurement provisions of GAAP to any of its financial assets and liabilities that are carried at fair value on the consolidated balance sheets (see Note 2, Fair Value Measurements , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K), its outstanding debt for disclosure purposes (see Note 2, Fair Value Measurements , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K) and its pension plan assets (see Note 13, Postretirement Benefit Plans , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K).
The Company also applies fair value measurements to nonfinancial assets and liabilities recorded in conjunction with business combinations and as part of impairment reviews for goodwill and other long-lived assets.
Revenue Recognition
The Company’s contracts typically have a single performance obligation that is satisfied at the time product is shipped and control passes to the customer. For a small portion of the business, performance obligations are deemed satisfied when product is delivered to a customer location. For arrangements where the Company consigns product to a customer location, revenue is recognized when the customer uses the inventory. The Company accounts for shipping and handling as activities to fulfill a promise to transfer a good. As such, shipping and handling fees billed to customers in a sales transaction are recorded in Net Sales and shipping and handling costs incurred are recorded in Cost of Sales. Volume and cash discounts due to customers are estimated and recorded in the same period as the sales to which the discounts relate and are reported as reductions of revenue in the consolidated statements of income. See Note 21, Revenue from Contracts with Customers , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for more details.
Cost of Sales
Cost of sales is comprised of raw material costs (including inbound freight expense to deliver the raw materials), manufacturing plant labor expenses and various manufacturing overhead expenses, such as utilities, maintenance, operating supplies, amortization and manufacturing asset depreciation expenses. Cost of sales also includes outbound shipping and handling expenses, inter-plant transfer costs, warehouse expenses and rail car rental expenses.
Operating Expenses
Selling expenses are comprised of salaries and related fringe benefit expenses for marketing and sales personnel and operating costs, such as outside agent commissions, automobile rental and travel-related expenses, which support the sales and marketing functions. Bad debt charges and any depreciation expenses related to marketing assets (e.g., computers) are also classified as selling expenses.
Administrative expenses are comprised of salaries and related fringe benefit expenses and operating costs for the Company’s various administrative functions, which include information technology, finance, legal, and human resources. The majority of environmental remediation expenses are also classified as administrative expense. During 2024, the Company incurred $ 2,820,000 in severance expenses related to the departure of the Company’s former President and Chief Executive Officer.
The Company’s research and development costs are expensed as incurred. These expenses are aimed at the discovery of new knowledge with the intent that such effort will be useful in developing and commercializing a new product or in bringing about a significant improvement to an existing product or process. Total research and development expenses were $ 34,799,000 , $ 33,544,000 , and $ 35,732,000 in 2025, 2024 and 2023, respectively. The remainder of research, development and technical service expenses reflected on the consolidated statements of income relate to technical services, which include routine product testing, quality control and sales service support.
Compensation expenses or income related to the Company’s deferred compensation plans is presented in the deferred compensation (income) expense line in the Consolidated Statements of Income. For more details, see Note 12, Deferred Compensation, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K).
Environmental Expenditures
Environmental expenditures that relate to current operations are typically recorded in cost of sales. Expenditures that mitigate or prevent environmental contamination and that benefit future operations are capitalized as assets and depreciated on a straight-line basis over the estimated useful lives of the assets, which are typically 10 years.
Estimated future expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are recorded as liabilities, with the corresponding charge typically recorded in administrative expenses, when environmental assessments and/or remedial efforts are probable and the cost or range of possible costs can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. Estimating the possible costs of remediation requires making assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. Some of the factors on which the Company bases its estimates include information provided by feasibility studies, potentially responsible party negotiations and the development of remedial action plans. Legal costs related to environmental matters are expensed as incurred. See Note 16, Contingencies , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for environmental contingencies details.
Goodwill and Other Intangible Assets
The Company’s intangible assets include patents, trademarks, customer lists and relationships, technological and manufacturing know-how and goodwill, all of which were acquired as part of business or product line acquisitions. Intangible assets other than goodwill are determined to have either finite or indefinite useful lives. The Company currently has no indefinite-life intangible assets other than goodwill. The values for intangible assets with finite lives are amortized over the useful lives of the assets. Currently, the useful lives for the Company’s finite-lived intangible assets are as follows: patents – 15 years; trademarks – eight to ten years ; customer relationships – ten to 20 years and know-how – seven to 20 years . In addition, finite-life intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of an intangible asset may not be recoverable. Goodwill is not amortized but is tested for impairment at least annually, or more frequently, if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit to which goodwill relates below the reporting unit’s carrying value. See Note 4, Goodwill and Other Intangibles , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for detailed information about goodwill and other intangible assets.
Income Taxes
Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Deferred tax assets are recognized to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Uncertain tax positions are recorded in accordance with ASC 740, Income Taxes, on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statements of Income. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheet. See Note 9, Income Taxes , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for more information about the Company’s income taxes.
Translation of Foreign Currencies
For the Company’s consolidated foreign subsidiaries whose functional currency is the local foreign currency, assets and liabilities are translated into U.S. dollars at exchange rates in effect at year end and revenues and expenses are translated at average exchange rates for the year. Any resulting translation adjustments are included within the consolidated balance sheets on the accumulated other
comprehensive loss line of stockholders’ equity. Gains or losses on foreign currency transactions are reflected in the other, net line of the consolidated statements of income. The Company has four foreign subsidiaries whose functional currencies are the U.S. dollar. For these subsidiaries, nonmonetary assets and liabilities are translated at historical rates, monetary assets and liabilities are translated at exchange rates in effect at year end, revenues and expenses are translated at average exchange rates for the year and translation gains and losses are included in the other, net caption of the consolidated statements of income.
Stock-Based Compensation
The Company grants stock options, performance shares, time-based restricted stock units (RSUs) and stock appreciation rights (SARs) to certain employees under its incentive compensation plans. The Company calculates the fair values of stock options, performance shares, RSUs and SARs on the date such instruments are granted. The fair values of the stock options, performance shares and RSUs are then recognized as compensation expense over the vesting periods of the instruments. The Company’s SARs granted prior to 2015 were cash-settled and SARs granted in 2015 and later are stock-settled. All of the cash-settled SARs were exercised prior to the end of 2023. Compensation expense for the stock-settled SARs is calculated in the same way as compensation expense for stock options. See Note 11, Stock-based Compensation , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for detailed information about the Company’s stock-based compensation.
Earnings Per Share
Basic earnings per share amounts are computed as net income attributable to the Company divided by the weighted-average number of common shares outstanding. Diluted earnings per share amounts are based on the weighted-average number of common shares outstanding plus the weighted-average of net common shares (under the treasury stock method) that would be outstanding assuming the exercise of outstanding stock options and stock-settled SARs, the vesting of unvested RSUs that have no performance or market condition and the issuance of contingent performance shares. See Note 18, Earnings Per Share , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for detailed information about the Company’s earnings per share calculations.
Comprehensive Income and Accumulated Other Comprehensive Income
Comprehensive income includes net income and all other non-owner changes in equity that are not reported in net income. Comprehensive income is disclosed in the consolidated statements of comprehensive income. Accumulated other comprehensive income (AOCI) is reported as a component of stockholders’ equity in the Company’s consolidated balance sheets. See Note 19, Accumulated Other Comprehensive Income (Loss) , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for detailed information regarding changes in the Company’s AOCI and reclassifications out of AOCI to income.
Segment Reporting
The Company reports financial and descriptive information about its reportable operating segments. Operating segments are components of the Company that have separate financial information that is regularly evaluated by the chief operating decision maker (CODM) to assess segment performance and allocate resources. At December 31, 2024, the Company implemented ASU No. 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures which required enhanced 2024 annual disclosures and future interim disclosures regarding significant segment expenses and other segment items that are regularly provided to the chief operating decision maker. The Company discloses segment revenue, cost of sales and operating expenses, operating income, assets, capital expenditures and depreciation and amortization expenses. The Company made these disclosures retroactively when applicable. Enterprise-wide financial information about the geographic locations in which the Company earns revenues and holds assets is also disclosed. See Note 17, Segment Reporting , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for detailed information about the Company’s segment reporting.
Derivative Instruments
Derivative instruments are recognized in the consolidated balance sheets as either assets or liabilities measured at fair value. For derivative instruments that are not designated as hedging instruments, changes in the fair values of the derivative instruments are recognized currently in earnings. For derivative instruments designated as hedging instruments, depending on the nature of the hedge, changes in the fair values of the derivative instruments are either offset in earnings against changes in the fair values of the hedged items or recognized in AOCI until the hedged transaction is recognized in earnings. At the time a hedging relationship is designated, the Company establishes the method it will use for assessing the effectiveness of the hedge and the measurement approach for determining the ineffective aspect of the hedge. Company policy prohibits the use of derivative instruments for trading or speculative purposes. See Note 3, Derivative Instruments , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for further information regarding the Company’s use of derivatives.
At December 31, 2025 , the Company held open forward contracts for the purchase of 645,000 dekatherms of natural gas in 2026 at a cost of $ 2,291,000 . The Company uses forward contracts to minimize its exposure to volatile natural gas prices. Because the Company anticipates taking delivery of the natural gas for use in its operations, the forward contracts qualify for the normal purchase exception provided under U.S. GAAP for derivative instruments. The Company has elected the exception for such contracts. As a result, the forward contracts are not accounted for as derivative instruments. The cost of natural gas is charged to expense at the time the natural gas is delivered and used.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU No. 2023-09, Income taxes (Topic 740) Improvement to Income Tax Disclosures . This update requires that public entities on an annual basis disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments in this update require the disclosure on an annual basis of the amount of income taxes paid (net of refund received) disaggregated by federal, state and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid is equal or greater than five percent of total income taxes paid (net of refunds received). This update requires all entities to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. The amendments in this update are effective for annual periods beginning after December 15, 2024 and should be applied on a prospective basis. The Company adopted ASU No. 2023-09 prospectively for the period ending December 31, 2025. The adoption of ASU No. 2023-09 did not have any effect on the Company’s financial position, results of operations and cash flow but impacted the Company’s annual income tax disclosures. See Note 9, Income Taxes , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for more details.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive income - Expense Disaggregation Disclosures (Subtopic 220-40) . This update requires that public entities on an interim and annual basis disclose, in the notes to financial statements, specified information about certain costs and expenses. ASU No. 2024-03 requires a footnote disclosure in tabular form of each expense caption on the face of the income statement that includes any of the following natural expenses: (1) purchases of inventory, (2) employee compensation, (3) depreciation, and (4) intangible asset amortization. The disclosure would also include a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively and disclosure of the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. This ASU does not change or remove existing expense disclosure requirements; however, it may affect where that information appears in the footnotes to the financial statements. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive income - Expense Disaggregation Disclosures (Subtopic 220-40), Clarifying the effective date . The amendments in ASU No. 2024-03 are effective for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The amendments in this update should be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. The implementation of ASU No. 2024-03 will not have an impact on the Company’s financial position, results of operations and cash flow but will impact the Company’s interim and annual disclosures related to the relevant subtopics in this update.
In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses for Accounts Receivable and Contract Assets . This update provides public companies with a practical expedient in calculating expected credit losses on current accounts receivable and/or current contract assets arising from transactions under Topic 606, Revenue from Contracts with Customers . The expedient assumes that the current conditions as of the balance sheet date don't change for the remaining life of the asset and also allows an entity to consider cash collection activity that occurs after the balance sheet date but before the financial statements are issued. When developing an estimate of expected credit losses for assets to which the practical expedient is applied, an entity shall continue to adjust historical loss information to reflect current conditions to the extent that historical loss information does not reflect current conditions. The entity need to adopt the practical expedient first to be eligible to use it. The amendments in this update are effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods and should be applied on a prospective basis. The Company adopted the practical expedient and believes ASU 2025-05 does not have an impact on the Company's financial position, results of operations and cash flows.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) An Amendment of the FASB Accounting Standards Codification Targeted Improvements to the Accounting for Internal-Use Software. This update removes all references to software development stages so the entities start capitalizing software costs when 1) management has authorized and committed to funding the software projects and 2) it is probable that the project will be completed and the software will be used to perform the functions intended. Under the current rule, entities are required to capitalize development costs incurred depending on the nature of the costs and the project stage during which they occur. The amendments in this update are effective for annual periods beginning after December 15, 2027, and interim periods within those annual reporting periods. Early adoption is permitted
as of the beginning of the annual reporting period. The Company is in the process of evaluating ASU 2025-06 to determine its impact, if any, on the Company’s financial position, results of operations and cash flows.
2. Fair Value Measurements
The following were the financial instruments held by the Company at December 31, 2025 and 2024, and the methods and assumptions used to estimate the instruments’ fair values:
Cash and cash equivalents
Carrying value approximated fair value because of the short maturity of the instruments. Fair value of cash and cash equivalents is a Level 1 measurement. The Company’s cash and cash equivalents included money market funds totaling $ 13,807,000 and $ 12,589,000 at December 31, 2025 and December 31, 2024, respectively.
Derivative assets and liabilities
Derivative assets and liabilities include the foreign currency exchange and interest rate swap contracts discussed in Note 3, Derivative Instruments , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K). Fair value and carrying value were the same because the contracts were recorded at fair value. The fair values of the foreign currency contracts were calculated as the difference between the applicable forward foreign exchange rates at the reporting date and the contracted foreign exchange rates multiplied by the contracted notional amounts. The fair value of the interest rate swaps was calculated as the difference between the contracted swap rate and the floating interest rate multiplied by the present value of the notional amount of the contract. The Company’s fair value measurements for derivative assets and liabilities fall within Level 2 of the fair value hierarchy.
See the table that follows the financial instrument descriptions for the reported fair values of derivative assets and liabilities.
Long-term investments
Long-term investments include the mutual fund assets the Company held to fund a portion of its deferred compensation liabilities and all of its non-qualified supplemental executive defined contribution obligations. See the defined contribution plans section of Note 13, Postretirement Benefit Plans , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K). Fair value and carrying value were the same because the mutual fund assets were recorded at fair value in accordance with the FASB’s fair value option guidance. Fair values for the mutual funds were calculated using the published market price per unit at the reporting date multiplied by the number of units held at the reporting date. As a result, the Company’s fair value measurements for mutual fund assets fall within Level 1 of the fair value hierarchy.
See the table that follows the financial instrument descriptions for the reported fair value of long-term investments.
Debt obligations
The fair value of debt with original maturities greater than one year comprised the combined present values of scheduled principal and interest payments for each of the various loans, individually discounted at rates equivalent to those which could be obtained by the Company for new debt issues with durations equal to the average life to maturity of each loan. The fair values of the remaining Company debt obligations approximated their carrying values due to the short-term nature of the debt. The Company’s fair value measurements for debt fall in level 2 of the fair value hierarchy.
At December 31, 2025 and 2024 , the fair values and related carrying values of debt, including current maturities, were as follows (the fair value and carrying value amounts are presented without regard to unamortized debt issuance costs of $ 275,000 and $ 404,000 as of December 31, 2025 and 2024, respectively):
December 31
(In thousands)
Fair value
Carrying value
The following tables present financial assets and liabilities, excluding cash and cash equivalents, measured on a recurring basis at fair value as of December 31, 2025 and 2024, and the level within the fair value hierarchy in which the fair value measurement falls:
(In thousands)
December 31,
Level 1
Level 2
Level 3
Mutual fund assets
Derivative assets:
Interest rate contracts
Foreign currency contracts
Total assets at fair value
Derivative liabilities:
Foreign currency contracts
(In thousands)
December 31,
Level 1
Level 2
Level 3
Mutual fund assets
Derivative assets:
Interest rate contracts
Foreign currency contracts
Total assets at fair value
Derivative liabilities:
Foreign currency contracts
3. Derivative Instruments
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by the use of derivative instruments is foreign currency exchange risk. The Company holds forward foreign currency exchange contracts that are not designated as any type of accounting hedge as defined by U.S. generally accepted accounting principles. The Company uses these contracts to manage its exposure to exchange rate fluctuations on certain Company subsidiary cash, accounts receivable, accounts payable and other obligation balances that are denominated in currencies other than the entities’ functional currencies. The forward foreign exchange contracts are recognized on the balance sheet as either an asset or a liability measured at fair value. Gains and losses arising from recording the foreign exchange contracts at fair value are reported in earnings as offsets to the losses and gains reported in earnings arising from the re-measurement of the receivable and payable balances into the applicable functional currencies. At December 31, 2025 and 2024 , the Company had open forward foreign currency exchange contracts, all with durations of one to three months , to buy or sell foreign currencies with a U.S. dollar equivalent of $ 57,755,000 and $ 149,571,000 , respectively.
The Company is currently exposed to volatility in short-term interest rates and has mitigated certain portions of that risk by using an interest rate swap. The interest rate swap is recognized on the balance sheet as either an asset or a liability measured at fair value. At December 31, 2025 , the Company held an interest rate swap contract with a notional value of $ 100,000,000 that was designated as a cash flow hedge. Period-to-period changes in the fair value of the interest rate swap are initially recognized as gains or losses in other comprehensive income. As the interest rate swap contract is settled, the corresponding gain or loss is reclassified out of accumulated other comprehensive income (AOCI) into earnings. The maturity date of the current interest swap contract is March 10, 2027 which is closely aligned with the June 24, 2027 maturity of the Company’s revolving credit facility.
The fair values of the derivative instruments held by the Company on December 31, 2025, and December 31, 2024, are disclosed in Note 2, Fair Value Measurements , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K). Derivative instrument gains and losses for the years ended December 31, 2025, 2024 and 2023, were immaterial. For amounts reclassified out of AOCI into earnings for the years ended December 31, 2025, 2024 and 2023, see Note 19, Accumulated Other Comprehensive Income (Loss ), of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K).
4. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill for the years ended December 31, 2025 and 2024, were as follows:
Surfactants
Segment
Polymer
Segment
Specialty Products
Segment
Total
(In thousands)
Balance as of January 1
Goodwill
Accumulated impairment
loss
Goodwill, net
Goodwill impairment
Foreign currency
translation
Balance as of December 31
Goodwill
Accumulated impairment
loss
Goodwill, net
The Company typically tests its goodwill balances for impairment in the second quarter of each calendar year. Testing is completed more frequently when triggering events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit to which goodwill relates has declined below its carrying value.
During the fourth quarter of 2025, the Company concluded that the goodwill related to its Mexico reporting unit was impaired. The reporting unit is part of the Company’s Surfactant segment. The impairment relating to the Company’s Mexico reporting unit was recognized as a result of the reporting unit’s fair value declining below its carrying value. The Company estimates the fair value of each of its reporting units based on an average of market and income-based computations, which is a Level 3 measurement. During the fourth quarter of 2025 the Company recorded a non-cash charge of $ 6,245,000 in the Consolidated Statements of Income for the year ended December 31, 2025 on the Goodwill impairment line. The impairment charge equaled the entire balance of goodwill at the Company’s Mexico reporting unit. The impairment charge was not included in the Surfactant segment results. See Note 17, Segment Reporting , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional details.
At December 31, 2025, the Company conducted additional sensitivity analysis on certain assumptions used in the valuation of its European polymers reporting unit due to a decline in earnings. The decline in earnings was primarily due to slightly lower sales volume and unit margins. At December 31, 2025, the goodwill related to the European polymers reporting unit was $ 47,846,000 . The Company used both market and income-based methodologies to assess the fair value of its European polymers reporting unit. Both approaches required the Company to make significant economic-related assumptions. Based on the Company’s analysis, the fair value of the European polymers reporting unit was greater than its carrying value, and as a result, the Company did no t record any impairment charge as of December 31, 2025.
During the fourth quarter of 2023, the Company concluded that the goodwill related to its Specialty Products segment was impaired. The Specialty Products segment’s impairment resulted from the Company’s decision to exit a portion of its Lipid Nutrition business. The Company recorded a non-cash charge of $ 483,000 in the Consolidated Statements of Income for the year ended December 31, 2023 on the Goodwill and other intangibles impairment line. The impairment charge equaled the entire balance of the Specialty Products operating segment’s goodwill. Also, during the fourth quarter of 2023 the Company concluded that the goodwill related to its Colombia reporting unit was impaired. The Company recorded a non-cash charge of $ 1,060,000 in the Consolidated Statements of Income for the year ended December 31, 2023 on the Goodwill and other intangibles impairment line. The impairment charge equaled the entire balance of goodwill at the Company’s Colombia reporting unit. The Colombia reporting unit is part of the Company’s Surfactant segment. The impairment relating to the Company’s Colombia reporting unit was recognized as a result of the reporting unit’s fair value declining below its carrying value. These impairments were not included in the Surfactants and Specialty Products segment results. See Note 17, Segment Reporting , of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional details.
The following table presents the components of other intangible assets, all of which have finite lives, as of December 31, 2025 and 2024. The year-over-year changes in gross carrying values resulted from the effects of foreign currency translation.
Gross Carrying Value
Accumulated
Amortization
December 31
December 31
(In thousands)
Other Intangible Assets:
Patents
Non-compete agreements
Trademarks
Customer lists/relationships
Know-how (1)
Total
Know-how includes intellectual property rights covering proprietary information, written formulae, trade secrets or secret processes, inventions and devel opmental products (whether patentable or not), discoveries, improvements, compositions, manufacturing processes, manuals, specifications and technical data.
During the fourth quarter of 2023 the Company concluded that the patents related to its Specialty Products segment were impaired as a result of the Company’s decision to exit portions of its Lipid Nutrition business. The Company did not believe that the carrying value of these patents was recoverable. The Company recorded a non-cash charge of $ 495,000 in the Consolidated Statements of Income for the year ended December 31, 2023 on the Goodwill and other intangibles impairment line.
Aggregate amortization expense for the years ended December 31, 2025, 2024 and 2023 , was $ 6,555,000 , $ 6,914,000 , and $ 7,368,000 , respectively. The Company typically recognizes amortization expense within the Cost of Sales line item on the income statement. Estimated amortization expense for identifiable intangibles assets for each of the five succeeding fiscal years is as follows:
(In thousands)
For the year ended December 31, 2026
For the year ended December 31, 2027
For the year ended December 31, 2028
For the year ended December 31, 2029
For the year ended December 31, 2030
5. Inventories
The composition of inventories was as follows:
December 31
(In thousands)
Finished products
Raw materials
Total inventories
6. Debt
At December 31, 2025 and 2024, debt was comprised of the following:
(In thousands)
Maturity
Dates
December 31,
December 31,
Senior unsecured notes
3.95 % (net of unamortized debt issuance cost of $ 56 and
$ 99 for 2025 and 2024, respectively)
3.86 % (net of unamortized debt issuance cost of $ 0 and
$ 15 for 2025 and 2024, respectively)
2.30 % (net of unamortized debt issuance cost of $ 55 and
$ 77 for 2025 and 2024, respectively)
2.37 % (net of unamortized debt issuance cost of $ 60 and
$ 83 for 2025 and 2024, respectively)
2.73 % (net of unamortized debt issuance cost of $ 52 and
$ 70 for 2025 and 2024, respectively)
2.83 % (net of unamortized debt issuance cost of $ 52 and
$ 60 for 2025 and 2024, respectively)
6.17 % (net of unamortized debt issuance cost of $ 0 and
$ 0 for 2025 and 2024, respectively)
Revolving credit facility and term loan borrowing
Total debt
Less current maturities
Long-term debt
The Company’s long-term debt financing is comprised of certain senior unsecured notes issued to insurance companies in private placement transactions pursuant to note purchase agreements (the Note Purchase Agreements), totaling $ 324,010,000 as of December 31, 2025 . These notes are denominated in U.S. dollars and have fixed interest rates ranging from 2.30 percent to 6.17 percent. The notes had original maturities of seven to 12 years with mandatory principal payments beginning four, five and six years after issuance. The Company will be required to make principal payments on the currently outstanding notes from 2026 to 2033.
On May 21, 2025, pursuant to a note purchase and private shelf agreement dated as of June 10, 2021, Stepan issued and sold $ 37,500,000 in aggregate principal amount of its 6.17 percent Senior Notes, Series 2025-A, due May 21, 2033 (the Series 2025-A Notes). On May 21, 2025, pursuant to a note purchase and master note agreement dated as of June 10, 2021, Stepan issued and sold $ 37,500,000 in aggregate principal amount of its 6.17 percent Senior Notes, Series 2025-B, due May 21, 2033 (together with the Series 2025-A Notes, the Notes). The Notes will bear interest at a fixed rate of 6.17 percent with interest to be paid semi-annually. Principal amortization for the Notes is contractually scheduled with equal annual payments beginning on May 21, 2029 and on each May 21 thereafter to and including May 21, 2032, with the final outstanding principal balance due at maturity on May 21, 2033 .
On August 27, 2024, the Company entered into amendments to two of its note purchase agreements to increase the available facility amounts and extend the end date of the issuance period to August 27, 2027. The Company’s credit agreement (the Credit Agreement) with a syndicate of banks provides for credit facilities in an initial aggregate principal amount of $ 450,000,000 , consisting of (a) a $ 350,000,000 multi-currency revolving credit facility and (b) a $ 100,000,000 delayed draw term loan credit facility, each of which matures on June 24, 2027 . The Company's credit agreement with Credit Industriel et Commercial NY (the CIC Credit Agreement) provides for a credit facility in an aggregate principal amount of $ 8,700,000 . The facility is for the sole purpose of the issuance of standby letters of credit. The Company maintains import and export letters of credit, and standby letters of credit under its workers’ compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the Credit Agreement and under the CIC Credit Agreement. As of December 31, 2025 , the Company had outstanding letters of credit totaling $ 4,102,000 and $ 302,700,000 of outstanding borrowings under the Credit Agreement, inclusive of an $ 83,750,000 delayed-draw term loan ($ 16,250,000 of the term loan principal has been permanently repaid as scheduled). There was $ 126,948,000 available under the Credit Agreement as of December 31, 2025. As of December 31, 2025 , the Company had an outstanding letter of credit of $ 8,694,000 under the CIC Credit Agreement.
Loans under the Credit Agreement may be incurred, at the discretion of the Company, with terms to maturity of one month , three months or six months . The Company may choose from two interest rate options: (1) Adjusted Term Secured Overnight Financing Rate (SOFR) applicable to USD loans and relevant benchmark rates applicable to EUR, GBP and CAD loans plus spreads ranging from 1.125 percent to 1.750 percent, depending on the Company’s net leverage ratio, or (2) the prime rate plus 0.125 percent to 0.750 percent, depending on the Company’s net leverage ratio. The Credit Agreement requires the Company to pay a commitment fee ranging from
0.125 percent to 0.250 percent per annum, which also depends on the Company’s net leverage ratio. The Credit Agreement requires the maintenance of certain financial ratios and compliance with certain other covenants that are similar to the Company’s existing debt agreements, including net worth, interest coverage, leverage financial covenants and limitations on restricted payments, indebtedness and liens.
The Company’s foreign subsidiaries had no debt outstanding at December 31, 2025.
The Company’s material debt agreements contain provisions which, among other covenants, require maintenance of certain financial ratios and place limitations on additional debt, investments and payment of dividends. Based on the loan agreement provisions that place limitations on dividend payments, unrestricted retained earnings (i.e., retained earnings available for dividend distribution) were $ 263,923,000 and $ 251,953,000 at December 31, 2025 and 2024, respectively.
Debt at December 31, 2025 , matures as follows: $ 285,735,000 in 2026; $ 135,535,000 in 2027; $ 45,000,000 in 2028; $ 40,000,000 in 2029; $ 40,000,000 in 2030 and $ 80,715,000 after 2030. Debt maturing in 2026 includes $ 66,786,000 of scheduled repayments under long-term debt agreements. The Company’s foreign subsidiaries routinely have short-term working capital loans. These short-term loan agreements could be supplemented, if necessary, by the Company’s $ 350,000,000 revolving credit facility entered into on June 24, 2022.
Net interest expense for the years ended December 31, 2025, 2024 and 2023, comprised the following:
(In thousands)
Interest expense
Interest income
Capitalized interest
Interest expense, net
7. Leases
The Company’s operating leases are primarily comprised of real estate, railcar, storage tank, warehouse, auto, trailer and manufacturing/office equipment leases. Real estate and railcars comprise approximately 39 percent and 46 percent, respectively, of the Company’s consolidated right of use (ROU) asset balance. Except for real estate, typical lease terms range from one to ten years . Real estate lease terms typically range from one to fifty years . As of December 31, 2025, the Company’s two principal real estate leases consist of the office lease for the corporate headquarters in Northbrook, Illinois and land leases in Singapore. During the fourth quarter of 2025, the Company exited from land leases in the Philippines and Lake Providence, Louisiana as part of its asset sale transactions (see Note 20, Sales of Assets , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K). As of December 31, 2025 , the Company had no leases that had not commenced.
As most of the Company’s leases do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate (IBR) based on the information available at the commencement date in determining the present value of lease payments. IBRs were specifically determined for the United States, Philippines, Singapore, Brazil and China, typically for five-year increments. The U.S. IBR was used for all other countries as the leases in these countries are not material. The total value of leases that reside in the five countries identified above represents approximately 97 percent of the Company’s consolidated ROU asset balance. Lease cost is recognized in both the Cost of Sales and Operating Expenses sections of the Consolidated Statements of Income.
(In thousands)
Year ended December 31, 2025
Year ended December 31, 2024
Lease Cost
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Other Information
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flow from operating
leases
Right-of-use assets obtained in exchange
for new operating lease liabilities
The following table outlines maturities of lease liabilities as of December 31, 2025:
(In thousands)
Undiscounted Cash Flows:
Subsequent to 2030
Total Undiscounted Cash Flows
Less: Imputed interest
Present value
Current operating lease liabilities (1)
Non-current operating lease liabilities
Total lease liabilities
This item is included in the Accrued liabilities line on the Company’s Consolidated Balance Sheet.
Weighted-average remaining lease term - operating leases
6 Years
Weighted-average discount rate - operating leases
8. Other, Net
Other, net in the Consolidated Statements of Income included the following for the years ended December 31, 2025, 2024 and 2023:
(In thousands)
Foreign exchange gains (losses)
Investment income
Realized and unrealized gains on investments
Net periodic benefit cost
Other retirement obligation
Other, net
9. Income Taxes
Income before taxes and provisions for taxes on income for the years ended December 31, 2025, 2024 and 2023, were as follows:
(In thousands)
Income before Taxes
U.S. income
Foreign income
Income before income taxes
(In thousands)
Taxes on Income
Current (1)
U.S. federal
State
Foreign
Other (2)
Total current income tax (benefit) expense
Deferred (1)
U.S. federal
State
Foreign
Other (2)
Total deferred income tax (benefit) expense
Total income tax expense
U.S. federal
State
Foreign
Other (2)
Total income tax expense
In 2023 for the 2022 U.S. tax returns (federal and state), a U.S. tax accounting method change was made for the 2018-2021 tax years and additional assets that qualified for bonus depreciation under IRC 168(k) were identified. Said items increased the income tax receivable with an offset to current tax expense and created deferred tax liabilities with an offset to deferred tax expense. These amounts were booked in 2023 as a provision-to-return adjustment.
These amounts have been reclassified to conform to current period presentation under ASU 2023-09, Income Taxes (Topic 740) Improvement to Income Tax Disclosures .
The variations between the effective and statutory U.S. federal income tax rates are summarized as follows:
(In thousands)
Amount
U.S. federal statutory tax rate
Effect of cross-border tax laws
Tax credits
Nontaxable or nondeductible items
Executive compensation
Penalties and interest
Other
Other
Enactment of new tax laws
State and local income taxes, net of federal income tax effect (1)
Foreign tax effects
Argentina
Valuation allowance
Other
Brazil
Foreign rate differential
Interest expense deduction on equity
Other
Canada
Repatriation
Other
France
Mexico
Goodwill impairment
Inflationary adjustment
Other
Netherlands
Philippines
Foreign rate differential
Philippine Economic Zone Authority tax holiday
Other
Other foreign jurisdictions
Worldwide changes in unrecognized tax benefits
Total income tax provision
State taxes in Illinois, Pennsylvania, California, Wisconsin and Texas made up the majority (greater than 50%) of the tax effect in this category.
(In thousands)
Amount
Amount
Federal income tax provision at statutory
tax rate
State income tax provision, less applicable
federal tax benefit
Foreign income taxed at different rates
U.S. taxation of foreign earnings (1)
Unrecognized tax benefits
Prior years return to provision true-up (2)
Stock based compensation, excess tax
benefits
U.S. tax credits
Non-deductible expenses and other
items, net
Total income tax provision
Includes Subpart F activity, a direct inclusion of foreign affiliate(s) income in U.S. taxable income (all years), global intangible low-taxed income (GILTI) for 2023. For 2024, GILTI was zero due to the High Tax Election. 2024 includes a U.S. permanent foreign exchange tax benefit recognized upon repatriation.
For 2024, amount resulted largely from a fixed asset inflationary tax benefit in Mexico. For 2023, amount resulted from higher federal research credit and lower GILTI.
At December 31, 2025 and 2024, the tax effects of significant temporary differences representing deferred tax assets and liabilities were as follows:
(In thousands)
Deferred Tax Assets:
Pensions
Deferred revenue
Other accruals and reserves
Legal and environmental accruals
Deferred compensation
Bad debt and rebate reserves
Net operating loss carryforwards
Amortization of intangibles
Inventories
Tax credit carryforwards
Disallowed interest expense carryforwards
Deferred Tax Liabilities:
Depreciation
Unrealized foreign exchange loss
Other
Valuation Allowance
Net Deferred Tax Assets
Reconciliation to Consolidated Balance Sheet:
Non-current deferred tax assets (in other non-current assets)
Non-current deferred tax liabilities
Net Deferred Tax Assets
Earnings generated by a foreign subsidiary are presumed to ultimately be transferred to the parent company. Therefore, the establishment of deferred taxes may be required with respect to the excess of the investment value for financial reporting over the tax
basis of investments in those foreign subsidiaries (also referred to as book-over-tax outside basis differences). A company may overcome this presumption and forgo recording a deferred tax liability in its financial statements if it can assert that management has the intent and ability to indefinitely reinvest the earnings of its foreign subsidiaries. Pursuant to the 2017 U.S. Tax Cuts and Jobs Act (Tax Act), the Company’s foreign earnings have been subject to U.S. federal taxes. The Company now has the ability to repatriate to the U.S. parent the cash associated with these foreign earnings with little additional U.S. federal taxes. This cash may, however, be subject to foreign income and/or local country taxes if repatriated to the United States. In addition, repatriation of some foreign cash balances may be further restricted by local laws. As such, the Company intends to limit its distributions to earnings previously taxed in the U.S. or earnings that would qualify for the 100 percent dividends received deduction provided for in the Tax Act as long as such distributions would not result in any significant foreign taxes.
In 2025, the Company repatriated $ 58,495,000 between April and December from its Brazil, European, Singapore and Canada subsidiaries. The Company incurred an incremental tax expense of $ 2,183,000 as a result of this repatriation. The effect of the adjustment on the 2025 effective tax rate was an increase of approximately 3.6 percent. In 2024, the Company repatriated $ 54,464,000 between July and December from its Singapore and Canada subsidiaries. The Company incurred an incremental tax expense of $ 647,000 as a result of this repatriation. The effect of the adjustment on the 2024 effective tax rate was an increase of approximately 1.1 percent. In 2023, the Company repatriated $ 54,944,000 between July and December from its Netherlands, Singapore and Canada subsidiaries. The Company incurred an incremental tax expense of $ 397,000 as a result of this repatriation. The effect of the adjustment on the 2023 effective tax rate was an increase of approximately 0.8 percent.
The Company evaluated its indefinite reinvestment assertion with regards to certain accumulated foreign earnings as of December 31, 2025. The Company did not consider the undistributed earnings of its Canadian subsidiary to be indefinitely reinvested in foreign operations to the extent of the subsidiary’s paid-up capital (PUC) as determined under Canadian tax law, which is used to determine tax-free distributions for Canadian tax purposes. In 2024, all Canadian PUC was utilized, and any future distributions would be subject to Canada’s 5.0 percent withholding tax. The Company also does not consider the undistributed earnings of one of its Dutch subsidiaries, and one of its Singapore subsidiaries to be indefinitely reinvested in foreign operations. A distribution from any of these subsidiaries should not result in any significant foreign taxes to the extent of the distribution limitations discussed above and therefore, the Company has not recognized a deferred tax liability for these undistributed earnings as of December 31, 2025. As a result of the SPQI manufacturing assets sale, the Company intends to repatriate cash of approximately $ 7,000,000 as soon as the local tax authorities and other governmental agencies approve. In addition, the Company considers up to $ 13,000,000 from two of its subsidiaries to not be indefinitely reinvested. As a result, a deferred tax liability of $ 995,000 was established to reflect the tax impact. The effect of the adjustment on the 2025 effective tax rate was an increase of approximately 1.7 percent. The Company considers the undistributed earnings of its remaining foreign subsidiaries to be indefinitely reinvested in foreign operations. At this time, the determination of deferred tax liabilities on this amount is not practicable.
The Company had non-U.S. tax loss carryforwards of $ 19,558,000 (pretax) as of December 31, 2025, and $ 16,390,000 as of December 31, 2024, that are available for use by the Company between 2026 and 2035. The Company generated a $ 50,655,000 U.S. tax loss in 2025. This U.S. loss is expected to be utilized in 2027 or 2028.
The Company had tax credit carryforwards of $ 22,786,000 as of December 31, 2025, and $ 19,383,000 as of December 31, 2024, that are available for use by the Company between 2026 and 2045. The Company had non-U.S. capital loss carryforwards of $ 587,000 as of December 31, 2025, and $ 560,000 as of December 31, 2024. The Company’s capital loss carryforwards do not expire.
As of December 31, 2025 and 2024, the Company had valuation allowances of $ 776,000 and $ 764,000 , respectively, which were attributable to deferred tax assets in Argentina, Canada, India and the Philippines. The realization of deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. The Company believes that it is more likely than not that the related deferred tax assets will not be realized.
As of December 31, 2025, 2024 and 2023, unrecognized tax benefits totaled $ 11,333,000 , $ 17,326,000 and $ 14,590,000 , respectively. The amount of unrecognized tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future periods, net of the federal benefit on state issues, was approximately $ 10,819,000 , $ 16,767,000 and $ 14,056,000 at December 31, 2025, 2024 and 2023, respectively. The Company does not believe that the amount of unrecognized tax benefits related to its current uncertain tax positions will change significantly over the next 12 months unless certain statute of limitations expire.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. In 2025, the Company recognized net interest and penalty expense of $ 823,000 compared to $ 1,261,000 of net interest and penalty expense in 2024 and $ 435,000 of net interest and penalty expense in 2023. At December 31, 2025, the liability for interest and penalties was $ 3,062,000 compared to $ 2,239,000 at December 31, 2024.
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is not subject to U.S. federal income tax examinations by tax authorities for years before 2022. Some foreign jurisdictions and various U.S. states jurisdictions may be subject to examination back to 2018 (2015 in one jurisdiction).
During 2025, the Internal Revenue Service settled its audit of the 2016-2020 tax years. The adjustments were related to the disallowance of certain credits for which an uncertain tax position was previously established.
Below are reconciliations of the January 1 and December 31 balances of unrecognized tax benefits for 2025, 2024 and 2023:
(In thousands)
Unrecognized tax benefits, opening balance
Gross increases (decreases) – tax positions in prior period
Gross increases – current period tax positions
Settlements/State voluntary disclosure
Foreign currency translation
Lapse of statute of limitations
Unrecognized tax benefits, ending balance
The following table summarizes cash payments of income taxes for 2025:
(In thousands)
U.S. federal
U.S. state and local
Illinois
Other
Total U.S. state and local
Foreign
Brazil
Canada
China
Colombia
France
Germany - Federal
Germany - Municipal
Netherlands
Philippines
Singapore
Other
Total foreign
Total
For 2024, cash refunds received for income taxes, prior to the adoption of ASU 2023-09, was $ 12,342,000 . For 2023, cash paid for income taxes, prior to the adoption of ASU 2023-09, was $ 29,558,000 .
10. Stockholders’ Equity
At December 31, 2025 and 2024 , treasury stock consisted of 4,676,739 and 4,655,798 shares of common stock, respectively. During 2025 , no shares of Company common stock were purchased in the open market. In addition, 52,030 shares were surrendered to the Company in connection with the settlement of employees’ minimum statutory withholding taxes related to performance stock awards, exercised SARs and deferred compensation distributions. Also, 31,089 shares of treasury stock were distributed to participants under the Company’s deferred compensation plans.
11. Stock-based Compensation
On December 31, 2025 , the Company had outstanding stock options, performance shares, RSUs and SARs awarded under its 2011 Incentive Compensation Plan (2011 Plan) and 2022 Equity Incentive Compensation Plan (2022 Plan). Equity incentive awards are granted to Company executives and other key employees. In addition, stock awards are granted to non-employee directors of the Company. As of April 26, 2022, no additional stock options, performance shares, RSUs or SARs may be granted under the 2011 Plan. As of the effective date of the 2022 Plan, 500,000 shares of the Company’s common stock, plus the number of shares that remained available for awards under the 2011 Plan as of April 26, 2022, were available for equity awards under the 2022 Plan. In 2025, an additional 500,000 shares of the Company’s common stock under the 2022 Plan were approved to be available for grant. At December 31, 2025 , there were 908,195 shares available for grant under the 2022 Plan.
Compensation expense recorded in the consolidated statements of income for all plans was $ 5,999,000 , $ 5,347,000 , and $ 5,741,000 for the years ended December 31, 2025, 2024 and 2023, respectively.
The total income tax benefit recognized in the income statement for share-based compensation arrangements was $ 1,477,000 , $ 1,323,000 , and $ 1,452,000 for the years ended December 31, 2025, 2024 and 2023, respectively.
Stock Options
Stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. The market price is defined and calculated as the average of the opening and closing prices for Company common stock on the grant date as reported in the New York Stock Exchange – Composite Transactions. Stock option awards granted prior to 2017 generally cliff vested after two years . Starting in 2017, stock options have a three-year graded vesting feature, with one-third of the award vesting each year. The Company has elected the straight-line method of expense attribution for the stock options with graded vesting feature. These options have a 10 -year contractual term. The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model incorporating the weighted-average assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s common stock. The Company also uses historical data to estimate the expected term of options granted. The risk-free rate is the U.S. Treasury note rate that corresponds to the expected option term at the date of grant. The fair value for each SARs award was estimated using the same Black-Scholes valuation model incorporating the same assumptions as for stock options. The following are the weighted-average assumptions used to calculate the grant-date fair values of stock option and SARs awards granted in the years ended December 31, 2025, 2024 and 2023:
For the Years Ended December 31
Expected dividend yield
Expected volatility
Expected term
6.9 years
6.8 years
7.2 years
Risk-free interest rate
A summary of stock option activity for the year ended December 31, 2025 is presented below:
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
Options
Outstanding at January 1, 2025
Granted
Exercised
Forfeited
Outstanding at December 31, 2025
Vested or expected to vest at December 31, 2025
Exercisable at December 31, 2025
The weighted-average grant-date fair values of options awarded during the years ended December 31, 2025, 2024 and 2023 , were $ 21.20 , $ 32.02 , and $ 38.72 , respectively. The total intrinsic values of options exercised during the years ended December 31, 2025, 2024, and 2023 were $ 43,000 , $ 1,245,000 , and $ 2,364,000 , respectively.
As of December 31, 2025 , the total unrecognized compensation cost for unvested stock options was $ 109,000 . That cost is expected to be recognized over a weighted-average period of 1.7 years.
Cash received from stock option exercises under the Company’s stock option plans for the years ended December 31, 2025, 2024, and 2023 was $ 104,000 , $ 1,112,000 , and $ 2,795,000 , respectively. The actual tax benefit realized for the tax deductions from stock option exercises totaled $ 2,000 , $ 811,000 , and $ 330,000 for the years ended December 31, 2025, 2024 and 2023, respectively.
SARs
At December 31, 2025 , the Company had stock-settled SARs outstanding. SARs granted prior to 2017 cliff vested after two years . Starting in 2017, SARs have a three-year graded vesting feature, with one-third of the awards vesting each year. The Company has elected the straight-line method of expense attribution for the SARs with graded vesting feature. All SARs expire ten years from the grant date. Upon the exercise of a SARs award, a participant receives Company common stock. For stock-settled SARs, the number of shares equals the excess of the fair market value of a total number of shares/SARs exercised at the date of exercise over the fair market value of a total number of shares/SARs exercised at the date of grant (the exercise price) divided by the fair market value of a share of Company common stock at the date of exercise. Compensation expense for stock-settled SARs is based on the grant-date value of the awards allocated over the proportion of the vesting period that has been completed at the reporting date.
The following is a summary of SARs activity for the year ended December 31, 2025:
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
SARs
Outstanding at January 1, 2025
Granted
Exercised
Forfeited
Outstanding at December 31, 2025
The weighted-average grant-date fair values of SARs granted during the years 2025, 2024 and 2023 were $ 20.85 , $ 28.68 , and $ 38.98 , respectively. The fair value for each SARs award was estimated using the Black-Scholes valuation model incorporating the same assumptions as noted for stock options.
At December 31, 2025 , there was $ 2,602,000 of total unrecognized compensation cost related to all unvested SARs. That cost is to be recognized over a weighted-average period of 1.9 years.
Stock Awards
In 2025 and 2024, the Company granted stock awards under the 2022 Plan. The Company grants stock awards to employees in the form of performance shares and RSUs. The majority of the performance shares vest only upon the Company’s achievement of certain levels of financial performance in specified measurement periods as approved by the Human Capital and Compensation Committee of the Board of Directors. The number of shares of the Company’s common stock ultimately distributed, if any, is contingent upon the Company’s actual financial performance attained in the measurement period relative to the targets approved by the Human Capital and Compensation Committee. The fair value of performance shares equals the grant-date market price of the Company’s common stock, discounted for the estimated amount of dividends that would not be received during the measurement period. Compensation expense is recorded each reporting period based on the probable number of awards that will ultimately vest given the projected level of financial performance. If during the measurement period certain threshold performance objectives are not met, no compensation cost is recognized and any compensation expense recorded in prior periods is reversed. The remainder of the performance shares vest upon the Company’s common stock price reaching certain targets as approved by the Human Capital and Compensation Committee of the Board of Directors. The fair value of performance shares was estimated on the grant date using the Monte Carlo valuation model used for market based performance conditions and incorporated such assumptions as expected volatility of the Company’s stock price, risk-free rate for U.S Treasury strips and dividend yield for the Company’s cash dividends. Compensation expenses will be accrued regardless of whether the stock price hurdles are ultimately achieved or not unless requisite service period is not rendered. If requisite service is not rendered, accrued compensation expenses will be reversed. The RSUs have no performance conditions associated with their vesting and vest after the period of service established for the given grant. In addition, the Company grants stock awards that have no performance or service conditions associated with their vesting to non-employee directors of the Company.
A summary of stock award activity for the year ended December 31, 2025, is presented below:
Shares
Weighted-Average
Grant Date
Fair Value
Stock Awards
Unvested at January 1, 2025
Granted
Vested
Forfeited/modified due to change of assumptions
Unvested at December 31, 2025
The weighted-average grant-date fair values of stock awards granted during the years ended December 31, 2025, 2024 and 2023 , were $ 56.98 , $ 78.97 , and $ 104.96 , respectively. As of December 31, 2025 , under the Company’s current assumption as to the number of shares of stock awards that will vest at the measurement periods ended December 31, 2026, 2027 and 2028, there was $ 6,838,000 of unrecognized compensation cost for unvested stock awards. That cost is expected to be recognized over a period of 2.0 years.
In general, it is the Company’s policy to issue new shares of its common stock upon the exercise of stock options and stock-settled SARs or the vesting of performance shares and RSUs.
12. Deferred Compensation
The Company sponsors deferred compensation plans that allow management employees to defer receipt of their annual cash incentive compensation and performance shares and outside directors to defer receipt of their fees and stock awards until retirement, departure from the Company or as otherwise elected. Compensation expense and the related deferred compensation obligation are recorded when the underlying compensation is earned. Over time, the deferred obligation may increase or decrease based on the performance results of investment options chosen by the plan participants. The investment options include the Company’s common stock and a limited selection of mutual funds. The Company maintains sufficient shares of treasury stock to cover the equivalent number of shares that result from participants’ elections of the Company common stock investment option. As a result, the Company periodically purchases shares of its common stock in the open market or in private transactions. The Company purchases shares of the applicable mutual funds to fund the portion of its deferred compensation liabilities tied to such investments.
Some plan distributions may be made in cash or Company common stock at the option of the participant. Other plan distributions can only be made in Company common stock. For deferred compensation obligations that may be settled in cash or shares of Company’s common stock at the option of the participant, the Company must record appreciation in the market values of the investment choices made by participants as additional compensation expense. Conversely, declines in the market values of the investment choices reduce compensation expense. Increases and decreases of compensation expense that result from fluctuations in the underlying investments are recorded as part of operating expenses in the consolidated statements of income. The obligations that must be settled only in shares of the Company’s common stock are treated as equity instruments; therefore, fluctuations in the market price of the underlying shares of the Company’s common stock do not affect earnings.
The additional compensation expense or income resulting from the changes in the market values and earnings of the selected investment options was $ 2,155,000 expense in 2025 and 2024 and $ 4,371,000 expense in 2023 . The Company’s deferred compensation liability was $ 23,166,000 and $ 31,171,000 at December 31, 2025 and 2024 , respectively.
13. Postretirement Benefit Plans
Defined Benefit Plans
The Company sponsors various funded qualified and unfunded non-qualified defined benefit pension plans, the most significant of which cover employees in the U.S. and U.K. locations. The various U.S. defined benefit pension plans were amended during the years 2005-2008 to freeze the plans by stopping the accrual of service benefits. The U.K. defined benefit pension plan was frozen in 2006. Benefits earned through the freeze dates are available to participants when they retire, in accordance with the terms of the plans. The Company established defined contribution plans to replace the frozen defined benefit pension plans.
Obligations and Funded Status at December 31
United States
United Kingdom
(In thousands)
Change in benefit obligation
Benefit obligation at beginning of year
Interest cost
Actuarial (income) loss
Benefits paid
Foreign exchange impact
Benefit obligation at end of year
United States
United Kingdom
(In thousands)
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Foreign exchange impact
Fair value of plan assets at end of year
Over funded status at end of year
The amounts recognized in the consolidated balance sheets at December 31 consisted of:
United States
United Kingdom
(In thousands)
Non-current assets
Current liability
Non-current liability
Net amount recognized
The amounts recognized in accumulated other comprehensive income at December 31 consisted of:
United States
United Kingdom
(In thousands)
Net actuarial loss
Below is information for pension plan with projected benefit obligations in excess of plan assets at December 31, 2025 and December 31, 2024.
United States
(In thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income
Net periodic benefit costs for the years ended December 31, 2025, 2024 and 2023, were as follows:
United States
United Kingdom
(In thousands)
Interest cost
Expected return on plan assets
Amortization of net actuarial (gain) loss
Net periodic benefit cost
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2025, 2024 and 2023, were as follows:
United States
United Kingdom
(In thousands)
Net actuarial (gain) loss
Amortization of net actuarial gain (loss)
Total recognized in other comprehensive
income
Total recognized in net periodic benefit
cost and other comprehensive income
Estimated Future Benefit Payments
(In thousands)
United
States
United
Kingdom
Assumptions
The weighted-average assumptions used to determine benefit obligations at December 31 were as follows:
United States
United Kingdom
Discount rate
The weighted-average assumptions used to determine net periodic benefit costs for years ended December 31 were as follows:
United States
United Kingdom
Discount rate
Expected long-term return on plan assets
In addition to the above assumptions, the Company uses a market-related value of assets approach to calculate the expected return on the plan assets component of U.S. net periodic benefit cost. The market-related value equals the fair value of plan assets with five-year smoothing of asset gains or losses. Asset gains are subtracted or losses added in the following way: 80 percent of the prior year’s gain or loss; 60 percent of the second preceding year’s gain or loss; 40 percent of the third preceding year’s gain or loss; and 20 percent of the fourth preceding year’s gain or loss. Gains or losses for the year are calculated as the difference between the expected fair value of assets and the actual fair value of assets.
Investment Strategies and Policies
U.S. Plans
During 2025, the plan maintained an asset allocation structure of approximately 81 percent duration-matching bonds, 16 percent equity and three percent money market funds. Plan equity assets (other than Stepan Company stock) are invested using domestic and foreign exchange traded funds (ETFs) to achieve diversification amongst a relatively small asset pool. An investment management firm monitors the ETFs and also monitors and manages the overall asset allocation and compliance with the Investment Policy Statement. The fixed income manager seeks to reduce the volatility of the plan’s funded status by matching the duration with the plan’s liability while seeking to improve returns through security selection, sector allocation and yield curve management.
Risk is diversified among multiple asset categories. The investment management firm recommends asset allocations based on the time horizon available for investment, funded status, the nature of the plan cash flows and liabilities and other factors. The asset allocation targets are approved by the Company’s Plan Committee.
Available investment categories include:
Equities: Common stocks of large, medium, and small companies, including both U.S. and non-U.S. based companies. The allocation for equities, excluding Company stock, is approximately 13 percent and the total equity target is 20 percent, including allocation to the Company’s common stock.
Fixed Income (Debt): Bonds or notes issued or guaranteed by the U.S. government, and to a lesser extent, by non-U.S. governments, or by their agencies or branches, mortgage-backed securities, including collateralized mortgage obligations, corporate bonds, municipal bonds and dollar-denominated debt securities issued in the U.S. by non-U.S. banks and corporations. A small percentage of the fixed income assets may be in debt securities that are below investment grade. The pension allocation for fixed income is 78 percent. The fixed income portfolio has a duration similar to the plan’s liability stream and is designed to perform consistent with the movement of the plan’s liabilities.
Employer Securities: The retirement plans also hold shares of the Company’s common stock, which are purchased or sold by the trustee from time to time, as directed by the Plan Committee. At the direction of the Plan Committee, the plans sold 25,577 shares of the Company’s common stock to the Company’s employee stock ownership plan (ESOP) trust in 2025. In 2024 , the plans sold 14,439 shares to the Company’s ESOP trust on February 22, 2024. In 2023 , the plans sold 38,542 shares to the Company’s ESOP trust on February 15, 2023.
The target allocation for cash is two percent of plan assets.
U.K. Plan
The objective of the U.K. defined benefit pension fund investment strategy is to maximize the long-term rate of return on plan assets within a medium level of risk in order to minimize the cost of providing pension benefits. To that end, the plan assets are invested in an actively managed pooled fund of funds that diversifies its holdings among equity securities, debt securities, property and cash. Although there are no formal target allocations for the plan assets, the overall strategy is to achieve a mix of investments for long-term growth and near-term benefit payments with a wide diversification of asset types. Equity securities are selected from U.K., European, U.S. and emerging market companies. Bonds include U.K. and other countries’ government notes and corporate debt of U.K and non-U.K. companies. There are no specific prohibited investments. Plan trustees meet regularly with the fund manager to assess the fund’s performance and to reassess investment strategy. At December 31, 2025 , the actual pension asset allocation was 13 percent equities, one percent real estate, 75 percent bonds, four percent insurance contracts, and seven percent cash.
Included in plan assets are insurance contracts purchased by the plan trustees to provide pension payments for specific retirees. In past years, at the time a plan participant retired, the plan trustee would periodically purchase insurance contracts to cover the future payments due the retiree. This practice is no longer followed. The contracts are revocable, and the related plan obligations are not considered settled. Therefore, the plan assets and obligations include the insured amounts.
Plan Assets
U.S. Plans
The Company’s asset allocations for its U.S. pension plans at December 31, 2025 and 2024, by asset category, were as follows:
December 31, 2025
(In thousands)
Level 1
Level 2
Level 3
Total
Cash and Cash Equivalents
Equity Securities
U.S. Equities
Non-U.S. Equities
Employer Securities
Total Equities
Fixed Income Securities
U.S. Corporate Bonds
U.S. Government and Agency Bonds
Other Bonds
Total Fixed Income
Total
December 31, 2024
(In thousands)
Level 1
Level 2
Level 3
Total
Cash and Cash Equivalents
Equity Securities
U.S. Equities
Non-U.S. Equities
Employer Securities
Total Equities
Fixed Income Securities
U.S. Corporate Bonds
U.S. Government and Agency Bonds
Other Bonds
Total Fixed Income
Total
Plan Asset Valuation Methodology
Following is a description of the valuation methodologies used for plan assets measured at fair value.
Individual equity securities, including employer securities, are valued by Standard & Poor’s Securities Evaluations as determined by quoted market prices on the New York Stock Exchange or other active trading markets. Both market pricing and future cash flow analysis may be used in the pricing process as follows:
Level 1 – Equities are valued according to the exchange-quoted market prices of the underlying investments. Level 1 fixed income securities are U.S. government securities and are valued according to quoted prices from active markets.
Level 2 – Fixed income investments without equivalent trading exchanges are valued primarily through a technique known as “future cash flow approach” which is based on what bondholders can reasonably expect to receive based upon an issuer’s current financial condition. Pricing analysts prepare cash flow forecasts and utilize one or two pricing models to arrive at an evaluated price. These models include factors such as the interest rate on the coupon, maturity, rating, cash flow projections and other factors.
Level 3 – no investments held during 2025 or 2024 were categorized as Level 3.
U.K. Plan
The Company’s asset allocations for its U.K. pension plans at December 31, 2025 and 2024, by asset category, were as follows:
December 31, 2025
(In thousands)
Level 1
Level 2
Level 3
Total
Cash
Equity Securities
Pooled Pension Funds
Fixed Income
Pooled Pension Funds
Real Estate
Pooled Pension Funds
Insurance Contracts
Total
December 31, 2024
(In thousands)
Level 1
Level 2
Level 3
Total
Cash
Equity Securities
Pooled Pension Funds
Fixed Income
Pooled Pension Funds
Real Estate
Pooled Pension Funds
Insurance Contracts
Total
Units of each of the pooled funds are valued by the trustee based on quoted market prices of the underlying investments (the underlying assets are either exchange traded or have readily available markets).
Fair value changes within asset categories for which fair value measurements use significant unobservable inputs (Level 3) were as follows during 2025 and 2024:
(In thousands)
Insurance Contracts
Fair value, December 31, 2023
Sale proceeds (benefit payments)
Change in unrealized gain
Foreign exchange impact
Fair value, December 31, 2024
Sale proceeds (benefit payments)
Change in unrealized gain
Foreign exchange impact
Fair value, December 31, 2025
Long-term Rate of Return for Plan Assets
U.S. Plans
The overall expected long-term rate of return on assets of 5.50 percent that was used to develop the 2025 pension expense is based on plan asset allocation, capital markets forecasts and expected benefits of active investment management. For fixed income, the expected return is 5.24 percent. This assumption includes the yield on the five-year zero-coupon U.S. Treasury bond as the base rate along with historical data from the U.S. Treasury yield curve. For equities, the expected return is 8.86 percent for U.S. and international equities. This return is based on a blended average of three different statistical models that each incorporates multiple factors, including forecasts relating to inflation, Gross Domestic Product, and the Fed Funds Target Rate.
The overall investment return forecast reflects the target allocations and the capital markets forecasts for each asset category, plus a premium for active asset management expected over the long term.
U.K. Plan
The overall expected long-term return on plan assets is a weighted average of the expected long-term returns for equity securities, debt securities and other assets. The redemption yield at the measurement date on U.K. government fixed interest bonds and the yield on corporate bonds are used as proxies for the return on the debt portfolio. The returns for equities and property are estimated as a premium of 1.8 percent added to the risk-free rate. Cash is assumed to have a long-term return of 3.8 percent.
Other Defined Benefit Plans
The Company maintains funded and unfunded defined benefit plans in other foreign locations. The liabilities and expenses associated with these plans, individually and collectively, are not material to the Company’s consolidated financial statements. Discount rates for these plans are determined based on local interest rates and plan participant data.
Cash Flows
As a result of pension funding relief included in the Highway and Transportation Funding Act of 2014, the Company did no t make any 2025 contributions to the funded U.S. qualified defined benefit plans and made $ 170,000 contribution to the unfunded non-qualified U.S pension plans. In 2026, the Company expects to contribute $ 910,000 to the U.S. qualified defined benefit plans and $ 145,000 to the U.S. unfunded non-qualified pension plans. The Company does not expect to make any contributions to the U.K. defined benefit plan in 2026.
Defined Contribution Plans
The Company sponsors retirement savings defined contribution retirement plans that cover eligible U.S. and U.K. employees. The Company’s U.S. retirement plans include two qualified plans, one of which is a 401(k) plan and one of which is an employee stock ownership plan (ESOP), and one non-qualified supplemental executive plan. Prior to 2018, the Company made profit sharing contributions into the qualified retirement plans for its U.S. employees and starting in 2018 made profit sharing contributions into the qualified retirement plans for U.S. employees and for certain non-U.S. employees. Profit sharing contributions were determined using a formula applied to Company earnings. In 2023, 2024 and 2025, profit sharing contributions for U.S. employees were made to the ESOP trust. Profit sharing contributions are allocated to participant accounts on the basis of participant base earnings.
Defined contribution expenses for the Company’s qualified defined contribution plans and statutory profit sharing contributions were as follows:
(In thousands)
Retirement contributions
Profit sharing contributions
Total
The Company has a rabbi trust to fund the obligations of its non-qualified supplemental executive defined contribution plans (supplemental plans). The trust comprises various mutual fund investments selected by the participants of the supplemental plans. In accordance with the accounting guidance for rabbi trust arrangements, the assets of the trust and the obligations of the supplemental plans are reported on the Company’s consolidated balance sheet. The Company elected the fair value option for the mutual fund investment assets so that offsetting changes in the mutual fund values and defined contribution plan obligations would be recorded in earnings in the same period. Therefore, the mutual funds are reported at fair value with any subsequent changes in fair value recorded in the income statement. The supplemental plan liabilities increase (i.e., supplemental plan expense is recognized) when the value of the trust assets appreciate and decrease (i.e., supplemental plan income is recognized) when the value of the trust assets decline. At December 31, 2025, and December 31, 2024 , the trust asset balances and the supplemental plan liability balances were $ 276,000 and $ 472,000 , respectively.
Certain foreign locations are required by law to make profit sharing contributions to employees based on statutory formulas. For the years ended December 31, 2025, 2024 and 2023 , the Company recognized $ 138,000 , $ 298,000 and $ 480,000 , respectively, of statutory profit sharing expense that is included in the table above.
In all Company locations, approximately 85 percent of union and non-union employees are eligible for either the Company’s sponsored or statutory profit sharing contributions and 100 percent of U.S. based union and non-union employees are eligible for the Company’s sponsored profit sharing contribution.
14. Accrued Liabilities
The composition of accrued liabilities was as follows:
December 31
(In thousands)
Accrued payroll and benefits
Accrued customer rebates
Other accrued liabilities
Total accrued liabilities
15. Other Non-Current Liabilities
The composition of other non-current liabilities was as follows:
December 31
(In thousands)
Deferred revenue
Environmental and legal matters
Deferred compensation liability
Pension liability
Other non-current liabilities
Total other non-current liabilities
16. Contingencies
There are a variety of legal proceedings pending or threatened against the Company that occur in the normal course of the Company’s business, the majority of which relate to environmental assessment, protection and remediation matters. Some of these proceedings may result in fines, penalties, judgments or costs being assessed against the Company at some future time. The Company’s operations are subject to extensive local, state and federal regulations, including the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Superfund amendments of 1986 (Superfund) as well as comparable regulations applicable to the Company’s foreign locations. Over the years, the Company has received requests for information related to or has been named by government authorities as a potentially responsible party at a number of sites where cleanup costs have been or may be incurred by the Company under CERCLA and similar state statutes. In addition, the Company is from time to time involved in routine legal proceedings incidental to the conduct of its business, including personal injury, property damage, tax, trade and labor matters. The Company believes that it has made adequate provisions for the costs it is likely to incur with respect to these claims.
In determining the appropriate level of environmental reserves, the Company considers several factors such as information obtained from investigatory studies; changes in the scope of remediation; the interpretation, application and enforcement of laws and regulations; changes in the costs of remediation programs; the development of alternative cleanup technologies and methods; and the relative level of the Company’s involvement at various sites for which the Company is allegedly associated. The level of annual expenditures for remedial, monitoring and investigatory activities will change in the future as major components of planned remediation activities are completed and the scope, timing and costs of existing activities are changed. As of December 31, 2025 , the Company estimated a range of possible environmental losses and legal losses of $ 19,272,000 to $ 45,998,000 . Within the range of possible environmental losses and legal losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the range and, thus, has accrued at the lower end of the range. These accruals totaled $ 19,272,000 at December 31, 2025 and $ 19,952,000 at December 31, 2024 . In the second quarter of 2025, the Company accrued an additional $ 1,754,000 for remediation expenses at the Company’s Elwood, Illinois (Millsdale) facility due to a change in the scope of planned remediation activities. Although the Company believes that its estimated range of possible environmental losses and legal losses and its reserves are adequate for contingencies, it is possible due to uncertainties including those noted above, that additional reserves could be required in the future. Cash expenditures related to environmental remediation and certain other legal matters approximated $ 4,646,000 and $ 7,028,000 for the years ended December 31, 2025 and 2024, respectively.
For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based on
the Company’s present knowledge with respect to its involvement at these sites, the possibility of other viable entities’ responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the aggregate, will not have a material effect on the Company’s financial position. However, in the event of one or more adverse determinations with respect to such sites in any annual or interim period, the effect on the Company’s cash flows and results of operations for those periods could be material.
Following are summaries of the Company’s major contingencies at December 31, 2025:
Maywood, New Jersey Site
The Company’s property in Maywood, New Jersey, property formerly owned by the Company adjacent to its current site and other nearby properties (collectively, the Maywood site) were listed on the National Priorities List in September 1993 pursuant to the provisions of CERCLA because of alleged chemical and radiological contamination. Pursuant to (i) a September 21, 1987 Administrative Order on Consent entered into between the U.S. Environmental Protection Agency (USEPA) and the Company for property formerly owned by the Company at the Maywood site and (ii) the issuance of an order on May 2, 1991 by the USEPA to the Company for property currently owned by the Company at the Maywood site, the Company has completed various Remedial Investigation/Feasibility Studies of soil and groundwater at the Maywood site. On September 24, 2014, the USEPA issued its Record of Decision (ROD) for chemically-contaminated soil at the Maywood site. The ROD was amended pursuant to an Explanation of Significant Differences in January 2021. On February 29, 2024, the U.S. District Court for the District of New Jersey entered a consent decree among the Company, the United States, the New Jersey Department of Environmental Protection (NJDEP) and the New Jersey Spill Compensation Fund Administrator that requires the Company to take certain actions and to pay certain past costs of the United States and NJDEP. The USEPA has not yet issued a ROD for chemically-contaminated groundwater at the Maywood site.
Based on the most current information available, the Company believes its recorded liability is reasonable having considered the range of estimated costs of remediation for the Maywood site. The estimate of the cost of remediation for the Maywood site could change again as the Company continues to hold discussions with the USEPA, as the design of the remedial action is finalized, if a groundwater ROD is issued or if other potentially responsible parties are identified. The ultimate amount for which the Company is liable could differ materially from the Company’s current recorded liability.
D’Imperio Property Site
During the mid-1970’s, Jerome Lightman and the Lightman Drum Company disposed of hazardous substances generated by the Company at several sites in New Jersey, including the D’Imperio site. The Company was named as a potentially responsible party in an October 2, 1998 lawsuit in the U.S. District Court for the District of New Jersey that involved the D’Imperio Site. The Company is cooperating with other potentially responsible parties to implement the selected remedy. Based on current information, the Company believes that its recorded liability is reasonable having considered the range of estimated cost of remediation for the D’Imperio site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the Company’s current recorded liability.
Wilmington Site
Property formerly owned and operated by the Company in Wilmington, Massachusetts was listed on the National Priorities List in 2006. The Company, together with the current site owner and another potentially responsible party, entered into an Administrative Order on Consent in July 2007 to undertake a Remedial Investigation and Feasibility Study. A ROD was issued by the USEPA on March 30, 2021. The Company and three other potentially responsible parties entered into a consent decree, dated September 28, 2023, with USEPA and the Commonwealth of Massachusetts that requires the remedial design and remedial action of the remedy selected in the ROD for two operable units and an interim remedy for another operable unit. Remediation at this site is being managed by its current owner, to whom the Company sold the property in 1980. The Company is contractually obligated to contribute up to five percent of the environmental response costs incurred by the current owner, with no limitation on the ultimate amount of contributions. The Company had paid the current owner $ 4,277,000 for the Company’s portion of environmental response costs at the Wilmington site through December 31, 2025. The Company has recorded a liability for its portion of the estimated remediation costs for the site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the current recorded liability.
On July 29, 2022, the Company and other potentially responsible parties were notified of a possible joint claim by federal and state trustees for alleged natural resource damages related to the Wilmington site. The alleged damages may result in a range of possible penalties and the Company recorded a liability for this matter during the first quarter of 2024. Depending on the ultimate resolution of this matter, the amount for which the Company is liable could differ materially from the current recorded liability.
Millsdale Site
On March 26, 2024, the Company received a Notice and Finding of Violation from the USEPA alleging violations of air regulations at the Company’s Elwood, Illinois (Millsdale) facility. The notice alleges violations related to operating parameters and air emission requirements. The notice does not state whether the USEPA intends to pursue financial penalties or operational remedies. The alleged violations may result in a range of possible penalties; however, at this stage of the matter, the Company is unable to predict the ultimate outcome or what impact, if any, the outcome might have on the Company’s financial position, results of operations or cash flows.
Other U.S. Sites
Through the regular environmental monitoring of its plant production sites, the Company discovered levels of chemical contamination that were above thresholds allowed by law at its Millsdale and Fieldsboro, New Jersey plants. The Company voluntarily reported its results to the applicable state environmental agencies. As a result, the Company is required to perform self-remediation of the affected areas. Based on current information, the Company believes that its recorded liability for the remediation of the affected areas is appropriate based on an estimate of expected costs. However, actual costs could differ materially from the current recorded liability.
Brazil Tax Rescission Action
In March 2017, the Brazil Supreme Court ruled that ICMS (State VAT) does not represent a Company’s revenue and should not be included in the calculation basis of certain indirect taxes (PIS/COFINS). Based on the Supreme Court’s decision, the Company’s Brazilian subsidiary filed a lawsuit on March 23, 2017 to recover PIS/COFINS overpayments. The Company’s recovery case was successful and became final in November 2018. In May 2021, the Brazil Supreme Court modulated its original decision so that only taxpayers that had filed lawsuits before March 15, 2017, should recover prior PIS/COFINS overpayments. On June 12, 2023, the Brazil National Treasury filed a rescission action against the Company’s Brazilian subsidiary to rescind its use of the PIS/COFINS tax credits for the period from March 23, 2012, to March 15, 2017. In September and October 2024, the Brazil Superior Court and Supreme Court, respectively, ruled that the generally held two-year “res judicata” principle would start from the May 2021 ruling and not the final ruling in prior taxpayer cases (e.g., November 30, 2018, for the Company’s case). Based on current information, the Company believes that its recorded liability is reasonable; however, depending on the ultimate resolution of this matter, the amount for which the Company is liable could differ materially from the current recorded liability.
Other Matters
On March 19, 2025, the Company received a pre-filing notice from USEPA for alleged violations of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) associated with certain of the Company’s biocide products sold by a licensed distributor. USEPA assessed a civil penalty of $ 1,126,000 , which the Company paid on July 2, 2025. As of December 31, 2025, the Company recovered $ 1,000,000 of the USEPA penalty from third parties.
17. Segment Reporting
The Company has three reportable segments: Surfactants, Polymers and Specialty Products. Each segment provides distinct products and requires separate management due to unique markets, technologies and production processes. Surfactants are used in a variety of consumer and industrial cleaning and disinfection products such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes. Other applications include fabric softeners, germicidal quaternary compounds, disinfectants, lubricating ingredients, emulsifiers for spreading agricultural products and industrial applications such as latex systems, plastics and composites. Polymers include polyurethane polyols, polyester resins and phthalic anhydride. Polyurethane polyols are used in the manufacture of rigid foam for thermal insulation in the construction industry and are also a base raw material for coatings, adhesives, sealants and elastomers (collectively, CASE products). Powdered polyester resins are used in coating applications. CASE and powdered polyester resins are collectively referred to as specialty polyols. Phthalic anhydride is used in unsaturated polyester resins, alkyd resins and plasticizers for applications in construction materials and components of automotive, boating and other consumer products. In addition, the Company uses phthalic anhydride internally in the production of polyols. Specialty Products include flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications.
The Company’s Chief Operating Decision Maker (CODM) is the President and Chief Executive Officer. The CODM regularly uses multiple financial measures to allocate financial and human resources to individual segments and evaluate segment performance. The CODM also uses these measures in the annual budget and quarterly forecasting processes. The CODM uses segment information for comparison of the Company’s segments’ performance with competitors’ performance as well as monitoring of actual results versus budget to establish management’s business goals and compensation objectives. It is also used to allocate resources to
individual segments and evaluate their performances. This information includes net sales, cost of sales, gross profit, operating expenses and operating income.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 1, Summary of Significant Accounting Policies , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K).
The following is segment data for the three years ended December 31, 2025, 2024 and 2023 and reconciliations of segment data to the consolidated financial statements and non-GAAP measures:
(In thousands)
Surfactants
Polymers
Specialty
Products
Total
Net Sales
Cost of Sales (1)
Operating Expenses (2)
Operating Income
Unallocated Corporate Expenses (3)
Consolidated Operating Income
Segment Assets
Unallocated Assets (4)
Consolidated Assets
Segment Capital Expenditures
Unallocated Capital Expenditures (5)
Consolidated Capital Expenditures
Segment Depreciation and Amortization
Unallocated Depreciation and Amortization (6)
Consolidated Depreciation and Amortization
(In thousands)
Surfactants
Polymers
Specialty
Products
Total
Net Sales
Cost of Sales (1)
Operating Expenses (2)
Operating Income
Unallocated Corporate Expenses (3)
Consolidated Operating Income
Segment Assets
Unallocated Assets (4)
Consolidated Assets
Segment Capital Expenditures
Unallocated Capital Expenditures (5)
Consolidated Capital Expenditures
Segment Depreciation and Amortization
Unallocated Depreciation and Amortization (6)
Consolidated Depreciation and Amortization
(In thousands)
Surfactants
Polymers
Specialty
Products
Total
Net Sales
Cost of Sales (1)
Operating Expenses (2)
Operating Income
Unallocated Corporate Expenses (3)
Consolidated Operating Income
Segment Assets
Unallocated Assets (4)
Consolidated Assets
Segment Capital Expenditures
Unallocated Capital Expenditures (5)
Consolidated Capital Expenditures
Segment Depreciation and Amortization
Unallocated Depreciation and Amortization (6)
Consolidated Depreciation and Amortization
Cost of sales is comprised of raw material costs (including freight and handling expenses to deliver the raw materials), manufacturing plant labor expenses and various manufacturing overhead expenses, such as utilities, maintenance, operating supplies, amortization and manufacturing asset depreciation expenses, warehouse and rail car expenses that can be allocated to reportable segments. For more details about items included in Cost of sales line item on the Consolidated Statements of Income, see Note 1, Summary of Significant Accounting Policies , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K).
Operating expenses allocated to reportable segments are comprised of selling, administrative and research and development expenses. The CODM uses operating expenses balances in their aggregate to analyze the performance of each reportable segment. For more details about items included in Operating expenses line items on the Consolidated Statements of Income, see Note 1, Summary of Significant Accounting Policies , of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K).
Unallocated corporate expenses are primarily comprised of corporate administrative expenses (e.g., corporate finance, legal, human resources and information technology), environmental remediation expenses, deferred compensation, business restructuring, assets and goodwill impairment expenses and gain on sales of assets that are not included in segment operating income and not used to evaluate segment performance. For more details about items included in unallocated corporate expenses, see Note 22, Business Restructuring and Assets Impairment and Note 20, Sales of Assets of the notes to the Company’s consolidated financial statements included in Item 8 of this Form 10-K).
Unallocated assets primarily include assets at the Company’s headquarters.
Unallocated capital expenditures primarily include capital expenditures related to the Company’s headquarters.
Unallocated depreciation and amortization primarily includes depreciation related to the Company’s headquarters.
Below is certain Company-wide geographic data for the years ended December 31, 2025, 2024 and 2023:
(In thousands)
Net sales (1)
United States
France
Poland
United Kingdom
Brazil
Mexico
All other countries
Total
Long-lived assets (2)
United States
Netherlands
Germany
Singapore
Brazil
China
United Kingdom
Mexico
All other countries
Total
Net sales are attributed to countries based on the location of the Company legal entity making the sale.
Includes net property, plant and equipment, goodwill and other intangible assets.
18. Earnings Per Share
Below is the computation of basic and diluted earnings per share for the years ended December 31, 2025, 2024 and 2023:
(In thousands, except per share amounts)
Computation of Basic Earnings per Share
Net income attributable to Stepan Company
Weighted-average number of shares outstanding
Basic earnings per share
Computation of Diluted Earnings per Share
Net income attributable to Stepan Company
Weighted-average number of shares outstanding
Add weighted-average net shares from assumed
exercise of options (under treasury share
method) (1)
Add weighted-average net shares related to
unvested stock awards (under treasury share
method)
Add weighted-average net shares from assumed
exercise of SARs (under treasury share method)
Add weighted-average contingently issuable net
shares related to performance stock awards
(under treasury share method)
Weighted-average shares applicable to diluted
earnings
Diluted earnings per share
Options/SARs to purchase 1,208,928 , 888,726 and 672,485 shares of the Company’s common stock were excluded from the computations of diluted earnings per share for the years ended December 31, 2025, 2024 and 2023 , respectively. The options’/SARs’ exercise prices were greater than the average market price for the Company’s common stock and inclusion of the instruments would have had an antidilutive effect on the computations of earnings per share.
19. Accumulated Other Comprehensive Income (Loss)
Below is the change in the Company’s accumulated other comprehensive income (loss) (AOCI) balance by component (net of income taxes) for the years ended December 31, 2025, 2024 and 2023:
(In thousands)
Foreign
Currency
Translation
Adjustments
Defined
Benefit
Pension Plan
Adjustments
Cash Flow
Hedge
Adjustments
Total
Balance at December 31, 2022
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Net current period other comprehensive income (loss)
Balance at December 31, 2023
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Net current period other comprehensive income (loss)
Balance at December 31, 2024
Other comprehensive loss before reclassifications
Amounts reclassified from AOCI
Net current period other comprehensive income (loss)
Balance at December 31, 2025
Amounts reclassified out of AOCI for the three years ended December 31, 2025, 2024 and 2023, is displayed below:
Amounts Reclassified from AOCI (1)
(In thousands)
Affected Line Item in
Consolidated
Statements of Income
Amortization of defined pension items:
Prior service cost
Actuarial loss
Total before tax (2)
Tax benefit
Net of tax
Gains and losses on cash flow hedges:
Foreign exchange contracts
Cost of sales
Total before tax
Tax benefit
Net of tax
Total reclassifications for the period
Net of tax
Amounts in parentheses denote expense to the Company’s Consolidated Statements of Income.
This component of accumulated other comprehensive income is included in the computation of net periodic benefit cost (see Note 13, Postretirement Benefit Plans , of the notes to the Company’s consolidated financial statements for details regarding net periodic benefit costs for the Company’s U.S. and U.K. defined benefit plans).
20. Sales of Assets
On May 27, 2025 Stepan Company announced that its subsidiary, Stepan Philippines Quaternaries, Inc. (SPQI), entered into an agreement to sell SPQI's manufacturing assets located in Bauan, Batangas, Philippines to Masurf, Inc., a subsidiary of Musim Mas Holdings Pte. Ltd. During the second and third quarters of 2025, the asset disposal group was presented on the line items Assets held for sale and Liabilities held for sales on the Condensed Consolidated Balance Sheets as of June 30, 2025 and September 30, 2025. On November 20, 2025 the Company announced that its subsidiary, SPQI, had successfully closed the sale of SPQI's manufacturing assets. As part of the transaction, SPQI entered into a tolling agreement with Masurf, Inc. to continue to serve its customers in Southeast Asia and support growth opportunities in this region. The Company sold these assets for $ 11,500,000 . The asset disposal group was mostly comprised of $ 3,753,000 in property, plant and equipment (net) and $ 1,707,000 in prepaid assets, mostly supplies and parts. The Company recognized a $ 5,144,000 of pre-tax gain on the sale of assets. The gain was not included in Segment operating results and is recorded on the Gain on sales of assets line of the Consolidated Statements of Income for the year ended December 31, 2025. See Note 17, Segment Reporting, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional details.
In December 2025, the Company announced that it sold its assets located in Lake Providence, Louisiana. The Company sold these assets (Lake Providence plant site) for $ 15,087,000 and recognized a $ 10,751,000 pre-tax gain. The assets disposal group was mostly comprised of $ 3,500,000 of property, plant and equipment. The gain was not included in Segment operating results and is recorded on the Gain on sales of assets line of the Consolidated Statements of Income for the year ended December 31, 2025. See Note 17, Segment Reporting, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional details.
Transactions listed above were the result of the Company’s ongoing optimization efforts and focus on core growth opportunities.
21. Revenue from Contracts with Customers
The Company deems a contract with a customer to exist when a purchase order is received from a customer for a specified quantity of product or products and the Company acknowledges receipt of such purchase order. In some instances, the Company has entered into manufacturing supply agreements with customers but these agreements typically do not bind a customer to any purchase volume requirements and thus an obligation is not created until the customer submits a purchase order to the Company. The Company’s contracts typically have a single performance obligation that is satisfied at the time product is shipped and control passes to the customer. For a small portion of the business, performance obligations are deemed satisfied when product is delivered to a customer location.
As of December 31, 2025 , the Company had $ 218,000 of contract liabilities and no contract assets. A contract liability would typically arise when an advance or deposit is received from a customer before the Company recognizes revenue. In practice, this is rare
as it would require a customer to make a payment prior to a performance obligation being satisfied. When such situations do arise, the Company maintains a deferred revenue liability until the time a performance obligation has been satisfied. The Company recognized $ 689,000 of revenue in 2025 from pre-existing contract liabilities at December 31, 2024.
In addition, during 2020 the Company recorded $ 10,709,000 of long-term deferred revenue associated with a payment received to defray the cost of capital expenditures necessary to service a customer’s future product needs. On December 31, 2025 , $ 2,216,000 was classified as long-term and $ 2,216,000 was classified as short-term. This deferred revenue will be recognized over the period of the contract and $ 6,277,000 of revenue has been recognized from the beginning of the contract term through December 31, 2025.
The tables below provide a geographic disaggregation of net sales for the years ended December 31, 2025, 2024 and 2023. The Company’s business segmentation by geographic region most effectively captures the nature and economic characteristics of the Company’s revenue streams impacted by economic factors.
(In thousands)
Surfactants
Polymers
Specialty
Products
Total
Geographic Market
North America
Europe
Latin America
Asia
Total
(In thousands)
Surfactants
Polymers
Specialty
Products
Total
Geographic Market
North America
Europe
Latin America
Asia
Total
(In thousands)
Surfactants
Polymers
Specialty
Products
Total
Geographic Market
North America
Europe
Latin America
Asia
Total
22. Business Restructuring and Assets Impairment
2023 Restructuring
During the third quarter of 2023 the Company recorded a $ 5,530,000 restructuring reserve associated with a voluntary early retirement program. This program was offered to eligible employees at the Company’s corporate headquarters and global technology center to reduce costs. During the fourth quarter of 2023, the Company recognized an additional $ 2,883,000 of restructuring expense associated with workforce productivity measures to reduce costs. In addition, the Company also recognized $ 3,164,000 of asset impairment charges in the fourth quarter of 2023. These asset impairment charges primarily relate to assets that are no longer in use and to the write-off of engineering and design costs associated with projects the Company no longer deems viable. All of the restructuring charges described above were excluded from Segment operating results and are recorded on the Business restructuring and assets impairment line item of the Consolidated Statements of Income for the year ended December 31, 2023. Payments during 2024 and 2025
related to the restructuring were immaterial, and no additional payments are expected. See Note 17, Segment Reporting, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional details.
2016 Restructuring
During 2016, the Company shut down its Longford Mills, Ontario, Canada (Longford Mills) manufacturing facility, a part of the Surfactant reportable segment. The Company recognized restructuring expenses of $ 391,000 in 2023. The restructuring charges described above were excluded from Segment operating results and are recorded on the Business restructuring and assets impairment line item of the Consolidated Statements of Income for the year ended December 31, 2023. The Company does not expect any additional restructuring expenses related to Longford Mills. See Note 17, Segment Reporting, of the notes to the Company’s consolidated financial statements (included in Item 8 of this Form 10-K) for additional details.
23. Noncash Investing and Financing Activities
Noncash investing activities included liabilities (accounts payable) incurred for property, plant and equipment expenditures of approximately $ 18,143,000 , $ 17,275,000 , and $ 16,222,000 that were unpaid at December 31, 2025, 2024 and 2023 , respectively. Noncash financing activities included 142,268 shares of the Company’s common stock (valued at $ 8,297,000 ), 124,379 shares of the Company’s common stock (valued at $ 11,011,000 ) and 103,745 shares of the Company’s common stock (valued at $ 10,916,000 ) issued in connection with the Company’s equity incentive compensation plan in 2025, 2024 and 2023 , respectively.
24. Other Matter
On July 18, 2024, the Company determined that one of its subsidiaries in Asia had been the victim of a criminal social engineering scheme which resulted in fraudulently induced outbound payments. The Company immediately launched an investigation, led by outside counsel, to determine the full extent of the fraud scheme and related potential exposure. The Company initiated contact with its banks and law enforcement authorities in an effort to, among other things, recover the transferred funds. To date, the Company has not found any evidence of additional fraudulent activity. The investigation is now closed and the Company has confirmed this was an isolated and contained event. This incident did not result in any unauthorized access to the Company's information systems or any confidential customer information or other data that the Company maintains. The Company recognized pre-tax charges of $ 6,800,000 for the twelve months ended December 31, 2024. The charges were recorded on the Administrative Expenses line on the Consolidated Statements of Income for the twelve months ended December 31, 2024. These charges were not allocated to any of the Company's three reportable segments. This incident did not have a material impact on the Company's business, financial position, results of operations and cash flow.
25. Subsequent Event
During February 2026, the Company’s Board of Directors approved plans to shut down the Company’s Fieldsboro, New Jersey site and decommission select assets at its Elwood, Illinois (Millsdale) and Stalybridge, U.K. facilities during the first half of 2026. All of these assets relate to the Surfactant reportable segment. The Company plans to consolidate operations impacted into the Company’s existing network, improving its asset utilization and reducing its fixed cost basis, while maintaining ongoing supply for its customers. Total restructuring expenses related to these asset shutdowns are expected to approximate $ 70,000,000 to $ 80,000,000 in 2026. Restructuring costs will include asset write-downs, decommissioning costs and other related expenses.
