Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is management's discussion and analysis (MD&A) of certain significant factors that have affected the Company's financial condition and results of operations during the interim periods included in the accompanying condensed consolidated financial statements.

Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements include statements about Stepan Company's and its subsidiaries' (the Company) plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, the Company's actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, forward-looking statements can be identified by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "should," "illustrative" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond the Company's control, that could cause the Company's actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Such risks, uncertainties and other important factors, include, among others, the risks, uncertainties and factors set forth under "Part II-Item IA - Risk Factors" of this Quarterly Report on Form 10-Q and under "Part I-Item IA. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, including the risks and uncertainties related to the following:

These factors are not necessarily all of the important factors that could cause the Company's actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of the Company's forward-looking statements. Other unknown or unpredictable factors could also impact the Company's results. All forward-looking statements attributable to the Company or persons acting on the Company's behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and the Company does not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements.

The "Company," "we," "our" or "us" means Stepan Company and one or more of its subsidiaries only.

Overview

The Company produces and sells intermediate chemicals that are used in a wide variety of applications worldwide. The overall business is comprised of three reportable segments:

Surfactants- Surfactants, which accounted for 72 percent of consolidated net sales for the first nine months of 2025, are principal ingredients in consumer and industrial cleaning and disinfection products such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes. Other applications include fabric softeners, germicidal quaternary compounds, disinfectants, lubricating ingredients, emulsifiers for spreading agricultural products and industrial applications such as latex systems, plastics and composites. Surfactants are manufactured at five sites in the United States, two European sites (United Kingdom and France), five Latin American sites (one site in Colombia and two sites in each of Mexico and Brazil) and two Asian sites (Philippines and Singapore).

Polymers- Polymers, which accounted for 25 percent of consolidated net sales for the first nine months of 2025, include polyurethane polyols, polyester resins and phthalic anhydride. Polyurethane polyols are used in the manufacture of rigid foam for thermal insulation in the construction industry and are also a base raw material for coatings, adhesives, sealants and elastomers (collectively, CASE products). Powdered polyester resins are used in coating applications. CASE and powdered polyester resins are collectively referred to as specialty polyols. Phthalic anhydride is used in unsaturated polyester resins, alkyd resins and plasticizers for applications in construction materials and components of automotive, boating and other consumer products. In addition, the Company uses phthalic anhydride internally in the production of polyols. In the United States, polyurethane polyols are manufactured at the Company's Elwood, Illinois (Millsdale) and Wilmington, North Carolina sites. Phthalic anhydride is manufactured at the Company's Millsdale site and specialty polyols are manufactured at the Company's Columbus, Georgia, site. In Europe, polyurethane polyols are manufactured at the Company's plants in Germany and the Netherlands and specialty polyols are manufactured at the Company's Poland site. In Asia, polyurethane polyols and specialty polyols are manufactured at the Company's China plant.

Specialty Products- Specialty products, which accounted for three percent of consolidated net sales for the first nine months of 2025, include flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications. Specialty products are primarily manufactured at the Company's Maywood, New Jersey, site.

Deferred Compensation Plans

The accounting for the Company's deferred compensation plans can cause period-to-period fluctuations in Company income and expenses. Compensation expense is recognized when the value of the Company's common stock and mutual fund investment assets held for the plans increase, and compensation income is recognized when the value of the Company's common stock and mutual fund investment assets decline. The pretax effect of all deferred compensation-related activities (including realized and unrealized gains and losses on the mutual fund assets held to fund the deferred compensation obligations) and the income statement line items in which the effects of the activities were recorded are displayed in the following table:

Effects of Foreign Currency Translation

The Company's foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects period-to-period comparisons of financial statement items (i.e., because foreign exchange rates fluctuate, similar period-to-period local currency results for a foreign subsidiary may translate into different U.S. dollar results). The following table presents the effects that foreign currency translation had on the period-over-period changes in consolidated net sales and various income statement line items for the three and nine months ended September 30, 2025 and 2024:

RESULTS OF OPERATIONS

Three Months Ended September 30, 2025 and 2024

Summary

Net income in the third quarter of 2025 was $10.8 million, or $0.47 per diluted share, versus $23.6 million, or $1.03 per diluted share, in the third quarter of 2024. Adjusted net income was $10.9 million, or $0.48 per diluted share, versus $23.7 million, or $1.03 per diluted share in the third quarter of 2024 (see the "Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share" section of this MD&A for a reconciliation between reported net income and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Earnings before interest, taxes, depreciation and amortization (EBITDA) were $56.1 million in the third quarter of 2025, up six percent, versus $53.0 million in the third quarter of 2024. Adjusted EBITDA was $56.2 million, up six percent, versus $53.1 million in the third quarter of 2024 (see the "Reconciliation of non-GAAP EBITDA and Adjusted EBITDA" section of this MD&A for a reconciliation between reported operating income and non-GAAP EBITDA and Adjusted EBITDA). Below is a summary discussion of the major factors leading to the changes in net sales, expenses and income in the third quarter of 2025 compared to the third quarter of 2024. A detailed discussion of segment operating performance for the third quarter of 2025, compared to the third quarter of 2024, follows the summary.

Consolidated net sales increased $43.4 million, or eight percent, versus the prior year quarter. Higher average selling prices favorably impacted the year-over-year change in net sales by $30.8 million. The increase in average selling prices was mainly attributable to the pass-through of higher raw material costs and more favorable product mix. Consolidated sales volume increased one percent, which favorably impacted the change in net sales by $4.0 million. Polymer and Specialty Products sales volume increased eight and 26 percent, respectively, year-over-year. Surfactant sales volume decreased two percent. Foreign currency translation favorably impacted the year-over-year change in net sales by $8.6 million, due to a weaker U.S. dollar against the majority of currencies in locations where the Company conducts its business.

Operating income in the third quarter of 2025 decreased $2.1 million, or nine percent, versus operating income in the third quarter of 2024. Surfactant and Polymer operating incomes decreased $10.6 million and $1.1 million, respectively, versus the third quarter of 2024. Specialty Products operating income increased $5.9 million year-over-year. Corporate expenses, including environmental remediation and deferred compensation expenses, decreased $3.7 million, or 17 percent, year-over-year. Corporate expenses, excluding environmental remediation and deferred compensation expenses, decreased $3.8 million, or 19 percent, year-over-year. The decrease in corporate expenses is primarily due to the non-recurrence of prior year charges associated with an external criminal social engineering fraud event. Foreign currency translation had a $0.5 million favorable impact on operating income year-over-year.

Operating expenses (including deferred compensation) decreased $2.5 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:

Net interest expense for the third quarter of 2025 increased $3.2 million versus the third quarter of 2024. This increase was primarily attributable to lower U.S. capitalized interest income recognized in 2025 as the Company's new specialty alkoxylation facility in Pasadena, Texas started up in April 2025.

Other, net was $1.5 million of income in the third quarter of 2025 versus $1.0 million of income in the third quarter of 2024. The Company recognized $1.0 million of investment gains (including realized and unrealized gains and losses) for the Company's deferred compensation and supplemental defined contribution mutual fund assets in both the third quarter of 2025 and 2024. In addition, the Company reported $0.2 million of foreign exchange gains in the third quarter of 2025 versus $0.5 million of foreign exchange losses in the third quarter of 2024. The Company's net periodic pension income was $0.3 million in the third quarter of 2025 versus $0.4 million of income in the third quarter of 2024.

The Company's effective tax rate was 34.4 percent in the third quarter of 2025 versus a negative 10.7 percent in the third quarter of 2024. This increase was primarily attributable to an unfavorable provision-to-return adjustment of the Company's 2024 tax return,

recorded in the third quarter of 2025, and the non-recurrence of a favorable event, related to global intangible low-taxed income (GILTI), in the third quarter of 2024.

A U.S. tax act (H.R.1) was signed into law on July 4, 2025 (the 2025 U.S. Tax Act). The Company has evaluated the impact of the 2025 U.S. Tax Act and the provisions that will have the most relevance to the Company are bonus depreciation, the immediate expensing of domestic research and development costs, the elimination of the ability to elect out of the §280(c) R&D tax credit reduction and the increased limitation on the deduction for interest expense. Although the Company continues to analyze the impact of these new provisions, it does not currently believe these items will have a material impact on the Company's financial results, financial position, liquidity or cash flows in 2025.

Segment Results

Surfactants

Surfactant net sales for the third quarter of 2025 increased $39.6 million versus net sales for the third quarter of 2024. Higher average selling prices favorably impacted the change in net sales by $41.4 million. The higher average selling prices were mainly attributable to the pass through of higher raw material costs and a more favorable product mix. Sales volume decreased two percent and had a $7.3 million unfavorable impact on the change in net sales. Foreign currency translation had a $5.5 million favorable impact on the year-over-year change in net sales. A comparison of net sales by region follows:

Net sales for North American operations increased $15.5 million, or seven percent, year-over-year. Higher average selling prices had a $17.4 million favorable impact on the change in net sales and were primarily due to the pass-through of higher raw material costs and more favorable product mix. Sales volume decreased one percent and negatively impacted the change in net sales by $1.8 million. The lower sales volume was primarily due to lower demand for products sold into the consumer products end markets that 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 $0.1 million.

Net sales for European operations increased $8.0 million, or 12 percent, primarily due to higher average selling prices and the favorable impact of foreign currency translation. These items positively impacted the change in net sales by $7.5 million and $3.9 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs and more favorable product mix. A weaker U.S. dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect. Sales volume declined five percent and negatively impacted the change in net sales by $3.4 million. The lower sales volume was primarily due to lower demand for products sold to our distribution partners and into the consumer products end markets. Higher demand for products sold into agricultural end markets partially offset the above.

Net sales for Latin American operations increased $13.8 million, or 16 percent, primarily due to higher average selling prices that positively impacted the change in net sales by $15.1 million. The higher average selling prices primarily reflect more favorable product mix and the pass-through of higher raw material costs. Foreign currency translation positively impacted the change in net sales by $1.7 million. A weaker U.S. dollar relative to all currencies within the region led to the favorable foreign currency translation effect. A four percent decrease in sales volume negatively impacted the change in net sales by $3.0 million. The lower sales volume was primarily due to lower demand for products sold into the commodity laundry and cleaning end markets that was partially offset by higher demand for products sold into the personal care and industrial cleaning end markets.

Net sales for Asian operations increased $2.3 million, or 16 percent, versus the prior year quarter. An eight percent increase in sales volume and higher average selling prices favorably impacted the change in net sales by $1.1 million each, year-over-year. The higher sales volume was primarily due to the increased demand for products sold into the commodity laundry and cleaning end markets. Foreign currency translation positively impacted the year-over-year change in net sales by $0.1 million.

Surfactant operating income for the third quarter of 2025 decreased $10.6 million, or 40 percent, versus operating income for the third quarter of 2024. Gross profit decreased $9.5 million, or 19 percent, and operating expenses increased $1.1 million, or five percent. Comparisons of gross profit by region and total segment operating expenses and operating income follow:

Gross profit for North American operations decreased $5.9 million, or 23 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 $5.7 million and were primarily attributable to higher expenses associated with the start-up of the Company's new alkoxylation facility in Pasadena, Texas and higher oleochemical raw material costs. A one percent decrease in sales volume negatively impacted the change in gross profit by $0.2 million.

Gross profit for European operations decreased $1.1 million, or 12 percent, primarily due to lower average unit margins and a five percent decrease in sales volume. These items negatively impacted the year-over-year change in gross profit by $1.1 million and $0.5 million, respectively. Foreign currency translation positively impacted the year-over-year change in gross profit by $0.5 million.

Gross profit for Latin American operations decreased $0.9 million, or eight percent. Lower average unit margins and a four percent decrease in sales volume negatively impacted the year-over-year change in gross profit by $0.6 million and $0.4 million, respectively. Foreign currency translation positively impacted the year-over-year change in gross profit by $0.1 million.

Gross profit for Asia operations decreased $1.7 million year-over-year. Lower average unit margins negatively impacted the year-over-year change in gross profit by $2.0 million. An eight percent increase in sales volume positively impacted the year-over-year change in gross profit by $0.3 million.

Operating expenses for the Surfactant segment increased $1.1 million, or five percent, in the third quarter of 2025 versus the third quarter of 2024.

Polymers

Polymers net sales for the third quarter of 2025 decreased $5.9 million versus net sales for the same period of 2024. Lower average selling prices negatively impacted the year-over-year change in net sales by $21.3 million. An eight percent increase in sales volume

and the favorable impact of foreign currency translation positively impacted the change in net sales by $12.5 million and $2.9 million, respectively. A comparison of net sales by region follows:

Net sales for North American operations increased $4.8 million, or six percent, due to a 21 percent increase in sales volume that positively impacted the year-over-year change in net sales by $15.9 million. Sales volume of polyols used in rigid foam applications increased 11 percent year-over-year. Sales volume of commodity phthalic anhydride grew more than double digits primarily due to the market exit of a competitor. Specialty Polyols sales volume declined six percent year-over-year. Lower average selling prices negatively impacted the year-over-year change in net sales by $11.1 million. The lower average selling prices primarily reflect the pass-through of lower raw material costs and less favorable product mix.

Net sales for European operations decreased $9.8 million, or 15 percent, year-over-year. This decrease was primarily due to lower average selling prices that negatively impacted the year-over-year change in net sales by $10.5 million. The lower average selling prices were primarily due to the pass-through of lower raw material costs and increased competitive activity. A three percent decrease in sales volume negatively impacted the change in net sales by $2.2 million. Foreign currency translation positively impacted the change in net sales by $2.9 million. A weaker U.S. dollar relative to the Polish zloty and British pound sterling led to the favorable foreign currency translation effect.

Net sales for Asia and Other operations decreased $0.9 million, or seven percent, primarily due to lower average selling prices that negatively impacted the year-over-year change in net sales by $1.1 million. A two percent increase in sales volume positively impacted the year-over-year change in net sales by $0.2 million.

Polymer operating income in the third quarter of 2025 decreased $1.1 million, or eight percent, versus operating income in the third quarter of 2024. Gross profit decreased $0.9 million, or four percent, and operating expenses increased $0.3 million, or four percent, year-over-year. Comparisons of gross profit by region and total segment operating expenses and operating income follow:

Gross profit for North American operations increased $1.0 million, or nine percent, year-over-year. The 21 percent increase in sales volume positively impacted the year-over-year change in gross profit by $2.4 million. Lower average unit margins negatively impacted the change in gross profit by $1.4 million. The lower average unit margins were primarily due to less favorable product mix.

Gross profit for European operations decreased $1.7 million, or 20 percent, versus the third quarter of 2024. This decrease was primarily due to lower average unit margins and a three percent decrease in sales volume. These items negatively impacted the year-over-year change in gross profit by $1.8 million and a $0.3 million, respectively. Foreign currency translation positively impacted the change in gross profit by $0.4 million.

Gross profit for Asia and Other operations decreased $0.2 million, or eight percent, due to lower average unit margins.

Operating expenses for the Polymer segment increased $0.3 million, or four percent, in the third quarter of 2025 versus the third quarter of 2024.

Specialty Products

Specialty Products net sales for the third quarter of 2025 increased $9.7 million, or 68 percent, versus net sales for the third quarter of 2024. This increase was primarily due to higher sales volume that was driven by order timing fluctuations within the pharmaceutical business. Gross profit and operating income increased $6.0 million and $5.9 million, respectively, year-over-year.

Corporate Expenses

Corporate expenses, which include deferred compensation and other operating expenses that are not allocated to the reportable segments, decreased $3.7 million, or 17 percent, year-over-year. Corporate expenses were $17.7 million in the third quarter of 2025 versus $21.3 million in the third quarter of 2024. This decrease was primarily due to the non-recurrence of a $3.3 million expense, related to a criminal social engineering fraud scheme, recognized in the third quarter of 2024.

Deferred compensation expense increased $0.3 million year-over-year. This increase reflects a larger increase in the market value of mutual fund investment assets during the third quarter 2025 versus the third quarter of 2024. Additionally, the market price of the Company's common stock decreased $6.88 per share in the third quarter of 2025 versus a $6.71 per share decrease in the third quarter of 2024. Although the Company's common stock decrease was slightly higher in the third quarter of 2025, the number of shares of the Company's common stock in the deferred compensation plans was significantly lower in 2025 versus 2024.

The following table presents the quarter-end Company common stock market prices used in the computation of deferred compensation income/expense for the three months ended September 30, 2025 and 2024:

Nine Months Ended September 30, 2025 and 2024

Summary

Net income in the first nine months of 2025 was $41.9 million, or $1.83 per diluted share, versus $47.0 million, or $2.05 per diluted share, in the first nine months of 2024. Adjusted net income was $42.2 million, or $1.84 per diluted share, versus $47.7 million, or $2.08 per diluted share in the first nine months of 2024 (see the "Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share" section of this MD&A for a reconciliation between reported net income and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Earnings before interest, taxes, depreciation and amortization (EBITDA) were $164.7 million in the first nine months of 2025, up nine percent, versus $151.0 million in the first nine months of 2024. Adjusted EBITDA was $165.1 million, up nine percent, versus $151.9 million in the first nine months of 2024 (see the "Reconciliation of non-GAAP EBITDA and Adjusted EBITDA" section of this MD&A for a reconciliation between reported operating income and non-GAAP EBITDA and Adjusted EBITDA). Below is a summary discussion of the major factors leading to the changes in net sales, expenses and income in the first nine months of 2025 compared to the first nine months of 2024. A detailed discussion of segment operating performance for the first nine months of 2025, compared to the first nine months of 2024, follows the summary.

Consolidated net sales increased $123.6 million, or seven percent, year-over-year. Higher average selling prices favorably impacted the year-over-year change in net sales by $103.7 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 two percent, which positively impacted the change in net sales by $31.5 million. Polymer and Specialty Products sales volume increased eight and 14 percent, respectively, year-over-year. Surfactants sales volume was flat year-over-year. Foreign currency translation negatively impacted the year-over-year change in net sales by $11.6 million, primarily due to a stronger U.S. dollar against the Mexican peso and Brazilian real.

Operating income for the first nine months of 2025 increased $5.3 million, or eight percent, versus operating income in the first nine months of 2024. Polymer and Specialty Products operating income increased $2.1 million and $5.1 million, respectively, year-over-year. Surfactant operating income decreased $11.4 million year-over-year. Corporate expenses, including environmental remediation and deferred compensation expenses, decreased $9.6 million, or 16 percent, year-over-year. Corporate expenses, excluding environmental remediation and deferred compensation expenses, decreased $7.3 million, or 13 percent, year-over-year. The decrease in corporate expenses is primarily due to the non-recurrence of prior year charges associated with an external criminal social engineering fraud event. Foreign currency translation had a $1.5 million unfavorable impact on operating income year-over-year.

Operating expenses (including deferred compensation) decreased two percent year-over-year. Changes in the individual income statement line items that comprise the Company's operating expenses were as follows:

Net interest expense for the first nine months of 2025 increased $7.1 million, or 76 percent, versus the first nine months of 2024. This increase was primarily attributable to lower U.S. capitalized interest income recognized in 2025 as the Company's new specialty alkoxylation facility in Pasadena, Texas started up in April 2025.

Other, net was $3.3 million of income in the first nine months of 2025 versus $4.6 million of income in the first nine months of 2024. The Company recognized $2.4 million of investment gains (including realized and unrealized gains and losses) for the Company's deferred compensation and supplemental defined contribution mutual fund assets in the first nine months of 2025 compared to $4.2 million of investment gains in the first nine months of 2024. In addition, the Company reported $0.2 million of foreign exchange gains in the first nine months of 2025 versus $0.9 million of foreign exchange losses in the first nine months of 2024. The Company's net periodic pension income was $0.8 million in the first nine months of 2025 versus $1.2 million of income in the first nine months of 2024.

The Company's effective tax rate was 23.8 percent in the first nine months of 2025 versus 18.9 percent in the first nine months of 2024. This increase was primarily attributable to a decrease to the Company's R&D tax credit and the expected tax impact of certain cash repatriations to the U.S..

A U.S. tax act (H.R.1) was signed into law on July 4, 2025 (the 2025 U.S. tax act). The Company evaluated the impact of the 2025 U.S. tax act and the provisions that will have the most relevance to the Company are bonus depreciation, the immediate expensing of domestic research and development costs, the elimination of the ability to elect out of the §280(c) R&D tax credit reduction, and the increased limitation on the deduction for interest expense. Although the Company continues to analyze the impact of these new provisions, it does not currently believe these items will have a material impact on the Company's financial results, financial position, liquidity or cash flows in 2025.

Segment Results

Surfactants

Surfactant net sales for the first nine months of 2025 increased $110.8 million, or 10 percent, versus net sales for the first nine months of 2024. Higher average selling prices favorably impacted the change in net sales by $129.4 million. The higher average selling prices were mainly attributable to the pass through of higher raw material costs and a more favorable product mix. Sales volume was relatively flat year-over-year and negatively impacted the change in net sales by $0.5 million. Foreign currency translation had an $18.1 million unfavorable impact on the year-over-year change in net sales. A comparison of net sales by region follows:

Net sales for North American operations increased $51.5 million, or eight percent, year-over-year. Higher average selling prices had a $41.2 million favorable impact on the change in net sales and were primarily due to the pass-through of higher raw material costs and more favorable product mix. Sales volume increased two percent and positively impacted the change in net sales by $11.2 million. The higher sales volume was primarily due to higher demand for products sold into the agricultural and oilfield end markets and to our distribution partners. Lower demand for products sold into the consumer products end markets partially offset the above. Foreign currency translation negatively impacted the change in net sales by $0.9 million.

Net sales for European operations increased $30.0 million, or 15 percent, primarily due to higher average selling prices, which had a $26.9 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 year-over-year change in net sales by $2.8 million. Higher demand for products sold into the agricultural and oil field end markets was largely offset by lower demand for the products sold into the commodity laundry and cleaning end markets. Foreign currency translation favorably impacted the change in net sales by $5.9 million. A weaker U.S. dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect.

Net sales for Latin American operations increased $25.7 million, or 10 percent, primarily due to higher average selling prices that positively impacted the change in net sales by $56.1 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 $7.4 million. The decrease in sales volume was primarily due to lower demand for products sold into the commodity laundry and cleaning end markets that was partially offset by higher demand for products sold into the agricultural, industrial cleaning and personal care end markets. A stronger U.S. dollar relative to all currencies within the region led to a $23.0 million unfavorable foreign currency translation effect.

Net sales for Asian operations increased $3.7 million, or nine percent, year-over-year. Higher average selling prices and a five percent increase in sales volume positively impacted the change in net sales by $1.9 million and $1.8 million, respectively. The higher sales volume primarily reflects higher demand for products sold to our distribution partners.

Surfactant operating income for the first nine months of 2025 decreased $11.4 million, or 16 percent, versus operating income for the first nine months of 2024. Gross profit decreased $6.4 million, or five percent, and operating expenses increased $5.0 million, or seven percent. Comparisons of gross profit by region and total segment operating expenses and operating income follow:

Gross profit for North American operations decreased $11.9 million, or 15 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 $13.2 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 two percent increase in sales volume positively impacted the year-over-year change in gross profit by $1.3 million.

Gross profit for European operations increased $3.0 million, or 13 percent, primarily due to higher average unit margins that had a $2.7 million favorable impact on the year-over-year change in gross profit. The higher average unit margins primarily reflect a more favorable product mix. Foreign currency translation favorably impacted the year-over-year change in gross profit by $0.6 million. 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 $1.8 million, or six percent, due to higher average unit margins. The higher average unit margins positively impacted the year-over-year change in gross profit by $5.9 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 $3.1 million, respectively. A stronger U.S. dollar relative to all currencies within the region led to the foreign currency translation effect.

Gross profit for Asia operations increased $0.8 million year-over-year due to higher average unit margins and a five percent increase in sales volume. These items positively impacted the year-over-year change in gross profit by $0.4 million each.

Operating expenses for the Surfactant segment increased $5.0 million, or seven percent, in the first nine months of 2025 versus the first nine months of 2024. The increase was largely due to higher salaries, higher bad debt provision expense and a USEPA penalty, associated with certain of the Company's biocide products sold by a licensed distributor, recognized in the second quarter of 2025.

Polymers

Polymers net sales for the first nine months of 2025 decreased $2.3 million versus net sales for the same period of 2024. An eight percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the change in net sales by $34.2 million and $6.2 million, respectively. Lower average selling prices negatively impacted the year-over-year change in net sales by $42.7 million. A comparison of net sales by region follows:

Net sales for North American operations increased $16.2 million, or seven percent, primarily due to a 17 percent increase in sales volume that positively impacted the year-over-year change in net sales by $39.1 million. Sales volume of polyols used in rigid foam applications increased five percent year-over-year. Sales volume of commodity phthalic anhydride grew more than double digits primarily due to the market exit of a competitor and the non-recurrence of operational issues at the Millsdale site during 2024. Specialty Polyols sales volume declined seven percent year-over-year. Lower average selling prices negatively impacted the year-over-year

change in net sales by $22.9 million. The lower average selling prices primarily reflect the pass-through of lower raw material costs and less favorable product mix.

Net sales for European operations decreased $16.6 million, or nine percent, year-over-year. This decrease was mainly due to lower average selling prices that negatively impacted the year-over-year change in net sales by $23.2 million. The lower average selling prices were primarily due to the pass-through of lower raw material costs and increased competitive activity. Foreign currency translation positively impacted the change in net sales by $6.4 million. Sales volume increased by less than one percent and favorably impacted the change in net sales by $0.2 million.

Net sales for Asia and Other operations decreased $1.8 million, or five percent, due to a three percent decrease in sales volume, lower average selling prices and the unfavorable impact of the foreign currency translation. These items negatively impacted the year-over-year change in net sales by $0.9 million, $0.7 million and $0.2 million, respectively. The lower sales volume reflects lower demand for polyols used in rigid foam applications that was partially offset by a higher demand for specialty polyols resulting from the Company's product diversification efforts.

Polymer operating income in the first nine months of 2025 increased $2.1 million, or six percent, versus operating income in the first nine months of 2024. Gross profit increased $3.3 million, or six percent and operating expenses increased $1.2 million or six percent year-over-year. Comparisons of gross profit by region and total segment operating expenses and operating income follow:

Gross profit for North American operations increased $3.5 million, or 13 percent, year-over-year. The 17 percent increase in sales volume positively impacted the year-over-year change in gross profit by $4.7 million. Lower average unit margins negatively impacted the year-over-year change in gross profit by $1.2 million.

Gross profit for European operations decreased $1.5 million, or six percent, versus the first nine months of 2024. This decrease was primarily due to lower average unit margins that negatively impacted the year-over-year change in gross profit by $2.3 million. Foreign currency translation positively impacted the change in gross profit by $0.8 million.

Gross profit for Asia and Other operations increased $1.3 million, or 24 percent, primarily due to higher average unit margins that positively impacted the change in gross profit by $1.5 million. The higher average unit margins reflect more favorable product mix resulting from the Company's diversification efforts. A three percent decrease in sales volume and the unfavorable impact of foreign currency translation negatively impacted the year-over-year change in gross profit by a $0.1 million each.

Operating expenses for the Polymer segment increased $1.2 million, or six percent, year-over-year.

Specialty Products

Specialty Products net sales for the first nine months of 2025 increased $15.0 million, or 32 percent, versus net sales for the first nine months of 2024. The increase was primarily due to higher average selling prices and a 14 percent increase in sales volume. Gross profit and operating income increased $5.4 million and $5.1 million, respectively, year-over-year. The increase in gross profit and operating income was primarily due to order timing differences within the pharmaceutical business.

Corporate Expenses

Corporate expenses, which include deferred compensation and other operating expenses that are not allocated to the reportable segments, decreased $9.6 million, or 16 percent, year-over-year. Corporate expenses were $49.6 million in the first nine months of 2025 versus $59.2 million in the first nine months of 2024. This decrease was primarily due to the non-recurrence of a $6.8 million expense, related to a criminal social engineering fraud scheme, recognized in 2024. In addition, deferred compensation and environmental reserve expenses were down $1.1 million and $1.2 million, respectively, year-over-year.

The $1.1 million decrease in deferred compensation expense primarily reflects a smaller increase in the market value of mutual fund investment assets during the first nine months of 2025 versus the prior year.

The following table presents the period-end Company common stock market prices used in the computation of deferred compensation income/expense for the nine months ended September 30, 2025 and 2024:

LIQUIDITY AND CAPITAL RESOURCES

Overview

For the nine months ended September 30, 2025, operating activities were a cash source of $87.9 million versus a cash source of $93.8 million for the comparable period in 2024. For the first nine months of 2025, investing cash outflows totaled $81.0 million versus cash outflows of $80.7 million in the prior year period. Financing activities were a cash source of $2.3 million versus a cash source of $6.9 million in the prior year period.

Cash and cash equivalents increased $18.9 million compared to December 31, 2024, inclusive of a $9.7 million favorable foreign exchange rate impact. On September 30, 2025, the Company's cash and cash equivalents totaled $118.5 million. Cash in U.S. money market funds, which were rated AAAm by Standard and Poor's, and Aaa-mf by Moody's, totaled $0.1 million and cash in U.S. demand deposit accounts totaled $1.8 million. The Company's non-U.S. subsidiaries held $116.6 million of cash and cash equivalents as of September 30, 2025.

Operating Activities

Net income during the first nine months of 2025 decreased $5.1 million versus the comparable period in 2024. Working capital was a cash use of $51.0 million during the first nine months of 2025 versus a cash use of $39.2 million in the comparable period in 2024.

Accounts receivable were a cash use of $25.3 million during the first nine months of 2025 compared to a cash use of $21.7 million for the comparable period in 2024. Inventories were a cash use of $24.8 million in 2025 versus a cash use of $39.0 million in 2024. Accounts payable and accrued liabilities were a cash source of $6.5 million in 2025 compared to a cash source of $27.5 million for the same period in 2024.

Working capital requirements were higher in the first nine months of 2025 compared to 2024 primarily due to the changes noted above. The change in accounts receivable working capital primarily reflects higher sales volume and higher selling prices due to the pass through of higher raw material costs. The change in inventories primarily reflects the Company's efforts to reduce inventory levels, inclusive of safety stock built in advance of a new collective bargaining agreement that was ratified at the Millsdale, Illinois plant site during the third quarter of 2025. The change in accounts payable and accrued liabilities reflects lower cash outlays in 2024 due to lower incentive-based compensation, tax and other year-end obligations related to lower 2023 earnings. It is management's opinion that the Company's liquidity is sufficient to provide for potential increases in working capital requirements during 2025.

Investing Activities

Cash used for investing activities increased $0.3 million year-over-year. Cash used for capital expenditures was $87.9 million in the first nine months of 2025 versus $86.6 million in the same period of 2024.

For 2025, the Company estimates that total capital expenditures will be in the range of $118.0 million to $123.0 million.

Financing Activities

Cash flow from financing activities was a source of $2.3 million in 2025 versus a source of $6.9 million in 2024. The year-over-year change was primarily due to the higher level of borrowing against the Company's revolving credit facility during the first nine months of 2024 versus the issuance of $75.0 million of senior unsecured notes in the first nine months of 2025.

The Company purchases shares of its common stock in the open market or from its benefit plans from time to time to fund its own benefit plans and to mitigate the dilutive effect of new shares issued under its compensation plans. The Company may, from time to time, seek to purchase additional amounts of its outstanding equity and/or retire debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise, including pursuant to plans meeting the requirements of Rule 10b5-1 promulgated by the SEC. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. The Company did not purchase any shares of its common stock on the open market during the nine months ended September 30, 2025 and 2024. At September 30, 2025, the Company had $125.1 million remaining under the share repurchase program authorized by its Board of Directors.

Debt and Credit Facilities

Consolidated balance sheet debt increased $30.1 million, from $625.4 million on December 31, 2024 to $655.5 million on September 30, 2025, primarily due to the issuance of $75.0 million of senior unsecured notes during the second quarter of 2025, partially offset by scheduled debt repayments. 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 $537.0 million on September 30, 2025 versus $525.7 million at December 31, 2024. As of September 30, 2025, the ratio of net debt to net debt plus shareholders' equity was 30.1 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 September 30, 2025, the Company's debt included $338.3 million of unsecured notes, with maturities ranging from 2025 through 2033, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements, an $85.6 million delayed-draw term loan borrowed pursuant to the Company's credit agreement, $229.1 million of short-term loans borrowed under the Company's revolving credit facility and $2.5 million of foreign credit line borrowings. As of September 30, 2025, the Company had outstanding letters of credit of $13.2 million, inclusive of $4.6 million issued under the Company's revolving credit facility. The proceeds from the note issuances have been the Company's primary source of long-term debt financing and are supplemented by borrowings under bank credit facilities to meet short and medium-term liquidity needs.

The Company's credit agreement (the Credit Agreement) with a syndicate of banks provides for credit facilities in an initial aggregate principal amount of $450.0 million, consisting of (a) a $350.0 million multi-currency revolving credit facility and (b) a $100.0 million delayed draw term loan credit facility ($14.4 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 September 30, 2025, the Company had outstanding letters of credit totaling $8.7 million under the CIC Credit Agreement. The Company also maintains import and export letters of credit and standby letters of credit under its workers' compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the Credit Agreement. These outstanding letters of credit totaled $4.6 million at September 30, 2025.

The Company anticipates that cash from operations, committed credit facilities and cash on hand will be sufficient to fund anticipated capital expenditures, working capital, dividends and other planned financial commitments for the foreseeable future.

Certain foreign subsidiaries of the Company maintain short-term bank lines of credit in their respective local currencies to meet working capital requirements as well as to fund capital expenditures and acquisitions. At September 30, 2025, the Company's foreign subsidiaries had $2.5 million of outstanding debt.

The Company is subject to covenants under its material debt agreements that require the maintenance of minimum interest coverage and minimum net worth. These debt covenants also limit the incurrence of additional debt as well as the payment of dividends and repurchase of shares. Under the most restrictive of these debt covenants:

The Company believes it was in compliance with the covenants under its material debt agreements as of September 30, 2025.

ENVIRONMENTAL AND LEGAL MATTERS

The Company's operations are subject to extensive federal, state and local environmental laws and regulations and similar laws in the other countries in which the Company does business. Although the Company's environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent environmental regulation may require the Company to make additional unforeseen environmental expenditures. The Company will continue to invest in the equipment and facilities necessary to comply with existing and future regulations. During the first nine months of 2025 and 2024, the Company's expenditures for capital projects related to environmental matters were $7.2 million and $7.0 million, respectively. These projects are capitalized and depreciated over their estimated useful lives, which are typically 10 years. Recurring costs associated with the operation and maintenance of facilities for waste treatment, waste disposal and managing environmental compliance in ongoing operations at the Company's manufacturing locations were $32.8 million and $40.0 million for the nine months ended September 30, 2025 and 2024, respectively.

Over the years, the Company has received requests for information related to or has been named by the government as a potentially responsible party at a number of waste disposal sites where cleanup costs have been or may be incurred under CERCLA and similar state or foreign statutes. In addition, the Company is from time to time involved in routine legal proceedings incidental to the conduct of its business, including personal injury, property damage, tax, trade and labor matters. The Company believes that it has made adequate provisions for the costs it is likely to incur with respect to these claims. It is the Company's accounting policy to record liabilities when environmental assessments, remediation expenses or legal proceeding losses are probable, and the cost or range of possible costs can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the minimum is accrued. Estimating the possible costs of environmental remediation requires making assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. Some of the factors on which the Company bases its estimates include information provided by decisions rendered by State and Federal environmental regulatory agencies, information provided by feasibility studies, and remedial action plans developed. After partial remediation payments at certain sites, the Company has estimated a range of possible environmental and legal losses of $19.4 million to $44.7 million at September 30, 2025 and $20.0 million to $44.5 million at December 31, 2024. Within the range of possible environmental and legal losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the range and, thus, has accrued at the lower end of the range. In the second quarter of 2025, the Company accrued an additional $1.8 million for remediation expenses at the Company's Elwood, Illinois (Millsdale) facility due to a change in the scope of planned remediation activities. The Company's environmental and legal accruals totaled $19.4 million at September 30, 2025 and $20.0 million at December 31, 2024. Because the liabilities accrued are estimates, actual amounts could differ materially from the amounts recorded. Cash expenditures related to environmental remediation and certain other legal matters approximated $4.0 million for the nine months ended September 30, 2025, compared to $2.2 million for the same period in 2024.

For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company's stated positions. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company's share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company's financial position, cash flows and results of operations. Based on the Company's present knowledge with respect to its involvement at these sites, the possibility of other viable entities' responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the aggregate, will not have a material effect on the Company's financial position. Certain of these matters are discussed in Item 1, Part 2, of the Company's Annual Report on Form 10-K, Legal Proceedings, in this report and in other filings of the Company with the SEC, which are available upon request from the Company. See also Note 8, Contingencies, in the notes to the Company's condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for a summary of the significant environmental proceedings related to certain sites.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to the critical accounting policies disclosed in the Company's 2024 Annual Report on Form 10-K.

NON-GAAP RECONCILIATIONS

The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company's performance and financial condition. Internally, the Company uses this non-GAAP information as an indicator of business performance and evaluates management's effectiveness with specific reference to these indicators. Management uses these non-GAAP financial measures to assist in analyzing what management views as the Company's core operating performance for purposes of business decision making. Management believes that presenting these non-GAAP financial measures provides investors with useful supplemental information because they (i) provide meaningful supplemental information regarding financial performance by excluding items affecting comparability between periods, (ii) permit investors to view performance using the same tools that management uses to budget, make operating and strategic decisions and evaluate the Company's core operating performance across periods, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating the Company's financial results. In addition, the Company believes that the presentation of these non-GAAP financial measures, when considered together with the most directly comparable GAAP financial measures and the reconciliations to those GAAP financial measures, provides investors with additional tools to understand the factors and trends affecting the Company's underlying business than could be obtained absent these disclosures. These measures should be considered in addition to, not as substitutes for or superior to, measures of financial performance prepared in accordance with GAAP and there are limitations to using non-GAAP financial measures. For example, the non-GAAP financial measures presented in this Form 10-Q may differ from similarly titled non-GAAP financial measures presented by other companies and other companies may not define these non-GAAP financial measures the same way as the Company does.

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.

Reconciliations of Non-GAAP EBITDA and Adjusted EBITDA

Management uses the non-GAAP EBITDA and adjusted EBITDA metric to evaluate the Company's operating performance. Management excludes the items listed in the table below because they are non-operational items. Refer to the Company's Condensed Consolidated Statements of Income for a bridge between Operating Income and Net Income.

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.