STEPAN CO 10-K

Item 8. Financial Statements and Supplementary Data The following statements and data are included in this item: Report of Independent Registered Public Accounting Firm 43 Consolidated Statements of Income (For years ended December 31, 2020, 2019 and 2018) 45 Consolidated Statements of Comprehensive Income (For years ended December 31, 2020, 2019 and 2018) 46 Consolidated Balance Sheets (December 31, 2020 and 2019) 47 Consolidated Statements of Cash Flow (For years ended December 31, 2020, 2019 and 2018) 48 Consolidated Statements of Stockholders’ Equity (For years ended December 31, 2020, 2019 and 2018) 49 Notes to Consolidated Financial Statements 52 42 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of: Stepan Company Northfield, Illinois Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Stepan Company and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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, 2021 expressed an unqualified opinion on the Company’s internal control over financial reporting. Changes in Accounting Principles As discussed in Note 7 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended December 31, 2019, due to the adoption of ASU No. 2016-02, Leases (Topic 842), using the modified retrospective method. 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. Contingencies — Refer to Note 16 to the Financial Statements Critical Audit Matter Description The Company is involved in several property sites where the Company may be exposed to liabilities for the remediation of environmental contamination. Environmental loss contingencies are evaluated based on the likelihood of the Company incurring a liability and whether a loss or range of losses is reasonably estimable. The likelihood and amount of a loss or range of losses are estimated based on currently available information and assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. Past estimates for environmental liabilities are subject to adjustment as new facts emerge during the investigatory and remediation processes. 43 Given the subjectivity of estimating the likelihood of a loss, the range of potential loss, and the amount of liability to recognize, performing audit procedures to evaluate whether environmental loss contingencies were appropriately recorded and disclosed as of December 31, 2020, required especially challenging, subjective and complex auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the environmental loss contingencies included the following, among others: • We tested the effectiveness of internal controls related to the Company’s development of the estimated environmental loss contingencies, including the assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. • We inquired of Company legal counsel and external legal counsel to understand developments in environmental matters. • We evaluated written responses received from external legal counsel as it relates to the environmental loss contingencies. • We inquired of the Company’s third-party environmental specialists to understand developments in environmental matters. • We searched data on the U.S. Environmental Protection Agency website to identify any additional information relevant to the specific property sites. • We read Board of Directors meeting minutes to identify any additional information relevant to the specific property sites. • We evaluated whether the assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation used by the Company to determine the estimated losses or ranges of losses were reasonable by comparing those assumptions to decisions rendered by state and Federal environmental regulatory agencies, information provided by feasibility studies and remedial action plans developed. • If the Company’s reasonable estimate of loss for a remediation site is a range, we evaluated whether the amount of the liability recognized by the Company within that range was reasonable based on the facts and circumstances specific to the remediation site. • We evaluated the Company’s environmental contingencies disclosures for consistency with our knowledge of the Company’s environmental matters. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Chicago, Illinois February 26, 2021 We have served as the Company’s auditor since 2002. 44 Stepan Company Consolidated Statements of Income For the years ended December 31, 2020, 2019 and 2018 (In thousands, except per share amounts) 2020 2019 2018 Net Sales (Note 1) $ 1,869,750 $ 1,858,745 $ 1,993,857 Cost of Sales 1,486,137 1,519,031 1,654,508 Gross Profit 383,613 339,714 339,349 Operating Expenses: Selling (Note 1) 55,543 56,956 56,319 Administrative (Note 1) 87,362 82,577 79,243 Research, development and technical services (Note 1) 57,986 55,037 54,263 Deferred compensation expense (income) 9,988 15,140 ( 2,329 ) 210,879 209,710 187,496 Business restructuring expenses (Note 22) ( 1,212 ) ( 2,744 ) ( 2,588 ) Operating Income 171,522 127,260 149,265 Other Income (Expense): Interest, net (Note 6) ( 5,409 ) ( 5,932 ) ( 10,771 ) Other, net (Note 8) 4,954 4,571 ( 725 ) ( 455 ) ( 1,361 ) ( 11,496 ) Income Before Provision for Income Taxes 171,067 125,899 137,769 Provision for Income Taxes (Note 9) \ 43,411 22,798 26,664 Net Income 127,656 103,101 111,105 Net (Gain) Loss Attributable to Noncontrolling Interest (Note 1) ( 886 ) 28 12 Net Income Attributable to Stepan Company $ 126,770 $ 103,129 $ 111,117 Net Income Per Common Share Attributable to Stepan Company (Note 18): Basic $ 5.52 $ 4.47 $ 4.83 Diluted $ 5.45 $ 4.42 $ 4.76 Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 18): Basic 22,949 23,054 23,022 Diluted 23,256 23,316 23,325 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 45 Stepan Company Consolidated Statements of Comprehensive Income For the years ended December 31, 2020, 2019 and 2018 (In thousands) 2020 2019 2018 Net Income $ 127,656 $ 103,101 $ 111,105 Other Comprehensive Income: Foreign currency translation adjustments (Note 19) ( 2,973 ) 4,425 ( 37,966 ) Defined benefit pension plans: Net actuarial gain (loss) arising in period (net of tax benefit of $ 265 , tax expense of $ 1,263 and tax benefit of $ 2,300 for 2020, 2019 and 2018, respectively) ( 996 ) 4,112 ( 7,080 ) Amortization of prior service cost included in pension expense (net of taxes of $ 3 , $ 3 and $ 3 for 2020, 2019 and 2018, respectively) 8 9 10 Amortization of actuarial loss included in pension expense (net of taxes of $ 1,089 , $ 657 and $ 979 for 2020, 2019 and 2018, respectively) 3,332 2,082 3,080 Net defined benefit pension plan activity (Note 19) 2,344 6,203 ( 3,990 ) Cash flow hedges: Reclassifications to income in period ( 9 ) ( 9 ) ( 10 ) Net cash flow hedge activity (Note 19) ( 9 ) ( 9 ) ( 10 ) Other Comprehensive Income ( 638 ) 10,619 ( 41,966 ) Comprehensive Income 127,018 113,720 69,139 Comprehensive Income Attributable to Noncontrolling Interest ( 959 ) 47 58 Comprehensive Income Attributable to Stepan Company $ 126,059 $ 113,767 $ 69,197 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 46 Stepan Company Consolidated Balance Sheets December 31, 2020 and 2019 (Dollars in thousands) 2020 2019 Assets Current Assets: Cash and cash equivalents $ 349,938 $ 315,383 Receivables, less allowances of $ 10,133 in 2020 and $ 9,325 in 2019 301,318 276,841 Inventories (Note 5) 218,783 203,647 Other current assets 35,612 22,918 Total current assets 905,651 818,789 Property, Plant and Equipment: Land 27,135 27,258 Buildings and improvements 248,234 223,793 Machinery and equipment 1,476,675 1,415,802 Construction in progress 120,606 95,282 1,872,650 1,762,135 Less: Accumulated depreciation ( 1,189,983 ) ( 1,122,818 ) Property, plant and equipment, net 682,667 639,317 Goodwill, net (Note 4) 27,972 26,086 Other intangible assets, net (Note 4) 24,068 15,352 Long-term investments (Note 2) 30,652 28,227 Operating lease assets (Note 7) 62,421 38,386 Other non-current assets 18,905 13,210 Total Assets $ 1,752,336 $ 1,579,367 Liabilities and Equity Current Liabilities: Current maturities of long-term debt (Note 6) $ 37,857 $ 23,571 Accounts payable 236,750 194,276 Accrued liabilities (Note 14) 141,947 121,267 Total current liabilities 416,554 339,114 Deferred income taxes (Note 9) 20,745 23,391 Long-term debt, less current maturities (Note 6) 160,812 198,532 Non-current operating lease liability (Note 7) 51,567 29,654 Other non-current liabilities (Note 15) 114,293 96,180 Commitments and Contingencies (Note 16) Equity (Note 10): Common stock, $ 1 par value; authorized 60,000,000 shares; issued 26,658,032 shares in 2020 and 26,493,335 shares in 2019 26,658 26,493 Additional paid-in capital 206,716 193,135 Accumulated other comprehensive loss (Note 19) ( 136,881 ) ( 136,170 ) Retained earnings 1,023,829 922,464 Less: Common treasury stock, at cost, 4,185,242 shares in 2020 and 3,979,735 shares in 2019 ( 133,629 ) ( 114,139 ) Total Stepan Company stockholders’ equity 986,693 891,783 Noncontrolling interest 1,672 713 Total equity 988,365 892,496 Total Liabilities and Equity $ 1,752,336 $ 1,579,367 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 47 Stepan Company Consolidated Statements of Cash Flows For the years ended December 31, 2020, 2019 and 2018 (In thousands) 2020 2019 2018 Cash Flows From Operating Activities Net income $ 127,656 $ 103,101 $ 111,105 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 81,860 78,701 81,115 Deferred compensation 9,988 15,140 ( 2,329 ) Realized and unrealized gain on long-term investments ( 3,143 ) ( 3,955 ) 2,966 Stock-based compensation 10,080 8,872 6,837 Deferred income taxes ( 4,506 ) ( 5,016 ) 10,355 Other non-cash items 3,068 2,240 4,622 Changes in assets and liabilities, excluding effects of acquisitions: Receivables, net ( 23,417 ) 4,894 5,196 Inventories ( 15,358 ) 28,460 ( 24,678 ) Other current assets ( 13,927 ) ( 680 ) 832 Accounts payable and accrued liabilities 55,739 ( 15,084 ) ( 19,023 ) Pension liabilities ( 612 ) ( 790 ) ( 5,065 ) Environmental and legal liabilities ( 3,021 ) 2,519 ( 478 ) Deferred revenues 10,809 26 ( 324 ) Net Cash Provided By Operating Activities 235,216 218,428 171,131 Cash Flows From Investing Activities Expenditures for property, plant and equipment ( 125,792 ) ( 105,572 ) ( 86,647 ) Asset acquisition (Note 20) ( 2,040 ) — — Business acquisitions, net of cash acquired (Note 20) ( 13,519 ) ( 9,000 ) ( 22,852 ) Other, net 2,317 1,905 1,684 Net Cash Used In Investing Activities ( 139,034 ) ( 112,667 ) ( 107,815 ) Cash Flows From Financing Activities Revolving debt and bank overdrafts, net — ( 7,495 ) 6,045 Other debt repayments ( 23,571 ) ( 46,429 ) ( 20,714 ) Dividends paid ( 25,405 ) ( 23,097 ) ( 20,857 ) Company stock repurchased ( 15,253 ) ( 13,184 ) ( 15,500 ) Stock option exercises 2,926 3,037 4,163 Other, net ( 3,631 ) ( 3,326 ) ( 4,785 ) Net Cash Used In Financing Activities ( 64,934 ) ( 90,494 ) ( 51,648 ) Effect of Exchange Rate Changes on Cash 3,307 ( 78 ) ( 10,368 ) Net Increase in Cash and Cash Equivalents 34,555 15,189 1,300 Cash and Cash Equivalents at Beginning of Year 315,383 300,194 298,894 Cash and Cash Equivalents at End of Year $ 349,938 $ 315,383 $ 300,194 Supplemental Cash Flow Information Cash payments of income taxes, net of refunds $ 39,017 $ 29,331 $ 32,973 Cash payments of interest $ 9,329 $ 12,250 $ 12,829 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 48 Stepan Company Consolidated Statements of Equity For the year ended December 31, 2018 STEPAN COMPANY STOCKHOLDERS (In thousands, except share and per share amounts) Total Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Balance, December 31, 2017 766,218 $ 26,071 $ 170,408 $ ( 78,561 ) $ ( 99,563 ) $ 747,045 $ 818 Issuance of 97,471 shares of common stock under stock option plan 4,163 97 4,066 — — — — Purchase of 205,983 shares of common stock ( 15,500 ) — — ( 15,500 ) — — — Stock-based and deferred compensation 5,220 141 8,407 ( 3,328 ) — — — Net income 111,105 — — — — 111,117 ( 12 ) Other comprehensive income ( 41,966 ) — — — ( 41,920 ) — ( 46 ) Cash dividends paid: Common stock ($ 0.93 per share) ( 20,857 ) — — — — ( 20,857 ) — Other (1) ( 198 ) — — — — ( 198 ) — Balance, December 31, 2018 $ 808,185 $ 26,309 $ 182,881 $ ( 97,389 ) $ ( 141,483 ) $ 837,107 $ 760 (1) Reflects beginning retained earnings adjustment as a result of the Company’s first quarter 2018 adoption of ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 49 Stepan Company Consolidated Statements of Equity For the year ended December 31, 2019 STEPAN COMPANY STOCKHOLDERS (In thousands, except share and per share amounts) Total Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Balance, December 31, 2018 $ 808,185 $ 26,309 $ 182,881 $ ( 97,389 ) $ ( 141,483 ) $ 837,107 $ 760 Issuance of 59,799 shares of common stock under stock option plan 3,037 60 2,977 — — — — Purchase of 144,457 shares of common stock ( 13,184 ) — — ( 13,184 ) — — — Stock-based and deferred compensation 3,835 124 7,277 ( 3,566 ) — — — Net income 103,101 — — — — 103,129 ( 28 ) Other comprehensive income 10,619 — — — 10,638 — ( 19 ) Cash dividends paid: Common stock ($ 1.03 per share) ( 23,097 ) — — — — ( 23,097 ) — Other (1) — — — — ( 5,325 ) 5,325 — Balance, December 31, 2019 $ 892,496 $ 26,493 $ 193,135 $ ( 114,139 ) $ ( 136,170 ) $ 922,464 $ 713 (1) Reflects beginning retained earnings adjustment as a result of the Company’s first quarter 2019 adoption of ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 50 Stepan Company Consolidated Statements of Equity For the year ended December 31, 2020 STEPAN COMPANY STOCKHOLDERS (In thousands, except share and per share amounts) Total Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Balance, December 31, 2019 $ 892,496 $ 26,493 $ 193,135 $ ( 114,139 ) $ ( 136,170 ) $ 922,464 $ 713 Issuance of 48,389 shares of common stock under stock option plan 2,926 48 2,878 — — — — Purchase of 173,956 shares of common stock ( 15,253 ) — — ( 15,253 ) — — — Stock-based and deferred compensation 6,583 117 10,703 ( 4,237 ) — — — Net income 127,656 — — — — 126,770 886 Other comprehensive income ( 638 ) — — — ( 711 ) — 73 Cash dividends paid: Common stock ($ 1.13 per share) ( 25,405 ) — — — — ( 25,405 ) — Balance, December 31, 2020 $ 988,365 $ 26,658 $ 206,716 $ ( 133,629 ) $ ( 136,881 ) $ 1,023,829 $ 1,672 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 51 Notes to Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 1. Summary of Significant Accounting Policies Nature of Operations Stepan Company (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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported 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 and majority-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. The Company has an 80 percent ownership interest in the Nanjing Stepan Jinling Chemical Limited Liability Company (a joint venture) and exercises controlling influence over the entity. Therefore, Nanjing Stepan Jinling Chemical Limited Liability Company’s accounts are included in the Company’s consolidated financial statements. The partner’s interest in the joint venture’s net income is reported in the net income attributable to noncontrolling interests line of the consolidated statements of income. The partner’s interest in the net assets of the joint venture is reported in the noncontrolling interests line (a component of equity separate from Company equity) of the consolidated balance sheets. Cash and Cash Equivalents The Company considers all highly liquid investments with purchased maturities of three months or less to be cash equivalents. At December 31, 2020, the Company’s cash and cash equivalents totaled $ 349.9 million including $ 123.7 million in money market funds, each of which was rated AAAm by Standard and Poor’s, Aaa-mf by Moody’s and AAAmmf by Fitch. Cash in U.S. demand deposit accounts totaled $ 76.1 million and cash of the Company’s non-U.S. subsidiaries held outside the U.S. totaled $ 150.1 million as of December 31, 2020. 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 nontrade 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 2020, 2019 or 2018. 52 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, existing 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 pressures or uncertainty due to domestic or global economic recessions, disruptions due to COVID-19, 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 adoption of ASU No. 2016-13 has not had a material impact on the Company’s allowances for potential credit losses. The following is an analysis of the allowance for doubtful accounts and other accounts receivable allowances for the years ended December 31, 2020, 2019 and 2018: (In thousands) 2020 2019 2018 Balance at January 1 $ 9,325 $ 9,654 $ 10,116 Provision charged to income 864 29 764 Accounts written off, net of recoveries ( 56 ) ( 358 ) ( 1,226 ) Balance at December 31 $ 10,133 $ 9,325 $ 9,654 Inventories Inventories are valued at cost, which is not in excess of market value, and include material, labor and plant overhead costs. Currently, 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 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 15 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. 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 in the property accounts, while maintenance and repairs ($ 69,234,000 , $ 58,464,000 , and $ 57,010,000 in 2020, 2019 and 2018, 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. The Company adopted ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service contract in the first quarter of 2020. As a result, deferred implementation costs for hosted cloud computing service arrangements are now 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. 53 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), its outstanding debt for disclosure purposes (also Note 2) and its pension plan assets (see Note 13). The Company also applies the fair value measurement requirements to nonrecurring fair value measurements of 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 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 to the consolidated financial statements for more details. Cost of Sales Cost of sales comprises raw material costs (including inbound freight expense to deliver the raw materials), manufacturing plant labor expenses and various manufacturing overhead expenses, such as utility, maintenance, operating supply, 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 expense comprises salary and the 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 expense. Administrative expense comprises salary and the related fringe benefit expenses and operating costs for the Company’s various administrative functions, which include information services, finance, legal, and human resources. The majority of environmental remediation expenses are also classified as administrative expense. The Company’s research and development costs are expensed as incurred. These expenses are aimed at discovery and commercialization of new knowledge with the intent that such effort will be useful in developing a new product or in bringing about a significant improvement to an existing product or process. Total research and development expenses were $ 35,999,000 , $ 34,139,000 , and $ 33,519,000 in 2020, 2019 and 2018, respectively. The remainder of research, development and technical service expenses reflected on the consolidated statements of income relates to technical services, which include routine product testing, quality control and sales support service. Compensation expense or income related to the Company’s deferred compensation plans is presented in the deferred compensation expense (income) line in the Consolidated Statements of Income. For more details, see Note 12 to consolidated financial statements. 54 Environmental Expenditures Environmental expenditures that relate to current operations are expensed 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 for environmental contingencies). Goodwill and Other Intangible Assets The Company’s intangible assets include patents, agreements not to compete, trademarks, customer lists and relationships, technological and manufacturing know-how, supply contracts 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 – 10 - 15 years ; non-compete agreements – three - five years ; trademarks – five- 11 years; customer relationships – five - 20 years ; know-how – 5 - 20 years and supply contracts - four 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 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 bases 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 we believe 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 Statement of Operations. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheet. See Note 9 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 in the consolidated balance sheets in the accumulated other comprehensive loss line of stockholders’ equity. Gains or losses on foreign currency transactions are reflected in the other, net caption of the consolidated statements of income. The Company has three 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 55 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, stock awards (including performance-based stock awards) and SARs to certain employees under its incentive compensation plans. The Company calculates the fair values of stock options, stock awards and SARs on the date such instruments are granted. The fair values of the stock options and stock awards are then recognized as compensation expense over the vesting periods of the instruments. The Company’s SARs granted prior to 2015 are cash-settled, and SARs granted in 2015 and later are stock-settled. The cash-settled SARs are accounted for as liabilities that must be re-measured at fair value at the end of each reporting period. Compensation expense for each reporting period is calculated as the period-to-period change (or portion of the change, depending on the proportion of the vesting period that has been completed at the reporting date) in the fair value of the cash-settled SARs. Compensation expense for the stock-settled SARs is calculated in the same way as compensation expense for stock options. See Note 11 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 stock awards that have no performance or market condition and the issuance of contingent performance stock awards. See Note 18 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 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 to assess segment performance and allocate resources. The Company discloses segment revenue, operating income, assets, capital expenditures and depreciation and amortization expenses. Enterprise-wide financial information about the geographic locations in which the Company earns revenues and holds assets is also disclosed. See Note 17 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 for further information regarding the Company’s use of derivatives. At December 31, 2020, the Company held open forward contracts for the purchase of 0.9 million dekatherms of natural gas in 2021 at a cost of $ 2,046,000 . 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. 56 Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which amends the guidance on the measurement of the impairment of financial instruments. The new pronouncement replaces the existing model of measuring credit losses with an expected credit loss model referred to as “the Current Expected Credit Loss (CECL) model.” The new model is based on expected losses that should be measured based not only on historical experience but on the combination of historical data, current conditions and reasonable forecasts. Under this methodology, an entity recognizes as an allowance its estimate of lifetime expected credit losses and is required to apply the new credit loss model to most financial instruments held at amortized cost including trade receivables. The Company adopted ASU No. 2016-13 in the first quarter of 2020. The adoption of the guidance in ASU No. 2016-13 did not have a material effect on the Company’s financial position, results of operations or cash flows. In January 2017, the FASB issued ASU No. 2017-4, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which eliminates Step 2 from the goodwill impairment test. When an indication of impairment was identified after performing the first step of the goodwill impairment test, Step 2 required that an entity determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) using the same procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the amendments in ASU No. 2017-4, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value. An entity would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. In addition, an entity must consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Company adopted the amendments in ASU No. 2017-4 for its annual, or any interim, goodwill impairment tests in the first quarter of 2020. The adoption of the guidance in ASU No. 2017-4 has not had an effect on the Company’s financial position, results of operations or cash flows. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement . This update modifies some disclosure requirements related to fair value measurements used for different levels of instruments in fair value hierarchy (Level 1, Level 2 and Level 3). The amendments in the update are effective for fiscal years, and interim periods within fiscal years, beginning after December 15, 2019. The Company adopted ASU No. 2018-13 in the first quarter of 2020 and the adoption of this update did not have an effect on the Company’s financial position, results of operations, cash flows or the disclosures made for fair value measurements used by the Company. In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract . This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update requires the entity to determine which implementation costs to capitalize as an asset related to the service contact and which costs to expense over the term of the hosting contract. The Company adopted ASU N0 2018-15 prospectively in the first quarter of 2020. The adoption of ASU No. 2018-15 did not have a material impact on the Company’s financial position, results of operations and cash flows. In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20) . This update removes some disclosures that are no longer considered cost beneficial and adds some disclosures about defined benefit plans that have been identified as relevant. The amendments in this update are effective for fiscal years ending after December 15, 2020. The early adoption is permitted. The Company adopted ASU No. 2018-14 in 2020 and the adoption did not have an effect on the Company’s financial position, results of operations and cash flows, but impacted the disclosures made for the Company’s defined benefit retirement plans. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes . This update provides guidance to reduce complexity in certain areas of accounting for income taxes. The amendments in this update are effective for fiscal years beginning after December 15, 2020. The adoption of this update will not have a material effect on the Company’s financial position, results of operations and cash flows. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effect of Reference Rate Reform on Financial Reporting . This update provides optional guidance for a limited period of time to ease the burden of implementing the usage of new reference rates. The amendments apply to contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. If elected the optional expedients to contract modifications must be applied consistently for all eligible contracts or eligible transactions. The amendments in this update may be implemented between March 12, 2020 and December 31, 2022. The guidance should be applied prospectively. The guidance is effective beginning on March 12, 2020 through December 31, 2022. The Company has not utilized any of the optional expedients of exceptions available under this ASU. The Company will continue to assess whether this ASU is applicable throughout the effective period. 57 2. Fair Value Measurements The following were the financial instruments held by the Company at December 31, 2020 and 2019, 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. Derivative assets and liabilities Derivative assets and liabilities include the foreign currency exchange contracts discussed in Note 3. 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 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 included 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). 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 and therefore its 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 within Level 2 of the fair value hierarchy. At December 31, 2020 and 2019, 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 $ 617,000 , and $ 754,000 as of December 31, 2020 and 2019, respectively): (In thousands) December 31 2020 2019 Fair value $ 210,370 $ 226,712 Carrying value 199,286 222,857 58 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, 2020 and 2019, and the level within the fair value hierarchy in which the fair value measurement falls: (In thousands) December 2020 Level 1 Level 2 Level 3 Mutual fund assets $ 30,652 $ 30,652 $ — $ — Derivative assets: Foreign currency contracts 335 — 335 — Total assets at fair value $ 30,987 $ 30,652 $ 335 $ — Derivative liabilities: Foreign currency contracts $ 566 $ — $ 566 $ — (In thousands) December 2019 Level 1 Level 2 Level 3 Mutual fund assets $ 28,227 $ 28,227 $ — $ — Derivative assets: Foreign currency contracts 981 — 981 — Total assets at fair value $ 29,208 $ 28,227 $ 981 $ — Derivative liabilities: Foreign currency contracts $ 429 $ — $ 429 $ — 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, 2020 and 2019, 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 $ 48,335,689 and $ 48,540,368 , respectively. The fair values of the derivative instruments held by the Company on December 31, 2020, and December 31, 2019, are disclosed in Note 2. Derivative instrument gains and losses for the years ended December 31, 2020, 2019 and 2018, were immaterial. For amounts reclassified out of AOCI into earnings for the years ended December 31, 2020, 2019 and 2018, see Note 19. 59 4. Goodwill and Other Intangible Assets The changes in the carrying value of goodwill for the years ended December 31, 2020 and 2019, were as follows: (In thousands) Surfactants Segment Polymer Segment Specialty Products Segment Total 2020 2019 2020 2019 2020 2019 2020 2019 Balance as of January 1 Goodwill $ 23,664 $ 20,521 $ 5,406 $ 5,417 $ 483 $ 483 $ 29,553 $ 26,421 Accumulated impairment loss ( 3,467 ) ( 3,467 ) — — — — ( 3,467 ) ( 3,467 ) Goodwill, net 20,197 17,054 5,406 5,417 483 483 26,086 22,954 Goodwill acquired (1) 4,225 3,497 — — — — 4,225 3,497 Goodwill measurement period adjustment (1) ( 336 ) — — — — — ( 336 ) — Foreign currency translation ( 2,016 ) ( 354 ) 13 ( 11 ) — — ( 2,003 ) ( 365 ) Balance as of December 31 Goodwill 25,537 23,664 5,419 5,406 483 483 31,439 29,553 Accumulated impairment loss ( 3,467 ) ( 3,467 ) — — — — ( 3,467 ) ( 3,467 ) Goodwill, net $ 22,070 $ 20,197 $ 5,419 $ 5,406 $ 483 $ 483 $ 27,972 $ 26,086 (1) See Note 20 for information regarding the goodwill acquired in a business combination. The Company tests its goodwill balances for impairment in the second quarter of each calendar year. The 2020 and 2019 tests indicated no impairment. The following table presents the components of other intangible assets, all of which have finite lives, as of December 31, 2020 and 2019. The year-over-year changes in gross carrying values mainly resulted from acquisitions that took place in 2020 and the effects of foreign currency translation. (In thousands) Gross Carrying Value Accumulated Amortization December 31 December 31 2020 2019 2020 2019 Other Intangible Assets: Patents (2) $ 7,411 $ 6,947 $ 5,713 $ 5,091 Non-compete agreements (2) 623 374 270 242 Trademarks (2) 4,087 4,087 2,905 2,561 Customer lists/relationships (2) 21,424 14,539 6,842 5,983 Supply contract 1,579 2,040 1,579 1,657 Know-how (1)(2) 14,183 9,543 7,930 6,644 Total $ 49,307 $ 37,530 $ 25,239 $ 22,178 (1) Know-how includes intellectual property rights covering proprietary information, written formulae, trade secrets or secret processes, inventions and developmental products (whether patentable or not), discoveries, improvements, compositions, manufacturing processes, manuals, specifications and technical data (2) The 2020 balances include intangible assets acquired as part of the Company’s Clariant (Mexico) and Logos Technologies acquisitions in 2020. See Note 20 for additional details. Aggregate amortization expense for the years ended December 31, 2020, 2019 and 2018, was $ 3,621,000 , $ 3,399,000 , and $ 3,470,000 , respectively. Estimated amortization expense for identifiable intangibles assets for each of the five succeeding fiscal years is as follows: (In thousands) For year ended 12/31/21 $ 2,998 For year ended 12/31/22 2,374 For year ended 12/31/23 2,346 For year ended 12/31/24 2,061 For year ended 12/31/25 1,620 60 5. Inventories The composition of inventories was as follows: December 31 (In thousands) 2020 2019 Finished products $ 148,878 $ 139,785 Raw materials 69,905 63,862 Total inventories $ 218,783 $ 203,647 6. Debt Debt comprised the following at December 31, 2020 and 2019: (In thousands) Maturity Dates December 31, 2020 December 31, 2019 Unsecured private placement notes 3.95% (net of unamortized debt issuance cost of $ 273 and $ 316 for 2020 and 2019, respectively) 2021-2027 $ 99,727 $ 99,684 3.86% (net of unamortized debt issuance cost of $ 236 and $ 291 for 2020 and 2019, respectively) 2021-2025 71,193 85,423 4.86% (net of unamortized debt issuance cost of $ 108 and $ 147 for 2020 and 2019, respectively) 2021-2023 27,749 36,996 Total debt $ 198,669 $ 222,103 Less current maturities 37,857 23,571 Long-term debt $ 160,812 $ 198,532 The Company’s long-term debt financing is currently composed of unsecured private placement notes issued to insurance companies, totaling $ 199,286,000 as of December 31, 2020. These notes are denominated in U.S. dollars and have fixed interest rates ranging from 3.86 percent to 4.86 percent. The notes had original maturities of 12 years with mandatory amortization of principal beginning six years after issuance. The Company will be required to make amortization payments on the currently outstanding notes from 2021 to 2027. The Company has a committed $ 350,000,000 multi-currency revolving credit agreement that expires on January 30, 2023 . The Company maintains 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 revolving credit agreement. As of December 31, 2020, the Company had outstanding letters of credit totaling $ 6,220,000 and no borrowings under the revolving credit agreement. There was $ 343,780,000 available under the revolving credit agreement as of December 31, 2020. Loans under the credit agreement may be incurred, at the discretion of the Company, with terms to maturity of one to six months. The Company may choose from two interest rate options: (1) LIBOR applicable to each currency plus spreads ranging from 1.25 percent to 1.875 percent, depending on the Company’s net leverage ratio, or (2) the prime rate plus 0.25 percent to 0.875 percent, depending on the Company’s net leverage ratio. The credit agreement requires the Company to pay a commitment fee ranging from 0.15 percent to 0.325 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 and leverage financial covenants and limitations on restricted payments, indebtedness and liens. The Company’s foreign subsidiaries had no unsecured debt at December 31, 2020. The Company’s loan agreements contain provisions, which, among others, 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 $ 373,884,000 and $ 283,956,000 at December 31, 2020 and 2019, respectively. Debt at December 31, 2020, matures as follows: $ 37,857,000 in 2021; $ 37,857,000 in 2022; $ 37,857,000 in 2023; $ 28,572,000 in 2024; $ 28,572,000 in 2025 and $ 28,571,000 after 2025. Debt maturing in 2021 includes $ 37,857,000 of scheduled repayments under long-term debt agreements. Although the Company’s foreign subsidiaries currently have no short-term working capital loans, 61 these types of loans routinely exist . These short-term loan agreements could be supplemented, if necessary, by the Company’s $ 350,000,000 revolving credit agreement entered into on January 30, 2018. Net interest expense for the years ended December 31, 2020, 2019 and 2018, comprised the following: (In thousands) 2020 2019 2018 Interest expense $ 9,859 $ 12,744 $ 13,360 Interest income ( 2,171 ) ( 5,717 ) ( 1,829 ) 7,688 7,027 11,531 Capitalized interest ( 2,279 ) ( 1,095 ) ( 760 ) Interest expense, net $ 5,409 $ 5,932 $ 10,771 7. Leases The Company adopted ASU No. 2016-02, Leases (Topic 842) , on January 1, 2019. This new accounting standard requires a dual approach for lessee accounting whereby a lessee accounts for lease arrangements as either finance leases or operating leases. The lease classification affects the pattern of expense recognition in the income statement. The most significant impact of adopting ASU No. 2016-02, Leases (Topic 842) is that a lessee is now required to recognize a “right-of-use” (ROU) asset and corresponding lease liability for operating lease agreements. ROU assets represent a right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating leases are expensed on a straight-line basis over the life of the lease beginning on the date the Company takes possession of the property. The Company elected to apply the new lease standard at adoption (January 1, 2019) as allowed under ASU No. 2018-11 and, as a result, the Company did not retrospectively adjust prior periods presented. The Company elected the practical expedient to not separate non-lease components from lease components for all asset classes and the practical expedient which permits a Company to not reassess prior conclusions about lease identification, lease classifications and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. In addition, the Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. Upon adoption of ASC 842, the Company recognized $ 42,400,000 of ROU assets and related operating lease liabilities on its balance sheet. There was no cumulative catch-up adjustment made to beginning retained earnings. Significant judgments used by the Company to determine whether a contract is or contains a lease include: (i) determining whether any explicitly or implicitly identified assets have been identified in the contract and (ii) determining whether the Company obtains substantially all of the economic benefits from the use of an underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company’s operating leases are primarily comprised of railcars, real estate, storage tanks, autos, trailers and manufacturing/office equipment. Railcars and real estate comprise approximately 26 percent and 56 percent, respectively, of the Company’s consolidated 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 . The Company’s three principal real estate leases relate to the office lease for the new corporate headquarters in Northbrook, Illinois and land leases in the Philippines and Singapore. 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, the 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 98 percent of the Company’s consolidated ROU asset balance. The lease cost is included in Cost of sale and Operating expenses sections of the Consolidated Statements of Income. 62 (In thousands) Year ended December 31, 2020 Year ended December 31, 2019 Lease Cost Operating lease cost $ 11,821 $ 10,908 Short-term lease cost 4,922 4,420 Variable lease cost 1,135 1,045 Total lease cost $ 17,878 $ 16,373 Other Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow from operating leases $ 11,843 $ 10,954 Right-of-use assets obtained in exchange for new operating lease liabilities 27,766 5,694 (In thousands) Undiscounted Cash Flows: 2021 $ 12,704 2022 11,241 2023 9,204 2024 5,685 2025 4,094 Subsequent to 2025 32,452 Total Undiscounted Cash Flows $ 75,380 Less: Imputed interest ( 12,785 ) Present value $ 62,595 Current operating lease liabilities (1) 11,028 Non-current operating lease liabilities 51,567 Total lease liabilities $ 62,595 (1) This item is included in Accrued liabilities line on the Company’s Consolidated Balance Sheet. Weighted-average remaining lease term-operating leases 10 Years Weighted-average discount rate-operating leases 3.2 % 8. Other, Net Other, net in the Consolidated Statements of Income included the following for the years ended December 31, 2020, 2019 and 2018: (In thousands) 2020 2019 2018 Foreign exchange gains $ 1,367 $ 123 $ 1,902 Investment income 1,681 968 1,554 Realized and unrealized gains (losses) on investments 3,143 3,955 ( 2,966 ) Net periodic benefit cost ( 874 ) ( 351 ) ( 1,215 ) Gain on sale of asset — 570 — Other retirement obligation ( 363 ) ( 694 ) — Other, net $ 4,954 $ 4,571 $ ( 725 ) 63 9. Income Taxes The provisions for taxes on income and the related income before taxes for the years ended December 31, 2020, 2019 and 2018, were as follows: (In thousands) 2020 2019 2018 Taxes on Income Federal Current $ 21,889 $ 9,998 $ ( 296 ) Deferred ( 3,453 ) ( 2,879 ) 8,876 State Current 4,305 2,248 2,095 Deferred ( 562 ) ( 1,783 ) 1,821 Foreign Current 21,723 15,568 14,510 Deferred ( 491 ) ( 354 ) ( 342 ) Total $ 43,411 $ 22,798 $ 26,664 Income before Taxes Domestic $ 81,906 $ 63,399 $ 86,368 Foreign 89,161 62,500 51,401 Total $ 171,067 $ 125,899 $ 137,769 The variations between the effective and statutory U.S. federal income tax rates are summarized as follows: (In thousands) 2020 Amount % 2019 Amount % 2018 Amount % Federal income tax provision at statutory tax rate $ 35,924 21.0 $ 26,439 21.0 $ 28,931 21.0 State income tax provision, less applicable federal tax benefit (1) 2,956 1.7 367 0.3 3,094 2.2 Foreign income taxed at different rates 1,964 1.1 623 0.5 864 0.6 U.S. taxation of foreign earnings (2) 4,134 2.4 2,349 1.9 2,348 1.7 Unrecognized tax benefits 1,454 0.8 2,954 2.3 ( 460 ) ( 0.3 ) Nontaxable foreign interest income — — — — ( 1,179 ) ( 0.9 ) U.S. tax reform, net impact (3) — — — — ( 375 ) ( 0.3 ) Change in accounting methods (4) — — — — ( 3,383 ) ( 2.5 ) Prior years return to provision true-up ( 588 ) ( 0.3 ) ( 1,740 ) ( 1.4 ) ( 508 ) ( 0.4 ) Stock based compensation, excess tax benefits ( 1,816 ) ( 1.1 ) ( 1,633 ) ( 1.3 ) ( 1,648 ) ( 1.2 ) U.S. tax credits (5) ( 1,831 ) ( 1.1 ) ( 6,412 ) ( 5.1 ) ( 1,324 ) ( 1.0 ) Non-deductible expenses and other items, net 1,214 0.9 ( 149 ) ( 0.1 ) 304 0.5 Total income tax provision $ 43,411 25.4 $ 22,798 18.1 $ 26,664 19.4 (1) For 2019, amount includes incremental state research credits for the tax years 2015 - 2019 that were identified as part of a research and development tax credit study. (2) Includes cost of global intangible low-taxed income (GILTI) in 2020, 2019 and 2018 plus other taxes paid or withheld on cash repatriated from foreign countries in 2020, 2019 and 2018. (3) Does not include state tax impacts, which are included in state income tax provision, less applicable federal tax benefit. (4) For 2018, amount represents the federal tax rate change due to certain accounting methods that were adopted on the 2017 federal income tax return. 64 ( 5 ) For 2019, amount i ncludes incremental federal research credits for 2015 - 2019 that were identified as part of a research and development tax credit study. Also includes a federal tax rate change due to the classification of certain 2016 and 2017 depreciable fixed assets as deductible research costs . At December 31, 2020 and 2019, the tax effects of significant temporary differences representing deferred tax assets and liabilities were as follows: (In thousands) 2020 2019 Deferred Tax Liabilities: Depreciation $ ( 62,986 ) $ ( 59,574 ) Unrealized foreign exchange loss ( 2,444 ) ( 1,479 ) Amortization of intangibles ( 842 ) ( 835 ) Inventories ( 2,504 ) ( 5,855 ) Other ( 386 ) ( 307 ) $ ( 69,162 ) $ ( 68,050 ) Deferred Tax Assets: Pensions $ 4,935 $ 5,855 Deferred revenue 3,073 161 Other accruals and reserves 14,960 12,171 Legal and environmental accruals 7,055 7,758 Deferred compensation 16,222 15,816 Bad debt and rebate reserves 2,821 2,604 Non-U.S. subsidiaries net operating loss carryforwards 2,495 3,966 Tax credit carryforwards 4,713 5,200 $ 56,274 $ 53,531 Valuation Allowance $ ( 896 ) $ ( 2,994 ) Net Deferred Tax Liabilities $ ( 13,784 ) $ ( 17,513 ) Reconciliation to Consolidated Balance Sheet: Non-current deferred tax assets (in other non-current assets) 6,961 5,878 Non-current deferred tax liabilities ( 20,745 ) ( 23,391 ) Net Deferred Tax (Liabilities) Assets $ ( 13,784 ) $ ( 17,513 ) 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 anticipation of the INVISTA acquisition, the Company’s Philippines entities declared a cash dividend of approximately $ 20,700,000 to the U.S. parent in December 2020. The Company recorded $ 2,384,000 of additional income tax expense in 2020 as a result of the expected repatriation. The Company expects that the U.S. parent will receive the cash in 2021. The effect of the adjustment on the 2020 effective tax rate was an increase of approximately 1.4 percent. The Company evaluated its indefinite reinvestment assertion with regards to certain accumulated foreign earnings as of December 31, 2020. The Company does 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. The Company also does not consider the undistributed earnings of one of its Dutch subsidiaries, one of its Singapore subsidiaries, and one of its Chinese 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, 2020. 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 has non-U.S. tax loss carryforwards of $ 6,551,000 (pretax) as of December 31, 2020, and $ 12,031,000 as of December 31, 2019, that are available for use by the Company between 2021 and 2038. The Company has tax credit carryforwards of 65 $ 4,713,000 as of December 31, 2020, and $ 5,200,000 as of December 31, 2019 that are available for use by the Company between 202 1 and 2034. The Company has non-U.S. capital loss carryforwards of $ 633,000 as of December 31, 2020 , and $ 621,000 as of December 31, 2019. The Company’s capital loss carryforwards do not expire . As of December 31, 2020, and 2019, the Company had valuation allowances of $ 896,000 and $ 2,994,000 , respectively, which were attributable to deferred tax assets in Canada, China, 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, 2020, 2019 and 2018, unrecognized tax benefits totaled $ 4,735,000 , $ 3,273,000 and $ 168,000 , 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 $ 4,545,000 , $ 3,105,000 and $ 162,000 at December 31, 2020, 2019 and 2018, 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. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. In 2020, the Company recognized net interest and penalty expense of $ 31,000 compared to $ 19,000 of net interest and penalty expense in 2019 and $ 26,000 of net interest and penalty income in 2018. At December 31, 2020 the liability for interest and penalties was $ 80,000 compared to $ 49,000 at December 31, 2019. 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 2015. Some foreign jurisdictions and various U.S. states jurisdictions may be subject to examination back to 2013. During 2016, the Internal Revenue Service started its audit of the 2011 and 2012 tax years. As of December 31, 2019, these audits were officially settled. During 2018, the Company effectively settled these audits and reversed an unrecognized tax benefit of $ 1,526,000 that was offset with a corresponding reversal of $ 1,326,000 related to an income tax refund receivable for which the Company is no longer entitled to receive. Below are reconciliations of the January 1 and December 31 balances of unrecognized tax benefits for 2020, 2019 and 2018: (In thousands) 2020 2019 2018 Unrecognized tax benefits, opening balance $ 3,273 $ 168 $ 1,927 Gross increases – tax positions in prior period 190 2,760 29 Gross increases – current period tax positions 1,288 355 26 Foreign currency translation 15 7 1 Settlement — — ( 1,526 ) Lapse of statute of limitations ( 31 ) ( 17 ) ( 289 ) Unrecognized tax benefits, ending balance $ 4,735 $ 3,273 $ 168 10. Stockholders’ Equity At December 31, 2020 and 2019, treasury stock consisted of 4,185,242 shares and 3,979,735 shares of common stock, respectively. During 2020, 173,956 shares of Company common stock were purchased in the open market. In addition, 42,733 shares were received to settle employees’ minimum statutory withholding taxes related to performance stock awards, exercised SARs and deferred compensation distributions. Also, 11,182 shares of treasury stock were distributed to participants under the Company’s deferred compensation plan. 11. Stock-based Compensation On December 31, 2020, the Company had outstanding stock options, stock awards and SARs awarded under its 2011 Incentive Compensation Plan (2011 Plan). Stock options, stock awards and SARs are currently granted to Company executives and other key employees. In addition, stock awards are currently granted to non-employee directors of the Company. The 2011 Plan authorized the award of 2,600,000 shares of the Company’s common stock for stock options, SARs and stock awards. At December 31, 2020, there were 783,130 shares available for grant under the 2011 Plan. Compensation expense recorded in the consolidated statements of income for all plans was $ 10,080,000 , $ 8,872,000 , and $ 6,837,000 for the years ended December 31, 2020, 2019 and 2018, respectively. The increase in stock-based compensation in 2020 versus 2019 was primarily due to the increase in compensation expenses related to performance awards. Management’s assessment 66 that higher profitability performance targets for certain grants would be achieved led to the increase of compensation expenses for performance awards. Partially offsetting the increase was the decrease in compensation expenses related to cash SARs. The $ 16.88 per share increase in the market value of the Company common stock from $ 102.44 at December 31, 2019 to $ 119.32 at December 31, 2020 was smaller than the increase of $ 28.44 per share in the market value of the Company common stock from $ 74.00 at December 31, 2018 to $ 102.44 at December 31, 2019. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $ 2,390,000 , $ 1,501,000 , and $ 1,849,000 for the years ended December 31, 2020, 2019 and 2018, respectively. Stock Options Under all plans, 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 vest after two years . Starting in 2017, stock options 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 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 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 following are the weighted-average assumptions used to calculate the grant-date fair values of stock option awards granted in the years ended December 31, 2020, 2019 and 2018: For the Years Ended December 31 2020 2019 2018 Expected dividend yield 1.31 % 1.32 % 1.34 % Expected volatility 26.00 % 26.98 % 27.41 % Expected term 7.3 years 7.3 years 7.3 years Risk-free interest rate 1.47 % 2.53 % 2.88 % A summary of stock option activity for the year ended December 31, 2020 is presented below: Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value ($000) Options Outstanding at January 1, 2020 360,822 $ 66.15 Granted 81,924 102.06 Exercised ( 48,389 ) 60.47 Forfeited ( 1,807 ) 89.64 Outstanding at December 31, 2020 392,550 74.24 6.61 $ 17,697 Vested or expected to vest at December 31, 2020 385,352 73.76 6.56 17,555 Exercisable at December 31, 2020 310,302 67.88 6.03 15,962 The weighted-average grant-date fair values of options awarded during the years ended December 31, 2020, 2019 and 2018, were $ 25.90 , $ 26.49 , and $ 22.13 , respectively. The total intrinsic values of options exercised during the years ended December 31, 2020, 2019, and 2018 were $ 2,534,000 , $ 2,518,000 , and $ 3,879,000 , respectively. As of December 31, 2020, the total unrecognized compensation cost for unvested stock options was $ 1,993,000 . 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, 2020, 2019, and 2018 was $ 2,926,000 , $ 3,037,000 , and $ 4,163,000 , respectively. The actual tax benefit realized for the tax deductions from stock option exercises totaled $ 339,000 , $ 348,000 , and $ 548,000 for the years ended December 31, 2020, 2019 and 2018, respectively. 67 Stock Awards In 2018, 2019, and 2020, the Company granted stock awards under the 2011 Plan. Most Company stock awards are granted in the form of performance awards. The performance stock awards vest only upon the Company’s achievement of certain Board of Directors approved levels of financial performance by the end of specified measurement periods. The number of Company shares of common stock ultimately distributed, if any, is contingent upon the Company’s actual financial performance attained by the end of the measurement period relative to the Board of Directors approved targets. The fair value of performance stock awards 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 at the end of the measurement period the performance objectives are not met, no compensation cost is recognized and any compensation expense recorded in prior periods is reversed. Periodically, the Company also grants stock awards that have no performance conditions associated with their vesting. These stock awards vest based on the service time established for the given grant. In addition, the Company grants stock awards that have no performance conditions associated with their vesting to non-employee directors of the Company. A summary of stock award activity for the year ended December 31, 2020, is presented below: Shares Weighted-Average Grant Date Fair Value Stock Awards Unvested at January 1, 2020 87,334 $ 80.78 Granted 65,278 98.46 Vested ( 36,115 ) 70.49 Forfeited ( 9,146 ) 84.64 Unvested at December 31, 2020 107,351 94.66 The weighted-average grant-date fair values of stock awards granted during the years ended December 31, 2020, 2019 and 2018, were $ 98.46 , $ 89.12 , and $ 72.06 , respectively. As of December 31, 2020, under the current Company assumption as to the number of stock award shares that will vest at the measurement periods ended December 31, 2021 and 2022, there was $ 5,313,000 of unrecognized compensation cost for unvested stock awards. That cost is expected to be recognized over a period of 1.8 years. SARs At December 31, 2020, the Company had both cash-settled and Company stock-settled SARs outstanding. SARs granted prior to 2015 are cash-settled, and SARs granted in 2015 and later are stock-settled. SARs granted prior to 2017 cliff vest 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 in cash (for cash-settled SARs) or Company common stock (for stock-settled SARs) an amount that equals the excess of the fair market value of a share of Company common stock at the date of exercise over the fair market value of a share of Company common stock at the date of grant (the exercise price). Cash-settled SARs are accounted for as liabilities that must be re-measured at fair value at the end of every reporting period until settlement. Compensation expense for each reporting period is based on the period-to-period change (or portion of the change, depending on the proportion of the vesting period that has been completed at the reporting date) in the fair value of the SARs. 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. Because stock-settled SARs are considered equity instruments, they are not re-measured at fair value at the end of each reporting period. 68 The following is a summary of SARs activity for the year ended December 31, 2020: Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value ($000) SARs Outstanding at January 1, 2020 655,417 $ 68.83 Granted 176,330 101.96 Exercised ( 172,826 ) 57.32 Forfeited ( 5,423 ) 89.63 Outstanding at December 31, 2020 653,498 80.64 7.12 $ 25,297 The weighted-average grant-date fair values of SARs granted during the years 2020, 2019 and 2018 were $ 25.88 , $ 26.43 , and $ 22.19 , 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. As of December 31, 2020 and 2019, the liability for cash-settled SARs recorded on the consolidated balance sheet (non-current liabilities) was $ 2,368,000 and $ 4,509,000 , respectively. At December 31, 2020, there was $ 4,341,000 of total unrecognized compensation cost related to all unvested SARs. That cost is to be recognized over a weighted-average period of 1.7 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 stock awards. 12. Deferred Compensation The Company sponsors deferred compensation plans that allow management employees to defer receipt of their annual bonuses and outside directors to defer receipt of their fees 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 Company 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 its common shares 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 Company 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 Company common stock are treated as equity instruments; therefore, fluctuations in the market price of the underlying Company 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 $ 9,988,000 expense in 2020, $ 15,140,000 expense in 2019 and $ 2,329,000 income in 2018. The main factor in the decrease of the 2020 deferred compensation expense versus 2019 deferred compensation expense was a $ 16.88 per share increase in the market price of the Company’s common stock in 2020 versus a $ 28.44 per share increase in the price of stock in 2019. The Company’s deferred compensation liability was $ 61,558,000 and $ 59,031,000 at December 31, 2020 and 2019, respectively. 69 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 (In thousands) United States United Kingdom 2020 2019 2020 2019 Change in benefit obligation Benefit obligation at beginning of year $ 176,499 $ 158,594 $ 21,850 $ 20,006 Interest cost 5,668 6,616 445 554 Actuarial loss 13,327 19,251 3,032 1,045 Benefits paid ( 8,123 ) ( 7,962 ) ( 657 ) ( 592 ) Foreign exchange impact — — 856 837 Benefit obligation at end of year $ 187,371 $ 176,499 $ 25,526 $ 21,850 (In thousands) United States United Kingdom 2020 2019 2020 2019 Change in plan assets Fair value of plan assets at beginning of year $ 160,423 $ 134,198 $ 24,357 $ 20,576 Actual return on plan assets 22,738 33,875 3,320 2,963 Employer contributions 298 312 526 476 Benefits paid ( 8,123 ) ( 7,962 ) ( 657 ) ( 592 ) Foreign exchange impact — — 958 934 Fair value of plan assets at end of year $ 175,336 $ 160,423 $ 28,504 $ 24,357 Over (Under) funded status at end of year $ ( 12,035 ) $ ( 16,076 ) $ 2,978 $ 2,507 The amounts recognized in the consolidated balance sheets at December 31 consisted of: (In thousands) United States United Kingdom 2020 2019 2020 2019 Non-current asset $ 3,470 $ 1,479 $ 2,978 $ 2,507 Current liability ( 288 ) ( 301 ) — — Non-current liability ( 15,217 ) ( 17,254 ) — — Net amount recognized $ ( 12,035 ) $ ( 16,076 ) $ 2,978 $ 2,507 The amounts recognized in accumulated other comprehensive income at December 31 consisted of: (In thousands) United States United Kingdom 2020 2019 2020 2019 Net actuarial loss $ 33,745 $ 37,671 $ 4,653 $ 4,460 Below is information for pension plans with projected benefit obligations in excess of plan assets at December 31: (In thousands) United States United Kingdom 2020 2019 2020 2019 Projected benefit obligation $ 146,848 $ 141,839 $ — $ — Accumulated benefit obligation 146,848 141,839 — — Fair value of plan assets 135,070 124,284 — — 70 Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income Net periodic benefit costs for the years ended December 31, 2020, 2019 and 2018, were as follows: (In thousands) United States United Kingdom 2020 2019 2018 2020 2019 2018 Interest cost $ 5,668 $ 6,616 $ 6,194 $ 445 $ 554 $ 565 Expected return on plan assets ( 9,747 ) ( 9,450 ) ( 9,284 ) ( 548 ) ( 787 ) ( 885 ) Amortization of net actuarial loss 4,262 2,490 3,814 79 244 219 Net periodic benefit cost $ 183 $ ( 344 ) $ 724 $ ( 24 ) $ 11 $ ( 101 ) Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2020, 2019 and 2018, were as follows: (In thousands) United States United Kingdom 2020 2019 2018 2020 2019 2018 Net actuarial (gain) loss $ 336 $ ( 5,174 ) $ 9,348 $ 272 $ ( 1,144 ) $ 325 Amortization of net actuarial loss ( 4,262 ) ( 2,490 ) ( 3,814 ) ( 79 ) ( 244 ) ( 219 ) Total recognized in other comprehensive income $ ( 3,926 ) $ ( 7,664 ) $ 5,534 $ 193 $ ( 1,388 ) $ 106 Total recognized in net periodic benefit cost and other comprehensive income $ ( 3,743 ) $ ( 8,008 ) $ 6,258 $ 169 $ ( 1,377 ) $ 5 Estimated Future Benefit Payments (In thousands) United States United Kingdom 2021 $ 8,744 $ 535 2022 9,118 557 2023 9,505 600 2024 9,820 631 2025 10,033 659 2026-2030 51,138 3,893 Assumptions The weighted-average assumptions used to determine benefit obligations at December 31 were as follows: United States United Kingdom 2020 2019 2020 2019 Discount rate 2.60 % 3.30 % 1.40 % 2.10 % The weighted-average assumptions used to determine net periodic benefit costs for years ended December 31 were as follows: United States United Kingdom 2020 2019 2018 2020 2019 2018 Discount rate 3.30 % 4.30 % 3.67 % 2.10 % 2.80 % 2.40 % Expected long-term return on plan assets 6.75 % 6.75 % 6.75 % 2.30 % 3.82 % 3.71 % In addition to the above assumptions, the Company uses a market-related value of assets approach to calculate the expected return on 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. 71 Investment Strategies and Policies U.S. Plans Plan assets are predominantly invested using a combination of active and passive investment strategies. An investment management firm hires and monitors underlying investment management firms for each asset category. Equity managers within each category cover a range of investment styles and approaches, including both active and passive, and are combined in a way that controls for capitalization, style biases, and country exposure versus benchmark indexes. While active equity managers focus primarily on stock selection to improve returns, fixed income managers seek 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. Real estate exposure is now categorized within mid cap equity. Risk is diversified among multiple asset categories, managers, styles, and securities. 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. Allowable investment categories include: Equities: Common stocks of large, medium, and small companies (company stock), including both U.S. and non-U.S. based companies. The long-term target allocation for equities, excluding Company stock, is approximately 45 percent. 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 target allocation for fixed income is 38 percent. The fixed income portfolio has a duration similar to the plan’s liability stream and is designated to perform consistent with the movement of the plan’s liabilities. Real Estate: Public real estate funds using office, apartment, industrial, retail and other property types. In prior years Real Estate investments were reflected as a separate line item within the Mutual Funds category. Effective 2017, the majority of Real Estate assets have been removed from this category and are currently being captured within the Equities assets category. This change was consistent with the Global Industry Classification Standard (GICS) to better reflect the equity security features of Real Estate Investment Trusts (REITs). 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 31,706 shares of the Company’s common stock to the Company’s ESOP trust on February 24, 2020. In 2019, the plans sold 32,299 shares to the Company’s ESOP trust on February 21, 2019. In 2018, the plans sold 43,930 shares to the Company’s ESOP trust on February 21, 2018, 23,471 shares to the Company on March 9, 2018 and 16,833 shares to the Company on August 8, 2018. The target allocation for employer securities is 15 percent of plan assets. In addition to these primary investment types, excess cash may be invested in futures in order to efficiently achieve more fully invested portfolio positions. Otherwise, a small number of investment managers may make limited use of derivatives, including futures contracts, options on futures and interest rate swaps in place of direct investment in securities to efficiently achieve equivalent market positions. Derivatives are not used to leverage portfolios. 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. Essentially, the plan is to hold equity instruments to back the benefits of participants yet to retire and bonds and cash to back current pensioners. Although there are no formal target allocations for the plan assets, the trustee 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, but the current managed fund will not allocate assets to derivatives or other financial hedging instruments. Plan trustees meet regularly with the fund manager to assess 72 the fund’s performance and to reassess investment strategy. At December 31, 2020, the pension asset allocation was 13 percent equities, 74 percent fixed income, four percent insurance contracts, and nine 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, 2020 and 2019, by asset category, were as follows: December 31, 2020 (In thousands) Level 1 Level 2 Level 3 Total Cash and Cash Equivalents $ 7,056 $ — $ — $ 7,056 Equity Securities U.S. Equities 54,805 — — 54,805 Non-U.S. Equities 23,155 — — 23,155 Employer Securities 27,938 — — 27,938 Total Equities 105,898 — — 105,898 Fixed Income Securities U.S. Corporate Bonds — 41,489 — 41,489 U.S. Government and Agency Bonds 11,152 1,570 — 12,722 Other Bonds — 8,171 — 8,171 Total Fixed Income 11,152 51,230 — 62,382 Total $ 124,106 $ 51,230 $ — $ 175,336 December 31, 2019 (In thousands) Level 1 Level 2 Level 3 Total Cash and Cash Equivalents $ 7,261 $ — $ — $ 7,261 Equity Securities U.S. Equities 50,319 — — 50,319 Non-U.S. Equities 19,697 — — 19,697 Employer Securities 27,234 — — 27,234 Total Equities 97,250 — — 97,250 Fixed Income Securities U.S. Corporate Bonds — 36,242 — 36,242 U.S. Government and Agency Bonds 11,080 — — 11,080 Other Bonds — 8,590 — 8,590 Total Fixed Income 11,080 44,832 — 55,912 Total $ 115,591 $ 44,832 $ — $ 160,423 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 markets. Both market pricing and future cash flow analysis may be used in the pricing process as follows: Level 1 – Equities represent the largest asset category and 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 73 evaluated price. Evaluated bid modeling includes factors such as the interest rate on the coupon, maturity, rating, cash flow projections and other factors. Level 3 – no investments held during 2020 or 2019 were categorized as Level 3. U.K. Plan The Company’s asset allocations for its U.K. pension plans at December 31, 2020 and 2019, by asset category, were as follows: December 31, 2020 (In thousands) Level 1 Level 2 Level 3 Total Cash — $ 2,576 $ — $ 2,576 Equity Securities Pooled Pension Funds — 3,603 — 3,603 Fixed Income Pooled Pension Funds — 21,166 — 21,166 Insurance Contracts — — 1,159 1,159 Total $ — $ 27,345 $ 1,159 $ 28,504 December 31, 2019 (In thousands) Level 1 Level 2 Level 3 Total Cash $ 252 $ 1,120 $ — $ 1,372 Equity Securities Pooled Pension Funds — 7,533 — 7,533 Fixed Income Pooled Pension Funds — 14,247 — 14,247 Insurance Contracts — — 1,205 1,205 Total $ 252 $ 22,900 $ 1,205 $ 24,357 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 2020 and 2019: (In thousands) Insurance Contracts Fair value, December 31, 2018 $ 1,243 Sale proceeds (benefit payments) ( 121 ) Change in unrealized gain 37 Foreign exchange impact 46 Fair value, December 31, 2019 $ 1,205 Sale proceeds (benefit payments) ( 119 ) Change in unrealized gain 41 Foreign exchange impact 32 Fair value, December 31, 2020 $ 1,159 Long-term Rate of Return for Plan Assets U.S. Plans The overall expected long-term rate of return on assets of 6.75 percent that was used to develop the 2020 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 4.45 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 7.93 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, for example, 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. 74 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 3.7 percent added to the risk-free rate. Cash is assumed to have a long-term return of 0.1 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 does no t expect to make any 2021 contributions to the funded U.S. qualified defined benefit plans. The Company expects to contribute $ 301,000 in 2021 to the unfunded non-qualified U.S. pension plans. The Company expects to contribute $ 477,000 to the U.K. defined benefit plan in 2021. 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, 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 2017 and 2018, profit sharing contributions for U.S. employees, who received the majority of profit sharing contributions, were made partly in cash paid to the 401(k) plan and partly in Company common stock. In 2019 and 2020, profit sharing contributions for U.S. employees were made to the employee stock ownership plan. Profit sharing contributions are allocated to participant accounts on the basis of participant base earnings. Effective January 1, 2018, the Company amended its U.S. 401(k) plan and its profit sharing formula, which resulted in a higher potential contribution percentage to the U.S. 401(k) plan and a lower potential profit sharing contribution percentage relative to prior years. Defined contribution expenses for the Company’s qualified defined contribution plans and statutory profit sharing contributions were as follows: (In thousands) 2020 2019 2018 Retirement contributions $ 8,035 $ 7,328 $ 7,617 Profit sharing contributions 6,107 4,702 4,182 Total $ 14,142 $ 12,030 $ 11,799 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 appreciates and decrease (i.e., supplemental plan income is recognized) when the value of the trust assets declines. At December 31, 2020 and 2019, the trust asset balances were $ 1,778,000 and $ 1,744,000 , respectively, and the supplemental plan liability balances were $ 1,853,000 and $ 1,819,000 , respectively. The differences between the trust asset balances and the supplemental liability balances were due to estimated liabilities that were not funded until after the end of the year when the actual liabilities were determined. Certain foreign locations are required by law to make profit sharing contributions to employees based on statutory formulas. For the years ended December 31, 2020, 2019 and 2018, the Company recognized $ 1,679,000 , $ 935,000 and $ 374,000 , respectively, of statutory profit sharing expense and are included in the above table. 75 In all Company locations, approximately 79 percent of union and non-union employees are eligible for either 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) 2020 2019 Accrued payroll and benefits $ 79,070 $ 57,894 Accrued customer rebates 23,628 25,148 Other accrued liabilities 39,249 38,225 Total accrued liabilities $ 141,947 $ 121,267 15. Other Non-Current Liabilities The composition of other non-current liabilities was as follows: December 31 (In thousands) 2020 2019 Deferred revenue $ 11,276 $ 891 Environmental and legal matters 17,921 12,023 Deferred compensation liability 51,508 49,835 Pension liability 17,229 19,407 Other non-current liabilities 16,359 14,024 Total other non-current liabilities $ 114,293 $ 96,180 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 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 PRP 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, damages are being claimed against the Company in general liability actions for alleged personal injury or property damage in the case of some disposal and plant sites. The Company believes that it has made adequate provisions for the costs it is likely to incur with respect to these sites and 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, 2020, the Company estimated a range of possible environmental and legal losses of $ 22,884,000 to $ 41,104,000 . 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. These accruals totaled $ 22,884,000 at December 31, 2020 and $ 25,905,000 at December 31, 2019. Although the Company believes that its reserves are adequate for environmental contingencies, it is possible due to the uncertainties noted above, that additional reserves could be required in the future. Cash expenditures related to legal and environmental matters approximated $ 4,483,000 for the year ended December 31, 2020, compared to $ 3,791,000 in 2019. 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. 76 Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based upon 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, 2020: Maywood, New Jersey Site The Company’s property in Maywood, New Jersey and 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 contamination. Pursuant to (i) a September 21, 1987 Administrative Order on Consent entered into between the USEPA and the Company for property formerly owned by the Company at the Maywood site and (ii) the issuance of an order on November 12, 2004 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 (RI/FS), and on September 24, 2014, USEPA issued its Record of Decision (ROD) for chemically-contaminated soil at the Maywood site, which requires the Company to perform remedial cleanup of the soil and buried waste. 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 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 PRPs are identified. The ultimate amount for which the Company is liable could differ materially from the Company’s current recorded liability. In April 2015, the Company entered into an Administrative Settlement Agreement and Administrative Order on Consent with USEPA which requires payment of certain costs and performance of certain investigative and design work for chemically-contaminated soil. In addition, under the terms of a settlement agreement reached on November 12, 2004, the U.S. Department of Justice and the Company agreed to fulfill the terms of a Cooperative Agreement reached in 1985. Under the Cooperative Agreement, the United States is responsible for the removal of radioactive waste at the Maywood site, including past and future remediation costs at the site. As such, the Company recorded no liability related to this settlement agreement. 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 PRP in an October 2, 1998 lawsuit in the U.S. District Court for the District of New Jersey that involved the D’Imperio Site. In 2020, the PRPs were provided with updated remediation cost estimates by the PRP group technical consultant and project manager which the Company considered in its determination of its range of estimated possible losses and liability balance. The changes in range of possible losses and liability balance were immaterial. Remediation work continues at the D’Imperio site. 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 current estimates. Wilmington Site The Company is currently contractually obligated to contribute to the environmental response costs associated with the Company’s formerly-owned site in Wilmington, Massachusetts (the Wilmington site). Remediation at this site is being managed by its current owner to whom the Company sold the property in 1980. Under the Company’s October 1, 1993 agreement with the current owner of the Wilmington site, once total site remediation costs exceed certain levels, the Company is obligated to contribute up to five percent of future response costs associated with this site with no limitation on the ultimate amount of contributions. The Company has paid the current owner $ 2,965,000 for the Company’s portion of environmental response costs at the Wilmington site through December 31, 2020. 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 estimates. The Company and other prior owners of the Wilmington site also entered into an agreement in April 2004 waiving certain statute of limitations defenses for claims which may be filed by the Town of Wilmington, Massachusetts, in connection with this site. 77 While the Company has denied any liability for any such claims, the Company agreed to this waiver while the parties continue to discuss the resolution of any potential claim which may be filed. 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, Illinois 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 current estimates. 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 as well as in agricultural products, lubricating ingredients, oil field chemicals and other specialized applications. Polymers are used primarily in plastics, building materials, refrigeration systems and CASE applications. Specialty Products are used in food, flavoring, nutritional supplement and pharmaceutical applications. The Company evaluates the performance of its segments and allocates resources based on operating income before interest expense, other income/expense items and income tax provision. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The following is segment data for the three years ended December 31, 2020, 2019 and 2018: (In thousands) Surfactants Polymers Specialty Products Segment Totals 2020 Net sales $ 1,351,686 $ 452,277 $ 65,787 $ 1,869,750 Operating income 169,101 68,214 13,966 251,281 Assets 1,018,555 361,219 92,964 1,472,738 Capital expenditures 88,484 26,719 5,960 121,163 Depreciation and amortization expenses 49,429 22,873 5,686 77,988 2019 Net sales $ 1,272,723 $ 512,347 $ 73,675 $ 1,858,745 Operating income 122,780 69,567 16,415 208,762 Assets 907,032 338,179 86,718 1,331,929 Capital expenditures 69,725 29,188 4,441 103,354 Depreciation and amortization expenses 48,422 22,151 5,483 76,056 2018 Net sales $ 1,385,932 $ 527,420 $ 80,505 $ 1,993,857 Operating income 133,518 66,373 11,661 211,552 Assets 850,553 351,690 82,957 1,285,200 Capital expenditures 51,543 26,663 6,192 84,398 Depreciation and amortization expenses 50,514 23,253 5,150 78,917 78 Below are reconciliations of segment data to the consolidated financial statements: (In thousands) 2020 2019 2018 Operating income - segment totals $ 251,281 $ 208,762 $ 211,552 Business restructuring (1) ( 1,212 ) ( 2,744 ) ( 2,588 ) Unallocated corporate expenses (2) ( 78,547 ) ( 78,758 ) ( 59,699 ) Total operating income 171,522 127,260 149,265 Interest expense, net ( 5,409 ) ( 5,932 ) ( 10,771 ) Other, net 4,954 4,571 ( 725 ) Consolidated income before income taxes $ 171,067 $ 125,899 $ 137,769 Assets - segment totals $ 1,472,738 $ 1,331,929 $ 1,285,200 Unallocated corporate assets 279,598 247,438 229,414 Consolidated assets $ 1,752,336 $ 1,579,367 $ 1,514,614 Capital expenditures - segment totals $ 121,163 $ 103,354 $ 84,398 Unallocated corporate expenditures 4,629 2,218 2,249 Consolidated capital expenditures $ 125,792 $ 105,572 $ 86,647 Depreciation and amortization expenses – segment totals $ 77,988 $ 76,056 $ 78,917 Unallocated corporate depreciation expenses 3,872 2,645 2,198 Consolidated depreciation and amortization expenses $ 81,860 $ 78,701 $ 81,115 (1) See Note 22 regarding business restructuring costs. (2) Unallocated corporate expenses primarily comprise corporate administrative expenses (e.g., corporate finance, legal, human resources, information systems, deferred compensation and environmental remediation) that are not included in segment operating income and not used to evaluate segment performance. Below is certain Company-wide geographic data for the years ended December 31, 2020, 2019 and 2018: (In thousands) 2020 2019 2018 Net sales (1) United States $ 1,117,695 $ 1,115,993 $ 1,193,938 France 141,516 145,933 171,010 Poland 147,289 156,391 170,474 United Kingdom 93,115 96,842 105,732 Brazil 105,639 102,590 100,328 Mexico 100,763 83,160 81,458 All other countries 163,733 157,836 170,917 Total $ 1,869,750 $ 1,858,745 $ 1,993,857 Long-lived assets (2) United States $ 499,260 $ 462,199 $ 427,274 Germany 39,759 30,084 29,151 Singapore 25,815 28,741 30,838 Brazil 35,786 46,740 48,427 China 27,300 27,201 29,030 United Kingdom 24,335 21,551 20,225 Mexico 39,482 21,959 18,903 All other countries 42,970 42,280 42,242 Total $ 734,707 $ 680,755 $ 646,090 (1) Net sales are attributed to countries based on the location of the Company facility making the sales. (2) Includes net property, plant and equipment, goodwill and other intangible assets. 79 18. Earnings Per Share Below is the computation of basic and diluted earnings per share for the years ended December 31, 2020, 2019 and 2018: (In thousands, except per share amounts) 2020 2019 2018 Computation of Basic Earnings per Share Net income attributable to Stepan Company $ 126,770 $ 103,129 $ 111,117 Weighted-average number of shares outstanding 22,949 23,054 23,022 Basic earnings per share $ 5.52 $ 4.47 $ 4.83 Computation of Diluted Earnings per Share Net income attributable to Stepan Company $ 126,770 $ 103,129 $ 111,117 Weighted-average number of shares outstanding 22,949 23,054 23,022 Add weighted-average net shares from assumed exercise of options (under treasury share method) (1) 112 97 101 Add weighted-average net shares related to unvested stock awards (under treasury share method) 1 2 3 Add weighted-average net shares from assumed exercise of SARs (under treasury share method) 145 125 110 Add weighted-average contingently issuable net shares related to performance stock awards (under treasury share method) 49 38 89 Weighted-average shares applicable to diluted earnings 23,256 23,316 23,325 Diluted earnings per share $ 5.45 $ 4.42 $ 4.76 (1) Options/SARs to purchase 127,434 , 107,125 and 50,770 shares of common stock were excluded from the computations of diluted earnings per share for the years ended December 31, 2020, 2019 and 2018, respectively. The options’/SARs’ exercise prices were greater than the average market price for the common stock and inclusion of the instruments would have had antidilutive effect on the computations of the earnings per share. 80 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, 2020, 2019 and 2018: (In thousands) Foreign Currency Translation Adjustments Defined Benefit Pension Plan Adjustments Cash Flow Hedge Adjustments Total Balance at December 31, 2017 $ ( 70,561 ) $ ( 29,093 ) $ 91 $ (99,563 ) Other comprehensive income before reclassifications ( 37,920 ) ( 7,080 ) — ( 45,000 ) Amounts reclassified from AOCI — 3,090 ( 10 ) 3,080 Net current period other comprehensive income ( 37,920 ) ( 3,990 ) ( 10 ) ( 41,920 ) Balance at December 31, 2018 $ ( 108,481 ) $ ( 33,083 ) $ 81 $ (141,483 ) Other comprehensive income before reclassifications 4,444 4,112 — 8,556 Amounts reclassified from AOCI — 2,091 ( 9 ) 2,082 Remeasurement adjustment related to the Tax Act (1) — ( 5,325 ) — ( 5,325 ) Net current period other comprehensive income 4,444 878 ( 9 ) 5,313 Balance at December 31, 2019 $ ( 104,037 ) $ ( 32,205 ) $ 72 $ (136,170 ) Other comprehensive income before reclassifications ( 3,046 ) ( 996 ) — ( 4,042 ) Amounts reclassified from AOCI — 3,340 ( 9 ) 3,331 Net current period other comprehensive income ( 3,046 ) 2,344 ( 9 ) ( 711 ) Balance at December 31, 2020 $ ( 107,083 ) $ ( 29,861 ) $ 63 $ (136,881 ) (1) Represents reclassification of the stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (Tax Act) from accumulated other comprehensive income (loss) to retained earnings in accordance with ASU 2018-02. Amounts reclassified out of AOCI for the three years ended December 31, 2020, 2019 and 2018, is displayed below: Amounts Reclassified from AOCI (1) (In thousands) Affected Line Item in Consolidated 2020 2019 2018 Statements of Income Amortization of defined pension items: Prior service cost $ ( 11 ) $ ( 12 ) $ ( 12 ) Actuarial loss ( 4,421 ) ( 2,739 ) ( 4,059 ) $ ( 4,432 ) ( 2,751 ) ( 4,071 ) Total before tax (2) 1,092 660 981 Tax benefit $ ( 3,340 ) $ ( 2,091 ) $ ( 3,090 ) Net of tax Gains and losses on cash flow hedges: Foreign exchange contracts $ 9 $ 9 $ 10 Cost of sales 9 9 10 Total before tax — — — Tax benefit $ 9 $ 9 $ 10 Net of tax Total reclassifications for the period $ ( 3,331 ) $ ( 2,082 ) $ ( 3,080 ) Net of tax (1) Amounts in parentheses denote expense to statement of income. (2) This component of accumulated other comprehensive income is included in the computation of net periodic benefit cost (see Note 13 for details regarding net periodic benefit costs for the Company’s U.S. and U.K. defined benefit plans). 20. Acquisitions 2020 Acquisitions Clariant (Mexico) Acquisition On September 17, 2020, the Company through its subsidiaries in Mexico, acquired Clariant’s anionic business located in Santa Clara, Mexico. The acquisition did not include the purchase of a manufacturing site. The business acquired is being integrated into the Company’s two existing manufacturing sites in Mexico (Matamoros and Ecatepec). The purchase price of the acquisition was 81 $ 14,000,000 , plus associated value-added taxes (VAT). As of December 31, 2020, $ 13,519,000 , inclusive of $ 308,000 net VAT, had been paid with cash on hand. The acquisition was accounted for as a business combination and the assets were measured and recorded at their estimated fair value. The acquired goodwill is not tax deductible. All assets acquired are included in the Company’s Surfactants segment. The following table summarizes the purchase price allocation for the acquisition: (In thousands) Assets: Identifiable intangible assets: Customer lists $ 8,000 Trademarks and know-how 1,300 Non-compete agreement 300 Goodwill 4,225 Property, plant and equipment 175 Total assets acquired $ 14,000 Pro forma financial information has not been included because revenue and earnings of the Company’s consolidated entity would not have been materially different than reported had the acquisition date been January 1, 2019. Logos Technologies Acquisition On March 13, 2020, the Company acquired certain assets of Logos Technologies LLC's NatSurFact® business, a rhamnolipid-based line of bio-surfactants derived from renewable sources. These bio-surfactants offer synergies in several strategic end use markets including oilfield, agriculture, personal care and household, industrial and institutional. The acquisition was accounted for as an asset acquisition. The purchase price of the acquisition was $ 2,040,000 and was paid with cash on hand. All assets acquired are included in the Company’s Surfactants segment. The assets acquired were primarily intangibles, including trademarks and know-how ($ 1,392,000 ) and patents ($ 464,000 ). Additionally, $ 184,000 of laboratory equipment was acquired. 2019 Acquisition On December 17, 2019, the Company acquired an oilfield demulsifier product line. The purchase price of the acquisition was $ 9,000,000 and was paid with cash on hand. This acquisition was accounted for as a business combination and the assets were measured and recorded at their estimated fair values. The primary assets acquired were intangibles, mostly comprised of goodwill ($ 3,161,000 ), product know-how ($ 3,300,000 ) and customer relationships ($ 1,900,000 ). A small amount of inventory was also acquired. All of the acquired assets are included within the Company’s Surfactants segment. The average amortization period for the identifiable intangibles assets is 20 years. Pro forma financial information has not been included because revenues and earnings of the Company’s consolidated entity would not have been materially different than reported had the acquisition date been January 1, 2019. The acquired business did not impact the Company’s 2019 financial results. 2018 Acquisition On March 26, 2018, the Company through a subsidiary in Mexico closed on a previously announced agreement with BASF Mexicana, S.A.DE C.V. (BASF) to acquire BASF’s production facility in Ecatepec, Mexico and a portion of the associated surfactants business. The facility is located close to Mexico City and has over 50,000 metric tons of capacity, 124,000 square feet of warehouse space, a large laboratory and office space. The acquired assets and business are included in the Company’s Surfactants segment. The purchase price of the acquisition was $ 22,852,000 and was paid with cash on hand. The primary assets acquired were land, buildings, machinery and equipment and inventory. The acquisition was accounted for as a business combination, and, accordingly, the assets acquired were measured and recorded at their estimated fair values. No intangible assets were identified as part of the acquisition. The following table summarizes the assets acquired as a result of the acquisition: (In thousands) Assets: Property, plant and equipment $ 14,464 Inventory 5,687 Other Receivable 2,701 Total assets acquired $ 22,852 The acquired business had a minimal impact on the Company’s 2018 financial results. 82 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, 2020, the Company had $ 773,000 of contract liabilities and no contract assets associated with normal product supply arrangements. 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 would maintain a deferred revenue liability until the time a performance obligation has been satisfied. The Company recognized $ 350,000 of revenue in the current period from pre-existing contract liabilities at December 31, 2019. During 2020 the Company also recognized $ 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. This deferred revenue will be recognized over the period of the contract. The tables below provide a geographic disaggregation of net sales for the years ended December 31, 2020, 2019 and 2018. 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. 2020 (In thousands) Surfactants Polymers Specialty Products Total Geographic Market North America $ 826,841 $ 265,700 $ 56,455 $ 1,148,996 Europe 234,631 147,289 9,332 391,252 Latin America 234,568 2,498 — 237,066 Asia 55,646 36,790 — 92,436 Total $ 1,351,686 $ 452,277 $ 65,787 $ 1,869,750 2019 (In thousands) Surfactants Polymers Specialty Products Total Geographic Market North America $ 766,341 $ 314,549 $ 61,501 1,142,391 Europe 240,711 158,455 12,174 411,340 Latin America 212,405 3,304 — 215,709 Asia 53,266 36,039 — 89,305 Total $ 1,272,723 $ 512,347 $ 73,675 $ 1,858,745 2018 (In thousands) Surfactants Polymers Specialty Products Total Geographic Market North America $ 831,592 $ 323,360 $ 68,201 1,223,153 Europe 276,742 172,632 12,304 461,678 Latin America 212,824 3,463 — 216,287 Asia 64,774 27,965 — 92,739 Total $ 1,385,932 $ 527,420 $ 80,505 $ 1,993,857 83 22. Business Restructuring 2019 Restructuring In 2019, the Company restructured its Specialty Products office in the Netherlands and eliminated select positions from the site’s supply chain, quality control and research and development areas. This restructuring was designed to better align the number of personnel with current business requirements and reduce costs at the site. As a result, severance and early lease termination expenses of $ 554,000 and $ 122,000 , respectively, were recognized during the year ended December 31, 2019. 2018 Restructuring During the third quarter of 2018, the Company approved a plan to shut down surfactants operations at its German plant site. As of December 31, 2020, an aggregate of $ 2,392,000 shut down related expense had been recognized at the site. This aggregate expense is comprised of $ 1,404,000 of asset and spare part write downs recognized in 2018 and $ 988,000 of cumulative decommissioning costs. The Company recognized $ 79,000 and $ 909,000 in decommissioning expenses in 2020 and 2019, respectively. 2017 Restructuring During the fourth quarter of 2017, the Company approved a plan to restructure a portion of its Fieldsboro, New Jersey production facility. This facility is a part of the Surfactant reportable segment. This decision was made to improve future asset utilization and reduce the North American cost base going forward. As a result, in 2017 the Company recorded $ 915,000 of restructuring expenses which reflected termination benefits for select plant employees and $ 1,290,000 of accelerated depreciation for the impacted manufacturing assets. In the first quarter of 2019, the Company recognized a $ 251,000 favorable adjustment to the amount of termination benefits initially recorded. 2016 Restructuring In May 2016, the Company announced plans to shut down its Long Mills, Ontario, Canada (Longford Mills) manufacturing facility, a part of the Surfactant reportable segment, by December 31, 2016. The shutdown plan was implemented to improve the Company’s asset utilization in North America and to reduce the Company’s fixed cost base. Manufacturing operations at the Longford Mills plant ceased by the end of 2016, and production of goods manufactured at the facility was transferred to other Company North American production sites. Decommissioning of the assets is expected to continue throughout 2021. As of December 31, 2020, $ 8,617,000 of aggregate restructuring expense had been recognized, reflecting $ 1,644,000 of termination benefits for approximately 30 employees and $ 6,973,000 for other expenses, principally site decommissioning costs. The Company recognized $ 1,133,000 , $ 1,410,000 and $ 1,185,000 in 2020, 2019 and 2018, respectively. 23. Insurance Recovery Millsdale, IL site On January 19, 2020, the Company experienced a power disruption that impacted its Millsdale, Illinois facility. This power outage combined with below freezing temperatures, led to significant production and operational challenges that impacted both Surfactants and Polymers produced at the site. The Millsdale facility operated on a partial basis and used existing inventories to serve its customers. On February 17, 2020, power outage-related operational issues impacted the Millsdale site’s waste water treatment plant and forced the Company to stop production at the site. As a result, the Company declared force majeure for the supply of phthalic anhydride (Polymers) and certain surfactant product lines. All production lines were fully operational prior to the end of the 2020 first quarter. During the second half of 2020, the Company finalized an insurance settlement related to this incident and recognized an $ 18,000,000 pre-tax insurance recovery. This insurance recovery was recognized as a reduction of expenses within cost of sales in the consolidated financial statement of income for the year ended December 31, 2020. Surfactant and Polymer segment reported $ 5.2 million and $ 12.8 million, respectively in insurance recovery. Ecatepec, Mexico site The Company received insurance recovery proceeds of $ 8,965,000 in December 2019 for damaged equipment, incremental supply chain expenses and business interruption losses pertaining to the first quarter 2019 sulfonation equipment failure at the Company’s plant in Ecatepec, Mexico. The insurance recovery was recorded as reduction of cost of sales in the consolidated statement of income for the year ended December 31, 2019. 24. Customer Claims In the fourth quarter of 2016, the Company established a reserve for two customer claims which alleged that product manufactured by the Company may have caused performance problems with the customers’ products. The combined amount of the reserve was $ 7,367,000 , which was recorded as a reduction of net sales in the year ended December 31, 2016. Both claims related to the Company’s Surfactant segment. In the fourth quarter of 2017, the Company paid $ 2,709,000 for one of the claims and reversed 84 the remainder of the reserve for the claim. The claim reversal was recorded within net sales. The second claim for $ 703,000 was paid in the second quarter of 2019 and was covered by insurance. 25. Statement of Cash Flows – Noncash Investing and Financing Activities Noncash investing activities included liabilities (accounts payable) incurred for property, plant and equipment expenditures of approximately $ 17,946,000 , $ 16,890,000 , and $ 15,119,000 that were unpaid at December 31, 2020, 2019 and 2018, respectively. Noncash financing activities included 58,282 shares of Company common stock (valued at $ 5,485,000 ), 96,095 shares of Company common stock (valued at $ 8,893,000 ) and 99,497 shares of Company common stock (valued at $ 7,931,000 ) issued in connection with the Company’s stock award plan in 2020, 2019 and 2018, respectively. 26. Subsequent Events On January 29, 2021 , the Company and its wholly-owned subsidiaries Stepan Holdings Netherlands B.V. and Stepan UK Limited (collectively, “Stepan”) entered into a Stock and Asset Purchase Agreement with Arteva Specialties B.V., INV Performance Surfaces, LLC, INVISTA Textiles (U.K.) Limited, INV Management Services, LLC, and INVISTA Equities, LLC (collectively, “INVISTA”) to acquire INVISTA's aromatic polyester polyol business and associated assets. Included in the transaction were two manufacturing sites, one in Wilmington, North Carolina (U.S.) and the other in Vlissingen, Netherlands, along with intellectual property, customer relationships, inventory and working capital. This acquisition expands the Company’s manufacturing capabilities in both the United States and Europe and enhances its business continuity capabilities for the market. The Company believes that INVISTA’s available spare capacity, combined with debottlenecking opportunities for both plants, will allow Stepan to support future market growth in a capital efficient way. The purchase price was $ 165,000,000 , plus working capital, and was paid in cash. The allocation of the purchase price to reflect the fair value of assets acquired and liabilities assumed has not been completed at the date of the filing of this report. Such information will be included in a subsequent Quarterly Report on Form 10-Q. The acquisition will be accounted for as a business combination, and the acquired operations will be included in the Company’s Polymer segment beginning in the first quarter of 2021. On February 2, 2021, the Company acquired a fermentation plant, located in Lake Providence, Louisiana (U.S.). The Company believes this plant complements the rhamnolipid-based bio-surfactant technology the Company acquired from Logos Technologies in March 2020. Fermentation is a new platform technology for the Company and the Company is focusing efforts to further develop, integrate, produce and commercialize these unique surfactants moving forward. Bio-surfactants, produced via fermentation, are attractive due to their biodegradability, low toxicity, and in some cases, unique antimicrobial properties. These bio-surfactants offer synergies in several strategic end use markets including oilfield, agriculture, personal care and household, industrial and institutional. The acquisition of this industrial scale fermentation plant represents the latest step in the Company’s bio-surfactant commercialization efforts. The purchase price was $ 3,500,000 and was paid in cash. This acquisition will be accounted for as an asset acquisition. 85 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None