What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 200 added, 119 removed, 479 unchanged (40% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Cost of Sales

10 unchanged sentences

Provision for Income Taxes

Net Loss Attributable to Noncontrolling Interests (Note 2)

Net Income Attributable to Noncontrolling Interest (Note 2)

Net Income Attributable to Stepan Company

Net Income Per Common Share Attributable to Stepan Company (Note 10):

Net Income Per Common Share Attributable to Stepan Company

Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10):

4 unchanged sentences

Three Months Ended

Six Months Ended

Other Comprehensive Income:

11 unchanged sentences

(Dollars in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

11 unchanged sentences

Long-term investments (Note 3)

Operating lease assets

Operating lease assets (Note 7)

Other non-current assets

7 unchanged sentences

Long-term debt, less current maturities (Note 14)

Non-current operating lease liabilities

Non-current operating lease liabilities (Note 7)

Other non-current liabilities

9 unchanged sentences

Total Stepan Company stockholders’ equity

Noncontrolling interests (Note 2)

Noncontrolling interest (Note 2)

Total liabilities and equity

3 unchanged sentences

(In thousands)

Three Months Ended March 31

Six Months Ended June 30

Cash Flows From Operating Activities

3 unchanged sentences

Deferred compensation

Realized and unrealized (gains) losses on long-term investments

Realized and unrealized gains on long-term investments

Stock-based compensation

8 unchanged sentences

Deferred revenues

Net Cash Used In Operating Activities

Net Cash Provided By Operating Activities

Cash Flows From Investing Activities

4 unchanged sentences

Cash Flows From Financing Activities

Revolving debt and bank overdrafts, net

Revolving debt and bank overdrafts, net (Note 14)

Other debt borrowings (Note 14)

Other debt repayments

Dividends paid

12 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading.

In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company’s financial position as of March 31, 2021, and its results of operations and cash flows for the three months ended March 31, 2021 and 2020, have been included.

In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company’s financial position as of June 30, 2021, and its results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020, have been included.

These financial statements and related footnotes should be read in conjunction with the financial statements and related footnotes included in the Company’s 2020 Annual Report on Form 10-K.

RECONCILIATIONS OF EQUITY

Below are reconciliations of total equity, Company equity and equity attributable to noncontrolling interests for the three months ended March 31, 2021 and 2020:

Below are reconciliations of total equity, Company equity and equity attributable to noncontrolling interests for the three and six months ended June 30, 2021 and 2020:

(In thousands, except share and per share amounts)

2 unchanged sentences

Noncontrolling

Balance, December 31, 2020

Balance at March 31, 2021

Issuance of 10,779 shares of common stock under stock option plan

1 unchanged sentence

Stock-based and deferred compensation

Other comprehensive income (loss)

Other comprehensive income

Cash dividends paid:

Common stock ($ 0.305 per share)

Balance, March 31, 2021

Balance at June 30, 2021

(In thousands, except share and per share amounts)

2 unchanged sentences

Noncontrolling

Balance at December 31, 2020

Issuance of 16,565 shares of common stock under stock option plan

Purchase of 82,045 shares of common stock

Stock-based and deferred compensation

Other comprehensive income

Cash dividends paid:

Common stock ($ 0.610 per share)

Balance at June 30, 2021

(In thousands, except share and per share amounts)

Comprehensive

Income (Loss)

Noncontrolling

Balance at March 31, 2020

Issuance of 3,933 shares of common stock under stock option plan

Purchase of 71,555 shares of common stock

Stock-based and deferred compensation

Other comprehensive income

Cash dividends paid:

Common stock ($ 0.275 per share)

Balance at June 30, 2020

(In thousands, except share and per share amounts)

Comprehensive

Income (Loss)

Noncontrolling

Balance, December 31, 2019

2 unchanged sentences

Stock-based and deferred compensation

Other comprehensive income (loss)

Other comprehensive income

Cash dividends paid:

Common stock ($ 0.550 per share)

Balance, March 31, 2020

Balance at June 30, 2020

Reflects the noncontrolling interest in the Company’s China joint venture.

FAIR VALUE MEASUREMENTS

The following were the financial instruments held by the Company at March 31, 2021, and December 31, 2020, and the methods and assumptions used to estimate the instruments’ fair values:

The following were the financial instruments held by the Company at June 30, 2021, and December 31, 2020, and the methods and assumptions used to estimate the instruments’ fair values:

Cash and cash equivalents

15 unchanged sentences

The Company’s fair value measurements for debt fall within Level 2 of the fair value hierarchy.

At March 31, 2021, and December 31, 2020, 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 $ 582,000 and $ 617,000 as of March 31, 2021 and December 31, 2020, respectively):

At June 30, 2021, and December 31, 2020, 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 $ 614,000 and $ 617,000 as of June 30, 2021 and December 31, 2020, respectively):

(In thousands)

Carrying value

The following tables present financial assets and liabilities, excluding cash and cash equivalents, measured on a recurring basis at fair value as of March 31, 2021, and December 31, 2020, and the level within the fair value hierarchy in which the fair value measurements fall:

The following tables present financial assets and liabilities, excluding cash and cash equivalents, measured on a recurring basis at fair value as of June 30, 2021, and December 31, 2020, and the level within the fair value hierarchy in which the fair value measurements fall:

(In thousands)

6 unchanged sentences

(In thousands)

December 31, 2020

Mutual fund assets

11 unchanged sentences

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 asset and liability balances into the applicable functional currencies.

At March 31, 2021, and December 31, 2020, the Company had open forward foreign currency exchange contracts, all with durations of one to three months , to buy or sell foreign currencies with U.S.

At June 30, 2021, and December 31, 2020, the Company had open forward foreign currency exchange contracts, all with durations of one to three months , to buy or sell foreign currencies with U.S.

dollar equivalent amounts of $ 45,745,000 and $ 48,336,000 , respectively.

The fair values of the derivative instruments held by the Company on March 31, 2021, and December 31, 2020, are disclosed in Note 3, Fair Value Measurements , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q).

Derivative instrument gains and losses for the three-month periods ended March 31, 2021 and 2020, were immaterial.

For amounts reclassified out of accumulated other comprehensive income (loss) (AOCI) into earnings for the three-month periods ended March 31, 2021 and 2020, see Note 11, Accumulated Other Comprehensive Income (Loss) , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q).

The fair values of the derivative instruments held by the Company on June 30, 2021, and December 31, 200, are disclosed in Note 3, Fair Value Measurements , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q).

Derivative instrument gains and losses for the three- and six-month periods ended June 30, 2021 and 2020, were immaterial.

For amounts reclassified out of accumulated other comprehensive income (loss) (AOCI) into earnings for the three- and six-month periods ended June 30, 2021 and 2020, see Note 11, Accumulated Other Comprehensive Income (Loss) , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q).

STOCK-BASED COMPENSATION

On March 31, 2021, the Company had stock options, stock awards and stock appreciation rights (SARs) outstanding under its 2011 Incentive Compensation Plan.

On June 30, 2021, the Company had stock options, stock awards and stock appreciation rights (SARs) outstanding under its 2011 Incentive Compensation Plan.

SARs granted prior to 2015 are cash-settled, and SARs granted in 2015 and later are stock-settled.

6 unchanged sentences

Three Months Ended

The increase in stock-based compensation expense for the first quarter of 2021 compared to the first quarter of 2020 was primarily attributable to cash-settled SARs.

The increase in cash-settled SARs compensation expense reflects an increase in the market value of Company stock during the first quarter of 2021 versus a decrease in the market value of Company stock during the first quarter of 2020.

Six Months Ended

The increase in stock-based compensation expense for the first six months of 2021 compared to the first six months of 2020 was primarily attributable to performance awards and cash-settled SARs.

The increase in performance awards compensation expense reflects management’s assessment of profitability performance targets.

The increase in cash-settled SARS compensation expense reflects an increase in the market value of Company stock during the first half of 2021 versus a decrease in the market value of Company stock during the first half of 2020.

Unrecognized compensation costs for stock options, stock awards and SARs were as follows:

(In thousands)

March 31, 2021

June 30, 2021

December 31, 2020

3 unchanged sentences

Stock awards (at target)

The unrecognized compensation costs at March 31, 2021, are expected to be recognized over weighted-average periods of 2.2 years for stock options, 2.1 years for stock awards and 2.2 years for SARs.

The composition of inventories at March 31, 2021, and December 31, 2020, was as follows:

The unrecognized compensation costs at June 30, 2021, are expected to be recognized over weighted-average periods of 2.0 years for stock options, SARs and stock awards.

The composition of inventories at June 30, 2021, and December 31, 2020, was as follows:

(In thousands)

March 31, 2021

December 31, 2020

Finished goods

5 unchanged sentences

Real estate lease terms typically range from one to fifty years .

The Company’s four principal real estate leases relate to the office lease for the new corporate headquarters in Northbrook, Illinois and land leases in the Philippines, Singapore and Lake Providence, Louisiana.

As of March 31, 2021, the Company had a storage tank lease, valued at approximately $ 168,000 , that had not commenced.

This lease will commence in the second quarter of 2021 with a lease term of two years .

The Company’s four principal real estate leases consist of the office lease for new corporate headquarters in Northbrook, Illinois and land leases in the Philippines, Singapore and Lake Providence, Louisiana.

As of June 30, 2021, the Company had railcar leases, valued at approximately $ 3,154,000 , that had not commenced.

These leases will commence in the third quarter of 2021 and the first quarter of 2022.

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.

1 unchanged sentence

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.

Lease cost is included in the Cost of Sales and Operating Expenses sections of the Condensed Consolidated Statements of Income.

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.

Lease cost is recognized in both the Cost of Sales and Operating Expenses sections of the Condensed Consolidated Statements of Income .

(In thousands)

March 31, 2021

Three months ended

June 30, 2021

Six months ended

June 30, 2021

Operating lease cost

5 unchanged sentences

Operating cash flow from operating leases

Right-of-use assets obtained in exchange for new operating lease liabilities

Right-of-use assets obtained in exchange for operating lease liabilities

The following table outlines maturities of lease liabilities as of June 30, 2021:

(In thousands)

Undiscounted Cash Flows:

2021 (excluding the three months ended March 31, 2021)

2021 (excluding the six months ended June 30, 2021)

Subsequent to 2025

23 unchanged sentences

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 March 31, 2021, the Company estimated a range of possible environmental losses and legal losses of $ 22,866,000 to $ 41,313,000 .

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.

accruals totaled $ 22,866,000 at March 31, 2021 and $ 22,884,000 at December 31, 2020.

As of June 30, 202 1 , the Company estimated a range of possible environmental losses and legal losses of $ 22,459,000 to $ 40,890,000 .

Within the range of possible environmental losses and legal losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the range and, thus, has accrued at the lower end of the range.

These accruals totaled $ 22,459,000 at June 30, 202 1 and $ 22,884,000 at December 31, 20 20 .

Although the Company believes that its reserves are adequate for contingencies, it is possible due to the uncertainties noted above, that additional reserves could be required in the future.

Cash expenditures related to legal matters and environmental matters approximated $ 280,000 and $ 912,000 for the three-month periods ended March 31, 2021 and 2020, respectively.

Most of the first quarter 2020 cash expenditures related to the Maywood, New Jersey site.

Cash expenditures related to legal matters and environmental matters approximated $ 1,267,000 and $ 3,075,000 for the six-month periods ended June 30, 202 1 and 20 20 , respectively .

For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions.

3 unchanged sentences

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 March 31, 2021:

Following are summaries of the Company’s major contingencies at June 30, 2021:

Maywood, New Jersey Site

18 unchanged sentences

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.

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 recorded liability .

Wilmington Site

1 unchanged sentence

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 $ 3,078,000 for the Company’s portion of environmental response costs at the Wilmington site through March 31, 2021.

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 $ 3,105,000 for the Company’s portion of environmental response costs at the Wilmington site through June 30, 2021.

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.

Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the current recorded liability.

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.

4 unchanged sentences

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.

However, actual costs could differ materially from current recorded liability.

POSTRETIREMENT BENEFIT PLANS

4 unchanged sentences

UNITED STATES

UNITED KINGDOM

(In thousands)

Three Months Ended

Six Months Ended

Interest cost

Expected return on plan assets

Amortization of net actuarial loss

Net periodic benefit cost (income)

UNITED KINGDOM

(In thousands)

Three Months Ended

Six Months Ended

Interest cost

1 unchanged sentence

Amortization of net actuarial loss

Net periodic benefit cost

Net periodic benefit cost (income)

Employer Contributions

1 unchanged sentence

qualified defined benefit plans.

Approximately $ 274,000 is expected to be paid related to the unfunded non-qualified plans in 2021.

Of such amount, $ 119,000 had been paid related to the non-qualified plans as of March 31, 2021.

Approximately $ 274,000 is expected to

be paid related to the unfunded non-qualified plans in 202 1 .

Of such amount, $ 171,000 had been paid related to the non-qualified plans as of June 30, 202 1 .

The Company’s U.K.

subsidiary expects to contribute approximately $ 495,000 to its defined benefit pension plan in 2021.

Of such amount, $ 141,000 had been contributed to the plan as of March 31, 2021.

Of such amount, $ 272,000 had been contributed to the plan as of June 30, 2021.

Defined Contribution Plans

The Company sponsors retirement savings defined contribution plans that cover eligible U.S.

The Company sponsors retirement defined contribution plans that cover eligible U.S.

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.

In the three months ended March 31, 2021 and 2020, the Company made profit sharing contributions into the qualified retirement plans for U.S.

retirement contributions 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.

In the six months ended June 30, 2021 and 2020, the Company made contributions into the qualified retirement plans for U.S.

employees and for certain non-U.S.

6 unchanged sentences

Three Months Ended

Six Months Ended

Retirement savings contributions

Profit sharing contributions

Profit sharing contributions plan

Total defined contribution plan expenses

5 unchanged sentences

The liabilities related to the supplemental plans increase (i.e., supplemental plan expense is recognized) when the value of the trust assets appreciates and decrease when the value of the trust assets declines (i.e., supplemental plan income is recognized).

At March 31, 2021, the balance of the trust assets was $ 2,035,000 , which equaled the balance of the supplemental plan liabilities (see the long-term investments section in Note 3, Fair Value Measurements , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for further information regarding the Company’s mutual fund assets).

At June 30, 2021, the balance of the trust assets was $ 2,111,000 , which equaled the balance of the supplemental plan liabilities.

See the long-term investments section in Note 3, Fair Value Measurements , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for further information regarding the Company’s mutual fund assets.

EARNINGS PER SHARE

Below are the computations of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020:

Below are the computations of basic and diluted earnings per share for the three and six months ended June 30, 2021 and 2020:

(In thousands, except per share amounts)

Three Months Ended

Six Months Ended

Computation of Basic Earnings per Share

Net income attributable to Stepan Company

Weighted-average number of common shares outstanding

Weighted-average number of common shares

Basic earnings per share

8 unchanged sentences

exercise of SARs (under treasury stock method) (1)

Add weighted-average contingently issuable net shares

related to performance stock awards (under treasury stock method)

Weighted-average shares applicable to diluted earnings

Add weighted-average contingently issuable net

shares related to performance stock awards

(under treasury stock method)

Weighted-average shares applicable to diluted

Diluted earnings per share

(1) No options/SARs to acquire shares of Company common stock were excluded from the computation of dilutive earnings per share for the three months ended March 31, 2021.

Options/SARs to acquire 256,288 shares of Company common stock were excluded from the computations of diluted earnings per share for the three months ended March 31, 2020.

(1) No options/SARs to acquire shares of Company common stock were excluded from the computations of diluted earnings per share for the three and six months ended June 30, 2021, respectively.

Options/SARs to acquire 253,448 and 254,868 shares of Company common stock were excluded from the computations of diluted earnings per share for the three and six months ended June 30, 2020, respectively.

Inclusion of the instruments would have had an antidilutive effect on the computations of the earnings per share.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Below is the change in the Company’s AOCI balance by component (net of income taxes) for the three months ended March 31, 2021 and 2020:

Below is the change in the Company’s AOCI balance by component (net of income taxes) for the three and six months ended June 30, 2021 and 2020:

(In thousands)

Balance at December 31, 2019

Other comprehensive income (loss) before

reclassifications

Balance at March 31, 2020

Other comprehensive income before reclassifications

Amounts reclassified from AOCI

Net current-period other comprehensive income (loss)

Net current-period other comprehensive income

Balance at June 30, 2020

Balance at March 31, 2021

Other comprehensive income before reclassifications

Amounts reclassified from AOCI

Net current-period other comprehensive income

Balance at June 30, 2021

Balance at December 31, 2019

Other comprehensive income (loss) before

reclassifications

Other comprehensive income before reclassifications

Amounts reclassified from AOCI

Net current-period other comprehensive income (loss)

Balance at March 31, 2021

Information regarding the reclassifications out of AOCI for the three-month periods ended March 31, 2021 and 2020, is displayed below:

Net current-period other comprehensive income

Balance at June 30, 2020

Balance at December 31, 2020

Other comprehensive income before reclassifications

Amounts reclassified from AOCI

Net current-period other comprehensive income

Balance at June 30, 2021

Information regarding the reclassifications out of AOCI for the three- and six-month periods ended June 30, 2021 and 2020, is displayed below:

(In thousands)

2 unchanged sentences

Three Months Ended

Six Months Ended

Affected Line Item in

Condensed Consolidated Statements of Income

Consolidated Statements

Amortization of defined benefit pension actuarial losses

5 unchanged sentences

Amounts in parentheses denote expense to statement of income.

This component of accumulated other comprehensive income is included in the computation of net periodic benefit cost (see Note 9, Postretirement Benefit Plans , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for additional details).

This component of accumulated other comprehensive income is included in the computation of net periodic benefit cost.

See Note 9, Postretirement Benefit Plans , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for additional details.

SEGMENT REPORTING

1 unchanged sentence

Surfactants, Polymers and Specialty Products.

Net sales by segment for the three months ended March 31, 2021 and 2020, were as follows:

Net sales by segment for the three and six months ended June 30, 2021 and 2020, were as follows:

(In thousands)

Three Months Ended

Six Months Ended

Segment Net Sales

Specialty Products

Segment operating income and reconciliations of segment operating income to income before provision for income taxes for the three months ended March 31, 2021 and 2020, are summarized below:

Segment operating income and reconciliations of segment operating income to income before provision for income taxes for the three and six months ended June 30, 2021 and 2020, are summarized below:

(In thousands)

Three Months Ended

Six Months Ended

Segment Operating Income

4 unchanged sentences

Consolidated operating income

Interest expense, net

Other Income (Expense)

Interest, net

Income before provision for income taxes

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 are not used to evaluate segment performance.

REVENUE FROM CONTRACTS WITH CUSTOMERS

3 unchanged sentences

For a small portion of the business, performance obligations are deemed satisfied when product is delivered to a customer location.

As of March 31, 2021, the Company had $ 775,000 of contract liabilities and no contract assets.

As of June 30, 2021, the Company had $ 641,000 of contract liabilities and no contract assets.

A contract liability would typically arise when an advance or deposit is received from a customer before the Company recognizes revenue.

1 unchanged sentence

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 $ 773,000 of revenue in the current period from pre-existing contract liabilities at December 31, 2020.

The Company recognized $ 773,000 of revenue in the first six months of 2021 from pre-existing contract liabilities at December 31, 2020.

During 2020 the Company 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.

As of March 31, 2021, no revenue has been recognized from this contract.

The tables below provide a geographic disaggregation of net sales for the three months ended March 31, 2021 and 2020.

As of June 30, 2021, no revenue has been recognized from this contract.

The tables below provide a geographic disaggregation of net sales for the three and six months ended June 30, 2021 and 2020.

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.

For the Three Months Ended March 31, 2021

For the Three Months Ended June 30, 2021

(In thousands)

Specialty Products

Geographic Market

1 unchanged sentence

Latin America

For the Three Months Ended June 30, 2020

(In thousands)

For the Three Months Ended March 31, 2020

Specialty Products

Geographic Market

1 unchanged sentence

Latin America

Debt was comprised of the following at March 31, 2021, and December 31, 2020:

For the Six Months Ended June 30, 2021

(In thousands)

Specialty Products

Geographic Market

North America

Latin America

For the Six Months Ended June 30, 2020

(In thousands)

Specialty Products

Geographic Market

North America

Latin America

At June 30, 2021, and December 31, 2020, debt was comprised of the following:

(In thousands)

Unsecured private placement notes

2 unchanged sentences

4.86% (net of unamortized debt issuance cost of $ 89 and $ 108 for 2021 and 2020, respectively)

Revolving credit facility borrowing

2.30% (net of unamortized debt issuance cost of $ 66 and $ 0 for 2021 and 2020, respectively)

Debt of foreign subsidiaries

2 unchanged sentences

Long-term debt

On June 10, 2021, the Company entered into a note purchase agreement pursuant to which it issued and sold $ 50,000,000 in aggregate principal amount of 2.30% Senior Notes, Series 2021-A, due June 10, 2028 (the Series 2021-A Notes).

The Series 2021-A Notes bear interest at a fixed rate of 2.30 %, with interest to be paid semi-annually and with equal annual principal payments beginning on June 10, 2024 and continuing through final maturity on June 10, 2028 .

The proceeds of the issuance of the Series 2021-A Notes are being used primarily for capital expenditures, to pay down existing debt and for other corporate purposes.

This note purchase agreement requires the maintenance of certain financial ratios and covenants that are substantially similar to the Company’s existing long-term debt and provides for customary events of default.

The Company has a committed $ 350,000,000 multi-currency revolving credit agreement that expires on January 30, 2023 .

The Company maintains import letters of credit, and standby letters of credit under its workers’ compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the revolving credit agreement.

As of March 31, 2021, the Company had outstanding borrowing totaling $ 45,000,000 with the weighted average interest rate of 1.36 percent and outstanding letters of credit totaling $ 6,767,000 .

There was $ 298,233,000 available under the revolving credit agreement as of March 31, 2021.

As of June 30, 2021, the Company had outstanding letters of credit totaling $ 6,993,000 and no borrowings under the revolving credit agreement.

There was $ 343,007,000 available under the revolving credit agreement as of June 30, 2021.

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 $ 407,026,000 and $ 373,884,000 at March 31, 2021 and December 31, 2020, respectively.

Other, net in the condensed consolidated statements of income included the following:

Based on the loan agreement provisions that place limitations on dividend payments, unrestricted retained earnings (i.e., retained earnings available for dividend distribution) were $ 434,265,000 and $ 373,884,000 at June 30, 2021 and December 31, 2020, respectively.

Other, net in the consolidated statements of income included the following:

(In thousands)

Three Months Ended

Six Months Ended

Foreign exchange (losses) gains

Investment income

Realized and unrealized gains (losses) on investments

Net periodic pension benefit

Realized and unrealized gains on investments

Net periodic pension benefit cost

BUSINESS RESTRUCTURING

1 unchanged sentence

During the third quarter of 2018, the Company approved a plan to shut down Surfactant operations at its German plant site.

As of March 31, 2020, an aggregate of $ 2,392,000 shut down related expense has been recognized at the site.

As of June 30, 2021, an aggregate of $ 2,392,000 shut down related expense has been recognized at the site.

In the first quarter of 2020, the Company recognized $ 79,000 of decommissioning expenses at the site.

5 unchanged sentences

Decommissioning of the assets is expected to continue throughout 2021.

As of March 31, 2021, $ 8,698,000 of aggregate restructuring expense has been recognized, reflecting $ 1,644,000 of termination benefits for approximately 30 employees and $ 7,054,000 for other expenses, principally site decommissioning costs.

The Company recognized $ 81,000 and $ 278,000 of decommissioning expenses in the first quarter of 2021 and 2020, respectively.

As of June 30, 2021, $ 8,812,000 of aggregate restructuring expense has been recognized, reflecting $ 1,644,000 of termination benefits for approximately 30 employees and $ 7,168,000 for other expenses, principally site decommissioning costs.

The Company recognized $ 114,000 and $ 225,000 of decommissioning expenses in the second quarter of 2021 and 2020, respectively.

The Company recognized $ 195,000 and $ 503,000 of decommissioning expenses in the first six months of 2021 and 2020, respectively.

2021 Acquisitions

5 unchanged sentences

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 $ 21,000,000 of estimated working capital and $ 3,000,000 of associated value-added taxes (VAT) and was paid in cash.

The purchase price was $ 165,000,000 , plus $ 21,560,000 of working capital and $ 3,000,000 of associated value-added taxes (VAT) and was paid in cash.

Immaterial working capital adjustments were finalized and paid during the second quarter of 2021.

The working capital acquired included $ 5,000,000 of cash.

The acquisition has been accounted for as a business combination, and the acquired operations are included in the Company’s Polymer segment in the first quarter of 2021.

The acquisition has been accounted for as a business combination, and the acquired operations are included in the Company’s Polymer segment in the first six months of 2021.

The assets acquired and liabilities assumed as part of the acquisition were measured and recorded at estimated fair value.

The purchase price allocation remains preliminary as of March 31, 2021 pending finalization of the fair value of intangibles and property, plant and equipment.

The purchase price allocation remains preliminary as of June 30, 2021 pending finalization of the fair value of intangibles and property, plant and equipment.

The principle valuation techniques employed include cost and market approaches (PP&E), relief from royalty method under the income approach (trade name and technology/know) and multi-period excess earnings method under the income approach (customer relationships).

2 unchanged sentences

Property, plant and equipment

Identifiable intangible assets

Identifiable intangibles assets

Total assets acquired

2 unchanged sentences

Identifiable intangible assets included technology and manufacturing know-how ($ 13,000,000 ), trademarks ($ 8,000,000 ) and customer relationships ($ 24,500,000 ).

The amortization periods for know-how and trademarks has initially been estimated to be in the range of 7 to 8 years.

The amortization periods for know-how and trademarks have initially been estimated to be in the range of 7 to 8 years.

The amortization period for customer relationships has initially been estimated to be in the range of 12 to 14 years.

As of March 31, 2021, in addition to the purchase price, the Company also paid $ 3,232,000 of acquisition-related expenses that included legal, consulting, valuation and accounting services.

During the first three months of 2021, the Company incurred $ 1,285,000 of acquisition-related expenses.

As of June 30, 2021, in addition to the purchase price, the Company also paid $ 3,551,000 of acquisition-related expenses that primarily included legal, consulting, valuation and accounting services.

For the three and six months ended June 30, 2021, the

Company incurred $ 319,000 and $ 1,604,000 of acquisition-related expenses , respectively .

These costs were included in the Administrative expenses line in the Company’s condensed consolidated statement of income.

1 unchanged sentence

Pro Forma Financial Information

Three Months Ended March 31

(In thousands, except per share amounts)

Three Months Ended

Six Months Ended

(In thousands)

Net Income Attributable to Stepan Company

The supplemental pro forma information is presented for illustrative purposes only and may not be indicative of the consolidated results that would have actually been achieved by the Company.

The supplemental pro forma information is presented for illustrative purposes only and may not be indicative of the consolidated results that would have been achieved by the Company had the acquisition occurred on January 1, 2020.

Furthermore, future results may vary significantly from the results reflected in the pro forma information.

The pro forma results include adjustments primarily related to amortization of acquired intangible assets, depreciation of the fair value adjustment of acquisition-date plant assets, and tax expense.

In addition, non-recurring adjustments to pro forma net income include $ 1,285,000 of acquisition-related expenses - such expenses were excluded from 2021 pro forma net income and included in 2020 pro forma net income.

The pro forma results include adjustments primarily related to amortization of acquired intangible assets, depreciation of the fair value adjustment related to acquired plant assets, tax expense and management assumptions related to INVISTA’s legacy carved-out financial statements.

In addition, non-recurring adjustments to pro forma net income include $ 1,604,000 of acquisition-related expenses.

Such expenses were excluded from 2021 pro forma net income and included in 2020 pro forma net income.

Fermentation Plant Acquisition

14 unchanged sentences

The purchase price of the acquisition was $ 14,000,000 , plus associated value-added taxes (VAT).

As of March 31, 2021, $ 13,519,000 , inclusive of $ 308,000 net VAT, had been paid with cash on hand.

As of June 30, 2021, $ 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.

31 unchanged sentences

The guidance should be applied prospectively.

The Company has not utilized any of the optional expedients of exceptions available under this ASU.

The Company has not currently 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements