STEPAN CO 10-Q

Item 1 - Financial Statements STEPAN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (In thousands, except per share amounts) Three Months Ended June 30 Six Months Ended June 30 2021 2020 2021 2020 Net Sales $ 595,511 $ 460,549 $ 1,133,251 $ 910,536 Cost of Sales 483,830 362,054 912,590 732,772 Gross Profit 111,681 98,495 220,661 177,764 Operating Expenses: Selling 14,990 12,921 29,494 26,453 Administrative 23,974 20,731 46,612 39,603 Research, development and technical services 14,988 13,531 30,137 27,358 Deferred compensation (income) expense 958 6,464 3,652 ( 859 ) 54,910 53,647 109,895 92,555 Business restructuring expenses (Note 16) ( 114 ) ( 225 ) ( 195 ) ( 582 ) Operating Income 56,657 44,623 110,571 84,627 Other Income (Expense): Interest, net ( 1,567 ) ( 1,259 ) ( 3,091 ) ( 2,489 ) Other, net (Note 15) 2,758 4,437 3,504 1,175 1,191 3,178 413 ( 1,314 ) Income Before Provision for Income Taxes 57,848 47,801 110,984 83,313 Provision for Income Taxes 14,545 11,958 27,070 19,931 Net Income 43,303 35,843 83,914 63,382 Net Income Attributable to Noncontrolling Interest (Note 2) ( 25 ) ( 136 ) ( 25 ) ( 130 ) Net Income Attributable to Stepan Company $ 43,278 $ 35,707 $ 83,889 $ 63,252 Net Income Per Common Share Attributable to Stepan Company (Note 10): Basic $ 1.89 $ 1.56 $ 3.65 $ 2.75 Diluted $ 1.85 $ 1.54 $ 3.59 $ 2.72 Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10): Basic 22,952 22,923 22,963 22,973 Diluted 23,345 23,184 23,338 23,235 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 2 STEPAN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Unaudited (In thousands) Three Months Ended June 30 Six Months Ended June 30 2021 2020 2021 2020 Net Income $ 43,303 $ 35,843 $ 83,914 $ 63,382 Other Comprehensive Income: Foreign currency translation adjustments (1) (Note 11) 15,175 3,539 ( 3,266 ) ( 37,656 ) Defined benefit pension adjustments, net of tax (Note 11) 876 808 1,750 1,616 Derivative instrument activity, net of tax (Note 11) ( 3 ) ( 2 ) ( 5 ) ( 4 ) Total Other Comprehensive Income 16,048 4,345 ( 1,521 ) ( 36,044 ) Comprehensive Income 59,351 40,188 82,393 27,338 Comprehensive Income Attributable to Noncontrolling Interest (Note 2) ( 51 ) ( 138 ) ( 43 ) ( 119 ) Comprehensive Income Attributable to Stepan Company $ 59,300 $ 40,050 $ 82,350 $ 27,219 (1) Includes foreign currency translation adjustments related to noncontrolling interest. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 3 STEPAN COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (Dollars in thousands) June 30, 2021 December 31, 2020 Assets Current Assets: Cash and cash equivalents $ 127,053 $ 349,938 Receivables, net 391,730 301,318 Inventories (Note 6) 266,088 218,783 Other current assets 30,984 35,612 Total current assets 815,855 905,651 Property, Plant and Equipment: Cost 1,991,390 1,872,650 Less: Accumulated depreciation ( 1,226,606 ) ( 1,189,983 ) Property, plant and equipment, net 764,784 682,667 Goodwill, net (Note 17) 97,988 27,972 Other intangible assets, net (Note 17) 65,461 24,068 Long-term investments (Note 3) 32,576 30,652 Operating lease assets (Note 7) 69,942 62,421 Other non-current assets 40,699 18,905 Total assets $ 1,887,305 $ 1,752,336 Liabilities and Equity Current Liabilities: Current maturities of long-term debt (Note 14) $ 42,352 $ 37,857 Accounts payable 286,917 236,750 Accrued liabilities 135,232 141,947 Total current liabilities 464,501 416,554 Deferred income taxes 9,995 20,745 Long-term debt, less current maturities (Note 14) 196,529 160,812 Non-current operating lease liabilities (Note 7) 58,180 51,567 Other non-current liabilities 107,584 114,293 Commitments and Contingencies (Note 8) Equity: Common stock, $ 1 par value; authorized 60,000,000 shares; Issued 26,752,093 shares in 2021 and 26,658,032 shares in 2020 26,752 26,658 Additional paid-in capital 213,969 206,716 Accumulated other comprehensive loss (Note 11) ( 138,420 ) ( 136,881 ) Retained earnings 1,093,994 1,023,829 Less: Common treasury stock, at cost, 4,286,578 shares in 2021 and 4,185,242 shares in 2020 ( 147,494 ) ( 133,629 ) Total Stepan Company stockholders’ equity 1,048,801 986,693 Noncontrolling interest (Note 2) 1,715 1,672 Total equity 1,050,516 988,365 Total liabilities and equity $ 1,887,305 $ 1,752,336 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 4 STEPAN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (In thousands) Six Months Ended June 30 2021 2020 Cash Flows From Operating Activities Net income $ 83,914 $ 63,382 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 45,311 40,329 Deferred compensation 3,652 ( 859 ) Realized and unrealized gains on long-term investments ( 2,761 ) ( 75 ) Stock-based compensation 5,346 4,191 Deferred income taxes ( 39,475 ) 1,427 Other non-cash items 92 655 Changes in assets and liabilities: Receivables, net ( 68,033 ) ( 23,253 ) Inventories ( 35,747 ) ( 9,740 ) Other current assets ( 63 ) ( 6,077 ) Accounts payable and accrued liabilities 34,027 ( 8,284 ) Pension liabilities ( 971 ) ( 323 ) Environmental and legal liabilities ( 463 ) ( 3,116 ) Deferred revenues ( 134 ) 243 Net Cash Provided By Operating Activities 24,695 58,500 Cash Flows From Investing Activities Expenditures for property, plant and equipment ( 74,868 ) ( 54,671 ) Asset acquisition (Note 17) ( 3,503 ) ( 2,040 ) Business acquisition, net of cash acquired (Note 17) ( 184,560 ) — Other, net 1,430 2,331 Net Cash Used In Investing Activities ( 261,501 ) ( 54,380 ) Cash Flows From Financing Activities Revolving debt and bank overdrafts, net (Note 14) 4,495 — Other debt borrowings (Note 14) 50,000 — Other debt repayments ( 14,286 ) ( 14,286 ) Dividends paid ( 13,724 ) ( 12,371 ) Company stock repurchased ( 10,895 ) ( 13,753 ) Stock option exercises 1,087 392 Other, net ( 1,920 ) ( 415 ) Net Cash (Used In) Provided By Financing Activities 14,757 ( 40,433 ) Effect of Exchange Rate Changes on Cash ( 836 ) ( 6,193 ) Net Decrease in Cash and Cash Equivalents ( 222,885 ) ( 42,506 ) Cash and Cash Equivalents at Beginning of Period 349,938 315,383 Cash and Cash Equivalents at End of Period $ 127,053 $ 272,877 Supplemental Cash Flow Information Cash payments of income taxes, net of refunds/payments $ 43,472 $ 7,501 Cash payments of interest $ 4,622 $ 4,810 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 5 STEPAN COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 Unaudited 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements included herein have been prepared by Stepan Company (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). 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 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. 2. RECONCILIATIONS OF EQUITY 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) Total Common Stock Additional Paid-in Capital Common Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest (1) Balance at March 31, 2021 1,003,946 26,726 209,471 ( 137,052 ) ( 154,442 ) 1,057,579 1,664 Issuance of 10,779 shares of common stock under stock option plan 706 11 695 — — — — Purchase of 73,745 shares of common stock ( 9,906 ) — — ( 9,906 ) — — — Stock-based and deferred compensation 3,282 15 3,803 ( 536 ) — — — Net income 43,303 — — — — 43,278 25 Other comprehensive income 16,048 — — — 16,022 — 26 Cash dividends paid: Common stock ($ 0.305 per share) ( 6,863 ) — — — — ( 6,863 ) — Balance at June 30, 2021 $ 1,050,516 $ 26,752 $ 213,969 $ ( 147,494 ) $ ( 138,420 ) $ 1,093,994 $ 1,715 6 (In thousands, except share and per share amounts) Total Common Stock Additional Paid-in Capital Common Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest (1) Balance at December 31, 2020 $ 988,365 $ 26,658 $ 206,716 $ ( 133,629 ) $ ( 136,881 ) $ 1,023,829 $ 1,672 Issuance of 16,565 shares of common stock under stock option plan 1,087 17 1,070 — — — — Purchase of 82,045 shares of common stock ( 10,895 ) — — ( 10,895 ) — — — Stock-based and deferred compensation 3,290 77 6,183 ( 2,970 ) — — — Net income 83,914 — — — — 83,889 25 Other comprehensive income ( 1,521 ) — — — ( 1,539 ) — 18 Cash dividends paid: Common stock ($ 0.610 per share) ( 13,724 ) — — — — ( 13,724 ) — Balance at June 30, 2021 $ 1,050,516 $ 26,752 $ 213,969 $ ( 147,494 ) $ ( 138,420 ) $ 1,093,994 $ 1,715 (In thousands, except share and per share amounts) Total Common Stock Additional Paid-in Capital Common Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest (1) Balance at March 31, 2020 867,472 26,541 195,661 ( 122,685 ) ( 176,546 ) 943,807 694 Issuance of 3,933 shares of common stock under stock option plan 237 4 233 — — — — Purchase of 71,555 shares of common stock ( 6,510 ) — — ( 6,510 ) — — — Stock-based and deferred compensation 3,043 7 3,053 ( 17 ) — — — Net income 35,843 — — — — 35,707 136 Other comprehensive income 4,345 — — — 4,343 — 2 Cash dividends paid: Common stock ($ 0.275 per share) ( 6,169 ) — — — — ( 6,169 ) — Balance at June 30, 2020 $ 898,261 $ 26,552 $ 198,947 $ ( 129,212 ) $ ( 172,203 ) $ 973,345 $ 832 7 (In thousands, except share and per share amounts) Total Common Stock Additional Paid-in Capital Common Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest (1) Balance, December 31, 2019 $ 892,496 $ 26,493 $ 193,135 $ ( 114,139 ) $ ( 136,170 ) $ 922,464 $ 713 Issuance of 6,680 shares of common stock under stock option plan 392 7 385 — — — — Purchase of 160,780 shares of common stock ( 13,753 ) — — ( 13,753 ) — — — Stock-based and deferred compensation 4,159 52 5,427 ( 1,320 ) — — — Net income 63,382 — — — — 63,252 130 Other comprehensive income ( 36,044 ) — — — ( 36,033 ) — ( 11 ) Cash dividends paid: Common stock ($ 0.550 per share) ( 12,371 ) — — — — ( 12,371 ) — Balance at June 30, 2020 $ 898,261 $ 26,552 $ 198,947 $ ( 129,212 ) $ ( 172,203 ) $ 973,345 $ 832 (1) Reflects the noncontrolling interest in the Company’s China joint venture. 3 . FAIR VALUE MEASUREMENTS 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 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 4, Derivate Instruments , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q). 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. See the table below that describes financial assets and liabilities measured on a recurring basis for the reported fair values of derivative assets and liabilities. Long-term investments Long-term investments include the mutual fund assets the Company held to fund a portion of its deferred compensation liabilities and all of its non-qualified supplemental executive defined contribution obligations (see the defined contribution plans section of Note 9, Postretirement Benefit Plans , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q)). Fair value and carrying value were the same because the mutual fund assets were recorded at fair value. 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. 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. 8 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) June 30, 2021 December 31, 2020 Fair value $ 248,832 $ 210,370 Carrying value 239,495 199,286 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) June 30, 2021 Level 1 Level 2 Level 3 Mutual fund assets $ 32,576 $ 32,576 $ — $ — Derivative assets: Foreign currency contracts 256 — 256 — Total assets at fair value $ 32,832 $ 32,576 $ 256 $ — Derivative liabilities: Foreign currency contracts $ 2 $ — $ 2 $ — (In thousands) December 31, 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 $ — 4 . 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 GAAP. 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 asset and liability balances into the applicable functional currencies. 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 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). 5 . STOCK-BASED COMPENSATION 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. Stock options and SARs granted prior to 2017 generally cliff vested after two years . Starting in 2017, stock options and 9 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 stock options and SARs with the graded vesting feature. Compensation expense recorded for all stock options, stock awards and SARs was as follows: (In thousands) Three Months Ended June 30 Six Months Ended June 30 2021 2020 2021 2020 $ 2,807 $ 2,989 $ 5,346 $ 4,191 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) June 30, 2021 December 31, 2020 Stock options $ 3,255 $ 1,993 Stock awards 7,995 5,313 SARs 7,055 4,341 The increases in unrecognized compensation costs for stock options, stock awards and SARs reflected the 2021 grants of: Shares Stock options 66,134 Stock awards (at target) 41,228 SARs 142,451 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. 6 . INVENTORIES The composition of inventories at June 30, 2021, and December 31, 2020, was as follows: (In thousands) June 30, 2021 December 31, 2020 Finished goods $ 160,467 $ 148,878 Raw materials 105,621 69,905 Total inventories $ 266,088 $ 218,783 7. LEASES The Company’s operating leases are primarily comprised of railcar, real estate, storage tank, auto, trailer and manufacturing/office equipment leases. Railcars and real estate comprise approximately 23 percent and 63 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 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. IBRs were specifically determined for the United States, Philippines, Singapore, Brazil and China, typically for five-year increments. The U.S. IBR was used for all other countries as the leases in these countries are not material. The total value of 10 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) Three months ended June 30, 2021 Six months ended June 30, 2021 Lease Cost Operating lease cost $ 3,844 $ 7,570 Short-term lease cost 1,284 2,553 Variable lease cost 222 505 Total lease cost $ 5,350 $ 10,628 Other Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow from operating leases $ 3,688 $ 6,977 Right-of-use assets obtained in exchange for operating lease liabilities 1,003 13,630 The following table outlines maturities of lease liabilities as of June 30, 2021: (In thousands) Undiscounted Cash Flows: 2021 (excluding the six months ended June 30, 2021) $ 7,432 2022 13,516 2023 11,119 2024 7,032 2025 5,336 Subsequent to 2025 39,610 Total Undiscounted Cash Flows $ 84,045 Less: Imputed interest ( 13,301 ) Present value $ 70,744 Current operating lease liabilities (1) 12,564 Non-current operating lease liabilities 58,180 Total lease liabilities $ 70,744 (1) This item is included in the Accrued liabilities line on the Company’s Condensed Consolidated Balance Sheet. Weighted-average remaining lease term-operating leases 10 Years Weighted-average discount rate-operating leases 3.0 % 8 . CONTINGENCIES There are a variety of legal proceedings pending or threatened against the Company that occur in the normal course of the Company’s business, the majority of which relate to environmental assessment, protection and remediation matters. Some of these proceedings may result in fines, penalties, judgments or costs being assessed against the Company at some future time. The Company’s operations are subject to extensive local, state and federal regulations, including the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Superfund amendments of 1986 (Superfund) as well as comparable regulations applicable to the Company’s foreign locations. Over the years, the Company has received requests for information related to or has been named by government authorities as a potentially responsible party (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. 11 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 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 $ 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. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based 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 June 30, 2021: 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 U.S. Environmental Protection Agency (USEPA) and the Company for property formerly owned by the Company at the Maywood site and (ii) the issuance of an order on 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 12 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 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 $ 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 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. 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 recorded liability. 9 . POSTRETIREMENT BENEFIT PLANS Defined Benefit Pension 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 U.S. and U.K. defined benefit pension plans are frozen and service benefits are no longer being accrued. Components of Net Periodic Benefit Cost UNITED STATES (In thousands) Three Months Ended June 30 Six Months Ended June 30 2021 2020 2021 2020 Interest cost $ 1,177 $ 1,421 $ 2,354 $ 2,842 Expected return on plan assets ( 2,586 ) ( 2,437 ) ( 5,171 ) ( 4,874 ) Amortization of net actuarial loss 1,144 1,052 2,288 2,104 Net periodic benefit cost (income) $ ( 265 ) $ 36 $ ( 529 ) $ 72 UNITED KINGDOM (In thousands) Three Months Ended June 30 Six Months Ended June 30 2021 2020 2021 2020 Interest cost $ 91 $ 107 $ 179 $ 216 Expected return on plan assets ( 81 ) ( 133 ) ( 162 ) ( 267 ) Amortization of net actuarial loss 18 19 35 38 Net periodic benefit cost (income) $ 28 $ ( 7 ) $ 52 $ ( 13 ) Employer Contributions U.S. Plans As a result of pension funding relief provisions included in the Highway and Transportation Funding Act of 2014, the Company is not required to make contributions to its funded U.S. qualified defined benefit plans. Approximately $ 274,000 is expected to 13 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 . U.K. Plan The Company’s U.K. subsidiary expects to contribute approximately $ 495,000 to its defined benefit pension plan in 2021. Of such amount, $ 272,000 had been contributed to the plan as of June 30, 2021. Defined Contribution Plans The Company sponsors retirement defined contribution plans that cover eligible U.S. and U.K. employees. The Company’s 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. employees. Profit sharing contributions were determined using a formula applied to Company earnings. In 2020 and 2021, profit sharing contributions for U.S. employees were made to the employee stock ownership plan. Profit sharing contributions are allocated to participant accounts based on participant base earnings. Defined contribution plan expenses for the Company’s qualified contribution plans were as follows: (In thousands) Three Months Ended June 30 Six Months Ended June 30 2021 2020 2021 2020 Retirement savings contributions $ 1,978 $ 1,950 $ 4,017 $ 3,708 Profit sharing contributions plan 1,865 1,483 3,731 2,458 Total defined contribution plan expenses $ 3,843 $ 3,433 $ 7,748 $ 6,166 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 condensed consolidated balance sheets. 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 condensed consolidated statements of income. 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 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. 14 10 . EARNINGS PER SHARE 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 June 30 Six Months Ended June 30 2021 2020 2021 2020 Computation of Basic Earnings per Share Net income attributable to Stepan Company $ 43,278 $ 35,707 $ 83,889 $ 63,252 Weighted-average number of common shares outstanding 22,952 22,923 22,963 22,973 Basic earnings per share $ 1.89 $ 1.56 $ 3.65 $ 2.75 Computation of Diluted Earnings per Share Net income attributable to Stepan Company $ 43,278 $ 35,707 $ 83,889 $ 63,252 Weighted-average number of shares outstanding 22,952 22,923 22,963 22,973 Add weighted-average net shares from assumed exercise of options (under treasury stock method) (1) 152 100 146 101 Add weighted-average net shares related to unvested stock awards (under treasury stock method) 1 1 1 1 Add weighted-average net shares from assumed exercise of SARs (under treasury stock method) (1) 190 125 181 127 Add weighted-average contingently issuable net shares related to performance stock awards (under treasury stock method) 50 35 47 33 Weighted-average shares applicable to diluted earnings 23,345 23,184 23,338 23,235 Diluted earnings per share $ 1.85 $ 1.54 3.59 $ 2.72 (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. 15 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 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) Foreign Currency Translation Adjustments Defined Benefit Pension Plan Adjustments Cash Flow Hedge Adjustments Total Balance at March 31, 2020 $ ( 145,219 ) $ ( 31,397 ) $ 70 $ ( 176,546 ) Other comprehensive income before reclassifications 3,537 — — 3,537 Amounts reclassified from AOCI — 808 ( 2 ) 806 Net current-period other comprehensive income 3,537 808 ( 2 ) 4,343 Balance at June 30, 2020 $ ( 141,682 ) $ ( 30,589 ) $ 68 $ ( 172,203 ) Balance at March 31, 2021 $ ( 125,516 ) $ ( 28,987 ) $ 61 $ ( 154,442 ) Other comprehensive income before reclassifications 15,149 — — 15,149 Amounts reclassified from AOCI — 876 ( 3 ) 873 Net current-period other comprehensive income 15,149 876 ( 3 ) 16,022 Balance at June 30, 2021 $ ( 110,367 ) $ ( 28,111 ) $ 58 $ ( 138,420 ) Balance at December 31, 2019 $ ( 104,037 ) $ ( 32,205 ) $ 72 $ ( 136,170 ) Other comprehensive income before reclassifications ( 37,645 ) — — ( 37,645 ) Amounts reclassified from AOCI — 1,616 ( 4 ) 1,612 Net current-period other comprehensive income ( 37,645 ) 1,616 ( 4 ) ( 36,033 ) Balance at June 30, 2020 $ ( 141,682 ) $ ( 30,589 ) $ 68 $ ( 172,203 ) Balance at December 31, 2020 $ ( 107,083 ) $ ( 29,861 ) $ 63 $ ( 136,881 ) Other comprehensive income before reclassifications ( 3,284 ) — — ( 3,284 ) Amounts reclassified from AOCI — 1,750 ( 5 ) 1,745 Net current-period other comprehensive income ( 3,284 ) 1,750 ( 5 ) ( 1,539 ) Balance at June 30, 2021 $ ( 110,367 ) $ ( 28,111 ) $ 58 $ ( 138,420 ) 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) Amount Reclassified from AOCI (1) AOCI Components Three Months Ended June 30 Six Months Ended June 30 Affected Line Item in Consolidated Statements of Income 2021 2020 2021 2020 Amortization of defined benefit pension actuarial losses $ ( 1,162 ) $ ( 1,071 ) $ ( 2,323 ) $ ( 2,142 ) (2) 286 263 573 526 Tax benefit $ ( 876 ) $ ( 808 ) $ ( 1,750 ) $ ( 1,616 ) Net of tax Gains and losses on cash flow hedges: Foreign exchange contracts 3 2 5 4 Cost of sales 3 2 5 4 Total before tax — — — — Tax benefit $ 3 $ 2 $ 5 $ 4 Net of tax Total reclassifications for the period $ ( 873 ) $ ( 806 ) $ ( 1,745 ) $ ( 1,612 ) 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 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. 16 12. SEGMENT REPORTING The Company has three reportable segments: Surfactants, Polymers and Specialty Products. Net sales by segment for the three and six months ended June 30, 2021 and 2020, were as follows: (In thousands) Three Months Ended June 30 Six Months Ended June 30 2021 2020 2021 2020 Segment Net Sales Surfactants $ 384,002 $ 332,335 $ 754,938 $ 659,406 Polymers 190,538 112,409 340,923 218,900 Specialty Products 20,971 15,805 37,390 32,230 Total $ 595,511 $ 460,549 $ 1,133,251 $ 910,536 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 June 30 Six Months Ended June 30 2021 2020 2021 2020 Segment Operating Income Surfactants $ 45,896 $ 48,503 $ 99,106 $ 84,659 Polymers 23,025 15,527 40,976 23,043 Specialty Products 6,977 3,226 9,610 7,210 Segment operating income 75,898 67,256 149,692 114,912 Business restructuring ( 114 ) ( 225 ) ( 195 ) ( 582 ) Unallocated corporate expenses (1) ( 19,127 ) ( 22,408 ) ( 38,926 ) ( 29,703 ) Consolidated operating income 56,657 44,623 110,571 84,627 Other Income (Expense) Interest, net ( 1,567 ) ( 1,259 ) ( 3,091 ) ( 2,489 ) Other, net 2,758 4,437 3,504 1,175 Income before provision for income taxes $ 57,848 $ 47,801 $ 110,984 $ 83,313 (1) 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. 13. 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 a 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 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. 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 $ 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 June 30, 2021, no revenue has been recognized from this contract. 17 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 June 30, 2021 (In thousands) Surfactants Polymers Specialty Products Total Geographic Market North America $ 221,645 $ 95,591 $ 17,818 $ 335,054 Europe 65,339 82,453 2,436 150,228 Latin America 79,968 986 717 81,671 Asia 17,050 11,508 — 28,558 Total $ 384,002 $ 190,538 $ 20,971 $ 595,511 For the Three Months Ended June 30, 2020 (In thousands) Surfactants Polymers Specialty Products Total Geographic Market North America $ 207,571 $ 68,780 $ 13,329 $ 289,680 Europe 55,812 32,692 2,476 90,980 Latin America 56,194 463 — 56,657 Asia 12,758 10,474 — 23,232 Total $ 332,335 $ 112,409 $ 15,805 $ 460,549 For the Six Months Ended June 30, 2021 (In thousands) Surfactants Polymers Specialty Products Total Geographic Market North America $ 442,580 $ 166,469 $ 31,755 $ 640,804 Europe 136,433 150,753 4,918 292,104 Latin America 140,137 1,976 717 142,830 Asia 35,788 21,725 — 57,513 Total $ 754,938 $ 340,923 $ 37,390 $ 1,133,251 For the Six Months Ended June 30, 2020 (In thousands) Surfactants Polymers Specialty Products Total Geographic Market North America $ 415,517 $ 130,621 $ 26,823 $ 572,961 Europe 115,472 69,252 5,407 190,131 Latin America 102,704 1,102 — 103,806 Asia 25,713 17,925 — 43,638 Total $ 659,406 $ 218,900 $ 32,230 $ 910,536 18 14. DEBT At June 30, 2021, and December 31, 2020, debt was comprised of the following: (In thousands) Maturity Dates June 30, 2021 December 31, 2020 Unsecured private placement notes 3.95% (net of unamortized debt issuance cost of $ 251 and $ 273 for 2021 and 2020, respectively) 2021-2027 $ 99,749 $ 99,727 3.86% (net of unamortized debt issuance cost of $ 208 and $ 236 for 2021 and 2020, respectively) 2021-2025 56,935 71,193 4.86% (net of unamortized debt issuance cost of $ 89 and $ 108 for 2021 and 2020, respectively) 2021-2023 27,768 27,749 2.30% (net of unamortized debt issuance cost of $ 66 and $ 0 for 2021 and 2020, respectively) 2024-2028 49,934 — Debt of foreign subsidiaries Unsecured bank debt, foreign currency 2021 4,495 — Total debt $ 238,881 $ 198,669 Less current maturities 42,352 37,857 Long-term debt $ 196,529 $ 160,812 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 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 $ 434,265,000 and $ 373,884,000 at June 30, 2021 and December 31, 2020, respectively. 15. OTHER, NET Other, net in the consolidated statements of income included the following: (In thousands) Three Months Ended June 30 Six Months Ended June 30 2021 2020 2021 2020 Foreign exchange (losses) gains $ 106 $ 423 $ ( 229 ) $ 991 Investment income 189 93 495 168 Realized and unrealized gains on investments 2,227 3,950 2,761 75 Net periodic pension benefit cost 236 ( 29 ) 477 ( 59 ) Other, net $ 2,758 $ 4,437 $ 3,504 $ 1,175 19 16. BUSINESS RESTRUCTURING 2018 Restructuring During the third quarter of 2018, the Company approved a plan to shut down Surfactant operations at its German plant 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. The Company finalized shut down of the plant in 2020 and no more expenses associated with the restructuring are expected. 2016 Restructuring During 2016, the Company shut down its Longford Mills, Ontario, Canada (Longford Mills) manufacturing facility, a part of the Surfactant reportable segment. The 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 of 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 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. 17. ACQUISITIONS 2021 Acquisitions INVISTA Acquisition 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 $ 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 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 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). The following table summarizes the preliminary purchase price allocation for the major components of the acquisition: (In thousands) Assets: Property, plant and equipment $ 54,400 Identifiable intangibles assets 45,500 Goodwill 65,100 Total assets acquired $ 165,000 The acquired goodwill includes proprietary and intellectual property, brand recognition, business continuity benefits and marketing, manufacturing and supply chain synergies of the new business with the Company’s existing Polymer business. The acquired goodwill has been assigned to the Polymers segment and is deductible for tax purposes. 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 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 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 20 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. The following table reflects pro forma financial information prepared under the assumption that the acquisition of the INVISTA aromatic polyester polyol business occurred on January 1, 2020. Pro Forma Financial Information Unaudited Three Months Ended June 30 Six Months Ended June 30 (In thousands) 2021 2020 2021 2020 Net Sales $ 595,511 $ 480,949 $ 1,145,690 $ 956,836 Net Income Attributable to Stepan Company $ 43,520 $ 34,723 $ 86,632 $ 63,325 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 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 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 has been accounted for as an asset acquisition. 2020 Acquisitions Clariant (Mexico) Acquisition On September 17, 2020, the Company, through its subsidiaries in Mexico, acquired Clariant (Mexico) S.A. de C.V.’s (Clariant) anionic business located in Santa Clara, Mexico. The acquisition did not include the purchase of a manufacturing site. The business acquired was integrated into the Company’s two existing manufacturing sites in Mexico (Matamoros and Ecatepec). The purchase price of the acquisition was $ 14,000,000 , plus associated value-added taxes (VAT). 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. 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 21 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. 18. RECENT ACCOUNTING PRONOUNCEMENTS 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 Company adopted ASU. No. 2019-12 in the first quarter of 2021 and the adoption of this update did 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 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. 22