Acquisitions

12 Months Ended

Dec. 31, 2012

Acquisitions [Abstract]

Acquisitions

20. Acquisitions

2011 Acquisition

On June 23, 2011, the Company purchased the Clarinol^®, Marinol ^®, and PinnoThin ^® product lines of Lipid Nutrition B.V., a part of Loders Croklaan B.V. The acquired product lines are included in the Company’s specialty products segment. The acquisition purchase price was $13,562,000 of cash. In addition to the purchase price paid, the Company incurred $0.3 million of acquisition-related costs, including legal and consulting expenses, which were reflected in administrative expenses on the Company’s consolidated statement of income for the year ended December 31, 2011.

The acquisition was accounted for as a business combination and, accordingly, the assets acquired and liabilities assumed were measured and recorded at their estimated fair values. The following table summarizes the assets acquired and liabilities assumed at June 23, 2011:

(In thousands)
Assets:
Inventory	$	5,000
Identifiable intangible assets:
Patents		6,948
Customer lists		736
Trademarks, know-how		429
Total identifiable intangible assets		8,113
Goodwill		483
Total assets acquired	$	13,596
Current liabilities	$	34
Net assets acquired	$	13,562

The acquired goodwill, which is allocated entirely to the Company’s specialty products segment, is deductable for tax purposes. The goodwill reflects the potential manufacturing and marketing synergies arising from combining the new product lines with the Company’s existing food and health services products. The weighted average amortization periods for the identifiable intangible assets at the time of acquisition were as follows: patents-12 years; customer lists- five years; and trademarks and know-how- five years. The purchase price allocation for the acquisition is final, and no purchase price allocation adjustments were made to the amounts originally recorded at the acquisition date.

Pro forma financial information has not been included because revenues and earnings of the Company’s consolidated entity would not have been materially different than reported had the acquisition date been January 1, 2010.

2010 Acquisitions

Asset acquisition

On July 2, 2010, the Company purchased the manufacturing assets of Peter Cremer GmbH, located on Jurong Island in Singapore, for a price of $10.4 million, which the Company paid from available cash. After the necessary site development, the acquisition of the Jurong Island manufacturing assets will provide the Company with an opportunity to reach its global customer base with methyl esters, which are core building blocks of the Company’s surfactant products, and value-added derivatives made from tropical oils available in the region. The site began production for customer trials in the fourth quarter of 2012.

Business acquisitions

On July 15, 2010, the Company’s Stepan Europe subsidiary acquired 100 percent ownership interest in Alfa Systems Sp. z o.o. (Alfa Systems). The purchase included a plant in Brzeg Dolny, Poland, which specialized in the manufacture of aromatic polyester polyols from recycled polyethylene terephthalate (PET). The acquisition of Alfa Systems provides the Company with polyester polyol manufacturing capability in Eastern Europe and the ability to economically and effectively serve customers in that region. As of the acquisition date, the new entity became a part of the Company’s polymers segment.

The Company recognized $10.1 million as the purchase price for Alfa Systems, comprising $8.5 million of cash and $1.6 million in contingent consideration. The contingent consideration arrangements included in the purchase agreement were as follows:

• Environmental remediation – As part of the purchase agreement, the Company agreed to assume a soil remediation obligation discovered during the due diligence phase of the acquisition. In addition, the Company negotiated a purchase price holdback provision of $1.1 million, wherein any portion of the holdback not spent for soil remediation by one year following the acquisition date (i.e., July 15, 2011) would be remitted to the previous owners of Alfa Systems. A remediation liability was included as one of the liabilities assumed at the time of acquisition. No contingent consideration liability was recognized because management believed it was highly probable that remediation of the Poland site would be completed by the holdback deadline and the cost to remediate would be at least the holdback amount. Remediation of the soil was completed in the second quarter of 2011, and the total cost of the project exceeded the amount of the holdback provision by an immaterial amount, which was charge to Company earnings in 2011. Consequently, none of the holdback amount related to the soil remediation was returned to the former owners of the Alfa Systems.

• Nonspecific claims – Potential additional consideration of up to $1.6 million if no additional claims relating to pre-acquisition activity arise over the two years following the acquisition. The Company recognized the entire $1.6 million of this arrangement as consideration. To date, approximately $0.7 million of the withheld amount has been paid. The parties agreed that of the holdback amount approximately $0.1 million would not be paid due to some minor claims that surfaced after the acquisition date. The remainder of the original holdback amount remains withheld pending the outcome of a claim for an unlicensed export of product shipped prior to the acquisition date.

• Working capital balance – Potential additional consideration of up to $0.6 million depending on the amount by which the audited working capital balance at the time of acquisition deviated from the agreed upon working capital in the purchase agreement. The Company recognized less than $0.1 million as consideration for the working capital arrangement, which was finalized in December 2010.

In addition to the purchase price paid, the Company incurred $0.7 million of acquisition-related costs, including legal, consulting and accounting expenses. These costs were reflected in administrative expenses on the Company’s statement of income for the year ended December 31, 2010.

The Alfa Systems acquisition was accounted for as a business combination and, accordingly, the assets acquired and liabilities assumed were measured and recorded at their estimated fair values. The following table summarizes the assets acquired and liabilities assumed at July 15, 2010:

(In thousands)
Assets:
Current assets (excluding inventory)	$	1,188
Inventory		893
Property, plant and equipment		11,208
Identifiable intangible assets		649
Goodwill		925
Other assets		49
Total assets acquired	$	14,912
Liabilities:
Current liabilities		4,735
Non-current liabilities		71
Total liabilities assumed	$	4,806
Net assets acquired	$	10,106

The acquired goodwill, which is allocated entirely to the Company’s polymer segment, is not deductable for tax purposes. The goodwill reflects the potential positive effects of the additional ability to manufacture and sell the Company’s current polymer products to the European marketplace. Identifiable intangible assets included a non-compete agreement (approximately $0.4 million) and technological know-how (approximately $0.2 million). The amortization periods for these intangibles are three and five years, respectively.

Included in current liabilities was the previously discussed assumed environmental contingent liability of $1.1 million. The measurement period for the Alfa Systems acquisition is complete, and there were no adjustments to the purchase price allocations made at the time of acquisition.

Pro forma financial information has not been included because revenues and earnings of the Company’s consolidated entity would not have been significantly different than reported had the acquisition date been January 1, 2010.

On July 19, 2010, the Company acquired controlling interest in the Company’s Stepan Philippines Inc. (SPI) joint venture, raising the Company’s ownership interest in the venture from 50 percent to 88.8 percent. SPI produces laundry and cleaning products, fabric softeners and functional surfactants for the Philippines and other global markets. The increase in SPI ownership allowed the Company to further diversify the product offering at the Philippines location and capitalize on synergies with the manufacturing facility being developed in Singapore. As of the date controlling interest was obtained, SPI became a part of the Company’s surfactants reportable segment (See Note 19 for information regarding the Company’s 2012 purchase of the remaining interest in SPI).

As part of the purchase agreement, the Company paid $3.7 million of cash to acquire the interest of one owner, transferred $2.0 million of cash to SPI as an additional capital investment (subscription of new shares) and forgave a $3.9 million liability originally due to the Company pursuant to a royalty agreement between the Company and SPI. The Company also guaranteed approximately $8.7 million of debt owed by SPI to a related party of the selling partner.

In addition to the purchase price paid, the Company incurred $0.1 million of acquisition-related costs, including consulting and legal expenses. These costs were reflected in administrative expenses on the Company’s statement of income for the year ended December 31, 2010.

The acquisition of controlling interest in SPI was accounted for as a business combination and, accordingly, the assets acquired and liabilities assumed were measured and recorded at their estimated fair values. The following table summarizes the assets acquired and liabilities assumed at July 19, 2010:

(In thousands)
Assets:
Current assets (excluding inventory)	$	12,841
Inventory		3,232
Property, plant and equipment		18,685
Identifiable intangible assets		1,200
Goodwill		1,101
Other assets		167
Total assets acquired	$	37,226
Liabilities:
Current liabilities		8,466
Non-current liabilities		9,973
Total liabilities assumed	$	18,439
Net assets acquired	$	18,787
Less noncontrolling interest in SPI		(2,090	)
Net assets less noncontrolling interest	$	16,697

The acquired goodwill, is allocated entirely to the Company’s surfactants segment, is not deductable for tax purposes. The goodwill primarily reflects expected growth synergies in Asia resulting from the manufacturing capabilities in the Philippines and Singapore. The $1.2 million of identifiable intangible assets comprised customer relationships, which are being amortized over a 10-year period.

Because the purchase transaction moved the Company from noncontrolling interest in SPI to controlling interest, the Company revalued the original 50 percent investment in SPI to its acquisition-date fair value. The fair value of the Company’s original interest in SPI was estimated to be $7.1 million. As a result of this transaction, the Company recorded a $0.7 million gain, which was reported in the equity from joint ventures line in the statement of income for the year ended December 31, 2010. The fair value of the original interest in SPI was estimated by applying the income approach. The estimate was based on significant inputs that were not observable in the market, making the fair value calculation a Level 3 measurement as defined by generally accepted accounting principles in the U.S.

Also in accordance with the accounting principles for business combinations, the Company measured and recorded the remaining noncontrolling interest in SPI (i.e., the 11.2 percent interest held by the Company’s remaining joint venture partner) at its acquisition-date fair value. The fair value of the noncontrolling interest was estimated to be $2.1 million, which was determined by applying the same income approach measurement noted in the immediately preceding paragraph plus an adjustment for lack of control.

Pro forma financial information has not been included because revenues and earnings of the Company’s consolidated entity would not have been significantly different than reported had the acquisition date been January 1, 2010.