Correspondence 0000950170-23-051813 from STEPAN CO (SCL) (CIK 0000094049) (SCL)
STEPAN CO (SCL) (CIK 0000094049)
Date: Oct. 4, 2023 · CIK: 0000094049 · Accession: 0000950170-23-051813
AI Filing Summary & Sentiment
File numbers found in text: 001-04462
Referenced dates: September 8, 2023
Letter
CERTAIN PORTIONS OF THIS LETTER HAVE BEEN REDACTED AND ARE THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST BY STEPAN COMPANY PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 83.
REDACTED PORTIONS ARE MARKED WITH [***] AND HAVE BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION.
SCL001
October 4, 2023
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Industrial Applications and Services
100 F Street, NE
Washington, D.C. 20549
Re: Stepan Company
Annual Report on Form 10-K for the year ended December 31, 2022
Response dated August 25, 2023
File No. 001-04462
Ladies and Gentlemen:
Stepan Company, a Delaware corporation (the “Company”), is submitting this letter in response to the comment letter from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC” or the “Commission”), dated September 8, 2023 (the “Comment Letter”), in regard to the above-referenced Form 10-K for the fiscal year ended December 31, 2022 (the “Form 10-K”), filed by the Company on February 28, 2023.
Pursuant to 17 C.F.R. § 200.83 (“Rule 83”), the Company requests confidential treatment for portions of its responses to Staff comments 1 and 2. Specifically, the Company requests that portions of its responses to Staff comments 1 and 2 that have been redacted from the version of this letter filed via the Commission’s EDGAR system and marked by bracketed asterisks “[***]” be maintained in confidence, not be made part of any public record and not be disclosed to any person, including in response to any request under the Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”), as such response contains confidential information. An unredacted version of this letter is being provided to the Commission under separate cover along with the request for confidential treatment under Rule 83.
Below are the Company’s responses. For the convenience of the Staff, the italicized numbered comments set forth below correspond to the comments contained in the Comment Letter.
Response dated August 25, 2023
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 23
FOIA confidential treatment requested by Stepan Company
Pursuant to 17 C.F.R. § 200.83 (Rule 83)
SCL002
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Industrial Applications and Services
October 4, 2023
Page 2
1. We note your response to prior comment two. Please further address the following:
•Your response indicates that your manufacturing customers and end customers have "varying degrees of interest in and sensitivity to the raw material and emissions profiles of intermediate products" such as yours. Tell us more about what you have experienced in this regard, including the extent to which you have been or expect to be affected by emissions reduction targets of your primary customers. Explain how you assessed the related changes in demand and reputational risks, and provide support for your determination that these are not material.
•Your response further indicates you have "experienced increased demand for products that produce lower GHG emissions and/or utilize alternative energy sources." Tell us how you considered disclosing this trend and how you determined the impact is not material, providing support for this determination. In this regard, we note your risk factor disclosure regarding the need to develop and introduce new products.
•Your response references "energy source considerations" and "alternative energy sources." Tell us more about the energy from alternative energy sources used in your operations, as well as your use of petroleum-based and plant-based raw materials, and more fully explain how these relate to the indirect consequences you considered.
•The risk factor cited in your response addresses environmental regulations, but does not appear to specifically address climate change. Accordingly, tell us how you considered the indirect consequences of climate-related regulation on your operations and business, including with regard to the individual items noted in our comment.
Response: In response to the Staff’s comment, the Company respectfully advises the Staff that the Company considers applicable SEC disclosure rules, regulations, and guidance, including Item 101, Item 105 and Item 303 of Regulation S-K, when preparing its SEC filings and, as applicable and to the extent material, evaluates disclosure regarding indirect consequences of climate-related regulation or business trends, including any related changes in demand and reputational risks.
The Company produces and sells specialty and intermediate chemicals, which are sold to other manufacturers for use in a variety of end products. In response to the Staff’s comments regarding demand related to emissions reduction targets, energy source considerations and alternative energy sources, the Company respectfully advises the Staff that of the Company’s [***] customers that serve a variety of end markets a small number, approximately [***], have expressed interest in products that create lower GHG emissions than alternatives and/or utilize alternative energy sources in their production or end uses. Discussions with these customers regarding emissions and/or energy sources are in a range of stages and do not affect every product that each customer purchases from the Company. Some customers are early in an exploratory stage of gathering information, whereas other customers are working with the Company to develop new or modified products. The Company’s customers make purchasing decisions based on several factors, which each customer weighs differently. Because the Company’s customers utilize the Company’s
[***] Information omitted and provided under separate cover to the Staff pursuant to Rule 83.
FOIA confidential treatment requested by Stepan Company
Pursuant to 17 C.F.R. § 200.83 (Rule 83)
SCL003
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Industrial Applications and Services
October 4, 2023
Page 3
products in formulations that incorporate multiple different materials/products, customers balance their priorities across multiple sources, i.e., a customer may prioritize the cost of one product and prioritize the emissions profile of another product in order to address its needs for its end products. Additionally, alternative products that are cost‑effective and efficacious and create lower GHG emissions and/or utilize alternative energy sources are not always available. As noted in our previous response letter, while the Company has experienced increased interest in products that create lower GHG emissions and/or utilize alternative energy sources, and the Company has developed and continues to develop such products, importantly, that interest has not translated into material product demand shifts or pressure on the Company to alter its own emissions profile or energy sources, and the Company does not believe the interest constitutes a trend that would have a material impact on the Company’s business. As such, we did not disclose any quantitative or narrative disclosure in our Form 10-K indicating any such shift or expectations of such a shift. As noted in our previous response letter, demand for the Company’s products has not materially decreased or increased due to GHG emissions or energy source considerations, and, given the lack of material demand shifts, the Company does not currently anticipate material reputational risks relating to GHG emissions. Similarly, the Company respectfully advises the Staff that the Company monitors its regulatory environment and, as of the filing of the Form 10-K and as of subsequent filings to date, the Company had not identified any material indirect consequences of climate-related regulation that would require disclosure. The Company and its customers and suppliers continue to evaluate the commercial viability of investments to reduce emissions and/or utilize alternative energy sources. We are confident that we are currently well prepared to meet any such shift in demand should it occur and that we are well positioned to track, respond and report any such material shift were it to occur.
In response to the Staff’s comment regarding alternative energy sources used in the Company’s own operations, the Company evaluates alternative energy sources while working to maintain reliable electricity for its operations. In certain areas where traditional energy sources may be unreliable, utilizing renewable energy sources can be a cost-effective way to increase energy reliability. For example, the Company’s facility in Salto, Brazil is located in a region that has experienced water shortages that can impact its single source of electricity, hydroelectric power. In order to obtain more reliable electricity the Company installed on-site solar generation, which has stabilized the site’s energy supply and is expected to result in energy cost savings. In other areas of the Company’s operations, renewable energy has not to date offered a financially or operationally viable alternative to existing energy sources, or has not been reasonably available or accessible. The Company uses renewable energy sources where operationally and commercially appropriate and feasible to increase reliability and as part of its desire to be a responsible resource user, not in response to climate-related regulation or business trends. The Company has sought and continues to seek ways to optimize its energy sources for reliable and cost‑effective production; however, as of the filing of the Form 10-K and as of subsequent filings to date, such pursuit has not been as a result of any material indirect consequences of regulation or business trends related to energy sources that would require disclosure and the Company has not identified any such material indirect consequences.
In response to the Staff’s comment regarding raw materials, the Company respectfully advises the Staff that, as noted in the Staff’s comment, the principal raw materials used in the Company’s
FOIA confidential treatment requested by Stepan Company
Pursuant to 17 C.F.R. § 200.83 (Rule 83)
SCL004
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Industrial Applications and Services
October 4, 2023
Page 4
products are petroleum-based or plant-based. When upstream emissions are considered, plant‑based raw materials do not necessarily have lower emissions profiles than petroleum-based raw materials. Like others in the industry, the Company is in the process of assessing the emissions profiles of its raw materials, and the raw material landscape in the Company’s industry is evolving. Efficacy and cost primarily drive raw material purchasing decisions. Efforts to optimize the sustainability of raw materials without diminishing efficacy or cost-effectiveness have not resulted in material shifts in raw material preferences or demand for our products. As a result, as of the filing of the Form 10-K and as of subsequent filings to date, the Company had not identified any material business trends related to raw material sources that would require disclosure.
In response to the Staff’s comment regarding climate change regulations, the Company respectfully advises the Staff that, as noted above, the Company monitors its regulatory environment, including regulations related to climate change. As a chemical manufacturer, the regulations that have had, and are likely to have, the most significant impacts on the Company are those relating to the handling of potentially hazardous materials and those relating to the composition of end products that contain the Company’s products. As of the filing of the Form 10-K and as of subsequent filings to date, the Company had not identified any current or forthcoming climate-related regulations that have had or are expected to have a material impact on the Company’s operations or business, either directly or indirectly through impacts on demand, competition, or reputational risks. The Company respectfully advises the Staff that it will, in response to the Staff’s comment, and historical practice, continue to evaluate its climate-related disclosure in SEC filings. In this regard, we intend to continue to evaluate the need for disclosure regarding the indirect consequences of climate-related regulation or business trends, in light of applicable SEC rules, regulations and guidance and applicable standards of materiality.
2. We note your response to prior comment three. Please further address the following:
•Your response indicates that you are "not able to quantify the impact of the foregoing weather-related production disruptions due to additional non-weather related factors that contributed to the production disruptions." Describe these non-weather contributory factors and explain how they affect your ability to provide the quantification of weather-related damages to your property and operations requested by our comment. In this regard, we note disclosure in your Form 10-K regarding an $18 million insurance settlement related to the 2020 Millsdale production disruption.
•Your response further indicates that you are unable to determine whether there will be an increase in weather-related production disruptions. Tell us how you considered disclosing the uncertainties and risks of climate-related physical effects on your business and operations, and those of your suppliers.
•Your response that you have not experienced material weather-related damages to your property appears conclusory. Tell us about any such damages and tell us how you evaluated materiality, including by providing the quantification requested by our prior comment.
FOIA confidential treatment requested by Stepan Company
Pursuant to 17 C.F.R. § 200.83 (Rule 83)
SCL005
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Industrial Applications and Services
October 4, 2023
Page 5
•Your response does not address water availability or quality, although your Sustainability Report appears to highlight these issues and related projects. Tell us how you considered disclosure regarding water availability and quality, including your assessment of materiality on your business and operations.
•Your response quantifies the increase in insurance premiums and the costs of sales and operating expenses. Additionally quantify the cost of insurance premiums for the periods covered by your Form 10-K.
Response: In response to the Staff’s comment regarding non-weather contributory factors, the Company respectfully advises the Staff that the Millsdale production disruptions were a product of power outages and operational issues that occurred during periods of below freezing temperatures. Because the power outages and operational issues occurred during periods of below freezing temperatures that are common for the region, the Company is not able to determine the extent to which temperatures alone caused or exacerbated the power outages and operational issues that led to the production disruptions. Temperatures are frequently below freezing during the winter in the region, and power outages and operational issues do not occur during every occurrence of below-freezing temperatures. Accordingly, when power outages or operational issues occur it is not always clear whether the outage or operational issue relates to temperature or another factor. The Company is therefore unable to quantify the impact of the low temperatures on the production and business disruptions because it cannot determine the portion of cost of the production and business disruptions tha
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CORRESP 1 filename1.htm CORRESP CERTAIN PORTIONS OF THIS LETTER HAVE BEEN REDACTED AND ARE THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST BY STEPAN COMPANY PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 83. REDACTED PORTIONS ARE MARKED WITH [***] AND HAVE BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION. SCL001 October 4, 2023 VIA EDGAR United States Securities and Exchange Commission Division of Corporation Finance Office of Industrial Applications and Services 100 F Street, NE Washington, D.C. 20549 Re: Stepan Company Annual Report on Form 10-K for the year ended December 31, 2022 Response dated August 25, 2023 File No. 001-04462 Ladies and Gentlemen: Stepan Company, a Delaware corporation (the “Company”), is submitting this letter in response to the comment letter from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC” or the “Commission”), dated September 8, 2023 (the “Comment Letter”), in regard to the above-referenced Form 10-K for the fiscal year ended December 31, 2022 (the “Form 10-K”), filed by the Company on February 28, 2023. Pursuant to 17 C.F.R. § 200.83 (“Rule 83”), the Company requests confidential treatment for portions of its responses to Staff comments 1 and 2. Specifically, the Company requests that portions of its responses to Staff comments 1 and 2 that have been redacted from the version of this letter filed via the Commission’s EDGAR system and marked by bracketed asterisks “[***]” be maintained in confidence, not be made part of any public record and not be disclosed to any person, including in response to any request under the Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”), as such response contains confidential information. An unredacted version of this letter is being provided to the Commission under separate cover along with the request for confidential treatment under Rule 83. Below are the Company’s responses. For the convenience of the Staff, the italicized numbered comments set forth below correspond to the comments contained in the Comment Letter. Response dated August 25, 2023 Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 23 FOIA confidential treatment requested by Stepan Company Pursuant to 17 C.F.R. § 200.83 (Rule 83) SCL002 United States Securities and Exchange Commission Division of Corporation Finance Office of Industrial Applications and Services October 4, 2023 Page 2 1. We note your response to prior comment two. Please further address the following: •Your response indicates that your manufacturing customers and end customers have "varying degrees of interest in and sensitivity to the raw material and emissions profiles of intermediate products" such as yours. Tell us more about what you have experienced in this regard, including the extent to which you have been or expect to be affected by emissions reduction targets of your primary customers. Explain how you assessed the related changes in demand and reputational risks, and provide support for your determination that these are not material. •Your response further indicates you have "experienced increased demand for products that produce lower GHG emissions and/or utilize alternative energy sources." Tell us how you considered disclosing this trend and how you determined the impact is not material, providing support for this determination. In this regard, we note your risk factor disclosure regarding the need to develop and introduce new products. •Your response references "energy source considerations" and "alternative energy sources." Tell us more about the energy from alternative energy sources used in your operations, as well as your use of petroleum-based and plant-based raw materials, and more fully explain how these relate to the indirect consequences you considered. •The risk factor cited in your response addresses environmental regulations, but does not appear to specifically address climate change. Accordingly, tell us how you considered the indirect consequences of climate-related regulation on your operations and business, including with regard to the individual items noted in our comment. Response: In response to the Staff’s comment, the Company respectfully advises the Staff that the Company considers applicable SEC disclosure rules, regulations, and guidance, including Item 101, Item 105 and Item 303 of Regulation S-K, when preparing its SEC filings and, as applicable and to the extent material, evaluates disclosure regarding indirect consequences of climate-related regulation or business trends, including any related changes in demand and reputational risks. The Company produces and sells specialty and intermediate chemicals, which are sold to other manufacturers for use in a variety of end products. In response to the Staff’s comments regarding demand related to emissions reduction targets, energy source considerations and alternative energy sources, the Company respectfully advises the Staff that of the Company’s [***] customers that serve a variety of end markets a small number, approximately [***], have expressed interest in products that create lower GHG emissions than alternatives and/or utilize alternative energy sources in their production or end uses. Discussions with these customers regarding emissions and/or energy sources are in a range of stages and do not affect every product that each customer purchases from the Company. Some customers are early in an exploratory stage of gathering information, whereas other customers are working with the Company to develop new or modified products. The Company’s customers make purchasing decisions based on several factors, which each customer weighs differently. Because the Company’s customers utilize the Company’s [***] Information omitted and provided under separate cover to the Staff pursuant to Rule 83. FOIA confidential treatment requested by Stepan Company Pursuant to 17 C.F.R. § 200.83 (Rule 83) SCL003 United States Securities and Exchange Commission Division of Corporation Finance Office of Industrial Applications and Services October 4, 2023 Page 3 products in formulations that incorporate multiple different materials/products, customers balance their priorities across multiple sources, i.e., a customer may prioritize the cost of one product and prioritize the emissions profile of another product in order to address its needs for its end products. Additionally, alternative products that are cost‑effective and efficacious and create lower GHG emissions and/or utilize alternative energy sources are not always available. As noted in our previous response letter, while the Company has experienced increased interest in products that create lower GHG emissions and/or utilize alternative energy sources, and the Company has developed and continues to develop such products, importantly, that interest has not translated into material product demand shifts or pressure on the Company to alter its own emissions profile or energy sources, and the Company does not believe the interest constitutes a trend that would have a material impact on the Company’s business. As such, we did not disclose any quantitative or narrative disclosure in our Form 10-K indicating any such shift or expectations of such a shift. As noted in our previous response letter, demand for the Company’s products has not materially decreased or increased due to GHG emissions or energy source considerations, and, given the lack of material demand shifts, the Company does not currently anticipate material reputational risks relating to GHG emissions. Similarly, the Company respectfully advises the Staff that the Company monitors its regulatory environment and, as of the filing of the Form 10-K and as of subsequent filings to date, the Company had not identified any material indirect consequences of climate-related regulation that would require disclosure. The Company and its customers and suppliers continue to evaluate the commercial viability of investments to reduce emissions and/or utilize alternative energy sources. We are confident that we are currently well prepared to meet any such shift in demand should it occur and that we are well positioned to track, respond and report any such material shift were it to occur. In response to the Staff’s comment regarding alternative energy sources used in the Company’s own operations, the Company evaluates alternative energy sources while working to maintain reliable electricity for its operations. In certain areas where traditional energy sources may be unreliable, utilizing renewable energy sources can be a cost-effective way to increase energy reliability. For example, the Company’s facility in Salto, Brazil is located in a region that has experienced water shortages that can impact its single source of electricity, hydroelectric power. In order to obtain more reliable electricity the Company installed on-site solar generation, which has stabilized the site’s energy supply and is expected to result in energy cost savings. In other areas of the Company’s operations, renewable energy has not to date offered a financially or operationally viable alternative to existing energy sources, or has not been reasonably available or accessible. The Company uses renewable energy sources where operationally and commercially appropriate and feasible to increase reliability and as part of its desire to be a responsible resource user, not in response to climate-related regulation or business trends. The Company has sought and continues to seek ways to optimize its energy sources for reliable and cost‑effective production; however, as of the filing of the Form 10-K and as of subsequent filings to date, such pursuit has not been as a result of any material indirect consequences of regulation or business trends related to energy sources that would require disclosure and the Company has not identified any such material indirect consequences. In response to the Staff’s comment regarding raw materials, the Company respectfully advises the Staff that, as noted in the Staff’s comment, the principal raw materials used in the Company’s FOIA confidential treatment requested by Stepan Company Pursuant to 17 C.F.R. § 200.83 (Rule 83) SCL004 United States Securities and Exchange Commission Division of Corporation Finance Office of Industrial Applications and Services October 4, 2023 Page 4 products are petroleum-based or plant-based. When upstream emissions are considered, plant‑based raw materials do not necessarily have lower emissions profiles than petroleum-based raw materials. Like others in the industry, the Company is in the process of assessing the emissions profiles of its raw materials, and the raw material landscape in the Company’s industry is evolving. Efficacy and cost primarily drive raw material purchasing decisions. Efforts to optimize the sustainability of raw materials without diminishing efficacy or cost-effectiveness have not resulted in material shifts in raw material preferences or demand for our products. As a result, as of the filing of the Form 10-K and as of subsequent filings to date, the Company had not identified any material business trends related to raw material sources that would require disclosure. In response to the Staff’s comment regarding climate change regulations, the Company respectfully advises the Staff that, as noted above, the Company monitors its regulatory environment, including regulations related to climate change. As a chemical manufacturer, the regulations that have had, and are likely to have, the most significant impacts on the Company are those relating to the handling of potentially hazardous materials and those relating to the composition of end products that contain the Company’s products. As of the filing of the Form 10-K and as of subsequent filings to date, the Company had not identified any current or forthcoming climate-related regulations that have had or are expected to have a material impact on the Company’s operations or business, either directly or indirectly through impacts on demand, competition, or reputational risks. The Company respectfully advises the Staff that it will, in response to the Staff’s comment, and historical practice, continue to evaluate its climate-related disclosure in SEC filings. In this regard, we intend to continue to evaluate the need for disclosure regarding the indirect consequences of climate-related regulation or business trends, in light of applicable SEC rules, regulations and guidance and applicable standards of materiality. 2. We note your response to prior comment three. Please further address the following: •Your response indicates that you are "not able to quantify the impact of the foregoing weather-related production disruptions due to additional non-weather related factors that contributed to the production disruptions." Describe these non-weather contributory factors and explain how they affect your ability to provide the quantification of weather-related damages to your property and operations requested by our comment. In this regard, we note disclosure in your Form 10-K regarding an $18 million insurance settlement related to the 2020 Millsdale production disruption. •Your response further indicates that you are unable to determine whether there will be an increase in weather-related production disruptions. Tell us how you considered disclosing the uncertainties and risks of climate-related physical effects on your business and operations, and those of your suppliers. •Your response that you have not experienced material weather-related damages to your property appears conclusory. Tell us about any such damages and tell us how you evaluated materiality, including by providing the quantification requested by our prior comment. FOIA confidential treatment requested by Stepan Company Pursuant to 17 C.F.R. § 200.83 (Rule 83) SCL005 United States Securities and Exchange Commission Division of Corporation Finance Office of Industrial Applications and Services October 4, 2023 Page 5 •Your response does not address water availability or quality, although your Sustainability Report appears to highlight these issues and related projects. Tell us how you considered disclosure regarding water availability and quality, including your assessment of materiality on your business and operations. •Your response quantifies the increase in insurance premiums and the costs of sales and operating expenses. Additionally quantify the cost of insurance premiums for the periods covered by your Form 10-K. Response: In response to the Staff’s comment regarding non-weather contributory factors, the Company respectfully advises the Staff that the Millsdale production disruptions were a product of power outages and operational issues that occurred during periods of below freezing temperatures. Because the power outages and operational issues occurred during periods of below freezing temperatures that are common for the region, the Company is not able to determine the extent to which temperatures alone caused or exacerbated the power outages and operational issues that led to the production disruptions. Temperatures are frequently below freezing during the winter in the region, and power outages and operational issues do not occur during every occurrence of below-freezing temperatures. Accordingly, when power outages or operational issues occur it is not always clear whether the outage or operational issue relates to temperature or another factor. The Company is therefore unable to quantify the impact of the low temperatures on the production and business disruptions because it cannot determine the portion of cost of the production and business disruptions tha