Stepan Company (SCL, NYSE)
Industry: Specialty Chemicals
Annual report, fiscal year 2011


Stepan  \( \S \) 
Capturing Opportunities.
Disciplined Performance.
Delivering Results.



## Stepan
at a
glance

Stepan is a leading merchant producer of surfactants that are the key ingredients in consumer and industrial cleaning compounds. Manufacturers of detergents, shampoos, lotions, toothpastes and cosmetics depend on surfactants to achieve the foaming and cleaning qualities of their products. Stepan also produces fabric softeners, germicidal quaternary compounds, and biodiesel. Other applications include lubricating ingredients, emulsifiers for spreading of agricultural products, stabilizers for latex, coatings and adhesives, oil field drilling and enhanced oil field production. Stepan produces other specialty products that are often custom-made to meet individual needs. These include nutraceuticals, flavors, emulsifiers and solubilisers used in the food, nutritional, and pharmaceutical industries. The Company is also a principal supplier of phthalic anhydride, a commodity chemical intermediate that is used in polyester resins, alkyd resins and plasticizers. Polyols sold by the Company are used in thermal insulation primarily by the construction and refrigeration industries. Headquartered in Northfield, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia.

SURFACTANTS A surfactant is a surface active agent that changes a liquid’s surface tension. Surfactants are the basic cleaning agent in consumer and industrial cleaning products such as detergents for washing clothes, dishes, carpets, floors, walls, as well as shampoos, lotions, toothpastes and cosmetics. Other applications include fabric softeners, lubricating ingredients, emulsifiers for spreading agricultural products, and industrial applications such as latex systems, plastics and composites.

Total surfactant sales represent 74 percent of Stepan’s 2011 sales or $1,362,000,000 versus $1,058,000,000 in 2010. The increase in sales was due to a 24 percent increase in average selling prices and a two percent increase in sales volume. The rise in selling price reflected higher raw material costs and improved mix of higher margin products.

Domestic surfactant operations, representing 57 percent of surfactants, recognized a $162.2 million, or 27 percent, increase in sales on a 30 percent increase in average selling prices. Foreign operations, representing 43 percent of surfactants, reported a $141.8 million, or 32 percent, increase in sales due to an eight percent increase in sales volume and a 22 percent increase in average selling prices.

POLYMERS The polymer product group includes polyurethane polyols and phthalic anhydride. Polyurethane polyols are used in the manufacture of rigid foam for thermal insulation in the construction industry. Stepan's polyols are also a base raw material for coatings, adhesives, sealants and elastomers. Phthalic anhydride is used in polyester resins, alkyd resins, and plasticizers for applications in construction materials and components of automotive, boating, and other consumer products. Approximately 40 percent of the Company's phthalic anhydride is utilized internally in the production of our polyol products.

Polymer sales represent 23 percent of 2011 sales, or $421,515,000 versus $330,416,000 in 2010, an increase of 28 percent. Higher sales volume coupled with rising average selling prices led to the higher net sales.

SPECIALTY PRODUCTS Specialty products include nutraceuticals, flavors, emulsifiers and solubilizers used in the food, nutritional, and pharmaceutical industry. Sales of specialty products for 2011 were $59,621,000 versus $42,724,000 for 2010. Specialty products represent three percent of net sales.

## PRODUCTION
FACILITIES

Millsdale (Joliet), Illinois
Anaheim, California
Fieldsboro, New Jersey
Maywood, New Jersey
Winder, Georgia
Longford Mills, Ontario, Canada
Matamoros, Mexico
Manizales, Colombia
Vespasiano, Brazil
Stalybridge, United Kingdom
Voreppe (Grenoble), France
Wesseling (Cologne), Germany
Wroclaw, Poland
Singapore
Bauan, Batangas, Philippines
(joint venture)
Nanjing, China (joint venture)

## TABLE OF CONTENTS

Shareholders Letter 3
Capturing Opportunities.
Disciplined Performance.
Delivering Results. 5
Using Stepan Products 9
Five Year Summary 10
Quarterly Financial Data 11
Directors & Officers 12
Corporate Information 13



## Financial
Highlights

<table><tr><td>(In thousands, except per share and stockholder amounts)</td><td>2011</td><td>2010</td><td>% Change (2011 vs. 2010)</td><td>2009</td><td>% Change (2010 vs. 2009)</td></tr><tr><td>Net Sales</td><td>$1,843,092</td><td>$1,431,122</td><td>+29</td><td>$1,276,382</td><td>+12</td></tr><tr><td>Net Income Attributable to Stepan Company</td><td>71,976</td><td>65,427</td><td>+10</td><td>63,049</td><td>+4</td></tr><tr><td>Per Diluted Share</td><td>6.42</td><td>5.90</td><td>+9</td><td>5.84</td><td>+1</td></tr><tr><td>Percent of Net Sales</td><td>3.9%</td><td>4.6%</td><td>-15</td><td>4.9%</td><td>-6</td></tr><tr><td>Percent Return on Average Equity</td><td>19.2%</td><td>20.5%</td><td>-6</td><td>25.3%</td><td>-19</td></tr><tr><td>Depreciation and Amortization</td><td>47,099</td><td>40,351</td><td>+17</td><td>37,171</td><td>+9</td></tr><tr><td>Capital Expenditures</td><td>83,166</td><td>73,748</td><td>+13</td><td>42,631</td><td>+73</td></tr><tr><td>Dividends Per Common Share</td><td>$1.06</td><td>$0.98</td><td>+8</td><td>$0.90</td><td>+9</td></tr><tr><td>Working Capital</td><td>246,516</td><td>222,199</td><td>+11</td><td>186,297</td><td>+19</td></tr><tr><td>Current Ratio</td><td>2.1</td><td>2.1</td><td>—</td><td>2.1</td><td>—</td></tr><tr><td>Long-Term Debt, Less Current Maturities</td><td>164,967</td><td>159,963</td><td>+3</td><td>93,911</td><td>+70</td></tr><tr><td>Total Stepan Company Stockholders&#x27; Equity</td><td>401,211</td><td>349,491</td><td>+15</td><td>289,285</td><td>+21</td></tr><tr><td>Total Stepan Company Stockholders&#x27; Equity Per Share</td><td>37.02</td><td>32.59</td><td>+14</td><td>27.36</td><td>+19</td></tr><tr><td>Average Common Shares Outstanding (Diluted)</td><td>11,220</td><td>11,090</td><td>+1</td><td>10,796</td><td>+3</td></tr><tr><td>Number of Stockholders</td><td>1,490</td><td>1,348</td><td>+11</td><td>1,333</td><td>+1</td></tr></table>

## Stock Information

<table><tr><td>New York Stock Exchange, symbol SCL</td><td>2011</td><td>2010</td></tr><tr><td>Stock Price Range</td><td>$ 62.65-83.65</td><td>$ 45.99-79.75</td></tr><tr><td>Dividend (Common)</td><td>$ 1.06</td><td>$ 0.98</td></tr><tr><td>Dividend (Preferred)</td><td>$ 1.375</td><td>$ 1.375</td></tr><tr><td>Earnings Per Diluted Share</td><td>$ 6.42</td><td>$ 5.90</td></tr><tr><td>Return on Equity</td><td>19%</td><td>21%</td></tr><tr><td>Book Value Per Share</td><td>$ 37.02</td><td>$ 32.59</td></tr><tr><td>Shares Outstanding</td><td>10,246,332</td><td>10,105,748</td></tr></table>




Net Income
(dollars in thousands)
Compound Annual Growth
Five Years +61%



Net Sales
(dollars in thousands)
Compound Annual Growth
Five Years +9%



Segment Sales
(dollars in thousands)
■ Surfactants
■ Polymers
■ Specialty Products



Capital Expenditures
(dollars in thousands)
Compound Annual Growth
Five Years +13%



Net Income Per Diluted Common Share (dollars)
Compound Annual Growth
Five Years +59%



Dividends Per
Common Share (dollars)
Compound Annual Growth
Five Years +6%



Equity Per Share (dollars)
Compound Annual Growth
Five Years +15%



2011 Product Line Sales
(dollars in thousands)
■ Surfactants $1,361,956
■ Polymers $421,515
■ Specialty Products $59,621



2011 Long Lived Assets
(dollars in thousands)
United States $230,926
Others $171,238



2011 Global Sales
(dollars in thousands)
United States $1,086,233
Others $756,859



2011 Sales Dollar Distribution
(dollars in thousands)
■ Material $1,107,863 60%
■ Other Expenses $390,241 21%
■ Payroll & Fringes $193,621 11%
■ Depreciation & Amortization $47,099 3%
■ Income Taxes $32,292 1%
■ Net Income $71,976 4%



# Dear
Fellow
Shareholders:

We are pleased to report our fourth consecutive record income year. During 2011, we began to reap the benefits of our growth strategy and the investments made to extend our core technology platforms to emerging markets and to improve our product mix through innovation. Over the last several years, we have taken steps to reduce our costs and strengthen the balance sheet that allows us to invest now and capture growth opportunities. Over the past two years, we have spent $191 million on capital expenditures and acquisitions, with 41 percent of that amount spent on growth capital outside the United States. In 2012, we plan to spend $100 million on capital expenditures because we are confident we can continue to capture opportunities in markets around the world and execute with disciplined performance that delivers results for our shareholders.

In 2011, net income rose 10 percent to $72.0 million, or $6.42 per diluted share, reflecting an improved sales mix in our Surfactant business that offset weaker consumer product sales and improved profitability in our Polymer business due to higher volumes.

Net sales in 2011 increased 29 percent to $1.8 billion as volume grew three percent. Surfactant volumes were up two percent, primarily due to higher demand for functional surfactants, particularly those used in the agricultural and oilfield markets. Global demand for polyols continued to benefit from recommendations to use higher insulation levels to reduce energy consumption and new end use applications. Sales for Specialty Products rose 40 percent with the acquisition of the Lipid Nutrition product lines in June.

The Surfactant group continues to focus resources aggressively on top line growth driven primarily by innovation, acquisition and geographic expansion. In 2011, our Surfactant group posted record operating income driven by greater sales into the functional markets and into the highly diversified general surfactant market where Stepan has built an effective marketing and distribution infrastructure. Demand also continued to grow for enhanced oil recovery surfactants as the opportunity to increase economic returns on existing oil fields remains compelling. Expanding our presence in Brazil continues to be an important element in our Surfactant growth strategy. Brazil’s laundry market is converting from bars to powders and eventually to liquids, which requires using increasing amounts of surfactants with each step. Equally important, Brazil’s large and diverse consumer, agricultural and oilfield surfactant markets offer significant growth potential for Stepan’s value-added products. Last year we added neutralization capabilities to our sulfonation plant in Vespasiano, which contributed to higher volumes and improved profitability for our operations there. We will continue to evaluate opportunities to expand capacity and add new capabilities in this important market.

In 2011, we also made progress in building Stepan’s surfactant franchise in Asia. We will complete the installation of fractionation capability at the Company’s 100,000 ton-per-year methyl ester plant in Singapore and will begin production to supply both internal and external customer needs in the second quarter of 2012. As a result of growing demand for fabric softeners in Asia, we have invested in increased capacity at our plant in the Philippines to support this growth opportunity.

Higher prices and long-term demand for crude oil, particularly in India and China, have heightened the sense of urgency around the world to develop untapped reserves in mature oil fields through enhanced oil recovery technologies. TIORCO, our joint venture with Nalco, provides custom engineered chemical solutions using core Stepan technologies to reduce surface tension between the oil and rock to allow greater oil recovery from existing fields. Results from one commercial and two pilot floods have been encouraging and several additional pilot floods are expected soon. We believe that enhanced oil recovery presents a significant opportunity for surfactants and will continue to invest with our joint venture partner to increase the scale and scope of this business.

In 2011, our Polymer group also delivered record operating income despite the slowly improving global economy and a fire in June that delayed availability of the second reactor at our plant in Wesseling, Germany. Global polyol volumes are up 14 percent, driven by sustained demand for retrofit roofing, higher standards for insulation and increased penetration in the metal panel and adhesives market segments. Insulation has been shown to be one of the most effective ways to reduce fossil fuel consumption and lower carbon emissions. Continued high energy prices and worldwide efforts to encourage energy conservation should drive future volume growth for our polyol business.

In Europe, the second reactor at Wesseling is now fully operational, adding 38,000 metric tons of capacity. The acquisition of our plant near Wroclaw, Poland, in 2010 brought us an additional 25,000 metric tons of polyester polyol capacity and 15,000 metric tons of blend capacity.



to serve growing markets in Eastern and Central Europe. Anticipated volume growth began during the second half of 2011 and as customer demands accelerate, we will evaluate the need for an additional reactor at the site. With these new facilities, Stepan is well positioned to pursue growth opportunities in the European market.

Our polyol business in China continues to grow. Our joint venture has been notified by the local Nanjing government that our Polyol plant will be required to move. We are planning to relocate our joint venture plant in Nanjing, China, to a new facility in the Nanjing Chemical Industrial Park by 2014.

In June, Stepan Specialty Products, LLC acquired three product lines of Lipid Nutrition B.V. from Loders Croklaan B.V. of the Netherlands. As part of the integration of these product lines, Stepan's Food and Health Specialties business was renamed Stepan Lipid Nutrition. The acquisition of these product lines, together with our Neobee \( ^{®} \)  medium chain triglycerides (MCT) products, provides Stepan with a unique portfolio of nutritional fats for the food, supplement and nutrition industries. The acquired products, which will be sold on a global basis, will be manufactured at Stepan's Maywood, New Jersey, plant as well as at existing contract manufacturers.

The value of our innovation portfolio, as well as execution on key projects, continued to improve in 2011. While we will move a number of high potential projects through a phased approach to commercialization, our current focus is on two large projects — enhanced oil recovery surfactants and new novel feedstocks. Our joint development agreement with Elevance Renewable Sciences, announced in 2010, is a critical component of our feedstock development efforts. The program is moving forward with Stepan using feedstocks from natural oils produced by Elevance's Nobel Prize-winning metathesis technology to create novel surfactants and antimicrobials. We are proceeding aggressively to determine the best candidates for commercialization among the many opportunities presented by this alliance.

In October, the Board of Directors declared a 7.7 percent increase in the quarterly cash dividend to $1.12 per common share, marking the forty-fourth consecutive annual dividend increase.

As we focus on growth, we challenge ourselves to find ways to improve operating effectiveness and efficiency. During 2011, we pursued a broad range of cost reduction initiatives and continuous improvement programs using Six Sigma teams. We improved purchasing processes, including ways to better leverage our global purchasing power. In 2011 alone, our Continuous Improvement Program delivered global productivity savings of $16.5 million.

We grow by setting appropriately high expectations and driving accountability through our Performance Management Process. We are developing the next generation of leadership by identifying and coaching our employees and succession candidates. Through project management skills training, we are enhancing our ability to deliver better project returns.



As we look forward, we are committed to disciplined growth. Your Stepan team is energized and motivated by the opportunities presented by our customers. We appreciate their confidence in us. We believe our strategy will deliver results for you — our shareholders. Thank you for your investment in Stepan.



F. QUINN STEPAN
Chairman



F. QUINN STEPAN, JR.
President and Chief Executive Officer



# Capturing Opportunities.
Disciplined Performance.
Delivering Results.

Stepan’s priority today is growth – profitable, global growth. The work we’ve done over the past several years – restructuring certain operations, diversifying our product mix and reducing costs – has positioned Stepan to aggressively pursue growth. With the flexibility provided by a strong balance sheet, we are capturing long-term growth opportunities that will build Stepan’s future.

We are investing in emerging markets that are growing faster than our traditional markets in North America and Europe. We have built or acquired facilities in some of the world’s fastest growing markets, including Brazil, Singapore, Poland and China. We are adding sales, marketing and technical resources in these locations to enable us to grow in a focused and disciplined manner.

We are diversifying and expanding our product lines to move into higher value global markets. We are filling gaps in our product mix either through organic research and development or acquisition. Through our own innovation efforts and strategic alliances we now have a portfolio of projects that could provide significant future growth.

Our opportunities also spring from global trends, such as the worldwide interest in sustainability and renewable feedstocks, as well as the push to reduce consumption of fossil fuels and lower carbon emissions. Some of Stepan’s products, such as polyols used for insulation or surfactants used to enhance the recovery of oil, play a crucial role in energy conservation. We are working hand-in-hand with customers to help meet their sustainability objectives.

The goal of our growth initiatives is to drive results and provide an improved return on investment for our shareholders. The special section that follows explores some of the ways we are delivering on that commitment.



## Growth in
Emerging Markets

As Stepan pursues its growth strategy, emerging markets around the world offer significant potential. These markets are particularly attractive to Stepan when their internal consumer and industrial trends are developing in ways similar to our traditional markets in North America and Europe. Brazil is a perfect example. The country’s surfactant market is large, diverse and growing. Its base laundry business is quickly converting from solid soap bars to powders and eventually to liquids — a trend that calls for greater amounts of surfactants at each step in the conversion. Brazil
Members of the team
pursuing global growth
opportunities include
(from left) James Pall,
Vice President, Corporate
Development, Surfactants;
Scott Mason, Vice President,
Supply Chain; Lucas Martini,
Plant Manager, Vespasiano,
Brazil (pictured below);
Robert Mangold, Vice
President, Manufacturing
and Engineering.
also has rapidly growing personal care, agricultural and oil field surfactant markets. In recent years, Stepan has added marketing and research resources to complement our commodity sulfonation business and target higher value added sulfonation products into the functional markets.





In order to capture more opportunities, Stepan has steadily increased its investment of talent and capital in its Brazilian operations. Since the acquisition of a large sulfonation plant in Vespasiano in 2005, we have significantly upgraded the facility and added new capabilities. In 2011, we completed the installation of neutralization equipment that will enable us to expand and diversify our product offerings. As demand grows, we will pursue additional capacity.

Asian markets, some of the fastest growing in the world, also are important growth targets for the company. In North America, Stepan’s ability to produce a portfolio of value added methyl ester derivatives has been an important contributor to its leading position in the surfactant industry. In mid-2010, Stepan acquired a large methyl ester plant located on Singapore’s Jurong Island. During 2011, we have been installing fractionation capability in order to supply our internal and our customers’ surfactant needs with methyl esters and value added derivatives. The start up of the plant in the second quarter of 2012 will mark an important step in building Stepan’s surfactant franchise in Asia.

Customers with polyol requirements in the fast growing markets of Central and Eastern Europe can now be served by Stepan’s new plant near Wroclaw, Poland, which was acquired in 2010. With the addition of this plant, Stepan has the talent, resources and technology in place to build on its position as the world’s largest supplier of aromatic polyester polyols.

## Strategic Acquisition
— Lipid Nutrition

Stepan’s strategy for growth encompasses both organic new product development through its innovation portfolio and, where appropriate, expansion through acquisition, particularly of product lines that fill out or build upon Stepan’s existing offerings. The acquisition this year of the product lines of Lipid Nutrition B.V. in the Netherlands by Stepan Specialty Products, LLC is an example of a synergistic acquisition that positions the company for expansion in markets that are experiencing rapid growth.

The acquired product lines, Clarinol \( ^{®} \) , Marinol \( ^{®} \)  and PinnoThin \( ^{®} \) , are well established outside of the United States and are sold primarily as dietary supplements, a market segment in which Stepan had a small presence. The patented Clarinol \( ^{®} \)  Conjugated Linoleic Acid (CLA) has been sold as a dietary supplement for more than ten years as an ingredient






to help reduce body fat and increase lean muscle mass. It has been approved by the U.S. Food and Drug Administration (FDA) for use in certain foods since 2008. Marinol \( ^{®} \)  concentrated Omega-3 triglycerides are used in clinical and infant nutritional products
to promote cardiovascular and neurological health. PinoThin \( ^{®} \) , derived from pine nuts, functions as an appetite suppressant. The acquired product lines were integrated into Stepan’s Food and Health Specialties business, which was renamed Stepan Lipid Nutrition.

Stepan Lipid Nutrition will operate from two locations — a centralized business management office in Maywood, New Jersey, and a sales and operations office near Amsterdam. In addition to a three-fold increase in staff, the acquisition brought added expertise in toxicology and regulatory affairs. The products will be manufactured at Stepan’s Maywood plant, which is being expanded to meet production requirements. We will also continue to use an existing network of outside contract manufacturers.

The combination of Stepan’s existing Neobee \( ^{®} \)  Medium Chain Triglycerides (MCT) products with the new product lines creates a unique portfolio of nutritional fats for the food, supplement, nutrition and pharmaceutical industries worldwide. The acquisition brings together product expertise, global customer reach, a stronger patent portfolio and new products with clinically proven health benefits. We are already seeing customer acceptance of the combined product line and the advantages Stepan offers.
Stepan embraces a broad view of sustainability. We look internally to reduce the environmental impact of our operations but we also look externally and seek to enable our customers to achieve their sustainability objectives.

Our Polymer group is the largest global supplier of aromatic polyester polyols used in insulation products for low slope commercial roofing and metal panels for construction. Insulation is one of the most effective forms of energy conservation. Mounting interest around the world in ways to reduce fossil fuel consumption and lower carbon dioxide levels has led many customers to look to Stepan’s polyol insulation products.

Our diversification into the metal panel segment illustrates how sustainability trends can contribute to growth. Insulated metal panels are an energy saving technology that has gained wide acceptance in many parts of the world. To create the panels, Helping to find energy saving applications for Stepan polyols are Frank Pacholec, Vice President, Research and Development and Corporate Sustainability Officer; and Kevin Knutsen, Vice President, North American Polymers; and Angelo Gabbianelli, Business Manager, Laminate Polyols.





polyurethane foam is injected between two metal sheets, which results in a durable, low maintenance, easy-to-install building material that has high insulating value. High oil prices and increased calls for conservation have generated increased interest in Stepan’s metal panel products.



## Reducing Energy Costs
and Environmental
Emissions with Insulation

According to a study cited by the Polyisocyanurate Insulation Manufacturers Association (PIMA), the polyiso insulation alone installed across the United States on low slope roofs between 1999 and 2003 generated average annual savings of 43 million barrels of oil and $1.7 billion in energy costs.

In the United States, buildings produce more than a third of the emissions that contribute to climate change. Because polyiso reduces the amount of oil consumed, millions of tons of pollutants are not released into the environment, including significant levels of carbon dioxide, sublayer dioxide and nitrogen oxides.

Global insulation standards continue to be increased through legislated mandates or stricter building codes. ASHRAE (the American Society of Heating, Refrigerating and Air-Conditioning Engineers) publishes widely recognized insulation standards that are commonly adopted in local U.S. building codes. In 2007, and again in 2010, ASHRAE increased its recommended insulation levels by 33 percent (and even higher in some climate zones) for a total 66 percent cumulative increase. As building codes get revised, insulation use levels will rise.

Stepan is a major supplier of polyol to the polyiso insulation manufacturers, thereby contributing significantly to this energy saving and environmental improvement effort.



Customer demand for renewable feedstocks is another sustainability trend driving Stepan. Our strategy is to deliver value to our customers and achieve organic growth through sustainability innovations that are synergistic with Stepan’s core capabilities, platforms and markets. Our joint development agreement with Elevance Renewable Sciences, Inc., fits that profile. Using Elevance’s Nobel Prize-winning metathesis technology, Stepan will create high performance ingredients for our core detergent, hard surface cleaning, personal care and agricultural markets that meet customers’ sustainability objectives for renewable feedstocks, greater compaction and reduced energy consumption. During 2011, we explored a wide range of potential projects in a rigorous screening program and are now ready to move forward with several of those that show the most potential.

## Safety First

As we continue to raise the bar with regard to our performance in all areas, the health and safety of our employees is paramount. In 2011, our global recordable rate, a key metric of the number and severity of safety incidents, was 0.89, versus 1.05 in 2010 and 1.29 in 2009. All employees are committed to being safe and effective environmental stewards. We are pleased that for a second consecutive year our facilities in
Colombia, Mexico and the Philippines earned the Stepan President’s Award. In addition, our plants in China, the United Kingdom and Winder, Georgia, have also earned this prestigious award, which is presented annually to any Stepan facility that meets seven specific safety and environmental performance criteria.
As part of its continuing efforts to enhance safe and secure operations globally, Stepan created the President’s Award, which will be presented to any Stepan facility that meets seven specific safety and environmental performance criteria.
Chairman F. Quinn Stepan presented the award to team members at the Company’s plant in Bauan, Batangas, Philippines.






# Using Stepan
Products

# Consumer
and
Industrial
Products

Laundry & Cleaning

All-purpose cleaners
Bathroom cleaners · Carpet
steam extraction · Carpet
shampoos · Car wash
detergents · Car wash spray
wax emulsifiers · Cooling
tower biocides · Dishwashing
detergents · Disinfectants and
sanitizers · Drain cleaners
· Dry cleaning detergents
· Fabric softener dryer
sheets · Fine fabric washes
· General disinfectants ·
Hand and dish disinfection
· Hard surface cleaners ·



Hard surface disinfection for food preparation areas
• Hospital disinfectants and sanitizers • Industrial floor cleaners • Industrial food processing disinfection • Laundry, commercial and textile softeners • Laundry detergents • Laundry pre-sporters • Laundry sanitization
• Metal cleaning emulsifiers • Rug shampoos • Sanitizers • Sanitization and deodorization of bath and laundry areas
• Solvent degreasers



Swimming pool and hot tub
algicides, slimicides and
fungicides · Upholstery
shampoos · Window cleaners

## Personal Care

After-shave lotions
Anti-bacterial handsoaps
Anti-dandruff shampoos
Baby shampoos · Bar soaps
· Bath oils · Bath products
Body washes · Bubble baths
· Cleansing creams · Combo
bars · Conditioning shampoos
· Dentifrices · Facial
preparations · Glosses · Hair
conditioners · Hair rinses
· Leave-on conditioners
Liquid hand soaps · Make-up
preparations · Medicated
ointments · Moisturizers
· Mousses · Ointments
Personal care cleansing
preparations · Pre-shave
lotions · Shampoos · Shaving
creams · Skin creams · Skin
lotions · Sunscreen products
· Suppositories · Styling aids
· Syndet bars

## Industrial
Surfactants

Adhesives · Architectural coatings · Biodiesel fuels · Carpet backing · Caulk · Concrete · Drawing and forming compounds · Drilling foamers · Drywall joint compound · Dust control foam · Engine lubricants · Enhanced oil recovery · Firefighting foam · Foam



markers · Gypsum board
· Herbicides, fungicides, insecticides · Industrial paints · Inks · Landfill cover · Leather finishes · Non-woven binders · Oil emulsifiers · Oil well bactericides · Oil well corrosion inhibitors · Packaging · Paper coatings
· Paper de-inking · Pesticide adjuvants · Pigments · Plastics · Sealants · Scouring, levelling, coupling, wetting, bleaching and dyeing assistants · Textile coatings · Textile lubricants · Vinyl flooring

## Polymers

Appliances: Refrigerators, freezers, water heaters · Automotive: Upholstery, interior trim, crash pads, floor mats, hoses, refrigerated trailer insulation, RV panels · Bath fixtures: Bathtubs, shower stalls, lavatories, spas, laundry tubs, tub and spa insulation · Construction: Resilient floors, wall coverings, pool liners, FRP panels, swimming pools, concrete forming pans, gutter/downspouts, cooling towers, mobile homes, rigid insulation, insulated pipes · Elastomers: Thermobreaks for metal thresholds and windows, engineering plastics



· Electrical: Wire and cable insulation, electrical tape, transmission hardware, circuit boards, switchgear housing, potting compounds · Furniture: Adhesives, flexible cushions · Household goods: Footwear, toys, luggage, book bindings, garden hoses, outerwear, tablecloths, shower curtains, upholstery · Insulations: Residential sheathing, commercial/industrial roofing, building panels, spray-applied polyurethane foam insulation, decorative molded parts and displays · Marine: Boat hulls, deck hardware, floatation, motor covers, mooring buoys · Medical: Intravenous bags, medical tubing, prostheses, implants, pharmaceutical coatings · Military/aerospace: Encapsulation, electrical potting, cavity fill, cryogenic



insulation, floatation
Packaging: Meat and produce
film, bottles and containers,
packaging foam · Paints/
coatings: Industrial and
residential paints, polyure-
thane coatings, traffic paints
· Recreation: Picnic cooler
insulation, bowling balls,
sporting equipment, taxidermy
· Sealants: Expanding
sealants in a can, two-
component polyurethanes

## Food &

Pharmaceutical
Ingredients
Confections · Energy bars and
drinks · Flavors · Nutritional
beverages · Pharmaceutical
excipients



## Five Year
Summary

<table><tr><td>(in thousands, except per share and employee data)</td><td>2011</td><td>2010</td><td>2009</td><td>2008</td><td>2007</td></tr><tr><td>For the Year</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales</td><td>$1,843,092</td><td>$1,431,122</td><td>$1,276,382</td><td>$1,600,130</td><td>$1,329,901</td></tr><tr><td>Operating Income</td><td>118,456</td><td>107,897</td><td>104,888</td><td>70,680</td><td>35,095</td></tr><tr><td>Percent of Net Sales</td><td>6.4%</td><td>7.5%</td><td>8.2%</td><td>4.4%</td><td>2.6%</td></tr><tr><td>Income Before Provision for Income Taxes</td><td>104,894</td><td>101,479</td><td>97,131</td><td>54,878</td><td>23,715</td></tr><tr><td>Percent of Net Sales</td><td>5.7%</td><td>7.1%</td><td>7.6%</td><td>3.4%</td><td>1.8%</td></tr><tr><td>Provision for Income Taxes</td><td>32,292</td><td>35,888</td><td>34,028</td><td>17,615</td><td>8,687</td></tr><tr><td>Net Income Attributable to Stepan Company</td><td>71,976</td><td>65,427</td><td>63,049</td><td>37,172</td><td>15,118</td></tr><tr><td>Per Diluted Share(a)</td><td>6.42</td><td>5.90</td><td>5.84</td><td>3.52</td><td>1.50</td></tr><tr><td>Percent of Net Sales</td><td>3.9%</td><td>4.6%</td><td>4.9%</td><td>2.3%</td><td>1.1%</td></tr><tr><td>Percent to Total Stepan Company Stockholders&#x27; Equity(b)</td><td>19.2%</td><td>20.5%</td><td>25.3%</td><td>17.9%</td><td>7.8%</td></tr><tr><td>Cash Dividends Paid</td><td>11,513</td><td>10,570</td><td>9,557</td><td>8,863</td><td>8,431</td></tr><tr><td>Per Common Share</td><td>1.0600</td><td>0.9800</td><td>0.9000</td><td>0.8500</td><td>0.8250</td></tr><tr><td>Depreciation and Amortization</td><td>47,099</td><td>40,351</td><td>37,171</td><td>36,928</td><td>37,176</td></tr><tr><td>Capital Expenditures</td><td>83,166</td><td>73,748</td><td>42,631</td><td>49,778</td><td>39,815</td></tr><tr><td>Weighted-average Common Shares Outstanding (Diluted)</td><td>11,220</td><td>11,090</td><td>10,796</td><td>10,549</td><td>10,113</td></tr><tr><td>As of Year End</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Working Capital</td><td>$246,516</td><td>$222,199</td><td>$186,297</td><td>$116,288</td><td>$92,954</td></tr><tr><td>Current Ratio</td><td>2.1</td><td>2.1</td><td>2.1</td><td>1.5</td><td>1.5</td></tr><tr><td>Property, Plant and Equipment, Net</td><td>383,983</td><td>353,585</td><td>248,618</td><td>238,166</td><td>234,062</td></tr><tr><td>Total Assets</td><td>901,118</td><td>811,431</td><td>634,203</td><td>611,897</td><td>573,185</td></tr><tr><td>Long-term Debt Obligations</td><td>164,967</td><td>159,963</td><td>93,911</td><td>104,725</td><td>96,939</td></tr><tr><td>Total Stepan Company Stockholders&#x27; Equity</td><td>401,211</td><td>349,491</td><td>289,285</td><td>208,144</td><td>206,051</td></tr><tr><td>Per Share(c)</td><td>37.02</td><td>32.59</td><td>27.36</td><td>20.27</td><td>20.69</td></tr><tr><td>Number of Employees</td><td>1,848</td><td>1,768</td><td>1,594</td><td>1,578</td><td>1,525</td></tr></table>

(a) Based on weighted-average number of common shares outstanding during the year.

(b) Based on average equity.

(c) Based on common shares and the assumed conversion of the convertible preferred shares outstanding at year end.

The selected financial data included herein has not been audited. The information was derived from the Company's audited financial statements for the respective years, which were presented in accordance with accounting principles generally accepted in the United States of America and which were audited in accordance with the standards of the United States Public Company Accounting Oversight Board. Copies of the full consolidated financial statements and of the independent registered public accountants' report that expressed an unqualified opinion (dated February 27, 2012) are included in the Company's 2011 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission, which is available on request or via Website at www.stepan.com.



## Quarterly Financial Data

<table><tr><td>(Dollars in thousands, except per share data)</td><td>First</td><td>Second</td><td>Third</td><td>Fourth</td><td>Year</td></tr><tr><td>2011</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales</td><td>$ 422,598</td><td>$ 476,989</td><td>$ 499,335</td><td>$ 444,170</td><td>$ 1,843,092</td></tr><tr><td>Gross Profit</td><td>61,786</td><td>69,585</td><td>64,080</td><td>60,112</td><td>255,553</td></tr><tr><td>Interest, Net</td><td>(2,063)</td><td>(2,194)</td><td>(2,256)</td><td>(2,582)</td><td>(9,095)</td></tr><tr><td>Income Before Income Taxes</td><td>27,135</td><td>31,332</td><td>28,229</td><td>18,198</td><td>104,894</td></tr><tr><td>Net Income</td><td>18,816</td><td>21,006</td><td>19,231</td><td>13,549</td><td>72,602</td></tr><tr><td>Net Income Attributable to Stepan Company</td><td>18,761</td><td>20,867</td><td>19,169</td><td>13,179</td><td>71,976</td></tr><tr><td>Per Diluted Share</td><td>1.68</td><td>1.87</td><td>1.70</td><td>1.17</td><td>6.42</td></tr><tr><td>2010</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales</td><td>$ 337,030</td><td>$ 366,504</td><td>$ 366,800</td><td>$ 360,788</td><td>$ 1,431,122</td></tr><tr><td>Gross Profit</td><td>63,552</td><td>63,478</td><td>58,429</td><td>50,519</td><td>235,978</td></tr><tr><td>Interest, Net</td><td>(1,256)</td><td>(1,510)</td><td>(2,004)</td><td>(1,571)</td><td>(6,341)</td></tr><tr><td>Income Before Income Taxes</td><td>31,606</td><td>26,387</td><td>31,280</td><td>12,206</td><td>101,479</td></tr><tr><td>Net Income</td><td>20,681</td><td>17,069</td><td>19,223</td><td>8,618</td><td>65,591</td></tr><tr><td>Net Income Attributable to Stepan Company</td><td>20,660</td><td>17,046</td><td>19,230</td><td>8,491</td><td>65,427</td></tr><tr><td>Per Diluted Share</td><td>1.88</td><td>1.53</td><td>1.73</td><td>0.76</td><td>5.90</td></tr></table>

## Quarterly
Stock Data

<table><tr><td rowspan="2">Quarter</td><td rowspan="2">2011 High</td><td colspan="3">Stock Price Range</td><td colspan="2">Dividends Paid</td></tr><tr><td>2011 Low</td><td>2010 High</td><td>2010 Low</td><td>2011</td><td>2010</td></tr><tr><td>First</td><td>$ 78.86</td><td>$ 68.62</td><td>$ 67.67</td><td>$ 45.99</td><td>$ 0.26</td><td>$ 0.24</td></tr><tr><td>Second</td><td>$ 75.22</td><td>$ 62.65</td><td>$ 79.75</td><td>$ 54.95</td><td>$ 0.26</td><td>$ 0.24</td></tr><tr><td>Third</td><td>$ 82.15</td><td>$ 65.39</td><td>$ 72.17</td><td>$ 53.55</td><td>$ 0.26</td><td>$ 0.24</td></tr><tr><td>Fourth</td><td>$ 83.65</td><td>$ 64.64</td><td>$ 76.99</td><td>$ 59.00</td><td>$ 0.28</td><td>$ 0.26</td></tr><tr><td>Year</td><td>$ 83.65</td><td>$ 62.65</td><td>$ 79.75</td><td>$ 45.99</td><td>$ 1.06</td><td>$ 0.98</td></tr></table>



## Corporate Directors & Officers

## Board of Directors



F. Quinn Stepan
Chairman



Michael R. Boyce
Chairman and Chief Executive
Officer, PQ Corporation, an
industrial chemicals company,
Malvern, Pennsylvania



Gregory E. Lawton
Former President and Chief
Executive Officer, Johnson
Diversey, Inc., a global provider
of cleaning and hygiene solutions
to the institutional and industrial
marketplace, Sturtevant,
Wisconsin



F. Quinn Stepan, Jr.
President and
Chief Executive Officer



Joaquin Delgado
Executive Vice President, Electro
and Communications Business, 3M
Company, a diversified technology
company, St. Paul, Minnesota



Edward J. Wehmer
President and Chief Executive
Officer, Wintrust Financial
Corporation, a financial
services company, Lake Forest,
Illinois

## Officers

F. Quinn Stepan
Chairman

F. Quinn Stepan, Jr.
President and
Chief Executive Officer

James E. Hurlbutt
Vice President and
Chief Financial Officer

Scott C. Mason
Vice President, Supply Chain

Frank Pacholec
Vice President, Research and
Development and Corporate
Sustainability Officer

Gregory Servatius
Vice President, Human Resources

John V. Venegoni
Vice President and General
Manager, Surfactants

Robert J. Wood
Vice President and General
Manager, Polymers

H. Edward Wynn
Vice President, General Counsel
and Secretary

Kathleen O. Sherlock
Assistant General Counsel and
Assistant Secretary

Departmental
Vice Presidents

Finance
Matthew J. Eaken
Vice President and Corporate
Controller

International
Charles A. Brown
Vice President, Latin America
John Hall
Vice President & General Manager,
Stepan Asia – Pacific Surfactants
Anthony Martin

Vice President, Europe
Roger Stubbs
Vice President, European Polymers
Logistics
Debra A. Stefaniak
Vice President, Global Logistics

Manufacturing
Robert S. Mangold
Vice President, Manufacturing
and Engineering
Kyle Montgomery
Vice President, Plant Operations,
The Americas

Purchasing
Arthur W. Mergner
Vice President, Procurement
Richard H. Wehman, Jr.
Vice President, Strategic
Purchasing

Research and Development

Matthew I. Levinson
Vice President, Global Process
Development

Paul L. Neill
Vice President, Polymers Research
and Development

Specialty Products
James M. Butterwick
Vice President, Specialty Products

Surfactants
Scott R. Behrens
Vice President, Business
Management

Jeffrey E. Grahn
Vice President, Product
Management

Sean T. Moriarty
Vice President, Consumer Products

Mark F. Mydlach
Vice President, Surfactant Sales

James S. Pall
Vice President, Corporate
Development

Polymers
Kevin J. Knutsen
Vice President, North American
Polymers



## Corporate Information

Independent Registered Public Accounting Firm
Deloitte & Touche LLP, Chicago, Illinois

Transfer Agent and Registrar
Computershare Investor Services, LLC
2 North LaSalle St., Chicago, Illinois 60602
312.588.4991 Fax 312.293.4943
Contact the Registrar and Transfer Agent concerning stock certificates, dividend checks, transfer of ownership, or other matters pertaining to your stock account.

Stock Listing
New York Stock Exchange: SCL and SCLPR
Chicago Stock Exchange: SCL and SCLPR

Investor Relations
James E. Hurlbutt
847.446.7500

## Form 10-K

Copies of the Company’s annual report on Form 10-K, filed with the Securities and Exchange Commission, will be available without charge to stockholders and interested parties upon written request to the Secretary of the Company or may be obtained on our Website at www.stepan.com

## Annual Meeting

The 2012 Annual Meeting for the Stockholders of the Company will be held at 9:00 a.m., Tuesday, April 24, 2012, at the Company’s headquarters in Northfield, Illinois.

## Corporate Governance

The Nominating and Corporate Governance Committee of the Board of Directors has established a committee charter and a Code of Conduct. These documents are provided on Stepan’s Website at www.stepan.com within the Investor Relations section of the site. At the same Website location, Stepan provides an Ethics Hotline phone number and Website that allows employees, shareholders and other interested parties to communicate with the Company’s management or Audit Committee (on an anonymous basis, if desired) through an independent third party hotline.