STEPAN CO Income Taxes Disclosure
9. Income Taxes
Income before taxes and provisions for taxes on income for the years ended December 31, 2025, 2024 and 2023, were as follows:
(In thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Income before Taxes |
|
|
|
|
|
|
|
|
|
|||
U.S. income |
|
$ |
(4,372 |
) |
|
$ |
7,319 |
|
|
$ |
11,693 |
|
Foreign income |
|
|
64,276 |
|
|
|
53,120 |
|
|
|
36,698 |
|
Income before income taxes |
|
$ |
59,904 |
|
|
$ |
60,439 |
|
|
$ |
48,391 |
|
(In thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Taxes on Income |
|
|
|
|
|
|
|
|
|
|||
Current (1) |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
$ |
(3,118 |
) |
|
$ |
2,177 |
|
|
$ |
(22,215 |
) |
State |
|
|
23 |
|
|
|
(482 |
) |
|
|
(1,188 |
) |
Foreign |
|
|
17,499 |
|
|
|
18,664 |
|
|
|
13,287 |
|
Other (2) |
|
|
— |
|
|
|
1 |
|
|
|
— |
|
Total current income tax (benefit) expense |
|
$ |
14,404 |
|
|
$ |
20,360 |
|
|
$ |
(10,116 |
) |
Deferred (1) |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
$ |
(927 |
) |
|
$ |
(7,248 |
) |
|
$ |
20,268 |
|
State |
|
|
(898 |
) |
|
|
905 |
|
|
|
444 |
|
Foreign |
|
|
430 |
|
|
|
(3,947 |
) |
|
|
(2,409 |
) |
Other (2) |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
Total deferred income tax (benefit) expense |
|
$ |
(1,395 |
) |
|
$ |
(10,291 |
) |
|
$ |
18,303 |
|
Total income tax expense |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
$ |
(4,045 |
) |
|
$ |
(5,071 |
) |
|
$ |
(1,947 |
) |
State |
|
|
(875 |
) |
|
|
423 |
|
|
|
(744 |
) |
Foreign |
|
|
17,929 |
|
|
|
14,717 |
|
|
|
10,878 |
|
Other (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total income tax expense |
|
$ |
13,009 |
|
|
$ |
10,069 |
|
|
$ |
8,187 |
|
The variations between the effective and statutory U.S. federal income tax rates are summarized as follows:
|
|
2025 |
|
|||||
(In thousands) |
|
Amount |
|
|
% |
|
||
U.S. federal statutory tax rate |
|
$ |
12,580 |
|
|
|
21.0 |
|
Effect of cross-border tax laws |
|
|
(589 |
) |
|
|
(1.0 |
) |
Tax credits |
|
|
(175 |
) |
|
|
(0.3 |
) |
Nontaxable or nondeductible items |
|
|
|
|
|
|
||
Executive compensation |
|
|
1,113 |
|
|
|
1.9 |
|
Penalties and interest |
|
|
(949 |
) |
|
|
(1.6 |
) |
Other |
|
|
207 |
|
|
|
0.3 |
|
Other |
|
|
960 |
|
|
|
1.6 |
|
Enactment of new tax laws |
|
|
— |
|
|
|
0.0 |
|
State and local income taxes, net of federal income tax effect (1) |
|
|
(690 |
) |
|
|
(1.2 |
) |
Foreign tax effects |
|
|
|
|
|
|
||
Argentina |
|
|
|
|
|
|
||
Valuation allowance |
|
|
929 |
|
|
|
1.6 |
|
Other |
|
|
(50 |
) |
|
|
(0.1 |
) |
Brazil |
|
|
|
|
|
|
||
Foreign rate differential |
|
|
2,063 |
|
|
|
3.4 |
|
Interest expense deduction on equity |
|
|
(1,402 |
) |
|
|
(2.3 |
) |
Other |
|
|
(1,048 |
) |
|
|
(1.7 |
) |
Canada |
|
|
|
|
|
|
||
Repatriation |
|
|
1,981 |
|
|
|
3.3 |
|
Other |
|
|
596 |
|
|
|
1.0 |
|
France |
|
|
836 |
|
|
|
1.4 |
|
Mexico |
|
|
|
|
|
|
||
Goodwill impairment |
|
|
1,543 |
|
|
|
2.6 |
|
Inflationary adjustment |
|
|
(743 |
) |
|
|
(1.2 |
) |
Other |
|
|
(526 |
) |
|
|
(0.9 |
) |
Netherlands |
|
|
738 |
|
|
|
1.2 |
|
Philippines |
|
|
|
|
|
|
||
Foreign rate differential |
|
|
(1,094 |
) |
|
|
(1.8 |
) |
Philippine Economic Zone Authority tax holiday |
|
|
1,513 |
|
|
|
2.5 |
|
Other |
|
|
420 |
|
|
|
0.7 |
|
Other foreign jurisdictions |
|
|
820 |
|
|
|
1.4 |
|
Worldwide changes in unrecognized tax benefits |
|
|
(6,024 |
) |
|
|
(10.1 |
) |
Total income tax provision |
|
$ |
13,009 |
|
|
|
21.7 |
|
|
|
2024 |
|
|
2023 |
|
||||||||||
(In thousands) |
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
||||
Federal income tax provision at statutory |
|
$ |
12,692 |
|
|
|
21.0 |
|
|
$ |
10,162 |
|
|
|
21.0 |
|
State income tax provision, less applicable |
|
|
334 |
|
|
|
0.6 |
|
|
|
(588 |
) |
|
|
(1.2 |
) |
Foreign income taxed at different rates |
|
|
4,556 |
|
|
|
7.5 |
|
|
|
1,153 |
|
|
|
2.4 |
|
U.S. taxation of foreign earnings (1) |
|
|
(159 |
) |
|
|
(0.3 |
) |
|
|
1,079 |
|
|
|
2.2 |
|
Unrecognized tax benefits |
|
|
4,520 |
|
|
|
7.5 |
|
|
|
4,090 |
|
|
|
8.5 |
|
Prior years return to provision true-up (2) |
|
|
(6,795 |
) |
|
|
(11.2 |
) |
|
|
(2,424 |
) |
|
|
(5.0 |
) |
Stock based compensation, excess tax |
|
|
(937 |
) |
|
|
(1.6 |
) |
|
|
(1,262 |
) |
|
|
(2.6 |
) |
U.S. tax credits |
|
|
(5,500 |
) |
|
|
(9.1 |
) |
|
|
(4,582 |
) |
|
|
(9.5 |
) |
Non-deductible expenses and other |
|
|
1,358 |
|
|
|
2.3 |
|
|
|
559 |
|
|
|
1.1 |
|
Total income tax provision |
|
$ |
10,069 |
|
|
|
16.7 |
|
|
$ |
8,187 |
|
|
|
16.9 |
|
At December 31, 2025 and 2024, the tax effects of significant temporary differences representing deferred tax assets and liabilities were as follows:
(In thousands) |
|
2025 |
|
|
2024 |
|
||
Deferred Tax Assets: |
|
|
|
|
|
|
||
Pensions |
|
$ |
1,862 |
|
|
$ |
1,467 |
|
Deferred revenue |
|
|
2,243 |
|
|
|
2,067 |
|
Other accruals and reserves |
|
|
8,961 |
|
|
|
12,324 |
|
Legal and environmental accruals |
|
|
7,409 |
|
|
|
7,244 |
|
Deferred compensation |
|
|
7,261 |
|
|
|
9,361 |
|
Bad debt and rebate reserves |
|
|
4,252 |
|
|
|
4,950 |
|
Net operating loss carryforwards |
|
|
26,124 |
|
|
|
7,615 |
|
Amortization of intangibles |
|
|
52,355 |
|
|
|
52,868 |
|
Inventories |
|
|
6,337 |
|
|
|
8,004 |
|
Tax credit carryforwards |
|
|
22,786 |
|
|
|
19,383 |
|
Disallowed interest expense carryforwards |
|
|
— |
|
|
|
6,035 |
|
|
|
$ |
139,590 |
|
|
$ |
131,318 |
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
||
Depreciation |
|
$ |
(100,120 |
) |
|
$ |
(94,012 |
) |
Unrealized foreign exchange loss |
|
|
(3,166 |
) |
|
|
(3,222 |
) |
Other |
|
|
(3,243 |
) |
|
|
(2,878 |
) |
|
|
$ |
(106,529 |
) |
|
$ |
(100,112 |
) |
Valuation Allowance |
|
$ |
(776 |
) |
|
$ |
(764 |
) |
Net Deferred Tax Assets |
|
$ |
32,285 |
|
|
$ |
30,442 |
|
Reconciliation to Consolidated Balance Sheet: |
|
|
|
|
|
|
||
Non-current deferred tax assets (in other non-current assets) |
|
|
43,735 |
|
|
|
40,054 |
|
Non-current deferred tax liabilities |
|
|
(11,450 |
) |
|
|
(9,612 |
) |
Net Deferred Tax Assets |
|
$ |
32,285 |
|
|
$ |
30,442 |
|
Earnings generated by a foreign subsidiary are presumed to ultimately be transferred to the parent company. Therefore, the establishment of deferred taxes may be required with respect to the excess of the investment value for financial reporting over the tax
basis of investments in those foreign subsidiaries (also referred to as book-over-tax outside basis differences). A company may overcome this presumption and forgo recording a deferred tax liability in its financial statements if it can assert that management has the intent and ability to indefinitely reinvest the earnings of its foreign subsidiaries. Pursuant to the 2017 U.S. Tax Cuts and Jobs Act (Tax Act), the Company’s foreign earnings have been subject to U.S. federal taxes. The Company now has the ability to repatriate to the U.S. parent the cash associated with these foreign earnings with little additional U.S. federal taxes. This cash may, however, be subject to foreign income and/or local country taxes if repatriated to the United States. In addition, repatriation of some foreign cash balances may be further restricted by local laws. As such, the Company intends to limit its distributions to earnings previously taxed in the U.S. or earnings that would qualify for the 100 percent dividends received deduction provided for in the Tax Act as long as such distributions would not result in any significant foreign taxes.
In 2025, the Company repatriated $58,495,000 between April and December from its Brazil, European, Singapore and Canada subsidiaries. The Company incurred an incremental tax expense of $2,183,000 as a result of this repatriation. The effect of the adjustment on the 2025 effective tax rate was an increase of approximately 3.6 percent. In 2024, the Company repatriated $54,464,000 between July and December from its Singapore and Canada subsidiaries. The Company incurred an incremental tax expense of $647,000 as a result of this repatriation. The effect of the adjustment on the 2024 effective tax rate was an increase of approximately 1.1 percent. In 2023, the Company repatriated $54,944,000 between July and December from its Netherlands, Singapore and Canada subsidiaries. The Company incurred an incremental tax expense of $397,000 as a result of this repatriation. The effect of the adjustment on the 2023 effective tax rate was an increase of approximately 0.8 percent.
The Company evaluated its indefinite reinvestment assertion with regards to certain accumulated foreign earnings as of December 31, 2025. The Company did not consider the undistributed earnings of its Canadian subsidiary to be indefinitely reinvested in foreign operations to the extent of the subsidiary’s paid-up capital (PUC) as determined under Canadian tax law, which is used to determine tax-free distributions for Canadian tax purposes. In 2024, all Canadian PUC was utilized, and any future distributions would be subject to Canada’s 5.0 percent withholding tax. The Company also does not consider the undistributed earnings of one of its Dutch subsidiaries, and one of its Singapore subsidiaries to be indefinitely reinvested in foreign operations. A distribution from any of these subsidiaries should not result in any significant foreign taxes to the extent of the distribution limitations discussed above and therefore, the Company has not recognized a deferred tax liability for these undistributed earnings as of December 31, 2025. As a result of the SPQI manufacturing assets sale, the Company intends to repatriate cash of approximately $7,000,000 as soon as the local tax authorities and other governmental agencies approve. In addition, the Company considers up to $13,000,000 from two of its subsidiaries to not be indefinitely reinvested. As a result, a deferred tax liability of $995,000 was established to reflect the tax impact. The effect of the adjustment on the 2025 effective tax rate was an increase of approximately 1.7 percent. The Company considers the undistributed earnings of its remaining foreign subsidiaries to be indefinitely reinvested in foreign operations. At this time, the determination of deferred tax liabilities on this amount is not practicable.
The Company had non-U.S. tax loss carryforwards of $19,558,000 (pretax) as of December 31, 2025, and $16,390,000 as of December 31, 2024, that are available for use by the Company between 2026 and 2035. The Company generated a $50,655,000 U.S. tax loss in 2025. This U.S. loss is expected to be utilized in 2027 or 2028.
The Company had tax credit carryforwards of $22,786,000 as of December 31, 2025, and $19,383,000 as of December 31, 2024, that are available for use by the Company between 2026 and 2045. The Company had non-U.S. capital loss carryforwards of $587,000 as of December 31, 2025, and $560,000 as of December 31, 2024. The Company’s capital loss carryforwards do not expire.
As of December 31, 2025 and 2024, the Company had valuation allowances of $776,000 and $764,000, respectively, which were attributable to deferred tax assets in Argentina, Canada, India and the Philippines. The realization of deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. The Company believes that it is more likely than not that the related deferred tax assets will not be realized.
As of December 31, 2025, 2024 and 2023, unrecognized tax benefits totaled $11,333,000, $17,326,000 and $14,590,000, respectively. The amount of unrecognized tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future periods, net of the federal benefit on state issues, was approximately $10,819,000, $16,767,000 and $14,056,000 at December 31, 2025, 2024 and 2023, respectively. The Company does not believe that the amount of unrecognized tax benefits related to its current uncertain tax positions will change significantly over the next 12 months unless certain statute of limitations expire.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. In 2025, the Company recognized net interest and penalty expense of $823,000 compared to $1,261,000 of net interest and penalty expense in 2024 and $435,000 of net interest and penalty expense in 2023. At December 31, 2025, the liability for interest and penalties was $3,062,000 compared to $2,239,000 at December 31, 2024.
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is not subject to U.S. federal income tax examinations by tax authorities for years before 2022. Some foreign jurisdictions and various U.S. states jurisdictions may be subject to examination back to 2018 (2015 in one jurisdiction).
During 2025, the Internal Revenue Service settled its audit of the 2016-2020 tax years. The adjustments were related to the disallowance of certain credits for which an uncertain tax position was previously established.
Below are reconciliations of the January 1 and December 31 balances of unrecognized tax benefits for 2025, 2024 and 2023:
(In thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Unrecognized tax benefits, opening balance |
|
$ |
17,326 |
|
|
$ |
14,590 |
|
|
$ |
10,682 |
|
Gross increases (decreases) – tax positions in prior period |
|
|
(1,295 |
) |
|
|
833 |
|
|
|
1,891 |
|
Gross increases – current period tax positions |
|
|
505 |
|
|
|
2,477 |
|
|
|
2,139 |
|
Settlements/State voluntary disclosure |
|
|
(3,926 |
) |
|
|
— |
|
|
|
(343 |
) |
Foreign currency translation |
|
|
831 |
|
|
|
(548 |
) |
|
|
241 |
|
Lapse of statute of limitations |
|
|
(2,108 |
) |
|
|
(26 |
) |
|
|
(20 |
) |
Unrecognized tax benefits, ending balance |
|
$ |
11,333 |
|
|
$ |
17,326 |
|
|
$ |
14,590 |
|
The following table summarizes cash payments of income taxes for 2025:
(In thousands) |
|
2025 (1) |
|
|
U.S. federal |
|
$ |
(905 |
) |
U.S. state and local |
|
|
|
|
Illinois |
|
$ |
(2,014 |
) |
Other |
|
|
(1,208 |
) |
Total U.S. state and local |
|
$ |
(3,222 |
) |
Foreign |
|
|
|
|
Brazil |
|
$ |
2,962 |
|
Canada |
|
|
(1,120 |
) |
China |
|
|
850 |
|
Colombia |
|
|
642 |
|
France |
|
|
3,958 |
|
Germany - Federal |
|
|
436 |
|
Germany - Municipal |
|
|
457 |
|
Netherlands |
|
|
637 |
|
Philippines |
|
|
743 |
|
Singapore |
|
|
981 |
|
U.K. |
|
|
1,601 |
|
Other |
|
|
479 |
|
Total foreign |
|
$ |
12,626 |
|
Total |
|
$ |
8,499 |
|
For 2024, cash refunds received for income taxes, prior to the adoption of ASU 2023-09, was $12,342,000. For 2023, cash paid for income taxes, prior to the adoption of ASU 2023-09, was $29,558,000.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 24, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.