STEPAN CO 10-Q

Item 1 - Financial Statements STEPAN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (In thousands, except per share amounts) Three Months Ended March 31 2022 2021 Net Sales $ 675,276 $ 537,740 Cost of Sales 566,057 428,760 Gross Profit 109,219 108,980 Operating Expenses: Selling 15,277 14,504 Administrative 21,572 22,638 Research, development and technical services 16,473 15,149 Deferred compensation (income) expense ( 7,501 ) 2,694 45,821 54,985 Business restructuring expenses (Note 16) ( 52 ) ( 81 ) Operating Income 63,346 53,914 Other Income (Expense): Interest, net ( 2,306 ) ( 1,524 ) Other, net (Note 15) ( 1,650 ) 746 ( 3,956 ) ( 778 ) Income Before Provision for Income Taxes 59,390 53,136 Provision for Income Taxes 14,581 12,525 Net Income 44,809 40,611 Net Income Attributable to Stepan Company $ 44,809 $ 40,611 Net Income Per Common Share Attributable to Stepan Company (Note 10): Basic $ 1.96 $ 1.77 Diluted $ 1.93 $ 1.74 Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10): Basic 22,896 22,974 Diluted 23,167 23,330 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 2 STEPAN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Unaudited (In thousands) Three Months Ended March 31 2022 2021 Net Income $ 44,809 $ 40,611 Other Comprehensive Income: Foreign currency translation adjustments (Note 11) (1) 9,829 ( 18,441 ) Defined benefit pension adjustments, net of tax (Note 11) 436 874 Derivative instrument activity, net of tax (Note 11) 2,788 ( 2 ) Total Other Comprehensive Income 13,053 ( 17,569 ) Comprehensive Income 57,862 23,042 Comprehensive Income Attributable to Noncontrolling Interest (Note 2) — 8 Comprehensive Income Attributable to Stepan Company $ 57,862 $ 23,050 (1) The prior year includes foreign currency translation adjustments related to noncontrolling interest. The 2021 noncontrolling interest was related to the Company’s China joint venture, which was dissolved in the fourth quarter of 2021. The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 3 STEPAN COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (Dollars in thousands) March 31, 2022 December 31, 2021 Assets Current Assets: Cash and cash equivalents $ 236,041 $ 159,186 Receivables, net 504,474 419,542 Inventories (Note 6) 308,423 305,538 Other current assets 32,933 29,102 Total current assets 1,081,871 913,368 Property, Plant and Equipment: Cost 2,149,060 2,090,957 Less: Accumulated depreciation ( 1,256,479 ) ( 1,240,353 ) Property, plant and equipment, net 892,581 850,604 Goodwill, net (Note 17) 97,557 97,187 Other intangible assets, net (Note 17) 58,770 60,784 Long-term investments (Note 3) 29,169 34,495 Operating lease assets (Note 7) 67,359 69,612 Other non-current assets 45,289 39,562 Total assets $ 2,272,596 $ 2,065,612 Liabilities and Equity Current Liabilities: Current maturities of long-term debt (Note 14) $ 139,354 $ 40,718 Accounts payable 350,754 323,362 Accrued liabilities 120,954 136,396 Total current liabilities 611,062 500,476 Deferred income taxes 10,963 12,491 Long-term debt, less current maturities (Note 14) 397,760 322,862 Non-current operating lease liabilities (Note 7) 54,636 56,668 Other non-current liabilities 81,437 98,922 Commitments and Contingencies (Note 8) Equity: Common stock, $ 1 par value; authorized 60,000,000 shares; Issued 26,813,581 shares in 2022 and 26,760,714 issued shares in 2021 26,814 26,761 Additional paid-in capital 224,500 220,820 Accumulated other comprehensive loss (Note 11) ( 140,183 ) ( 153,236 ) Retained earnings 1,170,846 1,133,550 Less: Common treasury stock, at cost, 4,449,824 shares in 2022 and 4,340,729 shares in 2021 ( 165,239 ) ( 153,702 ) Total Stepan Company stockholders’ equity 1,116,738 1,074,193 Total equity 1,116,738 1,074,193 Total liabilities and equity $ 2,272,596 $ 2,065,612 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 4 STEPAN COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (In thousands) Three Months Ended March 31 2022 2021 Cash Flows From Operating Activities Net income $ 44,809 $ 40,611 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 22,915 22,060 Deferred compensation ( 7,501 ) 2,694 Realized and unrealized (gains) losses on long-term investments 2,487 ( 534 ) Stock-based compensation 2,957 2,539 Deferred income taxes ( 2,545 ) 2,481 Other non-cash items 1,031 ( 40 ) Changes in assets and liabilities: Receivables, net ( 80,344 ) ( 63,243 ) Inventories 481 ( 7,476 ) Other current assets ( 3,915 ) ( 861 ) Accounts payable and accrued liabilities ( 1,183 ) ( 9,377 ) Pension liabilities ( 599 ) ( 451 ) Environmental and legal liabilities 56 ( 21 ) Deferred revenues 421 ( 80 ) Net Cash Used In Operating Activities ( 20,930 ) ( 11,698 ) Cash Flows From Investing Activities Expenditures for property, plant and equipment ( 60,288 ) ( 37,632 ) Asset acquisition (Note 17) — ( 3,503 ) Business acquisition, net of cash acquired (Note 17) — ( 184,000 ) Other, net 3,156 1,379 Net Cash Used In Investing Activities ( 57,132 ) ( 223,756 ) Cash Flows From Financing Activities Revolving debt and bank overdrafts, net (Note 6) 98,636 49,668 Other debt borrowings (Note 6) 75,000 — Dividends paid ( 7,513 ) ( 6,861 ) Company stock repurchased ( 9,935 ) ( 989 ) Stock option exercises 114 381 Other, net ( 1,469 ) ( 2,272 ) Net Cash Provided By Financing Activities 154,833 39,927 Effect of Exchange Rate Changes on Cash 84 ( 3,719 ) Net Increase (Decrease) in Cash and Cash Equivalents 76,855 ( 199,246 ) Cash and Cash Equivalents at Beginning of Period 159,186 349,938 Cash and Cash Equivalents at End of Period $ 236,041 $ 150,692 Supplemental Cash Flow Information Cash payments of income taxes, net of refunds/payments $ 8,312 $ 6,638 Cash payments of interest $ 2,500 $ 2,242 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements. 5 STEPAN COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2022 Unaudited 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements included herein have been prepared by Stepan Company (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company’s financial position as of March 31, 2022, and its results of operations and cash flows for the three months ended March 31, 2022 and 2021, have been included. These financial statements and related footnotes should be read in conjunction with the financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Annual Report on Form 10-K). 2 . RECONCILIATIONS OF EQUITY Below are reconciliations of total equity for the three months ended March 31, 2022 and 2021: (In thousands, except share and per share amounts) Total Common Stock Additional Paid-in Capital Common Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Balance, December 31, 2021 $ 1,074,193 $ 26,761 $ 220,820 $ ( 153,702 ) $ ( 153,236 ) $ 1,133,550 Issuance of 1,514 shares of common stock under stock option plan 114 2 112 — — — Purchase of 98,206 shares of common stock ( 9,935 ) — — ( 9,935 ) — — Stock-based and deferred compensation 2,017 51 3,568 ( 1,602 ) — — Net income 44,809 — — — — 44,809 Other comprehensive income 13,053 — — — 13,053 — Cash dividends paid: Common stock ($ 0.335 per share) ( 7,513 ) — — — — ( 7,513 ) Balance, March 31, 2022 $ 1,116,738 $ 26,814 $ 224,500 $ ( 165,239 ) $ ( 140,183 ) $ 1,170,846 6 (In thousands, except share and per share amounts) Total Common Stock Additional Paid-in Capital Common Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest (1) Balance, December 31, 2020 $ 988,365 $ 26,658 $ 206,716 $ ( 133,629 ) $ ( 136,881 ) $ 1,023,829 $ 1,672 Issuance of 5,786 shares of common stock under stock option plan 381 6 375 — — — — Purchase of 8,300 shares of common stock ( 989 ) — — ( 989 ) — — — Stock-based and deferred compensation 8 62 2,380 ( 2,434 ) — — — Net income 40,611 — — — — 40,611 — Other comprehensive income (loss) ( 17,569 ) — — — ( 17,561 ) — ( 8 ) Cash dividends paid: Common stock ($ 0.305 per share) ( 6,861 ) — — — — ( 6,861 ) — Balance, March 31, 2021 $ 1,003,946 $ 26,726 $ 209,471 $ ( 137,052 ) $ ( 154,442 ) $ 1,057,579 $ 1,664 (1) Reflects the noncontrolling interest in the Company’s China joint venture. 3 . FAIR VALUE MEASUREMENTS Derivative assets and liabilities include the foreign currency exchange and interest rate swap contracts discussed in Note 4, Derivate Instruments , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q). Fair value and carrying value were the same because the contracts were recorded at fair value. The fair values of the foreign currency contracts were calculated as the difference between the applicable forward foreign exchange rates at the reporting date and the contracted foreign exchange rates multiplied by the contracted notional amounts. The fair value of the interest rate swaps was calculated as the difference between the contracted swap rate and the floating interest rate multiplied by the present value of the notional amount of the contract. At March 31, 2022, and December 31, 2021, the fair values and related carrying values of debt, including current maturities, were as follows (the fair value and carrying value amounts are presented without regard to unamortized debt issuance costs of $ 812,000 and $ 710,000 as of March 31, 2022 and December 31, 2021, respectively): (In thousands) March 31, 2022 December 31, 2021 Fair value $ 519,337 $ 369,456 Carrying value 537,926 364,290 The following tables present financial assets and liabilities, excluding cash and cash equivalents, measured on a recurring basis at fair value as of March 31, 2022, and December 31, 2021, and the level within the fair value hierarchy in which the fair value measurements fall: (In thousands) March 2022 Level 1 Level 2 Level 3 Mutual fund assets $ 29,169 $ 29,169 $ — $ — Derivative assets: Interest rate contracts 3,016 — 3,016 — Foreign currency contracts 407 — 407 — Total assets at fair value $ 32,592 $ 29,169 $ 3,423 $ — Derivative liabilities: Interest rate contracts $ 225 $ — $ 225 $ — Foreign currency contracts 715 — 715 — Total liabilities at fair value $ 940 $ — $ 940 $ — 7 (In thousands) December 2021 Level 1 Level 2 Level 3 Mutual fund assets $ 34,495 $ 34,495 $ — $ — Derivative assets: Foreign currency contracts 436 — 436 — Total assets at fair value $ 34,931 $ 34,495 $ 436 $ — Derivative liabilities: Foreign currency contracts $ 338 $ — $ 338 $ — 4 . DERIVATIVE INSTRUMENTS At March 31, 2022, and December 31, 2021, the Company had open forward foreign currency exchange contracts, all with durations of one to three months , to buy or sell foreign currencies with U.S. dollar equivalent amounts of $ 45,923,000 and $ 51,542,000 , respectively. The Company is currently exposed to volatility in short-term interest rates and has mitigated certain portions of that risk by using an interest rate swap. The interest rate swap is recognized on the balance sheet as either an asset or a liability measured at fair value. At March 31, 2022, the Company held an interest rate swap contract with a notional value of $ 100,000,000 that was designated as a cash flow hedge. Period-to-period changes in the fair value of the interest rate swap are initially recognized as gains or losses in other comprehensive income. As the interest rate swap contract is settled, the corresponding gain or loss is reclassified out of accumulated other comprehensive income (AOCI) into earnings. The maturity date of the current interest swap contract is March 10, 2027 . The fair values of the derivative instruments held by the Company on March 31, 2022, and December 31, 2021, are disclosed in Note 3, Fair Value Measurements , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q). Derivative instrument gains and losses for the three-month periods ended March 31, 2022 and 2021, were immaterial. For amounts reclassified out of AOCI into earnings for the three-month periods ended March 31, 2022 and 2021, see Note 11, Accumulated Other Comprehensive Income (Loss) , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q). 5 . STOCK-BASED COMPENSATION Compensation expense recorded for all stock options, stock awards and stock appreciation rights (SARs) was as follows: (In thousands) Three Months Ended March 31 2022 2021 $ 2,957 $ 2,540 The increase in stock-based compensation expense for the first quarter of 2022 compared to the first quarter of 2021 was primarily attributable to the previously-disclosed accelerated vesting of certain equity grants for the Company’s Chief Executive Officer, who retired effective on April 25, 2022, that were partially offset by lower cash-settled SARs-related compensation expense. The lower cash-settled SARs compensation expense reflects a $ 25.48 per share decrease in the market price of Company common stock in the first quarter of 2022 compared to a $ 7.79 per share increase in the first quarter of 2021. Unrecognized compensation costs for stock options, stock awards and SARs were as follows: (In thousands) March 31, 2022 December 31, 2021 Stock options $ 2,008 $ 2,229 Stock awards 9,504 4,971 SARs 8,274 4,828 The increases in unrecognized compensation costs for stock options, stock awards and SARs reflected the 2022 grants of: Shares Stock options 34,444 Stock awards (at target) 44,399 SARs 161,832 8 The unrecognized compensation costs at March 31, 2022, are expected to be recognized over weighted-average periods of 1.3 years for stock options, 2.0 years for stock awards and 2.0 years for SARs. 6 . INVENTORIES The composition of inventories at March 31, 2022, and December 31, 2021, was as follows: (In thousands) March 31, 2022 December 31, 2021 Finished goods $ 190,016 $ 184,010 Raw materials 118,407 121,528 Total inventories $ 308,423 $ 305,538 7 . LEASES As of March 31, 2022, the Company had railcar leases, valued at approximately $ 79,000 , that had not commenced. These leases will commence in the second quarter of 2022 with lease terms of three years . Lease cost is recognized in both the Cost of Sales and Operating Expenses sections of the Condensed Consolidated Statements of Income. (In thousands) March 31, 2022 Lease Cost Operating lease cost $ 4,108 Short-term lease cost 1,338 Variable lease cost 202 Total lease cost $ 5,648 Other Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow from operating leases $ 4,075 Right-of-use assets obtained in exchange for new operating lease liabilities 2,819 The following table outlines the maturities of lease liabilities as of March 31, 2022. (In thousands) Undiscounted Cash Flows: 2022 (excluding the three months ended March 31, 2022) $ 11,676 2023 13,308 2024 8,422 2025 6,087 2026 4,536 Subsequent to 2026 36,350 Total Undiscounted Cash Flows $ 80,379 Less: Imputed interest ( 12,023 ) Present value $ 68,356 Current operating lease liabilities (1) 13,720 Non-current operating lease liabilities 54,636 Total lease liabilities $ 68,356 (1) This item is included in the Accrued liabilities line on the Company’s Condensed Consolidated Balance Sheet. Weighted-average remaining lease term-operating leases 10 years Weighted-average discount rate-operating leases 2.9 % 9 8 . CONTINGENCIES There are a variety of legal proceedings pending or threatened against the Company that occur in the normal course of the Company’s business, the majority of which relate to environmental assessment, protection and remediation matters. Some of these proceedings may result in fines, penalties, judgments or costs being assessed against the Company at some future time. The Company’s operations are subject to extensive local, state and federal regulations, including the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Superfund amendments of 1986 (Superfund) as well as comparable regulations applicable to the Company’s foreign locations. Over the years, the Company has received requests for information related to or has been named by government authorities as a potentially responsible party (PRP) at a number of sites where cleanup costs have been or may be incurred by the Company under CERCLA and similar state statutes. In addition, damages are being claimed against the Company in general liability actions for alleged personal injury or property damage in the case of some disposal and plant sites. The Company believes that it has made adequate provisions for the costs it is likely to incur with respect to these sites and claims. In determining the appropriate level of environmental reserves, the Company considers several factors such as information obtained from investigatory studies; changes in the scope of remediation; the interpretation, application and enforcement of laws and regulations; changes in the costs of remediation programs; the development of alternative cleanup technologies and methods; and the relative level of the Company’s involvement at various sites for which the Company is allegedly associated. The level of annual expenditures for remedial, monitoring and investigatory activities will change in the future as major components of planned remediation activities are completed and the scope, timing and costs of existing activities are changed. As of March 31, 2022, the Company estimated a range of possible environmental losses and legal losses of $ 23,139,000 to $ 41,695,000 . Within the range of possible environmental losses and legal losses, management has currently concluded that no single amount is more likely to occur than any other amounts in the range and, thus, has accrued at the lower end of the range. These accruals totaled $ 23,139,000 at March 31, 2022 and $ 23,127,000 at December 31, 2021. Although the Company believes that its reserves are adequate for contingencies, it is possible due to the uncertainties noted above, that additional reserves could be required in the future. Cash expenditures related to legal matters and environmental matters approximated $ 428,000 and $ 280,000 for the three-month periods ended March 31, 2022 and 2021, respectively. For certain sites, the Company has responded to information requests made by federal, state or local government agencies but has received no response confirming or denying the Company’s stated positions. As such, estimates of the total costs, or range of possible costs, of remediation, if any, or the Company’s share of such costs, if any, cannot be determined with respect to these sites. Consequently, the Company is unable to predict the effect thereof on the Company’s financial position, cash flows and results of operations. Based upon the Company’s present knowledge with respect to its involvement at these sites, the possibility of other viable entities’ responsibilities for cleanup, and the extended period over which any costs would be incurred, management believes that the Company has no material liability at these sites and that these matters, individually and in the aggregate, will not have a material effect on the Company’s financial position. However, in the event of one or more adverse determinations with respect to such sites in any annual or interim period, the effect on the Company’s cash flows and results of operations for those periods could be material. Following are summaries of the Company’s major contingencies at March 31, 2022: Maywood, New Jersey Site The Company’s property in Maywood, New Jersey and property formerly owned by the Company adjacent to its current site and other nearby properties (collectively, the Maywood site) were listed on the National Priorities List in September 1993 pursuant to the provisions of CERCLA because of alleged chemical contamination. Pursuant to (i) a September 21, 1987 Administrative Order on Consent entered into between the U.S. Environmental Protection Agency (USEPA) and the Company for property formerly owned by the Company at the Maywood site and (ii) the issuance of an order on November 12, 2004 by the USEPA to the Company for property currently owned by the Company at the Maywood site, the Company has completed various Remedial Investigation Feasibility Studies (RI/FS), and on September 24, 2014, USEPA issued its Record of Decision (ROD) for chemically-contaminated soil at the Maywood site, which requires the Company to perform remedial cleanup of the soil and buried waste. The USEPA has not yet issued a ROD for chemically-contaminated groundwater at the Maywood site. Based on the most current information available, the Company believes its recorded liability is reasonable having considered the range of estimated costs of remediation for the Maywood site. The estimate of the cost of remediation for the Maywood site could change as the Company continues to hold discussions with the USEPA, as the design of the remedial action is finalized, if a groundwater ROD is issued or if other PRPs are identified. The ultimate amount for which the Company is liable could differ materially from the Company’s current recorded liability. In April 2015, the Company entered into an Administrative Settlement Agreement and Administrative Order on Consent with USEPA which requires payment of certain costs and performance of certain investigative and design work for chemically-contaminated soil. 10 In addition, under the terms of a settlement agreement reached on November 12, 2004, the U.S. Department of Justice and the Company agreed to fulfill the terms of a Cooperative Agreement reached in 1985. Under the Cooperative Agreement, the United States is responsible for the removal of radioactive waste at the Maywood site, including past and future remediation costs at the site. As such, the Company recorded no liability related to this settlement agreement. D’Imperio Property Site During the mid-1970’s, Jerome Lightman and the Lightman Drum Company disposed of hazardous substances generated by the Company at several sites in New Jersey, including the D’Imperio site. The Company was named as a PRP in an October 2, 1998, lawsuit in the U.S. District Court for the District of New Jersey that involved the D’Imperio Site. In 2021, the PRPs were provided with updated remediation cost estimates by the PRP group technical consultant and project manager, which the Company considered in its determination of its range of estimated possible losses and liability balance. The changes in range of possible losses and liability balance were immaterial. Remediation work continues at the D’Imperio site. Based on current information, the Company believes that its recorded liability is reasonable having considered the range of estimated cost of remediation for the D’Imperio site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the Company’s current recorded liability. Wilmington Site The Company is currently contractually obligated to contribute to the environmental response costs associated with the Company’s formerly-owned site in Wilmington, Massachusetts (the Wilmington site). Remediation at this site is being managed by its current owner to whom the Company sold the property in 1980. Under the Company’s October 1, 1993, agreement with the current owner of the Wilmington site, once total site remediation costs exceed certain levels, the Company is obligated to contribute up to five percent of future response costs associated with this site with no limitation on the ultimate amount of contributions. The Company has paid the current owner $ 3,364,000 for the Company’s portion of environmental response costs at the Wilmington site through March 31, 2022. The Company has recorded a liability for its portion of the estimated remediation costs for the site. Depending on the ultimate cost of the remediation at this site, the amount for which the Company is liable could differ materially from the current recorded liability. The Company and other prior owners of the Wilmington site also entered into an agreement in April 2004 waiving certain statute of limitations defenses for claims which may be filed by the Town of Wilmington, Massachusetts, in connection with this site. While the Company has denied any liability for any such claims, the Company agreed to this waiver while the parties continue to discuss the resolution of any potential claim which may be filed. Other U.S. Sites Through the regular environmental monitoring of its plant production sites, the Company discovered levels of chemical contamination that were above thresholds allowed by law at its Millsdale, Illinois and Fieldsboro, New Jersey plants. The Company voluntarily reported its results to the applicable state environmental agencies. As a result, the Company is required to perform self-remediation of the affected areas. Based on current information, the Company believes that its recorded liability for the remediation of the affected areas is appropriate based on an estimate of expected costs. However, actual costs could differ materially from the current recorded liability. 9 . POSTRETIREMENT BENEFIT PLANS Defined Benefit Pension Plans The Company sponsors various funded qualified and unfunded non-qualified defined benefit pension plans, the most significant of which cover employees in the U.S. and U.K. locations. The U.S. and U.K. defined benefit pension plans are frozen and service benefits are no longer being accrued. Components of Net Periodic Benefit Cost UNITED STATES UNITED KINGDOM (In thousands) Three Months Ended March 31 Three Months Ended March 31 2022 2021 2022 2021 Interest cost $ 1,235 $ 1,177 $ 101 $ 88 Expected return on plan assets ( 2,201 ) ( 2,586 ) ( 107 ) ( 81 ) Amortization of net actuarial loss 577 1,144 3 17 Net periodic benefit cost $ ( 389 ) $ ( 265 ) $ ( 3 ) $ 24 11 Employer Contributions U.S. Plans As a result of pension funding relief provisions included in the Highway and Transportation Funding Act of 2014, the Company is not required to make contributions to its funded U.S. qualified defined benefit plans. Approximately $ 276,000 is expected to be paid related to the unfunded non-qualified plans in 2022. Of such amount, $ 119,000 had been paid related to the non-qualified plans as of March 31, 2022. U.K. Plan The Company’s U.K. subsidiary expects to contribute approximately $ 505,000 to its defined benefit pension plan in 2022. Of such amount, $ 136,000 had been contributed to the plan as of March 31, 2022. Defined Contribution Plans The Company sponsors retirement defined contribution plans that cover eligible U.S. and U.K. employees. The Company’s U.S. retirement plans include two qualified plans, one of which is a 401(k) plan and one of which is an employee stock ownership plan, and one non-qualified supplemental executive plan. In the three months ended March 31, 2022 and 2021, the Company made contributions into the qualified retirement plans for U.S. employees and for certain non-U.S. employees. Profit sharing contributions were determined using a formula applied to Company earnings. In 2021 and 2022, profit sharing contributions for U.S. employees were made to the employee stock ownership plan. Profit sharing contributions are allocated to participant accounts based on participant base earnings. Defined contribution plan expenses for the Company’s qualified contribution plans were as follows: (In thousands) Three Months Ended March 31 2022 2021 Retirement savings contributions $ 2,198 $ 2,039 Profit sharing contributions 1,465 1,866 Total defined contribution plan expenses $ 3,663 $ 3,905 The Company has a rabbi trust to fund the obligations of its non-qualified supplemental executive defined contribution plans (supplemental plans). The trust comprises various mutual fund investments selected by the participants of the supplemental plans. In accordance with the accounting guidance for rabbi trust arrangements, the assets of the trust and the obligations of the supplemental plans are reported on the Company’s condensed consolidated balance sheets. The Company elected the fair value option for the mutual fund investment assets so that offsetting changes in the mutual fund values and defined contribution plan obligations would be recorded in earnings in the same period. Therefore, the mutual funds are reported at fair value with any subsequent changes in fair value recorded in the condensed consolidated statements of income. The liabilities related to the supplemental plans increase (i.e., supplemental plan expense is recognized) when the value of the trust assets appreciate and decrease when the value of the trust assets decline (i.e., supplemental plan income is recognized). At March 31, 2022, the balance of the trust assets was $ 2,281,000 , which equaled the balance of the supplemental plan liabilities. See the long-term investments section in Note 3, Fair Value Measurements , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for further information regarding the Company’s mutual fund assets. 12 10 . EARNINGS PER SHARE Below are the computations of basic and diluted earnings per share for the three months ended March 31, 2022 and 2021: (In thousands, except per share amounts) Three Months Ended March 31 2022 2021 Computation of Basic Earnings per Share Net income attributable to Stepan Company $ 44,809 $ 40,611 Weighted-average number of common shares outstanding 22,896 22,974 Basic earnings per share $ 1.96 $ 1.77 Computation of Diluted Earnings per Share Net income attributable to Stepan Company $ 44,809 $ 40,611 Weighted-average number of shares outstanding 22,896 22,974 Add weighted-average net shares from assumed exercise of options (under treasury stock method) (1) 99 140 Add weighted-average net shares related to unvested stock awards (under treasury stock method) — 1 Add weighted-average net shares from assumed exercise of SARs (under treasury stock method) (1) 120 171 Add weighted-average contingently issuable net shares related to performance stock awards (under treasury stock method) 52 44 Weighted-average shares applicable to diluted earnings 23,167 23,330 Diluted earnings per share $ 1.93 $ 1.74 (1) 364,350 options/SARs to acquire shares of Company common stock were excluded from the computation of dilutive earnings per share for the three months ended March 31, 2022. Inclusion of the instruments would have had an antidilutive effect on the computations of the earnings per share. No options/SARs to acquire shares of Company common stock were excluded from the computations of diluted earnings per share for the three months ended March 31, 2021. 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Below is the change in the Company’s AOCI balance by component (net of income taxes) for the three months ended March 31, 2022 and 2021: (In thousands) Foreign Currency Translation Adjustments Defined Benefit Pension Plan Adjustments Cash Flow Hedge Adjustments Total Balance at December 31, 2020 $ ( 107,083 ) $ ( 29,861 ) $ 63 $ ( 136,881 ) Other comprehensive income before reclassifications ( 18,433 ) — — ( 18,433 ) Amounts reclassified from AOCI — 874 ( 2 ) 872 Net current-period other comprehensive income ( 18,433 ) 874 ( 2 ) ( 17,561 ) Balance at March 31, 2021 $ ( 125,516 ) $ ( 28,987 ) $ 61 $ ( 154,442 ) Balance at December 31, 2021 $ ( 135,268 ) $ ( 18,022 ) $ 54 $ ( 153,236 ) Other comprehensive income before reclassifications 9,829 — 2,791 12,620 Amounts reclassified from AOCI — 436 ( 3 ) 433 Net current-period other comprehensive income 9,829 436 2,788 13,053 Balance at March 31, 2022 $ ( 125,439 ) $ ( 17,586 ) $ 2,842 $ ( 140,183 ) 13 Information regarding the reclassifications out of AOCI for the three-month periods ended March 31, 2022 and 2021, is displayed below: (In thousands) Amount Reclassified from AOCI (1) AOCI Components Three Months Ended March 31 Affected Line Item in Condensed Consolidated Statements of Income 2022 2021 Amortization of defined benefit pension actuarial losses $ ( 580 ) $ ( 1,161 ) (2) 144 287 Tax benefit $ ( 436 ) $ ( 874 ) Net of tax Gains and losses on cash flow hedges: Foreign exchange contracts 3 2 Cost of sales 3 2 Total before tax — — Tax benefit $ 3 $ 2 Net of tax Total reclassifications for the period $ ( 433 ) $ ( 872 ) Net of tax (1) A mounts in parentheses denote expense to the Company’s Condensed Consolidated Statements of Income . ( 2 ) This component of accumulated other comprehensive income is included in the computation of net periodic benefit cost. See Note 9, Postretirement Benefit Plans , of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for additional details. 1 2 . SEGMENT REPORTING The Company has three reportable segments: Surfactants, Polymers and Specialty Products. Net sales by segment for the three months ended March 31, 2022 and 2021, were as follows: (In thousands) Three Months Ended March 31 2022 2021 Segment Net Sales Surfactants $ 468,266 $ 370,936 Polymers 187,079 150,385 Specialty Products 19,931 16,419 Total $ 675,276 $ 537,740 14 Segment operating income and reconciliations of segment operating income to income before provision for income taxes for the three months ended March 31, 2022 and 2021, are summarized below: (In thousands) Three Months Ended March 31 2022 2021 Segment Operating Income Surfactants $ 53,769 $ 53,210 Polymers 14,129 17,951 Specialty Products 3,695 2,633 Segment operating income 71,593 73,794 Business restructuring ( 52 ) ( 81 ) Unallocated corporate expenses (1) ( 8,195 ) ( 19,799 ) Consolidated operating income 63,346 53,914 Other Income (Expense) Interest, net ( 2,306 ) ( 1,524 ) Other, net ( 1,650 ) 746 Income before provision for income taxes $ 59,390 $ 53,136 (1) Unallocated corporate expenses primarily comprise corporate administrative expenses (e.g., corporate finance, legal, human resources, information systems, deferred compensation and environmental remediation) that are not included in segment operating income and are not used to evaluate segment performance. 1 3 . REVENUE FROM CONTRACTS WITH CUSTOMERS As of March 31, 2022, the Company had $ 1,878,000 of contract liabilities and no contract assets. A contract liability would typically arise when an advance or deposit is received from a customer before the Company recognizes revenue. In practice, this is rare as it would require a customer to make a payment prior to a performance obligation being satisfied. When such situations do arise, the Company maintains a deferred revenue liability until the time a performance obligation has been satisfied. The Company recognized $ 1,376,000 of revenue in the current period from pre-existing contract liabilities at December 31, 2021. During 2020 the Company recorded $ 10,709,000 of long-term deferred revenue associated with a payment received to defray the cost of capital expenditures necessary to service a customer’s future product needs. On March 31, 2022, $ 9,248,000 continued to be classified as long-term and $ 1,461,000 was classified as short-term. This deferred revenue will be recognized over the period of the contract and no revenue has been recognized from this contract as of March 31, 2022. The tables below provide a geographic disaggregation of net sales for the three months ended March 31, 2022 and 2021. The Company’s business segmentation by geographic region most effectively captures the nature and economic characteristics of the Company’s revenue streams impacted by economic factors. For the Three Months Ended March 31, 2022 (In thousands) Surfactants Polymers Specialty Total Geographic Market North America $ 273,228 $ 94,856 $ 16,676 $ 384,760 Europe 91,017 80,783 3,132 174,932 Latin America 85,434 1,220 123 86,777 Asia 18,587 10,220 — 28,807 Total $ 468,266 $ 187,079 $ 19,931 $ 675,276 15 For the Three Months Ended March 31, 2021 (In thousands) Surfactants Polymers Specialty Total Geographic Market North America $ 220,935 $ 70,878 $ 13,937 $ 305,750 Europe 71,094 68,300 2,482 141,876 Latin America 60,169 990 — 61,159 Asia 18,738 10,217 — 28,955 Total $ 370,936 $ 150,385 $ 16,419 $ 537,740 14. DEBT At March 31, 2022 and December 31, 2021, debt was comprised of the following: (In thousands) Maturity Dates March 31, 2022 December 31, 2021 Unsecured private placement notes 3.95% (net of unamortized debt issuance cost of $ 218 and $ 230 for 2022 and 2021, respectively) 2022-2027 $ 85,496 $ 85,485 3.86% (net of unamortized debt issuance cost of $ 167 and $ 181 for 2022 and 2021, respectively) 2022-2025 56,976 56,962 4.86% (net of unamortized debt issuance cost of $ 60 and $ 69 for 2022 and 2021, respectively) 2022-2023 18,512 18,502 2.30% (net of unamortized debt issuance cost of $ 138 and $ 100 for 2022 and 2021, respectively) 2024-2028 49,862 49,900 2.37% (net of unamortized debt issuance cost of $ 145 and $ 108 for 2022 and 2021, respectively) 2024-2028 49,855 49,892 2.73% (net of unamortized debt issuance cost of $ 62 and $ 22 for 2022 and 2021, respectively) 2025-2031 99,938 99,978 2.83% (net of unamortized debt issuance cost of $ 22 and $ 0 for 2022 and 2021, respectively) 2026-2032 74,978 — Revolving credit facility borrowing 2022 100,000 — Debt of foreign subsidiaries Unsecured bank debt, foreign currency 2022 1,497 2,861 Total debt $ 537,114 $ 363,580 Less current maturities 139,354 40,718 Long-term debt $ 397,760 $ 322,862 On March 1, 2022, pursuant to a note purchase and master note agreement dated as of June 10, 2021 (the NYL note purchase agreement), the Company issued and sold $ 25,000,000 in aggregate principal amount of its 2.83 % Senior Notes, Series 2022-A, due March 1, 2032 (the Series 2022-A Notes). In addition, on March 1, 2022, pursuant to a note purchase and private shelf agreement dated as of June 10, 2021 (the Prudential note purchase agreement), the Company issued and sold $ 50,000,000 in aggregate principal amount of its 2.83 % Senior Notes, Series 2022-B, due March 1, 2032 (the Series 2022-B Notes). The Series 2022-A Notes and the Series 2022-B Notes bear interest at a fixed rate of 2.83%, with interest to be paid semi-annually and with equal annual principal payments beginning on March 1, 2026 and continuing through final maturity on March 1, 2032. The proceeds of the issuance of the Series 2022-A Notes and the Series 2022-B Notes are being used primarily for capital expenditures, to pay down existing debt and for other corporate purposes. The NYL note purchase agreement and the Prudential note purchase agreement require the maintenance of certain financial ratios and covenants that are substantially similar to the Company’s existing long-term debt and provide for customary events of default. The Company has a committed $ 350,000,000 multi-currency revolving credit agreement that expires on January 30, 2023 . The Company maintains import letters of credit, and standby letters of credit under its workers’ compensation insurance agreements and for other purposes, as needed from time to time, which are issued under the revolving credit agreement. As of March 31, 2022, the Company had outstanding letters of credit totaling $ 6,993,000 and $ 100,000,000 outstanding borrowings under the revolving credit agreement. There was $ 243,007,000 available under the revolving credit agreement as of March 31, 2022. The Company’s loan agreements contain provisions which, among others, require maintenance of certain financial ratios and place limitations on additional debt, investments and payment of dividends. Based on the loan agreement provisions that 16 place limitations on dividend payments, unrestricted retained earnings (i.e., retained earnings available for dividend distribution) were $ 495,572,000 and $ 468,095,000 at March 31, 202 2 and December 31, 20 2 1 , respectively . 15. OTHER, NET Other, net in the condensed consolidated statements of income included the following: (In thousands) Three Months Ended March 31 2022 2021 Foreign exchange gains (losses) $ 282 $ ( 335 ) Investment income 163 306 Realized and unrealized gains (losses) on investments ( 2,487 ) 534 Net periodic pension benefit income 392 241 Other, net $ ( 1,650 ) $ 746 16. BUSINESS RESTRUCTURING 2016 Restructuring During 2016, the Company shut down its Longford Mills, Ontario, Canada (Longford Mills) manufacturing facility, a part of the Surfactant reportable segment. The shutdown plan was implemented to improve the Company’s asset utilization in North America and to reduce the Company’s fixed cost base. Manufacturing operations of the Longford Mills plant ceased by the end of 2016, and production of goods manufactured at the facility was transferred to other Company North American production sites. Decommissioning of the assets is expected to continue throughout 2022. As of March 31, 2022, $ 9,302,000 of aggregate restructuring expense has been recognized, reflecting $ 1,644,000 of termination benefits for approximately 30 employees and $ 7,658,000 for other expenses, principally site decommissioning costs. The Company recognized $ 52,000 and $ 81,000 of decommissioning expenses in the first quarter of 2022 and 2021, respectively. 17. ACQUISITIONS 2021 Acquisitions INVISTA Acquisition On January 29, 2021 , the Company and its wholly-owned subsidiaries Stepan Holdings Netherlands B.V. and Stepan UK Limited entered into a Stock and Asset Purchase Agreement with Arteva Specialties B.V., INV Performance Surfaces, LLC, INVISTA Textiles (U.K.) Limited, INV Management Services, LLC, and INVISTA Equities, LLC (collectively, “INVISTA”) to acquire INVISTA's aromatic polyester polyol business and associated assets. Included in the transaction were two manufacturing sites, one in Wilmington, North Carolina (U.S.) and the other in Vlissingen, Netherlands, along with intellectual property, customer relationships, inventory and working capital. The purchase price was $ 165,000,000 , plus $ 21,560,000 of working capital and $ 3,000,000 of associated value-added taxes (VAT) and was paid in cash. The working capital acquired included $ 5,900,000 of cash. The Company finalized the purchase price allocation during the third quarter of 2021. The following table summarizes the purchase price allocation for the major components of the acquisition: (In thousands) Assets: Property, plant and equipment $ 54,200 Identifiable intangible assets 46,000 Goodwill 64,800 Total assets acquired $ 165,000 Fermentation Plant Acquisition On February 2, 2021, the Company acquired a fermentation plant, located in Lake Providence, Louisiana. The Company believes this plant complements the rhamnolipid-based bio-surfactant technology the Company acquired from Logos Technologies in March 2020. Fermentation is a new platform technology for the Company and the Company is focusing efforts to further develop, integrate, produce and commercialize these unique surfactants moving forward. Bio-surfactants, produced via fermentation, are attractive due to their biodegradability, low toxicity, and in some cases, unique antimicrobial properties. These bio-surfactants offer synergies in several strategic end use markets including oilfield, agriculture, personal care and household, industrial and institutional cleaning. The acquisition of this industrial scale fermentation plant represents the latest 17 step in the Company’s bio-surfactant commercialization efforts. The purchase price was $ 3,500,000 and was paid in cash. This acquisition has been accounted for as an asset acquisition. 1 8 . NONCASH INVESTING ACTIVITIES Noncash investing activities included liabilities (accounts payable) incurred for property, plant and equipment expenditures of approximately $ 37,154,000 and $ 13,822,000 that were unpaid at March 31, 2022 and 2021, respectively. 1 9 . RECENT ACCOUNTING PRONOUNCEMENTS In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effect of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease the burden of implementing the usage of new reference rates. The amendments apply to contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. If elected the optional expedients to contract modifications must be applied consistently for all eligible contracts or eligible transactions. The amendments in this update may be implemented between March 12, 2020 and December 31, 2022. The guidance should be applied prospectively. Other than electing select expedients associated with an interest rate swap, the Company has not currently utilized any of the optional expedients of exceptions available under this ASU. The Company will continue to assess whether this ASU is applicable throughout the effective period. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which improves the accounting for acquired revenue contracts with customers in a business combination by addressing current inconsistencies in the recognition of acquired contract liabilities as well as payment terms and their effect on subsequent revenue recognized by the acquirer. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) at fair value on the acquisition date. This amendment requires acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments in this update are effective for fiscal years beginning after December 31, 2022 and should be applied prospectively. The Company is in the process of assessing the impact that adoption of ASU No. 2021-08 may have on its financial position, results of operations and cash flows. 18