Item 1. Financial Statements
Item 1 - Financial Statements
STEPAN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share amounts)
Three Months Ended
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Net Sales
$
751,633
$
595,511
$
1,426,909
$
1,133,251
Cost of Sales
620,019
483,830
1,186,076
912,590
Gross Profit
131,614
111,681
240,833
220,661
Operating Expenses:
Selling
15,552
14,990
30,829
29,494
Administrative
24,079
23,974
45,651
46,612
Research, development and technical services
16,690
14,988
33,163
30,137
Deferred compensation (income) expense
( 3,406
)
958
( 10,907
)
3,652
52,915
54,910
98,736
109,895
Goodwill impairment (Note 18)
( 978
)
—
( 978
)
—
Business restructuring expenses (Note 16)
( 81
)
( 114
)
( 133
)
( 195
)
Operating Income
77,640
56,657
140,986
110,571
Other Income (Expense):
Interest, net
( 2,727
)
( 1,567
)
( 5,033
)
( 3,091
)
Other, net (Note 15)
( 5,369
)
2,758
( 7,019
)
3,504
( 8,096
)
1,191
( 12,052
)
413
Income Before Provision for Income Taxes
69,544
57,848
128,934
110,984
Provision for Income Taxes
17,418
14,545
31,999
27,070
Net Income
52,126
43,303
96,935
83,914
Less: Net Income Attributable to Noncontrolling Interest
—
( 25
)
—
( 25
)
Net Income Attributable to Stepan Company
$
52,126
$
43,278
$
96,935
$
83,889
Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic
$
2.29
$
1.89
$
4.24
$
3.65
Diluted
$
2.26
$
1.85
$
4.19
$
3.59
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic
22,792
22,952
22,842
22,963
Diluted
23,055
23,345
23,115
23,338
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
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Net Income
$
52,126
$
43,303
$
96,935
$
83,914
Other Comprehensive Income:
Foreign currency translation adjustments (Note 11) (1)
( 36,096
)
15,175
( 26,267
)
( 3,266
)
Defined benefit pension adjustments, net of tax (Note 11)
434
876
870
1,750
Derivative instrument activity, net of tax (Note 11)
2,043
( 3
)
4,831
( 5
)
Total Other Comprehensive Income
( 33,619
)
16,048
( 20,566
)
( 1,521
)
Comprehensive Income
18,507
59,351
76,369
82,393
Comprehensive Income Attributable to Noncontrolling Interest (Note 2)
—
( 51
)
—
( 43
)
Comprehensive Income Attributable to Stepan Company
$
18,507
$
59,300
$
76,369
$
82,350
(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)
June 30, 2022
December 31, 2021
Assets
Current Assets:
Cash and cash equivalents
$
194,585
$
159,186
Receivables, net
518,750
419,542
Inventories (Note 6)
340,712
305,538
Other current assets
33,320
29,102
Total current assets
1,087,367
913,368
Property, Plant and Equipment:
Cost
2,182,693
2,090,957
Less: Accumulated depreciation
( 1,263,159
)
( 1,240,353
)
Property, plant and equipment, net
919,534
850,604
Goodwill, net (Note 17)
93,152
97,187
Other intangible assets, net (Note 17)
54,956
60,784
Long-term investments (Note 3)
24,914
34,495
Operating lease assets (Note 7)
65,525
69,612
Other non-current assets
43,351
39,562
Total assets
$
2,288,799
$
2,065,612
Liabilities and Equity
Current Liabilities:
Current maturities of long-term debt (Note 14)
$
142,489
$
40,718
Accounts payable
366,233
323,362
Accrued liabilities
129,506
136,396
Total current liabilities
638,228
500,476
Deferred income taxes
11,375
12,491
Long-term debt, less current maturities (Note 14)
383,503
322,862
Non-current operating lease liabilities (Note 7)
53,118
56,668
Other non-current liabilities
76,864
98,922
Commitments and Contingencies (Note 8)
Equity:
Common stock, $ 1 par value; authorized 60,000,000 shares;
26,824,902 issued shares in 2022 and 26,760,714 issued shares in 2021
26,825
26,761
Additional paid-in capital
229,510
220,820
Accumulated other comprehensive loss (Note 11)
( 173,802
)
( 153,236
)
Retained earnings
1,215,500
1,133,550
Less: Common treasury stock, at cost, 4,519,968 shares in 2022
and 4,340,729 shares in 2021
( 172,322
)
( 153,702
)
Total Stepan Company stockholders’ equity
1,125,711
1,074,193
Total equity
1,125,711
1,074,193
Total liabilities and equity
$
2,288,799
$
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)
Six Months Ended June 30
2022
2021
Cash Flows From Operating Activities
Net income
$
96,935
$
83,914
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
46,252
45,311
Deferred compensation
( 10,907
)
3,652
Realized and unrealized (gains) losses on long-term investments
6,972
( 2,761
)
Stock-based compensation
6,955
5,346
Deferred income taxes
2,241
( 39,475
)
Goodwill impairment (Note 18)
978
—
Other non-cash items
1,142
92
Changes in assets and liabilities:
Receivables, net
( 111,051
)
( 68,033
)
Inventories
( 38,564
)
( 35,747
)
Other current assets
( 4,838
)
( 63
)
Accounts payable and accrued liabilities
43,326
34,027
Pension liabilities
( 1,113
)
( 971
)
Environmental and legal liabilities
( 379
)
( 463
)
Deferred revenues
203
( 134
)
Net Cash Provided By Operating Activities
38,152
24,695
Cash Flows From Investing Activities
Expenditures for property, plant and equipment
( 129,463
)
( 74,868
)
Asset acquisition (Note 17)
—
( 3,503
)
Business acquisition, net of cash acquired (Note 17)
—
( 184,560
)
Other, net
3,156
1,430
Net Cash Used In Investing Activities
( 126,307
)
( 261,501
)
Cash Flows From Financing Activities
Revolving debt and bank overdrafts, net (Note 14)
101,771
4,495
Other debt borrowings (Note 14)
75,000
50,000
Other debt repayments
( 14,286
)
( 14,286
)
Dividends paid
( 14,985
)
( 13,724
)
Company stock repurchased
( 16,976
)
( 10,895
)
Stock option exercises
185
1,087
Other, net
( 2,612
)
( 1,920
)
Net Cash Provided By Financing Activities
128,097
14,757
Effect of Exchange Rate Changes on Cash
( 4,543
)
( 836
)
Net Increase (Decrease) in Cash and Cash Equivalents
35,399
( 222,885
)
Cash and Cash Equivalents at Beginning of Period
159,186
349,938
Cash and Cash Equivalents at End of Period
$
194,585
$
127,053
Supplemental Cash Flow Information
Cash payments of income taxes, net of refunds/payments
$
19,353
$
43,472
Cash payments of interest
$
7,184
$
4,622
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
June 30, 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 June 30, 2022, and its results of operations and cash flows for the three and six months ended June 30, 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 and six months ended June 30, 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, March 31, 2022
$
1,116,738
$
26,814
$
224,500
$
( 165,239
)
$
( 140,183
)
$
1,170,846
Issuance of 1,133 shares of common stock under stock option plan
71
1
70
—
—
—
Purchase of 69,734 shares of common stock
( 7,041
)
—
—
( 7,041
)
—
—
Stock-based and deferred compensation
4,908
10
4,940
( 42
)
—
—
Net income
52,126
—
—
—
—
52,126
Other comprehensive income
( 33,619
)
—
—
—
( 33,619
)
—
Cash dividends paid:
Common stock ($ 0.335 per share)
( 7,472
)
—
—
—
—
( 7,472
)
Balance, June 30, 2022
$
1,125,711
$
26,825
$
229,510
$
( 172,322
)
$
( 173,802
)
$
1,215,500
(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 2,647 shares of common stock under stock option plan
185
3
182
—
—
—
Purchase of 167,940 shares of common stock
( 16,976
)
—
—
( 16,976
)
—
—
Stock-based and deferred compensation
6,925
61
8,508
( 1,644
)
—
—
Net income
96,935
—
—
—
—
96,935
Other comprehensive income
( 20,566
)
—
—
—
( 20,566
)
—
Cash dividends paid:
Common stock ($ 0.670 per share)
( 14,985
)
—
—
—
—
( 14,985
)
Balance, June 30, 2022
$
1,125,711
$
26,825
$
229,510
$
( 172,322
)
$
( 173,802
)
$
1,215,500
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, March 31, 2021
$
1,003,946
$
26,726
$
209,471
$
( 137,052
)
$
( 154,442
)
$
1,057,579
$
1,664
Issuance of 10,779 shares of common stock under stock option plan
706
11
695
—
—
—
—
Purchase of 73,745 shares of common stock
( 9,906
)
—
—
( 9,906
)
—
—
—
Stock-based and deferred compensation
3,282
15
3,803
( 536
)
—
—
—
Net income
43,303
—
—
—
—
43,278
25
Other comprehensive income (loss)
16,048
—
—
—
16,022
—
26
Cash dividends paid:
Common stock ($ 0.305 per share)
( 6,863
)
—
—
—
—
( 6,863
)
—
Balance, June 30, 2021
$
1,050,516
$
26,752
$
213,969
$
( 147,494
)
$
( 138,420
)
$
1,093,994
$
1,715
(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 at December 31, 2020
$
988,365
$
26,658
$
206,716
$
( 133,629
)
$
( 136,881
)
$
1,023,829
$
1,672
Issuance of 16,565 shares of common stock under stock option plan
1,087
17
1,070
—
—
—
—
Purchase of 82,045 shares of common stock
( 10,895
)
—
—
( 10,895
)
—
—
—
Stock-based and deferred compensation
3,290
77
6,183
( 2,970
)
—
—
—
Net income
83,914
—
—
—
—
83,889
25
Other comprehensive income
( 1,521
)
—
—
—
( 1,539
)
—
18
Cash dividends paid:
Common stock ($ 0.610 per share)
( 13,724
)
—
—
—
—
( 13,724
)
—
Balance at June 30, 2021
$
1,050,516
$
26,752
$
213,969
$
( 147,494
)
$
( 138,420
)
$
1,093,994
$
1,715
(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 June 30, 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 $ 783,000 and $ 710,000 as of June 30, 2022 and December 31, 2021, respectively):
(In thousands)
June 30,
2022
December 31,
2021
Fair value
$
485,293
$
369,456
Carrying value
526,775
364,290
7
The following tables present financial assets and liabilities, excluding cash and cash equivalents, measured on a recurring basis at fair value as of June 30, 2022, and December 31, 2021, and the level within the fair value hierarchy in which the fair value measurements fall:
(In thousands)
June 30,
2022
Level 1
Level 2
Level 3
Mutual fund assets
$
24,914
$
24,914
$
—
$
—
Derivative assets:
Interest rate contracts
4,836
—
4,836
—
Foreign currency contracts
10
—
10
—
Total assets at fair value
$
29,760
$
24,914
$
4,846
$
—
Derivative liabilities:
Interest rate contracts
$
—
$
—
$
—
$
—
Foreign currency contracts
324
—
324
—
Total liabilities at fair value
$
324
$
—
$
324
$
—
(In thousands)
December 31,
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 June 30, 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 $ 46,023,000 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 June 30, 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 June 30, 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 and six months ended June 30, 2022 and 2021, were immaterial. For amounts reclassified out of AOCI into earnings for the three and six months ended June 30, 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
June 30
Six Months Ended
June 30
2022
2021
2022
2021
$
3,998
$
2,807
$
6,955
$
5,346
8
The increase in stock-based compensation expense for the second quarter of 2022 compared to the second quarter of 2021 was primarily attributable to the accelerated vesting of certain equity grants for the Company’s former Chief Executive Officer, who retired on April 25, 2022.
Unrecognized compensation costs for stock options, stock awards and SARs were as follows:
(In thousands)
June 30, 2022
December 31, 2021
Stock options
$
1,327
$
2,229
Stock awards
9,924
4,971
SARs
7,606
4,828
The change in unrecognized compensation costs for stock options, stock awards and SARs primarily reflects the 2022 grants of:
Shares
Stock options
34,444
Stock awards (at target)
64,311
SARs
188,835
The unrecognized compensation costs at June 30, 2022, are expected to be recognized over weighted-average periods of 1.4 years for stock options, 2.0 years for stock awards and 2.0 years for SARs.
6 .
INVENTORIES
The composition of inventories at June 30, 2022, and December 31, 2021, was as follows:
(In thousands)
June 30, 2022
December 31, 2021
Finished goods
$
208,516
$
184,010
Raw materials
132,196
121,528
Total inventories
$
340,712
$
305,538
7 .
LEASES
Lease cost is recognized in both the Cost of Sales and Operating Expenses sections of the Condensed Consolidated Statements of Income.
(In thousands)
Three months ended
June 30, 2022
Six months ended
June 30, 2022
Lease Cost
Operating lease cost
$
3,943
$
8,051
Short-term lease cost
1,362
2,700
Variable lease cost
223
425
Total lease cost
$
5,528
$
11,176
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases
$
3,930
$
8,005
Right-of-use assets obtained in exchange for new operating lease liabilities
743
3,562
9
The following table outlines the maturities of lease liabilities as of June 30, 2022.
(In thousands)
Undiscounted Cash Flows:
2022 (excluding the six months ended June 30, 2022)
$
7,806
2023
13,402
2024
8,663
2025
6,295
2026
4,686
Subsequent to 2026
37,414
Total Undiscounted Cash Flows
$
78,266
Less: Imputed interest
( 11,719
)
Present value
$
66,547
Current operating lease liabilities (1)
13,429
Non-current operating lease liabilities
53,118
Total lease liabilities
$
66,547
(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
3.0
%
As of June 30, 2022, the Company had no leases that have not commenced.
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 June 30, 2022, the Company estimated a range of possible environmental losses and legal losses of $ 22,953,000 to $ 42,647,000 . 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 $ 22,953,000 at June 30, 2022 and $ 23,127,000 at December 31, 2021. Although the Company believes that its estimated range of possible environmental losses and legal losses and 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 $ 1,080,000 and $ 1,267,000 for the six months ended June 30, 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
10
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 June 30, 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.
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 June 30, 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.
11
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 Elwood, Illinois (Millsdale) 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
(In thousands)
Three Months Ended
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Interest cost
$
1,235
$
1,177
$
2,469
$
2,354
Expected return on plan assets
( 2,201
)
( 2,586
)
( 4,401
)
( 5,171
)
Amortization of net actuarial loss
577
1,144
1,154
2,288
Net periodic benefit cost (income)
$
( 389
)
$
( 265
)
$
( 778
)
$
( 529
)
UNITED KINGDOM
(In thousands)
Three Months Ended
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Interest cost
$
95
$
91
$
196
$
179
Expected return on plan assets
( 100
)
( 81
)
( 207
)
( 162
)
Amortization of net actuarial loss
2
18
5
35
Net periodic benefit cost (income)
$
( 3
)
$
28
$
( 6
)
$
52
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, $ 171,000 had been paid related to the non-qualified plans as of June 30, 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, $ 253,000 had been contributed to the plan as of June 30, 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 (profit sharing plan), and one non-qualified supplemental executive plan. In the six months ended June 30, 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.
12
Defined contribution plan expenses for the Company’s qualified contribution plans were as follows:
(In thousands)
Three Months Ended
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Retirement savings contributions
$
1,947
$
1,978
$
4,145
$
4,017
Profit sharing contributions
1,959
1,865
3,425
3,731
Total defined contribution plan expenses
$
3,906
$
3,843
$
7,570
$
7,748
The Company has a rabbi trust to fund the obligations of its non-qualified supplemental executive defined contribution plans (supplemental plans). The trust is comprised of 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 June 30, 2022, the balance of the trust assets was $ 2,114,000 , 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.
10 .
EARNINGS PER SHARE
Below are the computations of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021:
(In thousands, except per share amounts)
Three Months Ended
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Computation of Basic Earnings per Share
Net income attributable to Stepan Company
$
52,126
$
43,278
$
96,935
$
83,889
Weighted-average number of common shares outstanding
22,792
22,952
22,842
22,963
Basic earnings per share
$
2.29
$
1.89
$
4.24
$
3.65
Computation of Diluted Earnings per Share
Net income attributable to Stepan Company
$
52,126
$
43,278
$
96,935
$
83,889
Weighted-average number of shares outstanding
22,792
22,952
22,842
22,963
Add weighted-average net shares from assumed
exercise of options (under treasury stock method) (1)
102
152
106
146
Add weighted-average net shares related to unvested
stock awards (under treasury stock method)
—
1
—
1
Add weighted-average net shares from assumed
exercise of SARs (under treasury stock method) (1)
106
190
113
181
Add weighted-average contingently issuable net shares
related to performance stock awards (under treasury stock method)
55
50
54
47
Weighted-average shares applicable to diluted earnings
23,055
23,345
23,115
23,338
Diluted earnings per share
$
2.26
$
1.85
$
4.19
$
3.59
(1)
337,056 and 350,703 options/SARs to acquire shares of Company common stock were excluded from the computation of dilutive earnings per share for the three and six months ended June 30, 2022, respectively. 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 and six months ended June 30, 2021.
13
11.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Below is the change in the Company’s accumulated other comprehensive income (AOCI) balance by component (net of income taxes) for the three and six months ended June 30, 2022 and 2021:
(In thousands)
Foreign
Currency
Translation
Adjustments
Defined
Benefit
Pension Plan
Adjustments
Cash Flow
Hedge
Adjustments
Total
Balance at March 31, 2021
$
( 125,516
)
$
( 28,987
)
$
61
$
( 154,442
)
Other comprehensive income before
reclassifications
15,149
—
—
15,149
Amounts reclassified from AOCI
—
876
( 3
)
873
Net current-period other comprehensive income
15,149
876
( 3
)
16,022
Balance at June 30, 2021
$
( 110,367
)
$
( 28,111
)
$
58
$
( 138,420
)
Balance at March 31, 2022
$
( 125,439
)
$
( 17,586
)
$
2,842
$
( 140,183
)
Other comprehensive income before
reclassifications
( 36,096
)
—
2,045
( 34,051
)
Amounts reclassified from AOCI
—
434
( 2
)
432
Net current-period other comprehensive income
( 36,096
)
434
2,043
( 33,619
)
Balance at June 30, 2022
$
( 161,535
)
$
( 17,152
)
$
4,885
$
( 173,802
)
Balance at December 31, 2020
$
( 107,083
)
$
( 29,861
)
$
63
$
( 136,881
)
Other comprehensive income before reclassifications
( 3,284
)
—
—
( 3,284
)
Amounts reclassified from AOCI
—
1,750
( 5
)
1,745
Net current-period other comprehensive income
( 3,284
)
1,750
( 5
)
( 1,539
)
Balance at June 30, 2021
$
( 110,367
)
$
( 28,111
)
$
58
$
( 138,420
)
Balance at December 31, 2021
$
( 135,268
)
$
( 18,022
)
$
54
$
( 153,236
)
Other comprehensive income before reclassifications
( 26,267
)
—
4,836
( 21,431
)
Amounts reclassified from AOCI
—
870
( 5
)
865
Net current-period other comprehensive income
( 26,267
)
870
4,831
( 20,566
)
Balance at June 30, 2022
$
( 161,535
)
$
( 17,152
)
$
4,885
$
( 173,802
)
14
Information regarding the reclassifications out of AOCI for the three and six months ended June 30, 2022 and 2021, is displayed below:
(In thousands)
Amount Reclassified from AOCI (1)
AOCI Components
Three Months Ended
June 30
Six Months Ended
June 30
Affected Line Item in
Condensed Consolidated Statements of Income
2022
2021
2022
2021
Amortization of defined benefit pension actuarial
losses
$
( 579
)
$
( 1,162
)
$
( 1,159
)
$
( 2,323
)
(2)
145
286
289
573
Tax benefit
$
( 434
)
$
( 876
)
$
( 870
)
$
( 1,750
)
Net of tax
Gains and losses on cash flow hedges:
Foreign exchange contracts
2
3
5
5
Cost of sales
2
3
5
5
Total before tax
—
—
—
—
Tax benefit
$
2
$
3
$
5
$
5
Net of tax
Total reclassifications for the period
$
( 432
)
$
( 873
)
$
( 865
)
$
( 1,745
)
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 and six months ended June 30, 2022 and 2021, were as follows:
(In thousands)
Three Months Ended
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Segment Net Sales
Surfactants
$
485,084
$
384,002
$
953,350
$
754,938
Polymers
238,885
190,538
425,964
340,923
Specialty Products
27,664
20,971
47,595
37,390
Total
$
751,633
$
595,511
$
1,426,909
$
1,133,251
15
Segment operating income and reconciliations of segment operating income to income before provision for income taxes for the three and six months ended June 30, 2022 and 2021, are summarized below:
(In thousands)
Three Months Ended
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Segment Operating Income
Surfactants
$
48,249
$
45,896
$
102,018
$
99,106
Polymers
33,912
23,025
48,041
40,976
Specialty Products
9,866
6,977
13,561
9,610
Segment operating income
92,027
75,898
163,620
149,692
Business restructuring
( 81
)
( 114
)
( 133
)
( 195
)
Unallocated corporate expenses (1)
( 14,306
)
( 19,127
)
( 22,501
)
( 38,926
)
Consolidated operating income
77,640
56,657
140,986
110,571
Other Income (Expense)
Interest, net
( 2,727
)
( 1,567
)
( 5,033
)
( 3,091
)
Other, net
( 5,369
)
2,758
( 7,019
)
3,504
Income before provision for income taxes
$
69,544
$
57,848
$
128,934
$
110,984
(1)
Unallocated corporate expenses are primarily comprised of 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 June 30, 2022, the Company had $ 1,606,000 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 first six months of 2022 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 June 30, 2022, $ 8,762,000 continued to be classified as long-term and $ 1,947,000 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 June 30, 2022.
The tables below provide a geographic disaggregation of net sales for the three and six months ended June 30, 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.
(In thousands)
For the Three Months Ended June 30, 2022
Geographic Market
Surfactants
Polymers
Specialty
Total
North America
$
278,310
$
133,455
$
23,004
$
434,769
Europe
92,591
94,424
4,121
191,136
Latin America
97,987
1,149
539
99,675
Asia
16,196
9,857
—
26,053
Total
$
485,084
$
238,885
$
27,664
$
751,633
(In thousands)
For the Three Months Ended June 30, 2021
Geographic Market
Surfactants
Polymers
Specialty
Total
North America
$
221,645
$
95,591
$
17,818
$
335,054
Europe
65,339
82,453
2,436
150,228
Latin America
79,968
986
717
81,671
Asia
17,050
11,508
—
28,558
Total
$
384,002
$
190,538
$
20,971
$
595,511
16
(In thousands)
For the Six Months Ended June 30, 2022
Geographic Market
Surfactants
Polymers
Specialty
Total
North America
$
551,538
$
228,311
$
39,680
$
819,529
Europe
183,608
175,207
7,253
366,068
Latin America
183,421
2,369
662
186,452
Asia
34,783
20,077
—
54,860
Total
$
953,350
$
425,964
$
47,595
$
1,426,909
(In thousands)
For the Six Months Ended June 30, 2021
Geographic Market
Surfactants
Polymers
Specialty
Total
North America
$
442,580
$
166,469
$
31,755
$
640,804
Europe
136,433
150,753
4,918
292,104
Latin America
140,137
1,976
717
142,830
Asia
35,788
21,725
—
57,513
Total
$
754,938
$
340,923
$
37,390
$
1,133,251
14.
DEBT
At June 30, 2022 and December 31, 2021, debt was comprised of the following:
(In thousands)
Maturity
Dates
June 30,
2022
December 31,
2021
Unsecured private placement notes
3.95% (net of unamortized debt issuance cost of $ 208 and $ 230 for 2022 and 2021, respectively)
2022-2027
$
85,506
$
85,485
3.86% (net of unamortized debt issuance cost of $ 153 and $ 181 for 2022 and 2021, respectively)
2022-2025
42,704
56,962
4.86% (net of unamortized debt issuance cost of $ 49 and $ 69 for 2022 and 2021, respectively)
2022-2023
18,523
18,502
2.30% (net of unamortized debt issuance cost of $ 133 and $ 100 for 2022 and 2021, respectively)
2024-2028
49,867
49,900
2.37% (net of unamortized debt issuance cost of $ 139 and $ 108 for 2022 and 2021, respectively)
2024-2028
49,861
49,892
2.73% (net of unamortized debt issuance cost of $ 59 and $ 22 for 2022 and 2021, respectively)
2025-2031
99,941
99,978
2.83% (net of unamortized debt issuance cost of $ 42 and $ 0 for 2022 and 2021, respectively)
2026-2032
74,958
—
Revolving credit facility borrowing
2022
100,000
—
Debt of foreign subsidiaries
Unsecured bank debt, foreign currency
2022
4,632
2,861
Total debt
$
525,992
$
363,580
Less current maturities
142,489
40,718
Long-term debt
$
383,503
$
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.
On June 24, 2022, the Company entered into a credit agreement with a syndicate of banks. The credit agreement provides for credit facilities in an initial aggregate principal amount of $ 450,000,000 , consisting of (a) a $ 350,000,000 multi-currency revolving credit facility and (b) a $ 100,000,000 delayed draw term loan credit facility, each of which matures on June 24, 2027 .
17
This credit agreement replaced the Company’s prior $ 350,000,000 revolving credit agreement. 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 June 30, 202 2 , the Company had outstanding letters of credit totaling $ 7,029,000 and $ 100,000,000 outstanding b orrowing s under the c redit agreement . There was $ 342,971,000 available under the credit agreement as of June 30 , 202 2 .
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 place limitations on dividend payments, unrestricted retained earnings (i.e., retained earnings available for dividend distribution) were $ 196,935,000 and $ 468,095,000 at June 30, 2022 and December 31, 2021, respectively.
15.
OTHER, NET
Other, net in the condensed consolidated statements of income included the following:
(In thousands)
Three Months Ended
June 30
Six Months Ended
June 30
2022
2021
2022
2021
Foreign exchange gains (losses)
$
( 1,507
)
$
106
$
( 1,225
)
$
( 229
)
Investment income
231
189
394
495
Realized and unrealized gains (losses) on investments
( 4,485
)
2,227
( 6,972
)
2,761
Net periodic pension benefit income
392
236
784
477
Other, net
$
( 5,369
)
$
2,758
$
( 7,019
)
$
3,504
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 June 30, 2022, $ 9,383,000 of aggregate restructuring expense has been recognized, reflecting $ 1,644,000 of termination benefits for approximately 30 employees and $ 7,739,000 for other expenses, principally site decommissioning costs. The Company recognized $ 81,000 and $ 114,000 of decommissioning expenses in the second quarter of 2022 and 2021, respectively. The Company recognized $ 133,000 and $ 195,000 of decommissioning expenses in the first six months 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
18
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 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 .
GOODWILL IMPAIRMENT
The Company typically tests its goodwill balances for impairment in the second quarter of each calendar year. Testing is completed more frequently when triggering events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit to which goodwill relates has declined below its carrying value. During the second quarter of 2022 the Company completed its annual goodwill impairment testing and concluded that the goodwill related to its Philippines reporting unit was impaired. The Philippines reporting unit is part of the Company’s Surfactant segment. Goodwill impairment was recognized as a result of the reporting unit’s fair value declining below its carrying value. The Company estimates the fair value of each of its reporting units based on the average of market and income-based computations. See the Critical Accounting Policies, Goodwill and Intangible Assets , disclosed in the Company’s 2021 Annual Report on Form 10-K for further details on how the Company computes market and income-based fair values. The Philippines impairment primarily resulted from lost market share at one major customer combined with higher unit overhead costs. The Company recorded a non-cash charge of $ 978,000 in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022. The impairment charge equaled the entire balance of the Philippines’ goodwill.
The Company concluded that there was no goodwill impairment at any of its other reporting units based on its testing completed during the second quarter of 2022.
1 9 .
NONCASH INVESTING ACTIVITIES
Noncash investing activities included liabilities (accounts payable) incurred for property, plant and equipment expenditures of approximately $ 29,032,000 and $ 12,271,000 that were unpaid at June 30, 2022 and 2021, respectively.
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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.
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