~~22 West Frontage Road, Northfield,~~1101 Skokie Boulevard, Suite 500, Northbrook, Illinois ~~60093~~60062

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

(In thousands, except per share amounts)	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2021			2020			2021			2020			2022			2021			2022			2021
Net Sales	$	595,511		$	460,549		$	1,133,251		$	910,536		$	751,633		$	595,511		$	1,426,909		$	1,133,251
Cost of Sales		483,830			362,054			912,590			732,772			620,019			483,830			1,186,076			912,590
Gross Profit		111,681			98,495			220,661			177,764			131,614			111,681			240,833			220,661
Operating Expenses:
Selling		14,990			12,921			29,494			26,453			15,552			14,990			30,829			29,494
Administrative		23,974			20,731			46,612			39,603			24,079			23,974			45,651			46,612
Research, development and technical services		14,988			13,531			30,137			27,358			16,690			14,988			33,163			30,137
Deferred compensation (income) expense		958			6,464			3,652			(859	)		(3,406	)		958			(10,907	)		3,652
		54,910			53,647			109,895			92,555			52,915			54,910			98,736			109,895
Goodwill impairment (Note 18)														(978	)		—			(978	)		—
Business restructuring expenses (Note 16)		(114	)		(225	)		(195	)		(582	)		(81	)		(114	)		(133	)		(195	)
Operating Income		56,657			44,623			110,571			84,627			77,640			56,657			140,986			110,571
Other Income (Expense):
Interest, net		(1,567	)		(1,259	)		(3,091	)		(2,489	)		(2,727	)		(1,567	)		(5,033	)		(3,091	)
Other, net (Note 15)		2,758			4,437			3,504			1,175			(5,369	)		2,758			(7,019	)		3,504
		1,191			3,178			413			(1,314	)		(8,096	)		1,191			(12,052	)		413

Income Before Provision for Income Taxes		57,848			47,801			110,984			83,313			69,544			57,848			128,934			110,984
Provision for Income Taxes		14,545			11,958			27,070			19,931			17,418			14,545			31,999			27,070
Net Income		43,303			35,843			83,914			63,382			52,126			43,303			96,935			83,914
Net Income Attributable to Noncontrolling Interest (Note 2)		(25	)		(136	)		(25	)		(130	)
Less: Net Income Attributable to Noncontrolling Interest														—			(25	)		—			(25	)
Net Income Attributable to Stepan Company	$	43,278		$	35,707		$	83,889		$	63,252		$	52,126		$	43,278		$	96,935		$	83,889

Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic	$	1.89		$	1.56		$	3.65		$	2.75		$	2.29		$	1.89		$	4.24		$	3.65
Diluted	$	1.85		$	1.54		$	3.59		$	2.72		$	2.26		$	1.85		$	4.19		$	3.59

Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic		22,952			22,923			22,963			22,973			22,792			22,952			22,842			22,963
Diluted		23,345			23,184			23,338			23,235			23,055			23,345			23,115			23,338

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

(In thousands)	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2021			2020			2021			2020			2022			2021			2022			2021
Net Income	$	43,303		$	35,843		$	83,914		$	63,382		$	52,126		$	43,303		$	96,935		$	83,914
Other Comprehensive Income:
Foreign currency translation adjustments ⁽¹⁾ (Note 11)		15,175			3,539			(3,266	)		(37,656	)
Foreign currency translation adjustments (Note 11) ⁽¹⁾														(36,096	)		15,175			(26,267	)		(3,266	)
Defined benefit pension adjustments, net of tax (Note 11)		876			808			1,750			1,616			434			876			870			1,750
Derivative instrument activity, net of tax (Note 11)		(3	)		(2	)		(5	)		(4	)		2,043			(3	)		4,831			(5	)
Total Other Comprehensive Income		16,048			4,345			(1,521	)		(36,044	)		(33,619	)		16,048			(20,566	)		(1,521	)
Comprehensive Income		59,351			40,188			82,393			27,338			18,507			59,351			76,369			82,393
Comprehensive Income Attributable to Noncontrolling Interest (Note 2)		(51	)		(138	)		(43	)		(119	)		—			(51	)		—			(43	)
Comprehensive Income Attributable to Stepan Company	$	59,300		$	40,050		$	82,350		$	27,219		$	18,507		$	59,300		$	76,369		$	82,350

~~(1)Includes foreign currency translation adjustments related to noncontrolling interest.~~

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

(Dollars in thousands)	June 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Assets
Current Assets:
Cash and cash equivalents	$	127,053		$	349,938		$	194,585		$	159,186
Receivables, net		391,730			301,318			518,750			419,542
Inventories (Note 6)		266,088			218,783			340,712			305,538
Other current assets		30,984			35,612			33,320			29,102
Total current assets		815,855			905,651			1,087,367			913,368
Property, Plant and Equipment:
Cost		1,991,390			1,872,650			2,182,693			2,090,957
Less: Accumulated depreciation		(1,226,606	)		(1,189,983	)		(1,263,159	)		(1,240,353	)
Property, plant and equipment, net		764,784			682,667			919,534			850,604
Goodwill, net (Note 17)		97,988			27,972			93,152			97,187
Other intangible assets, net (Note 17)		65,461			24,068			54,956			60,784
Long-term investments (Note 3)		32,576			30,652			24,914			34,495
Operating lease assets (Note 7)		69,942			62,421			65,525			69,612
Other non-current assets		40,699			18,905			43,351			39,562
Total assets	$	1,887,305		$	1,752,336		$	2,288,799		$	2,065,612
Liabilities and Equity
Current Liabilities:
Current maturities of long-term debt (Note 14)	$	42,352		$	37,857		$	142,489		$	40,718
Accounts payable		286,917			236,750			366,233			323,362
Accrued liabilities		135,232			141,947			129,506			136,396
Total current liabilities		464,501			416,554			638,228			500,476
Deferred income taxes		9,995			20,745			11,375			12,491
Long-term debt, less current maturities (Note 14)		196,529			160,812			383,503			322,862
Non-current operating lease liabilities (Note 7)		58,180			51,567			53,118			56,668
Other non-current liabilities		107,584			114,293			76,864			98,922
Commitments and Contingencies (Note 8)
Equity:
Common stock, $1 par value; authorized 60,000,000 shares; Issued 26,752,093 shares in 2021 and 26,658,032 shares in 2020		26,752			26,658
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		213,969			206,716			229,510			220,820
Accumulated other comprehensive loss (Note 11)		(138,420	)		(136,881	)		(173,802	)		(153,236	)
Retained earnings		1,093,994			1,023,829			1,215,500			1,133,550
Less: Common treasury stock, at cost, 4,286,578 shares in 2021 and 4,185,242 shares in 2020		(147,494	)		(133,629	)
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		1,048,801			986,693			1,125,711			1,074,193
Noncontrolling interest (Note 2)		1,715			1,672
Total equity		1,050,516			988,365			1,125,711			1,074,193
Total liabilities and equity	$	1,887,305		$	1,752,336		$	2,288,799		$	2,065,612

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

(In thousands)	Six Months Ended June 30						Six Months Ended June 30
	2021			2020			2022			2021
Cash Flows From Operating Activities
Net income	$	83,914		$	63,382		$	96,935		$	83,914
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		45,311			40,329			46,252			45,311
Deferred compensation		3,652			(859	)		(10,907	)		3,652
Realized and unrealized gains on long-term investments		(2,761	)		(75	)
Realized and unrealized (gains) losses on long-term investments								6,972			(2,761	)
Stock-based compensation		5,346			4,191			6,955			5,346
Deferred income taxes		(39,475	)		1,427			2,241			(39,475	)
Goodwill impairment (Note 18)								978			—
Other non-cash items		92			655			1,142			92
Changes in assets and liabilities:
Receivables, net		(68,033	)		(23,253	)		(111,051	)		(68,033	)
Inventories		(35,747	)		(9,740	)		(38,564	)		(35,747	)
Other current assets		(63	)		(6,077	)		(4,838	)		(63	)
Accounts payable and accrued liabilities		34,027			(8,284	)		43,326			34,027
Pension liabilities		(971	)		(323	)		(1,113	)		(971	)
Environmental and legal liabilities		(463	)		(3,116	)		(379	)		(463	)
Deferred revenues		(134	)		243			203			(134	)
Net Cash Provided By Operating Activities		24,695			58,500			38,152			24,695
Cash Flows From Investing Activities
Expenditures for property, plant and equipment		(74,868	)		(54,671	)		(129,463	)		(74,868	)
Asset acquisition (Note 17)		(3,503	)		(2,040	)		—			(3,503	)
Business acquisition, net of cash acquired (Note 17)		(184,560	)		—			—			(184,560	)
Other, net		1,430			2,331			3,156			1,430
Net Cash Used In Investing Activities		(261,501	)		(54,380	)		(126,307	)		(261,501	)
Cash Flows From Financing Activities
Revolving debt and bank overdrafts, net (Note 14)		4,495			—			101,771			4,495
Other debt borrowings (Note 14)		50,000			—			75,000			50,000
Other debt repayments		(14,286	)		(14,286	)		(14,286	)		(14,286	)
Dividends paid		(13,724	)		(12,371	)		(14,985	)		(13,724	)
Company stock repurchased		(10,895	)		(13,753	)		(16,976	)		(10,895	)
Stock option exercises		1,087			392			185			1,087
Other, net		(1,920	)		(415	)		(2,612	)		(1,920	)
Net Cash (Used In) Provided By Financing Activities		14,757			(40,433	)
Net Cash Provided By Financing Activities								128,097			14,757
Effect of Exchange Rate Changes on Cash		(836	)		(6,193	)		(4,543	)		(836	)
Net Decrease in Cash and Cash Equivalents		(222,885	)		(42,506	)
Net Increase (Decrease) in Cash and Cash Equivalents								35,399			(222,885	)
Cash and Cash Equivalents at Beginning of Period		349,938			315,383			159,186			349,938
Cash and Cash Equivalents at End of Period	$	127,053		$	272,877		$	194,585		$	127,053
Supplemental Cash Flow Information
Cash payments of income taxes, net of refunds/payments	$	43,472		$	7,501		$	19,353		$	43,472
Cash payments of interest	$	4,622		$	4,810		$	7,184		$	4,622

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these 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, ~~2021,~~2022, and its results of operations and cash flows for the three and six months ended June 30, ~~2021~~2022 and ~~2020, and cash flows for the six months ended June 30,~~ 2021, ~~and 2020,~~ 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 ~~2020~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2021 (2021 Annual Report on Form 10-K).

Below are reconciliations of total equity ~~Company equity and equity attributable to noncontrolling interests~~ for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~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			Noncontrolling Interest ⁽¹⁾		Total			Common Stock		Additional Paid-in Capital		Common Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings
Balance at March 31, 2021		1,003,946			26,726		209,471		(137,052	)		(154,442	)		1,057,579			1,664
Balance, March 31, 2022																			$	1,116,738		$	26,814	$	224,500	$	(165,239	)	$	(140,183	)	$	1,170,846

Issuance of 10,779 shares of common stock under stock option plan		706			11		695		—			—			—			—
Issuance of 1,133 shares of common stock under stock option plan																				71			1		70		—			—			—

Purchase of 73,745 shares of common stock		(9,906	)		—		—		(9,906	)		—			—			—
Purchase of 69,734 shares of common stock																				(7,041	)		—		—		(7,041	)		—			—

Stock-based and deferred compensation		3,282			15		3,803		(536	)		—			—			—		4,908			10		4,940		(42	)		—			—

Net income		43,303			—		—		—			—			43,278			25		52,126			—		—		—			—			52,126

Other comprehensive income		16,048			—		—		—			16,022			—			26		(33,619	)		—		—		—			(33,619	)		—

Cash dividends paid:
Common stock ($0.305 per share)		(6,863	)		—		—		—			—			(6,863	)		—
Balance at June 30, 2021	$	1,050,516		$	26,752	$	213,969	$	(147,494	)	$	(138,420	)	$	1,093,994		$	1,715
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

(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

(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 March 31, 2020

867,472

26,541

195,661

(122,685
)

(176,546
)

943,807

694

Issuance of 3,933 shares of common stock under stock option plan

237

4

233

—

—

—

—

Purchase of 71,555 shares of common stock

(6,510
)

—

—

(6,510
)

—

—

—

Stock-based and deferred compensation

3,043

7

3,053

(17
)

—

—

—

Net income

35,843

—

—

—

—

35,707

136

Other comprehensive income

4,345

—

—

—

4,343

—

2

Cash dividends paid:

Common stock ($0.275 per share)

(6,169
)

—

—

—

—

(6,169
)

—

Balance at June 30, 2020

$
898,261

$
26,552

$
198,947

$
(129,212
)

$
(172,203
)

$
973,345

$
832

(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, 2019

$
892,496

$
26,493

$
193,135

$
(114,139
)

$
(136,170
)

$
922,464

$
713

Issuance of 6,680 shares of common stock under stock option plan

392

7

385

—

—

—

—

Purchase of 160,780 shares of common stock

(13,753
)

—

—

(13,753
)

—

—

—

Stock-based and deferred compensation

4,159

52

5,427

(1,320
)

—

—

—

Net income

63,382

—

—

—

—

63,252

130

Other comprehensive income

(36,044
)

—

—

—

(36,033
)

—

(11
)

Cash dividends paid:

Common stock ($0.550 per share)

(12,371
)

—

—

—

—

(12,371
)

—

Balance at June 30, 2020

$
898,261

$
26,552

$
198,947

$
(129,212
)

$
(172,203
)

$
973,345

$
832

~~The following were the financial instruments held by the Company at June 30, 2021, and December 31, 2020, and the methods and assumptions used to estimate the instruments’ fair values:~~

~~Carrying value approximated fair value because of the short maturity of the instruments. Fair value of cash and cash equivalents is a Level 1 measurement.~~

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. ~~See the table below that describes financial assets and liabilities measured on a recurring basis for the reported fair values of derivative assets and liabilities.~~

Long-term investments include the mutual fund assets the Company held to fund a portion of its deferred compensation liabilities and all of its non-qualified supplemental executive defined contribution obligations (see the defined contribution plans section of 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)). Fair value and carrying value were the same because the mutual fund assets were recorded at fair value. Fair values for the mutual funds were calculated using the published market price per unit at the reporting date multiplied by the number of units held at the reporting date. See the table that follows the financial instrument descriptions for the reported fair value of long-term investments.

The fair value of ~~debt with original maturities greater than one year comprised~~ the ~~combined~~interest rate swaps was calculated as the difference between the contracted swap rate and the floating interest rate multiplied by the present ~~values of scheduled principal and interest payments for each~~value of the various loans, individually discounted at rates equivalent to those which could be obtained by the Company for new debt issues with durations equal to the average life to maturity of each loan. The fair valuesnotional amount of the remaining Company debt obligations approximated their carrying values due to the short-term nature of the debt. The Company’s fair value measurements for debt fall within Level 2 of the fair value hierarchy.contract.

At June 30, ~~2021,~~2022, and December 31, ~~2020,~~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 ~~$614,000~~$783,000 and ~~$617,000~~$710,000 as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively):

(In thousands)

June 30,

2021

December 31,

2020

June 30,

2022

December 31,

2021

Fair value

248,832

210,370

485,293

369,456

Carrying value

239,495

199,286

526,775

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 June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, and the level within the fair value hierarchy in which the fair value measurements fall:

(In thousands)	June 30, 2021		Level 1		Level 2		Level 3		June 30, 2022		Level 1		Level 2		Level 3
Mutual fund assets	$	32,576	$	32,576	$	—	$	—	$	24,914	$	24,914	$	—	$	—
Derivative assets:
Interest rate contracts										4,836		—		4,836		—
Foreign currency contracts		256		—		256		—		10		—		10		—
Total assets at fair value	$	32,832	$	32,576	$	256	$	—	$	29,760	$	24,914	$	4,846	$	—
Derivative liabilities:
Interest rate contracts									$	—	$	—	$	—	$	—
Foreign currency contracts	$	2	$	—	$	2	$	—		324		—		324		—
Total liabilities at fair value									$	324	$	—	$	324	$	—

(In thousands)	December 31, 2020		Level 1		Level 2			Level 3			December 31, 2021		Level 1		Level 2		Level 3
Mutual fund assets	$	30,652	$	30,652		$	—		$	—	$	34,495	$	34,495	$	—	$	—
Derivative assets:
Foreign currency contracts		335		—			335			—		436		—		436		—
Total assets at fair value	$	30,987	$	30,652		$	335		$	—	$	34,931	$	34,495	$	436	$	—
Derivative liabilities:
Foreign currency contracts	$	566	$	—		$	566		$	—	$	338	$	-	$	338	$	—

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by the use of derivative instruments is foreign currency exchange risk. The Company holds forward foreign currency exchange contracts that are not designated as any type of accounting hedge as defined by GAAP. The Company uses these contracts to manage its exposure to exchange rate fluctuations on certain Company subsidiary cash, accounts receivable, accounts payable and other obligation balances that are denominated in currencies other than the entities’ functional currencies. The forward foreign exchange contracts are recognized on the balance sheet as either an asset or a liability measured at fair value. Gains and losses arising from recording the foreign exchange contracts at fair value are reported in earnings as offsets to the losses and gains reported in earnings arising from the re-measurement of the asset and liability balances into the applicable functional currencies. At June 30, ~~2021,~~2022, and December 31, ~~2020,~~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 ~~$45,745,000~~$46,023,000 and ~~$48,336,000,~~$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, ~~2021,~~2022, and December 31, ~~200,~~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-~~three and ~~six-month periods~~six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, were immaterial. For amounts reclassified out of ~~accumulated other comprehensive income (loss) (AOCI)~~AOCI into earnings for the ~~three-~~three and ~~six-month periods~~six months ended June 30, ~~2021~~2022 and ~~2020,~~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).

On June 30, 2021, the Company had stock options, stock awards and stock appreciation rights (SARs) outstanding under its 2011 Incentive Compensation Plan. SARs granted prior to 2015 are cash-settled, and SARs granted in 2015 and later are stock-settled. Stock options and SARs granted prior to 2017 generally cliff vested after two years. Starting in 2017, stock options and

~~SARs have a~~ ~~three-year~~ ~~graded vesting feature, with~~ ~~one-third~~ ~~of the awards vesting each year. The Company has elected the straight-line method of expense attribution for the stock options and SARs with the graded vesting feature.~~

Compensation expense recorded for all stock options, stock awards and ~~SARs~~stock appreciation rights (SARs) was as follows:

(In thousands)	(In thousands)							(In thousands)
Three Months Ended June 30	Three Months Ended June 30			Six Months Ended June 30				Three Months Ended June 30			Six Months Ended June 30
2021		2020		2021		2020
2022								2022	2021		2022		2021
$	2,807	$	2,989	$	5,346	$	4,191	3,998	$	2,807	$	6,955	$	5,346

The increase in stock-based compensation expense for the ~~first six months~~second quarter of ~~2021~~2022 compared to the ~~first six months~~second quarter of ~~2020~~2021 was primarily attributable to ~~performance awards and cash-settled SARs. The increase in performance awards compensation expense reflects management’s assessment~~the accelerated vesting of ~~profitability performance targets. The increase in cash-settled SARS compensation expense reflects an increase in~~certain equity grants for the ~~market value of Company stock during the first half of 2021 versus a decrease in the market value of Company stock during the first half of 2020.~~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, 2021		December 31, 2020		June 30, 2022		December 31, 2021
Stock options	$	3,255	$	1,993	$	1,327	$	2,229
Stock awards		7,995		5,313		9,924		4,971
SARs		7,055		4,341		7,606		4,828

The ~~increases~~change in unrecognized compensation costs for stock options, stock awards and SARs ~~reflected~~primarily reflects the ~~2021~~2022 grants of:

The unrecognized compensation costs at June 30, ~~2021,~~2022, are expected to be recognized over weighted-average periods of 1.4 years for stock options, 2.0 years for stock ~~options, SARs~~awards and ~~stock awards.~~2.0 years for SARs.

The composition of inventories at June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, was as follows:

(In thousands)	June 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
Finished goods	$	160,467	$	148,878	$	208,516	$	184,010
Raw materials		105,621		69,905		132,196		121,528
Total inventories	$	266,088	$	218,783	$	340,712	$	305,538

The Company’s operating leases are primarily comprised of railcar, real estate, storage tank, auto, trailer and manufacturing/office equipment leases. Railcars and real estate comprise approximately 23 percent and 63 percent, respectively, of the Company’s consolidated ROU asset balance. Except for real estate, typical lease terms range from one to ten years. Real estate lease terms typically range from one to fifty years. The Company’s four principal real estate leases consist of the office lease for new corporate headquarters in Northbrook, Illinois and land leases in the Philippines, Singapore and Lake Providence, Louisiana. As of June 30, 2021, the Company had railcar leases, valued at approximately $3,154,000, that had not commenced. These leases will commence in the third quarter of 2021 and the first quarter of 2022.

As most of the Company’s leases do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate (IBR) based on the information available at the commencement date in determining the present value of lease payments. IBRs were specifically determined for the United States, Philippines, Singapore, Brazil and China, typically for five-year increments. The U.S. IBR was used for all other countries as the leases in these countries are not material. The total value of

~~leases that reside in the 5 countries identified above represents approximately 98 percent of the Company’s consolidated ROU asset balance.~~ 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, 2021		Six months ended June 30, 2021		Three months ended June 30, 2022		Six months ended June 30, 2022
Lease Cost
Operating lease cost	$	3,844	$	7,570	$	3,943	$	8,051
Short-term lease cost		1,284		2,553		1,362		2,700
Variable lease cost		222		505		223		425
Total lease cost	$	5,350	$	10,628	$	5,528	$	11,176
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases	$	3,688	$	6,977	$	3,930	$	8,005
Right-of-use assets obtained in exchange for operating lease liabilities		1,003		13,630
Right-of-use assets obtained in exchange for new operating lease liabilities						743		3,562

The following table outlines the maturities of lease liabilities as of June 30, ~~2021:~~2022.


(In thousands)
Undiscounted Cash Flows:
2021 (excluding the six months ended June 30, 2021)	$	7,432
2022		13,516
2022 (excluding the six months ended June 30, 2022)				$	7,806
2023		11,119			13,402
2024		7,032			8,663
2025		5,336			6,295
Subsequent to 2025		39,610
2026					4,686
Subsequent to 2026					37,414
Total Undiscounted Cash Flows	$	84,045		$	78,266
Less: Imputed interest		(13,301	)		(11,719	)
Present value	$	70,744		$	66,547
Current operating lease liabilities ⁽¹⁾		12,564			13,429
Non-current operating lease liabilities		58,180			53,118
Total lease liabilities	$	70,744		$	66,547

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, ~~2021,~~2022, the Company estimated a range of possible environmental losses and legal losses of $~~22,459,000~~$22,953,000 to $~~40,890,000~~.$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 $~~22,459,000~~$22,953,000 at June 30, ~~2021~~2022 and ~~$22,884,000~~$23,127,000 at December 31, ~~2020.~~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 $~~1,267,000~~$1,080,000 and ~~$3,075,000~~$1,267,000 for the ~~six-month periods~~six months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively.

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, ~~2021:~~2022:

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.

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 ~~2020,~~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.

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.

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,~~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.

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.

	UNITED STATES												UNITED STATES
(In thousands)	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2021			2020			2021			2020			2022			2021			2022			2021
Interest cost	$	1,177		$	1,421		$	2,354		$	2,842		$	1,235		$	1,177		$	2,469		$	2,354
Expected return on plan assets		(2,586	)		(2,437	)		(5,171	)		(4,874	)		(2,201	)		(2,586	)		(4,401	)		(5,171	)
Amortization of net actuarial loss		1,144			1,052			2,288			2,104			577			1,144			1,154			2,288
Net periodic benefit cost (income)	$	(265	)	$	36		$	(529	)	$	72		$	(389	)	$	(265	)	$	(778	)	$	(529	)

	UNITED KINGDOM												UNITED KINGDOM
(In thousands)	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2021			2020			2021			2020			2022			2021			2022			2021
Interest cost	$	91		$	107		$	179		$	216		$	95		$	91		$	196		$	179
Expected return on plan assets		(81	)		(133	)		(162	)		(267	)		(100	)		(81	)		(207	)		(162	)
Amortization of net actuarial loss		18			19			35			38			2			18			5			35
Net periodic benefit cost (income)	$	28		$	(7	)	$	52		$	(13	)	$	(3	)	$	28		$	(6	)	$	52

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 ~~$274,000~~$276,000 is expected to

be paid related to the unfunded non-qualified plans in ~~2021.~~2022. Of such amount, $~~171,000~~$171,000 had been paid related to the non-qualified plans as of June 30, ~~2021.~~2022.

The Company’s U.K. subsidiary expects to contribute approximately ~~$495,000~~$505,000 to its defined benefit pension plan in ~~2021.~~2022. Of such amount, ~~$272,000~~$253,000 had been contributed to the plan as of June 30, ~~2021.~~2022.

The Company sponsors retirement defined contribution plans that cover eligible U.S. and U.K. employees. The Company’s U.S. retirement ~~contributions~~ 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, ~~2021~~2022 and ~~2020,~~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 ~~2020~~2021 and ~~2021,~~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 June 30				Six Months Ended June 30				Three Months Ended June 30				Six Months Ended June 30
	2021		2020		2021		2020		2022		2021		2022		2021
Retirement savings contributions	$	1,978	$	1,950	$	4,017	$	3,708	$	1,947	$	1,978	$	4,145	$	4,017
Profit sharing contributions plan		1,865		1,483		3,731		2,458
Profit sharing contributions										1,959		1,865		3,425		3,731
Total defined contribution plan expenses	$	3,843	$	3,433	$	7,748	$	6,166	$	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 ~~comprises~~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 ~~appreciates~~appreciate and decrease when the value of the trust assets ~~declines~~decline (i.e., supplemental plan income is recognized). At June 30, ~~2021,~~2022, the balance of the trust assets was ~~$2,111,000,~~$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.

Below are the computations of basic and diluted earnings per share for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~

(In thousands, except per share amounts)	Three Months Ended June 30				Six Months Ended June 30				Three Months Ended June 30				Six Months Ended June 30
	2021		2020		2021		2020		2022		2021		2022		2021
Computation of Basic Earnings per Share
Net income attributable to Stepan Company	$	43,278	$	35,707	$	83,889	$	63,252	$	52,126	$	43,278	$	96,935	$	83,889
Weighted-average number of common shares outstanding		22,952		22,923		22,963		22,973		22,792		22,952		22,842		22,963
Basic earnings per share	$	1.89	$	1.56	$	3.65	$	2.75	$	2.29	$	1.89	$	4.24	$	3.65

Computation of Diluted Earnings per Share
Net income attributable to Stepan Company	$	43,278	$	35,707	$	83,889	$	63,252	$	52,126	$	43,278	$	96,935	$	83,889
Weighted-average number of shares outstanding		22,952		22,923		22,963		22,973		22,792		22,952		22,842		22,963
Add weighted-average net shares from assumed exercise of options (under treasury stock method) ⁽¹⁾		152		100		146		101		102		152		106		146
Add weighted-average net shares related to unvested stock awards (under treasury stock method)		1		1		1		1		—		1		—		1
Add weighted-average net shares from assumed exercise of SARs (under treasury stock method) ⁽¹⁾		190		125		181		127		106		190		113		181
Add weighted-average contingently issuable net shares related to performance stock awards (under treasury stock method)		50		35		47		33		55		50		54		47
Weighted-average shares applicable to diluted earnings		23,345		23,184		23,338		23,235		23,055		23,345		23,115		23,338
Diluted earnings per share	$	1.85	$	1.54	3.59		$	2.72	$	2.26	$	1.85	$	4.19	$	3.59

~~(1)~~ ~~NaN~~ 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, respectively. Options/SARs to acquire 253,448 and 254,868 shares of Company common stock were excluded from the computations of diluted earnings per share for the three and six months ended June 30, 2020, respectively. Inclusion of the instruments would have had an antidilutive effect on the computations of the earnings per share.

Below is the change in the Company’s ~~AOCI~~accumulated other comprehensive income (AOCI) balance by component (net of income taxes) for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

(In thousands)	Foreign Currency Translation Adjustments			Defined Benefit Pension Plan Adjustments			Cash Flow Hedge Adjustments			Total			Foreign Currency Translation Adjustments			Defined Benefit Pension Plan Adjustments			Cash Flow Hedge Adjustments			Total
Balance at March 31, 2020	$	(145,219	)	$	(31,397	)	$	70		$	(176,546	)
Other comprehensive income before reclassifications		3,537			—			—			3,537
Amounts reclassified from AOCI		—			808			(2	)		806
Net current-period other comprehensive income		3,537			808			(2	)		4,343
Balance at June 30, 2020	$	(141,682	)	$	(30,589	)	$	68		$	(172,203	)

Balance at March 31, 2021	$	(125,516	)	$	(28,987	)	$	61		$	(154,442	)	$	(125,516	)	$	(28,987	)	$	61		$	(154,442	)
Other comprehensive income before reclassifications		15,149			—			—			15,149			15,149			—			—			15,149
Amounts reclassified from AOCI		—			876			(3	)		873			—			876			(3	)		873
Net current-period other comprehensive income		15,149			876			(3	)		16,022			15,149			876			(3	)		16,022
Balance at June 30, 2021	$	(110,367	)	$	(28,111	)	$	58		$	(138,420	)	$	(110,367	)	$	(28,111	)	$	58		$	(138,420	)

Balance at December 31, 2019	$	(104,037	)	$	(32,205	)	$	72		$	(136,170	)
Balance at March 31, 2022													$	(125,439	)	$	(17,586	)	$	2,842		$	(140,183	)
Other comprehensive income before reclassifications		(37,645	)		—			—			(37,645	)		(36,096	)		—			2,045			(34,051	)
Amounts reclassified from AOCI		—			1,616			(4	)		1,612			—			434			(2	)		432
Net current-period other comprehensive income		(37,645	)		1,616			(4	)		(36,033	)		(36,096	)		434			2,043			(33,619	)
Balance at June 30, 2020	$	(141,682	)	$	(30,589	)	$	68		$	(172,203	)
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	)	$	(107,083	)	$	(29,861	)	$	63		$	(136,881	)
Other comprehensive income before reclassifications		(3,284	)		—			—			(3,284	)		(3,284	)		—			—			(3,284	)
Amounts reclassified from AOCI		—			1,750			(5	)		1,745			—			1,750			(5	)		1,745
Net current-period other comprehensive income		(3,284	)		1,750			(5	)		(1,539	)		(3,284	)		1,750			(5	)		(1,539	)
Balance at June 30, 2021	$	(110,367	)	$	(28,111	)	$	58		$	(138,420	)	$	(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	)

Information regarding the reclassifications out of AOCI for the ~~three-~~three and ~~six-month periods~~six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, is displayed below:

(In thousands)	Amount Reclassified from AOCI ⁽¹⁾													Amount Reclassified from AOCI⁽¹⁾
AOCI Components	Three Months Ended June 30						Six Months Ended June 30						Affected Line Item in Consolidated Statements of Income	Three Months Ended June 30						Six Months Ended June 30						Affected Line Item in Condensed Consolidated Statements of Income
	2021			2020			2021			2020				2022			2021			2022			2021
Amortization of defined benefit pension actuarial losses	$	(1,162	)	$	(1,071	)	$	(2,323	)	$	(2,142	)	⁽²⁾	$	(579	)	$	(1,162	)	$	(1,159	)	$	(2,323	)	⁽²⁾
		286			263			573			526		Tax benefit		145			286			289			573		Tax benefit
	$	(876	)	$	(808	)	$	(1,750	)	$	(1,616	)	Net of tax	$	(434	)	$	(876	)	$	(870	)	$	(1,750	)	Net of tax
Gains and losses on cash flow hedges:
Foreign exchange contracts		3			2			5			4		Cost of sales		2			3			5			5		Cost of sales
		3			2			5			4		Total before tax		2			3			5			5		Total before tax
		—			—			—			—		Tax benefit		—			—			—			—		Tax benefit
	$	3		$	2		$	5		$	4		Net of tax	$	2		$	3		$	5		$	5		Net of tax
Total reclassifications for the period	$	(873	)	$	(806	)	$	(1,745	)	$	(1,612	)	Net of tax	$	(432	)	$	(873	)	$	(865	)	$	(1,745	)	Net of tax

The Company has 3 reportable segments: Surfactants, Polymers and Specialty Products. Net sales by segment for the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, were as follows:

(In thousands)	Three Months Ended June 30				Six Months Ended June 30				Three Months Ended June 30				Six Months Ended June 30
	2021		2020		2021		2020		2022		2021		2022		2021
Segment Net Sales
Surfactants	$	384,002	$	332,335	$	754,938	$	659,406	$	485,084	$	384,002	$	953,350	$	754,938
Polymers		190,538		112,409		340,923		218,900		238,885		190,538		425,964		340,923
Specialty Products		20,971		15,805		37,390		32,230		27,664		20,971		47,595		37,390
Total	$	595,511	$	460,549	$	1,133,251	$	910,536	$	751,633	$	595,511	$	1,426,909	$	1,133,251

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, ~~2021~~2022 and ~~2020,~~2021, are summarized below:

(In thousands)	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2021			2020			2021			2020			2022			2021			2022			2021
Segment Operating Income
Surfactants	$	45,896		$	48,503		$	99,106		$	84,659		$	48,249		$	45,896		$	102,018		$	99,106
Polymers		23,025			15,527			40,976			23,043			33,912			23,025			48,041			40,976
Specialty Products		6,977			3,226			9,610			7,210			9,866			6,977			13,561			9,610
Segment operating income		75,898			67,256			149,692			114,912			92,027			75,898			163,620			149,692
Business restructuring		(114	)		(225	)		(195	)		(582	)		(81	)		(114	)		(133	)		(195	)
Unallocated corporate expenses ⁽¹⁾		(19,127	)		(22,408	)		(38,926	)		(29,703	)		(14,306	)		(19,127	)		(22,501	)		(38,926	)
Consolidated operating income		56,657			44,623			110,571			84,627			77,640			56,657			140,986			110,571
Other Income (Expense)
Interest, net		(1,567	)		(1,259	)		(3,091	)		(2,489	)		(2,727	)		(1,567	)		(5,033	)		(3,091	)
Other, net		2,758			4,437			3,504			1,175			(5,369	)		2,758			(7,019	)		3,504
Income before provision for income taxes	$	57,848		$	47,801		$	110,984		$	83,313		$	69,544		$	57,848		$	128,934		$	110,984

The Company deems a contract with a customer to exist when a purchase order is received from a customer for a specified quantity of product or products and the Company acknowledges receipt of such purchase order. In some instances the Company has entered into manufacturing supply agreements with customers but these agreements typically do not bind a customer to any purchase volume requirements and thus an obligation is not created until the customer submits a purchase order to the Company. The Company’s contracts typically have a single performance obligation that is satisfied at the time a product is shipped and control passes to the customer. For a small portion of the business, performance obligations are deemed satisfied when product is delivered to a customer location.

As of June 30, ~~2021,~~2022, the Company had ~~$641,000~~$1,606,000 of contract liabilities and 0 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 ~~would maintain~~maintains a deferred revenue liability until the time a performance obligation has been satisfied. The Company recognized ~~$773,000~~$1,376,000 of revenue in the first six months of ~~2021~~2022 from pre-existing contract liabilities at December 31, ~~2020.~~2021. During 2020 the Company ~~recognized~~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. As of June 30, 2021,~~contract and 0 revenue has been recognized from this ~~contract.~~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, ~~2021~~2022 and ~~2020.~~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 June 30, 2020
(In thousands)									For the Three Months Ended June 30, 2022
	Surfactants		Polymers		Specialty Products		Total
Geographic Market									Surfactants		Polymers		Specialty		Total
North America	$	207,571	$	68,780	$	13,329	$	289,680	$	278,310	$	133,455	$	23,004	$	434,769
Europe		55,812		32,692		2,476		90,980		92,591		94,424		4,121		191,136
Latin America		56,194		463		—		56,657		97,987		1,149		539		99,675
Asia		12,758		10,474		—		23,232		16,196		9,857		—		26,053
Total	$	332,335	$	112,409	$	15,805	$	460,549	$	485,084	$	238,885	$	27,664	$	751,633

	For the Six Months Ended June 30, 2021
(In thousands)									For the Three Months Ended June 30, 2021
	Surfactants		Polymers		Specialty Products		Total
Geographic Market									Surfactants		Polymers		Specialty		Total
North America	$	442,580	$	166,469	$	31,755	$	640,804	$	221,645	$	95,591	$	17,818	$	335,054
Europe		136,433		150,753		4,918		292,104		65,339		82,453		2,436		150,228
Latin America		140,137		1,976		717		142,830		79,968		986		717		81,671
Asia		35,788		21,725		—		57,513		17,050		11,508		—		28,558
Total	$	754,938	$	340,923	$	37,390	$	1,133,251	$	384,002	$	190,538	$	20,971	$	595,511

At June 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, debt was comprised of the following:

(In thousands)	Maturity Dates	June 30, 2021		December 31, 2020		Maturity Dates	June 30, 2022		December 31, 2021
Unsecured private placement notes
3.95% (net of unamortized debt issuance cost of $251 and $273 for 2021 and 2020, respectively)	2021-2027	$	99,749	$	99,727
3.86% (net of unamortized debt issuance cost of $208 and $236 for 2021 and 2020, respectively)	2021-2025		56,935		71,193
4.86% (net of unamortized debt issuance cost of $89 and $108 for 2021 and 2020, respectively)	2021-2023		27,768		27,749
2.30% (net of unamortized debt issuance cost of $66 and $0 for 2021 and 2020, respectively)	2024-2028		49,934		—
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	2021		4,495		—	2022		4,632		2,861
Total debt		$	238,881	$	198,669		$	525,992	$	363,580
Less current maturities			42,352		37,857			142,489		40,718
Long-term debt		$	196,529	$	160,812		$	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 ~~entered into~~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 ~~pursuant to which it~~dated as of June 10, 2021 (the Prudential note purchase agreement), the Company issued and sold $50,000,000 in aggregate principal amount of ~~2.30%~~its 2.83% Senior Notes, Series ~~2021-A,~~2022-B, due ~~June 10, 2028~~March 1, 2032 (the Series ~~2021-A~~2022-B Notes). The Series ~~2021-A~~2022-A Notes and the Series 2022-B Notes bear interest at a fixed rate of ~~2.30%~~2.83%, with interest to be paid semi-annually and with equal annual principal payments beginning on ~~June 10, 2024~~March 1, 2026 and continuing through final maturity on ~~June 10, 2028.~~March 1, 2032. The proceeds of the issuance of the Series ~~2021-A~~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. ~~This~~The NYL note purchase agreement ~~requires~~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 ~~provides~~provide for customary events of default.

On June 24, 2022, the Company entered into a credit agreement with a syndicate of banks. The ~~Company has~~credit agreement provides for credit facilities in an initial aggregate principal amount of $450,000,000, consisting of (a) a ~~committed~~ $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.

This credit agreement ~~that expires on January 30, 2023.~~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, ~~2021,~~2022, the Company had outstanding letters of credit totaling ~~$6,993,000~~$7,029,000 and 0$100,000,000 outstanding borrowings under the ~~revolving~~ credit agreement. There was ~~$343,007,000~~$342,971,000 available under the ~~revolving~~ credit agreement as of June 30, ~~2021.~~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 place limitations on dividend payments, unrestricted retained earnings (i.e., retained earnings available for dividend distribution) were ~~$434,265,000~~$196,935,000 and ~~$373,884,000~~$468,095,000 at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Other, net in the condensed consolidated statements of income included the following:

(In thousands)	Three Months Ended June 30					Six Months Ended June 30						Three Months Ended June 30					Six Months Ended June 30
	2021		2020			2021			2020			2022			2021		2022			2021
Foreign exchange (losses) gains	$	106	$	423		$	(229	)	$	991
Foreign exchange gains (losses)												$	(1,507	)	$	106	$	(1,225	)	$	(229	)
Investment income		189		93			495			168			231			189		394			495
Realized and unrealized gains on investments		2,227		3,950			2,761			75
Net periodic pension benefit cost		236		(29	)		477			(59	)
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	$	2,758	$	4,437		$	3,504		$	1,175		$	(5,369	)	$	2,758	$	(7,019	)	$	3,504

During the third quarter of 2018, the Company approved a plan to shut down Surfactant operations at its German plant site. As of June 30, 2021, an aggregate of $2,392,000 shut down related expense has been recognized at the site. In the first quarter of 2020, the Company recognized $79,000 of decommissioning expenses at the site. The Company finalized shut down of the plant in 2020 and 0 more expenses associated with the restructuring are expected.

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 ~~2021.~~2022. As of June 30, ~~2021, $8,812,000~~2022, $9,383,000 of aggregate restructuring expense has been recognized, reflecting $1,644,000 of termination benefits for approximately 30 employees and ~~$7,168,000~~$7,739,000 for other expenses, principally site decommissioning costs. The Company recognized ~~$114,000~~$81,000 and ~~$225,000~~$114,000 of decommissioning expenses in the second quarter of ~~2021~~2022 and ~~2020,~~2021, respectively. The Company recognized ~~$195,000~~$133,000 and ~~$503,000~~$195,000 of decommissioning expenses in the first six months of 2022 and 2021, ~~and 2020,~~ respectively.

On January 29, 2021, the Company and its wholly-owned subsidiaries Stepan Holdings Netherlands B.V. and Stepan UK Limited ~~(collectively, “Stepan”)~~ 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 2 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. This acquisition expands the Company’s manufacturing capabilities in both the United States and Europe and enhances its business continuity capabilities for the market. The Company believes that INVISTA’s available spare capacity, combined with debottlenecking opportunities for both plants, will allow Stepan to support future market growth in a capital efficient way. 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. ~~Immaterial working capital adjustments were finalized and paid during the second quarter of 2021.~~ The working capital acquired included ~~$5,000,000~~$5,900,000 of cash. The ~~acquisition has been accounted for as a business combination, and~~Company finalized the acquired operations are included in the Company’s Polymer segment in the first six months of 2021. The assets acquired and liabilities assumed as part of the acquisition were measured and recorded at estimated fair value. The purchase price allocation ~~remains preliminary as~~during the third quarter of June 30, 2021 pending finalization of the fair value of intangibles and property, plant and equipment. The principle valuation techniques employed include cost and market approaches (PP&E), relief from royalty method under the income approach (trade name and technology/know) and multi-period excess earnings method under the income approach (customer relationships).2021. The following table summarizes the ~~preliminary~~ purchase price allocation for the major components of the acquisition:

(In thousands)
Assets:
Property, plant and equipment	$	54,400	$	54,200
Identifiable intangibles assets		45,500
Identifiable intangible assets				46,000
Goodwill		65,100		64,800
Total assets acquired	$	165,000	$	165,000

The acquired goodwill includes proprietary and intellectual property, brand recognition, business continuity benefits and marketing, manufacturing and supply chain synergies of the new business with the Company’s existing Polymer business. The acquired goodwill has been assigned to the Polymers segment and is deductible for tax purposes. Identifiable intangible assets included technology and manufacturing know-how ($13,000,000), trademarks ($8,000,000) and customer relationships ($24,500,000). The amortization periods for know-how and trademarks have initially been estimated to be in the range of 7 to 8 years. The amortization period for customer relationships has initially been estimated to be in the range of 12 to 14 years. As of June 30, 2021, in addition to the purchase price, the Company also paid $3,551,000 of acquisition-related expenses that primarily included legal, consulting, valuation and accounting services. For the three and six months ended June 30, 2021, the

~~Company incurred $319,000 and $1,604,000~~ ~~of acquisition-related expenses, respectively. These costs were included in the Administrative expenses line in the Company’s condensed consolidated statement of income.~~

~~The following table reflects pro forma financial information prepared under the assumption that the acquisition of the INVISTA aromatic polyester polyol business occurred on January 1, 2020.~~

The supplemental pro forma information is presented for illustrative purposes only and may not be indicative of the consolidated results that would have been achieved by the Company had the acquisition occurred on January 1, 2020. Furthermore, future results may vary significantly from the results reflected in the pro forma information. The pro forma results include adjustments primarily related to amortization of acquired intangible assets, depreciation of the fair value adjustment related to acquired plant assets, tax expense and management assumptions related to INVISTA’s legacy carved-out financial statements. In addition, non-recurring adjustments to pro forma net income include $1,604,000 of acquisition-related expenses. Such expenses were excluded from 2021 pro forma net income and included in 2020 pro forma net income.

On February 2, 2021, the Company acquired a fermentation plant, located in Lake Providence, ~~Louisiana (U.S.).~~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.~~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.

~~On September 17, 2020,~~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 ~~through~~completed its ~~subsidiaries in Mexico, acquired Clariant (Mexico) S.A. de C.V.’s (Clariant) anionic business located in Santa Clara, Mexico.~~annual goodwill impairment testing and concluded that the goodwill related to its Philippines reporting unit was impaired. The ~~acquisition did not include the purchase~~Philippines reporting unit is part of ~~a manufacturing site. The business acquired was integrated into~~ the Company’s ~~two existing manufacturing sites in Mexico (Matamoros and Ecatepec). The purchase price~~Surfactant segment. Goodwill impairment was recognized as a result of the acquisition was $14,000,000, plus associated value-added taxes (VAT). As of June 30, 2021, $13,519,000, inclusive of $308,000 net VAT, had been paid with cash on hand. The acquisition was accounted for as a business combination and the assets were measured and recorded at their estimatedreporting unit’s fair value declining below its carrying value. The ~~acquired goodwill is not tax deductible. All assets acquired are included~~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 ~~Surfactants segment.~~2021 Annual Report on Form 10-K for further details on how the Company computes market and income-based fair values. The ~~following table summarizes~~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 ~~purchase price allocation~~Condensed Consolidated Statements of Income for the ~~acquisition:~~

~~On March 13, 2020,~~three and six months ended June 30, 2022. The impairment charge equaled the Company acquired certain assets of Logos Technologies LLC's NatSurFact® business, a rhamnolipid-based line of bio-surfactants derived from renewable sources. These bio-surfactants offer synergies in several strategic end use markets including oilfield, agriculture, personal care and household, industrial and institutional. The acquisition was accounted for as an asset acquisition. The purchase priceentire balance of the ~~acquisition~~Philippines’ goodwill.

The Company concluded that there was ~~$2,040,000 and was paid with cash~~0 goodwill impairment at any of its other reporting units based on ~~hand. All assets acquired are included in~~its testing completed during the ~~Company’s Surfactants segment. The assets acquired were primarily intangibles, including trademarks and know-how ($1,392,000) and patents ($464,000). Additionally, $184,000~~second quarter of ~~laboratory equipment was acquired.~~

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.

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.~~ This update provides guidance to reduce complexity in certain areas of accounting for income taxes. The amendments in this update are effective for fiscal years beginning after December 15, 2020. The Company adopted ASU. No. 2019-12 in the first quarter of 2021 and the adoption of this update did not have a material effect on the Company’s financial position, results of operations and cash flows.

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. ~~The~~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.

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis (MD&A) of certain significant factors that have affected the Company’s financial condition and results of operations during the interim periods included in the accompanying condensed consolidated financial statements.

Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements include statements about Stepan Company’s and its subsidiaries’ (the Company) plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, the Company’s actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, forward-looking statements can be identified by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “guidance,” “predict,” “potential,” “continue,” “likely,” “will,” “would,” “should,” “illustrative” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond the Company’s control, that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q.

Such risks, uncertainties and other important factors, include, among others, the risks, uncertainties and factors set forth under “Part II-Item IA - Risk Factors” of this Quarterly Report on Form 10-Q and under “Part I-Item IA. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, including the risks and uncertainties related to the following:

These factors are not necessarily all of the important factors that could cause the Company’s actual financial results, performance, achievements or prospects to differ materially from those expressed in or implied by any of its forward-looking statements. Other unknown or unpredictable factors also could harm the Company’s results. All forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and the Company does not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements.

The “Company,” “we,” “our” or “us” means Stepan Company and one or more of its subsidiaries only.

The Company produces and sells intermediate chemicals that are used in a wide variety of applications worldwide. The overall business is comprised of three reportable segments:

Surfactants – Surfactants, which accounted for 67 percent of Company consolidated net sales for the first six months of ~~2021,~~2022, are principal ingredients in consumer and industrial cleaning and disinfection products such as detergents for washing clothes, dishes, carpets, floors and walls, as well as shampoos and body washes. Other applications include fabric softeners, germicidal quaternary compounds, disinfectants, lubricating ingredients, emulsifiers for spreading agricultural products and industrial applications such as latex systems, plastics and composites. Surfactants are manufactured at five sites in the United States, two European sites (United Kingdom and France), five Latin American sites (one site in Colombia and two sites in each of Mexico and Brazil) and two Asian sites (Philippines and Singapore). Recent significant events include:

Specialty Products – Specialty products, which accounted for three percent of consolidated net sales for the first six months of ~~2021,~~2022, include flavors, emulsifiers and solubilizers used in food, flavoring, nutritional supplement and pharmaceutical applications. Specialty products are primarily manufactured at the Company’s Maywood, New Jersey, site and, in some instances, by third-party contractors.

In January 2021, the Company purchased INVISTA’s aromatic polyester polyol business and associated assets. Included in the transaction were two manufacturing sites, one in Wilmington, North Carolina and the other in Vlissingen, Netherlands along with intellectual property, customer relationships, inventory and working capital. This acquisition expands the Company’s manufacturing capabilities in both the United States and Europe and enhances the Company’s business continuity capabilities for the market. The Company believes that INVISTA’s available spare capacity, combined with debottlenecking opportunities in both plants, will allow Stepan to support future market growth in a capital efficient way. This acquisition was accounted for as a business combination, and accordingly, the assets acquired were measured and recorded at their preliminary fair values. The purchase price of the acquisition was $165.0 million, plus $21.5 million of working capital and $3.0 million of associated value-added taxes (VAT). The working capital acquired included $5.0 million of cash. The acquisition was paid with cash on hand. See Note 17, ~~Acquisitions, of the notes to the Company’s condensed consolidated financial statements~~ ~~(included in Item 1 of this Form 10-Q)~~ ~~for additional details.~~

In February 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. The acquisition of this industrial scale fermentation plant represents the latest step in the Company’s bio-surfactant commercialization efforts. This acquisition was accounted for as an asset acquisition. The purchase price of the acquisition was $3.5 million and was paid with cash on hand. See Note 17, ~~Acquisitions, of the notes to the Company’s condensed consolidated financial statements~~ ~~(included in Item 1 of this Form 10-Q)~~ ~~for additional details.~~

The accounting for the Company’s deferred compensation plans can cause period-to-period fluctuations in Company income and expenses. Compensation expense ~~results~~is recognized when the ~~values~~value of Company common stock and mutual fund investment assets held for the plans increase, and compensation income ~~results~~is recognized when the ~~values~~value of Company common stock and mutual fund investment assets

decline. The pretax effect of all deferred compensation-related activities (including realized and unrealized gains and losses on the mutual fund assets held to fund the deferred compensation obligations) and the income statement line items in which the effects of the activities were recorded are displayed in the following ~~tables:~~table:

	Income (Expense)							Income (Expense)
	For the Three Months Ended June 30							For the Three Months Ended June 30
(In millions)	2021		2020		Change			2022			2021			Change
Deferred Compensation (Administrative expenses)	$	(1.0)	$	(6.5)	$	5.5	⁽¹⁾	$	3.4		$	(1.0	)	$	4.4		⁽¹⁾
Realized/Unrealized Gains on Investments (Other, net)		2.2		3.8		(1.6)
Realized/Unrealized Gains (Losses) on Investments (Other, net)									(4.3	)		2.2			(6.5	)
Investment Income (Other, net)		0.2		0.1		0.1			0.2			0.2			—
Pretax Income Effect	$	1.4	$	(2.6)	$	4.0		$	(0.7	)	$	1.4		$	(2.1	)

	Income (Expense)													Income (Expense)
	For the Six Months Ended June 30													For the Six Months Ended June 30
(In millions)	2021					2020					Change			2022			2021			Change
Deferred Compensation (Administrative expenses)			$	(3.7)	$		0.8		$	(4.5)			⁽¹⁾
Realized/Unrealized Gains on Investments (Other, net)		2.6						0.2				2.4
Deferred Compensation (Administrative expense)														$	10.9		$	(3.7	)	$	14.6		⁽¹⁾
Realized/Unrealized Gains (Losses) on Investments (Other, net)															(6.8	)		2.6			(9.4	)
Investment Income (Other, net)		0.5						0.2				0.3			0.4			0.5			(0.1	)
Pretax Income Effect	$	(0.6)				$		1.2			$	(1.8	)	$	4.5		$	(0.6	)	$	5.1

The Company’s foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects period-to-period comparisons of financial statement items (i.e., because foreign exchange rates fluctuate, similar period-to-period local currency results for a foreign subsidiary may translate into different U.S. dollar results). The following ~~tables present~~table presents the effects that foreign currency translation had on the period-over-period changes in consolidated net sales and various income statement line items for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

	Three Months Ended June 30
							Increase		Three Months Ended June 30
(In millions)	2021		2020		Increase		Due to Foreign Translation		2022		2021		Increase		(Decrease) Due to Foreign Translation
Net Sales	$	595.5	$	460.5	$	135.0	$	20.3	$	751.6	$	595.5	$	156.1	$	(25.6	)
Gross Profit		111.7		98.5		13.2		2.7		131.6		111.7		19.9		(3.5	)
Operating Income		56.7		44.6		12.1		1.7		77.6		56.7		20.9		(2.5	)
Pretax Income		57.8		47.8		10.0		1.9		69.5		57.8		11.7		(2.5	)

	Six Months Ended June 30
							Increase		Six Months Ended June 30
(In millions)	2021		2020		Increase		Due to Foreign Translation		2022		2021		Increase		(Decrease) Due to Foreign Translation
Net Sales	$	1,133.3	$	910.5	$	222.8	$	24.6	$	1,426.9	$	1,133.3	$	293.6	$	(37.3	)
Gross Profit		220.7		177.8		42.9		2.9		240.8		220.7		20.1		(5.2	)
Operating Income		110.6		84.6		26.0		1.6		141.0		110.6		30.4		(3.6	)
Pretax Income		111.0		83.3		27.7		2.0		128.9		111.0		17.9		(3.7	)

Net income attributable to the Company in the second quarter of ~~2021~~2022 increased 2120 percent to $52.1 million, or $2.26 per diluted share, from $43.3 million, or $1.85 ~~per diluted share, from $35.7 million, or $1.54~~ per diluted share, in the second quarter of ~~2020.~~2021. Adjusted net income increased 1026 percent to $53.0 million, or $2.30 per diluted share, from $42.2 million, or $1.81 per diluted share ~~from $38.3 million, or $1.65 per diluted share,~~ in ~~2020~~the second quarter of 2021 (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for a reconciliation between reported net income attributable to the Company and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Below is a summary discussion of the major factors leading to the changes in net sales, expenses and income in the second quarter of ~~2021~~2022 compared to the second quarter of ~~2020.~~2021. A detailed discussion of segment operating performance for the second quarter of ~~2021~~2022 compared to the second quarter of ~~2020~~2021 follows the summary.

Consolidated net sales increased ~~$135.0~~$156.1 million, or 2926 percent, ~~between quarters.~~from the prior year quarter. Higher average selling prices favorably impacted the ~~quarter-over-quarter~~year-over-year change in net sales by ~~$92.0~~$190.3 million. The increase in average selling prices was mainly ~~due~~attributable to the pass-through of higher raw material and logistics costs ~~and~~as well as more favorable ~~customer~~product and ~~product~~customer mix. Consolidated sales volume ~~increased five~~declined one percent, which had an $22.7 million favorable impact on the change in net sales. Sales volume in the Polymer and Specialty Products segments increased 44 percent and 17 percent, respectively. The increase in Polymer sales volume was primarily attributable to the first quarter 2021 INVISTA polyester polyol acquisition and the gradual recovery from COVID-19 delays and cancellations of re-roofing and new construction projects. The Specialty Products sales volume growth primarily reflects order timing differences within the food and flavor business. Sales volume in the Surfactant segment decreased six percent quarter-over-quarter mostly due to lower sales volume in the consumer product end markets. The consumer product business was negatively impacted by feedstock supply issues following the first quarter 2021 severe weather in Texas, customer inventory rebalancing efforts and lower demand for consumer cleaning products versus the pandemic peak in 2020. Foreign currency translation favorably impacted the change in net sales by ~~$20.3~~$8.6 million. Sales volume in the Polymer segment increased two percent while sales volume in the Surfactant and Specialty Products segments decreased three and seven percent, respectively. Foreign currency translation negatively impacted the year-over-year change in net sales by $25.6 million due to a ~~weaker~~stronger U.S. dollar against ~~all~~most currencies in foreign locations where the Company has ~~foreign~~ operations.

Operating income ~~for~~in the second quarter of ~~2021~~2022 increased ~~$12.0~~$21.0 million, or 2737 percent, versus operating income ~~for~~in the second quarter of ~~2020.~~2021. Polymer, ~~and~~ Specialty Products and Surfactant operating income increased ~~$7.5~~$10.9 million, $2.9 million, and ~~$3.8~~$2.4 million, ~~respectively. Surfactant operating income decreased $2.6 million~~respectively, versus the second quarter of ~~2020.~~2021. Corporate expenses, including business restructuring and deferred compensation expenses, decreased ~~$3.4~~$4.9 million ~~quarter-over-quarter. Deferred~~year-over-year. Most of this decrease was attributable to a $4.4 million decrease in deferred compensation ~~and business restructuring expenses decreased $5.5 million and $0.1 million, respectively.~~expenses. Corporate expenses (excluding deferred compensation and business restructuring expenses) ~~increased $2.2~~decreased $0.5 million ~~quarter-over-quarter.~~year-over-year primarily due to lower acquisition-related expenses. Foreign currency translation ~~has~~had a ~~$1.7~~$2.5 million ~~positive~~negative impact on operating income in the second quarter of ~~2021~~2022 versus the prior year quarter.

Operating expenses (including deferred compensation, ~~and~~ business restructuring ~~expenses) increased $1.2~~and goodwill impairment) decreased $1.1 million, or two percent, ~~between quarters.~~versus the prior year quarter. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:

Net interest expense for the second quarter of ~~2021~~2022 increased ~~$0.3~~$1.2 million, or 2474 percent, versus the second quarter of ~~2020.~~2021. This increase was primarily ~~due~~attributable to ~~lower interest income resulting from lower interest rates due to global market conditions~~higher borrowings in 2022 and ~~higher interest expense related to revolving credit agreement borrowings. Partially offsetting~~in the ~~above was lower interest expense resulting from scheduled debt repayments.~~second half of 2021.

Other, net was $5.4 million of expense in the second quarter of 2022 versus $2.8 million of income in the second quarter of ~~2021 versus $4.4 million of income in the second quarter of 2020.~~2021. The Company recognized ~~$2.4~~$4.3 million of investment ~~income~~losses (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the second quarter of ~~2021~~2022 compared to ~~$4.0~~$2.4 million of investment income in the second quarter of ~~2020.~~2021. In addition, the Company reported $1.5 million of foreign exchange losses in the second quarter of 2022 versus $0.1 million of foreign exchange gains in the second quarter of ~~2021 versus $0.4 million of foreign exchange gains in the second quarter of 2020.~~2021. The Company also reported $0.2 million of higher net periodic pension ~~cost benefits~~income in the second quarter of ~~2021~~2022 versus the prior year second quarter.

The Company’s effective tax rate was ~~25.1~~25.0 percent ~~for~~in the second quarter of ~~2021~~2022 compared to ~~25.0~~25.1 percent ~~for~~in the second quarter of ~~2020.~~ 2021.

	For the Three Months Ended
(Dollars in thousands)	June 30		June 30		Increase		Percent		For the Three Months Ended
Net Sales	2021		2020				Change		June 30, 2022		June 30, 2021		Increase		Percent Change
Surfactants	$	384,002	$	332,335	$	51,667		16	$	485,084	$	384,002	$	101,082		26
Polymers		190,538		112,409		78,129		70		238,885		190,538		48,347		25
Specialty Products		20,971		15,805		5,166		33		27,664		20,971		6,693		32
Total Net Sales	$	595,511	$	460,549	$	134,962		29	$	751,633	$	595,511	$	156,122		26

	For the Three Months Ended
(Dollars in thousands)	June 30,		June 30,		Increase			Percent		For the Three Months Ended
Operating Income	2021		2020		(Decrease)			Change		June 30, 2022			June 30, 2021		Increase (Decrease)			Percent Change
Surfactants	$	45,896	$	48,503	$	(2,607	)		-5	$	48,249		$	45,896	$	2,353			5
Polymers		23,025		15,527		7,498			48		33,912			23,025		10,887			47
Specialty Products		6,977		3,226		3,751			116		9,866			6,977		2,889			41
Segment Operating Income	$	75,898	$	67,256	$	8,642			13	$	92,027		$	75,898	$	16,129			21
Corporate Expenses, Excluding Deferred Compensation and Restructuring		18,169		15,944		2,225			14	$	17,712		$	18,169	$	(457	)		-3
Deferred Compensation Expense		958		6,464		(5,506	)		-85
Deferred Compensation Expense (Income)											(3,406	)		958		(4,364	)	NM
Business Restructuring		114		225		(111	)		-49		81			114		(33	)		-29
Total Operating Income	$	56,657	$	44,623	$	12,034			27	$	77,640		$	56,657	$	20,983			37

Surfactant net sales for the second quarter of ~~2021~~2022 increased ~~$51.7~~$101.1 million, or 1626 percent, versus net sales for the second quarter of ~~2020.~~2021. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the change in net sales by $58.6 million and $14.4 million, respectively. The higher average selling prices were mainly due to more favorable product and customer mix and the pass-through of higher raw material costs. A six percent decrease in sales volume negatively impacted the change in net sales by $21.3 million. Lower sales volume in the consumer product end markets accounted for most of the sales volume decrease. A comparison of net sales by region follows:

Net sales for North American operations increased $14.1 million, or seven percent, between quarters. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the change in net sales by $32.4 million and $0.9 million, respectively. The higher average selling prices were mainly due to more favorable product and customer mix and the pass-through of higher raw material costs. Sales volume declined nine percent and negatively impacted the change in net sales by $19.2 million. Lower sales volume in the consumer product end markets accounted for most of the decline. Higher customer demand for products sold to our distribution partners and into the functional product and institutional cleaning end markets partially offset the foregoing decline. The consumer products business was negatively impacted by feedstock supply issues following the first quarter 2021 severe weather in Texas, customer inventory rebalancing efforts and lower demand for consumer cleaning products versus the pandemic peak in 2020.

~~Net sales for European operations increased $9.5 million, or 17 percent, between quarters. The favorable impact of foreign currency translation and higher~~ average selling prices positively impacted the change in net sales by ~~$7.3~~$122.9 million. The higher average selling prices were mainly attributable to the pass-through of higher raw material and logistics costs as well as improved product and customer mix. Foreign currency translation had an $11.3 million unfavorable impact on the year-over-year change in net sales. Sales volume declined three percent and negatively impacted the change in net sales by $10.5 million. A comparison of net sales by region follows:

Net sales for North American operations increased $56.7 million, or 26 percent, year over year. Higher average selling prices positively impacted the change in net sales by $57.4 million. The higher average selling prices were mainly attributable to the pass-through of higher raw material and logistics costs along with more favorable product and customer mix. Sales volume was flat between years as higher demand for products sold into the functional products end markets, along with higher demand within the Tier 2 and Tier 3 customer channel, offset lower demand for commodity laundry products within the consumer products business. Continued raw material and logistics constraints also negatively impacted sales volume. Foreign currency translation negatively impacted the change in net sales by $0.3 million.

Net sales for European operations increased $27.3 million, or 42 percent, versus the prior year quarter. Higher average selling prices and a seven percent increase in sales volume favorably impacted the year-over-year change in net sales by $34.6 million and ~~$5.7~~$4.3 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs and improved product and customer mix. The seven percent increase in sales volume primarily reflects higher demand for products sold into the functional products and institutional cleaning end markets. Foreign currency translation negatively impacted the change in net sales by $11.6 million. A ~~weaker~~stronger U.S. dollar relative to the European euro and British pound sterling led to the ~~positive~~unfavorable foreign currency translation effect. The higher average selling prices were primarily due to more favorable product and customer mix and the pass-through of higher raw material costs. Sales volume declined six percent and negatively impacted the change in net sales by $3.4 million. Most of the sales volume decline reflects lower demand for consumer cleaning products versus the pandemic demand peak in 2020.

Net sales for Latin American operations increased ~~$23.8~~$18.0 million, or 4223 percent, primarily due to higher average selling prices and the favorable impact of foreign currency translation. These items positively impacted the change in net sales by ~~$18.8~~$22.1 million and ~~$5.5~~$2.0 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs and ~~$2.1 million of revenue recognition related to a VAT tax recovery.~~improved product and customer mix. A weaker U.S. dollar relative to the ~~Mexican peso~~Brazilian real led to ~~most of~~ the favorable foreign currency translation effect. Sales volume declined ~~one~~eight percent and ~~had a $0.5 million unfavorable impact on~~negatively impacted the change in net ~~sales.~~sales by $6.1 million. The sales volume decline was ~~largely attributable~~primarily due to lower ~~ether sulfate sales due to feedstock supply constraints in Mexico.~~ demand for commodity laundry products within the consumer products business partially offset by higher demand for products sold into the functional products end markets.

Net sales for Asian operations ~~increased $4.3~~decreased $0.9 million, or 34five percent, ~~quarter-over-quarter.~~from the prior year quarter. A 1531 percent ~~increase~~decline in sales volume ~~higher average selling prices,~~ and the ~~favorable~~unfavorable impact of foreign currency translation negatively impacted the change in net sales by $5.2 million and $1.4 million, respectively. The decline in sales volume primarily reflects lower demand for commodity laundry products sold within the consumer products business and lower demand from our distribution partners. Higher average selling prices positively impacted the change in net sales by $1.9 million, $1.6 million and $0.8 million, respectively. The sales volume growth was largely due to higher demand for products sold to our distribution partners and into the agricultural end market.$5.7 million. The higher average selling prices ~~were~~ primarily ~~due to~~reflect the pass-through of higher raw material ~~costs and more favorable product and customer mix.~~costs.

Surfactant operating income for the second quarter of ~~2021 decreased $2.6~~2022 increased $2.4 million, or five percent, versus operating income for the second quarter of ~~2020.~~2021. Gross profit increased ~~$1.0~~$5.0 million, ~~in the second quarter of 2021 versus the second quarter of 2020~~or seven percent, and operating expenses increased ~~$3.6~~$2.7 million, or 1510 percent. Comparisons of gross profit by region and total segment operating expenses and operating income follow:

	For the Three Months Ended
(Dollars in thousands)	June 30, 2021		June 30, 2020		Increase (Decrease)			Percent Change		For the Three Months Ended
Gross Profit and Operating Income										June 30, 2022		June 30, 2021		Increase (Decrease)			Percent Change
North America	$	44,412	$	46,221	$	(1,809	)		-4	$	47,188	$	44,412	$	2,776			6
Europe		8,478		9,387		(909	)		-10		11,620		8,478		3,142			37
Latin America		17,330		12,315		5,015			41		15,567		17,330		(1,763	)		-10
Asia		2,837		4,118		(1,281	)		-31		3,692		2,837		855			30
Surfactants Segment Gross Profit	$	73,057	$	72,041	$	1,016			1	$	78,067	$	73,057	$	5,010			7
Operating Expenses		27,161		23,538		3,623			15		29,818		27,161		2,657			10
Surfactants Segment Operating Income	$	45,896	$	48,503	$	(2,607	)		-5	$	48,249	$	45,896	$	2,353			5

Gross profit for North American operations ~~decreased four~~increased $2.8 million, or six percent, ~~or $1.8 million, between quarters~~from the prior year quarter primarily due to higher average unit margins. The higher average unit margins favorably impacted the change in gross profit by $2.9 million and were mostly attributable to more favorable product and customer mix that was partially offset by ongoing supply chain challenges, inclusive of raw material and logistics constraints, and inflationary pressures.

Gross profit for European operations increased $3.1 million, or 37 percent, due to higher average unit margins and a ~~nine~~seven percent increase in sales volume. These items positively impacted the change in net sales by $4.0 million and $0.5 million, respectively. The higher average unit margins primarily reflect improved customer and product mix. The unfavorable impact of foreign currency translation negatively impacted the change in gross profit by $1.4 million. A stronger U.S. dollar relative to the European euro and British pound sterling led to the unfavorable foreign currency translation effect.

Gross profit for Latin American operations decreased $1.8 million, or ten percent, due to an eight percent decline in sales ~~volume.~~volume and lower average unit margins. These items negatively impacted the change in gross profit by $1.3 million and $0.8 million, respectively. The lower average unit margins were primarily due to the non-recurrence of a $2.1 million VAT tax recovery during the second quarter of 2021. Foreign currency translation favorably impacted the year-over-year change in gross profit by $0.3 million.

Gross profit for Asia operations increased $0.9 million, or 30 percent, from the prior year quarter primarily due to higher average unit margins. The higher unit margins positively impacted the change in gross profit by $1.7 million. A 31 percent decline in sales volume negatively impacted the change in gross profit by $4.3 million. Lower sales volume in the consumer product end markets accounted for most of the decline. Higher customer demand for products sold to our distribution partners and into the functional product and institutional cleaning end markets partially offset the above. Higher average unit margins positively impacted the change in gross profit by $2.5$0.8 million. The higher unit margins reflect a more favorable product and customer mix that was largely offset by higher supply chain costs due to inflationary pressures (inclusive of transportation costs) and higher planned maintenance ($2.2 million).

~~Gross profit for European operations decreased $0.9 million, or ten percent,~~lower volume primarily due to lower average unit margins and a six percent decline in sales volume. These items negatively impacted the change in gross profit by $1.1 million and $0.6 million, respectively. Most of the sales volume decline reflects ~~lower demand for consumer cleaning products versus the pandemic peak in~~

2020. The favorable impact of foreign currency translation positively impacted the change in gross profit by $0.8 million and reflects a weaker U.S. dollar relative to the European euro and British pound sterling. lost market share at one major customer.

Gross profit for Latin American operations increased $5.0 million, or 41 percent, between quarters primarily due to higher average unit margins and the favorable impact of foreign currency translation. These items positively impacted the change in gross profit by $4.1 million and $1.0 million, respectively. The higher unit margins were largely due to $2.1 million of revenue recognition related to a VAT tax recovery during the second quarter of 2021. Slightly lower sales volume negatively impacted the change in gross profit by $0.1 million.

Gross profit for Asia operations decreased $1.3 million or 31 percent, between quarters primarily due to lower average unit margins. The lower unit margins negatively impacted the change in gross profit by $1.9 million and primarily reflect higher raw material costs and higher unit overhead costs in Singapore due to unfavorable production timing differences. Sales volume growth of 15 percent partially offset the above and positively impacted the change in gross profit by $0.6 million.

Operating expenses for the Surfactant segment increased ~~$3.6~~$2.7 million, or 15ten percent, in the second quarter of ~~2021~~2022 versus the second quarter of ~~2020.~~2021. This increase was mainly ~~due~~attributable to higher ~~salaries, corporate headquarter-related~~incentive-based compensation expenses, ~~(inclusive of~~a goodwill impairment charge at the ~~non-recurrence of a sales~~Company’s Philippines subsidiary and ~~use tax refund received in the second quarter of 2020) and the unfavorable impact of foreign currency translation.~~higher bad debt provision expense.

~~Polymers~~Polymer net sales for the second quarter of ~~2021~~2022 increased ~~$78.1~~$48.3 million, or 7025 percent, versus net sales for the same period of ~~2020. A 44~~2021. Higher average selling prices and a two percent increase in sales volume favorably impacted the change in net sales by ~~$48.9 million.~~$58.4 million and $3.6 million, respectively. The sales volume growth primarily reflects the first quarter 2021 acquisition of INVISTA’s aromatic polyester polyol business and ongoing recovery from COVID-19 related delays and cancellations of re-roofing and new construction projects. Higherhigher average selling prices ~~and~~were mainly due to the ~~favorable impact~~pass through of ~~foreign~~higher raw material costs. Foreign currency translation ~~positively impacted~~had a $13.7 million unfavorable impact on the year-over-year change in net ~~sales by $23.5 million and $5.7 million, respectively.~~sales. A comparison of net sales by region follows:

	For the Three Months Ended
(Dollars in thousands)	June 30		June 30		Increase		Percent		For the Three Months Ended
Net Sales	2021		2020				Change		June 30, 2022		June 30, 2021		Increase (Decrease)			Percent Change
North America	$	95,591	$	68,780	$	26,811		39	$	133,455	$	95,591	$	37,864			40
Europe		82,453		32,692		49,761		152		94,424		82,453		11,971			15
Asia and Other		12,494		10,937		1,557		14		11,006		12,494		(1,488	)		-12
Total Polymers Segment	$	190,538	$	112,409	$	78,129		70	$	238,885	$	190,538	$	48,347			25

Net sales for North American operations increased ~~$26.8~~$37.9 million, or 3940 percent, ~~primarily~~ due to higher average selling prices and a 35three percent increase in sales volume. ~~The increase in sales volume~~These items positively impacted the change in net sales by ~~$24.2 million. Sales volume of polyols used in rigid foam applications increased 23 percent during the quarter primarily due to the first quarter 2021 INVISTA polyester polyol acquisition~~$34.6 million and the gradual recovery from COVID-19 related delays of re-roofing and new construction projects. Sales volume of polyols used in rigid foam applications, excluding the impact of the INVISTA acquisition, increased 2 percent. Sales volume of phthalic anhydride and specialty polyols increased 71 percent and 85 percent, respectively, due to stronger demand within these markets following the peak of the COVID-19 pandemic. The phthalic anhydride sales volume improvement was also attributable to the non-recurrence of the Millsdale plant power outage in 2020. Higher average selling prices positively impacted the change in net sales by $2.6 million.$3.3 million, respectively. The higher average selling prices were mainly due to the pass-through of higher raw material costs. The higher sales volume reflects rigid polyol growth of eight percent that was partially offset by lower demand within the phthalic anhydride and specialty polyols businesses.

Net sales for European operations increased ~~$49.8~~$12.0 million, or ~~152~~15 percent, ~~quarter-over-quarter. A 79~~year over year. Higher average selling prices and a three percent increase in sales volume positively impacted the change in net sales by $22.9 million and $2.7 million, respectively. The higher average selling prices were primarily due to pass-through of higher raw material costs. The unfavorable impact of foreign currency translation negatively impacted the change in net sales by $13.6 million. A stronger U.S. dollar relative to the Polish zloty and British pound sterling led to the unfavorable foreign currency translation effect.

Net sales for Asia and Other operations decreased $1.5 million, or 12 percent, primarily due to a 17 percent decline in sales volume which had a $2.1 million negative impact on the year-over-year change in net sales. The decline in sales volume was primarily attributable to recent COVID lockdowns and restrictions in China. Higher average selling prices positively impacted the change in net sales by ~~$25.8 million and $19.6 million, respectively.~~$0.7 million. The increase in sales volume is primarily due to the first quarter 2021 INVISTA polyester polyol acquisition and the gradual recovery from COVID-19 related delays of re-roofing and new construction projects. Sales volume, excluding the impact of the INVISTA acquisition, increased 23 percent. The higher average selling prices were primarily due to the pass-through of higher raw material costs. The favorableunfavorable impact of foreign currency translation ~~positively~~negatively impacted the change in net sales by ~~$4.4~~$0.1 million.

Net sales for Asia and Other operations increased $1.6 million, or 14 percent, primarily due to higher average selling prices and the favorable impact of foreign currency translation. These items positively impacted the change in net sales by $1.3 million each. Sales volume declined 10 percent quarter-over-quarter and negatively impacted the change in net by $1.0 million.

~~Polymers~~Polymer operating income ~~for~~in the second quarter of ~~2021~~2022 increased ~~$7.5~~$10.9 million, or 4847 percent, versus operating income ~~for~~in the second quarter of ~~2020.~~2021. Gross profit increased ~~$8.4~~$11.7 million, or 38 percent, and operating expenses were up $0.8 million, or 1311 percent. Comparisons of gross profit by region and total segment operating expenses and operating income follow:

	For the Three Months Ended
(Dollars in thousands)	June 30, 2021		June 30, 2020		Increase (Decrease)			Percent Change		For the Three Months Ended
Gross Profit and Operating Income										June 30, 2022		June 30, 2021		Increase (Decrease)			Percent Change
North America	$	15,869	$	12,705	$	3,164			25	$	25,787	$	15,869	$	9,918			62
Europe		13,314		6,195		7,119			115		15,459		13,314		2,145			16
Asia and Other		1,479		3,379		(1,900	)		-56		1,118		1,479		(361	)		-24
Polymers Segment Gross Profit	$	30,662	$	22,279	$	8,383			38	$	42,364	$	30,662	$	11,702			38
Operating Expenses		7,637		6,752		885			13		8,452		7,637		815			11
Polymers Segment Operating Income	$	23,025	$	15,527	$	7,498			48	$	33,912	$	23,025	$	10,887			47

Gross profit for North American operations increased ~~$3.2~~$9.9 million, or 2562 percent, ~~primarily~~ due to higher average unit margins and a 35three percent increase in sales volume. ~~The higher sales volume~~These items positively impacted the ~~quarter-over-quarter~~ change in gross profit by ~~$4.5 million. Partially offsetting the~~$9.4 million and $0.5 million, respectively. The higher ~~volume were lower~~ average unit margins ~~which~~primarily reflect partial margin recovery and more favorable product and customer mix as higher rigid polyols sales volume more than offset lower phthalic anhydride sales volume.

Gross profit for European operations increased $2.1 million, or 16 percent, versus the second quarter of 2021. The increase was primarily due to higher average unit margins and a three percent increase in sales volume. These two items favorably impacted the year-over-year change in gross profit by $3.8 million and $0.4 million respectively. The unfavorable impact of foreign currency translation negatively impacted the change in gross profit by ~~$1.3~~$2.1 million. The lower unit margins in 2021 primarily reflect higher supply chain costs due to inflationary pressures (inclusive of transportation costs), higher planned maintenance ($0.3 million) and the rapid rise in feedstock costs.

Gross profit for European operations increased $7.1 million, or 115 percent, versus the second quarter of 2021. A 79% increase in sales volume, higher average unit margins and the favorable impact of foreign currency translation positively impacted the quarter-over-quarter change in gross profit by $4.9 million, $1.5 million and $0.7 million, respectively.

Gross profit for Asia and Other operations ~~declined $1.9~~decreased $0.4 million, or 5624 percent, ~~between quarters. Lower average unit margins and~~due to a 1017 percent decline in sales volume and slightly lower average unit margins. These items negatively impacted the ~~quarter-over-quarter~~year-over-year change in gross profit by ~~$1.8~~$0.3 million and ~~$0.3~~$0.1 million, respectively. The lower unit margins are primarily due to the non-recurrence of a second quarter 2020 partial government reimbursement related to the government-mandated China joint venture (JV) shutdown in 2012 ($1.1 million). The favorable impact of foreign currency translation positively impacted the change in gross profit by $0.2 million.

Operating expenses for the ~~Polymers~~Polymer segment increased ~~$0.9~~$0.8 million, or 1311 percent, ~~in the second quarter of 2021 versus the second quarter of 2020.~~year over year. This increase was mainly attributable to higher incentive-based compensation and travel-related expenses.

~~Net~~Specialty Products net sales for the second quarter of ~~2021~~2022 increased ~~$5.2~~$6.7 million, or 3332 percent, versus net sales for the second quarter of ~~2020.~~2021. This increase reflects ~~sales volume growth of 17 percent and~~ higher average selling ~~prices.~~prices that were partially offset by a seven percent decline in sales volume. Gross profit and operating income both increased ~~$3.7~~by $2.9 million ~~and $3.8 million, respectively.~~year-over-year. The year-over-year improvements in gross profit and operating income were ~~primarily~~mostly attributable to improved margins and customer mix within the medium chain triglycerides (MCTs) product line, partially offset by order timing differences within the food and flavor ~~business and improved margins within the medium chain triglycerides (MCT) product line.~~business.

Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, decreased ~~$3.4~~$4.9 million between quarters. Corporate expenses were $14.4 million in the second quarter of 2022 versus $19.2 million in the second quarter of ~~2021 versus $22.6 million in 2020.~~2021. This decrease was primarily attributable to ~~lower~~$3.4 million of deferred compensation expense ($5.5 million) that was partially offset by higher acquisition-related expenses, insurance premiums, cloud application costs and corporate headquarter-related expenses (inclusive of the non-recurrence of a sales and use tax refund receivedincome recognized in the second quarter of ~~2020).~~2022 versus $1.0 million of deferred compensation expense recognized in the second quarter of 2021. In addition, the Company incurred lower acquisition-related expenses year-over-year.

The ~~$5.5~~$4.4 million decrease in deferred compensation expense was primarily due to a ~~$6.84~~decrease in the value of mutual fund investment assets held for the plans. This decrease was partially offset by a $2.54 per share ~~decrease~~increase in the market price of Company common stock in the second quarter of ~~2021~~2022 compared to a ~~$8.64~~$6.84 per share ~~increase~~decrease in the second quarter of ~~2020.~~2021. The following table presents the quarter-end Company common stock market prices used in the computation of deferred compensation expenses for the three months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

Net income attributable to the Company in the first half of ~~2021~~2022 increased 3316 percent to $96.9 million, or $4.19 per diluted share, from $83.9 million, or $3.59 ~~per diluted share, from $63.3 million, or $2.72~~ per diluted share, in the first half of ~~2020.~~2021. Adjusted net income ~~was $84.6~~increased 11 percent to $93.7 million, or ~~3.62~~$4.05 per diluted share, versus ~~$62.5~~$84.6 million or ~~$2.69~~$3.62 per diluted share, in the prior year (see the “Reconciliation of Non-GAAP Adjusted Net Income and Diluted Earnings per Share” section of this MD&A for a reconciliation between reported net income attributable to the Company and reported earnings per diluted share and non-GAAP adjusted net income and adjusted earnings per diluted share). Below is a summary discussion of the major factors leading to the year-over-year changes in net sales, expenses and ~~income.~~income in the first half of 2022 compared to the first half of 2021. A detailed discussion of segment operating performance for the first half of ~~2021~~2022 compared to the first half of ~~2020~~2021 follows the summary.

Consolidated net sales increased ~~$222.7~~$293.7 million, or 2426 percent, ~~between years.~~year-over-year. Higher average selling prices ~~a six percent increase in sales volume and the favorable impact of foreign currency translation~~ positively impacted the change in net sales by ~~$146.9 million, $51.3 million, and $24.5 million, respectively.~~$341.3 million. The increase in average selling prices was ~~primarily due~~mainly attributable to the pass through of higher raw material and logistics costs as well as more favorable product and customer ~~mix~~mix. Consolidated sales volume declined one percent and negatively impacted the ~~pass-through of higher raw material costs.~~year-over-year change in net sales by $10.3 million. Sales volume in the Polymer segment increased two percent while sales volume in the Surfactant and Specialty ~~Product~~Products segments ~~increased 39~~declined two percent and 11nine percent, respectively. ~~The increase~~Foreign currency translation negatively impacted the year-over-year change in ~~Polymer~~net sales volume was primarily attributable to the first quarter 2021 INVISTA aromatic polyester polyol acquisition, the gradual recovery from COVID-19 delays and cancellations of re-roofing and new construction projects, and the non-recurrence of the power outage at the Company’s Millsdale, Illinois facility in the first quarter of 2020. Sales volume for the Surfactant segment declined 3 percent year-over-year mostlyby $37.3 million due to lower volumes in the consumer product end markets. The consumer product business was negatively impacted by feedstock supply issues following the first quarter 2021 severe weather in Texas, customer inventory rebalancing efforts and lower demand for consumer cleaning products versus the pandemic peak in 2020. The favorable foreign currency translation reflects a ~~weaker~~stronger U.S. dollar against the majority of currencies where the Company has foreign operations.

Operating income for the first half of ~~2021~~2022 increased ~~$25.9~~$30.4 million, or 3128 percent, versus operating income for the first half of ~~2020.~~2021. Polymer, ~~Surfactant~~Specialty Products and ~~Specialty Products~~Surfactant operating income increased ~~$17.9~~$7.1 million, ~~$14.4~~$4.0 million, and ~~$2.4~~$2.9 million, respectively. Corporate expenses, including business restructuring and deferred compensation expenses, ~~increased $8.8~~decreased $16.4 million year-over-year. ~~Deferred~~Most of this decrease was attributable to a $14.6 million decrease in deferred compensation ~~expense increased $4.5 million while business restructuring expenses decreased $0.4 million between years.~~expenses. Corporate expenses (excluding deferred compensation and business restructuring expenses) ~~increased $4.7~~decreased $1.9 million between years largely due to ~~higher~~lower acquisition-related expenses ~~insurance premiums, cloud application costs and corporate headquarter-related expenses (inclusive of the non-recurrence of a sales and use tax refund received in the second quarter of 2020).~~that were partially offset by higher incentive-based compensation expenses. Foreign currency translation ~~has~~had a ~~$1.6~~$3.6 million ~~positive~~negative impact on operating income in the ~~second quarter~~first half of ~~2021~~2022 versus the ~~prior year quarter.~~first half of 2021.

Operating expenses (including deferred compensation, ~~and~~ business restructuring ~~expenses) increased $17.0~~and goodwill impairment) decreased $10.2 million, or 18nine percent, between years. Changes in the individual income statement line items that comprise the Company’s operating expenses were as follows:

Net interest expense for the first half of ~~2021~~2022 increased ~~$0.6~~$1.9 million, or 2463 percent, compared to net interest expense for the first half of ~~2020.~~2021. This increase was primarily ~~due~~attributable to ~~lower interest income resulting from lower interest rates due to global market conditions~~higher borrowings in 2022 and ~~higher interest expense related to revolving credit agreement borrowings. Partially offsetting~~in the ~~above was lower interest expense resulting from scheduled debt repayments.~~ second half of 2021.

Other, net was $7.0 million of expense for the first half of 2022 compared to $3.5 million of income for the first half of ~~2021 compared to $1.2 million of income for the first half of 2020.~~2021. The Company recognized ~~$3.3~~$6.6 million of investment ~~income~~losses (including realized and unrealized gains and losses) for the Company’s deferred compensation and supplemental defined contribution mutual fund assets in the first half of ~~2021~~2022 compared to ~~$0.2~~$3.3 million of income in the first half of ~~2020.~~2021. In addition, the Company reported foreign exchange losses of ~~$0.2~~$1.2 million in the first half of ~~2021~~2022 versus ~~$1.0~~$0.2 million of foreign exchange ~~gains~~losses in the first half of ~~2020.~~2021. The Company also reported ~~$0.5~~$0.3 million higher of ~~lower~~ net periodic pension ~~costs~~income in the first half of ~~2021~~2022 versus the first half of the prior year.

The Company’s effective tax rate was 24.8 percent in the first half of 2022 versus 24.4 percent in the first half of ~~2021 compared to 23.9 percent in the first half of 2020.~~2021. The year-over-year increase was primarily attributable to a less favorable geographical mix of income ~~in 2021 that was partially offset by higher~~and less favorable tax benefits derived from stock-based compensation awards, exercised or distributed, in the first half of ~~2021~~2022 versus the first half of ~~2020.~~2021.

	For the Six Months Ended
(In thousands)	June 30,		June 30,		Increase		Percent		For the Six Months Ended
Net Sales	2021		2020				Change		June 30, 2022		June 30, 2021		Increase		Percent Change
Surfactants	$	754,938	$	659,406	$	95,532		14	$	953,350	$	754,938	$	198,412		26
Polymers		340,923		218,900		122,023		56		425,964		340,923		85,041		25
Specialty Products		37,390		32,230		5,160		16		47,595		37,390		10,205		27
Total Net Sales	$	1,133,251	$	910,536	$	222,715		24	$	1,426,909	$	1,133,251	$	293,658		26

	For the Six Months Ended
(In thousands)	June 30,		June 30,			Increase			Percent		For the Six Months Ended
Operating Income	2021		2020			(Decrease)			Change		June 30, 2022			June 30, 2021		Increase (Decrease)			Percent Change
Surfactants	$	99,106	$	84,659		$	14,447			17	$	102,018		$	99,106	$	2,912			3
Polymers		40,976		23,043			17,933			78		48,041			40,976		7,065			17
Specialty Products		9,610		7,210			2,400			33		13,561			9,610		3,951			41
Segment Operating Income	$	149,692	$	114,912		$	34,780			30	$	163,620		$	149,692	$	13,928			9
Corporate Expenses, Excluding Deferred Compensation and Restructuring	$	35,274	$	30,562		$	4,712			15	$	33,408		$	35,274	$	(1,866	)		-5
Deferred Compensation Expense		3,652		(859	)		4,511			NA
Deferred Compensation Expense (Income)												(10,907	)		3,652		(14,559	)	NM
Business Restructuring		195		582			(387	)		-66		133			195		(62	)
Total Operating Income	$	110,571	$	84,627		$	25,944			31	$	140,986		$	110,571	$	30,415			28

Surfactants net sales for the first half of ~~2021~~2022 increased ~~$95.5~~$198.4 million, or 1426 percent, versus net sales for the first half of ~~2020.~~2021. Higher average selling prices ~~and the favorable impact of foreign currency translation~~ positively impacted the change in net sales by ~~$104.1 and $15.9 million, respectively.~~$230.4 million. The higher average selling prices were mainly ~~due~~attributable to ~~more favorable product and customer mix and~~ the pass-through of higher raw material ~~costs. A three percent decrease in sales volume negatively impacted~~and logistics costs as well as improved product and customer mix. Foreign currency translation had a $17.4 million unfavorable impact on the year-over-year change in net sales. Sales volume declined two percent and negatively impacted the change in net sales by ~~$24.5~~$14.6 million. ~~Lower sales volume in the consumer product end markets accounted for most of the sales volume decrease.~~ A year-over-year comparison of net sales by region follows:

	For the Six Months Ended
(In thousands)	June 30, 2021		June 30, 2020		Increase		Percent Change		For the Six Months Ended
Net Sales									June 30, 2022		June 30, 2021		Increase (Decrease)			Percent Change
North America	$	442,580	$	415,517	$	27,063		7	$	551,538	$	442,580	$	108,958			25
Europe		136,433		115,472		20,961		18		183,608		136,433		47,175			35
Latin America		140,137		102,704		37,433		36		183,421		140,137		43,284			31
Asia		35,788		25,713		10,075		39		34,783		35,788		(1,005	)		-3
Total Surfactants Segment	$	754,938	$	659,406	$	95,532		14	$	953,350	$	754,938	$	198,412			26

Net sales for North American operations increased ~~$27.1~~$109.0 million, or ~~seven~~25 percent, year-over-year. Higher average selling prices and ~~the favorable impact of foreign currency translation positively~~slightly higher sales volume favorably impacted the change in net sales by ~~$54.8~~$107.3 million and ~~$1.3~~$2.1 million, respectively. The higher average selling prices were ~~primarily due~~mainly attributable to ~~more favorable product and customer mix and~~ the pass-through of higher raw material ~~costs. Sales~~and logistics costs along with more favorable product and customer mix. The slight increase in sales volume ~~declined seven~~primarily reflects higher demand for products sold into the functional products end markets, along with higher demand within the Tier 2 and Tier 3 customer channel, that was mostly offset by lower demand for commodity laundry products within the consumer products business. Continued raw material supply and logistics constraints also negatively impacted sales volume. Foreign currency translation negatively impacted the change in net sales by $0.4 million year-over-year.

Net sales for European operations increased $47.2 million, or 35 percent, year-over-year. Higher average selling prices and ~~negatively~~a two percent increase in sales volume positively impacted the year-over-year change in net sales by $29.0 million. Lower sales volume in the consumer product end markets accounted for most of the decline. Higher customer demand for products sold to our distribution partners and into the functional product and institutional cleaning end markets partially offset the above. The consumer products business was negatively impacted by feedstock supply issues following the first quarter 2021 severe weather in Texas, customer inventory rebalancing efforts and lower demand for consumer cleaning products versus the pandemic peak in 2020.

Net sales for European operations increased $21.0 million, or 18 percent, year-over-year. The favorable impact of foreign currency translation and higher average selling prices positively impacted the change in net sales by $13.0$61.5 million and ~~$10.9~~$2.6 million, respectively. ~~A weaker U.S. dollar relative to the European euro and British pound sterling led to the favorable foreign currency translation effect.~~ The higher average selling prices were primarily due to the pass-through of higher raw material ~~costs. Sales~~costs and improved product and customer mix. The two percent increase in sales volume ~~decreased three percent~~primarily reflects higher demand for products sold into the functional products and institutional cleaning end markets, partially offset by lower demand for consumer cleaning products. Foreign currency translation negatively impacted the change in net sales by ~~$2.9 million year-over-year. Most of~~$16.9 million. A stronger U.S. dollar relative to the ~~sales volume decline reflects lower demand for consumer cleaning products versus~~European euro and British pound sterling led to the ~~pandemic peak in 2020.~~ unfavorable foreign currency translation effect.

Net sales for Latin American operations increased ~~$37.4~~$43.3 million, or 3631 percent, primarily due to higher average selling prices and a three percent increase in sales volume. These items positively impacted the year-over-year change in net sales by $34.2 million and $3.3 million, respectively. The higher average selling prices reflect more favorable product and customer mix, the pass-through of higher raw material costs, and $2.1 million of revenue recognition in the second quarter of 2021 related to a VAT tax recovery. The year-over-year increase in sales volume was mainly due to higher demand for products sold into the functional product end markets. The unfavorable impact of foreign currency translation negatively impacted the year-over-year change in net sales by $0.1 million.

~~Net sales for Asian operations increased $10.1 million, or 39 percent, year-over-year. Higher average selling prices, a 16 percent increase in sales volume and~~ the favorable impact of foreign ~~exchange translation~~currency translation. These items positively impacted the change in net sales by ~~$4.3 million, $4.1~~$48.1 million and ~~$1.7~~$2.3 million, respectively. The higher average selling prices were primarily due to the ~~pass through~~pass-through of higher raw material costs and ~~more favorable~~improved product and customer mix. A weaker U.S. dollar relative to the Brazilian real led to the favorable foreign currency translation effect. Sales volume declined five percent and negatively impacted the change in net sales by $7.1 million. The sales volume ~~growth~~decline was ~~largely~~primarily due to lower demand for commodity laundry products within the consumer products business partially offset by higher demand for products sold tointo the functional products end markets.

Net sales for Asian operations decreased $1.0 million, or three percent, year-over-year. A 22 percent decline in sales volume and the unfavorable impact of foreign currency translation negatively impacted the change in net sales by $7.9 million and $2.5 million, respectively. The decline in sales volume primarily reflects lower demand for commodity laundry products sold within the consumer products business and lower demand from our distribution ~~partners and into~~partners. Higher average selling prices positively impacted the ~~agricultural end market.~~change in net sales by $9.4 million. The higher average selling prices primarily reflect the pass-through of higher raw material costs.

Surfactant operating income for the first half of ~~2021~~2022 increased ~~$14.4~~$2.9 million, or 17three percent, versus operating income for the first half of ~~2020.~~2021. Gross profit increased ~~$21.0~~$7.2 million, or 16five percent, ~~year-over-year~~ and operating expenses increased ~~$6.7~~$4.3 million, or 14eight percent. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:

	For the Six Months Ended
(In thousands)	June 30, 2021		June 30, 2020		Increase (Decrease)			Percent Change		For the Six Months Ended
Gross Profit and Operating Income										June 30, 2022		June 30, 2021		Increase (Decrease)			Percent Change
North America	$	98,468	$	87,384	$	11,084			13	$	100,356	$	98,468	$	1,888			2
Europe		19,741		18,885		856			5		24,779		19,741		5,038			26
Latin America		29,627		19,351		10,276			53		28,706		29,627		(921	)		-3
Asia		5,104		6,275		(1,171	)		-19		6,333		5,104		1,229			24
Surfactants Segment Gross Profit	$	152,940	$	131,895	$	21,045			16	$	160,174	$	152,940	$	7,234			5
Operating Expenses		53,834		47,236		6,598			14		58,156		53,834		4,322			8
Surfactants Segment Operating Income	$	99,106	$	84,659	$	14,447			17	$	102,018	$	99,106	$	2,912			3

Gross profit for North American operations increased ~~$11.1~~$1.9 million, or 13two percent, year-over-year primarily due to higher average unit ~~margins. The~~margins and slightly higher ~~average unit margins positively~~sales volume. These items favorably impacted the change in gross profit by ~~$17.2~~$1.4 million and ~~are primarily due~~$0.5 million, respectively. The higher average unit margins were mostly attributable to a more favorable product and customer ~~mix. Lower supply chain expenses, due to the non-recurrence of the Millsdale, Illinois plant power outage in the first quarter of 2020,~~mix that was partially offset by ongoing supply chain challenges and inflationary pressures (inclusive of transportation costs) and higher planned maintenance in the first half of 2021, also contributed to the higher unit margins. A seven percent decline in sales volume negatively impacted the change in gross profit by $6.1 million. Lower sales volume in the consumer product end markets, partially offset by higher customer demand for products sold to our distribution partners and into the functional product and institutional cleaning end markets, accounted for most of the sales volume decline. pressures.

Gross profit for European operations increased ~~$0.9~~$5.0 million, or ~~five~~26 percent year-over-year. ~~The favorable impact of foreign currency translation positively~~Higher average unit margins and a two percent increase in sales volume favorably impacted the year-over-year change in gross profit by ~~$1.7 million. A three percent decrease in sales volume~~$6.8 million and ~~lower average unit margins negatively impacted the year-over-year change in gross profit by~~a $0.4 million, ~~each.~~

~~Gross profit for Latin American operations increased $10.3 million, or 53 percent, primarily due to~~respectively. The higher average unit margins ~~and a three percent increase in sales volume. These items positively impacted the change in gross profit by $10.0 million and $0.6 million, respectively. The higher unit margins~~ primarily reflect a more favorable product and customer and product mix and $2.1 million of revenue recognition in the second quarter of 2021 related to a VAT tax recovery. The sales volume growth was primarily driven by higher demand for products sold into the functional product end markets.mix. The unfavorable impact of foreign currency translation negatively impacted the change in gross profit by ~~$0.3~~$2.2 million. A stronger U.S. dollar relative to the European euro and British pound sterling led to the unfavorable foreign currency translation effect.

Gross profit for ~~Asian~~Latin American operations decreased ~~$1.2~~$0.9 million, or 19three percent, primarily due to ~~lower average unit margins. The lower unit margins~~a five percent decrease in sales volume that negatively impacted the year-over-year change in gross profit by ~~$2.3~~$1.5 million. ~~Sales volume growth of 16 percent and the favorable impact of foreign currency translation positively impacted the change in gross profit by $1.0 million and $0.1 million, respectively.~~

~~Operating expenses for the Surfactant segment increased $6.6 million, or 14 percent, year-over-year. Most of the increase was due to~~Slightly higher salaries and incentive-based compensation expenses, corporate headquarter-related expenses (inclusive of the non-recurrence of a sales and use tax refund received in the second quarter of 2020) and the unfavorable impact of foreign currency translation.

Polymers net sales for the first half of 2021 increased $122.0 million, or 56 percent, versus net sales for the same period of 2020. A 39 percent increase in sales volume favorably impacted the year-over-year change in net sales by $84.3 million. The higher sales volume primarily reflects the first quarter 2021 acquisition of INVISTA’s polyester polyol business as well as organic market growth driven by the ongoing recovery from COVID-19 related delays and cancellations of re-roofing and new construction projects. Higher average selling prices and the favorable impact of foreign currency translation positively affected the year-over-year change in net sales by $29.4 million and $8.3 million, respectively. A year-over-year comparison of net sales by region follows:

Net sales for North American operations increased $35.8 million, or 27 percent, primarily due to a 32 percent increase in sales volume. The increase in sales volume positively impacted the change in net sales by $42.0 million. Sales volume of polyols used in rigid foam applications increased 23 percent during the first half of 2021 primarily due to the first quarter 2021 INVISTA polyester polyol acquisition and the gradual recovery from COVID-19 related delays of re-roofing and new construction projects. Sales volume of polyols used in rigid foam applications, excluding the impact of the INVISTA acquisition, increased four percent. Sales volume of phthalic anhydride and specialty polyols increased 74 percent and 40 percent, respectively, due to stronger demand within these markets following the peak of the COVID-19 pandemic. The phthalic anhydride sales volume improvement was also attributable to the non-recurrence of the Millsdale plant power outage in 2020. Lower average selling prices negatively impacted the change in net sales by $6.2 million.

Net sales for European operations increased $81.5 million, or 118 percent, year-over-year. A 57 percent increase in sales volume and higher average selling prices positively impacted the change in net sales by $39.6 million and $35.5 million, respectively. The increase in sales volume is primarily due to the first quarter 2021 INVISTA polyester polyol business acquisition and the gradual recovery from COVID-19 related delays of re-roofing and new construction projects. Sales volume, excluding the impact of the INVISTA acquisition, increased 14 percent. The higher average selling prices were primarily due to the pass-through of higher raw material costs. The favorable impact of foreign currency translation positively impacted the change in net sales by $6.4 million.

Net sales for Asia and Other operations increased $4.7 million, or 25 percent, due to the favorable impact of foreign currency translation, higher average selling prices and a seven percent increase in sales volume. These items positively impacted the change in net sales by $1.8 million, $1.6 million, and $1.3 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs.

Polymer operating income for the first half of 2021 increased $17.9 million, or 78 percent, versus operating income for the first half of 2020. Gross profit increased $19.4 million, or 53 percent, and operating expenses were up $1.5 million, or 11 percent, year-over-year. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:

Gross profit for North American operations increased $8.7 million, or 43 percent, primarily due to a 32 percent increase in sales volume. The higher sales volume positively impacted the year-over-year change in gross profit by $6.6 million. Higher average unit margins also positively impacted the change in gross profit by $2.1 million. A rapid rise in feedstock costs during the first half of 2021 resulted in lower average unit margins but this decline was more than offset by the non-recurrence of the of the first quarter 2020 power outage at the Company’s Millsdale, Illinois facility (which caused a temporary production shutdown and resulted in higher maintenance, supply chain costs and unit overhead rates).

Gross profit for European operations increased $12.5 million, or 105 percent, due to a 57 percent increase in sales volume, higher average unit margins and the favorable impact of foreign currency translation. These items positively impacted the year-over-year change in gross profit by $6.8 million, $4.6 million and $1.1 million, respectively.

Gross profit for Asia and Other operations declined $1.8 million, or 39 percent, primarily due to lower average unit margins that negatively impacted the change in gross profit by $2.3 million. The lower unit margins were partially due to the non-recurrence of a second quarter 2020 partial government reimbursement related to the government-mandated China JV shutdown in 2012 ($1.1 million). A seven percent increase in sales volume and the favorable impact of foreign currency translation positively impacted the year-over-year change in gross profit by $0.3 million each.

Gross profit for Asian operations increased $1.2 million, or 24 percent, primarily due to higher average unit margins. The higher unit margins positively impacted the year-over-year change in gross profit by $2.3 million. A 22 percent decline in sales volume negatively impacted the change in gross profit by $1.1 million. The lower volume primarily reflects lost market share at one major customer.

Operating expenses for the Surfactant segment increased $4.3 million, or eight percent, year-over-year. This increase was mainly attributable to higher salaries and ~~$0.2~~incentive-based compensation expenses, a goodwill impairment charge at the Company’s Philippines subsidiary and higher bad debt provision expense.

Polymers net sales for the first half of 2022 increased $85.0 million, or 25 percent, versus net sales for the same period of 2021. Higher average selling prices and a two percent increase in sales volume favorably impacted the year-over-year change in net sales by $96.9 million and a $7.2 million, respectively. The higher average selling prices were mainly due to the pass through of higher raw material costs. The increase in sales volume was partially due to the 2021 INVISTA polyester polyol acquisition, which closed at the end of January 2021. Foreign currency translation had a $19.1 million unfavorable impact on the year-over-year change in net sales. A year-over-year comparison of net sales by region follows:

Net sales for North American operations increased $61.8 million, or 37 percent, primarily due to higher average selling prices and a one percent increase in sales volume. These items positively impacted the change in net sales by $59.8 million and $2.0 million, respectively. The higher average selling prices were mainly due to the pass-through of higher raw material costs. The sales volume growth reflects rigid polyol growth of five percent that was partially offset by lower sales volume within the phthalic anhydride business. Sales volume during the first half of 2022 was also impacted by a January 2022 power outage at the Company’s Elwood, Illinois (Millsdale) plant site that negatively impacted Polymer production. The production disruption resulted in the declaration of force majeure for select products. Production resumed in February 2022 and the force majeure was lifted in April 2022.

Net sales for European operations increased $24.5 million, or 16 percent, year-over-year. Higher average selling prices and a seven percent increase in sales volume favorably impacted the change in net sales by $33.9 million and $9.8 million, respectively. The higher average selling prices were primarily due to the pass-through of higher raw material costs. The increase in sales volume was partially due to the 2021 INVISTA polyester polyol acquisition, which closed at the end of January 2021. The unfavorable impact of foreign currency translation negatively impacted the change in net sales by $19.2 million. A stronger U.S. dollar relative to the Polish zloty and British pound sterling led to the unfavorable foreign currency translation effect.

Net sales for Asia and Other operations decreased $1.3 million, or five percent, largely due to a 15 percent decline in sales volume which had a $3.5 million negative impact on the year-over-year change in net sales. The decline in sales volume was primarily attributable to recent COVID lockdowns and restrictions in China. Higher average selling prices and the favorable impact of foreign currency translation positively impacted the year-over-year change in net sales by $2.1 million and $0.1 million, respectively.

Polymer operating income for the first half of 2022 increased $7.1 million, or 17 percent, versus operating income for the first half of 2021. Gross profit increased $8.5 million, or 15 percent, and operating expenses were up $1.4 million, or nine percent. Year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow:

Gross profit for North American operations increased $4.9 million, or 17 percent, due to higher average unit margins and a one percent increase in sales volume. These items positively impacted the change in gross profit by $4.6 million and $0.3 million, respectively. The higher average unit margins reflect partial margin recovery and more favorable product and customer mix as higher rigid polyol sales volume more than offset lower phthalic anhydride sales volume.

Gross profit for European operations increased $4.0 million, or 16 percent, primarily due to higher average unit margins and a seven percent increase in sales volume. These items positively impacted the change in gross profit by $5.3 million and $1.6 million, respectively. The unfavorable impact of foreign currency translation negatively impacted the change in gross profit by $2.9 million.

Gross profit for Asia and Other operations declined $0.5 million, or 17 percent, primarily due to a 15 percent decline in sales volume and slightly lower average unit margins. These items negatively impacted the year-over-year changes in gross profit by $0.4 million and a $0.1 million, respectively.

Operating expenses for the Polymers segment increased ~~$1.5~~$1.4 million, or 11nine percent, ~~year-over-year.~~year-over-year mainly due to higher incentive-based compensation and travel-related expenses.

~~Net~~Specialty Products net sales for the first half of ~~2021~~2022 increased ~~$5.2~~$10.2 million, or 1627 percent, versus net sales for the first half of ~~2020.~~2021. This increase reflects higher average selling prices that were partially offset by a nine percent decline in sales ~~volume growth of 11 percent and higher selling prices.~~volume. Gross profit and operating income increased ~~$2.3~~by $3.9 and $4.0 million, ~~and $2.4 million, respectively, year-over-year.~~respectively. The year-over-year improvements in gross profit and operating income were ~~primarily due~~mostly attributable to improved margins and customer mix within the medium chain triglycerides (MCTs) product line, partially offset by order timing differences within the food and flavor ~~business and improved margins within the medium chain triglycerides (MCT) product line.~~ business.

Corporate expenses, which include deferred compensation, business restructuring and other operating expenses that are not allocated to the reportable segments, ~~increased $8.8~~decreased $16.5 million between years. Corporate expenses were $22.6 million in the first half of 2022 versus $39.1 million in the first half of ~~2021 versus $30.3~~2021. This decrease was primarily attributable to $10.9 million of deferred compensation income recognized in the first half of ~~2020. This increase was primarily attributable to higher~~2022 versus $3.7 million of deferred compensation expense ($4.5 million), acquisition-related expenses, insurance premiums, salaries and incentive-based compensation expenses, cloud application costs and corporate headquarter-related expenses (inclusive of the non-recurrence of a sales and use tax refund receivedrecognized in ~~the second quarter of 2020) during~~ the first half of 2021. In addition, the Company also incurred lower acquisition-related expenses year-over-year that were partially offset by higher incentive-based compensation expenses.

The ~~$4.5~~$14.6 million ~~increase~~decrease in deferred compensation expense was primarily due to a ~~$0.95 per share increase~~decrease in the value of mutual fund investment assets held for the plans. In addition, during the first half of 2022 the market price of the Company’s common stock indecreased $22.94 per share versus a $0.95 per share increase during the first half of ~~2021 compared to a $5.34 per share decrease in the first half of 2020.~~2021. The following table presents the period-end Company common stock market prices used in the computation of deferred compensation expense/income for the six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

For the six months ended June 30, ~~2021,~~2022, operating activities were a cash source of ~~$24.7~~$38.2 million versus a source of ~~$58.5~~$24.7 million for the comparable period in ~~2020.~~2021. For the current year period, investing cash outflows totaled ~~$261.5~~$126.3 million versus a cash outflow of ~~$54.4~~$261.5 million in the prior year period. Financing activities were a source of ~~$14.8~~$128.1 million versus a ~~use~~source of ~~$40.4~~$14.8 million in the prior year period. Cash and cash equivalents ~~decreased by $222.9~~increased $35.4 million compared to December 31, ~~2020,~~2021, inclusive of a ~~$0.8~~$4.5 million unfavorable foreign exchange rate impact.

On June 30, ~~2021,~~2022, the Company’s cash and cash equivalents totaled ~~$127.1~~$194.6 million. Cash in U.S. demand deposit accounts and money market funds totaled ~~$15.6~~$59.7 million and ~~$3.0~~$40.3 million, respectively. The Company’s non-U.S. subsidiaries held ~~$108.5~~$94.6 million of cash ~~outside the United States~~ as of June 30, ~~2021.~~2022.

Net income during the first six months of 2022 increased ~~by $20.5~~$13.0 million versus the comparable period in ~~2020.~~2021. Working capital was a cash use of ~~$69.8~~$111.1 million during the first ~~half~~six months of ~~2021~~2022 versus a use of ~~$47.4~~$69.8 million ~~for~~in the comparable period in ~~2020.~~2021.

Accounts receivable were a use of ~~$68.0~~$111.1 million during the first ~~half~~six months of ~~2021~~2022 compared to a use of ~~$23.3~~$68.0 million for the comparable period ~~in 2020.~~of 2021. Inventories were a use of $38.6 million in 2022 versus a use of $35.7 million in ~~2021 versus a use of $9.7 million in 2020.~~2021. Accounts payable and accrued liabilities were a source of ~~$34.0~~$43.3 million in ~~2021~~2022 compared to a ~~use~~source of ~~$8.3~~$34.0 million for the same period in ~~2020.~~2021.

Working capital requirements were higher in the first ~~half~~six months of ~~2021~~2022 compared to ~~2020~~2021 primarily due to the changes noted above. The two major factors impacting all the working capital components were significantly higher raw material costs in 2021 versus 2020 and the impact of the first quarter 2021 acquisition of INVISTA’s polyester polyols business. It is management’s opinion that the Company’s liquidity is sufficient to provide for potential increases in working capital requirements during ~~2021.~~2022.

Cash used for investing activities ~~increased by $207.1~~decreased $135.2 million year-over-year. InMost of this decrease reflects the ~~first half~~Company’s acquisition of ~~2021, the Company acquired~~ INVISTA’s aromatic polyester polyol business and associated ~~asset~~assets for $184.6 million, net of cash ~~received. During~~received, during the first half of ~~2021, the Company also acquired a fermentation plant located in Lake Providence, Louisiana for $3.5 million.~~ 2021. Cash used for capital expenditures was ~~$74.9~~$129.5 million in the first half of ~~2021~~2022 versus ~~$54.7~~$74.9 million ~~for~~in 2021. This capital expenditure increase is largely attributable to the ~~comparable period~~alkoxylation plant the Company is building at its Pasadena, Texas site and equipment upgrades to meet future regulatory limits on 1,4 Dioxane in ~~2020.~~the United States.

For ~~2021,~~2022, the Company estimates that total capital expenditures will be in the range ~~from $150~~of $350.0 million to ~~$170 million including~~$375.0 million. This projected spending includes the new alkoxylation plant that is being built in Pasadena, Texas, equipment upgrades to meet future regulatory limits on 1,4 Dioxane in the United States, growth initiatives, infrastructure and optimization spending in the United States, Germany and Mexico.

Cash flow from financing activities was a source of $128.1 million in 2022 versus a source of $14.8 million in ~~2021 versus a use of $40.4 million in 2020.~~2021. The year-over-year change is primarily due to ~~$50.0~~$75.0 million of cash received from ~~an unsecured~~the issuance of private placement ~~loan on June 10,~~notes and a higher level of borrowing from the Company’s revolving credit facility during the first six months of 2022 versus the same period in 2021.

The Company purchases shares of its common stock in the open market or from its benefit plans from time to time to fund its own benefit plans and to mitigate the dilutive effect of new shares issued under its compensation plans. The Company may, from time to time, seek to ~~retire or~~ purchase additional amounts of its outstanding equity and/or retire debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise, including pursuant to plans meeting the requirements of Rule 10b5-1 promulgated by the SEC. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. InFor the six months ended June 30, ~~2021,~~2022, the Company purchased ~~82,045~~167,940 shares of its common stock on the open market at a total cost of ~~$10.9~~$17.0 million. ~~As of~~At June 30, ~~2021, there were 93,829 shares~~2022, the Company had $133.0 million remaining under the ~~current~~ share repurchase ~~authorization.~~program authorized by its Board of Directors.

Consolidated balance sheet debt increased from ~~$198.7~~$363.6 million on December 31, ~~2020~~2021 to ~~$238.9~~$526.0 million on June 30, ~~2021, a $40.2 million increase,~~2022, primarily due to higher domestic ~~debt.~~debt, which includes borrowings from the Company’s revolving credit agreement and new private placement notes issued during the first quarter of 2022. Net debt (which is defined as total debt minus cash – see the “Reconciliation of ~~Non-GAAP~~Non-

GAAP Net Debt” section of this MD&A) increased ~~by $263.0~~$127.0 million, ~~in the first half of~~from $204.4 million at December 31, 2021 ~~from a negative $151.2~~to $331.4 million ~~to $111.8 million.~~at June 30, 2022. This ~~net debt~~ change was due to a ~~cash reduction of $222.9 million and a~~ debt increase of ~~$40.2~~$162.4 partially offset by a cash increase of $35.4 million. The cash ~~reduction primarily~~increase reflects the ~~first quarter 2021 acquisition of INVISTA’s aromatic polyester polyol business combined with~~new debt borrowings partially offset by scheduled debt repayments, higher ~~capital expenditures and~~ working capital requirements ~~in the first half of 2021.~~and capital expenditures.

As of June 30, ~~2021, the ratio of total debt to total debt plus shareholders’ equity was 18.6 percent compared to 16.8 percent on December 31, 2020. As of June 30, 2021,~~2022, the ratio of net debt to net debt plus shareholders’ equity was ~~9.6~~22.7 percent versus ~~a negative 18.1~~16.0 percent ~~as of~~at December 31, ~~2020~~2021 (see the “Reconciliation of Non-GAAP Net Debt” section in this MD&A for further details). On June 30, ~~2021,~~2022, the Company’s debt included ~~$234.4~~$421.4 million of unsecured notes, with maturities ranging from ~~2021~~2022 through ~~2028, which~~2032, that were issued to insurance companies in private placement transactions pursuant to note purchase agreements (the Note Purchase Agreements), a $100.0 million short term loan borrowed under its revolving credit facility, and ~~$4.5~~$4.6 million of foreign credit line borrowings. The proceeds from ~~these~~the note issuances have been the Company’s primary source of long-term debt financing and are supplemented by borrowings under bank credit facilities to meet short and medium-term liquidity needs.

On March 1, 2022, pursuant to a note purchase and master note agreement dated as of June 10, 2021 ~~the Company entered into a~~(the NYL note purchase ~~agreement pursuant to which it~~agreement), the Company issued and sold ~~$50~~$25.0 million in aggregate principal amount of its 2.83% Senior Notes, Series ~~2021-A Notes.~~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 $50.0 million in aggregate principal amount of its 2.83% Senior Notes, Series 2022-B, due March 1, 2032 (the Series 2022-B Notes). The Series ~~2021-A~~2022-A Notes and the Series 2022-B Notes bear interest at a fixed rate of ~~2.30 percent,~~2.83%, with interest to be paid semi-annually and with equal annual principal payments beginning on ~~June 10, 2024~~March 1, 2026 and continuing through final maturity on ~~June 10, 2028.~~March 1, 2032. The proceeds of the issuance of the Series ~~2021-A~~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. ~~This~~The NYL note purchase agreement ~~requires~~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 ~~provides~~provide for customary events of default.

On ~~January 30, 2018,~~June 24, 2022, the Company entered into a ~~five-year committed $350~~credit agreement with a syndicate of banks. The credit agreement provides for credit facilities in an initial aggregate principal amount of $450.0 million, consisting of (a) a $350.0 million multi-currency revolving credit facility ~~with~~and (b) a ~~syndicate~~$100.0 million delayed draw term loan credit facility, each of ~~banks that~~which matures on ~~January 30, 2023.~~June 24, 2027. This credit agreement replaced the Company’s prior $350.0 million revolving credit agreement. This credit agreement allows the Company to make unsecured borrowings, as requested from time to time, to finance working capital needs, permitted acquisitions, capital expenditures and for general corporate purposes. This unsecured facility is the Company’s primary source of short-term borrowings. As of June 30, ~~2021,~~2022, the Company had

outstanding loans totaling $100.0 million and letters of credit totaling $7.0 million under the ~~revolving~~ credit agreement, ~~and no borrowings,~~ with $343.0 million remaining ~~available.~~available.

The Company anticipates that cash from operations, committed credit facilities and cash on hand will be sufficient to fund anticipated capital expenditures, working capital, dividends and other planned financial commitments for the foreseeable future.

Certain foreign subsidiaries of the Company maintain short-term bank lines of credit in their respective local currencies to meet working capital requirements as well as to fund capital ~~expenditure programs~~expenditures and acquisitions. OnAt June 30, ~~2021,~~2022, the Company’s foreign subsidiaries had $4.6 million of outstanding ~~debt of $4.5 million.~~debt.

The Company is subject to covenants under its material debt agreements that require the maintenance of minimum interest coverage and minimum net worth. These agreements also limit the incurrence of additional debt as well as the payment of dividends and repurchase of shares. Under the most restrictive of these debt covenants:

The Company believes it was in compliance with all of its debt covenants as of June 30, ~~2021.~~2022.

The Company’s operations are subject to extensive federal, state and local environmental laws and regulations and similar laws in the other countries in which the Company does business. Although the Company's environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent environmental regulation may require the Company to make additional unforeseen environmental expenditures. The Company will continue to invest in the equipment and facilities necessary to comply with existing and future regulations. During the first six months of ~~2021~~2022 and ~~2020,~~2021, the Company’s expenditures for capital projects related to the environment were ~~$5.5~~$5.8 million and ~~$2.1~~$5.5 million, respectively. These projects are capitalized and depreciated over their estimated useful lives, which are typically 10 years. Recurring costs associated with the operation and maintenance of facilities for waste treatment and disposal and managing environmental compliance in ongoing operations at the Company’s manufacturing locations were ~~$17.1~~$17.0 million and ~~$17.6~~$17.1 million for the six months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively.

Over the years, the Company has received requests for information related to or has been named by the government as a potentially responsible party at a number of waste disposal sites where cleanup costs have been or may be incurred under CERCLA and similar state or foreign 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 ~~the~~these sites. It is the Company’s accounting policy to record liabilities when environmental assessments and/or remedial efforts are probable, and the cost or range of possible costs can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the minimum is accrued. Estimating the possible costs of remediation requires making assumptions related to the nature and extent of contamination and the methods and resulting costs of remediation. Some of the factors on which the Company bases its estimates include information provided by decisions rendered by State and Federal environmental regulatory agencies, information provided by feasibility studies, and remedial action plans developed. After partial remediation payments at certain sites, the Company has estimated a range of possible environmental ~~losses~~ and legal losses of ~~$22.5~~$23.0 million to ~~$40.9~~$42.6 million at June 30, ~~2021, compared to $22.9~~2022 and $23.1 million to ~~$41.1~~$41.7 million at December 31, ~~2020.~~2021. Within the range of possible environmental 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 ~~$22.5~~$23.0 million at June 30, ~~2021~~2022 and ~~$22.9~~$23.1 million at December 31, ~~2020.~~2021. Because the liabilities accrued are estimates, actual amounts could differ materially from the amounts ~~recorded.~~reported. Cash expenditures related to legal and environmental matters were ~~$1.3~~$1.1 million for the six months ended June 30, ~~2021,~~2022, compared to ~~$3.1~~$1.3 million for the same period in ~~2020.~~2021.

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. Certain of these matters are discussed in Item 1, Part 2, of the Company’s Annual Report on Form 10-K, Legal Proceedings, in this report and in other filings of the Company with the SEC, which are available upon request from the Company. See also Note 8, Contingencies, in the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q) for a summary of the significant environmental proceedings related to certain environmental sites.

Management believes that demand for Surfactant products sold into the ~~Company’s institutional cleaning,~~ functional product end-markets, inclusive of agricultural and oilfield, ~~markets~~ should improve versus ~~2020. However, management does not believe this higher demand will compensate for lower consumer consumption of cleaning, disinfection and personal wash products versus~~2021. Management believes the pandemic peak in 2020. Global demand for rigid polyols continues to recover from pandemic-related delays and cancellations of re-roofing and new construction projects. This recovery, combined with the first quarter 2021 acquisition of INVISTA’s aromatic polyester polyol business, should position the Company’s Polymer segment towill deliver growth versus ~~prior year. Management believes the long-term prospects for the Polymer segment remain attractive~~2021 as energy conservation efforts and more stringent building codes ~~are expected to continue.~~should have a continued positive impact on demand for rigid polyols. Management believes its Specialty Product segment results should improve versus 2021. Despite optimism that demand for the Company’s products will ~~improve slightly year-over-year. Management remains cautiously optimistic about~~remain healthy, management also believes the ~~remainder~~Company will continue to be challenged by the current inflationary environment and ongoing supply chain challenges, inclusive of ~~the year despite continued~~ raw material ~~price increases, supply chain inflationary pressures~~availability and ~~planned second half maintenance expenses.~~ transportation constraints.

~~There~~The Company no longer considers the prior year (a) Business Combinations and (b) Goodwill and Intangible Assets accounting policies as continuing to be critical during the first six months of 2022 because the Company has made no acquisitions in 2022. Other than these items there have been no material changes to the critical accounting policies disclosed in the Company’s ~~2020~~2021 Annual Report on Form ~~10-K, except for the addition of the following:~~

~~The Company makes acquisitions from time to time. When such acquisitions occur, the Company applies the accounting guidance per FASB ASC Topic 805,~~ ~~Business Combinations~~ (ASC 805), to determine whether the acquisition should be treated as an asset acquisition or a business combination. When the acquisition meets the criteria of a business combination the Company recognizes the identifiable assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition. The Company recognizes goodwill for any portion of the purchase price that exceeds the sum of the net fair value of all the assets purchased in the acquisition and the liabilities assumed. Considerable estimates, complex judgments and assumptions are typically required to arrive at the fair value of elements acquired in a business combination, inclusive of discount rates, customer attrition rates, royalty rates, economic lives, and estimated future cash flows expected to be generated from the assets acquired. These items are typically most relevant to the fair valuation of identifiable intangible assets and property, plant and equipment.

In some instances, the purchase price allocation of an acquisition is not complete by the end of a reporting period. This situation most typically arises when an acquisition is complex and/or completed very close to the end of a reporting period and all necessary information is not available by the end of the reporting period in which the acquisition occurs. In these instances, the Company reports provisional amounts for any incomplete items and makes subsequent adjustments as necessary information becomes available or determines that additional information is not obtainable. Any subsequent adjustments could have a material impact on the Company’s financial condition or results of operations as they could impact the initial fair values assigned to intangible assets and property, plant and equipment and/or their estimated economic lives. ASC 805 requires purchase price allocations to be finalized within one year from the acquisition date.

The Company’s intangible assets include patents, agreements not to compete, trademarks, customer lists and relationships, technological and manufacturing know-how and goodwill, all of which were acquired as part of business combinations or asset acquisitions. Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination. Intangible assets, other than goodwill, are determined to have either finite or indefinite useful lives. The Company currently has no indefinite-life intangible assets other than goodwill. Intangible assets with finite lives are amortized over the useful lives of the assets. Currently, the useful lives for the Company’s finite-life intangible assets are as follows: patents – 10 to15 years; non-compete agreements – three to five years; trademarks – five to 11 years; customer relationships – five to 20 years and know-how – five to 20 years. Finite-life intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying value of an intangible asset may not be recoverable.

Goodwill is not amortized but is tested for impairment on a reporting unit level. The Company’s reporting units are typically defined as one level below operating segments and highly correlated to geographic regions. The Company tests goodwill for impairment annually (the Company conducts its goodwill impairment testing during the second quarter of each calendar year), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of the reporting unit to which goodwill relates has declined below its carrying value. In this case, the Company would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. Goodwill is evaluated for impairment using qualitative and/or quantitative testing procedures. The Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company chooses not to complete a qualitative assessment for a given reporting unit, or if the initial assessment indicates that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying value, additional quantitative testing is performed.

When estimating a reporting unit’s fair value as part of the quantitative assessment, the Company uses a combination of market and income-based methodologies. The market approach uses a combination of earnings before interest, taxes, depreciation and amortization (EBITDA) and EBITDA multiples to estimate a reporting unit’s fair value. EBITDA multiples typically mirror similar businesses or comparative companies whose securities are actively traded in public markets. Significant degradation of either EBITDA or EBITDA multiples could result in a triggering event, requiring goodwill to be tested for impairment during an interim period. The income approach takes into consideration multiple variables, including forecasted sales volume and operating income, current industry and economic conditions, historical results and other elements to calculate the present value of future cash flows. The income approach fair value calculations include estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units. The Company reported no goodwill or intangible asset impairments in any of the periods presented in these condensed consolidated financial statements. 10-K.

The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company’s performance and financial condition. Internally, the Company uses this non-GAAP information as an indicator of business performance and evaluates management’s effectiveness with specific reference to these indicators. These measures should be considered in addition to, not ~~a substitute~~as substitutes for or superior to, measures of financial performance prepared in accordance with GAAP. The Company’s definitions of these ~~adjusted~~ measures may differ from similarly titled measures used by other entities.

Management uses the non-GAAP ~~adjusting~~adjusted net income metric to evaluate the Company’s operating performance. Management excludes the items listed in the table ~~above~~below because they are non-operational items. The cumulative tax effect was calculated using the statutory tax rates for the jurisdictions in which the noted transactions occurred.

	Three Months Ended June 30													Three Months Ended June 30
(In millions, except per share amounts)	2021						2020							2022						2021
	Net Income		Diluted EPS				Net Income				Diluted EPS			Net Income			Diluted EPS			Net Income			Diluted EPS
Net Income Attributable to the Company as Reported	$	43.3	$	1.85			$	35.7			$	1.54		$	52.1		$	2.26		$	43.3		$	1.85
																	$	-
Deferred Compensation Expense (including related investment activity)		(1.4)		(0.06	)			2.5				0.10
Business Restructuring Expense		0.1		—				0.2				0.01
Cash-settled SARs Expense		(0.1)		—				0.7				0.03
Deferred Compensation Expense (Income) Expense (including related investment activity)															0.7			0.03			(1.4	)		(0.06	)
Business Restructuring															0.1			—			0.1			—
Cash Settled Stock Appreciation Rights															0.1			—			(0.1	)		—
Environmental Remediation															0.3			0.02			—			—
Cumulative Tax Effect on Above Adjustment Items		0.3		0.02				(0.8	)			(0.03	)		(0.3	)		(0.01	)		0.3			0.02
Adjusted Net Income	$	42.2	$	1.81			$	38.3			$	1.65		$	53.0		$	2.30		$	42.2		$	1.81
	Six Months Ended June 30
(In millions, except per share amounts)	2021					2020
	Net Income		Diluted EPS			Net Income				Diluted EPS
Net Income Attributable to the Company as Reported	$	83.9	$	3.59		$	63.3			$	2.72

Deferred Compensation (Income) Expense (including related investment activity)		0.6		0.03			(1.2)				(0.05)
Business Restructuring Expense		0.2		0.01			0.6				0.03
Cash-settled SARs (Income) Expense		0.1		—			(0.4)				(0.02)
Cumulative Tax Effect on Above Adjustment Items		(0.2)		(0.01)			0.2				0.01
Adjusted Net Income	$	84.6	$	3.62		$	62.5			$	2.69

Management uses the non-GAAP net debt metric to gain a more complete picture of the Company’s overall liquidity, financial flexibility and leverage level.

(In millions)	June 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Current Maturities of Long-Term Debt as Reported	$	42.4		$	37.9		$	142.5		$	40.7
Long-Term Debt as Reported		196.5			160.8			383.5			322.9
Total Debt as Reported		238.9			198.7			526.0			363.6
Less Cash and Cash Equivalents as Reported		(127.1	)		(349.9	)		(194.6	)		(159.2	)
Net Debt	$	111.8		$	(151.2	)	$	331.4		$	204.4
Equity	$	1,048.8		$	986.7		$	1,125.7		$	1,074.2
Net Debt plus Equity	$	1,160.6		$	835.5		$	1,457.1		$	1,278.6
Net Debt/Net Debt plus Equity		10	%		-18	%
Net Debt/(Net Debt plus Equity)								23	%		16	%

There have been no material changes to the market risks described in the Company’s ~~2020~~2021 Annual Report on Form 10-K.

We have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, ~~2021.~~2022. Based on this evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, ~~2021,~~2022, such that the information required to be disclosed in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, ~~2021,~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

SEC regulations require the Company to disclose certain information about administrative or judicial proceedings involving certain environmental matters to which a governmental authority is a party if the Company reasonably believes that such proceedings may result in monetary sanctions above a specified threshold. Pursuant to SEC regulations, the Company has adopted a threshold of $1.0 million for purposes of determining whether disclosure of any such proceedings is required. The Company believes that this threshold is reasonably designed to result in disclosure of any such proceedings that are material to its business or financial condition.

On June 24, 2022, the Attorney General of the State of Illinois filed a complaint in the Twelfth Judicial Circuit Court of Illinois alleging violations of the Illinois Environmental Protection Act and certain related regulations. The claims allege permit and statutory violations related to air emission requirements and reporting obligations. The lawsuit seeks to impose financial penalties and operational obligations. The alleged violations may result in a range of possible penalties; however, at this stage of the matter, the Company is unable to predict the ultimate outcome or what impact, if any, the outcome might have on the Company’s results of operations or cash flows.

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. On July 29, 2022, the Company and other potentially responsible parties were notified of a possible joint claim by federal and state trustees for alleged natural resource damages related to the Wilmington site. The alleged damages may result in a range of possible penalties; however, at this stage, the Company is unable to predict the ultimate outcome of this claim, the allocation of costs among the potentially responsible parties or what impact, if any, the outcome might have on the Company’s results of operations or cash flows.

There have been no other material changes to the legal proceedings disclosed in the Company’s ~~2020~~2021 Annual Report on Form 10-K.

There have been no material changes to the risk factors disclosed in the Company’s ~~2020~~2021 Annual Report on Form ~~10-K.~~10-K, except for the modification of the risk factor set forth below:

Conflicts, military actions, terrorist attacks and general instability, particularly in certain energy-producing nations, along with increased security regulations related to our industry, could adversely affect the Company’s business.

Conflicts, military actions and terrorist attacks have precipitated economic instability, turmoil in financial markets and disruptions in the price and supply of raw materials and energy. The uncertainty and economic or operational disruptions resulting from hostilities, military action or acts of terrorism may impact the Company’s facilities and operations or those of its suppliers or customers. Accordingly, any conflict, military action or terrorist attack that impacts the Company or any of its suppliers or customers, or any resulting economic or operational instability resulting from such conflict, military action or terrorist attack, could have a material adverse effect on the Company’s business, results of operations, financial position and cash flows. For example, Russia’s invasion of Ukraine in February 2022 has resulted in higher energy prices and concerns regarding the supply of natural gas to countries in Europe. Higher energy costs and reduced availability of natural gas in European countries could materially adversely affect the operations and results of operations of the Company or its suppliers and customers.

Below is a summary by month of share ~~purchases~~purchase by the Company during the second quarter of ~~2021:~~2022:

Month

Total Number
of Shares Purchased

Average Price
Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs ⁽¹⁾

Maximum Number of Shares that May Yet
Be Purchased Under
the Plans or Programs ⁽¹⁾

April 2021

291

⁽²⁾
$
131.63

—

167,574

May 2021

36,482

⁽³⁾
$
135.80

32,952

⁽⁵⁾

134,622

June 2021

40,938

⁽⁴⁾
$
133.12

40,793

⁽⁵⁾

93,829

Total

77,711

$
134.38

73,745

93,829

Month	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾			Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs ⁽¹⁾
April 2022		410	⁽²⁾	$	102.49		—		$	140,065,014
May 2022		49,064	⁽³⁾	$	102.94		49,064	⁽³⁾	$	135,014,131
June 2022		20,670	⁽³⁾	$	96.30		20,670	⁽³⁾	$	133,023,666

Total		70,144		$	100.98		69,734		$	133,023,666

Exhibit No.		Description		Description

10.1	–	Note Purchase and Private Shelf Agreement dated as of June 10, 2021 by and among Stepan Company, PGIM, Inc. and the purchasers thereto (filed with the Company’s Current Report on Form 8-K filed on June 14, 2021 (File No. 001-4462), and incorporated herein by reference)
10.1+			–	Stepan Company 2022 Equity Incentive Compensation Plan (filed with the Company’s Current Report on Form 8-K filed on May 3, 2022 (File No. 001-04462), and incorporated herein by reference)

10.2	–	Note Purchase and Master Note Agreement dated as of June 10, 2021, by and among Stepan Company, NYL Investors LLC and the purchasers thereto (filed with the Company’s Current Report on Form 8-K filed on June 14, 2021 (File No. 001-4462), and incorporated herein by reference)	–	Credit Agreement, dated as of June 24, 2022, among Stepan Company, the foreign subsidiary borrowers from time to time party thereto, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, and JPMorgan Chase Bank, N.A. and BofA Securities, Inc., as joint lead arrangers and joint bookrunners (filed with the Company’s Current Report on Form 8-K filed on June 27, 2022 (File No. 001-04462), and incorporated herein by reference)

10.3	–	Subsidiary Guaranty dated as of June 10, 2021, by and between Stepan Specialty Products, LLC and Stepan Surfactants Holdings, LLC relating to the Note Purchase and Private Shelf Agreement dated as of June 10, 2021, by and among Stepan Company, PGIM, Inc. and the purchasers thereto (filed with the Company’s Current Report on Form 8-K filed on June 14, 2021 (File No. 001-4462), and incorporated herein by reference)

10.4	–	Subsidiary Guaranty dated as of June 10, 2021, by and between Stepan Specialty Products, LLC and Stepan Surfactants Holdings, LLC relating to the Note Purchase and Master Note Agreement dated as of June 10, 2021, by and among Stepan Company, NYL Investors LLC and the purchasers thereto (filed with the Company’s Current Report on Form 8-K filed on June 14, 2021 (File No. 001-4462), and incorporated herein by reference)

10.5*	–	Amendment No. 1, dated as of June 22, 2021, to Credit Agreement, dated as of January 30, 2018, among Stepan Company, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent

31.1	–	Certification of President and Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)	–	Certification of President and Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

31.2	–	Certification of Vice President and Chief Financial Officer pursuant to Exchange Act Rule 13a- 14(a)/15d-14(a)	–	Certification of Vice President and Chief Financial Officer pursuant to Exchange Act Rule 13a- 14(a)/15d-14(a)

32	–	Certification pursuant to 18 U.S.C. Section 1350	–	Certification pursuant to 18 U.S.C. Section 1350

101.INS	–	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document	–	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document

101.SCH	–	Inline XBRL Taxonomy Extension Schema Document	–	Inline XBRL Taxonomy Extension Schema Document

101.CAL	–	Inline XBRL Taxonomy Extension Calculation Linkbase Document	–	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	–	Inline XBRL Taxonomy Extension Definition Document	–	Inline XBRL Taxonomy Extension Definition Document

101.LAB	–	Inline XBRL Taxonomy Extension Label Linkbase Document	–	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	–	Inline XBRL Taxonomy Extension Presentation Linkbase Document	–	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	–	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	–	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+Management contract or compensatory plan			+Management contract or compensatory plan

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		36-1823834
(State or other jurisdiction		~~(I.R.S. Employer~~
of incorporation or organization)		(I.R.S. Employer Identification Number)

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common Stock, $1 par value		SCL		New York Stock Exchange

Class		Outstanding at July ~~28, 2021~~27, 2022
Common Stock, $1 par value		~~22,465,861~~22,304,934 Shares

	Shares
Stock options		~~66,134~~34,444
Stock awards (at target)		~~41,228~~64,311
SARs		~~142,451~~188,835

Weighted-average remaining lease term-operating leases		10 ~~Years~~years
Weighted-average discount rate-operating leases		~~3.0%~~	3.0	%


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Six Months Ended June 30, 2020
(In thousands)
	Surfactants		Polymers		Specialty Products		Total
Geographic Market
North America	$	415,517	$	130,621	$	26,823	$	572,961
Europe		115,472		69,252		5,407		190,131
Latin America		102,704		1,102		—		103,806
Asia		25,713		17,925		—		43,638
Total	$	659,406	$	218,900	$	32,230	$	910,536

(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)
Assets:
Identifiable intangible assets:
Customer lists	$	8,000
Trademarks and know-how		1,300
Non-compete agreement		300
Goodwill		4,225
Property, plant and equipment		175
Total assets acquired	$	14,000

	2021		2020				2019
	June 30		December 31		June 30		December 31
Company Common Stock Price	$	120.27	$	119.32	$	97.10	$	102.44


	1.	The Company is required to maintain a minimum interest coverage ratio, as defined within the agreements, of 3.50 to 1.00, for the preceding four calendar quarters.


	2.	The Company is required to maintain a maximum net leverage ratio, as defined within the agreements, not to exceed 3.50 to 1.00.


	3.	The Company is required to maintain net worth of at least $750.0 million.
	4.	The Company is permitted to pay dividends and purchase treasury shares after ~~December 31, 2017,~~June 24, 2022, in amounts of up to $100.0 million plus 100 percent of net income and cash proceeds of stock option exercises, measured cumulatively beginning ~~December 31, 2017.~~January 1, 2022. The maximum amount of dividends that could have been paid within this limitation is disclosed as unrestricted retained earnings in Note 14, Debt, of the notes to the Company’s condensed consolidated financial statements (included in Item 1 of this Form 10-Q).

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company