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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): 07/20/2016
STEPAN COMPANY
(Exact name of registrant as specified in its charter)
Commission File Number: 1-4462
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Delaware |
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36-1823834 |
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(State or other jurisdiction of incorporation) |
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(IRS Employer Identification No.) |
Edens and Winnetka Road, Northfield, Illinois 60093
(Address of principal executive offices, including zip code)
(847)446-7500
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02.Results of Operations and Financial Condition
On July 20, 2016, Stepan Company (“Stepan”) issued a press release providing its financial results for the second quarter ended June 30, 2016. A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.
Item 8.01.Other Events
On July 20, 2016, Stepan issued a press release announcing that its Board of Directors declared a quarterly cash dividend on its common stock of $0.19 per share. The dividend will be paid on September 15, 2016 to common stockholders of record on August 31, 2016. A copy of the press release is attached as Exhibit 99.2 hereto and incorporated herein by reference.
In addition, on July 20, 2016, Stepan issued a press release announcing it has reached an agreement with Tebras Tensoativos do Brazil Ltda. (Tebras) to acquire their commercial business and with PBC Industria Quimica Ltda. (PBC) to acquire their sulfonation production facility. The transaction is expected to close in the fourth quarter of 2016. Financial terms of the transaction were not disclosed. A copy of the press release is attached as Exhibit 99.3 hereto and incorporated herein by reference.
Item 9.01.Financial Statements and Exhibits
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(d) |
Exhibits |
Exhibit Number: 99.1
Description: Press Release of Stepan Company dated July 20, 2016
Exhibit Number: 99.2
Description: Press Release of Stepan Company dated July 20, 2016
Exhibit Number: 99.3
Description: Press Release of Stepan Company dated July 20, 2016
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 hereunto duly authorized.
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STEPAN COMPANY |
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Date: July 20, 2016 |
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By: |
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/s/ Jennifer Ansbro Hale |
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Jennifer Ansbro Hale |
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Vice President, General Counsel and Secretary |
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Exhibit No. |
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Description |
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EX-99.1 EX-99.2 EX-99.3
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Press Release of Stepan Company dated July 20, 2016 Press Release of Stepan Company dated July 20, 2016 Press Release of Stepan Company dated July 20, 2016 |
Exhibit 99.1
Stepan Reports Record Second Quarter and First Half Earnings
Northfield, Illinois, July 20, 2016 -- Stepan Company (NYSE: SCL) today reported:
Second Quarter Highlights
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· |
Reported net income was a record $27.9 million, or $1.21 per diluted share, a 65% increase versus $16.9 million, or $0.74 per diluted share, in the prior year. |
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· |
Adjusted net income* was a record $30.1 million, or $1.31 per diluted share, a 44% increase versus $20.9 million, or $0.91 per diluted share, in the prior year. Total sales volume increased 12% for the quarter. |
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· |
Surfactant operating income was $27.2 million, a 12% increase versus prior year benefiting from our internal efficiency program, lower raw material costs and an 11% increase in volume. |
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· |
Polymer operating income was a record $31.0 million, a 32% increase versus prior year. Volumes were 14% higher and margins improved partially due to lower raw material costs. |
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· |
The effect of foreign currency translation negatively impacted net income by $0.7 million, or $0.03 per diluted share, versus prior year. |
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First Half Highlights
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· |
Reported net income was a record $55.5 million, or $2.42 per diluted share, a 45% increase versus $38.2 million, or $1.67 per diluted share, in the prior year. |
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· |
Adjusted net income* was a record $59.6 million, or $2.60 per diluted share, a 44% increase versus $41.3 million, or $1.80 per diluted share, in the prior year. Total sales volume increased 12% during the first half of the year. |
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· |
The effect of foreign currency translation negatively impacted net income by $2.2 million or $0.10 per diluted share versus prior year. |
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* |
Adjusted net income is a non-GAAP measure which excludes Deferred Compensation income/ expense as well as other significant and infrequent/non-recurring items. See Table II for this non-GAAP reconciliation. |
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“The Company had a strong second quarter and delivered record quarterly and year to date results,” said F. Quinn Stepan, Jr., President and Chief Executive Officer. “The quarter benefited from higher Surfactant and Polymer volumes, increased asset utilization, reduced raw material costs and enhanced internal efficiencies.
Surfactant operating income was up 12% on strong volume growth, improved asset utilization and a better product mix. Polymers delivered a record quarter with a 32%
1
increase in operating income on higher volumes and margins. Our polymer business continues to benefit from global energy conservation efforts and the advantages our technologies provide over competitive insulation materials.”
Financial Summary
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Three Months Ended June 30 |
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Six Months Ended June 30 |
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||||||||||||||||||
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($ in thousands, except per share data) |
2016 |
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2015 |
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% Change |
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2016 |
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2015 |
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% Change |
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||||||
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Net Sales |
$ |
454,603 |
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|
$ |
452,414 |
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0 |
% |
|
$ |
900,500 |
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|
$ |
912,865 |
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|
|
(1 |
)% |
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Operating Income |
$ |
42,916 |
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|
$ |
28,595 |
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50 |
% |
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$ |
87,523 |
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$ |
63,773 |
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37 |
% |
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Net Income |
$ |
27,865 |
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$ |
16,914 |
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65 |
% |
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$ |
55,519 |
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$ |
38,184 |
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45 |
% |
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Earnings per Diluted Share |
$ |
1.21 |
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$ |
0.74 |
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64 |
% |
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$ |
2.42 |
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$ |
1.67 |
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45 |
% |
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Adjusted Net Income * |
$ |
30,080 |
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$ |
20,912 |
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44 |
% |
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$ |
59,555 |
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$ |
41,344 |
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44 |
% |
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Adjusted Earnings per Diluted Share * |
$ |
1.31 |
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$ |
0.91 |
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44 |
% |
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$ |
2.60 |
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$ |
1.80 |
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44 |
% |
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* See Table II for a reconciliation of non-GAAP Adjusted Net Income and Earnings per Diluted Share. |
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Summary of Second Quarter Adjusted Net Income Items
Adjusted net income excludes non-operational deferred compensation income/expense as well as certain other significant and infrequent or non-recurring items.
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· |
Deferred Compensation: The current year quarter includes $2.3 million of pre-tax expense versus $6.4 million of pre-tax expense in the prior year. These amounts were $1.4 million and $4.0 million, respectively, on an after-tax basis. |
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Business Restructuring: The current year quarter includes $1.1 million of pre-tax severance expense related to our Canadian plant closure, or $0.8 million on an after-tax basis. This plant closure was previously announced in our May 20, 2016 press release. Also related to the plant closure, accelerated depreciation of $0.8 million pre-tax was recorded within the Surfactant segment operating income. The accelerated depreciation is not presented as an adjustment to reported net income. We expect accelerated depreciation expense of $4.5 million pre-tax for the full year of 2016, of which $2.6 million is expected for the second half of 2016. |
2
Percentage Change in Net Sales
Quarterly net sales increased slightly versus prior year. Higher sales volume offset lower selling prices and the negative impact of foreign currency translation resulting from the stronger U.S. dollar. Sales volumes were up 12% with particularly strong growth in North America Surfactants and all regions in Polymers. The lower selling prices were primarily related to lower raw material costs.
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Three Months Ended June 30, 2016 |
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Six Months Ended June 30, 2016 |
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Volume |
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12 |
% |
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12 |
% |
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Selling Price |
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(10 |
)% |
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(10 |
)% |
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Foreign Translation |
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(2 |
)% |
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(3 |
)% |
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Total |
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(— |
)% |
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(1 |
)% |
Segment Results
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Three Months Ended June 30 |
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Six Months Ended June 30 |
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($ in thousands) |
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2016 |
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2015 |
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% Change |
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2016 |
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2015 |
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% Change |
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Net Sales |
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Surfactants |
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$ |
298,587 |
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$ |
299,743 |
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0 |
% |
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$ |
608,547 |
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$ |
630,294 |
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(3 |
)% |
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Polymers |
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$ |
134,498 |
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$ |
133,613 |
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1 |
% |
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$ |
248,396 |
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$ |
242,977 |
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2 |
% |
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Specialty Products |
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$ |
21,518 |
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$ |
19,058 |
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13 |
% |
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$ |
43,557 |
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$ |
39,594 |
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10 |
% |
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Total Net Sales |
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$ |
454,603 |
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$ |
452,414 |
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0 |
% |
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$ |
900,500 |
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$ |
912,865 |
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(1 |
)% |
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Three Months Ended June 30 |
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Six Months Ended June 30 |
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($ in thousands, all amounts pre-tax) |
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2016 |
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2015 |
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% Change |
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2016 |
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2015 |
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% Change |
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Operating Income * |
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Surfactants |
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$ |
27,232 |
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$ |
24,232 |
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12 |
% |
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$ |
64,477 |
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$ |
57,996 |
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11 |
% |
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Polymers |
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$ |
30,994 |
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$ |
23,429 |
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32 |
% |
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$ |
53,191 |
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$ |
38,214 |
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39 |
% |
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Specialty Products |
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$ |
1,788 |
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$ |
1,522 |
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17 |
% |
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$ |
4,121 |
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$ |
3,766 |
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9 |
% |
Total segment operating income increased $10.8 million, or 22%, versus the prior year quarter. Total segment operating income in the first half increased $21.8 million, or 22% versus the prior year.
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· |
Surfactant net sales were $298.6 million for the quarter, $1.2 million less than prior year. Sales volume grew by 11% primarily due to new North American laundry business earned in July 2015. Excluding this, volumes were up slightly. Selling prices were lower by $26.1 million primarily due to lower raw material costs. The translation impact of a stronger U.S. dollar decreased net sales by $8.1 million. Surfactant operating income increased $3.0 million, or 12%, versus the prior year, primarily driven by favorable mix on higher sales volume into the distribution channel, lower raw material costs, contributions from our internal efficiency program (DRIVE) and the new Laundry supply contract. |
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· |
Polymer net sales were $134.5 million in the second quarter, a $0.9 million increase versus prior year. Sales volume increased 14% in the quarter primarily due to |
3
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continued growth in polyols used in rigid foam insulation and insulated metal panels. Net sales increased $18.8 million as a result of this volume growth. Selling prices were lower which decreased net sales by $15.4 million. The translation impact of a stronger U.S. dollar decreased net sales by $2.5 million. Operating income increased $7.6 million, or 32%, versus the prior year. The improvement was primarily attributable to volume growth within the global Rigid Polyol business, improved performance in Phthalic Anhydride, and lower raw material costs. |
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· |
Specialty Products net sales were $21.5 million, $2.5 million higher than prior year. Operating income increased $0.3 million, or 17%, versus the prior year. The Lipid Nutrition business improved due to volume growth and lower costs resulting from actions taken in 2015. This improvement was slightly offset by the timing of orders in our food and flavoring business. |
Corporate Expenses
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Three Months Ended June 30 |
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Six Months Ended June 30 |
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($ in thousands) |
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2016 |
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2015 |
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% Change |
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2016 |
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2015 |
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% Change |
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Total - Corporate Expenses |
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$ |
17,098 |
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$ |
20,588 |
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(17 |
)% |
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$ |
34,266 |
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$ |
36,203 |
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(5 |
)% |
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Deferred Compensation Expense/(Income) * |
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$ |
2,434 |
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$ |
6,573 |
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(63 |
)% |
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$ |
5,154 |
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$ |
8,150 |
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(37 |
)% |
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Adjusted Corporate Expense |
|
$ |
14,664 |
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|
$ |
14,015 |
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|
5 |
% |
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$ |
29,112 |
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$ |
28,053 |
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4 |
% |
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* See Table III for a discussion of deferred compensation plan accounting. |
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· |
Corporate expenses, excluding deferred compensation, increased $0.6 million, or 5%, for the quarter. This increase was mostly attributable to the severance expense associated with our Canadian plant closure and higher incentive-based compensation expenses. These expenses were partially offset by lower consulting expenses, as external resources related to our efficiency efforts were not used in the current year. |
Income Taxes
The effective tax rate was 30% for the first half of 2016, which was equivalent to the 30% rate for the first half of 2015.
4
Selected Balance Sheet Information
The Company’s net debt level decreased $51 million for the quarter while the net debt ratio dropped from 23% to 17%. The decrease in net debt was mostly attributable to a $45 million increase in cash. The cash increase in the current quarter was primarily attributable to lower working capital requirements and strong second quarter earnings.
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($ in millions) |
6/30/16 |
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3/31/16 |
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12/31/15 |
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Net Debt |
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Total Debt |
$ |
321.4 |
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$ |
327.9 |
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$ |
331.4 |
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Cash |
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190.4 |
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145.7 |
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176.1 |
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Net Debt |
$ |
131.0 |
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$ |
182.2 |
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$ |
155.3 |
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Equity |
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618.9 |
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|
594.8 |
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|
557.0 |
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Net Debt + Equity |
$ |
749.9 |
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$ |
777.0 |
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$ |
712.3 |
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Net Debt / (Net Debt + Equity) |
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17 |
% |
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23 |
% |
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22 |
% |
The major working capital components were:
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($ in millions) |
6/30/16 |
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|
3/31/16 |
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|
12/31/15 |
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Net Receivables |
$ |
285.1 |
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$ |
291.6 |
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|
$ |
249.6 |
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Inventories |
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180.7 |
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|
|
177.8 |
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170.4 |
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Accounts Payable |
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(144.2 |
) |
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(130.0 |
) |
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|
(128.6 |
) |
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$ |
321.6 |
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$ |
339.4 |
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$ |
291.4 |
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The Company had capital expenditures of $22 million during the quarter and $41 million during the first half of 2016. This compares to $26 million and $54 million, respectively, in the prior year. For the full year, we expect capital expenditures to be between $110 million and $120 million.
Outlook
“After a record first half, we remain optimistic about our core business for the balance of the year. Our business should continue to benefit from higher laundry volumes within our Surfactant business and rigid polyol volumes within Polymers. We expect higher raw material costs to slightly reduce margins. Our internal efficiency program should continue to deliver meaningful results. However, costs associated with a planned 30 day shutdown of our plant in Germany, accelerated depreciation and plant shutdown costs related to the closure of our Canadian plant, and lower construction activity in China should negatively impact the balance of 2016. Overall, we continue to believe earnings for the year should grow.” said F. Quinn Stepan, Jr., President and Chief Executive Officer.
Conference Call
Stepan Company will host a conference call to discuss the first quarter results at 10:00 a.m. ET (9:00 a.m. CT) on July 20, 2016. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (800) 708-6791, and the webcast can be accessed through the Investor Relations/Conference Calls page at www.stepan.com. A webcast replay of the conference call will be available at the same location shortly after the call.
5
Supporting Slides
Slides supporting this press release will be made available at www.stepan.com under the Investor Relations center at approximately the same time as this press release is issued.
Corporate Profile
Stepan Company is a major manufacturer of specialty and intermediate chemicals used in a broad range of industries. Stepan is a leading merchant producer of surfactants, which are the key ingredients in consumer and industrial cleaning compounds. The Company is also a leading supplier of Polyurethane polyols used in the expanding thermal insulation market, and CASE (Coatings, Adhesives, Sealants, Elastomers) industries.
Headquartered in Northfield, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia.
The common stock is traded on the New York Stock Exchange (NYSE) under the symbol SCL. For more information about Stepan Company please visit the Company online at www.stepan.com
Contact: Scott D. Beamer (847) 446-7500
* * * * *
Tables follow
Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. Significant risks and uncertainties are described in Stepan Company’s Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to) risks related to our foreign operations, foreign currency fluctuations, certain global and regional economic conditions, costs related to expansion or other capital projects, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, the effect of customer product reformulations or new technologies, the loss of one or more key customer or supplier relationships, the costs and other effects of governmental regulation and legal and administrative proceedings, including the expenditures necessary to address and resolve environmental claims and proceedings, disruptions in production at manufacturing facilities, volatility of raw material, natural gas and energy costs, maintaining and protecting intellectual property rights, interruption or breaches of information technology systems, disruptions in transportation or significant changes in transportation costs, our level of indebtedness and general economic conditions. These forward-looking statements are made only as of the date hereof, and Stepan Company undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
6
Table I
STEPAN COMPANY
For the Three and Six Months Ended June 30, 2016 and 2015
(Unaudited – in thousands, except per share data)
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Three Months Ended June 30 |
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Six Months Ended June 30 |
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||||||||||
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2016 |
|
|
2015 |
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|
2016 |
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|
2015 |
|
||||
|
Net Sales |
|
$ |
454,603 |
|
|
$ |
452,414 |
|
|
$ |
900,500 |
|
|
$ |
912,865 |
|
|
Cost of Sales |
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|
361,672 |
|
|
|
372,902 |
|
|
|
714,070 |
|
|
|
756,911 |
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Gross Profit |
|
|
92,931 |
|
|
|
79,512 |
|
|
|
186,430 |
|
|
|
155,954 |
|
|
Operating Expenses: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling |
|
|
14,572 |
|
|
|
14,265 |
|
|
|
28,262 |
|
|
|
27,262 |
|
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Administrative * |
|
|
17,692 |
|
|
|
17,482 |
|
|
|
36,392 |
|
|
|
35,244 |
|
|
Research, Development and Technical Services |
|
|
14,256 |
|
|
|
12,597 |
|
|
|
28,038 |
|
|
|
24,387 |
|
|
Deferred Compensation Expense * |
|
|
2,434 |
|
|
|
6,573 |
|
|
|
5,154 |
|
|
|
8,150 |
|
|
|
|
|
48,954 |
|
|
|
50,917 |
|
|
|
97,846 |
|
|
|
95,043 |
|
|
Other Operating Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Sale of Product Line |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,862 |
|
|
Business Restructuring |
|
|
(1,061 |
) |
|
|
— |
|
|
|
(1,061 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
42,916 |
|
|
|
28,595 |
|
|
|
87,523 |
|
|
|
63,773 |
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, Net |
|
|
(3,417 |
) |
|
|
(2,869 |
) |
|
|
(7,031 |
) |
|
|
(6,923 |
) |
|
Loss from Equity in Joint Venture |
|
|
— |
|
|
|
(1,815 |
) |
|
|
— |
|
|
|
(3,055 |
) |
|
Other, Net |
|
|
(303 |
) |
|
|
235 |
|
|
|
(828 |
) |
|
|
887 |
|
|
|
|
|
(3,720 |
) |
|
|
(4,449 |
) |
|
|
(7,859 |
) |
|
|
(9,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
|
39,196 |
|
|
|
24,146 |
|
|
|
79,664 |
|
|
|
54,682 |
|
|
Provision for Income Taxes |
|
|
11,326 |
|
|
|
7,205 |
|
|
|
24,137 |
|
|
|
16,455 |
|
|
Net Income |
|
|
27,870 |
|
|
|
16,941 |
|
|
|
55,527 |
|
|
|
38,227 |
|
|
Net Income Attributable to Noncontrolling Interests |
|
|
(5 |
) |
|
|
(27 |
) |
|
|
(8 |
) |
|
|
(43 |
) |
|
Net Income Attributable to Stepan Company |
|
$ |
27,865 |
|
|
$ |
16,914 |
|
|
$ |
55,519 |
|
|
$ |
38,184 |
|
|
Net Income Per Common Share Attributable to Stepan Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.22 |
|
|
$ |
0.74 |
|
|
$ |
2.44 |
|
|
$ |
1.68 |
|
|
Diluted |
|
$ |
1.21 |
|
|
$ |
0.74 |
|
|
$ |
2.42 |
|
|
$ |
1.67 |
|
|
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
22,760 |
|
|
|
22,742 |
|
|
|
22,746 |
|
|
|
22,731 |
|
|
Diluted |
|
|
22,958 |
|
|
|
22,871 |
|
|
|
22,920 |
|
|
|
22,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* In the first three and six months of 2015, Deferred Compensation Expense (Income) was included in Administrative Expenses. The 2015 amounts have been classified separately to conform to the current year presentation.
7
Table II
Reconciliation of Non-GAAP Net Income and Earnings Per Diluted Share
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
||||||||||||||||||||||||||
|
($ in thousands, except per share amounts) |
|
2016 |
|
|
EPS |
|
|
2015 |
|
|
EPS |
|
|
2016 |
|
|
EPS |
|
|
2015 |
|
|
EPS |
|
||||||||
|
Net Income Reported |
|
$ |
27,865 |
|
|
$ |
1.21 |
|
|
$ |
16,914 |
|
|
$ |
0.74 |
|
|
$ |
55,519 |
|
|
$ |
2.42 |
|
|
$ |
38,184 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Compensation Expense |
|
$ |
1,419 |
|
|
$ |
0.06 |
|
|
$ |
3,998 |
|
|
$ |
0.17 |
|
|
$ |
3,240 |
|
|
$ |
0.14 |
|
|
$ |
4,593 |
|
|
$ |
0.20 |
|
|
Business Restructuring |
|
$ |
796 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
$ |
796 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
Environmental Remediation Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
341 |
|
|
$ |
0.01 |
|
|
Gain on Divestiture of Product Line |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,774 |
) |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income |
|
$ |
30,080 |
|
|
$ |
1.31 |
|
|
$ |
20,912 |
|
|
$ |
0.91 |
|
|
$ |
59,555 |
|
|
$ |
2.60 |
|
|
$ |
41,344 |
|
|
$ |
1.80 |
|
* All amounts in this table are presented after-tax
The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful for evaluating the Company’s operating performance. 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, and are neither a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.
Reconciliation of Pre-Tax to After-Tax Adjustments
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
||||||||||||||||||||||||||
|
($ in thousands, except per share amounts) |
|
2016 |
|
|
EPS |
|
|
2015 |
|
|
EPS |
|
|
2016 |
|
|
EPS |
|
|
2015 |
|
|
EPS |
|
||||||||
|
Pre-Tax Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Compensation Expense |
|
$ |
2,289 |
|
|
|
|
|
|
$ |
6,447 |
|
|
|
|
|
|
$ |
5,226 |
|
|
|
|
|
|
$ |
7,407 |
|
|
|
|
|
|
Business Restructuring |
|
$ |
1,061 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
$ |
1,061 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Environmental Remediation Expense |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
$ |
550 |
|
|
|
|
|
|
Gain on Divestiture of Product Line |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
$ |
(2,862 |
) |
|
|
|
|
|
Total Pre-Tax Adjustments |
|
$ |
3,350 |
|
|
|
|
|
|
$ |
6,447 |
|
|
|
|
|
|
$ |
6,287 |
|
|
|
|
|
|
$ |
5,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Tax Effect on Adjustments |
|
$ |
(1,135 |
) |
|
|
|
|
|
$ |
(2,449 |
) |
|
|
|
|
|
$ |
(2,251 |
) |
|
|
|
|
|
$ |
(1,935 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-Tax Adjustments |
|
$ |
2,215 |
|
|
$ |
0.10 |
|
|
$ |
3,998 |
|
|
$ |
0.17 |
|
|
$ |
4,036 |
|
|
$ |
0.18 |
|
|
$ |
3,160 |
|
|
$ |
0.13 |
|
8
Table III
Deferred Compensation Plan
The full effect of the deferred compensation plan on quarterly pretax income was $2.3 million of expense versus $6.4 million of expense in the prior year. The year to date impact was $5.2 million of expense versus $7.4 million of expense in the prior year. The accounting for the deferred compensation plan results in operating income when the price of Stepan Company common stock or mutual funds held in the plan fall and expense when they rise. The Company also recognizes the change in value of mutual funds as investment income or loss. The quarter end market prices of Stepan Company common stock are as follows:
|
|
|
2016 |
|
|
2015 |
|
||||||||||||||||||||||
|
|
|
12/31 |
|
9/30 |
|
6/30 |
|
|
3/31 |
|
|
12/31 |
|
|
9/30 |
|
|
6/30 |
|
|
3/31 |
|
||||||
|
Stepan Company |
|
N/A |
|
N/A |
|
$ |
59.53 |
|
|
$ |
55.29 |
|
|
$ |
49.69 |
|
|
$ |
41.61 |
|
|
$ |
54.11 |
|
|
$ |
41.66 |
|
The deferred compensation income statement impact is summarized below:
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
||||||||||
|
($ in thousands) |
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
Deferred Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Expense) |
|
$ |
(2,434 |
) |
|
$ |
(6,573 |
) |
|
$ |
(5,154 |
) |
|
$ |
(8,150 |
) |
|
Other, net – Mutual Fund Gain (Loss) |
|
|
145 |
|
|
|
126 |
|
|
|
(72 |
) |
|
|
743 |
|
|
Total Pretax |
|
$ |
(2,289 |
) |
|
$ |
(6,447 |
) |
|
$ |
(5,226 |
) |
|
$ |
(7,407 |
) |
|
Total After Tax |
|
$ |
(1,419 |
) |
|
$ |
(3,998 |
) |
|
$ |
(3,240 |
) |
|
$ |
(4,593 |
) |
9
Table IV
Effects of Foreign Currency Translation
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). Below is a table that presents the impact that foreign currency translation had on the changes in consolidated net sales and various income line items for the three and six month periods ending June 30, 2016 as compared to 2015:
|
($ in millions) |
|
Three Months Ended June 30 |
|
|
Increase |
|
|
(Decrease) Due to Foreign Currency Translation |
|
|
Six Months Ended June 30 |
|
|
Increase (Decrease) |
|
|
(Decrease) Due to Foreign Currency Translation |
|
||||||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
||||
|
Net Sales |
|
$ |
454.6 |
|
|
$ |
452.4 |
|
|
$ |
2.2 |
|
|
$ |
(10.5 |
) |
|
$ |
900.5 |
|
|
$ |
912.9 |
|
|
$ |
(12.4 |
) |
|
$ |
(28.5 |
) |
|
Gross Profit |
|
|
92.9 |
|
|
|
79.5 |
|
|
$ |
13.4 |
|
|
|
(1.6 |
) |
|
|
186.4 |
|
|
|
156.0 |
|
|
$ |
30.4 |
|
|
|
(5.1 |
) |
|
Operating Income |
|
|
42.9 |
|
|
|
28.6 |
|
|
$ |
14.3 |
|
|
|
(1.0 |
) |
|
|
87.5 |
|
|
|
63.8 |
|
|
$ |
23.7 |
|
|
|
(3.3 |
) |
|
Pretax Income |
|
|
39.2 |
|
|
|
24.1 |
|
|
$ |
15.1 |
|
|
|
(1.0 |
) |
|
|
79.7 |
|
|
|
54.7 |
|
|
$ |
25.0 |
|
|
|
(3.2 |
) |
10
Table V
Stepan Company
Consolidated Balance Sheets
June 30, 2016 and December 31, 2015
|
|
|
2016 June 30 |
|
|
2015 December 31 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets |
|
$ |
679,339 |
|
|
$ |
619,573 |
|
|
Property, Plant & Equipment, Net |
|
|
563,610 |
|
|
|
555,463 |
|
|
Other Assets |
|
|
61,526 |
|
|
|
63,356 |
|
|
Total Assets |
|
$ |
1,304,475 |
|
|
$ |
1,238,392 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
$ |
242,258 |
|
|
$ |
243,244 |
|
|
Deferred Income Taxes |
|
|
15,314 |
|
|
|
9,455 |
|
|
Long-term Debt |
|
|
306,980 |
|
|
|
312,548 |
|
|
Other Non-current Liabilities |
|
|
119,664 |
|
|
|
114,761 |
|
|
Total Stepan Company Stockholders’ Equity |
|
|
618,884 |
|
|
|
556,984 |
|
|
Noncontrolling Interest |
|
|
1,375 |
|
|
|
1,400 |
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
1,304,475 |
|
|
$ |
1,238,392 |
|
11
Exhibit 99.2
Stepan Declares Quarterly Dividend
Northfield, Illinois, July 20, 2016 -- Stepan Company (NYSE:SCL) today reported:
On July 19, 2016, the Board of Directors of Stepan Company declared a quarterly cash dividend on its common stock of $0.19 per share. The dividend is payable on September 15, 2016, to common stockholders of record on August 31, 2016. The Company increased its quarterly cash dividend in the fourth quarter of 2015 by $0.01 per share, marking the 48th consecutive year that the company has increased its cash dividend to shareholders.
Corporate Profile
Stepan Company is a major manufacturer of specialty and intermediate chemicals used in a broad range of industries. Stepan is a leading merchant producer of surfactants, which are the key ingredients in consumer and industrial cleaning compounds. The Company is also a leading supplier of Polyurethane polyols used in the expanding thermal insulation market, and C.A.S.E. (Coatings, Adhesives, Sealants, and Elastomers) industries.
Headquartered in Northfield, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia.
The common stock is traded on the New York Stock Exchange (NYSE) under the symbol SCL. For more information about Stepan Company please visit the Company online at www.stepan.com
* * * * *
Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. Significant risks and uncertainties are described in Stepan Company’s Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to) risks related to our foreign operations, foreign currency fluctuations, certain global and regional economic conditions, costs related to expansion or other capital projects, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, the effect of customer product reformulations or new technologies, the loss of one or more key customer or supplier relationships, the costs and other effects of governmental regulation and legal and administrative proceedings, including the expenditures necessary to address and resolve environmental claims and proceedings, disruptions in production at manufacturing facilities, volatility of raw material, natural gas and energy costs, maintaining and protecting intellectual property rights, interruption or breaches of information technology systems, disruptions in transportation or significant changes in transportation costs, our level of indebtedness and general economic conditions. These forward-looking statements are made only as of the date hereof, and Stepan Company undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
Source: Stepan Company
Contact: Scott D. Beamer847-446-7500
Exhibit 99.3
Stepan Announces Agreement to Acquire a Commercial Business and Sulfonation Production Facility in Brazil.
NORTHFIELD, Ill., July 20, 2016 -- Stepan Company (NYSE: SCL) today reported that its subsidiary in Brazil has reached an agreement with Tebras Tensoativos do Brazil Ltda. (Tebras) to acquire their commercial business and with PBC Industria Quimica Ltda. (PBC) to acquire their sulfonation production facility. The combined entities have annual sales of approximately $32 million dollars, 25,000 metric tons of sulfonation capacity and a large, diverse customer portfolio.
Both definitive agreements are subject to customary closing conditions and the transaction is projected to close in the fourth quarter of 2016. The transaction is expected to have minimal impact on Stepan’s 2016 financial results. Financial terms of the transaction were not disclosed.
“The acquisition of Tebras and PBC is expected to expand and diversify our customer base for sulfonated products in Brazil and to provide an opportunity to sell our broader surfactant portfolio to over 1,200 new customers who will benefit from Stepan’s technical service and formulation support,” said F. Quinn Stepan Jr., President and CEO of Stepan Company. “Over time, we plan to utilize the newly acquired site within the greater Sao Paulo area to produce additional product lines. This acquisition is expected to be slightly accretive to earnings for the first full year of ownership.”
CORPORATE PROFILE
Stepan Company is a major manufacturer of specialty and intermediate chemicals used in a broad range of industries. Stepan is a leading producer of surfactants, which are the key ingredients in consumer and industrial cleaning compounds. The Company is also a leading supplier of polyurethane polyols used in the expanding thermal insulation market and C.A.S.E. (Coatings, Adhesives, Sealants, and Elastomers) industries.
Headquartered in Northfield, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia. The common stock is traded on the New York Stock Exchange (NYSE) under the symbol SCL. For more information about Stepan Company please visit the Company online at www.stepan.com.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, expectations and intentions with respect to future operations, products and services: and other statements identified by words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “objective”, “outlook”, “plan”, “project”, “possible”,
“potential”, “should” and similar expressions. These forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to business, economic and competitive risks and uncertainties, many of which are difficult to predict and beyond our control, that could cause actual results to differ materially from those projected, anticipated or implied.
The most significant of these uncertainties are described in Stepan Company’s Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to), risks related to our foreign operations, foreign currency fluctuations, certain global and regional economic conditions, costs related to expansion and other capital projects, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, the effect of customer product reformulations or new technologies, the loss of one or more key customer or supplier relationships, the costs and other effects of governmental regulation and legal and administrative proceedings, including the expenditures necessary to address and resolve environmental claims and proceedings, disruptions in production at manufacturing facilities, volatility of raw material, natural gas and energy costs, maintaining and protecting intellectual property rights, interruption or breaches of information technology systems, disruptions in transportation or significant changes in transportation costs, our level of indebtedness and general economic conditions. These forward-looking statements and the information set forth herein speaks only as of the date hereof, and Stepan Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Source: Stepan Company
Contact: Scott D. Beamer847-446-7500