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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): 04/24/2018

 

STEPAN COMPANY

(Exact name of registrant as specified in its charter)

 

Commission File Number: 1-4462

 

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 (see General Instructions A.2. below):

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

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. ☐

 

 

 

 

 

 

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Item 2.02.Results of Operations and Financial Condition

 

On April 24, 2018, Stepan Company (“Stepan”) issued a press release providing its financial results for the first quarter ended March 31, 2018.  A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.

 

In addition, on April 24, 2018, Stepan issued a press release announcing that its Board of Directors declared a quarterly cash dividend on its common stock of $0.225 per share.  The dividend will be paid on June 15, 2018, to common stockholders of record on May 31, 2018.  A copy of the press release is attached as Exhibit 99.2 hereto and incorporated herein by reference.

 

 

Item 9.01.Financial Statements and Exhibits

Exhibit Number: 99.1

Description: Press Release of Stepan Company dated April 24, 2018

 

Exhibit Number: 99.2

Description: Press Release of Stepan Company dated April 24, 2018

 

 

 

 

 

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EXHIBIT INDEX

 

 

 

 

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SIGNATURES

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.

 

 

 

 

Exhibit 99.1

 

 

Stepan Reports First Quarter Earnings

 

Northfield, Illinois, April 24, 2018 -- Stepan Company (NYSE: SCL) today reported:

 

First Quarter Highlights

 

 

 

  

 

 

 

 

 

 

“The Company had a good start to the year driven by record Surfactant results,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer. “Surfactant operating income grew due to an improved product mix, improved internal efficiencies and the stabilization of commodity surfactant volumes.  Our North American Polymer business

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continued to face headwinds related to lost share and lower margins.  In Europe, the Polymer business was negatively impacted by the lingering effect of the 2017 MDI shortage and extended winter weather.  Despite a disappointing quarter for our Polymer business, the market for insulation materials remains attractive due to continued global energy conservation efforts.  Our Specialty Product business results were down due to changing order patterns for our pharmaceutical and flavor customers.  Specialty results for the year should improve over 2017.”      

 

 

Financial Summary

 

 

 

 

Summary of First Quarter Adjusted Net Income Items

 

Adjusted net income excludes non-operational deferred compensation income/expense and other significant and infrequent or non-recurring items.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Percentage Change in Net Sales

 

The 7% increase in quarterly net sales was primarily due to the positive impact of foreign currency translation, mostly related to stronger European currencies versus the U.S. dollar.  Current quarter net sales also benefited from a 2% increase in selling prices, mostly attributable to the pass through of certain higher raw material costs, and higher volume.  

 

 

 

Segment Results

 

 

 

 

Total segment operating income decreased $4.3 million or 7% versus the prior year.  

 

 

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Corporate Expenses

 

 

    

 

 

Income Taxes

 

The Company’s effective tax rate was 18.4% for the first quarter of 2018 versus 28.0% for the first quarter of 2017. The decrease was primarily attributable to: (a) higher excess tax benefits derived from stock based compensation awards exercised or distributed in the first quarter of 2018 versus 2017, and (b) the net impact of the lower U.S. statutory tax rate of 21% in the first quarter of 2018 versus 35% in the first quarter of 2017. The 2017 U.S. Tax Reform Act favorably benefited the current year quarter by $0.8 million. The Company expects its full year effective tax rate to be in the range of 20% to 23%.

 

 

 

 

 

 

 

 

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Selected Balance Sheet Information

 

The Company’s net debt level increased $54.3 million versus prior year-end and the net debt ratio increased from -1% to 6%.  The increase related entirely to lower cash as total debt remained unchanged.  The decrease in cash was primarily due to the first quarter acquisition in Mexico and higher working capital requirements which is typical for the Company in the first quarter.    

 

 

The major working capital components were:

 

 

Capital spending was $27.4 million versus $20.4 million in the prior year quarter. For the full year, the Company expects capital spending to be between $105 million and $115 million.

 

Outlook

 

“Looking forward, we believe our Surfactant business will continue to build upon its strong start and benefit from our diversification efforts into functional products, new technologies, improved internal efficiencies and expanded sales into our broad customer base globally,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer.  “However, headwinds in our North America Polymer business will continue to challenge us in 2018.  Improved European weather should restore demand for insulation and contribute to better Polymer results.  Overall, we remain optimistic about the balance of the year.”  

 

Conference Call

 

Stepan Company will host a conference call to discuss the first quarter results at 8:00 a.m. ET (7:00 a.m. CT) on April 24, 2018. The call can be accessed by phone and webcast. Telephone access will be available by dialing 888-228-0609, 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.

 

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.

 

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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 and in agricultural and oilfield solutions.  The Company is also a leading supplier of polyurethane polyols used in the expanding thermal insulation market, and CASE (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 Company’s 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: Matthew J. Eaken                              (847) 446-7500

 

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Tables follow

 

Certain information in this presentation consists of 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. These statements include statements about Stepan Company’s 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, Stepan 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, you can identify forward-looking statements 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 Stepan 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 Stepan Company’s control, that could cause actual results to differ materially from the forward-looking statements contained in this news release. Such risks, uncertainties and other important factors include, among other factors, the risks, uncertainties and factors 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 and uncertainties related to disruptions in production or accidents at manufacturing facilities, global competition, volatility of raw material and energy costs, disruptions in transportation or significant changes in transportation costs, reduced demand due to customer product reformulations or new technologies, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, maintaining and protecting intellectual property rights, international business risks, including currency exchange rate fluctuations, legal restrictions and taxes, the impact of changes in the tax code as a result of recent federal tax legislation and uncertainty as to how some of those changes may be applied, our ability to estimate and maintain appropriate levels of recorded liabilities, our debt covenants, our ability to access capital markets, downturns in certain industries and general economic downturns, global political, military, security or other instability, costs related to expansion or other capital projects, interruption or breaches of information technology systems, the costs and other effects of governmental regulation and legal and administrative proceedings and our ability to retain executive management and key personnel.

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.

 

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Table I

STEPAN COMPANY

For the Three Months Ended March 31, 2018 and 2017

(Unaudited – ‘000s Omitted)

 

 

 

* The 2017 amounts for the noted line items have been immaterially changed from the amounts originally reported as a result of the Company’s 1^st quarter 2018 adoption of ASU No. 2017-07 Compensation - Retirement Benefits (Topic 715).  The changes reflect line item reclassifications only and have no impact to pre-tax income or net income.

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Table II

 

 

Reconciliations of Non-GAAP Net Income and Earnings per Diluted Share*

 

 

 

* All amounts in this table are presented after-tax

 

The Company believes that certain measures that are not in accordance with generally accepted accounting principles (GAAP), when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company’s operating performance and provide better clarity on the impact of non-operational items.  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.

 

 

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Table III

 

 

 

Deferred Compensation Plan

 

 

The full effect of the deferred compensation plan on quarterly pre-tax income was $1.4 million of expense versus $1.3 million of income in the prior year.  The accounting for the deferred compensation plan results in operating income when the prices of Stepan Company common stock or mutual fund shares held in the plan fall and expense when they rise.  The Company also recognizes the change in value of mutual fund shares as investment income or loss.  The quarter end market prices of Stepan Company common stock are as follows:

 

 

 

The deferred compensation income statement impact is summarized below:

 

 

 

 

 

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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 month period ending March 31, 2018 as compared to 2017:

 

 

 

 

 

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Table V

 

 

Stepan Company

Consolidated Balance Sheets

March 31, 2018 and December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 99.2

 

Stepan Declares Quarterly Dividend

 

Northfield, Illinois, April 24, 2018 -- Stepan Company (NYSE:SCL) today reported:

 

On April 23, 2018, the Board of Directors of Stepan Company declared a quarterly cash dividend on its common stock of $0.225 per share.  The dividend is payable on June 15, 2018, to common stockholders of record on May 31, 2018.  The Company increased its quarterly cash dividend in the fourth quarter of 2017 by $0.02 per share, marking the 50^th consecutive year that the Company has increased its cash dividend to stockholders.  

 

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 and in agricultural and oilfield solutions.  The Company is also a leading supplier of polyurethane polyols used in the expanding thermal insulation market, and CASE (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 Company’s 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

 

Certain information in this presentation consists of 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 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, Stepan 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, you can identify forward-looking statements 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 Stepan 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 Stepan Company’s control that could cause actual results to differ materially from the forward-looking statements contained in this news release. Such risks, uncertainties and other important factors include, among other factors, the risks, uncertainties and factors 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 and uncertainties related to disruptions in production or accidents at manufacturing facilities, global competition, volatility of raw material and energy costs, disruptions in transportation or significant changes in transportation costs, reduced demand due to customer product reformulations or new technologies, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, maintaining and protecting intellectual property rights, international business risks, including currency exchange rate fluctuations, legal restrictions and taxes, the impact of changes in the tax code as a result of recent federal tax legislation and uncertainty as to how some of those changes may be applied, our ability to estimate and maintain appropriate levels of recorded liabilities, our debt covenants, our ability to access capital markets, downturns in certain industries and general economic downturns, global political, military, security or other instability, costs related to expansion or other capital projects, interruption or breaches of information technology systems, the costs and other effects of governmental regulation and legal and administrative proceedings and our ability to retain executive management and key personnel.

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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:  Matthew J. Eaken847-446-7500