false STEPAN CO 0000094049 0000094049 2019-10-23 2019-10-23

 

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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): 10/23/2019

 

STEPAN COMPANY

(Exact name of registrant as specified in its charter)

 

Commission File Number: 1-4462

 

Delaware		36-1823834
(State or other jurisdiction of incorporation)		(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 (see General Instructions A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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Securities registered pursuant to Section 12(b) of the Act:

 

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

 

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 October 23, 2019, Stepan Company (“Stepan”) issued a press release providing its financial results for the third quarter ended September 30, 2019.  A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.

 

In addition, on October 23, 2019, Stepan issued a press release announcing that its Board of Directors declared a quarterly cash dividend on its common stock of $0.275 per share.  The dividend will be paid on December 13, 2019, to common stockholders of record on November 29, 2019.  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

(d)

Exhibits

 

Exhibit Number: 99.1

Description: Press Release of Stepan Company dated October 23, 2019

 

Exhibit Number: 99.2

Description: Press Release of Stepan Company dated October 23, 2019

 

Exhibit Number:  104

Description:  Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

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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.

 

						STEPAN COMPANY
Date: October 23, 2019				By:		/s/ David Gerard Kabbes
						David Gerard Kabbes
						Vice President, General Counsel and Secretary

 

 

 

Exhibit 99.1

 

Stepan Reports Third Quarter Results and Nine Month Earnings

 

Northfield, Illinois, October 23, 2019 -- Stepan Company (NYSE: SCL) today reported:

 

Third Quarter Highlights

 

 

 

 

 

 

 

YTD Highlights

 

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“Despite the challenging current environment, the Company’s quarterly net income and adjusted net income exceeded prior year, and through nine months, adjusted net income is ahead of last year’s record, said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer.  “For the quarter, Surfactant earnings were down significantly due to lower commodity volumes in North America and the slow recovery of our business in Mexico.  The Polymer business had a strong third quarter driven by global rigid polyol growth.  Specialty Products income was down due to customer order patterns, but is expected to deliver significant profit growth for the year.”      

 

Financial Summary

 

 

 

Summary of Third Quarter Adjusted Net Income Items

 

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

 

 

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Percentage Change in Net Sales

 

Net sales decreased 11% in the year-over-year third quarter due to a 6% decline in global sales volume, lower selling prices mainly attributable to the pass-through of lower raw material costs, and the unfavorable impact of foreign currency translation.  The lower sales volume primarily reflects a Surfactant decline of 8% partially offset by Polymer growth of 3%.  

 

 

 

Reported Segment Results

 

 

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* The 2018 Segment operating income amounts have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO.

 

Total segment operating income decreased $5.5 million, or 11%, versus the prior year quarter. Total segment operating income for the first nine months of 2019 decreased $9.3 million, or 6%, versus the prior year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Corporate Expenses

 

 

    

 

Income Taxes and Net Interest

 

The Company’s effective tax rate was 17.3% for the first nine months of 2019 versus 18.7% for the first nine months of 2018.  This year-over-year decrease was primarily attributable to higher current year U.S. research and development tax credits, partially offset by the combined non-recurrence of 2018 favorable tax benefits and unfavorable 2018 tax consequences of repatriating foreign cash.  Net interest expense is down 42% year-over-year primarily due to interest earned on higher U.S. cash balances after the cash repatriation completed in 2018.  

 

Shareholder Return

 

The Company paid $5.6 million of dividends to shareholders and repurchased $7.0 million of Company stock in the third quarter of 2019.  During the first nine months of 2019 the Company paid $16.9 million of dividends and repurchased $13.2 million of Company stock.  The Company has 349,830 shares remaining under its Board of Directors’ share repurchase authorization.  With the increased cash dividend in the fourth quarter of 2019, the Company has increased its dividend on its common stock for the 52^nd consecutive year.

 

Selected Balance Sheet Information

 

The Company’s net debt level decreased $11.4 million for the quarter while the net debt ratio dropped from a negative 5% to a negative 7%.  The decrease in net debt was primarily attributable to a $10.7 million increase in cash partially driven by lower working capital requirements.      

 

 

 

 

 

 

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The major working capital components were:

 

 

* The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO.

 

Capital spending was $25.7 million during the quarter and $70.8 million during the first nine months of 2019.  This compares to $19.2 million and $62.9 million, respectively, in the prior year.  For the full year, capital expenditures are expected to be in the range of $110 million to $130 million.

 

 

Outlook

 

“Adjusted net income for the first nine months of 2019 is up 2% from our record in 2018, despite the Mexican equipment failure and the decrease in commodity surfactant volumes.  We believe our continued focus on end market diversification, Tier 2 and Tier 3 customers, as well as our cost-out activities should improve future Surfactant margins.  We remain optimistic the Polymer business will deliver full year volume growth and incremental margin improvement versus 2018 given our strong rigid polyol growth in the first nine months.  We believe full year Specialty Product results will improve versus 2018.  Overall, despite the current year challenges, we have an opportunity to deliver another year of adjusted net income growth,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer.  

 

 

Conference Call

 

Stepan Company will host a conference call to discuss the third quarter results at 10:00 a.m. ET (9:00 a.m. CT) on October 23, 2019. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (800) 682-8539, 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.

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Supporting Slides

 

Slides supporting this press release will be made available at www.stepan.com through the Investor Relations page 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 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: Luis E. Rojo                              (847) 446-7500

 

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Tables follow

 

Certain information in this news release 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 10-Q and Form 8-K 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, 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

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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 and Nine Months Ended September 30, 2019 and 2018

(Unaudited – in thousands, except per share data)

 

 

 

* The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO.

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Table II

 

 

Reconciliation 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, neither a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.

 

Reconciliation of Pre-Tax to After-Tax Adjustments

 

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Table III

 

 

 

Deferred Compensation Plan

 

 

The full effect of the deferred compensation plan on quarterly pretax income was $1.8 million of expense versus $3.4 million of expense in the prior year. The year-to-date impact was $8.5 million of expense versus $3.5 million of expense in the prior year. The accounting for the deferred compensation plan results in operating income when the price of 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 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 currency 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 table below presents the impact that foreign currency translation had on the changes in consolidated net sales and various income line items for the three and nine month periods ending September 30, 2019 as compared to 2018:

 

 

 

 

 

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Table V

 

 

Stepan Company

Consolidated Balance Sheets

September 30, 2019 and December 31, 2018

 

 

* The 2018 amounts for the noted line items have been retrospectively changed from the amounts originally reported as a result of the Company’s first quarter 2019 change in method of accounting for U.S. inventory valuation from LIFO to FIFO.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

Exhibit 99.2

 

 

Stepan Increases Quarterly Cash Dividend,

Marking the 51st Consecutive Year of Increases

 

 

Northfield, Illinois, October 23, 2019 -- Stepan Company (NYSE:SCL) today reported:

 

On October 22, 2019, the Board of Directors of Stepan Company approved an increase of $0.025 per share, or 10%, on its quarterly cash dividend on its common stock. The dividend of $0.275 per share is payable on December 13, 2019, to common stockholders of record on November 29, 2019. The increase marks the 52nd consecutive year in which the quarterly dividend rate on the Company’s common stock has increased.

 

 

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 news release 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

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and factors described in Stepan Company’s Form 10‑K, Form 10-Q and Form 8-K 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, 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.

 

 

Source: Stepan Company
Contact:  Luis E. Rojo 847-446-7500