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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): 02/18/2021

 

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 February 18, 2021, Stepan Company (“Stepan”) issued a press release providing its financial results for the fourth quarter and full year ended December 31, 2020.  A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.

 

In addition, on February 18, 2021, Stepan issued a press release announcing that its Board of Directors declared a quarterly cash dividend on its common stock of $0.305 per share.  The dividend will be paid on March 15, 2021, to common stockholders of record on March 5, 2021.  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 February 18, 2021

 

Exhibit Number: 99.2

Description: Press Release of Stepan Company dated February 18, 2021

 

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: February 18, 2021				By:		/s/ David G. Kabbes
						David G. Kabbes
						Vice President, General Counsel and Secretary

 

 

 

 

Exhibit 99.1

 

Stepan Reports Record Fourth Quarter Results and Full Year 2020 Earnings

 

Northfield, Illinois, February 18, 2021 -- Stepan Company (NYSE: SCL) today reported:

 

Fourth Quarter Highlights

 

 

 

 

 

 

 

Full Year Highlights

 

 

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“As the world continues to be challenged by the global pandemic, we at Stepan remain committed to do our part by supporting customers that supply essential cleaning, disinfection and personal wash products to the market.  We are extremely grateful to our employees for their passion and commitment to get the job done for our customers throughout this challenging year,” said F. Quinn Stepan, Jr., Chairman and Chief Executive Officer.

 

“Despite significant challenges during the year, inclusive of the global pandemic and the first quarter 2020 plant power outage at our Millsdale, IL facility, the Company delivered record fourth quarter and full year earnings.  Both full year adjusted net income and adjusted EPS were up 11% versus the prior year.  Surfactant fourth quarter operating income was up 28% on the strength of 8% volume growth, which was mostly attributable to strong demand in consumer product end markets driven by the fight against the COVID-19 virus.  Our Polymer business was up significantly during the quarter due to the Millsdale insurance recovery.  Excluding the insurance recovery, our Polymer business was up 12% due to strong European rigid polyol growth.  Our Specialty Product business results were up slightly in the fourth quarter.”

 

“During January 2021 we purchased INVISTA’s aromatic polyester polyol business and associated assets.  We are excited to add INVISTA’s polyester polyol business, including its manufacturing sites, employees and customers to Stepan.”

 

 

 

 

 

 

 

 

 

 

 

 

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Financial Summary

 

 

 

Summary of Fourth Quarter Adjusted Net Income Items

 

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

 

 

 

 

 

Percentage Change in Net Sales

 

Net sales in the fourth quarter increased 11% year-over-year due to a 7% increase in global sales volume and improved product and customer mix.  The sales volume improvement reflects Surfactant and Polymer sales growth of 8% and 7%, respectively.  The unfavorable impact of foreign currency translation negatively impacted net sales by 2%.     

 

 

 

 

 

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Segment Results

 

 

 

 

Total segment operating income increased $20.9 million, or 42%, versus the prior year quarter.  Full year segment operating income increased $42.5 million, or 20%, versus the prior year.    

 

 

 

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Corporate Expenses

 

 

    

 

 

Income Taxes

 

The Company’s full year effective tax rate was 25.4% in 2020 compared to 18.1% in 2019.  This year-over-year increase was primarily attributable to: (i) the non-recurrence of favorable research and development tax credits recognized in the third quarter of 2019; (ii) a non-recurring unfavorable tax cost in the fourth quarter of 2020 related to cash repatriations to facilitate the INVISTA acquisition, and (iii) a less favorable geographical mix of income in 2020 versus 2019.    

 

 

Shareholder Return

 

The Company paid $6.9 million of dividends to shareholders in the fourth quarter of 2020.  For the full year the Company paid $25.4 million of dividends and repurchased $15.3 million of Company stock.  The Company has 175,874 shares remaining under its Board of Directors’ share repurchase authorization.  With the increased cash dividend in the fourth quarter of 2020, the Company has increased its dividend on the Company’s common stock for the 53^rd consecutive year.

 

 

Selected Balance Sheet Information

 

The Company’s net debt level decreased $48.7 million versus the third quarter of 2020 while the net debt ratio dropped from -12% to -18%, reflecting cash balances in excess of total debt.  The decrease in net debt was attributable to a $39.5 million increase in cash and lower debt due to scheduled principal repayments.  

 

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The major working capital components were:

 

 

The Company had full year capital expenditures of $125.8 million in 2020 versus $105.6 million in the prior year.

 

 

2021 Outlook

 

“Adjusted net income for 2020 was a record $132.0 million, up 11% versus 2019,” said F. Quinn Stepan, Jr., Chairman and Chief Executive Officer. “Looking forward, we believe our Surfactant volumes in the consumer product end markets should remain strong as a result of continued heightened demand for disinfection, cleaning and personal wash products.  We anticipate that demand for surfactants within the agricultural and oilfield markets will improve slightly in 2021.  Global demand for rigid polyols has slowly recovered from pandemic-related delays and cancellations of re-roofing and new construction projects.  We anticipate that demand will continue to recover at a modest pace in 2021.  Despite recent challenges, we believe the long-term prospects for rigid polyols remain attractive as energy conservation efforts and more stringent building codes should increase demand.  We believe our acquisition of INVISTA’s aromatic polyester polyol business and two manufacturing sites positions us to meet long term demand growth.  We anticipate our Specialty Product business results will improve slightly year-over-year.”  

 

 

Conference Call

 

Stepan Company will host a conference call to discuss its fourth quarter and full year 2020 results at 10:00 a.m. ET (9:00 a.m. CT) on February 18, 2021. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (800) 897-4933, and the webcast can be accessed through the Investors/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 through the Investor/Presentations page 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 and disinfection 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

 

More information about Stepan’s sustainability program can be found on the Sustainability page at www.stepan.com

 

Contact: Luis E. Rojo 847-446-7500

 

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 the impact of the COVID-19 pandemic; accidents, unplanned production shutdowns or disruptions in manufacturing facilities; reduced demand due to customer product reformulations or new technologies; our inability to successfully develop or introduce new products; compliance with laws; our ability to identify suitable acquisition candidates and successfully complete and integrate acquisitions; global competition; volatility of raw material and energy costs and supply; disruptions in transportation or significant changes in transportation costs; downturns in certain industries and general economic downturns; international business risks, including currency exchange rate fluctuations, legal restrictions and taxes; unfavorable resolution of litigation against us; maintaining and protecting intellectual property rights; our ability to access capital markets; global political, military, security or other instability; costs related to expansion or other capital projects; interruption or breaches of information technology systems; our ability to retain executive management and key personnel; and our debt covenants.

 

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 Twelve Months Ended December 31, 2020 and 2019

(Unaudited – in thousands, except per share data)

 

 

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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, 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

 

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Table III

 

 

Deferred Compensation Plan

 

 

The full effect of the deferred compensation plan on quarterly pre-tax income was $3.0 million of expense versus $1.9 million of expense in the prior year.  The full year pre-tax impact was $5.3 million of expense versus $10.5 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 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 twelve month periods ending December 31, 2020 as compared to 2019:

 

 

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Table V

 

 

Stepan Company

Consolidated Balance Sheets

December 31, 2020 and December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

Exhibit 99.2

 

 

Stepan Declares Quarterly Dividend

 

Northfield, Illinois, February 18, 2021 -- Stepan Company (NYSE:SCL) today reported:

 

On February 17, 2021, the Board of Directors of Stepan Company declared a quarterly cash dividend on the Company’s common stock of $0.305 per share.  The dividend is payable on March 15, 2021, to common stockholders of record on March 5, 2021.  The Company increased its quarterly cash dividend in the fourth quarter of 2020 by $0.03 per share, marking the 53rd 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 and disinfection products 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

 

More information about Stepan’s sustainability program can be found on the Sustainability page at www.stepan.com

 

Contact: Luis E. Rojo 847-446-7500

 

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

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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 the impact of the COVID-19 pandemic; accidents, unplanned production shutdowns or disruptions in manufacturing facilities; reduced demand due to customer product reformulations or new technologies; our inability to successfully develop or introduce new products; compliance with laws; our ability to identify suitable acquisition candidates and successfully complete and integrate acquisitions; global competition; volatility of raw material and energy costs and supply; disruptions in transportation or significant changes in transportation costs; downturns in certain industries and general economic downturns; international business risks, including currency exchange rate fluctuations, legal restrictions and taxes; unfavorable resolution of litigation against us; maintaining and protecting intellectual property rights; our ability to access capital markets; global political, military, security or other instability; costs related to expansion or other capital projects; interruption or breaches of information technology systems; our ability to retain executive management and key personnel; and our debt covenants.

 

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.