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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): 2/17/2022

 

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.)

1101 Skokie Boulevard, Suite 500, Northbrook, Illinois 60062

(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 17, 2022, Stepan Company (“Stepan”) issued a press release providing its financial results for the quarter ended December 31, 2021.  A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.

 

Item 8.01.Other Events

 

In addition, on February 17, 2022, Stepan issued a press release announcing that its Board of Directors declared a quarterly cash dividend on its common stock of $0.335 per share.  The dividend will be paid on March 15, 2022, to common stockholders of record on March 4, 2022.  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 17, 2022

 

Exhibit Number: 99.2

Description: Press Release of Stepan Company dated February 17, 2022

 

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 17, 2022				By:		/s/ David G. Kabbes
						David G. Kabbes
						Vice President, General Counsel and Secretary

 

 

 

 

Exhibit 99.1

 

Stepan Reports Fourth Quarter Results and Record Full Year 2021 Earnings

 

Northbrook, Illinois, February 17, 2022 -- Stepan Company (NYSE: SCL) today reported:

 

Fourth Quarter Highlights

 

 

 

 

 

 

 

Full Year Highlights

 

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“The Company delivered record full year earnings in 2021.  Both reported net income and EPS were up 9% and adjusted net income and adjusted EPS were up 9% and 8%, respectively, versus full year 2020,” said F. Quinn Stepan, Jr., Chairman and Chief Executive Officer.  “The Company delivered another record year despite approximately $21.0 million of supply chain disruptions.  We are grateful that we have a strong team that was able to offset these headwinds with strong margin management, cost reduction efforts and one-time tax savings projects.  Once again the Stepan team stepped up to the challenge and delivered strong results.”

 

“Fourth quarter net income was down 44% and adjusted net income was down 32% primarily due to the non-recurrence of a $13.0 million insurance recovery, related to the 2020 Millsdale, IL plant power outage, recognized in the fourth quarter of 2020 and the negative impact of global supply chain disruptions and inflationary pressures during the current year quarter.  For the quarter, Surfactant operating income was down 25% largely due to North American supply chain disruptions, higher planned maintenance costs and the non-recurrence of the 2020 insurance recovery.  A 9% decline in global Surfactant sales volume, mostly related to the consumer product business, was partially offset by improved margins, and product and customer mix.  Our Polymer operating income was down 44% primarily due to the non-recurrence of the 2020 insurance recovery and supply chain disruptions.  Global Polymer sales volume was up 12% largely due to the INVISTA acquisition.  Our Specialty Product business results were down due to lower volume and reduced margins.”

 

 

 

 

 

 

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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 or non-recurring items.

 

 

 

 

 

 

 

 

 

 

 

 

 

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Percentage Change in Net Sales

 

Net sales in the fourth quarter of 2021 increased 23% year-over-year primarily due to higher selling prices that were mainly attributable to improved product and customer mix and the pass-through of higher raw material costs.  The higher average selling prices were partially offset by a 4% decline in sales volume and the unfavorable impact of foreign currency translation.     

 

 

Segment Results

 

 

 

 

Total segment operating income for the fourth quarter of 2021 decreased $23.8 million, or 33%, versus the prior year quarter.  Total segment operating income for full year 2021 increased $2.5 million, or 1%, versus the prior year.    

 

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Corporate Expenses

 

 

    

 

Income Taxes

 

The Company’s full year effective tax rate was 20.1% in 2021 versus 25.4% in 2020.  This year-over-year decrease was primarily attributable to: (i) benefits recognized in 2021 related to the utilization of prior year foreign tax credits; (ii) the non-recurrence of unfavorable tax expense in

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the fourth quarter of 2020 related to cash repatriations to facilitate the INVISTA acquisition, and; (iii) more favorable research and development tax credits recognized in 2021 versus 2020.    

 

Shareholder Return

 

The Company paid $7.5 million of dividends to shareholders in the fourth quarter of 2021.  For the full year the Company paid $28.1 million of dividends and repurchased $17.0 million of Company stock.  The Company has $150.0 million remaining under the share repurchase program authorized by its Board of Directors.  With the cash dividend increase in the fourth quarter of 2021, the Company has increased its dividend on the Company’s common stock for 54 consecutive years.

 

Selected Balance Sheet Information

 

The Company’s total debt increased by $83.8 million and cash increased by $53.9 million versus the third quarter of 2021.  The increase in debt primarily reflects the previously disclosed issuance of $100.0 million private placement senior notes during December 2021.  The increase in cash reflects the $100.0 million of senior notes partially offset by scheduled debt payments in November 2021, higher working capital requirements and higher capital expenditures.  The Company’s net debt level increased $29.9 million versus the third quarter of 2021 while the net debt ratio increased from 14% to 16% (net debt and net debt ratios are non-GAAP measures).

 

 

 

 

 

The major working capital components were:

 

 

The Company had full year capital expenditures of $194.5 million in 2021 versus $125.8 million in the prior year.

 

 

2022 Outlook

 

“The Company delivered record full year earnings in 2021,” said F. Quinn Stepan, Jr., Chairman and Chief Executive Officer. “Looking forward, we believe that demand for our products will remain strong but that the Company will continue to be challenged by the same external factors that impacted us during 2021.  From a segment perspective, we

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believe that Surfactant volumes within the institutional cleaning, agricultural and oilfield markets will grow versus 2021.  We also remain cautiously optimistic that consumer consumption of cleaning, disinfection and personal wash products will improve slightly in 2022 after significant de-stocking efforts in 2021.  We believe our Polymer business will deliver growth versus prior year and we continue to believe the long-term prospects for rigid polyols remain attractive as energy conservation efforts and more stringent building codes should increase demand.  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 2021 results at 10:00 a.m. ET (9:00 a.m. CT) on February 17, 2021. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (800) 918-9578, 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 Investors/Presentations 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 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 Northbrook, 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-

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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, 2021 and 2020

(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, 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 Plans

 

 

The full effect of the deferred compensation plans on quarterly pre-tax income was $2.9 million of expense versus $3.0 million of expense in the prior year.  The full year pre-tax impact was $2.0 million of expense versus $5.3 million of expense in the prior year. The accounting for the deferred compensation plans results in operating income when the price of Stepan Company common stock or mutual funds held in the plans 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 were 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).  Below is a table that presents the impact that foreign currency translation had on the changes in consolidated net sales and various income statement line items for the three and twelve month periods ending December 31, 2021 as compared to 2020:

 

 

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Table V

 

 

Stepan Company

Consolidated Balance Sheets

December 31, 2021 and December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

Exhibit 99.2

 

 

Stepan Declares Quarterly Dividend

 

Northbrook, Illinois, February 17, 2022 -- Stepan Company (NYSE:SCL) today reported:

 

On February 16, 2022, the Board of Directors of Stepan Company declared a quarterly cash dividend on the Company’s common stock of $0.335 per share.  The dividend is payable on March 15, 2022, to common stockholders of record on March 4, 2022.  The Company increased its quarterly cash dividend in the fourth quarter of 2021 by $0.030 per share, marking the 54th 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 Northbrook, 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

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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.