8-K
0000094049false00000940492022-10-192022-10-19

 

 

 

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): 10/19/2022

 

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))

 

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.

 

 

 


 

Item 2.02. Results of Operations and Financial Condition

 

On October 19, 2022, Stepan Company (“Stepan”) issued a press release providing its financial results for the quarter ended September 30, 2022. 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 October 19, 2022, Stepan issued a press release announcing that its Board of Directors declared a quarterly cash dividend on its common stock of $0.365 per share. The dividend will be paid on December 15, 2022, to common stockholders of record on November 30, 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 October 19, 2022

 

Exhibit Number: 99.2

Description: Press Release of Stepan Company dated October 19, 2022

 

 

Exhibit Number: 104

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

 

 

 

 

 

 


 

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 19, 2022

 

 

 

 

By:

 

 

/s/ David G. Kabbes

 

 

 

 

 

 

David G. Kabbes

 

 

 

 

 

 

Vice President, General Counsel and Secretary

 

 


EX-99.1

 

Exhibit 99.1

 

Stepan Reports Record Third Quarter Results and Record Nine Month Earnings

 

Northbrook, Illinois, October 19, 2022 -- Stepan Company (NYSE: SCL) today reported:

 

Third Quarter Highlights

 

Reported net income was a record $39.4 million, or $1.71 per diluted share versus $36.9 million, or $1.59 per diluted share, in the prior year. Adjusted net income* was a record $46.3 million, or $2.01 per diluted share, versus $36.4 million, or $1.57 per diluted share, in the prior year. Total Company sales volume decreased 8% versus the prior year.

 

Surfactant operating income was $39.0 million versus $34.5 million in the prior year. This increase was primarily driven by improved product and customer mix that was partially offset by an 8% decline in global sales volume. The sales volume decline was primarily due to lower global commodity laundry demand and raw material constraints in North America. Higher demand in the Functional Products and Institutional Cleaning end markets partially offset the above.

 

Polymer operating income was $31.9 million versus $19.8 million in the prior year. This increase was primarily attributable to margin recovery and improved mix that was partially offset by a 10% decrease in global sales volume. The volume decrease was primarily due to an 8% decline in global Rigid Polyol demand driven by double digit declines in Europe and Asia.

 

Specialty Product operating income was $9.7 million versus $2.4 million in the prior year. This increase was primarily attributable to improved margins and customer mix within the medium chain triglycerides (MCTs) product line.

 

The Company increased its pre-tax environmental reserve from $23.2 million to $33.5 million in the current year quarter. This increase was primarily due to revised environmental remediation cost estimates for the Company's Maywood, New Jersey site.

 

The effect of foreign currency translation negatively impacted net income by $2.4 million, or $0.11 per diluted share, versus the prior year.

 

The Company increased its quarterly cash dividend in the fourth quarter of 2022 by $0.03 per share, or 9.0%, marking the 55th consecutive year that the Company has increased its cash dividend to stockholders.

 

YTD Highlights

 

Reported net income for the first nine months of 2022 was a record $136.3 million, or $5.90 per diluted share, versus $120.8 million, or $5.19 per diluted share, in the prior year. Adjusted net income* was a record $140.0 million, or $6.06 per diluted share, versus $121.0 million, or $5.20 per diluted share, in the prior year. Total Company sales volume was down 3% compared to the first nine months of 2021.

 

 

1


 

* Adjusted net income is a non-GAAP measure which excludes deferred compensation income/expense, cash-settled stock appreciation rights (SARs) income/expense, certain environmental remediation-related costs as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and earnings per diluted share.

 

“The Company had strong performance for the first nine months of 2022 and delivered record results, despite ongoing supply chain challenges. Reported net income was up 13% versus the first nine months of 2021 while adjusted net income was up 16%," said Scott Behrens, President and Chief Executive Officer. “For the quarter, Surfactant operating income was up 13% largely due to improved product and customer mix. This improvement was driven by growth in our Functional Products business as a result of elevated crop and energy prices, which offset an 8% decline in sales volume primarily within our Consumer Products business. Our Polymer income was up 61% due to margin recovery and improved mix that was partially offset by a 10% decline in sales volume. Our Specialty Product results improved significantly due to margin improvement and favorable customer mix."

 

Financial Summary

 

 

 

Three Months Ended
September 30

 

 

Nine Months Ended
September 30

 

($ in thousands, except per share data)

 

2022

 

 

2021

 

 

%
Change

 

 

2022

 

 

2021

 

 

%
Change

 

Net Sales

 

$

719,185

 

 

$

602,688

 

 

 

19

%

 

$

2,146,094

 

 

$

1,735,939

 

 

 

24

%

Operating Income

 

$

54,659

 

 

$

40,213

 

 

 

36

%

 

$

195,645

 

 

$

150,784

 

 

 

30

%

Net Income Attributable to Stepan Company **

 

$

39,384

 

 

$

36,920

 

 

 

7

%

 

$

136,319

 

 

$

120,809

 

 

 

13

%

Earnings per Diluted Share

 

$

1.71

 

 

$

1.59

 

 

 

8

%

 

$

5.90

 

 

$

5.19

 

 

 

14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income *

 

$

46,281

 

 

$

36,417

 

 

 

27

%

 

$

140,017

 

 

$

121,005

 

 

 

16

%

Adjusted Earnings per Diluted Share *

 

$

2.01

 

 

$

1.57

 

 

 

28

%

 

$

6.06

 

 

$

5.20

 

 

 

17

%

 

Summary of Third Quarter Adjusted Net Income Items

 

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

 

Deferred Compensation: The current year third quarter reported net income includes $0.9 million of after-tax income versus $1.1 million of after-tax income in the prior year.

 

Cash-Settled SARs: These management incentive instruments provide cash to participants equal to the appreciation on the price of specified shares of Company stock over a specified period of time. Because income or expense is recognized merely on the movement in the price of Company stock it has been excluded, similar to deferred compensation, to arrive at adjusted net income. Reported net income in both the current and prior year third quarters includes $0.1 million of after-tax income.

 

Business Restructuring: Reported net income in both the current and prior year third quarters includes $0.1 million of after-tax decommissioning expense related to the Company's Canadian plant closure.

 

2


Environmental Remediation: The third quarter 2022 adjusted net income excludes $7.9 million of after-tax expense versus $0.7 million of after after-tax expense excluded in the prior year. The Company increased its environmental reserve from $23.2 million to $33.5 million, or 46%, during the quarter primarily due to revised environmental remediation cost estimates for the Company’s Maywood, New Jersey site.

 

Percentage Change in Net Sales

 

Net sales in the third quarter of 2022 increased 19% year-over-year primarily due to higher selling prices that were mainly attributable to the pass-through of higher raw material and logistics costs and improved product and customer mix. These higher average selling prices were partially offset by an 8% decrease in global sales volume and the unfavorable impact of foreign currency translation.

 

 

 

Three Months Ended
September 30, 2022

 

 

Nine Months Ended
September 30, 2022

 

Volume

 

 

(8

)%

 

 

(3

)%

Selling Price & Mix

 

 

33

%

 

 

31

%

Foreign Translation

 

 

(6

)%

 

 

(4

)%

Total

 

 

19

%

 

 

24

%

 

 

Reported Segment Results

 

 

Three Months Ended
September 30

 

 

Nine Months Ended
September 30

 

($ in thousands)

 

2022

 

 

2021

 

 

%
Change

 

 

2022

 

 

2021

 

 

%
Change

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surfactants

 

$

474,861

 

 

$

387,734

 

 

 

22

%

 

$

1,428,211

 

 

$

1,142,672

 

 

 

25

%

Polymers

 

$

214,807

 

 

$

198,841

 

 

 

8

%

 

$

640,771

 

 

$

539,764

 

 

 

19

%

Specialty Products

 

$

29,517

 

 

$

16,113

 

 

 

83

%

 

$

77,112

 

 

$

53,503

 

 

 

44

%

Total Net Sales

 

$

719,185

 

 

$

602,688

 

 

 

19

%

 

$

2,146,094

 

 

$

1,735,939

 

 

 

24

%

 

 

 

Three Months Ended
September 30

 

 

Nine Months Ended
September 30

 

($ in thousands, all amounts pre-tax)

 

2022

 

 

2021

 

 

%
Change

 

 

2022

 

 

2021

 

 

%
Change

 

Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surfactants

 

$

38,976

 

 

$

34,452

 

 

 

13

%

 

$

140,994

 

 

$

133,558

 

 

 

6

%

Polymers

 

$

31,864

 

 

$

19,753

 

 

 

61

%

 

$

79,905

 

 

$

60,729

 

 

 

32

%

Specialty Products

 

$

9,685

 

 

$

2,442

 

 

 

297

%

 

$

23,246

 

 

$

12,052

 

 

 

93

%

Total Segment Operating Income

 

$

80,525

 

 

$

56,647

 

 

 

42

%

 

$

244,145

 

 

$

206,339

 

 

 

18

%

Corporate Expenses

 

$

(25,866

)

 

$

(16,434

)

 

 

57

%

 

$

(48,500

)

 

$

(55,555

)

 

 

(13

)%

Consolidated Operating Income

 

$

54,659

 

 

$

40,213

 

 

 

36

%

 

$

195,645

 

 

$

150,784

 

 

 

30

%

 

Total segment operating income for the third quarter of 2022 increased $23.9 million, or 42%, versus the prior year quarter. Total segment operating income for the first nine months of 2022 increased $37.8 million, or 18%, versus the prior year.

 

Surfactant net sales were $474.9 million for the quarter, a 22% increase versus the prior year. Selling prices were up 35% primarily due to the pass-through of higher raw material and logistics costs as well as improved product and customer mix. The unfavorable impact of foreign currency translation negatively impacted net sales by 5%. Sales volume decreased 8% year-over-year primarily due to lower global commodity laundry demand and raw material

3


constraints in North America. Higher global demand for products sold into the Functional Products and Institutional Cleaning end markets partially offset the above. Surfactant operating income for the quarter increased $4.5 million, or 13%, versus the prior year primarily due to improved product and customer mix that was partially offset by supply chain challenges and an 8% decline in sales volume.

 

Polymer net sales were $214.8 million for the quarter, an 8% increase versus the prior year. Selling prices increased 26% primarily due to the pass through of higher raw material and logistics costs. Sales volume decreased 10% in the quarter primarily due to an 8% decline in Rigid Polyol demand driven by double digit declines in Europe and Asia. The translation impact of a stronger U.S. dollar negatively impacted net sales by 8%. Polymer operating income for the quarter increased $12.1 million, or 61%, versus the prior year primarily due to margin recovery and improved mix that was partially offset by the 10% decrease in global sales volume.

 

Specialty Product net sales were $29.5 million for the quarter, an 83% increase versus the prior year. Sales volume was up 10% year-over-year and operating income increased $7.2 million, or 297%. The operating income increase was primarily attributable to improved margins within the MCTs product line and more favorable customer mix.

 

Corporate Expenses

 

 

 

Three Months Ended
September 30

 

 

Nine Months Ended
September 30

 

($ in thousands)

 

2022

 

 

2021

 

 

%
Change

 

 

2022

 

 

2021

 

 

%
Change

 

Total Corporate Expenses

 

$

25,866

 

 

$

16,434

 

 

 

57

%

 

$

48,500

 

 

$

55,555

 

 

 

(13

)%

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Deferred Compensation Expense (Income)

 

$

(2,131

)

 

$

(1,504

)

 

 

42

%

 

$

(13,038

)

 

$

2,148

 

 

NM

 

Business Restructuring Expense

 

$

92

 

 

$

72

 

 

 

28

%

 

$

225

 

 

$

267

 

 

 

(16

)%

Environmental Remediation Expense

 

$

10,372

 

 

$

946

 

 

NM

 

 

$

11,002

 

 

$

946

 

 

NM

 

Adjusted Corporate Expenses

 

$

17,533

 

 

$

16,920

 

 

 

4

%

 

$

50,311

 

 

$

52,194

 

 

 

(4

)%

 

* See Table III for a discussion of deferred compensation plan accounting.

 

Corporate expenses, excluding deferred compensation, business restructuring and environmental costs increased 4% versus the prior year quarter. This increase was primarily due to higher incentive-based compensation expenses .

 

Income Taxes and Net Interest

 

The Company’s effective tax rate was 24.0% for the first nine months of 2022 versus 19.6% for the first nine months of 2021. This year-over-year increase was primarily due to a non-recurring favorable tax benefit recognized in the third quarter of 2021 related to the merger of the Company's three Brazilian entities into a single entity.

 

 

 

Shareholder Return

 

4


The Company paid $7.5 million of dividends to shareholders and repurchased $5.3 million of Company stock in the third quarter of 2022. During the first nine months of 2022 the Company paid $22.5 million of dividends and repurchased $22.3 million of Company stock. The Company has $127.7 million remaining under the share repurchase program authorized by its Board of Directors. With the cash dividend increase in the fourth quarter of 2022, the Company has increased its dividend on the Company’s common stock for the 55th consecutive year.

 

Selected Balance Sheet Information

 

The Company’s total debt increased by $38.9 million and cash decreased by $28.9 million versus June 30, 2022. The increase in debt primarily reflects a $100.0 million borrowing against the previously disclosed delayed draw term loan facility that was partially offset by scheduled debt and revolving credit facility repayments. The decrease in cash primarily reflects higher working capital requirements, capital expenditures and the Company's previously announced third quarter 2022 acquisition of the PerformanX Specialty Chemicals surfactants business. The Company’s net debt level increased $67.8 million versus June 30, 2022 and the net debt ratio increased from 23% to 26% in the quarter (Net Debt and Net Debt Ratio are non-GAAP measures).

 

($ in millions)

 

9/30/22

 

 

6/30/22

 

 

3/31/22

 

 

12/31/21

 

Net Debt

 

 

 

 

 

 

 

 

 

 

 

 

Total Debt

 

$

564.9

 

 

$

526.0

 

 

$

537.1

 

 

$

363.6

 

Cash

 

 

165.7

 

 

 

194.6

 

 

 

236.0

 

 

 

159.2

 

Net Debt

 

$

399.2

 

 

$

331.4

 

 

$

301.1

 

 

$

204.4

 

Equity

 

 

1,130.2

 

 

 

1,125.7

 

 

 

1,116.7

 

 

 

1,074.2

 

Net Debt + Equity

 

$

1,529.4

 

 

$

1,457.1

 

 

$

1,417.8

 

 

$

1,278.6

 

Net Debt / (Net Debt + Equity)

 

 

26

%

 

 

23

%

 

 

21

%

 

 

16

%

 

The major working capital components were:

 

($ in millions)

 

9/30/22

 

 

6/30/22

 

 

3/31/22

 

 

12/31/22

 

Net Receivables

 

$

476.2

 

 

$

518.8

 

 

$

504.5

 

 

$

419.5

 

Inventories

 

 

397.6

 

 

 

340.7

 

 

 

308.4

 

 

 

305.5

 

Accounts Payable

 

 

(350.1

)

 

 

(366.2

)

 

 

(350.8

)

 

 

(323.4

)

 

 

$

523.7

 

 

$

493.3

 

 

$

462.1

 

 

$

401.6

 

 

Capital spending was $75.9 million during the quarter and $205.3 million during the first nine months of 2022. This compares to $44.7 million and $119.5 million, respectively, in the prior year. The year-over-year increase is primarily due to increased expenditures in the U.S. for the advancement of the Company's new alkoxylation facility in Pasadena, TX, which is expected to provide flexible capacity of 75,000 metric tons per year, and new capability and capacity to produce ether sulfates that will meet upcoming regulatory limits on 1,4 dioxane. For the full year, capital expenditures are expected to be in the range of $330 million to $350 million.

 

Outlook

 

“The Company delivered record third quarter and nine-month results and we expect to deliver record full year earnings again in 2022. For the fourth quarter we anticipate approximately $8 million of incremental expense related to planned maintenance activity in our North American Phthalic Anhydride plant and low 1,4 dioxane transition costs,” said Scott Behrens, President and Chief Executive Officer. “From a segment perspective, we believe that Surfactants, Polymers and Specialty Products should all deliver full year earnings growth versus prior year. Surfactant volumes within the Functional Products and Industrial Cleaning end markets are expected to show full year growth over

5


2021. Despite short-term volatility and challenges, we believe that the long-term outlook for Rigid Polyols will remain attractive as energy conservation efforts and more stringent building codes are expected to continue. Looking forward to the next few quarters, we believe the Company will be challenged by slowing global economic growth, weakening consumer and construction demand, continued inflationary pressures and a stronger U.S. dollar. Despite this projected macro environment, we remain committed to executing our long-term growth strategy.”

 

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 19, 2022. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (800) 769-9015, 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-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by Stepan Company and its management based on their

6


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.

 

7


Table I

STEPAN COMPANY

For the Three and Nine Months Ended September 30, 2022 and 2021

(Unaudited – 000’s Omitted)

 

 

 

Three Months Ended
September 30

 

 

Nine Months Ended
September 30

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net Sales

 

$

719,185

 

 

$

602,688

 

 

$

2,146,094

 

 

$

1,735,939

 

Cost of Sales

 

 

600,709

 

 

 

510,792

 

 

 

1,786,785

 

 

 

1,423,382

 

Gross Profit

 

 

118,476

 

 

 

91,896

 

 

 

359,309

 

 

 

312,557

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

 

15,079

 

 

 

14,786

 

 

 

45,908

 

 

 

44,280

 

Administrative

 

 

33,848

 

 

 

22,828

 

 

 

79,499

 

 

 

69,440

 

Research, Development and Technical Services

 

 

16,929

 

 

 

15,501

 

 

 

50,092

 

 

 

45,638

 

Deferred Compensation Expense (Income)

 

 

(2,131

)

 

 

(1,504

)

 

 

(13,038

)

 

 

2,148

 

 

 

 

63,725

 

 

 

51,611

 

 

 

162,461

 

 

 

161,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Goodwill Impairment

 

 

-

 

 

 

-

 

 

 

978

 

 

 

-

 

Business Restructuring

 

 

92

 

 

 

72

 

 

 

225

 

 

 

267

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

54,659

 

 

 

40,213

 

 

 

195,645

 

 

 

150,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest, Net

 

 

(2,221

)

 

 

(1,599

)

 

 

(7,254

)

 

 

(4,690

)

Other, Net

 

 

(1,980

)

 

 

702

 

 

 

(8,999

)

 

 

4,206

 

 

 

 

(4,201

)

 

 

(897

)

 

 

(16,253

)

 

 

(484

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

 

50,458

 

 

 

39,316

 

 

 

179,392

 

 

 

150,300

 

Provision for Income Taxes

 

 

11,074

 

 

 

2,393

 

 

 

43,073

 

 

 

29,463

 

Net Income

 

 

39,384

 

 

 

36,923

 

 

 

136,319

 

 

 

120,837

 

Net Income Attributable to Noncontrolling Interests

 

 

 

 

 

(3

)

 

 

 

 

 

(28

)

Net Income Attributable to Stepan Company

 

$

39,384

 

 

$

36,920

 

 

$

136,319

 

 

$

120,809

 

Net Income Per Common Share Attributable to Stepan Company

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.73

 

 

$

1.61

 

 

$

5.98

 

 

$

5.27

 

Diluted

 

$

1.71

 

 

$

1.59

 

 

$

5.90

 

 

$

5.19

 

Shares Used to Compute Net Income Per Common
Share Attributable to Stepan Company

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,753

 

 

 

22,898

 

 

 

22,813

 

 

 

22,941

 

Diluted

 

 

23,034

 

 

 

23,219

 

 

 

23,089

 

 

 

23,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8


Table II

 

 

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

 

 

 

Three Months Ended
September 30

 

 

Nine Months Ended
September 30

 

($ in thousands, except per share amounts)

 

2022

 

 

EPS

 

 

2021

 

 

EPS

 

 

2022

 

 

EPS

 

 

2021

 

 

EPS

 

Net Income Reported

 

$

39,384

 

 

$

1.71

 

 

$

36,920

 

 

$

1.59

 

 

$

136,319

 

 

$

5.90

 

 

$

120,809

 

 

$

5.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Compensation (Income) Expense

 

$

(938

)

 

$

(0.04

)

 

$

(1,135

)

 

$

(0.05

)

 

$

(4,369

)

 

$

(0.19

)

 

$

(685

)

 

$

(0.03

)

Business Restructuring Expense

 

$

69

 

 

$

-

 

 

$

54

 

 

$

-

 

 

$

169

 

 

$

0.01

 

 

$

200

 

 

$

0.01

 

Cash-Settled SARs (Income) Expense

 

$

(117

)

 

$

-

 

 

$

(141

)

 

$

-

 

 

$

(464

)

 

$

(0.02

)

 

$

(38

)

 

$

-

 

Environmental Remediation Expense

 

$

7,883

 

 

$

0.34

 

 

$

719

 

 

$

0.03

 

 

$

8,362

 

 

$

0.36

 

 

$

719

 

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income

 

$

46,281

 

 

$

2.01

 

 

$

36,417

 

 

$

1.57

 

 

$

140,017

 

 

$

6.06

 

 

$

121,005

 

 

$

5.20

 

 

* 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

 

 

 

Three Months Ended
September 30

 

 

Nine Months Ended
September 30

 

($ in thousands, except per share amounts)

 

2022

 

 

EPS

 

 

2021

 

 

EPS

 

 

2022

 

 

EPS

 

 

2021

 

 

EPS

 

Pre-Tax Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Compensation (Income) Expense

 

$

(1,234

)

 

 

 

 

$

(1,494

)

 

 

 

 

$

(5,748

)

 

 

 

 

$

(901

)

 

 

 

Business Restructuring Expense

 

$

92

 

 

 

 

 

$

72

 

 

 

 

 

$

225

 

 

 

 

 

$

267

 

 

 

 

Cash-Settled SARs (Income) Expense

 

$

(154

)

 

 

 

 

$

(186

)

 

 

 

 

$

(609

)

 

 

 

 

$

(50

)

 

 

 

Environmental Remediation Expense

 

$

10,372

 

 

 

 

 

$

946

 

 

 

 

 

$

11,002

 

 

 

 

 

$

946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total Pre-Tax Adjustments

 

$

9,076

 

 

 

 

 

$

(662

)

 

 

 

 

$

4,870

 

 

 

 

 

$

262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Tax Effect on Adjustments

 

$

(2,179

)

 

 

 

 

$

159

 

 

 

 

 

$

(1,172

)

 

 

 

 

$

(66

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After-Tax Adjustments

 

$

6,897

 

 

$

0.30

 

 

$

(503

)

 

$

(0.02

)

 

$

3,698

 

 

$

0.16

 

 

$

196

 

 

$

0.01

 

 

9


Table III

 

 

Deferred Compensation Plans

 

The full effect of deferred compensation plans on quarterly pre-tax income was $1.2 million of income versus $1.5 million of income in the prior year. The year-to-date impact was $5.7 million of income versus $0.9 million of income in the prior year. The accounting for 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:

 

 

 

2022

 

 

2021

 

 

 

12/31

 

9/30

 

 

6/30

 

 

3/31

 

 

12/31

 

 

9/30

 

 

6/30

 

 

3/31

 

Stepan Company

 

N/A

 

$

93.67

 

 

$

101.35

 

 

$

98.81

 

 

$

124.29

 

 

$

112.94

 

 

$

120.27

 

 

$

127.11

 

 

The deferred compensation income statement impact is summarized below:

 

 

 

Three Months Ended
September 30

 

 

Nine Months Ended
September 30

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Deferred Compensation

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Expense)

 

$

2,131

 

 

$

1,504

 

 

$

13,038

 

 

$

(2,148

)

Other, net – Mutual Fund Gain (Loss)

 

 

(897

)

 

 

(10

)

 

 

(7,290

)

 

 

3,049

 

Total Pre-Tax

 

$

1,234

 

 

$

1,494

 

 

$

5,748

 

 

$

901

 

Total After-Tax

 

$

938

 

 

$

1,135

 

 

$

4,368

 

 

$

685

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10


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 line items for the three and nine month periods ending September 30, 2022 as compared to 2021:

 

 

($ in millions)

 

Three Months Ended
September 30

 

 

Increase

 

 

Change
Due to Foreign
Currency
Translation

 

 

Nine Months Ended
September 30

 

 

Increase

 

 

Change
Due to Foreign
Currency
Translation

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

Net Sales

 

$

719.2

 

 

$

602.7

 

 

$

116.5

 

 

$

(35.7

)

 

$

2,146.1

 

 

$

1,735.9

 

 

$

410.2

 

 

$

(72.9

)

Gross Profit

 

 

118.5

 

 

 

91.9

 

 

 

26.6

 

 

 

(4.5

)

 

 

359.3

 

 

 

312.6

 

 

 

46.7

 

 

 

(9.7

)

Operating Income

 

 

54.7

 

 

 

40.2

 

 

 

14.5

 

 

 

(3.1

)

 

 

195.6

 

 

 

150.8

 

 

 

44.8

 

 

 

(6.7

)

Pretax Income

 

 

50.5

 

 

 

39.3

 

 

 

11.2

 

 

 

(3.1

)

 

 

179.4

 

 

 

150.3

 

 

 

29.1

 

 

 

(6.8

)

 

 

 

 

11


Table V

 

 

Stepan Company

Consolidated Balance Sheets

September 30, 2022 and December 31, 2021

 

 

 

September 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current Assets

 

$

1,072,747

 

 

$

913,368

 

Property, Plant & Equipment, Net

 

 

977,600

 

 

 

850,604

 

Other Assets

 

 

286,423

 

 

 

301,640

 

Total Assets

 

$

2,336,770

 

 

$

2,065,612

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

$

603,245

 

 

$

500,476

 

Deferred Income Taxes

 

 

11,111

 

 

 

12,491

 

Long-term Debt

 

 

466,766

 

 

 

322,862

 

Other Non-current Liabilities

 

 

125,409

 

 

 

155,590

 

Total Stepan Company Stockholders’ Equity

 

 

1,130,239

 

 

 

1,074,193

 

Noncontrolling Interest

 

 

-

 

 

 

-

 

Total Liabilities and Stockholders’ Equity

 

$

2,336,770

 

 

$

2,065,612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12


EX-99.2

Exhibit 99.2

Stepan Increases Quarterly Cash Dividend,

Marking the 55th Consecutive Year of Increases

 

Northbrook, Illinois, October 19, 2022 -- Stepan Company (NYSE:SCL) today reported:

 

On October 18, 2022, the Board of Directors of Stepan Company approved an increase of $0.030 per share, or 9.0%, on its quarterly cash dividend on its common stock. The dividend of $0.365 per share is payable on December 15, 2022, to common stockholders of record on November 30, 2022. The increase marks the 55th 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 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 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.