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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                 TO                

Commission File Number 1-4462

 

STEPAN COMPANY

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

36-1823834

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification Number)

22 West Frontage Road, Northfield, Illinois 60093

(Address of principal executive offices)

Registrant’s telephone number (847) 446-7500

Securities registered pursuant to Section 12(b) of the Exchange 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes       No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at July 28, 2021

Common Stock, $1 par value

 

22,465,861 Shares

 

 


 

Part I FINANCIAL INFORMATION

 

Item 1 - Financial Statements

STEPAN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

 

(In thousands, except per share amounts)

 

Three Months Ended

June 30

 

 

Six Months Ended

June 30

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Sales

 

$

595,511

 

 

$

460,549

 

 

$

1,133,251

 

 

$

910,536

 

Cost of Sales

 

 

483,830

 

 

 

362,054

 

 

 

912,590

 

 

 

732,772

 

Gross Profit

 

 

111,681

 

 

 

98,495

 

 

 

220,661

 

 

 

177,764

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

 

14,990

 

 

 

12,921

 

 

 

29,494

 

 

 

26,453

 

Administrative

 

 

23,974

 

 

 

20,731

 

 

 

46,612

 

 

 

39,603

 

Research, development and technical services

 

 

14,988

 

 

 

13,531

 

 

 

30,137

 

 

 

27,358

 

Deferred compensation (income) expense

 

 

958

 

 

 

6,464

 

 

 

3,652

 

 

 

(859

)

 

 

 

54,910

 

 

 

53,647

 

 

 

109,895

 

 

 

92,555

 

      Business restructuring expenses (Note 16)

 

 

(114

)

 

 

(225

)

 

 

(195

)

 

 

(582

)

Operating Income

 

 

56,657

 

 

 

44,623

 

 

 

110,571

 

 

 

84,627

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

(1,567

)

 

 

(1,259

)

 

 

(3,091

)

 

 

(2,489

)

Other, net (Note 15)

 

 

2,758

 

 

 

4,437

 

 

 

3,504

 

 

 

1,175

 

 

 

 

1,191

 

 

 

3,178

 

 

 

413

 

 

 

(1,314

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Provision for Income Taxes

 

 

57,848

 

 

 

47,801

 

 

 

110,984

 

 

 

83,313

 

Provision for Income Taxes

 

 

14,545

 

 

 

11,958

 

 

 

27,070

 

 

 

19,931

 

Net Income

 

 

43,303

 

 

 

35,843

 

 

 

83,914

 

 

 

63,382

 

Net Income Attributable to Noncontrolling Interest (Note 2)

 

 

(25

)

 

 

(136

)

 

 

(25

)

 

 

(130

)

Net Income Attributable to Stepan Company

 

$

43,278

 

 

$

35,707

 

 

$

83,889

 

 

$

63,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Per Common Share Attributable to Stepan Company

(Note 10):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.89

 

 

$

1.56

 

 

$

3.65

 

 

$

2.75

 

Diluted

 

$

1.85

 

 

$

1.54

 

 

$

3.59

 

 

$

2.72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,952

 

 

 

22,923

 

 

 

22,963

 

 

 

22,973

 

Diluted

 

 

23,345

 

 

 

23,184

 

 

 

23,338

 

 

 

23,235

 

 

 

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

2


 

STEPAN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

 

(In thousands)

 

Three Months Ended

June 30

 

 

Six Months Ended

June 30

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Income

 

$

43,303

 

 

$

35,843

 

 

$

83,914

 

 

$

63,382

 

Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments (1) (Note 11)

 

 

15,175

 

 

 

3,539

 

 

 

(3,266

)

 

 

(37,656

)

Defined benefit pension adjustments, net of tax (Note 11)

 

 

876

 

 

 

808

 

 

 

1,750

 

 

 

1,616

 

Derivative instrument activity, net of tax (Note 11)

 

 

(3

)

 

 

(2

)

 

 

(5

)

 

 

(4

)

Total Other Comprehensive Income

 

 

16,048

 

 

 

4,345

 

 

 

(1,521

)

 

 

(36,044

)

Comprehensive Income

 

 

59,351

 

 

 

40,188

 

 

 

82,393

 

 

 

27,338

 

Comprehensive Income Attributable to Noncontrolling Interest (Note 2)

 

 

(51

)

 

 

(138

)

 

 

(43

)

 

 

(119

)

Comprehensive Income Attributable to Stepan Company

 

$

59,300

 

 

$

40,050

 

 

$

82,350

 

 

$

27,219

 

 

 (1)Includes foreign currency translation adjustments related to noncontrolling interest.

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

 

3


 

STEPAN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

 

 

(Dollars in thousands)

 

June 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

127,053

 

 

$

349,938

 

Receivables, net

 

 

391,730

 

 

 

301,318

 

Inventories (Note 6)

 

 

266,088

 

 

 

218,783

 

Other current assets

 

 

30,984

 

 

 

35,612

 

Total current assets

 

 

815,855

 

 

 

905,651

 

Property, Plant and Equipment:

 

 

 

 

 

 

 

 

Cost

 

 

1,991,390

 

 

 

1,872,650

 

Less:  Accumulated depreciation

 

 

(1,226,606

)

 

 

(1,189,983

)

Property, plant and equipment, net

 

 

764,784

 

 

 

682,667

 

Goodwill, net (Note 17)

 

 

97,988

 

 

 

27,972

 

Other intangible assets, net (Note 17)

 

 

65,461

 

 

 

24,068

 

Long-term investments (Note 3)

 

 

32,576

 

 

 

30,652

 

Operating lease assets (Note 7)

 

 

69,942

 

 

 

62,421

 

Other non-current assets

 

 

40,699

 

 

 

18,905

 

Total assets

 

$

1,887,305

 

 

$

1,752,336

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt (Note 14)

 

$

42,352

 

 

$

37,857

 

Accounts payable

 

 

286,917

 

 

 

236,750

 

Accrued liabilities

 

 

135,232

 

 

 

141,947

 

Total current liabilities

 

 

464,501

 

 

 

416,554

 

Deferred income taxes

 

 

9,995

 

 

 

20,745

 

Long-term debt, less current maturities (Note 14)

 

 

196,529

 

 

 

160,812

 

Non-current operating lease liabilities (Note 7)

 

 

58,180

 

 

 

51,567

 

Other non-current liabilities

 

 

107,584

 

 

 

114,293

 

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Common stock, $1 par value; authorized 60,000,000 shares;

   Issued 26,752,093 shares in 2021 and 26,658,032 shares in 2020

 

 

26,752

 

 

 

26,658

 

Additional paid-in capital

 

 

213,969

 

 

 

206,716

 

Accumulated other comprehensive loss (Note 11)

 

 

(138,420

)

 

 

(136,881

)

Retained earnings

 

 

1,093,994

 

 

 

1,023,829

 

Less:  Common treasury stock, at cost, 4,286,578 shares in 2021

   and 4,185,242 shares in 2020

 

 

(147,494

)

 

 

(133,629

)

Total Stepan Company stockholders’ equity

 

 

1,048,801

 

 

 

986,693

 

Noncontrolling interest (Note 2)

 

 

1,715

 

 

 

1,672

 

Total equity

 

 

1,050,516

 

 

 

988,365

 

Total liabilities and equity

 

$

1,887,305

 

 

$

1,752,336

 

  

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

4


 

STEPAN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

 

 

(In thousands)

 

Six Months Ended June 30

 

 

 

2021

 

 

2020

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

83,914

 

 

$

63,382

 

Adjustments to reconcile net income to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

45,311

 

 

 

40,329

 

Deferred compensation

 

 

3,652

 

 

 

(859

)

Realized and unrealized gains on long-term investments

 

 

(2,761

)

 

 

(75

)

Stock-based compensation

 

 

5,346

 

 

 

4,191

 

Deferred income taxes

 

 

(39,475

)

 

 

1,427

 

Other non-cash items

 

 

92

 

 

 

655

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

(68,033

)

 

 

(23,253

)

Inventories

 

 

(35,747

)

 

 

(9,740

)

Other current assets

 

 

(63

)

 

 

(6,077

)

Accounts payable and accrued liabilities

 

 

34,027

 

 

 

(8,284

)

Pension liabilities

 

 

(971

)

 

 

(323

)

Environmental and legal liabilities

 

 

(463

)

 

 

(3,116

)

Deferred revenues

 

 

(134

)

 

 

243

 

Net Cash Provided By Operating Activities

 

 

24,695

 

 

 

58,500

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(74,868

)

 

 

(54,671

)

Asset acquisition (Note 17)

 

 

(3,503

)

 

 

(2,040

)

Business acquisition, net of cash acquired (Note 17)

 

 

(184,560

)

 

 

 

Other, net

 

 

1,430

 

 

 

2,331

 

Net Cash Used In Investing Activities

 

 

(261,501

)

 

 

(54,380

)

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Revolving debt and bank overdrafts, net (Note 14)

 

 

4,495

 

 

 

 

Other debt borrowings (Note 14)

 

 

50,000

 

 

 

 

Other debt repayments

 

 

(14,286

)

 

 

(14,286

)

Dividends paid

 

 

(13,724

)

 

 

(12,371

)

Company stock repurchased

 

 

(10,895

)

 

 

(13,753

)

Stock option exercises

 

 

1,087

 

 

 

392

 

Other, net

 

 

(1,920

)

 

 

(415

)

Net Cash (Used In) Provided By Financing Activities

 

 

14,757

 

 

 

(40,433

)

Effect of Exchange Rate Changes on Cash

 

 

(836

)

 

 

(6,193

)

Net Decrease in Cash and Cash Equivalents

 

 

(222,885

)

 

 

(42,506

)

Cash and Cash Equivalents at Beginning of Period

 

 

349,938

 

 

 

315,383

 

Cash and Cash Equivalents at End of Period

 

$

127,053

 

 

$

272,877

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash payments of income taxes, net of refunds/payments

 

$

43,472

 

 

$

7,501

 

Cash payments of interest

 

$

4,622

 

 

$

4,810

 

 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

 

5


 

STEPAN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

Unaudited

 

 

 

1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated financial statements included herein have been prepared by Stepan Company (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company’s financial position as of June 30, 2021, and its results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020, have been included. These financial statements and related footnotes should be read in conjunction with the financial statements and related footnotes included in the Company’s 2020 Annual Report on Form 10-K.

 

 

2.

RECONCILIATIONS OF EQUITY

Below are reconciliations of total equity, Company equity and equity attributable to noncontrolling interests for the three and six months ended June 30, 2021 and 2020:

 

(In thousands, except share and per share amounts)

 

Total

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Common

Treasury

Stock

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Retained

Earnings

 

 

Noncontrolling

Interest (1)

 

Balance at March 31, 2021

 

 

1,003,946

 

 

 

26,726

 

 

 

209,471

 

 

 

(137,052

)

 

 

(154,442

)

 

 

1,057,579

 

 

 

1,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 10,779 shares of common stock under stock option plan

 

 

706

 

 

 

11

 

 

 

695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of 73,745 shares of common stock

 

 

(9,906

)

 

 

 

 

 

 

 

 

(9,906

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based and deferred compensation

 

 

3,282

 

 

 

15

 

 

 

3,803

 

 

 

(536

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

43,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43,278

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

16,048

 

 

 

 

 

 

 

 

 

 

 

 

16,022

 

 

 

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($0.305 per share)

 

 

(6,863

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,863

)

 

 

 

Balance at June 30, 2021

 

$

1,050,516

 

 

$

26,752

 

 

$

213,969

 

 

$

(147,494

)

 

$

(138,420

)

 

$

1,093,994

 

 

$

1,715

 

6


 

 

 

(In thousands, except share and per share amounts)

 

Total

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Common

Treasury

Stock

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Retained

Earnings

 

 

Noncontrolling

Interest (1)

 

Balance at December 31, 2020

 

$

988,365

 

 

$

26,658

 

 

$

206,716

 

 

$

(133,629

)

 

$

(136,881

)

 

$

1,023,829

 

 

$

1,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 16,565 shares of common stock under stock option plan

 

 

1,087

 

 

 

17

 

 

 

1,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of 82,045 shares of common stock

 

 

(10,895

)

 

 

 

 

 

 

 

 

(10,895

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based and deferred compensation

 

 

3,290

 

 

 

77

 

 

 

6,183

 

 

 

(2,970

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

83,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

83,889

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

(1,521

)

 

 

 

 

 

 

 

 

 

 

 

(1,539

)

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($0.610 per share)

 

 

(13,724

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,724

)

 

 

 

Balance at June 30, 2021

 

$

1,050,516

 

 

$

26,752

 

 

$

213,969

 

 

$

(147,494

)

 

$

(138,420

)

 

$

1,093,994

 

 

$