NORTHFIELD, Ill., Feb. 9 /PRNewswire-FirstCall/ -- Stepan Company
(NYSE: SCL) today reported record earnings for the fourth quarter
and full year ended December 31, 2009. -- Net income rose 70
percent to $63.0 million for a record year and increased to $8.8
million for a record fourth quarter. -- Net income, excluding
deferred compensation plan expense and gains on assets sold in the
prior year, rose 129 percent for the year (see Table IV). -- Strong
free cash flow from operations reduced debt, net of cash, from
$126.3 million at December 31, 2008, to $5.6 million at December
31, 2009. SUMMARY Three Months Ended Twelve Months Ended December
31 December 31 ----------------------- ------------------------ % %
($ in thousands) 2009 2008 Change 2009 2008 Change ---- ---- ------
---- ---- ------ Net Sales $310,815 $365,333 - 15 $1,276,382
$1,600,130 - 20 Net Income $8,767 $1,664 + 427 $63,049 $37,172 + 70
Net Income Excluding Deferred Compensation* $9,575 $405 NM $66,133
$40,193 + 65 Earnings per Diluted Share $0.80 $0.15 + 433 $5.84
$3.52 + 66 Earnings per Diluted Share Excluding Deferred
Compensation $0.87 $0.03 NM $6.13 $3.81 + 61 * See Table II for a
discussion of deferred compensation plan accounting. Net income for
the year rose to a record $63.0 million, or $5.84 per diluted
share, from $37.2 million, or $3.52 per diluted share, a year ago.
Net income for the quarter was $8.8 million, or $0.80 per diluted
share, up from $1.7 million, or $0.15 per diluted share in the year
ago quarter. "The record income is the result of improvement in all
three of our business segments. The improvement was attributable to
lower commodity raw material costs, successful cost control
initiatives and a desirable surfactant product mix of laundry and
personal care products that performed well during the economic
downturn," said F. Quinn Stepan, Jr., President and Chief Executive
Officer. Annual gross profit grew by $63.6 million, or 37 percent,
to reach $233.1 million. -- Surfactant gross profit improved by
$48.3 million, or 40 percent, on a seven percent decline in volume.
Laundry and personal care products posted a slight increase in
sales volume. -- Polymer gross profit increased $9.7 million, or 23
percent, on a 16 percent decline in volume. -- Specialty products
gross profit rose by $7.0 million, or 77 percent, while volume grew
by nine percent. Total net sales declined 15 percent for the
quarter and 20 percent year-to-date. Three Months Ended Twelve
Months Ended December 31 December 31 ----------------------
----------------------- ($ in thousands) % % 2009 2008 Change 2009
2008 Change ---- ---- ------ ---- ---- ------ Net Sales Surfactants
$234,450 $282,714 - 17 $972,647 $1,199,438 - 19 Polymers 65,572
71,572 - 8 260,770 359,014 - 27 Specialty Products 10,793 11,047 -
2 42,965 41,678 + 3 ------ ------ ------ ------ Total Net Sales
$310,815 $365,333 - 15 $1,276,382 $1,600,130 - 20 ======== ========
========== ========== The decline in sales was due to lower selling
prices and volume and the impact of foreign translation. Lower
selling prices were the result of falling commodity raw material
costs. Percentage Change in Net Sales
------------------------------------------ Increase (Decrease)
Three Months Ended Twelve Months Ended December 31, 2009 December
31, 2009 ------------------ ------------------- Selling Price - 14%
- 10% Volume - 4% - 7% Foreign Translation + 3% - 3% ---- ----
Total - 15% - 20% ==== ==== Surfactant gross profit increased $15.5
million, or 68 percent, for the quarter and $48.3 million, or 40
percent, for the year. The improvement was based on lower commodity
raw material costs, cost reduction initiatives, freight savings as
well as improved product mix. Surfactant sales volume declined five
percent for the quarter and seven percent for the full year. Most
of the volume decline was due to lower biodiesel sales volume, as
the economics of biodiesel remain unattractive. The recession has
had minimal impact on our largest surfactant market, consumer
laundry and personal care, where volumes were slightly higher than
last year. Sales of surfactant products for use in enhanced oil
recovery had little impact on the quarter and full year results,
but our first sales to a commercial oilfield flood began late in
the year. We remain optimistic about this market opportunity.
Polymer gross profit grew by $2.6 million, or 35 percent, for the
quarter and $9.7 million, or 23 percent, for the year. Polyol
products generated most of the improvement on lower raw material
costs and cost reduction initiatives. Sales volume increased three
percent for the quarter, however, declined by 16 percent for the
year. Polyol consumption in commercial flat roof insulation has
been hard hit by the economy and represents the majority of the
decline. Sales volume of phthalic anhydride, a plasticizer used in
automotive, boating and housing, declined further during 2009
resulting in lower earnings. Specialty products gross profit grew
by $1.8 million, or 89 percent, for the quarter and $7.0 million,
or 77 percent, for the full year. Lower commodity raw material
costs and a nine percent increase in food ingredient volume
generated most of the improvement. OPERATING EXPENSES Three Months
Ended Twelve Months Ended December 31 December 31
---------------------- ----------------------- ($ in thousands) % %
2009 2008 Change 2009 2008 Change ---- ---- ------ ---- ---- ------
Marketing $11,192 $9,748 + 15 $40,434 $41,218 - 2 Administrative -
General 12,739 10,058 + 27 44,278 41,389 + 7 Administrative -
Deferred Compensation Obligations 1,865 (4,174) NM 7,009 211 NM
Research, development and technical service 10,145 7,870 + 29
36,494 34,437 + 6 Sale of Product Line - - - (9,929) NM Sale of
Land - - - (8,469) NM --- --- --- ------ Total $35,941 $23,502 + 53
$128,215 $98,857 + 30 ======= ======= ======== ======= Excluding
deferred compensation expense and the prior year gains on sale of
assets, the higher operating expenses for the quarter were
attributable to higher performance based incentive compensation and
the effect of foreign currency translation in all categories.
Research expense also reflected higher regulatory compliance costs
in Europe. For the full year, cost containment efforts on
discretionary spending items offset much of the increase in salary
and incentive based compensation costs. OTHER INCOME AND EXPENSE
Interest expense declined $0.8 million (38 percent) for the quarter
and $3.2 million (34 percent) for the year due to lower average
debt levels. For the full year, the loss from our joint ventures
increased by $1.0 million (38 percent). As planned, the TIORCO
enhanced oil recovery venture incurred start up losses of $2.5
million in 2009 compared to $0.4 million in 2008. The Philippine
joint venture posted a loss of $1.2 million in 2009 versus a $2.3
million loss in the prior year. Other income improved from the
prior year due primarily to income on assets held for our deferred
compensation plan. (See Table II) BALANCE SHEET The Company's net
debt levels declined by $31.8 million for the quarter and $120.7
million for the year: ($ in millions) Net Debt 12/31/09 9/30/09
12/31/08 -------- ------- -------- Total Debt $104.1 $110.3 $143.0
Cash 98.5 72.9 16.7 Net Debt $5.6 $37.4 $126.3 ==== ===== ======
The lower net debt levels were attributable to improved earnings
coupled with lower working capital requirements. Working capital,
excluding cash, declined due to lower raw material costs brought
about by the decline in crude and natural oil prices. PROVISION FOR
INCOME TAXES The effective tax rate rose to 35.0 percent for the
year compared to 32.1 percent a year ago. The higher effective rate
was due to a higher mix of income generated in the U.S., taxable at
higher rates than foreign earned income. OUTLOOK "The Company and
all three of our business segments delivered record results in 2009
on lower commodity raw material costs and cost containment
efforts," said F. Quinn Stepan, Jr., President and Chief Executive
Officer. "Surfactant and specialty product volumes remained healthy
through this recession, particularly for laundry and personal care
surfactant products. Given expectations for a slow economic
recovery, we are focused on global market share growth and
penetrating new end-use markets. We are committed to driving
organic growth in our business. We believe that our growth
initiatives create the opportunity to sustain our earnings
momentum," said Mr. Stepan. CONFERENCE CALL Stepan Company will
host a conference call to discuss the fourth quarter and year end
results at 2 p.m. Eastern Time on February 10, 2010. To listen to a
live webcast of this call, please go to our Internet website at:
http://www.stepan.com/, click on investor relations, next click on
conference calls and follow the directions on the screen. Stepan
Company, headquartered in Northfield, Illinois, is a leading
producer of specialty and intermediate chemicals used in household,
industrial, personal care, agricultural, food and insulation
related products. The common and the convertible preferred stocks
are traded on the New York and Chicago Stock Exchanges under the
symbols SCL and SCLPR. tables follow Except for historical
information, all other information in this news release consists of
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to risks and uncertainties that could cause
actual results to differ materially from those projected,
anticipated or implied. The most significant of these uncertainties
are described in Stepan Company's Form 10-K, Form 8-K and Form 10-Q
reports and exhibits to those reports, and include (but are not
limited to), prospects for our foreign operations, foreign currency
fluctuations, certain global and regional economic conditions, the
probability of future acquisitions and the uncertainties related to
the integration of acquired businesses, the probability of new
products, the loss of one or more key customer or supplier
relationships, the costs and other effects of governmental
regulation and legal and administrative proceedings, including the
expenditures necessary to address and resolve environmental claims
and proceedings, and general economic conditions. These
forward-looking statements are made only as of the date hereof, and
Stepan Company undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information,
future events or otherwise. Table I STEPAN COMPANY Statements of
Income For the Three and Twelve Months Ended December 31, 2009 and
2008 (Unaudited - 000's Omitted) Three Months Ended Twelve Months
Ended December 31 December 31 ---------------------
----------------------- % % 2009 2008 Change 2009 2008 Change ----
---- ------ ---- ---- ------ Net Sales $310,815 $365,333 -15
$1,276,382 $1,600,130 -20 Cost of Sales 260,996 334,440 -22
1,043,279 1,430,593 -27 ------- ------- --------- --------- Gross
Profit 49,819 30,893 +61 233,103 169,537 +37 Operating Expenses:
Marketing 11,192 9,748 +15 40,434 41,218 -2 Administrative 14,604
5,884 +148 51,287 41,600 +23 Research, Development and Technical
Services 10,145 7,870 +29 36,494 34,437 +6 Sale of Product Line - -
- - (9,929) NM Sale of Land - - - - (8,469) NM --- --- --- ------
35,941 23,502 +53 128,215 98,857 +30 Operating Income 13,878 7,391
+88 104,888 70,680 +48 Other Income (Expense): Interest, Net
(1,336) (2,147) -38 (6,271) (9,514) -34 Loss from Equity in Joint
Ventures (218) (452) -52 (3,709) (2,697) +38 Other, Net 498 (1,631)
NM 2,223 (3,591) NM --- ------ ----- ------ (1,056) (4,230) -75
(7,757) (15,802) -51 Income Before Provision for Income Taxes
12,822 3,161 +306 97,131 54,878 +77 Provision for Income Taxes
4,025 1,410 +185 34,028 17,615 +93 ----- ----- ------ ------ Net
Income 8,797 1,751 +402 63,103 37,263 +69 Less: Net Income
Attributable to the Noncontrolling Interest (30) (87) -66 (54) (91)
-41 --- --- --- --- Net Income Attributable to Stepan Company
$8,767 $1,664 +427 $63,049 $37,172 +70 ====== ====== =======
======= Net Income Per Common Share Attributable to Stepan Company
Basic $0.86 $0.15 +473 $6.31 $3.81 +66 ===== ===== ===== =====
Diluted $0.80 $0.15 +433 $5.84 $3.52 +66 ===== ===== ===== =====
Shares Used to Compute Net Income Per Common Share Attributable to
Stepan Company Basic 10,037 9,699 +3 9,870 9,566 +3 ====== =====
===== ===== Diluted 11,032 10,166 +9 10,796 10,549 +2 ====== ======
====== ====== Table II Deferred Compensation Plan The full effect
of the deferred compensation plan on quarterly pretax income was
$1.3 million of expense versus income of $2.0 million last 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 Stepan
Company common stock are as follows: 2009 2008
----------------------------- --------------------------- 12/31
9/30 6/30 3/31 12/31 9/30 6/30 3/31 Stepan Company $64.81 $60.08
$44.16 $27.30 $46.99 $54.57 $45.62 $38.23 The deferred compensation
expense income statement impact is summarized below: Three Months
Ended Twelve Months Ended December 31 December 31
------------------ ------------------- ($ in thousands) 2009 2008
2009 2008 ---- ---- ---- ---- Deferred Compensation Administrative
(Expense) Income $(1,865) $4,174 $(7,009) $(211) Other, net -
Mutual Fund Gain (Loss) 561 (2,143) 2,034 (4,661) --- ------ -----
------ Total Pretax $(1,304) $2,031 $(4,975) $(4,872) =======
====== ======= ------- Total After Tax $(808) $1,259 $(3,084)
$(3,021) ===== ====== ======= ======= Reconciliation of non-GAAP
net income: Three Months Ended Twelve Months Ended December 31
December 31 ------------------ ------------------- ($ in thousands)
2009 2008 2009 2008 ---- ---- ---- ---- Net income excluding
deferred compensation $9,575 $405 $66,133 $40,193 Deferred
compensation plan (expense) income (808) 1,259 (3,084) (3,021) ----
----- ------ ------ Net income as reported $8,767 $1,664 $63,049
$37,172 ====== ====== ======= ======= Reconciliation of non-GAAP
EPS: Three Months Ended Twelve Months Ended December 31 December 31
------------------ ------------------- 2009 2008 2009 2008 ----
---- ---- ---- Earnings per diluted share excluding deferred
compensation $0.87 $0.03 $6.13 $3.81 Deferred compensation plan
(expense) income (0.07) 0.12 (0.29) (0.29) ----- ---- ----- -----
Earnings per diluted share $0.80 $0.15 $5.84 $3.52 ===== =====
===== ===== The Company believes that certain non-GAAP measures,
when presented in conjunction with comparable GAAP (Generally
Accepted Accounting Principles) measures, are useful because that
information is an appropriate measure for evaluating the Company's
operating performance. Internally, the Company uses this non-GAAP
information as an indicator of business performance, and evaluates
management's effectiveness with specific reference to these
indicators. These measures should be considered in addition to,
neither a substitute for, or superior to, measures of financial
performance prepared in accordance with GAAP. Table III Effects of
Foreign Currency Translation The Company's foreign subsidiaries
transact business and report financial results in their respective
local currencies. As a result, foreign subsidiary income statements
are translated into U.S. dollars at average foreign exchange rates
appropriate for the reporting period. Because foreign exchange
rates fluctuate against the U.S. dollar over time, foreign currency
translation affects period-to-period comparisons of financial
statement items (i.e. because foreign exchange rates fluctuate,
similar period-to-period local currency results for a foreign
subsidiary may translate into different U.S. dollar results). For
the year ending December 31, 2009, the U.S. dollar strengthened
against nearly all the foreign currencies in the locations where
the Company does business, when compared to the exchange rates for
the year ending December 31, 2008. Consequently, reported net
sales, expense and income amounts for the year ending December 31,
2009, were lower than they would have been had the foreign currency
exchange rates remained constant with the rates for the same
periods of 2008. Below is a table that presents the impact that
foreign currency translation had on the changes in consolidated net
sales and various income line items for the quarter and year ending
December 31, 2009: ($ in millions) Inc (Dec) Due Three Months
Increase to Foreign Ended December 31 (Decrease) Translation
----------------- ---------- ----------- 2009 2008 ---- ---- Net
Sales $310.8 $365.3 $(54.5) 11.6 Gross Profit 49.8 30.9 18.9 1.6
Operating Income 13.9 7.4 6.5 0.7 Pretax Income 12.8 3.2 9.6 0.6
Inc (Dec) Due ($ in millions) Twelve Months Increase to Foreign
Ended December 31 (Decrease) Translation -----------------
---------- ----------- 2009 2008 ---- ---- Net Sales $1276.4
$1600.1 $(323.7) (49.2) Gross Profit 233.1 169.5 63.6 (7.8)
Operating Income 104.9 70.7 34.2 (5.2) Pretax Income 97.1 54.9 42.2
(5.4) Table IV Reconciliation of Non-GAAP Earnings Measure Three
Months Ended Twelve Months Ended December 31 December 31
------------------------ ----------------------- ($ in millions) %
% 2009 2008 Change 2009 2008 Change ---- ---- -------- ---- ----
------ Net Income excluding deferred compensation plan expenses and
gains on asset sales $9.6 $0.4 NM $66.1 $28.9 + 129 Deferred
Compensation Expenses (1.1) 2.6 (4.4) (0.1) Deferred Compensation
Investment Income 0.3 (1.3) 1.3 (2.9) Gain on Product Line Sale - -
- 6.1 Gain on Land Sale - - - 5.2 --- --- --- Net Income as
Reported $8.8 $1.7 + 427 $63.0 $37.2 + 70 ==== ==== ===== ===== The
Company believes that certain non-GAAP measures, when presented in
conjunction with comparable GAAP (Generally Accepted Accounting
Principles) measures, are useful because that information is an
appropriate measure for evaluating the Company's operating
performance. 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, or superior to, measures of financial performance prepared in
accordance with GAAP. DATASOURCE: Stepan Company CONTACT: JAMES E.
HURLBUTT, +1-847-446-7500, Stepan Company Web Site:
http://www.stepan.com/
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