STEPAN CO [SCL] Filings

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q 1 scl-10q_20220630.htm 10-Q scl-10q_20220630.htm

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, 2022

☐	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 of incorporation or organization)		(I.R.S. Employer Identification Number)

1101 Skokie Boulevard, Suite 500, Northbrook, Illinois 60062

(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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 27, 2022
Common Stock, $1 par value		22,304,934 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
	2022			2021			2022			2021
Net Sales	$	751,633		$	595,511		$	1,426,909		$	1,133,251
Cost of Sales		620,019			483,830			1,186,076			912,590
Gross Profit		131,614			111,681			240,833			220,661
Operating Expenses:
Selling		15,552			14,990			30,829			29,494
Administrative		24,079			23,974			45,651			46,612
Research, development and technical services		16,690			14,988			33,163			30,137
Deferred compensation (income) expense		(3,406	)		958			(10,907	)		3,652
		52,915			54,910			98,736			109,895
Goodwill impairment (Note 18)		(978	)		—			(978	)		—
Business restructuring expenses (Note 16)		(81	)		(114	)		(133	)		(195	)
Operating Income		77,640			56,657			140,986			110,571
Other Income (Expense):
Interest, net		(2,727	)		(1,567	)		(5,033	)		(3,091	)
Other, net (Note 15)		(5,369	)		2,758			(7,019	)		3,504
		(8,096	)		1,191			(12,052	)		413

Income Before Provision for Income Taxes		69,544			57,848			128,934			110,984
Provision for Income Taxes		17,418			14,545			31,999			27,070
Net Income		52,126			43,303			96,935			83,914
Less: Net Income Attributable to Noncontrolling Interest		—			(25	)		—			(25	)
Net Income Attributable to Stepan Company	$	52,126		$	43,278		$	96,935		$	83,889

Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic	$	2.29		$	1.89		$	4.24		$	3.65
Diluted	$	2.26		$	1.85		$	4.19		$	3.59

Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic		22,792			22,952			22,842			22,963
Diluted		23,055			23,345			23,115			23,338

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

STEPAN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

(In thousands)	Three Months Ended June 30						Six Months Ended June 30
	2022			2021			2022			2021
Net Income	$	52,126		$	43,303		$	96,935		$	83,914
Other Comprehensive Income:
Foreign currency translation adjustments (Note 11) ⁽¹⁾		(36,096	)		15,175			(26,267	)		(3,266	)
Defined benefit pension adjustments, net of tax (Note 11)		434			876			870			1,750
Derivative instrument activity, net of tax (Note 11)		2,043			(3	)		4,831			(5	)
Total Other Comprehensive Income		(33,619	)		16,048			(20,566	)		(1,521	)
Comprehensive Income		18,507			59,351			76,369			82,393
Comprehensive Income Attributable to Noncontrolling Interest (Note 2)		—			(51	)		—			(43	)
Comprehensive Income Attributable to Stepan Company	$	18,507		$	59,300		$	76,369		$	82,350

(1)

The prior year includes foreign currency translation adjustments related to noncontrolling interest. The 2021 noncontrolling interest was related to the Company’s China joint venture, which was dissolved in the fourth quarter of 2021.

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

STEPAN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in thousands)	June 30, 2022			December 31, 2021
Assets
Current Assets:
Cash and cash equivalents	$	194,585		$	159,186
Receivables, net		518,750			419,542
Inventories (Note 6)		340,712			305,538
Other current assets		33,320			29,102
Total current assets		1,087,367			913,368
Property, Plant and Equipment:
Cost		2,182,693			2,090,957
Less: Accumulated depreciation		(1,263,159	)		(1,240,353	)
Property, plant and equipment, net		919,534			850,604
Goodwill, net (Note 17)		93,152			97,187
Other intangible assets, net (Note 17)		54,956			60,784
Long-term investments (Note 3)		24,914			34,495
Operating lease assets (Note 7)		65,525			69,612
Other non-current assets		43,351			39,562
Total assets	$	2,288,799		$	2,065,612
Liabilities and Equity
Current Liabilities:
Current maturities of long-term debt (Note 14)	$	142,489		$	40,718
Accounts payable		366,233			323,362
Accrued liabilities		129,506			136,396
Total current liabilities		638,228			500,476
Deferred income taxes		11,375			12,491
Long-term debt, less current maturities (Note 14)		383,503			322,862
Non-current operating lease liabilities (Note 7)		53,118			56,668
Other non-current liabilities		76,864			98,922
Commitments and Contingencies (Note 8)
Equity:
Common stock, $1 par value; authorized 60,000,000 shares; 26,824,902 issued shares in 2022 and 26,760,714 issued shares in 2021		26,825			26,761
Additional paid-in capital		229,510			220,820
Accumulated other comprehensive loss (Note 11)		(173,802	)		(153,236	)
Retained earnings		1,215,500			1,133,550
Less: Common treasury stock, at cost, 4,519,968 shares in 2022 and 4,340,729 shares in 2021		(172,322	)		(153,702	)
Total Stepan Company stockholders’ equity		1,125,711			1,074,193
Total equity		1,125,711			1,074,193
Total liabilities and equity	$	2,288,799		$	2,065,612

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

STEPAN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In thousands)	Six Months Ended June 30
	2022			2021
Cash Flows From Operating Activities
Net income	$	96,935		$	83,914
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		46,252			45,311
Deferred compensation		(10,907	)		3,652
Realized and unrealized (gains) losses on long-term investments		6,972			(2,761	)
Stock-based compensation		6,955			5,346
Deferred income taxes		2,241			(39,475	)
Goodwill impairment (Note 18)		978			—
Other non-cash items		1,142			92
Changes in assets and liabilities:
Receivables, net		(111,051	)		(68,033	)
Inventories		(38,564	)		(35,747	)
Other current assets		(4,838	)		(63	)
Accounts payable and accrued liabilities		43,326			34,027
Pension liabilities		(1,113	)		(971	)
Environmental and legal liabilities		(379	)		(463	)
Deferred revenues		203			(134	)
Net Cash Provided By Operating Activities		38,152			24,695
Cash Flows From Investing Activities
Expenditures for property, plant and equipment		(129,463	)		(74,868	)
Asset acquisition (Note 17)		—			(3,503	)
Business acquisition, net of cash acquired (Note 17)		—			(184,560	)
Other, net		3,156			1,430
Net Cash Used In Investing Activities		(126,307	)		(261,501	)
Cash Flows From Financing Activities
Revolving debt and bank overdrafts, net (Note 14)		101,771			4,495
Other debt borrowings (Note 14)		75,000			50,000
Other debt repayments		(14,286	)		(14,286	)
Dividends paid		(14,985	)		(13,724	)
Company stock repurchased		(16,976	)		(10,895	)
Stock option exercises		185			1,087
Other, net		(2,612	)		(1,920	)
Net Cash Provided By Financing Activities		128,097			14,757
Effect of Exchange Rate Changes on Cash		(4,543	)		(836	)
Net Increase (Decrease) in Cash and Cash Equivalents		35,399			(222,885	)
Cash and Cash Equivalents at Beginning of Period		159,186			349,938
Cash and Cash Equivalents at End of Period	$	194,585		$	127,053
Supplemental Cash Flow Information
Cash payments of income taxes, net of refunds/payments	$	19,353		$	43,472
Cash payments of interest	$	7,184		$	4,622

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

STEPAN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

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, 2022, and its results of operations and cash flows for the three and six months ended June 30, 2022 and 2021, 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 Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Annual Report on Form 10-K).

2.	RECONCILIATIONS OF EQUITY

Below are reconciliations of total equity for the three and six months ended June 30, 2022 and 2021:

(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
Balance, March 31, 2022	$	1,116,738		$	26,814	$	224,500	$	(165,239	)	$	(140,183	)	$	1,170,846

Issuance of 1,133 shares of common stock under stock option plan		71			1		70		—			—			—

Purchase of 69,734 shares of common stock		(7,041	)		—		—		(7,041	)		—			—

Stock-based and deferred compensation		4,908			10		4,940		(42	)		—			—

Net income		52,126			—		—		—			—			52,126

Other comprehensive income		(33,619	)		—		—		—			(33,619	)