Stepan Earnings 2020-06-30

Stepan Earnings 2020-06-30

SCL 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

scl-10q_20200630.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, 2020


☐	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.

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 24, 2020
Common Stock, $1 par value		22,413,778 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
	2020			2019			2020			2019
Net Sales	$	460,549		$	473,003		$	910,536		$	962,173
Cost of Sales		362,054			380,044			732,772			784,605
Gross Profit		98,495			92,959			177,764			177,568
Operating Expenses:
Selling		12,921			14,140			26,453			28,109
Administrative		20,731			21,544			39,603			40,850
Research, development and technical services		13,531			13,365			27,358			26,755
Deferred compensation (income) expense		6,464			2,395			(859	)		9,868
		53,647			51,444			92,555			105,582
Business restructuring expenses (Note 16)		(225	)		(450	)		(582	)		(1,183	)
Operating Income		44,623			41,065			84,627			70,803
Other Income (Expense):
Interest, net		(1,259	)		(1,766	)		(2,489	)		(3,619	)
Other, net (Note 15)		4,437			235			1,175			3,380
		3,178			(1,531	)		(1,314	)		(239	)

Income Before Provision for Income Taxes		47,801			39,534			83,313			70,564
Provision for Income Taxes		11,958			9,324			19,931			15,376
Net Income		35,843			30,210			63,382			55,188
Net (Income) Loss Attributable to Noncontrolling Interests (Note 2)		(136	)		8			(130	)		14
Net Income Attributable to Stepan Company	$	35,707		$	30,218		$	63,252		$	55,202

Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic	$	1.56		$	1.31		$	2.75		$	2.39
Diluted	$	1.54		$	1.30		$	2.72		$	2.37

Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic		22,923			23,086			22,973			23,092
Diluted		23,184			23,329			23,235			23,329

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
	2020			2019			2020			2019
Net income	$	35,843		$	30,210		$	63,382		$	55,188
Other comprehensive income:
Foreign currency translation adjustments ⁽¹⁾ (Note 11)		3,539			4,290			(37,656	)		7,997
Defined benefit pension adjustments, net of tax (Note 11)		808			542			1,616			1,085
Derivative instrument activity, net of tax (Note 11)		(2	)		(2	)		(4	)		(4	)
Total other comprehensive income		4,345			4,830			(36,044	)		9,078
Comprehensive income		40,188			35,040			27,338			64,266
Comprehensive income attributable to noncontrolling interests (Note 2)		(138	)		35			(119	)		21
Comprehensive income attributable to Stepan Company	$	40,050		$	35,075		$	27,219		$	64,287

(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.

STEPAN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in thousands)	June 30, 2020			December 31, 2019
Assets
Current Assets:
Cash and cash equivalents	$	272,877		$	315,383
Receivables, net		286,679			276,841
Inventories (Note 6)		208,191			203,647
Other current assets		28,629			22,918
Total current assets		796,376			818,789
Property, Plant and Equipment:
Cost		1,781,834			1,762,135
Less: Accumulated depreciation		(1,147,830	)		(1,122,818	)
Property, plant and equipment, net		634,004			639,317
Goodwill, net		22,712			26,086
Other intangible assets, net		15,235			15,352
Long-term investments (Note 3)		26,244			28,227
Operating lease assets		36,671			38,386
Other non-current assets		12,166			13,210
Total assets	$	1,543,408		$	1,579,367
Liabilities and Equity
Current Liabilities:
Current maturities of long-term debt (Note 14)	$	23,571		$	23,571
Accounts payable		187,443			194,276
Accrued liabilities		108,158			121,267
Total current liabilities		319,172			339,114
Deferred income taxes		24,068			23,391
Long-term debt, less current maturities (Note 14)		184,315			198,532
Non-current operating lease liabilities		27,994			29,654
Other non-current liabilities		89,598			96,180
Commitments and Contingencies (Note 8)
Equity:
Common stock, $1 par value; authorized 60,000,000 shares; Issued 26,551,794 shares in 2020 and 26,493,335 shares in 2019		26,552			26,493
Additional paid-in capital		198,947			193,135
Accumulated other comprehensive loss (Note 11)		(172,203	)		(136,170	)
Retained earnings		973,345			922,464
Less: Common treasury stock, at cost, 4,146,674 shares in 2020 and 3,979,735 shares in 2019		(129,212	)		(114,139	)
Total Stepan Company stockholders’ equity		897,429			891,783
Noncontrolling interests (Note 2)		832			713
Total equity		898,261			892,496
Total liabilities and equity	$	1,543,408		$	1,579,367

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
	2020			2019
Cash Flows From Operating Activities
Net income	$	63,382		$	55,188
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		40,329			38,959
Deferred compensation		(859	)		9,868
Realized and unrealized gains on long-term investments		(75	)		(3,130	)
Stock-based compensation		4,191			4,772
Deferred income taxes		1,427			223
Other non-cash items		655			2,262
Changes in assets and liabilities:
Receivables, net		(23,253	)		(6,868	)
Inventories		(9,740	)		15,515
Other current assets		(6,077	)		(3,981	)
Accounts payable and accrued liabilities		(8,284	)		(33,888	)
Pension liabilities		(323	)		(635	)
Environmental and legal liabilities		(3,116	)		630
Deferred revenues		243			(162	)
Net Cash Provided By Operating Activities		58,500			78,753
Cash Flows From Investing Activities
Expenditures for property, plant and equipment		(54,671	)		(45,084	)
Asset acquisition (Note 17)		(2,040	)		—
Other, net		2,331			2,023
Net Cash Used In Investing Activities		(54,380	)		(43,061	)
Cash Flows From Financing Activities
Revolving debt and bank overdrafts, net		—			(6,272	)
Other debt repayments		(14,286	)		(37,143	)
Dividends paid		(12,371	)		(11,285	)
Company stock repurchased		(13,753	)		(6,181	)
Stock option exercises		392			2,163
Other, net		(415	)		(2,656	)
Net Cash Used In Financing Activities		(40,433	)		(61,374	)
Effect of Exchange Rate Changes on Cash		(6,193	)		754
Net Decrease in Cash and Cash Equivalents		(42,506	)		(24,928	)
Cash and Cash Equivalents at Beginning of Period		315,383			300,194
Cash and Cash Equivalents at End of Period	$	272,877		$	275,266
Supplemental Cash Flow Information
Cash payments of income taxes, net of refunds/payments	$	7,501		$	11,895
Cash payments of interest	$	4,810		$	7,164

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, 2020

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, 2020, and its results of operations for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019, 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 2019 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, 2020 and 2019:

(In thousands, except share and per share amounts)

Total

Common

Stock

Additional

Paid-in

Capital

Treasury

Stock

Accumulated

Other

Comprehensive

Income (Loss)

Retained

Earnings

Noncontrolling

Interest ⁽¹⁾

Balance at March 31, 2020

867,472

26,541

195,661

(122,685

)

(176,546

)

943,807

694

Price	94.77	EPS	5
Shares	23	P/E	20
MCap	2,210	P/FCF	17
Net Debt	-54	EBIT	125
TEV	2,156	TEV/EBIT	17
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-07-30
10-Q	2020-03-31	Filed 2020-04-30
10-K	2019-12-31	Filed 2020-02-27
10-Q	2019-09-30	Filed 2019-10-30
10-Q	2019-06-30	Filed 2019-07-31
10-Q	2019-03-31	Filed 2019-05-07
10-K	2018-12-31	Filed 2019-02-27
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-08-01
10-Q	2018-03-31	Filed 2018-05-01
10-K	2017-12-31	Filed 2018-02-27
10-Q	2017-09-30	Filed 2017-10-27
10-Q	2017-06-30	Filed 2017-07-28
10-Q	2017-03-31	Filed 2017-04-27
10-K	2016-12-31	Filed 2017-02-24
10-Q	2016-09-30	Filed 2016-10-28
10-Q	2016-06-30	Filed 2016-07-29
10-Q	2016-03-31	Filed 2016-04-29
10-K	2015-12-31	Filed 2016-02-24
10-Q	2015-09-30	Filed 2015-10-28
10-Q	2015-06-30	Filed 2015-07-29
10-Q	2015-03-31	Filed 2015-04-29
10-K	2014-12-31	Filed 2015-02-27
10-Q	2014-09-30	Filed 2014-10-29
10-Q	2014-06-30	Filed 2014-07-30
10-Q	2014-03-31	Filed 2014-04-30
10-K	2013-12-31	Filed 2014-02-26
10-Q	2013-09-30	Filed 2013-10-30
10-Q	2013-06-30	Filed 2013-07-31
10-Q	2013-03-31	Filed 2013-05-02
10-K	2012-12-31	Filed 2013-02-27
10-Q	2012-09-30	Filed 2012-11-02
10-Q	2012-06-30	Filed 2012-08-03
10-Q	2012-03-31	Filed 2012-05-07
10-K	2011-12-31	Filed 2012-02-27
10-Q	2011-09-30	Filed 2011-10-28
10-Q	2011-06-30	Filed 2011-07-29
10-Q	2011-03-31	Filed 2011-05-05
10-K	2010-12-31	Filed 2011-02-28
10-Q	2010-09-30	Filed 2010-11-04
10-Q	2010-06-30	Filed 2010-07-30
10-Q	2010-03-31	Filed 2010-04-29
10-K	2009-12-31	Filed 2010-02-26

8-K	2020-07-22	Earnings, Exhibits
8-K	2020-04-21
8-K	2020-04-21
8-K	2020-02-20
8-K	2019-12-16
8-K	2019-10-23
8-K	2019-10-22
8-K	2019-07-24
8-K	2019-05-23
8-K	2019-04-30
8-K	2019-04-30
8-K	2019-02-21
8-K	2018-10-24
8-K	2018-09-16
8-K	2018-07-24
8-K	2018-04-24
8-K	2018-04-24
8-K	2018-04-10
8-K	2018-02-22
8-K	2018-01-30

EX-31.1	scl-ex311_7.htm
EX-31.2	scl-ex312_6.htm
EX-32	scl-ex32_8.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company