STEPAN CO [SCL] Filings

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10-Q 1 scl-10q_20220331.htm 10-Q scl-10q_20220331.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 MARCH 31, 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 April 22, 2022
Common Stock, $1 par value		22,364,030 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 March 31
	2022			2021
Net Sales	$	675,276		$	537,740
Cost of Sales		566,057			428,760
Gross Profit		109,219			108,980
Operating Expenses:
Selling		15,277			14,504
Administrative		21,572			22,638
Research, development and technical services		16,473			15,149
Deferred compensation (income) expense		(7,501	)		2,694
		45,821			54,985
Business restructuring expenses (Note 16)		(52	)		(81	)
Operating Income		63,346			53,914
Other Income (Expense):
Interest, net		(2,306	)		(1,524	)
Other, net (Note 15)		(1,650	)		746
		(3,956	)		(778	)

Income Before Provision for Income Taxes		59,390			53,136
Provision for Income Taxes		14,581			12,525
Net Income		44,809			40,611
Net Income Attributable to Stepan Company	$	44,809		$	40,611

Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic	$	1.96		$	1.77
Diluted	$	1.93		$	1.74

Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10):
Basic		22,896			22,974
Diluted		23,167			23,330

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 March 31
	2022		2021
Net Income	$	44,809	$	40,611
Other Comprehensive Income:
Foreign currency translation adjustments (Note 11) ⁽¹⁾		9,829		(18,441	)
Defined benefit pension adjustments, net of tax (Note 11)		436		874
Derivative instrument activity, net of tax (Note 11)		2,788		(2	)
Total Other Comprehensive Income		13,053		(17,569	)
Comprehensive Income		57,862		23,042
Comprehensive Income Attributable to Noncontrolling Interest (Note 2)		—		8
Comprehensive Income Attributable to Stepan Company	$	57,862	$	23,050

(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)	March 31, 2022			December 31, 2021
Assets
Current Assets:
Cash and cash equivalents	$	236,041		$	159,186
Receivables, net		504,474			419,542
Inventories (Note 6)		308,423			305,538
Other current assets		32,933			29,102
Total current assets		1,081,871			913,368
Property, Plant and Equipment:
Cost		2,149,060			2,090,957
Less: Accumulated depreciation		(1,256,479	)		(1,240,353	)
Property, plant and equipment, net		892,581			850,604
Goodwill, net (Note 17)		97,557			97,187
Other intangible assets, net (Note 17)		58,770			60,784
Long-term investments (Note 3)		29,169			34,495
Operating lease assets (Note 7)		67,359			69,612
Other non-current assets		45,289			39,562
Total assets	$	2,272,596		$	2,065,612
Liabilities and Equity
Current Liabilities:
Current maturities of long-term debt (Note 14)	$	139,354		$	40,718
Accounts payable		350,754			323,362
Accrued liabilities		120,954			136,396
Total current liabilities		611,062			500,476
Deferred income taxes		10,963			12,491
Long-term debt, less current maturities (Note 14)		397,760			322,862
Non-current operating lease liabilities (Note 7)		54,636			56,668
Other non-current liabilities		81,437			98,922
Commitments and Contingencies (Note 8)
Equity:
Common stock, $1 par value; authorized 60,000,000 shares; Issued 26,813,581 shares in 2022 and 26,760,714 issued shares in 2021		26,814			26,761
Additional paid-in capital		224,500			220,820
Accumulated other comprehensive loss (Note 11)		(140,183	)		(153,236	)
Retained earnings		1,170,846			1,133,550
Less: Common treasury stock, at cost, 4,449,824 shares in 2022 and 4,340,729 shares in 2021		(165,239	)		(153,702	)
Total Stepan Company stockholders’ equity		1,116,738			1,074,193
Total equity		1,116,738			1,074,193
Total liabilities and equity	$	2,272,596		$	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)	Three Months Ended March 31
	2022			2021
Cash Flows From Operating Activities
Net income	$	44,809		$	40,611
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		22,915			22,060
Deferred compensation		(7,501	)		2,694
Realized and unrealized (gains) losses on long-term investments		2,487			(534	)
Stock-based compensation		2,957			2,539
Deferred income taxes		(2,545	)		2,481
Other non-cash items		1,031			(40	)
Changes in assets and liabilities:
Receivables, net		(80,344	)		(63,243	)
Inventories		481			(7,476	)
Other current assets		(3,915	)		(861	)
Accounts payable and accrued liabilities		(1,183	)		(9,377	)
Pension liabilities		(599	)		(451	)
Environmental and legal liabilities		56			(21	)
Deferred revenues		421			(80	)
Net Cash Used In Operating Activities		(20,930	)		(11,698	)
Cash Flows From Investing Activities
Expenditures for property, plant and equipment		(60,288	)		(37,632	)
Asset acquisition (Note 17)		—			(3,503	)
Business acquisition, net of cash acquired (Note 17)		—			(184,000	)
Other, net		3,156			1,379
Net Cash Used In Investing Activities		(57,132	)		(223,756	)
Cash Flows From Financing Activities
Revolving debt and bank overdrafts, net (Note 6)		98,636			49,668
Other debt borrowings (Note 6)		75,000			—
Dividends paid		(7,513	)		(6,861	)
Company stock repurchased		(9,935	)		(989	)
Stock option exercises		114			381
Other, net		(1,469	)		(2,272	)
Net Cash Provided By Financing Activities		154,833			39,927
Effect of Exchange Rate Changes on Cash		84			(3,719	)
Net Increase (Decrease) in Cash and Cash Equivalents		76,855			(199,246	)
Cash and Cash Equivalents at Beginning of Period		159,186			349,938
Cash and Cash Equivalents at End of Period	$	236,041		$	150,692
Supplemental Cash Flow Information
Cash payments of income taxes, net of refunds/payments	$	8,312		$	6,638
Cash payments of interest	$	2,500		$	2,242

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

STEPAN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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 March 31, 2022, and its results of operations and cash flows for the three months ended March 31, 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 months ended March 31, 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, December 31, 2021	$	1,074,193		$	26,761	$	220,820	$	(153,702	)	$	(153,236	)	$	1,133,550

Issuance of 1,514 shares of common stock under stock option plan		114			2		112		—			—			—

Purchase of 98,206 shares of common stock		(9,935	)		—		—		(9,935	)		—			—

Stock-based and deferred compensation		2,017			51		3,568		(1,602	)		—			—

Net income		44,809			—		—		—			—			44,809

Other comprehensive income		13,053			—		—		—			13,053			—

Cash dividends paid:
Common stock ($0.335 per share)		(7,513	)		—		—		—			—			(7,513	)
Balance, March 31, 2022	$	1,116,738		$	26,814	$	224,500	$	(165,239	)	$	(140,183	)	$	1,170,846

(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, December 31, 2020	$	988,365		$	26,658	$	206,716	$	(133,629	)	$	(136,881	)	$	1,023,829		$	1,672

Issuance of 5,786 shares of common stock under stock option plan		381			6		375		—			—			—			—

Purchase of 8,300 shares of common stock		(989	)		—		—		(989	)		—			—			—

Stock-based and deferred compensation		8			62		2,380		(2,434	)		—			—			—

Net income		40,611			—		—		—			—			40,611			—

Other comprehensive income (loss)		(17,569	)		—		—		—			(17,561	)		—			(8	)

Cash dividends paid:
Common stock ($0.305 per share)		(6,861	)		—		—		—			—			(6,861	)		—
Balance, March 31, 2021	$	1,003,946		$	26,726	$	209,471	$	(137,052	)	$	(154,442	)	$	1,057,579