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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, 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.

 

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 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.

 

2


 

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.

 

 

3


 

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.

 

4


 

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.

 

 

5


 

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

)