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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 MARCH 31, 2021

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.

 

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 April 23, 2021

Common Stock, $1 par value

 

22,516,933 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

 

 

 

2021

 

 

2020

 

Net Sales

 

$

537,740

 

 

$

449,987

 

Cost of Sales

 

 

428,760

 

 

 

370,718

 

Gross Profit

 

 

108,980

 

 

 

79,269

 

Operating Expenses:

 

 

 

 

 

 

 

 

Selling

 

 

14,504

 

 

 

13,532

 

Administrative

 

 

22,638

 

 

 

18,872

 

Research, development and technical services

 

 

15,149

 

 

 

13,827

 

Deferred compensation (income) expense

 

 

2,694

 

 

 

(7,323

)

 

 

 

54,985

 

 

 

38,908

 

      Business restructuring expenses (Note 16)

 

 

(81

)

 

 

(357

)

Operating Income

 

 

53,914

 

 

 

40,004

 

Other Income (Expense):

 

 

 

 

 

 

 

 

Interest, net

 

 

(1,524

)

 

 

(1,230

)

Other, net (Note 15)

 

 

746

 

 

 

(3,262

)

 

 

 

(778

)

 

 

(4,492

)

 

 

 

 

 

 

 

 

 

Income Before Provision for Income Taxes

 

 

53,136

 

 

 

35,512

 

Provision for Income Taxes

 

 

12,525

 

 

 

7,973

 

Net Income

 

 

40,611

 

 

 

27,539

 

Net Loss Attributable to Noncontrolling Interests (Note 2)

 

 

 

 

 

6

 

Net Income Attributable to Stepan Company

 

$

40,611

 

 

$

27,545

 

 

 

 

 

 

 

 

 

 

Net Income Per Common Share Attributable to Stepan Company (Note 10):

 

 

 

 

 

 

 

 

Basic

 

$

1.77

 

 

$

1.20

 

Diluted

 

$

1.74

 

 

$

1.18

 

 

 

 

 

 

 

 

 

 

Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company (Note 10):

 

 

 

 

 

 

 

 

Basic

 

 

22,974

 

 

 

23,023

 

Diluted

 

 

23,330

 

 

 

23,285

 

 

 

 

 

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

March 31

 

 

 

2021

 

 

2020

 

Net Income

 

$

40,611

 

 

$

27,539

 

Other Comprehensive Income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments (1) (Note 11)

 

 

(18,441

)

 

 

(41,195

)

Defined benefit pension adjustments, net of tax (Note 11)

 

 

874

 

 

 

808

 

Derivative instrument activity, net of tax (Note 11)

 

 

(2

)

 

 

(2

)

Total Other Comprehensive Income

 

 

(17,569

)

 

 

(40,389

)

Comprehensive Income

 

 

23,042

 

 

 

(12,850

)

Comprehensive Income Attributable to Noncontrolling Interest (Note 2)

 

 

8

 

 

 

19

 

Comprehensive Income Attributable to Stepan Company

 

$

23,050

 

 

$

(12,831

)

 

(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.

 

 

3


 

 

STEPAN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

 

 

(Dollars in thousands)

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

150,692

 

 

$

349,938

 

Receivables, net

 

 

380,649

 

 

 

301,318

 

Inventories (Note 6)

 

 

235,062

 

 

 

218,783

 

Other current assets

 

 

31,250

 

 

 

35,612

 

Total current assets

 

 

797,653

 

 

 

905,651

 

Property, Plant and Equipment:

 

 

 

 

 

 

 

 

Cost

 

 

1,949,681

 

 

 

1,872,650

 

Less:  Accumulated depreciation

 

 

(1,203,302

)

 

 

(1,189,983

)

Property, plant and equipment, net

 

 

746,379

 

 

 

682,667

 

Goodwill, net (Note 17)

 

 

96,252

 

 

 

27,972

 

Other intangible assets, net (Note 17)

 

 

66,813

 

 

 

24,068

 

Long-term investments (Note 3)

 

 

30,212

 

 

 

30,652

 

Operating lease assets

 

 

72,157

 

 

 

62,421

 

Other non-current assets

 

 

18,473

 

 

 

18,905

 

Total assets

 

$

1,827,939

 

 

$

1,752,336

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt (Note 14)

 

$

87,525

 

 

$

37,857

 

Accounts payable

 

 

264,192

 

 

 

236,750

 

Accrued liabilities

 

 

112,372

 

 

 

141,947

 

Total current liabilities

 

 

464,089

 

 

 

416,554

 

Deferred income taxes

 

 

29,876

 

 

 

20,745

 

Long-term debt, less current maturities (Note 14)

 

 

160,847

 

 

 

160,812

 

Non-current operating lease liabilities

 

 

60,433

 

 

 

51,567

 

Other non-current liabilities

 

 

108,748

 

 

 

114,293

 

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Common stock, $1 par value; authorized 60,000,000 shares;

   Issued 26,725,620 shares in 2021 and 26,658,032 shares in 2020

 

 

26,726

 

 

 

26,658

 

Additional paid-in capital

 

 

209,471

 

 

 

206,716

 

Accumulated other comprehensive loss (Note 11)

 

 

(154,442

)

 

 

(136,881

)

Retained earnings

 

 

1,057,579

 

 

 

1,023,829

 

Less:  Common treasury stock, at cost, 4,208,867 shares in 2021

   and 4,185,242 shares in 2020

 

 

(137,052

)

 

 

(133,629

)

Total Stepan Company stockholders’ equity

 

 

1,002,282

 

 

 

986,693

 

Noncontrolling interests (Note 2)

 

 

1,664

 

 

 

1,672

 

Total equity

 

 

1,003,946

 

 

 

988,365

 

Total liabilities and equity

 

$

1,827,939

 

 

$

1,752,336

 

 

 

 

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)

 

Three Months Ended March 31

 

 

 

2021

 

 

2020

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

40,611

 

 

$

27,539

 

Adjustments to reconcile net income to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

22,060

 

 

 

20,023

 

Deferred compensation

 

 

2,694

 

 

 

(7,323

)

Realized and unrealized (gains) losses on long-term investments

 

 

(534

)

 

 

3,875

 

Stock-based compensation

 

 

2,539

 

 

 

1,202

 

Deferred income taxes

 

 

2,481

 

 

 

131

 

Other non-cash items

 

 

(40

)

 

 

395

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

(63,243

)

 

 

(30,767

)

Inventories

 

 

(7,476

)

 

 

(447

)

Other current assets

 

 

(861

)

 

 

(3,180

)

Accounts payable and accrued liabilities

 

 

(9,377

)

 

 

(16,583

)

Pension liabilities

 

 

(451

)

 

 

(236

)

Environmental and legal liabilities

 

 

(21

)

 

 

(947

)

Deferred revenues

 

 

(80

)

 

 

(157

)

Net Cash Used In Operating Activities

 

 

(11,698

)

 

 

(6,475

)

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(37,632

)

 

 

(33,202

)

Asset acquisition (Note 17)

 

 

(3,503

)

 

 

(2,040

)

Business acquisition, net of cash acquired (Note 17)

 

 

(184,000

)

 

 

 

Other, net

 

 

1,379

 

 

 

2,331

 

Net Cash Used In Investing Activities

 

 

(223,756

)

 

 

(32,911

)

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Revolving debt and bank overdrafts, net

 

 

49,668

 

 

 

 

Dividends paid

 

 

(6,861

)

 

 

(6,202

)

Company stock repurchased

 

 

(989

)

 

 

(7,243

)

Stock option exercises

 

 

381

 

 

 

155

 

Other, net

 

 

(2,272

)

 

 

(1,128

)

Net Cash (Used In) Provided By Financing Activities

 

 

39,927

 

 

 

(14,418

)

Effect of Exchange Rate Changes on Cash

 

 

(3,719

)

 

 

(7,240

)

Net Decrease in Cash and Cash Equivalents

 

 

(199,246

)

 

 

(61,044

)

Cash and Cash Equivalents at Beginning of Period

 

 

349,938

 

 

 

315,383

 

Cash and Cash Equivalents at End of Period

 

$

150,692

 

 

$

254,339

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash payments of income taxes, net of refunds/payments

 

$

6,638

 

 

$

3,316

 

Cash payments of interest

 

$

2,242

 

 

$

2,122

 

 

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

March 31, 2021

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, 2021, and its results of operations and cash flows for the three months ended March 31, 2021 and 2020, 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 2020 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 months ended March 31, 2021 and 2020:

 

(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

 

 

$

1,664

 

 

 

6


 

 

(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, 2019

 

$

892,496

 

 

$

26,493

 

 

$

193,135

 

 

$

(114,139

)

 

$

(136,170

)

 

$

922,464

 

 

$

713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of 2,747 shares of common stock under stock option plan

 

 

155

 

 

 

3

 

 

 

152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of 89,225 shares of common stock

 

 

(7,243

)

 

 

 

 

 

 

 

 

(7,243

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based and deferred compensation

 

 

1,116

 

 

 

45

 

 

 

2,374

 

 

 

(1,303

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

27,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,545

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

(40,389

)

 

 

 

 

 

 

 

 

 

 

 

(40,376

)

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($0.275 per share)

 

 

(6,202

)