EX-99.1 2 scl-ex991_7.htm EX-99.1 scl-ex991_7.htm

 

Exhibit 99.1

 

Stepan Reports Third Quarter Results and Record Nine Month Earnings

 

Northfield, Illinois, October 24, 2018 -- Stepan Company (NYSE: SCL) today reported:

 

Third Quarter Highlights

 

 

Reported net income was $22.2 million, or $0.95 per diluted share versus $21.9 million, or $0.94 per diluted share, in the prior year.  Adjusted net income* was $26.0 million, or $1.11 per diluted share, a 21% increase versus $21.4 million, or $0.92 per diluted share, in the prior year.

 

 

 

Consolidated net sales were $508.0 million, an increase of 4% versus the prior year.  This increase was primarily attributable to 6% global volume growth.  The Company’s first quarter acquisition of BASF’s production facility in Mexico accounted for 2% and 4% of the quarterly increases in consolidated net sales and global volume growth, respectively.  Foreign currency translation negatively impacted net sales by 2% in the quarter.

 

 

 

Surfactant operating income was $31.2 million, reflecting record third quarter results, versus $22.6 million in the prior year.  The increase was primarily attributable to higher North American demand within the consumer and functional product end markets.  Global Surfactant sales volume increased 9% versus the prior year.

 

 

 

Polymer operating income was $17.4 million versus $21.1 million in the prior year. This decrease was mostly attributable to margin pressures and lower European volume.  Global Polymer sales volume was down 1% versus prior year.  Global rigid polyol volume growth of 4% mostly offset lower volumes in other end markets.  

 

 

 

Specialty Product operating income was up $1.7 million versus the prior year primarily due to order timing differences within our pharmaceutical and flavor businesses.

 

 

 

The Company’s net-debt ratio declined to 2%.  

 

 

 

The Company increased its quarterly cash dividend in the fourth quarter of 2018 by $.025 per share, or 11%, marking the 51st consecutive year that the Company has increased its cash dividend to stockholders.  

 

 

YTD Highlights

 

 

Reported net income was a record $85.8 million, or $3.68 per diluted share, up 5% versus $81.7 million, or $3.50 per diluted share, in the prior year.  Adjusted net income* was a record $90.1 million, or $3.86 per diluted share, a 7% increase versus $84.0 million, or $3.60 per diluted share, in the prior year.  Total Company sales volume increased 4% compared to the first nine months of 2017.

 

1


 

*

Adjusted net income is a non-GAAP measure which excludes Deferred Compensation income/ expense as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share.

 

 

“The Company delivered record results through the first nine months.  These results have been driven by record Surfactant earnings and a lower 2018 effective tax rate,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer.   “The quarterly and year-to-date Surfactant growth reflects higher sales volume, improved product mix and lower manufacturing costs.  During the third quarter the Company approved a plan to cease Surfactant production at our German plant to further reduce our fixed cost base, refocus Surfactant resources on higher margin end markets and allow for select assets to be repurposed to support future polyol growth.  The Polymer business remains down versus the prior year due to continued margin challenges and the lingering effects of the 2017 MDI shortage in Europe.  Global rigid polyol volumes were up 4% versus the prior year quarter.  Our Specialty Product business results were up for the quarter due to the partial catch up of order timing differences encountered in the first half of the year.”  

 

 

Financial Summary

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

($ in thousands, except per share data)

2018

 

 

2017

 

 

%

Change

 

 

2018

 

 

2017

 

 

%

Change

 

Net Sales

$

507,997

 

 

$

487,814

 

 

 

4

%

 

$

1,527,198

 

 

$

1,451,184

 

 

 

5

%

Operating Income

$

27,694

 

 

$

30,434

 

 

 

(9

)%

 

$

112,034

 

 

$

115,797

 

 

 

(3

)%

Net Income

$

22,168

 

 

$

21,899

 

 

 

1

%

 

$

85,816

 

 

$

81,694

 

 

 

5

%

Earnings per Diluted Share

$

0.95

 

 

$

0.94

 

 

 

1

%

 

$

3.68

 

 

$

3.50

 

 

 

5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income *

$

25,965

 

 

$

21,448

 

 

 

21

%

 

$

90,109

 

 

$

84,041

 

 

 

7

%

Adjusted Earnings per Diluted Share *

$

1.11

 

 

$

0.92

 

 

 

21

%

 

$

3.86

 

 

$

3.60

 

 

 

7

%

 

* See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share.

 

 

Summary of Third Quarter Adjusted Net Income Items

 

Adjusted net income excludes non-operational deferred compensation income/expense as well as certain other significant and infrequent or non-recurring items.

 

 

Deferred Compensation:  The current year third quarter reported net income includes $2.6 million of after-tax expense versus $0.8 million of after-tax income in the prior year.  

 

 

Business Restructuring:  The current year third quarter reported net income includes $1.0 million of after-tax asset and spare parts write-downs related to the third quarter shutdown of Surfactant operations at our German plant site and $0.2 million of after-tax decommissioning expense related to our prior year Canadian plant closure.  The $0.3 million after-tax expense in the prior period was due to Canadian plant closure decommissioning.    

 

 

 

2


 

 

Percentage Change in Net Sales

 

The 4% increase in quarterly net sales was primarily attributable to 6% sales volume growth partially offset by the negative impact of foreign currency translation.  

 

 

 

Three Months Ended

September 30, 2018

 

 

Nine Months Ended

September30, 2018

 

Volume

 

 

6

%

 

 

4

%

Selling Price

 

 

0

%

 

 

0

%

Foreign Translation

 

 

(2

)%

 

 

1

%

Total

 

 

4

%

 

 

5

%

 

 

Reported Segment Results

 

 

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

($ in thousands)

 

2018

 

 

2017

 

 

%

Change

 

 

2018

 

 

2017

 

 

%

Change

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surfactants

 

$

346,884

 

 

$

321,444

 

 

 

8

%

 

$

1,062,708

 

 

$

973,381

 

 

 

9

%

Polymers

 

$

141,646

 

 

$

147,754

 

 

 

(4

)%

 

$

404,446

 

 

$

415,551

 

 

 

(3

)%

Specialty Products

 

$

19,467

 

 

$

18,616

 

 

 

5

%

 

$

60,044

 

 

$

62,252

 

 

 

(4

)%

Total Net Sales

 

$

507,997

 

 

$

487,814

 

 

 

4

%

 

$

1,527,198

 

 

$

1,451,184

 

 

 

5

%

 

 

 

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

($ in thousands, all amounts pre-tax)

 

2018

 

 

2017

 

 

%

Change

 

 

2018

 

 

2017

 

 

%

Change

 

Operating Income *

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surfactants

 

$

31,201

 

 

$

22,559

 

 

 

38

%

 

$

105,670

 

 

$

92,080

 

 

 

15

%

Polymers

 

$

17,431

 

 

$

21,146

 

 

 

(18

)%

 

$

53,783

 

 

$

63,884

 

 

 

(16

)%

Specialty Products

 

$

2,653

 

 

$

990

 

 

 

168

%

 

$

6,543

 

 

$

7,711

 

 

 

(15

)%

Segment Operating

   Income

 

$

51,285

 

 

$

44,695

 

 

 

15

%

 

$

165,996

 

 

$

163,675

 

 

 

1

%

Corporate Expenses

 

$

(23,591

)

 

$

(14,261

)

 

 

(65

)%

 

$

(53,962

)

 

$

(47,878

)

 

 

(13

)%

Consolidated Operating

   Income

 

$

27,694

 

 

$

30,434

 

 

 

(9

)%

 

$

112,034

 

 

$

115,797

 

 

 

(3

)%

 

* The 2017 operating income line items have been immaterially changed from the amounts originally reported as a result of the Company’s first quarter 2018 adoption of ASU No. 2017-07 Compensation-Retirement Benefits (Topic 715).

 

Total segment operating income increased $6.6 million, or 15%, versus the prior year quarter. Total segment operating income for the first nine months of 2018 increased $2.3 million, or 1%, versus the prior year.

 

Surfactant net sales were $346.9 million for the quarter, an 8% increase versus the prior year.  Sales volume increased 9% in total and 4% excluding the first quarter acquisition in Mexico.  The organic growth was mostly due to higher North American consumer product and oilfield volumes.  Higher North American agricultural volumes and higher sales to the Company’s distribution partners also contributed to this increase.  The translation impact of a stronger U.S. dollar decreased net sales by 3%.  Selling prices increased 2% versus the prior year quarter.  Surfactant

3


operating income increased $8.6 million, or 38% versus the prior year, primarily due to higher volumes, a more favorable product mix and improved internal efficiencies.    

 

Polymer net sales were $141.6 million for the quarter, down 4% versus the prior year.  Total sales volume declined 1% despite a 4% increase in global rigid polyol volumes.  The lower total sales volume was principally due to lower phthalic anhydride volumes.  The translation impact of a stronger U.S. dollar negatively impacted net sales by 1% while selling prices declined by 2%.  Polymer operating income decreased by $3.7 million versus the prior year quarter mostly due to lower margins.  

 

 

Specialty Product net sales were $19.5 million for the quarter, a 5% increase versus the prior year. Operating income increased $1.7 million versus the prior year quarter primarily due to favorable order timing differences within our pharmaceutical and flavor businesses which compensated for some of the first half shortfall.

 

 

Corporate Expenses

 

 

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

($ in thousands)

 

2018

 

 

2017

 

 

%

Change

 

 

2018

 

 

2017

 

 

%

Change

 

Total  -  Corporate Expenses

 

$

23,591

 

 

$

14,261

 

 

 

65

%

 

$

53,962

 

 

$

47,878

 

 

 

13

%

Deferred Compensation Expense/(Income) *

 

$

4,222

 

 

$

(129

)

 

NM

 

 

$

4,971

 

 

$

5,263

 

 

 

(6

)%

Business Restructuring Expense

 

$

1,715

 

 

$

426

 

 

 

303

%

 

$

2,346

 

 

$

1,798

 

 

 

30

%

Adjusted Corporate Expense

 

$

17,654

 

 

$

13,964

 

 

 

26

%

 

$

46,645

 

 

$

40,817

 

 

 

14

%

 

* See Table III for a discussion of deferred compensation plan accounting.

    

Corporate expenses, excluding deferred compensation and business restructuring expenses, increased $3.7 million, or 26% for the quarter.  The quarterly increase was primarily due to previously disclosed employee separation costs, higher salaries and higher incentive-based compensation expense.  

 

Income Taxes

 

The effective tax rate was 18.6% for the first nine months of 2018 versus 26.2% for the first nine months of 2017.  This decrease was primarily attributable to a lower U.S. statutory tax rate of 21% in the first nine months of 2018 versus 35% in the first nine months of 2017.  The Company expects its full year effective tax rate to be in the range of 19% to 22%.

 

Shareholder Return

 

The Company paid $5.1 million of dividends to shareholders in the third quarter.  For the first nine months of 2018 the Company has paid $15.2 million of dividends and repurchased $13.5 million of Company stock.  The Company has 520,275 shares remaining under its Board of Directors’ share repurchase authorization plan.  With the increased cash dividend in the fourth quarter of 2018, the Company has increased its dividend on the Company’s common stock for the 51st consecutive year.

4


 

 

Selected Balance Sheet Information

 

The Company’s net debt level decreased $17.9 million for the quarter while the net debt ratio dropped from 4% to 2%, mainly attributable to a $17.3 million increase in cash.      

 

($ in millions)

 

9/30/18

 

 

6/30/18

 

 

3/31/18

 

 

12/31/17

 

Net Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Debt

 

$

286.2

 

 

$

286.8

 

 

$

290.8

 

 

$

290.8

 

Cash

 

 

274.0

 

 

 

256.7

 

 

 

244.6

 

 

 

298.9

 

Net Debt

 

$

12.2

 

 

$

30.1

 

 

$

46.2

 

 

$

(8.1

)

Equity

 

 

777.7

 

 

 

761.2

 

 

 

774.6

 

 

 

740.1

 

Net Debt + Equity

 

$

789.9

 

 

$

791.3

 

 

$

820.8

 

 

$

732.0

 

Net Debt / (Net Debt + Equity)

 

 

2

%

 

 

4

%

 

 

6

%

 

 

-1

%

 

 

The major working capital components were:

 

($ in millions)

 

9/30/18

 

 

6/30/18

 

 

3/31/18

 

 

12/31/17

 

Net Receivables

 

$

323.1

 

 

$

312.2

 

 

$

325.3

 

 

$

293.5

 

Inventories

 

 

195.2

 

 

 

188.5

 

 

 

187.7

 

 

 

172.7

 

Accounts Payable

 

 

(209.3

)

 

 

(201.3

)

 

 

(202.4

)

 

 

(205.0

)

 

 

$

309.0

 

 

$

299.4

 

 

$

310.6

 

 

$

261.2

 

 

Capital spending was $19.2 million during the quarter and $62.9 million during the first nine months of 2018.  This compares to $19.6 million and $57.9 million in the prior year quarter and first nine months, respectively.  For the full year, capital expenditures are expected to be between $90 million and $100 million.

 

Outlook

 

“Reported net income for the first nine months of 2018 is up 5% and adjusted net income is up 7%, both reflecting record earnings.  We remain optimistic that the Company will deliver full year growth,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer.  “We believe our Surfactant business will continue to benefit from our diversification efforts into functional products, new technologies, improved internal efficiencies and expanded sales into our broad customer base globally.  Although margins will continue to challenge us in our North American Polymer business we believe we will continue to benefit from the growing global market for insulation materials.  We believe full year Specialty Product results should improve over 2017.”

 

 

Conference Call

 

Stepan Company will host a conference call to discuss the third quarter results at 10:00 a.m. ET (9:00 a.m. CT) on October 24, 2018. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (866) 394-0807, and the webcast can be accessed through the Investor Relations/Conference Calls page at www.stepan.com. A webcast replay of the conference call will be available at the same location shortly after the call.

 

5


Supporting Slides

 

Slides supporting this press release will be made available at www.stepan.com at the Investor Relations page at approximately the same time as this press release is issued.

 

Corporate Profile

 

Stepan Company is a major manufacturer of specialty and intermediate chemicals used in a broad range of industries.  Stepan is a leading merchant producer of surfactants, which are the key ingredients in consumer and industrial cleaning compounds and in agricultural and oilfield solutions.  The Company is also a leading supplier of polyurethane polyols used in the expanding thermal insulation market, and CASE (Coatings, Adhesives, Sealants, and Elastomers) industries.

 

Headquartered in Northfield, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia.

 

The Company’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol SCL.  For more information about Stepan Company please visit the Company online at www.stepan.com

 

 

Contact: Luis E. Rojo                              (847) 446-7500

 

* * * * *

 

Tables follow

 

Certain information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about Stepan Company’s plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, Stepan Company’s actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “guidance,” “predict,” “potential,” “continue,” “likely,” “will,” “would,” ”should,” “illustrative” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by Stepan Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond Stepan Company’s control, that could cause actual results to differ materially from the forward-looking statements contained in this news release. Such risks, uncertainties and other important factors include, among other factors, the risks, uncertainties and factors described in Stepan Company’s Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to) risks and uncertainties related to disruptions in production or accidents at manufacturing facilities, global competition, volatility of raw material and energy costs, disruptions in transportation or significant changes in transportation costs, reduced demand due to customer product reformulations or new technologies, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, maintaining and protecting intellectual property rights, international business risks, including currency exchange rate fluctuations, legal restrictions and taxes, the impact of changes in the tax code as a result of recent federal tax legislation and uncertainty as to how some of those changes may be applied, our ability to estimate and maintain appropriate levels of recorded liabilities, our debt covenants, our ability to access capital markets, downturns in certain industries and general economic downturns, global political, military, security or other instability, costs related to expansion or other capital projects,

6


interruption or breaches of information technology systems, the costs and other effects of governmental regulation and legal and administrative proceedings and our ability to retain executive management and key personnel.

These forward-looking statements are made only as of the date hereof, and Stepan Company undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7


 

Table I

STEPAN COMPANY

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited – in thousands, except per share data)

 

 

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net Sales

 

$

507,997

 

 

$

487,814

 

 

$

1,527,198

 

 

$

1,451,184

 

Cost of Sales *

 

 

423,872

 

 

 

412,238

 

 

 

1,264,223

 

 

 

1,193,501

 

Gross Profit *

 

 

84,125

 

 

 

75,576

 

 

 

262,975

 

 

 

257,683

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling *

 

 

14,613

 

 

 

13,710

 

 

 

42,872

 

 

 

40,396

 

Administrative  *

 

 

21,904

 

 

 

18,480

 

 

 

59,441

 

 

 

54,141

 

Research, Development and Technical Services *

 

 

13,977

 

 

 

12,655

 

 

 

41,311

 

 

 

40,288

 

Deferred Compensation (Income) Expense

 

 

4,222

 

 

 

(129

)

 

 

4,971

 

 

 

5,263

 

 

 

 

54,716

 

 

 

44,716

 

 

 

148,595

 

 

 

140,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Restructuring

 

 

1,715

 

 

 

426

 

 

 

2,346

 

 

 

1,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income *

 

 

27,694

 

 

 

30,434

 

 

 

112,034

 

 

 

115,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest, Net

 

 

(2,797

)

 

 

(2,763

)

 

 

(8,620

)

 

 

(8,618

)

Other, Net *

 

 

346

 

 

 

1,641

 

 

 

1,990

 

 

 

3,526

 

 

 

 

(2,451

)

 

 

(1,122

)

 

 

(6,630

)

 

 

(5,092

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

 

25,243

 

 

 

29,312

 

 

 

105,404

 

 

 

110,705

 

Provision for Income Taxes

 

 

3,075

 

 

 

7,459

 

 

 

19,597

 

 

 

29,044

 

Net Income

 

 

22,168

 

 

 

21,853

 

 

 

85,807

 

 

 

81,661

 

Net Income (Income) Loss Attributable to Noncontrolling Interests

 

 

-

 

 

 

46

 

 

 

9

 

 

 

33

 

Net Income Attributable to Stepan Company

 

$

22,168

 

 

$

21,899

 

 

$

85,816

 

 

$

81,694

 

Net Income Per Common Share Attributable to Stepan Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.96

 

 

$

0.95

 

 

$

3.73

 

 

$

3.56

 

Diluted

 

$

0.95

 

 

$

0.94

 

 

$

3.68

 

 

$

3.50

 

Shares Used to Compute Net Income Per Common

Share Attributable to Stepan Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,986

 

 

 

22,971

 

 

 

23,036

 

 

 

22,941

 

Diluted

 

 

23,288

 

 

 

23,374

 

 

 

23,324

 

 

 

23,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* The 2017 amounts for the noted line items have been immaterially changed from the amounts originally reported as a result of the Company’s first quarter 2018 adoption of ASU No. 2017-07 Compensation – Retirement Benefits (Topic 715).  The changes reflect line item reclassifications only and have no impact on pre-tax income or net income.

8


 

 

Table II

 

 

Reconciliation of Non-GAAP Net Income and Earnings per Diluted Share *

 

 

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

($ in thousands, except per share amounts)

 

2018

 

 

EPS

 

 

2017

 

 

EPS

 

 

2018

 

 

EPS

 

 

2017

 

 

EPS

 

Net Income Reported

 

$

22,168

 

 

$

0.95

 

 

$

21,899

 

 

$

0.94

 

 

$

85,816

 

 

$

3.68

 

 

$

81,694

 

 

$

3.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Compensation (Income) Expense

 

$

2,610

 

 

$

0.11

 

 

$

(771

)

 

$

(0.03

)

 

$

2,633

 

 

$

0.11

 

 

$

965

 

 

$

0.04

 

Business Restructuring

 

 

1,187

 

 

$

0.05

 

 

 

320

 

 

$

0.01

 

 

 

1,660

 

 

$

0.07

 

 

$

1,382

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income

 

$

25,965

 

 

$

1.11

 

 

$

21,448

 

 

$

0.92

 

 

$

90,109

 

 

$

3.86

 

 

$

84,041

 

 

$

3.60

 

 

* All amounts in this table are presented after-tax

 

The Company believes that certain measures that are not in accordance with generally accepted accounting principles (GAAP), when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company’s operating performance and provide better clarity on the impact of non-operational items.  Internally, the Company uses this non-GAAP information as an indicator of business performance, and evaluates management’s effectiveness with specific reference to these indicators.  These measures should be considered in addition to, neither a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.

 

Reconciliation of Pre-Tax to After-Tax Adjustments

 

 

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

($ in thousands, except per share amounts)

 

2018

 

 

EPS

 

 

2017

 

 

EPS

 

 

2018

 

 

EPS

 

 

2017

 

 

EPS

 

Pre-Tax Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Compensation (Income) Expense

 

$

3,434

 

 

 

 

 

 

$

(1,244

)

 

 

 

 

 

$

3,465

 

 

 

 

 

 

$

1,557

 

 

 

 

 

Business Restructuring

 

 

1,715

 

 

 

 

 

 

 

426

 

 

 

 

 

 

$

2,346

 

 

 

 

 

 

$

1,798

 

 

 

 

 

   Total Pre-Tax Adjustments

 

$

5,149

 

 

 

 

 

 

$

(818

)

 

 

 

 

 

$

5,811

 

 

 

 

 

 

$

3,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Tax Effect on Adjustments

 

$

(1,352

)

 

 

 

 

 

$

367

 

 

 

 

 

 

$

(1,518

)

 

 

 

 

 

$

(1,008

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After-Tax Adjustments

 

$

3,797

 

 

$

0.16

 

 

$

(451

)

 

$

(0.02

)

 

$

4,293

 

 

$

0.18

 

 

$

2,347

 

 

$

0.10

 

 

 

 

 

 

 

 

 

9


 

Table III

 

 

 

Deferred Compensation Plan

 

 

The full effect of the deferred compensation plan on quarterly pretax income was $3.4 million of expense versus $1.2 million of income in the prior year. The year to date impact was $3.5 million of expense versus $1.6 million of expense in the prior year. The accounting for the deferred compensation plan results in operating income when the price of Stepan Company common stock or mutual funds held in the plan fall and expense when they rise.  The Company also recognizes the change in value of mutual funds as investment income or loss.  The quarter end market prices of Stepan Company common stock are as follows:

 

 

2018

 

 

2017

 

 

 

12/31

 

9/30

 

 

6/30

 

 

3/31

 

 

12/31

 

 

9/30

 

 

6/30

 

 

3/31

 

Stepan Company

 

N/A

 

$

87.01

 

 

$

78.01

 

 

$

83.18

 

 

$

78.97

 

 

$

83.66

 

 

$

87.14

 

 

$

78.81

 

 

 

The deferred compensation income statement impact is summarized below:

 

 

Three Months Ended

September 30

 

 

Nine Months Ended

September 30

 

($ in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Deferred Compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Expense)

 

$

(4,222

)

 

$

129

 

 

$

(4,971

)

 

$

(5,263

)

Other, net – Mutual Fund Gain

 

 

788

 

 

 

1,115

 

 

 

1,506

 

 

 

3,706

 

Total Pre Tax

 

$

(3,434

)

 

$

1,244

 

 

$

(3,465

)

 

$

(1,557

)

Total After Tax

 

$

(2,610

)

 

$

771

 

 

$

(2,633

)

 

$

(965

)

 

 

 

 


10


 

 

Table IV

 

 

Effects of Foreign Currency Translation

 

The Company’s foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign currency exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects period-to-period comparisons of financial statement items (i.e., because foreign exchange rates fluctuate, similar period-to-period local currency results for a foreign subsidiary may translate into different U.S. dollar results).  The table below presents the impact that foreign currency translation had on the changes in consolidated net sales and various income line items for the three and nine month periods ending September 30, 2018 as compared to 2017:

 

($ in millions)

 

Three Months Ended

September 30

 

 

Increase (Decrease)

 

 

Decrease

Due to Foreign

Currency

Translation

 

 

Nine Months Ended

September 30

 

 

Increase

(Decrease)

 

 

Increase

Due to Foreign

Currency

Translation

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

Net Sales

 

$

508.0

 

 

$

487.8

 

 

$

20.2

 

 

$

(10.7

)

 

$

1,527.2

 

 

$

1,451.2

 

 

$

76.0

 

 

$

11.4

 

Gross Profit

 

 

84.1

 

 

 

75.6

 

 

 

8.5

 

 

 

(1.7

)

 

 

263.0

 

 

 

257.7

 

 

 

5.3

 

 

 

0.8

 

Operating Income

 

 

27.7

 

 

 

30.4

 

 

 

(2.7

)

 

 

(1.1

)

 

 

112.0

 

 

 

115.8

 

 

 

(3.8

)

 

 

0.2

 

Pretax Income

 

 

25.2

 

 

 

29.3

 

 

 

(4.1

)

 

 

(0.9

)

 

 

105.4

 

 

 

110.7

 

 

 

(5.3

)

 

 

0.5

 

 

 

 

 


11


 

 

Table V

 

 

Stepan Company

Consolidated Balance Sheets

September 30, 2018 and December 31, 2017

 

 

Sept. 30, 2018

 

 

Dec. 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

$

815,032

 

 

$

788,736

 

Property, Plant & Equipment, Net

 

 

598,715

 

 

 

598,443

 

Other Assets

 

 

78,484

 

 

 

83,682

 

Total Assets

 

$

1,492,231

 

 

$

1,470,861

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

$

326,883

 

 

$

320,253

 

Deferred Income Taxes

 

 

18,798

 

 

 

10,962

 

Long-term Debt

 

 

262,551

 

 

 

268,299

 

Other Non-current Liabilities

 

 

105,585

 

 

 

130,433

 

Total Stepan Company Stockholders’ Equity

 

 

777,651

 

 

 

740,096

 

Noncontrolling Interest

 

 

763

 

 

 

818

 

Total Liabilities and Stockholders’ Equity

 

$

1,492,231

 

 

$

1,470,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12